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 ~~September~~June 30, ~~2017~~2018



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 ~~October 30, 2017,~~August 2, 2018, there were ~~178,232,213~~178,283,590 shares of the registrant’s $0.01 par value Common Stock outstanding.

SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES

Index

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, tenants, 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:

~~changes in healthcare regulation and political or economic conditions;~~

~~the anticipated benefits of our merger with Care Capital Properties, Inc. (“CCP”) may not be realized;~~

~~the anticipated and unanticipated costs, fees, expenses and liabilities related to our merger with CCP;~~

our dependence on the operating success of our tenants;

operational risks with respect to our Senior Housing - Managed communities (as defined below);

the effect of our tenants declaring bankruptcy or becoming insolvent;

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

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

our ability to implement the previously announced rent repositioning program for certain of our tenants who were legacy tenants of ~~CCP~~Care Capital Properties, Inc. (“CCP”) on the timing or terms we have previously disclosed;

our ability to dispose of facilities currently leased to Genesis Healthcare, Inc. (“Genesis”) on the timing or terms we have previously disclosed;

the possibility that Sabra may not acquire the remaining majority interest in the Enlivant Joint Venture (as defined below);

risks associated with our investments in joint ventures;

changes in healthcare regulation and political or economic conditions;

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

competitive conditions in our industry;

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

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

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

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;~~changes in foreign currency exchange rates;

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 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;~~

the possibility that the conditions to closing the acquisition of a 49% equity interest in the Enlivant Joint Ventures (as defined below) may not be satisfied, such that the transaction will not close or that the closing may be delayed;

~~the possibility that Sabra may not acquire the remaining majority interest in the Enlivant Joint Ventures;~~

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

changes in tax laws and regulations affecting ~~REITs;~~REITs (including the potential effects of the Tax Cuts and Jobs Act);

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

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

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~~2017 (our ~~“2016~~“2017 Annual Report on Form 10-K”) ~~and in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017,~~, 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.

PART I. FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(unaudited)						(unaudited)
Assets
Real estate investments, net of accumulated depreciation of $336,689 and $282,812 as of September 30, 2017 and December 31, 2016, respectively	$	5,972,785		$	2,009,939
Real estate investments, net of accumulated depreciation of $377,159 and $340,423 as of June 30, 2018 and December 31, 2017, respectively							$	5,993,682		$	5,994,432
Loans receivable and other investments, net	149,766			96,036			107,228			114,390
Investment in unconsolidated joint venture							348,950			—
Cash and cash equivalents	30,873			25,663			38,809			518,632
Restricted cash	12,489			9,002			186,845			68,817
Lease intangible assets, net	262,817			26,250			156,266			167,119
Accounts receivable, prepaid expenses and other assets, net	159,577			99,029			196,364			168,887
Total assets	$	6,588,307		$	2,265,919		$	7,028,144		$	7,032,277

Liabilities
Secured debt, net	$	257,571		$	160,752		$	253,567		$	256,430
Revolving credit facility	251,000			26,000			676,000			641,000
Term loans, net	1,190,887			335,673			1,187,398			1,190,774
Senior unsecured notes, net	1,305,996			688,246			1,306,842			1,306,286
Accounts payable and accrued liabilities	116,146			39,639			105,339			102,523
Lease intangible liabilities, net	94,878			—			91,073			98,015
Total liabilities	3,216,478			1,250,310			3,620,219			3,595,028

Commitments and contingencies (Note 14)
Commitments and contingencies (Note 13)

Equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, 5,750,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016	58			58
Common stock, $.01 par value; 250,000,000 shares authorized, 175,832,213 and 65,285,614 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	1,758			653
Preferred stock, $.01 par value; 10,000,000 shares authorized, 5,750,000 shares issued and outstanding as of December 31, 2017							—			58
Common stock, $.01 par value; 250,000,000 shares authorized, 178,283,590 and 178,255,843 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively							1,783			1,783
Additional paid-in capital	3,588,510			1,208,862			3,502,954			3,636,913
Cumulative distributions in excess of net income	(225,459		)	(192,201		)	(125,606		)	(217,236		)
Accumulated other comprehensive income (loss)	4,236			(1,798		)
Accumulated other comprehensive income							24,412			11,289
Total Sabra Health Care REIT, Inc. stockholders’ equity	3,369,103			1,015,574			3,403,543			3,432,807
Noncontrolling interests	2,726			35			4,382			4,442
Total equity	3,371,829			1,015,609			3,407,925			3,437,249
Total liabilities and equity	$	6,588,307		$	2,265,919		$	7,028,144		$	7,032,277

See accompanying notes to condensed consolidated financial statements.

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Rental income	$	100,145		$	56,833		$	213,273		$	167,442		$	144,229		$	55,904		$	288,484		$	113,128
Interest and other income	4,090			3,157			8,062			25,482			4,553			2,027			8,891			3,972
Resident fees and services	7,554			1,937			17,840			5,811			17,530			6,805			35,023			10,286

Total revenues	111,789			61,927			239,175			198,735			166,312			64,736			332,398			127,386

Expenses:
Depreciation and amortization	25,933			17,102			62,290			51,273			46,828			17,220			94,833			36,357
Interest	24,568			15,794			56,218			49,139			36,757			15,862			72,575			31,650
Operating expenses	5,102			1,404			11,929			4,256			12,299			4,407			24,423			6,827
General and administrative	12,944			4,966			24,159			13,513			9,271			5,126			17,138			11,215
Merger and acquisition costs	23,299			1,051			29,750			1,222			112			5,887			442			6,451
Provision for doubtful accounts and loan losses	5,149			540			7,454			3,286
(Recovery of) provision for doubtful accounts and loan losses													(674		)	535			539			2,305
Impairment of real estate	—			—			—			29,811			881			—			1,413			—

Total expenses	96,995			40,857			191,800			152,500			105,474			49,037			211,363			94,805

Other income (expense):
Loss on extinguishment of debt	(553		)	—			(553		)	(556		)
Other income:
Other income	51			2,945			3,121			5,345			—			941			2,820			3,070
Net gain (loss) on sale of real estate	582			1,451			4,614			(3,203		)
Net gain on sales of real estate													142,903			4,032			142,431			4,032

Total other income (expense)	80			4,396			7,182			1,586
Total other income													142,903			4,973			145,251			7,102

Income before income tax expense	14,874			25,466			54,557			47,821
Income before loss from unconsolidated joint venture and income tax expense													203,741			20,672			266,286			39,683

Income tax benefit (expense)	195			(154		)	(161		)	(786		)
Loss from unconsolidated joint venture													(2,347		)	—			(1,901		)	—
Income tax expense													(605		)	(136		)	(1,115		)	(356		)

Net income	15,069			25,312			54,396			47,035			200,789			20,536			263,270			39,327

Net loss attributable to noncontrolling interests	26			25			42			66
Net (income) loss attributable to noncontrolling interests													(2		)	(16		)	(12		)	16

Net income attributable to Sabra Health Care REIT, Inc.	15,095			25,337			54,438			47,101			200,787			20,520			263,258			39,343

Preferred stock dividends	(2,561		)	(2,561		)	(7,682		)	(7,682		)	(7,207		)	(2,560		)	(9,768		)	(5,121		)

Net income attributable to common stockholders	$	12,534		$	22,776		$	46,756		$	39,419		$	193,580		$	17,960		$	253,490		$	34,222

Net income attributable to common stockholders, per:

Basic common share	$	0.11		$	0.35		$	0.58		$	0.60		$	1.09		$	0.27		$	1.42		$	0.52

Diluted common share	$	0.11		$	0.35		$	0.57		$	0.60		$	1.08		$	0.27		$	1.42		$	0.52

Weighted-average number of common shares outstanding, basic	112,149,638			65,312,288			81,150,846			65,285,591			178,314,750			65,438,739			178,304,733			65,396,146

Weighted-average number of common shares outstanding, diluted	112,418,100			65,591,428			81,429,044			65,470,589			178,684,024			65,670,853			178,600,789			65,694,019

Dividends declared per common share	$	0.36		$	0.42		$	1.21		$	1.25		$	0.45		$	0.43		$	0.90		$	0.85

See accompanying notes to condensed consolidated financial statements.

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2017		2016			2017		2016			2018			2017			2018			2017

Net income	$	15,069	$	25,312		$	54,396	$	47,035		$	200,789		$	20,536		$	263,270		$	39,327
Other comprehensive income (loss):
Unrealized gain (loss), net of tax:
Foreign currency translation gain (loss)	412		(500		)	552		(749		)	261			698			(113		)	140
Unrealized gain (loss) on cash flow hedges ⁽¹⁾	4,657		398			5,482		(1,300		)
Unrealized gain on cash flow hedges											3,338			97			13,236			825

Total other comprehensive income (loss)	5,069		(102		)	6,034		(2,049		)
Total other comprehensive income											3,599			795			13,123			965

Comprehensive income	20,138		25,210			60,430		44,986			204,388			21,331			276,393			40,292

Comprehensive loss attributable to noncontrolling interest	26		25			42		66
Comprehensive (income) loss attributable to noncontrolling interest											(2		)	(16		)	(12		)	16

Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	20,164	$	25,235		$	60,472	$	45,052		$	204,386		$	21,315		$	276,381		$	40,308


⁽¹⁾	Amounts are net of provision for income taxes of $0.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively, and none for the three and nine months ended September 30, 2016.

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
Balance, December 31, 2015	5,750,000	$	58	65,182,335		$	652	Additional Paid-in Capital			$	Cumulative Distributions in Excess of Net Income	1,202,541		Accumulated Other Comprehensive Loss			$	Total Stockholders’ Equity			(142,148	Noncontrolling Interests			)	Total Equity				$	(7,333	)		$	1,053,770		$	106			$	1,053,876
Net income (loss)	—	—		—		—		—				47,101			—				47,101				(66		)		47,035
Other comprehensive loss	—	—		—		—		—				—			(2,049		)		(2,049		)		—				(2,049		)
Amortization of stock-based compensation	—	—		—		—		6,775				—			—				6,775				—				6,775
Common stock issuance, net	—	—		108,731		1		(1,104		)		—			—				(1,103		)		—				(1,103		)
Repurchase of common stock	—	—		(31,230	)	—		(725		)		—			—				(725		)		—				(725		)
Preferred dividends	—	—		—		—		—				(7,682		)	—				(7,682		)		—				(7,682		)
Common dividends ($1.25 per share)	—	—		—		—		—				(82,240		)	—				(82,240		)		—				(82,240		)
Balance, September 30, 2016	5,750,000	$	58	65,259,836		$	653	$	1,207,487			$	(184,969	)	$	(9,382	)		$	1,013,847			$	40			$	1,013,887


	Preferred Stock			Common Stock				Additional Paid-in Capital				Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity				Preferred Stock						Common Stock							Additional Paid-in Capital				Cumulative Distributions in Excess of Net Income				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
	Shares	Amount		Shares		Amounts									Accumulated Other Comprehensive Income (Loss)			Shares					Noncontrolling Interests			Amounts					Shares			Amounts										Additional Paid-in Capital				Cumulative Distributions in Excess of Net Income				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
Balance, December 31, 2016	5,750,000	$	58	65,285,614		$	653	Additional Paid-in Capital			$	Cumulative Distributions in Excess of Net Income	1,208,862		$	(192,201	)		Total Stockholders’ Equity	$	(1,798	)		$	1,015,574		Total Equity			$	35			$	1,015,609		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)	—	—		—		—		—				54,438			—				54,438				(42		)		54,396				—			—			—			—				—				39,343				—				39,343				(16		)		39,327
Other comprehensive income	—	—		—		—		—				—			6,034				6,034				—				6,034				—			—			—			—				—				—				965				965				—				965
Change in noncontrolling interests	—	—		—		—		—				—			—				—				2,733				2,733
Amortization of stock-based compensation	—	—		—		—		8,768				—			—				8,768				—				8,768				—			—			—			—				4,848				—				—				4,848				—				4,848
Common stock issuance, net	—	—		110,546,599		1,105		2,370,880				—			—				2,371,985				—				2,371,985				—			—			139,820			1				(2,815		)		—				—				(2,814		)		—				(2,814		)
Preferred dividends	—	—		—		—		—				(7,682		)	—				(7,682		)		—				(7,682		)		—			—			—			—				—				(5,121		)		—				(5,121		)		—				(5,121		)
Common dividends ($1.21 per share)	—	—		—		—		—				(80,014		)	—				(80,014		)		—				(80,014		)
Balance, September 30, 2017	5,750,000	$	58	175,832,213		$	1,758	$	3,588,510			$	(225,459	)	$	4,236			$	3,369,103			$	2,726			$	3,371,829
Common dividends ($0.85 per share)																															—			—			—			—				—				(56,099		)		—				(56,099		)		—				(56,099		)
Balance, June 30, 2017																															5,750,000			$	58		65,425,434			$	654			$	1,210,895			$	(214,078	)		$	(833	)		$	996,696			$	19			$	996,715


																															Preferred Stock						Common Stock							Additional Paid-in Capital				Cumulative Distributions in Excess of Net Income				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
																															Shares			Amount			Shares			Amounts												Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
Balance, December 31, 2017																															5,750,000			$	58		178,255,843			$	1,783			Additional Paid-in Capital			$	Cumulative Distributions in Excess of Net Income	3,636,913			$	(217,236	)		$	11,289			$	3,432,807			$	4,442			$	3,437,249
Cumulative effect of ASU 2017-12 adoption																															—			—			—			—				—				(795		)		795				—				—				—
Net income																															—			—			—			—				—				263,258				—				263,258				12				263,270
Other comprehensive income																															—			—			—			—				—				—				12,328				12,328				—				12,328
Distributions to noncontrolling interests																															—			—			—			—				—				—				—				—				(72		)		(72		)
Amortization of stock-based compensation																															—			—			—			—				4,434				—				—				4,434				—				4,434
Preferred stock redemption																															(5,750,000	)		(58		)	—			—				(138,191		)		(5,501		)		—				(143,750		)		—				(143,750		)
Common stock issuance, net																															—			—			27,747			—				(202		)		—				—				(202		)		—				(202		)
Preferred dividends																															—			—			—			—				—				(4,267		)		—				(4,267		)		—				(4,267		)
Common dividends ($0.90 per share)																															—			—			—			—				—				(161,065		)		—				(161,065		)		—				(161,065		)
Balance, June 30, 2018																															—			$	—		178,283,590			$	1,783			$	3,502,954			$	(125,606	)		$	24,412			$	3,403,543			$	4,382			$	3,407,925

See accompanying notes to condensed consolidated financial statements.

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	54,396		$	47,035		$	263,270		$	39,327
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	62,290			51,273			94,833			36,357
Amortization of above and below market lease intangibles, net	637			—			(1,368		)	—
Non-cash interest income adjustments	(137		)	549			(1,174		)	51
Amortization of deferred financing costs	4,132			3,767
Non-cash interest expense							4,997			3,244
Stock-based compensation expense	8,329			6,137			3,839			4,319
Amortization of debt premium/discount	(99		)	81
Loss on extinguishment of debt	553			556
Straight-line rental income adjustments	(18,260		)	(16,710		)	(23,752		)	(9,578		)
Provision for doubtful accounts and loan losses	7,454			3,286			539			2,305
Change in fair value of contingent consideration	(552		)	50			—			(822		)
Net (gain) loss on sales of real estate	(4,614		)	3,203
Net gain on sales of real estate							(142,431		)	(4,032		)
Impairment of real estate	—			29,811			1,413			—
Loss from unconsolidated joint venture							1,901			—
Distributions of earnings from unconsolidated joint venture							3,610			—
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other assets	(5,752		)	1,381
Accounts receivable, prepaid expenses and other assets, net							(2,130		)	(15,575		)
Accounts payable and accrued liabilities	(53,570		)	6,217			8,006			(1,314		)
Restricted cash	(5,036		)	(2,820		)

Net cash provided by operating activities	49,771			133,816			211,553			54,282
Cash flows from investing activities:
Acquisition of real estate	(393,064		)	(109,619		)	(213,982		)	(14,456		)
Cash received in CCP Merger	77,858			—
Origination and fundings of loans receivable	(5,642		)	(9,478		)	(28,157		)	(927		)
Origination and fundings of preferred equity investments	(2,713		)	(6,845		)	(945		)	(76		)
Additions to real estate	(3,233		)	(901		)	(16,817		)	(1,294		)
Repayment of loans receivable	8,710			214,947
Repayments of loans receivable							38,887			1,547
Repayments of preferred equity investments	3,239			—			375			2,766
Investment in unconsolidated joint venture							(354,461		)	—
Net proceeds from the sales of real estate	11,723			85,449			278,201			6,099

Net cash (used in) provided by investing activities	(303,122		)	173,553
Net cash used in investing activities							(296,899		)	(6,341		)
Cash flows from financing activities:
Net repayments of revolving credit facility	(137,000		)	(255,000		)
Proceeds from term loans	181,000			69,360
Net borrowings from revolving credit facility							35,000			6,000
Principal payments on secured debt	(3,094		)	(13,756		)	(2,128		)	(2,049		)
Payments of deferred financing costs	(15,316		)	(5,933		)	(12		)	(124		)
Distributions to noncontrolling interests							(72		)	—
Preferred stock redemption							(143,750		)	—
Issuance of common stock, net	319,026			(1,289		)	(499		)	(3,224		)
Dividends paid on common and preferred stock	(86,813		)	(89,283		)	(164,736		)	(60,691		)

Net cash provided by (used in) financing activities	257,803			(295,901		)
Net cash used in financing activities							(276,197		)	(60,088		)

Net increase in cash and cash equivalents	4,452			11,468
Effect of foreign currency translation on cash and cash equivalents	758			772
Cash and cash equivalents, beginning of period	25,663			7,434
Net decrease in cash, cash equivalents and restricted cash							(361,543		)	(12,147		)
Effect of foreign currency translation on cash, cash equivalents and restricted cash							(252		)	130
Cash, cash equivalents and restricted cash, beginning of period							587,449			34,665

Cash and cash equivalents, end of period	$	30,873		$	19,674
Cash, cash equivalents and restricted cash, end of period							$	225,654		$	22,648
Supplemental disclosure of cash flow information:
Interest paid	$	48,836		$	49,009		$	67,793		$	28,944
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of business in CCP Merger (see Note 3)	$	3,726,093		$	—
Assumption of indebtedness in CCP Merger	$	(1,751,373	)	$	—
Stock exchanged in CCP Merger	$	(2,052,578	)	$	—
Real estate acquired through loan receivable foreclosure	$	—		$	10,100

See accompanying notes to condensed consolidated financial statements.

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”).~~Sun. 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~~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~~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 communities and specialty hospitals and other facilities, in each case leased to third-party operators; senior housing communities operated by third-party property managers pursuant to property management agreements (“Senior Housing - Managed”); investments in loans receivable; ~~and~~ preferred equity ~~investments.~~investments; and an investment in an unconsolidated joint venture.

On May 7, 2017, the Company, the Operating Partnership, PR Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), Care Capital Properties, Inc., a Delaware corporation (“CCP”), and Care Capital Properties, L.P. (“CCPLP”), a Delaware limited partnership and ~~wholly-owned~~wholly owned subsidiary of CCP, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on August 17, 2017, CCP merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “CCP Merger”), following which Merger Sub merged with and into the Company, with the Company continuing as the surviving entity (the “Subsequent Merger”), and, simultaneous with the Subsequent Merger, CCPLP merged with and into the Operating Partnership, with the Operating Partnership continuing as the surviving entity.

Pursuant to the Merger Agreement, as of the effective time of the CCP Merger, each share of CCP common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the CCP 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) was converted into the right to receive 1.123 newly issued shares of Company common stock, par value $0.01 per share, plus cash in lieu of any fractional shares. See Note 3, “CCP Merger and Recent Real Estate Acquisitions” for additional information regarding the CCP Merger.

The acquisition of CCP has been reflected in the ~~Company's~~Company’s condensed consolidated financial statements since the effective date of the CCP Merger.

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 and for the periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. 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 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017~~2018. For further information, refer to the Company’s consolidated financial statements and notes thereto for the

~~for the~~ year ended December 31, ~~2016~~2017 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 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~~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~~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~~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~~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~~entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The Company performs this analysis on an ongoing basis.

As of ~~September~~June 30, ~~2017~~2018, the Company determined it was the primary beneficiary of two variable interest entities—~~a senior housing community and an~~one exchange accommodation titleholder variable interest ~~entity—~~entity and a joint venture variable interest entity owning one skilled nursing/transitional care facility—and has consolidated the operations of these entities in the accompanying condensed consolidated financial statements. As of ~~September~~June 30, ~~2017,~~2018, the Company determined that operations of these 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~~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 ifwhether 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~~borrower’s expected residual profit, the Company would account for the investment as an investment in a real estate joint venture and not as a loan investment. Expected residual profit is defined as the amount of profit, whether called interest or another name, such as an equity kicker, above a reasonable amount of interest and fees expected to be earned by a lender. At ~~September~~June 30, ~~2017~~2018, none of the ~~Company's~~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'~~partners’ rights and their impact on the presumption of control of the limited partnership by any single partner. The Company also applies this guidance to managing member interests in limited liability ~~companies.The~~companies. The Company reassesses its determination of which entity controls the joint venture if: there is a change to the terms or in the exercisability of the rights of any partners or members, the sole general partner or managing member increases or decreases its ownership interests, or there is an increase or decrease in the number of outstanding ownership interests. As of ~~September~~June 30, ~~2017,~~2018, the ~~Company's~~Company’s determination of which entity controls its investments in joint ventures has not changed as a result of any reassessment.

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.

Reclassifications

Certain amounts in the ~~Company's~~Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. As a result, certain reclassifications were made to the condensed consolidated ~~balance sheets~~statements of income and condensed consolidated statements of cash flows.

Investment in Unconsolidated Joint Venture

The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting. Under this method of accounting, the Company’s share of the investee’s earnings or losses is included in the Company’s condensed consolidated statements of income. The initial carrying value of the investment is based on the amount paid to purchase the joint venture interest. Differences between the Company’s cost basis and the basis reflected at the joint venture level are generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of earnings of the joint venture.

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its equity method investments may not be recoverable or realized. When indicators of potential impairment are identified, the Company evaluates its equity method investments for impairment based on a comparison of the fair value of the investment to its carrying value. The fair value is estimated based on discounted cash flows that include all estimated cash inflows and outflows over a specified holding period and any estimated debt premiums or discounts. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of its equity method investment, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of its equity method investment.

On January 2, 2018, the Company completed its transaction with affiliates of Enlivant and TPG Real Estate, the real estate platform of TPG, and contributed $352.7 million, before closing costs, to acquire a 49% equity interest in an entity that owns 172 senior housing communities managed by Enlivant (the “Enlivant Joint Venture”). At closing, the Enlivant Joint Venture had outstanding indebtedness of $791.3 million and net working capital of $22.9 million, and the Company’s investment in the Enlivant Joint Venture implied an aggregate portfolio value of $1.49 billion. The joint venture agreement includes an option for the Company to acquire the remainder of the outstanding equity interests in the Enlivant Joint Venture by January 2, 2021 and grants the Company the right of first offer if the Company’s partner in the Enlivant Joint Venture desires to transfer its equity interest (which it may do commencing on January 2, 2020). In addition, Sabra has the right to designate three directors on the seven member board of directors of the Enlivant Joint Venture and has other customary minority rights. As of June 30, 2018, the book value of the Company’s investment in the Enlivant Joint Venture was $349.0 million.

Net Investment in Direct Financing Lease

As of ~~September~~June 30, ~~2017,~~2018, the Company had a ~~$22.9~~$23.2 million net investment in one skilled nursing/transitional care facility leased to an operator under a direct financing lease, as the tenant is obligated to purchase the property at the end of the

lease term. The net investment in direct financing lease is recorded in accounts receivable, prepaid expenses and other assets, net on the accompanying condensed consolidated balance sheets and represents the total undiscounted rental payments, ~~(including the tenant's purchase obligation),~~ plus the estimated unguaranteed residual value, less the unearned lease income. Unearned lease income represents the excess of the minimum lease payments and residual ~~values~~value over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectability of the lease payments is reasonably assured. Income from the ~~Company's~~Company’s net investment in direct financing lease was ~~$0.3~~$0.6 million and $1.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, respectively, and is reflected in interest and other income on the accompanying condensed consolidated statements of income. Future minimum lease payments contractually due under the direct financing lease at ~~September~~June 30, ~~2017,~~2018, were as follows: ~~$0.5~~$1.1 million for the remainder of ~~2017; $2.2 million for~~ 2018; $2.2 million for 2019; $2.3 million for 2020; and $2.1 million for 2021.

Recently Issued Accounting Standards Update

Adopted

Between May 2014 and ~~May 2016,~~February 2017, the FASB issued ~~three~~four Accounting Standards Updates (each, an “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”) and (iv) ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). 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. The Revenue ASUs became effective for the Company on January 1, 2018 with the Company electing to use the modified retrospective approach for its adoption. Further, the Company elected to reassess only contracts that were not completed as of the adoption date. The adoption of these ASUs did not have a material impact to beginning retained earnings as of January 1, 2018.

In August ~~2015,~~2016, the FASB issued ASU ~~No. 2015-14, Revenue from Contracts with Customers~~2016-15, Statement of Cash Flows (Topic ~~606)~~230): ~~Deferral~~Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides specific guidance clarifying how certain cash receipts and payments should be classified. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU 2016-15 and ASU 2016-18 on January 1, 2018. The full retrospective approach of adoption is required for both ASUs and, accordingly, certain line items in the Company’s consolidated statements of cash flows have been reclassified to conform to the current period presentation. The following table illustrates changes in the Company’s cash flows as reported in the accompanying condensed consolidated statements of cash flows and as previously reported prior to the adoption (in thousands):



	Six Months Ended June 30, 2017
	As Reported		As Previously Reported
Net cash provided by operating activities	54,282		53,871
Net decrease in balance	(12,147	)	(12,558	)
Balance - beginning of the year	34,665		25,663
Balance - end of the year	22,648		13,235

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the ~~Effective Date (“~~hedge accounting guidance in current GAAP. ASU ~~2015-14”). ASU 2015-14 defers the~~2017-12 is effective ~~date of ASU 2014-09 by one year to~~for fiscal years and interim periods within those years beginning after December 15, ~~2017. All subsequent ASUs related to~~2018, with early adoption permitted. The Company adopted ASU ~~2014-09, including~~2017-12 effective beginning January 1, 2018. 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 either2017-12 requires a modified retrospective ~~approach, by recording a cumulative-effect adjustment to~~transition method in which the Company recognized the cumulative effect of the change on the opening balance of each affected component of equity in the condensed consolidated balance sheet as of the ~~beginning of the fiscal year~~date of adoption, ~~or full retrospective approach. As the primary source~~which resulted in a decrease to cumulative distributions in excess of ~~revenue for the Company is generated through leasing~~net income and ~~financing arrangements, which are excluded from the Revenue ASUs, the Company expects that the impact~~an increase to accumulated other comprehensive income of the Revenue ASUs to the Company will be limited to the recognition of non-lease revenue, such as certain resident fees in its Senior Housing - Managed properties structures (a portion of which are not generated through leasing arrangements) ), and its recognition of real estate sale transactions. Under ASU 2014-09, revenue recognition for real estate sales is primarily based on the transfer of control versus continuing involvement under current guidance. Accordingly, the Company anticipates that the new guidance will result in more transactions qualifying as sales of real estate and gains on sale being recognized at an earlier date than under current accounting guidance. Additionally, upon adoption of the Revenue ASUs in 2018, the Company anticipates that it will be required to separately disclose the components of its total revenue between lease revenue accounted for under existing lease guidance and service revenue accounted for under the new Revenue ASUs,$0.8 million.

Issued but does not anticipate a material change in the timing of revenue recognition. 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 fourth quarter of 2017. Not Yet Adopted

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 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~~Under ASU 2016-02, entities currently are required to adopt the new lease requirements using a modified retrospective transition method whereby an entity initially applies the new lease requirements (subject to specific transition requirements and optional practical expedients) at the beginning of the earliest period presented in the financial statements. Upon adoption of ASU 2016-02, the Company will recognize its operating leases for which it is ~~currently evaluating~~ the ~~impact this guidance will have~~lessee, mainly corporate office leases and ground leases, on its consolidated ~~financial statements when adopted.~~balance sheets. Further, as a result of adoption, the Company may be required to increase its revenue and expense for the amount of real estate taxes and insurance paid by its tenants under certain leasing arrangements with no net impact to net income.

In ~~January 2017,~~July 2018, the FASB issued ASU ~~2017-01, Business Combinations~~2018-11, Leases (Topic ~~805)~~842): ~~Clarifying the definition of a business~~Targeted Improvements (“ASU ~~2017-01”~~2018-11”)~~. ASU 2017-01 clarifies~~ that allows lessors to elect, as a practical expedient, not to separate lease and nonlease components (such as services rendered) in a contract for the ~~definition~~purpose of ~~a business with~~revenue recognition and disclosure. The practical expedient can only be applied to leasing arrangements for which (i) the ~~objective~~timing and pattern of ~~providing guidance to assist entities with evaluating whether transactions should~~transfer are the same for the lease and nonlease components and (ii) the lease component, if accounted for separately, would be classified as an operating lease. Under this practical expedient, contracts that are predominantly lease-based would be accounted for under Topic 842, and contracts that are predominantly service-based would be accounted for under Topic 606, Revenue from Contracts with Customers. Further, ASU 2018-11 also provides for an additional (and optional) transition method to adopt the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company plans to elect this practical expedient and apply the optional transition method for its operating leases for which the Company is the lessee, using the cumulative-effect adjustment to the opening balance sheet as ~~acquisitions (or disposals)~~ of ~~businesses. When substantially all~~January 1, 2019. The Company is still evaluating the full impact of the ~~fair value~~adoption of ~~gross assets acquired is concentrated in~~ASU 2016-02 on January 1, 2019 to its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that a ~~single~~financial asset (or a group of ~~similar~~financial assets), measured at amortized cost basis be presented at 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 neednet amount expected to be ~~an organized workforce. ASU 2017-01~~collected. The allowance for credit losses 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~~a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected 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 merger and acquisition costs and contingent consideration, which may result in lower expensed merger and acquisition costs and eliminate fair value adjustments related to future contingent consideration arrangements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock compensation (Topic 718): Scope of modification accounting (“ASU 2017-09”). ASU 2017-09 clarifies and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award.financial asset. The amendments in ASU ~~2017-09 provide guidance about which changes to~~2016-13 are an improvement because they eliminate the ~~terms or conditions~~probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current estimate of ~~a share-based payment award require~~all expected credit losses. Previously, when credit losses were measured under GAAP, an entity ~~to apply modification accounting~~generally only considered past events and current conditions in ~~Topic 718.~~measuring the incurred loss. ASU ~~2017-09~~2016-13 is effective for fiscal years and interim periods within those years beginning after December 15, ~~2017,~~2019, with early adoption ~~permitted. The Company does not expect the adoption of ASU 2017-09 to have a material impact on its consolidated financial statements.~~

3. CCP MERGER AND RECENT REAL ESTATE ACQUISITIONS

CCP Merger

On August 17, 2017, the Company completed the CCP Merger. Under the terms of the Merger Agreement, each share of CCP common stock issued and outstanding immediately prior to the effective time of the CCP Merger (other than any shares owned directly by CCP, the Company or their respective subsidiaries, in each case not held on behalf of third parties) was converted into the right to receive 1.123 newly issued shares of Company common stock, resulting in the issuance of approximately 94.0 million shares of Company common stock at the effective time of the CCP Merger. As a result of the CCP Merger, the Company acquired 330 properties (consisting of 296 skilled nursing/transitional care facilities, 13 senior housing communities and 21 specialty hospitals and other facilities), one skilled nursing/transitional care facility leased to an operator under a direct financing lease (see Note 2, “Summary of Significant Accounting Policies—Net Investment in Direct Financing Lease”), 18 investments in loans receivable (see Note 6, “Loans Receivable and Other Investments”) and one specialty valuation ~~firm.~~firm that was subsequently sold in March 2018. Sabra also assumed certain outstanding equity awards and other debt and liabilities of CCP (see Note 7, “Debt”). Based on the closing price of Sabra’s common stock on August 16, 2017, the Company estimates the fair value of the consideration exchanged or assumed to be approximately $2.1 billion. The Company’s estimated fair values of CCP’s assets acquired and liabilities assumed on the closing date of the CCP Merger are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed, as detailed below, are preliminary and are subject to adjustment once the analyses are completed.

The following table summarizes the ~~preliminary~~ purchase price allocation for the CCP Merger based on the ~~Company's initial~~Company’s valuation, including estimates and assumptions of the acquisition date fair value of the tangible and intangible assets acquired and liabilities assumed on August 17, 2017 (in thousands):


Real estate investments	$	3,629,447		$	3,727,310
Loans receivable and other investments	57,064			58,244
Cash and cash equivalents	77,858			77,859
Restricted cash	779			779
Lease intangible assets, net	234,426			145,786
Accounts receivable, prepaid expenses and other assets, net	35,829			35,873
Secured debt, net	(98,500		)	(98,500		)
Revolving credit facility	(362,000		)	(362,000		)
Unsecured term loans	(674,000		)	(674,000		)
Senior unsecured notes, net	(616,873		)	(616,873		)
Accounts payable and accrued liabilities	(132,860		)	(134,802		)
Lease intangible liabilities, net	(95,859		)	(102,643		)
Noncontrolling interests	(2,733		)	(4,455		)
Total consideration	$	2,052,578		$	2,052,578

The lease intangible assets and lease intangible liabilities acquired in connection with the CCP Merger have weighted-average amortization periods as of the closing date of the CCP Merger of ~~11 years and~~ 10 ~~years, respectively.~~years.

For the three and nine months ended September 30, 2017, the Company recognized $45.1 million of total revenues and $30.6 million of net income attributable to common stockholders, excluding acquisition related costs, from the CCP Merger investments. Acquisition related costs associated with the CCP Merger were $23.3 million and $29.7 million, respectively, during the three and nine months ended September 30, 2017.

Recent Real Estate Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, in addition to the properties acquired as a result of the CCP Merger,~~2018, the Company acquired 2111 Senior Housing - Managed communities, five senior housing communities and two skilled nursing/transitional care ~~facilities and~~facilities. During the six months ended June 30, 2017, the Company acquired one senior housing community. ~~During the nine months ended September 30, 2016, the Company acquired one skilled nursing/transitional care facility and three senior housing communities.~~ The consideration was allocated based on certain valuations and analyses. Certain valuations and analyses related to acquisitions during the six months ended June 30, 2018 have yet to be finalized, and accordingly, the allocations are subject to adjustment once the analyses are completed. Allocation of the consideration is as follows (in thousands):


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
Land	$	55,579	$	5,521	$	24,356	$	1,034
Building and improvements	329,462		102,094		187,903		13,128
Tenant origination and absorption costs	6,143		1,565
Tenant relationship	1,880		439
Tenant origination and absorption costs intangible assets					1,312		223
Tenant relationship intangible assets					412		71

Total consideration	$	393,064	$	109,619	$	213,983	$	14,456

The tenant origination and absorption costs intangible assets and tenant relationship intangible assets acquired in connection with these acquisitions have weighted-average amortization periods as of the respective dates of acquisition of 13 years and 2322 years, ~~respectively.~~respectively, for acquisitions completed during the six months ended June 30, 2018, and 15 years and 25 years, respectively, for the acquisition completed during the six months ended June 30, 2017.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company recognized ~~$1.5~~$10.7 million and ~~$1.6~~$20.4 million of total revenues, respectively, and ~~$1.4~~$1.6 million and $2.5 million of net income attributable to common stockholders, respectively, from the facilities acquired during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. For both the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company recognized ~~$1.7~~$0.1 million of total revenues and ~~$0.1 million of~~ net income attributable to common stockholders from the ~~facilities~~facility acquired during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

4. REAL ESTATE PROPERTIES HELD FOR INVESTMENT

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

As of ~~September~~June 30, ~~2017~~2018


Property Type	Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net		Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net
Skilled Nursing/Transitional Care	409	45,710	$	4,386,543	$	(215,921	)	$	4,170,622	352	40,077	$	4,242,748	$	(223,777	)	$	4,018,971
Senior Housing - Leased⁽¹⁾	88	8,110	1,149,278		(96,790		)	1,052,488		89	7,156	1,200,923		(113,020		)	1,087,903
Senior Housing - Managed⁽¹⁾	11	999	170,866		(10,884		)	159,982		24	1,712	308,221		(15,961		)	292,260
Specialty Hospitals and Other	22	1,085	602,339		(12,820		)	589,519		22	1,085	618,316		(24,109		)	594,207
	530	55,904	6,309,026		(336,415		)	5,972,611		487	50,030	6,370,208		(376,867		)	5,993,341
Corporate Level			448		(274		)	174				633		(292		)	341
			$	6,309,474	$	(336,689	)	$	5,972,785			$	6,370,841	$	(377,159	)	$	5,993,682

As of December 31, ~~2016~~2017


Property Type	Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net		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	384	43,223	$	4,364,387	$	(209,039	)	$	4,155,348
Senior Housing - Leased⁽¹⁾	83	7,855	1,153,739		(80,449		)	1,073,290		88	8,137	1,166,687		(102,370		)	1,064,317
Senior Housing - Managed⁽¹⁾	2	134	34,212		(1,682		)	32,530		13	1,113	189,120		(12,125		)	176,995
Specialty Hospitals and Other	1	70	61,640		(10,387		)	51,253		22	1,085	614,068		(16,620		)	597,448
	183	18,878	2,292,345		(282,556		)	2,009,789		507	53,558	6,334,262		(340,154		)	5,994,108
Corporate Level			406		(256		)	150				593		(269		)	324
			$	2,292,751	$	(282,812	)	$	2,009,939			$	6,334,855	$	(340,423	)	$	5,994,432

September 30, 2017 December 31, 2016
Building and improvements $ 5,410,572
$ 1,983,769
Furniture and equipment 234,901
85,196
Land improvements 3,563
3,744
Land 660,438
220,042
6,309,474
2,292,751
Accumulated depreciation (336,689 ) (282,812 )
$ 5,972,785
$ 2,009,939


⁽¹⁾	During the nine months ended September 30, 2017, the Company transitioned nine senior housing communities into a managed property structure whereby the Company owns the operations of the communities and the communities are operated by a third-party property manager.

~~Contingent Consideration Arrangements~~

In connection with three of its prior real estate acquisitions, the Company entered into contingent consideration arrangements pursuant to which it could be required to pay out additional amounts based on incremental value created through the improvement of operations of the applicable 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 nine months ended September 30, 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 communities to Senior Housing - 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 September 30, 2017, based on the performance of this facility, the contingent consideration liability had an estimated value of $0.3 million, which is included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.

During the three and nine months ended September 30, 2017, the Company recorded an increase of $0.3 million and a decrease of $0.6 million, respectively, to the contingent consideration liability. These amounts are included in other income on the accompanying condensed consolidated statements of income.



	June 30, 2018			December 31, 2017
Building and improvements	$	5,489,087		$	5,449,415
Furniture and equipment	236,838			232,889
Land improvements	1,971			3,456
Land	642,945			649,095
	6,370,841			6,334,855
Accumulated depreciation	(377,159		)	(340,423		)
	$	5,993,682		$	5,994,432

Operating Leases

As of ~~September~~June 30, ~~2017~~2018, the substantial majority of the Company’s real estate properties (excluding 1124 Senior Housing - Managed ~~properties)~~communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of ~~September~~June 30, ~~2017~~2018, 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~~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 inon the accompanying condensed consolidated balance sheets and totaled $~~35.6~~17.9 million ~~as of~~ ~~September 30, 2017~~and ~~$2.7~~$20.3 million as of June 30, 2018 and December 31, ~~2016.~~ 2017, respectively, and letters of credit deposited with the Company totaled approximately $90 million and $96 million as of June 30, 2018 and December 31, 2017, respectively. In addition, our tenants have deposited with the Company $28.0 million and $28.3 million as of June 30, 2018 and December 31, 2017, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to our properties and their operations.

As of ~~September~~June 30, ~~2017,~~2018, the Company had a ~~$3.5~~$1.1 million reserve for unpaid cash ~~rents~~rental income and a ~~$2.8~~$3.2 million reserve associated with accumulated straight-line rental income. As of December 31, ~~2016,~~2017, the Company had a $3.2 million reserve for unpaid cash ~~rents~~rental income and a ~~$3.7~~$12.4 million reserve associated with accumulated straight-line rental income.

~~The following table provides information regarding significant tenant relationships representing 10% or more of the Company's total revenues as of September 30, 2017 (dollars in thousands):~~

Three Months Ended Nine Months Ended
September 30, 2017
Number of Investments Rental Revenue % of Total Revenue Rental Revenue % of Total Revenue

Genesis Healthcare, Inc. 76
$ 20,257
18.1 % $ 60,470
25.3 %
Holiday AL Holdings, LP 21
9,813
8.8
29,438
12.3

The Company has entered into memoranda of understanding with Genesis to market for sale ~~35 skilled nursing~~up to all of its remaining Genesis facilities ~~(the “MOU Disposition Facilities”). As~~and to restructure its lease agreements with Genesis to increase the marketability of ~~September~~these facilities to potential buyers. Effective January 1, 2018, the annual base rent payable under the Genesis leases was reduced by $19.0 million pursuant to a lease restructuring agreement. During the six months ended June 30, ~~2017,~~2018, the Company completed the sale of ~~two of the MOU Disposition Facilities,~~27 facilities leased to Genesis and ~~subsequent~~expects to ~~September 30, 2017, the Company completed~~complete the sale of ~~two additional MOU Disposition Facilities. The Company has also entered into a definitive agreement to sell an additional 20 MOU Disposition Facilities, which is expected to be completed in~~19 of its remaining 27 Genesis facilities during the ~~fourth quarter of 2017. The Company expects the remaining MOU Disposition Facilities to be sold by the end of the first quarter~~remainder of 2018 ~~though there can be no~~and to retain eight facilities, although it cannot provide assurance that the sales will be completed in that timeframe, if at all. ~~The Company has also begun the process of marketing for sale up to all of the remaining 43 facilities leased to Genesis, with sales expected to occur in 2018.~~

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~~As 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 tenant’s ability to pay their rent obligations to the Company) is the tenant’s lease coverage ratio or the parent’s fixed charge coverage ratio for those entities with a parent guarantee. These coverage ratios include earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) to rent and earnings before interest,

taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent at the lease level and consolidated EBITDAR to total fixed charges at the parent guarantor level when such a guarantee exists. The Company obtains various financial and operational information from its tenants each month and reviews this information in conjunction with the above-described coverage metrics to identify financial and operational trends, evaluate the impact of the industry’s operational and financial environment (including the impact of government reimbursement), and evaluate the management of the tenant’s operations. These metrics help the Company identify potential areas of concern relative to its tenants’ credit quality and ultimately the tenant’s ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company.

For both the three and six months ended June 30, 2018, no tenant relationship represented 10% or more of the Company’s total revenues.

As of ~~September~~June 30, ~~2017~~2018, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases ~~was~~were as follows (in thousands):


October 1, 2017 through December 31, 2017	$	146,223
2018	590,222
July 1 through December 31, 2018			$	260,307
2019	599,100		529,844
2020	592,748		522,304
2021	582,633		520,553
2022			512,680
Thereafter	3,508,262		3,083,776
	$	6,019,188	$	5,429,464

5. ASSET HELD FOR SALE AND DISPOSITIONS

Asset Held for Sale

As of ~~September~~June 30, ~~2017~~,2018, the Company determined that one skilled nursing/transitional care facility, with a net book value of ~~$2.0~~$6.0 million, met the criteria to be classified as held for sale. The net book value is included in accounts receivable, prepaid expenses and other assets, net on the condensed consolidated balance sheets. The facility was sold on July 2, 2018 for a gross sales price of $7.0 million.

~~2017~~2018 Dispositions

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company completed the sale of ~~four~~33 skilled nursing/transitional care facilities and four senior housing communities for aggregate consideration, net of ~~$11.7~~closing costs, of $278.3 million. The net carrying value of the assets and liabilities of these facilities was ~~$7.1~~$135.8 million, which resulted in an aggregate ~~$4.6~~$142.5 million net gain on sale.

~~2016 Dispositions~~ The Company also recognized $0.1 million of additional selling expenses for sales completed in 2017.

During the ~~nine~~six months ended ~~September~~June 30, 2016, the Company completed the sale of two skilled nursing/transitional care facilities and one acute care hospital for aggregate consideration of $85.4 million after selling expenses of $2.3 million. The net carrying value of the assets and liabilities of these facilities, after the impairment loss of $29.8 million recognized in relation to the acute care hospital, was $88.6 million, resulting in an aggregate $3.2 million loss on sale.

~~During the nine months ended September 30, 2017,~~2018, the Company recognized ~~$0.3~~a $1.4 million real estate impairment, of ~~net income, excluding~~which $0.5 million related to one senior housing community sold during the period.

Excluding the net gain on sale, from the asset held for sale and the dispositions made during the nine months ended September 30, 2017. During the nine months ended September 30, 2016, the Company recognized $38,000 of net income, excluding the net loss on sale and real estate impairment, ~~from~~ the ~~dispositions made~~Company recognized $11.6 million and $15.4 million of net income during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016.~~respectively, from these facilities. The sale of these facilities dodoes not represent a strategic shift that has or will have a major effect on the ~~Company's~~Company’s operations and financial results, and therefore the results of operations attributable to these facilities have remained in continuing operations.

2017 Disposition

During the six months ended June 30, 2017, the Company completed the sale of one skilled nursing/transitional care facility for consideration, net of closing costs, of $6.1 million. The net carrying value of the assets and liabilities of this facility was $2.1 million, which resulted in a $4.0 million net gain on sale.

Excluding the net gain on sale, the Company recognized $0.1 million of net income during the six months ended June 30, 2017 from this facility. The sale of this facility does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results, and therefore the results of operations attributable to this facility have remained in continuing operations.

6. LOANS RECEIVABLE AND OTHER INVESTMENTS

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company’s loans receivable and other investments consisted of the following (dollars in thousands):


																										June 30, 2018
Investment		Quantity as of September 30, 2017	Property Type	Principal Balance as of September 30, 2017 ⁽¹⁾		Book Value as of September 30, 2017			Book Value as of December 31, 2016			Weighted Average Contractual Interest Rate / Rate of Return as of September 30, 2017		Maturity Date as of September 30, 2017		Quantity as of June 30, 2018	Property Type	Principal Balance as of June 30, 2018 ⁽¹⁾		Book Value as of June 30, 2018			Book Value as of December 31, 2017			Weighted Average Contractual Interest Rate / Rate of Return		Weighted Average Annualized Effective Interest Rate / Rate of Return		Maturity Date as of June 30, 2018
Loans Receivable:	Loans Receivable:														Loans Receivable:
Mortgage		5	Skilled Nursing / Senior Housing	$	45,064	$	42,664		$	38,262		9.2	%	11/07/16- 02/10/27		1	Specialty Hospital	$	15,332	$	15,332		$	12,351		10.0	%	10.0	%	01/31/27
Construction		2	Senior Housing	2,354		2,418			842			8.0	%	03/31/21- 05/31/22		2	Senior Housing	3,989		4,055			2,733			8.0	%	7.8	%	04/30/21- 09/30/22
Mezzanine		2	Senior Housing	34,640		28,391			9,656			10.3	%	02/28/18- 05/25/20		1	Skilled Nursing	25,000		2,301			10,239			10.0	%	41.9	%	05/25/20
Pre-development		1	Senior Housing	2,357		2,357			4,023			9.0	%	04/01/20		1	Senior Housing	2,357		2,357			2,357			9.0	%	8.4	%	04/01/20
Other		14	Multiple	44,926		27,859			—			8.6	%	10/28/17- 04/30/27		17	Multiple	34,009		32,191			38,324			8.5	%	9.7	%	12/31/17- 04/30/27
Debtor-in-possession		—	Acute Care Hospital	—		—			813			N/A		N/A

		24		129,341		103,689			53,596			9.3	%			22		80,687		56,236			66,004			9.3	%	10.9	%

Loan loss reserve	Loan loss reserve			—		(6,211		)	(2,750		)				Loan loss reserve			—		(356		)	(97		)

				$	129,341	$	97,478		$	50,846								$	80,687	$	55,880		$	65,907
Other Investments:	Other Investments:														Other Investments:
Preferred Equity		13	Skilled Nursing / Senior Housing	51,833		52,288			45,190			12.8	%	N/A		13	Skilled Nursing / Senior Housing	50,856		51,348			48,483			12.6	%	12.6	%	N/A

Total		37		$	181,174	$	149,766		$	96,036		10.3	%			35		$	131,543	$	107,228		$	114,390		10.6	%	11.7	%


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

In connection with the CCP Merger, the Company acquired 18 ~~loan~~loans receivable investments with a principal balance of $83.3 million and fair value of $58.2 million as of August 17, 2017.

Of the loans acquired in connection with the CCP Merger, eight loans receivable investments with a principal balance of $36.3 million were considered to have deteriorated credit quality, and based on the collateral or expected cash flows, the fair value was determined to be $11.3 million and the accretable yield was $3.5 million as of August 17, 2017. During the six months ended June 30, 2018, one loan with deteriorated credit quality was repaid in full. As of June 30, 2018 and December 31, 2017, the book value of ~~$54.1 million as of September 30, 2017.~~

~~As of September 30, 2017, the Company considered six loan receivable investments to be impaired. The aggregate principal balance of the impaired~~these loans was ~~$35.2 million as of September 30, 2017 and December 31, 2016. The Company recorded a provision for loan losses of $3.0~~$4.8 million and ~~$4.8~~$10.0 million, ~~related to four loan receivable investments during~~respectively.

The following table presents changes in the accretable yield for the three and ~~nine~~six months ended ~~September~~June 30, 2017, respectively, two of which were written-off during the nine months ended September 30, 2017. As of September 30, 2017, six loans receivable investments totaling $35.2 million were on nonaccrual status.2018 (in thousands):



	Three Months Ended			Six Months Ended
	June 30, 2018
Accretable yield, beginning of period	$	1,883		$	2,483
Accretion recognized in earnings	(1,529		)	(2,129		)
Net reclassification from nonaccretable difference	727			727
Accretable yield, end of period	$	1,081		$	1,081

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company ~~reduced~~recorded no provision for specific loan losses and increased its portfolio-based loan loss reserve by ~~$32,000~~$0.2 million and $0.3 million, respectively. ~~The Company's~~

As of June 30, 2018, the Company had no specific loan loss reserve, and the portfolio-based loan loss reserve was ~~$6.1~~$0.4 million. As of June 30, 2018, the Company did not consider any loans receivable investments to be impaired, and one loan receivable with a book value of $0 and three preferred equity investments totaling $14.5 million were on nonaccrual status. Additionally, as of June 30, 2018, the Company recognized interest income related to four loans receivable, with an aggregate book value of $10.6 million, that were more than 90 days past due.

As of December 31, 2017, the Company had no specific loan loss reserve, and the portfolio-based loan loss reserve was $0.1 ~~million as~~million. As of ~~September~~December 31, 2017, the Company did not consider any loans receivable investments to be impaired, and one loan receivable with a book value of $0 was on nonaccrual status.

During the three and six months ended June 30, ~~2017. The Company's~~2017, the Company recorded a provision for specific loan ~~loss reserve~~losses of $0.3 million and $1.8 million, respectively, related to five loans receivable investments, two of which were written-off during the three months ended June 30, 2017, and reduced its portfolio-based loan loss reserve ~~were $2.3~~by $0.1 million and ~~$0.4~~$0.2 million, ~~respectively, as of December 31, 2016.~~respectively.

7. DEBT

Secured Indebtedness

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


Interest Rate Type	Book Value as of September 30, 2017 ⁽¹⁾		Book Value as of December 31, 2016⁽¹⁾		Weighted Average Effective Interest Rate at September 30, 2017 ⁽²⁾		Maturity Date	Principal Balance as of June 30, 2018 ⁽¹⁾		Principal Balance as of December 31, 2017⁽¹⁾		Weighted Average Effective Interest Rate at June 30, 2018 ⁽²⁾		Maturity Date
Fixed Rate	$	161,871	$	163,638	3.87	%	December 2021 - August 2051	$	157,781	$	160,702	3.87	%	December 2021 - August 2051
Variable Rate	98,500		—		3.02	%	July 2019	98,500		98,500		3.89	%	July 2019
	$	260,371	$	163,638	3.55	%		$	256,281	$	259,202	3.88	%


⁽¹⁾	Principal balance does not include deferred financing costs, net of ~~$2.8~~$2.7 million and ~~$2.9~~$2.8 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.


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

On August 17, 2017, in connection with the CCP Merger (see Note 3, “CCP Merger and Recent Real Estate Acquisitions”), the Company assumed a $98.5 million variable rate secured term loan that bears interest at LIBOR plus 1.80% and matures in July 2019.

Senior Unsecured Notes

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


		Principal Balance as of					Principal Balance as of
Title	Maturity Date	September 30, 2017 ⁽¹⁾		December 31, 2016 ⁽¹⁾		Maturity Date	June 30, 2018 ⁽¹⁾		December 31, 2017 ⁽¹⁾

5.5% senior unsecured notes due 2021 (“2021 Notes”)	February 1, 2021	$	500,000	$	500,000	February 1, 2021	$	500,000	$	500,000
5.375% senior unsecured notes due 2023 (“2023 Notes”)	June 1, 2023	200,000		200,000		June 1, 2023	200,000		200,000
5.125% senior unsecured notes due 2026 (“2026 Notes”)	August 15, 2026	500,000		—		August 15, 2026	500,000		500,000
5.38% senior unsecured notes due 2027 (“2027 Notes”)	May 17, 2027	100,000		—		May 17, 2027	100,000		100,000
		$	1,300,000	$	700,000		$	1,300,000	$	1,300,000


⁽¹⁾	Principal balance does not include premium, net of ~~$16.3~~$15.2 million and deferred financing costs, net of ~~$10.3~~$8.4 million as of ~~September~~June 30, ~~2017~~2018 and does not include ~~discount,~~premium, net of ~~$0.5~~$15.9 million and deferred financing costs, net of ~~$11.2~~$9.6 million as of December 31, ~~2016.~~2017.

The 2021 Notes and the 2023 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 2026 Notes and the 2027 Notes were assumed as a result of the CCP Merger (see Note 3, “CCP Merger and Recent Real Estate Acquisitions”) and accrue interest at a rate of 5.125% and 5.38%, respectively, per annum. Interest is payable semiannually on February 15 and August 15 of each year for the 2026 Notes and on May 17 and November 17 of each year for the 2027 Notes.

The obligations under the 2021 Notes, 2023 Notes and 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain subsidiaries of Sabra; provided, however, that such guarantees are subject to release under certain customary circumstances. The obligations under the 2026 Notes are fully and unconditionally guaranteed, on an unsecured basis, by Sabra; provided, however, that such guarantee is subject to release under certain customary circumstances. See Note 12, “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 and agreements (the “Senior Notes Indentures”) governing the 2021 Notes, 2023 Notes, 2026 Notes and 2027 Notes (collectively, the “Senior Notes”) include customary events of default and require the Company to comply with specified restrictive covenants. As of ~~September~~June 30, ~~2017,~~2018, 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,~~Effective on August 17, 2017, the Operating Partnership and Sabra Canadian Holdings, LLC (together, the “Borrowers”) ~~entered into a third amended and restated unsecured credit facility (the “Prior Credit Facility”).~~

The Prior Credit Facility included a revolving credit facility (the “Prior Revolving Credit Facility”) and U.S. dollar and Canadian dollar term loans (collectively, the “Prior Term Loans”). The Prior Revolving Credit Facility provided for a borrowing capacity of $500.0 million and, in addition, provided for U.S. dollar and Canadian dollar term loans of $245.0 million and CAD $125.0 million, respectively. Further, up to $125.0 million of the Prior Revolving Credit Facility could be used for borrowings in certain foreign currencies. The Prior Credit Facility also contained an accordion feature that allowed for an increase in 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 8, “Derivative and Hedging Instruments” for further information).

~~The Prior Revolving Credit Facility had a maturity date of January 14, 2020, and included two six-month extension options. The Prior Term Loans had a maturity date of January 14, 2021.~~

Borrowings under the Prior Revolving Credit Facility bore 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 varied based on the Consolidated Leverage Ratio, as defined in the credit agreement for the Prior Credit Facility, and ranged 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. In addition, the Operating Partnership paid an unused facility fee to the lenders equal to 0.25% or 0.30% per annum, which was determined by usage under the Prior Revolving Credit Facility.

The Prior Term Loans bore interest as follows: the U.S. dollar term loan bore 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 varied based on the Consolidated Leverage Ratio, as defined in the credit agreement for the Prior Credit Facility, and ranged 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); and the Canadian dollar term loan bore 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.

~~Effective on August 17, 2017, the Borrowers,~~ Sabra and the other parties thereto entered into a fourth amended and restated unsecured credit facility (the “Credit Facility”). The Credit Facility amends and restates the ~~Prior~~prior credit facility entered into by the Borrowers in January 2016 (the “Prior Credit ~~Facility.~~Facility”). The Company recognized a $0.6 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with amending and restating the Prior Credit ~~Facility during the three and nine months ended September 30, 2017.~~Facility.

The Credit Facility includes a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), $1.1 billion in U.S. dollar term loans and a CAD ~~$125~~$125.0 million Canadian dollar term loan (collectively, the “Term Loans”). Further, up to ~~$175~~$175.0 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 $2.5 billion, subject to terms and conditions.

The Revolving Credit Facility has a maturity date of August 17, 2021, and includes two six-month extension options. ~~$200~~$200.0 million of the U.S. dollar Term Loans has a maturity date of August 17, 2020, and the other Term Loans have a maturity date of August 17, 2022.

As of ~~September~~June 30, ~~2017,~~2018, there was ~~$251.0~~$676.0 million outstanding under the Revolving Credit Facility and ~~$749.0~~$324.0 million available for borrowing.

Borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable interest margin plus, at the Operating Partnership’s option, either (a) LIBOR or (b) a base rate determined as the ~~Base Rate.~~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”). On August 17, 2017, Sabra’s ratings met the Investment Grade Ratings Criteria (as defined in the credit agreement), and Sabra elected to use the ratings-based applicable interest margin for borrowings which will vary based on the Debt Ratings, ~~(as~~as defined in the credit ~~agreement)~~agreement, and will range from 0.875% to 1.65% per annum for LIBOR based borrowings and 0.00% to 0.65% per annum for borrowings at the Base Rate. As of ~~September~~June 30, ~~2017,~~2018, the interest rate on the Revolving Credit Facility was ~~2.47%~~3.34%. In addition, the Operating Partnership pays a facility fee ranging between 0.125% and 0.300% per annum based on the aggregate amount of commitments under the Revolving Credit Facility regardless of amounts outstanding thereunder.

The U.S. dollar Term Loans bear interest on the outstanding principal amount at a rate equal to an applicable interest margin plus, at the Operating ~~Partnership's~~Partnership’s option, either (a) LIBOR or (b) the Base Rate. The ratings-based applicable interest margin for borrowings will vary based on the Debt Ratings, as defined in the credit agreement, and will range from 0.90% to 1.90% per annum for LIBOR based borrowings and 0.00% to 0.90% per annum for borrowings at the Base Rate. The Canadian dollar ~~term loan~~Term Loan bears interest on the outstanding principal amount at a rate equal to ~~CDOR~~the Canadian Dollar Offered Rate (“CDOR”) plus an interest margin that will range from 0.90% to 1.90% depending on the Debt Ratings.

On June 10, 2015, the Company entered into an interest rate swap agreement to fix the CDOR portion of the interest rate for CAD $90.0 million of its Canadian ~~term loan~~dollar Term Loan at 1.59%. In addition, CAD $90.0 million of the Canadian dollar ~~term loan~~Term Loan was designated as a net investment hedge. On August 10, 2016, the Company entered into two interest rate swap agreements to fix the LIBOR portion of the interest rate for $245.0 million of its U.S. dollar Term ~~Loan~~Loans 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~~Term Loan at 0.93%. See Note 8, “Derivative and Hedging Instruments” for further information.

As a result of the CCP Merger (see Note 3, “CCP Merger and Recent Real Estate Acquisitions”), the Company assumed eight interest rate swap agreements that fix the LIBOR portion of the interest rate for $600 million of the Company’s U.S. dollar Term Loans at a weighted average rate of 1.31%. See Note 8, “Derivative and Hedging Instruments” for further information.

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 ~~September~~June 30, ~~2017,~~2018, the Company was in compliance with all applicable financial covenants under the Credit Facility.

Interest Expense

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, the Company incurred interest expense of ~~$24.6~~$36.8 million and ~~$56.2~~$72.6 million, respectively, and ~~$15.8~~$15.9 million and ~~$49.1~~$31.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. Interest expense includes ~~financing costs amortization~~non-cash interest expense of ~~$1.6~~$2.5 million and ~~$4.1~~$5.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~$1.3~~$1.7 million and ~~$3.8~~$3.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017, the Company had ~~$15.4~~$24.5 million and $~~13.8~~$24.7 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 ~~September~~June 30, ~~2017~~2018 (in thousands):


	Secured Indebtedness			Revolving Credit Facility ⁽¹⁾		Term Loans			Senior Notes			Total			Secured Indebtedness			Revolving Credit Facility ⁽¹⁾		Term Loans			Senior Notes			Total
October 1, 2017 through December 31, 2017	$	1,054		$	—	$	—		$	—		$	1,054
2018	4,304			—		—			—			4,304
July 1 through December 31, 2018															$	2,156		$	—	$	—		$	—		$	2,156
2019	102,948			—		—			—			102,948			102,920			—		—			—			102,920
2020	4,598			—		200,000			—			204,598			4,568			—		200,000			—			204,568
2021	20,587			251,000		—			500,000			771,587			19,757			676,000		—			500,000			1,195,757
2022															4,285			—		995,163			—			999,448
Thereafter	126,880			—		1,000,225			800,000			1,927,105			122,595			—		—			800,000			922,595
Total Debt	260,371			251,000		1,200,225			1,300,000			3,011,596			256,281			676,000		1,195,163			1,300,000			3,427,444
Premium, net	—			—		—			16,259			16,259			—			—		—			15,216			15,216
Deferred financing costs, net	(2,800		)	—		(9,338		)	(10,263		)	(22,401		)	(2,714		)	—		(7,765		)	(8,374		)	(18,853		)
Total Debt, Net	$	257,571		$	251,000	$	1,190,887		$	1,305,996		$	3,005,454		$	253,567		$	676,000	$	1,187,398		$	1,306,842		$	3,423,807


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

8. 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 ~~$3.5~~$6.6 million of ~~losses,~~gains, which are included in accumulated other comprehensive ~~loss,~~income, as of ~~September~~June 30, ~~2017,~~2018, 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):


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Derivatives designated as cash flow hedges:
Denominated in U.S. Dollars	$	845,000	$	245,000	$	845,000	$	845,000
Denominated in Canadian Dollars	$	125,000	$	125,000	$	125,000	$	125,000

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

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

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 (dollars in thousands):


			Fair Value				Maturity Dates					Count as of June 30, 2018		Fair Value					Maturity Dates
Type	Designation	Count as of September 30, 2017	September 30, 2017		December 31, 2016			Balance Sheet Location		Designation			June 30, 2018			December 31, 2017				Balance Sheet Location
Assets:
Interest rate swap	Cash flow	12	$	18,957	$	8,083		2020 - 2023		Accounts receivable, prepaid expenses and other assets, net
Interest rate swaps											Cash flow	12		$	35,719		$	25,221	2020 - 2023		Accounts receivable, prepaid expenses and other assets, net
Cross currency interest rate swaps	Net investment	2	827		3,157		2025		Accounts receivable, prepaid expenses and other assets, net		Net investment	2		2,146			674		2025		Accounts receivable, prepaid expenses and other assets, net
			$	19,784	$	11,240								$	37,865		$	25,895

Liabilities:
Interest rate swap	Cash flow	—	$	—	$	716	2020		Accounts payable and accrued liabilities
CAD term loan	Net investment	1	100,225		93,000		2022		Term loans, net		Net investment	1		95,163			99,588		2022		Term loans, net
			$	100,225	$	93,716								$	95,163		$	99,588

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 and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 (in thousands):


	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)												Income Statement Location	Gain (Loss) Recognized in Other Comprehensive Income
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016			2017			2016				2018		2017			2018		2017			Income Statement Location

Cash Flow Hedges:
Interest rate products	$	4,372		$	(40	)	$	4,462		$	(2,019	)	Interest expense	$	4,009	$	(136	)	$	13,132	$	125		Interest expense
Net Investment Hedges:
Foreign currency products	(1,080		)	102			(2,239		)	(2,118		)	N/A	898		(242		)	1,505		(1,159		)	N/A
CAD term loan	(3,938		)	1,363			(7,225		)	(5,863		)	N/A	1,750		(2,513		)	4,425		(3,288		)	N/A

	$	(646	)	$	1,425		$	(5,002	)	$	(10,000	)		$	6,657	$	(2,891	)	$	19,062	$	(4,322	)


	Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)												Income Statement Location	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016			2017			2016				2018		2017			2018		2017			Income Statement Location

Cash Flow Hedges:
Interest rate products	$	(535	)	$	(413	)	$	(1,404	)	$	(802	)	Interest expense	$	633	$	(399	)	$	583	$	(869	)	Interest expense
Net Investment Hedges:
Foreign currency products	—			—			—			—			N/A	—		—			—		—			N/A
CAD term loan	—			—			—			—			N/A	—		—			—		—			N/A

	$	(535	)	$	(413	)	$	(1,404	)	$	(802	)		$	633	$	(399	)	$	583	$	(869	)

The gain (loss) in the table above related to interest rate products, was reclassified from accumulated other comprehensive income into interest expense. Interest expense totaled $36.8 million and $72.6 million for the three and six months ended June 30, 2018, respectively, and $15.9 million and $31.7 million for the three and six months ended June 30, 2017, respectively.

During the three and six months ended June 30, 2018, no cash flow hedges were determined to be ineffective. During the three and six months ended June 30, 2017, the Company determined that a portion of a cash flow hedge was ineffective and recognized ~~$30,000~~$14,000 and $0.1 million, respectively, of unrealized losses ~~during the three and nine months ended September 30, 2017, respectively,~~ related to its interest rate swaps to other income in the condensed consolidated statements of income. During the three and nine months ended September 30, 2016, the Company determined that a portion of a cash flow hedge was ineffective and recognized $0.4 million of unrealized gains related to its interest rate swaps to other income in the condensed consolidated statements of income.

~~Derivatives Not Designated as Hedging Instruments~~

During the three and nine months ended September 30, 2017, the Company recorded $0 and $8,000, respectively, of other expense related to a cross currency interest rate swap not designated as a hedging instrument. As of September 30, 2017 and 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):


	As of September 30, 2017												As of June 30, 2018
							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				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				Financial Instruments								Cash Collateral Received				Net Amount
Offsetting Assets:													Gross Amounts of Recognized Assets / Liabilities
Derivatives	$	20,273	$	—	$	20,273	$	—	$	—	$	20,273	$	37,865		Gross Amounts Offset in the Balance Sheet		$	—			$	37,865			$	—			$	—			$	37,865
Offsetting Liabilities:
Derivatives	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—			$	—			$	—			$	—			$	—


	As of December 31, 2016													As of December 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				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				Financial Instruments								Cash Collateral Received				Net Amount
Offsetting Assets:														Gross Amounts of Recognized Assets / Liabilities
Derivatives	$	11,240	$	—	$	11,240	$	(716	)	$	—	$	10,524	$	25,895		Gross Amounts Offset in the Balance Sheet		$	—			$	25,895			$	—			$	—			$	25,895
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 pursuant to which the Company could be declared in default on the derivative obligation if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender.

As of ~~September~~June 30, ~~2017,~~2018, the Company had no derivatives with a fair value in a net liability position.

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

Preferred equity investments: These instruments are presented inon the accompanying condensed consolidated balance sheets at their cost and not at fair value. The fair values 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 swaps and cross currency swaps, using the assistance of a third party using inputs that are observable in the market, which include 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 inon 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.

Secured indebtedness: These instruments are presented inon 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 secured debt 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 whose carrying amounts do not approximate their fair value (in thousands):


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Face Value ⁽¹⁾		Carrying Amount ⁽²⁾		Fair Value		Face Value ⁽¹⁾		Carrying Amount ⁽²⁾		Fair Value		Face Value ⁽¹⁾		Carrying Amount ⁽²⁾		Fair Value		Face Value ⁽¹⁾		Carrying Amount ⁽²⁾		Fair Value
Financial assets:
Loans receivable	$	129,341	$	97,478	$	97,722	$	53,484	$	50,846	$	51,914	$	80,687	$	55,880	$	58,656	$	91,280	$	65,907	$	65,892
Preferred equity investments	51,833		52,288		52,926		44,882		45,190		48,332		50,856		51,348		50,787		48,035		48,483		47,064
Financial liabilities:
Senior Notes	1,300,000		1,305,996		1,341,106		700,000		688,246		709,500		1,300,000		1,306,842		1,292,347		1,300,000		1,306,286		1,329,191
Secured indebtedness	260,371		257,571		248,041		163,638		160,752		150,091		256,281		253,567		236,862		259,202		256,430		246,461


⁽¹⁾	Face value represents amounts contractually due under the terms of the respective agreements.


⁽²⁾	Carrying amount represents the book value of financial instruments, including unamortized premiums/discounts and deferred financing costs.

The Company determined the fair value of financial instruments as of ~~September~~June 30, ~~2017~~2018 whose carrying amounts do not approximate their fair value with valuation methods utilizing the following types of inputs (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Total		(Level 1)		(Level 2)		(Level 3)		Total
Financial assets:
Loans receivable	$	97,722	$	—	$	—	$	97,722	$	58,656	$	—	$	—	$	58,656
Preferred equity investments	52,926		—		—		52,926		50,787		—		—		50,787
Financial liabilities:
Senior Notes	1,341,106		—		1,341,106		—		1,292,347		—		1,292,347		—
Secured indebtedness	248,041		—		—		248,041		236,862		—		—		236,862

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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, 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 $ 18,957
$ —
$ 18,957
$ —
Cross currency swap 827
—
827
—
Financial liabilities:
Contingent consideration liability 266
—
266
—

The Company entered into contingent consideration arrangements as a result of three acquisitions of real estate (see Note 4, “Real Estate Properties Held for Investment”). During the nine months ended September 30, 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 communities to Senior Housing - Managed properties. In order to determine the fair value of the Company’s remaining contingent consideration arrangement, the Company used significant inputs not observable in the market



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Total				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Financial assets:
Interest rate swap	$	35,719	$	—	$	35,719	$	—
Cross currency swap	2,146		—		2,146		—

to estimate the contingent consideration. The Company used financial information provided by the facility to estimate the possible payout. As of September 30, 2017, the total contingent consideration liability had an estimated value of $0.3 million.

~~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 (552 )
Balance as of September 30, 2017 $ 266

10. EQUITY

Preferred Stock

On March 21, 2013, the Company completed an underwritten public offering of ~~5.8 million~~5,750,000 shares of 7.125% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) at a price of ~~$25.00~~$25.00 per share, pursuant to an effective registration statement. The Company received net proceeds of ~~$138.3~~$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~~Company redeemed all 5,750,000 shares of its ~~affairs. At~~ ~~September 30, 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,~~June 1, 2018 (the “Redemption Date”) for ~~$25.00~~$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 (which did not include the CCP Merger), 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 to, but not ~~to exceed a cap~~including, the Redemption Date, without interest, in the amount of ~~1.7864~~ ~~shares of common stock~~$0.4453125 per share of Series A Preferred Stock, ~~(subject~~for a total redemption price per share of Series A Preferred Stock equal to ~~certain adjustments).~~$25.4453125. As a result of the redemption, the Company incurred a charge of $5.5 million related to the original issuance costs of the Series A Preferred Stock. The charge is presented as an additional preferred stock dividend in the Company’s condensed consolidated statements of income.

Common Stock

As a result of the CCP Merger completed on August 17, 2017, the Company issued approximately 94.0 million shares of its common stock in exchange for shares of CCP common stock and shares underlying share-based awards assumed by the Company outstanding as of the effective time of the CCP Merger.

On September 28, 2017, the Company completed an underwritten public offering of 16.0 million newly issued shares of its common stock pursuant to an effective registration statement. The Company received net proceeds, before expenses, of $322.6 million from the offering, after giving effect to the issuance and sale of all 16.0 million shares of common stock, at a price of $21.00 per share. These proceeds were used to repay borrowings outstanding under the Revolving Credit Facility.

~~The~~ underwriters exercised their option to purchase additional shares, and on October 2, 2017, the Company issued an additional 2.4 million newly issued shares of its common stock pursuant to an effective registration ~~statement~~statement. The Company received net proceeds, before expenses, of $370.9 million from the offering, after giving effect to the issuance and sale of all 18.4 million shares of common stock, at a price of $21.00 per ~~share, resulting in additional net~~share. These proceeds ~~before expenses, of $48.4 million.~~were used to repay borrowings outstanding under the Revolving Credit Facility.

The following table lists the cash dividends on common stock declared and paid by the Company during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018:

Declaration Date Record Date Amount Per Share Dividend Payable Date
February 3, 2017 February 15, 2017 $ 0.42
February 28, 2017
May 8, 2017 May 18, 2017 $ 0.43
May 31, 2017
August 2, 2017 August 16, 2017 $ 0.3598913
⁽¹⁾
August 18, 2017

⁽¹⁾~~Represents the previous full quarter dividend of $0.43 per share, prorated based on the time from the prior dividend payable date of May 31, 2017 through August 16, 2017.~~



Declaration Date	Record Date	Amount Per Share		Dividend Payable Date
February 5, 2018	February 15, 2018	$	0.45	February 28, 2018
May 9, 2018	May 21, 2018	$	0.45	May 31, 2018

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company issued ~~0.1 million~~27,747 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.~~vestings.

Upon any payment of shares as a result of restricted stock unit vestings, the related tax withholding obligation will generally be satisfied by the Company, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. During the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, the Company incurred ~~$2.8~~$0.2 million and $2.6 million, respectively, 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 Income ~~(Loss)~~

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


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Foreign currency translation loss	$	(2,515	)	$	(3,067	)	$	(3,026	)	$	(2,913	)
Unrealized gains on cash flow hedges	6,751			1,269			27,438			14,202

Total accumulated other comprehensive income (loss)	$	4,236		$	(1,798	)
Total accumulated other comprehensive income							$	24,412		$	11,289

11. EARNINGS PER COMMON SHARE

The following table illustrates the computation of basic and diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (in thousands, except share and per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Numerator
Net income attributable to common stockholders	$	12,534	$	22,776	$	46,756	$	39,419	$	193,580	$	17,960	$	253,490	$	34,222

Denominator
Basic weighted average common shares and common equivalents	112,149,638		65,312,288		81,150,846		65,285,591		178,314,750		65,438,739		178,304,733		65,396,146
Dilutive restricted stock units	268,462		279,140		278,198		184,998		369,274		232,114		296,056		297,873

Diluted weighted average common shares	112,418,100		65,591,428		81,429,044		65,470,589		178,684,024		65,670,853		178,600,789		65,694,019

Net income attributable to common stockholders, per:

Basic common share	$	0.11	$	0.35	$	0.58	$	0.60	$	1.09	$	0.27	$	1.42	$	0.52

Diluted common share	$	0.11	$	0.35	$	0.57	$	0.60	$	1.08	$	0.27	$	1.42	$	0.52

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, approximately ~~6,800~~35,300 and ~~23,100~~46,000 restricted stock units, respectively, were not included in computing diluted earnings per share because they were considered anti-dilutive. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, approximately ~~1,200~~15,900 and ~~15,600~~19,300 restricted stock units, respectively, were not included in computing diluted earnings per share because they were considered anti-dilutive. No stock options were considered

anti-dilutive during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, and no stock options were outstanding during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

12. SUMMARIZED CONDENSED CONSOLIDATING INFORMATION

In connection with the offerings of the 2021 Notes and the 2023 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 2021 Notes and the 2023 Notes, subject to release under certain customary circumstances as described below. In connection with the assumption of the 2026 Notes as a result of the CCP Merger (see Note 3, “CCP Merger and Recent Real Estate Acquisitions”), the Company has fully and unconditionally guaranteed the 2026 Notes, subject to release under certain 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 2021 Notes and the 2023 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 2021 Notes or the 2023 Notes or another Guarantor, provided that the surviving entity remains a Guarantor;

A subsidiary Guarantor is declared “unrestricted” for covenant purposes under the indentures governing the 2021 Notes or the 2023 Notes;

The requirements for legal defeasance or covenant defeasance or to discharge the indentures governing the 2021 Notes or the 2023 Notes have been satisfied;

A liquidation or dissolution, to the extent permitted under the indentures governing the 2021 Notes or the 2023 Notes, of a subsidiary Guarantor; or

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.

The Company will be automatically and unconditionally released from its obligations under the guarantees with respect to the 2026 Notes in the event of:

A liquidation or dissolution, to the extent permitted under the indenture governing the 2026 Notes;

A merger or consolidation, provided that the surviving entity remains a Guarantor; or

The requirements for legal defeasance or covenant defeasance or to discharge the indenture governing the 2026 Notes have been satisfied.

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,~~Operating Partnership, Sabra Capital Corporation, the Guarantors, and the Company’s non-Guarantor subsidiaries with respect to the 2021 Notes and the 2023 Notes. This summarized financial information has been prepared from the books and records maintained by the Company, the ~~Issuers,~~Operating Partnership, Sabra Capital Corporation, 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,~~Operating Partnership, Sabra Capital Corporation, the Guarantors or non-Guarantor subsidiaries operated as independent entities. Sabra’s investments in its consolidated subsidiaries are presented based upon ~~Sabra's~~Sabra’s proportionate share of each ~~subsidiary's~~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,~~Operating Partnership only, Sabra Capital Corporation only, the combined Guarantor subsidiaries and the combined non-Guarantor subsidiaries, are as follows:

CONDENSED CONSOLIDATING BALANCE SHEET

~~September~~June 30, ~~2017~~2018

(in thousands)

(unaudited)


						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾		Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated		Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾		Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated
Assets
Real estate investments, net of accumulated depreciation	$	174		$	—	$	—	$	1,832,335	$	4,140,276	$	—		$	5,972,785	$	341		$	—	$	—	$	1,666,116	$	4,327,225	$	—		$	5,993,682
Loans receivable and other investments, net	(140		)	—		—		89,911		59,995		—			149,766		(356		)	—		—		52,315		55,269		—			107,228
Investment in unconsolidated joint venture																	—			—		—		—		348,950		—			348,950
Cash and cash equivalents	25,214			—		—		1,014		4,645		—			30,873		31,269			—		—		1,405		6,135		—			38,809
Restricted cash	—			—		—		2,038		10,451		—			12,489		—			—		—		174,913		11,932		—			186,845
Lease intangible assets, net	—			—		—		22,801		240,016		—			262,817		—			—		—		16,815		139,451		—			156,266
Accounts receivable, prepaid expenses and other assets, net	2,219			30,483		—		87,304		43,771		(4,200		)	159,577		(536		)	46,700		—		84,809		73,017		(7,626		)	196,364
Intercompany	2,618,618			2,339,272		—		—		—		(4,957,890		)	—		2,186,044			2,727,032		—		—		—		(4,913,076		)	—
Investment in subsidiaries	744,470			1,040,196		—		12,833		—		(1,797,499		)	—		1,209,953			1,538,155		—		15,830		—		(2,763,938		)	—
Total assets	$	3,390,555		$	3,409,951	$	—	$	2,048,236	$	4,499,154	$	(6,759,589	)	$	6,588,307	$	3,426,715		$	4,311,887	$	—	$	2,012,203	$	4,961,979	$	(7,684,640	)	$	7,028,144

Liabilities
Secured debt, net	$	—		$	—	$	—	$	—	$	257,571	$	—		$	257,571	$	—		$	—	$	—	$	—	$	253,567	$	—		$	253,567
Revolving credit facility	—			251,000		—		—		—		—			251,000		—			676,000		—		—		—		—			676,000
Term loans, net	—			1,091,939		—		98,948		—		—			1,190,887		—			1,093,314		—		94,084		—		—			1,187,398
Senior unsecured notes, net	—			1,305,996		—		—		—		—			1,305,996		—			1,306,842		—		—		—		—			1,306,842
Accounts payable and accrued liabilities	21,452			16,546		—		7,230		75,118		(4,200		)	116,146		23,172			25,778		—		3,576		60,439		(7,626		)	105,339
Lease intangible liabilities, net	—			—		—		—		94,878		—			94,878		—			—		—		—		91,073		—			91,073
Intercompany	—			—		—		941,667		4,016,223		(4,957,890		)	—		—			—		—		636,037		4,277,039		(4,913,076		)	—
Total liabilities	21,452			2,665,481		—		1,047,845		4,443,790		(4,962,090		)	3,216,478		23,172			3,101,934		—		733,697		4,682,118		(4,920,702		)	3,620,219

Total Sabra Health Care REIT, Inc. stockholders' equity	3,369,103			744,470		—		1,000,391		52,638		(1,797,499		)	3,369,103		3,403,543			1,209,953		—		1,278,506		275,479		(2,763,938		)	3,403,543
Noncontrolling interests	—			—		—		—		2,726		—			2,726		—			—		—		—		4,382		—			4,382
Total equity	3,369,103			744,470		—		1,000,391		55,364		(1,797,499		)	3,371,829		3,403,543			1,209,953		—		1,278,506		279,861		(2,763,938		)	3,407,925
Total liabilities and equity	$	3,390,555		$	3,409,951	$	—	$	2,048,236	$	4,499,154	$	(6,759,589	)	$	6,588,307	$	3,426,715		$	4,311,887	$	—	$	2,012,203	$	4,961,979	$	(7,684,640	)	$	7,028,144


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, ~~2016~~2017

(in thousands)

(unaudited)


						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾		Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated		Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾		Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated
Assets
Real estate investments, net of accumulated depreciation	$	150		$	—	$	—	$	1,860,850	$	148,939	$	—		$	2,009,939	$	324		$	—	$	—	$	1,756,933	$	4,237,175	$	—		$	5,994,432
Loans receivable and other investments, net	(410		)	—		—		96,446		—		—			96,036		(97		)	—		—		55,297		59,190		—			114,390
Cash and cash equivalents	18,168			—		—		2,675		4,820		—			25,663		511,670			—		—		449		6,513		—			518,632
Restricted cash	—			—		—		57		8,945		—			9,002		—			—		—		36,910		31,907		—			68,817
Lease intangible assets, net	—			—		—		25,489		761		—			26,250		—			—		—		17,577		149,542		—			167,119
Accounts receivable, prepaid expenses and other assets, net	2,859			18,023		—		70,812		9,244		(1,909		)	99,029		3,499			36,073		—		80,739		53,765		(5,189		)	168,887
Intercompany	368,281			687,493		—		—		25,125		(1,080,899		)	—		2,043,402			2,721,979		—		—		—		(4,765,381		)	—
Investment in subsidiaries	640,238			907,136		—		12,364		—		(1,559,738		)	—		890,462			1,198,305		—		14,661		—		(2,103,428		)	—
Total assets	$	1,029,286		$	1,612,652	$	—	$	2,068,693	$	197,834	$	(2,642,546	)	$	2,265,919	$	3,449,260		$	3,956,357	$	—	$	1,962,566	$	4,538,092	$	(6,873,998	)	$	7,032,277

Liabilities
Secured debt, net	$	—		$	—	$	—	$	—	$	160,752	$	—		$	160,752	$	—		$	—	$	—	$	—	$	256,430	$	—		$	256,430
Revolving credit facility	—			26,000		—		—		—		—			26,000		—			641,000		—		—		—		—			641,000
Term loans, net	—			243,626		—		92,047		—		—			335,673		—			1,092,397		—		98,377		—		—			1,190,774
Senior unsecured notes, net	—			688,246		—		—		—		—			688,246		—			1,306,286		—		—		—		—			1,306,286
Accounts payable and accrued liabilities	13,712			14,542		—		11,606		1,688		(1,909		)	39,639		16,453			26,212		—		3,560		61,487		(5,189		)	102,523
Lease intangible liabilities, net																	—			—		—		—		98,015		—			98,015
Intercompany	—			—		—		1,080,899		—		(1,080,899		)	—		—			—		—		785,120		3,980,261		(4,765,381		)	—
Total liabilities	13,712			972,414		—		1,184,552		162,440		(1,082,808		)	1,250,310		16,453			3,065,895		—		887,057		4,396,193		(4,770,570		)	3,595,028

Total Sabra Health Care REIT, Inc. stockholders' equity	1,015,574			640,238		—		884,141		35,359		(1,559,738		)	1,015,574		3,432,807			890,462		—		1,075,509		137,457		(2,103,428		)	3,432,807
Noncontrolling interests	—			—		—		—		35		—			35		—			—		—		—		4,442		—			4,442
Total equity	1,015,574			640,238		—		884,141		35,394		(1,559,738		)	1,015,609		3,432,807			890,462		—		1,075,509		141,899		(2,103,428		)	3,437,249
Total liabilities and equity	$	1,029,286		$	1,612,652	$	—	$	2,068,693	$	197,834	$	(2,642,546	)	$	2,265,919	$	3,449,260		$	3,956,357	$	—	$	1,962,566	$	4,538,092	$	(6,873,998	)	$	7,032,277


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Three Months Ended ~~September~~June 30, ~~2017~~2018

(dollars in thousands, except per share amounts)

(unaudited)


							Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																				Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated			Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Revenues:
Rental income	$	—		$	—		$	—	$	54,640		$	48,692		$	(3,187	)	$	100,145		$	—		$	—		$	—	$	44,560		$	103,989		$	(4,320	)	$	144,229
Interest and other income	8			47			—		1,991			2,091			(47		)	4,090			40			96			—		1,198			3,315			(96		)	4,553
Resident fees and services	—			—			—		—			7,554			—			7,554			—			—			—		—			17,530			—			17,530
Total revenues	8			47			—		56,631			58,337			(3,234		)	111,789			40			96			—		45,758			124,834			(4,416		)	166,312
Expenses:
Depreciation and amortization	217			—			—		15,500			10,216			—			25,933			222			—			—		14,146			32,460			—			46,828
Interest	—			21,765			—		792			2,011			—			24,568			—			33,415			—		810			2,628			(96		)	36,757
Operating expenses	—			—			—		—			8,289			(3,187		)	5,102			—			—			—		—			16,619			(4,320		)	12,299
General and administrative	10,058			16			—		1,671			1,199			—			12,944			8,009			14			—		379			869			—			9,271
Merger and acquisition costs	23,287			—			—		12			—			—			23,299			112			—			—		—			—			—			112
Provision for doubtful accounts and loan losses	533			—			—		4,616			—			—			5,149
Provision for (recovery of) doubtful accounts and loan losses																					311			—			—		(985		)	—			—			(674		)
Impairment of real estate																					—			—			—		881			—			—			881
Total expenses	34,095			21,781			—		22,591			21,715			(3,187		)	96,995			8,654			33,429			—		15,231			52,576			(4,416		)	105,474
Other income (expense):
Loss on extinguishment of debt	—			(422		)	—		(131		)	—			—			(553		)
Other income:
Other income (expense)	349			688			—		(986		)	—			—			51			—			32			—		(32		)	—			—			—
Net gain (loss) on sales of real estate	—			—			—		614			(32		)	—			582
Total other income (expense)	349			266			—		(503		)	(32		)	—			80

Net gain on sales of real estate																					—			—			—		141,918			985			—			142,903
Total other income																					—			32			—		141,886			985			—			142,903
Income in subsidiary	49,145			70,613			—		1,808			—			(121,566		)	—			209,456			242,758			—		1,871			—			(454,085		)	—
Income before income tax expense	15,407			49,145			—		35,345			36,590			(121,613		)	14,874
Income tax benefit (expense)	(265		)	—			—		482			(22		)	—			195
Income before loss from unconsolidated joint venture and income tax expense																					200,842			209,457			—		174,284			73,243			(454,085		)	203,741
Loss from unconsolidated joint venture																					—			—			—		—			(2,347		)	—			(2,347		)
Income tax expense																					(55		)	(1		)	—		(489		)	(60		)	—			(605		)
Net income	15,142			49,145			—		35,827			36,568			(121,613		)	15,069			200,787			209,456			—		173,795			70,836			(454,085		)	200,789
Net income attributable to noncontrolling interests	—			—			—		—			26			—			26			—			—			—		—			(2		)	—			(2		)
Net income attributable to Sabra Health Care REIT, Inc.	15,142			49,145			—		35,827			36,594			(121,613		)	15,095			200,787			209,456			—		173,795			70,834			(454,085		)	200,787
Preferred stock dividends	(2,561		)	—			—		—			—			—			(2,561		)	(7,207		)	—			—		—			—			—			(7,207		)
Net income attributable to common stockholders	$	12,581		$	49,145		$	—	$	35,827		$	36,594		$	(121,613	)	$	12,534		$	193,580		$	209,456		$	—	$	173,795		$	70,834		$	(454,085	)	$	193,580

Net loss attributable to common stockholders, per:
Net income attributable to common stockholders, per:
Basic common share																		$	0.11																			$	1.09
Diluted common share																		$	0.11																			$	1.08
Weighted-average number of common shares outstanding, basic																		112,149,638																				178,314,750
Weighted-average number of common shares outstanding, diluted																		112,418,100																				178,684,024


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Three Months Ended ~~September~~June 30, ~~2016~~2017

(dollars in thousands, except per share amounts)

(unaudited)


						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																			Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated			Parent Company⁽¹⁾			Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Revenues:
Rental income	$	—		$	—	$	—	$	52,233		$	5,187		$	(587	)	$	56,833		$	—		$	—	$	—	$	52,442		$	4,656		$	(1,194	)	$	55,904
Interest and other income	1			—		—		3,156			68			(68		)	3,157			6			—		—		2,039			—			(18		)	2,027
Resident fees and services	—			—		—		—			1,937			—			1,937			—			—		—		—			6,805			—			6,805
Total revenues	1			—		—		55,389			7,192			(655		)	61,927			6			—		—		54,481			11,461			(1,212		)	64,736
Expenses:
Depreciation and amortization	211			—		—		15,320			1,571			—			17,102			216			—		—		15,425			1,579			—			17,220
Interest	—			13,215		—		878			1,701			—			15,794			—			13,516		—		715			1,631			—			15,862
Operating expenses	—			—		—		—			1,991			(587		)	1,404			—			—		—		—			5,619			(1,212		)	4,407
General and administrative	4,527			21		—		375			43			—			4,966			4,063			17		—		991			55			—			5,126
Merger and acquisition costs	(105		)	—		—		1,156			—			—			1,051			5,883			—		—		4			—			—			5,887
Provision for doubtful accounts and loan losses	566			—		—		(26		)	—			—			540			227			—		—		308			—			—			535
Total expenses	5,199			13,236		—		17,703			5,306			(587		)	40,857			10,389			13,533		—		17,443			8,884			(1,212		)	49,037
Other income (expense):
Other income (expense)	2,636			400		—		(91		)	—			—			2,945			916			703		—		(665		)	(13		)	—			941
Net gain on sales of real estate	—			—		—		1,451			—			—			1,451			—			—		—		4,026			6			—			4,032
Total other income (expense)	2,636			400		—		1,360			—			—			4,396			916			703		—		3,361			(7		)	—			4,973

Income in subsidiary	28,073			40,909				1,711			—			(70,693		)	—			29,894			42,724		—		1,785			—			(74,403		)	—
Income before income tax expense	25,511			28,073		—		40,757			1,886			(70,761		)	25,466
Income tax expense	(106		)	—		—		(27		)	(21		)	—			(154		)
Income before income tax benefit (expense)																				20,427			29,894		—		42,184			2,570			(74,403		)	20,672
Income tax benefit (expense)																				93			—		—		(227		)	(2		)	—			(136		)
Net income	25,405			28,073		—		40,730			1,865			(70,761		)	25,312			20,520			29,894		—		41,957			2,568			(74,403		)	20,536
Net loss attributable to noncontrolling interests	—			—		—		—			25			—			25
Net income attributable to noncontrolling interests																				—			—		—		—			(16		)	—			(16		)
Net income attributable to Sabra Health Care REIT, Inc.	25,405			28,073		—		40,730			1,890			(70,761		)	25,337			20,520			29,894		—		41,957			2,552			(74,403		)	20,520
Preferred stock dividends	(2,561		)	—		—		—			—			—			(2,561		)	(2,560		)	—		—		—			—			—			(2,560		)
Net income attributable to common stockholders	$	22,844		$	28,073	$	—	$	40,730		$	1,890		$	(70,761	)	$	22,776		$	17,960		$	29,894	$	—	$	41,957		$	2,552		$	(74,403	)	$	17,960

Net loss attributable to common stockholders, per:
Net income attributable to common stockholders, per:
Basic common share																	$	0.35																		$	0.27
Diluted common share																	$	0.35																		$	0.27
Weighted-average number of common shares outstanding, basic																	65,312,288																			65,438,739
Weighted-average number of common shares outstanding, diluted																	65,591,428																			65,670,853


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Six Months Ended June 30, 2018

(dollars in thousands, except per share amounts)

(unaudited)



							Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Revenues:
Rental income	$	—		$	—		$	—	$	90,024		$	207,013		$	(8,553	)	$	288,484
Interest and other income	50			208			—		2,465			6,376			(208		)	8,891
Resident fees and services	—			—			—		—			35,023			—			35,023
Total revenues	50			208			—		92,489			248,412			(8,761		)	332,398
Expenses:
Depreciation and amortization	443			—			—		29,076			65,314			—			94,833
Interest	—			65,980			—		1,601			5,202			(208		)	72,575
Operating expenses	—			—			—		—			32,976			(8,553		)	24,423
General and administrative	13,831			29			—		810			2,468			—			17,138
Merger and acquisition costs	448			—			—		—			(6		)	—			442
Provision for (recovery of) doubtful accounts and loan losses	2,492			—			—		(1,956		)	3			—			539
Impairment of real estate	—			—			—		1,413			—			—			1,413
Total expenses	17,214			66,009			—		30,944			105,957			(8,761		)	211,363
Other income:
Other income	1,977			233			—		378			232			—			2,820
Net gain on sales of real estate	—			—			—		141,862			569			—			142,431
Total other income	1,977			233			—		142,240			801			—			145,251
Income in subsidiary	278,798			344,367			—		3,725			—			(626,890		)	—
Income before loss from unconsolidated joint venture and income tax expense	263,611			278,799			—		207,510			143,256			(626,890		)	266,286
Loss from unconsolidated joint venture	—			—			—		—			(1,901		)	—			(1,901		)
Income tax expense	(353		)	(1		)	—		(542		)	(219		)	—			(1,115		)
Net income	263,258			278,798			—		206,968			141,136			(626,890		)	263,270
Net income attributable to noncontrolling interests	—			—			—		—			(12		)	—			(12		)
Net income attributable to Sabra Health Care REIT, Inc.	263,258			278,798			—		206,968			141,124			(626,890		)	263,258
Preferred stock dividends	(9,768		)	—			—		—			—			—			(9,768		)
Net income attributable to common stockholders	$	253,490		$	278,798		$	—	$	206,968		$	141,124		$	(626,890	)	$	253,490
Net income attributable to common stockholders, per:
Basic common share																		$	1.42
Diluted common share																		$	1.42
Weighted-average number of common shares outstanding, basic																		178,304,733
Weighted-average number of common shares outstanding, diluted																		178,600,789


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the ~~Nine~~Six Months Ended ~~September~~June 30, 2017

(dollars in thousands, except per share amounts)

(unaudited)


							Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾				Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination				Consolidated			Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Revenues:
Rental income	$	—		$	—		$	—	$	160,121			$	58,316		$	(5,164	)		$	213,273		$	—		$	—		$	—	$	105,481		$	9,625		$	(1,978	)	$	113,128
Interest and other income	21			47			—		6,014				2,045			(65		)		8,062			13			—			—		3,977			—			(18		)	3,972
Resident fees and services	—			—			—		—				17,840			—				17,840			—			—			—		—			10,286			—			10,286
Total revenues	21			47			—		166,135				78,201			(5,229		)	��	239,175			13			—			—		109,458			19,911			(1,996		)	127,386
Expenses:
Depreciation and amortization	649			—			—		47,882				13,759			—				62,290			432			—			—		32,381			3,544			—			36,357
Interest	—			48,689			—		2,237				5,292			—				56,218			—			26,924			—		1,445			3,281			—			31,650
Operating expenses	—			—			—		—				17,111			(5,182		)		11,929			—			—			—		—			8,823			(1,996		)	6,827
General and administrative	19,380			47			—		3,429				1,303			—				24,159			9,322			31			—		1,758			104			—			11,215
Merger and acquisition costs	29,703			—			—		47				—			—				29,750			6,417			—			—		34			—			—			6,451
Provision for doubtful accounts and loan losses	615			—			—		6,839				—			—				7,454			82			—			—		2,223			—			—			2,305
Total expenses	50,347			48,736			—		60,434				37,465			(5,182		)		191,800			16,253			26,955			—		37,841			15,752			(1,996		)	94,805
Other income (expense):
Loss on extinguishment of debt	—			(422		)	—		(131		)		—			—				(553		)
Other income (expense)	2,634			707			—		(220		)		—			—				3,121
Net gain (loss) on sale of real estate	—			—			—		4,640				(26		)	—				4,614
Total other income (expense)	2,634			285			—		4,289				(26		)	—				7,182

Other income:
Other income																							2,283			737			—		50			—			—			3,070
Net gain on sales of real estate																							—			—			—		4,026			6			—			4,032
Total other income																							2,283			737			—		4,076			6			—			7,102
Income in subsidiary	102,474			150,879			—		5,372				—			(258,725		)		—			53,331			79,550			—		3,564			—			(136,445		)	—
Income before income tax expense	54,782			102,475			—		115,362				40,710			(258,772		)		54,557			39,374			53,332			—		79,257			4,165			(136,445		)	39,683
Income tax expense	(297		)	(1		)	—		255				(118		)	—				(161		)	(31		)	(1		)	—		(227		)	(97		)	—			(356		)
Net income	54,485			102,474			—		115,617				40,592			(258,772		)		54,396			39,343			53,331			—		79,030			4,068			(136,445		)	39,327
Net loss attributable to noncontrolling interests	—			—			—		—				42			—				42			—			—			—		—			16			—			16
Net income attributable to Sabra Health Care REIT, Inc.	54,485			102,474			—		115,617				40,634			(258,772		)		54,438			39,343			53,331			—		79,030			4,084			(136,445		)	39,343
Preferred stock dividends	(7,682		)	—			—		—				—			—				(7,682		)	(5,121		)	—			—		—			—			—			(5,121		)
Net income attributable to common stockholders	$	46,803		$	102,474		$	—	$	115,617		—	$	40,634		$	(258,772	)		$	46,756		$	34,222		$	53,331		$	—	$	79,030		$	4,084		$	(136,445	)	$	34,222

Net loss attributable to common stockholders, per:
Net income attributable to common stockholders, per:
Basic common share																				$	0.58																			$	0.52
Diluted common share																				$	0.57																			$	0.52
Weighted-average number of common shares outstanding, basic																				81,150,846																				65,396,146
Weighted-average number of common shares outstanding, diluted																				81,429,044																				65,694,019


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the ~~Nine~~Three Months Ended ~~September~~June 30, ~~2016~~2018

(dollars in ~~thousands, except per share amounts)~~thousands)

(unaudited)

Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾

Parent
Company⁽¹⁾

Operating Partnership⁽²⁾

Sabra Capital Corporation⁽³⁾

Combined
Guarantor
Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾

Combined Non-
Guarantor
Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾
Elimination Consolidated
Revenues:
Rental income $ —
$ —
$ —
$ 153,658
$ 15,533
$ (1,749 ) $ 167,442
Interest and other income 3
—
—
25,490
196
(207 ) 25,482
Resident fees and services —
—
—
—
5,811
—
5,811
Total revenues 3
—
—
179,148
21,540
(1,956 ) 198,735
Expenses:
Depreciation and amortization 595
—
—
45,955
4,723
—
51,273
Interest —
41,238
—
2,772
5,129
—
49,139
Operating expenses —
—
—
—
6,016
(1,760 ) 4,256
General and administrative 12,440
42
—
902
129
—
13,513
Merger and acquisition costs 50
—
—
1,171
1
—
1,222
Provision for doubtful accounts and loan losses
(89 ) —
—
3,375
—
—
3,286
Impairment of real estate —
—
—
29,811
—
—
29,811
Total expenses 12,996
41,280
—
83,986
15,998
(1,760 ) 152,500
Other income (expense):
Loss on extinguishment of debt —
(468 ) —
(88 ) —
—
(556 )
Other income (expense) 4,732
916
—
(230 ) (73 ) —
5,345
Net gain on sales of real estate —
—
—
(3,203 ) —
—
(3,203 )
Total other income (expense) 4,732
448
—
(3,521 ) (73 ) —
1,586

Income in subsidiary 55,783
96,616
—
5,081
—
(157,480 ) —
Income before income tax expense 47,522
55,784
—
96,722
5,469
(157,676 ) 47,821
Income tax expense (225 ) (1 ) —
(512 ) (48 ) —
(786 )
Net income 47,297
55,783
—
96,210
5,421
(157,676 ) 47,035
Net loss attributable to noncontrolling interests —
—
—
—
66
—
66
Net income attributable to Sabra Health Care REIT, Inc. 47,297
55,783
—
96,210
5,487
(157,676 ) 47,101
Preferred stock dividends (7,682 ) —
—
—
—
—
(7,682 )
Net income attributable to common stockholders $ 39,615
$ 55,783
$ —
$ 96,210
$ 5,487
$ (157,676 ) $ 39,419

Net loss attributable to common stockholders, per:
Basic common share $ 0.60
Diluted common share $ 0.60
Weighted-average number of common shares outstanding, basic 65,285,591
Weighted-average number of common shares outstanding, diluted 65,470,589



					Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾		Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Net income	$	200,787	$	209,456	$	—	$	173,795		$	70,836		$	(454,085	)	$	200,789
Other comprehensive income (loss):
Unrealized gain (loss), net of tax:
Foreign currency translation gain (loss)	—		1,064		—		(608		)	(195		)	—			261
Unrealized gain on cash flow hedges	—		3,335		—		3			—			—			3,338
Total other comprehensive income (loss)	—		4,399		—		(605		)	(195		)	—			3,599
Comprehensive income	200,787		213,855		—		173,190			70,641			(454,085		)	204,388
Comprehensive income attributable to noncontrolling interest	—		—		—		—			(2		)	—			(2		)
Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	200,787	$	213,855	$	—	$	173,190		$	70,639		$	(454,085	)	$	204,386


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME~~

~~For the~~ ~~Three Months EndedSeptember 30, 2017~~

~~(dollars in thousands)~~

~~(unaudited)~~


⁽¹⁾	~~The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.~~


⁽²⁾	~~The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.~~


⁽³⁾	~~Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.~~


⁽⁴⁾	~~The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.~~


⁽⁵⁾	~~The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.~~


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.


⁽⁷⁾	~~Amounts are net of provision for income taxes of $0.4 million for the three months ended September 30, 2017.~~

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended ~~September~~June 30, ~~2016~~2017

(dollars in thousands)

(unaudited)



						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾		Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Net income	$	20,520	$	29,894		$	—	$	41,957		$	2,568		$	(74,403	)	$	20,536
Other comprehensive (loss) income:
Unrealized gain (loss), net of tax:
Foreign currency translation (loss) gain	—		(415		)	—		833			280			—			698
Unrealized gain (loss) on cash flow hedges	—		285			—		(188		)	—			—			97
Total other comprehensive (loss) income	—		(130		)	—		645			280			—			795
Comprehensive income	20,520		29,764			—		42,602			2,848			(74,403		)	21,331
Comprehensive income attributable to noncontrolling interest	—		—			—		—			(16		)	—			(16		)
Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	20,520	$	29,764		$	—	$	42,602		$	2,832		$	(74,403	)	$	21,315


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

(dollars in thousands)

(unaudited)


						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾		Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated		Parent Company⁽¹⁾		Operating Partnership⁽²⁾		Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Net income	$	54,485	$	102,474		$	—	$	115,617		$	40,592	$	(258,772	)	$	54,396	$	263,258	$	278,798	$	—	$	206,968		$	141,136		$	(626,890	)	$	263,270
Other comprehensive income (loss):
Unrealized gain (loss), net of tax:
Foreign currency translation gain (loss)	—		(2,718		)	—		2,466			804		—			552		—		1,905		—		(1,536		)	(482		)	—			(113		)
Unrealized gain (loss) on cash flow hedges⁽⁷⁾	—		5,977			—		(495		)	—		—			5,482		—		13,238		—		(2		)	—			—			13,236
Total other comprehensive income (loss)	—		3,259			—		1,971			804		—			6,034		—		15,143		—		(1,538		)	(482		)	—			13,123
Comprehensive income	54,485		105,733			—		117,588			41,396		(258,772		)	60,430		263,258		293,941		—		205,430			140,654			(626,890		)	276,393
Comprehensive loss attributable to noncontrolling interest	—		—			—		—			42		—			42
Comprehensive income attributable to noncontrolling interest																		—		—		—		—			(12		)	—			(12		)
Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	54,485	$	105,733		$	—	$	117,588		$	41,438	$	(258,772	)	$	60,472	$	263,258	$	293,941	$	—	$	205,430		$	140,642		$	(626,890	)	$	276,381


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.


⁽⁷⁾	~~Amounts are net of provision for income taxes of $0.6 million for the nine months ended September 30, 2017.~~

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

(dollars in thousands)

(unaudited)


						Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																	Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾		Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾		Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated			Parent Company⁽¹⁾		Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾		Elimination			Consolidated
Net income	$	47,297	$	55,783		$	—	$	96,210	$	5,421	$	(157,676	)	$	47,035		$	39,343	$	53,331		$	—	$	79,030		$	4,068	$	(136,445	)	$	39,327
Other comprehensive income (loss):
Other comprehensive (loss) income:
Unrealized gain (loss), net of tax:
Foreign currency translation gain (loss)	—		(2,204		)	—		1,144		311		—			(749		)
Unrealized loss on cash flow hedges	—		(1,300		)	—		—		—		—			(1,300		)
Total other comprehensive income (loss)	—		(3,504		)	—		1,144		311		—			(2,049		)
Foreign currency translation (loss) gain																		—		(1,367		)	—		1,131			376		—			140
Unrealized gain (loss) on cash flow hedges																		—		1,013			—		(188		)	—		—			825
Total other comprehensive (loss) income																		—		(354		)	—		943			376		—			965
Comprehensive income	47,297		52,279			—		97,354		5,732		(157,676		)	44,986			39,343		52,977			—		79,973			4,444		(136,445		)	40,292
Comprehensive loss attributable to noncontrolling interest	—		—			—		—		66		—			66			—		—			—		—			16		—			16
Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	47,297	$	52,279		$	—	$	97,354	$	5,798	$	(157,676	)	$	45,052		$	39,343	$	52,977		$	—	$	79,973		$	4,460	$	(136,445	)	$	40,308


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2018

(in thousands)

(unaudited)



							Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Net cash provided by operating activities	$	204,440		$	—		$	—	$	1,041		$	6,072		$	—		$	211,553
Cash flows from investing activities:
Acquisition of real estate	—			—			—		(29,711		)	(184,271		)	—			(213,982		)
Origination and fundings of loans receivable	—			—			—		(1,973		)	(26,184		)	—			(28,157		)
Origination and fundings of preferred equity investments	—			—			—		(945		)	—			—			(945		)
Additions to real estate	(40		)	—			—		(4,660		)	(12,117		)	—			(16,817		)
Repayments of loans receivable	—			—			—		6,577			32,310			—			38,887
Repayments of preferred equity investments	—			—			—		375			—			—			375
Investment in unconsolidated JV	—			—			—		—			(354,461		)	—			(354,461		)
Net proceeds from the sales of real estate	—			—			—		232,059			46,142			—			278,201
Distribution from subsidiaries	2,669			2,669			—		—			—			(5,338		)	—
Intercompany financing	(378,485		)	(413,473		)	—		—			—			791,958			—
Net cash (used in) provided by investing activities	(375,856		)	(410,804		)	—		201,722			(498,581		)	786,620			(296,899		)
Cash flows from financing activities:
Net borrowings from revolving credit facility	—			35,000			—		—			—			—			35,000
Principal payments on secured debt	—			—			—		—			(2,128		)	—			(2,128		)
Payments of deferred financing costs	—			(12		)	—		—			—			—			(12		)
Distributions to noncontrolling interest	—			—			—		—			(72		)	—			(72		)
Preferred stock redemption	(143,750		)	—			—		—			—			—			(143,750		)
Issuance of common stock, net	(499		)	—			—		—			—			—			(499		)
Dividends paid on common and preferred stock	(164,736		)	—			—		—			—			—			(164,736		)
Distribution to parent	—			(2,669		)	—		—			(2,669		)	5,338			—
Intercompany financing	—			378,485			—		(63,658		)	477,131			(791,958		)	—
Net cash (used in) provided by financing activities	(308,985		)	410,804			—		(63,658		)	472,262			(786,620		)	(276,197		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(480,401		)	—			—		139,105			(20,247		)	—			(361,543		)
Effect of foreign currency translation on cash, cash equivalents and restricted cash	—			—			—		(146		)	(106		)	—			(252		)
Cash, cash equivalents and restricted cash, beginning of period	511,670			—			—		37,359			38,420			—			587,449
Cash, cash equivalents and restricted cash, end of period	$	31,269		$	—		$	—	$	176,318		$	18,067		$	—		$	225,654


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the ~~Nine~~Six Months Ended ~~September~~June 30, 2017

~~(in thousands)~~

~~(unaudited)~~

Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾

Parent
Company⁽¹⁾

Operating Partnership⁽²⁾

Sabra Capital Corporation⁽³⁾

Combined
Guarantor
Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾

Combined Non-
Guarantor
Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾
Elimination Consolidated
Net cash provided by operating activities $ 40,567
$ —
$ —
$ 4,122
$ 5,082
$ —
$ 49,771
Cash flows from investing activities:

Acquisition of real estate —
—
—
(393,064 ) —
—
(393,064 )
Cash received in CCP Merger 77,858
—
—
—
—
—
77,858
Origination and fundings of loans receivable —
—
—
(1,488 ) (4,154 ) —
(5,642 )
Origination and fundings of preferred equity investments —
—
—
(2,713 ) —
—
(2,713 )
Additions to real estate (22 ) —
—
(2,847 ) (364 ) —
(3,233 )
Repayment of loans receivable —
—
—
2,221
6,489
—
8,710
Repayments of preferred equity investments —
—
—
3,239
—
—
3,239
Net proceeds from the sales of real estate —
—
—
11,328
395
—
11,723
Distribution from subsidiaries 2,474
2,474
—
—
—
(4,948 ) —
Intercompany financing (346,044 ) (374,728 ) —
—
—
720,772
—
Net cash provided by (used in) investing activities (265,734 ) (372,254 ) —
(383,324 ) 2,366
715,824
(303,122 )
Cash flows from financing activities:

Net repayments of revolving credit facility —
(137,000 ) —
—
—
—
(137,000 )
Proceeds from term loans —
181,000
—
—
—
—
181,000
Principal payments on secured debt —
—
—
—
(3,094 ) —
(3,094 )
Payments of deferred financing costs —
(15,316 ) —
—
—
—
(15,316 )
Issuance of common stock, net 319,026
—
—
—
—
—
319,026
Dividends paid on common and preferred stock (86,813 ) —
—
—
—
—
(86,813 )
Distribution to parent —
(2,474 ) —
—
(2,474 ) 4,948
—
Intercompany financing —
346,044
—
377,458
(2,730 ) (720,772 ) —
Net cash provided by (used in) financing activities 232,213
372,254
—
377,458
(8,298 ) (715,824 ) 257,803
Net increase (decrease) in cash and cash equivalents 7,046
—
—
(1,744 ) (850 ) —
4,452
Effect of foreign currency translation on cash and cash equivalents —
—
—
83
675
—
758
Cash and cash equivalents, beginning of period 18,168
—
—
2,675
4,820
—
25,663
Cash and cash equivalents,
end of period
$ 25,214
$ —
$ —
$ 1,014
$ 4,645
$ —
$ 30,873


⁽¹⁾	~~The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.~~


⁽²⁾	~~The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.~~


⁽³⁾	~~Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.~~


⁽⁴⁾	~~The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.~~


⁽⁵⁾	~~The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.~~


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~For the~~ ~~Nine Months Ended September 30, 2016~~

(in thousands)

(unaudited)


							Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾																				Combined Non-Guarantor Subsidiaries of 2026 Notes⁽⁶⁾
	Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated			Parent Company⁽¹⁾			Operating Partnership⁽²⁾			Sabra Capital Corporation⁽³⁾		Combined Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁴⁾			Combined Non- Guarantor Subsidiaries of 2021 Notes and 2023 Notes⁽⁵⁾			Elimination			Consolidated
Net cash provided by (used in) operating activities	$	113,886		$	—		$	—	$	10,683		$	9,247		$	—		$	133,816		$	49,670		$	—		$	—	$	(1,693	)	$	6,305		$	—		$	54,282
Cash flows from investing activities:
Acquisitions of real estate	—			—			—		(109,619		)	—			—			(109,619		)
Acquisition of real estate																					—			—			—		(14,456		)	—			—			(14,456		)
Origination and fundings of loans receivable	—			—			—		(9,478		)	—			—			(9,478		)	—			—			—		(927		)	—			—			(927		)
Origination and fundings of preferred equity investments	—			—			—		(6,845		)	—			—			(6,845		)	—			—			—		(76		)	—			—			(76		)
Additions to real estate	(124		)	—			—		(400		)	(377		)	—			(901		)	(12		)	—			—		(1,106		)	(176		)	—			(1,294		)
Repayment of loans receivable	—			—			—		214,947			—			—			214,947
Investment in subsidiaries	(200		)	(200		)	—		—			—			400			—
Repayments of loans receivable																					—			—			—		1,547			—			—			1,547
Repayments of preferred equity investments																					—			—			—		2,766			—			—			2,766
Net proceeds from the sale of real estate	—			—			—		85,449			—			—			85,449			—			—			—		6,099			—			—			6,099
Distribution from subsidiaries	6,404			6,404			—		—			—			(12,808		)	—			2,474			2,474			—		—			—			(4,948		)	—
Intercompany financing	(17,684		)	197,638			—		—			—			(179,954		)	—			(1,667		)	(7,543		)	—		—			—			9,210			—
Net cash provided by (used in) investing activities	(11,604		)	203,842			—		174,054			(377		)	(192,362		)	173,553			795			(5,069		)	—		(6,153		)	(176		)	4,262			(6,341		)
Cash flows from financing activities:
Net repayments of revolving credit facility	—			(255,000		)	—		—			—			—			(255,000		)
Proceeds from term loans	—			45,000			—		24,360			—			—			69,360
Net borrowings from revolving credit facility																					—			6,000			—		—			—			—			6,000
Principal payments on secured debt	—			—			—		(10,766		)	(2,990		)	—			(13,756		)	—			—			—		—			(2,049		)	—			(2,049		)
Payments of deferred financing costs	—			(5,322		)	—		(611		)	—			—			(5,933		)	—			(124		)	—		—			—			—			(124		)
Issuance of common stock, net	(1,289		)	—			—		—			—			—			(1,289		)	(3,224		)	—			—		—			—			—			(3,224		)
Dividends paid on common and preferred stock	(89,283		)	—			—		—			—			—			(89,283		)	(60,691		)	—			—		—			—			—			(60,691		)
Contribution from parent	—			200			—		—			200			(400		)	—
Distribution to parent	—			(6,404		)	—		—			(6,404		)	12,808			—			—			(2,474		)	—		—			(2,474		)	4,948			—
Intercompany financing	—			17,684			—		(197,638		)	—			179,954			—			—			1,667			—		7,543			—			(9,210		)	—
Net cash provided by (used in) financing activities	(90,572		)	(203,842		)	—		(184,655		)	(9,194		)	192,362			(295,901		)
Net increase (decrease) in cash and cash equivalents	11,710			—			—		82			(324		)	—			11,468
Effect of foreign currency translation on cash and cash equivalents	—			—			—		756			16			—			772
Cash and cash equivalents, beginning of period	2,548			—			—		1,008			3,878			—			7,434
Cash and cash equivalents, end of period	$	14,258		$	—		$	—	$	1,846		$	3,570		$	—		$	19,674
Net cash (used in) provided by financing activities																					(63,915		)	5,069			—		7,543			(4,523		)	(4,262		)	(60,088		)
Net (decrease) increase in cash, cash equivalents and restricted cash																					(13,450		)	—			—		(303		)	1,606			—			(12,147		)
Effect of foreign currency translation on cash, cash equivalents and restricted cash																					—			—			—		69			61			—			130
Cash, cash equivalents and restricted cash, beginning of period																					18,168			—			—		2,732			13,765			—			34,665
Cash, cash equivalents and restricted cash, end of period																					$	4,718		$	—		$	—	$	2,498		$	15,432		$	—		$	22,648


⁽¹⁾	The Parent Company guarantees the 2021 Notes, the 2023 Notes and the 2026 Notes.


⁽²⁾	The Operating Partnership is the co-issuer of the 2021 Notes and the 2023 Notes and the issuer of the 2026 Notes.


⁽³⁾	Sabra Capital Corporation is the co-issuer of the 2021 Notes and the 2023 Notes.


⁽⁴⁾	The Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2021 Notes and the 2023 Notes.


⁽⁵⁾	The Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes consist of the subsidiaries that do not guarantee the 2021 Notes and the 2023 Notes.


⁽⁶⁾	None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2021 Notes and the 2023 Notes guarantee the 2026 Notes.

13. ~~PRO FORMA FINANCIAL INFORMATION~~

The following table summarizes, on an unaudited pro forma basis, the consolidated results of operations of the Company for the three and nine months ended September 30, 2017 and 2016 to give effect to the CCP Merger completed during the nine months ended September 30, 2017 and the acquisition of one skilled nursing/transitional care facility and three senior housing communities during the nine months ended September 30, 2016. The following unaudited pro forma information has been prepared to give effect to the acquisitions completed during the three and nine months ended September 30, 2017 and 2016 as if these acquisitions occurred on January 1, 2016 and 2015, respectively. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred on January 1, 2016 and 2015, nor does it purport to predict the results of operations for future periods.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands, except share and per share amounts)
Revenues $ 162,128
$ 158,245
$ 480,287
$ 491,049
Net income attributable to common stockholders 37,823
78,483
209,674
177,067

Net income attributable to common stockholders, per:
Basic common share $ 0.24
$ 0.49
$ 1.31
$ 1.11
Diluted common share $ 0.24
$ 0.49
$ 1.31
$ 1.11

Weighted-average number of common shares outstanding, basic 160,189,442
159,347,649
159,685,873
159,320,952
Weighted-average number of common shares outstanding, diluted 160,457,904
159,626,789
159,964,071
159,505,950

~~Merger and acquisition costs of $29.7 million related to the CCP Merger completed during the nine months ended September 30, 2017 are reflected above as if they were incurred on January 1, 2016.~~

~~14.~~ 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 ~~September~~June 30, ~~2017,~~2018, 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~~Company’s results of operations, financial condition or cash flows.

In addition, subsequent to its entry into the Merger Agreement, the Company, the Operating Partnership and Merger Sub were named, in addition to CCP and each member of CCP’s board of directors (collectively, “CCP Defendants”), in two putative class action lawsuits (~~Loeb v. Care Capital Properties, Inc., et al., Case No. 1:17-cv-00866-UNA (D. Del. June 30, 2017), and~~ ~~Klein v.Care Capital Properties, Inc., et al.,~~ Case No 1:99-mc-09999 (D. Del. July 10, 2017)) filed in the United States District Court for the District of Delaware. Four other related actions have been filed against only the CCP Defendants, three in the U.S. District Court for the District of Delaware (~~Gordon v. Care Capital Properties, Inc., et al., Case No. 1:17-cv-00859-LPS;~~ ~~Vineyard v. Care Capital Properties, Inc., et al., Case No. 1:17-cv-00878-LPS; and~~ ~~Parrish v. Care Capital Properties, Inc., et al., Case No. 1:17-cv-00909-LPS) and one in the U.S. District Court for the Northern District of Illinois (Douglas v. Care Capital Properties, Inc., et al., Case No. 1:17-cv-04942). The lawsuits all sought to recover under federal securities laws on the basis that the joint proxy statement/prospectus included in the registration statement filed by the~~

Company with the SEC purportedly omitted to disclose information necessary to make the statements therein not materially false or misleading. The lawsuits sought, among other things, an injunction of the CCP Merger; dissemination of a revised registration statement; declarations that the registration statement violated federal securities laws; damages, including rescissory damages; and an award of costs and attorneys’ fees. On July 25, 2017, the five actions filed in the United States District Court for the District of Delaware were consolidated under the lead-case caption ~~In re Care Capital Properties, Inc. Shareholder Litigation~~, Civil Action No. 1:17-cv-00859-LPS. During the three months ended September 30, 2017, the lawsuits were dismissed without prejudice by the plaintiffs. The Company expects that any award of attorneys’ fees payable by the Company to the plaintiffs will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

~~15.~~14. SUBSEQUENT EVENTS

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

Dividend Declaration

On ~~November 1, 2017,~~August 8, 2018, the Company announced that its board of directors declared a quarterly cash dividend of ~~$0.5201087~~$0.45 per share of common stock, which consists of (i) a full quarter dividend of $0.45 per share and (ii) $0.0701087 per share, which is the difference between the prorated dividend paid on August 18, 2017 and the Company's previous full quarter dividend of $0.43 per share.stock. The dividend will be paid on ~~November 30, 2017~~August 31, 2018 to common stockholders of record as of the close of business on ~~November 15, 2017.~~

On November 1, 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 November 30, 2017 to preferred stockholders of record as of the close of business on November 15, 2017.

~~Common Stock Issuance~~

On October 2, 2017, in connection with the exercise by the underwriters of their option to purchase additional shares, the Company issued 2.4 million newly issued shares of its common stock pursuant to an effective registration statement, at a price

~~of $21.00 per share, resulting in net proceeds, before expenses, of $48.4 million. See Note 10, “Equity.”~~August 18, 2018.

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~~2017 Annual Report on Form ~~10-K and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.~~10-K. 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~~owning properties operated by third-party property managers throughout the United States (“U.S.”) and Canada.

Our investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities and specialty hospitals and other facilities, in each case leased to third-party operators; senior housing communities operated by third-party property managers pursuant to property management agreements (“Senior Housing - Managed”); investments in loans receivable; ~~and~~ preferred equity ~~investments.~~investments and an investment in an unconsolidated joint venture.

In 2017 and the first half of 2018, we completed a series of transactions—including the CCP Merger (as defined below), sales of facilities leased to Genesis, investment in the Enlivant Joint Venture (as defined below) and entry into our new Credit Facility (as defined below), each of which are discussed below—that have significantly enhanced our scale and increased our diversification. Following ~~the completion of our merger with Care Capital Properties, Inc.,~~these transactions, we expect to continue to grow our investment portfolio while diversifying our portfolio by tenant, ~~asset class~~facility type and geography within the healthcare sector. We plan to achieve these objectives primarily through making investments directly or indirectly in healthcare real ~~estate.~~estate, including the development of purpose built healthcare facilities with select developers. We ~~may~~ also intend to achieve our objective of diversifying our portfolio by tenant and ~~asset class~~facility type 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 (the “MOU Disposition Facilities”). As of September~~During the six months ended June 30, ~~2017,~~2018, we completed the sale of ~~two of the MOU Disposition Facilities,~~37 facilities, including 27 facilities leased to Genesis, and subsequent to September 30, 2017, we completed the sale of two additional MOU Disposition Facilities. We have also entered into a definitive agreement to sell an additional 20 MOU Disposition Facilities, which we expect to ~~be completed in~~complete the ~~fourth quarter~~sales of ~~2017. We expect~~19 of our remaining 27 Genesis facilities during the ~~remaining MOU Disposition Facilities to be sold by the end of the first quarter~~remainder of 2018 ~~though there can be no~~and to retain eight facilities, although we cannot provide assurance that the sales will be completed in that timeframe, if at all. We have also begun the process of marketing for sale up to all of the remaining 43 facilities leased to Genesis, with sales expected to occur in 2018. We believe that a significant reduction in our facilities leased to Genesis will ultimately improve our portfolio by reducing our exposure from the remaining skilled nursing operator in our portfolio that does not fit our preferred profile to an immaterial level.

We expect to continue to grow our portfolio primarily through the acquisition of assisted living, independent living and memory care communities in the ~~United States~~U.S. and Canada and through the acquisition of skilled nursing/transitional care and behavioral health facilities in the ~~United States.~~U.S. We have and expect to 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 communities 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, renovating or expanding 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 Senior Housing - Managed ~~properties,~~communities, mezzanine and secured debt investments, and joint ventures for senior housing communities and skilled nursing/transitional care facilities.

We also expect to continue to enhance the strength of our investment portfolio by selectively disposing of underperforming facilities or working with new or existing operators to transfer underperforming but promising properties to new operators.

With respect to our debt and preferred equity investments, 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.~~stabilized or (c) the loan investment will provide capital to existing relationships. A key component of our development 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 proprietary development pipeline 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”), inof 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.

Care Capital Properties, Inc. Merger

On May 7, 2017, Sabra, the Operating Partnership, PR Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of ~~the Company~~Sabra (“Merger Sub”), Care Capital Properties, Inc., a Delaware corporation (“CCP”), and Care Capital Properties, L.P. (“CCPLP”), a Delaware limited partnership and ~~wholly-owned~~wholly owned subsidiary of CCP, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on August 17, 2017, CCP merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “CCP Merger”), following which Merger Sub merged with and into ~~the Company,~~Sabra, with ~~the Company~~Sabra continuing as the surviving entity (the “Subsequent Merger”), and, simultaneous with the Subsequent Merger, CCPLP merged with and into the Operating Partnership, with the Operating Partnership continuing as the surviving entity.

Pursuant to the Merger Agreement, as of the effective time of the CCP Merger, each share of CCP common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the CCP Merger (other than shares of CCP common stock owned directly by CCP, ~~the Company~~Sabra or their respective subsidiaries, in each case not held on behalf of third parties) was converted into the right to receive 1.123 newly issued shares of Company common stock, par value $0.01 per share, plus cash in lieu of any fractional shares.

The acquisition of CCP has been reflected in our consolidated financial statements since the effective date of the CCP

Merger.

On September 7, 2017, Sabra announced its strategy to reposition the CCP portfolio, which includes a combination of lease modifications (including ~~up to $33.5~~between $28.2 million and $31.2 million of reduction in rents), working capital advances, transitioning facilities to

other Sabra tenants and strategic sales or closures of underperforming facilities.

As a result of the CCP Merger, we have increased our tenant diversification by operator and geography, including decreasing concentration from our top five relationships. In addition, shortly following the closing of the CCP Merger, we received investment grade ratings from Standard & Poor’s and Fitch and a two notch upgrade from Moody’s, which provided an immediate improvement in our cost of debt under our Credit Facility.

See Note 3, “CCP Merger and Recent Real Estate Acquisitions” in the Notes to Condensed Consolidated Financial Statements for additional information regarding the CCP Merger.

Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we ~~invested $393.1 million for the acquisition of 21~~acquired 11 Senior Housing - Managed communities managed by Enlivant, five senior housing communities and two skilled nursing/transitional care facilities ~~located in two states and one senior housing community located in Texas.~~for an aggregate $214.0 million. See Note 3, “CCP Merger and Recent Real Estate Acquisitions” in the Notes to Condensed Consolidated Financial Statements for additional information regarding these acquisitions.

~~In connection with~~Dispositions

During the ~~acquisition~~six months ended June 30, 2018, we completed the sale of ~~the 21~~33 skilled nursing/transitional care facilities we entered into a definitive agreement to acquire two additional skilled nursing/transitional care facilities from the seller for a purchase price of $42.8 million; the acquisition is expected to occur by December 31, 2017 and ~~is subject to customary conditions.~~

~~Dispositions~~

~~During the nine months ended September 30, 2017, we completed the sale of~~ four ~~skilled nursing/transitional care facilities~~senior housing communities for aggregate consideration, net of ~~$11.7~~closing costs, of $278.3 million. The net carrying value of the assets and liabilities of these facilities was ~~$7.1~~$135.8 million, which resulted in an aggregate ~~$4.6~~$142.5 million net gain on sale.

Enlivant Joint Venture

In addition to the acquisition of 11 Senior Housing - Managed ~~Properties~~

~~During the nine months ended September 30, 2017,~~communities managed by Enlivant, on January 2, 2018, we terminated the lease of nine senior housing real estate investments in Canada and concurrently entered into a management agreement with Sienna Senior Living (“Sienna”), whereby we own the operations, through a wholly-owned foreign taxable REIT subsidiary, of the communities and the communities are operated by Sienna.

~~Credit Facility~~

~~Effective on August 17, 2017, we and certain of~~completed our ~~subsidiaries entered into the Credit Facility (as defined below). See “—Liquidity and Capital Resources—Loan Agreements—Credit Facility.”~~

~~Enlivant Joint Ventures~~

~~On September 15, 2017, we entered into a definitive agreement~~transaction with affiliates of Enlivant and TPG Real Estate, the real estate platform of TPG, and contributed $352.7 million, before closing costs, to acquire a 49% equity interest in ~~entities~~an entity that ~~collectively own 183~~owns 172 senior housing communities managed by Enlivant (the “Enlivant Joint ~~Ventures”~~Venture”). ~~We will pay $371.0~~At closing, the Enlivant Joint Venture had outstanding indebtedness of $791.3 million ~~for~~and net working capital of $22.9 million, and our investment in the ~~49% minority interest, which implies~~Enlivant Joint Venture implied an aggregate portfolio value ~~for the Enlivant Joint Ventures~~ of ~~$1.62 billion, inclusive of the outstanding indebtedness of $863 million for the portfolio.~~$1.49 billion. We financed this investment with proceeds from our Revolving Credit Facility. The joint venture ~~agreements include~~agreement includes an option for us to acquire the ~~remaining majority interest~~remainder of the outstanding equity interests in the Enlivant Joint ~~Ventures during~~Venture by January 2, 2021 and grants us the ~~first three years after the closing date and a~~ right of first offer if ~~TPG~~our partner in the Enlivant Joint Venture desires to ~~sell~~transfer its ~~51% interest.~~equity interest (which it may do commencing on January 2, 2020). In addition, Sabra ~~will have~~has the right to designate three directors on the seven member ~~boards~~board of directors of the Enlivant Joint ~~Ventures~~Venture and ~~will have~~has other customary minority rights.

Preferred Stock Redemption

On June 1, 2018 (the “Redemption Date”), we redeemed all 5,750,000 outstanding shares of our Series A Preferred Stock. The ~~acquisition~~shares of Series A Preferred Stock were redeemed at a redemption price of $25.00 per share, plus accrued and unpaid dividends to, but not including, the ~~49% equity~~Redemption Date, without interest, in the ~~Enlivant Joint Ventures, which is subject~~amount of $0.4453125 per share of Series A Preferred Stock, for a total redemption price per share of Series A Preferred Stock equal to ~~customary closing conditions including regulatory approvals and lender consents, is expected to close by December 31, 2017.~~$25.4453125.

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 Part II, Item 7 of our ~~2016~~2017 Annual Report on Form 10-K filed with the SEC. There have been no significant changes to our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

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 ~~September~~June 30, ~~2017,~~2018, our investment portfolio included ~~530~~487 real estate properties held for investment, one asset held for sale, one investment in a direct financing lease, 2422 investments in loans receivable, 13 preferred equity investments and one investment in ~~a specialty valuation firm.~~an unconsolidated joint venture. As of ~~September~~June 30, ~~2016,~~2017, our investment portfolio included ~~182~~183 real estate properties held for investment, 11eight investments in loans receivable and 1112 preferred equity investments. ~~The increase in our investment portfolio during the three and nine months ended September 30, 2017 is primarily due to the CCP Merger completed in August 2017.~~ In general, we expect that our income and expenses related to our portfolio will increase in future periods in comparison to the corresponding prior periods as a result of owning acquired investments for an entire period, the anticipated future acquisition of additional investments and

completion of the CCP Merger. The results of operations presented are not directly comparable due to ongoing acquisition activity.

Comparison of results of operations for the three months ended ~~September~~June 30, ~~2017~~2018 versus the three months ended ~~September~~June 30, ~~2016~~2017 (dollars in thousands):


	Three Months Ended September 30,					Increase / (Decrease)				Percentage Difference			Variance due to the CCP Merger, Acquisitions, Originations and Dispositions ⁽¹⁾			Remaining Variance ⁽²⁾		Three Months Ended June 30,							Increase / (Decrease)			Percentage Difference		Variance due to the CCP Merger, Acquisitions, Originations and Dispositions ⁽¹⁾			Remaining Variance ⁽²⁾
	2017			2016					2018						2017
Revenues:
Rental income	$	100,145		$	56,833	$	43,312					76	%	$	45,928				$	(2,616	)	$	144,229		$	55,904		$	88,325		158	%	$	93,752		$	(5,427	)
Interest and other income	4,090			3,157		933				30	%		1,240			(307	)	4,553				2,027			2,526			125	%	2,686			(160		)
Resident fees and services	7,554			1,937		5,617				290	%		—			5,617		17,530				6,805			10,725			158	%	10,089			636
Expenses:
Depreciation and amortization	25,933			17,102		8,831				52	%		9,114			(283	)	46,828				17,220			29,608			172	%	29,636			(28		)
Interest	24,568			15,794		8,774				56	%		7,719			1,055		36,757				15,862			20,895			132	%	16,948			3,947
Operating expenses	5,102			1,404		3,698				263	%		—			3,698		12,299				4,407			7,892			179	%	7,458			434
General and administrative	12,944			4,966		7,978				161	%		5,171			2,807		9,271				5,126			4,145			81	%	302			3,843
Merger and acquisition costs	23,299			1,051		22,248				2,117	%		22,248			—		112				5,887			(5,775		)	(98	)%	(5,775		)	—
Provision for doubtful accounts and loan losses	5,149			540		4,609				854	%		—			4,609
(Recovery of) provision for doubtful accounts and loan losses																		(674		)		535			(1,209		)	(226	)%	—			(1,209		)
Impairment of real estate																		881				—			881			NM		—			881
Other income:
Loss on extinguishment of debt	(553		)	—		(553		)		NM			—			(553	)
Other income	51			2,945		(2,894		)		(98	)%		—			(2,894	)	—				941			(941		)	(100	)%	—			(941		)
Net gain on sales of real estate	582			1,451		(869		)		(60	)%		(869	)		—		142,903				4,032			138,871			3,444	%	138,871			—
Loss from unconsolidated joint venture																		(2,347		)		—			(2,347		)	NM		(2,347		)	—
Income tax expense																		(605		)		(136		)	(469		)	345	%	—			(469		)


⁽¹⁾	Represents the dollar amount increase (decrease) for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016~~2017 as a result of the CCP Merger and investments/dispositions made after ~~July~~April 1, ~~2016~~2017.


⁽²⁾	Represents the dollar amount increase (decrease) for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016~~2017 that is not a direct result of the CCP Merger and investments/dispositions made after ~~July~~April 1, ~~2016~~2017.

Rental Income

During the three months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$100.1~~$144.2 million of rental income compared to ~~$56.8~~$55.9 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~$43.3~~$88.3 million increase in rental income is primarily due to an increase of ~~$43.1~~$86.4 million from properties acquired in the CCP Merger and an increase of ~~$3.5~~$11.2 million from other properties acquired after ~~July~~April 1, ~~2016,~~2017, partially offset by a decrease of ~~$0.7~~$3.9 million from properties disposed of after ~~July~~April 1, ~~2016 and~~2017, a $4.8 million decrease ~~of $2.3 million~~ due to the ~~nine senior housing communities that were~~Genesis lease restructuring agreement which reduced the annual base rent payable under the Genesis leases by $19.0 million and a $1.5 million decrease due to five skilled nursing/transitional care facilities transitioned to ~~Senior Housing - Managed properties during the nine months ended September 30, 2017.~~a new operator. 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 ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017.

Interest and Other Income

Interest and other income primarily consists of income earned on our loans receivable investments, preferred returns earned on our preferred equity investments and income on the direct financing lease. During the three months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$4.1~~$4.6 million of interest and other income compared to ~~$3.2~~$2.0 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The increase of ~~$0.9~~$2.5 million is primarily due to an increase of ~~$2.0~~$2.5 million primarily related to interest

income from ~~loan~~loans receivable investments and income from a direct ~~finance~~financing lease, ~~and income from the specialty valuation firm acquired in the CCP Merger,~~ partially offset by a ~~$1.1~~$0.7 million decrease from investments that were disposed after ~~July~~April 1, ~~2016.~~2017. Included in interest income is $0.9 million from a legacy CCP loan receivable that was fully repaid in June 2018, which represents the difference between the outstanding principal balance repaid and its discounted book value.

Resident Fees and Services

During the three months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$7.6~~$17.5 million of resident fees and services compared to ~~$1.9~~$6.8 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The $10.7 million increase ~~of $5.6 million~~ is primarily due to ~~the nine~~a $10.1 million increase related to 13 properties acquired after April 1, 2017 and a $0.2 million increase due to one senior housing ~~communities~~community that ~~were~~was transitioned to Senior Housing - Managed ~~properties~~communities in ~~March and~~ May 2017.

Depreciation and Amortization

During the three months ended ~~September~~June 30, ~~2017,~~2018, we incurred ~~$25.9~~$46.8 million of depreciation and amortization expense compared to ~~$17.1~~$17.2 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~$8.8~~$29.6 million net increase in depreciation and amortization expense is primarily due to an increase of ~~$8.6~~$26.4 million related to the properties acquired in the CCP Merger and an increase of ~~$0.7~~$4.6 million from other properties acquired after ~~July~~April 1, ~~2016,~~2017, partially offset by a decrease of ~~$0.3~~$1.4 million from properties disposed of after ~~July~~April 1, ~~2016 and a $0.2 million decrease from fully depreciated assets.~~2017.

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 ~~September~~June 30, ~~2017,~~2018, we incurred ~~$24.6~~$36.8 million of interest expense compared to ~~$15.8~~$15.9 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~$8.8~~$20.9 million net increase is primarily related to (i) a ~~$3.7~~$7.4 million increase in interest expense related to two senior notes assumed in the CCP Merger (see Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for additional information), (ii) a ~~$3.1~~$6.4 million increase in interest expense related to our U.S. dollar term loans as a result of increasing U.S. dollar term loan borrowings from $245.0 million to $1.1 billion in connection with the CCP Merger, (iii) a ~~$1.4~~$5.6 million increase in interest expense related to the borrowings outstanding on the Revolving Credit Facility, ~~and~~ (iv) a ~~$0.5~~$0.9 million increase primarily related to the $98.5 million secured term loan assumed in the CCP Merger and (v) a $0.6 million increase of non-cash interest expense related to our interest rate hedges.

Operating Expenses

During the three months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$5.1~~$12.3 million of operating expenses compared to ~~$1.4~~$4.4 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The $7.9 million increase ~~of $3.7 million~~ is primarily due to ~~the nine~~a $7.5 million increase related to 13 properties acquired after April 1, 2017 and a $0.1 million increase due to one senior housing ~~communities~~community that ~~were~~was transitioned to Senior Housing - Managed ~~properties~~communities in ~~March and~~ May 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 asset management. During the three months ended ~~September~~June 30, ~~2017~~2018, general and administrative expenses were $~~12.9~~9.3 million compared to $~~5.0~~5.1 million during the three months ended ~~September~~June 30, ~~2016~~2017. The ~~$8.0~~$4.1 million increase is primarily related to (i) ~~$4.3 million of transition expenses for the CCP Merger primarily consisting of salaries and severance benefits, (ii)~~ a ~~$1.8~~$1.0 million increase in ~~legal and professional fees primarily due to the management of the increased number of investments, (iii) $0.9 million in expenses incurred by our specialty valuation firm and (iv)~~stock-based compensation expense, (ii) a $0.7 million increase in payroll expenses related to the increased number of ~~employees.~~employees, (iii) $0.6 million of expenses related to the previously anticipated refinancing of the Senior Notes (as defined below), (iv) a $0.5 million increase in legal, professional and insurance fees primarily due to the management of the increased number of investments, (v) $0.3 million in legal fees related to the recovery of previously reserved cash rental income and (vi) $0.3 million of transition expenses for the CCP Merger primarily consisting of salaries, severance benefits and office expenses. The increase in stock-based compensation expense, from $1.7 million during the three months ended June 30, 2017 to $2.7 million during the three months ended June 30, 2018, is primarily due to the increased number of employees and the change in our stock price during the three months ended June 30, 2018 (an increase of $4.08 per share) compared to the three months ended June 30, 2017 (a decrease of $3.83 per share). We issue 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.

Merger and Acquisition Costs

During the three months ended ~~September~~June 30, ~~2017,~~2018, we incurred ~~$23.3~~$0.1 million of merger and acquisition costs compared to ~~$1.1~~$5.9 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase of $22.2 million is due to~~ costs incurred in both periods were primarily related to the CCP Merger.

(Recovery of) Provision for Doubtful Accounts and Loan Losses

During the three months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$5.1~~a $0.7 million ~~in provision for~~net recovery of doubtful accounts and loan ~~losses. Of the $5.1~~losses, which is comprised of a $1.0 million ~~provision, $2.9~~recovery of previously reserved cash rental income, offset by a $0.1 million ~~is due to an increase in loan loss reserves, $1.3 million is due to a reserve for other tenant-related receivables, $0.6 million is due to an~~ increase in reserves on straight-line rental income and ~~$0.3~~a $0.2 million ~~is due to an~~ increase in ~~reserves for cash rental income.~~loan loss reserves. During the three months

ended ~~September~~June 30, ~~2016,~~2017, we recognized a $0.5 million in provision for doubtful accounts and loan losses, which is primarily comprised of ~~$0.5~~a $0.3 million ~~related to an~~ increase in ~~general~~ reserves on straight-line rental income and ~~$0.3~~a $0.2 million ~~related to an~~ increase in loan loss ~~reserves, partially offset by a $0.3~~reserves.

Impairment of Real Estate

During the three months ended June 30, 2018, we recognized $0.9 million ~~recovery on previously reserved cash rents.~~

~~Loss on Extinguishment~~ of ~~Debt~~

Weimpairment of real estate related to one skilled nursing/transitional care facility. No impairment of real estate was recognized ~~a $0.6 million loss on extinguishment of debt~~ during the three months ended ~~September~~June 30, 2017 related to write-offs of deferred financing costs in connection with amending the Prior Credit Facility. We did not recognize any loss on extinguishment of debt during the three months ended September 30, 2016.2017.

Other Income

During the three months ended ~~September~~June 30, 2018, we did not recognize any other income. During the three months ended June 30, 2017, we recognized ~~$0.1 million of other income. The $0.1~~$0.9 million of other income, ~~is comprised of $0.4 million related~~which was primarily due to the amortization of lease termination payments related to a memorandum of understanding ~~entered into~~ with Genesis regarding five Genesis facilities (of which one was owned as of September 30, 2017), partially offset by $0.3 million of other expense as a result of adjusting the fair value of our contingent consideration liability related to the acquisition of a real estate property. During the three months ended September 30, 2016, we recognized $2.9 million of other income, of which $2.6 million related to lease termination payments related to the same memorandum of understanding with Genesis and $0.4 million related to an ineffectiveness gain related to our LIBOR interest rate swaps. These amounts were partially offset by $0.1 million of other expense as a result of adjusting the fair value of our contingent consideration liability related to the acquisition of a portfolio of real estate properties.Genesis.

Net Gain on Sales of Real Estate

During the three months ended ~~September~~June 30, 2018, we recognized an aggregate net gain on the sales of real estate of $142.9 million primarily related to the disposition of 32 skilled nursing/transitional care facilities and four senior housing communities. During the three months ended June 30, 2017, we recognized ~~an aggregate~~a net gain on the sale of real estate of $0.6 million related to the disposition of three skilled nursing/transitional care facilities. During the three months ended September 30, 2016, we recognized a gain on the sale of real estate of $1.5$4.0 million related to the disposition of one skilled nursing/transitional care facility. See Note 5, ~~“Dispositions”~~“Asset Held for Sale and Dispositions” in the Notes to Condensed Consolidated Financial Statements for additional information.

Loss from Unconsolidated Joint Venture

During the three months ended June 30, 2018, we recognized $2.3 million of loss from the Enlivant Joint Venture. Included in the loss is $0.6 million of deferred tax expense.

Income Tax Expense

During the three months ended June 30, 2018, we recognized $0.6 million of income tax expense compared to $0.1 million for the three months ended June 30, 2017. The increase is primarily due to the increase in Senior Housing - Managed communities and higher state taxes as a result of the increased number of investments.

Comparison of results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 versus the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 (dollars in thousands):


	Nine Months Ended September 30,						Increase / (Decrease)				Percentage Difference			Variance due to the CCP Merger, Acquisitions, Originations and Dispositions ⁽¹⁾			Remaining Variance⁽²⁾		Six Months Ended June 30,							Increase / (Decrease)			Percentage Difference		Variance due to the CCP Merger, Acquisitions, Originations and Dispositions ⁽¹⁾			Remaining Variance ⁽²⁾
	2017			2016						2018						2017
Revenues:
Rental income	$	213,273		$	167,442		$	45,831					27	%	$	51,922				$	(6,091	)	$	288,484		$	113,128		$	175,356		155	%	$	188,081		$	(12,725	)
Interest and other income	8,062			25,482			(17,420		)		(68	)%		(16,934	)		(486	)	8,891				3,972			4,919			124	%	5,399			(480		)
Resident fees and services	17,840			5,811			12,029				207	%		—			12,029		35,023				10,286			24,737			240	%	19,916			4,821
Expenses:
Depreciation and amortization	62,290			51,273			11,017				21	%		9,653			1,364		94,833				36,357			58,476			161	%	59,215			(739		)
Interest	56,218			49,139			7,079				14	%		7,719			(640	)	72,575				31,650			40,925			129	%	33,380			7,545
Operating expenses	11,929			4,256			7,673				180	%		—			7,673		24,423				6,827			17,596			258	%	14,803			2,793
General and administrative	24,159			13,513			10,646				79	%		5,171			5,475		17,138				11,215			5,923			53	%	1,703			4,220
Merger and acquisition costs	29,750			1,222			28,528				2,335	%		28,528			—		442				6,451			(6,009		)	(93	)%	(6,009		)	—
Provision for doubtful accounts and loan losses	7,454			3,286			4,168				127	%		—			4,168		539				2,305			(1,766		)	(77	)%	—			(1,766		)
Impairment of real estate	—			29,811			(29,811		)		NM			(29,811	)		—		1,413				—			1,413			NM		532			881
Other (expense) income:
Loss on extinguishment of debt	(553		)	(556		)	(3		)		NM			—			(3	)
Other income:
Other income	3,121			5,345			(2,224		)		(42	)%		—			(2,224	)	2,820				3,070			(250		)	(8	)%	—			(250		)
Net gain (loss) on sale of real estate	4,614			(3,203		)	7,817				NM			7,817			—
Net gain on sales of real estate																			142,431				4,032			138,399			3,433	%	138,399			—
Loss from unconsolidated joint venture																			(1,901		)		—			(1,901		)	NM		(1,901		)	—
Income tax expense																			(1,115		)		(356		)	(759		)	213	%	—			(759		)


⁽¹⁾	Represents the dollar amount increase (decrease) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as a result of the CCP Merger and investments/dispositions made after January 1, ~~2016.~~2017.


⁽²⁾	Represents the dollar amount increase (decrease) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 that is not a direct result of the CCP Merger and investments/dispositions made after January 1, ~~2016.~~2017.

Rental Income

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$213.3~~$288.5 million of rental income compared to ~~$167.4~~$113.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~$45.8~~$175.4 million increase in rental income is primarily due to an increase of ~~$43.1~~$172.4 million from properties acquired in the CCP Merger and an increase of ~~$10.9~~$21.8 million from other properties acquired after January 1, ~~2016,~~2017, partially offset by a decrease of ~~$2.1~~$6.1 million from properties disposed of after January 1, ~~2016~~2017, a $9.5 million decrease due to the Genesis lease restructuring agreement which reduced the annual base rent payable under the Genesis leases by $19.0 million, a $2.8 million decrease due to five skilled nursing/transitional care facilities transitioned to a new operator and a $1.4 million decrease ~~of $5.4 million~~ due to the nine senior housing communities that were transitioned to Senior Housing - Managed ~~properties during the nine months ended September 30,~~communities in March and May 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 ~~nine~~six months ended ~~September~~June 30, ~~2017 or 2016.~~2018 and 2017.

Interest and Other Income

Interest and other income primarily consists of income earned on our loans receivable investments, preferred returns earned on our preferred equity investments and income ~~from our~~on the direct ~~finance~~financing lease. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$8.1~~$8.9 million of interest and other income compared to ~~$25.5~~$4.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~decrease~~increase of ~~$17.4~~$4.9 million is primarily due to ~~a decrease~~an increase of ~~$19.3~~$5.5 million primarily related to interest income recognized at the default rate and late fees related to our investments in the Forest Park - Fort Worth construction loan and the Forest Park - Dallas mortgage loan during the nine months ended September 30, 2016. Bothfrom loans ~~were repaid during the nine months ended September 30, 2016. The decrease is partially offset by an increase of $2.0 million related to interest income from loan~~ receivable investments, income from a direct ~~finance~~financing lease and income from the specialty valuation firm acquired in the CCP ~~Merger.~~Merger that we subsequently sold in March 2018, partially offset by a $1.0 million decrease from investments that were disposed after January 1, 2017. Included in interest income is $0.9 million from a legacy CCP loan receivable that was fully repaid in June 2018, which represents the difference between the outstanding principal balance repaid and its discounted book value.

Resident Fees and Services

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$17.8~~$35.0 million of resident fees and services compared to ~~$5.8~~$10.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The $24.7 million increase ~~of $12.0 million~~ is primarily due to ~~the~~a $19.9 million increase related to 13 properties acquired after January 1, 2017 and a $4.5 million increase due to nine senior housing communities that were transitioned to Senior Housing - Managed ~~properties~~communities in March and May 2017.

Depreciation and Amortization

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we incurred ~~$62.3~~$94.8 million of depreciation and amortization expense compared to ~~$51.3~~$36.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~$11.0~~$58.5 million net increase in depreciation and amortization expense is primarily due to an increase of ~~$8.6 from~~$53.1 million related to the properties acquired in the CCP Merger and an increase of ~~$3.1~~$8.5 million from other properties acquired after January 1, ~~2016 as well as~~2017, partially offset by a ~~$1.8~~decrease of $2.4 million ~~increase~~from properties disposed of after January 1, 2017; the remaining $0.7 million decrease is primarily due to the acceleration of lease intangible amortization related to the nine senior housing communities transitioned to Senior Housing - Managed ~~properties, partially offset by a decrease of $2.1 million from properties disposed of after January 1, 2016~~communities in March and ~~a $0.4 million decrease from fully depreciated assets.~~May 2017.

Interest Expense

We incur interest expense comprised of costs of borrowings plus the amortization of deferred financing costs related to our indebtedness. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we incurred ~~$56.2~~$72.6 million of interest expense compared to ~~$49.1~~$31.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~$7.1~~$40.9 million net increase is primarily related to (i) a ~~$3.7~~$14.7 million increase in interest expense related to two senior notes assumed in the CCP Merger (see Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for additional information), (ii) a ~~$3.2~~$12.5 million increase in interest expense related to our U.S. dollar term loans as a result of increasing U.S. dollar term loan borrowings from $245.0 million to $1.1 billion in connection with the CCP Merger, ~~and~~ (iii) a ~~$0.9~~$10.7 million increase ~~of non-cash interest expense related to our interest rate hedges. These increases are partially offset by a $0.3 million decrease~~ in interest expense related to the borrowings outstanding on the Revolving Credit Facility, (iv) a $1.7 million increase primarily related to the $98.5 million secured term loan assumed in the CCP Merger and (v) a ~~$0.2~~$1.3 million ~~decrease in~~increase of non-cash interest expense related to ~~secured debt.~~our interest rate hedges.

Operating Expenses

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$11.9~~$24.4 million of operating expenses compared to ~~$4.3~~$6.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The $17.6 million increase ~~of $7.7 million~~ is primarily due to ~~the~~a $14.8 million increase related to 13 properties acquired after January 1, 2017 and a $2.6 million increase due to nine senior housing communities that were transitioned to Senior Housing - Managed ~~properties~~communities in March and May 2017.

General and Administrative Expenses

~~$10.6~~ $5.9 million increase is primarily related to (i) a ~~(i) $4.3~~$1.4 million increase in payroll expenses related to the increased number of ~~transition expenses for the CCP Merger primarily consisting of salaries and severance benefits,~~employees, (ii) a ~~$3.1~~$1.0 million increase in legal, professional and ~~professional~~insurance fees primarily due to the management of the increased number of investments, (iii) a $1.0 million ~~increase in payroll expense~~of transition expenses for the CCP Merger primarily ~~due to the increased number~~consisting of ~~employees,~~salaries, severance benefits and office expenses, (iv) ~~$0.9~~$0.8 million in expenses incurred by our specialty valuation firm that we sold in March 2018, (v) $0.6 million in legal fees related to the recovery of previously reserved cash rental income and ~~(v)~~(vi) $0.6 million of expenses related to the previously anticipated refinancing of the Senior Notes. The increases are partially offset by a ~~$0.8~~$0.5 million ~~increase~~decrease in stock-based compensation. The decrease in stock-based compensation expense, from $4.3 million during the six months ended June 30, 2017 to $3.8 million during the six months ended June 30, 2018, is primarily due to ~~the increased number of employees.~~a change in performance-based vesting assumptions on management’s equity compensation.

Merger and Acquisition Costs

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we incurred ~~$29.8~~$0.4 million of merger and acquisition costs compared to ~~$1.2~~$6.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase of $28.6 million is due to~~ costs incurred in both periods were primarily related to the CCP Merger.

Provision for Doubtful Accounts and Loan Losses

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$7.5~~a $0.5 million in provision for doubtful accounts and loan losses. The $7.5 million provision is primarily due to a $4.9 million increase in loan loss reserves, a $0.9 million increase in general reserves on straight-line rental income, a $1.3 million reserve for other tenant-related receivables and a $0.4 million increase in reserves on cash rental income. During the nine months ended September 30, 2016, we recognized $3.3 million in provision for doubtful accounts and loan losses, which is comprised of ~~$2.3~~a $2.2 million ~~related to an~~increase in reserves on straight-line rental income and a $0.3 million increase in loan loss reserves, partially offset by a $2.0 million recovery of previously reserved cash rental income. During the six months ended June 30, 2017, we recognized a $2.3 million provision for doubtful accounts and ~~$1.3~~loan losses, which is primarily

comprised of a $1.9 million ~~related to an~~ increase in ~~general~~loan loss reserves, a $0.3 million increase in reserves on straight-line rental income ~~partially offset by~~and a ~~$0.3~~$0.1 million ~~recovery~~increase in reserves on ~~previously reserved~~ cash ~~rents.~~rental income.

Impairment of Real Estate

During the six months ended June 30, 2018, we recognized $1.4 million of impairment of real estate related to one senior housing community and one skilled nursing/transitional care facility. The senior housing community was sold during the six months ended June 30, 2018. See Note 5, “Asset Held for Sale and Dispositions” in the Notes to Condensed Consolidated Financial Statements for additional information. No impairment of real estate was recognized during the ~~nine~~six months ended ~~September~~June 30, 2017.

Other Income

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, we recognized ~~$29.8~~$2.8 million of ~~impairment~~other income. The $2.8 million of ~~real estate~~other income is comprised of a $2.0 million contingency fee earned in the current period related to a legacy CCP investment, $0.6 million related to cash payments received from two facilities not subject to a lease and $0.2 million related to the sale of ~~the Forest Park - Frisco hospital.~~

~~Loss on Extinguishment of Debt~~

our specialty valuation firm. During the ~~nine~~six months ended September 30, 2017, we recognized a $0.6 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with amending the Prior Revolving Credit Facility. We recognized a $0.6 million loss on extinguishment of debt during the nine months ended September 30, 2016 related to write-offs of deferred financing costs in connection with amending the 2014 revolving credit facility and 2015 Canadian term loan.

~~Other Income~~

~~During the nine months ended September~~June 30, 2017, we recognized $3.1 million of other ~~income. Of the $3.1~~income, of which $2.3 million ~~in other income, $2.6 million is~~was due to the amortization of lease termination payments related to a memorandum of understanding ~~entered into~~ with Genesis ~~regarding five Genesis facilities (one of which was owned as of September 30, 2017)~~ and ~~$0.5~~$0.8 million ~~relates~~related to other income as a result of adjusting the fair value of our contingent consideration liability related to the acquisition of a real estate property, partially offset by $0.1 million of ineffectiveness loss related to our LIBOR interest rate swaps. During the nine months ended September 30, 2016, we recognized $5.3 million in other income, of which $5.0 million primarily related to lease termination payments related to the same memoranda of understanding with Genesis and $0.4 million related to an ineffectiveness gain related to our LIBOR interest rate swaps. These amounts were partially offset by $0.1 million of other expense as a result of adjusting the fair value of our contingent consideration liability related to the acquisition of a portfolio of real estate properties.

Net Gain ~~(Loss)~~ on Sales of Real Estate

During the ~~nine~~six months ended ~~September~~June 30, 2018, we recognized an aggregate net gain on the sales of real estate of $142.4 million primarily related to the disposition of 33 skilled nursing/transitional care facilities and four senior housing communities. During the six months ended June 30, 2017, we recognized ~~an aggregate~~a net gain on the sale of real estate of ~~$4.6~~$4.0 million related to the disposition of four skilled nursing/transitional care facilities. During the nine months ended September 30, 2016, we recognized a net loss on the sale of real estate of $3.2 million. The $3.2 million net loss is due to a $4.7 million loss related to the disposition of one skilled nursing/transitional care facility and one acute care hospital, partially offset by a $1.5 million gain related to the disposition of one skilled nursing/transitional care facility. See Note 5, ~~“Dispositions”~~“Asset Held for Sale and Dispositions” in the Notes to Condensed Consolidated Financial Statements for additional information.

Loss from Unconsolidated Joint Venture

During the six months ended June 30, 2018, we recognized $1.9 million of loss from the Enlivant Joint Venture. Included in the loss is $1.1 million of deferred tax expense.

Income Tax Expense

During the six months ended June 30, 2018, we recognized $1.1 million of income tax expense compared to $0.4 million for the six months ended June 30, 2017. The increase is primarily due to the increase in Senior Housing - Managed communities and higher state taxes as a result of the increased number of investments.

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, net of amounts related to noncontrolling interests, plus our share of depreciation and amortization related to our unconsolidated joint venture, and real estate impairment charges. AFFO is defined as FFO excluding merger and acquisition costs, stock-based compensation expense, straight-line rental income adjustments, amortization of above and below market lease intangibles, non-cash interest income adjustments, ~~stock-based compensation~~non-cash interest expense, ~~amortization~~change in fair value of contingent consideration, non-cash portion of loss on extinguishment of debt, provision for doubtful straight-line rental income, loan losses and other reserves and deferred ~~financing costs and merger and acquisition costs,~~income taxes, as well as other non-cash revenue and expense items (including ~~provisions~~ineffectiveness gain/loss on derivative instruments, and ~~write-offs~~non-cash revenue and expense amounts related to ~~straight-line rental income, provision for loan losses, changes in fair value~~noncontrolling interests) and our share of ~~contingent consideration and amortization of debt premiums/discounts).~~non-cash adjustments related to our

unconsolidated joint venture. 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, 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):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net income attributable to common stockholders	$	12,534		$	22,776		$	46,756		$	39,419		$	193,580		$	17,960		$	253,490		$	34,222
Depreciation and amortization of real estate assets	25,933			17,102			62,290			51,273			46,828			17,220			94,833			36,357
Net (gain) loss on sale of real estate	(582		)	(1,451		)	(4,614		)	3,203
Depreciation and amortization of real estate asset related to noncontrolling interests													(40		)	—			(80		)	—
Depreciation and amortization of real estate assets related to unconsolidated joint venture													6,163			—			10,715			—
Net gain on sales of real estate													(142,903		)	(4,032		)	(142,431		)	(4,032		)
Impairment of real estate	—			—			—			29,811			881			—			1,413			—

FFO attributable to common stockholders	37,885			38,427			104,432			123,706			104,509			31,148			217,940			66,547

Merger and acquisition costs⁽¹⁾	23,299			1,051			29,750			1,222			112			5,888			442			6,451
Stock-based compensation expense ⁽¹⁾	2,669			2,485			6,988			6,137
Stock-based compensation expense													2,704			1,731			3,839			4,319
Straight-line rental income adjustments	(8,682		)	(5,593		)	(18,260		)	(16,710		)	(12,189		)	(4,971		)	(23,752		)	(9,578		)
Amortization of above and below market lease intangibles, net	637			—			637			—			(684		)	—			(1,368		)	—
Non-cash interest income adjustments	(188		)	106			(137		)	549			(604		)	25			(1,174		)	51
Amortization of deferred financing costs	1,574			1,273			4,132			3,767
Non-cash portion of loss on extinguishment of debt	553			—			553			556
Non-cash interest expense													2,516			1,653			4,997			3,244
Change in fair value of contingent consideration	270			100			(552		)	50			—			—			—			(822		)
Provision for doubtful straight-line rental income, loan losses and other reserves	4,886			830			6,810			3,445			311			534			2,492			1,924
Other non-cash adjustments⁽²⁾	500			(230		)	1,371			(25		)
Other non-cash adjustments related to unconsolidated joint venture													1,350			—			1,014			—
Other non-cash adjustments													15			126			30			185

AFFO attributable to common stockholders	$	63,403		$	38,449		$	135,724		$	122,697		$	98,040		$	36,134		$	204,460		$	72,321

FFOattributable to common stockholders per diluted common share	$	0.34		$	0.59		$	1.28		$	1.89		$	0.58		$	0.47		$	1.22		$	1.01

AFFO attributable to common stockholders per diluted common share	$	0.56		$	0.58		$	1.66		$	1.86		$	0.55		$	0.55		$	1.14		$	1.10

Weighted average number of common shares outstanding, diluted:
FFO attributable to common stockholders	112,418,100			65,591,428			81,429,044			65,470,589			178,684,024			65,670,853			178,600,789			65,694,019

AFFO attributable to common stockholders	112,693,779			65,872,688			81,741,288			65,854,782			179,226,155			65,985,940			179,215,960			66,009,102


⁽¹⁾	Merger and acquisition costs ~~incurred during the three and nine months ended September 30, 2017~~ primarily relate to the CCP Merger. ~~Merger and acquisition costs include $1.3 million of stock-based compensation expense related to former CCP employees.~~


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

~~Set~~

The following table sets forth ~~below is~~ additional information related to certain other items included in net income attributable to common stockholders above, and the portions of each that are included in FFO and AFFO attributable to common stockholders, which may be helpful in assessing our operating results. Please ~~see the accompanying condensed consolidated statements~~refer to “—Results of ~~cash flows~~Operations” above for ~~details of our operating, investing, and financing cash activities.~~

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

During the three and nine months ended September 30, 2017, we incurred $23.3 million and $29.8 million, respectively, of merger and acquisition costs in connection with the CCP Merger. These entire amounts are included in FFO for the three and nine months ended September 30, 2017 and $4.3 million is included in AFFO for the three and nine months ended September 30, 2017.

During the three and nine months ended September 30, 2017, we incurred $4.3 million of transition expenses in connection with the CCP Merger primarily consisting of salaries and severance benefits. This entire amount is included in FFO and AFFO for the three and nine months ended September 30, 2017.

During the three and nine months ended September 30, 2017, we recognized $0.1 million and $3.1 million of other income, respectively. Other income includes $0.4 million and $2.7 million, respectively, related to the amortization of lease termination payments related to a memorandum of understanding entered into with Genesisadditional information regarding ~~five Genesis facilities (of which one was owned as of September 30, 2017). Other income also includes ($0.3) million and~~

$0.5 million, respectively, related to adjusting the value of our contingent consideration liability related to the acquisition of a senior housing community. These amounts in their entirety are included in FFO for the three and nine months ended September 30, 2017, and $0.4 million and $2.8 million is included in AFFO for the three and nine months ended September 30, 2017, respectively.

During the three and nine months ended September 30, 2017, we recognized $5.1 million and $7.5 million, respectively, in provision for doubtful accounts. Loan loss reserves increased by $2.9 million and $4.9 million, respectively, general reserves on straight-line rental income increased by $0.6 million and $0.9 million, respectively, and reserves for cash rental income increased by $0.3 million and $0.4 million, respectively, during the three and nine months ended September 30, 2017. These amounts in their entirety are included in FFO for the three and nine months ended September 30, 2017 and $0.3 million and $0.4 million is included in AFFO for the three and nine months ended September 30, 2017, respectively.

During the three and nine months ended September 30, 2017, 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 Credit Facility. During the nine months ended September 30, 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 2014 revolving credit facility and 2015 Canadian term loan. These amounts in their entirety are included in FFO for the three and nine months ended September 30, 2017 and the nine months ended September 30, 2016.

During the three and nine months ended September 30, 2016, we recognized $0.5 million and $3.3 million, respectively, in provision for doubtful accounts. Loan loss reserves increased by $0.3 million and $2.3 million, respectively, general reserves on straight-line rental income increased by $0.5 million and $1.3 million, respectively, and reserves for cash renal income decreased by $0.3 million during the three and nine months ended September 30, 2016. These amounts in their entirety are included in FFO for the three and nine months ended September 30, 2016 and ($0.3) million and ($0.2) million, respectively, are included in AFFO for the three and nine months ended September 30, 2016.

During the three and nine months ended September 30, 2016, we recognized $0.6 million and $4.4 million of default interest income related to various investments in loans receivable. These amounts in their entirety are included in FFO and AFFO for the three and nine months ended September 30, 2016.

During the three and nine months ended September 30, 2016, we recognized $2.9 million and $5.3 million of other income, respectively, primarily due to lease termination payments related to a memorandum of understanding entered into with Genesis regarding five Genesis facilities. These amounts in their entirety are included in FFO for the three and nine months ended September 30, 2016, and $2.6 million and $5.0 million, respectively, are included in AFFO for the three and nine months ended September 30, 2016.these items (in millions):

During the three and nine months ended September 30, 2016, we recognized $0.6 million of merger and acquisition costs not typically incurred related to the acquisition of one skilled nursing/transitional care facility. This entire amount is included in FFO for the three and nine months ended ~~September 30, 2016~~.



	Three Months Ended June 30,															Six Months Ended June 30,
	2018			2017		2018			2017		2018			2017		2018		2017		2018		2017		2018			2017
	Net Income					FFO					AFFO					Net Income				FFO				AFFO
Income on repayment of loan ⁽¹⁾	$	0.9		$	—	$	0.9		$	—	$	0.9		$	—	$	0.9	$	—	$	0.9	$	—	$	0.9		$	—
Previously anticipated Senior Notes refinancing expenses ⁽²⁾	0.6			—		0.6			—		0.6			—		0.6		—		0.6		—		0.6			—
CCP transition expenses ⁽²⁾	0.3			—		0.3			—		0.3			—		0.9		—		0.9		—		0.9			—
Legal fees related to the recovery of previously reserved cash rental income ⁽²⁾	0.3			—		0.3			—		0.3			—		0.6		—		0.6		—		0.6			—
Merger and acquisition costs	0.1			5.9		0.1			5.9		—			—		0.4		6.5		0.4		6.5		—			—
(Recovery of) provision for doubtful accounts	(0.7		)	0.5		(0.7		)	0.5		(1.0		)	—		0.5		2.3		0.5		2.3		(2.0		)	0.4
Other income	—			0.9		—			0.9		—			1.1		2.8		3.1		2.8		3.1		2.8			2.4
Deferred income tax expense ⁽³⁾	0.6			—		0.6			—		—			—		1.1		—		1.1		—		—			—
Preferred stock redemption charge ⁽⁴⁾	5.5			—		5.5			—		5.5			—		5.5		—		5.5		—		5.5			—


⁽¹⁾	Reflected in interest and other income on the accompanying condensed consolidated statements of income.


⁽²⁾	Reflected in general and administrative expenses on the accompanying condensed consolidated statements of income.


⁽³⁾	Reflected in loss from unconsolidated joint venture on the accompanying condensed consolidated statements of income.


⁽⁴⁾	Reflected in preferred stock dividends on the accompanying condensed consolidated statements of income.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2017,~~2018, we had approximately ~~$779.6~~$362.6 million in liquidity, consisting of unrestricted cash and cash equivalents of ~~$30.6~~$38.6 million (excluding joint venture cash and cash equivalents), and available borrowings under our Revolving Credit Facility of ~~$749.0~~$324.0 million. The Credit Facility also contains an accordion feature that can increase the total available borrowings to $2.5 billion (from U.S. $2.1 billion plus CAD $125.0 million), subject to terms and conditions. In addition, restricted cash as of June 30, 2018 includes $174.4 million held by exchange accommodation titleholders, which may be used to fund future real estate acquisitions.

We have filed a shelf registration statement ~~on Form S-3~~ with the SEC that expires in January 2020, which ~~will allow~~allows 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.

On September 28, 2017, we completed an underwritten public offering of 16.0 million newly issued shares of our common stock pursuant to an effective registration statement. The underwriters exercised their option to purchase additional shares, and on October 2, 2017, we issued an additional 2.4 million newly issued shares of our common stock pursuant to an effective registration statement. We received net proceeds, before expenses, of $370.9 million from the offering, after giving effect to the issuance and sale of all 18.4 million shares of common stock, at a price of $21.00 per share. These proceeds were used to repay borrowings outstanding under the Revolving Credit Facility.

We believe that our available cash, operating cash flows and borrowings available to us under ~~the~~our Revolving Credit Facility provide sufficient funds for our operations, scheduled debt service payments ~~with respect to our Senior Notes, secured~~

~~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 (as defined below) 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 ~~$49.8~~$211.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018. Operating cash inflows were derived primarily from the rental payments received under our lease agreements, resident fees and services net of the corresponding operating expenses and interest payments from borrowers under our loan investments. Operating cash outflows consisted primarily of interest payments on borrowings and payment of general and administrative expenses, including ~~merger and acquisition costs primarily related~~corporate overhead. We expect our annualized cash flows provided by operating activities to increase as a result of the CCP Merger and ~~corporate overhead.~~other completed and anticipated future real estate investments.

Cash Flows from Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, net cash used in investing activities was ~~$303.1~~$296.9 million and consisted of ~~$393.1~~$354.5 million used for our investment in the Enlivant Joint Venture, $214.0 million used in the acquisition of 2111 Senior Housing - Managed communities, five senior housing communities and two skilled nursing/transitional care facilities, ~~and one senior housing community, $5.6~~$28.2 million used to provide additional funding for existing loans receivable, ~~$2.7~~$16.8 million used for tenant improvements and $0.9 million used to fund preferred equity investments, ~~and $3.2 million used for tenant improvements,~~ partially offset by ~~$77.9 million in cash acquired in the CCP Merger, $11.7~~$278.2 million in sales proceeds related to the disposition of ~~four skilled nursing/transitional care~~37 real estate facilities, ~~$8.7~~$38.9 million in repayments of loans receivable and ~~$3.2~~$0.4 million in repayments of preferred equity investments.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, net cash ~~provided by~~used in financing activities ~~consisted~~was $276.2 million and included $164.7 million of ~~$319.0~~dividends paid to stockholders, $143.8 million ~~in net proceeds from~~for the ~~September 2017 common~~preferred stock ~~offering less~~redemption payment, $2.1 million of principal repayments of secured debt and $0.5 million in payroll tax payments related to the issuance of common stock pursuant to equity compensation arrangements and $181.0 million in proceeds from the U.S. term loans, partially offset by $86.8 million of dividends paid to stockholders, $3.1 million of principal repayments of secured debt and $15.3 million of payments for deferred financing costs primarily associated with the new Credit Facility.arrangements. In addition, during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we ~~repaid~~borrowed a net amount of $~~137.0~~35.0 million on our Revolving Credit Facility.

Please see the accompanying condensed consolidated statements of cash flows for details of our operating, investing and financing cash activities.

Loan Agreements

2021 Notes. On January 23, 2014, the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of ~~the Company~~Sabra (the “Issuers”), issued $350.0 million aggregate principal amount of 5.5% senior unsecured notes due 2021 (the ~~“Existing~~“Original 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~~Original 2021 Notes, the “2021 Notes”), providing net proceeds of 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”), providing net proceeds of approximately $194.6 million after deducting underwriting discounts and other offering expenses.

2026 and 2027 Notes. In connection with the CCP Merger, on August 17, 2017, Sabra assumed $500 million aggregate principal amount of 5.125% senior notes due 2026 (the “2026 Notes”) and $100 million aggregate principal amount of 5.38% senior notes due 2027 (the “2027 Notes” and, together with the 2021 Notes, the 2023 Notes and the 2026 Notes, the “Senior Notes”).

See Note 7, “Debt,” in the Notes to Condensed Consolidated Financial Statements for additional information concerning the Senior Notes, including information regarding the indentures and agreements governing the Senior Notes (the “Senior Notes Indentures”). As of ~~September~~June 30, ~~2017~~2018, we were in compliance with all applicable covenants under the Senior Notes Indentures.

Credit Facility. Effective on August 17, 2017, the Operating Partnership and Sabra Canadian Holdings, LLC (together, the “Borrowers”), Sabra and the other parties thereto entered into a fourth amended and restated unsecured credit facility (the “Credit Facility”).

The Credit Facility includes a $1.0 billion ~~Revolving~~revolving credit facility (the “Revolving Credit ~~Facility,~~Facility”), $1.1 billion in U.S. dollar term loans and a CAD ~~$125~~$125.0 million Canadian dollar term loan (collectively, the “Term Loans”). Further, up to ~~$175~~ $175.0

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 $2.5 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 7, “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 ~~September~~June 30, ~~2017~~2018, we were in compliance with all applicable covenants under the Credit Facility.

Secured Indebtedness

Of our ~~530~~487 properties held for investment, 30 are subject to secured indebtedness to third parties that, as of ~~September~~June 30, ~~2017~~2018, totaled approximately $~~260.4~~256.3 million. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017, our secured debt consisted of the following (dollars in thousands):


Interest Rate Type	Principal Balance as of September 30, 2017 ⁽¹⁾		Principal Balance as of December 31, 2016 ⁽¹⁾		Weighted Average Effective Interest Rate at September 30, 2017 ⁽²⁾		Maturity Date	Principal Balance as of June 30, 2018 ⁽¹⁾		Principal Balance as of December 31, 2017⁽¹⁾		Weighted Average Effective Interest Rate at June 30, 2018 ⁽²⁾		Maturity Date
Fixed Rate	$	161,871	$	163,638	3.87	%	December 2021 - August 2051	$	157,781	$	160,702	3.87	%	December 2021 - August 2051
Variable Rate	98,500		—		3.02	%	July 2019	98,500		98,500		3.89	%	July 2019
	$	260,371	$	163,638	3.55	%		$	256,281	$	259,202	3.88	%


⁽¹⁾	Principal balance does not include deferred financing costs, net of ~~$2.8~~$2.7 million and ~~$2.9~~$2.8 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.


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

~~On August 17, 2017, in connection with the CCP Merger, we assumed a $98.5 million secured term loan that bears interest at LIBOR plus 1.80% and matures in July 2019.~~

Capital Expenditures

~~There were $3.2~~We had $16.8 million and ~~$0.9~~$1.3 million of capital expenditures for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The capital expenditures for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 include $40,000 and ~~2016 include $22,000 and $0.1 million,~~$12,000, 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 ~~$67.0~~$59.0 million, and that such expenditures will principally be for improvements to our facilities and result in incremental rental income.

Dividends

We paid dividends of ~~$86.8~~$164.7 million on our common and preferred stock during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. As described above, on June 1, 2018, we redeemed all outstanding shares of our Series A Preferred Stock. On ~~November 1, 2017,~~August 8, 2018, our board of directors declared a quarterly cash dividend of ~~$0.5201087~~$0.45 per share of common stock, which consists of (i) a full quarter dividend of $0.45 per share and (ii) $0.0701087 per share, which is the difference between the prorated dividend paid on August 18, 2017 and our previous full quarter dividend of $0.43 per share.stock. The dividend will be paid on ~~November 30, 2017~~August 31, 2018 to common stockholders of record as of November 15, 2017. Also on November 1, 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 November 30, 2017 to preferred stockholders of record as of the close of business on November 15, 2017.

August 18, 2018.

Concentration of Credit Risk

Concentrations of credit risk 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 ~~530~~487 real estate properties held for investment as of ~~September~~June 30, ~~2017~~2018 is diversified by location across the United States and Canada.

~~The following table provides information regarding significant~~For the three and six months ended June 30, 2018, no tenant relationships ~~representing~~represented 10% or more of our total ~~revenues as of September 30, 2017 (dollars in thousands):~~

Skilled Nursing Facility Reimbursement Rates

~~A portion~~For the six months ended June 30, 2018, 63.9% of our ~~revenue is~~revenues was 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~~Version IV (“~~RUG IV”~~RUG-IV”), became effective as of October 1, 2010. ~~RUG IV~~RUG-IV resulted from research performed by the Centers for Medicare & Medicaid Services (“CMS”) and was part of ~~CMS's~~CMS’s continuing effort to increase the correlation of the cost of services to the condition of individual patients.

On July 31, 2018, CMS issued a final rule, CMS-1696-F, which includes changes to the case-mix classification system used under the PPS and fiscal year 2019 Medicare payment updates.

CMS-1696-F includes a new case-mix classification system called the skilled nursing facility Patient-Driven Payment Model (“PDPM”) that will become effective on October 1, 2019. PDPM reflects significant changes to the Resident Classification System, Version I (“RCS-I”) that was being considered to replace RUG-IV as outlined in an Advanced Notice of Proposed Rulemaking released by CMS in May 2017.

PDPM focuses on clinically relevant factors, rather than volume-based service, for determining Medicare payment. PDPM adjusts Medicare payments based on each aspect of a resident’s care, most notably for non-therapy ancillaries, which are items and services not related to the provision of therapy such as drugs and medical supplies, thereby more accurately addressing costs associated with medically complex patients. It further adjusts the skilled nursing facility per diem payments to reflect varying costs throughout the stay and incorporates safeguards against potential financial incentives to ensure that beneficiaries receive care consistent with their unique needs and goals.

Based on changes contained within CMS-1696-F, CMS estimates that the fiscal year 2019 aggregate impact will be an increase of $820 million in Medicare payments to skilled nursing facilities, resulting from the fiscal year 2019 market basket update required to be 2.4% by the Bipartisan Budget Act of 2018. Absent the application of this statutory requirement, the fiscal year 2019 market basket update factor would have been 2.0% (comprised of a market basket index of 2.8% less the productivity adjustment of 0.8%). This 2.0% update would have resulted in an estimated aggregate increase of $670 million in Medicare payments to skilled nursing facilities.

On July 31, 2017, CMS released final fiscal year 2018 Medicare rates for skilled nursing facilities providing an estimated net increase of 1.0% over fiscal year 2017 payments. The new payment rates became effective on October 1, 2017. In its final rule, CMS also revised and rebased the market basket index by updating the base year from fiscal year 2010 to fiscal year 2014.

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 and holds 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 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.

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, our~~ secured indebtedness to third parties on certain of our properties, our Revolving Credit Facility, our Term Loans, our Senior Notes and our operating leases. The following table is presented as of ~~September~~June 30, ~~2017~~2018 (in thousands):


			October 1 Through				Year Ending December 31,										July 1 through December 31, 2018								Year Ending December 31,
	Total		December 31, 2017		2018		2019		2020		2021		After 2021		Total					2019				2020				2021				2022				After 2022
Secured indebtedness ⁽¹⁾	$	344,361	$	3,207	$	12,804	$	109,972	$	9,784	$	25,619	$	182,975	$	334,672	July 1 through December 31, 2018	$	6,820			$	110,395			$	9,723			$	24,759			$	8,581			$	174,394
Revolving Credit Facility ⁽²⁾	285,281		2,226		8,830		8,830		8,855		256,540		—		755,699		12,819				25,428				25,498				691,954				—				—
Term Loans ⁽³⁾	1,346,671		8,169		32,408		32,408		230,303		26,520		1,016,863		1,336,171		17,393				34,502				233,208				33,799				1,017,269				—
Senior Notes ⁽⁴⁾	1,745,175		8,065		69,255		69,255		69,255		555,505		973,840		1,702,482		34,627				69,255				69,255				555,505				41,755				932,085
Operating leases	4,108		139		651		440		426		445		2,007		3,645		326				440				426				445				467				1,541
Total	$	3,725,596	$	21,806	$	123,948	$	220,905	$	318,623	$	864,629	$	2,175,685	$	4,132,669	$	71,985			$	240,020			$	338,110			$	1,306,462			$	1,068,072			$	1,108,020


⁽¹⁾	Secured indebtedness includes principal payments and interest payments through the applicable maturity dates. Total interest on secured indebtedness, based on contractual rates, is ~~$84.0~~$78.4 million, of which ~~$5.5~~$4.1 million is attributable to variable rate debt.


⁽²⁾	Revolving Credit Facility includes payments related to the facility fee due to the lenders based on the amount of commitments under the Revolving Credit Facility and also includes interest payments through the maturity date (assuming no exercise of ~~its~~our two six-month extension options). Total interest on the Revolving Credit Facility is ~~$34.3~~$79.7 million.


⁽³⁾	Term Loans ~~include~~includes interest payments through the applicable maturity dates totaling ~~$146.4~~$141.0 million.


⁽⁴⁾	Senior Notes includes interest payments through the applicable maturity ~~dates. Total interest on the Senior Notes is $445.2~~dates totaling $402.5 million.

In addition to the above, as of ~~September~~June 30, ~~2017,~~2018, we have committed to provide up to ~~$13.5~~$12.6 million of future funding related to ~~five loan receivable investments. The loan~~seven investments, including six loans receivable investments ~~have~~with maturity dates ranging from ~~January~~September 2018 to ~~February~~January 2027.

Off-Balance Sheet Arrangements

~~None.~~We have a 49% interest in an unconsolidated joint venture. See Note 2, “Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements for additional information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

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 8, “Derivative and Hedging Instruments,” in the Notes to ~~the~~ Condensed Consolidated Financial Statements for further discussion on our derivative instruments.

Interest rate risk. As of ~~September~~June 30, ~~2017,~~2018, our indebtedness included $1.3 billion aggregate principal amount of Senior Notes outstanding, ~~$260.4~~$256.3 million of secured indebtedness to third parties on certain of the properties that our subsidiaries own, $1.2 billion in Term Loans and ~~$251.0~~$676.0 million outstanding under the Revolving Credit Facility. As of ~~September~~June 30, ~~2017,~~2018, we had ~~$1.5~~$2.0 billion of outstanding variable rate ~~indebtedness. In addition, as of September 30, 2017, we had $749.0~~indebtedness and $324.0 million available for borrowing under our Revolving Credit Facility. Additionally, as of June 30, 2018, our share of unconsolidated joint venture debt was $384.2 million, of which $382.1 million was variable rate indebtedness.

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 ~~September~~June 30, ~~2017,~~2018, we had 10 interest rate swaps that fix the LIBOR portion of the interest rate for $845.0 million of LIBOR-based borrowings under the U.S. dollar Term Loans at a weighted average rate of 1.19% 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. Additionally, as of June 30, 2018, our share of unconsolidated joint venture debt included $368.4 million of LIBOR-based borrowings subject to interest rate cap agreements that cap the LIBOR portion of the interest rate at a weighted average rate of 2.89%.

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 interest margin 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/~~increase or decrease in the interest rate related to our variable rate debt, including our share of unconsolidated joint venture debt, and after giving effect to the impact of interest rate ~~swap~~ derivative instruments, ~~interest expense~~income would ~~increase/~~decrease by ~~$6.0~~$13.4 million or increase by $14.1 million, respectively, for the twelve months following ~~September~~June 30, ~~2017.~~2018.

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 ~~$147.8~~$147.3 million and cross currency swap instruments. Based on our operating results for the three months ended ~~September~~June 30, ~~2017,~~2018, 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 ~~September~~June 30, ~~2017,~~2018, our cash flows would have decreased or increased, as applicable, by ~~$0.2~~$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 ~~September~~June 30, ~~2017~~2018 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 ~~September~~June 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On August 17, 2017, we completed the CCP Merger. We are continuing to integrate the acquired CCP operations into our overall internal control over financial reporting and will evaluate as part of our first internal control assessment that includes an

assessment of CCP whether the CCP Merger resulted in any changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~For~~None of the Company or any of its subsidiaries is a ~~description~~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 legal proceedings, see “Legal Matters” in Part I, Item 1, Note 14 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated by reference in response to this item.business.

ITEM 1A. RISK FACTORS

There have been no material changes in our assessment of our risk factors from those set forth in Part I, Item 1A of our ~~2016~~2017 Annual Report on Form ~~10-K, as updated by the risk factors set forth in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.~~10-K.

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 and Sale Agreement and Joint Escrow Instructions, dated June 25, 2015, between Marsh Pike, LLC and Sabra Hagerstown, 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).†

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).

~~3.1.2~~		~~Articles~~ of Amendment to the Articles of Amendment and Restatement of Sabra Health Care REIT, Inc., dated as of July 31, 2017 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on July 31, 2017).

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~~		Indenture, dated as of July 14, 2016, by and among Care Capital Properties, LP, Care Capital Properties, Inc., Care Capital Properties GP, LLC and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 23, 2017).

~~4.2~~		First Supplemental Indenture, dated as of August 17, 2017, by and among Care Capital Properties, LP, PR Sub, LLC, Care Capital Properties GP, LLC and Regions Bank, as trustee (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 23, 2017).

~~4.3~~		Second Supplemental Indenture, dated as of August 17, 2017, by and among Sabra Health Care Limited Partnership as successor to Care Capital Properties, LP, Sabra Health Care REIT, Inc., Care Capital Properties GP, LLC and Regions Bank, as trustee (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 23, 2017).

~~4.4~~		Third Supplemental Indenture, dated as of August 17, 2017, by and among Sabra Health Care Limited Partnership, Sabra Health Care REIT, Inc., Care Capital Properties GP, LLC and Regions Bank, as trustee (incorporated by reference to Exhibit 4.4 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 23, 2017).

~~4.5~~		Fourth Supplemental Indenture, dated as of August 18, 2017, by and among Sabra Health Care Limited Partnership, Sabra Health Care REIT, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibit 4.5 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 23, 2017).



~~Ex.~~		~~Description~~

~~10.1~~		Fourth Amended and Restated Credit Agreement, dated as of August 17, 2017, among Sabra Health Care Limited Partnership and Sabra Canadian Holdings, LLC, as Borrowers; Sabra Health Care REIT, Inc., as REIT Guarantor; the other guarantors party thereto; the lenders party thereto; Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer; Citizens Bank, National Association, Credit Agricole Corporate and Investment Bank and Wells Fargo Bank, N.A, as Co-Syndication Agents, Swing Line Lenders and L/C Issuers; BMO Harris Bank N.A., The Bank of Tokyo-Mitsubishi UFJ, LTD., Barclays Bank PLC, Compass Bank, Citibank, N.A., J.P. Morgan Chase Bank, N.A., Sumitomo Mitsui Banking Corporation, Suntrust Bank and UBS Securities LLC, as Co-Documentation Agents; and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arranger and Sole Bookrunner; and Citizens Bank, National Association, Credit Agricole Corporate and Investment Bank and Wells Fargo Securities, LLC, as Joint Lead Arrangers (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on August 17, 2017).

~~10.2+~~		Sabra Health Care REIT, Inc. 2009 Performance Incentive Plan, effective April 21, 2017 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on June 21, 2017).

10.3+*		~~Form of Notice and Terms and Conditions of Stock Unit Award (for Non-Employee Directors)~~.

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.
+	~~Designates a management compensation plan, contract or arrangement.~~



†	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.

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: ~~November 1, 2017~~August 8, 2018	By:	/S/ RICHARD K. MATROS
		Richard K. Matros
		Chairman, President and
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 1, 2017~~August 8, 2018	By:	/S/ HAROLD W. ANDREWS, JR.
		Harold W. Andrews, Jr.
		Executive Vice President,
		Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)

6059



		Page Numbers
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Income	5

	Condensed Consolidated Statements of Comprehensive Income	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	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	56

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	58

Item 1a.	Risk Factors	58

Item 6.	Exhibits	58

Signatures		6059



		Three Months Ended				Nine Months Ended
		September 30, 2017
	Number of Investments	Rental Revenue		% of Total Revenue		Rental Revenue		% of Total Revenue

Genesis Healthcare, Inc.	76	$	20,257	18.1	%	$	60,470	25.3	%
Holiday AL Holdings, LP	21	9,813		8.8		29,438		12.3



Balance as of December 31, 2016	$	818
Decrease in contingent consideration liability	(552		)
Balance as of September 30, 2017	$	266

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