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Rating Action:

Moody's upgrades Sabra's ratings; outlook stable

19 Apr 2012

Approximately $225 million of securities affected.

New York, April 19, 2012 -- Moody's Investors Service has upgraded the senior unsecured rating of Sabra Health Care Limited Partnership to B1 from B2 and the corporate family rating of Sabra Health Care REIT, Inc. to B1 from B2. The outlook is stable. The ratings upgrade reflects the healthcare REIT's growth, improved tenant diversification, and maintenance of sound credit metrics. The stable outlook reflects Moody's expectation that Sabra will not experience a decline in rents as a result of the recent cut to skilled nursing facility (SNF) Medicare rates. We also anticipate that Sabra will continue to execute on its strategic growth and diversification, while maintaining modest leverage.

RATINGS RATIONALE

Moody's notes that Sabra has executed significant growth since its November 2010 separation from Sun Healthcare Group (B1 corporate family rating, stable). The REIT completed $212 million of acquisitions in 2011, which reduced its tenant concentration with Sun to 76% of revenues for 4Q11, down from 100% at the REIT's inception. Sabra has since announced another $40 million of transactions completed during 1Q12.

Moody's expects the REIT will remain an active acquirer and, thus, reduce its exposure to Sun further. Sabra has sufficient capacity to fund continued growth, with a $200 million secured credit facility (the REIT had $42M of cash and $0 drawn on its revolver as of 4Q11) and no significant debt maturities until 2015. Moody's also notes that the REIT's modest leverage profile (debt plus preferred stock comprised 45% of gross assets as of 4Q11) is an additional credit positive supporting its rating.

Sabra's key credit challenges remain its small size, early stage of growth, and still high tenant concentration with Sun Healthcare Group. The REIT's asset type concentration in SNFs is also a key credit concern as this sector is highly regulated and dependent on government reimbursements through Medicare and Medicaid.

SNF Medicare rates were cut 11% effective 10/01/2011, which presents substantial challenges for operators including Sun Healthcare. We believe that Sabra's lease with Sun remains secure as it is backed by a corporate guarantee and consolidated coverage (EBITDAR/Rent) across all of Sun's leased properties is expected to approximate 1.5x for 2012 (based on Sun's public guidance issued in January 2012). Although, Moody's notes that coverage on the Sabra owned properties is lower and the possibility of further rate cuts remains a key risk for SNF operators and, thus, their landlords. Positively, Moody's notes that Sabra's strong fixed charge coverage (2.9x for 4Q11) and sound liquidity provide cushion for the REIT's cash flows amidst the uncertain outlook.

Moody's indicated that a rating upgrade would likely reflect increased size (gross assets closer to $1.2 billion), reduced tenant concentration (largest tenant less than 50% of revenues), maintenance of fixed charge coverage above 2.5x and Net Debt/EBITDA below 6x on a sustained basis. Sound property coverage ratios across all significant leases would also be necessary for a ratings upgrade.

Negative rating pressure would likely result from sustained, substantial deterioration in EBITDAR coverage ratios, fixed charge coverage below 2.2x on a sustained basis, or material increases in secured debt, which could create subordination and pressure on the senior unsecured debt rating.

Moody's last rating action for Sabra Health Care REIT was on October 15, 2010 when first-time ratings were assigned with a stable outlook.

Sabra Health Care REIT, Inc. (Nasdaq:SBRA) is a self-managed real estate investment trust that, through its subsidiaries, owns and invests in real estate serving the healthcare industry. Sabra leases properties to tenants and operators throughout 24 states in the U.S. As of March 30, 2012, and after giving effect to Sabra's acquisition of the Pennsylvania Subacute Portfolio, Sabra's investment portfolio consisted of 78 skilled nursing facilities, ten combined skilled nursing, assisted living and independent living facilities, six assisted living facilities, two mental health facilities, one independent living facility, one continuing care retirement community, one acute care hospital and one mezzanine loan investment.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Lori Marks
Asst Vice President - Analyst
Commercial Real Estate Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Nick Levidy
MD - Structured Finance
Commercial Real Estate Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Sabra's ratings; outlook stable
No Related Data.
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