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Rating Action:

Moody's upgrades Sabra's senior debt rating to Ba3; stable outlook

08 Jan 2014

Approximately $650 million of securities affected.

New York, January 08, 2014 -- Moody's Investors Service has assigned a Ba3 rating to the proposed $300 million senior unsecured notes being co-issued by Sabra Health Care Limited Partnership and Sabra Capital Corp, wholly-owned subsidiaries of Sabra Health Care REIT, Inc. Moody's has also upgraded Sabra's existing senior unsecured debt to Ba3 from B1 and its preferred stock to B2 from B3. The rating outlook remains stable.

The following ratings were upgraded with a stable outlook:

Sabra Health Care REIT, Inc. -- corporate family rating to Ba3 from B1; preferred stock to B2 from B3; senior unsecured shelf to (P)Ba3 from (P)B1; preferred stock shelf to (P)B2 from (P)B3

Sabra Health Care Limited Partnership -- senior unsecured debt to Ba3 from B1; senior unsecured shelf to (P)Ba3 from (P)B1

Sabra Capital Corp. -- senior unsecured debt to Ba3 from B1; senior unsecured shelf to (P)Ba3 from (P)B1

RATINGS RATIONALE

Sabra's ratings upgrade reflects the healthcare REIT's substantial progress in growing and diversifying its portfolio, by property sub-type and tenant. Furthermore, this strategic growth has been executed while maintaining modest leverage and sound liquidity.

Moody's notes that Genesis HealthCare, Sabra's largest tenant, comprises 50% of the REIT's annualized revenues pro forma for recently executed investments (down from 65% as of 4Q12 and 76% as of 4Q11). Moody's expects this tenant concentration will decrease further as Sabra continues its active pace of growth. Moody's also views favorably the REIT's strategy of increasing its presence in other property sub-types, such as senior housing and hospitals, with a particular focus on investing in high-quality, purpose-built assets well-suited to succeed in the post healthcare reform era.

Sabra has sufficient financial capacity to fund continued growth. The REIT has $131 million drawn on its secured revolver (total size of $287 million) pro forma for recent investment activities. Proceeds from the proposed $300 million senior debt offering will be used to reduce its line balance and tender for $211 million of 2018 senior notes. The REIT has modest upcoming debt maturities with $4 million and $86 million coming due in 2014 and 2015, respectively (it is currently working on refinancing $57 million of its 2015 maturities with HUD).

Moody's also notes that the REIT's modest leverage profile (net debt/EBITDA of 4.0x for 3Q13) and sound fixed charge coverage (2.4x for 3Q13) are additional credit positives, supporting its ratings.

Sabra's Ba3 ratings continue to reflect the REIT's small size, early stage of growth and large tenant concentration. Sabra's asset type concentration in skilled nursing facilities (67% of revenues pro forma for recent investments) also remains a key credit challenge as this sector is highly regulated and dependent on government reimbursements through Medicare and Medicaid, which we view as at risk for rate cuts in the current fiscal environment.

The stable outlook reflects Moody's expectation that Sabra will continue to execute on its strategic growth and diversification, while maintaining modest leverage and sound liquidity.

Moody's indicated that a rating upgrade would likely reflect reduced tenant concentration (largest tenant less than 25% of revenues), stable-to-improving rent coverage trends, and increased property sub-type diversification. Fixed charge coverage above 3.0x and maintaining leverage within its target of 4.5x-5.5x on a consistent basis would also be needed for an upgrade.

Negative rating pressure would likely result should the REIT experience sustained deterioration in property coverage ratios, fixed charge coverage below 2.3x, or material increases in secured debt, which could create subordination and pressure on the senior unsecured debt rating.

The last rating action with respect to Sabra Health Care REIT, Inc. was on May 20, 2013, when Moody's assigned a B1 rating to the REIT's proposed debt offering with a stable outlook.

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.

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 throughout the US. As of November 7, 2013, and after giving effect to the Weston Loan and the New Dawn Loans, Sabra's portfolio included 121 real estate properties held for investment and leased to operators/tenants under triple-net lease agreements (consisting of (i) 96 skilled nursing/post-acute facilities, (ii) 23 senior housing facilities, and (iii) two acute care hospitals), ten debt investments (consisting of (i) four mortgage loans, (ii) one mezzanine loan, (iii) two pre-development loans, and (iv) three construction mortgage loans) and two preferred equity investments.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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

Nicholas 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 senior debt rating to Ba3; stable outlook
No Related Data.
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