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 2020 Annual Report on Form 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. We primarily generate revenues by leasing properties to tenants and owning properties operated by third-party property managers throughoutthe United States ("U.S.") andCanada . Our investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities ("Senior Housing - Leased") 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. We expect to grow our investment portfolio while diversifying our portfolio by tenant, 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, including the development of purpose-built healthcare facilities with select developers. We also intend to achieve our objective of diversifying our portfolio by tenant and facility type through select asset sales and other arrangements with our tenants. We expect to continue to grow our portfolio primarily through the acquisition of assisted living, independent living and memory care communities in theU.S. andCanada and through the acquisition of skilled nursing/transitional care and behavioral health facilities in theU.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 inSenior Housing - Managed 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 (a) the property is in or near the development phase, (b) the development of the property is completed but the operations of the facility are not yet stabilized or (c) the loan investment 27 -------------------------------------------------------------------------------- Table of Contents will provide capital to existing relationships. A key component of our development strategy related to loan originations and preferred equity investments is 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 ourU.S. federal income tax return for the taxable year beginningJanuary 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 bySabra Health Care Limited Partnership , aDelaware limited partnership (the "Operating Partnership"), of which we are the sole general partner and a wholly owned subsidiary of ours is currently the only limited partner, or by subsidiaries of theOperating Partnership . COVID-19 The ongoing COVID-19 pandemic and measures intended to prevent its spread have negatively impacted and are expected to continue to negatively impact us and our operations in a number of ways, including but not limited to: •Decreased occupancy and increased operating costs for our tenants and borrowers, which have negatively impacted their operating results and may adversely impact their ability to make full and timely rental payments and debt service payments, respectively, to us. In some cases, we may have to restructure tenants' long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. Reduced or modified rental and debt service amounts could result in the determination that the full amounts of our investments are not recoverable, which could result in an impairment charge. To date, the impact of COVID-19 on our skilled nursing/transitional care facility operators has been significantly mitigated by the assistance they have received or expect to receive from state and federal assistance programs, including through the CARES Act (as defined and further described below under "-Skilled Nursing Facility Reimbursement Rates"), although these benefits on an individual operator basis vary and may not provide enough relief to meet their rental obligations to us. As ofSeptember 1, 2020 , eligible assisted living facility operators may apply for funding through the CARES Act, and the assistance received or expected to be received will partially mitigate the negative impact of COVID-19 on our eligible assisted living facility operators. As ofJune 30, 2021 , our tenants and borrowers have continued to pay expected cash rents and debt service obligations consistent with past practice. However, the longer the duration of the COVID-19 pandemic, the more likely that our tenants and borrowers will begin to default on these obligations. Such defaults could materially and adversely affect our results of operations and liquidity, in addition to resulting in potential impairment charges. •Decreased occupancy and increased operating costs within ourSenior Housing - Managed portfolio which have negatively impacted and are expected to continue to negatively impact the operating results of these investments. As noted above, as ofSeptember 1, 2020 , eligible assisted living facility operators may apply for funding through the CARES Act, and the assistance received or expected to be received will partially mitigate the negative impact of COVID-19 on ourSenior Housing - Managed portfolio. In addition, onOctober 1, 2020 , theDepartment of Health and Human Services announced$20 billion of new funding for assisted living facility operators that have already received funds and to those who were previously ineligible. During each of the three and six months endedJune 30, 2021 , we recognized government grants of$0.5 million in resident fees and services. Prolonged deterioration in the operating results for our investments in ourSenior Housing - Managed portfolio could result in the determination that the full amounts of our investments are not recoverable, which could result in an impairment charge. Our financial results as of and for the three and six months endedJune 30, 2021 reflect the results of our evaluation of the impact of COVID-19 on our business including, but not limited to, our evaluation of potential impairments of long-lived or other assets, measurement of credit losses on financial instruments, evaluation of any lease modifications, evaluation of lease accounting impact, estimates of fair value and our ability to continue as a going concern. 28 -------------------------------------------------------------------------------- Table of Contents Impairment of Investment in Unconsolidated Joint Venture We have a 49% equity interest in a joint venture (the "Enlivant Joint Venture") with affiliates ofTPG Real Estate , the real estate platform of TPG. TPG also owns Enlivant, the senior housing management platform that manages the portfolio owned by the Enlivant Joint Venture. During the second quarter of 2021, TPG reached out to Sabra to explore our acquiring TPG's 51% interest in the Enlivant Joint Venture. The parties were not able to reach mutually acceptable terms for a transaction, in part due to modifications requested by TPG in the Enlivant management fee structure. At that time, TPG informed Sabra of its intent to re-evaluate its plans with respect to the management company. Furthermore, decreased occupancy and revenues and increased operating costs during the COVID-19 pandemic have had a significant negative impact on the financial performance of the Enlivant Joint Venture. As a result, we re-evaluated our plans with respect to the Enlivant Joint Venture and determined that we would no longer seek to acquire TPG's majority interest in the Enlivant Joint Venture and that we expect to sell our 49% equity interest should TPG secure a buyer for the portfolio sometime in the future. In connection with this re-evaluation and our eventual intent to exit our 49% stake, we revisited our estimate of the fair value of our investment in the Enlivant Joint Venture and believe that it has declined below our investment basis. We also believe that, given our intent to sell the portfolio, it is unlikely that we will hold our investment for an adequate period of time to recover this estimated decline in value. As such, this decline was deemed to be other-than-temporary and we recorded an impairment charge for the amount that the carrying value exceeds the estimated fair value of the investment totaling$164.1 million during the three months endedJune 30, 2021 . This impairment is included in loss from unconsolidated joint venture on the accompanying condensed consolidated statements of (loss) income. The ongoing operating performance of the Enlivant Joint Venture, as well as whether TPG is able to secure a buyer on favorable terms or at all, will impact the ultimate amounts realized from the Enlivant Joint Venture and may require us to recognize an additional impairment charge in the future with respect to this investment. See Note 4, "Investment inReal Estate Properties ," in the Notes to Condensed Consolidated Financial Statements for additional information regarding this impairment. Acquisitions During the six months endedJune 30, 2021 , we acquired twoSenior Housing - Managed communities, one addiction treatment center and one skilled nursing/transitional care facility for an aggregate purchase price of$62.1 million . See Note 3, "Recent Real Estate Acquisitions," in the Notes to Condensed Consolidated Financial Statements for additional information regarding these acquisitions. Dispositions During the six months endedJune 30, 2021 , we completed the sale of four skilled nursing/transitional care facilities for aggregate consideration, net of closing costs, of$11.3 million . The net carrying value of the assets and liabilities of these facilities was$14.7 million , which resulted in an aggregate$3.4 million net loss on sale. Critical Accounting Policies Our condensed consolidated interim financial statements have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP") and in conjunction with the rules and regulations of theSEC . 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 2020 Annual Report on Form 10-K filed with theSEC . There have been no significant changes to our critical accounting policies during the six months endedJune 30, 2021 . 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 ofJune 30, 2021 , our investment portfolio consisted of 423 real estate properties held for investment, three assets held for sale, one investment in a sales-type lease, 18 investments in loans receivable, seven preferred equity investments and one 29 -------------------------------------------------------------------------------- Table of Contents investment in an unconsolidated joint venture. As ofJune 30, 2020 , our investment portfolio consisted of 427 real estate properties held for investment, one investment in a direct financing lease, 19 investments in loans receivable, five preferred equity investments and one investment in an unconsolidated joint venture. In general, we expect that income and expenses related to our portfolio will fluctuate in future periods in comparison to the corresponding prior periods as a result of investment and disposition activity and anticipated future changes in our portfolio. The results of operations presented are not directly comparable due to ongoing acquisition and disposition activity. Comparison of results of operations for the three months endedJune 30, 2021 versus the three months endedJune 30, 2020 (dollars in thousands): Variance due to Three Months Ended June 30, Acquisitions, Increase / Percentage Originations and Remaining 2021 2020 (Decrease) Difference Dispositions (1) Variance (2) Revenues: Rental and related revenues$ 110,783 $ 112,727 $ (1,944) (2) %$ (1,179) $ (765) Interest and other income 3,031 2,606 425 16 % 519 (94) Resident fees and services 39,118 38,584 534 1 % 2,530 (1,996)
Expenses:
Depreciation and amortization 44,491 44,202 289 1 % 271 18 Interest 24,270 25,292 (1,022) (4) % (131) (891) Triple-net portfolio operating expenses 5,000 5,331 (331) (6) % (8) (323) Senior housing - managed portfolio operating expenses 28,901 27,970 931 3 % 1,423 (492) General and administrative 8,811 8,673 138 2 % - 138 (Recovery of) provision for loan losses and other reserves (109) 129 (238) (184) % - (238) Other income (expense): Loss on extinguishment of debt (54) (392) 338 (86) % 392 (54) Other expense (24) (66) 42 (64) % - 42 Net (loss) gain on sales of real estate (3,752) 330 (4,082) (1,237) % (4,082)
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Loss from unconsolidated joint venture (169,789) (12,136) (157,653) 1,299 % 9,454 (167,107) Income tax expense (522) (433) (89) 21 % - (89) (1) Represents the dollar amount increase (decrease) for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 as a result of investments/dispositions made afterApril 1, 2020 . (2) Represents the dollar amount increase (decrease) for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 that is not a direct result of investments/dispositions made afterApril 1, 2020 . Rental and Related Revenues During the three months endedJune 30, 2021 , we recognized$110.8 million of rental income compared to$112.7 million for the three months endedJune 30, 2020 . The$1.9 million net decrease in rental income is related to (i) a$1.2 million decrease from properties disposed of afterApril 1, 2020 , (ii) a$1.0 million decrease related to lease intangibles that have been fully amortized and (iii) a$0.5 million decrease due to transitioning four facilities to new operators. The decreases are offset by a$0.9 million net decrease in write-offs related to leases we concluded should no longer be accounted for on an accrual basis during the three months endedJune 30, 2020 . Our reported rental and related revenues may be subject to increased variability in the future as a result of adopting Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), as amended by subsequent ASUs ("Topic 842"). However, there can be no assurances regarding the timing and amount of these revenues. 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 endedJune 30, 2021 and 2020. 30 -------------------------------------------------------------------------------- Table of Contents 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 sales-type lease. During the three months endedJune 30, 2021 , we recognized$3.0 million of interest and other income compared to$2.6 million for the three months endedJune 30, 2020 . The net increase of$0.4 million is due to a$0.5 million increase in income from investments made afterApril 1, 2020 . Resident Fees and Services During the three months endedJune 30, 2021 , we recognized$39.1 million of resident fees and services compared to$38.6 million for the three months endedJune 30, 2020 . The$0.5 million net increase is due to a$2.5 million increase from threeSenior Housing - Managed communities acquired afterApril 1, 2020 , partially offset by the impact of decreased occupancy as a result of the COVID-19 pandemic. Depreciation and Amortization During each of the three months endedJune 30, 2021 and 2020, we incurred$44.5 million of depreciation and amortization expense compared to$44.2 million for the three months endedJune 30, 2020 . Depreciation and amortization expense increased by$0.7 million from properties acquired afterApril 1, 2020 . The increase was offset by a$0.4 million decrease from properties disposed of afterApril 1, 2020 . 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 endedJune 30, 2021 , we incurred$24.3 million of interest expense compared to$25.3 million for the three months endedJune 30, 2020 . The$1.0 million net decrease is related to (i) a$0.5 million decrease in interest expense related to a reduction in the borrowings outstanding under the Credit Agreement (as defined below) and decrease in interest rates, (ii) a$0.1 million decrease in interest expense related to one mortgage note assumed during 2020 by the buyer of the facility securing the debt and (iii) a$0.3 million decrease in non-cash interest expense related to our interest rate hedges. Triple-Net Portfolio Operating Expenses During the three months endedJune 30, 2021 , we recognized$5.0 million of triple-net portfolio operating expenses compared to$5.3 million for the three months endedJune 30, 2020 . The$0.3 million net decrease is related to a$0.1 million decrease related to property taxes paid during the three months endedJune 30, 2020 on facilities that have since been transitioned to new operators who are now paying the property taxes directly, and the remaining decrease is due to adjusting our estimates related to property taxes.Senior Housing - Managed Portfolio Operating Expenses During the three months endedJune 30, 2021 , we recognized$28.9 million ofSenior Housing - Managed portfolio operating expenses compared to$28.0 million for the three months endedJune 30, 2020 . The$0.9 million net increase is due to (i) a$1.4 million increase related to threeSenior Housing - Managed communities acquired afterApril 1, 2020 , (ii) a$0.4 million increase related to marketing expenses due to increased activity and (iii) a$0.3 million increase in insurance expenses due to a higher number of claims and increased premiums. The increases are partially offset by a$1.3 million decrease in supplies and labor needs related to the COVID-19 pandemic. General and Administrative Expenses General and administrative expenses include compensation-related expenses as well as professional services, office costs, other costs associated with asset management, and merger and acquisition costs. During the three months endedJune 30, 2021 , general and administrative expenses were$8.8 million compared to$8.7 million during the three months endedJune 30, 2020 . The$0.1 million net increase is related to a$0.2 million increase in insurance expense due to increased premiums. (Recovery of) Provision for Loan Losses and Other Reserves During the three months endedJune 30, 2021 , we recognized a$0.1 million recovery of loan losses and other reserves associated with loan loss reserves. During the three months endedJune 30, 2020 , we recognized a$0.1 million provision for loan losses and other reserves associated with loan loss reserves. 31 -------------------------------------------------------------------------------- Table of Contents Loss on Extinguishment of Debt During the three months endedJune 30, 2021 , we recognized a$0.1 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with the partial pay down of theU.S. dollar Term Loans (as defined below). During the three months endedJune 30, 2020 , we recognized a$0.4 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with the sale of two facilities that secured two mortgage notes. Net (Loss) Gain on Sales of Real Estate During the three months endedJune 30, 2021 , we recognized an aggregate net loss on the sales of real estate of$3.8 million related to the disposition of two skilled nursing/transitional care facilities. During the three months endedJune 30, 2020 , we recognized an aggregate net gain on the sales of real estate of$0.3 million related to the disposition of three skilled nursing/transitional care facilities. Loss from Unconsolidated Joint Venture During the three months endedJune 30, 2021 , we recognized$169.8 million of loss from the Enlivant Joint Venture compared to$12.1 million of loss for the three months endedJune 30, 2020 . The$157.7 million net increase in loss is related to (i) a$164.1 million other-than-temporary impairment recorded during the three months endedJune 30, 2021 (See Note 4, "Investments inReal Estate Properties " in the Notes to Condensed Consolidated Financial Statements for additional information regarding the impairment), (ii) a$2.4 million decrease in revenue from the facilities owned by the Enlivant Joint Venture as ofJune 30, 2021 , primarily due to the impact of decreased occupancy as a result of the COVID-19 pandemic and (iii) a$1.9 million increase in operating expenses from the facilities owned by the Enlivant Joint Venture as ofJune 30, 2021 . The$1.9 million increase in operating expenses consists of (i) a$2.5 million support payment paid to the manager of the Enlivant Joint Venture during the current year, partially offset by a$1.0 million decrease in supplies and labor needs related to the COVID-19 pandemic and a$0.4 million decrease in dining related expenses due to decreased occupancy. The decreases are partially offset by (i) a$9.1 million decrease in loss on sale related to the disposition of nine senior housing communities during the three months endedJune 30, 2020 , (ii) a$1.0 million decrease in deferred income tax due to lower taxable income and (iii) a$0.5 million decrease in interest expense due to a decrease in interest rates. Income Tax Expense During the three months endedJune 30, 2021 , we recognized$0.5 million of income tax expense compared to$0.4 million for the three months endedJune 30, 2020 . The increase is due to higher taxable income from ourSenior Housing - Managed portfolio. 32
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Comparison of results of operations for the six months ended
Variance due to Six Months Ended June 30, Acquisitions, Increase / Percentage Originations and Remaining 2021 2020 (Decrease) Difference Dispositions (1) Variance (2) Revenues: Rental and related revenues$ 224,166 $ 219,239 $ 4,927 2 % $ (739)$ 5,666 Interest and other income 5,972 5,457 515 9 % 805 (290) Resident fees and services 75,159 78,567 (3,408) (4) % 2,910 (6,318)
Expenses:
Depreciation and amortization 88,866 88,370 496 1 % (720) 1,216 Interest 48,713 50,996 (2,283) (4) % (434) (1,849) Triple-net portfolio operating expenses 10,135 10,232 (97) (1) % (53)
(44)
Senior housing - managed portfolio operating expenses 57,846 55,231 2,615 5 % 1,868 747 General and administrative 17,749 17,434 315 2 % - 315 Provision for loan losses and other reserves 1,916 796 1,120 141 % - 1,120 Other income (expense): Loss on extinguishment of debt (847) (392) (455) 116 % 392 (847) Other income 109 2,193 (2,084) (95) % - (2,084) Net (loss) gain on sales of real estate (2,439) 113 (2,552) (2,258) % (2,552) - Loss from unconsolidated joint venture (174,799) (15,803) (158,996) 1,006 % 11,441 (170,437) Income tax expense (1,222) (1,475) 253 (17) % - 253 (1) Represents the dollar amount increase (decrease) for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as a result of investments/dispositions made afterJanuary 1, 2020 . (2) Represents the dollar amount increase (decrease) for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 that is not a direct result of investments/dispositions made afterJanuary 1, 2020 . Rental and Related Revenues During the six months endedJune 30, 2021 , we recognized$224.2 million of rental income compared to$219.2 million for the six months endedJune 30, 2020 . The$4.9 million net increase in rental income is related to (i) a$7.5 million net decrease in write-offs related to leases we concluded should no longer be accounted for on an accrual basis during the six months endedJune 30, 2020 and (ii) a$0.9 million increase from properties acquired afterJanuary 1, 2020 . These increases are partially offset by (i) a$1.6 million decrease from properties disposed of afterJanuary 1, 2020 , (ii)$1.5 million decrease related to lease intangibles that have been fully amortized and (iii) a$1.2 million decrease in property tax recoveries. Our reported rental and related revenues may be subject to increased variability in the future as a result of adopting Topic 842. However, there can be no assurances regarding the timing and amount of these revenues. 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 six months endedJune 30, 2021 and 2020. 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 sales-type lease. During the six months endedJune 30, 2021 , we recognized$6.0 million of interest and other income compared to$5.5 million for the six months endedJune 30, 2020 . The net increase of$0.5 million is due to a$1.0 million increase in income from investments made afterJanuary 1, 2020 , partially offset by a$0.2 million decrease in income from investments repaid afterJanuary 1, 2020 . 33 -------------------------------------------------------------------------------- Table of Contents Resident Fees and Services During the six months endedJune 30, 2021 , we recognized$75.2 million of resident fees and services compared to$78.6 million for the six months endedJune 30, 2020 . The$3.4 million net decrease is due to the impact of decreased occupancy as a result of the COVID-19 pandemic, partially offset by a$2.9 million increase from threeSenior Housing - Managed communities acquired afterJanuary 1, 2020 . Depreciation and Amortization During the six months endedJune 30, 2021 , we incurred$88.9 million of depreciation and amortization expense compared to$88.4 million for the six months endedJune 30, 2020 . The$0.5 million net increase is due to (i) a$2.1 million increase from additions to real estate and (ii) a$0.3 million increase from properties acquired afterJanuary 1, 2020 . The increases are partially offset by (i) a$1.0 million decrease from properties disposed of afterJanuary 1, 2020 and (ii) a$1.1 million decrease related to assets that have been fully depreciated. Interest Expense We incur interest expense comprised of costs of borrowings plus the amortization of deferred financing costs related to our indebtedness. During the six months endedJune 30, 2021 , we incurred$48.7 million of interest expense compared to$51.0 million for the six months endedJune 30, 2020 . The$2.3 million net decrease is related to (i) a$1.0 million decrease in interest expense related to a reduction in the borrowings outstanding under the Credit Agreement and decrease in interest rates, (ii) a$0.4 million decrease in interest expense related to three mortgage notes assumed during 2020 by the buyers of the facilities securing the debt and (iii) a$0.6 million decrease in non-cash interest expense related to our interest rate hedges. Triple-Net Portfolio Operating Expenses During the six months endedJune 30, 2021 , we recognized$10.1 million of triple-net portfolio operating expenses compared to$10.2 million for the six months endedJune 30, 2020 . The$0.1 million net decrease is primarily due to facilities disposed of afterJanuary 1, 2020 .Senior Housing - Managed Portfolio Operating Expenses During the six months endedJune 30, 2021 , we recognized$57.8 million of operating expenses compared to$55.2 million for the six months endedJune 30, 2020 . The$2.6 million net increase is due to (i) a$1.9 million increase related to threeSenior Housing - Managed communities acquired afterJanuary 1, 2020 , (ii) a$0.9 million increase in insurance expense due to a higher number of claims and an increase in premiums and (iii) a$0.6 million increase in marketing expenses due to increased activity, partially offset by a$0.7 million decrease in supplies and labor needs related to the COVID-19 pandemic. General and Administrative Expenses General and administrative expenses include compensation-related expenses as well as professional services, office costs, other costs associated with asset management, and merger and acquisition costs. During the six months endedJune 30, 2021 , general and administrative expenses were$17.7 million compared to$17.4 million during the six months endedJune 30, 2020 . The$0.3 million net increase is related to (i) a$0.5 million increase in insurance expense due to an increase in premiums and (ii) a$0.4 million increase in compensation for our team members as a result of increased staffing, partially offset by a$0.7 million decrease in professional and legal fees due to a decrease in transaction activity. Provision for Loan Losses and Other Reserves During the six months endedJune 30, 2021 , we recognized a$1.9 million provision for loan losses and other reserves associated with loan loss reserves. During the six months endedJune 30, 2020 , we recognized a$0.8 million provision for loan losses and other reserves associated with loan loss reserves. The$1.1 million increase is due to one loan deemed uncollectible during the six months endedJune 30, 2021 . Loss on Extinguishment of Debt During the six months endedJune 30, 2021 , we recognized a$0.8 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with the partial pay down of theU.S. dollar Term Loans. During the six months endedJune 30, 2020 , we recognized a$0.4 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with the sale of two facilities that secured two mortgage notes. 34 -------------------------------------------------------------------------------- Table of Contents Other Income During the six months endedJune 30, 2021 andJune 30, 2020 , we recognized$0.1 million and$2.2 million , respectively, of other income primarily related to settlement payments received related to legacyCare Capital Properties ("CCP") investments. Net (Loss) Gain on Sales of Real Estate During the six months endedJune 30, 2021 , we recognized a net loss on the sales of real estate of$2.4 million . The$2.4 million includes an aggregate$3.4 million loss on sales of real estate related to the disposition of four skilled nursing/transitional care facilities, partially offset by a$1.0 million gain on sale of real estate due to reassessing the classification of a lease and determining the lease, which requires the tenant to purchase the property at the maturity of the lease, should be accounted for as a sales-type lease, which required us to recognize the gain on sale prior to the actual sale to our tenant. During the six months endedJune 30, 2020 , we recognized an aggregate net gain on the sales of real estate of$0.1 million related to the disposition of six skilled nursing/transitional care facilities. Loss from Unconsolidated Joint Venture During the six months endedJune 30, 2021 , we recognized$174.8 million of loss from the Enlivant Joint Venture compared to$15.8 million of loss for the six months endedJune 30, 2020 . The$159.0 million net increase in loss is related to (i) a$164.1 million other-than-temporary impairment recorded during the three months endedJune 30, 2021 (See Note 4, "Investments inReal Estate Properties " in the Notes to Condensed Consolidated Financial Statements for additional information regarding the impairment), (ii) a$7.5 million decrease in revenue from the facilities owned by the Enlivant Joint Venture as ofJune 30, 2021 , primarily due to the impact of decreased occupancy as a result of the COVID-19 pandemic and (iii) a$2.2 million increase in operating expenses from the facilities owned by the Enlivant Joint Venture as ofJune 30, 2021 . The$2.2 million increase in operating expenses consists of (i) a$2.5 million support payment paid to the manager of the Enlivant Joint Venture during the current year and (ii) a$0.3 million increase in supplies and labor needs related to the COVID-19 pandemic, partially offset by (i) a$0.7 million decrease in dining related expenses and (ii) a$0.5 million decrease in employee compensation, both due to decreased occupancy. The decreases are partially offset by (i) a$10.8 million decrease in loss on sale related to the disposition of 11 senior housing communities in the prior year, (ii) a$2.0 million decrease in deferred income tax due to lower taxable income and (iii) a$2.1 million decrease in interest expense due to a decrease in interest rates. Income Tax Expense During the six months endedJune 30, 2021 , we recognized$1.2 million of income tax expense compared to$1.5 million of income tax expense recognized during the six months endedJune 30, 2020 . The decrease is due to lower taxable income from ourSenior Housing - Managed portfolio and the tax impact of changes in fair value for certain derivative instruments. Funds from Operations and Adjusted Funds from Operations We believe that net income as defined by GAAP is the most appropriate earnings measure. We also believe that funds from operations ("FFO"), as defined in accordance with the definition used by theNational Association of Real Estate Investment Trusts ("Nareit"), and adjusted funds from operations ("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, as defined by GAAP. FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions and our share of gains or losses from real estate dispositions related to our unconsolidated joint venture, 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 of both consolidated and unconsolidated entities when the impairment is directly attributable to decreases in the value of the depreciable real estate held by the entity. AFFO is defined as FFO excluding merger and acquisition costs, stock-based compensation expense, non-cash rental and related revenues, non-cash interest income, non-cash interest expense, non-cash portion of loss on extinguishment of debt, provision for loan losses and other reserves, non-cash lease termination income and deferred income taxes, as well as other non-cash revenue and expense items (including ineffectiveness gain/loss on derivative instruments, and non-cash revenue and expense amounts related to noncontrolling interests) and our share of 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 35 -------------------------------------------------------------------------------- Table of Contents 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 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 six months endedJune 30, 2021 and 2020, to net (loss) income, the most directly comparable GAAP financial measure, for the same periods (in thousands, except share and per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net (loss) income$ (132,573)
44,491 44,202 88,866 88,370 Depreciation and amortization of real estate assets related to unconsolidated joint venture 5,879 5,549 11,723 11,134 Net loss (gain) on sales of real estate 3,752 (330) 2,439 (113) Net (gain) loss on sales of real estate related to unconsolidated joint venture (18) 9,079 15 10,808 Other-than-temporary impairment of unconsolidated joint venture 164,126 - 164,126 - FFO 85,657 88,123 168,043 175,039 Stock-based compensation expense 2,271 2,375 4,559 4,735 Non-cash rental and related revenues (4,914) (6,202) (10,627) (6,567) Non-cash interest income (502) (574) (914) (1,135) Non-cash interest expense 1,749 2,225 3,645 4,458 Non-cash portion of loss on extinguishment of debt 54 392 847 392 (Recovery of) provision for loan losses and other reserves (109) 129 1,916 796 Other non-cash adjustments related to unconsolidated joint venture (618) 404 (1,214) 943 Other non-cash adjustments 361 402 533 455 AFFO $ 83,949$ 87,274 $ 166,788 $ 179,116 FFO per diluted common share $ 0.39
AFFO per diluted common share $ 0.39
Weighted average number of common shares outstanding, diluted: FFO 217,462,704 206,219,162 215,015,226 206,194,282 AFFO 217,946,731 207,003,252 215,550,317 206,933,563 36
-------------------------------------------------------------------------------- Table of Contents The following table sets forth additional information related to certain other items included in net (loss) income above, and the portions of each that are included in FFO and AFFO, which may be helpful in assessing our operating results. Please refer to "-Results of Operations" above for additional information regarding these items (in millions): Three Months EndedJune 30 ,
Six Months Ended
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Net (Loss) Income FFO AFFO Net (Loss) Income FFO AFFO Rental and related revenues: Reduction of revenues related to non-cash receivable balances / lease intangible write-offs $ -$ 0.4 $ -$ 0.4 $ - $ - $ -$ 6.5 $ -$ 6.5 $ - $ - Resident fess and services: Grant income under government programs (1) 0.5 - 0.5 - 0.5 - 0.5 - 0.5 - 0.5 - Senior housing - managed portfolio operating expenses: COVID-19 pandemic related expenses (2) 0.4 1.7 0.4 1.7 0.4 1.7 1.3 2.0 1.3 2.0 1.3 2.0 General and administrative expense: Merger and acquisition costs 0.3 0.3 0.3 0.3 - - 0.3 0.4 0.3 0.4 - - (Recovery of) provision for loan losses and other reserves (0.1) 0.1 (0.1) 0.1 - - 1.9 0.8 1.9 0.8 - - Loss on extinguishment of debt (0.1) (0.4) (0.1) (0.4) - - (0.8) (0.4) (0.8) (0.4) - - Other (expense) income - (0.1) - (0.1) - - 0.1 2.2 0.1 2.2 0.2 2.1 Loss from unconsolidated joint venture: Deferred income tax (benefit) expense (0.9) 0.1 (0.9) 0.1 - - (1.6) 0.4 (1.6) 0.4 - - COVID-19 pandemic related expenses (2) 1.1 2.3 1.1 2.3 1.1 2.3 3.0 2.7 3.0 2.7 3.0 2.7 Support payment paid to joint venture manager 2.5 - 2.5 - 2.5 - 2.5 - 2.5 - 2.5 - Other-than-temporary impairment of unconsolidated joint venture 164.1 - - - - - 164.1 - - - - - (1) Consists of funds specifically paid to communities in ourSenior Housing - Managed portfolio from state or federal governments related to the pandemic and were incremental to the amounts that would have otherwise been received for providing care to residents. (2) Consists primarily of (i) personal protective equipment ("PPE") costs, (ii) incremental labor costs (including bonuses, hero pay and additional labor needed to implement new health and safety protocols) and (iii) incremental supply costs required to implement new health and safety protocols (e.g., disposable food containers and stronger disinfectants), in each case incurred by communities in ourSenior Housing - Managed portfolio specifically as a result of the COVID-19 pandemic. Liquidity and Capital Resources As ofJune 30, 2021 , we had approximately$1.1 billion in liquidity, consisting of unrestricted cash and cash equivalents of$69.3 million and available borrowings under our Revolving Credit Facility of$1.0 billion . The Credit Agreement also contains an accordion feature that can increase the total available borrowings to$2.75 billion (fromU.S. $2.0 billion plus CAD$125.0 million ), subject to terms and conditions. We have filed a shelf registration statement with theSEC that expires inDecember 2022 , which 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. OnDecember 11, 2019 , we established an at-the-market equity offering program (the "ATM Program") pursuant to which shares of our common stock having an aggregate gross sales price of up to$400.0 million may be sold from time to time (i) by us through a consortium of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement. During the three 37 -------------------------------------------------------------------------------- Table of Contents months endedJune 30, 2021 , we sold 1.0 million shares under the ATM Program at an average price of$17.93 per share, generating gross proceeds of$18.5 million , before$0.3 million of commissions (excluding sales utilizing the forward feature of the ATM Program, as described below). During the six months endedJune 30, 2021 , we sold 2.2 million shares under the ATM Program at an average price of$17.78 per share, generating gross proceeds of$38.8 million , before$0.6 million of commissions (excluding sales utilizing the forward feature of the ATM Program, as described below). Additionally, during the three months endedJune 30, 2021 , we utilized the forward feature of the ATM Program to allow for the sale of up to 2.6 million shares of our common stock at an initial weighted average price of$17.20 per share, net of commissions, and settled 3.9 million shares at a weighted average net price of$17.29 per share, after commissions and fees, resulting in net proceeds of$66.8 million . During the six months endedJune 30, 2021 , we utilized the forward feature of the ATM Program to allow for the sale of up to 6.8 million shares of our common stock at an initial weighted average price of$17.49 per share, net of commissions, and settled 7.9 million shares at a weighted average net price of$17.36 per share, after commissions and fees, resulting in net proceeds of$137.0 million . As ofJune 30, 2021 , no shares remained outstanding under the forward sale agreements. As ofJune 30, 2021 , we had$75.8 million available under the ATM Program. Subject to market conditions, we expect to use proceeds from our ATM Program to finance future investments in properties. Based on our current assessment of the impact of the COVID-19 pandemic on our Company, we believe that our available cash, operating cash flows and borrowings available to us under our Revolving Credit Facility provide sufficient funds for our operations, scheduled debt service payments 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) or Credit Agreement significantly limit our ability to use our available liquidity for these purposes. 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 and the proceeds from issuances of common stock (including through our ATM Program), preferred stock, debt or other securities. In addition, we may seek financing fromU.S. government agencies, including through Fannie Mae, Freddie Mac and theU.S. Department of Housing and Urban Development , in appropriate circumstances in connection with acquisitions. We also use derivative instruments in the normal course of business to mitigate interest rate and foreign currency risk. Cash Flows from Operating Activities Net cash provided by operating activities was$152.3 million for the six months endedJune 30, 2021 . 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 payments from borrowers under our loan and preferred equity investments. Operating cash outflows consisted primarily of interest payments on borrowings and payment of general and administrative expenses, including corporate overhead. We expect our annualized cash flows provided by operating activities to fluctuate as a result of completed investment and disposition activity, anticipated future changes in our portfolio, fluctuations in collections from tenants and borrowers, and fluctuations in the operating results of ourSenior Housing - Managed communities. Cash Flows from Investing Activities During the six months endedJune 30, 2021 , net cash used in investing activities was$77.2 million and included$62.1 million used for the acquisition of four facilities,$21.7 million used for additions to real estate and$3.4 million used to provide funding for a preferred equity investment, partially offset by$8.4 million in net sales proceeds related to dispositions,$1.1 million in repayments of loans receivable and$0.5 million in repayments of preferred equity investments. Cash Flows from Financing Activities During the six months endedJune 30, 2021 , net cash used in financing activities was$66.8 million and included$110.0 million of principal repayments on term loans,$128.1 million of dividends paid to stockholders and$1.4 million of principal repayments on secured debt, partially offset by$172.7 million of net proceeds from shares sold through our ATM Program, net of payroll tax payments related to the issuance of common stock pursuant to equity compensation arrangements. Please see the accompanying condensed consolidated statements of cash flows for details of our operating, investing and financing cash activities. 38 -------------------------------------------------------------------------------- Table of Contents Loan Agreements 2024 Notes. OnMay 29, 2019 , theOperating Partnership andSabra Capital Corporation , wholly owned subsidiaries of Sabra (together, the "Issuers"), issued$300.0 million aggregate principal amount of 4.80% senior notes due 2024 (the "2024 Notes"), providing net proceeds of approximately$295.3 million after deducting underwriting discounts and other offering expenses. In connection with theOctober 2019 redemption of other senior notes of the Issuers,Sabra Capital Corporation's obligations as a co-issuer were automatically released and discharged. 2026 and 2027 Notes. In connection with our merger with CCP, onAugust 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 5.88% senior notes due 2027 (the "2027 Notes"). 2029 Notes. OnOctober 7, 2019 , the Issuers issued$350.0 million aggregate principal amount of 3.90% senior notes due 2029 (the "2029 Notes" and, together with the 2024 Notes, the 2026 Notes and the 2027 Notes, the "Senior Notes"), providing net proceeds of$340.5 million after deducting underwriting discounts and other offering expenses. In connection with theOctober 2019 redemption of other senior notes of the Issuers,Sabra Capital Corporation's obligations as a co-issuer were automatically released and discharged. 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 ofJune 30, 2021 , we were in compliance with all applicable covenants under the Senior Notes Indentures. Subsidiary Issuer and Guarantor Financial Information. The 2024 Notes are issued by theOperating Partnership and fully and unconditionally guaranteed, jointly and severally, by us and one of our non-operating subsidiaries, subject to release under certain customary circumstances as described below. In connection with theOperating Partnership's assumption of the 2026 Notes, we have fully and unconditionally guaranteed the 2026 Notes, subject to release under certain circumstances as described below. The 2029 Notes are issued by theOperating Partnership and guaranteed, fully and unconditionally, by us. These guarantees are subordinated to all existing and future senior debt and senior guarantees of the applicable guarantors and are unsecured. We conduct all of our business through and derive virtually all of our income from our subsidiaries. Therefore, our ability to make required payments with respect to our indebtedness (including the Senior Notes) and other obligations depends on the financial results and condition of our subsidiaries and our ability to receive funds from our subsidiaries. A guarantor will be automatically and unconditionally released from its obligations under the guarantee with respect to the 2024 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 the subsidiary guarantor with theOperating Partnership or Sabra, provided that the surviving entity remains a guarantor; •The requirements for legal defeasance or covenant defeasance or to discharge the indentures governing the 2024 Notes have been satisfied; •A liquidation or dissolution, to the extent permitted under the indenture governing the 2024 Notes, of the subsidiary guarantor; •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; or •If the subsidiary guarantor is not a guarantor or is not otherwise liable in respect of any obligations under any credit facility (as defined in the indenture governing the 2024 Notes) of us or any of our subsidiaries. We will be automatically and unconditionally released from our obligations under the guarantee 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 amendments to Regulation S-X, the following aggregate summarized financial information is provided for Sabra, theOperating Partnership andSabra Health Care , L.L.C. (the guarantor subsidiary of the 2024 Notes). This aggregate summarized financial information has been prepared from the books and records maintained by us, theOperating Partnership andSabra Health Care , L.L.C. The aggregate summarized financial information does not include the investments in non- 39 -------------------------------------------------------------------------------- Table of Contents guarantor subsidiaries nor the earnings from non-guarantor subsidiaries and therefore is not necessarily indicative of the results of operations or financial position had theOperating Partnership andSabra Health Care , L.L.C. operated as independent entities. Intercompany transactions have been eliminated. The aggregate summarized balance sheet information as ofJune 30, 2021 andDecember 31, 2020 and aggregate summarized statement of loss information for the six months endedJune 30, 2021 is as follows (in thousands): June 30, 2021 December 31, 2020 Total assets $ 94,889 $ 77,825 Total liabilities 2,147,730 2,276,418 Six Months Ended June 30, 2021 Total revenues $ 25 Total expenses 59,319 Net loss (61,117) Credit Agreement. Effective onSeptember 9, 2019 , theOperating Partnership andSabra Canadian Holdings, LLC (together, the "Borrowers"), Sabra and the other parties thereto entered into a fifth amended and restated unsecured credit agreement (the "Credit Agreement"). The Credit Agreement includes a$1.0 billion revolving credit facility (the "Revolving Credit Facility"),$845.0 million inU.S. dollar term loans and a CAD$125.0 million Canadian dollar term loan (collectively, the "Term Loans"). Further, up to$175.0 million of the Revolving Credit Facility may be used for borrowings in certain foreign currencies. The Credit Agreement also contains an accordion feature that can increase the total available borrowings to$2.75 billion , subject to terms and conditions. The Revolving Credit Facility has a maturity date ofSeptember 9, 2023 , and includes two six-month extension options.$345.0 million of theU.S. dollar Term Loans has a maturity date ofSeptember 9, 2023 , and the other Term Loans have a maturity date ofSeptember 9, 2024 . The obligations of the Borrowers under the Credit Agreement are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by us and one of our non-operating subsidiaries, subject to release under certain customary circumstances. See Note 7, "Debt," in the Notes to Condensed Consolidated Financial Statements for additional information concerning the Credit Agreement, including information regarding covenants contained in the Credit Agreement. As ofJune 30, 2021 , we were in compliance with all applicable covenants under the Credit Agreement. Secured Indebtedness As of each ofJune 30, 2021 andDecember 31, 2020 , 13 of our properties held for investment were subject to secured indebtedness to third parties. As ofJune 30, 2021 andDecember 31, 2020 , our secured debt consisted of the following (dollars in thousands): Principal Balance as of Principal Balance Weighted Average June 30, 2021 as of Interest Rate at Maturity Interest Rate Type (1) December 31, 2020 (1) June 30, 2021 (2) Date December 2021 - Fixed Rate$ 79,200 $ 80,199 3.40 % August 2051 (1) Principal balance does not include deferred financing costs, net of$1.1 million as of each ofJune 30, 2021 andDecember 31, 2020 . (2) Weighted average interest rate includes private mortgage insurance. Capital Expenditures For the six months endedJune 30, 2021 and 2020, our aggregate capital expenditures were$21.7 million and$19.9 million , respectively. We anticipate that our aggregate capital expenditure requirements for the next 12 months will principally be for improvements to our facilities and will be approximately$78 million , of which$38 million is expected to directly result in incremental rental income. Dividends We paid dividends of$128.1 million on our common stock during the six months endedJune 30, 2021 . OnAugust 4 , 40 -------------------------------------------------------------------------------- Table of Contents 2021, our board of directors declared a quarterly cash dividend of$0.30 per share of common stock. The dividend will be paid onAugust 31, 2021 to common stockholders of record as ofAugust 17, 2021 . 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 423 real estate properties held for investment as ofJune 30, 2021 is diversified by location acrossthe United States andCanada . For the three and six months endedJune 30, 2021 , no tenant relationship represented 10% or more of our total revenues. Skilled Nursing Facility Reimbursement Rates For the six months endedJune 30, 2021 , 54.7% of our 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. Prior toOctober 1, 2019 , the amount to be paid was determined by classifying each patient into one of 66Resource Utilization Group ("RUG") categories that represented the level of services required to treat different conditions and levels of acuity. The system of 66 RUG categories, orResource Utilization Group , version IV ("RUG IV"), became effective as ofOctober 1, 2010 . RUG IV resulted from research performed by theCenters for Medicare & Medicaid Services ("CMS") and was part of CMS's continuing effort to increase the correlation of the cost of services to the condition of individual patients. OnJuly 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 became effective onOctober 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 inMay 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. OnJuly 31, 2020 , CMS released final fiscal year 2021 Medicare rates for skilled nursing facilities providing an estimated net increase of 2.2% over fiscal year 2020 payments (comprised of a market basket increase of 2.2% and no productivity adjustment). The new payment rates became effective onOctober 1, 2020 . OnJuly 29, 2021 , CMS released a final rule updating fiscal year 2022 Medicare rates for skilled nursing facilities providing an estimated net increase of 1.2% over fiscal year 2021 (comprised of a market basket increase of 2.7% less a forecast error adjustment of 0.8% and a productivity adjustment of 0.7%). These figures do not incorporate the value-based purchasing reductions that are estimated to be$184.3 million in fiscal year 2022. No adjustments were made to the PDPM rate methodology in this year's final rule. The new payment rates become effective onOctober 1, 2021 . In response to the COVID-19 pandemic, several federal relief packages were approved that have benefitted and may continue to benefit our tenants, especially our tenants that operate skilled nursing/transitional care facilities. OnMarch 18, 2020 ,President Trump signed into law the Families First Coronavirus Response Act ("Families First Act"). Under the Families First Act, a temporary 6.2% increase in Federal Medical Assistance Percentages ("FMAP") was approved retroactive toJanuary 1, 2020 , and several states have directed FMAP funds to skilled nursing/transitional care facilities. 41 -------------------------------------------------------------------------------- Table of Contents OnMarch 27, 2020 ,President Trump signed into law The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act provides for a$175 billion fund for eligible health care providers, which includes skilled nursing/transitional care operators, and as ofSeptember 1, 2020 also includes assisted living facility operators. The CARES Act also includes (i) a temporary suspension of 2% Medicare sequestration cut beginningMay 1, 2020 throughDecember 31, 2020 , (ii) a deferral of the employer'sSocial Security remittances throughDecember 31, 2020 , (iii) the establishment of the Paycheck Protection Program, aSmall Business Administration loan to businesses with fewer than 500 employees that may be partially forgivable, and (iv) accelerated and advance Medicare payments for certain providers, with deferred repayment obligations that are interest-free for up to 29 months. In addition to the above, there have been other actions taken that benefit skilled nursing/transitional care operators, including the waiver of the requirement for skilled nursing/transitional care patients to have stayed in a hospital for three days in order for services rendered in a skilled nursing/transitional care facility to qualify for Medicare Part A, the acceleration and advance of three months of Medicare billing, and relaxation of certification requirements for employees performing non-clinical services in these facilities.The Department of Health and Human Services ("HHS") most recently extended the COVID-19 Public Health Emergency for another 90 days, effectiveJuly 20, 2021 , which allows HHS to continue providing temporary regulatory waivers, including the waiver of the three-day hospital stay requirement, and new rules to equip skilled nursing facilities and some assisted living operators with flexibility to respond to the COVID-19 pandemic. Lastly, both the FMAP funding increase and suspension of the Medicare sequestration were extended throughDecember 31, 2021 . Obligations and Commitments The following table summarizes our contractual obligations and commitments in future years, including 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 ofJune 30, 2021 (in thousands): July 1 through Year Ending December 31, December 31, Total 2021 2022 2023 2024 2025 After 2025 Secured indebtedness (1)$ 103,147 $ 18,617 $ 4,161 $ 4,161 $ 4,161 $ 4,161 $ 67,886 Revolving Credit Facility (2) 5,563 1,278 2,535 1,750 - - - Term Loans (3) 1,015,772 12,523 24,842 366,813 611,594 - - Senior Notes (4) 1,589,643 29,528 59,055 59,055 359,055 44,655 1,038,295 Operating leases 2,231 224 467 507 529 504 - Total$ 2,716,356 $ 62,170 $ 91,060 $ 432,286 $ 975,339 $ 49,320 $ 1,106,181 (1)Secured indebtedness includes principal payments and interest payments through the applicable maturity dates. Total interest on secured indebtedness, based on contractual rates, is$23.9 million , which is attributable to fixed rate debt. (2)Revolving Credit Facility consists of payments related to the facility fee due to the lenders based on the amount of commitments under the Revolving Credit Facility through the maturity date (assuming no exercise of our two six-month extension options) totaling$5.6 million . (3)Term Loans includes interest payments through the applicable maturity dates totaling$69.9 million , which reflects the impact of interest rate swaps. (4)Senior Notes includes interest payments through the applicable maturity dates totaling$339.6 million . In addition to the above, as ofJune 30, 2021 , we have committed to provide up to$9.8 million of future funding related to one preferred equity investment and four loans receivable investments with maturity dates ranging fromDecember 2021 toDecember 2022 . Off-Balance Sheet Arrangements We have a 49% interest in the Enlivant Joint Venture. See Note 4, "Investment in Real Estate Properties-Investment in Unconsolidated Joint Venture," 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.
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