As filed with the Securities and Exchange Commission on August 24, 2010

Registration No. 333-167041

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 2

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SHG Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware

8051

13-4230695

(State of Incorporation)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

18831 Von Karman, Suite 400

Irvine, CA 92612

(949) 255-7100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

William A. Mathies

President and Chief Operating Officer

SHG Services, Inc.

18831 Von Karman, Suite 400

Irvine, CA 92612

(949) 255-7100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

Andor D. Terner, Esq.

Robert T. Plesnarski, Esq.

O’Melveny & Myers LLP

610 Newport Center Drive, 17^th Floor

Newport Beach, CA 92660

(949) 823-6900

Jeffrey Bagner, Esq.

Steven Epstein, Esq.

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, NY 10004

(212) 859-8000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective and all conditions to the proposed transaction have been satisfied or waived.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨		Accelerated filer ¨

Non-accelerated filer x (Do not check if smaller reporting company)		Smaller reporting company ¨

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

EXPLANATORY NOTE

SHG Services, Inc. (“New Sun”), a wholly owned subsidiary of Sun Healthcare Group, Inc. (“Sun”), has filed this registration statement on Form S-1 to register the issuance of shares of its common stock, $0.01 par value per share, which will be distributed on a pro rata basis to Sun stockholders (the “Separation”) together with a cash distribution of approximately $0.17 per share. The actual amount of the cash distribution will not be determined until the time of the Separation. Immediately following the Separation, Sun intends to merge with and into Sabra Health Care REIT, Inc., a wholly owned subsidiary of Sun (“Sabra”), with Sabra surviving the merger and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock (the “REIT Conversion Merger”). Concurrently with the filing of this registration statement on Form S-1, Sabra has filed a registration statement on Form S-4 (Reg. No. 333-167040) to register the issuance of shares of its common stock, par value $0.01 per share, in exchange for shares of Sun common stock in connection with the REIT Conversion Merger. This registration statement also includes a proxy statement relating to a special meeting of Sun stockholders to consider and vote on the Separation and the adoption of the agreement and plan of merger to implement the REIT Conversion Merger.

The information in the proxy statement/prospectus is not complete and may be changed. Neither New Sun nor Sabra may sell the securities offered by the proxy statement/prospectus until their respective registration statements are effective with the Securities and Exchange Commission. The proxy statement/prospectus is not an offer to sell these securities and neither New Sun nor Sabra is soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 24, 2010

[SUN HEALTHCARE GROUP, INC. LETTERHEAD]

, 2010

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of Sun Healthcare Group, Inc. (“Sun”) to be held on , 2010 at at a.m., local time, and at any adjournment or postponement thereof.

Sun intends to restructure its business by separating its real estate assets and its operating assets into the following two separate publicly traded companies (SHG Services, Inc. and Sabra Health Care REIT, Inc.), subject to the approval of its stockholders and other conditions:

•

SHG Services, Inc., a Delaware corporation and a wholly owned subsidiary of Sun (“New Sun”), will own and continue to operate all of Sun’s operating subsidiaries. New Sun will be renamed “Sun Healthcare Group, Inc.” and the shares of New Sun common stock are expected to trade on the NASDAQ Global Select Market under the symbol “SUNH.” Sun will distribute to its stockholders on a pro rata basis all of the outstanding shares of New Sun common stock. This distribution is referred to in the proxy statement/prospectus as the “Separation.”

•

Sabra Health Care REIT, Inc., a Maryland corporation and a wholly owned subsidiary of Sun (“Sabra”), will own substantially all of Sun’s currently owned real property assets and will lease those assets to New Sun’s subsidiaries. Sabra expects to grow its portfolio through acquisitions as a broad-based healthcare REIT. Immediately following the Separation, Sun will be merged with and into Sabra with Sabra surviving the merger. This merger is referred to in the proxy statement/prospectus as the “REIT Conversion Merger.” The shares of Sabra common stock are expected to trade on the NASDAQ Global Select Market under the symbol “SBRA.” Sabra intends to qualify and elect to be treated as a real estate investment trust for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. This election, together with the REIT Conversion Merger, is collectively referred to in the proxy statement/prospectus as the “REIT Conversion.”

In connection with the Separation, Sun also intends to make a cash distribution to holders of Sun common stock of approximately $0.17 per share, although the actual amount of this cash distribution will not be determined until the time of the Separation. The issuance of shares of New Sun common stock and the cash distribution by Sun in connection with the Separation should be treated as a taxable distribution to taxable U.S. stockholders for U.S. federal income tax purposes.

The board of directors of Sun has unanimously approved the Separation and REIT Conversion Merger, and recommends that stockholders vote “FOR” the Separation and “FOR” the REIT Conversion Merger as further described in the proxy statement/prospectus.

Your vote is very important. Whether or not you plan to attend the special meeting in person, it is important that your shares be represented and voted at the special meeting. You may submit your proxy or voting instructions by completing, signing, dating and returning the proxy or voting instruction card enclosed with the proxy materials you received or by submitting your proxy or voting instructions over the Internet or by telephone. We urge you to promptly submit your proxy or voting instructions in order to ensure your representation and the presence of a quorum at the special meeting. Please note that if you do not submit a proxy or voting instruction form or do not vote in person at the special meeting, the effect will be the same as a vote against the adoption of the agreement and plan of merger to implement the REIT Conversion Merger. In addition, if you “ABSTAIN” from voting on the Separation or on the adoption of the agreement and plan of merger to implement the REIT Conversion Merger, the effect will be the same as a vote against each of these proposals.

The proxy statement/prospectus provides you with important information about the Separation and REIT Conversion. Please give this information your careful attention. In particular, you should read and consider carefully the discussion in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus.

Sincerely,

Richard K. Matros

Chairman and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the issuance of the shares of common stock of New Sun and Sabra as described in the proxy statement/prospectus or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The proxy statement/prospectus is dated , 2010, and is first being mailed to stockholders of Sun on or about , 2010.

SUN HEALTHCARE GROUP, INC.

18831 Von Karman, Suite 400

Irvine, California 92612

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON , 2010

To the Stockholders of Sun Healthcare Group, Inc.:

The special meeting of stockholders of Sun Healthcare Group, Inc., a Delaware corporation (“Sun”), will be held on , 2010 at at a.m., local time, and at any adjournment or postponement thereof, to consider and vote on the following matters described in the proxy statement/prospectus:

To consider and vote upon a proposal to distribute to Sun stockholders on a pro rata basis all of the outstanding shares of common stock of SHG Services, Inc., a Delaware corporation and a wholly owned subsidiary of Sun (the “Separation”).

To consider and vote upon a proposal to adopt the agreement and plan of merger between Sun and Sabra Health Care REIT, Inc., a Maryland corporation and a wholly owned subsidiary of Sun (“Sabra”), which contemplates that, immediately following the Separation, Sun will be merged with and into Sabra with Sabra surviving the merger and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock (the “REIT Conversion Merger”).

To consider and vote upon a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation or adopt the agreement and plan of merger to implement the REIT Conversion Merger.

To transact such other business as may properly come before the special meeting, and any adjournments or postponements thereof.

The Separation and REIT Conversion Merger are conditioned on approval by Sun stockholders and satisfaction or waiver of all other conditions to the transactions as described in this proxy statement/prospectus.

The board of directors of Sun has fixed the close of business on , 2010 as the record date for determining stockholders entitled to receive notice of and vote at the special meeting and at any adjournment or postponement thereof. At the close of business on the record date, there were shares of Sun common stock outstanding and entitled to vote.

All stockholders are cordially invited to attend the special meeting in person. Whether or not you plan to attend the special meeting, you are urged to promptly submit your proxy or voting instructions. If you attend the special meeting and wish to vote your own shares in person, you may withdraw your proxy at that time.

For the Board of Directors,

Michael T. Berg

Secretary

, 2010

After careful consideration, the board of directors of Sun has unanimously determined that the Separation and REIT Conversion Merger are advisable and in the best interests of Sun and you, the Sun stockholders. The board of directors of Sun unanimously recommends that you vote “FOR” the Separation, “FOR” the adoption of the agreement and plan of merger to implement the REIT Conversion Merger and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation or adopt the agreement and plan of merger to implement the REIT Conversion Merger.

Important Notice Regarding the Availability of Proxy Materials for Sun’s Special Meeting of Stockholders to Be Held on , 2010. The accompanying proxy statement/prospectus is available at www.sunh.com.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important information about Sun Healthcare Group, Inc. (“Sun”) that is not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see “Where You Can Find More Information.” You may obtain these documents through the website of the Securities and Exchange Commission (the “SEC”) at www.sec.gov. You may also request a copy of these documents at no cost by writing or telephoning Sun at:

Sun Healthcare Group, Inc.

101 Sun Avenue, N.E.

Albuquerque, New Mexico 87109

(505) 468-2341

Attention: Investor Relations

You may also obtain a copy of these documents by requesting them in writing or by telephone from Sun’s proxy solicitation agent at the following address and telephone number:

Innisfree M&A

501 Madison Avenue

New York, NY 10022

(212) 750-5833

To obtain timely delivery of such information, you must request such information no later than , 2010.

TABLE OF CONTENTS


		Page
QUESTIONS AND ANSWERS		1
STRUCTURE OF THE SEPARATION AND REIT CONVERSION MERGER		9
SUMMARY		10
RISK FACTORS		26
Risks Relating to the Separation and REIT Conversion		26
Risks Associated with the Status of Sabra as a REIT		28
Risks Relating to New Sun’s Business		32
Risks Relating to Sabra’s Business		40
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		46
INFORMATION ABOUT THE SPECIAL MEETING OF SUN STOCKHOLDERS		47
Date, Time and Place of the Special Meeting		47
Purpose of the Special Meeting		47
Recommendation of the Board of Directors of Sun		47
Vote Required		47
Record Date; Shares Entitled to Vote; Quorum		48
Other Matters		48
To Attend the Special Meeting of Sun Stockholders		48
Communications by Sun Stockholders with Sun		49
THE PROPOSALS		50
Overview of the Separation and REIT Conversion		50
Background for the Separation and REIT Conversion		50
Reasons for the Separation and REIT Conversion		53
Accounting Treatment for the Separation and REIT Conversion		53
Regulatory Approvals Required for the Separation and REIT Conversion Merger		54
Treatment of Equity Awards		54
PROPOSAL NO. 1—APPROVAL OF THE SEPARATION		56
Manner of Effecting the Separation		56
Management of New Sun		57
Interests of Certain Persons in the Separation		58
Market for New Sun Common Stock; Trading of New Sun Common Stock Following the Separation		58
Trading Between the Record Date for the Separation and the Distribution Date for the Separation		58
Conditions to the Separation		59
Absence of Appraisal Rights		60
PROPOSAL NO. 2—ADOPTION OF THE AGREEMENT AND PLAN OF MERGER		61
Structure and Completion of the REIT Conversion Merger		61
Management of Sabra		62
Qualification as a REIT		62
Interests of Certain Persons in the REIT Conversion Merger		62
Market for Sabra Common Stock; Trading of Sabra Common Stock Following the REIT Conversion Merger		63
Manner and Procedure for Receiving Shares of Sabra Common Stock		63
Conditions to the REIT Conversion Merger		63
Absence of Appraisal Rights		64
PROPOSAL NO. 3—APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING		65
RELATIONSHIP BETWEEN NEW SUN AND SABRA AFTER THE SEPARATION AND REIT CONVERSION MERGER		66
The Distribution Agreement		66
The Lease Agreements		67
The Tax Allocation Agreement		69


		Page
The Transition Services Agreement		70
Overlapping Directors		70
DESCRIPTION OF MATERIAL INDEBTEDNESS		71
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES		72
U.S. Federal Income Tax Consequences of the Separation		73
U.S. Federal Income Tax Consequences of the REIT Conversion Merger		75
U.S. Federal Income Tax Considerations Relating to Sabra		75
U.S. Federal Income Tax Considerations Relating to New Sun		86
DISTRIBUTION AND DIVIDEND POLICY		88
New Sun		88
Sabra		88
BUSINESS OF NEW SUN		90
Overview		90
Business Segments		90
Competition		91
Business Strategy		92
Employees and Labor Relations		92
Federal and State Regulatory Oversight		93
Compliance Process		94
General Information		96
Properties		96
Legal Proceedings		100
BUSINESS OF SABRA		101
Overview		101
Portfolio of Healthcare Properties		101
Geographic and Property Type Diversification		102
Occupancy Trends		103
Skilled Mix Trends		104
Anticipated Indebtedness		104
Tenants and Operators		106
Competitive Strengths		106
Business Strategy		107
Investment and Financing Strategy		108
Competition		109
Employees of Sabra		109
Government Regulation		109
The Operating Partnership		110
General Information		110
Legal Proceedings		111
POLICIES OF SABRA WITH RESPECT TO CERTAIN ACTIVITIES		112
NEW SUN PRO FORMA CAPITALIZATION		115
SABRA PRO FORMA CAPITALIZATION AND SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION		116
NEW SUN UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS		117
SABRA UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS		125
AUDITED SUN REAL ESTATE PROPERTIES COMBINED BALANCE SHEET		133
UNAUDITED SUN REAL ESTATE PROPERTIES COMBINED BALANCE SHEET		140
SELECTED FINANCIAL INFORMATION AND OTHER DATA		144
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR SUN AND NEW SUN		145

iii


		Page
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR SABRA		180
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		184
MANAGEMENT OF NEW SUN		185
Information Regarding Directors and Executive Officers of New Sun		185
Directors		185
Executive Officers		188
Director Independence		189
Committees of the Board of Directors		190
Stockholder and Interested Party Communications with Directors		191
MANAGEMENT OF SABRA		192
Information Regarding Directors and Executive Officers of Sabra		192
Directors		192
Executive Officers		195
Director Independence		195
Committees of the Board of Directors		196
Stockholder and Interested Party Communications with Directors		197
DIRECTOR COMPENSATION—FISCAL 2009		198
EXECUTIVE COMPENSATION		200
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		223
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		224
MARKET PRICES AND RELATED STOCKHOLDER MATTERS		227
DESCRIPTION OF NEW SUN CAPITAL STOCK		229
DESCRIPTION OF SABRA STOCK		233
COMPARATIVE RIGHTS OF SABRA AND SUN STOCKHOLDERS		242
LEGAL MATTERS		252
EXPERTS		252
OTHER MATTERS		252
FUTURE STOCKHOLDER PROPOSALS		252
WHERE YOU CAN FIND MORE INFORMATION		254

QUESTIONS AND ANSWERS

Q:	What transactions are being proposed?

A:	The board of directors of Sun has approved a plan to restructure its business by separating its real estate assets and its operating assets into two separate publicly traded companies. This plan consists of the following key transactions:

•

reorganizing, through a series of internal corporate restructurings, such that:

^¡

substantially all of Sun’s owned real property and related mortgage indebtedness owed to third parties will be held or assumed by Sabra Health Care REIT, Inc., a Maryland corporation and a wholly owned subsidiary of Sun (“Sabra”), or by one or more subsidiaries of Sabra; and

^¡

all of Sun’s operations and other assets and liabilities will be held or assumed by SHG Services, Inc. (to be renamed “Sun Healthcare Group, Inc.”), a Delaware corporation and a wholly owned subsidiary of Sun (“New Sun”), or by one or more subsidiaries of New Sun;

•

New Sun and Sabra entering into certain agreements with each other, including multiple master lease agreements (the “Lease Agreements”) that will set forth the terms pursuant to which subsidiaries of New Sun will lease from subsidiaries of Sabra all of the real property that Sabra’s subsidiaries will own immediately following the restructuring of Sun’s business (representing 87 of the 203 properties that subsidiaries of Sun operated as of July 1, 2010);

•

Sun distributing to its stockholders on a pro rata basis all of the outstanding shares of New Sun common stock (this distribution is referred to in this proxy statement/prospectus as the “Separation”);

•

Sun distributing cash to its stockholders who hold shares of Sun common stock on the record date for the Separation, the actual amount of the cash distribution to be determined at the time of the Separation (the cash distribution is currently expected to be approximately $0.17 per share, resulting in an aggregate cash distribution to Sun’s stockholders of approximately $13 million);

•

Sun merging with and into Sabra, with Sabra surviving the merger as a Maryland corporation and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock (this merger is referred to in this proxy statement/prospectus as the “REIT Conversion Merger”); and

•

Sabra qualifying and electing to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, which is currently expected to occur commencing with its taxable year beginning on January 1, 2011 (this election, together with the REIT Conversion Merger, is collectively referred to in this proxy statement/prospectus as the “REIT Conversion”).

Q:	What is a REIT?

A REIT is a company that derives most of its income from real estate mortgages or real property. If a corporation qualifies and elects to be treated as a REIT, it generally will not be subject to U.S. federal corporate income taxes on income that it currently distributes to its stockholders. A company’s qualification as a REIT depends on its ability to meet on a continuing basis various tests under the Internal Revenue Code of 1986, as amended (the “Code”), relating to various matters, including the sources of its gross income, the composition and value of its assets, its distribution levels to its stockholders and the diversity of ownership of its stock.

Q:	When will the Separation and REIT Conversion Merger occur?

The Separation and REIT Conversion Merger are expected to occur in the fourth quarter of 2010. The board of directors of Sun will set the record date for the Separation after the special meeting. The REIT Conversion Merger is expected to occur immediately following the Separation. The timing of the Separation

and REIT Conversion Merger will ultimately depend upon the satisfaction or waiver of certain conditions, including obtaining stockholder approval of the Separation and REIT Conversion Merger and completing the debt financing transactions described under the caption “Description of Material Indebtedness.”

Sun reserves the right to abandon, defer or modify the Separation and REIT Conversion Merger at any time, even if Sun stockholders approve the Separation and REIT Conversion Merger. Sun may not proceed with the Separation and REIT Conversion Merger if the board of directors of Sun determines for any reason that these transactions are no longer in the best interests of Sun and its stockholders.

Q:	What will I receive in connection with the Separation and REIT Conversion Merger?

As a result of the Separation, you will be entitled to receive shares of New Sun common stock for each share of Sun common stock held by you on the record date for the Separation. In addition, Sun intends to make a cash distribution to holders of Sun common stock on the record date for the Separation of approximately $0.17 per share resulting in an aggregate cash distribution of approximately $13 million. The actual amount of the cash distribution to Sun’s stockholders will not be determined until the time of the Separation.

In addition, your Sun common stock will automatically convert in the REIT Conversion Merger into shares of Sabra common stock for each share of Sun common stock held by you at the effective time of the REIT Conversion Merger.

Q:	Will I receive fractional shares of New Sun common stock or Sabra common stock in connection with the Separation and REIT Conversion Merger?

No fractional shares of New Sun common stock or Sabra common stock will be issued in connection with the Separation and REIT Conversion Merger. Instead, American Stock Transfer & Trust Company, LLC (“American Stock Transfer”), who will serve as the distribution agent for the Separation and as the exchange agent for the REIT Conversion Merger, will aggregate all fractional shares that would otherwise have been distributed to Sun stockholders into whole shares, sell these whole shares in the open market at prevailing market prices and distribute the net cash proceeds from these sales to those stockholders who would have been entitled to receive fractional shares. This payment will be made from these sales on a pro rata basis based on the fractional interest in a share of New Sun common stock or Sabra common stock, as applicable, that the stockholder would have otherwise been entitled to receive. The amount of the cash payment will depend on the prices at which the aggregated fractional shares are sold by American Stock Transfer and the timing of such payment will be based upon the time that will be necessary for American Stock Transfer to sell these shares in an orderly manner. New Sun will be responsible for the payment of any brokerage or other fees in connection with the sale of aggregated fractional shares of New Sun common stock and Sabra will be responsible for the payment of any brokerage or other fees in connection with the sale of aggregated fractional shares of Sabra common stock. Recipients of cash in lieu of fractional shares will not be entitled to any interest on payments made in lieu of fractional shares.

Q:	Will I still own my shares of Sun after the completion of the transactions?

A:	No. You will receive shares of New Sun common stock as a result of the Separation and, upon the completion of the REIT Conversion Merger, your existing shares of Sun common stock will automatically convert into shares of Sabra common stock.

Q:	Should I send in my stock certificates now?

No. If the Separation and REIT Conversion Merger are completed, you will not be required to return your stock certificates representing shares of Sun common stock in order to receive your shares of New Sun common stock or Sabra common stock. Neither New Sun nor Sabra will issue physical certificates for the

shares you will receive in connection with the Separation or REIT Conversion Merger in exchange for your shares of Sun common stock, even if you currently hold a physical certificate. Instead, New Sun and Sabra will direct American Stock Transfer to electronically issue shares of New Sun common stock and Sabra common stock to you or to your bank, broker or other nominee on your behalf by way of direct registration in book-entry form. Any physical certificates representing shares of Sun common stock will be deemed cancelled and will no longer represent any ownership interest.

Q:	How will the rights of Sun stockholders change following the Separation and REIT Conversion Merger?

Upon the Separation, Sun stockholders as of the record date for the Separation will also become stockholders of New Sun. The rights of the stockholders of New Sun following the Separation will be governed by the Delaware General Corporation Law (the “DGCL”) and the provisions of the certificate of incorporation and bylaws of New Sun as described in this proxy statement/prospectus. As a Delaware corporation, Sun is also governed by the DGCL. There will be no material differences between New Sun’s certificate of incorporation and bylaws and Sun’s existing amended and restated certificate of incorporation and bylaws.

Following the REIT Conversion Merger, Sun stockholders will become stockholders of Sabra and their rights will be governed by the Maryland General Corporation Law (the “MGCL”) and the provisions of Sabra’s charter and bylaws as described in this proxy statement/prospectus. One of the primary differences between Sun’s existing amended and restated certificate of incorporation and Sabra’s charter is that Sabra’s charter will contain transfer and ownership restrictions on the percentage of outstanding shares of its stock that a person may own or acquire. These restrictions are intended to assist Sabra in qualifying and maintaining its qualification as a REIT for U.S. federal income tax purposes. Under Sabra’s charter, subject to certain limitations, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.9% in value or number of shares, whichever is more restrictive, of Sabra’s outstanding common stock. For a more detailed discussion of the material differences between the current rights of Sun stockholders and the rights those stockholders would have as stockholders of Sabra following the REIT Conversion Merger, see “Comparative Rights of Sabra and Sun Stockholders.”

Q:	When will I be able to trade shares of New Sun common stock or shares of Sabra common stock?

A:	It is expected that, upon completion of the Separation and REIT Conversion Merger, the shares of New Sun common stock will trade on the NASDAQ Global Select Market under the symbol “SUNH” and the shares of Sabra common stock will trade on the NASDAQ Global Select Market under the symbol “SBRA.”

Shares of New Sun common stock are expected to trade on a “when-issued” basis beginning on or shortly before the record date for the Separation and continuing through the distribution date for the Separation. “When-issued” trading in the context of the Separation refers to a sale or purchase effected on or before the date of the Separation and made conditionally because the securities of New Sun have not yet been distributed. “When-issued” trades are generally expected to settle within three trading days after the distribution date for the Separation. You may trade this entitlement to receive New Sun common stock, without the Sun common stock you own, on the “when-issued” market. On the first trading day following the distribution date for the Separation, “when-issued” trading with respect to New Sun common stock will end and “regular trading” will begin.

Q:	Why did Sun adopt a stockholder rights agreement, and will the stockholder rights agreement continue at New Sun and Sabra after completion of the transactions?

Sabra may not qualify for REIT status if a single stockholder owned 10% or more of Sun common stock immediately prior to the Separation and REIT Conversion Merger. The stockholder rights agreement (the “Rights Plan”) was adopted to discourage third parties from exceeding this ownership limitation and will

terminate upon the earlier of the effective time of the REIT Conversion Merger or May 24, 2011. Accordingly, the Rights Plan will not continue in respect of shares of New Sun common stock or shares of Sabra common stock. Neither New Sun nor Sabra will initially have a stockholder rights agreement and neither has plans to adopt one, although each of their respective boards of directors could make the determination at a future date to adopt a stockholder rights agreement. Sabra’s charter will contain restrictions on the transfer and ownership of its stock. See “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.”

Q:	Who will pay the costs of the Separation and REIT Conversion Merger?

New Sun will pay all costs associated with the Separation and REIT Conversion Merger that are incurred prior to the Separation, except that Sabra will bear all costs of the Separation and REIT Conversion Merger specifically identifiable to it, including the costs incurred by Sabra in entering into the financing transactions described under the caption “Description of Material Indebtedness.” All costs relating to the Separation or REIT Conversion Merger incurred after the Separation will be borne by the party incurring such costs.

Q:	What items of business am I being asked to vote on at the special meeting?

A:	At the special meeting, you will be asked to consider and vote on the following proposals:

•

a proposal to approve the Separation (Proposal No. 1);

•

a proposal to adopt the agreement and plan of merger by and between Sun and Sabra to implement the REIT Conversion Merger (Proposal No. 2); and

•

a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger (Proposal No. 3).

Q:	What will be the effect on the proposals if the Separation or the REIT Conversion Merger is not approved by Sun stockholders?

A condition to each of the Separation and REIT Conversion Merger is that both transactions have been approved by Sun stockholders. Even if stockholder approval of the Separation has been obtained, the Separation will not proceed unless all other required conditions to the Separation have been satisfied or waived, including the satisfaction or waiver of all required conditions to the REIT Conversion Merger. Similarly, even if stockholder approval of the REIT Conversion Merger has been obtained, the REIT Conversion Merger will not proceed unless the Separation has been completed and all other required conditions to the REIT Conversion Merger have been satisfied or waived.

Q:	How does the board of directors of Sun recommend that I vote?

The board of directors of Sun has unanimously approved the Separation and the REIT Conversion Merger and has determined that these actions are advisable and in the best interests of Sun and its stockholders. The board of directors of Sun unanimously recommends that you vote your shares “FOR” approval of the Separation, “FOR” adoption of the agreement and plan of merger to implement the REIT Conversion Merger and “FOR” the adjournment proposal.

Q:	What votes are required?

The Separation. The affirmative vote of a majority of the outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation. If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation. Please note that stockholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation—Conditions to the Separation.” Sun will

not complete the Separation and REIT Conversion Merger as contemplated in this proxy statement/ prospectus if Sun’s stockholders do not approve the Separation at the special meeting. However, if stockholder approval is not obtained, Sun reserves the right to consider, and implement without stockholder approval if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.

The REIT Conversion Merger. The affirmative vote of a majority of the outstanding shares of Sun common stock entitled to vote at the special meeting is required to adopt the agreement and plan of merger to implement the REIT Conversion Merger. If you do not submit a proxy or voting instruction form or do not vote in person at the special meeting, or if you “ABSTAIN” from voting on adoption of the agreement and plan of merger, the effect will be the same as a vote against the adoption of the agreement and plan of merger.

Adjournment of the special meeting. The affirmative vote of a majority of the outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger. If you “ABSTAIN” from voting on approval of the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.

Q:	How many shares of Sun common stock must be present or represented to conduct business at the special meeting?

The holders of a majority in voting power of the outstanding shares of Sun common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting and any adjournments or postponements thereof. If you submit a proxy or voting instructions, your shares will be counted for purposes of determining the presence of a quorum, even if you “ABSTAIN” from voting your shares on the proposals. If a quorum is not present at the special meeting, the special meeting may be adjourned until a quorum is obtained.

Q:	Who is entitled to vote at the special meeting?

As of the close of business on the record date for the special meeting, executive officers and directors of Sun held an aggregate of shares of Sun common stock, which represents approximately % of all shares entitled to vote at the special meeting.

Q:	What is the difference between a “stockholder of record” and a “beneficial stockholder”?

A:	Whether you are a stockholder of record or a beneficial stockholder depends on how you hold your shares of Sun common stock.

Stockholders of Record. If your shares of Sun common stock are registered directly in your name with Sun’s transfer agent, American Stock Transfer, you are considered the stockholder of record with respect to those shares, and the proxy materials for the special meeting are being mailed to you directly by Sun.

Beneficial Stockholders. Most of Sun’s stockholders hold their shares through a bank, broker or other nominee (that is, in “street name”) rather than directly in their own name. If you hold your shares of Sun common stock in street name, you are a “beneficial stockholder,” and the proxy materials are being mailed

to you by the organization holding your shares. This organization, or its nominee, is considered the stockholder of record for purposes of voting at the special meeting. As a beneficial stockholder, you have the right to instruct that organization on how to vote the shares held in your account.

Q:	May I vote in person?

If you are a stockholder of record as of the close of business on the record date for the special meeting, you may attend the special meeting and vote your shares of Sun common stock in person rather than signing and returning your proxy card or otherwise providing your proxy instructions. Your name will be verified against the list of stockholders of record on the record date for the special meeting prior to your being admitted to the special meeting.

If you are a beneficial stockholder, you are also invited to attend the special meeting but you may not vote these shares of Sun common stock in person at the special meeting unless you obtain a “legal proxy” from the bank, broker or other nominee, giving you the right to vote the shares at the special meeting. You will be asked to provide proof of beneficial ownership on the record date for the special meeting, such as your most recent account statement, a copy of the voting instruction form provided by your bank, broker or other nominee, or other similar evidence of ownership, prior to your being admitted to the special meeting.

If you do not comply with the procedures outlined above, you will not be admitted to the special meeting. Even if you plan to attend the special meeting, it is recommended that you submit your proxy or voting instructions in advance of the special meeting as described below so that your vote will be counted if you later decide not to attend the special meeting.

Q:	How can I vote my shares without attending the special meeting?

Whether you are a stockholder of record or a beneficial stockholder, you may direct how your shares of Sun common stock are voted without attending the special meeting. If you are a stockholder of record, you may submit a proxy to instruct how your shares of Sun common stock are to be voted at the special meeting. You can submit a proxy by mail by completing, signing, dating and returning the proxy card enclosed with the proxy materials you received or by telephone or Internet by following the instructions provided on the proxy card. If you are a beneficial stockholder, you may submit voting instructions to your bank, broker or other nominee to instruct how your shares of Sun common stock are to be voted at the special meeting. Your voting instructions can be submitted by mail by completing, signing, dating and returning the voting instruction form enclosed with the proxy materials you received or by telephone or Internet, if those voting options are available to you, by following the instructions provided on the voting instruction form.

Q:	May I change or revoke my proxy or voting instructions?

You have the power to revoke or change your proxy or voting instructions before your shares of Sun common stock are voted at the special meeting. If you are a stockholder of record, you may do this by submitting a written notice of revocation to Sun’s Secretary, by submitting a duly executed written proxy bearing a date that is later than the date of your original proxy or by submitting a later dated proxy electronically via the Internet or by telephone. A previously submitted proxy will not be voted if the stockholder of record who executed it is present at the special meeting and votes the shares of Sun common stock represented by the proxy in person at the special meeting. If you are a beneficial stockholder, you may change your vote by submitting new voting instructions to your bank, broker or other nominee, or, if you have obtained a legal proxy from your bank, broker or other nominee giving you the right to vote your shares of Sun common stock, by attending the special meeting and voting in person. Please note that attendance at the special meeting will not by itself constitute revocation of a proxy.

Q:	How will my shares be voted if I do not provide specific instructions in the proxy or voting instruction form I submit?

If you submit a proxy or voting instruction form but do not indicate your specific voting instructions on one or more of the proposals listed in the notice of the special meeting, your shares of Sun common stock will be voted as recommended by the board of directors of Sun on those proposals and, in the case of a proxy, as the proxyholders may determine in their discretion with respect to any other matters properly presented for a vote at the special meeting.

Q:	If my shares are held in “street name” by a bank, broker or other nominee, how will my shares be voted?

You should instruct your bank, broker or other nominee how to vote your shares of Sun common stock, following the directions provided to you. If you do not instruct your broker, your broker will generally not have the discretion to vote your shares of Sun common stock without your instructions on matters that are not considered routine. Sun believes that the Separation proposal, the REIT Conversion Merger proposal and the proposal to adjourn the special meeting are each considered not to be routine matters. Therefore, your broker cannot vote shares of Sun common stock that it holds in “street name” on any of the proposals unless you return the voting instruction form you received from your broker. Accordingly, Sun does not believe that there will be any broker non-votes occurring in connection with any of the proposals at the special meeting. Please note, however, that if you properly return the voting instruction form to your broker but do not indicate how you want your shares of Sun common stock to be voted, Sun believes your shares of Sun common stock generally will be voted “FOR” all of the proposals listed in the notice for the special meeting.

Q:	Am I entitled to dissenters’ or appraisal rights?

A:	Under Delaware law, you are not entitled to dissenters’ or appraisal rights in connection with the Separation or the REIT Conversion Merger.

Q:	What if I want to transfer my shares of Sun common stock?

You should consult with your financial advisor, such as your broker, bank or tax advisor. Sun, New Sun and Sabra make no recommendations concerning the purchase, retention or sale of shares of Sun common stock or of the New Sun common stock or Sabra common stock you will receive if the Separation and REIT Conversion Merger are completed.

The record date for the special meeting is earlier than the record date for the Separation and the effective time of the REIT Conversion Merger. Therefore, if you sell your shares of Sun common stock after the record date of the special meeting, but prior to the record date for the Separation or the effective time of the REIT Conversion Merger (neither of which has yet been determined), you will retain the right to vote at the special meeting, but the right to receive New Sun common stock in connection with the Separation and Sabra common stock in connection with the REIT Conversion Merger will transfer with the shares of Sun common stock.

Q:	As a Sun stockholder, what should I consider in deciding whether to vote in favor of the Separation and the REIT Conversion Merger?

You should carefully review this proxy statement/prospectus, including the section entitled “Risk Factors” which sets forth certain risks and uncertainties related to the Separation and REIT Conversion Merger and certain risks and uncertainties to which New Sun and Sabra will be subject if these transactions are implemented.

Q:	Who is paying for this proxy solicitation?

Sun is making this solicitation and will pay the entire cost of preparing and distributing these proxy materials and soliciting proxies. Sun has also retained Innisfree M&A, a proxy solicitation firm, to solicit proxies on behalf of Sun. Sun has agreed to pay Innisfree M&A an estimated fee of $25,000, plus its out-of-pocket expenses in connection with such solicitation of proxies on behalf of Sun. In addition to these mailed proxy materials, Sun’s directors, executive officers and other employees may also solicit proxies or votes in person, by telephone or by other means of communication. Directors, executive officers and employees will not be paid any additional compensation for soliciting proxies. Sun will also reimburse banks, brokers and other nominees for their costs in forwarding proxy materials to Sun’s beneficial stockholders.

Q:	Who can help answer my questions?

A:	If you have any questions or need further assistance in voting your shares of Sun common stock, or if you need additional copies of this proxy statement/prospectus or the proxy card, please contact:

Sun Healthcare Group, Inc.

101 Sun Avenue, N.E.

Albuquerque, New Mexico 87109

Attention: Investor Relations

Telephone number: (505) 468-2341

Innisfree M&A

501 Madison Avenue

New York, NY 10022

Telephone number: (212) 750-5833

STRUCTURE OF THE SEPARATION AND REIT CONVERSION MERGER

In order to help you better understand the structure of the Separation and REIT Conversion Merger, the charts below illustrate, in simplified form, the organizational structure of Sun Healthcare Group, Inc., SHG Services, Inc. and Sabra Health Care REIT, Inc. as they exist currently, and as they will exist immediately following the Separation and REIT Conversion Merger:

Current

LOGO

After the Separation and REIT Conversion Merger

LOGO

SUMMARY

This summary highlights selected information contained or incorporated by reference in this proxy statement/prospectus and may not contain all of the information that is important to you. This summary is not intended to be complete and reference is made to, and this summary is qualified in its entirety by, the more detailed information contained or incorporated by reference in this proxy statement/prospectus. To fully understand the restructuring of Sun’s business, including the Separation and REIT Conversion, and for a more complete description of the terms of the Separation and REIT Conversion, you should read carefully this proxy statement/prospectus, together with the documents referred to in this proxy statement/prospectus. Unless the context otherwise requires, references in this proxy statement/prospectus to “Sun” shall be deemed to refer to Sun Healthcare Group, Inc. prior to completion of the Separation and REIT Conversion Merger.

Information about the Companies

Sun Healthcare Group, Inc.

18831 Von Karman, Suite 400

Irvine, CA 92612

(949) 255-7100

Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) is referred to in this proxy statement/prospectus as Sun. Sun, through its subsidiaries, provides nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun’s core business is providing, through its subsidiaries, inpatient services, primarily through 167 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers as of July 1, 2010. As of that date, Sun’s centers had 23,289 licensed beds located in 25 states, of which 22,507 were available for occupancy. Of the 203 centers operated by Sun’s subsidiaries as of July 1, 2010, 112 centers were leased from third parties and 91 centers were owned by Sun’s subsidiaries. Sun’s subsidiaries also provide rehabilitation therapy services to affiliated and non-affiliated centers and medical staffing and other ancillary services primarily to non-affiliated centers and other third parties. For the year ended December 31, 2009, Sun’s total net revenues from continuing operations were $1.9 billion. For the six months ended June 30, 2010, Sun’s total net revenues from continuing operations were $947.9 million.

Business Segments

Sun’s subsidiaries currently engage in the following three business segments:

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inpatient services, primarily skilled nursing centers;

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rehabilitation therapy services; and

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medical staffing services.

Inpatient services. Sun operates its healthcare facilities through SunBridge Healthcare Corporation (“SunBridge”) and other subsidiaries. Sun’s skilled nursing centers provide services that include daily nursing, therapeutic rehabilitation, social services, housekeeping, nutrition and administrative services for individuals requiring certain assistance for activities in daily living. Rehab Recovery Suites, which specialize in Medicare and managed care patients, as of June 30, 2010, are located in 66 of Sun’s skilled nursing centers, and 46 of Sun’s skilled nursing centers contain wings dedicated to the care of residents afflicted with Alzheimer’s disease. Sun’s assisted living centers provide services that include minimal nursing assistance, housekeeping, nutrition, laundry and administrative services for individuals requiring minimal assistance for activities in daily living. Sun’s independent living centers provide services that include security, housekeeping, nutrition and limited laundry services for individuals requiring no assistance for activities in daily living. Sun’s mental health centers provide a range of

inpatient and outpatient behavioral health services for adults and children through specialized treatment programs. Sun also provides hospice services, including palliative care, social services, pain management and spiritual counseling, through its subsidiary SolAmor Hospice Corporation (“SolAmor”), in eight states for individuals facing end of life issues. Sun generated 89.1%, 88.6%, and 87.8% of its total net revenues from continuing operations through inpatient services in 2009, 2008, and 2007, respectively.

Rehabilitation therapy services. Sun provides rehabilitation therapy services through SunDance Rehabilitation Corporation (“SunDance”). SunDance provides a broad array of rehabilitation therapy services, including speech pathology, physical therapy and occupational therapy. As of June 30, 2010, SunDance provided rehabilitation therapy services to 466 centers in 36 states, 335 of which were operated by nonaffiliated parties and 131 of which were operated by affiliates. In most of Sun’s 71 healthcare centers for which SunDance does not provide rehabilitation therapy services, those services are provided by staff employed by the centers, although some centers engage third-party therapy companies for such services. Sun generated 5.6%, 4.9%, and 5.3% of its total net revenues from continuing operations through rehabilitation therapy services in 2009, 2008, and 2007, respectively.

Medical staffing services. Sun provides temporary medical staffing in 34 states through CareerStaff Unlimited, Inc. (“CareerStaff”). As of December 31, 2009, Sun leased offices in 29 locations to operate its medical staffing business. For the year ended December 31, 2009, CareerStaff derived 56.1% of its revenues from hospitals and other providers, 24.7% from skilled nursing centers, 15.3% from schools and 3.9% from prisons. CareerStaff provides (i) licensed therapists skilled in the areas of physical, occupational and speech therapy, (ii) nurses, (iii) pharmacists, pharmacist technicians and medical imaging technicians, (iv) physicians and (v) related medical personnel. Sun generated 5.3%, 6.5%, and 6.9% of its total net revenues from continuing operations through medical staffing services in 2009, 2008, and 2007, respectively.

SHG Services, Inc.

18831 Von Karman, Suite 400

Irvine, CA 92612

(949) 255-7100

SHG Services, Inc. is referred to in this proxy statement/prospectus as New Sun. New Sun is a wholly owned subsidiary of Sun which, as a result of the restructuring of Sun’s business described in this proxy statement/prospectus, will hold or assume immediately prior to the Separation, through its subsidiaries, all of Sun’s operations and other assets and liabilities (other than substantially all of Sun’s owned real property and related mortgage indebtedness). New Sun will retain ownership of four healthcare properties that are located in Georgia, Maryland, Massachusetts and Wyoming as well as administrative office buildings in Albuquerque, New Mexico (the “New Sun Retained Properties”). Following the Separation, New Sun will be renamed “Sun Healthcare Group, Inc.” and, through its subsidiaries, will continue to provide the same nursing, rehabilitative and related specialty healthcare services provided by Sun immediately prior to the Separation and to engage in Sun’s three business segments of inpatient services, rehabilitation therapy services and medical staffing services. Shares of New Sun common stock are expected to trade on the NASDAQ Global Select Market under the symbol “SUNH.”

Sabra Health Care REIT, Inc.

, CA

( ) -

Sabra Health Care REIT, Inc. is referred to in this proxy statement/prospectus as Sabra. Sabra is a wholly owned subsidiary of Sun which, as a result of the restructuring of Sun’s business described in this proxy statement/prospectus, immediately prior to the Separation, through its subsidiaries, will own all of Sun’s owned real

property, other than the New Sun Retained Properties, and assume all related mortgage indebtedness owed to third parties. The owned real property to be held by subsidiaries of Sabra includes fixtures and certain personal property associated with the real property. Pursuant to the Lease Agreements, subsidiaries of Sabra will lease those assets to New Sun’s subsidiaries. Following completion of the REIT Conversion Merger, Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Sabra expects initially to grow its portfolio through the acquisition of skilled nursing and senior housing facilities, including assisted living, independent living and continuing care retirement community facilities. As Sabra acquires additional properties and expands its portfolio, it expects to diversify by geography, asset class and tenant within the healthcare sector. Shares of Sabra common stock are expected to trade on the NASDAQ Global Select Market under the symbol “SBRA.”

Risks Associated with the Separation and REIT Conversion

The Separation and REIT Conversion pose a number of risks to Sun stockholders. Sun stockholders will receive shares of New Sun and Sabra common stock as a result of the Separation and REIT Conversion Merger. After the Separation and REIT Conversion Merger, each of New Sun and Sabra will be subject to various risks associated with their respective businesses. Some of these risks include:

Risks Relating to the Separation and REIT Conversion

•

The receipt of the stock and cash distribution in the Separation may be taxable, in whole or in part, to Sun’s stockholders as a dividend, which could cause Sun’s stockholders to incur tax liabilities.

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The historical and pro forma financial information included in this proxy statement/prospectus is not necessarily representative of the results New Sun or Sabra would have achieved as separate, publicly traded companies.

•

The Separation and REIT Conversion could give rise to liabilities, disputes, increased costs or other unfavorable effects that may not have otherwise arisen.

Risks Associated with the Status of Sabra as a REIT

•

Because the timing of the REIT Conversion is not certain, Sabra may not realize the anticipated tax benefits from the REIT Conversion commencing with its taxable year beginning on January 1, 2011.

•

Failure to qualify as a REIT would subject Sabra to U.S. federal income tax, which would reduce the cash available for distribution to stockholders of Sabra.

•

Complying with REIT requirements may cause Sabra to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder Sabra’s performance.

Risks Relating to New Sun’s Business

•

New Sun’s business will be dependent on reimbursement rates under federal and state programs, and legislation or regulatory action may reduce or otherwise materially adversely affect the reimbursement rates.

•

Healthcare reform may affect New Sun’s revenues and increase New Sun’s costs and otherwise materially adversely affect New Sun’s business.

•

New Sun’s revenue and collections may be materially adversely affected by the economic downturn.

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Possible changes in the case mix of residents and patients, as well as payor mix and payment methodologies, may materially affect New Sun’s revenues and profitability.

Risks Relating to Sabra’s Business

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Sabra’s business will be dependent on New Sun until Sabra substantially diversifies its portfolio.

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Sabra may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as a separate publicly traded company focused on owning a portfolio of healthcare properties.

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An increase in market interest rates could increase Sabra’s interest costs on existing and future debt.

•

Sabra is dependent on the healthcare industry and may be susceptible to the risks associated with healthcare reform.

These and other risks relating to the Separation and REIT Conversion and the businesses of New Sun and Sabra following the Separation and REIT Conversion Merger are discussed in greater detail under the caption “Risk Factors.” You should read and consider all of these risks carefully.

The Special Meeting of Sun Stockholders

Date, Time and Place. The special meeting of Sun stockholders will be held on , 2010, at at a.m. local time, and at any adjournment or postponement thereof.

Purpose of the Special Meeting. At the special meeting, Sun’s stockholders will be asked to consider and vote upon (i) a proposal to approve the Separation; (ii) a proposal to adopt the agreement and plan of merger by and between Sun and Sabra to implement the REIT Conversion Merger; and (iii) a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger.

Record Date; Shares Entitled to Vote; Quorum. Only stockholders of record at the close of business on , 2010, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting. At the close of business on the record date for the special meeting, shares of Sun common stock were outstanding and entitled to vote. As of the close of business on the record date for the special meeting, executive officers and directors of Sun held an aggregate of shares of Sun common stock, which represents approximately % of all shares of Sun common stock entitled to vote at the special meeting. The presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of Sun common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the meeting and any adjournments or postponements thereof.

Vote Required

The Separation. The affirmative vote of a majority of the outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation. If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation. Stockholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation—Conditions to the Separation.” Sun will not complete the Separation and REIT Conversion Merger as contemplated in this proxy statement/prospectus if Sun’s stockholders do not approve the Separation at the special meeting. However, if stockholder approval is not obtained, Sun reserves the right to consider, and implement without stockholder approval if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.

The REIT Conversion Merger. The affirmative vote of a majority of the outstanding shares of Sun common stock entitled to vote at the special meeting is required to adopt the agreement and plan of merger to implement the REIT Conversion Merger. If you do not submit a proxy or voting instruction form or do not vote in person at the special meeting, or if you “ABSTAIN” from voting on adoption of the agreement and plan of merger, the effect will be the same as a vote against the adoption of the agreement and plan of merger.

Adjournment of the Special Meeting. The affirmative vote of a majority of the outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger. If you “ABSTAIN” from voting on approval of the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.

Overview of the Separation and REIT Conversion

Pursuant to the restructuring plan approved by the board of directors of Sun to separate Sun’s real estate assets and its operating assets into two publicly traded companies, Sun will reorganize, through a series of internal corporate restructurings. After the restructuring, subsidiaries of Sabra will hold all of Sun’s owned real property (other than the New Sun Retained Properties) and will assume the liabilities of Sun, including mortgage indebtedness to third parties, that are related to the real property to be owned by Sabra’s subsidiaries. All of Sun’s operations and other assets and liabilities will be held or assumed by New Sun or by one or more of its subsidiaries. In connection with the Separation, New Sun and Sabra will enter into certain agreements, including the Lease Agreements pursuant to which subsidiaries of New Sun will lease from subsidiaries of Sabra all of the real property that Sabra’s subsidiaries will own immediately following the restructuring of Sun’s business (representing 87 of the 203 properties that Sun’s subsidiaries operated as of July 1, 2010).

Upon satisfaction or waiver of the conditions to the Separation and REIT Conversion Merger, Sun will effect the Separation by distributing to its stockholders on a pro rata basis all of the outstanding shares of New Sun common stock, together with an additional cash distribution. The actual amount of the cash distribution will not be determined until the time of the Separation, but Sun currently expects it to be approximately $0.17 per share, resulting in an aggregate cash distribution to Sun’s stockholders of approximately $13 million. See “Proposal No. 1—Approval of the Separation—Manner of Effecting the Separation.” Sun will then implement the REIT Conversion Merger by merging with and into Sabra, with Sabra surviving the merger as a Maryland corporation and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock. In each case, cash will be paid in lieu of fractional shares. The Separation and REIT Conversion Merger are expected to occur in the fourth quarter of 2010.

Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Following the REIT Conversion, Sabra intends to be a self-managed and self-administered REIT. Sabra intends to operate through an umbrella partnership (commonly referred to as an UPREIT) structure in which substantially all of its properties and assets will be held by Sabra Health Care Limited Partnership, a Delaware limited partnership, of which Sabra is the sole general partner, or by subsidiaries of this partnership.

Background and Reasons for the Separation and REIT Conversion

The board of directors of Sun believes that the Separation and REIT Conversion Merger will create two focused companies—one that will concentrate on providing quality care to residents and patients and the other that will concentrate on building a diversified healthcare real property company. The board of directors of Sun believes that the two separate public companies will:

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more readily enable Sun stockholders to maximize their investment in Sun;

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lower the level of indebtedness for each of New Sun and Sabra following the Separation and REIT Conversion Merger in order to better position New Sun and Sabra to pursue their respective business and growth strategies, including, in the case of Sabra, pursuing acquisitions of healthcare properties at lower borrowing costs than would otherwise have been available for Sun; and

•

better position Sabra to realize the full value of Sun’s portfolio of healthcare properties and to strategically expand it in the healthcare sector beyond such properties while affording Sabra stockholders the benefit of a tax-advantaged REIT security.

Relationship Between New Sun and Sabra After the Separation and REIT Conversion Merger

To govern their ongoing relationship, on or prior to the Separation, New Sun and Sabra or their respective subsidiaries, as applicable, will enter into: (i) a distribution agreement, providing for certain organizational matters, the mechanics related to the Separation and REIT Conversion Merger as well as other ongoing obligations of New Sun and Sabra (the “Distribution Agreement”), (ii) the Lease Agreements, (iii) an agreement relating to tax allocation matters (the “Tax Allocation Agreement”), and (iv) an agreement pursuant to which New Sun may provide certain services to Sabra on a transitional basis (the “Transition Services Agreement”). Although it is expected that the agreements between New Sun and Sabra will contain terms and conditions that generally are consistent with current market terms and conditions, because these agreements are being negotiated in the context of the Separation, the terms and conditions in the agreements may be different than those that either Sabra or New Sun may have obtained from unaffiliated parties. See “Risk Factors—New Sun and Sabra may have been able to receive better terms from unaffiliated third parties than the terms they receive in agreements entered into in connection with the Separation.”

Each of New Sun and Sabra will adopt governance guidelines to minimize conflicts of interest resulting from the service of Mr. Foster and Mr. Walters on the boards of directors of each of Sabra and New Sun. No other person will be a director, executive officer or other employee of both New Sun and Sabra.

Description of Material Indebtedness

Prior to completion of the Separation, New Sun and Sabra will enter into debt agreements that potentially will be secured by substantially all of their respective assets (other than assets securing mortgage indebtedness). The amount of indebtedness that New Sun and Sabra will incur will depend on the net cash generated by Sun between July 1, 2010 and the Separation. Based on Sun’s cash position as of June 30, 2010, and after giving effect to the use by Sun of the $224.8 million of net proceeds from Sun’s August 2010 equity offering to repay a portion of the outstanding term loans under Sun’s existing credit facility, Sun currently anticipates that New Sun will incur approximately $95.6 million of indebtedness and Sabra will incur approximately $197.5 million of indebtedness prior to completion of the Separation. The actual amount of indebtedness to be incurred by New Sun and Sabra could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010. The terms and structure of the indebtedness to be incurred by New Sun and Sabra have not yet been determined. It is anticipated that the debt agreements will contain customary covenants that will include restrictions on each of New Sun’s and Sabra’s ability to make acquisitions and other investments, pay dividends, incur additional indebtedness and make capital expenditures as well as customary events of default.

It is also anticipated that the debt agreements to be entered into by New Sun and Sabra will each provide for a revolving credit facility to provide borrowing capacity for unusual or unexpected needs, and, in the case of Sabra, is expected to be used for acquisitions or other capital needs. The amount, terms and structure of such revolving credit facilities have not yet been determined. In addition, at the time of the Separation and based on the outstanding principal amount of Sun’s mortgage indebtedness at June 30, 2010, New Sun is expected to have

aggregate mortgage indebtedness to third parties of approximately $4.3 million on certain of the New Sun Retained Properties and Sabra is expected to have aggregate mortgage indebtedness to third parties of approximately $150.0 million ($162.5 million after giving effect to a mortgage refinancing completed by Sun in August 2010) on certain of the 87 properties to be owned by subsidiaries of Sabra following completion of the Separation. For additional information relating to these debt financing arrangements, see “Description of Material Indebtedness.”

Accounting Treatment for the Separation and REIT Conversion

Following the Separation, New Sun, through its subsidiaries, will continue the business and operations of Sun and its subsidiaries. Sabra will not have operated prior to the Separation. Immediately following the Separation and REIT Conversion Merger, Sabra, through its subsidiaries, will own all of Sun’s owned real property (other than the New Sun Retained Properties). The owned real property to be held by subsidiaries of Sabra includes fixtures and certain personal property associated with the real property. The only material liabilities of Sabra and its subsidiaries will consist of indebtedness incurred by Sabra at the time of the Separation and mortgage indebtedness to third parties on the real property to be owned by subsidiaries of Sabra. The liabilities of New Sun and its subsidiaries will consist of indebtedness of New Sun incurred at the time of the Separation and substantially all of the liabilities of Sun and its subsidiaries immediately prior to the Separation, excluding indebtedness of Sun repaid at the time of the Separation and mortgage indebtedness to third parties assumed by subsidiaries of Sabra. The historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun at the time of the Separation. At the time of the Separation, the balance sheet of Sabra will include the owned real property and mortgage indebtedness to third parties on the real property as well as indebtedness incurred by Sabra prior to completion of the Separation. The statement of operations and cash flows of Sabra will consist solely of its operations after the Separation.

The assets and liabilities of Sabra will be recorded at their respective historical carrying values at the time of the Separation in accordance with the provisions of FASB ASC 505-60, “Spinoffs and Reverse Spinoffs.” Sun has concluded that the Separation should be accounted for as a reverse spinoff, and accordingly, the assets and liabilities to be distributed will be recorded based on the historical carrying values after reduction, if appropriate, for any indicated impairment of value. Indicators that a spinoff should be accounted for as a reverse spinoff include:

•

whether the “legal” spinnee (i.e., New Sun) is larger than the “legal” spinnor (i.e., Sabra) based on a comparison of assets, revenues and earnings;

•

the relative fair value of the “legal” spinnor to the “legal” spinnee; and

•

which entity retains the majority of senior management after the spinoff.

Based on these and other factors, the Separation will be accounted for as a reverse spinoff where New Sun is designated as the “accounting” spinnor and Sabra is designated as the “accounting” spinnee.

Regulatory Approvals Required for the Separation and REIT Conversion Merger

In connection with the Separation and to consummate the restructuring of Sun’s business, Sun will be required to file notices with, and in some jurisdictions obtain approvals or consents from, the various governmental agencies and commissions responsible for the licensure or certification of Sun’s inpatient centers and other lines of business. In some cases, these filings must be made, and approvals obtained, before the Separation can be completed. All of such filings have been made, and Sun is seeking to obtain the requisite approvals. In other cases, notice filings will need to be made by New Sun after the Separation has been completed.

Compensation

Following the Separation and REIT Conversion Merger, New Sun’s compensation committee and board of directors will discuss and approve the executive compensation program for New Sun’s executive officers. This compensation program is expected to be substantially similar to the compensation program currently in place at Sun, except with respect to Mr. Mathies. The details of Mr. Mathies’ compensation as the Chief Executive Officer of New Sun have not yet been determined. Prior to the Separation, New Sun will adopt new equity incentive plans containing substantially the same terms as Sun’s 2009 Performance Incentive Plan and Sun’s other equity incentive plans. New Sun will also assume the 401(k) plan and the deferred compensation plan of Sun.

Following the Separation and REIT Conversion Merger, Sabra’s compensation committee and board of directors will discuss and approve the executive compensation program for Sabra’s executive officers. The details of Mr. Matros’ compensation as Chief Executive Officer of Sabra, and the compensation of other executives of Sabra, have not yet been determined. Sabra will assume Sun’s 2009 Performance Incentive Plan and Sun’s other equity incentive plans in connection with the REIT Conversion Merger.

Treatment of Equity Awards in the Separation and REIT Conversion Merger

Except as described below for Mr. Matros, Sun options, whether vested or unvested, and unvested restricted stock units of Sun will be converted, and adjusted as described below, into awards with respect to shares of New Sun common stock. The number of shares subject to and the exercise price of each converted option, and the number of shares subject to each unvested restricted stock unit, will be adjusted to preserve the same intrinsic value of the awards that existed immediately prior to the Separation and REIT Conversion Merger. These converted awards will otherwise have the same general terms and conditions as the outstanding Sun awards, including the applicable vesting conditions. Each Sun restricted stock unit which has vested but the payment of which has been deferred to a later date will be converted into an award with respect to the same number of shares of New Sun common stock and Sabra common stock that a Sun stockholder will receive for each share of Sun common stock in connection with the Separation and REIT Conversion Merger. In addition, under the terms of the outstanding restricted stock unit awards, the holders of such awards will receive at the time the restricted stock units vest a per share cash distribution equal to the per share amount of cash to be paid to the holders of Sun common stock at the time of the Separation. Based upon the expected amount of the cash distribution of $0.17 per share, the aggregate amount of the cash distribution, assuming all of the outstanding restricted stock units (other than those restricted stock units held by Mr. Matros, which units will terminate at the time of the Separation) become fully vested, is expected to be approximately $400,000. The actual amount of the distribution will not be determined until the time of the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation.” Holders of Sun options do not have rights to receive cash distributions.

The Sun options and restricted stock units held by Mr. Matros will be terminated in connection with the Separation and REIT Conversion Merger. The termination of the existing Sun awards held by Mr. Matros will be taken into account by Sabra’s compensation committee when determining the amount of Sabra equity awards to be initially granted to Mr. Matros. While the amount, type and terms and conditions of the equity awards expected to be granted by Sabra to Mr. Matros have not yet been determined by Sabra, those awards are expected to include two components. One component is expected to have a grant-date value (determined under the principles used to calculate the grant-date fair value of equity awards for purposes of Sun’s financial statements or a similar methodology) that is equal to the value (determined, as of the termination of the awards, under those same principles) of Mr. Matros’s existing Sun awards that terminate in connection with the Separation and REIT Conversion Merger to compensate him for this lost value. The other component is expected to reflect the Sabra compensation committee’s determination of an appropriate equity compensation package for Mr. Matros’s services following the Separation and REIT Conversion Merger in his position as chief executive officer of Sabra.

PROPOSAL NO. 1—APPROVAL OF THE SEPARATION

Manner of Effecting the Separation

In the Separation, Sun stockholders as of the record date for the Separation will receive shares of New Sun common stock for each share of Sun common stock such stockholder owns on the record date. Additionally, on the distribution date for the Separation, Sun stockholders as of the record date for the Separation will receive a cash distribution of approximately $0.17 per share resulting in an aggregate cash distribution to Sun’s stockholders of approximately $13 million. The actual amount of this cash distribution will not be determined until the time of the Separation.

American Stock Transfer will serve as the distribution agent for the Separation. On the distribution date for the Separation, American Stock Transfer will electronically issue shares of New Sun common stock to holders of Sun common stock who hold such shares on the record date, or to such stockholders’ bank, broker or other nominee on such stockholders’ behalf by way of direct registration in book-entry form. As soon as practicable after the distribution date for the Separation, an account statement will be mailed to each holder of Sun common stock who holds such shares on the record date, stating the number of shares of New Sun common stock received by such stockholder in the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation—Trading Between the Record Date for the Separation and the Distribution Date for the Separation” for a discussion of the effect of the distribution on any shares sold after the record date but prior to the distribution date for the Separation.

As soon as practicable after the distribution date for the Separation, each holder of Sun common stock as of the record date for the Separation will also receive a cash payment in an amount equal to any fractional shares issuable to such stockholder in the Separation.

Management of New Sun

The Chief Executive Officer of New Sun will be William A. Mathies, currently the President and Chief Operating Officer of SunBridge, Sun’s inpatient services subsidiary, and the Chief Operating Officer over Sun’s other operating subsidiaries. Other than Richard K. Matros, the current Chief Executive Officer of Sun, the remaining Sun management team will be the management team of New Sun, including L. Bryan Shaul, who will be the Chief Financial Officer. The members of the existing board of directors of Sun will become the members of the board of directors of New Sun, except that Mr. Matros will be replaced on the board by Mr. Mathies. See “Management of New Sun.”

Interests of Certain Persons in the Separation

As of the record date for the special meeting, directors and executive officers of Sun beneficially owned approximately % of the outstanding shares of Sun common stock. Directors and executive officers of New Sun who own shares of Sun common stock as of the record date for the Separation will receive a distribution of shares of New Sun common stock and the cash distribution on the same basis as other Sun stockholders. See “Security Ownership of Certain Beneficial Owners and Management.”

Market for New Sun Common Stock; Trading of New Sun Common Stock Following the Separation

There is no current public market for New Sun common stock. Upon completion of the Separation, it is expected that New Sun common stock will be listed and will trade on the NASDAQ Global Select Market using Sun’s current stock symbol, “SUNH.”

Immediately following the Separation, based on the shares of Sun common stock outstanding as of , 2010, New Sun will have shares of common stock outstanding. The actual number of shares of New Sun common stock outstanding will be determined based on the number of shares of Sun common

stock outstanding on the record date for the Separation. No shares of preferred stock of New Sun will be issued or outstanding at the time of the Separation. Immediately following the Separation, it is expected that New Sun will have approximately holders of record of shares of its common stock based on the number of holders of record of shares of Sun common stock on , 2010.

Trading Between the Record Date for the Separation and the Distribution Date for the Separation

Sun anticipates that, beginning on or shortly before the record date for the Separation and continuing through the distribution date for the Separation, there will be a “when-issued” market in New Sun common stock. On the first trading day following the distribution date for the Separation, “when-issued” trading with respect to New Sun common stock will end and “regular trading” will begin. For more information on trading Sun or New Sun common stock between the record date for the Separation and the distribution date for the Separation, see “The Proposals—Proposal No. 1—Approval of the Separation—Trading Between the Record Date for the Separation and the Distribution Date for the Separation.”

U.S. Federal Income Tax Consequences of the Separation

As discussed in the section “Material U.S. Federal Income Tax Consequences,” in the opinion of Fried, Frank, Harris, Shriver & Jacobson LLP (“Fried Frank”), special tax counsel to Sun, the Separation should be a taxable transaction for U.S. federal income tax purposes to U.S. holders (as defined in “Material U.S. Federal Income Tax Consequences”) of Sun common stock and, although the matter is not free from doubt, the Separation should be treated as a distribution of property under Section 301 of the Code, although alternative characterizations are possible. Accordingly, the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash distributed in connection with the Separation to a U.S. holder should be treated as a dividend to the extent of the U.S. holder’s share of the current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles, which may be taxable to non-corporate U.S. holders at a reduced rate of 15%. To the extent the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation by a U.S. holder exceeds the U.S. holder’s share of the earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles, the excess first will be treated as a tax-free return of capital to the extent, generally, of the U.S. holder’s adjusted tax basis in Sun common stock, and any remaining excess will be treated as capital gain. In addition, a U.S. holder’s tax basis in New Sun common stock received in the Separation will be equal to its fair market value at the time of the Separation, and the holding period in the New Sun common stock received in the Separation will begin the day after the Separation.

All holders of shares of Sun common stock should read “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Separation” for a more complete discussion of the U.S. federal income tax consequences of the Separation and “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to New Sun” for a more complete discussion of the U.S. federal income tax consequences of the acquisition, ownership and disposition of New Sun common stock that will be received in the Separation. All holders of shares of Sun common stock are urged to consult with their tax advisors regarding the tax consequences of the Separation to them, including the effects of U.S. federal, state and local, non-U.S. and other tax laws.

Conditions to the Separation

The Separation is conditioned upon the satisfaction or waiver of the following conditions:

•

Sun’s stockholders shall have approved the Separation and adopted the agreement and plan of merger to implement the REIT Conversion Merger;

•

the restructuring of Sun’s business as described in this proxy statement/prospectus shall have been completed;

•

New Sun’s listing application with the NASDAQ Global Select Market shall have been approved, subject to official notice of issuance;

•

no stop order shall be in effect with respect to New Sun’s registration statement on Form S-1 filed with the SEC to register under the Securities Act of 1933, as amended (the “Securities Act”), the distribution of shares of New Sun common stock in the Separation;

•

no stop order shall be in effect with respect to Sabra’s registration statement on Form S-4 filed with the SEC to register under the Securities Act the issuance of shares of Sabra common stock in the REIT Conversion Merger;

•

Sun, New Sun and Sabra shall have obtained all material authorizations, consents, approvals and clearances of third parties, including U.S. federal, state and local governmental agencies, to complete the Separation and REIT Conversion Merger;

•

no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a government, regulatory or administrative agency or commission, and no statute, rule, regulation or executive order promulgated or enacted by any governmental authority, shall be in effect preventing the completion of the Separation or the REIT Conversion Merger;

•

the financing transactions as described under the caption “Description of Material Indebtedness” shall have been consummated, and all material consents, waivers or amendments to any mortgage indebtedness shall have been obtained, in each case, on terms satisfactory to Sun;

•

the Distribution Agreement, the Lease Agreements, the Tax Allocation Agreement and the Transition Services Agreement shall have been executed and delivered by New Sun and Sabra;

•

no litigation or proceeding challenging or seeking to restrain the Separation or the REIT Conversion Merger shall be pending or threatened; and

•

all other conditions required to complete the REIT Conversion Merger shall have been satisfied or waived.

The fulfillment of the foregoing conditions will not create any obligation on Sun’s part to effect the Separation or REIT Conversion Merger. Sun reserves the right to abandon, defer or modify the Separation and REIT Conversion Merger at any time, even if Sun stockholders approve the Separation and REIT Conversion Merger. Sun may not proceed with the Separation and REIT Conversion Merger if the board of directors of Sun determines for any reason that these transactions are no longer in the best interests of Sun and its stockholders. In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation or REIT Conversion Merger, Sun will provide its stockholders with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if Sun determines that the event or events constitute a material change to this proxy statement/prospectus.

Absence of Appraisal Rights

Sun stockholders will not be entitled to dissenters’ or appraisal rights as a result of the Separation.

Distribution and Dividend Policy

New Sun does not anticipate paying dividends on its common stock in the foreseeable future. New Sun anticipates that the agreements governing the indebtedness it will incur prior to completion of the Separation, like

Sun’s current senior credit facility, will restrict New Sun’s ability to pay dividends or make distributions to its stockholders. Any future determination to pay dividends will be at the discretion of the board of directors of New Sun and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of New Sun deems relevant. See “Distribution and Dividend Policy.”

PROPOSAL NO. 2—ADOPTION OF THE AGREEMENT AND PLAN OF MERGER

Structure and Completion of the REIT Conversion Merger

In accordance with the agreement and plan of merger to implement the REIT Conversion Merger, at the effective time of the REIT Conversion Merger, each share of Sun common stock issued and outstanding immediately prior to completion of the REIT Conversion Merger will automatically convert into shares of Sabra common stock.

Qualification as a REIT

Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. As a REIT, Sabra will generally not be subject to U.S. federal income tax on its REIT taxable income that it distributes currently to its stockholders. Its qualification as a REIT depends upon its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to various matters, including the sources of its gross income, the composition and value of its assets, its distribution levels to stockholders and the diversity of ownership of its shares. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT” for a more complete discussion.

Management of Sabra

Sabra will be led by Mr. Matros as Chairman and Chief Executive Officer. Harold W. Andrews, Jr., a finance professional who has extensive real estate ownership experience as well as extensive experience with healthcare providers, will become Chief Financial Officer of Sabra, and Talya Nevo-Hacohen, a real estate finance executive with more than 15 years of capital markets experience as both principal and advisor, will become Chief Investment Officer of Sabra. Mr. Matros is currently the sole director of Sabra. At the time of the REIT Conversion Merger, two members of the board of directors of Sun (Michael J. Foster and Milton J. Walters, who will also be New Sun directors) and two other persons not affiliated with Sun or New Sun (Craig A. Barbarosh and Robert A. Ettl) will also become directors of Sabra. See “Management of Sabra.”

Interests of Certain Persons in the REIT Conversion Merger

As of the record date for the special meeting, directors and executive officers of Sun beneficially owned approximately % of the outstanding shares of Sun common stock. Directors and executive officers of Sabra who own shares of Sun common stock as of the effective time of the REIT Conversion Merger will receive shares of Sabra common stock on the same basis as other Sun stockholders. See “Security Ownership of Certain Beneficial Owners and Management.”

Market for Sabra Common Stock; Trading of Sabra Common Stock Following the REIT Conversion Merger

There is no current public market for Sabra common stock. Upon consummation of the REIT Conversion Merger, it is expected that Sabra common stock will be listed and will trade on the NASDAQ Global Select Market using the stock symbol “SBRA.”

Immediately following the REIT Conversion Merger, based on the shares of Sun common stock outstanding as of , 2010, Sabra will have shares of common stock issued and outstanding. The actual number of shares of Sabra common stock outstanding will be determined based on the number of shares of Sun common stock outstanding at the time of the REIT Conversion Merger. No shares of preferred stock of Sabra will be issued or outstanding at the time of the REIT Conversion Merger. Immediately following the REIT Conversion Merger, it is expected that Sabra will have approximately holders of record of shares of its common stock based on the number of holders of record of shares of Sun common stock on , 2010.

Manner and Procedure for Receiving Shares of Sabra Common Stock

Sabra will not issue physical certificates for the shares you will receive in the REIT Conversion Merger in exchange for your shares of Sun common stock, even if you currently hold a physical certificate. Instead, Sabra will direct American Stock Transfer to electronically issue shares of Sabra common stock to you or to your bank, broker or other nominee on your behalf by way of direct registration in book-entry form. Any physical certificate representing Sun shares of common stock will be deemed cancelled and will no longer represent any ownership interest.

U.S. Federal Income Tax Consequences of the REIT Conversion Merger

As discussed in the section “Material U.S. Federal Income Tax Consequences,” in the opinion of Fried Frank, the REIT Conversion Merger should be treated as a tax-free reorganization within the meaning of Section 368(a) of the Code. Accordingly, the receipt of Sabra common stock in exchange for Sun common stock in the REIT Conversion Merger should not cause recognition of gain or loss for U.S. federal income tax purposes to U.S. holders with respect to such exchange, except with respect to cash received in lieu of a fractional share of Sabra common stock. All holders of shares of Sun common stock should read “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the REIT Conversion Merger” for a more complete discussion of the U.S. federal income tax consequences of the REIT Conversion Merger and “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra” for a discussion of the U.S. federal income tax consequences of the acquisition, ownership and disposition of Sabra common stock that will be received in the REIT Conversion Merger. In addition, all holders of shares of Sun common stock are urged to consult with their tax advisors regarding the tax consequences of the REIT Conversion to them, including the effects of U.S. federal, state and local, non-U.S. and other tax laws.

Conditions to the REIT Conversion Merger

The REIT Conversion Merger is conditioned upon the satisfaction or waiver of the following conditions:

•

the Separation shall have been completed;

•

Sabra’s listing application with the NASDAQ Global Select Market shall have been approved, subject to official notice of issuance;

•

no litigation or proceeding challenging or seeking to restrain the REIT Conversion Merger shall be pending or threatened.

The fulfillment of these conditions will not create any obligation on Sun’s part to effect the Separation or REIT Conversion Merger. Sun reserves the right to abandon, defer or modify the Separation and REIT Conversion Merger at any time, even if Sun stockholders approve the Separation and REIT Conversion Merger. Sun may not proceed with the Separation and REIT Conversion Merger if the board of directors of Sun determines for any reason that these transactions are no longer in the best interests of Sun and its stockholders. In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation or REIT Conversion Merger, Sun will provide its stockholders with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if Sun determines that the event or events constitute a material change to this proxy statement/prospectus.

Absence of Appraisal Rights

Sun stockholders will not be entitled to dissenters’ or appraisal rights as a result of the REIT Conversion Merger.

Distribution and Dividend Policy

Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Commencing in 2011, consistent with industry standards, Sabra currently expects to pay distributions in cash in an amount equal to approximately 80% of Sabra’s adjusted funds from operations for each quarterly period but in no event will the annual dividend be less than 90% of Sabra’s taxable income on an annual basis (excluding net capital gains), as defined in the Code. The 90% of taxable income requirement is the minimum distribution required to qualify for and maintain REIT status. Initially, cash available for distribution to Sabra stockholders will be derived solely from the rental payments under the Lease Agreements. All distributions will be made by Sabra at the discretion of its board of directors and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of Sabra deems relevant. See “Distribution and Dividend Policy.”

PROPOSAL NO. 3—APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING

Sun may propose to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger.

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The following tables set forth selected historical per share data for Sun and selected unaudited pro forma per share data after giving effect to the Separation and REIT Conversion Merger for New Sun and Sabra. You should read the historical per share data in conjunction with the historical financial information provided herein under the caption “Selected Financial Information and Other Data” and the selected historical financial statements and related notes of Sun that are incorporated into this proxy statement/prospectus by reference. The pro forma per share amounts have been computed using the assumptions described in, and should be read in conjunction with, the pro forma financial information provided under the captions “New Sun Unaudited Pro Forma Consolidated Financial Statements” and “Sabra Unaudited Pro Forma Consolidated Financial Statements.”

The unaudited pro forma consolidated financial data are presented for informational purposes only. You should not rely on the pro forma financial data as an indication of the financial position or results of operations of future periods or the results that actually would have been realized had the Separation and REIT Conversion Merger occurred prior to the periods presented. Sun did not pay or declare any dividends during the periods presented and the unaudited pro forma per share data of Sabra provided below excludes the distributions that would be required to maintain qualification as a REIT.

Historical Per Share Data of Sun


	As of or For the Six Months Ended June 30, 2010		As of or For the Year Ended December 31,
	As of or For the Six Months Ended June 30, 2010		2009		2008		2007
Income from continuing operations
Basic	$	0.47	$	0.97	$	2.63	$	1.28
Diluted		0.47		0.97		2.59		1.25
Dividends		—		—		—		—
Book value per share (1)		10.77		10.26		9.27		5.72

(1)

The historical book value per share data presented is computed by dividing stockholders’ equity at the end of the period by the number of shares outstanding at the end of the period.

Unaudited Pro Forma Per Share Data of New Sun


	As of or For the Six Months Ended June 30, 2010		For the Year Ended December 31, 2009
Income from continuing operations
Basic	$	0.27	$	0.54
Diluted		0.27		0.54
Dividends		—		—
Book value per share (1)		6.89		—

(1)

Pro forma book value per share is presented only as of June 30, 2010. The pro forma book value per share data presented is computed by dividing stockholders’ equity at the end of the period by the number of shares outstanding at the end of the period.

Unaudited Pro Forma Per Share Data of Sabra


	As of or For the Six Months Ended June 30, 2010		For the Year Ended December 31, 2009
Income from continuing operations
Basic	$	0.16	$	0.33
Diluted		0.16		0.33
Dividends		—		—
Book value per share (1)		1.49		—

(1)

RISK FACTORS

Before you vote, you should carefully consider the risks related to the Separation and REIT Conversion described below and the other information contained in this proxy statement/prospectus or in Sun’s documents incorporated by reference herein. See “Where You Can Find More Information.” By voting in favor of the Separation and the adoption of the agreement and plan of merger to implement the REIT Conversion Merger, you will be choosing to change your investment from an interest in Sun common stock to an interest in New Sun common stock and Sabra common stock. The risks and uncertainties described below are not the only ones facing New Sun and Sabra. If any of the following risks actually are realized, New Sun’s and/or Sabra’s business, financial position or results of operations could be materially adversely affected, the value of New Sun common stock and/or Sabra common stock could decline and you could lose all or part of your investment.

Risks Relating to the Separation and REIT Conversion

Your receipt of shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash distributed in connection with the Separation may be taxable, in whole or in part, to you as a dividend. The fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash distributed in connection with the Separation to a U.S. holder should be treated as a dividend to the extent of a U.S. holder’s share of current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles. To the extent the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation by a U.S. holder exceeds the U.S. holder’s share of the current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), the excess first will be treated as a nontaxable return of capital to the extent, generally, of the U.S. holder’s adjusted tax basis in Sun common stock, and any remaining excess will be treated as capital gain. Although Sun will be ascribing a value to the shares of New Sun common stock received in the Separation for tax purposes, this valuation is not binding on the U.S. Internal Revenue Service (“IRS”) or any other tax authority. These taxing authorities could ascribe a higher valuation to the shares, particularly if the stock trades at prices significantly above the value ascribed to the shares by Sun in the period following the Separation. You should consult your own tax advisor as to the particular tax consequences of the Separation to you.

New Sun may be required to indemnify Sabra for certain tax liabilities for taxable periods (or portions thereof) prior to and including the date of the Separation, which could have a material adverse effect on the business, financial position or results of operations of New Sun or Sabra.

Under the terms of the Tax Allocation Agreement, New Sun will be responsible for, and will indemnify Sabra against, any and all income taxes, including any taxes resulting from the restructuring of Sun’s business and the distribution of shares of New Sun common stock to Sun’s stockholders in the Separation, and all non-income taxes (other than non-income taxes imposed on or with respect to assets of Sabra or its subsidiaries, which will be the responsibility of Sabra) for periods before and including the Separation that are reportable on any tax return that includes Sabra or one of its subsidiaries, on the one hand, and New Sun or one of its subsidiaries, on the other hand. See “Relationship Between New Sun and Sabra after the Separation and REIT Conversion Merger—The Tax Allocation Agreement” for a further description of the Tax Allocation Agreement. New Sun’s ability to satisfy any of these indemnification obligations may depend upon the future financial strength of New Sun. New Sun cannot determine at this time whether it will have to indemnify Sabra for any substantial obligations after the Separation. While there is no reason to believe that these indemnification obligations will be significant, there can be no assurance that this will be the case. There can also be no assurance that, if New Sun becomes obligated to indemnify Sabra for any substantial obligations, New Sun will have the ability to satisfy those obligations. If New Sun is required to make an indemnification payment or is unable to satisfy its indemnification obligations, there could be a material adverse effect on the business, financial position or results of operations of New Sun or Sabra, as the case may be.

Sun’s inability to obtain all material authorizations, consents, approvals and clearances of third parties including U.S. federal, state and local governmental agencies (“Third-Party Approvals”) in connection with the Separation or REIT Conversion Merger may have a material adverse effect on Sun’s ability to consummate the Separation and REIT Conversion.

There are numerous Third-Party Approvals that Sun must obtain to consummate the restructuring of Sun’s business in connection with the Separation and REIT Conversion Merger, including consents of mortgage lenders and landlords of Sun and its subsidiaries. Sun’s inpatient centers, rehabilitation therapy companies, health care staffing companies and hospice companies are extensively regulated by federal and state healthcare regulatory bodies and, in some instances, accreditation bodies. To consummate the restructuring of Sun’s business, Sun is required to file notices with, and in some jurisdictions obtain approvals or consents from, the various governmental agencies and commissions responsible for the licensure or certification of Sun’s inpatient centers and other lines of business. In some cases, these filings must be made, and approvals obtained, before the Separation can be completed.

Although Sun has commenced the process of seeking the necessary Third-Party Approvals required in connection with the Separation and REIT Conversion Merger, it currently does not have all the necessary Third-Party Approvals. There is no assurance that Sun will be able to obtain these Third-Party Approvals. Sun does not intend to consummate the Separation or the REIT Conversion Merger if it does not receive all required Third-Party Approvals, unless it believes that the inability to obtain one or more Third-Party Approvals would not reasonably be expected to have a material adverse effect on the business, financial position or results of operations of each of New Sun and Sabra. However, there can be no assurance that such a material adverse effect will not occur.

The historical and pro forma financial information included in this proxy statement/prospectus does not purport to be indicative of the results New Sun or Sabra would have achieved as separate, publicly traded companies and may not be a reliable indicator of future results.

The historical financial statements of Sun, which will become the historical financial statements of New Sun following the Separation, and the pro forma financial information of New Sun and Sabra included in this proxy statement/prospectus may not reflect the business, financial position or results of operations of New Sun or Sabra would have been had they been separate, publicly traded companies during the periods presented, or what their business, financial position or results of operations will be in the future when they are separate, publicly traded companies. This is primarily because of the following factors, among others:

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Prior to the Separation and REIT Conversion Merger, the business of New Sun and the assets of Sabra were operated by Sun as part of one corporate organization and were not operated as stand-alone companies;

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New Sun and Sabra will enter into transactions with each other that have not existed historically; and

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Significant changes may occur in the cost structure, financing and business operations as a result of New Sun and Sabra operating as stand-alone companies. These changes may result in increased costs associated with reduced economies of scale, stand-alone costs for services currently provided and, as to Sabra, the legal, accounting, compliance and other costs associated with being a public company.

The pro forma financial information included in this proxy statement/prospectus includes adjustments based upon available information believed to be reasonable to reflect these factors. However, the assumptions may change and actual results may differ. In addition, the pro forma financial information does not include adjustments for estimated general and administrative expenses. For additional information about the basis of presentation of New Sun’s and Sabra’s pro forma financial information and Sun’s historical financial statements included in this proxy statement/prospectus, see “Description of Material Indebtedness,” “New Sun Pro Forma Capitalization,” “Sabra Pro Forma Capitalization and Supplemental Pro Forma Financial Information,” “New Sun Unaudited Pro Forma Consolidated Financial Statements,” “Sabra Unaudited Pro Forma Consolidated Financial Statements” and “Selected Financial Information and Other Data.”

The Separation and REIT Conversion could give rise to liabilities, disputes, increased costs or other unfavorable effects that may not have otherwise arisen, which could have a material adverse effect on the business, financial position or results of operations of New Sun or Sabra.

The Separation and REIT Conversion may lead to increased operating and other expenses, of both a nonrecurring and a recurring nature, and to changes to certain operations, which expenses or changes could arise pursuant to arrangements made between New Sun and Sabra or the triggering of rights of, and obligations to, third parties. Disputes with third parties could also arise out of these transactions, and each of New Sun and Sabra could experience unfavorable reactions to the Separation and REIT Conversion from employees, landlords, lenders, ratings agencies, regulators or other interested parties. These increased expenses, changes to operations, disputes with third parties, or other effects could have a material adverse effect on the business, financial position or results of operations of New Sun or Sabra. In addition, following the completion of the Separation and REIT Conversion Merger, disputes between New Sun and Sabra could arise in connection with the Distribution Agreement, the Lease Agreements, the Tax Allocation Agreement or the Transition Services Agreement.

New Sun and Sabra may have been able to receive better terms from unaffiliated third parties than the terms they receive in agreements entered into in connection with the Separation.

The agreements to be entered into in connection with the Separation, including the Distribution Agreement, the Lease Agreements, the Tax Allocation Agreement and the Transition Services Agreement, have been negotiated in the context of New Sun’s separation from Sun while New Sun is still a part of Sun. Accordingly, these agreements may not reflect terms that may have been obtained from unaffiliated third parties. Some of the terms of the agreements negotiated in the context of the Separation include the initial cash position of each company, the initial indebtedness to be incurred by each company and the allocation of liabilities, rights, indemnifications and other obligations between the companies. New Sun and Sabra may have received better terms from third parties.

If Sabra and New Sun are treated by the IRS as being under common control, both Sabra and New Sun could experience adverse tax consequences.

If Sabra and New Sun are treated by the IRS as being under common control, the IRS will be authorized to reallocate income and deductions between them to reflect arm’s length terms. Were the IRS successfully to establish that rents paid by New Sun to Sabra are excessive, (a) New Sun would be denied a deduction for the excessive portion and (b) New Sun would be subject to a penalty on the portion deemed excessive, each of which could have a material adverse effect on the business, financial position or results of operations of New Sun. In addition, New Sun stockholders would be deemed to have received a distribution that was then contributed to the capital of Sabra. To the extent that rents were insufficient, Sabra (i) would be subject to a penalty on the portion deemed insufficient and (ii) would be deemed to have made a distribution to its stockholders equal to the insufficiency, each of which could have a material adverse effect on the business, financial position or results of operations of Sabra.

Risks Associated with the Status of Sabra as a REIT

Because the timing of the REIT Conversion is not certain, Sabra may not realize the anticipated tax benefits from the REIT Conversion commencing with its taxable year beginning on January 1, 2011.

If the Separation and REIT Conversion Merger are delayed beyond December 31, 2010, Sabra will not be qualified to elect REIT status for the taxable year beginning on January 1, 2011. In that case, the U.S. federal income tax benefits attributable to its status as a REIT, including its ability to reduce its corporate-level U.S. federal income tax, would not be available for the taxable year beginning on January 1, 2011.

Failure to qualify as a REIT would subject Sabra to U.S. federal income tax, which would reduce the cash available for distribution to stockholders of Sabra.

Although Sabra intends to operate in a manner that will cause it to qualify as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011, no assurance can be given that Sabra will be able to qualify for and maintain REIT status. The U.S. federal income tax laws governing REITs are extremely complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Moreover, the Separation and REIT Conversion Merger may complicate REIT compliance, including the requirement that any earnings and profits accumulated before the qualification of Sabra as a REIT be distributed by the end of the taxable year with respect to which Sabra’s REIT election is made. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT—Non-REIT Earnings and Profits.” Qualifying as a REIT also requires Sabra to meet various tests relating to various matters, including the sources of its gross income, the composition and value of its assets, its distribution levels to stockholders and the diversity of ownership of its shares. While Sabra intends to operate so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in Sabra’s circumstances, no assurance can be given that Sabra will so qualify for any particular taxable year.

If Sabra were to fail to qualify as a REIT in any taxable year, it would not be allowed a deduction for distributions to stockholders in computing its taxable income and would be subject to U.S. federal income tax (including any applicable minimum tax) on its taxable income at corporate tax rates. Sabra’s payment of U.S. federal income tax would decrease the amount of its income available for distribution to its stockholders. If Sabra became disqualified, unless entitled to relief under certain Code provisions, Sabra also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, Sabra’s cash available for distribution would be reduced for each of the years involved. Although Sabra currently is expected to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the board of directors of Sabra to revoke the REIT election. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT.”

Sabra could fail to qualify as a REIT if income it receives from New Sun is not treated as qualifying income, which would subject Sabra to U.S. federal income tax at corporate tax rates.

Under applicable provisions of the Code, Sabra will not be treated as a REIT unless it satisfies various requirements, including requirements relating to the sources of its gross income. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT—Gross Income Tests.” Rents received or accrued by Sabra from New Sun will not be treated as qualifying rent for purposes of these requirements if the Lease Agreements are not respected as true leases for U.S. federal income tax purposes and are instead treated as service contracts, joint ventures or some other type of arrangement. If the Lease Agreements are not respected as true leases for U.S. federal income tax purposes, Sabra likely would fail to qualify as a REIT. In addition, rents received or accrued by Sabra from New Sun will not be treated as qualifying rent for purposes of these requirements if Sabra is treated, either directly or under the applicable attribution rules, as owning 10% or more of New Sun common stock. Sabra will be treated as owning, under the applicable attribution rules, 10% or more of New Sun common stock at any time that a stockholder owns, directly or under the applicable attribution rules, (a) 10% or more of Sabra common stock and (b) 10% or more of New Sun common stock. The provisions of Sabra’s charter restrict the transfer and ownership of its common stock that would cause the rents received or accrued by Sabra from New Sun to be treated as non-qualifying rent for purposes of the REIT gross income requirements. The provisions of Sabra’s charter restricting the transfer and ownership of its common stock are described in “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.” Nevertheless, there can be no assurance that such restrictions will be effective in ensuring that Sabra will not be treated as related to New Sun. If Sabra fails to

qualify as a REIT, Sabra would be subject to U.S. federal income tax (including any applicable minimum tax) on its taxable income at corporate tax rates, which would decrease the amount of cash available for distribution to holders of Sabra common stock.

Failure of Sabra to make required distributions would subject Sabra to tax at corporate tax rates, which would reduce the cash available for distribution to holders of Sabra common stock.

In order to qualify as a REIT, Sabra generally will be required each year to distribute to its stockholders at least 90% of its net taxable income (excluding any net capital gain). In addition, Sabra will be subject to U.S. federal income tax on its undistributed taxable income at corporate tax rates and will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it during (or required to be paid during) any calendar year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year (other than capital gain income which Sabra elects to retain and pay tax on) and (iii) 100% of its undistributed income from prior years.

Sabra will be required to make distributions to its stockholders to comply with the 90% distribution requirement and to avoid the nondeductible excise tax. Sabra’s funds from operations, at least at the inception of Sabra, will be generated primarily by rents paid under the Lease Agreements. Differences in timing between taxable income and funds from operations could require Sabra to borrow funds on a short-term basis to meet the 90% distribution requirement and to avoid the nondeductible excise tax. Restrictions in Sabra’s indebtedness following the Separation and REIT Conversion Merger, including restrictions on Sabra’s ability to incur additional indebtedness or make certain distributions, could preclude it from meeting the 90% distribution requirement. See “Description of Material Indebtedness.” Decreases in funds from operations due to unfinanced expenditures for acquisitions of properties or increases in the number of shares of Sabra common stock outstanding without commensurate increases in funds from operations each would adversely affect the ability of Sabra to maintain distributions to its stockholders. Moreover, the failure of New Sun to make rental payments under the Lease Agreements would materially impair the ability of Sabra to make distributions. Consequently, there can be no assurance that Sabra will be able to make distributions at the anticipated distribution rate or any other rate. See “Distribution and Dividend Policy—Sabra.”

To qualify as a REIT for U.S. federal income tax purposes, Sabra must continually satisfy certain tests, including tests concerning the sources of its income, the nature and diversification of its assets, the amounts it distributes to its stockholders and the ownership of its stock. In order to meet these tests, Sabra may be required to forego investments or acquisitions it might otherwise make. Thus, compliance with the REIT requirements may materially hinder its performance.

If Sabra has significant amounts of non-cash taxable income, Sabra may have to declare taxable stock dividends or make other non-cash distributions, which could cause Sabra’s stockholders to incur tax liabilities in excess of cash received.

Sabra currently intends to pay dividends in cash only, and not in-kind. However, if for any taxable year, Sabra has significant amounts of taxable income in excess of available cash flow, Sabra may have to declare dividends in-kind in order to satisfy the REIT annual distribution requirements. Sabra may distribute a portion of its dividends in the form of its stock or its debt instruments. In either event, a stockholder of Sabra common stock will be required to report dividend income as a result of such distributions even though Sabra distributed no cash or only nominal amounts of cash to such stockholder.

Pursuant to a recent revenue procedure issued by the IRS (Revenue Procedure 2010-12), the IRS has indicated that it will treat distributions from certain publicly traded REITs that are paid part in cash and part in stock

(through 2011) at the election of each stockholder as dividends that would satisfy the REIT annual distribution requirements and qualify for the dividends paid deduction for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT—Annual Distribution Requirements.” If Sabra makes such a distribution, U.S. holders would be required to include the full amount of the dividend (i.e, the cash and stock portion) as ordinary income to the extent of Sabra’s current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. holder may be required to pay income taxes with respect to such dividends in excess of the cash received. If a U.S. holder sells the Sabra stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the stock at the time of the sale. In addition, if a significant number of Sabra stockholders determine to sell shares of Sabra stock in order to pay taxes owed on dividends, these sales may put downward pressure on the trading price of Sabra stock.

Further, because IRS Revenue Procedure 2010-12 only applies through 2011, it is unclear whether and to what extent Sabra will be able to pay taxable dividends in cash and/or stock in later years. Moreover, various tax aspects of a taxable dividend payable in cash and/or stock are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable dividends payable in cash and/or stock, including on a retroactive basis, or assert that the requirements for such taxable dividends have not been met.

Sabra’s charter restricts the transfer and ownership of its stock, which may restrict change of control or business combination opportunities in which Sabra stockholders might receive a premium for their shares.

In order for Sabra to maintain its qualification as a REIT for each taxable year after 2011, no more than 50% of the value of its outstanding stock may be owned, directly or constructively, by five or fewer individuals, as defined in the Code. For the purpose of preserving its REIT qualification, Sabra’s charter will prohibit, subject to certain exceptions, direct, indirect and constructive ownership of more than 9.9% in value or number of shares, whichever is more restrictive, of Sabra’s outstanding common stock or more than 9.9% in value of Sabra’s outstanding stock. See “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock” and “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT—Organizational Requirements.” The constructive ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals to be constructively owned by one individual or entity. The ownership limits may have the effect of discouraging an acquisition of control of Sabra without the approval of its board of directors.

Sabra could be subject to tax on any unrealized net built-in gains in the assets held before electing to be treated as a REIT.

Sabra will own appreciated assets that were held before Sabra elected to be treated as a REIT. If such appreciated property is sold in a taxable transaction within the ten-year period following Sabra’s qualification as a REIT, Sabra will generally be subject to corporate tax on that gain to the extent of the built-in gain in that property at the time Sabra became a REIT. The total amount of gain on which Sabra can be taxed is limited to its net built-in gain at the time it became a REIT, i.e., the excess of the aggregate fair market value of its assets at the time it became a REIT over the adjusted tax bases of those assets at that time. Sabra would be subject to this tax liability even if it qualifies and maintains its status as a REIT. Any recognized built-in gain will retain its character as ordinary income or capital gain and will be taken into account in determining REIT taxable income and Sabra’s distribution requirement. Any tax on the recognized built-in gain will reduce REIT taxable income. Sabra may choose not to sell in a taxable transaction appreciated assets it might otherwise sell during the ten-year period in which the built-in gain tax applies in order to avoid the built-in gain tax. However, there can be no assurances that such a taxable transaction will not occur. If Sabra sells such assets in a taxable transaction, the amount of corporate tax that Sabra will pay will vary depending on the actual amount of net built-in gain or loss present in those assets as of the time Sabra became a REIT. The amount of tax could be significant.

Sabra may be subject to adverse legislative or regulatory tax changes that could reduce the market price of its common stock.

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax law could materially adversely affect Sabra stockholders. Sabra cannot predict with certainty whether, when, in what forms, or with what effective dates, the tax laws applicable to Sabra or its stockholders may be changed. See “U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Legislative or Other Actions Affecting REITs.”

Risks Relating to New Sun’s Business

Like Sun currently, New Sun’s revenues will be heavily dependent on payments administered under the Medicare and Medicaid programs. The economic downturn has caused many states to institute freezes on or reductions in Medicaid reimbursements to address state budget concerns. Moreover, for the 2010 federal fiscal year (commencing October 1, 2009), the Centers for Medicare and Medicaid Services (“CMS”) effectively reduced Medicare reimbursement rates and, for the 2011 federal fiscal year, CMS will be implementing changes to the Resource Utilization Group classification system, which may materially adversely impact New Sun’s Medicare revenues. In addition, the skilled nursing center exception to the statutory cap on Medicare reimbursements for therapy services is scheduled to expire on December 31, 2010. If the skilled nursing center exception is not extended, reimbursement for therapy services rendered to New Sun’s residents and patients will be reduced.

In addition to these reductions, there have been numerous initiatives on the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. Aspects of certain of these initiatives, such as further reductions in funding of the Medicare and Medicaid programs, additional changes in reimbursement regulations by CMS, enhanced pressure to contain healthcare costs by Medicare, Medicaid and other payors, and additional operational requirements, could materially adversely affect New Sun.

Healthcare reform may affect New Sun’s revenues and increase New Sun’s costs and otherwise materially adversely affect New Sun’s business.

New Sun’s revenue and collections may be materially adversely affected by the economic downturn.

In addition to state and federal budgetary actions that will impact the amount of reimbursements that New Sun will receive for services under state and federal programs, a continuation or worsening of the recent economic downturn could result in reduced demand for the staffing services that New Sun will provide through or to other healthcare providers and could impact New Sun’s ability to collect receivables from nongovernmental sources. If economic conditions do not improve or if they worsen, demand could be reduced for New Sun’s therapy and staffing services, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

Delays in collecting or the inability to collect New Sun’s accounts receivable could materially adversely affect New Sun’s cash flows and financial position.

Prompt billing and collection will be important factors in New Sun’s liquidity. Billing and collection of New Sun’s accounts receivable will be subject to the complex regulations that govern Medicare and Medicaid reimbursement and rules imposed by nongovernment payors. New Sun’s inability to bill and collect on a timely basis pursuant to these regulations and rules could subject New Sun to payment delays that could negatively impact New Sun’s cash flows and ultimately New Sun’s financial position in a material manner. In addition, commercial payors and other customers, as well as individual patients, may be unable to make payments to New Sun for which they are responsible. A continuation or worsening of recent unfavorable economic conditions may result in a decrease in New Sun’s ability to collect accounts receivable from some of New Sun’s customers, in which case New Sun will have to make larger allowances for doubtful accounts or incur bad debt write-offs, each of which could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun’s business will be subject to reviews, audits and investigations under federal and state programs and by private payors, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun will be subject to review, audit or investigation by federal and state governmental agencies to verify compliance with the requirements of the Medicare and Medicaid programs and other federal and state programs. Audits under the Medicare and Medicaid programs have intensified in recent years. Private payors also may have a contractual right to review or audit New Sun’s files. Any review, audit or investigation could result in various actions, including New Sun’s paying back amounts that New Sun will have been paid pursuant to these programs, New Sun’s paying fines or penalties, the suspension of New Sun’s ability to collect payment for new residents to a skilled nursing center, exclusion of a skilled nursing center from participation in one or more governmental programs, revocation of a license to operate a skilled nursing center, or loss of a contract with a private payor. Any of these events could have a material adverse effect on New Sun’s business, financial position or results of operations.

Possible changes in the case mix of residents and patients as well as payor mix and payment methodologies could materially affect New Sun’s revenue and profitability.

The sources and amount of New Sun’s revenues will be determined by a number of factors, including the licensed bed capacity and occupancy rates of New Sun’s healthcare centers, the mix of residents and patients and the rates of reimbursement among payors. Likewise, services provided by New Sun’s ancillary businesses will vary based upon payor and payment methodologies. Changes in the case mix of the residents and patients as well as payor mix among private pay, Medicare and Medicaid could materially affect New Sun’s profitability. In particular, any significant decrease in New Sun’s population of high-acuity residents and patients or any significant increase in New Sun’s Medicaid population could have a material adverse effect on New Sun’s business, financial position or results of operations, especially if states operating Medicaid programs continue to limit, or more aggressively seek limits on, reimbursement rates.

Unfavorable resolution of litigation matters and disputes could have a material adverse effect on New Sun’s business, financial position or results of operations.

Skilled nursing center operators, including New Sun’s inpatient services subsidiaries, will from time to time be subject to lawsuits seeking to hold them liable for alleged negligent or other wrongful conduct of employees that allegedly result in injury or death to residents of the centers. Sun currently has numerous patient care lawsuits pending against it, as well as other types of lawsuits, to which New Sun will succeed or become obligated after the Separation. Adverse determinations in legal proceedings, including potential punitive damages, and any adverse publicity arising therefrom could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun will rely primarily on self-funded insurance programs for general and professional liability and workers’ compensation claims against it, and any claims not covered by, or in excess of, New Sun’s insurance coverage limits could have a material adverse effect upon New Sun’s business, financial position or results of operations.

New Sun intends to self-insure for the majority of its insurable risks, including general and professional liabilities, workers’ compensation liabilities and employee health insurance liabilities, through the use of self-insurance or self-funded insurance policies, which vary by the states in which New Sun will operate. New Sun will rely upon self-funded insurance programs for general and professional liability claims up to $5.0 million per claim, which amounts New Sun will be responsible for funding. New Sun intends to maintain excess insurance for claims above this amount. There is a risk that the amounts funded to New Sun’s programs of self-insurance and future cash flows may not be sufficient to respond to all claims asserted under those programs.

There is no assurance that a claim in excess of New Sun’s insurance coverage limits will not arise. A claim against New Sun that is not covered by, or is in excess of, the coverage limits provided by its excess insurance policies could have a material adverse effect upon New Sun’s business, financial position or results of operations. Furthermore, there is no assurance that New Sun will be able to obtain adequate excess liability insurance in the future or that, if such insurance is available, it will be available on acceptable terms.

New Sun’s operations will be extensively regulated and adverse determinations against New Sun could result in severe penalties, including loss of licensure and decertification.

In the ordinary course of its business, New Sun will be subject to a wide variety of federal, state and local laws and regulations and to federal and state regulatory scrutiny and supervision in various areas, including referral of patients, false claims under Medicare and Medicaid, health and safety laws, environmental laws and the protection of health information. Such regulatory scrutiny often includes inquiries, civil and criminal investigations, examinations, audits, site visits and surveys, some of which are non-routine. If it is found to have engaged in improper practices, New Sun could be subject to civil, administrative or criminal fines, penalties or restitutionary relief or corporate settlement agreements with federal, state or local authorities, and reimbursement authorities could also seek New Sun’s suspension or exclusion from participation in their programs. The exclusion of centers from participating in Medicare or Medicaid could have a material adverse effect on New Sun’s business, financial position or results of operations. New Sun cannot predict the future course of any laws or regulations to which New Sun will be subject, including Medicare and Medicaid statutes and regulations, the intensity of federal and state enforcement actions or the extent and size of any potential sanctions, fines or penalties. Changes in existing laws or regulations, or the enactment of new laws or regulations, could result in changes to New Sun’s operations requiring significant capital expenditures or additional operating expenses. Evolving interpretations of existing, new or amended laws and regulations or heightened enforcement efforts could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun’s hospice business will be subject to a cap on the amount paid by Medicare and other Medicare payment limitations, which limitations could materially adversely affect New Sun’s hospice revenues and earnings.

Payments made by Medicare for hospice services are subject to a cap amount on a per hospice basis. New Sun’s ability to comply with this limitation will depend on a number of factors, including the number of admissions, average length of stay, acuity level of New Sun’s patients and patients that transfer into and out of New Sun’s hospice programs. New Sun’s hospice revenue and profitability could be materially reduced if New Sun is unable to comply with this and other Medicare payment limitations.

New Sun’s business is dependent on referral sources, which have no obligation to refer residents and patients to New Sun’s skilled nursing centers, and the failure of New Sun to maintain its existing referral sources, develop new relationships or achieve or maintain a reputation for providing high quality of care could materially adversely affect New Sun.

New Sun will rely on referrals from physicians, hospitals and other healthcare providers to provide its skilled nursing centers with its patient population. These referral sources are not obligated to refer business to New Sun and may refer business to other long-term care providers. After the Separation, if New Sun fails to maintain its existing referral sources, fails to develop new relationships or fails to achieve or maintain a reputation for providing high quality of care, New Sun’s patient population, payor mix, revenue and profitability could be materially adversely affected.

Providers of commercial insurance and other nongovernmental payors are increasingly seeking to control costs, which efforts could materially adversely impact New Sun’s revenues.

Private insurers are seeking to control healthcare costs through direct contracts with healthcare providers, and reviews of the propriety of, and charges for, services provided. These private payors are increasingly demanding discounted fee structures. These cost control efforts could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun will face national, regional and local competition, which could materially limit New Sun’s ability to attract and retain residents or to expand New Sun’s business.

The healthcare industry is highly competitive and subject to continual changes in the methods by which services are provided and the types of companies providing services. New Sun’s nursing and rehabilitation centers will compete primarily on a local and regional basis with many long-term care providers, some of whom may own as few as a single nursing center. New Sun’s ability to compete successfully will vary from location to location depending on a number of factors, including the number of competing centers in the local market, the types of services available, quality of care, reputation, age and appearance of each center and the cost of care in each locality. Increased competition in the future could limit New Sun’s ability to attract and retain residents or to expand New Sun’s business.

State efforts to regulate the construction or expansion of healthcare providers could impair New Sun’s ability to expand its operations or make acquisitions.

Some states require healthcare providers (including skilled nursing centers, hospices and assisted living centers) to obtain prior approval, in the form of a certificate of need (a “CON”), for the purchase, construction or expansion of healthcare centers, capital expenditures exceeding a prescribed amount or changes in services or bed capacity. To the extent that New Sun is unable to obtain any required CON or other similar approvals, New Sun’s expansion could be materially adversely affected. New Sun cannot make any assurances that it will be able to obtain a CON or other similar approval for any future projects requiring this approval.

New Sun may be unable to reduce costs to offset completely any decreases in its revenues.

Reduced levels of occupancy in New Sun’s healthcare centers or reductions in reimbursements from Medicare and Medicaid could materially adversely impact New Sun’s cash flow and revenues. Fluctuations in New Sun’s occupancy levels may become more common as New Sun increases its emphasis on patients with shorter stays but higher acuities. If New Sun is unable to put in place corresponding adjustments in costs in response to declines in census or other revenue shortfalls, New Sun would be unable to prevent future decreases in earnings. New Sun’s centers will be able to reduce some of their costs as occupancy decreases, although the decrease in costs will in most cases be less than the decrease in revenues. However, New Sun’s centers will not be able to reduce their costs of providing care to offset a decrease in reimbursement revenues from federal and state programs.

New Sun may be materially adversely affected by an industry-wide shortage of qualified center care-provider personnel and increasing labor costs.

New Sun, like other providers in the long-term care industry, may have difficulties in retaining qualified personnel to staff its healthcare centers, particularly nurses, and in such situations New Sun may be required to use temporary employment agencies to provide additional personnel. The labor costs are generally higher for temporary employees than for full-time employees. In addition, many states in which New Sun will operate have increased minimum staffing standards. As minimum staffing standards are increased, New Sun may be required to retain additional staffing. In addition, New Sun may experience increases in its labor costs primarily due to higher wages and greater benefits required to attract and retain qualified personnel and to increase staffing levels in its centers.

A similar situation exists in the rehabilitation therapy industry. New Sun, like other providers in the long-term care industry, may have difficulties in hiring a sufficient number of rehabilitation therapists. Under these circumstances, New Sun, like others in this industry, may be required to offer higher compensation to attract and retain these personnel, and New Sun may be forced to rely on independent contractors, at higher costs, to fulfill its contractual commitments with its customers. Contractual commitments, regulatory limitations and the market for these services may make it difficult for New Sun to pass through these increased costs to its customers.

If New Sun is unable to meet minimum staffing standards, New Sun may be subject to fines or other sanctions and increased costs, which could materially adversely affect its profitability.

Increased attention to the quality of care provided in skilled nursing centers has caused several states to mandate, and other states to consider mandating, minimum staffing laws that require minimum nursing hours of direct care per resident per day. These minimum staffing requirements further increase the gap between demand for and supply of qualified professionals, and lead to higher labor costs. Failure to comply with minimum staffing requirements can result in fines and requirements that New Sun provide a plan of correction.

New Sun’s ability to satisfy minimum staffing requirements depends upon New Sun’s ability to attract and retain qualified healthcare professionals, including nurses, certified nurse’s assistants and other personnel. Attracting and retaining these personnel is difficult, given existing shortages of these employees in the labor markets in which New Sun will operate. Furthermore, if states do not appropriate additional funds (through Medicaid program appropriations or otherwise) sufficient to pay for any additional operating costs resulting from minimum staffing requirements, New Sun’s profitability could be materially adversely affected.

If New Sun loses its key management personnel, New Sun may not be able to successfully manage its business and achieve its objectives, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun’s success will depend in large part upon the leadership and performance of New Sun’s executive management team, particularly William A. Mathies, New Sun’s chief executive officer, L. Bryan Shaul, New Sun’s chief financial officer, and key employees at the operating level. If New Sun loses the services of any of its executive officers or any of its key employees at the operating or regional level, New Sun may not be able to replace them with similarly qualified personnel, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun could be materially adversely affected by its level of indebtedness.

Sun’s assets (other than assets securing mortgage indebtedness). The actual amount of indebtedness to be incurred will decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, will increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010. In addition, following the Separation, New Sun will have mortgage indebtedness to third parties of approximately $4.3 million on certain of the New Sun Retained Properties based on the outstanding principal amount of such indebtedness at June 30, 2010. The level of New Sun’s indebtedness could have adverse consequences to New Sun, such as requiring it to dedicate a substantial portion of its cash flows from operations to payments on its debt, limiting its ability to fund, and potentially increasing the cost of funding, working capital, capital expenditures, acquisitions and other general corporate requirements and making New Sun more vulnerable to general adverse economic and industry conditions. If New Sun fails to comply with the payment requirements or financial covenants contained in its debt agreements, it would be required to seek waivers from its lenders. Seeking these waivers may be difficult or expensive to obtain and, if New Sun fails to obtain any necessary waivers, the resulting default would allow the lenders to accelerate the maturity of the indebtedness, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

An increase in market interest rates could increase New Sun’s interest costs on existing and future debt and could adversely affect its stock price.

If interest rates increase, so could New Sun’s interest costs for any new debt. This increased cost could make the financing of any acquisition more costly. New Sun may incur more variable interest rate indebtedness in the future. Rising interest rates could limit New Sun’s ability to refinance existing debt when it matures, or cause New Sun to pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness.

Covenants in New Sun’s debt agreements may limit its operational flexibility, and a covenant breach could materially adversely affect its business, financial position or results of operations.

The agreements governing New Sun’s indebtedness are expected to contain customary covenants that will include restrictions on New Sun’s ability to make acquisitions and other investments, pay dividends, incur additional indebtedness and make capital expenditures. These restrictions may limit New Sun’s operational flexibility or require New Sun to approach its lenders for consent to allow New Sun to implement its business plans. Such a consent could be difficult or expensive to obtain. New Sun’s failure to comply with such restrictions and other covenants could materially adversely affect New Sun’s business, financial position or results of operations or New Sun’s ability to incur additional indebtedness or refinance existing indebtedness.

New Sun intends to seek acquisitions and other strategic opportunities, which may result in the use of a significant amount of management resources or significant costs, and New Sun may not be able to fully realize the potential benefit of such transactions.

New Sun intends to seek acquisitions and other strategic opportunities. Accordingly, it may often be engaged in evaluating potential transactions and other strategic alternatives. In addition, from time to time, it may engage in discussions that may result in one or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, New Sun may devote a significant amount of its management resources to such a transaction, which could negatively impact its operations. In addition, New Sun may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed and in combining its operations if such a transaction is completed. In the event that New Sun consummates an acquisition or strategic alternative in the future, there is no assurance that it would fully realize the potential benefit of such a transaction.

New Sun does not expect to pay any dividends for the foreseeable future, which will affect the extent to which New Sun’s investors realize any future gains on their investment.

It is anticipated that New Sun will be prohibited by the terms of its debt agreements from paying dividends to holders of its common stock, and New Sun does not anticipate that it will pay any dividends to holders of its common stock in the foreseeable future. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Delaware law and provisions in New Sun’s certificate of incorporation and bylaws may delay or prevent takeover attempts by third parties and therefore inhibit New Sun’s stockholders from realizing a premium on their stock.

New Sun will be subject to the anti-takeover provisions of Section 203 of the DGCL. This section prevents any stockholder who owns 15% or more of New Sun’s outstanding common stock from engaging in certain business combinations with New Sun for a period of three years following the time that the stockholder acquired such stock ownership unless certain approvals were or are obtained from New Sun’s board of directors or the holders of 66²/3% of New Sun’s outstanding common stock (excluding the shares of New Sun common stock owned by the 15% or more stockholder). New Sun’s certificate of incorporation and bylaws also contain several other provisions that may make it more difficult for a third party to acquire control of New Sun without the approval of New Sun’s board of directors. These provisions include (i) advance notice for raising business or making director nominations at meetings, (ii) an affirmative vote of the holders of 66²/3% of New Sun’s outstanding common stock for stockholders to remove directors or amend New Sun’s bylaws or certain provisions of New Sun’s certificate of incorporation and (iii) the ability to issue “blank check” preferred stock, which New Sun’s board of directors, without stockholder approval, can designate and issue with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities. The issuance of blank check preferred stock may adversely affect the voting and other rights of the holders of shares of New Sun common stock as New Sun’s board of directors may designate and issue preferred stock with terms that are senior to shares of New Sun common stock.

New Sun’s board of directors can use these and other provisions to discourage, delay or prevent a change in the control of New Sun or a change in New Sun’s management. Any delay or prevention of a change of control transaction or a change in New Sun’s board of directors or management could deter potential acquirors or prevent the completion of a transaction in which New Sun’s stockholders could receive a substantial premium over the then current market price for their shares. These provisions could also limit the price that investors might be willing to pay for shares of New Sun common stock.

New Sun will lease substantially all of its centers and could experience risks relating to lease termination, lease extensions, and special charges, which could have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun faces risks because of the number of centers that its subsidiaries will lease, including the 87 centers that they will lease from Sabra under the Lease Agreements. Each of these lease agreements, including the Lease Agreements, provides that the lessor may terminate the lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of any of the lease agreements, including the Lease Agreements, could result in a default under New Sun’s debt agreements and could have a material adverse effect on New Sun’s business, financial position or results of operations. Although New Sun believes that its subsidiaries will be able to renew their lease agreements, including the Lease Agreements, that they wish to extend, there is no assurance that they will succeed in obtaining extensions in the future at rental rates and other terms that New Sun believes to be reasonable, or at all. Moreover, if some centers should prove to be unprofitable, New Sun and the subsidiary lessees could remain obligated for lease payments even if they decided to withdraw from those locations. New Sun could incur special charges relating to the closing of such centers

including lease termination costs, impairment charges and other special charges that would reduce New Sun’s profits and could have a material adverse effect on New Sun’s business, financial position or results of operations.

Natural disasters and other adverse events may harm New Sun’s centers and residents.

New Sun’s centers and residents may suffer harm as a result of natural or other causes, such as storms, earthquakes, floods, fires and other conditions. Such events can disrupt New Sun’s operations, negatively affect New Sun’s revenues, and increase New Sun’s costs or result in a future impairment charge. For example, nine of New Sun’s healthcare centers will be in Florida, which is prone to hurricanes, and 16 of New Sun’s healthcare centers and New Sun’s executive offices will be in California, which is prone to earthquakes.

Environmental compliance costs and liabilities associated with New Sun’s centers may have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun will be subject to various federal, state and local environmental and health and safety laws and regulations with respect to its centers. These laws and regulations address various matters, including asbestos, fuel oil management, wastewater discharges, air emissions, medical wastes and hazardous wastes. The costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. For example, as an operator of a center, New Sun may be held liable for costs relating to the investigation and clean up of any property from which there has been a release or threatened release of a regulated material. In addition to these costs, which are typically not limited by law or regulation, New Sun could be liable for certain other costs, including governmental fines and injuries to persons, other property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Such environmental compliance costs and liabilities may have a material adverse effect on New Sun’s business, financial position or results of operations.

New Sun’s ability to use Sun’s net operating losses (“NOLs”) and other tax attributes to offset future taxable income could be limited by an ownership change and/or decisions by California and other states to suspend the use of NOLs.

Sun has significant NOLs, tax credits and amortizable goodwill available to offset its future U.S. federal and state taxable income. New Sun’s ability to utilize these NOLs and other tax attributes may be subject to significant limitations under Section 382 of the Code (and applicable state law) after the Separation if New Sun undergoes an ownership change. New Sun will inherit only a portion of these NOLs as a result of the Separation. An ownership change occurs for purposes of Section 382 of the Code if certain events occur, including 5% stockholders (i.e., stockholders who own or have owned 5% or more of New Sun stock (with certain groups of less-than-5% stockholders treated as single stockholders for this purpose)) increasing their aggregate percentage ownership of New Sun stock by more than fifty percentage points above the lowest percentage of the stock owned by these stockholders at any time during the relevant testing period. An issuance of shares of New Sun common stock in connection with acquisitions or for any other reason can contribute to or result in an ownership change under Section 382. Stock ownership for purposes of Section 382 of the Code is determined under a complex set of attribution rules, so that a person is treated as owning stock directly, indirectly (i.e., through certain entities) and constructively (through certain related persons and certain unrelated persons acting as a group). In the event of an ownership change, Section 382 imposes an annual limitation (based upon New Sun’s value at the time of the ownership change, as determined under Section 382 of the Code) on the amount of taxable income and tax liabilities a corporation may offset with NOLs and other tax attributes, such as tax credit carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL and tax credit carryforwards. As a result, New Sun’s inability to utilize these NOLs or credits as a result of any ownership changes could materially adversely impact New Sun’s business, financial position or results of operations.

In addition, California and certain states have suspended use of NOLs for certain taxable years, and other states are considering similar measures. As a result, New Sun may incur higher state income tax expense in the future. Depending on New Sun’s future tax position, continued suspension of New Sun’s ability to use NOLs in states in which New Sun is subject to income tax could have a material adverse impact on New Sun’s business, financial position or results of operations.

Failure to maintain effective internal control over financial reporting could have a material adverse effect on New Sun’s ability to report its financial results on a timely and accurate basis.

New Sun will be required to maintain internal control over financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Failure to maintain such controls could result in misstatements in New Sun’s financial statements and potentially subject New Sun to sanctions or investigations by the SEC or other regulatory authorities or could cause New Sun to delay the filing of required reports with the SEC and New Sun’s reporting of financial results. Any of these events could result in a decline in the price of shares of New Sun common stock.

Risks Relating to Sabra’s Business

Sabra will be dependent on New Sun until it substantially diversifies its portfolio, and an event that has a material adverse effect on New Sun’s business, financial position or results of operations could have a material adverse effect on Sabra’s business, financial position or results of operations.

Immediately following the Separation, subsidiaries of New Sun will be the lessees of all of Sabra’s properties (with New Sun guaranteeing the obligations under the leases) and, therefore, the sole source of Sabra’s revenues. There can be no assurance that New Sun and its subsidiaries will have sufficient assets, income and access to financing to enable them to satisfy their payment obligations under the Lease Agreements. The inability of New Sun and its subsidiaries to meet their rent obligations could materially adversely affect Sabra’s business, financial position or results of operations including its ability to pay dividends to its stockholders as required to maintain its status as a REIT. The inability of New Sun and its subsidiaries to satisfy their other obligations under the Lease Agreements such as the payment of taxes, insurance and utilities could have a material adverse effect on the condition of the leased properties as well as on the business, financial position and results of operations of Sabra. For these reasons, if New Sun were to experience a material adverse effect on its business, financial position or results of operations, Sabra’s business, financial position or results of operations could also be materially adversely affected.

Due to Sabra’s dependence on rental payments from New Sun and its subsidiaries as its primary source of revenues, Sabra may be limited in its ability to enforce its rights under the Lease Agreements or to terminate a lease thereunder. Failure by New Sun and its subsidiaries to comply with the terms of the Lease Agreements or to comply with the healthcare regulations to which the leased properties are subject could require Sabra to find another lessee for such leased property and there could be a decrease or cessation of rental payments by New Sun and its subsidiaries. In such event, Sabra may be unable to locate a suitable lessee at similar rental rates or at all, which would have the effect of reducing Sabra’s rental revenues.

Sabra may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as a separate publicly traded company focused on owning a portfolio of healthcare properties.

Sabra has no historical operations and may not at the time of the Separation and REIT Conversion Merger have the infrastructure necessary to operate as a separate publicly traded company. Upon the completion of the Separation and REIT Conversion Merger, New Sun will be obligated to provide certain transition services as set forth under the Transition Services Agreement to allow Sabra time, if necessary, to build the infrastructure necessary to operate as a separate publicly traded company. Following the expiration of the Transition Services Agreement, New Sun will be under no obligation to provide further assistance to Sabra. Because Sabra’s

business has not been operated as a separate publicly traded company, Sabra cannot assure you that it will be able to successfully implement the infrastructure necessary to operate as a separate publicly traded company or that Sabra will not incur costs in excess of anticipated costs to establish such infrastructure.

Failure to maintain effective internal control over financial reporting could have a material adverse effect on Sabra’s ability to report its financial results on a timely and accurate basis.

Sabra will be required to maintain internal control over financial reporting pursuant to Rule 13a-15 under the Exchange Act. Failure to maintain such controls could result in misstatements in Sabra’s financial statements and potentially subject Sabra to sanctions or investigations by SEC or other regulatory authorities or could cause Sabra to delay the filing of required reports with the SEC and Sabra’s reporting of financial results. Any of these events could result in a decline in the price of shares of Sabra common stock.

Sabra’s management has limited experience operating a REIT and there is no assurance that its management team’s past experience with the acquisition, development and disposition of healthcare facilities will be sufficient to manage successfully Sabra’s business as a REIT.

The requirements for qualifying as a REIT are highly technical and complex. Neither Sun nor Sabra has ever operated as a REIT, and Sabra’s management has limited experience in complying with the income, asset and other limitations imposed by the REIT provisions of the Code. Those provisions are complex and the failure to comply with those provisions in a timely manner could prevent Sabra from qualifying as a REIT or could force Sabra to pay unexpected taxes and penalties. In such event, Sabra’s net income would be reduced and Sabra could incur a loss, which could materially harm its business, financial position or results of operations. In addition, while Sabra’s management has significant experience with the acquisition, development and disposition of healthcare facilities for Sun, there is no assurance that this past experience will be sufficient to enable them to successfully manage Sabra’s portfolio of properties as required by its business plan or the REIT provisions of the Code.

The continued volatility in the financial markets may impair Sabra’s ability to raise capital, refinance existing obligations or acquire healthcare properties, each of which may materially adversely impact its business, financial position or results of operations.

The global financial markets have undergone and may continue to experience pervasive and fundamental disruptions. In order to achieve its growth and diversification objectives, Sabra will need to raise capital. The continuation of volatility in the global financial markets could have a material adverse effect on Sabra’s ability to do so. The capital markets have experienced and may continue to experience significant events, including extreme pricing volatility, dislocations and liquidity disruptions, all of which may contribute further to downward pressure on stock prices, widening credit spreads on prospective debt financing and declines in the market values of U.S. and foreign stock exchanges. The sustainability of an economic recovery is uncertain and additional levels of market disruption and volatility could impact Sabra’s ability to obtain new financing or refinance its existing obligations as they mature.

Sabra’s level of indebtedness could materially adversely affect its financial position in many ways, including reducing funds available for other business purposes and reducing its operational flexibility.

Based on Sun’s cash position as of June 30, 2010, and after giving effect to the use by Sun of the $224.8 million of net proceeds from Sun’s August 2010 equity offering to repay a portion of the outstanding term loans under Sun’s existing credit facility, Sun currently anticipates that Sabra will incur approximately $197.5 million of indebtedness prior to completion of the Separation that potentially will be secured by substantially all of Sabra’s assets (other than assets securing mortgage indebtedness). The actual amount of indebtedness to be incurred could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements

are entered into is less than Sun’s cash position as of June 30, 2010. In addition, following the Separation, Sabra will have mortgage indebtedness to third parties of approximately $150.0 million ($162.5 million after giving effect to a mortgage refinancing completed by Sun in August 2010) on certain of the 87 properties to be owned by subsidiaries of Sabra following completion of the Separation based on the outstanding principal amount of such indebtedness at June 30, 2010. Although it is anticipated that Sabra’s debt agreements will restrict the amount of its indebtedness, Sabra may incur additional indebtedness in the future to refinance mortgages on its properties or to finance newly-acquired properties. Any significant additional indebtedness could require a substantial portion of Sabra’s cash flow to make interest and principal payments due on its indebtedness. Greater demands on its cash resources may reduce funds available to Sabra to pay dividends, make capital expenditures and acquisitions, or carry out other aspects of its business strategy. Increased indebtedness can also limit its ability to adjust rapidly to changing market conditions, make Sabra more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for it compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit Sabra’s operational flexibility, including its ability to acquire properties, finance or refinance its properties, contribute properties to joint ventures or sell properties as needed.

Covenants in Sabra’s debt agreements may limit its operational flexibility, and a covenant breach or default could materially adversely affect its business, financial position or results of operations.

The agreements governing Sabra’s indebtedness are expected to contain customary covenants, including restrictions on Sabra’s ability to make acquisitions and other investments, pay dividends, incur additional indebtedness and make capital expenditures. These restrictions may limit Sabra’s operational flexibility. For example, mortgages on its properties contain customary covenants such as those that restrict its ability, without the consent of the lender, to further encumber or sell the applicable properties or replace the applicable tenant. Such consent could be difficult or expensive to obtain. Breaches of certain covenants may result in defaults under the mortgages on Sabra’s properties and cross-defaults under certain of its other indebtedness, even if Sabra satisfies its payment obligations to the respective obligee. In addition, defaults under the Lease Agreements, including defaults associated with the bankruptcy of the applicable tenant, may result in a default under the underlying mortgage and cross-defaults under certain of Sabra’s other indebtedness. Covenants that limit Sabra’s operational flexibility as well as defaults under its debt instruments could have a material adverse effect on Sabra’s business, financial position or results of operations.

An increase in market interest rates could increase Sabra’s interest costs on existing and future debt and could adversely affect its stock price.

If interest rates increase, so could Sabra’s interest costs for any new debt. This increased cost could make the financing of any acquisition more costly. Rising interest rates could limit Sabra’s ability to refinance existing debt when it matures or cause Sabra to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for Sabra’s assets, thereby limiting Sabra’s ability to reposition its portfolio promptly in response to changes in economic or other conditions.

Further, the dividend yield on Sabra common stock, as a percentage of the price of such common stock, influences the price of such common stock. Thus, an increase in market interest rates may lead prospective purchasers of Sabra common stock to expect a higher dividend yield, which would adversely affect the market price of Sabra common stock.

Sabra intends to pursue acquisitions of additional healthcare properties, which may result in the use of a significant amount of management resources or the incurrence of significant costs and Sabra may not be able to fully realize the potential benefit of such transactions.

Sabra intends to pursue acquisitions of additional healthcare properties. Accordingly, it may often be engaged in evaluating potential transactions and other strategic alternatives. In addition, from time to time, Sabra may

engage in discussions that may result in one or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, Sabra may devote a significant amount of its management resources to such a transaction, which could negatively impact its operations. In addition, Sabra may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed and in combining its operations if such a transaction is completed. In the event that Sabra consummates an acquisition or strategic alternative in the future, there can be no assurance that the potential benefit of such a transaction will be fully realized.

The fact that Sabra must distribute 90% of its net taxable income in order to maintain its qualification as a REIT may limit Sabra’s ability to rely upon rental payments from its leased properties or subsequently acquired properties to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be curtailed.

Required regulatory approvals can delay or prohibit transfers of Sabra’s healthcare properties, which could result in periods in which Sabra is unable to receive rent for such properties.

Sabra’s tenants will be operators of skilled nursing and other healthcare facilities, which operators must be licensed under applicable state law and, depending upon the type of facility, certified or approved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under CON laws (which certifies that the state has made a determination that a need exists for the beds located on the property) and, if applicable, Medicare and Medicaid provider approvals. In the event that an existing lease is terminated or expires and a new tenant is found, then any delays in the new tenant receiving regulatory approvals from the applicable federal, state or local government agencies, or the inability to receive such approvals, may prolong the period during which Sabra is unable to collect the applicable rent.

Sabra is dependent on the healthcare industry and may be susceptible to the risks associated with healthcare reform, which could materially adversely affect its business, financial position or results of operations.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law. Together, these two measures make the most sweeping and fundamental changes to the U.S. health care system since the creation of Medicare and Medicaid. These new laws include a large number of health-related provisions that are scheduled to take effect over the next four years, including expanding Medicaid eligibility, requiring most individuals to have health insurance, establishing new regulations on health plans, establishing health insurance exchanges, and modifying certain payment systems to encourage more cost-effective care and a reduction of inefficiencies and waste, including through new tools to address fraud and abuse. Because all of Sabra’s properties will be used as healthcare properties, Sabra will be impacted by the risks associated with the healthcare industry, including healthcare reform. While the expansion of healthcare coverage may result in some additional demand for services provided by New Sun and other tenants, reimbursement may be lower than the cost required to provide such services, which could materially adversely affect the ability of New Sun and other tenants to generate profits and pay rent under their lease agreements with Sabra and thereby could materially adversely affect Sabra’s business, financial position or results of operations.

Sabra may not be able to sell properties when it desires because real estate investments are relatively illiquid, which could have a material adverse effect on its business, financial position or results of operations.

Real estate investments generally cannot be sold quickly. In addition, some and potentially substantially all of Sabra’s properties will serve as collateral for its secured debt obligations and cannot be readily sold unless the underlying mortgage indebtedness is concurrently repaid. Sabra may not be able to vary its portfolio promptly in

response to changes in the real estate market. A downturn in the real estate market could materially adversely affect the value of Sabra’s properties and its ability to sell such properties for acceptable prices or other terms. Sabra also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or portfolio of properties. These factors and any others that would impede Sabra’s ability to respond to adverse changes in the performance of its properties could have a material adverse effect on the business, financial position or results of operations of Sabra.

Real estate is a competitive business and this competition may make it difficult for Sabra to identify and purchase suitable healthcare properties.

Sabra will operate in a highly competitive industry and face competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders and other institutional investors, some of whom are significantly larger and have greater resources and lower costs of capital than Sabra. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet Sabra’s investment objectives. If Sabra cannot identify and purchase a sufficient quantity of healthcare properties at favorable prices or if it is unable to finance acquisitions on commercially favorable terms, its business, financial position or results of operations could be materially adversely affected.

If Sabra loses its key management personnel, it may not be able to successfully manage its business and achieve its objectives.

Sabra’s success depends in large part upon the leadership and performance of its executive management team, particularly Richard K. Matros, its chief executive officer. If Sabra loses the services of Mr. Matros, Sabra may not be able to successfully manage its business or achieve its business objectives.

Sabra will have a limited number of employees and, accordingly, the loss of any of its employees could harm Sabra’s operations.

Following the Separation and REIT Conversion Merger, Sabra expects to employ six to ten full-time employees, including its executive officers. Accordingly, the impact Sabra may feel from the loss of one of its full-time employees may be greater than the impact such a loss would have on a larger organization. While it is anticipated that Sabra could find replacements for its personnel, the loss of their services could harm Sabra’s operations, at least in the short term.

Sabra may experience uninsured or underinsured losses, which could result in a significant loss of the capital it has invested in a property, decrease anticipated future revenues or cause it to incur unanticipated expense.

While the Lease Agreements will require, and new lease agreements are expected to require, that comprehensive insurance and hazard insurance be maintained by the tenants, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, that may be uninsurable or not economically insurable. Insurance coverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such property.

Environmental compliance costs and liabilities associated with real estate properties owned by Sabra may materially impair the value of those investments.

As an owner of real property, Sabra or its subsidiaries will be subject to various federal, state and local environmental and health and safety laws and regulations. Although Sabra will not operate or manage its

properties, it or its subsidiaries may be held primarily or jointly and severally liable for costs relating to the investigation and clean up of any property from which there has been a release or threatened release of a regulated material as well as other affected properties, regardless of whether Sabra knew of or caused the release. In addition to these costs, which are typically not limited by law or regulation and could exceed the property’s value, Sabra could be liable for certain other costs, including governmental fines and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.

Although Sabra intends to require its operators and tenants to undertake to indemnify it for environmental liabilities they cause, such liabilities could exceed the amount of the financial ability of the tenant or operator to indemnify Sabra or the value of the contaminated property. The presence of contamination or the failure to remediate contamination may adversely affect Sabra’s ability to sell or lease the real estate or to borrow using the real estate as collateral.

An ownership limit and certain anti-takeover defenses could inhibit a change of control of Sabra or reduce the value of its stock.

Upon completion of the REIT Conversion Merger, certain provisions of the MGCL and of Sabra’s charter and bylaws may have an anti-takeover effect. The following provisions of Maryland law and these governing documents could have the effect of making it more difficult for a third party to acquire control of Sabra, including certain acquisitions that Sabra’s stockholders may deem to be in their best interests:

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the charter contains transfer and ownership restrictions on the percentage by number and value of outstanding shares of Sabra stock that may be owned or acquired by any stockholder;

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the charter permits the issuance of one or more classes or series of preferred stock with rights and preferences to be determined by the board of directors and permits the board of directors of Sabra, without stockholder action, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that Sabra has authority to issue;

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“business combination” provisions of Maryland law, subject to certain limitations, impose a moratorium on business combinations with “interested stockholders” or affiliates thereof for five years and thereafter impose additional requirements on such business combinations;

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the bylaws require advance notice of stockholder proposals and director nominations; and

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the bylaws may only be amended by the board of directors of Sabra.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference herein contain forward-looking statements and information. 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 the expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, budgets, the impact of reductions in reimbursements and other changes in government reimbursement programs, the timing and impact of the Separation and REIT Conversion, the expected amounts and timing of dividends and distributions, the expected or intended tax treatment for the Separation and REIT Conversion and transactions related thereto, the outcome and costs of litigation, projected expenses and capital expenditures, competitive position, growth opportunities and potential acquisitions, plans and objectives of management 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.

You are cautioned that any forward-looking statements made in this proxy statement/prospectus or the documents incorporated by reference herein are not guarantees of future performance and that you should not place undue reliance on any of such forward-looking statements. The forward-looking statements are based on the information currently available and are applicable only as of the date on the cover of this proxy statement/prospectus or, in the case of forward-looking statements incorporated by reference, as of the date of the filing that includes the forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. You should carefully consider the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including those set forth under the heading “Risk Factors” and those described in Sun’s filings with the SEC, including Sun’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and Sun’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31 and June 30, 2010. None of Sun, New Sun or Sabra intend, nor do they undertake any obligation, to update the forward-looking statements to reflect future events or circumstances.

INFORMATION ABOUT THE SPECIAL MEETING OF SUN STOCKHOLDERS

This proxy statement/prospectus is being furnished to you in connection with the solicitation of proxies by Sun’s board of directors for use at the special meeting for the purposes described in this proxy statement/prospectus and in the accompanying notice of special meeting of stockholders.

Date, Time and Place of the Special Meeting

The special meeting will be held on , 2010 at at a.m., local time, and at any adjournment or postponement thereof.

Purpose of the Special Meeting

At the special meeting, you will be asked to consider and vote on the following proposals:

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a proposal to approve the Separation (Proposal No. 1);

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a proposal to adopt the agreement and plan of merger by and between Sun and Sabra to implement the REIT Conversion Merger (Proposal No. 2);

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such other business as may properly come before the special meeting or any postponement or adjournment thereof.

Recommendation of the Board of Directors of Sun

The board of directors of Sun has unanimously approved the Separation and REIT Conversion, including the agreement and plan of merger to implement the REIT Conversion Merger, and has determined that these actions are advisable and in the bests interests of Sun and its stockholders. Sun’s board of directors unanimously recommends that Sun stockholders vote “FOR” Proposal No. 1 to approve the Separation, “FOR” Proposal No. 2 to adopt the agreement and plan of merger to implement the REIT Conversion Merger and “FOR” Proposal No. 3 to approve adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation or adopt the agreement and plan of merger.

Vote Required

The Separation. The affirmative vote of a majority of outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation. If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation. Stockholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation—Conditions to the Separation.” Sun will not complete the Separation and REIT Conversion Merger as contemplated in this proxy statement/prospectus if Sun’s stockholders do not approve the Separation at the special meeting. However, if stockholder approval is not obtained, Sun reserves the right to consider, and implement without stockholder approval if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.

Adjournment of the Special Meeting. The affirmative vote of a majority of outstanding shares of Sun common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger. If you “ABSTAIN” from voting on the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.

Record Date; Shares Entitled to Vote; Quorum

Only stockholders of record at the close of business on , 2010, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting. At the close of business on the record date for the special meeting, shares of Sun common stock were outstanding and entitled to vote. The holders of a majority in voting power of the outstanding shares of Sun common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting and any adjournments or postponements thereof.

If your shares are held in “street name” by a bank, broker or other nominee, you should follow the directions provided to you to have your shares voted at the special meeting. If you do not instruct your broker, your broker will generally not have the discretion to vote your shares without your instructions on matters that are not considered routine. Sun believes that the Separation proposal, the REIT Conversion Merger proposal and the proposal to adjourn the special meeting are each considered not to be routine matters. Therefore, your broker cannot vote shares of Sun common stock that it holds in “street name” on any of the proposals unless you return the voting instruction form you received from your broker. Accordingly, Sun does not believe that there will be any broker non-votes occurring in connection with any of the proposals at the special meeting. Please note, however, that if you properly return the voting instruction form to your broker but do not indicate how you want your shares to be voted, Sun believes your shares generally will be voted “FOR” all of the proposals listed in the notice for the special meeting.

Other Matters

As of the date of this proxy statement/prospectus, the board of directors of Sun is not aware of any business to be acted upon at the special meeting of Sun stockholders other than as described in this proxy statement/prospectus. If any other matters should properly come before the special meeting, or any adjournment or postponement thereof, the persons named in the proxy will have discretion to vote on such other matters in accordance with their best judgment.

To Attend the Special Meeting of Sun Stockholders

Only stockholders as of the close of business on the record date for the special meeting, authorized proxy holders and Sun’s guests may attend the special meeting. Your name will be verified against the list of stockholders of record on the record date for the special meeting prior to your being admitted to the special meeting. If you are not a stockholder of record but hold shares in “street name” through a bank, broker or other nominee, you should provide proof of beneficial ownership on the record date for the special meeting, such as your most recent account statement, a copy of the voting instruction card provided by your bank, broker or nominee, or other similar evidence of ownership. If you do not comply with the procedures outlined above, you will not be admitted to the special meeting.

If you attend the special meeting in person, you will be permitted to vote your shares in person rather than signing and returning your proxy card or providing other proxy or voting instructions. Please note, however, that if your shares are held in “street name,” you may not vote your shares in person at the special meeting unless you receive a “legal proxy” from your bank, broker or other nominee giving you the right to vote the shares at the special meeting.

Communications by Sun Stockholders with Sun

Any written revocation of a proxy or other communications in connection with this proxy statement/prospectus and any requests for additional copies of this proxy statement/prospectus or the proxy card should be addressed to Sun Healthcare Group, Inc., 101 Sun Avenue, N.E., Albuquerque, New Mexico 87109, Attention: Investor Relations. If you have any questions or need further assistance in voting your shares of Sun common stock, please call Sun at (505) 468-2341 or Sun’s proxy solicitation agent, Innisfree M&A, at (212) 750-5833.

Your vote is important. Please sign, date and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly.

THE PROPOSALS

Overview of the Separation and REIT Conversion

Pursuant to the restructuring plan approved by the board of directors of Sun to separate Sun’s real estate assets and its operating assets into two publicly traded companies, Sun will reorganize, through a series of internal corporate restructurings. After the restructuring, subsidiaries of Sabra will hold all of Sun’s owned real property (other than the New Sun Retained Properties). Sabra will assume the liabilities of Sun, including mortgage indebtedness to third parties, that are related to the real property to be owned by subsidiaries of Sabra. All of Sun’s operations and other assets and liabilities will be held or assumed by New Sun or by one or more of its subsidiaries. In connection with the Separation, New Sun and Sabra will enter into certain agreements, including the Lease Agreements pursuant to which subsidiaries of New Sun will lease from subsidiaries of Sabra all of the real property that Sabra’s subsidiaries will own immediately following the restructuring of Sun’s business (representing 87 of the 203 properties that Sun’s subsidiaries operated as of July 1, 2010).

Upon satisfaction or waiver of the conditions to the Separation and REIT Conversion Merger, Sun will effect the Separation by distributing to its stockholders on a pro rata basis all of the outstanding shares of New Sun common stock, together with an additional cash distribution. The actual amount of this cash distribution will not be determined until the time of the Separation, but Sun currently expects it to be approximately $0.17 per share, resulting in an aggregate cash distribution to Sun’s stockholders of approximately $13 million. Sun will then implement the REIT Conversion Merger by merging with and into Sabra, with Sabra surviving the merger as a Maryland corporation and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock. In each case, cash will be paid in lieu of fractional shares. The Separation and REIT Conversion Merger are expected to occur in the fourth quarter of 2010.

Background for the Separation and REIT Conversion

Sun’s management and board of directors regularly evaluate the operations and business strategies of Sun. In connection with such evaluations, management often utilizes the services of a financial advisor, MTS Health Partners, L.P. (“MTS”). In the fall of 2009, management began working with MTS to consider various strategies that would accomplish its goal of increasing stockholder value. Management selected MTS for this project because of MTS’s familiarity with Sun and the industries in which Sun operates and MTS’s experience in similar projects. One of the factors considered by Sun’s management and MTS in developing these strategies was their view that the trading price of Sun’s common stock did not fully recognize the value of Sun’s real estate assets, which primarily consist of the land and buildings in which many of Sun’s inpatient facilities operate. Sun increased, through acquisitions, the number of owned inpatient facilities from 14 in 2005 to 91 in 2009. Sun’s management also consulted with Jefferies & Company, Inc. (“Jefferies”), as a co-financial advisor, regarding the feasibility of capital market transactions and the best method to realize value in Sun’s real estate assets. Management selected Jefferies as co-financial advisor because of Jefferies’ expertise and experience in similar projects.

On February 17, 2010, Sun’s board of directors held a special meeting to discuss corporate strategy. Management and representatives of MTS presented information regarding various matters, including the current market valuation of Sun, a review of the financial projections prepared by management, Sun’s financing needs and a potential amendment to Sun’s current senior credit facility. MTS also presented the following strategies to accomplish the goal of increasing stockholder value: (i) the potential sale of certain non-strategic operating assets

or a sale-leaseback of Sun’s real estate assets, (ii) potential balance sheet restructuring alternatives through the issuance of Sun equity, debt or convertible debt securities, (iii) a potential spinoff of Sun’s real estate assets, (iv) the potential acquisition of long-term care operations or hospice operations of varying sizes, and (v) a potential sale of Sun. Management did indicate to the board its view that separating the real estate assets from the operating assets in a spinoff would, in its view, be the best method of increasing stockholder value in the context of then-current market conditions. In discussing the potential spinoff of Sun’s real estate assets, representatives of MTS identified several considerations. The main advantages of the spinoff that were discussed included the incremental value creation for Sun stockholders, the elimination of federal “double taxation” on profits driven from Sun’s real estate, regular cash dividends to stockholders and the creation for Sun stockholders of a separately traded, growth-oriented REIT vehicle, as well as the continued availability of the strategic alternatives discussed above. The considerations identified included potential variances in expected financial performance, pro forma leverage and valuation of each entity, tax consequences of the spinoff, third-party approvals and consents that would be required to complete the spinoff and the associated transaction costs. Representatives of MTS also presented an analysis of expected pro forma capital structures for each of New Sun and Sabra, an analysis of future financial performance of Sun and Sabra based on projections prepared by management, analyses of a range of potential implied future trading prices and leverage levels for Sun, New Sun and Sabra common stock based on management’s financial projections or other estimates provided to MTS by management as well as a comparison of the trading multiples for certain comparable public companies. These analyses implied a potential combined valuation for Sabra and New Sun that would exceed the current valuation for Sun. Following the presentations, Sun’s board of directors discussed advantages and disadvantages of the alternatives presented to it, particularly in light of uncertain capital markets and the level of Sun’s indebtedness. The main factors that were considered as advantages or disadvantages, as applicable, of the various strategies included the amount of incremental value that would be created for Sun stockholders, the period of time it would take to recognize the incremental value that would be created, the amount of dilution to Sun stockholders, the amount of Sun’s indebtedness and its impact on Sun’s ability to make acquisitions, and the general market for, and ability to finance, acquisitions by Sun or the sale of Sun’s operations. At the meeting, the board also discussed its fiduciary obligations in connection with the consideration of these strategies. At the conclusion of the meeting, the board authorized management to continue exploration of a proposed spinoff of Sun’s real estate assets. Although no final conclusions were made at this meeting, the board determined not to pursue the other possible alternatives as they appeared to be less likely to result in the same level of stockholder return as a spinoff due to market conditions. Sun’s board of directors also met privately with Sun’s Chief Financial Officer, Mr. Shaul, and then with the President and Chief Operating Officer of SunBridge, Mr. Mathies, to understand and discuss their respective views on the proposed transaction and the impact of the transaction on Sun’s operations. Sun’s board then met in executive session, independent of management, to allow the board members an opportunity to freely express their thoughts or concerns about the transaction. The executive session of Sun’s board did not result in any changes to the board’s decision to proceed with exploring the proposed spinoff.

On March 25, 2010, at a regularly scheduled meeting of Sun’s board of directors, Sun’s management and representatives of MTS reported the results of the further investigations regarding a proposed spinoff. MTS made another presentation that utilized the same types of analyses as its February 17 presentation and was based upon updated financial projections and estimates prepared by management. MTS also reviewed a qualitative and quantitative comparison of the operations, financial performance, financial risk and strategic opportunities of Sun as compared to New Sun, noting that New Sun would have substantially the same operating profile and strategic opportunities as Sun. Management and the MTS representatives then answered questions from directors concerning several issues identified in the investigations, including tax issues, the projected equity values of the two companies following a spinoff, necessary financings and estimates of costs. The board then discussed with management the timing and logistics for the transaction and the consequences of terminating the transaction at various points in the proposed timeline. The board also met in executive session and discussed matters incident to the proposed spinoff, including the management team of New Sun and the relationship between New Sun and Sabra. At the conclusion of the meeting, the board, agreeing with management that a separation of Sun’s real estate and healthcare operations was the best alternative to create incremental value for stockholders, authorized management to pursue the proposed spinoff and to incur related costs.

On April 27, 2010, Sun’s board of directors held a telephonic meeting to discuss matters incident to the Separation and REIT Conversion Merger, including formation of a special committee (the “Committee”) to discuss and oversee the preparation of leases and other agreements between Sabra and New Sun. The Committee members consisted of Gregory S. Anderson, Christian K. Bement and Steven M. Looney, and they were selected for the Committee because of their respective experiences and skill sets in financial and legal issues. The purpose of the Committee was to discuss and approve proposed agreements to be entered into between Sabra and New Sun, including the Lease Agreements, and such other matters as would be appropriate for the Committee to act upon based on the advice of counsel. In addition, at the board meeting, a representative of Fried Frank, outside counsel to Sun, discussed with the directors their fiduciary obligations with respect to the Separation and REIT Conversion Merger and presented information about the proposed Rights Plan. The Rights Plan, which would discourage stockholders from owning in excess of 9.9% of the outstanding Sun common stock, was designed to ensure compliance with the stock ownership requirements applicable to REITs and deter a stockholder from intentionally interfering with the Separation and REIT Conversion.

The Committee held an initial organizational telephonic meeting on April 27, during which the members discussed their approach to the lease approval process. The Committee held additional telephonic meetings on May 3, May 5 and May 11, 2010 to discuss proposed lease terms, with the objective of deciding upon the form of Lease Agreements, with terms that are generally consistent with market terms. At the May 3 and May 5 meetings, the Committee discussed how it would approach consideration of the Lease Agreements as well as the other agreements that would need to be entered into between Sabra and New Sun prior to the Separation. In addition, at each of these meetings, the Committee considered and discussed significant terms of the Lease Agreements, including the duration of the leases, rent escalators, assignment provisions, security and guaranty provisions, covenants and reporting obligations, events of default and remedies, capital improvements and reserve requirements, purchase options, rights of first offer and insurance provisions. These terms did not constitute a full review of the Lease Agreements, drafts of which had not yet been prepared. Management and Sun’s outside real estate counsel assisted in the Committee’s deliberations, which included discussion of comparable terms in other leases to which Sun’s subsidiaries are parties and accounting treatment of certain terms. At each of the meetings, the Committee provided its views as to the proposed lease terms, and, at each of the May 5 and May 11 meetings, reviewed revised lease terms that reflected the Committee’s discussions and management recommendations. At the May 11 meeting, the Committee approved lease terms that formed the basis of the Lease Agreements, subject to review and approval of the final form of Lease Agreements.

On May 6, 2010, Sun’s board of directors held a telephonic meeting to discuss the Separation and related matters. At the meeting, the board, with the advice of counsel, discussed the Committee’s duties. In addition, Mr. Matros updated the board on the projected timing to complete the Separation and discussed a proposed offering of Sun’s common stock prior to the Separation, the proceeds of which would be used to reduce Sun’s indebtedness. In addition, Sun’s outside counsel presented to the board the proposed Rights Plan for its consideration and further discussion at a subsequent meeting. The board also discussed valuation of the proposed stock dividend and availability of sufficient capital surplus for the dividend.

On May 24, 2010, Sun’s board of directors met again telephonically to discuss the Separation. Management provided updates to the board regarding the timing of, and other matters incident to, the Separation. In addition, the board authorized implementation of the Rights Plan and the filing with the SEC of registration statements containing a proxy statement for a special meeting of stockholders to approve the Separation and REIT Conversion Merger.

On June 17, 2010, Sun’s board of directors met at a regularly scheduled meeting. Among the matters discussed at the meeting was the status of the Separation. MTS made another presentation that utilized the same types of analyses as its February 17 and March 25 presentations, updated to incorporate the then-current trading valuations of Sun and comparable companies to both New Sun and Sabra. MTS also reviewed the potential impact of a range of potential sizes and offering prices for a public offering of Sun common stock in connection with the Separation. Management and MTS also responded to questions from the directors based upon the

materials presented. At this meeting, the board authorized a public offering of Sun common stock. The board also met separately from management to discuss the proposed Separation based on the updated information provided by management and MTS and to confirm that each of the Sun directors still viewed the Separation favorably. The executive session of the Sun board did not result in any changes to the board’s decision to proceed with the Separation.

Reasons for the Separation and REIT Conversion

The board of directors of Sun believes that the Separation and REIT Conversion will more readily enable Sun stockholders to maximize their investment in Sun by giving them a continuing interest in a healthcare company that will concentrate on providing quality care to residents and patients as well as a tax-advantaged REIT security that is expected to provide both the opportunity for consistent cash dividends and capital appreciation. New Sun is expected to benefit from the Separation as it will be able to pursue its growth strategies with significantly less debt on its balance sheet. Sabra is expected initially to grow its portfolio through the acquisition of skilled nursing and senior housing facilities, including assisted living, independent living and continuing care retirement community facilities. As Sabra acquires additional properties and expands its portfolio, it expects to diversify by geography, asset class and tenant within the healthcare sector.

Upon conversion to REIT status, Sabra will benefit from the tax advantages that apply to REITs, including that it will generally not be subject to U.S. federal corporate income taxes. Sabra intends to make quarterly distributions that are at least sufficient to satisfy the annual distribution requirements for REITs. See “Distribution and Dividend Policy—Sabra” and “Material U.S. Federal Income Tax Consequences.”

In its discussions of the proposed Separation, Sun’s board of directors considered a number of risks and potentially negative factors, including the changes in management, potential disruptions to Sun’s businesses while seeking to effect the Separation or as a result of the Separation, risks associated with refinancing Sun’s debt and the necessity of an equity offering to pay down Sun’s indebtedness before the Separation could be completed, the potential inability to achieve the benefits expected from the Separation, the reaction of Sun’s stockholders to the Separation, the number of consents and approvals required from stockholders, lenders, landlords and regulatory authorities, the possibility that the Separation might not be completed and the costs, including tax costs, of the Separation.

Accounting Treatment for the Separation and REIT Conversion

Following the Separation, New Sun, through its subsidiaries, will continue the business and operations of Sun and its subsidiaries. Sabra will not have operated prior to the Separation. Immediately following the Separation and REIT Conversion Merger, Sabra, through its subsidiaries, will own all of Sun’s owned real property (other than the New Sun Retained Properties). The owned real property to be held by subsidiaries of Sabra includes fixtures and certain personal property associated with the real property. The only material liabilities of Sabra and its subsidiaries will consist of indebtedness incurred by Sabra at the time of the Separation and mortgage indebtedness to third parties on the real property to be owned by subsidiaries of Sabra. The liabilities of New Sun and its subsidiaries will consist of indebtedness of New Sun incurred or assumed at the time of the Separation and substantially all of the liabilities of Sun and its subsidiaries immediately prior to the Separation, excluding indebtedness of Sun repaid at the time of the Separation and mortgage indebtedness assumed by subsidiaries of Sabra. The historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun at the time of the Separation. At the time of the Separation, the balance sheet of Sabra will include the owned real property and mortgage indebtedness on the real property as well as indebtedness incurred by Sabra prior to completion of the Separation. The statement of operations and cash flows of Sabra will consist solely of its operations after the Separation.

liabilities to be distributed will be recorded based on the historical carrying values after reduction, if appropriate, for any indicated impairment of value. Indicators that a spinoff should be accounted for as a reverse spinoff include:

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whether the “legal” spinnee (i.e., New Sun) is larger than the “legal” spinnor (i.e., Sabra) based on a comparison of assets, revenues and earnings;

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the relative fair value of the “legal” spinnor to the “legal” spinnee; and

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which entity retains the majority of senior management after the spinoff.

Regulatory Approvals Required for the Separation and REIT Conversion Merger

Sun’s inpatient centers, rehabilitation therapy companies, health care staffing companies and hospice companies are extensively regulated by federal and state healthcare regulatory bodies and, in some instances, accreditation bodies. In connection with the Separation and to consummate the restructuring of Sun’s business, Sun will be required to file notices with, and in some jurisdictions obtain approvals or consents from, the various governmental agencies and commissions responsible for the licensure or certification of Sun’s inpatient centers and other lines of business. In some cases, these filings must be made, and approvals obtained, before the Separation can be completed. All of such filings have been made, and Sun is seeking to obtain the requisite approvals. In other cases, notice filings will need to be made by New Sun after the Separation has been completed.

Sun does not believe that any other material federal or state regulatory approvals will be required in connection with the Separation or the REIT Conversion.

Treatment of Equity Awards

to include two components. One component is expected to have a grant-date value (determined under the principles used to calculate the grant-date fair value of equity awards for purposes of Sun’s financial statements or a similar methodology) that is equal to the value (determined, as of the termination of the awards, under those same principles) of Mr. Matros’s existing Sun awards that terminate in connection with the Separation and REIT Conversion Merger to compensate him for this lost value. The other component is expected to reflect the Sabra compensation committee’s determination of an appropriate equity compensation package for Mr. Matros’s services following the Separation and REIT Conversion Merger in his position as chief executive officer of Sabra.

PROPOSAL NO. 1—APPROVAL OF THE SEPARATION

Holders of Sun common stock are being asked to approve the Separation. Sun stockholders should read carefully this proxy statement/prospectus in its entirety for more detailed information concerning the Separation.

Manner of Effecting the Separation

In the event Sun stockholders approve the Separation and adopt the agreement and plan of merger to implement the REIT Conversion Merger and the board of directors of Sun proceeds with the Separation, each Sun stockholder as of the record date for the Separation will receive shares of New Sun common stock for each share of Sun common stock such stockholder owns on the record date. The timing of the Separation will ultimately depend upon the satisfaction or waiver of certain conditions, including obtaining stockholder approval of the Separation and REIT Conversion Merger and completing the debt financing transactions. See “—Conditions to the Separation.”

American Stock Transfer will serve as the distribution agent for the Separation. On the distribution date for the Separation, American Stock Transfer will electronically issue shares of New Sun common stock to holders of Sun common stock who hold such shares on the record date for the Separation, or to such stockholders’ bank, broker or other nominee on such stockholders’ behalf by way of direct registration in book-entry form. As soon as practicable after the distribution date for the Separation, an account statement will be mailed to each holder of Sun common stock who holds such shares on the record date for the Separation, stating the number of shares of New Sun common stock received by such stockholder in the Separation. See “—Trading Between the Record Date for the Separation and the Distribution Date for the Separation” for a discussion of the effect of the distribution on any shares sold after the record date but prior to the distribution date. All shares of New Sun common stock so distributed will be fully paid and nonassessable and the holders thereof will not be entitled to preemptive rights. See “Description of New Sun Capital Stock.”

No fractional shares of New Sun common stock will be issued in connection with the Separation. Instead, American Stock Transfer will aggregate all fractional shares that would otherwise have been distributed to Sun stockholders into whole shares, sell these whole shares in the open market at prevailing market prices and distribute the net cash proceeds from these sales to those stockholders who would have been entitled to receive fractional shares. This payment will be made from these sales on a pro rata basis based on the fractional interest in a share of New Sun common stock that the stockholder would have otherwise been entitled to receive. The amount of the cash payment will depend on the prices at which the aggregated fractional shares are sold by American Stock Transfer and the timing of such payment will be based upon the time that will be necessary for American Stock Transfer to sell these shares in an orderly manner. New Sun will be responsible for the payment of any brokerage or other fees in connection with the sale of aggregated fractional shares of New Sun common stock. Recipients of cash in lieu of fractional shares will not be entitled to any interest on payments made in lieu of fractional shares.

Additionally, on the distribution date for the Separation, Sun intends to make a cash distribution to holders of Sun common stock who hold such shares on the record date for the Separation to assist them with any U.S. federal income tax due on the taxable portion of the distribution of New Sun common stock. The taxable portion of the stock distribution will be based on the “earnings and profits” for calendar year 2010 of Sun (i.e., Sabra following the REIT Conversion Merger) as determined for tax purposes (“E&P”). The calculation of E&P begins with taxable income and includes adjustments for items such as U.S. federal tax liability (deduction) and tax-exempt income (add back). E&P is a measure used for tax purposes and is not directly comparable to net income or any other GAAP financial measure.

Sun estimates that its E&P for calendar year 2010 will be in the range of $80 to $85 million. Therefore, when Sun distributes shares of New Sun common stock, which are expected to have a total value significantly in excess of E&P for calendar year 2010, Sun expects that the entire $80 to $85 million (or approximately $1.07 to $1.14 per share) will be taxable as dividend income. See “Material U.S. Federal Income Tax Consequences—U.S. Federal

Income Tax Consequences of the Separation—U.S. Holders of Sun Common Stock.” The cash distribution of $13 million (approximately $0.17 per share) is intended to reimburse stockholders for the estimated U.S. tax impact of the dividend income using an assumed U.S. federal income tax rate for dividends of 15% and rounding up to the nearest million. Because each stockholder has different tax attributes and could be subject to a U.S. federal income tax rate that exceeds 15%, there can be no assurance that the cash distribution will be sufficient to pay the entire U.S. tax liability of each stockholder arising from the Separation. Furthermore, the cash distribution itself will be taxable to the recipient stockholders. The value of New Sun shares in excess of E&P for calendar year 2010, as well as the cash distribution, will be a return of capital to the stockholders, which could result in capital gain income to some stockholders.

Since the amount of E&P for calendar year 2010 will not be known until taxable income is finally determined after the end of the calendar year, this cash distribution will inherently be an estimate. See “Risk Factors—Risks Relating to the Separation and REIT Conversion” and “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Separation—U.S. Holders of Sun Common Stock.” Sun intends to re-assess its estimate of E&P for calendar year 2010 shortly before the cash distribution is declared and make any appropriate change in the amount of the cash distribution at that time to reflect any revised estimate. For example, a $10 million reduction in Sun’s estimate of its E&P for calendar year 2010 would reduce the amount of the distribution by $1.5 million (or approximately $0.02 per share), and a $10 million increase in Sun’s estimate of its E&P for calendar year 2010 would increase the amount of the distribution by $1.5 million (or approximately $0.02 per share).

The cash distribution is expected to be declared by Sun’s board of directors following the repayment of Sun’s outstanding 9.125% senior subordinated notes and the outstanding term loans under Sun’s current credit facility, which currently prohibit Sun from declaring or paying dividends.

Sun stockholders will not be required to pay for shares of New Sun common stock received in the Separation, to surrender or exchange shares of Sun common stock in order to receive shares of New Sun common stock, or to take any other action in connection with the Separation. For an explanation of the U.S. federal income tax consequences of the Separation, including the effect of receiving New Sun common stock, cash in lieu of fractional shares and/or the cash distribution, see “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Separation—U.S. Holders of Sun Common Stock.”

In order to be entitled to receive shares of New Sun common stock in the Separation and the cash distribution, you must be a holder of Sun common stock at the close of business on the record date for the Separation. The board of directors of Sun has not yet set a record date for the Separation but will do so after the special meeting.

In connection with the Separation, New Sun and Sabra will enter into a number of agreements that govern the Separation and the ongoing relationship between the two companies. See “Relationship Between New Sun and Sabra After the Separation and REIT Conversion Merger.” Prior to completion of the Separation, New Sun and Sabra will also enter into debt agreements that potentially will be secured by substantially all of their respective assets (other than assets securing mortgage indebtedness). See “Description of Material Indebtedness.”

Management of New Sun

For continuity purposes, the board of directors of Sun determined that it is in the best interest of New Sun and its stockholders that its board of directors include all of the current members of the Sun board of directors, with the exception of Mr. Matros. William A. Mathies, who will become the Chief Executive Officer of New Sun, will also serve as a director of New Sun. Consistent with this determination, the following eight individuals will be the directors of New Sun: Gregory S. Anderson, Tony M. Astorga, Christian K. Bement, Michael J. Foster, Barbara B. Kennelly, Steven M. Looney, William A. Mathies and Milton J. Walters. Messrs. Walters and Foster will also serve as directors of Sabra. Several factors were taken into account by the board of directors of Sun in determining that Messrs. Walters and Foster should also serve as directors of Sabra, including the familiarity of Mr. Matros with these directors, the expertise of these directors and the ability of these directors to serve on the

boards of both Sabra and New Sun given other business obligations and conflicts of interest. In serving on the board of directors of both New Sun and Sabra, Messrs. Walters and Foster will have an actual conflict of interest with respect to matters at Sabra involving New Sun and matters at New Sun involving Sabra. In order to mitigate this conflict of interest, each of Sabra and New Sun expects to adopt governance guidelines prior to the Separation that will prohibit Messrs. Walters and Foster from participating in board discussions at either New Sun or Sabra to the extent the discussions at Sabra relate to negotiations, disputes or other material matters involving New Sun or the discussions at New Sun relate to negotiations, disputes or other material matters involving Sabra. Aside from these matters, New Sun does not expect to exclude Messrs. Walters and Foster from any other board business or company information.

The following individuals will serve in the following capacities as the executive officers of New Sun: William A. Mathies, Chief Executive Officer; L. Bryan Shaul, Executive Vice President and Chief Financial Officer; Michael Newman, Executive Vice President and General Counsel; Chauncey J. Hunker, Ph.D., Chief Risk Officer and Chief Compliance Officer; Cindy Chrispell, Senior Vice President of Human Resources; Richard L. Peranton, President of CareerStaff; and Susan E. Gwyn, President of SunDance. Except for Mr. Mathies, who is currently the President and Chief Operating Officer of SunBridge, each of these individuals is currently serving in the same capacity for Sun. See “Management of New Sun.”

Interests of Certain Persons in the Separation

Market for New Sun Common Stock; Trading of New Sun Common Stock Following the Separation

There is no current public market for New Sun common stock. New Sun expects to have the shares of its common stock to be issued in connection with the Separation listed on the NASDAQ Global Select Market and to receive authorization to adopt Sun’s current stock symbol so that New Sun common stock will trade on the NASDAQ Global Select Market following the Separation using the stock symbol “SUNH.”

Immediately following the Separation, based on the shares of Sun common stock outstanding as of , 2010, New Sun will have shares of common stock issued and outstanding. The actual number of shares of New Sun common stock outstanding will be determined based on the number of shares of Sun common stock outstanding on the record date for the Separation. No shares of preferred stock of New Sun will be issued or outstanding at the time of the Separation.

Trading Between the Record Date for the Separation and the Distribution Date for the Separation

Stockholders who hold shares of Sun common stock at the close of business on the record date for the Separation will be entitled to receive shares of New Sun common stock in the Separation, but shares of Sun common stock will trade with the entitlement to New Sun common stock to be distributed pursuant to the Separation through the day prior to the distribution date for the Separation. Therefore, if you own shares of Sun common stock at the close of business on the record date for the Separation and you sell those shares prior to the distribution date for the Separation, you will be selling your right to receive shares of New Sun common stock in the Separation. However, the cash distribution that Sun intends to pay to stockholders who own shares of Sun common stock at the close of business on the record date for the Separation will be retained by these stockholders even if they sell those shares prior to the distribution date for the Separation.

In addition, Sun anticipates that, beginning on or shortly before the record date for the Separation and continuing through the distribution date for the Separation, there will be a “when-issued” market in New Sun common stock.

“When-issued” trading refers to a sale or purchase made conditionally because the security has not yet been distributed. If you own Sun common stock at the close of business on the record date for the Separation, you would be entitled to New Sun common stock distributed pursuant to the Separation. You may trade this entitlement to New Sun common stock, without the Sun common stock you own, on the “when-issued” market. On the first trading day following the distribution date for the Separation, “when-issued” trading with respect to New Sun common stock will end and “regular trading” will begin.

Conditions to the Separation

The Separation is conditioned upon the satisfaction or waiver of the following conditions:

•

Sun’s stockholders shall have approved the Separation and adopted the agreement and plan of merger to implement the REIT Conversion Merger;

•

the restructuring of Sun’s business as described in this proxy statement/prospectus shall have been completed;

•

New Sun’s listing application with the NASDAQ Global Select Market shall have been approved, subject to official notice of issuance;

•

no stop order shall be in effect with respect to New Sun’s registration statement on Form S-1 filed with the SEC to register under the Securities Act the distribution of shares of New Sun common stock in the Separation;

•

no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a government, regulatory or administrative agency or commission, and no statute, rule, regulation or executive order promulgated or enacted by any governmental authority, shall be in effect preventing the consummation of the Separation or the REIT Conversion Merger;

•

the Distribution Agreement, the Lease Agreements, the Tax Allocation Agreement and the Transition Services Agreement shall have been executed and delivered by New Sun and Sabra;

•

no litigation or proceeding challenging or seeking to restrain the Separation or the REIT Conversion Merger shall be pending or threatened; and

•

all other conditions required to complete the REIT Conversion Merger shall have been satisfied or waived.

The fulfillment of the foregoing conditions will not create any obligation on Sun’s part to effect the Separation or the REIT Conversion Merger. Sun reserves the right to abandon, defer or modify the Separation and REIT Conversion Merger at any time, even if Sun stockholders approve the Separation and REIT Conversion Merger. Sun may not proceed with the Separation and REIT Conversion Merger if the board of directors of Sun determines for any reason that these transactions are no longer in the best interests of Sun and its stockholders. In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation or REIT Conversion Merger, Sun will provide its stockholders

with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if Sun determines that the event or events constitute a material change to this proxy statement/prospectus.

Absence of Appraisal Rights

Sun stockholders will not be entitled to dissenters’ or appraisal rights as a result of the Separation.

THE BOARD OF DIRECTORS OF SUN UNANIMOUSLY RECOMMENDS THAT SUN

STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1 TO APPROVE THE SEPARATION.

PROPOSAL NO. 2—ADOPTION OF THE AGREEMENT AND PLAN OF MERGER

Holders of Sun common stock are being asked to adopt the agreement and plan of merger to implement the REIT Conversion Merger. The following is a summary of the agreement and plan of merger to implement the REIT Conversion Merger. This summary is qualified in its entirety by reference to the agreement and plan of merger to implement the REIT Conversion Merger, which is incorporated by reference in its entirety and attached to this proxy statement/prospectus as Annex . Sun stockholders should read the agreement and plan of merger in its entirety.

Structure and Completion of the REIT Conversion Merger

Pursuant to the agreement and plan of merger to implement the REIT Conversion Merger and in accordance with applicable law, immediately following the Separation, Sun will merge with and into Sabra. As a result of the REIT Conversion Merger, the separate existence of Sun will terminate and Sabra will continue as the surviving corporation. The charter of Sabra to be amended and in effect immediately prior to the REIT Conversion Merger, as set forth in the form of articles of amendment and restatement, attached as an exhibit to the registration statement of which this proxy statement/prospectus is a part, will be the charter of the surviving corporation. The bylaws of Sabra as in effect immediately prior to the REIT Conversion Merger, as set forth in the form of amended and restated bylaws of Sabra, attached as an exhibit to the registration statement of which this proxy statement/prospectus is a part, will be the bylaws of the surviving corporation.

The closing of the REIT Conversion Merger is expected to take place immediately following the Separation. The REIT Conversion Merger will be effective when the parties file the articles of merger with the State Department of Assessments and Taxation of the State of Maryland and the certificate of merger with the Secretary of State of the State of Delaware, and these filings are accepted for recording.

No fractional shares of Sabra common stock will be issued in connection with the REIT Conversion Merger. Instead, American Stock Transfer, who will serve as the exchange agent for the REIT Conversion Merger, will aggregate all fractional shares that would otherwise have been distributed to Sun stockholders into whole shares, sell these whole shares in the open market at prevailing market prices and distribute the net cash proceeds from these sales to those stockholders who would have been entitled to receive fractional shares. This payment will be made from these sales on a pro rata basis based on the fractional interest in a share of Sabra common stock that the stockholder would have otherwise been entitled to receive. The amount of the cash payment will depend on the prices at which the aggregated fractional shares are sold by American Stock Transfer and the timing of such payment will be based upon the time that will be necessary for American Stock Transfer to sell these shares in an orderly manner. Sabra will be responsible for the payment of any brokerage or other fees in connection with the sale of aggregated fractional shares of Sabra common stock. Recipients of cash in lieu of fractional shares will not be entitled to any interest on payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient.

Sabra may not qualify for REIT status if a single stockholder owned 10% or more of Sun common stock immediately prior to the Separation and REIT Conversion Merger. The Rights Plan was adopted to discourage third parties from exceeding this ownership limitation and will terminate upon the earlier of the effective time of the REIT Conversion Merger or May 24, 2011. Accordingly, the Rights Plan will not continue in respect of shares of New Sun common stock or shares of Sabra common stock. Sabra will not initially have a stockholder rights agreement and has no plans to adopt one, although its board of directors could make the determination at a future date to adopt a stockholder rights agreement. Sabra’s charter will contain restrictions on the transfer and ownership of its stock. See “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.”

Management of Sabra

In determining the appropriate composition of the board of directors of Sabra, Sun believed it would be prudent for continuity purposes to include Messrs. Walters and Foster, in addition to Mr. Matros and independent directors not previously affiliated with Sun. Several factors were taken into account by the board of directors of Sun in determining that Messrs. Walters and Foster should serve as directors of Sabra, including the familiarity of Mr. Matros with these directors, the expertise of these directors and the ability of these directors to serve on the boards of both Sabra and New Sun given other business obligations and conflicts of interest. In serving on the board of directors of both New Sun and Sabra, Messrs. Walters and Foster will have an actual conflict of interest with respect to matters at Sabra involving New Sun and matters at New Sun involving Sabra. In order to mitigate this conflict of interest, each of Sabra and New Sun expects to adopt governance guidelines prior to the Separation that will prohibit Messrs. Walters and Foster from participating in board discussions at either New Sun or Sabra to the extent the discussions at Sabra relate to negotiations, disputes or other material matters involving New Sun or the discussions at New Sun relate to negotiations, disputes or other material matters involving Sabra. Aside from these matters, Sabra does not expect to exclude Messrs. Walters and Foster from any other board business or company information. See “Management of Sabra.”

Qualification as a REIT

Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Its qualification as a REIT depends upon its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to the sources of its gross income, the composition and value of its assets, its distribution levels to stockholders and the diversity of ownership of its shares. Sabra believes that it will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that its intended manner of operation will enable it to meet the requirements for qualification and taxation as a REIT. As a REIT, Sabra will generally not be subject to U.S. federal income tax on its REIT taxable income that it distributes currently to its stockholders. If Sabra failed to qualify as a REIT in any taxable year and did not qualify for certain statutory relief provisions, it would be subject to U.S. federal income tax at corporate tax rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT.”

Interests of Certain Persons in the REIT Conversion Merger

As of the record date for the special meeting, directors and executive officers of Sun beneficially owned approximately % of the outstanding shares of Sun common stock. Directors and executive officers of Sabra who own shares of Sun common stock as of the effective time of the REIT Conversion Merger will receive shares of Sabra common stock on the same basis as other Sun stockholders. See “Security Ownership of Certain Beneficial Owners and Management.”

Market for Sabra Common Stock; Trading of Sabra Common Stock Following the REIT Conversion Merger

There is no current public market for Sabra common stock. Sabra expects to have the shares of its common stock to be issued in connection with the REIT Conversion Merger listed on the NASDAQ Global Select Market and authorized for trading following the REIT Conversion Merger using the symbol “SBRA.”

Manner and Procedure for Receiving Shares of Sabra Common Stock

Sabra will not issue physical certificates for the shares you will receive in the REIT Conversion Merger in exchange for your shares of Sun common stock, even if you currently hold a physical certificate. At the effective time of the REIT Conversion Merger, American Stock Transfer, the exchange agent, will electronically issue shares of Sabra common stock to holders of Sun common stock who hold such shares at the effective time for the REIT Conversion Merger, or to such stockholders’ bank, broker or other nominee on such stockholders’ behalf by way of direct registration in book-entry form. As soon as practicable after the effective time of the REIT Conversion Merger, an account statement will be mailed to each holder of Sun common stock who holds such shares at the effective time of the REIT Conversion Merger, stating the number of shares of Sabra common stock received by such stockholder in the REIT Conversion Merger. All shares of Sabra common stock so distributed will be fully paid and nonassessable and the holders thereof will not be entitled to preemptive rights. Any physical certificate representing Sun shares of common stock will be deemed cancelled and will no longer represent any ownership interest. See “Description of Sabra Stock.”

Conditions to the REIT Conversion Merger

The REIT Conversion Merger is conditioned upon the satisfaction or waiver of the following conditions:

•

the Separation shall have been completed;

•

Sabra’s listing application with the NASDAQ Global Select Market shall have been approved, subject to official notice of issuance;

•

no litigation or proceeding challenging or seeking to restrain the REIT Conversion Merger shall be pending or threatened.

The fulfillment of these conditions will not create any obligation on Sun’s part to effect the Separation or REIT Conversion Merger. Sun reserves the right to abandon, defer or modify the Separation and REIT Conversion Merger at any time, even if Sun stockholders approve the Separation and REIT Conversion Merger. Sun may not proceed with the Separation and REIT Conversion Merger if the board of directors of Sun determines for any reason that these transactions are no longer in the best interests of Sun and its stockholders. In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation or REIT Conversion Merger, Sun will provide its stockholders with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if Sun determines that the event or events constitute a material change to this proxy statement/prospectus.

Absence of Appraisal Rights

Sun stockholders will not be entitled to dissenters’ or appraisal rights as a result of the REIT Conversion Merger.

THE BOARD OF DIRECTORS OF SUN UNANIMOUSLY RECOMMENDS THAT SUN STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 2 TO ADOPT THE AGREEMENT AND PLAN OF

MERGER TO IMPLEMENT THE REIT CONVERSION MERGER.

PROPOSAL NO. 3—APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING

If there are insufficient votes at the time of the special meeting to approve Proposal No. 1, the Separation, or Proposal No. 2, the adoption of the agreement and plan of merger to implement the REIT Conversion Merger, Sun may propose to adjourn the special meeting to a later date, if necessary, to solicit additional proxies.

THE BOARD OF DIRECTORS OF SUN UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SUN COMMON STOCK VOTE “FOR” PROPOSAL NO. 3 TO APPROVE THE ADJOURNMENT OF THE SPECIAL MEETING.

RELATIONSHIP BETWEEN NEW SUN AND SABRA AFTER THE SEPARATION AND REIT CONVERSION MERGER

To govern their ongoing relationship, New Sun and Sabra or their respective subsidiaries, as applicable, will enter into the various agreements as described in this section on or prior to completion of the Separation. The form of each of the agreements summarized in this section will be included as exhibits to the registration statement of which this proxy statement/prospectus is a part, and the following summaries are qualified in their entirety by reference to the agreements as filed.

The Distribution Agreement

The Distribution Agreement will provide for the various actions to be taken in connection with the Separation, the conditions to the Separation and the relationship between the parties subsequent to the Separation.

Pursuant to the Distribution Agreement, any liability arising from or relating to legal proceedings involving Sun’s healthcare business prior to the Separation will be assumed by New Sun, and New Sun will indemnify Sabra against any losses arising from or relating to such legal proceedings. See “Business of New Sun—Legal Proceedings.” The Distribution Agreement will provide that any liability arising from or relating to legal proceedings involving Sun’s real property assets to be owned by Sabra will be assumed by Sabra and that Sabra will indemnify New Sun against any losses arising from or relating to such legal proceedings. See “Business of Sabra—Legal Proceedings.” Any liability arising from or relating to legal proceedings prior to the Separation, other than those arising from or relating to legal proceedings involving Sun’s healthcare business or such real property assets, will be assumed by New Sun.

In addition, the Distribution Agreement will provide for cross-indemnities that require (i) Sabra to indemnify New Sun (and its subsidiaries, directors, officers, employees and agents and certain other related parties) against all losses arising from or relating to the liabilities being assumed by Sabra or the breach of the Distribution Agreement or any ancillary agreement by Sabra and (ii) New Sun to indemnify Sabra (and its respective subsidiaries, directors, officers, employees and agents and certain other related parties) against all losses arising from or relating to the liabilities being assumed or retained by New Sun or the breach of the Distribution Agreement or any ancillary agreement by New Sun.

Pursuant to the Distribution Agreement, each of the parties will agree to use reasonable best efforts to take or cause to be taken all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate the transactions contemplated by and carry out the purposes of the Distribution Agreement and the ancillary agreements. The Distribution Agreement will provide that if any contemplated internal mergers and stock and asset transfers have not been effected on or prior to the date of the Separation, the parties will cooperate to effect these transfers as quickly thereafter as reasonably practicable. The entity retaining any asset or liability that should have been transferred prior to completion of the Separation will continue to hold that asset for the benefit of the party entitled thereto or that liability for the account of the party required to assume it, and must take any other action as may be reasonably requested by the party to whom such asset was to be transferred or by whom such liability was to be assumed in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred or assumed as contemplated by the Distribution Agreement.

New Sun and Sabra have agreed in the Distribution Agreement that New Sun will pay all costs associated with the Separation and REIT Conversion that are incurred prior to the Separation, except that Sabra will bear all costs of the Separation and REIT Conversion specifically identifiable to it, including the costs incurred by Sabra in entering into the financing transactions described under the caption “Description of Material Indebtedness.” All costs relating to the Separation or REIT Conversion incurred after the Separation will be borne by the party incurring such costs.

The Distribution Agreement will also provide for the execution and delivery of certain other agreements governing the relationship between New Sun and Sabra following the Separation. See “—The Lease Agreements,” “—The Tax Allocation Agreement,” and “—The Transition Services Agreement” below.

The Lease Agreements

Subsidiaries of New Sun (each a “Tenant”) will enter into the Lease Agreements with subsidiaries of Sabra (each a “Lessor”) pursuant to which the Tenants will lease the 87 healthcare properties that will be owned by subsidiaries of Sabra following the Separation (consisting of 68 skilled nursing facilities, ten combined skilled nursing, assisted and independent living facilities, five assisted living facilities, two mental health facilities, one independent living facility and one continuing care retirement community). The obligations of the Tenants under the Lease Agreements will be guaranteed by New Sun.

The following description of the Lease Agreements does not purport to be complete but contains a summary of the material provisions of the Lease Agreements.

Term and Renewals. The Lease Agreements will provide for the lease of land, buildings, structures and other improvements on the land, easements and similar appurtenances to the land and improvements, and equipment relating to the operation of the leased properties. The parties to the Lease Agreements will consist of multiple Lessors and multiple Tenants.

The Lease Agreements will provide for an initial term of between 10 and 15 years with no purchase options. At the option of the Tenant, the Lease Agreements may be extended for up to two five-year renewal terms beyond the initial term at a fair market rental rate. The fair market rental rate will be determined through an appraisal procedure set forth in the Lease Agreements. Any fair market rental rate so determined may be materially higher or lower than the existing rental rate. After determination of the fair market rental rate, the Tenant may either withdraw its renewal notice or pay the new rental rate. If the Tenant elects to renew the term of the Lease Agreements, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Lease Agreements.

The following chart sets forth the anticipated expiration dates and renewal dates under the Lease Agreements:

Expiration date

Facility renewals

Renewal
Date

Skilled
Nursing

Assisted
Living

Independent
Living

Mental
Health

CCRC

Multi-license
Designation

, 2020

, 2021

, 2022

, 2023

, 2024

, 2025

Extension of the term of any of the Lease Agreements will be subject to the following conditions: (1) no event of default under the Lease Agreements having occurred and being continuing, (2) the Tenant providing timely notice of its intent to renew, and (3) the Tenant’s agreement to the rent for the renewal term. The term of the Lease Agreements will be subject to termination prior to the expiration of the then current term upon default by the Tenant in its obligations, if not cured within any applicable cure periods set forth in the Lease Agreements, and certain other conditions described in the Lease Agreements, such as material damage to or destruction or condemnation of a leased property.

A Tenant does not have the ability to terminate its obligations under the Lease Agreements prior to its expiration without the Lessor’s consent. If the Lease Agreement is terminated prior to its expiration other than with a Lessor consent, the Tenant may incur charges such as continued payment of rent through the end of the lease term and maintenance costs for the property. See “Risk Factors—Risks Relating to New Sun’s Business—New Sun will

lease substantially all of its centers and could experience risks relating to lease termination, lease extensions, and special charges, which could have a material adverse effect on New Sun’s business, financial position or results of operations.”

Rental Amounts and Escalators. The Lease Agreements are commonly known as a triple-net lease. Accordingly, in addition to rent, the Tenant will be required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the Lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Under the Lease Agreements, it is anticipated that the initial annual aggregate base rent payable by New Sun will be approximately $70.2 million. The Lease Agreements will provide for rent escalations on of each year. The annual rent escalator under the Lease Agreements will be the lesser of the percentage change in the Consumer Price Index or 2.50% of the prior year’s rent (but not less than zero).

Maintenance and Capital Improvements. The Tenant will be responsible for maintenance of the properties in good repair and condition, and will be required to pay the expenses of all maintenance, repair and restoration. In furtherance of these obligations, the Tenant will be obligated each year to make maintenance expenditures in an amount set forth in the Lease Agreements. The Tenant will also be responsible to maintain all personal property located at the leased properties in good repair and condition as is necessary to operate the leased properties in compliance with applicable legal, insurance and licensing requirements.

The Lease Agreements will provide that the Tenant may, but will not be required to, make capital improvements to a leased property, subject to the Lessor’s approval of the plans and specifications and any required mortgagee consent. The Lessor may, at its option, elect to pay for all or a portion of any such capital improvement, in which case the rent under the Lease Agreements will be increased for that leased property. If the Lessor elects not to finance the capital improvement and the Tenant elects to proceed with such capital improvement, the Tenant will be required to fund any costs, but the rent will not be adjusted. Any such capital improvement, whether or not the costs of which are funded by the Lessor, will become subject to the terms of the Lease Agreements and become the property of the Lessor upon termination of the Lease Agreements.

Use of the Leased Property. The Lease Agreements will require that the Tenant utilize a leased property solely for the provision of healthcare services as specified in the Lease Agreements and related uses and such other uses as the Lessor of the leased property may otherwise approve. The Tenant will be responsible for maintaining or causing to be maintained all licenses, certificates and permits necessary for the leased properties to comply with various healthcare and other regulations. With certain exceptions, the Tenant will also be obligated to operate continuously each leased property as a provider of healthcare services.

Events of Default. Under the Lease Agreements, an “Event of Default” will be deemed to occur upon certain events, including: (1) the failure by a Tenant to pay rent or other amounts when due or within two business days of the due date, (2) the failure by a Tenant to comply with the covenants set forth in the Lease Agreements when due or within any applicable cure period, (3) certain events of bankruptcy or insolvency with respect to a Tenant or a guarantor, (4) the maturity of the indebtedness under New Sun’s current credit facility is accelerated as a result of a default, (5) an event of default occurs under the New Sun guaranty of the Lease Agreements, (6) a Tenant breaches a representation or warranty in the Lease Agreements in a material manner, (7) a cross default occurs under other Lease Agreements and is not cured within any applicable grace period, (8) a default occurs in respect of a loan secured by a leased property, which default is the responsibility of the Tenant or New Sun or (9) the occurrence of certain events of regulatory non compliance which would reasonably be expected to have a material adverse effect on the operations at the leased property or the financial condition of the Tenant.

Remedies for an Event of Default. Upon an Event of Default under one of the Lease Agreements, the Lessor of the leased property may, at its option, exercise the following remedies:

(1) terminate the Lease Agreements to which such Event of Default relates, repossess any leased property, relet any leased property to a third party and require that the Tenant pay to the Lessor, as liquidated damages, the net present value of the rent for the balance of the term, discounted at 8.0%, plus any past due rent and costs related to the exercise of remedies,

(2) without terminating the Lease Agreements to which such Event of Default relates, repossess the leased property and relet the leased property with the Tenant remaining liable under such Lease Agreements for all obligations to be performed thereunder, including the difference, if any, between the rent under such Lease Agreements and the rent payable as a result of the reletting of the leased property, and

(3) seek any and all other rights and remedies available under law or in equity.

In addition to the remedies noted above, under the Lease Agreements, in the case of a facility-specific event of default, the Lessor may terminate the Lease Agreements as to the leased property to which the Event of Default relates, and may, but need not, terminate the entire Lease Agreement.

Assignment and Subletting. Except as noted below, the Lease Agreements will provide that a Tenant may not assign or otherwise transfer any leased property or any portion of a leased property as a whole (or in substantial part), including by virtue of a change of control of a Tenant, without the consent of the Lessor, which may not be unreasonably withheld if the proposed assignee (1) is a creditworthy entity with sufficient financial stability to satisfy its obligations under the related Lease Agreements, (2) has sufficient experience in operating healthcare properties for the purpose of the applicable property’s primary intended use, (3) has a favorable operational reputation and character, (4) has an acceptable regulatory record and (5) has all licenses, permits, approvals and authorizations to operate the facility and agrees to comply with the use restrictions in the related Lease Agreements. The obligation of a Lessor to consent to a subletting or assignment may be subject to the reasonable approval rights of any mortgagee.

The Lease Agreements will also provide that a Tenant may assign or otherwise transfer any leased property or a portion thereof to an affiliate subject to the Lessor’s reasonable approval of the transfer documents. Upon any such assignment or transfer, the Tenant will not be released from obligations under the applicable Lease Agreement and New Sun will not be released from the related obligations under its guaranty.

In addition, the Lease Agreements will allow a Tenant to sublease all or a portion of a facility to a third party subject to a Lessor’s reasonable approval of the third party’s business and operating experience and reputation. Upon any such sublease, the Tenant will not be released from obligations under the applicable Lease Agreements and New Sun will not be released from the related obligations under its guaranty.

Purchase Rights. The Lease Agreements will provide that, in the event the Lessors are interested in disposing of any or all of the leased property which is the subject of the Lease Agreements, the Tenant will have a first right to negotiate with the Lessor with respect to the terms of the purchase of the affected leased property.

The Tax Allocation Agreement

The Tax Allocation Agreement will include an allocation of liability for taxes for taxable periods (or portions thereof) prior to and including the date of the Separation. Under the Tax Allocation Agreement, New Sun will be responsible for and will indemnify Sabra against all income taxes, including any taxes resulting from the restructuring of Sun’s business and the distribution of shares of New Sun common stock to Sun’s stockholders, and all non-income taxes (other than non-income taxes imposed on or with respect to assets of Sabra or its subsidiaries, which shall be the responsibility of Sabra) for periods before and including the Separation that are reportable on any tax return that includes Sabra or one of its subsidiaries, on the one hand, and New Sun or one of its subsidiaries, on the other hand.

New Sun will not pay Sabra any amount under the Tax Allocation Agreement that is expected to exceed the maximum amount that can be paid to Sabra without causing Sabra to fail to meet the REIT gross income requirements under the Code. The unpaid amount, if any, will be placed in escrow and will be paid in subsequent years to the extent the payment would not cause Sabra to fail to meet the REIT gross income requirements under the Code. See “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Related to Sabra—Taxation of Sabra as a REIT—Gross Income Tests.” New Sun’s obligations to pay any unpaid portion will terminate on the date that is five years from the date such indemnification amount otherwise would have been made but for such escrow arrangement.

The Tax Allocation Agreement will not be binding on the IRS or any other governmental entity and will not affect the liability of each of New Sun, Sabra, and their respective subsidiaries and affiliates, to the IRS or any other governmental authority for all U.S. federal, state or local or non-U.S. taxes of the Sun consolidated group relating to periods through the distribution date for the Separation. Accordingly, although the Tax Allocation Agreement described above will allocate tax liabilities between New Sun and Sabra, Sabra and its subsidiaries could be liable for tax liabilities not allocated to them under the Tax Allocation Agreement in the event that any tax liability is not discharged by New Sun.

The Transition Services Agreement

To the extent requested by Sabra, New Sun will provide Sabra with administrative and support services on a transitional basis pursuant to the Transition Services Agreement, including finance and accounting, human resources, legal support, and information systems support (the “Transition Services”) for a period of up to one year, subject to any permitted extensions contained therein. The Transition Services Agreement provides for Sabra to pay New Sun a rate per labor hour of actual services rendered.

The Transition Services Agreement will provide that Sabra has the right to terminate a Transition Service after an agreed notice period. The Transition Services Agreement also will contain provisions whereby Sabra will generally agree to indemnify New Sun for all claims, losses, damages, liabilities and other costs incurred by New Sun to a third party which arise in connection with the provision of a Transition Service, other than those costs resulting from New Sun’s gross negligence or willful misconduct.

Overlapping Directors

In serving on the board of directors of both New Sun and Sabra, Messrs. Walters and Foster will have an actual conflict of interest with respect to matters at Sabra involving New Sun and matters at New Sun involving Sabra. In order to mitigate this conflict of interest, each of Sabra and New Sun expects to adopt governance guidelines prior to the Separation that will prohibit Messrs. Walters and Foster from participating in board discussions at either New Sun or Sabra to the extent the discussions at Sabra relate to negotiations, disputes or other material matters involving New Sun or the discussions at New Sun relate to negotiations, disputes or other material matters involving Sabra. Each board may, in the future, also form committees of independent directors to discuss and act upon matters involving both New Sun and Sabra. Aside from these matters, neither New Sun nor Sabra expects to exclude Messrs. Walters and Foster from any other board business or company information. No other person will be a director, executive officer or other employee of both New Sun and Sabra.

DESCRIPTION OF MATERIAL INDEBTEDNESS

Prior to completion of the Separation, New Sun and Sabra will enter into debt agreements that potentially will be secured by substantially all of their respective assets (other than assets securing mortgage indebtedness), the proceeds of which will be used to repay Sun’s 9.125% senior subordinated notes and the outstanding term loans under Sun’s existing credit facility. Each of New Sun and Sabra will enter into separate debt agreements. Neither New Sun nor Sabra will guarantee or otherwise be responsible for the debt agreement to be entered into by the other company. The indebtedness to be incurred by New Sun and Sabra will be allocated between them based upon various factors, including the ability of New Sun to cover interest payments and maintain lease-adjusted leverage similar to Sun’s lease-adjusted leverage prior to the Separation, and Sabra achieving a leverage ratio in the range of four to eight times trailing twelve month pro forma EBITDA (defined as net income before interest expense (net of interest income), income tax expense, and depreciation and amortization), which Sabra believes is consistent with other publicly traded real estate investment trusts.

The amount of indebtedness that New Sun and Sabra will incur will depend on the net cash generated by Sun between July 1, 2010 and the Separation. The indebtedness will be in an amount that, when combined with Sun’s cash on hand at the time the debt agreements are entered into, will be sufficient to repay Sun’s 9.125% senior subordinated notes and the outstanding term loans under Sun’s existing credit facility and to fund the initial cash position of New Sun and Sabra reflected in the unaudited pro forma financial information included in this proxy statement/prospectus. See “New Sun Unaudited Pro Forma Consolidated Financial Statements” and “Sabra Unaudited Pro Forma Consolidated Financial Statements.” Based on Sun’s cash position as of June 30, 2010, and after giving effect to the use by Sun of the $224.8 million of net proceeds from Sun’s August 2010 equity offering to repay a portion of the outstanding term loans under Sun’s existing credit facility, Sun currently anticipates that New Sun will incur approximately $95.6 million of indebtedness and Sabra will incur approximately $197.5 million of indebtedness prior to completion of the Separation. The actual amount of indebtedness to be incurred by New Sun and Sabra could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010. The terms and structure of the indebtedness to be incurred by New Sun and Sabra have not yet been determined. It is anticipated that the debt agreements to be entered into by New Sun and Sabra will contain customary covenants that will include restrictions on the ability of each of New Sun and Sabra to make acquisitions and other investments, pay dividends, incur additional indebtedness and make capital expenditures as well as customary events of default.

It is also anticipated that the debt agreements to be entered into by New Sun and Sabra will provide for a revolving credit facility to provide borrowing capacity for unusual or unexpected needs, and, in the case of Sabra, is expected to be used for acquisitions or other operational and capital needs. The amount, terms and structure of such revolving credit facility have not yet been determined. At the time of the Separation and based on the outstanding principal amount of Sun’s mortgage indebtedness at June 30, 2010, Sun also anticipates that New Sun will have aggregate mortgage indebtedness to third parties of approximately $4.3 million on certain of the New Sun Retained Properties and Sabra will have aggregate mortgage indebtedness to third parties of approximately $150.0 million ($162.5 million after giving effect to a mortgage refinancing completed by Sun in August 2010) on certain of the 87 properties to be owned by subsidiaries of Sabra following completion of the Separation.

Sun’s outstanding 9.125% senior subordinated notes and the outstanding term loans under Sun’s existing credit facility will be repaid at the same time that the debt agreements described above are entered into by New Sun and Sabra. The Separation and REIT Conversion Merger are expected to be completed following completion of these debt financing transactions, with the REIT Conversion Merger occurring immediately following the Separation.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material U.S. federal income tax consequences to U.S. holders (as defined below) of (i) the Separation (see “—U.S. Federal Income Tax Consequences of the Separation” below), (ii) the REIT Conversion Merger (see “—U.S. Federal Income Tax Consequences of the REIT Conversion Merger” below), (iii) the acquisition, ownership and disposition of Sabra common stock (see “—U.S. Federal Income Tax Considerations Relating to Sabra” below), and (iv) the acquisition, ownership and disposition of New Sun common stock (see “—U.S. Federal Income Tax Considerations Relating to New Sun” below). To the extent specifically noted below, the discussion below represents the opinion of Fried Frank, special tax counsel to Sun, with respect to the transactions described below. The foregoing opinions are subject to the qualifications, assumptions and limitations set forth below and therein, and no opinion is expressed with respect to statements of fact or statements of the beliefs, intentions, expectations or anticipations of Sun, New Sun, Sabra or their respective managements.

This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders of shares of Sun common stock, Sabra common stock or New Sun common stock. The summary is based on the Code, final, temporary and proposed U.S. Treasury regulations, administrative rulings and court decisions in effect as of the date of this proxy statement/prospectus, all of which are subject to change at any time, possibly with retroactive effect. Any such change could alter the U.S. federal income tax consequences described herein. No ruling has been or will be sought from the IRS as to the U.S. federal income tax consequences of the Separation or the REIT Conversion Merger, and there can be no assurance that the IRS will not challenge any of the U.S. federal income tax consequences described herein.

For purposes of this summary, the term “U.S. holder” means a holder of shares of Sun common stock, shares of Sabra common stock and/or shares of New Sun common stock, as applicable, that is for U.S. federal income tax purposes:

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a citizen or resident of the United States;

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a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or any state thereof (or the District of Columbia);

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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

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an estate that is subject to U.S. federal income tax on its income regardless of its source.

This summary only addresses U.S. federal income tax consequences to U.S. holders of shares of Sun common stock, shares of Sabra common stock and shares of New Sun common stock, as applicable, that hold such shares as a capital asset within the meaning of Section 1221 of the Code. Further, this summary does not address all aspects of U.S. federal income taxation that may be relevant to such holder in light of such holder’s particular circumstances or that may be applicable to holders subject to special treatment under U.S. federal income tax laws (including, for example, banks or other financial institutions, insurance companies, REITs or regulated investment companies, broker-dealers, dealers in securities or currencies, traders in securities or other persons that have elected to use a mark-to-market method of accounting, tax-exempt entities including governmental authorities (both U.S. and non-U.S.), non-U.S. individuals and foreign corporations, persons that hold shares through a non-financial foreign entity, persons that hold shares through a foreign financial institution, holders whose functional currency is not the U.S. dollar, holders who acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan, holders who hold their shares in an individual retirement or other tax-deferred account, holders subject to the alternative minimum tax provisions of the Code, U.S. expatriates, persons who hold shares on behalf of another person as nominee, trusts and estates, persons holding a 10% or more (by vote or value) beneficial interest in Sun, Sabra or New Sun (except to the extent discussed herein), holders who hold their shares as part of a hedge, straddle, integration, constructive sale, conversion, “synthetic security,” or other risk reduction transaction or integrated

investment, S corporations, partnerships or other pass-through entities (or investors in S corporations, partnerships or other pass-through entities) and persons otherwise subject to special tax treatment under the Code). In addition, no information is provided herein with respect to the tax consequences under applicable state, local or non-U.S. tax laws or U.S. federal laws other than those pertaining to the U.S. federal income tax (except to the extent discussed in “—U.S. Federal Income Tax Considerations Relating to Sabra” below).

If a partnership (including an entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds shares of Sun common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partners and the activities of the partnership. A stockholder that is a partner in a partnership and partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of shares of Sun common stock, shares of Sabra common stock and/or shares of New Sun common stock.

THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED BELOW ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE SEPARATION AND REIT CONVERSION MERGER. YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE SEPARATION AND REIT CONVERSION MERGER AND OWNERSHIP OF SABRA COMMON STOCK AND NEW SUN COMMON STOCK, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE AND LOCAL, NON-U.S. AND OTHER TAX LAWS.

U.S. Federal Income Tax Consequences of the Separation

In the opinion of Fried Frank, the Separation should be a taxable transaction for U.S. federal income tax purposes to Sun and to U.S. holders of Sun common stock and, although the matter is not free from doubt, the Separation should be treated as a distribution of property under Section 301 of the Code, although alternative characterizations are possible.

Sun

It is expected that Sun will recognize gain, if any, for U.S. federal income tax purposes on the distribution of New Sun common stock in an amount equal to the fair market value of such stock minus the tax basis of Sun in such stock at the time of such distribution. It is also expected that no gain or loss for U.S. federal income tax purposes will be recognized by New Sun as a result of the distribution of its stock in the Separation. The tax payable by Sun will be dependent upon the trading price of New Sun common stock immediately following the distribution of New Sun common stock and certain other factors. Sun believes that it will not be subject to a material amount of U.S. federal income tax as a result of the Separation.

U.S. Holders of Sun Common Stock

The distribution of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash distribution in connection with the Separation to a U.S. holder of Sun common stock should be treated as a taxable distribution to a U.S. holder of Sun common stock for U.S. federal income tax purposes. The amount and the character of the gain to be recognized by a U.S. holder as a result of the Separation is unclear and depends in part on whether such distribution is properly treated as a distribution of property under Section 301 of the Code or instead as other property (“boot”) in the REIT Conversion Merger.

Although the matter is not entirely free from doubt, the Separation should be treated as a distribution of property under Section 301 of the Code. Assuming such characterization prevails and Section 301 of the Code applies (which, except as indicated below, the remainder of this section assumes), the U.S. federal income tax consequences to U.S. holders will be as follows. A U.S. holder will include the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash

distributed in connection with the Separation to the U.S. holder in gross income as ordinary dividend income to the extent of such U.S. holder’s share of the current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles, through the end of 2010. The shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation will be taxable to non-corporate U.S. holders at the 15% rate of tax currently (through 2010) in effect for “qualified dividend income” to the extent that it is paid out of the current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), provided certain holding period requirements are satisfied. In particular, the 15% maximum tax rate available to non-corporate U.S. holders for “qualified dividend income” is not available unless the shares on which an otherwise qualifying dividend is paid have been held for more than 60 days during the 121-day period beginning 60 days before the date on which the shares become “ex-dividend.” For purposes of calculating the 60-day holding period as applied to non-corporate U.S. holders potentially eligible to be taxed on “qualified dividend income” at reduced rates, any period in which the holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, or has granted certain options to buy substantially identical shares or securities, or holds one or more other positions in substantially similar or related property that diminishes the risk of loss from holding shares of Sun (i.e., Sabra following the REIT Conversion Merger) will not be counted toward the required holding period.

In addition, it should be noted that U.S. federal income tax law does not provide definitive guidance regarding the determination of the fair market value of publicly traded securities (which New Sun expects its common stock to be on the date of the Separation). Several courts have held that the fair market value of such securities for U.S. federal income tax purposes equals the average of the high and low sales prices of such securities on the date of determination, but there can be no assurance that the IRS would not seek to establish a different fair market value for New Sun common stock. Although Sun will be ascribing a value to the shares of New Sun common stock received in the Separation for tax purposes, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to the shares, particularly if the stock trades at prices significantly above the value ascribed to the shares by Sun in the period following the Separation.

The exact amount of Sun’s earnings and profits depends upon a variety of factors and cannot be determined until after the close of Sun’s current taxable year. Sun’s management believes that Sun will have current (but not accumulated) earnings and profits for U.S. federal income tax purposes in the current taxable year. To the extent the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation by a U.S. holder exceeds the U.S. holder’s share of the current and accumulated earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles, the excess first will be treated as a tax-free return of capital to the extent, generally, of the U.S. holder’s adjusted tax basis in Sun common stock, and any remaining excess will be treated as capital gain. In addition, a U.S. holder’s tax basis in New Sun common stock received in the Separation will be equal to its fair market value at the time of the Separation, and the holding period in the New Sun common stock received in the Separation will begin the day after the Separation. See “—U.S. Federal Income Tax Considerations Relating to New Sun—Taxation of U.S. Holders of New Sun Stock.” Sabra does not expect to report to U.S. holders the portion of the Separation that should be treated as a dividend prior to January 2011.

Alternative U.S. federal income tax characterizations of the Separation are possible. For example, it is possible that the IRS could seek to treat the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation as other property (“boot”) in the REIT Conversion Merger. In this event, a U.S. holder of Sun common stock would recognize gain, but not loss, equal to the lesser of (i) the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation by such U.S. holder and (ii) the fair market value of the shares of Sabra common stock received in the REIT Conversion Merger and the fair market value of the shares of New Sun common stock (including fractional shares for which Sun stockholders receive cash) and the cash received in connection with the Separation by such U.S. holder

minus the adjusted tax basis of such U.S. holder in its Sun common stock converted therefor. In general, the determination as to whether such gain recognized by a U.S. holder would be treated as capital gain or dividend income depends upon whether and to what extent the transactions related to the REIT Conversion Merger would be deemed to reduce the U.S. holder’s percentage ownership of Sabra following the REIT Conversion Merger. A U.S. holder whose interest is not reduced by the requisite percentage generally would be treated as receiving a dividend distribution under Section 301 of the Code to the extent of such U.S. holder’s share of the undistributed earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger), as determined under U.S. federal income tax principles, as of the effective time of the REIT Conversion Merger and any excess would then be treated as gain from the exchange of property.

U.S. Federal Income Tax Consequences of the REIT Conversion Merger

In the opinion of Fried Frank, the REIT Conversion Merger should be treated as a tax-free reorganization within the meaning of Section 368(a) of the Code. Accordingly, the receipt of Sabra common stock in exchange for Sun common stock in the REIT Conversion Merger should not cause recognition of gain or loss for U.S. federal income tax purposes to U.S. holders with respect to such exchange, except with respect to cash received in lieu of a fractional share of Sabra common stock as discussed below. Accordingly, no gain or loss should be recognized by Sun or Sabra as a result of the REIT Conversion Merger. As noted above, it is possible that the New Sun common stock could be treated as having been received in the REIT Conversion Merger. See “—U.S. Federal Income Tax Consequences of the Separation—U.S. Holders of Sun Common Stock”).

Cash in Lieu of Fractional Shares

A U.S. holder of Sun common stock who receives cash in lieu of a fractional share of Sabra common stock in the REIT Conversion Merger generally will be treated as having received such fractional share in the REIT Conversion Merger and then as having received cash in redemption of such fractional share. Gain or loss generally will be recognized based on the difference between the amount of cash received in lieu of the fractional share and the portion of the U.S. holder’s aggregate tax basis in the Sun common stock surrendered that is allocable to the fractional share. This gain or loss generally will be long-term capital gain or loss if the holding period for the Sun common stock is more than one year at the effective time of the REIT Conversion Merger.

U.S. Federal Income Tax Considerations Relating to Sabra

Taxation of Sabra as a Corporation under Subchapter C of the Code and not as a REIT

Until such time as Sabra qualifies and elects to be treated as a REIT for U.S. federal income tax purposes, Sabra will continue to be taxed as a corporation under Subchapter C of the Code as Sun is taxed at the present time. Under Subchapter C of the Code, Sabra is subject to U.S. federal income tax on its taxable income and will not be entitled to deduct any dividends it distributes; thus, while Sabra is taxed as a corporation under Subchapter C of the Code, its income is subject to double taxation, at the corporate level as it pays tax on its taxable income and at the stockholder level on dividends it distributes.

Except as stated otherwise, the remainder of this discussion “—U.S. Federal Income Tax Considerations Relating to Sabra” assumes that Sabra will become eligible and will elect to be treated as a REIT for U.S. federal income tax purposes.

Taxation of Sabra as a REIT

General

Sabra intends to qualify and elect to be treated as a REIT under Sections 856 through 860 of the Code and the applicable U.S. Treasury regulations (the “REIT Requirements”), which are the requirements for qualifying as a REIT, commencing with its taxable year beginning on January 1, 2011. Sabra believes that, commencing with its

taxable year beginning on January 1, 2011, it will be owned and organized, and will operate in such a manner, as to qualify for taxation as a REIT for U.S. federal income tax purposes. Sabra intends to continue to operate in such a manner, but no assurance can be given that it will operate in a manner so as to qualify or remain qualified.

The REIT Requirements are technical and complex. The following discussion sets forth only certain material aspects of those requirements. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations promulgated thereunder, and administrative and judicial interpretations thereof. Sabra’s qualification and taxation as a REIT depends upon its ability to meet, through actual annual operating results, distribution levels to stockholders and diversity of stock ownership, and the various qualification tests imposed under the REIT Requirements which are discussed below. Satisfaction of these tests both as an initial and ongoing matter is more complicated in the case of a REIT, such as Sabra, which owns properties leased to New Sun with which it was historically related and has common stockholders, directors and officers. No assurance can be given that the actual results of Sabra’s operation for any one taxable year will satisfy such requirements. See “—Failure to Qualify as a REIT.” If Sabra qualifies for taxation as a REIT, it generally will not be subject to U.S. federal corporate income taxes on that portion of its ordinary income or capital gain that is currently distributed to stockholders. Sabra expects that such treatment would substantially eliminate the U.S. federal “double taxation” on earnings (at the corporate and the stockholder levels) that generally results from investment in a corporation.

If Sabra remains qualified as a REIT, it will nonetheless be subject to U.S. federal income or excise tax in certain circumstances, which include, but are not limited to, the following:

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Sabra will be taxed at regular corporate income tax rates on any undistributed REIT taxable income, including undistributed net capital gains;

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Under certain circumstances, Sabra may be subject to the “alternative minimum tax” on certain of its tax preference items, if any;

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If Sabra has (i) net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or (ii) other nonqualifying net income from foreclosure property, it will be subject to tax at the highest corporate tax rate on such income;

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If Sabra has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than sales of foreclosure property and sales that qualify for a statutory safe harbor), such income will be subject to a 100% tax;

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If Sabra should fail to satisfy the 75% gross income test or the 95% gross income test (which are discussed below), but has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the net income attributable to the greater of the amount by which Sabra fails the 75% or the 95% test;

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Similarly, if Sabra should fail to satisfy the asset or other requirements applicable to REITs, as described below, yet nonetheless qualify as a REIT because there is reasonable cause for the failure and other applicable requirements are met, Sabra may be subject to a penalty. In that case, the amount of the penalty will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income generated by the assets in question multiplied by the highest corporate tax rate if that amount exceeds $50,000 per failure;

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If Sabra should fail to distribute, or fail to be treated as having distributed, with respect to each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year (other than capital gain income Sabra elects to retain and pay tax on) and (iii) any undistributed taxable income from prior periods, Sabra would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed;

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If Sabra should receive rents from New Sun deemed not to be fair market value rents or if Sabra misvalues its assets, Sabra or New Sun may be liable for valuation penalties;

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Sabra will be subject to a 100% tax on transactions with its taxable REIT subsidiaries if such transactions are not at arm’s length; and

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Sabra will own appreciated assets that it held before electing to be treated as a REIT. Under the “Built-In-Gain Rules,” if such appreciated property is sold in a taxable transaction within the 10-year period following Sabra’s qualification as a REIT, Sabra will generally be subject to tax at the highest corporate income tax rate on that gain to the extent of the built-in gain in that property at the time Sabra becomes a REIT. The total amount of gain on which Sabra can be taxed is limited to its net built-in gain at the time it became a REIT, i.e., the excess of the aggregate fair market value of its assets at the time it became a REIT over the adjusted tax bases of those assets at that time. In certain circumstances, Sabra may also be subject to tax on the disposition of any appreciated assets that it acquires from a taxable corporation in a transaction in which any gain on the transfer is not fully recognized. Because Sabra is currently a C corporation and will own substantial assets before such time that it qualifies and elects to be taxed as a REIT, the Built-In Gain Rules could limit its operational flexibility or otherwise reduce the benefits of taxation as a REIT.

No assurance can be given that the amount of such U.S. federal income tax will not be substantial. In addition, Sabra and its subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state, local and foreign income, franchise, property and other taxes on assets and operations. Sabra could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification

As indicated above, to qualify as a REIT, a corporation must elect to be so treated and must meet various (a) organizational requirements, (b) gross income tests, (c) asset tests and (d) distribution requirements. Sabra’s ability to satisfy the asset tests will depend upon its analysis of the fair market values of its assets, some of which are not susceptible to a precise determination. Its compliance with the REIT income and quarterly asset requirements will also depend upon its ability to successfully manage the composition of its income and assets on an ongoing basis.

Organizational Requirements

The Code defines a REIT as a corporation, trust, or association that makes a REIT election with its tax return and:

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that is managed by one or more trustees or directors;

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the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

•

that would be taxable as a domestic corporation, but for the REIT Requirements;

•

that is not a bank, an insurance company or certain other specified types of financial institutions;

•

the beneficial ownership of which is held by 100 or more persons;

•

not more than 50% in value of the outstanding stock of which is owned, directly or constructively, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year; and

•

that meets certain other tests, described below, regarding the nature of its income and assets.

The Code provides that the conditions described in the first four bullets above, inclusive, must be met during the entire taxable year and that the condition described in the fifth bullet above must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. The conditions described in the fifth and sixth bullets above will not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of the condition described in the sixth bullet above, certain tax-exempt entities are generally treated as individuals, and the beneficiaries of a pension trust that qualifies under Section 401(a) of the Code and that holds shares of a REIT will be treated as holding shares of the REIT in proportion to their actuarial interests in the pension trust. In addition, if a REIT fails to satisfy the condition described in the sixth bullet above for any taxable year, the REIT will nonetheless be deemed to have satisfied the condition if it complied with U.S. Treasury regulations requiring the maintenance of records to ascertain ownership and did not know (and would not have known using reasonable diligence) that it was closely held for the year. Sabra believes that it will have sufficient diversity of ownership to satisfy the conditions in the fifth and sixth bullets above. In addition, Sabra’s charter restricts the transfer and ownership of its stock so that it should continue to satisfy these conditions. The provisions of Sabra’s charter restricting the transfer and ownership of its stock are described in “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.”

In addition, Sabra intends to request on an annual basis from certain stockholders, and those stockholders will be required to provide, information relating to the number of shares actually or constructively owned by the stockholder. Ownership for purposes of conditions described in the fifth and sixth bullet above is defined using certain constructive ownership rules. As a result, the acquisition of less than 9.9% of Sabra stock by an individual or entity may cause that individual or entity to constructively own more than 9.9% of such stock, thereby triggering the transfer restrictions described in “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.” In addition, in order to qualify as a REIT, Sabra cannot have any C corporation earnings and profits at the end of the taxable year with respect to which Sabra’s REIT election is made. Sabra anticipates that the distribution of the stock of New Sun in the Separation will reduce the earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger) to zero for its taxable year ending December 31, 2010. See “—Non-REIT Earnings and Profits.”

Effect of Subsidiary Entities

Disregarded Entities and Partnerships. An unincorporated domestic entity, such as a partnership or limited liability company that has a single owner, generally is not treated as an entity separate from its parent for U.S. federal income tax purposes. An unincorporated domestic entity with two or more owners is generally treated as a partnership for U.S. federal income tax purposes. In the case of a REIT that is a partner in a partnership that has other partners, the REIT is treated as owning its proportionate share of the assets of such partnership and as earning its allocable share of the gross income of such partnership for purposes of the applicable REIT qualification tests. Sabra’s proportionate share for purposes of the 10% value test (see “—Asset Tests”) will be based on Sabra’s proportionate interest in the equity interests and certain debt securities issued by such partnership. For all of the other asset and income tests, Sabra’s proportionate share will be based on Sabra’s proportionate interest in the capital interests in such partnership. Sabra’s proportionate share of the assets, liabilities, and items of income of any partnership, joint venture, or limited liability company that is treated as a partnership for U.S. federal income tax purposes in which Sabra acquires an equity interest, directly or indirectly, will be treated as Sabra’s assets and gross income for purposes of applying the various REIT qualification requirements. Sabra Health Care Limited Partnership currently is a disregarded entity because Sabra owns 100% of the interests in it, directly or through other disregarded entities. If Sabra admits other limited partners, Sabra Health Care Limited Partnership will be treated as a partnership for U.S. federal income tax purposes.

Qualified REIT Subsidiaries. A corporation that is a qualified REIT subsidiary (“QRS”) is not treated as a corporation separate from its parent REIT. All assets, liabilities and items of income, deduction and credit of a QRS are treated as assets, liabilities and items of income, deduction and credit of the parent REIT. A QRS is a corporation, other than a TRS (as defined below), all of the stock of which is owned by the parent REIT. Thus, in

applying the requirements described herein, any QRS that Sabra owns will be ignored, and all assets, liabilities and items of income, deduction and credit of such subsidiary will be treated as Sabra’s assets, liabilities and items of income, deduction and credit.

Taxable REIT Subsidiaries. A REIT may own up to 100% of the shares of one or more taxable REIT subsidiaries (“TRSs”). A TRS is a fully taxable corporation that may earn income that would not be qualifying income if earned directly by the parent REIT. The subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Sabra is not treated as holding the assets of a TRS or as receiving any income that the subsidiary earns. Rather, the stock issued by a TRS to Sabra is an asset in Sabra’s hands, and Sabra treats the distributions paid to Sabra from such taxable subsidiary, if any, as income. This treatment can affect Sabra’s compliance with the gross income and asset tests. Because Sabra does not include the assets and income of TRSs in determining its compliance with the REIT requirements, Sabra may use such entities to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. A domestic TRS will pay income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent REIT or the REIT’s tenants that are not conducted on an arm’s-length basis.

A TRS may not directly or indirectly operate or manage any health care facilities or lodging facilities or provide rights to any brand name under which any health care facility or lodging facility is operated. A TRS may provide rights to any brand name under which any health care facility or lodging facility is operated if such rights are provided to an “eligible independent contractor” (as described below), to operate or manage a health care facility or lodging facility, if such rights are held by the TRS as a franchisee, licensee, or in a similar capacity, and such health care facility or lodging facility is either owned by the TRS or leased to the TRS by its parent REIT. A TRS will not be considered to operate or manage a “qualified health care property” or “qualified lodging facility” solely because the TRS directly or indirectly possesses a license, permit, or similar instrument enabling it to do so. Additionally, a TRS that employs individuals working at a “qualified health care property” or “qualified lodging facility” outside of the United States will not be considered to operate or manage a “qualified health care property” or “qualified lodging facility,” as long as an “eligible independent contractor” is responsible for the daily supervision and direction of such individuals on behalf of the TRS pursuant to a management agreement or similar service contract. Rent that Sabra receives from any TRS lessee will qualify as “rents from real property” as long as the property is a “qualified health care property” and is operated on behalf of a TRS lessee by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating “qualified health care properties” for any person unrelated to Sabra and a TRS lessee (an “eligible independent contractor”). A “qualified health care property” includes any real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients and which is operated by a provider of such services which is eligible for participation in the Medicare program with respect to such facility.

Non-REIT Earnings and Profits.

In addition, in order to qualify as a REIT, Sabra cannot have at the end of any taxable year any earnings and profits that were accumulated in any taxable year in which the REIT provisions did not apply (“pre-REIT E&P”). Sabra anticipates that the distribution of the stock of New Sun in the Separation will reduce the earnings and profits of Sun (i.e., Sabra following the REIT Conversion Merger) to zero at the time of the REIT Conversion. The calculation of Sabra’s pre-REIT E&P, however, is a complex factual and legal determination. Sabra may have less than complete information at the time it undertakes its analysis or may interpret the applicable law (including the law relating to the characterization of the transaction) differently than the IRS. There can be no

assurances that the IRS will agree with Sabra’s determination of its pre-REIT E&P, and there are uncertainties regarding the amount of such pre-REIT E&P. These uncertainties include the possibility that the IRS could, upon audit, increase Sabra’s taxable income, which would increase Sabra’s pre-REIT E&P. If the IRS subsequently were to determine that Sun did have earnings and profits and Sabra had not distributed such earnings and profits by the end of the taxable year with respect to which Sabra’s REIT election is made, Sabra and its stockholders could be subject to adverse tax consequences.

Gross Income Tests

In order to maintain qualification as a REIT, Sabra must annually satisfy the following two gross income requirements:

•

At least 75% of Sabra’s gross income (excluding gross income from prohibited transactions) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (such as interest on obligations secured by mortgages on real property, certain “rents from real property” or gain on the sale or exchange of such property and certain fees with respect to agreements to make or acquire mortgage loans), from certain types of temporary investments or certain other types of gross income; and

•

At least 95% of Sabra’s gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from such real property investments as aforesaid and from dividends, interest, and gain from the sale or other disposition of stock or securities and certain other types of gross income (or from any combination of the foregoing).

In order to qualify as a REIT, the rental income received by Sabra (including rents received from New Sun pursuant to the Lease Agreements) must constitute “rents from real property.” Rent that Sabra receives from its real property will qualify as “rents from real property,” which is qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:

•

First, the rent must not be based, in whole or in part, on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales;

•

Second, neither Sabra nor a direct or indirect owner of 10% or more of Sabra stock may own, actually or constructively, 10% or more of a tenant from whom Sabra receives rents, other than a TRS. If the tenant is a TRS, such TRS may not directly or indirectly operate or manage the related property. Instead, the property must, among other requirements, be operated on behalf of the TRS by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating healthcare facilities for any person unrelated to Sabra and the TRS;

•

Third, if rent attributable to personal property (including furniture, fixtures and equipment which Sabra will be leasing pursuant to the Lease Agreements to New Sun) leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property.” However, if the 15% threshold is exceeded, the rent attributable to personal property will not qualify as “rents from real property.” Sabra does not intend to derive rental income attributable to personal property (other than personal property leased in connection with the lease of real property, the amount of which is less than 15% of the total rent received under the lease). There can be no assurance, however, that the IRS would not challenge Sabra’s calculation of a personal property ratio, or that a court would not uphold such assertion. If such a challenge were successfully asserted, Sabra could fail to satisfy the 75% or 95% gross income test and thus potentially lose its REIT status; and

•

Fourth, Sabra generally must not operate or manage its real property or furnish or render services to its tenants, other than through an “independent contractor” who is adequately compensated and from whom Sabra does not derive revenue. However, Sabra need not provide services through an

“independent contractor,” but instead may provide services directly to its tenants, if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. Furthermore, Sabra may own up to 100% of the stock of one or more TRSs which may, except in certain circumstances, provide customary and noncustomary services to Sabra’s tenants without tainting Sabra’s rental income for the related properties. Sabra does not intend to perform noncustomary services, other than through independent contractors or TRSs.

The rents received by Sabra pursuant to the Lease Agreements will qualify as “rents from real property” in satisfying the gross income requirements for a REIT only if the conditions described in the four bullets above are met. For example, rents received or accrued by Sabra from New Sun will not qualify as “rents from real property” if Sabra is treated, either directly or under the applicable attribution rules, as owning 10% or more of New Sun common stock. Sabra will be treated as owning, under the applicable attribution rules, 10% or more of New Sun common stock at any time that a holder owns, directly or under the applicable attribution rules, (a) 10% or more of Sabra common stock and (b) 10% or more of New Sun common stock. In order for the rents received or accrued by Sabra from New Sun to be treated as qualifying rents for purposes of the REIT gross income requirements, the provisions of Sabra’s charter restrict the transfer and ownership of its common stock. The provisions of Sabra’s charter restricting the transfer and ownership of its common stock are described in “Description of Sabra Stock—Restrictions on Transfer and Ownership of Sabra Stock.” Nevertheless, there can be no assurance that such restrictions will be effective in ensuring that Sabra will not be treated as related to New Sun.

In addition, the Lease Agreements (as well as any other leases entered into by Sabra) must be respected as true leases for U.S. federal income tax purposes and not treated as service contracts, joint ventures or some other type of arrangement. The determination of whether the Lease Agreements are true leases depends on an analysis of all the surrounding facts and circumstances. In making such a determination, courts have considered a variety of factors, including the following: (i) the intent of the parties, (ii) the form of the agreement, (iii) the degree of control over the property that is retained by the property owner (e.g., whether the lessee has substantial control over the operation of the property or whether the lessee was required to use its best efforts to perform its obligations under the agreement), and (iv) the extent to which the property owner retains the risk of loss with respect to the property (e.g., whether the lessee bears the risk of increases in operating expenses or the risk of damage to the property) or the potential for economic gains (e.g., appreciation) with respect to the property. In addition, the federal income tax law provides that a contract that purports to be a service contract or a partnership agreement is treated instead as a lease of property if the contract is properly treated as such, taking into account all relevant factors. Since the determination of whether a service contract should be treated as a lease is inherently factual, the presence or absence of any single factor may not be dispositive in every case. If the Lease Agreements are recharacterized as service contracts or partnership agreements, rather than true leases, part or all of the payments that Sabra receives from New Sun would not be considered rent or would not otherwise satisfy the various requirements for qualification as “rents from real property.” In that case, Sabra likely would not be able to satisfy either the 75% or 95% gross income tests and, as a result, would lose its REIT status. In addition, if the payments under the Lease Agreements do not represent fair market value rentals and the IRS determines that New Sun and Sabra are under common control, the IRS may reallocate income between New Sun and Sabra. The reallocation could cause Sabra or New Sun to be subject to valuation penalties. Sabra believes that the payments under the Lease Agreements will represent fair market rentals. Investors should be aware that there are no controlling U.S. Treasury regulations, published rulings or judicial decisions involving leases with terms substantially the same as the Lease Agreements that discuss whether such Lease Agreements constitute true leases for federal income tax purposes.

Relief Provisions for Failing the 75% or 95% Gross Income Tests. If Sabra fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if certain relief provisions of the Code apply. These relief provisions will generally apply if Sabra’s failure to meet such tests was due to reasonable cause and not due to willful neglect, Sabra attaches a schedule of the sources of its

income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. Under certain circumstances, Sabra may prefer not to have the relief provisions apply. If these relief provisions are inapplicable to a particular set of circumstances involving Sabra, it would not qualify as a REIT. As discussed above under “—Taxation of Sabra as a REIT—General,” even where these relief provisions apply, a tax would be imposed based upon the amount by which Sabra fails to satisfy the particular gross income test.

Asset Tests

At the close of each quarter of its taxable year, Sabra must satisfy the following four tests relating to the nature of its assets:

•

At least 75% of the value of Sabra’s total assets must be represented by real estate assets (including stock or debt instruments that do not otherwise qualify as real estate assets and that are not held for more than one year that were purchased with the proceeds of a stock offering or long-term (at least five years) debt offering of Sabra), cash, cash items, and government securities;

•

Not more than 25% of Sabra’s total assets may be represented by securities other than those in the 75% asset class;

•

Of the investments included in the 25% asset class, the value of any one issuer’s securities owned by Sabra may not exceed 5% of the value of Sabra’s total assets, and Sabra may not own more than 10% of any one issuer’s outstanding voting securities or more than 10% of the value of any one issuer’s outstanding securities; and

•

Not more than 25% of Sabra’s total assets may be represented by securities of one or more TRSs.

After initially meeting the asset tests at the close of any quarter, Sabra will not lose its status as a REIT if it fails to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values.

Relief Provisions for Failing the Asset Tests. If Sabra fails to satisfy the asset tests at the end of a quarter, Sabra will not lose its REIT qualification if:

•

it satisfied the asset tests at the end of the preceding calendar quarter; and

•

the discrepancy between the value of Sabra’s assets and the asset test requirements arose from changes in the market values of Sabra’s assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.

If Sabra did not satisfy the condition described in the second bullet above and the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. Sabra intends to maintain adequate records of the value of its assets to ensure compliance with the asset tests, and intends to take such action within 30 days after the close of any quarter as may be required to cure any noncompliance but no assurance can be given that such asset tests will be met.

If Sabra violates the 5% value test, 10% voting test or 10% value test described above at the end of any calendar quarter, Sabra will not lose its REIT qualification if (i) the failure is de minimis (up to the lesser of 1% of Sabra’s total assets or $10 million) and (ii) Sabra disposes of these assets or otherwise complies with the asset tests within six months after the last day of the quarter. In the event of a more than de minimis failure of any of the asset tests, as long as the failure was due to reasonable cause and not to willful neglect, Sabra will not lose its REIT qualification if Sabra (i) files with the IRS a schedule describing the assets that caused the failure, (ii) disposes of these assets or otherwise complies with the asset tests within six months after the last day of the quarter and (iii) pays a tax equal to the greater of $50,000 per failure or an amount equal to the product of the highest corporate income tax rate (currently 35%) and the net income from the non-qualifying assets during the period in which Sabra failed to satisfy the asset tests.

Annual Distribution Requirements

In order to be treated as a REIT, Sabra is required to distribute dividends (other than capital gains dividends) to its stockholders in an amount at least equal to:

(A)

the sum of

(i)

90% of Sabra’s “REIT taxable income” (computed without regard to the dividends paid deduction and Sabra’s net capital gain), and

(ii)

90% of the net income, if any, from foreclosure property in excess of the special tax on income from foreclosure property,

minus

(B)

the sum of certain items of noncash income.

Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if either (i) Sabra declares the distribution before Sabra files a timely U.S. federal income tax return for the year and pays the distribution with or before the first regular dividend payment after such declaration or (ii) Sabra declares the distribution in October, November or December of the taxable year, payable to stockholders of record on a specified day in any such month, and Sabra actually pays the dividends before the end of January of the following year. The distributions under clause (i) are taxable to owners of Sabra common stock in the year in which paid, and the distributions in clause (ii) are treated as paid on December 31 of the prior taxable year. In both instances, these distributions relate to Sabra’s prior taxable year for purposes of the 90% distribution requirement.

If Sabra disposes of any asset that is subject to the Built-In Gain Rules during the applicable 10-year period, Sabra may be required to distribute at least 90% of the built-in gain (after tax), if any, recognized on the disposition of the asset.

To the extent that Sabra does not distribute (or is not treated as having distributed) all of its net capital gain or distributes (or is treated as having distributed) at least 90%, but less than 100% of its “REIT taxable income,” as adjusted, it will be subject to tax thereon at regular ordinary and capital gains corporate tax rates. If Sabra so elects, the net capital gain retained by it will be treated as having been (i) distributed to its stockholders, (ii) taxed at the stockholder level and (iii) contributed to Sabra in an amount equal to the gain less the tax. In such a case, stockholders will receive certain tax credits and basis adjustments reflecting the deemed distribution and deemed payment of taxes by stockholders. The Code also permits a stockholder to elect to be treated for tax purposes as having (i) received a distribution in the amount specified in the election and (ii) contributed the amount thereof to the capital of Sabra.

If Sabra should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year (other than capital gain income which Sabra elects to retain and pay tax on), and (iii) any undistributed taxable income from prior periods, Sabra would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. Sabra may elect to retain rather than distribute its net long-term capital gains while treating the capital gain as if distributed. The effect of such an election is that (i) Sabra is required to pay the tax on such gains, (ii) U.S. holders, while required to include their proportionate share of the undistributed long-term capital gain in income, will receive a credit or refund for their share of the tax paid by Sabra, and (iii) the basis of a U.S. holder’s stock would be increased by the amount of the undistributed long-term capital gains (minus the amount of capital gains tax paid by Sabra) included in the U.S. holder’s long-term capital gains. Sabra intends to make timely distributions sufficient to satisfy the annual distribution requirement. “REIT taxable income” is the taxable income of a REIT, which generally is computed in the same fashion as the taxable income of any corporation, except that (i) certain deductions are not available, such as the deduction for dividends received,

(ii) a REIT may deduct dividends paid (or deemed paid) during the taxable year, (iii) net capital gains and losses are excluded, and (iv) certain other adjustments are made. It is possible that, from time to time, Sabra may not have sufficient cash or other liquid assets to meet the 90% distribution requirement due to timing differences between (i) the actual receipt of income and actual payment of deductible expenses and (ii) the inclusion of such income and deduction of such expenses in calculating the taxable income of Sabra.

In the event that such an insufficiency or such timing differences occur, in order to meet the 90% distribution requirement and maintain Sabra’s status as a REIT, Sabra may have to sell assets at unfavorable prices, borrow at unfavorable terms, make taxable stock dividends, or pursue other strategies. Sabra does not currently intend to pay taxable stock dividends. However, if for any taxable year, Sabra has significant amounts of taxable income in excess of available cash flow, Sabra may have to declare dividends in-kind. Pursuant to IRS Revenue Procedure 2010-12, the IRS has indicated that it will treat distributions that are paid part in cash and part in stock as dividends that would satisfy the REIT annual distribution requirements and qualify for the dividends paid deduction for U.S. federal income tax purposes. In order to qualify for such treatment, IRS Revenue Procedure 2010-12 requires that at least 10% of the total distribution be payable in cash and that each stockholder have a right to elect to receive its entire distribution in cash. If too many stockholders elect to receive cash, each stockholder electing to receive cash would receive a proportionate share of the cash to be distributed (although no stockholder electing to receive cash may receive less than 10% of such stockholder’s distribution in cash). IRS Revenue Procedure 2010-12 applies to distributions declared on or before December 31, 2012 with respect to taxable years ending on or before December 31, 2011. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable dividends payable in cash and/or stock, including on a retroactive basis, or assert that the requirements for such taxable dividends have not been met.

Under certain circumstances, Sabra may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in Sabra’s deduction for dividends paid for the earlier year. Thus, Sabra may be able to avoid being taxed on amounts distributed as deficiency dividends; however, Sabra will be required to pay interest based upon the amount of any deduction taken for deficiency dividends.

Statutory Relief

If Sabra fails to satisfy one or more of the requirements for qualification as a REIT, other than the income tests and asset tests discussed above, Sabra will not lose its status as a REIT if its failure was due to reasonable cause and not willful neglect, and Sabra pays a penalty of $50,000 for each such failure.

Failure to Qualify as a REIT

If Sabra fails to qualify for taxation as a REIT in any taxable year, and the relief provisions described above do not apply, Sabra will be subject to tax (including any applicable alternative minimum tax) on its taxable income at corporate tax rates. Distributions to stockholders in any year in which Sabra fails to qualify will not be deductible by Sabra and they will not be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to stockholders will be taxable as ordinary income, and subject to certain limitations of the Code, corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory provisions, Sabra will also be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost, and will not be permitted to requalify unless it distributes any earnings and profits attributable to the period when it failed to qualify. In addition, it may be subject to tax on any built-in gains on property held during the period during which it did not qualify if it sold such property within 10 years of requalification, to the extent of its net built-in gain at the time of requalification. It is not possible to state whether in all circumstances Sabra would be entitled to such statutory relief.

Taxation of U.S. Holders of Sabra Common Stock

REIT Distributions

Distributions Generally. As long as Sabra qualifies as a REIT, distributions by Sabra to a U.S. holder out of Sabra’s current and accumulated earnings and profits (and not designated as capital gains dividends) will be taken into account by such U.S. holder as ordinary income. Dividends paid by Sabra to a corporate U.S. holder will not be eligible for the dividends-received deduction for corporations. A distribution in excess of current and accumulated earnings and profits will first be treated as a tax-free return of capital, reducing the tax basis in the U.S. holder’s Sabra common stock, and a distribution in excess of the U.S. holder’s tax basis in its Sabra common stock will be a taxable gain realized from the sale of such shares. Dividends declared by Sabra in October, November or December of any year payable to a stockholder of record on a specified date in any such month shall be treated as both paid by Sabra and received by the stockholder on December 31 of such year, provided that the dividend is actually paid by Sabra during January of the following calendar year. Sabra will be treated as having sufficient earnings and profits to treat as a dividend any distribution by Sabra up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed under “—Taxation of Sabra as a REIT—General” and “—Taxation of Sabra as a REIT—Annual Distribution Requirements” above. As a result, stockholders may be required to treat as taxable dividends certain distributions that would otherwise result in tax-free returns of capital. Moreover, any “deficiency dividend” will be treated as a “dividend” (an ordinary dividend or a capital gain dividend, as the case may be), regardless of Sabra’s earnings and profits.

Capital Gain Distributions. Distributions that are designated by Sabra as capital gain dividends will be treated as long-term capital gain (to the extent they do not exceed Sabra’s actual net capital gain) for the taxable year without regard to the period for which the stockholder has held its stock. However, corporate stockholders may be required to treat up to 20% of certain capital gains dividends as ordinary income, pursuant to Section 291(d) of the Code. If Sabra elects to retain capital gains rather than distribute them, a U.S. holder will be deemed to receive a capital gain dividend equal to the amount of such retained capital gains. In such a case, a U.S. holder will receive certain tax credits and basis adjustments reflecting the deemed distribution and deemed payment of taxes by the U.S. holder.

To the extent that Sabra has available net operating losses and capital losses carried forward from prior taxable years, such losses may reduce the amount of distributions that Sabra must make to comply with the REIT distribution requirements described under “—Taxation of Sabra as a REIT—Annual Distribution Requirements” above. Such losses, however, are not passed through to a stockholder of Sabra common stock and do not offset such stockholder’s income from other sources, nor would they affect the character of any distributions that a stockholder receives from Sabra.

Dispositions of Sabra Common Stock

In general, a U.S. holder will realize gain or loss upon the sale, redemption, or other taxable disposition of Sabra common stock in an amount equal to the difference between the sum of the fair market value of any property received and the amount of cash received in such disposition, and the U.S. holder’s adjusted tax basis in the common shares at the time of the disposition. In general, a U.S. holder’s tax basis will equal the U.S. holder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. holder, less tax deemed paid on it, and reduced by returns of capital. Gain from the sale or disposition of Sabra common stock held for more than one year will generally be long-term capital gain. Capital losses recognized by a U.S. holder upon the disposition of shares of Sabra common stock held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. holder but not ordinary income, except in the case of individuals, who may offset up to $3,000 of ordinary income each year. In addition, any loss upon a sale or exchange of shares of Sabra common stock by a U.S. holder who has held such shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from Sabra that are required to be treated by the U.S. holder as long-term capital gain.

If a U.S. holder recognizes a loss upon a disposition of Sabra common stock in an amount that exceeds a prescribed threshold, it is possible that the provisions of U.S. Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. While these regulations are directed towards “tax shelters,” they are written quite broadly, and apply to transactions that would not typically be considered tax shelters. In addition, there are significant penalties for failure to comply with these requirements. Each prospective holder of Sabra common stock should consult its tax advisor concerning any possible disclosure obligation with respect to the receipt or disposition of Sabra common stock, or transactions that might be undertaken directly or indirectly by Sabra. Moreover, holders should be aware that Sabra and other participants in the transactions involving Sabra (including its advisors) may be subject to disclosure or other requirements pursuant to these regulations.

Passive Activity Losses and Investment Interest

Distributions made by Sabra and gain arising from the sale or exchange by a U.S. holder of shares of Sabra common stock will not be treated as passive activity income. As a result, U.S. holders will not be able to apply any “passive losses” against income or gain relating to shares of Sabra common stock. Distributions made by Sabra, to the extent they do not constitute return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Information Reporting and Backup Withholding Tax

Sabra will report to a U.S. holder and the IRS the amount of distributions it pays during each calendar year and the amount of tax it withholds, if any. Under the backup withholding rules, a U.S. holder of Sabra common stock may be subject to backup withholding at a current rate of 28% with respect to distributions unless such U.S. holder:

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is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or

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provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.

Any amount paid as backup withholding will be creditable against a U.S. holder’s income tax liability, provided that proper information is timely provided to the IRS.

U.S. holders should consult their own tax advisors with respect to the U.S. federal, state and local and non-U.S. tax consequences to them of an investment in Sabra common stock, including applicable tax rates, and the effect of any possible changes in the tax laws.

Legislative or Other Actions Affecting REITs

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. No assurance can be given as to whether, or in what form, any proposals affecting REITs or their stockholders will be enacted. Changes to the federal tax laws and interpretations thereof could adversely affect an investment in Sabra common stock.

U.S. Federal Income Tax Considerations Relating to New Sun

Taxation of New Sun

As a C-corporation under the Code, New Sun will be subject to U.S. federal income tax on its taxable income at the U.S. federal corporate tax rate of 35%.

Taxation of U.S. Holders of New Sun Common Stock

Distributions

Distributions to U.S. holders of New Sun common stock generally will be taxable as dividend income to such U.S. holders up to the amount of New Sun’s then current and accumulated earnings and profits. Dividends paid by New Sun to a corporate U.S. holder may be eligible for the dividends-received deduction for corporations. To the extent that New Sun makes distributions to a U.S. holder in excess of the U.S. holder’s share of the current and accumulated earnings and profits of New Sun, the excess first will be treated as a tax-free return of capital to the extent, generally, of the U.S. holder’s tax basis in the U.S. holder’s New Sun common stock, and any remaining excess will be treated as capital gain.

Dispositions of New Sun Common Stock

A U.S. holder generally will recognize gain or loss on the sale, exchange or other disposition of shares of New Sun common stock (unless a specific nonrecognition provision applies). Such gain or loss will be equal to the difference between the amount of cash and the fair market value of any property received and the U.S. holder’s tax basis in such shares. A U.S. holder’s holding period for shares of New Sun common stock acquired in the Separation will begin on the day after the date of the Separation. Gain from the sale of New Sun common stock held for more than one year will generally be long-term capital gain. Long-term capital losses recognized by a U.S. holder upon the disposition of shares of New Sun common stock are generally available only to offset capital gain income of the U.S. holder but not ordinary income, except in the case of individuals, who may offset up to $3,000 of ordinary income each year. Non-corporate U.S. holders may carry forward unused net capital losses indefinitely. Unused net capital losses of a corporation may be carried back three years and carried forward five years.

Information Reporting and Backup Withholding Tax

Distributions on the shares of New Sun common stock will be subject to certain information reporting and backup withholding requirements. See “—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of U.S. Holders of Sabra Common Stock—Information Reporting and Backup Withholding Tax.”

U.S. holders should consult their own tax advisors with respect to the U.S. federal, state and local and non-U.S. tax consequences to them of an investment in New Sun common stock, including applicable tax rates, and the effect of any possible changes in the tax laws.

DISTRIBUTION AND DIVIDEND POLICY

New Sun

New Sun does not anticipate paying dividends on its common stock in the foreseeable future. New Sun anticipates that the agreements governing the indebtedness it expects to incur prior to completion of the Separation, like Sun’s current senior credit facility, will restrict New Sun’s ability to pay dividends or make distributions to its stockholders. Any future determination to pay dividends will be at the discretion of the board of directors of New Sun and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of New Sun deems relevant.

Sabra

Sabra intends to qualify and elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Commencing in 2011, consistent with industry standards, Sabra expects to pay distributions in cash in an amount equal to approximately 80% of Sabra’s adjusted funds from operations (“Adjusted FFO”) for each quarterly period but in no event will the annual dividend be less than 90% of Sabra’s taxable income on an annual basis (excluding net capital gains), as defined in the Code. The 90% of taxable income requirement is the minimum distribution required to qualify for and maintain REIT status. For purposes of determining its cash distributions, Sabra’s Adjusted FFO will be calculated by starting with The National Association of Real Estate Investment Trusts’ (“NAREIT”) definition of “funds from operations,” which is net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The NAREIT definition will then be adjusted to exclude the effect of stock-based and other non-cash compensation expense, resulting in Adjusted FFO for Sabra.

Initially, cash available for distribution to Sabra stockholders will be derived solely from the rental payments under the Lease Agreements. All distributions will be made by Sabra at the discretion of its board of directors and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of Sabra deems relevant. The board of directors of Sabra has not yet determined when any distributions will be declared or paid.

Sabra currently intends to pay quarterly distributions in cash. For purposes of satisfying the minimum distribution requirement to qualify for and maintain REIT status, Sabra’s taxable income will be calculated without reference to its cash flow. Consequently, under certain circumstances, Sabra may not have available cash to pay its required distributions and may distribute a portion of its dividends in the form of its stock or its debt instruments. Under IRS Revenue Procedure 2010-12, for example, up to 90% of any taxable dividends (through 2011) could be paid in Sabra stock. For more information, see “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of Sabra as a REIT—Annual Distribution Requirements.” Sabra currently believes that it will have sufficient available cash to pay its required distribution for 2011 in cash but there can be no assurance that this will be the case. In the event Sabra elects to pay quarterly distributions partly in cash and partly in stock as permitted by IRS Revenue Procedure 2010-12, Sabra will provide its stockholders with a dividend election form that will permit stockholders to choose the preferred mix of cash and stock. If too many stockholders elect to receive cash, each stockholder electing to receive cash would receive a proportionate share of the cash to be distributed (although no stockholder electing to receive cash may receive less than 10% of such stockholder’s distribution in cash).

It presently is anticipated that acquisitions will be financed through borrowings under the debt agreements to be entered into by Sabra prior to completion of the Separation, other debt financing or the issuance of equity securities. To the extent that those sources of funds are insufficient to meet all such cash needs, or the cost of such financing exceeds the cash flow generated by the acquired properties for any period, cash available for distribution could be reduced. In that event, Sabra may also borrow funds, liquidate or sell a portion of its properties or find another source of funds, such as the issuance of equity securities, in order to pay its required distributions.

Sabra anticipates that its distributions generally will be taxable as ordinary income to its stockholders, although a portion of the distributions may be designated as capital gain or may constitute a return of capital. For a discussion of the U.S. federal income tax treatment of distributions to stockholders of Sabra, see “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to Sabra—Taxation of U.S. Holders of Sabra Common Stock.”

BUSINESS OF NEW SUN

Overview

Following the Separation, New Sun, through its subsidiaries, will continue to provide the same nursing, rehabilitative and related specialty healthcare services provided by Sun immediately prior to the Separation and will continue to engage in Sun’s three business segments of inpatient services, rehabilitation therapy services and medical staffing services. New Sun’s core business will be to provide inpatient services, which as of July 1, 2010, are provided by Sun primarily through 167 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers. At these centers, Sun has 23,289 licensed beds located in 25 states, of which 22,507 are available for occupancy as of July 1, 2010. New Sun’s subsidiaries will also provide rehabilitation therapy services to affiliated and non-affiliated centers and medical staffing and other ancillary services primarily to non-affiliated centers and other third parties.

Business Segments

New Sun’s subsidiaries will engage in the following three business segments:

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inpatient services, primarily skilled nursing centers;

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rehabilitation therapy services; and

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medical staffing services.

Inpatient services. Upon completion of the Separation, New Sun will operate all of Sun’s healthcare facilities (as of July 1, 2010, these facilities consist of 167 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers in 25 states with 23,289 licensed beds through SunBridge and other subsidiaries). New Sun’s skilled nursing centers will provide services that include daily nursing, therapeutic rehabilitation, social services, housekeeping, nutrition and administrative services for individuals requiring certain assistance for activities in daily living. Rehab Recovery Suites, which specialize in Medicare and managed care patients, as of June 30, 2010, are located in 66 of the skilled nursing centers, and 46 of these skilled nursing centers contain wings dedicated to the care of residents afflicted with Alzheimer’s disease. New Sun’s assisted living centers will provide services that include minimal nursing assistance, housekeeping, nutrition, laundry and administrative services for individuals requiring minimal assistance for activities in daily living. New Sun’s independent living centers will provide services that include security, housekeeping, nutrition and limited laundry services for individuals requiring no assistance for activities in daily living. New Sun’s mental health centers will provide a range of inpatient and outpatient behavioral health services for adults and children through specialized treatment programs. New Sun will also provide hospice services, including palliative care, social services, pain management and spiritual counseling, through its subsidiary SolAmor, in eight states for individuals facing end-of-life issues.

Rehabilitation therapy services. New Sun will provide rehabilitation therapy services through SunDance. SunDance provides a broad array of rehabilitation therapy services, including speech pathology, physical therapy and occupational therapy. Upon completion of the Separation, SunDance will continue to provide rehabilitation therapy services, which as of June 30, 2010 are provided to 466 centers in 36 states, 335 of which are operated by nonaffiliated parties and 131 of which are operated by affiliates. In most of New Sun’s 71 healthcare centers for which SunDance will not provide rehabilitation therapy services, those services will be provided by staff employed by the centers, although some centers will engage third-party therapy companies for such services.

Medical staffing services. New Sun will provide temporary medical staffing in 34 states through CareerStaff. CareerStaff provides (i) licensed therapists skilled in the areas of physical, occupational and speech therapy, (ii) nurses, (iii) pharmacists, pharmacist technicians and medical imaging technicians, (iv) physicians and (v) related medical personnel.

Competition

Competition within the inpatient services industry varies by location. New Sun will compete with other healthcare centers based on key factors such as the number of centers in the local market, the types of services available, quality of care, reputation, age and appearance of each center and the cost of care in each locality. Increased competition in the future could limit New Sun’s ability to attract and retain residents or to expand its business.

New Sun will also compete with other companies in providing rehabilitation therapy services, medical staffing services and hospice services, and in employing and retaining qualified nurses, therapists and other medical personnel. The primary competitive factors for the ancillary services markets are quality of services, charges for services and responsiveness to customer needs.

New Sun believes the following strengths will allow it to improve its operations and profitability:

High quality portfolio and premium assets. New Sun’s operations will be geographically diversified and characterized by strong operating metrics. New Sun’s quality of operations will enable it to manage patients with higher acuity level (i.e., the condition of patients that determines the level of skilled nursing and rehabilitation therapy services required), which is expected to drive operating margins. The size of New Sun’s operations is expected to enable it to realize the benefits of economies of scale, purchasing power and increased operating efficiencies. Furthermore, New Sun’s geographic diversity will help to mitigate the risk associated with adverse regulatory changes related to Medicaid reimbursement in any one state.

Core inpatient services business. New Sun’s inpatient business will have the ability to achieve consistent revenue and earnings growth by expanding its services and increasing its focus on integrated skilled nursing care and rehabilitation therapy services to attract high-acuity patients throughout all nursing and rehabilitation centers and through targeting specific centers with Rehab Recovery Suites that exclusively specialize in Medicare and managed care patients. New Sun’s hospice business, which will serve patients in certain of its nursing centers, in-home settings and in non-affiliated centers, will be an important contributor to the strength of its inpatient business.

Quality of care and strong brand image. New Sun will maintain Sun’s existing industry-leading initiatives to provide high quality of care to its patients. These initiatives have resulted in third-party recognition for quality of care and clinical services. Sun has been able to, and New Sun expects to continue to, attract an increased number of high-acuity patients, maintain a high occupancy rate and develop an effective referral network of patients.

Ancillary businesses will support inpatient services and provide diversification. New Sun’s rehabilitation therapy business will complement its core inpatient services business and is particularly attractive to high-acuity patients who require more intensive and medically complex care. Sun’s rehabilitation therapy business has demonstrated the ability to grow organically and partner with non-affiliated skilled and assisted living facilities in delivering efficient and effective rehabilitation services to customers in 36 states. New Sun’s medical staffing business, which will primarily service non-affiliated providers, will derive a majority of its revenues from its placement of therapists. New Sun will also place physicians, nurses and pharmacists. New Sun expects to leverage the core competencies of its medical staffing business to benefit its inpatient and rehabilitation businesses. These ancillary businesses will diversify New Sun’s revenue base and will provide an opportunity to improve its payor mix.

Infrastructure in place to leverage growth. New Sun will have an established corporate and regional infrastructure in place to leverage its growth.

Experienced management team with a proven track record. New Sun will have a strong and committed management team with substantial industry knowledge. The Chief Executive Officer and the Chief Financial Officer together will have over 45 years of healthcare experience, as well as a proven track record of operations success in the long-term care industry. New Sun’s management team has successfully acquired and integrated numerous businesses, assets and properties, and this experience should position New Sun well to successfully implement its growth and integration strategies.

Business Strategy

New Sun intends to build on current competitive strengths and to grow its business and strengthen its position as a nationwide provider of senior healthcare services by pursuing the following objectives:

Focus on inpatient growth. New Sun intends to increase its inpatient revenue and profitability by maintaining high occupancy rates and by focusing on attracting more high-acuity and Medicare patients. New Sun will implement this strategy by focusing on expanding its clinical services and case management and by developing Rehab Recovery Suites that exclusively specialize in Medicare and managed care patients. New Sun plans to take advantage of its marketing infrastructure, local community knowledge and brand image to attract new patients and to expand its referral and customer bases.

Seek growth in ancillary businesses. New Sun intends to grow its SolAmor hospice operations through acquisitions and internal growth. New Sun will focus on its rehabilitation therapy business, which will be a key driver of its Medicare services and revenues, by improving its clinical product offering, labor productivity and operating profitability and increasing the number of third-party contracts. New Sun’s hospice and ancillary services should provide it with diversified revenue sources, a favorable payor mix and growth opportunities.

Increase operational efficiency and leverage Sun’s existing platform. New Sun will focus on improving operating efficiencies without compromising high quality of care. New Sun plans to reduce costs and enhance efficiencies through various methods, including by:

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reducing labor and billing expenses through technological advances and operational improvements that allow management to more efficiently allocate employees;

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reducing overhead through process improvement initiatives and frequent re-examination of costs;

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improving therapist productivity in its rehabilitation services business;

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controlling litigation expenses by focusing on risk management; and

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monitoring and analyzing the operations and profitability of individual business units.

Prior to the Separation, Sun will continue to seek acquisitions and other strategic opportunities, including those that may be beneficial to New Sun or Sabra. In the event that, prior to the Separation, Sun were to enter into an acquisition agreement or consummate an acquisition of one or more healthcare properties, Sun would expect to contribute the acquired operations, if any, to New Sun and the acquired real property, if any, to Sabra. While Sun is often engaged in evaluating potential transactions and other strategic alternatives, there can be no assurances that any of these discussions will result in definitive agreements or the completion of any transaction. As of the date of this proxy statement/prospectus, there are no material acquisitions or other strategic opportunities pending.

Employees and Labor Relations

Upon completion of the Separation, New Sun intends to employ substantially all of the current employees of Sun. New Sun’s subsidiaries will continue to be obligated under existing collective bargaining agreements. As of June 30, 2010, Sun had 29,660 full-time, part-time and per diem employees. Of this total, 23,928 employees were in its inpatient services operations, 3,151 employees in its rehabilitation therapy services operations, 1,815 employees in its medical staffing business, 463 employees in its hospice operations and 303 employees at its corporate and regional offices.

As of June 30, 2010, SunBridge operated 35 centers with union employees. As of June 30, 2010, approximately 2,794 of its employees (9.4% of all of its employees) who worked in healthcare centers in Alabama, California, Connecticut, Georgia, Massachusetts, Maryland, Montana, New Jersey, Ohio, Rhode Island, Washington and West Virginia were covered by collective bargaining contracts. Collective bargaining agreements covering approximately 285 of these employees (1.0% of all its employees) either are currently in renegotiations or will shortly be in renegotiations due to the expiration of the collective bargaining agreements.

Federal and State Regulatory Oversight

The healthcare industry is extensively regulated. In the ordinary course of business, New Sun’s operations will be continuously subject to federal, state and local regulatory scrutiny and supervision. This will often include inquiries, investigations, examinations, audits, site visits and surveys. As more fully described below, various laws, including anti-kickback, anti-fraud and abuse provisions codified under the Social Security Act, prohibit certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare and Medicaid. Sanctions for violating these anti-kickback, anti-fraud and abuse provisions include criminal penalties, civil sanctions, fines and possible exclusion from government programs such as Medicare and Medicaid. If a center is decertified as a Medicare or Medicaid provider by CMS or a state, the center will not thereafter be reimbursed for caring for residents that are covered by Medicare and Medicaid, and the center would be forced to care for such residents without being reimbursed or to transfer such residents.

New Sun’s skilled nursing centers and mental health centers will be licensed under applicable state law, and will be certified or approved as providers under the Medicare and Medicaid programs. State and local agencies survey all skilled nursing centers on a regular basis to determine whether such centers are in compliance with governmental operating and health standards and conditions for participation in government sponsored third-party payor programs. From time to time, New Sun may receive notice of noncompliance with various requirements for Medicare/Medicaid participation or state licensure. New Sun will review such notices for factual correctness, and based on such reviews, either take appropriate corrective action or challenge the stated basis for the allegation of noncompliance. Where corrective action is required, New Sun will work with the reviewing agency to create mutually agreeable measures to be taken to bring the center or service provider into compliance. Under certain circumstances, the federal and state agencies have the authority to take adverse actions against a center or service provider, including the imposition of a monitor, the imposition of monetary penalties and the decertification of a center or provider from participation in the Medicare and/or Medicaid programs or licensure revocation. When appropriate, New Sun will vigorously contest such sanctions. Challenging and appealing notices or allegations of noncompliance can require significant legal expenses and management attention.

Various states in which New Sun will operate centers have established minimum staffing requirements or may establish minimum staffing requirements in the future. New Sun’s ability to satisfy such staffing requirements depends upon its ability to attract and retain qualified healthcare professionals, including nurses, certified nurse’s assistants and other staff. Failure to comply with such minimum staffing requirements may result in the imposition of fines or other sanctions.

Most states in which New Sun will operate have statutes requiring that prior to the addition or construction of new nursing home beds, to the addition of new services or to certain capital expenditures in excess of defined levels, New Sun first must obtain a CON, which certifies that the state has made a determination that a need exists for such new or additional beds, new services or capital expenditures. The certification process is intended to promote quality healthcare at the lowest possible cost and to avoid the unnecessary duplication of services, equipment and centers.

New Sun will be subject to federal and state laws that govern financial and other arrangements between healthcare providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce the referral of patients to, or the recommendation of, a particular provider for medical products and services. These laws include:

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the “anti-kickback” provisions of the Medicare and Medicaid programs, which prohibit knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid; and

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the “Stark laws” which prohibit, with limited exceptions, the referral of patients by physicians for certain services, including physical therapy and occupational therapy, to an entity in which the physician has a financial interest.

False claims are prohibited pursuant to criminal and civil statutes. These provisions prohibit filing false claims or making false statements to receive payment or certification under Medicare or Medicaid or failing to refund overpayments or improper payments. Suits alleging false claims can be brought by individuals, including employees and competitors. Newly adopted legislation has expanded the scope of the federal False Claims Act and eased some requirements for the filing of a lawsuit under the act. New Sun believes that its billing practices will be compliant with the False Claims Act and similar state laws. However, if its practices, policies and procedures are found not to comply with the provisions of those laws, New Sun could be subject to civil sanctions.

Commencing January 1, 2010, recovery audit contractors, or RACs, operating under the Medicare Integrity Program, have sought to identify alleged Medicare overpayments based on the medical necessity of services provided in nursing centers. Similar audits are conducted by various state agencies under the Medicaid program.

As of June 30, 2010, Sun had approximately $5.3 million of claims that were under various stages of review or appeal with the Medicare Administration Contractors/Fiscal Intermediaries. Upon completion of the Separation, New Sun will not be able to assure you that future recoveries will not be material or that any appeal of a medical review or RAC audit will be successful.

New Sun will also be subject to regulations under the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996. The privacy rules include (i) giving consumers the right and control over the release of their medical information, (ii) the establishment of boundaries for the use of medical information and (iii) civil or criminal penalties for violation of an individual’s privacy rights.

These privacy regulations apply to “protected health information,” which is defined generally as individually identifiable health information transmitted or maintained in any form or medium, excluding certain education records and student medical records. The privacy regulations limit a provider’s use and disclosure of most paper, oral and electronic communications regarding a patient’s past, present or future physical or mental health or condition, or relating to the provision of healthcare to the patient or payment for that healthcare.

The security regulations will require New Sun to ensure the confidentiality, integrity, and availability of all electronic protected health information that it creates, receives, maintains or transmits. New Sun must protect against reasonably anticipated threats or hazards to the security of such information and the unauthorized use or disclosure of such information.

In addition, New Sun will be subject to various federal, state and local environmental laws and regulations with respect to its centers. These laws and regulations address various matters, including asbestos, fuel oil management, wastewater discharges, air emissions, medical wastes and hazardous wastes. The costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. For example, as an operator of a center, New Sun may be held liable for costs relating to the investigation and clean up of any property from which there has been a release or threatened release of a regulated material. In addition to these costs, which are typically not limited by law or regulation, New Sun could be liable for certain other costs, including governmental fines and injuries to persons, other property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.

Compliance Process

New Sun’s compliance program is referred to in this proxy statement/prospectus as the “Compliance Process,” and, upon completion of the Separation, will be substantially the same as Sun’s Compliance Process as of

immediately prior to the Separation. New Sun’s Compliance Process will evolve as the requirements of federal and private healthcare programs change. There are seven principal elements to the Compliance Process:

Written Policies, Procedures and Standards of Conduct. Sun’s business lines, which will be operated by New Sun following the Separation, have extensive policies and procedures (“P&Ps”) modeled after applicable laws, regulations, government manuals and industry practices and customs. The P&Ps govern the clinical, reimbursement and operational aspects of each subsidiary. To emphasize adherence to its P&Ps, New Sun will publish and distribute a Code of Conduct and an employee handbook.

Designated Compliance Officer and Compliance Committee. New Sun will have a Chief Compliance Officer whose responsibilities include: (i) overseeing the Compliance Process; (ii) overseeing compliance with judicial and regulatory requirements and functioning as the liaison with the state agencies and the federal government on matters related to the Compliance Process and such requirements; (iii) reporting to New Sun’s board of directors, the Compliance Committee of its board of directors, and senior corporate managers on the status of the Compliance Process; and (iv) overseeing the coordination of a comprehensive training program which focuses on the elements of the Compliance Process and employee background screening process. Compliance matters will be reported to the Compliance Committee of New Sun’s board of directors on a regular basis. The Compliance Committee will be composed solely of independent directors.

Effective Training and Education. Every employee, director and officer will be trained on the Compliance Process and Code of Conduct. Training will also occur for appropriate employees in applicable provisions of the Medicare and Medicaid laws, fraud and abuse prevention, clinical standards, and practices, and claim submission and reimbursement P&Ps.

Effective Lines of Communication. Employees will be encouraged to report issues of concern without fear of retaliation using a Four Step Reporting Process, which will include the toll-free “New Sun Quality Line.” The Four Step Reporting Process will encourage employees to discuss clinical, ethical or financial concerns with supervisors and local management since these individuals will be most familiar with the laws, regulations, and policies that impact their concerns. The Sun Quality Line will be an always-available option that may be used for anonymous reporting if the employee so chooses. Reported concerns will be internally reviewed, and proper follow-up will be conducted.

Internal Monitoring and Auditing. New Sun’s Compliance Process will put internal controls in place to meet the following objectives: (i) accuracy of claims, reimbursement submissions, cost reports and source documents; (ii) provision of patient care, services, and supplies as required by applicable standards and laws; (iii) accuracy of clinical assessment and treatment documentation; and (iv) implementation of judicial and regulatory requirements (e.g., background checks, licensing and training). Each business line will monitor and audit compliance with P&Ps and other standards to ensure that the objectives listed above are met. Data from these internal monitoring and auditing systems will be analyzed and acted upon through a quality improvement process. New Sun will designate the subsidiary presidents and each member of the operations management team as Compliance Liaisons. Each Compliance Liaison will be responsible for making certain that all requirements of the Compliance Process are completed at the operational level for which the Compliance Liaison is responsible.

Enforcement of Standards. New Sun’s policies, the Code of Conduct and the employee handbook, as well as all associated training materials, will clearly indicate that employees who violate its standards will be subjected to discipline. Sanctions will range from oral warnings to suspensions and/or to termination of employment. New Sun will take a proactive approach to offset the need for punitive measures. First, New Sun will have employee background review practices that surpass industry standards. Second, as noted above, New Sun will devote significant resources to employee training. Finally, New Sun will have a performance management program intended to make certain that all employees are aware of what duties are expected of them and understand that compliance with policies, procedures, standards and laws related to job functions is required.

Responses to Detected Offenses and Development of Corrective Actions. Correction of detected misconduct or a violation of New Sun’s policies will be the responsibility of every manager. As appropriate, a manager will be expected to develop and implement corrective action plans and monitor whether such actions are likely to keep a similar violation from occurring in the future.

New Sun’s Compliance Process will incorporate the terms of a revised Permanent Injunction and Final Judgment entered on September 14, 2005 (“PIFJ”). The PIFJ, which resulted from investigations by the Bureau of Medi-Cal Fraud and Elder Abuse of the Office of the California Attorney General and will apply to New Sun’s California centers, requires compliance with certain clinical practices that are substantially consistent with existing law and Sun’s current practices, and imposes staffing requirements and specific training obligations. All California administrators will be trained on the requirements of the PIFJ, as required. The PIFJ will also require New Sun to issue to the State of California annual reports documenting its compliance efforts. A breach of the PIFJ could subject New Sun to substantial monetary penalties.

General Information

New Sun is incorporated in Delaware. New Sun’s principal executive offices will be located at 18831 Von Karman, Suite 400, Irvine, CA 92612, and its telephone number will be (949) 255-7100. It will maintain a website at www.sunh.com. Following the Separation, New Sun will file reports with the SEC. Through its website, New Sun will make available free of charge, as soon as reasonably practicable after such information has been filed or furnished to the SEC, each of its filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. In addition, investors and other members of the public will be able to read and copy any materials New Sun files or furnishes with the SEC at the SEC’s Public Reference at 100 F Street, NE, Washington, DC 20549. Information concerning the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. This information, and any other reports, proxy and information statements or other information filed or furnished with the SEC by issuers, can also be obtained free of charge on the Internet site maintained by the SEC, www.sec.gov.

Properties

Inpatient Services

Upon completion of the Separation, New Sun’s subsidiaries will operate all of Sun’s skilled nursing centers, combined skilled nursing, assisted and independent living centers, assisted living centers, independent living centers and mental health centers, which, as of July 1, 2010, totaled 203 centers. All except four of these centers will be leased, including the 87 centers to be leased from Sabra under the Lease Agreements. The four healthcare properties that will be owned by New Sun following the Separation include one center that is owned in partnership with a third party, one center that is undergoing significant renovation in conjunction with a third party and two centers that are being considered for possible disposition. The properties that are owned in partnership with a third party or are undergoing significant renovation in conjunction with a third party are impractical to transfer to Sabra for contractual and operational reasons. These properties are not individually, or in the aggregate, material to Sun. In addition, New Sun will also retain ownership of Sun’s administrative office buildings in Albuquerque, New Mexico. Ownership of these administrative offices is not consistent with Sabra’s business strategy of owning healthcare properties. Subsidiaries of New Sun will continue to lease administrative office space in 18 locations in 13 states for the inpatient segment, and administrative office space in 22 locations in 10 states for the hospice operations. As of the Separation, New Sun expects that its properties will be generally in good operating condition and suitable for the purposes for which they will be used.

The leased healthcare centers with third-party lessors are currently subject to long-term operating leases or subleases, with lease terms expiring between 2010 and 2020, that require the tenant to take certain actions, including paying all applicable capital expenditures, taxes, insurance and maintenance costs. No more than 18 centers are leased from any one landlord other than Omega Healthcare Investors (“Omega”). Many leases are for

individual centers. The annual rent payable under most of the leases will generally increase based on a fixed percentage or on increases in the Consumer Price Index. Many of the leases contain renewal options to extend the term. Typical events of default under these leases include failure to pay rent, certain events of bankruptcy or insolvency, failure to comply with covenants set forth in the lease or a related document, such as a guaranty, and certain events of regulatory noncompliance. Under certain leases, events of default also include an event of default under agreements evidencing indebtedness of the tenant or its parent, or acceleration of such indebtedness by a lender following an event of default. If an event of default occurs, typically a landlord may reenter the leased properties and terminate the lease and collect all rent due to the date of termination, rent to become due until the lease expiration and costs related to the exercise of remedies.

New Sun, through its subsidiaries, will assume options to acquire, at fair value or a set purchase price, ownership of 21 of the leased centers. The purchase options for five centers are exercisable or will become exercisable by December 31, 2011. Sabra will have no right to exercise these purchase options.

Subsidiaries of New Sun will lease 40 centers (4,718 licensed beds in ten states) from Omega pursuant to a Second Amended and Restated Master Lease Agreement dated as of February 1, 2008, as amended (the “Omega Lease”). The lease term for 34 of the centers that will be leased from Omega expires on December 31, 2013. The lease term for the remaining six properties expires on December 31, 2017. In each case, lease terms are subject to renewal options, which, if exercised, may extend the lease term to 2033.

At the time of the Separation, rents under the Omega Lease will aggregate $30.8 million annually. The rent is subject to an annual escalator equal to the lesser of 235 basis points over the ten year treasury securities constant maturity rate in effect for the month of December prior to the increase and 2.5%. The Omega Lease also requires the tenants to fund all taxes, insurance and maintenance costs. The Omega Lease is currently guaranteed by Sun (which guaranty will be released if the Separation occurs) and after the Separation will be guaranteed by New Sun.

Under the Omega Lease, assignments or other transfers of a leased property (other than an assignment or transfer to an affiliate of a tenant) may not occur except with the consent of Omega, and any such assignment or transfer will not release the tenant and any guarantor from its obligations under the Omega Lease and the related guaranty.

The following table sets forth certain information as of July 1, 2010 concerning the 203 centers (see footnote 2 below) that will be operated by New Sun after the Separation, which consisted of 23,289 beds located in 25 states, of which 91% of the beds were licensed for skilled nursing, 7% for assisted or independent living and 2% for mental health.


		Number of Licensed Beds/Units⁽¹⁾
State	Total Number of Centers	Skilled Nursing	Assisted Living	Independent Living	Mental Health	Total	% of Total
Ohio	17	2,392	—	—	—	2,392	10.2
Massachusetts	18	1,803	57	—	—	1,860	8.0
Kentucky	20	1,598	235	—	—	1,833	7.9
New Hampshire	15	1,131	474	—	—	1,605	6.9
Connecticut	10	1,327	23	49	—	1,399	6.0
California	15	858	—	—	473	1,331	5.7
Oklahoma	9	1,170	71	12	60	1,313	5.6
Colorado	9	1,203	—	97	—	1,300	5.5
Idaho (2)	11	1,053	38	103	22	1,216	5.2
Florida	9	1,120	—	—	—	1,120	4.8
New Mexico	9	890	120	60	—	1,070	4.6
Georgia	9	1,002	32	—	—	1,034	4.4
North Carolina	8	930	44	—	—	974	4.2
Alabama	7	757	26	—	—	783	3.4
West Virginia	7	739	—	—	—	739	3.2
Tennessee	8	693	22	—	—	715	3.1
Montana	5	538	112	—	—	650	2.8
Washington	6	513	36	—	—	549	2.4
Maryland	3	434	—	—	—	434	1.9
Rhode Island	2	261	—	—	—	261	1.1
Indiana	2	208	—	—	—	208	0.9
New Jersey	1	176	—	—	—	176	0.8
Arizona	1	161	—	—	—	161	0.7
Utah	1	120	—	—	—	120	0.5
Wyoming	1	46	—	—	—	46	0.2

Total	203	21,123	1,290	321	555	23,289	100	%

(1)

“Licensed Beds” refers to the number of beds for which a license has been issued, which may vary in some instances from licensed beds available for use, which is used in the computation of occupancy. Available beds for the 203 centers aggregated 22,507.

(2)

Effective July 1, 2010, Sun assumed the operations of an owned skilled nursing center in Idaho with 80 licensed and available beds. This center will also be operated by New Sun and data relating thereto is included in the table above.

After the Separation, New Sun will operate 187 centers that have a single purpose license: 167 skilled, 10 assisted living, two independent living and eight mental health; and 16 centers that have two or more licensed designations (skilled, assisted and/or independent living).


State	Skilled Nursing		Assisted Living	Independent Living	Mental Health	Multi- license Designation	Total	% of Total
Ohio	17		—	—	—	—	17	8.5
Massachusetts	17		1	—	—	—	18	8.9
Kentucky	14		2	—	—	4	20	9.9
New Hampshire	8		2	—	—	5	15	7.4
Connecticut	8		—	1	—	1	10	4.9
California	9		—	—	6	—	15	7.4
Oklahoma	7		—	—	1	1	9	4.4
Colorado	8		—	1	—	—	9	4.4
Idaho	8	(1)	—	—	1	2	11	5.4
Florida	9		—	—	—	—	9	4.4
New Mexico	8		—	—	—	1	9	4.4
Georgia	8		1	—	—	—	9	4.4
North Carolina	6		—	—	—	2	8	3.9
Alabama	6		1	—	—	—	7	3.4
West Virginia	7		—	—	—	—	7	3.4
Tennessee	7		1	—	—	—	8	3.9
Montana	4		1	—	—	—	5	2.5
Washington	5		1	—	—	—	6	3.0
Maryland	3		—	—	—	—	3	1.5
Rhode Island	2		—	—	—	—	2	1.0
Indiana	2		—	—	—	—	2	1.0
New Jersey	1		—	—	—	—	1	0.5
Arizona	1		—	—	—	—	1	0.5
Utah	1		—	—	—	—	1	0.5
Wyoming	1		—	—	—	—	1	0.5

Total	167		10	2	8	16	203	100	%

(1)

Effective July 1, 2010, Sun assumed the operations of an owned skilled nursing center in Idaho with 80 licensed and available beds. This center will also be operated by New Sun.

Rehabilitation Therapy Services

Upon completion of the Separation, subsidiaries of New Sun will continue to be parties to leases for offices and patient care delivery sites at which the rehabilitation therapy businesses are operating, which, as of June 30, 2010, included 34 locations in 10 states.

Medical Staffing Services

Upon completion of the Separation, subsidiaries of New Sun will continue to be parties to leases for offices constituting the medical staffing business which, as of June 30, 2010, included 29 locations in 17 states.

Corporate

New Sun will lease its executive offices in Irvine, California and will own three corporate office buildings as well as lease office space in a fourth building in Albuquerque, New Mexico.

Legal Proceedings

It is expected that, pursuant to the Distribution Agreement, any liability arising from or relating to legal proceedings involving Sun’s healthcare business prior to the Separation (other than any liability arising from or relating to legal proceedings where the dispute is based upon the real property to be owned by Sabra following the Separation) will be assumed by New Sun and that New Sun will indemnify Sabra against any losses it may incur arising from or relating to such legal proceedings. Sun is currently a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of its business, including claims that its services have resulted in injury or death to the residents of its healthcare centers and claims relating to employment and commercial matters. Although New Sun will vigorously defend these matters, there can be no assurance that the outcomes of these matters will not have a material adverse effect on its business, financial position or results of operations. In certain states in which New Sun will have operations, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law public policy prohibitions. There can be no assurance that New Sun will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.

New Sun will operate in an industry that is extensively regulated. As such, in the ordinary course of business, New Sun will be continuously subject to state and federal regulatory scrutiny and supervision. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition to being subject to direct regulatory oversight of state and federal regulatory agencies, these industries are frequently subject to the regulatory supervision of fiscal intermediaries. If a provider is found by a court of competent jurisdiction to have engaged in improper practices, the provider could be subject to civil, administrative or criminal fines, penalties or restitutionary relief; reimbursement authorities could seek the suspension or exclusion of the provider from participation in their program. It is believed that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal or regulatory proceedings, whether currently asserted or arising in the future, could have a material adverse effect on New Sun’s business, financial position or results of operations.

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BUSINESS OF SABRA

Overview

Following the Separation and REIT Conversion Merger, Sabra will be a self-administered, self-managed realty company that will, directly or indirectly, own and invest in real estate serving the healthcare industry. Sabra will generate its revenues by leasing properties to local, regional and national tenants and operators throughout the United States. Sabra anticipates that its lease arrangements will be long-term triple-net leases, pursuant to which there will be an initial term of at least ten years and the tenants will be responsible for all property maintenance, insurance required in connection with the properties and the business conducted on the properties, taxes levied on or with respect to the properties (other than taxes on Sabra’s income) and all utilities and other services necessary or appropriate for the properties and the business conducted on the leased properties. Initially, Sabra’s portfolio will consist of 68 skilled nursing facilities, ten combined skilled nursing, assisted and independent living facilities, five assisted living facilities, two mental health facilities, one independent living facility and one continuing care retirement community that Sabra will acquire in connection with the Separation and REIT Conversion Merger (the “Sabra Properties”). As of July 1, 2010, the Sabra Properties had a total of 9,740 licensed beds, or units, located in 20 states. Sabra will lease all of these properties to subsidiaries of New Sun following the Separation and REIT Conversion Merger pursuant to the Lease Agreements.

Sabra expects initially to grow its portfolio through the acquisition of skilled nursing and senior housing facilities, including assisted living, independent living and continuing care retirement community facilities. As Sabra acquires additional properties and expands its portfolio, it expects to diversify by geography, asset class and tenant within the healthcare sector. For example, Sabra expects to pursue the acquisition of medical office buildings, life science facilities and hospitals. Sabra plans to be opportunistic in its healthcare real estate investment strategy by investing in assets that provide the best opportunity to create long-term stockholder value, dividend growth and appreciation of asset values.

Following completion of the REIT Conversion Merger, Sabra intends to elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Sabra intends to operate through an umbrella partnership (UPREIT) structure in which substantially all of its properties and assets will be held by Sabra Health Care Limited Partnership (the “Operating Partnership”), of which Sabra is the sole general partner, or by subsidiaries of this partnership. In the discussion that follows in this section, references to “Sabra” include all direct or indirect wholly owned subsidiaries of Sabra, including the Operating Partnership.

Portfolio of Healthcare Properties

Following the Separation and REIT Conversion Merger, Sabra will have a geographically diverse portfolio of healthcare properties in the United States that will offer a range of long-term care health services in the areas of skilled nursing, assisted and independent living and mental health. The initial portfolio will consist of the 87 Sabra Properties. Of these properties, Sabra will own fee title to 81 properties and title under long-term ground leases for 6 properties.

Sabra’s portfolio will initially consist of the following types of healthcare facilities, all of which will be operated by subsidiaries of New Sun immediately after the Separation and REIT Conversion Merger:

•

Skilled nursing facilities. Skilled nursing facilities provide services that include daily nursing, therapeutic rehabilitation, social services, housekeeping, nutrition and administrative services for individuals requiring certain assistance for activities in daily living. A typical skilled nursing facility includes mostly one and two bed units, each equipped with a private or shared bathroom and community dining facilities. Rehab Recovery Suites, which specialize in Medicare and managed care patients, are currently located in 30 of the skilled nursing facilities that Sabra will own and lease to subsidiaries of New Sun. Solana Alzheimer’s units, which are dedicated to the care of residents afflicted with Alzheimer’s disease, are located in 21 of the skilled nursing facilities that Sabra will own and lease to subsidiaries of New Sun.

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•

Assisted living facilities. Assisted living facilities provide services that include minimal nursing assistance, housekeeping, nutrition, laundry and administrative services for individuals requiring minimal assistance for activities in daily living. Assisted living facilities permit residents to maintain some of their privacy and independence as they do not require constant supervision and assistance. Assisted living facilities typically are comprised of one and two bedroom suites equipped with private bathrooms and efficiency kitchens. Services bundled within one regular monthly fee usually include three meals per day in a central dining room, daily housekeeping, laundry, medical reminders and 24- hour availability of assistance with the activities of daily living, such as eating, dressing and bathing. Professional nursing and healthcare services are usually available at the facility on call or at regularly scheduled times.

•

Independent living facilities. Independent living facilities are age-restricted multi-family properties with central dining facilities that provide services that include security, housekeeping, nutrition and limited laundry services. Sabra’s independent living facilities are designed specifically for independent seniors who are able to live on their own, but desire the security and conveniences of community living. Independent living facilities typically offer several services covered under a regular monthly fee.

•

Mental health facilities. Mental health facilities provide a range of inpatient and outpatient behavioral health services for adults and children through specialized treatment programs.

•

Continuing Care Retirement Community. Continuing care retirement communities provide, as a continuum of care, the services described above for independent living facilities, assisted living facilities and skilled nursing facilities in an integrated campus, under long-term contracts with the residents.

Sabra believes that all of the Sabra Properties are adequately covered by insurance and are suitable for their intended uses as described above.

Geographic and Property Type Diversification

The following tables set forth certain information concerning the 87 Sabra Properties, which, at July 1, 2010, consisted of 9,740 beds located in 20 states.


		Number of Licensed Beds/Units⁽¹⁾
	Total
	Number of	Skilled		Assisted		Independent		Mental				% of
State	Centers	Nursing		Living		Living		Health		Total		Total
New Hampshire	15	1,131		474		—		—		1,605		16.4
Connecticut	10	1,327		23		49		—		1,399		14.4
Kentucky	15	976		172		—		—		1,148		11.8
Ohio	8	954		—		—		—		954		9.8
Florida	5	660		—		—		—		660		6.8
Oklahoma	5	441		71		12		60		584		6.0
Montana	4	538		—		—		—		538		5.5
New Mexico	3	190		120		60		—		370		3.8
Colorado	2	362		—		—		—		362		3.7
Georgia	2	310		—		—		—		310		3.2
California	3	301		—		—		—		301		3.1
Massachusetts	3	301		—		—		—		301		3.1
Idaho	3	229		16		—		22		267		2.7
Rhode Island	2	261		—		—		—		261		2.7
West Virginia	2	185		—		—		—		185		1.9
Maryland	1	137		—		—		—		137		1.4
Tennessee	1	134		—		—		—		134		1.4
North Carolina	1	100		—		—		—		100		1.0
Indiana	1	88		—		—		—		88		0.9
Washington	1	—		36		—		—		36		0.4

Total	87	8,625		912		121		82		9,740		100	%

% of Total Beds/Units		88.6	%	9.4	%	1.2	%	0.8	%	100	%

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(1)

Of the Sabra Properties, 76 facilities have a single purpose license: 68 skilled, five assisted living, one independent living and two mental health. Furthermore, 11 facilities have two or more licensed designations (skilled, assisted and/or independent living, including one continuing care retirement facility).


	Skilled	Assisted	Independent	Mental		Multi-license		% of
State	Nursing	Living	Living	Health	CCRC	Designation	Total	Total
New Hampshire	8	2	—	—	—	5	15	17.2
Connecticut	8	—	1	—	—	1	10	11.5
Kentucky	11	2	—	—	—	2	15	17.2
Ohio	8	—	—	—	—	—	8	9.2
Florida	5	—	—	—	—	—	5	5.8
Oklahoma	3	—	—	1	—	1	5	5.8
Montana	4	—	—	—	—	—	4	4.6
New Mexico	2	—	—	—	1	—	3	3.5
Colorado	2	—	—	—	—	—	2	2.3
Georgia	2	—	—	—	—	—	2	2.3
California	3	—	—	—	—	—	3	3.5
Massachusetts	3	—	—	—	—	—	3	3.5
Idaho	1	—	—	1	—	1	3	3.5
Rhode Island	2	—	—	—	—	—	2	2.3
West Virginia	2	—	—	—	—	—	2	2.3
Maryland	1	—	—	—	—	—	1	1.1
Tennessee	1	—	—	—	—	—	1	1.1
North Carolina	1	—	—	—	—	—	1	1.1
Indiana	1	—	—	—	—	—	1	1.1
Washington	—	1	—	—	—	—	1	1.1

Total	68	5	1	2	1	10	87	100	%

Occupancy Trends

The following table sets forth the occupancy percentage for the Sabra Properties for the periods indicated.


	Occupancy %⁽¹⁾
	For the Six Months Ended June 30, 2010		As of December 31,
	For the Six Months Ended June 30, 2010		2009		2008		2007		2006		2005
Skilled Nursing Facilities (68 facilities)	88.5	%	89.7	%	90.4	%	90.8	%	89.6	%	86.6	%
Combination SNF/ALF/ILF (10 facilities)	92.3	%	92.5	%	93.7	%	93.2	%	92.2	%	93.1	%
Senior Housing (7 facilities)⁽²⁾	86.2	%	89.0	%	91.4	%	93.5	%	85.3	%	77.8	%
Mental Health (2 facilities)	80.8	%	81.5	%	82.6	%	79.9	%	86.9	%	85.3	%

Total (87)	88.8	%	90.0	%	90.9	%	91.2	%	89.6	%	87.0	%

(1)

The percentages are computed by dividing the average daily number of beds occupied by the total number of available beds for use during the periods indicated (beds of acquired facilities are included in the computation following the date of acquisition only).

(2)

Senior housing is comprised of five assisted living facilities, one independent living facility, and one continuing care retirement community.

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Occupancy percentages, either individually or in the aggregate, should not be relied upon alone to determine the performance of a facility. Other factors that may impact the performance of a facility include the sources of payment, terms of reimbursement and the acuity level of the patients (i.e., the condition of patients that determines the level of skilled nursing and rehabilitation therapy services required).

Skilled Mix Trends

The following table sets forth the skilled mix of the skilled nursing facilities included in the Sabra Properties for the periods indicated.


	SNF Skilled Mix %⁽¹⁾
	For the Six Months Ended June 30, 2010		As of December 31,
	For the Six Months Ended June 30, 2010		2009		2008		2007		2006		2005
SNF Skilled Mix	20.8	%	20.8	%	21.3	%	19.6	%	18.0	%	16.7	%

(1)

Skilled mix is defined as the number of Medicare and non-Medicaid managed care patient days at the skilled nursing facilities included in the Sabra Properties divided by the total number of patient days at the skilled nursing facilities included in the Sabra Properties for any given period.

Anticipated Indebtedness

Sabra expects to put in place a capital structure that provides it with the flexibility to grow and a cost of debt capital that allows it to compete for investment opportunities, which may include secured bank debt, secured or unsecured bonds, a revolving credit facility and long-term mortgage financing. Prior to completion of the Separation, Sabra will incur additional indebtedness that potentially will be secured by substantially all of its assets (other than assets securing mortgage indebtedness). The amount of such additional indebtedness will depend on the net cash generated by Sun between July 1, 2010 and the Separation. Based on Sun’s cash position as of June 30, 2010, and after giving effect to the use by Sun of the $224.8 million of net proceeds from Sun’s August 2010 equity offering to repay a portion of the outstanding term loans under Sun’s existing credit facility, Sun currently anticipates that Sabra will incur approximately $197.5 million of indebtedness prior to completion of the Separation. The actual amount of indebtedness to be incurred by Sabra could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010. The terms and structure of the indebtedness to be incurred by Sabra have not yet been determined. It is anticipated that the debt agreements to be entered into by Sabra will contain customary covenants that will include restrictions on Sabra’s ability to make acquisitions and other investments, pay dividends, incur additional indebtedness and make capital expenditures as well as customary events of default. It is also anticipated that Sabra will obtain a revolving credit facility to provide borrowing capacity for acquisitions or other operational and capital needs. The terms and structure of such revolving credit facility have not yet been determined.

Of the Sabra Properties, 28 will be subject to mortgage indebtedness to third parties that, based on the outstanding principal amount of such indebtedness at June 30, 2010, is anticipated to total approximately $150.0 million ($162.5 million after giving effect to a mortgage refinancing completed by Sun in August 2010). The table below sets forth the amount of Sabra’s anticipated mortgage indebtedness and related interest rate and amortization provisions, prepayment provisions and maturity dates.

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Lender	No. of Properties	Principal Amount (in millions)			Interest Rate	Maturity Date	Principal at Maturity (in millions)		Amortization Provisions
HUD-guaranteed indebtedness	9	$	66.1	⁽¹⁾	5.20%-6.67%	May 2031 - June 2047	$	0	Fully amortized

GE Healthcare	6	$	32.4	⁽²⁾	6.82%	January 2014	$	30.0	Equal payments of principal and interest with 30- year amortization

Key Bank	6	$	23.6	⁽³⁾	30-day LIBOR plus 3.00%	June 2011	$	24.4	Equal payments of principal with 25- year amortization

CapitalSource	2	$	8.0	⁽⁴⁾	8.50%	August 2010	$	8.0	Equal payments of principal with 25- year amortization

CapitalSource	2	$	11.0	⁽⁵⁾	7.98%	June 2011	$	10.9	Equal payments of principal and interest with 25- year amortization

Berkadia Commercial Mortgage	1	$	8.2	⁽⁶⁾	9.43%	April 2023	$	1.3	Equal payments of principal and interest with 25- year amortization

(1)

Prepayable at any time with premiums ranging between 2% and 5% of the principal amount, with the exception of one HUD-guaranteed loan with is not prepayable until November 2011 (with a premium of 8% of the principal amount). Each prepayment premium declines by 1% each year.

(2)

Prepayable upon payment of all interest due to maturity, discounted as provided in the loan agreement.

(3)

Prepayable at any time without premium.

(4)

This indebtedness was refinanced in August 2010, together with certain mortgage indebtedness that was repaid in June 2010. The new indebtedness is for an aggregate principal amount of $20.5 million, with an interest rate equal to the 90-day LIBOR plus 4.5% (1.0% LIBOR floor) and a maturity date of August 2015, and is secured by four properties. The payment terms include equal payments of principal with a 25-year amortization and the lender is GECC.

(5)

Prepayable until March 2011 upon payment of a premium equal to 0.5% of the initial loan amount plus all interest due to maturity, discounted as provided in the loan agreement. Prepayable after March 2011 without premium.

(6)

Not prepayable until April 2013; thereafter prepayable without premium.

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Tenants and Operators

Following the Separation and REIT Conversion Merger, all of the Sabra Properties will be operated by subsidiaries of New Sun, and their obligations will be guaranteed by New Sun. On or prior to completion of the Separation, subsidiaries of New Sun will enter into the Lease Agreements with subsidiaries of Sabra to lease the 87 Sabra Properties. The parties to each Lease Agreement will consist of multiple lessors (i.e., subsidiaries of Sabra) and multiple tenants (i.e., subsidiaries of New Sun). The Lease Agreements will be triple-net leases under which subsidiaries of New Sun will be responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. Events of default under the Lease Agreements will include the acceleration of indebtedness under New Sun’s credit facility resulting from a default by New Sun. It is anticipated that the initial annual aggregate base rent payable by New Sun under the Lease Agreements will be approximately $70.2 million determined using a 1.6x lease coverage ratio (ratio of EBITDAR to contractual rent for leases) for the 87 Sabra Properties. Each Lease Agreement will provide for an initial term of between 10 and 15 years. At the option of the Tenant, each Lease Agreement may be extended for up to two five-year renewal terms beyond the initial term at a fair market value rental rate. Under the Lease Agreements, there will be an annual rent escalator equal to the lesser of the percentage change in the Consumer Price Index or 2.50% of the prior year’s rent (but not less than zero). There will be no purchase options. See “Relationship Between New Sun and Sabra after the Separation and REIT Conversion Merger—The Lease Agreements” for a further description of the Lease Agreements, including a summary of the anticipated expiration dates and renewal dates under the Lease Agreements.

Because New Sun’s subsidiaries will be the lessees of all of the Sabra Properties, New Sun will be the source of substantially all of Sabra’s revenues. New Sun’s financial condition and ability and willingness to satisfy its obligations under the Lease Agreements and renew those leases upon expiration of the initial base terms thereof will significantly impact Sabra’s revenues and determine Sabra’s ability to service its indebtedness and to make distributions to its stockholders. There can be no assurance that New Sun will have sufficient assets, income and access to financing to enable it to satisfy its obligations under the Lease Agreements. Any inability or unwillingness on the part of New Sun to do so would have a material adverse effect on the condition of the leased properties as well as on the business, financial position and results of operations of Sabra and could prevent Sabra from being able to pay distributions to its stockholders as required to maintain its status as a REIT. In addition, in the event that New Sun and its subsidiaries are unable to satisfy obligations under the Lease Agreements or are unwilling to renew the Lease Agreements following expiration of their initial base terms, there can also be no assurance that Sabra would be able to locate a suitable replacement lessee on terms that are the same or better than those contained in the Lease Agreements. See “Risk Factors—Risks Relating to Sabra’s Business—Sabra will be dependent on New Sun until it substantially diversifies its portfolio, and a material adverse effect on New Sun’s business, financial position or results of operations could have a material adverse effect on Sabra’s business, financial position or results of operations.”

Competitive Strengths

Sabra believes the following competitive strengths will contribute significantly to its success and its ability to drive long-term stockholder value, dividend growth and capital appreciation:

•

Experienced management team. Sabra’s management team has extensive healthcare and real estate experience. Richard K. Matros, Sabra’s Chairman, President and Chief Executive Officer, has approximately 20 years of experience in the acquisition, development and disposition of skilled nursing facilities and other healthcare facilities, including nine years at Sun. Harold W. Andrews, Jr., who will become the Chief Financial Officer of Sabra, is a finance professional who has over 10 years of experience in both the provision of healthcare services and healthcare real estate. In addition, Talya Nevo-Hacohen, who will become the Chief Investment Officer of Sabra, is a real estate finance executive with more than 15 years of capital markets experience in the real estate industry as both

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principal and advisor, including three years of experience managing and implementing the capital markets strategy of an S&P 500 healthcare REIT.

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Strong relationships with operators. The members of Sabra’s management team have developed an extensive network of relationships with qualified local, regional and national operators of skilled nursing and senior housing facilities across the United States. This extensive network has been built by Sabra’s management team through over 20 years of operating experience, industry trade organizations, banking relationships and investor relations within the skilled nursing and senior housing industries. Sabra intends to work collaboratively with its operators to help them achieve their growth and business objectives. Sabra believes these strong relationships with operators will allow Sabra to successfully and efficiently source investment opportunities that provide attractive risk-adjusted returns to its stockholders.

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Ability to identify talented operators. As a result of the Sabra management team’s operating experience, network of relationships and insight, Sabra anticipates that it will be able to identify qualified local, regional and national operators. Sabra will seek operators that possess local market knowledge, demonstrate hands-on management, have proven track records, are management owned and controlled and emphasize patient care. The management team’s experience gives Sabra a key competitive advantage in objectively evaluating an operator’s financial position, emphasis on care and operating efficiency.

•

Ability to access capital markets. Sabra’s management team has extensive experience, through years of public operating company history, in successfully accessing both debt and equity capital markets to fund growth and maintain a proper capital structure. Sabra expects to use the experience of its management team to access capital markets to fund its growth and manage its capital structure. Further, Sabra expects to seek financing from U.S. government agencies, including Fannie Mae and the U.S. Department of Housing and Urban Development (“HUD”), in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.

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Proactive asset management. Sabra expects to work closely with its operators to identify and capitalize on opportunities to improve the operations of its facilities and the overall financial and operating strength of its operators. The members of Sabra’s management team have significant experience operating senior housing and other healthcare-related businesses and developing systems to collect and evaluate data relating to the underlying operational and financial success of healthcare companies and healthcare-related real estate. Sabra will take advantage of this experience and expertise to provide its operators with significant assistance in the areas of marketing, development, facility expansion and strategic planning asset management.

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Lease structure. The Lease Agreements will have initial terms of between 10 and 15 years with no purchase options. Although Sabra will be a single-tenant REIT after the Separation, there will be significant visibility into New Sun’s operating and financial performance, given that New Sun will be publicly traded on the NASDAQ Global Select Market and subject to SEC reporting requirements.

Business Strategy

Following the Separation and REIT Conversion Merger, Sabra’s primary goal will be to create long-term stockholder value through the payment of consistent cash dividends and capital appreciation. To achieve this goal, Sabra intends to pursue a business strategy focused on opportunistic acquisitions and property diversification. Sabra also intends to develop its relationships with tenants and healthcare providers with a goal to expand over time the mixture of tenants managing and operating its properties.

The key components of Sabra’s business strategy include:

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Opportunistically pursue acquisitions and diversification. Sabra expects to grow its portfolio through selective and opportunistic acquisitions into a diversified healthcare REIT. Initially, Sabra intends to focus on the acquisition of skilling nursing and senior housing facilities. However, Sabra expects to

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pursue other facility types such as medical office buildings, life sciences facilities and hospitals. As Sabra acquires additional properties, it expects to diversify by geography, asset class and tenant within the healthcare sector. Sabra will seek to take advantage of acquisitions that meet specified investment objectives to enable it to drive profitable growth and maximize stockholder value.

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Develop new tenant relationships. Sabra intends to cultivate its relationships with tenants and healthcare providers, in addition to New Sun, in order to expand the mixture of tenants operating its properties and, in doing so, will reduce its dependence on any single tenant or operator. Sabra expects that this objective will be achieved over time as part of Sabra’s strategy to acquire new properties and diversify its overall portfolio of healthcare properties.

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Capital source to underserved operators. Sabra believes that there is a significant opportunity to be a capital source to healthcare operators through acquisitions of healthcare properties that are consistent with Sabra’s investment and financing strategy, but that, due to size and other considerations, are not a focus for the larger healthcare REITs. Sabra intends to utilize its management team’s operating experience, network of relationships and insight to identify financially strong and growing operators in need of capital funding for future growth. In appropriate circumstances, Sabra may negotiate with such an operator to acquire its healthcare property and then lease that property back to the operator pursuant to a long-term triple-net lease. Sabra believes these types of acquisition opportunities have the potential for favorable risk-adjusted returns to stockholders.

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Strategic capital improvements. Sabra intends to continue to support operators by providing capital to them for a variety of purposes, including for capital expenditures, modernization of facilities and loans. Sabra expects to structure these investments as either lease amendments that produce additional rents or loans that are repaid by operators during the lease term.

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Pursue strategic development opportunities. Sabra intends to work with its operators to identify strategic development opportunities. These opportunities may involve replacing or renovating facilities in Sabra’s portfolio that may become less competitive. Sabra also intends to identify new development opportunities that present attractive risk-adjusted returns. These projects could include development opportunities with New Sun, or working with new operators to identify, design, develop and construct new facilities. Sabra does not have current development projects for the Sabra Properties or any other property.

Investment and Financing Strategy

Sabra intends to invest in additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. In making investments in healthcare properties, Sabra’s investment objectives are to increase cash flow, provide quarterly cash distributions, maximize the value of its properties and acquire properties with cash flow growth potential. Initially, Sabra intends to structure its acquisitions with triple-net leases; however, Sabra may choose to pursue other forms of investment structures, including taxable REIT subsidiary structures, mezzanine and secured debt investments, and joint ventures.

Sabra expects that future investments in properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, its existing cash, borrowings available to Sabra pursuant to the indebtedness it expects to incur in connection with the Separation

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and REIT Conversion Merger, future borrowings or the proceeds from additional issuances of common stock or other securities. In addition, Sabra expects to seek financing from U.S. government agencies, including Fannie Mae and HUD, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.

Competition

Sabra will compete for real property investments with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders and other institutional investors. Some of Sabra’s competitors are significantly larger and have greater financial resources and lower costs of capital than Sabra. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet Sabra’s investment objectives. Sabra’s ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation and population trends. See “Risk Factors—Risks Relating to Sabra’s Business—Real estate is a competitive business and this competition may make it difficult for Sabra to identify and purchase suitable healthcare properties.”

In addition, revenues from Sabra’s properties will be dependent on the ability of Sabra’s tenants and operators to compete with other healthcare operators. These operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of Sabra’s tenants and operators to compete successfully for residents and patients at the properties.

Employees of Sabra

Following the Separation and REIT Conversion Merger, Sabra expects to employ six to ten full-time employees (including Sabra’s executive officers), none of whom is expected to be subject to a collective bargaining agreement.

Government Regulation

The tenants of Sabra’s properties who will operate Sabra’s skilled nursing, assisted living, independent living and mental health facilities following the Separation and REIT Conversion Merger will be subject to extensive and complex federal, state and local healthcare laws and regulations. See “Business of New Sun—Federal and State Regulatory Oversight” for a description of these laws and regulations that are applicable to New Sun.

Upon completion of the Separation and REIT Conversion Merger, subsidiaries of Sabra will own nine health facilities with mortgage loans that are guaranteed by HUD. Those facilities will be subject to the rules and regulations of HUD, including periodic inspections by HUD, although the tenants of those facilities will have the primary responsibility for maintaining the facilities in compliance with HUD’s rules and regulations. The regulatory agreements entered into by each owner and each operator of the property restrict, among other things, any sale or other transfer of the property, modification of the lease between the owner and the operator, use of surplus cash from the property except upon certain conditions, renovations of the property and use of the property other than for a skilled nursing facility, all without prior HUD approval.

In addition, as an owner of real property, Sabra will be subject to various federal, state and local environmental and health and safety laws and regulations. These laws and regulations address various matters, including asbestos, fuel oil management, wastewater discharges, air emissions, medical wastes and hazardous wastes. The costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. For example, although Sabra will not operate or manage its properties, it may be held primarily or jointly and

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severally liable for costs relating to the investigation and clean up of any property from which there has been a release or threatened release of a regulated material as well as other affected properties, regardless of whether Sabra knew of or caused the release. In addition to these costs, which are typically not limited by law or regulation and could exceed the property’s value, Sabra could be liable for certain other costs, including governmental fines and injuries to persons, property or natural resources. See “Risk Factors—Risks Relating to Sabra’s Business—Environmental compliance costs and liabilities associated with real estate properties owned by Sabra may materially impair the value of those investments.”

The Operating Partnership

Sabra intends to own substantially all of its assets and properties and conduct its operations through the Operating Partnership. Sabra believes that conducting business through the Operating Partnership will provide flexibility with respect to the manner in which Sabra structures and acquires properties. In particular, an UPREIT structure could enable Sabra to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typically contribute its assets to the Operating Partnership in exchange for limited partnership interests. Holders of these limited partnership interests would be entitled to redeem their partnership interests for shares of Sabra stock on a specified basis, or, at Sabra’s option, an equivalent amount of cash. The Operating Partnership would be managed and controlled by Sabra, which would be the sole general partner.

The benefits of Sabra’s UPREIT structure include the following:

•

Access to capital. Sabra believes the UPREIT structure will provide it with access to capital for refinancing and growth. Because an UPREIT structure includes a partnership as well as a corporation, Sabra can access the markets through the Operating Partnership issuing equity or debt as well as the corporation issuing capital stock or debt securities. Sources of capital include possible future issuances of debt or equity through public offerings or private placements.

•

Growth. The UPREIT structure will allow stockholders, through their ownership of common stock, and the limited partners, through their ownership of limited partnership units, an opportunity to participate in the growth of the real estate market through an ongoing business enterprise. In addition to the initial real property portfolio, Sabra will provide stockholders an interest in all future investments in additional properties.

•

Tax deferral. The UPREIT structure will provide property owners who transfer their real properties to the Operating Partnership in exchange for limited partnership units the opportunity to defer the tax consequences that otherwise would arise from a sale of their real properties and other assets to Sabra or to a third party. As a result, this structure will allow Sabra to acquire assets in a more efficient manner and may allow it to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.

General Information

Sabra is incorporated in Maryland. Sabra’s principal executive offices initially will be located at , , CA, and its telephone number will be . Sabra will maintain a website at www.sabrahealth.com. Following the Separation and REIT Conversion Merger, Sabra will file reports with the SEC. Sabra will make available free of charge on its website, as soon as reasonably practicable after such information has been filed or furnished to the SEC, each of its filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. In addition, investors and other members of the public will be able to read and copy any materials Sabra files or furnishes with the SEC at the SEC’s Public Reference at 100 F Street, NE, Washington, DC 20549. Information concerning the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. This information, and any other reports, proxy and information statements or other information filed or furnished with the SEC by issuers, can also be obtained free of charge on the Internet site maintained by the SEC, www.sec.gov.

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Legal Proceedings

It is expected that, pursuant to the Distribution Agreement, any liability arising from or relating to legal proceedings involving the Sabra Properties will be assumed by Sabra and that Sabra will indemnify New Sun against any losses arising from or relating to such legal proceedings. In addition, pursuant to the Distribution Agreement, New Sun has agreed to indemnify Sabra for any liability arising from or relating to legal proceedings involving Sun’s healthcare business prior to the Separation, and, pursuant to the Lease Agreements, the tenants will agree to indemnify Sabra for any liability arising from operation at the real property leased from Sabra. Sun is currently a party to various legal actions and administrative proceedings, including various claims arising in the ordinary course of its healthcare business, which will be subject to the indemnities to be provided by New Sun to Sabra. While these actions and proceedings are not believed to be material, individually or in the aggregate, the ultimate outcome of these matters cannot be predicted. The resolution of any such legal proceedings, either individually or in the aggregate, could have a material adverse effect on New Sun’s business, financial position or results of operations, which, in turn, could have a material adverse effect on Sabra’s business, financial position or results of operations if New Sun or its subsidiaries are unable to meet their indemnification obligations.

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POLICIES OF SABRA WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of Sabra’s policies with respect to investments, financing and certain other activities. These policies may be amended and revised from time to time at the discretion of Sabra’s board of directors without notice to or a vote of its stockholders.

Investment Policies

Investments in Real Estate or Interests in Real Estate

Sabra intends to conduct substantially all of its investment activities through the Operating Partnership. Sabra’s investment objectives will be to increase cash flow, provide quarterly cash distributions, maximize the value of its properties and acquire properties with cash flow growth potential. Sabra’s business will be focused on healthcare properties and activities directly related thereto. Sabra has not established a specific policy regarding the relative priority of its investment objectives. Sabra will initially lease its properties to subsidiaries of New Sun pursuant to triple-net leases under which the New Sun subsidiaries will be responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. For a discussion of Sabra’s properties and its business and other strategic objectives, see “Business of Sabra.”

Sabra intends to have a geographically diverse portfolio of healthcare properties in the United States. Sabra anticipates that future investment and development activity will be focused primarily in the United States, but will not be limited to any geographic area. Sabra intends to engage in future investment activities in a manner that is consistent with requirements applicable to REITs for U.S. federal income tax purposes. These requirements do not have limitations on the percentage of its assets that may be invested in any one real estate asset or on the concentration of investments in any one location or facility type.

Sabra does not have a specific policy as to the amount or percentage of its assets that will be invested in any specific property, but anticipates that its real estate investments will continue to be diversified among a relatively large number of facilities. Following the Separation and REIT Conversion Merger, Sabra’s portfolio of investments will consist of 87 properties located in 20 states. Sabra expects initially to grow its portfolio through the acquisition of skilled nursing and senior housing facilities including assisted living, independent living and continuing care retirement community facilities. As Sabra acquires additional properties and expands its portfolio, it expects to diversify by geography, asset class and tenant within the healthcare sector.

Sabra expects to pursue its investment objectives through the ownership of properties by the Operating Partnership, but may also make investments in other entities, including joint ventures, if it determines that doing so would be its most effective means of raising capital. Equity investments may be subject to existing mortgage financing and other indebtedness or such financing or indebtedness may be incurred in connection with acquiring properties, or a combination of these methods. Any such financing or indebtedness will have priority over Sabra’s equity interest in such property. Investments are also subject to Sabra’s policy not to be treated as an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act.

From time to time, Sabra may make investments or agree to terms that support the objectives of its tenants without necessarily maximizing its short-term financial return, which may allow Sabra to build long-term relationships and acquire properties otherwise unavailable to its competition. Sabra believes that these dynamics create long-term, sustainable relationships and, in turn, profitability for Sabra.

Purchase, Sale and Development of Properties

Sabra’s policy will be to acquire properties primarily for cash flow growth potential and long-term value. Although Sabra does not currently intend to sell any properties, it will sell certain properties where its board of

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directors or management determines such properties do not fit its strategic objectives or where such action would be in the best interest of its stockholders. From time to time, Sabra may engage in strategic development opportunities. These opportunities may involve replacing or renovating properties in Sabra’s portfolio that have become economically obsolete or identifying new sites that present an attractive opportunity and complement its existing portfolio. Sabra does not have current development projects for the Sabra Properties or any other property.

Investments in Real Estate Mortgages

Sabra’s policy will be to make investments in healthcare real estate properties. Sabra does not intend to invest in mortgages or other real estate interests.

Investments in Securities or Interests in Entities Primarily Engaged in Real Estate Activities and Other Issuers

Subject to the gross income and asset requirements required for REIT qualification, Sabra may, but does not presently intend to, invest in securities of entities engaged in real estate activities or securities of other issuers (including partnership interests, limited liability company interests or other joint venture interests in special purpose entities owning properties), including for the purpose of exercising control over such entities. Sabra may acquire some, all or substantially all of the securities or assets of other REITs or entities engaged in real estate activities where such investment would be consistent with Sabra’s investment policies and the REIT requirements. There are no limitations on the amount or percentage of Sabra’s total assets that may be invested in any one entity, other than those imposed by the gross income and asset tests Sabra must meet in order to qualify as a REIT under the Code. In any event, Sabra does not intend for its investments in securities to require it to register as an “investment company” under the 1940 Act, and Sabra would generally divest appropriate securities before any such registration would be required.

Financing Policies

Sabra expects to employ leverage in its capital structure in amounts that it determines appropriate from time to time. Sabra’s board of directors has not adopted a policy which limits the total amount of indebtedness that Sabra may incur, but will consider a number of factors in evaluating Sabra’s level of indebtedness from time to time, as well as the amount of such indebtedness that will be either fixed or variable rate. Sabra’s charter and bylaws do not limit the amount or percentage of indebtedness that it may incur nor do they restrict the form of its indebtedness (including recourse or nonrecourse debt and cross-collateralized debt). Sabra may from time to time modify its debt policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of its properties, general market conditions for debt and equity securities, fluctuations in the market price of its common stock, growth and acquisition opportunities and other factors.

To the extent that Sabra’s board of directors or management determines that it is necessary to raise additional capital, Sabra may, without stockholder approval, borrow under its credit facility, issue debt or equity securities, including securities senior to its common stock, retain earnings (subject to the REIT distribution requirements for U.S. federal income tax purposes), assume secured indebtedness, obtain mortgage financing on a portion of its owned properties, engage in a joint venture, or employ a combination of these methods. As long as the Operating Partnership is in existence, the proceeds of all equity capital raised by Sabra will be contributed to the Operating Partnership in exchange for additional interests in the Operating Partnership, which will dilute the ownership interests of the limited partners in the Operating Partnership.

Investment and Other Policies

Sabra may, but does not presently intend to, make investments other than as previously described. Sabra may offer shares of its common stock, other equity securities senior to its common stock, or debt securities in exchange for cash or property and to repurchase or otherwise reacquire shares of its common stock or other equity or debt securities in exchange for cash or property. Similarly, Sabra may offer additional operating

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partnership units, which are redeemable for cash or property. Sabra may issue preferred stock from time to time, in one or more series, as authorized by its board of directors without the need for stockholder approval. See “Description of Sabra Stock.” Sabra has not engaged in trading, underwriting or the agency distribution or sale of securities of other issuers and does not intend to do so. Sabra intends to make investments in such a manner consistent with the REIT requirements of the Code unless, because of business circumstances or changes in the Code (or the Treasury Regulations promulgated thereunder), Sabra’s board of directors determines that it is no longer in Sabra’s best interests to qualify as a REIT. Sabra intends to make investments in a manner that will not result in it being treated as an “investment company” under the 1940 Act. Sabra’s policies with respect to such activities may be reviewed and modified from time to time by its board of directors without notice to or the vote of its stockholders.

Lending Policies

Sabra does not have a policy limiting its ability to make loans to other persons. Subject to REIT qualification rules, Sabra may make loans to third parties. For example, Sabra may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be received by Sabra for the property sold, or Sabra may consider making loans to, or guaranteeing the debt of, joint ventures in which it participates or may participate in the future. Sabra may choose to guarantee the debt of certain joint ventures with third parties. Consideration for those guarantees may include fees, long-term management contracts, options to acquire additional ownership and promoted equity positions. Sabra does not currently intend to engage in any significant lending activities. However, Sabra’s board of directors may adopt a lending policy without notice to or the vote of Sabra’s stockholders.

Reporting Policies

Following the Separation and REIT Conversion Merger, Sabra will become subject to the information reporting requirements of the Exchange Act, pursuant to which Sabra will file periodic reports, proxy statements and other information, including audited financial statements, with the SEC. Such filings will be publicly available to Sabra’s stockholders.

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NEW SUN PRO FORMA CAPITALIZATION

The following table sets forth the unaudited pro forma capitalization of New Sun at June 30, 2010 which gives effect to Sun’s August 2010 equity offering and the Separation as if the equity offering and the Separation occurred on June 30, 2010. For accounting purposes, the historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun. Accordingly, the actual capitalization of New Sun presented below is identical to that of Sun. See “The Proposals—Accounting Treatment for the Separation and REIT Conversion” and “New Sun Unaudited Pro Forma Consolidated Financial Statements.”


	Actual June 30, 2010 (in millions)		Pro Forma June 30, 2010 (in millions)
Long-term debt, including amounts due within one year:
Revolving credit facility	$	—	$	—
Term loans		308.6		—
Senior subordinated notes		200.0		—
Mortgage notes payable		154.3		4.3
Capital leases		0.7		0.7
New Sun indebtedness		—		95.6	(1)

Total debt		663.6		100.6
Common stockholders’ equity		473.5		515.2

Total capitalization	$	1,137.1	$	615.8

(1)

The actual amount of indebtedness to be incurred by New Sun could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010.

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SABRA PRO FORMA CAPITALIZATION AND SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION

The following table sets forth the unaudited pro forma capitalization of Sabra at June 30, 2010 which gives effect to the Separation and REIT Conversion Merger as if the REIT Conversion Merger occurred on June 30, 2010 and also reflects the supplemental pro forma financial information of Sabra for the year ended December 31, 2009 and six months ended June 30, 2010 as if the Separation and REIT Conversion had occurred at January 1, 2009. Sabra will not have operated prior to the Separation. Accordingly, no historical capitalization of Sabra is presented herein. See “The Proposals—Accounting Treatment for the Separation and REIT Conversion” and “Sabra Unaudited Pro Forma Consolidated Financial Statements.”


	Actual June 30, 2010 (in millions)		Pro Forma June 30, 2010 (in millions)
Long-term debt, including amounts due within one year:
Sabra indebtedness	$	—	$	197.5	(1)
Sabra mortgage loans		—		150.0	(2)

Total debt		—		347.5
Common stockholders’ equity		—		111.6

Total capitalization	$	—	$	459.1


	Six Months Ended June 30, 2010		Year Ended December 31, 2009
Supplemental pro forma financial information
Pro forma net income	$	12,164	$	24,329
Funds from operations (FFO)(3)	$	24,005	$	48,010

(1)

The actual amount of indebtedness to be incurred by Sabra could decrease if Sun’s cash position at the time the debt agreements are entered into is greater than Sun’s cash position as of June 30, 2010 or, conversely, could increase if Sun’s cash position at the time the debt agreements are entered into is less than Sun’s cash position as of June 30, 2010.

(2)

Sabra will assume Sun’s mortgage indebtedness to third parties associated with the 87 properties that subsidiaries of Sabra will own following the Separation. In addition to the amount shown above, in August 2010, Sun refinanced a mortgage loan in the aggregate principal amount of $12.1 million that matured in June 2010, together with another mortgage loan in the aggregate principal amount of $8.0 million that matured in August 2010, so that the aggregate amount of mortgage loans that will be assumed by Sabra, after giving effect to this refinancing, is expected to equal $162.5 million.

(3)

FFO is a non-GAAP financial measure that is considered a supplemental measure for the real estate industry and a supplement to GAAP measures. For an explanation of this measure and a reconciliation to the most directly comparable pro forma financial measure prepared in accordance with GAAP, see Note 5 of “Sabra Unaudited Pro Forma Consolidated Financial Statements.”

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NEW SUN UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements reflect the unaudited pro forma consolidated balance sheet of New Sun as of June 30, 2010, as if Sun’s August 2010 equity offering, the Separation and REIT Conversion had occurred on June 30, 2010, and also reflect the unaudited pro forma consolidated income statement of New Sun for the year ended December 31, 2009 and for the six months ended June 30, 2010 as if the Separation and REIT Conversion had occurred on January 1, 2009. The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of the SEC. The actual results reported in periods following the transactions may differ significantly from that reflected in these pro forma financial statements for a number of reasons, including differences between the assumptions used to prepare these pro forma financial statements and actual amounts and cost savings from operating efficiencies. In addition, no adjustments have been made to the unaudited pro forma consolidated income statements for non-recurring items related to the transactions. As a result, the pro forma financial information does not purport to be indicative of what the financial condition or results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information. The pro forma financial statements are based upon the historical financial statements of Sun and do not purport to project future financial condition and results of operations after giving effect to the transactions.

For accounting purposes, the historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun. Accordingly, the accompanying pro forma consolidated financial statements of New Sun are based upon the historical consolidated financial statements of Sun. See “The Proposals—Accounting Treatment for the Separation and REIT Conversion.”

The accompanying unaudited pro forma consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for Sun and New Sun.”

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NEW SUN

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

For the Six Months Ended June 30, 2010

(in thousands, except per share data)


	Historical Sun		Pro Forma Adjustments			Pro Forma New Sun
Total net revenues	$	947,874	$	—		$	947,874

Costs and expenses:
Operating salaries and benefits		534,918		—			534,918
Self-insurance for workers’ compensation and general and professional liability insurance		29,096		—			29,096
Operating administrative expenses		25,589		—			25,589
Other operating costs		193,363		—			193,363
Center rent expense		37,362		35,100	(a)		72,462
General and administrative expenses		30,424		—			30,424
Depreciation and amortization		25,007		(11,841	) (b)		13,166
Provision for losses on accounts receivable		10,917		—			10,917
Interest, net		23,752		(20,195	) (c)		3,557
Transaction costs		2,248		(2,248	) (d)		—

Total costs and expenses		912,676		816			913,492

Income before income taxes and discontinued operations		35,198		(816	)		34,382
Income tax expense		14,431		(334	) (e)		14,097

Income from continuing operations	$	20,767	$	(482	)	$	20,285

Basic earnings from continuing operations per common or common equivalent share	$	0.47	$	—		$	0.27

Diluted earnings from continuing operations per common or common equivalent share	$	0.47	$	—		$	0.27

Weighted average number of common and common equivalent shares outstanding
Basic		44,119		30,763	(f)		74,882
Diluted		44,234		30,763	(f)		74,997

See accompanying notes to unaudited pro forma consolidated financial statements.

118

NEW SUN

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

For the Year Ended December 31, 2009

(in thousands, except per share data)


	Historical Sun		Pro Forma Adjustments			Pro Forma New Sun
Total net revenues	$	1,881,799	$	—		$	1,881,799

Costs and expenses:
Operating salaries and benefits		1,057,645		—			1,057,645
Self-insurance for workers’ compensation and general and professional liability insurance		63,752		—			63,752
Operating administrative expenses		50,924		—			50,924
Other operating costs		384,832		—			384,832
Center rent expense		73,149		70,200	(a)		143,349
General and administrative expenses		62,068					62,068
Depreciation and amortization		45,463		(23,681	) (b)		21,782
Provision for losses on accounts receivable		21,197		—			21,197
Interest, net		49,327		(42,214	) (c)		7,113
Loss on sale of assets, net		42		—			42
Restructuring costs		1,304		—			1,304

Total costs and expenses		1,809,703		4,305			1,814,008

Income before income taxes and discontinued operations		72,096		(4,305	)		67,791
Income tax expense		29,616		(1,822	) (e)		27,794

Income from continuing operations	$	42,480	$	(2,483	)	$	39,997

Basic earnings from continuing operations per common or common equivalent share	$	0.97	$	—		$	0.54

Diluted earnings from continuing operations per common or common equivalent share	$	0.97	$	—		$	0.54

Weighted average number of common and common equivalent shares outstanding
Basic		43,841		30,763	(f)		74,604
Diluted		43,963		30,763	(f)		74,726

See accompanying notes to unaudited pro forma consolidated financial statements.

119

NEW SUN

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of June30, 2010

(in thousands)


	Historical Sun			Adjustments from Equity Offering			Subtotal			Adjustments from Debt Restructuring			Subtotal			Adjustments from Separation			Pro Forma New Sun
Assets:
Cash and cash equivalents	$	106,974		$	224,787	(f)	$	331,761		$	(514,710	) (g)
											(23,453	) (h)
											293,121	(i)
											(18,219	) (j)
											(5,100	) (k)
											(13,400	) (l)	$	50,000		$	(10,000	) (o)	$	40,000
Restricted cash		24,732			—			24,732			—			24,732			(1,060	) (p)		23,672
Accounts receivables, net of allowance for doubtful accounts		220,373			—			220,373			—			220,373			—			220,373
Prepaid expenses and other assets		18,021			—			18,021			—			18,021			—			18,021
Deferred tax assets		69,544			—			69,544			—			69,544			—			69,544

Total current assets		439,644			224,787			664,431			(281,761	)		382,670			(11,060	)		371,610
Property and equipment, net of accumulated depreciation		620,999			—			620,999			—			620,999			(493,308	) (q)		127,691
Intangible assets, net		52,640			—			52,640			(13,374	) (m)
											5,862	(j)		45,128			(5,810	) (r)		39,318
Goodwill		338,364			—			338,364			—			338,364			—			338,364
Restricted cash, non-current		348			—			348			—			348			—			348
Deferred tax assets		96,180			—			96,180			16,771	(n)		112,951			29,053	(s)		142,004
Other assets		5,000			—			5,000			—			5,000			—			5,000

Total assets	$	1,553,175		$	224,787		$	1,777,962		$	(272,502	)	$	1,505,460		$	(481,125	)	$	1,024,335

Liabilities:
Accounts payable	$	52,922		$	—		$	52,922		$	(706	) (j)	$	52,216		$	—		$	52,216
Accrued compensation and benefits		63,015			—			63,015			—			63,015			—			63,015
Accrued self-insurance obligations, current portion		43,794			—			43,794			—			43,794			—			43,794
Income taxes payable		338			—			338			—			338			—			338
Other accrued liabilities		55,507			—			55,507			(6,122	) (g)		49,385			(765	) (t)		48,620
Current portion of long-term debt		74,827			—			74,827			—			74,827			(44,518	) (u)		30,309

Total current liabilities		290,403			—			290,403			(6,828	)		283,575			(45,283	)		238,292
Accrued self-insurance obligations, net of current portion		128,657			—			128,657			—			128,657			—			128,657
Long-term debt, net of current portion		588,736			—			588,736			(508,588	) (g)
											293,121	(i)		373,269			(303,017	) (u)		70,252
Unfavorable lease obligations		11,233			—			11,233			—			11,233			—			11,233
Other long-term liabilities		60,692			—			60,692			—			60,692			—			60,692

Total liabilities		1,079,721			—			1,079,721			(222,295	)		857,426			(348,300	)		509,126

Stockholders’ equity:
Common stock		440			308	(f)		748			—			748			—			748
Additional paid-in capital		657,875			224,479	(f)		882,354			—			882,354			—			882,354
Retained deficit		(183,841	)		—			(183,841	)		(23,453	) (h)
											(11,651	) (j)
											(5,100	) (k)
											(13,400	) (l)
											(13,374	) (m)
											16,771	(n)		(234,048	)		(10,000	) (o)
																	(1,060	) (p)
																	(493,308	) (q)
																	(5,810	) (r)
																	29,053	(s)
																	765	(t)
																	347,535	(u)		(366,873	)
Accumulated other comprehensive loss		(1,020	)		—			(1,020	)		—			(1,020	)		—			(1,020	)


Total stockholders’ equity		473,454			224,787			698,241			(50,207	)		648,034			(132,825	)		515,209


Total liabilities and stockholders’ equity	$	1,553,175		$	224,787		$	1,777,962		$	(272,502	)	$	1,505,460		$	(481,125	)	$	1,024,335

See accompanying notes to unaudited pro forma consolidated financial statements.

120

NOTES TO NEW SUN UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – New Sun Basis of Presentation:

Following the Separation and REIT Conversion Merger, New Sun will continue the business and operations of Sun. Therefore, for accounting purposes, the historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun. Accordingly, the accompanying unaudited pro forma consolidated financial statements of New Sun are based upon the historical consolidated financial statements of Sun. Immediately following the Separation and REIT Conversion Merger, Sabra will hold, through its subsidiaries, all of Sun’s owned real property (including fixtures and certain personal property associated with the real property, but excluding the New Sun Retained Properties), and will assume the related mortgage indebtedness owed to third parties. The assets and liabilities of New Sun will be recorded at their historical carrying values at the Separation.

Note 2 – Pro Forma Adjustments:

To record rent expense associated with the Annual Base Rent incurred by subsidiaries of New Sun in connection with the Lease Agreements at assumed annual minimum lease payments of $70.2 million. Rental expense relates to the 87 properties operated by Sun prior to the Separation and REIT Conversion Merger that will be leased by Sabra to subsidiaries of New Sun (the “Leased Properties”). Amounts due under the terms of the Lease Agreements are fixed (except for an anticipated annual rent escalator described below), and there is no contingent rent feature based upon the revenues or net income which may be derived by New Sun from the Leased Properties. The pro forma effects of the Lease Agreements assume that the leases between subsidiaries of New Sun and Sabra will be accounted for as operating leases by New Sun.

The annual rent escalator under each Lease Agreement will be the lesser of the percentage change in the Consumer Price Index or 2.50% of the prior year’s rent (but not less than zero).

As discussed under “Relationship Between New Sun and Sabra After the Separation and REIT Conversion Merger—The Lease Agreements—Rental Amounts and Escalators,” other costs, such as insurance, taxes and utilities, will continue to be the responsibility of New Sun under the terms of the Lease Agreements. A pro forma adjustment for these other costs is not made as these costs are included in the historical New Sun results of operations as a cost of property ownership. The only incremental expense to New Sun as a result of the leasing arrangement is the minimum lease payments to Sabra.

b.	To adjust depreciation expense for the property and equipment transferred to Sabra by Sun.

121

NOTES TO NEW SUN UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

c.	To adjust interest expense, net related to New Sun indebtedness (dollars in millions):


			Interest Expense
	Debt		Six Months Ended June 30, 2010			Year Ended December 31, 2009
New Sun indebtedness (assumed annual interest rate 6.5%)	$	95.6	$	3.1		$	6.2
New Sun mortgage and capital lease indebtedness (weighted average annual interest rate 7.6%)		5.0		0.2			0.4

	$	100.6	$	3.3		$	6.6

Add 0.5% commitment fee related to New Sun indebtedness				0.1			0.2
Add amortization of $1.9 million of deferred financing costs related to New Sun indebtedness				0.2			0.3

Total New Sun interest expense			$	3.6		$	7.1
Eliminate historical interest expense, net				(23.8	)		(49.3	)

Total interest expense elimination			$	(20.2	)	$	(42.2	)

Impact of 1/8% change in weighted average interest rates			$	0.1		$	0.1

No interest income is reflected in the New Sun pro forma consolidated income statement as any interest income earned would not be material to the pro forma consolidated financial statements given the pro forma cash balance of New Sun, which reflects reductions in Sun’s cash balance as a result of the Separation and REIT Conversion Merger.

See also Note 1 to the unaudited pro forma capitalization of New Sun at June 30, 2010. See “New Sun Pro Forma Capitalization.”

d.	To remove costs directly attributable to the Separation based on the assumption that the Separation occurred on January 1, 2009.

To adjust income tax expense for the adjustments made to pre-tax book income at an effective tax rate of approximately 41%. The New Sun 41% effective tax rate is based upon the historical Sun effective tax rate of 41%. The Sun effective tax rate is a function of a statutory 35% Federal corporate income tax rate, state income tax expenses and various permanent differences (see Note 10—“Income Taxes” to the Consolidated Financial Statements included in Sun’s 2009 Annual Report on Form 10-K for more information, which is incorporated herein by reference). A hypothetical 1/8% change in the effective tax rate would increase or decrease pro forma income tax expense by approximately $0.1 million annually. The spinoff of certain assets and liabilities to Sabra will not affect these components of income tax expense.

To record the issuance of 30,762,500 shares of Sun’s common stock in the August 2010 equity offering at the public offering price of $7.75 per share, resulting in gross proceeds of $238.4 million ($224.8 million after deducting the underwriting discounts and commissions and other professional fees).

g.	To record the impact of repayment of $200 million of senior subordinated notes and $308.6 million in term loans associated with the Sun indebtedness, plus the payment of accrued interest of $3.9 million on the senior subordinated notes and $2.3 million on the term loans.

h.	To record the payment of early redemption fees related to the senior subordinated notes.

i.	To record the anticipated indebtedness, of which $95.6 million is for New Sun and $197.5 million is for Sabra.

122

NOTES TO NEW SUN UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

j.	To record the payment of deferred financing fees of $5.9 million (related to the New Sun and Sabra indebtedness) and period cost transaction fees (for professional services received for the Separation and REIT Conversion Merger).

k.	To record payment of transfer taxes associated with the internal restructuring of the ownership of real estate assets and related mortgage indebtedness to third parties.

l.	To record an anticipated cash distribution as discussed in this proxy statement/prospectus to Sun stockholders.

m.	To record the write-off of capitalized deferred financing costs related to the payoff of senior subordinated notes and term loans.

n.	To record deferred taxes associated with the payment of early redemption fees, write off of deferred financing costs and payment of transfer taxes.

o.	To record cash and cash equivalents to be held by Sabra in order to provide Sabra with initial working capital at the time of the Separation.

p.	To record the restricted cash in the form of escrow funds associated with Sabra mortgage indebtedness.

q.	To record property and equipment to be held by Sabra.

r.	To record capitalized deferred financing costs related to Sabra indebtedness.

s.	To adjust the deferred tax assets as a result of the Separation. Historical Sun’s current deferred tax assets will not be affected by the Separation as none relate to assets being contributed to or liabilities being assumed by Sabra.

t.	To record the impact of accrued interest payable related to mortgage indebtedness to be assumed by Sabra.

u.	To record the indebtedness to be incurred or assumed by Sabra.

Note 3 – General and Administrative Expenses

To the extent requested by Sabra, New Sun will provide Sabra with administrative and support services on a transitional basis pursuant to the Transition Services Agreement. The Transition Services Agreement provides for Sabra to pay New Sun a rate per labor hour of actual services rendered. The pro forma consolidated statements of income do not include any payments to be made to New Sun under the Transition Services Agreement, which payments are estimated to be less than $100,000 in the aggregate.

Note 4 – Goodwill

Sun also performed a goodwill impairment test for pro forma purposes as of June 30, 2010 as a result of the proposed transaction. Sun utilized an impairment analysis comparable to that used during the fourth quarter of 2009, which included a discounted cash flow analysis.

123

NOTES TO NEW SUN UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Key assumptions in the discounted cash flow model were updated to reflect the impact of the Separation, including:

Business Growth Assumptions—The revenue and expense assumptions were comparable to those used for the 2009 impairment testing but adjusted to reflect the Separation’s impact on New Sun’s results of operations. These adjustments are consistent with the pro forma adjustments reflected in the New Sun pro forma consolidated income statements, including the impact of increased rent expense and reduced interest expense.

Terminal Value EBITDA Multiple—The multiple for the final year’s projected EBITDA from continuing operations was consistent with management’s estimate of New Sun’s post-Separation fair value.

Discount Rate—The discount rate applied to the cash flow projections was based upon market conditions at June 30, 2010 coupled with the anticipated market perception of New Sun after giving recognition to the reduced indebtedness after the Separation.

The analysis indicated that an impairment of goodwill is not expected to be triggered by the Separation. However, while Sun believes that the assumptions and rates used in the goodwill impairment testing are reasonable, they are subject to judgment, and variations in any of the assumptions or rates could result in materially different calculations of fair values, and ultimately the amount of impairment charges, if any, that could be recognized.

124

SABRA UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements reflect the unaudited pro forma consolidated balance sheet of Sabra as of June 30, 2010, as if the Separation and REIT Conversion had occurred on June 30, 2010, and also reflect the unaudited pro forma consolidated income statement of Sabra for the year ended December 31, 2009 and for the six months ended June 30, 2010 as if the Separation and REIT Conversion had occurred on January 1, 2009. The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of the SEC. The actual results reported in periods following the transactions may differ significantly from that reflected in these pro forma financial statements for a number of reasons, including differences between the assumptions used to prepare these pro forma financial statements and actual amounts and cost savings from operating efficiencies. In addition, no adjustments have been made to the unaudited pro forma consolidated income statements for non-recurring items related to the transactions or for general and administrative costs expected to be incurred by Sabra in the first year after the Separation. As a result, the pro forma financial information does not purport to be indicative of what the financial condition or results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information. The pro forma financial statements do not purport to project the future financial condition and results of operations after giving effect to the transactions.

Sabra will not have operated prior to the Separation. The balance sheet of Sabra at the time of the Separation will reflect the assets and liabilities of Sabra at their respective historical carrying values. The other financial statements of Sabra will reflect solely the results of operations of Sabra after the Separation. See “The Proposals—Accounting Treatment for the Separation and REIT Conversion” and “New Sun Unaudited Pro Forma Consolidated Financial Statements.”

125

SABRA

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

For the Six Months Ended June 30, 2010

(in thousands, except per share data)


	Historical Sabra		Pro Forma Adjustments			Pro Forma Sabra
Total net revenues	$	—	$	35,100	(a)	$	35,100

Costs and expenses:
Depreciation and amortization		—		11,841	(b)		11,841
Interest		—		11,095	(c)		11,095

Total costs and expenses		—		22,936			22,936

Income before income taxes		—		12,164			12,164
Income tax expense		—		—			—

Net income	$	—	$	12,164		$	12,164

Basic earnings from per common or common equivalent share	$	—	$	—		$	0.16

Diluted earnings per common or common equivalent share	$	—	$	—		$	0.16

Weighted average number of common and common equivalent shares outstanding
Basic		—		74,882	(d)		74,882
Diluted		—		74,997	(d)		74,997

See accompanying notes to unaudited pro forma consolidated financial statements.

126

SABRA

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

For the Year Ended December 31, 2009

(in thousands, except per share data)


	Historical Sabra		Pro Forma Adjustments			Pro Forma Sabra
Total net revenues	$	—	$	70,200	(a)	$	70,200

Costs and expenses:
Depreciation and amortization		—		23,681	(b)		23,681
Interest		—		22,190	(c)		22,190

Total costs and expenses		—		45,871			45,871

Income before income taxes		—		24,329			24,329
Income tax expense		—		—			—

Net income	$	—	$	24,329		$	24,329

Basic earnings from per common or common equivalent share	$	—	$	—		$	0.33

Diluted earnings per common or common equivalent share	$	—	$	—		$	0.33

Weighted average number of common and common equivalent shares outstanding
Basic		—		74,604	(d)		74,604
Diluted		—		74,726	(d)		74,726

See accompanying notes to unaudited pro forma consolidated financial statements.

127

SABRA

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of June 30, 2010

(in thousands)


	Historical (Note 1)		Pro Forma Adjustments			Pro Forma Sabra
Assets:
Real estate investments, net of accumulated depreciation	$	493,308	$	—		$	493,308
Cash and cash equivalents		—		10,000	(e)		10,000
Restricted cash		1,060		—			1,060
Intangible assets, net		1,860		3,950	(f)		5,810

Total assets	$	496,228	$	13,950		$	510,178

Liabilities:
Mortgage notes payable	$	150,035	$	—		$	150,035
Accrued interest on mortgage notes		765		—			765
Long-term debt		—		197,500	(g)		197,500
Deferred tax liabilities		50,264		—			50,264

Total liabilities	$	201,064	$	197,500		$	398,564

Stockholders’ equity
Sun net equity in real estate properties and Sabra stockholders’ equity	$	295,164	$	10,000	(e)
				3,950	(f)
				(197,500	) (g)	$	111,614

Total stockholders’ equity		295,164		(183,550	)		111,614

Total liabilities and stockholders’ equity	$	496,228	$	13,950		$	510,178

See accompanying notes to unaudited pro forma consolidated financial statements.

128

NOTES TO SABRA UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Sabra Basis of Presentation:

Following the Separation and REIT Conversion Merger, New Sun will continue the business and operations of Sun. The historical operations and the historical consolidated financial statements of Sun will become the historical consolidated financial statements of New Sun at the Separation. Sabra will not have operated prior to the Separation. Immediately following the Separation and REIT Conversion Merger, Sabra will hold, through its subsidiaries, all of Sun’s owned real property (including fixtures and certain personal property associated with the real property, but excluding the New Sun Retained Properties). The balance sheet of Sabra at the time of the Separation will reflect the assets and liabilities of Sabra at their respective historical carrying values. The other financial statements of Sabra will reflect solely the results of operations of Sabra after the Separation.

The accompanying unaudited pro forma consolidated financial statements of Sabra have accordingly been prepared based on the Separation and REIT Conversion as described above.

Note 2 – Pro Forma Adjustments:

To record rent income associated with the rent from subsidiaries of New Sun in connection with the Lease Agreements at assumed annual minimum lease payments of $70.2 million. Amounts due under the terms of the Lease Agreements are fixed (except for an anticipated annual rent escalator described below), and there is no contingent rental income based upon the revenues or net income which may be derived by New Sun from the Leased Properties.

The annual rent escalator under each Lease Agreement will be the lesser of the percentage change in the Consumer Price Index or 2.50% of the prior year’s rent (but not less than zero).

b.	To adjust depreciation expense related to the property and equipment transferred to Sabra by Sun.

c.	To adjust interest expense related to Sabra indebtedness (dollars in millions):


				Interest Expense
	Debt			Six Months Ended June 30, 2010		Year Ended December 31, 2009
Sabra indebtedness	$	197.5		$	5.9	$	11.8
(assumed annual interest rate 6.0%)
Sabra mortgage indebtedness		150.0	(1)		4.6		9.2
(weighted average annual interest rate 6.1%)

	$	347.5		$	10.5	$	21.0

Add 0.5% commitment fee related to Sabra indebtedness					0.3		0.5
Add amortization associated with $5.8 million of deferred financing costs related to Sabra indebtedness					0.3		0.7

Total Sabra interest expense				$	11.1	$	22.2

Impact of 1/8% change in weighted average interest rates				$	0.1	$	0.2

(1)

The aggregate Sabra mortgage indebtedness is expected to be approximately $162.5 million, which gives effect to a mortgage refinancing completed by Sun in August 2010. The pro forma interest expense on the incremental $12.5 million in mortgage indebtedness would be $0.3 million for the six months ended June 30, 2010 and $0.7 million for the year ended December 31, 2009.

See also Note 1 to the unaudited pro forma capitalization of Sabra at June 30, 2010. See “Sabra Pro Forma Capitalization and Supplemental Pro Forma Financial Information.”

129

NOTES TO SABRA UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

d.	Pro forma earnings per share of Sabra are based upon the number of shares used in computing earnings per share of New Sun.

e.	To record cash and cash equivalents to be distributed by Sun to Sabra at the time of the Separation in order to provide initial working capital to Sabra.

f.	To record deferred financing costs related to the Sabra indebtedness.

g.	To record anticipated amounts of Sabra indebtedness.

Note 3 – Income Taxes

The pro forma consolidated income statement of Sabra assumes that Sabra has met all the conditions necessary for it to be treated as a REIT for all periods presented. As a result, no provision for income taxes has been made for the year ended December 31, 2009 or for the six months ended June 30, 2010.

Deferred tax assets and liabilities consisted of the following at June 30, 2010 (in thousands):


Deferred tax assets:
Net operating loss carryforwards	$	21,303
Tax credit carryforwards		6,279
Intangible assets		5,215
Other		124

		32,921
Less valuation allowance		(32,921	)

Total deferred tax assets		—

Deferred tax liabilities:
Property and equipment		(50,047	)
Deferred financing costs		(217	)

Total deferred tax liabilities		(50,264	)

Deferred tax liabilities, net	$	(50,264	)

Federal and state net operating loss (“NOL”) carryforwards of approximately $25 million and $252 million, respectively, have been attributed to the legal entities which will comprise Sabra after the Separation. Sabra’s ability to utilize NOL and tax credit carryforwards will be subject to a variety of factors, including the ability to generate sufficient taxable income and the impact of the REIT Conversion Merger. As a result of the uncertainties relating to the ultimate realization of these tax attribute carryforwards and other deferred tax assets, a full valuation allowance has been recorded.

Note 4 – General and Administrative Expenses

The pro forma consolidated statements of income exclude general and administrative costs expected to be incurred by Sabra after the Separation for items such as compensation costs, professional services, office costs, and other costs associated with development activities.

To the extent requested by Sabra, New Sun will provide Sabra with administrative and support services on a transitional basis pursuant to the Transition Services Agreement. The Transition Services Agreement provides for Sabra to pay New Sun a rate per labor hour of actual services rendered. The pro forma consolidated statements of income exclude the impact of Sabra reflecting such payments as general and administrative expenses, which are estimated to be less than $100,000.

130

NOTES TO SABRA UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Total general and administrative expenses for Sabra are expected to approximate $6.6 million to $7.1 million in the first year after the Separation broken out as follows:


Compensation-related (including non-cash stock compensation of $2.3 million)(1)	$	5.0 million to $5.2 million
Professional services	$	0.6 million to $0.7 million
Administrative and other costs	$	1.0 million to $1.1 million
New Sun transition services	$	0.0 million to $0.1 million

Total	$	6.6 million to $7.1 million

(1)

The details of Mr. Matros’s compensation as Chief Executive Officer of Sabra, and the compensation of other executives of Sabra, have not yet been determined. For purposes of the estimates provided in this note, Sabra has assumed compensation expense for Mr. Matros of $3.025 million, which includes non-cash compensation to Mr. Matros of $1.975 million ($1.7 million of which is an estimate of the compensation-related expense that Sabra expects to incur with respect to the replacement equity awards it expects to grant to Mr. Matros to compensate him for the anticipated termination of his outstanding Sun equity awards at the time of the Separation and REIT Conversion Merger). The amount of compensation-related expense, including non-cash stock compensation expense, actually incurred by Sabra in the first year after the Separation will be based on determinations by Sabra’s compensation committee following the Separation and REIT Conversion Merger and, with respect to the Sabra equity awards expected to be granted to Mr. Matros to compensate him for the value of his Sun equity awards that terminate in connection with the Separation and REIT Conversion Merger, the value of those Sun equity awards on the date such awards are terminated.

Note 5 – Reconciliation of Pro Forma FFO to Pro Forma Net Income

Funds from Operations

Funds from operations (“FFO”), as presented in the section captioned “Sabra Pro Forma Capitalization and Supplemental Pro Forma Financial Information,” is a non-GAAP financial measure that is considered a supplemental measure for the real estate industry and a supplement to GAAP measures. NAREIT defines FFO as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

FFO is useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization and Sabra believes that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. Sabra believes such a presentation also provides investors with a more meaningful measure of Sabra’s operating results in comparison to the operating results of other REITs.

FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. Investors are also cautioned that FFO, as presented, may not be comparable to similarly titled measures reported by other REITs due to the fact that not all real estate companies use the same definitions. The reconciliation of FFO to net income available to stockholders is provided below. Sabra compensates for the limitations of FFO by providing investors with pro forma financial statements, along with this detailed discussion of FFO and a reconciliation of FFO to pro forma net income.

131

NOTES TO SABRA UNAUDITED

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Commencing in 2011, consistent with industry standards, Sabra expects to pay distributions in cash in an amount equal to approximately 80% of Sabra’s Adjusted FFO for each quarterly period. See “Distribution and Dividend Policy.”

The following reconciles pro forma net income to pro forma FFO (dollars in thousands):

Pro Forma Sabra

(in thousands)


	Six Months Ended June 30, 2010		Year Ended December 31, 2009
Net income(1)	$	12,164	$	24,329
Depreciation and amortization		11,841		23,681

FFO(2)	$	24,005	$	48,010

(1)

Pro forma net income does not include general and administrative expenses, which are estimated to be between $6.6 million and $7.1 million in the first year after the Separation. See Note 4.

(2)

Calculated in accordance with NAREIT’s definition of FFO, and there were no gains (or losses) from sales of property or adjustments for unconsolidated partnerships and joint ventures.

132

AUDITED SUN REAL ESTATE PROPERTIES COMBINED BALANCE SHEET

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Sun Healthcare Group, Inc.:

In our opinion, the accompanying combined balance sheet presents fairly, in all material respects, the financial position of certain owned real estate properties and related liabilities of Sun Real Estate Properties, a combination of certain assets and liabilities of Sun Healthcare Group, Inc. (the “Company”), at March 31, 2010 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Irvine, California

July 14, 2010

133

SUN REAL ESTATE PROPERTIES

COMBINED BALANCE SHEET

As of March 31, 2010

(in thousands)


Assets:
Real estate investments, net of accumulated depreciation of $78,240	$	494,399
Restricted cash		1,107
Deferred financing costs		1,964

Total assets	$	497,470

Liabilities:
Mortgage notes payable	$	162,840
Accrued interest on mortgage notes		892
Deferred tax liabilities, net		46,852

Total liabilities		210,584

Sun Healthcare Group, Inc. Net Equity in Sun Real Estate Properties:		286,886

Total liabilities and Sun Healthcare Group, Inc. net equity in Sun real estate properties	$	497,470

The accompanying notes are an integral part of this balance sheet.

134

NOTES TO SUN REAL ESTATE PROPERTIES

COMBINED BALANCE SHEET

(1) Description of Reporting Entity

Sun Healthcare Group, Inc. and its subsidiaries (“Sun”) provides nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun’s core business is providing, through its subsidiaries, inpatient services, primarily through 166 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers. As of March 31, 2010, Sun’s centers had 23,205 licensed beds located in 25 states, of which 22,423 were available for occupancy. Of the 202 centers operated by Sun’s subsidiaries as of March 31, 2010, 112 centers were leased and 90 centers were owned by Sun’s subsidiaries. Sun’s subsidiaries also provide rehabilitation therapy services to affiliated and non-affiliated centers and medical staffing and other ancillary services primarily to non-affiliated centers and other third parties.

Sabra Health Care REIT, Inc. (“Sabra”) was incorporated on May 10, 2010 as a wholly owned subsidiary of Sun. Sabra’s primary business following the Separation and REIT Conversion (both as defined below) will consist of acquiring, financing and owning real estate property to be leased to third party tenants in the healthcare sector.

The board of directors of Sun approved a plan to restructure its business by separating its real estate assets and its operating assets into two separate publicly traded companies. This plan consists of the following key transactions:

•

reorganizing, through a series of internal corporate restructurings, such that:

^¡

substantially all of Sun’s owned real property and related mortgage indebtedness owed to third parties will be held by Sabra, or by one or more subsidiaries of Sabra; and

^¡

all of Sun’s operations and other assets and liabilities will be held by SHG Services, Inc. (to be renamed “Sun Healthcare Group, Inc.”), a Delaware corporation and a wholly owned subsidiary of Sun (“New Sun”), or by one or more subsidiaries of New Sun;

•

To govern their ongoing relationship, New Sun and Sabra will enter into certain agreements on or prior to the Separation. These agreements include: (i) a distribution agreement, providing for certain organizational matters, the mechanics related to the Separation and REIT Conversion as well as other ongoing obligations of New Sun and Sabra (the “Distribution Agreement”), (ii) multiple master lease agreements (the “Lease Agreements”), which will set forth the terms pursuant to which New Sun will lease from Sabra all of the real property that Sabra will own immediately following the restructuring of Sun’s business, (iii) an agreement relating to tax allocation matters, and (iv) an agreement pursuant to which New Sun may provide certain services to Sabra on a transitional basis;

•

Sun distributing to its stockholders on a pro rata basis all of the outstanding shares of common stock of New Sun, with cash paid in lieu of any fractional shares (also referred to as the “Separation”);

•

Sun merging with and into Sabra, with Sabra surviving the merger as a Maryland corporation and Sun stockholders receiving shares of Sabra common stock in exchange for their shares of Sun common stock, with cash paid in lieu of any fractional shares (also referred to as the “REIT Conversion Merger”); and

135

NOTES TO SUN REAL ESTATE PROPERTIES

COMBINED BALANCE SHEET—(Continued)

•

The accompanying historical combined balance sheet reflects certain owned real estate consisting of 87 properties (the “Sun Real Estate Properties”) and related liabilities, including the related mortgage indebtedness of Sun to be owned by Sabra following the Separation and REIT Conversion.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The accompanying combined balance sheet of Sun Real Estate Properties reflects the assets and liabilities directly attributed to Sun’s real estate holdings to be owned by Sabra. The balance sheet presented herein is combined on the basis of common control. The combined balance sheet is prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The combined balance sheet has been derived from the accounting records of Sun using the historical basis of assets and liabilities of Sun adjusted as necessary to conform to GAAP. Management believes the assumptions underlying the combined balance sheet are reasonable. However, the combined balance sheet included herein may not necessarily reflect Sun Real Estate Properties’ financial position in the future or what their financial position would have been had Sun Real Estate Properties operated independently of Sun at the date presented.

(b) Use of Estimates

The preparation of the combined balance sheet in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the balance sheet. Significant estimates include determination of the real estate investments’ useful lives, deferred taxes and the realizability of long-lived assets. Actual results could differ from those estimates.

Property and equipment are stated at historical cost. Major renewals or improvements are capitalized whereas ordinary maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements – five to forty years; and equipment – three to twenty years. Long-lived assets are subject to an impairment test if an indicator of potential impairment is present.

(d) Restricted Cash

Restricted cash is restricted for specific purposes such as funding of mortgage escrow and debt service requirements. These balances are presented separately from cash and cash equivalents on the balance sheet. Restricted cash balances are stated at carrying value.

(e) Deferred Financing Costs

Deferred financing costs, representing the unamortized costs related to mortgage indebtedness, are amortized using the effective interest method over the term of the mortgage indebtedness.

136

NOTES TO SUN REAL ESTATE PROPERTIES

COMBINED BALANCE SHEET—(Continued)

(f) Income Taxes

Sun Real Estate Properties is included in the consolidated income tax returns with Sun. Income taxes are included in the accompanying combined balance sheet as if Sun Real Estate Properties filed a separate tax return.

An asset or liability is recognized for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the balance sheet. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets are recovered or liabilities are settled. Deferred tax assets are also recognized for the future tax benefits from net operating loss, capital loss and tax credit carryforwards. A valuation allowance is provided for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need to record a valuation allowance, all items of positive evidence (e.g., future sources of taxable income and tax planning strategies) and negative evidence (e.g., history of taxable losses and changes in tax planning strategies) are considered.

Sun Real Estate Properties is subject to income taxes in the U.S. and numerous state and local jurisdictions. Significant judgment is required in evaluating uncertain tax positions. Sun Real Estate Properties uses a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Adjustments to reserves for uncertain tax positions are made as a result of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. At March 31, 2010 no reserve for uncertain tax positions was necessary.

(g) Sun Healthcare Group, Inc. Net Equity in Sun Real Estate Properties

Sun Healthcare Group, Inc. net equity in Sun real estate properties represents Sun’s net historical basis in the assets and liabilities expected to be contributed to Sabra at the time of the Separation.

(h) Subsequent Events

Sun Healthcare Group, Inc., with respect to the Sun Real Estate Properties, has performed an evaluation of recognizable subsequent events through April 29, 2010, the date Sun filed its Form 10-Q for the quarterly period ended March 31, 2010, and evaluated subsequent events for disclosures through July 14, 2010, the date the financial statements were issued.

(3) Real Estate Investments

Real estate investments, including integral equipment, consisted of the following as of March 31, 2010 (in thousands):


Land	$	75,155
Buildings and improvements		452,866
Integral equipment		35,292
Construction in process (1)		9,326

Total		572,639
Less accumulated depreciation and amortization		(78,240	)

Real estate investments, net	$	494,399

(1)

Capitalized interest associated with construction in process at March 31, 2010 is $0.2 million.

137

NOTES TO SUN REAL ESTATE PROPERTIES

COMBINED BALANCE SHEET—(Continued)

(4) Mortgage Notes Payable

Mortgage notes payable are collateralized by the carrying value of the real estate investment to which they relate and are due at various dates through 2037. The balances consisted of the following as of March 31, 2010 (in thousands):


Mortgage notes payable due monthly, with interest at 11.6%	$	12,115
Mortgage notes payable due monthly, with interest from 8.0% to 9.4%		27,430
Mortgage notes payable due monthly, with interest from 5.2% to 6.8%		98,880
Mortgage notes payable due monthly, with interest at 3.3%		23,743
Fair value premium related to acquisitions		672

Total mortgage notes payable	$	162,840

The scheduled maturities of mortgage notes payable, excluding premiums of $0.7 million, as of March 31, 2010 were as follows (in thousands):


2010	$	22,666
2011		36,127
2012		2,090
2013		32,007
2014		1,564
Thereafter		67,714

	$	162,168

(5) Deferred Taxes

Deferred tax assets and liabilities consisted of the following at March 31, 2010 (in thousands):


Deferred tax assets:
Net operating loss carryforwards	$	25,317
Tax credit carryforwards		5,971

SHG Services, Inc. S-1/A