COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

Concentrations of credit risks arise when a number of operators, tenants or obligors related to the Company’s investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of risks.

New Sun

As of June 30, 2011, 86 of the Company’s 88 real estate properties were leased to subsidiaries of New Sun. During the three and six months ended June 30, 2011, 94% and 97%, respectively, of the Company’s rental revenues were derived from these leases. New Sun is a publicly traded company and is subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. As of June 30, 2011, New Sun, through its subsidiaries, operated 199 inpatient centers spread across 25 states. New Sun’s net revenues and adjusted earnings before interest, depreciation, amortization, integration costs and rent were $487.7 million and $67.4 million, respectively, for the three months ended June 30, 2011 and $971.6 million and $131.3 million, respectively, for the six months ended June 30, 2011. As of June 30, 2011, New Sun’s outstanding debt, net of cash, totaled $62.1 million.

Texas Regional Medical Center

On May 3, 2011, the Company closed the purchase of Texas Regional Medical Center at Sunnyvale, a 70-bed acute care hospital located in Sunnyvale, Texas (“Texas Regional Medical Center”). Texas Regional Medical Center is leased pursuant to a long-term, triple-net lease to Texas Regional Medical Center, Ltd. (the “Tenant”), a partnership that includes approximately 75 physicians who practice at the hospital. As of June 30, 2011, the Company's investment in Texas Regional Medical Center totaled 11% of the Company's assets and during the three and six months ended June 30, 2011, 6% and 3%, respectively, of the Company's revenues were derived from the Texas Regional Medical Center lease. The Company expects to derive 8% of its annualized rental revenues as of June 30, 2011 from the Texas Regional Medical Center lease. The Company believes that the financial condition and results of operations of the Tenant are more relevant to the Company’s investors than the financial statements of Texas Regional Medical Center and enable investors to evaluate the credit-worthiness of the Tenant. As a result, the Company has presented below unaudited summary financial information of the Tenant as of and for the three and six months ended June 30, 2011. The summary financial information presented below has been provided by the Tenant and has not been independently verified by the Company. The Company has no reason to believe that such information is inaccurate in any material respect.



	Three Months Ended June 30, 2011		Six Months Ended June 30, 2011
	(in thousands)
Statements of Operations
Revenues	$	21,257	$	38,667
Operating expenses	$	17,161	$	31,730
Net income	$	629	$	61

	As of		As of
	June 30, 2011		December 31, 2010
	(in thousands)
Balance Sheets
Cash and cash equivilents	$	2,117	$	833
Total current assets	$	19,141	$	15,604
Total current liabilities	$	19,287	$	18,348
Total debt (includes capital lease obligations of $50,349 and $54,166 as of June 30, 2011 and December 31, 2010, respectively)	$	67,208	$	70,564

Other than the Company’s tenant concentrations, management believes the Company's current portfolio is reasonably diversified across healthcare related real estate and geographical location and does not contain any other significant concentration of credit risks. The Company’s portfolio of 88 real estate properties is diversified by location across 20 states. The properties in any one state did not account for more than 18% of the Company’s rental revenue during both the three and six months ended June 30, 2011.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of June 30, 2011.

Indemnification Agreement

In connection with the Separation and REIT Conversion Merger, any liability arising from or relating to legal proceedings involving the Company’s real estate investments has been assumed by the Company and the Company will indemnify New Sun (and its subsidiaries, directors, officers, employees and agents and certain other related parties) against any losses arising from or relating to such legal proceedings. In addition, pursuant to a distribution agreement entered into among Old Sun, the Company and New Sun in connection with the Separation and REIT Conversion Merger, New Sun has agreed to indemnify the Company (and the Company's subsidiaries, directors, officers, employees and agents and certain other related parties) for any liability arising from or relating to legal proceedings involving Old Sun’s healthcare business prior to the Separation, and, pursuant to the lease agreements, the tenants agree to indemnify the Company for any liability arising from operation at the real property leased from Company.

Immediately prior to the Separation, Old Sun was a party to various legal actions and administrative proceedings, including various claims arising in the ordinary course of its healthcare business, which are subject to the indemnities to be provided by New Sun to the Company. 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 the Company's business, financial position or results of operations if New Sun or its subsidiaries are unable to meet their indemnification obligations.

Legal Matters

From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably possible to have a material adverse effect on its results of operations, financial condition or cash flows.