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 its portfolio to assess potential concentrations of risks.

New Sun

As of September 30, 2011, 86 of the Company’s 94 real estate properties were leased to subsidiaries of New Sun. During the three and nine months ended September 30, 2011, 82% and 92%, respectively, of the Company’s total 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 September 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 $485.9 million and $63.8 million, respectively, for the three months ended September 30, 2011 and $1.5 billion and $195.2 million, respectively, for the nine months ended September 30, 2011. As of September 30, 2011, New Sun’s outstanding debt, net of cash, totaled $51.4 million. As of September 30, 2011, New Sun had approximately $150.8 million in liquidity, consisting of unrestricted cash and cash equivalents of $91.2 million and available borrowings of $59.6 million under New Sun's revolving credit facility.

Cadia Portfolio

On August 1, 2011, the Company closed the purchase of four skilled nursing facilities—Broadmeadow Healthcare, Capitol Healthcare, Pike Creek Healthcare and Renaissance Healthcare (the “Cadia Portfolio”). The four skilled nursing facilities are located in Delaware, range in age from 2 to 15 years and have a combined total of 500 beds. In connection with the acquisition, the Company, through an indirect wholly owned subsidiary, entered into a new 15-year triple-net master lease agreement with the sellers (collectively, the “Cadia Tenants”). None of the Cadia Tenants are affiliated with the Company or any of its subsidiaries. As of September 30, 2011, the Company's investment in the Cadia Portfolio totaled 13% of the Company's assets, and during the three and nine months ended September 30, 2011, 8% and 3%, respectively, of the Company's total revenues were derived from the Cadia Portfolio lease. The Company expects to derive 12% of its annualized total revenues as of September 30, 2011 from the Cadia Portfolio lease. The Company believes that the financial condition and results of operations of the Cadia Tenants are more relevant to the Company’s investors than the financial statements of the Cadia Portfolio and enable investors to evaluate the credit-worthiness of the Cadia Tenants in their capacity as the tenants under the Cadia Portfolio lease. As a result, the Company has presented below unaudited summary financial information of the Cadia Tenants as of and for the three and nine months ended September 30, 2011. The summary financial information presented below has been provided by the Cadia Tenants 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 September 30, 2011
	Broadmeadow Investment LLC		Capitol Nursing & Rehabilitation Center, L.L.C		Pike Creek Healthcare Services LLC		Peninsula Healthcare Services, LLC		Combined Tenants
Statements of Operations
Revenues	3,580		3,305		4,923		3,703		15,511
Operating expenses	3,146		3,021		4,223		3,301		13,691
Net income	116		187		470		299		1,072

	Nine Months Ended September 30, 2011
	Broadmeadow Investment LLC		Capitol Nursing & Rehabilitation Center, L.L.C		Pike Creek Healthcare Services LLC		Peninsula Healthcare Services, LLC		Combined Tenants
Statements of Operations
Revenues	10,504		9,906		14,877		10,956		46,243
Operating expenses	8,821		8,755		12,405		9,354		39,335
Net income	1,115		835		1,622		863		4,435

	As of September 30, 2011
	Broadmeadow Investment LLC		Capitol Nursing & Rehabilitation Center, L.L.C		Pike Creek Healthcare Services LLC		Peninsula Healthcare Services, LLC		Combined Tenants
Balance Sheets
Cash and cash equivalents	1,139		3,965		1,959		1,248		8,311
Total current assets	1,889		4,322		3,814		2,430		12,455
Total current liabilities	409		1,794		1,442		1,267		4,912
Total debt	—		—		—		—		—

	As of December 30, 2010
	Broadmeadow Investment LLC		Capitol Nursing & Rehabilitation Center, L.L.C		Pike Creek Healthcare Services LLC		Peninsula Healthcare Services, LLC		Combined Tenants
Balance Sheets
Cash and cash equivalents	$	1,577	$	1,529	$	1,653	$	1,321	$	6,080
Total current assets	2,731		2,240		3,466		2,786		11,223
Total current liabilities	1,122		893		2,166		1,724		5,905
Total debt	9,999		6,064		13,887		13,010		42,960

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 “TRMC Tenant”), a partnership that includes approximately 75 physicians who practice at the hospital. Neither Texas Regional Medical Center nor the TRMC Tenant is affiliated with the Company or any of its subsidiaries. As of September 30, 2011, the Company's investment in Texas Regional Medical Center totaled 8% of the Company's assets, and during the three and nine months ended September 30, 2011, 8% and 5%, respectively, of the Company's total revenues were derived from the Texas Regional Medical Center lease. The Company expects to derive 7% of its annualized total revenues as of September 30, 2011 from the Texas Regional Medical Center lease. The Company believes that the financial condition and results of operations of the TRMC 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 TRMC Tenant. As a result, the Company has presented below unaudited summary financial information of the TRMC Tenant as of and for the three and nine months ended September 30, 2011. The summary financial information presented below has been provided by the TRMC 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 September 30, 2011		Nine Months Ended September 30, 2011
	(in thousands)
Statements of Operations
Revenues	$	20,655	$	59,322
Operating expenses	16,330		48,059
Net income	901		962

	As of		As of
	September 30, 2011		December 31, 2010
	(in thousands)
Balance Sheets
Cash and cash equivalents	$	319	$	833
Total current assets	17,519		15,604
Total current liabilities	16,379		18,348
Total debt (includes capital lease obligations of $48,385 and $54,166 as of September 30, 2011 and December 31, 2010, respectively)	66,149		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 94 real estate properties is diversified by location across 22 states. The properties in any one state did not account for more than 17% of the Company’s total revenue during both the three and nine months ended September 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 September 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 between the Company and subsidiaries of New Sun, the tenants agree to indemnify the Company for any liability arising from operations at the real property leased from the 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 where the likelihood of a loss contingency is reasonably possible and the amount or range of reasonably possible losses is material to the Company's results of operations, financial condition or cash flow