REAL ESTATE PROPERTIES HELD FOR INVESTMENT

The Company’s real estate properties held for investment consisted of the following (dollars in thousands):

As of December 31, 2013



Property Type	Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net
Skilled Nursing/Post-Acute	96	10,826	$	737,188	$	(132,068	)	$	605,120
Senior Housing	23	1,518	153,247		(13,337		)	139,910
Acute Care Hospitals	2	124	175,807		(5,520		)	170,287

	121	12,468	1,066,242		(150,925		)	915,317
Corporate Level			254		(153		)	101
			$	1,066,496	$	(151,078	)	$	915,418

As of December 31, 2012



Property Type	Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net
Skilled Nursing/Post-Acute	96	10,826	$	746,510	$	(116,426	)	$	630,084
Senior Housing	22	1,486	148,210		(9,949		)	138,261
Acute Care Hospital	1	70	61,640		(3,001		)	58,639
	119	12,382	956,360		(129,376		)	826,984
Corporate Level			254		(103		)	151
			$	956,614	$	(129,479	)	$	827,135



	December 31, 2013			December 31, 2012
Building and improvements	$	879,926		$	782,221
Furniture and equipment	50,567			43,810
Land improvements	4,392			4,535
Land	131,611			126,048
	1,066,496			956,614
Accumulated depreciation	(151,078		)	(129,479		)
	$	915,418		$	827,135

Stoney River Marshfield Earn Out

On December 18, 2012, the Company acquired a 60-bed assisted living facility, located in Marshfield, Wisconsin ("Stoney River Marshfield"), for $8.2 million through a triple-net sale-leaseback transaction with First Phoenix Group, LLC ("First Phoenix"). At the time of purchase, the facility was not completely stabilized and as such the Company and First Phoenix agreed to an earn out arrangement whereby the Company would pay First Phoenix additional consideration in the future contingent on the performance of the facility. The Company estimated the contingent consideration liability at $1.3 million at the time of purchase. Based on performance of the facility, the Company paid First Phoenix $1.9 million of additional consideration during the year ended December 31, 2013 and recorded additional expense of $0.6 million, which is included in other income (expense) on the accompanying consolidated statements of income.

Operating Leases

As of December 31, 2013, all of the Company’s real estate properties were leased under triple-net operating leases with expirations ranging from seven to 21 years. As of December 31, 2013, the leases had a weighted-average remaining term of 11 years. The leases include provisions to extend the lease terms and other negotiated terms and conditions. The Company, through its subsidiaries, retains substantially all of the risks and benefits of ownership of the real estate assets leased to the tenants. In addition, the Company may receive additional security under these operating leases in the form of letters of credit and security deposits from the lessee or guarantees from the parent of the lessee. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets and totaled $1.6 million and $1.1 million as of December 31, 2013 and 2012, respectively. As of December 31, 2013, 81 of the Company’s 121 real estate properties held for investment were leased to subsidiaries of Genesis.

The Company monitors the creditworthiness of its tenants by reviewing credit ratings (if available) and evaluating the ability of the tenants to meet their lease obligations to the Company based on the tenants’ financial performance, including the evaluation of any parent guarantees (or the guarantees of other related parties) of tenant lease obligations. Because formal credit ratings may not be available for most of the Company’s tenants, the primary basis for the Company’s evaluation of the credit quality of its tenants (and more specifically the tenants’ ability to pay their rent obligations to the Company) is the tenants’ lease coverage ratios. These coverage ratios include earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) to rent coverage and earnings before interest, taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent coverage at the facility level and consolidated EBITDAR to total fixed charge coverage at the parent guarantor level when such a guarantee exists (currently the Genesis lease portfolio). The Company obtains various financial and operational information from its tenants each month and reviews this information in conjunction with the above-described coverage metrics to determine trends and the operational and financial impact of the environment in the industry (including the impact of government reimbursement) and the management of the tenant’s operations. These metrics help the Company identify potential areas of concern relative to its tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company.

As of December 31, 2013, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



2014	$	126,182
2015	129,218
2016	132,263
2017	135,543
2018	138,909
Thereafter	894,424

	$	1,556,539