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, 2014



Property Type	Number of Properties	Number of Beds/Units	Total Real Estate at Cost		Accumulated Depreciation			Total Real Estate Investments, Net
Skilled Nursing/Transitional Care	103	11,336	$	851,252	$	(151,978	)	$	699,274
Senior Housing	55	5,258	804,475		(22,487		)	781,988
Acute Care Hospitals	2	124	175,807		(11,324		)	164,483

	160	16,718	1,831,534		(185,789		)	1,645,745
Corporate Level			265		(205		)	60
			$	1,831,799	$	(185,994	)	$	1,645,805

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/Transitional Care	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



	December 31, 2014			December 31, 2013
Building and improvements	$	1,551,548		$	879,926
Furniture and equipment	82,812			50,567
Land improvements	3,646			4,392
Land	193,793			131,611
	1,831,799			1,066,496
Accumulated depreciation	(185,994		)	(151,078		)
	$	1,645,805		$	915,418

Contingent Consideration Liability

On February 14, 2014, the Company acquired four skilled nursing facilities and two senior housing facilities for $90.0 million. The Company may pay an earn-out based on incremental portfolio value created through the improvement of current operations as well as through expansion and conversion projects associated with these facilities. The earn-out amount will be determined based on portfolio performance following the third anniversary of the Company's entry into the master lease. To determine the value of the contingent consideration, the Company used significant inputs not observable in the market to estimate the earn-out, made assumptions regarding the probability of the portfolio achieving the incremental value and then applied an appropriate discount rate. The Company estimated a contingent consideration liability of $3.2 million at the time of purchase. As of December 31, 2014, based on the potential future performance of the facilities, the contingent consideration liability is estimated at $3.9 million and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheet. During the year ended December 31, 2014, the Company recorded an adjustment to increase the contingent consideration liability by $0.7 million and included this amount in other income (expense) on the accompanying consolidated statements of income.

On October 22, 2013, the Company purchased one acute care hospital for $119.8 million, of which approximately $10.5 million was to be held in escrow for up to 20 months. The amount ultimately released from escrow is contingent on the tenant achieving certain performance hurdles. The seller will be paid a fee of $0.5 million per annum during the escrow period. As of October 22, 2013, the amount the Company expected to release from escrow was valued at $7.3 million and is treated as contingent consideration. During the second quarter of 2014, $5.3 million was released from escrow to the seller as a result of the facility achieving certain of its performance hurdles. The remaining $5.2 million remains in escrow with its release contingent on the facility meeting additional performance hurdles and is included in prepaid expenses, deferred financing costs and other assets in the accompanying consolidated balance sheets. As of December 31, 2014, based on the performance of the facility the contingent consideration liability is estimated at zero. During the year ended December 31, 2014, the Company recorded an adjustment to the contingent consideration liability of $2.3 million and reduced its liability to $0. The adjustment is included in other income (expense) on the accompanying consolidated statements of income.

Operating Leases

As of December 31, 2014, all of the Company’s real estate properties were leased under triple-net operating leases with expirations ranging from two to 18 years. As of December 31, 2014, 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 $0.4 million and $1.6 million as of December 31, 2014 and 2013, respectively. As of December 31, 2014, 81 of the Company’s 160 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. 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, 2014, the future minimum rental payments from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



2015	$	175,839
2016	180,879
2017	185,729
2018	190,587
2019	196,137
Thereafter	1,236,968

	$	2,166,139