REAL ESTATE PROPERTIES HELD FOR INVESTMENT

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

As of September 30, 2015



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	11,400	$	1,007,325	$	(171,379	)	$	835,946
Senior Housing	73	6,481	1,017,927		(39,361		)	978,566
Acute Care Hospitals	2	124	175,807		(15,676		)	160,131
	178	18,005	2,201,059		(226,416		)	1,974,643
Corporate Level			276		(246		)	30
			$	2,201,335	$	(226,662	)	$	1,974,673

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



	September 30, 2015			December 31, 2014
Building and improvements	$	1,883,710		$	1,551,548
Furniture and equipment	97,579			82,812
Land improvements	3,646			3,646
Land	216,400			193,793
	2,201,335			1,831,799
Accumulated depreciation	(226,662		)	(185,994		)
	$	1,974,673		$	1,645,805

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 September 30, 2015, based on the potential future performance of the facilities, the contingent consideration liability is estimated at $4.2 million and is included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheet. During the three and nine months ended September 30, 2015, the Company recorded an adjustment to increase the contingent consideration liability by $0.1 million and $0.3 million, respectively, and included this amount in other income (expense) on the accompanying condensed 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 was contingent on the tenant achieving certain performance hurdles. The seller was paid a fee of $0.5 million per annum during the escrow period through November 2014. As of October 22, 2013, the amount the Company expected to release from escrow was valued at $7.3 million and was 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 facility did not meet the required performance hurdles for the remaining $5.2 million held in escrow and during the second quarter of 2015, the remaining $5.2 million was released to the Company. During the nine months ended September 30, 2015, no adjustment was made to the contingent consideration liability.

Operating Leases

As of September 30, 2015, all of the Company’s real estate properties were leased under triple-net operating leases with expirations ranging from two to 17 years. As of September 30, 2015, the leases had a weighted-average remaining term of 10 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 condensed consolidated balance sheets and totaled $1.2 million as of September 30, 2015 and $0.4 million as of December 31, 2014. As of September 30, 2015, the Company had a $2.3 million reserve for unpaid cash rents and a $4.9 million reserve associated with accumulated straight-line rental income. The Company had no reserves for unpaid cash rents and a $0.6 million reserve associated with straight-line rental income as of December 31, 2014. As of September 30, 2015, the Company's two largest tenants, Genesis and Holiday, represented 32.8% and 16.2%, respectively, of the Company's annualized revenues. Other than these two tenants, none of the Company’s tenants individually represented 10% or more of the Company’s annualized revenues as of September 30, 2015.

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 September 30, 2015, the future minimum rental payments from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



October 1, 2015 through December 31, 2015	$	51,763
2016	210,563
2017	216,309
2018	222,042
2019	228,452
Thereafter	1,537,321
	$	2,466,450