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, 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	11,515	$	1,051,189	$	(174,662	)	$	876,527
Senior Housing	75	6,710	1,050,162		(45,800		)	1,004,362
Acute Care Hospitals	2	124	175,807		(17,127		)	158,680

	180	18,349	2,277,158		(237,589		)	2,039,569
Corporate Level			299		(252		)	47
			$	2,277,457	$	(237,841	)	$	2,039,616

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



	December 31, 2015			December 31, 2014
Building and improvements	$	1,947,190		$	1,551,548
Furniture and equipment	97,840			82,812
Land improvements	10,533			3,646
Land	221,894			193,793
	2,277,457			1,831,799
Accumulated depreciation	(237,841		)	(185,994		)
	$	2,039,616		$	1,645,805

Contingent Consideration Liability

In connection with three of its real estate acquisitions, the Company may pay earn-outs based on incremental value created through the improvement of current operations. The estimated earn-outs were valued at $10.5 million at the time of the purchases and were treated as contingent considerations. The earn-outs would be determined based on portfolio performance and the tenant achieving certain performance hurdles during 2016 through early 2017. To determine the value of the contingent considerations, 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. As of December 31, 2015, based on the potential future performance of these facilities, the contingent consideration arrangements consisted of a $2.7 million liability and a $0.3 million asset and are included in accounts payable and accrued liabilities and prepaid expenses, deferred financing costs and other assets, net, respectively, in the accompanying consolidated balance sheet. During the year ended December 31, 2015, the Company recorded an adjustment to decrease the contingent consideration arrangements by $1.6 million and included this amount in other income (expense) on the accompanying consolidated statements of income.

Operating Leases

As of December 31, 2015, all of the Company’s real estate properties were leased under triple-net operating leases with expirations ranging from one to 17 years. As of December 31, 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 consolidated balance sheets and totaled $1.3 million and $0.4 million as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the Company had a $3.5 million reserve for unpaid cash rents and a $5.3 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 December 31, 2015, the Company's two largest tenants, Genesis and Holiday, represented 34.2% and 16.8%, 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 December 31, 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 December 31, 2015, the future minimum rental payments from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



2016	$	212,520
2017	218,216
2018	223,982
2019	230,426
2020	236,725
Thereafter	1,338,519

	$	2,460,388