REAL ESTATE PROPERTIES HELD FOR INVESTMENT

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

As of June 30, 2016



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	102	11,545	$	1,043,771	$	(188,108	)	$	855,663
Senior Housing	75	6,775	1,061,131		(60,462		)	1,000,669
Acute Care Hospital	1	70	61,640		(9,464		)	52,176
	178	18,390	2,166,542		(258,034		)	1,908,508
Corporate Level			402		(243		)	159
			$	2,166,944	$	(258,277	)	$	1,908,667

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



	June 30, 2016			December 31, 2015
Building and improvements	$	1,864,232		$	1,954,129
Furniture and equipment	82,217			97,840
Land improvements	3,888			3,594
Land	216,607			221,894
	2,166,944			2,277,457
Accumulated depreciation	(258,277		)	(237,841		)
	$	1,908,667		$	2,039,616

Contingent Consideration Arrangements

In connection with four of its real estate acquisitions, the Company entered into contingent consideration arrangements. Under the contingent consideration arrangements, the Company may pay out additional amounts based on incremental value created through the improvement of operations of the acquired facility (a contingent consideration liability) or may be entitled to receive a portion of the original purchase price of the acquired facility if the facility does not meet certain performance hurdles (a contingent consideration asset). The estimated value of the contingent consideration liabilities at the time of purchase was $3.2 million. The estimated value of the contingent consideration asset at the time of purchase was $0. The contingent consideration amounts would be determined based on portfolio performance and the tenant achieving certain performance hurdles during 2016 through 2018. To determine the value of the contingent consideration, the Company used significant inputs not observable in the market to estimate the contingent consideration, made assumptions regarding the probability of the portfolio achieving the incremental value and then applied an appropriate discount rate. As of June 30, 2016, based on the potential future performance of these facilities, the contingent consideration liabilities had an estimated value of $2.3 million, which amount is included in accounts payable in the accompanying condensed consolidated balance sheet, and the contingent consideration asset had an estimated value of $0. During the three and six months ended June 30, 2016, the Company recorded an adjustment to decrease the contingent consideration arrangements by $0.1 million and included this amount in other income (expense) on the accompanying condensed consolidated statements of income.

Operating Leases

As of June 30, 2016, all of the Company’s real estate properties were leased under triple-net operating leases with expirations ranging from one to 16 years. As of June 30, 2016, the leases had a weighted-average remaining term of 9 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 $1.6 million as of June 30, 2016 and $1.3 million as of December 31, 2015. As of June 30, 2016, the Company had a $3.5 million reserve for unpaid cash rents and a $1.3 million reserve associated with accumulated straight-line rental income. 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. As of June 30, 2016, the Company's three largest tenants, Genesis, Holiday and NMS Healthcare, represented 33.6%, 16.6% and 10.4%, respectively, of the Company's annualized revenues. Other than these three tenants, none of the Company’s tenants individually represented 10% or more of the Company’s annualized revenues as of June 30, 2016.

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 and earnings before interest, taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent at the lease level and consolidated EBITDAR to total fixed charges 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 identify financial and operational trends, evaluate the impact of the industry's operational and financial environment (including the impact of government reimbursement), and evaluate 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 June 30, 2016, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases was as follows (in thousands):



July 1, 2016 through December 31, 2016	$	101,102
2017	206,293
2018	211,753
2019	217,878
2020	223,849
Thereafter	1,175,118
	$	2,135,993