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, 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	97	10,819	$	1,042,754	$	(190,038	)	$	852,716
Senior Housing	85	7,989	1,187,951		(82,131		)	1,105,820
Acute Care Hospital	1	70	61,640		(10,387		)	51,253

	183	18,878	2,292,345		(282,556		)	2,009,789
Corporate Level			406		(256		)	150
			$	2,292,751	$	(282,812	)	$	2,009,939

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	100	11,012	$	1,029,291	$	(167,968	)	$	861,323
Senior Housing	78	7,213	1,072,060		(52,494		)	1,019,566
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



	December 31, 2016			December 31, 2015
Building and improvements	$	1,983,769		$	1,954,129
Furniture and equipment	85,196			97,840
Land improvements	3,744			3,594
Land	220,042			221,894
	2,292,751			2,277,457
Accumulated depreciation	(282,812		)	(237,841		)
	$	2,009,939		$	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 facility performance and the facilities 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 facilities achieving the incremental value and then applied an appropriate discount rate. As of December 31, 2016, based on the potential future performance of these facilities, the contingent consideration liabilities had an estimated value of $0.8 million, which amount is included in accounts payable in the accompanying consolidated balance sheets, and the contingent consideration asset was determined to have a value of $0. During the year ended December 31, 2016, the Company recorded an adjustment to decrease the contingent consideration arrangements by $1.5 million and included this amount in other income (expense) on the accompanying consolidated statements of income.

Operating Leases

As of December 31, 2016, nearly all of the Company’s real estate properties held for investment were leased under triple-net operating leases with expirations ranging from four to 16 years. As of December 31, 2016, the leases had a weighted-average remaining term of over nine 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 $2.7 million and $1.3 million as of December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had a $3.2 million reserve for unpaid cash rents and a $3.7 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 December 31, 2016, the Company's three largest tenants, Genesis Healthcare, Inc. ("Genesis"), certain wholly owned subsidiaries of Holiday AL Holdings LP (collectively, "Holiday") and NMS Healthcare, represented 32.3%, 16.2%, and 12.4%, 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 December 31, 2016.

The Company has entered into memoranda of understanding with Genesis to market for sale 35 skilled nursing facilities and make certain other lease and corporate guarantee amendments for the remaining 43 facilities leased to Genesis. Marketing of these 35 facilities is ongoing and is expected to be completed over the next several quarters; provided, however that there can be no assurances that the Company will successfully complete these sales on the terms or timing contemplated by the memoranda or understanding, or at all.

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 lease 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 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 December 31, 2016, the future minimum rental payments from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



2017	$	214,701
2018	220,677
2019	227,049
2020	233,275
2021	203,442
Thereafter	1,145,204

	$	2,244,348