REAL ESTATE PROPERTIES HELD FOR INVESTMENT

The Company’s real estate properties held for investment (excluding properties classified as held for sale as of March 31, 2017) consisted of the following (dollars in thousands):

As of March 31, 2017



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	10,689	$	1,038,815	$	(195,942	)	$	842,873
Senior Housing⁽¹⁾	75	7,109	1,032,562		(82,451		)	950,111
Managed Properties⁽¹⁾	10	888	157,573		(7,901		)	149,672
Acute Care Hospital	1	70	61,640		(10,849		)	50,791
	182	18,756	2,290,590		(297,143		)	1,993,447
Corporate Level			407		(262		)	145
			$	2,290,997	$	(297,405	)	$	1,993,592

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⁽¹⁾	83	7,855	1,153,739		(80,449		)	1,073,290
Managed Properties	2	134	34,212		(1,682		)	32,530
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



	March 31, 2017			December 31, 2016
Building and improvements	$	1,981,783		$	1,983,769
Furniture and equipment	85,622			85,196
Land improvements	3,475			3,744
Land	220,117			220,042
	2,290,997			2,292,751
Accumulated depreciation	(297,405		)	(282,812		)
	$	1,993,592		$	2,009,939

⁽¹⁾On March 1, 2017, the Company transitioned eight senior housing facilities into a managed property structure whereby the Company owns the operations of the facilities and the facilities are operated by a third-party property manager.

Contingent Consideration Arrangements

In connection with three 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). The estimated value of the contingent consideration liabilities at the time of purchase was $3.2 million. The contingent consideration amounts would be determined based on portfolio performance and the facility achieving certain performance hurdles during 2017. During the three months ended March 31, 2017, one earn-out arrangement expired and resulted in a $0 payout and a second earn-out arrangement was terminated in connection with the transition of the eight senior housing facilities to Managed Properties. To determine the value of the remaining contingent consideration arrangement, the Company used significant inputs not observable in the market to estimate the contingent consideration, made assumptions regarding the probability of the facility achieving the incremental value and then applied an appropriate discount rate. As of March 31, 2017, based on the performance of this facility, the contingent consideration liability had an estimated value of $0. During the three months ended March 31, 2017, the Company recorded an adjustment to decrease the contingent consideration liability by $0.8 million and included this amount in other income on the accompanying condensed consolidated statements of income (loss).

Operating Leases

As of March 31, 2017, nearly all of the Company’s real estate properties (excluding 10 Managed Properties) were leased under triple-net operating leases with expirations ranging from one to 16 years. As of March 31, 2017, the leases had a weighted-average remaining term of 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 condensed consolidated balance sheets and totaled $2.0 million as of March 31, 2017 and $2.7 million as of December 31, 2016. As of March 31, 2017, the Company had a $3.3 million reserve for unpaid cash rents and a $1.9 million reserve associated with accumulated straight-line rental income. 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.

The following table provides information regarding significant tenant relationships as of March 31, 2017 (dollars in thousands):



		Three Months Ended March 31, 2017
	Number of Investments	Rental Revenue		% of Total Revenue

Genesis Healthcare, Inc.	78	$	19,955	31.9	%
Holiday AL Holdings, LP	21	9,813		15.7
NMS Healthcare	5	7,505		12.0

The Company has entered into memoranda of understanding with Genesis to market for sale 35 skilled nursing facilities and the Company has made certain other lease and corporate guarantee amendments for the remaining 43 facilities leased to Genesis. On April 1, 2017, the Company completed the sale of one of these facilities. Marketing of the remaining 34 facilities is ongoing and is expected to be completed in the second half of 2017; 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 of 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 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 March 31, 2017, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases was as follows (in thousands):



April 1, 2017 through December 31, 2017	$	155,591
2018	212,860
2019	219,300
2020	225,378
2021	195,307
Thereafter	1,115,867
	$	2,124,303