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, 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	409	45,710	$	4,386,543	$	(215,921	)	$	4,170,622
Senior Housing - Leased⁽¹⁾	88	8,110	1,149,278		(96,790		)	1,052,488
Senior Housing - Managed⁽¹⁾	11	999	170,866		(10,884		)	159,982
Specialty Hospitals and Other	22	1,085	602,339		(12,820		)	589,519
	530	55,904	6,309,026		(336,415		)	5,972,611
Corporate Level			448		(274		)	174
			$	6,309,474	$	(336,689	)	$	5,972,785

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 - Leased⁽¹⁾	83	7,855	1,153,739		(80,449		)	1,073,290
Senior Housing - Managed⁽¹⁾	2	134	34,212		(1,682		)	32,530
Specialty Hospitals and Other	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



	September 30, 2017			December 31, 2016
Building and improvements	$	5,410,572		$	1,983,769
Furniture and equipment	234,901			85,196
Land improvements	3,563			3,744
Land	660,438			220,042
	6,309,474			2,292,751
Accumulated depreciation	(336,689		)	(282,812		)
	$	5,972,785		$	2,009,939


⁽¹⁾	During the nine months ended September 30, 2017, the Company transitioned nine senior housing communities into a managed property structure whereby the Company owns the operations of the communities and the communities are operated by a third-party property manager.

Contingent Consideration Arrangements

In connection with three of its prior real estate acquisitions, the Company entered into contingent consideration arrangements pursuant to which it could be required to pay out additional amounts based on incremental value created through the improvement of operations of the applicable 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 nine months ended September 30, 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 communities to Senior Housing - 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 September 30, 2017, based on the performance of this facility, the contingent consideration liability had an estimated value of $0.3 million, which is included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets. During the three and nine months ended September 30, 2017, the Company recorded an increase of $0.3 million and a decrease of $0.6 million, respectively, to the contingent consideration liability. These amounts are included in other income on the accompanying condensed consolidated statements of income.

Operating Leases

As of September 30, 2017, the substantial majority of the Company’s real estate properties (excluding 11 Senior Housing - Managed properties) were leased under triple-net operating leases with expirations ranging from one to 15 years. As of September 30, 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 $35.6 million as of September 30, 2017 and $2.7 million as of December 31, 2016. As of September 30, 2017, the Company had a $3.5 million reserve for unpaid cash rents and a $2.8 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 representing 10% or more of the Company's total revenues as of September 30, 2017 (dollars in thousands):



		Three Months Ended				Nine Months Ended
		September 30, 2017
	Number of Investments	Rental Revenue		% of Total Revenue		Rental Revenue		% of Total Revenue

Genesis Healthcare, Inc.	76	$	20,257	18.1	%	$	60,470	25.3	%
Holiday AL Holdings, LP	21	9,813		8.8		29,438		12.3

The Company has entered into memoranda of understanding with Genesis to market for sale 35 skilled nursing facilities (the “MOU Disposition Facilities”). As of September 30, 2017, the Company completed the sale of two of the MOU Disposition Facilities, and subsequent to September 30, 2017, the Company completed the sale of two additional MOU Disposition Facilities. The Company has also entered into a definitive agreement to sell an additional 20 MOU Disposition Facilities, which is expected to be completed in the fourth quarter of 2017. The Company expects the remaining MOU Disposition Facilities to be sold by the end of the first quarter of 2018, though there can be no assurance that the sales will be completed in that timeframe, if at all. The Company has also begun the process of marketing for sale up to all of the remaining 43 facilities leased to Genesis, with sales expected to occur in 2018.

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 tenant’s ability to pay their rent obligations to the Company) is the tenant’s lease coverage ratio or the parent’s fixed charge coverage ratio for those entities with a parent guarantee. 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 tenant’s 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, 2017, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases was as follows (in thousands):



October 1, 2017 through December 31, 2017	$	146,223
2018	590,222
2019	599,100
2020	592,748
2021	582,633
Thereafter	3,508,262
	$	6,019,188