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, 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	384	43,223	$	4,364,387	$	(209,039	)	$	4,155,348
Senior Housing - Leased ⁽¹⁾	88	8,137	1,166,687		(102,370		)	1,064,317
Senior Housing - Managed ⁽¹⁾	13	1,113	189,120		(12,125		)	176,995
Specialty Hospitals and Other	22	1,085	614,068		(16,620		)	597,448
	507	53,558	6,334,262		(340,154		)	5,994,108
Corporate Level			593		(269		)	324
			$	6,334,855	$	(340,423	)	$	5,994,432

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


⁽¹⁾	During the year ended December 31, 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.



	December 31, 2017			December 31, 2016
Building and improvements	$	5,449,415		$	1,983,769
Furniture and equipment	232,889			85,196
Land improvements	3,456			3,744
Land	649,095			220,042
	6,334,855			2,292,751
Accumulated depreciation	(340,423		)	(282,812		)
	$	5,994,432		$	2,009,939

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 year ended December 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 communities to Senior Housing - Managed communities. To determine the value of the remaining contingent consideration arrangement, the Company used significant inputs not observable in the market. Based on the performance of this facility, the contingent consideration liability had a value of $0.4 million and was paid in November 2017. During the years ended December 31, 2017 and 2016, the Company recorded decreases of $0.4 million and $1.5 million, respectively, to the contingent consideration arrangements. These amounts are included in other income on the accompanying consolidated statements of income.

Operating Leases

As of December 31, 2017, the substantial majority of the Company’s real estate properties (excluding 13 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of December 31, 2017, 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. 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 on the accompanying consolidated balance sheets and totaled $20.3 million and $2.7 million as of December 31, 2017 and 2016, respectively, and letters of credit deposited with the Company totaled $81.1 million and $21.3 million as of December 31, 2017 and 2016, respectively. In addition, our tenants have deposited with the Company $28.3 million for future real estate taxes, insurance expenditures and tenant improvements related to our properties and their operations.

As of December 31, 2017, the Company had a $3.2 million reserve for unpaid cash rents and a $12.4 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 for the year ended December 31, 2017 (dollars in thousands):



	As of December 31, 2017					For the year ended December 31, 2017
	Number of Investments	% of Total Assets		% of Total Investments⁽¹⁾		% of Total Revenues
Genesis Healthcare, Inc.	54	3.5	%	5.9	%	19.8	%

The Company has entered into memoranda of understanding with Genesis to market for sale up to all of its remaining Genesis facilities and to restructure its lease agreements with Genesis to increase the marketability of these facilities to potential buyers. The Company expects to complete the sale of 46 of its remaining 54 Genesis facilities in 2018 and retain eight facilities, although it cannot provide assurance that the sales will be completed in that timeframe, if at all. In addition, effective January 1, 2018, the annual base rent payable under the Genesis leases was reduced by $19.0 million pursuant to a lease restructuring agreement.

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 December 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):



2018	$	559,864
2019	569,288
2020	560,252
2021	558,362
2022	552,610
Thereafter	2,928,902
	$	5,729,278