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, 2018



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	350	39,848	$	4,236,602	$	(251,287	)	$	3,985,315
Senior Housing - Leased	91	7,309	1,227,305		(121,289		)	1,106,016
Senior Housing - Managed	24	1,712	311,782		(18,458		)	293,324
Specialty Hospitals and Other	22	1,085	618,493		(27,887		)	590,606
	487	49,954	6,394,182		(418,921		)	5,975,261
Corporate Level			633		(304		)	329
			$	6,394,815	$	(419,225	)	$	5,975,590

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	88	8,137	1,166,687		(102,370		)	1,064,317
Senior Housing - Managed	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



	September 30, 2018			December 31, 2017
Building and improvements	$	5,506,855		$	5,449,415
Furniture and equipment	239,146			232,889
Land improvements	2,156			3,456
Land	646,658			649,095
	6,394,815			6,334,855
Accumulated depreciation	(419,225		)	(340,423		)
	$	5,975,590		$	5,994,432

Operating Leases

As of September 30, 2018, the substantial majority of the Company’s real estate properties (excluding 24 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of September 30, 2018, the leases had a weighted-average remaining term of nine years. The leases generally 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 condensed consolidated balance sheets and totaled $14.3 million and $20.3 million as of September 30, 2018 and December 31, 2017, respectively, and letters of credit deposited with the Company totaled approximately $89 million and $96 million as of September 30, 2018 and December 31, 2017, respectively. In addition, our tenants have deposited with the Company $20.9 million and $28.3 million as of September 30, 2018 and December 31, 2017, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to our properties and their operations.

As of September 30, 2018, the Company had a $1.2 million reserve for unpaid cash rental income and a $7.9 million reserve associated with accumulated straight-line rental income. As of December 31, 2017, the Company had a $3.2 million reserve for unpaid cash rental income and a $12.4 million reserve associated with accumulated straight-line rental income.

The Company has entered into memoranda of understanding with Genesis Healthcare, Inc. (“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. 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. During the nine months ended September 30, 2018, the Company completed the sale of 28 facilities leased to Genesis and expects to complete the sale of 18 of its remaining 26 Genesis facilities by the end of the first quarter of 2019 and retain eight facilities, although it cannot provide assurance that the sales will be completed in that timeframe, if at all.

In addition, on August 27, 2018, the Company entered into a non-binding letter of intent to sell the 36 skilled nursing/transitional care facilities and two senior housing communities currently leased to Senior Care Centers for an aggregate sales price of $405.0 million, inclusive of a potential earnout opportunity of $27.5 million. The sale of the facilities is subject to entry by the parties into a definitive purchase and sale agreement, as well as the completion by the potential purchaser of due diligence and other customary closing conditions to be included in the definitive agreement. The Company expects to complete the sale in early 2019. There can be no assurances that a definitive agreement will be entered into or that the sale transaction will be consummated, on the foregoing terms or timing or at all. During the three months ended September 30, 2018, the Company issued to Senior Care Centers notices of default and lease termination due to Senior Care Centers’ non-payment of rent under the terms of the master leases. As a result, Senior Care Centers is currently operating the facilities on a month-to-month basis. Deposits were fully exhausted to pay contractual rents and cash rents have been recorded through a portion of September 2018, reflecting a shortfall of $1.9 million in cash rents from Senior Care Centers through September 30, 2018. No straight-line rents have been recorded since May 2018. There can be no assurances that the Company will receive any additional rent payments from Senior Care Centers during the pendency of the sale process. Prior to termination of the master leases, the annual lease rate was $58.5 million.

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. As 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.

For both the three and nine months ended September 30, 2018, no tenant relationship represented 10% or more of the Company’s total revenues.

As of September 30, 2018, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases were as follows (in thousands):



October 1 through December 31, 2018	$	116,525
2019	472,146
2020	462,598
2021	459,309
2022	456,750
Thereafter	2,807,313
	$	4,774,641