3. Real Estate and Lending Activities

Acquisitions

We acquired the following assets (in thousands):


	Three Months Ended March 31,
	2016		2015
Assets Acquired
Land	$	—	$	14,844
Building		—		87,914
Intangible lease assets — subject to amortization (weighted average useful life 20 years)		—		7,242
Mortgage loans		—		40,000
Net investments in direct financing leases		—		10,700
Other loans		—		5,000

Total assets acquired	$	—	$	165,700

On February 13, 2015, we acquired two general acute care hospitals in the Kansas City area for $110 million. Affiliates of Prime Healthcare Services, Inc. (“Prime”) is the tenant and operator pursuant to a master lease with a 10-year initial fixed term with two extension options of five years each. The lease provides for consumer-price-indexed annual rent increases, subject to a specified floor. In addition, we funded a mortgage loan in the amount of $40 million, which has a 10-year term.

On February 27, 2015, we acquired an inpatient rehabilitation hospital in Weslaco, Texas for $10.7 million leased to Ernest pursuant to the 2012 master lease which had an initial 20-year fixed term and three five year extension options. This lease provides for consumer-priced-indexed annual rent increases, subject to a floor and a cap. In addition, we funded an acquisition loan in the amount of $5 million.

Development Activities

During the 2016 first quarter, we completed construction and began recording rental income on five acute care facilities that are leased to Adeptus Health Inc. (“Adeptus Health”), pursuant to the 2014 master lease agreement. In the first quarter of 2016, we began construction on four additional facilities pursuant to the master funding and development agreement with Adeptus Health executed in 2014.

See table below for a status update on our current development projects (in thousands):


Operator	Commitment		Costs Incurred as of March 31, 2016		Estimated Completion Date
Ernest	$	19,212	$	16,894	2Q 2016
Adeptus Health		12,639		8,734	2Q 2016
Adeptus Health		62,155		36,257	3Q 2016
Adeptus Health		61,997		8,745	2Q 2017
Adeptus Health		123,033		—	Various

	$	279,036	$	70,630

Leasing Operations

All of our leases are accounted for as operating leases except for the master lease of 15 Ernest facilities, five Prime facilities, and four Capella facilities which are accounted for as direct financing leases (“DFLs”). The components of our net investment in DFLs consisted of the following (in thousands):


	As of March 31, 2016			As of December 31, 2015
Minimum lease payments receivable	$	2,571,638		$	2,587,912
Estimated residual values		393,970			393,097
Less: Unearned income		(2,335,126	)		(2,354,013	)

Net investment in direct financing leases	$	630,482		$	626,996

Twelve Oaks Facility

In the third quarter of 2015, we sent notice of termination of the lease to the tenant at our Twelve Oaks facility. This former tenant continues to operate the facility and has made payments of approximately $1.5 million in 2016. We called their letter of credit for approximately $0.5 million in the 2016 first quarter. At March 31, 2016, we have less than $0.1 million of receivables outstanding with this tenant (net of reserves). Although no assurances can be made that we will not have any impairment charges or write-offs of receivables in the future, we believe our investment in Twelve Oaks at March 31, 2016 is fully recoverable.

Loans

The following is a summary of our loans (in thousands):


	As of March 31, 2016		As of December 31, 2015
Mortgage loans	$	757,578	$	757,581
Acquisition loans		610,003		610,469
Working capital and other loans		53,256		54,353

	$	1,420,837	$	1,422,403

Our non-mortgage loans typically consist of loans to our tenants for acquisitions and working capital purposes. At March 31, 2016, acquisition loans includes $114.4 million in loans to Ernest plus $487.7 million related to Capella (which was repaid in full as of April 30, 2016 – see Note 10 for further details).

On March 1, 2012, pursuant to our convertible note agreement, we converted $1.7 million of our $5.0 million convertible note into a 9.9% equity interest in the operator of our Hoboken University Medical Center facility. At March 31, 2016, $3.3 million remains outstanding on the convertible note, and we retain the option, subject to regulatory approvals, to convert this remainder into an additional 15.1% equity interest in the operator.

Concentrations of Credit Risk

Our revenue concentration for the three months ended March 31, 2016 as compared to the prior year is as follows (dollars in thousands):

Revenue by Operator


	For the Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
Operators	Total Revenue		Percentage of Total Revenue			Total Revenue		Percentage of Total Revenue
Prime	$	28,897		21.4	%	$	24,021		25.0	%
MEDIAN		23,510		17.4	%		15,210		15.9	%
Capella		21,477		15.9	%		—		—
Ernest		16,406		12.2	%		14,700		15.3	%
Adeptus Health		7,676		5.7	%		3,405		3.6	%

Revenue by U.S. State and Country


	For the Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
U.S. States and Other Countries	Total Revenue		Percentage of Total Revenue			Total Revenue		Percentage of Total Revenue
Texas	$	24,472		18.1	%	$	21,016		21.9	%
California		16,597		12.3	%		16,539		17.2	%
All other states		69,315		51.4	%		42,114		43.9	%


Total U.S.	$	110,384		81.8	%	$	79,669		83.0	%

Germany	$	23,510		17.4	%	$	15,210		15.9	%
United Kingdom, Italy, and Spain		1,105		0.8	%		1,082		1.1	%

Total International	$	24,615		18.2	%	$	16,292		17.0	%


Grand Total	$	134,999		100.0	%	$	95,961		100.0	%

From an asset basis, our concentration as of March 31, 2016 as compared to December 31, 2015 is as follows (dollars in thousands):

Gross Assets by Operator


	As of March 31, 2016					As of December 31, 2015
Operators	Total Gross Assets		Percentage of Total Gross Assets			Total Gross Assets		Percentage of Total Gross Assets
	(A)					(A)

Prime	$	1,125,994		19.9	%	$	1,032,353		17.1	%
MEDIAN		1,080,381		19.1	%		1,031,039		17.1	%
Ernest		581,087		10.3	%		579,182		9.6	%
Capella		510,895		9.0	%		1,059,989		17.6	%
Adeptus Health		500,000		8.8	%		500,000		8.3	%

Gross Assets by U.S. State and Country


	As of March 31, 2016					As of December 31, 2015
U.S. States and Other Countries	Total Gross Assets		Percentage of Total Gross Assets			Total Gross Assets		Percentage of Total Gross Assets
	(A)					(A)

Texas	$	1,077,738		19.0	%	$	1,060,990		17.6	%
California		547,082		9.7	%		547,085		9.1	%
All other states		2,588,647		45.7	%		3,047,204		50.4	%
Other domestic assets		185,394		3.3	%		177,317		3.1	%


Total U.S.	$	4,398,861		77.7	%	$	4,832,596		80.2	%

Germany	$	1,080,381		19.1	%	$	1,031,039		17.1	%
United Kingdom, Italy, and Spain		161,880		2.9	%		161,317		2.7	%
Other international assets		21,708		0.3	%		10,970		—


Total International	$	1,263,969		22.3	%	$	1,203,326		19.8	%

Grand Total	$	5,662,830		100.0	%	$	6,035,922		100.0	%

(A)	Gross Assets represents total assets plus accumulated depreciation/amortization assuming all real estate commitments as of the period end are fully funded and the completion of the subsequent Capella transaction.

On an individual property basis, we had no investment of any single property greater than 2.0% of our total assets as of March 31, 2016.