3. Real Estate and Lending Activities

Acquisitions

We acquired the following assets (in thousands):

	Three Months Ended March 31,
	2018		2017
Assets Acquired
Land	$	—	$	1,230
Building		—		6,901
Intangible lease assets — subject to amortization		—		873
Total assets acquired	$	—	$	9,004

On January 30, 2017, we acquired an inpatient rehabilitation hospital in Germany for €8.4 million. This acquisition was the final property to close as part of the six hospital portfolio that we agreed to buy in September 2016 for an aggregate amount of €44.1 million. This property is leased to affiliates of Median Kliniken S.à r.l. (“MEDIAN”) pursuant to the existing long-term master lease agreement reached with MEDIAN in 2015.

Development Activities

During the 2018 first quarter, we completed construction on Ernest Flagstaff. This $24 million inpatient rehabilitation facility located in Flagstaff, Arizona opened on March 1, 2018 and is being leased to Ernest pursuant to a stand-alone lease, with terms generally similar to the original master lease.

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

Property	Commitment		Costs Incurred as of March 31, 2018		Estimated Completion Date
Circle Health (Birmingham, England)	$	45,211	$	18,369	1Q 2019
Surgery Partners (Idaho Falls, Idaho)		113,468		16,753	1Q 2020
	$	158,679	$	35,122

Disposals

On March 1, 2018, we sold the real estate of St. Joseph Medical Center in Houston, Texas, for approximately $148 million to Steward Health Care System LLC (“Steward”). In return, we received a mortgage loan equal to the purchase price, with such loan secured by the underlying real estate. The mortgage loan has terms consistent with the other mortgage loans in the Steward portfolio. This transaction resulted in a gain of $1.5 million, offset by a $1.7 million non-cash charge to revenue to write-off related straight-line rent receivables on this property.

On March 31, 2017, we sold the EASTAR Health System real estate located in Muskogee, Oklahoma, which was leased to RCCH Healthcare Partners (“RCCH”). Total proceeds from this transaction were approximately $64 million resulting in a gain of $7.4 million, partially offset by a $0.6 million non-cash charge to revenue to write-off related straight-line rent receivables on this property.

Leasing Operations

At March 31, 2018, leases on 14 Ernest facilities, ten Prime Healthcare Services, Inc. (“Prime”) facilities, and two Alecto Healthcare Services LLC (“Alecto”) facilities 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, 2018			As of December 31, 2017
Minimum lease payments receivable	$	2,223,869		$	2,294,081
Estimated residual values		434,769			448,339
Less: Unearned income		(1,972,614	)		(2,043,693	)
Net investment in direct financing leases	$	686,024		$	698,727

On March 15, 2018, we entered into a new lease agreement of our long-term acute care facility in Boise, Idaho with a joint venture formed by Vibra Healthcare, LLC (“Vibra”) and Ernest. The new lease has an initial 15-year fixed term (ending March 2033) with three extension options of five years each. With this transaction, we incurred a non-cash charge of $1.5 million to write-off DFL unbilled interest associated with the previous lease to Ernest on this property.

Adeptus Health

As noted in previous filings, we have 16 properties that we plan to re-lease to a new operator or sell. These properties are being transitioned away from Adeptus Health in stages over a two year period as part of Adeptus Health’s confirmed plan of reorganization under Chapter 11 of the Bankruptcy Code. Rent is being paid by Adeptus Health during this transition period. On January 1, 2018 and April 1, 2018, Adeptus Health vacated and stopped making rent payments on five and three properties, respectively. As a result of the shortening of our lease term on these and eight other properties, we recorded $1.8 million to accelerate straight-line rent receivable amortization in the 2018 first quarter. At March 31, 2018, Adeptus Health is current on its rent obligations to us. Although no assurances can be made that we will not recognize a loss in the future, we believe at March 31, 2018 that the sale or re-leasing of the assets related to these 16 transition facilities will not result in any material loss or impairment.

Gilbert and Florence Facilities

In the first quarter of 2018, we terminated the lease at our Gilbert and Florence, Arizona facilities due to the tenant not meeting its rent obligations pursuant to the lease. As a result of the lease terminating, we recorded a charge of $1.1 million to reserve against the straight-line rent receivables. This former tenant has continued to occupy the facility, but on April 25, 2018, this former tenant filed for involuntary bankruptcy. At March 31, 2018, all outstanding receivables were completely reserved. Although no assurances can be made that we will not have any impairment charges in the future, we believe our investment in Gilbert and Florence of $38.1 million at March 31, 2018, is fully recoverable.

Loans

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

	As of March 31, 2018		As of December 31, 2017
Mortgage loans	$	1,927,393	$	1,778,316
Acquisition loans		117,627		118,448
Working capital and other loans		31,215		31,761
	$	2,076,235	$	1,928,525

The increase in mortgage loans relates to the St. Joseph property that was sold on March 1, 2018 – see “Disposals” section of this Note 3 for further information. Our non-mortgage loans typically consist of loans to our tenants for acquisitions and working capital purposes. At March 31, 2018, acquisition loans includes $113.9 million in loans to Ernest.

Concentrations of Credit Risk

Our revenue concentration for the three months ended March 31, 2018 as compared to the prior year is as follows (dollars in thousands):

Revenue by Operator

	For the Three Months Ended March 31,
	2018					2017
Operators	Total Revenue		Percentage of Total Revenue			Total Revenue		Percentage of Total Revenue
Steward (1)	$	73,227		35.7	%	$	33,704		21.6	%
Prime		31,778		15.5	%		31,511		20.1	%
MEDIAN		29,088		14.2	%		23,450		15.0	%
Ernest		16,416		8.0	%		17,520		11.2	%
RCCH		9,537		4.7	%		9,306		6.0	%
Other operators		45,000		21.9	%		40,906		26.1	%
Total	$	205,046		100.0	%	$	156,397		100.0	%

(1) Includes revenue from IASIS prior to being acquired by Steward on September 29, 2017.

Revenue by U.S. State and Country

	For the Three Months Ended March 31,
	2018					2017
U.S. States and Other Countries	Total Revenue		Percentage of Total Revenue			Total Revenue		Percentage of Total Revenue
Texas	$	30,355		14.8	%	$	24,737		15.8	%
Massachusetts		26,940		13.1	%		26,584		17.0	%
Utah		20,871		10.2	%		2,534		1.6	%
California		16,666		8.1	%		16,565		10.6	%
Arizona		11,386		5.6	%		7,332		4.7	%
All other states		60,037		29.3	%		51,465		32.9	%
Total U.S.	$	166,255		81.1	%	$	129,217		82.6	%
Germany	$	37,665		18.4	%	$	26,190		16.7	%
United Kingdom, Italy, and Spain		1,126		0.5	%		990		0.7	%
Total International	$	38,791		18.9	%	$	27,180		17.4	%
Grand Total	$	205,046		100.0	%	$	156,397		100.0	%

On a gross asset basis (as defined in the “Reconciliation of Non-GAAP Financial Measures” section of Item 2 of this Form 10-Q), our concentration as of March 31, 2018 as compared to December 31, 2017 is as follows (dollars in thousands):

Gross Assets by Operator

	As of March 31, 2018					As of December 31, 2017
Operators	Total Gross Assets		Percentage of Total Gross Assets			Total Gross Assets		Percentage of Total Gross Assets
Steward (1)	$	3,459,275		36.2	%	$	3,457,384		36.5	%
MEDIAN		1,261,991		13.2	%		1,229,325		13.0	%
Prime		1,120,737		11.7	%		1,119,484		11.8	%
Ernest		612,112		6.4	%		629,161		6.6	%
RCCH		506,265		5.3	%		506,265		5.3	%
Other operators		2,118,132		22.3	%		2,089,934		22.1	%
Other assets		466,095		4.9	%		444,659		4.7	%
Total	$	9,544,607		100.0	%	$	9,476,212		100.0	%

(1) Includes approximately $1.8 billion of triple net leased gross assets.

Gross Assets by U.S. State and Country

	As of March 31, 2018					As of December 31, 2017
U.S. States and Other Countries	Total Gross Assets		Percentage of Total Gross Assets			Total Gross Assets		Percentage of Total Gross Assets
Massachusetts	$	1,298,226		13.6	%	$	1,297,226		13.7	%
Texas		1,260,795		13.2	%		1,257,390		13.3	%
Utah		1,035,748		10.9	%		1,035,501		10.9	%
California		542,873		5.7	%		542,876		5.7	%
Arizona		489,185		5.1	%		491,284		5.2	%
All other states		2,616,686		27.4	%		2,618,536		27.6	%
Other domestic assets		402,841		4.2	%		387,050		4.1	%
Total U.S.	$	7,646,354		80.1	%	$	7,629,863		80.5	%
Germany	$	1,623,755		17.0	%	$	1,581,726		16.7	%
United Kingdom, Italy, and Spain		211,244		2.2	%		207,014		2.2	%
Other international assets		63,254		0.7	%		57,609		0.6	%
Total International	$	1,898,253		19.9	%	$	1,846,349		19.5	%
Grand Total	$	9,544,607		100.0	%	$	9,476,212		100.0	%

On an individual property basis, we had no investment of any single property greater than 3.7% of our total gross assets as of March 31, 2018.