REAL ESTATE INVESTMENTS, NET

The following table summarizes the Company’s investment in owned properties at December 31, 2017 and December 31, 2016 (dollars in thousands):



	December 31, 2017			December 31, 2016
Land	$	151,879		$	110,648
Buildings and improvements	1,114,605			875,567
Integral equipment, furniture and fixtures	80,729			64,120
Identified intangible assets	2,382			1,914
Real estate investments	1,349,595			1,052,249
Accumulated depreciation	(197,334		)	(158,331		)
Real estate investments, net	$	1,152,261		$	893,918

As of December 31, 2017, 92 of the Company’s 188 facilities were leased to subsidiaries of Ensign on a triple-net basis under multiple long-term leases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) which commenced on June 1, 2014. The obligations under the Ensign Master Leases are guaranteed by Ensign. A default by any subsidiary of Ensign with regard to any facility leased pursuant to an Ensign Master Lease will result in a default under all of the Ensign Master Leases. As of December 31, 2017, annualized revenues from the Ensign Master Leases were $57.7 million and are escalated annually by an amount equal to the product of (1) the lesser of the percentage change in the Consumer Price Index (“CPI”) (but not less than zero) or 2.5%, and (2) the prior year’s rent. In addition to rent, the subsidiaries of Ensign that are tenants under the Ensign Master Leases are solely responsible for the costs related to the leased properties (including property taxes, insurance, and maintenance and repair costs).

As of December 31, 2017, 93 of the Company’s 188 facilities were leased to various other operators under triple-net leases. All of these leases contain annual escalators based on CPI some of which are subject to a cap, or fixed rent escalators.

The Company’s three remaining properties as of December 31, 2017 are the independent living facilities that the Company owns and operates.

The Company has only two identified intangible assets which relate to a below-market ground lease and three acquired operating leases. The ground lease has a remaining term of 81 years.

As of December 31, 2017, total future minimum rental revenues for the Company’s tenants were (dollars in thousands):



Year	Amount
2018	$	132,652
2019	132,102
2020	131,030
2021	131,283
2022	131,541
Thereafter	1,068,611
	$	1,727,219

Recent Real Estate Acquisitions

The following recent real estate acquisitions were accounted for as asset acquisitions:

Premier Senior Living, LLC

In February 2017, the Company acquired two assisted living and memory care facilities with 96 beds in the Milwaukee metropolitan area for $26.1 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Premier Senior Living, LLC. The amended lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $2.2 million.

WLC Management Firm, LLC

In March 2017, the Company acquired a five facility 455-bed skilled nursing portfolio in Illinois for $29.2 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company entered into a triple-net master lease with affiliates of WLC Management Firm, LLC. The lease carries an initial term of 15 years with two five-year renewal options and CPI-based rent escalators. Initial annual cash rent is $2.9 million under the lease.

In July 2017, the Company acquired a skilled nursing facility with 99 beds in Eldorado, Illinois for $3.7 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with affiliates of WLC Management Firm, LLC. The amended lease has a remaining initial term of approximately 14 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $0.4 million.

In December 2017, the Company acquired a skilled nursing facility with 86 beds in Greenville, Illinois for $4.6 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with affiliates of WLC Management Firm, LLC. The amended lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $0.4 million.

Better Senior Living Consulting, LLC

In May 2017, the Company acquired an assisted living and memory care facility with 170 beds in Brooksville, Florida for $2.0 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Better Senior Living Consulting, LLC. The amended lease has a remaining initial term of approximately 13 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $0.3 million.

Cascadia Healthcare, LLC

In May 2017, the Company acquired a skilled nursing facility with 119 units in Nampa, Idaho valued at $6.5 million, which includes capitalized acquisition costs. This facility acquisition was part of a three-skilled nursing facility portfolio acquisition that was completed in the third quarter of 2017. The remaining two skilled nursing facilities with 129 units in Oregon and Washington were valued at $4.9 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Cascadia Healthcare, LLC. The amended lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $1.1 million.

In September 2017, the Company acquired three skilled nursing facilities with 236 beds in Idaho for $29.8 million, which includes capitalized acquisition costs. The acquisition was a part of a staged seven-facility portfolio transaction that was completed in October 2017. The portfolio transaction, including capitalized acquisition costs, was valued at a total of $65.5 million. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Cascadia Healthcare, LLC. The amended lease has a remaining initial term of approximately 13 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $5.9 million.

OnPointe Health, LLC

In June 2017, the Company acquired a skilled nursing facility in Brownsville, Texas with 126 units and a skilled nursing facility in Albuquerque, New Mexico with 136 units for $27.3 million, which includes capitalized acquisition costs. The two facilities are leased to affiliates of OnPointe Health, LLC under two leases. Current contractual annual cash rent totals $2.5 million under the leases. The leases carry remaining terms of approximately 17 and 19 years, respectively, with CPI-based rent escalators. The tenant has an option to purchase the Brownsville, Texas facility at a fixed price of $14.3 million that becomes exercisable on a periodic basis beginning in 2024.

Prelude Homes & Services, LLC

In July 2017, the Company acquired an assisted living and memory care facility with 30 units in White Bear Lake, Minnesota for $7.8 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with affiliates of Prelude Homes & Services, LLC. The amended lease has a remaining initial term of approximately 12.5 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $0.6 million.

Priority Management Group, LLC

In September 2017, the Company acquired a three facility 405-bed skilled nursing portfolio in the greater Dallas-Fort Worth, Texas area for $20.3 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Priority Management Group, LLC. The amended lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $1.9 million.

Five Oaks

In October 2017, the Company acquired a three facility 268-bed skilled nursing portfolio in Washington for $12.1 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Five Oaks. The amended lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $1.1 million.

Twenty/20 Management, Inc.

In October 2017, the Company acquired a three assisted living and memory care facility with 91 units in Virginia for $18.2 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Twenty/20 Management, LLC. The amended lease has a remaining initial term of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by $1.5 million.

Providence Group

In October 2017, the Company acquired a three facility 528-bed skilled nursing portfolio in the California for $69.2 million, which includes capitalized acquisition costs. In connection with the acquisition, the Company amended its triple-net master lease with subsidiaries of Providence Group. The lease has an initial term of approximately 15 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the lease is $6.1 million.

Lease Amendments and Related Agreements

Pristine Amendment. On November 2, 2017 (the “Pristine Amendment Date”), the Company entered into a fourth amendment to the master lease (the “Pristine Amendment”) with affiliates of Pristine. Under the Pristine Amendment, the Company agreed that seven facilities selected by the Company (the “Transitioned Facilities”) would be transferred to a new operator or operators designated by the Company in its sole and absolute discretion. As described below under “Trillium Amendment,” the Company concurrently entered into a third amendment to the master lease (the “Trillium Amendment”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”) to lease the Transitioned Facilities to affiliates of Trillium. The Trillium Amendment and the operational transfers of the Transitioned Facilities became effective on December 1, 2017 (such date, the “Transition Effective Date”).

Pursuant to the Pristine Amendment, commencing on October 1, 2017, initial base rent under the Pristine master lease, as amended (as amended, the “Lease”) was $15.6 million per annum, payable in equal monthly installments. On the Transition Effective Date, annual base rent was reduced by $6.5 million. Commencing on March 1, 2018, annual base rent will increase to $9.5 million. Commencing on July 1, 2018 annual base rent would increase to $9.8 million, and beginning on July 1, 2019 and increasing annually thereafter, annual base rent would increase by the greater of (i) 2% or (ii) the adjusted CPI increase not to exceed 3%.

Under the Lease, Pristine is required to make scheduled deposits as additional rent into a landlord-managed impound account from which the Company pays certain property taxes and franchise permit fees related to the properties now and previously net leased by Pristine from the Company. Under the Pristine Amendment, Pristine deposited into the impound account an additional $0.3 million in November 2017 and an additional $0.2 million in December 2017, and in December 2017 the Company made a scheduled additional advance of $1.0 million to the impound account, bringing the total outstanding balance to approximately $6.4 million in deferred rent. The Company used impound funds deposited both by Pristine and the Company to pay franchise permit fees due with respect to the facilities retained by Pristine under the Lease (the “Retained Facilities”) and the Transitioned Facilities for the period July 1, 2017 through September 30, 2017, which were due in December 2017.

Pristine agreed to repay the total outstanding balance of the deferred rent in the impound account, plus the portion of the September 2017 base rent the Company allowed Pristine to defer, totaling $0.8 million, over time with interest. These scheduled payments of additional rent in the amount of $0.1 million per month would be made beginning on October 15, 2018 and continuing monthly thereafter, with any outstanding balance due in full on January 15, 2023. The outstanding balance on the rent deferral would incur interest charges at a rate of 6.25% per annum.

Under the Pristine Amendment, Pristine remains obligated to pay certain additional obligations related to the operation of the Transitioned Facilities prior to the Transition Effective Date which were not yet due as of the Transition Effective Date, including depositing into the impound account its full prorata share of the incurred but unpaid property taxes and franchise permit fees for the Transitioned Facilities attributable to the period from October 1, 2017 to the Transition Effective Date, as well as ongoing obligations with respect to the Retained Facilities. Although Pristine has paid $4.4 million of the $4.9 million in base rent due from the execution of the Pristine Amendment through the date hereof, Pristine has only paid $0.5 million of the $2.8 million in additional payments due under the Lease for the same period.

Accordingly, on February 27, 2018 (the “LTA Effective Date”) the Company entered into a Lease Termination Agreement (the “LTA”) with Pristine under which Pristine and its affiliates will surrender the Retained Facilities to an operator or operators designated by the Company in its sole and absolute discretion, in transactions similar to those effected in December 2017. Pursuant to the LTA, the operational transfers of the Retained Facilities are to occur within 180 days of the LTA Effective Date, and the Company and Pristine have agreed to make commercially reasonable efforts to facilitate such transfers. Until the date or dates upon which such operational transfers occur (each an “LTA Transition Date”), Pristine will continue to operate the Retained Facilities, and will collect revenues, pay payroll and other current operating expenses, pay the scheduled base rent and, to the extent of funds available, will pay additional rent thereon. The Company will continue to fund the impound account as needed to meet current real property tax and franchise permit fee liabilities accruing, if any, through the LTA Transition Date(s). The Company has therefore determined that it will (i) recognize Pristine rental revenues on a cash basis, and (ii) reserve all outstanding obligations of Pristine to the Company consisting of $6.3 million in property tax reimbursements and advances of 2016 and 2017 franchise permit fees made during the year ended December 31, 2017, $3.3 million of 2017 property tax reimbursements and franchise permit fees expected to be advanced after December 31, 2017 and $0.8 million of unpaid base rent from September 2017. Such reserve is presented in “Reserve for advances and deferred rent” within the consolidated income statements.

Under the LTA the Company will, upon Pristine’s full performance of the terms thereof, terminate the Lease and all future obligations of the tenant thereunder; however, under the terms of the Lease our security interest in Pristine’s accounts receivable will survive any such termination. Such security interest is subject to the prior lien and security interest of Pristine’s working capital lender, Capital One, National Association (“CONA”), with whom the Company has an existing intercreditor agreement that defines the relative rights and responsibilities of CONA and the Company with respect to the loan and lease collateral represented by Pristine’s accounts receivable and the Company’s respective security interests therein.

Trillium Amendment. On November 2, 2017, the Company entered into the Trillium Amendment with Trillium to lease the Transitioned Facilities to affiliates of Trillium. Under the Trillium Amendment, on the Transition Effective Date, annual base rent increased by approximately $6.9 million, from $4.5 million to $11.5 million. On February 1, 2018, annual base rent increased to $11.6 million. On the first anniversary of the Transition Effective Date, annual base rent will increase to $12.1 million. On February 1, 2019, annual base rent will increase to $12.2 million. Following the second anniversary of the Transition Effective Date, annual base rent will increase by the lesser of (i) the CPI increase or (ii) 3%.

Impairment of Real Estate Investment

During the year ended December 31, 2017, the Company recorded an impairment loss of $0.9 million related to its investment in La Villa Rehab & Healthcare Center (“La Villa”). In April 2017, the Company and Ensign mutually determined that La Villa had reached the natural end of its useful life as a skilled nursing facility and that the facility was no longer economically viable, the improvements thereon could not be economically repurposed to any other use, and the cost to remove the obsolete improvements and reclaim the underlying land for redevelopment was expected to exceed the market value of the land. Ensign agreed to wind up and terminate the operations of the facility and the Company transferred title to the property to Ensign. There was no adjustment to the contractual rent under the applicable master lease. Additionally, the Company and Ensign agreed that the licensed beds will be transferred to another facility included in the Ensign Master Leases.