Real Estate Properties

Our real estate properties, excluding those classified as held for sale, consisted of land of $803,773, buildings and improvements of $6,620,158 and FF&E of $306,592 as of December 31, 2016; and land of $781,426, buildings and improvements of $6,391,482 and FF&E of $284,032 as of December 31, 2015. Accumulated depreciation was $1,149,083 and $178,928 for buildings and improvements and FF&E, respectively, as of December 31, 2016; and $992,361 and $155,179 for buildings and improvements and FF&E, respectively, as of December 31, 2015.

The future minimum lease payments due to us during the current terms of our leases as of December 31, 2016, are $561,815 in 2017, $545,286 in 2018, $525,489 in 2019, $498,099 in 2020, $477,962 in 2021 and $2,626,668 thereafter.

We have accounted for the following acquisitions as business combinations unless otherwise noted.

Senior Living Community Acquisitions:

In May 2016, we acquired one senior living community located in Georgia with 38 private pay units for $8,400, excluding closing costs. We acquired this community using a TRS structure and entered a management agreement with Five Star to manage this community.

In June 2016, we entered into a transaction agreement with Five Star pursuant to which, among other things: we acquired seven senior living communities located in four states with 545 living units from Five Star for $112,350, excluding closing costs, and simultaneously leased these communities back to Five Star under a new long term lease agreement pursuant to which Five Star is required to pay to us initial annual rent of $8,426; we and Five Star terminated three of our four then existing pooling agreements with Five Star; and we and Five Star entered into 10 new pooling agreements, or the new pooling agreements, with Five Star that combine our management agreements with Five Star for senior living communities that include assisted living units, or our AL Management Agreements. See Notes 5 and 7 for further information regarding these transactions and transaction agreement.

In September 2016, we acquired an additional living unit at a senior living community located in Florida that we lease to Five Star, for $130, excluding closing costs. This living unit was added to the applicable lease and Five Star’s annual rent payable to us increased by $10 in accordance with the terms of that lease.

In December 2016, we acquired two senior living communities located in Illinois with a combined 126 living units for $18,600, excluding closing costs. These two senior living communities were added to one of our leases with Five Star and Five Star’s annual rent payable to us increased by $1,395 in accordance with the terms of that lease.

Also in December 2016, we acquired a land parcel adjacent to a senior living community located in Georgia that Five Star manages for our account, for $1,600, excluding closing costs. This land parcel was added to the applicable management agreement.

In December 2014, we entered into an agreement to acquire 38 senior living communities with 3,439 living units for an aggregate purchase price of $790,000, excluding net closing adjustments of $77 and closing costs. In May 2015, we acquired 37 of these 38 senior living communities and in September 2015 we acquired the one remaining community. We funded the acquisitions of these 38 senior living communities using cash on hand, borrowings under our revolving credit facility and the assumption of approximately $151,477 of mortgage debts with a weighted average annual interest rate of 4.57%.

At the time of acquisition, nineteen of the 38 communities were triple net leased senior living communities with 2,206 living units, and were leased to seven senior living operators. As of the date acquired, the weighted average amortization period for capitalized lease origination values was 11.5 years. The remaining 19 acquired managed communities with 1,233 living units were acquired using TRS structures and are being managed for our account. We paid fees of $975 and terminated the pre-existing management agreements that were in place for 14 of these 19 managed communities, with 838 living units and we entered into new management agreements with Five Star to manage those 14 communities. The remaining five managed communities, with 395 living units, continued to be managed by a third party senior living manager in place at the time of our acquisition of these communities.

In the first quarter of 2016, the tenants at two of our triple net leased senior living communities that we acquired as part of the portfolio acquisition described above were in default of their leases. In April 2016, we reached an agreement with one of these tenants and its guarantor to settle past due amounts, terminate the lease and transfer operations. As part of this agreement, we received $2,365 and entered into a management agreement with Five Star to operate this community for our account under a TRS structure. In July 2016, we terminated the other lease and entered into a management agreement with Five Star to operate the community for our account under a TRS structure. In December 2016, we entered a settlement agreement and terminated the in place management agreements with the third party senior living manager affiliated with one of the tenants that defaulted on its lease for five of the communities acquired in May 2015. We paid fees of $115 to terminate the existing management agreements and we entered into new management agreements with Five Star to manage these five communities.

In February 2015, we acquired a land parcel adjacent to a senior living community we lease to Five Star for $490. This property was added to the lease for that senior living community and Five Star’s annual minimum rent payable to us increased by $39 as a result.

In May 2015, we acquired one senior living community with 40 private pay independent living units for a purchase price of approximately $9,750, excluding closing costs. Pursuant to the purchase agreement, $1,000 of the purchase price was withheld until the seller satisfied various conditions. The conditions were satisfied and in February 2016 we funded the $1,000 of holdback funds and eliminated the liability that had been recorded when we acquired the community. This senior living community is adjacent to another community that we own which is managed by Five Star; and the operations of this community and the community we previously owned are now conducted as a single integrated community under one management agreement.

In September 2015, we acquired one triple net leased senior living community with 84 living units for a purchase price of $18,250, excluding closing costs. We funded the acquisition of this community using cash on hand and borrowings under our revolving credit facility. This community is leased to a privately owned third party senior living operator. We accounted for this acquisition as an asset acquisition.

During 2014, we acquired two senior living communities with an aggregate 228 living units for an aggregate purchase price of $47,430, excluding closing costs, and entered into management agreements with Five Star to manage these communities.

The table below represents the purchase price allocations (including net closing adjustments) of the senior living community acquisitions described above.



Date	Location	Leased / Managed	Number of Properties		Units/ Beds	Cash Paid plus Assumed Debt⁽¹⁾		Land		Buildings and Improvements		FF&E		Acquired Real Estate Leases		Other Liabilities			Assumed Debt			(Premium) / Discount on Assumed Debt
Senior Living Community Acquisitions during the year ended December 31, 2016:
May 2016	Georgia	Managed	1		38	$	8,400	$	327	$	6,195	$	478	$	1,400	$	—		$	—		$	—
June 2016	4 States	Leased	7		545	112,493		11,085		94,940		6,468		—		—			—			—
December 2016	Illinois	Leased	2		126	18,600		1,814		13,377		1,087		2,323		—			—			—
			10		709	$	139,493	$	13,226	$	114,512	$	8,033	$	3,723	$	—		$	—		$	—

Senior Living Community Acquisitions during the year ended December 31, 2015:
May 2015	11 States	Leased	18		2,119	$	459,184	$	29,716	$	373,471	$	21,117	$	54,096	$	(18,091	)	$	(44,395	)	$	(1,125	)
May 2015	5 States	Managed	19		1,233	313,345		12,267		214,064		12,342		73,840		—			(94,785		)	832
September 2015	NC	Leased	1		87	17,548		1,134		13,749		1,022		2,208		—			(12,297		)	(565		)
Subtotal 38 senior living communities portfolio			38		3,439	790,077		43,117		601,284		34,481		130,144		(18,091		)	(151,477		)	(858		)

May 2015	GA	Managed	—	⁽²⁾	40	9,750		993		8,169		427		161		—			—			—
September 2015	GA	Leased	1		84	18,409		3,479		14,021		909		—		—			—			—
			39		3,563	$	818,236	$	47,589	$	623,474	$	35,817	$	130,305	$	(18,091	)	$	(151,477	)	$	(858	)

Senior Living Community Acquisitions during the year ended December 31, 2014:
December 2014	WI	Managed	1		52	$	7,000	$	188	$	5,862	$	101	$	849	$	—		$	—		$	—
December 2014	WI	Managed	1		176	40,430		2,615		34,957		588		2,270		—			—			—
			2		228	$	47,430	$	2,803	$	40,819	$	689	$	3,119	$	—		$	—		$	—

(1)

Cash paid plus assumed debt, if any, excludes closing costs. With respect to the June 2016 acquisition of seven senior living communities and the September 2015 acquisition of one senior living community in Georgia that are being accounted for as asset acquisitions, these amounts include the cash we paid as well as various closing settlement adjustments and closing costs. The allocation of the purchase prices of certain of our 2016 acquisitions shown above are based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed may differ from the preliminary allocations presented in these consolidated financial statements upon the completion of (i) third party valuations and (ii) our analysis of acquired in place lease and land and building valuations.


(2)	This senior living community is adjacent to another community that we own which is managed by Five Star. The operations of this community and the community we previously owned are now conducted as a single integrated community under one management agreement.

See Notes 5 and 7 for further information regarding the arrangements we have with Five Star.

MOB Acquisitions:

In February 2016, we acquired one MOB (three buildings) located in Minnesota with approximately 128,000 square feet for a purchase price of approximately $22,700, excluding closing costs. We funded this acquisition using cash on hand and borrowings under our revolving credit facility. As of the date acquired, the weighted average amortization periods for capitalized lease origination costs and below market lease values were 6.4 years and 7.3 years, respectively.

In May 2016, we acquired one MOB (one building) located in Florida with approximately 166,000 square feet for a purchase price of approximately $45,000, excluding closing costs. We funded this acquisition using cash on hand and borrowings under our revolving credit facility. We accounted for this acquisition as an asset acquisition.

In October 2016, we acquired one MOB (one building) located in Ohio with approximately 96,000 square feet for approximately $18,500, excluding closing costs. We funded this acquisition using cash on hand and borrowings under our revolving credit facility. As of the date acquired, the weighted average amortization periods for capitalized lease origination costs and above market lease values, respectively, were 14.1 years.

In January 2015, we acquired 23 MOBs (23 buildings) for an aggregate purchase price of $539,000, excluding net credits received of $7,377 related to debt assumption costs and outstanding tenant improvement allowances and excluding closing costs. These MOBs include approximately 2,170,000 leasable square feet. We funded this acquisition using cash on hand, borrowings under our revolving credit facility and the assumption of $29,955 of mortgage debts with a weighted average annual interest rate of 4.73%. As of the date acquired, the weighted average amortization periods for capitalized lease origination costs, above market lease values and below market lease values were 9.5 years, 9.7 years and 11.2 years, respectively. These 23 properties were purchased from Select Income REIT, or SIR, in connection with the acquisition by SIR of Cole Corporate Income Trust, Inc., or CCIT. See Note 7 for further information regarding this transaction.

During 2014, we acquired two MOBs (three buildings) with a total of 1,776,277 square feet for total purchase prices of

approximately $1,162,584 including the assumption of approximately $15,630 of mortgage debt and excluding closing costs.

The table below represents the purchase price allocations (including net closing adjustments) of the MOB acquisitions described above.



Date	Location	Number of Properties	Square Feet (000's)	Cash Paid plus Assumed Debt⁽¹⁾		Land		Buildings and Improvements		Acquired Real Estate Leases		Acquired Real Estate Lease Obligations			Assumed Debt			Premium on Assumed Debt
MOB Acquisitions during the year ended December 31, 2016:
February 2016	Minnesota	1	128	$	22,700	$	4,028	$	14,710	$	5,053	$	(1,091	)	$	—		$	—
May 2016	Florida	1	166	45,232		2,792		42,440		—		—			—			—
October 2016	Ohio	1	96	18,500		1,025		12,883		4,592		—			—			—
		3	390	$	86,432	$	7,845	$	70,033	$	9,645	$	(1,091	)	$	—		$	—

MOB Acquisitions during the year ended December 31, 2015:
January 2015	12 States	23	2,170	$	531,623	$	50,429	$	397,637	$	87,780	$	(3,150	)	$	(29,955	)	$	(1,073	)
		23	2,170	$	531,623	$	50,429	$	397,637	$	87,780	$	(3,150	)	$	(29,955	)	$	(1,073	)

MOB acquisitions during the year ended December 31, 2014:
April 2014	TX	1	125	$	32,932	$	3,141	$	23,142	$	7,672	$	(10	)	$	(15,630	)	$	(1,013	)
May 2014	MA	1	1,651	1,129,652		52,643		792,146		403,282		(118,419		)	—			—
		2	1,776	$	1,162,584	$	55,784	$	815,288	$	410,954	$	(118,429	)	$	(15,630	)	$	(1,013	)

(1)

Cash paid plus assumed debt, if any, excludes closing costs. With respect to the property located in Florida that is being accounted for as an asset acquisition, this amount includes the cash we paid as well as various closing settlement adjustments and closing costs. The allocations of the purchase prices of certain of our 2016 acquisitions shown above are based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed may differ from the preliminary allocations presented in these consolidated financial statements upon the completion of (i) third party valuations and (ii) our analysis of acquired in place lease and land and building valuations.

In January 2017, we acquired one MOB (one building) located in Kansas with approximately 117,000 square feet for approximately $15,500, excluding closing costs.

Intangible Lease Assets and Obligations:

At December 31, 2016, we had recorded intangible lease assets of $775,935, including $43,906 of capitalized above market lease values and $732,029 of the value of in place leases. At December 31, 2015, we had recorded intangible lease assets of $779,761, including $48,048 of capitalized above market lease values and $731,713 of the value of in place leases. We had recorded intangible lease obligations of $137,351 and $139,346 at December 31, 2016 and 2015, respectively. Accumulated amortization of capitalized above market lease values was $28,739 and $26,828 at December 31, 2016 and 2015, respectively. At December 31, 2016, the remaining weighted average amortization period of capitalized above market lease values is approximately 4.8 years. Accumulated amortization of capitalized below market lease values was $31,312 and $23,819 at December 31, 2016 and 2015, respectively. At December 31, 2016, the remaining weighted average amortization period of intangible lease obligations is approximately 11.6 years. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $232,750 and $148,647 at December 31, 2016 and 2015, respectively. At December 31, 2016, the remaining weighted average amortization period of the value of in place leases exclusive of the value of above and below market in place leases is approximately 10.4 years. We expect to recognize net future amortization of these intangible lease assets and liabilities in the amounts of approximately $64,832 in 2017, $46,101 in 2018, $39,599 in 2019, $37,089 in 2020, $34,813 in 2021 and $185,974 thereafter.

Dispositions:

In March 2016, we sold a land parcel located in Pennsylvania for $700, excluding closing costs. In June 2016, we sold a triple net leased skilled nursing facility, or SNF, located in Pennsylvania for $9,100, excluding closing costs; we recognized a gain on sale of $4,061 from this sale. In July 2016, we sold four MOBs (four buildings) located in Oklahoma for $20,150, excluding closing costs. In September 2016, we and Five Star sold a vacant SNF located in Wisconsin that we leased to Five Star for $248, excluding closing costs; as a result of this sale, Five Star's annual rent payable to us decreased by $25 in accordance with the terms of the applicable lease. In December 2016, we sold one MOB located in Pennsylvania for $2,800, excluding closing costs. In December 2016, we sold a formerly managed memory care building located in Florida for $2,100, excluding closing costs.

In February 2015, we and Five Star sold a senior living community located in Pennsylvania that we leased to Five Star with 120 assisted living units for $250, excluding closing costs; as a result of this sale, Five Star's annual rent payable to us decreased by $23 in accordance with the terms of the applicable lease. In April 2015, we sold one MOB (four buildings) located in New Mexico that was previously included in discontinued operations for $1,500, excluding closing costs. In July 2015, we and Five Star sold a senior living community located in Iowa that we leased to Five Star with 12 SNF units for $155, excluding closing costs; as a result of this sale, Five Star's annual rent payable to us decreased by $16 in accordance with the terms of the applicable lease. In August 2015, we and Five Star sold a senior living community located in Wisconsin that we leased to Five Star with 63 SNF units for $850, excluding closing costs; as a result of this sale, Five Star's annual rent payable to us decreased by $85 in accordance with the terms of the applicable lease. In December 2015, we and Five Star sold a senior living community located in Iowa that we leased to Five Star with 117 SNF units for $21, excluding closing costs; as a result of this sale, Five Star's annual rent payable to us decreased by $2 in accordance with the terms of the applicable lease.

In January 2014, we and Five Star sold an assisted living community located in Texas that we leased to Five Star with 36 assisted living units for $2,400, excluding closing costs; as a result of this sale, Five Star’s annual rent payable to us decreased by $210 in accordance with the terms of the applicable lease. In April 2014, we sold one MOB (one building) located in New Hampshire that was previously included in discontinued operations for $5,000, excluding closing costs. In June 2014, we and Five Star sold two senior living communities located in Wisconsin that we leased to Five Star with a combined 156 SNF units for $4,500, excluding closing costs; as result of this sale, Five Star’s annual rent payable to us decreased by $452 in accordance with the terms of the applicable lease. In June 2014, we sold one MOB (one building) located in Pennsylvania for $6,000, excluding closing costs. In September 2014, we sold one MOB (one building) located in Rhode Island that was previously included in discontinued operations for $675, excluding closing costs. In October 2014, we and Five Star sold a senior living community located in Virginia that we leased to Five Star with 70 assisted living units for $2,850, excluding closing costs; as a result of this sale, Five Star’s annual rent payable to us decreased by $285 in accordance with the terms of the applicable lease. Also in October 2014, we and Five Star sold two senior living communities located in Arizona that we leased to Five Star with a combined 177 assisted living and SNF units for $5,900, excluding closing costs; as a result of this sale, Five Star’s annual rent payable to us decreased by $590 in accordance with the terms of the applicable lease.

Impairment:

We periodically evaluate our assets for impairments. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset. If indicators of impairment are present, we evaluate the carrying value of the affected asset by comparing it to the expected future undiscounted net cash flows to be generated from that asset. If the sum of these expected future net cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.

During 2016, we recorded net impairment charges of $11,488 to adjust the carrying values of two MOBs (five buildings), one land parcel and two senior living communities that were sold during 2016 to their aggregate estimated net sale price. During 2016, we also recorded impairment charges of $4,391 to write off acquired lease intangible assets associated with lease defaults at two of our triple net leased senior living communities leased to two third party private operators. During 2015, we recorded net impairment charges of $796 to adjust the carrying values of one MOB (four buildings) and three senior living communities to their aggregate estimated net sale price. During 2014, we recorded net impairment charges of $4,377 to adjust the carrying values of four MOBs (seven buildings) to their aggregate estimated net sale price.

We classify all properties as held for sale in our consolidated balance sheets that meet the applicable criteria for that treatment as set forth in the Property, Plant and Equipment Topic of the Codification. As of December 31, 2016, we had no properties classified as held for sale. As of December 31, 2015, we had one senior living community with 140 living units and one vacant land parcel classified as held for sale. The real estate assets of this senior living community and land parcel are included in other assets in our December 31, 2015 consolidated balance sheets and had a net book value (after impairment) of approximately $5,356. These properties were sold in 2016 as described above.

Results of operations for properties sold or held for sale are included in discontinued operations in our consolidated statements of comprehensive income when the criteria for discontinued operations in the Codification Topic No. 2015-20, Discontinued Operations, are met. With the exception of four MOBs (seven buildings) that were sold in 2014 and 2015 that met the criteria for discontinued operations, the senior living communities and MOBs which we sold during the periods presented did not meet the criteria for discontinued operations and are included in continuing operations. Summarized income statement information for the four MOBs (seven buildings) that met the criteria for discontinued operations is included in discontinued operations as follows:



	For the year ended December 31,
	2016		2015			2014
Rental income	$	—	$	56		$	3,949
Property operating expenses	—		(406		)	(2,587		)
(Loss) income from discontinued operations	$	—	$	(350	)	$	1,362

Investments and Capital Expenditures:

During 2016 and 2015, pursuant to the terms of our existing leases with Five Star, we purchased $21,438 and $21,444, respectively, of improvements to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $1,719 and $1,734, respectively.

During 2016, we committed $12,422 for capital expenditures related to 899,000 square feet of leases executed at our MOBs. During 2015, we committed $20,314 for capital expenditures related to 1,032,000 square feet of leases executed at our MOBs.

Committed and unspent tenant related obligations based on executed leases as of December 31, 2016 and 2015 were $23,271 and $30,260, respectively.