Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

7.Commitments and Contingencies

As part of our acquisitions, we may commit to provide contingent payments to our sellers or lessees, upon the properties achieving certain rent coverage ratios, and when the contingent payments are funded cash rent will increase by the amount funded multiplied by a rate stipulated in the agreement. The contingent payment is recorded as a liability at the estimate fair value calculated using a discounted cash flow analysis and accreted to the settlement amount of the estimated payment date. If the contingent payment is provided to the seller, the estimated fair value is capitalized to the properties’ basis. If the contingent payment is provided to the lessee, the estimated fair value is recorded as a lease inducement included in the prepaid and other assets line item in our consolidated balance sheet and is amortized as a yield adjustment over the life of the lease. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. The fair value of these contingent liabilities are evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During the three and nine months ended September 30, 2015, we recorded non‑cash interest expense of $96,000 and $205,000, respectively, related to these contingent liabilities and the fair value of our contingent payments was $13,323,000, at September 30, 2015.

At September 30, 2015, we had commitments as follows (in thousands):


	Investment			2015		Commitment		Remaining
	Commitment			Funding		Funded		Commitment
Real estate properties (See Note 2)	$	90,758	(2)	$	24,425	$	26,482	$	64,276
Earn-out liabilities		16,300			—		—		16,300
Lease incentives (1)		4,202			493		527		3,675
Mortgage loans (See Note 2)		33,990	(2)		3,927		7,265		26,725
Joint venture investments (See Note 3)		25,650			20,143		20,143		5,507
Notes receivable (See Note 4)		2,650	(3)		502		637		2,013
Totals	$	173,550		$	49,490	$	55,054	$	118,496

(1)

As part of our lease originations or amendments, we may provide lease incentive payments to or on behalf of our lessees. These payments may either be one-time payments or commitments to fund at a future date, as presented above. Lease inducement payments are amortized as a yield adjustment over the term of the lease on a straight line basis.

(2)

Represents commitments to purchase land and improvements, if applicable, and to develop, re-develop, renovate or expand senior housing and long term care properties.

(3)

Represents loan and line of credit commitments.

We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or borrowers of our properties, which in our opinion are not singularly or in the aggregate material to our results of operations or financial condition. These types of claims and lawsuits may include matters involving general or professional liability, which we believe under applicable legal principles are not our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims.