MedEquities Realty Trust, Inc. (Form: S-11/A, Received: 05/05/2016 17:17:00)

J.P. Morgan

Citigroup

KeyBanc Capital Markets

RBC Capital Markets

As filed with the Securities and Exchange Commission on May 5, 2016

Registration No. 333-206490

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 3 TO

FORM S-11

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

MEDEQUITIES REALTY TRUST, INC.

(Exact name of registrant as specified in its governing instruments)

3100 West End Avenue, Suite 1000

Nashville, TN 37203

(615) 627-4710

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

John W. McRoberts

Chief Executive Officer and Chairman of the Board of Directors

MedEquities Realty Trust, Inc.

3100 West End Avenue, Suite 1000

Nashville, TN 37203

(615) 627-4710

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

David P. Slotkin, Esq.

Morrison & Foerster LLP

2000 Pennsylvania Avenue, NW, Suite 6000

Washington, D.C. 20006

(202) 887-1500

Jay L. Bernstein, Esq.

Jacob A. Farquharson, Esq.

Clifford Chance US LLP

31 West 52nd Street

New York, NY 10019

(212) 878-8000

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale thereof is not permitted.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MAY 5, 2016

PROSPECTUS

Shares

LOGO

MEDEQUITIES REALTY TRUST, INC.

Common Stock

MedEquities Realty Trust, Inc., a Maryland corporation, is a self-managed and self-administered company that invests in a diversified mix of healthcare facilities and healthcare-related real estate debt investments. We have elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014.

This is our initial public offering, and no public market currently exists for our common stock. We are offering shares of our common stock, and the selling stockholders named in this prospectus are selling shares of our common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholders. Our common stock has been approved for listing, subject to official notice of issuance, on the New York Stock Exchange, or the NYSE, under the symbol “MRT.” We expect the initial public offering price of our common stock to be between $ and $ per share.

In connection with this offering, funds managed by BlueMountain Capital Management, LLC, or BlueMountain, which own an aggregate 23.1% of the outstanding shares of our common stock as of the date of this prospectus, have the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its ownership percentage in us following the completion of this offering, without payment by us of any underwriting discounts or commissions.

To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Internal Revenue Code of 1986, as amended, among other purposes, our charter prohibits, with certain exceptions, ownership by any person of more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, the outstanding shares of any class or series of our preferred stock or the aggregate outstanding shares of all classes and series of our capital stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Investing in our common stock involves a high degree of risk. See “ Risk Factors ” beginning on page 28 of this prospectus for a discussion of certain risk factors that you should consider before investing in our common stock.


	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions ⁽¹⁾	$	$
Proceeds, before expenses, to us	$	$
Proceeds, before expenses, to the selling stockholders	$	$

(1)	See “Underwriting” for a detailed description of compensation payable to the underwriters.

We have granted the underwriters an option to purchase up to an additional shares of our common stock at the public offering price, less the underwriting discount, within 30 days after the date of this prospectus, solely to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock on or about , 2016.

The date of this prospectus is , 2016.

TABLE OF CONTENTS


	Page
PROSPECTUS SUMMARY		1
RISK FACTORS		28
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		60
USE OF PROCEEDS		62
DISTRIBUTION POLICY		63
CAPITALIZATION		66
DILUTION		67
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA		68
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		71
OUR BUSINESS		89
MANAGEMENT		131
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		151
INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN ACTIVITIES		153
PRINCIPAL STOCKHOLDERS		157
SELLING STOCKHOLDERS		160
DESCRIPTION OF CAPITAL STOCK		161
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS		167
OUR OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT		173
SHARES ELIGIBLE FOR FUTURE SALE		180
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS		182
UNDERWRITING		206
LEGAL MATTERS		211
EXPERTS		211
WHERE YOU CAN FIND MORE INFORMATION		211
INDEX TO FINANCIAL STATEMENTS		F-1

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us or information to which we have referred you. No dealer, salesperson or other person is authorized to make any representations other than those contained in this prospectus and supplemental literature authorized by us and referred to in this prospectus. If anyone provides you with different information, you should not rely on it. This prospectus and any free writing prospectus prepared by us is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale thereof is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or as of another date specified herein, regardless of the time of delivery of this prospectus or any sale of these securities. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

We use market data and industry forecasts and projections throughout this prospectus, including data from publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry and there can be no assurance that any of the forecasts or projections will be achieved. We believe that the surveys and market research others have performed are reliable, but neither we nor the underwriters have independently investigated or verified this information. The market data and industry forecasts and projections that we have included in this prospectus have not been expertized and are, therefore, solely our responsibility. As a result, the third parties that prepared the market data and industry forecasts and projections do not and will not have any liability or responsibility whatsoever for any market data and industry forecasts and projections that are contained in this prospectus. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this prospectus.

GLOSSARY OF CERTAIN TERMS

The following is a glossary of certain terms used in this prospectus:

“ Acute ” refers to a disease or condition with a rapid onset and short course.

“ ACH ” means acute care hospital. These facilities are general medical and surgical hospitals that provide both inpatient and outpatient medical services and are owned and/or operated either by a non-profit or for-profit hospital or hospital system. These facilities often act as feeder hospitals to dedicated specialty facilities.

“ ADA ” means the Americans with Disabilities Act of 1990, as amended.

“ Affordable Care Act ” means the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

“ ALF ” means assisted living facility. These facilities are residential care facilities that provide housing, meals, personal care and supportive services to older persons and disabled adults who are unable to live independently. They are intended to be a less costly alternative to more restrictive, institutional settings for individuals who do not require 24-hour nursing supervision.

“ CMS ” means the Centers for Medicare and Medicaid Services, which administers Medicare, Medicaid and the State Children’s Health Insurance Program.

“ EMTALA ” means the Emergency Medical Treatment and Labor Act, as amended.

“ gross purchase price ” means the contractual purchase price paid or to be paid by us for the applicable property, as well as any other amounts expended by us at or near the time of acquisition that will generate a return under the lease for the applicable property. Gross purchase price excludes all transaction costs incurred by us to acquire the applicable property, some of which may be capitalized in accordance with generally accepted accounting principles in the United States.

“ HHS ” means the U.S. Department of Health and Human Services.

“ HIPAA ” means the Health Insurance Portability and Accountability Act of 1996, as amended.

“ HITECH Act ” means the Health Information Technology for Economic and Clinical Health Act.

“ IRF ” means inpatient rehabilitation facility. These facilities provide inpatient rehabilitation services for patients recovering from injuries, organ transplants, amputations, cardiovascular surgery, strokes, and complex neurological, orthopedic and other medical conditions following stabilization of their acute medical issues.

“ LTACH ” means long-term acute care hospital. These facilities are designed for patients with serious medical problems that require intense, special treatment for an extended period of time (typically at least 25 days), offer more individualized and resource-intensive care than a skilled nursing facility, nursing home or acute rehabilitation facility, and patients are typically transferred to a long-term acute care hospital from the intensive care unit of a traditional hospital.

“ MOB ” means medical office building. These are single-tenant or multi-tenant buildings where doctors, physician practice groups, hospitals, hospital systems or other healthcare providers lease space and are typically located near or adjacent to acute care hospitals or other facilities where healthcare services are rendered. Medical office buildings can include outpatient surgical centers, diagnostic labs, physical therapy providers and physician office space in a single building.

“ Post-acute ” refers to the period of time following acute care, in which the patient continues to require elevated levels of medical treatment.

“ SNF ” means skilled nursing facility. These facilities usually house elderly patients and provide restorative, rehabilitative and nursing care for patients not requiring more extensive and sophisticated treatment that may be available at acute care hospitals or long-term acute care hospitals. They are distinct from and offer a much higher level of care for older adults compared to senior housing facilities. Patients typically enter skilled nursing facilities after hospitalization.

“ Sub-acute ” refers to a disease or condition of less severity or duration than acute diseases or conditions.

iii

PROSPECTUS SUMMARY

The following summary highlights some of the information contained elsewhere in this prospectus. It is not complete and does not contain all of the information you should consider before making an investment decision. You should read carefully the more detailed information set forth under the heading “Risk Factors” and the other information included in this prospectus. In this prospectus, unless the context suggests otherwise, references to “MedEquities,” “the Company,” “we,” “us” and “our” refer to MedEquities Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including MedEquities Realty Operating Partnership, LP, a Delaware limited partnership, or our operating partnership, of which MedEquities OP GP, LLC, or the general partner, a wholly owned subsidiary of our company, is the sole general partner. Unless indicated otherwise, the information included in this prospectus assumes that (i) the underwriters’ over-allotment option is not exercised, (ii) BlueMountain purchases shares of our common stock pursuant to its right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its current ownership percentage in us following the completion of this offering, which we refer to as the BlueMountain Private Placement, and (iii) the common stock to be sold in this offering is sold at $ per share, which is the midpoint of the price range set forth on the front cover of this prospectus.

Our Company

We are a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. We have elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. As of the date of this prospectus, our portfolio is comprised of 24 healthcare facilities that contain a total of 2,345 licensed beds and, as of March 31, 2016, provided aggregate annualized base rent of approximately $46.4 million and had a weighted-average remaining lease term of 15.4 years. Our properties, which we acquired for an initial aggregate gross purchase price of $498.9 million, are located in Texas, California, Nevada and South Carolina and include 17 skilled nursing facilities, two acute care hospitals, two long-term acute care hospitals, one assisted living facility, one inpatient rehabilitation facility and one medical office building. In addition, we have a $10.0 million healthcare-related debt investment that provides annual interest payments of approximately $0.9 million. See “Our Business—Our Portfolio.”

Our strategy is to become an integral capital partner with high-quality, facility-based providers of healthcare services, primarily through net-leased real estate investments, and to continue to diversify over time based on our facility types, tenants and geographic locations. We invest primarily in real estate across the acute and post-acute spectrum of care, where our management team has extensive experience and relationships. We believe acute and post-acute healthcare facilities have the potential to provide higher risk-adjusted returns compared to other forms of net-leased real estate assets due to the specialized expertise and insight necessary to own, finance and operate these properties, which are factors that tend to limit competition among owners, operators and finance companies. We target healthcare providers or operators that provide higher acuity services, are experienced, growth-minded and that we believe have shown an ability to successfully navigate a changing healthcare landscape. We believe that by investing in facilities that span the acute and post-acute spectrum of care, we will be able to adapt to, and capitalize on, changes in the healthcare industry and support, grow and develop long-term relationships with providers that serve the highest number of patients at the highest-yielding end of the healthcare real estate market. We expect to invest primarily in the following types of healthcare properties: acute care hospitals, short stay surgical and specialty hospitals (such as those focusing on orthopedic, heart, and other dedicated surgeries and specialty procedures), dedicated specialty hospitals (such as inpatient rehabilitation facilities, long-term acute care hospitals and facilities providing psychiatric care), skilled nursing facilities, large and prominent physician clinics, diagnostic facilities, outpatient surgery centers and facilities that support these services, such as medical office buildings. Over the long-term, we expect our portfolio to be balanced equally between acute and post-acute facilities, although the balance may fluctuate from time to time due to the impact of individual transactions.

We intend to continue to capitalize on what we expect will be a need for significantly higher levels of capital investment in new and updated healthcare properties resulting from an aging U.S. population, increasing access to traditional healthcare services enabled by the Affordable Care Act, increasing regulatory oversight, rapidly changing technology and continuing focus on reducing healthcare costs. We believe these factors present opportunities for us to provide flexible capital solutions to healthcare providers as they seek the capital required to modernize their facilities, operate more efficiently and improve patient care.

While our preferred form of investment is fee ownership of a facility with a long-term triple-net lease with the healthcare provider or operator, we also may provide debt financing to healthcare providers, typically in the form of mortgage or mezzanine loans. In addition, we may provide capital to finance the development of healthcare properties, which we may use as a pathway to the ultimate acquisition of pre-leased properties by including purchase options or rights of first offer in the loan agreements. We intend to conduct our operations so that neither we nor any of our subsidiaries will meet the definition of investment company under the Investment Company Act of 1940, as amended, or the 1940 Act. Therefore, neither we nor any of our subsidiaries will be required to register as an investment company under the 1940 Act.

Our Management Team

Our management team has extensive experience in acquiring, owning, developing, financing, operating, leasing and disposing of many types of healthcare properties and portfolios, as well as acquiring, owning, financing, operating and selling healthcare operating companies. Our management team is led by John W. McRoberts, our chief executive officer and chairman of our board of directors, William C. Harlan, our president and chief operating officer and a member of our board of directors, and Jeffery C. Walraven, our chief financial officer. Each of Messrs. McRoberts and Harlan has over 30 years of experience investing in healthcare real estate and operating companies, having completed over 170 acquisitions of healthcare-related facilities through various investment vehicles. Mr. Walraven has 23 years of experience, including 22 years of public accounting experience, serving many public REIT clients since 1999, most recently as an assurance managing partner of the Memphis, Tennessee office of BDO USA, LLP where his primary responsibilities included providing core and peripheral assurance services and business operational and tax consulting services, including with respect to numerous public and private REIT offerings.

Our Portfolio

As of the date of this prospectus, our portfolio is comprised of 24 healthcare facilities that contain a total of 2,345 licensed beds and, as of March 31, 2016, provided aggregate annualized base rent of approximately $46.4 million and had a weighted-average remaining lease term of 15.4 years. Our properties, which we acquired for an initial aggregate gross purchase price of $498.9 million, are located in Texas, California, Nevada and South Carolina and include 17 skilled nursing facilities, two acute care hospitals, two long-term acute care hospitals, one assisted living facility, one inpatient rehabilitation facility and one medical office building. In addition, we have a $10.0 million healthcare-related debt investment that provides annual interest payments of approximately $0.9 million. We own 100% of all of our properties, other than Lakeway Regional Medical Center, or Lakeway Hospital, in which we own a 51% interest through a consolidated partnership, or the Lakeway Partnership, with a neurosurgical physicians group. Our single-tenant properties are leased to five operators with experienced management teams, with no single tenant/guarantor representing more than 27% of our annualized base rent.

Overall payor mix for the single-tenant operating properties in our portfolio, excluding Lakeway Hospital, was composed of approximately 42% Medicare, 27% Medicaid, 20% commercial payors and 11% other payors for the year ended December 31, 2014 and approximately 39% Medicare, 27% Medicaid, 24% commercial payors and 10% other payors for the year ended December 31, 2015.

Healthcare Facilities—Facility Type

The following table contains information regarding the healthcare facilities in our portfolio as of the date of this prospectus (dollars in thousands).


Facility Type	Number of Buildings		Gross Purchase Price			% of Total Gross Purchase Price			% Leased			Annualized Base Rent ⁽¹⁾			Percent of Total Annualized Base Rent
Skilled Nursing Facilities/Assisted Living Facility ⁽²⁾⁽³⁾		18	$	276,000	⁽²⁾ ⁽³⁾		55.3	%		100.0	%	$	23,893	⁽²⁾ ⁽³⁾		51.4	%
Acute Care Hospitals ⁽⁴⁾		2		110,370			22.2			100.0			12,505	⁽⁴⁾		27.0
Long-Term Acute Care Hospitals		2		78,010			15.6			100.0			6,861			14.8
Inpatient Rehabilitation Facility		1		19,399			3.9			100.0			1,697			3.7
Medical Office Building		1		15,128			3.0			83.1			1,438			3.1

Total		24	$	498,907			100.0	%		99.0	%	$	46,394			100.0	%

(1)

Annualized base rent does not represent historical rental amounts. Rather, annualized base rent represents the actual aggregate base rent for in-place leases for the month ended March 31, 2016, multiplied by 12, except as otherwise noted. Base rent does not include tenant recoveries, additional rents or other lease-related adjustments. For additional information on the expiration of these leases, see “Our Business—Lease Expirations.”

(2)	Includes one assisted living facility that we acquired as part of our acquisition of a portfolio from Life Generations Healthcare, LLC, or Life Generations. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(3)

Includes Kearny Mesa, a skilled nursing facility that we acquired on October 1, 2015 for $15.0 million, plus an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the earnings before interest, taxes, depreciation, amortization, rent and management fees, or EBITDARM, of Kearny Mesa for 2015 and 2016, respectively. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. The gross purchase price and annualized base rent do not reflect the $10.0 million earn-out or up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(4)

Includes Lakeway Hospital, in which we own a 51% interest through the Lakeway Partnership. The annualized base rent for Lakeway Hospital as presented in this table and throughout this prospectus represents the incremental adjusted funds from operations, or AFFO, that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the $73.0 million intercompany mortgage loan that we made to the Lakeway Partnership. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent payment. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

Debt Investment

The following table contains information regarding the mortgage loan in our portfolio as of the date of this prospectus (dollars in thousands).

Loan

Borrower

Principal
Amount

Term

Initial
Interest
Rate

First Lien
Mortgage

Guarantors

Vibra Mortgage Loan

Vibra
Healthcare, LLC
and Vibra
Healthcare II, LLC

$10,000

5/20 years ⁽¹⁾

9.00%

Vibra
Hospital of
Western
Massachusetts

Vibra Healthcare Real
Estate Company II, LLC and
Vibra Hospital of
Western Massachusetts, LLC

(1)

Following the initial interest-only five-year term, this loan, which we refer to as the Vibra Mortgage Loan, will automatically convert to a 15-year amortizing loan requiring payments of principal and interest unless prepaid. The Vibra Mortgage Loan may be prepaid during the initial five-year term only if Vibra Healthcare, LLC or Vibra Healthcare II, LLC, or one of their respective affiliates, enters into a sale-leaseback transaction with us equal to or exceeding $25.0 million in value.

Recent Acquisitions

Our recent notable acquisitions include the following:

•

Texas SNF Portfolio . On July 30, 2015, we acquired nine skilled nursing facilities located throughout Texas for an aggregate gross purchase price of $133.4 million, and on October 2, 2015, we acquired one skilled nursing facility, Graham Oaks Care Center, or Graham Oaks, for a gross purchase price of $11.6 million, which we refer to collectively as the Texas SNF Portfolio. The Texas SNF Portfolio contains an aggregate of approximately 339,733 square feet. The $145.0 million aggregate gross purchase price includes $12.0 million of refundable contingent consideration, $3.0 million of which will become fully earned and non-forfeitable on January 1 of each year through 2019, subject to the tenants’ compliance with certain financial covenants under the master lease agreement and other provisions in the purchase and sale agreement on such dates. If any of the refundable contingent consideration has not been earned as of January 1, 2019, GruenePointe Holdings, LLC, or GruenePointe, will have until January 1, 2020 to achieve compliance with all of the applicable financial covenants and earn such remaining refundable contingent consideration. If GruenePointe has not achieved such compliance by January 1, 2020, GruenePointe must repay to us any refundable contingent consideration that has not been earned, together with interest from the closing date of our acquisition to January 1, 2020, at a rate of 3.0% per annum. As of the date of this prospectus, none of the $12.0 million of refundable contingent consideration had been earned.

Concurrently with the closing of the acquisitions, we leased 100% of the Texas SNF Portfolio to wholly owned subsidiaries of GruenePointe, pursuant to a 15-year triple-net master lease agreement that is guaranteed by GruenePointe and certain members of GruenePointe. The aggregate annual base rent under the master lease is approximately $12.3 million, or 8.5% of the $145.0 million aggregate gross purchase price. The annual base rent will increase each year by 2.0% of the prior year’s base rent. The annual base rent will not be adjusted down in the event that GruenePointe is required to repay any portion of the refundable contingent consideration described above. In addition to the base rent, commencing in the second year of the lease, the master lease will provide for additional rent equal to 20% of the amount by which the aggregate gross patient care revenues (i.e., gross revenues less supplemental management fees) of four facilities (Songbird Lodge, Graham Oaks, River City Care Center and Kerens Care Center) exceed the aggregate gross patient care revenues of such facilities in the first year of the lease, until the aggregate rent under the master lease for these four facilities equals 10.0% of the gross purchase price allocated to these facilities, subject to increases pursuant to the annual rent escalator. For additional information regarding GruenePointe, see the financial statements of GruenePointe and related notes thereto included elsewhere in this prospectus.

An affiliate of OnPointe Health, which is one of the owners of GruenePointe, manages the operations of the facilities in the Texas SNF Portfolio. OnPointe Health is a privately owned operator of post-acute facilities and, as of December 31, 2015, operated six skilled nursing facilities, two assisted living facilities and a home health company. OnPointe Health’s senior management team has extensive experience owning, operating, managing and developing skilled nursing facilities, primarily located in Texas, New Mexico and Louisiana. Based on information provided to us by OnPointe Health, OnPointe Health recognized combined net revenues of $51.8 million for the year ended December 31, 2014 and $73.3 million for the year ended December 31, 2015.

•

Life Generations Portfolio . On March 31, 2015, we acquired four skilled nursing facilities and one assisted living facility from Life Generations for an aggregate purchase price of $80.0 million, and on October 1, 2015, we acquired an additional skilled nursing facility, Kearny Mesa, for $15.0 million, plus an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the achievement of certain performance thresholds relating to the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. We refer to these six skilled nursing facilities collectively as the Life Generations Portfolio. All six facilities are located in southern California. Concurrently with the closing of the acquisitions, we leased 100% of the Life Generations Portfolio to wholly owned subsidiaries of Life Generations, pursuant to a 15-year triple-net master lease agreement that is guaranteed by Life Generations. The annual base rent under the lease is approximately $8.3 million, or 8.75% of the $95.0 million initial aggregate gross purchase price. The base rent under the master lease agreement will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. The portion of the earn-out expected to be paid in 2016 is approximately $1.9 million. As part of the master lease agreement, we have agreed to provide up to $2.0 million for certain renovations and improvements (all subject to our pre-approval) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement must be made by October 1, 2016 and no advances have been made to date. Annual base rent will be increased by 8.75% of any advances made under this arrangement.

Life Generations is a privately owned owner-operator of long-term care facilities that began operations in 1998 and has approximately 3,100 employees. As of December 31, 2015, Life Generations operated 17 skilled nursing facilities and one assisted living facility in California, with an aggregate of approximately 2,000 beds, and a therapy company that provides physical, occupational and speech therapy to residents in Life Generations’ facilities. Based on information provided to us by Life Generations, Life Generations recognized net revenues of approximately $238.6 million for the year ended December 31, 2015.

•

Lakeway Hospital . On February 3, 2015, we acquired Lakeway Hospital through a negotiated, non-judicial foreclosure and payment of an additional $25.0 million in cash consideration, for a total investment of $75.0 million. Lakeway Hospital, which opened in April 2012, is a 270,512 square-foot acute care hospital located in Lakeway, Texas, a suburb of Austin, that provides services in emergency medicine, family practice, cardiology, cardiothoracic surgery, radiation, oncology, general surgery, gastroenterology, women’s health, infusion therapy, diagnostic and therapeutic radiology, respiratory, physical therapy and sports medicine, occupational therapy, speech-language pathology and pain management. We initially acquired a note receivable for $50.0 million on December 29, 2014, which had an outstanding principal balance of approximately $163.9 million and was secured by a first mortgage lien on Lakeway Hospital. The operator of the facility defaulted on debt service payments under the note in 2013, and the U.S. Department of Housing and Urban Development, or HUD, held an auction in December 2014 through which we acquired the note.

We own the facility through the Lakeway Partnership, which, based on a total equity cash contribution of $2.0 million, is owned 51% by us and 49% by an entity that is owned indirectly by physicians who have relocated their practices to Lakeway Hospital and a non-physician investor. Our equity

contribution to the Lakeway Partnership was $1.0 million, and our transfer of the original $50.0 million note and $23.0 million of cash to the Lakeway Partnership is structured as an intercompany $73.0 million loan, or the Lakeway Intercompany Mortgage Loan, to the Lakeway Partnership that is secured by a first mortgage lien on Lakeway Hospital. The Lakeway Intercompany Mortgage Loan has a ten-year term and requires payments of principal and interest at a rate of 8.0% per annum based on a 25-year amortization schedule. The interest rate on the Lakeway Intercompany Mortgage Loan will reset after five years based upon then-current market rates. The Lakeway Intercompany Mortgage Loan, the related interest income to us and the related interest expense to the Lakeway Partnership are eliminated in our consolidated financial statements.

We lease Lakeway Hospital to Lakeway Regional Medical Center, LLC, or the Lakeway Operator, pursuant to a non-cancelable 25-year triple-net lease and we receive our proportionate share of rent paid to the Lakeway Partnership under the lease. The stabilized annualized base rent payable to the Lakeway Partnership under the lease is approximately $12.8 million, or approximately 17.0% of the Lakeway Partnership’s total investment in the facility of $75.0 million. However, the monthly rent was approximately $0.5 million for the second and third quarters of 2015 and increased to approximately $1.1 million for the fourth quarter of 2015, which represents the stabilized monthly rent under the lease. On March 17, 2016, the lease was amended to extend the repayment of the aggregate $3.4 million rent deferral (representing the difference between the reduced monthly rent of $0.5 million for the first six months of the lease and the stabilized monthly rent of $1.1 million), which was originally scheduled to be repaid in six equal monthly installments over the first six months of 2016. Under the amended lease, the Lakeway Operator will repay the deferred rent in 12 equal monthly installments beginning in July 2016, in addition to the stabilized monthly rent, but can pre-pay the entire deferred amount at any time without penalty. The deferred rent will bear interest at a rate of 10.0% per annum from the time each payment would have been due under the original lease. Beginning in the third year of the lease term, the annual base rent will increase each year by 3.0% of the prior year’s base rent. Based on the interest received under the Lakeway Intercompany Mortgage Loan and our proportionate share of the annual rent, the Lakeway Partnership contributed approximately $5.6 million in incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based upon the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment.

Our underwriting for Lakeway Hospital was based on an expected improvement in the operating results of the Lakeway Operator due to the recruitment of a neurosurgical physicians group to Lakeway Hospital, which commenced operations at the hospital in April 2015, replacement of the executive management team and restructuring of the Lakeway Operator’s ownership structure. The Lakeway Operator’s current EBITDAR is not sufficient to cover the stabilized monthly rent of approximately $1.1 million. However, operating results continue to improve. Based on information provided to us by the Lakeway Operator, net patient revenues, admissions, patient days and surgeries performed at the Lakeway Hospital increased by approximately 78%, 61%, 52%, and 105%, respectively, during the first quarter of 2016 as compared to the first quarter of 2015. We believe the operating results of Lakeway Hospital should continue to improve as additional specialist physicians complete their transition to Lakeway Hospital and as the Lakeway Operator’s new executive management team continues to improve the business processes at the hospital and to implement new or expanded patient service lines, such as plastic surgery, cardiology, orthopedics and other specialties. Lakeway Hospital received its Primary Stroke certification in December 2015, which is expected to enhance further the scope of services provided at the hospital and improve operating results.

fourth quarter of 2016. The minimum rent coverage ratio increases to 1.25x, 1.75x and 2.25x at the beginning of each successive fourth quarter, respectively.

•

Mountain’s Edge Hospital . On March 31, 2015, we acquired Mountain’s Edge Hospital, a newly developed 72,140 square-foot acute care hospital located in Las Vegas, Nevada, that began admitting patients in early July 2015. Our aggregate gross purchase price for the facility was $35.4 million, which includes a tenant allowance of $6.0 million that we paid to the tenant for certain furnishings, fixtures and equipment installed at the facility. On April 1, 2015, we leased 100% of Mountain’s Edge Hospital to a wholly owned subsidiary of Fundamental Healthcare pursuant to a 15-year triple-net lease, which is guaranteed by THI of Baltimore, Inc., or THI of Baltimore, another wholly owned subsidiary of Fundamental Healthcare. The annual base rent under the lease is approximately $3.1 million, or 8.75% of the aggregate gross purchase price, including the $6.0 million tenant allowance, with annual escalators of 1.5% beginning in the sixth year of the lease term.

Fundamental Healthcare is a privately owned owner-operator of healthcare facilities and operates 77 healthcare facilities in nine states, including skilled nursing facilities, long-term acute care hospitals and rehabilitation centers, largely concentrated in Texas, Nevada, Missouri and South Carolina. Subsidiaries of Fundamental Healthcare’s wholly owned subsidiary, THI of Baltimore, operate 67 skilled nursing facilities, three long-term acute care hospitals and two acute care hospitals, and based on information provided to us by Fundamental Healthcare, recognized consolidated net revenues of approximately $527.1 million for the year ended December 31, 2015.

•

Vibra Rehabilitation Hospital of Amarillo . On October 1, 2015, we acquired Vibra Rehabilitation Hospital of Amarillo, an inpatient rehabilitation hospital located in Amarillo, Texas with 44 hospital beds, for approximately $19.4 million. We previously entered into a loan and security agreement with the seller to provide it with an $18.0 million mortgage loan that was secured by Vibra Rehabilitation Hospital of Amarillo, or the Amarillo Mortgage Loan. The $18.0 million principal balance of the Amarillo Mortgage Loan was applied towards the $19.4 million purchase price, resulting in an additional cash expenditure of approximately $1.4 million to acquire the property.

Upon the closing of the acquisition, we leased 100% of Vibra Rehabilitation Hospital of Amarillo to the existing tenant, a wholly owned subsidiary of Vibra Healthcare, pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a 15-year term, with three five-year extension options and is guaranteed by Vibra Healthcare and Vibra Healthcare II, LLC. The annual base rent under the lease is approximately $1.7 million, or 8.75% of the $19.4 million purchase price, payable monthly. Beginning in the second year of the initial lease term, the annual base rent will increase each year by 3.0% of the prior year’s rent.

Vibra Healthcare is a privately owned, nationwide owner-operator of freestanding long-term acute care hospitals and inpatient rehabilitation facilities, headquartered in Mechanicsburg, Pennsylvania. Vibra Healthcare operates more than 50 long-term acute care hospitals, inpatient rehabilitation facilities and outpatient physical therapy centers, and based on information provided to us by Vibra Healthcare, recognized consolidated net revenues, less doubtful accounts, of approximately $779.3 million for the year ended December 31, 2015.

For additional details regarding the healthcare facilities in our portfolio, see “Our Business—Description of Properties and Investments in Our Portfolio.”

Our Tenants

The following table contains information regarding the tenants in our portfolio as of the date of this prospectus (dollars in thousands).


Tenant	Weighted Average Remaining Lease Term ⁽¹⁾		Total Leased GLA		Percent of Total Leased GLA			Annualized Base Rent ⁽²⁾			Percent of Total Annualized Base Rent
GruenePointe		14.3		339,733		29.9	%	$	12,325			26.6	%
Lakeway Operator		23.8		270,512		23.8			9,410	⁽³⁾		20.3
Life Generations		14.0		181,149		15.9			8,313	⁽⁴⁾		17.9
Fundamental Healthcare		12.5		211,280		18.6			8,060			17.4
Vibra Healthcare		13.9		77,925		6.9			6,848			14.7
MOB Tenants		1.8		56,251		4.9			1,438			3.1

Total / Weighted Average		15.4		1,136,850		100.0	%	$	46,394			100.0	%

(1)	Represents the weighted-average remaining lease term as of March 31, 2016.

(2)

(3)

We own a 51% interest in Lakeway Hospital through the Lakeway Partnership. The annualized base rent for Lakeway Hospital as presented in this table and throughout this prospectus represents the incremental AFFO that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the Lakeway Intercompany Mortgage Loan. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

(4)

Annualized base rent for Life Generations does not reflect the $10.0 million earn-out that we may pay Life Generations in the second quarters of 2016 and 2017 based on the 2015 and 2016 EBITDARM of Kearny Mesa or up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

Properties

The following table contains information regarding the individual healthcare facilities in our portfolio as of the date of this prospectus (dollars in thousands).

Property

Major
Tenant(s) ⁽¹⁾

Location

Property
Type

%
Leased

Gross
Purchase
Price

Annualized
Base
Rent ⁽²⁾

Lease
Expiration(s)

GLA/
Square
Feet

Texas SNF Portfolio (10 properties)

GruenePointe

Texas

SNF

100.0

145,000

12,325

July 2030

339,733

Lakeway Hospital ⁽³⁾

Lakeway
Operator

Lakeway,
TX

ACH

100.0

75,000

9,410

⁽³⁾

February
2040

270,512

Life Generations Portfolio ⁽⁴⁾
(6 properties)

Life
Generations

SNF/ALF

100.0

95,000

⁽⁴⁾

8,313

⁽⁴⁾

March
2030

181,149

Kentfield Rehab &
Specialty Hospital

Vibra
Healthcare

Kentfield,
CA

LTACH

100.0

58,000

⁽⁵⁾

5,151

⁽⁵⁾

December
2029

40,091

Mountain’s Edge Hospital

Fundamental
Healthcare

Las Vegas,
NV

ACH

100.0

35,370

⁽⁶⁾

3,095

⁽⁶⁾

March
2030

72,140

Magnolia Place of Spartanburg

Fundamental
Healthcare

Spartanburg,
SC

SNF

100.0

20,000

1,827

July 2026

50,397

Horizon Specialty Hospital of Henderson

Fundamental
Healthcare

Las Vegas,
NV

LTACH

100.0

20,010

1,710

⁽⁷⁾

July 2029

37,209

Vibra Rehabilitation Hospital of Amarillo

Vibra

Healthcare

Amarillo,
TX

IRF

100.0

19,399

1,697

September
2030

37,834

Mira Vista

Fundamental
Healthcare

Fort Worth,
TX

SNF

100.0

16,000

1,428

February
2027

51,534

North Brownsville Medical Plaza ⁽⁸⁾

VBOA ASC
Partners and
Pain &
Anesthesia
Associates

Brownsville,
TX

MOB

83.1

15,128

1,438

⁽⁹⁾

December
2017 and
February
2018

67,682

Total

99.0

498,907

46,394

1,148,281

(1)

For properties other than Lakeway Hospital and North Brownsville Medical Plaza, the tenant listed is the parent guarantor. With respect to Fundamental Healthcare, the guarantor is THI of Baltimore, a wholly owned subsidiary of Fundamental Healthcare. For additional information, see “Our Business—Description of Properties and Investments in Our Portfolio.”

(2)

(3)

(4)

The Life Generations Portfolio is comprised of five skilled nursing facilities and one assisted living facility, of which four are located in San Diego County and two are located in San Bernardino County. The gross purchase price excludes approximately $1.7 million of transaction costs, which are capitalized under generally accepted accounting principles in the United States, and also excludes an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny

Mesa for 2015 and 2016, respectively, and up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(5)	The gross purchase price includes $7.0 million that we paid to the seller/tenant to fund renovations.

(6)

The gross purchase price includes a tenant allowance of $6.0 million that we paid to the tenant for certain furnishings, fixtures and equipment installed at the facility. The annual base rent under the lease is approximately $3.1 million, or 8.75% of the aggregate gross purchase price, including the $6.0 million tenant allowance. Contractual rent for the first six months of the lease accrues from the commencement of the lease on April 1, 2015, but payment is deferred until April 2016, at which time the amounts are payable in monthly installments over the next 12 months in addition to the contractual rent then due. Interest accrues on the deferred rent at a rate of 8.75% per annum. See “Our Business—Description of Properties and Investments in Our Portfolio—Properties—Mountain’s Edge Hospital.”

(7)	Excludes $1.3 million in a lease incentive that we have granted to the tenant under the terms of the lease.

(8)

This property is subject to a ground lease that expires in 2081, with two ten-year extension options, and provides for annual base rent of approximately $0.2 million in 2015. For additional information, see “Our Business—Description of Properties and Investments in Our Portfolio—Properties—North Brownsville Medical Plaza.”

(9)	Annualized base rent excludes certain property operating expenses that are reimbursable by the tenants, which are included as rental income. For the three months ended March 31, 2016, the property operating expenses reimbursed by tenants were approximately $0.2 million.

Property under Contract

On February 1, 2016, we entered into an agreement with an affiliate of GruenePointe to acquire, upon completion, a facility located in Dallas, Texas that is currently under development, for a gross purchase price not to exceed approximately $28.0 million, plus an earn-out that we may pay to GruenePointe based on the facility’s EBITDAR during the three years following the closing date of the acquisition. The facility, which is being developed by GruenePointe, is expected to be comprised of an 80-bed skilled nursing facility and 29-bed assisted living facility and is expected to be completed and operational in the third quarter of 2017. Upon closing of the acquisition, we will lease the facility to an affiliate of GruenePointe pursuant to a long-term triple-net lease. The closing of this acquisition is subject to, among other things, GruenePointe’s successful completion of the facility and our ability to obtain equity or debt financing for the acquisition in such amounts and on such terms as are satisfactory to us, in our sole discretion. There can be no assurance that we will ultimately complete the acquisition on the terms currently anticipated, or at all.

Acquisitions under Evaluation

the satisfactory completion of all due diligence items by both parties and regulatory or lender approval, if required. The impact of these factors on the timing of any acquisition can vary based on the nature and size of each transaction. Once a binding commitment is reached with a seller, in the form of an executed purchase and sale agreement, closing on the transaction is generally expected to occur within 30 to 60 days subject to the completion of routine property due diligence that is customary in real estate transactions. Accordingly, there can be no assurance that we will enter into definitive agreements to acquire or ultimately complete the acquisition of any healthcare property under evaluation on the terms currently anticipated, or at all, and cannot predict the timing of any potential acquisitions if any are completed.

Market Opportunity

CMS and the U.S. Office of the Actuary estimate that healthcare expenditures and/or services comprised 17.4% of U.S. gross domestic product, or GDP, in 2013 and has risen from just 5.0% of GDP in 1960. According to the latest National Health Expenditures report by CMS, healthcare spending is projected to reach 19.6% of GDP by 2024. Similarly, overall healthcare expenditures have risen sharply from $1.4 trillion in 2000 to $2.9 trillion in 2013. CMS projects national healthcare expenditures to grow at a relatively stable rate of approximately 5.8% per year to reach $5.4 trillion by 2024.

National Healthcare Expenditures

(2004-2020)

LOGO

Source: HHS, CMS

We believe that there are several fundamental drivers behind the expected sustained growth in demand for healthcare services, including:

•

Aging and growing U.S. population: Between 2015 and 2050, the U.S. population over 65 years of age is projected to nearly double from about 48 million to about 88 million people, according to the U.S. Census Bureau. Furthermore various factors, including advances in healthcare treatments, are resulting in longer life expectancies. According to the Centers for Disease Control and Prevention, from 1950 to 2011, the average life expectancy at birth in the U.S. increased from 68.2 years to 78.7 years. By 2050, the average life expectancy at birth is projected to increase to 84.4 years, according to the U.S. Census Bureau.

•

Disproportionate spending across older Americans: The chart below highlights the distribution of median healthcare expenditures by age. According to HHS, those age 65 and over spend more per person on healthcare than all other age categories combined. We believe that healthcare expenditures

for the U.S. population over 65 years of age will continue to rise as a disproportionate share of healthcare dollars is spent on older Americans due to increasing requirements for treatment and management of chronic and acute health ailments.


U.S. Population Age 65 and Over		Median Healthcare Spending per Person by Age Group

Source: U.S. Census Bureau, the Statistical Abstract of the United States		Source: Department of Health and Human Services Agency for Healthcare Research and Quality, Medial Expenditure Panel Survey, 2013

•

Healthcare is less impacted by macroeconomic conditions: Demand for healthcare and healthcare properties is based primarily on demographics and healthcare needs rather than macroeconomic conditions. This is evidenced by the steady growth of both healthcare related expenditures and healthcare employment through the 2008-2009 recession. For example, during 2008 and 2009 virtually all industries experienced widespread job losses while the healthcare industry continued to create jobs. During 2008 and 2009, a total of 317,000 and 234,000 new healthcare-related jobs, respectively, were created, corresponding to employment gains of 2.4% and 1.7%, according to the Bureau of Labor Statistics. By comparison, total non-farm employment declined by 2.6% and 3.8% in 2008 and 2009, respectively.

•

Affordable Care Act increases market size: The Affordable Care Act requires that every American have health insurance beginning in 2014 or be subject to a penalty. We expect millions of additional Americans to gain access to health insurance and participate in healthcare services that were once difficult to access. To that end, according to the Congressional Budget Office, implementation of the Affordable Care Act is expected to result in 26 million additional insured Americans by the end of 2024.

We believe that delivery of healthcare is shifting toward greater use of specialized facilities and is becoming less reliant on traditional “one-stop” acute care hospitals, and that the evolving regulatory environment has led to increased focus on reducing healthcare costs while improving patient outcomes. We further believe that specialized acute and post-acute care facilities, which are less costly to build, maintain and operate compared to traditional hospitals, will be an increasingly important factor in lowering healthcare delivery costs while improving patient quality of care particularly with the trend of operators operating across the acute and post-acute spectrum of care. As a result, we believe the market is experiencing rising demand for newer, more convenient, technologically advanced and efficient healthcare properties, which is driving existing and newly formed medical service providers to modernize their facilities by renovating existing properties and building new facilities. Additionally, in order to operate profitably within a managed care environment, medical service providers are aggressively trying to increase patient populations, while maintaining lower overhead costs, through consolidation with other operators and by building new facilities that are more attractive to patients and their families, have greater operating efficiencies, and are increasingly being located in areas of population and patient growth.

While we believe that an increasing proportion of providers prefer to outsource their ownership and management of real estate to third-parties, the ownership of healthcare properties remains highly fragmented. According to the study “Slicing, Dicing and Scoping the Size of the U.S. Commercial Real Estate Market” (a study conducted by Andrew C. Florance, Norm G. Miller, Jay Spivey, and Ruijue Peng who were affiliated with the CoStar Group, Inc. and the University of San Diego), the size of the healthcare real estate market was approximately $1.3 trillion as of 2010. As of December 31, 2015, public REITs owned only approximately $144.7 billion of healthcare real estate assets. The high fragmentation that characterizes the market also creates significant investment opportunities for experienced investors like us to grow their businesses by acquiring institutional-quality healthcare facilities.

Competitive Strengths

We believe that the following competitive strengths will support the accretive growth of our business and the continued execution of our business plan:

•

Access to Attractive Off-Market and Target-Marketed Acquisition and Investment Opportunities through Industry Relationships. As healthcare industry veterans, Messrs. McRoberts and Harlan have long-standing relationships with owners, operators and developers of healthcare properties, who we believe value their industry knowledge and commitment to working in a cooperative and supportive manner. In addition, Messrs. McRoberts and Harlan have extensive relationships with private equity groups, attorneys, contractors and commercial bankers who invest in or otherwise support healthcare services operators. Messrs. McRoberts and Harlan were previously employed by Carter Validus Advisors, LLC, the advisory company to Carter Validus Mission Critical REIT, from October 2010 to April 2012, where they served as the President and Head of Healthcare, respectively, and continued to serve following 2012 as consultants, and where, as leaders of the senior management team, they were involved in sourcing and structuring off-market acquisitions and options to acquire and mezzanine financings on seven healthcare properties involving over $350 million in investment activity. Since our formation, each of the properties that we have acquired was sourced through the existing relationships of our management team, and going forward, we believe these relationships will provide us with off-market acquisition and investment opportunities, as well as target-marketed opportunities that are strategically presented to a limited number of capital providers. We believe such off-market and target-marketed transactions may not be available to many of our competitors and provide us with the opportunity to purchase assets outside the competitive bidding process.

•

Experience-Driven Investment Underwriting Process. We believe our management team’s depth of experience in healthcare real estate, operations and finance, including underwriting debt and equity investments in healthcare properties, provides us with unique perspective in underwriting potential investments. Our rigorous investment underwriting process focuses on both real estate and healthcare operations and includes a detailed analysis of the property, including historical and projected cash flow and capital needs, visibility of location, quality of construction and local economic, demographic and regulatory factors, as well as an analysis of the financial strength and experience of the healthcare operator and its management team. We believe our underwriting process will support our ability to deliver attractive risk-adjusted returns to our stockholders.

•

High-Quality Portfolio with Well-Structured Net Leases. As of the date of this prospectus, our portfolio is comprised of 24 healthcare facilities with a total of 2,345 licensed beds located in Texas, California, Nevada and South Carolina, including 17 skilled nursing facilities, two acute care hospitals, two long-term acute care hospitals, one assisted living facility, one inpatient rehabilitation facility and one medical office building, providing aggregate annualized base rent of approximately $46.4 million as of March 31, 2016, and a $10.0 million healthcare-related debt investment that provides annual interest payments of approximately $0.9 million. The properties in our portfolio primarily are state-of-the-art facilities with high-quality amenities located in attractive markets with favorable demographic trends and, as of March 31, 2016, were 99.0% leased and had a weighted-average remaining lease term of 15.4 years.

The single-tenant properties in our portfolio are leased to high-quality, experienced providers covering the acute and post-acute spectrum of care, are subject to long-term, non-cancellable triple-net leases and are supported by parent guarantees, cross-default provisions and/or cross-collateralization provisions. In addition, leases for our single-tenant properties contain rent escalators, which protect us against inflation and potential increases in interest rates. With the exception of Lakeway Hospital, all of the single-tenant facilities in our portfolio also benefit from parent guarantees. As a result, 77% of our total annualized base rent benefits from an additional layer of credit protection by requiring the guarantors to make our tenants’ rental payments to us in the event that a facility on a stand-alone basis cannot generate sufficient cash flow to meet its rental obligations to us. One key advantage of this credit enhancement is that it minimizes our risk associated with the performance of one facility because our rental income is reinforced by the financial performance across a more diversified pool of facilities.

The following table contains EBITDAR-to-rent coverage ratios (i) for the guarantors of the single-tenant facilities in our portfolio based on the guarantors’ total EBITDAR and total rent expense across their entire portfolios and (ii) for the stabilized single-tenant facilities in our portfolio, in each case based on information provided to us by our lease guarantors. Because some of our leases have been in place for less than one year as of December 31, 2015, the rental expense for our leases that is included in the calculation of the guarantor and facility coverage ratios is based on the annualized base rent for such leases as of December 31, 2015. The following coverage ratios are based on historical results of the guarantors and the facilities, as applicable, and should not be viewed as indicative of coverage ratios for future periods.


Facility Type	Guarantor Coverage Ratio ⁽¹⁾		Facility Coverage Ratio ⁽²⁾
Skilled Nursing Facilities/Assisted Living Facility ⁽³⁾		2.0x		1.2x
Long-Term Acute Care Hospitals/Inpatient Rehabilitation Facility		1.7x		1.5x

Total		1.9x		1.3x

(1)

The guarantor coverage ratio is equal to the guarantor’s EBITDAR for the 12 months ended December 31, 2015 divided by the guarantor’s total rental expense for the 12 months ended December 31, 2015, adjusted to reflect 12 months of base rent for properties in our portfolio. The resulting coverage ratios are weighted by the annualized base rent as of December 31, 2015.

(2)

The facility coverage ratios include only our 15 stabilized skilled nursing facilities, our two stabilized long-term acute care hospitals, our one stabilized assisted living facility and our one stabilized inpatient rehabilitation facility. Our non-stabilized properties include Lakeway Hospital, Mountain’s Edge Hospital, Magnolia Place of Spartanburg and Mira Vista. We consider a facility to be non-stabilized if it is a newly completed development, is undergoing or has recently undergone a significant addition or renovation or is being repositioned. The facility coverage ratio for each of the stabilized facilities in our portfolio is calculated as EBITDAR for the facility for the 12 months ended December 31, 2015 divided by annualized base rent under the applicable lease as of December 31, 2015.

(3)

For the Texas SNF portfolio, we have added back approximately $1.2 million of recoupments to revenue for the 12 months ended December 31, 2015. Recoupments occur when Medicare has overpaid a provider for services in prior periods and then recovers such overpayment by reducing payments to the provider in subsequent periods, which reduces the provider’s revenue for such periods. We believe this adjustment is appropriate because the successor operator (GruenePointe) is not liable for deductions from revenue for recoupments related to the prior operator.

•

Strong Alignment of Interests. We believe the interests of our management team, our board of directors and our stockholders are strongly aligned. Certain members of our management team and board of directors purchased an aggregate of 405,833 shares of common stock in the management/director private placement described below, which closed on July 31, 2014. In addition, we have granted our management team an aggregate of 238,749 shares of restricted common stock, which will vest on the third anniversary of the grant date, and an aggregate of 358,125 restricted stock units that will vest on the third anniversary of the grant date only if certain performance metrics are achieved. See “Management—Executive Compensation—Equity Grants.” As a result, as of the date of this prospectus, our management team and directors collectively own approximately 6.2% of our common stock on a fully diluted basis, which we believe aligns their interests with those of our stockholders.

Our Business and Growth Strategies

Our primary business objective is to provide our stockholders with stable cash distributions and an opportunity for value enhancement over time through investments in a diversified mix of healthcare properties, coupled with proactive management and prudent financing of our healthcare property investments. Key elements of our strategy include:

•

Focus on Multiple Types of Acute and Post-Acute Healthcare Properties. We focus on acquiring multiple types of acute and post-acute healthcare properties, including: acute care hospitals, short-stay surgical and specialty hospitals (such as those focusing on orthopedic, heart and other dedicated surgeries and specialty procedures), dedicated specialty hospitals (such as inpatient rehabilitation facilities, long-term acute care hospitals and facilities providing psychiatric care), skilled nursing facilities, large and prominent physician clinics, diagnostic facilities, outpatient surgery centers and facilities that support the aforementioned, such as medical office buildings (including those providing outpatient surgery, diagnostics, physical therapy and physician office space in a single building). We believe that by investing in facilities that span the acute and post-acute spectrum of care, we will be able to adapt to, and capitalize on, changes in the healthcare industry and support, grow and develop long-term relationships with providers that serve the highest number of patients at the highest-yielding end of the healthcare real estate market.

•

Employ Multiple Investment Structures to Maximize Investment Returns. We intend to continue to employ multiple investment structures to maximize investment returns, including: healthcare property purchases with triple-net leases back to the operators, first mortgage loans secured by healthcare properties, mezzanine loans secured by ownership interests in entities that own healthcare properties, leasehold mortgages, loans to healthcare operators and equity investments in healthcare operators. In addition, we may provide capital to finance the development of healthcare properties, which may lead to the ultimate acquisition of pre-leased properties. We believe that providing operators and developers with a variety of financing options enhances yield, provides a pathway to additional investments and positions us as a favorable capital partner that can accommodate creative and flexible capital structures.

•

Negotiate Well-Structured Net Leases with Strong Coverage. Our primary ownership structure is a facility purchase with a long-term triple-net lease with the healthcare provider. We intend to continue to enter into leases that generally have minimum lease coverage ratio requirements (the ratio of the tenant’s EBITDAR to its annualized base rent) and fixed charge coverage ratio requirements (the ratio of the tenant’s EBITDAR to its annualized fixed charges (rent, interest and current maturities of long-term debt)). For single tenant properties, we also seek to structure our leases with lease terms ranging from 10 to 25 years and rent escalators that provide a steadily growing cash rental stream. Our lease structures are designed to provide us with key credit support for our rents, including, in certain cases, lease deposits, covenants regarding liquidity, minimum working capital and net worth, liens on accounts receivable and other operating assets, and various provisions for cross-default,

cross-collateralization and corporate or parent guarantees, when appropriate. We believe these features help insulate us from variability in operator cash flows and enable us to minimize our expenses while we continue to build our portfolio.

•

Leverage Existing and Develop New Operator Relationships . Our management team has long-standing relationships in the healthcare industry through which we have sourced our existing portfolio and properties under evaluation, and we intend to continue to expand our portfolio by leveraging these existing relationships. Many of our operators have demonstrated a desire, as well as the resources, to grow, and we expect our strong relationships with these operators to lead to other acquisition and investment opportunities going forward. In addition, we intend to develop new relationships with healthcare providers and operators in order to diversify our tenant base and reduce our dependence on any single tenant or operator.

•

Adhere to Rigorous Investment Underwriting Criteria. We have adopted a rigorous investment underwriting process based on extensive analysis and due diligence with respect to both the healthcare real estate and the healthcare service operations. We seek to make investments in healthcare properties that have the following attributes: well-located, visible to traffic, in good physical condition with predictable future capital improvement needs and with a profitable operating history or, if a new or non-stabilized facility, a viable and supportable projection of profitability, a well-qualified and experienced operator or guarantor with a good credit history, and located in a market with economic, demographic and regulatory trends that we believe support increasing facility revenues.

•

Actively Monitor the Performance of Our Facilities and Industry Trends. We actively monitor the financial and operational performance of our tenants and lease guarantors and of the specific facilities in which we invest through a variety of methods, such as reviews of periodic financial statements, operating data and clinical outcomes data, regular meetings with the facility management teams and joint strategic planning with facility operators. Pursuant to the terms of our leases, our tenants are required to provide us with certain periodic financial statements and operating data, and, during the terms of such leases, we conduct joint evaluations of local facility operations and participate in discussions about strategic plans that may ultimately require our approval pursuant to the terms of our lease agreements. Our management team also communicates regularly with their counterparts at our tenants, and others who closely follow the healthcare industry, in order to maintain knowledge about changing regulatory and business conditions. We believe this knowledge, combined with our management team’s experience in the healthcare industry, allows us to anticipate changes in our tenants’ operations in sufficient time to strategically and financially plan for changing economic, market and regulatory conditions.

•

Conservatively Utilize Leverage in Our Investing Activities. We intend to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, future cash flows, the creditworthiness of tenants/operators and future rental rates, with the ultimate objective of becoming an issuer of investment grade debt. On July 30, 2015, we entered into an amended and restated $375 million secured revolving credit facility, which is used primarily to fund acquisitions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secured Revolving Credit Facility.” We intend to target a ratio of debt to gross undepreciated asset value of between 30% and 40%. However, our charter and bylaws do not limit the amount of debt that we may incur and our board of directors has not adopted a policy limiting the total amount of our borrowings. In addition, subject to satisfying the annual distribution requirements applicable to REITs, we intend to target a dividend payout ratio that allows us to retain some of our operating cash flow and thereby reduce our need to rely on additional debt.

Secured Revolving Credit Facility

On July 30, 2015, we entered into an amended and restated $375 million secured revolving credit facility, which replaced our prior $200 million facility. The secured credit facility includes an accordion feature, which allows the total borrowing capacity under the our secured credit facility to be increased to up to $600 million, subject to certain conditions, including obtaining additional commitments from lenders. Amounts outstanding under our secured credit facility bear interest at the London Interbank Offered Rate, or LIBOR, plus a margin between 2.75% and 3.75% or a base rate plus a margin between 1.75% and 2.75%, in each case depending on our leverage. Upon meeting certain conditions, including the completion of this offering, amounts outstanding under our secured credit facility will bear interest at LIBOR plus a margin between 2.00% and 2.50% or a base rate plus a margin between 1.00% and 1.50%, in each case depending on our leverage. The secured credit facility is scheduled to mature in November 2016. As of April 29, 2016, we had received a commitment letter from each of the lenders under our secured credit facility to amend the facility to, among other things, reduce the total commitments from $375.0 million to $300.0 million, extend the maturity date to November 2017 and provide two 12-month extension options, subject to certain conditions, including the completion of this offering and payment of a 0.15% extension fee at each extension. We expect to pay a 0.25% fee in connection with the anticipated amendment. The interest rate and accordion feature of the secured credit facility are not expected to change in connection with the anticipated amendment.

As of the date of this prospectus, we had $247.4 million outstanding under our secured credit facility and approximately $21.5 million of available capacity, subject to lender approval, which is based on the cost of eligible real estate investments available to collateralize the facility. The amount available to borrow under our secured credit facility will increase with each acquisition of unencumbered healthcare properties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Secured Revolving Credit Facility.”

Summary Risk Factors

An investment in our common stock is subject to significant risks. You should carefully consider the matters discussed under the section captioned “Risk Factors” beginning on page 28 before deciding to invest in our common stock. These risk factors include but are not limited to the following:

•

We have a limited operating history and limited resources and may not be able to successfully operate our business, continue to implement our investment strategy or generate sufficient revenue to make or sustain distributions to our stockholders.

•

Our growth will depend upon future acquisitions of healthcare properties, and we may be unsuccessful in identifying and consummating attractive acquisitions or taking advantage of other investment opportunities, which would impede our growth and negatively affect our cash available for distribution to stockholders.

•

Certain tenants/operators in our portfolio account for a significant percentage of the rent generated from our portfolio, and the failure of any of these tenants/operators to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

The success of our investment in Lakeway Hospital depends on improved operating results by the Lakeway Operator and such improved operating results may not occur on the schedule or to the extent that we anticipate, or at all, which could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

We face additional risks associated with property development that can render a project less profitable or not profitable at all and, under certain circumstances, prevent completion of development activities once undertaken.

•

BlueMountain has the ability to exercise substantial influence over us, including the approval of certain acquisitions and certain issuances of equity.

•

We depend on key personnel whose continued service is not guaranteed and each of whom would be difficult to replace.

•

We may be unable to source off-market or target-marketed deal flow in the future.

•

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all, which could limit our ability, among other things, to meet our capital and operating needs or make the cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT.

•

Properties in Texas, California, Nevada and South Carolina account for all of the rent we generate from our portfolio.

•

Reductions in reimbursements from third-party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants/operators, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

Reductions in federal government spending, tax reform initiatives or other federal legislation to address the federal government’s projected operating deficit could have a material adverse effect on our tenant operators’ liquidity, financial condition or results of operations.

•

Our secured revolving credit facility restricts our ability to engage in certain business activities, including our ability to incur additional indebtedness, make capital expenditures and make certain investments, which could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

We intend to incur mortgage indebtedness and other borrowings, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

Higher mortgage rates and other factors may make it more difficult or more costly for us to finance or refinance properties, which could reduce the number of properties we can acquire or require us to sell properties on terms that are not advantageous to us, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

We may be unable to successfully foreclose on the collateral securing real estate-related loans we make, and even if we are successful in our foreclosure efforts, we may be unable to successfully operate, occupy or reposition the underlying real estate, which may adversely affect our ability to recover our investments.

•

Adverse trends in healthcare provider operations may negatively affect our lease revenues, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

•

Our tenants, operators, borrowers and managers may be adversely affected by healthcare regulation and enforcement.

•

Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.

Prior Private Placements

Common Stock

On July 31, 2014, we sold an aggregate of 10,351,040 shares of our common stock, at a price per share of $15.00, to certain institutional and individual investors, with FBR Capital Markets & Co., or FBR, acting as initial purchaser/placement agent and, on August 22, 2014, we sold an additional 188,521 shares of our common stock pursuant to the exercise by FBR of its option to purchase shares to cover additional allotments, in each case in reliance upon exemptions from registration provided by Rule 144A, Regulation S and Regulation D under the Securities Act of 1933, as amended, or the Securities Act, which we collectively refer to as the initial private placement. Concurrently with the completion of the initial private placement, on July 31, 2014, we sold an aggregate of 405,833 shares of our common stock, at a price per share of $15.00, to certain of our officers, directors and their family members in a private placement in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and Regulation D thereunder, which we refer to as the management/director private placement. We refer to the initial private placement and the management/director private placement collectively as the common stock private placements. The aggregate net proceeds to us from the common stock private placements, after deducting the initial purchaser’s discount and placement fee and offering expenses payable by us, were approximately $151.7 million.

BlueMountain purchased 2,583,686 shares of our common stock in the initial private placement and, as of the date of this prospectus, owns 23.1% of the outstanding shares of our common stock. In connection with its purchase, we granted BlueMountain the right initially to designate two of the members of our board of directors, whose terms began on July 31, 2014, and to continue to designate two directors or one director in the future, subject to certain ownership requirements. See “Certain Relationships and Related Transactions—BlueMountain Rights Agreement.” In addition, two of the members of our investment committee are and will be appointed by BlueMountain so long as BlueMountain is entitled to two nominees to our board of directors, and one member of the investment committee will be appointed by BlueMountain so long as BlueMountain is entitled to one nominee to our board of directors. One of BlueMountain’s designees will have the right to serve on our risk committee for so long as such individual serves on our board of directors. In addition, for as long as BlueMountain owns greater than 10% of the outstanding shares of our common stock, the vote of at least one of the BlueMountain designees on our board of directors shall be required in order for our board of directors to approve the issuance of any shares of our common stock for consideration less than the lower of (i) the then-current market price of our common stock if our common stock is then listed for trading on a national securities exchange or (ii) $15.00 per share, in each case as may be adjusted for any stock splits, stock dividends or other similar recapitalizations. In connection with this offering, BlueMountain has the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its ownership percentage in us following the completion of this offering, without payment by us of any underwriting discount or commissions.

Series B Preferred Stock

In March and April of 2015, we issued an aggregate of 125,000 shares of newly classified 7.875% Series B Redeemable Cumulative Preferred Stock, or our Series B Preferred Stock, to Carter/Validus Operating Partnership, L.P., or the Carter Validus Operating Partnership, for gross proceeds of $125.0 million, which we used to fund our acquisitions in the first quarter of 2015 and repay amounts outstanding under our secured credit facility. We intend to use a portion of the net proceeds from this offering to redeem all of the Series B Preferred

Stock, which is redeemable at any time at our option, and must be redeemed in connection with a change of control of us or the initial public offering of our common stock, in each case at the $1,000 liquidation preference, plus accumulated and unpaid dividends and a special redemption dividend equal to 5% of the liquidation preference.

Our Structure

We conduct our business through an umbrella partnership REIT, or UPREIT, structure, consisting of our operating partnership, MedEquities Realty Operating Partnership, LP, and subsidiaries of our operating partnership, including our taxable REIT subsidiary, or TRS, MedEquities Realty TRS, LLC. Through our wholly owned limited liability company, MedEquities OP GP, LLC, we are the sole general partner of our operating partnership, and we presently own all of the limited partnership units of our operating partnership, or OP units. In the future, we may issue OP units to third parties in connection with healthcare property acquisitions, as compensation or otherwise.

Holders of OP units of our operating partnership, other than us, will, after a one-year holding period, subject to earlier redemption in certain circumstances, be able to redeem their OP units for a cash amount equal to the then-current value of our common stock or, at our option, for shares of our common stock on a one-for-one basis, subject to adjustments for stock splits, dividends, recapitalizations and similar events. Holders of OP units will receive distributions equivalent to the dividends we pay to holders of our common stock, but holders of OP units will have no voting rights, except in certain limited circumstances. As the sole owner of the general partner of our operating partnership, we have the exclusive power to manage and conduct our operating partnership’s business, subject to the limitations described in the Agreement of Limited Partnership of our operating partnership. See “Our Operating Partnership and the Partnership Agreement.”

The following chart illustrates our organizational structure, after giving effect to this offering (including the application of the net proceeds as described in “Use of Proceeds”):

LOGO

Our Tax Status

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. Our ability to maintain our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended, or the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our stock. We believe that, commencing with our short taxable year ended December 31, 2014, we have been organized in conformity with the requirements for qualification as a REIT under the Code, and we intend to continue to operate in such a manner.

As a REIT, we generally will not be subject to federal income tax on the REIT taxable income that we currently distribute to our stockholders, but taxable income generated by any TRSs will be subject to federal, state and local income tax. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute annually at least 90% of their REIT taxable income, determined without

regard to the deduction for dividends paid and excluding net capital gains, to their stockholders. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, our income would be subject to federal income tax at regular corporate rates, and we would be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we failed to qualify. Even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some federal, state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.

Distribution Policy

We intend to continue to make regular quarterly distributions of all, or substantially all, of our REIT taxable income to our stockholders. For the period from April 23, 2014 (inception) to December 31, 2014, and for the year ended December 31, 2015, we declared total dividends to our common stockholders of $2.2 million and $9.8 million, respectively. On April 28, 2016, our board of directors declared a dividend of $0.21 per share, payable on May 19, 2016 to stockholders of record on May 10, 2016.

We intend to pay a pro rata initial distribution with respect to the quarter during which this offering occurs, based on a distribution rate of $ per share of our common stock for a full quarter. On an annualized basis, this would be $ per share, or an annual distribution rate of approximately % based on an assumed initial public offering price at the midpoint of the price range set forth on the front cover of this prospectus. This initial annual distribution rate will represent approximately % of estimated cash available for distribution for the 12 months ending March 31, 2017. We do not intend to reduce the annualized distribution per share of our common stock if the underwriters exercise their option to purchase additional shares. We intend to maintain a distribution rate for the 12-month period following completion of this offering that is at or above our initial distribution rate unless actual results of operations, economic conditions or other factors differ materially from the assumptions used in determining our initial distribution rate. Any future distributions we make will be at the sole discretion of our board of directors and will depend upon a number of factors, including our actual and projected results of operations, the cash flow generated by our operations, funds from operations, or FFO, AFFO, liquidity, our operating expenses, our debt service requirements, capital expenditure requirements for the properties in our portfolio, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, restrictions on making distributions under Maryland law and such other factors as our board of directors deems relevant. We cannot assure you that our estimated distributions will be made or sustained or that our board of directors will not change our distribution policy in the future.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. For as long as we are an emerging growth company, among other things:

•

we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

•

we are permitted to provide less extensive disclosure about our executive compensation arrangements; and

•

we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.

We may take advantage of these provisions until December 31, 2021 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than

$1 billion in annual revenues, have more than $700 million in market value of shares of our common stock held by non-affiliates, or issue more than $1 billion of non-convertible debt securities over a three-year period. We have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards under Section 102(b) of the JOBS Act.

Selling Stockholders

Pursuant to, and subject to the terms and conditions of, the registration rights agreement described below, persons who purchased shares of our common stock in the initial private placement and their respective transferees have the right to sell their shares in this offering, subject to customary terms and conditions. We are including in this prospectus shares of our common stock in this offering to be sold by certain selling stockholders.

Registration Rights and Lock-Up Agreements

Pursuant to the registration rights agreement between us and the initial purchaser/placement agent for the initial private placement in July 2014, which we refer to as the registration rights agreement, we are required, among other things, to use our commercially reasonable efforts to cause a resale shelf registration statement registering all of the shares of our common stock sold in the initial private placement that are not sold by selling stockholders in this offering to become effective under the Securities Act, as promptly as practicable after the filing of the resale shelf registration statement, and in any event, subject to certain exceptions, no later than September 30, 2016 (or, if we complete this offering prior to September 30, 2016, on a date that is on or before 60 days after the completion of this offering), and to maintain the resale shelf registration statement continuously effective under the Securities Act for a specified period. The original deadline under the registration rights agreement was extended by the stockholders in accordance with the terms of the registration rights agreement.

Subject to certain exceptions, each of our executive officers and members of our board of directors has entered into a lock-up agreement with respect to shares of our common stock and securities exchangeable or exercisable for shares of our common stock, restricting the direct or indirect sale of such securities for 180 days after the date of this prospectus, without the prior written consent of FBR and J.P. Morgan. Each selling stockholder also has agreed with us not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of shares of our common stock not sold in this offering for 180 days after the date of this prospectus, without the prior written consent of FBR and J.P. Morgan. Additionally, all of our stockholders that purchased shares in the initial private placement and have not elected to include their shares for resale in this offering have agreed with us not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of shares of our common stock for 60 days after the date of this prospectus without the prior written consent of FBR and J.P. Morgan. See “Underwriting—Lockup Agreements.”

Corporate Information

Our principal executive offices are located at 3100 West End Avenue, Suite 1000, Nashville, TN 32703. Our telephone number at our executive offices is (615) 627-4710 and our corporate website is www.medequities.com. The information contained on, or accessible through, our website is not incorporated by reference into, and does not form a part of, this prospectus.

THE OFFERING

Common stock offered by us

shares, plus up to an additional shares that we may issue and sell upon exercise of the underwriters’ over-allotment option.

Common stock offered by our selling stockholders

Common stock to be outstanding after this offering and the BlueMountain Private Placement

shares ⁽¹⁾

Use of proceeds

We estimate that the net proceeds from this offering, after deducting the underwriting discount and commissions and estimated offering expenses payable by us, will be approximately $ million ($ million if the underwriters exercise their over-allotment option in full). The net proceeds we will receive from the BlueMountain Private Placement will be $ million. We will contribute the net proceeds from this offering and the BlueMountain Private Placement to our operating partnership. Our operating partnership intends to use the net proceeds from this offering and the BlueMountain Private Placement as follows: (i) approximately $131.3 million to redeem our Series B Preferred Stock; (ii) approximately $ million to repay amounts outstanding under our secured credit facility; (iii) approximately $0.1 million to redeem our 12.5% Series A Redeemable Cumulative Preferred Stock, or our Series A Preferred Stock; and (iv) the remaining net proceeds, if any, for general corporate purposes, including working capital and future acquisitions.

Risk factors

Investing in our common stock involves risks. You should carefully read and consider the information set forth under the heading “Risk Factors” and all other information in this prospectus before making a decision to invest in our common stock.

NYSE listing symbol

MRT

Restrictions on ownership of our common stock

Our charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding shares of common stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

(1)

Includes an aggregate of 304,016 restricted shares of common stock previously granted to our executive officers, non-employee directors and certain other employees. Excludes (i) shares of our common stock issuable upon the exercise of the underwriters’ over-allotment option in full, (ii) 358,125 restricted stock units previously granted to our executive officers and certain other employees and (iii) 693,082 shares of our common stock reserved for future issuance under our Amended and Restated 2014 Equity Incentive Plan, or our 2014 Equity Incentive Plan.

SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following tables set forth summary selected financial and operating data based on (i) our historical consolidated balance sheets as of March 31, 2016, December 31, 2015 and December 31, 2014, (ii) our unaudited pro forma consolidated balance sheet as of March 31, 2016, (iii) our historical consolidated statements of operations for the three months ended March 31, 2016 and 2015, the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014 and (iv) our unaudited pro forma consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015. We have not presented any other historical financial data because, prior to the completion of the common stock private placements on July 31, 2014, we did not have any corporate activity since our formation other than the issuance of 1,000 shares of our common stock in connection with the initial capitalization of the Company on May 5, 2014.

The unaudited pro forma financial and operating data have been derived from our historical consolidated financial statements. The unaudited pro forma consolidated balance sheet as of March 31, 2016 is presented to reflect adjustments to our historical balance sheet as if this offering and the BlueMountain Private Placement described herein were completed on March 31, 2016. The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 are presented as if this offering, the BlueMountain Private Placement and certain real estate property acquisitions described herein were completed on the first day of the annual period presented.

You should read the following summary selected financial and operating data in conjunction with: (i) our historical consolidated balance sheets as of March 31, 2016, December 31, 2015 and December 31, 2014 and our historical consolidated statements of operations for the three months ended March 31, 2016 and 2015, the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014; (ii) our unaudited pro forma consolidated financial statements; and (iii) the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections in this prospectus. We have based the unaudited pro forma adjustments on available information and assumptions that we believe are reasonable. The following unaudited pro forma financial and operating data are presented for informational purposes only and are not necessarily indicative of what our actual financial position would have been as of March 31, 2016 assuming this offering and the BlueMountain Private Placement had been completed on March 31, 2016 and what our actual results of operations would have been for the three months ended March 31, 2016 and the year ended December 31, 2015 assuming this offering, the BlueMountain Private Placement and certain real estate property acquisitions were completed on the first day of the annual period presented, and should not be viewed as indicative of our future results of operations or financial condition.

Consolidated Balance Sheet Data

(in thousands)


	As of March 31, 2016				As of December 31,
	Pro Forma		Historical		2015		2014
	(unaudited)
Assets
Total real estate properties, net	$	489,805	$	489,805	$	493,681	$	111,900
Mortgage notes receivable, net		9,911		9,911		9,909		77,727
Total assets	$		$	539,169	$	543,667	$	211,033

Liabilities and Equity
Total liabilities				265,594		272,422		61,156
Total MedEquities Realty Trust, Inc. stockholders’ equity				268,376		266,698		149,877
Total liabilities and equity			$	539,169	$	543,667	$	211,033

Consolidated Income Statement Data

(in thousands, except per share data)


	Three months ended March 31,									Year ended December 31, 2015						Historical for the period from April 23, 2014 (inception) to December 31, 2014
	Pro Forma			Historical						Pro Forma			Historical
	2016			2016			2015
	(unaudited)									(unaudited)
Revenues
Rental income	$	14,604		$	14,604		$	3,686		$	59,083		$	41,484		$	4,316
Interest on mortgage notes receivable		229			229			1,029			918			2,717			1,078
Interest on note receivable		15			15			224			237			237			53

Total revenues		14,848			14,848			4,939			60,238			44,438			5,447
Expenses
Depreciation and amortization		3,659			3,659			1,077			14,951			9,969			1,273
Property related		321			321			291			1,205			1,205			308
Acquisition costs		17			17			68			417			417			192
Start-up costs		—			—			—			—			—			888
Franchise, excise, and other taxes		105			105			107			338			338			72
General and administrative		2,771			2,771			1,875			8,628			8,628			2,391

Total operating expenses		6,873			6,873			3,418			25,539			20,557			5,124

Operating income		7,975			7,975			1,521			34,699			23,881			323
Other income (expense)
Interest and other income		1			1			6			12			12			17
Interest expense					(3,125	)		(790	)					(7,163	)		(317	)

Net other income (expense)					(3,124	)		(784	)					(7,151	)		(300	)

Net income	$			$	4,851		$	737		$			$	16,730		$	23

Less: Preferred Stock Dividends		—			(2,465	)		(440	)		—			(7,835	)		—
Less: Net income attributable to non-controlling interests		(1,355	)		(1,355	)		15			(5,429	)		(4,029	)		—

Net income attributable to common stockholders	$			$	1,031		$	312		$			$	4,866		$	23

Earnings per share—basic and diluted
Net income (loss) attributable to common stockholders	$			$	0.09		$	0.03		$			$	0.42		$	(0.00	)
Weighted average shares outstanding:
Basic					10,959			10,945						10,948			10,918
Diluted					11,054			10,945
Dividends declared per common share					—			0.17					$	0.85		$	0.20

Other Data

(in thousands, unaudited)


	Three months ended March 31, 2016			Year ended December 31, 2015			Historical for the period from April 23, 2014 (inception) to December 31, 2014
	Pro Forma	Historical		Pro Forma	Historical
FFO attributable to common stockholders ⁽¹⁾	$	$	4,736	$	$	14,179	$	1,291
AFFO attributable to common stockholders ⁽¹⁾			5,544			12,419		2,545

(1)

For definitions and reconciliations of net income (loss) attributable to common stockholders to FFO and AFFO, as well as a statement disclosing the reasons why our management believes that FFO and AFFO provide useful information to investors and, to the extent material, any additional purposes for which our management uses FFO and AFFO, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

RISK FACTORS

An investment in our common stock involves risks. Before making an investment decision, you should carefully consider the following risk factors, which address the material risks concerning our business and an investment in our common stock, together with the other information contained in this prospectus. If any of the risks discussed in this prospectus were to occur, our business, prospects, financial condition, liquidity, FFO, AFFO and results of operations and our ability make distributions to our stockholders and achieve our goals could be materially and adversely affected, the value of our common stock could decline significantly and you could lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Growth Strategy

We were organized in April 2014 and commenced operations upon completion of the initial private placement in July 2014. We have a limited operating history and are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives and that the value of your investment could decline substantially. Our ability to achieve attractive returns is dependent on our ability to generate sufficient cash flow to pay our investors attractive distributions and to achieve capital appreciation, and we cannot assure you that we will be able to do either. In addition, there can be no assurance that we will be able to generate sufficient revenue from operations to pay our operating expenses and make or sustain distributions to stockholders. Our limited resources may also materially and adversely impact our ability to successfully operate our portfolio or implement our business plan successfully. As a result of our failure to successfully operate our business, implement our investment strategy or generate sufficient revenue to make or sustain distributions to stockholders, the value of your investment could decline significantly or you could lose a portion of or all of your investment.

Our ability to expand through acquisitions is integral to our business strategy and requires that we identify and consummate suitable acquisition or investment opportunities that meet our investment criteria and are compatible with our growth strategy. We may be unable to acquire any of the properties identified as potential acquisition opportunities under “Our Business—Acquisitions under Evaluation.” In addition, we may not be successful in identifying and consummating additional acquisitions or investments in healthcare properties that meet our investment criteria, which would impede our growth. Our ability to acquire healthcare properties on favorable terms, or at all, may be adversely affected by the following significant factors:

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competition from other real estate investors, including public and private REITs, private equity investors and institutional investment funds, many of whom may have greater financial and operational resources and lower costs of capital than we have and may be able to accept more risk than we can prudently manage;

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competition from other potential acquirers, which could significantly increase the purchase prices for properties we seek to acquire;

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we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete;

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even if we enter into agreements for the acquisition of properties, these agreements are subject to customary closing conditions, including the satisfactory results of our due diligence investigations; and

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we may be unable to finance the acquisition on favorable terms, or at all.

Our failure to identify and consummate attractive acquisitions or take advantage of other investment opportunities without substantial expense, delay or other operational or financial problems, would impede our growth and negatively affect our results of operations and cash available for distribution to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants/operators. As of the date of this prospectus, approximately 96.9% of the annualized base rent in our portfolio is generated by GruenePointe (26.6%), the Lakeway Operator (20.3%), Life Generations (17.9%), Fundamental Healthcare (17.4%) and Vibra Healthcare (14.7%). The Lakeway Operator is the defendant in significant litigation, which, if determined adversely against it, could have a material and adverse effect on its financial condition, cash flow and ability to meet its obligations under its lease or guarantee with us. Lease payment defaults by GruenePointe, Fundamental Healthcare, the Lakeway Operator, Life Generations, Vibra Healthcare or other significant tenants/operators or declines in their operating performance could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. If the property is subject to a mortgage, a default by a significant tenant/operator on its lease payments to us or a significant decline in operating performance at a facility may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant/operator default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure you that we will be able to re-lease the property for the rent previously received, or at all, or that lease terminations will not cause us to sell the property at a loss. The result of any of the foregoing risks could materially and adversely affect our business, financial conditions and results of operations and our ability to make distributions to our stockholders.

On February 3, 2015, we obtained fee simple ownership of Lakeway Hospital through a negotiated, non-judicial foreclosure for a total investment of $75.0 million. The Lakeway Operator is not currently generating sufficient cash flow to pay the stabilized monthly rent under its lease with us and its ability to do so depends on improved operating results of the Lakeway Operator as a result of its ownership and management restructuring and the relocation of the neurosurgical physicians group to Lakeway Hospital. Lakeway Hospital, which opened in April 2012, was funded with $35.0 million of preferred notes, equity and a $167.0 million mortgage loan that was guaranteed by HUD. When the Lakeway Operator defaulted on debt service payments in August 2013, HUD assumed control of the loan and held an auction in December 2014 through which we acquired the note for $50.0 million. The operating results of the Lakeway Operator may not improve on the schedule or to the extent that we anticipate, and the Lakeway Operator may default on its lease payments or other obligations to us, which could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. In the event of a default by the Lakeway Operator, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and attracting a new

tenant to Lakeway Hospital. Furthermore, we cannot assure you that we will be able to re-lease the facility for the rent previously received, or at all, or that such a lease termination would not cause us to sell the property at a loss.

Recently developed properties may take longer than expected to achieve stabilized operating levels, if at all, which could adversely affect our business and results of operations.

Recently developed properties, such as Mountain’s Edge Hospital and Mira Vista, may take longer than expected to achieve stabilized operating levels, if at all. To the extent such facilities fail to reach stabilized operating levels or achieve stabilization later than expected, it could materially adversely affect our tenants’ abilities to make payments to us under their leases and thus adversely affect our business and results of operations.

We may face additional risks associated with property development that can render a project less profitable or not profitable at all and, under certain circumstances, prevent completion of development activities once undertaken.

We may determine in the future to develop certain healthcare properties directly rather than acquire properties upon completion of the development. Large-scale, ground-up development of healthcare properties presents additional risks for us, including risks that:

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a development opportunity may be abandoned after expending significant resources resulting in the loss of deposits or failure to recover expenses already incurred;

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the development and construction costs of a project may exceed original estimates due to increased interest rates and higher materials, transportation, labor, leasing or other costs, which could make the completion of the development project less profitable;

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construction and/or permanent financing may not be available on favorable terms or at all;

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the project may not be completed on schedule as a result of a variety of factors that are beyond our control, including natural disasters, labor conditions, material shortages, regulatory hurdles, civil unrest and terrorism or war, which can result in increases in construction costs and debt service expenses or provide tenants or operators with the right to terminate pre-construction leases; and

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occupancy rates and rents at a newly completed property may not meet expected levels and could be insufficient to make the property profitable.

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have a material adverse effect on our business, results of operations and financial condition.

Our real estate investments are, and are expected to continue to be, concentrated in healthcare properties, which could adversely affect our operations relative to a more diversified portfolio of assets.

We invest in a diversified mix of healthcare facilities and healthcare-related real estate debt investments. We are subject to risks inherent in concentrating investments in real estate, and the risks resulting from a lack of diversification may become even greater as a result of our business strategy to concentrate our investments in the healthcare sector. Any adverse effects that result from these risks could be more pronounced than if we diversified our investments outside of healthcare properties. Given our concentration in this sector, our tenant base is especially concentrated and dependent upon the healthcare industry generally, and any industry downturn or negative regulatory or governmental development could adversely affect the ability of our tenants to make lease payments and our ability to maintain current rental and occupancy rates. Our tenant mix could become even more concentrated if a significant portion of our tenants practice in a particular medical field or are reliant upon a

particular healthcare delivery system. Accordingly, a downturn in the healthcare industry generally, or in the healthcare related facility specifically, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We depend on key personnel whose continued service is not guaranteed and each of whom would be difficult to replace.

We depend on the efforts and expertise of Mr. McRoberts, our chief executive officer and chairman of our board of directors, Mr. Harlan, our president and chief operating officer and member of our board of directors, and Mr. Walraven, our chief financial officer, to execute our business strategy. If one or more of these individuals were to no longer be employed by us, we may be unable to find suitable replacements. If we were to lose the services of one or more of our executive officers and were unable to find suitable replacements, our business, financial condition and results of operations and our ability to make distributions to our stockholders could be materially and adversely affected.

We may be unable to source off-market or target-marketed transactions in the future, which could materially impede our growth.

A main component of our investment strategy is to acquire healthcare properties in off-market or target-marketed transactions. If we cannot obtain off-market or target-marketed deal flow in the future or on a consistent basis, our ability to locate and acquire healthcare properties at attractive prices could be adversely affected, which could materially impede our growth.

In order to qualify and maintain our qualification as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources to fund our capital needs. We may not be able to obtain such financing on favorable terms or at all and any additional debt we incur will increase our leverage and likelihood of default. In addition, we have received a commitment letter from each of the lenders under our secured credit facility for an amendment to the facility, which is expected to, among other things, extend the maturity date from November 2016 to November 2017, but we can provide no assurances that such amendment will be completed. Our access to third-party sources of capital depends, in part, on:

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general market conditions;

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the market’s perception of our business and growth potential;

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our current debt levels;

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our current and expected future earnings;

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our cash flow and cash distributions; and

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the market price per share of our common stock.

If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT.

We have experienced and expect to continue to experience rapid growth and may not be able to adapt our management and operational systems to respond to the integration of the healthcare properties we expect to acquire without unanticipated disruption or expense, which could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our stockholders.

We have experienced and expect to continue to experience rapid growth following this offering through the potential acquisition of healthcare properties we are currently evaluating. We may not be able to adapt our management, administrative, accounting and operational systems or hire and retain sufficient operational staff to manage such potential acquisitions without operating disruptions or unanticipated costs. Our failure to successfully manage our growth could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our healthcare properties and tenants/operators may be unable to compete successfully.

We expect our healthcare properties often will face competition from nearby hospitals and other healthcare properties that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our properties.

Similarly, our tenants/operators may face competition from other medical practices in nearby hospitals and other medical facilities, including newer healthcare facilities. Our tenants/operators’ failure to compete successfully with these other practices could adversely affect the operating performance of our facilities. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could also materially adversely affect our tenants/operators’ ability to meet our operating performance expectations and make rental payments to us or, for properties leased to our TRS, our TRS’s ability to make rental payments to us, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

A high concentration of our properties in a particular facility type magnifies the effects of events that may adversely impact this particular facility type.

We intend to acquire income-producing healthcare properties diversified by facility type. However, as of the date of this prospectus, approximately 51.4% and 27.0% of our total annualized base rent is derived from skilled nursing facilities and acute care hospitals, respectively. As such, any adverse situation that disproportionately affects these facility types would have a magnified adverse effect on our portfolio.

Properties in Texas, California, Nevada and South Carolina account for all of the rent we generate from our portfolio.

As of the date of this prospectus, all of our annualized base rent is derived from properties located in Texas (56.7%), California (29.0%), Nevada (10.4%) and South Carolina (3.9%). As a result of this geographic concentration, we are particularly exposed to downturns in the economies of, as well as other changes in the real estate and healthcare industries in, these geographic areas. Any material change in the current payment programs or regulatory, economic, environmental or competitive conditions in these geographic areas could have a disproportionate effect on our overall business results. In the event of negative economic or other changes in these geographic areas, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be adversely affected.

We face potential adverse consequences of bankruptcy or insolvency by our tenants, operators, borrowers, managers and other obligors.

We are exposed to the risk that our tenants, operators, borrowers, managers or other obligors could become bankrupt or insolvent. Although our lease, loan and management agreements will provide us with the right to exercise certain remedies in the event of default on the obligations owing to us or upon the occurrence of certain insolvency events, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-lessee may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-lessee for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap could be substantially less than the remaining rent actually owed under the lease, and any claim we have for unpaid rent might not be paid in full. In addition, a debtor-lessee may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to a landlord, are generally more limited. In the event of an obligor bankruptcy, we may also be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of our properties, avoid the imposition of liens on our properties or transition our properties to a new tenant, operator or manager. As a result, our business, financial condition and results of operations and our ability to make distributions to our stockholders could be adversely affected if an obligor becomes bankrupt or insolvent.

Long-term leases may result in below market lease rates over time, which could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We have entered into long-term leases with tenants/operators at all of our single-tenant properties. Our long-term leases provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of such long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases could be less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our business, financial condition and results of operations and our ability to make distributions to our stockholders could be materially and adversely affected.

We may incur additional costs in acquiring or re-leasing properties, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may invest in properties designed or built primarily for a particular tenant/operator of a specific type of use known as a single-user facility. If the tenant/operator fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant/operator without making substantial capital improvements or incurring other significant costs. We also may incur significant litigation costs in enforcing our rights against the defaulting tenant/operator. These consequences could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may have difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of our leases.

We cannot predict whether our tenants will renew existing leases beyond their current terms. If any of our leases are not renewed upon expiration, we would attempt to lease those properties to another tenant. In case of non-renewal, we generally expect to have advance notice before expiration of the lease term to arrange for repositioning of the properties and our tenants are required to continue to perform all of their obligations (including the payment of all rental amounts) for the non-renewed assets until such expiration. However, following expiration of a lease term or if we exercise our right to replace a tenant in default, rental payments on the related properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant. We also might not be successful in identifying suitable replacement tenants or entering into

leases with new tenants on a timely basis or on terms as favorable to us as our current leases, or at all, and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, our properties while they are being repositioned. Our ability to reposition our properties with a suitable tenant could be significantly delayed or limited by state licensing, receivership, certificate of need or other laws, as well as by the Medicare and Medicaid change-of-ownership rules. We could also incur substantial additional expenses in connection with any licensing, receivership or change-of-ownership proceedings. In addition, our ability to locate suitable replacement tenants could be impaired by the specialized healthcare uses or contractual restrictions on use of the properties, and we may be required to spend substantial amounts to adapt the properties to other uses. Any such delays, limitations and expenses could adversely impact our ability to collect rent, obtain possession of leased properties or otherwise exercise remedies for tenant default and could have a material adverse effect on us. In addition, if we are unable to re-let the properties to healthcare operators with the expertise necessary to operate the type of properties in which we intend to invest, we may be forced to sell the properties at a loss due to the repositioning expenses likely to be incurred by potential purchasers.

All of these risks may be greater in smaller markets, where there may be fewer potential replacement tenants, making it more difficult to replace tenants, especially for specialized space, and could have a material adverse effect on us.

If we indirectly invest in healthcare operators, we will be subject to additional risks related to healthcare operations, which could have a material adverse effect on our results of operations.

We may invest in hospitals or other providers that are tenants of our properties, structured, where applicable, in compliance with the REIT Investment and Diversification and Empowerment Act of 2007, or RIDEA, or other applicable REIT laws or regulations. If so, we will be exposed to various operational risks with respect to those operating properties that may increase our costs or adversely affect our ability to generate revenues. These risks include fluctuations in patient volume and occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions; competition; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; federal, state and local regulations; the costs associated with government investigations and enforcement actions and False Claim Act litigation; the availability and increases in cost of labor (as a result of unionization or otherwise); and other risks applicable to operating businesses. Any one or a combination of these factors may adversely affect our revenue and operations.

We may be unable to secure funds for future capital improvements, which could limit our ability to attract or replace tenants/operators, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Although under our typical lease structure our operators generally are responsible for capital improvement expenditures, it is possible that an operator may not be able to fulfill its obligations to keep the facility in good operating condition. Further, we may be responsible for capital improvement expenditures on such facilities after the terms of the triple-net leases expire. In addition, when tenants/operators do vacate their space, it is common that, in order to attract replacement tenants/operators, we will be required to expend substantial funds for improvements and, for our leased properties, leasing commissions related to the vacated space. Such improvements may require us to incur substantial capital expenditures. If we have not established capital reserves for such capital improvements, we will have to obtain financing from other sources, which may not be available on attractive terms or at all. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flows as a result of fewer potential tenants/operators being attracted to the property

or existing tenants/operators not renewing their leases or operating agreements, as the case may be. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Changes in the reimbursement rates or methods of payment from third-party payors, including the Medicare and Medicaid programs, could have a material adverse effect on our tenants and operators and on us.

Some of our tenants and operators may rely on reimbursement from third-party payors, including the Medicare and Medicaid programs, for substantially all of their revenues. Federal and state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers, and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. Private third-party payors have also continued their efforts to control healthcare costs. We cannot assure you that adequate reimbursement levels will be available for services to be provided by our tenants and operators that currently depend on Medicare, Medicaid or private payor reimbursement. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees—whether from sequestration, alternatives to sequestration or future legislation or administrative actions—could have a material adverse effect on the liquidity, financial condition and results of operations of certain of our tenants and operators, which could affect adversely their ability to make rental payments under, and otherwise comply with the terms of, their leases with us.

Reductions in federal government spending, tax reform initiatives or other federal legislation to address the federal government’s projected operating deficit could have a material adverse effect on our operators’ liquidity, financial condition or results of operations.

President Obama and members of the U.S. Congress have approved or proposed various spending cuts and tax reform initiatives that have resulted or could result in changes (including substantial reductions in funding) to Medicare, Medicaid or Medicare Advantage Plans. Any such existing or future federal legislation relating to deficit reduction that reduces reimbursement payments to healthcare providers could have a material adverse effect on certain of our operators’ liquidity, financial condition or results of operations, which could adversely affect their ability to satisfy their obligations to us and could have a material adverse effect on us.

There are inherent risks associated with real estate investments and with the real estate industry, each of which could have an adverse impact on our financial performance and the value of our properties.

By owning our common stock, you will be subject to the risks associated with the ownership of real properties, including risks related to:

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changes in national, regional and local conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits, high unemployment rates, decreased consumer confidence, liquidity concerns and other adverse business concerns;

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changes in local conditions, such as an oversupply of, reduction in demand for, or increased competition among, healthcare properties;

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changes in interest rates and the availability of financing;

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the attractiveness of our facilities to healthcare providers; and

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changes in laws and governmental regulations, including those governing real estate usage, zoning and taxes.

Any of these factors could adversely impact our financial performance and the value of our properties.

The illiquidity of real estate investments could significantly impede our ability to respond to changing economic, financial and investment conditions, which could adversely affect our cash flows and results of operations.

Real estate investments are relatively illiquid and, as a result, we will have a limited ability to vary our portfolio in response to changes in economic, financial and investment conditions. We will also have a limited ability to sell assets in order to fund working capital and similar capital needs. In addition, healthcare properties are special purpose properties that could not be easily converted to general residential, retail or office use without significant expense. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We also may be required to expend significant funds to correct defects or to make improvements before a property can be sold, and we cannot assure you that we will have funds available to correct those defects or to make those improvements. Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.

Moreover, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interests. Therefore, we may not be able to vary our portfolio promptly in response to economic or other conditions or on favorable terms, which may adversely affect our cash flows, our ability to make distributions to our stockholders and the market price of our common stock.

We may structure acquisitions of property in exchange for OP units in our operating partnership on terms that could limit our liquidity or our flexibility or require us to maintain certain debt levels that otherwise would not be required to operate our business.

We may acquire certain properties by issuing OP units in our operating partnership in exchange for a property owner contributing property to our operating partnership. If we enter into such transactions, in order to induce the contributors of such properties to accept OP units in our operating partnership, rather than cash, in exchange for their properties, it may be necessary for us to provide them additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of OP units may redeem OP units for cash equal to the value of an equivalent number of shares of our common stock or, at our option, shares of our common stock on a one-for-one basis. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with a defined return, then upon redemption of the contributor’s OP units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s OP units for cash or shares of our common stock. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us. Additionally, in connection with acquiring properties in exchange for OP units, we may offer the property owners who contribute such property the opportunity to guarantee debt in order to assist those property owners in deferring the recognition of taxable gain as a result of their contributions. These obligations may require us to maintain more or different indebtedness than we would otherwise require for our business.

If we issue OP units in our operating partnership in exchange for property, as we intend, the value placed on such units may not accurately reflect their market value, which may dilute your interest in us.

If we issue OP units in our operating partnership in exchange for property, as we intend, the per unit value attributable to such units will be determined based on negotiations with the property seller and, therefore, may not reflect the fair market value of such units if a public market for such units existed. If the value of such units is greater than the value of the related property, your interest in us may be diluted.

We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make shares of our common stock less attractive to investors.

In April 2012, President Obama signed into law the JOBS Act. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for “emerging growth companies,” including certain requirements relating to accounting standards and compensation disclosure. We are classified as an emerging growth company. For as long as we are an emerging growth company, which may be until December 31, 2021, we may take advantage of exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including the requirements to:

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provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act;

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comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;

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comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise;

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provide certain disclosure regarding executive compensation required of larger public companies; or

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hold stockholder advisory votes on executive compensation.

We cannot predict if investors will find shares of our common stock less attractive because we will not be subject to the same reporting and other requirements as certain other public companies. If some investors find shares of our common stock less attractive as a result, there may be a less active trading market for our common stock, and the per share trading price of our common stock could decline and may be more volatile.

We will incur new costs as a result of becoming a public company, and such costs may increase if and when we cease to be an “emerging growth company,” which could adversely impact our results of operations.

As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. As a result, our executive officers’ attention may be diverted from other business concerns, which could adversely affect our business and results of operations. In addition, the expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect compliance with these public reporting requirements and associated rules and regulations to increase expenses, particularly after we are no longer an emerging growth company, although we are currently unable to estimate these costs with any degree of certainty. We could be an emerging growth company until December 31, 2021, although circumstances could cause us to lose that status earlier, which could result in our incurring additional costs applicable to public companies that are not emerging growth companies.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this

investment may result in increased general and administrative expenses and a diversion of our executive officers’ time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our executive officers and adversely affect our business and results of operations.

As a result of becoming a public company, management will be required to report periodically on the effectiveness of its system of internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our system of internal control over financial reporting may not be determined to be appropriately designed or operating effectively, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first full fiscal year after the completion of our initial public offering. In addition, after we are no longer an emerging growth company under the JOBS Act, Section 404 of the Sarbanes-Oxley Act requires our auditors to deliver an attestation report on the effectiveness of our internal control over financial reporting in conjunction with their opinion on our audited financial statements. Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. This process is expected to be both costly and challenging. The existence of any material weakness would preclude a conclusion by management and our independent auditors that we maintained effective internal control over financial reporting. Our management may be required to devote significant time and expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material weakness in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, all of which could lead to a decline in the per-share trading price of our common stock.

Acquired properties may expose us to unknown liabilities, which could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. Unknown liabilities with respect to acquired properties may include, but are not limited to, liabilities for clean-up of undisclosed environmental contamination, liabilities for failure to comply with fire, health, life-safety and similar regulations, claims by tenants, vendors or other persons against the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties. If a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Because we own real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.

Our secured credit facility restricts our ability to engage in certain business activities, including our ability to incur additional indebtedness, make capital expenditures and make certain investments, which could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our secured credit facility contains customary negative covenants and other financial and operating covenants that, among other things:

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restrict our ability to incur additional indebtedness;

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restrict our ability to incur additional liens;

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restrict our ability to make certain investments;

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restrict our ability to merge with another company;

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restrict our ability to sell or dispose of assets;

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limit our distributions to stockholders to 95% of FFO (as defined under the secured credit facility), subject to certain exceptions; and

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require us to satisfy minimum financial coverage ratios, minimum tangible net worth and liquidity requirements, minimum average occupancy rates and weighted average remaining lease terms, and maximum leverage ratios.

These limitations restrict our ability to engage in certain business activities, which could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. Our secured credit facility also contains cross-default provisions with respect to specified other indebtedness, giving the lenders the right, in certain circumstances, to declare a default if we are in default under other loans. In addition, it will constitute an event of default under our secured credit facility if certain of our executive officers leave our company and are not replaced by an executive officer reasonably acceptable to the lenders within 90 days of such departure.

We intend to continue to incur mortgage indebtedness and other borrowings, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We have financed and intend to continue to finance a portion of the purchase price of our investments in real estate and real estate-related investments by borrowing funds, including borrowings under our secured credit facility. Certain of our properties have been pledged as collateral for our secured credit facility. In the future, we may incur mortgage debt and pledge some or all of our real estate as security for that debt to obtain funds to acquire additional real estate or for working capital. We also may borrow funds to satisfy the REIT qualification requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating strategies. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace certain members of our management team. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

High debt levels may cause us to incur higher interest charges, which would result in higher debt service payments and lower amounts available for distributions to our stockholders. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materially adversely affected.

Higher mortgage rates and other factors may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire or require us to sell properties on terms that are not advantageous to us, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

If mortgage debt is unavailable on reasonable terms or at all as a result of increased interest rates or other factors, we may not be able to finance the purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If mortgage rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materially adversely affected.

Failure to hedge effectively against interest rate changes may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may seek to manage our exposure to interest rate risk attributable to variable-rate debt by using interest rate swap arrangements and other derivatives that involve risk, including the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that these arrangements may result in higher interest rates than we would

otherwise have. Moreover, no hedging activity can completely insulate us from the risks associated with changes in interest rates. Failure to hedge effectively against interest rate changes may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our costs associated with complying with the Americans with Disabilities Act may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the ADA or place the burden on the seller or other third-party, such as a tenant/operator, to ensure compliance with the ADA. However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our costs associated with ADA compliance could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event that our due diligence did not identify any issues that lower the value of our property.

The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Acquiring or attempting to acquire multiple properties in a single transaction may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

From time to time, we acquire multiple properties in a single transaction. Portfolio acquisitions may be more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in our owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. Moreover, our ability to dispose of properties could be limited by our intention to avoid any “dealer sale” that could be subject to the 100% REIT prohibited transaction tax. To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on real property. Any of the foregoing events may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Uninsured losses relating to real estate and lender requirements to obtain insurance may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend

to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase. If any one of the events described above were to occur, it could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our management, subject to the oversight and approval of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We generally intend to hold properties for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Because of the uncertainty of market conditions that may affect the future disposition of our properties, and the potential payment of prepayment penalties upon such disposition, we cannot assure you that we will be able to sell our properties at a profit in the future, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

If we sell properties by providing financing to purchasers, defaults by the purchasers could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

If we decide to sell any of our properties, we intend to use our best efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing. Even in the absence of a purchaser default, the distribution of sale proceeds, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

The mortgage loans that we have made and may make or purchase in the future may be impacted by unfavorable real estate market conditions, which could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

As of the date of this prospectus, we have one $10.0 million mortgage loan, and we may make or purchase additional mortgage loans in the future. Such investments involve special risks relating to the particular borrower, and we are at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant/operator defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate. If we acquire property by foreclosure following defaults

under our mortgage loans, we will have the economic and liability risks as the owner of such property. We do not know whether the values of the healthcare property securing any of our mortgage loans will remain at the levels existing on the dates we initially purchased the mortgage loan. If the values of the underlying healthcare properties drop or the borrower defaults, our business, financial condition and results of operations may be materially and adversely affected.

We may be unable to successfully foreclose on the collateral securing our real estate-related loans and other investments we intend to make, and, even if we are successful in our foreclosure efforts, we may be unable to successfully sell any acquired equity interests or reposition any acquired properties, which may adversely affect our ability to recover our investments.

If a borrower defaults under mortgage or other secured loans for which we are the lender, we may attempt to foreclose on the collateral securing those loans, including by acquiring the pledged equity interests or acquiring title to the subject properties, to protect our investment. In response, the defaulting borrower may contest our enforcement of foreclosure or other available remedies, seek bankruptcy protection against our exercise of enforcement or other available remedies, or bring claims against us for lender liability. If a defaulting borrower seeks bankruptcy protection, the automatic stay provisions of the U.S. Bankruptcy Code would preclude us from enforcing foreclosure or other available remedies against the borrower unless relief is first obtained from the court with jurisdiction over the bankruptcy case. In addition, we are, and in the future may be, subject to intercreditor agreements that delay, impact, govern or limit our ability to foreclose on a lien securing a loan or otherwise delay or limit our pursuit of our rights and remedies. Any such delay or limit on our ability to pursue our rights or remedies could materially and adversely affect our business, results of operations and ability to make distributions to our stockholders. Even if we successfully foreclose on the collateral securing our mortgage loans and other investments, foreclosure-related costs, high loan-to-value ratios or declines in equity or property value could prevent us from realizing the full amount of our secured loans, and we could be required to write the asset down to its fair value and record an impairment charge for such losses. Moreover, we may acquire equity interests that we are unable to sell due to securities law restrictions or otherwise, and we may acquire title to properties that we are unable to reposition with new tenants or operators on a timely basis, if at all, or without making improvements or repairs to the properties at a significant expense. Any delay or costs incurred in repositioning the properties could adversely affect our ability to recover our investments.

Hedging against interest rate exposure may adversely affect us.

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, we may mitigate the risk of interest rate volatility through the use of hedging instruments, such as interest rate swap agreements and interest rate cap agreements. The goal of our interest rate management strategy is to minimize or eliminate the effects of interest rate changes on the value of our assets, to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a favorable spread between the yield on our assets and the cost of financing such assets. We can provide no assurances, however, that our efforts to manage interest rate and foreign currency exchange rate volatility will successfully mitigate the risks of such volatility on our portfolio. These agreements involve the risks that these arrangements may fail to protect or adversely affect us because, among other things:

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interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;

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the duration of the hedge may not match the duration of the related liability;

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the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and

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the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.

As a result of any of the foregoing, our hedging transactions, which are intended to limit losses, could have a material adverse effect on us.

The terms of joint venture agreements or other joint ownership arrangements into which we may enter could impair our operating flexibility and could adversely affect our business, financial condition and results of our operations and our ability to make distributions to our stockholders.

We may enter into joint ventures with affiliates and/or third parties to acquire or improve properties. We may also purchase properties in partnerships, co-tenancies or other co-ownership arrangements. For example, we own Lakeway Hospital in a consolidated partnership between us and local physicians and non-physician investors. Such investments may involve risks not otherwise present when acquiring real estate directly, including the following:

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a co-venturer, co-owner or partner may have certain approval rights over major decisions, which may prevent us from taking actions that are in our best interest but opposed by our partners, co-owners or co-venturers;

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a co-venturer, co-owner or partner may at any time have economic or business interests or goals, which are, or become, inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

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a co-venturer, co-owner or partner in an investment may become insolvent or bankrupt (in which event we and any other remaining partners or members would generally remain liable for the liabilities of the partnership or joint venture);

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we may incur liabilities as a result of an action taken by our co-venturer, co-owner or partner;

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a co-venturer, co-owner or partner may be in a position to take actions contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT;

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agreements governing joint ventures, limited liability companies and partnerships often contain restrictions on the transfer of a member’s or partner’s interest or “buy-sell” or other provisions that may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms;

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disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; and

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that under certain joint venture arrangements, neither joint venture partner may have the power to control the venture, and an impasse could be reached, which might have a negative influence on the joint venture.

If any of the foregoing were to occur, our financial condition, results of operations and cash available for distribution to our stockholders could be adversely affected.

Risks Related to the Healthcare Industry

Adverse trends in healthcare provider operations may negatively affect the operations at our properties, which in turn, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We believe the healthcare industry is currently experiencing the following trends:

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changes in the demand for and methods of delivering healthcare services;

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changes in third-party reimbursement policies;

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significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;

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increased expense for uninsured patients;

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increased competition among healthcare providers;

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increased liability insurance expense;

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continued pressure by private and governmental payors to reduce payments to providers of services; and

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increased scrutiny of billing, referral and other practices by federal and state authorities and private insurers.

These factors may materially adversely affect the economic performance of some or all of our tenants/operators, which in turn could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our tenants, operators, borrowers, guarantors and managers may be adversely affected by healthcare regulation and enforcement.

The regulatory environment of the long-term healthcare industry has generally intensified over time both in the amount and type of regulations and in the efforts to enforce those regulations. The extensive federal, state and local laws and regulations affecting the healthcare industry include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers. Moreover, changes in enforcement policies by federal and state governments have resulted in an increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and even criminal penalties. See “Our Business—Regulation—Healthcare Regulatory Matters.” We are unable to predict the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework could have a material adverse effect on our tenants, operators, guarantors and managers, which, in turn, could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Further, if our tenants, operators, borrowers, guarantors and managers fail to comply with the extensive laws, regulations and other requirements applicable to their businesses and the operation of our properties (some of which are discussed below), they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant changes to their operations. Our tenants, operators, borrowers, guarantors and managers also could be forced to expend considerable resources responding to an investigation or other enforcement action under applicable laws or regulations. In such event, the results of operations and financial condition of our tenants, operators, borrowers, guarantors and managers and the results of operations of our properties operated or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

All healthcare providers are subject to the Federal Anti-Kickback Statute, which generally prohibits persons from offering, providing, soliciting, or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Certain healthcare facilities are also subject to the Federal Ethics in Patient Referral Act of 1989, commonly referred to as the Stark Law. The Stark Law generally prohibits the submission of claims to Medicare for payment if the claim results from a physician referral for certain designated services and the physician has a financial relationship with the health service provider that does not qualify under one of the exceptions for a financial relationship under the Stark Law. Similar prohibitions on kickbacks, physician

self-referrals and submission of claims apply to state Medicaid programs, and may also apply to private payors under state laws. Violations of these laws subject persons and entities to termination from participation in Medicare, Medicaid and other federally funded healthcare programs or result in the imposition of treble damages and fines or other penalties. Healthcare facilities and providers may also experience an increase in medical record reviews from a host of government agencies and contractors, including the HHS Office of the Inspector General, the Department of Justice, Zone Program Integrity Contractors, and Recovery Audit Contractors.

Other laws that impact how our operators conduct their operations include: federal and state laws designed to protect the confidentiality and security of patient health information; state and local licensure laws; laws protecting consumers against deceptive practices; laws generally affecting our operators’ management of property and equipment and how our operators generally conduct their operations, such as fire, health and safety, and environmental laws; federal and state laws affecting assisted living facilities mandating quality of services and care, and quality of food service; resident rights (including abuse and neglect laws); and health standards set by the federal Occupational Safety and Health Administration. For example, HIPAA imposes extensive requirements on the way in which certain healthcare entities use, disclose, and safeguard protected health information (as that term is defined under HIPAA), including requirements to protect the integrity, availability, and confidentiality of electronic medical records. Many of these obligations were expanded under the HITECH Act. In order to comply with HIPAA and the HITECH Act, covered entities often must undertake significant operational and technical implementation efforts. Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records, personal health information about individuals, or protected health information. The HITECH Act strengthened the HHS Secretary’s authority to impose civil money penalties for HIPAA violations occurring after February 18, 2009. The HITECH Act directs the HHS Secretary to provide for periodic audits to ensure covered entities and their business associates (as that term is defined under HIPAA) comply with the applicable HITECH Act requirements, increasing the likelihood that a HIPAA violation will result in an enforcement action. In October 2009, the Office for Civil Rights, or OCR, issued an interim final rule which conformed HIPAA enforcement regulations to the HITECH Act, increasing the maximum penalty for multiple violations of a single requirement or prohibition to $1.5 million. Higher penalties may accrue for violations of multiple requirements or prohibitions. HIPAA violations are also potentially subject to criminal penalties. Additionally, on January 25, 2013, OCR promulgated a final rule that expands the applicability of and requirements under HIPAA and the HITECH Act and strengthens the government’s ability to enforce these laws. Generally, covered entities and business associates were required to come into compliance with the final rule by September 23, 2013, though certain exceptions may apply. We cannot predict the effect additional costs to comply with these laws may have on the expenses of our operators and their ability to meet their obligations to us. For additional information on healthcare regulation and enforcement, see “Our Business—Regulation—Healthcare Regulatory Matters.”

We are unable to predict the impact of the Affordable Care Act, which represents a significant change to the healthcare industry.

The Affordable Care Act has changed how healthcare services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced growth in Medicare program spending, reductions in Medicare and Medicaid Disproportionate Share Hospital, or DSH, payments, and expanding efforts to tie reimbursement to quality and efficiency. In addition, the law reforms certain aspects of health insurance, contains provisions intended to strengthen fraud and abuse enforcement, and encourages the development of new payment models, including the creation of Accountable Care Organizations, or ACOs.

Our tenants/operators may be negatively impacted by the law’s payment reductions, and it is uncertain what reimbursement rates will apply to coverage purchased through the exchanges. We cannot predict the full impact of the Affordable Care Act on our operators and tenants and, thus, our business due to the law’s complexity, limited implementing regulations and interpretive guidance, gradual and delayed implementation, and our inability to foresee how individuals, states and businesses will respond to the choices afforded them by the law throughout its gradual implementation. Further, it is unclear how remaining or any new efforts to repeal or revise the Affordable Care Act will be resolved or what the impact would be of any resulting changes to the law.

Our tenants/operators may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us and, thus, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

As is typical in the healthcare industry, our tenants/operators may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants/operators may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by tenants/operators may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants/operators due to state law prohibitions or limitations of availability. As a result, these types of tenants/operators of our healthcare properties operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is generally not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant/operator’s financial condition. In particular, the Lakeway Operator, which is one of our largest tenants and which contributed approximately $5.6 million in incremental AFFO for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on a stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment, is the defendant in a lawsuit in which an $11.0 million judgment has been awarded to the plaintiff, which is currently under appeal. We have agreed to provide a surety bond in the amount of $9.4 million that stands behind the Lakeway Operator in the event that the judgment is upheld and it is unable to fund the entire amount of the judgment. The Lakeway Operator will be required to repay in full any amounts funded by us. If the Lakeway Operator is not successful in the appeal, it could have an adverse effect on its financial condition, cash flow and ability to meet its obligations to us. If a tenant/operator is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant/operator is required to pay uninsured punitive damages, or if a tenant/operator is subject to an uninsurable government enforcement action, the tenant/operator could be exposed to substantial additional liabilities, which may affect the tenant/operator’s ability to pay rent to us, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Merger and acquisition activity or consolidation in the healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of our tenants, operators or managers could have a material adverse effect on us.

The healthcare industries have recently experienced increased consolidation, including among owners of real estate and care providers. We compete with other healthcare REITs, healthcare providers, healthcare lenders, real estate partnerships, banks, insurance companies, private equity firms and other investors that pursue a variety of investments, which may include investments in our tenants, operators, borrowers or managers. A competitor’s investment in one of our tenants, operators or managers could enable our competitor to influence that tenant’s, operator’s, borrower’s or manager’s business and strategy in a manner that impairs our relationship with the tenant, operator, borrower or manager or is otherwise adverse to our interests. Depending on our contractual agreements and the specific facts and circumstances, we may have the right to consent to, or otherwise exercise rights and remedies, including termination rights, on account of, a competitor’s investment in, a change of control of, or other transactions impacting a tenant, operator or manager. In deciding whether to exercise our rights and remedies, including termination rights, we assess numerous factors, including legal, contractual, regulatory, business and other relevant considerations. In addition, in connection with any change of control of a

tenant, operator or manager, the tenant’s, operator’s, borrower’s or manager’s management team may change, which could lead to a change in the tenant’s, operator’s, borrower’s or manager’s strategy or adversely affect the business of the tenant, operator or manager, either of which could have a material adverse effect on us.

Risks Related to Our Organizational Structure

BlueMountain has the ability to exercise substantial influence over us, including the approval of certain acquisitions and certain issuances of equity.

As of the date of this prospectus, BlueMountain owns approximately 23.1% of the outstanding shares of our common stock. In connection with this offering, BlueMountain has the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its current ownership percentage in us following the completion of this offering, without payment by us of any underwriting discount or commissions. In addition, BlueMountain has designated two of the members of our board of directors and will have a continuing right to designate one or two of our directors, who will serve on our investment committee, as described under “Management.” BlueMountain and its two board designees have substantial influence over us, including the ability to veto certain of our acquisitions and certain equity offerings and any changes to the size of our board of directors, and the concentration of ownership by BlueMountain in us may influence the outcome of any matters submitted to our stockholders for approval.

The stock ownership limits imposed by the Code for REITs and our charter may restrict stock transfers and/or business combination opportunities, particularly if our management and board of directors do not favor a combination proposal.

In order for us to qualify and maintain our qualification as a REIT under the Code, not more than 50% of the value of the outstanding shares of our capital stock may be owned, directly or indirectly, including through the application of certain attribution rules, by five or fewer individuals (as defined in the Code to include certain entities such as qualified pension plans) at any time during the last half of a taxable year (other than the first year for which we qualify and elect to be taxed as a REIT). Our charter, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock, or 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our capital stock, in each case excluding any shares of our capital stock that are not treated as outstanding for U.S. federal income tax purposes. Our board of directors may, in its sole discretion, grant an exemption to the stock ownership limits, subject to certain conditions and the receipt by our board of directors of certain representations and undertakings.

Our charter also prohibits any person from (1) beneficially or constructively owning shares of our capital stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT, including, but not limited to, as a result of any person that operates a “qualified healthcare property” on behalf of a TRS failing to qualify as an “eligible independent contractor” (as defined in Section 856(d)(9)(A) of the Code), or us having significant non-qualifying income from “related” parties, or (2) transferring shares of our capital stock if such transfer would result in us being owned by fewer than 100 persons (determined without regard to any rules of attribution). The stock ownership limits contained in our charter key off the ownership at any time by any “person,” which term includes entities, and take into account direct and indirect ownership as determined under various ownership attribution rules in the Code. The stock ownership limits also might delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our authorized but unissued common stock and preferred stock may prevent a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of shares of our common stock or the number of shares of any class or series of preferred stock that we have authority to issue and classify or reclassify any unissued shares of common stock or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a series of common stock or preferred stock that could delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from seeking change of control transactions that could involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests.

Certain provisions of the Maryland General Corporation Law, or the MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or any affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter impose fair price and/or supermajority voting requirements on these combinations; and

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“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to their control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, we have elected, by resolution of our board of directors, to exempt from the business combination provisions of the MGCL, any business combination between us and any person and, pursuant to a provision in our bylaws, to exempt any acquisition of our stock from the control share provisions of the MGCL. However, our board of directors may by resolution elect to repeal the exemption from the business combination provisions of the MGCL and may by amendment to our bylaws opt in to the control share provisions of the MGCL at any time in the future.

Additionally, certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not currently employ. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring, or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter contains a provision whereby we elect to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws.”

Our charter, our bylaws and Maryland law also contain other provisions, including the provisions of our charter on removal of directors and the advance notice provisions of our bylaws, that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws.”

Our board of directors may change our business, investment and financing strategies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders do not control these policies. As the market evolves, we may change our business, investment and financing strategies without a vote of, or notice to, our stockholders, which could result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this prospectus. In particular, a change in our investment strategy, including the manner in which we allocate our resources across our properties or the types of assets in which we seek to invest, may increase our exposure to real estate market fluctuations. In addition, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy is changed, we may in the future become highly leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. Furthermore, as the market evolves, our board may determine that healthcare properties do not offer the potential for attractive risk-adjusted returns for an investment strategy. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our strategies with regard to the foregoing could materially and adversely affect our business, financial condition and results of operations, our ability to make distributions to our stockholders and the market price of our common stock.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event that we take certain actions which are not in our stockholders’ best interests.

Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner that he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Under the MGCL, directors are presumed to have acted with this standard of care. As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

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actual receipt of an improper benefit or profit in money, property or services; or

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active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

Our charter and bylaws obligate us to indemnify each present and former director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to advance the defense costs incurred by our directors and officers. We also have entered into indemnification agreements with our officers and directors granting them express indemnification rights. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist absent the current provisions in our charter, bylaws and indemnification agreements or that might exist for other public companies.

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management.

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management and may prevent a change in control of our company that is in the best interests of our stockholders. Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of two-thirds of all the votes entitled to be cast generally in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our stockholders.

Termination of the employment agreements with our executive officers could be costly and prevent a change in our control.

The employment agreements that we entered into with each of our executive officers provide that, if their employment with us terminates under certain circumstances (including upon a change in our control), we may be required to pay them significant amounts of severance compensation, including accelerated vesting of equity awards, thereby making it costly to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in our control that might involve a premium paid for our common stock or otherwise be in the best interests of our stockholders.

Conflicts of interest could arise between the interests of our stockholders and the interests of holders of OP units, which may impede business decisions that could benefit our stockholders.

Conflicts of interest could arise as a result of the relationships between us, on the one hand, and our operating partnership or any limited partner thereof, on the other. Our directors and officers have duties to us and our stockholders under applicable Maryland law in connection with their management of our company. At the same time, we, as the sole member of the general partner of our operating partnership, have fiduciary duties and obligations to our operating partnership and its limited partners under Delaware law and the partnership agreement of our operating partnership in connection with the management of our operating partnership. Our duties as the sole member of the general partner to our operating partnership and its partners may come into conflict with the duties of our directors and officers to our company and our stockholders. These conflicts may be resolved in a manner that is not in the best interests of our stockholders.

Federal Income Tax Risks

Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. To maintain our qualification as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions. The REIT qualification requirements are extremely complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the U.S. federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board of directors to determine that it is not in our best interest to qualify as a REIT or revoke our REIT election, which it may do without stockholder approval.

Although we do not expect to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, we will receive an opinion prior to the effectiveness of this registration statement from our legal counsel,

Morrison & Foerster LLP, that we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable years ended December 31, 2014 through December 31, 2015, and our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws. Investors should be aware that Morrison & Foerster LLP’s opinion will be based on the U.S. federal income tax laws governing qualification as a REIT as of the date of such opinion, which will be subject to change, possibly on a retroactive basis, will not be binding on the IRS or any court, and will speak only as of the date issued. In addition, Morrison & Foerster LLP’s opinion will be based on customary assumptions and will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the future conduct of our business. Moreover, our qualification and taxation as a REIT depend on our ability to meet, on a continuing basis, through actual results, certain qualification tests set forth in the U.S. federal income tax laws. Those qualification tests involve, among other things, the percentage of our gross income that we earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our stock ownership and the percentage of our earnings that we distribute. Morrison & Foerster LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that the actual results of our operations for any particular taxable year will satisfy such requirements. Morrison & Foerster LLP’s opinion will not foreclose the possibility that we may have to use one or more of the REIT savings provisions, which may require us to pay a material excise or penalty tax in order to maintain our REIT qualification.

If we fail to qualify as a REIT for any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate rates. In addition, we generally would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution because of the additional tax liability. In addition, distributions would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to you.

Our ability to qualify as a REIT could be adversely affected by our ownership of a health care facility if we lease a healthcare facility to a TRS lessee and such lease is not respected as a true lease for U.S. federal income tax purposes, if our TRS lessee fails to qualify as a “taxable REIT subsidiary,” or if the operator of the health care facility does not qualify as an “eligible independent contractor.”

We may lease health care facilities to a TRS. If a lease of a health care facility to a TRS lessee is not respected as a true lease for U.S. federal income tax purposes, we may fail to qualify as a REIT. For the rent paid pursuant to any leases of health care facilities to a TRS lessee to qualify for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and must not be treated as a service contracts, joint ventures or some other type of arrangements. We intend to structure any leases of health care facilities to a TRS lessee so that the leases will be respected as true leases for U.S. federal income tax purposes, but there can be no assurance that the IRS will agree with this characterization.

If a TRS fails to qualify as a “taxable REIT subsidiary” under the Code, we could fail to qualify as a REIT. Rent paid by a lessee that is a “related party tenant” is not qualifying income for purposes of the 75% and 95% gross income tests applicable to REITs. So long as the TRS lessee qualifies as a TRS, it will not be treated as a “related party tenant” with respect to our properties that are managed by an eligible independent contractor. We believe that our TRS qualifies to be treated as a TRS for U.S. federal income tax purposes, but there can be no assurance that the IRS will not challenge the status of our TRS for U.S. federal income tax purposes or that a court would not sustain such a challenge.

If a given health care facility management company does not qualify as an “eligible independent contractor” or if a given health care facility is not a “qualified health care property,” we could fail to qualify as a REIT. Each property with respect to which our TRS lessee pays rent must be a “qualified health care property.” The REIT provisions of the Code provide only limited guidance for making determinations under the requirements for “qualified health care properties” and there can be no assurance that these requirements will be satisfied in all cases. Any health care facility management company that enters into a management contract with a TRS lessee must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS to be qualifying income for our REIT income test requirements. Complex ownership attribution rules apply for purposes of these ownership thresholds. Although we intend to monitor ownership of our stock by operators of our health care facilities and their owners, and certain provisions of our charter are designed to prevent ownership of our stock in violation of these rules, there can be no assurance that these ownership levels will not be exceeded.

The IRS may challenge the valuation of our assets and securities or the real estate collateral for the mortgage or mezzanine loans that we may originate and may contend that our ownership of such assets violates one or more of the asset tests applicable to REITs.

We believe that the assets that we will hold after consummation of this offering satisfy the asset test requirements. We will not obtain, nor are we required to obtain under the U.S. federal income tax laws, independent appraisals to support our conclusions as to the value of our assets and securities or the real estate collateral for the mortgage or mezzanine loans that we may originate. Moreover, the values of some assets may not be susceptible to a precise determination. As a result, there can be no assurance that the IRS will not contend that our ownership of securities and other assets violates one or more of the asset tests applicable to REITs.

To qualify as a REIT and to avoid the payment of U.S. federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities (including this offering), pay taxable dividends of our stock or debt securities or sell assets to make distributions, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities (including this offering), pay taxable dividends of our stock or debt securities or sell assets in order to distribute enough of our taxable income to qualify or maintain our qualification as a REIT and to avoid the payment of U.S. federal income and excise taxes.

Future sales of properties may result in penalty taxes, or may be made through TRSs, each of which would diminish the return to you.

It is possible that one or more sales of our properties may be “prohibited transactions” under provisions of the Code. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), all income that we derive from such sale would be subject to a 100% tax. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale. It is entirely possible, if not likely, that the sale of one or more of our properties will not fall within the prohibited transaction safe harbor.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS. Though a sale of such property by a TRS likely would mitigate the risk of incurring a 100% penalty tax, the TRS itself would be subject to regular corporate income tax at the U.S. federal level, and potentially at the state and local levels, on the gain recognized on the sale of the property as well as any income earned while the property is operated by the TRS. Such tax would diminish the amount of proceeds from the sale of such property ultimately distributable to you.

Our ability to use TRSs in the foregoing manner is subject to limitation. Among other things, the value of our securities in TRSs may not exceed 25% (20% for taxable years beginning after December 31, 2017) of the value of our assets and dividends from our TRSs, when aggregated with all other non-real estate income with respect to any one year, generally may not exceed 25% (20% for taxable years beginning after December 31, 2017) of our gross income with respect to such year. No assurances can be provided that we would be able to successfully avoid the 100% penalty tax through the use of TRSs.

In certain circumstances, we and/or our subsidiaries may be subject to U.S. federal and state income taxes, which would reduce our cash available for distribution to our stockholders.

Even if we qualify as a REIT, we may be subject to U.S. federal income taxes or state taxes. As discussed above, net income from a “prohibited transaction” will be subject to a 100% penalty tax. To the extent we satisfy the distribution requirements applicable to REITs, but distribute less than 100% of our taxable income, we will be subject to U.S. federal income tax at regular corporate rates on our undistributed income. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our properties and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders. In addition, our TRS, MedEquities Realty TRS, LLC, will be subject to corporate-level tax.

The ability of our board of directors to revoke or otherwise terminate our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income at regular corporate rates and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.

If our operating partnership were taxable as a corporation for U.S. federal income tax purposes, we would fail to qualify as a REIT and would suffer other adverse tax consequences.

If additional partners are admitted to our operating partnership, we intend for our operating partnership to be treated as a partnership for U.S. federal income tax purposes. If the IRS were to successfully challenge the status of our operating partnership as a partnership, however, our operating partnership generally would be taxable as a corporation. In such event, we likely would fail to qualify as a REIT for U.S. federal income tax purposes, and the resulting corporate income tax burden would reduce the amount of distributions that our operating partnership could make to us. This would substantially reduce the cash available to make distributions to our stockholders.

The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.

We may acquire mezzanine loans for which the IRS has provided a safe harbor but not rules of substantive law. In IRS Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets certain requirements, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test. We may acquire mezzanine loans that do not meet all of the requirements of this safe harbor. In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and gross income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.

Complying with the REIT requirements may limit our ability to hedge risk effectively.

The REIT provisions of the Code may limit our ability to hedge our liabilities effectively. In general, income from hedging transactions does not constitute qualifying income for purposes of the 75% and 95% gross income tests applicable to REITs. However, to the extent, we enter into a hedging contract to reduce interest rate risk or foreign currency risk on indebtedness incurred to acquire or carry real estate assets, any income we derive from the contract would be excluded from gross income for purposes of calculating the REIT 75% and 95% gross income tests if specified requirements are met. Consequently, we may have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This may leave us exposed to greater risks than we would otherwise want to bear and could increase the cost of our hedging activities because a TRS would be subject to tax on the income therefrom.

Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or sell properties earlier than we wish.

To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to forego or liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

We may make distributions consisting of both stock and cash, in which case stockholders may be required to pay income taxes in excess of the cash distributions they receive.

We may make distributions that are paid in cash and stock at the election of each stockholder and may distribute other forms of taxable stock dividends. Taxable stockholders receiving such distributions will be required to include the full amount of the distributions as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such distributions in excess of the cash received. If a stockholder sells the stock that it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, in the case of certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to taxable dividends, including taxable dividends that are paid in stock. In addition, if a significant number of our stockholders decide to sell their stock in order to pay taxes owed with respect to taxable stock dividends, it may put downward pressure on the trading price of our stock.

You may be restricted from acquiring or transferring certain amounts of our common stock.

Certain provisions of the Code and the stock ownership limits in our charter may inhibit market activity in our stock and restrict our business combination opportunities. In order to maintain our qualification as a REIT, five or fewer individuals, as defined in the Code, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our stock under this requirement. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year. To help insure that we meet these tests, our charter restricts the acquisition and ownership of shares of our stock.

Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, our charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of such ownership limit would result in our failing to qualify as a REIT.

Dividends paid by REITs generally do not qualify for the favorable tax rates available for some dividends.

The maximum U.S. federal income tax rate applicable to qualified dividend income paid to U.S. stockholders that are individuals, trusts and estates currently is 20%. Dividends paid by REITs generally are not eligible for such maximum tax rate. Although the favorable tax rates applicable to qualified dividend income do not adversely affect the taxation of REITs or dividends paid by REITs, such favorable tax rates could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

Legislative or regulatory action with respect to taxes could adversely affect the returns to our stockholders.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the U.S. federal income tax laws applicable to investments similar to an investment in our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our stock or on the market value or the resale potential of our assets. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in our stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

See “Material U.S. Federal Income Tax Considerations” for a more detailed discussion of these and other material U.S. federal income tax considerations applicable to the acquisition, ownership and disposition of our common stock.

Risks Related to This Offering and Ownership of Our Common Stock

There has been no public market for our common stock prior to this offering and an active trading market for our common stock may not develop and be sustained following this offering.

Prior to this offering, there has not been any public market for our common stock, and there can be no assurance that an active trading market will develop or be sustained or that shares of our common stock will be resold at or above the initial public offering price. The initial public offering price of our common stock will be determined by agreement among us and the underwriters, but there can be no assurance that our common stock will not trade below the initial public offering price following the completion of this offering. See “Underwriting.” The market value of our common stock could be substantially affected by general market conditions, including the extent to which a secondary market develops for our common stock following the completion of this offering, the extent of institutional investor interest in us, the general reputation of REITs and

the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies), our financial performance and general stock and bond market conditions.

The trading volume and market price of our common stock may be volatile and could decline substantially following this offering.

Even if an active trading market develops and is sustained for our common stock, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price at which you purchase them in this offering. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future, including as a result of factors unrelated to our operating performance or prospects. In particular, the market price of our common stock could be subject to wide fluctuations in response to a number of factors, including, among others, the following:

•

actual or anticipated differences in our operating results, liquidity, or financial condition;

•

changes in our revenues, FFO, AFFO or earnings estimates;

•

publication of research reports about us, our properties, the healthcare industry or overall real estate market;

•

increases in market interest rates that lead purchasers of our common stock to demand a higher yield;

•

additions and departures of key personnel;

•

the performance and market valuations of other similar companies;

•

adverse market reaction to any additional debt we incur in the future;

•

actions by institutional stockholders;

•

the passage of legislation or other regulatory developments that adversely affect us or our industry;

•

the realization of any of the other risk factors presented in this prospectus;

•

speculation in the press or investment community;

•

the extent of investor interest in our securities;

•

the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

•

our underlying asset value;

•

changes in accounting principles;

•

investor confidence in the stock and bond markets generally;

•

future equity issuances;

•

failure to meet and maintain REIT qualification and requirements;

•

low trading volume of our stock;

•

terrorist acts; and

•

general market and economic conditions, including factors unrelated to our operating performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of their common stock. If the market price of our common stock is volatile and this type of litigation is brought against us, it could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.

Common stock eligible for future sale could have an adverse effect on the value of our common stock.

In connection with the initial private placement, we entered into a registration rights agreement requiring us to use commercially reasonable efforts to cause a resale shelf registration statement with respect to the shares sold in that private placement to become effective under the Securities Act as soon as practicable after filing, and in any event, subject to certain exceptions, no later than September 30, 2016 (or, if we complete this offering prior to September 30, 2016, on a date that is on or before 60 days after the completion of this offering). As a result, holders of shares of our common stock acquired in the initial private placement have registration rights that obligate us to register their shares under the Securities Act. Once we register the shares, they can be freely sold in the public market, subject to any applicable lock-up agreements. See “Shares Eligible for Future Sale.” Future sales by these holders of our common stock, or the perception that such sales could occur in the future, could have a material adverse effect on the market price of our common stock. In particular, as of the date of this prospectus, BlueMountain owns 23.1% of the outstanding shares of our common stock, and has the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its ownership percentage in us following the completion of this offering, without payment by us of any underwriting discount or commissions. If BlueMountain sells all or a substantial portion of their shares, it could have a material adverse impact on the market price of our common stock.

From time to time we also intend to issue additional shares of common stock or OP units, which, at our option, may be redeemed for shares of our common stock, in connection with the acquisition of investments, as compensation or otherwise, and we may grant additional registration rights in connection with such issuances.

We cannot predict the effect, if any, of future sales of our common stock, or the availability of shares for future sales, on the market price of the common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market price of our common stock.

You will experience immediate and substantial dilution from the purchase of our shares sold in this offering.

The offering price of our shares is higher than what our net tangible book value per share will be immediately after this offering. Accordingly, purchasers of our shares in this offering will incur immediate dilution of approximately $ in net tangible book value per share, based on the midpoint of the price range set forth on the cover page of this prospectus.

We have not established a minimum dividend payment level and we cannot assure you of our ability to pay dividends in the future or the amount of any dividends.

We have not established a minimum distribution payment level, and our ability to make distributions to our stockholders may be adversely affected by the risk factors described in this prospectus. Until our portfolio of assets generates sufficient income and cash flow, we could be required to fund distributions from working capital, sell assets or borrow funds. To the extent that we are required to sell assets in adverse market conditions or borrow funds at unfavorable rates, our results of operations could be materially and adversely affected.

All distributions will be made at the discretion of our board of directors and will be based upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations and applicable law and such other matters as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future, and our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the market price of our common stock.

We may use a portion of the net proceeds from this offering to make distributions to our stockholders, which would, among other things, reduce our cash available to acquire properties and may reduce the returns on your investment in our common stock.

Prior to the time we have fully invested the net proceeds from this offering, we may fund distributions to our stockholders out of the net proceeds from this offering, which would reduce the amount of cash we have available to acquire properties and may reduce the returns on your investment in our common stock. The use of these net proceeds for distributions to stockholders could adversely affect our financial results. In addition, funding distributions from the net proceeds from this offering may constitute a return of capital to our stockholders, which would have the effect of reducing each stockholder’s tax basis in our common stock.

Future issuances of debt securities, which would rank senior to our common stock upon liquidation, or future issuances of equity securities (including OP units), which would dilute our existing stockholders and may be senior to our common stock for purposes of making distributions, may adversely affect the market price of our common stock.

In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our liquidity, FFO, AFFO and results of operations. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis; however, BlueMountain has the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its ownership percentage in us following the completion of this offering, without payment by us of any underwriting discount or commissions. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including OP units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. Our preferred stock, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings will negatively affect the market price of our common stock.

Increases in market interest rates may reduce demand for our common stock and result in a decline in the market price of our common stock.

The market price of our common stock may be influenced by the distribution yield on our common stock (i.e., the amount of our annual distributions as a percentage of the market price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently low compared to historical levels, may lead prospective purchasers of our common stock to expect a higher distribution yield, which we may not be able, or may choose not, to provide. Higher interest rates would also likely increase our borrowing costs and decrease our operating results and cash available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decline.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements in this prospectus are “forward-looking statements” within the meaning of the U.S. federal securities laws. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. This prospectus also contains forward-looking statements by third parties relating to market and industry data and forecasts; forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this prospectus. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, FFO, AFFO, our strategic plans and objectives, cost management, potential property acquisitions, anticipated capital expenditures (and access to capital), amounts of anticipated cash distributions to our stockholders in the future and other matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. You are cautioned to not place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

•

risks and uncertainties related to the national, state and local economies, particularly the economies of Texas, California, Nevada and South Carolina, and the real estate and healthcare industries in general;

•

our limited operating history;

•

our use of the net proceeds from this offering and the BlueMountain Private Placement;

•

the ability of certain of our tenants to improve their operating results, which may not occur on the schedule or to the extent that we anticipate, or at all;

•

availability and terms of capital and financing, including our ability to complete the anticipated amendment to extend the maturity date under our credit facility;

•

the impact of existing and future healthcare reform legislation on our tenants, borrowers and guarantors;

•

adverse trends in the healthcare industry, including, but not limited to, changes relating to reimbursements available to our tenants by government or private payors;

•

our tenants’ ability to make rent payments, particularly those tenants comprising a significant portion of our portfolio and those tenants occupying recently developed properties;

•

our guarantors’ ability to ensure rent payments;

•

our possible failure to maintain our qualification as a REIT and the risk of changes in laws governing REITs;

•

our dependence upon key personnel whose continued service is not guaranteed;

•

availability of appropriate acquisition, development and redevelopment opportunities;

•

ability to source off-market and target-marketed deal flow;

•

fluctuations in mortgage and interest rates;

•

risks and uncertainties associated with property ownership and development;

•

failure to integrate acquisitions successfully;

•

potential liability for uninsured losses and environmental liabilities; and

•

the potential need to fund improvements or other capital expenditures out of operating cash flow.

This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive. You should carefully read the section entitled “Risk Factors” in this prospectus. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.

USE OF PROCEEDS

After deducting the underwriting discount and commissions and estimated expenses of this offering of approximately $ million payable by us, we expect to receive net proceeds from this offering of approximately $ million, or approximately $ million if the underwriters’ over-allotment option is exercised in full. The net proceeds we will receive from the BlueMountain Private Placement will be $ million.

We intend to contribute the net proceeds from this offering and the BlueMountain Private Placement to our operating partnership in exchange for OP units, and our operating partnership intends to use the net proceeds from this offering and the BlueMountain Private Placement as follows:

•

approximately $131.3 million to redeem our Series B Preferred Stock;

•

approximately $ million to repay amounts outstanding under our secured credit facility;

•

approximately $0.1 million to redeem our Series A Preferred Stock; and

•

the remaining net proceeds, if any, for general corporate purposes, including working capital and future acquisitions.

Amounts outstanding under our secured credit facility bear interest at LIBOR plus a margin between 2.75% and 3.75%. As of the date of this prospectus, approximately $247.4 million was outstanding under our secured credit facility and had a weighted-average interest rate of 3.7%. We initially entered into our revolving credit facility in November 2014 and have used borrowings under the facility to fund a portion of the consideration for our acquisitions, including Lakeway Hospital, the Life Generations Portfolio, the Texas SNF Portfolio, Mountain’s Edge Hospital and Mira Vista. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Secured Revolving Credit Facility.”

Affiliates of J.P. Morgan Securities LLC, Citigroup Global Markets Inc., KeyBanc Capital Markets Inc. and RBC Capital Markets, LLC are lenders under our secured credit facility. As a result, these affiliates will receive their proportionate shares of any amount of our secured credit facility that is repaid with the net proceeds from this offering.

DISTRIBUTION POLICY

To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, we intend to make regular quarterly distributions of all, or substantially all, of our REIT taxable income to our stockholders. For the period from April 23, 2014 (inception) to December 31, 2014, and for the year ended December 31, 2015, we declared total dividends to our common stockholders of $2.2 million and $9.8 million, respectively. On April 28, 2016, our board of directors declared a dividend of $0.21 per share, payable on May 19, 2016 to stockholders of record on May 10, 2016.

We intend to pay a pro rata initial distribution with respect to the quarter during which this offering occurs, based on a distribution rate of $ per share of our common stock for a full quarter. On an annualized basis, this would be $ per share, or an annual distribution rate of approximately % based on an assumed initial public offering price at the midpoint of the price range set forth on the front cover of this prospectus. This initial annual distribution rate will represent approximately % of estimated cash available for distribution for the 12 months ending March 31, 2017. We do not intend to reduce the annualized distribution per share of our common stock if the underwriters exercise their option to purchase additional shares. We have estimated our cash available for distribution to our common stockholders for the 12 months ending March 31, 2017 based on adjustments to our pro forma net income attributable to common stockholders for the 12 months ended March 31, 2016 as described below. This estimate was based on our pro forma operating results, which assume that we owned all of the properties in our portfolio for the entirety of the periods presented. This estimate does not take into account our long-term business and growth strategies, nor does it take into account any unanticipated expenditures that we may have to make or any financings for such expenditures. In estimating our cash available for distribution to our common stockholders for the 12 months ending March 31, 2017, we have made certain assumptions as reflected in the table and footnotes below.

Estimated cash available for distribution for the 12 months ending March 31, 2017 does not include the effect of any changes in our working capital. It also does not reflect the amount of cash to be used for investing, acquisition and other activities during the 12 months following March 31, 2016. It also does not reflect the amount of cash to be used for financing activities during the 12 months following March 31, 2016. Any such investing and/or financing activities may have a material effect on our cash available for distribution. Because we have made the assumptions set forth above in calculating cash available for distribution for the 12 months ending March 31, 2017, we do not intend this number to be a projection or forecast of our actual results of operations, FFO, AFFO or liquidity, and have calculated this number for the sole purpose of determining our estimated initial annual distribution rate. Our estimated cash available for distribution for the 12 months ending March 31, 2017 should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to pay dividends or make other distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future distributions.

We intend to maintain a distribution rate for the 12-month period following completion of this offering that is at or above our initial distribution rate unless actual results of operations, economic conditions or other factors differ materially from the assumptions used in determining our initial distribution rate. Any future distributions we make will be at the sole discretion of our board of directors and will depend upon a number of factors, including our actual and projected results of operations, the cash flow generated by our operations, FFO, AFFO, liquidity, our operating expenses, our debt service requirements, capital expenditure requirements for the properties in our portfolio, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, restrictions on making distributions under Maryland law and such other factors as our board of directors deems relevant. Actual distributions may be significantly different from expected distributions. We cannot assure you that our estimated distributions will be made or sustained or that our board of directors will not change our distribution policy in the future. For more information regarding risk factors that could materially adversely affect our ability to make distributions to our stockholders, please see “Risk Factors.”

We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may constitute a return of capital or may be designated by us as qualified dividend income or capital gain. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. Distributions in excess of our current and accumulated earnings and profits will not be taxable to a taxable U.S. stockholder under current U.S. federal income tax law to the extent those distributions do not exceed the stockholder’s adjusted tax basis in his or her common stock, but rather will reduce the adjusted tax basis of the common stock. Therefore, the gain (or loss) recognized on the sale of that common stock or upon our liquidation will be increased (or decreased) accordingly. To the extent those distributions exceed a taxable U.S. stockholder’s adjusted tax basis in his or her common stock, they generally will be treated as a capital gain realized from the taxable disposition of those shares. The percentage of our stockholder distributions that exceeds our current and accumulated earnings and profits may vary substantially from year to year. For a more complete discussion of the tax treatment of distributions to holders of our common stock, see “Material U.S. Federal Income Tax Considerations.”

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income, including net capital gain. For more information, please see “Material U.S. Federal Income Tax Considerations.” We anticipate that our estimated cash available for distribution will allow us to satisfy the annual distribution requirements applicable to REITs and to avoid the payment of tax on undistributed taxable income. However, under some circumstances, our cash available for distribution may be less than the amount required to meet the annual distribution requirements applicable to REITs, and we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make certain distributions. We also may elect to pay all or a portion of any distribution in the form of a taxable distribution of our common stock to enable us to satisfy the annual distribution requirements applicable to REITs and to avoid the payment of tax on our undistributed taxable income. We currently have no intention to make taxable distributions of our common stock or debt securities. However, to the extent that you receive a taxable distribution of our common stock or debt securities, you will be taxed on such securities as if you had received the equivalent value in cash. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the securities received. To the extent not inconsistent with our intention to qualify as a REIT, we may cause any TRS that we may organize to retain any earnings that it accumulates.

The following table describes our pro forma net income for the 12 months ended March 31, 2016, and the adjustments we have made to calculate our estimated cash available for distribution for the 12 months ending March 31, 2017 (dollars in thousands):


Pro forma net income for the 12 months ended December 31, 2015	$
Less: pro forma net income for the three months ended March 31, 2015
Add: pro forma net income for the three months ended March 31, 2016

Pro forma net income for the 12 months ended March 31, 2016	$
Add: Pro forma real estate depreciation and amortization
Add: Net effects of above-market lease intangible asset and tenant allowance
Add: Net increases in contractual rental income ⁽¹⁾
Add: Amortization of deferred financing costs
Add: Non-cash stock-based compensation expense
Add: Effect of straight-line rent expense
Less: Estimated additional cash general and administrative expenses ⁽²⁾
Less: Effect of straight-line rental income ⁽³⁾

Estimated cash flows from operating activities for the 12 months ending March 31, 2017	$
Estimated cash flows from investing activities
Less: Expected payment pursuant to Kearny Mesa earn-out
Less: Contractual obligation for tenant renovation funding obligation

Estimated cash available for distribution for the 12 months ending March 31, 2017	$
Less: Noncontrolling interest’s share of estimated cash available for distribution

Estimated cash available for distribution to common stockholders for the 12 months ending March 31, 2017	$


Estimated annual distribution to common stockholders	$

Distribution ratio based on estimated cash available for distribution to common stockholders		%

(1)	Represents the net increases in contractual rental income from existing leases.

(2)

Estimated additional general and administrative expenses consisting of salaries and benefits, insurance, travel and other costs based on proposed arrangements and anticipated activity. We have estimated a level of general and administrative costs required to manage the Company as a public company and our portfolio, including but not limited to salaries and benefits, compliance costs with the Sarbanes-Oxley Act of 2002, and legal, audit and tax fees.

(3)	Represents the conversion of estimated rental revenues on in-place leases from GAAP basis to cash basis of recognition.

CAPITALIZATION

The following table sets forth:

•

our actual capitalization as of March 31, 2016; and

•

our pro forma capitalization as of March 31, 2016, giving effect to this offering and the BlueMountain Private Placement and the application of the net proceeds therefrom as described in “Use of Proceeds.”

You should read this table in conjunction with “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated balance sheet as of March 31, 2016 and related notes included elsewhere in this prospectus.


	As of March 31, 2016
	Actual ⁽¹⁾			Pro Forma ⁽¹⁾
	(unaudited, amounts in thousands, except per share amounts)
Debt	$	247,400		$
Equity:
Common stock, par value $0.01 per share, 400,000 authorized, actual and pro forma; 11,250 shares issued and outstanding, actual; shares issued and outstanding, pro forma		109
Preferred stock, par value $0.01 per share, 50,000 shares authorized, actual and pro forma; 125 shares issued and outstanding, actual; 0 shares issued and outstanding pro forma		1
Additional paid-in capital		274,387
Dividends declared		(22,341	)
Retained earnings		16,220

Total MedEquities Realty Trust, Inc. stockholders’ equity		268,376
Non-controlling interests		5,199

Total equity	$	273,575		$

Total Capitalization	$	520,975		$

(1)

Includes an aggregate of 279,480 restricted shares of common stock outstanding as of March 31, 2016, which are held by our executive officers, non-employee directors and certain other employees. Excludes (i) an aggregate of 358,125 restricted stock units outstanding as of March 31, 2016, which are held by our executive officers and certain other employees, all of which are performance-based and will not vest unless certain operating metrics are achieved (see “Management—2014 Equity Incentive Plan”), and (ii) 693,082 shares of our common stock available for future issuance under our 2014 Equity Incentive Plan as of the date of this prospectus.

DILUTION

Dilution is the amount by which the offering price paid by the purchasers of the shares of our common stock sold in this offering exceeds the pro forma net tangible book value per share of our common stock after completion of this offering and the BlueMountain Private Placement. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

At March 31, 2016, our net tangible book value was $ million, or $ per share. After giving effect to the sale of the shares of our common stock in this offering and the BlueMountain Private Placement, including the use of proceeds as described under “Use of Proceeds,” and the deduction of underwriting discounts and estimated offering expenses, our pro forma net tangible book value as of March 31, 2016 would have been $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing investors and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution to new investors.


Assumed initial public offering price per share		$
Net tangible book value per share at March 31, 2016	$
Net increase in pro forma net tangible book value per share attributable to this offering and the BlueMountain Private Placement	$

Pro forma net tangible book value per share after giving effect to this offering and the BlueMountain Private Placement		$

Dilution in pro forma net tangible book value per share to new investors		$

If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value after this offering and the BlueMountain Private Placement would be $ per share, the increase in the net tangible book value to existing investors would be $ per share and the dilution in pro forma net tangible book value per share to new investors purchasing common stock in this offering would be $ per share.

The following table summarizes, as of March 31, 2016:

•

the total number of shares of our common stock issued to existing investors and the number of shares of our common stock purchased from us in the BlueMountain Private Placement and by new investors in this offering;

•

the total consideration paid to us by existing investors and by new investors purchasing shares in this offering and the BlueMountain Private Placement, assuming an initial public offering of $ per share (the midpoint of the price range set forth on the front cover of this prospectus), before deducting the estimated underwriting discount and estimated offering expenses payable by us in connection with this offering; and

•

the average price per share paid by existing investors and by new investors purchasing shares in this offering and the BlueMountain Private Placement.

Shares

Total Consideration

Average Price
per Share

Number

Percent

Amount

Percent

Existing Investors

BlueMountain Private Placement

New investors

Total

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following tables set forth selected financial and operating data based on (i) our historical consolidated balance sheets as of March 31, 2016, December 31, 2015 and December 31, 2014, (ii) our unaudited pro forma consolidated balance sheet as of March 31, 2016, (iii) our historical consolidated statements of operations for the three months ended March 31, 2016 and 2015, the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014 and (iv) our unaudited pro forma consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015. We have not presented any other historical financial data because, prior to the completion of the common stock private placements on July 31, 2014, we did not have any corporate activity since our formation other than the issuance of 1,000 shares of our common stock in connection with the initial capitalization of the Company on May 5, 2014.

You should read the following selected financial and operating data in conjunction with: (i) our historical consolidated balance sheets as of March 31, 2016, December 31, 2015 and December 31, 2014 and our historical consolidated statements of operations for the three months ended March 31, 2016 and 2015, the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014; (ii) our unaudited pro forma consolidated financial statements; and (iii) the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections in this prospectus. We have based the unaudited pro forma adjustments on available information and assumptions that we believe are reasonable. The following unaudited pro forma financial and operating data are presented for informational purposes only and are not necessarily indicative of what our actual financial position would have been as of March 31, 2016 assuming this offering and the BlueMountain Private Placement had been completed on March 31, 2016 and what our actual results of operations would have been for the three months ended March 31, 2016 and the year ended December 31, 2015 assuming this offering, the BlueMountain Private Placement and certain real estate property acquisitions were completed on the first day of the annual period presented, and should not be viewed as indicative of our future results of operations or financial condition.

Consolidated Balance Sheet Data

(in thousands)


	As of March 31, 2016				As of December 31,
	Pro Forma		Historical		2015		2014
	(unaudited)
Assets
Total real estate properties, net	$	489,805	$	489,805	$	493,681	$	111,900
Mortgage notes receivable, net		9,911		9,911		9,909		77,727
Total assets	$		$	539,169	$	543,667	$	211,033

Liabilities and Equity
Total liabilities				265,594		272,422		61,156
Total MedEquities Realty Trust, Inc. stockholders’ equity				268,376		266,698		149,877
Total liabilities and equity			$	539,169	$	543,667	$	211,033

Consolidated Income Statement Data

(in thousands, except per share data)


	Three months ended March 31,									Year ended December 31, 2015						Historical for the period from April 23, 2014 (inception) to December 31, 2014
	Pro Forma			Historical						Pro Forma			Historical
	2016			2016			2015
	(unaudited)									(unaudited)
Revenues
Rental income	$	14,604		$	14,604		$	3,686		$	59,083		$	41,484		$	4,316
Interest on mortgage notes receivable		229			229			1,029			918			2,717			1,078
Interest on note receivable		15			15			224			237			237			53

Total revenues		14,848			14,848			4,939			60,238			44,438			5,447
Expenses
Depreciation and amortization		3,659			3,659			1,077			14,951			9,969			1,273
Property related		321			321			291			1,205			1,205			308
Acquisition costs		17			17			68			417			417			192
Start-up costs		—			—			—			—			—			888
Franchise, excise, and other taxes		105			105			107			338			338			72
General and administrative		2,771			2,771			1,875			8,628			8,628			2,391

Total operating expenses		6,873			6,873			3,418			25,539			20,557			5,124

Operating income		7,975			7,975			1,521			34,699			23,881			323
Other income (expense)
Interest and other income		1			1			6			12			12			17
Interest expense					(3,125	)		(790	)					(7,163	)		(317	)

Net other income (expense)					(3,124	)		(784	)					(7,151	)		(300	)

Net income	$			$	4,851		$	737		$			$	16,730		$	23

Less: Preferred stock dividends		—			(2,465	)		(440	)		—			(7,835	)		—
Less: Net income attributable to non-controlling interests		(1,355	)		(1,355	)		15			(5,429	)		(4,029	)		—

Net income attributable to common stockholders	$			$	1,031		$	312		$			$	4,866		$	23

Earnings per share—basic and diluted
Net income (loss) attributable to common stockholders	$			$	0.09		$	0.03		$			$	0.42		$	(0.00	)
Weighted average shares outstanding:
Basic					10,959			10,945						10,948			10,918
Diluted					11,054			10,945
Dividends declared per common share					—			0.17					$	0.85		$	0.20

Other Data

(in thousands, unaudited)


	Three months ended March 31, 2016			Year ended December 31, 2015			Historical for the period from April 23, 2014 (inception) to December 31, 2014
	Pro Forma	Historical		Pro Forma	Historical
FFO attributable to common stockholders ⁽¹⁾	$	$	4,736	$	$	14,179	$	1,291
AFFO attributable to common stockholders ⁽¹⁾			5,544			12,419		2,545

(1)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We were formed on April 23, 2014 and did not commence revenue generating operations until July 31, 2014. Therefore, we do not have any historical operations to discuss other than for the period from April 23, 2014 (inception) to December 31, 2014, the year ended December 31, 2015 and the three months ended March 31, 2016 and 2015. You should read the following discussion in conjunction with the sections of this prospectus entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Our Business” and our historical and pro forma consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this prospectus.

Overview and Background

We are a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. We were formed on April 23, 2014 and commenced operations upon the completion of our common stock private placements on July 31, 2014. Therefore, there is no comparative information for any prior interim periods.

We conduct our business through an UPREIT structure, consisting of our operating partnership, MedEquities Realty Operating Partnership, LP, and subsidiaries of our operating partnership, including our TRS, MedEquities Realty TRS, LLC. Through our wholly owned limited liability company, MedEquities OP GP,

LLC, we are the sole general partner of our operating partnership, and we presently own all of the OP units of our operating partnership. In the future, we may issue OP units to third parties in connection with healthcare property acquisitions, as compensation or otherwise.

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014.

2015 Acquisitions

On February 3, 2015, we acquired fee simple ownership of Lakeway Hospital through a negotiated, non-judicial foreclosure and payment of an additional $25.0 million in cash consideration. We initially acquired a note receivable for $50.0 million on December 29, 2014, which had an outstanding principal balance of approximately $163.9 million. The note was secured by a first mortgage lien on Lakeway Hospital, which is a 270,512 square-foot acute care hospital in Lakeway, Texas that opened in April 2012. The operator of the facility defaulted on debt service payments under the mortgage in 2013, and HUD held an auction in December 2014 through which we acquired the note. We own a 51% interest in the facility through a consolidated partnership between us and an entity that is owned indirectly by physicians who have relocated their practices to Lakeway Hospital and a non-physician investor.

On February 20, 2015, we acquired Mira Vista, a 51,534 square-foot skilled nursing facility, for an aggregate purchase price of $16.0 million.

On March 31, 2015, we acquired Mountain’s Edge Hospital, a newly developed 72,140 square-foot acute care hospital, for an aggregate gross purchase price of $35.4 million, which includes a tenant allowance of $6.0 million that we paid to the tenant for certain furnishings, fixtures and equipment installed at the facility.

On March 31, 2015, we acquired four skilled nursing facilities and one assisted living facility from Life Generations for an aggregate purchase price of $80.0 million, and on October 1, 2015, we acquired Kearny Mesa for $15.0 million, plus an earn-out of up to $10.0 million.

On July 30, 2015, we acquired nine skilled nursing facilities located throughout Texas for an aggregate gross purchase price of $133.4 million, and on October 2, 2015, we acquired Graham Oaks for a gross purchase price of $11.6 million.

On October 1, 2015, we acquired Vibra Rehabilitation Hospital of Amarillo, a 44-bed inpatient rehabilitation hospital, for an aggregate purchase price of $19.4 million. The $18.0 million principal balance of the Amarillo Mortgage Loan was applied towards the $19.4 million purchase price, resulting in an additional cash expenditure of approximately $1.4 million to acquire the property.

For additional information regarding our recently completed acquisitions, see “Our Business—Our Portfolio.”

Series B Preferred Stock

In March and April of 2015, we issued an aggregate of 125,000 shares of newly classified 7.875% Series B Preferred Stock to the Carter Validus Operating Partnership for gross proceeds of $125.0 million, which we used to fund our acquisitions in the first quarter of 2015 and repay amounts outstanding under our secured credit facility. We intend to use a portion of the net proceeds from this offering to redeem all of the Series B Preferred Stock, which is redeemable at any time at our option, and must be redeemed in connection with a change of control of us or the initial public offering of our common stock, in each case at the $1,000 liquidation preference, plus accumulated and unpaid dividends and a special redemption dividend equal to 5% of the liquidation preference.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers accounting estimates or assumptions critical in either of the following cases:

•

the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change; and

•

the effect of the estimates and assumptions is material to the financial statements.

Management believes the current assumptions used to make estimates in the preparation of the consolidated financial statements are appropriate and not likely to change in the future. However, actual experience could differ from the assumptions used to make estimates, resulting in changes that could have a material adverse effect on our consolidated results of operations, financial position and/or liquidity. These estimates will be made and evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances.

The following presents information about our critical accounting policies including the material assumptions used to develop significant estimates. Since the Company has recently commenced operations, certain of these critical accounting policies contain discussion of judgments and estimates that have not yet been required by management but that it believes may be reasonably required of it to make in the future.

Principles of Consolidation

The consolidated financial statements include the accounts of our wholly owned subsidiaries, and all material intercompany transactions and balances are eliminated in consolidation. We consolidate entities in which we own less than 100% of the equity interest but have a controlling interest through voting rights or other means. For these entities, we record a noncontrolling interest representing the equity held by other parties.

From inception, we continually evaluate all of our transactions and investments to determine if they represent variable interests subject to the variable interest entity, or VIE, consolidation model and then determine which business enterprise is the primary beneficiary of its operations. We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. This evaluation is based on our ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.

For investments not subject to the variable interest entity consolidation model, we will evaluate the type of rights held by the limited partner(s) or other member(s), which may preclude consolidation in circumstances in which the sole general partner or managing member would otherwise consolidate the limited partnership. The assessment of limited partners’ or members’ rights and their impact on the presumption of control over a limited partnership or limited liability corporation by the sole general partner or managing member should be made when an investor becomes the sole general partner or managing member and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners or members, (ii) the sole general partner or member increases or decreases its ownership in the limited partnership or corporation, or (iii) there is an increase or decrease in the number of outstanding limited partnership or membership interests.

Our ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in

our consolidated financial statements. Subsequent evaluations of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.

Revenue Recognition, Mortgage Loans and Receivables

Leases of Real Estate Properties

Upon inception of new lease arrangements, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. A lease arrangement is classified as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or more of the underlying property’s economic life, or (iv) the future minimum lease payments (excluding executory costs) are equal to 90% or more of the excess estimated fair value of the leased building. If one of the four criteria is met and the minimum lease payments are determined to be reasonably predicable and collectible, the lease arrangement is generally accounted for as a direct financing lease, or DFL. Currently, all of our lease arrangements are classified as operating leases. If the assumptions utilized in the above classification assessments were different, our lease classification for accounting purposes may have been different; thus the timing and amount of our revenue recognized would have been impacted, which may be material to our consolidated financial statements.

We recognize rental revenue for operating leases on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. For assets acquired subject to leases, we recognize revenue upon acquisition of the asset provided the tenant has taken possession or control of the physical use of the leased asset. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed.

When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If our assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of our revenue recognized would be impacted.

In addition to minimum rental payments, some lease agreements may provide for contingent rents based on the lessee’s operations, such as a percentage of a lessee’s gross revenue increase over a specified base amount. Rental revenue related to any contingent rents is recognized only when the change in factor(s) on which the contingent rental payments are based actually occur.

We monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis to determine the need for an allowance for doubtful accounts, including an allowance for operating lease straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. This evaluation considers industry and economic conditions, property performance, credit enhancements and other factors. For straight-line rent amounts, our assessment is based on income recoverable over the term of the lease. We exercise judgment in establishing allowances and consider payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements. At March 31, 2016, we have determined that no allowance for doubtful accounts is necessary.

Mortgage Loans, Other Receivables and Investments in Direct Financing Leases

The direct finance method of accounting is required to record income from DFLs. For leases accounted for as DFLs, future minimum lease payments are recorded as a receivable. The net investment in the DFL represents

receivables for the sum of minimum lease payments receivable and the estimated residual values of the leased properties, less the unearned income. Unearned income is deferred and amortized to income over the lease terms to provide a constant yield when collectability of the lease payments is reasonably assured. Investments in DFLs are presented net of unamortized unearned income. The determination of estimated useful lives and residual values are subject to significant judgment. If these assessments for accounting purposes were to change, the timing and amount of our revenue recognized would be impacted.

Loans receivable, including mortgage notes, are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. We recognize interest income on loans, including the amortization of discounts and premiums, using the interest method applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Premiums, discounts and related costs are recognized as yield adjustments over the term of the related loans.

Loans receivable and DFLs are placed on non-accrual status at such time as management determines that collectability of contractual amounts is not reasonably assured. While on non-accrual status, loans and DFLs are either accounted for on a cash basis, in which income is recognized only upon receipt of cash, or on a cost-recovery basis, where cash receipts reduce the carrying value of the loan or DFL, based on management’s judgment of collectability. Management’s judgments regarding the collectability of amounts outstanding under loans receivable and DFLs can affect the timing of revenue recognized and the financial statement presentation of these arrangements.

Allowances are established for loans and DFLs based upon an estimate of probable losses on an individual basis if they are determined to be impaired. Loans and DFLs are impaired when it is deemed probable that we will be unable to collect all amounts due on a timely basis in accordance with the contractual terms of the loan or lease. Determining the adequacy of the allowance is complex and requires significant judgment by us about the effect of matters that are inherently uncertain. The allowance is based upon our assessment of the borrower’s or lessee’s overall financial condition, resources and payment record; the prospects for support from any financially responsible guarantors; and, if appropriate, the net realizable value of any collateral. These estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at the loan’s or DFL’s effective interest rate, the fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors. While our assumptions for any such allowances are based in part upon historical data, our estimates may differ from actual results, which could be material to our consolidated financial statements.

Real Estate Investments

We make estimates as part of our allocation of the purchase price of acquisitions (whether an asset acquisition acquired via purchase/leaseback or a business combination via an asset acquired from the current lessor) to the various components of the acquisition based upon the relative fair value of each component for asset acquisitions and at fair value of each component for business combinations. In making estimates of fair values for purposes of allocating purchase prices of acquired real estate, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The most significant components of our allocations are typically the allocation of fair value to land and buildings and, for certain of our acquisitions, in-place leases and other intangible assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, including the assessment as to the existence of any above-or below-market in-place leases, our management makes its best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods,

market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. The values of any identified above-or below-market in-place leases are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, or for below-market in-place leases including any bargain renewal option terms. Above-market lease values are recorded as a reduction of rental income over the lease term while below-market lease values are recorded as an increase to rental income over the lease term. The recorded values of in-place lease intangibles are recognized in amortization expense over the initial term of the respective leases.

We evaluate each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed to be businesses are expensed as incurred.

Asset Impairment

Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property. In determining fair value, we use current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.

We evaluate the carrying values of mortgage loans, including mortgage notes receivable, on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan receivable when events or circumstances, such as the non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that we will be unable to collect all the contractual interest and principal payments as scheduled in the mortgage agreement. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.

Stock-Based Compensation

The fair value of stock-based awards is calculated on the date of grant. We amortize the stock-based compensation expense on a straight-line basis over the period that the awards are expected to vest, net of any forfeitures.

The total compensation expense to recognize for awards with performance based vesting conditions including achievement of certain market conditions is based on our estimate of the ultimate fair value of such award after considering our expectation of future performance. Typical market conditions for these awards are based on our stock price levels or our total stockholder return (stock price and dividends) including comparisons of our total stockholder returns to an index of other REIT stocks. Since the awards are earned based on the achievement of market conditions, we must initially evaluate and estimate the probability of achieving the market conditions in order to determine the fair value of the award and over what period to recognize the stock compensation expense. Due to the complexities inherently involved with these awards, we will typically use an independent consultant to assist in modeling both the value of the award and the various periods over which each tranche of an award will be earned. We use what is termed a Monte Carlo simulation model which determines a value and earnings periods based on multiple outcomes and their probabilities based on significant inputs such as risk-free interest rate, expected volatility and expected service period that are made at the time of grant of the award.

Factors That May Influence Future Results of Operations

Our revenues are derived from rents we earn pursuant to the lease agreements we enter into with our tenants and from interest income from loans that we make to our tenants. Our tenants operate in the healthcare industry, generally providing medical, surgical and rehabilitative care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory and market conditions that may affect their profitability, which could impact our results of operations. Accordingly, we actively monitor certain key factors, including changes in those factors that we believe may provide early indications of conditions that may affect the level of risk in our lease and loan portfolio.

Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants and borrowers include, but are not limited to, the following:

•

the current, historical and projected cash flow and operating margins of each tenant and at each facility;

•

the ratio of our tenants’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

•

the quality and experience of the tenant and its management team;

•

construction quality, condition, design and projected capital needs of the facility;

•

the location of the facility;

•

local economic and demographic factors and the competitive landscape of the market;

•

the effect of evolving healthcare legislation and other regulations on our tenants’ profitability and liquidity; and

•

the payor mix of private, Medicare and Medicaid patients at the facility.

We also actively monitor the credit risk of our tenants. The methods we use to evaluate a tenant’s liquidity and creditworthiness include reviewing certain periodic financial statements, operating data and clinical outcomes data of the tenant. Over the course of a lease, we also have regular meetings with the facility management teams. Through these means we are able to monitor a tenant’s credit quality. Our approach to our investments in real estate-related debt investments is similar to our process when seeking to purchase the underlying property. We service our mortgage and mezzanine loans in-house and monitor both the credit quality of the borrower as well as the value of our collateral on an ongoing basis. If we originate construction loans, we may retain third parties to monitor the progress of developments and to service the loans.

Certain business factors, in addition to those described above that directly affect our tenants and borrowers, will likely materially influence our future results of operations:

•

the financial and operational performance of our tenants and borrowers, particularly those that account for a significant portion of the income generated by our portfolio, such as GruenePointe, the Lakeway Operator, Life Generations, Fundamental Healthcare and Vibra Healthcare;

•

trends in the cost and availability of capital, including market interest rates, that our prospective tenants may use for their real estate assets financing their real estate assets through lease structures;

•

unforeseen changes in healthcare regulations that may limit the incentives for physicians to participate in the ownership of healthcare providers and healthcare real estate;

•

reductions in reimbursements from Medicare, state healthcare programs and commercial insurance providers that may reduce our tenants’ profitability our lease rates; and

•

competition from other financing sources.

Results of Operations

Three Months ended March 31, 2016 and 2015

A comparison of results of operations for the three months ended March 31, 2016 and 2015 is presented below (dollars in thousands).


							Change
	For the three months ended March 31, 2016			For the three months ended March 31, 2015			$			%
	(unaudited)			(unaudited)
Revenues
Rental income	$	14,604		$	3,686		$	10,918			296	%
Interest on mortgage notes receivable		229			1,029			(800	)		(78	)%
Interest on notes receivable		15			224			(209	)		(93	)%

Total revenues		14,848			4,939			9,909			201	%
Expenses
Depreciation and amortization		3,659			1,077			2,582			240	%
Property related		321			291			30			10	%
Acquisition costs		17			68			(51	)		(75	)%
Franchise, excise and other taxes		105			107			(2	)		(2	)%
General and administrative		2,771			1,875			896			48	%

Total operating expenses		6,873			3,418			3,455			101	%

Operating income		7,975			1,521			6,454			424	%
Other income (expense)
Interest and other income		1			6			(5	)		(83	)%
Interest expense		(3,125	)		(790	)		(2,335	)		296	%

		(3,124	)		(784	)		(2,340	)		298	%
Net income (loss)	$	4,851		$	737		$	4,114			558	%
Less: Preferred stock dividends		(2,465	)		(440	)		(2,025	)		460	%
Less: Net (income) loss attributable to noncontrolling interest		(1,355	)		15			(1,370	)		(9,133	)%

Net income attributable to common stockholders	$	1,031		$	312		$	719			230	%

Revenues for the three months ended March 31, 2016 increased approximately $9.9 million, or 201%, over the prior year period. The increase was comprised of the following:

•

An increase in rental income of $10.9 million including:

•

$6.7 million of rental income related our 17 real estate properties acquired on or after March 31, 2015 and the conversion of the Amarillo mortgage loan to fee simple ownership in October 2015;

•

A $4.1 million increase in rental income related to Mira Vista Court and Lakeway Hospital, which were acquired and foreclosed, respectively, during the first quarter of 2015; and

•

$0.1 million of rental income related to a ground lease that was assumed in the first quarter of 2015 in conjunction with the foreclosure of Lakeway Hospital.

The increase in rental income was partially offset by the following:

•

A decrease in mortgage interest of $0.8 million related to mortgage notes receivable investments that were converted to fee simple ownership during 2015, including Lakeway Hospital (February 2015) and the Amarillo mortgage loan (October 2015); and

•

A decrease in interest on notes receivable of $0.2 million.

Operating expenses for the three months ended March 31, 2016 increased approximately $3.5 million, or 101%, over the prior year period. This increase was comprised of the following:

•

An increase in depreciation and amortization expense of $2.6 million primarily associated with the real estate assets and related intangible lease assets of acquired properties on or after March 31, 2015; and

•

An increase in general and administrative expenses of $0.9 million, which was comprised of:

•

An increase of $0.5 million of salary, insurance and benefits-related costs primarily related to the addition of four employees and salary increases subsequent to March 31, 2015; and

•

An increase of $0.3 million of stock-based compensation expense related to grants made subsequent to March 31, 2015.

Interest expense for the three months ended March 31, 2016 increased $2.3 million, or 296%, over the prior year period. This increase was comprised of the following:

•

An increase of $1.9 million in interest and unused credit facility fees attributable to an increase in the weighted average outstanding balance of $199.3 million and increase in the weighted average interest rate at March 31, 2015 of 2.9% to 3.7% at March 31, 2016; and

•

An increase of $0.4 million in amortization of deferred financing costs, mainly associated with costs incurred related to the July 2015 credit facility amendment.

Preferred stock dividends for the three months ended March 31, 2016 increased $2.0 million compared to the prior year period due to paying a full quarter of dividends on shares of our Series B Preferred Stock, which were issued in March and April 2015.

Net income attributable to noncontrolling interest was $1.4 million for the three months ended March 31, 2016. The Lakeway Partnership was formed on March 20, 2015 and generated a nominal net loss for the remainder of the quarter ended March 31, 2015.

Year ended December 31, 2015 and period from April 23, 2014 (inception) to December 31, 2014

We were incorporated in the state of Maryland on April 23, 2014, and we commenced operations on July 31, 2014 upon completion of the common stock private placements for net proceeds of approximately $151.7 million. We have been investing the net proceeds from the common stock private placements in July and August 2014 and the Series B Preferred Stock private placements in March and April 2015 and amounts available on our existing secured credit facility to acquire real estate assets in accordance with our investment strategy. Accordingly, our results of operations for the year ended December 31, 2015 are not comparable to the period from April 23, 2014 (inception) to December 31, 2014. We have included separate discussions and analyses of our results of operations for each of these periods as presented below (dollars in thousands).


	For the year ended December 31, 2015			Period from April 23, 2014 (inception) to December 31, 2014
Revenues
Rental income	$	41,484		$	4,316
Interest on mortgage notes receivable		2,717			1,078
Interest on notes receivable		237			53

		44,438			5,447
Expenses
Depreciation and amortization		9,969			1,273
Property related		1,205			308
Acquisition costs		417			192
Start-up costs		—			888
Franchise, excise and other taxes		338			72
General and administrative		8,628			2,391

Total operating expenses		20,557			5,124

Operating income (loss)		23,881			323

Other income (expense)
Interest and other income		12			17
Interest expense		(7,163	)		(317	)

		(7,151	)		(300	)

Net income (loss)		16,730			23
Less: Preferred stock dividends		(7,835	)		—
Less: Net income attributable to noncontrolling interest		(4,029	)		—

Net income (loss) attributable to common stockholders	$	4,866		$	23

For the year ended December 31, 2015

Revenues totaled approximately $44.4 million for the year ended December 31, 2015, which were comprised of the following:

•

Rental income of $41.5 million including:

•

$40.3 million of contractual rent and straight-line rent related to the leasing activity on our 24 owned real estate properties;

•

$0.8 million of operating expense reimbursement revenue primarily from our medical office building; and

•

$0.4 million of contractual base rent and straight-line rent related to a ground lease.

•

Mortgage interest of $2.7 million including:

•

$2.3 million from mortgage notes receivable investments originated in 2014, of which $1.4 million was recognized from the Amarillo Mortgage Loan prior to conversion in October 2015; and

•

$0.4 million from the acquired Lakeway mortgage note receivable prior to foreclosure in February 2015.

•

Interest on notes receivable of $0.2 million.

Interest on mortgage notes receivable will be lower in future periods due to the conversion of the Amarillo Mortgage Loan in connection with the acquisition of Vibra Rehabilitation Hospital of Amarillo and the foreclosure on the Lakeway mortgage note receivable. See Note 3 to the consolidated financial statements for information regarding these acquisitions.

Operating expenses totaled $20.6 million for the period, which were comprised of the following:

•

Depreciation and amortization expense of $10.0 million primarily associated with the real estate properties and related intangible lease assets;

•

Property operating expense of $1.2 million, primarily related to our one medical office building, which included:

•

$0.8 million of recoverable operating expenses; and

•

$0.4 million of ground lease and other non-reimbursable expenses.

•

Acquisition costs of $0.4 million on real estate properties acquired that have been accounted for as business combinations and potential acquisitions that are no longer being pursued;

•

Franchise, excise and other taxes of $0.3 million related to states where we own property; and

•

General and administrative expenses of $8.6 million, which included:

•

$5.7 million of salary, insurance and benefits-related costs, including $1.8 million of stock-based compensation expense;

•

$1.7 million of professional fees; and

•

$1.2 million of other expenses.

Interest expense was $7.2 million, including unused credit facility fees and interest of $5.1 million and amortization of deferred financing costs of $2.1 million. We anticipate interest expense will increase in 2016 compared with 2015 as a result of an expected higher outstanding debt balance. Since all of our outstanding debt is comprised of borrowings under our secured credit facility that accrues interest at a variable rate, a one percentage point increase in the interest rate would increase interest expense by approximately $2.5 million on an annual basis.

Preferred stock dividends totaled $7.8 million, primarily related to the Series B Preferred Stock issued in March and April 2015.

For the period from April 23, 2014 (inception) to December 31, 2014

We recognized an insignificant amount of net income for the period from April 23, 2014 (inception) to December 31, 2014. For the period from inception through July 31, 2014, the initial closing date of the common stock private placements, we incurred a net loss of approximately $0.9 million, primarily due to amounts owed to vendors and professional service providers and reimbursements to certain members of our management team for employment compensation and for expenses incurred in connection with our organization and the common stock

private placements, including legal and accounting, and expenses related to our formation activities, identification and negotiation of the acquisitions and investments in our portfolio and other potential investment opportunities. We do not consider the results of our operations from inception to July 31, 2014 to be meaningful with respect to an analysis of our operations for periods after which we commenced revenue generating activities.

Revenues totaled approximately $5.4 million for the period from April 23, 2014 (inception) to December 31, 2014, which were comprised of:

•

Rental income of $4.3 million, which was comprised of the following:

•

$4.1 million of contractual rent and straight-line rent related to triple-net leases on our four owned real estate properties; and

•

$0.2 million of operating expense reimbursement revenue on our medical office building.

•

Mortgage interest of $1.0 million from the two originated mortgage notes receivable investments; and

•

Interest of $0.1 million from a note receivable.

Operating expenses totaled $5.1 million for the period from April 23, 2014 (inception) to December 31, 2014, which were comprised of the following:

•

Depreciation and amortization expense of $1.3 million that is primarily related to the real estate properties and related intangible lease assets;

•

Property operating expense of $0.3 million related to our one medical office building which included:

•

$0.2 million of recoverable operating expenses; and

•

$0.1 million of ground lease expense;

•

Acquisition costs of $0.2 million on real estate properties acquired that have been accounted for as business combinations and acquisitions that are no longer being pursued;

•

Start-up costs of $0.9 million;

•

Franchise, excise, and other taxes of $0.1 million related to taxes in California, Tennessee, and Texas; and

•

General and administrative expenses of $2.4 million, which included:

•

$1.6 million of salary and benefits-related costs, including $0.4 million of stock-based compensation expense; and

•

$0.8 million of other costs primarily related to professional fees.

Interest expense was $0.3 million, including amortization of deferred financing costs totaling $0.2 million and unused credit facility fees and interest on borrowings totaling $0.1 million.

Liquidity and Capital Resources

Overview

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. Our primary sources of cash include the net proceeds from this offering and the BlueMountain Private Placement, operating cash flows, borrowings, including borrowings under our secured credit facility, and the issuance of equity securities. Our primary uses of cash include funding acquisitions and investments consistent with our investment strategy, repaying principal and interest on outstanding borrowings, making distributions to our stockholders, funding our operations and paying accrued expenses.

Our long-term liquidity needs consist primarily of funds necessary to pay for the costs of acquiring additional healthcare properties and making additional loans and other investments, including potential future developments and redevelopments, and principal and interest payments on our debt. In addition, although the terms of our net leases generally obligate our tenants to pay capital expenditures necessary to maintain and improve our net-leased properties, we from time to time may fund the capital expenditures for our net-leased properties through loans to the tenants or advances, some of which may increase the amount of rent payable with respect to the properties. We expect to meet our long-term liquidity requirements through various sources of capital, including future equity issuances (including OP units) or debt offerings, net cash provided by operations, borrowings under our secured credit facility, long-term mortgage indebtedness and other secured and unsecured borrowings.

We may utilize various types of debt to finance a portion our acquisition and investment activities, including long-term, fixed-rate mortgage loans, variable-rate term loans, secured revolving lines of credit, such as our secured credit facility, and construction financing facilities. Under our secured credit facility, we are subject to continuing covenants and are required to make continuing representations and warranties, and future indebtedness that we may incur may contain similar provisions. In addition, our secured credit facility is secured by pledges of substantially all of our assets. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition, results of operations and ability to make distributions to our stockholders.

Sources and Uses of Cash

The sources and uses of cash reflected in our consolidated statement of cash flows is summarized below (dollars in thousands).

Three Months ended March 31, 2016 and 2015


	For the three months ended March 31, 2016			For the three months ended March 31, 2015			Change
	(unaudited)			(unaudited)
Cash and cash equivalents at beginning of period	$	12,474		$	10,493		$	1,981
Net cash provided by operating activities		4,405			3,478			927
Net cash used in investing activities		(290	)		(153,317	)		153,027
Net cash (used in) provided by financing activities		(6,798	)		146,576			(153,374	)

Cash and cash equivalents at end of period	$	9,791		$	7,230		$	2,561

Operating Activities— Cash flows from operating activities increased by $0.9 million during the three months ended March 31, 2016 compared to the same period in 2015, primarily due to acquisitions completed during 2015, which was partially offset by additional interest expense incurred to fund the acquisitions. Operating cash flows were also impacted by the net $1.9 million reduction in deferred revenues based on the timing of rents collected and a net decrease in cash of $4.6 million related to other operating assets and liabilities.

Investing Activities— Cash used in investing activities during the three months ended March 31, 2016 decreased by $153.0 million compared to the same period in 2015. We acquired eight properties for $153.2 million during the three months ended March 31, 2015, and had no acquisitions during the three months ended March 31, 2016.

Financing Activities— Cash used in financing activities was $6.8 million for the three months ended March 31, 2016, compared to cash provided by financing activities of $146.6 million for the same period in 2015. The difference resulted primarily from the issuance of our Series B preferred stock and net borrowings under our secured revolving credit facility during the three months ended March 31, 2015, with no such activity during 2016, as well as an increase in dividends on our common stock and preferred stock in 2016.

Year ended December 31, 2015 and period from April 23, 2014 (inception) to December 31, 2014


	For the year ended December 31, 2015			For the period from April 23, 2014 (inception) to December 31, 2014
Cash and cash equivalents at beginning of period	$	10,493		$	—
Net cash provided by operating activities		22,907			1,591
Net cash used in investing activities		(319,412	)		(189,263	)
Net cash provided by financing activities		298,486			198,165

Cash and cash equivalents at end of period	$	12,474		$	10,493

Year ended December 31, 2015

Operating Activities —Net cash provided by operating activities was $22.9 million, which primarily consisted of rent and interest from mortgage and other loans. We used these operating cash flows to fund our dividends to common stockholders of $7.5 million, our dividends to preferred stockholders of $7.0 million and for certain investing activities.

Investing Activities— Net cash used in investing activities included the acquisition of 20 properties totaling $317.9 million during the year ended December 31, 2015.

Financing Activities— Net cash provided by financing activities included $120.0 million in net proceeds from the issuance of preferred stock, net borrowings on our secured credit facility totaling $197.4 million and a $1.0 million contribution from a noncontrolling interest in one of our properties. Cash outflows included the payment of dividends on common stock of $7.5 million and preferred stock of $7.0 million, capitalized pre-offering costs of $2.5 million, deferred credit facility fees of $2.4 million and distributions to the noncontrolling interest in one of our properties of $0.5 million.

Period from April 23, 2014 (inception) to December 31, 2014

Operating Activities —Net cash provided by operating activities was impacted by $0.9 million of start-up costs related to our formation. Our board of directors declared cash dividends for the period from July 31, 2014 through December 31, 2014 totaling $2.2 million, which exceeded cash flows from operating activities primarily because of the start-up costs incurred.

Investing Activities— Net cash used in investing activities includes the acquisition of four properties totaling $108.4 million, the origination or acquisition of three mortgage notes receivable totaling a net of $77.7 million, the funding on a note receivable of $2.5 million, and the payment of capitalized pre-acquisition costs of $0.6 million.

Financing Activities— Net cash provided by financing activities includes the $151.7 million in net proceeds from the issuance of common stock in the private placements that were completed in July and August 2014, and borrowings on the secured credit facility totaling $50.0 million. Cash outflows include payments for credit facility origination fees totaling $2.4 million and dividends of $0.9 million.

Secured Revolving Credit Facility

On July 30, 2015, we entered into an amended and restated $375 million secured revolving credit facility, which replaced our prior $200 million facility. The credit facility includes an accordion feature, which allows the total borrowing capacity under our secured credit facility to be increased to up to $600 million, subject to certain conditions, including obtaining additional commitments from lenders. Amounts outstanding under our secured credit facility bear interest at the London Interbank Offered Rate, or LIBOR, plus a margin between 2.75% and

3.75% or a base rate plus a margin between 1.75% and 2.75%, in each case depending on our leverage. Upon meeting certain conditions, including the completion of this offering, amounts outstanding under our secured credit facility will bear interest at LIBOR plus a margin between 2.00% and 2.50% or a base rate plus a margin between 1.00% and 1.50%, in each case depending on our leverage. In addition, we are required to pay a fee equal to 0.25% of the amount of the unused portion of our secured credit facility if amounts borrowed are greater than 50% of our secured credit facility or 0.35% if amounts borrowed are less than 50% of the secured credit facility. The secured credit facility is scheduled to mature in November 2016. As of April 29, 2016, we had received a commitment letter from each of the lenders under our secured credit facility to amend the facility to, among other things, reduce the total commitments from $375.0 million to $300.0 million, extend the maturity date to November 2017 and provide two 12-month extension options, subject to certain conditions, including the completion of this offering and payment of a 0.15% extension fee at each extension. We expect to pay a 0.25% fee in connection with the anticipated amendment. The interest rate and accordion feature of the secured credit facility are not expected to change in connection with the anticipated amendment.

The amount available to borrow under our secured credit facility is limited according to a borrowing base valuation of pledged assets owned by subsidiaries of our operating partnership that guarantee our secured credit facility. We have the option to remove assets from the pool of borrowing base assets and to add different assets, subject to our continued compliance with the financial covenants and other terms of our secured credit facility. As of the date of this prospectus, we had $247.4 million outstanding under our secured credit facility and approximately $21.5 million of available capacity based on the current borrowing base, subject to lender approval. The amount available to borrow under our secured credit facility will increase with each acquisition of unencumbered healthcare properties that are added to the borrowing base.

Our ability to borrow under our secured credit facility is subject to our ongoing compliance with various customary restrictive covenants, including with respect to liens, indebtedness, investments, distributions, mergers and asset sales. In addition, our secured credit facility requires us to satisfy certain financial covenants, including:

•

total consolidated indebtedness not exceeding 55% of gross asset value;

•

a minimum fixed charge coverage ratio (defined as the ratio of adjusted consolidated EBITDA to consolidated fixed charges) of 1.75 to 1.00;

•

a minimum tangible net worth (defined as gross asset value less total consolidated indebtedness) of $350.0 million plus 75% of the sum of any additional net offering proceeds;

•

a minimum aggregate occupancy rate of 85% for borrowing base properties;

•

a minimum weighted-average remaining initial lease term of seven years for borrowing base properties;

•

a minimum debt service coverage ratio (defined as the ratio of the adjusted net operating income of borrowing base properties to the actual interest and letter of credit fees paid under our secured credit facility) of 2.00 to 1.00; and

•

a minimum borrowing base assets of at least ten borrowing base properties with an aggregate appraised value of at least $300.0 million.

Our secured credit facility also contains customary events of default, including among others, nonpayment of principal or interest, material breach of representations and warranties, and failure to comply with our covenants. An event of default, if not cured or waived, could result in the acceleration of any outstanding indebtedness under our secured credit facility.

Our operating partnership is the borrower under our secured credit facility, and we and each of our subsidiaries other than our operating partnership serve as guarantors under our secured credit facility.

Contractual Obligations

The following table sets forth our contractual obligations as of March 31, 2016, excluding the impact of subsequent events (dollars in thousands):


	Remainder of 2016		2017-2018		2019-2020		2021- Thereafter		Total
Secured Credit Facility ⁽¹⁾	$	253,196	$	—	$	—	$	—	$	253,196
Operating lease commitments ⁽²⁾		247		676		554		20,155		21,632
Tenant renovation funding obligation ⁽³⁾		2,000		—		—		—		2,000
Purchase obligations ⁽⁴⁾		1,851		8,149		—		—		10,000

	$	257,294	$	8,825	$	554	$	20,155	$	286,828

(1)

Assumes the balance outstanding of $247.4 million and the weighted average interest rate of 3.7% in effect at March 31, 2016 remain in effect until maturity of our revolving credit facility. Amounts also include unused credit facility fees assuming the balance outstanding at March 31, 2016 remains outstanding through maturity of our revolving credit facility. See “Secured Revolving Credit Facility” above regarding the anticipated amendment to our secured credit facility to extend the maturity date to November 2017.

(2)	All of our contractual obligations to make operating lease payments are related to our corporate office lease and one ground lease.

(3)

Upon acquisition of Kearny Mesa on October 1, 2015, we amended the master lease agreement with Life Generations. As a part of the amended master lease, we have agreed to provide up to $2.0 million for certain renovations and improvements (all subject to our pre-approval) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement must be made by October 1, 2016.

(4)

Our purchase obligations relate to the Kearny Mesa earn-out of up to $10.0 million that we expect to pay to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. We expect to pay approximately $1.9 million of the earn-out in 2016 and the remaining approximately $8.1 million in 2017.

Related to our investment in Lakeway Hospital, we agreed on February 2, 2016 to provide a surety bond of $9.4 million for a litigation judgment against the Lakeway Operator (which is currently under appeal) that stands behind the Lakeway Operator in the event it is unable to fund the entire amount of the judgment. Our obligation is subject to certain conditions, including the judgment being upheld on appeal, and will be reduced by any amount of the judgment paid by the Lakeway Operator. The Lakeway Operator will be required to repay in full any amounts funded by us through monthly payments of interest only for five years at a rate of 12% per annum after which the outstanding amount shall be repaid pursuant to a promissory note amortized over five years accruing interest at 12%. The repayment of any amounts funded by us under this arrangement will be secured by a second lien on the assets that secure the Lakeway Operator’s accounts receivable line of credit. As of April 29, 2016, no amounts were outstanding under this obligation.

Off-Balance Sheet Arrangements

As of the date of this prospectus, we have no off-balance sheet arrangements.

Inflation

We are exposed to inflation risk as income from long-term leases are a main source of our cash flows from operations. For our leased properties, we expect there to be provisions in the majority of our leases that will protect us from the impact of inflation. These provisions may include rent escalators, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: FFO attributable to common stockholders and AFFO attributable to common stockholders.

Funds from Operations

FFO is a non-GAAP measure used by many investors and analysts that follow the real estate industry. FFO, as defined by the National Association of Real Estate Investment Trusts, or NAREIT, represents net income (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairments of real estate assets, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO in accordance with NAREIT’s definition, which may differ from the methodology for calculating FFO, or similarly titled measures, used by other companies.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO and AFFO provides useful information to investors regarding our operating performance by excluding the effect of depreciation and amortization, gains or losses from sales for real estate, including impairments, extraordinary items and the portion of items related to unconsolidated entities, all of which are based on historical cost accounting, and that FFO and AFFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO and AFFO do not represent an amount that accrues directly to common stockholders.

Our calculation of FFO may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

FFO attributable to common stockholders for the period from April 23, 2014 (inception) to December 31, 2014 was adversely affected by the $0.9 million in start-up costs incurred related to our formation activities through July 31, 2014.

Adjusted Funds from Operations

AFFO is a non-GAAP measure used by many investors and analysts to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations. To calculate AFFO, we further adjust FFO for certain items that are not added to net income in NAREIT’s definition of FFO, such as acquisition expenses, equity based compensation expenses, and any other non-comparable or non-cash expenses, which are costs that do not relate to the operating performance of our properties.

Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the Company’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

The following table reconciles historical and pro forma net income (loss) attributable to common stockholders, the most directly comparable GAAP metric, to historical and pro forma FFO and AFFO for the three months ended March 31, 2016, the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014 and is presented using the weighted average common shares as determined in the Company’s computation of earnings per share (amounts in thousands, except per share amounts):


	For the three months ended March 31, 2016				For the year ended December 31, 2015				For the period from April 23, 2014 (inception) to December 31, 2014
	Pro Forma	Historical			Pro Forma	Historical
Net income attributable to common stockholders	$	$	1,031		$	$	4,866		$	23
Real estate depreciation and amortization			3,894				9,904			1,268
Real estate depreciation attributable to noncontrolling interests			(189	)			(591	)		—

FFO attributable to common stockholders			4,736				14,179			1,291
Start-up costs			—				—			888
Acquisition costs on completed acquisitions			16				108			90
Stock-based compensation expense			647				1,795			443
Deferred financing costs amortization			747				2,084			182
Non-real estate depreciation and amortization			9				49			(2	)
Mortgage closing fee recognized upon acquisition of real estate			—				(167	)		—
Straight-line rent expense			42				171			47
Straight-line rent revenue			(514	)			(9,523	)		(394	)
Straight-line rent revenue attributable to noncontrolling interest			(139	)			3,723			—

AFFO attributable to common stockholders	$	$	5,544			$	12,419		$	2,545

Weighted average common shares outstanding
Basic			10,959				10,948			10,918
Diluted			11,054				10,948			10,918
FFO per common share—basic and diluted	$	$	0,43		$	$	1.30		$	0.12
AFFO per common share
Basic	$	$	0.51		$	$	1.13		$	0.23
Diluted	$	$	0.50		$	$	1.13		$	0.23

Quantitative and Qualitative Disclosures about Market Risks

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business and investment objectives, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other investments, including future borrowings under our secured credit facility. As of March 31, 2016, we had $247.4 million outstanding under our secured credit facility, which bears interest at a variable rate, and no other outstanding debt. At March 31, 2016, LIBOR was 0.44%. Assuming no increase in the amount of our variable interest rate debt, if LIBOR increased 100 basis points, our cash flow would decrease by approximately $2.5 million. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We also may enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative transactions for speculative purposes.

In addition to changes in interest rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants/operators and borrowers, which may affect our ability to refinance our debt if necessary.

OUR BUSINESS

Overview

We are a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. As of the date of this prospectus, our portfolio is comprised of 24 healthcare facilities that contain a total of 2,345 licensed beds and, as of March 31, 2016, provided aggregate annualized base rent of approximately $46.4 million and had a weighted-average remaining lease term of 15.4 years. Our properties, which we acquired for an initial aggregate gross purchase price of $498.9 million, are located in Texas, California, Nevada and South Carolina and include 17 skilled nursing facilities, two acute care hospitals, two long-term acute care hospitals, one assisted living facility, one inpatient rehabilitation facility and one medical office building. In addition, we have a $10.0 million healthcare-related debt investment that provides annual interest payments of approximately $0.9 million. See “—Our Portfolio.”

While our preferred form of investment is fee ownership of a facility with a long-term triple-net lease with the healthcare provider or operator, we also may provide debt financing to healthcare providers, typically in the form of mortgage or mezzanine loans. In addition, we may provide capital to finance the development of healthcare properties, which we may use as a pathway to the ultimate acquisition of pre-leased properties by including purchase options or rights of first offer in the loan agreements. We intend to conduct our operations so that neither we nor any of our subsidiaries will meet the definition of investment company under the 1940 Act. Therefore, neither we nor any of our subsidiaries will be required to register as an investment company under the 1940 Act.

of experience in healthcare real estate, operations and finance positions us favorably to take advantage of healthcare investment opportunities. Our management team is led by John W. McRoberts, our chief executive officer and chairman of our board of directors, William C. Harlan, our president and chief operating officer and a member of our board of directors, and Jeffery C. Walraven, our chief financial officer. Each of Messrs. McRoberts and Harlan has over 30 years of experience investing in healthcare real estate and operating companies, having completed over 170 acquisitions of healthcare-related facilities through various investment vehicles. Mr. Walraven has 23 years of experience, including 22 years of public accounting experience, serving many public REIT clients since 1999, most recently as an assurance managing partner of the Memphis, Tennessee office of BDO USA, LLP, where his primary responsibilities included providing core and peripheral assurance services and business operational and tax consulting services, including with respect to numerous public and private REIT offerings. We believe that our management team’s depth of experience in healthcare real estate, operations, accounting and finance positions us favorably to take advantage of healthcare investment opportunities.

Market Opportunity

Continued Growth in Healthcare Spending

CMS and the U.S. Office of the Actuary estimate that healthcare expenditures and/or services comprised 17.4% of U.S. GDP in 2013 and has risen from just 5.0% of GDP in 1960. As highlighted in the chart below, healthcare spending in the U.S. continues to grow. According to the latest National Health Expenditures report by CMS, healthcare spending is projected to reach 19.6% of GDP by 2024. Similarly, overall healthcare expenditures have risen sharply from $1.4 trillion in 2000 to $2.9 trillion in 2013. CMS projects national healthcare expenditures to grow at a relatively stable rate of approximately 5.8% per year to reach $5.4 trillion by 2024.

National Healthcare Expenditures

(2004-2020)

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Source: HHS, CMS.

We believe that there are several fundamental drivers behind the expected sustained growth in demand for healthcare services, including:

•

Aging and growing U.S. population : Between 2015 and 2050, the U.S. population over 65 years of age is projected to nearly double from about 48 million to about 88 million people, according to the U.S. Census Bureau. Furthermore, various factors, including advances in healthcare treatments, are resulting in longer life expectancies. According to the Centers for Disease Control and Prevention, from 1950 to 2011, the average life expectancy at birth in the U.S. increased from 68.2 years to 78.7 years. By 2050, the average life expectancy at birth is projected to increase to 84.4 years, according to the U.S. Census Bureau.

•

Disproportionate spending across older Americans : The chart below highlights the distribution of median healthcare expenditures by age. According to HHS, those age 65 and over spend more per person on healthcare than all other age categories combined. We believe that healthcare expenditures for the U.S. population over 65 years of age will continue to rise as a disproportionate share of healthcare dollars is spent on older Americans due to increasing requirements for treatment and management of chronic and acute health ailments.


U.S. Population Age 65 and Over		Median Healthcare Spending per Person by Age Group


Source: U.S. Census Bureau, the Statistical Abstract of the United States		Source: Department of Health and Human Services Agency for Healthcare Research and Quality, Medial Expenditure Panel Survey, 2013

•

Healthcare is less impacted by macroeconomic conditions : Demand for healthcare and healthcare properties is based primarily on demographics and healthcare needs rather than macroeconomic conditions. This is evidenced by the steady growth of both healthcare related expenditures and healthcare employment through the 2008-2009 recession. For example, during 2008 and 2009 virtually all industries experienced widespread job losses while the healthcare industry continued to create jobs. During 2008 and 2009, a total of 317,000 and 234,000 new healthcare-related jobs, respectively, were created, corresponding to employment gains of 2.4% and 1.7%, according to the Bureau of Labor Statistics. By comparison, total non-farm employment declined by 2.6% and 3.8% in 2008 and 2009, respectively.

Annual Percent Change in Employment

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Affordable Care Act increases market size : The Affordable Care Act requires that every American have health insurance beginning in 2014 or be subject to a penalty. Implementation of the Affordable Care Act is still in its early stages and the ultimate impacts on the healthcare industry generally and healthcare properties specifically are difficult to predict. We expect millions of additional Americans to gain access to health insurance and participate in healthcare services that were once difficult to access. To that end, according to the Congressional Budget Office, implementation of the Affordable Care Act is expected to result in 26 million additional insured Americans by the end of 2024. One of the provisions of the Affordable Care Act is the expansion of Medicaid, which provides health coverage to low-income families. According to the Kaiser Family Foundation, 31 states and the District of Columbia have adopted Medicaid expansion. The healthcare industry will need to adapt and expand its capabilities in order to accommodate this once uninsured segment of the population as they participate more broadly in the healthcare system and utilization of hospital facilities rises.

We believe that delivery of healthcare is shifting toward greater use of specialized facilities and is becoming less reliant on traditional “one-stop” acute care hospitals and that the evolving regulatory environment has led to increased focus on reducing healthcare costs while improving patient outcomes. We believe that specialized acute and post-acute care facilities, which are less costly to build, maintain, and operate compared to traditional hospitals, will be an increasingly important factor in lowering healthcare delivery costs while improving patient quality of care particularly with the trend of operators operating across the acute and post-acute spectrum of care. As a result, we believe the market is experiencing rising demand for newer, more convenient, technologically advanced and efficient healthcare properties.

We believe that several trends in the healthcare industry will provide us with an attractive environment to pursue investment opportunities in healthcare real estate assets. Healthcare has traditionally been a capital intensive industry, with a large proportion of available capital being dedicated to investments in real estate related assets, such as hospital buildings, medical offices and specialized facilities. With advancements in technology and changes in consumer preferences, healthcare providers now must also invest heavily in expensive equipment, such as magnetic resonance imaging technology, CT scanners and other specialized equipment used to diagnose and treat patients. Moreover, ongoing changes in government regulation, especially regulations relating to patient privacy, have resulted in a need for substantial investments in software and other information technology. Finally, as outlined above, healthcare expenditures continue to grow at a rapid pace, brought about by an aging population and new government regulation providing insurance to previously uninsured individuals.

Faced with the need for capital to invest in new equipment, information technology and new, modernized and/or expanded facilities to meet the demand of an increasing patient population and employee base, healthcare providers are increasingly turning to healthcare REITs as a source of financing. Healthcare REITs typically provide long-term financing to healthcare operators in the form of purchase and lease, sale and leaseback transactions, mortgage loans, and mezzanine debt. Some healthcare REITs specialize in certain segments of the healthcare industry, while others invest across a broader spectrum of healthcare real estate. Healthcare REITs typically seek to diversify their tenant or borrower base across a range of healthcare operators.

Increasing Demand for Healthcare Properties

In addition to the expected growth in healthcare spending and demand for healthcare services, we believe that demand for healthcare properties, particularly the type of facilities we intend to target, will increase due to a number of factors, including:

•

We believe that delivery of healthcare services is shifting toward greater use of specialized facilities and is becoming less reliant on traditional “one stop” acute care hospitals. Increasingly, more specialized surgeries and long-term and post-acute care occur at off-campus facilities. We believe the following factors are key drivers behind the growing use of specialized facilities:

•

Specialized acute and post-acute care facilities are less costly to build, maintain, and operate, creating a meaningful cost advantage over traditional hospitals. While the shift to greater use of lower-cost facilities has been ongoing, the Affordable Care Act provides an additional catalyst for acceleration of this trend.

•

Technological advances have aided the growth of specialty facilities that provide services and procedures in areas such as orthopedics, cardiology, gastroenterology, ophthalmology, gynecology, plastic surgery, rehabilitation therapy, pain management, diagnostic imaging and cancer treatment. Previous delivery of these services was generally not feasible outside of large long-term acute care centers.

•

Consumer preferences for more accessible and more conveniently located facilities are expected to drive demand as customers favor visiting a suburban facility located near population centers over a hospital located in an urban center.

•

Traditional hospitals have limited space and admissions are increasingly being reserved for critically ill patients who are then moved to lower cost facilities once stabilized.

•

The proportion of healthcare professionals who practice a specialty has been rising for years and this trend creates a need for specialized facilities used in the treatment of complicated or difficult medical conditions.

•

Healthcare-related jobs account for 13 of the 20 fastest growing occupations in the U.S., and the healthcare industry was one of the largest industries in the U.S., providing 12.2 million jobs in 2012, according to the U.S. Department of Labor’s Bureau of Labor Statistics. The Bureau of Labor Statistics estimates that the healthcare industry will generate approximately 2.9 million new wage and salary jobs between 2012 and 2022, more than any other industry. Wage and salary employment in the healthcare industry is projected to increase 23.8% through 2022, compared with 10.8% for all industries combined. The trend toward continued growth in healthcare-related employment creates growing demand for facilities that serve and house the healthcare industry.

•

While the number of physicians in the healthcare industry is expected to grow, we believe that the increased costs associated with running a practice as a result of the Affordable Care Act is likely to reduce the relative number of small independent practices. We expect more physicians to join healthcare delivery systems that offer cost sharing in addressing compliance and regulatory matters and in accessing expensive information technology and equipment.

•

The Affordable Care Act also contains provisions targeting reduced reimbursements under Medicare and ties quality of service and patient outcomes to reimbursement levels. We believe these terms will push healthcare providers to make greater use of efficient facilities (such as the facilities in which we intend to invest), lower costs, and make substantial investments in technology and equipment. As a result, demand for efficient, modern, and specialized facilities that are able to generate improved patient outcomes in the most cost-effective setting is likely to rise and drive more health care providers to outsource real estate ownership to third parties.

•

Over the past several years, increases in uncompensated care have burdened the industry and the Affordable Care Act offers a solution to the uninsured patient problem. We believe the increase in availability of healthcare coverage is likely to translate into improved collection and reduced uncompensated care. As a result, this incremental volume of patients with the ability to pay for services should help drive a meaningful increase in margins, which should lead to improved tenant credit quality.

Growth in Third-Party Ownership of Healthcare Real Estate

We believe that increased demand for more convenient, technologically-advanced and clinically-efficient healthcare properties will cause existing and newly formed medical service providers to modernize their facilities by renovating existing properties and building new facilities. Additionally, in order to operate profitably within a managed care environment, medical service providers are aggressively trying to increase patient populations, while maintaining lower overhead costs, through consolidation with other operators and by building new facilities that are more attractive to patients and their families, have greater operating efficiencies, and are increasingly being located in areas of population and patient growth. We believe that many providers prefer to outsource their ownership and management of real estate to third-parties, which has resulted in REITs owning an increasing percentage of institutional-quality healthcare properties. While we believe that an increasing proportion of providers prefer to outsource their ownership and management of real estate to third parties, the ownership of healthcare properties remains highly fragmented. According to the study “Slicing, Dicing and Scoping the Size of the U.S. Commercial Real Estate Market” (a study conducted by Andrew C. Florance, Norm G. Miller, Jay Spivey, and Ruijue Peng who were affiliated with the CoStar Group, Inc. and the University of San Diego), the size of the healthcare real estate market was approximately $1.3 trillion as of 2010. As December 31, 2015, public REITs owned only approximately $144.7 billion of healthcare real estate assets. The high fragmentation that characterizes the market also creates significant investment opportunities for experienced investors like us to grow their businesses by acquiring institutional-quality healthcare facilities.

Our Competitive Strengths

We believe that the following competitive strengths will support the accretive growth of our business and the implementation of our business plan:

•

Experienced Management Team with Successful Track Record. Our management team has a proven track record of successfully investing in and managing a portfolio of healthcare properties, including executing on the acquisition of our current portfolio since July 2014. In 1993, Messrs. McRoberts and Harlan founded Capstone completed a successful initial public offering of Capstone in 1994 and led the merger of Capstone with Healthcare Realty Trust Incorporated in 1998. At the time of the merger, Capstone owned or had investments in 159 healthcare properties located in 30 states. Capstone generated a total return of 62.8% to investors from its initial public offering in June 1994 through the time of its merger with Healthcare Realty Trust Incorporated in October of 1998 (assuming reinvestment of all cash distributions paid by Capstone on its common stock during that period in additional shares of common stock). During the period beginning with the inception of the RMS in December 1994 through Capstone’s merger with Healthcare Realty Trust Incorporated in October of 1998, Capstone generated a total return to its investors of 82.8% (assuming reinvestment of all cash distributions paid by Capstone on its common stock during that period in additional shares of common

stock) compared to an RMS total return of 42.9%. We can provide no assurances, however, that Capstone’s stock performance was not impacted by general market trends and other external factors unrelated to management’s performance. See “Management—Additional Background of Certain of Our Executive Officers.”

In 2001, Mr. McRoberts invested in, and subsequently became president and chief executive officer of, MeadowBrook Healthcare, Inc., a private company that purchased and operationally restructured four under-performing rehabilitation hospitals. Under Mr. McRobert’s leadership, the operating business was sold in July 2005 to RehabCare Group (NYSE: RHB) and the real estate to SunTrust Corp (NYSE: STI) at a sale price higher than the original purchase price.

The information regarding the performance of prior entities with which Messrs. McRoberts and Harlan were affiliated is not a guarantee or prediction of the returns that we may achieve in the future, and we can offer no assurance that we will be able to replicate these returns.

•

Access to Attractive Off-Market and Target-Marketed Acquisition and Investment Opportunities through Industry Relationships . As healthcare industry veterans, Messrs. McRoberts and Harlan have long-standing relationships with owners, operators and developers of healthcare properties, who we believe value their industry knowledge and commitment to working in a cooperative and supportive manner. In addition, Messrs. McRoberts and Harlan have extensive relationships with private equity groups, attorneys, contractors and commercial bankers who invest in or otherwise support healthcare services operators. Messrs. McRoberts and Harlan were previously employed by Carter Validus Advisors, LLC, the advisory company to Carter Validus Mission Critical REIT, from October 2010 to April 2012, where they served as the President and Head of Healthcare, respectively, and continued to serve following 2012 as consultants, and where, as leaders of the senior management team, they were involved in sourcing and structuring off-market acquisitions and options to acquire and mezzanine financings on seven healthcare properties involving over $350 million in investment activity. Since our formation, each of the properties that we have acquired was sourced through the existing relationships of our management team, and going forward, we believe these relationships will provide us with off-market acquisition and investment opportunities, as well as target-marketed opportunities that are strategically presented to a limited number of capital providers. We believe such off-market and target-marketed transactions may not be available to many of our competitors and provide us with the opportunity to purchase assets outside the competitive bidding process.

•

Experience-Driven Investment Underwriting Process . We believe our management team’s depth of experience in healthcare real estate, operations and finance, including underwriting debt and equity investments in healthcare properties, provides us with unique perspective in underwriting potential investments. Our rigorous investment underwriting process focuses on both real estate and healthcare operations and includes a detailed analysis of the property, including historical and projected cash flow and capital needs, visibility of location, quality of construction and local economic, demographic and regulatory factors, as well as an analysis of the financial strength and experience of the healthcare operator and its management team. We believe our underwriting process will support our ability to deliver attractive risk-adjusted returns to our stockholders.

•

The single-tenant properties in our portfolio generally are leased to high-quality, experienced providers covering the acute and post-acute spectrum of care, are subject to long-term non-cancellable triple-net leases and are supported by parent guarantees, cross-default provisions and/or cross-collateralization provisions. In addition, leases for our single-tenant properties contain rent escalators, which protect us against inflation and potential increases in interest rates. With the exception of Lakeway Hospital, all of the single-tenant facilities in our portfolio also benefit from parent guarantees. As a result, 77% of our total annualized base rent benefit from an additional layer of credit protection by requiring the guarantors to make our tenants’ rental payments to us in the event that a facility on a stand-alone basis cannot generate sufficient cash flow to meet its rental obligations to us. One key advantage of this credit enhancement is that it minimizes our risk associated with the performance of one facility because our rental income is reinforced by the financial performance across a more diversified pool of facilities.

The following table contains EBITDAR-to-rent coverage ratios (i) for the guarantors of the single-tenant facilities in our portfolio based on the guarantors’ total EBITDAR and total rent expense across their entire portfolios and (ii) for the stabilized single-tenant facilities in our portfolio based on information provided to us by our lease guarantors. Because some of our leases have been in place for less than one year as of December 31, 2015, the rental expense for our leases that is included in the calculation of the guarantor and facility coverage ratios is based on the annualized base rent for such leases as of December 31, 2015. The following coverage ratios are based on historical results of the guarantors and the facilities, as applicable, and should not be viewed as indicative of coverage ratios for future periods.


Facility Type	Guarantor Coverage Ratio ⁽¹⁾		Facility Coverage Ratio ⁽²⁾
Skilled Nursing Facilities/Assisted Living Facility ⁽³⁾		2.0x		1.2x
Long-Term Acute Care Hospitals /Inpatient Rehabilitation Facility		1.7x		1.5x

Total		1.9x		1.3x

(1)

(2)

(3)

•

Strong Alignment of Interests. We believe the interests of our management team, our board of directors and our stockholders are strongly aligned. Certain members of our management team and our board of directors purchased an aggregate of 405,833 shares of common stock in the management/director private placement. In addition, we have granted our management team an aggregate of 238,749 shares of restricted common stock, which will vest on the third anniversary of the grant date, and an aggregate of 358,125 restricted stock units that will vest on the third anniversary of the grant date only if certain performance metrics are achieved. See “Management—Executive Compensation—Equity Grants.” As a result, as of the date of this prospectus, our management team and directors collectively own approximately 6.2% of our common stock on a fully diluted basis, which we believe aligns their interests with those of our stockholders.

Our Business and Growth Strategies

Focus on Multiple Types of Acute and Post-Acute Healthcare Properties

The market for healthcare real estate is extensive and includes real estate owned by a variety of healthcare operators. We focus on acquiring, financing and otherwise investing in healthcare properties that reflect long-term trends in healthcare delivery methods, including:

•

Long-Term Acute Care Hospitals . Long-term acute care hospitals are hospitals that focus on extended hospital care, generally at least 25 days, for the medically complex patient. Long-term acute care hospitals have arisen from a need to provide care to patients in lower-cost, more focused acute care settings, including daily physician observation and treatment, before they are able to go home or into a rehabilitation hospital.

•

Acute Care Hospitals . Acute care hospitals are general medical and surgical hospitals providing both inpatient and outpatient medical services and are owned and/or operated either by a non-profit or for-profit hospital or hospital system. These facilities often act as feeder hospitals to dedicated specialty facilities.

•

Skilled Nursing Facilities . Skilled nursing facilities provide restorative, rehabilitative and nursing care for people not requiring the more extensive and sophisticated treatment available at acute care hospitals or long-term acute care hospitals but require higher levels of care than provided in assisted living facilities. Many provide ancillary services that include occupational, speech, physical, respiratory and IV therapies, as well as sub-acute care services.

•

Medical Office Buildings . Medical office buildings are buildings occupied by physician practices located near or adjacent to acute care hospitals or other facilities where healthcare services are rendered. Medical office buildings can be leased by physicians, physician practice groups, hospitals, hospital systems or other healthcare providers and can include outpatient surgical centers, diagnostic labs, physical therapy providers and physician office space in a single building.

•

Inpatient Rehabilitation Facilities . Inpatient rehabilitation facilities are hospitals that provide inpatient rehabilitation services for patients recovering from injuries, organ transplants, amputations, cardiovascular surgery, strokes, and complex neurological, orthopedic and other conditions. These hospitals are often the best medical alternative to traditional acute care hospitals, which receive reimbursements based upon diagnostic-related groups and, thus are pressured to discharge patients to lower-cost, post-acute care settings after patients become medically stable.

•

Ambulatory Surgery Centers . Ambulatory surgery centers are freestanding facilities designed to allow patients to have surgery, spend a short time recovering at the center and then return home to complete their recovery. Ambulatory surgery centers offer a lower cost alternative to general acute care hospitals for many surgical procedures in an environment that is more convenient for both patients and physicians. Procedures commonly performed include those related to dermatology, ear, nose and throat/audiology, pain, ophthalmology, orthopedics and sports health, and urology.

•

Other Dedicated Specialty Acute Care Hospitals . Other dedicated specialty acute care hospitals are medical and surgical hospitals dedicated to specialized services, such as orthopedic hospitals, cardiac hospitals, hospitals and psychiatric hospitals. These hospitals typically are located in urban and suburban areas, and offer their specialized services in a lower cost setting than in a general acute care hospital.

We believe that by investing in facilities that span the entire acute and post-acute spectrum of care, we will be able to adapt to, and capitalize on, changes in the healthcare industry and support, grow and develop long-term relationships with providers that serve the highest number of patients at the highest-yielding end of the healthcare real estate market.

Employ Multiple Investment Structures to Maximize Investment Returns

We intend to continue to employ the following investment structures:

Direct Property Investments . We intend primarily to acquire and own healthcare properties and lease those properties to healthcare operators and developers pursuant to long-term “triple-net” leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and provide for inflation protection through rental rates that increase in fixed percentage amounts or in amounts tied to increases in CPI. In addition, we may lease certain of our properties on an arms’ length basis to our TRS, and contract with third-party managers to manage the healthcare operations at these properties. By leasing certain of our properties to our TRS, we will be able to benefit from the growth in facility-specific cash flows generated by the operator engaged by our TRS, and will have more control over operator performance.

Property Investments through Joint Ventures and Other Partnerships . We may from time to time make investments in healthcare facilities through joint ventures or other partnerships with operators or other healthcare providers in order to leverage our strength as a healthcare real estate funding source and our partners’ strengths in healthcare operations and/or services. These structures can enhance our ability to expand our existing network of relationships and allow us to make larger scale investments with potentially higher returns while limiting our risk exposure to such investments. Any investment opportunities that we may pursue through a joint venture, partnership or equivalent structure would be subject to our same due diligence processes and investment underwriting criteria.

Debt Investments . We also intend to make mortgage and mezzanine loans to our tenants and other healthcare operators that are collateralized by their real estate assets or a pledge of ownership interests of an entity or entities that directly or indirectly owns properties. Under such loans, we seek to obtain annual interest escalators, lease deposits, covenants regarding minimum working capital and net worth, liens on accounts receivable and other operating assets, and various provisions for cross-default, cross-collateralization and corporate or personal guarantees, when appropriate. In addition, we may provide capital to finance the development of healthcare properties, which we may use as a pathway to the ultimate acquisition of pre-leased properties by including purchase options or rights of first offer in the loan agreements.

RIDEA Investments . From time to time, we may make equity investments, loans (with equity like returns) and obtain profits interests in certain of our tenants. This investment falls under a structure permitted by RIDEA. Under the provisions of RIDEA, a REIT may lease “qualified health care properties” on an arms’ length basis to a TRS if the property is operated on behalf of such subsidiary by a person who qualifies as an “eligible independent contractor.” We view RIDEA as a structure primarily to be used on properties that present attractive valuation entry points.

We believe that providing operators and developers with a variety of financing options enhances yield, provides a pathway to additional investments and positions us as a favorable capital partner that can accommodate creative and flexible capital structures.

Negotiate Well-Structured Net Leases with Strong Coverage

Our primary ownership structure is a facility purchase with a long-term triple-net lease with the healthcare provider. We intend to continue to enter into leases that generally have minimum lease coverage ratio requirements (the ratio of the tenant’s EBITDAR to its annualized base rent) and fixed charge coverage ratio

requirements (the ratio of the tenant’s EBITDAR to its annualized fixed charges (rent, interest and current maturities of long-term debt). We believe our coverage ratios achieve the proper balance between maintaining our profitability and providing comfort that our tenants will be able to pay the rent due under our leases. Under our net leases, our tenants will be responsible for all operating costs and expenses related to the property, including maintenance and repair obligations and other required capital expenditures. For single-tenant properties, we also seek to structure our leases with lease terms ranging from 10 to 25 years and rent escalators that provide a steadily growing cash rental stream. We also intend to enter into lease extensions during the term of the lease in connection with additional acquisitions, reinvestment projects and other opportunities that arise from our close tenant relationships. Our lease structures also are designed to provide us with key credit support for our rents, including, in certain cases, lease deposits, covenants regarding liquidity, minimum working capital and net worth, liens on accounts receivable and other operating assets, and various provisions for cross-default, cross-collateralization and corporate or parent guarantees, when appropriate. We believe these features help insulate us from variability in operator cash flows and enable us to minimize our expenses while we continue to build our portfolio.

Leverage Existing and Develop New Operator Relationships

Our management team has long-standing relationships in the healthcare industry through which we have sourced our existing portfolio and properties under evaluation, and we intend to continue to expand our portfolio by leveraging these existing relationships. Many of our operators have demonstrated a desire, as well as the resources, to grow, and we expect our strong relationships with these operators to lead to other acquisition and investment opportunities going forward. In addition, we intend to develop new relationships with healthcare providers and operators in order to diversify our tenant base and reduce our dependence on any single tenant or operator.

Adhere to Rigorous Investment Underwriting Criteria

We have adopted a rigorous investment underwriting process based on extensive analysis and due diligence with respect to both the healthcare real estate and the healthcare operations. We seek to utilize our network of relationships with healthcare operators and third-party owners to source acquisition or other investment opportunities in properties that have the following attributes:

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Strong Asset Quality —properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s long-term investment potential, assuming funding of budgeted maintenance, repairs and capital improvements;

•

Experienced and Creditworthy Operators —properties with well-qualified, experienced and creditworthy operators or guarantors;

•

Strong Healthcare Regulatory Compliance —properties and operators with a proven record of strong healthcare regulatory compliance programs;

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Favorable Demographic Trends —local or regional markets that support the potential for stable and growing property-level cash flow over the long term, based in part on an evaluation of local economic, demographic and regulatory factors;

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Attractive Locations —properties located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants;

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Stable Cash Flow —historical and projected cash flow that comfortably support the ability to meet operational needs, capital expenditure requirements and lease or debt service obligations; and

•

Predictable Capital Needs —future capital needs that can be reasonably projected and allow us to meet our objectives of growth in cash flow and preservation of capital.

Actively Monitor the Performance of Our Facilities and Industry Trends

We actively monitor the financial and operational performance of our tenants and lease guarantors and of the specific facilities in which we invest through a variety of methods, such as reviews of periodic financial statements, operating data and clinical outcomes data, regular meetings with the facility management teams and joint strategic planning with the facility operators. Integral to our asset management philosophy is our desire to continue our existing, and develop new, long-term relationships with our tenants so that they view us as a valuable partner and member of their teams. The value of our investments depends, in part, on our tenants’ ability to prosper. Therefore, pursuant to the terms of our leases, our tenants are required to provide us with certain periodic financial statements and operating data, and, during the terms of such leases, we conduct joint evaluations of local facility operations and participate in discussions about strategic plans that may ultimately require our approval pursuant to the terms of our lease agreements. Our management team also communicates regularly with their counterparts at our tenants, and others who closely follow the healthcare industry, in order to maintain knowledge about changing regulatory and business conditions. We believe this knowledge, combined with our management team’s experience in the healthcare industry, allows us to anticipate changes in our tenants’ operations in sufficient time to strategically and financially plan for changing economic, market and regulatory conditions.

Conservatively Utilize Leverage in Our Investing Activities

We intend to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, future cash flows, the creditworthiness of tenants/operators and future rental rates, with the ultimate objective of becoming an issuer of investment grade debt. We intend to target a ratio of debt to gross undepreciated asset value of between 30% and 40%. However, our charter and bylaws do not limit the amount of debt that we may incur and our board of directors has not adopted a policy limiting the total amount of our borrowings. In addition, subject to satisfying the annual distribution requirements applicable to REITs, we intend to target a dividend payout ratio that allows us to retain some of our operating cash flow and thereby reduce our need to rely on additional debt.

Our board of directors will consider a number of factors in evaluating the amount of debt that we may incur, and, as our portfolio becomes more seasoned, may change the metrics used to determine our leverage. If we adopt a debt policy, our board of directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general conditions in the market for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors. Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our stockholders.

Our financing sources include the net proceeds from this offering and the BlueMountain Private Placement and our secured credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secured Revolving Credit Facility.” Over time, subject to maintaining our qualification as a REIT, we intend to finance our growth with issuances of common equity, preferred or convertible securities and secured and unsecured debt.

Our Portfolio

100

$0.9 million. We own 100% of all of our properties, other than Lakeway Hospital, in which we own a 51% interest through the Lakeway Partnership. Our single-tenant properties are leased to five operators with experienced management teams, with no single tenant/guarantor representing more than 27% of our annualized base rent.

101

Healthcare Facilities

Properties

The following table contains information regarding the individual healthcare facilities in our portfolio as of the date of this prospectus (dollars in thousands).

Property

Major
Tenant(s) ⁽¹⁾

Location

Property
Type

%
Leased

Gross
Purchase
Price

Annualized
Base
Rent ⁽²⁾

Lease
Expiration(s)

GLA/
Square
Feet

Texas SNF Portfolio (10 properties)

GruenePointe

Texas

SNF

100.0

145,000

12,325

July 2030

339,733

Lakeway Hospital ⁽³⁾

Lakeway
Operator

Lakeway,
TX

ACH

100.0

75,000

9,410

⁽³⁾

February
2040

270,512

Life Generations Portfolio ⁽⁴⁾ (6 properties)

Life
Generations

SNF/
ALF

100.0

95,000

⁽⁴⁾

8,313

⁽⁴⁾

March
2030

181,149

Kentfield Rehab &

Specialty Hospital

Vibra
Healthcare

Kentfield,
CA

LTACH

100.0

58,000

⁽⁵⁾

5,151

⁽⁵⁾

December
2029

40,091

Mountain’s Edge Hospital

Fundamental
Healthcare

Las Vegas,
NV

ACH

100.0

35,370

⁽⁶⁾

3,095

⁽⁶⁾

March
2030

72,140

Magnolia Place of Spartanburg

Fundamental
Healthcare

Spartanburg,
SC

SNF

100.0

20,000

1,827

July 2026

50,397

Horizon Specialty Hospital of Henderson

Fundamental
Healthcare

Las Vegas,
NV

LTACH

100.0

20,010

1,710

⁽⁷⁾

July 2029

37,209

Vibra Rehabilitation Hospital of Amarillo

Vibra
Healthcare

Amarillo,
TX

IRF

100.0

19,399

1,697

September
2030

37,834

Mira Vista

Fundamental
Healthcare

Fort Worth,
TX

SNF

100.0

16,000

1,428

February
2027

51,534

North Brownsville Medical Plaza ⁽⁸⁾

VBOA ASC
Partners and
Pain &
Anesthesia
Associates

Brownsville,
TX

MOB

83.1

15,128

1,438

⁽⁹⁾

December
2017 and
February
2018

67,682

Total

99.0

498,907

46,394

1,148,281

(1)

For properties other than Lakeway Hospital and North Brownsville Medical Plaza, the tenant listed is the parent guarantor. With respect to Fundamental Healthcare, the guarantor is THI of Baltimore, Inc., a wholly owned subsidiary of Fundamental Healthcare. For additional information, see “—Description of Properties and Investments in Our Portfolio.”

(2)

(3)

We own a 51% interest in Lakeway Hospital through the Lakeway Partnership. The annualized base rent for Lakeway Hospital as presented in this table and throughout this prospectus represents the incremental AFFO that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the Lakeway Intercompany Mortgage Loan. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment. See “—Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

(4)

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may be paid to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively, and up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. See “—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(5)	The gross purchase price includes $7.0 million that we paid to the seller/tenant to fund renovations.

(6)

The gross purchase price includes a tenant allowance of $6.0 million that we paid to the tenant for certain furnishings, fixtures and equipment installed at the facility. The annual base rent under the lease is approximately $3.1 million, or 8.75% of the aggregate gross purchase price, including the $6.0 million tenant allowance. Contractual rent for the first six months of the lease accrues from the commencement of the lease on April 1, 2015, but payment is deferred until April 2016, at which time the amounts are payable in monthly installments over the next 12 months in addition to the contractual rent then due. Interest accrues on the deferred rent at a rate of 8.75% per annum. See “—Description of Properties and Investments in Our Portfolio—Properties—Mountain’s Edge Hospital.”

(7)	Excludes $1.3 million in a lease incentive that we have granted to the tenant under the terms of the lease.

(8)

This property is subject to a ground lease that expires in 2081, with two ten-year extension options, and provides for annual base rent of approximately $0.2 million in 2015. For additional information, see “—Description of Properties and Investments in Our Portfolio—Properties—North Brownsville Medical Plaza.”

(9)	Annualized base rent excludes certain property operating expenses that are reimbursable by tenants, which are included as rental income. For the three months ended March 31, 2016, the property operating expenses reimbursed by tenants were approximately $0.2 million.

Debt Investment

The following table contains information regarding the mortgage loan in our portfolio as of the date of this prospectus (dollars in thousands):

Loan

Borrower

Principal
Amount

Term

Initial

Interest

Rate

First Lien
Mortgage

Guarantors

Vibra Mortgage Loan

Vibra
Healthcare, LLC
and Vibra
Healthcare II,
LLC

10,000

5/20 years

⁽¹⁾

9.00

Vibra
Hospital of
Western
Massachusetts

Vibra Healthcare Real
Estate Company II, LLC
and Vibra Hospital of
Western Massachusetts,
LLC

(1)

Following the initial interest-only five-year term, the Vibra Mortgage Loan will automatically convert to a 15-year amortizing loan requiring payments of principal and interest unless prepaid. The Vibra Mortgage Loan may be prepaid during the initial five-year term only if Vibra Healthcare, LLC or Vibra Healthcare II, LLC, or one of their respective affiliates, enters into a sale-leaseback transaction with us equal to or exceeding $25.0 million in value.

Property under Contract

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Acquisitions under Evaluation

Our management team has an extensive network of long-standing relationships with owners, operators and developers of healthcare properties. We believe this network of relationships will provide us access to attractive acquisition and other investment opportunities, which may not be available to our competitors.

We have identified and are in various stages of reviewing in excess of $ million of additional potential acquisitions of healthcare properties, which amount is estimated in each case based on our preliminary discussions with the sellers and/or our internal assessment of the values of the properties. Of these acquisitions under evaluation, we have entered into non-binding letters of intent for the acquisition of an aggregate of $ million of healthcare facilities. We expect these potential acquisitions to provide yields consistent with our current portfolio. We have engaged in preliminary discussions with the owners, commenced the process of conducting diligence on certain of these properties and/or submitted or entered into non-binding indications of interest or term sheets to the owners of these properties. However, we have not entered into binding commitments with respect to any of the properties under evaluation, and the pricing and terms of such transactions are subject to negotiation and ongoing due diligence and, therefore, we do not believe any of these transactions are probable as of the date of this prospectus. Facilitating any acquisition under evaluation into a binding commitment with the seller is influenced by many factors including, but not limited to, the existence of other competitive bids, the satisfactory completion of all due diligence items by both parties and regulatory or lender approval, if required. The impact of these factors on the timing of any acquisition can vary based on the nature and size of each transaction. Once a binding commitment is reached with a seller, in the form of an executed purchase and sale agreement, closing on the transaction is generally expected to occur within 30 to 60 days subject to the completion of routine property due diligence that is customary in real estate transactions. Accordingly, there can be no assurance that we will enter into definitive agreements to acquire or ultimately complete the acquisition of any healthcare property under evaluation on the terms currently anticipated, or at all, and cannot predict the timing of any potential acquisitions if any are completed.

Our Tenants

The following table contains information regarding the tenants in our portfolio as of the date of this prospectus (dollars in thousands).


Tenant	Weighted Average Remaining Lease Term ⁽¹⁾		Total Leased GLA		Percent of Total Leased GLA			Annualized Base Rent ⁽²⁾			Percent of Total Annualized Base Rent
GruenePointe		14.3		339,733		29.9	%	$	12,325			26.6	%
Lakeway Operator		23.8		270,512		23.8			9,410	⁽³⁾		20.3
Life Generations		14.0		181,149		15.9			8,313	⁽⁴⁾		17.9
Fundamental Healthcare		12.5		211,280		18.6			8,060			17.4
Vibra Healthcare		13.9		77,925		6.9			6,848			14.7
MOB Tenants		1.8		56,251		4.9			1,438			3.1

Total / Weighted Average		15.4		1,136,850		100.0	%	$	46,394			100.0	%

(1)	Represents the weighted-average remaining lease term as of March 31, 2016.

(2)

(3)

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we receive under the Lakeway Intercompany Mortgage Loan. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment. See “—Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

(4)

Annualized base rent for Life Generations does not reflect the $10.0 million earn-out that we may pay Life Generations in the second quarters of 2016 and 2017 based on the 2015 and 2016 EBITDARM of Kearny Mesa or up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. See “—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

Description of Top Tenants

Lakeway Operator

The Lakeway Operator is the privately owned operator of Lakeway Hospital, which provides services in emergency medicine, family practice, cardiology, cardiothoracic surgery, radiation, oncology, general surgery, gastroenterology, women’s health, infusion therapy, diagnostic and therapeutic radiology, respiratory, physical therapy and sports medicine, occupational therapy, speech-language pathology and pain management. Based on the information provided to us by the Lakeway Operator, Lakeway Hospital recognized net revenues of approximately $65.1 million and net income of approximately $35.0 million for the year ended December 31, 2015, which includes $66.6 million in a net gain associated with the Lakeway Operator’s restructuring activities and the related February 2015 foreclosure on the mortgage note receivable secured by Lakeway Hospital.

GruenePointe

GruenePointe was formed in 2014 for the development, construction, acquisition and operation of healthcare facilities. Based on information provided to us by GruenePointe, GruenePointe recognized net revenues of approximately $34.2 million and a net loss of approximately $0.9 million for the year ended December 31, 2015. For additional information regarding GruenePointe, see the financial statements of GruenePointe and related notes thereto included elsewhere in this prospectus. An affiliate of OnPointe Health, which is one of the owners of GruenePointe, manages the operations of facilities owned or leased by GruenePointe, including the Texas SNF Portfolio. OnPointe Health is a privately owned operator of post-acute facilities and, as of December 31, 2015, operated six skilled nursing facilities, two assisted living facilities and a home health company. OnPointe Health’s senior management team has extensive experience owning, operating, managing and developing skilled nursing facilities, primarily located in Texas, New Mexico and Louisiana. Based on information provided to us by OnPointe Health, OnPointe Health recognized net revenues of approximately $73.3 million and net income of approximately $6.2 million for the year ended December 31, 2015.

Life Generations

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Fundamental Healthcare

Fundamental Healthcare is a privately owned owner-operator headquartered in Sparks, Maryland. Fundamental Healthcare, through its subsidiaries, operates 77 healthcare facilities in nine states, including skilled nursing facilities, long-term acute care hospitals and rehabilitation centers, and has longstanding, industry-wide relationships. Fundamental Healthcare’s facilities are largely concentrated in Texas, Nevada, Missouri and South Carolina.

Fundamental Healthcare’s wholly owned subsidiary, THI of Baltimore, serves as guarantor for each of our leases with subsidiaries of Fundamental Healthcare. Subsidiaries of THI of Baltimore operate 67 skilled nursing facilities, three long-term acute care hospitals and two acute care hospitals and, based on information provided to us by Fundamental Healthcare, recognized consolidated net revenues of approximately $527.1 million and net income of approximately $1.4 million for the year ended December 31, 2015.

Vibra Healthcare

Vibra Healthcare is a privately owned, nationwide owner-operator of freestanding long-term acute care hospitals and inpatient rehabilitation facilities, headquartered in Mechanicsburg, Pennsylvania. Vibra Healthcare was founded in 2004 and began the company through the acquisition of six long-term acute care hospitals. Vibra Healthcare and its subsidiaries serve as guarantors for the lease for the Kentfield Rehabilitation & Specialty Hospital and serve as guarantors under the lease for Vibra Rehabilitation Hospital of Amarillo. With the support of a highly experienced management team, Vibra Healthcare has grown to more than 9,000 employees and operates more than 50 long-term acute care hospitals, inpatient rehabilitation facilities and outpatient physical therapy centers. These facilities have more than 2,900 licensed beds in 18 states, with the highest concentration in Texas and California. Vibra Healthcare is one of the largest privately owned post-acute owner-operators in the United States.

Based on information provided to us by Vibra Healthcare, Vibra Healthcare recognized consolidated net revenues, less provision for doubtful accounts, of approximately $779.3 million for the year ended December 31, 2015, and recognized net income of approximately $15.1 million for the year ended December 31, 2015.

Lease Expirations

As of March 31, 2016, the healthcare properties in our portfolio have a weighted-average remaining lease term of 15.4 years. The following table contains information regarding the expiration dates of the leases in our portfolio as of the date of this prospectus (dollars in thousands, except per square foot amounts).


Year of Lease Expiration	Number of Leases Expiring			Total GLA of Expiring Leases		Percent of GLA Represented by Expiring Leases			Annualized Base Rent Under Expiring Leases ⁽¹⁾		Percent of Total Annualized Base Rent of Expiring Leases			Annualized Rent Per Leased Square Foot
2015		—			—		—	%	$	—		—	%	$	—
2016		—			—		—			—		—			—
2017		9	⁽²⁾		40,786		3.6			1,024		2.2			25.11
2018		2	⁽²⁾		15,465		1.4			414		0.9			26.75
2019		—			—		—			—		—			—
2020		—			—		—			—		—			—
2021		—			—		—			—		—			—
2022		—			—		—			—		—			—
2023		—			—		—			—		—			—
2024		—			—		—			—		—			—
Thereafter		9			1,080,599		95.0			44,956		96.9			41.60

Total		20			1,136,850		100.0	%	$	46,394		100.0	%	$	40.81

(1)	Annualized base rent does not represent historical rental amounts. Rather, annualized base rent represents the actual aggregate base rent for in-place leases for the month ended March 31, 2016, multiplied by 12,

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except for Lakeway Hospital, which represents the incremental AFFO that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the Lakeway Intercompany Mortgage Loan. Base rent does not include tenant recoveries, additional rents or other lease-related adjustments.

(2)	Represents leases of tenants at North Brownsville Medical Plaza.

Geographic Concentration

The following table contains information regarding the geographic concentration of the properties in our portfolio as of the date of this prospectus (dollars in thousands).


Market	Number of Buildings		GLA		% of Total GLA			Annualized Base Rent ⁽¹⁾			Percent of Total Annualized Base Rent
Texas		14		767,295		66.8	%	$	26,298	⁽²⁾		56.7	%
California		7		221,240		19.3			13,464	⁽³⁾		29.0
Nevada		2		109,349		9.5			4,805			10.4
South Carolina		1		50,397		4.4			1,827			3.9

Total		24		1,148,281		100.0	%	$	46,394			100.0	%

(1)

Annualized base rent does not represent historical rental amounts. Rather, annualized base rent represents the actual aggregate base rent for in-place leases for the month ended March 31, 2016, multiplied by 12, except as otherwise noted. Base rent does not include tenant recoveries, additional rents or other lease-related adjustments. For information on the expiration of these leases, see “—Lease Expirations.”

(2)

Includes Lakeway Hospital, in which we own a 51% interest through the Lakeway Partnership. The annualized base rent for Lakeway Hospital as presented in this table and throughout this prospectus represents the incremental AFFO that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the Lakeway Intercompany Mortgage Loan. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment. See “— Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

(3)

Includes Kearny Mesa, a skilled nursing facility that we acquired on October 1, 2015 for $15.0 million, plus an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of the property for 2015 and 2016, respectively. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. The annualized base rent does not reflect the $10.0 million earn-out or up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. See “—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

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Facility-Type Concentration

The following table contains information regarding the healthcare facilities in our portfolio, as of the date of this prospectus (dollars in thousands).


Facility Type	Number of Buildings		Gross Purchase Price			% of Total Gross Purchase Price			% Leased			Annualized Base Rent ⁽¹⁾			Percent of Total Annualized Base Rent
Skilled Nursing Facilities/ Assisted Living Facility ⁽²⁾ ⁽³⁾		18	$	276,000	⁽²⁾ ⁽³⁾		55.3	%		100.0	%	$	23,893	⁽²⁾ ⁽³⁾		51.4	%
Acute Care Hospital ⁽⁴⁾		2		110,370			22.2			100.0			12,505	⁽⁴⁾		27.0
Long-Term Acute Care Hospital		2		78,010			15.6			100.0			6,861			14.8
Inpatient Rehabilitation Facility		1		19,399			3.9			100.0			1,697			3.7
Medical Office Building		1		15,128			3.0			83.1			1,438			3.1

Total		24	$	498,907			100.0	%		99.0	%	$	46,394			100.0	%

(1)

Annualized base rent does not represent historical rental amounts. Rather, annualized base rent represents the actual aggregate base rent for in-place leases for the month ended March 31, 2016, multiplied by 12, except as otherwise noted. Base rent does not include tenant recoveries, additional rents or other lease-related adjustments. For information on the expiration of these leases, see “—Lease Expirations.”

(2)	Includes one assisted living facility that we acquired as part of our acquisition of a portfolio from Life Generations. See “—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(3)

Includes Kearny Mesa, a skilled nursing facility that we acquired on October 1, 2015 for $15.0 million, plus an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. The base rent will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 and the amount provided to Life Generations for renovations and improvements. The gross purchase price and annualized base rent do not reflect the $10.0 million earn-out or up to $2.0 million that we have agreed to provide to Life Generations for renovations and improvements at the property. See “—Description of Properties and Investments in Our Portfolio—Properties—Life Generations Portfolio.”

(4)

Includes Lakeway Hospital, in which we own a 51% interest through the Lakeway Partnership. The annualized base rent for Lakeway Hospital as presented in this table and throughout this prospectus represents the incremental AFFO that we expect this investment to contribute to us based on our proportionate share of the approximately $12.8 million of stabilized annual rent payable to the Lakeway Partnership under the lease and the interest we receive under the Lakeway Intercompany Mortgage Loan. The Lakeway Partnership contributed approximately $5.6 million of incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based on the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment. See “— Description of Properties and Investments in Our Portfolio—Properties—Lakeway Hospital.”

Description of Properties and Investments in Our Portfolio

Properties

Texas SNF Portfolio

Portfolio Description. On July 30, 2015, we acquired nine skilled nursing facilities for an aggregate gross purchase price of $133.4 million, and on October 2, 2015, we acquired Graham Oaks for a gross purchase price of $11.6 million, which we refer to collectively as the Texas SNF Portfolio. The Texas SNF Portfolio contains an aggregate of approximately 339,733 square feet. The $145.0 million aggregate gross purchase price includes

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$12.0 million of refundable contingent consideration, $3.0 million of which will become fully earned and non-forfeitable on January 1 of each year through 2019, subject to the tenants’ compliance with certain financial covenants under the master lease agreement and other provisions in the purchase and sale agreement on such dates. If any of the refundable contingent consideration has not been earned as of January 1, 2019, GruenePointe will have until January 1, 2020 to achieve compliance with all of the applicable financial covenants and earn such remaining refundable contingent consideration. If GruenePointe has not achieved such compliance by January 1, 2020, GruenePointe must repay to us any refundable contingent consideration that has not been earned, together with interest from the closing date of our acquisition to January 1, 2020, at a rate of 3.0% per annum. As of the date of this prospectus, none of the $12.0 million of refundable contingent consideration had been earned. The following table provides additional details regarding the healthcare facilities in the Texas SNF Portfolio, as of the date of this prospectus:


Facility	City, State	# of Licensed Beds
Greenhill Villas	Mt. Pleasant, Texas		150
Songbird Lodge	Brownwood, Texas		125
Casa Rio Healthcare & Rehabilitation	San Antonio, Texas		124
Kemp Care Center	Kemp, Texas		124
St. Teresa Nursing & Rehabilitation Center	El Paso, Texas		124
Graham Oaks Care Center	Graham, Texas		120
Whispering Pines Lodge	Longview, Texas		116
River City Care Center	San Antonio, Texas		100
Sunflower Park Health Care	Kaufman, Texas		92
Kerens Care Center	Kerens, Texas		70

Grand Total			1,145

Lease Terms . Upon the closing of the acquisitions, we leased 100% of the Texas SNF Portfolio to wholly owned subsidiaries of GruenePointe, pursuant to a triple-net master lease with the tenant responsible for all costs of the facilities, including taxes, utilities, insurance, maintenance and capital improvements. The master lease has a non-cancelable 15-year term, with two five-year extension options. The annual base rent under the master lease is approximately $12.3 million, or 8.5% of the $145.0 million aggregate gross purchase price. The annual base rent will increase each year by 2.0% of the prior year’s base rent. The annual base rent will not be adjusted down in the event that GruenePointe is required to repay any portion of the refundable contingent consideration described above. In addition to the base rent, commencing in the second year of the lease, the master lease provides for additional rent equal to 20% of the amount by which the aggregate gross patient care revenues (i.e., gross revenues less supplemental management fees) of four facilities (Songbird Lodge, Graham Oaks, River City Care Center and Kerens Care Center) exceed the aggregate gross patient care revenues of such facilities in the first year of the lease, until the aggregate rent under the master lease for these four facilities equals 10.0% of the gross purchase price allocated to these facilities, subject to increases pursuant to the annual rent escalator.

An affiliate of OnPointe Health, which is one of the owners of GruenePointe, manages the operations of the facilities in the Texas SNF Portfolio.

Guaranty and Security. The master lease is unconditionally guaranteed by GruenePointe and is guaranteed by an affiliate of OnPointe Health in an amount up to one year’s management fee from the Texas SNF Portfolio and by certain members of GruenePointe up to $6.0 million. The GruenePointe guaranty is cross-defaulted and cross-collateralized with all other obligations of GruenePointe to us. In addition, the master lease is secured by (i) a first priority pledge of and security interest in the equity interests in each of the single-asset holding subsidiaries of GruenePointe subject to the master lease and (ii) an assignment and pledge of substantially all of the assets of the single-asset holding subsidiaries of GruenePointe subject to the master lease.

Investment Rationale.

•

Flexible master lease structure with potential for increasing yields and credit protections . The minimum lease payments due under the master lease for the Texas SNF Portfolio provide an initial lease yield of

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8.5% on the $145.0 million aggregate gross purchase price. The master lease includes an additional rent provision as described above that will enhance the return on our investment from the Texas SNF Portfolio if the underlying facility operations grow under the direction of GruenePointe.

The master lease also includes several guaranty provisions, including an unconditional guaranty from GruenePointe, a limited guaranty from an affiliate of OnPointe Health and personal guarantees of $6.0 million from certain individual members of GruenePointe. The master lease also requires an initial lease deposit of $2.1 million, which is equal to two months of base rent. In addition, GruenePointe is required to hold $6.0 million in escrow that is subject to reductions of $2.0 million beginning in the second quarter of 2016 and then annually for 2017 and 2018 if GruenePointe maintains a rent coverage ratio (ratio of EBITDAR to base rent) of 1.5x, subject to certain exceptions with our consent.

•

Establish relationship with a growing operator. We believe the acquisition of the Texas SNF Portfolio creates a significant new relationship with GruenePointe and OnPointe Health as we can be a source of real estate investment capital to fund the expansion of their operations. OnPointe Health, which is one of the owners of GruenePointe, is a privately owned operator of post-acute facilities and, as of December 31, 2015, operated six skilled nursing facilities, two assisted living facilities and a home health company.

•

Properties located in less competitive markets with future growth potential. We believe the locations of the Texas SNF Portfolio are in areas with less competition and a stable-to-growing demand for additional patient services, particularly higher acuity services, that can sustain high occupancy levels, which are characteristics similar to markets in which OnPointe Health has existing facilities and experience. We believe that OnPointe Health’s experience and specialties in higher acuity services can allow these facilities to meet the needs of growing patient populations in markets previously underserved while achieving efficiencies within GruenePointe and OnPointe Health’s existing network of operations that would translate into higher profitability and solid regulatory compliance.

Life Generations Portfolio

Portfolio Description. On March 31, 2015, we acquired a portfolio of four skilled nursing facilities and one assisted living facility from Life Generations for $80.0 million, and on October 1, 2015, we acquired Kearny Mesa for $15.0 million, plus an earn-out of up to $10.0 million that may be paid to Life Generations in the second quarters of 2016 and 2017 based on the achievement of certain performance thresholds relating to the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. The portion of the earn-out expected to be paid in 2016 is approximately $1.9 million. We refer to these six facilities collectively as the Life Generations Portfolio. The Life Generations Portfolio is located in the southern California markets. As of the date of this prospectus, the following table provides additional details regarding the healthcare facilities in the Life Generations Portfolio:


Facility	Facility Type		City, State	Number of Licensed Beds
Friendship Manor		SNF	National City, CA		104
Arbor Hills		SNF	La Mesa, CA		100
Castle Manor		SNF	National City, CA		99
Kearny Mesa		SNF	San Diego, CA		98
Heritage Court		ALF	Upland, CA		88
Heritage Park		SNF	Upland, CA		70

Total					559

Lease Terms. Upon the closing of the acquisitions, we leased 100% of the Life Generations Portfolio to wholly owned subsidiaries of Life Generations pursuant to a triple-net master lease agreement, with the tenants responsible for all costs of the facilities, including taxes, insurance, maintenance and capital improvements. The

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lease has a non-cancelable 15-year term, with two five-year extension options. The annual base rent under the lease is approximately $8.3 million, or 8.75% of the $95.0 million initial aggregate gross purchase price. The base rent under the master lease agreement will increase by 8.75% of the amount of the $10.0 million earn-out that we ultimately pay Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. As part of the master lease agreement, we have agreed to provide up to $2.0 million for certain renovations and improvements (subject to our pre-approval) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement, if any, must be made by October 1, 2016. Annual base rent will be increased by 8.75% of any advances made under this arrangement.

Guaranty and Security. The master lease agreement is unconditionally guaranteed by Life Generations. The master lease is also cross-defaulted with (i) any material uncured default by Life Generations under its credit facility that results in the actual acceleration of any amounts outstanding under its credit facility and (ii) any material uncured default under any material obligations related to the Life Generations Portfolio.

Investment Rationale.

•

High quality portfolio with an attractive yield . The Life Generations Portfolio is comprised of high-quality facilities located in attractive markets in San Diego and the greater Los Angeles, California area. Each of the five rated facilities in the Life Generations Portfolio are rated four stars or higher by CMS, which differentiates them from other facilities in the same markets. In addition, the above average quality of care provided at the facilities operated by Life Generations, as indicated by the CMS star ratings, has been a prominent factor in achieving robust patient occupancy levels. Occupancy levels at the Life Generations Portfolio averaged approximately 91.8% for the year ended December 31, 2015.


Facility	Facility Type	CMS Star Rating
Arbor Hills	SNF	5
Castle Manor	SNF	5
Friendship Manor	SNF	4
Heritage Court	ALF	N/A
Heritage Park	SNF	4
Kearny Mesa	SNF	5

•

Attractive locations . We believe the locations of the facilities in major metropolitan areas and in close proximity to large population centers will allow the Life Generations Portfolio to continue to maintain high occupancy levels. The considerable replacement costs and development within these California markets should limit future development of competing facilities. Furthermore, the Health and Safety Code regulations imposed by the California Office of Statewide Health Planning and Development, or OSHPD, create substantial barriers to the development of new skilled nursing facilities in California. These regulatory hurdles imposed by OSHPD restrict the supply of skilled nursing facilities throughout the state and often lead operators and investors to pursue opportunities where there are fewer barriers to entry. These factors are likely to provide support for the long-term value of the Life Generations Portfolio.

•

Corporate guarantee and strong rent coverage . The master lease agreement is guaranteed by Life Generations. The guarantee specifies that the consolidated operations of Life Generations will be used to support our rental income at each of the facilities, including profits from operations of properties not included in our sale-leaseback transaction. We will therefore benefit from additional coverages above the property-level Life Generations Portfolio. Based on representations made to us by Life Generations, on a consolidated basis, Life Generations generated a rent coverage ratio of approximately 3.2x for the year ended December 31, 2015.

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•

Experienced and respected operator . Life Generations has a well-known reputation for providing high quality care in key California markets, which has allowed Life Generations to build relationships with managed-care payors and key referral sources in local markets for patients.

Lakeway Hospital

Property Description. Lakeway Hospital is a 270,512 square-foot acute care hospital located at 100 Medical Parkway, Lakeway, Texas. The hospital opened in April 2012 and is licensed for 106 beds and has six operating rooms.

Investment Description . On February 3, 2015, we acquired fee simple ownership of Lakeway Hospital through a negotiated, non-judicial foreclosure and payment of an additional $25.0 million in cash consideration for a total investment by the Lakeway Partnership of $75.0 million. We initially acquired a note receivable for $50.0 million on December 29, 2014, which had an outstanding principal balance of approximately $163.9 million and was secured by a first mortgage lien on Lakeway Hospital. The operator of the facility defaulted on debt service payments under the mortgage in 2013, and HUD held an auction in December 2014 through which we acquired the note.

We own the facility through the Lakeway Partnership, which, based on a total equity contribution of $2.0 million, is owned 51% by us and 49% by an entity that is owned indirectly by physicians who have relocated their practices to Lakeway Hospital and a non-physician investor. Our equity contribution to the Lakeway Partnership was $1.0 million, and our transfer of the original $50.0 million note and $23.0 million of cash to the Lakeway Partnership is structured as the Lakeway Intercompany Mortgage Loan to the Lakeway Partnership that is secured by a first mortgage lien on Lakeway Hospital. The Lakeway Intercompany Mortgage Loan has a ten-year term and requires payments of principal and interest at a rate of 8.0% per annum based on a 25-year amortization schedule. The interest rate on the Lakeway Intercompany Mortgage Loan will reset after five years based upon then-current market rates. The Lakeway Intercompany Mortgage Loan, the related interest income to us and the related interest expense to the Lakeway Partnership are eliminated in our consolidated financial statements.

In addition, in connection with our acquisition of Lakeway Hospital, we assumed the seller’s rights as lessor under the ground lease for the medical office building that is part of Lakeway Hospital. The ground lease expires on October 1, 2061, subject to two ten-year extension options, and provides for annual base rent to the Lakeway Partnership of approximately $0.2 million, which will increase each year by 3.0% of the prior year’s base rent.

Lakeway Partnership. We have a 51% interest in the Lakeway Partnership, which is managed by a two-person board, with one member appointed by us and one member appointed by our partner. Each board member has a number of votes equal to the percentage interest of the member that designated such board member. Our board designee is the managing board member in charge of the day-to-day operations of the Lakeway Partnership. However, the approval of both board members is required for certain major decisions, including, among others, the sale of all or a material portion of Lakeway Hospital, the termination or modification of the lease with the Lakeway Operator, the incurrence or modification of any debt in excess of $100,000, the prepayment of the Lakeway Intercompany Mortgage Loan and merging or consolidating with another entity.

Under the Lakeway Partnership agreement, if the neurosurgery group that has relocated its practice to Lakeway Hospital terminates its professional services agreement with the Lakeway Operator for any reason except default by the Lakeway Operator not resulting from its insolvency, we have the option to purchase our partner’s 49% interest in the Lakeway Partnership at its original $1.0 million equity investment plus an accrued return of 8.0% from the date of its investment. In addition, as long as the partner is a member of the Lakeway Partnership and for a period of two years thereafter, its members are prohibited from directly or indirectly owning or participating in the ownership of any entity that operates a competing facility within 15 miles of Lakeway Hospital.

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Lease Terms . We lease 100% of Lakeway Hospital to Lakeway Regional Medical Center, LLC pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a non-cancelable 25-year term, with two ten-year extension options. The stabilized annualized base rent payable to the Lakeway Partnership under the lease is approximately $12.8 million, or 17.0% of the Lakeway Partnership’s total $75.0 million investment in the facility, payable in equal monthly installments. However, the monthly rent was approximately $0.5 million for the second and third quarters of 2015 and increased to approximately $1.1 million for the fourth quarter of 2015, which represents the stabilized monthly rent under the lease. On March 17, 2016, the lease was amended to extend the repayment of the aggregate $3.4 million rent deferral (representing the difference between the reduced monthly rent of $0.5 million for the first six months of the lease and the stabilized monthly rent of $1.1 million), which was originally scheduled to be repaid in six equal monthly installments over the first six months of 2016. Under the amended lease, the Lakeway Operator will repay the deferred rent in 12 equal monthly installments beginning in July 2016, in addition to the stabilized monthly rent, but can pre-pay the entire deferred amount at any time without penalty. The deferred rent will bear interest at a rate of 10.0% per annum from the time each payment would have been due under the original lease. Beginning in the third year of the lease term, the annual base rent will increase each year by 3.0% of the prior year’s base rent. The lease contains a provision for a $1.0 million lease deposit at inception of the lease, with additional monthly deposits required during the fourth year of the lease, until the total deposit is $6.3 million.

Our underwriting for Lakeway Hospital was based on an expected improvement in the operating results of the Lakeway Operator due to the recruitment of a neurosurgical physicians group to Lakeway Hospital, which commenced operations at the hospital in April 2015, replacement of the executive management team and restructuring of the Lakeway Operator’s ownership structure. The Lakeway Operator’s current EBITDAR is not sufficient to cover the stabilized monthly rent of approximately $1.1 million. However, operating results continue to improve. Based on information provided to us by the Lakeway Operator, net patient revenues, admissions, patient days and surgeries performed at the Lakeway Hospital increased by approximately 78%, 61%, 52% and 105%, respectively, during the first quarter of 2016 as compared to the first quarter of 2015. We believe the operating results of Lakeway Hospital should continue to improve as the additional specialist physicians complete their transition to Lakeway Hospital and as the Lakeway Operator’s new executive management team continues to improve the business processes at the hospital and to implement new or expanded patient service lines, such as plastic surgery, cardiology, orthopedics and other specialties. Lakeway Hospital received its Primary Stroke certification in December 2015, which is expected to enhance further the scope of services provided at the hospital and improve operating results.

The lease for Lakeway Hospital was structured with the expectation of such improved results. Under the amended lease, the Lakeway Operator is required to maintain an annualized quarterly minimum rent coverage ratio (ratio of EBITDAR to rent) under the lease of at least 1.0x, beginning with the fourth quarter of 2016. The minimum rent coverage ratio increases to 1.25x, 1.75x and 2.25x at the beginning of each successive fourth quarter, respectively.

Investment Rationale

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Generates attractive yield. The Lakeway Partnership contributed approximately $5.6 million in incremental AFFO to us for the year ended December 31, 2015 and is expected to contribute approximately $9.4 million of incremental AFFO to us annually beginning with the year ending December 31, 2016 based upon the stabilized monthly rent of $1.1 million and excluding amounts expected to be received pursuant to the deferred rent repayment.

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Attractive location . Lakeway Hospital is located in the highly affluent area of Lakeway, Texas, which is approximately 20 miles northwest of Austin, Texas. The population of the Lakeway area has grown rapidly as the area has experienced strong investment in residential and commercial development. We anticipate that the limited number of nearby competing facilities will allow Lakeway Hospital to service the growing demand for the high-acuity services in the Lakeway area. We believe the attractive

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demographic characteristics of the area combined with the need for both specialized acute care services in the local market will support the long-term value of Lakeway Hospital.

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Acquired at significant discount to cost. Lakeway Hospital had a total gross property and equipment original development and acquisition cost of approximately $202.0 million in 2012. The total consideration of $75 million paid by the Lakeway Partnership to acquire the facility represents a substantial discount to the originally invested capital and has the ability to provide additional value within our portfolio.

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Structure that protects our invested capital. Under the terms of the partnership agreement, $73.0 million of our investment is structured as an intercompany loan to the Lakeway Partnership that is secured by a first mortgage lien on Lakeway Hospital. As a result, proceeds from any future disposition would first be applied to any outstanding amount under our loan to the partnership. The partnership agreement also provides us with the right to buyout the 49% owner in the partnership at their original $1.0 million equity investment plus an accrued return of 8.0% from the date of their investment if the operator defaults on their rent payment and does not cure the default. This provides us with the flexibility to bring in a replacement specialty physician group or operator. Furthermore, in the event of a sale or recapitalization of the Lakeway Operator, we will receive a priority payment of $6.4 million plus a scaled percentage of the proceeds to the operator.

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Partner with prestigious neurosurgical group. The neurosurgical physicians group that relocated its practice to Lakeway Hospital is highly respected and has material geographic coverage in the local market. We estimate that this physicians group represents approximately 20% of the neurosurgical capacity in the Austin, Texas area. We believe that the combination of these factors provides a distinct operational advantage that will contribute meaningfully to Lakeway Hospital’s financial performance and provide us with greater rental income security.

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Newly constructed facility. Lakeway Hospital began operations in the newly constructed campus in April 2012. We believe the state-of-the-art structure makes the Lakeway Hospital more attractive than other hospitals in the metropolitan area, which should increase patient volumes and enhance Lakeway Hospital’s ability to attract additional specialty doctors and staff.

Kentfield Rehabilitation & Specialty Hospital

Property Description . On August 1, 2014, we acquired Kentfield Rehabilitation & Specialty Hospital, or Kentfield Hospital, from Vibra Healthcare for a gross purchase price of $58.0 million and leased the property back to 1125 Sir Francis Drake Boulevard Operating Company, LLC, or the Kentfield Operator, a subsidiary of Vibra Healthcare. Kentfield Hospital is a 40,091 square-foot facility located at 1125 Sir Francis Drake Boulevard, Kentfield, California, within the highly affluent Marin County in the San Francisco Bay area. Kentfield Hospital consists of an approximately 29,000 square-foot long-term acute care hospital with 60 licensed long-term acute care hospital beds and an approximately 11,000 square-foot adjoining medical office building. Kentfield Hospital is currently undergoing an approximately $15.0 million renovation project that began in early 2012 and is expected to be completed in the second half of 2015. The gross purchase price includes $7.0 million that has been paid to the seller/tenant to fund renovations.

Lease Terms . Upon the closing of the acquisition, we leased 100% of Kentfield Hospital to the Kentfield Operator pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a 15-year term with two five-year extension options. The initial annual base rent under the lease was approximately $4.5 million, or 8.75% of the initial $51.0 million purchase price, payable in equal monthly installments. The monthly base rent increases each month by 8.75% of the amount of the $7.0 million that we have advanced to fund ongoing renovations. In addition, the annual base rent will increase (i) by 1.5% of the prior year’s base rent on the first and second anniversaries of the initial lease term and (ii) for each year thereafter, by the percentage by which the consumer price index has increased over the prior 12 months, subject to an annual cap of 2.0% of the prior year’s base rent.

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Guaranty and Security . The lease is unconditionally guaranteed by each of Vibra Healthcare and Vibra Healthcare II, LLC, or Vibra Healthcare II. In addition, the lease is secured by an assignment and pledge of substantially all of the assets, other than accounts receivable, of Kentfield Hospital, subject to the terms of an intercreditor agreement between us and the Kentfield Operator’s existing lender. The obligations of the Kentfield Operator and of Vibra Healthcare and Vibra Healthcare II as guarantors is cross-collateralized and cross-defaulted with the obligations and all collateral, if any, securing any existing and future obligations of the Kentfield Operator, Vibra Healthcare, Vibra Healthcare II and their respective affiliates to us, including the Vibra Mortgage Loan.

Investment Rationale. Located in the highly affluent Marin County, California, Kentfield Hospital is one of only two licensed long-term acute care hospitals in the San Francisco Bay Area market and benefits from a surrounding population of approximately 7.2 million, according to the 2010 U.S. Census, which supports its bed demand. Kentfield Hospital has been one of Vibra Healthcare’s top performing facilities. Services provided at Kentfield Hospital, in addition to servicing patients with complex medical needs requiring long-term hospitalization in an acute setting, include dialysis, advanced wound care, bronchoscopy, ventilator management, total parenteral nutrition, spasticity management and nerve blocks, fluoroscopy, barium swallow studies and diagnostic EMG studies. In addition, we believe Kentfield Hospital receives referrals from Marin General Hospital, a 235-bed general acute-care hospital that is approximately one mile from Kentfield Hospital. As a result of this relationship, Kentfield Hospital has benefitted from a consistent step-down patient flow.

We believe that the competitive barriers to entry for any new long-term acute care hospital in the San Francisco Bay Area market are high, as a result of land and construction costs in the California market and a long, extensive and costly regulatory process, which have helped generate a robust flow of patients and high patient occupancy rates for the Kentfield Hospital. In addition, as part of the Medicare, Medicaid and SCHIP Extension Act of 2007 and the Affordable Care Act, construction of new long-term acute care hospitals were under a moratorium from December 2007 until December 2012. With the passage of the Bipartisan Budget Act of 2013, the moratorium was reinstated in January 2015. These restrictions on new construction limit the supply, and therefore competition, from newly constructed long-term acute care hospitals.

Mountain’s Edge Hospital

Property Description . On March 31, 2015, we acquired Mountain’s Edge Hospital for an aggregate gross purchase price of $35.4 million, which includes a tenant allowance of $6.0 million that we paid the tenant for certain furnishings, fixtures and equipment installed at the facility. Mountain’s Edge Hospital is a newly developed 72,140 square foot acute care hospital that began accepting patients in early July 2015 and is located at 8656 West Patrick Lane, Las Vegas, Nevada. Mountain’s Edge Hospital is licensed for 130 beds.

Lease Terms . On April 1, 2015, we leased 100% of Mountain’s Edge Hospital to Vegas Hospital Care, LLC, or Vegas HC, a wholly owned subsidiary of Fundamental Healthcare, pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a non-cancelable 15-year term, with two five-year extension options. The initial annual base rent under the lease is approximately $3.1 million, or 8.75% of the aggregate gross purchase price, including the $6.0 million tenant allowance. Contractual rent for the first six months of the lease accrues from the lease date, but payment is deferred until April 2016, at which time the amounts are payable in monthly installments over the next 12 months in addition to the contractual rent then due. Interest accrues on the deferred rent at a rate of 8.75% per annum. Beginning in the sixth year of the initial lease term, the annual base rent will increase each year by 1.5% of the prior year’s base rent.

Guaranty and Security. The lease is unconditionally guaranteed by THI of Baltimore, and the guaranty is cross-defaulted and cross-collateralized with all other obligations of THI of Baltimore to us. In addition, the lease is secured by an assignment and pledge of substantially all of the assets of Mountain’s Edge Hospital, subject to the terms of an intercreditor agreement between us and Vegas HC’s existing lender.

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Investment Rationale. The seller acquired the property in July 2012 to develop the hospital on behalf of Fundamental Healthcare, which recognized the potential opportunities that a new hospital could afford in the rapidly expanding and affluent western section of Las Vegas. Fundamental Healthcare has extensive experience in the Las Vegas market, having operated there for more than 20 years. Prior to developing the property, a detailed bed need analysis was performed to estimate potential demand for a new hospital. Using a census of acute care hospitals and skilled nursing facilities operating in the Las Vegas market in combination with zip-code level population and patient discharge data, Fundamental Healthcare determined areas of the Las Vegas market were underserved. The location of Mountain’s Edge Hospital was strategically chosen to take advantage of the unmet demand in the area, particularly among elderly residents. The facility is also expected to benefit from favorable demographic trends as the Nevada State Demographer estimates an increase of approximately 61% in the population of those aged 65 and older from 2010 to 2030 in Clark County, which includes Las Vegas.

We believe the new state-of-the-art hospital will be a significant upgrade from existing in-patient rehabilitation facilities in the Las Vegas market. Mountain’s Edge Hospital replaces an existing hospital which is expected to be converted to a skilled nursing facility, with Mountain’s Edge Hospital intended to be the principal hospitalization site for the Health Plan of Nevada’s managed care patient population. As a result, Mountain’s Edge Hospital is expected to benefit from an immediate flow of patients. In addition, Mountain’s Edge Hospital is expected to benefit from a daily 75-bed minimum guarantee from a leading national managed care company. Mountain’s Edge Hospital includes imaging services, an intensive care unit and comprehensive rehabilitation modalities. We believe that the supportive demographic trends and immediate source of patient referrals will allow Mountain’s Edge Hospital to quickly ramp up its operations.

Magnolia Place of Spartanburg

Property Description . On August 1, 2014, we acquired Magnolia Place of Spartanburg, or Magnolia Place, from Spartanburg Healthcare Realty, LLC for $20.0 million. Magnolia Place is a 32,885 square-foot skilled nursing facility that has recently been developed by Fundamental Healthcare to expand the facility to approximately 50,397 square feet and increase the number of licensed beds from 88 to 120. The property is located at 8020 White Avenue, Spartanburg, South Carolina.

Lease Terms . Upon the closing of the acquisition, we leased 100% of Magnolia Place to THI of South Carolina at Magnolia Place Spartanburg, LLC, or THI South Carolina, a subsidiary of Fundamental Healthcare and the tenant of Magnolia Place at the time of our acquisition, pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a non-cancelable 12-year term, with two five-year extension options. The initial annual base rent under the lease is approximately $1.8 million, or 9.0% of the purchase price, payable in equal monthly installments. The annual base rent will increase each year by 1.5% of the prior year’s base rent.

Guaranty and Security . The lease is unconditionally guaranteed by THI of Baltimore, and the guaranty of THI of Baltimore is cross-defaulted with all other obligations of THI of Baltimore to us. In addition, the lease is secured by an assignment and pledge of substantially all of the assets of Magnolia Place, subject to the terms of an intercreditor agreement between us and THI South’s Carolina’s existing lender.

Investment Rationale . Magnolia Place of Spartanburg is located in Spartanburg, South Carolina and benefits from significant entry barriers in the state. The state of South Carolina regulates the supply of certain healthcare providers through its Certificate of Need Program. The Certificate of Need Program is a regulatory review process that requires some healthcare providers, like hospitals and nursing homes, to obtain state authorization before making major capital expenditures or expanding medical services. The requirement to receive state authorization before developing new nursing and hospital facilities or expanding existing facilities creates a substantial barrier for bed expansion in South Carolina. According to South Carolina Department of Health and Environmental Control, there was a need for 389 additional beds in Spartanburg County as of 2012, which is where Magnolia Place is located. Furthermore, in the South Carolina counties adjacent to Spartanburg County, there was a need for an additional 740 beds as of 2012. Fundamental Healthcare’s management recognized the

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bed shortage in the Spartanburg market and chose to pursue an expansion of the facility to accommodate demand and, as part of the process, received a Certificate of Need from the state. Fundamental Healthcare has been able to capitalize on the facility’s CMS rating and high demand to achieve an average occupancy of 93% in 2013. We believe the expansion at Magnolia Place and restriction of skilled nursing facility beds related to the Certificate of Need Program will enhance profitability of the hospital and provide us with a more financially sound operator for the already successful facility.

Services provided at Magnolia Place, include skilled nursing care and related services for residents who require medical or nursing care, and rehabilitation services for injured, disabled, or sick persons. The facility caters to patients who either need short-term rehabilitation services while recovering from surgery or require long-term nursing and medical supervision. In addition to these services, DaVita Healthcare Partners Inc. (NYSE: DVA) constructed a 17-chair dialysis center adjacent to Magnolia Place. Dialysis services became available to Magnolia Place residents beginning in the second quarter of 2015.

In addition, we believe Magnolia Place receives referrals from Spartanburg Regional Hospital, a 540-bed general acute care hospital that is approximately two miles from Magnolia Place. As a result of this relationship, Magnolia Place has benefitted from a consistent step-down patient flow.

Horizon Specialty Hospital of Henderson

Property Description . On August 1, 2014, we acquired Horizon Specialty Hospital of Henderson, or Horizon Hospital, from Eastern LTAC, LLC for $20.0 million. Horizon Hospital is a 37,209 square-foot long-term acute care hospital located at 8550 South Eastern Avenue, Henderson, Nevada. Horizon Hospital is licensed for 39 beds.

Lease Terms . Upon the closing of the acquisition, we leased 100% of Horizon Hospital to THI of Nevada II at Desert Lane, LLC, or THI Nevada, a subsidiary of Fundamental Healthcare and the tenant of Horizon Hospital at the time of our acquisition, pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a 15-year term, with one five-year extension option. The initial annual base rent under the lease is approximately $1.7 million, or 8.5% of the purchase price, payable in equal monthly installments. Beginning in the sixth year of the initial lease term, the annual base rent will increase each year by 1.5% of the prior year’s base rent. In addition, upon executing the amended and restated lease agreement with THI Nevada, we paid THI Nevada $1.3 million as a lease inducement.

Guaranty and Security. The lease is unconditionally guaranteed by THI of Baltimore. In addition, the lease is secured by an assignment and pledge of substantially all of the assets of Horizon Hospital, subject to the terms of an intercreditor agreement between us and THI Nevada’s existing lender.

Investment Rationale . Horizon Hospital is located in the affluent eastern section of the Las Vegas area and began admitting patients in February 2013. The facility offers acute-care services, including cardiopulmonary rehabilitation, ventilator weaning, tracheotomy care, pulmonary rehabilitation, cardiac monitoring and case management-discharge planners.

Prior to developing the property, a detailed bed need analysis was performed to estimate potential demand for a new hospital. Using a census of acute care hospitals and skilled nursing facilities operating in the Las Vegas market in combination with zip-code level population and patient discharge data, Fundamental Healthcare determined areas of the Las Vegas market were currently underserved. The location of the Horizon Hospital was strategically chosen to take advantage of the unmet demand in the area, particularly among elderly residents. Importantly, the Nevada State Demographer estimates 61% growth in people aged 65 and older from 2010 to 2030 in Clark County, which includes Las Vegas and Henderson, Nevada. We believe that current capacity constraints will encourage hospitals to move patients, once stabilized, out of high-cost acute care hospitals to step-down facilities, such as long-term acute care hospitals, where the cost of continued care is significantly lower than that of an acute care hospital. In addition, Fundamental Healthcare has extensive experience in the Las Vegas market, having operated there for more than 20 years.

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Vibra Rehabilitation Hospital of Amarillo

Property Description . Vibra Rehabilitation Hospital of Amarillo is a 44-bed inpatient rehabilitation hospital located at 7200 SW 9th Avenue in Amarillo, Texas.

Acquisition Terms . On October 1, 2015, we acquired Vibra Rehabilitation Hospital of Amarillo, an inpatient rehabilitation hospital located in Amarillo, Texas, for approximately $19.4 million. We previously held the Amarillo Mortgage Loan, an $18.0 million loan secured by the first mortgage on this property. The $18.0 million principal balance of the Amarillo Mortgage Loan was applied towards the $19.4 million purchase price, resulting in a cash expenditure of approximately $1.4 million to acquire the property.

Lease Terms . Upon the closing of the acquisition, we leased 100% of Vibra Rehabilitation Hospital of Amarillo to the existing tenant, a wholly owned subsidiary of Vibra Healthcare, pursuant to a triple-net lease, with the tenant responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a 15-year term, with three five-year extension options. The initial annual base rent under the lease is approximately $1.7 million, or 8.75% of the $19.4 million purchase price, payable monthly. Beginning in the second year of the initial lease term, the annual base rent will increase each year by 3.0% of the prior year’s rent.

Guaranty and Security . The lease is unconditionally guaranteed by Vibra Healthcare and Vibra Healthcare II. The obligations of Vibra Healthcare and Vibra Healthcare II as guarantors is cross-collateralized and cross-defaulted with the obligations and all collateral, if any, securing any existing and future obligations of Vibra Healthcare and Vibra Healthcare II and their respective affiliates to us, including Kentfield Hospital.

Investment Rationale . Located within the Amarillo Medical District, we believe Vibra Rehabilitation Hospital of Amarillo receives referrals from the Northwest Texas Hospital, Baptist Saint Anthony’s Hospital, as well as Vibra’s own long-term acute care hospital, Vibra Hospital of Amarillo, and other medical providers all located within a two-mile radius of its campus. Vibra Rehabilitation Hospital of Amarillo operates 44 of the 76 rehabilitation beds in the Amarillo market and has generated strong financial results since being acquired in September 2013.

The facility is an inpatient hospital offering intense ongoing patient programs to individuals, primarily seniors, who have been impaired by an injury or illness and are considered by their physicians to be medically stable and physically able to begin a comprehensive rehabilitation program consisting of at least three hours of therapy a day, five days a week. Patients admitted benefit from specialized intense rehabilitation for medical needs that preclude them from being accepted into a lower level of care such as a skilled nursing facility.

All therapy programs are customized based on the individual’s existing abilities, tolerance for therapy and desired outcomes. Prospective patients require daily physician oversight, a minimum of two types of therapy and 24-hour nursing care. As a result of the level of care being provided to patients and the facility’s reputation in the Amarillo market, as well as Vibra Rehabilitation Hospital of Amarillo’s relationships with acute care providers, we believe the facility will continue to be the provider of choice in the Amarillo market for patients requiring rehabilitation services.

Mira Vista Court

Property Description . On February 20, 2015, we acquired Mira Vista from Performance Care Centers, LLC for $16.0 million and leased the property to a subsidiary of Fundamental Healthcare. Mira Vista is a 51,534 square foot skilled nursing facility located at 7021 Bryant Irvin Road, Fort Worth, Texas. Mira Vista is licensed for 142 beds.

Lease Terms . Upon the closing of the acquisition, we leased 100% of Mira Vista to an affiliate of THI of Baltimore, a wholly owned subsidiary of Fundamental Healthcare, pursuant to a triple-net lease, with the tenant

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responsible for all costs of the facility, including taxes, utilities, insurance, maintenance and capital improvements. The lease has a non-cancelable 12-year term, with two five-year extension options. The initial annual base rent under the lease is approximately $1.4 million, or 8.75% of the purchase price, payable in equal monthly installments. The annual base rent will increase each year by 2.0% of the prior year’s base rent.

Guaranty and Security . The lease is unconditionally guaranteed by THI of Baltimore, and the guaranty of THI of Baltimore is cross-defaulted and cross-collateralized with all other obligations of THI of Baltimore to us. In addition, the lease is secured by an assignment and pledge of substantially all of the assets of Mira Vista, subject to the intercreditor agreement between us and THI of Baltimore’s existing lender.

Investment Rationale . Mira Vista is located in the expanding southwest section of Fort Worth, Texas. Mira Vista began admitting patients in January 2014 and provides skilled nursing care and related services for residents who either need short-term rehabilitation services while recovering from surgery or require long-term nursing and medical supervision. Mira Vista also operates two in-house pulmonary designated wings. We believe the new state-of-the-art campus has been a significant upgrade from existing skilled nursing facilities in the southwest Fort Worth market.

In addition, we believe Mira Vista receives referrals from Texas Health Harris Methodist Hospital Southwest, a 222-bed general acute care hospital, as well as the 62-bed HealthSouth City View Rehabilitation Hospital, which are both approximately two miles from Mira Vista. As a result of these relationships, Mira Vista has benefited from a consistent step-down patient flow.

North Brownsville Medical Plaza

Property Description . On September 19, 2014, we acquired North Brownsville Medical Plaza, including the seller’s rights under the ground lease for the real property on which North Brownsville Medical Plaza is located, or the Brownsville Ground Lease, for approximately $15.1 million. North Brownsville Medical Plaza is a 67,682 square-foot medical office building located at 5700 North Expressway, Brownsville, Texas. As of March 31, 2016, the property was 83.1% leased.

Ground Lease Terms . The Brownsville Ground Lease expires in 2081, subject to two ten-year extension options, and provided for annual base rent of approximately $0.2 million in 2015, which will increase each year by 2.0% of the prior year’s annual base rent. Under the Brownsville Ground Lease, we, as lessee, have a right of first refusal in the event that the landlord intends to offer, or accept a third-party offer, for all or a portion of its fee simple interest in the land.

Tenant Leases . As of March 31, 2016, North Brownsville Medical Plaza had a total of 11 tenants under leases that provided for aggregate annualized base rent of approximately $1.4 million and had a weighted-average remaining lease term of 1.8 years. The following table sets forth information with respect to two tenants at North Brownsville Medical Plaza that together account for approximately 56.5% of the annualized base rent for the property as of March 31, 2016:


Tenant	Principal Nature of Business	Lease Expiration	Renewal Options	Total Leased GLA		% of Total Property GLA			Annualized Base Rent ⁽¹⁾		% of Property ABR			ABR per Leased Square Foot
VBOA ASC Partners (Tenet Healthcare)	Surgery Center	December 2017	N/A		19,482		28.8	%	$	522,507		36.3	%	$	26.82

Pain & Anesthesia Associates	Pain Management	February 2018	N/A		10,775		15.9	%	$	290,709		20.2	%	$	26.98

(1)	Annualized base rent excludes certain property operating expenses that are reimbursable by tenants, which are included as rental income.

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Investment Rationale . North Brownsville Medical Plaza is a state-of-the-art medical office building located in Brownsville, Texas. The Brownsville metropolitan area population and its sister city of Matamoras, Mexico has a population in excess of 750,000. We believe the building represents the latest in healthcare facility design and was planned to meet the high expectations and demands of the modern healthcare professional, as well as setting the standard for integrated medicine delivery. Physicians and patients have access to the latest in modern technology at the on-site surgery center, full modality diagnostic center, physical therapy center, lab and physician offices.

North Brownsville Medical Plaza also boasts convenient and accessible parking and first-class amenities. The building is currently leased to leading physicians and physician groups in the Brownsville medical community. Approximately 29% of the gross leasable area is leased to VBOA ASC Partners, which operates a large surgery and diagnostic center within the North Brownsville Medical Plaza. VBOA ASC Partners is owned by Tenet Healthcare and benefits from a high volume of patient flow and is one of the premier surgery centers in Brownsville, which provides us with a strong anchor tenant.

Debt Investment

Vibra Mortgage Loan

General . On August 1, 2014, we entered into a term loan and security agreement with Vibra Healthcare and certain of its affiliates to provide Vibra Healthcare and Vibra Healthcare II with a $10.0 million mortgage loan, or the Vibra Mortgage Loan.

Loan Terms . The Vibra Mortgage Loan provides for interest-only payments during the initial five-year term before automatically converting to a 15-year amortizing loan requiring payments of principal and interest. The Vibra Mortgage Loan incurs interest at a rate of 9.00% per annum. The Vibra Mortgage Loan may be prepaid during the initial five-year term only if Vibra Healthcare or Vibra Healthcare II, or one of their respective affiliates, enters into a sale-leaseback transaction with us equal to or exceeding $25.0 million in value.

Guaranty and Security . The Vibra Mortgage Loan is secured by a first mortgage lien on Vibra Hospital of Western Massachusetts, a 257,851 square-foot long-term acute care hospital located in Springfield, Massachusetts. In addition, the Vibra Mortgage Loan is unconditionally guaranteed by Vibra Healthcare Real Estate Company II, LLC and Vibra Hospital of Western Massachusetts, LLC, each a wholly owned subsidiary of Vibra Healthcare II. The obligations of Vibra Healthcare and Vibra Healthcare II, as co-borrowers, and of Vibra Healthcare Real Estate Company II, LLC and Vibra Hospital of Western Massachusetts, LLC, as guarantors, are cross-collateralized and cross-defaulted with the obligations and all collateral, if any, securing any existing and future obligations of such parties and their respective affiliates to us, including the lease of the Kentfield Hospital and Vibra Rehabilitation Hospital of Amarillo.

Investment Process

We believe our management team’s depth of experience in healthcare real estate, operations and finance provides us with unique perspective in underwriting potential investments. Our real estate and loan underwriting process focuses on both real estate and healthcare operations. The process includes a detailed analysis of the facility and the financial strength and experience of the tenant and its management. Key factors that we consider in the underwriting process include the following:

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the current, historical and projected cash flow and operating margins of each tenant and at each facility;

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the ratio of our tenants’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

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the quality and experience of the tenant and its management team;

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construction quality, condition, design and projected capital needs of the facility and property condition assessments;

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competitive landscape;

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drivers of healthcare-related needs;

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the location of the facility;

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local economic and demographic factors and the competitive landscape of the market;

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licensure and accreditation;

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the effect of evolving healthcare legislation and other regulations on our tenants’ profitability and liquidity; and

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the payor mix of private, Medicare and Medicaid patients at the facility.

We believe our underwriting process enables us to acquire desirable properties with strong tenants that will support our ability to deliver attractive risk-adjusted returns to our stockholders.

Sourcing and Initial Screening

Our management team has developed and maintains an extensive network of relationships among active participants within the healthcare services industry. These relationships include operators, developers, lawyers, architects, contractors, commercial bankers, investment bankers and private equity firms. We believe these broad reaching relationships will help identify potential healthcare properties for us to acquire and we intend to source acquisitions in off-market and target-marketed transactions from operators and developers with whom we have existing relationships.

Underwriting and Analysis

Once a potential healthcare property has been identified, we commence the initial due diligence process. This process generally consists of an initial meeting with the owner to discuss the salient aspects of a transaction in general terms and to obtain an idea of the physical and operational history of the property, including current use and configuration, and the expected purchase price range. We then typically discuss the general terms of a lease structure and begin to discuss the preliminary aspects of the lease, such as the initial lease payment, annual rent increases, lease payment coverage requirements and other financial covenants, the initial lease term, and any renewal options. If the property is suitable for lease to our TRS lessee, we would also begin discussions regarding the terms of a management agreement with the operator and possible improvements to increase operating performance and efficiency.

We then submit an initial due diligence list that requests information such as the land size, the building size and condition, environmental matters, a detailed description of improvements, a rent roll for properties with multiple tenants, an overview of the operational history which would include financial results, operational statistics, referral patterns and sources, payor mix, the various governmental oversight survey results and responses thereto, accreditation surveys and responses and the competitive landscape of the market. After evaluating the due diligence materials our management team makes a decision whether or not to pursue the opportunity.

Approval by Investment Committee and/or Board of Directors

Our investment committee is comprised of Messrs. McRoberts, Harlan, Mandelbaum, Pieri and Walraven. Messrs. Mandelbaum and Pieri are designees of BlueMountain. BlueMountain will continue to have the right to appoint two members of the investment committee for as long as BlueMountain is entitled to designate two nominees to our board of directors, and one member of the investment committee will be appointed by BlueMountain so long as BlueMountain is entitled to one nominee to our board of directors.

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For so long as BlueMountain maintains a designee on the investment committee:

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all acquisitions will be presented to the investment committee for approval;

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any acquisition for aggregate consideration of less than 5% of our assets (on a pro forma basis after giving effect to the acquisition) will require the approval of a majority of the members of the investment committee;

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any acquisition for aggregate consideration of greater than 5% of our assets (on a pro forma basis after giving effect to the acquisition) will require the approval of four members of the investment committee; and

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any acquisition for greater than 15% of our assets (on a pro forma basis after giving effect to the acquisition) will require the unanimous approval of the investment committee.

After our management team decides to pursue an acquisition opportunity, our management team prepares an in-depth investment package to be presented to the investment committee and, if applicable, our board of directors for approval. The investment package presented for approval typically includes the facility type, operator, operator parent company (lease guarantor), acquisition price (in gross dollars, per square foot, per bed, or other manner as deemed appropriate), operator and parent financial statements (3-5 years), operator statistical trends (payor mix, referral sources, patient acuity, etc.), initial lease term, initial lease rate, annual increases to lease rate, optional renewal periods, lease coverage, fixed charge coverage, financial covenants required, demographic and competitive information for the location, all of which are accompanied with a general discussion and summary of why our management team believes the acquired property is a good investment for us. If we propose to lease the property to our TRS lessee, the investment package includes lease terms with the TRS lessee, the terms of the engagement agreement with the operator and any plans for operational improvement.

Remaining Due Diligence and Closing

We engage legal counsel to prepare an asset purchase agreement, review the title report and the applicable federal, state or local regulatory compliance requirements. We typically engage third-party consultants to perform property appraisals, environmental assessments, structural analyses, ALTA surveys and other applicable inspections or reports prior to closing on the transaction. These third-party reports must be acceptable to us in our sole discretion prior to closing any transaction. In addition, we engage third-party specialists to conduct clinical due diligence regarding healthcare regulatory compliance, including reviewing healthcare surveys and interviewing clinical directors and other employees at the facility. Legal counsel is responsible for coordinating the flow of documents and reports and we do not close until all items are completed satisfactory to us.

Real Estate-Related Debt Investments

In addition to investing in healthcare facilities themselves, we intend to make additional opportunistic investments in real estate-related debt investments while maintaining compliance with the rules that are applicable to REITs. These real estate-related debt investments may include mortgages that are secured by healthcare properties, mezzanine loans that are subordinate to mortgage debt and are secured by pledges of the borrower’s ownership interests in the property and/or the entity that owns the property and construction loans that finance the development of healthcare properties, which we may use as a pathway to the ultimate acquisition of pre-leased properties. Our approach to underwriting and investing in real estate-related debt investments is similar to our process when seeking to directly purchase the underlying healthcare property as described in more detail above.

We intend to service our mortgage and mezzanine loans in-house and will monitor the credit quality of the borrower and the value of our collateral on an ongoing basis. For any construction loans, we may retain third parties to monitor the progress of the developments and service the construction loans.

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Competition

The market for making investments in healthcare properties is highly competitive and fragmented, and increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our investment objectives. In acquiring and leasing healthcare properties and providing financing to healthcare operators, we compete with financial institutions, institutional pension funds, private equity funds, real estate developers, other REITs, other public and private real estate companies and private real estate investors, many of whom have greater financial and operational resources and lower costs of capital than we have. We also face competition in leasing or subleasing available facilities to prospective tenants and entering into operating agreements with prospective operators.

Our tenants/operators compete on a local and regional basis with operators of facilities that provide comparable services. The basis of competition for our operators includes the quality of care provided, reputation, the physical appearance of a facility, price, the range of services offered, family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location and the size and demographics of the population and surrounding areas.

Regulation

Healthcare Regulatory Matters

The following discussion describes certain material healthcare laws and regulations that may affect our operations and those of our tenants/operators. The ownership and operation of hospitals, other healthcare properties and other healthcare providers are subject to extensive federal, state and local government healthcare laws and regulations. These laws and regulations include requirements related to licensure, conduct of operations, ownership of facilities, addition or expansion of facilities and services, prices for services, billing for services and the confidentiality and security of health-related information. Different properties within our portfolio may be more or less subject to certain types of regulation, some of which are specific to the type of facility or provider. These laws and regulations are wide-ranging and complex, may vary or overlap from jurisdiction to jurisdiction, and are subject frequently to change. Compliance with these regulatory requirements can increase operating costs and, thereby, adversely affect the financial viability of our tenants/operators’ businesses. Our tenants/operators’ failure to comply with these laws and regulations could adversely affect their ability to successfully operate our properties, which could negatively impact their ability to satisfy their contractual obligations to us. Our leases will require the tenants/operators to comply with all applicable laws, including healthcare laws.

We may be subject directly to healthcare laws and regulations, because of the broad nature of some of these restrictions, such as the Anti-kickback Statute discussed below. In some cases, especially in the event we own properties managed by third parties, regulatory authorities could classify us or our subsidiaries as an operating entity or license holder. Such a designation would significantly increase the regulatory requirements directly applicable to us and subject us to increased regulatory risk. We intend for all of our business activities and operations to conform in all material respects with all applicable laws and regulations, including healthcare laws and regulations. We expect that the healthcare industry will continue to face increased regulations and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services.

Healthcare Reform Measures . The Affordable Care Act has changed how healthcare services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced growth in Medicare program spending, reductions in Medicare and Medicaid Disproportionate Share Hospital, or DSH payments, and expanding efforts to tie reimbursement to quality and efficiency. In addition, the law reforms certain aspects of health insurance, contains provisions intended to strengthen fraud and abuse enforcement, and encourages the development of new payment models, including the creation of Accountable Care Organizations, or ACOs. On June 28, 2012, the United States Supreme Court struck down the portion of the Affordable Care Act that would have allowed HHS to penalize states that do not implement the law’s Medicaid expansion provisions with the loss of existing federal Medicaid funding. As a result, some states may choose not to implement the Medicaid expansion.

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Based on the Congressional Budget Office’s March 2015 projection, by 2017, the Affordable Care Act will expand coverage to 24 million additional individuals. This increased coverage will occur through a combination of public program expansion and private sector health insurance and other reforms that generally became effective in 2014. The primary public program coverage expansion will occur through changes in Medicaid with an expansion of the categories of individuals eligible for Medicaid coverage. The private sector expansion will come through new requirements applicable to health insurers, employers and individuals. For example, health insurers will be prohibited from imposing annual coverage limits and from excluding persons based upon pre-existing conditions. Individuals will be required to maintain health insurance for a minimum defined set of benefits or pay a tax penalty. Employers with 50 or more employees that do not offer health insurance will be held subject to a penalty if an employee obtains government-subsidized coverage through an insurance exchange created under the law.

The expansion of health insurance coverage under the Affordable Care Act may result in a material increase in the number of patients using our tenants/operator’s facilities who have either private or public program coverage. In addition, the creation of ACOs and related initiatives may create possible sources of additional revenue. However, our tenants/operators may be negatively impacted by the law’s payment reductions, and it is uncertain what reimbursement rates will apply to coverage purchased through the exchanges. It is difficult to predict the full impact of the Affordable Care Act due to the law’s complexity, limited implementing regulations or interpretive guidance, gradual and potentially delayed implementation, court challenges and possible amendment or repeal, as well as our inability to foresee how individuals, states and businesses will respond to the choices afforded them by the law.

Sources of Revenue and Reimbursement . Our tenants and operators will receive payments for patient services from the federal government under the Medicare program, state governments under their respective Medicaid or similar programs, managed care plans, private insurers and directly from patients. Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons, persons with end-stage renal disease and persons with Lou Gehrig’s Disease. Medicaid is a federal-state program, administered by the states, which provides hospital and medical benefits to qualifying individuals who are unable to afford healthcare. Generally, revenues for services rendered to Medicare patients are determined under a prospective payment system, or PPS. CMS annually establishes payment rates for the PPS for each applicable facility type.

Amounts received under Medicare and Medicaid programs are generally significantly less than established facility gross charges for the services provided and may not reflect the provider’s costs. Healthcare providers generally offer discounts from established charges to certain group purchasers of healthcare services, including private insurance companies, employers, health maintenance organizations, or HMOs, preferred provider organizations, or PPOs and other managed care plans. These discount programs generally limit a provider’s ability to increase revenues in response to increasing costs. Patients are generally not responsible for the total difference between established provider gross charges and amounts reimbursed for such services under Medicare, Medicaid, HMOs, PPOs and other managed care plans, but are responsible to the extent of any exclusions, deductibles or coinsurance features of their coverage. The amount of such exclusions, deductibles and coinsurance continues to increase. Collection of amounts due from individuals is typically more difficult than from governmental or third-party payers.

Payments to providers are being increasingly tied to quality and efficiency. These initiatives include requirements to report clinical data and patient satisfaction scores, reduced Medicare payments to hospitals based on “excess” readmission rates as determined by CMS, denial of payments under Medicare, Medicaid and some private payors for services resulting from a hospital or facility-acquired condition, or HAC, and reduced Medicare payments to hospitals with high risk-adjusted HAC rates. Certain provider types, including, but not limited to, inpatient rehabilitation facilities and long-term acute care hospitals, are subject to specific limits and restrictions on admissions which, in turn, affect reimbursement at these facilities.

The amounts of program payments received by our tenants/operators can be changed from time to time by legislative or regulatory actions and by determinations by agents for the programs. The Medicare and Medicaid

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statutory framework is subject to administrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare and Medicaid. Federal healthcare program reimbursement changes may be applied retroactively under certain circumstances. In recent years, the federal government has enacted various measures to reduce spending under federal healthcare programs including required cuts under the Affordable Care Act and “sequestration” reductions as required by the Budget Control Act of 2011. In addition, many states have enacted, or are considering enacting, measures designed to reduce their Medicaid expenditures and change private healthcare insurance, and states continue to face significant challenges in maintaining appropriate levels of Medicaid funding due to state budget shortfalls. Further, non-government payers may reduce their reimbursement rates in accordance with payment reductions by government programs or for other reasons. Healthcare provider operating margins may continue to be under significant pressure due to the deterioration in pricing flexibility and payor mix, as well as increases in operating expenses that exceed increases in payments under the Medicare and Medicaid programs.

Anti-Kickback Statute . A section of the Social Security Act known as the “Anti-kickback Statute” prohibits, among other things, the offer, payment, solicitation or acceptance of remuneration, directly or indirectly, in return for referring an individual to a provider of services for which payment may be made in whole or in part under a federal healthcare program, including the Medicare or Medicaid programs. Courts have interpreted this statute broadly and held that the Anti-kickback Statute is violated if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. The Affordable Care Act provides that knowledge of the Anti-kickback Statute or specific intent to violate the statute is not required in order to violate the Anti-kickback Statute. Violation of the Anti-kickback Statute is a crime, punishable by fines of up to $25,000 per violation, five years imprisonment, or both. Violations may also result in civil and administrative liability and sanctions, including civil penalties of up to $50,000 per violation, liability under the False Claims Act, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid, and additional monetary penalties in amounts treble to the underlying remuneration.

There are a limited number of statutory exceptions and regulatory safe harbors for categories of activities deemed protected from prosecution under the Anti-kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: certain investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, managed care arrangements, investments in group practices, freestanding surgery centers, ambulance replenishing and referral agreements for specialty services. The safe harbor for space rental arrangements requires, among other things, that the aggregate rental payments be set in advance, be consistent with fair market value and not be determined in a manner that takes into account the volume or value of any referrals. The fact that conduct or a business arrangement does not fall within a safe harbor does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities.

Many states have laws similar to the Anti-kickback Statute that regulate the exchange of remuneration in connection with the provision of healthcare services, including prohibiting payments to physicians for patient referrals. The scope of these state laws is broad because they can often apply regardless of the source of payment for care. Little precedent exists for their interpretation or enforcement. These statutes typically provide for criminal and civil penalties, as well as loss of facility licensure.

We intend to use commercially reasonable efforts to structure our arrangements, including any lease/operating arrangements involving facilities in which local physicians are investors, so as to satisfy, or meet as closely as possible, safe harbor requirements. The safe harbors are narrowly structured, and there are not safe harbors available for every type of financial arrangement that we or our tenants/operators may enter. Although it is our intention to fully comply with the Anti-kickback Statue, as well as all other applicable state and federal laws, we cannot assure you that all of our arrangements or the arrangements of our tenants/operators will meet all the conditions for a safe harbor. There can be no assurance regulatory authorities enforcing these laws will determine our financial arrangements or the financial relationships of our tenants/operators comply with the Anti-kickback Statute or other similar laws.

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Stark Law . The Social Security Act also includes a provision commonly known as the “Stark Law.” The Stark Law prohibits a physician from making a referral to an entity furnishing “designated health services” paid by Medicare or Medicaid if the physician or a member of the physician’s immediate family has a financial relationship with that entity. Designated health services include, among other services, inpatient and outpatient hospital services, clinical laboratory services, physical therapy services and radiology services. The Stark Law also prohibits entities that provide designated health services from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral. Sanctions for violating the Stark Law include denial of payment, civil monetary penalties of up to $15,000 per prohibited service provided for failure to return amounts received in a timely manner, and exclusion from the Medicare and Medicaid programs. The statute also provides for a penalty of up to $100,000 for a circumvention scheme. Failure to refund amounts received pursuant to a prohibited referral may also constitute a false claim and result in additional penalties under the False Claims Act, which is discussed in greater detail below.

There are exceptions to the self-referral prohibition for many of the customary financial arrangements between physicians and providers, including employment contracts, leases and recruitment agreements. There is also an exception for a physician’s ownership interest in an entire hospital, as opposed to an ownership interest in a hospital department. Unlike safe harbors under the Anti-Kickback Statute, an arrangement must comply with every requirement of a Stark Law exception, or the arrangement will be in violation of the Stark Law. Through a series of rulemakings, CMS has issued final regulations implementing the Stark Law. While these regulations were intended to clarify the requirements of the exceptions to the Stark Law, it is unclear how the government will interpret many of these exceptions for enforcement purposes.

Although there is an exception for a physician’s ownership interest in an entire hospital, the Affordable Care Act prohibits newly created physician-owned hospitals from billing for Medicare patients referred by their physician owners. As a result, the law effectively prevents the formation after December 31, 2010 of new physician-owned hospitals that participate in Medicare and Medicaid. While the Affordable Care Act grandfathers existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician ownership and significantly restricts their ability to expand services.

Many states also have laws similar to the Stark Law that prohibit certain self-referrals. The scope of these state laws is broad because they can often apply regardless of the source of payment for care, and little precedent exists for their interpretation or enforcement. These statutes typically provide for criminal and civil penalties, as well as loss of facility licensure.

Although our lease agreements will require lessees to comply with the Stark Law, we cannot offer assurance that the arrangements entered into by us or by our tenants/operators will be found to be in compliance with the Stark Law or similar state laws.

The False Claims Act . The federal False Claims Act prohibits knowingly making or presenting any false claim for payment to the federal government. The government may use the False Claims Act to prosecute Medicare and other government program fraud in areas such as coding errors, billing for services not provided, submitting false cost reports and failing to report and repay an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later. The False Claims Act defines the term “knowingly” broadly. Though simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity constitutes a “knowing” submission.

The False Claims Act contains qui tam, or whistleblower, provisions that allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government. Whistleblowers under the False Claims Act may collect a portion of the government’s recovery. Every entity that receives at least $5 million annually in Medicaid payments must have written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the False Claims Act, and similar state laws.

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In some cases, whistleblowers and the federal government have taken the position, and some courts have held, that providers who allegedly have violated other statutes, such as the Anti-kickback Statute and the Stark Law, have thereby submitted false claims under the False Claims Act. The Affordable Care Act clarifies this issue with respect to the Anti-kickback Statute by providing that submission of claims for services or items generated in violation of the Anti-kickback Statute constitutes a false or fraudulent claim under the False Claims Act. If a defendant is found liable under the False Claims Act, the defendant may be required to pay three times the actual damages sustained by the government, additional civil penalties of up to $10,000 per false claim, plus reimbursement of the fees of counsel for the whistleblower.

Many states have enacted similar statutes preventing the presentation of a false claim to a state government, and we expect more to do so because the Social Security Act provides a financial incentive for states to enact statutes establishing state level liability.

Other Fraud & Abuse Laws . There are various other fraud and abuse laws at both the federal and state levels that cover false claims and false statements and these may impact our business. For example, the Civil Monetary Penalties law authorizes the imposition of monetary penalties against an entity that engages in a number of prohibited activities. The penalties vary by the prohibited conduct, but include penalties of $10,000 for each item or service, $15,000 for each individual with respect to whom false or misleading information was given, and treble damages for the total amount of remuneration claimed. The prohibited actions include, but are not limited to, the following:

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knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way;

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knowingly giving or causing to be giving false or misleading information reasonably expected to influence the decision to discharge a patient;

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offering or giving remuneration to any beneficiary of a federal healthcare program likely to influence the receipt of reimbursable items or services;

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arranging for reimbursable services with an entity which is excluded from participation from a federal healthcare program; or

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knowingly or willfully soliciting or receiving remuneration for a referral of a federal healthcare program beneficiary.

Any violations of the Civil Monetary Penalties Law by management or our tenants/operators could result in substantial fines and penalties, and could have an adverse effect on our business.

HIPAA Administrative Simplification and Privacy and Security Requirements . HIPAA, as amended by the HITECH Act, and its implementing regulations create a national standard for protecting the privacy and security of individually identifiable health information (called “protected health information”). Compliance with HIPAA is mandatory for covered entities, which include healthcare providers such as tenants/operators of our facilities. Compliance is also required for entities that create, receive, maintain or transmit protected health information on behalf of healthcare providers or that perform services for healthcare providers that involve the disclosure of protected health information, called “business associates.” In January, 2013, HHS issued a final rule to implement regulations pursuant to the HITECH Act and also imposed certain additional obligations for covered entities and their business associates. The final rule became effective March 26, 2013, and covered entities and business associates have until September 23, 2013 to comply with most of these provisions. On September 19, 2013, HHS’s Office for Civil Rights announced a delay in the enforcement, until further notice, of the requirement that certain HIPAA—covered laboratories revise their notices of privacy practices to comply with certain provisions of HIPAA and the HITECH Act. In announcing the enforcement delay, HHS indicated that the Office for Civil Rights will issue a public notice at least 30 days in advance of the end of this enforcement delay. HHS previously had announced other enforcement delays under HIPAA and may, in the future, announce additional guidance that could affect the business of our tenants/operators subject to these laws.

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Covered entities must report a breach of protected health information that has not been secured through encryption or destruction to all affected individuals without unreasonable delay, but in any case no more than 60 days after the breach is discovered. Notification must also be made to HHS and, in the case of a breach involving more than 500 individuals, to the media. In the final rule issued in January, 2013, HHS modified the standard for determining whether a breach has occurred by creating a presumption that any non-permitted acquisition, access, use or disclosure of protected health information is a breach unless the covered entity or business associate can demonstrate that there is a low probability that the information has been compromised, based on a risk assessment.

Covered entities and business associates are subject to civil penalties for violations of HIPAA of up to $1.5 million per year for violations of the same requirement. In addition, criminal penalties can be imposed not only against covered entities and business associates, but also against individual employees who obtain or disclose protected health information without authorization. The criminal penalties range up to $250,000 and up to 10 years imprisonment. In addition, state Attorneys General may bring civil actions for HIPAA violations, HHS must conduct periodic HIPAA compliance audits of covered entities and business associates. If any of our tenants/operators are subject to an investigation or audit and found to be in violation of HIPAA, such tenants/operators could incur substantial penalties, which could have a negative impact on their financial condition. Our tenants/operators may also be subject to more stringent state law privacy, security and breach notification obligations.

Licensure, Certification and Accreditation . Healthcare property construction and operation are subject to numerous federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, fire prevention, rate-setting and compliance with building codes and environmental protection laws. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for our tenants/operators to make changes in their facilities, equipment, personnel and services.

Facilities in our portfolio will be subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We will require our healthcare properties to be properly licensed under applicable state laws. Except for provider types not eligible for participation in Medicare and Medicaid, we expect our operators/facilities to participate in the Medicare and Medicaid programs and, where applicable, to be accredited by an approved accrediting organization. The loss of Medicare or Medicaid certification would result in our tenants/operators that operate Medicare/Medicaid-eligible providers from receiving reimbursement from federal healthcare programs. The loss of accreditation, where applicable, would result in increased scrutiny by CMS and likely the loss of payment from non-government payers.

In some states, the construction or expansion of healthcare properties, the acquisition of existing facilities, the transfer or change of ownership and the addition of new beds or services may be subject to review by and prior approval of, or notifications to, state regulatory agencies under a Certificate of Need, or CON program. Such laws generally require the reviewing state agency to determine the public need for additional or expanded healthcare properties and services. The requirements for licensure, certification and accreditation also include notification or approval in the event of the transfer or change of ownership or certain other changes. Further, federal programs, including Medicare, must be notified in the event of a change of ownership or change of information at a participating provider. Failure by our tenants/operators to provide required federal and state notifications, obtain necessary state licensure and CON approvals could result in significant penalties as well as prevent the completion of an acquisition or effort to expand services or facilities. We may be required to provide ownership information or otherwise participate in certain of these approvals and notifications.

EMTALA . The EMTALA is a federal law that requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every individual who presents to the hospital’s emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either

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stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individual’s ability to pay for treatment. The government broadly interprets EMTALA to cover situations in which individuals do not actually present to a hospital’s emergency room, but present for emergency examination or treatment to the hospital’s campus, generally, or to a hospital-based clinic that treats emergency medical conditions or are transported in a hospital-owned ambulance, subject to certain exceptions.

Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition, an injured individual, the individual’s family or a medical facility that suffers a financial loss as a direct result of a hospital’s violation of the law can bring a civil suit against the hospital. Our leases will require any hospitals in our portfolio operate in compliance with EMTALA, but failure to comply could result in substantial fines and penalties.

Antitrust Laws . The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-competitive. These laws prohibit price fixing, concerted refusal to deal, market allocation, monopolization, attempts to monopolize, price discrimination, tying arrangements, exclusive dealing, acquisitions of competitors and other practices that have, or may have, an adverse effect on competition. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. Antitrust enforcement in the healthcare industry is currently a priority of the Federal Trade Commission and the Antitrust Division of the Department of Justice. We intend to operate so that we and our tenants/operators are in compliance with such federal and state laws, but future review by courts or regulatory authorities could result in a determination that could adversely affect the operations of our tenants/operators and, consequently, our operations.

Healthcare Industry Investigations . Significant media and public attention has focused in recent years on the healthcare industry. The federal government is dedicated to funding additional federal enforcement activities related to healthcare providers and preventing fraud and abuse. Our tenants/operators will engage in many of routine healthcare operations and other activities that could be the subject of governmental investigations or inquiries. For example, our tenants/operators will likely have significant Medicare and Medicaid billings, numerous financial arrangements with physicians who are referral sources, and joint venture arrangements involving physician investors. In recent years, Congress has increased the level of funding for fraud and abuse enforcement activities. It is possible that governmental entities could initiate investigations or litigation in the future and that such matters could result in significant costs and penalties, as well as adverse publicity. It is also possible that our executives could be included in governmental investigations or litigation or named as defendants in private litigation.

Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries and carriers, as well as the HHS-OIG, CMS and state Medicaid programs, may conduct audits of our tenants/operator’s operations. Private payers may conduct similar post-payment audits, and our tenants/operators may also perform internal audits and monitoring. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material, adverse effect on our portfolio’s financial position, results of operations and liquidity.

Under the Recovery Audit Contractor, or RAC program, CMS contracts with RACs on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program, to managed Medicare plans and in the Medicaid program. CMS has also initiated a RAC prepayment demonstration program in 11 states. CMS also employs Medicaid Integrity Contractors, or MICs to perform post-payment audits of Medicaid claims and identify overpayments. In addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review activities. Should any of our tenants/operators be found out of compliance with any of these laws, regulations or programs, our business, our financial position and our results of operations could be negatively impacted.

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Environmental Matters

A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare property operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability therefore could exceed or impair the value of the property, and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues. For a description of the risks associated with environmental matters, see “Risk Factors—We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.”

Prior to closing any property acquisition or loan, we obtain Phase I environmental assessments in order to attempt to identify potential environmental concerns at the facilities. These assessments will be carried out in accordance with an appropriate level of due diligence and will generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historic aerial photographs and other information on past uses of the property. We may also conduct limited subsurface investigations and test for substances of concern where the results of the Phase I environmental assessments or other information indicates possible contamination or where our consultants recommend such procedures.

Insurance

We have general liability insurance (lessor’s risk) that provides coverage for bodily injury and property damage to third parties resulting from our ownership of the healthcare properties that are leased to and occupied by our tenants. For our single-tenant properties, our leases with tenants also require the tenants to carry general liability, professional liability, all risks, loss of earnings and other insurance coverages and to name us as an additional insured under these policies. We believe that the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice.

Employees

As of the date of this prospectus, we have 11 employees.

Legal Proceedings

We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our financial condition or results of operations if determined adversely to us. We may be party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. There can be no assurance that these matters that arise in the future, individually or in aggregate, will not have a material adverse effect on our financial condition or results of operations in any future period.

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MANAGEMENT

Our Directors, Executive Officers and Other Key Personnel

Our board of directors consists of nine directors, seven of whom are considered independent in accordance with the requirements of the NYSE. Each member of our board of directors will serve for a one-year term and until their respective successors are duly elected and qualify.

For any meeting of our stockholders for the election of directors, our board of directors is required to nominate: (i) two BlueMountain directors so long as BlueMountain (A) continues to own 75% or more of the number of shares it purchased in the initial private placement or (B) beneficially owns at least 10% of our outstanding common stock; (ii) one BlueMountain director so long as BlueMountain (X) continues to own 50% or more of the number of shares it purchased in the initial private placement or (Y) beneficially owns at least 5% of our outstanding common stock; and (iii) no BlueMountain directors if BlueMountain has sold more than 50% of the number of shares it purchased in the initial private placement and beneficially owns less than 5% of our outstanding common stock.

The following table sets forth certain information regarding our directors, executive officers and other key personnel:


Name	Age	Position
John W. McRoberts	63	Chief Executive Officer and Chairman of the Board of Directors
William C. Harlan	65	President, Chief Operating Officer and Director
Jeffery C. Walraven	46	Executive Vice President and Chief Financial Officer
Forrest G. Gardner	43	Senior Vice President of Asset and Investment Management
David L. Travis	42	Senior Vice President and Chief Accounting Officer
Michael Hammill	34	Senior Vice President of Finance
Stephen F. Graham	56	Senior Vice President and Director of Post Acute Acquisition & Development
Randall L. Churchey*	55	Director
John D. Foy*	72	Director
Steven I. Geringer*	70	Director
Stephen L. Guillard*	66	Director
Elliott Mandelbaum*†	31	Director
Stuart C. McWhorter*	47	Director
James B. Pieri*†	38	Director

*	Independent within the meaning of the NYSE listing standards.

†	BlueMountain designees.

Biographical Summaries of Executive Officers, Directors and Other Key Personnel

The following is a summary of certain biographical information concerning our directors, executive officers and certain other officers:

John W. McRoberts, Chief Executive Officer and Chairman

Mr. McRoberts has served as our Chief Executive Officer and Chairman of our board of directors since the formation of the company. Mr. McRoberts has over 30 years of experience in financing, acquiring, and disposing of healthcare-related, income producing real estate properties. He also has founded, acquired, expanded and/or monetized several businesses, including a healthcare REIT, an inpatient rehabilitation and long-term acute care hospital company and a home health and hospice company. Mr. McRoberts was a co-founder, President and CEO of Capstone, a Birmingham, Alabama-based, healthcare REIT that became publicly traded in 1994 and was sold to Healthcare Realty Trust Incorporated in 1998.

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After Capstone, Mr. McRoberts founded Forsite, LLC, a communications tower company that was sold to Allied Capital (NYSE: ALD) in 2005. In 2001, Mr. McRoberts invested in, and subsequently become President and CEO of, MeadowBrook Healthcare, Inc., a private company that purchased and operationally restructured four under-performing hospitals that were subsequently sold in July 2005 to RehabCare Group (NYSE: RHB) and the real estate to SunTrust Corp (NYSE: STI). In April 2007, Mr. McRoberts acquired a controlling interest in Care First, Inc., a Birmingham, Alabama-based provider of home health and hospice services, which he sold in February 2015. From October 2010 to April 2012, Mr. McRoberts served as President of, and subsequently as a consultant for Carter Validus Advisors, LLC, the advisory company to Carter Validus Mission Critical REIT, where he was involved in sourcing acquisitions and sourcing and structuring mezzanine financings on healthcare properties.

Prior to his affiliation with Capstone, Mr. McRoberts spent 16 years with AmSouth Bank (now Regions Corp) in Birmingham, Alabama, where he served in several management capacities related to general commercial lending, including serving as the head general corporate banking in the greater Birmingham area, as well as head of communications lending and head of healthcare lending.

Mr. McRoberts holds both a Bachelor’s Degree in Business and a Master of Arts in Finance from The University of Alabama.

Mr. McRoberts was selected to serve as Chairman of our board of directors because of his experience managing healthcare real estate companies and healthcare operators.

William C. Harlan, President, Chief Operating Officer and Director

Mr. Harlan has served as our President, Chief Operating Officer and a director since the formation of our company. Mr. Harlan has nearly 30 years of experience in directly managing the financing, acquisition, and disposition of healthcare-related, income-producing real estate properties and multi-property portfolios located across the United States. He also has been heavily involved in capital formation of, corporate finance for, and executive management activities with, several healthcare-related service companies and healthcare REITs, both publicly traded and privately owned. Mr. Harlan was a co-founder, executive vice president and head of acquisitions & finance of Capstone, a Birmingham, Alabama-based, healthcare REIT that became publicly traded in 1994 and was sold to Healthcare Realty Trust Incorporated in 1998. From October 1999 to April 2002, Mr. Harlan served as executive vice president and head of acquisitions and finance for Cambridge Medical Development, a healthcare real estate firms that develops, owns and manages healthcare facilities. In January 2003, Mr. Harlan founded Healthcare Capital Investors, LLC, a healthcare real estate advisory and investment company, where he served as managing member until December 2010. From October 2010 to April 2012, Mr. Harlan served as head of healthcare of, and subsequently as a consultant for, Carter Validus Advisors, LLC, the advisory company to Carter Validus Mission Critical REIT, where he was involved in sourcing acquisitions and sourcing and structuring mezzanine financings on healthcare properties.

Prior to his affiliation with Capstone, Mr. Harlan spent almost 20 years with SouthTrust Bank in Birmingham, Alabama, or SouthTrust, where he was a member of senior management and sat on several loan committees. While at SouthTrust, Mr. Harlan founded the Healthcare Finance Division and completed in excess of $2.5 billion in aggregate loan transactions representing over 200 projects nationwide, with operators and developers within the healthcare industry.

Mr. Harlan holds a Bachelor’s Degree in Finance from Auburn University.

Mr. Harlan was selected to serve as a director because of his experience managing healthcare real estate companies and his background in finance.

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Jeffery C. Walraven, Executive Vice President and Chief Financial Officer

Mr. Walraven has served as our Executive Vice President and Chief Financial Officer since the formation of our company. Mr. Walraven has 23 years of experience, including 22 years of public accounting experience, serving many public REIT clients since 1999. From 2006 to 2013, Mr. Walraven held several positions with BDO USA, LLP (PSE: BDO), most recently an assurance managing partner of the Memphis, Tennessee office, where his primary responsibilities included providing core and peripheral assurance services and business operational and tax consulting services. Mr. Walraven worked extensively with publicly-traded companies on all aspects of compliance with Securities Act and Exchange Act filings, including quarterly, annual and special reports, and compliance relating to acquisitions, dispositions and securities offerings. Mr. Walraven has had engagement partner responsibility for numerous public and private securities offering by REITs and other clients, including initial public offerings, secondary offerings and private placements.

Mr. Walraven holds a Bachelor’s Degree in Financial Management from Bob Jones University, and a Masters of Professional Accountancy from Clemson University, and is a licensed Certified Public Accountant in Tennessee and Florida.

Forrest G. Gardner, Senior Vice President of Asset and Investment Management

Mr. Gardner has served as our Senior Vice President of Asset and Investment Management since the completion of the initial private placement in July 2014. Mr. Gardner is responsible for evaluating investment opportunities, assisting in the daily asset management of our investments, overseeing third-party property management and leasing, and monitoring actual property performance. Additionally, Mr. Gardner’s responsibilities include identifying new investment opportunities and overseeing the due diligence and financing arrangements for each investment.

Prior to joining our company, Mr. Gardner co-founded in 2006 Ambulatory Services of America, Inc. (“ASA”), a privately-held diversified healthcare provider which was sold in August 2013 to US Renal Care, Inc. for approximately $700 million. During that time, Mr. Gardner served as Vice President of Finance, Controller and Chief Financial Officer of a primary operating subsidiary of ASA. From 2001 to 2006, Mr. Gardner served as Vice President, Finance for Renal Care Group, Inc. (NYSE: RCI), a specialized dialysis company serving 32,000 patients across a 34-state network. Renal Care Group was acquired by Fresenius Medical Care AG & Co. (NYSE: FMS) for $3.5 billion in March 2006.

Mr. Gardner graduated with honors from Harding University with a Bachelor of Science in Accounting.

David L. Travis, Senior Vice President and Chief Accounting Officer

Mr. Travis has served as our Senior Vice President and Chief Accounting Officer since August 1, 2014. Mr. Travis has approximately 18 years of accounting experience and is a certified public accountant. From December 2006 to July 2014, Mr. Travis served as the Senior Vice President and Chief Accounting Officer of Healthcare Realty Trust Incorporated (NYSE: HR). From September 1996 until December 2006, Mr. Travis was an accountant with Ernst & Young LLP, most recently serving as Audit Senior Manager.

Mr. Travis holds a Bachelor of Business Administration degree in Accounting from The University of Memphis.

Michael Hammill, Senior Vice President of Finance

Mr. Hammill has served as our Senior Vice President of Finance since May 2015. Prior to joining the Company, Mr. Hammill was in the investment banking division at FBR Capital Markets & Co. from October 2012 to May 2015, most recently as a Vice President. At FBR, Mr. Hammill advised corporate clients on their financing needs as well as mergers and acquisitions opportunities within the Real Estate and Financial Institutions groups. He also was involved in securities offerings, including initial public offerings and private

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placements, by REITs and other companies, including our initial private placement in July 2014. Prior to FBR, Mr. Hammill worked at the Federal Reserve Bank of Atlanta from September 2005 to October 2012, where he was most recently a specialist focused on assessing credit risks within the commercial banking industry.

Mr. Hammill holds a Bachelor of Science degree in Economics and a Masters of Business Administration from The Pennsylvania State University and holds the Chartered Financial Analyst ^® designation.

Stephen F. Graham, Senior Vice President and Director of Post Acute Acquisition & Development

Mr. Graham has served as our Senior Vice President and Director of Post Acute Acquisition and Development since June 2015. From February 2015 to June 2015, Mr. Graham served as a Principal with Infinium Healthcare where he provided operational, development and mergers and acquisitions services. Prior to Infinium Healthcare, Mr. Graham served as the Managing Director of Mergers & Acquisitions at Lancaster Pollard from May 2014 to January 2015, where he focused on structuring healthcare mergers and acquisitions. From February 2007 to December 2013, Mr. Graham served as a Senior Investment Officer of Nationwide Health Properties, Inc. (NYSE: NHP), which was acquired by Ventas, Inc. (NYSE: VTR) in July 2011 and now operates as its wholly owned subsidiary, where he was responsible for sourcing, structuring and purchasing skilled nursing and senior housing properties. Previously, he gained seven years of operating experience with a private multi-state skilled nursing and senior housing operator.

Mr. Graham holds a Bachelor of Business Administration degree in Business from Southern Methodist University, and a degree in Bank Management from Southwestern Graduate School of Banking at Southern Methodist University.

Randall L. Churchey, Independent Director

Mr. Churchey has served as a director since the completion of the initial private placement in July 2014. Mr. Churchey has served as President, Chief Executive Officer and a member of the board of directors of Education Realty Trust, Inc. (NYSE: EDR) since 2010, and was a member of its board of directors from 2005 to 2007. Effective January 2015, Mr. Churchey was appointed Chairman of EDR’s board of directors. Mr. Churchey is also the founder and Co-Chairman of the board of directors of MCR Development, LLC, a private hotel construction, ownership and management company. From December 2004 until the sale of the company to a private equity firm in May 2012, Mr. Churchey was a member of the board of directors of Great Wolf Resorts, Inc., a public indoor water park resort company, and was the Interim Chief Executive Officer of Great Wolf from May 2008 until December 2008. He was President and Chief Executive Officer and a member of the board of directors of Golden Gate National Senior Care (the successor to Beverly Enterprises) from March 2006 to September 2007. Mr. Churchey served as President and Chief Operating Officer of RFS Hotel Investors, Inc., a NYSE-listed hotel REIT (NYSE: RFS), from 1999 to 2003, and a director of RFS from 2000 through 2003. From 2004 until its sale in 2008, Mr. Churchey served on the Board of Trustees of Innkeepers USA Trust, a publicly-traded REIT (NYSE: KPA). From 1997 to 1999, he was Senior Vice President and Chief Financial Officer of FelCor Lodging Trust, Inc., a NYSE-listed hotel REIT (NYSE: FCH). Mr. Churchey was added to the board of governors of the National Association of Real Estate Investment Trusts in November 2013.

Mr. Churchey was selected to serve as a director because of his public company experience and his experience in the real estate industry.

John D. Foy, Independent Director

Mr. Foy has served as a director since the completion of the initial private placement in July 2014. John D. Foy retired from CBL & Associates Properties, or CBL, a real estate investment trust, in December 2012. He served as Vice Chairman of the Board of Directors and Treasurer of CBL from February 1999 to December 2012 and as a director and Chief Financial Officer from the completion of CBL’s initial public offering in November 1993 until his retirement in December 2012. From November 1993 until February 1999 he served as Executive

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Vice President—Finance, Chief Financial Officer and Secretary of the CBL, and resumed the role of Secretary in January 1, 2010. Mr. Foy was a member of the Executive Committee of CBL’s board of directors. Prior to CBL’s formation, he served in similar executive capacities with CBL’s predecessor. Mr. Foy has been involved in the shopping center industry since 1968 when he joined the Lebovitz family’s shopping center development business. In 1970, he became affiliated with the shopping center division of Arlen Realty & Development Corp., and, in 1978, joined Charles B. Lebovitz in establishing CBL’s predecessor. Mr. Foy served as the non-executive chairman of the board of directors of First Fidelity Savings Bank in Crossville, Tennessee from December 1985 until April 1994. Mr. Foy has served as chairman of the board of directors of Chattanooga Neighborhood Enterprise, a non-profit organization based in Chattanooga, Tennessee, and currently serves as a member of the Board of Trustees of the University of Tennessee, and as a member of the board of directors of the Electric Power Board of Chattanooga, a non-profit agency of the City of Chattanooga, Tennessee. He is a former member of the Board of Governors of the National Association of Real Estate Investment Trusts.

Upon his retirement from CBL in December of 2012, Mr. Foy formed a group of companies specializing in various industries including business strategy and consulting, wealth management, capital investing, real estate development and health care. Mr. Foy is Chairman, Chief Executive Officer and owner of Noon LLC, and Chairman of Noon Management, LLC, a private equity company headquartered in Chattanooga, Tennessee.

Mr. Foy received his Bachelor of Science degree in History from Austin Peay State University and a Doctor of Jurisprudence degree from the University of Tennessee.

Mr. Foy was selected to serve as a director because of his governance experience and his experience in the real estate industry.

Steven I. Geringer, Independent Director

Mr. Geringer has served as a director since August 2015. Mr. Geringer is currently a Senior Advisor to Alvarez & Marsal, having previously served as Managing Director & Co-Practice Leader-Healthcare Industry Private Equity from December 2012 to April 2015. Mr. Geringer has extensive experience on the boards of several public companies, most notably with Amsurg (NASDAQ: AMSG), where he has been Chairman of the Board since June 2009 and a director since March 1997, and as a director of Addus HomeCare Corp (NASDAQ: ADUS), since 2009. He is also Chairman of Imedex; a director of WoundCare Specialists and Stratasan; and, from December 2009 to July 2012, served as Chief Executive Officer and a director of InfuScience, Inc. He was also a Founder and Chairman of Qualifacts Systems until its sale in July 2014, and Chairman and Operating Partner of CredenceHealth until its sale in April 2011. Mr. Geringer also serves as a Member of the Executives Council of Cressey & Co., a private equity firm investing exclusively in healthcare businesses. Mr. Geringer has also held senior management positions in the hospital management and managed care industry.

Mr. Geringer holds a Bachelor of Science degree in Economics from the Wharton School of the University of Pennsylvania.

Mr. Geringer was selected to serve as a director because of his experience in the healthcare industry and his experience as a senior executive and director of other public companies.

Stephen L. Guillard, Independent Director

Mr. Guillard has served as a director since August 2015. Since January 2012, Mr. Guillard has served as a consultant in the long-term care and post-acute sectors. Previously, from May 2005 to December 2011, Mr. Guillard served as an Executive Vice President, the Chief Operating Officer and a member of the board of directors of HCR ManorCare, an Ohio-based healthcare company. Prior to joining HCR ManorCare, from May 1988 to May 2005, Mr. Guillard was the Chairman and Chief Executive Officer of Harborside Healthcare, a Boston-based, post-acute services firm. Mr. Guillard was a founding member of the Alliance for Quality Nursing

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Home Care and has served as Chairman of this coalition at various times since its inception in May 1999, and as a member of its Executive Committee from inception until its merger with the American Health Care Association in June 2013. He is currently a director of Trilogy Investors, LLC, a Louisville-based owner and operator of senior healthcare campuses, and previously served on the boards of naviHealth, Inc. from 2012 until its sale to Cardinal Health (NYSE: CAH) in September 2015, and Health Management Associates (NYSE: HMA) from August 2013 until its merger with Community Health Systems (NYSE: CHS) in February 2014.

Mr. Guillard holds a Bachelor of Science degree in Psychology from King’s College and a Master’s Degree in Public Administration from The Pennsylvania State University.

Mr. Guillard was selected to serve as a director because of his experience in the healthcare industry and his experience as a senior executive and director of other public companies.

Elliott Mandelbaum, Independent Director

Mr. Mandelbaum has served as a director since the completion of the initial private placement in July 2014. Mr. Mandelbaum serves as a portfolio manager at BlueMountain with a focus on healthcare and real estate related strategies. Prior to joining Blue Mountain in July 2013, from July 2009 through June 2013, Mr. Mandelbaum served as a Vice President in the Investment Banking Division of MESA Securities, Inc., where Mr. Mandelbaum led many of the firm’s structured financing transactions. Prior to MESA, Mr. Mandelbaum worked within the Investment Banking Division at Goldman, Sachs & Co., where he advised corporate clients on their financing needs with a particular focus on structured finance markets, originating securities and loans collateralized by insurance, real estate and intellectual property assets.

Mr. Mandelbaum holds a Bachelor of Science degree in Business Management from the Johns Hopkins University.

Mr. Mandelbaum was selected to serve as a director because of his experience in both the healthcare and real estate industries.

Stuart C. McWhorter, Independent Director

Mr. McWhorter has served as a director since the completion of the initial private placement in July 2014. Mr. McWhorter is the Chairman and Chief Executive Officer of the Nashville Entrepreneur Center and is also the co-founder of Clayton Associates. Clayton Associates is an investment firm that makes seed, angel and venture-stage investments in healthcare and technology companies. He also serves on the Investment Committee of Bullpen Ventures and Advisory Board of FCA Venture Partners and Rolling Hills Ventures.

Prior to Clayton Associates, Mr. McWhorter served as Chairman and Chief Executive Officer of Medical Reimbursements of America and was a founding member of OrthoLink Physicians Corporation, where he served as Vice President of Managed Care, and later as Vice President of Acquisitions. OrthoLink was acquired by United Surgical Partners (NASDAQ: USPI). He also served in various operating roles with Brookwood Medical Center, a Tenet-owned hospital system in Birmingham, Alabama.

Mr. McWhorter serves on the board of directors for Haven Behavioral Healthcare (since 2007), FirstBank of Tennessee (since 2005) and Medical Reimbursements of America (since 1999), where he also serves as Chairman.

Mr. McWhorter holds a Bachelor’s Degree in Management from Clemson University and a Masters in Health Administration from the University of Alabama-Birmingham.

Mr. McWhorter was selected to serve as a director because of his experience investing in healthcare companies, as well as his strong connections within the healthcare industry.

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James B. Pieri, Independent Director

Mr. Pieri has served as a director since the completion of the initial private placement in July 2014. Mr. Pieri is a portfolio manager at BlueMountain, where he is responsible for the firm’s Structured Corporate and Commercial Real Estate strategies. Prior to joining BlueMountain in 2012, from January 2011 until July 2012, Mr. Pieri served as Managing Director at Deutsche Bank, running the structuring effort for the Financial Institutions Group. Prior to his role at Deutsche Bank, Mr. Pieri ran the Cross Asset Structuring & Origination group at J.P. Morgan within the Credit & Rates Markets division.

Mr. Pieri holds a Bachelor’s degree in Applied Economics & Business Management from Cornell University and a Masters in Economic Policy & Management from the School of International & Public Affairs at Columbia University.

Mr. Pieri was selected to serve as a director because of his experience in both the healthcare and real estate industries.

Additional Background of Certain of Our Executive Officers

Messrs. McRoberts and Harlan both have at least approximately 30 years of experience in financing, acquiring, and disposing of healthcare-related, income producing real estate properties. In addition, Messrs. McRoberts and Harlan have worked together as co-founders and principals of Capstone, a Birmingham, Alabama-based, healthcare REIT that became publicly traded in 1994 and was sold to Healthcare Realty Trust Incorporated in 1998.

Capstone

Capstone was a publicly traded REIT focused on the ownership of healthcare properties and real-estate debt investments and which, at the time of its merger, owned or had investments in 159 healthcare properties located in 30 states. In 1993 when Capstone was established as a private company, Mr. McRoberts was a co-founder, President and CEO and Mr. Harlan was a co-founder, executive vice president and head of acquisitions & finance. As leaders of the senior management team, Messrs. McRoberts and Harlan were instrumental in the investment decisions of Capstone, but were subject to the oversight of the full board of directors and were not solely responsible for such investment decisions. Capstone completed its initial public offering in June 1994 and merged with Healthcare Realty Trust Incorporated in October 1998. From the time of its initial public offering through the time of its merger, Capstone generated a total return of 62.8% to investors (assuming reinvestment of all cash distributions paid by Capstone on its common stock during that period in additional shares of common stock). During the period beginning with the inception of the RMS, as defined below, in December 1994 through Capstone’s merger with Healthcare Realty Trust Incorporated in October of 1998, Capstone generated a total return to its investors of 82.8% (assuming reinvestment of all cash distributions paid by Capstone on its common stock during that period in additional shares of common stock) compared to an RMS total return of 42.9%. We can provide no assurances, however, that Capstone’s stock performance was not impacted by general market trends and other external factors unrelated to management’s performance.

The MSCI US REIT Index (End of Day Index Symbol: RMS) is a free float-adjusted market capitalization weighted index that represents approximately 85% of the publicly-traded U.S. REIT market, with each REIT in the index having a market capitalization of at least $100 million. It is comprised of equity REIT securities that are included in the MSCI US Investable Market 2500 Index, or the MCSI USA IMI, which includes all securities in the MSCI USA Large Cap, MSCI USA Mid Cap and MSCI USA Small Cap Indexes. All REITs in the MSCI USA IMI are eligible for inclusion except for REITs in the Mortgage REITs Sub-Industry and REITs in the Specialized REITs Sub-Industry that do not generate the majority of their revenue and income from real estate rental and related leasing operations. The MSCI US REIT Index includes only REIT securities that are of reasonable size in terms of full and free float-adjusted market capitalization to ensure that the performance of the

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equity REIT universe can be captured and replicated in actual institutional and retail portfolios of different sizes. The REITs that are included in the MSCI US REIT Index reflect a broad spectrum of real estate sectors, including REITs that operate in the office, retail, hotel, multifamily, industrial, healthcare and storage sectors in one or more regions of the United States or across the entire United States. We believe that the MSCI US REIT Index is an industry benchmark used by investors for purposes of comparing stock performance and stockholder returns. However, comparison of Capstone’s stock performance to the performance of the MSCI US REIT Index may be limited due to the differences between Capstone and the other companies represented in the index, including with respect to size, asset type, geographic concentration and investment strategy. The information regarding total return to stockholders achieved by Capstone is not a guarantee or prediction of the returns that we may achieve in the future, and we can offer no assurance that we will be able to replicate these returns.

The table below provides a comparison of Capstone’s stock performance against the MSCI US REIT Index.

Capstone Total Return


	Partial Year from 1/1/1998 to sale 10/15/1998			Year- End 1997(1)			Year- End 1996			Year- End 1995(2)			6/30/1994 (Inception) to 12/31/1994
Total Return
Capstone Capital Corp		-14.5	%		23.8	%		27.6	%		35.3	%		-11.0	%
RMS		-21.4	%		18.6	%		35.9	%		12.9	%		NA

(1)	Last full calendar year of operation; Capstone was sold to Healthcare Realty Trust Incorporated in October 1998.

(2)	First full calendar year of operation following the initial public offering.

Similar to other REITs, Capstone faced various adverse business developments. For example, in 1998 Capstone experienced a general downturn in its stock price, as did other REITs, reflecting general global economic and market conditions and general weak demand for real estate investments. Also in the mid-1990s, uncertainty related to the health care industry generally posed challenges to those with investments in the health care real estate industry and stemmed from increased governmental and private payor pressure on health care providers to control costs, the migration of patients from acute care facilities into extended care and home care settings, and the vertical and horizontal consolidation of health care providers. These changes, including reductions in reimbursement levels under Medicare, Medicaid and private payor programs, created uncertainty with respect to Capstone being able to meet its financial performance expectations. In addition, from time to time, in the ordinary course of business, Capstone had properties that underperformed or failed to meet operational or financial expectations.

Corporate Governance—Board of Directors and Committees

Our business is managed through the oversight and direction of our board of directors. At least a majority of our directors are considered “independent,” as defined by the rules of the NYSE. Our independent directors must be recommended for nomination by our nominating and corporate governance committee.

Currently, our board of directors consists of nine members. Our directors are not required to devote all of their time to our business and are only required to devote as much time to our affairs as their duties require. Our directors generally meet quarterly or more frequently if necessary. The directors are regularly kept informed about our business at meetings of the board of directors and its committees and through supplemental reports and communications. Our non-management or independent directors meet regularly in executive sessions without the presence of any corporate officers. Our board of directors seeks to maintain high corporate governance standards.

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Our board of directors has established three standing committees, the principal functions of which are briefly described below. Matters put to a vote of any one of our three committees must be approved by a majority of the directors on the committee who are present at a meeting at which there is a quorum or by unanimous written or electronic consent of the directors on that committee.

Investment Committee

We have established an investment committee comprised of Messrs. McRoberts, Harlan, Mandelbaum, Pieri and Walraven. Messrs. Mandelbaum and Pieri are designees of BlueMountain. BlueMountain has the right to appoint two members of the investment committee for as long as BlueMountain is entitled to designate two nominees to our board of directors, and one member of the investment committee will be appointed by BlueMountain so long as BlueMountain is entitled to one nominee to our board of directors.

For so long as BlueMountain maintains a designee on the investment committee:

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all acquisitions are presented to the investment committee for approval;

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any acquisition for aggregate consideration of less than 5% of our assets (on a pro forma basis after giving effect to the acquisition) requires the approval of a majority of the members of the investment committee;

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any acquisition for aggregate consideration of greater than 5% of our assets (on a pro forma basis after giving effect to the acquisition) requires the approval of four members of the investment committee; and

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any acquisition for greater than 15% of our assets (on a pro forma basis after giving effect to the acquisition) requires the unanimous approval of the investment committee.

Risk Committee

We have established a risk committee comprised of Messrs. McRoberts, Harlan, Mandelbaum, Pieri and Walraven. Messrs. Mandelbaum and Pieri are designees of BlueMountain. The risk committee assists our board of directors in its oversight of our risk management process. Among other things, the risk committee is responsible for setting and reinforcing underwriting standards and monitoring policies and exposure limits in our portfolio, including with respect to geographic, operator and asset-type concentration. One of the directors designated by BlueMountain has the right to serve on our risk committee for so long as such individual serves on our board of directors.

Role of the Board in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors has established a risk committee to assist in its oversight of our risk management process, with support from the audit committee, the compensation committee, the nominating and corporate governance committee, each of which addresses risks specific to their respective areas of oversight. In particular, our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

Board Committees

Our board of directors has established three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. The principal functions of each committee are briefly described below. We comply with the listing requirements and other rules and regulations of the NYSE,

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as amended or modified from time to time, and each of these committees is comprised exclusively of independent directors. Additionally, our board of directors may from time to time establish certain other committees to facilitate the management of our company.

Audit Committee

Our audit committee is comprised of Messrs. Churchey, Foy and Guillard. Mr. Foy, the chairman of our audit committee, qualifies as an “audit committee financial expert” as that term is defined by the applicable SEC and NYSE corporate governance listing standards. The audit committee assists the board of directors in overseeing, among other things (1) our accounting and financial reporting processes, (2) the integrity and audits of our consolidated financial statements, (3) our compliance with legal and regulatory requirements, (4) the qualifications and independence of our independent auditors and (5) the performance of our internal and independent auditors.

Compensation Committee

Our compensation committee is comprised of Messrs. Churchey, Geringer, McWhorter and Pieri, with Mr. Churchey serving as chairman. The compensation committee’s main functions is to (1) evaluate the performance of our executive officers, (2) review and approve the compensation for our executive officers, (3) review and make recommendations to the board with respect to our 2014 Equity Incentive Plan and (4) administer the issuance of any equity incentive awards under our 2014 Equity Incentive Plan to our directors, officers and employees.

The compensation committee also reviews and approves corporate goals and objectives relevant to chief executive officer compensation, evaluates the chief executive officer’s performance in light of those goals and objectives, and establishes the chief executive officer’s compensation levels based on its evaluation. The compensation committee has the authority to retain any compensation consultant to be used to assist in the evaluation of chief executive officer or other executive officer compensation.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee is comprised of Messrs. Geringer, Guillard, Mandelbaum and McWhorter, with Mr. McWhorter serving as chairman. The nominating and corporate governance committee is responsible for seeking, considering and recommending to the board of directors qualified candidates for election as directors and recommending a slate of nominees for election as directors at the annual meeting. It also periodically prepares and submits to the board for adoption the committee’s selection criteria for director nominees. It reviews and makes recommendations on matters involving general operation of our board of directors and our corporate governance, and annually recommends to the board of directors nominees for each committee of the board.

Compensation Committee Interlocks and Insider Participation

None of our executive officers has served as a member of the board of directors, or as a member of the compensation committee or other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee during the year ended December 31, 2015.

Compensation of Directors

As compensation for serving on our board of directors, each of our independent directors receives an annual fee of $100,000. Directors’ fees are paid 50% in cash and 50% in shares of restricted common stock issued under our 2014 Equity Incentive Plan, which vest ratably on each of the first three anniversaries of the date of grant. The chairmen of the compensation and nominating and corporate governance committees each receive an

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additional $7,500 per year and the audit committee chairman receives an additional $10,000 per year. Directors who are also officers or employees of our company receive no additional compensation as directors. In addition, we reimburse our directors for their reasonable out-of-pocket expenses incurred in attending board of directors and committee meetings. BlueMountain’s director designees contribute to BlueMountain any compensation that they receive as our directors.

Upon joining our board of directors, each independent director received a grant of $50,000 in restricted shares of our common stock. All restricted shares granted to independent directors vest ratably on each of the first three anniversaries of the date of grant, subject to the director’s continued service on our board of directors. Messrs. Mandelbaum and Pieri transferred to BlueMountain the restricted shares of our common stock that they received upon joining our board of directors.

Our board of directors may change the compensation of our independent directors in its discretion.

The following table provides information on the compensation for our non-employee directors for their services during the year ended December 31, 2015.


Name	Fees Earned or Paid in Cash		Stock Awards		All Other Compensation		Total
Randall L. Churchey	$	57,500	$	49,995	$	4,504	$	111,999
John D. Foy		60,000		49,995		4,504		114,499
Steven I. Geringer ⁽²⁾		18,750		66,490		1,583		86,823
Stephen L. Guillard ⁽²⁾		18,750		66,490		1,583		86,823
Elliott Mandelbaum		50,000		49,995		4,504		104,499
Stuart C. McWhorter		57,500		49,995		4,504		111,999
James B. Pieri		50,000		49,995		4,503		104,498

(1)	Represents the grant date fair value of awards of restricted shares of common stock granted under our 2014 Equity Incentive Plan.

(2)	Messrs. Geringer and Guillard joined our board of directors in August 2015, and as a result, received compensation for a portion of the year ended December 31, 2015.

Executive Compensation

The table below sets forth a summary of all compensation earned, awarded or paid, as applicable, to our executive officers in the fiscal years ended December 31, 2014 and December 31, 2015.


Name and Principal Position	Year		Salary ⁽¹⁾		Bonus		Stock Awards ⁽²⁾		All Other Compensation			Total
John W. McRoberts		2015	$	379,167	$	402,500	$	1,288,379	$	65,529	⁽³⁾	$	2,135,575
Chief Executive Officer		2014		240,625		240,625		1,083,145		3,495			1,567,890

William C. Harlan		2015		379,167		402,500		1,288,379		45,887	⁽⁴⁾		2,115,933
President and Chief Operating Officer		2014		240,625		240,625		1,083,145		3,495			1,567,890

Jeffery C. Walraven		2015		270,833		287,500		644,163		32,940	⁽³⁾		1,235,436
Chief Financial Officer		2014		171,875		171,875		242,502		728			586,980

(1)

Amounts for 2014 represent the portion of annual base salary for the period commencing on April 23, 2014, our date of formation, and ended December 31, 2014, based on the following annual salaries: Mr. McRoberts—$350,000; Mr. Harlan—$350,000; and Mr. Walraven—$250,000. In August 2015, the employment agreements with these executives were amended and restated, and the annual base salaries were increased as described under “—Employment Agreements.”

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(2)

Represents the grant date fair value of awards of restricted shares of common stock and restricted stock units granted under our 2014 Equity Incentive Plan as described below under “—Equity Grants.” For restricted stock units, the grant date fair value was determined using a Monte Carlo valuation model. See Note 8 of the notes to our consolidated financial statements for the year ended December 31, 2015, included elsewhere in this prospectus.

(3)

This amount represents (i) dividends earned on unvested restricted shares issued under the Company’s 2014 Equity Incentive Plan, (ii) life, disability, executive health and wellness and long-term care benefits available under the relevant employment agreement, and (iii) parking at our corporate offices. The following amounts were paid as dividends on unvested restricted shares during 2015: Mr. McRoberts—$45,887; and Mr. Walraven—$14,862.

(4)	This amount represents the dividends earned on unvested restricted shares issued under the Company’s 2014 Equity Incentive Plan.

Equity Grants

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Time-Vesting Restricted Stock. Concurrently with the completion of the initial private placement and in accordance with our 2014 Equity Incentive Plan, we issued 43,684, 43,684, and 9,780 restricted shares of common stock to Messrs. McRoberts, Harlan and Walraven, respectively, all of which will vest on July 31, 2017, subject to their continued employment on such date. On July 31, 2015, we issued 43,733, 43,733 and 21,866 restricted shares of common stock to Messrs. McRoberts, Harlan and Walraven, respectively, all of which will vest on July 31, 2018, subject to their continued employment on such date.

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Performance-Vesting Restricted Stock Units . Concurrently with the completion of the initial private placement and in accordance with our 2014 Equity Incentive Plan, we granted an aggregate of 65,526, 65,526, and 14,671 performance-vesting restricted stock units to Messrs. McRoberts, Harlan and Walraven, respectively, which will vest on July 31, 2017, based on the achievement of absolute total return to stockholders (“TSR”) (50% weighting) and relative TSR as compared to the performance of the RMS (50% weighting). On July 31, 2015, we granted an aggregate of 65,600, 65,600 and 32,798 performance-vesting restricted stock units to Messrs. McRoberts, Harlan and Walraven, respectively, which will vest on July 31, 2018, based on the achievement of absolute TSR (50% weighting) and relative TSR as compared to the performance of the RMS (50% weighting). For performance between the specified TSR Performance and MSCI US REIT Index Performance hurdles, the amount earned would be interpolated on a linear basis. Dividends on the restricted stock units will accrue but will not be paid unless and until the underlying restricted stock units vest and are converted into shares of common stock. The absolute and relative TSR thresholds are as follows:


Absolute TSR Award
TSR Performance		% of Award Earned
25.5%		0%
27.5%		25%
29.5%		50%
31.5%		75%
33.5%		100%


Relative TSR Award
MSCI US REIT Index Performance		% of Award Earned
= Index		0%
Index +3%		50%
Index +6% or greater		100%

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Employment Agreements

We entered into employment agreements with Messrs. McRoberts, Harlan and Walraven on July 31, 2014, which were amended and restated on August 13, 2015. Set forth below is a description of the terms of each employment agreement, as amended and restated.

The employment agreements have initial three-year terms with automatic one-year renewals thereafter, unless the executive or we provides notice of non-renewal to the other party. The employment agreements provide for a base salary of $420,000 to Mr. McRoberts, a base salary of $420,000 to Mr. Harlan and a base salary of $300,000 to Mr. Walraven, in each case, effective August 1, 2015, which may be adjusted annually thereafter at the discretion of our board of directors or the compensation committee. Pursuant to the employment agreements, the executives will be eligible to receive an annual discretionary bonus in the event we or the executive, or both, respectively, achieve certain financial performance and personal performance targets to be established by our board of directors or the compensation committee pursuant to a cash compensation incentive plan or similar plan to be established by us in our sole discretion under our Equity Incentive Plan. Under the employment agreements, during the employment term, we will pay an amount up to $25,000 for Messrs. McRoberts and Harlan and $17,750 for Mr. Walraven, per year for policies of life, disability, executive health and wellness, and/or long-term care for the benefit of the executive and beneficiaries of his choosing, which amount will increase each year by the percentage increase in the consumer price index for such year. The executive will also be eligible to participate in other compensatory and benefit plans available to all employees.

The employment agreements provide that, if the executive’s employment is terminated:

•

by us for “cause,” by the executive without “good reason,” as a result of a non-renewal of the employment term by the executive, or due to the executive’s death, then we shall pay the executive: (i) all accrued but unpaid wages through the termination date; (ii) all earned and accrued but unpaid bonuses; (iii) all accrued but unused vacation through the termination date; and (iv) all approved, but unreimbursed, business expenses;

•

by us without “cause,” by the executive for “good reason,” or as a result of a non-renewal of the employment term by us, then we shall pay the executive: (i) all accrued but unpaid wages through the termination date; (ii) all accrued but unused vacation through the termination date; (iii) all approved, but unreimbursed, business expenses; (iv) all earned and accrued but unpaid bonuses; (v) any COBRA continuation coverage premiums required for the coverage of the executive (and his eligible dependents) under our major medical group health plan, generally for a period of 18 to 24 months or until the executive is employed by a third party that provides comparable coverage at no cost to the executive entitled to COBRA coverage; and (vi) a separation payment equal to the sum of three times (3x) for Messrs. McRoberts and Harlan and two times (2x) for Mr. Walraven, of their (A) then current base salary and (B) average annual bonus for the two annual bonus periods completed prior to termination (or target bonus for any fiscal year not yet completed), with such separation payment being payable in equal installments over a period of 12 months following such termination; or

•

due to the executive’s “disability,” then we shall pay the executive (or the executive’s estate and/or beneficiaries, as the case may be): (i) all accrued but unpaid wages through the termination date; (ii) all earned and accrued but unpaid bonuses prorated to the date of his disability; (iii) all accrued but unused vacation through the termination date; (iv) all approved, but unreimbursed, business expenses; and (v) any COBRA continuation coverage premiums required for the coverage of the executive (or his eligible dependents) under our major medical group health plan, generally for a period of 18 months or until the executive is employed by a third party that provides comparable coverage at no cost to the executive.

Additionally, in the event of a change in control (as defined in our 2014 Equity Incentive Plan) or if the executive’s employment is terminated by us without “cause,” by the executive for “good reason” or as a result of a non-renewal of the employment term by us, all of the executive’s outstanding unvested equity-based awards (including but not limited to, restricted common stock and restricted stock units) will vest and become

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immediately exercisable and unrestricted, without any action by our board of directors or any committee thereof (except vesting may be delayed to qualify as performance-based compensation for purposes of Section 162(m) of the Code).

The executive’s right to receive the severance payments and benefits described above is subject to his delivery and non-revocation of an effective general release of claims in favor of our company and compliance with customary restrictive covenant provisions, including, relating to confidentiality, noncompetition, nonsolicitation, cooperation and nondisparagement.

In addition, under the employment agreements, to the extent any payment or benefit would be subject to an excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a “best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the payments and benefits reduced such that such payments and benefits will not be subject to the excise tax and (ii) net amount of the payments and benefits without such reduction.

Under the employment agreements, “cause” is defined as: (i) the executive’s refusal to substantially perform, following notice by us to the executive, the executive’s duties to us, or gross negligence or willful misconduct in connection with the performance of the executive’s duties to us; (ii) the executive’s conviction or plea of guilty or nolo contendere of a felony; (iii) the executive’s conviction of any other criminal offense involving an act of dishonesty intended to result in personal enrichment of the executive at the expense of us or our affiliates; or (iv) the executive’s breach of any material company policy, or term of the employment agreement or any other employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the executive and us or our affiliates. The executive will have rights to cure certain events constituting “cause.”

Under the employment agreements, “good reason” is defined as the occurrence of any of the following events: (i) a reduction in or material delay in payment of the executive’s aggregate base salary (including the target bonus opportunity), excluding any reductions in bonuses caused by the failure to achieve performance targets; (ii) the assignment to the executive of substantial duties or responsibilities inconsistent with the executive’s position, or any other action by us which results in a substantial diminution of the executive’s duties, authorities or responsibilities (other than temporarily while physically or mentally incapacitated or as required by applicable law); (iii) a requirement that the executive work principally from a location that is thirty miles further from the executive’s residence than our principal office; or (iv) our material breach of the employment agreement. In addition, under Messrs. McRoberts’ and Harlan’s employment agreements, “good reason” includes: (x) a material adverse change in the reporting structure applicable to the executive; and (y) any failure of the nominating and corporate governance committee of our board of directors to nominate the executive for re-election to our board of directors at any annual meeting of our stockholders while the executive serves as our chief executive officer or president, as applicable, provided that, at the time of each annual meeting, the executive is not experiencing a disability, we have not notified the executive of our intention to terminate the executive for “cause,” and the executive has not notified us of his intention to resign his employment. In addition, under Mr. Harlan’s employment agreement, “good reason” includes the replacement of Mr. McRoberts as our chief executive officer with anyone other than Mr. Harlan, provided, that such replacement of Mr. McRoberts is not the result of (1) a termination of Mr. McRoberts’ employment agreement with us (a) by us or (b) by Mr. McRoberts with “good reason” (as defined in Mr. McRoberts’ employment agreement), or (2) our non-extension of the term of Mr. McRoberts’ employment agreement with us, if Mr. McRoberts was willing and able to remain employed by us.

2014 Equity Incentive Plan

Our board of directors has adopted and approved our 2014 Equity Incentive Plan for the purpose of attracting and retaining non-employee directors, executive officers and other key employees and service providers, including officers and employees of our affiliates, and to stimulate their efforts toward our continued

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success, long-term growth and profitability. Our 2014 Equity Incentive Plan provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including LTIP units, which are convertible on a one-for-one basis into OP units. We have reserved a total of 1,356,723 shares of common stock for issuance pursuant to our 2014 Equity Incentive Plan (including an aggregate of 662,141 shares of restricted common stock and restricted stock units previously granted to our executive officers, non-employee directors and certain employees and 693,082 shares of common stock reserved for potential future issuance), subject to certain adjustments set forth in the plan. This summary is qualified in its entirety by the detailed provisions of our 2014 Equity Incentive Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.

Our 2014 Equity Incentive Plan provides that no participant in the plan will be permitted to acquire, or will have any right to acquire, shares thereunder if such acquisition would be prohibited by the ownership limits contained in our charter or bylaws or would impair our status as a REIT.

Administration of Our 2014 Equity Incentive Plan

Our 2014 Equity Incentive Plan is administered by our compensation committee. Each member of our compensation committee that administers our 2014 Equity Incentive Plan is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, an “outside director” for purposes of Section 162(m) of the Code and “independent” within the meaning of the NYSE listing rules and the rules and regulations of the SEC. Our compensation committee determines eligibility for and designates participants of our 2014 Equity Incentive Plan, determines the type and amount of awards to be granted, determines the timing, terms, and conditions of any award (including the exercise price), and makes other determinations and interpretations as provided in our 2014 Equity Incentive Plan. All decisions and interpretations made by our compensation committee with respect to our 2014 Equity Incentive Plan will be binding on us and participants. During any period of time in which we do not have a compensation committee, our 2014 Equity Incentive Plan will be administered by our board of directors or another committee appointed by our board of directors. References below to our compensation committee include a reference to our board of directors or another committee appointed by our board of directors for those periods in which our board of directors or such other committee is acting.

Eligible Participants

All of our employees and the employees of our subsidiaries and affiliates, including our operating partnership, are eligible to receive awards under our 2014 Equity Incentive Plan. In addition, our non-employee directors and consultants and advisors who perform services for us and our subsidiaries and affiliates may receive awards under our 2014 Equity Incentive Plan. Incentive stock options, however, are only available to our employees.

Share Authorization

The maximum number of shares of our common stock that may be issued pursuant to awards under the 2014 Equity Incentive Plan is 1,356,723, which includes an aggregate of 662,141 shares of restricted common stock and restricted stock units previously granted to our executive officers, non-employee directors and certain employees and 693,082 shares of common stock reserved for potential future issuance. In connection with stock splits, distributions, recapitalizations and certain other events, our board of directors or compensation committee will make proportionate adjustments that it deems appropriate in the aggregate number of shares of common stock that may be issued under our 2014 Equity Incentive Plan and the terms of outstanding awards. If any awards terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised or paid or if any awards are forfeited or expire or otherwise terminate without the delivery of any shares of common stock, the shares of common stock subject to such awards will again be available for purposes of our 2014 Equity Incentive Plan.

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While our 2014 Equity Incentive Plan allows for the issuance of incentive stock options, no participant in our 2014 Equity Incentive Plan can be granted incentive stock options that are first exercisable in a calendar year for shares of common stock having a total fair market value (determined as of the option grant), exceeding $100,000.

Share Usage

Shares of common stock that are subject to awards are counted against our 2014 Equity Incentive Plan share limit as one share for every one share subject to the award. The number of shares subject to any stock appreciation rights awarded under our 2014 Equity Incentive Plan is counted against the aggregate number of shares available for issuance under our 2014 Equity Incentive Plan regardless of the number of shares actually issued to settle the stock appreciation right upon exercise. Any shares returned as a result of withholding or for net-exercises are counted against the aggregate number of shares available for issuance under our 2014 Equity Incentive Plan.

Prohibition on Repricing without Stockholder Approval

Except in connection with certain corporate transactions, no amendment or modification may be made to an outstanding stock option or stock appreciation right, including by replacement with or substitution of another award type, that would be treated as a repricing under applicable stock exchange rules or would replace stock options or stock appreciation rights with cash, in each case without the approval of the stockholders (although appropriate adjustments may be made to outstanding stock options and stock appreciation rights to achieve compliance with applicable law, including the Code).

Stock Options

Our 2014 Equity Incentive Plan authorizes our compensation committee to grant incentive stock options (under Section 422 of the Code) and options that do not qualify as incentive stock options. The exercise price of each option will be determined by our compensation committee, provided that the price cannot be less than 100% of the fair market value of shares of our common stock on the date on which the option is granted. If we were to grant incentive stock options to any 10% stockholder, the exercise price may not be less than 110% of the fair market value of our shares of common stock on the date of grant.

The term of an option cannot exceed ten years from the date of grant. If we were to grant incentive stock options to any 10% stockholder, the term cannot exceed five years from the date of grant. Our compensation committee determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options may be made exercisable in installments. The vesting and exercisability of options may be accelerated by our compensation committee. The exercise price of an option may not be amended or modified after the grant of the option, and an option may not be surrendered in consideration of or exchanged for or substituted for a grant of a new option having an exercise price below that of the option which was surrendered or exchanged or substituted for without stockholder approval.

The exercise price for any option or the purchase price for restricted common stock, if any, is generally payable (i) in cash or cash equivalents, (ii) to the extent the award agreement provides, by the surrender of shares of common stock (or attestation of ownership of such shares) with an aggregate fair market value, on the date on which the option is exercised, of the exercise price, (iii) with respect to an option only, to the extent the award agreement provides, by payment through a broker in accordance with procedures set forth by us or (iv) to the extent the award agreement provides and/or unless otherwise specified in an award agreement, any other form permissible by applicable laws, including net exercise and service to us.

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Share Awards

Our 2014 Equity Incentive Plan also provides for the grant of share awards, including restricted common stock and restricted stock units. A share award is an award of shares of common stock or stock units that may be subject to restrictions on transferability and other restrictions as our compensation committee determines in its sole discretion on the date of grant. The restrictions, if any, may lapse over a specified period of time or through the satisfaction of conditions, in installments or otherwise, as our compensation committee may determine. Restricted stock units are contractual promises to deliver shares of common stock in the future and may be settled in cash, shares, other securities or property (as determined by our compensation committee) upon the lapse of restrictions applicable to the award and otherwise in accordance with the award agreement. A participant who receives restricted common stock will have all of the rights of a stockholder as to those shares, including, without limitation, the right to vote and the right to receive dividends or distributions on the shares, except that our compensation committee may require any dividends to be reinvested in shares. A participant who receives restricted stock units will have no rights of a stockholder with respect to the restricted stock units but may be granted the right to receive dividend equivalent rights. During the period, if any, when share awards are non-transferable or forfeitable, a participant is prohibited from selling, transferring, assigning, pledging, exchanging, hypothecating or otherwise encumbering or disposing of his or her award shares.

Stock Appreciation Rights

Our 2014 Equity Incentive Plan authorizes our compensation committee to grant stock appreciation rights that provide the recipient with the right to receive, upon exercise of the stock appreciation right, cash, common stock or a combination of the two. The amount that the recipient will receive upon exercise of the stock appreciation right generally will equal the excess of the fair market value of shares of our common stock on the date of exercise over the shares’ fair market value on the date of grant. Stock appreciation rights will become exercisable in accordance with terms determined by our compensation committee. Stock appreciation rights may be granted in tandem with an option grant or independently from an option grant. The term of a stock appreciation right cannot exceed ten years from the date of grant.

Performance Awards

Our 2014 Equity Incentive Plan also authorizes our compensation committee to grant performance awards. Performance awards represent the participant’s right to receive a compensation amount, based on the value of our common stock, if performance goals established by our compensation committee are met. Our compensation committee will determine the applicable performance period, the performance goals and such other conditions that apply to the performance award. Performance goals may relate to our financial performance or the financial performance of our OP units, the participant’s performance or such other criteria determined by our compensation committee. If the performance goals are met, performance awards will be paid in cash, shares of common stock or a combination thereof.

Under our 2014 Equity Incentive Plan, one or more of the following business criteria, on a consolidated basis, and/or with respect to specified subsidiaries (except with respect to the total stockholder return and earnings per share criteria), will be used by our compensation committee in establishing performance goals: FFO; AFFO; earnings before any one or more of the following: interest, taxes, depreciation, amortization and/or stock compensation; operating (or gross) income or profit; pretax income before allocation of corporate overhead and/or bonus; operating efficiencies; operating income as a percentage of net revenue; return on equity, assets, capital, capital employed or investment; after tax operating income; net income; earnings or book value per share; financial ratios; cash flow(s); total rental income or revenues; capital expenditures as a percentage of rental income; total operating expenses, or some component or combination of components of total operating expenses, as a percentage of rental income; stock price or total stockholder return, including any comparisons with stock market indices; appreciation in or maintenance of the price of the common stock or any of our publicly-traded securities; dividends; debt or cost reduction; comparisons with performance metrics of peer companies; comparisons of our stock price performance to the stock price performance of peer companies; strategic business

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objectives, consisting of one or more objectives based on meeting specified cost, acquisition or leasing targets, meeting or reducing budgeted expenditures, attaining division, group or corporate financial goals, meeting business expansion goals and meeting goals relating to leasing, acquisitions, joint ventures or collaborations or dispositions; economic value-added models; or any combination thereof. Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, our past performance or the past performance of any of our subsidiaries, operating units, business segments or divisions and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, stockholders’ equity and/or shares outstanding, or to assets or net assets. Our compensation committee may appropriately adjust any evaluation of performance under the foregoing criteria to exclude any of the following events that occurs during a performance period: asset impairments or write-downs; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs; any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in our annual report to stockholders for the applicable year; the effect of adverse federal, governmental or regulatory action, or delays in federal, governmental or regulatory action; or any other event either not directly related to our operations or not within the reasonable control of our management.

Bonuses

Cash performance bonuses payable under our 2014 Equity Incentive Plan may be based on the attainment of performance goals that are established by our compensation committee and relate to one or more performance criteria described in the plan. Cash performance bonuses must be based upon objectively determinable bonus formulas established in accordance with the plan.

Dividend Equivalents

Our compensation committee may grant dividend equivalents in connection with the grant of any equity-based award. Dividend equivalents may be paid in cash or may be deemed reinvested in additional shares of stock and may be payable in cash, common stock or a combination of the two. To the extent the dividend equivalents are provided with respect to another award that vests or is earned based upon achievement of performance goals, any dividend equivalents will not be paid currently, but instead will be paid only to the extent the award vests. Our compensation committee will determine the terms of any dividend equivalents.

Other Equity-Based Awards

Our compensation committee may grant other types of equity-based awards under our 2014 Equity Incentive Plan, including LTIP units. Other equity-based awards are payable in cash, common stock or other equity, or a combination thereof, and may be restricted or unrestricted, as determined by our compensation committee. The terms and conditions that apply to other equity-based awards are determined by our compensation committee.

LTIP units are a special class of OP units. Each LTIP unit awarded under our 2014 Equity Incentive Plan will be equivalent to an award of one share under our 2014 Equity Incentive Plan, reducing the number of shares available for other equity awards on a one-for-one basis. We will not receive a tax deduction with respect to the grant, vesting or conversion of any LTIP unit. The vesting period for any LTIP units, if any, will be determined at the time of issuance. Each LTIP unit, whether vested or not, will receive the same quarterly per unit profit distribution as the other outstanding OP units, which profit distribution will generally equal the per share distribution on a share of common stock. This treatment with respect to quarterly distributions is similar to the expected treatment of our restricted common stock awards, which will receive full distributions whether vested or not. Initially, each LTIP unit will have a capital account of zero and, therefore, the holder of the LTIP unit would receive nothing if our operating partnership were liquidated immediately after the LTIP unit is awarded.

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However, the partnership agreement requires that “book gain” or economic appreciation in our assets realized by our operating partnership, whether as a result of an actual asset sale or upon the revaluation of our assets, as permitted by applicable regulations promulgated by the U.S. Treasury Department, or Treasury Regulations, be allocated first to LTIP units until the capital account per LTIP unit is equal to the capital account per unit of our operating partnership. The applicable Treasury Regulations provide that assets of our operating partnership may be revalued upon specified events, including upon additional capital contributions by us or other partners of our operating partnership or a later issuance of additional LTIP units. Upon equalization of the capital account of the LTIP unit with the per unit capital account of the OP units and full vesting of the LTIP unit, the LTIP unit will be convertible into an OP unit at any time. There is a risk that a LTIP unit will never become convertible because of insufficient gain realization to equalize capital accounts and, therefore, the value that a grantee will realize for a given number of vested LTIP units may be less than the value of an equal number of shares of common stock. See “Our Operating Partnership and the Partnership Agreement,” for a further description of the rights of limited partners in our operating partnership.

Recoupment

If we adopt a “clawback” or recoupment policy, any awards granted pursuant to our 2014 Equity Incentive Plan will be subject to repayment to us to the extent provided under the terms of such policy. We reserve the right in any award agreement to cause a forfeiture of the gain realized by a recipient if such recipient is in violation of or in conflict with certain agreements with us (including but not limited to an employment or non-competition agreement) or upon termination for “cause” as defined in our 2014 Equity Incentive Plan, applicable award agreement or any other agreement between us or an affiliate and the recipient.

Change in Control

If we experience a change in control in which outstanding awards that are not exercised prior to the change in control will not be assumed or continued by the surviving entity: (1) except for performance awards, all restricted common stock, LTIP units and restricted stock units will vest and the underlying shares of common stock and all dividend equivalent rights will be delivered immediately before the change in control; or (2) at our Board of Director’s or compensation committee’s discretion, either all options and stock appreciation rights will become exercisable 15 days before the change in control and terminate upon completion of the change in control, or all options, stock appreciation rights, restricted common stock and restricted stock units will be cashed out before the change in control. In the case of performance awards denominated in shares or LTIP units, if more than half of the performance period has lapsed, the awards will be converted into restricted common stock or restricted stock units based on actual performance to date. If less than half of the performance period has lapsed, or if actual performance is not determinable, the awards will be converted into restricted common stock assuming target performance has been achieved.

In summary, a change in control under our 2014 Equity Incentive Plan occurs if:

•

a person, entity or affiliated group (with certain exceptions) acquires, in a transaction or series of transactions, 50% or more of the total combined voting power of our outstanding securities;

•

the consummation of a merger or consolidation, unless (1) the holders of our voting shares immediately prior to the merger have at least 50.1% of the combined voting power of the securities in the surviving entity or its parent or (2) no person owns 50% or more of the shares of the surviving entity or the combined voting power of our outstanding voting securities;

•

we sell or dispose of all or substantially all of our assets; or

•

individuals who constitute our board of directors cease for any reason to constitute a majority of our board of directors, treating any individual whose election or nomination was approved by a majority of the incumbent directors as an incumbent director for this purpose.

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Adjustments for Stock Dividends and Similar Events

Our compensation committee will make appropriate adjustments in outstanding awards and the number of shares available for issuance under our 2014 Equity Incentive Plan, including the individual limitations on awards, to reflect stock splits and other similar events.

Transferability of Awards

Except as otherwise permitted in an award agreement or by our compensation committee, awards under the 2014 Equity Incentive Plan are not transferable other than by a participant’s will or the laws of descent and distribution.

Term and Amendment

Our board of directors may amend or terminate our 2014 Equity Incentive Plan at any time; provided that no amendment may adversely impair the benefits of participants with respect to outstanding awards without the participants’ consent or violate our equity incentive plan’s prohibition on repricing. Our stockholders must approve any amendment if such approval is required under applicable law or stock exchange requirements. Our stockholders also must approve any amendment that changes the no-repricing provisions of the plan. Unless terminated sooner by our board of directors or extended with stockholder approval, our 2014 Equity Incentive Plan will terminate on the tenth anniversary of the adoption of the plan.

Certain U.S. Federal Income Tax Consequences

Parachute Limitation. Unless a recipient is party to another agreement that addressed Sections 280G and 4999 of the Code, to the extent any payment or benefit would be subject to an excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a “best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the payment and benefits reduced such that such payments and benefits will not be subject to the excise tax and (ii) net amount of the payments and benefits without reduction but with the executive paying the excise tax liability.

Section 162(m). Section 162(m) of the Code generally disallows a public company’s tax deduction for compensation paid in excess of $1.0 million in any tax year to its chief executive officer and certain other most highly compensated executives. However, compensation that qualifies as “performance-based compensation” is excluded from this $1.0 million deduction limit and therefore remains fully deductible by the company that pays it. We generally intend that, except as otherwise determined by our compensation committee, performance awards and stock options granted with an exercise price at least equal to 100% of the fair market value of the underlying shares of common stock at the date of grant to employees our compensation committee expects to be named executive officers at the time a deduction arises in connection with such awards, will qualify as “performance-based compensation” so that these awards will not be subject to the Section 162(m) deduction limitations. Our compensation committee will not necessarily limit executive compensation to amounts deductible under Section 162(m) of the Code, however, if such limitation is not in the best interests of us and our stockholders.

Section 409A. We intend to administer our 2014 Equity Incentive Plan so that awards will be exempt from, or will comply with, the requirements of Section 409A of the Code; however, we do not warrant that any award under our 2014 Equity Incentive Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local or foreign law. We will not be liable to any participant for any tax, interest, or penalties that such participant might owe as a result of the grant, holding, vesting, exercise, or payment of any award under our 2014 Equity Incentive Plan.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Private Placement

Concurrently with the closing of the initial private placement, certain of our officers, directors and their family members purchased 405,833 shares of our common stock directly from us at the offering price of $15.00 per share.

Equity Grants

We have issued an aggregate of 65,267 shares of restricted common stock to our independent directors and an aggregate of 238,749 shares of restricted common stock to our executive officers and certain other employees in accordance with our 2014 Equity Incentive Plan. Shares of restricted common stock granted to our independent directors will vest ratably on each of the first three anniversaries of the date of grant, subject to the director’s continued service on our board of directors. The shares of restricted common stock granted to our executive officers and certain other employees will vest with respect to 100% of the granted shares on the third anniversary of the grant date, subject to continued employment through such date.

In addition, we have granted an aggregate of 358,125 performance-vesting restricted stock units to our executive officers and certain other employees in accordance with our 2014 Equity Incentive Plan. These restricted stock units will vest on the third anniversary of the grant date, subject to continued employment and the achievement of certain operating metrics through such date. See “Management—Executive Compensation—Equity Grants” for additional information regarding equity grants to our executive officers and certain other employees.

Indemnification Agreements with Executive Officers and Directors

We have entered into indemnification agreements with our executive officers and directors providing for, to the maximum extent permitted by law, indemnification by us and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from their service to us.

Employment Agreements with Executive Officers

We have entered into employment agreements with our executive officers. See “Management—Employment Agreements” for a description of the terms of these agreements.

Reimbursement of Offering and Formation Expenses to our Founders

We used approximately $189,000 of the net proceeds from the initial private placement to reimburse certain members of our management team for expenses incurred by them in connection with our organization and the initial private placement, including legal, accounting and printing costs.

BlueMountain Rights Agreement

In connection with BlueMountain’s purchase of 2,583,686 shares of our common stock in the initial private placement, we granted BlueMountain the right to designate two of the members of our board of directors, whose terms began on July 31, 2014. For any meeting of our stockholders for the election of directors, our board of directors is required to nominate: (i) two BlueMountain directors so long as BlueMountain (A) continues to own 75% or more of the number of shares it purchased in the initial private placement or (B) beneficially owns at least 10% of our outstanding common stock; (ii) one BlueMountain director so long as BlueMountain (X) continues to own 50% or more of the number of shares it purchased in the initial private placement or (Y) beneficially owns at least 5% of our outstanding common stock; and (iii) no BlueMountain directors if BlueMountain has sold more than 50% of the number of shares it purchased in the initial private placement and

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beneficially owns less than 5% of our outstanding common stock. In addition, two of the members of the investment committee were appointed by BlueMountain so long as BlueMountain is entitled to two nominees to our board of directors, and one member of the investment committee will be appointed by BlueMountain so long as BlueMountain is entitled to one nominee to our board of directors. One of BlueMountain’s designees has the right to serve on our risk committee for so long as such individual serves on our board of directors.

In addition, for as long as BlueMountain owns greater than 10% of the outstanding shares of our common stock, the vote of at least one of the BlueMountain designees on our board of directors shall be required in order for our board of directors to approve the issuance of any shares of our common stock for consideration less than the lower of (i) the then-current market price of our common stock if our common stock is then listed for trading on a national securities exchange or (ii) $15.00 per share, in each case as may be adjusted for any stock splits, stock dividends or other similar recapitalizations.

Furthermore, so long as BlueMountain maintains at least one designee on our board of directors, the number of members constituting our board of directors shall be no more than seven, subject to increase or decrease by the board of directors from time to time, provided that any such increase or decrease shall require the approval of at least one BlueMountain board designee.

In connection with this offering, BlueMountain has the right to purchase in a concurrent private placement a number of shares necessary to allow BlueMountain to maintain its ownership percentage in us following the completion of this offering, without payment by us of any underwriting discount or commissions on such shares. Pursuant to this right, BlueMountain is purchasing shares of our common stock in the BlueMountain Private Placement.

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INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of our policies with respect to investments, financing and certain other activities. The policies with respect to these activities may be amended and revised from time to time at the discretion of our board of directors without notice to or a vote of our stockholders.

Investment Policies

Investments in Real Estate or Interests in Real Estate

We conduct all of our investment activities through our operating partnership and its subsidiaries. Our primary business objective is to provide our stockholders with stable distributions and an opportunity for value enhancement through investments in a diversified mix of healthcare properties, coupled with proactive management and prudent financing of our healthcare property investments. Our business is focused primarily on healthcare properties and activities directly related thereto. We focus on multiple types of acute and post-acute healthcare properties, including acute care hospitals, short-stay surgical and specialty hospitals (such as those focusing on orthopedic, heart and other dedicated surgeries and specialty procedures), dedicated specialty hospitals (such as inpatient rehabilitation facilities, long-term acute care hospitals and facilities providing psychiatric care), skilled nursing facilities, large and prominent physician clinics, diagnostic facilities, outpatient surgery centers and facilities that support the aforementioned, such as medical office buildings (including those providing outpatient surgery, diagnostics, physical therapy and physician office space in a single building), in order to capture a larger share of healthcare expenditures and diversify our risk. For a discussion of the acquisitions and investments in our portfolio, our business and other strategic objectives, see “Our Business.”

We intend to employ multiple investment structures to maximize investment returns, including: facility purchases with triple-net leases back to facility operators, first mortgage loans secured by healthcare properties, mezzanine loans secured by ownership interests in entities that own healthcare properties, leasehold mortgages, loans to healthcare operators and equity investments in healthcare operators. We anticipate that future investment and development activity will be focused in the United States but will not be limited to any geographic area. We intend to engage in such future investment activities in a manner that is consistent with requirements applicable to REITs for U.S. federal income tax purposes. Provided we comply with these requirements, however, there are no limitations on the percentage of our assets that may be invested in any one real estate asset.

We may enter into joint ventures from time to time, if we determine that doing so would be the most effective means of raising capital. Equity investments may be subject to existing mortgage financing and other indebtedness or such financing or indebtedness may be incurred in connection with acquiring investments. Any such financing or indebtedness will have priority over our equity interest in such property. Investments are also subject to our policy not to be treated as an investment company under the 1940 Act.

From time to time, we may make investments or agree to terms that support the objectives of tenants without necessarily maximizing our short-term financial return, which may allow us to build long-term relationships and acquire properties otherwise unavailable to our competition. We believe that these dynamics create long-term, sustainable relationships and, in turn, profitability for us.

Purchase and Development of Properties

Our policy is to acquire properties primarily for cash flow growth potential and long-term value. From time to time, we may engage in strategic development opportunities. These opportunities may involve replacing or renovating properties in our portfolio that have become economically obsolete or identifying new sites that present an attractive opportunity and complement our existing portfolio.

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Investments in Real Estate Mortgages and Mezzanine Loans

We do not have a policy limiting our ability to make loans to other persons. Subject to REIT qualification rules, we may make loans to third parties. For example, we may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be received by us for the property sold or we may consider making loans to joint ventures in which we or they participate or may participate in the future. We have not engaged in any significant lending activities in the past nor do we currently intend to in the future. We may choose to guarantee the debt of certain joint ventures with third parties. Consideration for those guarantees may include, but are not limited to, fees, long-term management contracts, options to acquire additional ownership and promoted equity positions. Our board of directors may, in the future, adopt a lending policy without notice to or the vote of our stockholders.

As part of our investment strategy, we may, at the discretion of our board of directors, invest in mortgages and other real estate related debt investments consistent with the rules applicable to REITs. The mortgages in which we may invest may be either first mortgages or junior mortgages, and may or may not be insured by a governmental agency. We also may invest in mezzanine loans, which are loans made to property owners that are subordinate to mortgage debt and are secured by pledges of the borrower’s ownership interests in the property and/or the entity that owns the property. Investments in mortgage loans and mezzanine loans are subject to the risk that one or more borrowers may default and that the collateral securing mortgages may not be sufficient to enable us to recover our full investment. Investments are also subject to our policy not to be treated as an investment company under the 1940 Act.

Investments in Securities or Interests in Entities Primarily Engaged in Real Estate Activities and Other Issuers

Subject to the gross income and asset requirements required for REIT qualification, we may in the future invest in securities of entities engaged in real estate activities or securities of other issuers (normally partnership interests, limited liability company interests or other joint venture interests in special purpose entities owning properties), including for the purpose of exercising control over such entities. We may acquire some, all or substantially all of the securities or assets of other REITs or entities engaged in real estate activities where such investment would be consistent with our investment policies and the REIT requirements. There are no limitations on the amount or percentage of our total assets that may be invested in any one issuer, other than those imposed by the gross income and asset tests we must meet in order to qualify as a REIT under the Code. In any event, we do not intend that our investments in securities will require us to register as an “investment company” under the 1940 Act, and we would generally divest appropriate securities before any such registration would be required. We do not intend to underwrite securities of other issuers.

Financing Policies

We expect to employ leverage in our capital structure in amounts determined from time to time by our board of directors. Although our board of directors has not adopted a policy that limits the total amount of indebtedness that we may incur, it considers a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such indebtedness that is either fixed or variable rate. Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken (including recourse or non-recourse debt, cross collateralized debt, etc.). Although our board of directors has not yet adopted a policy limiting the total amount of debt that we may incur, we initially intend to target a ratio of debt to gross undepreciated asset value of between 30% and 40%. Our board of directors may from time to time modify our debt policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors.

To the extent that our board of directors determines to obtain additional capital, we may, without stockholder approval, issue debt or equity securities, including additional operating partnership units, retain

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earnings (subject to the REIT distribution requirements for U.S. federal income tax purposes) or pursue a combination of these methods. As long as our operating partnership is in existence, the proceeds of all equity capital raised by us will be contributed to our operating partnership in exchange for additional interests in our operating partnership, which will dilute the ownership interests of the limited partners in our operating partnership.

We may, under certain circumstances, purchase shares of our common stock or other securities in the open market or in private transactions with our stockholders, provided that those purchases are approved by our board of directors. Our board of directors has no present intention of causing us to repurchase any shares of our common stock or other securities, and any such action would only be taken in conformity with applicable federal and state laws and the applicable requirements for qualification as a REIT.

Reporting Policies

Prior to the time when we become subject to the information reporting requirements of the Exchange Act, we intend to make available to our stockholders audited annual financial statements and unaudited quarterly financial statements. We intend to become a public reporting company subject to the information reporting requirements of the Exchange Act in connection with the initial public offering of our common stock in the future. Pursuant to those requirements, we will be required to file annual and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.

Conflict of Interest Policies

Our governing instruments do not restrict any of our directors, officers, stockholders or affiliates from having a pecuniary interest in an investment or transaction in which we have an interest or from conducting, for their own account, business activities of the type we conduct. However, our policies will be designed to eliminate or minimize potential conflicts of interest. A “conflict of interest” occurs when a director’s, officer’s or employee’s private interest interferes in any way, or appears to interfere, with the interests of the Company as a whole. Our board of directors plans to adopt a policy that prohibits personal conflicts of interest. This policy will provide that any situation that involves, or may reasonably be expected to involve, a conflict of interest must be disclosed immediately to a supervisor or a member of our audit committee.

Our board of directors has adopted a written Related Person Transaction Policy. The purpose of this policy will be to describe the procedures used to identify, review, approve and disclose, if necessary, any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which (x) the Company was, is or will be a participant, (y) the aggregate amount involved exceeds $120,000 and (z) a related person has or will have a direct or indirect interest. For purposes of this policy, a related person is (i) any person who is, or at any time since the beginning of our last fiscal year was, an executive officer, director or director nominee of the Company, (ii) any person who is known to be the beneficial owner of more than 5% of our common stock, (iii) any immediate family member of any of the foregoing persons, or (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position, or in which all the related persons, in the aggregate, have a 10% or greater beneficial interest. Under this policy, our audit committee will be responsible for reviewing, approving or ratifying each related person transaction or proposed transaction. In determining whether to approve or ratify a related person transaction, the audit committee will consider all relevant facts and circumstances of the related person transaction available to it and will approve only those related person transactions that are in, or not inconsistent with, our best interests and the best interests of our stockholders, as the audit committee determines in good faith. No member of the audit committee will be permitted to participate in any consideration of a related person transaction with respect to which that member or any of his or her immediate family is a related person.

These policies may not be successful in eliminating the influence of conflicts of interest or related person transactions. If they are not successful, decisions could be made that might fail to reflect fully the interests of all stockholders.

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Interested Director and Officer Transactions

Pursuant to the MGCL, a contract or other transaction between us and a director or between us and any other corporation or other entity in which any of our directors is a director or has a material financial interest is not void or voidable solely on the grounds of such common directorship or interest, the presence of such director at the meeting at which the contract or transaction is authorized, approved or ratified or the counting of the director’s vote in favor thereof, provided that:

•

the fact of the common directorship or interest is disclosed or known to our board of directors or a committee of our board, and our board or committee authorizes, approves or ratifies the transaction or contract by the affirmative vote of a majority of disinterested directors, even if the disinterested directors constitute less than a quorum;

•

the fact of the common directorship or interest is disclosed or known to our stockholders entitled to vote thereon, and the transaction or contract is authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote other than the votes of shares owned of record or beneficially by the interested director or corporation, firm or other entity; or

•

the transaction or contract is fair and reasonable to us.

Furthermore, under Delaware law (where our operating partnership is formed), we, as the sole member of the general partner, have a fiduciary duty to our operating partnership and, consequently, such transactions are also subject to the duties of care and loyalty that we, as the sole member of the general partner, owe to limited partners in the operating partnership (to the extent such duties have not been eliminated pursuant to the terms of the partnership agreement). Our policy requires that all contracts and transactions between us, our operating partnership or any of our subsidiaries, on one hand, and any of our directors or executive officers or any entity in which such director or executive officer is a director or has a material financial interest, on the other hand, must be approved by the affirmative vote of a majority of the disinterested directors even if less than a quorum. Where appropriate in the judgment of the disinterested directors, our board of directors may obtain a fairness opinion or engage independent counsel to represent the interests of nonaffiliated securityholders, although our board of directors will have no obligation to do so.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 28, 2016 by:

•

each of our directors;

•

each of our executive officers;

•

each beneficial owner of 5% or more of our outstanding common stock; and

•

all of our directors and executive officers as a group.

The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power of such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire within 60 days after that date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement.

Each person named in the table has sole voting and investment power with respect to all of the shares of common stock shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. Unless otherwise indicated, the address of each named person is c/o MedEquities Realty Trust, Inc., 3100 West End Avenue Suite 1000, Nashville, Tennessee 37203. No shares beneficially owned by any executive officer or director have been pledged as security.


	Shares Beneficially Owned Before the Offering						Shares Beneficially Owned After the Offering and BlueMountain Private Placement
Beneficial Owner	Shares			Percentage ⁽¹⁾			Shares	Percentage
John W. McRoberts		270,750	⁽²⁾		2.4	%
William C. Harlan		270,751	⁽³⁾		2.4	%
Jeffery C. Walraven		31,646	⁽⁴⁾		*
Randall L. Churchey		24,720	⁽⁵⁾		*
John D. Foy		24,720	⁽⁶⁾		*
Steven I. Geringer		7,499			*
Stephen L. Guillard		7,499			*
Elliott Mandelbaum		—			—
Stuart C. McWhorter		14,720	⁽⁷⁾		*
James B. Pieri		—			—
All executive officers and directors as a group (10 persons)		652,305			5.8	%
Other 5% Stockholders
BlueMountain Capital Management, LLC ⁽⁸⁾		2,599,794			23.1	%
Forward Management, LLC ⁽⁹⁾		1,625,000			14.4	%
Allstate Investments, LLC ⁽¹⁰⁾		1,000,000			8.9	%
Pine River Capital Management L.P. ⁽¹¹⁾		925,000			8.2	%
Ardsley Partners ⁽¹²⁾		800,000			7.1	%
Credit Suisse Securities (USA) LLC ⁽¹³⁾		666,667			5.9	%
Centerbridge Partners, L.P. ⁽¹⁴⁾		637,000			5.7	%

*	Represents less than 1% of the number of shares of common stock outstanding upon completion of the offering.

(1)	Based on 11,250,010 shares of common stock outstanding as of April 28, 2016.

(2)

Includes (i) 183,333 shares purchased by Mr. McRoberts in the management/director private placement, (ii) 43,684 shares of restricted common stock granted upon completion of the initial private placement and (iii) 43,733 shares of restricted common stock granted on July 31, 2015, which shares of restricted common

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stock vest on the third anniversary of the date of grant, subject to continued employment through such date. Excludes (i) 65,526 restricted stock units granted upon completion of the initial private placement and (ii) 65,600 restricted stock units granted on July 31, 2015, all of which are performance-based and will not vest unless certain operating metrics are achieved.

(3)

Includes (i) 166,667 shares purchased by Mr. Harlan in the management/director private placement, (ii) 16,667 shares purchased by Mr. Harlan’s wife in such management/director private placement, of which he may be deemed the beneficial owner, (iii) 43,684 shares of restricted common stock granted upon completion of the initial private placement, and (iv) 43,733 shares of restricted common stock granted on July 31, 2015, which shares of restricted common stock vest on the third anniversary of the date of grant, subject to continued employment through such date. Excludes (i) 65,526 restricted stock units granted upon completion of the initial private placement and (ii) 65,600 restricted stock units granted on July 31, 2015, all of which are performance-based and will not vest unless certain operating metrics are achieved. The shares purchased by Mr. Harlan in the management/director private placement and Mr. Harlan’s restricted common stock and restricted stock units are held by The SJC Trust, an irrevocable trust for the benefit of Mr. Harlan’s wife, for which she is the sole trustee.

(4)

Includes (i) 9,780 shares of restricted common stock granted upon completion of the initial private placement and (ii) 21,866 shares of restricted common stock granted on July 31, 2015, which shares of restricted common stock vest on the third anniversary of the date of grant, subject to continued employment through such date. Excludes (i) 14,671 restricted stock units granted upon completion of the initial private placement and (ii) 32,798 restricted stock units granted on July 31, 2015, all of which are performance-based and will not vest unless certain operating metrics are achieved.

(5)

Includes (i) 13,333 shares purchased by Mr. Churchey in the management/director private placement, and (ii) 8,702 shares, net, of restricted common stock that vest ratably on each of the first three anniversaries of the date of grant, subject to continued service on our board of directors through such dates.

(6)

Includes (i) 13,333 shares purchased by Mr. Foy in the management/director private placement, and (ii) 8,702 shares, net, of restricted common stock that vest ratably on each of the first three anniversaries of the date of grant, subject to continued service on our board of directors through such dates.

(7)

Includes (i) 3,333 shares purchased by Mr. McWhorter in the management/director private placement, and (ii) 8,702 shares, net, of restricted common stock that vest ratably on each of the first three anniversaries of the date of grant, subject to continued service on our board of directors through such dates.

(8)

Includes (i) 2,583,686 shares purchased in the initial private placement, of which 541,797 are held by BlueMountain Credit Alternatives Fund L.P., 541,797 are held by BlueMountain Credit Opportunities Master Fund I L.P., 541,797 are held by BlueMountain Montenvers Master Fund SCA SICAV-SIF, 541,797 are held by BlueMountain Strategic Credit Master Fund L.P. and 416,498 are held by BlueMountain Guadalupe Peak Fund L.P. and (ii) 16,108 shares of restricted common stock transferred to BlueMountain by Messrs. Mandelbaum and Pieri. The address of the principal business office of BlueMountain is 280 Park Avenue, 12th Floor East, New York, NY 10017. The following individuals, as members of the Management Committee of BlueMountain, have shared voting and investment power over the common stock directly owned by various entities affiliated with BlueMountain: Andrew Feldstein, Stephen Siderow, Derek Smith, Bryce Markus, Alan Gerstein, Peter Greatrex, Michael Liberman, David Rubenstein and James Staley. BlueMountain has two designees on our board of directors, investment committee and risk committee and has certain other rights under an agreement with us. See “Certain Relationship and Related Transactions – BlueMountain Rights Agreement.”

(9)

Represents (i) 1,575,000 shares held by Forward Select Income Fund and (ii) 50,000 shares held by Forward Real Estate Long Short Fund. Forward Capital Management, LLC has voting and investment control over all of the shares held by these entities. The address of the principal business office of Forward Management, LLC is 101 California Street, Suite 1600, San Francisco, CA 94111.

(10)

Represents (i) 670,000 shares held by Allstate Insurance Company and (ii) 330,000 shares held by Allstate Life Insurance Company, which entities are controlled by Allstate Investments, LLC. We have been advised by these entities that Jerry Zinkula has voting and investment control over such shares. The address of the principal business office of Allstate Investments, LLC is 3075 Sanders Road, Suite G4A, Northbrook, IL 60062.

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(11)

Represents shares held by Pine River Master Fund Ltd., Pine River Baxter Fund Ltd., Pine River Fixed Income Master Fund Ltd. and Crossover Master L.P. We have been advised by these entities that Pine River Capital Management L.P. (“Pine River”) is the investment manager of these entities. Brian Taylor is the managing member of Pine River Capital Management LLC, an entity which is the general partner of Pine River. However Mr. Taylor, Pine River and Pine River Capital Management LLC disclaim beneficial ownership of any of the securities owned by these entities, other than to the extent of his or its pecuniary interest therein, and the foregoing shall not be deemed an admission that Mr. Taylor, Pine River or Pine River Capital Management LLC is the beneficial owner of such securities for purposes of Section 16 under the Exchange Act or for any other purpose. The address of the principal business office of Pine River Capital Management L.P. is 601 Carlson Parkway, Suite 330, Minnetonka, MN 55305.

(12)

Represents (i) 133,000 shares held by Ardsley Partners Advanced Healthcare Fund, L.P., (ii) 356,000 shares held by Ardsley Partners Fund II, L.P. and (iii) 311,000 shares held by Ardsley Partners Institutional Fund, L.P. We have been advised that Philip J. Hempleman has voting and investment control over all such shares. The address of the stockholder is 262 Harbor Drive, Stamford, CT 06902.

(13)	The address of the principal business office of Credit Suisse Securities (USA) LLC is Eleven Madison Avenue, New York, NY 10016.

(14)

Represents shares held by Centerbridge Credit Partners Master Fund, L.P., Centerbridge Credit Partners, L.P. and Centerbridge Special Credit Partners II, L.P. We have been advised by these entities that Jeffrey H. Aronson and Mark T. Gallogly share voting and investment control over such shares. The address of the principal business office of Centerbridge Partners, L.P. is 375 Park Avenue, 12th Floor, New York, NY 10152.

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SELLING STOCKHOLDERS

The following table sets forth information, as of , 2016, with respect to the selling stockholders and common stock beneficially owned by the selling stockholders that the selling stockholders propose to offer pursuant to this prospectus. In accordance with SEC rules, each listed person’s beneficial ownership includes:

•

all shares the investor actually owns beneficially or of record;

•

all shares over which the investor has or shares voting or dispositive control; and

•

all shares the investor has the right to acquire within 60 days (such as upon exercise of options that are currently vested or which are scheduled to vest within 60 days or warrants that are immediately exercisable or exercisable within 60 days). The shares issuable under those options are treated as if they were outstanding for computing the percentage ownership of the person holding those options but are not treated as if they were outstanding for purposes of computing percentage ownership of any other person.

The common stock offered by the selling stockholders pursuant to this prospectus were originally issued and sold by us in connection with the initial private placement. The term selling stockholder includes the holders of our common stock listed below and the beneficial owners of our common stock and their transferees, pledgees, donees or other successors.

Percentage ownership calculations are based on shares of common stock outstanding as of , 2016. To our knowledge, except as indicated in the footnotes to the following table and under applicable community property laws, the persons or entities identified in the table below have sole voting and investment power with respect to all of the common stock shown as beneficially owned by them.


Name of Beneficial Owner	Shares Beneficially Owned Before the Offering		Number of Shares Being Offered	Shares Beneficially Owned After the Offering
Name of Beneficial Owner	Shares	Percentage	Number of Shares Being Offered	Shares	Percentage

Except as indicated above, the selling stockholders do not have, and have not had since our inception, any position, office or other material relationship with us or any of our affiliates. The selling stockholders identified above may have sold, transferred or otherwise disposed of all or a portion of their securities (other than the securities to be sold in this offering) since the date on which they provided the information regarding their securities, in transactions exempt from the registration requirements of the Securities Act.

Each selling stockholder has agreed with us not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of our common stock not sold in this offering for 180 days after the date of this prospectus. We have agreed not to waive or otherwise modify this agreement without the prior written consent of FBR.

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DESCRIPTION OF CAPITAL STOCK

The following is a summary of the material terms of our capital stock and certain terms of our charter and bylaws. For a complete description, we refer you to the MGCL and to our charter and bylaws. For a more complete understanding of our capital stock, we encourage you to read carefully this entire prospectus, as well as our charter and bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part.

General

Our charter provides that we may issue up to 400,000,000 shares of common stock, par value $0.01 per share, or common stock, and 50,000,000 shares of preferred stock, $0.01 par value per share, or preferred stock. As of April 28, 2016, we had outstanding 11,250,010 shares of our common stock, 125 shares of our Series A Preferred Stock and 125,000 shares of our Series B Preferred Stock. We intend to use a portion of the net proceeds from this offering and the BlueMountain Private Placement to redeem all of our Series A Preferred Stock and our Series B Preferred Stock. Upon completion of this offering and the BlueMountain Private Placement, there will be shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. Our charter authorizes our board of directors, with the approval of a majority of the entire board of directors and without any action by our stockholders, to amend our charter to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of any class or series of our stock.

Under Maryland law, stockholders generally are not personally liable for our debts or obligations solely as a result of their status as stockholders.

Common Stock

Subject to the preferential rights, if any, of holders of any other class or series of stock and to the provisions of our charter regarding restrictions on ownership and transfer of our stock, holders of our common stock:

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have the right to receive ratably any distributions from funds legally available therefor, when, as and if authorized by our board of directors and declared by us; and

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are entitled to share ratably in the assets of our company legally available for distribution to the holders of our common stock in the event of our liquidation, dissolution or winding up of our affairs.

There are generally no redemption, sinking fund, conversion, preemptive or appraisal rights with respect to our common stock.

Subject to the provisions of our charter regarding restrictions on ownership and transfer of our stock and except as may otherwise be specified in the terms of any class or series of stock, each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors and, except as may be provided with respect to any other class or series of stock, the holders of such shares will possess the exclusive voting power. There is no cumulative voting in the election of our directors, and directors will be elected by a plurality of the votes cast in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the outstanding shares of our common stock can elect all of the directors then standing for election, and the holders of the remaining shares will not be able to elect any directors.

Power to Reclassify and Issue Stock

Our board of directors may classify any unissued shares of preferred stock, and reclassify any unissued shares of common stock or any previously classified but unissued shares of preferred stock into other classes or series of stock, including one or more classes or series of stock that have priority over our common stock with

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respect to voting rights or distributions or upon liquidation, and authorize us to issue the newly classified shares. Prior to the issuance of shares of each class or series, our board of directors is required by the MGCL and our charter to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption for each such class or series. These actions can be taken without stockholder approval, unless stockholder approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on which our stock may be then listed or quoted.

Power to Increase or Decrease Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred Stock

Our charter authorizes our board of directors, with the approval of a majority of the entire board of directors, to amend our charter to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series without stockholder approval. We believe that the power of our board of directors to increase or decrease the number of authorized shares of stock and to classify or reclassify unissued shares of our common stock or preferred stock and thereafter to cause us to issue such shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. The additional classes or series, as well as the additional shares of stock, will be available for future issuance without further action by our stockholders, unless such action is required by applicable law, the terms of any other class or series of stock or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Our board of directors could authorize us to issue a class or series that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for our stockholders or otherwise be in their best interests.

Restrictions on Ownership and Transfer

In order to qualify as a REIT under the Code, our shares of stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).

Because our board of directors believes it is at present essential for us to qualify as a REIT, among other purposes, our charter, subject to certain exceptions, contains restrictions on the number of our shares of stock that a person may own. Our charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, or the ownership limit.

Our charter also prohibits any person from:

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beneficially owning shares of our capital stock to the extent that such beneficial ownership would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year);

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transferring shares of our capital stock to the extent that such transfer would result in our shares of capital stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code);

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beneficially or constructively owning shares of our capital stock to the extent such beneficial or constructive ownership would cause us to constructively own ten percent or more of the ownership

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interests in a tenant (other than a TRS) of our real property within the meaning of Section 856(d)(2)(B) of the Code;

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beneficially or constructively owning or transferring shares of our capital stock if such beneficial or constructive ownership or transfer would otherwise cause us to fail to qualify as a REIT under the Code including, but not limited to, as a result of any person that operates a “qualified healthcare facility” on behalf of a TRS failing to qualify as an “eligible independent contractor” under the REIT rules; or

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transferring or attempting to transfer shares of capital stock to the extent such transfer would result in 25% or more of any class or series of shares of our capital stock (excluding shares of our capital stock held by persons or their affiliates who have discretionary authority or control over our assets, or who provide investment advice for a fee with respect to our assets), being beneficially owned by one or more Benefit Plan Investors at any time prior to the date that either a class or series of our capital stock qualifies as a class of “publicly-offered securities” (as defined in our charter) for purposes of ERISA or another exception under ERISA applies.

Our board of directors, in its sole discretion, may prospectively or retroactively exempt a person from certain of the limits described in the paragraph above and may establish or increase an excepted holder percentage limit for that person. The person seeking an exemption must provide to our board of directors any representations, covenants and undertakings that our board of directors may deem appropriate in order to conclude that granting the exemption will not cause us to lose our status as a REIT. Our board of directors may not grant an exemption to any person if that exemption would result in our failing to qualify as a REIT. Our board of directors may require a ruling from the IRS or an opinion of counsel, in either case in form and substance satisfactory to our board of directors, in its sole discretion, in order to determine or ensure our status as a REIT.

Notwithstanding the receipt of any ruling or opinion, our board of directors may impose such guidelines or restrictions as it deems appropriate in connection with granting such exemption. In connection with granting a waiver of the ownership limit or creating an exempted holder limit or at any other time, our board of directors from time to time may increase or decrease the ownership limit, subject to certain exceptions.

Any attempted transfer of shares of our capital stock which, if effective, would violate any of the restrictions described above will result in the number of shares of our capital stock causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, except that any transfer that results in the violation of the restriction relating to shares of our capital stock being beneficially owned by fewer than 100 persons will be null and void. In either case, the proposed transferee will not acquire any rights in those shares. The automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of the purported transfer or other event that results in the transfer to the trust. Shares held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership of any shares held in the trust, will have no rights to dividends or other distributions and will have no rights to vote or other rights attributable to the shares held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee. Any dividend or other distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have the authority (i) to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and (ii) to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.

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Within 20 days of receiving notice from us that shares of our stock have been transferred to the trust, the trustee will sell the shares to a person, designated by the trustee, whose ownership of the shares will not violate the above ownership and transfer limitations. Upon the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds from the sale to the proposed transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (i) the price paid by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust ( e.g. , a gift, devise or other similar transaction), the market price (as defined in our charter) of the shares on the day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee (net of any commission and other expenses of sale) from the sale or other disposition of the shares. The trustee may reduce the amount payable to the proposed transferee by the amount of dividends or other distributions paid to the proposed transferee and owed by the proposed transferee to the trustee. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that our shares of our stock have been transferred to the trust, the shares are sold by the proposed transferee, then (i) the shares shall be deemed to have been sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for the shares that exceeds the amount he or she was entitled to receive, the excess shall be paid to the trustee upon demand.

In addition, shares of our stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price at the time of the devise or gift) and (ii) the market price on the date we, or our designee, accept the offer, which we may reduce by the amount of dividends and distributions paid to the proposed transferee and owed by the proposed transferee to the trustee. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds from the sale to the proposed transferee.

If a transfer to a charitable trust, as described above, would be ineffective for any reason to prevent a violation of a restriction, the transfer that would have resulted in a violation will be null and void, and the proposed transferee shall acquire no rights in those shares.

Any certificate representing shares of our capital stock, and any notices delivered in lieu of certificates with respect to the issuance or transfer of uncertificated shares, will bear a legend referring to the restrictions described above.

Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our capital stock that will or may violate any of the foregoing restrictions on transferability and ownership, or any person who would have owned shares of our capital stock that resulted in a transfer of shares to a charitable trust, is required to give written notice immediately to us, or in the case of a proposed or attempted transaction, to give at least 15 days’ prior written notice, and provide us with such other information as we may request in order to determine the effect of the transfer on our status as a REIT. The foregoing restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

Every owner of more than 5% (or any lower percentage as required by the Code or the regulations promulgated thereunder) in number or value of the outstanding shares of our capital stock, within 30 days after the end of each taxable year, is required to give us written notice, stating his or her name and address, the number of shares of each class and series of shares of our capital stock that he or she beneficially owns and a description of the manner in which the shares are held. Each of these owners must provide us with additional information that we may request in order to determine the effect, if any, of his or her beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder will upon demand be required to provide us with information that we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine our compliance.

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These ownership limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders.

Transfer Agent and Registrar

The transfer agent and registrar for our shares of common stock is American Stock Transfer & Trust Company.

Registration Rights

The purchasers of common stock in the initial private placement are entitled to the benefits of a registration rights agreement between us and FBR, the initial purchaser and placement agent in that offering, acting for itself and for the benefit of the investors in that offering, which has been filed as an exhibit to the registration statement of which this prospectus forms a part.

Under the registration rights agreement, we are obligated, among other things, to use our commercially reasonable efforts to cause a resale shelf registration statement registering all of the shares of our common stock sold in the initial private placement that are not sold by selling stockholders in this offering to be declared effective by the SEC as soon as practicable after the filing of the resale registration statement, and in any event, subject to certain exceptions, no later than September 30, 2016. The original deadline under the registration rights agreement was extended by the stockholders in accordance with the terms of the registration rights agreement.

If, prior to September 30, 2016 (or, if we complete this offering prior to September 30, 2016, on a date that is on or before 60 days after the completion of this offering), the resale registration statement has not been declared effective by the SEC and the registrable shares have not been listed for trading on a national securities exchange, then the registration rights agreement and our bylaws require that we hold a special meeting of our stockholders for the purpose of considering and voting on the removal of our directors then in office and electing the successors of any directors so removed, unless the holders of at least two-thirds of the outstanding registrable shares (other than shares of our common stock held by our directors and executive officers) waive or defer the requirement that we hold the special election meeting. The registration rights agreement also prohibits holders of shares of our common stock issued to our directors, officers and their affiliates from nominating, or participating in the nomination of, any individual for election as a director at the special election meeting.

All purchasers of common stock in the initial private placement and each of their respective direct and indirect transferees may elect to participate in this offering as selling stockholders, subject to:

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execution of a customary underwriting agreement;

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completion and execution of any questionnaires, powers of attorney, indemnities, custody agreements, securities escrow agreements and other documents, including opinions of counsel, reasonably required under the terms of such underwriting agreement;

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provision to us of such information as we may reasonably request in writing for inclusion in this prospectus;

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compliance with the registration rights agreement;

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cutback rights on the part of the underwriters; and

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other conditions and limitations that may be imposed by the underwriters.

The holders of shares of our common stock purchased in the initial private placement who elect, pursuant to the registration rights agreement, to include their shares of our common stock for resale in the initial public offering will not be able to sell any of their shares of our common stock that are not included in the initial public offering for 180 days following the effective date of the registration statement for the initial public offering of our common stock (other than to donees or partners of the stockholder who agree to be bound by the terms the

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lock-up). Those holders of shares of our common stock purchased in the initial private placement who do not elect, despite their right to do so under the registration rights agreement, to include their shares of our common stock for resale in the initial public offering may not directly or indirectly sell, offer to sell, grant any option or otherwise dispose of any shares of our common stock (or securities convertible into such shares) for a period of up to 60 days following the effective date of the registration statement for the initial public offering of our common stock (other than to donees or partners of the stockholder who agree to be bound by the terms the lock-up).

We have agreed to indemnify each selling stockholder for certain violations of federal or state securities laws in connection with any registration statement in which such selling stockholder sells our common stock pursuant to these registration rights.

The preceding summary of certain provisions of the registration rights agreement is not intended to be complete, and is subject to, and qualified in its entirety by reference to, all of the provisions of the registration rights agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part.

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MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

Although the following summary describes certain provisions of Maryland law and the material provisions of our charter and bylaws, it is not a complete description of our charter and bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus is a part, or of Maryland law. See “Where You Can Find More Information.”

Our Board of Directors

Our charter and bylaws provide that the number of directors of our company may be established, increased or decreased by our board of directors, but may not be less than the minimum number required under the MGCL, which is one, or, unless our bylaws are amended, more than fifteen. Additionally, so long as BlueMountain maintains at least one designee on our board of directors, the number of members constituting our board of directors shall be no more than seven, subject to increase or decrease by the board of directors from time to time, in accordance with the Company’s charter and bylaws, provided that any such increase or decrease shall require the approval of at least one BlueMountain board designee. We have elected by a provision of our charter to be subject to a provision of Maryland law requiring that, subject to the rights of holders of one or more classes or series of preferred stock, any vacancy may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the full term of the directorship in which such vacancy occurred and until his or her successor is duly elected and qualifies.

Each member of our board of directors is elected by our stockholders to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualifies. Holders of shares of our common stock will have no right to cumulative voting in the election of directors, and directors will be elected by a plurality of the votes cast in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of our common stock will be able to elect all of our directors.

Removal of Directors

Our charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed only for cause (as defined in our charter) and only by the affirmative vote of holders of shares entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. Except as described below, this provision, when coupled with the exclusive power of our board of directors to fill vacant directorships, may preclude stockholders from removing incumbent directors except for cause and by a substantial affirmative vote and filling the vacancies created by such removal with their own nominees.

As described under the caption “Description of Capital Stock—Registration Rights,” we may be required by the registration rights agreement and our bylaws to hold a special meeting of our stockholders for the purpose of considering and voting on the removal of our directors then in office and electing the successors of any directors so removed, which we refer to as a special election meeting, unless the requirement is waived or deferred in accordance with the registration rights agreement and our bylaws. At a special election meeting, a director may be removed with or without cause by the affirmative vote of holders of shares entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors.

Business Combinations

Under the MGCL, certain “business combinations” (including a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested stockholder ( i.e. , any person (other than the corporation or any subsidiary) who beneficially owns 10% or more of the voting power of the corporation’s outstanding voting stock after the date on which the corporation had 100 or more beneficial owners of its stock, or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in

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question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation after the date on which the corporation had 100 or more beneficial owners of its stock) or an affiliate of an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and (2) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. The board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by it.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder became an interested stockholder. As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combination between us and any other person from the provisions of this statute, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). However, our board of directors may repeal or modify this resolution at any time in the future, in which case the applicable provisions of this statute will become applicable to business combinations between us and interested stockholders.

Control Share Acquisitions

The MGCL provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights with respect to those shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by stockholders entitled to vote generally in the election of directors, excluding votes cast by (1) the person who makes or proposes to make a control share acquisition, (2) an officer of the corporation or (3) an employee of the corporation who is also a director of the corporation. “Control shares” are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: (1) one-tenth or more but less than one-third, (2) one-third or more but less than a majority or (3) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders

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may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

The control share acquisition statute does not apply to, among other things, (1) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (2) acquisitions approved or exempted by the charter or bylaws of the corporation.

Our bylaws contain a provision exempting from the control share acquisition statute any acquisition by any person of shares of our stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future by our board of directors.

Subtitle 8

Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors, without stockholder approval, and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which provide, respectively, that:

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the corporation’s board of directors will be divided into three classes;

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the affirmative vote of two-thirds of the votes cast in the election of directors generally is required to remove a director;

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the number of directors may be fixed only by vote of the directors;

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a vacancy on its board of directors be filled only by the remaining directors and that directors elected to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy occurred; and

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the request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting is required for stockholders to require the calling of a special meeting of stockholders.

Our charter provides that, at such time as we become eligible to make a Subtitle 8 election, we elect to be subject to the provisions of Subtitle 8 relating to the filling of vacancies on our board of directors. In addition, without our having elected to be subject to Subtitle 8, our charter and bylaws already (1) require the affirmative vote of holders of shares entitled to cast at least two-thirds of all the votes entitled to be cast generally in the election of directors to remove a director from our board of directors, (2) vest in our board of directors the exclusive power to fix the number of directors and (3) require, unless called by our chairman, our president and chief executive officer or our board of directors, the request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting to call a special meeting. Our board of directors is not currently classified. In the future, our board of directors may elect, without stockholder approval, to classify our board of directors or elect to be subject to any of the other provisions of Subtitle 8.

Amendment to Our Charter and Bylaws

Under the MGCL, a Maryland corporation generally cannot amend its charter unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. Except for certain amendments related to the removal of directors and the restrictions on ownership and transfer of our stock and the vote required to amend those provisions (which must be declared advisable by our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than two-thirds of all the votes entitled to be cast on the matter), our charter generally may be amended only if the amendment is declared advisable by our board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Our board of directors, with the approval of a majority of the entire board, and without any action by our stockholders, may also amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series we are authorized to issue.

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Our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.

Extraordinary Transactions

Under the MGCL, a Maryland corporation generally cannot dissolve, merge, sell all or substantially all of its assets, engage in a statutory share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. As permitted by the MGCL, our charter provides that any of these actions may be approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Many of our operating assets will be held by our subsidiaries, and these subsidiaries may be able to merge or sell all or substantially all of their assets without the approval of our stockholders.

Appraisal Rights

Our charter provides that our stockholders generally will not be entitled to exercise statutory appraisal rights.

Dissolution of Our Company

Our dissolution must be declared advisable by a majority of our entire board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.

Meetings of Stockholders

Pursuant to our bylaws, an annual meeting of our stockholders for the purpose of the election of directors and the transaction of any business will be held on a date and at the time and place set by our board of directors. Each of our directors is elected by our stockholders to serve until the next annual meeting and until his or her successor is duly elected and qualifies under Maryland law. In addition, our chairman, our president and chief executive officer or our board of directors may call a special meeting of our stockholders. Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by our stockholders will also be called by our secretary upon the written request of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting on such matter, accompanied by the information required by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary may prepare and mail the notice of the special meeting.

In addition, as described above under “Description of Capital Stock—Registration Rights,” we may be required to hold a special election meeting of our stockholders for the purpose of considering and voting on the removal of our directors then in office and electing successors of any directors so removed unless the requirement is waived or deferred in accordance with the registration rights agreement and our bylaws.

Advance Notice of Director Nominations and New Business

Our bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of other business to be considered by our stockholders at an annual meeting of stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by a stockholder who was a stockholder of record both at the time of giving of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of the individual so nominated or such other business and who has complied with the advance notice procedures set forth in our bylaws, including a requirement to provide certain information about the stockholder and its affiliates and the nominee or business proposal, as applicable.

With respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our board of directors may be made at

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a special meeting of stockholders at which directors are to be elected only (1) by or at the direction of our board of directors or (2) provided that the special meeting has been properly called in accordance with our bylaws for the purpose of electing directors, by a stockholder who is a stockholder of record both at the time of giving of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of each individual so nominated and who has complied with the advance notice provisions set forth in our bylaws, including a requirement to provide certain information about the stockholder and its affiliates and the nominee.

Anti-takeover Effect of Certain Provisions of Maryland Law and Our Charter and Bylaws

Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including:

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supermajority vote and cause requirements for removal of directors;

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requirement that stockholders holding at least a majority of our outstanding common stock must act together to make a written request before our stockholders can require us to call a special meeting of stockholders;

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provisions that vacancies on our board of directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred;

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the power of our board of directors, without stockholder approval, to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock;

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the power of our board of directors to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval;

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the restrictions on ownership and transfer of our stock; and

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advance notice requirements for director nominations and stockholder proposals.

Likewise, if the resolution opting out of the business combination provisions of the MGCL was repealed, or the business combination is not approved by our board of directors, or the provision in the bylaws opting out of the control share acquisition provisions of the MGCL were rescinded, these provisions of the MGCL could have similar anti-takeover effects.

Indemnification and Limitation of Directors’ and Officers’ Liability

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages, except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains a provision that eliminates such liability to the maximum extent permitted by Maryland law.

Our charter and bylaws provide for indemnification of our officers and directors against liabilities to the maximum extent permitted by the MGCL, as amended from time to time.

The MGCL requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that:

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the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty;

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the director or officer actually received an improper personal benefit in money, property or services; or

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in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

However, under the MGCL, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, and then only for expenses. In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon its receipt of:

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a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and

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a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.

Our charter authorizes us, and our bylaws obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of such a proceeding to:

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any present or former director or officer of our company who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity; or

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any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity.

We have entered into indemnification agreements with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland law.

Restrictions on Ownership and Transfer

Subject to certain exceptions, our charter provides that no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the outstanding shares of our common stock or more than 9.8% in value of the aggregate outstanding shares of our stock. For a more detailed description of this and other restrictions on ownership and transfer of our stock, see “Description of Capital Stock—Restrictions on Ownership and Transfer.”

REIT Qualification

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without approval of our stockholders, if it determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

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OUR OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT

The following is a summary of the material provisions of the First Amended and Restated Agreement of Limited Partnership of our operating partnership, or the partnership agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part. This summary does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the Delaware Revised Uniform Limited Partnership Act, as amended, and the partnership agreement. See “Where You Can Find More Information.” For purposes of this section, references to “we,” “our,” “us” and “our company” refer to MedEquities Realty Trust, Inc. alone, and not to its subsidiaries. For the purposes of this section, references to the “general partner” refer to MedEquities OP GP, LLC, a wholly owned subsidiary of MedEquities Realty Trust, Inc.

General

Pursuant to the partnership agreement, subject to certain protective rights of the limited partners described below, we have, through our control of the general partner, full, exclusive and complete responsibility and discretion in the management and control of our operating partnership, including the ability to cause our operating partnership to enter into certain major transactions including a merger of our operating partnership or a sale of substantially all of the assets of our operating partnership. The limited partners have no power to remove the general partner without the general partner’s consent.

The general partner may not conduct any business without the consent of a majority of the limited partners other than in connection with: the ownership, acquisition and disposition of partnership interests; the management of the business of our operating partnership; our operation as a reporting company with a class of securities registered under the Exchange Act; the offering, sale syndication, private placement or public offering of stock, bonds, securities or other interests, financing or refinancing of any type related to our operating partnership or its assets or activities; and such activities as are incidental to those activities discussed above. In general, we must contribute any assets or funds that we acquire to our operating partnership in exchange for additional partnership interests. We may, however, in our sole and absolute discretion, from time to time hold or acquire assets in our own name or otherwise other than through our operating partnership so long as we take commercially reasonable measures that the economic benefits and burdens of such property are otherwise vested in our operating partnership. We and our affiliates may also engage in any transactions with our operating partnership on such terms as we may determine in our sole and absolute discretion.

We, as the parent of the general partner, are under no obligation to give priority to the separate interests of our stockholders or the limited partners in deciding whether to cause our operating partnership to take or decline to take any actions. If there is a conflict between the interests of our stockholders on the one hand and the limited partners (including us) on the other, we, as the parent of the general partner, will endeavor in good faith to resolve the conflict in a manner that is not adverse to either our stockholders or the limited partners (including us). The general partner is not liable under the partnership agreement to our operating partnership or to any partner for monetary damages for losses sustained, liabilities incurred, or benefits not derived by limited partners (including us) in connection with such decisions, unless the general partner acted in bad faith and the act or omission was material to the matter giving rise to the loss, liability or benefit not derived.

Substantially all of our business activities, including all activities pertaining to the acquisition and operation of properties, must be conducted through our operating partnership, and our operating partnership must be operated in a manner that will enable us to satisfy the requirements for qualification as a REIT.

Operating Partnership Units

Interests in our operating partnership are denominated in units of limited partnership interest. Pursuant to the partnership agreement, our operating partnership has designated the following classes of units of limited partnership interest, or operating partnership units: OP units and LTIP units.

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OP Units

We own 100% of the OP units. To the extent that we issue OP units, on or after the date that is 12 months after the date of the original issuance of the OP units, each holder of OP units (other than us) will have the right, subject to the terms and conditions set forth in the partnership agreement, to require our operating partnership to redeem all or a portion of the OP units held by such limited partner in exchange for a cash amount equal to the number of tendered OP units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the partnership agreement), unless the terms of such OP units or a separate agreement entered into between our operating partnership and the holder of such OP units provide that they are not entitled to a right of redemption or provide for a shorter or longer period before such limited partner may exercise such right of redemption or impose conditions on the exercise of such right of redemption. On or before the close of business on the tenth business day after the general partner receives a notice of redemption, we may, as parent of the general partner, in our sole and absolute discretion, but subject to the restrictions on the ownership of our common stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered OP units from the tendering partner in exchange for cash or shares of our common stock, based on an exchange ratio of one share of our common stock for each OP unit (subject to anti-dilution adjustments provided in the partnership agreement).

LTIP Units

In the future, we, as the parent of the general partner, may cause our operating partnership to issue LTIP units to our independent directors, executive officers and certain other employees and persons who provide services to our operating partnership. These LTIP units will be subject to certain vesting requirements. In general, LTIP units are similar to OP units and will receive the same quarterly per-unit profit distributions as OP units. The rights, privileges, and obligations related to each series of LTIP units will be established at the time the LTIP units are issued. As profits interests, LTIP units initially will not have full parity, on a per-unit basis, with OP units with respect to liquidating distributions. Upon the occurrence of specified events, LTIP units can over time achieve full parity with OP units and therefore accrete to an economic value for the holder equivalent to OP units. If such parity is achieved, vested LTIP units may be converted on a one-for-one basis into OP units, which in turn are redeemable by the holder for cash or, at our election, exchangeable for shares of our common stock on a one-for-one basis. However, there are circumstances under which LTIP units will not achieve parity with OP units, and until such parity is reached, the value that a participant could realize for a given number of LTIP units will be less than the value of an equal number of shares of our common stock and may be zero.

Management Liability and Indemnification

To the maximum extent permitted under Delaware law, neither we, the general partner nor any of our directors and officers will be liable to our operating partnership or the limited partners or assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission, unless such person acted in bad faith and the act or omission was material to the matter giving rise to the loss, liability or benefit not derived. The partnership agreement provides for indemnification of the general partner, us, our affiliates and each of our respective officers, directors, employees and any persons we may designate from time to time in our sole and absolute discretion, to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of our operating partnership, provided that our operating partnership will not indemnify such person if (i) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the person actually received an improper personal benefit in money, property or services, or (iii) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful, as set forth in the partnership agreement (subject to the exceptions described below under “—Fiduciary Responsibilities”).

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Insofar as the foregoing provisions permit indemnification of directors, officers or persons controlling us for liability arising under the Securities Act, we have been informed that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Fiduciary Responsibilities

Our directors and officers have duties under applicable Maryland law to manage us in a manner consistent with our best interests. At the same time, the general partner has fiduciary duties to manage our operating partnership in a manner beneficial to our operating partnership and its partners. Our duties, as the parent of the general partner, to our operating partnership and its limited partners, therefore, may come into conflict with the duties of our directors and officers to us and our stockholders. We will be under no obligation to give priority to the separate interests of the limited partners of our operating partnership in deciding whether to cause our operating partnership to take or decline to take any actions. The limited partners of our operating partnership have agreed that in the event of a conflict in the duties owed by our directors and officers to us and our stockholders and the fiduciary duties owed by us, in our capacity as the parent of the general partner of our operating partnership, to such limited partners, we will fulfill our fiduciary duties to such limited partners by acting in the best interests of our stockholders.

The limited partners of our operating partnership have expressly acknowledged that we are acting for the benefit of our operating partnership, the limited partners and our stockholders collectively.

Distributions

The partnership agreement provides that we, as the parent of the general partner, shall cause our operating partnership to make quarterly (or more frequent) distributions of all of its available cash (which is defined to be cash available for distribution as determined by us, as general partner) (i) first, with respect to any OP units that are entitled to any preference in accordance with the rights of such operating partnership unit (and, within such class, pro rata according to their respective percentage interests) and (ii) second, with respect to any OP units that are not entitled to any preference in distribution, in accordance with the rights of such class of OP units (and, within such class, pro rata in accordance with their respective percentage interests).

Allocations of Net Income and Net Loss

Net income and net loss of our operating partnership are determined and allocated with respect to each fiscal year of our operating partnership as of the end of the year. Except as otherwise provided in the partnership agreement, an allocation of a share of net income or net loss is treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing net income or net loss. Except as otherwise provided in the partnership agreement, net income and net loss are allocated to the holders of OP units holding the same class or series of OP units in accordance with their respective percentage interests in the class or series at the end of each fiscal year. The partnership agreement contains provisions for special allocations intended to comply with certain regulatory requirements, including the requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Except as otherwise required by the partnership agreement or the Code and the Treasury Regulations, each operating partnership item of income, gain, loss and deduction is allocated among the limited partners of our operating partnership for U.S. federal income tax purposes in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to the partnership agreement. In addition, under Section 704(c) of the Code, items of income, gain, loss and deduction with respect to appreciated or depreciated property which is contributed to a partnership, such as our operating partnership, in a tax-free transaction must be specially allocated among the partners in such a manner so as to take into account such variation between the tax basis and the fair market value of the property at the time of contribution. Our operating partnership will allocate tax items to the holders of operating partnership units taking into consideration the requirements of Section 704(c) of the Code. See “Material U.S. Federal Income Tax Considerations.”

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The general partner has sole discretion to ensure that allocations of income, gain, loss and deduction of our operating partnership are in accordance with the interests of the partners of our operating partnership as determined under the Code, and all matters concerning allocations of tax items not expressly provided for in the partnership agreement may be determined by the general partner in its sole discretion.

Redemption Rights

On or after 12 months after becoming a holder of OP units, each limited partner, other than us, will have the right, subject to the terms and conditions set forth in the partnership agreement, to require our operating partnership to redeem all or a portion of such units in exchange for a cash amount equal to the number of tendered units multiplied by the fair market value of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the partnership agreement), unless the terms of such units or a separate agreement entered into between our operating partnership and the holder of such units provide that they do not have a right of redemption or provide for a shorter or longer period before such holder may exercise such right of redemption or impose conditions on the exercise of such right of redemption. On or before the close of business on the tenth business day after we receive a notice of redemption, we may, as the parent of the general partner, in our sole and absolute discretion, but subject to the restrictions on the ownership of our common stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered units in exchange for cash or shares of our common stock, based on an exchange ratio of one share of our common stock for each OP unit (subject to anti-dilution adjustments provided in the partnership agreement). If we give the limited partners notice of our intention to make an extraordinary distribution of cash or property to our stockholders or effect a merger, a sale of all or substantially all of our assets, or any other similar extraordinary transaction, each limited partner may exercise its right to redeem its OP units, regardless of the length of time such limited partner has held its OP units.

Transferability of Operating Partnership Units; Extraordinary Transactions

The general partner generally is not be able to withdraw voluntarily from our operating partnership or transfer any of its interest in our operating partnership unless the transfer is: (i) to our affiliate; (ii) to a wholly owned subsidiary of the general partner or the owner of all of the ownership interests of the general partner; or (iii) otherwise expressly permitted under the partnership agreement.

The partnership agreement permits the general partner or us, as the parent of the general partner, to engage in a merger, consolidation or other combination, or sale of substantially all of our assets if:

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we receive the consent of a majority in interest of the limited partners (excluding us);

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following the consummation of such transaction, substantially all of the assets of the surviving entity are owned directly or indirectly by the operating partnership or another limited partnership or limited liability company which is the survivor of a merger, consolidation or combination of assets with the operating partnership; or

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as a result of such transaction all limited partners will receive, or will have the right to receive, for each operating partnership unit an amount of cash, securities or other property equal in value to the greatest amount of cash, securities or other property paid in the transaction to a holder of one share of our common stock, provided that if, in connection with the transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of our common stock, each holder of operating partnership units shall be given the option to exchange such units for the greatest amount of cash, securities or other property that a limited partner would have received had it exercised its redemption right (described above) and received shares of our common stock immediately prior to the expiration of the offer.

With certain limited exceptions, the limited partners may not transfer their interests in our operating partnership, in whole or in part, without the prior written consent of the general partner, which consent may be withheld in its sole and absolute discretion. Except with the general partner’s consent to the admission of the

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transferee as a limited partner, transferees shall not have any rights by virtue of the transfer other than the rights of an assignee and will not be entitled to vote or effect a redemption with respect to their operating partnership units in any matter presented to the limited partners for a vote. The general partner will have the right to consent to the admission of a transferee of the interest of a limited partner, which consent may be given or withheld by in our sole and absolute discretion.

Issuance of Our Stock and Additional Partnership Interests

Pursuant to the partnership agreement, upon the issuance of our stock other than in connection with a redemption of OP units, we generally are obligated to contribute or cause to be contributed the cash proceeds or other consideration received from the issuance of our stock to our operating partnership in exchange for, in the case of common stock, OP units or, in the case of an issuance of preferred stock, preferred operating partnership units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of the preferred stock. In addition, the general partner may cause our operating partnership to issue additional operating partnership units or other partnership interests and to admit additional limited partners to our operating partnership from time to time, on such terms and conditions and for such capital contributions as we, as the parent of the general partner, may establish in our sole and absolute discretion, without the approval or consent of any limited partner, including: (i) upon the conversion, redemption or exchange of any debt, units or other partnership interests or other securities issued by our operating partnership; (ii) for less than fair market value; or (iii) in connection with any merger of any other entity into our operating partnership.

Tax Matters

Pursuant to the partnership agreement, the general partner is the tax matters partner of our operating partnership and has certain other rights relating to tax matters. Accordingly, as both the general partner and tax matters partner, we have the authority to handle tax audits and to make tax elections under the Code, in each case, on behalf of our operating partnership. Our operating partnership is currently treated as an entity disregarded from its owner for U.S. federal income tax purposes.

Term

The term of our operating partnership commenced on April 23, 2014 and will continue perpetually, unless earlier terminated in the following circumstances:

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a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the general partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the general partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless, prior to the entry of such order or judgment, a majority in interest of the remaining outside limited partners agree in writing, in their sole and absolute discretion, to continue the business of our operating partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a successor general partner;

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an election to dissolve our operating partnership made by the general partner in its sole and absolute discretion, with or without the consent of a majority in interest of the outside limited partners;

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entry of a decree of judicial dissolution of our operating partnership pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act;

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the occurrence of any sale or other disposition of all or substantially all of the assets of our operating partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of our operating partnership;

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the redemption (or acquisition by the general partner) of all operating partnership units that we have authorized other than those held by us; or

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the incapacity or withdrawal of the general partner, unless all of the remaining partners in their sole and absolute discretion agree in writing to continue the business of our operating partnership and to the appointment, effective as of a date prior to the date of such incapacity, of a substitute general partner.

Amendments to the Partnership Agreement

Amendments to the partnership agreement may be proposed by the general partner or by any limited partner holding 25% or more of the percentage interest of OP units designated as Class A Units. Generally, the partnership agreement may be amended with the general partner’s approval and the approval of the limited partners holding a majority of all outstanding limited partner units (excluding limited partner units held by us or our subsidiaries). Certain amendments that would, among other things, have the following effects, must be approved by each partner adversely affected thereby:

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conversion of a limited partner’s interest into a general partner’s interest (except as a result of the general partner acquiring such interest);

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modification of the limited liability of a limited partner; alteration or modification of the rights of any partner to receive the distributions to which such partner is entitled (subject to certain exceptions);

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alteration or modification of the redemption rights provided by the partnership agreement; or

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alteration or modification of the provisions governing transfer of the general partner’s partnership interest.

Notwithstanding the foregoing, we, as the parent of the general partner, will have the power, without the consent of the limited partners, to amend the partnership agreement as may be required to:

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add to the general partner’s obligations or surrender any right or power granted to the general partner or any of its affiliates for the benefit of the limited partners;

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reflect the admission, substitution, or withdrawal of partners or the termination of our operating partnership in accordance with the partnership agreement and to cause our operating partnership or our operating partnership’s transfer agent to amend its books and records to reflect our operating partnership unit holders in connection with such admission, substitution or withdrawal;

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reflect a change that is of an inconsequential nature or does not adversely affect the limited partners as such in any material respect, or to cure any ambiguity, correct or supplement any provision in the partnership agreement not inconsistent with the law or with other provisions, or make other changes with respect to matters arising under the partnership agreement that will not be inconsistent with the law or with the provisions of the partnership agreement;

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satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a U.S. federal or state agency or contained in U.S. federal or state law;

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set forth or amend the designations, preferences, conversion or other rights, voting powers, duties restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the holders of any additional operating partnership units issued or established pursuant to the partnership agreement;

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reflect such changes as are reasonably necessary for us to maintain or restore our qualification as a REIT, to satisfy the REIT requirements or to reflect the transfer of any operating partnership units between us and any qualified REIT subsidiary or entity that is disregarded as an entity separate from us for U.S. federal income tax purposes;

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modify either or both the manner in which items of net income or net loss are allocated or the manner in which capital accounts are computed (but only to the extent set forth in the partnership agreement, or to the extent required by the Code or applicable income tax regulations under the Code);

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issue additional partnership interests;

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impose restrictions on the transfer of operating partnership units if we receive an opinion of counsel reasonably to the effect that such restrictions are necessary in order to comply with any federal or state securities laws or regulations applicable to our operating partnership or the operating partnership units;

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reflect any other modification to the partnership agreement as is reasonably necessary for our business or operations or those of our operating partnership and which does not otherwise require the consent of each partner adversely affected; and

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reflect an increase or decrease in the amount that a limited partner is obligated to contribute to our operating partnership upon the occurrence of certain events.

Certain provisions affecting the general partner’s rights and duties ( e.g. , restrictions relating to certain extraordinary transactions involving us, the general partner or our operating partnership) may not be amended without the approval of the holders of a majority of the operating partnership units (excluding operating partnership units held by us).

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SHARES ELIGIBLE FOR FUTURE SALE

General

Upon completion of this offering, we will have outstanding shares of our common stock ( shares if the underwriters’ over-allotment option is exercised in full), including shares issued in this offering ( shares if the underwriters’ over-allotment option is exercised in full), shares purchased by BlueMountain in a concurrent private placement, 10,945,394 shares issued in the common stock private placements and an aggregate of 304,016 restricted shares of our common stock issued to our executive officers, non-employee directors and certain employees under our 2014 Equity Incentive Plan. In addition 693,082 shares of our common stock are available for future issuance under our 2014 Equity Incentive Plan. See “Management—2014 Equity Incentive Plan.”

Of these shares, the shares sold in this offering ( shares if the underwriters’ over-allotment option is exercised in full) will be freely transferable without restriction or further registration under the Securities Act, subject to the limitations on ownership set forth in our charter, except for any shares purchased in this offering by our “affiliates,” as that term is defined by Rule 144 under the Securities Act. The remaining shares of common stock issued to our officers, directors and affiliates pursuant to the Equity Incentive Plan and the shares of our common stock issuable to officers, directors and affiliates upon redemption of OP units will be “restricted shares” as defined in Rule 144.

Prior to this offering, there has been no public market for our common stock. Trading of our common stock on the NYSE is expected to commence immediately following the completion of this offering. No assurance can be given as to (1) the likelihood that an active market for our shares of common stock will develop, (2) the liquidity of any such market, (3) the ability of the stockholders to sell the shares or (4) the prices that stockholders may obtain for any of the shares. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock. In particular, BlueMountain owns 23.1% of the outstanding shares of our common stock as of date of this prospectus. If BlueMountain sells all or a substantial portion of their shares, it could have a material adverse impact on the market price of our common stock. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Common stock eligible for future sale could have an adverse effect on the value of our common stock.”

For a description of certain restrictions on transfers of our shares of common stock held by certain of our stockholders, see “Description of Capital Stock—Restrictions on Ownership and Transfer.”

Rule 144

Shares of our common stock that are “restricted” securities under the meaning of Rule 144 under the Securities Act may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption provided by Rule 144.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale and who has beneficially owned shares considered to be restricted securities under Rule 144 for at least six months would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned shares considered to be restricted securities under Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

An affiliate of ours who has beneficially owned shares of our common stock for at least six months would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

•

1% of the shares of our common stock then outstanding; or

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•

the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to manner of sale provisions, notice requirements and the availability of current public information about us.

Registration Rights

In the initial private placement, we issued and sold an aggregate of 10,539,561 shares of our common stock and entered into a registration rights agreement for the benefit of the purchasers in the initial private placement. Pursuant to the registration rights agreement, the purchasers in the initial private placement have a right to participate in this offering, subject to certain conditions, and holders of shares of our common stock have exercised their rights to sell in this offering. In addition, under this registration rights agreement, we have agreed to use our commercially reasonable efforts to cause a resale shelf registration statement to become effective under the Securities Act as promptly as practicable after the filing of the resale shelf registration statement, and in any event, subject to certain exceptions, no later than September 30, 2016 and to maintain the resale shelf registration statement continuously effective under the Securities Act for a specified period. See “Description of Capital Stock—Registration Rights.”

Lock-Up Agreements

For a description of certain lock-ups see “Underwriting—Lock-Up Agreements.”

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

This section summarizes the material U.S. federal income tax considerations that you, as a prospective investor, may consider relevant in connection with the acquisition, ownership and disposition of our common stock and our election to be taxed as a REIT. As used in this section, the terms “we” and “our” refer solely to MedEquities Realty Trust, Inc. and not to our subsidiaries and affiliates, which have not elected to be taxed as REITs for U.S. federal income tax purposes.

This discussion does not exhaust all possible tax considerations and does not provide a detailed discussion of any state, local or foreign tax considerations. Nor does this discussion address all aspects of U.S. federal income taxation that may be relevant to particular investors in light of their personal investment or tax circumstances, or to certain types of investors that are subject to special treatment under the U.S. federal income tax laws, such as insurance companies, tax-exempt organizations (except to the limited extent discussed below under “—Taxation of Tax-Exempt Stockholders”), financial institutions, broker-dealers, persons subject to the alternative minimum tax, persons holding our stock as part of a hedge, straddle or other risk reduction, constructive sale or conversion transaction, non-U.S. individuals and foreign corporations (except to the limited extent discussed below under “—Taxation of Non-U.S. Stockholders”) and other persons subject to special tax rules. Moreover, this summary assumes that our stockholders hold our common stock as a “capital asset” for U.S. federal income tax purposes, which generally means property held for investment.

The statements in this section are based on the current U.S. federal income tax laws, including the Code, the Treasury Regulations, rulings and other administrative interpretations and practices of the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. This discussion is for general purposes only and is not tax advice. We cannot assure you that new laws, interpretations of law, or court decisions, any of which may take effect retroactively, will not cause any statement in this section to be inaccurate.

We urge you to consult your own tax advisor regarding the specific tax consequences to you of the acquisition, ownership and disposition of our common stock and of our election to be taxed as a REIT. Specifically, you should consult your own tax advisor regarding the U.S. federal, state, local, foreign, and other tax consequences of such acquisition, ownership, disposition and election, and regarding potential changes in applicable tax laws.

Taxation of Our Company

We were incorporated on April 23, 2014 as a Maryland corporation. We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2014. Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our stock. We believe that, commencing with such short taxable year, we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner. However, no assurances can be provided regarding our qualification as a REIT because such qualification depends on our ability to satisfy numerous asset, income, stock ownership and distribution tests described below, the satisfaction of which will depend, in part, on our operating results.

The sections of the Code relating to qualification, operation and taxation as a REIT are highly technical and complex. The following discussion sets forth only the material aspects of those sections. This summary is qualified in its entirety by the applicable Code provisions and the related Treasury Regulations and administrative and judicial interpretations thereof.

In connection with this offering, Morrison & Foerster LLP will render an opinion prior to effectiveness of the registration statement of which this Prospectus forms a part to the effect that we have been organized and

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have operated in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable years ended December 31, 2014 through December 31, 2015, and our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ending December 31, 2016 and thereafter. Investors should be aware that Morrison & Foerster LLP’s opinion will be based on the U.S. federal income tax laws governing qualification as a REIT as of the date of such opinion, which will be subject to change, possibly on a retroactive basis, will not be binding on the IRS or any court, and will speak only as of the date issued. In addition, Morrison & Foerster LLP’s opinion will be based on customary assumptions and will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the future conduct of our business. Moreover, our continued qualification and taxation as a REIT depend on our ability to meet, on a continuing basis, through actual results, certain qualification tests set forth in the U.S. federal income tax laws. Those qualification tests involve, among other things, the percentage of our gross income that we earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our stock ownership and the percentage of our earnings that we distribute. Morrison & Foerster LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that the actual results of our operations for any particular taxable year will satisfy such requirements. Morrison & Foerster LLP’s opinion will not foreclose the possibility that we may have to use one or more of the REIT savings provisions described below, which may require us to pay a material excise or penalty tax in order to maintain our REIT qualification. For a discussion of the tax consequences of our failure to maintain our qualification as a REIT, see “—Failure to Qualify as a REIT” below.

If we qualify as a REIT, we generally will not be subject to U.S. federal income tax on the taxable income that we distribute to our stockholders because we will be entitled to a deduction for dividends that we pay. Such tax treatment avoids the “double taxation,” or taxation at both the corporate and stockholder levels, that generally results from owning stock in a corporation. In general, income generated by a REIT is taxed only at the stockholder level if such income is distributed by the REIT to its stockholders. However, we will be subject to U.S. federal income tax in the following circumstances:

•

We will be subject to U.S. federal corporate income tax on any REIT taxable income, including net capital gain, that we do not distribute to our stockholders during, or within a specified time period after, the calendar year in which the income is earned.

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We may be subject to corporate “alternative minimum tax.”

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We will be subject to tax, at the highest U.S. federal corporate income tax rate, on net income from the sale or other disposition of property acquired through foreclosure (“foreclosure property”) that we hold primarily for sale to customers in the ordinary course of business, and other non-qualifying income from foreclosure property.

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We will be subject to a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business.

•

If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test, as described below under “—Gross Income Tests,” but nonetheless maintain our qualification as a REIT because we meet certain other requirements, we will be subject to a 100% tax on:

•

the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, in either case, multiplied by

•

a fraction intended to reflect our profitability.

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If we fail to distribute during a calendar year at least the sum of: (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for the year, and (3) any undistributed taxable income required to be distributed from earlier periods, then we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed.

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•

If we fail any of the asset tests, other than a de minimis failure of the 5% asset test, the 10% vote test or the 10% value test, as described below under “—Asset Tests,” as long as (1) the failure was due to reasonable cause and not to willful neglect, (2) we file a description of each asset that caused such failure with the IRS, and (3) we dispose of the assets causing the failure or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure, we will pay a tax equal to the greater of $50,000 or the highest U.S. federal corporate income tax rate (currently 35%) multiplied by the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests.

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If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and such failure is due to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure.

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We will be subject to a 100% excise tax on transactions with a TRS that are not conducted on an arm’s-length basis including, for taxable years beginning after December 31, 2015, “redetermined TRS service income.” Redetermined TRS service income generally represents gross income of a taxable REIT subsidiary that is understated and attributable to services provided to us or on our behalf.

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If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation’s basis in the asset or to another asset, we will pay tax at the highest U.S. federal corporate income tax rate applicable if we recognize gain on the sale or disposition of the asset during the 5-year period after we acquire the asset. The amount of gain on which we will pay tax generally is the lesser of:

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the amount of gain that we recognize at the time of the sale or disposition, and

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the amount of gain that we would have recognized if we had sold the asset at the time we acquired it.

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The earnings of our subsidiary entities that are C corporations, including TRSs, will be subject to U.S. federal corporate income tax.

In addition, we may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and other taxes on our assets and operations. We also could be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification as a REIT

A REIT is a corporation, trust or association that satisfies each of the following requirements:

(1)

It is managed by one or more trustees or directors;

(2)

Its beneficial ownership is evidenced by transferable shares of stock, or by transferable shares or certificates of beneficial interest;

(3)

It would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code, i.e. , the REIT provisions;

(4)

It is neither a financial institution nor an insurance company subject to special provisions of the U.S. federal income tax laws;

(5)

At least 100 persons are beneficial owners of its stock or ownership shares or certificates (determined without reference to any rules of attribution);

(6)

Not more than 50% in value of its outstanding stock or shares of beneficial interest are owned, directly or indirectly, by five or fewer individuals, which the U.S. federal income tax laws define to include certain entities, during the last half of any taxable year;

(7)

It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to qualify to be taxed as a REIT for U.S. federal income tax purposes;

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(8)

It uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the U.S. federal income tax laws; and

(9)

It meets certain other requirements described below, regarding the sources of its gross income, the nature and diversification of its assets and the distribution of its income.

We must satisfy requirements 1 through 4, and 8 during our entire taxable year and must satisfy requirement 5 during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Requirements 5 and 6 will not apply to us for our short taxable year ended December 31, 2014. If we comply with certain requirements for ascertaining the beneficial ownership of our outstanding stock in a taxable year and have no reason to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining stock ownership under requirement 6, an “individual” generally includes a supplemental unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An “individual,” however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the U.S. federal income tax laws, and beneficiaries of such a trust will be treated as holding our stock in proportion to their actuarial interests in the trust for purposes of requirement 6.

Our charter provides for restrictions regarding the ownership and transfer of shares of our capital stock. We believe that we will issue sufficient stock with enough diversity of ownership to allow us to satisfy requirements 5 and 6 above. The restrictions in our charter are intended, among other things, to assist us in satisfying requirements 5 and 6 described above. These restrictions, however, may not ensure that we will be able to satisfy such share ownership requirements in all cases. If we fail to satisfy these share ownership requirements, our qualification as a REIT may terminate.

For purposes of requirement 8, we have adopted December 31 as our year end for U.S. federal income tax purposes, and thereby satisfy this requirement.

Qualified REIT Subsidiaries. A “qualified REIT subsidiary” generally is a corporation, all of the stock of which is owned, directly or indirectly, by a REIT and that is not treated as a TRS. A corporation that is a “qualified REIT subsidiary” is treated as a division of the REIT that owns, directly or indirectly, all of its stock and not as a separate entity for U.S. federal income tax purposes. Thus, all assets, liabilities, and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets, liabilities, and items of income, deduction, and credit of the REIT that directly or indirectly owns the qualified REIT subsidiary. Consequently, in applying the REIT requirements described herein, the separate existence of any “qualified REIT subsidiary” that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit.

Other Disregarded Entities and Partnerships. An unincorporated domestic entity, such as a partnership or limited liability company, that has a single owner, as determined under U.S. federal income tax laws, generally is not treated as an entity separate from its owner for U.S. federal income tax purposes. We own various direct and indirect interests in entities that are classified as partnerships and limited liability companies for state law purposes. Nevertheless, many of these entities currently are not treated as entities separate from their owners for U.S. federal income tax purposes because such entities are treated as having a single owner for U.S. federal income tax purposes. Consequently, the assets and liabilities, and items of income, deduction, and credit, of such entities will be treated as our assets and liabilities, and items of income, deduction, and credit, for U.S. federal income tax purposes, including the application of the various REIT qualification requirements.

An unincorporated domestic entity with two or more owners, as determined under the U.S. federal income tax laws, generally is taxed as a partnership for U.S. federal income tax purposes. In the case of a REIT that is an owner in an entity that is taxed as a partnership for U.S. federal income tax purposes, the REIT is treated as owning its proportionate share of the assets of the entity and as earning its allocable share of the gross income of the entity for purposes of the applicable REIT qualification tests. Thus, our proportionate share of the assets and

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items of gross income of our operating partnership and any other partnership, joint venture, or limited liability company that is taxed as a partnership for U.S. federal income tax purposes is treated as our assets and items of gross income for purposes of applying the various REIT qualification tests. For purposes of the 10% value test (described in “—Asset Tests”), our proportionate share is based on our proportionate interest in the equity interests and certain debt securities issued by the entity. For all of the other asset and income tests, our proportionate share is based on our proportionate interest in the capital of the entity.

We have control of our operating partnership and intend to operate it in a manner consistent with the requirements for our qualification as a REIT. We may from time to time be a limited partner or non-managing member in a partnership or limited liability company. If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.

Taxable REIT Subsidiaries. A REIT is permitted to own, directly or indirectly, up to 100% of the stock of one or more TRSs. The subsidiary and the REIT generally must jointly elect to treat the subsidiary as a TRS. However, a corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the securities is automatically treated as a TRS without an election.

Unlike a qualified REIT subsidiary, the separate existence of a TRS is not ignored for U.S. federal income tax purposes and a TRS is a fully taxable corporation subject to U.S. federal corporate income tax on its earnings. We will not be treated as holding the assets of any TRS or as receiving the income earned by any TRS. Rather, we will treat the stock issued by any TRS as an asset and will treat any distributions paid to us from any TRS as income. This treatment may affect our compliance with the gross income test and asset tests.

Restrictions imposed on REITs and their TRSs are intended to ensure that TRSs will be subject to appropriate levels of U.S. federal income taxation. These restrictions limit the deductibility of interest paid or accrued by a TRS to its parent REIT and impose a 100% excise tax on transactions between a TRS and its parent REIT or the REIT’s tenants that are not conducted on an arm’s-length basis, such as any redetermined rents, redetermined deductions, excess interest or, for taxable years beginning after December 31, 2015, redetermined TRS service income. In general, redetermined rents are rents from real property that are overstated and attributable to any services furnished to any of our tenants by a TRS of ours, redetermined deductions and excess interest represent any amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s length negotiations, and redetermined TRS service income is gross income of a TRS that is understated and attributable to services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Code. Dividends paid to us from a TRS, if any, will be treated as dividend income received from a corporation. The foregoing treatment of TRSs may reduce the cash flow generated by us and our subsidiaries in the aggregate and our ability to make distributions to our stockholders and may affect our compliance with the gross income tests and asset tests.

A TRS generally may be used by a REIT to undertake indirectly activities that the REIT requirements might otherwise preclude the REIT from doing directly, such as the provision of noncustomary tenant services or the disposition of property held for sale to customers. See “—Gross Income Tests—Rents from Real Property” and “—Gross Income Tests—Prohibited Transactions.”

A TRS may not directly or indirectly operate or manage any health care facilities or provide rights to any brand name under which any health care facility is operated. However, a TRS may provide such rights to an “eligible independent contractor” (as described below) to operate or manage a health care facility if such rights are held by the TRS as a franchisee, licensee, or in a similar capacity, and such health care facility is either

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owned by the TRS or leased to the TRS by its parent REIT. A TRS will not be considered to operate or manage a “qualified health care property” (as defined below) solely because the TRS directly or indirectly possesses a license, permit, or similar instrument enabling it to do so.

A “qualified health care property” includes any real property, including interests in real property, and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients and which is operated by a provider of such services which is eligible for participation in the Medicare program with respect to such facility.

We expect that certain of the properties we intend to acquire generally will be treated as “qualified health care properties,” and we may lease those properties to a TRS lessee in certain cases where the operators from whom we acquire such properties qualify as “eligible independent contractors” and will continue to operate such “qualified health care properties” on behalf of the TRS lessee. However, there can be no assurance that the IRS would not challenge our conclusions as to whether such operators qualify as “eligible independent contractor” or whether such properties qualify as “qualified health care properties”, or that a court would agree with our conclusions. If a challenge to such conclusions were successful, we could potentially lose our REIT status.

Gross Income Tests

We must satisfy two gross income tests annually to qualify and maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year generally must consist of the following:

•

rents from real property;

•

interest on debt secured by mortgages on real property or on interests in real property, and for taxable years beginning after December 31, 2015, interest on debt secured by mortgages on both real and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property;

•

dividends or other distributions on, and gain from the sale of, stock or shares of beneficial interest in other REITs;

•

gain from the sale of real estate assets other than, for taxable years beginning after December 31, 2015, gain from the sale of a nonqualified publicly offered REIT debt instrument as defined under Section 856(c)(5)(L)(ii) of the Code;

•

income and gain derived from foreclosure property; and

•

income derived from the temporary investment of new capital attributable to the issuance of our stock or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we receive such new capital.

For taxable years beginning after December 31, 2015, the term “real estate assets” also includes debt instruments of “publicly offered REITs,” personal property securing a mortgage secured by both real property and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property, and personal property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease.

Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities, or any combination of these.

Cancellation of indebtedness income and gross income from a sale of property that we hold primarily for sale to customers in the ordinary course of business will be excluded from gross income for purposes of the 75%

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and 95% gross income tests. In addition, gains from “hedging transactions,” as defined in “—Hedging Transactions,” that are clearly and timely identified as such will be excluded from gross income for purposes of the 75% and 95% gross income tests. Finally, certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests.

The following paragraphs discuss the specific application of certain relevant aspects of the gross income tests to us.

Rents from Real Property. Rent that we receive for the use of our real property will qualify as “rents from real property,” which is qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:

First, the rent must not be based in whole or in part on the income or profits of any person. However, participating rent will qualify as “rents from real property” if it is based on percentages of receipts or sales and the percentages generally:

•

are fixed at the time the leases are entered into;

•

are not renegotiated during the term of the leases in a manner that has the effect of basing percentage rent on income or profits; and

•

conform with normal business practice.

In compliance with the rules above, we intend to set and accept rents which are fixed dollar amounts with an annual percentage increase after a certain fixed number of years based on either a fixed percentage or the “consumer price index”, and not to any extent determined by reference to any person’s income or profits.

Second, we generally must not own, actually or constructively, 10% or more of the stock or the assets or net profits of any tenant, referred to as a “related-party tenant.” The constructive ownership rules generally provide that, if 10% or more in value of our stock is owned, directly or indirectly, by or for any person, we are considered as owning the stock owned, directly or indirectly, by or for such person. Because the constructive ownership rules are broad and it is not possible to monitor direct and indirect transfers of our stock continually, no assurance can be given that such transfers or other events of which we have no knowledge will not cause us to own constructively 10% or more of a tenant (or a subtenant, in which case only rent attributable to the subtenant is disqualified).

There are two exceptions to the related-party tenant rule described above for TRSs. Under the first exception to the related-party tenant rule, rent that we receive from a TRS lessee will qualify as “rents from real property” as long as (1) at least 90% of the leased space in the property is leased to persons other than TRS lessees and related-party tenants, and (2) the amount paid by the TRS lessee to rent space at the property is substantially comparable to rents paid by other tenants of the property for comparable space.

Under the second exception, provided certain conditions are satisfied, a TRS lessee is permitted to lease “qualified health care properties” from its parent REIT. Rents that we receive from a TRS lessee will qualify as “rents from real property” provided the TRS lessee leases a property from us that is a “qualified health care property” and such property is operated on behalf of the TRS lessee by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating “qualified health care properties” for any person unrelated to us and the TRS lessee (an “eligible independent contractor”).

As noted above, we expect that certain of the properties we intend to acquire generally will be treated as “qualified health care properties.” We may lease properties that are treated as “qualified health care properties” to a TRS lessee in cases where the operators from whom we acquire such properties qualify as “eligible independent contractors.” However, there can be no assurance that the IRS would not challenge our conclusions, or that a court would agree with such conclusion that such properties are “qualified health care properties” and

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that such operators are “eligible independent contractors.” If such a challenge were successful, we could fail to satisfy the 75% or 95% gross income test and thus potentially lose our REIT status.

Third, we must not furnish or render noncustomary services, other than a de minimis amount of noncustomary services, to the tenants of our properties other than through (i) an independent contractor from whom we do not derive or receive any income or (ii) a TRS. However, we generally may provide services directly to our tenants to the extent that such services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide a minimal amount of noncustomary services to the tenants of a property, other than through an independent contractor from whom we do not derive or receive any income or a TRS, as long as the income attributable to the services (valued at not less than 150% of the direct cost of performing such services) does not exceed 1% of our gross income from the related property. If the rent from a lease does not qualify as “rents from real property” because we furnish noncustomary services having a value (as provided in the previous sentence) in excess of 1% of our gross income from the related property to the tenants of the property, other than through a qualifying independent contractor or a TRS, none of the rent from the property will qualify as “rents from real property.” We have not performed, and do not intend to provide any noncustomary services to our tenants unless such services are provided through independent contractors from whom we do not derive or receive any income or TRSs.

Fourth, rent attributable to any personal property leased in connection with a lease of real property will not qualify as “rents from real property” if the rent attributable to such personal property exceeds 15% of the total rent received under the lease. If a portion of the rent that we receive from a property does not qualify as “rents from real property” because the rent attributable to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent attributable to personal property will not be qualifying income for purposes of either the 75% or 95% gross income test. We do not and do not intend to lease significant amounts of personal property pursuant to our leases.

Fifth, the leases must be respected as true leases for U.S. federal income tax purposes and not treated as service contracts, joint ventures or some other type of arrangement. The determination of whether our leases are true leases depends on an analysis of all the surrounding facts and circumstances. We intend to enter into leases that will be treated as true leases.

We believe rents received under our leases generally will qualify as “rents from real property” and any income attributable to noncustomary services or personal property will not jeopardize our ability to qualify as a REIT. However, there can be no assurance that the IRS would not challenge our conclusions, or that a court would agree with our conclusions. If such a challenge were successful, we could fail to satisfy the 75% or 95% gross income test and thus potentially lose our REIT status.

Interest. Interest income constitutes qualifying income for purposes of the 75% gross income test to the extent that the obligation upon which such interest is paid is secured by a mortgage on real property or on an interest in real property. For purposes of the 75% and 95% gross income tests, the term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of such amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “interest” solely because it is based on a fixed percentage or percentages of receipts or sales. Furthermore, to the extent that interest from a loan that is based on the profit or net cash proceeds from the sale of the property securing the loan constitutes a “shared appreciation provision,” income attributable to such participation feature will be treated as gain from the sale of the secured property.

We may provide senior secured first mortgage loans for the purchase of health care facilities. Interest on debt secured by mortgages on real property or on interests in real property, including, for this purpose, prepayment penalties, loan assumption fees and late payment charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. In general, under applicable Treasury Regulations, if a loan is secured by real property and other property and the highest principal amount of the loan

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outstanding during a taxable year exceeds the fair market value of the real property securing the loan determined as of the date we agreed to acquire or originate the loan then a portion of the interest income from such loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. For taxable years beginning after December 31, 2015, in the case of real estate mortgage loans secured by both real and personal property, if the fair market value of such personal property does not exceed 15% of the total fair market value of all property securing the loan, then the personal property securing the loan will be treated as real property for purposes of determining whether the mortgage is qualifying under the 75% asset test and interest income that qualifies for purposes of the 75% gross income test. We anticipate that the interest on our senior secured first mortgage loans generally would be treated as qualifying income for purposes of the 75% gross income test.

Certain mezzanine loans are secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property. IRS Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests described below, and interest derived from it will be treated as qualifying mortgage interest for purposes of the 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We anticipate that any mezzanine loans that we originate typically may not meet all of the requirements for reliance on this safe harbor. Nevertheless, if we invest in mezzanine loans, we intend to do so in a manner that will enable us to satisfy the gross income tests and asset tests.

Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Net income derived from such prohibited transactions is excluded from gross income for purposes of the 75% and 95% gross income tests. We believe that we will not hold any of our properties as inventory or primarily for sale to customers in the ordinary course of a trade or business. Whether a REIT holds an asset “primarily for sale to customers in the ordinary course of a trade or business” depends on the facts and circumstances that exist from time to time, including those related to a particular asset. A safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction is available if the following requirements are met:

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the REIT has held the property for not less than two years;

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the aggregate capital expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the sale do not exceed 30% of the selling price of the property;

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either (1) during the year in question, the REIT did not make more than seven property sales other than sales of foreclosure property or sales to which Section 1033 of the Code applies, (2) the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year or (3) the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value of all of the assets of the REIT at the beginning of the year or, for taxable years beginning after December 18, 2015, (4) the REIT satisfies the requirements of clause (2) applied by substituting “20%” for “10%” and the 3-year average adjusted bases percentage for the taxable year does not exceed 10% or (5) the REIT satisfies the requirements of clause (3) applied by substituting “20%” for “10%” and the 3-year average fair market value percentage for the taxable year does not exceed 10%;

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in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least two years for the production of rental income; and

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if the REIT has made more than seven property sales (excluding sales of foreclosure property) during the taxable year, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor from whom the REIT or, for taxable years beginning after December 31, 2015, a TRS derives no income.

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We will attempt to comply with the terms of the foregoing safe-harbor. However, we cannot assure you that we will be able to comply with the safe-harbor provisions or that we will avoid owning property that may be characterized as property held “primarily for sale to customers in the ordinary course of a trade or business.” We may hold and dispose of certain properties through a TRS if we conclude that the sale or other disposition of such property may not fall within the safe-harbor provisions. The 100% prohibited transactions tax will not apply to gains from the sale of property by a TRS, although such income will be taxed to the TRS at U.S. federal corporate income tax rates.

Foreclosure Property. We generally will be subject to tax at the maximum corporate rate on any net income from foreclosure property, other than income that otherwise would be qualifying income for purposes of the 75% gross income test. Gross income from foreclosure property will qualify under the 75% and 95% gross income tests.

Hedging Transactions. From time to time, we or our subsidiaries may enter into hedging transactions with respect to one or more of our or our subsidiaries’ assets or liabilities. Our or our subsidiaries’ hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and forward contracts. Income and gain from “hedging transactions” will be excluded from gross income for purposes of both the 75% and 95% gross income tests. A “hedging transaction” means either (1) any transaction entered into in the normal course of our or our subsidiaries’ trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets or (2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income or gain) and for taxable years beginning after December 31, 2015, new transactions entered into to hedge the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of. We are required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification requirements. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT; however, no assurance can be given that our hedging activities will give rise to income that is excluded from gross income or qualifies for purposes of either or both of the gross income tests.

Failure to Satisfy Gross Income Tests. We intend to monitor our sources of income, including any non-qualifying income received by us, and manage our assets so as to ensure our compliance with the gross income tests. If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that year if we qualify for relief under certain provisions of the U.S. federal income tax laws. Those relief provisions are available if:

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our failure to meet the applicable test is due to reasonable cause and not to willful neglect; and

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following such failure for any taxable year, we file a schedule of the sources of our income with the IRS in accordance with the Treasury Regulations.

We cannot predict, however, whether any failure to meet these tests will qualify for the relief provisions. In addition, as discussed above in “—Taxation of Our Company,” even if the relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of (1) the amount by which we fail the 75% gross income test, or (2) the amount by which we fail the 95% gross income test, multiplied, in either case, by a fraction intended to reflect our profitability.

Asset Tests

To qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year.

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First, under the “75% asset test,” at least 75% of the value of our total assets generally must consist of:

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cash or cash items, including certain receivables and shares in certain money market funds;

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government securities;

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interests in real property, including leaseholds and options to acquire real property and leaseholds;

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interests in mortgage loans secured by real property;

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for taxable years beginning after December 31, 2015, interests in personal property securing a mortgage secured by both real property and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property;

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stock or shares of beneficial interest in other REITs;

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investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or public offerings of debt with at least a five-year term;

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for taxable years beginning after December 31, 2015, personal property leased in connection with real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease; and

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for taxable years beginning after December 31, 2015, debt instruments issued by “publicly offered REITs.”

Second, under the “5% asset test,” of our assets that are not qualifying assets for purposes of the 75% asset test described above, the value of our interest in any one issuer’s securities may not exceed 5% of the value of our total assets.

Third, of our assets that are not qualifying assets for purposes of the 75% asset test described above, we may not own more than 10% of the voting power of any one issuer’s outstanding securities, or the “10% vote test,” or more than 10% of the value of any one issuer’s outstanding securities, or the “10% value test.”

Fourth, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets may consist of the securities of one or more TRSs.

Fifth, no more than 25% of the value of our total assets may consist of the securities of TRSs and other assets that are not qualifying assets for purposes of the 75% asset test.

Sixth, for taxable years beginning after December 31, 2015, not more than 25% of the value of our total assets may be represented by debt instruments of “publicly offered REITs” to the extent those debt instruments would not be real estate assets but for the inclusion of debt instruments of “publicly offered REITs” in the meaning of real estate assets for taxable years beginning after December 31, 2015, as described above.

For purposes of the 5% asset test, the 10% vote test and the 10% value test, the term “securities” does not include securities that qualify under the 75% asset test, securities of a TRS and equity interests in an entity taxed as a partnership for U.S. federal income tax purposes. For purposes of the 10% value test, the term “securities” also does not include: certain “straight debt” securities; any loan to an individual or an estate; most rental agreements and obligations to pay rent; any debt instrument issued by an entity taxed as a partnership for U.S. federal income tax purposes in which we are an owner to the extent of our proportionate interest in the debt and equity securities of the entity; and any debt instrument issued by an entity taxed as a partnership for U.S. federal income tax purposes if at least 75% of the entity’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in “—Gross Income Tests.”

As noted above, we may provide senior secured first mortgage loans for the purchase of health care facilities and properties related to health care facilities. Although the law is not entirely clear, if a mortgage loan is secured

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by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date we agreed to acquire or originate the loan, a portion of the loan likely will be a non-qualifying asset for purposes of the 75% asset test. Unless the mortgage loan falls within one of the exceptions referenced in the previous paragraph, the non-qualifying portion of such a loan may be subject to, among other requirements, the 10% value test. IRS Revenue Procedure 2011-16, as modified and superseded by Revenue Procedure 2014-51, provides a safe harbor under which the IRS has stated that it will not challenge a REIT’s treatment of a loan as being, in part, a qualifying real estate asset in an amount equal to the lesser of: (1) the greater of (x) the fair market value of the real property securing the loan on the date of the relevant quarterly REIT asset testing date or (y) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan; or (2) the fair market value of the mortgage loan on the date of the relevant quarterly REIT asset testing date. Under the safe harbor, when the current value of a mortgage loan exceeds both the current fair market value of the real property that secures the loan and the fair market value of the real property that secures the loan, determined as of the date we committed to acquire or originate the loan, a portion of the mortgage loan will be treated as a nonqualifying asset. We anticipate that our senior secured first mortgage loans generally would be treated as qualifying assets for the 75% asset test.

We believe that the assets that we will hold after consummation of this offering satisfy the foregoing asset test requirements. We will not obtain, nor are we required to obtain under the U.S. federal income tax laws, independent appraisals to support our conclusions as to the value of our assets and securities or the real estate collateral for the mortgage or mezzanine loans that we may originate. Moreover, the values of some assets may not be susceptible to a precise determination. As a result, there can be no assurance that the IRS will not contend that our ownership of securities and other assets violates one or more of the asset tests applicable to REITs.

Failure to Satisfy Asset Tests. We will monitor the status of our assets for purposes of the various asset tests and will manage our portfolio in order to comply at all times with such tests. Nevertheless, if we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT status if:

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we satisfied the asset tests at the end of the preceding calendar quarter; and

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the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not caused, in part or in whole, by the acquisition of one or more non-qualifying assets.

If we did not satisfy the condition described in the second bullet point immediately above, we still could avoid REIT disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which the discrepancy arose.

In the event that we violate the 5% asset test, the 10% vote test or the 10% value test described above, we will not lose our REIT status if (1) the failure is de minimis (up to the lesser of 1% of our assets or $10 million) and (2) we dispose of assets causing the failure or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure. In the event of a failure of any of such asset tests other than a de minimis failure, as described in the preceding sentence, we will not lose our REIT status if (1) the failure was due to reasonable cause and not to willful neglect, (2) we file a description of each asset causing the failure with the IRS, (3) we dispose of assets causing the failure or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify the failure, and (4) we pay a tax equal to the greater of $50,000 or the highest U.S. federal corporate income tax rate (currently 35%) multiplied by the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests.

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Annual Distribution Requirements

Each taxable year, we must make distributions, other than capital gain dividend distributions and deemed distributions of retained capital gain, to our stockholders in an aggregate amount at least equal to:

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the sum of:

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90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and excluding any net capital gain, and

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90% of our after-tax net income, if any, from foreclosure property, minus

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the sum of certain items of non-cash income.

Generally, we must pay such distributions in the taxable year to which they relate, or in the following taxable year if either (1) we declare the distribution before we timely file our U.S. federal income tax return for the year and pay the distribution on or before the first regular dividend payment date after such declaration or (2) we declare the distribution in October, November, or December of the taxable year, payable to stockholders of record on a specified day in any such month, and we actually pay the dividend before the end of January of the following year. In both instances, these distributions relate to our prior taxable year for purposes of the annual distribution requirement to the extent of our earnings and profits for such prior taxable year.

We will pay U.S. federal income tax on any taxable income, including net capital gain, that we do not distribute to our stockholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January of the following calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of:

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85% of our REIT ordinary income for the year,

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95% of our REIT capital gain net income for the year, and

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any undistributed taxable income from prior years,

we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distributed.

We may elect to retain and pay U.S. federal income tax on the net long-term capital gain that we receive in a taxable year. If we so elect, we will be treated as having distributed any such retained amount for purposes of the 4% nondeductible excise tax described above. We intend to make timely distributions sufficient to satisfy the annual distribution requirement and to minimize U.S. federal corporate income tax and avoid the 4% nondeductible excise tax.

It is possible that, from time to time, we may experience timing differences between the actual receipt of income and actual payment of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. Further, it is possible that, from time to time, we may be allocated a share of net capital gain from an entity taxed as a partnership for U.S. federal income tax purposes in which we own an interest that is attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale. As a result of the foregoing, we may have less cash than is necessary to make distributions to our stockholders that are sufficient to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax imposed on certain undistributed income or even to meet the annual distribution requirement. In such a situation, we may need to borrow funds or issue additional stock or, if possible, pay dividends consisting, in whole or in part, of our stock or debt securities.

In order for distributions to be counted as satisfying the annual distribution requirement applicable to REITs and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends,” unless such distributions are made in taxable years beginning after December 31, 2014 and we qualify as a “publicly

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offered REIT.” A distribution is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares within a particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our organizational documents. We believe that we are, and expect we will continue to be, a “publicly offered REIT.”

Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest to the IRS based on the amount of any deduction we take for deficiency dividends.

Recordkeeping Requirements

We must maintain certain records in order to qualify as a REIT. To avoid paying monetary penalties, we must demand, on an annual basis, information from certain of our stockholders designed to disclose the actual ownership of our outstanding stock, and we must maintain a list of those persons failing or refusing to comply with such demand as part of our records. A stockholder that fails or refuses to comply with such demand is required by the Treasury Regulations to submit a statement with its tax return disclosing the actual ownership of our stock and other information. We intend to comply with these recordkeeping requirements.

Failure to Qualify as a REIT

If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure. In addition, there are relief provisions available under the Code for a failure of the gross income tests and asset tests, as described in “—Gross Income Tests” and “—Asset Tests.”

If we were to fail to qualify as a REIT in any taxable year, and no relief provision applied, we would be subject to U.S. federal income tax on our taxable income at U.S. federal corporate income tax rates and any applicable alternative minimum tax. In calculating our taxable income for a year in which we failed to qualify as a REIT, we would not be able to deduct amounts distributed to our stockholders, and we would not be required to distribute any amounts to our stockholders for that year. Unless we qualified for relief under the statutory relief provisions described in the preceding paragraph, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to maintain our qualification as a REIT. We cannot predict whether in all circumstances we would qualify for such statutory relief.

Taxation of Taxable U.S. Stockholders

For purposes of our discussion, the term “U.S. stockholder” means a beneficial owner of our common stock that, for U.S. federal income tax purposes, is:

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an individual citizen or resident of the United States;

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a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any of its states or the District of Columbia;

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an estate whose income is subject to U.S. federal income taxation regardless of its source; or

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any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes (a “partnership”) holds our common stock, the U.S. federal income tax treatment of an owner of the partnership generally will

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depend on the status of the owner and the activities of the partnership. Partnerships and their owners should consult their tax advisors regarding the consequences of the ownership and disposition of our common stock by the partnership.

Distributions. If we qualify as a REIT, distributions made out of our current and accumulated earnings and profits that we do not designate as capital gain dividends will be ordinary dividend income to taxable U.S. stockholders. A corporate U.S. stockholder will not qualify for the dividends-received deduction generally available to corporations. Our ordinary dividends also generally will not qualify for the preferential long-term capital gain tax rate applicable to “qualified dividends” unless certain holding period requirements are met and such dividends are attributable to (i) qualified dividends received by us from non-REIT corporations, such as any TRSs, or (ii) income recognized by us and on which we have paid U.S. federal corporate income tax. We do not expect a meaningful portion of our ordinary dividends to be eligible for taxation as qualified dividends.

Any distribution we declare in October, November, or December of any year that is payable to a U.S. stockholder of record on a specified date in any of those months and is attributable to our current and accumulated earnings and profits for such year will be treated as paid by us and received by the U.S. stockholder on December 31 of that year, provided that we actually pay the distribution during January of the following calendar year.

Distributions to a U.S. stockholder which we designate as capital gain dividends generally will be treated as long-term capital gain, without regard to the period for which the U.S. stockholder has held our stock to the extent that such gain does not exceed our actual net capital gain for the taxable year. For taxable years beginning after December 31, 2015, dividends designated as capital gain dividends may not exceed our dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. A corporate U.S. stockholder may be required to treat up to 20% of certain capital gain dividends as ordinary income.

We may elect to retain and pay U.S. federal corporate income tax on the net long-term capital gain that we receive in a taxable year. In that case, to the extent that we designate such amount in a timely notice to our stockholders, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain. The U.S. stockholder would receive a credit or refund for its proportionate share of the U.S. federal corporate income tax we paid. The U.S. stockholder would increase its basis in our common stock by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the U.S. federal corporate income tax we paid.

A U.S. stockholder will not incur U.S. federal income tax on a distribution in excess of our current and accumulated earnings and profits if the distribution does not exceed the U.S. stockholder’s adjusted basis in our common stock. Instead, the distribution will reduce the U.S. stockholder’s adjusted basis in our common stock. The excess of any distribution to a U.S. stockholder over both its share of our current and accumulated earnings and profits and its adjusted basis will be treated as capital gain and long-term capital gain if the stock has been held for more than one year.

We will notify U.S. stockholders after the close of our taxable year as to the portions of the distributions attributable to that taxable year that constitute ordinary income, return of capital and capital gain.

Dispositions. In general, a U.S. stockholder will recognize gain or loss on the sale or other taxable disposition of our stock in an amount equal to the difference between (i) the sum of the fair market value of any property and the amount of cash received in such disposition and (ii) the U.S. stockholder’s adjusted tax basis in such stock. A U.S. stockholder’s adjusted tax basis in our stock generally will equal the U.S. stockholder’s acquisition cost, increased by the excess of undistributed net capital gains deemed distributed to the U.S. stockholder over the U.S. federal corporate income tax deemed paid by the U.S. stockholder on such gains and reduced by any returns of capital. Such gain or loss generally will be long-term capital gain or loss if the U.S.

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stockholder has held such stock for more than one year and short-term capital gain or loss otherwise. However, a U.S. stockholder must treat any loss on a sale or exchange of our common stock held by such stockholder for six months or less as a long-term capital loss to the extent of capital gain dividends and any other actual or deemed distributions from us that such U.S. stockholder treats as long-term capital gain. All or a portion of any loss that a U.S. stockholder realizes on a taxable disposition of shares of our common stock may be disallowed if the U.S. stockholder purchases other shares of our common stock within 30 days before or after the disposition. Capital losses generally are available only to offset capital gains of the stockholder except in the case of individuals, who may offset up to $3,000 of ordinary income each year.

Other Considerations. U.S. stockholders may not include in their individual U.S. federal income tax returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for potential offset against our future income. Taxable distributions from us and gain from the disposition of our common stock will not be treated as passive activity income and, therefore, U.S. stockholders generally will not be able to apply any “passive activity losses” against such income. In addition, taxable distributions from us and gain from the disposition of our common stock generally will be treated as investment income for purposes of the investment interest limitations.

Tax Rates. The maximum U.S. federal income tax rate on ordinary income and short-term capital gains applicable to U.S. stockholders that are taxed at individual rates currently is 39.6%, and the maximum U.S. federal income tax rate on long-term capital gains applicable to U.S. stockholders that are taxed at individual rates currently is 20%. However, the maximum tax rate on long-term capital gain from the sale or exchange of “section 1250 property” (i.e., generally, depreciable real property) is 25% to the extent the gain would have been treated as ordinary income if the property were “section 1245 property” (i.e., generally, depreciable personal property). We generally will designate whether a distribution that we designate as a capital gain dividend (and any retained capital gain that we are deemed to distribute) is attributable to the sale or exchange of “section 1250 property.”

Additional Medicare Tax. Certain U.S. stockholders, including individuals, estates and trusts, will be subject to an additional 3.8% tax, which, for individuals, applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income such as interest, dividends, annuities, royalties, rents and capital gains.

Taxation of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and profit sharing trusts, or “qualified trusts,” and individual retirement accounts and annuities, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their “unrelated business taxable income,” or UBTI. Amounts that we distribute to tax-exempt stockholders generally should not constitute UBTI. However, if a tax-exempt stockholder were to finance its acquisition of our common stock with debt, a portion of the distribution that it received from us would constitute UBTI pursuant to the “debt- financed property” rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under special provisions of the U.S. federal income tax laws are subject to different UBTI rules, which generally will require them to characterize distributions that they receive from us as UBTI.

Finally, in certain circumstances, a qualified trust that owns more than 10% of the value of our stock must treat a percentage of the dividends that it receives from us as UBTI. Such percentage is equal to the gross income that we derive from unrelated trades or businesses, determined as if we were a qualified trust, divided by our total gross income for the year in which we pay the dividends. Such rule applies to a qualified trust holding more than 10% of the value of our stock only if:

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we are classified as a “pension-held REIT”; and

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the amount of gross income that we derive from unrelated trades or businesses for the year in which we pay the dividends, determined as if we were a qualified trust, is at least 5% of our total gross income for such year.

We will be classified as a “pension-held REIT” if:

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we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five or fewer individuals that allows the beneficiaries of the qualified trust to be treated as holding our stock in proportion to their actuarial interests in the qualified trust; and

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either:

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one qualified trust owns more than 25% of the value of our stock; or

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a group of qualified trusts, of which each qualified trust holds more than 10% of the value of our stock, collectively owns more than 50% of the value of our stock.

Taxation of Non-U.S. Stockholders

For purposes of our discussion, the term “non-U.S. stockholder” means a beneficial owner of our common stock that is not a U.S. stockholder, an entity or arrangement taxed as a partnership for U.S. federal income tax purposes or a tax-exempt stockholder. The rules governing U.S. federal income taxation of non-U.S. stockholders, including nonresident alien individuals, foreign corporations, foreign partnerships and other foreign stockholders, are complex. This section is only a summary of certain of those rules.

We urge non-U.S. stockholders to consult their own tax advisors to determine the impact of U.S. federal, state, local and foreign income tax laws on the acquisition, ownership and disposition of our common stock, including any reporting requirements.

Distributions. Distributions to a non-U.S. stockholder (i) out of our current and accumulated earnings and profits, (ii) not attributable to gain from our sale or exchange of a “United States real property interest,” or a USRPI, and (iii) not designated by us as a capital gain dividend will be subject to a withholding tax at a rate of 30% unless:

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a lower treaty rate applies and the non-U.S. stockholder submits an IRS Form W-8BEN or W-8BEN-E, as applicable (or any applicable successor form), to us evidencing eligibility for that reduced rate; or

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the non-U.S. stockholder submits an IRS Form W-8ECI (or any applicable successor form) to us claiming that the distribution is income effectively connected to a U.S. trade or business of such stockholder.

A non-U.S. stockholder generally will be subject to U.S. federal income tax at graduated rates on any distribution treated as effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business in the same manner as a U.S. stockholder. In addition, a corporate non-U.S. stockholder may be subject to a 30% branch profits tax with respect to any such distribution.

A non-U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if such excess does not exceed such non-U.S. stockholder’s adjusted basis in our common stock. Instead, the excess portion of such distribution will reduce the non-U.S. stockholder’s adjusted basis in our common stock. The excess of a distribution over both our current and accumulated earnings and profits and the non-U.S. stockholder’s adjusted basis in our common stock will be taxed, if at all, as gain from the sale or disposition of our common stock. See “—Dispositions” below. Under FIRPTA (discussed below), we may be required to withhold 10% (15% for dispositions occurring after February 16, 2016) of the portion of any distribution that exceeds our current and accumulated earnings and profits.

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Because we generally cannot determine at the time we make a distribution whether the distribution will exceed our current and accumulated earnings and profits, unless such distribution is attributable to capital gains from the sale or exchange or a USRPI, we may withhold tax at a rate of 30% (or such lower rate as may be provided under an applicable tax treaty) on the entire amount of any distribution. To the extent that we do not do so, we nevertheless may withhold at a rate of 10% (15% for distributions occurring after February 16, 2016) on any portion of a distribution not subject to withholding at a rate of 30%. A non-U.S. stockholder may obtain a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.

Under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, distributions attributable to capital gains from the sale or exchange by us of USRPIs are treated like income effectively connected with the conduct of a U.S. trade or business, generally are subject to U.S. federal income taxation in the same manner and at the same rates applicable to U.S. stockholders and, with respect to corporate non-U.S. stockholders, may be subject to a 30% branch profits tax. However, these distributions will not be subject to tax under FIRPTA, and will instead be taxed in the same manner as distributions described above, if:

•

the distribution is made with respect to a class of shares regularly traded on an established securities market in the United States; and

•

the non-U.S. stockholder does not own more than 10% of such class at any time during the one-year period preceding the distribution.

Although we anticipate that our common stock will be regularly traded (as defined in applicable Treasury Regulations) on an established securities market in the United States immediately following this offering, no assurance can be provided that our stock will be regularly traded on an established securities market. If our common stock is not regularly traded on an established securities market in the United States or if a non-U.S. stockholder owned more than 10% of our outstanding common stock any time during the one-year period preceding the distribution, capital gain distributions to such non-U.S. stockholder attributable to our sales of USRPIs would be subject to tax under FIRPTA. Therefore, unless you are a qualified shareholder or a qualified foreign pension fund (both as defined below) we may be required to withhold 35% of any distribution to a non-U.S. stockholder owning less than 10% of the relevant class of shares that we designate as a capital gain dividend and may be required to withhold 35% of any distribution to a non-U.S. stockholder owning more than 10% of the relevant class of shares that is designated by us as a capital gain dividend. Any amount so withheld is creditable against the non-U.S. stockholder’s U.S. federal income tax liability.

A distribution to a non-U.S. stockholder attributable to capital gains from the sale or exchange of non-USRPIs will not be subject to U.S. federal income taxation unless such distribution is effectively connected with a U.S. trade or business conducted by such non-U.S. stockholder, in which case such distribution generally would be subject to U.S. federal income taxation in the same manner and at the same rates applicable to U.S. stockholders and, with respect to corporate non-U.S. stockholders, may be subject to a 30% branch profits tax.

In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Although not free from doubt, amounts we designate as retained capital gains in respect of the common stock held by U.S. stockholders generally should be treated with respect to non-U.S. stockholders in the same manner as actual distributions by us of capital gain dividends. Under this approach, a non-U.S. stockholder would be able to offset as a credit against its U.S. federal income tax liability resulting from its proportionate share of the tax paid by us on such retained capital gains, and to receive from the IRS a refund to the extent the non-U.S. stockholder’s proportionate share of such tax paid by us exceeds its actual U.S. federal income tax liability, provided that the non-U.S. stockholder furnishes required information to the IRS on a timely basis.

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Dispositions. Non-U.S. stockholders may incur tax under FIRPTA with respect to gain recognized on a disposition of our common stock unless one of the applicable exceptions described below applies. Any gain subject to tax under FIRPTA generally will be taxed in the same manner as it would be in the hands of U.S. stockholders, except that corporate non-U.S. stockholders also may be subject to a 30% branch profits tax. In addition, the purchaser of such common stock could be required to withhold 10% (15% for dispositions occurring after February 16, 2016) of the purchase price for such stock and remit such amount to the IRS.

Non-U.S. stockholders generally will not incur tax under FIRPTA with respect to gain on a sale of our common stock as long as, at all times during a specified testing period, we are “domestically controlled,” i.e. , non-U.S. persons hold, directly or indirectly, less than 50% in value of our outstanding stock. We expect to be domestically controlled and, therefore the sale of our common stock should not be subject to taxation under FIRPTA. Because our common stock will be publicly traded, however, we cannot assure you that we will be domestically controlled. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person who at all applicable times holds less than 5 % of a class of stock that is “regularly traded” is treated as a U.S. person unless the REIT has actual knowledge that such person is not a U.S. person. In addition, even if we are not domestically controlled, if our common stock is “regularly traded” (as defined in applicable Treasury Regulations) on an established securities market, a non-U.S. stockholder that owned, actually or constructively, 10% or less of our outstanding common stock at all times during the five-year period prior to a sale of our common stock will not incur tax under FIRPTA on gain from a sale of such common stock. We expect that shares of our common stock will be “regularly traded” on an established securities market following this offering. Accordingly, we expect that a non-U.S. stockholder that has not owned more than 10% of our common stock at any time during the five-year period prior to such sale will not incur tax under FIRPTA on gain from a sale of our common stock. However, no assurance can be provided that our stock will be regularly traded on an established securities market. In addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. An actual or deemed disposition of our capital stock by such shareholders may also be treated as a dividend. Furthermore, dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

A non-U.S. stockholder generally will incur tax on gain from a disposition of our common stock not subject to FIRPTA if:

•

the gain is effectively connected with the conduct of the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S. stockholder generally will be subject to the same treatment as U.S. stockholders with respect to such gain, except that a non-U.S. stockholder that is a corporation also may be subject to the 30% branch profits tax; or

•

the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and certain other conditions are satisfied, in which case the non-U.S. stockholder generally will incur a 30% tax on its capital gains.

Information Reporting Requirements and Backup Withholding

We will report to our stockholders and to the IRS the amount of distributions that we pay during each calendar year, and the amount of tax that we withhold, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding (at a rate of 28%) with respect to distributions unless the stockholder:

•

is a corporation or qualifies for certain other exempt categories and, when required, demonstrates this fact; or

•

provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.

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A stockholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder’s U.S. federal income tax liability. In addition, we may be required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign status to us.

Backup withholding generally will not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. stockholder provided that such non-U.S. stockholder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as providing a valid IRS Form W-8BEN or W-8BEN-E, as applicable, or W-8ECI (or any applicable successor form), or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a “U.S. person” that is not an exempt recipient. Payments of the proceeds from a disposition or a redemption of our common stock that occurs outside the U.S. by a non-U.S. stockholder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but not backup withholding) generally will apply to such a payment if the broker has certain connections with the U.S. unless the broker has documentary evidence in its records that demonstrates that the beneficial owner is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise established. Payment of the proceeds from a disposition of our stock by a non-U.S. stockholder made by or through the U.S. office of a broker generally is subject to information reporting and backup withholding unless the non-U.S. stockholder certifies under penalties of perjury that it is not a U.S. person and satisfies certain other requirements, or otherwise establishes an exemption from information reporting and backup withholding.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the stockholder’s U.S. federal income tax liability if certain required information is furnished to the IRS. Stockholders should consult their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding.

FATCA

The Foreign Account Tax Compliance Act (“FATCA”) imposes a U.S. federal withholding tax on certain types of payments made to “foreign financial institutions” and certain other non-U.S. entities unless certain due diligence, reporting, withholding, and certification obligation requirements are satisfied. FATCA generally imposes a U.S. federal withholding tax at a rate of 30% on dividends on, and, after December 31, 2018, gross proceeds from the sale or other disposition of, our stock if paid to a foreign entity unless either (i) the foreign entity is a “foreign financial institution” that undertakes certain due diligence, reporting, withholding, and certification obligations, or in the case of a foreign financial institution that is a resident in a jurisdiction that is treated as having an intergovernmental agreement to implement FATCA, the entity complies with the diligence and reporting requirements of such agreement, (ii) the foreign entity is not a “foreign financial institution” and identifies certain of its U.S. investors, or (iii) the foreign entity otherwise is excepted under FATCA. If we determine withholding is appropriate in respect of our common stock, we may withhold tax at the applicable statutory rate, and we will not pay any additional amounts in respect of such withholding.

If withholding is required under FATCA on a payment related to our common stock, holders of our common stock that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) generally will be required to seek a refund or credit from the IRS to obtain the benefit of such exemption or reduction (provided that such benefit is available). You should consult your own tax advisor regarding the effect of FATCA on an investment in our common stock.

Tax Aspects of Our Investments in Our Operating Partnership and Other Subsidiary Partnerships

We currently hold, directly and indirectly, all of the ownership interests in our operating partnership and our other subsidiaries; therefore, our operating partnership and our other subsidiaries (other than any TRSs) currently

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are disregarded for U.S. federal income tax purposes. If additional partners or members are admitted to our operating partnership or any of our other subsidiaries, as applicable, we intend for such entity to be treated as a partnership for U.S. federal income tax purposes.

The following discussion summarizes the material U.S. federal income tax considerations that are applicable to our direct and indirect investments in our subsidiaries that are taxed as partnerships for U.S. federal income tax purposes, each individually referred to as a “Partnership” and, collectively, as the “Partnerships.” The following discussion does not address state or local tax laws or any U.S. federal tax laws other than income tax laws.

Classification as Partnerships

We are required to include in our income our distributive share of each Partnership’s income and allowed to deduct our distributive share of each Partnership’s losses but only if such Partnership is classified for U.S. federal income tax purposes as a partnership rather than as a corporation or an association treated as a corporation. An unincorporated entity with at least two owners, as determined for U.S. federal income tax purposes, will be classified as a partnership, rather than as a corporation, for U.S. federal income tax purposes if it:

•

is treated as a partnership under the Treasury Regulations relating to entity classification, or the “check-the-box regulations”; and

•

is not a “publicly traded partnership.”

Under the check-the-box regulations, an unincorporated entity with at least two owners may elect to be classified either as an association treated as a corporation or as a partnership for U.S. federal income tax purposes. If such an entity does not make an election, it generally will be taxed as a partnership for U.S. federal income tax purposes. If additional partners are admitted to our operating partnership following this offering, our operating partnership intends to be classified as a partnership for U.S. federal income tax purposes and will not elect to be treated as an association treated as a corporation.

A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. A publicly traded partnership generally is treated as a corporation for U.S. federal income tax purposes, but will not be so treated if, for each taxable year beginning after December 31, 1987 in which it was classified as a publicly traded partnership, at least 90% of the partnership’s gross income consisted of specified passive income, including real property rents, gains from the sale or other disposition of real property, interest, and dividends, or the “90% passive income exception.” The Treasury Regulations provide limited safe harbors from treatment as a publicly traded partnership. Pursuant to one of those safe harbors, interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction or transactions that were not required to be registered under the Securities Act of 1933, as amended, and (2) the partnership does not have more than 100 partners at any time during the partnership’s taxable year. In determining the number of partners in a partnership, a person owning an interest in a partnership, grantor trust, or S corporation that owns an interest in the partnership is treated as a partner in such partnership only if (1) substantially all of the value of the owner’s interest in the entity is attributable to the entity’s direct or indirect interest in the partnership and (2) a principal purpose of the use of the entity is to permit the partnership to satisfy the 100-partner limitation. If any Partnership does not qualify for any safe harbor and is treated as a publicly traded partnership, we believe that such Partnership would have sufficient qualifying income to satisfy the 90% passive income exception and, therefore, would not be treated as a corporation for U.S. federal income tax purposes.

We have not requested, and do not intend to request, a ruling from the IRS that any Partnership is or will be classified as a partnership for U.S. federal income tax purposes. If, for any reason, a Partnership were treated as a corporation, rather than as a partnership, for U.S. federal income tax purposes, we may not be able to qualify as a REIT, unless we qualify for certain statutory relief provisions. See “—Gross Income Tests” and “—Asset Tests.”

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In addition, any change in a Partnership’s status for U.S. federal income tax purposes might be treated as a taxable event, in which case we might incur tax liability without any related cash distribution. See “—Annual Distribution Requirements.” Further, items of income and deduction of such Partnership would not pass through to us, and we would be treated as a stockholder for U.S. federal income tax purposes. Consequently, such Partnership would be required to pay income tax at U.S. federal corporate income tax rates on its net income, and distributions to us would constitute dividends that would not be deductible in computing such Partnership’s taxable income.

Income Taxation of the Partnerships and Their Partners

Partners, Not the Partnerships, Subject to Tax. A partnership is not a taxable entity for U.S. federal income tax purposes. Rather, we are required to take into account our distributive share of each Partnership’s income, gains, losses, deductions, and credits for each taxable year of the Partnership ending with or within our taxable year, even if we receive no distribution from the Partnership for that year or a distribution that is less than our share of taxable income. Similarly, even if we receive a distribution, it may not be taxable if the distribution does not exceed our adjusted tax basis in our interest in the Partnership.

Partnership Allocations. Although an agreement among the owners of an entity taxed as a partnership for U.S. federal income tax purposes generally will determine the allocation of income and losses among the owners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of the U.S. federal income tax laws governing partnership allocations. If an allocation is not recognized for U.S. federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the “partners’ interests in the partnership,” which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the owners with respect to such item.

Tax Allocations With Respect to Contributed Properties. Income, gain, loss, and deduction attributable to appreciated or depreciated property contributed to an entity taxed as a partnership for U.S. federal income tax purposes in exchange for an interest in such entity must be allocated for U.S. federal income tax purposes in a manner such that the contributing owner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution (the “704(c) Allocations”). The amount of such unrealized gain or unrealized loss, referred to as “built-in gain” or “built-in loss,” at the time of contribution is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at that time, referred to as a book-tax difference.

A book-tax difference attributable to depreciable property generally is decreased on an annual basis as a result of the allocation of depreciation deductions to the contributing owner for book purposes, but not for tax purposes. The Treasury Regulations require entities taxed as partnerships for U.S. federal income tax purposes to use a “reasonable method” for allocating items with respect to which there is a book-tax difference and outline several reasonable allocation methods.

Any gain or loss recognized by a partnership on the disposition of contributed properties generally will be allocated first to the partners of the partnership who contributed such properties to the extent of their built-in gain or loss on those properties for U.S. federal income tax purposes, as adjusted to take into account reductions in book-tax differences described in the previous paragraph. Any remaining gain or loss recognized by the partnership on the disposition of the contributed properties generally will be allocated among the partners in accordance with their partnership agreement unless such allocations and agreement do not satisfy the requirements of applicable Treasury Regulations, in which case such allocation will be made in accordance with the “partners’ interests in the partnership.”

We expect that in the future we may acquire properties pursuant to a contribution of such properties to our operating partnership. As a result, our operating partnership will receive a “carryover” tax basis in such properties. As a result, such properties may have significant built-in gain or loss subject to Section 704(c). We

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expect our operating partnership will adopt the “traditional” method for purposes of allocating items with respect to any book-tax difference attributable to such built-in gain or loss. Under the “traditional method,” as well as certain other reasonable methods available to us, built-in gain or loss with respect to our depreciable properties (i) could cause us to be allocated lower amounts of depreciation deductions for tax purposes than for economic purposes and (ii) in the event of a sale of such properties, could cause us to be allocated taxable gain in excess of the economic gain allocated to us as a result of such sale, with a corresponding tax benefit to the contributing partners. As a result of the foregoing, a greater portion of our distributions may be treated as a taxable dividend.

Basis in Partnership Interest. Our adjusted tax basis in any Partnership interest we own generally will be:

•

the amount of cash and the basis of any other property we contribute to the Partnership;

•

increased by our distributive share of the Partnership’s income (including tax-exempt income) and any increase in our allocable share of indebtedness of the Partnership; and

•

reduced, but not below zero, by our distributive share of the Partnership’s loss (including any non-deductible items), the amount of cash and the basis of property distributed to us, and any reduction in our allocable share of indebtedness of the Partnership.

Loss allocated to us in excess of our basis in a Partnership interest will not be taken into account for U.S. federal income tax purposes until we again have basis sufficient to absorb the loss. A reduction of our allocable share of Partnership indebtedness will be treated as a constructive cash distribution to us, and will reduce our adjusted tax basis in the Partnership interest. Distributions, including constructive distributions, in excess of the basis of our Partnership interest will constitute taxable income to us. Such distributions and constructive distributions normally will be characterized as long-term capital gain.

Sale of a Partnership’s Property. Generally, any gain realized by a Partnership on the sale of property held for more than one year will be long- term capital gain, except for any portion of the gain treated as depreciation or cost recovery recapture. Our share of any Partnership’s gain from the sale of inventory or other property held primarily for sale to customers in the ordinary course of the Partnership’s trade or business will be treated as income from a prohibited transaction subject to a 100% tax. See “—Gross Income Tests.”

Partnership Audit Rules . The recently enacted Bipartisan Budget Act of 2015 changes the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it is uncertain how these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirect invest being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. The changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the U.S. Treasury. Investors are urged to consult their tax advisors with respect to these changes and their potential impact on their investment in our common stock.

Possible Legislative or Other Actions Affecting Tax Consequences

Prospective stockholders should recognize that the present U.S. federal income tax treatment of an investment in us may be modified by legislative, judicial or administrative action at any time and that any such action may affect investments and commitments previously made. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in U.S. federal tax laws and interpretations of these laws could adversely affect the tax consequences of your investment.

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State and Local Taxes

We and/or you may be subject to taxation by various states and localities, including those in which we or a stockholder transacts business, owns property or resides. The state and local tax treatment may differ from the U.S. federal income tax treatment described above. Consequently, you should consult your own tax advisors regarding the effect of state and local tax laws on an investment in our common stock.

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UNDERWRITING

We have entered into an underwriting agreement with FBR Capital Markets & Co., J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and KeyBanc Capital Markets Inc. as the representatives of the underwriters named below, with respect to the shares subject to this offering. Subject to the terms and conditions in the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the selling stockholders, the respective number of shares of our common stock set forth opposite its name in the table below:


Underwriters		Number of Shares
FBR Capital Markets & Co.
J.P. Morgan Securities LLC
Citigroup Global Markets Inc.
KeyBanc Capital Markets Inc.
RBC Capital Markets, LLC

Total

The underwriting agreement provides that the obligation of the underwriters to purchase all of the shares being offered to the public is subject to approval of legal matters by counsel and the satisfaction of other conditions. These conditions include, among others, the continued accuracy of representations and warranties made by us and the selling stockholders in the underwriting agreement, delivery of legal opinions and the absence of any material changes in our assets, business or prospects after the date of this prospectus. Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold pursuant to the underwriting agreement, other than those covered by the over-allotment option described below, if they purchase any of those shares. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

The underwriters propose to offer the shares directly to the public at the public offering price set forth on the cover page of this prospectus and to selected dealers, who may include the underwriters, at the public offering price less a selling concession not in excess of $ per share. The underwriters may allow, and the selected dealers may reallow, a concession not in excess of $ per share to brokers and dealers. After the completion of the offering, the underwriters may change the offering price and other selling terms.

The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Pursuant to the underwriting agreement, we and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

Over-allotment Option

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase up to additional shares from us, to cover over-allotments, if any. If the underwriters exercise all or part of this option, each underwriter will be obligated to purchase its proportionate number of shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount.

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Right of First Refusal

In connection with the initial private placement, we granted FBR Capital Markets & Co. a right of first refusal, for a period of approximately 36 months following the completion of the initial private placement, to act as sole initial purchaser and/or placement agent for each of our private offerings and as an underwriter and bookrunner in connection with any public offering of our equity securities.

Commissions and Expenses

The following table provides information regarding the amount of the underwriting discount to be paid to the underwriters by us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option.

Total

Per Share

Without
Over-allotment

With
Over-allotment

Underwriting discount paid by us

Underwriting discount paid by selling stockholders

Proceeds, before expenses, to us

Proceeds, before expenses, to selling stockholders

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ . We will pay the filing fees and up to $ of the expenses (including the reasonable fees and disbursements of counsel to the underwriters) related to obtaining the required approval of certain terms of this offering from FINRA. In the ordinary course of its business, an affiliate of FBR Capital Markets & Co. acquired 354,610 shares of our common stock in the initial private placement. To the extent that the price paid for these shares is less than the initial public offering price of the shares, the difference between these amounts is deemed by FINRA to be underwriting compensation and are, therefore, subject to a 180-day lock-up pursuant to FINRA Rule 5110(g)(1). Pursuant to FINRA Rule 5110(g)(1), these shares may not be sold during this offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these shares by any person for a period of 180 days immediately following the date of the effectiveness or commencement of sales of this offering, subject to certain exceptions set forth in FINRA Rule 5110(g)(2).

Lock-Up Agreements

We, each of our directors and executive officers have agreed not to sell or transfer any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for 180 days after the date of this prospectus, without the prior written consent of FBR and J.P. Morgan. Specifically, we and these other persons have agreed, subject to certain limited exceptions, not to directly or indirectly:

•

offer, pledge, sell or contract to sell our common stock;

•

sell any option or contract to purchase our common stock;

•

purchase any option or contract to sell our common stock;

•

grant any option for the sale of our common stock;

•

dispose of or transfer (or enter into any transaction or device which is designed or could be expected to, result in the disposition by any person at any time in the future of) our common stock;

•

file any registration statement with respect to our common stock; or

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•

enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of our common stock, whether any such swap or transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise.

This lock-up provision applies to our common stock and to securities convertible into or exchangeable or exercisable for our common stock. It also applies to common stock owned now or acquired later by the person.

However, with respect to our directors and executive officers, the restrictions described above will not apply to bona fide gifts or transfers to family members or trusts for the direct or indirect benefit of the director or executive officer or his or her family members, provided in each case that the transferee agrees in writing to be bound by the terms of the lock-up agreement. In addition, the restrictions described above will not apply to any registration statement filed by us in accordance with the terms of the registration rights agreement that we entered into with FBR Capital Markets & Co. upon completion of the initial private placement.

FBR and J.P. Morgan, in their sole discretion, may release, or authorize us to release, as the case may be, the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.

Each selling stockholder has agreed with us not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of shares of our common stock not sold in this offering for 180 days after the date of this prospectus without the prior written consent of FBR and J.P. Morgan. Additionally, all of our stockholders that purchased shares in the initial private placement and have not elected to include their shares for resale in this offering have agreed with us not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of shares of our common stock for 60 days after the date of this prospectus without the prior written consent of FBR and J.P. Morgan.

Stabilization

Until the distribution of the securities offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our common stock. As an exception to these rules, the underwriters may engage in transactions effected in accordance with Regulation M under the Exchange Act that are intended to stabilize, maintain or otherwise affect the price of our common stock. The underwriters may engage in over-allotment sales, syndicate covering transactions, stabilizing transactions and penalty bids in accordance with Regulation M.

•

Stabilizing transactions permit bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, so long as stabilizing bids do not exceed a specified maximum.

•

Over-allotment involves sales by the underwriters of securities in excess of the number of securities the underwriters are obligated to purchase, which creates a short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares of common stock overallotted by the underwriters is not greater than the number of shares of common stock that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares of our common stock in the open market.

•

Covering transactions involve the purchase of securities in the open market after the distribution has been completed in order to cover short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more shares of common stock than could be covered

208

by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in this offering.

•

Penalty bids permit the underwriters to reclaim a selling concession from a selected dealer when the securities originally sold by the selected dealer are purchased in a stabilizing or syndicate covering transaction.

These stabilizing transactions, covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities.

Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the prices of our securities. These transactions may occur on any trading market. If any of these transactions are commenced, they may be discontinued without notice at any time.

Electronic Distribution

This prospectus may be made available in electronic format on Internet sites or through other online services maintained by the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. Other than this prospectus in electronic format, any information on the underwriters’ or their affiliates’ websites and any information contained in any other website maintained by the underwriters or any affiliate of the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.

Listing; Pricing of the Offering

Our common stock has been approved for listing, subject to official notice of issuance, on the NYSE under the symbol “MRT.”

Immediately prior to this offering, there was no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters of this offering. Among the factors that will be considered in determining the initial public offering price are our future prospects and those of our industry in general, our revenues, results of operations and certain other financial and operating information in recent periods, and the market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.

Other Relationships

Some of the underwriters and their affiliates have engaged and may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us and/or our affiliates. They have received and may in the future receive customary fees and commissions for these transactions. In addition, affiliates of J.P. Morgan Securities, LLC, Citigroup Global Markets Inc., KeyBanc Capital Markets Inc. and RBC Capital Markets, LLC are lenders under our secured credit facility. As a result, these affiliates will receive their proportionate shares of any amount of our secured credit facility that is repaid with the net proceeds from this offering.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. In the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad

209

array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

210

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby and certain federal income tax matters will be passed upon for us by Morrison & Foerster LLP. Certain legal matters relating to this offering will be passed upon for the underwriters by Clifford Chance US LLP. Sidley Austin LLP has acted as counsel for the selling stockholders.

EXPERTS

The consolidated financial statements of MedEquities Realty Trust, Inc. as of December 31, 2015 and 2014 and for the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014, the financial statement schedule III, real estate and accumulated depreciation, and schedule IV, mortgage loans on real estate, have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

The financial statements of GruenePointe Holdings, LLC as of December 31, 2015 and 2014 and for the year ended December 31, 2015 and the period from April 21, 2014 (inception) to December 31, 2014 have been included herein in reliance upon the report of McNair, McLemore, Middlebrooks & Co., LLC, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We maintain a website at www.medequities.com. Information contained on, or accessible through our website is not incorporated by reference into and does not constitute a part of this prospectus or any other report or documents we file with or furnish to the SEC.

We have filed with the SEC a Registration Statement on Form S-11, including exhibits, schedules and amendments thereto, of which this prospectus is a part, under the Securities Act with respect to the shares of our common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits and schedules to the registration statement. For further information with respect to our company and the shares of our common stock to be sold in this offering, reference is made to the registration statement, including the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract or other document referred to in this prospectus are not necessarily complete and, where that contract or other document has been filed as an exhibit to the registration statement, each statement in this prospectus is qualified in all respects by the exhibit to which the reference relates. Copies of the registration statement, including the exhibits and schedules to the registration statement, may be examined without charge at the public reference room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0300. Copies of all or a portion of the registration statement can be obtained from the public reference room of the SEC upon payment of prescribed fees. Our SEC filings, including our registration statement, are also available to you, free of charge, on the SEC’s website, www.sec.gov.

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and will file periodic reports and other information with the SEC. These reports and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above.

211

INDEX TO FINANCIAL STATEMENTS


MEDEQUITIES REALTY TRUST, INC.
Unaudited Pro Forma Consolidated Financial Statements:
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2016			F-3
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2016			F-4
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2015			F-5
Notes to Unaudited Pro Forma Financial Statements			F-6
Historical Financial Statements:
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015			F-9
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015			F-10
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2016			F-11
Consolidated Statement of Cash Flows for the three months ended March 31, 2016 and 2015			F-12
Notes to Interim Consolidated Financial Statements			F-13
Report of Independent Registered Public Accounting Firm			F-25
Consolidated Balance Sheets as of December 31, 2015 and 2014			F-26
Consolidated Statements of Operations for the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014			F-27
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014			F-28
Consolidated Statements of Cash Flows for the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014			F-29
Notes to Consolidated Financial Statements			F-30
Schedule III – Real Estate and Accumulated Depreciation			F-51
Schedule IV – Mortgage Loans on Real Estate			F-53
GRUENEPOINTE HOLDINGS, LLC
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015			F-54
Consolidated Statements of Operations and Changes in Members’ Equity for the quarters ended March 31, 2016 and 2015			F-56
Consolidated Statements of Cash Flows for the quarters ended March 31, 2016 and 2015			F-57
Notes to Interim Financial Statements			F-58
Independent Auditor’s Report			F-66
Consolidated Balance Sheets as of December 31, 2015 and 2014			F-67
Consolidated Statements of Operations and Changes in Members’ Equity for the year ended December 31, 2015 and the period from April 21, 2014 (inception) to December 31, 2014			F-69
Consolidated Statements of Cash Flows for the year ended December 31, 2015 and the period from April 21, 2014 (inception) to December 31, 2014			F-70
Notes to Financial Statements			F-71

F-1

MedEquities Realty Trust, Inc.

Pro Forma Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except share data)

MedEquities Realty Trust, Inc. (the “Company”), a Maryland corporation, was formed on April 23, 2014 as a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments and was initially capitalized on May 5, 2014 when 1,000 shares of its common stock were issued to its founder for total cash consideration of $1. The Company did not commence operations until the completion of its initial private placements on July 31, 2014.

The Company conducts its business through an umbrella partnership REIT, or UPREIT, structure, consisting of the Company’s operating partnership, MedEquities Realty Operating Partnership, LP (the “Operating Partnership”), and subsidiaries of the Operating Partnership, including the Company’s taxable REIT subsidiary, MedEquities Realty TRS, LLC. The Company’s wholly owned limited liability company, MedEquities OP GP, LLC, is the sole general partner of the Operating Partnership, and the Company presently owns all of the limited partnership units of the Operating Partnership, or OP units. In the future, the Company may issue OP units to third parties in connection with healthcare property acquisitions, as compensation or otherwise. There are no OP unit holders for any of the periods presented.

The Company has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with the Company’s short taxable year ended December 31, 2014. As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes its REIT taxable income to its stockholders, subject to other statutory provisions in the Internal Revenue Code of 1986.

The accompanying unaudited pro forma consolidated financial statements have been derived from the historical consolidated financial statements of the Company. The unaudited pro forma consolidated balance sheet as of March 31, 2016 is presented to reflect adjustments to the Company’s historical balance sheet as if the Company’s initial public offering of its common stock (the “Offering”) and the concurrent private placement to funds managed by BlueMountain Capital Management, LLC (the “BlueMountain Private Placement”) were completed on March 31, 2016. The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 are presented as if the Offering, the BlueMountain Private Placement and certain real estate property acquisitions described herein were completed on the first day of the annual period presented.

The accompanying unaudited pro forma consolidated financial statements should be read in conjunction with (i) the Company’s historical consolidated balance sheet as of March 31, 2016 and historical consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015; and (ii) the “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this prospectus. The Company has based the unaudited pro forma adjustments on available information and assumptions that it believes are reasonable. The following unaudited pro forma combined consolidated financial statements are presented for informational purposes only and are not necessarily indicative of what the Company’s actual financial position would have been as of March 31, 2016 assuming the Offering and the BlueMountain Private Placement had been completed on March 31, 2016, what actual results of operations would have been for the three months ended March 31, 2016 and the year ended December 31, 2015 assuming the Offering, the BlueMountain Private Placement and certain real estate property acquisitions were completed on the first day of the annual period presented, and are not indicative of future results of operations or financial condition and should not be viewed as indicative of future results of operations or financial condition.

F-2

MedEquities Realty Trust, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

March 31, 2016

(Dollars in thousands)


	MedEquities Realty Trust, Inc.			Proceeds from Offering		Use of Proceeds			Company Pro Forma
	A			B		C
Assets
Real estate assets
Land, buildings and improvements, and intangible lease assets	$	501,666			—		—		$	501,666
Furniture, fixtures, and equipment		3,205			—		—			3,205
Less accumulated depreciation and amortization		(15,066	)		—		—			(15,066	)

Total real estate properties, net		489,805			—		—			489,805
Mortgage notes receivable, net		9,911			—		—			9,911
Cash and cash equivalents		9,791
Other assets		29,662			—		—			29,662

Total Assets	$	539,169							$


Liabilities and Equity
Liabilities
Debt	$	247,400			—				$
Accounts payable and accrued liabilities		16,441			—		—			16,441
Deferred revenue		1,753			—		—			1,753

Total liabilities		265,594			—		—

Equity
Preferred Stock		1			—		(1	)		—
Common stock		109					—
Additional paid in capital		274,387					(131,380	)
Dividends declared		(22,341	)		—		—			(22,341	)
Retained earnings		16,220			—		—			16,220
Noncontrolling interests		5,199			—		—			5,199

Total Equity		273,575			—		(131,381	)

Total Liabilities and Equity	$	539,169			—		(131,381	)	$

F-3

MedEquities Realty Trust, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the three months ended March 31, 2016

(Dollars in thousands)


	MedEquities Realty Trust, Inc.			Pro Forma Adjustments			Company Pro Forma
	AA
Revenues
Rental income	$	14,604		$	—		$	14,604
Interest on mortgage notes receivable		229			—			229
Interest on notes receivable		15			—			15

Total revenues		14,848			—			14,848

Expenses
Depreciation and amortization		3,659			—			3,659
Property-related		321			—			321
Acquisition costs		17			—			17
Franchise, excise, and other taxes		105			—			105
General and administrative		2,771			—			2,771

Total operating expenses		6,873			—			6,873
Operating income		7,975			—			7,975

Other income (expense)
Interest and other income		1			—			1
Interest expense		(3,125	)			CC

Net other income (expense)		(3,124	)		—
Net Income	$	4,851		$			$
Less: Preferred stock dividends		(2,465	)		2,465	DD		—
Less: Net income attributable to non-controlling interests		(1,355	)		—			(1,355	)

Net income attributable to common stockholders	$	1,031		$	2,465		$

Earnings per share	$	0.09					$			EE

F-4

MedEquities Realty Trust, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the year ended December 31, 2015

(Dollars in thousands)


	MedEquities Realty Trust, Inc.			2015 Acquisitions and Lakeway Foreclosure			Other Pro Forma Adjustments			Company Pro Forma
	AA			BB
Revenues
Rental income	$	41,484		$	17,599		$	—		$	59,083
Interest on mortgage notes receivable		2,717			(1,799	)		—			918
Interest on notes receivable		237			—			—			237

Total revenues		44,438			15,800			—			60,238

Expenses
Depreciation and amortization		9,969			4,982			—			14,951
Property-related		1,205			—			—			1,205
Acquisition costs		417			—			—			417
Franchise, excise, and other taxes		338			—			—			338
General and administrative		8,628			—			—			8,628

Total operating expenses		20,557			4,982			—			25,539
Operating income		23,881			10,818			—			34,699

Other income (expense)
Interest and other income		12			—			—			12
Interest expense		(7,163	)		—				CC

Net other income (expense)		(7,151	)		—			—
Net Income	$	16,730		$	10,818		$			$
Less: Preferred stock dividends		(7,835	)		—			7,835	DD		—
Less: Net income attributable to non-controlling interests		(4,029	)		(1,400	)		—			(5,429	)

Net income attributable to common stockholders	$	4,866		$	9,418		$	7,835		$

Earnings per share	$	0.42								$			EE

F-5

Notes to the Unaudited Pro Forma Consolidated Financial Statements

Note 1 — Adjustments to the Pro Forma Consolidated Balance Sheet

(A)	Represents the historical consolidated balance sheet of the Company as of March 31, 2016.

(B)

Reflects aggregate gross proceeds from the Offering and the BlueMountain Private Placement of $ million, which will be reduced by $ million, net of amounts paid to date, to reflect underwriters’ discounts and commissions and other expenses of the Offering payable by the Company, resulting in net proceeds to the Company of $ million. These costs will be charged against the gross offering proceeds upon completion of the Offering. A summary is as follows (in thousands):


Gross Proceeds		$
Less:
Underwriters’ discount
Offering expenses

Net proceeds		$

(C)	Reflects the use of proceeds from the Offering, which the Company intends to use as follows:

•

approximately $131.4 million to redeem the Company’s 12.5% Series A Redeemable Cumulative Preferred Stock (the “Series A Preferred Stock”) and the Company’s 7.875% Series B Redeemable Cumulative Preferred Stock (“Series B Preferred Stock”);

•

to repay $ million of outstanding indebtedness under the Company’s secured revolving credit facility (the “Credit Facility”); and

•

the remaining net proceeds, if any, for general corporate purposes, including working capital and future acquisitions.

Note 2 — Adjustments to the Pro Forma Consolidated Statements of Operations

(AA)	Represents the historical consolidated statement of operations of the Company for the three months ended March 31, 2016 and the year ended December 31, 2015, including the results of operations of the Company’s completed acquisitions and investments as of the date they were acquired (see note BB).

F-6

(BB)

Reflects the operations of the Company’s acquisitions and investments that were completed during the year ended December 31, 2015, as if they occurred on January 1, 2015. The adjustment includes pro forma results only for the portion of the period prior to the closing of the acquisition/investment. Rental income includes the effects of straight-line rent calculated based on the estimated amount of base rents contractually due over the initial term of the lease and amortization of lease inducements (e.g., lease incentives and tenant improvement allowances), which are recorded as a reduction to rental income over the initial term of the related facility lease. (in thousands)


	Year Ended December 31, 2015
	Mountain’s Edge Hospital		Life Generations Portfolio		Mira Vista		Lakeway Partnership ⁽¹⁾			Lakeway Partnership Eliminations/ Adjustments ⁽²⁾⁽³⁾			Texas SNF Portfolio		Vibra Rehabilitation Hospital of Amarillo			Total
Revenues
Rental income	$	645	$	2,833	$	225	$	18,607		$	(14,735	)	$	8,445	$	1,579		$	17,599
Interest on mortgage notes receivable		—		—		—		—			(395	)		—		(1,404	)		(1,799	)

Total revenues		645		2,833		225		18,607			(15,130	)		8,445		175			15,800

Expenses
General and administrative		—		—		—		60			(60	)		—		—			—
Depreciation and amortization		153		1,335		64		1,543			(1,338	)		2,660		565			4,982
Interest expense		—		—		—		5,924			(5,924	)		—		—			—

Total expenses		153		1,335		64		7,527			(7,322	)		2,660		565			4,982

Net Income	$	492	$	1,498	$	161	$	11,080		$	(7,808	)	$	5,785	$	(390	)	$	10,818

Net income attributable to non-controlling interests		—		—		—		(5,429	)		4,029			—		—			(1,400	)

Net income attributable to MRT common stockholders	$	492	$	1,498	$	161	$	5,651		$	(3,779	)	$	5,785	$	(390	)	$	9,418

(1)

The Company owns Lakeway Hospital through a consolidated partnership (the “Lakeway Partnership”), which is owned 51% by the Company and 49% by an entity that is owned indirectly by local physicians who have relocated their practices to Lakeway Hospital and a non-physician investor. The Company made an intercompany $73.0 million loan to the Lakeway Partnership that is secured by a first mortgage lien on Lakeway Hospital (the “Lakeway Intercompany Mortgage Loan”), which has a ten-year term and requires payments of principal and interest at a rate of 8.0% per annum based on a 25-year amortization schedule. The Lakeway Intercompany Mortgage Loan, the related interest income of the Company and the related interest expense to the Lakeway Partnership are eliminated in the Company’s pro forma consolidated financial statements. This column represents the pro forma stand-alone operating results of the Lakeway Partnership prior to consolidation.

(2)	Represents amounts eliminated in the Company’s pro forma consolidated statement of operations due to the consolidation of the Lakeway Partnership.

(3)	Represents the elimination of amounts included in the Company’s historical consolidated statement of operations to reflect the Lakeway Hospital foreclosure and the formation of the Lakeway Partnership as if they had occurred on January 1, 2015.

(CC)	Reflects the decrease in net interest expense as a result of repaying approximately $ million of outstanding borrowings on the Credit Facility with a portion of the net proceeds from the Offering and the BlueMountain Private Placement.

(DD)	Represents the elimination of dividends on the Series A Preferred Stock and the Series B Preferred Stock, which will be redeemed with a portion of the net proceeds from the offering.

(EE)

Earnings per share — basic is calculated based on the pro forma weighted average common shares outstanding, which was for each of the periods presented and assumes the issuance of the shares of common stock in the Offering and the BlueMountain Private Placement, totaling shares. Earnings per share — diluted is calculated by including the effect of dilutive securities, which resulted in diluted shares of for each of the periods presented.

F-7

Below is a reconciliation of pro forma weighted average shares outstanding for the three months ended March 31, 2016:


Number of shares issued and outstanding — March 31, 2016
Number of shares issued in the Offering and the BlueMountain Private Placement

Total number of shares — basic
Dilutive potential shares — March 31, 2016

Total number of shares — diluted

Below is a reconciliation of pro forma weighted average shares outstanding for the year ended December 31, 2015:


Number of shares issued and outstanding — December 31, 2015
Number of shares issued in the Offering and the BlueMountain Private Placement

Total number of shares — basic
Dilutive potential shares — December 31, 2015

Total number of shares — diluted

F-8

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except per share amounts)


	March 31, 2016			December 31, 2015
	(unaudited)
Assets
Real estate properties
Land	$	41,564		$	40,081
Building and improvements		448,715			458,930
Intangible lease assets		11,387			3,441
Furniture, fixtures, and equipment		3,205			2,401
Less accumulated depreciation and amortization		(15,066	)		(11,172	)

Total real estate properties, net		489,805			493,681

Mortgage notes receivable, net		9,911			9,909
Cash and cash equivalents		9,791			12,474
Other assets, net		29,662			27,603

Total Assets	$	539,169		$	543,667

Liabilities and Equity
Liabilities
Debt	$	247,400		$	247,400
Accounts payable and accrued liabilities		16,441			21,102
Deferred revenue		1,753			3,920

Total liabilities		265,594			272,422

Commitments and contingencies
Equity

Preferred stock, $0.01 par value. Authorized 50,000 shares; 125 shares issued and outstanding at March 31, 2016 and December 31, 2015		1			1

Common stock, $0.01 par value. Authorized 400,000 shares; 11,250 and 11,233 issued and outstanding at March 31, 2016 and December 31, 2015, respectively		109			109
Additional paid in capital		274,387			273,740
Dividends declared		(22,341	)		(19,876	)
Retained earnings		16,220			12,724

Total MedEquities Realty Trust, Inc. stockholders’ equity		268,376			266,698
Noncontrolling interest		5,199			4,547

Total equity		273,575			271,245

Total Liabilities and Equity	$	539,169		$	543,667

See accompanying notes to interim consolidated financial statements.

F-9

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Amounts In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2016			2015
Revenues
Rental income	$	14,604		$	3,686
Interest on mortgage notes receivable		229			1,029
Interest on notes receivable		15			224

Total revenues		14,848			4,939
Expenses
Depreciation and amortization		3,659			1,077
Property related		321			291
Acquisition costs		17			68
Franchise, excise and other taxes		105			107
General and administrative		2,771			1,875

Total operating expenses		6,873			3,418

Operating income		7,975			1,521

Other income (expense)
Interest and other income		1			6
Interest expense		(3,125	)		(790	)

		(3,124	)		(784	)

Net income	$	4,851		$	737
Less: Preferred stock dividends		(2,465	)		(440	)
Less: Net (income) loss attributable to noncontrolling interest		(1,355	)		15

Net income attributable to common stockholders	$	1,031		$	312

Net income attributable to common stockholders per share
Basic and diluted	$	0.09		$	0.03

Weighted average shares outstanding
Basic		10,959			10,945
Diluted		11,054			10,945

Dividends declared per common share	$	—		$	0.17

See accompanying notes to interim consolidated financial statements.

F-10

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2016

(Amounts in thousands)

(Unaudited)


	Series A Preferred Stock				Series B Preferred Stock				Common Stock
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Additional Paid-In Capital		Retained Earnings		Dividends Declared			Non- controlling interest			Total Equity
Balance at December 31, 2015		—	$	—		125	$	1		11,233	$	109	$	273,740	$	12,724	$	(19,876	)	$	4,547		$	271,245
Issuance of common stock, net of costs		—		—		—		—		17		—		—		—		—			—			—
Distributions to noncontrolling interest		—		—		—		—		—		—		—		—		—			(703	)		(703	)
Stock-based compensation		—		—		—		—		—		—		647		—		—			—			647
Net income		—		—		—		—		—		—		—		3,496		—			1,355			4,851
Dividends to preferred stockholders		—		—		—		—		—		—		—		—		(2,465	)		—			(2,465	)

Balance at March 31, 2016		—	$	—		125	$	1		11,250	$	109	$	274,387	$	16,220	$	(22,341	)	$	5,199		$	273,575

See accompanying notes to interim consolidated financial statements.

F-11

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2016			2015
Operating activities
Net income	$	4,851		$	737
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		4,650			1,378
Stock-based compensation		647			311
Straight-line rent receivable		(514	)		(227	)
Straight-line rent liability		42			41
Write-off of pre-offering costs		89			—
Changes in operating assets and liabilities
Other assets		(1,880	)		(451	)
Accounts payable and accrued liabilities		(1,134	)		2,086
Deferred revenues		(2,346	)		(397	)

Net cash provided by operating activities		4,405			3,478
Investing activities
Acquisitions of real estate		(60	)		(153,184	)
Funding of note receivable		(1,662	)		—
Repayment of note receivable		1,662			—
Capitalized pre-acquisition costs, net		(230	)		(9	)
Capital expenditures		—			(124	)

Net cash used in investing activities		(290	)		(153,317	)
Financing activities
Dividends paid to common stockholders		(3,370	)		(1,329	)
Dividends paid to preferred stockholders		(2,461	)		—
Distributions to noncontrolling interest		(703	)		—
Capitalized pre-offering costs		(258	)		(15	)
Deferred credit facility fees		(6	)		(76	)
Proceeds from sale of preferred shares, net of offering costs		—			95,996
Net borrowings on secured credit facility		—			51,000
Contributions by noncontrolling interest		—			1,000

Net cash (used in) provided by financing activities		(6,798	)		146,576

Decrease in cash and cash equivalents		(2,683	)		(3,263	)
Cash and cash equivalents, beginning of period		12,474			10,493

Cash and cash equivalents, end of period	$	9,791		$	7,230

Supplemental Cash Flow Information
Interest paid	$	2,378		$	485
Accrued pre-offering costs		875			1,592
Texas gross margins taxes paid, net of reimbursement		63			—
Accrued pre-acquisition costs		38			122
Lakeway mortgage note receivable foreclosure		—			50,000
Accrued capital expenditures		—			111
Accrued deferred credit facility fees		—			49

See accompanying notes to interim consolidated financial statements.

F-12

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements

1.	Organization and Nature of Business

MedEquities Realty Trust, Inc. (the “Company”), which was incorporated in the state of Maryland on April 23, 2014, is a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. As of March 31, 2016, the Company had investments of $492 million, net in 24 real estate properties with an aggregate of 1,148,281 square feet and one mortgage note receivable.

The Company conducts its business through an umbrella partnership REIT, or UPREIT, structure, consisting of the Company’s operating partnership, MedEquities Realty Operating Partnership, LP (the “Operating Partnership”), and subsidiaries of the Operating Partnership, including the Company’s taxable REIT subsidiary (“TRS”), MedEquities Realty TRS, LLC. The Company’s wholly owned limited liability company, MedEquities OP GP, LLC, is the sole general partner of the Operating Partnership, and the Company presently owns all of the limited partnership units of the Operating Partnership (“OP units”). In the future, the Company may issue OP units to third parties in connection with healthcare property acquisitions, as compensation or otherwise. As the sole owner of the general partner of the Operating Partnership, the Company has the exclusive power to manage and conduct the Operating Partnership’s business, subject to certain limitations.

The Company has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal tax purposes commencing with the Company’s short taxable year ended December 31, 2014. To maintain its qualification as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles).

As a REIT, the Company will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distributions to stockholders. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state and local taxes on its income and property and federal income and excise taxes on its undistributed income. Taxable income from non-REIT activities managed through the Company’s TRS, if any, is subject to applicable U.S. federal, state and local income taxes. The Company has no activity in its TRS.

2.	Accounting Policies and Related Matters

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim financial statements should be read in conjunction with the consolidated financial statements included in the Company’s audited consolidated financial statements and related notes for the period ended December 31, 2015.

F-13

For information about significant accounting policies, refer to the Company’s audited consolidated financial statements and footnotes thereto for the year ended December 31, 2015. During the three months ended March 31, 2016, there were no material changes to these policies.

Reclassifications: Certain reclassifications have been made to the Consolidated Balance Sheet as of December 31, 2015 to conform to the 2016 presentation.

Recent Accounting Developments: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” a comprehensive new revenue recognition standard that supersedes most of the existing revenue recognition guidance. This standard’s core principle is that a company will recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. However, leasing contracts, representing the major source of the Company’s revenues, are not within the scope of the new standard and will continue to be accounted for under existing standards. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of this standard by one year. This standard is effective for public companies beginning after December 15, 2017 and interim periods therein for public companies. Nonpublic companies would be required to adopt the standard beginning January 1, 2019 and interim periods beginning January 1, 2020. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The effects of this standard on the Company’s financial position, results of operations and cash flows are not yet known.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This standard changes the requirements for reporting discontinued operations by raising the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The Company adopted this standard on January 1, 2015, which did not have a significant impact on the Company’s consolidated financial position or results of operations.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which expands upon the guidance on the presentation of debt issuance costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This guidance requires a retrospective application and is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. In August 2015, the FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30),” which clarified that the amendments contained within ASU No. 2015-03 do not require companies to modify their accounting for costs incurred in obtaining revolving credit facilities. The Company adopted these standards on January 1, 2016, which did not have a significant impact on the Company’s consolidated financial position or results of operations.

F-14

recognized as of the acquisition date. The amendments in this ASU were effective for fiscal years beginning January 1, 2016 and require the prospective application for adjustments to provisional amounts that occur after the effective date. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheet and making targeted improvements to lessor accounting. The guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The guidance also allows a company to repurchase more of an employee’s shares than currently allowed for tax withholding purposes without triggering liability accounting and will allow a company to make a policy election to account for forfeitures as they occur. The guidance is effective for public entities with fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted in any annual or interim period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.

3.	Real Estate and Mortgage Notes Receivable

Adjustments to Purchase Price Allocations of 2015 Acquisitions

The purchase price allocations for the Kearny Mesa and Vibra Rehabilitation Hospital of Amarillo acquisitions, both of which closed October 1, 2015, were preliminary at December 31, 2015 since the valuations for both of the acquisitions were still in progress. The preliminary allocations for these properties were comprised of $4.6 million in land and $39.9 million in building and improvements. The purchase price allocations were updated during the first quarter of 2016, resulting in adjustments to the preliminary purchase price allocations to reflect the new information obtained about the facts and circumstances that existed as of the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates. The revised allocations for these properties are as follows (dollars in thousands):


	Kearny Mesa		Vibra Rehabilitation Hospital of Amarillo		Total
Land	$	4,975	$	991	$	5,966
Buildings and improvements		19,538		10,235		29,773
Intangible lease assets		—		7,946		7,946
Furniture, fixtures, and equipment		577		227		804

Total real estate properties acquired	$	25,090	$	19,399	$	44,489

The above-market lease intangible of $7.6 million will be amortized against rental income over the term of the lease. These revised purchase price allocations are still preliminary.

F-15

The Kearny Mesa acquisition was accounted for as an asset acquisition and the Vibra Rehabilitation Hospital of Amarillo acquisition was accounted for as a business combination. The following table shows the impact of amounts recorded in the consolidated statement of income for the three months ended March 31, 2016 due to the change in the estimates of the purchase price allocations that would have been recorded in the consolidated statement of income in prior periods had the adjustment to the provisional amounts had been recognized as of the acquisition date (in thousands).


	Kearny Mesa			Vibra Rehabilitation Hospital of Amarillo			Total
Rental income	$	—		$	(127	)	$	(127	)
Depreciation and amortization		26			(79	)		(53	)

Net income attributable to common stockholders	$	(26	)	$	(48	)	$	(74	)

Tenant Note Receivable

On January 29, 2016, the Company advanced approximately $1.7 million to the tenant at Lakeway Regional Medical Center (“Lakeway Hospital”), a facility which the Company owns through a consolidated partnership (the “Lakeway Partnership”). The advance was used by the tenant to pay property taxes on Lakeway Hospital that were due at the end of January 2016. This cash advance was repaid by the tenant on February 9, 2016. The Company recognized a nominal amount of interest related to this cash advance, which is included in interest on notes receivable on the consolidated statement of income for the three months ended March 31, 2016.

Leasing Operations

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2040. Leases for the Company’s portfolio, including single-tenant properties, generally require the lessee to pay minimum rent (which generally increases annually on a fixed percentage basis or based on increases in the consumer price index), all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property.

Minimum rental payments due to the Company in future periods under operating leases for the Company’s properties that have non-cancelable terms extending beyond one year as of March 31, 2016 are as follows (dollars in thousands):


For the year ended December 31:
2016 (remaining nine months)	$	39,333
2017		50,857
2018		50,340
2019		51,009
2020		51,873
2021		52,771
Thereafter		704,663

Total	$	1,000,846

F-16

Concentrations of Credit Risks

The following table contains information regarding tenant concentration in the Company’s portfolio, based on the percentage of revenue for the three months ended March 31, 2016 and March 31, 2015, related to tenants, or affiliated tenants, that exceed 10% of revenues.


	% of Total Revenue for the three months ended March 31,
	2016			2015
Lakeway Operator		31.7	%		23.2	%
GruenePointe Holdings		23.9	%		—
Life Generations Healthcare		14.5	%		—
Fundamental Healthcare		13.9	%		25.1	%
Vibra Healthcare		12.2	%		39.3	%

The following table contains information regarding the geographic concentration of the properties in the Company’s portfolio as of March 31, 2016, which includes percentage of rental income for the three months ended March 31, 2016 and March 31, 2015 (dollars in thousands).


								% of Rental Income
State	Number of Properties		Gross Investment		% of Total Real Estate Property Investments			Three months ended March 31, 2016			Three months ended March 31, 2015
Texas		14	$	270,726		53.6	%		64.9	%		39.6	%
California ⁽¹⁾		7		164,724		32.6	%		23.7	%		35.4	%
Nevada ⁽²⁾		2		49,421		9.8	%		8.1	%		11.7	%
South Carolina		1		20,000		4.0	%		3.3	%		13.3	%

		24	$	504,871		100.0	%		100.0	%		100.0	%

(1)	Gross investment includes an earn-out of $10.0 million for Kearny Mesa that the Company expects to pay to the seller during the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively.

(2)

Gross investment excludes the $6.0 million tenant improvement allowance provided to the tenant at Mountain’s Edge Hospital. This amount is included in other assets on the consolidated balance sheet at March 31, 2016. The allowance is amortized against rental income over the 15-year term of the lease.

4.	Real Estate Intangibles

The following is a summary of the carrying amount of real estate intangible assets as of March 31, 2016 (dollars in thousands):


	Gross Intangibles		Accumulated Amortization			Net Intangibles		Weighted Average Life (Years)
Above-market lease intangible	$	7,636	$	(255	)	$	7,381		14.5
In-place leases		2,406		(621	)		1,785		9.2
Leasing commissions		1,294		(270	)		1,024		10.2
Legal/marketing fees		51		(13	)		38		8.9

Total	$	11,387	$	(1,159	)	$	10,228		13.1

The Company recorded amortization expense related to real estate intangible assets of approximately $0.4 million and $0.1 million for the three months ended March 31, 2016 and March 31, 2015, respectively.

F-17

The following table represents expected amortization of existing real estate intangible assets at March 31, 2016 (dollars in thousands):


For the year ended December 31:
2016 (remaining nine months)	$	830
2017		1,075
2018		707
2019		687
2020		687
2021		687
Thereafter		5,555

Total	$	10,228

Debt

The Company has a $375 million secured revolving credit facility (“Credit Facility”) that includes an accordion feature that allows the total borrowing capacity under the Credit Facility to be increased to up to $600 million, subject to certain conditions, including obtaining additional commitments from lenders. Amounts outstanding under the Credit Facility bear interest at LIBOR plus a margin between 2.75% and 3.75% or a base rate plus a margin between 1.75% and 2.75%, in each case depending on the Company’s leverage. Upon meeting certain conditions, including the completion of the initial public offering of the Company’s common stock, amounts outstanding under the Credit Facility will bear interest at LIBOR plus a margin between 2.00% and 2.50% or a base rate plus a margin between 1.00% and 1.50%, in each case depending on the Company’s leverage. The Credit Facility is scheduled to mature in November 2016.

The total amount of deferred financing costs included in other assets on the consolidated balance sheets at March 31, 2016 totaled $3.8 million. The Company recognized amortization expense of deferred financing costs, included in interest expense on the consolidated statements of income of $0.7 million and $0.3 million for the three months ended March 31, 2016 and March 31, 2015, respectively.

At March 31, 2016, the weighted average interest rate under the Credit Facility was 3.7%. The Credit Facility includes an unused fee of 0.25% for usage greater than 50.0% and 0.35% for usage of 50.0% or less.

The amount available for the Company to borrow under the Credit Facility is limited according to a borrowing base valuation of certain real estate investments owned by subsidiaries of the Operating Partnership that secure this facility. At March 31, 2016 and April 29, 2016, the Company had $247.4 million outstanding under the Credit Facility and approximately $21.5 million of maximum additional available capacity, subject to continued compliance with the covenants under the facility. However, since the Company had not completed an initial public offering of its common stock by December 31, 2015, any additional draws under the Credit Facility require approval of the lenders representing at least 75% of the total commitments under the Credit Facility.

As of April 29, 2016, the Company had received a commitment letter from each of the lenders under the Credit Facility to amend the Credit Facility to, among other things, reduce the total commitments from $375.0 million to $300.0 million, extend the maturity date to November 2017 and provide two 12-month extension options, subject to certain conditions, including the completion of the initial public offering of the Company’s common stock and payment of a 0.15% extension fee at each extension. The Company expects to pay a 0.25% fee in connection with the anticipated amendment, which will be amortized over the remaining term of the facility. The interest rate and accordion feature of the Credit Facility are not expected to change in connection with the anticipated amendment. The Company expects to expense approximately $0.3 million of unamortized deferred financing costs associated with the amendment of the Credit Facility in the second quarter of 2016.

F-18

Covenants

The Credit Facility contains customary financial and operating covenants, including covenants relating to the Company’s total leverage ratio, fixed charge coverage ratio, tangible net worth, minimum liquidity, maximum distribution/payout ratio and restrictions on recourse debt, secured debt and certain investments. The Credit Facility also contains customary events of default, including among others, nonpayment of principal or interest, material breach of representations and warranties, and failure to comply with covenants. Any event of default, if not cured or waived, could result in the acceleration of any outstanding indebtedness under the Credit Facility. The Company was in compliance with all covenants at March 31, 2016.

6.	Other Assets

Items included in other assets on the Company’s consolidated balance sheets as of March 31, 2016 and December 31, 2015 are detailed in the table below (dollars in thousands):


	March 31, 2016		December 31, 2015
Straight-line rent receivables	$	10,431	$	9,917
Tenant allowance, net		5,635		5,736
Interest and accounts receivable		3,796		1,729
Capitalized pre-offering costs		3,760		3,659
Deferred financing costs, net		1,780		2,521
Lease incentive, net		1,156		1,177
Prepaid assets and deposits		1,121		1,009
Pre-acquisition costs		1,075		939
Note receivable		500		500
Corporate property, net		251		270
Restricted cash		157		146

	$	29,662	$	27,603

7.	Incentive Plan

The Company’s 2014 Amended and Restated Equity Incentive Plan (the “Plan”) provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including Long Term Incentive Plan (“LTIP”) units, which are convertible on a one-for-one basis into OP units. As of March 31, 2016, the Company had 693,082 shares of common stock reserved for potential future issuance under the Plan, subject to certain adjustments set forth in the Plan.

F-19

Restricted Equity Awards

Restricted Stock Units

As of March 31, 2016, the Company had granted an aggregate of 359,025 performance-vesting restricted stock units to its executive officers and certain other employees under the Plan. These restricted stock units will vest on the third anniversary of the grant date based on the achievement of absolute total return to stockholders (“TSR”) (50% weighting) and relative TSR as compared to the performance of the MSCI US REIT Index (“RMS”) (50% weighting), subject to continued employment through the vesting date. For performance between the specified TSR Performance and RMS Performance hurdles, the amount earned would be interpolated on a linear basis. Dividends on the restricted stock units will accrue but will not be paid unless and until the underlying restricted stock units vest and are converted to shares of common stock. The absolute and relative TSR thresholds are as follows:


Absolute TSR Award
TSR Performance		% of Award Earned
25.5%		0%
27.5%		25%
29.5%		50%
31.5%		75%
33.5%		100%


Relative TSR Award
MSCI US REIT Index Performance		% of Award Earned
= Index		0%
Index +3%		50%
Index +6% or greater		100%

Restricted Shares

On January 1, 2016, the Company granted 16,665 restricted shares of common stock to its non-employee directors as part of the annual director compensation, which will vest ratably on each of the first three anniversaries of the date of grant, subject to the director’s continued service on the Company’s board of directors through such dates. The total value of these awards is calculated to be $0.3 million.

The following summarizes the stock-based award activity for the three months ended March 31, 2016 and 2015:


	2016					2015
	Vesting Based on Service			Vesting Based on Market/Performance Conditions		Vesting Based on Service		Vesting Based on Market/Performance Conditions
Non-vested awards at beginning of period		280,080			359,025		129,555		158,927
Awarded		16,665			—		16,665		—
Vested		(5,555	)		—		—		—
Forfeited		—			—		—		—

Non-vested awards at end of period		291,190			359,025		146,220		158,927

The weighted average value of the total restricted shares and restricted stock units outstanding at March 31, 2016 was approximately $15.47 per share and $7.91 per unit, respectively. The weighted average value of the total restricted shares and restricted stock units outstanding at March 31, 2015 was approximately $15.00 per share and $6.53 per unit, respectively. All of the shares that vested during the three months ended March 31, 2016 related to grants of restricted shares to non-employee directors.

F-20

The value of stock-based awards is charged to compensation expense included in general and administrative expenses over the vesting periods. For the three months ended March 31, 2016, the Company recognized $0.6 million of non-cash compensation expense. The remaining unrecognized cost from stock-based awards at March 31, 2016 was $4.7 million and will be recognized over a weighted-average period of 2.0 years. For the three months ended March 31, 2015, the Company recognized $0.3 million of non-cash compensation expense. The remaining unrecognized cost from stock-based awards at March 31, 2015 was $2.5 million.

8.	Commitments and Contingencies

Commitments

As of March 31, 2016, the Company was obligated under operating lease agreements consisting primarily of the Company’s corporate office lease, which expires in 2020, and a ground lease related to the medical office building in the Company’s portfolio, which expires in 2081. Annual base rent on the corporate office lease increases approximately 3.0% annually. The Company’s ground lease rent increases 2.0% annually and is included in property-related expense. Rent expense relating to the operating leases for each of the three months ended March 31, 2016 and 2015 was approximately $0.1 million.

The Company’s future minimum lease payments for its operating leases as of March 31, 2016 were as follows (dollars in thousands):


For the year ended:
2016 (remaining nine months)	$	247
2017		334
2018		342
2019		351
2020		203
2021		176
Thereafter		19,979

Total	$	21,632

In addition to the initial purchase price of $15.0 million for Kearny Mesa, the Company agreed to an earn-out of up to $10.0 million that the Company expects to pay to the seller during the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. The portion of the earn-out expected to be paid in 2016 is approximately $1.9 million.

Upon acquisition of Kearny Mesa on October 1, 2015, the Company amended the master lease agreement with Life Generations Healthcare, LLC (“Life Generations”). As a part of the amended master lease, the Company agreed to provide up to $2.0 million for certain renovations and improvements (all subject to pre-approval by the Company) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement must be made by October 1, 2016. No payments under this arrangement have been made as of March 31, 2016.

Related to the Company’s investment in Lakeway Hospital, the Company agreed on February 2, 2016 to provide a surety bond of $9.4 million for a litigation judgment against the tenant of Lakeway Hospital (“Lakeway Operator”) (which is currently under appeal) that stands behind the Lakeway Operator in the event it is unable to fund the entire amount of the judgment. The Company’s obligation is subject to certain conditions, including the judgment being upheld on appeal, and will be reduced by any amount of the judgment paid by the Lakeway Operator. The Lakeway Operator will be required to repay in full any amounts funded by the Company through monthly payments of interest only for five years at a rate of 12% per annum after which the outstanding amount shall be repaid pursuant to a promissory note amortized over five years accruing interest at 12%. The repayment

F-21

of any amounts funded by the Company under this arrangement will be secured by a second lien on the assets that secure the Lakeway Operator’s accounts receivable line of credit. As of the date the consolidated financial statements were available for issuance, no amounts were outstanding under this obligation. Additionally, the Company will receive a fee of approximately $0.2 million from the Lakeway Operator for providing the surety bond. This amount is recorded in other assets and deferred revenue on the consolidated balance sheet at March 31, 2016.

Contingencies

From time to time, the Company or its properties may be subject to claims and suits in the ordinary course of business. The Company’s lessees and borrowers have indemnified, and are obligated to continue to indemnify, the Company against all liabilities arising from the operations of the properties and are further obligated to indemnify it against environmental or title problems affecting the real estate underlying such facilities. The Company is not aware of any pending or threatened litigation that if resolved against the Company, would have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

9.	Equity

Preferred Stock

Series B

On March 11, 2015 and April 1, 2015, the Company sold an aggregate of 125,000 shares of the Company’s 7.875% Series B Redeemable Cumulative Preferred Stock (“Series B Preferred Stock”), with a liquidation preference of $1,000 per share, to Carter/Validus Operating Partnership, L.P. (“Carter Validus”), for gross proceeds of $125 million.

Dividends on the Series B Preferred Stock are paid monthly at an annual rate of 7.875% of the $1,000 liquidation preference plus accumulated and unpaid dividends, subject to increases in the event of certain defaults by the Company. The March 2016 dividend of $0.8 million was paid in April 2016 and was included in accounts payable and accrued liabilities on the consolidated balance sheet at March 31, 2016. The Series B Preferred Stock is redeemable at any time at the Company’s option, and must be redeemed in connection with a change of control of the Company or the initial public offering of the Company’s common stock, in each case at the $1,000 liquidation preference, plus accumulated and unpaid dividends and a special redemption dividend equal to 5% of the liquidation preference.

The Series B Preferred Stock is senior to the Company’s common stock with respect to dividends and distributions, including distributions upon liquidation, dissolution or winding up. The Series B Preferred Stock has limited voting rights and does not vote in the election of directors unless the Company fails to pay dividends on the Series B Preferred Stock for 12 consecutive months, fails to maintain a minimum tangible net worth of at least $100 million or fails to qualify or maintain qualification as a REIT. Under such circumstances, the Series B Preferred Stock will be entitled to elect one additional director to the Company’s board of directors until such default is cured for a period of six months.

Beginning on March 6, 2018, each share of Series B Preferred Stock, at the option of the holder, may be converted into a number of shares of the Company’s common stock equal to the $1,000 liquidation preference plus accumulated and unpaid dividends divided by $15.70, subject to certain adjustments in the event of stock splits, stock dividends and other similar capital changes.

In connection with the private placement of these preferred shares, the Company granted Carter Validus a right of first refusal in the event that the Company intends to (i) sell or otherwise transfer any of the Company’s properties or (ii) engage in a transaction that would result in a change of control of the Company, other than an initial public offering of the Company’s common stock. This right of first refusal will terminate upon redemption of all Series B Preferred Stock held by Carter Validus (including a mandatory redemption upon completion of an initial public offering of the Company’s common stock) or otherwise when Carter Validus no longer owns any Series B Preferred Stock.

F-22

Common Stock Dividends

On December 9, 2015, the Board of Directors declared a cash dividend of $0.30 per share, comprised of a regular quarterly dividend of $0.21 per share and an additional special dividend of $0.09 per share. The dividend was paid on January 14, 2016 to stockholders of record on December 31, 2015.

On April 28, 2016, the Board of Directors declared a cash dividend of $0.21 per share for the period from January 1, 2016 to March 31, 2016. The dividend will be paid on May 19, 2016 to stockholders of record on May 10, 2016.

Distributions to noncontrolling interest

Distributions in 2016 to the noncontrolling interest holder in the Lakeway Partnership were $0.9 million through the date the consolidated financial statements were available to be issued.

10.

Earnings per Share

The Company applies the two-class method for determining earnings per common share as its outstanding restricted common stock with non-forfeitable dividend rights are considered participating securities. The following table sets forth the computation of earnings per common share for the three months ended March 31, 2016 and 2015 (amounts in thousands, except per share amounts):


	For the three months ended March 31, 2016			For the three months ended March 31, 2015
Numerator:
Net income	$	4,851		$	737
Less: Net (income) loss attributable to noncontrolling interest		(1,355	)		15
Less: Dividends on preferred shares		(2,465	)		(440	)

Net income attributable to common stockholders		1,031			312
Less: Allocation to participating securities		—			(25	)

Net income available to common stockholders	$	1,031		$	287

Denominator
Basic weighted-average common shares		10,959			10,945
Dilutive potential common shares		95			—

Diluted weighted-average common shares		11,054			10,945

Basic and diluted earnings per common share	$	0.09		$	0.03

The effects of restricted stock units outstanding were excluded from the calculation of diluted income per share for the three months ended March 31, 2016 because their effects were not dilutive. The effects of restricted shares of common stock and restricted stock units outstanding were excluded from the calculation of diluted income per share for the three months ended March 31, 2015 because their effects were not dilutive.

11.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, receivables and payables are reasonable estimates of their fair value as of March 31, 2016 due to their short-term nature. The fair value of the Company’s mortgage and other notes receivable as of March 31, 2016 is estimated by using Level 2 inputs such as discounting the estimated future cash flows using current market rates for similar loans that would be made to borrowers with similar credit ratings and for the same remaining maturities.

F-23

At March 31, 2016, the Company’s indebtedness was comprised of borrowings under the Credit Facility that bear interest at LIBOR plus a margin. The fair value of borrowings on the Credit Facility is considered to be equivalent to their carrying value.

12.

Subsequent Events

Subsequent events have been evaluated through April 29, 2016, the date the consolidated financial statements were available to be issued.

F-24

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

MedEquities Realty Trust, Inc.:

We have audited the accompanying consolidated balance sheets of MedEquities Realty Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, equity, and cash flows for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014. In connection with our audits of the consolidated financial statements, we have audited financial statement schedule III, real estate and accumulated depreciation, and schedule IV, mortgage loans on real estate. These consolidated financial statements and financial statement schedules III and IV are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules III and IV based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MedEquities Realty Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule III, real estate and accumulated depreciation, and schedule IV, mortgage loans on real estate, when considered in relation to the basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Atlanta, Georgia

April 7, 2016 except for Note 4,

as to which the date is May 3, 2016

F-25

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except per share amounts)


	December 31, 2015			December 31, 2014
Assets
Real estate properties
Land	$	40,081		$	7,107
Building and improvements and intangible lease assets		462,371			106,061
Furniture, fixtures, and equipment		2,401			—
Less accumulated depreciation and amortization		(11,172	)		(1,268	)

Total real estate properties, net		493,681			111,900
Mortgage notes receivable, net		9,909			77,727
Note receivable		500			2,481
Cash and cash equivalents		12,474			10,493
Other assets, net		27,103			8,432

Total Assets	$	543,667		$	211,033

Liabilities and Equity
Liabilities
Debt	$	247,400		$	50,000
Accounts payable and accrued liabilities		21,102			10,204
Deferred revenue		3,920			952

Total liabilities		272,422			61,156

Commitments and contingencies
Equity
Preferred stock, $0.01 par value. Authorized 50,000 shares; 125 shares issued and outstanding at December 31, 2015; no shares issued and outstanding at December 31, 2014		1			—
Common stock, $0.01 par value. Authorized 400,000 shares; 11,233 and 11,075 issued and outstanding at December 31, 2015 and December 31, 2014, respectively		109			109
Additional paid in capital		273,740			151,991
Dividends declared		(19,876	)		(2,246	)
Retained earnings		12,724			23

Total MedEquities Realty Trust, Inc. stockholders’ equity		266,698			149,877
Noncontrolling interest		4,547			—

Total Equity		271,245			149,877

Total Liabilities and Equity	$	543,667		$	211,033

See accompanying notes to interim consolidated financial statements.

F-26

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)


	For the year ended December 31, 2015			Period from April 23, 2014 (inception) to December 31, 2014
Revenues
Rental income	$	41,484		$	4,316
Interest on mortgage notes receivable		2,717			1,078
Interest on notes receivable		237			53

Total revenues		44,438			5,447
Expenses
Depreciation and amortization		9,969			1,273
Property related		1,205			308
Acquisition costs		417			192
Start-up costs		—			888
Franchise, excise and other taxes		338			72
General and administrative		8,628			2,391

Total operating expenses		20,557			5,124

Operating income		23,881			323

Other income (expense)
Interest and other income		12			17
Interest expense		(7,163	)		(317	)

		(7,151	)		(300	)

Net income		16,730			23
Less: Preferred stock dividends		(7,835	)		—
Less: Net income attributable to noncontrolling interest		(4,029	)		—

Net income attributable to common stockholders	$	4,866		$	23


Net income (loss) attributable to common stockholders per share
Basic and diluted	$	0.42		$	(0.00	)

Weighted average shares outstanding
Basic and diluted		10,948			10,918

Dividends declared per common share	$	0.85		$	0.20

See accompanying notes to interim consolidated financial statements.

F-27

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

For the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014

(Amounts in thousands)


	Series A Preferred Stock				Series B Preferred Stock				Common Stock
	Shares		Par Value		Shares		Par Value		Shares			Par Value		Additional Paid-In Capital			Retained Earnings		Dividends Declared			Non-controlling interest			Total Equity
Balance at April 23, 2014 (inception)		—	$	—		—	$	—		—		$	—	$	—		$	—	$	—		$	—		$	—
Issuance of common stock, net of costs		—		—		—		—		11,076			109		151,549			—		—			—			151,658
Common stock redemption		—		—		—		—		(1	)		—		(1	)		—		—			—			(1	)
Stock-based compensation		—		—		—		—		—			—		443			—		—			—			443
Net income		—		—		—		—		—			—		—			23		—			—			23
Dividends to common stockholders		—		—		—		—		—			—		—			—		(2,246	)		—			(2,246	)

Balance at December 31, 2014		—	$	—		—	$	—		11,075		$	109	$	151,991		$	23	$	(2,246	)	$	—		$	149,877
Issuance of preferred stock, net of costs		—		—		125		1		—			—		119,954			—		—			—			119,955
Issuance of common stock, net of costs		—		—		—		—		158			—		—			—		—						—
Investment in subsidiary by noncontrolling interest		—		—		—		—		—			—		—			—		—			1,000			1,000
Distributions to noncontrolling interest		—		—		—		—		—			—		—			—		—			(482	)		(482	)
Stock-based compensation		—		—		—		—		—			—		1,795			—		—			—			1,795
Net income		—		—		—		—		—			—		—			12,701		—			4,029			16,730
Dividends to preferred stockholders		—		—		—		—		—			—		—			—		(7,835	)		—			(7,835	)
Dividends to common stockholders		—		—		—		—		—			—		—			—		(9,795	)		—			(9,795	)

Balance at December 31, 2015		—	$	—		125	$	1		11,233		$	109	$	273,740		$	12,724	$	(19,876	)	$	4,547		$	271,245

See accompanying notes to interim consolidated financial statements.

F-28

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)


	For the year ended December 31, 2015			For the period from April 23, 2014 (inception) to December 31, 2014
Operating activities
Net income	$	16,730		$	23
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		11,871			1,448
Stock-based compensation		1,795			443
Straight-line rent receivable		(9,523	)		(394	)
Straight-line rent liability		171			47
Changes in operating assets and liabilities
Other assets		(5,222	)		(1,997	)
Accounts payable and accrued liabilities		4,117			1,069
Deferred revenues		2,968			952

Net cash provided by operating activities		22,907			1,591
Investing activities
Acquisitions of real estate		(317,872	)		(108,423	)
Funding of mortgage notes receivable		—			(77,720	)
Funding of note receivable		(500	)		(2,481	)
Capitalized pre-acquisition costs, net		(749	)		(592	)
Capital expenditures		(291	)		(47	)

Net cash used in investing activities		(319,412	)		(189,263	)
Financing activities
Net borrowings on secured credit facility		197,400			50,000
Proceeds from sale of preferred shares, net of offering costs		119,955			—
Contributions by noncontrolling interest		1,000			—
Proceeds from sale of common shares, net of offering costs		—			151,657
Distributions to noncontrolling interest		(482	)		—
Deferred credit facility fees		(2,406	)		(2,381	)
Capitalized pre-offering costs		(2,491	)		(226	)
Dividends paid to preferred stockholders		(7,007	)		—
Dividends paid to common stockholders		(7,483	)		(885	)

Net cash provided by financing activities		298,486			198,165

Increase in cash and cash equivalents		1,981			10,493
Cash and cash equivalents, beginning of period		10,493			—

Cash and cash equivalents, end of period	$	12,474		$	10,493

See accompanying notes to interim consolidated financial statements.

F-29

MEDEQUITIES REALTY TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.	Organization and Nature of Business

MedEquities Realty Trust, Inc. (the “Company”), which was incorporated in the state of Maryland on April 23, 2014, is a self-managed and self-administered company that invests in a diversified mix of healthcare properties and healthcare-related real estate debt investments. During July and August 2014, the Company completed initial private placements of $163.9 million of its common stock receiving net proceeds, after purchase/placement agent discounts and fees and certain offering expenses, of approximately $151.7 million. The Company commenced operations on July 31, 2014 and had no predecessor entity.

The Company’s investment focus is primarily on the following types of healthcare properties: acute care hospitals, short stay surgical and specialty hospitals (such as those focusing on orthopedic, heart, and other dedicated surgeries and specialty procedures), dedicated specialty hospitals (such as inpatient rehabilitation, long-term acute care hospitals and facilities providing psychiatric care), skilled nursing facilities, large and prominent physician clinics, diagnostic facilities, outpatient surgery centers and facilities that support these services, such as medical office buildings. As of December 31, 2015, the Company had investments of $504 million, net in 24 real estate properties with an aggregate of 1,148,281 square feet and one mortgage note receivable.

While the Company’s preferred form of investment is fee ownership of a facility with a long-term triple-net lease with the healthcare provider or operator, the Company also may provide debt financing to healthcare providers, typically in the form of mortgage or mezzanine loans. In addition, the Company may provide capital to finance the development of healthcare properties, which the Company may use as a pathway to the ultimate acquisition of pre-leased properties by including purchase options or rights of first offer in loan agreements.

The Company conducts its business through an umbrella partnership REIT, or UPREIT, structure, consisting of the Company’s operating partnership, MedEquities Realty Operating Partnership, LP (the “Operating Partnership”), and subsidiaries of the Operating Partnership, including the Company’s taxable REIT subsidiary (“TRS”), MedEquities Realty TRS, LLC. The Company’s wholly owned limited liability company, MedEquities OP GP, LLC, is the sole general partner of the Operating Partnership, and the Company presently owns all of the limited partnership units of the Operating Partnership (“OP units”). In the future, the Company may issue OP units to third parties in connection with healthcare property acquisitions, as compensation or otherwise.

Holders of OP units, other than the Company, will, after a one-year holding period, subject to earlier redemption in certain circumstances, be able to tender their OP units for redemption for a cash amount equal to the then-current value of the Company’s common stock or, at the Company’s option, for shares of the Company’s common stock on a one-for-one basis, subject to adjustments for stock splits, dividends, recapitalizations and similar events. Holders of OP units will receive distributions equivalent to the dividends the Company pays to holders of the Company’s common stock, but holders of OP units will have no voting rights, except in certain limited circumstances. As the sole owner of the general partner of the Operating Partnership, the Company has the exclusive power to manage and conduct the Operating Partnership’s business, subject to certain limitations.

F-30

2.	Summary of Significant Accounting Policies

Use of Estimates: The preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expense reported in the period. Significant estimates are made for the valuation of real estate and intangibles and fair value assessments with respect to purchase price allocations. Actual results may differ from those estimates.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries and subsidiaries in which we have a controlling interest. All material intercompany transactions and balances have been eliminated in consolidation. There are no material differences between the Company and the Operating Partnership as of December 31, 2015.

Noncontrolling Interest : The portion of equity not owned by the Company in entities controlled by the Company, and thus consolidated, is presented as noncontrolling interest and classified as a component of consolidated equity, separate from total stockholders’ equity on the Company’s consolidated balance sheets. The amount recorded will be based on the noncontrolling interest holder’s initial investment in the consolidated entity, adjusted to reflect the noncontrolling interest holder’s share of earnings or losses in the consolidated entity and any distributions received or additional contributions made by the noncontrolling interest holder. The earnings or losses from the entity attributable to noncontrolling interests are reflected in “net income attributable to noncontrolling interest” in the consolidated statements of income.

Segment Reporting: The Company owns, acquires, and finances healthcare-related properties. The Company is managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore the Company discloses its operating results in a single reportable segment.

Cash and Cash Equivalents: Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. The majority of the Company’s cash and cash equivalents are held at major commercial banks which at times may exceed the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses to date on invested cash.

Restricted Cash: Restricted cash consists of amounts funded by tenants and held by the Company for payment of costs and expenses associated with capital improvements, repairs and replacements to be performed at certain of the Company’s facilities. As of December 31, 2015 and December 31, 2014, the restricted cash balance was approximately $0.1 million and less than $0.1 million, respectively, and is included in Other Assets on the Company’s consolidated balance sheet.

F-31

Revenue Recognition: Leases of Real Estate Properties

At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. Currently, all of the Company’s lease arrangements are classified as operating leases. Rental revenue for operating leases is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If the Company’s assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of revenue recognized would be impacted.

The Company maintains an allowance for doubtful accounts, including an allowance for operating lease straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. The Company monitors the liquidity and creditworthiness of tenants and operators on a continuous basis. This evaluation considers industry and economic conditions, property performance, credit enhancements and other factors. For straight-line rent amounts, the Company’s assessment is based on income recoverable over the term of the lease. The Company exercises judgment in establishing allowances and considers payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to the consolidated financial statements. At December 31, 2015 and December 31, 2014, the Company had no allowance for doubtful accounts.

The Company’s leases are generally “triple-net” leases with terms requiring operating expenses associated with the Company’s facilities, such as taxes, insurance and utilities, to be paid directly by the Company’s tenants. Failure by a tenant to pay such expenses, or to pay late, would result in a violation of the lease agreement, which could lead to an event of default if not cured timely.

Leases in the medical office building owned by the Company require tenants to make estimated payments to the Company to cover their proportional share of operating expenses, including, but not limited to, real estate taxes, property insurance, routine maintenance and repairs, utilities, and property management expenses. The Company collects these estimated expenses and is reimbursed by tenants for any actual expense in excess of estimates or reimburses tenants if collected estimates exceed actual operating results. The reimbursements are recorded in rental income as operating expense recoveries, and the expenses are recorded in property-related expenses, as the Company is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the credit risk. For the year ended December 31, 2015, the Company reported operating expense recoveries, primarily related to its one medical office building, totaling $0.8 million, which is included in rental income on the consolidated statement of income. For the period from April 23, 2014 to December 31, 2014, the Company reported operating expense recoveries totaling approximately $0.2 million.

Revenue Recognition: Mortgage Notes and Other Receivables

Mortgage notes receivable are classified as held-for-investment based on management’s intent and ability to hold the mortgage notes receivable for the foreseeable future or to maturity. The Company recognizes interest income on mortgage notes receivable, including the amortization of any discounts and premiums, using the interest method applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Premiums, discounts and related costs are recognized as yield adjustments over the term of the related loans.

Mortgage notes receivable are placed on non-accrual status at such time as management determines that collectability of contractual amounts is not reasonably assured. While on non-accrual status, mortgage notes

F-32

receivable are either accounted for on a cash basis, in which income is recognized only upon receipt of cash, or on a cost-recovery basis, where cash receipts reduce the carrying value of the loan, based on management’s judgment of collectability. No mortgage notes receivable are currently on non-accrual status.

Allowances are established for loans based upon an estimate of probable losses on an individual basis if they are determined to be impaired. Loans are impaired when it is deemed probable that the Company will be unable to collect all amounts due on a timely basis in accordance with the contractual terms of the loan. The allowance is based upon management’s assessment of the borrower’s overall financial condition, resources and payment record; the prospects for support from any financially responsible guarantors; and, if appropriate, the net realizable value of any collateral. These estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at the loan’s effective interest rate, the fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors. At December 31, 2015 and December 31, 2014, the Company had no allowance for loan losses.

Commitment, origination and other fees from lending activities are recognized as interest income over the life of the loan.

Allocation of Purchase Price of Acquired Real Estate : As part of the purchase price allocation process of acquisitions (whether an asset acquisition acquired via purchase/leaseback or a business combination via an asset acquired from the current lessor), management makes estimates based upon the relative fair values of each component for asset acquisitions and at a fair value of each component for business combinations. In making estimates of fair values for purposes of allocating purchase prices of acquired real estate, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of the Company’s pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the assets acquired.

The Company records above-market and below-market in-place lease values, if any, for its facilities, which are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, or, for below-market in-place leases, including any bargain renewal option terms. The Company amortizes any resulting capitalized above-market lease values as a reduction of rental income over the lease term. The Company amortizes any resulting capitalized below-market lease values as an increase to rental income over the lease term. As of December 31, 2015, the Company did not have any above-market or below-market in-place leases; however, purchase price allocations for the Kearny Mesa and Vibra Rehabilitation Hospital of Amarillo real estate acquisitions completed during the fourth quarter of 2015 are in process.

The Company amortizes the value of in-place leases to amortization expense over the initial term of the respective leases. If a lease is terminated, the unamortized portion of the in-place lease value is charged to amortization expense.

Depreciation and amortization of real estate assets and liabilities is provided for on a straight-line basis over the assets estimated useful life:


Building			25 to 50 years
Improvements			2.7 to 47 years
Lease intangibles			2.7 to 15 years
Furniture, fixtures, and equipment			10 to 14 years

F-33

Asset Impairment: Real Estate Properties

Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that the Company will dispose of the property and the criteria is met for the property to be classified as held-for-sale. In determining the fair value, the Company uses current appraisals or other third party opinions of value and other estimates of fair value such as estimated discounted future cash flows.

Asset Impairment: Mortgage Notes and Other Receivables

The Company evaluates the carrying value of mortgage notes receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage note receivable when events or circumstances, such as non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that the Company will be unable to collect all the contractual interest and principal payments as scheduled in the mortgage note agreement. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage note receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.

Earnings Per Share: Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted number of shares of common stock outstanding during the period. Diluted earnings per common share is calculated by including the effect of dilutive securities.

Certain of the Company’s unvested restricted stock awards contain non-forfeitable rights to dividends, and accordingly, these awards are deemed to be participating securities. These participating securities are included in the earnings allocation in computing both basic and diluted earnings per common share.

Income Taxes : Commencing with its short taxable year ended December 31, 2014, the Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company intends at all times to maintain its qualification as a REIT under Sections 856 through 860 of the Code. The Company has elected that its subsidiary, MedEquities Realty TRS, LLC, be taxed as a TRS under provisions of the Code. A TRS is subject to federal and state income taxes like those applicable to regular corporations. Aside from such income taxes that may be applicable to the taxable income in the Company’s TRS, the Company will not be subject to federal income tax provided that the Company continues to qualify as a REIT and makes distributions to stockholders equal to or in excess of the Company’s taxable income.

The Company’s federal tax return for the short taxable year ended December 31, 2014 year is currently subject to examination by taxing authorities. The Company classifies interest and penalties related to uncertain tax positions, if any, in the Company’s consolidated financial statements as a component of income tax expense. The Company has made no U.S. federal income tax payments.

Stock-Based Compensation: The fair value of stock-based awards is calculated on the date of grant. The Company amortizes the stock-based compensation expense on a straight-line basis over the period that the awards are expected to vest, net of any forfeitures. See Note 6 for further discussion.

Deferred Costs: Costs incurred prior to the completion of offerings of stock or other capital instruments that directly relate to the offering are deferred and netted against proceeds received from the offering.

Fair Value Measurement: Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. In calculating fair value, a company must maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements.

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A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

•

Level 1 — quoted prices for identical instruments in active markets;

•

Level 2 — quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•

Level 3 — fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or 3 even though there may be some significant inputs that are readily observable. Valuation techniques used by the Company include the use of third-party valuations and internal valuations, which may include discounted cash flow and Monte Carlo valuation models. For the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014, the Company has recorded all acquisitions and business combinations based on our estimated fair values. The fair values were obtained from third-party appraisals based on comparable properties (using the market approach, which involved Level 3 inputs in the fair value hierarchy).

Accumulated Other Comprehensive Income: Certain items must be included in comprehensive income, including items such as foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains or losses on available-for-sale securities. Through December 31, 2015, the Company had no items included in other comprehensive income.

Recent Accounting Developments: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” a comprehensive new revenue recognition standard that supersedes most all existing revenue recognition guidance. This standard’s core principle is that a company will recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. However, leasing contracts, representing the major source of the Company’s revenues, are not within the scope of the new standard and will continue to be accounted for under existing standards. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” which deferred the effective date of this standard by one year. This standard is effective for public companies beginning after December 15, 2017 and interim periods therein for public companies. Nonpublic companies would be required to adopt the standard beginning January 1, 2019 and interim periods beginning January 1, 2020. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The effects of this standard on the Company’s financial position, results of operations and cash flows are not yet known.

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entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The Company adopted this standard on January 1, 2015, which did not have a significant impact on the Company’s consolidated financial position or results of operations.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” The amendments in this ASU require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer will be required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Entities will also be required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The ASU requires the prospective application of the amendments for adjustments to provisional amounts that occur after its effective date. The guidance is effective beginning January 1, 2016. The Company is evaluating this guidance but does not expect its adoption to have a significant impact of the Company’s consolidated financial position or results of operations.

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3.	Real Estate and Mortgage Notes Receivable

Real Estate Investments

2015 Real Estate Acquisitions

A summary of the purchase price allocations for the Company’s real estate investment activity for the year ended December 31, 2015 is as follows (dollars in thousands). The purchase price allocations for the Kearny Mesa and Vibra Rehabilitation Hospital of Amarillo real estate acquisitions completed during 2015 are in process.


	For the year ended December 31, 2015
Land	$	32,975
Buildings and improvements		356,207
Intangible lease assets		103
Furniture, fixtures, and equipment		2,401

Total real estate properties		391,686
Foreclosed mortgage note receivable		(50,000	)
Conversion of mortgage note receivable		(18,000	)
Kearny Mesa earn-out		(10,000	)

Total cash paid	$	313,686

During the year ended December 31, 2015, the Company completed the following real estate transactions:

•

On February 3, 2015, the Company acquired Lakeway Regional Medical Center (“Lakeway Hospital”), through a negotiated, non-judicial foreclosure and payment of an additional $25.0 million in cash consideration, for a total investment of $75.0 million. Lakeway Hospital, which opened in April 2012, is a 270,512 square-foot acute care hospital located in Lakeway, Texas, a suburb of Austin. The Company initially acquired a note receivable for $50.0 million on December 29, 2014, which had an outstanding principal balance of approximately $163.9 million and was secured by a first mortgage lien on Lakeway Hospital. The operator of the facility defaulted on debt service payments under the note in 2013, and the U.S. Department of Housing and Urban Development held an auction in December 2014 through which the Company acquired the mortgage note.

The Company owns the facility through a consolidated partnership (the “Lakeway Partnership”), which, based on a total equity cash contribution of $2.0 million, is owned 51% by the Company and 49% by an entity that is owned indirectly by physicians who have relocated their practices to Lakeway Hospital and a non-physician investor. The partnership was formed on March 20, 2015. The Company’s equity contribution to the Lakeway Partnership was $1.0 million, and the Company’s transfer of the original $50.0 million note and $23.0 million of cash to the Lakeway Partnership is structured as an intercompany $73.0 million loan (the “Lakeway Intercompany Mortgage Loan”) to the Lakeway Partnership that is secured by a first mortgage lien on Lakeway Hospital. The Lakeway Intercompany Mortgage Loan has a ten-year term and requires payments of principal and interest at a rate of 8.0% per annum based on a 25-year amortization schedule. The interest rate on the Lakeway Intercompany Mortgage Loan will reset after five years based upon then-current market rates. As of December 31, 2015, the Lakeway Intercompany Mortgage Loan had an outstanding principal balance of $72.7 million. Lakeway Hospital is leased to Lakeway Regional Medical Center, LLC (the “Lakeway Operator”), pursuant to a non-cancelable 25-year triple-net lease. The initial annual base rent under the lease is approximately $12.8 million. This transaction was accounted for as an asset acquisition and approximately $0.1 million of transaction costs were capitalized.

In addition, in connection with the acquisition of Lakeway Hospital, the Company assumed the seller’s rights as lessor under the ground lease for the medical office building that is a part of Lakeway

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Hospital. The ground lease expires on October 1, 2061, subject to two ten-year extension options, and provides for annual base rent to the Lakeway Partnership of approximately $0.2 million, which will increase each year by 3.0% of the prior year’s base rent.

•

On February 20, 2015, the Company acquired Mira Vista Court, a 142-bed skilled nursing facility located in Fort Worth, Texas, for an aggregate purchase price of $16.0 million. The property is 100% leased pursuant to a 12-year initial term triple-net lease that expires in February 2027. This transaction was accounted for as a business combination.

•

On March 31, 2015, the Company acquired a portfolio of four skilled nursing facilities and one assisted living facility (collectively, together with Kearny Mesa, the “Life Generations Portfolio”) that contains an aggregate of 429 licensed beds and approximately 154,199 square feet located in California for an aggregate purchase price of $80.0 million from Life Generations Healthcare (“Life Generations”), with the option to purchase Kearny Mesa, a 96-bed and approximately 26,950 square-foot skilled nursing facility located in San Diego, California, for $15.0 million plus an earn-out of up to $10.0 million, with the earn-out amount contingent upon Kearny Mesa’s achievement of certain performance thresholds relating to the earnings before interest, taxes, depreciation, amortization, rent and management fees (“EBITDARM”) for 2015 and 2016. The Company completed the acquisition of Kearny Mesa on October 1, 2015. The Life Generations Portfolio is 100% leased pursuant to a 15-year initial term triple-net master lease that commenced on April 1, 2015 to affiliates of Life Generations, and was amended on October 1, 2015 for the acquisition of Kearny Mesa. Base rent under the master lease is $8.3 million, or 8.75% of the initial $95.0 million purchase price, which will increase by 8.75% of the amount of the $10.0 million earn-out that the Company ultimately pays to Life Generations in the second quarters of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively. As part of the amended master lease, the Company agreed to provide up to $2.0 million for certain renovations and improvements (all subject to pre-approval by the Company) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement must be made by October 1, 2016, and no advances had been made as of December 31, 2015. Annual base rent will be increased by 8.75% of any advances made under this arrangement. The acquisition of the Life Generations Portfolio was accounted for as an asset acquisition and approximately $1.7 million of transaction costs were capitalized.

•

On March 31, 2015, the Company acquired Mountain’s Edge Hospital, a 72,140 square-foot acute care hospital located in Las Vegas, Nevada, for an aggregate gross purchase price of $35.4 million, which includes a tenant allowance included in other assets on the Company’s consolidated balance sheet of $5.7 million, net that the Company has provided to the tenant for certain furniture, fixtures and equipment at the facility. This property is 100% leased pursuant to a 15-year initial term triple-net lease. This transaction was accounted for as an asset acquisition and less than $0.1 million of transaction costs were capitalized.

•

On July 30, 2015, the Company completed the acquisition of nine properties in a portfolio of ten skilled nursing facilities located throughout Texas that contain an aggregate 1,142 licensed beds and approximately 339,733 square feet. The aggregate gross purchase price for the nine facilities was $133.4 million, which was funded primarily with borrowings under the Company’s secured revolving credit facility. The tenth facility in this portfolio (collectively, the “Texas SNF Portfolio”), which is located in Graham, Texas and has 117 licensed beds and approximately 32,391 square feet, was acquired on October 2, 2015 for $11.6 million, resulting in an aggregate gross purchase price of $145.0 million for the Texas SNF Portfolio. This transaction was accounted for as an asset acquisition and approximately $0.1 million of transaction costs were capitalized.

The aggregate gross purchase price includes $12.0 million of refundable contingent consideration, $3.0 million of which will become fully earned and non-forfeitable on January 1 of each year through 2019, subject to the tenants’ compliance with certain financial covenants under the master lease agreement and other provisions in the purchase and sale agreement on such dates. If any of the

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refundable contingent consideration has not been earned by January 1, 2019, the tenants will have until January 1, 2020 to achieve compliance with all of the applicable financial covenants and earn such remaining refundable contingent consideration. If the tenants have not achieved such compliance by January 1, 2020, the seller must repay to the Company any refundable contingent consideration that has not been earned, together with interest, at a rate of 3.0% per annum, from the closing date of the acquisition to January 1, 2020. As of the date the consolidated financial statements were available to be issued, none of the $12.0 million of refundable contingent consideration had been earned.

The Company leases the facilities to wholly owned subsidiaries of GruenePointe Holdings, LLC (“GruenePointe”) pursuant to an absolute triple-net master lease with a non-cancelable 15-year term with two five-year extension options. Initial base rent under the master lease is approximately $12.3 million, or 8.5% of the $145.0 million aggregate purchase price of the Texas SNF Portfolio. The annual base rent will increase each year by 2.0% of the prior year’s base rent. The annual rent will not decrease in the event that GruenePointe is required to repay any portion of the refundable contingent consideration.

In addition to the base rent, commencing in the second year of the lease, the master lease provides for additional rent equal to 20% of the amount by which the aggregate gross patient care revenues (i.e., gross revenues less supplemental management fees) of four of the facilities—located in the cities of Brownwood, Graham, San Antonio, and Kerens, Texas with an aggregate 412 licensed beds—exceed the aggregate gross patient care revenues of such facilities in the first year of the master lease, until the aggregate rent under the master lease for these four facilities equals 10.0% of the portion of the $145.0 million gross purchase price allocated to these facilities, subject to increases pursuant to the annual rent escalator.

•

On October 1, 2015, the Company completed the acquisition of Vibra Rehabilitation Hospital of Amarillo, a 44-bed inpatient rehabilitation hospital located in Amarillo, Texas, for a purchase price of $19.4 million, pursuant to the exercise of its exclusive right to purchase the property contained in the Company’s $18.0 million mortgage note receivable. The purchase price was determined by dividing the facility’s trailing 12-month earnings before interest, taxes, depreciation, amortization and rent expense (“EBITDAR”) of the facility and a 1.5 times rent coverage at an initial lease rate of 8.75%, which was specified in the purchase option. The $18.0 million in principal outstanding on the mortgage note receivable was applied to the purchase price, resulting in an additional cash expenditure of approximately $1.4 million to acquire the property. Upon conversion of the mortgage note, the Company recognized the remaining origination fee on the mortgage note totaling $0.2 million as mortgage interest income. This transaction was accounted for as a business combination.

The facility is 100% leased pursuant to a triple-net lease to a wholly owned subsidiary of Vibra Healthcare with an initial 15-year term and three five-year extension options. The initial annual base rent under the lease is approximately $1.7 million, or 8.75% of the $19.4 million purchase price. The annual rent will increase each year by 3.0% of the prior year’s rent.

The purchase price allocations attributable to the Kearny Mesa and Vibra Rehabilitation Hospital of Amarillo acquisitions are preliminary as the valuations for each of the acquisitions is still in progress. The preliminary allocations on these properties are comprised of $4.6 million in land and $39.9 million in building and improvements. When all relevant information is obtained, any resulting changes to the preliminary purchase price allocations will be adjusted to reflect the new information obtained about the facts and circumstances that existed as of the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates.

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2014 Real Estate Investments

A summary of the purchase price allocations for the Company’s real estate investment activity for period from April 23, 2014 (inception) to December 31, 2014 is as follows (dollars in thousands):


	For the period from April 23, 2014 (inception) to December 31, 2014
Land	$	7,107
Buildings and improvements		102,723
Intangible lease assets		3,338

Total real estate properties		113,168
Mortgage notes receivable acquired/originated, net		77,720
Other assets acquired		27

Total assets acquired/originated	$	190,915
Accrued liabilities assumed		7,000

Total cash paid	$	183,915

During period from April 23, 2014 (inception) to December 31, 2014, the Company completed the following real estate transactions:

On August 1, 2014, the Company acquired the following properties:

•

Kentfield Rehabilitation and Specialty Hospital, a long-term acute care hospital located in Kentfield, California, in a sale-leaseback transaction for $58.0 million. The purchase price includes $7.0 million that the Company agreed to pay the seller/tenant to fund ongoing renovations. Approximately $2.2 million of this amount had been paid through December 31, 2014, which is included in the acquisitions of real estate line item in the investing activities section of the consolidated statement of cash flows. The unfunded amount of $4.8 million at December 31, 2014 is included in accrued liabilities on the consolidated balance sheet as of December 31, 2014 and was paid to the seller/tenant in 2015. This transaction was accounted for as an asset acquisition. The property is 100% leased pursuant to a 15-year initial term triple-net lease that expires in December 2029. In connection with this transaction, the Company collected a transaction structuring and closing fee of approximately $0.6 million, which is recorded as deferred revenue on the Company’s consolidated balance sheets at December 31, 2015 and 2014.

•

Horizon Specialty Hospital of Henderson, a long-term acute care hospital located in Las Vegas, Nevada, for $20.0 million. The property is 100% leased pursuant to a 15-year initial term triple-net lease that expires in July 2029. This transaction was accounted for as a business combination.

•

Magnolia Place of Spartanburg, a skilled nursing facility located in Spartanburg, South Carolina, for $20.0 million. The property is 100% leased pursuant to a 12-year initial term triple-net lease that expires in July 2026. This transaction was accounted for as a business combination.

On September 19, 2014, the Company acquired North Brownsville Medical Plaza, a medical office building located in Brownsville, Texas, for $15.1 million that was 83% leased with a weighted-average remaining lease term of approximately 3.3 years as of the date of acquisition. The property is subject to a ground lease that the Company assumed in connection with the acquisition. The ground lease expires in 2081, subject to two ten-year extension options, and required annual base rent of approximately $0.2 million for 2014 and 2015, which will increase each year by 2.0% of the prior year’s annual base rent. This transaction was accounted for as a business combination.

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Mortgage Notes Receivable

Also on August 1, 2014, the Company originated the following mortgage notes receivable:

•

An $18.0 million mortgage note receivable secured by Vibra Rehabilitation Hospital of Amarillo, Texas, which was subsequently acquired by the Company in October 2015 through the exercise of the purchase option contained in the mortgage note agreement. The loan bore interest at 9.0%. As part of this transaction, the Company received a fee from the borrower of 1% of the principal balance, which is included as part of the loan balance on the consolidated balance sheet at December 31, 2014.

•

A $10.0 million mortgage note receivable secured by a rehabilitation hospital in Springfield, Massachusetts. The loan bears interest at 9.0% for the first five years, after which it converts to a 15-year amortizing loan requiring payments of principal and interest. As part of this transaction, the Company received a fee from the borrower of 1% of the principal balance, which is included in the consolidated balance sheets as part of the loan balance. The mortgage note receivable may be prepaid during the initial five-year term only if an affiliate of the tenant enters into a replacement asset transaction with the Company equal to or exceeding $25.0 million in value.

On December 29, 2014, the Company acquired for $50.0 million a mortgage note receivable with an outstanding principal balance of approximately $163.9 million secured by a first lien mortgage on Lakeway Hospital. As described above, the Company obtained fee simple ownership of Lakeway Hospital on February 3, 2015 through a negotiated, non-judicial foreclosure.

Intangible Assets

The following is a summary of the carrying amount of intangible assets as of December 31, 2015 and December 31, 2014 (dollars in thousands):


	2015							2014							Weighted Average Life (Years)
	Gross Intangibles		Accumulated Amortization			Net Intangibles		Gross Intangibles		Accumulated Amortization			Net Intangibles		Weighted Average Life (Years)
In-place leases	$	2,096	$	(512	)	$	1,584	$	1,993	$	(119	)	$	1,874		8.1
Leasing commissions		1,294		(228	)		1,066		1,294		(58	)		1,236		10.3
Legal/marketing fees		51		(11	)		40		51		(3	)		48		8.9

	$	3,441	$	(751	)	$	2,690	$	3,338	$	(180	)	$	3,158		9.0

The Company recorded amortization expense related to intangible lease assets of approximately $0.6 million and $0.2 million for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014, respectively.

The following table represents expected amortization of existing lease intangible assets at December 31, 2015 (dollars in thousands):


For the year ended December 31:
2016	$	576
2017		545
2018		177
2019		157
2020		157
Thereafter		1,078

Total	$	2,690

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Leasing Operations

Minimum rental payments due to the Company in future periods under operating leases for the Company’s properties that have non-cancelable terms extending beyond one year as of December 31, 2015, are as follows (dollars in thousands):


For the year ended December 31:
2016	$	53,020
2017		50,368
2018		49,851
2019		50,520
2020		51,384
Thereafter		752,967

Total	$	1,008,110

Concentrations of Credit Risks

The following table contains information regarding tenant concentration in the Company’s portfolio, based on the percentage of revenue for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014, related to tenants, or affiliated tenants, that exceed 10% of revenues.


	% of Total Revenue
	For the year ended December 31, 2015			For the period from April 23, 2014 (inception) to December 31, 2014
Lakeway Operator		34.1	%		—
Vibra Healthcare		18.1	%		59.8	%
Fundamental Healthcare		16.7	%		29.1	%
Life Generations Healthcare		13.1	%		—
GruenePointe Holdings		13.0	%		—

The following table contains information regarding the geographic concentration of the properties in the Company’s portfolio as of December 31, 2015 and December 31, 2014, which includes percentage of rental income for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014, respectively (dollars in thousands).


	Number of properties				Gross investment				% of Total Real Estate Property Investments						% of Rental Income
State	2015		2014		2015		2014		2015			2014			2015			2014
Texas		14		1	$	270,723	$	15,128		53.6	%		13.3	%		59.3	%		14.0	%
California ⁽¹⁾⁽²⁾		7		1		164,708		58,030		32.6	%		51.3	%		26.5	%		50.5	%
Nevada ⁽³⁾		2		1		49,422		20,010		9.8	%		17.7	%		9.5	%		16.6	%
South Carolina		1		1		20,000		20,000		4.0	%		17.7	%		4.7	%		18.9	%

		24		4	$	504,853	$	113,168		100.0	%		100.0	%		100.0	%		100.0	%

(1)	Gross investment includes $7.0 million paid to the seller/tenant of Kentfield Rehabilitation & Specialty Hospital to fund renovations. As of December 31, 2014, approximately $2.2 million of this amount had been paid. The remaining $4.8 million was paid during 2015.

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(2)	Gross investment in 2015 includes an earn-out of $10.0 million for Kearny Mesa that the Company expects to pay to the seller during the second quarter of 2016 and 2017 based on the EBITDARM of Kearny Mesa for 2015 and 2016, respectively.

(3)	Gross investment in 2015 excludes the $6.0 million tenant improvement allowance provided to the tenant. This amount is included in other assets on the consolidated balance sheet at December 31, 2015. The allowance is amortized against revenue over the 15-year term of the lease.

Debt

On July 30, 2015, the Company entered into an amended and restated $375 million secured revolving credit facility, which replaced the Company’s prior $200 million facility that was entered into on November 7, 2014. The credit facility includes an accordion feature that allows the total borrowing capacity under the credit facility to be increased to up to $600 million, subject to certain conditions, including obtaining additional commitments from lenders. Amounts outstanding under the amended and restated credit facility bear interest at LIBOR plus a margin between 2.75% and 3.75% or a base rate plus a margin between 1.75% and 2.75%, in each case depending on the Company’s leverage. Upon meeting certain conditions, including the completion of the initial public offering of the Company’s common stock, amounts outstanding under the credit facility will bear interest at LIBOR plus a margin between 2.00% and 2.50% or a base rate plus a margin between 1.00% and 1.50%, in each case depending on the Company’s leverage. The credit facility will mature in November 2016 and has three, 12-month extension options, subject to certain conditions, including the completion of the initial public offering of the Company’s common stock and lender approval. An extension fee of 0.15% will be required at each extension. As of April 29, 2016, the Company had received a commitment letter from each of the lenders under the Credit Facility to amend the Credit Facility to, among other things, reduce the total commitments from $375.0 million to $300.0 million, extend the maturity date to November 2017 and provide two 12-month extension options, subject to certain conditions, including the completion of the initial public offering of the Company’s common stock and payment of a 0.15% extension fee at each extension. The Company expects to pay a 0.25% fee in connection with the anticipated amendment, which will be amortized over the remaining term of the facility. The interest rate and accordion feature of the Credit Facility are not expected to change in connection with the anticipated amendment.

The Company incurred fees associated with amending and restating the credit facility of approximately $2.2 million, which will be amortized over the remaining term of the facility. The Company expensed in the third quarter of 2015 approximately $0.1 million of unamortized deferred financing costs related to the prior credit facility. The total amount of deferred financing costs included in Other Assets on the consolidated balance sheets at December 31, 2015 and 2014 totaled $3.7 million and $2.4 million, respectively. The Company recognized amortization expense of deferred financing costs, included in interest expense on the consolidated statements of income of $2.1 million and $0.2 million for the year ended December 31, 2015 and the period ended December 31, 2014, respectively.

Prior to amending and restating the credit facility, amounts outstanding under the credit facility bore interest at LIBOR plus a margin between 2.75% and 3.25% or a base rate plus a margin between 1.75% and 2.25%, in each case depending on the Company’s leverage. At December 31, 2015 and December 31, 2014, the weighted average interest rate under the credit facility was 3.5% and 2.9%, respectively. The credit facility includes an unused fee of 0.25% for usage greater than 50.0% and 0.35% for usage of 50.0% or less.

The amount available for the Company to borrow under the credit facility is limited according to a borrowing base valuation of certain real estate investments owned by subsidiaries of the Operating Partnership that secure this facility. At December 31, 2015 and April 7, 2016, the Company had $247.4 million outstanding under the credit facility and approximately $21.5 million of maximum additional available capacity, subject to continued compliance with the covenants under the facility. At December 31, 2014, the Company had $50.0 million outstanding under the credit facility. However, since the Company had not completed an initial public offering of its common stock by December 31, 2015, any additional draws under the credit facility require approval of the lenders representing at least 75% of the total commitments under the credit facility.

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The Company paid cash interest of approximately $5.1 million and $0.1 million related to the credit facility for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014, respectively.

Covenants

The credit facility contains customary financial and operating covenants, including covenants relating to the Company’s total leverage ratio, fixed charge coverage ratio, tangible net worth, minimum liquidity, maximum distribution/payout ratio and restrictions on recourse debt, secured debt and certain investments. The credit facility also contains customary events of default, including among others, nonpayment of principal or interest, material breach of representations and warranties, and failure to comply with covenants. Any event of default, if not cured or waived, could result in the acceleration of any outstanding indebtedness under the credit facility. The Company was in compliance with all covenants at December 31, 2015 and December 31, 2014.

5.	Other Assets

Items included in Other Assets on the Company’s consolidated balance sheets as of December 31, 2015 and December 31, 2014 are detailed in the table below (dollars in thousands):


	December 31, 2015		December 31, 2014
Straight-line rent receivables	$	9,917	$	394
Tenant allowance		5,736		—
Capitalized pre-offering costs		3,659		1,450
Deferred financing costs, net		2,521		2,202
Prepaid assets and deposits		2,186		1,942
Interest and accounts receivable		1,729		62
Pre-acquisition costs		939		2,317
Corporate property, net		270		42
Restricted cash		146		23

	$	27,103	$	8,432

Approximately $0.1 million and $0.9 million of the pre-acquisition costs and capitalized pre-offering costs, respectively, have not been paid and are included in accrued liabilities on the consolidated balance sheet at December 31, 2015. Approximately $1.7 million and $1.2 million of the pre-acquisition costs and capitalized pre-offering costs, respectively, had not been paid and were included in accrued liabilities on the consolidated balance sheet at December 31, 2014.

6.	Incentive Plan

The Company’s 2014 Amended and Restated Equity Incentive Plan (the “Plan”) provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including Long Term Incentive Plan (“LTIP”) units, which are convertible on a one-for-one basis into OP units. As of December 31, 2014 and December 31, 2015, the Company had 368,241 and 709,747 shares, respectively, of common stock reserved for potential future issuance under the Plan, subject to certain adjustments set forth in the Plan. The increase in the shares reserved for potential future issuance under the Plan was approved by the Company’s Board of Directors during 2015.

F-44

Restricted Equity Awards

Restricted Stock Units

As of December 31 2015, the Company had granted an aggregate of 359,025 performance-vesting restricted stock units to its executive officers and certain other employees under the Plan. These restricted stock units will vest on the third anniversary of the grant date based on the achievement of absolute total return to stockholders (“TSR”) (50% weighting) and relative TSR as compared to the performance of the MSCI US REIT Index (“RMS”) (50% weighting), subject to continued employment through the vesting date. For performance between the specified TSR Performance and RMS Performance hurdles, the amount earned would be interpolated on a linear basis. Dividends on the restricted stock units will accrue but will not be paid unless and until the underlying restricted stock units vest and are converted to shares of common stock. The absolute and relative TSR thresholds are as follows:


Absolute TSR Award
TSR Performance		% of Award Earned
25.5%		0%
27.5%		25%
29.5%		50%
31.5%		75%
33.5%		100%

Relative TSR Award
MSCI US REIT Index Performance		% of Award Earned
= Index		0%
Index +3%		50%
Index +6% or greater		100%

During 2015, the Company granted 200,098 restricted stock units under the Plan to executive officers and certain other employees. The grant date fair value of restricted stock units granted was determined to be $9.00 per share by using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.0%; expected volatility of 42.38%; and expected service period of three years. Management has determined the value of these awards to be approximately $1.8 million.

During 2014, the Company granted 158,927 restricted stock units under the Plan to executive officers and certain other employees. The grant date fair value these awards was determined to be $6.53 per share by using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.02%; expected volatility of 25%; and expected service period of 3 years. The total value of these awards is estimated to be $1.0 million.

Restricted Shares

During 2015, the Company issued an aggregate of 24,997 restricted shares of common stock to its non-employee directors and an aggregate of 133,399 restricted shares of common stock to its executive officers and certain other employees under the Plan. The restricted shares of common stock granted to the Company’s non-employee directors will vest ratably on each of the first three anniversaries of the date of grant, subject to the directors’ continued service on the Company’s board of directors through such dates. The restricted shares of common stock granted to the Company’s executive officers and certain other employees will vest with respect to 100% of the granted shares on the third anniversary of the grant date, subject to continued employment through such date. The weighted average grant date fair value of these awards was $15.86. The total value of the awards granted in 2015 is calculated to be $2.5 million.

During 2014, the Company issued an aggregate of 23,605 restricted shares of common stock to its non-employee directors and an aggregate of 105,950 restricted shares of common stock to its executive officers and certain other employees under the Plan. Shares of restricted common stock granted during 2014 vest in accordance with the schedule described above. The total value of the awards granted in 2014 is calculated to be $1.9 million.

F-45

The following summarizes the stock-based award activity for the period from April 23, 2014 (inception) to December 31, 2014 and for the year ended December 31, 2015:


	Vesting Based on Service			Vesting Based on Market/ Performance Conditions
Non-vested awards at April 23, 2014 (inception)		—			—
Awarded		129,555			158,927
Vested		—			—
Forfeited		—			—

Non-vested awards at December 31, 2014		129,555			158,927
Awarded		158,396			200,098
Vested		(7,871	)		—
Forfeited		—			—

Non-vested awards at December 31, 2015		280,080			359,025

The weighted average value of the total restricted shares and restricted stock units outstanding at December 31, 2015 was approximately $15.49 per share and $7.91 per unit, respectively. The weighted average value of the total restricted shares and restricted stock units outstanding at December 31, 2014 was approximately $15.00 per share and $6.53 per unit, respectively. All shares vested during the year ended December 31, 2015 related to grants of restricted shares to directors.

The value of stock-based awards is charged to compensation expense included in general and administrative expenses over the vesting periods. For the year ended December 31, 2015, the Company recognized $1.8 million of non-cash compensation expense. The remaining unrecognized cost from stock-based awards at December 31, 2015 was $5.1 million and will be recognized over a weighted-average period of 2.2 years. For period from April 23, 2014 (inception) to December 31, 2014, the Company recognized $0.4 million of non-cash compensation expense. The remaining unrecognized cost from stock-based awards at December 31, 2014 was $2.5 million.

7.	Commitments and Contingencies

Commitments

As of December 31, 2015, the Company was obligated under operating lease agreements consisting primarily of the Company’s corporate office lease, which expires in 2020, and a ground lease related to the medical office building in the Company’s portfolio, which expires in 2081. Annual base rent on the corporate office lease increases approximately 3.0% annually. The Company’s ground lease rent increases 2.0% annually and is included in property-related expense. Rent expense relating to the operating leases for the year ended December 31, 2015 and the period from April 23, 2014 (inception) to December 31, 2014 was approximately $0.5 million and $0.1 million, respectively.

F-46

The Company’s future minimum lease payments for its operating leases as of December 31, 2015 were as follows (dollars in thousands):


For the year ended:
2016	$	330
2017		334
2018		342
2019		351
2020		203
Thereafter		20,155

Total	$	21,715

Upon acquisition of Kearny Mesa on October 1, 2015, the Company amended the master lease agreement with Life Generations. As a part of the amended master lease, the Company has agreed to provide up to $2.0 million for certain renovations and improvements (all subject to pre-approval by the Company) to be made by Life Generations at or with respect to Kearny Mesa. All requests for funds under this arrangement must be made by October 1, 2016.

Related to the Company’s investment in Lakeway Hospital, the Company agreed on February 2, 2016 to provide a surety bond of $9.4 million for a litigation judgment against the Lakeway Operator (which is currently under appeal) that stands behind the Lakeway Operator in the event it is unable to fund the entire amount of the judgment. The Company’s obligation is subject to certain conditions, including the judgment being upheld on appeal, and will be reduced by any amount of the judgment paid by the Lakeway Operator. The Lakeway Operator will be required to repay in full any amounts funded by the Company through monthly payments of interest only for five years at a rate of 12% per annum after which the outstanding amount shall be repaid pursuant to a promissory note amortized over five years accruing interest at 12%. The repayment of any amounts funded by the Company under this arrangement will be secured by a second lien on the assets that secure the Lakeway Operator’s accounts receivable line of credit. As of the date the consolidated financial statements were available for issuance, no amounts were outstanding under this obligation.

Contingencies

8.	Equity

Preferred Stock Issuances

Series A

On January 28, 2015, the Company issued 125 shares of newly classified 12.5% Series A Redeemable Cumulative Preferred Stock for $1,000 per share in order to ensure that the Company meets the beneficial ownership requirement applicable to a REIT under the Code.

F-47

Series B

On March 11, 2015, the Company entered into an agreement to issue and sell up to 125,000 shares of the Company’s newly classified 7.875% Series B Redeemable Cumulative Preferred Stock (“Series B Preferred Stock”), with a liquidation preference of $1,000 per share, to Carter/Validus Operating Partnership, L.P. (“Carter Validus”), for gross proceeds of $125 million. The Company closed the initial sale of 100,000 shares for gross proceeds of $100 million on March 11, 2015 and closed on the additional sale of 25,000 shares to Carter Validus for gross proceeds of $25 million on April 1, 2015. The net proceeds of $119.9 million from the issuances were used to repay amounts outstanding under the revolving credit facility and to fund acquisitions in the first quarter of 2015.

Dividends on the Series B Preferred Stock are paid monthly at an annual rate of 7.875% of the $1,000 liquidation preference plus accumulated and unpaid dividends, subject to increases in the event of certain defaults by the Company. Dividends of $7.8 million were paid or accrued during the year ended December 31, 2015. The December 2015 dividend of $0.8 million was paid in January 2016 and was included in accounts payable and accrued liabilities on the consolidated balance sheet at December 31, 2015. The Series B Preferred Stock is redeemable at any time at the Company’s option, and must be redeemed in connection with a change of control of the Company or the initial public offering of the Company’s common stock, in each case at the $1,000 liquidation preference, plus accumulated and unpaid dividends and a special redemption dividend equal to 5% of the liquidation preference.

F-48

Common Stock Dividends

During 2015 and 2014, the Company declared common stock dividends aggregating $0.85 and $0.20 per share, respectively. The following table depicts common stock dividends related to 2014 and 2015.


Quarter	Quarterly Dividend	Date of Declaration	Date of Record	Date Paid
3rd Quarter 2014	$ 0.08	September 23, 2014	October 14, 2014	October 23, 2014
4th Quarter 2014	$ 0.12	December 17, 2014	December 30, 2014	January 14, 2015
1st Quarter 2015	$ 0.17	March 25, 2015	April 2, 2015	April 14, 2015
2nd Quarter 2015	$ 0.17	August 13, 2015	August 27, 2015	September 9, 2015
3rd Quarter 2015	$ 0.21	September 18, 2015	September 30, 2015	October 13, 2015
4th Quarter 2015 ⁽¹⁾	$ 0.30	December 9, 2015	December 31, 2015	January 14, 2016

(1)	Comprised of a regular quarterly dividend of $0.21 per share and an additional special dividend of $0.09 per share.

The dividends paid in January 2016 and 2015 were included in accounts payable and accrued liabilities on the consolidated balance sheets at December 31, 2015 and 2014, respectively.

Distributions to noncontrolling interest

Distributions to the noncontrolling interest holder in the Lakeway Partnership were $0.5 million for the year ended December 31, 2015 and $0.7 million in 2016 through the date the consolidated financial statements were available to be issued.

9.	Earnings Per Share

The Company applies the two-class method for determining earnings per common share as its outstanding restricted common stock with non-forfeitable dividend rights are considered participating securities. The following table sets forth the computation of earnings per common share for the year ended December 31, 2015 and the period from July 31, 2014 (when the Company commenced operations, rather than the Company’s date of incorporation) to December 31, 2014 (amounts in thousands, except per share amounts):


	For the year ended December 31, 2015			For the period from July 31, 2014 to December 31, 2014
Numerator:
Net income	$	16,730		$	23
Less: Net income attributable to noncontrolling interest		(4,029	)		—
Less: Dividends on preferred shares		(7,835	)		—

Net income attributable to common stockholders		4,866			23
Less: Allocation to participating securities		(216	)		(26	)

Net income (loss) available to common stockholders	$	4,650		$	(3	)

Denominator
Basic and diluted weighted-average common shares		10,948			10,918
Basic and diluted earnings per common share	$	0.42		$	(0.00	)

The effects of restricted shares of common stock and restricted stock units outstanding were excluded from the calculation of diluted income per share for the year ended December 31, 2015 and the period from July 31, 2014 to December 31, 2014 because their effects were not dilutive.

F-49

10.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, receivables and payables are reasonable estimates of their fair value as of December 31, 2015 and December 31, 2014 due to their short-term nature. The fair value of the Company’s mortgage and other notes receivable as of December 31, 2015 and December 31, 2014 is estimated by using Level 2 inputs such as discounting the estimated future cash flows using current market rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

At December 31, 2015 and December 31, 2014, the Company’s indebtedness was comprised of borrowings under the Company’s revolving credit facility that bear interest at LIBOR plus a margin. The fair value of borrowings on the Company’s revolving credit facility are considered to be equivalent to their carrying value.

Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible. As of December 31, 2015, the fair value of the Company’s one $10.0 million mortgage note receivable was estimated to be $10.1 million. At December 31, 2014, the estimated fair values of the mortgage notes and other notes receivable are considered to be equal to their carrying values since the Company originated on August 1, 2014 the two mortgage notes receivable with an aggregate principal balance of $28.0 million, acquired on December 29, 2014 the $50.0 million mortgage note receivable secured by Lakeway Hospital, and originated in late November 2014 a $2.5 million note receivable.

11.

Selected Interim Financial Data (unaudited)

The following is a summary of the unaudited quarterly financial information for the year ended December 31, 2015 and for the period from April 23, 2014 (inception) to December 31, 2014 (amounts in thousands, except per share data):


	For the three months ended in 2015:
	March 31			June 30			September 30			December 31
Revenues	$	4,939		$	10,924		$	13,238		$	15,337
Interest expense		(790	)		(1,026	)		(2,341	)		(3,006	)
Net income		737			5,401			5,228			5,364
Preferred stock dividends		(440	)		(2,465	)		(2,465	)		(2,465	)
Net (income) loss attributable to noncontrolling interest		15			(1,332	)		(1,339	)		(1,373	)

Net income attributable to common stockholders	$	312		$	1,604		$	1,424		$	1,526

Net income attributable to common stockholders per share:
Basic and diluted	$	0.03		$	0.14		$	0.12		$	0.13

The sum of the basic and diluted earnings per common share for the four quarters in the periods presented may differ from the annual earnings per common share calculation due to the required method of computing the weighted average number of common shares in the respective periods.


	For the period from April 23, 2014 to September 30, 2014			For the three months ended December 31, 2014
Revenues	$	1,975		$	3,472
Interest expense		—			(317	)
Net income		(457	)		480
Preferred stock dividends		—			—
Net (income) loss attributable to noncontrolling interest		—			—

Net income attributable to common stockholders	$	(457	)	$	480

Net income (loss) attributable to common stockholders per share:
Basic and diluted	$	(0.04	)	$	0.04

12.

Subsequent Events

Subsequent events have been evaluated through April 7, 2016, the date the consolidated financial statements were available to be issued.

F-50

MedEquities Realty Trust, Inc.

Schedule III- Real Estate and Accumulated Depreciation

(Dollars in thousands)

December 31, 2015


							Initial Cost to Company								Gross Amount at Which Carried at Close of Period
Property/Portfolio Name	Location	Number of Properties		Type of Property ⁽³⁾	Encumbrances		Land		Building and improvements and intangible lease assets		Furniture, fixtures, and equipment		Cost Capitalized Subsequent to Acquisition		Land		Building and improvements and intangible lease assets		Furniture, fixtures, and equipment		Total ⁽¹⁾		Accumulated Depreciation ⁽¹⁾⁽²⁾			Date of Construction		Date Acquired
Texas SNF Portfolio	TX		10	SNF	$	—	$	4,325	$	140,815	$	—	$	—	$	4,325	$	140,815	$	—	$	145,140	$	(1,777	)		1963-2013		2015
Life Generations Portfolio	CA		6	SNF/ALF		—		19,313		84,964		2,401		—		19,313		84,964		2,401		106,678		(2,318	)		1966-1992		2015
Lakeway Hospital	TX		1	ACH		—		5,181		69,875		—		—		5,181		69,875		—		75,056		(1,338	)		2012		2015
Kentfield Rehabilitation & Specialty Hospital	CA		1	LTACH		—		6,204		51,826		—		—		6,204		51,826		—		58,030		(1,988	)		1962		2014
Mountain’s Edge Hospital	NV		1	ACH		—		2,234		27,178		—		—		2,234		27,178		—		29,412		(459	)		2015		2015
Horizon Specialty Hospital of Henderson	NV		1	LTACH		—		733		19,277		—		—		733		19,277		—		20,010		(762	)		2012		2014
Magnolia Place of Spartanburg	SC		1	SNF		—		170		19,830		—		—		170		19,830		—		20,000		(752	)		1989		2014
Vibra Rehabilitation Hospital of Amarillo	TX		1	IRF		—		578		18,821		—		—		578		18,821		—		19,399		(188	)		1990		2015
Mira Vista Court	TX		1	SNF		—		1,343		14,657		—		—		1,343		14,657		—		16,000		(397	)		2013		2015
North Brownsville Medical Plaza	TX		1	MOB		—		—		15,128		—		—		—		15,128		—		15,128		(1,193	)		2007		2014

Total					$	—	$	40,081	$	462,371	$	2,401	$	—	$	40,081	$	462,371	$	2,401	$	504,853	$	(11,172	)

(1)

The changes in total real estate and accumulated depreciation for the year ended December 31, 2015 and the period ended December 31, 2014 are as follows (in thousands):


	For the year ended December 31, 2015		For the period from April 23, 2014 (inception) to December 31, 2014
Cost
Balance at beginning of period		113,168		—
Acquisitions		323,685		113,168
Foreclosure of mortgage note		50,000		—
Conversion of mortgage note		18,000		—

Balance at end of period		504,853		113,168

Accumulated Depreciation
Balance at beginning of period		1,268		—
Depreciation		9,904		1,268

Balance at end of period		11,172		1,268

F-51

The unaudited aggregate tax value of real estate assets for federal income tax purposes as of December 31, 2015 is estimated to be $494,000,000.

(2)

The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and improvements, ranging primarily from 2.7 to 50 years. The cost of intangible lease assets are depreciated on a straight-line basis over the initial term of the related lease, ranging primarily from 2.7 to 15 years. See note 2 to the consolidated financial statements for information on useful lives used for depreciation and amortization.

(3)

LTACH—Long-term acute care hospital; SNF—Skilled nursing facility; MOB—Medical office building; IRF—Inpatient rehabilitation facility; ACH—Acute care hospital

F-52

MedEquities Realty Trust, Inc.

Schedule IV- Mortgage Loans on Real Estate

(Dollars in thousands)

December 31, 2015


Description	Interest Rate			Final Maturity Date		Periodic Payment Terms			Prior Liens		Face Amount of Mortgages		Carrying Amount of Mortgages ⁽²⁾		Principal Amount of Loans Subject to Delinquent Principal or Interest
First mortgage relating to 1 property in:
Springfield, Massachusetts — rehabilitation hospital		9.00	%		7/31/2034		(1	)		—		10,000		10,000		—

											$	10,000	$	10,000

(1)

Following an initial interest-only five year term, the Springfield, Massachusetts loan will automatically convert to a 15-year amortizing loan requiring payments of principal and interest unless prepaid. The Springfield, Massachusetts loan may be prepaid during the initial five-year term only if Vibra Healthcare, LLC or Vibra Healthcare II, LLC, or one of their respective affiliates, enters into a sale-leaseback transactions with the Company equal to or exceeding $25.0 million in value.

(2)

Carrying amount of mortgages represents the contractual amount due under the mortgage note as if the date of this schedule IV and excludes any other fees or costs associated with the mortgage notes and their origination. The aggregate cost for federal income tax purposes as of December 31, 2015 is estimated to be $10.0 million.

Changes in mortgage loans for the periods ended December 31, 2015 and 2014 are summarized as follows (in thousands):


	Year Ended December 31, 2015			Period from April 23, 2014 (inception) to December 31, 2014
Balance at beginning of period	$	78,000		$	—
Additions during year:
New mortgage loans		—			78,000

		—			78,000
Deductions during year:
Collection of principal		—			—
Foreclosure of mortgage loan		(50,000	) (3)		—
Conversion to fee simple ownership		(18,000	) (4)		—

		(68,000	)		—


Balance at end of period	$	10,000		$	78,000

(3)

On February 3, 2015, the Company acquired Lakeway Regional Medical Center (“Lakeway Hospital”), through a negotiated, non-judicial foreclosure and payment of an additional $25.0 million in cash consideration, for a total investment of $75.0 million. The Company originally acquired a note receivable for $50.0 million on December 29, 2014, which had an outstanding principal balance of approximately $163.9 million and was secured by a first mortgage lien on Lakeway Hospital. The operator of the facility defaulted on debt service payments under the note in 2013, and the U.S. Department of Housing and Urban Development held an auction in December 2014 through which the Company acquired the mortgage note.

(4)

On October 1, 2015, the Company completed the acquisition of Vibra Rehabilitation of Amarillo for a purchase price of $19.4 million, pursuant to the exercise of its exclusive right to purchase the property contained in the Company’s $18.0 million mortgage note receivable. The $18.0 million in principal outstanding on the mortgage note receivable was applied to the purchase price.

F-53

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS


	(Unaudited) March 31, 2016			December 31, 2015
Current Assets
Cash	$	1,847,887		$	1,686,402
Patient Accounts Receivable, Net of Allowance for Doubtful Accounts of $345,000 in 2016 and 2015		16,311,017			16,899,224
Prepaids and Other Assets		132,989			2,539,391
Related Party Receivables		266,983			—

		18,558,876			21,125,017

Property and Equipment
Departmental Equipment		74,696			55,790
Construction in Progress		474,631			—

		549,327			55,790
Accumulated Depreciation		(7,998	)		(2,535	)

		541,329			53,255

Other Assets
Assets Limited as to Use		5,533,764			6,239,762
Pre-Construction Costs		5,128,831			4,882,919
Deposits		2,253,119			2,248,119
Intangible Assets, Net of Accumulated Amortization of $19,536 in 2016 and $15,136 in 2015		250,316			254,716

		13,166,030			13,625,516

Total Assets	$	32,266,235		$	34,803,788

See accompanying notes which are an integral part of these financial statements.

F-54

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND MEMBERS’ EQUITY


	(Unaudited) March 31, 2016			December 31, 2015
Current Liabilities
Notes Payable	$	4,630,000		$	3,450,000
Receivables Financing		3,486,257			5,251,612
Accounts Payable		4,529,127			7,035,529
Related Party Payables		—			2,574,421
Accrued Payroll, Benefits and Taxes		1,357,970			1,406,367
Other Accrued Liabilities		1,824,823			475,387

		15,828,177			20,193,316

Other Long-Term Liabilities
Deferred Lease Liability		1,350,495			844,059
Deferred Gain on Sale/Leaseback		13,598,805			13,626,690

		14,949,300			14,470,749

Members’ Equity
Members’ Equity		1,502,320			149,574
Noncontrolling Interest in Subsidiary		(13,562	)		(9,851	)

		1,488,758			139,723

Total Liabilities and Members’ Equity	$	32,266,235		$	34,803,788

See accompanying notes which are an integral part of these financial statements.

F-55

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND CHANGES IN MEMBERS’ EQUITY FOR THE QUARTERS ENDED MARCH 31

(UNAUDITED)


	2016			2015
Operating Revenues
Net Patient Service Revenue, Net of Bad Debt Expense of $0 in 2016 and 2015	$	21,150,780		$	—
Other Operating Revenue		7,033			—

		21,157,813			—

Operating Expenses
Nursing Services		10,353,628			—
Medical Records		101,224			—
Recreational and Social		260,698			—
Dietary Services		1,205,014			—
Housekeeping Services		449,590			—
Laundry Services		164,932			—
Repairs and Maintenance		595,725			—
General and Administrative		1,938,047			928,575
Facility Lease		3,425,701			—
Property Taxes and Insurance		281,962			—
Depreciation and Amortization		512,444			—
Interest		301,618			41,213
Management Fees		1,057,528			—

		20,648,111			969,788

Operating Income (Loss)		509,702			(969,788	)

Other Income (Expenses)
Interest Income		5,719			—
Other Expenses		(16,386	)		—

		(10,667	)		—

Net Income (Loss)		499,035			(969,788	)
Net Loss Attributable to Noncontrolling Interest		3,711			—

Net Income (Loss) Attributable to the Company		502,746			(969,788	)
Members’ Equity, Beginning		149,574			693,855
Capital Contributions		850,000			556,320

Members’ Equity, Ending	$	1,502,320		$	280,387

See accompanying notes which are an integral part of these financial statements.

F-56

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE QUARTERS ENDED MARCH 31

(UNAUDITED)


	2016			2015
Cash Flows from Operating Activities
Net Income (Loss)	$	499,035		$	(969,788	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Used by Operating Activities
Depreciation and Amortization		512,444			—
Recognized Gain on Sale/Leaseback		(27,885	)		—
Change In
Patient Accounts Receivable		588,207			—
Prepaids and Other Assets		2,406,402			—
Related Party Receivables		(2,841,404	)		—
Deposits		(5,000	)		—
Accounts Payable		(2,506,402	)		306,258
Accrued Payroll, Benefits and Taxes		(48,397	)		—
Other Accrued Liabilities		1,349,436			41,213

		(73,564	)		(622,317	)

Cash Flows from Investing Activities
Pre-Construction Costs		(245,912	)		255,115
Purchases of Property and Departmental Equipment		(489,682	)		—
Escrow Deposits, Net of Released Funds		705,998			—

		(29,596	)		255,115

Cash Flows from Financing Activities
Receivables Financing		(1,765,355	)		—
Loans from Related Parties		—			695,000
Proceeds from Notes Payable		1,180,000			—
Capital Contributions		850,000			556,320

		264,645			1,251,320

Net Increase in Cash		161,485			884,118
Cash, Beginning		1,686,402			107,118

Cash, Ending	$	1,847,887			991,236

Supplemental Disclosure of Cash Flow Information
Cash Payments of Interest	$	79,840			—

See accompanying notes which are an integral part of these financial statements.

F-57

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Nature of Business and Summary of Significant Accounting Policies

Nature of Business

GruenePointe Holdings, LLC (a domestic limited liability company) was established on April 21, 2014 in Dallas, Texas as a holding company for the development, construction, acquisition and operation of healthcare facilities. The Company is comprised of the following consolidated subsidiaries, all of which are wholly-owned with the exception of Adora 9, LLC, which is 93 percent owned.

The Adora Entities

The Adora entities were established to develop, construct and operate senior living communities, consisting of assisted living and skilled nursing facilities. The Company was actively developing two projects in Texas as of March 31, 2016.


• Adora Holdings, LLC		• Adora 9, LLC

• Adora Holdings Development, LLC		• Adora 9 Realty, LLC

• Adora 8, LLC		• Adora 9 Operations, LLC

• Adora Creekside Realty, LLC		• Adora 10, LLC

The Texas Ten Entities

The Texas Ten entities were established to conduct the purchase and sale and leaseback and to facilitate the continuing operations of ten skilled nursing facilities with a total of 1,145 licensed beds. The facilities are located throughout Texas.


• GruenePointe 1 Graham, LLC		• GruenePointe 1 Brownwood, LLC

• GruenePointe 1 El Paso, LLC		• GruenePoint 1 Longview, LLC

• GruenePointe 1 Kerens, LLC		• GruenePointe 1 Kemp, LLC

• GruenePointe 1 Casa Rio, LLC		• GruenePointe 1 Mt. Pleasant, LLC

• GruenePointe 1 River City, LLC		• GruenePointe 1 Kaufman, LLC

Other Entities

GruenePointe 1 St. Giles, LLC operates a skilled nursing facility in Texas with a total of 124 licensed beds.

GruenePointe Salvado, LLC was formed to maintain custody of reserve funds required by the Master Lease Agreement and the Guaranty Agreement executed in conjunction with the sale and leaseback of the Texas Ten skilled nursing facilities.

GruenePointe Acquisition 1, LLC was formed to pursue the acquisition of the Texas Ten skilled nursing facilities. It later assigned its rights in transaction agreements to GruenePointe Holdings, LLC.

F-58

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s audited consolidated financial statements and related notes for the period ended December 31, 2015.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the Company’s majority owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated through consolidation. For subsidiaries that are not wholly owned by the Company, the portions not controlled by the Company are presented as noncontrolling interests in the consolidated financial statements.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets (generally three to ten years). Maintenance and repairs of property and equipment are charged to operations when incurred. Gains or losses on the disposal of property and equipment are recognized in operations in the year of disposition. Depreciation expense for the quarter ended March 31, 2016 was $5,465. There was no depreciation expense for the quarter ended March 31, 2015.

Leases

At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or a capital lease. As of March 31, 2016, all of the Company’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled lease increases, the Company records rent expense on a straight-line basis over the term of the lease. The accumulated difference between the straight-line expense recognition and the actual cash rent paid is reflected in other long-term liabilities on the consolidated balance sheets. Amortization of the deferred lease liability was $506,436 and $0 for the quarters ended March 31, 2016 and 2015, respectively.

Deposits

Deposits consist of security deposits in the amount of two months’ rent required by the Texas Ten facility lease, one months’ rent required by the St. Giles lease and various utility deposits.

F-59

Revenue Recognition and Patient Service Revenue

Revenues are derived from services rendered to patients for long-term care, including skilled and intermediate care, and rehabilitation services. Revenues are recorded when services are provided based upon established rates adjusted for amounts expected to be received under third-party contractual arrangements with governmental providers, Medicare and Medicaid. These revenues and receivables are stated at amounts estimated by management to be at their net realizable value.

For private pay in long-term care, the facilities bill in advance for the following month, with the remittance being due upon receipt of the statement and generally by the 10 ^th day of the month the services are performed. Private pay revenues billed in advance are deferred and recognized as services are rendered.

Payments are received from the Medicare program under a prospective payment system (PPS). For skilled nursing services, Medicare pays a fixed fee per Medicare patient day, based on the acuity level of the patient. Medicare program payments for long-term care services are based upon fixed per diem rates negotiated with a managed care organization contracted by the applicable state. The Medicaid program is jointly funded by the federal government and states. The federal government pays states for a specific percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP). FMAP varies by state based on criteria such as per capita income. FMAPs are adjusted for each state on a three-year cycle to account for fluctuations in the economy. The FMAP is published annually in the Federal Register.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties and exclusion from the Medicare and Medicaid programs. Management believes the facilities are in material compliance will all applicable laws and regulations.

The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups (RUG) based on the acuity level of the patient to determine the amount paid for patient services. The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries. Management believes the Company has made adequate provision for any adjustments that may result from these reviews. Any differences between the net revenues and the final determination will be adjusted in future periods as adjustments become known.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk include cash on deposit with financial institutions in excess of the $250,000 FDIC coverage limit. At March 31, 2016, the Company had bank deposits in excess of coverage of $5,849,082. The Company has not experienced any losses to date on deposited cash.

The Company grants credit without collateral to its residents, of whom most are insured under governmental programs or third-party contractual agreements. The collectibility or reliability of the accounts receivable is dependent primarily upon the performance of the government unit, the third party, or the resident’s family. Management does not believe significant credit risks are associated with accounts receivable.

Allowance for Doubtful Accounts

Patient accounts receivable are presented on the consolidated balance sheets net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated bad debts based on historical data. Individual uncollectible accounts are written off against the allowance when collection appears doubtful and collection efforts have been exhausted.

F-60

Due to the lack of historical data, the Company has estimated an allowance for doubtful accounts of approximately one percent of net service revenues. As of March 31, 2016 and December 31, 2015, the estimated allowance was $345,000, respectively.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Accounting standards allow the Company to evaluate qualitative events and circumstances to determine whether it is more likely than not the Company’s carrying value exceeds its fair value. Quantitative tests are performed if required. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company identified no such impairment losses during the quarters ended March 31, 2016 and December 31, 2015.

Capitalization of Pre-Construction Costs

The Company capitalizes pre-construction costs until the project is placed in-service, at which time the asset is depreciated over its useful life.

Income Taxes

The members have elected to be taxed under sections of the federal and state income tax laws, which provide that, in lieu of income taxes, the members separately account for their pro rata shares of the Company’s items of income, deductions, losses and credits. Therefore, these statements do not include any provision for income taxes. The 2015 return has not yet been filed. The 2014 return has been filed and is subject to examination by the Internal Revenue Service for three years from filing.

New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Imputation of Interest (Sub-Topic 835.30): Simplifying the Presentation of Debt Issuance Costs . ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15 clarifying the application of this guidance to line of credit arrangements. The amendments in the ASUs are effective retrospectively for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for financial statements not previously issued. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis . This update is in response to stakeholders that have expressed concerns that current GAAP might require a reporting entity to consolidate another legal entity in situations in which the reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity’s voting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations. Thus, the update modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. It eliminates the presumption that a general partner should consolidate a limited partnership, for limited partnerships and similar legal entities that qualify as voting interest entities; a limited partner with a controlling financial interest should consolidate a limited partnership. A controlling financial interest may be achieved through holding a limited partner interest that provides substantive kick-out rights. Finally, it requires consideration of the effects of fee arrangements and related parties on the primary beneficiary determination. The amendments in this update are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. When adopted, the Company does not expect this standard to have a material impact on its consolidated financial statements.

F-61

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The FASB is amending the Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a nonpublic entity, the amendments in this update, as deferred one year by ASU 2015-14, are effective for annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early application is permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Subsequent Events

In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through May 4, 2016, the date the consolidated financial statements were available to be issued.

(2)

Assets Limited as to Use

Assets limited as to use consist of designated working capital reserves and replacement reserves as required by the Master Lease Agreement and Guaranty Agreement, respectively, executed in conjunction with the sale and leaseback of the Texas Ten nursing facilities. The reserve funds are held in a liquid savings account owned by GruenePointe 1 Salvado, LLC, whose sole purpose is to maintain the required reserves.

The working capital reserve was established as a liquid working capital reserve fund for operation of the facilities and any withdrawal requires consent of the landlord. The reserve balance at March 31, 2016 is $5,500,000. The required balance will decrease by $2,000,000 per year from 2016 to 2018 if the Company complies with certain financial covenants. The replacement reserve fund calls for an amount of $500 per bed to be used for capital improvements throughout the life of the lease. The total replacement reserve required is $572,500 and is being funded in equal monthly installments during the first year of the lease.

The balance in the reserve accounts as of March 31, 2016 and December 31, 2015 was $5,533,764 and $6,239,762, respectively.

(3)

Intangible Assets

Deferred financing fees are loan fees and attorney costs related to the receivables financing (see Note 5). These costs are being amortized using the straight-line method over 30 months, the initial term of the note, and are included in interest expense. The straight-line method yields results substantially similar to those that would be produced under the effective interest method.

Amortization expense related to these costs was $21,271 and $0 for the quarters ended March 31, 2016 and 2015, respectively.

Estimated future amortization expense is as follows:


2016	$	104,764
2017		109,164
2018		36,388

	$	250,316

F-62

(4)

Pre-Construction Costs

The Company is currently developing skilled nursing and assisted living facilities in Texas. These pre-construction amounts are classed into two specific projects: Adora 8 (Creekside) and Adora 9 (Midtown). Funding sources for these projects are based on the approximate ratio of 6 percent equity financing, 69 percent conventional debt financing and 25 percent mezzanine debt financing. Below is a breakdown of the accumulated construction costs and projected project total cost:


	Adora 8 (Creekside)		Adora 9 (Midtown)		Total Cost
March 31, 2016
Architecture Fees	$	597,420	$	705,411	$	1,302,831
Deposits		25,000		25,000		50,000
Developer Fees		132,901		398,285		531,186
Due Diligence		93,770		101,746		195,516
Land Acquisition		808,423		1,921,529		2,729,952
Land Use/Planning		8,982		4,198		13,180
Legal Fees		29,281		50,623		79,904
Permits		35,794		40,458		76,252
Other		3,020		146,990		150,010

	$	1,734,591	$	3,394,240	$	5,128,831

December 31, 2015
Architecture Fees	$	597,281	$	695,398	$	1,292,679
Developer Fees		132,901		302,808		435,709
Due Diligence		93,770		92,795		186,565
Land Acquisition		808,423		1,931,529		2,739,952
Land Use/Planning		8,982		4,199		13,181
Legal Fees		28,731		50,623		79,354
Permits		30,731		34,088		64,819
Other		2,032		68,628		70,660

	$	1,702,851	$	3,180,068	$	4,882,919

Projected Project Cost	$	22,273,134	$	23,572,576	$	45,845,710

The Company began construction on the Adora 9 (Midtown) project in Dallas County, Texas in February 2016. Construction is expected to be complete in April 2017. The Company expects to begin construction on the Adora 8 (Creekside) project during 2016.

(5)

Receivables Financing

The Company has entered into a financing agreement with a third-party lender. The lender has agreed to provide financing on a percentage of eligible accounts receivable with a maximum aggregate borrowing of $17,000,000.

In accordance with the financing arrangement, the lender advances funds to the Company based upon receivable balances and reduces accumulated advances upon collection of the account. Interest is computed monthly based on a 5.25 percent annual rate. Also, a collateral fee of 1.2 percent is assessed based upon the month’s average balance outstanding, as well as an unused commitment fee of 0.5 percent. The debt is secured by the eligible receivables and partially secured by the personal guarantees of certain members of the Company.

The outstanding balance as of March 31, 2016 and December 31, 2015 was $3,486,257 and $5,251,612, respectively.

F-63

(6)

Notes Payable

The Company entered into a loan and security agreement with an unrelated third party in 2015. Interest accrues at 8 percent on the outstanding balance. All outstanding principal and interest is due August 2016. As of March 31, 2016 and December 31, 2015, the outstanding balance was $3,685,000 and $3,450,000, respectively. The loan is guaranteed by the assets of the Company and its members.

(7)

Related Party Accounts

The members have loaned funds to the Company during the course of operations. Some of these funds were originally classified as equity investments, but were reclassified to debt during 2015. These funds accrue interest at 12 percent, in accordance with the operating agreement. The Company intends to pay principal and accrued interest when funds become available. The total amounts due to members were $945,000 and $0 as of March 31, 2016 and December 31, 2015, respectively. These amounts are included on the balance sheet in notes payable.

The Company is related through common ownership to the management company of its subsidiaries, OnPointe Management, LLC. Various transactions are entered into in the normal course of business between the common entities. Intercompany receivables of $266,983 and intercompany payables of $2,574,421 have resulted from these transactions as of March 31, 2016 and December 31, 2015, respectively, and are carried on the consolidated balance sheets at their original value. These receivables/payables are expected to be paid as cash becomes available in the common entities.

Unpaid management fees totaled $966,387 and $0 as of March 31, 2016 and 2015, respectively.

(8) Major Customers

The facility’s patient service revenues are derived primarily from federal (Medicare) and state (Medicaid) programs. Below is a summary of the composition of revenues and accounts receivable:


	March 31, 2016						December 31, 2015			March 31, 2015
	Revenue			Accounts Receivable			Accounts Receivable			Revenue
Medicaid		48.64	%		37.42	%		47.31	%		0.00	%
Medicare		35.23	%		42.53	%		28.98	%		0.00	%
Private		5.67	%		12.00	%		16.26	%		0.00	%
Other		10.46	%		8.05	%		7.45	%		0.00	%

		100.00	%		100.00	%		100.00	%		0.00	%

(9)

Management Agreements

The Company’s wholly-owned consolidated skilled nursing home subsidiaries are managed by OnPointe Management, LLC, a company related through common ownership. Management fees are accrued on five percent of net revenues of the nursing homes’ operations; however, the Company pays only three percent until certain operational metrics are achieved in accordance with the Master Lease Agreement. For the quarters ended March 31, 2016 and 2015, management fees were $1,057,528 and $0, respectively.

(10)

Lease Commitments

The Company entered into a purchase and sale agreement and a Master Lease Agreement on July 29, 2015, whereby the Company bought, sold, and leased back ten skilled nursing facilities (Texas Ten). The initial term of the lease is fifteen years, with two additional renewal periods of five years each.

F-64

River City. The contingent rent totals 20 percent of year-to-year growth in net patient service revenue, if any, until the facility achieves certain yield benchmarks. Potential additional rent payments begin in the second lease year and continue throughout the lease term and are subject to a maximum limit.

The Company entered in a lease agreement with St. Giles Realty Holdings, LLC to lease the GruenePointe 1 St. Giles, LLC nursing facility. The lease has an initial term of ten years, with two additional renewal periods of five years each.

Combined future lease commitments are as follows:


Year	Amount
2016	$	10,846,859
2017		14,206,671
2018		14,490,804
2019		14,780,620
2020		15,076,232
Thereafter		151,196,697

	$	220,597,883

The Texas Ten purchase and sale agreement resulted in a $13,673,167 gain which will be recognized over the initial lease term of fifteen years. A portion of the gain ($12,000,000) is contingent upon the Company achieving certain financial benchmarks during the first four years of the lease. The recognized gain for the quarter ended March 31, 2016 was $27,885 and is a reduction of lease expense.

The components of lease expense as of March 31, 2016 are as follows:


Cash Payments of Lease	$	3,081,250
Deferred Lease Liability		372,336
Recognized Gain on Sale/Leaseback		(27,885	)

	$	3,425,701

(11)

Contingencies

The Company, certain members and OnPointe Management, LLC, a related party, are jointly and severally liable for repayment of the contingent purchase price of $12,000,000 under the purchase and sale agreement and obligations under the Master Lease Agreement above. The contingency will reduce in amount by $3 million each January 1, beginning January 2016 through 2019, if the Company achieves certain financial benchmarks. Certain members are jointly and severally liable up to an amount not to exceed $6,000,000 in the aggregate. OnPointe Management, LLC is jointly and severally liable up to any management fees paid to them in the previous 12 months.

F-65

March 10, 2016

INDEPENDENT AUDITOR’S REPORT

The Management

GruenePointe Holdings, LLC

We have audited the accompanying consolidated financial statements of GruenePointe Holdings, LLC and Subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations and changes in members’ equity, and cash flows for the year ended December 31, 2015 and the period from April 21, 2014 (date of inception) through December 31, 2014, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GruenePointe Holdings, LLC and Subsidiaries as of December 31, 2015 and 2014 and the results of its operations and cash flows for the year ended December 31, 2015 and period from April 21, 2014 (date of inception) through December 31, 2014, in accordance with accounting principles generally accepted in the United States of America.

/s/ McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC

F-66

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

ASSETS


	2015			2014
Current Assets
Cash	$	1,686,402		$	107,118
Patient Accounts Receivable, Net of Allowance for Doubtful Accounts of $345,000 in 2015 and $0 in 2014		16,899,224			—
Prepaids and Other Assets		2,539,391			—

		21,125,017			107,118

Property and Equipment
Departmental Equipment		55,790			—
Accumulated Depreciation		(2,535	)		—

		53,255			—

Other Assets
Assets Limited as to Use		6,239,762			—
Pre-Construction Costs		4,882,919			841,852
Deposits		2,248,119			—
Intangible Assets, Net of Accumulated Amortization of $15,136 in 2015 and $0 in 2014		254,716			—

		13,625,516			841,852

Total Assets	$	34,803,788		$	948,970

See accompanying notes which are an integral part of these financial statements.

F-67

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

LIABILITIES AND MEMBERS’ EQUITY


	2015			2014
Current Liabilities
Note Payable	$	3,450,000		$	—
Receivables Financing		5,251,612			—
Accounts Payable		7,035,529			255,115
Related Party Payables		2,574,421			—
Accrued Payroll, Benefits and Taxes		1,406,367			—
Other Accrued Liabilities		475,387			—

		20,193,316			255,115

Other Long-Term Liabilities
Deferred Lease Liability		844,059			—
Deferred Gain on Sale/Leaseback		13,626,690			—

		14,470,749			—

Members’ Equity
Members’ Equity		149,574			693,855
Noncontrolling Interest in Subsidiary		(9,851	)		—

		139,723			693,855

Total Liabilities and Members’ Equity	$	34,803,788		$	948,970

See accompanying notes which are an integral part of these financial statements.

F-68

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND CHANGES IN MEMBERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2015 AND

FOR THE PERIOD APRIL 21, 2014 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2014


	2015			April 21, 2014 Through December 31, 2014
Operating Revenues
Net Patient Service Revenue, Net of Bad Debt Expense of $345,000 in 2015 and $0 in 2014	$	34,193,678		$	—
Other Operating Revenue		15,090			—

		34,208,768			—

Operating Expenses
Nursing Services		17,428,143			—
Recreational and Social		467,073			—
Dietary Services		1,946,750			—
Housekeeping Services		758,823			—
Laundry Services		256,750			—
Repairs and Maintenance		1,028,924			—
General and Administrative		3,615,723			1,145
Facility Lease		6,583,470			—
Property Taxes and Insurance		472,958			—
Depreciation		2,535			—
Interest		394,188			—
Management Fees		1,724,792			—

		34,680,129			1,145

Operating Loss		(471,361	)		(1,145	)

Other Income (Expenses)
Interest Income		7,087			—
Other Expenses		(396,858	)		—

		(389,771	)		—

Net Loss		(861,132	)		(1,145	)
Net Loss Attributable to Noncontrolling Interest		9,851			—

Net Loss Attributable to the Company		(851,281	)		(1,145	)
Members’ Equity, Beginning		693,855			695,000
Capital Contributions		1,002,000			—
Conversion of Equity to Debt		(695,000	)		—

Members’ Equity, Ending	$	149,574		$	693,855

See accompanying notes which are an integral part of these financial statements.

F-69

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2015 AND

FOR THE PERIOD APRIL 21, 2014 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2014


	2015			April 21, 2014 Through December 31, 2014
Cash Flows from Operating Activities
Net Loss	$	(861,132	)	$	(1,145	)
Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities
Depreciation and Amortization		17,671			—
Deferred Rent		844,059			—
Allowance for Doubtful Accounts		345,000
Recognized Gain on Sale/Leaseback		(46,477	)		—
Change In
Patient Accounts Receivable		(17,244,224	)		—
Prepaids and Other Assets		(2,539,391	)		—
Deposits		(2,248,119	)		—
Accounts Payable		6,780,414			—
Accrued Payroll, Benefits and Taxes		1,406,367			—
Other Accrued Liabilities		475,387			—

		(13,070,445	)		(1,145	)

Cash Flows from Investing Activities
Pre-Construction Costs		(4,041,067	)		(586,737	)
Purchases of Departmental Equipment		(55,790	)		—
Escrow Deposits, Net of Released Funds		(6,239,762	)		—

		(10,336,619	)		(586,737	)

Cash Flows from Financing Activities
Receivables Financing		5,251,612			—
Loans from Related Parties		1,879,421			—
Proceeds from Note Payable		3,450,000			—
Proceeds from Sale/Leaseback		13,673,167			—
Capital Contributions		1,002,000			695,000
Deferred Financing Fees		(269,852	)		—

		24,986,348			695,000

Net Increase in Cash		1,579,284			107,118
Cash, Beginning		107,118			—

Cash, Ending	$	1,686,402			107,118

Supplemental Disclosure of Cash Flow Information
Cash Payments of Interest	$	153,525			—

Supplemental Disclosure of Noncash Activities
Equity Converted to Debt	$	695,000		$	—

See accompanying notes which are an integral part of these financial statements.

F-70

GRUENEPOINTE HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Nature of Business and Summary of Significant Accounting Policies

Nature of Business

The Adora Entities

The Adora entities were established to develop, construct, and operate senior living communities, consisting of assisted living and skilled nursing facilities. The Company was actively developing two projects in Texas as of December 31, 2015.


• Adora Holdings, LLC		• Adora 9, LLC

• Adora Holdings Development, LLC		• Adora 9 Realty, LLC

• Adora 8, LLC		• Adora 9 Operations, LLC

• Adora Creekside Realty, LLC		• Adora 10, LLC

The Texas Ten Entities


• GruenePointe 1 Graham, LLC		• GruenePointe 1 Brownwood, LLC

• GruenePointe 1 El Paso, LLC		• GruenePoint 1 Longview, LLC

• GruenePointe 1 Kerens, LLC		• GruenePointe 1 Kemp, LLC

• GruenePointe 1 Casa Rio, LLC		• GruenePointe 1 Mt. Pleasant, LLC

• GruenePointe 1 River City, LLC		• GruenePointe 1 Kaufman, LLC

Other Entities

GruenePointe 1 St. Giles, LLC operates a skilled nursing facility in Texas with a total of 124 licensed beds.

GruenePointe Acquisition 1, LLC was formed to pursue the acquisition of the Texas Ten skilled nursing facilities. It later assigned its rights in transaction agreements to GruenePointe Holdings, LLC.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

F-71

Use of Estimates

Principles of Consolidation

The consolidated financial statements include the Company’s majority owned and controlled subsidiaries. Variable Interest Entities (“VIEs”) in which the Company has a variable interest have been consolidated as controlled subsidiaries when the Company is identified as the primary beneficiary. All intercompany transactions and balances have been eliminated through consolidation. For subsidiaries that are not wholly owned by the Company, the portions not controlled by the Company are presented as non-controlling interests in the consolidated financial statements.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets (generally three to ten years). Maintenance and repairs of property and equipment are charged to operations when incurred. Gains or losses on the disposal of property and equipment are recognized in operations in the year of disposition. Depreciation expense for the year ended December 31, 2015 was $2,535. There was no depreciation expense for the period from April 21, 2014 (date of inception) to December 31, 2014.

Leases

At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or a capital lease. As of December 31, 2015, all of the Company’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled lease increases, the Company records rent expense on a straight-line basis over the term of the lease. The accumulated difference between the straight-line expense recognition and the actual cash rent paid is reflected in Other Long-Term Liabilities on the consolidated balance sheets.

Deposits

Deposits consist of security deposits in the amount of two months’ rent required by the Texas Ten facility lease, one months’ rent required by the St. Giles lease, and various utility deposits.

Revenue Recognition and Patient Service Revenue

Payments are received from the Medicare program under a prospective payment system (“PPS”). For skilled nursing services, Medicare pays a fixed fee per Medicare patient day, based on the acuity level of the patient.

F-72

Medicare program payments for long-term care services are based upon fixed per diem rates negotiated with a managed care organization contracted by the applicable state. The Medicaid program is jointly funded by the federal government and states. The federal government pays states for a specific percentage of program expenditures, called the Federal Medical Assistance Percentage (“FMAP”). FMAP varies by state based on criteria such as per capita income. FMAPs are adjusted for each state on a three-year cycle to account for fluctuations in the economy. The FMAP is published annually in the Federal Register.

The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups (“RUG”) based on the acuity level of the patient to determine the amount paid for patient services. The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries. Management believes the Company has made adequate provision for any adjustments that may result from these reviews. Any differences between the net revenues and the final determination will be adjusted in future periods as adjustments become known.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk include cash on deposit with financial institutions in excess of the $250,000 FDIC coverage limit. At December 31, 2015, the Company had bank deposits in excess of coverage of $7,575,006. The Company has not experienced any losses to date on deposited cash.

The Company grants credit without collateral to its residents, of whom most are insured under governmental programs or third-party contractual agreements. The collectability or reliability of the accounts receivable is dependent primarily upon the performance of the government unit, the third party, or the resident’s family. Management does not believe significant credit risks are associated with accounts receivable.

Allowance for Doubtful Accounts

Patient accounts receivable are presented on the balance sheets net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated bad debts based on historical data. Individual uncollectible accounts are written off against the allowance when collection appears doubtful and collection efforts have been exhausted.

Due to the lack of historical data, the Company has estimated an allowance for doubtful accounts of approximately one percent of net service revenues. As of December 31, 2015 and 2014, the estimated allowance was $345,000 and $0, respectively.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Accounting standards allow the Company to evaluate qualitative events and circumstances to determine whether it is more likely than not the Company’s carrying value exceeds its fair value. Quantitative tests are performed if required. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company identified no such impairment losses during the year ended December 31, 2015 and for the period from April 21, 2014 (inception) to December 31, 2014.

F-73

Capitalization of Pre-Construction Costs

The Company capitalizes pre-construction costs until the project is placed in-service, at which time the asset is depreciated over its useful life.

Income Taxes

New Accounting Pronouncements

In April 2015, the FASB issued ASU 2015-03, Imputation of Interest (Sub-Topic 835.30): Simplifying the Presentation of Debt Issuance Costs . ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15 clarifying the application of this guidance to line of credit arrangements. The amendments in the ASUs are effective retrospectively for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for financial statements not previously issued. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The FASB is amending the Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a nonpublic entity, the amendments in this update, as deferred one year by ASU 2015-14, are effective for annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early application is permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

F-74

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through March 10, 2016, the date the financial statements were available to be issued.

(2)

Assets Limited as to Use

The working capital reserve was established as a liquid working capital reserve fund for operation of the facilities and any withdrawal requires consent of the landlord. The reserve balance is $6,000,000. The required balance will decrease by $2,000,000 per year from 2016 to 2018 if the Company complies with certain financial covenants. The replacement reserve fund calls for an amount of $500 per bed to be used for capital improvements throughout the life of the lease. The total replacement reserve required is $572,500 and is being funded in equal monthly installments during the first year of the lease.

The balance in the reserve accounts as of December 31, 2015 and 2014 was $6,239,762 and $0, respectively.

(3)

Intangible Assets

Amortization expense related to these costs was $15,136 and $0 for the years ended December 31, 2015 and 2014, respectively.

Estimated future amortization expense is as follows:


2016	$	109,164
2017		109,164
2018		36,388

	$	254,716

F-75

(4)

Pre-Construction Costs

The Company is currently developing skilled nursing and assisted living facilities in Texas. These pre-construction amounts are classed into three specific projects: Adora 8 (Creekside), Adora 9 (Midtown), and Adora 10 (Hurst). Funding sources for these projects are based on the approximate ratio of 6 percent equity financing, 69 percent conventional debt financing, and 25 percent mezzanine debt financing. Below is a breakdown of the accumulated construction costs and projected project total cost as of December 31:


	Adora 8 (Creekside)		Adora 9 (Midtown)		Adora 10 (Hurst)		Total Cost
2015
Architecture Fees	$	597,281	$	695,398	$	—	$	1,292,679
Developer Fees		132,901		302,808		—		435,709
Due Diligence		93,770		92,795		—		186,565
Land Acquisition		808,423		1,931,529		—		2,739,952
Land Use/Planning		8,982		4,199		—		13,181
Legal Fees		28,731		50,623		—		79,354
Other		2,032		68,628				70,660
Permits		30,731		34,088		—		64,819

	$	1,702,851	$	3,180,068	$	—	$	4,882,919

2014
Architecture Fees	$	93,648	$	271,002	$	49,603	$	414,253
Developer Fees		61,900		92,600		49,500		204,000
Due Diligence		42,233		39,008		39,008		120,249
Land Acquisition		15,000		70,000		—		85,000
Land Use/Planning		6,131		—		—		6,131
Legal Fees		4,100		2,744		3,060		9,904
Permits		—		2,315		—		2,315

	$	223,012	$	477,669	$	141,171	$	841,852

Projected Project Cost	$	22,273,134	$	23,572,576	$	19,666,754	$	65,512,464

During the year ended December 31, 2015, the Company abandoned the Adora 10 (Hurst) project. The Company had incurred $396,858 in land acquisition and development charges, which was expensed when management deemed the project not viable. This amount is recorded in the statements of operations under Other Expenses for the year ended December 31, 2015.

Subsequent Event

(5)

Receivables Financing

F-76

month’s average balance outstanding, as well as an unused commitment fee of 0.5 percent. The debt is partially secured by the personal guarantees of certain members of the Company.

The outstanding balance as of December 31, 2015 and 2014 was $5,251,612 and $0, respectively.

(6)

Note Payable

The Company entered into a loan and security agreement with an unrelated third party in 2015. Interest accrues at 8 percent on the outstanding balance, with the first payment due February 2016. All outstanding principal and interest is due August 2016. As of December 31, 2015 and 2014, the outstanding balance was $3,450,000 and $0, respectively. The loan is guaranteed by the assets of the Company and its members.

(7)

Related Party Accounts

The members have loaned funds to the Company during the course of operations. Some of these funds were originally classified as equity investments, but were reclassified to debt during 2015. These funds accrue interest at 12 percent, in accordance with the operating agreement. The Company intends to pay principal and accrued interest when funds become available. The total amounts due to members were $945,000 and $0 for the years ended December 31, 2015 and 2014, respectively.

The Company is related through common ownership to the management company of its subsidiaries, OnPointe Management, LLC. Various transactions are entered into in the normal course of business between the common entities. Intercompany payables of $595,520 and $0 have resulted from these transactions as of December 31, 2015 and 2014, respectively, and are carried on the consolidated balance sheets at their original value. These payables are expected to be paid as cash becomes available in the common entities.

Unpaid management fees totaled $1,033,901 and $0 as of December 31, 2015 and 2014, respectively.

(8)

Major Customers

The facility’s patient service revenues are derived primarily from federal (Medicare) and state (Medicaid) programs. Below is a summary of the composition of revenues and accounts receivable as of December 31, 2015:


	Revenue			Accounts Receivable
Medicaid		48.44	%		47.31	%
Medicare		28.48	%		28.98	%
Managed Care		8.35	%		16.26	%
Other		14.73	%		7.45	%

		100.00	%		100.00	%

(9)

Management Agreements

The Company’s wholly-owned consolidated skilled nursing home subsidiaries are managed by OnPointe Management, LLC, a company related through common ownership. Management fees are accrued on five percent of net revenues of the nursing homes’ operations; however, the Company only pays three percent until certain operational metrics are achieved in accordance with the Master Lease Agreement. For the years ended December 31, 2015 and 2014 management fees were $1,724,792 and $0, respectively.

(10)

Lease Commitments

F-77

The Master Lease Agreement includes a provision for the payment of additional rents from the facilities owned by GruenePointe 1 Brownwood, GruenePointe 1 Graham, GruenePointe 1 Kerens, and GruenePointe 1 River City. The contingent rent totals 20 percent of year-to-year growth in net patient service revenue, if any, until the facility achieves certain yield benchmarks. Potential additional rent payments begin in the second lease year and continue throughout the lease term and are subject to a maximum limit.

Combined future lease commitments are as follows:


Year	Amount
2016	$	13,928,108
2017		14,206,671
2018		14,490,804
2019		14,780,620
2020		15,076,232
Thereafter		151,196,697

	$	223,679,132

The Texas Ten purchase and sale agreement resulted in a $13,673,167 gain which will be recognized over the initial lease term of fifteen years. A portion of the gain ($12,000,000) is contingent upon the Company achieving certain financial benchmarks during the first four years of the lease. The recognized gain for the year ended December 31, 2015 was $46,477 and is a reduction of lease expense.

The components of lease expense as of December 31, 2015 are as follows:


Cash Payments of Lease	$	5,785,888
Deferred Lease Liability		844,059
Recognized Gain on Sale/Leaseback		(46,477	)

	$	6,583,470

(11)

Contingencies

The Company, certain members, and OnPointe Management, LLC, a related party, are jointly and severally liable for repayment of the contingent purchase price of $12,000,000 under the purchase and sale agreement and obligations under the Master Lease Agreement above. The contingency will reduce in amount by $3 million each January 1, beginning January 2016 through 2019, if the Company achieves certain financial benchmarks. Certain members are jointly and severally liable up to an amount not to exceed $6,000,000 in the aggregate. OnPointe Management, LLC is jointly and severally liable up to any management fees paid to them in the previous 12 months.

(12)

Legal Actions and Claims

In October 2015, the Company filed suit against one of its former managers asserting breach of contract, breach of fiduciary duty, willful misconduct, and negligence related to unauthorized transfers of funds. The Company is seeking more than $1,250,000 in direct damages and $1,000,000 in lost profits.

Subsequent Event

In February 2016, the lawsuit was partially settled for $695,094 (the total of the unauthorized transfers). This amount is recorded in Prepaids and Other Assets as of December 31, 2015.

F-78

Shares

LOGO

MEDEQUITIES REALTY TRUST, INC.

Common Stock

PROSPECTUS

FBR

J.P. Morgan

Citigroup

KeyBanc Capital Markets

RBC Capital Markets

Until , 2016 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as soliciting dealers with respect to their unsold allotments or subscriptions.

, 2016

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31.

Other Expenses of Issuance and Distribution.

The following table itemizes the expenses incurred by us in connection with the issuance and distribution of the securities being registered hereunder. All amounts shown are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the NYSE listing fee.


SEC registration fee	$	17,430
FINRA filing fee	$	22,350
NYSE listing fee	$	*
Printing and engraving fees	$	*
Legal fees and expenses	$	*
Accounting fees and expenses	$	*
Transfer agent and registrar fees	$	*
Miscellaneous expenses	$	*
Total	$	*

*	To be completed by amendment.

Item 32.

Sales to Special Parties.

The information set forth in Item 33 is incorporated herein by reference.

Item 33.

Recent Sales of Unregistered Securities.

On May 5, 2014, we issued 1,000 shares of our common stock to John W. McRoberts, our Chairman and Chief Executive Officer, in connection with the initial capitalization of our company for an aggregate price of $1,000. The issuance of such shares was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act, and Regulation D thereunder. These shares were repurchased for $1,000 after the initial private placement.

On July 31, 2014, we sold an aggregate of 405,833 shares of our common stock, at a price per share of $15.00, for an aggregate offering price of approximately $6.1 million, to certain of our officers, directors and their family members in a private placement in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder.

On July 31, 2014, we sold an aggregate of 10,351,040 shares of our common stock, at a price per share of $15.00, to certain institutional and individual investors, with FBR Capital Markets & Co., or FBR, acting as initial purchaser/placement agent and, on August 22, 2014, we sold an additional 188,521 shares of our common stock pursuant to the exercise by FBR of its option to purchase shares to cover additional allotments, in each case in reliance upon exemptions from registration provided by Rule 144A, Regulation S and Regulation D under the Securities Act, which we collectively refer to as the initial private placement. The aggregate offering price of the initial private placement was $157.8 million, and the net proceeds from the initial private placement was approximately $145.6 million after deducting initial purchaser’s discount and placement fees of approximately $9.2 million and other offering expenses. In the initial private placement, some of the shares were reoffered by FBR to “qualified institutional buyers,” as defined in Rule 144A under the Securities Act, or to certain persons outside of the United States in offshore transactions in reliance on Regulation S under the Securities Act. The remaining shares were offered pursuant to a private placement to “accredited investors,” as defined in Rule 501 under the Securities Act, with FBR acting as the placement agent.

II-1

On July 31, 2014, August 1, 2014, May 18, 2015, July 1, 2015, July 31, 2015 and August 13, 2015, we issued an aggregate of 119,681, 2,934, 4,800, 2,667, 125,332 and 6,060, respectively, restricted shares of our common stock to our executive officers, non-employee directors and certain other employees and an aggregate of 154,526, 4,401, 7,200, 4,000 and 187,998, respectively, restricted stock units to our executive officers and certain other employees, in each case under the 2014 Equity Incentive Plan and in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and Rule 701 thereunder.

On August 27, 2014, November 10, 2014, January 1, 2015, August 13, 2015 and January 1, 2016, we issued an aggregate of 2,775, 4,165, 16,665, 2,272 and 16,665, respectively, restricted shares of our common stock to our non-employee directors as part of their annual fee, in each case under the 2014 Equity Incentive Plan and in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and Rule 701 thereunder.

On January 28, 2015, we sold 125 shares of our 12.5% Series A Redeemable Cumulative Preferred Stock, for an aggregate offering price of $125,000, to “accredited investors,” as defined under Rule 501 under the Securities Act, with Iroquois Capital Advisors, LLC acting as the placement agent, in a private placement in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder. The aggregate placement fee was $12,500.

On March 11, 2015 and April 1, 2015, we sold an aggregate of 125,000 shares of our 7.875% Series B Redeemable Cumulative Preferred Stock to Carter/Validus Operating Partnership, L.P., for an aggregate offering price of $125.0 million in a private placement in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act.

Item 34.

Indemnification of Trustees and Officers.

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains a provision which eliminates our directors’ and officers’ liability to the maximum extent permitted by Maryland law.

Maryland law requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that: (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; (b) the director or officer actually received an improper personal benefit in money, property or services; or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

Our charter authorizes us, to the maximum extent permitted by Maryland law, to obligate ourselves and our bylaws obligate us, to indemnify any present or former director or officer or any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, trustee, member

II-2

or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that individual may become subject or which that individual may incur by reason of his or her service in any of the foregoing capacities and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding.

We have entered into indemnification agreements with each of our executive officers and directors whereby we have agreed to indemnify such executive officers and directors to the fullest extent permitted by Maryland law against all expenses and liabilities, subject to limited exceptions. These indemnification agreements also provide that upon an application for indemnity by an executive officer or director to a court of appropriate jurisdiction, such court may order us to indemnify such executive officer or director. In addition, our directors and officers are indemnified for specified liabilities and expenses pursuant to the partnership agreement of MedEquities Realty Operating Partnership, LP, the partnership whose sole general partner is our wholly owned subsidiary.

Furthermore, our officers and directors are indemnified against specified liabilities by the underwriters, and the underwriters are indemnified against certain liabilities by us, under the underwriting agreement relating to this offering. See “Underwriting.”

Insofar as the foregoing provisions permit indemnification of directors, officer or persons controlling us for liability arising under the Securities Act, we have been informed that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 35.

Treatment of Proceeds from Stock Being Registered.

None of the proceeds will be contributed to an account other than the appropriate capital account.

Item 36.

Financial Statements and Exhibits.

(a)	Financial Statements. See page F-1 for an index to the financial statements included in the registration statement.

(b)	Exhibits. The list of exhibits filed with or incorporated by reference in this Registration Statement is set forth in the Exhibit Index following the signature page herein.

Item 37.

Undertakings.

(a)	The undersigned registrant hereby undertakes to provide to the underwriters at the closings specified in the purchase agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b)

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

II-3

(c)	The undersigned Registrant hereby further undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Nashville, state of Tennessee on the day of May 5, 2016.


MEDEQUITIES REALTY TRUST, INC.

By:		/s/ John W. McRoberts
		John W. McRoberts Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the registration statement has been signed by the following persons in the capacities and on the dates indicated.


Name	Capacity	Date

/s/ John W. McRoberts John W. McRoberts	Chairman and Chief Executive Officer (principal executive officer)	May 5, 2016

/s/ William C. Harlan William C. Harlan	President, Chief Operating Officer and Director	May 5, 2016

/s/ Jeffery C. Walraven Jeffery C. Walraven	Executive Vice President and Chief Financial Officer (principal financial officer)	May 5, 2016

/s/ David L. Travis David L. Travis	Senior Vice President and Chief Accounting Officer (principal accounting officer)	May 5, 2016

* Randall L. Churchey	Director	May 5, 2016


* John D. Foy	Director	May 5, 2016

* Steven I. Geringer	Director	May 5, 2016

* Stephen L. Guillard	Director	May 5, 2016


* Elliott Mandelbaum	Director	May 5, 2016

II-5


Name	Capacity	Date

* Stuart C. McWhorter	Director	May 5, 2016


* James B. Pieri	Director	May 5, 2016



*By:		/s/ William C. Harlan
		William C. Harlan Attorney-in-Fact

II-6

Exhibit Index


Exhibit Number		Exhibit Document

1.1*		Form of Underwriting Agreement.

3.1**		Articles of Amendment and Restatement.

3.2**		Articles Supplementary, designating MedEquities Realty Trust, Inc.’s 12.5% Series A Redeemable Cumulative Preferred Stock.

3.3**		Articles Supplementary, designating MedEquities Realty Trust, Inc.’s 7.875% Series B Redeemable Cumulative Preferred Stock.

3.4**		Amended and Restated Bylaws.

5.1*		Opinion of Morrison & Foerster LLP.

8.1*		Opinion of Morrison & Foerster LLP.

10.1**		First Amended and Restated Agreement of Limited Partnership of MedEquities Realty Operating Partnership, LP, dated July 31, 2014.

10.2**		Amendment No. 1, dated January 28, 2015, to the First Amended and Restated Agreement of Limited Partnership of MedEquities Realty Operating Partnership, LP.

10.3**		Amendment No. 2, dated March 10, 2015, to the First Amended and Restated Agreement of Limited Partnership of MedEquities Realty Operating Partnership, LP.

10.4†**		MedEquities Realty Trust, Inc. Amended and Restated 2014 Equity Incentive Plan.

10.5†**		Form of Restricted Stock Unit Award Agreement.

10.6†**		Form of Restricted Stock Award Agreement for Officers.

10.7†**		Form of Restricted Stock Award Agreement for Directors.

10.8†**		Amended and Restated Employment Agreement, dated as of August 13, 2015, by and among MedEquities Realty Trust, Inc., MedEquities Realty Operating Partnership, LP and John W. McRoberts.

10.9†**		Amended and Restated Employment Agreement, dated as of August 13, 2015, by and among MedEquities Realty Trust, Inc., MedEquities Realty Operating Partnership, LP and William C. Harlan.

10.10†**		Amended and Restated Employment Agreement, dated as of August 13, 2015, by and among MedEquities Realty Trust, Inc., MedEquities Realty Operating Partnership, LP and Jeffery C. Walraven.

10.11**		Registration Rights Agreement, dated July 31, 2014, by and among MedEquities Realty Trust, Inc. and FBR Capital Markets & Co.

10.12**		Stock Purchase Agreement, dated as of July 25, 2014, by and among MedEquities Realty Trust, Inc. and the Purchasers listed on the signature pages thereto.

10.13†*		Indemnification Agreement by and between MedEquities Realty Trust, Inc. and each of its directors and officers listed on Schedule A thereto.

10.14**		Purchase and Sale Agreement, dated as of June 1, 2014, by and between Kentfield THCI Holding Company, LLC and MedEquities Realty Trust, Inc.

10.15**		First Amendment, dated as of July 28, 2014, to the Purchase and Sale Agreement, by and between Kentfield THCI Holding Company, LLC and MedEquities Realty Trust, Inc.

10.16		Facility Lease Agreement, dated as of August 1, 2014, by and between MRT of Kentfield CA – LTACH, LLC and 1125 Sir Francis Drake Boulevard Operating Company, LLC d/b/a Kentfield Rehabilitation and Specialty Hospital.


Exhibit Number		Exhibit Document

10.17		Purchase and Sale Agreement, dated as of February 19, 2015, by and among La Mesa Real Estate, LLC, National City Real Estate II, LLC, National City Real Estate I, LLC, Upland Real Estate, LLC and MRT of La Mesa, CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC and MRT of Upland CA – SNF/ALF, LLC.

10.18		First Amendment, dated March 16, 2015, to the Purchase and Sale Agreement, by and among La Mesa Real Estate, LLC, National City Real Estate II, LLC, National City Real Estate I, LLC, Upland Real Estate, LLC and MRT of La Mesa, CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC and MRT of Upland CA – SNF/ALF, LLC.

10.19		Master Lease, dated as of March 31, 2015, by and among MRT of La Mesa, CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC and MRT of Upland CA – SNF/ALF, LLC and GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC and GHC of Upland RCFE, LLC.

10.20		First Amendment to Master Lease, dated as of October 1, 2015, by and among MRT of La Mesa, CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC, MRT of Upland CA – SNF/ALF, LLC and MRT of San Diego CA – SNF, LLC and GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC, GHC of Upland RCFE, LLC and GHC of Kearny Mesa, LLC.

10.21		Guaranty of Master Lease, dated as of March 31, 2015 by Life Generations Healthcare LLC in favor of MRT of La Mesa, CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC and MRT of Upland CA – SNF/ALF, LLC.

10.22		Master Lease Agreement, dated as of February 3, 2015, by and between Lakeway Realty, L.L.C. and Lakeway Regional Medical Center, LLC.

10.23		First Amendment to Master Lease Agreement, dated as of March 17, 2016, by and between Lakeway Realty, L.L.C. and Lakeway Regional Medical Center, LLC.

10.24		Guaranty Agreement, dated as of March 20, 2015 by LRMC Hospital Management Company, LLC in favor of Lakeway Realty, L.L.C.

10.25		Amended and Restated Operating Agreement of Lakeway Realty, L.L.C., dated as of March 20, 2015.

10.26*		First Amended and Restated Credit Agreement, dated as of July 30, 2015, by and among MedEquities Realty Operating Partnership, LP, as borrower, KeyBank National Association, as lender and administrative agent, and the other lenders and agents party thereto.

10.27*		BlueMountain Rights Agreement, dated as of July 25, 2014, by and between MedEquities Realty Trust, Inc. and BlueMountain Capital Management, LLC.

10.28*		Form of Stock Purchase Agreement, by and between MedEquities Realty Trust, Inc. and BlueMountain Capital Management, LLC.

10.29*		Securities Purchase Agreement, dated as of March 11, 2015, by and between MedEquities Realty Trust, Inc. and Carter/Validus Operating Partnership, L.P.

10.30		Purchase and Sale Agreement, dated as of July 29, 2015, by and among GruenePointe Acquisition I, LLC, MRT of San Antonio TX – SNF I, LLC, MRT of San Antonio TX – SNF II, LLC, MRT of Graham TX – SNF, LLC, MRT of Kemp TX – SNF, LLC, MRT of Kerens TX – SNF, LLC, MRT of Brownwood TX – SNF, LLC, MRT of El Paso TX – SNF, LLC, MRT of Kaufman TX – SNF, LLC, MRT of Longview TX – SNF, LLC and MRT of Mt. Pleasant TX – SNF, LLC.

10.31		Master Lease, dated July 29, 2015, by and between MRT of San Antonio TX – SNF I, LLC, MRT of San Antonio TX – SNF II, LLC, MRT of Graham TX – SNF, LLC, MRT of Kemp TX – SNF, LLC, MRT of Kerens TX – SNF, LLC, MRT of Brownwood TX – SNF, LLC, MRT of El Paso TX – SNF, LLC, MRT of Kaufman TX – SNF, LLC, MRT of Longview TX – SNF, LLC, MRT of Mt. Pleasant TX – SNF, LLC and GruenePoint 1 Graham, LLC, GruenePointe 1 El Paso, LLC, GruenePointe 1 Kerens, LLC, GruenePointe 1 Casa Rio, LLC, GruenePointe 1 River City, LLC, GruenePointe 1 Brownwood, LLC, GruenePointe 1 Longview, LLC, GruenePointe 1 Kemp, LLC, GruenePointe 1 Mt. Pleasant, LLC and GruenePointe 1 Kaufman, LLC.


Exhibit Number		Exhibit Document

10.32		First Amendment to Master Lease, dated as of January 13, 2016, by and among MRT of San Antonio TX – SNF I, LLC, MRT of San Antonio TX – SNF II, LLC, MRT of Graham TX – SNF, LLC, MRT of Kemp TX – SNF, LLC, MRT of Kerens TX – SNF, LLC, MRT of Brownwood TX – SNF, LLC, MRT of El Paso TX – SNF, LLC, MRT of Kaufman TX – SNF, LLC, MRT of Longview TX – SNF, LLC, and MRT of Mt. Pleasant TX – SNF, LLC and GruenePointe 1 Graham, LLC, GruenePointe 1 El Paso, LLC, GruenePointe 1 Kerens, LLC, GruenePointe 1 Casa Rio, LLC, GruenePointe 1 River City, LLC, GruenePointe 1 Brownwood, LLC, GruenePointe 1 Longview, LLC, GruenePointe 1 Kemp, LLC, GruenePointe 1 Mt. Pleasant, LLC, and GruenePointe 1 Kaufman, LLC.

21.1*		List of subsidiaries.

23.1		Consent of KPMG.

23.2		Consent of McNair, McLemore, Middlebrooks & Co., LLC

23.3*		Consent of Morrison & Foerster LLP (included in Exhibit 5.1).

23.4*		Consent of Morrison & Foerster LLP (included in Exhibit 8.1).

24.1**		Power of Attorney (included on the signature page to this registration statement).

*	To be filed by amendment.

**	Previously filed.

†	Indicates management contract or compensatory plan.

Exhibit 10.16

FACILITY LEASE AGREEMENT

by and between

MRT OF KENTFIELD CA – LTACH, LLC

as Landlord

AND

1125 SIR FRANCIS DRAKE BOULEVARD OPERATING COMPANY, LLC

d/b/a KENTFIELD REHABILITATION AND SPECIALTY HOSPITAL

as Tenant

Premises Location: 1125 Sir Francis Drake Boulevard

Kentfield, Marin County, California

Made as of August 1, 2014

Table of Contents


		Page

ARTICLE 1 BASIC LEASE TERMS			1
Section 1.01.	Property		1
Section 1.02.	Initial Term Expiration Date		1
Section 1.03.	Extension Options		1
Section 1.04.	Lease Term Expiration Date (if fully extended)		1
Section 1.05.	Initial Fixed Annual Rent		1
Section 1.06.	Rent Adjustment		1
Section 1.07.	Adjustment Date		1
Section 1.08.	Tenant Tax Identification No		1
Section 1.09.	Landlord Tax Identification No		1

ARTICLE 2 LEASE OF PROPERTY			2
Section 2.01.	Lease		2
Section 2.02.	Quiet Enjoyment		2

ARTICLE 3 LEASE TERM; EXTENSION			3
Section 3.01.	Initial Term		3
Section 3.02.	Extensions		3
Section 3.03.	Tenant’s Personalty		3
Section 3.04.	Fixtures and Landlord’s Personal Property; Existing Personalty		3
Section 3.05.	Replacement of Fixtures and Landlord’s Personal Property		4
Section 3.06.	Surrender of Property		4

ARTICLE 4 RENTAL AND OTHER MONETARY OBLIGATIONS			5
Section 4.01.	Security For Rental; Unconditional, Irrevocable Guarantees;
Collateralization of Guarantees; Cross-Default Provisions			5
Section 4.02.	Rent		5
Section 4.03.	Monetary Obligations		7
Section 4.04.	Net Rental		7
Section 4.05.	Accord and Satisfaction		8
Section 4.06.	Holdover		8

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TENANT			9
Section 5.01.	Organization, Authority and Status of Tenant		9
Section 5.02.	Enforceability		9
Section 5.03.	Solvency		9
Section 5.04.	Compliance with Anti-Terrorism Laws		10
Section 5.05.	Property Condition		10
Section 5.06.	Litigation		10
Section 5.07.	Absence of Breaches or Defaults		10
Section 5.08.	Licenses and Permits		11
Section 5.09.	Financial Condition; Information Provided to Landlord		11


ARTICLE 6 TAXES AND ASSESSMENTS; UTILITIES; INSURANCE		11
Section 6.01.	Taxes	11
Section 6.02.	Utilities	13
Section 6.03.	Insurance	13
Section 6.04.	Tax and Insurance Impound	18

ARTICLE 7 MAINTENANCE; ALTERATIONS		19
Section 7.01.	Maintenance and Repair	19
Section 7.02.	Alterations and Improvements	20
Section 7.03.	Cleaning Property	22
Section 7.04.	Signage and Antennas	22
Section 7.05.	Compliance With Law	22
Section 7.06.	No Liens; Indemnity Against Liens	23
Section 7.07.	Notice of Completion	23

ARTICLE 8 USE OF THE PROPERTY; COMPLIANCE		24
Section 8.01.	Use of Property; General Provisions	24
Section 8.02.	Licenses and Healthcare and Regulatory Compliance	24
Section 8.03.	Compliance with the Regulatory and Legal Requirements	26
Section 8.04.	Environmental Matters	27

ARTICLE 9 ADDITIONAL COVENANTS		34
Section 9.01.	Performance at Tenant’s Expense	34
Section 9.02.	Inspection and Access	34
Section 9.03.	SEC and Financial Statements	34
Section 9.04.	Anti-Terrorism Laws	36
Section 9.05.	Estoppel Certificates	36
Section 9.06.	Transfer of Operations Upon Termination of Lease	37

ARTICLE 10 RELEASE AND INDEMNIFICATION		42
Section 10.01.	Limit on Landlord’s Liability and Indemnity	42

ARTICLE 11 CONDEMNATION AND CASUALTY		44
Section 11.01.	Notification	44
Section 11.02.	Partial Condemnation or Casualty	44
Section 11.03.	Total Condemnation	45
Section 11.04.	Temporary Taking	45
Section 11.05.	Adjustment of Losses	46
Section 11.06.	Tenant Obligation in Event of Casualty	46
Section 11.07.	Tenant Awards and Payments	46
Section 11.08.	Waiver of Statutory Provisions	46

ARTICLE 12 DEFAULT, REMEDIES AND MEASURE OF DAMAGES		47
Section 12.01.	Event of Default	47
Section 12.02.	Remedies	49
Section 12.03.	Landlord’s Option to Cure	51
Section 12.04.	No Election	52


Section 12.05.	Tenant Waiver	52
Section 12.06.	Counterclaim Waiver	52
Section 12.07.	Attorneys’ Fees	53

ARTICLE 13 MORTGAGE, SUBORDINATION AND ATTORNMENT		53
Section 13.01.	No Liens	53
Section 13.02.	Subordination	53
Section 13.03.	Election To Declare Lease Superior	54
Section 13.04.	Tenant’s Attornment	54
Section 13.05.	Notice to Lender	54

ARTICLE 14 ASSIGNMENT		54
Section 14.01.	Assignment by Landlord	54
Section 14.02.	Transfer by Tenant	55
Section 14.03.	No Sale of Assets	57

ARTICLE 15 NOTICES		58
Section 15.01.	Notices	58

ARTICLE 16 LANDLORD’S LIEN/SECURITY INTEREST		59
Section 16.01.	Lien on Personal Property	59

ARTICLE 17 MISCELLANEOUS		60
Section 17.01.	Recitals and Exhibits	60
Section 17.02.	Landlord Definition	60
Section 17.03.	Remedies Cumulative	60
Section 17.04.	Recording	61
Section 17.05.	Successors and Assigns	61
Section 17.06.	Brokerage	61
Section 17.07.	Securitizations	61
Section 17.08.	Bankruptcy	62
Section 17.09.	Pronouns	63
Section 17.10.	Counterparts	63
Section 17.11.	Governing Law	63
Section 17.12.	Section Headings	63
Section 17.13.	Exhibits	63
Section 17.14.	Attorneys Fees	63
Section 17.15.	Lender Protection	63
Section 17.16.	Easements, Agreements, or Encumbrances	64
Section 17.17.	Writing; Applicable to Successors	64
Section 17.18.	Time of the Essence	64
Section 17.19.	Severability	64
Section 17.20.	Real Estate Investment Trust	64
Section 17.21.	Covenant Not To Compete	65
Section 17.22.	State or Local Law Provisions	65
Section 17.23.	Special Stipulations	65
Section 17.24.	Force Majeure	65

iii

Exhibits


EXHIBIT A			A-1

EXHIBIT B			B-1

EXHIBIT C			C-1

EXHIBIT D			D-1

EXHIBIT E			E-1

EXHIBIT F			F F - 1 1

SCHEDULE 3.04			132

SCHEDULE 5.06			133

FACILITY LEASE AGREEMENT

This Facility Lease Agreement (the “ Lease ”) is made as of August 1, 2014 by and between MRT of Kentfield CA – LTACH, LLC, a Delaware limited liability company, or its assignee (“ Landlord ”), and 1125 Sir Francis Drake Boulevard Operating Company, LLC d/b/a Kentfield Rehabilitation and Specialty Hospital, a Delaware limited liability company and wholly-owned subsidiary of Vibra Healthcare, LLC (“ Tenant ”). Capitalized terms not defined herein shall have the meanings set forth in Exhibit A hereto.

This Lease is entered into by Landlord and Tenant and shall become effective contemporaneously with the closing of Landlord’s acquisition of the Property from an affiliate of Tenant, Kentfield THCI Holding Company, LLC, a Delaware limited liability company (such date herein, the “ Effective Date ”), pursuant to that certain Purchase and Sale Agreement dated as of June 1, 2014 as amended by that certain First Amendment to Purchase and Sale Agreement dated on or about July 28, 2014 (the “ Purchase and Sale Agreement ”). The Landlord has acquired the Property to implement a sale leaseback transaction with Tenant. This Lease is the “ Facility Lease ” referred to in the Purchase and Sale Agreement.

In consideration of the leasing of the Property and the rent to be paid hereunder, and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant covenant and agree as follows:

ARTICLE 1

BASIC LEASE TERMS

Section 1.01 . Property . See Exhibit B attached hereto.

Section 1.02 . Initial Term Expiration Date . December 31, 2029.

Section 1.03 . Extension Options . Two (2) extensions of five (5) years each, as described in Section 3.02.

Section 1.04 . Lease Term Expiration Date (if fully extended) . December 31, 2039.

Section 1.05 . Initial Fixed Annual Rent . $4,462,500.00, absolute net to Landlord, as described in Section 4.02.

Section 1.06 . Rent Adjustment . Annually on the Adjustment Date of this Lease, rent shall be escalated by one and one-half percent (1.5%); on the second anniversary of commencement for the third year of the Lease Term, rent shall be escalated again by one and one-half percent (1.5%); on each anniversary thereafter rental shall be increased by increases in the Consumer Price Index (CPI) with an annual cap of two percent (2.0%).

Section 1.07. Adjustment Date . The last day of each Lease Year to be effective on the first day of Lease Year Two and the first day of each Lease Year thereafter.

Section 1.08. Tenant Tax Identification No . 03-0501846.

Section 1.09. Landlord Tax Identification No . . ¹

¹	The Landlord Tax Identification No. will be added by a post closing amendment.

ARTICLE 2

LEASE OF PROPERTY

Section 2.01. Lease . In consideration of the rents, covenants, and agreements herein contained, Landlord hereby leases and demises to Tenant, and Tenant hereby rents from Landlord, the Property upon the rentals, and subject to the terms and conditions hereinafter set forth. IT IS ACKNOWLEDGED AND AGREED THAT THE LANDLORD HAS JUST ACQUIRED THE PROPERTY FROM KENTFIELD THCI HOLDING COMPANY, LLC (“THE SELLER ”), A COMMONLY CONTROLLED AFFILIATE OF THE TENANT PURSUANT TO THE PURCHASE AND SALE AGREEMENT TO IMPLEMENT A SALE LEASEBACK TRANSACTION. AS A CONSEQUENCE, THE TENANT HAS BEEN UNDER COMMON CONTROL WITH THE SELLER AS OWNER OF THE PROPERTY AND HAS BEEN IN ACTUAL PHYSICAL POSSESSION OF THE PROPERTY PURSUANT TO A PREVIOUSLY EXISTING LEASE WITH THE SELLER. THE TENANT THEREFORE IS VERY KNOWLEDGEABLE ABOUT ALL ASPECTS OF THE PROPERTY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, IT THEREFORE IS EXPRESSLY UNDERSTOOD AND AGREED THAT TENANT IS LEASING THE PROPERTY “AS IS”, “WHERE IS”, AND WITH ALL FAULTS AND DEFECTS, LATENT OR OTHERWISE, AND THAT LANDLORD IS MAKING NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THE PROPERTY OR ANY PART THEREOF (INCLUDING, WITHOUT LIMITATION, THE SOIL, WATER, GEOLOGY OR ENVIRONMENTAL CONDITION OF THE PROPERTY), AND SUBJECT TO THE EXISTING STATE OF TITLE, THE PARTIES IN POSSESSION, ANY STATEMENT OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT REVEAL, AND ALL LEGAL REQUIREMENTS NOW OR HEREAFTER IN EFFECT PERTAINING TO THE PROPERTY AND ITS PRESENT AND FUTURE OPERATION BY TENANT UNDER THIS LEASE.

Section 2.02. Quiet Enjoyment . So long as Tenant complies with the terms, covenants and conditions of this Lease, Tenant shall have the peaceful and quiet use of the Property, subject to all the terms of this Lease, without any hindrance from Landlord, by any persons lawfully claiming by, through or under Landlord; provided, however, in no event shall Tenant be entitled to bring any action against Landlord to enforce its rights hereunder (i) if an Event of Default, or any event or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing or (ii) if such cause of action arises from or is based upon an event, fact or circumstance which Tenant knows or should have known based on its prior leasing of the Property from the Seller and/or its prior occupancy and operation of the Property. The provisions of this Section 2.02 are in lieu of any implied covenants of title or possession.

ARTICLE 3

LEASE TERM; EXTENSION

Section 3.01. Initial Term . The term of this Lease (“ Initial Term ”) and Tenant’s obligation to make any and all payments required under this Lease shall commence on the Effective Date (also known herein as the “ Lease Commencement Date ”) and expire on December 31, 2029 (the “ Expiration Date ” or “ Lease Expiration Date ”) unless extended as described below. The time period during which this Lease shall actually be in effect, including any Extension Term, if any, is referred to as the “ Lease Term ”.

Section 3.02. Extensions . Unless (a) this Lease has expired or has been sooner terminated, or (b) an Event of Default has occurred and is continuing at the time any extension option is exercised, or (c) there exists an event or circumstance which with notice, the passage of time or both, will become an Event of Default at the time any extension option is exercised, and provided that all other agreements necessary to the continued operation of Tenant’s business at the Property are extended for a period of not less than the applicable extension periods, Tenant shall have the right and option (each an “ Extension Option ”) to extend the Initial Term of this Lease for two (2) additional successive periods of five (5) years each (each, an “ Extension Term ”), pursuant to the terms and conditions of this Lease then in effect, except that the rental required to be paid during each applicable Extension Term shall be as set forth in Article 4 hereof. In order to exercise each Extension Term Tenant shall give Landlord written notice of its intention to exercise such Extension Term at least six (6) months prior to the end of the Initial Term or first Extension Term, as applicable.

Section 3.03. Tenant’s Personalty . Any furniture, trade fixtures, appliances, equipment or other personal property brought onto or kept on the Property after the Lease Commencement Date and owned by the Tenant (“ Tenant Personalty ”) shall be at the sole risk of the Tenant. Upon the expiration of the Lease Term, to the extent permitted in writing by Landlord, in Landlord’s sole discretion, and not otherwise inconsistent with the requirements of Section 8.01 below to relinquish the Property with Tenant Personalty and Existing Personalty sufficient for licensing and certification by applicable Governmental Authority, Tenant may remove from the Property all Tenant Personalty. Tenant shall repair any damage caused by such removal and shall leave the Property clean and in good and working condition and repair inside and out, subject to normal wear and tear. By signing this Lease, the Tenant agrees that upon surrender or abandonment of the Property, the Landlord shall not be liable or responsible for the storage or disposition of the Tenant Personalty. Any Tenant Personalty left on the Property on the tenth (10th) Business Day following the expiration of this Lease Term shall, at Landlord’s option, automatically and immediately become the property of Landlord.

Section 3.04. Fixtures and Landlord’s Personal Property; Existing Personalty . With respect to furniture, trade fixtures, appliances, equipment or other personal property located upon any Property as of the Effective Date, including without limitation, the equipment set forth on Schedule 3.04 attached hereto (herein “ Fixtures and Landlord’s Personal Property ”) and any other Tenant Personalty subsequently located on the Property (collectively, the “ Existing Personalty ”), (a) Tenant shall maintain insurance on the Existing Personalty pursuant to and in accordance with the provisions of Section 6.03 below; and (b) Tenant may utilize such Existing

Personalty and any additions thereto during the Lease Term; provided, however, that Tenant utilizes such Existing Personalty “AS IS” and “WHERE IS” without representation or warranty of any kind by Landlord, without any claim to ownership thereof.

Tenant shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Tenant’s use of the Existing Personalty. Tenant shall maintain and repair such Existing Personalty and upon the expiration or sooner termination of this Lease, at Tenant’s option, Tenant shall either leave the Existing Personalty on the Property in the same condition as of the Effective Date, normal wear and tear excepted, or remove the Existing Personalty in the same manner as set forth for Tenant Personalty in Section 3.03 above.

Section 3.05 . Replacement of Fixtures and Landlord’s Personal Property . Tenant shall not remove Fixtures and Landlord’s Personal Property from the Property, except to replace the Fixtures and Landlord’s Personal Property by other similar items of equal quality and value. Items being replaced by Tenant may be removed and shall become the property of Tenant and items replacing the same shall be and remain the property of Landlord. Tenant shall execute, upon written request from Landlord, any and all documents necessary to evidence Landlord’s ownership of Fixtures and Landlord’s Personal Property and replacements therefor. Tenant may finance replacements for the Fixtures and Landlord’s Personal Property by equipment lease or by a security agreement and financing statement if (i) Landlord has consented to the terms and conditions of the equipment lease or security agreement, which consent shall not be unreasonably withheld; and (ii) the equipment lessor or lender, as applicable, has entered into a nondisturbance agreement with Landlord upon terms and conditions reasonably acceptable to Landlord, including, without limitation, the following: (a) Landlord shall have the right (but not the obligation) to assume such security agreement or equipment lease upon the occurrence of an Event of Default under this Lease; (b) the equipment lessor or lender, as applicable, shall notify Landlord of any default by Tenant under the equipment lease or security agreement and give Landlord a reasonable opportunity to cure such default; and (c) Landlord shall have the right to assign its rights under the equipment lease, security agreement, or nondisturbance agreement. Tenant shall, within thirty (30) days after receipt of an invoice from Landlord, reimburse Landlord for all costs and expenses incurred in reviewing and approving the equipment lease, security agreement, and nondisturbance agreement, including, without limitation, reasonable attorneys’ fees and costs and for any costs incurred by Landlord in curing any default by Tenant under such equipment lease or security agreement. Without limiting the foregoing, Tenant agrees that, upon its acquiring title to any machinery, equipment, leasehold improvements, furniture or furnishings located at any Facility, title to such assets shall pass to Landlord without any payment or credit.

Section 3.06. Surrender of Property . Upon the expiration or earlier termination of this Lease, Tenant will quit and surrender the Property without the necessity of any notice from either Landlord or Tenant to terminate the same, and Tenant hereby waives notice to vacate the Property and agrees that Landlord shall be entitled to the benefit of all provisions of law respecting the summary recovery of possession of the Property from Tenant holding over to the same extent as if statutory notice had been given. Tenant will quit and surrender the Property in as good a state and condition as they were when entered into, reasonable use and wear thereof shall be excepted.

ARTICLE 4

RENTAL AND OTHER MONETARY OBLIGATIONS

Section 4.01 . Security For Rental; Unconditional, Irrevocable Guarantees; Collateralization of Guarantees; Cross-Default Provisions . Upon the execution of this Lease, in lieu of a rent deposit with Landlord, Tenant shall obtain and cause to be delivered to the Landlord an unconditional, irrevocable and continuing guaranty of payment and performance of all obligations of the Tenant under this Lease from (i) its corporate parent, Vibra Healthcare, LLC, a Delaware limited liability company (the “ Parent Guarantor ” and “ Parent Guaranty ”, respectively) and (ii) from Parent’s affiliate, Vibra Healthcare II, LLC, a Delaware limited liability company (the “ Affiliate Guarantor ” and the “ Affiliate Guaranty ”). The Parent Guarantor and the Affiliate Guarantor sometimes individually herein a “ Lease Guarantor ”, and collectively herein as the “ Lease Guarantors ” and such guarantees executed by the Lease Guarantors herein a “ Lease Guaranty ” and collectively, the “ Lease Guaranties ”).

The Parent Guaranty and the Affiliate Guaranty shall be in substantially the same form as the instruments attached hereto as collective Exhibit C .

The obligations of the Tenant and of each of the Lease Guarantors shall also be cross-collateralized and cross-defaulted with the obligations and all collateral, if any, securing any presently existing or hereafter created obligations of the Tenant and/or of each of the Lease Guarantors or their respective affiliates to the Landlord. Such cross-collateralization and such cross-default rights include the obligations of the Parent Guarantor and the Affiliate Guarantor as co-borrowers arising from that certain Ten Million and No/100 Dollars ($10,000,000.00) first mortgage loan (the “ Related Loan ” and such parties in their capacities as co-borrowers “ Related Loan Co-Borrowers ”, respectively) being made by Landlord or its affiliate and secured by a first mortgage lien on real property and improvements owned by Vibra Healthcare Real Estate Company II, LLC (“ RealCo II ”) a wholly owned subsidiary of the Affiliate Guarantor which real property comprises Vibra Hospital of Western Massachusetts (“ VHWM Hospital ”) located at 1400 State Street, Springfield, Hampden County, Massachusetts 01109.

The Parent Guaranty and the Affiliate Guaranty shall each be released and returned to Parent Guarantor and Affiliate Guarantor, respectively, at the expiration of the term of this Lease provided that Tenant shall have made all payments required under this Lease and performed all of its covenants and agreements under this Lease and shall have vacated the Property. Notwithstanding such release, the obligations of the Parent Guarantor and the Affiliate Guarantor shall continue and remain in full force and effect in the event that all or any portion of any payment or performance made by either such party is subsequently avoided or recovered directly or indirectly from the Landlord as a preference, fraudulent transfer or otherwise under the Bankruptcy Code or other similar laws or otherwise set aside and such guaranties shall be deemed automatically reinstated in such event until Landlord has indefeasibly recovered the benefit of the full payment and performance due Landlord under this Lease.

Section 4.02 . Rent . Tenant shall pay as rent for the Property the following amounts (each of which shall be considered Rent and all of which, together with any other payment due Tenant under this Lease, shall be deemed to be “ Rent ” hereunder).

(a) Fixed Annual Rent . Tenant shall pay Landlord as annual Fixed Annual Rent (the “ Fixed Annual Rent ”) the sum of Four Million Four Hundred Sixty-Two Thousand Five Hundred and No/100 Dollars ($4,462,500.00), payable in advance in equal monthly installments of Three Hundred Seventy-One Thousand Eight Hundred Seventy-Five and No/100 Dollars ($371,875.00) (the “ Fixed Monthly Rent ”). Fixed Monthly Rent shall be subject to adjustment pursuant to Section 2 of Exhibit F-2 to this Lease, “Special Stipulations Concerning Hospital Renovation Project” to account for periodic disbursement of Leasehold Improvement Funds until the Final Disbursement Date when the Aggregate Investment is completed.

The Fixed Monthly Rent shall be escalated at the beginning of the second Lease Year by one and one-half percent (1.5%); at the beginning of the third Lease Year by one and one-half percent (1.5%) and thereafter annually at the beginning of each successive Lease Year throughout the remaining Lease Term of this Lease, as such Lease Term may be extended, by an adjustment equal to the change in the CPI Factor with an annual cap of two percent (2.0%) of the Fixed Rent of the previous Lease Year. For purposes of the foregoing adjustment, the “CPI Factor” is the percentage equal to a fraction, numerator of which is the Index (as defined below) most recently published prior to each adjustment date and the denominator of which is the most recent Index which was available to the public on the first day of the preceding lease year. The term “Index” shall mean the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982 – 84 = 100) as published by the Bureau of Labor Statistics of the United States Department of Labor. Landlord shall send Tenant notice of the applicable increase (the “ Adjustment Notice ”) as promptly as practicable following each anniversary of the commencement date. Tenant shall continue to pay the prior fixed monthly rental until receipt of the Adjustment Notice, and Tenant shall remit any shortfall in fixed monthly rental for the period prior to its receipt of the Adjustment Notice with the first payment of fixed monthly rental due after Tenant’s receipt of the Adjustment Notice. Each Adjustment Notice shall set forth in brief appropriate computations to verify the new fixed monthly rental as changed pursuant to the Adjustment Notice. If at the time of preparation of the Adjustment Notice, no CPI-U is compiled and published by the Department of Labor (or any successor federal government agency), then statistics reflecting cost of living increases for the applicable period as compiled by an institution, organization or individual generally recognized as an authority by financial and insurance institutions as selected by Landlord shall be used as the basis for such computation.

The Fixed Monthly Rent for any stub period during the month in which Closing occurs shall be paid by Tenant to Landlord at the Closing. The Fixed Monthly Rent for month following the month of Closing and each month thereafter during the Lease Term of this Lease shall be paid in advance, on the first day of each and every month during the Lease Term of this Lease, by automatic bank transfer or such other method that is reasonably requested by Landlord.

Tenant’s obligation for Fixed Monthly Rent shall accrue as of the Lease Commencement Date. If the Lease Commencement Date occurs on a day other than the first day of the month, the first installment of Fixed Monthly Rent shall be prorated (at the rate of one thirtieth (1/30th) of the monthly installment of Fixed Rent for each day) and be payable on the Lease Commencement Date, along with the Fixed Monthly Rent payment for the first full calendar month of the Initial Term.

(b) Additional Rent . All other payments due to Landlord under this Lease, including, but not limited to, the payment of Taxes as defined and set forth in Section 6.01, Utilities as defined and set forth in Section 6.02, Insurance as defined and set forth in Section 6.03 and Other Operating Expenses as defined and set forth in Section 7.01 shall be and are hereby classified as “ Additional Rent ”. All payments of Additional Rent shall be payable without setoff or deduction at the time specified in this Lease, at the office of the Landlord at the address shown herein, or at such other place as Landlord may designate in writing from time to time.

(c) Sales Tax . Tenant shall pay to Landlord any and all state and local sales tax and use tax imposed on any payment deemed to be Rent under this Lease or under the Laws and rules and regulations imposing such sales and use tax. For the avoidance of doubt, Tenant will pay directly to Landlord all state and local sales tax and use tax, and Landlord will remit the same to the appropriate governmental entity.

(d) Late Charge . If Tenant fails to pay Rent within five (5) Business Days after it is due, then the amount unpaid Rent will be subject to: (i) a late payment charge, as Additional Rent, of six percent (6%) of the amount unpaid, plus applicable sales tax, in each instance to cover Landlord’s additional administrative costs; and (ii) interest on all such unpaid sums (other than the late payment charge) which interest shall commence accruing on the payment due date at a per annum rate equal to eighteen percent (18%). All payments will be applied to the oldest balance first then any other outstanding balance (including accrued late fees). Tenant’s obligation to pay late charges and interest pursuant to this Section will exist in addition to, and not in the place of, the other default provisions in this Lease.

Section 4.03. Monetary Obligations . Tenant shall pay and discharge all sums of money required to be paid or reimbursed by Tenant under this Lease to Landlord, to any party on behalf of Landlord, or to any Indemnified Party, as applicable, (“ Monetary Obligations ”). Tenant shall pay and discharge any Monetary Obligations when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within fifteen (15) days after Landlord’s demand for payment thereof or, if later, when the same are due. In no event shall Tenant be required to pay to Landlord any Monetary Obligation that Tenant is obligated to pay and has already paid to any third party pursuant to any provision of this Lease.

Section 4.04. Net Rental . The Fixed Annual Rent shall be completely net rent to Landlord, and during the entire Lease Term of this Lease, including any Extension Term, Landlord shall have no cost, obligation, responsibility or liability whatsoever for repairing, maintaining, operating or owning the Property. The parties acknowledge and agree that Landlord would not enter into this Lease if the Rent described in this Lease were not absolutely net to Landlord or if Landlord were to incur any liability whatsoever, foreseen or unforeseen, with respect to the Property or any portion thereof, or Tenant’s exercise of any other of its rights under this Lease. Accordingly, anything herein to the contrary notwithstanding, Tenant shall pay all expenses, costs, taxes, fees and charges of any nature whatsoever arising in connection with or attributable to the Property, during the Lease Term of this Lease or in any manner whatsoever arising as a result of Tenant’s exercise of, or Landlord’s grant of, the rights described in this Lease, including, without limitation, all fees of Tenant’s consultants, intangible personal

property taxes, ad valorem real estate taxes, Tenant’s accounting and attorney’s fees, costs of any financing obtained by Tenant, costs of any leasehold title insurance policy obtained by Tenant, utility charges and insurance premiums.

Tenant shall pay all Rent and all other charges due under this Lease without notice or demand and without any deductions, set-offs, counterclaims, abatements, suspensions or defenses of any kind. It is the intention of the parties that the obligations of Tenant shall be separate and independent covenants, that the Rent, and all other charges payable by Tenant shall continue to be payable in all events, and that the obligations of Tenant shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated or modified pursuant to an express provision of this Lease or a writing executed by Landlord. Tenant shall pay and be responsible to Landlord for all costs, expenses, obligations, liabilities and acts necessary to and for the proper use, operation, maintenance, care and occupancy of the Property. Tenant waives all rights now or in the future conferred by law to quit, terminate or surrender this Lease or the Property or to any abatement, suspension, deferment, or reduction of the Rent, or any other charges and under this Lease.

Section 4.05. Accord and Satisfaction . No payment by Tenant or receipt by Landlord of an amount less than is due hereunder shall be deemed to be other than payment towards or on account of the earliest portion of the amount then due by Tenant nor shall any endorsement or statement on any check or payment (or in any letter accompanying any check or payment) be deemed an accord and satisfaction (or payment in full), and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such amount or pursue any other remedy provided herein or otherwise available at law or in equity.

Acceptance by Landlord of Fixed Monthly Rent, Additional Rent or payment of any Monetary Obligations after such expiration shall not constitute a renewal of this Lease or permit Tenant to continue such holdover. The foregoing provisions of this Section 4.06 are in addition to and do not affect Landlord’s right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Property upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold the Indemnified Parties harmless from all actual and consequential damages incurred by Landlord in connection with such failure.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF TENANT

Tenant and each of the Lease Guarantors jointly and severally, with respect to themselves and with respect to each other, hereby make the following representations and warranties, each of which is material and being relied upon by Landlord, each of which is true in all respects as of the date of this Lease, and each of which shall survive the expiration or termination of this Lease.

For purposes of this Article 5, the term “to the Parties’ knowledge” shall mean the actual knowledge of the Chief Executive Officer and Chief Financial Officer of the Tenant and the actual knowledge of the Chief Executive Officer and Chief Financial Officer of each Lease Guarantor, after reasonable investigation or inquiry. Tenant and each of the Lease Guarantors, as applicable, shall re-certify such representations to Landlord periodically, upon Landlord’s reasonable request:

Section 5.01. Organization, Authority and Status of Tenant . Tenant and each Lease Guarantor has been duly organized or formed, is validly existing and in good standing under the Laws of its state of formation and each is qualified as a foreign corporation or limited liability company, as applicable, to do business in any jurisdiction where such qualification is required.

All necessary corporate or company action has been taken to authorize the execution, delivery and performance by Tenant and by each Lease Guarantor, as applicable, of this Lease, the Parent Guaranty and the Affiliate Guaranty, as applicable, and of the other documents, instruments and agreements provided for herein, to which each respectively is a party.

Tenant is not, and if Tenant is a “disregarded entity,” the owner or owners of such disregarded entity is/are not, a “nonresident alien,” “foreign corporation,” “foreign partnership,” “foreign trust,” “foreign estate,” or any other “person” that is not a “United States Person” as those terms are defined in the Code and the regulations promulgated thereunder. Neither of the Lease Guarantors and, if either of them is a “disregarded entity,” the owner or owners of such disregarded entity is/are not a “nonresident alien,” foreign corporation,” “foreign partnership,” “foreign trust,” “foreign estate,” or any other “person” that is not a “United States Person” as those terms are defined in the Code and the regulations promulgated thereunder.

The Person who has executed this Lease on behalf of Tenant and each of the Lease Guaranties on behalf of each of the Lease Guarantors is duly authorized to do so.

Section 5.02. Enforceability . This Lease and each Lease Guaranty is a legal, valid and binding obligation of Tenant and each Lease Guarantor, respectively, enforceable against Tenant and each Lease Guarantor, respectively, in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

Section 5.03. Solvency . Tenant has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by any creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (iv) suffered the attachment or other judicial seizure of all or substantially all of its assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

Neither of the Lease Guarantors has (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by any creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (iv) suffered the attachment or other judicial seizure of all or substantially all of its assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

Section 5.04 . Compliance with Anti-Terrorism Laws . To the Parties’ knowledge, with respect to terrorism: (i) neither Tenant nor either Lease Guarantor is in violation of any Anti-Terrorism Law; (ii) neither Tenant nor either Lease Guarantor is, as of the date hereof: (A) conducting any business or engaging in any transaction or dealing with any Prohibited Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person; (B) dealing in, or otherwise engaging in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224; or (C) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in, any Anti-Terrorism Law; (iii) neither Tenant nor either of the Lease Guarantors nor any of their respective officers, Affiliates, directors, shareholders or members, as applicable, is a Prohibited Person; and (iv) neither Tenant nor either of the Lease Guarantors or any holder of any direct or indirect equitable, legal or beneficial interest in Tenant or either Lease Guarantor is the subject of any Law blocking or prohibiting transactions with such person, including the USA Patriot Act. Without limiting the foregoing, to the Parties’ knowledge, neither Tenant nor either Lease Guarantor engages in any dealings or transactions, and is not otherwise associated, with any such persons or entities or any forbidden entity, including the governments of Cuba, Iran, North Korea, Myanmar and Syria.

Section 5.05 . Property Condition . Tenant has and does physically occupy the Property and has physically inspected the Property and has examined title to the Property, and has found all of the same satisfactory in all respects for all of Tenant’s purposes.

Section 5.06. Litigation . There are no suits, actions, proceedings or investigations pending, or to the Parties’ knowledge, threatened against or involving Tenant or the Property before any arbitrator or Governmental Authority which might reasonably result in any Material Adverse Effect. Except as set forth on Schedule 5.06 , there are no suits, actions, proceedings or investigations pending, or to the Parties’ knowledge threatened against or involving either Lease Guarantor before any arbitration or Governmental Authority which might reasonably result in a Material Adverse Effect.

Section 5.07. Absence of Breaches or Defaults . To the Parties’ knowledge, neither Tenant nor either Lease Guarantor is in default, beyond any applicable cure or grace periods, under any document, instrument or agreement to which Tenant or either Lease Guarantor, as applicable, is a party or by which Tenant, the Property or any of Tenant’s property or either Lease Guarantor or its respective assets is subject or bound, which has had, or could reasonably be expected to result in, a Material Adverse Effect. To the Parties’ knowledge, the authorization,

execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein, including but not limited to the Lease Guaranties, will not result in any breach of or default under any document, instrument or agreement to which Tenant or either Lease Guarantor is a party or by which Tenant, either Lease Guarantor, the Property or any of Tenant’s property is subject or bound.

Section 5.08. Licenses and Permits . Tenant has obtained all required licenses and permits, both governmental and private, to use and operate the Property as a Permitted Facility.

Section 5.09. Financial Condition; Information Provided to Landlord . The financial statements, all financial data and all other documents and information heretofore delivered to Landlord by or with respect to the Tenant , or by or with respect to either Lease Guarantor and/or the Property in connection with this Lease or otherwise relating to the Tenant, each Lease Guarantor and/or the Property are true, correct and complete in all material respects; there have been no amendments thereto since the date such items were prepared or delivered to Landlord; all financial statements provided were prepared in accordance with GAAP, and fairly present as of the date thereof the financial condition of each individual or entity to which they pertain; and no change has occurred to any such financial statements, financial data, documents and other information not disclosed in writing to Landlord, which has had, or could reasonably be expected to result in, a Material Adverse Effect.

ARTICLE 6

TAXES AND ASSESSMENTS; UTILITIES; INSURANCE

Section 6.01 . Taxes .

Tenant may, at its option, at its own expense and for its sole benefit, in its own name or in the name of the Landlord as the circumstances may require, before any delinquency occurs, protest and/or contest the validity or amount of taxes or special assessments levied upon the Property by appropriate legal proceedings diligently conducted in good faith. Landlord shall cooperate with Tenant in connection with any such protest at no expense or liability to Landlord; provided, however, that in order for Tenant to protest and/or contest the validity or amount of such taxes or special assessments, Tenant shall have provided a good and sufficient undertaking as may be required or permitted by law to accomplish a stay of any foreclosure or shall have deposited into escrow with a trustee (which shall be a title insurance company, bank, or trust company approved by Landlord), as security for the payment of such Taxes, either cash or a cash substitute or a surety bond, in an amount sufficient to pay the Taxes, together with all interest and penalties that might reasonably arise in connection therewith, and all charges that might reasonably be assessed against or become a charge on the Property, or any part thereof, in legal proceedings.

If at any time the taxing authority notifies Landlord that it is about to sell or foreclose upon the Property in an attempt to satisfy any uncontested taxes, Landlord may make written demand on Tenant to pay the contested Taxes, or so much thereof as may be required to prevent the sale of the Property, or any part thereof, or the foreclosure of the lien created thereon by such contested Taxes, and Tenant shall promptly pay the Taxes. In the event Tenant shall fail to pay the Taxes, after Landlord’s demand, then Landlord may draw upon the undertaking deposited by Tenant pursuant to the preceding paragraph and pay the same. Promptly upon the termination of any such legal proceedings, Tenant shall pay any amounts due in respect of the contested Taxes. Upon the termination of such legal proceedings, any monies deposited as herein above provided, shall be applied to the payment, removal and discharge of the Taxes, if any, then payable and the interest and penalties in connection therewith, and the charges accruing in such legal proceedings, and the balance, if any, shall be paid to Tenant. In the event of any default by Tenant under this Section, Landlord is authorized to use any money deposited under this Section to pay such Taxes. Tenant shall pay to the trustee all reasonable fees for its services.

If because of any change in law relating to the taxation of real estate, any other tax, assessment or surcharge of any kind or nature is imposed upon, against or with respect to the occupancy, rents or income therefrom, either in lieu of, in substitution for or in addition to any of the foregoing Taxes, such other tax, assessment or surcharge (which shall be measured as if the Property, as the case may be, were the only asset of Landlord or such owner) shall be deemed part of Taxes. Tenant shall furnish to Landlord, promptly, but in any case within five (5) Business Days after Landlord’s request, receipts for the payment of any Taxes or other evidence reasonably satisfactory to Landlord that such payment has been made. In addition, Tenant shall furnish to Landlord, annually throughout the Lease Term promptly following Landlord’s written request therefor, a certificate of Tenant (executed by a duly authorized officer of Tenant) stating that all Taxes have been paid to date.

If Tenant shall have failed, on any occasion, to pay any Taxes (or any part thereof), prior to delinquency absent an active protest of such Taxes which complies with the requirements of this Section 6.01, then Landlord shall have the right, at its option, to require Tenant to (i) immediately deposit with Landlord an amount equal to (A) all Taxes currently due plus (B) a portion of all Taxes payable during the current calendar year so that the deposits required by

clause (ii) of this sentence will be sufficient to permit Landlord to pay all Taxes in full from such deposits when due, and (iii) thereafter to deposit with Landlord one-twelfth (1/12) of the current annual Taxes on the first day of each month in advance, together with such additional amounts as may be required to make payments of Taxes due during said month, such additional amount to be held by Landlord without interest and to be applied against the payment of Taxes as they become due.

In the event a refund of Taxes is obtained and actually paid to Landlord, Landlord shall credit an appropriate portion thereof (after deducting any unrecouped, out-of-pocket expenses in connection with obtaining such refund) to the next installment(s) of Rent. If such refund is received after the end of the Lease Term and relates to periods during the Lease Term, Landlord shall remit such refund to Tenant within sixty (60) days after receipt. This provision shall survive the expiration or earlier termination of this Lease.

(b) I ncome Taxes . There shall be excluded from the calculation of Taxes all income taxes, excess profit taxes, capital gains taxes, or estate, succession, inheritance and transfer taxes.

If Tenant defaults in the payment of any such Utilities, Landlord may, at its option, pay such charges on behalf of Tenant, in which event Tenant shall promptly reimburse Landlord therefor and all such sums shall be deemed Additional Rent hereunder.

Landlord shall under no circumstances be liable to Tenant in damages or otherwise for failure or interruption in any service, including, electricity, water, gas, heat, telecommunication services, including telephone, sewer service or air-conditioning caused by any reason whatsoever, including the making of any repairs or improvements to the Property.

Section 6.03 . Insurance .

(a) Without limiting the liabilities or indemnification obligations of Tenant, Tenant shall, at its sole cost and expense, during the Lease Term, maintain insurance with extended coverage endorsement on the Property. Such insurance shall provide for deductibles reasonably acceptable to Landlord, and be obtained from an insurance company with a minimum Best A-(VIII) rating, unless otherwise approved by Landlord and any Lender.

(b) Tenant shall, at Tenant’s sole cost and expense, cause to be issued and shall maintain during the entire Lease Term of this Lease the following insurance coverage (“ Insurance ”):

(i) Property Insurance . Property insurance provided by a Causes of Loss-Special Form. Such insurance shall include an endorsement for building ordinance/demolition/increased cost of construction with a coverage limit as may be reasonably acceptable to Landlord. Such insurance shall, at all times, be maintained in an amount equal to

the full replacement cost of the Property as determined by Landlord annually. Such insurance shall, at all times, also be maintained in the full replacement cost of the Tenant Personalty and Existing Personalty. As used herein, the term “full replacement cost” shall mean coverage for the actual replacement cost of the Property which shall not be less than Fifty Million and No/100 Dollars ($50,000,000.00) and shall be determined by an appraiser, engineer, architect or contractor reasonably acceptable to the Tenant on behalf of Landlord, at Tenant’s sole cost and expense. The term “full replacement cost” shall also mean coverage for the actual replacement cost of the Tenant Personalty and Existing Personalty. Upon written request by Tenant, Landlord will provide Tenant with information in its possession which is reasonably necessary to establish the value of the Property or any portion thereof. Such insurance shall at all times be payable to Landlord and shall contain a loss payable clause to the holder of any Mortgage to which this Lease shall be subject and subordinate;

(ii) Equipment Breakdown Insurance . Equipment breakdown insurance for the Property, in the amount of full replacement of the Property and the Tenant Personalty and Existing Personalty, under the terms of which Landlord and Tenant will be indemnified, as their interests may appear, against any loss or damage of the Property which may result from any accident as covered under a standard equipment breakdown policy;

(iii) Flood and Earthquake Insurance . If the Property is located in a flood zone or earthquake zone, as applicable, Flood and Earthquake insurance for the Property in an amount not less than the replacement cost of the Property or, with regard to Flood Insurance, the greater of (a) the maximum limit available through the National Flood Insurance Program for Flood of the Property, as determined by Landlord or (b) a minimum of Ten Million and No/100 Dollars ($10,000,000.00). During the Lease Term, Tenant shall maintain not less than One Hundred Five Million and No/100 Dollars ($105,000,000.00) in the aggregate of earthquake coverage (comprised of $5,000,000.00 in base coverage and $100,000,000.00 in excess coverage) for all of its facilities located in the State of California. Any coinsurance requirement in the policy(ies) shall be eliminated through the attachment of an agreed upon amount endorsement in an amount reasonably acceptable to Landlord or otherwise as appropriate under the applicable policy;

(iv) Commercial General Liability Insurance . Commercial general liability insurance naming Tenant as insured, and Landlord (as Additional Insured-Landlord of Property) and such other parties that may maintain an insurable interest as Landlord shall request shall be included as additional insureds, and insuring against claims for bodily injury or property damage occurring upon, in or about the Property, or in or upon the streets, sidewalks, passageways and areas adjoining the Property, such insurance to afford protection for the Property and contractual liability with limits of not less than One Million and No/100 Dollars ($1,000,000) per each occurrence and Two Million and No/100 Dollars ($2,000,000) aggregate. The foregoing general liability insurance policy shall be primary and not contributory to any insurance which may be maintained by Landlord for Landlord’s sole protection. Tenant shall also obtain and maintain an umbrella liability policy of not less than Ten Million and No/100 Dollars ($10,000,000.00) per each occurrence and aggregate;

(v) Medical Professional Liability Insurance/Health Care Facility Professional Liability . Medical Professional Liability Insurance with limits of not less than One

Million and No/100 Dollars ($1,000,000) per each occurrence and Three Million and No/100 Dollars ($3,000,000.00) aggregate and an umbrella liability policy of not less than Ten Million and No/100 Dollars ($10,000,000.00). Coverage may be on an Occurrence or Claims Made basis. If coverage is on a Claims Made basis, in the event the policy is cancelled or not renewed, tail coverage will be purchased by Tenant for a minimum equal to the applicable statute of limitations or new coverage will include retro date of the prior policy. The foregoing Medical Professional Liability Insurance/Health Care Facility Professional Liability policy shall be primary and not contributory for any insurance which may be maintained for Landlord’s sole protection;

(vi) Automobile Liability Insurance . Automobile Liability insurance not less than $1,000,000 per occurrence covering all owned, non-owned, and hired vehicles;

(vii) Worker’s Compensation Insurance . Worker’s Compensation Insurance or other similar insurance which may be required by any Governmental Authority or applicable Legal Requirements in an amount not less than the minimum required by law. Tenant shall maintain Employer’s Limits (a sub-part of Workers’ Compensation policy) of not less than $1,000,000 each accident for Bodily Injury by Accident, $1,000,000 each employee for Bodily Injury by Disease, and $1,000,000 policy limit for Bodily Injury by Disease; and

(viii) Such additional and/or other insurance and in such amounts as at the time is customarily carried by prudent owners or tenants with respect to improvements and personal property similar in character, location and use and occupancy to the Property. The Landlord, any affiliates and subsidiaries shall be named as additional insureds on the policies referenced above, except for Medical Professional Liability Insurance, Equipment Breakdown and Workers’ Compensation. All such insurance policies obtained by Tenant shall include a waiver of subrogation endorsement in favor of the Landlord, its affiliates and subsidiaries, as well as the officers, directors, employees and agents of all such entities, unless such endorsement is prohibited by law or regulation. All such insurance policies obtained by Tenant shall include the requirement that Landlord be provided with thirty (30) days’ advance written notice of any cancellation, termination or reduction in the scope of coverage or limits provided or as stipulated herein.

(i) provide that they are carried in favor of Landlord, and any other party the Landlord so specifies, as an additional insured, including Landlord’s managing agent and any Lender, and any loss shall be payable as therein provided; except that the foregoing shall not apply to Professional Liability Insurance, Automobile Liability Insurance and Worker’s Compensation Insurance;

(ii) specifically cover the insurable liability assumed by Tenant under this Lease;

(iii) be issued by an insurance company acceptable to Landlord and any Lender of Landlord’s who has a lien upon the Property and which is qualified to do business in the state where the Property is located and which is rated A-(VIII) or better by Best’s Insurance Guide or is otherwise approved by Landlord;

(iv) be in form and content reasonably acceptable to Landlord;

(v) provide that they shall not be canceled or terminated without at least ten (10) days prior written notice to Landlord and not reduced or materially modified without at least thirty (30) days prior written notice to Landlord;

(vi) provide a standard mortgagee clause in favor of any Lender and shall contain a waiver of the insurer’s right of subrogation against funds paid under the standard mortgagee endorsement which are to be used to pay the cost of any repairing, rebuilding, restoring or replacing; and

(vii) provide that they are being issued on a primary, non-contributory basis, and with respect to any umbrella or “excess coverage” policy, such shall specifically provide that it is primary vis-a-vis any insurance policies carried by Landlord or any of Landlord’s Affiliates.

(d) Evidence of Insurance . An original Certificate of Insurance and Evidence of Property Coverage for all insurance policies required by this Article shall be delivered to Landlord at least five (5) days prior to the Lease Commencement Date, and Tenant shall endeavor to provide Landlord replacement Certificates of Insurance and Evidence of Property Coverage at least five (5) business days prior to the date of expiration of each such policy. If Tenant is unable to provide Landlord with such evidence of renewal of coverage at least five (5) business days prior to such expiration of each such policy, then Tenant shall bind renewal of such coverages by written communication with its underwriter or broker, as applicable, and, immediately upon binding such coverage, shall then confirm by e-mail or other reproducible electronic method to Landlord that such coverages have been renewed by its broker or underwriter prior to expiration of existing coverage. From time-to-time immediately after Landlord’s request thereof, Tenant shall deliver to Landlord copies of all insurance policies then being carried by Tenant pursuant to these insurance requirements.

(e) Business Interruption Insurance . Tenant shall, at all times, keep in effect business interruption insurance with a Loss Payable endorsement in favor of Landlord in an amount at least sufficient to cover each of the following for the period of the next succeeding twelve (12) months following the occurrence of the business interruption:

(i) The aggregate of the cost of all Taxes and assessments due for such twelve (12) month period;

(ii) The cost of all insurance premiums for insurance required to be carried by Tenant for such twelve (12) month period;

(iii) The aggregate of the amount of the Fixed Monthly Rent (taking into account any adjustments thereto described in 4.02(a) above) for such twelve (12) month period;

(iv) The aggregate amount of the reasonably estimated Additional Rent anticipated for such twelve (12) month period; and

(v) To the extent not covered in item t(iv) above, the aggregate cost of all utilities and other operating expenses which amount of coverage shall be determined by the average cost of such utilities and other operating expenses for the prior twelve (12) month period.

All proceeds of any business interruption insurance shall be applied, first, to the payment of any and all Fixed Monthly Rent payments for such twelve (12) month period; second, to the payment of any Taxes and assessments and insurance deposits (to the extent then required hereunder) required for such twelve (12) month period; and, thereafter, after all necessary repairing, rebuilding, restoring or replacing has been completed as required by the pertinent provisions of this Lease and the pertinent sections of any Mortgage, any remaining balance of such proceeds shall be paid over to Tenant.

(f) Coverage Adjustments . From time to time, Landlord or any Lender may require Tenant to change the amount or type of insurance or to add or substitute additional coverages which shall be required to be maintained by Tenant. Notwithstanding the foregoing provisions, to the extend not required by a Lender, the Landlord shall not require Tenant to obtain coverages the cost of which is commercially unreasonable when compared to coverages required to be maintained by Landlords of other similar properties in similar markets.

(g) Proceeds Deposited with Landlord . In the event the amount of any casualty insurance proceeds exceeds One Hundred Fifty Thousand and No/100 Dollars ($150,000), such insurance proceeds as may be paid to Tenant and Landlord shall be deposited with Landlord to be held and disbursed for the repairing, rebuilding, restoring or replacing of the Property or any portion thereof, or any improvements from time to time situated thereon or therein subject to the pertinent provisions of any Mortgage and in accordance with the provisions of this Lease.

No such sums shall be disbursed by Landlord toward such repairing, rebuilding, restoring or replacing, unless it shall be first made to appear to the reasonable satisfaction of Landlord that the amount of money necessary to provide for any such repairing, rebuilding, restoring or replacing (according to any plans or specifications which may be adopted therefor) in excess of the amount received from any such insurance policies has been expended or provided by Tenant for such repairing, rebuilding, restoring or replacing, and that the amount received from such insurance policies is sufficient to complete such work. If the proceeds of any insurance settlement are not sufficient to pay the costs of Tenant’s repairing, rebuilding, restoring or replacing damage to the Property in full, Tenant shall deposit with Landlord, at Landlord’s option, and within thirty (30) days of Landlord’s request, an amount sufficient in Landlord’s reasonable judgment to complete such repair, rebuilding or restoration. Tenant shall not, by reason of the deposit or payment, be entitled to any reimbursement from Landlord or diminution in or postponement of the payment of any Fixed Monthly Rent. The funds held by Landlord shall be disbursed only upon presentment of architect’s or general contractor’s certificates, waivers of lien, contractor’s sworn statements, and other evidence of cost and payments as may be reasonably required by Landlord or any Lender.

(h) Failure to Procure Insurance . In the event Tenant shall fail to procure such insurance, or to deliver such policies as required pursuant to the terms of this Section 6.03, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid by Tenant to Landlord immediately upon demand after delivery to Tenant of bills therefor. This paragraph shall not be deemed to be a waiver of any of Landlord’s rights and remedies, under any other provision of this Lease.

(i) Waiver of Subrogation . Landlord and Tenant intend that their respective property loss risks shall be borne fully (other than usual and customary deductible amounts as approved by Landlord) by insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

(j) Additional Obligations . It is expressly understood and agreed that (i) if any insurance required hereunder, or any part thereof, shall expire, be withdrawn, become void by breach of any condition thereof by Tenant, or become void or in jeopardy by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and any Lender designated by Landlord and in accordance with Section 6.03(b) hereof; (ii) the minimum limits of insurance coverage set forth in this Section 6.03 shall not limit the liability of Tenant for its acts or omissions as provided in this Lease; (iii) Tenant shall procure policies for all insurance for periods of not less than one year and shall provide to Landlord and any servicer or Lender of Landlord certificates of insurance or, upon Landlord’s request, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times; (iv) Tenant shall pay as they become due all premiums for the insurance required by this Section 6.03; (v) in the event any insurance policy required to be maintained by Tenant hereunder contains any breach of warranty provisions, Tenant shall not cause any violations of the policy warranties, declarations or conditions in such policy; and (vi) in the event that Tenant fails to comply with any of the requirements set forth in this Section 6.03, within three (3) business days of the giving of written notice by Landlord to Tenant, (A) Landlord shall be entitled to procure such insurance; and (B) any sums expended by Landlord in procuring such insurance shall be a Monetary Obligation (and not Rent) and shall be repaid by Tenant, together with interest thereon at the Default Rate, from the time of payment by Landlord until fully paid by Tenant immediately upon written demand therefor by Landlord.

Section 6.04 . Tax and Insurance Impound . Upon the occurrence of an Event of Default and with respect to each Event of Default, in addition to any other remedies, Landlord may require Tenant to pay to Landlord sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums. Upon such requirement, Landlord will estimate and notify Tenant of the amounts needed for such purposes, and Tenant shall pay the same to Landlord within ten (10)

days of Landlord’s notice thereof. Should additional funds be required at any time, Tenant shall pay the same to Landlord within ten (10) days after demand. Tenant shall advise Landlord of all taxes and insurance bills which are due and shall cooperate fully with Landlord in assuring that the same are paid. Landlord may deposit all impounded funds in accounts insured by any federal or state agency and may commingle such funds with other funds and accounts of Landlord. Interest or other gains from such funds, if any, shall be the sole property of Landlord. Upon an Event of Default, in addition to any other remedies, Landlord may apply all impounded funds against any sums due from Tenant to Landlord. To the extent such application of impounded funds is deemed to be a security deposit, Tenant waives the provisions of Section 1950.7 of the California Civil Code and all similar and successor Laws, that provide that a lessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a lessee or to clean the Property, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Landlord shall give to Tenant an annual accounting showing all credits and debits to and from such impounded funds received from Tenant.

ARTICLE 7

MAINTENANCE; ALTERATIONS

Section 7.01. Maintenance and Repair .

(b) In the event that any repairs or replacements require that a building permit or other governmental authorization be obtained, then the same provisions that govern the requirements for alterations shall govern the repairs and replacements, including, but not limited to, the provisions requiring Tenant to provide Landlord with plans and specifications for the

improvements and making certain that the plans and specifications comply fully with all applicable Laws, Legal Requirements, governmental regulations and building codes. Tenant will not overload the electrical wiring and will not install any additional electrical wiring or plumbing, unless it has first obtained Landlord’s written consent thereto, and, if such consent is given, installation shall be at Tenant’s sole cost and expense. Tenant will repair promptly at its own expense, any damage to the Property caused by bringing into the Property any property for Tenant’s use, or by the installation, use or removal of such property, regardless of fault or by whom such damage shall be caused, unless caused by the gross negligence or willful conduct of Landlord, its agents, employees or contractors. Tenant waives any right to require Landlord to maintain, repair or rebuild all or any part of the Property or make repairs at the expense of Landlord pursuant to any Legal Requirements at any time in effect.

(c) Tenant’s Failure to Maintain and Repair . In the event Tenant, after written notice from Landlord, shall not commence and thereafter diligently pursue, within sixty (60) days from the date of such written notice, any repairs or perform any obligation imposed upon it by this Lease, then in such event Landlord may, at its option, enter the Property and do and perform the things specified in said notice, without liability on the part of Landlord for any loss or damage resulting from any such action by Landlord (unless such loss or damage is caused by Landlord’s gross negligence or willful misconduct), and Tenant agrees to pay promptly upon demand any actual cost or expense incurred by Landlord in taking such action and all such actual costs and expenses shall be deemed Additional Rent hereunder. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

Section 7.02 . Alterations and Improvements . Tenant shall keep accurate books, records and maintenance logs as to any and all repairs and replacements and routine maintenance work performed with respect to the major systems and equipment serving the Property. Copies of such records and maintenance logs shall be delivered to Landlord upon Landlord’s request. In the event Landlord’s review of such records and logs discloses a failure of Tenant to regularly service and maintain such systems and equipment, Landlord shall provide written notice of same to Tenant and Tenant shall implement corrective action. If Tenant fails thereafter to regularly service and maintain such systems and equipment, then Landlord reserves the right, upon further written notice, to require that Tenant contract with qualified service companies for the monthly or other periodic maintenance and repair of major systems and equipment. All such contracts shall be assignable to Landlord without cost or expense to the Landlord, shall be terminable on no more than thirty (30) days’ notice without cost to the Landlord, and copies of such contracts shall be provided to Landlord promptly following execution and within ten (10) days following any replacement or renewal. The cost of contracts, if any, required to be maintained by the Tenant under this paragraph shall be borne by Tenant.

(a) Alterations . Except for alterations having a total cost of less than $300,000.00, Tenant shall not make any alterations, additions or improvements to the Property or any part thereof, without obtaining Landlord’s prior written consent in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. Any alterations, additions or improvements made by Tenant, shall immediately become the property of Landlord and shall remain upon the Property in the absence of an agreement to the contrary, provided, however, that Landlord shall have the right to require the restoration of the Property to its original condition, in which event Tenant shall comply with such requirement prior to the expiration or other termination of this Lease.

Tenant shall have the right to install on the Property such equipment, trade fixtures, and machinery as is reasonably necessary for Tenant to conduct its business in the Permitted Facility, but otherwise shall not cut or drill into or secure any fixtures, apparatus or equipment of any kind in or to any part of the Property without first obtaining Landlord’s written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

(b) Requirements for Alterations . Any and all alterations and improvements made to the Property by Tenant hereunder, shall be made at Tenant’s sole cost and expense. Any alterations or improvements made to the Property by Tenant hereunder which require Landlord’s approval shall be subject to the following requirements (and any other condition or requirement that Landlord deems necessary or desirable to insure that any alterations or improvements made to the Property conform in Landlord’s reasonable opinion to the general quality and nature of the existing improvements):

(i) The building material to be used in the construction of any improvements must be new and approved in writing by Landlord prior to the execution of any contract for or the commencement of any improvements on the Property;

(ii) No change or alteration in exterior or structural design or decor of the building or signs on the Property shall be made, unless and until approved in writing by Landlord;

(iii) The plans and specifications for the improvements must fully comply with all applicable Laws, Legal Requirements, governmental regulations and building codes;

(iv) Prior to construction, Tenant will deliver to Landlord a complete set of plans and specifications for the proposed improvements, for Landlord’s approval which approval shall not be unreasonably withheld, conditioned or delayed;

(v) Tenant shall obtain, or require the contractor to furnish, in connection with all construction work, Builder’s Risk Insurance for the full estimated value of the proposed improvements and Worker’s Compensation Insurance in amounts required by law; and

(vi) For alterations over $500,000, Tenant shall be required to furnish a payment and performance bond or such other security as Landlord may reasonably require in connection with such work.

(c) Landlord’s Consent and Approval . In the event that Landlord fails to respond to a request by Tenant under this Section 7.02 for consent or approval within fifteen (15) Business Days after receipt of such request, and such failure continues for an additional ten (10) Business Days following Landlord’s receipt of Tenant’s second (2nd) written request for approval, such failure to respond shall be deemed approval of such request, provided that Tenant’s second notice must state in bold face letters on the first page of such notice the

following language: “IF LANDLORD FAILS TO RESPOND TO THIS LETTER WITHIN TEN (10) BUSINESS DAYS FROM LANDLORD’S RECEIPT OF THIS LETTER, TENANT’S REQUEST FOR LANDLORD’S APPROVAL OF THOSE CERTAIN ALTERATIONS AND IMPROVEMENTS DESCRIBED IN THIS LETTER SHALL BE DEEMED TO BE APPROVED BY LANDLORD.”

Section 7.03. Cleaning Property . Tenant shall: (i) use, maintain and occupy the Property in a careful, safe, proper and lawful manner, keep the appurtenances, including adjoining areas and sidewalks, in a clean and safe condition, and promptly clean any debris from said sidewalks and areas contiguous to said Property during the Lease Term of this Lease at its own expense, (ii) keep the inside and outside of all glass in the doors and windows or the Property clean, (iii) maintain the Property at its own expense in a clean, orderly and sanitary condition, free of insects, rodents, vermin and trash, rubbish and other refuse, (iv) keep refuse in proper containers and arrange for the removal of all refuse from the Property; (v) maintain all landscaping in good condition; and (vi) not cause or permit objectionable odors to emanate or be dispelled from the Property.

Section 7.04. Signage and Antennas . Except for the signs and antennas identified on Exhibit D attached hereto, Tenant shall not place, suffer to be placed, or maintain any sign, billboard, marquee, awning, decoration, placard, lettering, or advertising on the building or at entrances or exits of the Property or on the glass or any window or door of the Property, unless such signage or antenna is related to a hospital purpose and, unless Tenant has first obtained Landlord’s written approval thereof. Tenant further agrees that any sign, billboard, marquee, awning, decoration, placard, lettering or advertising matter or other such Tenant installation of any kind on the Property shall be in compliance with all applicable Laws, Legal Requirements and regulations and shall be maintained by Tenant in good condition and repair at all times. Tenant shall pay any and all taxes relating to any signage or antenna that is installed on the Property and all illumination costs thereof, if any, and obtain all necessary permits or approvals for such sign. Any and all revenue derived from payments from the third parties, if any, shall be for the account of the Landlord and Tenant shall promptly report and remit same to the Landlord.

Section 7.05. Compliance With Law . Tenant shall comply in all material respects with all Laws, Legal Requirements, rules, regulations, orders, directions and requirements of all governmental departments, bodies, bureaus, agencies and officers, and with all reasonable rules, directions, requirements and recommendations of the local board of fire underwriters and other fire insurance rating organizations for the area in which the Property is situated, pertaining to the Property or the use and occupancy thereof as set forth in Section 8.01.

If Tenant proposes to undertake alterations or improvements to the Property, which would trigger a requirement under the Americans With Disabilities Act or comparable state or local Laws or regulations (the “ Disabilities Laws ”) to conduct additional improvements, alterations or other changes to the Property in order for the Property to be in compliance with the Disabilities Laws, Tenant, at its sole expense, shall make such improvements, alterations or changes to the Property.

In the event Tenant shall fail or neglect to comply with any of the aforesaid Laws, Legal Requirements rules, regulations, orders, directions, requirements or recommendations, Landlord

or its agents may enter the Property and take all such action and do all such work in or to said Property as may be necessary in order to comply with such Laws, Legal Requirements, rules, regulations, and Tenant shall reimburse Landlord promptly upon demand for the expense incurred by Landlord in taking such action and performing such work. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

Notwithstanding the Tenant’s obligations to procure insurance coverages as described in Section 6.03 above, whether pursuant to Section 6.03(g) above or otherwise, Landlord may elect to carry such insurance as it deems necessary or prudent, either as primary or secondary coverage, and if to the extent Landlord obtains such coverage, Tenant agrees not to do or suffer to be done anything on or about the Property which will contravene Landlord’s policies or which will prevent Landlord from procuring such policies from companies reasonably acceptable to Landlord or cause the cost of such coverage to be increased beyond the minimum from time to time otherwise applicable to the Property. Tenant will pay the costs of such increase promptly to the Landlord upon demand.

Section 7.06. No Liens; Indemnity Against Liens . Landlord’s interest in the Property shall not be subject to liens for improvements made by Tenant, and Tenant shall have no power or authority to create any lien or permit any lien to attach to Tenant’s leasehold or to the estate, reversion or other estate of Landlord in the Property or any improvements of which the Property is a part.

All contractors, artisans, mechanics and laborers and other persons supplying materials or labor or contracting with Tenant with respect to the Property or any part thereof, or any party entitled to claim a lien under the Laws of the state where the Property is located (whether same shall proceed in law or in equity) are hereby charged with notice that they shall look solely to Tenant to secure payment of any amounts due for work done or material furnished to Tenant relating to the Property, or for any other purpose during the Lease Term of this Lease.

Tenant shall indemnify Landlord against any loss or expenses incurred as a result of the assertion of any such lien, and Tenant covenants and agrees to transfer any claimed or asserted lien to a bond or such other security as may be permitted by law within ten (10) Business Days of the assertion of any such lien or claim of lien. In the event Tenant fails to transfer such lien to bond or other security within such ten (10) Business Day period then, in addition to its other remedies specified in this Lease, Landlord shall have the right to discharge the lien or to transfer the lien claimed to bond or other security permitted by law and in any such event Tenant shall pay all costs so incurred by Landlord immediately upon demand therefor. Tenant shall advise all persons furnishing designs, labor, materials or services to the Property in connection with Tenant’s improvement(s) thereof of the provisions of this Section.

Section 7.07. Notice of Completion . In addition to Tenant’s obligations under Section 7.02(b) of this Lease, within five days after completion of any alterations, (a) Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of Marin in accordance with Section 3093 of the Civil Code of the State of California or any successor statute and (b) Tenant shall deliver to Landlord (i) properly executed final mechanics lien

releases from all of Tenant’s contractors and such material suppliers as may reasonably be requested by Landlord in compliance with both California Civil Code Section 8136 (conditional lien waiver and release on final payment) which releases shall be conditional as to the then requested payment and Section 8138 (unconditional lien waiver and release on final payment) with respect to payment amounts previously disbursed.

ARTICLE 8

USE OF THE PROPERTY; COMPLIANCE

Section 8.01 . Use of Property; General Provisions . During the Lease Term, the Permitted Facility demised hereunder shall be used and occupied by Tenant only for and operated only as a fully licensed long term care hospital (“ LTCH ”) having no less than 60 licensed LTCH beds and for no other use or purpose. The improvements comprising the building adjoining the LTCH shall be used only as administrative offices for the Tenant and as a medical office building (“ MOB ”) for use and occupancy by licensed physicians or other licensed healthcare professionals (such as dentists, optometrists, psychologists, etc.) to examine and treat their respective patients.

Tenant shall at all times maintain in good standing and in full force and effect all the licenses, certifications and provider agreements issued by the State of California and/or the City of Kentfield and any other applicable state or federal governmental agencies, permitting the operation of a LTCH on the Property having no less than the number of licensed beds set forth above and operation and leasing of a MOB, as described above.

Tenant shall at all times use its best efforts to maximize the number of occupied beds at the Property. Without Landlord’s prior written consent, which Landlord may withhold in its sole and absolute discretion, Tenant shall not apply for, or consent to, any reduction in the number of state licensed beds or Medicaid and Medicare certified beds at the Property.

Tenant will not suffer any act to be done or any condition to exist on the Property or any portion thereof which is unlawful, known to be dangerous or which may void or make voidable any insurance then in force on the Property or any portion thereof.

Upon expiration or termination of this Lease for any reason, Tenant will return to Landlord the Property, qualified and sufficient for licensing and certification by each Governmental Authority having jurisdiction over the Property as a LTCH having no less than the number of licensed beds as set forth in Section 8.01 for the Permitted Facility, with licenses, certifications and provider agreements in full force and good standing. In this regard, Tenant shall comply in all respects with the provisions of 9.06 concerning transfer of operations upon termination of this Lease. The Property, with the improvements located thereon and all the Tenant Personalty and Existing Personalty shall be surrendered in good order, condition and repair, normal wear and tear excepted.

Section 8.02. Licenses and Healthcare and Regulatory Compliance . Tenant shall keep the Property equipped with all safety and healthcare appliances, equipment, and apparatus

required by law or ordinance or any other regulation of any public authority because of any use made by Tenant, including the uses as a LTCH and MOB. Tenant shall procure all licenses and permits required by Tenant to conduct its business and shall keep in effect all accreditations, including, but not limited to, Joint Commission accreditations which are necessary or desirable to conduct its business. Landlord, at no expense to Landlord, shall promptly cooperate with Tenant in order for Tenant to obtain and maintain any such licenses or permits. Without limiting the generality of the foregoing provisions, the Tenant shall comply with all the provisions set forth below in this Section 8.02.

Tenant will maintain in good standing all existing and/or necessary Medicare Provider Agreements and Medicaid Provider Agreements for its operation of the LTCH as operated at the commencement of this Lease. Upon request, Tenant will provide copies of all material licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, accreditations and other authorizations then maintained by Tenant or any other party affiliated with or under Tenant’s control for the ownership, operation and payment for services related to the LTCH. Tenant will not breach or default, subject to any applicable cure periods, under any of the terms, conditions and requirements such licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, accreditations or other authorizations, and, no event will be allowed to has occur, and no condition will exist, that with the giving of notice, the passage of time or both would constitute a default thereunder or would result in the suspension, revocation, impairment, forfeiture or non-renewal of any thereof, subject to any applicable cure periods. Tenant, after the date hereof, will maintain all material licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, accreditations, certifications and other authorizations necessary or appropriate to conduct its business as an operator of the LTCH as now conducted and presently planned to be conducted.

Tenant will timely file all Medicare and Medicaid cost reports and other material reports required to be filed related to the LTCH in connection with such medical reimbursement programs due, and all required reports and administrative forms and filings will be true, correct and complete in all material respects; (ii) Tenant will take all commercially reasonable actions to prevent and avoid any material claims, actions, proceedings or appeals before any governmental authority with respect to any cost reports or claims filed with respect to such medical reimbursement programs by Tenant or any affiliated party for operation of the LTCH and to avoid governmental inquiries, investigations, reviews, audits (other than customary annual cost report audits) or program integrity reviews concerning operation of the LTCH.

Tenant will take all commercially reasonable actions so that no predecessors-in-interest, current or former owners, employees, controlling persons, officers or directors, physicians or service providers of Tenant or any affiliated party will be subject to being fined, penalized or otherwise sanctioned by any third party payor, and neither Tenant will use any Medicare, Medicaid or other governmental funds to make any payment for any items or services furnished by any individual excluded from such programs.

Tenant will take all commercially reasonable actions to assure that there is no investigation or civil, administrative or criminal proceeding, relating to the participation of the Tenant, and Tenant shall use its best efforts to avoid being subjected to any fiscal audit, program audit, utilization review or quality-related review or audit by any medical reimbursement

program related to the LTCH, other than the ordinary and customary audit or utilization review of all providers participating in such medical reimbursement program. Provided that Tenant has, in fact, taken reasonable steps to prevent such proceedings and to avoid such reviews and, provided, further, that Tenant advises Landlord concerning the commencement of such actions and thereafter takes reasonable steps to contest or to remedy such actions which are the subject of inquiry, then Tenant shall be deemed in compliance with the foregoing covenant unless and until such matter shall progress to and become and Event of Default under Section 12.01 of this Lease. Tenant shall not knowingly submit to any medical reimbursement program any false or fraudulent claims for payment related to the LTCH, nor shall Tenant knowingly violate any condition for participation or knowingly violate, or act with reckless disregard or deliberate ignorance of, any rule, regulation, policy or standard of any such medical reimbursement program related to the LTCH.

With respect to the LTCH and the MOB, Tenant and any affiliated party has and will comply with all applicable provisions of the Social Security Act and regulations promulgated thereunder, laws and regulations relating to institutional and professional licensure, pharmacology or dispensing medicines or controlled substances, laboratory services, unprofessional conduct, fee splitting, kickbacks and other prohibited remuneration in exchange for referrals, billing and submission of false or fraudulent claims, medical privacy and confidentiality, 42 U.S.C. Section 1320a-7b or 42 U.S.C. Section 1395nn, the Medicare Regulations and the Medicaid Regulations. Tenant will maintain a compliance program that is reasonably designed to provide effective internal controls that promote adherence to, prevent and detect material violations of, any laws and regulations applicable to Tenant.

Tenant is currently accredited and will maintain accreditation by the Joint Commission without qualification, limitation or exception.

Tenant will take commercially reasonable steps to assure that no person excluded from participation in any medical reimbursement program has, since such person’s exclusion, acted or will hereafter act in any of the following capacities, directly or indirectly, with respect to the Tenant or any affiliated party, owner, officer, director, partner, agent, contractor, consultant or managing employee. For purposes of this section “managing employee” means a person who exercises operational or managerial control over an entity or a part thereof, or directly or indirectly conducts the day-to-day operations of the entity or a part thereof.

Section 8.03. Compliance with the Regulatory and Legal Requirements . Tenant’s use and occupation of the Property, and the condition thereof, shall, at Tenant’s sole cost and expense, comply fully with all Legal Requirements relating to the current or any future use of the Property, including, but not limited to, its use as a LTCH and as a MOB, including all restrictions, covenants and encumbrances of record, and any owner obligations under such Legal Requirements, or restrictions, covenants and encumbrances of record, with respect to the Property, in either event, the failure with which to comply could have a Material Adverse Effect. Without in any way limiting the foregoing provisions, Tenant shall comply with all Legal Requirements relating to anti-terrorism, trade embargos, economic sanctions, Anti-Money Laundering Laws, and the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder, as it affects the Property now or hereafter in effect.

Upon Landlord’s written request, from time to time during the Lease Term, Tenant shall certify in writing to Landlord and to any other parties as Landlord may designate that Tenant’s representations, warranties and obligations under Section 5.04 concerning anti-terrorism requirements and this Article 8 remain true and correct and have not been breached. Tenant shall immediately notify Landlord in writing if any of such representations, warranties or covenants are no longer true or have been breached or if Tenant has a reasonable basis to believe that they may no longer be true or have been breached. In connection with such an event, Tenant shall comply with all Legal Requirements and directives of any Governmental Authority and, at Landlord’s request, provide to Landlord copies of all notices, reports and other communications exchanged with, or received from, any Governmental Authority relating to such an event. Tenant shall also reimburse Landlord for all Costs incurred by Landlord in evaluating the effect of such an event on the Property and this Lease, in obtaining any necessary license from any Governmental Authority as may be necessary for Landlord to enforce its rights under the Transaction Documents, and in complying with all Legal Requirements applicable to Landlord as the result of the existence of such an event and for any penalties or fines imposed upon Landlord as a result thereof.

Section 8.04. Environmental Matters .

(a) Representations and Warranties . Tenant and each Lease Guarantor, jointly and severally, represents and warrants to Landlord which representations and warranties shall survive the execution, delivery and termination of this Lease, as set forth below:

(i) The Property and Tenant are not subject to any pending or, to Tenant’s or either Lease Guarantor’s actual knowledge, subject to or in violation of any threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws that could have a Material Adverse Effect, nor has Tenant or either Lease Guarantor received any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) with respect to any Property relating to (A) Hazardous Materials, Regulated Substances or USTs, or Remediation thereof; (B) possible liability of any Person pursuant to any Environmental Law; (C) other environmental conditions; or (D) any actual or potential administrative or judicial proceedings in connection with any of the foregoing that could have a Material Adverse Effect. The foregoing representations and warranties would continue to be true and correct following disclosure to each applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the Property.

(ii) (A) To Tenant’s and each Lease Guarantor’s actual knowledge, all uses and operations on or of the Property, whether by Tenant or any other Person, have been in compliance with all Environmental Laws and environmental permits issued pursuant thereto; (B) to Tenant’s and each Lease Guarantor’s actual knowledge, there have been no Releases in, on, under or from any of the Property, or from other property migrating toward any of the Property, except in Permitted Amounts; (C) to Tenant’s and each Lease Guarantor’s actual knowledge, there are no Hazardous Materials, Regulated Substances or USTs in, on, or under any of the Property, except in Permitted Amounts; (D) to Tenant’s and each Lease Guarantor’s actual knowledge, the Property has been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the “ Environmental Liens ”); and (E) Tenant has

not allowed any other tenant or other user of the Property to do any act that materially increased the dangers to human health or the environment, posed an unreasonable risk of harm to any Person (whether on or off any of the Property), impaired the value of the Property in any material respect, is contrary to any requirement set forth in the insurance policies maintained by Landlord, constituted a public or private nuisance, constituted waste, or violated any covenant, condition, agreement or easement applicable to any of the Property.

(b) Compliance with Environmental Laws . As a material inducement to Landlord to lease the Property to Tenant, Tenant covenants and warrants that Tenant and Tenant’s use and operations on the Property will, at all times, comply with and conform to all Environmental Laws, including without limitation, those Environmental Laws which relate to the Handling of any Waste on or about the Property. Tenant covenants to Landlord during the Lease Term, subject to the limitations of subsection (ii) below, as follows:

(i) The Property and Tenant shall not be (A) in violation of any Remediation required by any Governmental Authority, or (B) subject to any Remediation obligations under any Environmental Laws. Tenant shall not be in violation of any investigation or inquiry by any Governmental Authority.

(1) All uses and operations on or of the Property, whether by Tenant or any other Person, shall be in compliance with all Environmental Laws and permits issued pursuant thereto.

(2) There shall be no Releases in, on, under or from the Property, except in Permitted Amounts.

(3) There shall be no Hazardous Materials, Regulated Substances, USTs in, on or under the Property, except in Permitted Amounts.

(4) Tenant shall keep the Property or cause the Property to be kept free and clear of all Environmental Liens, whether due to any act or omission of Tenant or any other Person.

(5) Tenant shall not do or allow any other tenant or other user of the Property to do any act that (i) materially increases the dangers to human health or the environment, (ii) poses an unreasonable risk of harm to any Person (whether on or off any of the Property), (iii has a Material Adverse Effect, (iv) is contrary to any material requirement set forth in the insurance policies maintained by Tenant, (v) constitutes a public or private nuisance or constitutes waste, or (vi) violates any covenant, condition, agreement or easement applicable to the Property.

(6) Tenant shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property as may be reasonably requested by Landlord (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and upon Landlord’s written request, share with Landlord the reports and other results thereof, and Landlord and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof.

(7) Tenant shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to this Section 8.05, including but not limited to providing all relevant information and making knowledgeable persons available for interviews.

(c) Right of Entry/Compliance Inspections . Landlord and any other Person designated by Landlord, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Property at all reasonable times (including, without limitation, in connection with the exercise of any remedies set forth in this Lease) to inspect and monitor the Property and Tenant’s Operations on the Property and to assess any and all aspects of the environmental condition of any Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Landlord’s sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Tenant shall cooperate with and provide access to Landlord, and any other Person designated by Landlord. Any such assessment or investigation shall be at Tenant’s sole cost and expense. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

(d) Inspections . At its sole cost and expense, Tenant shall have the Property inspected as may be required by any Environmental Law for seepage, spillage and other environmental concerns. Tenant shall maintain and monitor USTs, if any, in accordance with all Environmental Laws. Tenant shall provide Landlord with written, certified results of all inspections performed on the Property. All costs and expenses associated with the inspection, preparation and certification of results, as well as those associated with any corrective action, shall be paid by Tenant. All inspections and tests performed on the Property shall be in compliance with all Environmental Laws.

(e) UST Compliance . Tenant shall comply or cause the compliance with all applicable federal, state and local regulations and requirements regarding USTs, if any, including, without limitation, any of such regulations or requirements which impose (i) technical standards, including, without limitation, performance, leak prevention, leak detection, notification reporting and recordkeeping; (ii) corrective action with respect to confirmed and suspected Releases; and (iii) financial responsibility for the payment of costs of corrective action and compensation to third parties for injury and damage resulting from Releases. Tenant shall immediately notify Landlord, in writing, of (A) the presence on or under the Property, or the Release from any USTs, if any, on, above or under the Property, of any Hazardous Materials or Regulated Substances, apparent or real; and (B) any and all enforcement, clean up, remedial, removal or other governmental or regulatory actions threatened, instituted or completed pursuant to any of the Environmental Laws affecting the Property.

Upon any such Release from any USTs on, above or under the Property of any Hazardous Materials or Regulated Substances, Tenant shall immediately remedy such situation in accordance with all Environmental Laws and any request of Landlord. Should Tenant fail to remedy or cause the remedy of such situation in accordance with all Environmental Laws, Landlord shall be permitted to take such actions in its sole discretion to remedy such situation and all Costs incurred in connection therewith, together with interest at the Default Rate, will be paid by Tenant.

(f) Certificate . Tenant shall, upon Landlord’s written request, deliver to Landlord a certificate stating that Tenant is and has been in full compliance with all of the environmental representations, warranties and covenants in this Lease.

(g) Notice to Landlord . Immediately upon receipt of any Notice from any party, Tenant shall deliver to Landlord a true, correct and complete copy of any written Notice or a true, correct, and complete report of any non-written Notice.

(h) Remediation . In the event (i) of any Notice; or (ii) if Tenant has caused, suffered or permitted, directly or indirectly, any Spill or Environmental Condition on or about the Property, or (iii) if any Spill or Environmental Condition has occurred on or about the Property or otherwise affecting the Property, then Tenant shall immediately take and Lease Guarantors shall cause Tenant immediately to take all of the following actions, at its sole cost and expense, and without limiting any other provision of this Lease:

(i) notify Landlord, as provided in Subsection (g), above;

(ii) effectuate any Remediation required by any Governmental Authority of any condition (including, but not limited to, a Release) in, on, under or from the Property and take any other reasonable action deemed necessary by any Governmental Authority for protection of human health or the environment;

(iii) promptly commence and diligently pursue all steps necessary or desirable, in Landlord’s reasonable opinion, to clean up any such Spill and any contamination related to the Spill or to remediate or abate such Environmental Condition or Notice;

(iv) promptly provide Landlord with copies of all reports, data, proposals, test results or analyses, assessment or remediation plans relating to such incidents;

(v) fully and diligently abate the Notice or otherwise restore the Property or affected property to its condition prior to the incident and Tenant’s Operations on the Property and in accordance with all Environmental Laws; and

(vi) fully cooperate with Landlord with respect to any such incident, including permitting Landlord to monitor and inspect all activities pursuant to subparagraphs (ii) - (v) above.

Should Tenant fail to undertake such Remediation in accordance with the preceding sentence, Landlord, after written notice to Tenant and to each Lease Guarantor and Tenant’s failure to immediately undertake such Remediation, shall be permitted to complete such Remediation, and all Costs incurred in connection therewith shall be paid by Tenant and/or the Lease Guarantors. Any Cost so paid by Landlord, together with interest at the Default Rate, shall be deemed to be a Monetary Obligation hereunder (and not Rent) and shall be immediately due from Tenant and/or the Lease Guarantors to Landlord.

(i) Tenant’s Indemnification of Landlord for Environmental Matters . Tenant and each Lease Guarantor, jointly and severally, hereby agree that it will indemnify, defend, save and hold harmless the Indemnified Parties against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, loss, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses, whether in court, out of court, in bankruptcy or administrative proceedings or on appeal), penalties, or fines, incurred by or asserted against the Indemnified Parties by reason or arising out of: (a) the breach of any representation or undertaking of Tenant under this Article 8; (b) arising out of the Spill or Handling of any Waste by Tenant or any subtenant, licensee, concessionaire, manager, or other party occupying or using the Property, or affecting the Property or as a result of Tenant’s Operations on the Property; (c) arising out of any Notice, Spill or Environmental Condition or any other contamination governed by the terms of this Section, including without limitation, (i) any loss, cost, expense, claim, or liability arising out of any investigation, monitoring, clean-up, containment, removal, storage, or restoration work required by, or incurred by Landlord or any entity or person in a reasonable belief that such work is required by any Environmental Law, (ii) any claims of third parties for loss, injury, expense, or damage of any kind or nature arising out of any Environmental Condition, Spill or Handling of any Waste on, under, in, above, to, or from the Property; and (iii) any actual loss of use or actual diminution in value of the Property.

(j) Survival of Covenants, Representations and Warranties and Indemnities . Notwithstanding anything in this Lease to the contrary, the covenants, representations, warranties, indemnities and undertakings of Tenant and the Lease Guarantors set forth in this Section are the joint and several obligations of each and shall survive the expiration or termination of this Lease, regardless of the method of expiration or termination of this Lease.

(k) Surrender/Lease Net of Environmental Risk to Landlord . This Lease is intended to be, and shall be construed as a lease absolutely net of environmental risk to Landlord. As a material inducement to Landlord to enter into this Lease, Tenant and/or each Lease Guarantor has, by virtue of its prior, direct or indirect, ownership, occupancy and use of the Property, full responsibility for and, after the Effective Date, Tenant and/or each Lease Guarantor has contractually agreed to assume all responsibility and cost of any kind associated with or arising out of any Notice, Environmental Condition or Spill or any other contamination on or about the Property arising out of or in connection with Tenant’s use or Tenant’s Operations at the Property, to indemnify the Indemnified Parties against all such hazards as provided in Subsection (i), above, fully to comply with the terms and conditions of provisions of this Section, and to restore the Property at the termination or expiration of the Lease as provided below.

Notwithstanding anything herein to the contrary, at the expiration or termination of this Lease, the Property shall be returned to Landlord in as good condition as at the commencement of Tenant’s Operations on the Property, notwithstanding any remediation of levels for Waste or Spill cleanup imposed by Environmental Laws which may be in excess of the levels of such Wastes at the Property prior to the commencement of Tenant’s Operations.

(l) Installation . Unless disclosed in writing to the Landlord prior to the Effective Date, Tenant has not and Tenant and each Lease Guarantor represents that there are no and that it shall not during the Lease Term, install any fueling facilities, gas/propane tanks, underground or above ground storage tanks, vaults, sumps, hydraulic lifts or any kind or nature, in each case, without the prior written consent of Landlord which may be withheld in Landlord’s sole discretion.

(m) Definitions in Connection with Environmental Matters .

(i) “ Environmental Condition ” shall mean any noncompliance on or about the Property with any Environmental Law (as hereinafter defined).

(ii) “ Environmental Law ” shall mean any and all federal, state, local and foreign statutes, Laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment, public health, safety, or worker protection, or to the Handling (as hereinafter defined), emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances, materials or wastes, including without limitation petroleum products, into the environment including, without limitation, ambient air, surface water, ground water, or land.

(iii) “ Handling ” shall mean use, treatment, storage, manufacture, processing, distribution, transport, placement, handling, discharge, generation, production or disposal.

(iv) “ Indemnified Parties ” means Landlord, and its members, managers, officers, directors, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, and each of their respective successors and assigns, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Landlord.

(v) “ Tenant’s Operations ” shall mean the use or occupancy of the Property by Tenant, and any subtenant, licensee, manager, concessionaire of Tenant, commencing on or about the date of this Lease and through the Lease Term of this Lease including all extensions or renewals thereof.

(vi) “ Notice ” shall mean any notice or report, whether oral or written, of any the following:

(1) any Releases or Threatened Releases in, on, under or from the Property, or migrating towards the Property;

(2) any suit, proceeding, investigation, order, consent order, injunction, writ, award, or action related to or affecting the Handling of any Waste (as hereinafter defined) on or about the Property or relating to Tenant’s use and Operations on the Property;

(3) any Spill (as hereinafter defined) or Environmental Condition on or about the Property or relating to Tenant’s Operations on the Property;

(4) any dispute relating to Tenant’s or any other party’s Handling of any Waste, Spill or Environmental Condition on or about the Property or relating to Tenant’s use and Operations on the Property;

(5) any claims by or against any insurer related to or arising out of any Waste, Spill or Environmental Condition on or about the Property or relating to Tenant’s Operations on the Property;

(6) any recommendations or requirements of any governmental or regulatory authority, or insurer relating to any Handling of Waste, Spill, or Environmental Condition on or about the Property, or relating to Tenant’s Operations on the Property;

(7) any actual or potential Environmental Lien;

(8) any non-compliance with any Environmental Laws related in any way to the Property;

(9) any Legal Requirement or deficiency related to the Handling of Waste, Spill or Environmental Condition on or about the Property or relating to Tenant’s Operations on the Property; or

(10) any written or oral notice or other communication which Tenant becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials, Regulated Substances or USTs, or Remediation thereof at the Property, possible liability of any Person relating to the Property pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section.

(vii) “ Spill ” shall mean any spill, contamination, discharge, leakage, release or escape of any Waste in or affecting the Property, whether sudden or gradual, accidental or anticipated, or of any other nature or manner that have or will occur during Tenant’s Operations on the Property.

(viii) “ Waste ” shall mean any contaminant, pollutant, chemical, petroleum product, propane, waste, waste product, radioactive waste, poly-chlorinated biphenyls, asbestos, hazardous or toxic substance, contaminant, pollutant, material, substance, or waste of any kind, and any substance which is regulated by any Environmental Law.

(n) Medical Waste . Notwithstanding anything to the contrary in this Lease, Landlord acknowledges and agrees that Tenant’s use of the Property may produce medical waste, and so long as Tenant complies or causes compliance with all applicable environmental or other laws related to use, handling, storage and disposal of such medical waste, that Landlord will not interfere with Tenant’s use of the medical products that produce such medical waste. Tenant shall handle and dispose of all such medical waste in accordance with all applicable Laws and Legal Requirements and shall fully and completely indemnify, hold harmless and defend Landlord from and against any and all liability arising from or related to the handling of medical waste on or about the Property.

ARTICLE 9

ADDITIONAL COVENANTS

Section 9.01. Performance at Tenant’s Expense . Tenant acknowledges and confirms that Landlord may impose reasonable administrative, processing or servicing fees, and collect its reasonable attorneys’ fees, costs and expenses in connection with (i) any extension, renewal, modification, amendment and termination of this Lease; (ii) any release or substitution of Property; (iii) the procurement of consents, waivers and approvals with respect to the Property or any matter related to this Lease; (iv) the review of any assignment or sublease or proposed assignment or sublease or the preparation or review of any subordination or non-disturbance agreement; (v) the collection, maintenance and/or disbursement of reserves, if any, created under this Lease or the other Transaction Documents; and (vi) inspections required to make certain determinations under this Lease or the other Transaction Documents.

Section 9.02. Inspection and Access . Tenant shall permit Landlord, its agents, employees and contractors to enter the Property and all parts thereof at all reasonable times and upon reasonable notice to Tenant to inspect the Property, show the Property to prospective purchasers or Lenders of the Property and to carry out any provision or provisions of this Lease. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Property and any other loss occasioned by such entry. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

For the period of six (6) months prior to the expiration of the Lease Term of this Lease, Landlord shall have the right to display on the exterior of the Property a sign indicating that the Property is available for rent. During such period, Landlord may show the Property and all parts thereof to prospective tenants upon reasonable notice to Tenant. In addition, at any time during the Lease Term of this Lease, Landlord shall have a right to display on the exterior of the Property a sign indicating that the Property is for sale. In addition to the foregoing rights of inspection and access, during each Lease Year, Landlord and its agents shall have the right and the option to inspect the Property, including all mechanical systems contained therein, and all computer and software systems serving the business of the Tenant, at reasonable times, from time to time, to determine Tenant’s compliance with its obligations under this Lease. Tenant shall be responsible for the reasonable cost of such annual inspections, which cost shall not exceed on an annual basis the sum of Twenty Five Thousand and No/100 Dollars ($25,000.00).

Section 9.03. SEC and Financial Statements .

(a) The Tenant and each Lease Guarantor acknowledges that Landlord, or one or more of its Affiliates (together, the “ Registered Company ”), has informed the Tenant and the Lease Guarantors that the Registered Company intends to either conduct a public offering of its securities registered with the Securities and Exchange Commission (the “ SEC ”) or register its securities for initial listing on a national securities exchange, and that the rules and regulations of the SEC, including those set forth under the Securities Act of 1933, as amended (the “ Securities Act ”), and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or

instructions to any form of registration statement (collectively, the “ SEC Rules ”) could require the Registered Company to include certain financial statements of the Tenant and/or the Lease Guarantors in a registration statement filed with the SEC under either the Securities Act or the Exchange Act or in the Company’s periodic reports filed with the SEC under the Exchange Act.

(b) In order to assist the Registered Company with complying with the SEC Rules, the Tenant and each Lease Guarantor, as applicable, shall furnish, or cause to be furnished, to the Registered Company the following information and statements in such form and detail as the Registered Company may reasonably require:

(i) as soon as available, and in any event within one-hundred twenty (120) days after the end of each fiscal year, consolidated balance sheets, statements of operations and of cash flows and stockholders’ equity of the Tenant and Lease Guarantors, as applicable, in each case with accompanying notes and schedules (collectively, the “ Financial Statements ”), for the fiscal year then ended, each prepared in accordance with generally accepted accounting principles and audited by an independent certified public accounting firm reasonably acceptable to the Registered Company;

(ii) as soon as available, and in any event within thirty (30) days after the end of each fiscal quarter, the applicable Financial Statements for such quarter and for the year to date, setting forth in each case in comparative form the corresponding figures for the previous year, each prepared in accordance with generally accepted accounting principles (except for footnote disclosures and except for consolidation of non-Lease Guarantor entities) and each certified by an officer of the Tenant and/or each Lease Guarantor, as applicable, as being complete and accurate in all material respects to the best of the knowledge of such officer;

(iii) within thirty (30) days after the end of each month, current balance sheets, monthly income statements and cash flows of the Tenant and Lease Guarantors, as applicable; and

(iv) with reasonable promptness, such other information regarding the financial condition and affairs of the Tenant and Lease Guarantors as Landlord or the Registered Company may reasonably request from time to time, to enable the Registered Company to file reports or registration statements in compliance with the rules and regulations of the SEC.

(c) The Tenant and each Lease Guarantor agree to use their reasonable best efforts to (i) obtain the consent of the Tenant’s and Lease Guarantor’s auditors to the inclusion of their audit report with respect to the Financial Statements referred to in Section 9.03(b)(i) in any registration statement, periodic report or other filing of the Registered Company with the SEC and (ii) assist any underwriter engaged by the Registered Company in obtaining a standard comfort letter with respect to any Financial Statements audited or reviewed by the auditors of the Tenant or Lease Guarantors.

(d) In the event that the Financial Statements described in Section 9.03(b)(i) are not available or the audit of such Financial Statements will not be completed by the applicable filing deadline under the SEC Rules, the Tenant and each Lease Guarantor, as applicable, shall:

(i) provide access, at the Lease Guarantors’ principal place of business, to the Registered Company, within five (5) Business Days of such request, all books and records of the Tenant and Lease Guarantors (including, without limitation, bank statements and bank reconciliations, general ledgers, subsidiary ledgers, operating statements, reimbursement records, payroll records, fixed asset records and ledgers) reasonably sufficient to support the audit of any previously unaudited Financial Statements or the preparation and audit of financial statements for the applicable accounting periods, in each case to the extent required by SEC Rules, and cooperate with the Registered Company and the Registered Company’s auditors regarding any inquiries following receipt of such information; and

(ii) cause the appropriate persons to sign and deliver to the independent registered public accounting firm a management representation letter with respect to the financial statements and related information in form and substance as reasonably requested by the Registered Company or the independent registered public accounting firm.

(e) The Tenant and each of the Lease Guarantors hereby consent to the disclosure of the financial and other information provided pursuant to this Section 9.03 in any filings with the SEC that the Registered Company may be required to make under the Securities Act or the Exchange Act and the rules and regulations thereunder.

(f) Landlord or the Registered Company shall reimburse the Tenant and the Lease Guarantors for any reasonable additional costs that Tenant or the Lease Guarantors may incur in complying with this Section 9.03.

Section 9.04. Anti-Terrorism Laws . Upon receipt of notice or upon actual knowledge thereof, Tenant shall immediately notify Landlord in writing if any Person owning (directly or indirectly) any interest in the Tenant, in either of the Lease Guarantors or in any of the Tenant Entities, or any director, officer, shareholder, member, manager or partner of any of such holders is a Person whose property or interests are subject to being blocked under any of the Anti-Terrorism Laws, or is otherwise in violation of any of the Anti-Terrorism Laws, or is under investigation by any Governmental Authority for, or has been charged with, or convicted of, drug trafficking, terrorist related activities or any violation of the Anti-Money Laundering Laws, has been assessed civil penalties under these or related Laws, or has had funds seized or forfeited in an action under these or related Laws; provided, however, that the covenant in this Section 9.04 shall not apply to any Person to the extent such Person’s interest is in or through a U.S. Publicly Traded Entity.

Section 9.05. Estoppel Certificates .

(a) Estoppel Certificate . Tenant agrees that at any time, and from time to time at reasonable intervals, within ten (10) Business Days after written request by Landlord, Tenant will execute, acknowledge and deliver to Landlord or an assignee, purchaser or lender designated by Landlord, a writing ratifying this Lease and certifying, among other things:

(i) that Tenant has entered into occupancy of the Property and the date of such entry, if such is the case;

(ii) that this Lease is in full force and effect, and has not been assigned, modified, supplemented or amended in any way (or if there has been an assignment, modification, supplement or amendment, identifying the same);

(iii) that this Lease represents the entire agreement between Landlord and Tenant;

(iv) the date of the commencement and expiration of the Lease Term;

(v) that all conditions under this Lease to be performed by Landlord as of the date of such Estoppel have been satisfied (or specifying those conditions unsatisfied);

(vi) that no default exists in the performance or observance of any term, covenant or condition of this Lease and that there are no defenses or offsets in connection therewith (or specifying any claimed default or defense); and

(vii) such other information pertaining to this Lease and the property covered hereby that may be commercially reasonable for Landlord to request for itself, for a prospective transferee or a Lender, as applicable.

Section 9.06. Transfer of Operations Upon Termination of Lease .

(a) The date on which (i) this Lease either terminates or expires pursuant to its terms or is terminated by either party, whether pursuant to a right granted to it hereunder or otherwise, (ii) the date on which Tenant’s right to possession of the Property is terminated pursuant to a right granted to it hereunder or otherwise, or (iii) the date on which Tenant otherwise abandons the Property shall be referred to as the “Termination Date” in this Section. Notwithstanding the foregoing provision, the Landlord and Tenant acknowledge and agree that the provisions of this Section 9.06 are not intended to be triggered or be applicable to a termination of this Lease pursuant to subsection A of Exhibit F-1, Special Stipulations Concerning Seismic Compliance concerning a Substitution Transaction or to subsection B of Exhibit F-1, Special Stipulations Concerning Seismic Compliance concerning Construction of a Replacement Hospital.

On the Termination Date, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Landlord (or Landlord’s designee, it being acknowledged and agreed that for purposes of this Section 9.06, the term Landlord shall be deemed to mean Landlord’s designee, if applicable) all of Tenant’s right, title and interest in and to the following intangible property which is now or hereafter used in connection with the operation of the Property (the “ Intangibles ”) and an assumption by Landlord or its designee of Tenant’s obligations under the Intangibles from and after the Termination Date; provided that, from and after the Termination Date, Tenant and each Lease Guarantor shall indemnify, defend and hold

harmless Landlord and the other Indemnified Parties from and against any claims, losses, costs or damages, including reasonable attorneys’ fees incurred or arising by reason of Tenant’s obligations under the Intangibles prior to the Termination Date for a period of two (2) years after the Termination Date:

(i) service contracts and equipment leases for the benefit of the Property to which Tenant is a party, and which can be terminated without penalty by Tenant within thirty (30) or fewer days’ notice or which Landlord requests be assigned to Landlord pursuant to this Section 9.06;

(ii) any provider agreements with Medicare, Medicaid or any other third-party payor programs (excluding the right to any reimbursement for periods prior to the Termination Date, as defined above) entered in connection with the Property to the extent assignable by Tenant;

(iii) all existing agreements with patients of the Permitted Facility and any guarantors thereof, to the extent assignable by Tenant (excluding the right to any payments for periods prior to the Termination Date) and any and all patient trust fund accounts;

(iv) to the extent assignable, all required licenses and permits, both governmental and private, to use and operate the Property as a Permitted Facility; and

(v) at Landlord’s option, the business of Tenant as conducted at the Property as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein.

Tenant shall execute, deliver and file all documents and statements requested by Landlord to effect the transfer of the Permitted Facility’s license and permits to Landlord or a replacement operator designated by Landlord, subject to any required approval of governmental regulatory authorities, and Tenant shall provide to Landlord all information and records required by Landlord in connection with the transfer of the license and permits. Effective upon such date as provided in Section 9.06(a), Tenant hereby irrevocably and unconditionally appoint Landlord, or Landlord’s authorized officer, agent, employee or designee, as Tenant’s true and lawful attorney-in-fact, to act for Tenant in Tenant’s respective name, place, and stead, to execute, deliver and file all applications and any and all other necessary documents and statements to effect the issuance, transfer, reinstatement, renewal and/or extension of the Permitted Facility’s license and permits issued to Tenant or applied for by Tenant in connection with Tenant’s operation of the Permitted Facility, to permit any designee of Landlord or any other transferee to operate the Permitted Facility under such licenses and permits, and to do any and all other acts incidental to any of the foregoing. Tenant irrevocably and unconditionally grants to Landlord as their respective attorney-in-fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as Tenant might or could do if personally present or acting, with full power of substitution, hereby ratifying and confirming all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and is irrevocable.

(b) Landlord or its designee shall be responsible for and shall pay all accrued expenses with respect to the Property accruing on or after 12:01 a.m. on the day of the Termination Date and shall be entitled to receive and retain all revenues from the Property accruing on or after the Termination Date. Within fifteen (15) Business Days after the Termination Date, the following adjustments and prorations shall be determined as of the Termination Date:

(i) Taxes and Assessments, if any . If the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Termination Date occurs, the proration of such taxes shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made when actual figures are published or otherwise become available.

(ii) Tenant will terminate the employment of all employees on the Termination Date and shall be and remain liable for any and all wages, accrued vacation and sick leave pay for employees of the Property with respect to the period prior to and including the Termination Date.

(iii) Landlord shall receive a credit equal to any advance payments by patients of the Permitted Facility to the extent attributable to periods on and after the Termination Date.

(iv) The present insurance coverage on the Property shall be terminated as of the Termination Date and there shall be no proration of insurance premiums.

(v) All other income from, and expenses of, the Property (other than mortgage interest and principal), including but not limited to public utility charges and deposits, maintenance charges and service charges shall be prorated between Tenant and Landlord as of the Termination Date. Tenant shall, if possible, obtain final utility meter readings as of the Termination Date. To the extent that information for any such proration is not available, Tenant and Landlord shall effect such proration within ninety (90) days after the Termination Date.

(vi) Tenant shall be and remain responsible for any employee severance pay and accrued benefits which may be payable as the result of any termination of an employee’s employment on or prior to the Termination Date.

(c) All necessary arrangements shall be made to provide possession of the Property to Landlord on the Termination Date, at which time of possession Tenant shall deliver to Landlord all medical records, patient records and other personal information concerning all patients of the Permitted Facility as of the Termination Date and other relevant records used or developed in connection with the business conducted at the Property. Such transfer and delivery shall be in accordance with all applicable Laws, rules and regulations concerning the transfer of medical records and other types of patient records.

Landlord, or Landlord’s designee (which shall include the Tenant in Landlord’s discretion), shall have the right, but not the obligation (unless Landlord elects to require Tenant or its designee), to manage and operate the Property, on a triple net basis, and Landlord shall be entitled to all revenues of the Property during such period, and to use any and all licenses, certifications and provider agreements issued to Tenant by any federal, state or other Governmental Authority for such operation of the Property, if permitted by any such Governmental Authority and applicable laws. If Landlord or its designee exercises the right described above in this Section 9.06, the provisions of this Section 9.06 shall, upon Landlord’s election, be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other hand, on the terms set forth above in this Section 9.06 provided, however, that upon the request of Landlord or its designee, Tenant shall enter into a separate management agreement on the terms set forth in this Section 9.06 and on such other terms and provisions as may be specified by Landlord or its designee.

(e) Tenant shall provide Landlord or its designee with an accounting within fifteen (15) days after the Termination Date of all funds belonging to patients at the Permitted Facility which are held by Tenant in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and Tenant’s warranty that the accounting is true, correct and complete. Additionally, Tenant, in accordance with all applicable rules and regulations, shall make all necessary arrangements to transfer such funds to a bank account designated by Landlord or its designee, and Landlord or its designee shall in writing acknowledge receipt of and expressly assume all Tenant’s financial and custodial obligations with respect thereto. Notwithstanding the foregoing, Tenant will indemnify, defend and hold Landlord and any other Indemnified Party harmless from and against all liabilities, claims and demands, including reasonable attorney’s fees, in the event the amount of funds, if any, transferred to Landlord’s or the designee’s bank account as provided above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Tenant as custodian that remain undisbursed for the benefit of the patient for whom such funds were deposited, or with respect to any matters relating to patient funds which accrued during the Lease Term.

(f) All cash, checks and cash equivalent at the Property and deposits in bank accounts (other than patient trust accounts) relating to the Property on the Termination Date shall remain Tenant’s property after the Termination Date. Subject to the provisions of Section 16.01 hereof, all accounts receivable, loans receivable and other receivables of Tenant, whether derived from operation of the Property or otherwise, shall remain the property of Tenant after the Termination Date. Tenant shall retain full responsibility for the collection thereof. Landlord or its designee shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Termination Date. In order to facilitate Tenant’s collection efforts, Tenant agrees to deliver to Landlord, within a reasonable time after the Termination Date, a schedule identifying all of those private pay balances owing for the month prior to the Termination Date and Landlord or its designee agrees to apply any payments received which are specifically designated as being applicable to services rendered prior to the Termination Date to reduce the pre-Termination Date balances of said patients by promptly remitting said payments to Tenant. All other payments received shall be retained by Landlord as being applicable to services rendered after the Termination Date. Landlord or its designee shall cooperate with Tenant in Tenant’s collection of its pre-termination accounts receivable.

Landlord or its designee shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a result of such activities on behalf of Tenant. Subject to the provisions of Section 16.01 hereof, Landlord shall remit to Tenant or its assignee those portions of any payments received by Landlord within five (5) Business Days of receipt which are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending on or prior to the Termination Date.

(g) With respect to patients at the Permitted Facility on the Termination Date, Landlord and Tenant agree as follows:

(i) If, following the Termination Date, Landlord or its designee receives payment from any state or federal agency or third-party provider which represents reimbursement with respect to services provided at the Property prior to the Termination Date, Landlord agrees that, subject to the provisions of Section 16.01 hereof, it shall remit such payments to Tenant within five (5) Business Days of receipt. Payments by Landlord to Tenant shall be accompanied by a copy of the appropriate remittance.

(ii) If, following the Termination Date, Tenant receives payment from any state or federal agency or third-party provider which represents reimbursement with respect to services provided at the Permitted Facility on or after the Termination Date, Tenant agrees that, it shall remit such payments to Landlord within five (5) Business Days of receipt. Payments by Tenant to Landlord shall be accompanied by a copy of the appropriate remittance.

(iii) After the Termination Date, Landlord and Tenant shall each have the right to review supporting books, records and documentation that are in the possession of the other relating to Medicaid or Medicare payments.

(h) In addition to the obligations required to be performed hereunder by Tenant and Landlord on and after the Termination Date, Tenant and Landlord agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Termination Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein, including but not limited to any documents or filings which may be required to be delivered by Tenant to Landlord or be filed in order for the transaction contemplated hereunder to be in compliance with all local, state and federal Laws, Legal Requirements, statutes, rules and regulations.

(i) Tenant for itself, its successors and assigns hereby indemnifies and agrees that for a period of two (2) years after the Termination Date, to defend and hold Landlord and the other Indemnified Parties and their respective successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Tenant in the performance of any of its commitments, covenants or obligations under this Section 9.06, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use by Tenant of the Property during the Lease Term or for any liability which may arise from operation of the Property as a LTCH during the Lease Term, including without limitation, any amounts due or to be reimbursed to any Governmental Authority based upon any audit or review of Tenant or of

the Permitted Facility or the operation thereof and pertaining to the period prior to the Termination Date or any amounts recaptured under Titles XVIII or XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Landlord under this paragraph are without prejudice to any other remedies not inconsistent herewith which Landlord may have against Tenant pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise.

(j) So long as the termination of this Lease is not due to a default by Tenant hereunder and provided further that Tenant has performed in accordance with this Section 9.06, Landlord for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Tenant and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Landlord in the performance of any of its commitments, covenants or obligations under this Section 9.06, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use of the Property after the Lease Term or for any liability which may arise from operation of the Property as a LTCH after the Lease Term. The rights of Tenant under this paragraph are without prejudice to any other remedies not inconsistent herewith which Tenant may have against Landlord pursuant to the terms of this Lease or otherwise.

ARTICLE 10

RELEASE AND INDEMNIFICATION

Section 10.01. Limit on Landlord’s Liability and Indemnity .

(a) Release of Landlord . To the maximum extent permitted by law, Tenant agrees to use and occupy the Property at its own risk, and hereby (for itself and all persons claiming under, by or through Tenant including on behalf of the Lease Guarantors each of which hereby consents and agrees hereto) releases Landlord, its agents, servants, contractors and employees, from any and all claims, costs, fines, losses, suits, actions, liabilities, damages and expense whatsoever (including all Attorneys’ Fees), interest, penalties, causes of action and expenses and demands of every kind resulting from any accident, damage or injury occurring therein, unless due solely to Landlord’s negligence or willful misconduct as determined by a court having jurisdiction over such matter. Tenant expressly covenants and agrees that Landlord shall not be responsible or liable to Tenant or to either Lease Guarantor for any loss of, or damage or injury to, inventory, fixtures, improvements, materials or any other property of Tenant, or for defects in workmanship or for improper design or construction of any alterations or improvements, whether or not approved by Landlord, or for any other loss or damage from any source whatsoever, unless such injury, loss, or damage is due solely to Landlord’s gross negligence or willful misconduct. Anything in this Section to the contrary notwithstanding, Landlord shall have no liability whatsoever for any loss, injury or damages suffered by Tenant or either Lease Guarantor to the extent such loss, injury or damage may be covered by applicable insurance policies, nor shall Landlord have any liability whatsoever for consequential damages suffered by Tenant. All Tenant Personalty and Existing Personalty which may be upon the Property during the Lease Term hereof shall be at and upon the sole risk and responsibility of Tenant.

It is expressly agreed by the parties that in no case shall Landlord, any partners, officers, directors, managers, members, agents or employees of Landlord be liable, under any express or implied covenant, agreement or provisions of this Lease, for any damages whatsoever to Tenant or to either Lease Guarantor beyond the loss of Rent reserved in this Lease, accruing after or upon any act or breach hereunder on the part of Landlord and for which damages may be sought to be recovered against Landlord.

Anything to the contrary notwithstanding, under no circumstances shall any personal liability attach to or be imposed upon Landlord or any partners, officers, directors, managers, members, agents or employees of Landlord. The term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Landlord’s interest in the Property or Landlord’s failure to act in respect of matters which are or were the obligation of Tenant under this Lease.

(b) Indemnity by Tenant . Tenant, jointly and severally with each Lease Guarantor, hereby agrees to defend, indemnify, and hold Landlord and the Indemnified Parties harmless from and against any cost, damage, claim, liability, or expense (including Attorneys’ Fees) incurred by or claimed against Landlord or any of the Indemnified Parties, directly or indirectly, which is occasioned by or results from (i) any default or Event of Default by Tenant under this Lease, (ii) any act, omission, fault, negligence, or misconduct on the part of Tenant or either Lease Guarantor, their respective agents, employees, contractors, invitees, licensees, customers, clients, family members or guests, or any other person entering the Property under the express or implied invitation of Tenant, or (iii) Tenant’s use and occupancy of the Property or the conduct of Tenant’s business. Landlord shall notify Tenant in writing of any claim or action brought against Landlord in which indemnity may be sought against Tenant pursuant to this section. Such notice shall be given in sufficient time to allow Tenant to defend or participate in such claim or action, but the failure to give such notice in sufficient time shall not constitute a defense hereunder nor in any way impair the obligations of Tenant under this section, unless the failure to give such notice as a matter of law, precludes Tenant’s defense of any such action. Any such cost, damage, claim, liability, or expense incurred by Landlord or the Indemnified Parties for which Tenant is obligated to reimburse Landlord or the Indemnified Parties shall be deemed Additional Rent due and payable within ten (10) Business Days of Landlord’s written demand therefor. It is expressly understood and agreed that Tenant’s and each Lease Guarantors liability under this Lease extends to the acts and omissions of any subtenant and any agent, employee, contractor, invitee, licensee, customer, client, family member and guest of any subtenant.

ARTICLE 11

CONDEMNATION AND CASUALTY

Section 11.01. Notification . Tenant shall promptly give Landlord written notice of (i) any Condemnation of the Property, (ii) the commencement of any proceedings or negotiations which might result in a Condemnation of the Property, and (iii) any Casualty to any of the Property or any part thereof. Such notice shall provide a general description of the nature and extent of such Condemnation, proceedings, negotiations or Casualty, and shall include copies of any documents or notices received in connection therewith. Thereafter, Tenant shall promptly send Landlord copies of all notices, correspondence and pleadings relating to any such Condemnation, proceedings, negotiations or Casualty.

Section 11.02. Partial Condemnation or Casualty . Except as otherwise provided in Section 11.03, in the event of a Partial Condemnation or a Casualty:

(a) Net Awards . All Net Awards shall be paid to Landlord.

(b) Landlord Election To Continue or Terminate Lease . Landlord shall have the option, (i) subject to the right of Tenant to elect otherwise as set forth in subsection (d) below, to terminate this Lease with respect to the Property, by notifying Tenant in writing within thirty (30) days after Tenant gives Landlord notice (A) of such Partial Condemnation or Casualty, or (B) that title has vested in the condemning authority; or (ii) to continue this Lease in effect, which election shall be evidenced by either a notice from Landlord to Tenant, or Landlord’s failure to notify Tenant in writing that Landlord has elected to terminate this Lease with respect to such Property within such thirty (30) day period. Tenant shall have a period of sixty (60) days after receipt of Landlord’s notice to terminate referenced above during which to elect, despite such Landlord notice of termination, to continue this Lease with respect to such Property on the terms herein provided.

(c) No Continuance of Lease . If Tenant does not elect to continue this Lease with respect to such Property or shall fail during such sixty (60) day period to notify Landlord of Tenant’s intent to continue this Lease with respect to such Property, then this Lease shall terminate with respect to such Property as of the last day of the month during which such sixty (60) day period expired. Tenant shall vacate and surrender such Property by such termination date, in accordance with the provisions of this Lease, and all obligations of either party hereunder with respect to such Property shall cease as of the date of termination; provided, however, Tenant’s obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property and Tenant’s obligations to pay Rent and all other Monetary Obligations (whether payable to Landlord or a third party) accruing under this Lease with respect to such Property prior to the date of termination shall survive such termination. In such event, Landlord may retain all Net Awards related to the Partial Condemnation or Casualty, and Tenant shall immediately pay Landlord an amount equal to the insurance deductible applicable to any Casualty.

(d) Continuance of Lease . If Landlord elects not to terminate this Lease, or if Landlord elects to terminate this Lease with respect to such Property but Tenant elects to continue this Lease with respect to such Property, then this Lease shall continue in full force and effect upon the following terms:

(i) All Rent and other Monetary Obligations due under this Lease shall continue unabated.

(ii) Tenant shall promptly commence and diligently prosecute restoration of such Property to the same condition, as nearly as practicable, as prior to such Partial Condemnation or Casualty as approved by Landlord. Subject to the terms and provisions of the Mortgages and upon the written request of Tenant (accompanied by evidence reasonably satisfactory to Landlord that such amount has been paid or is due and payable and is properly part of such costs, and that Tenant has complied with the terms of Article 7 in connection with the restoration), Landlord shall promptly make available in installments, subject to reasonable conditions for disbursement imposed by Landlord, an amount up to but not exceeding the amount of any Net Award (after deducting all Costs incidental to the collection of the Net Award) received by Landlord with respect to such Partial Condemnation or Casualty. Prior to the disbursement of any portion of the Net Award with respect to a Casualty, Tenant shall provide evidence reasonably satisfactory to Landlord of the payment of restoration expenses by Tenant up to the amount of the insurance deductible applicable to such Casualty. Landlord shall be entitled to keep any portion of the Net Award which may be in excess of the cost of restoration, and Tenant shall bear all additional Costs of such restoration in excess of the Net Award.

Section 11.03. Total Condemnation . In the event of a Total Condemnation of any Property, other than a Temporary Taking, then, in such event:

(a) Termination of Lease . All obligations of either party hereunder with respect to the Property shall cease as of the date of the Total Condemnation; provided, however, that Tenant’s obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property and Tenant’s obligation to pay Rent and all other Monetary Obligations (whether payable to Landlord or a third party) accruing under this Lease with respect to such Property prior to the date of termination shall survive such termination. If the date of such Total Condemnation is other than the first day of a month, the Fixed Monthly Rent for the month in which such Total Condemnation occurs shall be apportioned based on the date of the Total Condemnation.

(b) Net Award . Landlord shall be entitled to receive the entire Net Award in connection with a Total Condemnation without deduction for any estate vested in Tenant by this Lease, and Tenant hereby expressly assigns to Landlord all of its right, title and interest in and to every such Net Award and agrees that Tenant shall not be entitled to any Net Award or other payment for the value of Tenant’s leasehold interest in this Lease.

Section 11.04. Temporary Taking . In the event of a Condemnation of all or any part of any Property for a temporary use (a “ Temporary Taking ”), this Lease shall remain in full force and effect without any reduction of Fixed Monthly Rent or any other Monetary Obligation payable hereunder. Except as provided below and subject to the terms and provisions of the Mortgages, Tenant shall be entitled to the entire Net Award for a Temporary Taking, unless the

period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which event the Net Award made for such Temporary Taking shall be apportioned between Landlord and Tenant as of the date of such expiration. At the termination of any such Temporary Taking, Tenant will, at its own cost and expense and pursuant to the provisions of Article 7, promptly commence and complete restoration of such Property.

Section 11.05. Adjustment of Losses . Any loss under any property damage insurance required to be maintained by Tenant shall be adjusted by Landlord and Tenant. Subject to the terms and provisions of the Mortgages, any Net Award relating to a Total Condemnation or a Partial Condemnation shall be adjusted by Landlord or, at Landlord’s election, Tenant. Notwithstanding the foregoing or any other provisions of this Section 11.05 to the contrary, but subject to the terms and provisions of the Mortgages, if at the time of any Condemnation or any Casualty or at any time thereafter an Event of Default shall have occurred and be continuing, Landlord is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Tenant and otherwise, to file and prosecute Tenant’s claim, if any, for a Net Award on account of such Condemnation or such Casualty and to collect such Net Award and apply the same to the curing of such Event of Default and any other then existing Event of Default under this Lease and/or to the payment of any amounts owed by Tenant to Landlord under this Lease, in such order, priority and proportions as Landlord in its discretion shall deem proper.

Section 11.06. Tenant Obligation in Event of Casualty . During all periods of time following a Casualty, Tenant shall take reasonable steps to ensure that the related Property is secure and does not pose any risk of harm to any adjoining property and Persons (including owners or occupants of such adjoining property).

Section 11.07. Tenant Awards and Payments . Notwithstanding any provision contained in this Article 11, Tenant shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of any Tenant Personalty, any insurance proceeds with respect to any Tenant Personalty, the interruption of its business and moving expenses (subject, however, to the provisions of Section 6.03(e) above), but only if such claim or award does not adversely affect or interfere with the prosecution of Landlord’s claim for the Condemnation or Casualty, or otherwise reduce the amount recoverable by Landlord for the Condemnation or Casualty, including payments or proceeds related to any Existing Personalty then owned by Landlord.

Section 11.08. Waiver of Statutory Provisions . The provisions of this Lease, including this ARTICLE 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Property, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any similar or successor Law, shall have no application to this Lease or any damage or destruction to all or any part of the Property. With respect to Condemnation, the Tenant agrees that the provisions of the Lease shall control in lieu of the rights Tenant may have under Section 1265.130 of the California Code of Civil Procedure.

ARTICLE 12

DEFAULT, REMEDIES AND MEASURE OF DAMAGES.

Section 12.01. Event of Default . The following acts or events shall be deemed to be an event of default on the part of Tenant under this Lease (each, an “ Event of Default ”):

(a) If any representation or warranty of Tenant or of either of the Lease Guarantors set forth in this Lease is false in any material respect when made, or if any representation or warranty of Tenant or of either of the Lease Guarantors becomes inaccurate, and Tenant or either of the Lease Guarantors, as applicable, fails to correct such inaccuracy within thirty (30) days after written notice thereof from Landlord, then it shall be considered an Event of Default under this Lease; provided, however, that if the nature of such inaccuracy is such that more than thirty (30) days are required for its correction, Tenant or either of the Lease Guarantors, as applicable, shall not be in default if Tenant or either of the Lease Guarantors, as applicable, commences to correct such inaccuracy within the thirty (30) day period and thereafter diligently prosecutes the same to completion within ninety (90) additional days, unless the Landlord, upon good cause as shown by the Tenant agrees to a longer cure period in Landlord’s sole discretion; provided, further, that if such representation or warranty pertains to a filed lawsuit or other litigation before judicial authority, then such time limit for the available cure period shall not be applicable if and to the extent the Tenant demonstrates to Landlord’s reasonable satisfaction that any such matter could not reasonably be expected to result in a Material Adverse Effect;

(b) The failure of Tenant to pay when due any payment of Rent, or any part thereof, or any other sum or sums of money due or payable to Landlord under the provisions of this Lease within 10 days after such payment is due;

(c) If Tenant fails to pay, prior to delinquency, any Taxes, assessments or other charges the failure of which to pay will result in the imposition of a lien against the Property; provided that Tenant shall be allowed a period to cure such non-payment equal to the lesser of ten (10) Business Days or the date upon which such lien is filed;

(d) Except as set forth in Section 12.01(b), the failure of Tenant or of either Lease Guarantor to perform, or the violation by Tenant or either Lease Guarantor of, any of the covenants, terms, conditions or provisions of this Lease, if such failure or violation shall not be cured within thirty (30) days after notice thereof by Landlord to Tenant or such Lease Guarantor, as applicable; provided, however, that if the nature of Tenant’s such Lease Guarantor’s obligation is such that more than thirty (30) days are required for its performance, Tenant or such Lease Guarantor, as applicable, shall not be in default if Tenant or such Guarantor commences to cure such default within the thirty (30) day period and thereafter diligently prosecutes the same to completion;

(e) Any breach, default or other failure of either Lease Guarantor under this Lease and/or under either of the Lease Guaranties executed by the Lease Guarantors in connection with this Lease after the expiration of all cure or grace periods;

(f) Any breach, default or other failure after all applicable cure periods of the Parent Guarantor or the Affiliate Guarantor, respectively, in their capacity as Related Loan Co-Borrowers under the Related Loan or of RealCo II or VHWH Hospital under their respective Guaranties of the Related Loan or under any loan document to which either is a party with respect to the Related Loan;

(g) Any event of default that is not cured or waived in writing by the applicable landlord within any applicable cure period which occurs under any leases under the control of the Guarantors’ respective controlled subsidiaries;

(h) The license for the Facility (including but not limited to any license, permit or approval granted Tenant for the operation of a LTCH on the Property) or any other Government Authorization (including but not limited to decertification or limitation in participation in Medicare or Medicaid (or the applicable state provisions)) is canceled, suspended, reduced to provisional or temporary status, or otherwise invalidated and not reinstated within ninety (90) days thereafter (or, if sooner within ten (10) days prior to expiration of any time period permitted by such authority for cure), or license revocation or decertification proceedings are commenced against Tenant and not dismissed within ninety (90) days (or, if sooner within ten (10) days prior to expiration of any time period permitted by such authority for cure), or any reduction occurs in the number of licensed beds or units at the Facility and such original number of beds is not reinstated within ninety (90) days, or an admissions ban is issued for the Facility and not dismissed within ninety (90) days; provided that, if Tenant is diligently proceeding to cure any of the foregoing conditions to remedy the default or is afforded any applicable extensions to remedy or cure the foregoing conditions by the applicable governmental entities, and if no other Event of Default has occurred and is continuing or no Material Adverse Effect is occurring or expected to occur on the Tenant, then the cure periods in this subsection shall be extended during such applicable period and no Event of Default shall occur until the end of the applicable cure period, as so extended;

(i) The voluntary transfer by Tenant of ten percent (10%) or more patients located in the Permitted Facility and under circumstances that such transfer is not for reasons relating to the health and well-being of the patients that were transferred unless, otherwise approved in writing by Landlord;

(j) The levying of a writ of execution or attachment on or against the property of Tenant, of either of the Lease Guarantors, or any other guarantor, if any, of this Lease which is not discharged or stayed by action of Tenant, the applicable Lease Guarantor, or any other guarantor, if any, contesting same, within ninety (90) days after such levy or attachment (provided if the stay is vacated or ended, this paragraph shall again apply);

(k) Tenant or either of the Lease Guarantors, shall be in default of any obligation to any person or entity, which obligation is, in the case of the Tenant, in excess of One Million and No/100 Dollars ($1,000,000.00), or, in the case of either Lease Guarantor, in excess of Five Million and No/100 Dollars ($5,000,000.00), subject to any applicable cure or grace periods;

(l) Tenant, either of the Lease Guarantors or any other guarantor, if any, of this Lease shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors;

(m) If proceedings are instituted in a court of competent jurisdiction for the reorganization, liquidation or involuntary dissolution of Tenant, of either of the Lease Guarantors or any other guarantor, if any, of this Lease for its adjudication as a bankrupt or insolvent, or for the appointment of a receiver of the property of Tenant, either of the Lease Guarantors, or any other guarantor, if any, and said proceedings are not dismissed and any receiver, trustee or liquidator appointed therein is not discharged within ninety (90) days after the institution of said proceedings;

(n) Any unauthorized assignment or subletting or transfer of Tenant’s interest under this Lease or by operation of law;

(o) The sale of any interest of Tenant in the Property or portion thereof under a writ of execution or other legal process;

(p) The failure of Tenant or either Lease Guarantor to give any notice or notices required to be given by any such party under the term of this Lease, which, in either case may reasonably be expected by the Landlord to have a Material Adverse Effect on the Tenant or either Lease Guarantor, as applicable;

(q) The abandonment of the Property, or any portion thereof, by Tenant;

(r) The suspension or loss of the right by the Tenant to receive Medicaid or Medicare reimbursement based on actual or alleged fraud or misfeasance or malfeasance which could reasonably be expected to result in a Material Adverse Effect; or

(s) The failure of Tenant to immediately pay when due (which may include payment either by recoupment of amounts owed from future payments otherwise payable to Tenant or by entering into a contractual repayment plan with the applicable Medicare or Medicaid fiscal intermediary) of overpayments or other impositions in connection with provider agreements, certifications or licenses for the Property.

Section 12.02. Remedies . Upon the occurrence of an Event of Default, with or without notice or demand, except as otherwise expressly provided herein or such other notice as may be required by statute and cannot be waived by Tenant and each of the Lease Guarantors, Landlord shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including, without limitation, any one or more of the following:

(a) terminate this Lease by giving Tenant and each Lease Guarantor written notice of termination, in which event this Lease shall terminate on the date specified in such notice and all rights of Tenant under this Lease shall expire and terminate as of such date, Tenant shall remain liable for all obligations under this Lease up to the date of such termination and for such obligations hereunder which by their terms survive termination of this Lease, and Tenant shall surrender the Property to Landlord on the date specified in such notice; and if Tenant fails

to so surrender, Landlord shall have the right, without notice, to enter upon and take possession of the Property and to expel and remove Tenant and its effects without being liable for prosecution or any claim of damages therefor;

(b) terminate this Lease as provided in the immediately preceding subsection and recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including without limitation, the then present value (discounted at a rate equal to the then issued treasury bill having a maturity approximately equal to the remaining Lease Term of this Lease had such default not occurred) of (i) the total Rent which would have been payable hereunder by Tenant for the period beginning with the day following the date of such termination and ending with the Expiration Date of the Lease Term as originally scheduled hereunder, minus (ii) the aggregate reasonable rental value of the Property for the same period (as determined by a real estate broker selected by Landlord who is licensed in the state where the Property is located, who has at least ten (10) years’ experience immediately prior to the date in question in evaluating medical space, taking into account all relevant factors including, without limitation, the length of the remaining Lease Term, the then current market conditions in the general area, the likelihood of reletting for a period equal to the remainder of the Lease Term, net effective rates then being obtained by landlords for similar type space in similar buildings in the general area, vacancy levels in the general area, current levels of new construction in the general area and how that would affect vacancy and rental rates during the period equal to the remainder of the Lease Term and inflation), plus (iii) the costs of recovering the Property, and all other reasonable expenses incurred by Landlord due to Tenant’s default, including, without limitation, reasonable attorneys’ fees, and any and all costs and expenses incurred by Landlord in dealing with Landlord’s Lender, if any, which may have a Mortgage secured by the Property, plus (iv) the unpaid Rent earned as of the date of termination, plus (v) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course would be likely to result therefrom, including but not limited to, brokerage commissions and advertising expenses incurred, plus (vi) at Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by any applicable Law, plus (vii) interest, all of which sum shall be immediately due and payable by Tenant to Landlord;

(c) to bring an action against Tenant and/or against the Lease Guarantors or either of them for any damages sustained by Landlord or any equitable relief available to Landlord and to seize all Tenant Personalty upon the Property, in which Landlord shall have a landlord’s lien and/or security interest, and, at Landlord’s election, to dispose thereof in accordance with the Laws prevailing at the time and place of such seizure or to remove all or any portion of such Tenant Personalty and cause the same to be stored in a public warehouse or elsewhere at Tenant’s sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action;

(d) to accelerate and recover from Tenant and/or from the Lease Guarantors or either of them all Rent and other Monetary Obligations due and owing and scheduled to become due and owing under this Lease both before and after the date of such breach for the entire Initial Term or any exercised Extension Term;

(e) without terminating this Lease, and without notice to Tenant, or either Lease Guarantor, (i) Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of an Event of Default, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due and (ii) Landlord shall have the right in its own name, but as agent for Tenant enter into and take possession of the Property and re-let the Property, or any portion thereof, as agent of Tenant, upon any terms and conditions as Landlord may deem necessary or desirable (Landlord shall have no obligation to attempt to re-let the Property or any part thereof except to the extent required by applicable law). Upon any such re-letting, all rentals received by Landlord from such re letting shall be applied first to the costs incurred by Landlord in accomplishing any such re-letting, and thereafter shall be applied to the Rent owed by Tenant and/or the Lease Guarantors or either of them to Landlord during the remainder of the Lease Term of this Lease and Tenant shall pay any deficiency between the remaining Rent due hereunder and the amount received by such re-letting as and when due hereunder;

(f) allow the Property to remain unoccupied (so long as Landlord satisfies any duty established by applicable law to mitigate its damages) and collect Rent from Tenant as it becomes due; and/or

(g) pursue such other remedies as are available at law or in equity against the Tenant and/or against the Lease Guarantors or either of them.

In the event Landlord elects either to terminate this Lease or to terminate Tenant’s right to possession of the Property upon the occurrence of an Event of Default, then all licenses, certifications, permits and authorizations issued by any governmental agency, body or authority in connection with or relating to the Permitted Facility shall be deemed as being assigned to Landlord, to the extent assignable. Landlord shall also have the right to continue to utilize the telephone numbers and names of the Permitted Facility used by Tenant in connection with the operation of the Permitted Facility. To effectuate the foregoing, this Lease shall be deemed and construed as an assignment for purposes of vesting in Landlord all right, title and interest in and to (i) all licenses, certifications, permits and authorizations obtained in connection with the Permitted Facility, to the extent assignable, and (ii) the names of the Permitted Facility and telephone numbers used in connection with the Permitted Facility. Tenant hereby agrees to take such other action and execute such other documents as may be necessary in order to vest in Landlord all right, title and interest to the items specified herein.

Section 12.03. Landlord’s Option to Cure . If: (i) Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant in each case beyond any applicable cure period; or (ii) Tenant defaults in the making of payment to any third party, or doing any act required to be made or done by Tenant for or on behalf of said third party relating to the Property in each case beyond any applicable cure period, then Landlord may, but shall not be required to, make such payment or do such act, and charge the amount of the expense thereof, if made or done by Landlord, with interest thereon at the Default Rate, from the date paid by Landlord to the date of payment thereof by Tenant. Such payment and interest shall

constitute Additional Rent hereunder due and payable with the next installment of Fixed Monthly Rent; but the making of such payment or the taking of such action by Landlord shall not operate to cure such default or to stop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled.

Section 12.04. No Election . No reentry or retaking possession of the Property by Landlord shall be construed as an election on its part to terminate this Lease, unless a written notice of such intention be given to Tenant, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Fixed Monthly Rent, Additional Rent or other monies due to Landlord hereunder or of any damages accruing to Landlord by reason of the violations of the terms, provisions and covenants herein contained. Landlord’s acceptance of Fixed Monthly Rent or Additional Rent or other monies following any Event of Default hereunder shall not be construed as Landlord’s waiver of such Event of Default. No forbearance by Landlord of action upon any violation or breach of any of the terms, provisions, and covenants herein contained shall be deemed or construed to constitute a waiver of the terms, provisions, and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of any other violation or default. Legal actions to recover for loss or damage that Landlord may suffer by reason of termination of this Lease or the deficiency from any reletting as provided for above shall include the expense of repossession or reletting, including brokerage commissions, and any repairs or remodeling undertaken by Landlord following repossession. The remedies of Landlord are cumulative.

Section 12.05. Tenant Waiver . Tenant and each of the Lease Guarantors hereby expressly waives, for itself and all Persons claiming by, through and under Tenant, or such Lease Guarantor, including creditors of all kinds, (i) any right and privilege which Tenant has under any present or future Legal Requirements to redeem the Property or to have a continuance of this Lease for the Lease Term after termination of Tenant’s right of occupancy by order or judgment of any court or by any legal process or writ, or under the terms of this Lease; (ii) the benefits of any present or future Legal Requirement that exempts property from liability for debt or for distress for rent; (iii) any present or future Legal Requirement relating to notice or delay in levy of execution in case of eviction of a tenant for nonpayment of rent; and (iv) any benefits and lien rights which may arise pursuant to any present or future Legal Requirement. With respect to any notices required to be delivered by the Landlord under Article 12, the provisions of the Lease shall control and shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and any similar or successor Law, which Tenant hereby waives.

Section 12.06. Counterclaim Waiver . THE PARTIES HERETO SHALL, AND THEY HEREBY DO, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY THE PARTIES HERETO AGAINST THE OTHERS ON ANY MATTERS WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE PROPERTY, AND/OR CLAIM OF INJURY OR DAMAGE. FURTHERMORE, TENANT AND EACH LEASE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM LANDLORD AND

ANY OF THE AFFILIATES, OFFICERS, DIRECTORS, MEMBERS, MANAGERS OR EMPLOYEES OF LANDLORD OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY TENANT AND EACH LEASE GUARANTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

Section 12.07. Attorneys’ Fees . In the event of any legal action or proceeding brought by any party against the other parties arising out of this Lease, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs (including, without limitation, court costs and expert witness fees) incurred in such action. Such amounts shall be included in any judgment rendered in any such action or proceeding.

ARTICLE 13

MORTGAGE, SUBORDINATION AND ATTORNMENT

Section 13.01. No Liens . Landlord’s interest in this Lease and/or the Property shall not be subordinate to any liens or encumbrances placed upon the Property by or resulting from any act of Tenant, and nothing herein contained shall be construed to require such subordination by Landlord. NOTICE IS HEREBY GIVEN THAT TENANT IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, DEED TO SECURE DEBT, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF THE PROPERTY OR TENANT’S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION SHALL BE VOID; PROVIDED, HOWEVER, THAT THE FOREGOING PROHIBITION SHALL NOT APPLY TO PROHIBIT A PURCHASE MONEY SECURITY INTEREST IN TENANT PERSONALTY OR PROHIBIT TENANT PERSONALTY FROM BEING SUBJECT TO A CAPITAL LEASE.

Section 13.02. Subordination . This Lease, at all times, shall automatically be subordinate to the lien of any and all ground leases, liens and Mortgages now or hereafter placed upon all or any part of the Property by Landlord or its successors, including purchasers or transferees, and any and all renewals, modifications, and extensions thereof. The foregoing subordination shall be self-operative and no further instruments of subordination shall be necessary, but Tenant hereby agrees to execute upon demand, any customary and reasonable instrument which the Landlord or any Lender may deem necessary or desirable to effect the subordination of this Lease to any such Mortgage, ground lease or lien, upon the condition that Tenant shall have the right to remain in possession of and operate the Property under the terms of this Lease, notwithstanding any default in any or all such ground leases or Mortgages, or after the foreclosure of any such Mortgages, so long as no Event of Default shall have occurred and be continuing (such instrument herein an “ SNDA ”). It is specifically understood and agreed by the parties hereto that this agreement and all rights, privileges, and benefits hereunder are and shall be, at all times, subject to and subordinate to the lien of any and all Mortgages and the accompanying documents executed by the Landlord on behalf of the Property. Notwithstanding

the preceding provisions of this Section 13.02, Tenant will be provided with a SNDA executed by each Lender holding a Mortgage on commercially reasonable terms and conditions, and Tenant agrees to promptly execute and return such SNDA to Landlord. This Lease is expressly made subject to and is subordinate to all current or future mortgages and liens upon the Property or any part thereof.

Section 13.03. Election To Declare Lease Superior . If any Lender, receiver or other secured party elects to have this Lease and the interest of Tenant hereunder, be superior to any Mortgage and evidences such election by notice given to Tenant, then this Lease and the interest of Tenant hereunder shall be deemed superior to any such Mortgage, whether this Lease was executed before or after such Mortgage and in that event such Lender, receiver or other secured party shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of such Mortgage and had been assigned to such Lender, receiver or other secured party.

Section 13.04. Tenant’s Attornment . Tenant covenants and agrees that, if by reason of a default upon the part of Landlord herein in the performance of any of the terms and conditions of any Mortgage, and the estate of Landlord thereunder is terminated by summary dispossession proceedings or otherwise, Tenant will attorn to the then Lender or the purchaser in such foreclosure proceedings, as the case may be, and will recognize such Lender or such purchaser as the Landlord under this Lease. Tenant covenants and agrees to execute and deliver, at any time and from time to time, upon the request of Landlord or of any Lender or the purchaser in foreclosure proceedings, any instrument which may be necessary or appropriate to evidence such attornment. Tenant further waives the provisions of any statute or rule of law now or hereafter in effect which may terminate this Lease or give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Property in the event any such proceedings are brought against Landlord under such Mortgage or by any Lender, and agrees that this Lease shall not be affected in any way whatsoever by any such proceedings.

Section 13.05. Notice to Lender . Tenant shall give written notice to any Lender having a recorded lien upon any of the Property or any part thereof of which Tenant has been notified of any breach or default by Landlord of any of its obligations under this Lease and give such Lender at least thirty (30) days beyond any notice period to which Landlord might be entitled to cure such default before Tenant may exercise any remedy with respect thereto.

ARTICLE 14

ASSIGNMENT

Section 14.01. Assignment by Landlord . As a material inducement to Landlord’s willingness to enter into the transactions contemplated by this Lease (the “ Transaction ”) and the other Transaction Documents, Tenant hereby agrees that Landlord may, from time to time and at any time and without the consent of Tenant, engage in all or any combination of the following, or enter into agreements in connection with any of the following or in accordance with requirements that may be imposed by applicable securities, tax or other Laws: (i) the sale, assignment, grant, conveyance, transfer, financing, refinancing, purchase or reacquisition of all, less than all or any portion of the Property, this Lease or any other Transaction Document,

Landlord’s right, title and interest in this Lease or any other Transaction Document, the servicing rights with respect to any of the foregoing, or participations in any of the foregoing; or (ii) a Securitization and related transactions. Without in any way limiting the foregoing, the parties acknowledge and agree that Landlord, in its sole discretion, may assign this Lease or any interest herein to another Person (including without limitation, a taxable REIT subsidiary) in order to maintain Landlord’s or any of its Affiliates’ status as a REIT.

In the event of any such sale, transfer or assignment other than a security assignment by Landlord of its interest in this Lease and the Property, Landlord shall thereby be released from any obligations accruing hereunder as of and after the date of such transfer, and Tenant agrees to attorn to the successor in interest of Landlord following any such transfer of such interest either voluntarily or by operation of law, to recognize such successor as Landlord under this Lease, and look solely to such successor in interest of Landlord for the performance of such obligations. Landlord shall remain liable for any obligations of Landlord hereunder accruing prior to the date of the transfer of the Property by Landlord. Any security given by Tenant to secure the performance of Tenant’s obligations hereunder may be assigned and transferred by Landlord to its successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. At the request of Landlord, Tenant will execute such documents confirming the sale, assignment or other transfer and such other agreements as Landlord may reasonably request, provided that the same do not increase the liabilities and obligations of Tenant hereunder.

Section 14.02. Transfer by Tenant .

(a) No Transfer . Tenant shall not voluntarily or by operation of law assign, license, franchise, transfer, mortgage, hypothecate, or otherwise transfer or encumber (collectively “ Transfer ”) all or any part of this Lease or any interest therein, and shall not sublet, franchise, change ownership or license (also included as a “Transfer”) all or any part of the Property, without first obtaining the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion. If Tenant hereunder is a corporation, an unincorporated association, a limited liability company or a partnership, the transfer, merger, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of ten percent (10%) shall be deemed an assignment within the meaning and provisions of this Section; provided, however, that: (a) an assignment of any such stock or interest with respect to a corporation, a limited liability company, or partnership whose shares or partnership interests are publicly traded, (b) an assignment or sublease to any corporation which controls, is controlled by or is under common control with Tenant, or (c) an assignment or sublease by a shareholder or member to his spouse, legal partner or children or to a trust for the benefit of his spouse, legal partner or children, are all excepted from the foregoing provision. For the avoidance of doubt, a merger, equity exchange, change of control or any corporate reorganization or transaction as described above, whether or not Tenant survives such transaction (including any transaction resulting in a change of control of the board of directors or other governing body from that which existed at the commencement of this Lease) shall also be considered to be a “Transfer” by Tenant for purposes of this Section 14.02.

Notwithstanding anything to the contrary contained in this Lease, in the event of a Transfer, Tenant shall remain fully liable for all of the Tenant’s obligations under this Lease,

including obligations arising subsequent to the date of the Transfer. Any attempted Transfer without any required consent being first had and obtained shall be wholly void and shall confer no rights upon any third parties.

Without in any way limiting Landlord’s right to refuse to give such consent for any other reason or reasons, Landlord hereby reserves the right to refuse to give such consent if, in Landlord’s sole discretion (i) the quality of the business operation conducted on the Property is or may in any way be adversely affected during the Lease Term of this Lease by such proposed Transfer, (ii) the financial net worth and/or cash flow and/or credit worthiness of a proposed new tenant is less than that of Tenant, (iii) the proposed new tenant is less experienced and/or less successful as an operator of LTCH facilities than Tenant, (iv) the proposed new tenant is a governmental agency or instrumentality thereof, or (v) the proposed new tenant competes, either directly or indirectly, with Landlord or any facilities which Landlord owns or in which Landlord has a mortgage or other financial interest. Landlord may also require, as a condition of its approval that the then remaining term of this Lease be renewed and extended so that the then remaining term shall be not less than fifteen (15) full years.

Landlord furthermore hereby reserves the right to condition Landlord’s consent to any Transfer upon Landlord’s receipt from Tenant of a written agreement, in form and substance reasonably acceptable to Landlord, pursuant to which Tenant shall pay over to Landlord fifty percent (50%) all rent or other consideration received by Tenant from any such subtenant or assignee, either initially or over the term of the assignment or sublease, in excess of the Rents called for hereunder, or, in case of the sublease of a portion of the Property, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account (the “ Transfer Premium ”). Consent by Landlord to any Transfer of the Property or any interest therein shall not be a waiver of Landlord’s rights under this Section as to any subsequent Transfer.

(b) Notice . In the event that Tenant desires at any time to Transfer the Property or any portion thereof, Tenant shall submit to Landlord at least sixty (60) days prior to the proposed effective date of the Transfer (“ Proposed Effective Date ”), in writing: (i) a request for permission to Transfer, setting forth the Proposed Effective Date, which shall be no less than sixty (60) nor more than ninety (90) days after the sending of such notice; (ii) the name of the proposed subtenant or assignee or other party; (iii) the nature of the business to be carried in the Property after the Transfer: (iv) the terms and provisions of the proposed Transfer; (v) a copy of all existing executed and/or proposed documentation pertaining to the Transfer; and (vi) current financial statements (audited, if requested by Landlord) of Tenant and the proposed subtenant or assignee; and such additional information that Landlord may reasonably request in order to make a reasoned judgment.

(c) Rental Collection/Effect of Transfer . If this Lease be assigned, or if the Property or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may collect Rents from the assignee, subtenant or occupant and apply the net amount collected to the Rents herein reserved and retain any excess Rents so collected, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of Tenant’s covenant set forth in the first sentence of Section 14.02(a) above, nor shall such assignment, subletting, occupancy or collection be deemed an acceptance by Landlord of the assignee, subtenant or occupant as tenant,

or a release of Tenant , the Lease Guarantors, or any other guarantor, if any, from the further performance by Tenant of covenants on the part of Tenant herein contained, or affect the continuing primary liability of Tenant hereunder or of the Lease Guarantors under their respective Lease Guaranties (which, following any assignment, shall be joint and several with the assignee). If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer. Landlord or its authorized representatives shall have the right, at all reasonable times, to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall within thirty (30) days after demand, pay the deficiency, and if understated by more than five percent (5%), Tenant shall pay Landlord’s reasonable costs of such audit.

(d) No Waiver . Notwithstanding any assignment or sublease, or any indulgences, waivers or extensions of time granted by Landlord to assignee or subtenant, or any failure by Landlord to take action against any assignee or subtenant, Tenant and each Lease Guarantor waives notice of any default of any assignee or subtenant and agrees that Landlord may, at Landlord’s option, proceed against Tenant and/or each Lease Guarantor without having taken action against or joined such assignee or subtenant, except that Tenant shall have the benefit of any indulgences, waivers and extensions of time granted to any such assignee or subtenant. Landlord may make reasonable charges to Tenant for any reasonable attorneys’ fees or expenses incident to any documentation relating to any proposed Transfer by Tenant.

(e) Conditions to Landlord’s Consent . Landlord’s consent to any assignment shall be conditioned inter alia , upon the requirement that the proposed assignee shall have the same or greater financial net worth as Tenant and that the proposed assignee shall expressly assume all of Tenant’s obligations hereunder. Landlord’s consent to any sublease shall be conditioned, inter alia , upon the requirement that the sublease shall state: (i) that it is subject to all of the provisions of this Lease; and (ii) that the subtenant’s rights shall not survive the earlier termination of this Lease, whether by voluntary cancellation between Landlord and Tenant, or otherwise.

Section 14.03. No Sale of Assets . Without the prior written consent of Landlord, Tenant shall not sell all or substantially all of Tenant’s assets. Any sale of Tenant’s assets in violation of this Section 14.03, shall be voidable at the sole option of Landlord. Any consent to a sale of Tenant’s assets given by Landlord hereunder shall not be deemed a consent to any subsequent sale of Tenant’s assets.

ARTICLE 15

NOTICES

Section 15.01. Notices . Any notice required or desired to be given to a party hereto shall be valid and sufficient if in writing and addressed to the addresses listed below and delivered by personal delivery or overnight delivery or mailed by United States registered or certified mail, with postage and charges prepaid thereon. Any notice shall be deemed to have been given on the day receipt or the date of first refusal of delivery (based on written evidence thereof). Landlord or Tenant may designate the place to which notices shall be given and addressed by giving at least fifteen (15) days’ prior written notice to the other party, such notice to be given in accordance with the foregoing provisions of this paragraph. The initial address for each party shall be as follows:


As to Landlord:		MRT of Kentfield CA – LTACH, LLC
		c/o MedEquities Realty Trust, Inc.
		201 Seaboard Lane, Suite 100
		Franklin, TN 37067
		Attn: William C. Harlan, President
		Telephone: (615) 943-5621
		Email: wharlan@medequities.com

with copy to:		H3GM
		333 Commerce Street, Suite 1500
		Nashville, Tennessee 37201
		Attn: Glen Allen Civitts, Esq.
		Telephone: (615) 251-1070
		Facsimile: (615) 251-1059
		Email: gac@h3gm.com

As to Tenant:		1125 Sir Francis Drake Operating Company, LLC
		c/o Vibra Healthcare, LLC
		4550 Lena Drive, Suite 225
		Mechanicsburg, PA 17055
		Attn: Douglas C. Yohe, General Counsel
		Telephone: (717) 591-5737
		Facsimile: (717) 591-5710
		Email: dyohe@vibrahealth.com


As to Lease Guarantors:		Vibra Healthcare, LLC and Vibra Healthcare II, LLC
		c/o Vibra Healthcare, LLC
		4550 Lena Drive, Suite 225
		Mechanicsburg, PA 17055
		Attn: Douglas C. Yohe, General Counsel
		Telephone: (717) 591-5737
		Facsimile: (717) 591-5710
		Email: dyohe@vibrahealth.com

ARTICLE 16

LANDLORD’S LIEN/SECURITY INTEREST

Section 16.01. Lien on Personal Property . Landlord shall have and Tenant hereby grants to Landlord a lien on every right and interest of Tenant in and to this Lease, and on any Tenant Personalty, certificates of need, licenses, provider agreements, certifications, books, records and other property of any kind belonging to Tenant and used in connection with the Lease or located at the Property but excluding Tenant’s Accounts. Notwithstanding the foregoing, Landlord hereby agrees to subordinate to Tenant’s lenders (including institutional financing for purchase money and capital lease liens) any statutory liens and rights of distress Landlord has with respect to Tenant’s tangible personal property purchased by Tenant with purchase-money financing after the Lease Commencement Date and located within the Premises. For purposes of this Section, the term “Accounts” means collectively (a) any right to payment of a monetary obligation, whether or not earned by performance, (b) without duplication, and “account” (as defined in the Uniform Commercial Code as in effect in the State of Delaware (the “ UCC Code ”), as the same may be amended from time to time), any accounts receivable (whether in the form of payments for services rendered or goods sold, rents, license fees or otherwise), any “health-care-insurance receivables” (as defined in the UCC Code), any “payment intangible” (as defined in the UCC Code), and all other rights to payment and/or reimbursement of every kind and description, whether or not earned by performance, (c) all accounts, rights, remedies, guarantees, supporting obligations, letter of credit rights and security interest in respect to the foregoing, all rights of enforcement and collection, (d) all information and data compiled or derived by Tenant or which Tenant is entitled in respect of or related to the foregoing, and (e) all proceeds of the foregoing. The Landlord’s security interest in the Tenant’s assets are subject to the terms of the Intercreditor Agreement dated on or about the Lease Commencement Date between Midcap Financial IV, LLC and Landlord, as the same may be amended, restated and modified by the parties thereto.

Such lien is granted for the purpose of securing the payments of Rent, charges, penalties, and damages herein covenanted to be paid by Tenant, and for the purpose of securing the performance of all of Tenant’s obligations under this Lease. Such lien shall be in addition to all rights to Landlord given and provided by law. This Lease shall constitute a security agreement under the Uniform Commercial Code pursuant to which Tenant as debtor grants to Landlord as secured party a security interest in any Tenant Personalty, certificates of need, licenses, provider agreements, certifications, books, records and other personal property of any kind belonging to Tenant but excluding Tenant’s accounts receivable, and Tenant shall execute such other

instruments and financing statements as Landlord may request to evidence or perfect said security interest. None of the Tenant Personalty, goods, wares, merchandise, inventory, equipment or other personal property of Tenant situated on the Property shall be removed from the Property without the prior written consent of Landlord. In the Event of Default of Tenant hereunder, Landlord shall have any and all rights and remedies granted a secured party under the Uniform Commercial Code then in effect in the state where the Property is located. The exercise of the foregoing remedy by Landlord shall not relieve or discharge Tenant from any deficiency owed to Landlord which Landlord has the right to enforce pursuant to any other provision of this Lease. Tenant covenants to promptly notify Landlord of any changes in Tenant’s name and/or organizational structure which may necessitate the execution and filing of additional financing statements; provided, however, the foregoing shall not be construed as Landlord’s consent to such changes.

ARTICLE 17

MISCELLANEOUS

Section 17.01. Recitals and Exhibits . The recitals of fact set forth above are true and correct and are by this reference made a part of this Lease. All Exhibits attached to this Lease and incorporated herein by this reference.

Section 17.02. Landlord Definition . The term “ Landlord ” as used in this Lease means only the owner of fee simple title of the Property, or the Lender in possession for the time being of the Property so that in the event of any sale, or other transfer of the Property, Landlord shall be and hereby is entirely freed and relieved of all obligations of Landlord hereunder and it shall be deemed without further agreement between the parties and such purchaser(s), assignee(s) or Tenant(s) that the purchaser, assignee or Tenant has assumed and agreed to observe and perform all obligations of Landlord hereunder.

Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution Lease by Landlord, that Landlord’s obligations and liability with respect to this Lease shall be limited solely to Landlord’s interest in the Property and improvements thereon, as such interest is constituted from time to time, which interest shall include all proceeds from the sale of the building, insurance awards, and Condemnation awards, and neither Landlord nor any partner of Landlord, or any officer, director, shareholder, manager, partner or member, shall have any individual or personal liability whatsoever with respect to this Lease.

Section 17.03. Remedies Cumulative . Mention in this Lease of any specific right or remedy shall not preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may be otherwise entitled either at law or in equity including, without limitation Landlord’s remedies for Tenant’s default in the payment of Rent. The failure of Landlord to insist in any one or more instances upon a strict performance of any covenant of Tenant or either Lease Guarantor under this Lease or to exercise any option or right herein contained shall not be construed as a waiver or relinquishment for the future of any such covenant, right or option, but it shall remain in full force and effect unless the contrary is expressly waived in writing by Landlord.

Section 17.04. Recording . It is agreed that Tenant shall not record this Lease without first obtaining written permission from Landlord, which permission may be withheld at Landlord’s sole option. Any violation of this clause shall be deemed a default on the part of Tenant, and Landlord at its option reserves the right to cancel this Lease and take those steps necessary to remove this Lease and/or a memorandum hereof from record. Landlord and Tenant shall record a memorandum of this Lease and Tenant agrees to bear any and all costs and expenses in connection with same.

Section 17.05. Successors and Assigns . This Lease and the covenants, terms and conditions herein contained shall inure to the benefit of and be binding upon Landlord, its successors and assigns, and shall be binding upon Tenant, its successors and permitted assigns.

Section 17.06. Brokerage . The parties each represent and warrant to each other that neither has employed a broker in connection with this transaction. In the event there is a claim against either party hereto with respect to any broker whatsoever other than as set forth in this Section, the party whose action gives rise to the claim for commission shall indemnify the other party against any liability, damage, cost or fee in connection with such claim, including, without limitation, attorneys’ fees and costs.

Tenant and Lease Guarantors shall cooperate fully with Landlord and any Affected Party with respect to all reasonable requests and due diligence procedures and to use reasonable efforts to facilitate such Securitization, including, without limitation, providing for inclusion in any prospectus or other Securities offering material such documents, financial and other data, and other information and materials which would customarily be required with respect to Tenant or Lease Guarantors by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Securitization, and Tenant and Lease Guarantors shall indemnify and hold harmless Landlord for any and all liabilities, losses and expenses arising under the Securities Act, or the Exchange Act, in connection with any material misstatement (or

alleged misstatement) contained in such information provided in writing (including, without limitation, electronically) by Tenant or Lease Guarantors or their respective officers, managers, members, employees, or agents, or any omission (or alleged omission) of a material fact by Tenant or its officers, managers, members, employees, or agents, the inclusion of which was necessary to make such written information not misleading, unless such material misstatement or alleged misstatement or omission or alleged omission is caused by Landlord or its directors, officers, managers, members, shareholders, employees, or agents.

Tenant and/or Lease Guarantors shall deliver to Landlord, any Affected Party and to any Person designated by Landlord, such statements and audit letters of reputable, independent certified public accountants pertaining to the written information provided by Tenant and/or Lease Guarantors pursuant to this Section as shall be requested by Landlord or such Affected Party, as the case may be. Tenant and/or Lease Guarantors also shall deliver to Landlord, any Affected Party and to any Person designated by Landlord or any Affected Party, such opinions of counsel (including, without limitation, local counsel opinions), appraisals, environmental reports and zoning letters, or updates of any of the foregoing, as are customarily delivered in connection with Securitizations or as may be required by any rating agency in connection with any Securitization.

Section 17.08. Bankruptcy . As a material inducement to Landlord executing this Lease, Tenant acknowledges and agrees that Landlord is relying upon (i) the financial condition and specific operating experience of Tenant and Tenant’s obligation to use the Property as a Permitted Facility; (ii) Tenant’s timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Bankruptcy Code for Tenant; and (iii) all defaults under this Lease being cured promptly and this Lease being assumed within sixty (60) days of any order for relief entered under the Bankruptcy Code for Tenant, or this Lease being rejected within such sixty (60) day period and the Property surrendered to Landlord. Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Tenant hereby agrees that: (i) all obligations that accrue under this Lease (including the obligation to pay Rents), from and after an Insolvency Event shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Landlord; (ii) any and all Rents that accrue from and after an Insolvency Event and that are not paid as required by this Lease shall, in the amount of such Rents, constitute administrative expense claims allowable under the Bankruptcy Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after an Insolvency Event; (iii) any extension of the time period within which Tenant may assume or reject this Lease without an obligation to cause all obligations under this Lease to be performed as and when required under this Lease shall be harmful and prejudicial to Landlord; (iv) any time period designated as the period within which Tenant must cure all defaults and compensate Landlord for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Landlord; (v) any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Landlord shall be harmful and prejudicial to Landlord; (vi) any proposed assignment of this Lease shall be harmful and prejudicial to Landlord if made to an assignee that does not possess financial condition adequate to operate Permitted Facility upon the Property or operating performance and experience characteristics

satisfactory to Landlord equal to or better than the financial condition, operating performance and experience of Tenant as of the Effective Date; and (vii) the rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Bankruptcy Code, and Tenant stipulates that such automatic stay shall be lifted immediately and possession of the Property will be delivered to Landlord immediately without the necessity of any further action by Landlord. No provision of this Lease shall be deemed a waiver of Landlord’s rights or remedies under the Bankruptcy Code or applicable Law to oppose any assumption and/or assignment of this Lease, to require timely performance of Tenant’s obligations under this Lease, or to regain possession of the Property as a result of the failure of Tenant to comply with the terms and conditions of this Lease or the Bankruptcy Code. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as such, shall constitute “rent” for the purposes of the Bankruptcy Code. For purposes of this Section addressing the rights and obligations of Landlord and Tenant upon an Insolvency Event, the term “Tenant” shall include Tenant’s successor in bankruptcy, whether a trustee, Tenant as debtor in possession or other responsible person.

Section 17.09. Pronouns . All pronouns and all variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons or entity may require.

Section 17.10. Counterparts . This Lease may be executed in counterparts, each of which constitutes an original and all of which taken together shall constitute one agreement.

Section 17.11. Governing Law . This Lease is to be construed under the Laws of the state where the Property is located.

Section 17.12. Section Headings . The section headings of this Lease are for convenience only and shall not be considered in the interpretation of the terms and provisions of this Lease.

Section 17.13. Exhibits . This Lease is subject to any Exhibit attached hereto and made a part hereof.

Section 17.14. Attorneys Fees . In the event of any judicial or other adversarial proceeding concerning this Lease, to the extent permitted by Law, Landlord shall be entitled to recover all of its reasonable attorneys’ fees and other Costs in addition to any other relief to which it may be entitled. In addition, Landlord shall, upon demand, be entitled to all attorneys’ fees and all other Costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced.

(provided any such Lender furnishes Tenant notice in writing of: (i) any such Lender’s lien on the Property; and (ii) any such Lender’s address for such notice purposes of any such default by Landlord) and any such Lender shall have a period of thirty (30) days after receipt of such notice from Tenant to cure any default. When, however, the nature of the default of Landlord is such that it cannot be cured within said thirty (30) days, any such Lender shall have such additional time as may be reasonably required to cure any such default, provided any such Lender: (i) shall have commenced to cure any such default within said thirty (30) day period; and (ii) shall diligently continue such steps until such default is cured. No alleged default by Landlord shall be deemed perfected until the expiration of the time(s) given to the Lender under the provisions of this section.

Section 17.16. Easements, Agreements, or Encumbrances . The parties shall be bound by all existing easements, agreements, and encumbrances of record relating to the Property. During the Lease Term, Landlord shall have the right to grant easements on, over, under and above the Property without the prior consent of Tenant, provided that such easements will not materially interfere with Tenant’s use of the Property or materially increases the obligations of Tenant. Tenant shall comply with and perform all obligations of Landlord under all easements, declarations, covenants, restrictions and other items of record now or hereafter encumbering the Property. Without Landlord’s prior written consent which consent will not be unreasonably withheld, conditioned or delayed, Tenant shall not grant any easements on, over, under or above the Property. Landlord shall not be liable to Tenant for any damages resulting from any action taken by a holder of an interest pursuant to the rights of that holder thereunder.

Section 17.17. Writing; Applicable to Successors . This Lease cannot be changed or terminated, except by a written instrument subsequently executed by the parties hereto. This Lease and the terms and conditions hereof apply to and are binding upon the successors and assigns of both parties.

Section 17.18. Time of the Essence . Time is of the essence and in all provisions of this Lease.

Section 17.19. Severability . Should any provisions of this Lease and/or of its conditions be illegal or unenforceable under any court decision or any Laws, ordinances or regulations of any governing authority having jurisdiction over the parties hereto or the Property, it or they shall be considered severable, and all other provisions of the Lease shall remain in full force and be binding upon the parties as though the illegal or unenforceable provisions had never been included.

Section 17.20. Real Estate Investment Trust . If Landlord in good faith determines that its status as a real estate investment trust under the provisions of the Internal Revenue Code of 1986, as heretofore or hereafter amended, will be jeopardized because of any provision of this Lease, Landlord may request reasonable amendments to this Lease and Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such amendments do not (a) materially increase the economic obligations of Tenant or impair Tenant’s rights pursuant to this Lease or (b) in any other manner materially adversely affect Tenant’s interest in the Property.

Section 17.21. Covenant Not To Compete . Except as specifically permitted below, Tenant agrees that during the Lease Term, and for a period of two (2) years thereafter, neither Tenant nor any subsidiary or other affiliated entity of Tenant or any company under common ownership, management or control with Tenant, shall own, acquire, build, construct, lease, manage or operate a “ Competing Facility ”, as defined herein, located within a thirty-five (35) mile radius of the Property. This non-compete provision shall not apply to any existing, operational facility as of the commencement of this Lease. As used herein, Competing Facility means any licensed long term care hospital or, unless permitted with Landlord’s consent, not to be unreasonably withheld, conditioned or delayed, as to a particular facility, any similar facility, however designated or described, which provides comparable care and services. In the event Tenant should breach these non-compete provisions, Tenant may be permanently enjoined from doing so. In the event of any suit to enforce the non-compete provisions, if Landlord is granted any relief against Tenant, Tenant shall be liable to Landlord for all of Landlord’s court costs, expenses and legal fees incurred in seeking to enforce the provisions of this non-compete provision. Landlord and Tenant agree, that the foregoing provision shall not limit the Tenant’s ability to open and operate a satellite hospital-in-hospital offering LTCH beds under the auspices of the existing LTCH licensure of the Property which satellite hospital shall be located on the sixth floor of the Dignity Health St. Mary’s Medical Center, located at 450 Stanyon Street, San Francisco, CA 94117.

Section 17.22. State or Local Law Provisions . The State/Local Law Provisions, if any, attached hereto as Exhibit E are modifications to the terms of this Lease and, if conflicting, such State/Local Law Provisions shall control in the event of any conflict with the other provisions of this Lease or any exhibits hereto.

Section 17.23. Special Stipulations . The Special Stipulations, if any, attached hereto as Exhibits F-1, F-2 and F-3 are modifications to the terms of this Lease and, if conflicting, such Special Stipulations shall control in the event of any conflict with the other provisions of this Lease or any exhibits hereto.

Section 17.24. Force Majeure . Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform (each, a “ Force Majeure Event ”) shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, expressly excluding, however, the obligations imposed upon Tenant with respect to Rent and other Monetary Obligations to be paid hereunder.

Section 17.25. No Merger . There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee estate in or ownership of the Property by reason of the fact that the same person, corporation, firm or other entity may acquire or hold or own, directly or indirectly, (a) this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate, and (b) the fee estate or ownership of the Property or any interest in such fee estate or ownership. No such merger shall occur unless and until all persons, corporations, firms and other entities having any interest in (i) this Lease or the leasehold estate created by this Lease, and (ii) the fee estate in or ownership of the Property or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same.

Section 17.26. Interpretation . Landlord and Tenant acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant.

Section 17.27. Entire Agreement . The submission of this Lease for examination does not constitute a reservation of, or option for, the Property, and this Lease shall become effective only upon execution by all parties hereto and delivery thereof by Landlord to Tenant. There are no oral agreements between the parties hereto affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties and understandings between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. Tenant hereby expressly acknowledges that Landlord or Landlord’s employees or agents have made no representations, warranties, inducements or promises with respect to the Property except as herein expressly set forth.

Section 17.28. Characterization . The following expressions of intent, representations, warranties, covenants, agreements, stipulations and waivers are a material inducement to Landlord entering into this Lease:

(a) Tenant has made its own independent determination that this Lease qualifies for sale-leaseback accounting in accordance with FASB Accounting Standards Codification (ASC) Subtopic 840-40.

(b) Landlord and Tenant intend that (i) this Lease is a “true lease,” is not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease and (ii) the business relationship created by this Lease and any related documents is solely that of a long term commercial lease between Landlord and Tenant, the Lease has been entered into by both parties in reliance upon the economic and legal bargains contained herein, and none of the agreements contained herein is intended, nor shall the same be deemed or construed, to create a partnership (de facto or de jure) between Landlord and Tenant, to make them joint venturers, to make Tenant an agent, legal representative, partner, subsidiary or employee of Landlord, nor to make Landlord in any way responsible for the debts, obligations or losses of Tenant.

(c) Landlord and Tenant covenant and agree that: (i) each will treat this Lease as an operating lease pursuant to ASC Subtopic 840-40, as amended, and as a true lease for state law reporting purposes and for federal income tax purposes; (ii) each party will not, nor will it permit any Affiliate to, at any time, take any action or fail to take any action with respect to the preparation or filing of any statement or disclosure to Governmental Authority, including without limitation, any income tax return (including an amended income tax return), to the extent that such action or such failure to take action would be inconsistent with the intention of the

parties expressed in this Section 17.28; (iii) with respect to the Property, the Lease Term (including any Extension Term) is less than eighty percent (80%) of the estimated remaining economic life of the Property; and (iv) the Fixed Annual Rent is the fair market value for the use of the Property and was agreed to by Landlord and Tenant on that basis, and the execution and delivery of, and the performance by Tenant of its obligations under, this Lease do not constitute a transfer of all or any part of the Property.

(d) Tenant waives any claim or defense based upon the characterization of this Lease as anything other than a true lease of all of the Property. Tenant stipulates and agrees (i) not to challenge the validity, enforceability or characterization of the lease of the Property as a true lease and/or as a single, unitary, unseverable instrument pertaining to the lease of all the Property; and (ii) not to assert or take or omit to take any action inconsistent with the agreements and understandings set forth in this Section 17.28.

[Signature pages follow.]

IN WITNESS WHEREOF , the parties hereto have executed this Lease as of the day and year first above written.


WITNESSES:		LANDLORD:

		MRT OF KENTFIELD CA – LTACH,
/s/ Forrest G. Gardner		LLC, a Delaware limited liability company
Print Name:	Forrest G. Gardner

		By:	/s/ William C. Harlan
		Name:	William C. Harlan
		Title:	President

STATE OF Tennessee

~~CITY~~ /COUNTY OF Davidson , to-wit:

On this 1st day of August , 2014, before me personally appeared William C. Harlan , as President of MRT OF KENTFIELD CA – LTACH, LLC, a Delaware limited liability company, personally known to me or satisfactorily proven to be the person whose name is subscribed to the within instrument and acknowledged that she/he has executed the same for the purpose therein contained.

In witness whereof, I have hereunto set my hand and official seal.


/s/ Elizabeth Puckett
Notary Public
Printed Name:		Elizabeth Puckett


[SEAL]

My Commission Expires:		7/6/15
Notary Registration No.:		N/A


WITNESSES:		TENANT:

		1125 SIR FRANCIS DRAKE BOULEVARD
/s/ Donna Beccia		OPERATING COMPANY, LLC
Print Name:	Donna Beccia	D/B/A KENTFIELD REHABILITATION AND
		SPECIALTY HOSPITAL

		By:	/s/ Clint Fegan
		Name:	Clint Fegan
		Title:	Secretary

COMMONWEALTH OF PENNSYLVANIA

CITY/COUNTY OF CUMBERLAND, to-wit:

On this 1st day of August , 2014, before me personally appeared Clint Fegan as Secretary of 1125 SIR FRANCIS DRAKE BOULEVARD OPERATING COMPANY, LLC D/B/A KENTFIELD REHABILITATION AND SPECIALTY HOSPITAL, a Delaware limited liability company, personally known to me or satisfactorily proven to be the person whose name is subscribed to the within instrument and acknowledged that she/he has executed the same for the purpose therein contained.

In witness whereof, I have hereunto set my hand and official seal.


/s/ Donna M. Beccia
Notary Public
Printed Name:		Donna M. Beccia


[SEAL]

My Commission Expires:		7/9/17
Notary Registration No.:		1008774

JOINDER

The undersigned parties, being the Lease Guarantors as set forth in this Lease, hereby join in the execution of this Lease to evidence their consent to an agreement with the terms and conditions applicable to each of them in this Lease.


WITNESSES:		PARENT GUARANTOR:

		VIBRA HEALTHCARE, LLC, a Delaware
/s/ Donna Beccia		limited liability company
Print Name:	Donna Beccia

		By:	/s/ Clint Fegan
		Name:	Clint Fegan
		Title:	Secretary

COMMONWEALTH OF PENNSYLVANIA

CITY/COUNTY OF CUMBERLAND, to-wit:

On this 1st day of August , 2014, before me personally appeared Clint Fegan, as Secretary of VIBRA HEALTHCARE, LLC, a Delaware limited liability company, personally known to me or satisfactorily proven to be the person whose name is subscribed to the within instrument and acknowledged that she/he has executed the same for the purpose therein contained.

In witness whereof, I have hereunto set my hand and official seal.


/s/ Donna M. Beccia
Notary Public
Printed Name:		Donna M. Beccia


[SEAL]

My Commission Expires:		7/9/17
Notary Registration No.:		1008774


WITNESSES:		AFFILIATE GUARANTOR:

		VIBRA HEALTHCARE II, LLC,
/s/ Donna Beccia		a Delaware limited liability company
Print Name:	Donna Beccia

		By:	/s/ Clint Fegan
		Name:	Clint Fegan
		Title:	Secretary

COMMONWEALTH OF PENNSYLVANIA

CITY/COUNTY OF CUMBERLAND, to-wit:

In witness whereof, I have hereunto set my hand and official seal.


/s/ Donna M. Beccia
Notary Public
Printed Name:		Donna M. Beccia


[SEAL]

My Commission Expires:		7/9/17
Notary Registration No.:		1008774

EXHIBIT A

DEFINED TERMS

The following terms shall have the following meanings for all purposes of this Lease:

“ Affected Party ” means each direct or indirect participant or investor in a proposed or completed Securitization, including, without limitation, any prospective owner, any rating agency or any party to any agreement executed in connection with the Securitization.

“ Affiliate ” means any Person which directly or indirectly controls, is under common control with or is controlled by any other Person. For purposes of this definition, “controls,” “under common control with,” and “controlled by” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.

“ Anti Money Laundering Laws ” means all applicable laws, regulations and government guidance on the prevention and detection of money laundering, including, without limitation, (a) 18 U.S.C. §§ 1956 and 1957; and (b) the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq., and its implementing regulations, 31 CFR Part 103.

“ Anti-Terrorism Law ” means any law relating to terrorism, anti-terrorism, money-laundering or anti-money laundering activities, including without limitation the United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, Executive Order No. 13224, and Title 3 of the USA Patriot Act, and any regulations promulgated under any of them. As used herein “Executive Order No. 13224” is defined as Executive Order No. 13224 on Terrorist Financing effective September 24, 2001, and relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”, as may be amended from time to time. “Prohibited Person” is defined as (i) a person or entity that is listed in the Annex to Executive Order No. 13224, or a person or entity owned or controlled by an entity that is listed in the Annex to Executive Order No. 13224; (ii) a person or entity with whom Landlord is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; or (iii) a person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/t11sdn.pdf or at any replacement website or other official publication of such list. “USA Patriot Act” is defined as the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” (Public Law 107-56), as may be amended from time to time.

“ Attorneys’ Fees ” as used herein shall mean all reasonable attorneys’ and paralegals’ fees, whether incurred in court, out of court, on appeal or in any bankruptcy or administrative proceeding.

“ Bankruptcy Code ” means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended.

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“ Business Da y” means a day on which banks located in Nashville, Tennessee are not required or authorized to remain closed.

“ Casualty ” means any loss of or damage to any property included within or related to the Property or arising from an adjoining property caused by an Act of God, fire, flood or other catastrophe.

“ Code ” means the Internal Revenue Code of 1986, as the same may be amended from time to time.

“ Condemnation ” means a Taking and/or a Requisition.

“ Costs ” means all actual, reasonable costs and expenses incurred by a Person, including, without limitation, reasonable attorneys’ fees and expenses, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, brokerage fees, escrow fees, title insurance premiums, appraisal fees, stamp taxes, recording fees and transfer taxes or fees, as the circumstances require.

“ Default Rate ” means 18% per annum or the highest rate permitted by law, whichever is less.

“ Effective Date ” has the meaning set forth in the second introductory paragraph of this Lease.

“ Environmental Laws ” means federal, state and local Laws, ordinances, common law requirements and regulations and standards, rules, policies and other governmental requirements, administrative rulings and court judgments and decrees having the effect of law in effect now or in the future and including all amendments, that relate to Hazardous Materials, Regulated Substances, USTs, and/or the protection of human health or the environment, or relating to liability for or Costs of Remediation or prevention of Releases, and apply to Tenant and/or the Property.

“ Environmental Liens ” has the meaning set forth in Section 8.05(a)(ii).

“ Event of Default ” has the meaning set forth in Section 12.01.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Existing Personalty ” has the meaning set forth in Section 3.04.

“ Expiration Date ” has the meaning set forth in Section 3.01.

“ Extension Option ” has the meaning set forth in Section 3.02.

“ Extension Term ” has the meaning set forth in Section 3.02.

“ Fixed Annual Rent ” means $4,462,500.00.

A-2

“ Force Majeure Event ” has the meaning set forth in Section 17.24.

“ GAAP ” means generally accepted accounting principles, consistently applied from period to period.

“ Governmental Authority ” means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi governmental authority of the United States, any state or any political subdivision thereof with authority to adopt, modify, amend, interpret, give effect to or enforce any federal, state and local Laws, statutes, ordinances, rules or regulations, including common law, or to issue court orders.

“ Hazardous Materials ” includes: (a) oil, petroleum products, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other materials, contaminants or pollutants which pose a hazard to the Property or to Persons on or about the Property, cause the Property to be in violation of any local, state or federal law or regulation, (including without limitation, any Environmental Law), or are defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “toxic substances,” “contaminants,” “pollutants,” or words of similar import under any applicable local, state or federal law or under the regulations adopted, orders issued, or publications promulgated pursuant thereto, including, but not limited to: (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601, et seq.; (ii) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. § 1801, et seq.; (iii) the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § 6901, et seq.; and (iv) regulations adopted and publications promulgated pursuant to the aforesaid Laws; (b) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million; (c) underground storage tanks; and (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or which may or could pose a hazard to the health and safety of the occupants of the Property or the owners and/or occupants of any adjoining property.

“ Indemnified Party ” or “ Indemnified Parties ” means individually or collectively, as the context may require, Landlord, and its members, managers, officers, directors, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, and each of their respective successors and assigns, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Landlord and any Lender as defined herein.

“ Initial Term ” has the meaning set forth in Section 3.01.

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receiver, trustee, or other similar official for it or for any substantial part of its property, and in the case of any such proceeding instituted against any Person, either such proceeding shall remain undismissed for a period of one hundred twenty (120) days or any of the actions sought in such proceeding shall occur; or (c) any Person taking any corporate action to authorize any of the actions set forth above in this definition.

“ Landlord Entity ” or “ Landlord Entities ” means individually or collectively, as the context may require, Landlord and all Affiliates of Landlord.

“ Law(s) ” means any constitution, statute, rule of law, code, ordinance, order, judgment, decree, injunction, rule, regulation, policy, requirement or administrative or judicial determination, even if unforeseen or extraordinary, of every duly constituted Governmental Authority, court or agency, now or hereafter enacted or in effect.

“ Lease Term ” shall have the meaning described in Section 3.01.

“ Lease Year ” shall mean and refer to the twelve (12) month period beginning on the Lease Commencement Date and any successive twelve (12) month periods thereafter occurring during this Lease. Calendar Year shall mean and refer to the twelve (12) month period beginning January 1 and ending December 31.

“ Legal Requirements ” means the requirements of all present and future Laws (including, without limitation, Environmental Laws and Laws relating to accessibility to, usability by, and discrimination against, disabled individuals), all judicial and administrative interpretations thereof, including any judicial order, consent, decree or judgment, and all covenants, restrictions and conditions now or hereafter of record which may be applicable to Tenant or to the Property, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of the Property, even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of the Property.

“ Lender ” means any lender in connection with any loan secured by Landlord’s interest in the Property, and any servicer of any loan secured by Landlord’s interest in the Property.

“ Losses ” means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, Costs, diminutions in value, fines, penalties, interest, charges, fees, judgments, awards, amounts paid in settlement and damages of whatever kind or nature, inclusive of bodily injury and property damage to third parties (including, without limitation, attorneys’ fees and other Costs of defense).

“ Material Adverse Effect ” means a material adverse effect as determined in the Landlord’s sole good faith discretion on (a) the Property, including, without limitation, the operation of the Property as a Permitted Facility and/or the value of the Property; (b) the contemplated business, condition, worth or operations of any Tenant Entity; (c) Tenant’s ability to perform its obligations under this Lease; or (d) Landlord’s interests in the Property, this Lease or the other Transaction Documents.

“ Monetary Obligations ” has the meaning set forth in Section 4.03.

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“ Mortgages ” means, collectively, the mortgages, deeds of trust or deeds to secure debt, assignments of rents and leases, security agreements and fixture filings executed by Landlord for the benefit of Lender with respect to the Property, as such instruments may be amended, modified, restated or supplemented from time to time and any and all replacements or substitutions.

“ Net Award ” means (a) the entire award payable with respect to a Property by reason of a Condemnation whether pursuant to a judgment or by agreement or otherwise; or (b) the entire proceeds of any insurance required under Section 6.03 payable with respect to a Property, as the case may be, and in either case, less any Costs incurred by Landlord in collecting such award or proceeds.

“ Partial Condemnation ” means a Condemnation which is not a Total Condemnation.

“ Permitted Amounts ” shall mean, with respect to any given level of Hazardous Materials or Regulated Substances, that level or quantity of Hazardous Materials or Regulated Substances in any form or combination of forms which does not constitute a violation of any Environmental Laws and is customarily employed in, or associated with, similar businesses located in the states where the Property is located.

“ Permitted Facility ” means a long-term acute care hospital and skilled nursing facility, all related purposes such as ingress, egress and parking, and uses incidental thereto.

“ Person ” means any individual, partnership, corporation, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.

“ Price Index ” means the Consumer Price Index which is designated for the applicable month of determination as the United States City Average for All Urban Consumers, All Items, Not Seasonally Adjusted, with a base period equaling 100 in 1982 1984, as published by the United States Department of Labor’s Bureau of Labor Statistics or any successor agency. In the event that the Price Index ceases to be published, its successor index as published by the same Governmental Authority which published the Price Index shall be substituted and any necessary reasonable adjustments shall be made by Landlord and Tenant in order to carry out the intent of Section 4.02. In the event there is no successor index, Landlord shall reasonably select an alternative price index that will constitute a reasonable substitute for the Price Index.

“ Property ” means those parcels of real estate legally described on Exhibit B attached hereto, all rights, privileges, and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located on such real estate (whether or not affixed to such real estate).

“ Purchase Agreement ” means that certain Purchase and Sale Agreement dated as of June 1, 2014 between MedEquities Realty Trust, Inc. and Seller, as amended by that certain First Amendment to Purchase and Sale Agreement dated on or about July 28, 2014 with respect to the Property.

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“ Regulated Substances ” means “petroleum” and “petroleum based substances” or any similar terms described or defined in any of the Environmental Laws and any applicable federal, state, county or local Laws applicable to or regulating USTs.

“ REIT ” means a real estate investment trust as defined under Section 856 of the Code.

“ Release ” means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials, Regulated Substances or USTs.

“ Remediation ” means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, Regulated Substances or USTs, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials, Regulated Substances or USTs.

“ Requisition ” means any temporary requisition or confiscation of the use or occupancy of the Property by any Governmental Authority, civil or military, whether pursuant to an agreement with such Governmental Authority in settlement of or under threat of any such requisition or confiscation, or otherwise.

“ Securities ” has the meaning set forth in Section 17.07.

“ Securities Act ” means of the Securities Act of 1933, as amended.

“ Securitization ” has the meaning set forth in Section 17.07.

“ Seller ” means Kentfield THCI Holding Company, LLC and 1125 Sir Francis Drake Boulevard Operating Company, LLC, d/b/a Kentfield Rehabilitation and Specialty Hospital, as identified in the Purchase Agreement.

“ SNDA ” means subordination, nondisturbance and attornment agreement.

“State where the Property is located” or words of similar import shall mean the State of California.

“ Taking ” means (a) any taking or damaging of all or a portion of the Property (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special; (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding; or (iii) by any other means; or (b) any de facto condemnation. The Taking shall be considered to have taken place as of the later of the date actual physical possession is taken by the condemnor, or the date on which the right to compensation and damages accrues under the law applicable to the Property.

“ Temporary Taking ” has the meaning set forth in Section 11.04.

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“ Tenant Entity ” or “ Tenant Entities ” means individually or collectively, as the context may require, Tenant and all Affiliates thereof that are guarantors of this Lease.

“ Tenant Personalty ” has the meaning set forth in Section 3.03.

“ Threatened Release ” means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any Property which may result from such Release.

“ Total Condemnation ” means a Condemnation of all or substantially all of any Property, including a Condemnation (other than for a temporary use) of such a substantial part of such Property resulting in the portion of the Property remaining after such Condemnation being unsuitable for use as a Permitted Facility, as determined by Tenant in the exercise of good faith business judgment.

“ Transaction ” has the meaning set forth in Section 14.01.

“ Transaction Documents ” means this Lease, the Purchase Agreement, the Contribution and Closing Agreement and all documents related thereto.

“ U.S. Publicly Traded Entity ” means an entity whose securities are listed on a national securities exchange or quoted on an automated quotation system in the United States or a wholly owned subsidiary of such an entity.

“ USTs ” means any one or combination of tanks and associated product piping systems used in connection with storage, dispensing and general use of Regulated Substances.

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EXHIBIT B

Legal Description and Street Address of the Property

All that certain real property situated in the County of Marin, State of California, described as follows:

Unincorporated Area

PARCEL ONE:

Beginning at a point on the Southwest line of Sir Francis Drake Boulevard at the most Easterly corner of Lot B, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County records; running thence from said point of beginning along the Southwest line of said road, North 46 degrees 39 minutes West 137 feet to the most Easterly corner of the lands conveyed by Phillipe Lenoir, et ux, to Henry W. Turner, by Deed recorded June 27, 1913 in Book 154 of Deeds at Page 32, Marin County Records; thence Southwesterly on and along the Southeast line of the lands so described, South 71 degrees 04 minutes West to the center of San Anselmo Creek, at a point 13 feet Southerly measured at right angles from the northerly line of Lot C of Map above referred to; thence Southerly at right angles to said line of Lot C, 1 foot; thence continuing Westerly along said Turner’s Line to the Easterly line of the right of way of the North Shore Railroad at a point 25 feet Southerly from the Northwest corner of Lot B; thence Southeasterly along said right of way line 125 feet to the Southwest corner of Lot B; thence North 69 degrees 20 minutes East on and along the Southeasterly line of said Lot B, 472.6 feet to the Ross Landing and Red Hill Road and the point of beginning.

Excepting from the above, the following described parcel of land:

Beginning at a point on the Southwest line of Sir Francis Drake Boulevard, at the most Easterly corner of Lot B, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence running from said point of beginning along the Southwest line of said road, North 46 degrees 39 minutes West 137 feet to the most Easterly corner of lands conveyed by Phillipe Lenoir, et ux, to Henry W. Turner by Deed recorded June 27, 1913 in Book 154 of Deeds at Page 32, Marin County Records; thence running along the Southeast line of the lands so conveyed to Turner, South 71 degrees 04 minutes West 212 feet; thence leaving said line, South 23 degrees 25 minutes East 129.57 feet to a point on the Southeast line of the aforesaid Lot B; thence along said lot line, North 69 degrees 20 minutes East 266 feet to the point of beginning.

Excepting therefrom the portion conveyed to Marin County Flood Control and Water Conservation District, a political subdivision of the State of California, recorded March 7, 1972 in Book 2547 of Official Records at Page 298, Marin County Records.

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PARCEL TWO:

Beginning at a point on the Northwesterly line of Lot A, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; said point being distant thereon South 69 degrees 20 minutes West 323.84 feet from the most Northerly corner of said Lot A; thence from said point of beginning, along the northwesterly boundary line of said lot, South 69 degrees 20 minutes West 144.25 feet, more or less, to the most Westerly corner of said Lot A; thence along the Southwesterly line of said lot, which line is also the Northeasterly line of the North Shore Railroad in a Southeasterly direction for a distance of 123 feet to the most Southerly corner of said Lot A; thence leaving said line of the North Shore Railroad and running North 86 degrees 50 minutes East 52.53 feet, more or less, to the Westerly bank of the Arroyo san Anselmo; thence along said Westerly bank North 26 degrees 15 minutes East 49.63 feet to a point; thence leaving said Bank of the Arroyo San Anselmo and continuing along the same course, North 26 degrees 15 minutes East 24.52 feet to a point; thence North 63 degrees 05 minutes West 31.13 feet; thence North 27 degrees 34 minutes West 6.78 feet; thence North 29 degrees 34 minutes 44 seconds East 27.68 feet; thence North 22 degrees 38 minutes 30 seconds West 30.14 feet; thence North 61 degrees 23 minutes 20 seconds East 36.29 feet; thence South 85 degrees 46 minutes 20 seconds East 6.86 feet; thence North 20 degrees 40 minutes West 11.22 feet to the point of beginning.

PARCEL THREE:

That portion of the former right of way of the Northwestern Pacific Railroad Company, as described in Deed to Malcolm Ross Perry, et al, recorded January 21, 1947 in Book 538 of Official Records Page 447, Marin County Records, which lies between the extension Easterly of the Southerly boundary line of Lot 3, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records and a line drawn South 70 degrees 11 minutes West from the most Westerly corner of the land conveyed to Andrea Minutoli, et ux, in Deed recorded April 11, 1944, in Book 463 of Official Records at Page 160, Marin County Records.

Excepting therefrom the following described land:

Beginning at the most Easterly corner of Lot 4, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence North 76 degrees 49 minutes East 5 feet; thence North 22 degrees 11 minutes West 100 feet; thence South 76 degrees 49 minutes West 5 feet to the Northeasterly corner of Lot 5, as shown on the above referred to; thence South 22 degrees 11 minutes East along the Easterly line of Lots 5 and 4 to the point of beginning.

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And further excepting the following:

Beginning at the most Easterly corner of said Lot 3; thence from said point of beginning along the Easterly boundary line of said Lot 3, North 22 degrees 11 minutes West 50 feet to the most Easterly corner of Lot 4 of said map; thence North 76 degrees 49 minutes East 5 feet; thence South 22 degrees 11 minutes East 50 feet, more or less, to a point which in North 67 degrees 42 minutes East 5 feet from the point of beginning; thence South 67 degrees 42 minutes West 5 feet to the point of beginning.

PARCEL FOUR:

Those portions of the former right of way of the Northwestern Pacific Railroad Company, as described in the Deed recorded June 27, 1913 in Book 538 of Official Records at Page 447, Marin County Records, which is described as follows:

Beginning at a point on the Northeasterly line of said former right of way line; said point begin distant 60 feet Northeasterly from the most Northerly corner of Lot 2, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; running thence from said point of beginning, Southwesterly 19.5 feet along a line which is the extension Easterly of the Northerly line of said Lot 2; thence leaving said line and running Southeasterly parallel with the Northeasterly line of said former right of way line 50 feet to a line which is the extension Easterly of the Northerly line of said Lot 2; thence leaving said line and running Southeasterly parallel with the Northeasterly line of said former right of way line 50 feet to a line which is the extension Easterly of the Southerly line of said Lot 2; thence along said last mentioned line Northeasterly 19.5 feet to the Northeasterly line of said right of way line; thence along said line Northwesterly 50 feet to the point of beginning.

PARCEL FIVE:

Beginning at the most Westerly corner of Parcel Four, described herein and running thence Southwesterly 10 feet along a line which is the extension Easterly of the Northerly line of said Lot 2, to a point; thence leaving said line and running Southeasterly in a straight line to a point in the Southwesterly boundary line of Parcel Four described herein, which point is distant thereon Southeasterly 10 feet from the point of beginning; running thence along said Southwesterly boundary line in a Northwesterly direction, 10 feet to the point of beginning.

PARCEL SIX:

Beginning at a point on a line which is the Easterly extension of the Southerly line of Lot 2, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records, which point is distant thereon 40.5 feet Easterly from the most Easterly corner of said Lot 2; running thence from said point of beginning, along the Easterly extension of Lot 2, Westerly 10.5 feet; thence leaving said Easterly extension of Lot 2 and running Northwesterly parallel

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with the Easterly boundary line of said Lot 2, 50 feet to a point in a line which is the Easterly extension of the Northerly line of said Lot 2, which point is distant thereon easterly 30.0 feet from the Northeast corner of said Lot 2; thence Easterly along said Easterly extension 0.5 feet; thence leaving said Easterly extension and running South 67 degrees 18 minutes East 14.14 feet; thence Southeasterly in a straight line parallel with the Easterly boundary line of said Lot 2, 40 feet to the point of beginning.

Being a portion of the former railroad right of way lying Northeasterly of Lot 2, map hereinabove referred to.

PARCEL SEVEN:

Beginning at a point on the Northwesterly line of the parcel of land conveyed to Alwyn K. Safholm, et ux, by Deed recorded September 23, 1960 in Book 1401 of Official Records at Page 155, Marin County Records, distant thereon Northeasterly 180 feet from the Northeasterly line of Poplar Avenue; thence continuing along said Northwesterly line Northeasterly 24 feet; thence Southeasterly 6 feet to a point on the Northeasterly line of said Safholm Parcel, distant thereon Southeasterly 6 feet from the most Northerly corner thereof; thence along said Northeasterly line Southeasterly 61 feet to the Southeasterly corner of said Safholm Parcel; thence Southwesterly along the Southeasterly line of said parcel, 30 feet; thence leaving said line Northwesterly 67 feet to the point of beginning.

PARCEL EIGHT:

An easement for parking purposes, 10 feet in width, lying Westerly of, adjacent to and parallel with the following described line:

PARCEL NINE:

An easement for parking purposes, 10 feet in width, lying Westerly of, adjacent to, and parallel with the following described line:

Beginning at a point on a line which is the Easterly extension of the Southerly line of Lot 2, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records, which point is distant 30.00 feet Easterly thereon; thence from said point of beginning Northwesterly in a straight line parallel with the Easterly boundary line of said Lot 2, 50.00 feet.

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PARCEL TEN:

An easement, 5 feet in width for sewer purposes lying Southerly of, adjacent to and parallel with the Northerly line of Lot 2, and its extension easterly 30.5 feet, as shown upon that certain map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records.

PARCEL ELEVEN:

Beginning at the Northeasterly corner of the land conveyed to Alwyn K. Safholm, et ux, in Deed recorded September 23, 1960 in Book 1401 of Official Records at Page 155, Marin County Records; thence along the Northwesterly line of said land conveyed to Alwyn K. Safholm, et ux, above referred to, South 67 degrees 42 minutes West 6 feet; thence Easterly to a point on the Easterly line of the land of Alwyn K. Safholm, et ux, above referred to distant thereon Southeasterly 6 feet from the point of beginning; thence along said Easterly line Northwesterly 6 feet to the point of beginning.

PARCEL TWELVE:

Beginning at a point on the intersection lines of the land of the North Shore Railroad Company and the Southwesterly corner of Lot A, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence running Southerly along the Easterly boundary line of the land of the North Shore Railroad Company, 105 feet, more or less, to the middle of the creek; thence running Northerly along the center of said creek to a certain point; said point being the Southeasterly corner of Lot A, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, field for recorded March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence running Westerly along the Southerly boundary line of said Lot A, 67 feet, more or less, to the point of beginning.

Said premises are shown as Lot 63, upon that certain Map entitled “Map of Granton Park”, filed for record February 4, 1907 in Volume 2 of Maps, at Page 77, Marin County Records.

PARCEL THIRTEEN:

Beginning at a point on the Easterly right of way line formerly of the Northwestern Pacific Railway Company; said point also being the Southwesterly corner of the land described in the Deed to Robert R. Busse, et ux recorded March 25, 1959 in Book 1266 of Official Records at Page 121, Marin County Records; thence South 68 degrees 08 minutes West along the Southeasterly line of said parcel if extended, 60.00 feet to a point; said point being on the Westerly right of way line formerly of the Northwestern Pacific Railway Company; thence along

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said Westerly right of way line, North 22 degrees 11 minutes West 124.67 feet to an iron pipe monument; thence North 67 degrees 49 minutes East 180.00 feet to an iron pipe monument; thence South 22 degrees 11 minutes East 50.39 feet to an iron pipe monument; thence North 73 degrees 58 minutes East 34.06 feet; thence South 26 degrees 15 minutes East 72.02 feet to a point on the Southerly line of lands now or formerly of Busse, as above described; thence along said Southerly line, South 68 degrees 08 minutes West 158.97 feet to the point of beginning. NOTE: Iron pipe monuments are marked with Engineers Tag No. RCE 10734.

PARCEL FOURTEEN:

Being a portion of the lands conveyed to the Marin County Flood Control and Water Conservation District, by Deed recorded June 30, 1971 in Book 2478 of Official Records at Page 22, Marin County Records.

Beginning at the most Southerly corner of Parcel Two of said Lands of Marin County Flood Control and Water Conservation District; said point of beginning is marked by a found iron pipe and tag PE 10734; thence North 20 degrees 47 minutes 59 seconds West 55.00 feet along the Southwesterly line of the former right of way of the Northwestern Pacific Railroad Company; thence leaving said Southwesterly right of way line, North 69 degrees 20 minutes 16 seconds East 161.09 feet; thence South 36 degrees 39 minutes 32 seconds East 57.22 feet to a point in the Northwesterly line of the lands conveyed to Reese by a Deed recorded February 19, 1965 in Book 1912 of Official Records at Page 364, Marin County Records; thence along said Northwesterly line of Lands of Reese, South 69 degrees 20 minutes 16 seconds West 177.33 feet to the point of beginning.

PARCEL FIFTEEN:

A permanent non-exclusive access easement for ingress and egress and travel over the following described real property:

Being a portion of the Lands of Ralph E. Ellis and Catherine A. Ellis, his wife as Joint Tenants, described by Joint Tenancy Deed, recorded July 9, 1969 in Book 2310 of Official Records at Page 647, Marin County Records.

Beginning at a point in the Southerly line of said Lands of Ellis, distant thereon South 73 degrees 50 minutes 20 seconds West (record South 72 degrees 45 minutes West) 180.57 feet from a found nail and tag LS 2738; marking the most Easterly corner of said lands; thence from said point of beginning, North 36 degrees 39 minutes 32 seconds West 4.75 feet; thence South 84 degrees 40 minutes West 43.32 feet; thence North 41 degrees 15 minutes 24 seconds West 39.17 feet to a found hub and tag LS 2738 marking an angle point in the Westerly line of said Lands of Ellis; thence South 28 degrees 16 minutes 50 seconds East (record South 29 degrees 24 minutes East) 49.15 feet to a found nail and tag LS 2738 marking the most Southerly corner of said Lands of Ellis; thence North 73 degrees 50 minutes 20 seconds East 50.51 feet to the point of beginning.

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PARCEL SIXTEEN:

That portion of Lots C, D, E, F and the former right of way of the Northwestern Pacific Railroad Company, as shown upon that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin Co., Cal.”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records, described as follows:

Beginning at a point on the Southwestern line of Sir Francis Drake Boulevard, formerly known as Red Hill and Ross Landing Road, distant thereon South 47 degrees 47 minutes East 13 feet from the Northern corner of said Lot D; thence continuing along said Southwestern line, South 47 degrees 47 minutes East 75 feet to the Eastern corner of the parcel of land described in the Deed from Phillipe Lenoir, et ux to Henry W. Turner, recorded June 27, 1913 in Book 154 of Deeds at Page 32, Marin County Records; thence along the Southeasterly line thereof, South 70 degrees 11 minutes West 233 feet to a point in the center line of San Anselmo Creek, distant at a right angle 13 feet Southeasterly from the Northwestern line of said Lot C; running thence Southeasterly at a right angle to said Northwestern line of Lot C, 1 foot and South 68 degrees 08 minutes West 21.00 feet to the intersection thereof with the Northeastern line of the parcel of land described in the Deed from Eugene P. Aureguy, et al to Russell Reese, et al, recorded February 19, 1965 in Book 1912 of Official Records at Page 354, Marin County Records; thence running along said Northeastern line, North 26 degrees 15 minutes West 72.02 feet to an angle point therein; thence leaving said Reese Parcel (1912/354) and thence running South 73 degrees 59 minutes West 34.06 feet, North 22 degrees 11 minutes West 50.39 feet and South 67 degrees 49 minutes West 180.00 feet to a point on the Westerly line of the former right of way of the Northwestern Pacific Railroad Company as described in the Deed to Malcolm Ross Perry, et al, recorded January 21, 1947 in Book 538 of Official Records at Page 447, Marin County Records; thence running along said Westerly line of the former right of way, North 22 degrees 11 minutes West to its intersection with the most Easterly corner of Lot 13, as shown upon that certain Map entitled, “Bosqui Tract”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence leaving said line of the former right of way and running Easterly to Northwesterly corner of Lot F, as shown upon that certain Map entitled “Bosqui Tract”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence Easterly along the Northerly line of said Lot F to the Westerly bank of San Anselmo Creek; thence Southeasterly along the Westerly bank of said creek and following the meanderings thereof to the Northerly line of Lot D; thence North 72 degrees 45 minutes East along said Northerly line to the Southwesterly line of Ross Landing and Red Hill Road; thence Southeasterly along said line, 13 feet to a point of beginning.

Excepting therefrom that portion conveyed by Cal-West Capital Corporation to Marin County Flood Control and Water Conservation District, a political subdivision of the State of California by Deed recorded June 30, 1971 in Book 2478 of Official Records at Page 22, Marin County Records.

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Further excepting therefrom that portion conveyed to the County of Marin by Deed recorded October 6, 1965 in Book 1987 of Official Records at Page 216, Marin County Records, and being described as follows:

Beginning at a point on the Westerly line of Red Hill and Ross Landing Road, distant thereon South 47 degrees 47 minutes East 13 feet from the most Northerly corner of Lot D, as shown upon that certain map entitled “Bosqui Tract”, filed for record December 3, 1904 in Volume 2 of Maps, at Page 12, Marin County Records; said point also being the Northeasterly corner of that certain parcel of land described in the Deed from R.E. Valentine, et ux to Harry G. Henderson, et ux, recorded January 15, 1936 in Book 308 of Official Records at Page 241, Marin County Records; thence leaving said road line and running along the Northerly boundary line of said Henderson Parcel, South 71 degrees 45 minutes West 34.48 feet to a point; thence leaving said line and running North 47 degrees 47 minutes West 13.00 feet, more or less, to a point on the Northerly line of said Lot D; thence Northeasterly along said Northerly line of Lot D, 34.83 feet, more or less, to the Northerly corner of said Lot D; thence South 47 degrees 47 minutes East 13 feet to the point of beginning.

PARCEL SEVENTEEN:

Suites A through P, inclusive and 100% interest in the “common area”, as shown upon that certain Map entitled “Map of Vertical Subdivision of Redwood Medical Center, being a portion of Lots B & C, Amended Map of Bosqui Tract, recorded by Marin County Records, in Book 2, Page 18, in the County of Marin, California”, filed for record March 13, 1963 in Volume 11 of Maps, at Page 68, Marin County Records.

PARCEL EIGHTEEN:

An easement for ingress, egress and travel, 20 feet in width with a vertical clearance of 8 feet more particularly described as follows:

Beginning at a point which bears South 46 degrees 39 minutes East 23.00 feet, South 60 degrees 50 minutes West 38.66 feet, South 87 degrees 54 minutes West 52.30 feet South 68 degrees 44 minutes 30 seconds West 169.5 feet and South 23 degrees 17 minutes East 10.006 feet from the most Easterly corner of Lot B, as shown upon that certain Map entitled “Bosqui Tract”, filed for record March 13, 1905 in Volume 2 of Maps, at Page 18, Marin County Records; thence running from said true point of beginning, South 68 degrees 44 minutes 30 seconds West 74.8 feet, North 22 degrees 08 minutes West 57.5 feet, North 67 degrees 52 minutes East 19.3 feet, North 22 degrees 08 minutes West 52.0 feet, North 67 degrees 42 minutes East 14.2 feet, South 22 degrees 08 minutes East 90.05 feet, North 68 degrees 44 minutes 30 seconds East 40.89 feet and South 23 degrees 17 minutes East 20.012 feet to the point of beginning.

PARCEL NINETEEN:

Easement as contained in an instrument entitled Grant of Easement and Agreement, recorded in Volume 2014-0018113, Marin County Records.

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THE ABOVE TRACTS MORE PARTICULARLY DESCRIBED AS:

The land referred herein is based on official records Documents No. 83-29794 and 84-57880 being a portion of Lots A through F “Amended Map of Bosqui Tract” recorded in Book 2 of Maps on Page 18, also being a portion of Lot 63 “Map of Granton Park” recorded in Book 2 Page 77 of Maps, Records of Marin County described as follows:

PARCEL ONE:

BEGINNING at the most easterly corner of Map of Vertical Subdivision of Redwood Medical Center being a portion of Lots B & C, “Amended Map of Bosqui Tract” recorded in Book 2 of Maps on Page 18, Records of Marin County, California and recorded March 13, 1963 in Volume 11 of Maps, Page 68, Records of Marin County;

THENCE along the following course south 70 degrees 43 minutes 00 seconds West 232.64 feet;

THENCE North 21 degrees 53 minutes 40 seconds West 130.25 feet;

THENCE South 72 degrees 33 minutes 32 seconds West 20.94 feet;

THENCE South 17 degrees 01 minute 43 seconds East 1.00 feet

THENCE South 69 degrees 39 minutes 17 seconds West 11.37 feet to a point on a curve concave southwesterly with a radius of 273.00 feet, a radial of bearing through said point bears North 64 degrees 21 minutes 52 seconds East;

THENCE Southerly along said curve through a central angle of 17 degrees 45 minutes 03 seconds and a length of 84.58 feet to a point on non tangency;

THENCE South 08 degrees 00 minutes 53 seconds West 61.37 feet;

THENCE South 62 degrees 42 minutes 20 seconds West 30.23 feet;

THENCE South 21 degrees 15 minutes 30 seconds East 30.14 feet;

THENCE South 30 degrees 57 minutes 44 seconds West 27.68 feet;

THENCE South 26 degrees 11 minutes 00 seconds East 6.78 feet;

THENCE South 61 degrees 48 minutes 00 seconds East 9.57 feet;

THENCE South 24 degrees 09 minutes 05 seconds West 40.96 feet;

THENCE South 18 degrees 32 minutes 02 seconds West 81.92 feet to the beginning of a curve concave southeasterly with a radius of 229.00 feet;

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THENCE Southwesterly along said curve through a central angle of 3 degrees 44 minutes 02 seconds, a length of 14.92 feet to a point of non tangency;

THENCE North 20 degrees 39 minutes 44 seconds West 24.44 feet;

THENCE South 69 degrees 20 minutes 16 seconds West 30.00 feet;

THENCE North 20 degrees 39 minutes 44 seconds West 116.07 feet;

THENCE South 69 degrees 20 minutes 17 seconds West 25.00 feet;

THENCE North 20 degrees 39 minutes 44 seconds West 150.23 feet;

THENCE South 69 degrees 20 minutes 16 seconds West 5.00 feet;

THENCE North 20 degrees 39 minutes 44 seconds West 197.80 feet;

THENCE North 69 degrees 20 minutes 16 seconds East 161.56 feet;

THENCE South 36 degrees 39 minutes 32 seconds East 57.22 feet;

THENCE North 69 degrees 20 minutes 16 seconds East 2.66 feet;

THENCE South 20 degrees 39 minutes 44 seconds East 18.91 feet;

THENCE North 84 degrees 40 minutes 00 seconds East 101.13 feet;

THENCE North 73 degrees 50 minutes 20 seconds East 124.64 feet;

THENCE South 45 degrees 13 minutes 36 seconds East 12.67 feet;

THENCE North 74 degrees 18 minutes 24 seconds East 34.48 feet to a point on the southwesterly line of Sir Francis Drake Boulevard;

THENCE along said line South 45 degrees 13 minutes 36 seconds East 74.92 feet;

THENCE leaving Sir Francis Drake Boulevard South 72 degrees 33 minutes 32 seconds West 33.85 feet;

THENCE South 45 degrees 14 minutes 24 seconds East 138.34 feet to the point of BEGINNING.

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PARCEL TWO

AN EASEMENT for parking purposes 10 feet in width lying Westerly of, adjacent to and parallel with the following described line:

BEGINNING at a point on the Northwesterly line of the parcel of land conveyed to Alwyn K. Safholm, et ux, by Deed recorded September 23, 1960 in Book 1401 of Official Records, at page 155, Marin County Records, distant thereon 180 feet from said Northeasterly line of Poplar Avenue; thence Southeasterly 67 feet to a point on the Southeasterly line of said Safholm Parcel which bears Northeasterly 180 feet from said Northeasterly line of Poplar Avenue.

PARCEL THREE

AN EASEMENT for parking purposes 10 feet in width lying Westerly of, adjacent to, and parallel with the following described line:

BEGINNING at a point on line which is the Easterly extension of the Southerly line of Lot 2, as said lot is shown on that certain Map entitled “Amended Map of Bosqui Tract, Ross Valley, Marin County, Calif.” filed March 13, 1905 in Book 2 of Maps, at page 18, Marin County Records, which point is distant 30.00 feet Easterly thereon;

THENCE from said point of beginning Northwesterly in a straight line parallel with the Easterly boundary line of said Lot 2, 50.00 feet.


Assessor’s Parcel Number 074-011-83, 074-011-84, 074-011-86, 074-280-22

Street Address of Property:		1125 Sir Francis Drake Boulevard
		Kentfield, Marin County, California 94904

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EXHIBIT C

Form of Continuing Lease Guaranty

[Form to be executed by Vibra Healthcare, LLC and Vibra Healthcare II, LLC]

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CONTINUING LEASE GUARANTY

Vibra Healthcare, LLC,

a Delaware limited liability company

and

Vibra Healthcare II, LLC,

a Delaware limited liability company

as Guarantors

for

Facility Lease Agreement

by and between

MRT OF KENTFIELD CA – LTACH, LLC

or its assignee,

as Landlord

AND

1125 SIR FRANCIS DRAKE BOULEVARD OPERATING COMPANY, LLC

d/b/a KENTFIELD REHABILITATION AND SPECIALTY HOSPITAL,

a Delaware limited liability company,

as Tenant

Made as of August 1, 2014

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CONTINUING LEASE GUARANTY

(Vibra Healthcare, LLC and

Vibra Healthcare II, LLC)

This Continuing Lease Guaranty (“ Guaranty ”) is executed by Vibra Healthcare, LLC, a Delaware limited liability company and Vibra Healthcare II, LLC, a Delaware limited liability company (each a “ Guarantor” and collectively the “ Guarantors ”), to guarantee all obligations under that certain Facility Lease Agreement (“ Lease ”) executed on or about this date by MRT OF KENTFIELD CA – LTACH, LLC, a Delaware limited liability company or its assignee (“ Landlord ”) and 1125 SIR FRANCES DRAKE BOULEVARD OPERATING COMPANY, LLC d/b/a KENTFIELD REHABILITATION AND SPECIALTY HOSPITAL, a Delaware limited liability company (“ Tenant ”) for the leased premises (“ Premises ”) located at 1125 Sir Frances Drake Boulevard, Kentfield, Marin County, California.

In consideration of Landlord making the Lease, and for the purpose of inducing prompt payment of rent and all other sums required to be paid by Tenant under the Lease (“ Guaranteed Payments ”) and the full and faithful performance of all terms, conditions, covenants, obligations and agreements contained in the Lease on the Tenant’s part to be performed (“ Guaranteed Obligations ”), Guarantors, jointly and severally, irrevocably guarantee, absolutely and unconditionally, to Landlord the payment of the Guaranteed Payments and performance of the Guaranteed Obligations. Guarantors further, jointly and severally, promise to pay all of the Landlord’s costs and expense (including reasonable attorney’s fees) incurred in endeavoring to collect the Guaranteed Payments or to enforce the Guaranteed Obligations or otherwise to enforce this Guaranty, as well as all other damages which Landlord may suffer in consequence of any default or breach under the Lease or this Guaranty.

TERMS AND CONDITIONS OF GUARANTY:

1. Landlord may, at any time and from time to time, without notice to or consent by Guarantors or either of them, take any or all of the following actions without affecting or impairing each Guarantor’s liability and obligations under this Guaranty:

(a) grant an extension or extensions of time for payment of any Guaranteed Payment or for performance of any Guaranteed Obligation;

(b) grant an indulgence or indulgences in any Guaranteed Payment or in the performance of any Guaranteed Obligation;

(d) consent to any assignment or assignments, sublease or subleases and successive assignments or subleases by Tenant;

(e) consent to an extension or extensions of the term of the Lease;

(f) accept other guarantors; and/or

(g) release any person primarily or secondarily liable under the Lease.

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Guarantors’ liability is not affected or impaired by any failure or delay by Landlord in enforcing the Lease or this Guaranty or in pursuing any security therefor or in exercising any right or power in respect thereto, or by any compromise, waiver, settlement, change, subordination, modification or disposition of any Guaranteed Payment or Guaranteed Obligation or of any security therefor. Guarantors waive any obligation on the part of Landlord to seek payment from Tenant or any other guarantor, foreclose any security or enforce any other rights and remedies, and Landlord shall have the right to enforce this Guaranty whether or not other proceedings or actions are pending or being taken seeking resort to or realization upon or from any of the foregoing, it being agreed that Guarantors’ obligations under this Guaranty are primary.

2. Each of the Guarantors acknowledge full and complete notice and knowledge of all terms, conditions, covenants, obligations and agreements set forth in the Lease. Guarantors will receive substantial economic and other benefits from Tenant’s use of the Premises.

3. Within thirty (30) days after the end of the month, Guarantors shall deliver a calculation of Financial Covenants (defined collectively as those certain covenants set forth in subsection (a) of this Section below) made by Guarantors, all of which shall be certified by a Chief Financial Officer of Guarantors (or such other responsible officer of Guarantors as may be reasonably acceptable to the Landlord) to be true and correct. Guarantors shall deliver audited financial statements to Landlord within one hundred twenty (120) days after the end of the fiscal year with supplemental consolidating schedules for the Tenant. The Financial Covenants shall be made in accordance with GAAP.

(a) Financial Covenants.

(i) Minimum EBITDAR . As of the last day of each of Guarantor’s fiscal quarters, for the duration of the Term of the Lease, and any extensions thereof, Guarantors shall maintain, on a consolidated basis for the four (4) fiscal quarters then ended, EBITDAR (as defined below) of not less than $50,000,000.00. The Minimum EBITDAR shall exclude the financial results for Post Acute Medical Center, LLC.

(ii) Minimum EBITDAR Ratio . As of the last day of each of Guarantor’s fiscal months, Guarantors shall maintain on a consolidated basis for the four (4) fiscal quarters then ended, a EBITDAR Ratio of no less than 1.50 to 1.00. The term “EBITDAR Ratio” means, for any period, the ratio of EBITDAR (as this term is defined below) to rent on any real estate leases. The Minimum EBITDAR Ratio shall exclude the financial results for Post Acute Medical Center, LLC.

(iii) Minimum Fixed Charge Coverage Ratio . As of the last day of each of Guarantor’s fiscal quarters, Guarantors shall maintain, on a consolidated basis for the four (4) fiscal quarters then ended, a Fixed Charge Coverage Ratio of no less than 1.10 to 1.00. The term “ Fixed Charge Coverage Ratio ” means, for any period, the ratio of EBITDAR to Fixed Charges, as those terms are defined below. The Minimum Fixed Charge Coverage Ratio shall exclude the financial results of Post Acute Medical Center, LLC.

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(iv) Minimum EBITDA . Guarantors shall maintain on a consolidated basis a minimum EBITDA (as this term is defined below) of no less than Twenty Million and No/100 Dollars ($20,000,000.00). The Minimum EBITDA shall exclude the financial results of Post Acute Medical Center, LLC.

(b) Capitalized terms not otherwise defined herein shall have the following meanings:

(i) “ Capital Expenditures ” means, without duplication, any expenditures for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of either of the Guarantors and any Subsidiaries prepared in accordance with GAAP.

(ii) “ Capitalized Lease Obligation ” means the amount of Indebtedness under a lease of property by Guarantors or either of them that would be shown as a liability on a balance sheet of Guarantors prepared for financial reporting purposes in accordance with GAAP.

(iii) “ EBITDA ” means, for any period, an amount equal to (a) net income determined in accordance with GAAP, plus (b) the sum of the following to the extent deducted in the calculation of net income: (i) interest expense; (ii) depreciation; (iii) income taxes; (iv) franchise taxes; and (v) amortization. For the first four (4) fiscal quarters following the Effective Date, EBITDA shall be calculated as of the end of each fiscal quarter by reference to EBITDA for the trailing twelve (12) month period ending as of the end of such fiscal quarter.

(iv) “ EBITDAR ” means the trailing 12-month period for the most recent quarter end, an amount equal to the sum of (A) EBITDA and (B) rent on any real estate leases and equipment operating leases.

(v) “ Fixed Charges ” means, for (A) scheduled principal payments (excluding balloon payments and principal payments from time to time on any accounts receivable/payable working capital line of credit provided by a commercial lender, (B) any payments (including but not limited to principal and interest payments) related to equipment financing and/or capital leasing (to the extent not included in clause (A) above), (C) non-financed Capital Expenditures, (D) interest expense, and (E) rent on any real estate leases and equipment operating leases.

(vi) “ GAAP ” shall mean generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

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(vii) “ Guarantee ” means (a) any obligation, contingent or otherwise, of Guarantors or either of them guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of Guarantors, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities, or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital, or any other financial statement condition or Liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of Guarantors securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by Guarantors. If the Guarantors or either of them at some future time shall enter into or maintain a Swap Contract the amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Guarantor in good faith. The term “Guarantee” as a verb has a corresponding meaning.

(viii) “ Indebtedness ” means, at a particular time, all of the following, whether or not included as indebtedness, liabilities, or obligations in accordance with GAAP:

(1) all indebtedness, liabilities, and obligations of Guarantors or either of them for borrowed money and all indebtedness, liabilities, and obligations of Guarantors evidenced by bonds, debentures, notes, loan agreements, or other similar instruments;

(2) all direct or contingent indebtedness, liabilities, and obligations of Guarantors or either of them arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds, and similar instruments;

(3) net indebtedness, liabilities, and obligations of Guarantors or either of them under any Swap Contract;

(4) all indebtedness, liabilities, and obligations of Guarantors or either of them to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

C-6

(5) indebtedness (excluding prepaid interest thereon), liabilities, and obligations secured by a Lien on property owned or being purchased by Guarantors or either of them (including indebtedness, liabilities, and obligations arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by Guarantors or is limited in recourse;

(6) Capitalized Lease Obligations;

(7) all Guarantees of Guarantors or either of them in respect of any of the foregoing; and

(8) For all purposes hereof, the Indebtedness of a Guarantor shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Guarantor is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to Guarantor. The amount of any net indebtedness, liability, or obligation under any Swap Contract on any date shall be the Swap Termination Value thereof as of such date. The amount of any Capitalized Lease Obligation as of any date shall be deemed to be the capitalized amount of such Capitalized Lease Obligation that would appear on a balance sheet of Guarantor prepared as of such date in accordance with GAAP.

(ix) “ Liquidity ” shall mean cash and cash equivalents reflected on a balance sheet of either Guarantor prepared for financial reporting purposes in accordance with GAAP.

(x) “ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any such master agreement.

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(xi) “ Swap Termination Value ” means, in respect of anyone or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a) preceding, the amount(s) determined as the market-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts.

(xii) “ Unfinanced Capital Expenditures ” means Capital Expenditures of Guarantors or either of them which are paid for other than with the proceeds of Indebtedness incurred to finance such Capital Expenditures.

4. Each of the Guarantors shall be permitted to make distributions to their respective equity owners so long as all of the following conditions are satisfied: (a) an event of default of this Guaranty does not exist at the time of such distribution and would not exist after giving effect to such distribution, (b) each of the Guarantors is in pro forma compliance with the financial covenants set forth in Section 3 of this Guaranty after giving effect to such distribution, and, (c) if any loan or credit agreement to which Guarantors or either of them is a party restricts distributions, such distributions are otherwise permitted thereunder.

5. It shall be a default under this Guaranty if Guarantors or either of them shall be in default of any obligation of Indebtedness in excess of One Million and No/100 Dollars ($1,000,000.00), which remains uncured after any applicable grace periods.

6. Guarantors acknowledge that as of the date hereof, each Guarantor is also a Co-Borrower under that certain Term Loan and Security Agreement with an affiliate of Landlord (the “ Springfield Term Loan Agreement ”) relating to a term loan in the original principal amount of Ten Million and No/100 Dollars ($10,000,000.00) (the “ Springfield Term Loan ”).

Guarantors also have a portfolio of leases under their control or the control of their respective controlled subsidiaries (collectively the “ Portfolio Leases ”).

Guarantors’ obligations set forth in this Guaranty respecting the Lease and in the Term Loan Agreement respecting the Term Loan shall be cross-defaulted and cross-collateralized with each other and vice versa such that (a) an event of default under the Lease and/or this Guaranty shall be an event of default not only under the Lease but also an event of default under the Term Loan Agreement and the Term Loan; (b) an event of default under the Term Loan Agreement and the Term Loan shall be not only a an event of default under the Term Loan and the related guaranty but also an event of default under the Lease and this Guaranty; (c) all collateral securing the Lease and this Guaranty shall also serve as collateral for and shall secure the Term Loan Agreement and the Term Loan; and (d) all collateral securing the Term Loan Agreement and the Term Loan shall also serve as collateral for and shall secure the Lease and this Guaranty. Furthermore, if an event of default that is not cured or waived in writing by the applicable landlord within any applicable cure period specified in such lease occurs under any of the Portfolio Leases, Landlord shall be entitled to exercise all of its rights and remedies under the Lease and this Guaranty and under the Term Loan and related guaranty, whether now existing or

C-8

hereafter arising, and such Event of Default under the Term Loan and/or any of the Portfolio Leases, past any applicable grace periods, shall constitute an default under this Guaranty and under the Lease.

7. Each of the Guarantors waive all diligence in collection or in protection of any security, presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of any extensions granted or other action taken in reliance hereon and all demands and notices of any kind in connection with this Guaranty or any Guaranteed Payment or Guaranteed Obligation.

8. Guarantors’ payment of any amount pursuant to this Guaranty shall not in any way entitle either Guarantor to (and each Guarantor hereby waives) any right, title or interest (whether by subrogation or otherwise) of the Tenant under the Lease or to any security being held for any Guaranteed Payment or Guaranteed Obligation, including any security being held for the Term Loan.

9. This Guaranty is a continuing, absolute and unconditional guaranty of payment and not of collection and shall remain in full force and effect until all Guaranteed Payments are made, all Guaranteed Obligations are performed, and all Guarantors’ obligations are fulfilled. This Guaranty is unsecured.

10. This Guaranty binds Guarantors’ successors and assigns, and inures to the benefit of Landlord, its successors and assigns. Landlord may, without notice to or consent of Guarantors or either of them, assign or transfer this Guaranty in whole or in part and no assignment or transfer of the Lease shall operate to extinguish or diminish the liability of the Guarantors hereunder.

11. This Guaranty shall be construed according to the laws of the state where the Premises are located and shall be performed in the county where the Premises are located.

12. If this Guaranty is executed by more than one person, all singular nouns and verbs herein relating to Guarantor shall include the plural number, obligations of the several Guarantors shall be joint and several, and Landlord may enforce this Guaranty against any one or more Guarantors without joinder of any other Guarantor hereunder.

13. Landlord and Guarantors intend and believe that each provision of this Guaranty complies with and is valid under all applicable law. However, if any provision of this Guaranty is found by a court to be invalid for any reason, the remainder of this Guaranty shall continue in full force and effect and the invalid provisions shall be construed as if it were not contained herein.

14. Guarantors acknowledge that Landlord is relying upon this Guaranty in agreeing to execute the Lease, and that, but for the execution of this Guaranty by Guarantor, Landlord would not lease the Premises to Tenant.

15. Each of the Guarantors shall, from time to time, within ten (10) days after request from Landlord, or from any mortgagee of Landlord, deliver Guarantors’ most current financial statements prepared in accordance with recognized accounting principles and certified to be true and correct by the chief financial officer of Guarantors.

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16. This Guaranty shall be released upon the satisfaction of all obligations guaranteed hereby, including but not limited to, the Guaranteed Payments, the Guaranteed Obligations, any and all payment and performance obligations arising from or relating to the Term Loan Agreement and the Term Loan. Notwithstanding the foregoing, the obligations of the Guarantors hereunder shall continue and remain in full force and effect in the event that all or any portion of any payment or performance guaranteed or made by the Guarantors is subsequently avoided or recovered directly or indirectly from the Landlord with respect to the Lease or from the Lender (as defined in the Term Loan Agreement) with respect to the Term Loan as a preference, a fraudulent transfer or otherwise under the Bankruptcy Code or other similar laws or otherwise set aside and this Guaranty shall be deemed automatically reinstated in such event until Landlord or Lender, as the case may be, has indefeasibly recovered the benefit of full payment and performance due the Landlord under the Lease and/or the Lender due under the Term Loan.

17. An Event of Default (as that term is defined in the Lease) and a breach of this Guaranty shall occur if Guarantors or either of them (i) enter into any merger or consolidation, or sells, leases, assigns or otherwise disposes of or transfers any of its assets except in the normal course of business in which Brad Hollinger does not maintain at least fifty-one percent (51%) direct and indirect economic and legal control; or (ii) allows its ownership to change or be restructured during the term of the Lease without the prior written consent of Landlord or if longer during the term of the Loan without the consent of the Lender, as applicable; provided however that in the event of Brad Hollinger’s death, it shall not be an Event of Default if Brad Hollinger’s interest in either of the Guarantors is transferred to such entities or persons that are acceptable to Landlord or Lender, as applicable in its sole discretion. Notwithstanding the foregoing, Landlord shall consent to the substitution of the Guarantors with a substitute guarantor (the “ Substitute Guarantor ”); provided that (1) Guarantor’s obligations under this Guaranty are assumed by the Substitute Guarantor, and (2) the net worth of the of the Substitute Guarantor is not less than the greater of (a) the net worth of Guarantors on the date hereof or (b) the net worth of the Guarantors immediately preceding the effective date of the Substitute Guarantor entering into a guaranty agreement for this Lease.

18. Except as specifically provided for in this Guaranty and addition to the other terms of this Guaranty, Guarantors hereby waive to the fullest extent provided by Law (a) all defenses by reason of any disability of Tenant, or based on the termination of Tenant’s liability from any cause and (b) the provisions of Sections 2809, 2810, 2819, 2845, 2849, 2850 and 3433 of the California Civil Code.

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This Guaranty is executed by Guarantors as of this 1 ^st day of August, 2014.


Notice Address:	GUARANTORS:

4550 Lena Drive, Suite 225	Vibra Healthcare, LLC,
Mechanicsburg, PA 17055	a Delaware limited liability company

	By:
	Name:	Clint Fegan
	Title:	Secretary

	Vibra Healthcare II, LLC,
	a Delaware limited liability company

	By:
	Name:	Clint Fegan
	Title:	Secretary

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EXHIBIT D

Approved Signs

[None]

D-1

EXHIBIT E

[State and Local Law Provisions]

Accessibility Disclosure . Pursuant to Section 1938 of the California Civil Code, Landlord hereby advises Tenant that the Property has not undergone inspection by a Certified Access Specialist.

Asbestos Disclosures . Based on representations Landlord obtained in connection with acquisition of the property, Landlord has advised Tenant that there has been no release of asbestos-containing material (“ACM”) in the Building and no disclosure statement under Section 25359.7 of the California Health and Safety Code is required. As the prior and current occupant of the property, Tenant has advised Landlord that there has been no release of ACM in the Building and no disclosure statement under Section 25359.7 of the California Health and Safety Code is required.

E-1

EXHIBIT F

Special Stipulations

Exhibit F-1

Facility Lease Agreement

For

Kentfield Rehabilitation and Specialty Hospital

Kentfield, Marin County, California

Special Stipulations Regarding Seismic Compliance

General Background

The State of California has imposed various construction, building code and/or other requirements pertaining to the ability of healthcare facilities to withstand an earthquake or other seismic events. These requirements include the Alfred E. Alquist Hospital Seismic Safety Act, as amended by California SB 1953 (collectively, the “ Alquist Act ”). The Alquist Act requires hospitals, including the Kentfield Rehabilitation and Specialty Hospital (the “ Existing Hospital Facility ”), to evaluate and rate a building’s ability to withstand a seismic event. In connection with such ratings, certain seismic resistance standards have been promulgated by the California Office of Statewide Health Planning (“ OSHP ”). (The Alquist Act and similar legislation, whether now existing or hereafter enacted, including seismic resistance standards set by OSHP herein referred to as the “ Seismic Standards ”).

Non-Compliance With Seismic Standards; Potential Service Removal

In January 2002, OSHP confirmed that the Existing Hospital Facility complies with the standards identified as SPC2. Hospitals classified as SPC2, including the Existing Hospital Facility, must be upgraded and retrofitted to be brought into compliance with applicable Seismic Standards by January 1, 2030 (the “ Current Compliance Date ”). If the Existing Hospital Facility is not compliant with applicable Seismic Standards by the Current Compliance Date (or any subsequent date determined for required compliance), then the Existing Hospital Facility will be required to be removed from acute care service (“ Service Removal ”) and, thereafter, can no longer be used as an LTCH or for any other acute care inpatient use.

Investment Underwriting Impact of Seismic Standards

Under the above circumstances, Landlord and Tenant acknowledge and agree, as an investment underwriting issue, that Landlord would not have agreed to acquire the Property to implement the sale leaseback under the Facility Lease because of the foreseeable, known risk of the Service Removal due to failure to comply with Seismic Standards. The parties further acknowledge and agree that non-compliance with Seismic Standards and/or possible Service

F F-1 1

Removal will result in potentially extreme financial loss to the Landlord and may possibly make the Landlord’s investment in the Existing Hospital Facility virtually worthless. Therefore, as a material inducement to the Landlord to acquire the Property, Landlord and Tenant have agreed to address the underwriting issue raised by the Seismic Standards as described below.

Protection of Landlord’s Investment

1. Compliance with Seismic Requirements. The Tenant covenants and agrees that, at its sole cost and expense, it shall plan, design, implement, and complete all work required for the construction, strengthening, bracing, upgrading, and/or retrofitting, as applicable, of the Existing Hospital Facility as required to be in full and complete compliance with all applicable Seismic Standards. All such work (“ Compliance Work ”) shall be completed, approved and accepted by OSHP (and any other applicable governmental entities) on or before January 1, 2028; provided, however, if the Current Compliance Date is further extended to a later date prior to January 1, 2045 (such later date herein, the “ Extended Compliance Date ”), then such Compliance Work shall be completed, approved and accepted by OSH (and any other applicable governmental entities), by a date two (2) years before the Extended Compliance Date (the applicable date for completion of Compliance Work, whether based on the Current Compliance Date or a subsequent Extended Compliance Date, herein referred to as the “ Determination Date ”). Tenant shall, at all times, keep Landlord timely and reasonably informed about progress of the Compliance Work in reaching full compliance with applicable Seismic Standards. Tenant shall provide such evidence as Landlord may reasonably require to confirm satisfactory completion of such Compliance Work prior to the Determination Date.

2. Alternatives to Compliance Work. Notwithstanding the foregoing provisions, in the event that Tenant determines, in its good faith reasonable judgment, prior to the applicable Determination Date, that it is practically and/or economically unfeasible to bring the Existing Hospital Facility into full compliance with applicable Seismic Standards prior to the Compliance Date, then the Tenant and the Lease Guarantors shall be required to irrevocably elect by written notice to the Landlord one of the three options set forth in subsections A, B or C below. Landlord shall also have the right to elect the option set forth in subsection C as more fully set forth below. Under all circumstances, however, it shall be an overriding requirement that the actions of the Tenant and Lease Guarantors shall be designed and implemented in such a manner as to protect, to the greatest degree possible, the Landlord against loss or diminution in value of its investment due to imposition of Seismic Standards.

Property Substitution .

Tenant and Lease Guarantors may elect to end the sale leaseback of the Existing Hospital Facility by terminating the Facility Lease Agreement and substituting in lieu thereof (the “ Substitution Transaction ”), a new sale leaseback arrangement (the “ Property Substitution ”) for another property or properties (the “ Substitute Facility ”) already owned by one of the Lease Guarantors (or its affiliates) and reasonably acceptable to Landlord (as applicable, the “ Substitute Facility Owner ”). The Substitute Facility shall be acquired by the Landlord (or its designee) and shall be leased back to the Tenant (or its designee) on such terms and conditions described herein or as otherwise may be acceptable to Landlord.

F F-1 2

Tenant and Lease Guarantors shall specify a Substitute Facility and the Substitute Facility Owner shall negotiate with Landlord an appropriate new purchase and sale agreement substantially similar to the existing Purchase and Sale Agreement (the “ New Purchase and Sale Agreement ”) and an appropriate new facility lease agreement substantially similar to the existing Facility Lease Agreement (the “ New Facility Lease Agreement ”). The Substitution Transaction shall provide to the Landlord the same or greater investment return as would have resulted from the Existing Facility Lease absent the affect of the Seismic Standards.

The Substitution Transaction shall be comprised of a purchase of a Substitute Facility by Landlord (or its designee) having a value not less than the Property comprising the Existing Hospital Facility and a lease back of the Substitute Facility to the Tenant (or its affiliate) under the New Facility Lease Agreement. The New Facility Lease Agreement shall have a term of not less than fifteen (15) years and an initial fixed monthly rent in an amount not less than one hundred two percent (102%) of the fixed monthly rent payable for the prior lease year under the Existing Facility Lease. The New Facility Lease shall require continued annual rental escalations equal to the lesser of (i) escalations in the CPI or (ii) two percent (2%) per year for the remainder of the lease term and for any applicable extension term(s).

Upon the effective date of the New Facility Lease, the existing Facility Lease Agreement shall be terminated by mutual agreement of Landlord and Tenant. Landlord shall reconvey the Property and the Existing Hospital Facility to the Tenant (or its designee) without any additional consideration from the Tenant and without representation or warranty of any type. Title to the Property and the Existing Hospital Facility to be reconveyed to the Tenant (or its designee) shall be the same as the date upon which Landlord originally took title to the Property, except for such easements, restrictions or other title matters or allowed to be created and/or to exist under the Existing Facility Lease or as may otherwise have been mutually agreed upon by the Landlord and Tenant.

Notwithstanding the foregoing provision concerning the status of title, if the Substitute Facility is located within thirty five (35) miles of the Property, the Landlord reserves the right to record restrictive covenants upon the Property and the Existing Hospital Facility to prohibit the Tenant or its designee, as applicable, or any subsidiary or affiliated entity or any successor, from acquiring, building, rebuilding, renovating, leasing, operating or managing a Competing Facility (as defined in the Existing Facility Lease) to the Substitute Facility.

Construction of Replacement Hospital .

In lieu of the Property Substitution, the Tenant and Lease Guarantors, in the alternative, may elect to cause to be constructed a new replacement hospital facility (the “ Replacement Facility ”) for operation as a LTCH in place and stead of the Existing Hospital Facility.

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The Replacement Hospital may be constructed with Landlord’s approval which shall not be unreasonably withheld, conditioned or delayed either (i) on the site of the existing MOB located on the Property or (ii) on a new site selected by the Tenant with Landlord’s approval, which shall not be unreasonably withheld, conditioned or delayed. In either case, as applicable, the Landlord shall be responsible for the costs incurred to demolish the MOB and to prepare the existing site for construction of the Replacement Hospital or for the purchase costs arising from acquiring a new site for construction of the Replacement Hospital. All such costs shall be included in the Aggregate Investment as such term is defined below.

The Replacement Hospital, if constructed, shall be designed and constructed according to plans and specifications prepared by an architect chosen by the Tenant and Lease Guarantors and approved by the Landlord which shall not be unreasonably withheld, conditioned or delayed. Tenant and Lease Guarantors shall submit such plans and specifications to the Landlord for its approval, which shall not be unreasonably withheld, conditioned or delayed.

The Replacement Hospital, if constructed at Tenant’s election, shall be constructed by the Landlord, at Landlord’s expense (other than any mutually agreed upon contribution as may be provided by Tenant), generally on the site of the existing MOB located on the Property or on a new site selected by the Tenant with the Landlord’s approval, which shall not be unreasonably withheld, conditioned or delayed (such location herein, the “ Replacement Hospital Site ”).

Notwithstanding the obligation of the Landlord to develop and construct the Replacement Hospital on the Replacement Hospital Site, the Tenant shall be responsible for paying all costs of furniture and equipment and for otherwise upfitting the Replacement Hospital to be ready for operation. Such costs to be incurred by the Tenant shall include, but not be limited to, all linens, supplies and other soft goods for operation of the Replacement Hospital; all moveable equipment, furniture and other personal property necessary to equip the Replacement Hospital, all inventory of supplies, goods, and consumables to be maintained by the Replacement Hospital, all working capital and any and all other costs and expenses of any nature and kind as necessary or desirable for opening and operating the Replacement Hospital as a long-term acute care hospital. In this regard, it is understood and agreed that the Landlord shall not supply or pay for any items necessary for the Replacement Hospital to commence operation to the extent such costs are not capital in nature and which would generate return to the Landlord which would not be considered as disqualified REIT income.

Additional rights and obligations of the parties related to development and construction of the Replacement Hospital will be as set forth in a separate Hospital Development Agreement to be negotiate in good faith with commercially reasonable terms and conditions and executed by the Landlord on the one hand and the Tenant, Lease Guarantors and other applicable affiliates, if any, on the other hand.

The Replacement Hospital would be subject to a leaseback under the New Facility Lease Agreement from the Landlord to the Tenant (or another affiliate of Tenant

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designated to lease and operate the Replacement Hospital). The New Facility Lease Agreement would be a non-terminable triple net lease with a minimum lease term of fifteen (15) years with multiple extension options as Landlord and Tenant may agree. The New Facility Lease Agreement would require a minimum fixed annual rent payment equal to the greater of (i) one hundred two percent (102%) of the fixed annual rent then required to be paid by the Tenant under the prior Facility Lease of the Existing Hospital Facility or (ii) the Landlord’s Minimum Required Return. Landlord’s Minimum Required Return shall be determined as the product of “Total Capital Investment” multiplied by the “Applicable Cap Rate”. In either case, the minimum fixed annual rent would be subject to escalation by the lesser of (i) the CPI escalation or (ii) two percent (2%) per annum beginning in the second lease year and in each lease year thereafter including during any applicable extension terms.

For purpose of the provisions in the preceding paragraph, “Total Capital Investment” shall be defined to mean the amount of capitalized new construction cost (inclusive of usual and customary development soft costs and inclusive of the costs of installed equipment and fixtures) as shown on the accounts of the Landlord determined in accordance with generally accepted accounting practices as pertain to a REIT (“ GAAP ”) plus the amount of the Landlord’s then current net book value of the Landlord’s original investment in the Existing Hospital Facility (such value herein, “ Existing Hospital NBV ”). Existing Hospital NBV, in turn, shall be determined as the sum of (i) the Landlord’s original investment in the Existing Hospital Facility of Fifty Eight Million and No/100 Dollars ($58,000,000.00) less (ii) the amount of the Purchase Price originally allocated on the Landlord’s accounts determined in accordance with GAAP to the real estate comprising the Property (being the agreed upon sum of Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00), as adjusted by depreciation charges shown on the Landlord’s accounts determined in accordance with GAAP based on the remaining useful life of the Improvements comprising the Existing Hospital Facility which is estimated to be twenty five (25) years. A schedule of NBV is attached hereto as Schedule 1 entitled, “Vibra – Kentfield NBV Projection.” For purposes of the foregoing, “Cap Rate” shall be as reasonably determined by the Landlord based upon recent transactions, including similar facilities in similar markets under similar market circumstances; provided, however, that such rate shall not be less than 8.75.

Upon the effectiveness of the New Facility Lease Agreement and the commencement of the payment of fixed monthly rent thereunder, Landlord and Tenant shall execute and deliver such instruments as necessary to terminate the Existing Facility Lease. If the Replacement Hospital is not located on the Property, in addition to termination of the Existing Facility Lease, the Landlord shall also reconvey the Property and the Existing Hospital Facility to the Tenant or its designee without any additional consideration from the Tenant or its designee, as applicable and without any representation or warranty of any type. Title to the Property and the Existing Hospital Facility to be reconveyed to the Tenant or its designee, as applicable, shall be the same as on the date upon which the Landlord originally took title to the Property, except for such easements, restrictions or other title matters allowed to be created and/or allowed to exist under the terms of the Existing Facility Lease or as may otherwise have been mutually agreed upon by the Landlord and the Tenant.

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Notwithstanding the forgoing provision concerning the status of the title, if the Replacement Hospital is located within thirty-five (35) miles of the Property, the Landlord reserves the right to record restrictive covenants upon the Property and the Existing Hospital Facility to prohibit the Tenant or its designee, as applicable, or any subsidiary or other affiliated entity or any successor thereto from acquiring, contracting, building, rebuilding, renovating, leasing, managing or operating a Competing Facility (as defined in the Existing Facility Lease) to the Replacement Hospital during the term of the New Facility Lease Agreement.

Repurchase of Existing Hospital Facility by Tenant

If Tenant has not completed the Compliance Work to Landlord’s reasonable satisfaction by the applicable Determination Date and has not, prior to such time, irrevocably elected either (i) to complete a Substitution Transaction pursuant to A above or (ii) to construct a Replacement Hospital pursuant to B above, then either Landlord or Tenant by written notice to the other party (herein a “ Property Transfer Notice ”) given within thirty (30) days of the Determination Date, may elect to cause the Landlord to sell the Property and Existing Facility to the Tenant or the Tenant to repurchase the Property and the Existing Facility from the Landlord, as the case may be. In either case, the Property and the Existing Facility shall be transferred by the Landlord to the Tenant within one hundred twenty days (120) days of the giving of the Property Transfer Notice for consideration to be paid by the Tenant to the Landlord (herein the “ Property Transfer Consideration ”) as described below.

The Property Transfer Consideration shall be the greater of (i) the Landlord’s original Investment Amount less Four Million and No/100 Dollars ($4,000,000.00) plus such amount as will be necessary to pay and discharge all obligations owed under that certain Term Loan and Security Agreement pertaining to a Term Loan in the original principal amount of Ten Million and No/100 Dollars ($10,000,000.00) made by Landlord to certain Affiliates of Tenant and secured by a mortgage encumbering Vibra Hospital of Western Massachusetts located at 1408 State Street, Springfield, Massachusetts 01109 or (ii) the then fair market value of the Property and Existing Facility (“ FMV ”). In such event, Landlord shall reconvey the Property and the Existing Hospital Facility to the Tenant or its designee without any representation or warranty, whether express or implied, of any type. Tenant shall be responsible for all Landlord’s costs incurred in connection with such re-conveyance, including, but not limited to, reasonable attorneys fees, all transfer and recording taxes and fees. Title to the Property and the Existing Hospital Facility to be reconveyed to the Tenant or its designee, as applicable, shall be the same as on the date upon which Landlord originally took title to the Property and the Existing Hospital Facility, except fort such easements, restrictions or other title matters allowed to be created and/or to exist under the Existing Facility Lease or as may otherwise have been mutually agreed upon by Landlord and Tenant.

For purposes of the preceding paragraph, FMV shall be determined by the Landlord in its discretion. In the event Tenant disagrees with Landlord’s determination of FMV, then the parties shall negotiate in good faith to reach an agreement as to the appropriate FMV. If Landlord and Tenant are unable to mutually agree on the FMV

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within thirty (30) days from the date of the Property Transfer Notice, then each shall engage a qualified professional appraiser having a minimum of ten (10) years prior experience in appraising acute care inpatient medical facilities. Each such appraiser shall have an additional sixty (60) days to provide its respective written appraisal valuation of the FMV of the Property and the Existing Hospital Facility. If such appraisals differ by no more than fifteen percent (15%) in value, then the numeric average of the two appraisals shall be used to determine FMV. If the two appraisals differ in value for more than fifteen percent (15%), then the two appraisers so chosen shall select a third similarly qualified appraiser who shall, within an additional thirty (30) days, render his appraisal of the FMW. FMV shall then be determined as the numeric average of the two appraisals which are the closest in value to each other. Each appraiser shall be paid by the party which selected such appraiser and, if a third appraiser is required, the costs of such third appraiser shall be borne equally by Landlord and Tenant.

Possible Deferral of Seismic Standards

Notwithstanding any of the foregoing provisions to the contrary, in the event the Alquist Act is further amended at a future date which shall have the effect of delaying the Compliance Date to satisfy applicable Seismic Standards until an effective date of January 1, 2045 or later, then, in such event, the preceding provisions of this Special Stipulation Regarding Seismic Compliance shall no longer be effective. Under these circumstances, the Tenant shall continue to occupy and use the Existing Hospital Facility in accordance with the terms of the Existing Facility Lease, including during any applicable extension terms. Upon expiration of the Existing Facility Lease, Landlord shall then be and remain free to relet Property to any third party for use as LTCH or for any other purpose allowed by applicable laws and regulations.

Indemnity Against Loss Due to Breach of Provisions Protecting Against Loss Due to Seismic Standards

Without limitation of any of the foregoing provisions contained in this Special Stipulation Regarding Seismic Compliance, the Tenant and the Lease Guarantors, each jointly and severally acknowledge and agree as follows concerning possible diminution in investment value and loss which may be sustained by the Landlord: (i) Landlord would not have acquired the Property and the Existing Hospital Facility for leaseback to Tenant if the Tenant and Lease Guarantor’s had not agreed to protect Landlord against all losses in the value of its investment arising from the Seismic Standards becoming effective on the Compliance Date; (ii) if the Compliance Date is not deferred to at least January 1, 2045 and the Tenant and the Lease Guarantors breach any of their respective obligations under this Special Stipulation Regarding Seismic Compliance, then Tenant and each Lease Guarantor, jointly and severally, shall hold harmless and indemnify the Landlord and its affiliates for all loss, cost, expense or damages resulting directly or indirectly from such breach, including but not limited to, any consequential damages incurred by Landlord. Such consequential damages are agreed to include loss of value in the Landlord’s investment in the Property and the Existing Hospital Facility and such other consequential damages Landlord or its affiliates may incur, including but not limited to, all legal and other professional fees incurred by Landlord in negotiation and enforcement of these provisions, including, the event litigation becomes necessary, all legal fees and other costs incurred to enforce the provisions of this Special Stipulation Regarding Seismic Compliance.

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Exhibit F-2

Facility Lease Agreement

Kentfield Rehabilitation and Specialty Hospital

Kentfield, Marin County, California

Special Stipulations Concerning Hospital Renovation Project

Background

Beginning in early 2012, Tenant began an extensive, $12.2 Million Dollar, three year renovation project to upgrade patient care facilities in its LTCH facility (the “ Leasehold Renovation Project ”). The Leasehold Renovation Project includes major leasehold improvements, including among other things, new medical gas systems, new medical vacuum and medical air pump systems, new HVAC systems, new nursing stations, new lobby and common areas and new interior finishes, including ceilings, floors, walls throughout the Improvements comprising the LTCH (collectively herein the “ Leasehold Renovation Work ”). The Leasehold Renovation Work is scheduled to continue after the Closing under the Purchase and Sale Agreement and the commencement of leasing the Improvements comprising the LTCH by the Landlord to the Tenant under the Facility Lease Agreement. The Leasehold Renovation Work is expected to be fully completed early in the first quarter of calendar year 2015.

Funding for Renovation Project

In connection with the Leasehold Renovation Project, the Tenant has requested and Landlord has agreed to advance funds to Tenant in an aggregate amount of Seven Million and No/100 Dollars ($7,000,000.00) (the “ Leasehold Improvement Funds ”). The Leasehold Improvement Funds shall pay for costs to be incurred during the term of the Facility Lease Agreement for the purpose of completing the Leasehold Renovation Project (“ Current Renovation Costs ”).

1. Tenant Improvement Draws. Tenant shall request that Landlord make advances of Leasehold Improvement Funds, from time to time, but not more frequently than monthly, in accordance with the procedure set forth below (each a “ Tenant Improvement Draw ”). Each Tenant Improvement Draw shall be in the actual amount approved by the Tenant and Tenant’s architect, but shall in no event be in an amount less than One Hundred Fifty Thousand and No/100 Dollars ($150,000.00). The first Tenant Improvement Draw shall be in an amount equal to the amount of Current Renovation Costs required to pay costs incurred during the month from Closing to the date of such request. Tenant may request and Landlord, subject to the conditions herein, shall make Tenant Improvement Draws until the date which is the earlier of (i) the Final Leasehold Renovation Draw (as defined in 6(f) below) or (ii) June 30, 2015 (such date herein the “ Final Disbursement Date ”). If not sooner disbursed in Tenant Improvement Draws, the remaining balance of the Leasehold Improvement Funds shall be disbursed by Landlord to the Tenant on the Final Disbursement Date.

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2. Adjustment of Fixed Annual Rent Based on Tenant Improvement Advances. Before the first day of the month following each Tenant Improvement Draw, the amount of the Tenant Improvement Funds advanced in the prior month shall be added to the amount used to compute the lease payment under the Facility Lease and the Fixed Annual Rent set forth in Section 4.02 of the Facility Lease Agreement shall be increased correspondingly. Landlord shall provide an appropriate invoice to Tenant before the first day of each month until the month of the Final Disbursement Date at which time the Landlord and Tenant shall execute and deliver a post closing amendment (the “ Second Amendment to Facility Lease Agreement ”) to formally confirm the Fixed Annual Rent after giving affect to the full disbursement of all Leasehold Improvement Funds.

Completion of Renovation Project

Subject to Landlord’s providing the Leasehold Improvement Funds as described above, the Tenant hereby agrees to continue and diligently prosecute the Leasehold Renovation Work on a turnkey basis on behalf of the Landlord as the then owner of the Improvements. The Leasehold Renovation Work shall be constructed and installed in a good and workmanlike manner, using first class, quality materials in accordance with the Plans and Specifications (as defined below). The Leasehold Renovation Work shall be in compliance in all material respects with all applicable governmental requirements having jurisdiction over the LTCH Facility as more fully set forth in the Facility Lease Agreement, including without limitation, the Americans with Disabilities Act and the building code requirements of the city and county in which the Property is located. All furniture, fixtures, equipment or other tangible property comprising the Leasehold Renovation Work shall automatically and irrevocably become the property of the Landlord and title to such items shall contemporaneously pass to the Landlord upon the delivery, installation, incorporation or use of such items in or on the Improvements as a part of the Leasehold Renovation Work. Upon Landlord’s written request, Tenant shall execute and deliver to Landlord or to any third party any and all documents necessary to evidence Landlord’s ownership of all items or components delivered and/or installed as Leasehold Renovation Work. The Landlord hereby agrees and consents to the Leasehold Renovation Work, subject to the terms, conditions and provisions set forth below:

1. Plans and Specifications for Tenant’s Renovation Work. Tenant hereby agrees to deliver to Landlord a complete set of all plans and specifications for the Leasehold Renovation Project. The plans and specifications shall include space plans, engineering specifications, elevations of interior changes and all associated construction drawings, schedules and related materials (collectively, the “ Plans and Specifications ”). Tenant shall also deliver full and complete copies of all updates and/or revisions to the Plans and Specifications, copies of all resulting change orders to the existing construction contract(s) executed from time to time, (the “ Change Orders ”) together with appropriate budget updates and summaries to reflect the budgetary and financial impact of changes being implemented by the Change Orders.

In as much as the Leasehold Renovation Work is already in progress as of Closing, Landlord shall be deemed to have approved the existing Plans and Specifications and existing Change Orders. Notwithstanding the foregoing, Landlord shall be entitled, however, to provide written objection to any material change in such Plans and Specifications as may result from Change Orders issued in connection with the Leasehold Renovation Work (a “ Material Plans and

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Specifications Change ”). A Material Plans and Specifications Change shall be any single change to the exiting Plans and Specifications having an impact of more than Fifty Thousand and No/100 Dollars ($50,000.00) on the Project Budget or any series of changes the aggregate impact of which exceeds Two Hundred Thousand and No/100 Dollars ($200,000.00) on the Project Budget. If Landlord shall object, Landlord and Tenant shall meet and amicably resolve any such issues with ten (10) additional business days. Landlord’s rights under this subsection 1 are for Landlord’s benefit and shall create no obligation in or right of Tenant against Landlord.

2 . Permits and Approvals. Tenant shall provide and, throughout the Leasehold Renovation Project, update the Landlord with true, complete and accurate copies of all licenses, permits and approvals (the “ Construction Approvals ”) required by or from any governmental authority or agency for the lawful commencement and completion of the Leasehold Renovation Work. The Construction Approvals shall include, but not be limited to, any and all demolition and/or disposal permits, building or construction permits, inspections and approvals issued by various city or county departments required to inspect and approve discrete components of the Leasehold Renovation Work (such as electrical, plumbing or mechanical inspections) and any final use and occupancy certificates or local equivalent issued as to the Leasehold Renovation Project or any phase or portion thereof.

3. Assignment of Architectural and Construction Contracts . Tenant shall provide Landlord with complete and accurate copies of the Architect’s Contract with the licensed architect responsible for preparation of the Plans and Specs, the Construction Contract with the general contractor constructing the Leasehold Renovation Work and any material contracts with any sub-contractors identified by Landlord to Tenant (individually a “ Project Contract ” and collectively the “ Project Contracts ”). Upon request by Landlord, Tenant shall assign conditionally each Project Contract to the Landlord and attach the acknowledgement and consent of each contracting party thereto to each conditional assignment (the “ Contract Assignments ”). Pursuant to the Contract Assignments, the Tenant shall assign and transfer all of its rights but not its obligations under the Project Contracts to Landlord. After such assignment, Tenant shall have a revocable license to use and administer the Project Contracts for purposes of continuing the Leasehold Renovation Work. Tenant shall use such revocable license to administer the Project Contracts, including making timely payments thereunder, in order to prosecute and complete the Leasehold Renovation Work. Such license shall remain in effect, unless and until the Landlord notifies the parties of revocation of such license. Following revocation of such license, the Project Contracts shall be performed for and administered by the Landlord.

4. Project Budget . Tenant shall deliver to the Landlord a reasonably detailed line item construction budget for the Leasehold Renovation Work (the “ Project Budget ”). The Project Budget shall contain customary detail including the budgeted amounts for each item of materials, supplies, equipment and/or labor comprising the Leasehold Renovation Work, a record of all disbursements made to date on a line item basis, and an aggregate total disbursement on a line item by line item basis as made to date. The Project Budget shall also specify the remaining amount and anticipated timing of disbursements to be made for completion of each line item contained within the Project Budget. Tenant shall supply such reasonable detail and supplemental information as Landlord may reasonably request in order for Landlord to understand and assess the accuracy of the Project Budget and the status of the Leasehold Renovation Work as of the time Landlord becomes the owner of the Property. Any material

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variances in the Project Budget shall be reconciled to Landlord’s reasonable satisfaction, including, but not limited to, any changes resulting from any Material Plans and Specifications Change.

5. Disbursements Leasehold Improvement Funds; Draw Requests for Funding . Advances of Leasehold Improvement Funds shall be made in proportion to progress in completing the Leasehold Renovation Work and shall be subject to the retainage as set forth in the existing construction contract with the general contractor performing such work. Such advances shall only be made in response to draw requests submitted by Tenant and approved by Landlord. All draw requests for construction disbursements shall (i) include invoice(s) supplied by the Tenant or other manager of the Leasehold Renovation Project for sums payable to the general contractor and/or to various sub-contractors, in each case, in a form acceptable to Landlord and executed mechanic’s lien releases, which lien releases shall be conditional with respect to the then-requested payment amounts and unconditional with respect to payment amounts previously disbursed by Landlord, from all of Tenant’s contractors and such material suppliers as may be reasonably requested by the Landlord which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code Section 8132 (as to conditional lien waivers and releases on progress payments) and Section 8134 (as to unconditional lien waivers and releases on payments previously disbursed), (ii) shall be made on draw request forms in substantially the same form Tenant has previously used prior to commencement of the Facility Lease Agreement, a specimen form of which is attached hereto as Schedule 1 (the “ Approved Draw Request Form ”), and (iii) shall be certified as being true, correct and accurate draws by Tenant and by the Project architect. All draws must be in form and substance acceptable to Landlord and supported by documentation reasonably requested by Landlord. All draw requests must be submitted at least ten (10) business days before the disbursement by Landlord is expected, but not later than the fifteenth (15 ^th ) day of each calendar month. Each draw request must be consistent with the Project Budget submitted by Tenant to Landlord in connection with the Leasehold Renovation Project.

6. Conditions Precedent to Construction Draws . Landlord shall not be obligated to fund any construction draws of Leasehold Improvement Funds until the following additional conditions have been met:

(a)

Absence of Event of Default. An Event of Default or an event or circumstance which, with notice, the passage of time or both, may become and Event of Default, shall not exist under the Facility Lease Agreement or any other document between Landlord and Tenant and their respective affiliates.

(b)

Construction Inspection. Landlord reserves the right to have its own construction inspector (the “ Construction Inspector ”) examine the Leasehold Renovation Work in place, from time to time, as Landlord may deem necessary or appropriate. If such inspection(s) reveal any issues of concern to the Construction Inspector, including but not limited to defective, deficient or non-conforming materials or workmanship, material unexplained budget variances, improperly sequenced work and/or construction delays, Landlord may condition

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further advances upon satisfactory corrections (or satisfactory assurances of correction) of such matters and/or upon obtaining a satisfactory inspection of the status of construction by the Construction Inspector prior to disbursement of additional future Tenant Improvement Draws (the expense of which will be an obligation of Tenant).

(c)

Builder’s Risk Insurance. Tenant must obtain or cause its general contractor to obtain Builder’s Risk Insurance in an amount as Landlord may reasonably determine. Such Builder’s Risk Insurance shall name Landlord as loss payee and require that the insurer provide notice to Landlord before any modification or cancellation thereof.

(d)

Construction Contracts. Unless waived by Landlord, all construction contracts must be on AIA forms executed by and between the Tenant and the general contractor and shall provide for a guaranteed maximum price for the work involved or services rendered to complete the Leasehold Renovation Project.

(e)

Compliance with Project Budget. Tenant must have provided Landlord with an analysis of each Tenant Improvement Draw compared to the Project Budget demonstrating that these cost to complete the remaining Leasehold Renovation Work does not exceed remaining Leasehold Improvement Funds.

(f)

Retainage/Final Draw. Five percent (5%) of the Leasehold Improvement Funds shall be retained until such time as Tenant delivers to Landlord (a) properly executed mechanics lien releases from all of Tenant’s contractors and such material suppliers as may be reasonably requested by Landlord in compliance with California Civil Code Section 8136 (conditional lien waiver and release on final payment) which lien releases shall be conditional with respect to the then-requested payment amounts and Section 8138 (unconditional lien waiver and release on final payment) with respect to payment amounts previously disbursed by Landlord and (b) a Notice of Completion recorded in the office of the Recorder of the County of Marin in accordance with Section 3093 of the Civil Code of the State of California or any successor statute. The final draw for construction purposes will not be allowed until said notice and any locally required certificates of occupancy (or local equivalent under applicable law) have been issued, and the time period for filing any objections under applicable state law has expired (such date herein the “ Final Leasehold Renovation Draw ”).

(g)

Miscellaneous Other Construction Documents. Landlord must have received evidence of all subcontractor’s contracts, permits, proper zoning, utilities, and other required construction documents, as deemed necessary by Lender.

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7. Costs Exceeding Renovation Project Budget; Completion Guaranty. If, at any time and from time to time, the Landlord determines, with the assistance of the Construction Inspector, if appropriate, that the cost of the Leasehold Renovation Work is exceeding or has exceeded the amount budgeted to be expended to the date of such determination, either individually or on an aggregate basis, then the Landlord shall be entitled to require that any such deficiency be directly funded by the Tenant. Tenant shall then make all necessary payments to the general contractor or subcontractors, as applicable, until such deficiency has been cured and the Project Budget is once again in balance. Such cure shall be accomplished within forty-five (45) days of notice from the Landlord that it has determined that the funding of the Project is no longer in balance. In any event, the Tenant shall be responsible for and shall bear directly all costs and expenses of the Leasehold Renovation Work which are outside of or which exceed the Project Budget. Tenant and each of the Lease Guarantors hereby jointly and severally guarantee to the Landlord the timely completion of the Leasehold Renovation Project in accordance with the Plans and Specs by July 31, 2015.

8. Third Party Construction Consultant. The Construction Inspector may be retained by Landlord to monitor the progress and quality of construction of the improvements comprising the Leasehold Renovation Work. Tenant shall reimburse Landlord for the cost of such consultant and their inspections.

9. Insurance Coverage; Worker’s Compensation Insurance; Project Bonds. The contractor in charge of the construction of the Leasehold Renovation Work must maintain adequate liability and worker’s compensation insurance during the construction of improvements on the Property and, if required by the Landlord, shall procure and maintain payment performance and completion bonds as required by the Landlord (the “ Project Bonds ”). Landlord shall be named as an additional insured under such insurance coverage and any and all Project Bonds shall be assigned to the Landlord with the acknowledgement and consent of the applicable sureties.

10. Landlord’s Right to Indemnity by Tenant. Tenant and each of the Lease Guarantors each hereby jointly and severally agree to hold harmless and indemnify Landlord from all cost, loss, expense, liability, damage and/or any cause of action which may arise from or be asserted related to the Leasehold Renovation Work and the Leasehold Renovation Project. Such indemnify expressly includes the agreement of the Tenant to indemnify and hold Landlord harmless against any liens, claims and suits filed by any third party including the general contractor and all subcontractors alleging non-payment for goods and/or services related to the Project. Tenant agrees, however, to and does hereby assign to Landlord any rights it may have against third parties including architects, engineers or other professionals and against the general contractor and/or subcontractors (to the extent applicable) with respect to design and/or construction defects. Tenant shall cooperate fully at its own expense as requested by Landlord in the event Landlord determines to pursue any claims against such parties arising from or related to the Leasehold Renovation Work.

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Exhibit F-3

Facility Lease Agreement

For

Kentfield Rehabilitation and Specialty Hospital

Kentfield, Marin County, California

Special Stipulations Regarding Substitution of Properties

1. Substitution of Leased Property .

In addition to certain rights of substitution set forth in Exhibit F-1, Special Stipulations Concerning Seismic Compliance, with the prior written consent of Landlord, such consent not to be unreasonably withheld, conditioned or delayed, Tenant may substitute the Property and Existing Hospital Facility (in this Exhibit F-4, such property herein, the “ Relinquished Property ”) in exchange for a similar sale leaseback transaction for other property or properties owned by the Tenant or an affiliate of Tenant (herein, a “ Substitute Property ”), provided that:

(i)

the Substitute Property is of equal or greater value than the Relinquished Property;

(ii)

the new leaseback of the Substitute Property is for a lease term not expiring earlier than December 31, 2029 and containing the same extension rights as set forth in the lease applicable to the Relinquished Property;

(iii)

the economic terms of the new lease applicable to the Substitute Property provide an investment return to the Landlord which is equal to or greater than the investment return applicable to sale leaseback arrangement for the Relinquished Property;

(iv)

the physical condition and all other aspects (including environmental considerations) and licensure/reimbursement/regulatory status of the Substitute Property shall be satisfactory to the Landlord in its reasonable discretion;

(v)

the proposed security, including any applicable guaranties of the lease applicable to the Substitute Property shall be acceptable to the Landlord in its reasonable discretion;

(vi)

the proposed substitution shall be consummated no sooner than the end of the second full lease year of the lease applicable to the Relinquished Property;

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(vii)

the Substitute Property contains no liens, mortgages or other encumbrances which would adversely affect the rights of Landlord;

(viii)

the Tenant provides adequate documentation (including an appraisal, if requested) to confirm all of the foregoing conditions and pays all expenses associated with the substitution, including any fees of counsel and, as required, special tax counsel;

(ix)

the Tenant owns the Substitute Property free and clear of all interests of third parties;

(x)

a Memorandum of Lease is filed with the applicable recording office respecting Landlord’s interest in the Substitute Property; and

(xi)

no Event of Default has occurred and is continuing under the existing Facility Lease Agreement, and no event has occurred, which, with the passage of time or giving of notice or both, would result in and Event of Default.

F F-2 5

Schedule 3.04

Existing Personalty

Existing Personalty is comprised of the personal property assets listed and described in the schedule supplied by Tenant entitled “100 Kentfield Fixed Asset Rollforward Schedule [Depreciation] GAAP For the Period May 1, 2014 to May 31, 2014” consisting of pages 1 through 45 inclusive (the “Depreciation Schedule”). Tenant has supplied Landlord with a true and correct version of the Depreciation Schedule under separate cover. Due to the size of the Depreciation Schedule, Landlord and Tenant have agreed that the Depreciation Schedule shall be deemed incorporated herein by this reference without actually being attached as a part of this Lease.

Schedule 3.04

Exhibit 10.17

PURCHASE AND SALE AGREEMENT

by and among

LA MESA REAL ESTATE, LLC

NATIONAL CITY REAL ESTATE II, LLC

NATIONAL CITY REAL ESTATE I, LLC

UPLAND REAL ESTATE, LLC

and

MRT OF LA MESA CA – SNF, LLC

MRT OF NATIONAL CITY CA – SNF I, LLC

MRT OF NATIONAL CITY CA – SNF II, LLC

MRT OF UPLAND CA – SNF/ALF, LLC

Dated: February 19, 2015


ARTICLE I PROPERTIES			1
Section 1.01 Properties			1
Section 1.02 Purchase and Sale			2
ARTICLE II PURCHASE PRICE			2
Section 2.01 Purchase Price			2
Section 2.02 Earnest Money Deposit			2
Section 2.03 Closing Payments			2
Section 2.04 Purchase Price Allocation			3
ARTICLE III CERTAIN DEFINITIONS			4
Section 3.01 Certain Definitions			4
ARTICLE IV CLOSING			5
Section 4.01 Closing			5
Section 4.02 Sellers’ Closing Deliverables			5
Section 4.03 Purchasers’ Closing Deliverables			6
Section 4.04 Possession			6
ARTICLE V GOOD AND MARKETABLE TITLE			6
Section 5.01 Conveyance			6
ARTICLE VI TERMINATION AND REMEDIES			7
Section 6.01 Termination of Agreement Prior to Closing			7
Section 6.02 Notice of Termination; Effect of Termination			7
Section 6.03 Payments Upon Termination			7
ARTICLE VII REPRESENTATIONS AND WARRANTIES			8
Section 7.01 Sellers’ Representations and Warranties			8
Section 7.02 Purchasers’ Representations and Warranties			10
Section 7.03 Discovery; Survival			11
ARTICLE VIII CERTAIN COVENANTS OF THE PARTIES			12
Section 8.01 General			12
Section 8.02 Interim Operating Covenants			12
Section 8.03 Material Adverse Change			12
Section 8.04 Estoppels			13
Section 8.05 Transfer of Roof and Other Warranties			13
Section 8.06 Ownership Interests			14
Section 8.07 HUD Financing; Payoff of Current Indebtedness			14
Section 8.08 Execution of Master Lease Agreement and Guaranties			14
ARTICLE IX CONDITIONS TO CLOSING			18
Section 9.01 Conditions to Each Party’s Obligations to Effect the Transaction			18
Section 9.02 Conditions to Obligations of Purchasers			18
Section 9.03 Conditions to Obligations of Sellers			19
ARTICLE X RISK OF LOSS			19
Section 10.01 Minor Damage			19
Section 10.02 Major Damage			20
Section 10.03 Vendor and Purchaser Risk			20
Section 10.04 Condemnation			20
ARTICLE XI MISCELLANEOUS			20
Section 11.01 Notices			20
Section 11.02 Entire Agreement			21


Section 11.03 No Rule of Construction			22
Section 11.04 Multiple Counterpart			22
Section 11.05 Governing Law			22
Section 11.06 Consent to Jurisdiction			22
Section 11.07 Attorneys’ Fees			22
Section 11.08 Specific Performance			22
Section 11.09 Interpretation			22
Section 11.10 Damages			23
Section 11.11 Exhibits			23
Section 11.12 Amendment, Modification and Waiver			23
Section 11.13 Reporting Person			23
Section 11.14 Time of Essence			24
Section 11.15 Confidentiality			24

Index of Definitions .

The following capitalized terms used in this Agreement have the meanings located in the corresponding section below.


Term		Section
“ Additional Property Interests ”		Section 1.01
“ Agreement ”		Preamble
“ Applicable Laws ”		Section 7.01(e)(i)
“ A/R Credit Facility ”		Section 8.08(b)(v)
“ Bill of Sale ”		Section 4.02(b)
“ Broker ”		Section 7.01(h)
“ Closing ”		Section 2.03(a)
“ Closing Costs ”		Section 2.03(b)
“ Closing Outside Date ”		Section 6.01(b)
“ Closing Purchase Price ”		Section 2.03(a)
“ Closing Date ”		Section 4.01
“ Code ”		Section 2.04(b)
“ Deed ”		Section 4.02(a)
“ Earnest Money Deposit ”		Section 2.02
“ EBITDAR ”		Section 8.08(a)(v)
“ EBITDARM ”		Section 3.01(a)
“ Effective Date ”		Preamble
“ Facility ” or “ Facilities ”		Section 1.01
“ Evidence of Payoff ”		Section 8.07(b)
“ Exchange Act ”		Section 11.15
“ Facility Operator ”		Section 3.01(b)
“ Final Allocation ”		Section 2.04(b)
“ FIRPTA Affidavit ”		Section 4.02(c)
“ Fundamental Representations ”		Section 7.03(b)
“ GAAP ”		Section 3.01(c)
“ Governmental Body ”		Section 7.01(e)(i)
“ Healthcare Permits ”		Section 7.01(g)
“ HUD Financing ”		Section 8.07(a)
“ Improvements ”		Section 1.01(a)
“ Intangible Property ”		Section 1.01(a)
“ LG Facility Rent ”		Section 8.08(b)(i)
“ LG Parent ”		Section 3.01(a)
“ LG Parent Credit Agreement ”		Section 8.07(b)
“ LG Parent Credit Facility ”		Section 8.08(b)(v)
“ LG Parent Guaranty ”		Section 4.02(e)
“ Major Damage ”		Section 10.02
“ Master Lease Agreement ”		Section 4.02(d)
“ Material Adverse Change ”		Section 8.03(b)
“ Minor Damage ”		Section 10.01
“ Owner Policies ”		Section 9.02(d)


Term		Section
“ Permitted Exceptions ”		Section 5.01
“ Personal Property ”		Section 1.01(c)
“ Pro Forma Title Policy ” or “ Pro Forma Title Policies ”		Section 9.02(d)
“ Property ” or “ Properties ”		Section 1.01
“ Property List ”		Section 1.01
“ Proposed Closing Purchase Allocation ”		Section 2.04(a)
“ Purchaser ” or “ Purchasers ”		Preamble
“ Purchaser Parent Guaranty ”		Section 4.03(b)
“ Purchase Price ”		Section 2.01
“ Purchaser Transaction Costs ”		Section 2.03(b)
“ RCFE ”		Section 1.01
“ Securities Act ”		Section 11.15
“ Seller ” or “ Sellers ”		Preamble
“ Sellers’ Disclosure Schedule ”		Section 7.01
“ Sellers’ Knowledge ”		Section 7.01(b)
“ Tenants ”		Section 8.08(a)(ii)
“ Title Company ”		Preamble
“ Transactions Costs Cap ”		Section 2.03(b)
“ Transactions ”		Section 2.03(b)
“ 2013 LG Audited Statement ”		Section 3.01(d)
“ 2014 EBITDARM ”		Section 3.01(e)
“ 2014 LG Audited Statement ”		Section 3.01(f)

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “ Agreement ”) is made and entered into as of the Effective Date (as hereinafter defined) by and among La Mesa Real Estate, LLC, National City Real Estate II, LLC, National City Real Estate I, LLC, and Upland Real Estate, LLC, each, a California limited liability company (collectively, “ Sellers ” and each, individually, a “ Seller ”), and MRT of La Mesa CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II , LLC, MRT of Upland CA – SNF/ALF, LLC, each, a Delaware limited liability company (collectively, “ Purchasers ” and each, individually, a “ Purchaser ”). The “ Effective Date ” of this Agreement shall be the date Commonwealth Land Title Company (the “ Title Company ”) delivers its counterparty signature hereto.

ARTICLE I

PROPERTIES

Section 1.01 Properties . Each Seller owns the real property indicated opposite its name on the “ Property List ,” attached hereto as Exhibit A and made a part hereof for all purposes, together with all improvements thereon and all easements, rights, benefits and appurtenances thereunto belonging, including the Additional Property Interests. The terms “ Property ” and “ Properties ” as used in this Agreement shall mean certain or all (as the context may require) of the real properties identified on the Property List, together with the Additional Property Interests. The real property comprising each of the Properties is more fully described in the respective Pro Forma Title Policies (as hereinafter defined). The terms “ Facility ” and “ Facilities ” as used in this Agreement shall mean certain or all (as the context may require) of the skilled nursing facilities and residential care facility for the elderly (“ RCFE ”) operated on the Properties and identified on the Property List.

The term “ Additional Property Interests ” means the following, to the extent related to each Property:

(a) Improvements . All of the applicable Seller’s right title and interest in and to improvements, structures and fixtures now constructed or under construction with respect to and situated on the Property, together with all of such Seller’s right, title and interest in all parking areas, loading docks and similar facilities, landscaping and other improvements, structures and fixtures (all of the foregoing being hereinafter collectively referred to as the “ Improvements ”).

(b) Certain Other Intangibles . All of the applicable Seller’s rights, title and interest in and to (i) all parking agreements, and all contract rights (as approved by the applicable Purchaser) together with (ii) all other intangible rights appurtenant to the Properties and/or the Improvements, including (to the extent assignable) all roof, HVAC and other warranties issued with respect to the Improvement (all of the foregoing being hereinafter collectively referred to as the “ Intangible Property ”).

(c) Personal Property . All of the applicable Seller’s right, title and interest in all beds, fixed and moveable equipment, furniture, furnishings, machinery, heating, plumbing, ventilation and air conditioning systems and equipment, carpet, tile, floor coverings, security devices, sprinkler systems, supplies, tenant lease files, leasing records, tenant credit reports, audio systems, keys, surveys, plans and specifications (whether in CAD, electronic or other format), and all other tangible personal property situated on the Property, owned by such Seller, and used in connection therewith or with the Improvements, along with such Seller’s interest as lessee in any rented or leased personal property, to the extent approved by the applicable Purchaser (all of the foregoing being hereinafter collectively referred to as the “ Personal Property ”).

Section 1.02 Purchase and Sale . Sellers hereby agree to sell and convey to Purchasers, and Purchasers hereby agree to purchase from Sellers, upon the terms and conditions set forth herein, all of Sellers’ right, title and interest in and to the Properties, free and clear of all liens, claims and encumbrances, except Permitted Exceptions (as hereinafter defined).

ARTICLE II

PURCHASE PRICE

Section 2.01 Purchase Price . The total purchase price for the Properties is an amount equal to the sum of EIGHTY MILLION DOLLARS ($80,000,000) (the “ Purchase Price ”). The Purchase Price is allocated among the Properties as set forth on the Property List attached hereto as Exhibit A .

Section 2.02 Earnest Money Deposit . On the Effective Date, the sum of ONE MILLION AND 00/100 DOLLARS ($1,000,000) (the “ Earnest Money Deposit ”) shall be delivered to Title Company by Purchasers as an earnest money deposit. Except as otherwise set forth in Section 6.03 , Section 8.03 , Section 10.02 and Section 10.04 , the Earnest Money Deposit shall be deemed non-refundable to Purchasers and payable to Sellers in accordance with this Agreement. Title Company shall place the Earnest Money Deposit in an interest bearing account and all interest accrued on the Earnest Money Deposit shall run with the funds and become a part of the Earnest Money Deposit.

Section 2.03 Closing Payments .

(a) Payment of Closing Purchase Price . On or before the closing of the transactions contemplated in this Agreement (the “ Closing ”), Purchasers will deposit with the Title Company an amount in cash equal to (i) the sum of the aggregate amounts allocated on the Property List to all of the Properties less (ii) the Earnest Money Deposit (the “ Closing Purchase Price ”). At the Closing, the Title Company will pay an amount in cash equal to the sum of (y) the Closing Purchase Price and (z) the Earnest Money Deposit by wire transfer of immediately available funds for the benefit of the Persons and to the accounts specified in writing by Sellers prior to the Closing.

(b) Payment of Closing Costs and Purchasers’ Transaction Costs . At the Closing, Sellers agree to pay (with such amounts may, at Sellers’ option, be deducted from the Closing Purchase Price or paid directly by Sellers), (i) all (a) documentary stamp, transfer, surtax, excise taxes, or other levies or charges of any kind and nature, payable upon the transfer of the applicable Properties and/or recordation of the applicable Deeds; (b) all recording fees; (c)

the cost of each Owner Policy and any endorsements thereto requested by Purchasers; (d) the cost of the survey of each Property; and (e) any escrow and other charges of the Title Company (collectively, the “ Closing Costs ”), and (ii) the actual out-of-pocket costs and expenses incurred by Purchasers or their affiliates in connection with the negotiation, due diligence investigation, documentation, and closing of potential transactions involving Sellers or their affiliates, including, without limitation, the fees and expenses of Purchasers’ outside attorneys, accountants, and consultants, and all engineering, inspection, environmental and survey fees, incurred during the period of June 1, 2014 through the Closing Date (the “ Purchaser Transaction Costs ”); provided that the total amount payable by Sellers pursuant to this Section 2.03(b) will not exceed an aggregate of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000) (the “ Transactions Costs Cap ”). The parties agree that the amount payable by Sellers under this Section 2.03(b) will be applied first against the Closing Costs and second against the Purchaser Transaction Costs, up to the Transactions Costs Cap. In the event (y) at the Closing, the Closing Costs exceed the Transactions Costs Cap, or (z) an amount equal to the Transactions Costs Cap is paid by Sellers in connection with the Closing, Purchasers will be responsible for any and all additional Closing Costs incurred. Subject only to Sellers’ obligation to pay Purchaser Transaction Costs up to the Transactions Costs Cap, all fees and expenses incurred by each party or its affiliates in connection with the transactions contemplated by this Agreement (the “ Transactions ”) will be paid by such party or such affiliate, whether or not the Transactions are consummated.

Section 2.04 Purchase Price Allocation.

(a) Within thirty (30) days of the Closing Date, Sellers shall prepare and deliver to the Purchasers a schedule setting forth the fair market value of each of the Additional Property Interests with respect to each Property (the “ Proposed Closing Purchase Allocation ”), consistent with the allocation provided on the Property List, for Purchasers’ review. If Purchasers disagree with the Proposed Closing Purchase Allocation, Purchasers may, within thirty (30) days after delivery of the Proposed Closing Purchase Allocation, provide any comments to Sellers with respect to such Proposed Closing Purchase Allocation. Sellers shall consider any comments in good faith and shall, in their sole discretion, incorporate any such comments Sellers deem advisable. The Proposed Closing Purchase Allocation as determined pursuant to this Section 2.04(a) shall be the “ Final Allocation .”

(b) The Final Allocation shall be adjusted by Sellers (with a copy sent to Purchasers) for any subsequent adjustments to the Purchase Price under this Agreement, provided that any such adjustment shall be consistent with the Final Allocation. Purchasers and Sellers shall file all Tax Returns consistent with (and amend any previously filed Tax Return to be consistent with) the Final Allocation, as modified by Sellers for any subsequent adjustments to the Purchase Price, and shall not take any action inconsistent therewith on any Tax Return unless required pursuant to a determination (as defined in Section 1313(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”) or any similar provision of state or local Tax Law); provided that nothing contained herein shall prevent Purchasers, Sellers or their respective Affiliates from settling any proposed deficiency or adjustment by any taxing authority based upon or arising out of the Final Allocation, and none of Purchasers, Sellers or any of their respective Affiliates shall be required to litigate before any court any proposed deficiency or adjustment by a taxing authority challenging such Final Allocation. Purchasers, on the one hand, and Sellers, on the other hand, shall promptly notify each other in the event of an examination, audit or other proceeding regarding the Final Allocation.

ARTICLE III

CERTAIN DEFINITIONS

Section 3.01 Certain Definitions . For the purposes of this Agreement, the following definitions shall apply:

(a) “ EBITDARM ” means, for any period, (i) the aggregate net income of the Facility Operators for such period (determined in accordance with GAAP applying the same principles that were used by Life Generations Healthcare LLC, the ultimate parent company to Sellers (“ LG Parent ”) in preparing the 2013 LG Audited Statement), plus (ii) the aggregate of the following, without duplication, (A) interest expense, (B) income taxes, (C) depreciation and amortization expenses, (D) rent and deferred rent expense for leases of real property, (E) management fees, (F) all extraordinary expenses, including non-cash, or non-recurring losses and expenses (including any fees, expenses, penalties or settlement costs related to the OIG Investigation (as such term is defined in Exhibit B )), (G) non-cash compensation expenses arising from the issuance of stock, options to purchase stock, and stock appreciation rights and settlement costs and legal expenses related to the grant and exercise of stock options, (H) nonrecurring or special Facility Operator(s) employee bonuses as well as non-recurring special corporate level bonuses, including expenses and employer taxes related to the payment of such bonuses, (I) fees and expenses paid in connection with the Transactions or any related transaction, including the due diligence, execution and delivery by LG Parent and/or Sellers, including fees and expenses related to the repayment of all amounts and the termination of the LG Parent Credit Agreement (defined below), and (J) any reasonable fees, costs or expenses paid to third parties in connection with an acquisition or new business regardless of whether such transaction is consummated.

(b) “ Facility Operator ” means, with respect to any Property, the entity that is the licensed operator of such Property, which such entities as of the time of the Closing are identified on the Property List.

(c) “ GAAP ” means U.S. generally accepted accounting principles, consistently applied.

(d) “ 2013 LG Audited Statement ” means the audited consolidated financial statement of LG Parent, and its subsidiaries for the year ended December 31, 2013.

(e) “ 2014 EBITDARM ” means EBITDARM for the year ending December 31, 2014, determined on the basis of the 2014 LG Audited Statement.

(f) “ 2014 LG Audited Statement ” means the audited consolidated financial statement of LG Parent, and its subsidiaries for the year ended December 31, 2014, with consolidating income statement supplemental information for the Facility Operators.

ARTICLE IV

CLOSING

Section 4.01 Closing . Subject to satisfaction or waiver of the Conditions Precedent to Closing set forth in ARTICLE IX of this Agreement and to the timing of the delivery of the Evidence of Payoff (as defined below), the Closing will be held through escrow at the offices of the Title Company and is scheduled to occur on or about 11:00 a.m. eastern time on March 2, 2015 (the “ Closing Date ”) and/or at such other time and place as will be mutually agreed by the parties.

Section 4.02 Sellers’ Closing Deliverables . At the Closing, Sellers shall execute, cause to be duly executed, deliver and/or cause to be delivered to Purchasers the following with respect to each Property:

(a) A grant deed in such form as is mutually agreed upon by the parties (the “ Deed ”).

(b) A blanket conveyance, bill of sale and assignment in such form as is mutually agreed upon by the parties (the “ Bill of Sale ”).

(c) With respect to the Properties, a FIRPTA affidavit in such form as is mutually agreed upon by the parties (the “ FIRPTA Affidavit ”).

(d) A master lease agreement with respect to the Properties in such form as is mutually agreed upon by the parties (the “ Master Lease Agreement ”).

(e) A guaranty of the Master Lease Agreement by LG Parent in such form as is mutually agreed upon by the parties (the “ LG Parent Guaranty ”).

(f) A written statement, certified by the chief financial officer of LG Parent, that either (i) sets forth in reasonable detail (A) the calculation of 2014 EBITDARM, and (B) attaches a true and complete copy of the 2014 LG Audited Statement, or (ii) in the event the audit of LG Parent’s 2014 financial statements is not complete, sets forth in reasonable detail (A) LG Parent’s most recent estimated calculation of 2014 EBITDARM, and (B) attaches a copy of the most recent internal draft of the LG Parent’s 2014 financial statements.

(g) Written evidence, in a form mutually agreeable to the parties, that each of the facility leases between Sellers and the Facility Operators are terminated as of the Closing.

(h) Copies of all landlord keys to the Properties.

(i) To the extent necessary to permit the Title Company to remove any exception in the Owner Policy for mechanics’ and materialmen’s liens and general rights of parties in possession, an owner’s affidavit executed by Sellers in a form reasonably acceptable to the Title Company and Sellers, and any other items reasonably required by the Title Company in a form reasonably acceptable to Sellers.

(j) A certificate, dated as of the Closing Date, signed by an officer of Seller, confirming that each of the conditions set forth in Section 9.02(a) , Section 9.02(b) , and Section 9.02(c) is satisfied in all respects.

(k) Appropriate evidence of the applicable Seller’s authority to execute this Agreement and such other documents required to consummate the Transactions, as may be reasonably requested by the Title Company.

Section 4.03 Purchasers’ Closing Deliverables . At the Closing, Purchasers shall execute, cause to be duly executed, deliver and/or cause to be delivered to Sellers the following with respect to each Property:

(a) The Master Lease Agreement.

(b) A guaranty of the Master Lease Agreement by MedEquities Realty Trust, Inc. (“ Purchaser Parent ”), in such form as is mutually agreed upon by the parties (the “ Purchaser Parent Guaranty ”).

(c) The Closing Purchase Price, which shall be delivered in accordance with Section 2.03 .

(d) Appropriate evidence of the applicable Purchaser’s authority to execute this Agreement and such other documents required to consummate the Transactions, as may be reasonably requested by the Title Company.

Section 4.04 Possession . Possession of all Properties must be delivered by the Sellers to the Purchasers at the Closing.

ARTICLE V

GOOD AND MARKETABLE TITLE

Section 5.01 Conveyance . At the Closing, the applicable Seller will convey good, marketable fee simple title to each Property and the Improvements to the applicable Purchaser by a Deed, and title to the Personal Property and the Intangible Property by a Bill of Sale (as hereinafter defined), free and clear of any and all deeds of trust, mortgages or other liens or indebtedness; subject, however, to the following (collectively, the “ Permitted Exceptions ”):

(a) general real estate taxes for the year in which the Closing, occurs and subsequent years not yet due and payable; and

(b) all easements, restrictions, rights-of-way, party wall agreements, encroachments, covenants, reservations, agreements, leases, tenancies, licenses, conditions and other matters affecting all or any portion of the Property to the extent reflected on Schedule B to the applicable Pro Forma Title Policy (as hereinafter defined) or disclosed by the Title Company to Purchaser in writing prior to the Effective Date.

ARTICLE VI

TERMINATION AND REMEDIES

Section 6.01 Termination of Agreement prior to Closing . This Agreement may be terminated and the Transactions may be abandoned at any time prior to the Closing, as follows:

(a) by mutual written consent of Sellers and Purchasers;

(b) Sellers may terminate this Agreement by giving written notice to Purchasers at any time prior to the Closing (i) in the event that (A) any Purchaser has materially breached any representation, warranty or covenant contained in this Agreement, (B) Sellers have notified Purchasers of the breach, and (C) the breach has continued without cure for a period of thirty (30) days of the notice of the breach, or (ii) if the Closing has not occurred on or before March 31, 2015 (the “ Closing Outside Date ”) (unless the failure results primarily from a Seller itself materially breaching any representation, warranty or covenant contained in this Agreement); or

(c) Purchasers may terminate this Agreement by giving written notice to Sellers at any time prior to the Closing (i) in the event that (A) any Seller has materially breached any representation, warranty or covenant contained in this Agreement, (B) Purchasers have notified Sellers of the breach, and (C) the breach has continued without cure for a period of thirty (30) days of the notice of the breach, or (ii) if the Closing has not occurred on or before the Closing Outside Date (unless the failure results primarily from a Purchaser itself materially breaching any representation, warranty or covenant contained in this Agreement).

Section 6.02 Notice of Termination; Effect of Termination

(a) If Purchasers (on the one hand) or Sellers (on the other hand) seek to terminate this Agreement pursuant to Section 6.01 , such party will provide written notice of termination to such other party specifying with particularity the reason for such termination.

(b) If either Purchasers or Sellers terminate this Agreement pursuant to Section 6.01 , this Agreement will forthwith become void and there will be no liability or obligation on the part of any party hereto except as specified in this ARTICLE VI and ARTICLE XI , each of which will survive any such termination; provided , however , that no such termination (or any provision of this Agreement) will relieve any party from liability for damages arising out of fraud or a knowing or intentional breach of any covenant hereunder.

Section 6.03 Payments Upon Termination . In the event this Agreement is terminated pursuant to Section 6.01(a) or Section 6.01(c) , the Title Company shall pay to Purchasers, within three (3) business days of such termination, the Earnest Money Deposit and all interest accrued thereon. In the event this Agreement is terminated pursuant to Section 6.01(b) , the Title

Company shall pay to Sellers, within three (3) business days of such termination, the Earnest Money Deposit and all interest accrued thereon. The agreements contained in this Section 6.03 are an integral part of the Transactions, and, without these agreements, the parties would not enter into this Agreement. The payment by Purchasers of the Earnest Money Deposit, its forfeiture to Sellers or the return of such Earnest Money Deposit to Purchasers in the event of a termination pursuant to this Section 6.03 is not the sole and exclusive remedy of any Party in connection with the termination of this Agreement and is in addition to any other remedies to which the Parties are entitled to under this Agreement.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

Section 7.01 Sellers’ Representations and Warranties . Except as set forth on the disclosure schedules to this Agreement attached hereto as Exhibit B and incorporated herein (the “ Sellers’ Disclosure Schedule ”), which such exceptions or disclosure will be deemed to be part of the representations and warranties made hereunder, Sellers hereby jointly and severally represent and warrant to Purchasers, as of the date of this Agreement and as of the Closing Date, as set forth below. The Sellers’ Disclosure Schedule is arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section 7.01 , and the disclosures in any section or subsection of the Sellers’ Disclosure Schedule will qualify each other section and subsection in this Section 7.01 to the extent it is reasonably apparent from a reading of the text of the disclosure that such disclosure is applicable to such other sections and subsections.

(a) Power and Authorization; Enforceability . Each Seller is a duly organized, validly existing limited liability company in good standing under the laws of the State of California. Each Seller has all requisite right, power and authority to execute this Agreement, to perform it obligations hereunder, and to consummate the Transactions. This Agreement has been duly authorized, executed and delivered by each Seller, and, assuming this Agreement is a valid and binding obligation of each of the other parties hereto, this Agreement is a legal, valid and binding obligation of each Seller enforceable against each Seller in accordance with its terms, except as enforceability of such obligations may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws now or hereafter in effect relating to or limiting creditors’ rights generally and general principles of equity relating to the availability or specific performance and injunctive and other forms of equitable relief.

(b) No Proceedings . No Seller or Facility Operator has received written notice of any (and, to Sellers’ Knowledge, there is no) current, proposed or threatened eminent domain or similar proceeding, or private purchase in lieu of such proceeding, affecting any Property or any portion thereof or interest therein. For purposes of this Agreement, “ Sellers’ Knowledge ” shall mean the actual knowledge of Thomas Olds, Jr. and Lois Mastrocola.

(c) No Litigation . No Seller or Facility Operator has received written notice of any pending or threatened, litigation which does or would affect in any material respect any Property or such Seller’s ability to fulfill all of its obligations under this Agreement. There are no outstanding claims on any Seller’s insurance policies which claims relate to any Property.

(d) Tax Matters . No Seller is a foreign corporation, foreign partnership, foreign trust or foreign estate (as defined in the Code), or is subject to the provisions of Sections 897(a) or 1445 of the Code related to the withholding of sales proceeds to foreign persons.

(e) Real Property .

(i) No Seller or Facility Operator has received any written notice of a claim that any Property does not comply in any material respect with any federal, state, county, city or any other laws, ordinances, rules and regulations, including, but not limited to, those relating to environmental, zoning, land use and division, building, fire, health and safety matters, of any Governmental Body bearing on the construction of the Improvements and on the operation, ownership or use of any Property (collectively, “ Applicable Laws ”), which such noncompliance the applicable Seller has not cured. For purposes of this Agreement, “ Governmental Body ” will mean (i) the United States federal government or the government of any other country, or (ii) the government of any state, commonwealth, province, county, city, territory, or possession or (iii) any political subdivision, courts, departments, commissions, boards, bureaus, tribunals, agencies or other instrumentalities of any of the foregoing in subparts (i) and (ii).

(ii) Except for (i) the lease of each Facility to a Facility Operator, (ii) agreements with patients/residents, and (iii) Permitted Exceptions, there are no options or agreements to purchase, lease, sublease or manage all or any portion of any Property.

(iii) Except for the Facility Operator and the patients/residents of each Facility, there are no persons in possession or occupancy of any Property or any part thereof, nor are there any other persons who have possessory rights with respect to any Property or any part thereof.

(iv) To Sellers’ Knowledge, each Facility (including, without limitation, the roof, structural elements and heating, ventilating, air conditioning, mechanical, plumbing and electrical systems) is in good condition and repair in all material respects and is structurally sound and free from material defects.

(f) No Conflicts . The execution, delivery and performance by each Seller of this Agreement and the consummation of the Transactions will not (with or without the passage of time or the giving of notice, or both): (i) contravene, conflict with or result in any violation or breach of any of the provisions of the certificate of incorporation or bylaws or equivalent organizational documents of any of Sellers, or (ii) contravene, conflict with, or result in any violation or breach of any law applicable to any of Sellers. No Seller is required to make any filing with or give any notice to, or to obtain any consent or approval from, any Governmental Body or any other person or entity at or prior to the Closing in connection with the execution and delivery of this Agreement by such Seller or the performance and consummation by such Seller of the Transactions.

(g) Healthcare Permits . Each of Sellers or their affiliates, holds all material Healthcare Permits necessary for the lawful conduct of the business of such Facility, and such Healthcare Permits are in full force and effect. No written notice has been received by any Seller

or Facility Operator of any intention on the part of issuing authority to cancel, suspend or modify any such licenses or to take any action or institute any proceedings to effect such a cancellation, suspension or modification. Each of Sellers or their affiliates are in material compliance with such applicable Healthcare Permits. For purposes of this Section 7.01(g) , “ Healthcare Permits ” means all permits, license, registrations, certificates or certificates of need, authorizations, permits, approvals and other rights required by any Governmental Body that are applicable to healthcare service providers providing the items and services that the Facility Operators provide. Each Facility Operator has and holds all material licenses, franchises, certifications, authorizations, approvals and permits required by any Governmental Body for the use of the applicable Facility as such Facility is presently used. All fees and other costs of the licenses due and payable have been paid in full.

(h) No Brokers . Sellers have not engaged the services of any real estate broker, finder or other agent (“ Broker ”), and no Broker is entitled to receive any fee or commission in connection with the Transactions based upon arrangements or agreements made by or on behalf of Sellers.

Section 7.02 Purchasers’ Representations and Warranties . Purchasers hereby jointly and severally represent and warrant to Sellers, as of the date of this Agreement and as of the Closing Date, as set forth below.

(a) Power and Authorization; Enforceability . Each Purchaser is a duly organized, validly existing limited liability company in good standing under the laws of the State of Delaware. Each Purchaser has all requisite right, power and authority to execute this Agreement, to perform it obligations hereunder, and to consummate the Transactions. This Agreement has been duly authorized, executed and delivered by each Purchaser, and, assuming this Agreement is a valid and binding obligation of each of the other parties hereto, this Agreement is a legal, valid and binding obligation of each Purchaser enforceable against each Purchaser in accordance with its terms, except as enforceability of such obligations may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws nor or hereafter in effect relating to or limiting creditors’ rights generally and general principles of equity relating to the availability or specific performance and injunctive and other forms of equitable relief.

(b) No Litigation . No Purchaser has received written notice of any pending or threatened, litigation which does or would affect in any material respect such Purchaser’s ability to fulfill all of its obligations under this Agreement.

(c) No Brokers . Purchasers have not engaged the services of any Broker, and no Broker is entitled to receive any fee or commission in connection with the Transactions based upon arrangements or agreements made by or on behalf of Sellers.

(d) Available Funds . At the time of the Closing, Purchasers’ will have cash and/or available credit facilities in an aggregate amount sufficient to consummate the Transactions.

(e) No Conflicts . The execution, delivery and performance by each Purchaser of this Agreement and the consummation of the Transactions will not (with or without the passage of time or the giving of notice, or both): (i) contravene, conflict with or result in any violation or breach of any of the provisions of the certificate of incorporation or bylaws or equivalent organizational documents of any of Purchasers, or (ii) contravene, conflict with, or result in any violation or breach of any law applicable to any of Purchasers. No Purchaser is required to make any filing with or give any notice to, or to obtain any consent or approval from, any Governmental Body or any other person or entity at or prior to the Closing in connection with the execution and delivery of this Agreement by such Purchaser or the performance and consummation by such Purchaser of the Transactions.

(f) Property “As-Is” . Purchasers acknowledge and agree that (i) they are buying the Properties on an “AS-IS” basis; (ii) they have made or will have made their own investigations and inspections of the Properties, including, without limitation, the physical aspects of the Properties and the Properties’ compliance with all Applicable Laws; (iii) in connection with its investigations and inspections of the Properties, it has contracted or had the opportunity to contract with certain advisors and consultants, including, but not limited to, environmental consultants, engineers and geologists, to conduct such environmental, hazardous material, geological, soils, hydrology, seismic, endangered species, archeological, physical, structural, mechanical and other inspections of the Properties as Purchasers deemed to be necessary; (iv) Purchasers are relying solely on such reports and their own investigations as to the Properties, their condition and other characteristics and compliance with laws; (vi) except for the representations and warranties set forth in Section 7.01 , Purchasers are not making the purchase of the Properties in reliance upon any statements or representations, express or implied, made by Sellers or their agents or brokers, as to the condition of or characteristics of the Properties, its fitness for use for any particular purpose, or the Properties’ compliance with any Applicable Laws.

Section 7.03 Discovery; Survival .

(a) If either of Sellers, on the one hand, or Purchasers, on the other hand, discovers, prior to the Closing Date, that any representation or warranty of the other party is false, misleading or inaccurate in any material respect, the discovering party may (a) if Purchasers are the discovering party, Purchasers shall be entitled to pursue their remedies under Section 6.01(c) of this Agreement; and (b) if Sellers are the discovering party, Sellers shall be entitled to pursue their remedies under Section 6.01(b) of this Agreement. If the discovering party elects to proceed to the Closing, such party cannot later bring a claim against the other as to such discovered matter.

(b) The representations and warranties of the parties made pursuant to this Agreement shall fully survive the Closing; provided that, to the extent neither Sellers nor Purchasers has made any claim as to the breach of any of the representations or warranties set forth in Section 7.01 or Section 7.02 (other than the “ Fundamental Representations ” set forth in Section 7.01(a) , Section 7.01(h) , Section 7.02(a) , and Section 7.02(c)) within one (1) year of the Closing Date, such representations and warranties will terminate and be of no further force and effect. The Fundamental Representations shall survive indefinitely. If the Transactions are

consummated, the covenants and agreements contained in this Agreement that, by their nature, are required to be performed prior the Closing will not survive the Closing, and the covenants and agreements contained in this Agreement that, by their nature, are required to be performed after the Closing will survive the Closing in accordance with their respective terms.

ARTICLE VIII

CERTAIN COVENANTS OF THE PARTIES

Section 8.01 General . Each of the parties hereto will use reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the Transactions as promptly as reasonably practicable. Subject to the terms and conditions of this Agreement, each party hereto will, from time to time, execute such further instruments and take such other actions as any other party hereto may reasonably request in order to fulfill its obligations under this Agreement, and to effectuate the purposes of this Agreement; provided , however , that any actions not specifically required by other provisions of this Agreement to be taken after the Closing, will be at the expense of the requesting party.

Section 8.02 Interim Operating Covenants . From the date of this Agreement through the earlier of (i) the termination of this Agreement pursuant to ARTICLE VI or (ii) the Closing Date, Sellers agree to operate and maintain each Property in a manner consistent with their current operating procedures in all material respects, and shall not, without the prior written consent of Purchasers (which such consent will not be unreasonably withheld, conditioned or delayed), do any of the following with respect to each Property:

(a) Enter into any new lease for such Property or any portion thereof (other than agreements with patients/residents consistent with the current operating procedures of the Facilities).

(b) Fail to maintain its current insurance covering the applicable Seller’s interest in such Property or advise the applicable Purchaser promptly of the occurrence of any fire or other casualty affecting such Property.

(c) Sell, assign or create any right, title or interest whatsoever in or to such Property (including any so-called “back-up” contracts which are expressly prohibited) or create any voluntary lien thereon from and after the date of the applicable Pro Forma Title Policy.

Section 8.03 Material Adverse Change .

(a) From the date of this Agreement through the earlier of (i) the termination of this Agreement pursuant to ARTICLE VI or (ii) the Closing, as promptly as practicable upon such occurrence and Sellers’ Knowledge thereof, Sellers shall provide written notice to Purchasers of the occurrence of any Material Adverse Change. Within five (5) business days of such notice, Purchasers may elect to terminate this Agreement upon written notice to Sellers, in which case, Title Company shall refund the Earnest Money Deposit to Purchasers.

(b) For purposes of this Agreement, “ Material Adverse Change ” shall mean (i) the 2014 EBITDARM was less than $8,750,000, or (ii) any change, event, circumstance, condition or effect occurring after the date of this Agreement that is or is reasonably likely to be, individually or in the aggregate, (A) materially adverse to the condition (financial or otherwise), operations or results of operations of the Properties taken as a whole, or (B) a material impairment of the ability of any Seller to consummate the Transactions; provided , however , that the determination of a Material Adverse Change will exclude any such change, event, circumstance, condition or effect resulting from: (1) changes after the date hereof generally affecting the skilled nursing/RCFE industry; (2) changes in any law, GAAP or applicable accounting regulations or principles; (3) the announcement or pendency of any of the Closing; (4) any action taken by a Seller at any Purchaser’s written request or in compliance with actions required pursuant to the Agreement; (5) any natural or man-made disaster, pandemic, acts of war or terrorism or any escalation or material worsening thereof; (6) except as to the 2014 EBITDARM, any failure, in and of itself, by Sellers or LG Parent to meet any internal projections, forecasts, estimates or predictions of revenue, earnings or other financial or operating metrics before, on or after the date of this Agreement (provided, that the underlying factors contributing to such failure will not be excluded unless such underlying factors would otherwise be excepted from this definition); or (7) changes in general legal, regulatory, political or economic conditions or the credit, financial, or capital markets, foreign or domestic, including changes in interest or exchange rates, except with respect to clauses (1), (2), (5) and (7), to the extent, and only to the extent such change, event, circumstance, condition or effect has a materially disproportionate adverse effect on the Properties as compared to other properties similarly situated and operating in the skilled nursing/RCFE industry.

Section 8.04 Estoppels . Sellers agree, upon written request by Purchasers, to use commercially reasonable efforts to seek such estoppel certificates as Purchasers identify are required, in form and substance reasonably satisfactory to Purchasers, with respect to any declarations, business park covenants or other agreements materially affecting all or any portion of the Property; provided , that none of Sellers nor any of their affiliates will be required to grant any additional consideration to any third party, provide additional material security or incur additional costs in order to obtain such estoppel certificates. The failure to obtain any estoppel certificate will not (i) constitute a Material Adverse Change or a breach by any of Sellers of any representation, warranty, covenant or agreement under this Agreement, or (ii) constitute a failure of any condition under this Agreement.

Section 8.05 Transfer of Roof and Other Warranties . Sellers shall use their commercially reasonable efforts to obtain prior to the Closing, the consents of those issuers of any roof warranties and/or other warranties affecting a Property to the assignment of such roof warranties and/or other warranties (to the extent such warranties are assignable) from the applicable Seller to the applicable Purchaser as Purchaser may reasonably request in writing. Sellers agree to make Property management personnel available at reasonable times and after reasonable notice for inspections of the roof by such roof warranty issuers and/or other issuers and shall execute such documents as reasonably necessary to assign any such roof warranties (to the extent assignable) to the applicable Purchaser. None of Sellers nor any of their affiliates will be required to grant any additional consideration to such roof warranty issuers, other issuers, or any other third party, provide additional material security or incur additional costs in order to

obtain such assignments. The failure to obtain such assignments will not (i) constitute a Material Adverse Change or a breach by any of Sellers of any representation, warranty, covenant or agreement under this Agreement, or (ii) constitute a failure of any condition under this Agreement.

Section 8.06 Ownership Interests . From the date of this Agreement until the earlier of (i) the termination of this Agreement pursuant to ARTICLE VI or (ii) the Closing, LG Parent shall retain ownership of not less than fifty-one percent (51%) of the total ownership interest in each of the Facility Operators.

Section 8.07 HUD Financing; Payoff of Current Indebtedness .

(a) Sellers agree to use, and to cause their respective affiliates to use, commercially reasonable efforts to complete the proposed financing transaction with Housing & Healthcare Finance, LLC (who will be seeking mortgage insurance from the U.S. Department of Housing and Urban Development) for the properties of LG Parent located in Canoga Park, California; Modesto, California; and Pleasanton, California, on or before February 27, 2015 (the “ HUD Financing ”), which the proceeds of such transaction are to be used to satisfy all outstanding indebtedness under the U.S. $120,000,000 Credit Agreement dated as of May 30, 2012 among LG Parent, subsidiaries of LG Parent (including Sellers) and ING Capital LLC, as agent for the lenders and the other lenders named therein (the “ LG Parent Credit Agreement ”). Concurrent with the closing of the HUD Financing, Sellers agree to provide Purchasers with evidence of the payoff of the LG Parent Credit Agreement and release of liens and other encumbrances on the Properties associated therewith (collectively, the “ Evidence of Payoff ”).

(b) Regardless of whether or not the HUD Financing is completed as set forth above, Sellers agree to deliver the Evidence of Payoff no later than March 31, 2015, which such Evidence of Payoff will be effective concurrent with the Closing as a result of using the proceeds from the Transactions to pay off the LG Parent Credit Agreement.

Section 8.08 Execution of Master Lease Agreement and Guaranties .

(a) The parties agree to deliver at Closing the Master Lease Agreement, in such form as shall be mutually agreed upon by the parties, and which will include the following terms:

(i) Initial Term : 15 years.

(ii) Renewal Terms : Facility Operators (as “ Tenants ”) to have two separately exercisable 5-year renewal options.

(iii) Annual Base Rent : An amount equal to the aggregate Purchase Price for the Properties multiplied by 8.75%, on a “triple net” basis.

(iv) Rent Escalation : On the 4th anniversary of the lease commencement date, base rent will increase by the lesser of (a) 2%, and (b) the percentage increase in CPI since the lease commencement date. On each of the next 5 anniversary dates, base rent will increase by the lesser of (y) 2%, and (z) the percentage increase in CPI since the immediately preceding anniversary date. On each anniversary of the lease commencement date thereafter (including during any renewal term), base rent will increase by 2.5%.

(v) Covenants : Tenants shall covenant and agree that (a) beginning with the first calendar quarter after the 5th lease year, Tenants (in the aggregate) will maintain a ratio of EBITDAR to aggregate base rent of at least 1.2 to 1.0, tested each calendar quarter on a 12-month trailing basis, and (b) except for (w) sales and replacements in the ordinary course of business, (x) removal of assets not deemed reasonably necessary to conduct the business, (y) security interests related to capital or equipment leases, or (z) security interests granted in connection with any A/R Credit Facility and/or LG Parent Credit Facility permitted pursuant to subsection “(b)(v)” below, each Tenant shall maintain sole ownership of its assets free and clear of all liens and encumbrances. “ EBITDAR ” will be defined as EBITDARM reduced by a management fee equal to an assumed 3% of net revenue.

(b) Sellers shall deliver at Closing a duly executed LG Parent Guaranty of the obligations of the Tenants under the Master Lease Agreement, in such form as shall be mutually agreed upon by the parties, and which will include the following terms:

(i) Guaranty Cap : Beginning on the 6th anniversary of the lease commencement date, the maximum aggregate liability of LG Parent under the LG Parent Guaranty shall be limited to an amount equal to 50% of all remaining base rent under the Master Lease Agreement, provided that (i) LG Parent has maintained a ratio of EBITDAR to total rent payable for the skilled nursing and assisted living facilities operated by LG Parent or its subsidiaries (the “ LG Facility Rent ”) for the twenty four (24) month period then ended of not less than 1.75 to 1.0; (ii) the Tenants have maintained a ratio of EBITDAR to aggregate base rent for the 24-month period then ended of not less than 1.30 to 1.0; and (iii) there shall not exist any material uncured default under the LG Parent Guaranty or the Master Lease Agreement.

(ii) Rent Coverage Covenant : As of the last day of each calendar quarter, the ratio of LG Parent EBITDAR to LG Facility Rent for the twelve (12) month period then ended shall be not less than 1.50 to 1.0; provided , however , that LG Parent’s failure to comply with the foregoing shall not constitute a breach or default under the LG Parent Guaranty unless and until such failure occurs as of the last day of two consecutive calendar quarters.

(iii) Fixed Charges Covenant : As of the last day of each calendar quarter, the ratio of LG Parent EBITDAR to fixed charges as maintained by LG Parent for the twelve (12) month period then ended shall be not less than 1.15 to 1.0; provided , however , that LG Parent’s failure to comply with the foregoing shall not constitute a breach or default under the LG Parent Guaranty unless and until such failure occurs as of the last day of two consecutive calendar quarters.

(iv) Working Capital Covenant : For the term of the LG Parent Guaranty, the net working capital of LG Parent shall be not less than the greater of (i) Ten Million Dollars ($10,000,000), or (ii) 17.0% of the EBITDARM of LG Parent (determined on a quarterly pro-forma basis taking into consideration any acquisition or divestiture within LG

Parent’s portfolio of skilled nursing, assisted living, Alzheimer’s, or similar healthcare facilities); provided , however , that LG Parent’s failure to comply with the foregoing covenant shall not constitute a breach or default under the LG Parent Guaranty unless and until such failure occurs in two consecutive calendar quarters.

(v) Ownership Interests Covenant : Except as may otherwise be approved in writing by Purchasers:

(1) Thomas Olds Jr. may not transfer all or any portion of his ownership interest in LG Parent to any entity or entities that are on the U.S. Office of Inspector General Medicare exclusions list;

(2) LG Parent may not transfer all or any portion of its ownership interests in any of its subsidiaries (other than the Tenants) to any third party unless (a) there shall not exist any material uncured default under the LG Parent Guaranty or any Event of Default under the Master Lease Agreement, (b) the effect of such transfer would not, on a pro forma basis, result in an immediate default under the Master Lease Agreement or the LG Parent Guaranty, (c) the ratio of aggregate Tenants EBITDAR to aggregate base rent is 1.2 or greater on a 12-month trailing basis, and (d) one of the following two ratio combinations is satisfied: (y) the ratio of aggregate Tenants EBITDAR to aggregate base rent is greater than 1.2 to 1.0 but less than 1.3 to 1.0 and the ratio of LG Parent EBITDAR to LG Facility Rent on a pro forma basis after giving effect to the transfer is not be less than 2.25 to 1.0 on a 12-month trailing basis, or (z) the ratio of aggregate Tenants EBITDAR to aggregate base rent is equal to or greater than 1.3 to 1.0 and the ratio of LG Parent EBITDAR to LG Facility Rent on a pro forma basis after giving effect to the transfer is not be less than 2.0 to 1.0 on a 12-month trailing basis.

(3) LG Parent shall maintain ownership of not less than one hundred percent (100%) of the total issued and outstanding ownership interests in each of the Tenants, free and clear of all liens and encumbrances, provided, however, that consent for any transfer of such issued and outstanding ownership interests under this Section 8.08(b)(v)93) by from Purchasers shall not be unreasonably withheld, conditioned, or delayed; and

provided further , that nothing set forth in this Section 8.08(b)(v) shall prohibit Sellers from entering into or effectuating (a) any current or future accounts receivable based credit facility (“ A/R Credit Facility ”) in which the accounts receivable of LG Parent and/or its direct or indirect subsidiaries (including any Tenants) are used as collateral for any amounts borrowed under such A/R Credit Facility, (b) any current or future credit facility (“ LG Parent Credit Facility ”) that requires as collateral for any amounts borrowed under such LG Parent Credit Facility a security interest in all or substantially all of the assets of LG Parent and/or its direct or indirect subsidiaries (including, without limitation, any assets or equity of any Tenants), or (c) the proposed financing transaction with Housing & Healthcare Finance, LLC (who will be seeking mortgage insurance from the U.S. Department of Housing and Urban Development) for the properties of LG Parent located in Canoga Park, California; Modesto, California; and Pleasanton, California. LG Parent shall be prohibited from entering into any new LG Parent Credit Facility or similar credit arrangement that requires a lien or security interest in all or substantially all of LG Parent’s assets unless LG Parent at such time is, and immediately after

giving effect to the proposed credit arrangement shall be, in compliance with the following conditions: (y) LG Parent has maintained a ratio of LG Parent EBITDAR to LG Facility Rent for the twenty four (24) month period then ended of not less than 1.75 to 1.0; and (z) there shall not exist any material uncured default under the LG Parent Guaranty or the Master Lease Agreement.

(vi) Assignment and Assumption of the Master Lease Agreement and LG Parent Guaranty : Notwithstanding anything in this Agreement, neither this Agreement, the Master Lease Agreement, nor the LG Parent Guaranty will contain any restrictions on (1) LG Parent’s ability to transfer all or substantially all of its assets and liabilities, including its ownership interests in each of its subsidiaries (Tenants and non-Tenants), their respective obligations under the Master Lease Agreement, and LG Parent’s obligations under the LG Parent Guaranty, or (2) the ability of the equity owners of LG Parent to transfer all or substantially all of their ownership interests in LG Parent (including transferring any obligations under the Master Lease Agreement or the LG Parent Guaranty), to another entity or entities in one transaction or a series of related transactions; provided that (a) such transferee entity or entities are not on the U.S. Office of Inspector General Medicare exclusions list, (b) such transferee entity or entities are reasonably deemed to be sufficiently capitalized and have the business knowledge and experience to operate skilled nursing, assisted living, Alzheimer’s, or similar healthcare business of the size and nature of LG Parent’s, and (c) in the case of a transfer by LG Parent of all or substantially all of its assets, or a transfer by the Tenants of all or substantially all of their respective assets, (A) the LG Parent Guaranty is assumed in writing by the transferee of LG Parent’s assets or by a parent entity of the transferee(s) of the Tenant’s assets, as the case may be, and (B) the entity so assuming the LG Parent Guaranty has consolidated EBITDAR for its then most recently completed fiscal year of not less than $45 million, and, on a pro forma basis after giving effect to the transfer, satisfies the requirements set forth in clause “(d)” of Section 8.08(b)(v)(2).

(vii) Subordination : During the existence of any material uncured default on the part of Tenant under the Master Lease Agreement, all fees, payments or other obligations of Tenant to LG Parent or to any of the members of LG Parent in excess of a 3% management fee shall be subordinate to the prior payment in full of all obligations then due to Purchasers under the Master Lease Agreement.

(viii) Distributions : LG Parent shall not make any payments or distributions of cash or other property to any of its members unless (a) immediately prior to and after giving effect to such payment or distribution, LG Parent shall be in compliance with the Working Capital Covenant set forth above; (b) the ratio of LG Parent EBITDAR to LG Facility Rent for the then most recently completed twelve (12) calendar month period (for which financial statements are available) shall be at least 1.75 to 1.0; (c) the ratio of LG Parent EBITDAR to fixed charges for the then most recently completed twelve (12) calendar month period (for which financial statements are available) shall be at least 1.15 to 1.0, and (d) there shall not exist any material uncured default on the part of the Tenant under the Master Lease Agreement. Notwithstanding the foregoing, LG Parent shall be permitted to make distributions to its members for the payment of taxes in a manner consistent with past practice without regard to compliance with subsections “(a)”, “(b)” and “(c)” above.

(c) Purchasers shall deliver at Closing a duly executed Purchaser Parent Guaranty of the obligations of the Purchasers under the Master Lease Agreement, in similar form as the LG Parent Guaranty (without the covenants set forth in Section 8.08(b) above) as shall be mutually agreed upon by the parties.

(d) Purchasers covenant, if requested, to enter into a commercially reasonable inter-creditor or subordination agreement in connection with any LG Parent Credit Facility upon terms and conditions deemed reasonable by Purchasers and any lenders party to such LG Parent Credit Facility.

ARTICLE IX

CONDITIONS TO CLOSING

Section 9.01 Conditions to Each Party’s Obligations to Effect the Transactions . The respective obligation of each party to consummate and effect the Transactions will be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, jointly by Sellers and Purchasers:

(a) Approvals . All consents, approvals, permits and authorizations required to be obtained prior to the Closing from any Governmental Body (if any) will have been obtained, except where, assuming the Transactions has occurred, the failure to comply would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Change.

(b) No Order . No judgment, order, decree, ruling, or charge will have been entered in any action, suit, or proceeding before any court or Governmental Body having jurisdiction over any party hereto, and no preliminary or permanent injunction by any court or Governmental Body will have been issued, which would have the effect of (i) making the Transactions illegal, or (ii) otherwise preventing the consummation of the Transactions.

Section 9.02 Conditions to Obligations of Purchasers . The obligation of Purchasers to consummate and effect the Transactions will be subject to the satisfaction at or prior to the Closing Date of the following conditions precedent, any of which may be waived, in writing, by Purchasers:

(a) Representations and Warranties . The representations and warranties of Sellers contained in Section 7.01 will be true and correct in all material respects at and as of the date of this Agreement, and at and as of the Closing Date.

(b) Agreements and Covenants . Sellers shall have performed all of their respective covenants, agreements, and obligations under this Agreement in all material respects through the Closing Date.

(c) No Material Adverse Change . There shall not have occurred any Material Adverse Change.

(d) Title Policies . At the Closing, the Title Company shall be irrevocably committed to issue to Purchasers a standard ALTA form Owner Policy of Title Insurance in the form of the Pro Forma Title Policies and endorsements thereto attached hereto as Exhibit C (the “ Pro Forma Title Policies ”) issued by the Title Company in the applicable Purchaser’s favor for each Property in the amount of the portion of the Purchase Price allocated such Property on the Property List, insuring each applicable Purchaser’s fee simple title to the applicable Property and the Improvements (collectively, the “ Owner Policies ”). Subject to Seller’s obligations under Section 4.02 above, the failure of the Title Company to commit to issue, or actually issue, any of the Owner Policies shall not constitute a breach or default by any of Sellers under this Agreement.

(e) Evidence of Payoff . LG Parent shall have delivered Evidence of Payoff pursuant to Section 8.07(a) or Section 8.07(b) , as applicable.

(f) Deliveries . Each of the deliveries contemplated by Section 4.02 will have been made.

Section 9.03 Conditions to Obligations of Sellers .

(a) Representations and Warranties . The representations and warranties of Purchasers contained in Section 7.02 will be true and correct in all material respects at and as of the date of this Agreement, and at and as of the Closing Date.

(b) Agreements and Covenants . Purchasers shall have performed all of their respective covenants, agreements, and obligations under this Agreement in all material respects through the Closing Date.

(c) HUD Financing and Evidence of Payoff . LG Parent shall have either (i) completed the HUD Financing and delivered such Evidence of Payoff required under Section 8.07(a) , or (ii) in the event the HUD Financing is not completed as required in Section 8.07(a), LG Parent will provide such Evidence of Payoff as required under Section 8.07(b) no later than March 31, 2015.

(d) Deliveries . Each of the deliveries contemplated by Section 4.03 will have been made.

ARTICLE X

RISK OF LOSS

Section 10.01 Minor Damage . In the event of any damage to any Property prior to the Closing such that such Property could be repaired or restored, in the opinion of an architect mutually acceptable to Sellers and Purchasers (with any fees, costs or expenses pertaining to such opinion to be borne equally by Purchasers and Sellers), to a condition substantially identical to that of such Property immediately prior to the event of damage at a cost equal to or less than $250,000 individually or $500,000 in the aggregate for all Properties (a “ Minor Damage ”), neither Sellers nor Purchasers shall have the right to terminate this Agreement due to such Minor Damage, and the applicable Seller shall repair and restore the damaged portion of the Property to a condition substantially identical to that which existed immediately prior to the occurrence of such Minor Damage and retain all of such Seller’s right, title and interest to any claims and proceeds such Seller may have with respect to any casualty, rental loss and other insurance policies relating to the Property. Sellers shall use commercially reasonable efforts to complete such repairs prior to the Closing Date.

Section 10.02 Major Damage . In the event any damage to any Property prior to the Closing such that such Property could not be repaired or restored, in the opinion of an architect mutually acceptable to Sellers and Purchasers (with any fees, costs or expenses pertaining to such opinion to be borne equally by Purchasers and Sellers), to a condition substantially identical to that of such Property immediately prior to the event of damage at a cost equal to or less than $250,000 or $500,000 in the aggregate for all Properties (a “ Major Damage ”), Purchasers shall, prior to the Closing, have the option of terminating this Agreement upon five (5) business days written notice to Sellers, in which event Sellers and Purchasers shall thereupon be released from any and all liability hereunder (other than those liabilities that expressly survive any termination of this Agreement) and Title Company shall refund the Earnest Money Deposit to Purchasers.

Section 10.03 Vendor and Purchaser Risk . Except as set forth in Section 10.01 and Section 10.02 , Sellers shall bear the full risk of loss until the Closing with respect to all Properties. Upon the Closing, full risk of loss with respect to the Properties shall pass to Purchasers.

Section 10.04 Condemnation . If, before the Closing, any condemnation or eminent domain proceedings are threatened or initiated against all or any portion of any Property and, in the reasonable opinion of legal counsel to Purchasers, such condemnation or eminent domain proceedings would materially interfere with the current use of such Property, then Purchasers may terminate this Agreement upon written notice to Sellers and Seller and Purchasers shall thereupon be released from any and all further liability hereunder (other than those liabilities that expressly survive any termination of this Agreement) and Title Company shall refund the Earnest Money Deposit to Purchasers.

ARTICLE XI

MISCELLANEOUS

Section 11.01 Notices . Any notice, demand or other communication which may or is required to be given under this Agreement must be in writing and will be sufficiently given: (a) on the date it is personally delivered to the persons set forth below; (b) two (2) business days after the date of posting if transmitted by United States postage prepaid mail, registered or certified mail, return receipt requested; (c) one (1) business day if transmitted by reputable overnight courier service, such as Federal Express; or (d) on the day transmitted by legible facsimile (with answer back confirmation) or email, receipt acknowledged, to Purchasers and Sellers as listed below. A notice or other communication not given as herein provided shall only be deemed given if and when such notice or communication and any specified copies are actually received in writing by the party and all other persons to whom they are required or permitted to be given. Purchasers and Sellers may change their respective addresses for purposes hereof by written notice given to the other parties in accordance with the provisions of this Section, but such notice shall not be deemed to have been duly given, unless and until it is actually received by the other parties. Notices hereunder shall be directed as follows:


If to any Purchaser:		c/o MedEquities Realty Trust, Inc. 3102 West End Avenue, Suite 400 Nashville, TN 37203 Attention: William C. Harlan, President Telephone: (615) 324-7826 Facsimile: (615) 324-7804 Email: wharlan@medequities.com

With a copy ( which shall not constitute notice ) to:		Arent Fox LLP 1675 Broadway, 34th Floor New York, NY 10019 Attention: Michael S. Blass, Esq. Telephone: (212) 484-3902 Facsimile: (212) 484-3990 Email: michael.blass@arentfox.com

If to any Seller:		c/o Life Generation Healthcare, LLC 20371 Irvine Avenue, Suite 210 Newport Beach, CA 92660 Attention: Thomas Olds, Jr. Telephone: (714) 241-5600 Facsimile: (714) 241-8911 Email: tolds@lifegen.net

With a copy ( which shall not constitute notice ) to:		O’Melveny & Myers LLP 610 Newport Center Drive Suite 1700 Newport Beach, CA 92660 Attn: Mark Peterson, Esq. Telephone: (949) 823-6971 Facsimile: (949) 823-6994 Email: mpeterson@omm.com

If to Title Company, to the address set forth on its signature page hereto.

Either parties’ legal counsel may deliver any notice required or otherwise permitted to be given by such party hereunder with the same effect as if given directly by such party.

Section 11.02 Entire Agreement . This Agreement, together with the Sellers’ Disclosure Schedule and other documents contemplated herein, constitutes the entire agreement between the parties hereto and supersedes any prior understanding, letter of intent or written or oral agreements between the parties concerning the Properties.

Section 11.03 No Rule of Construction . This Agreement has been drafted by both Sellers and Purchasers and no rule of construction shall be invoked against either party with respect to the authorship hereof or of any of the documents to be delivered by the respective parties at the Closing.

Section 11.04 Multiple Counterparts . This Agreement may be executed in multiple counterparts, including by facsimile or PDF transmission, each of which shall be deemed an original but together shall constitute one and the same instrument.

Section 11.05 Governing Law . This Agreement is made pursuant to, and will be construed and enforced in accordance with, the Laws of the State of California, irrespective of the principal place of business, residence or domicile of the parties hereto, and without giving effect to otherwise applicable principles of conflicts of law that would give effect to the laws of another jurisdiction.

Section 11.06 Consent to Jurisdiction . Each party hereto irrevocably submits to the exclusive jurisdiction of the State of California and the exclusive venue of the County of Orange in the State of California for purposes of any proceeding arising out of this Agreement. Each of the parties hereto hereby waives, and agrees not to assert in any such dispute, in each case to the fullest extent permitted by applicable law, any claim that (a) such party is not personally subject to the jurisdiction and venue of such courts, (b) such party and such party’s property is immune from any legal process issued by such courts or (c) any proceeding commenced in such courts is brought in an inconvenient forum.

Section 11.07 Attorneys’ Fees . In the event of any litigation or other proceeding brought by either party hereunder, the prevailing party shall be entitled to recover its attorneys’ fees and costs of suit.

Section 11.08 Specific Performance . Each of the parties hereto acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, each of the parties agrees that, without posting bond or other undertaking, the other parties will be entitled to an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any claim, action, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, arbitration, investigation, hearing, charge, complaint, demand, notice or proceeding to, from, by or before any Governmental Body having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. Each party hereto further agrees that, in the event of any action for specific performance in respect of such breach or violation, it will not assert the defense that a remedy at law would be adequate or that the consideration reflected in this Agreement was inadequate or that the terms of this Agreement were not just and reasonable.

Section 11.09 Interpretation . This Agreement shall, unless otherwise specified herein, be subject to the following rules of interpretation: (a) the singular includes the plural and the plural the singular; (b) words importing any gender include the other genders; (c) references to

persons or entities include their permitted successors and assigns; (d) words and terms which include a number of constituent parts, things or elements, including the terms Improvements, Permitted Exceptions, Personal Property, Intangible Property and Property, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole; (e) references to statutes are to be construed as including all rules and regulations adopted pursuant to the statute referred to and all statutory provisions consolidating, amending or replacing the statute referred to; (f) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms; (g) the words “approve” or “consent” or “agree” or derivations of said words or words of similar import mean, unless otherwise expressly provided herein or therein, the prior approval, consent, or agreement in writing of the person holding the right to approve, consent or agree with respect to the matter in question, and the words “require” or “judgment” or “satisfy” or derivations of said words or words of similar import mean the requirement, judgment or satisfaction of the person who may make a requirement or exercise judgment or who must be satisfied, which approval, consent, agreement, requirement, judgment or satisfaction shall, unless otherwise expressly provided herein or therein, be in the sole and absolute discretion of the person holding the right to approve, consent or agree or who may make a requirement or judgment or who must be satisfied; (h) the words “include” or “including” or words of similar import shall be deemed to be followed by the words “without limitation”; (i) the words “hereto” or “hereby” or “herein” or “hereof” or “hereunder,” or words of similar import, refer to this Agreement in its entirety; (j) references to sections, articles, paragraphs or clauses are to the sections, articles, paragraphs or clauses of this Agreement; and (k) numberings and headings of sections, articles, paragraphs and clauses are inserted as a matter of convenience only and shall not affect the construction of this Agreement.

Section 11.10 Damages . Any claim for damages resulting from a breach of the representations, warranties or covenants included herein shall be for direct damages only and shall not include any indirect, consequential, special, punitive, or incidental damages, (including any diminution in value or lost profits).

Section 11.11 Exhibits . The exhibits attached hereto shall be deemed to be an integral part of this Agreement.

Section 11.12 Amendment, Modification and Waiver . No provision of this Agreement can be amended or waived orally, and no executory agreement shall be effective to amend, waive, change, modify or discharge it in whole or in part unless such executory agreement is in writing and is signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. Any such modification need not be joined in by the Title Company. Any waiver by a party hereto of any breach of any provision of this Agreement will not constitute or operate as a waiver of any other breach of such provision or of any other provision hereof, nor will any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof.

Section 11.13 Reporting Person . Purchasers and Sellers hereby designate the Title Company as the “reporting person” pursuant to the provisions of Section 6045(e) of the Code.

Section 11.14 Time of Essence . Time is of the essence to both Sellers and Purchasers in the performance of this Agreement, and they have agreed that strict compliance by both of them is required as to any date and/or time set out herein. If the final day of any period of time set out in any provision of this Agreement falls upon a Saturday, Sunday or a legal holiday under the laws of the State of California, then and in such event, the time of such period shall be extended to the next day which is not a Saturday, Sunday or legal holiday.

Section 11.15 Confidentiality . Purchasers and Sellers shall hold, and shall cause their respective affiliates, employees and representatives to hold, in strict confidence, and Purchasers and Sellers shall not disclose, and shall prohibit their respective affiliates, employees and representatives from disclosing, to any other person without the prior written consent of the other party, (a) the terms of this Agreement and the Properties, including the existing leases and subleases thereon, (b) any of the information in respect of the Properties delivered to or for the benefit of Purchasers whether by their affiliates, employees and representatives or Sellers or their affiliates, employees and representatives, and (c) the identity of any direct or indirect owner of any beneficial interest in Sellers or Purchasers. Notwithstanding anything contained in this Agreement to the contrary, (y) the parties obligations under clauses (a), (b) and (c) of the immediately preceding sentence shall survive the Closing and not be merged therein, and (z) the parties may disclose such information (i) on a need-to-know basis to its employees, agents, consultants, members of professional firms serving it or existing or potential lenders, investors, consultants and brokers, on a confidential basis, such terms of the Agreement as are customarily disclosed to such parties in connection with similar acquisitions, (ii) as may be required in order to comply with applicable laws, rules or regulations or a court order or as may be required for any disclosure or filing requirements of the Securities and Exchange Commission, the Securities Act of 1933, as amended (the “ Securities Act ”), the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the rules promulgated thereunder or any authority governing disclosure filings required by applicable law, rules or regulations, including but not limited to the disclosure of any lease, including any amendments, modifications, extensions or renewals thereto and any collateral material used in connection with a public offering of securities by Purchasers or their affiliates or (iii) to the extent that such information is a matter of public record.

[SEE SIGNATURES ON THE FOLLOWING PAGES]

IN WITNESS WHEREOF, this Agreement has been deemed executed by Purchasers and Sellers in Orange County, California as of (but not necessarily on) the date and year first above written.



PURCHASERS:

MRT of La Mesa CA – SNF, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name: William Harlan
Title: President

MRT of National City CA – SNF I, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name: William Harlan
Title: President

MRT of National City CA – SNF II , LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name: William Harlan
Title: President

MRT of Upland CA – SNF/ALF, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name: William Harlan
Title: President


SELLERS:

La Mesa Real Estate, LLC,
a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name: Thomas Olds, Jr.
Title: President & CEO

National City Real Estate II, LLC, a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name: Thomas Olds, Jr.
Title: President & CEO

National City Real Estate I, LLC, a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name: Thomas Olds, Jr.
Title: President & CEO

Upland Real Estate, LLC, a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name: Thomas Olds, Jr.
Title: President & CEO

TITLE COMPANY JOINDER

The Title Company joins herein in order to evidence its agreement to perform the duties and obligations of the Title Company set forth herein and the accompanying escrow instructions and to acknowledge receipt, as of the date set forth below, of an original counterpart of this Agreement signed by Seller and Purchaser.

Date: February 19, 2015

C OMMONWEALTH L AND T ITLE I NSURANCE C OMPANY


By:		/s/ Angela M. Lentner
Name: Angela M. Lentner
Title:		Authorized Signatory

Notice Address:

Commonwealth Land Title
Insurance Company
Attention: Carol Ann Martinelli
Telephone: 248-816-3834
Facsimile: 248-649-4836
Email: carolann.martinelli@fnf.com

Or

Attention: Jennifer VanCoillie
Telephone: 248-816-3842
Email: Jennifer.vancoillie@fnf.com

EXHIBIT A

PROPERTY LIST


Name of Facility	Property Address	Facility Type	Facility Operator	Seller	Purchaser
Arbor Hills Nursing & Rehabilitation Center	7800 Parkway Drive La Mesa, CA 91942	Skilled Nursing Facility	GHC of La Mesa, LLC	La Mesa Real Estate, LLC	MRT of La Mesa CA – SNF, LLC
Castle Manor Nursing & Rehabilitation Center	541 V Avenue National City, CA 91950	Skilled Nursing Facility	GHC of National City II, LLC	National City Real Estate II, LLC	MRT of National City CA – SNF II, LLC
Friendship Manor Nursing & Rehabilitation Center	902 Euclid St. National City, CA 91950	Skilled Nursing Facility	GHC of National City I, LLC	National City Real Estate I, LLC	MRT of National City CA – SNF I , LLC
Heritage Park Nursing Center Heritage Court Assisted Living	275 Garnet Way Upland, CA 91786	Skilled Nursing Facility RCFE Facility	GHC of Upland, SNF, LLC GHC of Upland, RCFE, LLC	Upland Real Estate, LLC	MRT of Upland CA – SNF/ALF, LLC

Exhibit 10.18

FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT

THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “ Amendment ”) is made and entered into as of the 16 ^th day of March, 2015, by and among La Mesa Real Estate, LLC, National City Real Estate II, LLC, National City Real Estate I, LLC, and Upland Real Estate, LLC, each, a California limited liability company (collectively, “ Sellers ”), and MRT of La Mesa CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II, LLC, MRT of Upland CA – SNF/ALF, LLC, each, a Delaware limited liability company (collectively, “ Purchasers ”).

W I T N E S S E T H :

WHEREAS , pursuant to that certain Purchase and Sale Agreement among Purchasers and Sellers, dated February 19, 2015, (the “ PSA ”), Sellers have agreed to sell, and Purchasers have agreed to buy, those certain Properties identified on Exhibit A hereto and as more fully described in the PSA (the “ Properties ”); and

WHEREAS , Sellers and Purchasers desire to amend the PSA as more specifically provided in this Amendment.

NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, it is hereby mutually agreed as follows:

1.	Definitions . Any capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the PSA.

2.	Amendments . A new Section 2.05 is added to the PSA as follows:

“ Section 2.05 Advance .

(a) On March 16, 2015, Purchasers will advance THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00) of the Purchase Price to Sellers (the “ Advance ”). The Advance shall bear interest and either be applied as a credit against the Closing Purchase Price at Closing, or be repaid to Purchasers in cash, in accordance with the terms and conditions contained in that certain Promissory Note of Sellers of dated of even date herewith (the “ Promissory Note ”).

(b) As security for Sellers’ obligations under the Promissory Note, Sellers shall cause LG Parent, to grant to Purchasers a first priority security interest in and to the issued and outstanding membership interest held by LG Parent in La Mesa Real Estate, LLC (the “ Collateral ”), pursuant to a separate security agreement to be entered into between Purchasers and LG Parent. The Advance and related security interest in the Collateral shall not be deemed to be a breach or violation in any manner of the covenants set forth in Section 8.08 hereof.

(c) All reasonable attorney and transaction fees incurred by Purchasers in connection with the Advance shall be borne by Sellers.”

Confirmation . Except as specifically set forth herein, all other terms and conditions of the PSA shall remain unmodified and in full force and effect, the same being confirmed and republished hereby. In the event of any conflict between the terms of the PSA and the terms of this Amendment, the terms of this Amendment shall control.

Counterparts . This Amendment may be executed in any number of counterparts all of which taken together shall constitute one and the same instrument and any of the parties or signatories hereto may execute this Amendment by signing any such counterpart. Copies of original signatures sent by facsimile, portable document format (.pdf), or other electronic imaging means shall be deemed to be originals for all purposes of this Amendment.

5.	Successors and Assigns . This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

[Signature Page Follows]

IN WITNESS WHEREOF , this Amendment has been deemed executed by Sellers and Purchasers in Orange County, California as of (but not necessarily on) the date and year first above written.


PURCHASERS:

MRT of La Mesa CA – SNF, LLC,
a Delaware limited liability company

By:		/s/ William Harlan
Print Name:		William Harlan
Title:		President

MRT of National City CA – SNF I, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name:		William Harlan
Title:		President

MRT of National City CA – SNF II, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name:		William Harlan
Title:		President

MRT of Upland CA – SNF/ALF, LLC, a Delaware limited liability company

By:		/s/ William Harlan
Print Name:		William Harlan
Title:		President

[Signatures continue on following page]


SELLERS:

La Mesa Real Estate, LLC,
a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

National City Real Estate II, LLC , a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

National City Real Estate I, LLC, a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

Upland Real Estate, LLC, a California limited liability company

By:		/s/ Thomas Olds, Jr.
Print Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

EXHIBIT A

PROPERTY LIST


Name of Facility	Property Address	Facility Type	Seller	Purchaser
Arbor Hills Nursing & Rehabilitation Center	7800 Parkway Drive La Mesa, CA 91942	Skilled Nursing Facility	La Mesa Real Estate, LLC	MRT of La Mesa CA – SNF, LLC

Castle Manor Nursing & Rehabilitation Center	541 V Avenue National City, CA 91950	Skilled Nursing Facility	National City Real Estate II, LLC	MRT of National City CA – SNF II, LLC

Friendship Manor Nursing & Rehabilitation Center	902 Euclid St. National City, CA 91950	Skilled Nursing Facility	National City Real Estate I, LLC	MRT of National City CA – SNF I , LLC

Heritage Park Nursing Center Heritage Court Assisted Living	275 Garnet Way Upland, CA 91786	Skilled Nursing Facility RCFE Facility	Upland Real Estate, LLC	MRT of Upland CA – SNF/ALF, LLC

Exhibit 10.19

MASTER LEASE

by and among

MRT OF LA MESA CA – SNF, LLC

MRT OF NATIONAL CITY CA – SNF I, LLC

MRT OF NATIONAL CITY CA – SNF II, LLC

MRT OF UPLAND CA – SNF/ALF, LLC

(as “Landlords”)

and

GHC OF LA MESA, LLC

GHC OF NATIONAL CITY II, LLC

GHC OF NATIONAL CITY I, LLC

GHC OF UPLAND SNF, LLC

GHC OF UPLAND RCFE, LLC

(as “Tenants”)

Dated: March 31, 2015

TABLE OF CONTENTS


		Page

ARTICLE 1	DEFINITIONS		2

ARTICLE 2	DEMISED PREMISES AND PERSONAL PROPERTY		4

ARTICLE 3	TERM OF LEASE		5

ARTICLE 4	BASE RENT		6

ARTICLE 5	LATE CHARGES		8

ARTICLE 6	PAYMENT OF TAXES AND ASSESSMENTS		8

ARTICLE 7	OCCUPANCY		10

ARTICLE 8	INSURANCE		11

ARTICLE 9	LANDLORD’S OR MORTGAGEE/UNDERLYING LESSOR’S RIGHT TO PERFORM		14

ARTICLE 10	REPAIRS AND MAINTENANCE; CASUALTY		15

ARTICLE 11	ALTERATIONS AND DEMOLITION		17

ARTICLE 12	COMPLIANCE WITH LAWS AND ORDINANCES		17

ARTICLE 13	DISCHARGE OF LIENS		18

ARTICLE 14	INSPECTIONS OF DEMISED PREMISES BY LANDLORD		18

ARTICLE 15	CONDEMNATION		19

ARTICLE 16	RENT ABSOLUTE		20

ARTICLE 17	ASSIGNMENT AND SUBLETTING		22

ARTICLE 18	EVENTS OF DEFAULT		23

ARTICLE 19	RIGHT TO CONTEST		25

ARTICLE 20	LANDLORD’S REMEDIES UPON DEFAULT		26

ARTICLE 21	CUMULATIVE REMEDIES OF LANDLORD		27

ARTICLE 22	SECURITY FOR RENT		28

ARTICLE 23	INDEMNIFICATION		28

ARTICLE 24	SUBORDINATION PROVISIONS		29

ARTICLE 25	TENANT’S FAITHFUL COMPLIANCE WITH MORTGAGE/UNDERLYING LEASE		30

ARTICLE 26	MORTGAGE/UNDERLYING LEASE RESERVES		30

ARTICLE 27	TENANT’S ATTORNMENT		30

ARTICLE 28	REPRESENTATIONS AND WARRANTIES		31

ARTICLE 29	STATEMENTS AND REPORTS		31

-i-

TABLE OF CONTENTS

(continued)


		Page

ARTICLE 30	ADDITIONAL COVENANTS		32

ARTICLE 31	MISCELLANEOUS		32

ARTICLE 32	TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE		37

ARTICLE 33	HAZARDOUS SUBSTANCES		37

ARTICLE 34	LIMITATION OF LANDLORD’S LIABILITY		39

ARTICLE 35	REPLACEMENT PROPERTIES		39

EXHIBIT “A” LEGAL DESCRIPTIONS OF LAND			A-1

EXHIBIT “B” PERSONAL PROPERTY			B-1

EXHIBIT “C” BASE RENT			C-1

-ii-

MASTER LEASE

THIS MASTER LEASE (this “ Lease ”) made and entered into this 31st day of March, 2015, by and among MRT of La Mesa CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II , LLC, MRT of Upland CA – SNF/ALF, LLC, each, a Delaware limited liability company (hereinafter, along with any other lessors as may be added to this Lease from time to time, collectively, the “ Landlord ”), and GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC, and GHC of Upland RCFE, LLC, each, a California limited liability company (hereinafter, along with any other lessees as may be added to this Lease from time to time, collectively, the “ Tenant ”).

W I T N E S S E T H :

WHEREAS, Landlord has entered into a Purchase and Sale Agreement dated February 19, 2015 (as amended, modified or revised, the “ Purchase Agreement ”), with certain affiliates of Tenant, to purchase:

(i) that certain tract of land located in the State of California and more particularly described in Exhibit A-1 attached hereto and made a part hereof (the “ Heritage Land ”) and on which there is located (A) a Residential Care Facility for the Elderly (an “ RCFE ”) licensed for up to 88 beds, commonly known as Heritage Court Assisted Living, having a street address of 275 Garnet Way B, Upland, CA 91786 (the “ Heritage Court Facility ”), and (B) a nursing facility containing 70 licensed beds (all of which are both Medicaid and Medicare certified) commonly known as Heritage Park Nursing Center, having a street address of 275 Garnet Way, Upland, CA 91786 (the “ Heritage Park Facility ”);

(ii) that certain tract of land located in the State of California and more particularly described in Exhibit A-2 attached hereto and made a part hereof (the “ Friendship Manor Land ”), upon which there is located a nursing facility containing 104 licensed beds (all of which are both Medicaid and Medicare certified) commonly known as Friendship Manor Nursing & Rehabilitation Center, having a street address of 902 Euclid Avenue, National City, CA 91950 (the “ Friendship Manor Facility ”);

(iii) that certain tract of land located in the State of California and more particularly described in Exhibit A-3 attached hereto and made a part hereof (the “ Arbor Hills Land ”), upon which there is located a nursing facility containing 100 licensed beds (all of which are both Medicaid and Medicare certified) commonly known as Arbor Hills Nursing & Rehabilitation Center, having a street address of 7800 Parkway Drive, La Mesa, CA 91942 (the “ Arbor Hills Facility ”); and

(iv) that certain tract of land located in the State of California and more particularly described in Exhibit A-4 attached hereto and made a part hereof (the “ Castle Manor Land ”), upon which there is located a nursing facility containing 99 licensed beds (all of which are both Medicaid and Medicare certified) commonly known as Castle Manor Nursing & Rehabilitation Center, having a street address of 541 S. V Avenue, National City, CA 91950 (the “ Castle Manor Facility ”);

WHEREAS , pursuant to the Purchase Agreement, Landlord is purchasing the furnishings, furniture, equipment and fixtures to be used in or about the Demised Premises (as hereinafter defined) including the property described in Exhibit B attached hereto and made a part hereof (hereinafter collectively referred to as the “ Personal Property ”); and

WHEREAS , contemporaneously with the purchase and sale of the Demised Premises, Landlord desires to lease the Leased Property to Tenant and Tenant desires to lease the Leased Property from Landlord; and

WHEREAS , as an inducement to Landlord to lease the Demised Premises to Tenant pursuant to this Lease, Life Generations Healthcare LLC (“ Guarantor ”), will execute and deliver to Landlord that certain Guaranty of Master Lease (the “ Lease Guaranty ”), dated of even date herewith, guarantying the performance of all of the obligations of Tenant under this Lease.

NOW, THEREFORE , it is agreed that the use and occupancy of the Demised Premises and the use of the Personal Property shall be subject to and in accordance with the terms, conditions and provisions of this Lease.

ARTICLE 1 DEFINITIONS

1.1 The terms defined in this Article shall, for all purposes of this Lease and all agreements supplemental hereto, have the meaning herein specified.

(a) “ A/R Credit Facility ” shall have the meaning ascribed to such term in the Lease Guaranty .

(b) “ Base Rent ” shall have the meaning ascribed to such term in Section 4.1 of this Lease.

(d) “ Consumer Price Index ” means the Consumer Price Index for All Urban Consumers, U.S. All Items (1982-1984=100), published by the Bureau of Labor Statistics, U.S. Department of Labor or any successor thereto (“BLS”). If the BLS changes the publication frequency of the Consumer Price Index so that a Consumer Price Index is not available to make a rent adjustment as specified herein, the rent adjustment shall be based on the percentage difference between the Consumer Price Index for the closest preceding month for which a Consumer Price Index is available and the Consumer Price Index for the comparison month as required by this Lease. If the BLS changes the base reference period for the Consumer Price Index from 1982-1984=100, the rent adjustment shall be determined with the use of such conversion formula or table as may be published by the BLS. If the BLS otherwise substantially revises, or ceases publication of, the Consumer Price Index, then a substitute index for determining rent adjustments, issued by the BLS or by a reliable governmental or other nonpartisan publication, shall be reasonably selected by Landlord.

(e) “ Default Rate ” shall have the meaning ascribed to such term in Section 9.1 of this Lease.

(f) “ Demised Premises ” shall mean, collectively, the Land, the Facilities, any other improvements now or hereafter located on the Land, and all easements, tenements, hereditaments and appurtenances thereto.

(g) “ EBITDARM ” means, for any period, (i) the aggregate net income of the Tenant (in the aggregate) for such period (determined in accordance with GAAP applying the same principles that were used by Guarantor in preparing the 2013 LG Audited Statement (as defined in the Purchase Agreement), plus (ii) the aggregate of the following, without duplication, (A) interest expense, (B) income taxes, (C) depreciation and amortization expenses, (D) rent and deferred rent expense for leases of real property, (E) management fees, (F) all extraordinary expenses, including non-cash, or non-recurring losses and expenses (including any fees, expenses, penalties or settlement costs related to the OIG Investigation (as defined in the Purchase Agreement)), (G) non-cash compensation expenses arising from the issuance of stock, options to purchase stock, and stock appreciation rights and settlement costs and legal expenses related to the grant and exercise of stock options, (H) nonrecurring or special bonuses to Tenant employees as well as non-recurring special corporate level bonuses, including expenses and employer taxes related to the payment of such bonuses, (I) fees and expenses paid in connection with the transactions contemplated in the Purchase Agreement, this Lease or any related transaction, including the due diligence, execution and delivery by Guarantor and/or Sellers (as defined in the Purchase Agreement), including fees and expenses related to the repayment of all amounts and the termination of the LG Parent Credit Agreement, and (J) any reasonable fees, costs or expenses paid to third parties in connection with an acquisition or new business regardless of whether such transaction is consummated.

(h) “ Facilities ” shall mean, collectively, the Heritage Court Facility, the Heritage Park Facility, the Friendship Manor Facility, the Arbor Hills Facility, the Castle Manor Facility, and any other facilities as may be added to this Lease from time to time.

(i) “ Facility Property ” shall mean any one Facility and the Land on which such Facility is located.

(j) “ Guarantor EBITDAR ” shall have the meaning ascribed to the term “EBITDAR” in the Lease Guaranty.

(k) “ Impositions ” shall have the meaning ascribed to such term in Section 4.3 of this Lease.

(l) “ Land ” shall mean, collectively, the Heritage Land, the Friendship Manor Land, the Arbor Hills Land, the Castle Manor Land, and any other land as may be added to this Lease from time to time.

(m) “ Landlord Party ” and “ Landlord Parties ” shall have the meaning ascribed to such terms in Section 23.1 of this Lease.

(n) “ Lease Year ” shall mean a twelve (12) month period commencing on the date of the Closing, and on each anniversary of the Closing thereafter, except that if the Closing is other than the first day of a calendar month, then the first Lease Year shall be the period from the Closing through the date twelve (12) months after the last day of the calendar month in which the Closing occurs, and each subsequent Lease Year shall be the period of twelve (12) months following the last day of the prior Lease Year.

(o) “ Leased Property ” shall mean, collectively, the Demised Premises and the Personal Property, and, where the context so requires, shall mean, individually, any one Facility Property and the Personal Property applicable thereto.

(p) “ LG Facility Rent ” shall have the meaning ascribed to such term in the Lease Guaranty.

(q) “ LG Parent Credit Facility ” shall have the meaning ascribed to such term in the Lease Guaranty .

(r) “ Mortgage/Underlying Lease ” shall have the meaning ascribed to such term in Section 24.1 of this Lease.

(s) “ Mortgagee/Underlying Lessor ” shall have the meaning ascribed to such term in Section 24.1 of this Lease.

(t) “ Personal Property ” shall have the meaning ascribed to such term in the recitals of this Lease.

(u) “ Proper Successor ” shall have the meaning ascribed to such term in Section 31.5 of this Lease.

(v) “ Purchase Agreement ” shall have the meaning ascribed to such term in the Recitals hereto.

(w) “ Purchase Price ” shall have the meaning ascribed to such term in Section 4.1 of this Lease.

(x) “ Tenant’s Knowledge ” shall have the meaning ascribed to the term “Sellers’ Knowledge” under the Purchase Agreement.

(y) “ Term ” shall have the meaning ascribed to such term in Article 3 of this Lease.

(z) All other terms shall be as defined in the other sections of this Lease.

ARTICLE 2 DEMISED PREMISES AND PERSONAL PROPERTY

2.1 Landlord, for and in consideration of the Base Rent to be paid and the other covenants and agreements hereinafter to be kept and performed by Tenant and its successors and assigns, does hereby lease unto Tenant the Leased Property for the Term, for use and operation therein and thereon of Medicaid and Medicare certified skilled nursing facilities and an RCFE, as set forth in the recitals to this Lease, in compliance in all material respects with all the rules and regulations and minimum standards applicable thereto, as prescribed by the State of California and such other governmental authorities having jurisdiction thereof, each Facility having no less

than the number of licensed Medicare and Medicaid certified beds, or licensed RCFE beds, as the case may be, required under this Lease, and for any other purpose authorized by Landlord in writing and for no other purpose. Notwithstanding anything to the contrary contained in this Lease, for purposes of this Lease, any bed that is voluntarily taken out of service or de-certified by Tenant in accordance with applicable law and for customary and prudent business purposes shall still be counted for purposes of the foregoing (and any similar) covenant contained herein provided that Tenant obtains Landlord’s written consent (not to be unreasonably withheld, conditioned or delayed) before voluntarily de-certifying any bed for reasons other than compliance with the requirements of applicable regulatory authorities or compliance with Tenant’s other obligations under this Lease.

2.2 This Lease constitutes one indivisible lease of the Leased Property. The Leased Property constitutes one economic unit and the Base Rent and all other provisions have been negotiated and agreed to based on a lease of all of the Leased Property as a single, composite, inseparable transaction. This Lease would not have been made on these terms if it was not a single indivisible lease. Except as expressly provided herein for specific, isolated purposes (and then only to the extent expressly otherwise stated), all provisions of this Lease shall apply equally and uniformly to all the Leased Property as one unit and any Event of Default under this Lease is an Event of Default as to the entire Leased Property. The parties intend that the provisions of this Lease shall at all times be construed, interpreted and applied so as to carry out their mutual objective to create a single indivisible lease of all the Leased Property, and in particular but without limitation, that for purposes of any assumption, rejection or assignment of this Lease under the Bankruptcy Code, this is one indivisible and nonseverable lease and executory contract dealing with one legal and economic unit that must be assumed, rejected or assigned as a whole with respect to all (and only all) the Leased Property covered hereby. The parties agree that the existence of more than one Landlord under this Lease does not affect the indivisible, nonseverable nature of this Lease. The parties may amend this Lease from time to time to include one or more additional Facilities as part of the Leased Property and such future addition to the Leased Property shall not in any way change the indivisible and nonseverable nature of this Lease and all of the foregoing provisions shall continue to apply in full force.

ARTICLE 3 TERM OF LEASE

3.1 Except as expressly provided below, the initial term of this Lease (the “ Initial Term ”) shall commence on April 1, 2015 (the “ Commencement Date ”), and shall expire on March 31, 2030, unless terminated earlier as provided for herein or extended pursuant hereto.

3.2 Tenant hereby agrees that this Lease, the obligations of Landlord and the rights and obligations of Tenant to lease the Leased Property pursuant to this Lease are subject to and conditioned upon the purchase of the Leased Property by Landlord.

3.3 Tenant shall have and is hereby granted the right and option to extend the Initial Term of this Lease for an extended term of five (5) Lease Years (the “ First Extended Term ”) upon and subject to all the terms, provisions and conditions hereof, except that Base Rent payable with respect to each Lease Year of the First Extended Term shall be the amount set forth in Section 4.1 . The first Lease Year of the First Extended Term shall commence upon the day next following the expiration of the Initial Term.

3.4 In the event that Tenant shall have exercised the option contained in Section 3.3 above, Tenant shall have and is hereby granted the right and option to extend this Lease for an additional extended term of five (5) Lease Years (the “ Second Extended Term ”) upon and subject to all the terms, provisions and conditions hereof, except that Base Rent payable with respect to each Lease Year of the Second Extended Term shall be the amount set forth in Section 4.1 hereof. The first Lease Year of the Second Extended Term shall commence upon the day next following the expiration of the First Extended Term.

3.5 The options granted pursuant to Section 3.3 and Section 3.4 above may be exercised only if there is no uncured Event of Default existing under this Lease at the time of exercise and at the time of the expiration of the Initial Term or the First Extended Term, as applicable. Said options shall be exercised by Tenant giving to Landlord written notice of Tenant’s election so to do not less than nine (9) full calendar months prior to the expiration of the Initial Term or the First Extended Term, as applicable.

3.6 The Initial Term, as it may be extended by the First Extended Term and the Second Extended Term, is hereinafter collectively referred to as the “ Term ”.

ARTICLE 4 BASE RENT

4.1 Tenant shall pay to Landlord rental (“ Base Rent ”) for the Demised Premises and the Personal Property, over and above all other and additional payments to be made by Tenant as provided in this Lease, in an amount per annum equal to (i) the aggregate Purchase Price paid by Landlord for the Leased Property pursuant to the Purchase Agreement, multiplied by (ii) eight and 75/100 percent (8.75%). At the Closing, the initial Base Rent shall be set forth on a schedule to be attached as Exhibit C to this Lease. On the first (1 ^st ) day of the fifth (5 ^th ) Lease Year, the Base Rent shall increase over the Base Rent as in effect as of the last day of the immediately preceding Lease Year by a percentage equal to the lesser of (i) the percentage increase (rounded to two (2) decimal places) if any, in (A) the Consumer Price Index published for the month immediately preceding the commencement of the fifth (5 ^th ) Lease Year over (B) the Consumer Price Index published for the month immediately preceding the Commencement Date, or (ii) two percent (2.0%). On the first (1 ^st ) day of the sixth (6 ^th ) Lease Year, and on each of the four (4) anniversaries thereafter, to and including the first day of the ninth (9 ^th ) Lease Year, the Base Rent shall increase over the Base Rent as in effect as of the last day of the immediately preceding Lease Year by a percentage equal to the lesser of (i) the percentage increase (rounded to two (2) decimal places) if any, in (A) the Consumer Price Index published for the month immediately preceding the commencement of such Lease Year over (B) the Consumer Price Index published for the month immediately preceding the commencement of the immediately preceding Lease Year, or (ii) two percent (2.0%). On the first (1 ^st ) day of the tenth (10 ^th ) Lease Year, and on the first (1 ^st ) day of every Lease Year thereafter, through the Initial Term, the First Extended Term and through the last Lease Year of the Second Extended Term, as applicable, the Base Rent shall increase by two and one-half percent (2.5%) over the Base Rent in effect for the immediately preceding Lease Year.

4.2 Base Rent shall be paid by Tenant to Landlord in equal monthly installments on the first day of each calendar month in advance. In the event the date of the Closing shall be other than the first day of the month, Tenant shall pay to Landlord, on such date, a pro rata

portion of the Base Rent for the month in which the Closing occurs. Unless otherwise notified in writing, all payments of Base Rent shall be sent by wire transfer of immediately available funds directly to such account as Landlord shall designate in writing from time to time.

4.3 This Lease is and shall be deemed and construed to be a “pure net” or “triple-net” lease and the Base Rent specified herein shall be net to Landlord in each year during the Term of this Lease. Landlord shall have no cost, obligation, responsibility or liability whatsoever for repairing, operating, maintaining or owning the Demised Premises during the Term of this Lease. Tenant does hereby indemnify Landlord against any and all such costs, expenses and obligations. Accordingly, Tenant shall pay Base Rent to Landlord during the Term free of any deduction, diminution or payment obligation on the part of Landlord for real property taxes and assessments, sales and use taxes, and all other taxes, assessments, utility charges, operating expenses, refurnishings, insurance premiums and any other charge or expense, levy, fine, fee or cost in connection with the Demised Premises and the ownership, operation and maintenance, repair and replacement thereof, including but not limited to all expenses and charges, whether for upkeep, maintenance, operation, repair, refurnishing, refurbishing, restoration, replacement, insurance premiums, taxes, utilities, occupational licenses and other permits and other operating or other charges of a like nature or otherwise, whether known or unknown, ordinary or extraordinary, foreseen or unforeseen, anticipated or unanticipated, and in effect now or enacted hereafter (the foregoing collectively, “ Impositions ”).

4.4 Tenant recognizes and acknowledges that Landlord and/or certain beneficial owners of Landlord may from time to time qualify as real estate investment trusts (a “ REIT ”) pursuant to Sections 856 et seq. of the Internal Revenue Code of 1986, as amended, and that avoiding (a) the loss of such status, (b) the receipt of any income derived under any provision of this Lease that does not constitute “rents from real property” (in the case of real estate investment trusts), and (c) the imposition of income, penalty or similar taxes (each an “ Adverse Event ”) is of material concern to Landlord and such beneficial owners. In the event that Landlord or any such beneficial owner is a REIT and this Lease or any document contemplated hereby could, in the reasonable opinion of counsel to Landlord, result in or cause an Adverse Event, Tenant agrees to cooperate with Landlord in negotiating an amendment or modification thereof and shall at the written request of Landlord execute and deliver such documents reasonably required to effect such amendment or modification, provided that, in each case, Tenant’s access to, and use and enjoyment of the Demised Premises are not materially and adversely affected, Tenant’s obligations under this Lease are not materially increased, and Tenant’s rights under this Lease are not materially decreased by such amendment or modification. Any such amendment or modification shall be structured so that the economic results to Landlord and Tenant shall be no less favorable to Tenant than those set forth in this Lease without regard to such amendment or modification. Without limiting any of Landlord’s other rights pursuant to this provision, Landlord may waive the receipt of any amount payable to Landlord hereunder and such waiver shall constitute an amendment or modification of this Lease with respect to such payment.

ARTICLE 5 LATE CHARGES

5.1 Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges. Accordingly, if any installment of Base Rent shall not be received by Landlord within five (5) business days after such amount shall be due, upon demand by Landlord, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default or breach with respect to any unpaid overdue amounts, nor prevent Landlord from exercising any of the other rights and remedies granted under this Lease, at law or in equity.

ARTICLE 6 PAYMENT OF TAXES AND ASSESSMENTS

6.1 Tenant will pay or cause to be paid, as provided herein prior to delinquency, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof (or sooner if elsewhere herein required), all taxes (including but not limited to real estate taxes, ad valorem taxes, school taxes, assessments and personal property, intangible and use taxes, if any), assessments, licenses and permit fees, bed taxes, charges for public utilities, and all governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever that during the Term may be assessed, levied, confirmed, imposed upon or become due and payable out of or in respect of, or become a lien on the Demised Premises and/or Personal Property or any part thereof (hereinafter collectively referred to as “ Taxes and Assessments ”). If any such tax or imposition may, at the option of the tax payor, lawfully be paid in installments (whether or not interest may accrue on the unpaid balance), Tenant may pay such tax or imposition in installments.

6.2 Any Taxes and Assessments relating to a fiscal period of any authority, a part of that is included within the Term and a part of which is included in a period of time after the Term, shall be adjusted pro rata between Landlord and Tenant and each party shall be responsible for its pro rata share of any such Taxes and Assessments.

6.3 Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or net income, gross receipts, capital levy, franchise, estate, succession or inheritance taxes of Landlord.

6.4 Notwithstanding Section 6.3 above, if any income, profits or revenue tax shall be levied, assessed or imposed upon the income, profits or revenue arising from Base Rent payable hereunder, partially or totally in lieu of or as a substitute for real estate or personal property taxes imposed upon the Demised Premises or Personal Property, or otherwise, then Tenant shall be responsible for the payment of such tax.

6.5 Real Property Tax Protection

(a) Notwithstanding anything to the contrary contained in this Lease, in the event that, at any time during any five (5) year period of the Term commencing on the date of the Closing (each five (5) year period being referred to herein as a “ Protected Period ”), any “change in ownership” of all or any portion of the Demised Premises is consummated (each such first change of ownership during a Protected Period being referred to herein as a “ First Transfer ”), followed by one (1) or more additional changes in ownership of all or any portion of

the Demised Premises, during the same Protected Period (each subsequent change in ownership during a Protected Period being a “ Subsequent Transfer ”), and as a result of any such Subsequent Transfer during such Protected Period the Demised Premises is reassessed for real estate tax purposes by the appropriate governmental authority pursuant to the terms of Proposition 13 (a “ Subsequent Transfer Reassessment ”) resulting in an increase to Taxes and Assessments (a “ Subsequent Transfer Tax Increase ”), then the terms of this Section 6.5 shall apply to each such Subsequent Transfer Reassessment and any Subsequent Transfer Tax Increase resulting therefrom within any Protected Period.

(b) For purposes of this Section 6.5 , the term “ Subsequent Transfer Tax Increase ” shall mean only that portion of Taxes and Assessments, as calculated immediately following a Subsequent Transfer Reassessment which is attributable solely to such Subsequent Transfer Reassessment. Accordingly, the term Subsequent Transfer Tax Increase shall not include any portion of Taxes and Assessments for the Demised Premises, as calculated immediately following a Subsequent Transfer Reassessment, which is attributable (i) to the initial assessment of the value of the Demised Premises, or the tenant improvements in the Demised Premises, (ii) to assessments which were pending immediately prior to the Subsequent Transfer Reassessment which assessments were conducted during, and included in, such Subsequent Transfer Reassessment, or which assessments were otherwise rendered unnecessary following such Subsequent Transfer Reassessment, or (iii) to the First Transfer in such Protected Period.

(c) During any given Protected Period, Tenant shall not be obligated to pay any Subsequent Transfer Tax Increase during the duration of that Protected Period in which the Subsequent Transfer Tax Increase is assessed; provided, however, Tenant will be responsible for the payment of any such Subsequent Transfer Tax Increases during any Protected Period during the remainder of the Term following the expiration of such Protected Period. By way of example only, if a First Transfer occurs prior to the fifth (5 ^th ) anniversary of the date of the Closing (i.e., the first Protected Period), and one or more Subsequent Transfers occur during such Protected Period, then Tenant shall not pay any Subsequent Transfer Tax Increases arising from such Subsequent Transfers in such Protected Period until the expiration of such Protected Period, at and after which time, the total Taxes and Assessments payable by Tenant shall not be reduced by any Subsequent Transfer Tax Increases from such prior Protected Period.

(d) The aggregate amount of any Subsequent Transfer Tax Increases which Tenant is not obligated to pay or will not be obligated to pay during any Protected Period pursuant to the terms of this Section 6.5, shall be sometimes referred to hereinafter as a “ Proposition 13 Protection Amount .” If after a First Transfer in any Protected Period, the occurrence of a Subsequent Transfer Reassessment during such Protected Period is reasonably foreseeable by Landlord, and the Proposition 13 Protection Amount attributable to such Subsequent Transfer Reassessment can be reasonably quantified or estimated for each remaining Lease Year within the same Protected Period, then, upon written notice to Tenant, Landlord shall have the right to purchase the then remaining portion of such Proposition 13 Protection Amount for such Protected Period, by paying to Tenant an amount equal to the “ Proposition 13 Purchase Price ,” as that term is defined below. As used herein, “ Proposition 13 Purchase Price ” shall mean the present value of the portion of the Proposition 13 Protection Amount which is otherwise payable over the remaining portion of the Protected Period using discount rate of the then current Bank of America prime lending rate. Upon Landlord’s payment of any Proposition 13 Purchase Price, the

provisions of Section 6.5(c) above shall no longer apply to any Subsequent Transfer Tax Increase amounts which have been purchased by Landlord as part of the Proposition 13 Purchase Price and the total Taxes and Assessments payable by Tenant for the remainder of such Protected Period shall not be reduced by any Subsequent Transfer Tax Increases from such prior Protected Period. Since Landlord may be estimating the Proposition 13 Purchase Price amount if any Subsequent Transfer Tax Increase has not yet been assessed, then when such Subsequent Transfer Tax Increase is assessed, if Landlord has underestimated the Proposition 13 Purchase Price amount, then upon written notice by Landlord to Tenant, Tenant’s monthly installment of Base Rent next due shall be credited with the amount of such Proposition 13 Purchase Price amount shortfall, and if Landlord overestimated the Proposition 13 Purchase Price amount, then upon written notice by Landlord to Tenant, Tenant’s monthly installment of Base Rent next due shall be increased by the amount of such Proposition 13 Purchase Price amount overpayment.

(e) As used in this Section 6.5 , a “ change of ownership ” shall mean any sale, transfer or refinancing as to the Demised Premises or any portion thereof which, under applicable California law, entitles the tax assessor to reassess the Demised Premises or such portion thereof.

6.6 If expressly required by any Mortgage/Underlying Lease or at Landlord’s option following the occurrence of an Event of Default (to be exercised by thirty (30) days’ written notice to Tenant), Tenant shall make monthly deposits to Landlord for Taxes and Assessments, in an amount equal to one-twelfth (1/12) of the annual Taxes and Assessments payable under this Lease. Said deposits shall be due and payable on the first (1 ^st ) day of each month, shall not bear interest and shall be used by Landlord and/or Mortgagee/Underlying Lessor, as applicable, to pay the applicable Taxes and Assessments prior to delinquency. If the total of the monthly payments as made under this Section 6.6 shall be insufficient to pay the applicable Taxes and Assessments when due, then Tenant shall on demand pay Landlord the amount necessary to make up the deficiency. If Landlord transfers this Lease, it shall transfer all amounts then held by it under this Section 6.6 to the transferee (either directly or by way of a closing credit in favor of such transferee, at Landlord’s election). As of the expiration or earlier termination of this Lease, any sums held by Landlord under this Section 6.6 shall be returned to Tenant, provided that any and all Taxes and Assessments payable by Tenant hereunder have been paid in full.

ARTICLE 7 OCCUPANCY

7.1 During the Term, the Facilities demised hereunder shall be used and occupied by Tenant for and as Medicaid and Medicare certified skilled nursing facilities and an RCFE, as set forth in the recitals to this Lease, in compliance in all material respects with all the rules and regulations and minimum standards applicable thereto, as prescribed by the State of California and such other governmental authorities having jurisdiction thereof, each Facility having no less than the number of licensed Medicare and Medicaid certified beds, or licensed RCFE beds, as the case may be, required under this Lease. Tenant shall at all times maintain in good standing and in full force and effect all the licenses, certifications and provider agreements issued by the State of California and any other applicable state or federal governmental agencies, permitting the operation of the Medicaid and Medicare certified skilled nursing facilities or the RCFE, as

the case may be, on the Demised Premises with each such Facility having no less than the number of licensed Medicare and Medicaid certified beds, or licensed RCFE beds, as set forth in the recitals of this Lease for each such Facility. Without Landlord’s prior written consent, which Landlord may withhold in its sole and absolute discretion, Tenant shall not apply for, or consent to, any reduction in the number of state licensed beds or Medicaid and Medicare certified beds at the Demised Premises. Notwithstanding anything to the contrary contained in this Lease, any bed that is voluntarily taken out of service or de-certified by Tenant in accordance with applicable law and for customary and prudent business purposes shall still be counted for purposes of this Section 7.1 , provided Tenant obtains Landlord’s written consent (not to be unreasonably withheld, conditioned or delayed) before voluntarily de-certifying any bed for reasons other than compliance with the requirements of applicable regulatory authorities or compliance with Tenant’s other obligations under this Lease.

7.2 Tenant will not knowingly suffer any act to be done or any condition to exist on the Demised Premises or any portion thereof that is unlawful, known to be dangerous, or that may void or make voidable any insurance then in force on the Demised Premises or any portion thereof.

7.3 Upon expiration or termination of this Lease for any reason, Tenant will return to Landlord the Demised Premises, with the improvements located therein and all the Personal Property (subject to the provisions of Section 10.6 hereof) (i) in good order, condition and repair, reasonable wear and tear excepted, and (ii) in compliance with all applicable licensing and certification requirements of all governmental agencies having jurisdiction over the Demised Premises as Medicaid and Medicare certified skilled nursing facilities, or as an RCFE, as applicable with each Facility having no less than the number of licensed Medicare and Medicaid certified beds or licensed RCFE beds as set forth in the first recital of this Lease for such Facility, with licenses, certifications and provider agreements in full force and good standing. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no obligation to perform any alteration, improvement, exchange, replacement or modification of the Demised Premises, the improvements located therein, or any of the Personal Property to the extent such obligation is necessitated by, or imposed in connection with, a change of ownership inspection survey for the transfer of operation of any applicable Facility to Landlord or Landlord’s designee unless Landlord is able to demonstrate that such alteration, improvement, exchange, replacement or modification was previously required hereunder or by the applicable licensing authorities to be undertaken by Tenant prior to expiration of the Lease Term and Tenant failed to do so.

ARTICLE 8 INSURANCE

8.1 Tenant shall, at its sole cost and expense, during the term of this Lease, maintain property and casualty insurance with extended coverage endorsement on the Leased Property. Such insurance shall be obtained from an insurance company reasonably acceptable to Landlord and any Mortgagee/Underlying Lessor.

8.2 Tenant shall, at Tenant’s sole cost and expense, cause to be issued and shall maintain during the entire Term of this Lease:

(a) Property insurance provided by a Causes of Loss-Special Form including windstorm coverage. Such insurance shall include an endorsement for building ordinance/demolition/increased cost of construction coverage in an aggregate amount of up to Five Million Dollars ($5,000,000.00). Such insurance shall, at all times, be maintained in an amount equal to the full replacement cost value of the Demised Premises. Such insurance shall, at all times, also be maintained in the full replacement cost of the Personal Property located at or used in connection with the Demised Premises. As used herein, the term “full replacement cost” shall mean coverage for the actual replacement cost of the Demised Premises and such amount may be determined annually by a qualified appraiser on behalf of the Landlord, at Landlord’s expense; provided, however, in the event of a dispute as to the replacement cost values for the Demised Premises, the parties shall defer to the industry-accepted Marshall and Swift replacement cost estimate. The term “full replacement cost” shall also mean coverage for the actual replacement cost of the Personal Property located at or used in connection with the Demised Premises. Upon written request by Tenant, Landlord will provide Tenant with information in its possession that is reasonably necessary to establish the value of the Leased Property or any portion thereof. Such insurance shall at all times be payable to Landlord and Tenant as their interest may appear and shall contain a loss payable clause to the holder of any mortgage/deed of trust or lessor under any leasehold estate superior to Landlord to which this Lease shall be subject and subordinate, as said mortgagee’s/beneficiary’s/senior lessor’s interest may appear. Notwithstanding anything to the contrary in this Lease, at Tenant’s option, the insurance coverage required under this Section 8.2 may be carried under any blanket or umbrella policies that Tenant has in force for the Facilities and/or other buildings and projects.

(b) Boiler & Machinery insurance for the Demised Premises, in the amount of full replacement of the Demised Premises and the Personal Property, under the terms of which Landlord and Tenant will be indemnified, as their interests may appear, against any loss or damage of the Leased Property that may result from any accident as covered under a standard Boiler & Machinery policy;

(c) Earthquake coverage for the Facilities of not less than Ten Million Dollars ($10,000,000.00) as set forth below. Flood coverage for any Facility located in whole or in part in a designated high hazard flood zone A or V. If any of the Facilities do not fall within such designated high hazard flood zones, flood coverage does not need to be procured. Tenant is allowed to carry a blanket annual aggregate loss limit of Ten Million Dollars ($10,000,000.00) for both earthquake and flood coverage on a combined blanket basis for all applicable healthcare facilities owned or leased by Tenant and other affiliates of Guarantor.

(d) Commercial General and Long Term Care Professional Liability insurance with limits of not less than One Million Dollars ($1,000,000.00) per each occurrence and a Three Million Dollars ($3,000,000.00) annual policy aggregate limit. Coverage may be maintained on either an occurrence or a claims-made policy, at Tenant’s election. If coverage is on a claims-made basis, Tenant shall be responsible for purchasing extended reporting period (tail) coverage for the longer of two (2) years or the statute of limitations. Landlord shall be named as an additional insured for the general liability coverage required hereunder, and Landlord may request in writing that other parties to be named as additional insureds, if such parties have an insurable interest in the policy. The General Liability coverage required hereunder shall insure against claims for bodily injury or property damage occurring upon, in or about the Demised Premises, including sidewalks, passageways and parking lots that are part of the Demised Premises; and

(e) Reserved.

(f) Worker’s compensation insurance or other similar insurance that may be required by governmental authorities or applicable legal requirements in an amount not less than the minimum required by law.

8.3 Insurance policies shall provide:

(a) that general liability coverage shall name Landlord, Tenant and any mortgagee/beneficiary/senior lessor (as their respective interests may appear), and as a loss payee on the property coverages;

(b) that they shall not be canceled, terminated, reduced or materially modified without at least thirty (30) days prior written notice to Landlord, or ten (10) days’ prior written notice for cancellation due to nonpayment of premiums;

(c) on the property coverages, a standard mortgagee clause in favor of any mortgagee/beneficiary/senior lessor and shall contain, if obtainable, a waiver of the insurer’s right of subrogation against funds paid under the standard mortgagee endorsement that are to be used to pay the cost of any repairing, rebuilding, restoring or replacing; and

(d) that general liability coverage is being issued on a primary, non-contributory basis, and with respect to any umbrella or “excess coverage” policy, such shall specifically provide that it is primary vis-a-vis any insurance policies carried by Landlord or any of Landlord’s affiliates.

8.4 An original Certificate of Insurance and Evidence of Property Coverage for all insurance policies required by this Article shall be delivered to Landlord at least five (5) days prior to the Commencement Date and replacement Certificates of Insurance and Evidence of Property Coverage at least five (5) days prior to the date of expiration.

8.5 Tenant shall at all times keep in effect business interruption insurance with a loss of rents endorsement naming Landlord as an insured in an amount at least sufficient to cover the monthly Base Rent payable by Tenant for the period of the next succeeding twelve (12) months following the occurrence of the business interruption.

All proceeds of any business interruption insurance shall be applied, first, to the payment of any and all Base Rent payments for such twelve (12) month period; and, thereafter, after all necessary repairing, rebuilding, restoring or replacing has been completed as required by the pertinent provisions of this Lease and the pertinent sections of any mortgage/deed of trust/senior lease, any remaining balance of such proceeds shall be paid over to Tenant.

8.6 From time to time, Landlord or any mortgagee/beneficiary/senior lessor may reasonably require Tenant to change the amount or type of insurance, or to add or substitute additional coverages, required to be maintained by Tenant hereunder; provided that such additional or replacement insurance is available to Tenant at commercially reasonable rates and is customarily required by landlords of similar assets in the general geographical area of the Facilities.

8.7 In the event the amount of any casualty insurance proceeds exceed One Hundred Fifty Thousand and No/100 Dollars ($150,000), such insurance proceeds as may be paid to Tenant and Landlord shall be deposited with Landlord to be held and disbursed to Tenant upon written request, accompanied by reasonable documentation evidencing work performed and/or services engaged, for the repairing, rebuilding, restoring or replacing of the Demised Premises or any portion thereof, or any improvements from time to time situated thereon or therein, subject to the pertinent provisions of any Mortgage/Underlying Lease and in accordance with the provisions of this Lease (the “ Restoration ”). Notwithstanding the foregoing, if Landlord reasonably determines that the full cost of completing the Restoration shall be in excess of the amount of such insurance proceeds, Landlord may withhold disbursement of such proceeds until Tenant shall have provided evidence, reasonably satisfactory to Landlord, of the availability to Tenant of the funds necessary to cover such excess cost. In the event that casualty insurance proceeds (in any amount) are paid by the insurer after completion of applicable repair, rebuilding, restoration or replacement in the manner required hereunder, such proceeds shall be paid directly to Tenant.

8.8 If Tenant fails to carry the insurance required under this Lease, then upon prior written notice to Tenant, Landlord shall be entitled, but shall have no obligation, to obtain such insurance and pay the premiums therefor, in which event the cost thereof shall be repayable to Landlord within ten (10) days after demand therefor.

8.9 If expressly required by any Mortgage/Underlying Lease or at Landlord’s option following the occurrence of an Event of Default (to be exercised by thirty (30) days’ written notice to Tenant), Tenant shall make monthly deposits to Landlord for the insurance premiums payable by Tenant under this Lease, in an amount equal to one-twelfth (1/12) of the annual premiums for such insurance on the Leased Property. As applicable, the terms of Section 6.6 shall govern the amounts deposited under this Section 8.9 .

ARTICLE 9 LANDLORD’S OR MORTGAGEE/UNDERLYING LESSOR’S RIGHT TO PERFORM

9.1 Should Tenant fail to pay any amounts or perform any of its covenants herein agreed to be paid or performed in all material respects, and such failure continues beyond any applicable cure periods set forth in this Lease with respect thereto, Landlord may, but shall not be required to, make such payment or perform such covenants, and all sums so expended by Landlord thereon shall immediately be payable by Tenant to Landlord, with interest thereon, at a rate (the “ Default Rate ”) equal to the lesser of: (a) five percent (5%) per annum or (b) the maximum rate permitted by law, from date thereof until paid, and in addition, Tenant shall reimburse Landlord for Landlord’s reasonable expenses in enforcing or performing such covenants, including reasonable attorney’s fees. Any such costs or expenses incurred or payments made by Landlord shall be payable by Tenant and collectible as such by Landlord.

9.2 Performance of, and/or payment made, to discharge said Tenant’s obligations shall be optional with Landlord and such performance and payment shall in no way constitute a waiver of, or a limitation upon, Landlord’s other rights hereunder.

9.3 Tenant hereby acknowledges and agrees that any Mortgagee/Underlying Lessor shall have the right but not the obligation to perform any covenants and pay any amounts that Tenant has failed to perform or pay as required under the terms of this Lease but only to the extent Landlord would be entitled to do so hereunder and such Mortgagee/Underlying Lessor is entitled under the terms of its Mortgage/Underlying Lease.

ARTICLE 10 REPAIRS AND MAINTENANCE; CASUALTY

10.1 Throughout the Term, Tenant, at its sole cost and expense, will keep and maintain, or cause to be kept and maintained, the Leased Property (including without limitation the sidewalks, alleyways, passageways, vacant land, parking spaces, curb cuts, and curbs adjoining the Demised Premises) in good order and condition (ordinary wear and tear excepted subject to Tenant’s obligation to repair and replace the same in accordance with the terms of this Lease) without waste, and Tenant will make or cause to be made, as and when the same shall become necessary, all structural and nonstructural, exterior and interior, replacing, repairing and restoring necessary to comply with the above requirements. All replacing, repairing and restoring required of Tenant shall be new and (in the reasonable opinion of Landlord), to the extent reasonably available, of equivalent quality to the property being repaired or replaced, and shall be in compliance with all standards and requirements of law, licenses and municipal ordinances necessary to operate the Demised Premises as Medicaid and Medicare certified skilled nursing facilities, or as a licensed RCFE, as applicable, with each Facility having no less than the number of licensed Medicare and Medicaid certified beds, or licensed RCFE beds, as the case may be, required under this Lease. Subject to Section 10.6 , any items of Personal Property that are needed to operate the Facility for the primary intended use in a manner consistent with Tenant’s historical standards of patient care and that are uneconomical to repair shall be replaced by new items or newly refurbished items that, to the extent reasonably available, are of equivalent quality to the Personal Property being repaired or replaced and in good working order, and all replacement items shall become part of the Personal Property.

10.2 Beginning as of the commencement of the third (3 ^rd ) Lease Year, Tenant shall establish and maintain in effect throughout the remainder of the Term hereof a cash reserve (the “ Replacement Reserve ”) funded by Tenant and held by Tenant in a cash account on its books and records in an amount equal to Five Hundred and No/100 Dollars ($500.00) per licensed bed for each Facility, and which shall be available to Tenant for payment of costs and expenses associated with capital improvements, repairs and replacements of every kind and nature to be performed at the Facility. All amounts utilized by Tenants from the Replacement Reserve shall be replenished by Tenants on an annual basis.

10.3 Following the third (3 ^rd ) Lease Year, upon Landlord’s request (but no more often than once every three (3) Lease Years), Tenant shall cause to be prepared and delivered to Landlord by Partner Engineering and Science, Inc., or an alternative qualified independent engineering firm reasonably acceptable to both Landlord and Tenant, a property condition assessment report with regard to the physical condition of each of the Facilities. Such reports

shall be at the sole cost and expense of Tenant, up to a maximum of Five Thousand and No/100 Dollars per Facility. Any material “immediate repair” or life/safety property deficiencies identified in any such reports shall be promptly remedied by and at the sole cost of Tenant in compliance with the provisions of this Lease.

10.4 Reserved.

10.5 In the event that any part of the improvements located on the Demised Premises or the Personal Property shall be damaged or destroyed by fire or other casualty (any such event being called a “ Casualty ”), Tenant shall promptly and with all due diligence, but in any event on or before one (1) year after the date of such Casualty, subject to Force Majeure Delays and Landlord Delays, replace, repair and restore the same as nearly as possible to the condition it was in immediately prior to such Casualty, in accordance with all of the terms, covenants and conditions and other applicable requirements of this Lease and any Mortgage/Underlying Lease in the event of such Casualty, whether or not the insurance proceeds or other compensation are sufficient to pay the cost of such restoration and repair. The Demised Premises and the Personal Property shall be so replaced, repaired and restored as to be of substantially the same character as prior to such Casualty. Tenant shall submit to Landlord for Landlord’s prior written approval plans and specifications for any such restoring, replacing or repairing, and Tenant shall immediately select an independent architect reasonably approved by Landlord and any Mortgagee/Underlying Lessor, who shall be in charge of such repairing, restoring and replacing. Without limitation of Landlord’s rights hereunder, there shall be the following additional conditions precedent to any disbursement of insurance proceeds: (i) at the time of each and every disbursement there shall exist no Event of Default under this Lease, and (ii) that Landlord and Mortgagee/Underlying Lessor, if applicable, shall have reasonably approved all plans and specifications for any proposed repair or restoration. Tenant covenants that it will give to Landlord prompt written notice of any material Casualty affecting the Leased Property.

10.6 Provided that there shall not exist an Event of Default under this Lease, Tenant shall have the right, at any time and from time to time, to remove and dispose of any Personal Property that may have become obsolete or unfit for use, or that is no longer useful in the operation of the business at the Demised Premises. Notwithstanding the foregoing, to the extent necessary for Tenant to conduct its business in compliance with this Lease and maintain Tenant’s historical standards of patient care, Tenant shall promptly replace Personal Property removed or disposed of pursuant to the immediately preceding sentence with other personal property (“ Replacement Personal Property ”), which shall be free of any security interest, lien or encumbrance, other than office equipment leasing/licensing and/or financing agreements entered into by Tenant in its ordinary course of business, and any other liens, encumbrances and grants of security interests permitted under this Lease. Said Replacement Personal Property shall be of the same character and at least equal usefulness and quality to the Personal Property so removed or disposed of and such Replacement Personal Property shall automatically become the property of and shall belong to Landlord, and Tenant shall execute such bills of sale or other documents reasonably requested in writing by Landlord to vest the ownership of such Personal Property in Landlord. Notwithstanding anything to the contrary in this Lease, there shall be no abatement or other adjustment of Base Rent as a result of such Casualty.

ARTICLE 11 ALTERATIONS AND DEMOLITION

11.1 Tenant will not remove or demolish any improvement or building that is part of the Demised Premises or any portion thereof or allow it to be removed or demolished, without the prior written consent of Landlord. Tenant further agrees that it will not make, authorize or permit to be made any changes or alterations in or to the Demised Premises without first obtaining Landlord’s written consent thereto. As used herein, the term “changes or alterations” shall not include any alteration to any Facility costing less than Three Hundred Thousand and 00/100 ($300,000.00), routine maintenance, upkeep or upgrades, such as painting, wallpapering, installation of flooring, installation or replacement of building systems and controls (including, without limitation HVAC and generator systems and controls), roof repair or replacement, non-structural upgrades, upgrades and changes required to comply with applicable law or the orders of any governmental agency having jurisdiction of the Demised Premises, and similar changes. All alterations, improvements and additions to the Demised Premises shall be of first-class quality and in good working order, in the reasonable opinion of Landlord, and shall become the property of Landlord and shall meet all building and fire codes, and all other applicable codes, rules, regulations, laws and ordinances.

ARTICLE 12 COMPLIANCE WITH LAWS AND ORDINANCES

12.1 Throughout the Term, Tenant, at its sole cost and expense, will obey, observe and promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of any federal, state and municipal governmental agency or authority having jurisdiction over all or any portion of the Leased Property and the use and operation thereof as Medicaid and Medicare certified skilled nursing facilities, that may be applicable to the Leased Property and including, but not limited to, the sidewalks, alleyways, passageways, vacant land, parking spaces, curb cuts, curbs adjoining the Demised Premises, whether or not such laws, ordinances, orders, rules, regulations or requirements shall necessitate structural changes or improvements.

12.2 Tenant shall likewise observe and comply with the requirements of all policies of public liability and fire insurance and all other policies of insurance at any time in force with respect to the Leased Property or any portion thereof.

12.3 Tenant shall promptly apply for and procure and keep in good standing and in full force and effect all necessary licenses, permits, provider agreements and certifications required by any governmental authority for the purpose of maintaining and operating Medicaid and Medicare certified skilled nursing facilities and an RCFE, as set forth in the recitals to this Lease, in full compliance with all the rules and regulations and minimum standards applicable thereto, as prescribed by the State of California and such other governmental authorities having jurisdiction thereof, each Facility having no less than the number of licensed Medicare and Medicaid certified beds, or licensed RCFE beds, as the case may be, as set forth in the recitals of this Lease for such Facility. Notwithstanding anything in this Lease to the contrary, but subject to the terms and conditions of Section 10.5 (regarding casualty) and Article 15 (regarding condemnation), Tenant shall have the right, exercisable in its reasonable discretion, to voluntarily de-certify or take out of service any licensed bed at the Facilities in accordance with applicable law and for customary and prudent business purposes, and such de-certification or removal shall in no event be deemed a Tenant default or breach under this Lease provided Tenant obtains Landlord’s written consent (not to be unreasonably withheld, conditioned or

delayed) before voluntarily de-certifying any bed for reasons other than compliance with the requirements of applicable regulatory authorities or compliance with Tenant’s other obligations under this Lease.

12.4 Within ten (10) business days of receipt, Tenant will deliver or mail to Landlord, to the address and in the manner as provided herein for the giving of notices, (i) copies of all annual license renewals and annual surveys and, (ii) any other inspection reports, surveys and administrative hearings and/or court actions from any state, federal or local governmental body that identify a material noncompliance with law at any of the Facility Properties. Tenant shall notify Landlord within five (5) business days after receipt thereof of any notice from any governmental agency terminating or suspending or threatening termination or suspension, of any license, permit, provider agreement or certification relating to the Leased Property and shall provide a copy of the same to Landlord.

ARTICLE 13 DISCHARGE OF LIENS

13.1 Subject to ARTICLE 19 and except for any lien, charge or encumbrance expressly permitted hereunder, Tenant will not create or permit to be created or to remain, and Tenant will discharge, any lien, encumbrance or charge levied on account of any mechanic’s, laborer’s or materialman’s lien or any conditional sale, security agreement or chattel mortgage, or otherwise, that might be or become a lien, encumbrance or charge upon the Leased Property or any part thereof or the income therefrom, for work or materials or personal property furnished or supplied to, or claimed to have been supplied to or at the request of Tenant.

13.2 If any such lien, encumbrance or charge is created upon the Demised Premises or any part thereof and Tenant is not then contesting the same pursuant to ARTICLE 19, then in addition to any other right or remedy, Landlord may, upon ten (10) days’ notice, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by processing the discharge of such lien by deposit or by bonding proceedings. Any amount so paid by Landlord and all costs and expenses incurred by Landlord in connection therewith, together with interest thereon at the Default Rate, shall be payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand. Except as herein provided, nothing contained herein shall in any way empower Tenant to do or suffer any act that can, may or shall cloud or encumber Landlord’s or any Mortgagee/Underlying Lessor’s interest in the Demised Premises.

ARTICLE 14 INSPECTIONS OF DEMISED PREMISES BY LANDLORD

14.1 At any time during reasonable business hours, Landlord and/or its authorized representative shall have the right to enter the Demised Premises and inspect the Leased Property; provided that Tenant shall be entitled to reasonable prior notice of any such entry or inspection (which notice may be oral) except in the event of an emergency or in an Event of Default is then continuing under this Lease in which case no notice shall be necessary.

14.2 Landlord agrees that the person or persons entering the Demised Premises and inspecting the Leased Property pursuant to Section 14.1 above will cause as little inconvenience to Tenant as may reasonably be possible under the circumstances and that any such entry shall be subject, in all respects, to the rights of the residents of the Facility.

14.3 Tenant hereby acknowledges and agrees that any Mortgagee/Underlying Lessor shall have the right but not the obligation to enter the Demised Premises and inspect the Leased Property to the extent such Mortgagee/Underlying Lessor is entitled to do so under the terms of its Mortgage/Underlying Lease, subject to the other provisions of this ARTICLE 14 .

ARTICLE 15 CONDEMNATION

15.1 In the event any entire Facility Property, or such portion thereof that renders the Facility not able to be operated for its primary intended use in compliance with this Lease, shall be taken, sold or transferred under the notice or threat of such taking for any public use by act of any public authority (hereinafter referred to as a “ Taking ”), then this Lease shall terminate with respect to such Facility Property as of the date of such Taking. Upon such termination, the Base Rent shall be reduced by an amount equal to (i) the Base Rent immediately prior to the date of notice of such Taking, multiplied by (ii) the ratio of the Normalized Cash Flow (as defined below) attributable to such Facility Property for the twelve month period immediately prior to such Taking to the aggregate amount of Normalized Cash Flow attributable to all of the Facilities for the twelve month period immediately prior to such Taking, unless there is only one Facility Property subject to this Lease in which case this Lease will terminate. The termination of this Lease as to any Facility Property due to a Taking is the result of circumstances beyond the control of Landlord and Tenant and the parties hereto affirm that, except for such specific isolated situation, this Lease is intended to be a single indivisible lease. All damages awarded for such Taking under the power of eminent domain shall be the property of Landlord, whether such damages shall be awarded as compensation for diminution in value of the leasehold or the fee of the Facility Property. Tenant shall be entitled, if provided by law, to pursue and receive a separate award from the condemning authority for loss of Tenant’s interest in the Facility Property, but only if the award to which Landlord would have otherwise been entitled had Tenant not received or participated in such award, is not diminished thereby, directly or indirectly, and, further, in no event shall Tenant be entitled to an apportionment of any condemnation award or settlement that Landlord would have been entitled to receive with respect to such Taking but for the above provision and Tenant hereby assigns to Landlord any and all right, title and interest Tenant may have in any and all such awards or settlements. As used herein, “ Normalized Cash Flow ” shall mean for any applicable period the net income from the operation of the Demised Premises plus to the extent deducted in determining such net income, interest expense, income tax expense, depreciation expense, amortization expense and Base Rent expense for the Demised Premises, less capital expenditures for the previous twelve (12) month period; provided, however, for purposes of determining Normalized Cash Flow, and irrespective of the actual management fees paid by Tenant, it shall be assumed that the management fees shall not exceed five percent (5%) of the gross revenues from the operation of the Demised Premises.

15.2 In the event of a partial Taking of a Facility Property that is not subject to the provisions of Section 15.1 , Landlord shall have the option (i) to terminate this Lease with respect to such Facility Property as of the date of such Taking in which case the Base Rent shall be adjusted as provided in Section 15.1 of this Lease or (ii) Landlord shall hold in trust that portion, if any, of such award, settlement or compromise that shall be allocable to consequential damage to buildings and improvements not taken, and Landlord shall pay out such portion to Tenant to reimburse Tenant for the cost of restoring the Facility Property as a complete structural unit, as

such restoration work progresses in accordance with the procedure for making insurance proceeds available for restoration, repair or rebuilding as set forth in Articles 9 and 11. Landlord shall be entitled to retain any excess portion of such award, settlement or compromise. Tenant shall be entitled, if provided by law, to pursue and receive a separate award from the condemning authority for loss of Tenant’s interest in the Facility Property, but only if the award to which Landlord would have otherwise been entitled had Tenant not received or participated in such award, is not diminished thereby, directly or indirectly, and, further, in no event shall Tenant be entitled to an apportionment of any condemnation award or settlement that Landlord would have been entitled to receive with respect to such Taking but for the above provision and Tenant hereby assigns to Landlord any and all right, title and interest Tenant may have in any and all such awards or settlements. In the event of a partial condemnation that does not result in any termination of this Lease with respect to a Facility Property, the monthly Base Rent payable under Section 4.1 hereof shall be proportionally adjusted based upon (A) the number of licensed and certified beds lost to the number of licensed and certified beds authorized in such Facility Property immediately prior to the Taking and/or (B) the effect on the operations conducted at the applicable Facility as a result of such Taking.

ARTICLE 16 RENT ABSOLUTE

16.1 The Leased Property is leased to Tenant in an “AS IS, WHERE IS” condition, subject to the rights of any parties in possession thereof, the state of the title thereof as of the date Landlord acquired title from its seller, any state of facts that an accurate survey or physical inspection thereof might show, and to all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction thereover. Tenant has examined the Leased Property and has found the same satisfactory. Tenant acknowledges that the Leased Property is the property of Landlord and that Tenant has the leasehold rights as set forth in the terms and conditions of this Lease. Pursuant to Section 1938 of the California Civil Code, Landlord hereby advises Tenant that as of the date of this Lease the Demised Premises have not undergone inspection by a Certified Access Specialist. If and to the extent not prohibited by applicable laws, Tenant hereby waives any right Tenant may have to receive information concerning the energy performance of the Facilities pursuant to California Public Resources Code Section 25402.10 and the regulations adopted pursuant thereto (collectively the “Energy Disclosure Requirements”). Tenant further acknowledges that pursuant to the Energy Disclosure Requirements, Landlord may be required in the future to disclose certain information concerning Tenant’s energy usage (the “Tenant Energy Use Disclosures”) to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Facilities. Upon Landlord’s written request, Tenant agrees to cooperate with Landlord on a commercially reasonable basis in providing any Tenant Energy Use Disclosures required to be delivered by Landlord under applicable laws.

16.2 As a material inducement to Landlord in the making of and entry into this Lease, Tenant hereby expressly agrees as follows:

(a) It is the responsibility of Tenant to be fully acquainted with the nature, in all respects, of the Leased Property, including (but not by way of limitation); the soil and geology thereof, the waters thereof and thereunder; the drainage thereof; the manner of construction and the condition and state of repair and lack of repair of all improvements of every nature; the nature, provisions and effect of all health, fire, zoning, building, subdivision and all other use and occupancy laws, ordinances, and regulations applicable thereto; and the nature and extent of the rights of others with respect thereto, whether by way of reversion, easement, right of way, prescription, adverse possession, profit, servitude, lease, tenancy, lien, encumbrance, license, contract, reservation, condition, right of re-entry, possibility of reverter, sufferance or otherwise. Landlord makes no representation as to, and has no duty to be informed with respect to, any of the matters set forth in the preceding sentence. Tenant hereby accepts the Leased Property as suitable and adequate in all respects for the conduct of the business and the uses of the Leased Property as contemplated under the provisions of this Lease.

(b) Tenant expressly covenants and agrees that it hereby takes this Lease and the leasehold estate hereby established upon and subject to Landlord’s title as it was acquired from its seller (but subject to Landlord’s covenant of quiet enjoyment in Section 30.1 hereof), including all rights, rights of way, easements, profits, servitudes, reservations, restrictions, conditions, exceptions, reversions, possibilities of reverter, liens, encumbrances, occupancies, tenancies, licenses, clouds, claims and defects, known and unknown and whether of record or not.

(c) Tenant hereby expressly waives any and all rights that it might have against Landlord by reason of any of the foregoing, including (but not limited to) the requirements of any inspection or examination by Tenant of the Leased Property except to the extent caused by Landlord’s gross negligence or willful misconduct.

16.3 Notwithstanding anything to the contrary contained in this Lease, but subject to the terms and conditions of Article 8 (regarding insurance), Section 10.5 (regarding casualty) and Article 15 (regarding condemnation), provided that an Event of Default with respect to the applicable Facility is not then continuing, Tenant shall have the right to terminate this Lease with respect to any Facility that suffers a Termination Event. For all purposes of this Lease, a “ Termination Event ” shall mean an event (other than a Casualty of the type covered by the insurance required under Section 8 hereof, and other than a Taking) that (i) was not caused by the negligence, willful misconduct or violation of any applicable law on the part of Tenant or any of Tenant’s employees, agents, contractors or invitees, and (ii) to Tenant’s Knowledge, after reasonable inquiry and inspection by qualified personnel, did not occur or exist with respect to the applicable Facility at any time prior to the date hereof, by which Tenant is unconditionally prevented or precluded from procuring or maintaining all material licenses, permits, provider agreements and certifications required by any governmental authority for the operation of such Facility as a Medicaid and Medicare certified skilled nursing facility or as an RCFE, as applicable and as set forth in the recitals to this Lease. For elimination of doubt, if, as the result of a Termination Event, Tenant’s maintenance, repair or restoration obligations under this Lease with respect to a Facility have become either impossible to perform or could only be performed at a cost that is in excess of an amount equal to (A) ten percent (10%) of the Adjusted Purchase Price (as defined below) of such Facility, or (B) One Million Dollars ($1,000,000.00), whichever is greater, then Tenant’s failure to so perform such maintenance, repair or restoration obligations shall in no event constitute or be deemed an Event of Default. For the purposes hereof, “ Adjusted Purchase Price ” means, with respect to any Facility, the amount of the Purchase Price allocated to such Facility on Exhibit A of the Purchase Agreement, increased by a

percentage equal to the percentage increase in the Consumer Price Index since the Commencement Date. Such termination right, if exercised by Tenant, shall take effect with respect to the applicable affected Facility on the date which is thirty (30) days following delivery of a written termination notice to Landlord. Upon the termination of this Lease with respect to any Facility pursuant to this Section 16.3 , the parties shall execute a mutually acceptable amendment to this Lease in order to document the elimination of the applicable Facility from the Demised Premises and document the other modifications to the terms of this Lease which are reasonably necessitated by the elimination of the applicable Facility from the Demised Premises, including the permanent abatement of Base Rent in the manner provided in Section 15.1 of this Lease and of the other amounts payable hereunder allocable to such Facility.

16.4 Subject to Section 16.3 above, Tenant shall continue to pay Base Rent and to perform its obligations under this Lease even if Tenant claims that Landlord has breached any obligation under this Lease or that Tenant has been damaged by any act or omission of Landlord. Therefore, except as otherwise provided in this Lease, Tenant shall at all times remain obligated to fully and faithfully pay and perform all its obligations under this Lease, without any right of set-off, counterclaim, abatement, deduction, or any other reduction. Tenant’s sole right to recover damages against Landlord by reason of a breach or alleged breach of Landlord’s obligations under this Lease shall be to pursue, prove and subsequently be awarded by a court of competent jurisdiction a judgment for such damages in a separate action against Landlord.

ARTICLE 17 ASSIGNMENT AND SUBLETTING

17.1 Except for Permitted Transfers, Tenant shall not, without the prior written consent of Landlord, which may be withheld in the sole discretion of Landlord, assign this Lease or in any manner whatsoever sublet, assign, sell, pledge, encumber or transfer all or any part of the Leased Property or any interest in the Leased Property or enter into any management or other similar agreement pursuant to which a party shall undertake responsibility for the management and operation of the Leased Property or any portion thereof. Further, and except for Permitted Transfers, Tenant shall not cause or permit any sale, transfer, pledge, assignment or encumbrance of any ownership interest or voting rights in Tenant whether voluntarily, involuntarily, by operation of law or otherwise, and any such act or occurrence shall be deemed to be an assignment of this Lease, and shall require Landlord’s prior written consent, which may be withheld in the sole discretion of Landlord. Any violation or breach or attempted violation or breach of the provisions of this Article by Tenant, or any acts inconsistent herewith shall vest no right, title or interest herein or hereunder or in the Leased Property, in any such transferee or assignee, and any such violation, breach or attempted violation or breach shall constitute an Event of Default hereunder permitting Landlord to terminate this Lease or to exercise any of its other remedies in accordance with the provisions of Article 21 herein without any right of Tenant to cure the same. As used herein, a “ Permitted Transfer ” shall mean any (a) liens, pledges, encumbrances and security interests granted to Guarantor’s or Tenant’s secured lenders under the A/R Credit Facility or any LG Parent Credit Facility expressly permitted under the Lease Guaranty; (b) ordinary and customary subleases or license agreements to providers of services at any Facility (such as therapy providers, beauty salons, convenience stores or banks/ATMs); (c) resident licenses and agreements with residents and patients of each Facility; and (d) any sale, assignment, subletting, transfer, pledge or encumbrance of any direct or indirect ownership interest in any entity comprising Tenant or in Guarantor to the extent expressly permitted under

Section 9 of the Lease Guaranty, and (e) any assignment by Tenant of its entire leasehold interest under this Lease, as part of a sale of all or substantially all of the assets of Tenant, to any one (1) or more third party(ies) approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.

ARTICLE 18 EVENTS OF DEFAULT

18.1 The occurrence of any of the following acts or events, beyond any applicable cure period and subject to any applicable notice requirement, shall constitute an “ Event of Default ” on the part of Tenant:

(a) The failure of Tenant to pay when due any payment of Base Rent, or any part thereof, or any other sum or sums of money due or payable to Landlord under the provisions of this Lease, and such failure continues for five (5) business days after Landlord gives Tenant written notice thereof specifying the amount, nature and due date of the same; provided, that Landlord shall not be required to send notice of non-payment of monthly Base Rent for more than two (2) months within any twelve (12) month time period, and any failure to pay any subsequent installment of monthly Base Rent within five (5) days of the date when due during said twelve (12) month period shall be an Event of Default.

(b) The failure on the part of Tenant for two (2) consecutive calendar quarters to comply with the financial covenant contained in Section 30.1 of this Lease;

(c) The failure on the part of Tenant to maintain in effect any of the insurance policies required to be maintained by Tenant under this Lease;

(d) Any unauthorized assignment, subletting or transfer of Tenant’s interest under this Lease as a result of non-compliance with the provisions of Section 17.1 (Assignment and Subletting) of this Lease;

(e) The failure of Tenant to comply with, or the violation by Tenant of, any of the terms, conditions or provisions of any Mortgage/Underlying Lease which Tenant has received, after notice thereof by Landlord to Tenant if such failure or violation shall not be cured prior to the expiration of any or all applicable cure periods set forth in any such Mortgage/Underlying Lease;

(f) The failure of Tenant to give any notices pursuant to clause (i) of the first sentence of Section 12.4 of this Lease within ten (10) days after demand by Landlord;

(g) The failure of Tenant to timely give any material notices pursuant to clause (ii) of the first sentence of Section 12.4 of this Lease within ten (10) business days of the date when due;

(h) The failure of Tenant to perform or comply in any material respect with any other term or provision of this Lease not requiring the payment of money, including, without limitation, the failure to comply in any material respect with the provisions hereof pertaining to the use, operation and maintenance of the Demised Premises; provided, however, if the default described in this paragraph is curable same shall be deemed cured, if: (a) within three (3)

business days of Tenant’s receipt of a notice of default from Landlord, Tenant gives Landlord notice of its intent to cure such default; and (b) Tenant cures such default within thirty (30) days after such notice from Landlord, unless such default cannot with the exercise of diligent efforts be cured within a period of thirty (30) days because of the nature of the default or delays beyond the control of Tenant, in which case such default shall not constitute an Event of Default if Tenant uses its best efforts to cure such default by promptly commencing and diligently pursuing such cure to the completion thereof, provided, further however, no cure period for such default shall continue for more than one hundred eighty (180) days from Tenant’s receipt of a notice of default from Landlord without Landlord’s written consent, which Landlord may grant or withhold in its sole discretion following Landlord’s commercially reasonable efforts to confer with Tenant in good faith regarding the same;

(i) Subject to the provisions of ARTICLE 19, any local, state or federal agency having jurisdiction over the operation of any Facility orders the removal of ten percent (10%) or more of the patients located in any such Facility as a result of the gross negligence or willful misconduct of Tenant or Tenant’s violation of applicable law;

(j) Subject to the provisions of ARTICLE 19, the voluntary transfer by Tenant of ten percent (10%) or more of the patients located in any Facility and such transfer is not at the patients’ request or for reasons relating to the health and well being or the acuity of required care of the patients that were transferred;

(k) The making by Tenant or Guarantor of an assignment for the benefit of creditors;

(l) The levying of a writ of execution or attachment on or against the property of Tenant or Guarantor that is not discharged or stayed by action of Tenant or Guarantor contesting same, within thirty (30) days after such levy or attachment (provided if the stay is vacated or ended, this paragraph shall again apply);

(m) If proceedings are instituted in a court of competent jurisdiction for the reorganization, liquidation or involuntary dissolution of Tenant or Guarantor for its adjudication as a bankrupt or insolvent, or for the appointment of a receiver of the property of Tenant or Guarantor, and said proceedings are not dismissed and any receiver, trustee or liquidator appointed therein is not discharged within ninety (90) days after the institution of said proceedings;

(n) Subject to the provisions of ARTICLE 17 , the sale of any interest of Tenant in the Demised Premises or portion thereof under a writ of execution;

(o) Subject to the provisions of ARTICLE 19, the failure on the part of Tenant during the Term to cure or abate or receive a waiver for any violation claimed by any governmental authority, or any officer acting on behalf thereof, of any law, order, ordinance, rule or regulation pertaining to the operation of any Facility, including without limitation, any proceedings to revoke any license granted to Tenant for the operation of a Medicaid and Medicare certified skilled nursing facility at any Facility Property or to decertify any Facility Property from participation in the Medicare or Medicaid reimbursement programs, prior to the expiration of any time period permitted by such authority for such cure or abatement, in each case, subject to Tenant’s right to contest the same in accordance with ARTICLE 19 herein;

(p) Except as otherwise permitted under this Lease, the abandonment of the Demised Premises, or any material portion thereof, by Tenant;

(q) The final, non-appealable termination of the right to receive Medicaid or Medicare reimbursements based upon any actual or alleged fraud, misfeasance or malfeasance;

(r) The failure to pay in due course when due any Medicaid or Medicare recoupments or any other impositions, including, but not limited to bed taxes, in connection with the provider agreements, certifications or licenses for the Demised Premises, subject to Tenant’s right to contest the same in accordance with Article 20 herein;

(s) The failure of the Guarantor to perform, or the violation by the Guarantor of any of the covenants of the Lease Guaranty beyond any notice and cure periods set forth therein or any representations or warranties by Guarantor under the Lease Guaranty shall prove to have been false in any material respect when made;

(t) The occurrence of an Event of Default under the A/R Credit Facility or the LG Parent Credit Facility as the result of a failure to pay any scheduled installment of principal or interest thereunder that remains uncured beyond any applicable notice and cure periods, or the acceleration of all indebtedness under the A/R Credit Facility or the LG Parent Credit Facility following the occurrence of any Event of Default thereunder; or

(u) The occurrence of any material default on the part of any Tenant under any material agreement of such Tenant with respect to the Demised Premises which has not been cured (directly or by entering into an alternative written agreement that is substantially similar in nature, scope and economics) within any applicable notice and cure period. For purposes of the immediately preceding sentence, a “material agreement” shall be deemed to mean any written agreement under which a material uncured Event of Default by Tenant would reasonably be expected to have a material adverse effect on Tenant’s ability to conduct its business in compliance with this Lease and maintain Tenant’s historical standards of patient care.

ARTICLE 19 RIGHT TO CONTEST

19.1 Notwithstanding anything contained herein to the contrary, Tenant shall have the right upon written notice thereof to Landlord, to contest by appropriate legal proceedings, diligently conducted in good faith, the validity or application of any lien, encumbrance, tax, imposition, law, regulation or rule mentioned herein, and to delay compliance therewith pending the prosecution of such proceedings; provided, however, that (a) no civil or criminal liability would thereby be incurred by Landlord or any successor operator of all or any portion of the Demised Premises and no lien or charge would thereby be imposed upon or satisfied out of the Leased Property or any portion thereof, (b) the effectiveness and good standing of any licenses, certificates, permits or provider agreements affecting the Demised Premises or any portion thereof or the nursing home operated at any Facility Property would continue in full force and effect during the period of such contest, and is cured not less than thirty (30) days prior to the date set forth for revocation, withdrawal or cancellation of any such licenses, certificates, permits or provider agreements, and (c) Tenant satisfies any and all applicable requirements of any Mortgage/Underlying Lease.

ARTICLE 20 LANDLORD’S REMEDIES UPON DEFAULT

20.1 In the event of any Event of Default on the part of Tenant, Landlord may, if it so elects, and provided a Proper Successor (as defined in Section 31.5 ) has been designated, upon ten (10) days written notice to Tenant, forthwith either (i) terminate this Lease and Tenant’s right to possession of the Leased Property; or (ii) terminate Tenant’s right to possession of the Leased Property without terminating this Lease. Upon any such termination of this Lease, or upon any such termination of Tenant’s right to possession without termination of this Lease, Tenant shall vacate the Demised Premises immediately, and shall quietly and peaceably deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Demised Premises in such event with or without process of law and to repossess the Leased Property as Landlord’s former estate. In the event of any such termination of this Lease, Landlord shall again have possession and enjoyment of the Leased Property to the extent and as if this Lease had not been made, and thereupon the lease of the Leased Property and everything herein contained on the part of Tenant to be done and performed in connection therewith shall cease and terminate, all, however, without prejudice to and without relinquishing the rights of Landlord to Base Rent (which, upon such termination of this Lease and entry of Landlord upon the Demised Premises or any portion thereof, shall, subject to applicable law, be the right to receive Base Rent due up to the time of such entry) or any other right given to Landlord hereunder or by operation of law.

20.2 In the event Landlord elects either to terminate this Lease or to terminate Tenant’s right to possession of the Leased Property upon the occurrence of an Event of Default, then all licenses, certifications, permits and authorizations issued by any governmental agency, body or authority in connection with or relating to the Facilities shall be deemed as being assigned to Landlord to the extent permissible under United States or California law. Landlord shall also have the right to continue to utilize the telephone numbers and facility names used by Tenant in connection with the operation of the Facilities but not any name, mark or brand of Guarantor or its affiliates. To the extent permissible under United States and California law, this Lease shall be deemed and construed as an assignment for purposes of vesting in Landlord all right, title and interest in and to (i) all licenses, certifications, permits and authorizations obtained in connection with the Facilities and (ii) the facility names and telephone numbers used in connection with the Facilities. Tenant hereby agrees to take such other action and execute such other documents as may be necessary in order to vest in Landlord all right, title and interest to the items specified herein.

20.3 If Tenant abandons the Demised Premises or otherwise entitles Landlord so to elect, and Landlord elects, to terminate only Tenant’s right to possession of the Leased Property without terminating this Lease, Landlord may, at its option, enter into the Demised Premises, remove Tenant’s signs and other evidence of tenancy and take and hold possession thereof as provided in the foregoing Section 20.1 of this Article, without such entry and possession terminating this Lease or releasing Tenant, in whole or in part, from Tenant’s obligation to pay the Base Rent hereunder for the full remaining Term, and in any such case, subject to applicable law, Tenant shall pay to Landlord a sum equal to the entire amount of the Base Rent reserved

hereunder and required to be paid by Tenant up to the time of such termination of the right of possession plus any other sums then due hereunder. Upon and after entry into possession without termination of this Lease, Landlord may attempt to relet the Leased Property for the account of Tenant for such Base Rent, or shall operate the Facilities for such time and upon such terms as Landlord in its discretion shall determine. In any such case, Landlord may make repairs in or to the Demised Premises, and redecorate the same to the extent reasonably required in connection with the reletting of the Demised Premises, and subject to applicable law, Tenant shall, upon demand, pay the reasonable cost thereof, together with Landlord’s reasonable expenses of reletting. If the consideration payable to Landlord upon any such reletting is not sufficient to pay monthly the full amount of Base Rent reserved in this Lease, together with the reasonable costs of repairs and redecorating and Landlord’s expenses, then, subject to applicable law, Tenant shall pay to Landlord the amount of each monthly deficiency upon demand.

20.4 Subject to applicable law, Tenant’s liability to Landlord for damages for default in payment of Base Rent or otherwise hereunder shall in all events survive the termination by Landlord of this Lease or the termination by Landlord of Tenant’s right to possession only of the Leased Property as hereinabove provided. Subject to applicable law, upon any such termination of this Lease or at any time after such termination of Tenant’s right to possession, Landlord may recover from Tenant and Tenant shall pay to Landlord as liquidated and final damages, whether or not Landlord shall have collected any current monthly deficiencies under the foregoing paragraph, and in lieu of such current deficiencies after the date of demand for such final damages, the amount thereof found to be due by a court of competent jurisdiction, which amount thus found may be equal to:

(a) the remainder, if any, of Base Rent charges due from Tenant for the period up to and including the date of the termination of this Lease or Tenant’s right to possession; and

(b) the amount of any current monthly deficiencies accruing and unpaid by Tenant up to and including the date of Landlord’s demand for final damages hereunder; and

(c) the Base Rent reserved for what would have been the remainder of the Term with respect to the Demised Premises together with charges to be paid by Tenant under this Lease.

If any statute or rule governing a proceeding in which such liquidated final damages are to be proved shall validly limit the amount thereof to an amount less than the amount above agreed upon, Landlord shall be entitled to seek the maximum amount allowable under such statute or rule of law. Nothing contained in this Lease shall relieve Landlord, to any extent, of any requirement for Landlord to mitigate its damages to extent required by applicable law.

ARTICLE 21 CUMULATIVE REMEDIES OF LANDLORD

21.1 The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provision or provisions of this Lease. The failure of Landlord to insist, in any one or more cases, upon the strict performance of any of the terms, covenants, conditions, provisions or agreements of this Lease, or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of any such term, covenant, condition, provisions, agreement or option.

ARTICLE 22 SECURITY FOR RENT

22.1 Landlord shall have a first lien paramount to all others (except any Mortgage/Underlying Lease, any lien or security interest under the A/R Credit Facility, the LG Parent Credit Facility, any other financial accommodation expressly permitted under the Lease Guaranty, any other title exception, matter or disclosure appearing in the title insurance policies obtained by Lender in connection with its acquisition of the Demised Premises, and any other lien permitted under Section 30.2 ) on every right and interest of Tenant in and to this Lease, and, subject to the provisions of Article 17 and the provisions of the Lease Guaranty, on any furnishings, equipment, fixtures, accounts receivable, certificates of need, licenses, provider agreements, certifications, books, records and other property of any kind belonging to Tenant and used in connection with this Lease or located at the Demised Premises. Such lien is granted for the purpose of securing the payments of Base Rent, charges, penalties, and damages herein covenanted to be paid by Tenant, and for the purpose of securing the performance of all of Tenant’s obligations under this Lease. Such lien shall be in addition to all rights to Landlord given and provided by law. Subject to the foregoing, this Lease shall constitute a security agreement under the Uniform Commercial Code granting Landlord a security interest in any furnishings, equipment, fixtures, accounts receivable, certificates of need, licenses, provider agreements, certifications, books, records and other personal property of any kind belonging to Tenant, and Tenant shall execute such other instruments and financing statements as Landlord may request to evidence or perfect said security interest. As a condition to Landlord’s subordination of its lien and security interests hereunder to the lien or security interests of any lender under the A/R Credit Facility, the LG Parent Credit Facility or any other financial accommodation permitted under the Lease Guaranty, Tenant shall cause the applicable lender to provide to Landlord a subordination and intercreditor agreement in form and substance reasonably acceptable to Landlord.

ARTICLE 23 INDEMNIFICATION

23.1 To the extent insurance proceeds do not cover same, Tenant agrees to protect, indemnify, save harmless and defend Landlord and its members, managers, officers, agents, employees and any affiliates of the forgoing (each of the forgoing being, collectively, the “ Landlord Parties ” and, individually, a “ Landlord Party ”) from and against any and all claims, demands and causes of action of any nature whatsoever, including, without limitation, for injury to or death of persons or loss of or damage to property, occurring at the Demised Premises, or on any sidewalks adjoining the Demised Premises, or in any manner growing out of or connected with the use and occupation of the Demised Premises or the condition thereof, or the operation of Tenant’s business on the Demised Premises, or the use of any existing or future sewer system, or the use of any such adjoining sidewalks during the Term, and Tenant further agrees to pay any reasonable attorneys’ fees and expenses incident to the defense by Landlord of any such claims, demands or causes of action. Notwithstanding anything to the contrary contained herein, Tenant shall not be required to protect, defend, save harmless or indemnify Landlord of any Landlord Parties from any liability for injury, loss, accident or damage to any

person resulting from any gross negligent acts or omissions or willful misconduct on the part of Landlord or any Landlord Parties, and Landlord hereby indemnifies and agrees to protect, defend and hold Tenant and its members, managers, officers, agents, employees and any affiliates of the forgoing (collectively, the “Tenant Parties” and, individually, a “ Tenant Party ”) harmless from and against Indemnified Claims arising out of Landlord’s or any Landlord Party’s grossly negligent acts or omissions or willful misconduct. Such exclusion from Tenant’s indemnity and such agreement by Landlord to so indemnify and hold Tenant harmless are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease to the extent that such policies cover (or, if such policies would have been carried as required, would have covered) the result of grossly negligent acts or omissions or willful misconduct of Landlord Parties; provided, however, the provisions of this sentence shall in no way be construed to imply the availability of any double or duplicate coverage. Landlord’s and Tenant’s indemnification obligations hereunder may or may not be coverable by insurance, but the failure of either Landlord or Tenant to carry insurance covering the indemnification obligation shall not limit their indemnity obligations hereunder.

ARTICLE 24 SUBORDINATION PROVISIONS

24.1 This Lease (and Tenant’s interest in the Leased Property) shall be subject and subordinate to any and all mortgages, deeds of trust, ground leases or leases now or hereafter in force and affecting the Demised Premises (or any portion thereof) and/or Personal Property, and to all renewals, modifications, consolidations, replacements and extensions thereof (any such mortgage, deed of trust, ground lease or lease as it may be renewed, modified, consolidated, replaced and extended is hereinafter referred to as “ a Mortgage/Underlying Lease ” or “ any such Mortgage/Underlying Lease ”, and the holder or beneficiary of a Mortgage/Underlying Lease is hereinafter referred to as a “ Mortgagee/Underlying Lessor ”). Tenant agrees to execute and deliver upon demand such further instruments subordinating this Lease to any such Mortgage/Underlying Lease, or other liens or encumbrances as shall be desired by Landlord; provided, that Landlord shall deliver to Tenant a subordination, nondisturbance and attornment executed by any such Mortgagee/Underlying Lessor, in form reasonably satisfactory to Tenant and such Mortgagee/Underlying Lessor. Tenant agrees further that any Mortgagee/Underlying Lessor shall have the right to subordinate its Mortgage/Underlying Lease and its rights thereunder to this Lease, except that such Mortgagee/Underlying Lessor shall be entitled to expressly exclude from such subordination the Mortgagee/Underlying Lessor’s rights, if any, to insurance proceeds and eminent domain awards in the event of a loss or casualty or eminent domain taking of the Leased Property, or any portion thereof. If such Mortgagee/Underlying Lessor executes and records an instrument that purports to effect a partial or complete subordination of its Mortgage/Underlying Lease to this Lease, this Lease shall not be terminated by a foreclosure of such Mortgage/Underlying Lease, but any rights of such Mortgagee/Underlying Lessor to insurance proceeds or eminent domain awards that are expressly excluded from such subordination shall remain superior to the rights of Tenant.

24.2 During the existence of any Event of Default on the part of Tenant under this Lease that remains uncured beyond any applicable notice and cure period, all fees, payments or other obligations of Tenant to Guarantor or to any of the members of Guarantor in excess of a 3% management fee shall be subordinate to the prior payment in full of all obligations owing to Landlord under this Lease.

24.3 The provisions of this Article 24 shall not be deemed or construed to limit Tenant’s and Guarantor’s rights, and the benefits to Tenant and Guarantor, under Articles 17 and 22 and of this Lease and under the Lease Guaranty.

ARTICLE 25 TENANT’S FAITHFUL COMPLIANCE WITH

MORTGAGE/UNDERLYING LEASE

25.1 Anything in this Lease contained to the contrary notwithstanding, Tenant shall at all times and in all respects fully, timely and faithfully comply with and observe each and all of the conditions, covenants, and provisions required on the part of Landlord under any Mortgage/Underlying Lease to which this Lease is subordinate or to which it later may become subordinate, to the extent a copy of which has been provided to Tenant, including, without limitation, such conditions, covenants and provisions of such Mortgage/Underlying Lease that relate to the care, maintenance, repair, insurance, restoration, preservation and condemnation of the Demised Premises, provided that such conditions, covenants and provisions do not require compliance and observance to a standard or degree materially in excess of that required by the provisions of this Lease, and Tenant shall not do or permit to be done anything that would constitute a breach of or default under any obligation of Landlord under any Mortgage/Underlying Lease. However, nothing in this Article contained shall be construed to obligate Tenant, except as may otherwise be provided in this Lease, to pay any Base Rent due or part of the principal or interest secured by any Mortgage/Underlying Lease. Tenant further covenants and agrees as follows: (a) if requested by Landlord in writing, Tenant shall give any Mortgagee/Underlying Lessor notice of any Landlord default that occurs under this Lease, (b) Tenant shall not terminate this Lease as a result of Landlord’s default, without giving such Mortgagee/Underlying Lessor written notice of Landlord’s default under this Lease at the same time that Landlord is given notice of such default, and (c) if Landlord fails to cure such default within the applicable grace period, if any, contained in this Lease, such Mortgagee/Underlying Lessor shall have thirty (30) days after notice thereof to cure any such default.

ARTICLE 26 MORTGAGE/UNDERLYING LEASE RESERVES

26.1 Any tax, insurance, or other reasonable reserve required during the Term by any Mortgagee/Underlying Lessor shall be paid by Tenant to Landlord. At the expiration or other termination of the Term of this Lease, Landlord shall account for and return to Tenant the remaining balance of all such deposits and reserves. Tenant shall not be responsible for the payment of any such reserve in amounts in excess of the corresponding amounts required to be paid under this Lease.

ARTICLE 27 TENANT’S ATTORNMENT

27.1 Tenant covenants and agrees that, if by reason of a default upon the part of Landlord herein in the performance of any of the terms and conditions of any Mortgage/Underlying Lease, and the estate of Landlord thereunder is terminated by summary dispossession proceedings or otherwise, and provided Tenant’s tenancy is not disturbed, Tenant will attorn to the then Mortgagee/Underlying Lessor or the purchaser in such foreclosure proceedings, as the case may be, and will recognize such Mortgagee/Underlying Lessor or such purchaser as the lessor under this Lease. Tenant covenants and agrees to execute and deliver, at

any time and from time to time, upon the written request of Landlord or of any Mortgagee/Underlying Lessor or the purchaser in foreclosure proceedings, any instrument that may be necessary or appropriate to evidence such attornment. Tenant further waives the provisions of any statute or rule of law now or hereafter in effect that may terminate this Lease or give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Demised Premises in the event any such proceedings are brought against Landlord under such Mortgage/Underlying Lease or by any Mortgagee/Underlying Lessor, and agrees that this Lease shall not be affected in any way whatsoever by any such proceedings.

ARTICLE 28 REPRESENTATIONS AND WARRANTIES

28.1 Tenant represents, warrants and covenants to Landlord as follows:

(a) Each Tenant is a limited liability company duly organized and validly existing and in good standing and qualified to do business in the State of California.

(b) Each Tenant has the full right and power to enter into and perform Tenant’s obligations under this Lease, and has taken all requisite company action to authorize the execution, delivery and performance of this Lease.

28.2 Landlord represents, warrants and covenants to Tenant as follows:

(a) Each Landlord is a limited liability company duly organized and validly existing and in good standing and qualified to do business in the State of Delaware.

(b) Each Landlord has the full right and power to enter into and perform Landlord’s obligations under this Lease, and has taken all requisite company action to authorize the execution, delivery and performance of this Lease.

ARTICLE 29 STATEMENTS AND REPORTS

29.1 Within one hundred twenty (120) days after the end of each of its fiscal years, each Tenant shall furnish to Landlord a full and complete financial statement of such Tenant and the operations of the Facility operated by such Tenant for such annual fiscal period, which financial statement shall be prepared by Tenant in accordance with generally accepted accounting principles consistently applied, and certified to Landlord and any Mortgagee/Underlying Lessor by a qualified officer, manager or partner of Tenant having knowledge of the financial condition of Tenant and the methodology by which such annual financial statement was prepared, and which statement shall contain a balance sheet and detailed income and expense statement (collectively called “ Financial Statements ”) as of the end of the fiscal year.

29.2 Within forty-five (45) days after each calendar month during the Term, each Tenant shall furnish to Landlord a Financial Statement and a detailed census report for the Facility operated by such Tenant for the preceding calendar month.

29.3 Upon Landlord’s written request as to any Facility, but not more than one time per calendar quarter as to such Facility, an aged accounts receivable report of such Facility in sufficient detail to show amounts due in the account age classification of 30 days, 60 days, 90 days, 120 days and over 120 days, within ten (10) days of such request. Such reports shall be prepared in substantially the same form as those prepared by Tenant for any applicable accounts receivable lender or senior secured credit facility lender.

29.4 All Medicare and Medicaid cost reports and any amendments thereto filed or received with respect to any Facility and all responses, audit reports, correspondence or inquiries with respect to such cost reports, within ten (10) days after Landlord’s written request therefor.

At all times, Tenant shall keep and maintain full and correct records and books of account of the operations of Tenant at the Demised Premises and records and books of account of the entire business operations of Tenant in accordance with sound accounting practices. Upon the written request by Landlord following an Event of Default, Tenant shall make available for inspection by Landlord or its designee not more than once per Lease Year (except that such limitation shall not apply after the occurrence of an Event of Default), during reasonable business hours, said records and books of account covering the entire business operations of Tenant at the Demised Premises. In the event Landlord determines in its reasonable opinion that the Financial Statements may contain a material discrepancy, error or misrepresentation, Landlord shall have the right from time to time to cause a Certified Public Accountant to audit any Financial Statements and said records and books of account. To the extent that such audit confirms a material discrepancy (i.e. in excess of seven percent (7%), error or misrepresentation, the reasonable costs of such audit shall be at Tenant’s expense.

ARTICLE 30 ADDITIONAL COVENANTS

30.1 Tenant covenants and agrees that, as of the last day of the first (1 ^st ) calendar quarter after the fifth (5 ^th ) Lease Year, and as of the last day of each calendar quarter thereafter, the ratio of EBITDAR to Base Rent as maintained by Tenant (in the aggregate) for the twelve (12) month period then ended shall be not less than 1.20 to 1.0. For purposes of this Section 30.1 , “ EBITDAR ” will be defined as EBITDARM reduced by a management fee equal to an assumed three percent (3%) of the net revenue of Tenant.

30.2 Each Tenant covenants and agrees that, except for (i) sales and replacements in the ordinary course of business, (ii) removal of assets not deemed reasonably necessary to conduct the business of Tenant and maintain Tenant’s historical standards of patient care, (iii) security interests related to capital or equipment leases or licenses, and (iv) security interests granted in connection with any A/R Credit Facility and/or LG Parent Credit Facility permitted pursuant to the Lease Guaranty, each Tenant shall maintain sole ownership of its assets free and clear of all liens and encumbrances.

ARTICLE 31 MISCELLANEOUS

31.1 Tenant, upon paying the Base Rent and all other charges herein provided, and for observing and keeping the covenants, agreements, terms and conditions of this Lease on its part to be performed, shall lawfully and quietly hold, occupy and enjoy the Demised Premises during the Term, and subject to its terms, without hindrance by Landlord or by any other person or persons claiming under Landlord.

31.2 It is understood and agreed that the granting of any consent by Landlord to Tenant to perform any act of Tenant requiring Landlord’s consent under the terms of this Lease, or the failure on the part of Landlord to object to any such action taken by Tenant without Landlord’s consent, shall not be deemed a waiver by Landlord of its rights to require such consent for any further similar act by Tenant, and Tenant hereby expressly covenants and warrants that as to all matters requiring Landlord’s consent under the terms of this Lease, Tenant shall secure such consent for each and every happening of the event requiring such consent, and shall not claim any waiver on the part of Landlord of the requirement to secure such consent.

31.3 Reserved.

31.4 If an action shall be brought by Landlord to recover any rental under this Lease, or for or on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Lease, or for the recovery of possession of the Demised Premises, or otherwise, the prevailing party shall be entitled to recover from the other, as part of its costs, reasonable attorney’s fees.

31.5 Should Tenant hold possession hereunder after the expiration of the Term without the consent of Landlord, Tenant shall become a tenant on a month-to-month basis upon all the terms, covenants and conditions herein specified, excepting however that Tenant shall pay Landlord a monthly rental, for the period of such month-to-month tenancy, in an amount equal to 125% of the last Base Rent specified. Notwithstanding the foregoing or anything contained in Article 32 or elsewhere in this Lease, if Tenant is unable to surrender the Demised Premises because Landlord fails to provide a Proper Successor (as defined below) for the Facility at the end of the Lease Term to take over the operation and management of the Facility, Tenant shall have the right, but shall not be obligated to, remain in possession of the Demised Premises and continue to operate and manage the same if Tenant would be legally prohibited from abandoning the Demised Premises or in Tenant’s judgment, based on reasonable commercial standards in the nursing facility industry, abandoning the Demised Premises without a Proper Successor in place to continue the operations of the Facility would jeopardize its (or its affiliates’ or subsidiaries’) reputation as a provider of nursing facility care or could otherwise subject it (or its affiliates or subsidiaries) to liability for negligence or mistreatment of residents at the Demised Premises. In the event Tenant remains in possession of the Demised Premises pursuant to the immediately preceding sentence, Tenant shall, during such occupancy, pay to Landlord rent at a rate equal to the annual Base Rent payable by Tenant in the last year of the Lease Term, and Tenant shall surrender possession of the Demised Premises within ten (10) business days after Landlord provides a Proper Successor for the Facility. As used herein, “ Proper Successor ” means a qualified and duly licensed operator of the Facility, or one as to which the applicable state licensing authority has indicated its willingness to issue a License upon transfer of possession of the Facility.

31.6 Except as otherwise specifically permitted herein, all notices, or demands required to be given by either party to the other shall be in writing and shall be sent by (a) personal delivery, (b) expedited delivery service with proof of delivery, (c) United States registered/certified mail, return receipt requested, (d) nationwide courier guaranteeing overnight delivery, such as Federal Express or United Parcel Service, or (e) so long as concurrently sent by the foregoing method (a) or (b), prepaid telecopy, telegram, telex or fax, addressed to the other party hereto at the address set forth below:


If to Landlord:	c/o MedEquities Realty Trust, Inc.
	3100 West End Avenue, Suite 1000
	Nashville, TN 37203
	Attention: William C. Harlan, President
	Telephone:	(615) 34-7826
	Fax No.:
	E-mail: wharlan@medequities.com

with copy (which shall not constitute notice) to:

	Michael S. Blass, Esq.
	Arent Fox LLP
	1675 Broadway, 34th Floor
	New York, NY 10019
	Telephone:	(212) 484-3902
	Fax No.: (212) 484-3990
	E-mail:	michael.blass@arentfox.com

If to Tenant:	c/o Life Generations Healthcare, LLC
	20371 Irvine Avenue, Suite 210
	Newport Beach, CA 92660
	Attention: Thomas Olds, Jr., President and CEO
	Telephone:	(7140 241-5600
	Fax No.:
	E-mail:	tolds@lifegen.net

with a copy (which shall not constitute notice) to:

	O’Melveny & Myers LLP
	610 Newport Center Drive
	Suite 1700
	Newport Beach, CA 92660
	Attention: Mark Peterson, Esq.
	Telephone:	(949) 823-6971
	Fax No.: (949) 823-6994
	E-mail: mpeterson@omm.com

	and

	Sherry Meyerhoff Hanson & Crance LLP
	610 Newport Center Drive
	Suite 1200
	Newport Beach, California 92660


		Attention: Frank Crance, Esq.
		Telephone: (949) 719-1200
		Fax No.: (949) 719-1212
		Email: fcrance@calawyers.com

or if written notification of a change of address has been sent, to such other party and/or to such other address as may be designated in that written notification. Any such notice or demand shall be deemed to have been given either at the time of personal delivery or in the case of service by mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telecopy, telegram or telex, upon receipt. Notwithstanding the foregoing, notice sent by telecopy shall be deemed given and effective when sent if and only if a PDF copy of any such notice is also e-mailed immediately to the intended recipients at the e-mail addresses noted above or to such other e-mail addresses as may be designated in a written notification of a change of address.

31.7 Upon demand by either party, Landlord and Tenant agree to execute and deliver a short form lease in recordable form so that the same may be recorded by either party.

31.8 Each party agrees at any time and from time to time, upon not less than ten (10) business days prior written request from the other party, to execute, acknowledge and deliver to the other party a statement in writing, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified, and stating the modifications), the dates to which the Base Rent has been paid, the amount of the Base Rent, and whether , to such party’s knowledge, this Lease is then in default or whether any events have occurred that, with the giving of notice or the passage of time, or both, could constitute a default hereunder and any and all other information reasonably required by the requesting party or its Mortgagee/Underlying Lessor; it being intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective assignee, Mortgagee/Underlying Lessor or purchaser of the fee interest in the Demised Premises or of this Lease.

31.9 All of the provisions of this Lease shall be deemed and construed to be “conditions” and “covenants” as though the words specifically expressing or importing covenants and conditions were used in each separate provision hereof.

31.10 Any reference herein to the termination of this Lease shall be deemed to include any termination hereof by expiration or pursuant to the provisions hereof referring to early termination.

31.11 The headings and titles in this Lease are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease, nor in any way affect this Lease.

31.12 This Lease contains the entire agreement between the parties and any executory agreement hereafter made shall be ineffective to change, modify or discharge it in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification or discharge is sought. This Lease cannot be changed orally or terminated orally.

31.13 Except as otherwise herein expressly provided, the covenants, conditions and agreements in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns.

31.14 All nouns and pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons, firm or firms, corporation or corporations, entity or entities or any other thing or things may require.

31.15 This Lease is made pursuant to, and will be construed and enforced in accordance with, the Laws of the State of California, irrespective of the principal place of business, residence or domicile of the parties hereto, and without giving effect to otherwise applicable principles of conflicts of law that would give effect to the laws of another jurisdiction. Each party hereto irrevocably submits to the exclusive jurisdiction of the State of California and the exclusive venue of the County of Orange in the State of California for purposes of any proceeding arising out of this Lease. Each of the parties hereto hereby waives, and agrees not to assert in any such dispute, in each case to the fullest extent permitted by applicable law, any claim that (a) such party is not personally subject to the jurisdiction and venue of such courts, (b) such party and such party’s property is immune from any legal process issued by such courts or (c) any proceeding commenced in such courts is brought in an inconvenient forum.

31.16 If any term or provision of this Lease shall be held invalid or unenforceable to any extent, the remaining terms and provisions of this Lease shall not be affected thereby, and each term and provision shall be valid and enforceable to the fullest extent permitted by law.

31.17 This Lease may be executed in counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one and the same instrument. Counterparts may be executed in either original or electronically transmitted form (e.g., faxed or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

31.18 If either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, governmental moratorium or other governmental action or inaction (including, without limitation, failure, refusal or delay in issuing permits, approvals and/or authorizations), injunction or court order, riots, insurrection, war, terrorism, bioterrorism, fire, earthquake, inclement weather including rain, flood or other natural disaster or other reason of a like nature not the fault of the party delaying in performing work or doing acts required under the terms of this Lease (but excluding delays due to financial inability) (“ Force Majeure Delay(s) ”), then performance of such act shall be excused for the period of such Force Majeure Delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay.

31.19 If Tenant shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of delays, acts or omissions on the part of Landlord or Landlord Parties (“ Landlord Delay(s) ”), then performance of such Tenant act shall be excused for the period of such Landlord Delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such Landlord Delay.

31.20 Regardless of any reference to the words “sole” or “absolute,” any time the consent of Landlord or Tenant is required, such consent shall not be unreasonably withheld, conditioned or delayed. Landlord and Tenant shall act reasonably and in good faith and take no action which might result in the frustration of the reasonable expectations of a sophisticated tenant or landlord concerning the benefits to be enjoyed under the Lease.

31.21 In the event that the Lease Guaranty terminates or is rendered of no further force or effect, the provisions thereof and definitions therein that are cross-referenced in this Lease shall be deemed to be incorporated herein to the extent necessary for the interpretation of the applicable Lease provision.

ARTICLE 32 TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE

32.1 Landlord and Tenant shall enter into a commercially reasonable operations transfer agreement and related documentation pursuant to which Tenant shall transfer to Landlord or Landlord’s designee all licenses, permits, certifications, accreditations, provider agreements, certificates of need, certificates of exemption, approvals, waivers, variances and other governmental or “quasi-governmental” authorizations necessary or advisable for the use of the Demised Premises for their primary intended use at the expiration or earlier termination of this Lease.

ARTICLE 33 HAZARDOUS SUBSTANCES

33.1 Tenant shall not install or permit to be installed in the Leased Property, any asbestos or asbestos-containing materials, nor install, permit to be installed, generate, transport, store, treat or dispose of, at the Leased Property any asbestos or any substance containing asbestos or hazardous substance (as hereinafter defined). Except with respect to any hazardous substance or condition that existed at or with respect to the Leased Property as of the Commencement Date, Tenant shall promptly either: (a) remove or remediate any such hazardous substance or condition; or (b) otherwise comply with such federal, state or local laws, rules, regulations or orders, in all such events at Tenant’s sole expense, and provide evidence thereof that is satisfactory to Landlord. If Tenant shall fail to so remove or otherwise comply, Landlord may, after notice to Tenant and the expiration of the earlier of (i) the applicable cure period hereunder or (ii) the cure period permitted under the applicable law, rule, regulation or order, either declare this Lease to be in default or do whatever is necessary to remove or remediate said hazardous substance(s) or condition(s) from the Leased Property or otherwise comply with the applicable law, rule, regulation or order, and Landlord’s costs and expenses in respect thereof shall be due and payable upon demand. In the event that Tenant does not comply with its obligations hereunder, Tenant shall give to Landlord and its agents and employees access to the Leased Property for purposes of removing or remediating said asbestos or other hazardous substance(s) or condition(s) and conducting appropriate tests for the purpose of ascertaining compliance with the terms hereof. Tenant shall promptly provide Landlord copies of all material communications, permits or agreements with any governmental authority or agency (federal, state or local) or any private entity relating in any way to any hazardous substance or condition.

33.2 For purposes of this ARTICLE 33 “hazardous substance” means any material, chemical, compound or other substance defined or regulated as a hazardous toxic or dangerous substance, waste, pollutant or material, or otherwise giving rise to liability, under the Resource Conservation and Recovery Act (“ RCRA ”), 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act (“ CERCLA ”), 52 U.S.C. Section 9601 et seq. or any other federal, state or local law, ordinance or regulation relating to the protection of public health or safety, the environment or natural resources, including without limitation any common law theory based on nuisance or strict liability (collectively, the “ Environmental Laws ”).

33.3 Except as reasonably necessary for or consistent with the permitted use of the Leased Property, Tenant shall not conduct or authorize the generation, transportation, storage, treatment or disposal at the Leased Property of any hazardous substance, without prior written authorization by Landlord, and Tenant’s failure to comply with the foregoing prohibition shall constitute a default under this Lease.

33.4 Except with respect to any hazardous substance or condition that existed at or with respect to the Leased Property as of the Commencement Date, if the presence, release, threat of release or placement on or in the Leased Property, or the generation, transportation, storage, treatment or disposal at the Leased Property of any hazardous substance: (i) gives rise to liability (including, but not limited to, a response action, remedial action or removal action) under any of the Environmental Laws, (ii) poses a significant threat to public health or safety, or (iii) pollutes or threatens to pollute the environment, then Tenant shall promptly take any and all remedial and removal action necessary to eliminate such liability, threat to public health or safety or pollution, as the case may be, and take all actions to mitigate to the maximum extent possible, liability arising from the hazardous substance, whether or not required by law.

33.5 Tenant shall defend (with counsel reasonably satisfactory to Landlord), indemnify the Landlord Parties and hold the Landlord Parties harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys’ fees and costs incurred in the investigation, defense and settlement of claims) that any Landlord Party may incur as a result of or in connection with (a) the assertion against any Landlord Party of any claim relating to the presence or removal of any asbestos or other hazardous substance at the Leased Property that did not exist at or with respect to the Leased Property as of the Commencement Date, or (b) failure of the Leased Property or any portion of the Leased Property to comply with any and all Environmental Laws (except with respect to conditions that existed at or with respect to the Leased Property as of the Commencement Date), or (c) the breach by Tenant of any of its covenants contained in this ARTICLE 33 . The foregoing indemnity shall survive the expiration or termination of this Lease.

ARTICLE 34 LIMITATION OF LANDLORD’S LIABILITY

34.1 In the event of any conveyance or other divestiture of title to the Leased Property the grantor or the person who is divested of title shall be entirely freed and relieved of all covenants and obligations thereafter accruing hereunder, and the grantee or the person who otherwise succeeds to title shall be deemed to have assumed the covenants and obligations of Landlord thereafter accruing hereunder and shall then be Landlord under this Lease. Notwithstanding anything to the contrary provided in this Lease, if Landlord or any successor in interest of Landlord shall be an individual, partnership, limited liability company, corporation, trust, tenant in common or mortgagee, there shall be absolutely no personal, corporate or entity liability on the part of such Landlord or any individual or member of Landlord or any manager, stockholder, director, officer, employee, partner or trustee of Landlord with respect to the terms, covenants or conditions of this Lease, and Tenant shall look solely to the interest of Landlord in the Leased Property for the satisfaction of each and every remedy that Tenant may have for the breach of this Lease; such exculpation from personal, corporate or entity liability to be absolute and without any exception, whatsoever. Anything to the contrary notwithstanding, under no circumstances shall any personal liability attach to or be imposed upon any partners, officers, directors, managers, members, agents or employees of Landlord.

ARTICLE 35 REPLACEMENT PROPERTIES

35.1 Tenant may request that any Leased Property be severed from the Leased Properties demised pursuant to the terms of this Lease and another property be substituted in its place; provided that, notwithstanding anything in this Lease to the contrary, any such request shall be subject to Landlord’s approval in its sole but reasonable discretion. In order to request any such substitution, Tenant shall submit a written request to Landlord, which request shall be accompanied with monthly profit and loss amounts for such Leased Property for the twenty-four (24) month period prior to the date of the request and such other financial and business information as shall be reasonably requested by Landlord. In addition, Tenant shall identify one (1) proposed property for consideration by Landlord as the potential substitution for the Leased Property sought to be severed from this Lease. Tenant shall provide Landlord with financial information regarding such proposed property, a current appraisal for such proposed property, together with such additional information as Landlord shall reasonably request in order for it to be provided with a full and complete understanding of the financial condition of the operations, physical condition and environmental condition of such proposed substitute property.

[SIGNATURE PAGE FOLLOWS THIS PAGE]

IN WITNESS WHEREOF , the parties hereto have caused this Lease to be signed in Orange County, California by persons authorized so to do on behalf of each of them respectively the day and year first above written.


LANDLORD:

MRT of La Mesa CA – SNF, LLC,
a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
Print Name: Jeffery C. Walraven
Title: Executive Vice President, Chief
Financial Officer, Secretary and Treasurer

MRT of National City CA – SNF I, LLC, a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
Print Name: Jeffery C. Walraven
Title: Executive Vice President, Chief
Financial Officer, Secretary and Treasurer

MRT of National City CA – SNF II , LLC, a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
Print Name: Jeffery C. Walraven
Title: Executive Vice President, Chief
Financial Officer, Secretary and Treasurer

MRT of Upland CA – SNF/ALF, LLC, a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
Print Name: Jeffery C. Walraven
Title: Executive Vice President, Chief
Financial Officer, Secretary and Treasurer

[S IGNATURE P AGE TO M ASTER L EASE ]


TENANT:

GHC OF LA MESA, LLC,
a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF NATIONAL CITY II, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF NATIONAL CITY I, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

[S IGNATURE P AGE TO M ASTER L EASE ]


GHC OF UPLAND RCFE, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF UPLAND SNF, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

[S IGNATURE P AGE TO M ASTER L EASE ]

EXHIBIT “A-1”

LEGAL DESCRIPTION OF HERITAGE LAND

All that certain real property situated in the County of San Bernardino, State of California, described as follows:

All of Parcel 1 of Parcel Map No. 2298, in the City of Upland, County of San Bernardino, State of California, as per plat recorded in Book 22, Page 72 of Parcel Maps, Records of said County, and the Northerly 11.00 feet of Parcel 2 of Parcel Map No. 2298, measured parallel to the North line of said Parcel 2 of Parcel Map No. 2298, in the City of Upland, County of San Bernardino, State of California.

Said description is made pursuant to Lot Line Adjustment No. 90-03, recorded June 19, 1991 as Instrument No. 229481 of Official Records.

APNs: 1046-363-26 & 1046-363-28

A-1

EXHIBIT “A-2”

LEGAL DESCRIPTION OF FRIENDSHIP LAND

All that certain real property situated in the County of San Diego, State of California, described as follows:

THAT PORTION OF THE EASTERLY HALF OF 80 ACRE LOT 1 IN QUARTER SECTION 129 OF RANCHO DE LA NACION, IN THE CITY OF NATIONAL CITY, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO THE MAP NO. 166, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, MAY 11, 1869, DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHEASTERLY CORNER OF SAID QUARTER SECTION 129, BEING A POINT IN THE CENTER LINE OF A STREET 80.00 FEET WIDE;

THENCE ALONG THE NORTHERLY LINE OF SAID QUARTER SECTION 129, SOUTH 71° 50’ 49” WEST, 330.00 FEET;

THENCE AT RIGHT ANGLES SOUTH 18° 09’ 11” EAST 275.00 FEET TO THE TRUE POINT OF BEGINNING;

THENCE CONTINUING SOUTH 18° 09’ 11” EAST, 355.00 FEET;

THENCE AT RIGHT ANGLES NORTH 71° 50’ 49” EAST, 320.00 FEET TO THE WESTERLY LINE OF THE EASTERLY 10.00 FEET OF SAID QUARTER SECTION 129, BEING THE SOUTHWESTERLY CORNER OF THE LAND DESCRIBED IN DEED TO B. L. B. ENTERPRISES, RECORDED JUNE 21, 1971 AS INSTRUMENT NO. 130575 OF OFFICIAL RECORDS;

THENCE ALONG SAID WESTERLY LINE OF THE EASTERLY 10.00 FEET OF QUARTER SECTION 129, AND THE WESTERLY LINE OF SAID ENTERPRISES LAND AS FOLLOWS:

NORTH 18° 09’ 11” WEST (DEED - NORTH 18° 08’ 20” WEST) TO AN INTERSECTION WITH THE SOUTHWESTERLY LINE OF EUCLID AVENUE AS DESCRIBED IN DEED TO THE CITY OF NATIONAL CITY, RECORDED MAY 19, 1965 AS INSTRUMENT NO. 89706 OF OFFICIAL RECORDS;

THENCE NORTHWESTERLY ALONG SAID SOUTHWESTERLY LINE BEING ALONG THE ARC OF A NONTANGENT 540.00 FOOT RADIUS CURVE CONCAVE EASTERLY TO THE INTERSECTION OF A LINE WHICH BEARS NORTH 71° 50’ 49” EAST, FROM THE TRUE POINT OF BEGINNING;

THENCE ALONG SAID LINE SOUTH 71° 50’ 49” WEST TO THE TRUE POINT OF BEGINNING.

APN: 557-310-18

A-2

EXHIBIT “A-3”

LEGAL DESCRIPTION OF ARBOR HILLS LAND

All that certain real property situated in the County of San Diego, State of California, described as follows:

PARCEL 1:

LOTS 13 THROUGH 16 OF ALVARLAND TRACT, IN THE CITY OF LA MESA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP NO. 1949, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 28, 1926:

TOGETHER WITH THAT PORTION OF THE EASTERLY HALF OF BALTIMORE DRIVE, AS VACATED, ADJOINING SAID LOTS ON THE WEST.

ALSO TOGETHER WITH THAT PORTION OF THE WESTERLY HALF OF AZTEC DRIVE (FORMERLY MARYLAND AVENUE) AS VACATED, LYING EASTERLY OF AND ADJOINING SAID LOTS.

EXCEPTING THEREFROM THAT PORTION LYING SOUTHERLY OF THE FOLLOWING DESCRIBED LINE:

BEGINNING AT A POINT ON THE WESTERLY LINE OF SAID LOT 16, DISTANT THEREON, SOUTH 08° 16’ 05” EAST (RECORD - SOUTH 08° 16’ 00” EAST), 27.15 FEET FROM THE NORTHWEST CORNER OF SAID LOT 16; SAID POINT BEING THE BEGINNING OF A CURVE TANGENT TO SAID WESTERLY LINE, CONCAVE NORTHEASTERLY, HAVING A RADIUS OF 75.00 FEET; THENCE LEAVING SAID WESTERLY LINE, SOUTHERLY AND EASTERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 79° 15’ 56”, A DISTANCE OF 103.76 FEET; THENCE TANGENT TO SAID CURVE, SOUTH 87° 32’ 01” EAST, 127.92 FEET TO THE SOUTHEAST CORNER OF SAID LOT 16.

ALSO EXCEPTING THEREFROM THAT PORTION LYING SOUTHERLY OF THE FOLLOWING DESCRIBED LINE:

COMMENCING AT THE NORTHWESTERLY CORNER OF LOT 13 OF GERTRUDE MUNRO TRACT, ACCORDING TO MAP NO. 1426, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY;

THENCE SOUTH 08° 58’ 00” EAST, 59.16 FEET ALONG THE WESTERLY LINE OF SAID LOT 13 TO AN ANGLE POINT THEREIN; THENCE SOUTH 05° 04’ 00” WEST, 38.63 FEET TO A POINT ON THE ARC OF A 420.00 FOOT RADIUS CURVE, CONCAVE SOUTHEASTERLY, FROM WHICH POINT A RADIAL LINE BEARS SOUTH 31° 30’ 23” EAST SAID POINT BEING THE TRUE POINT OF BEGINNING;

A-3

THENCE LEAVING THE WESTERLY LINE, SOUTHWESTERLY ALONG THE ARC OF SAID 420.00 FOOT RADIUS CURVE THROUGH A CENTRAL ANGLE OF 06° 56’ 57”, A DISTANCE OF 50.94 FEET TO A POINT OF REVERSE CURVATURE WITH A 280.00 FOOT RADIUS CURVE, CONCAVE NORTHWESTERLY;

THENCE SOUTHWESTERLY ALONG THE ARC OF SAID 280.00 FOOT RADIUS CURVE TO THE WESTERLY LINE OF SAID BALTIMORE DRIVE.

PARCEL 2:

AN EASEMENT AND RIGHT OF WAY FOR INGRESS AND EGRESS AND DRIVEWAY PURPOSES, OVER AND ACROSS THAT PORTION OF LOT 1 OF LA MESA TRACT NO. 77-3A, IN THE CITY OF LA MESA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP NO. 9501, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, DECEMBER 21, 1979, DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHEAST CORNER OF SAID LOT 1; THENCE ALONG THE SOUTHERLY LINE THEREOF, WESTERLY ALONG THE ARC OF A 280 FOOT RADIUS CURVE, CONCAVE NORTHERLY THROUGH A CENTRAL ANGLE OF 3° 20’ 58”, 16.37 FEET TO THE BEGINNING OF A TANGENT 410.00 FOOT RADIUS REVERSE CURVE, CONCAVE SOUTHERLY; WESTERLY ALONG THE ARC OF SAID 410 RADIUS CURVE, THROUGH A CENTRAL ANGLE OF 2° 11’ 37”, 15.70 FEET; THENCE NORTH 8° 15’ 54” WEST, 406.18 FEET;

THENCE NORTH 81° 44’ 06” EAST, 25.00 FEET TO THE EASTERLY LINE OF SAID LOT 1;

THENCE SOUTHERLY ALONG SAID EASTERLY LINE TO THE POINT OF BEGINNING.

PARCEL 3:

LOTS 16 AND 17 OF ALVARLAND TRACT, IN THE CITY OF LA MESA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP NO. 1949, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 28, 1926;

TOGETHER WITH THAT PORTION OF THE EASTERLY HALF OF BALTIMORE DRIVE, AS VACATED, ADJOINING SAID LOTS ON THE WEST.

EXCEPTING THEREFROM THAT PORTION LYING NORTHERLY OF THE FOLLOWING DESCRIBED LINE:

A-3

THENCE TANGENT TO SAID CURVE, SOUTH 87° 32’ 01” EAST, 127.92 FEET TO THE SOUTHEAST CORNER OF SAID LOT 16.

ALSO EXCEPTING THEREFROM THAT PORTION LYING SOUTHERLY OF THE FOLLOWING DESCRIBED LINE:

COMMENCING AT THE NORTHWESTERLY CORNER OF LOT 13 OF GERTRUDE MUNRO TRACT, ACCORDING TO MAP NO. 1426, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY;

THENCE SOUTH 08° 58’ 00” EAST, 59.16 FEET ALONG THE WESTERLY LINE OF SAID LOT 13 TO AN ANGLE POINT THEREIN;

THENCE SOUTH 05° 04’ 00” WEST, 38.63 FEET TO A POINT ON THE ARC OF A 420.00 FOOT RADIUS CURVE, CONCAVE SOUTHEASTERLY, FROM WHICH POINT A RADIAL LINE BEARS SOUTH 31° 30’ 23” EAST SAID POINT BEING THE TRUE POINT OF BEGINNING;

THENCE SOUTHWESTERLY ALONG THE ARC OF SAID 280.00 FOOT RADIUS CURVE TO THE WESTERLY LINE OF SAID BALTIMORE DRIVE.

APN: 464-522-14

A-3

EXHIBIT “A-4”

LEGAL DESCRIPTION OF CASTLE MANOR LAND

All that certain real property situated in the County of San Diego, State of California, described as follows:

THE SOUTH HALF OF THE NORTH HALF OF THE WEST HALF OF THE EAST HALF OF THE EAST HALF OF 80 ACRE LOT 2, IN QUARTER SECTION 130 OF RANCHO DE LA NACION, IN THE CITY OF NATIONAL CITY, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP NO. 166, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY.

EXCEPTING THE EAST 75.00 FEET AND THE NORTH 30.00 FEET AND THE WEST 30.00 FEET, ACCORDING TO MAP NO. 166.

ALSO EXCEPTING THEREFROM THAT PORTION CONVEYED TO THE CITY OF NATIONAL CITY, A MUNICIPAL CORPORATION IN DEED RECORDED JUNE 30, 1986 AS INSTRUMENT NO. 86-267517 OF OFFICIAL RECORDS.

APN: 557-072-03

A-4

Exhibit 10.20

FIRST AMENDMENT TO MASTER LEASE

THIS FIRST AMENDMENT TO MASTER LEASE (this “ Amendment ”) is made and entered into this 1st day of October, 2015, by and among MRT of La Mesa CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II , LLC, MRT of Upland CA – SNF/ALF, LLC, and MRT of San Diego CA – SNF, LLC, each, a Delaware limited liability company (collectively, the “ Landlord ”), and GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC, GHC of Upland RCFE, LLC, and GHC of Kearny Mesa, LLC, each, a California limited liability company (collectively, the “ Tenant ”).

W I T N E S S E T H :

WHEREAS , MRT of La Mesa CA – SNF, LLC, MRT of National City CA – SNF I, LLC, MRT of National City CA – SNF II , LLC, and MRT of Upland CA – SNF/ALF, LLC (collectively, the “ Original Landlord ”), and GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC, and GHC of Upland RCFE (collectively, the “ Original Tenant ”), entered into that certain Master Lease, dated March 31, 2015 (the “ Master Lease ”), pursuant which Original Landlord leased four skilled nursing facilities and one residential care facility for the elderly located in California to Original Tenant, as more particularly described therein.

WHEREAS, pursuant to a Purchase and Sale Agreement, dated September 1, 2015 (as amended, the “ Kearny Mesa Purchase Agreement ”), between MRT of San Diego CA – SNF, LLC (the “ Kearny Mesa Landlord ”), and Kearny Mesa Real Estate, LLC, the Kearny Mesa Landlord has on this date purchased that certain tract of land located at 7675 Family Circle, San Diego, CA 92111, and more particularly described in Exhibit A attached hereto and made a part hereof (the “ Kearny Mesa Land ”), upon which there is located a nursing facility licensed for no less than 74 beds (all of which are both Medicaid and Medicare certified), and which facility is commonly known as Kearny Mesa Convalescent Nursing Home (the “ Kearny Mesa Facility ”);

WHEREAS, pursuant to the Kearny Mesa Purchase Agreement, Kearny Mesa Landlord also has purchased on the date hereof the furnishings, furniture, equipment and fixtures used in or about the Kearny Mesa Demised Premises (as hereinafter defined), including the property described in Exhibit B attached hereto and made a part hereof (hereinafter collectively referred to as the “ Kearny Mesa Personal Property ”). The “ Kearny Mesa Demised Premises ” means, collectively, the Kearny Mesa Land, the Kearny Mesa Facility, any other improvements now or hereafter located on the Kearny Mesa Land, and all easements, tenements, hereditaments and appurtenances thereto;

WHEREAS, Landlord and Tenant desire to amend the Master Lease to add the Kearny Mesa Demised Premises and the Kearny Mesa Personal Property (the “ Kearny Mesa Leased Property ”) to the Leased Property (as defined in the Master Lease), subject to the terms and conditions provided below; and

WHEREAS, all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Master Lease.

1.	Amendments to Master Lease . Effective as of the date hereof, the Master Lease is hereby amended as follows:

1.1

Defined Terms .

(a)

The term “Demised Premises” as used in the Master Lease is hereby amended to include the Kearny Mesa Demised Premises.

(b)

The term “Facilities” as used in the Master Lease is hereby amended to include the Kearny Mesa Facility.

(c)

The term “Land” as used in the Master Lease is hereby amended to include the Kearny Mesa Land.

(d)

The term “Landlord” as used in the Master Lease is hereby amended to include the Kearny Mesa Landlord.

(e)

The term “Leased Property” as used in the Master Lease is hereby amended to include the Kearny Mesa Leased Property.

(f)

The term “Personal Property” as used in the Master Lease is hereby amended to include the Kearny Mesa Personal Property.

(g)

The term “Purchase Agreement” as used in the Master Lease is hereby amended to include the Kearny Mesa Purchase Agreement.

(h)

The term “Tenant” as used in the Master Lease is hereby amended to include GHC of Kearny Mesa, LLC, a California limited liability company.

1.2

Base Rent . The first sentence in Section 4.1 of the Master Lease is hereby deleted in its entirety and substituted with the following:

“Tenant shall pay to Landlord rental (“Base Rent”) for the Demised Premises and the Personal Property, over and above all other and additional payments to be made by Tenant as provided in this Lease, in an amount per annum equal to (i) the sum of (A) the aggregate Purchase Price paid by Landlord for the Leased Property pursuant to the Purchase Agreement, plus (B) all Kearny Mesa Advances actually advanced, multiplied by (ii) eight and 75/100 percent (8.75%). Base Rent shall be adjusted as and when necessary to take into account any additional Kearny Mesa Advances and the total Purchase Price paid under the Purchase Agreement for the Leased Property, including, without limitation, any Earnout Amount (as defined in the Purchase Agreement) paid by Landlord under the Purchase Agreement.”

1.3

Decertifying Beds .

(a)

The last sentence in Section 2.1 of the Master Lease is hereby deleted in its entirety and substituted with the following:

“Notwithstanding anything to the contrary contained in this Lease, for purposes of this Lease, any bed that is voluntarily taken out of service or de-certified by Tenant in accordance with applicable law and for customary and prudent business purposes shall still be counted for purposes of the foregoing (and any similar) covenant contained herein provided that Tenant obtains Landlord’s written consent (not to be unreasonably withheld, conditioned or delayed) before voluntarily decertifying any bed for reasons other than compliance with the requirements of applicable regulatory authorities or compliance with Tenant’s other obligations under this Lease. Notwithstanding the foregoing, Landlord hereby acknowledges, agrees and consents to Tenant’s seeking the decertification of no more than 15 beds at the Kearny Mesa Facility, which such decertified beds are already reflected in the total number of licensed beds for the Kearny Mesa Facility set forth in this Lease of no less than 74 beds.”

(b)

The last sentence in Section 7.1 of the Master Lease is hereby deleted in its entirety and substituted with the following:

“Notwithstanding anything to the contrary contained in this Lease, for purposes of this Lease, any bed that is voluntarily taken out of service or de-certified by Tenant in accordance with applicable law and for customary and prudent business purposes shall still be counted for purposes of this Section 7.1, provided Tenant obtains Landlord’s written consent (not to be unreasonably withheld, conditioned or delayed) before voluntarily de-certifying any bed for reasons other than compliance with the requirements of applicable regulatory authorities or compliance with Tenant’s other obligations under this Lease. Notwithstanding the foregoing, Landlord hereby acknowledges, agrees and consents to Tenant’s seeking the decertification of no more than 15 beds at the Kearny Mesa Facility, which such decertified beds are already reflected in the total number of licensed beds for the Kearny Mesa Facility set forth in this Lease of no less than 74 beds.”

1.4

Kearny Mesa Advances . The following is hereby added to and made a part of the Master Lease as Article 36 thereof:

“ ARTICLE 36 KEARNY MESA ADVANCES

36.1 Landlord shall make available to Tenant a renovation fund (the “ Kearny Mesa Renovation Fund ”) not to exceed Two Million and no/100 Dollars ($2,000,000.00) in the aggregate for the hard and soft costs of certain renovations and improvements to be made by Tenant at or with respect to the Kearny Mesa Leased Property in accordance with this Article 36. The disbursements by Landlord to Tenant from the Kearny Mesa Renovation Fund are hereinafter referred to as the “ Kearny Mesa Advances ”.

36.2 In the event Tenant wishes to utilize any portion of the Kearny Mesa Renovation Fund, Tenant shall submit to Landlord a written request (each, a “ Work Proposal ”) describing in reasonable detail (i) the work to be performed, (the “ Work ”), (ii) the proposed budget for the Work, (iii) the estimated timeline for the performance and completion of the Work, and (iv) any governmental or other approvals required in connection with the Work. Within fifteen (15) calendar days following the date as of which the Work Proposal is deemed given hereunder, Landlord shall notify Tenant of any items contained in the Work Proposal that Landlord objects to in its professional judgment. Tenant and Landlord will in good faith discuss any open items in order to resolve expeditiously any disagreements as to the items to be included in the Work. Landlord and Tenant further agree that, notwithstanding the foregoing, the Work described on Schedule 36.2 to this Lease that has been or is in the process of being performed are hereby approved by Landlord and Tenant will be entitled to recover such amounts from the Kearny Mesa Renovation Fund.

36.3 Following mutual agreement of the Work Proposal, Tenant shall deliver to Landlord, for its review and reasonable approval, prior to the commencement of the Work and any disbursement of any part of the Kearny Mesa Renovation Fund, copies of all proposals, bids, contracts and subcontracts relating to the Work (collectively, the “ Construction Documents ”). Landlord’s review of the Construction Documents shall impose no responsibility or liability on Landlord, and shall not constitute a representation, warranty or guarantee by Landlord with respect to the completeness, design, sufficiency or compliance thereof with any applicable laws. Before each contractor or subcontractor enters onto the Kearny Mesa Demised Premises, Tenant shall obtain a certificate of insurance evidencing that such contractor or subcontractor is carrying general liability insurance with coverages, amounts and issued by an insurance company reasonably acceptable to Landlord. Tenant shall cause the Work to be constructed or installed in a good, workmanlike, diligent, and efficient manner, in accordance with good development standards for comparable skilled nursing facilities, and in substantial compliance with all applicable laws, and to be otherwise reasonably acceptable to Landlord. The terms of ARTICLE 13 shall be applicable to the Work and any liens arising therefrom or relating thereto. Tenant shall not, without Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) modify or amend, in any material respect, any of the Construction Documents. Except as otherwise provided in the Master Lease, all improvements and additions to the Kearny Mesa Leased Property as a result of the Work shall become a part of the Leased Property and shall belong to Landlord.

36.4 Prior to the expiration or earlier termination of the Master Lease, Tenant shall use commercially reasonable efforts to afford Landlord the nonexclusive benefit of Tenant’s right, title and interest in, to and under: (i) any of the Construction Documents; (ii) any warranties or guarantees provided under any of the Construction Documents or otherwise relating to any of the Work, and (iii) any claims or causes of action against one or more of the parties to any of the Construction Documents. Promptly after Landlord’s request delivered within sixty (60) days before or after the expiration or earlier termination of the Master Lease, Tenant shall, in one or more written agreements reasonably acceptable to Landlord, assign (to the extent assignable) to Landlord all of Tenant’s right, title and interest in, to and under: (i) any of the Construction Documents; (ii) any warranties or guarantees provided under any of the Construction Documents or otherwise relating to any of the Work, and (iii) any claims or causes of action against one or more of the parties to any of the Construction Documents.

36.5 Landlord’s obligation to make each disbursement of the Kearny Mesa Renovation Fund shall be conditioned upon Landlord’s receipt, review and reasonable approval of a completed disbursement request for payment, including, without limitation, architect’s or general contractor’s certificates, waivers of lien, contractor’s and subcontractor’s sworn statements, and other evidence of cost and payments as may be reasonably required by Landlord (each a “Disbursement Request” ). All Disbursement Requests (completed and with all required supporting documentation) must be submitted to Landlord within twelve (12) months following the date of this Amendment. Landlord shall, in Landlord’s sole and absolute discretion, remit payment to the contractor directly or to Tenant, each such remittance to be made within thirty (30) days of receipt of the applicable Disbursement Request; provided, however, Landlord shall remit directly to Tenant any amounts identified in such Disbursement Request, and reasonably evidenced to Landlord, as having been paid directly to such contractor by Tenant. It is understood that Landlord’s remittance of payment pursuant to any Disbursement Request shall not be conditioned upon Tenant’s prior payment of the subject invoice to the applicable vendor or contractor.

36.6 If the total costs in connection with the Work exceed the then remaining balance of the Kearny Mesa Renovation Fund, Tenant shall pay such excess costs when due; provided that to the extent such excess costs are known at any point during the design or implementation of the Work, Tenant and Landlord shall thereafter each contribute to each draw or payment in proportion to their respective total obligations with respect to the then remaining cost of the Work, as determined by Landlord is its reasonable discretion.

36.7 Tenant shall pay all reasonable and documented actual out-of-pocket costs and expenses incurred by Landlord or any of its affiliates in connection with the administration of the Kearny Mesa Renovation Fund and any Kearny Mesa Advances, including, without limitation, documentation and diligence fees and expenses, all search, audit, appraisal, recording, professional and filing fees and expenses, and all other actual and reasonable out-of-pocket

charges and expenses, including, without limitation, reasonable attorneys’ fees and expenses; provided, however, in no event shall Tenant’s reimbursement obligation under this Section 36.7 with respect to any Work exceed two and one-half percent (2.5%) of the amount budgeted for such Work, as contained in the agreed-upon Work Proposal for such Work.

36.8 Landlord and Tenant acknowledge that KeyBank National Association (“ KeyBank ”) is the administrative agent for certain lenders (the “ Lenders ”) which have provided a revolving credit facility (the “ Loan ”) to MedEquities Realty Operating Partnership, LP, the sole member of Kearny Mesa Landlord (“ Member ”), and the Agent and the Lenders have received as a part of the security for the loan a collateral assignment of all of the Member’s equity interests in Kearny Mesa Landlord (the “ Equity Pledge ”). Notwithstanding anything to the contrary contained in this Master Lease or any other agreements and documents entered into in connection herewith, Landlord and Tenant hereby agree that, in the event of any transfer of the Kearny Mesa Demised Premises (whether by foreclosure of the Equity Pledge, deed in lieu thereof or otherwise) to Agent, a Lender, any person or entity to whom the Loan or Equity Pledge has been assigned, in whole or in part, or any designee or nominee thereof (each, a “ Lender Party ”) or any subsequent transferee of a Lender Party, no Lender Party, nor any subsequent transferee of such Lender Party, shall be obligated to make any disbursement of the Kearny Mesa Disbursement Fund.

1.5

Exhibits .

(a)

Exhibit A of the Master Lease is hereby amended to include the legal description of the Kearny Mesa Land as set forth on Exhibit A attached to this Amendment.

(b)

Exhibit B of the Master Lease is hereby amended to include the Kearny Mesa Personal Property as described on Exhibit B attached to this Amendment.

(c)

Exhibit C of the Master Lease is hereby deleted and replaced in its entirety with Exhibit C attached to this Amendment.

References to Master Lease . The Master Lease and any and all other documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Master Lease are hereby amended so that any reference in the Master Lease or in such other documents to the “Master Lease” or to the “Lease” shall mean a reference to the Master Lease as amended hereby.

Confirmation and Release . Except as specifically set forth herein, all other terms and conditions of the Master Lease shall remain unmodified and in full force and effect, the same being confirmed and republished hereby. In the event of any conflict between the terms of the Master Lease and the terms of this Amendment, the terms of this Amendment shall control.

Counterparts . This Amendment may be executed in any number of counterparts all of which taken together shall constitute one and the same instrument and any of the parties or signatories hereto may execute this Amendment by signing any such counterpart. Copies of original signatures sent by facsimile, portable document format (.pdf), or other electronic imaging means shall be deemed to be originals for all purposes of this Amendment.

Successors and Assigns . Except as otherwise provided in the Master Lease and the Lease Guaranty, Tenant may not assign, delegate or transfer this Amendment or any document delivered in connection herewith or any of its rights or obligations thereunder. No rights are created under this Amendment or any document delivered in connection herewith for the benefit of any third party. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

[Signature pages follow this page]

IN WITNESS WHEREOF , Landlord and Tenant have caused this Amendment to be executed by persons duly authorized thereunto as of the day and year first above written.


LANDLORD:

MRT of La Mesa CA – SNF, LLC, a Delaware limited liability company

By:		/s/ Forrest Gardner
Print Name:		Forrest Gardner
Title:		Senior Vice President

MRT of National City CA – SNF I, LLC, a Delaware limited liability company

By:		/s/ Forrest Gardner
Print Name:		Forrest Gardner
Title:		Senior Vice President

MRT of National City CA – SNF II, LLC, a Delaware limited liability company

By:		/s/ Forrest Gardner
Print Name:		Forrest Gardner
Title:		Senior Vice President

MRT of Upland CA – SNF/ALF, LLC, a Delaware limited liability company

By:		/s/ Forrest Gardner
Print Name:		Forrest Gardner
Title:		Senior Vice President

MRT of San Diego CA – SNF, LLC, a Delaware limited liability company

By:		/s/ Forrest Gardner
Print Name:		Forrest Gardner
Title:		Senior Vice President

Signature Page to First Amendment to Master Lease


TENANT:

GHC OF LA MESA, LLC,
a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF NATIONAL CITY II, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF NATIONAL CITY I, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.
Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola
Name:		Lois Mastrocola
Title:		Chief Financial Officer

Signature Page to First Amendment to Master Lease


GHC OF UPLAND RCFE, LLC,
a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.

Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola

Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF UPLAND SNF, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.

Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola

Name:		Lois Mastrocola
Title:		Chief Financial Officer

GHC OF KEARNY MESA, LLC, a California limited liability company

By:		Life Generations Healthcare LLC, its Manager

By:		/s/ Thomas Olds, Jr.

Name:		Thomas Olds, Jr.
Title:		President and Chief Executive Officer

By:		/s/ Lois Mastrocola

Name:		Lois Mastrocola
Title:		Chief Financial Officer

Signature Page to First Amendment to Master Lease

EXHIBIT “A”

LEGAL DESCRIPTION OF KEARNY MESA LAND

All that certain real property situated in the County of San Diego, State of California, described as follows:

LOT 3 OF TOBB CENTER, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP NO. 5034, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 19, 1962.

TOGETHER WITH THAT PORTION OF WESTMORELAND STREET ADJACENT TO SAID LOT 3, AS RECITED AND CLOSED TO PUBLIC USE BY RESOLUTION RECORDED AUGUST 17, 1964 AS INSTRUMENT NO. 148712 OF OFFICIAL RECORDS.

EXCEPTING THEREFROM THAT PORTION GRANTED TO THE STATE OF CALIFORNIA FOR FREEWAY PURPOSES IN DEED RECORDED OCTOBER 26, 1967 AS INSTRUMENT NO. 166532 OF OFFICIAL RECORDS.

Assessor’s Parcel No.: 427-082-10

Exhibit A

LOGO

Exhibit C

Exhibit 10.21

GUARANTY OF MASTER LEASE

This GUARANTY OF MASTER LEASE (this “ Guaranty ”), is made as of March 31, 2015 (the “ Effective Date ”), by LIFE GENERATIONS HEALTHCARE LLC, a California limited liability company (“ Guarantor ”), in favor of MRT OF LA MESA CA – SNF, LLC, MRT OF NATIONAL CITY CA – SNF I, LLC, MRT OF NATIONAL CITY CA – SNF II, LLC, MRT OF UPLAND CA – SNF/ALF, LLC, each, a Delaware limited liability company (collectively, “ Landlord ”).

WHEREAS, GHC of La Mesa, LLC, GHC of National City II, LLC, GHC of National City I, LLC, GHC of Upland SNF, LLC, and GHC of Upland RCFE, LLC (collectively, “ Tenant ”) have executed and delivered to Landlord a Master Lease, dated of even date herewith (the “ Lease ”), covering certain real property and improvements located in the state of California. Capitalized terms not otherwise defined herein shall have the meanings given in the Lease.

WHEREAS, Landlord is unwilling to enter into the Lease with Tenant unless Landlord receives a guaranty from Guarantor of all obligations of Tenant under the Lease in accordance with the terms and conditions set forth herein.

NOW, THEREFORE, as a condition precedent to Landlord’s agreement to enter into the Lease and for other consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows:

1. Guaranteed Obligations. Guarantor hereby unconditionally, absolutely and irrevocably guarantees to Landlord all of the following: (a) the timely payment when due of all amounts due by Tenant under the Lease, including, without limitation, payment of all Base Rent, all other rent and all other amounts now or hereafter due by Tenant under the Lease, (b) the full and faithful performance and observance by Tenant of all terms, covenants, conditions, agreements and other obligations now or hereafter to be paid, performed or observed by Tenant under the Lease including, without limitation, all warranties and representations of Tenant and all indemnification obligations of Tenant in the Lease, in accordance with the terms of the Lease (all the foregoing terms, covenants, conditions, payment obligations, indemnities, agreements and other obligations described in 1(a) and 1(b) are collectively referred to as the “ Lease Obligations ”) and (c) agrees to pay on demand any and all costs, expenses and fees of any type whatsoever including, without limitation, reasonable attorneys’ fees and legal disbursements, incurred by Landlord in enforcing any rights of Landlord under this Guaranty (collectively, the “ Expenses ”). The Lease Obligations and the Expenses are collectively referred to as the “ Guaranteed Obligations ,” which shall remain in effect for the term of this Guaranty; provided, however, that such Guaranteed Obligations shall be reduced to a maximum aggregate amount of Fifty Percent (50%) of all remaining Base Rent beginning on the first day of the sixth (6th) year following the Effective Date if the following conditions are satisfied: (i) Guarantor has maintained a ratio of EBITDAR (as defined below) to total rent payable for the skilled nursing and assisted living facilities operated by Guarantor or its subsidiaries (the “ LG Facility Rent ”) for the twenty four (24) month period then ended of not less than 1.75 to 1.0; (ii) Tenant (i.e., all facility operators comprising Tenant) has maintained a ratio of EBITDAR to total rent payable for all of Tenant’s facilities (in the aggregate) for the twenty four (24) month period then ended of not less than 1.30 to 1.0; and (iii) there shall not exist any material uncured default under this Guaranty or the Lease.

2. Unconditional, Unlimited and Absolute Guaranty . Guarantor guarantees that all of the Guaranteed Obligations will be paid, performed and observed in accordance with the terms of the Lease. The obligations of Guarantor under this Guaranty are independent of the Guaranteed Obligations. The liability of Guarantor under this Guaranty shall be unconditional, unlimited and absolute and shall not be affected, released, modified, altered, terminated, discharged or impaired, in whole or in part, by any of the following:

(a) any amendment, restatement, supplement, change, termination or modification of the Lease in accordance with its terms;

(b) any change in the time, manner or place of payment, performance or observance of any of the Guaranteed Obligations or any extensions of time for payment, performance or observance of the Guaranteed Obligations or any of the terms of the Lease in accordance with its terms;

(c) any amendment, waiver, assertion, enforcement, failure to enforce, consent, indulgence or departure granted by Landlord with respect to any term of the Lease including, without limitation, acceptance of any amounts less than the scheduled rent or other amount due under the Lease or the waiver of any default or event of default by Tenant or acceptance of any settlement from Tenant for its obligations under the Lease;

(d) any failure or delay of Landlord to exercise, or any lack of diligence in exercising, any right or remedy with respect to the Lease;

(e) any dealings or transactions between Landlord and Tenant, whether or not Guarantor has notice;

(f) the failure of any individual, partnership, association, corporation, limited liability company or other entity (a “ Person ”) other than Landlord to complete construction of any Improvements to the Property or the Facility or any Improvements for Tenant’s use and occupancy of the Property or Facility;

(g) the exercise of any right or remedy under the Lease or obtaining of any judgment against Tenant under the Lease;

(h) any bankruptcy, insolvency, assignment for the benefit of creditors, receivership, trusteeship or dissolution of Tenant or any guarantor of Tenant’s obligations under the Lease;

(i) any exchange, surrender or release, in whole or in part, of any security which may be held by Landlord at any time for the Lease or in respect of the Guaranteed Obligations;

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(j) the exercise, delay or failure to exercise any rights, powers or privileges Landlord may now or hereafter have against any Person or collateral in respect of the Guaranteed Obligations;

(k) Landlord’s consent to any assignments or subleases of the Lease;

(l) any and all notice of the creation, renewal or extension of the Guaranteed Obligations and notice of or proof of reliance by Landlord upon this Guaranty or acceptance of this Guaranty; or

(m) all of the foregoing from time to time before or after any default or event of default by Tenant or Landlord under the Lease and with or without further notice to Guarantor.

This Guaranty shall continue to be effective or be reinstated, as applicable, and the rights of Landlord hereunder shall continue with respect to, any Guaranteed Obligation at any time paid by Tenant which shall thereafter be required to be restored or returned by Landlord or any successor or assignee of Landlord upon the insolvency, bankruptcy or reorganization of Tenant, or for any other reason, all as though such Guaranteed Obligation had not been so paid or applied. Notwithstanding anything to the contrary contained herein, Guarantor shall be entitled to assert all defenses available to the Tenant with respect to the Guaranteed Obligations.

3. Waivers. Guarantor hereby waives (a) notice of acceptance of this Guaranty and of any change in the financial condition of Tenant or Landlord, (b) any requirement that Landlord exercise or exhaust any right or remedy or take any action against Tenant for any of the Guaranteed Obligations, (c) all rights and remedies available under applicable law to guarantors or sureties including, without limitation, any extension of time conferred by any law now or hereafter in effect, (d) any failure of Landlord to disclose to Guarantor any information relating to the financial condition, operations or properties of Tenant or any other guarantor of the Guaranteed Obligations (Guarantor hereby waives any duty of Landlord to obtain or disclose such information), and (e) any right or claim of right to cause a marshalling of the assets of Tenant or any other Person or to cause Landlord to proceed against Tenant, any other Person or any collateral.

4. Bankruptcy. Without limiting Guarantor’s obligations under this Guaranty, if Tenant or Tenant’s trustee, receiver or other officer with similar powers, rejects, disaffirms or otherwise terminates the Lease pursuant to any bankruptcy, insolvency, reorganization, moratorium or any other law affecting creditors’ rights generally, Guarantor shall automatically be deemed to have assumed, from and after the date of such rejection, disaffirmance or other termination of the Lease is deemed effective, all obligations and liabilities of Tenant under the Lease to the same extent as if Guarantor had been originally named instead of Tenant as the Tenant under the Lease and as if the Lease had never been so rejected, disaffirmed or otherwise terminated. Guarantor, upon such assumption, shall pay, perform and observe all of the Guaranteed Obligations, whether accrued or accruing, and Guarantor shall be subject to any rights or remedies of Landlord which may have accrued or which may thereafter accrue against Tenant on account of any default or event of default under the Lease notwithstanding that such defaults existed prior to the date Guarantor is deemed to have assumed the Lease. Guarantor

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shall confirm such assumption in writing at the request of Landlord upon or after such rejection, disaffirmance or other termination but any such failure shall not affect the assumption by Guarantor. Neither Guarantor’s obligation to make payment or performance of the Guaranteed Obligations under this Guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed, stayed, released or limited in any manner by any impairment, modification, change, release, limitation or stay of the liability of Tenant or its estate in bankruptcy or any remedy for the enforcement thereof resulting from the operation of any present of future provision of the U.S. Bankruptcy Code or other statute or from any court decision and Guarantor shall be obligated under this Guaranty as if no such impairment, stay, modification, change, release or limitation had occurred.

5. Primary Obligation. This is an absolute, unconditional and unlimited guaranty of payment and performance and not of collection and Guarantor waives any right to require that any action be brought against Tenant or any other Person or to require that resort be had to any collateral, security, any balance of any deposit account or credit on the books of Landlord in favor of Tenant or any other Person.

6. No Demand. Landlord shall have the right to enforce this Guaranty immediately and directly against Guarantor upon any default or event of default under the Lease. Landlord may commence any action or proceeding based upon this Guaranty directly against Guarantor without making Tenant a party defendant in such action or proceeding. Any one or more successive or concurrent actions may be brought against Guarantor either in the same action, if any, brought against Tenant or in separate actions as Landlord, in its sole discretion, deems advisable.

7. Waiver of Rights against Tenant. Until the cash payment in full of all of the Guaranteed Obligations (other than contingent obligations for which no claim has been made), Guarantor hereby irrevocably waives any claim or other rights that it may now or hereafter acquire against Tenant from the existence, payment, performance or enforcement of the Guaranteed Obligations or any other documents executed in connection therewith (collectively, the “ Guaranty Documents ”) including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Landlord against Tenant, whether or not such claim, remedy or right arises in equity, under contract, statute or common law including, without limitation, the right to take or receive from Tenant, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. Guarantor hereby acknowledges that the waiver, contained in the preceding sentence (the “ Subrogation Waiver ”) is given as a condition precedent to Landlord’s agreement to enter into the Lease and, therefore, Guarantor agrees not to amend or modify in any way the Subrogation Waiver without the prior written consent of Landlord. If any amount is paid to Guarantor in violation of the preceding sentence at any time prior to the cash payment in full of all amounts payable under this Guaranty (other than contingent obligations for which no claim has been made), such amount shall be held in trust for the benefit of Landlord, shall be segregated from the other funds of Guarantor and shall be paid to Landlord and credited to all amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Lease and the Guaranty Documents or held as collateral for any amounts payable under this Guaranty.

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8. Modification of Lease. Subject to any limitations set forth herein, if the Lease is modified in any respect by Landlord and Tenant, the obligations hereunder of Guarantor shall extend and apply with respect to the full and faithful performance and observance of all covenants, terms and conditions of the Lease and any modification thereof and Guarantor hereby consents to and agrees to be bound by the terms of such modification. Subject to any limitations set forth herein, if the Lease is renewed or extended for any period beyond the date specified in the Lease for the expiration of the Term, either pursuant to any option granted under the Lease or otherwise, or if the Tenant holds over beyond the term of the Lease, the obligations of Guarantor hereunder shall extend and apply to the full and faithful performance and observance of all terms, conditions, covenants, obligations, liabilities, duties and agreements contained in the Lease.

9. Additional Covenants . Guarantor covenants and agrees that, until the full payment and satisfaction of all Guaranteed Obligations, Guarantor shall perform and comply with each of the covenants set forth in this Section 9.

(a) As of the last day of each calendar quarter, commencing with the first full calendar quarter after the date hereof, the ratio of EBITDAR to LG Facility Rent for the twelve (12) month period then ended shall be not less than 1.50 to 1.0; provided, however, that Guarantor’s failure to comply with the foregoing shall not constitute a breach or default under this Guaranty unless and until such failure occurs as of the last day of two consecutive calendar quarters. “ EBITDARM ” means, for any period (i) the consolidated net income of Guarantor and all of its subsidiaries for such period determined in accordance with GAAP applying the same principles that were used by Guarantor in preparing the then most recent audited financial statements of Guarantor, plus (ii) the aggregate of the following, without duplication, (A) interest expense, (B) income taxes, (C) depreciation and amortization expenses, (D) rent and deferred rent expense for leases of real property, (E) management fees, (F) all extraordinary expenses, including non-cash, or non-recurring losses and expenses (including any fees, expenses, penalties or settlement costs related to the OIG Investigation (as such term is defined in Exhibit B to the Purchase Agreement (as defined in the Lease)), (G) non-cash compensation expenses arising from the issuance of stock, options to purchase stock, and stock appreciation rights and settlement costs and legal expenses related to the grant and exercise of stock options, (H) nonrecurring or special Tenant employee bonuses as well as non-recurring special corporate level bonuses including expenses and employer taxes related to the payment of such bonuses, (I) fees and expenses paid in connection with the execution and delivery by Guarantor or any of its subsidiaries of this Guaranty, the Purchase Agreement, the Lease and the transactions contemplated thereby, including due diligence, execution and delivery by Guarantor and/or Tenant, and all fees and expenses related to the repayment of all amounts and the termination of the existing credit facility of Guarantor and certain of its subsidiaries (collectively, the “ Transaction Expenses ”), and (J) any reasonable fees, costs or expenses paid to third parties in connection with the acquisition of any skilled nursing facility, assisted living facility, or Alzheimer’s facility or ancillary facility (each, an “ Acquired Facility ”) or new business, whether or not such transaction is consummated. “ EBITDAR ” means, EBITDARM reduced by a management fee equal to an assumed 3% of net revenue.

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(b) As of the last day of each calendar quarter, commencing with the first full calendar quarter after the date hereof, the ratio of EBITDAR to Fixed Charges as maintained by Guarantor for the twelve (12) month period then ended shall be not less than 1.15 to 1.0; provided, however, that Guarantor’s failure to comply with the foregoing shall not constitute a breach or default under this Guaranty unless and until such failure occurs as of the last day of two consecutive calendar quarters. “ Fixed Charges ” means, for any period, the sum of the following on a consolidated basis for Guarantor and all of its subsidiaries during such period, without duplication: (i) scheduled principal payments of Indebtedness (including, without limitation, scheduled payments of principal in respect of capitalized leases), (ii) total interest expense (including attributable to capital leases in accordance with GAAP) paid or payable in cash (excluding all Transaction Expenses), (iii) fees or other charges for letters of credit, (iv) net cost under any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to hedge the position with respect to interest rates, (v) Capital Expenditures, and (vi) scheduled LG Facility Rent, all as determined under GAAP. “ Indebtedness ” of any Person means, without duplication, (A) all obligations of such Person for borrowed money (including all notes payable and drafts accepted representing extensions of credit) and all obligations evidenced by bonds, debentures, notes or other similar instruments on which interest charges are customarily paid; (B) all monetary obligations under capitalized leases of such Person (to the extent required by GAAP to be included on the balance sheet of such Person); (C) all obligations, contingent or otherwise, relative to the stated amount of all letters of credit, whether or not drawn, issued for the account of such Person, (D) all indebtedness described in clause (A), (B) or (C) above secured by any mortgage or lien on any property or asset owned by such Person, whether or not the indebtedness secured thereby has been assumed, and (E) all indebtedness described in clause (A), (B) or (C) above of others guaranteed by such Person; with each of (A) through (E) being measured from and after the Effective Date. “ Capital Expenditures ” means, for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations); provided that the following shall be excluded from the foregoing: (i) any portion of such expenditures funded by proceeds of any asset dispositions, condemnation awards or insurance proceeds, (ii) any portion of such expenditures attributable to the acquisition of any Acquired Facility, (iii) any portion of such expenditures reimbursed by an unrelated third party, (iv) any portion of such expenditures that the Guarantor used or intends to use to make for refurbishment of any Acquired Facility during the 24 months immediately following the acquisition of such Acquired Facility, and (v) any portion of such expenditures paid for with the proceeds of any equity issuance to or capital contribution from any of the holders of the equity interests in Guarantor.

(c) For the term of this Guaranty, the Net Working Capital of Guarantor shall be not less than the greater of (i) Ten Million Dollars ($10,000,000.00) or (ii) 17% of the EBITDARM of Guarantor (determined on a quarterly pro-forma basis taking into consideration any acquisition or divestiture within Guarantor’s portfolio of skilled nursing, assisted living, Alzheimer’s, or similar healthcare facilities); provided, however, that Guarantor’s failure to comply with the foregoing covenant shall not constitute a breach or default under this Guaranty unless and until such failure occurs in two consecutive calendar quarters. “ Net Working Capital ” means current assets minus current liabilities of Guarantor and all of its subsidiaries on a consolidated basis, as determined in accordance with GAAP.

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(d) Except as may otherwise be approved in writing by Landlord: (i) Thomas Olds Jr. may not transfer all or any portion of his ownership interest in Guarantor to any entity or entities that are on the U.S. Office of Inspector General Medicare exclusions list; (ii) Guarantor may not transfer all or any portion of its ownership interests in any of its subsidiaries (other than Tenant) to any third party unless (A) there shall not exist any material uncured default hereunder or any Event of Default under the Lease, (B) the effect of such transfer would not, on a pro forma basis, result in an immediate default hereunder or under the Lease, and (C) one of the following three ratio combinations is satisfied: (x) the ratio of Tenant aggregate EBITDAR to aggregate Base Rent is greater than 1.1 to 1.0 but less than 1.2 to 1.0 and the ratio of Guarantor EBITDAR to LG Facility Rent on a pro forma basis after giving effect to the transfer is not less than 2.75 to 1.0 on a 12-month trailing basis, (y) the ratio of Tenant aggregate EBITDAR to aggregate Base Rent is greater than 1.2 to 1.0 but less than 1.3 to 1.0 and the ratio of Guarantor EBITDAR to LG Facility Rent on a pro forma basis after giving effect to the transfer is not less than 2.25 to 1.0 on a 12-month trailing basis, or (z) the ratio of Tenant aggregate EBITDAR to aggregate Base Rent is equal to or greater than 1.3 to 1.0 and the ratio of Guarantor EBITDAR to LG Facility Rent on a pro forma basis after giving effect to the transfer is not be less than 2.0 to 1.0 on a 12-month trailing basis; (iii) Guarantor shall maintain ownership of not less than one hundred percent (100%) of the total issued and outstanding ownership interests in Tenant, free and clear of all liens and encumbrances, provided , however , that consent for any transfer of such issued and outstanding ownership interests under this clause (iii) by Landlord shall not be unreasonably withheld, conditioned or delayed; (iv) and provided further, that nothing set forth in this Section shall prohibit Tenant from entering into or effectuating (A) any current or future accounts receivable based credit facility (“A/R Credit Facility”) in which the accounts receivable of Guarantor and/or its direct or indirect subsidiaries (including Tenant) are used as collateral for any amounts borrowed under such A/R Credit Facility, (B) any current or future credit facility (“ LG Parent Credit Facility ”) that requires as collateral for any amounts borrowed under such LG Parent Credit Facility a security interest in all or substantially all of the assets of Guarantor and/or its direct or indirect subsidiaries (including, without limitation, any assets or equity of Tenant), or (C) the proposed financing transaction with Housing & Healthcare Finance, LLC (who will be seeking mortgage insurance from the U.S. Department of Housing and Urban Development) for the properties of Guarantor located in Canoga Park, California, Modesto, California, and Pleasanton, California. Guarantor shall be prohibited from entering into any new LG Parent Credit Facility or similar credit arrangement that requires a lien or security interest in all or substantially all of Guarantor’s assets unless Guarantor at such time is, and immediately after giving effect to the proposed credit arrangement shall be, in compliance with the following conditions: (w) Guarantor has maintained a ratio of Guarantor EBITDAR to LG Facility Rent for the twenty four (24) month period then ended of not less than 1.75 to 1.0; and (x) there shall not exist any material uncured default hereunder or under the Lease.

(e) Notwithstanding anything set forth in this Guaranty (including without limitation Section 9(d) above), (i) Guarantor shall have the right to transfer all or substantially all (but not less than substantially all) of its assets and liabilities, including (A) its ownership interests in all or substantially all of its subsidiaries (provided that such sale includes all and not fewer than all of the entities comprising Tenant), (B) all of Tenant’s rights and obligations under the Lease, and (C) Guarantor’s obligations under this Guaranty, and (ii) the equity owners of Guarantor shall have the right to transfer all or substantially all of their ownership interests in Guarantor (including transferring any obligations under the Lease or this Guaranty), to another entity or entities in one transaction or a series of related transactions, provided that, in the case of any such transfer under clause “(i)” or “(ii)” of this paragraph, (1) such transferee entity or

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entities are not on the U.S. Office of Inspector General Medicare exclusions list, (2) such transferee entity or entities are reasonably deemed to be sufficiently capitalized and will, through its equity owners and/or management team, have the business knowledge and experience to operate skilled nursing, assisted living, Alzheimer’s, or similar healthcare business of the size and nature of Guarantor, and (3) in the case of a transfer by Guarantor of all or substantially all of its assets, or a transfer by the Tenants of all or substantially all of their respective assets, (A) this Guaranty is assumed in writing by the transferee of Guarantor’s assets or by a parent entity of the transferee(s) of the Tenant’s assets, as the case may be, and (B) the entity so assuming this Guaranty has, on a pro forma basis after giving effect to the transfer, consolidated EBITDAR for its then most recently completed fiscal year of not less than $45 million and satisfies the requirements set forth in Section 9(d)(ii) above.

(f) During the existence of any material uncured default on the part of Tenant under the Lease, all fees, payments or other obligations of Tenant to Guarantor or to any of the members of Guarantor in excess of a 3% management fee shall be subordinate to the prior payment in full of all obligations then due to Landlord under the Lease.

(g) Guarantor shall not make any payments or distributions of cash or other property to any of its members unless (i) immediately prior to and after giving effect to such payment or distribution, Guarantor shall be in compliance with the covenant set forth in Section 9(c); (ii) the ratio of EBITDAR to LG Facility Rent for the then most recently completed twelve (12) calendar month period (for which financial statements are available) shall be at least 1.75 to 1.0; and (iii) the ratio of EBITDAR to Fixed Charges for the then most recently completed twelve (12) calendar month period (for which financial statements are available) shall be at least 1.15 to 1.0, and (iv) there shall not exist any material uncured default on the part of the Tenant under the Lease. Notwithstanding the foregoing, Guarantor shall be permitted to make distributions to its members for the payment of taxes in a manner consistent with past practice without regard to compliance with the Working Capital, LG Facility Rent and Fixed Charge coverage requirements set forth in the foregoing clause “(i)”, “(ii)” and “(iii)” of this Section 9(g).

10. Notices. Except as otherwise specifically permitted herein, all notices, or demands required to be given by either party to the other shall be in writing and shall be sent by (a) personal delivery, (b) expedited delivery service with proof of delivery, (c) United States registered/certified mail, return receipt requested, (d) nationwide courier guaranteeing overnight delivery, such as Federal Express or United Parcel Service, or (e) so long as concurrently sent by the foregoing method (a) or (b), prepaid telecopy, telegram, telex or fax, addressed to the other party hereto at the address set forth below:


If to Landlord:		MedEquities Realty Trust, Inc.
		One American Center
		3100 West End Avenue, Suite 1000
		Nashville, TN 37203
		Attention: William C. Harlan, President and Chief Operating Officer
		Telephone: (615) 627-4710
		Fax No.: (615) 760-0366
		E-mail: wharlan@medequities.com

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with copy (which shall not constitute notice) to:

		Michael S. Blass, Esq.
		Arent Fox LLP
		1675 Broadway, 34th Floor
		New York, NY 10019
		Telephone: (212) 484-3902
		Fax No.: (212) 484-3990
		E-mail: michael.blass@arentfox.com


If to Guarantor:		Life Generations Healthcare, LLC

		20371 Irvine Avenue, Suite 210
		Newport Beach, CA 92660
		Attention: Thomas Olds, Jr., President and CEO
		Telephone: (7140 241-5600
		Fax No.: (714) 241-8911
		E-mail: tolds@lifegen.net


with a copy (which shall not constitute notice) to:

		O’Melveny & Myers LLP
		610 Newport Center Drive
		Suite 1700
		Newport Beach, CA 92660
		Attention: Mark Peterson, Esq.
		Telephone: (949) 823-6971
		Fax No.: (949) 823-6994
		E-mail: mpeterson@omm.com and

		Sherry Meyerhoff Hanson & Crance LLP
		610 Newport Center Drive
		Suite 1200
		Newport Beach, California 92660
		Attention: Frank Crance, Esq.
		Telephone: (949) 719-1200 Fax No.: (949) 719-1212 Email: fcrance@calawyers.com

or if written notification of a change of address has been sent, to such other party and/or to such

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other address as may be designated in that written notification. Any such notice or demand shall be deemed to have been given either at the time of personal delivery or in the case of service by mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telecopy, telegram or telex, upon receipt. Notwithstanding the foregoing, notice sent by telecopy shall be deemed given and effective when sent if and only if a PDF copy of any such notice is also e-mailed immediately to the intended recipients at the e-mail addresses noted above or to such other e-mail addresses as may be designated in a written notification of a change of address.

11. Waiver. The failure of a party to enforce any provision of this Guaranty shall not constitute a waiver of such party’s right to thereafter enforce such provision or to enforce any other provision at any time.

12. Additional Acts. The parties shall execute such other documents and take such other actions as may be necessary or appropriate to further evidence or effectuate their agreement as set forth herein.

13. Modification. The terms of this Guaranty cannot be modified except by a written instrument signed by Guarantor and Landlord.

14. Attorneys’ Fees. The prevailing party in any suit brought to enforce or interpret this Guaranty shall be entitled to recover reasonable attorneys’ fees and necessary disbursements in addition to any other available relief.

15. No Rule of Construction . This Agreement has been drafted by both Guarantor and Landlord and no rule of construction shall be invoked against either party with respect to the authorship hereof or of any of the documents to be delivered by the respective parties at the Closing.

16. Governing Law . This Guaranty is made pursuant to, and will be construed and enforced in accordance with, the Laws of the State of California, irrespective of the principal place of business, residence or domicile of the parties hereto, and without giving effect to otherwise applicable principles of conflicts of law that would give effect to the laws of another jurisdiction.

17. Consent to Jurisdiction and Venue . Each party hereto irrevocably submits to the exclusive jurisdiction of the State of California and the exclusive venue of the County of Orange in the State of California for purposes of any proceeding arising out of this Guaranty. Each of the parties hereto hereby waives, and agrees not to assert in any such dispute, in each case to the fullest extent permitted by applicable law, any claim that (a) such party is not personally subject to the jurisdiction and venue of such courts, (b) such party and such party’s property is immune from any legal process issued by such courts or (c) any proceeding commenced in such courts is brought in an inconvenient forum.

18. Severability. If any provision of this Guaranty or the application thereof to any Person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Guaranty and the application of such provisions to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

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19. Multiple Counterparts. This Guaranty may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Guaranty by facsimile, portable document format (.pdf), or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Guaranty.

20. Successors and Assigns. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until payment, performance and observance in full of all of the Guaranteed Obligations and all other amounts payable under this Guaranty (other than contingent obligations for which no claim has been made), (b) be binding upon Guarantor and any permitted successors, and (c) inure to the benefit of and be enforceable by Landlord and its permitted successors and assigns under the Lease. Except as allowed in Sections 9(d) and 9(e) above, the Parties agree that neither party shall have the right to assign this Guaranty without the prior written consent of the other party, such consent not to be unreasonably withheld, conditioned or delayed; provided , however , that nothing in this Guaranty shall prohibit Landlord from assigning this Guaranty to an entity that would not reasonably be deemed to be competitive with the business of Guarantor.

21. Benefit to Guarantor. Guarantor hereby warrants and represents that Guarantor is the sole member and owner of Tenant and that this Guaranty will benefit, directly or indirectly, Guarantor.

22. WAIVER OF TRIAL BY JURY. GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE BY JURY AND HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY TO THE FULLEST EXTENT PERMITTED BY LAW WITH REGARD TO THIS GUARANTY OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE ACCRUE.

23. NOTICE OF FINAL AGREEMENT. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES.

[ Remainder of page intentionally blank; signature page follows .]

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IN WITNESS WHEREOF, the undersigned has caused this Guaranty of Master Lease to be executed in Orange County, California as of the date and year first written above.


GUARANTOR:

LIFE GENERATIONS HEALTHCARE LLC

By:		/s/ Thomas Olds, Jr.
		Thomas Olds, Jr.
		President and Chief Executive Officer

[S IGNATURE P AGE TO LG P ARENT G UARANTY ]

Exhibit 10.22

MASTER LEASE AGREEMENT

by and between LAKEWAY REALTY, L.L.C.,

as Landlord

AND

LAKEWAY REGIONAL MEDICAL CENTER, LLC,

a Texas limited liability company,

as Tenant

Made as of February 3, 2015

Table of Contents


		Page

ARTICLE 1 BASIC LEASE TERMS			1

Section 1.01.	Property		1
Section 1.02.	Initial Term Expiration Date		1
Section 1.03.	Extension Options		1
Section 1.04.	Lease Term Expiration Date (if fully extended)		1
Section 1.05.	Initial Fixed Rent		1
Section 1.06.	Rent Adjustment		1
Section 1.07.	Fixed Rent Adjustment		1
Section 1.08.	Tenant Tax Identification No		1
Section 1.09.	Landlord Tax Identification No		1

ARTICLE 2 LEASE OF PROPERTY			2

Section 2.01.	Lease		2
Section 2.02.	Quiet Enjoyment		2

ARTICLE 3 LEASE TERM; EXTENSION			2

Section 3.01.	Initial Term		2
Section 3.02.	Extensions		2
Section 3.03.	Tenant’s Property and Removal		3
Section 3.04.	Existing Personalty		3
Section 3.05.	Surrender Property		3

ARTICLE 4 RENTAL AND OTHER MONETARY OBLIGATIONS			4

Section 4.01.	Security Rent Deposit and Capital Expenditure Reserve		4
Section 4.02.	Rent		4
Section 4.03.	Monetary Obligations		6
Section 4.04.	Net Rental		6
Section 4.05.	Accord and Satisfaction		7
Section 4.06.	Holdover		7
Section 4.07	Pledge and Security Interest		7

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TENANT			8

Section 5.01.	Organization, Authority and Status of Tenant		8
Section 5.02.	Enforceability		8
Section 5.03.	Solvency		8
Section 5.04.	Compliance with Anti-Terrorism Laws		8
Section 5.05.	Property Condition		9
Section 5.06.	Litigation		9
Section 5.07.	Absence of Breaches or Defaults		9
Section 5.08.	Licenses and Permits		9
Section 5.09.	Financial Condition; Information Provided to Landlord		9

ARTICLE 6 TAXES AND ASSESSMENTS; UTILITIES; INSURANCE			10

Section 6.01.	Taxes		10
Section 6.02.	Utilities		11
Section 6.03.	Insurance		11
Section 6.04.	Tax and Insurance Impound		15


ARTICLE 7 MAINTENANCE; ALTERATIONS		16

Section 7.01.	Maintenance and Repair	16
Section 7.02.	Alterations and Improvements	17
Section 7.03.	Cleaning Property	18
Section 7.04.	Signage	18
Section 7.05.	Compliance With Law	19
Section 7.06.	No Liens	19

ARTICLE 8 USE OF THE PROPERTY; COMPLIANCE		20

Section 8.01.	Use of Property	20
Section 8.02.	End of Term	20
Section 8.03.	Licenses	20
Section 8.04.	Compliance	21
Section 8.05.	Environmental Matters	21

ARTICLE 9 ADDITIONAL COVENANTS		28

Section 9.01.	Performance at Tenant’s Expense	28
Section 9.02.	Inspection and Access	28
Section 9.03.	SEC and Financial Statements	29
Section 9.04.	Anti-Terrorism Laws	30
Section 9.05.	Subordination and Estoppel Certificates	30
Section 9.06.	Transfer of Operations Upon Termination of Lease	31
Section 9.07.	Reporting Obligations	35
Section 9.08.	Management Fee Subordination	35

ARTICLE 10 RELEASE AND INDEMNIFICATION		35

Section 10.01.	Limit on Landlord’s Liability and Indemnity	35

ARTICLE 11 CONDEMNATION AND CASUALTY		37

Section 11.01.	Notification	37
Section 11.02.	Partial Condemnation or Casualty	37
Section 11.03.	Total Condemnation	38
Section 11.04.	Temporary Taking	38
Section 11.05.	Adjustment of Losses	39
Section 11.06.	Tenant Obligation in Event of Casualty	39
Section 11.07.	Tenant Awards and Payments	39

ARTICLE 12 DEFAULT, REMEDIES AND MEASURE OF DAMAGES		39

Section 12.01.	Event of Default	39
Section 12.02.	Remedies	42
Section 12.03.	Landlord’s Option to Cure	43
Section 12.04.	No Election	44
Section 12.05.	Tenant Waiver	44
Section 12.06.	Counterclaim Waiver	44
Section 12.07.	Attorneys’ Fees	45

ARTICLE 13 MORTGAGE, SUBORDINATION AND ATTORNMENT		45

Section 13.01.	No Liens	45
Section 13.02.	Subordination	45


Section 13.03.	Election To Declare Lease Superior	46
Section 13.04.	Tenant’s Attornment	46
Section 13.05.	Notice to Lender	46

ARTICLE 14 ASSIGNMENT		46

Section 14.01.	Assignment by Landlord	46
Section 14.02.	Transfer by Tenant	47
Section 14.03.	No Sale of Assets	49

ARTICLE 15 NOTICES		49

Section 15.01.	Notices	49

ARTICLE 16 LANDLORD’S LIEN/SECURITY INTEREST		50

Section 16.01.	Lien on Personal Property	50

ARTICLE 17 MISCELLANEOUS		51

Section 17.01.	Recitals and Exhibits	51
Section 17.02.	Landlord Definition	51
Section 17.03.	Remedies Cumulative	51
Section 17.04.	Recording	51
Section 17.05.	Successors and Assigns	51
Section 17.06.	Brokerage	51
Section 17.07.	Securitizations	52
Section 17.08.	Bankruptcy	53
Section 17.09.	Pronouns	54
Section 17.10.	Counterparts	54
Section 17.11.	Governing Law	54
Section 17.12.	Section Headings	54
Section 17.13.	Exhibits	54
Section 17.14.	Attorneys’ Fees	54
Section 17.15.	Lender Protection	54
Section 17.16.	Easements, Agreements, or Encumbrances	55
Section 17.17.	Writing; Applicable to Successors	55
Section 17.18.	Time of the Essence	55
Section 17.19.	Severability	55
Section 17.20.	Real Estate Investment Trust	55
Section 17.21.	Transfer of Licenses	55
Section 17.22.	State or Local Law Provisions	55
Section 17.23.	Special Stipulations	56
Section 17.24.	Force Majeure	56
Section 17.25.	No Merger	56
Section 17.26.	Interpretation	56
Section 17.27.	Entire Agreement	56

iii

MASTER LEASE AGREEMENT

This Master Lease Agreement (the “Lease”) is made as of February 3, 2015 (the “Effective Date”) by and between LAKEWAY REALTY, L.L.C., a Delaware limited liability company (“Landlord”) and LAKEWAY REGIONAL MEDICAL CENTER LLC, a Texas limited liability company, (“Tenant”). Capitalized terms not defined herein shall have the meanings set forth in Exhibit A hereto.

In consideration of the Property and the rent to be paid hereunder, and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant covenant and agree as follows:

ARTICLE 1

BASIC LEASE TERMS

Section 1.01. Property . See Exhibit B attached hereto.

Section 1.02. Initial Term Expiration Date . February 2, 2040.

Section 1.03. Extension Options . Two (2) extensions of ten (10) years each, as described in Section 3.02.

Section 1.04. Lease Term Expiration Date (if fully extended) . February 2, 2060

Section 1.05. Initial Fixed Rent . $12,750,000.00 per annum, as described in Section 4.02, commencing April 1, 2015, but with a portion thereof deferred during the period of April 1, 2015 through September 30, 2015, which deferred amount will be added to the Fixed Rent during the six (6) month period commencing January 1, 2016, all as described in Section 4.02(a)(iii), below.

Section 1.06. Rent Adjustment . Annual escalations of 3% commencing in the third year of the Initial Term.

Section 1.07. Fixed Rent Adjustment As described in Section 4.02.

Section 1.08. Tenant Tax Identification No . 26-2101764.

Section 1.09. Landlord Tax Identification No . 47-2648262.

ARTICLE 2

LEASE OF PROPERTY

Section 2.01. Lease . In consideration of the rents, covenants, and agreements herein contained, Landlord hereby leases and demises to Tenant, and Tenant hereby rents from Landlord, the Property upon the rentals, and subject to the terms and conditions hereinafter set forth. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT TENANT IS LEASING THE PROPERTY “AS IS”, WHERE IS, AND WITH ALL FAULTS AND DEFECTS, LATENT OR OTHERWISE, AND THAT LANDLORD IS MAKING NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THE PROPERTY OR ANY PART THEREOF (INCLUDING, WITHOUT LIMITATION, THE SOIL, WATER, GEOLOGY OR ENVIRONMENTAL CONDITION OF THE PROPERTY), AND SUBJECT TO THE EXISTING STATE OF TITLE, THE PARTIES IN POSSESSION, ANY STATEMENT OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT REVEAL, AND ALL LEGAL REQUIREMENTS NOW OR HEREAFTER IN EFFECT.

Section 2.02. Quiet Enjoyment . So long as Tenant complies with the terms, covenants and conditions of this Lease, Tenant shall have the peaceful and quiet use of the Property subject to all the terms of this Lease, without any hindrance from Landlord, by any persons lawfully claiming by, through or under Landlord; provided, however, in no event shall Tenant be entitled to bring any action against Landlord to enforce its rights hereunder if an Event of Default, or any event or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing. The provisions of this Section 2.02 are in lieu of any implied covenants of title or possession.

ARTICLE 3

LEASE TERM; EXTENSION

Section 3.01. Initial Term . The term of this Lease (“Initial Term”) and Tenant’s obligation to make any and all payments required under this Lease shall commence on February 3, 2015 (also known herein as the “Lease Commencement Date”) and end twenty-five (25) years from the Lease Commencement Date (the “Expiration Date”) unless extended as described below. The time period during which this Lease shall actually be in effect, including any Extension Term, is referred to as the “Lease Term”.

Section 3.02. Extensions . Unless this Lease has expired or has been sooner terminated, or an Event of Default has occurred and is continuing at the time any extension option is exercised, and provided that all other agreements necessary to the continued operation of Tenant’s business at the Property is extended for a period of not less than the applicable extension periods, Tenant shall have the right and option (each an “Extension Option”) to extend the Initial Term of this Lease for two (2) additional successive periods

of ten (10) years each (each, an “Extension Term”), pursuant to the terms and conditions of this Lease then in effect. Each Extension Term shall be deemed to be automatically exercised by Tenant unless Tenant gives Landlord written notice of its intention not to exercise said Extension Term at least one (1) year prior to the end of the Initial Term or first Extension Term, as applicable.

Section 3.03. Tenant’s Property and Removal . It is acknowledged that as of the Lease Commencement Date Tenant owns the moveable medical equipment on the Property and Landlord owns the remaining furniture, fixtures, appliances, equipment and other personal property. Any furniture, trade fixtures, appliances, equipment or other personal property owned by Tenant and brought onto or kept on the Property by the Tenant shall be specifically marked as Tenant’s property (“Personalty”) and shall be at the sole risk of the Tenant. Upon the expiration of this Lease Term, so long as no Event of Default exists, Tenant may remove from the Property all Personalty belonging to Tenant. Tenant shall repair any damage caused by such removal and shall leave the Property clean and in good and working condition and repair inside and out, subject to normal wear and tear. By signing this Lease the Tenant agrees that upon surrender or abandonment of the Property, the Landlord shall not be liable or responsible for the storage or disposition of the Tenant’s Personalty and any Personalty of Tenant left on the Property on the tenth (10 ^th ) day following the expiration of this Lease Term shall, at Landlord’s option, automatically and immediately become the property of Landlord.

Section 3.04. Existing Personalty . Landlord owns all furniture, trade fixtures, appliances, equipment and other personal property located upon any Property as of the Lease Commencement Date excluding moveable medical equipment, with such personalty and moveable medical equipment generally identified on Schedule 3.04 attached hereto. The existing personalty excluding moveable medical equipment set forth on Schedule 3.04 and any other such personalty on the Property as of the Lease Commencement Date is hereinafter the “ Existing Personalty ”. Tenant shall maintain insurance on the Existing Personalty pursuant to and in accordance with the provisions of Section 6.03 below; and Tenant may utilize such Existing Personalty during the Lease Term; provided, however, that Tenant utilizes such Existing Personalty “AS IS” and “WHERE IS” without representation or warranty of any kind by Landlord, and Tenant shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Tenant’s use of the Existing Personalty. Tenant shall maintain, repair and replace such Existing Personalty and upon the expiration or sooner termination of this Lease, at Landlord’s option, Tenant shall either leave the Existing Personalty on the Property in the same condition as of the Lease Commencement Date, normal wear and tear excepted, or remove the Existing Personalty in the same manner as set forth for Tenant’s Personalty in Section 3.03 above.

Section 3.05. Surrender Property . Upon the expiration of this Lease, Tenant will quit and surrender the Property without the necessity of any notice from either Landlord or Tenant to terminate the same, and Tenant hereby waives notice to vacate the Property and agrees that Landlord shall be entitled to the benefit of all provisions of law respecting the summary recovery of possession of the Property from Tenant holding over to the same extent as if statutory notice had been given. Tenant will quit and surrender the

Property in as good a state and condition as they were when entered into, reasonable use and wear thereof shall be excepted. All alterations, additions, erections or improvements in or upon the Property at the expiration or early termination of this Lease, shall, at Landlord’s option, be removed by Tenant at Tenant’s sole cost and expense and Tenant shall repair all damage caused by such removal and return the Property to the condition in which they were prior to the installation of the articles so removed. Any alterations, additions, erections or improvements which are wanted by Landlord, except as exempted above, shall remain as part of the Property and shall be surrendered with the Property at the expiration, or early termination of this Lease.

ARTICLE 4

RENTAL AND OTHER MONETARY OBLIGATIONS

Section 4.01. Security Rent Deposit and Capital Expenditure Reserve .

(a) Security Deposit . The Tenant shall provide a security deposit equal to six months’ rent payable as follows: on or prior to the Effective Date of this Lease, the Tenant shall deposit with Landlord the sum of One Million and No/100 Dollars ($1,000,000.00) and the balance of Five Million Three Hundred Twenty-Five Thousand and No/100 Dollars ($5,325.000.00) shall be funded in twelve (12) equal monthly installments commencing on the third anniversary of the Effective Date to be held by Landlord as collateral securing the payment of Rent and any or all other sums of money for which Tenant shall or may become liable to Landlord under this Lease, and for the faithful performance by Tenant of all other covenants and agreements on its part to be performed under this Lease (the “Security Deposit”). Landlord shall be entitled to retain such Security Deposit without obligation to pay interest thereon and may commingle such Security Deposit with its own funds. The Security Deposit shall be refunded to Tenant within ninety (90) days after the expiration of the term of this Lease provided that Tenant shall have made all payments required under this Lease and performed all of its covenants and agreements under this Lease and shall have vacated the Property.

(b) Capital Expenditure Reserve . Tenant shall deposit with Landlord the sum of Eight Hundred and Ten Thousand and No/100 Dollars ($810,000) (“Minimum Required Reserve Amount”) funded in twelve (12) equal monthly installments commencing on the third anniversary of the Effective Date to be held by Landlord as a Capital Expenditure Reserve (“Reserve Account”). Thereafter Tenant can draw on the Reserve Account to pay capital expenses approved by Landlord, which approval shall not be unreasonably withheld. Tenant shall replenish the Reserve Account within six (6) months of any withdrawal by depositing sufficient funds to achieve the Minimum Required Reserve Amount.

Section 4.02. Rent . Tenant shall pay as rent for the Property the following amounts (each of which shall be considered Rent and all of which, together with any other payment due Tenant under this Lease, shall be deemed to be “Rent” hereunder).

(a) Fixed Rent . (i) Commencing April 1, 2015, and subject to the terms of Section 4.02 (a)(iii) below, Tenant shall pay Landlord as fixed rent (the “Fixed Rent”) the sum of Twelve Million Seven Hundred Fifty Thousand and no/100 Dollars ($12,750,000.00) per year, payable in advance in equal monthly installments of One Million Sixty-Two Thousand Five Hundred and no/100 Dollars ($1,062,500.00), which amount shall be escalated annually, beginning on the first day of the third Lease Year and thereafter throughout the remaining Lease Term of this Lease, as such Lease Term may be extended, by three percent (3%) of the Fixed Rent for the previous Lease Year which sum shall be payable in equal monthly installments.

(ii) In addition, Tenant acknowledges that on or about the fifth anniversary of the Lease Commencement Date, the interest rate on Landlord’s existing $72,960,000.00 loan secured by a Mortgage on the Property, will be adjusted as more particularly described in the note evidencing such loan. Any fees incurred by Landlord in connection with such interest rate adjustment will be added to and paid with the next monthly installment of Fixed Rent, and any monthly increase in the cost of Landlord’s financing over 8% at a 25-year amortization which occurs as a result of the foregoing interest rate adjustment will be added to and will become part of the monthly Fixed Rent due by Tenant. Landlord will provide Tenant with written notice of any increase in its cost of capital and other costs incurred as a result of the interest rate adjustment, together with the adjusted Fixed Rent amount that will be thereafter be due and payable, beginning on the date specified by Landlord in such written notice. Annual escalations of three percent (3%) of the Fixed Rent shall apply to such adjusted Fixed Rent amount beginning on the first day of the next Lease Year beginning after the date of such adjustment. In addition, once Tenant has achieved a significant history of sustained profitable operations, ACH as managing member of Landlord, shall use its commercially reasonable best efforts to source third party financing on more favorable terms to Landlord than those set forth above in this paragraph, but any such further refinancing shall not impact the amount of Fixed Rent due under this Lease.

(iii) Notwithstanding the above, the Fixed Rent for the six (6) month period of April 1, 2015 through September 30, 2015 shall be Five Hundred Thousand and no/100 Dollars ($500,000.00) per month, and the Fixed Rent for the six (6) month period of January 1, 2016 through June 30, 2016 shall be in the amount of One Million Six Hundred Twenty-five Thousand and no/100 Dollars ($1,625,000.00) per month.

(iv) The Fixed Rent for each month during the Lease Term of this Lease shall be paid in advance, on the first day of each and every month during the Lease Term of this Lease, at the following address of Landlord, or at such other place as Landlord may designate from time to time in writing: 3100 West End Avenue, Suite 1000, Nashville, Tennessee 37203, Attn: Chief Financial Officer. Tenant’s obligation for Fixed Rent shall accrue as of the Lease Commencement Date. Fixed Rent shall be paid by automatic bank transfer if requested by Landlord or such other method that is reasonably requested by Landlord. If the Lease Commencement Date occurs on a day other than the first day of the month, the first monthly installment of Fixed Rent shall be prorated based on the number of calendar days in such month included in the Initial Term as compared to the total number of days in such calendar month, and be payable on the Lease Commencement Date, along with the monthly Fixed Rent payment for the first full calendar month of the Initial Term.

(b) Additional Rent . All other payments due under this Lease, including, but not limited to, the payment of Taxes, shall be and are hereby classified as “Additional Rent”. All payments of Additional Rent shall be payable without setoff or deduction at the time specified in this Lease, at the office of the Landlord at the address shown herein, or at such other place as Landlord may designate in writing from time to time.

(c) Sales, Franchise and Gross Receipts Taxes . Tenant shall pay to Landlord any and all state and local sales tax, use tax, franchise tax (including the Texas “margins tax”) and/or gross receipts tax imposed on any payment deemed to be Rent under this Lease or under the Laws and rules and regulations imposing such taxes. For the avoidance of doubt, Tenant will pay directly to Landlord all state and local sales tax, use tax, franchise tax and/or gross receipts tax upon presentation of invoice or written direction of Landlord and Landlord will remit the same to the appropriate governmental entity.

(d) Late Charge . If Tenant fails to pay Rent within three (3) days after due, the amount unpaid will be subject to: (i) a late payment charge, as Additional Rent, of six percent (6%) of the amount unpaid, but not less than One Thousand Dollars ($1,000.00) plus applicable sales tax, in each instance to cover Landlord’s additional administrative costs; and (ii) interest on all such unpaid sums (other than the late payment charge) which interest shall commence accruing on the payment due date at a per annum rate equal to eighteen percent (18%). All payments will be applied to the oldest balance first then any other outstanding balance (including accrued late fees). Tenant’s obligation to pay late charges and interest pursuant to this Section will exist in addition to, and not in the place of, the other default provisions in this Lease.

Section 4.03. Monetary Obligations . Tenant shall pay and discharge all sums of money required to be paid or reimbursed by Tenant under this Lease to Landlord, to any party on behalf of Landlord, or to any Indemnified Party (“Monetary Obligations”). Tenant shall pay and discharge any Monetary Obligations when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within fifteen (15) days after Landlord’s demand for payment thereof or, if later, when the same are due.

Section 4.04. Net Rental . The Fixed Rent shall be completely net rent to Landlord, and during the entire Lease Term of this Lease, including any Extension Term, Landlord shall have no cost, obligation, responsibility or liability whatsoever for repairing, maintaining, operating or owning the Property. The parties acknowledge and agree that Landlord would not enter into this Lease if the Rent described in this Lease were not absolutely net to Landlord or if Landlord were to incur any liability whatsoever, foreseen or unforeseen, with respect to the Property or any portion thereof, or Tenant’s exercise of any other of its rights under this Lease. Accordingly, anything herein to the contrary notwithstanding, Tenant shall pay all expenses, costs, taxes, fees and charges of any nature whatsoever arising in connection with or attributable to the Property, during the Lease

Term of this Lease or in any manner whatsoever arising as a result of Tenant’s exercise of, or Landlord’s grant of, the rights described in this Lease, including, without limitation, all fees of Tenant’s consultants, intangible personal property taxes, ad valorem real estate taxes, assessments, sewer and water rents, rates and charges, Tenant’s accounting and attorney’s fees, costs of any financing obtained by Tenant, costs of any leasehold title insurance policy obtained by Tenant, utility charges and insurance premiums. Tenant shall pay all Rent and all other charges due under this Lease without notice or demand and without any deductions, set-offs, counterclaims, abatements, suspensions or defenses of any kind. It is the intention of the parties that the obligations of Tenant shall be separate and independent covenants, that the Rent, and all other charges payable by Tenant shall continue to be payable in all events, and that the obligations of Tenant shall continue unaffected unless the requirement to pay or perform the same shall have been terminated or modified pursuant to an express provision of this Lease. Tenant shall pay and be responsible to Landlord for all costs, expenses, obligations, liabilities and acts necessary to and for the proper use, operation, maintenance, care and occupancy of the Property. Tenant waives all rights now or in the future conferred by law to quit, terminate or surrender this Lease or the Property or to any abatement, suspension, deferment, or reduction of the Rent, or any other charges under this Lease.

Section 4.06. Holdover . In the event that Tenant remains in possession of the Property after the expiration of this Lease without the written permission of Landlord, and without the execution of a new lease, Tenant shall be deemed occupying the Property as a tenant at sufferance only, at a rental rate equal to two hundred percent (200%) of the Fixed Rent in effect upon the date of such expiration, together with the Additional Rent and any Monetary Obligations, subject to all the conditions, provisions and obligations of this Lease insofar as the same are applicable to such tenancy. Acceptance by Landlord of Fixed Rent, Additional Rent or payment of any Monetary Obligations after such expiration shall not constitute a renewal of this Lease or permit Tenant to continue such holdover. The foregoing provisions of this Section 4.06 are in addition to and do not affect Landlord’s right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Property upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold the Indemnified Parties harmless from all loss or liability, including, without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender.

Section 4.07 Pledge and Security Interest . In order to further secure Tenant’s obligations under this Lease, including Tenant’s Monetary Obligations, Tenant will pledge to Landlord and grant a lien on and security interest in all assignable assets of Tenant

(subject only to the prior lien of Tenant’s current working capital lender or any replacement lender approved by Landlord). Such security interest will be evidenced by a separate pledge agreement from Tenant as debtor to Landlord as secured party.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF TENANT

Tenant (and, if Tenant is a corporation, partnership, limited liability company or other legal entity, such corporation, partnership, limited liability company or entity) hereby makes the following representations and warranties, each of which is material and being relied upon by Landlord, is true in all respects as of the date of this Lease, and shall survive the expiration or termination of this Lease. Tenant shall re-certify such representations to Landlord periodically, upon Landlord’s reasonable request:

Section 5.01. Organization, Authority and Status of Tenant . Tenant has been duly organized or formed, is validly existing and in good standing under the Laws of its state of formation and is qualified as a foreign corporation or limited liability company, as applicable, to do business in any jurisdiction where such qualification is required. All necessary corporate or company action has been taken to authorize the execution, delivery and performance by Tenant of this Lease and of the other documents, instruments and agreements provided for herein, including without limitation, the Transaction Documents. Tenant is not, and if Tenant is a “disregarded entity,” the owner of such disregarded entity is not, a “nonresident alien,” “foreign corporation,” “foreign partnership,” “foreign trust,” “foreign estate,” or any other “person” that is not a “United States Person” as those terms are defined in the Code and the regulations promulgated thereunder. The Person who has executed this Lease on behalf of Tenant is duly authorized to do so.

Section 5.02. Enforceability . This Lease is a legal, valid and binding obligation of Tenant, enforceable against Tenant in accordance with its terms.

Section 5.03. Solvency . Tenant has not (1) made a general assignment for the benefit of creditors, (2) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by any creditors, (3) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (4) suffered the attachment or other judicial seizure of all or substantially all of its assets, (5) admitted in writing its inability to pay its debts as they come due, or (6) made an offer of settlement, extension or composition to its creditors generally.

Section 5.04. Compliance with Anti-Terrorism Laws . With respect to terrorism: (i) Tenant is not in violation of any Anti-Terrorism Law; (ii) Tenant is not, as of the date hereof: (a) conducting any business or engaging in any transaction or dealing with any Prohibited Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person; (b) dealing in, or otherwise engaging in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224; or (c) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to

violate any of the prohibitions set forth in, any Anti-Terrorism Law; (iii) neither Tenant nor any of its officers, Affiliates, directors, shareholders or members, or any lease guarantor, as applicable, is a Prohibited Person; and (iv) neither Tenant or any holder of any direct or indirect equitable, legal or beneficial interest in Tenant is the subject of any Law blocking or prohibiting transactions with such person, including the USA Patriot Act. Without limiting the foregoing, Tenant does not engage in any dealings or transactions, and is not otherwise associated, with any such persons or entities or any forbidden entity, including the governments of Cuba, Iran, North Korea, Myanmar and Syria.

Section 5.05. Property Condition . Tenant has physically inspected the Property and has examined title to the Property, and has found all of the same satisfactory in all respects for all of Tenant’s purposes.

Section 5.06. Litigation . Except as set forth on Schedule 5.06, there are no suits, actions, proceedings or investigations pending, or to the best of its knowledge, threatened against or involving the Tenant or the Property before any arbitrator or Governmental Authority which might reasonably result in any Material Adverse Effect.

Section 5.07. Absence of Breaches or Defaults . Except as set forth in Schedule 5.07, Tenant is not in default under any document, instrument or agreement to which Tenant is a party or by which Tenant, the Property or any of Tenant’s property is subject or bound, which has had, or could reasonably be expected to result in, a Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Tenant is a party or by which Tenant, the Property or any of Tenant’s property is subject or bound.

Section 5.08. Licenses and Permits . Tenant has obtained all required licenses and permits, both governmental and private, to use and operate the Property as a Permitted Facility.

Section 5.09. Financial Condition; Information Provided to Landlord . The financial statements, all financial data and all other documents and information heretofore delivered to Landlord by or with respect to the Tenant Entities and the Property in connection with this Lease or relating to the Tenant Entities or the Property are true, correct and complete in all material respects; there have been no amendments thereto since the date such items were prepared or delivered to Landlord; all financial statements provided were prepared in accordance with GAAP, and fairly present as of the date thereof the financial condition of each individual or entity to which they pertain; and no change has occurred to any such financial statements, financial data, documents and other information not disclosed in writing to Landlord, which has had, or could reasonably be expected to result in, a Material Adverse Effect.

If at any time any of these representations becomes false, then it shall be considered an Event of Default under this Lease.

ARTICLE 6

TAXES AND ASSESSMENTS; UTILITIES; INSURANCE

Section 6.01. Taxes .

(a) Payment . From and after the Lease Commencement Date and throughout the balance of the Lease Term, Tenant shall pay all Taxes directly to the appropriate assessing authority when the same become due and payable (but in no event later than the date when the Taxes would become delinquent). Within ten (10) Business Days after receipt by a party of any real estate tax bill relating to the Property or any part thereof, such party shall deliver to the other party a copy of such bill. “Taxes” shall mean the aggregate amount of real estate and personal property taxes and any installments of special assessments levied, assessed or imposed upon the Property due and payable in the applicable calendar year and the Texas “margins tax” imposed on Landlord as a result of the Rent received by Landlord under this Lease. If because of any change in law relating to the taxation of real estate, any other tax, assessment or surcharge of any kind or nature is imposed upon, against or with respect to the occupancy, rents or income therefrom, either in lieu of, in substitution for or in addition to any of the foregoing Taxes, such other tax, assessment or surcharge (which shall be measured as if the Property, as the case may be, were the only asset of Landlord or such owner) shall be deemed part of Taxes. Tenant shall furnish to Landlord, promptly, but in any case within ten (10) Business Days after Landlord’s request, receipts for the payment of any Taxes or other evidence reasonably satisfactory to Landlord that such payment has been made. In addition, Tenant shall furnish to Landlord, annually throughout the Lease Term promptly following Landlord’s written request therefor, a certificate of Tenant (executed by a duly authorized officer of Tenant) stating that all Taxes have been paid to date. If Tenant shall have failed, on any occasion, to pay any Taxes, or any part thereof, then Landlord shall have the right, at its option, to require Tenant to (i) immediately deposit with Landlord an amount equal to (1) all Taxes currently due plus (2) a portion of all Taxes payable during the current calendar year so that the deposits required by clause (ii) of this sentence will be sufficient to permit Landlord to pay all Taxes in full from such deposits when due, and (ii) thereafter to deposit with Landlord one-twelfth (1/12) of the current annual Taxes on the first day of each month in advance, together with such additional amounts as may be required to make payments of Taxes due during said month, such additional amount to be held by Landlord without interest and to be applied against the payment of Taxes as they become due. In the event a refund of Taxes is obtained and actually paid to Landlord, Landlord shall credit an appropriate portion thereof (after deducting any unrecouped, out-of-pocket expenses in connection with obtaining such refund) to the next installment(s) of Rent. If such refund is received after the end of the Lease Term and relates to periods during the Lease Term, Landlord shall remit such refund to Tenant within sixty (60) days after receipt. This provision shall survive the expiration or earlier termination of this Lease.

(b) Income Taxes . There shall be excluded from the calculation of Taxes all of Landlord’s income taxes, excess profit taxes, franchise taxes (other than the Texas “margins tax”), capital gains taxes, or estate, succession, inheritance and transfer taxes.

Section 6.02. Utilities . Tenant shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Property during the Lease Term. If Tenant defaults in the payment of any such charges, Landlord may, at its option, pay such charges on behalf of Tenant, in which event Tenant shall promptly reimburse Landlord therefor and all such sums shall be deemed Additional Rent hereunder. Landlord shall under no circumstances be liable to Tenant in damages or otherwise for failure or interruption in any service, including, electricity, water, gas, heat, telecommunication services, including telephone, sewer service or air-conditioning caused by any reason whatsoever, including the making of any repairs or improvements to the Property.

Section 6.03. Insurance .

(a) Tenant shall, at its sole cost and expense, during the Lease Term of this Lease, maintain property and casualty insurance with extended coverage endorsement on the Property. Such insurance shall be obtained from an insurance company reasonably acceptable to Landlord and any Lender.

(b) Tenant shall, at Tenant’s sole cost and expense, cause to be issued and shall maintain during the entire Lease Term of this Lease:

(i) Property Insurance . Property insurance provided by a Causes of Loss-Special Form. Such insurance shall include an endorsement for building ordinance/demolition/increased cost of construction. Such insurance shall, at all times, be maintained in an amount equal to the full replacement cost of the Property as determined by Landlord annually. Such insurance shall, at all times, also be maintained in the full replacement cost of the Personalty and Existing Personalty. As used herein, the term “full replacement cost” shall mean coverage for the actual replacement cost of the Property and shall be determined by an appraiser, engineer, architect or contractor on behalf of Landlord, at Tenant’s sole cost and expense. The term “full replacement cost” shall also mean coverage for the actual replacement cost of the Personalty and Existing Personalty. Upon written request by Tenant, Landlord will provide Tenant with information in its possession which is reasonably necessary to establish the value of the Property or any portion thereof. Such insurance shall at all times be payable to Landlord and Tenant as their interest may appear and shall contain a loss payable clause to the holder of any Mortgage to which this Lease shall be subject and subordinate;

(ii) Boiler and Machine Insurance . Boiler & Machinery insurance for the Property, in the amount of full replacement of the Property and the Personalty and Existing Personalty, under the terms of which Landlord and Tenant will be indemnified, as their interests may appear, against any loss or damage of the Property which may result from any accident as covered under a standard Boiler & Machinery policy;

(iii) Flood and Earthquake Insurance . If either required by any Lender or if the Property is located in a flood zone or earthquake zone, as applicable, Flood and Earthquake insurance for the Property in an amount not less than the replacement cost of the Property or the maximum limit available through the National Flood Insurance Program for Flood of the Property, as determined by Landlord;

(iv) Commercial General Liability Insurance . Commercial general liability insurance naming Tenant as insured, and Landlord (as Additional Insured-Landlord of Property) and such other parties as Landlord shall request shall be included as additional insureds, and insuring against claims for bodily injury or property damage occurring upon, in or about the Property, or in or upon the streets, sidewalks, passageways and areas adjoining the Property, such insurance to afford protection for the Property and contractual liability with limits of not less than Three Million and 00/100 Dollars ($3,000,000) per each occurrence and Five Million and 00/100 Dollars ($5,000,000) aggregate; and an umbrella liability policy of not less than Ten Million and 00/100 Dollars ($10,000,000.00) per each occurrence and aggregate;

(v) Professional Liability Insurance . Professional Liability insurance with limits of not less than Two Million and 00/100 Dollars ($2,000,000) per each occurrence and Five Million and 00/100 Dollars ($5,000,000.00) aggregate. Coverage may be on an Occurrence or Claims Made basis. If coverage is on a Claims Made basis, in the event the policy is cancelled or not renewed, tail coverage will be purchased by Tenant for a minimum equal to the applicable statute of limitations or new coverage will include retro date of the prior policy;

(vi) Automobile Liability Insurance . Automobile Liability insurance not less than $1,000,000 per occurrence covering all owned and non-owned vehicles;

(vii) Worker’s Compensation Insurance . Worker’s compensation insurance or other similar insurance which may be required by any Governmental Authority or applicable Legal Requirements in an amount not less than the minimum required by law;

(viii) Key Man Insurance . As part of the consideration for this Lease, Tenant has committed to procure and maintain throughout the Lease Term key man coverage for the benefit of Landlord as more particularly described on Schedule 6.03 attached hereto; and

(ix) Such additional and/or other insurance and in such amounts as at the time is customarily carried by prudent owners or tenants with respect to improvements and personal property similar in character, location and use and occupancy to the Property.

(ii) specifically cover the liability assumed by Tenant under this Lease;

(iii) be issued by an insurance company acceptable to Landlord and any Lender of Landlord’s who has a lien upon the Property and which is qualified to do business in the state where the Property is located and which is rated A:VIII or better by Best’s Insurance Guide or is otherwise approved by Landlord;

(iv) be in form and content reasonably acceptable to Landlord

(v) provide that they shall not be canceled, terminated, reduced or materially modified without at least thirty (30) days prior written notice to Landlord;

(e) Business Interruption Insurance . Tenant shall at all times keep in effect business interruption insurance with a Loss Payable endorsement in favor of Landlord in an amount at least sufficient to cover each of the following for the period of the next succeeding twelve (12) months following the occurrence of the business interruption:

(i) The aggregate of the cost of all Taxes and assessments due for such twelve (12) month period;

(ii) The cost of all insurance premiums for insurance required to be carried by Tenant for such twelve (12) month period;

(iii) The aggregate of the amount of the monthly Fixed Rent for such twelve (12) month period; and

(iv) The aggregate cost of all utilities and other operating expenses which amount of coverage shall be determined by the average cost of such utilities and other operating expenses for the prior twelve (12) month period.

All proceeds of any business interruption insurance shall be applied, first, to the payment of any and all Fixed Rent payments for such twelve (12) month period; second, to the payment of any Taxes and assessments and insurance deposits (to the extent then required hereunder) required for such twelve (12) month period; and, thereafter, after all necessary repairing, rebuilding, restoring or replacing has been completed as required by the pertinent provisions of this Lease and the pertinent sections of any Mortgage, any remaining balance of such proceeds shall be paid over to Tenant.

(f) Coverage Adjustments . From time to time, Landlord or any Lender may reasonably require Tenant to change the amount or type of insurance, or to add or substitute additional reasonable coverages, required to be maintained by Tenant hereunder.

(g) Proceeds Deposited with Landlord . In the event the amount of any casualty insurance proceeds exceeds Twenty-Five Thousand and No/100 Dollars ($25,000), such insurance proceeds as may be paid to Tenant and Landlord shall be deposited with Landlord to be held and disbursed for the repairing, rebuilding, restoring or replacing of the Property or any portion thereof, or any improvements from time to time situated thereon or therein subject to the pertinent provisions of any Mortgage and in accordance with the provisions of this Lease. No such sums shall be disbursed by Landlord toward such repairing, rebuilding, restoring or replacing unless it shall be first made to appear to the reasonable satisfaction of Landlord that the amount of money necessary to provide for any such repairing, rebuilding, restoring or replacing (according to any plans or specifications which may be adopted therefor) in excess of the amount received from any such insurance policies has been expended or provided by Tenant for such repairing, rebuilding, restoring or replacing, and that the amount received from such insurance policies is sufficient to complete such work. In the event there is any amount required in excess of the amount received from such insurance policies, Tenant shall deposit such excess funds with Landlord so that the total amount available will be sufficient to complete such repairing, rebuilding, restoring or replacing in accordance with the provisions of any Mortgage and any plans and specifications submitted in connection therewith, free from any liens or encumbrances of any kind whatsoever and the funds held by Landlord shall be disbursed only upon presentment of architect’s or general contractor’s certificates, waivers of lien, contractor’s sworn statements, and other evidence of cost and payments as may be reasonably required by Landlord or any Lender.

(h) Failure to Procure Insurance . In the event Tenant shall fail to procure such insurance, or to deliver such policies as required pursuant to the terms of this Section 6.03, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid by Tenant to Landlord immediately upon demand after delivery to Tenant of bills therefor. This paragraph shall not be deemed to be a waiver of Tenant’s default for failure to provide the insurance required under this Lease or of any of Landlord’s rights and remedies under any other provision of this Lease.

(i) Waiver of Subrogation . Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery

only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

(j) Additional Obligations . It is expressly understood and agreed that (i) if any insurance required hereunder, or any part thereof, shall expire, be withdrawn, become void by breach of any condition thereof by Tenant, or become void or in jeopardy by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and any Lender designated by Landlord; (ii) the minimum limits of insurance coverage set forth in this Section 6.03 shall not limit the liability of Tenant for its acts or omissions as provided in this Lease; (iii) Tenant shall procure policies for all insurance for periods of not less than one year and shall provide to Landlord and any servicer or Lender of Landlord certificates of insurance or, upon Landlord’s request, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times; (iv) Tenant shall pay as they become due all premiums for the insurance required by this Section 6.03; (v) in the event any insurance policy required to be maintained by Tenant hereunder contains any breach of warranty provisions, Tenant shall not cause any violations of the policy warranties, declarations or conditions in such policy; and (vi) in the event that Tenant fails to comply with any of the requirements set forth in this Section 6.03, within ten (10) days of the giving of written notice by Landlord to Tenant, (A) Landlord shall be entitled to procure such insurance; and (B) any sums expended by Landlord in procuring such insurance shall be a Monetary Obligation (and not Rent) and shall be repaid by Tenant, together with interest thereon at the Default Rate, from the time of payment by Landlord until fully paid by Tenant immediately upon written demand therefor by Landlord.

Section 6.04. Tax and Insurance Impound . Notwithstanding anything to the contrary provided in Sections 6.01 and 6.03 of this Lease, beginning April 1, 2015, Tenant shall deposit in an escrow account established by Tenant and acceptable to Landlord sums which will provide a reasonable impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and insurance premiums. Landlord and Tenant will agree upon the amount of the initial deposit into such escrow account and the amount to be deposited each month thereafter, provided that in the event of disagreement, Landlord’s reasonable determination of amounts to be deposited shall control. Should additional funds be required at any time as reasonably determined by Landlord, Tenant shall deposit the same within ten (10) days after demand. Landlord agrees that the funds in the escrow account shall be made available to pay taxes and insurance premiums as they become due. Tenant shall provide proof of timely payment of all taxes and insurance bills which are due. Interest or other gains from such funds, if any, shall be the sole property of Tenant. Upon an Event of Default, in addition to any other remedies, Landlord may apply all escrowed funds against any sums due from Tenant to Landlord.

ARTICLE 7

MAINTENANCE; ALTERATIONS

Section 7.01. Maintenance and Repair .

(a) Tenant Maintenance and Repair . Tenant shall, at all times during the Lease Term and at its own cost and expense, maintain the Property (including the heating, plumbing and electrical systems and the structural components of any building and the roof of any building) and keep them in good condition and repair and free from actual or constructive waste and shall use all reasonable precautions to prevent damage, or injury to the Property. The Tenant shall provide for its own janitorial, lawn maintenance and pest control services. Tenant shall, at its sole cost and expense, be responsible for the repair or reconstruction of any buildings, structures or improvements erected on the Property damaged or destroyed by Casualty; subject to Section 7.02 , making all necessary structural, non-structural, exterior and interior repairs and replacements to any buildings, structures erected on the Property. Any repairs or replacements shall be Landlord’s property upon installation and may not be removed by Tenant, subject to Section 7.02 . Tenant’s work, repairs and replacements shall be performed and installed free and clear of liens and encumbrances. Tenant shall promptly replace any glass which may be broken or damaged with glass of like kind or quality. Tenant shall, at Tenant’s expense, not more frequently than annually except for good cause shown, provide to Landlord, upon Landlord’s request, a qualified facilities assessment report which will review the physical condition of the Property at the time of the report. Tenant agrees to promptly remedy any issues or deficiencies identified in the report to Landlord’s sole but reasonable satisfaction. Tenant shall surrender the Property at the expiration of the term in substantially the same condition as when received, ordinary wear and tear excepted. Tenant will immediately notify Landlord when it becomes aware that any repairs or replacements need to be made. In the event that any repairs or replacements require that a building permit or other governmental authorization be obtained, then the same provisions that govern the requirements for alterations shall govern the repairs and replacements, including, but not limited to, the provisions requiring Tenant to provide Landlord with plans and specifications for the improvements and making certain that the plans and specifications comply fully with all applicable Laws, Legal Requirements, governmental regulations and building codes. Tenant will not overload the electrical wiring and will not install any additional electrical wiring or plumbing unless it has first obtained Landlord’s written consent thereto, and, if such consent is given, installation shall be at Tenant’s sole cost and expense. Tenant will repair promptly at its own expense, any damage to the Property caused by bringing into the Property any property for Tenant’s use, or by the installation, use or removal of such property, regardless of fault or by whom such damage shall be caused unless caused by the gross negligence or willful conduct of Landlord, its agents, employees or contractors. Tenant waives any right to require Landlord to maintain, repair or rebuild all or any part of the Property or make repairs at the expense of Landlord pursuant to any Legal Requirements at any time in effect.

(b) Tenant’s Failure to Maintain and Repair . In the event Tenant, after written notice from Landlord, shall not proceed promptly and diligently, within sixty (60) days from the date of such written notice, to make any repairs or perform any obligation imposed upon it by this Lease, then in such event Landlord may, at its option, enter the Property and do and perform the things specified in said notice, without liability on the part of Landlord for any loss or damage resulting from any such action by Landlord (unless such loss or damage is caused by Landlord’s gross negligence or willful misconduct), and Tenant agrees to pay promptly upon demand any cost or expense incurred by Landlord in taking such action and all such costs and expenses shall be deemed Additional Rent hereunder.

(c) Maintenance Contracts . Tenant shall contract with a qualified heating and air conditioning service company approved by Landlord, in Landlord’s sole discretion, for the monthly maintenance and the repair and replacement, as necessary, of all HVAC systems or units. Tenant shall also contract with qualified service companies approved by Landlord, in Landlord’s sole discretion, for the monthly maintenance and repair of appliances and equipment that serve the Property. Tenant shall provide Landlord with a copy of any contract required under this subparagraph within ten (10) days after the Lease Commencement Date and a copy of any subsequent contracts (or any renewal contracts), within ten (10) days after their execution. The cost of all contracts which Tenant is required to maintain under this paragraph shall be borne by Tenant. In addition, Tenant shall keep accurate books and records and maintenance logs as to any and all repairs and replacements that have been performed with respect to the systems, appliances and equipment serving the Property. Copies of all such maintenance logs and records shall be delivered to Landlord upon Landlord’s request.

Section 7.02. Alterations and Improvements .

(a) Alterations . Tenant shall not make any alterations, additions or improvements to the Property or any part thereof, without obtaining Landlord’s prior written consent in each instance. Any alterations, additions or improvements made by Tenant shall immediately become the property of Landlord and shall remain upon the Property in the absence of an agreement to the contrary, provided, however, that Landlord shall have the right to require the restoration of the Property to its original condition, in which event Tenant shall comply with such requirement prior to the expiration or other termination of this Lease. Tenant shall have the right to install on the Property such equipment, trade fixtures, and machinery as, in Landlord’s reasonable opinion, is reasonably necessary for Tenant to conduct its business in the Permitted Facility, but otherwise shall not cut or drill into or secure any fixtures, apparatus or equipment of any kind in or to any part of the Property without first obtaining Landlord’s written consent. Notwithstanding anything to the contrary contained in this Lease, Tenant shall be entitled to make minor alterations to the Property, not exceeding a $50,000.00 value, so long as such alterations do not affect the structural portion of the Property and so long as Tenant provides notice of such alterations to Landlord.

(b) Requirements for Alterations . Any and all alterations and improvements made to the Property by Tenant hereunder shall be made at Tenant’s sole

cost and expense. Any alterations or improvements made to the Property by Tenant hereunder which require Landlord’s approval shall be subject to the following requirements (and any other condition or requirement that Landlord deems necessary or desirable to insure that any alterations or improvements made to the Property conform in Landlord’s reasonable opinion to the general quality and nature of the existing improvements):

(ii) No change or alteration in exterior or structural design or decor of the building or signs on the Property shall be made unless and until approved in writing by Landlord;

(iii) The plans and specifications for the improvements must fully comply with all applicable Laws, Legal Requirements, governmental regulations and building codes;

(iv) Prior to construction, Tenant will deliver to Landlord a complete set of plans and specifications for the proposed improvements, for Landlord’s approval;

(v) Tenant shall obtain, or require the contractor to furnish, in connection with all construction work, Builder’s Risk insurance for the full estimated value of the proposed improvements and worker’s compensation insurance in amounts required by law; and

(vi) Tenant shall be required to furnish a payment and performance bond or such other security as Landlord may reasonably require in connection with such work.

Section 7.03. Cleaning Property . Tenant shall: (i) use, maintain and occupy the Property in a careful, safe, proper and lawful manner, keep the appurtenances, including adjoining areas and sidewalks, in a clean and safe condition, and promptly clean any debris from said sidewalks and areas contiguous to said Property during the Lease Term of this Lease at its own expense, (ii) keep the inside and outside of all glass in the doors and windows or the Property clean, (iii) maintain the Property at its own expense in a clean, orderly and sanitary condition, free of insects, rodents, vermin and trash, rubbish and other refuse, (iv) keep refuse in proper containers and arrange for the removal of all refuse from the Property; (v) maintain all landscaping in good condition; and (vi) not cause or permit objectionable odors to emanate or be dispelled from the Property.

Section 7.04. Signage . Except for the signs identified on Exhibit C attached hereto, Tenant shall not place, suffer to be placed, or maintain any sign, billboard, marquee, awning, decoration, placard, lettering, or advertising on the exterior of the Property or on the glass or any window or door of the Property, without first obtaining Landlord’s written approval thereof. Tenant further agrees that any sign, billboard,

marquee, awning, decoration, placard, lettering or advertising matter or other such Tenant installation of any kind shall be in compliance with all applicable Laws, Legal Requirements and regulations and shall be maintained by Tenant in good condition and repair at all times. If any such sign is approved and installed, Tenant shall pay any and all taxes relating thereto and all illumination costs thereof, if any, and obtain all necessary permits or approvals for such sign.

Section 7.05. Compliance With Law . Tenant shall comply with all Laws, Legal Requirements, rules, regulations, orders, directions and requirements of all governmental departments, bodies, bureaus, agencies and officers, and with all reasonable rules, directions, requirements and recommendations of the local board of fire underwriters and other fire insurance rating organizations for the area in which the Property is situated, pertaining to the Property or the use and occupancy thereof. If Tenant proposes to undertake alterations or improvements to the Property, which would trigger a requirement under the Americans With Disabilities Act or comparable state or local Laws or regulations (the “Disabilities Laws”) to conduct additional improvements, alterations or other changes to the Property in order for the Property to be in compliance with the Disabilities Laws, Tenant, at its sole expense, shall make such improvements, alterations or changes to the Property. In the event Tenant shall fail or neglect to comply with any of the aforesaid Laws, Legal Requirements rules, regulations, orders, directions, requirements or recommendations, Landlord or its agents may enter the Property and take all such action and do all such work in or to said Property as may be necessary in order to comply with such Laws, Legal Requirements, rules, regulations, and Tenant shall reimburse Landlord promptly upon demand for the expense incurred by Landlord in taking such action and performing such work. Tenant shall not do or suffer to be done, or keep or suffer to be kept anything in, upon or about the Property which will contravene Landlord’s policies insuring against loss or damage by fire or other hazards, including, but not limited to, public liability, or which will prevent Landlord from procuring such policies from companies reasonably acceptable to the Landlord; and if anything done, omitted to be done or suffered to be done by Tenant, or kept, or suffered by Tenant to be kept in, upon or about the Property shall cause the cost of fire or other insurance on the Property, from companies reasonably acceptable to Landlord, to be increased beyond the minimum from time to time applicable to the Property for use for the purposes permitted under this Lease, or applicable to such other property of Landlord for the use or uses made thereof, Tenant will pay the amount of such increase promptly upon Landlord’s demand.

Section 7.06. No Liens . Landlord’s interest in the Property shall not be subject to liens for improvements made by Tenant and Tenant shall have no power or authority to create any lien or permit any lien to attach to Tenant’s leasehold or to the estate, reversion or other estate of Landlord in the Property or any improvements of which the Property is a part. All contractors, artisans, mechanics and laborers and other persons supplying materials or labor or contracting with Tenant with respect to the Property or any part thereof, or any party entitled to claim a lien under the Laws of the state where the Property is located (whether same shall proceed in law or in equity) are hereby charged with notice that they shall look solely to Tenant to secure payment of any amounts due for work done or material furnished to Tenant relating to the Property, or for any other purpose during the Lease Term of this Lease.

Tenant shall indemnify Landlord against any loss or expenses incurred as a result of the assertion of any such lien, and Tenant covenants and agrees to transfer any claimed or asserted lien to a bond or such other security as may be permitted by law within ten (10) days of the assertion of any such lien or claim of lien. In the event Tenant fails to transfer such lien to bond or other security within such ten (10) day period then, in addition to its other remedies specified in this Lease, Landlord shall have the right to discharge the lien or to transfer the lien claimed to bond or other security permitted by law and in any such event Tenant shall pay all costs so incurred by Landlord immediately upon demand therefor. Tenant shall advise all persons furnishing designs, labor, materials or services to the Property in connection with Tenant’s improvement(s) thereof of the provisions of this Section.

ARTICLE 8

USE OF THE PROPERTY; COMPLIANCE

Section 8.01. Use of Property . During the Lease Term, the Permitted Facility demised hereunder shall be used and occupied by Tenant for and as an acute care hospital having no less than 106 licensed beds and for no other use or purpose without Landlord consent. Tenant shall at all times maintain in good standing and in full force and effect all the licenses, certifications and provider agreements issued by the Texas Department of State Health Services and any other applicable state or federal governmental agencies, permitting the operation of an acute care hospital having no less than the number of licensed beds set forth above. Tenant shall at all times use its best efforts to maximize the earnings of the Property. Without Landlord’s prior written consent, which Landlord may withhold in its sole and absolute discretion, Tenant shall not apply for, or consent to, any reduction in the number of state licensed beds or Medicaid and Medicare certified beds at the Property. Tenant will not suffer any act to be done or any condition to exist on the Property or any portion thereof which is unlawful, known to be dangerous or which may void or make voidable any insurance then in force on the Property or any portion thereof.

Section 8.02. End of Term . Upon expiration or termination of this Lease for any reason, Tenant will return to Landlord the Property, qualified and sufficient for licensing and certification by each Governmental Authority having jurisdiction over the Property as an acute care hospital having no less than the number of licensed beds as set forth in Section 8.01 for the Permitted Facility, with licenses, certifications and provider agreements in full force and good standing. The Property, with the improvements located therein and all Existing Personalty (excluding any Existing Personalty which Landlord directs Tenant to remove pursuant to Section 3.04) shall be surrendered in good order, condition and repair, normal wear and tear excepted. So long as no Event of Default exists, Tenant shall be entitled to remove its Personalty, subject to the requirements of Section 3.03.

Section 8.03. Licenses . Tenant shall keep the Property equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant. Tenant shall procure all licenses and permits required by Tenant to conduct its business and shall keep in effect all accreditations, including, but

not limited to, joint commission accreditations which are necessary to conduct its business. Landlord, at no expense to Landlord, shall cooperate with Tenant in order for Tenant to obtain any such licenses or permits.

Section 8.04. Compliance . Tenant’s use and occupation of the Property, and the condition thereof, shall, at Tenant’s sole cost and expense, comply fully with all Legal Requirements and all restrictions, covenants and encumbrances of record, and any owner obligations under such Legal Requirements, or restrictions, covenants and encumbrances of record, with respect to the Property, in either event, the failure with which to comply could have a Material Adverse Effect. Without in any way limiting the foregoing provisions, Tenant shall comply with all Legal Requirements relating to anti-terrorism, trade embargos, economic sanctions, Anti-Money Laundering Laws, and the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder, as it affects the Property now or hereafter in effect. Upon Landlord’s written request from time to time during the Lease Term, Tenant shall certify in writing to Landlord that Tenant’s representations, warranties and obligations under Section 5.04 and this Section 8.04 remain true and correct and have not been breached. Tenant shall immediately notify Landlord in writing if any of such representations, warranties or covenants are no longer true or have been breached or if Tenant has a reasonable basis to believe that they may no longer be true or have been breached. In connection with such an event, Tenant shall comply with all Legal Requirements and directives of any Governmental Authority and, at Landlord’s request, provide to Landlord copies of all notices, reports and other communications exchanged with, or received from, any Governmental Authority relating to such an event. Tenant shall also reimburse Landlord for all Costs incurred by Landlord in evaluating the effect of such an event on the Property and this Lease, in obtaining any necessary license from any Governmental Authority as may be necessary for Landlord to enforce its rights under the Transaction Documents, and in complying with all Legal Requirements applicable to Landlord as the result of the existence of such an event and for any penalties or fines imposed upon Landlord as a result thereof. Tenant will use its best efforts to prevent any act or condition to exist on or about the Property which will materially increase any insurance rate thereon, except when such acts are required in the normal course of its business and Tenant shall pay for such increase. Tenant agrees that it will defend, indemnify and hold harmless the Indemnified Parties from and against any and all Losses caused by, incurred or resulting from Tenant’s failure to comply with its obligations under this Section.

Section 8.05. Environmental Matters .

(a) Representations and Warranties . Tenant represents and warrants to Landlord which representations and warranties shall survive the execution and delivery of this Lease, as follows:

(i) The Property and Tenant are not in violation of or subject to, any pending or, to Tenant’s actual knowledge, threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws that could have a Material Adverse Effect, nor has Tenant received any written or oral

notice or other communication from any Person (including but not limited to a Governmental Authority) with respect to any Property relating to (A) Hazardous Materials, Regulated Substances or USTs, or Remediation thereof; (B) possible liability of any Person pursuant to any Environmental Law; (C) other environmental conditions; or (D) any actual or potential administrative or judicial proceedings in connection with any of the foregoing that could have a Material Adverse Effect. The foregoing representations and warranties would continue to be true and correct following disclosure to each applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the Property.

(ii) (A) All uses and operations on or of the Property, whether by Tenant or, to Tenant’s knowledge, any other Person, have been in compliance with all Environmental Laws and environmental permits issued pursuant thereto; (B) there have been no Releases in, on, under or from any of the Property, or, to Tenant’s knowledge, from other property migrating toward any of the Property, except in Permitted Amounts; (C) there are no Hazardous Materials, Regulated Substances or USTs in, on, or under any of the Property, except in Permitted Amounts; (D) the Property have been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the “Environmental Liens”); and (E) Tenant has not allowed any other tenant or other user of the Property to do any act that materially increased the dangers to human health or the environment, posed an unreasonable risk of harm to any Person (whether on or off any of the Property), impaired the value of the Property in any material respect, is contrary to any requirement set forth in the insurance policies maintained by Landlord, constituted a public or private nuisance, constituted waste, or violated any covenant, condition, agreement or easement applicable to any of the Property.

(b) Compliance with Environmental Laws . As a material inducement to Landlord to lease the Property to Tenant, Tenant covenants and warrants that Tenant and Tenant’s use and Operations on the Property will at all times comply with and conform to all Environmental Laws, including without limitation, those Environmental Laws which relate to the Handling of any Waste on or about the Property. Tenant covenants to Landlord during the Lease Term, subject to the limitations of subsection (ii) below, as follows:

(i) The Property and Tenant shall not be (1) in violation of any Remediation required by any Governmental Authority, or (2) subject to any Remediation obligations under any Environmental Laws. Tenant shall not be in violation of any investigation or inquiry by any Governmental Authority.

(1) All uses and operations on or of the Property, whether by Tenant or any other Person, shall be in compliance with all Environmental Laws and permits issued pursuant thereto.

(2) There shall be no Releases in, on, under or from the Property, except in Permitted Amounts.

(3) There shall be no Hazardous Materials, Regulated Substances, USTs in, on or under the Property, except in Permitted Amounts and the USTs identified in the Phase 1 Environmental Site Assessment of Lakeway Regional Medical Center prepared by EMG dated November 12, 2014.

(4) Tenant shall keep the Property or cause the Property to be kept free and clear of all Environmental Liens, whether due to any act or omission of Tenant or any other Person.

(5) Tenant shall not do or allow any other tenant or other user of the Property to do any act that (1) materially increases the dangers to human health or the environment, (2) poses an unreasonable risk of harm to any Person (whether on or off any of the Property), (3) has a Material Adverse Effect, (4) is contrary to any material requirement set forth in the insurance policies maintained by Tenant, (5) constitutes a public or private nuisance or constitutes waste, or (6) violates any covenant, condition, agreement or easement applicable to the Property.

(6) Tenant shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property as may be reasonably requested by Landlord (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Landlord the reports and other results thereof, and Landlord and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof.

(ii) Notwithstanding any provision of this Lease to the contrary, an Event of Default shall not be deemed to have occurred as a result of the failure of Tenant to satisfy any one or more of the covenants set forth in subsections (1) through (7) above provided that Tenant shall be in compliance with the requirements of any Governmental Authority with respect to the Remediation of any Release at the Property.

(c) Right of Entry/Compliance Inspections . Landlord and any other Person designated by Landlord, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Property at all reasonable times (including, without limitation, in connection with the exercise of any remedies set forth in this Lease) to inspect and monitor the Property and Tenant’s use and Operations on the Property and to assess any and all aspects of the environmental condition of any Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Landlord’s sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Tenant shall cooperate with and provide access to Landlord, and any other Person designated by Landlord. Any such assessment or investigation shall be at Tenant’s sole cost and expense.

(d) Inspections . At its sole cost and expense, Tenant shall have the Property inspected as may be required by any Environmental Law for seepage, spillage and other environmental concerns. Tenant shall maintain and monitor USTs in accordance with all Environmental Laws. Tenant shall provide Landlord with written certified results of all inspections performed on the Property. All costs and expenses associated with the inspection, preparation and certification of results, as well as those associated with any corrective action, shall be paid by Tenant. All inspections and tests performed on the Property shall be in compliance with all Environmental Laws.

(e) UST Compliance . Tenant shall comply or cause the compliance with all applicable federal, state and local regulations and requirements regarding USTs, including, without limitation, any of such regulations or requirements which impose (i) technical standards, including, without limitation, performance, leak prevention, leak detection, notification reporting and recordkeeping; (ii) corrective action with respect to confirmed and suspected Releases; and (iii) financial responsibility for the payment of costs of corrective action and compensation to third parties for injury and damage resulting from Releases. Tenant shall immediately notify Landlord, in writing, of (A) the presence on or under the Property, or the Release from any USTs on, above or under the Property, of any Hazardous Materials or Regulated Substances, apparent or real; and (B) any and all enforcement, clean up, remedial, removal or other governmental or regulatory actions threatened, instituted or completed pursuant to any of the Environmental Laws affecting the Property. Upon any such Release from any USTs on, above or under the Property of any Hazardous Materials or Regulated Substances, Tenant shall immediately remedy such situation in accordance with all Environmental Laws and any request of Landlord. Should Tenant fail to remedy or cause the remedy of such situation in accordance with all Environmental Laws, Landlord shall be permitted to take such actions in its sole discretion to remedy such situation and all Costs incurred in connection therewith, together with interest at the Default Rate, will be paid by Tenant.

(h) Remediation . In the event (a) of any Notice; or (b) if Tenant has caused, suffered or permitted, directly or indirectly, any Spill or Environmental Condition on or about the Property, or (c) if any Spill or Environmental Condition has occurred on or about the Property or otherwise affecting the Property, then Tenant shall immediately take all of the following actions, at its sole cost and expense, and without limiting any other provision of this Lease:

(i) notify Landlord, as provided in Subsection (g), above;

(iv) promptly provide Landlord with copies of all reports, data, proposals, test results or analyses, assessment or remediation plans relating to such incidents;

(vi) fully cooperate with Landlord with respect to any such incident, including permitting Landlord to monitor and inspect all activities pursuant to subparagraphs (ii) – (iv) above.

Should Tenant fail to undertake such Remediation in accordance with the preceding sentence, Landlord, after written notice to Tenant and Tenant’s failure to immediately undertake such Remediation, shall be permitted to complete such Remediation, and all Costs incurred in connection therewith shall be paid by Tenant. Any Cost so paid by Landlord, together with interest at the Default Rate, shall be deemed to be a Monetary Obligation hereunder (and not Rent) and shall be immediately due from Tenant to Landlord.

(i) Tenant’s Indemnification of Landlord for Environmental Matters . Tenant hereby agrees that it will indemnify, defend, save and hold harmless the Indemnified Parties against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, loss, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses, whether in court, out of court, in bankruptcy or administrative proceedings or on appeal), penalties, or fines, incurred by or asserted against the Indemnified Parties by reason or arising out of: (a) the breach of any representation or undertaking of Tenant under this Article 8; (b) arising out of the Spill or Handling of any Waste by Tenant or any subtenant, licensee, concessionaire, manager, or other party occupying or using the Property, or affecting the Property as a result of Tenant’s Operations on the Property; (c) arising out of any Notice, Spill or Environmental Condition or any other contamination governed by the terms of this Section, including without limitation, (i) any loss, cost, expense, claim, or liability arising out of any investigation, monitoring, clean-up, containment, removal, storage, or restoration work

required by, or incurred by Landlord or any entity or person in a reasonable belief that such work is required by any Environmental Law, (ii) any claims of third parties for loss, injury, expense, or damage of any kind or nature arising out of any Environmental Condition, Spill or Handling of any Waste on, under, in, above, to, or from the Property; and (iii) any loss of use or diminution in value of the Property.

(j) Survival of Covenants, Representations and Warranties and Indemnities . Notwithstanding anything in this Lease to the contrary, the covenants, representations, warranties, indemnities and undertakings of Tenant set forth in this Section shall survive the expiration or termination of this Lease regardless of the method of expiration or termination of this Lease.

(k) Surrender/Lease Net of Environmental Risk to Landlord . This Lease is intended to be, and shall be construed as a lease absolutely net of environmental risk to Landlord. As a material inducement to Landlord to enter into this Lease, Tenant has agreed to assume all responsibility and cost of any kind associated with or arising out of any Notice, Environmental Condition or Spill or any other contamination on or about the Property arising out of or in connection with Tenant’s use or Tenant’s Operations at the Property, to indemnify the Indemnified Parties against all such hazards as provided in Subsection (i), above, fully to comply with the terms and conditions of provisions of this Section, and to restore the Property at the termination or expiration of the Lease as provided below.

Notwithstanding anything herein to the contrary, at the expiration or termination of this Lease, the Property shall be returned to Landlord in as good condition as at the commencement of Tenant’s Operations on the Property, notwithstanding any remediation levels for Waste or Spill cleanup imposed by Environmental Laws which may be in excess of the levels of such Wastes at the Property prior to the commencement of Tenant’s Operations.

(l) Installation . Tenant shall not install any fueling facilities, gas/propane tanks, underground or above ground storage tanks, vaults, sumps, hydraulic lifts or any kind or nature, without the prior written consent of Landlord which may be withheld in Landlord’s sole discretion.

(m) Definitions in Connection with Environmental Matters .

(i) “ Environmental Condition ” shall mean any noncompliance on or about the Property with any Environmental Law (as hereinafter defined).

substances, materials or wastes, including without limitation petroleum products, into the environment including, without limitation, ambient air, surface water, ground water, or land.

(iii) “ Handling ” shall mean use, treatment, storage, manufacture, processing, distribution, transport, placement, handling, discharge, generation, production or disposal.

(iv) “ Indemnified Parties ” means Landlord, and its members, managers, officers, directors, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, Lender and each of their respective successors and assigns, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Landlord.

(vi) “ Notice ” shall mean any notice or report, whether oral or written, of any the following:

(1) any Releases or Threatened Releases in, on, under or from the Property, or migrating towards the Property;

(3) any Spill (as hereinafter defined) or Environmental Condition on or about the Property or relating to Tenant’s Operations on the Property;

(5) any claims by or against any insurer related to or arising out of any Waste, Spill or Environmental Condition on or about the Property or relating to Tenant’s use and Operations on the Property;

(7) any actual or potential Environmental Lien;

(8) any non-compliance with any Environmental Laws related in any way to the Property;

(9) any Legal Requirement or deficiency related to the Handling of Waste, Spill or Environmental Condition on or about the Property or relating to Tenant’s use and Operations on the Property; or

ARTICLE 9

ADDITIONAL COVENANTS

Section 9.01. Performance at Tenant’s Expense . Tenant acknowledges and confirms that Landlord may impose reasonable administrative, processing or servicing fees, and collect its attorneys’ fees, costs and expenses in connection with (a) any extension, renewal, modification, amendment and termination of this Lease; (b) any release or substitution of Property; (c) the procurement of consents, waivers and approvals with respect to the Property or any matter related to this Lease; (d) the review of any assignment or sublease or proposed assignment or sublease or the preparation or review of any subordination or non-disturbance agreement; (e) the collection, maintenance and/or disbursement of reserves created under this Lease or the other Transaction Documents; and (f) inspections required to make certain determinations under this Lease or the other Transaction Documents.

inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Property and any other loss occasioned by such entry. For the period of six (6) months prior to the expiration of the Lease Term of this Lease, Landlord shall have the right to display on the exterior of the Property a sign indicating that the Property is available for rent. During such period, Landlord may show the Property and all parts thereof to prospective tenants upon reasonable notice to Tenant. In addition, at any time during the Lease Term of this Lease, Landlord shall have a right to display on the exterior of the Property a sign indicating that the Property is for sale. In addition to the foregoing rights of inspection and access, during each Lease Year, Landlord and its agents shall have the right and the option to inspect the Property, including all mechanical systems contained therein, and all computer and software systems serving the business of the Tenant, at reasonable times to determine Tenant’s compliance with its obligations under this Lease. Tenant shall be responsible for the cost of such annual inspections, which cost shall not exceed on an annual basis the sum of Twenty Five Thousand and No/100 Dollars ($25,000.00).

Section 9.03. SEC and Financial Statements .

(a) The Tenant acknowledges that Landlord, or one or more of its Affiliates, is or may be subject to the rules and regulations of the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended (collectively, the “Securities Acts,” with such entity subject to the Securities Acts, the “Registered Company,” and any affiliate of a Registered Company (a “Registered Company Affiliate”).

(b) The Tenant acknowledges that the Registered Company will be required to include certain financial statements in its filings (the “SEC Filings”) with the U.S. Securities and Exchange Commission (“SEC”), including but not limited to financial statements in accordance with SEC Rules 3-05 and/or 3-14 under Regulation S-X and/or historical financial statements.

(c) To assist the Registered Company with the preparation of the financial statements to be included in the SEC Filings, the Tenant agrees to, and shall, provide the Landlord and the Registered Company with financial information regarding the Tenant and/or any guarantor for the years requested by Landlord, the Registered Company, and/or the Landlord’s or the Registered Company’s auditors. Such information may include, but is not limited to, financial statements, bank statements, operating statements, general ledgers, cash receipts schedules, invoices for expenses and capital improvements, insurance documentation, and accounts receivable aging related to the Property, the Tenant and/or any guarantor (“SEC Filing Information”).

(d) The Tenant shall deliver the SEC Filing Information requested by Landlord, the Registered Company and/or Landlord or the Registered Company’s auditors within five (5) Business Days of such request thereof, and the Tenant agrees to cooperate with the Landlord, the Registered Company and Landlord’s or the Registered Company’s auditors regarding any inquiries by the Landlord, the Registered Company and Landlord’s or the Registered Company’s auditors following receipt of such information, including

delivery by the Tenant or any guarantor, as applicable, of an executed representation letter in form and substance as reasonably requested by the Landlord (“SEC Filings Letter”). Landlord’s and/or the Registered Company’s auditors may require additions and/or revisions to such letter following review of the SEC Filing Information provided by the Tenant.

(e) The Tenant consents to the disclosure of the SEC Filing Information and this Lease in any SEC Filings by the Registered Company and any materials used in connection with an offering of securities by the Landlord and/or the Registered Company.

Section 9.04. Anti-Terrorism Laws . Upon receipt of notice or upon actual knowledge thereof, Tenant shall immediately notify Landlord in writing if any Person owning (directly or indirectly) any interest in any of the Tenant Entities, or any director, officer, shareholder, member, manager or partner of any of such holders is a Person whose property or interests are subject to being blocked under any of the Anti-Terrorism Laws, or is otherwise in violation of any of the Anti-Terrorism Laws, or is under investigation by any Governmental Authority for, or has been charged with, or convicted of, drug trafficking, terrorist related activities or any violation of the Anti-Money Laundering Laws, has been assessed civil penalties under these or related Laws, or has had funds seized or forfeited in an action under these or related Laws; provided, however, that the covenant in this Section 9.04 shall not apply to any Person to the extent such Person’s interest is in or through a U.S. Publicly Traded Entity.

Section 9.05. Subordination and Estoppel Certificates .

(a) Subordination . This Lease is expressly made subject to and is subordinate to all current or future mortgages and liens upon the Property or any part thereof by the Landlord or its successors, including purchasers or transferees, and any and all renewals, modifications, and extensions thereof. It is specifically understood and agreed by the parties hereto that this agreement and all rights, privileges, and benefits hereunder are and shall be at all times subject to and subordinate to the lien of any and all Mortgages and the accompanying documents executed by the Landlord on behalf of the Property but subject, however, to the terms of Section 13.03. The foregoing subordination shall be self-operative and no further instruments of subordination shall be necessary, but Tenant hereby agrees to execute, at the Landlord’s request and expense, any customary and reasonable instrument which the Landlord or any Lender may deem necessary or desirable to effect the subordination of this Lease to any such Mortgage.

(b) Estoppel Certificate . Tenant agrees that at any time, and from time to time at reasonable intervals, within ten (10) days after written request by Landlord, Tenant will execute, acknowledge and deliver to Landlord or an assignee, purchaser or lender designated by Landlord, a writing ratifying this Lease and certifying, among other things:

(i) that Tenant has entered into occupancy of the Property and the date of such entry, if such is the case;

(iii) that this Lease represents the entire agreement between Landlord and Tenant;

(iv) the date of the commencement and expiration of the Lease Term;

(v) that all conditions under this Lease to be performed by Landlord have been satisfied (or specifying those conditions unsatisfied);

(vii) any other information reasonably requested by Landlord, a perspective purchaser, transferee or any Lender, as the case may be.

Tenant shall also certify such other matters as Landlord shall reasonably request. In the event that Tenant should fail to execute such estoppel promptly as requested, Tenant shall be in default of this Lease.

Section 9.06. Transfer of Operations Upon Termination of Lease .

(a) The date on which (i) this Lease either terminates or expires pursuant to its terms or is terminated by either party whether pursuant to a right granted to it hereunder or otherwise, (ii) Tenant’s right to possession of the Property is terminated pursuant to a right granted to it hereunder or otherwise, or (iii) Tenant otherwise abandons the Property shall be referred to as the “Termination Date” in this Section. On the Termination Date, upon Landlord’s affirmative election, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Landlord (or Landlord’s designee — for purposes of this Section 9.06 the term Landlord shall be deemed to mean Landlord’s designee, if applicable)) all of Tenant’s right, title and interest in and to the following intangible property which is now or hereafter used in connection with the operation of the Property (the “Intangibles”) and an assumption by Landlord of Tenant’s obligations under the Intangibles from and after the Termination Date; provided that, from and after the Termination Date, Tenant shall indemnify, defend and hold harmless Landlord and the other Indemnified Parties from and against any claims, losses, costs or damages, including reasonable attorneys’ fees incurred or arising by reason of Tenant’s obligations under the Intangibles prior to the Termination Date:

(i) service contracts and equipment leases for the benefit of the Property to which Tenant is a party, and which can be terminated without penalty by Tenant within sixty (60) or fewer days’ notice or which Landlord requests be assigned to Landlord pursuant to this Section 9.06;

(iv) at Landlord’s option, the business of Tenant as conducted at the Property as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein.

(b) Landlord shall be responsible for and shall pay all accrued expenses with respect to the Property accruing on or after 12:01 a.m. on the day of the Termination Date and shall be entitled to receive and retain all revenues from the Property accruing on or after the Termination Date. Within fifteen (15) Business Days after the Termination Date, the following adjustments and prorations shall be determined as of the Termination Date:

(i) Taxes and assessments, if any. If the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Termination Date occurs, the proration of such taxes shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made when actual figures are published or otherwise become available.

(iii) Landlord shall receive a credit equal to any advance payments by patients of the Permitted Facility to the extent attributable to periods on and after the Termination Date.

(iv) The present insurance coverage on the Property shall be terminated as of the Termination Date and there shall be no proration of insurance premiums.

(d) For the period commencing on the Termination Date and ending on the date Landlord, or its designee, obtains any and all appropriate state or other governmental licenses and certifications required to operate the Permitted Facility, Tenant hereby agrees that Landlord, or Landlord’s designee, shall have the right, but not the obligation, to manage and operate the Property, on a triple net basis, and shall be entitled to all revenues of the Property during such period, and to use any and all licenses, certifications and provider agreements issued to Tenant by any federal, state or other Governmental Authority for such operation of the Property, if permitted by any such Governmental Authority. If Landlord or its designee exercises the right described above in this Section 9.06, the provisions of this Section 9.06 shall be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other hand, on the terms set forth above in this Section 9.06 provided, however, that upon the request of Landlord or its designee, Tenant shall enter into a separate management agreement on the terms set forth in this Section 9.06 and on such other terms and provisions as may be specified by Landlord or its designee.

(e) All cash, checks and cash equivalent at the Property and deposits in bank accounts (other than patient trust accounts) relating to the Property on the Termination Date shall remain Tenant’s property after the Termination Date. Subject to the provisions of Section 16.01 hereof, all accounts receivable, loans receivable and other receivables of Tenant, whether derived from operation of the Property or otherwise, shall remain the property of Tenant after the Termination Date. Tenant shall retain full responsibility for the collection thereof. Landlord shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Termination Date. In order to facilitate Tenant’s collection efforts, Tenant agrees to deliver to Landlord, within a reasonable time after the Termination Date, a schedule identifying all of those private pay balances owing for the month prior to the Termination Date and Landlord agrees to apply any payments received which are specifically designated as being applicable to services rendered prior to the Termination Date to reduce the pre-Termination Date balances of said patients by promptly remitting said payments to Tenant. All other payments received shall be retained by Landlord as being applicable to services rendered after the Termination Date. Landlord shall cooperate with Tenant in Tenant’s collection of its pre-termination accounts receivable. Landlord shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a

result of such activities on behalf of Tenant. Subject to the provisions of Section 16.01 hereof, Landlord shall remit to Tenant or its assignee those portions of any payments received by Landlord which are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending on or prior to the Termination Date.

(f) In addition to the obligations required to be performed hereunder by Tenant and Landlord on and after the Termination Date, Tenant and Landlord agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Termination Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein, including but not limited to any documents or filings which may be required to be delivered by Tenant to Landlord or be filed in order for the transaction contemplated hereunder to be in compliance with all local, state and federal Laws, Legal Requirements, statutes, rules and regulations.

(g) Tenant for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Landlord and the other Indemnified Parties and their respective successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Tenant in the performance of any of its commitments, covenants or obligations under this Section 9.06, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use by Tenant of the Property during the Lease Term or for any liability which may arise from operation of the Property as an acute care hospital during the Lease Term, including without limitation, any amounts due or to be reimbursed to any Governmental Authority based upon any audit or review of Tenant or of the Permitted Facility or the operation thereof and pertaining to the period prior to the Termination Date or any amounts recaptured under Titles XVIII or XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Landlord under this paragraph are without prejudice to any other remedies not inconsistent herewith which Landlord may have against Tenant pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise.

(h) So long as the termination of this Lease is not due to a default by Tenant hereunder and provided further that Tenant has performed in accordance with this Section 9.06, Landlord for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Tenant and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Landlord in the performance of any of its commitments, covenants or obligations under this Section 9.06, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use of the Property after the Lease Term or for any liability which may arise from operation of the Property as an acute care hospital after the Lease Term. The rights of Tenant under this paragraph are without prejudice to any other remedies not inconsistent herewith which

Tenant may have against Landlord pursuant to the terms of this Lease or otherwise. In addition, so long as the requirements set forth in this subparagraph (h) have been satisfied by Tenant, if Landlord so elects, Landlord or its designee shall purchase all of Tenant’s Intangibles and Personalty needed for operation of the hospital together with the rights to necessary licenses and permits to continue operations from Tenant at their then current fair market value as determined by a duly qualified third party appraiser based on then current results and operations of Tenant.

Section 9.07. Reporting Obligations . On a monthly basis Tenant shall provide to Landlord its income statements, balance sheets, statistical information (ALOS, payor mix, procedures by physician and by type, revenue by physician and by procedure, etc.) accounts receivable, accounts payable, any governmental or licensing authority notices or survey results, plans of correction and acceptance of such by the surveying authority and any other reports reasonably requested by the Landlord.

Section 9.08. Management Fee Subordination . Tenant covenants that it will not enter into any Management Agreement unless such agreement provides that all management fees thereunder shall be subordinate to all Rent, Additional Rent, Monetary Obligations and other payments required under this Lease.

ARTICLE 10

RELEASE AND INDEMNIFICATION

Section 10.01. Limit on Landlord’s Liability and Indemnity .

(a) Release of Landlord . To the maximum extent permitted by law, Tenant agrees to use and occupy the Property at its own risk, and hereby (for itself and all persons claiming under, by or through Tenant) releases Landlord, its agents, servants, contractors and employees, from any and all claims, costs, fines, Losses, suits, actions, liabilities, damages and expense whatsoever (including all Attorneys’ Fees), interest, penalties, causes of action and expenses and demands of every kind resulting from any accident, damage or injury occurring therein, unless due solely to Landlord’s gross negligence or willful misconduct as determined by a court having jurisdiction over such matter. Tenant expressly covenants and agrees that Landlord shall not be responsible or liable to Tenant for any loss of, or damage or injury to, inventory, fixtures, improvements, materials or any other property of Tenant, or for defects in workmanship or for improper design or construction of any alterations or improvements approved by Landlord, or for any other loss or damage from any source whatsoever, unless such injury, loss, or damage is due solely to Landlord’s gross negligence or willful misconduct. Anything in this Section to the contrary notwithstanding, Landlord shall have no liability whatsoever for any loss, injury or damages suffered by Tenant to the extent such loss, injury or damage may be covered by applicable insurance policies, nor shall Landlord have any liability whatsoever for consequential damages suffered by Tenant. All Personalty and Existing Personalty which may be upon the Property during the Lease Term hereof shall be at and

upon the sole risk and responsibility of Tenant. It is expressly agreed by the parties that in no case shall Landlord, any partners, officers, directors, managers, members, agents or employees of Landlord be liable, under any express or implied covenant, agreement or provisions of this Lease, for any damages whatsoever to Tenant beyond the loss of Rent reserved in this Lease, accruing after or upon any act or breach hereunder on the part of Landlord and for which damages may be sought to be recovered against Landlord. Anything to the contrary notwithstanding, under no circumstances shall any personal liability attach to or be imposed upon Landlord or any partners, officers, directors, managers, members, agents or employees of Landlord. The term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Landlord’s interest in the Property or Landlord’s failure to act in respect of matters which are or were the obligation of Tenant under this Lease

(b) Indemnity by Tenant . Tenant hereby agrees to defend, indemnify, and hold Landlord and the Indemnified Parties harmless from and against any cost, damage, claim, Losses, liability, cause of action, suit or expense (including Attorneys’ Fees) incurred by or claimed against Landlord or any of the Indemnified Parties, directly or indirectly, which is occasioned by or results from (i) any default or Event of Default by Tenant under this Lease, (ii) any act, omission, fault, negligence, or misconduct on the part of Tenant, its agents, employees, contractors, invitees, licensees, customers, clients, family members or guests, or any other person entering the Property under the express or implied invitation of Tenant, or (iii) Tenant’s use and occupancy of the Property or the conduct of Tenant’s business. Any such cost, damage, claim, liability, or expense incurred by Landlord or the Indemnified Parties for which Tenant is obligated to reimburse Landlord or the Indemnified Parties shall be deemed Additional Rent due and payable within ten (10) days of Landlord’s written demand therefor. It is expressly understood and agreed that Tenant’s liability under this Lease extends to the acts and omissions of any subtenant and any agent, employee, contractor, invitee, licensee, customer, client, family member and guest of any subtenant.

TENANT’S INDEMNITY OBLIGATIONS UNDER THIS ARTICLE 10 (OTHER THAN WITH RESPECT TO CLAIMS RESULTING SOLELY FROM LANDLORD’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) APPLY EVEN THOUGH THE CLAIMS OR LOSSES ARE CAUSED OR ALLEGED TO BE CAUSED BY THE JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE OR FAULT OF LANDLORD OR ANY OF THE OTHER INDEMNIFIED PARTIES AND EVEN THOUGH ANY SUCH CLAIM, CAUSE OF ACTION, OR SUIT IS BASED UPON OR ALLEGED TO BE BASED UPON ORDINARY NEGLIGENCE OR STRICT LIABILITY, THIS INDEMNITY IS INTENDED TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE OR FAULT WHEN ANY OF THE INDEMNIFIED PARTIES ARE JOINTLY, COMPARATIVELY OR CONCURRENTLY NEGLIGENT WITH TENANT.

ARTICLE 11

CONDEMNATION AND CASUALTY

Section 11.01. Notification . Tenant shall promptly give Landlord written notice of (a) any Condemnation of the Property, (b) the commencement of any proceedings or negotiations which might result in a Condemnation of the Property, and (c) any Casualty to any of the Property or any part thereof. Such notice shall provide a general description of the nature and extent of such Condemnation, proceedings, negotiations or Casualty, and shall include copies of any documents or notices received in connection therewith. Thereafter, Tenant shall promptly send Landlord copies of all notices, correspondence and pleadings relating to any such Condemnation, proceedings, negotiations or Casualty.

Section 11.02. Partial Condemnation or Casualty . Except as otherwise provided in Section 11.03, in the event of a Partial Condemnation or a Casualty:

(a) Net Awards . All Net Awards shall be paid to Landlord.

(i) All Rent and other Monetary Obligations due under this Lease shall continue unabated.

Section 11.03. Total Condemnation . In the event of a Total Condemnation of any Property, other than a Temporary Taking, then, in such event:

(a) Termination of Lease . All obligations of either party hereunder with respect to the Property shall cease as of the date of the Total Condemnation; provided, however, that Tenant’s obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property and Tenant’s obligation to pay Rent and all other Monetary Obligations (whether payable to Landlord or a third party) accruing under this Lease with respect to such Property prior to the date of termination shall survive such termination. If the date of such Total Condemnation is other than the first day of a month, the Fixed Rent for the month in which such Total Condemnation occurs shall be apportioned based on the date of the Total Condemnation.

Obligation payable hereunder. Except as provided below and subject to the terms and provisions of the Mortgages, Tenant shall be entitled to the entire Net Award for a Temporary Taking, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which event the Net Award made for such Temporary Taking shall be apportioned between Landlord and Tenant as of the date of such expiration. At the termination of any such Temporary Taking, Tenant will, at its own cost and expense and pursuant to the provisions of Article 7, promptly commence and complete restoration of such Property.

Section 11.07. Tenant Awards and Payments . Notwithstanding any provision contained in this Article 11, Tenant shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of any Personalty owned by Tenant, any insurance proceeds with respect to any Personalty owned by Tenant, the interruption of its business and moving expenses (subject, however, to the provisions of Section 6.03I above), but only if such claim or award does not adversely affect or interfere with the prosecution of Landlord’s claim for the Condemnation or Casualty, or otherwise reduce the amount recoverable by Landlord for the Condemnation or Casualty, including payments or proceeds related to any Existing Personalty then owned by Landlord.

ARTICLE 12

DEFAULT, REMEDIES AND MEASURE OF DAMAGES.

Section 12.01. Event of Default . The following acts or events shall be deemed to be an event of default on the part of Tenant under this Lease (each, an “Event of Default”):

(a) If any representation or warranty of Tenant set forth in this Lease is false in any material respect when made, or if Tenant renders any false statement or account when made or becomes false during the Lease Term;

(b) The failure of Tenant to pay when due any payment of Rent, Additional Rent, Monetary Obligations, or any part thereof, or any other sum or sums of money due or payable to Landlord under the provisions of this Lease;

(c) If Tenant fails to pay, prior to delinquency, any Taxes, assessments or other charges the failure of which to pay will result in the imposition of a lien against the Property;

(d) The failure of Tenant to perform, or the violation by Tenant of, any of the covenants, terms, conditions or provisions of this Lease, if such failure or violation shall not be cured within fifteen (15) Business Days after notice thereof by Landlord to Tenant;

(e) The removal by any local, state or federal agency having jurisdiction over the operation of the Permitted Facility of ten percent (10%) or more of the patients located in the Permitted Facility;

(f) The failure of Tenant to comply with, or the violation by Tenant of, any of the terms, conditions or provisions of any Mortgage, after notice thereof by Landlord to Tenant if such failure or violation shall not be cured within ten (10) days prior to the expiration of any or all applicable cure periods set forth in any such Mortgage;

(g) The voluntary transfer by Tenant of ten percent (10%) or more patients located in the Permitted Facility and such transfer is not for reasons relating to the health and wellbeing of the patients that were transferred;

(h) The making by Tenant or any guarantor of this Lease of an assignment for the benefit of creditors;

(i) The levying of a writ of execution or attachment on or against the property of Tenant or any guarantor of this Lease which is not discharged or stayed by action of Tenant or any guarantor contesting same, within thirty (30) days after such levy or attachment (provided if the stay is vacated or ended, this paragraph shall again apply);

(j) Tenant or any guarantor of this Lease shall be in default of any obligation to any person or entity, which obligation is in excess of One Hundred Thousand and No/100 Dollars ($100,000.00);

(k) Tenant, any subsidiary or controlled Affiliate of Tenant, or any guarantor of this Lease shall become insolvent, or shall make a fraudulent transfer with respect to creditors or shall make an assignment for the benefit of creditors;

(l) If proceedings are instituted in a court of competent jurisdiction for the reorganization, liquidation or involuntary dissolution of Tenant or any guarantor of this

Lease for its adjudication as a bankrupt or insolvent, or for the appointment of a receiver of the property of Tenant or any guarantor, and said proceedings are not dismissed and any receiver, trustee or liquidator appointed therein is not discharged within thirty (30) days after the institution of said proceedings;

(m) Tenant’s interest under this Lease being modified or altered by any unauthorized assignment or subletting or by operation of law;

(n) The sale of any interest of Tenant in the Property or portion thereof under a writ of execution or other legal process;

(o) The failure of Tenant to give any notices required to be given by Tenant pursuant to this Lease;

(p) The default of any guarantor under any guaranty relating to this Lease;

(q) The failure on the part of Tenant or any guarantor of this Lease during the Lease Term to cure or abate or receive a waiver for any violation claimed by any Governmental Authority, or any officer acting on behalf thereof, of any law, order, ordinance, rule or regulation pertaining to the operation of the Permitted Facility or the property of such guarantor, including without limitation, any proceedings to revoke any license granted to Tenant for the operation of an acute care hospital at the Property or to decertify the Property from participation in the Medicare or Medicaid reimbursement programs, or any analogous proceedings with respect to the property of a guarantor within thirty (30) days prior to the expiration of any time period permitted by such authority for such cure or abatement; provided, however, that in the event such authority requires such cure or abatement be completed in less than thirty (30) days, Tenant or the applicable guarantor shall endeavor to effect such cure or abatement as expeditiously as possible, but in no event less than ten (10) days prior to the expiration of the time period permitted by such authority for such cure or abatement;

(r) The abandonment of the Property, or any portion thereof, by Tenant;

(s) The suspension or loss of the right by Tenant or any applicable guarantor of this Lease to receive Medicaid or Medicare reimbursements;

(t) The failure of Tenant to immediately pay when due any Medicaid or Medicare recoupments or any other impositions in connection with the provider agreements, certifications or licenses for the Property or the failure of any guarantor of this Lease to immediately pay when due any Medicaid or Medicare recoupments or any other impositions in connection with the provider agreements, certifications or licenses applicable to the guarantors respective properties;

(u) The failure of Tenant to be licensed to operate as an acute care hospital; or

(v) The failure of Tenant to be accredited by the Joint Commission or other Landlord approved accreditation authority.

Section 12.02. Remedies . Upon the occurrence of an Event of Default, with or without notice or demand, except as otherwise expressly provided herein or such other notice as may be required by statute and cannot be waived by Tenant, Landlord shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including, without limitation, any one or more of the following:

(a) terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date specified in such notice and all rights of Tenant under this Lease shall expire and terminate as of such date, Tenant shall remain liable for all obligations under this Lease up to the date of such termination and Tenant shall surrender the Property to Landlord on the date specified in such notice; and if Tenant fails to so surrender, Landlord shall have the right, without notice, to enter upon and take possession of the Property and to expel and remove Tenant and its effects without being liable for prosecution or any claim of damages therefor;

(b) terminate this Lease as provided in the immediately preceding subsection and recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including without limitation, the then present value (discounted at a rate equal to the then issued treasury bill having a maturity approximately equal to the remaining Lease Term of this Lease had such default not occurred) of (i) the total Rent which would have been payable hereunder by Tenant for the period beginning with the day following the date of such termination and ending with the Expiration Date of the Lease Term as originally scheduled hereunder, minus (ii) the aggregate reasonable rental value of the Property for the same period (as determined by a real estate broker selected by Landlord who is licensed in the state where the Property is located, who has at least ten (10) years’ experience immediately prior to the date in question in evaluating commercial space, taking into account all relevant factors including, without limitation, the length of the remaining Lease Term, the then current market conditions in the general area, the likelihood of reletting for a period equal to the remainder of the Lease Term, net effective rates then being obtained by landlords for similar type space in similar buildings in the general area, vacancy levels in the general area, current levels of new construction in the general area and how that would affect vacancy and rental rates during the period equal to the remainder of the Lease Term and inflation), plus (iii) the costs of recovering the Property, and all other reasonable expenses incurred by Landlord due to Tenant’s default, including, without limitation, reasonable attorneys’ fees, and any and all costs and expenses incurred by Landlord in dealing with Landlord’s Lender who has a Mortgage secured by the Property, plus (iv) the unpaid Rent earned as of the date of termination, plus interest, all of which sum shall be immediately due and payable by Tenant to Landlord;

(c) to bring an action against Tenant for any damages sustained by Landlord or any equitable relief available to Landlord and to seize all Personalty upon the Property which Tenant owns or in which it has an interest, in which Landlord shall have a landlord’s lien and/or security interest, and, at Landlord’s election, to dispose thereof in

accordance with the Laws prevailing at the time and place of such seizure or to remove all or any portion of such Personalty and cause the same to be stored in a public warehouse or elsewhere at Tenant’s sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action;

(d) to accelerate and recover from Tenant all Rent and other Monetary Obligations due and owing and scheduled to become due and owing under this Lease both before and after the date of such breach for the entire Initial Term or any exercised Extension Term;

(e) without terminating this Lease, and without notice to Tenant, Landlord may terminate Tenant’s right of possession of the Property and, in its own name, but as agent for Tenant enter into and take possession of the Property and re-let the Property, or any portion thereof, as agent of Tenant, upon any terms and conditions as Landlord may deem necessary or desirable (Landlord shall have no obligation to attempt to re-let the Property or any part thereof except to the extent required by applicable law which cannot legally be waived by Tenant). Upon any such re-letting, all rentals received by Landlord from such re letting shall be applied first to the costs incurred by Landlord in accomplishing any such re-letting, and thereafter shall be applied to the Rent owed by Tenant to Landlord during the remainder of the Lease Term of this Lease and Tenant shall pay any deficiency between the remaining Rent due hereunder and the amount received by such re-letting as and when due hereunder;

(f) allow the Property to remain unoccupied (so long as Landlord satisfies any duty established by applicable law which cannot legally be waived by Tenant to mitigate its damages) and collect Rent from Tenant as it becomes due; and/or

(g) pursue such other remedies as are available at law or in equity.

Section 12.03. Landlord’s Option to Cure . If: (i) Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant; or (ii) Tenant defaults in the making of payment to any third party, or doing any act required to be

made or done by Tenant for or on behalf of said third party relating to the Property, then Landlord may, but shall not be required to, make such payment or do such act, and charge the amount of the expense thereof, if made or done by Landlord, with interest thereon at the Default Rate, from the date paid by Landlord to the date of payment thereof by Tenant. Such payment and interest shall constitute Additional Rent hereunder due and payable with the next monthly installment of Fixed Rent; but the making of such payment or the taking of such action by Landlord shall not operate to cure such default or to stop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled.

Section 12.04. No Election . No reentry or retaking possession of the Property by Landlord shall be construed as an election on its part to terminate this Lease, unless a written notice of such intention be given to Tenant, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Fixed Rent, Additional Rent or other monies due to Landlord hereunder or of any damages accruing to Landlord by reason of the violations of the terms, provisions and covenants herein contained. Landlord’s acceptance of Fixed Rent or Additional Rent or other monies following any Event of Default hereunder shall not be construed as Landlord’s waiver of such Event of Default. No forbearance by Landlord of action upon any violation or breach of any of the terms, provisions, and covenants herein contained shall be deemed or construed to constitute a waiver of the terms, provisions, and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of any other violation or default. Legal actions to recover for loss or damage that Landlord may suffer by reason of termination of this Lease or the deficiency from any reletting as provided for above shall include the expense of repossession or reletting, including brokerage commissions, and any repairs or remodeling undertaken by Landlord following repossession. The remedies of Landlord are cumulative.

Section 12.05. Tenant Waiver . Tenant hereby expressly waives, for itself and all Persons claiming by, through and under Tenant, including creditors of all kinds, (a) any right and privilege which Tenant has under any present or future Legal Requirements to redeem the Property or to have a continuance of this Lease for the Lease Term after termination of Tenant’s right of occupancy by order or judgment of any court or by any legal process or writ, or under the terms of this Lease; (b) the benefits of any present or future Legal Requirement that exempts property from liability for debt or for distress for rent; (c) any present or future Legal Requirement relating to notice or delay in levy of execution in case of eviction of a tenant for nonpayment of rent; (d) any benefits and lien rights which may arise pursuant to any present or future Legal Requirement; and (e) to the maximum extent permitted by applicable law, any obligation of Landlord to relet the Property or to mitigate its damages.

INJURY OR DAMAGE. FURTHERMORE, TENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM LANDLORD AND ANY OF THE AFFILIATES, OFFICERS, DIRECTORS, MEMBERS, MANAGERS OR EMPLOYEES OF LANDLORD OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY TENANT OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

Section 12.07. Attorneys’ Fees . In the event it shall become necessary (as determined by Landlord) for Landlord at any time to institute or defend any legal action or proceedings of any nature for the enforcement of, or as regards this Lease, or any of the provisions hereof, or any of Landlord’s statutory or common law rights as concern Tenant, or to employ an attorney therefor, Tenant agrees to pay all court costs and all of Landlord’s Attorneys’ Fees and Costs.

ARTICLE 13

MORTGAGE, SUBORDINATION AND ATTORNMENT

Section 13.02. Subordination . This Lease at all times shall automatically be subordinate to the lien of any and all ground leases and Mortgages now or hereafter placed upon any of the Property by Landlord, and Tenant covenants and agrees to execute and deliver, upon demand, such further instruments subordinating this Lease to the lien of any or all such ground leases and Mortgages as shall be desired by Landlord, or any present or proposed Lenders under trust deeds, upon the condition that Tenant shall have the right to remain in possession of the Property under the terms of this Lease, notwithstanding any default in any or all such ground leases or Mortgages, or after the foreclosure of any such Mortgages, so long as no Event of Default shall have occurred and be continuing. Landlord agrees to use its commercially reasonable efforts to provide Tenant with a SNDA executed by each Lender holding a Mortgage, and Tenant agrees to promptly execute and return such SNDA to Landlord.

Section 13.05. Notice to Lender . Tenant shall give written notice to any Lender having a recorded lien upon any of the Property or any part thereof of which Tenant has been notified of any breach or default by Landlord of any of its obligations under this Lease and give such Lender at least sixty (60) days beyond any notice period to which Landlord might be entitled to cure such default before Tenant may exercise any remedy with respect thereto.

ARTICLE 14

ASSIGNMENT

Section 14.01. Assignment by Landlord . As a material inducement to Landlord’s willingness to enter into the transactions contemplated by this Lease (the “Transaction”) and the other Transaction Documents, Tenant hereby agrees that Landlord may, from time to time and at any time and without the consent of Tenant, engage in all or any combination of the following, or enter into agreements in connection with any of the following or in accordance with requirements that may be imposed by applicable securities, tax or other Laws: (a) the sale, assignment, grant, conveyance, transfer, financing, refinancing, purchase or reacquisition of all, less than all or any portion of the Property, this Lease or any other Transaction Document, Landlord’s right, title and interest in this Lease or any other Transaction Document, the servicing rights with respect to any of the foregoing, or participations in any of the foregoing; or (b) a Securitization and related transactions. Without in any way limiting the foregoing, the parties acknowledge and

agree that Landlord, in its sole discretion, may assign this Lease or any interest herein to another Person (including without limitation, a taxable REIT subsidiary or Affiliate) in order to maintain Landlord’s or any of its Affiliates’ status as a REIT. In the event of any such sale, transfer or assignment other than a security assignment by Landlord of its interest in this Lease and the Property, Landlord shall thereby be released from any obligations accruing hereunder as of and after the date of such transfer, and Tenant agrees to attorn to the successor in interest of Landlord following any such transfer of such interest either voluntarily or by operation of law, to recognize such successor as Landlord under this Lease, and look solely to such successor in interest of Landlord for the performance of such obligations. Landlord shall remain liable for any obligations of Landlord hereunder accruing prior to the date of the transfer of the Property by Landlord. Any security given by Tenant to secure the performance of Tenant’s obligations hereunder may be assigned and transferred by Landlord to its successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. At the request of Landlord, Tenant will execute such documents confirming the sale, assignment or other transfer and such other agreements as Landlord may reasonably request, provided that the same do not increase the liabilities and obligations of Tenant hereunder.

Section 14.02. Transfer by Tenant .

(a) No Transfer . Tenant shall not voluntarily or by operation of law assign, license, franchise, transfer, mortgage, hypothecate, or otherwise encumber (collectively “Transfer”) all or any part of this Lease or any interest therein, and shall not sublet, franchise, change ownership or license (also included as a “Transfer”) all or any part of the Property, without first obtaining the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion. Notwithstanding anything to the contrary contained in this Lease, in the event of a Transfer Tenant shall remain fully liable for all of the Tenant’s obligations under this Lease, including obligations arising subsequent to the date of the Transfer. Any attempted Transfer without any required consent being first had and obtained shall be wholly void and shall confer no rights upon any third parties. Without in any way limiting Landlord’s right to refuse to give such consent for any other reason or reasons, Landlord hereby reserves the right to refuse to give such consent if in Landlord’s sole discretion (i) the quality of the business operation conducted on the Property is or may in any way be adversely affected during the Lease Term of this Lease by such proposed Transfer, (ii) the financial net worth of a proposed new tenant is less than that of Tenant, or (iii) the proposed new tenant is a governmental agency or instrumentality thereof. Consent by Landlord to any Transfer of the Property or any interest therein shall not be a waiver of Landlord’s rights under this Section as to any subsequent Transfer.

the proposed Transfer; (e) a copy of all existing executed and/or proposed documentation pertaining to the Transfer; and (f) current financial statements (audited, if requested by Landlord) of Tenant and the proposed subtenant or assignee; and such additional information that Landlord may reasonably request in order to make a reasoned judgment.

(c) Collect/Effect of Transfer . If this Lease is assigned, or if the Property or any part thereof is sublet or occupied by anybody other than Tenant, Landlord may collect Rents from the assignee, subtenant or occupant and apply the net amount collected to the Rents herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of Tenant’s covenant set forth in the first sentence of Section 14.02(a) above, nor shall such assignment, subletting, occupancy or collection be deemed an acceptance by Landlord of the assignee, subtenant or occupant as tenant, or a release of Tenant or any guarantor from the further performance by Tenant of covenants on the part of Tenant herein contained, or affect the continuing primary liability of Tenant hereunder (which, following any assignment, shall be joint and several with the assignee). If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a transferee, and (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord.

(d) No Waiver . Notwithstanding any assignment or sublease, or any indulgences, waivers or extensions of time granted by Landlord to assignee or subtenant, or any failure by Landlord to take action against any assignee or subtenant, Tenant waives notice of any default of any assignee or subtenant and agrees that Landlord may, at Landlord’s option, proceed against Tenant without having taken action against or joined such assignee or subtenant, except that Tenant shall have the benefit of any indulgences, waivers and extensions of time granted to any such assignee or subtenant. Landlord may make reasonable charges to Tenant for any reasonable attorneys’ fees or expenses incident to any documentation relating to any proposed Transfer by Tenant.

(e) Implied Assignment . If Tenant hereunder is a corporation, an unincorporated association, a limited liability company or a partnership, the transfer, merger, assignment or hypothecation of any stock or interest in such corporation, association, limited liability company or partnership in the aggregate in excess of twenty-five percent (25%) shall be deemed an assignment within the meaning and provisions of this Section; provided, however, that: (a) an assignment of any such stock or interest with respect to a corporation, a limited liability company, or partnership whose shares or partnership interests are publicly traded, (b) an assignment or sublease to any corporation which controls, is controlled by or is under common control with Tenant, or (c) an assignment or sublease by a shareholder or member to his spouse or children or to a trust for the benefit of his spouse or children, are all excepted from the foregoing provision.

(f) Conditions to Landlord’s Consent . Landlord’s consent to any assignment shall be conditioned inter alia, upon the requirement that the proposed assignee shall have the same or greater creditworthiness and financial net worth as Tenant and that the proposed assignee shall expressly assume all of Tenant’s obligations hereunder.

Landlord’s consent to any sublease shall be conditioned, inter alia, upon the requirement that the sublease shall state: (i) that it is subject to all of the provisions of this Lease; and (ii) that the subtenant’s rights shall not survive the earlier termination of this Lease, whether by voluntary cancellation between Landlord and Tenant, or otherwise.

Section 14.03. No Sale of Assets . Without the prior written consent of Landlord, Tenant shall not sell all or substantially all of Tenant’s assets. Any sale of Tenant’s assets in violation of this Section 14.03, shall be voidable at the sole option of Landlord. Any consent to a sale of Tenant’s assets given by Landlord hereunder shall not be deemed consent to any subsequent sale of Tenant’s assets.

ARTICLE 15

NOTICES

Section 15.01. Notices . Any notice required or desired to be given to a party hereto shall be valid and sufficient if in writing and addressed to the addresses listed below and delivered by personal delivery or overnight delivery or mailed by United States registered or certified mail, with postage and charges prepaid thereon. Any notice shall be deemed to have been given on the day delivered if personally delivered, the day after sending if delivered by overnight delivery, or three (3) days after mailing if sent by registered or certified mail. Landlord or Tenant may designate the place to which notices shall be given and addressed by giving at least fifteen (15) days’ prior written notice to the other party, such notice to be given in accordance with the foregoing provisions of this paragraph. The initial address for each party shall be as follows:


As to Landlord:		Lakeway Realty, L.L.C. 3100 West End Avenue, Suite 1000 Nashville, Tennessee 37203 Attn: Chief Financial Officer

with copy to:		Reed Smith LLP 3110 Fairview Park Drive Suite 1400 Falls Church, VA 22042 Attn: Carol C. Honigberg, Esq.

with copy to:		MedTX Realty, L.L.C. 8015 Shoal Creek Suite 207 Austin, TX 78757 Attn: Ray Wilkerson

As to Tenant:		Lakeway Regional Medical Center, LLC 100 Medical Parkway Lakeway, Texas 78738 Attn: Chief Executive Officer

with copy to:		Brennan, Manna & Diamond LLC 75 E. Market St Akron, Ohio 44308 Attn: Frank T. Sossi, Esq.

ARTICLE 16

LANDLORD’S LIEN/SECURITY INTEREST

Section 16.01. Lien on Personal Property . Landlord shall have a first lien paramount to all others (except any Mortgage made by Landlord and any Permitted Liens, as defined in the Loan Agreement between Landlord as borrower, Tenant as tenant and MRT of Lakeway, TX – ACH, LLC as lender) on every right and interest of Tenant in and to this Lease, and on any Personalty, assignable accounts receivable (excluding those receivables currently securing Tenant’s working capital line of credit with Gemino Healthcare Finance and any subsequent working capital lender and working capital financing reasonably approved by Landlord), certificates of need, licenses, provider agreements, certifications, books, records and other property of any kind belonging to Tenant and used in connection with the Lease or located at the Property. Such lien and security interest is hereby granted by Tenant to Landlord for the purpose of securing the payments of Rent, Additional Rent, Monetary Obligations, charges, penalties, and damages herein covenanted to be paid by Tenant, and for the purpose of securing the performance of all of Tenant’s obligations under this Lease. Such lien shall be in addition to all rights to Landlord given and provided by law. This Lease shall constitute a security agreement under the Uniform Commercial Code granting Landlord a security interest in any Personalty, assignable accounts receivable, certificates of need, licenses, provider agreements, certifications, books, records and other personal property of any kind belonging to Tenant, and Tenant shall execute such other instruments and financing statements as Landlord may request to evidence or perfect said security interest. None of the Personalty, goods, wares, merchandise, inventory, equipment or other personal property of Tenant situated on the Property shall be removed from the Property without the prior written consent of Landlord. In the Event of Default of Tenant hereunder, Landlord shall have any and all rights and remedies granted a secured party under the Uniform Commercial Code then in effect in the state where the Property is located. The exercise of the foregoing remedy by Landlord shall not relieve or discharge Tenant from any deficiency owed to Landlord which Landlord has the right to enforce pursuant to any other provision of this Lease. Tenant covenants to promptly notify Landlord of any changes in Tenant’s name and/or organizational structure which may necessitate the execution and filing of additional financing statements; provided, however, the foregoing shall not be construed as Landlord’s consent to such changes.

ARTICLE 17

MISCELLANEOUS

Section 17.01. Recitals and Exhibits . The recitals of fact set forth above are true and correct and are by this reference made a part of this Lease. All Exhibits attached to this Lease are incorporated herein by this reference.

Section 17.02. Landlord Definition . The term “Landlord” as used in this Lease means only the owner of fee simple title of the Property, or the Lender in possession for the time being of the Property so that in the event of any sale, or other transfer of the Property, Landlord shall be and hereby is entirely freed and relieved of all obligations of Landlord hereunder and it shall be deemed without further agreement between the parties and such purchaser(s), assignee(s) or Tenant(s) that the purchaser, assignee or Tenant has assumed and agreed to observe and perform all obligations of Landlord hereunder.

Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution Lease by Landlord, that Landlord’s obligations and liability with respect to this Lease shall be limited solely to Landlord’s interest in the building and the Property, as such interest is constituted from time to time, which interest shall include all proceeds from the sale of the building, insurance awards, and Condemnation awards, and neither Landlord nor any partner of Landlord, or any officer, director, shareholder, manager, partner or member, shall have any individual or personal liability whatsoever with respect to this Lease.

Section 17.03. Remedies Cumulative . Mention in this Lease of any specific right or remedy shall not preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may be otherwise entitled either at law or in equity including, without limitation Landlord’s remedies for Tenant’s default in the payment of Rent. The failure of Landlord to insist in anyone or more instances upon a strict performance of any covenant of Tenant under this Lease or to exercise any option or right herein contained shall not be construed as a waiver or relinquishment for the future of any such covenant, right or option, but it shall remain in full force and effect unless the contrary is expressly waived in writing by Landlord.

Section 17.04. Recording . It is agreed that Tenant shall not record this Lease without first obtaining written permission from Landlord, which permission may be withheld in Landlord’s sole discretion. Any violation of this clause shall be deemed a default on the part of Tenant, and Landlord at its option reserves the right to cancel this Lease and take those steps necessary to remove this Lease and/or a memorandum hereof from the record. Landlord and Tenant shall record a memorandum of this Lease and Tenant agrees to bear any and all costs and expenses in connection with same.

Section 17.05. Successors and Assigns . This Lease and the covenants, terms and conditions herein contained shall inure to the benefit of and be binding upon Landlord, its successors and assigns, and shall be binding upon Tenant, its successors and permitted assigns.

Section 17.06. Brokerage . The parties each represent and warrant to each other that neither has employed a broker in connection with this transaction. In the event there is

a claim against either party hereto with respect to any broker whatsoever other than as set forth in this Section, the party whose action gives rise to the claim for commission shall indemnify the other party against any liability, damage, cost or fee in connection with such claim, including, without limitation, attorneys’ fees and costs.

Section 17.07. Securitizations . As a material inducement to Landlord’s willingness to enter into the Transactions contemplated by this Lease and the other Transaction Documents, Tenant hereby acknowledges and agrees that Landlord may, from time to time and at any time (a) advertise, issue press releases, send direct mail or otherwise disclose information regarding the Transaction for marketing purposes; and (b) (i) act or permit another Person to act as sponsor, settler, transferor or depositor of, or a holder of interests in, one or more Persons or other arrangements formed pursuant to a trust agreement, indenture, pooling agreement, participation agreement, sale and servicing agreement, limited liability company agreement, partnership agreement, articles of incorporation or similar agreement or document; and (ii) permit one or more of such Persons or arrangements to offer and sell stock, certificates, bonds, notes, other evidences of indebtedness or securities that are directly or indirectly secured, collateralized or otherwise backed by or represent a direct or indirect interest in whole or in part in any of the assets, rights or properties described in Section 14.01 of this Lease, in one or more Persons or arrangements holding such assets, rights or properties, or any of them (collectively, the “Securities”), whether any such Securities are privately or publicly offered and sold, or rated or unrated (any combination of which actions and transactions described in both clauses (i) and (ii) in this paragraph, whether proposed or completed, are referred to in this Lease as a “Securitization”). Tenant shall cooperate fully with Landlord and any Affected Party with respect to all reasonable requests and due diligence procedures and to use reasonable efforts to facilitate such Securitization, including, without limitation, providing for inclusion in any prospectus or other Securities offering material such documents, financial and other data, and other information and materials which would customarily be required with respect to Tenant by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Securitization, and Tenant shall indemnify and hold harmless Landlord for any and all liabilities, losses and expenses arising under the Securities Act, or the Exchange Act, in connection with any material misstatement (or alleged misstatement) contained in such information provided in writing (including, without limitation, electronically) by Tenant or its officers, managers, members, employees, or agents, or any omission (or alleged omission) of a material fact by Tenant or its officers, managers, members, employees, or agents, the inclusion of which was necessary to make such written information not misleading, unless such material misstatement or alleged misstatement or omission or alleged omission is caused by Landlord or its directors, officers, managers, members, shareholders, employees, or agents. Tenant shall deliver to Landlord, any Affected Party and to any Person designated by Landlord, such statements and audit letters of reputable, independent certified public accountants pertaining to the written information provided by Tenant pursuant to this Section as shall be requested by Landlord or such Affected Party, as the case may be. Tenant also shall deliver to Landlord, any Affected Party and to any Person designated by Landlord or any Affected Party, such opinions of counsel (including, without limitation, local counsel opinions), appraisals, environmental reports and zoning letters, or updates of any of the foregoing, as are customarily delivered in connection with Securitizations or as may be required by any rating agency in connection with any Securitization.

Section 17.08. Bankruptcy . As a material inducement to Landlord executing this Lease, Tenant acknowledges and agrees that Landlord is relying upon (a) the financial condition and specific operating experience of Tenant and Tenant’s obligation to use the Property as a Permitted Facility; (b) Tenant’s timely performance of all of its obligations under this Lease before and following the entry of an order for relief under the Bankruptcy Code for Tenant; and (c) all defaults under this Lease being cured promptly and this Lease being assumed within sixty (60) days of any order for relief entered under the Bankruptcy Code (or similar insolvency statute) for Tenant, or this Lease being rejected within such sixty (60) day period and the Property surrendered to Landlord. Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Tenant hereby agrees that: (i) all obligations that accrue under this Lease (including the obligation to pay Rent and maintain the Property in a particular manner), shall be timely performed whether or not there exists an Insolvency Event with regard to Tenant and any failure to so perform shall be harmful and prejudicial to Landlord; (ii) any and all Rents that accrue from and after an Insolvency Event and that are not paid as required by this Lease shall, in the amount of such Rents, constitute administrative expense claims allowable under the Bankruptcy Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after an Insolvency Event; (iii) any extension of the time period within which Tenant may assume or reject this Lease without an obligation to cause all obligations under this Lease to be performed as and when required under this Lease shall be harmful and prejudicial to Landlord; (iv) any time period designated as the period within which Tenant must cure all defaults and compensate Landlord for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Landlord; (v) any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Landlord shall be harmful and prejudicial to Landlord; (vi) any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without amendment or alteration, and any assignment which results in alteration or amendment of the terms and conditions of this Lease without the express written consent of Landlord shall be harmful and prejudicial to Landlord if made to an assignee that does not possess the financial condition or means adequate to operate the Permitted Facility upon the Property or operating performance and experience characteristics satisfactory to Landlord equal to or better than the financial condition, operating performance and experience of Tenant as of the Effective Date; and (vii) the rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Bankruptcy Code, and Tenant stipulates that such automatic stay shall be lifted immediately and possession of the Property will be delivered to Landlord immediately without the necessity of any further action by Landlord. No provision of this Lease shall be deemed a waiver of Landlord’s rights or remedies under the Bankruptcy Code or applicable Law to oppose any assumption and/or assignment of this Lease, to require timely performance of Tenant’s obligations under this Lease, or to regain possession of the Property as a result of the failure of Tenant to comply with the terms and

conditions of this Lease or the Bankruptcy Code. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as such, shall constitute “rent” for the purposes of the Bankruptcy Code. For purposes of this Section addressing the rights and obligations of Landlord and Tenant upon an Insolvency Event, the term “Tenant” shall include Tenant’s successor in bankruptcy, whether a trustee, Tenant as debtor in possession or other responsible person.

Section 17.10. Counterparts . This Lease may be executed in counterparts, each of which constitutes an original and all of which taken together shall constitute one agreement.

Section 17.11. Governing Law . This Lease is to be construed under the Laws of the state where the Property is located.

Section 17.12. Section Headings . The section headings of this Lease are for convenience only and shall not be considered in the interpretation of the terms and provisions of this Lease.

Section 17.13. Exhibits . This Lease is subject to any Exhibit attached hereto and made a part hereof.

Section 17.14. Attorneys’ Fees . In the event of any judicial or other adversarial proceeding concerning this Lease, to the extent permitted by Law, Landlord shall be entitled to recover all of its reasonable Attorneys’ Fees and other Costs in addition to any other relief to which it may be entitled. In addition, Landlord shall, upon demand, be entitled to all Attorneys’ Fees and all other Costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced.

Section 17.15. Lender Protection . In the event that a Lender or potential Lender of the Property requests modifications to this Lease, Tenant agrees to consent to all such reasonable modifications to this Lease, provided none of the modifications change the Fixed Rent due hereunder and none of the modifications impose any material additional burden or expense on Tenant. Tenant agrees that in the event of any default by Landlord in any of the terms and conditions of this Lease, that Tenant shall notify any Lender holding a recorded lien on the Property and any such Lender shall have a period of sixty (60) days after receipt of such notice from Tenant to cure any default. When, however, the nature of the default of Landlord is such that it cannot be cured within said sixty (60) days, any such Lender shall have such additional time as may be reasonably required to cure any such default, provided any such Lender: (i) shall have commenced to cure any such default within said sixty (60) day period; and (ii) shall diligently continue such steps until such default is cured. No alleged default by Landlord shall be deemed perfected until the expiration of the time(s) given to the Lender under the provisions of this section.

Section 17.16. Easements, Agreements, or Encumbrances . The parties shall be bound by all existing easements, agreements, and encumbrances of record relating to the Property. During the Lease Term, Landlord shall have the right to grant easements on, over, under and above the Property without the prior consent of Tenant, provided that such easements will not materially interfere with Tenant’s use of the Property. Tenant shall comply with and perform all obligations of Landlord under all easements, declarations, covenants, restrictions and other items of record now or hereafter encumbering the Property. Without Landlord’s prior written consent, Tenant shall not grant any easements on, over, under or above the Property. Landlord shall not be liable to Tenant for any damages resulting from any action taken by a holder of an interest pursuant to the rights of that holder thereunder.

Section 17.17. Writing; Applicable to Successors . This Lease cannot be changed or terminated except by a written instrument subsequently executed by the parties hereto. This Lease and the terms and conditions hereof apply to and are binding upon the successors and assigns of both parties.

Section 17.18. Time of the Essence . Time is of the essence and in all provisions of this Lease.

Section 17.20. Real Estate Investment Trust . If Landlord in good faith determines that the status of its Affiliate as a real estate investment trust under the provisions of the Internal Revenue Code of 1986, as heretofore or hereafter amended, will be jeopardized because of any provision of this Lease, Landlord may request reasonable amendments to this Lease and Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such amendments do not (a) materially increase the obligations of Tenant or impair Tenant’s rights pursuant to this Lease or (b) in any other manner materially adversely affect Tenant’s interest in the Property.

Section 17.21. Transfer of Licenses . Subject to the provisions of Section 9.06(h),upon the expiration or early termination of the Lease Term of this Lease, Tenant shall take all actions which are necessary or convenient in order to effect the transfer to Landlord or Landlord’s nominee of all licenses, operating permits and other governmental authorizations and all other service contracts which may be necessary or useful in the operation of the Property and which relate to the Property which have not previously been transferred or assigned to Landlord.

Section 17.22. State or Local Law Provisions . The State/Local Law Provisions attached hereto as Exhibit D are modifications to the terms of this Lease and, if conflicting, such State/Local Law Provisions shall control in the event of any conflict with the other provisions of this Lease or any exhibits hereto.

Section 17.23. Special Stipulations . The Special Stipulations attached hereto as Exhibit E are modifications to the terms of this Lease and, if conflicting, such Special Stipulations shall control in the event of any conflict with the other provisions of this Lease or any exhibits hereto.

Section 17.24. Force Majeure . Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform (each, a “Force Majeure Event”) shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, expressly excluding, however, the obligations imposed upon Tenant with respect to Rent and other Monetary Obligations to be paid hereunder.

[Signature pages follow.]

IN WITNESS WHEREOF , the parties here have executed this Lease as of the day and year first above written.


LANDLORD :

LAKEWAY REALTY, L.L.C., a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	[Seal]
Name:	Jeffery C. Walraven
Title:	Managing Board Member

Signature page – Master Lease Agreement

TENANT :


LAKEWAY REGIONAL MEDICAL CENTER, LLC, a Texas limited liability company		LAKEWAY REGIONAL MEDICAL CENTER, LLC, a Texas limited liability company

By:	/s/ G. Edward Alexander	By:	/s/ W. Bradley Daniel
Name:	G. Edward Alexander	Name:	W. Bradley Daniel
Title:	Member and Manager	Title:	Member and Manager

Signature page – Master Lease Agreement

EXHIBIT A

DEFINED TERMS

The following terms shall have the following meanings for all purposes of this Lease:

“ Anti-Money Laundering Laws ” means all applicable laws, regulations and government guidance on the prevention and detection of money laundering, including, without limitation, (a) 18 U.S.C. §§ 1956 and 1957; and (b) the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq., and its implementing regulations, 31 CFR Part 103.

“ Bankruptcy Code ” means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended.

“ Business Day ” means a day on which banks located in the State of Texas are not required or authorized to remain closed.

“ Casualty ” means any loss of or damage to any property included within or related to the Property caused by an Act of God, fire, flood or other catastrophe.

“ Code ” means the Internal Revenue Code of 1986, as the same may be amended from time to time.

“ Condemnation ” means a Taking and/or a Requisition.

“ Costs ” means all reasonable costs and expenses incurred by a Person, including, without limitation, reasonable attorneys’ fees and expenses, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, brokerage fees, escrow fees, title insurance premiums, appraisal fees, stamp taxes, recording fees and transfer taxes or fees, as the circumstances require.

“ Default Rate ” means 18% per annum or the highest rate permitted by law, whichever is less.

“ Effective Date ” has the meaning set forth in the introductory paragraph of this Lease.

“ Environmental Liens ” has the meaning set forth in Section 8.05(a)(ii).

“ Event of Default ” has the meaning set forth in Section 12.01.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Existing Personalty ” has the meaning set forth in Section 3.04.

“ Expiration Date ” has the meaning set forth in Section 3.01.

“ Extension Option ” has the meaning set forth in Section 3.02.

“ Extension Term ” has the meaning set forth in Section 3.02.

“ Fixed Rent ” means $12,750,000.00 per annum initially, as such amount is adjusted pursuant to the terms of this Lease.

“ Force Majeure Event ” has the meaning set forth in Section 17.24.

“ GAAP ” means generally accepted accounting principles, consistently applied from period to period.

“ Governmental Authority ” means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States, any state or any political subdivision thereof with authority to adopt, modify, amend, interpret, give effect to or enforce any federal, state and local Laws, statutes, ordinances, rules or regulations, including common law, or to issue court orders.

“Indemnified Party” or “ Indemnified Parties ” means individually or collectively, as the context may require, Landlord, and its members, managers, officers, directors, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, and each of their respective successors and assigns, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Landlord.

“ Initial Term ” has the meaning set forth in Section 3.01.

“ Insolvency Event ” means (a) a Person’s (i) failure to generally pay its debts as such debts become due; (ii) admitting in writing its inability to pay its debts generally; or (iii) making a general assignment for the benefit of creditors; (b) any proceeding being instituted by or against any Person (i) seeking to adjudicate it bankrupt or insolvent; (ii) seeking liquidation, dissolution, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors; or (iii) seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, and in the case of any such proceeding instituted against any Person, either such proceeding shall remain undismissed for a period of one hundred twenty (120) days or any of the actions sought in such proceeding shall occur; or (c) any Person taking any corporate action to authorize any of the actions set forth above in this definition.

“Landlord Entity” or “ Landlord Entities ” means individually or collectively, as the context may require, Landlord and all Affiliates of Landlord.

“ Lease Term ” shall have the meaning described in Section 3.01.

“ Lender ” means any lender in connection with any loan secured by Landlord’s interest in the Property, and any servicer of any loan secured by Landlord’s interest in the Property.

“ Material Adverse Effect ” means a material adverse effect on (a) the Property, including, without limitation, the operation of the Property as a Permitted Facility and/or the value of the Property; (b) the contemplated business, condition, worth or operations of any Tenant Entity; (c) Tenant’s ability to perform its obligations under this Lease; or (d) Landlord’s interests in the Property, this Lease or the other Transaction Documents.

“ Monetary Obligations ” has the meaning set forth in Section 4.03.

“ Partial Condemnation ” means a Condemnation which is not a Total Condemnation.

“ Permitted Facility ” means an acute care hospital, all related purposes such as ingress, egress and parking, and uses incidental thereto.

“ Person ” means any individual, partnership, corporation, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.

“ Personalty ” has the meaning set forth in Section 3.03.

“ Regulated Substances ” means “petroleum” and “petroleum-based substances” or any similar terms described or defined in any of the Environmental Laws and any applicable federal, state, county or local Laws applicable to or regulating USTs.

“ REIT ” means a real estate investment trust as defined under Section 856 of the Code.

“ Rent Adjustment ” means the amount equal to three percent (3%) of the Fixed Rent for the previous Lease Year which sum shall be payable in equal monthly installments.

“ Securities ” has the meaning set forth in Section 17.07.

“ Securities Act ” means of the Securities Act of 1933, as amended.

“ Securitization ” has the meaning set forth in Section 17.07.

“ SNDA ” means subordination, nondisturbance and attornment agreement.

“ State where the Property is located ” or words of similar import shall mean the State of Texas.

“ Taking ” means (a) any taking or damaging of all or a portion of the Property (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special; (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding; or (iii) by any other means; or (b) any de facto or inverse condemnation. The Taking shall be considered to have taken place as of the later of the date actual physical possession is taken by the condemnor, or the date on which the right to compensation and damages accrues under the law applicable to the Property.

“ Temporary Taking ” has the meaning set forth in Section 11.04.

“Tenant Entity” or “ Tenant Entities ” means individually or collectively, as the context may require, Tenant and all Affiliates thereof.

“ Transaction ” has the meaning set forth in Section 14.01.

“ Transaction Documents ” means this Lease and all documents related thereto.

“ USTs ” means any one or combination of tanks and associated product piping systems used in connection with storage, dispensing and general use of Regulated Substances.

EXHIBIT B

Legal Description of the Property

BUILDING UN IT 1 (GAC HOSPITAL/GARAGE A UNIT), OF LAKEWAY REGIONAL MEDICAL CENTER CONDOMINIUM, A CONDOMINIUM PROJECT IN TRAVIS COUNTY, TEXAS, ACCORDING TO THE DECLARATION OF CONDOMINIUM FOR LAKEWAY REGIONAL MEDICAL CENTER CONDOMINIUM DATED MAY 17, 2010, AND ALL EXHIBITS THERETO RECORDED UNDER DOCUMENT NUMBER 2010070746, OF THE OFFICIAL PUBLIC RECORDS OF TRAVIS COUNTY, TEXAS, TOGETHER WITH THE 44% UNDIVIDED INTEREST IN AND TO THE COMMON ELEMENTS OF SUCH CONDOMINIUM AND THE EXCLUSIVE RIGHT TO USE THE LIMITED COMMON ELEMENTS APPURTENANT TO SUCH UNIT, WHICH LIMITED COMMON ELEMENTS ARE DESCRIBED AS FOLLOWS:

DESCRIPTION OF A 8.840 ACRE TRACT OF LAND IN THE J.P. WARNOCK SURVEY NO. 56, TRAVIS COUNTY, TEXAS AND BEING A PORTION OF LOT 1, BLOCK “A” OF LAKEWAY REGIONAL MEDICAL CENTER, A SUBDIVISION OF RECORD IN DOCUMENT NO. 200800246 OF THE OFFICIAL PUBLIC RECORDS OF TRAVIS COUNTY; SAID 8.840 ACRE TRACT OF LAND IS MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

COMMENCING AT A 60D NAIL FOUND IN A FENCE POST ON THE SOUTHERLY RIGHT-OF-WAY LINE OF WILD CHERRY DRIVE (60.0 FEET WIDE RIGHT-OF-WAY) AS DEDICATED IN CHERRY MOUNTAIN 1, A SUBDIVISION OF RECORD IN BOOK 75, PAGE 369 OF THE PLAT RECORDS OF TRAVIS COUNTY, TEXAS, FOR THE NORTHEAST CORNER OF SAID LOT 1, BLOCK “A”, FROM WHICH, A ¹ ⁄ ₂ ” IRON ROD FOUND FOR AN ANGLE POINT IN THE WESTERLY LINE OF SAID LOT 1, BLOCK “A” BEARS S16° 56’17“E, 497.47 FEET;

THENCE, N45° 52’28“E, WITH THE COMMON SOUTHERLY RIGHT-OF-WAY LINE OF WILD CHERRY DRIVE AND NORTHERLY LINE OF SAID LOT 1, BLOCK “A”, A DISTANCE OF 136.29 FEET TO A ¹ ⁄ ₂ ” IRON ROD FOUND FOR AN ANGLE POINT;

THENCE, N46° 18’51“E, LEAVING THE SOUTHERLY RIGHT-OF-WAY LINE OF WILD CHERRY DRIVE AND CONTINUING WITH THE COMMON SOUTHERLY LINE OF LOT 2 OF SAID CHERRY MOUNTAIN 1 SUBDIVISION AND NORTHERLY LINE OF LOT 1, BLOCK “A”, A DISTANCE OF 256.56 FEET TO A CALCULATED POINT;

THENCE, S43° 41’09“E, LEAVING THE COMMON NORTHERLY LINE OF LOT 1, BLOCK “A” LAKEWAY REGIONAL MEDICAL CENTER SUBDIVISION AND SOUTHERLY LINE OF LOT 2, CHERRY MOUNTAIN 1 SUBDIVISION, ACROSS SAID LOT 1, BLOCK “A”, A DISTANCE OF 55.13 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF BEGINNING OF THE HEREIN DESCRIBED 8.840 ACRE TRACT;

THENCE, CONTINUING ACROSS SAID LOT 1, BLOCK “A” LAKEWAY REGIONAL MEDICAL CENTER SUBDIVISION, THE FOLLOWING THIRTY (30) COURSES:

1) N88° 07’10“E, A DISTANCE OF 32.00 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET;

2) S01°52’50“E, A DISTANCE OF 28.50 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET;

3) N88°07’10“E, A DISTANCE OF 14.46 TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE LEFT;

4) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 90°00’00”, A RADIUS OF 49.50 FEET, A LONG CHORD OF 70.00 FEET (CHORD BEARS N43°07’10“E) FOR AN ARC DISTANCE OF 77.75 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR AN ANGLE POINT;

5) S88°07’10“W, WITH A LINE NON-TANGENT TO THE PREVIOUS CURVED COURSE, A DISTANCE OF 2.00 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR AN ANGLE POINT;

6) N01°52’50“W, A DISTANCE OF 64.53 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE RIGHT;

7) WITH SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 48°11’40”, A RADIUS OF 103.50 FEET, A LONG CHORD OF 84.52 FEET (CHORD BEARS N22°13’00“E) FOR AN ARC DISTANCE OF 87.06 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

8) N46°18’51“E, A DISTANCE OF 51.52 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE RIGHT;

9) WITH SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 21°05’56”, A RADIUS OF 103.50 FEET, A LONG CHORD OF 37.90 FEET (CHORD BEARS N56°51’48“E) FOR AN ARC DISTANCE OF 38.11 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

10) N67°24’46“E, A DISTANCE OF 195.46 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE RIGHT;

11) WITH SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 70°54‘22”, A RADIUS OF 150.50 FEET, A LONG CHORD OF 174.59 FEET (CHORD BEARS S77°08’02“E) FOR AN ARC DISTANCE OF 186.25 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF REVERSE CURVATURE;

12) WITH A CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 29°35’06”, A RADIUS OF 122.50 FEET ALONG CHORD OF 62.55 FEET (CHORD BEARS S56°28’24“E) FOR AN ARC DISTANCE OF 63.25 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

13) S71°15’57“E, A DISTANCE OF 16.48 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR AN ANGLE POINT;

14) S18°44’03” W, A DISTANCE OF 2.00 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE BEGINNING OF A NONTANGENT CURVE TO THE LEFT;

15) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 36°17,15”, A RADIUS OF 24.50 FEET, A LONG CHORD OF 15.26 FEET (CHORD BEARS S89°24’35“E) FOR AN ARC DISTANCE OF 15.52 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR ANGLE POINT;

16) S18°44’03“W, WITH A LINE NON-TANGENT TO THE PREVIOUS CURVED COURSE, A DISTANCE OF 359.74 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE LEFT;

17) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 46°10’30”, A RADIUS OF 412.50 FEET, A LONG CHORD OF 323.51 FEET (CHORD BEARS S04°21’12“E) FOR AN ARC DISTANCE OF 332.43 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE BEGINNING OF A CURVE TO THE LEFT;

18) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 49“42’18”, A RADIUS OF 24.50 FEET, A LONG CHORD OF 20.59 FEET (CHORD BEARS S72°36’53“W) FOR AN ARC DISTANCE OF 21.25 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

19) S47°45’43“W, A DISTANCE OF 308.03 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE RIGHT;

20) WITH SAID CURVE TO THE RIGHT HAVING A CENTRAL ANGLE OF 130°21’27”, A RADIUS OF 101.50 FEET, A LONG CHORD OF 184.25 FEET (CHORD BEARS N67°03’33“W) FOR AN ARC DISTANCE OF 230.93 FEET TO ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

21) N01°52’50“W, A DISTANCE OF 134.35 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE LEFT;

22) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 05°30’00”, A RADIUS OF 189.50 FEET, A LONG CHORD OF 18.18 FEET (CHORD BEARS N04°37’50“W) FOR AN ARC DISTANCE OF 18.19 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

23) N07°22’50“W, A DISTANCE OF 116.88 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE RIGHT;

24) WITH SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 08°00’00”, A RADIUS OF 190.50 FEET, A LONG CHORD OF 26.58 FEET (CHORD BEARS N03°22’50“W) FOR AN ARC DISTANCE OF 26.60 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

25) N00°37’10“E, A DISTANCE OF 133.77 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR THE POINT OF CURVATURE OF A CURVE TO THE LEFT;

26) WITH SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 92°30’00”, A RADIUS OF 49.50 FEET, A LONG CHORD OF 71.51 FEET(CHORD BEARS N45°37’50“W) FOR AN ARC DISTANCE OF 79.91 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET FOR A POINT OF TANGENCY;

27) S88°07’10“W, A DISTANCE OF 9.01 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET;

28) S01°52’50“E, A DISTANCE OF 73.50 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET;

29) S88°07’10“W, A DISTANCE OF 32.00 FEET TO A ¹ ⁄ ₂ ” IRON ROD SET;

30) N01°52’50“W, A DISTANCE OF 183.52 FEET TO THE POINT OF BEGINNING CONTAINING WITHIN THESE METES AND BOUNDS 8.840 ACRES OF LAND AREA.

LESS AND EXCEPT:

DESCRIPTION of a 0.5624 acre tract of land in the J. P. Warnock Survey No. 56, Travis County, Texas and being a portion of Lot 1, Block “A” of Lakeway Regional Medical Center, a subdivision of record in Document No. 200800246 of the Official Public Records of Travis County and being further described as a portion of that 8.840 acre tract, described as Unit 1 of Lakeway Regional Medical Center Condominium, conveyed to Lakeway Regional Medical Center, LLC by deed recorded in Document No. 2010072321 of the said Official Public Records; said 0.5624 acre tract of land is more particularly described by metes and bounds as follows:

COMMENCING at a ¹ ⁄ ₂ ” iron rod found for the northeast corner of the said 8.840 acre tract, from which a 60d nail found in a fence corner for the most westerly corner of said Lot 1, Block “A”, Lakeway Regional Medical Center subdivision bears S64°35’24“W, 1047.91 feet;

THENCE, S18°44’03“W, across said Lot 1, Block “A”, with the easterly line of the said 8.840 acre tract, for a distance of 359.74 feet to an “X” set in concrete for corner;

THENCE, S40 ^o 0l’44“W, across said Lot 1, Block “A” and the 8.840 acre tract, for a distance of 63.11 feet to a calculated point for the POINT OF BEGINNING and most easterly northeast corner of the herein described tract;

THENCE, continuing across said Lot 1, Block “A” and the 8.840 acre tract, for the following sixteen (16) courses:

S01°52’50“E, 238.92 feet to a calculated point for corner;

S88°07’10“W, 47.33 feet to a calculated point for corner;

N01 ^o 52’50“W, 32.46 feet to a calculated point for corner;

S88°07’10“W, 56.26 feet to a calculated point for corner;

N01°52 ^’ 50“W, 206.46 feet to a calculated point for corner;

N88°07’10“E, 13.19 feet to a calculated point for corner;

N14°11’15“E, 27.90 feet to the calculated point of curvature of a non-tangent curve to the left;

With said curve to the left, having a central angle of 49°24’24”, a radius of 52.00 feet, a long chord of 43.46 feet (chord bears N81°37’54“E), for an arc distance of 44.84 feet to the calculated point of non-tangency;

S30°57’24“E, 29.91 feet to a calculated point for corner;

10)

N88°07’10“E, 13.83 feet to a calculated point for corner;

11)

S01°52’50“E, 5.58 feet to a calculated point for corner;

12)

N88°07’10“E, a distance of 11.13 feet to the POINT OF BEGINNING, CONTAINING within these metes and bounds 0.5624 acres of land area.

Note: “ ¹ ⁄ ₂ ” iron rod”, denotes a ¹ ⁄ ₂ ” iron rod found with plastic cap marked “Capital Surveying Co, Inc.”

Bearing Basis Note: The bearings noted herein are based on the easterly line of the 8.840 acre tract described above, S18°44’03”W, as deeded and found.

EXHIBIT C

Approved Signs

[to come]

EXHIBIT D

Notwithstanding anything to the contrary contained in this Lease, the following provisions shall be applicable to the Property:

1. The term “Environmental Laws” also shall include, without limitation, with respect to the Property, the Texas Solid Waste Disposal Act (V.T.C.A. Health and Safety Code Sections 361.01 et. seq.), the Texas Water Code (V.T.C.A. Water Code, Sections 20.001-26.407) and Risk Reduction Standards (30 Tx. Adm. Code Section 335, Subchapter S).

2. Notwithstanding anything to the contrary contained in Section 4.02(c) and supplementing the provisions thereof, any tax based on Landlord’s taxable margin or gross receipts shall be included as “Additional Rent” and for these purposes shall not be deemed to be a tax on Landlord’s net income or net worth. Further, Landlord shall have the right to require Tenant to pay the amount of the taxable margin along with the scheduled payments of Fixed Rent.

3. The following is added as a new subparagraph (h) to Paragraph 12.02: “Tenant is knowledgeable and experienced in commercial transactions and does hereby acknowledge and agree that the provisions of this Lease for determining charges and amounts payable by Tenant are commercially reasonable and valid and constitute satisfactory methods for determining such charges and amounts as required by Section 93.012 of the Texas Property Code. TENANT FURTHER VOLUNTARILY AND KNOWINGLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ALL RIGHTS AND BENEFITS OF TENANT UNDER SUCH SECTION, AS IT NOW EXISTS OR AS IT MAY BE HEREAFTER AMENDED OR SUCCEEDED.”

4. The following is added as a new Section 17.29 “Landlord and Tenant are knowledgeable and experienced in commercial transactions and agree that the provisions of this Lease for determining charges, amounts and Additional Rent payable by Tenant (including, without limitation, payments under Section 4.02(b)) are commercially reasonable and valid even though such methods may not state a precise mathematical formula for determining such charges. ACCORDINGLY, TENANT VOLUNTARILY AND KNOWINGLY WAIVES ALL RIGHTS AND BENEFITS OF TENANT UNDER SECTION 93.012 OF THE TEXAS PROPERTY CODE AS SUCH SECTION NOW EXISTS OR AS MAY BE HEREAFTER AMENDED OR SUCCEEDED.”

EXHIBIT E

Special Stipulations

Financial Reporting Requirements . Tenant agrees to provide to Landlord throughout the Term of this Lease: (i) monthly financial statements prepared by Tenant, together with all supporting operating data and utilization statistics requested by Landlord from time to time; (ii) within 45 days of the end of each fiscal quarter, quarterly financial statements prepared by Tenant, together with all supporting operating data and utilization statistics requested by Landlord from time to time; (iii) within 60 days of Tenant’s fiscal year end, audited annual financial statements prepared by an independent accounting firm approved by Landlord, together with all internal supporting operating data and utilization statistics; and (iv) any other information or data pertaining to Tenant’s financial performance and/or operating results as Landlord may from time to time request. In addition, Tenant shall provide to Landlord, contemporaneously with providing such information to Tenant’s working capital lender, each periodic borrowing base/compliance certificate required under Tenant’s working capital/receivables financing. Tenant’s failure to timely fulfill any of the reporting requirements set forth above shall constitute an Event of Default under the Lease.

Financial Covenants. Tenant agrees that it shall at all times during the Term of the Lease maintain each of the following:

1. Minimum Rent Coverage – shall be tested quarterly on an annualized basis, beginning in the fourth quarter of 2015. The result of EBITDAR for each quarterly test period divided by Rent (inclusive of any rent on equipment operating leases) for the applicable test period shall be

Greater than 1.0 for the first twelve month test period;

Greater than 1.25 for the second twelve month test period;

Greater than 1.75 for the third twelve month test period; and

Greater than 2.25 for the fourth twelve month test period and each test period thereafter.

“ EBITDAR ” means as to the trailing 12-month period for the most recent quarter end, an amount equal to the sum of (A) EBITDA and (B) Rent plus any rent on equipment operating leases. “ EBITDA ” means, for any period, an amount equal to (a) net income determined in accordance with GAAP, plus (b) the sum of the following to the extent deducted in the calculation of net income: (i) interest expense; (ii) depreciation; (iii) income taxes; (iv) franchise taxes; and (v) amortization.

2. Minimum Fixed Charge Coverage Ratio – shall be tested quarterly on an annualized basis, beginning in the fourth quarter of 2015. Tenant shall maintain a minimum Fixed Charge Coverage Ratio of

Greater than 1.0 for the first twelve month test period;

Greater than 1.15 for the second twelve month test period;

Greater than 1.25 for the third twelve month test period;

Greater than 1.35 for the fourth twelve month test period; and

Greater than 1.5 for the fifth twelve month test period and each test period thereafter.

“ Fixed Charge Coverage Ratio ” means for any period, the ratio of EBITDAR to Fixed Charges. “ Fixed Charges ” means (A) any payments (including but not limited to principal and interest payments) related to equipment financing and/or capital leasing, (B) non-financed capital expenditures, (C) interest expense (but excluding Tenant’s class B preference accruals and surplus cash notes accruals), and (D) rent on any equipment operating leases and Rent due under this Lease.

3. Maximum Funded Debt (including leases) to Cashflow – shall be tested quarterly on an annualized basis, beginning in the fourth quarter of 2015. The ratio of all outstanding indebtedness of Tenant (inclusive of liabilities of Tenant for Rent and rent due under equipment operating leases but exclusive of obligations for principal and accrued interest under Tenant’s surplus cash notes) to Tenant’s EBITDA for each quarterly test period shall not be

Greater than 3.0 for the first twelve month test period;

Greater than 2.5 for the second twelve month test period; and

Greater than 2.0 for the third and each succeeding twelve month period.

4. Minimum Cash on Hand Tenant shall at all times, beginning on the Effective Date of this Lease, maintain the following Cash on Hand:

At least $5,000,000.00 throughout the first twenty-four months of the Lease Term;

At least $10,000,000.00 throughout the third twelve months of the Lease Term;

At least $15,000,000.00 for each subsequent year throughout the Lease Term.

“ Cash on Hand ” means the cash held by Tenant in any of its bank accounts including loan proceeds in the escrow account, reserves and deposits held by Landlord under this Lease and availability under Tenant’s revolving loan with Gemino Healthcare Finance or any replacement working capital lender approved by Landlord.

The failure of Tenant to fulfill or comply with any of the foregoing financial covenants shall constitute an Event of Default under this Lease.

Schedule 3.04

Existing Personalty

All furniture, trade fixtures, appliances, equipment and personal property located on the Property as of the Lease Commencement Date, less and except all moveable medical equipment, all of which is owned or leased by Tenant and known as the “Tenant Medical Equipment”, all as more particularly identified on the exhibit attached to this Schedule 3.04. The Tenant Medical Equipment shall belong to Tenant and Tenant shall retain the duty to insure such Tenant Medical Equipment and to maintain, repair and replace such Tenant Medical Equipment.

Schedule 5.07

Defaults

None

Schedule 6.03

Key Man Insurance Policy Requirements

Life and disability insurance policies, in form and substance acceptable to Landlord and insuring Douglas J. Fox, M.D., Mark G. Burnett, M.D., and K. Michael Webb, M.D. in the amount of $10,000,000 each, shall be procured and provided by Tenant to Landlord within ninety (90) days of the Lease Commencement Date. Failure to provide such policies within such time period shall be an Event of Default without any requirement of notice or any cure period under this Lease. Any proceeds payable under such policies shall be made available solely to Landlord to serve as reserves for the payment of Rent under the Lease.

Exhibit 10.23

FIRST AMENDMENT TO

MASTER LEASE AGREEMENT

This First Amendment to Master Lease Agreement (“Amendment”) is made as of March 17 , 2016 (the “Effective Date”) by and between LAKEWAY REALTY, L.L.C., a Delaware limited liability company (“Landlord”) and LAKEWAY REGIONAL MEDICAL CENTER, LLC, a Texas limited liability company (“Tenant”).

RECITALS

R-1. Landlord and Tenant are parties to that certain Master Lease Agreement dated as of February 3, 2015 (“Original Lease”) whereby Landlord agreed to lease to Tenant and Tenant agreed to lease and take from Landlord the Premises, as such term is defined in the Original Lease.

R-2. Landlord and Tenant are also parties to that certain Memorandum of Understanding dated February 3, 2016 (“MOU”) which set forth the understanding of the parties with respect to the posting of a surety bond to secure the Final Determination in the Lawsuit (as those terms are defined in the MOU).

R-3. Section 4 of the MOU provides for an extension of the temporary partial rent deferment under the Original Lease and requires that Landlord and Tenant enter into an amendment to the Original Lease with respect to such rent deferment and with respect to adjustment of the dates of the financial covenants tests set forth in Exhibit E to the Original Lease.

R-4. Landlord and Tenant wish to amend the Original Lease to comply with the terms of the MOU.

NOW, THEREFORE, for the sum of Ten and no/100 Dollars ($10.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that the Original Lease is and shall be amended as follows.

1. Incorporation of Recitals . The foregoing Recitals are hereby incorporated in this Amendment by this reference as if specifically stated herein.

2. Capitalized Terms; Incorporation of this Amendment . All capitalized terms used herein which are defined in the Original Lease shall have the meanings set forth in the Original Lease unless the context clearly indicates otherwise. All references herein and in the Original Lease to “Lease” shall hereafter mean the Original Lease as modified by this Amendment.

3. Amendment

3.1. Paragraph (iii) of Subsection 4.02(a) is hereby deleted in its entirety and the following paragraph (iii) is substituted in lieu thereof:

(iii) Notwithstanding the above, the Fixed Rent for the six (6) month period of April 1, 2015 through September 30, 2015 shall be Five Hundred

Thousand and no/100 Dollars ($500,000.00) per month, and the Fixed Rent for the six (6) month period of January 1, 2016 through June 30, 2016 shall be in the amount of One Million Six Hundred Twenty-five Thousand and no/100 Dollars ($1,625,000.00) per month; provided , however , that Fixed Rent in the amount of Five Hundred Sixty-two Thousand Five Hundred and no/100 ($562,500.00) per month (“Monthly Deferment”) shall be deferred for the period from January 1, 2016 through June 30, 2016, accumulating to a total deferment amount of Three Million Three Hundred Seventy-five Thousand and no/100 Dollars ($3,375,000.00) (“Deferred Rent”). The Deferred Rent shall bear interest at the rate of ten percent (10%) per annum from the time each Monthly Deferment would otherwise have been required to be made pursuant to this Lease. Beginning on July 1, 2016, Tenant shall repay the Deferred Rent in twelve (12) equal installments, plus accrued interest, in accordance with the following schedule:


Payment Date	Deferred Rent		Interest
July 1, 2016	$	281,250.00	$	94,437.50
August 1, 2016	$	281,250.00	$	25,781.25
September 1, 2016	$	281,250.00	$	23,437.50
October 1, 2016	$	281,250.00	$	21,093.75
November 1, 2016	$	281,250.00	$	18,750.00
December 1, 2016	$	281,250.00	$	16,406.25
January 1, 2017	$	281,250.00	$	14,062.50
February 1, 2017	$	281,250.00	$	11,718.75
March 1, 2017	$	281,250.00	$	9,375.00
April 1, 2017	$	281,250.00	$	7,031.25
May 1, 2017	$	281,250.00	$	4,687.50
June 1, 2017	$	281,250.00	$	2,343.75

Tenant shall make all payments of Deferred Rent plus interest with the monthly payment of Fixed Rent then due under the Lease; provided , however , that Tenant shall have the option to repay any additional amount of the Deferred Rent at any time without penalty, provided that such payment is identified, at the time of payment, as additional Deferred Rent.

3.2. Section 12.01 is hereby amended by adding the following paragraph (w) immediately after paragraph (v):

(w) Any default of Tenant under that certain Memorandum of Understanding dated as of February 3, 2016 and executed by and among MedEquities Realty Trust, Inc.; Landlord; Tenant; Surgical Development Partners, LLC; SDP of Austin Enterprises, LLC; SDP of Austin Investments, LLC; RD Development Partners; and PMB Lakeway.

3.3. Exhibit E – Special Stipulations is hereby amended as follows: In paragraphs 1 (Minimum Rent Coverage) and 2 (Minimum Fixed Charge Coverage Ratio), the phrase “fourth quarter of 2015” is hereby deleted and the phrase “fourth quarter of 2016” is inserted in lieu thereof.

4. Miscellaneous .

4.1. In accordance with Subsection 4.02(d) of the Lease, the Tenant has incurred a total of $160,130.14 in late charges and interest for late payment or underpayment of Fixed Rent in January and February 2016 that remains unpaid and outstanding. These amounts are hereby waived by Landlord for January and February 2016 only.

4.2. Tenant shall pay all Landlord’s legal costs and other direct costs associated with the execution of this Amendment (“Amendment Costs”) within ten (10) Business Days after Tenant’s receipt of Landlord’s demand for payment, such demand to be accompanied by invoices in support of the Amendment Costs. If Tenant fails to pay the Amendment Costs when due, the amount unpaid will be subject to interest at a rate equal to ten percent (10%) which shall commence accruing on the eleventh (11 ^th ) Business Day after Tenant’s receipt of Landlord’s demand for payment of the Amendment Costs.

4.3. This Amendment may be executed in counterparts, each of which constitutes an original and all of which taken together shall constitute one instrument. The exchange of executed copies of this Amendment by facsimile, electronic mail, portable document format (.pdf) or other electronic transmission will constitute execution and delivery of this Amendment as to the parties for all purposes. Electronic signatures of the parties shall be deemed to be their original signatures for all purposes.

4.4. The parties hereby ratify and confirm the Original Lease and its terms and conditions as previously set forth, except for the modifications specified in this Amendment. Except as expressly modified herein, the parties agree that all other terms of the Original Lease are binding upon the parties and the provisions of the Original Lease remain in full force and effect. In the event of a conflict between the terms of this Amendment and the terms of the Original Lease, the terms of this Amendment shall govern and control.

[ remainder of page intentionally left blank;

signatures begin on following page ]

IN WITNESS WHEREOF , the parties hereto have executed this Amendment as of the day and year first above written.


LANDLORD :

LAKEWAY REALTY, L.L.C., a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
Name:		Jeffery C. Walraven
Title:		Managing Board Member

Signature page to 1 ^st Amendment to Master Lease Agreement


TENANT :

LAKEWAY REGIONAL MEDICAL CENTER, LLC, a Texas limited liability company

By:		/s/ Kyle Johnson
Name:		Kyle Johnson
Title:		CFO

Signature page to 1 ^st Amendment to Master Lease Agreement

Exhibit 10.24

GUARANTY AGREEMENT

(Lease)


To:	Lakeway Realty, L.L.C. (“Landlord”)	March 20, 2015
	c/o MedEquities Realty Trust Inc.
	3100 West End Avenue, Suite 1000
	Nashville, Tennessee 37203
	Attn: William C. Harlan, President

The Undersigned manages a hospital facility in Lakeway, Texas, the operation of which will be funded in part by a loan (“ Loan ”) by MRT of Lakeway, TX – ACH, LLC (“ACH” ) to Lakeway Realty, L.L.C., a Delaware limited liability company (“ Landlord ”), as borrower, and which is located on property leased pursuant to that certain Master Lease Agreement dated as of February 3, 2015 (as amended, restated, modified, extended, renewed or replaced, and/or assigned from time to time, the “ Lease ”) by and between Landlord and Lakeway Regional Medical Center, LLC, a Texas limited liability company (“ Tenant ”). In consideration of the benefit to Undersigned of the Loan to Landlord and of the Lease to the Tenant, and to induce ACH to establish financing arrangements with and make the Loan to Landlord, the Undersigned, intending to be legally bound, does hereby absolutely, irrevocably and unconditionally guarantee (i) the full performance and observance of all the covenants, conditions and agreements provided to be performed and observed by Tenant including, without limitation, the prompt payment of the Rent and all other amounts provided in the Lease to be paid by Tenant for the term of the Lease (herein, the “ Liabilities ”). The Undersigned shall also pay or reimburse Landlord on demand for all reasonable costs and expenses, including without limitation, reasonable attorneys’ fees and costs, incurred by Landlord at any time to enforce, protect, preserve, or defend Landlord’s rights hereunder and with respect to any property securing this Guaranty Agreement (“ Guaranty Agreement ”). All payments hereunder shall be made in lawful money of the United States, in immediately available funds. Unless otherwise defined herein, all capitalized terms shall have the respective meanings given to such terms in the Lease. This Guaranty Agreement is a guaranty of payment and performance, and not of collection.

The Undersigned further undertakes and agrees as follows:

1. The Undersigned represents and warrants that:

(a) The Undersigned’s execution and performance of this Guaranty Agreement shall not (i) violate or result in a default or breach (immediately or with the passage of time) under any contract, agreement or instrument to which the Undersigned is a party or by which the Undersigned is bound, (ii) violate or result in a default or breach under any order, decree, award, injunction, judgment, law, regulation or rule, (iii) cause or result in the imposition or creation of any lien upon any property of the Undersigned, or (iv) as applicable, violate the Undersigned’s formation documents or any other organizational document of the Undersigned.

(b) The Undersigned has the full power and authority to enter into and perform under this Guaranty Agreement and to incur the obligations provided for herein. The execution, delivery and performance of this Guaranty Agreement have been authorized by all proper and necessary actions of the Undersigned.

(c) No consent, license or approval of, or filing or registration with, any Governmental Authority is necessary for the execution and performance hereof by the Undersigned.

(d) This Guaranty Agreement constitutes the valid and binding obligation of the Undersigned enforceable in accordance with its terms as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and general equitable principles.

(e) This Guaranty Agreement promotes and furthers the business and interests of the Undersigned, and the incurrence of the Liabilities by Tenant and creation of the obligations hereunder will result in direct financial benefit to the Undersigned or its members.

2. The Undersigned hereby waives all notices with respect to this Guaranty Agreement, including without limitation, notices of (a) acceptance of this Guaranty Agreement, (b) the existence or incurring from time to time of any Liabilities guaranteed hereunder, (c) the existence of any Event of Default, the making of demand, or the taking of any action by Landlord under the Lease, and (d) demand and default hereunder.

3. The Undersigned hereby consents and expressly agrees that its obligations hereunder shall not be terminated, affected or impaired by reason of the granting by Landlord of any indulgences to Tenant, or by reason of the assertion against Tenant of any of the rights or remedies reserved to Landlord pursuant to the provisions of said Lease, or by any invalidity or unenforceability (in whole or in part) of the Lease, or by the release of Tenant (or any other guarantor) from any of Tenant’s obligations under said Lease by operation of law, the undersigned hereby waiving all suretyship defenses. The Undersigned further covenants and agrees that this Guaranty Agreement shall remain and continue in full force and effect as to any renewal, modification or extension of the Lease whether or not the undersigned shall have received any notice of or consented to such renewal, modification or extension, but in case of any modification of the Lease, the liability of the Undersigned shall be deemed modified in accordance with the modified terms and provisions of the Lease. However, nothing contained in this Paragraph shall increase the undersigned’s monetary obligations hereunder over the aggregate amount of the Liabilities plus the Enforcement Costs.

4. The liability of the Undersigned hereunder is absolute and unconditional and shall not be reduced, impaired or affected in any way by reason of (a) any failure by Landlord to obtain, retain or preserve, or the lack of prior enforcement of, any rights against any Person or Persons (including, without limitation, Tenant, the Undersigned, or any other obligor) or in any property, (b) the invalidity or unenforceability of any Liabilities, (c) any delay by Landlord in making demand upon Tenant (or any other obligor), or any delay by Landlord in enforcing, or any failure to enforce, any rights against Tenant, or any other obligor even if such rights are thereby lost, (d) any failure, neglect or omission on Landlord’s part to obtain or perfect any lien upon, protect, exercise rights against, or realize on, any property of Tenant, the Undersigned or

any other Person securing the Liabilities, (e) the existence or nonexistence of any defenses which may be available to Tenant with respect to the Liabilities (other than the defense of payment), (f) any failure by Landlord to proceed against Tenant (or any other obligor) or any collateral securing the Liabilities in a commercially reasonable manner, or (g) the commencement of any bankruptcy, reorganization, liquidation, dissolution or receivership proceeding or case filed by or against Landlord or Tenant (or any other obligor).

5. If any or all payments made from time to time to Landlord with respect to the Liabilities hereby guaranteed are recovered from, or repaid by, Landlord in whole or in part in any bankruptcy, reorganization, insolvency or similar proceeding instituted by or against Tenant, this Guaranty Agreement shall continue to be fully applicable to such Liabilities to the same extent as if the recovered or repaid payment(s) had never been originally made on such Liabilities. Further, if Tenant, or Tenant’s trustee, receiver or other officer with similar powers with respect to Tenant, rejects, disaffirms or otherwise terminates the Lease pursuant to any bankruptcy, insolvency, reorganization, moratorium or any other law affecting creditors’ rights generally, Guarantor shall nonetheless remain obligated to pay all sums payable and/or due pursuant to the Lease, and to perform all covenants required to be performed by Tenant under the Lease, as if such rejection, disaffirmance or other termination of the Lease had never occurred and as if the Lease (without taking into account such rejection, disaffirmance or termination) were in full force and effect, notwithstanding the fact that: (a) Landlord may not be able to recover any part or all of such sums due pursuant to the Lease from Tenant; or (b) Tenant’s obligations to pay sums due pursuant to the Lease, or to perform obligations pursuant to the Lease, may be limited by application of such bankruptcy, insolvency, reorganization, moratorium or other law affecting creditors’ rights generally. Notwithstanding the Undersigned’s continuing liability to pay such sums as aforesaid, the Undersigned shall not have any right of possession as a tenant under the Lease.

6. All rights and remedies hereunder and under the Lease, are cumulative and not alternative, and Landlord may proceed in any order from time to time against Tenant, the Undersigned and/or any other obligor of the Liabilities and their respective assets. If this Guaranty Agreement is placed in the hands of one or more attorneys for collection, or is collected through any legal proceedings, or if one or more attorneys is retained to represent Landlord in any other proceedings whatsoever in connection with this Guaranty Agreement and if Landlord prevails in such proceedings, then the Undersigned shall pay to Landlord, promptly upon demand, all reasonable attorneys’ fees, costs and expenses, including without limitation court costs and filing fees, incurred in connection therewith (collectively “ Enforcement Costs ”), in addition to all other amounts due hereunder.

7. Other than as noted herein, no assignment or other transfer of the Lease, or any interest therein, shall operate to extinguish or diminish the liability of the undersigned hereunder. The Undersigned shall be released from liability hereunder and this Guaranty Agreement shall terminate (and the Undersigned shall have no obligation for the Liabilities nor any Enforcement Costs) at such time as the earlier of the following shall occur: (i) there shall be a Transfer of the Lease and the Tenant thereunder is released from further liability under the Lease, or (ii) all of the Liabilities are duly, finally and permanently paid, performed and discharged.

8. Following an Event of Default (as defined in the Lease) and until such Event of Default has been cured, in the event the Undersigned shall have any claims against Tenant, any indebtedness of Tenant held by the Undersigned at such time shall be thereby subordinated to the indebtedness of Tenant to Landlord, including without limitation, any and all amounts due to Landlord under the Lease.

9. Failure or delay in exercising any right or remedy against the Undersigned hereunder shall not be deemed a waiver thereof or preclude the exercise of any other right or remedy hereunder. No waiver of any breach of or provision of this Guaranty Agreement shall be construed as a waiver of any subsequent breach or of any other provision. The invalidity or unenforceability of any provision hereof shall not affect the remaining provisions which shall remain in full force and effect.

10. The undersigned acknowledges and agrees that Landlord may collaterally assign all of its right, title and interest under the Lease and this Guaranty Agreement to a lender and no assignment or transfer or other disposition of this Guaranty Agreement shall in any manner affect the rights of Landlord or its successors and assigns hereunder. The Undersigned may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty Agreement.

11. This Guaranty Agreement embodies the whole agreement and understanding of the parties hereto relative to the subject matter hereof. No modification of any provision hereof shall be enforceable unless approved by Landlord in writing. Two or more duplicate originals of this Guaranty Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument.

12. THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED THAT LANDLORD SHALL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS GUARANTY AGREEMENT IS PERFORMABLE FOR ALL PURPOSES IN TRAVIS COUNTY, TEXAS. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THE LEASE OR ANY OF THE RELATED DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LANDLORD IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT OF THE LEASE OR ANY OF THE RELATED DOCUMENTS SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN TRAVIS COUNTY, TEXAS. GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES REFERENCED IN THIS GUARANTY AGREEMENT.

13. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE UNDERSIGNED (AND LANDLORD BY LANDLORD’S ACCEPTANCE HEREOF) HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT OR LANDLORD MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO OR RELATING TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LEASE OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF OR RELATING TO ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE LEASE.

14. Any and all notices which may be given to the Undersigned by Landlord hereunder shall be sent to the Undersigned at the address of the Undersigned set forth on the signature page hereof and shall be deemed given to and received (on the date delivered) by the Undersigned if personally delivered or if sent by facsimile transmission or if sent in the manner provided for service of process in paragraph 12 above.

15. Waivers . Guarantor waives for the benefit of Landlord: (a) any right to revoke this Guaranty Agreement with respect to future indebtedness; (b) any right to require Landlord to do any of the following before Guarantor is obligated to pay the Liabilities or before Landlord may proceed against Guarantor: (i) sue or exhaust remedies against Tenant or any other guarantors or obligors; (ii) sue on an accrued right of action in respect of any of the Liabilities or bring any other action, exercise any other right, or exhaust all other remedies or (iii) enforce rights against Tenant’s assets or any collateral pledged by Tenant to secure the Liabilities; (c) any right relating to the timing, manner, or conduct of Landlord’s enforcement of rights against Tenant’s assets or any collateral pledged by Tenant to secure the Liabilities; (d) if both Guarantor and Tenant or any other Person have pledged assets to secure the Liabilities, any right to require Landlord to proceed first against any such other collateral before proceeding against any collateral pledged by Guarantor; (e) except as expressly required hereby, promptness, diligence, notice of any default under the Liabilities, notice of acceleration or intent to accelerate, demand for payment, notice of acceptance of this Guaranty Agreement, presentment, notice of protest, notice of dishonor, notice of the incurring by Landlord of additional indebtedness, notice of any suit or other action by Landlord against Tenant or any other Person, any notice to any Person liable for the obligation which is the subject of the suit or action, and all other notices and demands with respect to the Liabilities and this Guaranty Agreement; (f) (i) any principles or provisions of law, statutory, or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of Guarantor’s obligations hereunder, (ii) the benefit of any statute of limitations affecting Guarantor’s liability hereunder or the enforcement hereof; and (iii) any requirement that Landlord protect, secure, perfect, or insure any security interest or lien or any property subject thereto; and (g) each of the foregoing rights or defenses regardless whether they arise under (i) Section 43.001–005 of the Tex. Civ. Prac. & Rem. Code, as amended (ii) Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, (iii) Rule 31 of the Texas Rules of Civil Procedure, as amended, and (iv) common law, in equity, under contract, by statute, or otherwise.

16. The obligations of the Undersigned, together with the obligations of any other surety and/or guarantor of the Liabilities, shall be joint and several.

17. Receipt of an executed signature page to this Guaranty Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof.

18. FINAL AGREEMENT . THIS GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURE TO FOLLOW ON SEPARATE PAGE]

IN WITNESS WHEREOF, the undersigned party has executed this Guaranty Agreement the day and year first above written.

LRMC HOSPITAL MANAGEMENT COMPANY, LLC, a Texas limited liability company

By:

/s/ G. Edward Alexander

By:

/s/ W. Bradley Daniel

Name:

G. Edward Alexander

Name:

W. Bradley Daniel

Title:

Member

Title:

Member

Address for Notices:

LRMC Hospital Management Company, LLC

100 Medical Parkway

Lakeway, Texas 78734

Attn: Susan A. MacLeod, CEO

Phone: (512) 571-5140

Fax: (512) 571-5198

Email: susan.macleod@lakewayregional.com

G UARANTY A GREEMENT (M ASTER L EASE ) SIGNATURE PAGE

Exhibit 10.25

AMENDED AND RESTATED

OPERATING AGREEMENT OF

LAKEWAY REALTY, L.L.C.

AMENDED AND RESTATED

OPERATING AGREEMENT OF

LAKEWAY REALTY, L.L.C.

This Amended and Restated Operating Agreement of Lakeway Realty, L.L.C. (the “Company”), a limited liability company organized pursuant to Delaware Limited Liability Company Act, 6 Del. C. §18-101, et. seq. (the “Act”), is executed effective as of March 20, 2015 (“Effective Date”), by and among the Company and its Members (as defined below).

ARTICLE I

DEFINITIONS

When used in this Agreement, the following terms shall have the meanings set forth below:

1.1 “Act” means the Delaware Limited Liability Company Act, as amended from time to time (and any corresponding provisions of succeeding law).

1.2 “ACH” means MRT of Lakeway TX-ACH, LLC, a Delaware limited liability company.

1.3 “ACH Note” means the promissory note of up to $72,960,000 made by the Company to the order of ACH and its successors and assigns on or about the date hereof, together with any permitted amendments and modifications thereto, such renewal or replacement financing as shall be procured from time to time.

1.4 “Adjusted Capital Account Deficit” shall mean, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:

(a) credit to such Capital Account any amounts which a Member is obligated to restore or is deemed to be obligated to restore pursuant to the penultimate sentence of Regulations Section 1.704-2(g)(1) and (i)(5); and

(b) debit to such Capital Account the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

1.5 “Affiliate” of a specified Person or entity shall mean a Person or entity that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person or entity specified. As used in this definition, the term “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such specified Person or entity, whether through ownership of voting securities, by contract or otherwise.

- 2 -

1.6 “Agreement” means this Amended and Restated Operating Agreement, as amended from time to time.

1.7 “Available Cash Flow” means all cash funds of the Company on hand at the end of each fiscal quarter (or at the end of each calendar month if in accordance with Section 9.5 of this Agreement) less (i) provision for payment of all outstanding and unpaid current obligations of the Company, due and payable at the end of such quarter (or calendar month if in accordance with Section 9.5), including those which are in dispute, and (ii) provision for Reserves, but without deduction for depreciation and other non-cash expenses. In determining “Available Cash Flow” for any fiscal quarter or calendar month as applicable, no portion of the indebtedness evidenced by the ACH Note shall be deemed a current obligation or included within the Reserves, except for all amounts owed under the ACH Note that are then currently or will become due and payable thereunder for such fiscal quarter or calendar month as applicable.

1.8 “Board” means the Company’s Board of Managers. Members of the Board shall be called “Manager(s).”

1.9 “Capital Account” means, with respect to any Member, the Capital Account maintained by the Company for such Member in accordance with Section 7.6 of this Agreement.

1.10 “Capital Contribution” in respect of any Member or transferee of such Member means all cash and other property, tangible or intangible, contributed by such Member to the capital of the Company.

1.11 “Certificate” means the Certificate of Formation filed with the Division on December 23, 2014, as amended or restated from time to time.

1.12 “Code” means the Internal Revenue Code of 1986, as amended, or any corresponding provisions of succeeding law in effect at such time.

1.13 “Company” means the limited liability company formed pursuant to this Agreement.

1.14 “Company Return” means the federal income tax return for the Company.

1.15 “Confidential Information” means, in addition to information covered by any definition of “trade secrets” or any equivalent term under state, local or federal law, any and all information regarding the Company, its Members or their Affiliates, their activities, business, patients or clients that is not generally known to Persons not employed by the Company, its Members or their Affiliates, and that is not generally disclosed by the Company, its Members or their Affiliates to Persons not employed by the Company, its Members or their Affiliates, but that does not rise to the level of a trade secret. “Confidential Information” will include, but is not limited to, sales and marketing techniques and plans, distribution techniques, purchase and supply information, prices paid by patients, customers, customer billing information, financial plans and data concerning the Company, management planning information, business methods, and contracted parties. “Confidential Information” will not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company, its Members or their Affiliates, or

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information obtained from a source other than the Company, its Members or their Affiliates, that was not bound by a duty of confidentiality to the Company, its Members or their Affiliates, with respect to such information

1.16 “Division” means the Delaware Division of Corporations or any successor state agency.

1.17 “Fiscal Year” has the meaning set forth in Section 16.3.

1.18 “Hospital” has the meaning set forth in Article IV.

1.19 “Initial Members” means ACH and MedTX.

1.20 “IRS” means the Internal Revenue Service.

1.21 “LRMC Lease” means the lease of the Property by the Company to Lakeway Regional Medical Center, LLC (“LRMC”) as tenant dated as of February 3, 2015.

1.22 “MedTX” means MedTX Realty, L.L.C., a Texas limited liability company.

1.23 “Managing Board Member” means the member of the Board designated to manage the business of the Company pursuant to Section 10.6 of this Agreement. The Managing Board Member shall be the Manager appointed by ACH.

1.24 “Member” means each Person designated as a Member of the Company, on Schedule I hereto, or any other Person admitted as a Member of the Company in accordance with this Agreement or the Act. “Members” refers to such Persons as a group.

1.25 “Percentage Interest” means, with respect to each Member, the number of Units owned by such Member divided by the total number of issued and outstanding Units. The initial Percentage Interests of the Members are set forth on Schedule I hereto.

1.26 “Person” means an individual, trust, estate, corporation, partnership, limited partnership, limited liability company, unincorporated association or other entity or association.

1.27 “Profits” and “Losses” means, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.27 shall be added to such taxable income or loss;

(b) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-(1)(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.26 shall be subtracted from such taxable income or loss;

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(c) If the book value of property is adjusted pursuant to Regulations Sections 1.704-1(b)(2)(iv)(f) or (g), such adjustment shall be taken into account as gain or loss from the disposition of an asset and, in lieu of depreciation as calculated for federal income tax purposes, subsequently such deductions shall be computed in accordance with Regulations Sections 1.704-1(b)(2)(iv)(g)(3) or 1.704-3(d)(2), as the case may be. Subsequent calculations of gain or loss resulting from the disposition of an asset for federal income tax purposes shall be computed by reference to its book value as reflected in Members’ Capital Accounts rather than its adjusted tax basis; and

(d) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required to be taken into account in determining Capital Accounts as a result of a distribution other than in complete liquidation of a Member’s interest in accordance with Regulations Section 1.704-1(b)(2)(iv)(m)(4), the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of the asset and shall be taken into account for purposes of computing Profits and Losses.

1.28 “Property” has the meaning set forth in Article IV.

1.29 “Regulations” means the Treasury regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

1.30 “Reserves” means funds or amounts set aside or otherwise allocated or designated pursuant to Section 10.9(l) by the Board (a) to pay taxes, insurance, future or anticipated obligations, contingent or unforeseen obligations, and all other costs, expenses, and liabilities incident to the Company’s operations and ownership of property, if any; (b) to fund Company operations; (c) to fund the Company’s debt obligations; (d) to fund the acquisition and/or replacement of Company assets; or (e) for any other valid purpose relating to the Company, as determined by the Board pursuant to Section 10.9.

1.31 “Unit” means an interest as a Member in the capital, distributions and Profits and Losses of the Company as the case may be.

ARTICLE II

ORGANIZATION

2.1 Formation . The Company has filed the Certificate with the Division, and shall take other actions reasonably necessary to maintain the status of the Company as a limited liability company under the laws of Delaware and each jurisdiction in which the Company may elect to do business. In consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the rights and obligations of the parties and the administration and termination of the Company shall be governed by this Agreement, the Certificate and the Act.

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2.2 Name . The name of the Company is Lakeway Realty, L.L.C. The business of the Company shall be conducted under this name or such other name as the Members may determine in accordance with Section 10.9.

2.3 Property Rights . Any real and personal property owned by the Company shall be owned by the Company as an entity, and no Member shall have any ownership interest in such property. Each Member’s interest in the Company shall be personal property for all purposes.

2.4 Independent Activities . The Members and their Affiliates shall be required to devote only such time to the affairs of the Company as may be reasonably necessary to manage and operate the Company. Except as expressly provided in this Agreement, the Members and their Affiliates (i) shall be permitted to engage in other business endeavors, including those which may compete with the Company except as outlined elsewhere in this Agreement or in any other written agreement binding on the Members or their Affiliates and (ii) shall not be under any obligation to offer business opportunities to the Company.

ARTICLE III

PRINCIPAL PLACE OF BUSINESS

3.1 Principal Place of Business . The principal place of business of the Company shall be located at 3102 West End Avenue, Suite 400, Nashville, Tennessee 37203, or at such other place as the Members may from time to time designate.

3.2 Registered Office . The registered office of the Company shall be at 615 S. Dupont Highway, Dover, Delaware 19901.

3.3 Registered Agent . The Registered Agent of the Company shall be National Corporate Research, Ltd.

ARTICLE IV

BUSINESS

The business to be conducted by the Company shall be to acquire, develop, construct, hold for investment, own, encumber, improve, renovate, mortgage, finance, refinance, maintain, market, lease, lend funds to any tenant or operator of and/or sell the medical facility and contiguous land located at 100 Medical Parkway, Lakeway, Texas 78738 (the “ Property ”), which includes the land, premises, and property of Lakeway Regional Medical Center, an acute care hospital (the “ Hospital ”). The Company shall have the power to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of such purposes. The activities described within this Article IV shall be referred to as the “Business.”

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ARTICLE V

TERM

The Company shall commence on the date of the filing of the Certificate and continue until the Company is liquidated and dissolved pursuant to Article XV of this Agreement.

ARTICLE VI

MEMBERSHIP INTERESTS

The Company shall issue one hundred (100) Units. As of the Effective Date ACH owns 51 Units for a Percentage Interest of 51% and MedTX owns 49 Units for a Percentage Interest of 49%. Additional Units may be issued only with approval of the Board as specified within Section 10.9 of this Agreement.

ARTICLE VII

CAPITAL CONTRIBUTION AND CAPITAL ACCOUNTS OF MEMBERS

7.1 Initial Capital Contributions . Upon the execution of this Agreement each Initial Member shall be obligated to contribute to the Company cash in the amount set forth opposite its name under the heading “Capital Contributions” on Schedule I in accordance with the terms of the Membership Interest Agreement dated March , 2015 executed by the parties or their Affiliates.

7.2 Limited Liability . A Member shall not be bound by, or personally liable for, the expenses, liabilities or obligations of the Company, except as provided in the Act or as otherwise provided by applicable law. Notwithstanding the foregoing, in the event that a third party commercial lender requires a Member to guarantee the Company’s obligations under a loan as a condition of financing and the Member agrees to do so, the Member would be liable under the guaranty according to its terms.

7.3 Withdrawal of Capital Contributions . No Member shall have the right to withdraw or reduce its Capital Contribution. No Member shall have the right to demand or receive property other than cash in return for its Capital Contribution, and no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to allocations Profits, Losses, or distributions except as expressly provided otherwise in this Agreement.

7.4 Assessments and No Negative Capital Account Make-up . Members will not be subject to additional calls or assessments for contributions to the capital of the Company. Notwithstanding any other provision in this Agreement or any inference from any provision in this Agreement, no Member shall have an obligation to the Company, to the other Members or to third parties to restore a negative Capital Account balance during the existence of the Company or upon the dissolution or termination of the Company.

7.5 Creation and Maintenance of Capital Account . The Company shall establish and maintain a separate Capital Account for each Member for the full term of the Company, which Capital Account shall be increased by such Member’s Capital Contribution and allocations of Profits and items thereof to such Member and decreased by distributions and allocations of

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Losses and items thereof to such Member and otherwise maintained in accordance with the capital account maintenance rules of Regulations Section 1.704-1(b)(2)(iv). Upon occurrence of any of the events specified in Regulations Section 1.704-1(b)(2)(iv)(f)(5), the Managing Board Member in its reasonable discretion may revalue all Company assets and adjust the Capital Accounts to reflect such revaluation if the Managing Board Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; further, all of the rules of Regulations Section 1.704-1(b)(2)(iv)(f) shall be complied with upon any such revaluation. In the event the Managing Board Member shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the Managing Board Member may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Member upon the dissolution of the Company. The Managing Board Member shall make appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). In the event a Member transfers an interest in the Company in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor Member to the extent it relates to the transferred interest.

ARTICLE VIII

EXPENSES OF THE COMPANY

8.1 Organizational Expenses . All expenses incurred in connection with the formation of the Company shall be paid by the Company, provided that each Member shall be responsible for its own legal fees.

8.2 Fees Receivable by an Affiliate of the Member . Subject to Section 10.9, the Company may contract with others, including Affiliates of Members, to perform certain services. Any such arrangements with Affiliates of Members, or other Persons related to a Member, will be on terms that are fair and reasonable to the Company and no less favorable than could reasonably be realized with unaffiliated Persons, and in no event may the annual charges paid to any Member and its Affiliates for the management and operation of the Company, including without limitation those for accounting and financial reporting services, exceed $60,000.00 per year during the terms of the LRMC Lease without the prior unanimous approval of the full Board as set forth in Section 10.9.

ARTICLE IX

ALLOCATION OF INCOME AND LOSS; CASH DISTRIBUTIONS

9.1 Allocations of Profit and Loss . Except as otherwise set forth in this Article IX, any Profits or Losses recognized by the Company in any Fiscal Year or other period must be allocated among Members in proportion to their Percentage Interests.

9.2 Special Allocation Rules .

(a) Any “allocable cash basis item” of the Company (as defined in Section 706(d) of the Code) for any Fiscal Year that is required to be allocated to the Members in the manner provided in Section 706(d) of the Code must be allocated to the Members in the manner so required.

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(b) In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company or property revalued on the Company’s books and in the Capital Accounts will, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial book value under any method selected by the Board.

(c) Notwithstanding the provisions of Section 9.1 hereof, if the amount of Loss that would otherwise be allocated to a Member in any Fiscal Year would cause or increase a Member’s Adjusted Capital Account Deficit as of the last day of such fiscal year, then a proportionate part of such Loss equal to such excess will be allocated to the other Members to the extent such allocation can be made without violating the provisions of Section 9.2 with respect to such other Members. Notwithstanding anything to the contrary in Section 9.1, any Profit for any subsequent Fiscal Year that would have been allocated to a Member to which Loss would have been allocated but for the effect of the first sentence of this Section 9.2(c) will be allocated to the other Member to the extent of the aggregate amount of Loss allocated to such other Member pursuant to the first sentence of this Section 9.2(c).

(d) Notwithstanding any provision hereof to the contrary, if a Member unexpectedly receives in any Fiscal Year any adjustment, allocation or distribution described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and if a Member has an Adjusted Capital Account Deficit as of the last day of such fiscal year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income and gain) for such fiscal year (and, if necessary, for subsequent Fiscal Years) will be allocated to the Member in the amount and in the manner necessary to eliminate such Adjusted Capital Account Deficit as quickly as possible.

(e) Notwithstanding any provision hereof to the contrary, if a Member has an Adjusted Capital Account Deficit as of the last day of any Fiscal Year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income and gain, including gross income) for such fiscal year will be allocated to such Member in the amount and in the manner necessary to eliminate such Adjusted Capital Account Deficit as quickly as possible.

(f) Notwithstanding any provision hereof to the contrary, any item of Company income or gain for any Fiscal Year (or any portion of any such item) that is required to be allocated to the Members under Regulations Sections 1.704-2(f) or 1.704-2(i)(4) will be allocated to the Members for such fiscal year in the manner so required by such Regulations, including Regulations Section 1.704-2(j)(2).

(g) Notwithstanding any provision hereof to the contrary, any item of Company loss, deduction or expenditure described in Section 705(a)(2)(B) of the Code for any Fiscal Year (or any portion of any such item) that is required to be allocated to the Members under Regulations Section 1.704-2(i)(l) will be allocated to the Members for such fiscal year in the manner so required by such Regulation.

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(h) Allocations set forth in subsections (c), through (g) of this Section 9.2 (the “Regulatory Allocations”) are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of the Regulations. Notwithstanding any other provision of this Article IX, the Regulatory Allocations will be taken into account in allocating Profits, Losses and items of Company income, gain, loss and deduction to the Members so that, to the extent possible, the net amount of such allocations of Profits, Losses and other items and the Regulatory Allocations to each Member will be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred.

(i) If one or more Unit(s) are transferred during any Fiscal Year of the Company, the Company income or loss attributable to such Unit(s) for such fiscal year will be allocated between the transferor and the transferee in any manner permitted by law as they will agree; provided, however, that if the Company does not receive on or before January 31 of the year following the year in which the transfer occurs a written notice stating the manner in which such parties have agreed to allocate such Company income or loss, then all such Company income or loss will be allocated between the parties based on the percentage of the year each party was, according to the books and records of the Company, the owner of record of the Company interest(s) transferred during that year.

9.3 General Rules .

(a) Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction for federal and state income tax purposes, and any other allocations not otherwise provided for will be divided among the Members in the same proportions as they share Profits or Losses, as the case may be, for the year.

(b) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items will be determined on a daily, monthly, or other basis, as determined by the Board using any permissible method under Code Section 706 and the Regulations thereunder.

9.4 Power of the Managing Board Member to Vary Allocations of Profits and Losses . It is the intent of the Members that each Member’s allocable share of Profits and Losses will be determined and allocated in accordance with the provisions of Section 9.1 to the fullest extent permitted by Section 704(b) of the Code, or its statutory successor. However, if the Company is advised that the allocations provided in Section 9.1 will not be respected for federal income tax purposes, the allocation provisions of this Agreement will be amended, on advice of accountants or legal counsel, in the manner and to the extent in the best interest of the Members and consistent with the economic sharing of the Members, but in no event will such reallocation be greater than the minimum reallocation necessary so that the allocation in Section 9.1 will be respected for Federal income tax purposes.

9.5 Distributions . Subject to applicable law, and except as provided below relating to the dissolution of the Company, the Company will make distributions of Available Cash Flow to the Members, promptly after the end of each fiscal quarter; provided however that so long as the tenant is currently making payments of rent, additional rent, deposits, reserves and all other charges due and payable under the LRMC Lease in accordance with the terms thereof, such

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distributions shall be made on a quarterly basis for the first six (6) months following the effective date of the LRMC Lease and thereafter on a monthly basis based on the Available Cash Flow calculated on a calendar month basis, rather than on a quarterly basis, promptly after the end of each calendar month. In any case, distributions from Available Cash Flow will be made in proportion to the Members’ Percentage Interests.

(a) If any Units are sold, assigned or transferred during any accounting period, all distributions on or before the date of such transfer will be made to the transferor, and all distributions after such date will be made to the transferee.

(b) All amounts withheld pursuant to the Code or any provision of any state or local tax law with respect to any payment or distribution to Members will be treated as amounts distributed to Members pursuant to this Section 9.5 for all purposes of this Agreement.

(c) Upon the dissolution and winding up of the Company, subject to (a) the requirements of Article XV, (b) the payment of all liabilities of the Company, including any debts owed to a Member and (c) the establishment of such reserves as the Board reasonably determines pursuant to Section 10.9 for any contingent or unforeseen liabilities or obligations, the proceeds from such liquidation will be distributed, as expeditiously as possible, to the Members in accordance with their positive Capital Account balances.

(d) If any assets of the Company are distributed in kind, such assets will be distributed to the Members entitled to such distribution as tenants-in-common in the same proportions as such Members would have been entitled to cash distributions.

(e) No distribution will be made to the Members if prohibited by the Act.

9.6 Tax Distributions . Within ninety (90) days after the end of each calendar year, to the extent of any Available Cash Flow, the Company shall distribute to each Member (any such distribution, a “Tax Distribution”) an amount such that total distributions under Section 9.5 and this Section 9.6 to such Member with respect to the calendar year recently ended are at least equal to the assumed federal, state and local income tax liability (such liability, a “Tax Liability”) incurred by such Member with respect to such Member’s distributive share of the Company’s taxable net income for such taxable year. For purposes of the computation required by this Section 9.6, the taxable net income for a taxable year allocated to each Member shall be deemed to be reduced by any prior net loss allocated to such Member that was not previously taken into account under this sentence. In calculating the amount of each Tax Distribution, the Company shall assume that each Member is taxable at forty percent (40%) on all taxable income. Any Tax Distribution shall be treated as an advance on the Member’s rights to distributions under Sections 9.5, and shall reduce the amount of the first such distributions on a dollar-for-dollar basis.

9.7 ACH Note Repayment . In the event Additional Units are issued by the Company, any consideration received by the Company shall be distributed, to the existing Members based on their Percentage Interests or added to Reserves per Section 10.9. However, if the ACH Note is still outstanding, then the amount otherwise distributable to the Members pursuant to this Section 9.7 may, at the discretion of the Managing Board Member, instead be applied against the outstanding balance under the ACH Note.

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9.8 ACH Duties Regarding the ACH Note .

(a) ACH agrees to use its commercially reasonable best efforts to cause the Company to perform all of its obligations under the ACH Note and any of the other documents executed in connection with the ACH Note (collectively, the “Loan Documents”), and refrain from taking any action which would constitute a default under the ACH Note or other Loan Documents, including without limitation an Event of Default as defined in the Loan Agreement, it being agreed that an Event of Default arising as a result of acts or omissions of LRMC is not the responsibility of ACH. The Members acknowledge that ACH will not be in violation of this Section 9.8(a) or held liable for damages for failing to take any action which requires unanimous Board approval under Section 10.9 of this Agreement, if ACH is prevented from taking such action due to the failure of the MedTX Manager on the Board to approve any action.

(b) ACH agrees not to accelerate that maturity of the ACH Note or otherwise exercise any rights with respect to any default under the Loan Documents (including without limitation an Event of Default as defined in the Loan Agreement), to the extent that such acceleration or default results from a violation of Section 9.8(a) above.

ARTICLE X

MANAGEMENT OF THE COMPANY

10.1 Management by the Board . The business and affairs of the Company will be managed by a Board. Except with respect to matters where the approval of the Members is expressly required pursuant to this Agreement, or by nonwaivable provisions of the Act, the Board has, to the full extent permitted by the Act, sole, exclusive, full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s business.

10.2 Number, Tenure and Qualifications . The Board will be composed of two (2) Managers, appointed as follows: one (1) Manager will be appointed by ACH and one (1) Manager will be appointed by MedTX. The initial Managers designated by ACH and MedTX are set forth on the attached Exhibit A . Managers serve at the pleasure of the respective Member who designated such Manager and may be removed and replaced with or without cause by such respective Member. A Manager holds office until the Manager resigns, dies, becomes permanently disabled or is removed.

10.3 Quorum and Voting of Managers . Meetings of the Board may be called by any Manager at such times and at such places as the Managers determine. Meetings may be held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Notice of the time and place of the meeting and the matters to be voted upon during the meeting must be given in accordance with Section 19.1 at least five (5) business days prior to the meeting. Each Manager has that number of votes equal to the then number of Units held by the Member who designated such Manager. This means that initially the Manager selected by ACH will control fifty-one (51) votes and the

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Manager selected by MedTX will control forty-nine (49) votes. The presence of Managers representing sixty-six percent (66%) of the total votes that both of the Managers are entitled to cast constitutes a quorum for the transaction of business of the Board, and the affirmative vote of sixty-six percent (66%) of the votes present and voting at the meeting will decide any matter arising in connection with the business and affairs of the Company, except as expressly provided otherwise by this Agreement. The requirement of a quorum shall be waived if a Manager fails to attend (either in person or by telephone or similar communications equipment) any two consecutively duly called meetings; provided, however, that such consecutive meetings must be at least seven (7) days apart and each Manager must be afforded the opportunity to attend each such meeting by telephone or similar communications equipment.

10.4 Waiver of Notice . A Manager may waive any notice required by the Act, the Certificate or this Agreement before or after the date and time of the meeting or event for which notice is required or before or after the date and time stated in the notice. The waiver must be in writing, be signed by the Manager entitled to the notice and be delivered to the Company for inclusion in its records. A Manager’s attendance at a meeting waives objection to lack of notice or defective notice of the meeting, unless the Manager at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

10.5 Action by the Board Without a Meeting . Action required or permitted to be taken at a meeting of the Board may be taken without a meeting if the action is taken in accordance with this Section 10.5 . The action must be evidenced by one or more written consents describing the action taken, signed by all of the Managers and delivered to the Company for inclusion in its records. Action taken under this Section 10.5 is effective when the last Manager to sign has signed the consent, unless the consent specifies a different effective date. Notice will be given to all Members of any material actions taken under this Section 10.5 .

10.6 Management Authority and Obligations .

(a) Subject to the restrictions in Section 10.9, the Managing Board Member is granted the right, power, authority and responsibility by the Board and the Agreement to do in the name of, and on behalf of, the Company all things that, in the Managing Board Member’s judgment, are necessary, proper or desirable to carry out the purposes of the Company, including, but not limited to:

(i) Acquire, hold, manage, lease, sell, exchange, grant options for the purchase or sale, and otherwise dispose of the assets of the Company at such price or amount, for cash, securities or other property and upon such terms as the Managing Board Member deems to be in the best interest of the Company;

(ii) Borrow money and, if security is required therefor, to subject to any security device any portion of the assets of the Company, to obtain replacements of any security device, and to refinance, recast, increase, renew, modify, consolidate, or extend any borrowing or security device;

(iii) Deposit, hold and manage the Company’s funds in such manner as the Managing Board Member deems to be in the best interest of the Company;

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(iv) Enter into, execute, and carry out any and all contracts, agreements, documents, certifications, and instruments and to do and perform all such other things as may be in furtherance of Company purposes or necessary or appropriate to the conduct of Company activities;

(v) Appoint agents to perform such duties in furtherance of the business and purpose of the Company as may be assigned by the Managing Board Member;

(vi) Employ, engage or retain, at the expense of the Company, such Persons to perform such services as the Managing Board Member deems necessary or advisable for the operation of the business and affairs of the Company and to pay such Persons such compensation as the Managing Board Member shall determine to be reasonable;

(vii) Cause the Company to create Reserves in such amounts and for such purposes as the Board has determined pursuant to Section 10.9;

(viii) Institute, prosecute, and defend lawsuits and other judicial or administrative proceedings brought by or in behalf of, or against, the Company or the Members in connection with activities arising out of or incidental to the business and affairs of the Company, and to engage counsel or others in connection therewith;

(ix) Arbitrate and consent to arbitrate any third party disputes or controversies affecting the business of the Company;

(x) Make any and all elections for federal, state, and local tax purposes, except as provided in Section 10.9;

(xi) Carry out any other activities necessary or incidental to the accomplishment of the purposes and business of the Company;

(xii) Execute, acknowledge, and deliver any and all instruments which may be deemed necessary or convenient to effect the foregoing; and

(xiii) Promptly provide copies of all notices and demands received by the Company or the Managing Board Member in connection with the business and affairs of the Company, including any pertaining to the LRMC Lease and ACH Note, to MedTX.

10.7 Third Party Reliance . Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the Managing Board Member to manage and operate the business and affairs of the Company as set forth herein.

10.8 Resignation of Managing Board Member . The Managing Board Member may resign at any time by providing written notice to the Members and other Manager.

10.9 Actions Requiring Unanimous Approval by the Board in Addition to the Managing Board Member . Notwithstanding the foregoing provisions of this Article X, or any other provision of this Agreement, the prior unanimous approval of the full Board shall be required before the following actions can be taken from time to time by the Managing Board Member on behalf of the Company:

(a) Sale or exchange or other disposition of all or a material part of the Property;

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(b) Incur or modify any indebtedness in excess of $100,000.00, including without limitation the ACH Note;

(d) Merger or consolidation of the Company with any other entity;

(e) Determination of the amount of compensation to be received by Managers;

(f) Approval of any transfer of Units, issuance of additional Units in the Company or the admission of additional Members into the Company;

(g) Dissolution of the Company;

(h) Amendment of this Agreement or the Certificate;

(i) A request for additional capital contributions from the Members;

(j) A change in the nature of the Company’s Business;

(k) Entering into or modifying any contract or other agreement or arrangement with ACH, MedTX or any Affiliate thereof or Party related thereto;

(l) Establishing the amount of the initial Reserves, or making any changes to the amount of Reserves, or establishing the amount of any reserves under Section 9.5(c);

(m) Any decision to (1) terminate or modify the LRMC Lease including, without limitation, any such decision based on a fair market valuation study, or (2) exercise any remedy for a default by the tenant under the LRMC Lease, or (3) exercise any remedy under the Pledge and Security Agreement (LRMC), dated March , 2015, executed by LRMC in favor of the Company. For purposes of clarity, the exercise by ACH of remedies under the ACH Note and other Loan Documents during an uncured Event of Default as defined in the Loan Agreement shall not be subject to this Section 10.9(m);

(n) Any election to conduct business other than under the name Lakeway Realty, L.L.C.;

(o) Prepayment of the ACH Note or any refinance or renewal thereof, in whole or in part;

(p) Any election that would cause the Company not to be treated as a partnership for Federal income tax purposes; and

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(q) Any disbursements from the ACH Note to ACH or any Affiliate thereof (whether or not on behalf of LRMC), or to LRMC to be used by LRMC to pay to ACH or any Affiliate thereof.

10.10 Budgets . The Managing Board Member will cause the Company to prepare a budget for each Fiscal Year in consultation with the Managers (the “ Budget ”). No later than sixty (60) days prior to the first day of the period covered by such Budget, such Budget shall be prepared and presented to the Board for review and comment. Each Budget shall cover both operating expenses and capital expenditures, and shall include, at a minimum, the following:

(a) a projected annual income statement (cash basis) on a month-by-month basis;

(b) a description of any proposed capital expenditures, including projected dates for commencement and completion of the foregoing; and

(c) a description of the proposed investment of any funds of the Company which are (or are expected to become) available for investment.

ARTICLE XI

MEMBERS

11.1 Rights and Obligations of Members . A Member’s interest in the Company will be represented by Units or fractions thereof held by the Member. Units will be certificated as set forth in Section 19.2 of this Agreement. Interest in voting, Profits, Losses and distributions will be determined by Units, except as otherwise specifically provided in this Agreement.

11.2 Limitation on Members’ Liabilities . Each Member’s liability will be limited as set forth in this Agreement, the Act and other applicable law.

11.3 Meetings . Meetings of Members shall not be mandatory but may be called by any Manager or by any Member. Any such meetings will be held at the principal place of business of the Company, or at such other location as determined by the Managing Board Member or the Members, or may be held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

11.4 Quorum . Except as may be otherwise required by the Act, the Certificate or this Agreement, the presence in person or by proxy of Persons representing sixty-six percent (66%) of the total votes that all of the Members are entitled to cast will be necessary to constitute a quorum at any meeting of Members. In the absence of a quorum at any such meeting, a majority of the votes so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if at the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting must be given to each Member of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Members present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal during such meeting of Members whose absence would cause less than a quorum to be present.

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11.5 Manner of Acting . If a quorum is present, the affirmative vote of sixty-six percent (66%) of the votes present and voting will be the act of the Members, except as expressly provided otherwise by this Agreement.

11.6 Proxies . At all meetings of Members, a Member may vote in person or by proxy. A Member may appoint a proxy by executing a writing which authorizes another Person or Persons to vote or otherwise act on the Member’s behalf. Such writing must be filed with the Managing Board Member before or at the time of the meeting. No appointment of proxy is valid after eleven (11) months from the date of its execution, unless otherwise provided in the appointment writing.

11.7 Action by Members Without a Meeting . Actions required or permitted to be taken at a meeting of Members may be taken without a meeting if the action are taken by Members who would be entitled to vote not less than the minimum number of votes that would be necessary to authorize or take the action. The action must be evidenced by one or more written consents describing the action taken, signed by the Members entitled to take such action and delivered to the Company for inclusion in its records. Action taken under this Section 11.7 is effective when the Members required to approve such action have signed the consent, unless the consent specifies a different effective date. The record date for determining Members entitled to take action without a meeting is the date the first Member signs a written consent.

11.8 Notice . The Managing Board Member must provide each Member with prior notice of at least five (5) business days and not more than sixty (60) calendar days for a meeting of the Members. The notice must contain the date, time and place of such meeting. Unless otherwise required by the Act, the notice need not state the purpose or purposes of the meeting. Information as to how a Member can participate by telephone or other similar communications system will be provided by the Managing Board Member promptly upon request.

11.9 Waiver of Notice . A Member may waive any notice required by the Certificate or this Agreement before or after the date and time of the meeting or event for which notice is required or before or after the date and time stated in the notice. The waiver must be in writing, be signed by the Member entitled to the notice and be delivered to the Company for inclusion in its records. A Member’s attendance at a meeting waives objection to lack of notice or defective notice of the meeting, unless the Member at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

11.10 Loans . The Members may lend money to the Company as approved by the Board. If a Member lends money to the Company pursuant to this Section 11.10, the amount of any such loan is not an increase in the Member’s Capital Contribution or Units, nor does it entitle the Member to any increase in the share of distributions of the Company, nor subject the Member to any greater proportion of the Losses that the Company may sustain. The amount of any such loan will be a debt due from the Company to the Member, at such rates and on such terms consistent with fair market value and available from an independent third party as determined by unanimous vote of the Board, but in no event less than the Applicable Federal Rate published by the IRS.

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11.11 Limitation on Authority of Members . No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member. This Section 11.11 supersedes any authority granted to the Members by the Act. Any Member who takes any action or binds the Company in violation of this Agreement will be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and will indemnify and hold the Company harmless with respect to the loss or expense.

11.12 Reimbursement of Costs and Expenses . Any Member acting for and on behalf of the Company will be entitled to reimbursement for all reasonable expenses, costs and other liabilities reasonably incurred on behalf of the Company, except to the extent that such expenses, costs and other liabilities are incurred in connection with services that the Member has agreed to perform for the Company as a contribution to its capital and subject to the approval of the Board when required by Section 10.9.

11.13 Tax Matters Partner . Initially, the tax matters partner shall be the ACH. The tax matters partner shall have the following duties with respect to the Company, along with any other duties required by the Code, to the extent and in the manner provided by the Code:

(a) Furnish the name, address, profits interest and taxpayer identification number of each Member to the IRS;

(b) Keep each Member informed of the administrative and judicial proceedings for the adjustment of any item required to be taken into account by a Member for income tax purposes; and

(c) Within thirty (30) days of receiving a notice of a Company audit by the IRS, forward a copy of such notice to the Members.

The Company shall indemnify and reimburse the tax matters partner for all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Company or the Members and against any and all loss, liability, cost or expense, including judgments, fines, amounts paid in settlement and attorneys’ fees and expenses, incurred by the tax matters partner in any civil, criminal or investigative proceeding in which the tax matters partner is involved or threatened to be involved solely by virtue of being tax matters partner, except such loss, liability, cost or expense arising by virtue of the tax matters partner’s gross negligence, fraud, malfeasance, breach of fiduciary duty or intentional misconduct. The payment of all such expenses shall be made before any distributions are made. The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole discretion of the tax matters partner and indemnification set forth in this Agreement shall be fully applicable to the tax matters partner in its capacity as such.

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ARTICLE XII

RESTRICTIVE COVENANTS; RIGHTS OF PARTICIPATION

12.1 Confidentiality . Each Member, Manager or owner of any Member agrees that it will not, directly or indirectly, (i) during the time it is a Member, Manager or owner of any Member and thereafter, divulge to any Person, or use for its own benefit, any Confidential Information of the Company or any other Member or Manager or Affiliate thereof, or (ii) at any time divulge to any Person, or use for its own benefit, any trade secrets of the Company or any other Member or Manager thereof or its Affiliates for so long as such trade secret constitutes a trade secret under applicable law. Each Member, Manager or owner of any Member acknowledges that it will have access to certain Confidential Information, trade secrets and other proprietary information which is exclusively the property of other Members, their Affiliates or the Company.

12.2 Non-Competition . At any time MedTX is a Member and for a period of two (2) years thereafter, neither MedTX nor any of its direct or indirect owners who are owned by a physician (each a “Non-Compete Party”) shall, without the prior written consent of the Managing Board Member which consent may be exercised in its sole discretion, directly or indirectly own or participate in any manner in the ownership of any entity that operates a competing facility with the Hospital (including, without limitation, an ambulatory surgical center (“ASC”), hospital or office-based or practice-based facility or operating site or room that provides any of the services then offered by the Hospital) within fifteen (15) miles of the Hospital or any of its departments. The preceding sentence shall not be construed to prevent a Non-Compete Party or any of its Affiliates from (a) maintaining staff privileges at any facility, (b) providing professional services and earning a professional fee thereon (but not acting as an owner) in any other healthcare facility, or (c) owning less than 1% of the outstanding securities of any issuer that are traded on a public market. Notwithstanding anything within this Section 12.2 to the contrary, the restrictions in this Section will not apply to the ownership of interests by the indirect physician owners of MedTX in an ASC located on, or proximate to, the Hospital’s campus that is developed by the Company and commences operations while the PSA, as defined in Section 13.5, is still in effect. In addition, the restrictions of this Section 12.2 shall not apply to the ownership of the medical office building referenced in Section 1(A) of the PSA.

12.3 Injunctive Relief . The obligations of the Members stated under Sections 12.1 and 12.2 shall be enforceable both of law and in equity, by injunctions, specific performance, damages or other remedy and without the necessity of parties by bond or other security. The right of the Company to obtain any such remedy shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. Each party hereby acknowledges that the restrictions set forth in this Article XII are minimal, reasonable in scope and duration and necessary to protect the legitimate interests of the parties and that any breach or threatened breach of these restrictions will result in irreparable harm to the non-breaching party. In the event that any of the restrictions are found by a court of competent jurisdiction to be too broad to permit enforcement to its full extent, then such restrictions shall be enforced to the maximum extent allowable by law and the parties hereby consent to and authorize the court to modify the restrictions in a manner to permit their enforcement.

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ARTICLE XIII

TRANSFER OF UNITS IN THE COMPANY

13.1 In General . A Member may not sell, assign, pledge, convey, grant a security interest in or otherwise transfer any or all of the Units owned by it or any interest in a Unit, except as otherwise set forth herein:

(a) The Board (excluding the Manager appointed by the transferring Member) has approved and consented in writing to the sale, assignment, pledge or transfer of a Unit, except that, without such consent and approval, the Members shall have the right to transfer their interests to Affiliates, so long as (i) such transfer complies with Section 13.1(c); and (ii) the transferee entity remains an Affiliate of the transferring Member.

(b) Notwithstanding the preceding sentence, any purported sale, assignment, or transfer of any Unit or the admission of any Person as a substituted Member that would, in the opinion of counsel to the Company, result in any of the following is impermissible:

(i) a termination of the Company within the meaning of the Code;

(ii) a violation of any applicable federal or state law pertaining to securities regulation.

(c) The transferring Member and its purchaser, assignee or transferee must execute and deliver to the Company such instruments of transfer and assignment with respect to such transaction as are in form and substance satisfactory to the Board, including, without limitation, the written acceptance and adoption by such Person of the provisions of this Agreement, including the prohibition on further transfers as outlined in Section 13.1(b), if applicable.

(d) Such transferring Member must pay the Company a transfer fee which is sufficient to pay all reasonable expenses of the Company in connection with such transaction.

13.2 Substituted Members . Any Affiliate of a Member shall become a substituted Member upon satisfaction of the conditions set forth in Section 13.1 with respect to such transferee. Any other purchaser, assignee or transferee of a Unit shall become a substituted Member within the meaning of the Act if:

(a) The Board, excluding the Manager appointed by the transferring Member, has consented in writing to such Person becoming a substituted Member;

(b) Such Person executes and acknowledges such other instruments as the Managing Board Member reasonably deems necessary or advisable to effect the admission of such Person as a substituted Member, including, without limitation, the written acceptance and adoption by such Person of the provisions of this Agreement; and

(c) Such Person pays a transfer fee to the Company which is sufficient to cover all reasonable expenses connected with the admission of such Person as a substituted Member within the meaning of the Act.

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Upon satisfaction of these conditions, the Managing Board Member shall take any other steps which, in the opinion of the Managing Board Member, are reasonably necessary to admit such Person as a substituted Member under the Act.

13.3 Additional Members . No new Member will be entitled to any retroactive allocation of Profits or Losses. The admission of an additional Member will not become effective until such additional Member becomes a party to this Agreement as a Member and executes such documents and instruments as the Managing Board Member deems necessary or appropriate to confirm such additional Member as a Member and such additional Member’s agreement to be bound by the terms and conditions of this Agreement.

13.4 Rights of Transferees . Unless admitted to the Company in accordance with this Article XIII, or unless the transferee is an Affiliate of a Member, any transferee of Units shall not be entitled to any of the rights, powers or privileges of its predecessor in interest, except that it will be entitled to receive and be credited or debited with its proportionate share of Profits, Losses, and distributions.

13.5 Purchase Option . If NeuroTexas, PLLC, a Texas professional limited liability (“NTPLLC”) terminates its Professional Services Agreement (the “PSA”) with LRMC Physician Services, Inc. (“LRMCPS”) dated March , 2015 for any reason other than a default by LRMC Physician Services, Inc. (the “Triggering Event”), then ACH shall have an option to purchase MedTX’s entire interest in the Company (the “Option”). The Option may be exercised at any time after the Triggering Event by ACH delivering a written notice of exercise to MedTX (the “Purchase Notice”). Within 30 days of the delivery of the Purchase Notice, ACH shall close on the purchase by delivering cash or wire transfer of immediately available funds in the amount of $1,000,000 plus accrued interest thereon at the annual rate of 8% from the date of MedTX’s acquisition of its Units. The purchase and sale shall become effective on the date the funds in the foregoing sentence are delivered. Profits and Losses up to Closing shall be allocated between the parties based on an interim closing of the books basis. Notwithstanding anything in this Agreement to the contrary, a termination by NTPLLC which arises from the default by LRMCPS under the PSA, due to (i) the insolvency of LRMCPS and/or LRMC, or (ii) a termination of the LRMC Lease shall constitute a Triggering Event.

ARTICLE XIV

WITHDRAWAL

Except as otherwise provided within this Agreement, a Member may not withdraw from the Company, unless the withdrawal is otherwise consented to by the Board (excluding the Manager appointed by the Member seeking to withdraw).

ARTICLE XV

DISSOLUTION AND WINDING UP OF THE COMPANY

15.1 Dissolution of the Company . The Company will be dissolved upon the occurrence of any of the following events:

(a) all or substantially all of the assets of the Company are sold, exchanged or otherwise transferred (unless the Board has determined to continue the business of the Company, in which event the Company will continue until the Members elect to dissolve the Company);

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(b) the vote by the Board as provided in Section 10.9;

(c) the entry of a final judgment, order or decree of a court of competent jurisdiction adjudicating the Company to be bankrupt and the expiration without appeal of the period, if any, allowed by applicable law in which to appeal, provided, that so long as the ACH Note is outstanding, the Company shall not, and the Members or the Board shall not permit the Company to file a voluntary petition or otherwise initiate proceedings to have the Company adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against the Company, or file a petition seeking or consenting to reorganization or relief of the Company as debtor under any applicable federal or state law relating to bankruptcy, insolvency, or other relief for debtors with respect to the Company; or seek or consent to the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of the Company or of all or any substantial part of the properties and assets of the Company (in each case, other than at the direction or request of the holder of the ACH Note under the terms of the ACH Loan Documents), or make any general assignment for the benefit of creditors of the Company, or admit in writing the inability of the Company to pay its debts generally as they become due or declare or effect a moratorium on the Company debt or take any action in furtherance of any such action;

(d) at any time there are no Members; or

(e) the entry of a decree of judicial dissolution.

Notwithstanding anything to the contrary contained herein, so long as the ACH Note is outstanding, the Company shall not, and the Members or the Board shall not permit the Company to, (i) seek the dissolution or winding up, in whole or in part, of the Company, (ii) merge into or consolidate with any person or entity or dissolve, terminate or liquidate, in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, or (iii) amend, modify or alter this Section 15.1, in each case, without the prior written consent of the holder of the ACH Note.

15.2 Effect of Bankruptcy, Death or Incompetency of a Member . The bankruptcy, death, dissolution, liquidation, termination or adjudication of incompetency of a Member shall not cause the termination or dissolution of the Company and the business of the Company shall continue. Upon any such occurrence, the trustee, receiver, executor, administrator, committee, guardian or conservator of such Member shall have all the rights of such Member for the purpose of settling or managing its estate or property, subject to satisfying conditions precedent to the admission of such assignee as a substitute Member. The transfer by such trustee, receiver, executor, administrator, committee, guardian or conservator of any Company interest shall be subject to all of the restrictions hereunder to which such transfer would have been subject if such transfer had been made by such bankrupt, deceased, dissolved, liquidated, terminated or incompetent Member.

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15.3 Winding Up of the Company . Upon the dissolution of the Company, the Managing Board Member shall take full account of the Company’s assets and liabilities, and the assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof. During the dissolution and winding up of the Company, Profits and Losses shall be allocated among the Members as provided in Article IX. The proceeds from the sale or other disposition of the Company’s assets, to the extent sufficient therefor, shall be applied and distributed as provided in the Act and this Agreement; provided, however, that after payment of or creating adequate reserves to provide for all Company debts, obligations and liabilities, the remaining Company assets, notwithstanding anything contained in this Agreement to the contrary, shall be distributed to the Members in accordance with their ending positive Capital Account balances after all allocations and any other Capital Account adjustments for the Fiscal Year are made. All Company assets shall be distributed by the later of (i) the last day of the tax year of the liquidation as defined in Regulations Section 1.704-1(b) or (ii) 90 days after the liquidation; provided, however, if the Company creates reserves or holds installment obligations owed to Company, such amounts will be distributed as soon as practicable and in the ratios of the Members’ ending positive Capital Account balances.

15.4 Certificate of Cancellation . Upon the dissolution and commencement of the winding up of the Company, the Members shall cause a Certificate of Cancellation to be executed on behalf of the Company and filed with the Division. The Members shall execute, acknowledge and file any and all other instruments necessary or appropriate to reflect the dissolution of the Company.

ARTICLE XVI

BOOKS OF ACCOUNT, ACCOUNTING, REPORTS, FISCAL

YEAR, BANKING AND TAX ELECTION

16.1 Books of Account . The Company’s books and records (including a current list of the names and addresses of all Members) and an executed copy of this Agreement, as currently in effect, shall be maintained at the principal office of the Company, and each Member shall have access thereto at all reasonable times. The books and records shall be kept by the Managing Board Member using an appropriate method of accounting consistently applied and shall reflect all Company transactions and be appropriate and adequate for the Company’s business. The Managing Board Member shall also keep adequate federal income tax records using an appropriate method of accounting applied on a consistent basis.

16.2 Financial Reports . As soon as reasonably practicable after the end of each Fiscal Year, but not later than March 31 of the next succeeding year, an unaudited balance sheet of the Company as of the last day of such Fiscal Year and unaudited statements of income or loss of the Company for such year shall be made available to each Member by the Managing Board Member. In addition, the Managing Board Member will make available to the Members unaudited quarterly summaries of its operations. All such financial statements shall be prepared on an accrual basis of accounting in accordance with generally accepted accounting principles consistently applied. The Managing Board Member shall also furnish to each Member not later than June 15 of each year whatever information may be necessary for Members to file their federal income tax returns. The Managing Board Member will also make available to each Member a copy or summary of all state and/or local tax returns which are filed by the Company.

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The Managing Board Member will make available to the Members any audited balance sheet of the Company, if one has been prepared. Notwithstanding the foregoing, the Members shall have the right, as provided under Section 18-305 of the Act, to gain access to and inspect the books and records of the Company.

16.3 Fiscal Year . The fiscal year of the Company shall be the calendar year.

16.4 Tax Election . Upon the transfer of an interest in the Company or in the event of a distribution of the Company’s property, the Company may, but is not required to, elect pursuant to Code Section 754 to adjust the basis of the Company’s property as allowed by Sections 734(b) and 743(b) thereof; provided, however, that upon the request of either Initial Members, the Company shall elect pursuant to Code Section 754 to adjust the basis of the Company’s property as allowed by Sections 734(b) and 743(b) thereof and cause, where possible, such an election to be made by any partnership in which the Company is a partner, directly or indirectly.

16.5 Tax Returns . The Managing Board Member shall, for each Fiscal Year, file on behalf of the Company with the IRS a Company Return within the time prescribed by law (including any extensions) for such filing. The Managing Board Member shall also file on behalf of the Company such state and/or local income tax returns as may be required by law.

ARTICLE XVII

POWER OF ATTORNEY

17.1 Appointment of Attorney-in-Fact . Subject to the rights of the Members as set forth in this Agreement, each Member hereby makes, constitutes and appoints Managing Board Member, with full power of substitution and resubstitution, its agent and attorney-in-fact to file for record, and to sign, execute, certify, acknowledge, and file for record any other instruments which may be required of the Company with respect to the Company’s business by law, including, but not limited to, amendments to or cancellations of this Agreement or the Certificate that have been approved by the Board and/or Members as provided in this Agreement.

17.2 Effect of Power . The power of attorney granted pursuant to Section 17.1 of this Agreement is a special power of attorney coupled with an interest, is irrevocable, and shall survive the dissolution of the granting Member.

ARTICLE XVIII

LIABILITY AND INDEMNIFICATION

18.1 Liability . Except as otherwise expressly provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and none of the Members or the Managers shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member or Manager. Except as otherwise expressly required by law, a Member shall have no liability in excess of (a) the amount of its Capital Contributions, (b) its share of any assets and undistributed Profits of the Company, (c) its obligation, if any, in writing signed by the Member to make any other payments, and (d) the amount of any distributions wrongfully or erroneously distributed to the Member.

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18.2 Exculpation . The Managers and Members of the Company shall not be liable to the Company or other Member(s) or Managers for any loss, damage or claim incurred by reason of any act or omission performed or omitted in good faith on behalf of the Company and in a manner reasonably believed by the Managers or Members to be within the scope of authority conferred on such Person by this Agreement, except that the foregoing shall not exclude or limit any Person’s liability for willful misconduct or breach of this Agreement. The Managers and Members shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Manager or Members reasonably believe are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid.

18.3 Indemnification . To the fullest extent permitted by applicable law, the Managers and each Member shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Persons by reason of any act or omission performed or omitted by such Persons in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Person by this Agreement, except that no Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Person by reason of willful misconduct or breach of this Agreement with respect to such acts or omissions; provided, however, that any indemnity under this Section 18.3 shall be provided out of and to the extent of Company assets only, and no Person other than the Company shall have any personal liability on account thereof.

Notwithstanding anything to the contrary contained in this Agreement, any indemnification claim against the Company arising under this Agreement, the Certificate of Formation or the laws of the state of organization of the Company shall be fully subordinate to any obligations arising under the ACH Loan and any of the documents evidencing, securing or otherwise relating to the ACH Loan, and shall only constitute a claim against the Company to the extent of, and shall be paid by the Company in monthly installments only from, the excess of Available Cash Flow over all amounts then due under the ACH Loan Documents.

18.4 Expenses . To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by the Managers or Members in defending any claim, demand, action, suit or proceeding arising by reason of the fact that the Person is or was a Manager or Member, funds shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the covered person to repay such amount if it shall be determined that the covered Person is not entitled to be indemnified as authorized in Section 18.3 hereof.

18.5 Insurance . The Company may purchase and maintain insurance on behalf of the Managers or Members, the Company and such other Persons as the Board shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.

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ARTICLE XIX

MISCELLANEOUS

19.1 Notices . Except as otherwise provided in this Agreement, any notice, payment, demand, request or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be duly given if given to the applicable party at its address or facsimile number on Schedule I or Exhibit A attached hereto or to such other address as such Party may from time to time specify by written notice to the Members and the Managers; and

Any such notice shall, for all purposes, be deemed to be given and received:

(a) if given by facsimile, when the facsimile is transmitted to the party’s facsimile number specified above and confirmation of complete receipt is received by the transmitting party during normal business hours on any business day or on the next business day if not confirmed during normal business hours;

(b) if by hand, when delivered;

(c) if given by nationally recognized and reputable overnight delivery service, the business day on which the notice is actually received by the party; or

(d) if given by certified mail, return receipt requested, postage prepaid, two business days after posted with the United States Postal Service.

19.2 Certificates Representing Ownership of Units . All right, title, interest and claims or rights of the Member now or hereafter acquired as a member of the Company, including, without limitation, the Units and all rights and interests of the Member under this Agreement (collectively, the “ Membership Interest ”) is and shall be personal property for all purposes and shall be a “security” as defined in, and governed by, Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Delaware (the “ UCC ”). Each Member’s Membership Interests shall be evidenced by a certificate in the form attached hereto as Exhibit B . Such certificates representing ownership of Units in the Company may be executed and delivered by the Secretary of the Company (or the Managing Board Member, if no Secretary is appointed) on behalf of the Company, shall be in the name of the Company, shall set forth the name of the Member and the number of any Units owned or held by each such Member and shall bear the following legend: “This certificate evidences an interest in Lakeway Realty, L.L.C., and shall be a security governed by Article 8 of the Uniform Commercial Code as in effect in from time to time in the State of Delaware (the “UCC”) and, to the extent permitted by applicable law, each other applicable jurisdiction, and the transfer of the interest evidenced by this Certificate may be registered as provided in Section 8-102(a)(13) of the UCC.” All certificates shall be consecutively numbered or otherwise identified. No Member will amend this Agreement or any other formation, governing or organizational document of Company to (i) provide that any Member’s Membership Interests in the Company are not securities governed by Article 8 of the UCC or to otherwise “opt out” of Article 8 of the UCC, or (ii) permit the Company to issue uncertificated Membership Interests, and any such purported amendment shall be null and void. The Membership Interests described in this Agreement have not been registered under the Securities Act of 1933, as amended, or under the securities laws of the State

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of Delaware or any other jurisdiction. Consequently, these interests may not be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of, except in accordance with the provisions of such laws and this Agreement. By executing this Agreement, each Member represents and acknowledges that it is acquiring its Membership Interest for investment purposes only and without a view to distribution.

19.3 Section Captions . Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

19.4 Severability . Every provision of this Agreement is intended to be severable. If any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.

19.5 Waiver of Action for Partition . Each Member irrevocably waives during the term of the Company and during the period of its liquidation following any dissolution, any right to maintain any action for partition with respect to any of the assets of the Company.

19.6 Counterpart Execution . This Agreement may be executed in one or more counterparts all of which together shall constitute one and the same Agreement.

19.7 Parties in Interest . Except as otherwise provided in this Agreement, this Agreement shall be binding upon the parties hereto and their successors, heirs, devisees, assigns, legal representatives, executors and administrators.

19.8 Compliance with Laws . The Members agree that all business activities and operations of the Company and its Members conform, and shall continue to conform, with applicable provisions of law.

19.9 Integrated Agreement . This Agreement, including the exhibits, constitutes the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth herein or herein provided for.

19.10 Amendment . This Agreement may be amended only by written agreement of all Members of the Company.

19.11 Governing Law . The laws of Delaware shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Members.

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.


MRT OF LAKEWAY TX – ACH, LLC

By:		/s/ Jeffery C. Walraven
Name:		Jeffery C. Walraven
Title:		Executive Vice President, Chief Financial
		Officer, Secretary & Treasurer

MEDTX REALTY, L.L.C.

By:		/s/ Douglas J. Fox Jr., M.D.
Name:		/s/ Douglas J. Fox Jr., M.D.
Title:		President

By signing this Agreement, the following individuals represent that they are the only indirect physician owners of MedTX, and agree to be bound by Sections 12.2 and 12.3 of this Agreement.


By:	/s/ Mark G. Burnett, M.D.	March 23, 2015
	Mark G. Burnett, M.D.	Date of Signature

By:	/s/ Douglas J. Fox Jr., M.D.	March 23, 2015
	Douglas J. Fox, M.D.	Date of Signature

By:	/s/ K. Michael Webb, M.D.	March 23, 2015
	K. Michael Webb, M.D.	Date of Signature

- 28 -

EXHIBIT A

M ANAGERS


ACH :	Jeffrey C. Walraven

	Address		3100 West End Ave., Suite 1000
			Nashville, TN 37203
	Fax

MedTX :	Ray A. Wilkerson

	Address	c/o	RKMed, Ltd.
			8015 Shoal Creek Blvd., Suite 207
			Austin, Texas 78757
			Attention: Ray Wilkerson

SCHEDULE I

M EMBERS , P ERCENTAGE I NTERESTS AND C APITAL C ONTRIBUTIONS


Name and Address	Capital Contributions		Units		Percentage Interest

MRT of Lakeway TX - ACH, LLC 3102 West End Ave., Suite 400 Nashville, TN 37203	$	1,040,000		51		51.00	%

MedTx Realty, L.L.C. c/o RKMed, Ltd Attn: Ray Wilkerson 8015 Shoal Creek Blvd., Suite 207 Austin, Texas 78757	$	1,000,000		49		49.00	%


Total	$	2,040,000		100		100.00	%

Exhibit 10.30

PURCHASE AND SALE AGREEMENT

by and between

GruenePointe Acquisition I, LLC

as Seller,

and

MRT of San Antonio TX — SNF I, LLC

MRT of San Antonio TX — SNF II, LLC

MRT of Graham TX — SNF, LLC

MRT of Kemp TX — SNF, LLC

MRT of Kerens TX — SNF, LLC

MRT of Brownwood TX — SNF, LLC

MRT of El Paso TX — SNF, LLC

MRT of Kaufman TX — SNF, LLC

MRT of Longview TX — SNF, LLC

MRT of Mt. Pleasant TX — SNF, LLC

as Purchasers

Dated: July 29, 2015

TABLE OF CONTENTS


	Page
ARTICLE I PROPERTY		1

Section 1.01 Property		2

ARTICLE II PURCHASE PRICE/CLOSING		3

Section 2.01 Purchase Price		3

Section 2.02 Payment of Purchase Price		3

ARTICLE III CONTINGENT PURCHASE PRICE		3

Section 3.01 Contingency		3

Section 3.02 Vesting of Contingent Purchase Price		3

Section 3.03 Forfeiture		4

Section 3.04 Guaranty		4

ARTICLE IV REVIEW PERIOD		5

Section 4.01 Review Period		5

Section 4.02 Review Items		5

Section 4.03 Inspection		5

Section 4.04 Title Commitment and Survey Review		5

Section 4.05 Termination Notice		5

Section 4.06 Termination		6

Section 4.07 Seller’s Obligation to Remove Liens		6

Section 4.08 Environmental Audit		6

ARTICLE V GOOD AND INSURABLE TITLE		6

Section 5.01 Conveyance		6

Section 5.02 Owner Policy		7

Section 5.03 Mechanic’s Liens		7

ARTICLE VI CLOSING		7

Section 6.01 Closing		7

Section 6.02 Seller’s Obligations		7

Section 6.03 Purchasers’ Obligations		8

Section 6.04 Transfer of Roof and Other Warranties		8

Section 6.05 Possession		8

Section 6.06 Due Diligence and Other Costs		9

-i-

TABLE OF CONTENTS

(continued)


	Page
ARTICLE VII CLOSING ADJUSTMENTS		9

Section 7.01 General Prorations		9

Section 7.02 Specific Prorations		10

Section 7.03 Closing Costs		10

Section 7.04 Brokerage Commissions		10

Section 7.05 Survival		11

ARTICLE VIII DEFAULT AND REMEDIES		11

Section 8.01 Termination of Agreement prior to Closing		11

Section 8.02 Notice of Termination; Effect of Termination		12

Section 8.03 Purchasers’ Default		12

Section 8.04 Seller’s Default		12

ARTICLE IX REPRESENTATIONS, WARRANTIES AND COVENANTS		13

Section 9.01 Seller’s Representations		13

Section 9.02 Purchasers’ Representations		14

Section 9.03 Discovery		14

Section 9.04 Conditions Precedent		14

Section 9.05 Exclusivity		16

Section 9.06 LD Purchase Agreement		16

Section 9.07 Survival		16

ARTICLE X NOTICES		16

Section 10.01 Notices		16

ARTICLE XI RISK OF LOSS		17

Section 11.01 Minor Damage		17

Section 11.02 Major Damage		18

Section 11.03 Seller and Purchaser Risk		18

Section 11.04 Condemnation		18

ARTICLE XII MISCELLANEOUS		18

Section 12.01 Entire Agreement		18

Section 12.02 No Rule of Construction		19

Section 12.03 Multiple Counterpart; Governing Law		19

-ii-

TABLE OF CONTENTS

(continued)


	Page
Section 12.04 Attorneys’ Fees		19

Section 12.05 Interpretation		19

Section 12.06 Exhibits		20

Section 12.07 Modifications		20

Section 12.08 Reporting Person		20

Section 12.09 Time of Essence		20

Section 12.10 Notices		20

Section 12.11 Restructuring		22

Section 12.12 Assignment by Purchasers		22

Section 12.13 No Recordation		22

Section 12.14 Additional Agreements; Further Assurances		22

Section 12.15 ERISA		22

Section 12.16 WAIVER OF JURY TRIAL		23

Section 12.17 Section 1031 Exchange		23

Section 12.18 SPECIAL PROVISIONS – TEXAS		23

-iii-

INDEX OF DEFINITIONS


A

Agreement			1
Applicable Laws			12
Assessments			20

B

Bill of Sale			7
Broker			10

C

Closing			7
Closing Costs			10
Closing Date			7
Commission			10
Contingent Purchase Price			3

D

Deeds			7
Disclosure Schedule			12
Due Diligence Costs			8

E

Earnout Conditions			3
Earnout Date			3
Effective Date			1
Entitlements			2
ETJ			20

F

Facilities			1
FIRPTA Affidavit			7
Fixed Purchase Price			3

I
Improvements			2
Intangible Property			2

L

LD Closing			1
LD Purchase Agreement			1
Lease			1
Loan Guarantors			4
Loan Guaranty			4


N

New Operators			1

O

OTA			1
Owner Policies			6

P

Permitted Exceptions			6
Personal Property			2
Property			2
Purchase Price			3
Purchaser			1
Purchasers			1

R

Real Property			2
Review Period			4

S

Seller			1
Service Contracts			2
Surveys			5

T

Title Commitments			5
Title Company			3

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “ Agreement ”) is made and entered into as of the 29 ^th day of July, 2015 (the “ Effective Date ”), by and among GruenePointe Acquisition I, LLC , a Texas limited liability company (“ Seller ”) and MRT of San Antonio TX — SNF I, LLC, MRT of San Antonio TX — SNF II, LLC, MRT of Graham TX — SNF, LLC, MRT of Kemp TX — SNF, LLC, MRT of Kerens TX — SNF, LLC, MRT of Brownwood TX — SNF, LLC, MRT of El Paso TX — SNF, LLC, MRT of Kaufman TX — SNF, LLC, MRT of Longview TX — SNF, LLC, and MRT of Mt. Pleasant TX — SNF, LLC , each, a Delaware limited liability company (collectively, “ Purchasers ” and each, individually, a “ Purchaser ”).

WHEREAS , Seller has entered into a Purchase and Sale Agreement, dated May 1, 2015, as amended by the First Amendment to Purchase Agreement, dated June 29, 2015, and as supplemented by a notice of approval letter dated July 13, 2015 (collectively, the “ LD Purchase Agreement ”), with Lloyd Douglas Enterprises L.C. and certain of its affiliates (the “LD Parties”), pursuant to which Seller has agreed to purchase from the LD Parties, and the LD Parties have agreed to sell and convey to Seller or its designees, certain assets, including the Real Property, as defined in Section 1.01 below, upon which there are located those certain healthcare facilities as described on Exhibit A (the “ Facilities ”) ; and

WHEREAS , certain affiliates of Seller (the “ New Operators ”) have entered into an Operations Transfer Agreement, dated , 2015 (the “ OTA ”), pursuant to which the operations of the Facilities are to be transferred by the LD Parties to the New Operators on the date of the closing under the LD Purchase Agreement (the “ LD Closing ”); and

WHEREAS , the parties hereto wish to enter into this Agreement to provide for the terms and conditions upon which, at the LD Closing, Seller shall sell and cause the LD Parties to convey to Purchasers, and Purchasers will purchase and acquire from Seller or the LD Parties, the Property (as defined below); and

WHEREAS , Purchasers and New Operators have entered into a Master Lease, of even date herewith (the “ Lease ”), pursuant to which Purchasers have agreed to lease the Property to the New Operators commencing upon the Closing hereunder.

NOW, THEREFORE , in consideration of the premises and mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereby agree as follows:

ARTICLE I

PROPERTY

Section 1.01 Property . At the Closing, and subject to the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver or cause LD Parties to assign, transfer, convey and deliver, to Purchasers, and Purchasers shall purchase and acquire from Seller, free and clear of all liens and encumbrances except for the Permitted Exceptions, all of the following:

(a) Real Property . Those certain tracts of real property more particularly described on Exhibit B attached hereto and made a part hereof for all purposes, together with (i) all and singular the rights and appurtenances pertaining to such real property, including any easements, and all rights in and to adjacent streets, alleys and rights-of-way, and (ii) any and all water, water rights or similar rights or privileges (including tap rights) appurtenant to or used in connection with the ownership or operation of such real property and (iii) all zoning, conditional use, variances, waiver, planning approvals, and other planning approvals related to the ownership, operation, and possible future development, expansion, redevelopment, revocation of such real property (the “ Entitlements ”) (all of the foregoing being hereinafter collectively referred to as the “ Real Property ”).

(b) Improvements . All improvements, structures and fixtures now constructed and situated on the Real Property, including, without limitation, the Facilities, together with all parking areas, loading docks and similar facilities, landscaping and other improvements, structures and fixtures (all of the foregoing being hereinafter collectively referred to as the “ Improvements ”).

(c) Certain Intangibles . All rights, title and interest in and to (i) all parking agreements, and any and all service and maintenance contracts and related contract rights (collectively, the “ Service Contracts ”), together with (ii) all other intangible rights which are appurtenant to the Real Property and/or the Improvements, including (to the extent assignable) all roof, HVAC and other warranties issued with respect to the Improvements and as pertains only to the Real Property and Improvements, but not otherwise, and (iii) to the extent transferrable, all local, state and federal licensures, approvals, certifications and permits required and necessary for the operation of any of the Improvements for their current, future and intended use (all of the foregoing being hereinafter collectively referred to as the “ Intangible Property ”).

(d) Personal Property . All beds, fixed and moveable equipment, furniture, furnishings, machinery, heating, plumbing, ventilation and air conditioning systems and equipment, carpet, tile, floor coverings, security devices, sprinkler systems, supplies, telephone exchange numbers, tenant lease files, leasing records, tenant credit reports, telephone systems, audio systems, keys, surveys, plans and specifications (whether in CAD, electronic or other format), maintenance equipment and supplies and all other tangible personal property situated on the Real Property and used in connection therewith or with the Improvements, along with Seller’s interest as lessee in any rented or leased personal property, to the extent approved by Purchasers (all of the foregoing being hereinafter collectively referred to as the “ Personal Property ”).

All of the foregoing items purchased under this Agreement including the Real Property, Improvements, Service Contracts, Intangible Property and Personal Property are collectively referred to as the “ Property ”.

ARTICLE II

PURCHASE PRICE/CLOSING

Section 2.01 Purchase Price . The total purchase price (the “ Purchase Price ”) for the Property is an amount of up to One Hundred Forty-Five Million and no/100 Dollars ($145,000,000.00), consisting of (i) fixed consideration of One Hundred Thirty-Three Million and no/100 Dollars ($133,000,000.00) (the “ Fixed Purchase Price ”), and (ii) contingent consideration of Twelve Million and no/100 Dollars ($12,000,000.00) (the “ Contingent Purchase Price ”).

Section 2.02 Payment of Purchase Price . On or before the Closing Date, the Purchasers shall deposit with Texas American Title Company, Austin, Texas (the “ Title Company ”) an amount in cash equal to the entire Purchase Price. At the Closing, and subject to the conditions of Closing as set forth herein, the parties will direct the Title Company to disburse the Purchase Price as follows: (i) $130,000,000 to the LD Parties in payment of the purchase price under the LD Purchase Agreement, as such amount may be adjusted at Closing in accordance with the LD Purchase Agreement, and (ii) the balance of the Purchase Price (including the Contingent Purchase Price) to Seller.

ARTICLE III

CONTINGENT PURCHASE PRICE

Section 3.01 Contingency . The parties expressly acknowledge and agree that, notwithstanding the payment in full of the Contingent Purchase Price at the Closing, the entire Contingent Purchase Price shall remain subject to forfeiture by Seller in accordance with the provisions of this Article III.

Section 3.02 Vesting of Contingent Purchase Price .

(a) On January 1, 2016, and on January 1 of each of the three (3) calendar years thereafter, to and including January 1, 2019 (each such date, an “ Earnout Date ”), Three Million Dollars ($3,000,000) of the Contingent Purchase Price automatically shall be deemed fully earned and non-forfeitable (hereinafter, “ Vested ”), provided that, as of the applicable Earnout Date, each of the following conditions (collectively, the “ Earnout Conditions ”) is satisfied:

(i) all payments required under the Lease to have been paid by New Operators shall have been paid, and there shall not have occurred an Event of Default under the Lease or any event that, with the giving of notice or the passage of time, would constitute and Event of Default under the Lease;

(ii) Tenant’s Net Worth (as defined in the Lease) as of such date is not less than $2,000,000;

(iii) Tenant’s Net Working Capital (as defined in the Lease) is not less than the greater of (i) $1.75 million, and (ii) an amount equal to 15% of GPH Parent EBITDARM (as defined in the Lease) for the twelve (12) month period then ended; and

(iv) Tenant’s Rent Coverage Ratio (as defined in the Lease) as of two (2) consecutive Test Dates (as defined in the Lease) for the trailing twelve (12) month periods then ended is not less than 1.5 to 1.0.

(b) In the event that, as of any Earnout Date, any of the Earnout Conditions shall not have been satisfied, the amount of Contingent Purchase Price that was eligible to be Vested on such date shall be carried forward and shall Vest on the next succeeding Earnout Date as of which all of the Earnout Conditions shall have been satisfied. If, as of January 1, 2019, any of the Earnout Conditions shall not be satisfied, there automatically shall be deemed to be added a fifth Earnout Date of January 1, 2020 (the “ Extended Earnout Date ”), as of which date the entire remaining portion of the Contingent Purchase Price that, theretofore, shall not have Vested automatically shall become Vested, provided that all of the Earnout Conditions shall have been satisfied as of the Extended Earnout Date.

Section 3.03 Forfeiture . In the event that, as of the Extended Earnout Date, any of the Earnout Conditions shall not be satisfied, or if as of any earlier date Purchasers, as Landlord, shall have declared an Event of Default under the Lease as a result of the nonpayment of rent (either such date, as applicable, being referred to herein as the “ Maturity Date ”), then the entire then any portion of the Contingent Purchase Price that has not become Vested in accordance with this Article III, together with interest thereon from the date of Closing to the Maturity Date at the rate of three percent (3%) per annum, shall become immediately due and payable by Seller to Purchasers in equal shares, or in accordance with such other allocation as may be specified in writing by the Purchasers.

Section 3.04 Guaranty . The obligation of Seller for the repayment of any unvested Contingent Purchase Price as set forth above shall be unconditionally guaranteed, jointly and severally, by Jerry Williamson, Horace Winchester, David Gunderson, Kenneth A. Kristofek, and Stan Bradshaw (the “ Guarantors ”) in accordance with a guaranty substantially in the form of Exhibit C to be executed and delivered by the Guarantors at the Closing (the “ Guaranty ”); provided, however, that the maximum aggregate liability of the Guarantors under the Guaranty shall not exceed $6,000,000.

ARTICLE IV

REVIEW PERIOD

Section 4.01 Review Period . Purchasers have from the Effective Date until July 29, 2015 (such time period, the “ Review Period ”), to review and approve such items and to conduct such inspections, interviews, tests and audits as Purchasers, in their sole discretion, deem appropriate.

Section 4.02 Review Items . To the extent not previously delivered, Seller shall, within ten (10) business days following the Effective Date, deliver to Purchasers the lien release items shown on Schedule 5.03 to this Agreement, to the extent in Seller’s possession.

Section 4.03 Inspection . During the Review Period, Seller shall cause Purchasers to have the right, at all reasonable times, to conduct on-site inspections of the Property and physical inspections and non-destructive tests of the Property, including, without limitation, the right to enter and inspect all portions of the Property, and to inspect and audit all of the LD Parties’ books and records relating to the Property; provided, however, Purchasers agree not to unreasonably interfere with the LD Parties’ operations or construction or cause any damage to the Property.

PURCHASERS SHALL, AT THEIR EXPENSE, REPAIR ANY DAMAGE TO THE PROPERTY CAUSED BY PURCHASERS’ INSPECTION OR TESTING THEREOF, AND HEREBY INDEMNIFIES AND HOLDS HARMLESS SELLER FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS, SUITS, LIENS, DAMAGES, LIABILITIES, LOSSES AND EXPENSES TO PERSONAL PROPERTY OR PERSONAL INJURY TO THE EXTENT DIRECTLY ATTRIBUTABLE TO ANY ACTS PERFORMED IN EXERCISING PURCHASERS’ RIGHTS UNDER THIS ARTICLE IV . THIS AGREEMENT TO INDEMNIFY SELLER SHALL SURVIVE THE CLOSING AND ANY TERMINATION OF THIS AGREEMENT.

Section 4.04 Title Commitment and Survey Review . Seller shall deliver or cause to be delivered to Purchasers a TLTA T-7 form commitment for an owner’s policy of title insurance with respect to each of the Real Properties (the “ Title Commitments ”), issued by the Title Company and setting forth the state of title to the Real Property and the Improvements, and certain currently existing surveys of the Real Property. As soon as practicable after the Effective Date hereof, Purchasers shall obtain such updated or new certified land title surveys of the Real Property, prepared by one or more surveyors licensed in the State of Texas (the “ Surveys ”).

Section 4.05 Termination Notice . If for any or no reason Purchasers, on or before the expiration of the Review Period, in their sole and absolute discretion, are not satisfied with the items to be delivered or cause to be delivered by Seller to Purchasers under ARTICLE IV , the results of such inspections, interviews, tests or audits or any other fact or situation with respect to the Property, then in such event, Purchasers shall have the right to terminate this Agreement by giving written notice to Seller in writing on or prior to the end of the Review Period. In the

event of such termination by Purchasers, this Agreement shall be null and void and the parties hereto shall be released from all further obligations and liabilities hereunder, except with respect to the covenants, representations, warranties and indemnities set forth in and which expressly survive the termination of this Agreement. In the event that Purchasers fail to give such notice of termination to Seller prior to the expiration of the Review Period, Purchasers shall be deemed to have waived Purchasers’ right to terminate the Agreement pursuant to this Section, which shall be of no further force or effect and which shall be deemed deleted from this Agreement, and this Agreement shall continue in full force and effect subject to the other provisions hereof.

Section 4.06 Termination . If this Agreement has been terminated prior to the expiration of the Review Period in accordance with the terms of this ARTICLE IV , the parties hereto shall thereupon be relieved of all liabilities and obligations hereunder (other than those that expressly survive any termination of this Agreement), and Purchasers, upon written request of Seller, will promptly return to Seller any due diligence materials delivered by Seller or any other third party (to the extent in Purchasers’ possession).

Section 4.07 Seller’s Obligation to Remove Liens . Notwithstanding anything to the contrary in this Agreement, Seller must remove or cause to be removed at or prior to the Closing any and all monetary liens and encumbrances of any nature (except for the Permitted Exceptions and those monetary encumbrances which may be approved in writing by Purchasers) created, suffered or incurred by, through or under Seller or the LD Parties against the Property, Seller or the LD Parties, including mortgages and mechanics’ and materialmen’s liens.

Section 4.08 Environmental Audit . Purchasers shall have the right to have Phase I and Phase II environmental studies performed of the Property during the Review Period.

ARTICLE V

GOOD AND INSURABLE TITLE

Section 5.01 Conveyance . At the Closing, Seller will direct the LD Parties to convey good and insurable fee simple title to the Real Property and the Improvements to Purchasers by the Deeds (as defined below), and title to the Personal Property and the Intangible Property by the Bill of Sale, free and clear of any and all deeds of trust, mortgages or other liens or indebtedness; subject, however, to the following (collectively, the “ Permitted Exceptions ”):

(a) general real estate taxes and assessments for the year in which the Closing occurs and subsequent years not yet due and payable; and

(b) all easements, restrictions, rights-of-way, party wall agreements, encroachments, covenants, reservations, agreements, leases, tenancies, licenses, conditions and other matters affecting all or any portion of the Property to the extent (i) reflected on Schedule B to the Title Commitment (other than the standard printed exceptions on Schedule B to the Title Commitment), as approved by the Purchasers; (ii) reflected on the Survey, as approved by the Purchasers; or (iii) created by or consented and agreed to in writing by the Purchasers prior to or at the Closing.

Section 5.02 Owner Policy . At the Closing, the Title Company will issue standard TLTA & T-1 form Owner Policies of Title Insurance (the “ Owner Policies ”) in Purchasers’ favor in the amount of the Purchase Price (in the aggregate), insuring Purchasers’ fee simple title to the Real Property and the Improvements, subject only to the Permitted Exceptions, together with such endorsements as Purchasers may request.

Section 5.03 Mechanic’s Liens . Seller, at its own expense, will obtain or cause to be obtained such lien waivers and releases, and will provide such affidavits and or certifications, as the Title Company may require in order for the Title Company to issue at the Closing an Owner Policy that does not contain any exceptions for mechanic’s liens or materialman’s liens.

ARTICLE VI

CLOSING

Section 6.01 Closing . The purchase and sale of the Property (the “ Closing ”) will be held through escrow at the offices of the Title Company and will occur on the date which all conditions to the obligations of the parties set forth in Section 9.05 of this Agreement have been satisfied or waived, or such other date as Seller and Purchasers may agree (the day on, and the time at, which the Closing takes place being the “ Closing Date ”).

Section 6.02 Seller’s Obligations . On or before the Closing Date, Seller shall or shall cause the LD Parties to execute and/or deliver to the Title Company in escrow for Closing, the following with respect to the Property:

(a) Special Warranty Deeds for each of the Real Properties (the “ Deeds ”) in the form attached hereto as Exhibit D and made a part hereof for all purposes;

(b) that certain Blanket Conveyance, Bill of Sale and Assignment (“ Bill of Sale ”) in the form attached hereto as Exhibit EF and made a part hereof for all purposes;

(c) that certain FIRPTA Affidavit (the “ FIRPTA Affidavit ”) in the form attached hereto as Exhibit F and made a part hereof for all purposes;

(d) the Guaranty;

(e) all landlord keys to the Property;

(f) to the extent necessary to permit the Title Company to remove any exception in the Owner Policy for mechanics’ and materialmen’s liens and general rights of parties in possession, an affidavit as to debts and liens and parties in possession executed by the LD Parties, made to Purchasers and the Title Company and in a form reasonably acceptable to the Title Company, along with a GAP Affidavit and any other items reasonably required by the Title Company;

(g) Seller’s certification that, to the best of Seller’s actual knowledge, all representations and warranties made by Seller under this Agreement are true, complete and correct in all material respects as of the Closing Date (if accurate or, if not accurate, a description of the basis of such inaccuracy); and

(h) such evidence or documents as may reasonably be required by Purchasers or the Title Company evidencing the status and capacity of Seller and the LD Parties and the authority of the person or persons who are executing the various documents on behalf of Seller and the LD Parties in connection with the sale of the Property.

Section 6.03 Purchasers’ Obligations . On or before the Closing Date, Purchasers shall execute and/or deliver to the Title Company in escrow for Closing, the following:

(a) the Purchase Price in the amounts as described by Section 2.02 , by wire transfer of immediately available funds;

(b) the Bill of Sale;

(c) such evidence or documents as may reasonably be required by Seller, the LD Parties or the Title Company evidencing the status and capacity of Purchasers and the authority of the person or persons who are executing the various documents on behalf of Purchasers in connection with the acquisition of the Property; and

(d) Purchasers’ certification that, to the best of Purchasers’ actual knowledge, all representations and warranties made by Purchasers under this Agreement are true, complete and correct in all material respects as of the Closing Date (if accurate or, if not accurate, a description of the basis of such inaccuracy).

Section 6.04 Transfer of Roof and Other Warranties . Seller shall use its commercially reasonable efforts to obtain or cause to be obtained at Closing the consents of the issuers of any roof warranties and all other assignable warranties affecting the Property to the assignment of such roof warranties and all other warranties at Closing from the LD Parties to Purchasers, including by causing property management personnel to be available at reasonable times and after reasonable notice for inspections of the roof by such roof warranty issuers and the other issuers of the other warranties and executing such documents as reasonably necessary to assign any such roof warranties to Purchasers.

Section 6.05 Possession . Possession of the Property must be delivered by the LD Parties at the Closing, subject only to the Permitted Exceptions and the Lease.

Section 6.06 Due Diligence and Other Costs . It is expressly understood and agreed between the parties that, at the Closing, Seller shall be responsible for any and all of Purchasers’ third-party, out-of-pocket costs incurred in the investigation and closing of the transaction described in this Agreement, including, but not limited to, Purchasers’ due diligence costs, attorneys’ fees and expenses, consultants fees, the cost of the Survey and any update or changes requested by Purchasers to the Survey, and all other expenses incurred in connection with the inspection of the Property (collectively, the “ Due Diligence Costs ”). Seller shall pay or reimburse Purchasers at the Closing for any Due Diligence Costs advanced by Purchasers. Seller shall have no responsibility for the payment of any Due Diligence Costs if the Closing does not occur due to Purchasers’ default under this Agreement. If this Agreement is terminated prior to Closing for any reason other than Purchasers’ default under this Agreement, Seller shall pay or reimburse Purchasers the Due Diligence Costs immediately upon demand; provided, however, that if this Agreement is terminated prior to Closing by MRT based upon its dissatisfaction with the results of its due diligence review, then the Due Diligence costs will be borne in equal 50-50 shares by the Purchasers, on the one hand, and the Seller, on the other hand. The provisions of this paragraph shall survive the Closing or any termination of this Agreement.

ARTICLE VII

CLOSING ADJUSTMENTS

Section 7.01 General Prorations . The following, to the extent applicable, will be apportioned at the Closing:

(a) taxes and other assessments (including personal property taxes on the Personal Property) applicable to the Property. Special assessments certified by any municipal utility district or other taxing authority prior to the Closing Date must be paid in their entirety by Seller or the LD Parties at or before the Closing, except to the extent such assessments are payable in installments, in which event they shall be prorated between the parties. If the tax rate or assessed valuation or both have not yet been fixed, the proration shall be based on a good faith estimate as to the amount of such taxes for the current year after consideration of the tax rate and/or assessed valuation last fixed; provided that the parties hereto agree that to the extent the actual taxes for the current year differ from the amount so apportioned at the Closing, the parties hereto will make all necessary adjustments by appropriate payments between themselves following the Closing, and this provision shall survive delivery of the Deed;

(b) any payments accrued under any Service Contracts; and

In making such apportionments, Purchasers will receive credit for all rents and other income paid with respect to the day of the Closing, and Purchasers will be charged for taxes and other expenses incurred with respect to the day of the Closing.

All apportionments are to be subject to post-closing adjustments as necessary to reflect later relevant information not available at the Closing and to correct any errors made at the Closing with respect to such apportionments; provided, however, that such apportionments shall be deemed final and not subject to further post-closing adjustments if no such adjustments have been requested in writing after a period of sixty (60) days from such time as all necessary information is available to make a complete and accurate determination of such apportionments.

All apportionments (regardless of whether all relevant information has been received or errors have been made) are final and not subject to further post-closing adjustment one (1) year following the Closing Date.

Section 7.02 Specific Prorations . Anything hereinabove contained to the contrary notwithstanding, if applicable:

(a) At the Closing, all discounts for the prepayment of any taxes paid at the Closing shall be prorated. Seller or the LD Parties, as applicable, shall retain and be entitled to receive any tax refunds issued after Closing to the extent applicable to the period prior to the Closing, but not otherwise. Seller may not initiate nor demand and will cause the LD Parties to not initiate or demand that Purchasers initiate or continue any litigation to collect such tax refunds. There will be no proration of any insurance related expenses, it being agreed that Purchasers will obtain its own insurance coverage as of the Closing Date.

(b) As to gas, electricity and other utility charges, Seller may on written notice to Purchasers on or before the Closing Date elect to pay one or more of said items accrued to the date hereinabove fixed for apportionment directly to the person or entity entitled thereunto and to the extent Seller so elects, such item shall not be apportioned hereunder, and Seller’s obligation to pay such item directly in such case shall survive the delivery of the Deed; provided, however, that Seller will not take any action or fail to take any action which would result in the cessation or termination of utility service to the Property.

Section 7.03 Closing Costs . Seller shall be responsible for payment at Closing of the following: (i) all documentary stamp, transfer, surtax, excise taxes, or other levies or charges of any kind and nature, payable upon the transfer of the Property and/or recordation of the Deed; (ii) the cost of the Owner Policy and any endorsements thereto requested by Purchasers; (iii) the cost of the Survey, and (iv) any and all escrow and other charges of the Title Company and recording fees (all of the foregoing, collectively the “ Closing Costs ”).

Section 7.04 Brokerage Commissions .

(a) Seller is responsible for payment of a commission (the “ Commission ”) payable to E. Smith Realty (“ Broker ”) in connection with the closing under the LD Purchase Agreement (but not upon the Closing of the Sale of the Property to Purchasers) pursuant to the terms of a separate commission agreement between Seller and Broker.

(b) INDEMNITY. EACH PARTY HERETO REPRESENTS TO THE OTHER THAT (I) THERE ARE NO REAL ESTATE COMMISSIONS, FINDERS’ FEES OR BROKERS’ FEES THAT HAVE BEEN OR WILL BE INCURRED IN CONNECTION WITH THIS AGREEMENT OR THE SALE OF THE PROPERTY OTHER THAN THE COMMISSION PAYABLE TO BROKER, AND (II) SUCH PARTY HAS NOT AUTHORIZED ANY BROKER OR FINDER (OTHER THAN BROKER) TO ACT ON SUCH PARTY’S BEHALF IN CONNECTION WITH THE SALE AND PURCHASE HEREUNDER. EACH PARTY HERETO AGREES TO INDEMNIFY AND HOLD HARMLESS THE OTHER PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, COSTS OR EXPENSES OF ANY KIND OR CHARACTER ARISING OUT OF OR RESULTING FROM ANY AGREEMENT, ARRANGEMENT OR UNDERSTANDING (EXCEPT AS SET FORTH IN SECTION 8.04) ALLEGED TO HAVE BEEN MADE BY SUCH PARTY WITH ANY BROKER OR FINDER IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY. THIS OBLIGATION WILL SURVIVE THE CLOSING OR ANY EARLIER TERMINATION OF THIS AGREEMENT.

Section 7.05 Survival . The terms of this Article VII shall survive any termination of this Agreement and the Closing and delivery of the Deed. Except for Article III, which shall survive the Closing, and the other provisions of this Agreement which are explicitly stated to survive the Closing, (a) none of the terms of this Agreement shall survive the Closing, and (b) the delivery of the Deed, and other Closing documents and instruments by Seller and the acceptance thereof by Purchasers shall effect a merger, and be deemed the full performance and discharge of every obligation on the part of Purchasers and Seller to be performed hereunder.

ARTICLE VIII

DEFAULT AND REMEDIES

Section 8.01 Termination of Agreement prior to Closing .

(a) This Agreement automatically shall terminate in the event of the termination of the LD Purchase Agreement prior to Closing.

(b) This Agreement may be terminated and the transactions contemplated hereunder may be abandoned at any time prior to the Closing, as follows:

(i) by mutual written consent of Seller and Purchasers;

(ii) Seller may terminate this Agreement by giving written notice to Purchasers at any time prior to the Closing in the event that (i) Purchasers have materially breached any representation, warranty or covenant contained in this Agreement, (ii) Seller has notified Purchasers of the breach, and (iii) the breach has continued without cure for a period of thirty (30) days after the notice of the breach; or

(iii) Purchasers may terminate this Agreement by giving written notice to Seller at any time prior to the Closing (i) in the event that (A) Seller has materially breached any representation, warranty or covenant contained in this Agreement, (B) Purchasers have notified Seller of the breach, and (C) the breach has continued without cure for a period of thirty (30) days after the notice of the breach, or (ii) if the Closing has not occurred on or before October 31, 2015 (the “ Outside Closing Date ”) (unless the failure results primarily from Purchasers themselves materially breaching any representation, warranty or covenant contained in this Agreement).

Section 8.02 Notice of Termination; Effect of Termination .

(a) If Purchasers (on the one hand) or Seller (on the other hand) seek to terminate this Agreement pursuant to Section 8.01(b) , such party will provide written notice of termination to such other party specifying with particularity the reason for such termination.

(b) If either Purchasers or Seller terminate this Agreement pursuant to Section 8.01 , this Agreement will forthwith become void and there will be no liability or obligation on the part of any party hereto except as specified in this ARTICLE VIII and in Section 6.06, each of which will survive any such termination; provided, however, that no such termination (or any provision of this Agreement) will relieve any party from liability for damages arising out of fraud or a knowing or intentional breach of any covenant hereunder.

Section 8.03 Purchasers’ Default . If this Agreement is terminated pursuant to Section 8.01(b) and all of the conditions precedent to Purchaser’s obligations hereunder as set forth in Section 9.05 shall have been satisfied, Seller shall be entitled to (i) recover from Purchasers any Due Diligence Costs paid by Seller, if any, (ii) request assignment and delivery to the Seller, for its future use, of all Due Diligence Materials, and (iii) pursue any and all remedies available to it under law or equity as a result of the breach or default of Purchasers. In no event shall any officer, director, agent or employee of Purchasers or its partners be personally liable for any of Purchasers’ obligations under this Agreement or the documents to be delivered at the Closing. Alternatively, and in lieu of terminating this Agreement, Seller shall have the right, upon a breach or default of Purchasers, to pursue an action to enforce specific performance of Purchasers’ obligations under this Agreement.

Section 8.04 Seller’s Default . If this Agreement is terminated pursuant to Section 8.01(c) , Purchasers shall be entitled, as Purchasers’ sole and exclusive remedy (except for specific performance), to recover from Seller the Due Diligence Costs as provided in Section 6.06 . Alternatively, and in lieu of terminating this Agreement, Purchasers shall have the right, upon a breach or default of Seller, to pursue an action to enforce specific performance of Seller’s obligations under this Agreement.

ARTICLE IX

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 9.01 Seller’s Representations . Seller hereby represents and warrants to Purchasers, as of the Effective Date, except as set forth in that certain schedule (the “ Disclosure Schedule ”) attached hereto as Exhibit G and made a part hereof for all purposes, as follows:

(a) Seller is a duly organized, validly existing limited liability company in good standing under the laws of the State of Texas and is authorized to conduct business in the State of Texas. This Agreement has been duly authorized, executed and delivered by Seller, and is, and at the time of the Closing will be, a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms.

(b) Seller has no knowledge of any (and, to its actual knowledge, there is no) current, proposed or threatened eminent domain or similar proceeding, or private purchase in lieu of such proceeding, which would affect the Property in any way whatsoever. For the purposes of this Agreement, Seller’s knowledge shal be deemed to mean the actual knowledge of Jerry Williamson and Kenneth A. Kristofek.

(c) Seller has no knowledge of any written notice of a claim that the Property does not comply with any federal, state, county, city or any other laws, ordinances, rules and regulations, including, but not limited to, those relating to environmental, zoning, land use and division, building, fire, health and safety matters, of any government or any agency, body or subdivision thereof bearing on the construction of the Improvements and on the operation, ownership or use of the Property (collectively, “ Applicable Laws ”), which noncompliance Seller or the LD Parties have not cured.

(d) Seller has no knowledge of a written notice of any pending or threatened, litigation which does or would affect the Property or Seller’s ability to fulfill all of its obligations under this Agreement.

(e) Seller has no knowledge of any written notice received by the LD Parties concerning any alleged violation of any applicable environmental law, rule or regulation which remains uncured.

(f) Seller is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as defined in the Code), and is not subject to the provisions of Sections 897(a) or 1445 of the Code related to the withholding of sales proceeds to foreign persons.

(g) The Property constitutes all of the assets to conduct the business at the Facilities as it is conducted as of the Effective Date.

(h) Seller has delivered to Purchaser a true and complete copy of the LD Purchase Agreement and any and all amendments thereto.

Section 9.02 Purchasers’ Representations . Each Purchaser hereby jointly and severally represents and warrants to Seller, as of the Effective Date hereof and as of the Closing Date, as follows:

(a) Organization. Each Purchaser is a duly organized, validly existing limited liability company in good standing under the laws of the State of Texas and is authorized to conduct business in the State of Texas. This Agreement constitutes a valid and binding obligation of each Purchaser enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

(b) Authority . Each Purchaser has the capacity and complete authority to enter into and perform this Agreement, and no consent, approval or other action by any person or entity (other than the person signing this Agreement on behalf of each Purchaser and any approval to be obtained by Purchasers during the Review Period) will be needed thereafter to authorize each Purchaser’s execution and performance of this Agreement.

(c) Financing . Each Purchaser’s ability to perform hereunder and to pay the Purchase Price to Seller and the LD Parties is not subject to any financing covenant or condition. As of the Closing Date, Purchasers shall have all requisite cash funds or required financing that may be necessary for Purchasers’ full performance hereunder.

(d) Approval . Subject to completing its inspection and due diligence review of the Property, each Purchaser has received the final authority or approval for the purchase of the Property in accordance with the provisions hereof.

Section 9.03 Discovery . If Seller or any of the Purchasers discovers, prior to or at the Closing, that any representation or warranty of the other party is false, misleading or inaccurate in any material and adverse respect, (a) if Purchasers are the discovering party, Purchasers shall be entitled to pursue its remedies under Section 8.04 of this Agreement; and (b) if Seller is the discovering party, Seller shall be entitled to pursue its remedies under Section 8.03 of this Agreement.

If the discovering party elects to proceed to Closing, such party cannot later bring a claim against the other as to such discovered matter. Representations and warranties under this ARTICLE IX shall fully survive the Closing and the delivery of the Deed, but to the extent that neither the Seller nor Purchasers have made any claim as to the breach of any such representation or warranty within twenty-four months (24) months after the Closing Date, such representations and warranties will terminate and be of no further force and effect.

Section 9.04 Conditions Precedent .

(a) Purchasers’ Conditions . Purchasers shall not be obligated to perform under this Agreement unless all of the following conditions precedent are satisfied (or waived in writing by Purchasers) and are otherwise true and correct as of the Closing Date:

(i) All of Seller’s representations and warranties shall be true and correct in all material respects.

(ii) Seller shall have performed all of its covenants, agreements, and obligations under this Agreement in all material respects and shall otherwise not be in default.

(iii) There shall not have been any material adverse change with respect to the Property or the matters reflected in the Title Commitment or Survey, except to reflect those items otherwise authorized by this Agreement or approved or otherwise created in writing by Purchasers.

(iv) Seller or the LD Parties shall have paid all due and outstanding (i) taxes and other assessments (including personal property taxes on the Personal Property) applicable to the Property, and (ii) gas electricity and other utility charges applicable to the Property.

(v) The LD Closing has occurred (or will occur concurrently with the Closing).

(vi) The closing under the OTA shall have occurred (or will occur concurrently with the Closing).

(vii) Any existing leases or management agreements among the LD Parties or between the LD Parties and a third party operator with respect to the Facilities shall have been terminated.

(viii) New Operators shall have received all necessary licenses and other governmental consents, approvals and certifications required in connection with the operation of the Facilities by the New Operators as skilled nursing facilities, including but not limited as Medicare and Medicaid nursing homes being fully and unconditionally certified for participation in the Medicaid and Medicare reimbursement programs without any waivers or conditions, and any and all necessary governmental inspections required in connection with the transactions contemplated hereby shall have been favorably completed.

(ix) The Commencement Date (as such term is defined in the Lease) shall have occurred or shall occur simultaneously with the Closing.

Seller shall use reasonable efforts to satisfy all of the foregoing conditions precedent. If Seller is unable to satisfy all of the foregoing conditions precedent, Purchasers may waive one or more conditions precedent, or either Purchasers or Seller may extend the Outside Closing Date for up to an additional thirty (30) days by written notice to the other. If Purchasers elect to close, Purchasers will be deemed to have waived any conditions actually known by Purchasers to be unsatisfied at the Closing.

Section 9.05 Exclusivity . Unless and until this Agreement is terminated in accordance with its terms prior to Closing, neither Seller, nor any of its employees, subsidiaries or agents shall engage, either directly or indirectly, in discussions with any other parties regarding the sale of, leaseback of, or additional financing services for, the Property, except as contemplated by the LD Purchase Agreement.

Section 9.06 LD Purchase Agreement . From and after the Effective Date hereof, Seller shall not agree to any amendment or other modification of the LD Purchase Agreement or any of its terms, or make any elections or give any notices under the LD Purchase Agreement, without the prior written consent of Purchasers. In addition, Seller shall promptly provide to Purchasers complete copies of any and all notices given or received by Seller pursuant to the LD Purchase Agreement.

Section 9.07 Survival . The representations provided in this Article IX will survive the Closing for a period of 18 months, it being hereby acknowledged that such representations will not merge with the Deed to be delivered at Closing. Furthermore, liabilities and obligations which, by their express terms, survive the Closing or the termination of this Agreement are “ Surviving Obligations ”.

ARTICLE X

NOTICES

Section 10.01 Notices . Any notice, demand or other communication which may or is required to be given under this Agreement must be in writing and must be: (a) personally delivered; (b) transmitted by United States postage prepaid mail, registered or certified mail, return receipt requested; (c) transmitted by reputable overnight courier service, such as Federal Express; or (d) transmitted by legible facsimile (with answer back confirmation) to Purchasers and Seller as listed below. Notice to one Purchaser shall constitute notice to all Purchasers.

Except as otherwise specified herein, all notices and other communications shall be deemed to have been duly given on (i) the date of receipt if delivered personally, (ii) two (2) business days after the date of posting if transmitted by registered or certified mail, return receipt requested, (iii) the first (1st) business day after the date of deposit, if transmitted by reputable overnight courier service, or (iv) the date of transmission with confirmed answer back if transmitted by facsimile, whichever shall first occur. A notice or other communication not given as herein provided shall only be deemed given if and when such notice or communication and any specified copies are actually received in writing by the party and all other persons to whom they are required or permitted to be given.

Purchasers and Seller may change their respective addresses for purposes hereof by notice given to the other parties in accordance with the provisions of this Section, but such notice shall not be deemed to have been duly given, unless and until it is actually received by the other parties. Notices hereunder shall be directed as follows:


If to Purchasers:		MRT of Dallas TX – SNF/ALF, LLC
		3102 West End Ave, Suite 400
		Nashville, TN 37203
		Attention: William C. Harlan, President
		Telephone: (615) 627-4714
		Facsimile: (615) 658-8141
		Email: wharlan@medequities.com

With a copy to:		Arent Fox LLP
		1675 Broadway, 34th Floor
		New York, NY 10019
		Attention: Michael S. Blass, Esq.
		Telephone: (212) 484-3902
		Facsimile: (212) 484-3990
		Email: Michael.blass@arentfox.com

If to Seller:		GruenePointe Acquisition I, LLC
		325 North Saint Paul St., Suite 3400
		Dallas, TX 75201
		Attention: Ken Kristofek
		Telephone: (214) 295-4109
		Email: k2@gruenerep.com

With a copy to:		Kane Russell Coleman & Logan, P.C.
		1601 Elm Street, Suite 3700
		Dallas, TX 75201
		Attention: David L. Pratt
		Telephone: (214) 777-4272
		Facsimile: (214) 777-4299
		Email: dpratt@krcl.com

Purchasers’ counsel may deliver any notice required or otherwise permitted to be given by Purchasers hereunder with the same effect as if given directly by Purchasers.

ARTICLE XI

RISK OF LOSS

Section 11.01 Minor Damage . In the event of “minor” loss or damage to any Property, being defined for the purpose of this Agreement as damage such that the Property in question could be repaired or restored, in the opinion of an architect mutually acceptable to Seller and Purchasers (with any fees, costs or expenses pertaining to such opinion to be borne equally by Purchasers and Seller), to a condition substantially identical to that of such Property immediately prior to the event of damage at a cost equal to or less than $100,000.00, and which would not permit any New Operator to terminate the Lease, neither Seller nor Purchasers shall have the

right to terminate this Agreement due to such damage, but the Fixed Purchase Price shall be reduced by an amount equal to the cost to repair such damage and in such event Seller shall retain all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty, rental loss and other insurance policies relating to the Property.

Section 11.02 Major Damage . In the event of a “major” loss or damage (being defined as any loss or damage which is not “minor” as defined hereinabove), Purchasers shall have the option of terminating this Agreement by written notice to Seller, in which event Seller and Purchasers shall thereupon be released from any and all liability hereunder (other than those liabilities that expressly survive any termination of this Agreement).

If Purchasers elect not to terminate this Agreement, Purchasers and Seller shall proceed with the Closing, provided Seller shall assign all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty, rental loss and other insurance policies relating to the Property, and Purchasers shall receive a credit against the Purchase Price in an amount equal to the aggregate amount of any deductible(s) under the insurance policies assigned to Purchasers, together with the uninsured portion of any such damage.

Section 11.03 Seller and Purchaser Risk . Except as set forth in Section 11.01 and Section 11.02, Seller shall bear the full risk of loss until Closing. Upon the Closing, full risk of loss with respect to the Property shall pass to Purchaser, except to the extent such loss is the responsibility of the New Operators pursuant to the Lease.

Section 11.04 Condemnation . If before the Closing any condemnation or eminent domain proceedings are threatened or initiated against all or any portion of any Property and, in the reasonable opinion of Purchaser, such condemnation or eminent domain proceedings would materially interfere with the current use of such Property, then Purchasers may terminate this Agreement upon written notice to Seller and Seller and Purchasers shall thereupon be released from any and all further liability hereunder (other than those liabilities that expressly survive termination of this Agreement). If Purchasers do not elect to terminate this Agreement within ten (10) business days after receipt of written notice of the commencement of any such proceedings, or if, in the reasonable opinion of Purchasers, such condemnation or eminent domain proceedings would not materially interfere with Seller’s current use of the Property, Seller shall assign to Purchasers at the Closing all rights and interest of Seller in and to any condemnation awards payable or to become payable on account of such condemnation or eminent domain proceedings.

ARTICLE XII

MISCELLANEOUS

Section 12.01 Entire Agreement . This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior understanding, letter of intent or written or oral agreements among the parties concerning the Property.

Section 12.02 No Rule of Construction . This Agreement has been drafted by both Seller and Purchasers and no rule of construction shall be invoked against either party with respect to the authorship hereof or of any of the documents to be delivered by the respective parties at the Closing.

Section 12.03 Multiple Counterpart; Governing Law . This Agreement may be executed in multiple counterparts each of which shall be deemed an original but together shall constitute one and the same instrument, and shall be construed and interpreted under the laws of the State of Texas (without regard to conflicts of laws). This Agreement may be executed by pdf or facsimile signatures of one or more of the parties hereto, which signatures shall be binding on such parties as if original signatures were obtained. The parties irrevocably (a) agree that any suit, action or other legal proceeding arising out of or relating to this Agreement shall be brought in a court of record in Dallas County, Texas, (b) consent to the non-exclusive jurisdiction of each such court in any such suit, action or proceeding, and (c) waive any objection which it may have to the laying of venue of any such suit, action or proceeding in any of such courts and any claim that any such suit, action or proceeding has been brought in an inconvenient forum.

Section 12.04 Attorneys’ Fees . In the event of any litigation or other proceeding brought by either party hereunder, the prevailing party shall be entitled to recover its attorneys’ fees and costs of suit.

Section 12.05 Interpretation . This Agreement shall, unless otherwise specified herein, be subject to the following rules of interpretation: (a) the singular includes the plural and the plural the singular; (b) words importing any gender include the other genders; (c) references to persons or entities include their permitted successors and assigns; (d) words and terms which include a number of constituent parts, things or elements, including the terms Improvements, Permitted Exceptions, Personal Property, Intangible Property and Property, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole; (e) references to statutes are to be construed as including all rules and regulations adopted pursuant to the statute referred to and all statutory provisions consolidating, amending or replacing the statute referred to; (f) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms; (g) the words “approve” or “consent” or “agree” or derivations of said words or words of similar import mean, unless otherwise expressly provided herein or therein, the prior approval, consent, or agreement in writing of the person holding the right to approve, consent or agree with respect to the matter in question, and the words “require” or “judgment” or “satisfy” or derivations of said words or words of similar import mean the requirement, judgment or satisfaction of the person who may make a requirement or exercise judgment or who must be satisfied, which approval, consent, agreement, requirement, judgment or satisfaction shall, unless otherwise expressly provided herein or therein, be in the sole and absolute discretion of the person holding the right to approve, consent or agree or who may make a requirement or judgment or who must be satisfied; (h) the words “include” or “including” or words of similar import shall be deemed to be followed by the words “without limitation”; (i) the words “hereto” or “hereby” or “herein” or “hereof” or “hereunder,” or words of similar import, refer to this Agreement in its entirety; (j)

references to sections, articles, paragraphs or clauses are to the sections, articles, paragraphs or clauses of this Agreement; and (k) numberings and headings of sections, articles, paragraphs and clauses are inserted as a matter of convenience only and shall not affect the construction of this Agreement.

Seller acknowledges that obligations with respect to any covenant, indemnity, representation or warranty under this Agreement which expressly survives the Closing shall be considered a “liability” for purposes of any member or other distribution limitation imposed under the organizational laws applicable to Seller and/or its members, shareholders and partners.

Section 12.06 Exhibits . The exhibits attached hereto shall be deemed to be an integral part of this Agreement.

Section 12.07 Modifications . This Agreement cannot be changed orally, and no executory agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such executory agreement is in writing and is signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. Any such modification need not be joined in by the Title Company.

Section 12.08 Reporting Person . Purchasers and Seller hereby designate the Title Company as the “reporting person” pursuant to the provisions of Section 6045(e) of the Internal Revenue Code of 1986, as amended.

Section 12.09 Time of Essence . Time is of the essence to both Seller and Purchasers in the performance of this Agreement, and they have agreed that strict compliance by all of them is required as to any date and/or time set out herein. If the final day of any period of time set out in any provision of this Agreement falls upon a Saturday, Sunday or a legal holiday under the laws of the State in which the Property is located, then and in such event, the time of such period shall be extended to the next day which is not a Saturday, Sunday or legal holiday.

Section 12.10 Notices .

(a) If the Real Property is situated in a utility or other statutorily created district providing water, sewer, drainage, or flood control facilities and services, Chapter 49, Texas Water Code, requires Seller or the LD Parties to deliver and Purchasers to sign the statutory notice relating to the tax rate, bonded indebtedness, or standby fees of the district before final execution of this Agreement.

(b) If the sale of any portion of the Real Property or if Purchasers’ use of the Real Property after Closing results in the assessment of additional taxes, penalties or assessments (collectively, “ Assessments ”) for periods prior to Closing, the Assessments will be Purchaser’s obligation. If Seller’s change in the use of the Real Property prior to a Closing or a denial of a special use valuation on the Real Property claimed by Seller or the LD Parties results in Assessments for periods prior to Closing, the Assessments will be Seller’s obligation. The terms of this Section 12.11(b) shall survive Closing.

(c) If the Real Property is not located within a municipality’s limits or a municipal utility district (MUD) and is located in a certificated service area of a utility service provider (a utility, a water supply or sewer service corporation, or a special utility district organized and operating under Chapter 65, Water Code). §13.257, Water Code requires Seller or the LD Parties to deliver a notice regarding the utility service provider to Purchasers.

(d) If the Real Property adjoins or shares a common boundary with the tidally influenced submerged lands of the state, §33.135 of the Texas Natural Resources Code requires a notice regarding coastal area Real Property to be included as part of this Agreement.

(e) If the Real Property is located seaward of the Gulf Intracoastal Waterway, §61.025, Texas Natural Resources Code, requires a notice regarding the seaward location of the Real Property to be included as part of this Agreement.

(f) If any portion of the Real Property is located outside the limits of a municipality, Seller hereby notifies Purchasers that the Real Property may now or later be included in the extra-territorial jurisdiction (“ ETJ ”) of a municipality and may now or later be subject to annexation by the municipality. Each municipality maintains a map that depicts its boundaries and ETJ. To determine if the Real Property is located within a municipality’s ETJ, Purchasers should contact all municipalities located in the general proximity of the Real Property for further information.

(g) The Real Property, described below, that you are about to purchase, may be located in a certificated water or sewer service area, which is authorized by law to provide water or sewer service to the properties in the certificated area. If the Real Property is located in a certificated area, there may be special costs or charges that you will be required to pay before you can receive water or sewer service. There may be a period required to construct lines or other facilities necessary to provide water or sewer service to your Real Property. You are advised to determine if the Real Property is in a certificated area and contact the utility service provider to determine the cost that you will be required to pay and the period, if any, that is required to provide water or sewer service to your Real Property.

(h) If any portion of the Real Property is located in a public improvement district, Seller or the LD Parties are required to notify Purchasers as follows: As Purchasers of the Real Property, you are obligated to pay an assessment to a municipality or county for an improvement project undertaken by a public improvement district under Chapter 372 of the Local Government Code. The assessment may be due annually or in periodic installments. More information concerning the amount of the assessment and the due dates of such assessment may be obtained from the municipality or county levying the assessment. The amount of the assessments is subject to change. Your failure to pay the assessments could result in a lien on and foreclosure of the Real Property.

(i) Brokers are not qualified to perform Real Property inspections, surveys, engineering studies, environmental assessments, or inspections to determine compliance with zoning, governmental regulations, or laws. Purchasers should seek experts to perform such services. Selection of inspectors and repairmen is the responsibility of Purchasers and not the brokers.

Section 12.11 Restructuring . If Purchasers determine, in their sole discretion, that the structure of the transactions contemplated hereunder may jeopardize Purchasers’ ability to qualify as a Real Estate Investment Trust under the Code, then Purchasers and Seller agrees to use commercially reasonable efforts to modify the structure of the transactions contemplated hereunder in such a way as to not to jeopardize such qualification, provided, however, such modified structure shall not result in detrimental economics to any party.

Section 12.12 Assignment by Purchasers . This Agreement is binding upon and will inure to the benefit of the parties and their respective heirs, legal representatives, and permitted successors and assigns. None of the parties hereto shall assign this Agreement or its rights hereunder to any individual or entity without the prior written consent of the remaining parties hereto, which consent may be granted or withheld in such remaining parties’ sole discretion, and any assignment in the absence of such consent shall be null and void ab initio .

Section 12.13 No Recordation . Seller and Purchasers agree that neither this Agreement nor any memorandum or notice hereof shall be recorded, and Purchasers agree (a) not to file any notice of pendency or other instrument (other than a judgment) against the Property or any portion thereof in connection herewith and (b) to indemnify Seller against all Liabilities, including, without limitation, reasonable attorneys’ fees and expenses, incurred by Seller by reason of the filing by Purchasers of such notice of pendency or other instrument; provided however, notwithstanding the foregoing to the contrary, in the event the Seller is in default of this Agreement, then the Purchasers will have the right to file a notice of lis pendens in the real property records in the county where the Property is located announcing that a lawsuit involving the Property is pending in a specific court.

Section 12.14 Additional Agreements; Further Assurances . Subject to the terms and conditions herein provided, each of the parties hereto shall execute and deliver such documents as the other party shall reasonably request in order to consummate and make effective the Transaction; provided, however, that the execution and delivery of such documents by such party shall not result in any additional liability or cost to such party.

Section 12.15 ERISA . Each Purchaser represents and warrants to Seller that:

(i) Each Purchaser is not an employee benefit plan subject to the provisions of Title IV of ERISA or subject to the minimum funding standards under Part 3, Subtitle B, Title I of ERISA or Section 412 of the Internal Revenue Code or Section 302 of ERISA, and none of the assets of Purchasers constitute or will constitute assets of any such employee benefit plans subject to Part 4, Subtitle B, Title I of ERISA.

(ii) Each Purchaser is not a “governmental plan” within the meaning of Section 3(32) of ERISA, and the funds used by each Purchaser to acquire the Property are not subject to state statutes regulating investments of and fiduciary obligations with respect to governmental plans.

(iii) Each Purchaser is not a Separate Account, or an “affiliate” of Seller as defined in Section IV(b) of PTE 90-1.

Section 12.16 WAIVER OF JURY TRIAL . EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY THE OTHER PARTY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE TRANSACTION, THIS AGREEMENT, THE PROPERTY OR THE RELATIONSHIP OF PURCHASERS AND SELLER HEREUNDER.

Section 12.17 Section 1031 Exchange . Purchasers acknowledges that Seller may sell the Property pursuant to the terms of the Internal Revenue Code Section 1031. All costs and fees of such Section 1031 Exchange will be paid by Seller. Purchasers shall cooperate with Seller and execute documents reasonably necessary hereunder for Seller to conduct a like-kind exchange. In no event will Purchasers (i) be required to take title to any real property other than the Property by conveyed herein, (ii) have their rights under this Agreement reduced, affected or diminished, or (iii) bear any costs or expenses.

Section 12.18 SPECIAL PROVISIONS – TEXAS . In accordance with Section 5.010(a) of the Texas Property Code, as amended, Seller hereby notifies Purchasers of the following:

NOTICE REGARDING POSSIBLE LIABILITY FOR ADDITIONAL TAXES

If for the current ad valorem tax year the taxable value of the land that is the subject of this contract is determined by a special appraisal method that allows for appraisal of the land at less than its market value, the person to whom the land is transferred may not be allowed to qualify the land for that special appraisal in a subsequent tax year and the land may then be appraised at its full market value. In addition, the transfer of the land or a subsequent change in the use of the land may result in the imposition of an additional tax plus interest as a penalty for the transfer or the change in the use of the land. The taxable value of the land and the applicable method of appraisal for the current tax year is public information and may be obtained from the tax appraisal district established for the county in which the land is located.

[SEE SIGNATURES ON THE FOLLOWING PAGES]

IN WITNESS WHEREOF, this Agreement has been executed by Purchasers and Seller as of the date and year first above written.


PURCHASERS:
MRT OF GRAHAM TX – SNF, LLC
a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KEMP TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KERENS TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF BROWNWOOD TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF EL PASO TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KAUFMAN TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer


MRT OF LONGVIEW TX – SNF, LLC
a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF MT. PLEASANT TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF SAN ANTONIO TX – SNF I, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF SAN ANTONIO TX – SNF II , LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven

		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

SELLER :

GRUENEPOINTE ACQUISITION I, LLC a Texas limited liability company,

By: Gruene Point Holdings LLC, a Texas limited liability company,
Its Managing Member

By: OnPointeHealthDevelopment, L.L.C., a Texas limited liability company,
Its Managing Member

By:		/s/ Jerry Williamson
		Jerry Williamson, Member

EXHIBIT A

FACILITIES

(See attached)


Facility Name	Address	Lic. Beds
Casa Rio Health Care and Rehabilitation	6211 S New Braunfels Avenue, San Antonio, 78223, Bexar County	124

Graham Oaks Care Center ¹	1325 First Street Graham, 76450 Young County	120

Greenhill Villas	2530 Greenhill Road, Mount Pleasant, 75455-6744, Titus County	150

Kemp Care Center	1351 South Elm Street, Kemp, 75143, Kaufman County	124

Kerens Care Center	809 NE 4 ^th Street, Kerens, 75144, Navarro County	70

River City Care Center	921 Nolan Street, San Antonio, 78202, Bexar County	100

Songbird Lodge	2500 Songbird Circle, Brownwood, 76801, Brown County	125

Sunflower Park Health Care	1803 Highway 243 East, Kaufman, 75142, Kaufman County	92

St. Teresa Nursing and Rehabilitation Center	10350 Montana Avenue, El Paso, 79925, El Paso County	124

Whispering Pines Lodge I LLP	2131 Alpine Road, Longview, 75601, Gregg County	116

¹	Graham Oaks Care Center is intended to be added following the Closing in accordance with the terms of the Letter Agreement, dated July 29, 2015, among Guarantors, Landlord and Tenant.

EXHIBIT B

LEGAL DESCRIPTIONS

(See attached)

EXHIBIT B

LEGAL DESCRIPTIONS OF LAND

Kerens

PARCEL ONE:

All that certain lot, tract or parcel of land, situated in the City of Kerens, Navarro County, Texas, a part of the Daniel Addition according to the Plat recorded in Volume 493, Page 185, Navarro County, Texas, Deed Records, and which is more particularly described as follows.

BEGINNING at the intersection of the North line of 4th Street and the East line of Margaret Avenue

THENCE Eastward with the North line of 4th Street 300 feet to the intersection of the West line of Lella Avenue and North line of 4th Street;

THENCE North with the West line of Lella Avenue 600 feet to the intersection of the South line of 6th Street and West line Lella Avenue,

THENCE Westward 300 feet to the intersection of East line of Margaret Avenue and South line of 6th Street;

THENCE with the East line of Margaret Avenue 600 feet to the PLACE OF BEGINNING .

PARCEL TWO:

A right of way over and across all that certain lot, tract or parcel of land being a 33’ wide strip of land, a portion of that certain 95.6 acre tract in the Hiram Bush Survey, Navaro County, Texas, Known as the Joe M Daniel Block 3 described in Volume 621, Page 585, Deed Records of Navarro County, Texas, with the center line of said right of way being a straight line described as follows.

BEGINNING at the Southwest corner of the Joe M. Daniel Brock 3;

THENCE N 29 deg. 50’ W a distance of 1,240 feet to a point;

THENCE N 60 deg. 10’ E a distance of 255 feet 3 inches to a point for the PLACE OF BEGINNING of the center line of such right of way;

THENCE N 29 deg. 50’ W to the point of intersection with the existing City of Kerens, Texas, sewer line, the PLACE OF ENDING of the center line of such right of way

And further described as Tract 46A. H. Bush Abstract, by the Navarro Central Appraisal District (formerly R07607, and now Account No. 31518)

B-1

KEMP

Lot 1 Block 1. of Kemp Health Care Addition, an addition to the City of Kemp, in kaufman County Texas, according to the Map or Plat thereof recorded in Cabinet 3 Page 184. Plat Records of kaufman County. Texas, and Document No. 2012-0018091 of the Official Public Records of kaufman County, Texas

B-2

SUNFLOWER

TRACT 1:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 7.338 acre tract conveyed to Ricky R. Vrzalik, el al from Andrew J. Kupper, and wife on January 13, 1988 and recorded in Volume 917, Page 85 of the Deed Records of Kaufman County, Texas, and being more particularly described by metes and bounds on Exhibit “A-1” attached hereto and made a part hereof.

TRACT 2:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 3,551 acre tract conveyed to Dorothea Spencer by Ricky R. Vrzalik, etal on March 30, 1990, recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas, and being more particularly described by metes and bounds on Exhibit “A-2” attached hereto and made a part hereof.

TRACT 3:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 3.551 acre tract conveyed to Dorothea Spencer by Ricky Ft Vrzalik, etal on March 30, 1990, recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas, and being more particularly described by metes and hounds on Exhibit “A-3” attached hereto and made a part hereof.

B-3

SUNFLOWER

EXHIBIT “A-1”

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 7.338 acre tract conveyed to Ricky R Vrzalik, et al from Andrew J. Kupper, and wife on January 13, 1988 and recorded in Volume 917, Page 85 of the Deed Records of Kaufman County. Texas and being more completely described as follows, to wit:

BEGINNING at an iron rod for corner in the Northwest line of the above mentioned 7.338 acre tract and being N 45 deg. 45 min. 31 sec. E 265.85 feet from the Southwest corner of same;

THENCE N 45 deg. 45 min. 31 sec. E, with the Northwest line of said 7.338 acre tract, a distance of 346.48 feet to an iron rod at the North or Northwest corner of same, in the South right of way line of Old State Highway No. 243 and being in a curve, the radius point of which bears N 34 deg. 08 min. 51 sec. E- 1960.00 feet;

THENCE in an Easterly direction with said right of way line and said curve to the left, the angle of which is 4 deg. 49 min. 25 sec., the radius is 1960.00 feet, the tangent is 82.55 and the length is 165.00 feet, a distance of 51.19 feet to an iron rod for corner;

THENCE S 45 deg. 45 min. 31 sec. W, a distance of 159.83 foot to an iron rod for corner;

THENCE S 60 deg. 40 min. 34 sec. E, a distance of 239.72 feet to an iron rod for corner;

THENCE S 30 deg. 56 min. 56 sec. W, a distance of 248.90 feet to an iron rod in the South line of the above mentioned 7.338 acre tract and in the North right of way line of State Highway No. 243;

THENCE N 84 deg. 33 min. 19 sec. W, with said South line and with said right of way line, a distance of 279.00 feet to an iron rod for corner;

THENCE N 5 deg. 43 min. 35 sec. E, a distance of 203.36 feet to the PLACE OF BEGINNING, containing 2.391 acres of land, more or less.

B-4

SUNFLOWER

EXHIBIT “A-2”

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey Abstract No. 21, Kaufman County, Texas, part of that certain called 3.551 acre tract conveyed to Dorothea Spencer by Ricky R. Vrzalik, et al on March 30, 1990, recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas, and being more completely described as follows, to wit:

BEGINNING at a 3/8” iron rod found at the East corner of the above mentioned 3.551 acre tract and being in the Southwest right of way line of Old State Highway No. 243;

THENCE S 30 deg. 56 min. 56 sec. W, with the Southeast line of said 3.551 acre tract, a distance of 150.06 ft. to a 3/8” iron found at the Southerly East corner of the Spen-Kar, Inc. 2.391 acre tract, recorded in Volume 1023, Page 698 of the Deed Records of Kaufman County, Texas;

THENCE N 60 deg. 40 min 34 sec. W, with the Southerly Northeast line of said 2.391 acre tract, a distance of 239.72 ft. to a 3/8” iron rod found at an ell corner of same;

THENCE N 45 deg. 45 min. 31 sec. E, with the Northerly Southeast line of said 2.391 acre tract, a distance of 159.83 ft. to a 3/8” iron rod found at the Northerly East corner of same, in the Northeast line of the above mentioned 3.551 acre tract, in the Southwest right of way line of Old State Highway No. 243 and being in a curve to the left, the radius point of which bears N 32 deg. 39 min. 04 sec. E, 1960.00 ft.;

THENCE in an Easterly direction with said right of way line and with said curve to the left, the angle of which is 3 deg. 19 min. 38 sec., the radius is 1960.00 ft. and the tangent is 56.92 ft. a distance of 113.82 ft. to a 3/8” iron rod found at the P.T. of said curve to the left;

THENCE S 60 deg. 40 min. 34 sec. E, continuing with the Southwest right of way line of Old State Highway No. 243, a distance of 85.00 ft. to the POINT OF BEGINNING , containing 0.760 of an acre of land, more or less.

B-5

SUNFLOWER

EXHIBIT “A-3”

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 3.551 acre tract conveyed to Dorothea Spencer by Ricky R, Vrzalik, etal on March 30, 1990, recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas, and being more completely described as follows, to wit:

BEGINNING at a 3/8” iron rod found at the West corner of the above mentioned 3.551 acre tract, in the Southeast line of Collage Heights Addition, recorded in Volume 127, Page 302 of the Deed Records of Kaufman County, Texas and being in the North right of way line of State Highway No. 243;

THENCE N 45 deg. 45 min. 31 sec. E, with the Northwest line of said 3.551 acre tract, a distance of 265.85 ft. to a 3/8” iron rod found at the Northwest corner of the Spen-Kar, Inc. 2.391 acre tract, recorded in Volume 1023, Page 098 of the Deed Records of Kaufman County, Texas;

THENCE S 6 deg. 43 min. 35 sec. W, with the West line of said 2.391 acre tract, a distance of 203.36 ft. to a 3/8” iron rod found at the Southwest corner of same, in the South line of said 3.551 acre tract and being in the North right of way line of State Highway No. 243;

THENCE N 84 deg. 33 min. 19 sec. W, with the North right of way tine of State Highway No. 243, a distance of 85.45 ft. to a 3/8” iron rod found at the P.C. of at curve to the right, the radius point of which bears N 5 deg. 26 min. 41 sec. E, 5670.00 ft.,

THENCE, continuing with said right of way line and with said curve to the right, the angle of which is 0 deg. 51 min. 52 sec., the radius is 5670.00 ft. and the tangent is 42.78 ft., a distance of 85.55 ft. to the POINT OF BEGINNING , containing 0.400 of an acre of land, more or less.

B-6

CASA RIO

Lot 2, Block 1. New City Block 10934 Highland Hills Village, in the City of San Antonio, Bexar County, Texas, according to the map or plat thereof recorded in Volume 9609, Page 34, of the Dead and Plat Records of Bexar County, Texas.

B-7

RIVER CITY

0.992 of an acre of land, more or less, being comprised of Lots 15, 16, 17 and 18, Block G, New City Block 1659, ORIGINAL CITY LOT 11, RANGE 4, DISTRICT 1, San Antonio, Bexar County, Texas: as shown on the City of San Antonio Engineers Section Map No. 28, and being the same tract of land conveyed to River City Life Care, Inc. of record in Volume 10463, Page 1816, Official Public Records or Bexar County, Texas. Said 0.992 acre tract being more particularly described by metes and bounds in Exhibit “A” attached hereto and made a part hereof.

B-8

ST. TERESA

LOT 1, Block 1, Montana Skilled Nursing Subdivision, an addition to the City of El Paso, El Paso County, Texas, according to the map thereof recorded under instrument No. 20120023088, Real Property Records of El Paso County, Texas.

B-9

GREENHILL

Tract 1: Fee Simple Estate

BEING all that certain tract or parcel of land situated in the Prior Horton Survey, A 265, located about 2.35 miles N 6º W from the City of Mt. Pleasant. Titus County, Texas; being a part of that certain 20.594 acres described in a Deed from Houston Thomas and wife, Ellen Thomas to Mt. Pleasant Land Development, dated September 12, 2007, recorded in Vol. 1968, Page 5, Real Property Records of Titus County, Texas; and being more particularly described as follows:

COMMENCING at a 5/8” rebar found on the Southeast corner of said 20.594 acre tract, being on the Northeast corner of a 7.93 acre tract described as Third Tract in a Deed to Cathy Lynn Shurbet, dated October 19, 2005 recorded in Vol. 1773, Page 2, Real Property Records, and being on the West boundary line of 2,841 acre tract Save & Excepted by Timothy R. Taylor and wife. Charissa D Taylor, dated September 4, 2004, recorded in Vol. 1657, Page 62, Real Property Records:

B-10

THENCE S 88º 50’ 50“ W along the South boundary line of said 20.594 acre tract a distance of 517.81 feet to a 1/2” rebar set for a corner, and being on the Point of Beginning;

THENCE S 88º 50’ 50“ W along the South boundary line of said 20.594 acre tract a distance of 465.46 feet to a 1/2” rebar marked with a “COOPER” cap found on the most Southerly Southwest corner of said 20.594 acre tract, being on the North boundary line of a 6 acre tract described as First Tract in said Part Deed (v. 1773, p. 2), and being on the Southeast corner of a CALLED 2 acre tract described in a Deed to Mrs. Lida E. Moore, dated August 7, 1951, recorded in Vol. 185, Page 490, Deed Records;

THENCE in a Northerly direction as follows:

N 1º 41’ 12“ W a distance of 291.16 feet to a 1/2” rebar marked with a “COOPER” cap found on an internal angle corner of said 20.594 acre tract, and being on the Northeast corner of said CALLED 2 acre tract,

S 89º 13’ 00“ W a distance of 15.30 feet to a 1/2” rebar set, and

N 14º 03’ 27“ W a distance of 252.21 feet to a 1/2” rebar set on the South boundary line of a 2.637 acre Access Easement surveyed this 1st date of July, 2008 out of said 20.594 acre tract;

THENCE S 89º 50’ 49“ E along the south boundary line of said Access Easement a distance of 562.92 Feet to a 1/2” rebar set for a corner;

THENCE in a Southerly direction as follows:

S 0° 09’ 11“ W a distance of 47.43 feet to a 1/2” rebar set,

S 15° 11’ 37“ E a distance of 350.97 feet to a 1/2” rebar set,

S 74° 48’ 23“ W a distance of 132.04 feet to a 1/2” rebar set, and

S 12° 33’ 54“ E a distance of 106.42 feet to the PLACE OF BEGINNING and containing 6.467 acres of land, more or less.

Tract 2: Easement Estate

As established and defined by Easement Deed executed by Cathy Lynn Shurbet Parr to Mt. Pleasant Land Development, L.L.C., filed for record on February 7, 2008, and recorded under County Clerk’s File No. 200800000729, Real Property Records of Titus County, Texas.

Tract 3: Easement Estate

As established and defined by that Declaration of Access Easement executed by Mt. Pleasant Land Development LLC, a Texas limited liability company, effectively dated August 7, 2008, filed for record on August 18, 2008, and recorded under County Clerk’s File No. 200800004567, Real Property Records of Titus County, Texas.

Tract 4: Easement Estate

B-11

WHISPERING PINES

Exhibit A

Legal Description

BEING 4.96 acres of land located in the Alex Jordan Survey, A-262, City of Longview, Gregg County, Texas, said 4.96 acres being all of Lot 1 and part of Lot 2, Block 8215, Jefferson Village East, Unit 1 according to the Correction Plat of said Block 8215 recorded in Volume 1255, Page 307, Deed Records, Gregg County, Texas, also being a part of a called 14.48 acre tract recorded in Volume 2499, Page 327, Public Official Records, Gregg County, Texas, said 4.96 acres being more particularly described as follows:

BEGINNING at a 1/2” iron rod set at the intersection of the South ROW line of Eden Drive and the West ROW line of Alpine Road for corner, said corner being the Northeast corner of said Lot 1, Block 8215 of said Jefferson Village East - Unit 1, same being the Northeast corner of said called 14.48 acre tract and PLACE OF BEGINNING of the herein described 4.96 acre tract of land;

THENCE S 45 deg. 20 min. 00 sec. W, 329.80 feet along the West ROW line of said Alpine road, same being the East line of said Lot 1, Block 8215 and said called 14.48 acre tract to a 1/2 inch iron rod set in same for angle point of this tract;

THENCE S 47 deg. 50 min. 00 sec. W, 389.63 feet along the West ROW line of said Alpine Road, same being the East line of said Lot 2 and Lot 2, Block 8215, and called 7.24 acre tract to a 1/2 inch iron rod set in same for the Southwest corner of the herein described 4.96 acre tract of land;

THENCE N 42 deg. 10 min 00 sec. W, 250.00 feet to a 1/2 inch iron rod set for an angle point of this tract;

THENCE N 01 deg. 09 min. 00 sec. W, 245.50 feet to a ¹ / ₂ inch iron rod set in the South ROW line of said Eden Drive for corner, said corner also being in the North line of said Lot 2, Block 8215 and said 14.48 acre tract for the Northwest corner of the herein described 4.96 acre tract of land;

THENCE N 88 deg. 50 min. 26 sec. E, 88.21 feet along the South ROW line of said Eden Drive to a 1/2 inch iron rod set in same for angle point of this tract;

THENCE S 87 deg. 46 min. 01 sec. E, 84.50 feet along the South ROW line of said Eden Drive to a PK nail set in concrete for angle point of this tract;

THENCE S 86 deg. 06 min. 00 sec. E, 526.70 feet along the South ROW line of said Eden Drive to the PLACE OF BEGINNING and containing 4.96 acres of land.

SONGBIRD LODGE

Exhibit A

Legal Description

Tract 1:

All of that certain 4.00 acre tract, lot, or parcel of land being out of the Taylor Smith Survey No. 600, Abstract No. 821, being situated in the City of Brownwood, Brown County, Texas, 3.06895 miles, S 12°29’22.8” W, of the Court House of Brown County, Texas, and being 23.37513 miles, N 39 39°03’04,8” E, of the Geographical Center of the State of Texas, and being more particularly described by metes and bounds on Exhibit “A-1” attached hereto and made a part hereof.

Tract 2:

Those certain non-exclusive easements for ingress to and from Tract 1 as described herein and a recognized public roadway, and being described in three parcels as follows:

Parcel 1:

Along the Northwest 25 feet of what is depicted as “Alamo Street” on that certain plat prepared by George M. Amthor, Ill, R.P.L.S. dated August 23, 1991, which said plat is attached hereto as Exhibit “B” and made a part hereof beginning at the intersection of the centerline of the said “Alamo Street”, and continuing Northeasterly to the intersection of said centerline with the Northwest line of an unnamed street adjoining the 4.0 acre tract hereby conveyed along its Northeast line;

Parcel 2:

A 50 foot wide roadway along the Northeast line of the 4.0 acre tract hereby conveyed, the centerline of which begins at the intersection of the centerline of an unnamed street and the centerline of “Alamo Street” as shown on the said George M. Amthor, Ill, plat, and running South 21 degrees, 24 minutes, 00 seconds East 398.95 feet to the end of this; and

Parcel 3:

A 50 foot wide roadway along the Southwest line of the 4.0 acre tract hereby conveyed, the centerline of which begins at the intersection of the centerline of another unnamed street and the center line of the said “Alamo Street” as shown on the said George M. Amthor, Ill, plat, and running North 21 degrees, 19 minutes, 38 seconds, West 398.95 feet to the end of this.

EXHIBIT “A-1”

All of that certain 4.00 acre tract, lot, or parcel of land being out of the Taylor Smith Survey No. 600, Abstract No. 821, being situated in the City of Brownwood, Brown County, Texas, 3.06895 miles, S 12°29’22.8” W, of the Court House of Brown County, Texas, and being 23.37513 miles, N 39 39°03’04.8” E, of the Geographical Center of the State of Texas, and being the same land as conveyed by Deed from Howard Payne University to R. U. S. Inc, dated October 7, 1991, being of record in Volume 1091, Page 255, of the Real Property Records of Brown County, Texas, and being more particularly described by metes and bounds as follows:

BEGINNING at a 1/2” iron rod found in place in the intersection of the northerly line of Alamo Street and the Easterly line of Songbird Circle, being the SWC of said 4 acre tract, for the South West Corner of this;

THENCE North 21 degrees 30 minutes 06 seconds West, with the east line of said Songbird Circle, 373.75 feet to a 1/2” iron rod found in place, being the NWC of said 4 acre tract, and the SWC of same land as conveyed as a 3.155 acre tract, and described in a deed to Redstone Park L.P., dated April 5, 1996, being of record in Volume 1224, Page 827, of the Real Property Records of Brown County, Texas, for the North West Corner of this;

THENCE North 68 degrees 24 minutes 41 seconds East, with southerly line of said 3.155 acre tract, and the northerly line of said 4.00 acre tract, 465.67 feet to a 1/2” iron rod found in the Westerly line of said Songbird Circle, being the SEC of said 3.155 acre tract, and the NEC of said 4.00 acre tract, for the North East Corner of this;

THENCE South 21 degrees 36 minutes 46 seconds East, with the westerly line of said Songbird Circle, 374.14 feet to a 1/2” iron rod found at the intersection of the northerly line of said Alamo Street, being the SEC of said 4.00 acre tract, for the South East Corner of this;

THENCE South 68 degrees 27 minutes 33 seconds West, with the northerly line of said Alamo Street, 466.40 feet to the Place of Beginning and calculated to contain 4.00 acres of land in area

GRAHAM OAKS

EXHIBIT “A”

A tract of land containing 6.05 acres, more or less, being part of Block 114 out of the Ben Hill Survey, Abstract No. 137 and being the same tract as described in a deed from Graham Oaks, Inc. to Graham Oaks Associates, L.P., recorded in Volume 754, Page 153, of the Deed Records of Young County, Texas, being more particularly described as follows:

Beginning at a 5/8 inch red set in the north line of First Street and at the southeast corner of a 20 foot alley as shown on a plot of Morningside Addition to the city of Graham, recorded in Volume 1, Page 179, of the Plot Records of Young County, Texas, said iron rod being the southwest corner of the tract described in a deed from Graham Oaks, Inc., to Graham Oaks Associates, L.P. recorded in Volume 754, Page 153, of the Deed Records of Young County, Texas;

Thence with the east line of said alley, North 00 degrees 19 minutes 31 seconds East for a distance of 599.00 feet to an “X” set in concrete for corner in the south line of a called 8.5 acre tract described in a deed recorded in Volume 404, Page 538, of the Deed Records of Young County, Texas;

Thence with the south line of said 8.5 acre tract, South 89 degrees 40 minutes 29 seconds East for a distance of 4.40.00 feet to a 5/8 inch iron rod set for corner at the northwest corner of a called 47. 8 area tract;

Thence with the northernmost west line of said 47.8 acre tract, South 00 degrees 19 minutes 31 seconds West for a distance of 599.00 to a 5/8 iron rod set for corner in the north R.O.W. line of First Street;

Thence with the North R.O.W. line of First Street, North 89 degrees 40 minutes 29 seconds West for a distance of 440.00 feet to the point of beginning.

EXHIBIT C

GUARANTY

(See attached)

EXHIBIT D

FORM OF SPECIAL WARRANTY DEED

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

This instrument prepared by or under the supervision of

(and after recording should be returned to):

Arent Fox LLP

1675 Broadway

New York, NY 10019

Attn: Michael S. Blass, Esquire

Parcel I.D. No.

SPECIAL WARRANTY DEED

THAT , a (the “ Grantor” ), for and in consideration of the sum of Ten and No/100 Dollars ($10.00) cash and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, paid by , a (the “ Grantee” ), HAS GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents DOES GRANT, BARGAIN, SELL and CONVEY unto Grantee all of that certain tract or tracts of land (the “ Land ”) situated in Dallas County, Texas, and described on Exhibit “A” which is attached hereto and incorporated herein by reference for all purposes, together with all of Grantor’s right, title and interest in and to any easements, interests, benefits, privileges, rights and appurtenances pertaining to such Land, including any right, title and interest of Seller in and to the centerline of adjacent roads, streets, alleys or rights of way to the extent (but only to the extent) that the same relate to the Land (said Land, easements, interests, benefits, privileges, rights and appurtenances being herein collectively referred to as the “ Property” ).

This conveyance is made subject to the matters set forth on Exhibit “B ” attached hereto and incorporated herein by this reference for all purposes.

TO HAVE AND TO HOLD the Property unto Grantee, and Grantee’s successors and assigns forever, and Grantor does hereby bind Grantor, and Grantor’s successors and assigns, to WARRANT and FOREVER DEFEND, all and singular the Property unto Grantee and Grantee’s

successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof, by, through or under Grantor, but not otherwise, and subject, however, to the provisions contained herein.

IN WITNESS WHEREOF , Grantor has hereunto set its hand and seal as of the day and year first above written.


[ ]

By:

Name:

Title:


STATE OF		)
		) ss:
COUNTY OF		)

The foregoing instrument was acknowledged before me this day of , 20[ ] by , as of [ ], on behalf of the company. He/she is personally known to me or produced as identification.

[Notarial Seal]

Notary Public, State of

Print Name:

My Commission Expires:

EXHIBIT A

To Special Warranty Deed

LEGAL DESCRIPTION

[TO BE ADDED]

EXHIBIT B

To Special Warranty Deed

PERMITTED EXCEPTIONS

[TO BE ADDED]

EXHIBIT E

BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT


THE STATE OF		§
		§ KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF		§

That concurrently with the execution and delivery hereof, [ ] (“Assignor”), is conveying to [ ] (“Assignee”), by Special Warranty Deed (the “Deed”), those certain tracts of land more particularly described on Exhibit A attached to the Deed and made a part thereof for all purposes (the “Property”). Unless otherwise defined herein, all initially capitalized terms shall have the respective meanings ascribed to such terms in that certain Purchase Agreement dated , 2015, by and between Assignor and Assignee with respect to the conveyance of the Property.

It is the desire of Assignor hereby to assign, transfer and convey to Assignee all Improvements, Personal Property, and Intangible Property (collectively, the “Assigned Properties”).

NOW, THEREFORE, in consideration of the receipt of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, in hand paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged and confessed by Assignor, Assignor does hereby BARGAIN, ASSIGN, TRANSFER, SET OVER, CONVEY and DELIVER to Assignee, its successors, legal representatives and assigns, all of the Assigned Properties.

TO HAVE AND TO HOLD the Assigned Properties, together with any and all rights and appurtenance thereto in anywise belonging to Assignor unto Assignee, its successors and assigns FOREVER, and Assignor does hereby bind itself and its successors to WARRANT AND FOREVER DEFEND all and singular Assigned Properties unto Assignee, its successors and assigns, against every person lawfully claiming or to claim the same or any part thereof by, through or under Assignor, but not otherwise.

Assignor indemnifies Assignee from any claims applicable to the Assigned Properties with respect to the period prior to the date hereof. Assignee hereby agrees to indemnify, save and hold harmless Assignor from and against any and all losses, liabilities, claims, or causes of action (including reasonable attorneys’ fees) arising or accruing with respect to the Assigned Properties on or after the date hereof.

[Signature Page Follows]

IN WITNESS WHEREOF, the Assignor has executed this instrument as of the day of , 20[ ].

ASSIGNOR:

[ ]

By:

Print Name:

Title:

ASSIGNEE:

[ ]

By:

Print Name:

Title:

EXHIBIT F

FIRPTA AFFIDAVIT


THE STATE OF TEXAS		§
		§ KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF		§

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform (“Transferee”) that withholding of tax is not required upon the disposition of a U.S. real property interest by [ ](“Transferor”), Transferor hereby certifies the following:

Transferor is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

Transferor’s U.S. employer identification number is: ;

Transferor is not a “disregarded entity” as defined in IRS Regulation 1.1445-2(b)(iii); and

Transferor’s office address is .

Transferor understands that this certification may be disclosed to the Internal Revenue Service by the Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete, and I further declare that I have authority to sign this document.

EXECUTED as of (but not necessarily on) this day of , 20[ ].


TRANSFEROR:

[ ]

By:
Name:
Title:

SWORN TO AND SUBSCRIBED BEFORE ME this day of , 20[ ].

[Notarial Seal]

Notary Public, State of Texas

Print Name:

My Commission Expires:

EXHIBIT G

DISCLOSURE SCHEDULE

None .

Exhibit 10.31

MASTER LEASE

by and between

MRT of San Antonio TX – SNF I, LLC

MRT of San Antonio TX – SNF II, LLC

MRT of Graham TX – SNF, LLC

MRT of Kemp TX – SNF, LLC

MRT of Kerens TX – SNF, LLC

MRT of Brownwood TX – SNF, LLC

MRT of El Paso TX – SNF, LLC

MRT of Kaufman TX – SNF, LLC

MRT of Longview TX – SNF, LLC

MRT of Mt. Pleasant TX – SNF, LLC

(as “Landlord”)

and

GruenePointe 1 Graham, LLC,

GruenePointe 1 El Paso, LLC,

GruenePointe 1 Kerens, LLC,

GruenePointe 1 Casa Rio, LLC,

GruenePointe 1 River City, LLC,

GruenePointe 1 Brownwood, LLC,

GruenePointe 1 Longview, LLC,

GruenePointe 1 Kemp, LLC,

GruenePointe 1 Mt. Pleasant, LLC,

GruenePointe 1 Kaufman, LLC

(as “Tenant”)

Dated: July 29, 2015

MASTER LEASE

THIS MASTER LEASE (this “ Lease ”) made and entered into this 29 ^th day of July, 2015, by and between MRT of San Antonio TX - SNF I, LLC, MRT of San Antonio TX - SNF II, LLC, MRT of Graham TX - SNF, LLC, MRT of Kemp TX - SNF, LLC, MRT of Kerens TX - SNF, LLC, MRT of Brownwood TX - SNF, LLC, MRT of El Paso TX - SNF, LLC, MRT of Kaufman TX - SNF, LLC, MRT of Longview TX - SNF, LLC, and MRT of Mt. Pleasant TX - SNF, LLC, each a Delaware limited liability company (collectively, the “ Landlord ”), and GruenePointe 1 Graham, LLC, GruenePointe 1 El Paso, LLC, GruenePointe 1 Kerens, LLC, GruenePointe 1 Casa Rio, LLC, GruenePointe 1 River City, LLC, GruenePointe 1 Brownwood, LLC, GruenePointe 1 Longview, LLC, GruenePointe 1 Kemp, LLC, GruenePointe 1 Mt. Pleasant, LLC, and GruenePointe 1 Kaufman, LLC , each a Texas limited liability company (collectively referred to herein as the “ Tenant ”, and sometimes individually as a “Tenant”, as the context requires).

W I T N E S S E T H:

WHEREAS , Landlord has entered into a Purchase Agreement, dated July 29, 2015 (as the same may be amended from time to time, the “ Purchase Agreement ”), with GruenePointe Acquisition I, LLC (the “ Seller ”), to purchase the Leased Property, as defined below; and

WHEREAS , contemporaneously with the purchase and sale of the Leased Property, Landlord desires to lease the Leased Property to Tenant and Tenant desires to lease the Leased Property from Landlord; and

WHEREAS , as an inducement to Landlord to lease the Leased Property to Tenant pursuant to this Lease, Jerry Williamson, Horace Winchester, David E. Gunderson, Kenneth A. Kristofek, and Stanley K. Bradshaw III, GruenePointe Holdings, LLC, a Texas limited liability company (“ GP Holdings ”), GruenePointe Salvado, LLC, a Texas limited liability company (“ GP Salvado ”), and OnPointe Management, LLC, a Texas limited liability company (collectively, the “ Guarantors ”), have executed and delivered to Landlord that certain Guaranty Agreement, dated of even date herewith (the “ Guaranty Agreement ”), jointly and severally guarantying the performance of all of the obligations of Tenant under this Lease; and

WHEREAS , it is the parties’ intention to set forth their respective covenants and obligations in a single agreement, not merely as a matter of convenience, but because the leasing of the ten (10) properties comprising the Leased Property as an inseparable unit is a special and essential inducement to Landlord to enter into this transaction, and but for the leasing of such ten (10) properties together as an inseparable whole, Landlord would not have entered into this Lease; and

WHEREAS , the parties agree and acknowledge that the amount set forth herein as Rent (defined below) is calculated on the basis of leasing the said ten (10) properties together as a single, inseparable group and is non-allocable among the ten (10) properties, and that it would be impossible to allocate to any one or more of the properties a divisible portion of the Rent; and

WHEREAS , the parties agree and acknowledge and are forever estopped from asserting to the contrary that if, notwithstanding the provisions of these Recitals, this Lease were to be determined or found to be in any proceeding, action or arbitration under state or federal bankruptcy, insolvency, debtor-relief or other applicable laws to constitute multiple leases demising multiple properties, such multiple leases could not, by the debtor, trustee, or any other party, be selectively or individually assumed, rejected or assigned; and

WHEREAS , Tenant hereby acknowledges and agrees that Landlord, as consideration and inducement for Landlord leasing the Leased Property to Tenant, requires that this Lease provide that a default under all future lease agreements by and between an affiliate of Landlord, on the one hand, and an affiliate of Tenant, on the other hand (collectively, the “Other Leases”), shall constitute a default under this Lease and vice-versa and that without such a “cross default” provision Landlord would not lease the Leased Property to Tenant; and

WHEREAS , it is the parties’ intention and understanding that nothing in this Lease, including any rights of Landlord to inspect the Leased Property or gain access to any of Tenant’s information, shall constitute or be deemed to constitute a duty on the part of Landlord to provide for the safety and well being of any resident of the Facilities (as defined below), which shall be the sole and exclusive responsibility of Tenant.

NOW, THEREFORE , in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt, sufficiency and mutuality of which are hereby acknowledged, it is agreed as follows:

ARTICLE 1

DEFINITIONS

1.1 The terms defined in this Article shall, for all purposes of this Lease and all agreements supplemental hereto, have the meaning herein specified.

(a) “ Additional Rent ” shall mean, with respect to any Lease Year, an amount equal to twenty percent (20%) of the amount by which Subject Facility Revenue for such Lease Year exceeds the Subject Facility Revenue for the initial Lease Year.

(b) “ Adverse Event ” shall have the meaning ascribed to such term in Section 4.4 .

(c) “ Affiliate ” shall mean, with respect to any person, any person that, directly or indirectly, controls or is controlled by or is under common control with such person. For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests. For the purposes of this definition, “person” shall mean any natural person, trust, partnership, corporation, joint venture or other legal entity and shall exclude Granite Investment Group and related entities.

(d) “ Base Rent ” shall have the meaning ascribed to such term in Section 4.1 .

(e) “ Casualty ” shall have the meaning ascribed to such term in Section 11.3 .

(f) “ Closing ” shall have the meaning as defined in the Purchase Agreement.

(g) “ Closing Costs ” shall mean any and all costs incurred by Landlord (and not reimbursed by Tenant) in connection with Landlord’s investigation and acquisition of the Leased Property pursuant to the Purchase Agreement, including, without limitation, costs, fees and expenses relating to or incurred for broker fees, surveys, appraisals, reimbursement review, market studies, compliance reviews, environmental studies and investigations, engineering reports, title insurance, UCC searches, regulatory approval, change of ownership and attorneys’ fees.

(h) “ Closing Date ” shall have the meaning ascribed to such term in Section 33.1 .

(i) “ Commencement Date ” shall mean the date of the Closing under the Purchase Agreement.

(j) “ Consumer Price Index ” means the Consumer Price Index for All Urban Consumers, U.S. All Items (1982-1984=100), published by the Bureau of Labor Statistics, U.S. Department of Labor or any successor thereto (“ BLS ”). If the BLS changes the publication frequency of the Consumer Price Index so that a Consumer Price Index is not available to make a rent adjustment as specified herein, the rent adjustment shall be based on the percentage difference between the Consumer Price Index for the closest preceding month for which a Consumer Price Index is available and the Consumer Price Index for the comparison month as required by this Lease. If the BLS changes the base reference period for the Consumer Price Index from 1982-1984=100, the rent adjustment shall be determined with the use of such conversion formula or table as may be published by the BLS. If the BLS otherwise substantially revises, or ceases publication of, the Consumer Price Index, then a substitute index for determining rent adjustments, issued by the BLS or by a reliable governmental or other nonpartisan publication, shall be reasonably selected by Landlord.

(k) “ Default Rate ” shall have the meaning ascribed to such term in Section 10.1 .

(l) “ Demised Premises ” shall mean, collectively, the Land, the Facilities, any other improvements now or hereafter located on the Land, and all easements, tenements, hereditaments and appurtenances thereto.

(m) “ EBITDAR ” shall mean, for any period, (i) the aggregate net income of Tenant for such period, plus (ii) to the extent deducted in determining such aggregate net income, without duplication, (A) interest expense, (B) income taxes, (C) depreciation and amortization expenses, (D) rent and deferred rent expense for leases of real property, (E) all extraordinary expenses, including non-cash, or non-recurring losses and expenses, (F) non-cash compensation expenses arising from the issuance of stock, options to purchase stock, and stock appreciation rights and settlement costs and legal expenses related to the grant and exercise of stock options, and (G) non-recurring or special Tenant employee bonuses as well as non-recurring special corporate level bonuses, including expenses and employer taxes related to the payment of such bonuses, all as determined in accordance with GAAP.

(n) “ EBITDARM ” shall mean, for any period, EBITDAR for such period, plus, to the extent deducted in determining such EBITDAR, management fees.

(o) “ environmental laws ” shall have the meaning ascribed to such term in Section 34.2 .

(p) “ Facilities ” shall mean the skilled nursing facilities respectively situated on the Land and identified on Exhibit A hereto.

(q) “ Facility Property ” shall mean, with respect to any Facility, such Facility and the Land upon which it is situated.

(r) “ Financial Statements ” shall have the meaning ascribed to such term in Section 30.1 .

(s) “ First Extended Term ” shall have the meaning ascribed to such term in Section 3.3 .

(t) “ Fixed Charges ” means, for any period, the aggregate amount, on a consolidated basis, of (A) scheduled principal payments for such period in respect of indebtedness, excluding balloon payments and principal payments from time to time on any accounts receivable/payable working capital line of credit provided by a commercial lender, (B) scheduled payments (including but not limited to principal and interest payments) for such period related to equipment financing and/or capital leasing (to the extent not included in clause (A) above), (C) non-financed capital expenditures during such period, excluding construction in progress expenditures, (D) required payments during such period of interest on indebtedness, and (E) scheduled payments of rent for such period on any real estate leases and equipment operating leases.

(u) “ Guarantors ” shall have the meaning ascribed to such term in the recitals of this Lease.

(v) “ hazardous substance ” shall have the meaning ascribed to such term in Section 34.2 .

(w) “ Impositions ” shall have the meaning ascribed to such term in Section 4.3 .

(x) “ Initial Term ” shall have the meaning ascribed to such term in Section 3.1 .

(y) “ Intangibles ” shall have the meaning ascribed to such term in Section 33.1 .

(z) “ Land ” shall mean, collectively, all of the parcels of real property on which the Facilities are respectively located and which are more fully described on Exhibit B hereto.

(aa) “ Landlord ” shall have the meaning ascribed to such term in the introductory paragraph of this Lease.

(bb) “ Landlord Party ” shall have the meaning ascribed to such term in Section 24.1 .

(cc) “ Lease ” shall mean this Master Lease.

(dd) “ Lease Year ” shall mean a twelve (12) month period commencing on the date of the Closing, and on each anniversary of the Closing thereafter, except that if the Closing is other than the first day of a calendar month, then the first Lease Year shall be the period from the Closing through the date twelve (12) months after the last day of the calendar month in which the Closing occurs, and each subsequent Lease Year shall be the period of twelve (12) months following the last day of the prior Lease Year.

(ee) “ Leased Property ” shall mean, collectively, the Demised Premises and the Personal Property.

(ff) “ Material Adverse Change ” shall mean any change that (i) constitutes a material violation of any material Healthcare Law not cured within thirty (30) days, unless such violation is being contested or appealed by appropriate proceedings, or (ii) has materially impaired the ability of any Guarantor to perform the obligations set forth in the Guaranty, or (iii) has materially impaired the ability of the Tenant to perform its obligations or to consummate the transactions under this Lease.

(gg) “ Mortgage/Underlying Lease ” shall have the meaning ascribed to such term in Section 25.1 .

(hh) “ Mortgagee/Underlying Lessor ” shall have the meaning ascribed to such term in Section 25.1 .

(ii) “ Permitted Use ” means, as to each Facility Property, the operation of a skilled nursing facility licensed for the number of beds, and certified for the number of Medicare beds and for the number of Medicaid beds as indicated with respect to such Facility Property on Exhibit A hereto, as well as uses incidental thereto, all in full compliance with all rules, regulations and minimum standards applicable thereto, as prescribed by the State of Texas and such other governmental authorities having jurisdiction thereof, and for any other purpose mutually agreed upon in writing by Landlord and Tenant, and for no other purpose.

(jj) “ Personal Property ” shall have the meaning ascribed to such term in the recitals of this Lease.

(kk) “ Proper Successor ” shall have the meaning ascribed to such term in Section 32.5 of this Lease.

(ll) “ Purchase Agreement ” shall have the meaning ascribed to such term in the recitals of this Lease.

(mm) “ Purchase Price ” shall have the meaning as defined in the Purchase Agreement.

(nn) “ Rent ” shall mean, collectively, Base Rent and Additional Rent.

(oo) “ Second Extended Term ” shall have the meaning ascribed to such term in Section 3.4 .

(pp) “ Security Deposit ” shall have the meaning ascribed to such term in Section 23.3 .

(qq) “ Subject Facilities ” means the following Facilities: Songbird Lodge (Brownwood), River City Care Center (San Antonio), Kerens Care Center, and Graham Oaks Care Center.

(rr) “ Subject Facility Revenue ” shall mean, for any Lease Year, the aggregate gross patient care revenues derived by Tenant for such year in connection with the operation of the Subject Facilities, minus any and all Supplemental Management Fees derived by Tenant for such year in connection with the Subject Facilities.

(ss) “ Supplemental Management Fees ” shall mean any supplemental fees or payments received by Tenant in its capacity as manager of any Facility that, during the Term of this Lease, participates in the Minimum Payment Amount Program (MPAP), Quality Incentive Payment Program (QIPP) or other Intergovernmental Transfer (IGT) program as established by the Texas Health and Human Services Commission (HHSC), and which supplemental fees or payments are attributable to the supplemental payments received by such Facilities pursuant to such program.

(tt) “ Taking ” shall have the meaning ascribed to such term in Section 16.1 .

(uu) “ Taxes and Assessments ” shall have the meaning ascribed to such term in Section 6.1 .

(vv) “ Tenant ” shall have the meaning ascribed to such term in the introductory paragraph of this Lease.

(ww) “ Tenant’s Fixed Charge Coverage Ratio ” shall mean, for any period, the ratio of (i) the aggregate EBITDAR of Tenant for such period, to (ii) the aggregate Fixed Charges of Tenant for such period.

(xx) “Tenant’s Net Working Capital” shall mean, as of any date, the amount by which the aggregate current assets of Tenant as of such date exceed the aggregate current liabilities of Tenant as of such date, as determined in accordance with GAAP.

(yy) “ Tenant’s Net Worth ” shall mean, as of any date, members’ equity as of such date, as defined by accounting principles generally accepted in the United States.

(zz) “ Tenant’s Rent Coverage Ratio ” shall mean, for any period, the ratio of (i) the aggregate EBITDAR of Tenant for such period, to (ii) Base Rent for such period.

(aaa) “ Term ” shall have the meaning ascribed to such term in Section 3.7 .

(bbb) “ Test Date ” means the last day of each calendar quarter during the Term, beginning with the first such date to occur that is at least three (3) months after the Commencement Date.

(ccc) All other terms shall be as defined in the other sections of this Lease.

ARTICLE 2

DEMISED PREMISES AND PERSONAL PROPERTY

2.1 For and in consideration of the Base Rent to be paid and the other covenants and agreements hereinafter to be kept and performed by the parties, Landlord does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, the Leased Property for the Term, for use and operation therein and thereon for the Permitted Use.

2.2 Except in the circumstance of any unavoidable Casualty (as defined in Section 11.3 herein), throughout the Term, Tenant shall use or cause the Demised Premises to be used continuously for the Permitted Use.

2.3 Upon the expiration or termination of this Lease for any reason, the Demised Premises, with the improvements located therein and all the Personal Property shall be surrendered in good order, condition and repair (ordinary wear and tear excepted).

2.4 Landlord and Tenant agree that this Lease constitutes a single and indivisible lease as to all of the Demised Premises collectively and shall not be subject to severance or division unless and to the extent, pursuant to Section 18.5 , Landlord elects to effect a partial assignment of this Lease. In furtherance of and subject to the foregoing, Landlord and Tenant each (a) waives any claim or defense based upon the characterization of this Lease as anything other than a master lease of all the Demised Premises and irrevocably waives any claim or defense that asserts that this Lease is anything other than a master lease, (b) covenants and agrees that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Premises, (c) stipulates and agrees not to challenge the validity, enforceability or characterization of this Lease of the Demised Premises as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Premises, and (iv) shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Premises, if, and to the extent that, any challenge occurs. To the extent that legal, tax or title insurance requirements in consummating the purchase of the Demised Premises by Landlord or leasing the Demised Premises to Tenant, may require, or may have required, individual purchase price allocations (including allocations of values for individual state transfer tax purposes and title insurance coverage amounts) or individual rent allocations (including allocations of rents in

certain states for tax purposes), Landlord and Tenant agree that such individual allocations are solely to comply with legal, tax or title insurance requirements, and shall not be used or construed, directly or indirectly, to vary the intent of Landlord and Tenant that this Lease constitutes a single and indivisible lease of all the Demised Premises collectively and is not an aggregation of separate leases.

ARTICLE 3

TERM OF LEASE

3.1 Except as expressly provided below, the initial term of this Lease with respect to any Leased Property (the “ Initial Term ”) shall commence on the Commencement Date and shall expire on the last day prior to the fifteenth (15th) anniversary of the Commencement Date. Notwithstanding anything contained herein to the contrary, if the Commencement Date occurs on any day other than the first day of a calendar month, the Initial Term shall commence on the Commencement Date and shall expire on the fifteenth (15th) anniversary of the last day of the calendar month in which the Commencement Date occurs, unless terminated earlier as provided for herein. Following the occurrence of the Commencement Date, Landlord and Tenant shall jointly execute a Declaration, in form and substance reasonably satisfactory to the parties, setting forth the calendar date of the Commencement Date

3.2 Tenant and Landlord hereby agree that this Lease, the obligations of Landlord and the rights and obligations of Tenant to lease the Leased Property pursuant to this Lease are subject to and conditioned upon the purchase of the Leased Property by Landlord.

3.4 In the event that Tenant shall have exercised the option contained in Section 3.3 above, Tenant shall have and is hereby granted the right and option to extend this Lease for an additional extended term of five (5) Lease Years (the “ Second Extended Term ”) upon and subject to all the terms, provisions and conditions hereof, except that Base Rent payable with respect to each Lease Year of the Second Extended Term shall be the amount set forth in Section 4.1 . The first Lease Year of the Second Extended Term shall commence upon the day next following the expiration of the First Extended Term.

3.5 The options granted pursuant to Sections 3.3 , 3.4 and 3.5 above may be exercised only if (a) there is no uncured Event of Default under this Lease at the time of exercise and at the time of the expiration of the Initial Term, the First Extended Term or the Second Extended Term, as applicable, and (b) there is no uncured Event of Default under the Other Leases at the time of exercise and at the time of the expiration of the Initial Term or the First Extended Term, as applicable. Said options shall be exercised by Tenant giving to Landlord written notice of Tenant’s election to do so not less than nine (9) full calendar months prior to the expiration of the Initial Term or the First Extended Term, as applicable.

3.6 The Initial Term, as it may be extended by the First Extended Term and the Second Extended Term, is hereinafter referred to as the “ Term ”.

ARTICLE 4

RENT

4.1 During the Term, Tenant shall pay to Landlord rental (“ Base Rent ”) for the Demised Premises and the Personal Property, over and above all other and additional payments to be made by Tenant as provided in this Lease, in an amount per annum equal to Twelve Million Three Hundred Twenty Five Thousand and no/100 Dollars ($12,325,000.00). On the first day of the second Lease Year, and on the first day of each Lease Year thereafter, through the Initial Term, the First Extended Term, and the Second Extended Term, as applicable, the Base Rent shall increase over the Base Rent as in effect as of the last day of the immediately preceding Lease Year by two percent (2.0%).

4.2 Base Rent shall be paid by Tenant to Landlord in equal monthly installments, together with all tax and insurance deposits required pursuant to Section 7.1 , on the Commencement Date and thereafter on the first day of each calendar month in advance. In the event the date of the Closing shall be other than the first day of the month, Tenant shall pay to Landlord, on such date, a pro rata portion of the Base Rent together with a pro rata portion of all tax and insurance deposits required pursuant to Section 7.1 , for the month in which the Closing occurs. Unless otherwise notified in writing, all payments of Rent shall be made payable to Landlord by wire transfer to the account specified on Exhibit C attached hereto, or to such other account as Landlord may designate in writing from time to time.

4.3 Within sixty (60) days following the end of the second Lease Year, and within sixty (60) days following the end of each Lease Year thereafter, Tenant shall pay to Landlord, in addition to the Base Rent, the Additional Rent for the Lease Year then ended; provided however, that if the Additional Rent for any Lease Year shall be in an amount equal to at least Eight Hundred Seventy Thousand and No/100 Dollars ($870,000.00), then (i) the payment of such Additional Rent for such Lease Year shall constitute the final payment of Additional Rent under this Lease, and (ii) the Base Rent as in effect as of the first day of the next ensuing Lease Year (after giving effect to the 2.0% escalation thereof) shall be increased by an amount equal to such final installment of Additional Rent.

4.4 This Lease is and shall be deemed and construed to be a “pure net” or “triple-net” lease and the Base Rent specified herein shall be net to Landlord in each year during the Term of this Lease. Landlord shall have no cost obligation, responsibility or liability whatsoever for repairing, operating, maintaining or owning the Premises during the Term of this Lease. Tenant does hereby indemnify Landlord against any and all such costs, expenses and obligations. Accordingly, Tenant shall pay Base Rent to Landlord during the Term free of any deduction, diminution or payment obligation on the part of Landlord for real property taxes and assessments, sales and use taxes, and all other taxes, assessments, utility charges, operating expenses, refurnishings, insurance premiums and any other charge or expense, levy, fine, fee or cost in connection with the Premises and the ownership, operation and maintenance, repair and replacement thereof, including but not limited to all expenses and charges, whether for upkeep, maintenance, operation, repair, refurnishing, refurbishing, restoration, replacement, insurance

premiums, taxes, utilities, occupational licenses and other permits and other operating or other charges of a like nature or otherwise, whether known or unknown, ordinary or extraordinary, foreseen or unforeseen, anticipated or unanticipated, and in effect now or enacted hereafter (the foregoing collectively, “ Impositions ”).

4.5 Tenant recognizes and acknowledges that Landlord and/or certain beneficial owners of Landlord may from time to time qualify as real estate investment trusts pursuant to Sections 856 et seq. of the Internal Revenue Code of 1986, as amended, and that avoiding (a) the loss of such status, (b) the receipt of any income derived under any provision of this Lease that does not constitute “rents from real property” (in the case of real estate investment trusts), and (c) the imposition of income, penalty or similar taxes (each an “ Adverse Event ”) is of material concern to Landlord and such beneficial owners. In the event that this Lease or any document contemplated hereby could, in the reasonable opinion of counsel to Landlord, result in or cause an Adverse Event, Tenant agrees to cooperate with Landlord in negotiating an amendment or modification thereof and shall at the request of Landlord execute and deliver such documents reasonably required to effect such amendment or modification. Any amendment or modification shall be structured so that the economic results to Landlord and Tenant shall be substantially similar to those set forth in this Lease without regard to such amendment or modification. Without limiting any of Landlord’s other rights pursuant to this provision, Landlord may waive the receipt of any amount payable to Landlord hereunder and such waiver shall constitute an amendment or modification of this Lease with respect to such payment.

4.6 Notwithstanding any language contained in this Lease to the contrary, the parties agree and acknowledge that the amount set forth as Base Rent is calculated on the basis of leasing the Leased Property together as a single, inseparable group. The parties agree that the Base Rent payable hereunder is non-allocable among the Leased Properties. Further notwithstanding any language contained in this Lease to the contrary, the parties further agree and acknowledge that it would be impossible to allocate to any one or more of the Leased Properties a divisible portion of the Base Rent. Further notwithstanding any language contained in this Lease to the contrary, Tenant agrees and acknowledges that the leasing of the Leased Property as an inseparable whole was accepted by Landlord as a special and essential inducement to enter into this transaction, and but for Tenant’s agreement to lease the Leased Property as an inseparable whole, Landlord would not have entered into this Lease.

4.7 This Lease is a “true lease” and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement or other financing or trust arrangement; the economic realities of this Lease are those of a true lease; and the business relationship created by this Lease and any related documents is solely that of a long-term commercial operating lease between Landlord and Tenant and has been entered into by both parties in reliance on the economic and legal bargains contained herein. In no event shall Tenant or any affiliate of Tenant claim depreciation, amortization or interest deductions as owner of any property for United States federal, state or local tax purposes (except as alterations not financed by Landlord). The Term is less than the remaining economic life of the Leased Property.

ARTICLE 5

LATE CHARGES AND INTEREST

5.1 Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges. Accordingly, if any installment of Base Rent shall not be received by Landlord when such amount shall be due, then without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default or breach with respect to any unpaid overdue amounts, nor prevent Landlord from exercising any of the other rights and remedies granted under this Lease, at law or in equity.

5.2 Any Base Rent or other amounts payable by Tenant to Landlord under this Lease that are not paid on the due date shall bear interest at the Default Rate from the due date until paid.

ARTICLE 6

PAYMENT OF TAXES AND ASSESSMENTS

6.1 Tenant will pay or cause to be paid, as provided herein, thirty (30) days before any fine, penalty, interest or cost may be added thereto for the non-payment thereof (or sooner if elsewhere herein required), all taxes assessed or levied by government (including but not limited to real estate taxes, ad valorem taxes, school taxes, assessments and personal property, intangible and use taxes, if any, imposed upon the Leased Property), assessments, licenses and permit fees, bed taxes, charges for public utilities imposed upon the Leased Property, and all governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever that during the Term may be assessed, levied, confirmed, imposed upon or become due and payable out of or in respect of, or become a lien on the Leased Property and/or Personal Property or any part thereof (hereinafter collectively referred to as “ Taxes and Assessments ”).

6.2 Any Taxes and Assessments relating to a fiscal period of any authority, a part of that is included within the Term and a part of which is included in a period of time before or after the Term, shall be adjusted pro rata between Landlord and Tenant and each party shall be responsible for its pro rata share of any such Taxes and Assessments.

6.3 Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or capital levy, franchise, estate, succession or inheritance taxes of Landlord.

6.4 If any income, profits or revenue tax shall be levied, assessed or imposed upon the income, profits or revenue arising from Base Rent payable hereunder, partially or totally in lieu of or as a substitute for real estate or personal property taxes imposed upon the Leased Property, or otherwise, then Tenant shall be responsible for the payment of such tax.

ARTICLE 7

DEPOSITS FOR TAXES, ASSESSMENTS AND INSURANCE

7.1 Tenant shall be required to make deposits for Taxes and Assessments and, upon notice to Tenant, insurance premiums, and will make monthly deposits with Landlord, of an amount equal to one-twelfth (1/12) of the Taxes and Assessments or such greater amount as may be required by any Mortgage/Underlying Lease, and if Landlord exercises its option to require deposits for insurance premiums, an amount equal to one-twelfth (1/12) of the annual premiums for insurance on the Leased Property. Said deposits shall be due and payable on the first day of each month, shall not bear interest and shall be held, at Landlord’s option, by Landlord and/or Mortgagee/Underlying Lessor to pay the Taxes and Assessments and insurance premiums as they become due and payable. If the total of the monthly payments as made under this Article shall be insufficient to pay the Taxes and Assessments and insurance premiums when due, then Tenant shall on demand pay Landlord the amount necessary to make up the deficiency.

7.2 Any Taxes and Assessments relating to a fiscal period of any authority, a part of which is included within the Term and a part of which is included in a period of time after the Term, shall be adjusted pro rata between Landlord and Tenant and each party shall be responsible for its pro rata share of any such Taxes and Assessments.

ARTICLE 8

OCCUPANCY

8.1 During the Term, the Facilities demised hereunder shall be used and occupied by Tenant for the Permitted Use. Tenant shall at all times maintain in good standing and in full force and effect all the licenses, certifications and provider agreements issued by the State of Texas and any other applicable state or federal governmental agencies, permitting the operation of the Demised Premises for the Permitted Use. Tenant shall at all times use commercially reasonable efforts to maximize the number of occupied beds at the Demised Premises. Without Landlord’s prior written consent, which Landlord may withhold in its sole and absolute discretion, Tenant shall not apply for, or consent to, any reduction in the number of state licensed beds or Medicaid and Medicare certified beds at the Demised Premises.

8.2 Tenant will not suffer any act to be done or any condition to exist on the Demised Premises or any portion thereof that is unlawful, known to be dangerous or that may void or make voidable any insurance then in force on the Demised Premises or any portion thereof.

8.3 Upon expiration or termination of this Lease for any reason, Tenant will return to Landlord the Demised Premises, with the improvements located therein and all the Personal Property (i) in good order, condition and repair, reasonable wear and tear excepted, and (ii) qualified and sufficient for licensing and certification by all governmental agencies having jurisdiction over the Demised Premises for the Permitted Use with licenses, certifications and provider agreements in full force and good standing.

ARTICLE 9

INSURANCE

9.1 Tenant shall, at its sole cost and expense, during the term of this Lease, maintain property and casualty insurance with extended coverage endorsement on the Leased Property. Each carrier providing any insurance, or portion thereof, required by this Article shall be reasonably acceptable to Landlord, shall have the legal right to conduct its business in the jurisdiction in which the Leased Property is located, and shall have a claims paying ability rating by S&P of not less than “A-” and an A.M. Best Company, Inc. rating of not less than “A” and financial size category of not less than “IX”.

9.2 Tenant shall, at Tenant’s sole cost and expense, cause to be issued and shall maintain during the entire Term of this Lease:

(a) Property insurance provided by a Causes of Loss-Special Form, which insurance shall include an endorsement for building ordinance/demolition/increased cost of construction. Such insurance shall, at all times, be maintained in an amount equal to the full replacement cost of the Demised Premises. Such insurance shall, at all times, also be maintained in the full replacement cost of the Personal Property located at or used in connection with the Demised Premises. As used herein, the term “full replacement cost” shall mean coverage for the actual replacement cost of the Demised Premises and such amount may be determined annually by a qualified appraiser on behalf of the Landlord, at Landlord’s expense. The term “full replacement cost” shall also mean coverage for the actual replacement cost of the Personal Property located at or used in connection with the Demised Premises. Upon written request by Tenant, Landlord will provide Tenant with information in its possession that is reasonably necessary to establish the value of the Leased Property or any portion thereof. Such insurance shall at all times be payable to Landlord and Tenant as their interest may appear and shall contain a loss payable clause to the holder of any mortgage/deed of trust or lessor under any leasehold estate superior to Landlord to which this Lease shall be subject and subordinate, as said mortgagee’s/beneficiary’s/senior lessor’s interest may appear.

(c) If either required by any Mortgagee/Underlying Lessor or if the Demised Premises are located in a flood zone or earthquake zone, as applicable, Flood and Earthquake insurance for the Demised Premises in an amount not less than the replacement cost of the Leased Property, as determined by Landlord.

(d) Commercial general liability insurance naming Landlord and Tenant as insured, and such other parties as Landlord shall request as additional insureds, and insuring against claims for bodily injury or property damage occurring upon, in or about the Demised Premises, or in or upon the streets, sidewalks, passageways and areas adjoining the Demised Premises, such insurance to afford protection for the Demised Premises with limits of not less than One Million and 00/100 Dollars ($1,000,000) per each occurrence and Three Million and 00/100 Dollars ($3,000,000) aggregate per location;

(e) Nursing Home or Long-Term Care Professional Liability insurance with limits of not less than One Million and 00/100 Dollars ($1,000,000) per each occurrence and Three Million and 00/100 Dollars ($3,000,000) aggregate per location. Coverage should be on an occurrence basis. If coverage is on a Claims Made basis, Tenant is responsible for purchasing extended reporting-period (tail) coverage providing protection for Landlord for the applicable statute of limitations;

(f) Automobile liability insurance with respect to each motor vehicle owned or operated by Tenant, with limits of not less than One Million and 00/100 Dollars ($1,000,000) per each occurrence and Three Million and 00/100 Dollars ($3,000,000) aggregate;

(g) Umbrella general and professional liability coverage with a limit of not less than Five Million and 00/100 Dollars ($5,000,000); and

(h) Worker’s compensation insurance or other similar insurance that may be required by governmental authorities or applicable legal requirements in an amount not less than the minimum required by law.

9.3 All policies of insurance shall:

(a) (i) name Tenant as the insured and Landlord and Landlord’s Lenders as additional insureds, as their interests may appear, and (ii) include primary coverage in favor of all additional insureds (and with provisions that any other insurance carried by any additional insured or Landlord shall be non-contributing and that naming Landlord and the additional parties listed above in this Section as additional insureds shall not negate any right Landlord or such parties would have had as claimants under the policy if not so designated); provided that the business interruption insurance required pursuant to this Article 9 shall name Landlord and Landlord’s Lenders as loss payees.

(b) provide that the beneficial interest of Landlord in such policies shall be fully transferable;

(c) provide that they shall not be canceled, terminated, reduced or materially modified without at least thirty (30) days prior written notice to Landlord;

(d) include a standard mortgagee clause in favor of any mortgagee/beneficiary/senior lessor and shall contain, if obtainable, a waiver of the insurer’s right of subrogation against funds paid under the standard mortgagee endorsement that are to be used to pay the cost of any repairing, rebuilding, restoring or replacing;

(e) provide that they are being issued on a primary, non-contributory basis, and with respect to any umbrella or “excess coverage” policy, such shall specifically provide that it is primary vis-a-vis any insurance policies carried by Landlord or any of Landlord’s affiliates; and

(f) be subject only to such deductibles or retention amounts as shall reasonably be acceptable to Landlord.

9.4 An original Certificate of Insurance and Evidence of Property Coverage for all insurance policies required by this Article shall be delivered to Landlord at least five (5) days prior to the Commencement Date and replacement Certificates of Insurance and Evidence of Property Coverage at least thirty (30) days prior to the date of expiration. From time-to-time immediately after Landlord’s request thereof, Tenant shall deliver to Landlord copies of all insurance policies then being carried by Tenant pursuant to these insurance requirements.

9.5 Tenant shall at all times keep in effect business interruption insurance with a loss of rents endorsement naming Landlord as an insured in an amount at least sufficient to cover each of the following for the period of the next succeeding twelve (12) months following the occurrence of the business interruption:

(a) The aggregate of the cost of all taxes and assessments due for such twelve (12) month period;

(b) The cost of all insurance premiums for insurance required to be carried by Tenant for such twelve (12) month period; and

All proceeds of any business interruption insurance shall be applied, first, to the payment of any and all Base Rent payments for such twelve (12) month period; second, to the payment of any taxes and assessments and insurance deposits required for such twelve (12) month period; and, thereafter, after all necessary repairing, rebuilding, restoring or replacing has been completed as required by the pertinent provisions of this Lease and the pertinent sections of any mortgage/deed of trust/senior lease, any remaining balance of such proceeds shall be paid over to Tenant.

9.6 From time to time, Landlord or any mortgagee/beneficiary/senior lessor may reasonably require Tenant to change the amount or type of insurance, or to add or substitute additional coverages, required to be maintained by Tenant hereunder.

9.7 In the event the amount of any casualty insurance proceeds exceed One Hundred Fifty Thousand and No/100 Dollars ($150,000), such insurance proceeds as may be paid to Tenant and Landlord shall be deposited with Landlord to be held and disbursed for the repairing, rebuilding, restoring or replacing of the Demised Premises or any portion thereof, or any improvements from time to time situated thereon or therein, subject to the pertinent provisions of any Mortgage/Underlying Lease and in accordance with the provisions of this Lease.

No sums shall be paid by Landlord toward such repairing, rebuilding, restoring or replacing unless it shall be first made to appear to the reasonable satisfaction of Landlord that the amount of money necessary to provide for any such repairing, rebuilding, restoring or replacing (according to any plans or specifications that may be adopted therefor) in excess of the amount received from any such insurance policies has been expended or provided by Tenant for such repairing, rebuilding, restoring or replacing, and that the amount received from such insurance policies is sufficient to complete such work. In the event there is any amount required in excess

of the amount received from such insurance policies, Tenant shall deposit such excess funds with Landlord so that the total amount available will be sufficient to complete such repairing, rebuilding, restoring or replacing in accordance with the provisions of any Mortgage/Underlying Lease and any plans and specifications submitted in connection therewith, free from any liens or encumbrances of any kind whatsoever and the funds held by Landlord shall be disbursed only upon presentment of architect’s or general contractor’s certificates, waivers of lien, contractor’s sworn statements, and other evidence of cost and payments as may be reasonably required by Landlord or any Mortgagee/Underlying Lessor.

ARTICLE 10

LANDLORD’S OR MORTGAGEE/UNDERLYING LESSOR’S RIGHT TO PERFORM

10.1 Should Tenant fail to pay any amounts or perform any of its covenants herein agreed to be paid or performed, and such failure continues beyond any applicable cure periods set forth in this Lease with respect thereto, Landlord may, but shall not be required to, make such payment or perform such covenants, and all sums so expended by Landlord thereon shall immediately be payable by Tenant to Landlord, with interest thereon at the Default Rate, from date thereof until paid, and in addition, Tenant shall reimburse Landlord for Landlord’s reasonable expenses in enforcing or performing such covenants, including reasonable attorney’s fees. Any such costs or expenses incurred or payments made by Landlord shall be payable by Tenant and collectible as such by Landlord.

10.2 Performance of, and/or payment made, to discharge said Tenant’s obligations shall be optional with Landlord and such performance and payment shall in no way constitute a waiver of, or a limitation upon, Landlord’s other rights hereunder.

10.3 Tenant hereby acknowledges and agrees that any Mortgagee/Underlying Lessor shall have the right but not the obligation to perform any covenants and pay any amounts that Tenant has failed to perform or pay as required under the terms of this Lease but only to the extent such Mortgagee/Underlying Lessor is entitled under the terms of its Mortgage/Underlying Lease.

ARTICLE 11

REPAIRS AND MAINTENANCE; CASUALTY

11.1 Throughout the Term, Tenant, at its sole cost and expense, will keep and maintain, or cause to be kept and maintained, the Leased Property (including without limitation the sidewalks, alleyways, passageways, vacant land, parking spaces, curb cuts, and curbs adjoining the Demised Premises) in good order and condition (ordinary wear and tear excepted subject to Tenant’s obligation to repair and replace the same in accordance with the terms of this Lease) without waste, and Tenant will make or cause to be made, as and when the same shall become necessary, all structural and nonstructural, exterior and interior, replacing, repairing and restoring necessary to comply with the above requirements. All replacing, repairing and restoring required of Tenant shall be new and (in the reasonable opinion of Landlord), to the extent reasonably available, of equivalent quality to the property being repaired or replaced, and shall be in compliance with all standards and requirements of law, licenses and municipal ordinances necessary to operate the Demised Premises for the Permitted Use. Any items of

Personal Property that are uneconomical to repair shall be replaced by new items or newly refurbished items that, to the extent reasonably available, are of equivalent quality to the Personal Property being repaired or replaced and in good working order, and all replacement items shall become part of the Personal Property. No items of Personal Property shall be removed from the Demised Premises except in connection with repair or replacement of such items. In performing any such repairs, Tenant shall comply in all respects with Section 14.1 , and shall, upon request from Landlord, deliver to Landlord evidence satisfactory to Landlord of such compliance, including, without limitation, copies of lien waivers and/or paid invoices for all such repairs.

11.2 Replacement Reserve .

(a) Tenant shall establish and maintain in effect throughout the Term hereof a cash reserve (the “ Replacement Reserve ”) in an amount equal to $500 per licensed bed for each of the Facilities, which amount shall be funded by Tenant and held by GP Salvado in a cash account on its books and records, for the payment of costs and expenses associated with capital improvements, repairs and replacements of every kind and nature to be performed at the Facilities (“ Capital Improvements ”), and for no other purpose. On or before the last day of each Lease Year, Tenant shall deposit into the Replacement Reserve such additional amounts as may be necessary to replenish any amounts drawn from the Replacement Reserve during such Lease Year. Disbursements may be made from the Replacement Reserve only upon written authorization from Landlord in accordance with this paragraph. So long as no Event of Default has occurred and is continuing, and no event or circumstance exists which, with the giving of notice, the passage of time or both, would become an Event of Default, Landlord shall authorize disbursement to Tenant from the Replacement Reserve (but in no event to exceed amounts on deposit in the Replacement Reserve), within ten (10) business days after Tenant’s written request (and provision to Landlord of any supporting documentation reasonably required by Landlord), the costs and expenses incurred installing or constructing any Capital Improvements, provided such written notice includes a detailed description of the Capital Improvements installed or constructed together with an invoice for the work done. With each draw request, Tenant will deliver to Landlord (i) a certification by Tenant that the work for which the draw to be funded has been completed in accordance with applicable legal requirements, and (ii) such additional supporting evidence as may be requested by Landlord in its reasonable judgment, including such items as invoices, receipts or other evidence verifying the cost of such work, together with affidavits and/or lien waivers from those providing work, materials or supplies for such portion of the work (provided it shall not be a requirement that Tenant shall have made any payment on such invoice, unless necessary to procure the required lien waiver). Tenant will additionally furnish to Landlord evidence that all necessary or required approvals or consents from governmental authorities have been obtained. In authorizing any disbursement from the Replacement Reserve, Landlord shall be entitled to rely on Tenant’s written request and supporting documentation without any inquiry into the accuracy, validity or contestability of any such amount or the nature or necessity of the materials provided or the work performed. Landlord may, at any time and from time to time, but shall have no obligation to, make or cause to be made inspections of any Facility. In the event that any inspection report from any such inspection reasonably recommends that Capital Improvements are required or anticipated that are the obligation of Tenant in accordance the terms of this Lease, Landlord shall provide Tenant with a written description of such Capital Improvements and Tenant shall deposit the cost of

same into the Replacement Reserve and then complete those Capital Improvements to the reasonable satisfaction of Landlord as expeditiously as is reasonably practicable under the circumstances after the receipt of such description from Landlord.

(b) It is specifically hereby stipulated and agreed that notwithstanding the preceding provisions of this Section 11.2 , the management, uses and disbursement procedures and requirements of the Replacement Reserve may be taken over by a Facility Mortgagee, and Tenant agrees to negotiate in good faith any changes to this Section 11.2 as may be reasonably requested by a Facility Mortgagee in such event and to pay the reasonable costs of the Facility Mortgagee in processing draw requests.

(c) Provided that no Event of Default, exists at the expiration of this Lease, and Tenant has paid all sums to Landlord which Tenant is required to pay prior to the expiration of this Lease and there is not otherwise any term, covenant or condition which is required to be performed by Tenant as of the expiration of this Lease, then any portion of the Replacement Reserve then remaining on deposit with Landlord shall be returned to Tenant after delivery of exclusive possession of the Demised Premises to Landlord. In the event of the sale of the Demised Premises and the purchaser’s assumption of Landlord’s obligations hereunder, Landlord shall have the right to transfer the Replacement Reserve to the purchaser, and Landlord shall thereupon be deemed to be released by Tenant from all liability for the return of such Replacement Reserve, and Tenant agrees to look solely to the new landlord for the return of said Replacement Reserve. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the Replacement Reserve to a new landlord. Tenant further covenants that it will not assign or encumber the monies deposited herein as the Replacement Reserve and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

11.3 In the event that any part of the improvements located on the Demised Premises or the Personal Property shall be damaged or destroyed by fire or other casualty (any such event being called a “ Casualty ”), Tenant shall promptly and with all due diligence, but in any event on or before one year after the date of such Casualty, replace, repair and restore the same as nearly as possible to the condition it was in immediately prior to such Casualty, in accordance with all of the terms, covenants and conditions and other applicable requirements of this Lease and any Mortgage/Underlying Lease in the event of such Casualty, whether or not the insurance proceeds or other compensation are sufficient to pay the cost of such restoration and repair. The Demised Premises and the Personal Property shall be so replaced, repaired and restored as to be of at least equal value and substantially the same character as prior to such Casualty. Tenant shall submit to Landlord for Landlord’s prior written approval plans and specifications for any such restoring, replacing or repairing, and Tenant shall immediately select an independent architect approved by Landlord and any Mortgagee/Underlying Lessor, who shall be in charge of such repairing, restoring and replacing. Without limitation of Landlord’s rights hereunder, there shall be the following additional conditions precedent to any disbursement of insurance proceeds: (i) at the time of each and every disbursement there shall exist no Event of Default under this Lease, and (ii) that Landlord and Mortgagee/Underlying Lessor, if applicable, shall have approved all plans and specifications for any proposed repair or restoration. Tenant covenants that it will give to Landlord prompt written notice of any Casualty affecting the Leased Property.

11.4 Provided that there shall not exist an Event of Default under this Lease, Tenant shall have the right, at any time and from time to time, to remove and dispose of any Personal Property that may have become obsolete or unfit for use, or that is no longer useful in the operation of the Demised Premises, provided further that Tenant promptly replaces any such Personal Property so removed or disposed of with other personal property free of any security interest, lien or encumbrance. Said replacement Personal Property shall be of the same character and at least equal usefulness and quality to such Personal Property so removed or disposed of and such replacement Personal Property shall automatically become the property of and shall belong to Landlord, and Tenant shall execute such bills of sale or other documents reasonably requested by Landlord to vest the ownership of such Personal Property in Landlord. Notwithstanding anything to the contrary in this Lease, there shall be no abatement or other adjustment of Base Rent as a result of such Casualty.

ARTICLE 12

ALTERATIONS AND DEMOLITION

12.1 Tenant will not remove or demolish any improvement or building that is part of the Demised Premises or any portion thereof or allow it to be removed or demolished, without the prior written consent of Landlord. Tenant further agrees that it will not make, authorize or permit to be made any changes or alterations in or to the Demised Premises without first obtaining Landlord’s written consent thereto. As used herein, the term “changes or alterations” shall not include routine maintenance, upkeep or upgrades, such as painting, wallpapering, installation of flooring, installation or replacement of HVAC systems and controls, roof repair or replacement, non-structural energy upgrades, upgrades and changes mandated by law or the orders of any governmental agency having jurisdiction of the Demised Premises, and similar changes; it shall include, however, structural changes and building additions. All alterations, improvements and additions to the Demised Premises shall be of first-class quality and in good working order, in the reasonable opinion of Landlord, and shall become the property of Landlord and shall meet all building and fire codes, and all other applicable codes, rules, regulations, laws and ordinances.

ARTICLE 13

COMPLIANCE WITH LAWS AND ORDINANCES

13.1 Throughout the Term, Tenant, at its sole cost and expense, will obey, observe and promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of any federal, state and municipal governmental agency or authority having jurisdiction over all or any portion of the Leased Property and the use and operation thereof for the Permitted Use.

13.2 Tenant shall likewise observe and comply with the requirements of all policies of public liability and fire insurance and all other policies of insurance at any time in force with respect to the Leased Property or any portion thereof.

13.3 Tenant shall promptly apply for and procure and keep in good standing and in full force and effect all necessary licenses, permits, provider agreements and certifications required by any governmental authority for the purpose of maintaining and operating each Facility as a

skilled nursing facility, in full compliance with all the rules and regulations and minimum standards applicable thereto, as prescribed by the State of Texas and such other governmental authorities having jurisdiction thereof, each Facility having no less than the number of licensed skilled nursing beds as set forth on Exhibit A .

13.4 Within thirty (30) days of receipt, Tenant will deliver or mail to Landlord, to the address and in the manner as provided herein for the giving of notices, copies of all inspection reports, annual license renewals, deficiency reports and surveys and administrative hearings and/or court actions from all state, federal and local governmental bodies regarding all or an portion of the Leased Property or any nursing facility operated thereon. Tenant shall notify Landlord within five (5) business days after receipt thereof of any notice from any governmental agency terminating or suspending or threatening termination or suspension, of any license, permit, provider agreement or certification relating to the Leased Property and shall provide a copy of the same to Landlord (a “ Material Notice ”).

ARTICLE 14

DISCHARGE OF LIENS

14.1 Tenant will not create or permit to be created or to remain, and Tenant will discharge, any lien, encumbrance or charge levied on account of any mechanic’s, laborer’s or materialman’s lien or any conditional sale, security agreement or chattel mortgage, or otherwise, that might be or become a lien, encumbrance or charge upon the Leased Property or any part thereof or the income therefrom, for work or materials or personal property furnished or supplied to, or claimed to have been supplied to or at the request of Tenant.

14.2 If any such lien, encumbrance or charge is created upon the Demised Premises or any part thereof, then in addition to any other right or remedy, Landlord may, upon ten (10) days’ notice, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by processing the discharge of such lien by deposit or by bonding proceedings. Any amount so paid by Landlord and all costs and expenses incurred by Landlord in connection therewith, together with interest thereon at the Default Rate, shall be payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand. Except as herein provided, nothing contained herein shall in any way empower Tenant to do or suffer any act that can, may or shall cloud or encumber Landlord’s or any Mortgagee/Underlying Lessor’s interest in the Demised Premises.

ARTICLE 15

INSPECTIONS OF PREMISES BY LANDLORD

15.1 At any time during reasonable business hours, Landlord and/or its authorized representative shall have the right to enter the Demised Premises and inspect the Leased Property; provided that Tenant shall be entitled to reasonable prior notice of any such entry or inspection (which notice may be oral) except in the event of an emergency or in the event Tenant is then in default under this Lease in which case no notice shall be necessary.

15.2 Landlord agrees that the person or persons entering the Demised Premises and inspecting the Leased Property pursuant to Section 15.1 above will cause as little inconvenience to Tenant as may reasonably be possible under the circumstances.

15.3 Tenant hereby acknowledges and agrees that any Mortgagee/Underlying Lessor shall have the right but not the obligation to enter the Demised Premises and inspect the Leased Property to the extent such Mortgagee/Underlying Lessor is entitled to do so under the terms of its Mortgage/Underlying Lease.

ARTICLE 16

CONDEMNATION

16.1 In the event the entire Facility Property shall be taken or sold under the threat of such taking for any public use by act of any public authority (hereinafter referred to as a “ Taking ”), then this Lease shall terminate as of the date of such Taking. The termination of this Lease due to a Taking is the result of circumstances beyond the control of Landlord and Tenant and the parties hereto affirm that, except for such specific isolated situation, this Lease is intended to be a single indivisible lease. All damages awarded for such Taking under the power of eminent domain shall be the property of Landlord, whether such damages shall be awarded as compensation for diminution in value of the leasehold or the fee of the Facility Property. Tenant shall be entitled, if provided by law, to pursue and receive a separate award from the condemning authority for loss of Tenant’s interest in the Facility Property, but only if the award to which Landlord would have otherwise been entitled had Tenant not received or participated in such award, is not diminished thereby, directly or indirectly, and, further, in no event shall Tenant be entitled to an apportionment of any condemnation award or settlement that Landlord would have been entitled to receive with respect to such Taking but for the above provision and Tenant hereby assigns to Landlord any and all right, title and interest Tenant may have in any and all such awards or settlements.

16.2 In the event of a partial Taking of the Facility Property the result of which shall be a reduction in the number of licensed beds at the Facility Property by fifty percent (50%) or more of the Facility Property licensed capacity existing prior to such Taking, Landlord shall have the option (i) to terminate this Lease or (ii) Landlord shall hold in trust that portion, if any, of such award, settlement or compromise that shall be allocable to consequential damage to buildings and improvements not taken, and Landlord shall pay out such portion to Tenant to reimburse Tenant for the cost of restoring the Facility Property as a complete structural unit, as such restoration work progresses in accordance with the procedure for making insurance proceeds available for restoration, repair or rebuilding as set forth in ARTICLE 9 and ARTICLE 11 . Landlord shall be entitled to retain any excess portion of such award, settlement or compromise. Tenant shall be entitled, if provided by law, to pursue and receive a separate award from the condemning authority for loss of Tenant’s interest in the Facility Property, but only if the award to which Landlord would have otherwise been entitled had Tenant not received or participated in such award, is not diminished thereby, directly or indirectly, and, further, in no event shall Tenant be entitled to an apportionment of any condemnation award or settlement that Landlord would have been entitled to receive with respect to such Taking but for the above provision and Tenant hereby assigns to Landlord any and all right, title and interest Tenant may have in any and all such awards or settlements. In the event of a partial condemnation that does not result in

any termination of this Lease with respect to the Facility Property, the monthly Base Rent payable under Section 4.1 hereof shall be proportionally adjusted based upon the number of licensed and certified beds lost to the number of licensed and certified beds authorized in the Facility Property immediately prior to the Taking.

ARTICLE 17

RENT ABSOLUTE

17.1 The Leased Property is leased to Tenant in an “AS IS, WHERE IS” condition, subject to the rights of any parties in possession thereof, the state of the title thereof as of the date Landlord acquired title from its seller, any state of facts that an accurate survey or physical inspection thereof might show, and to all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction thereover. Tenant has examined the Leased Property and has found the same satisfactory. Tenant acknowledges that the Leased Property is the property of Landlord and that Tenant has the leasehold rights as set forth in the terms and conditions of this Lease.

17.2 As a material inducement to Landlord in the making of and entry into this Lease, Tenant hereby expressly agrees as follows:

(b) Tenant expressly covenants and agrees that it hereby takes this Lease and the leasehold estate hereby established upon and subject to Landlord’s title as it was acquired from its seller (but subject to Landlord’s covenant of quiet enjoyment in Section 32.1 hereof), including all rights, rights of way, easements, profits, servitudes, reservations, restrictions, conditions, exceptions, reversions, possibilities of reverter, liens, encumbrances, occupancies, tenancies, licenses, clouds, claims and defects, known and unknown and whether of record or not.

17.3 Except as otherwise specifically provided in this Lease, this Lease shall continue in full force and effect, and the obligations of Tenant hereunder shall not be released, discharged or otherwise affected, by reason of: (i) any damage to or destruction of the Leased Property or any part thereof or the taking of the Leased Property or any part thereof by condemnation, requisition or otherwise for any reason, (ii) any restriction or prevention of or interference with any use of the Leased Property or any part thereof, including any restriction or interference with or circumstance that prevents the use of the Leased Property as contemplated by Section 8.1 , (iii) any frustration of Tenant’s purposes hereunder, (iv) any claim that Tenant has or might have against Landlord, or (v) any other occurrence whatsoever, whether similar or dissimilar to the foregoing.

17.4 Without limiting the generality of Section 17.3 , Tenant shall continue to pay Base Rent and to perform its obligations under this Lease even if Tenant claims that Landlord has breached any obligation under this Lease or that Tenant has been damaged by any act or omission of Landlord. Therefore, Tenant shall at all times remain obligated to fully and faithfully pay and perform all its obligations under this Lease, without any right of set-off, counterclaim, abatement, deduction, or any other reduction. Tenant’s sole right to recover damages against Landlord by reason of a breach or alleged breach of Landlord’s obligations under this Lease shall be to pursue, prove and subsequently be awarded by a court of competent jurisdiction a judgment for such damages in a separate action against Landlord.

ARTICLE 18

ASSIGNMENT AND SUBLETTING

18.1 During the Term, Tenant shall not, without the prior written consent of Landlord, which may be withheld in the sole discretion of Landlord, assign this Lease or in any manner whatsoever sublet, assign, sell, pledge, encumber or transfer all or any part of the Leased Property or any interest in the Leased Property or enter into any management or other similar agreement pursuant to which a party shall undertake responsibility for the management and operation of the Leased Property or any portion thereof. Further, and except for security interests granted to Tenant’s senior secured lender, Tenant shall not cause or permit any sale, transfer, pledge, assignment or encumbrance of any ownership interest or voting rights in Tenant whether voluntarily, involuntarily, by operation of law or otherwise, and any such act or occurrence shall be deemed to be an assignment of this Lease, and shall require Landlord’s prior written consent, which may be withheld in Landlord’s sole discretion. Any violation or breach or attempted violation or breach of the provisions of this Article by Tenant, or any acts inconsistent herewith shall vest no right, title or interest herein or hereunder or in the Leased Property, in any such transferee or assignee, and any such violation, breach or attempted violation or breach shall constitute an Event of Default hereunder permitting Landlord to terminate this Lease or to exercise any of its other remedies in accordance with the provisions of ARTICLE 21 without any right of Tenant to cure the same. Landlord’s consent to any of the foregoing shall not release Tenant from, or otherwise affect, Tenant’s obligations and liabilities under this Lease.

18.2 Notwithstanding the provisions of Section 18.1, Landlord agrees that Tenant shall have the right to encumber, collaterally assign, pledge or hypothecate Tenant’s interest in the leasehold estate created by this Lease without Landlord’s prior written consent so long as such encumbrance, assignment or pledge (hereinafter, a “ Leasehold Mortgage ”) is in favor of a real

estate investment trust, bank, saving and loan association, investment bank, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan that satisfies the Eligibility Requirements (defined below). All proceeds from any Leasehold Mortgage shall remain the property of Tenant. Landlord shall not be obligated to subordinate any or all of Landlord’s right, title or interest in and to the Demised Properties or this Lease to the lien of any Leasehold Mortgage. A Leasehold Mortgage shall encumber only Tenant’s leasehold interest in the Demised Properties and shall not encumber Landlord’s right, title or interest in the Demised Properties. Landlord shall have no liability whatsoever for the payment or performance of any obligation secured by any Leasehold Mortgage or related obligations. A Leasehold Mortgage shall be, and hereafter shall continue at all times to be, subject and subordinate to each and all of the covenants, conditions and restrictions set forth in this Lease (including with regard to any attempted further assignment by the holder of the Leasehold Mortgage, whether by foreclosure or otherwise), and junior, subject and subordinate, in each and every respect, to all rights and interests of any Landlord’s Mortgagee now or hereafter affecting any of the Demised Properties. Should there be any conflict between the provisions of this Lease and the provisions of any Leasehold Mortgage, the provisions of this Lease shall control. No Leasehold Mortgage shall be for a term longer than the then current Lease Term. Upon written request from Tenant, Landlord agrees to deliver an estoppel certificate in favor of Tenant’s Lender regarding this Lease, in form and substance reasonably acceptable to Landlord and Tenant’s Lender. If Landlord delivers to Tenant a Default notice under this Lease, Landlord shall notify any Tenant’s Lender that has delivered to Landlord a prior written request for such notice, and Landlord shall recognize and accept the performance of any obligation of Tenant hereunder by Tenant’s Lender (provided said performance occurs within the same cure periods as provided to Tenant under this Lease); provided, however that nothing contained herein shall obligate Tenant’s Lender to take any such actions. Any act by Tenant or Tenant’s Lender in violation of this Section 18.2 shall be null and void and of no force or effect. Tenant shall, without charge, at any time and from time to time, within twenty (20) days after any request by Landlord, obtain from Tenant’s Lender and deliver to Landlord or any other Person specified by Landlord, duly executed and acknowledged, an estoppel certificate certifying (x) copies of the documents creating, evidencing and securing the debt secured by any Leasehold Mortgage, (y) whether, to the knowledge of Tenant’s Lender, any default exists under such Leasehold Mortgage and (z) such other matters relating to such Leasehold Mortgage as Landlord may reasonably request. This Section shall survive termination of this Lease. “ Eligibility Requirements ” as used in this Section means, with respect to any entity, that such entity (i) has total assets (in name or under management) in excess of $500,000,000 and (except with respect to a pension advisory firm or similar fiduciary) either (x) capital/statutory surplus or shareholder’s equity of $200,000,000 or (y) market capitalization of at least $300,000,000, and (ii) is regularly engaged in the business of making or owning commercial real estate loans (including mezzanine loans to direct or indirect owners of commercial properties, which loans are secured by pledges of direct or indirect ownership interests in the owners of such commercial properties) or operating commercial real estate properties.

18.3 Notwithstanding the provisions of Section 18.1, Landlord agrees that Tenant shall have the right to engage OnPointe Management, LLC (“ OnPointe ”), as manager of the operations of the Facilities; provided that (i) the management fee or other compensation payable to OnPointe for such services with respect to any period (the “ Management Fee ”) shall accrue at

a rate not to exceed five percent (5%) of the cash collections for such period of the Facilities so managed, and (ii) of such accrued Management Fee, the amount paid by Tenant for any period shall not exceed three percent (3%) of the cash collections of the managed Facilities for such period unless and until, beginning on or after June 30, 2016, (A) Tenant’s Rent Coverage Ratio as of any Test Date for the trailing six (6) month period then ended shall be not less than 1.5 to 1.0, or (B) Tenant’s Rent Coverage Ratio as of any Test Date for the trailing twenty-four (24) month period then ended shall be not less than 1.4 to 1.0, in which event the balance of any accrued but unpaid management fees may be paid.

18.4 Notwithstanding the provisions of Section 18.1, Tenant shall be permitted to sublease one or more of the Facilities to one or more nonprofit hospital systems, provided that, in each case, (i) the hospital sublessee has become the licensed operator of the subject Facility, (ii) the subject Facility, as operated by such hospital, is eligible to participate in the MPAP, QIPP or other Intergovernmental Transfer (IGT) program as established by HHSC, (iii) the proposed form of sublease agreement is approved in advance by Landlord, which approval shall not be unreasonably withheld, and (iv) the operation of the subject Facility is to be managed by Tenant pursuant to a management agreement approved in advance by Landlord, which approval shall not be unreasonably withheld.

18.5 This Lease shall be fully assignable by Landlord or its successors and assigns, in whole as to all of the Demised Premises or in part with respect to one or more of the Demised Premises (including to one or more Affiliates of Landlord). Tenant agrees to cooperate reasonably with Landlord in connection with any such assignment, and agrees to execute and deliver (or cause to be executed and delivered, as applicable) to Landlord any other instruments and documents requested by Landlord in connection with the assignment, including any commercially reasonable subordination, non-disturbance and attornment agreement that may be requested by Landlord’s assignee’s lenders. From and after the effective date of any such Landlord assignment and notice thereof to Tenant, Landlord shall be automatically released (without need for any further agreement or other document) from any liability thereafter arising with respect to the Demised Properties covered thereby.

ARTICLE 19

EVENTS OF DEFAULT

19.1 The occurrence of any of the following acts or events shall constitute an Event of Default on the part of Tenant:

(a) The failure of Tenant to pay when due any payment of Base Rent, or any part thereof, or any other sum or sums of money due or payable to Landlord under the provisions of this Lease, and such failure continues for five (5) business days after Landlord gives Tenant written notice thereof specifying the amount, nature and due date of the same; provided, that Landlord shall not be required to send more than one notice of non-payment of monthly Base Rent within any twelve (12) month time period and any failure to pay any subsequent installment of monthly Base Rent within five (5) days of the date when due during said twelve (12) month period shall be an Event of Default;

(b) The failure on the part of Tenant to maintain in effect any of the insurance policies required to be maintained by Tenant under this Lease;

(c) Any unauthorized assignment, subletting or transfer of Tenant’s interest under this Lease as a result of non-compliance with the provisions of Section 18.1 ;

(d) The failure of Tenant to comply with, or the violation by Tenant of, any of the terms, conditions or provisions of any Mortgage/Underlying Lease, after notice thereof by Landlord to Tenant if such failure or violation shall not be cured within ten (10) days prior to the expiration of any or all applicable cure periods set forth in any such Mortgage/Underlying Lease;

(e) The failure of Tenant to give any Material Notices pursuant to Section 13.4 ;

(f) The failure of Tenant to perform or comply in any material respect with any other term or provision of this Lease not requiring the payment of money, including, without limitation, the failure to comply in any material respect with the provisions hereof pertaining to the use, operation and maintenance of the Demised Premises; provided, however, if the default described in this paragraph is curable same shall be deemed cured, if: (a) within three (3) business days of Tenant’s receipt of a notice of default from Landlord, Tenant gives Landlord notice of its intent to cure such default; and (b) Tenant cures such default within thirty (30) days after such notice from Landlord, unless such default cannot with the exercise of diligent efforts be cured within a period of thirty (30) days because of the nature of the default or delays beyond the control of Tenant, and cure after such thirty (30) day period will not have a material and adverse effect upon the Premises, in which case such default shall not constitute an Event of Default if Tenant uses its best efforts to cure such default by promptly commencing and diligently pursuing such cure to the completion thereof, provided, further however, no cure period for such default shall continue for more than one hundred twenty (120) days from Tenant’s receipt of a notice of default from Landlord;

(g) Any local, state or federal agency having jurisdiction over the operation of any Facility orders the removal of ten percent (10%) or more of the patients located in such Facility;

(h) The voluntary transfer by Tenant of ten percent (10%) or more of the patients located in any Facility and such transfer is not at the patients’ request or for reasons relating to the health and well-being of the patients that were transferred;

(i) The making by any Tenant or Guarantor of an assignment for the benefit of creditors;

(j) The levying of a writ of execution or attachment on or against the property of any Tenant or Guarantor that is not discharged or stayed by action of Tenant or Guarantor contesting same, within thirty (30) days after such levy or attachment (provided if the stay is vacated or ended, this paragraph shall again apply);

(k) If proceedings are instituted in a court of competent jurisdiction for the reorganization, liquidation or involuntary dissolution of any Tenant or Guarantor for its

adjudication as a bankrupt or insolvent, or for the appointment of a receiver of the property of any Tenant or Guarantor, and said proceedings are not dismissed and any receiver, trustee or liquidator appointed therein is not discharged within ninety (90) days after the institution of said proceedings;

(l) The sale of any interest of Tenant in the Demised Premises or portion thereof under a writ of execution or other legal process;

(m) The failure on the part of Tenant during the Term to cure or abate or receive a waiver for any violation claimed by any governmental authority, or any officer acting on behalf thereof, of any law, order, ordinance, rule or regulation pertaining to the operation of any Facility, including without limitation, any proceedings to revoke any license granted to Tenant for the operation of the Permitted Use at such Facility Property or to decertify such Facility Property from participation in the Medicare or Medicaid reimbursement programs, within either (a) thirty (30) days prior to the date set forth in any notice from the governmental authority for revocation, withdrawal or cancellation of any license, certificate, permit or provider agreement, or, (b) if no date is set forth for revocation, withdrawal or cancellation of any license, certificate, permit or provider agreement, prior to the expiration of any time period permitted by such authority for such cure or abatement, in each case, subject to Tenant’s right to contest the same in accordance with ARTICLE 20 ; provided, however, that in the event such authority requires such cure or abatement under subsection (a) be completed in less than thirty (30) days, Tenant shall endeavor to effect such cure or abatement as expeditiously as possible, but in no event less than ten (10) days prior to the expiration of the time period permitted by such authority for such cure or abatement;

(n) The abandonment of the Demised Premises, or any material portion thereof, by Tenant;

(o) The termination of the right to receive Medicaid or Medicare reimbursements based upon any actual or alleged fraud, misfeasance or malfeasance;

(p) The failure on the part of Tenant during the Term to cure or abate any payment obligation claimed by any governmental authority pertaining to Medicaid or Medicare recoupments or any other impositions, including, but not limited to bed taxes, in connection with the provider agreements, certifications or licenses for the Demised Premises, subject to Tenant’s right to contest the same in accordance with ARTICLE 20 ;

(q) The failure of any Guarantor to perform, or the violation by any Guarantor of any of the covenants of the Guaranty Agreement beyond any notice and cure periods set forth therein or any representations or warranties by Guarantors under the Guaranty Agreement shall prove to have been false in any material respect when made;

(r) The occurrence of a Material Adverse Change as to Tenant or the Guarantors, which Material Adverse Change has not been remedied to the reasonable satisfaction of Landlord within ten (10) days following written notice thereof from Landlord;

(s) The occurrence of an Event of Default under any of the Other Leases; provided, however; that an Event of Default under any of the Other Leases that is based solely upon the occurrence of a Material Adverse Change with respect to the Tenant under such Other Lease shall not constitute an Event of Default under this Lease.

(t) The occurrence of an Event of Default under any senior secured credit facility of Tenant that is not cured within any applicable cure period under such credit facility; or

(u) The failure of Seller to refund to Landlord, if and when the same shall become due, any portion of the Contingent Purchase Price that has become payable by Seller to Landlord in accordance with the Purchase Agreement.

ARTICLE 20

RIGHT TO CONTEST

20.1 Tenant shall have the right upon written notice thereof to Landlord, to contest by appropriate legal proceedings, diligently conducted in good faith, the validity or application of any law, regulation or rule mentioned herein, and to delay compliance therewith pending the prosecution of such proceedings; provided, however, that (a) no civil or criminal liability would thereby be incurred by Landlord or any successor operator of all or any portion of the Demised Premises and no lien or charge would thereby be imposed upon or satisfied out of the Leased Property or any portion thereof, (b) the effectiveness and good standing of any licenses, certificates, permits or provider agreements affecting the Demised Premises or any portion thereof or the nursing home operated at the applicable Facility Property would continue in full force and effect during the period of such contest, and is cured not less than thirty (30) days prior to the date set forth for revocation, withdrawal or cancellation of any such licenses, certificates, permits or provider agreements, and (c) Tenant satisfies any and all applicable requirements of any Mortgage/Underlying Lease.

ARTICLE 21

LANDLORD’S REMEDIES UPON DEFAULT

21.1 In the event of any Event of Default on the part of Tenant, Landlord may, if it so elects, and provided a Proper Successor (as defined in Section 32.5 ) has been designated, upon ten (10) days written notice to Tenant, forthwith either (i) terminate this Lease and Tenant’s right to possession of the Leased Property; or (ii) terminate Tenant’s right to possession of the Leased Property without terminating this Lease. Upon any such termination of this Lease, or upon any such termination of Tenant’s right to possession without termination of this Lease, Tenant shall vacate the Demised Premises immediately, and shall quietly and peaceably deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Demised Premises in such event with or without process of law and to repossess the Leased Property as Landlord’s former estate. In the event of any such termination of this Lease, Landlord shall again have possession and enjoyment of the Leased Property to the extent and as if this Lease had not been made, and thereupon the lease of the Leased Property and everything herein contained on the part of Tenant to be done and performed in connection therewith shall cease and terminate, all, however, without prejudice to and without relinquishing the rights of Landlord to Base Rent (which, upon such termination of this Lease and entry of Landlord upon the Demised Premises or any portion thereof, shall, in any event, be the right to receive Base Rent due up to the time of such entry) or any other right given to Landlord hereunder or by operation of law.

21.2 In the event Landlord elects either to terminate this Lease or to terminate Tenant’s right to possession of the Leased Property upon the occurrence of an Event of Default, then all licenses, certifications, permits and authorizations issued by any governmental agency, body or authority in connection with or relating to the Facilities shall be deemed as being assigned to Landlord to the extent permissible under United States or Texas law. Landlord shall also have the right to continue to utilize the telephone numbers and names used by Tenant in connection with the operation of the Facilities. To the extent permissible under United States and Texas law, this Lease shall be deemed and construed as an assignment for purposes of vesting in Landlord all right, title and interest in and to (i) all licenses, certifications, permits and authorizations obtained in connection with the Facilities and (ii) the names and telephone numbers used in connection with the Facilities. Tenant hereby agrees to take such other action and execute such other documents as may be necessary in order to vest in Landlord all right, title and interest to the items specified herein.

21.3 If Tenant abandons the Demised Premises or otherwise entitles Landlord so to elect, and Landlord elects, to terminate only Tenant’s right to possession of the Leased Property without terminating this Lease, Landlord may, at its option, enter into the Demised Premises, remove Tenant’s signs and other evidence of tenancy and take and hold possession thereof as provided in Section 21.1 , without such entry and possession terminating this Lease or releasing Tenant, in whole or in part, from Tenant’s obligation to pay the Base Rent hereunder for the full remaining Term, and in any such case, Tenant shall pay to Landlord a sum equal to the entire amount of the Base Rent reserved hereunder and required to be paid by Tenant up to the time of such termination of the right of possession plus any other sums then due hereunder. Upon and after entry into possession without termination of this Lease, Landlord may attempt to relet the Leased Property for the account of Tenant for such Base Rent, or shall operate the Facilities for such time and upon such terms as Landlord in its discretion shall determine. In any such case, Landlord may make repairs in or to the Demised Premises, and redecorate the same to the extent reasonably required in connection with the reletting of the Demised Premises, and Tenant shall, upon demand, pay the reasonable cost thereof, together with Landlord’s reasonable expenses of reletting. If the consideration collected by Landlord upon any such reletting is not sufficient to pay monthly the full amount of Base Rent reserved in this Lease, together with the reasonable costs of repairs and redecorating and Landlord’s expenses, Tenant shall pay to Landlord the amount of each monthly deficiency upon demand.

21.4 Tenant’s liability to Landlord for damages for default in payment of Base Rent or otherwise hereunder shall in all events survive the termination by Landlord of this Lease or the termination by Landlord of Tenant’s right to possession only of the Leased Property as hereinabove provided. Upon any such termination of this Lease or at any time after such termination of Tenant’s right to possession, Landlord may recover from Tenant and Tenant shall pay to Landlord as liquidated and final damages, whether or not Landlord shall have collected any current monthly deficiencies under the foregoing paragraph, and in lieu of such current deficiencies after the date of demand for such final damages, the amount thereof found to be due by a court of competent jurisdiction, which amount thus found may be equal to:

(a) the remainder, if any, of Base Rent charges due from Tenant for the period up to and including the date of the termination of this Lease or Tenant’s right to possession; and

(b) the amount of any current monthly deficiencies accruing and unpaid by Tenant up to and including the date of Landlord’s demand for final damages hereunder; and

(c) the Base Rent reserved for what would have been the remainder of the Term with respect to the Demised Premises together with charges to be paid by Tenant under this Lease.

ARTICLE 22

CUMULATIVE REMEDIES OF LANDLORD

22.1 The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provision or provisions of this Lease. The failure of Landlord to insist, in any one or more cases, upon the strict performance of any of the terms, covenants, conditions, provisions or agreements of this Lease, or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of any such term, covenant, condition, provisions, agreement or option.

ARTICLE 23

SECURITY FOR RENT

23.1 Landlord shall have a first lien paramount to all others (except any Mortgage/Underlying Lease made by Landlord) on every right and interest of Tenant in and to this Lease, and on any furnishings, equipment, fixtures, accounts receivable, certificates of need, licenses, provider agreements, certifications, books, records and other property of any kind belonging to Tenant and used in connection with this Lease or located at the Demised Premises. Such lien is granted for the purpose of securing the payments of Base Rent, charges, penalties, and damages herein covenanted to be paid by Tenant, and for the purpose of securing the performance of all of Tenant’s obligations under this Lease. Such lien shall be in addition to all rights to Landlord given and provided by law. This Lease shall constitute a security agreement under the Uniform Commercial Code granting Landlord a security interest in any furnishings, equipment, fixtures, accounts receivable, certificates of need, licenses, provider agreements, certifications, books, records and other personal property of any kind belonging to Tenant, and Tenant shall execute such other instruments and financing statements as Landlord may request to evidence or perfect said security interest.

23.2 Notwithstanding the foregoing provisions of Section 23.1 of this Lease to the contrary, Landlord hereby agrees that it will subordinate its security interest in Tenant’s accounts receivable to any secured lenders of Tenant that are providing working capital to Tenant in connection with Tenant’s operation of the Demised Premises (“ Tenant’s Accounts Receivable Financing ”), provided that Landlord’s consent and subordination to Tenant’s Accounts Receivable Financing shall be subject to the following conditions precedent: (a) there shall exist no Event of Default under this Lease; (b) Tenant’s Accounts Receivable Financing shall be from a bona fide third party lender; and (c) Tenant’s Accounts Receivable lender shall execute and deliver to Landlord an intercreditor and subordination agreement in form and substance reasonably satisfactory to Landlord.

23.3 On the Commencement Date, Tenant shall deposit with Landlord an amount equal to two (2) monthly payments of Base Rent (as increased in accordance with this Section, the “ Security Deposit ”) as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease. On the first day of each subsequent Lease Year, Tenant shall deposit with Landlord the additional amount necessary to increase the Security Deposit to an amount equal to two (2) monthly payments of Base Rent for the upcoming Lease Year and any such deposit shall become part of the Security Deposit. It is agreed that upon the occurrence of an Event of Default, Landlord may use, apply or retain the whole or any part of the Security Deposit to the extent required for the payment of any Base Rent or any other sum as to which Tenant is in default or for any sums which Landlord may expend or may be required to expend by reason of Tenant’s default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damage or deficiency in the reletting of the Demised Premises, whether such damage or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event Landlord uses or applies the whole or any part of the Security Deposit, Tenant shall replenish the Security Deposit to its original sum (as increased in accordance with this Section) within ten (10) days after written notice from Landlord to Tenant of the sum due. Tenant shall be in default under this Lease if the amount due is not paid within the required time period. Provided that no Event of Default exists at the expiration of this Lease, and Tenant has paid all sums to Landlord which Tenant is required to pay prior to the expiration of this Lease and there is not otherwise any term, covenant or condition which is required to be performed by Tenant as of the expiration of this Lease, then any portion of the Security Deposit then remaining on deposit with Landlord shall be returned to Tenant after delivery of exclusive possession of the Demised Premises to Landlord. In the event of the sale of the Demised Premises and the purchaser’s assumption of Landlord’s obligations hereunder, Landlord shall have the right to transfer the Security Deposit to the purchaser, Landlord shall thereupon be deemed to be released by Tenant from all liability for the return of such Security Deposit, and Tenant agrees to look solely to the new landlord for the return of said Security Deposit. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the Security Deposit to a new landlord. Tenant further covenants that it will not assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

ARTICLE 24

INDEMNIFICATION

24.1 To the extent insurance proceeds do not cover same, Tenant agrees to protect, indemnify, save harmless and defend Landlord and its members, managers, officers, agents, employees and any affiliates of the forgoing (each of the forgoing being, collectively, the “ Landlord Parties ” and, individually, a “ Landlord Party ”) from and against any and all claims, demands and causes of action of any nature whatsoever, including, without limitation, for injury to or death of persons or loss of or damage to property, occurring at the Demised Premises, or on any sidewalks adjoining the Demised Premises, or in any manner growing out of or connected with the use and occupation of the Demised Premises or the condition thereof, or the operation of Tenant’s business on the Demised Premises, or the use of any existing or future sewer system, or the use of any such adjoining sidewalks during the Term, and Tenant further agrees to pay any reasonable attorneys’ fees and expenses incident to the defense by Landlord of any such claims, demands or causes of action.

ARTICLE 25

SUBORDINATION PROVISIONS

25.1 This Lease (and Tenant’s interest in the Leased Property) shall be subject and subordinate to any and all mortgages, deeds of trust, ground leases or leases now or hereafter in force and affecting the Demised Premises (or any portion thereof) and/or Personal Property, and to all renewals, modifications, consolidations, replacements and extensions thereof (any such mortgage, deed of trust, ground lease or lease as it may be renewed, modified, consolidated, replaced and extended is hereinafter referred to as “ a Mortgage/Underlying Lease ” or “ any such Mortgage/Underlying Lease ”, and the holder or beneficiary of a Mortgage/Underlying Lease is hereinafter referred to as a “ Mortgagee/Underlying Lessor ”). Tenant agrees to execute and deliver upon demand such further instruments subordinating this Lease to any such Mortgage/Underlying Lease, or other liens or encumbrances as shall be desired by Landlord; provided, that Landlord shall deliver to Tenant a subordination, nondisturbance and attornment executed by any such Mortgagee/Underlying Lessor, in form reasonably satisfactory to Tenant and such Mortgagee/Underlying Lessor. Tenant agrees further that any Mortgagee/Underlying Lessor shall have the right to subordinate its Mortgage/Underlying Lease and its rights thereunder to this Lease, except that such Mortgagee/Underlying Lessor shall be entitled to expressly exclude from such subordination the Mortgagee/Underlying Lessor’s rights, if any, to insurance proceeds and eminent domain awards in the event of a loss or casualty or eminent domain taking of the Leased Property, or any portion thereof. If such Mortgagee/Underlying Lessor executes and records an instrument that purports to effect a partial or complete subordination of its Mortgage/Underlying Lease to this Lease, this Lease shall not be terminated by a foreclosure of such Mortgage/Underlying Lease, but any rights of such Mortgagee/Underlying Lessor to insurance proceeds or eminent domain awards that are expressly excluded from such subordination shall remain superior to the rights of Tenant.

25.2 During the existence of any material uncured default on the part of Tenant under this Lease, all fees, payments or other obligations of Tenant to any of the Guarantors or to any of the members of a Guarantor shall be subordinate to the prior payment in full of all obligations owing to Landlord under this Lease.

ARTICLE 26

TENANT’S FAITHFUL COMPLIANCE WITH MORTGAGE/UNDERLYING LEASE

26.1 Anything in this Lease contained to the contrary notwithstanding, Tenant shall at all times and in all respects fully, timely and faithfully comply with and observe each and all of the conditions, covenants, and provisions required on the part of Landlord under any Mortgage/Underlying Lease to which this Lease is subordinate or to which it later may become subordinate, a copy of which has been provided to Tenant, including, without limitation, such conditions, covenants and provisions of such Mortgage/Underlying Lease that relate to the care, maintenance, repair, insurance, restoration, preservation and condemnation of the Demised Premises, provided that such conditions, covenants and provisions do not require compliance and observance to a standard or degree materially in excess of that required by the provisions of this Lease, and Tenant shall not do or permit to be done anything that would constitute a breach of or default under any obligation of Landlord under any Mortgage/Underlying Lease. However, nothing in this Article contained shall be construed to obligate Tenant, except as may otherwise be provided in this Lease, to pay any Base Rent due or part of the principal or interest secured by any Mortgage/Underlying Lease. Tenant further covenants and agrees as follows: (a) if requested by Landlord in writing, Tenant shall give any Mortgagee/Underlying Lessor notice of any Landlord default that occurs under this Lease, (b) Tenant shall not terminate this Lease as a result of Landlord’s default, without giving such Mortgagee/Underlying Lessor written notice of Landlord’s default under this Lease at the same time that Landlord is given notice of such default, and (c) if Landlord fails to cure such default within the applicable grace period, if any, contained in this Lease, such Mortgagee/Underlying Lessor shall have thirty (30) days after notice thereof to cure any such default.

ARTICLE 27

MORTGAGE/UNDERLYING LEASE RESERVES

27.1 Any tax, insurance, or other reasonable reserve required during the Term by any Mortgagee/Underlying Lessor shall be paid by Tenant to Landlord. At the expiration or other termination of the Term of this Lease, Landlord shall account for and return to Tenant the remaining balance of all such deposits and reserves.

ARTICLE 28

TENANT’S ATTORNMENT

28.1 Tenant covenants and agrees that, if by reason of a default upon the part of Landlord herein in the performance of any of the terms and conditions of any Mortgage/Underlying Lease, and the estate of Landlord thereunder is terminated by summary dispossession proceedings or otherwise, Tenant will attorn to the then Mortgagee/Underlying Lessor or the purchaser in such foreclosure proceedings, as the case may be, and will recognize such Mortgagee/Underlying Lessor or such purchaser as the lessor under this Lease. Tenant covenants and agrees to execute and deliver, at any time and from time to time, upon the request of Landlord or of any Mortgagee/Underlying Lessor or the purchaser in foreclosure proceedings, any instrument that may be necessary or appropriate to evidence such attornment. Tenant further waives the provisions of any statute or rule of law now or hereafter in effect that may terminate this Lease or give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Demised Premises in the event any such proceedings are brought against Landlord under such Mortgage/Underlying Lease or by any Mortgagee/Underlying Lessor, and agrees that this Lease shall not be affected in any way whatsoever by any such proceedings.

ARTICLE 29

REPRESENTATIONS AND WARRANTIES

29.1 Tenant represents, warrants and covenants to Landlord as follows:

(a) Tenant is a Texas limited liability company duly organized and validly existing and in good standing in the State of Texas.

(b) Tenant has the full right and power to enter into and perform Tenant’s obligations under this Lease, and has taken all requisite company action to authorize the execution, delivery and performance of this Lease.

29.2 Landlord represents, warrants and covenants to Tenant as follows:

(a) Landlord is a Delaware limited liability company duly organized and validly existing and in good standing in the State of Delaware.

(b) Landlord has the full right and power to enter into and perform Landlord’s obligations under this Lease, and has taken all requisite company action to authorize the execution, delivery and performance of this Lease.

ARTICLE 30

STATEMENTS AND REPORTS

30.1 Within one hundred and twenty (120) days after the end of each calendar year (starting with the year ended December 31, 2015), Tenant shall furnish to Landlord a full and complete audited financial statement of each Tenant and the operations of the Facility operated by such Tenant for such year, which financial statement (i) shall contain a balance sheet and detailed income and expense statement, (ii) shall be duly certified by an officer of Tenant to fairly represent the financial condition of Tenant, as of the date thereof, in accordance with GAAP, and (iii) shall be accompanied by a statement of a nationally recognized accounting firm acceptable to Landlord in its sole discretion that such financial statement presents fairly, in all material respects, the financial condition of Tenant as of the end of the calendar year being reported on and that the results of the operations and cash flows for such year were prepared, and are being reported on, in conformity with GAAP (collectively called “ Financial Statements ”). In addition, within one hundred and twenty (120) days after the expiration or earlier termination of the Term, Tenant shall deliver to Landlord the Financial Statements of each Tenant covering the period of time from the last day of the immediately preceding fiscal year to the date on which the Term expires or terminates, and any such obligation shall survive the expiration or earlier termination of this Lease.

30.2 Within thirty (30) days after each calendar month during the Term, Tenant shall furnish to Landlord a Financial Statement and a detailed census report for each of the Facilities for the preceding calendar month.

30.3 Upon Landlord’s written request, but not more than one time per calendar quarter, an aged accounts receivable report of each of the Facilities in sufficient detail to show amounts due in the account age classification of 30 days, 60 days, 90 days, 120 days and over 120 days, within ten (10) days of such request.

30.4 Upon Landlord’s written request, all Medicare and Medicaid cost reports and any amendments thereto filed or received with respect to the Facilities and all responses, audit reports, rate letters, correspondence or inquiries with respect to such cost reports, within ten (10) days of such request.

30.5 Within twenty (20) days after the close of each calendar quarter during the Term, Tenant shall deliver to Landlord a certificate, signed by a responsible officer of the Tenant, certifying, as of the close of such quarterly period, compliance on the part of the Tenant with each of the covenants set forth in Section 31.1 of this Lease, and providing in reasonable detail the calculation of such compliance.

At all times, Tenant shall keep and maintain full and correct records and books of account of the operations of Tenant at the Demised Premises and records and books of account of the entire business operations of Tenant in accordance with sound accounting practices. Upon request by Landlord, Tenant shall make available for inspection by Landlord or its designee not more than once per Lease Year (except that such limitation shall not apply after the occurrence of an Event of Default), during reasonable business hours, said records and books of account covering the entire business operations of Tenant at the Demised Premises. In the event Landlord determines in its reasonable opinion that the Financial Statements may contain a material discrepancy, error or misrepresentation, Landlord shall have the right from time to time to cause a certified public accountant to audit any Financial Statements and said records and books of account. To the extent that such audit confirms a material discrepancy, error or misrepresentation, such audit shall be at Tenant’s expense. A “material” discrepancy, error or misrepresentation shall mean any discrepancy, error or misrepresentation which results in a misstatement of Tenant’s results from operations reflected in the Financial Statements being equal to or greater than 5%.

ARTICLE 31

ADDITIONAL COVENANTS

31.1 Tenant covenants and agrees that, as of each Test Date,

(a) Tenant’s Rent Coverage Ratio for the twelve (12) month period then ended shall be not less than 1.2 to 1.0;

(b) Tenant’s Fixed Charge Coverage Ratio for the twelve (12) month period then ended shall be not less than 1.1 to 1.0;

(d) Tenant’s Net Working Capital shall be not less than the greater of (i) $1.75 million, and (ii) an amount equal to 15% of GPH Parent EBITDARM for the twelve (12) month

period then ended; provided, however, that Tenant’s breach of this Net Working Capital covenant shall not constitute a default under this Lease unless such breach occurs for two (2) consecutive Test Dates.

31.2 Tenant covenants and agrees with Landlord that, during the Term of this Lease, and for a period of three (3) years following the expiration or any termination of this Lease, neither Tenant nor any of its Affiliates shall own any interest in, operate, lease, manage, or develop, any other nursing or healthcare facility within a radius of twenty-five (25) miles of any of the Facilities, except for any such facility that is owned by Landlord or any of its Affiliates.

31.3 Tenant covenants and agrees that, except for cash distributions made to partners to satisfy partner tax liabilities generated from partnership pass-through income pre-determined at the ratio of 40% of total estimated Schedule K-1 pass-through taxable income, it shall not make any distributions or other payments to any of its members, in cash or property, at any time during the Term of this Lease, unless immediately prior to and after giving effect to such distribution or payment, each of the following conditions is satisfied:

(a) all payments required under this Lease to have been paid by Tenant shall have been paid and there shall not have occurred an Event of Default or any event that, with the giving of notice or the passage of time, would constitute and Event of Default under this Lease;

(b) Tenant’s Net Worth as of such date is not less than $2,000,000;

(c) Tenant’s Net Working Capital is not less than the greater of (i) $1.75 million, and (ii) an amount equal to 15% of GPH Parent EBITDARM for the twelve (12) month period then ended; and

(d) beginning as of March 30, 2016, Tenant’s Rent Coverage Ratio as of two (2) consecutive Test Dates for the trailing twelve (12) month periods then ended is not less than 1.3 to 1.0.

31.4 Except as provided in Section 23 of this Lease, and except for dispositions of inventory and replacements of personal property in accordance with this Lease, each Tenant shall maintain sole ownership of its assets, free and clear of all liens and encumbrances.

ARTICLE 32

MISCELLANEOUS

32.1 Tenant, upon paying the Base Rent and all other charges herein provided, and for observing and keeping the covenants, agreements, terms and conditions of this Lease on its part to be performed, shall lawfully and quietly hold, occupy and enjoy the Demised Premises during the Term, and subject to its terms, without hindrance by Landlord or by any other person or persons claiming under Landlord.

32.2 It is understood and agreed that the granting of any consent by Landlord to Tenant to perform any act of Tenant requiring Landlord’s consent under the terms of this Lease, or the failure on the part of Landlord to object to any such action taken by Tenant without Landlord’s consent, shall not be deemed a waiver by Landlord of its rights to require such consent for any

further similar act by Tenant, and Tenant hereby expressly covenants and warrants that as to all matters requiring Landlord’s consent under the terms of this Lease, Tenant shall secure such consent for each and every happening of the event requiring such consent, and shall not claim any waiver on the part of Landlord of the requirement to secure such consent.

32.3 Tenant represents to Landlord that it did not deal with any broker in connection with this Lease, and hereby indemnifies Landlord against the claims or demands of any broker claimed through a relationship with Tenant. Landlord hereby represents to Tenant that it did not deal with any broker in connection with this Lease, and hereby indemnifies Tenant against the claims or demands of any broker claimed through a relationship with Landlord.

32.4 If an action shall be brought by Landlord to recover any rental under this Lease, or for or on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Lease, or for the recovery of possession of the Demised Premises, or otherwise, the prevailing party shall be entitled to recover from the other, as part of its costs, reasonable attorney’s fees.

32.5 Should Tenant hold possession hereunder after the expiration of the Term without the consent of Landlord, Tenant shall become a tenant on a month-to-month basis upon all the terms, covenants and conditions herein specified, excepting however that Tenant shall pay Landlord a monthly rental, for the period of such month-to-month tenancy, in an amount equal to 125% of the last Base Rent specified. Notwithstanding the foregoing or anything contained in ARTICLE 33 or elsewhere in this Lease, if Tenant is unable to surrender the Demised Premises because Landlord fails to provide a Proper Successor (as defined below) for the Facilities at the end of the Lease Term to take over the operation and management of the Facility, Tenant shall have the right, but shall not be obligated to, remain in possession of the Demised Premises and continue to operate and manage the same if Tenant would be legally prohibited from abandoning the Demised Premises or in Tenant’s judgment, based on reasonable commercial standards in the nursing facility industry, abandoning the Demised Premises without a Proper Successor in place to continue the operations of the Facilities would jeopardize its (or its affiliates’ or subsidiaries’) reputation as a provider of nursing facility care or could otherwise subject it (or its affiliates or subsidiaries) to liability for negligence or mistreatment of residents at the Demised Premises. In the event Tenant remains in possession of the Demised Premises pursuant to the immediately preceding sentence, Tenant shall, during such occupancy, pay to Landlord rent at a rate equal to the annual Base Rent payable by Tenant in the last year of the Lease Term, and Tenant shall surrender possession of the Demised Premises within ten (10) business days after Landlord provides a Proper Successor for the Facilities. As used herein, “ Proper Successor ” means a qualified and duly licensed operator of the Facilities, or one as to which the applicable state licensing authority has indicated its willingness to issue a License upon transfer of possession of the Facilities.

32.6 Except as otherwise specifically permitted herein, all notices, or demands required to be given by either party to the other shall be in writing and shall be sent by (a) personal delivery, (b) expedited delivery service with proof of delivery, (c) United States registered/certified mail, return receipt requested, (d) nationwide courier guaranteeing overnight delivery, such as Federal Express or United Parcel Service, or (e) prepaid telecopy, telegram, telex or fax, addressed to the other party hereto at the address set forth below:


If to Landlord:	c/o MedEquities Realty Trust, Inc.
	3100 West End Avenue, Suite 1000
	Nashville, TN 37203
	Attention: William C. Harlan, President
	Telephone: (615) 627-4714
	Facsimile No.: None
	E-mail:	wharlan@medequities.com



with copy to:	Michael S. Blass, Esq.
	Arent Fox LLP
	1675 Broadway, 34th Floor
	New York, NY 10019
	Telephone: (212) 484-3902
	Facsimile No.: (212) 484-3990
	E-mail:	michael.blass@arentfox.com

If to Tenant:	c/o GruenePointe Holdings, LLC
	325 North Saint Paul St., Suite 3400
	Dallas, TX 75201
	Attn: Kenneth A. Kristofek
	Telephone: (214) 295-4109
	Facsimile No: (214) 295-4101
	E-mail:	k2@gruenerep.com

With a copy to:	OnPointe Management LLC
	8820 Horizon Blvd.
	Albuquerque, NM 87113
	Attention: Jerry Williamson
	Telephone:
	Facsimile No:
	E-mail:

and a copy to:	Kane Russell Coleman & Logan PC
	1601 Elm Street
	3700 Thanksgiving Tower
	Dallas, Texas 75243
	Attn: David Pratt
	Telephone: (214) 777-4272
	Facsimile No: (214) 777-4299
	E-mail:	dpratt@krcl.com

and a copy to:	Richards Rodriguez & Skeith, LLP
	816 Congress Ave., Suite 1200
	Austin, TX 78701
	Attention: Cory Macdonald, Esq.
	Telephone:
	Facsimile No:
	E-mail:	CMacdonald@rrsfirm.com

32.7 Upon demand by either party, Landlord and Tenant agree to execute and deliver a short form lease in recordable form so that the same may be recorded by either party.

32.8 Each party agrees at any time and from time to time, upon not less than ten (10) days prior written request from the other party, to execute, acknowledge and deliver to the other party a statement in writing, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified, and stating the modifications), the dates to which the Base Rent has been paid, the amount of the Base Rent and security deposit held by Landlord, and whether this Lease is then in default or whether any events have occurred that, with the giving of notice or the passage of time, or both, could constitute a default hereunder and any and all other information reasonably required by Landlord or its Mortgagee/Underlying Lessor; it being intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective assignee, Mortgagee/Underlying Lessor or purchaser of the fee interest in the Demised Premises or of this Lease.

32.9 All of the provisions of this Lease shall be deemed and construed to be “conditions” and “covenants” as though the words specifically expressing or importing covenants and conditions were used in each separate provision hereof.

32.10 Any reference herein to the termination of this Lease shall be deemed to include any termination hereof by expiration or pursuant to the provisions hereof referring to early termination.

32.11 The headings and titles in this Lease are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease, nor in any way affect this Lease.

32.12 This Lease contains the entire agreement between the parties and any executory agreement hereafter made shall be ineffective to change, modify or discharge it in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification or discharge is sought. This Lease cannot be changed orally or terminated orally.

32.13 Except as otherwise herein expressly provided, the covenants, conditions and agreements in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns.

32.14 All nouns and pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons, firm or firms, corporation or corporations, entity or entities or any other thing or things may require.

32.15 If any term or provision of this Lease shall be held invalid or unenforceable to any extent, the remaining terms and provisions of this Lease shall not be affected thereby, and each term and provision shall be valid and enforceable to the fullest extent permitted by law.

32.16 This Lease may be executed in counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one and the same instrument. Counterparts may be executed in either original or electronically transmitted form (e.g., faxed or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

ARTICLE 33

TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE

33.1 The date on which (i) this Lease either terminates or expires pursuant to its terms or is terminated by either party whether pursuant to a right granted to it hereunder or otherwise, (ii) the date on which Tenant’s right to possession of the Demised Premises is terminated pursuant to a right granted to it hereunder or otherwise, or (iii) the date on which Tenant otherwise abandons the Demised Premises shall be referred to as the “ Closing Date ” in this Article. On the Closing Date, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Landlord (or Landlord’s designee – for purposes of this ARTICLE 33 the term Landlord shall be deemed to mean Landlord’s designee, if applicable)) all of Tenant’s right, title and interest in and to the following intangible property that is now or hereafter used in connection with the operation of the Demised Premises (the “ Intangibles ”) and an assumption by Landlord of Tenant’s obligations under the Intangibles from and after the Closing Date; provided that, from and after the Closing Date, Tenant shall indemnify, defend and hold harmless Landlord and the other Landlord Parties from and against any claims, losses, costs or damages, including reasonable attorneys’ fees incurred or arising by reason of Tenant’s obligations under the Intangibles prior to the Closing Date:

(a) service contracts and equipment leases for the benefit of the Demised Premises to which Tenant is a party, and that can be terminated without penalty by Tenant within sixty (60) or fewer days’ notice or that Landlord requests be assigned to Landlord pursuant to this ARTICLE 33 ;

(b) any provider agreements with Medicare, Medicaid or any other third-party payor programs (excluding the right to any reimbursement for periods prior to the Closing Date, as defined above) entered in connection with the Demised Premises to the extent assignable by Tenant;

(c) all existing agreements with residents of the Facilities and any guarantors thereof, to the extent assignable by Tenant (excluding the right to any payments for periods prior to the Closing Date) and any and all patient trust fund accounts; and

(d) at Landlord’s option, the business of Tenant as conducted at the Demised Premises as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein.

33.2 Landlord shall be responsible for and shall pay all expenses with respect to the Demised Premises accruing on or after 12:01 a.m. on the day of the Closing Date and shall be entitled to receive and retain all revenues from the Demised Premises accruing on or after the Closing Date. Within fifteen (15) business days after the Closing Date, the following adjustments and prorations shall be determined as of the Closing Date:

(a) Taxes and Assessments, if any. If the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Closing Date occurs, the proration of such taxes shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made when actual figures are published or otherwise become available.

(b) Tenant will terminate the employment of all employees on the Closing Date and shall be and remain liable for any and all wages, accrued vacation and sick leave pay for employees of the Demised Premises with respect to the period prior to and including the Closing Date.

(c) Landlord shall receive a credit equal to any advance payments by patients of the Facilities to the extent attributable to periods on and after the Closing Date.

(d) The present insurance coverage on the Demised Premises shall be terminated as of the Closing Date and there shall be no proration of insurance premiums.

(e) All other income from, and expenses of, the Demised Premises (other than mortgage interest and principal), including but not limited to public utility charges and deposits, maintenance charges and service charges shall be prorated between Tenant and Landlord as of the Closing Date. Tenant shall, if possible, obtain final utility meter readings as of the Closing Date. To the extent that information for any such proration is not available, Tenant and Landlord shall effect such proration within ninety (90) days after the Closing Date.

(f) Tenant shall be and remain responsible for any employee severance pay and accrued benefits that may be payable as the result of any termination of an employee’s employment on or prior to the Closing Date.

33.3 All necessary arrangements shall be made to provide possession of the Demised Premises to Landlord on the Closing Date, at which time of possession Tenant shall deliver to Landlord all medical records, patient records and other personal information concerning all patients residing at the Facilities as of the Closing Date and other relevant records used or developed in connection with the business conducted at the Demised Premises. Such transfer and delivery shall be in accordance with all applicable laws, rules and regulations concerning the transfer of medical records and other types of patient records.

33.4 For the period commencing on the Closing Date and ending on the date Landlord, or its designee, obtains any and all appropriate state or other governmental licenses and certifications required to operate the Facilities, Tenant hereby agrees that Landlord, or Landlord’s designee, shall have the right, but not the obligation, to manage and operate the Demised Premises, on a triple net basis, and shall be entitled to all revenues of the Demised Premises during such period, and to use any and all licenses, certifications and provider agreements issued to Tenant by any federal, state or other governmental authority for such operation of the Demised Premises, if permitted by any such governmental authorities. If Landlord or its designee exercises the right described above in this Section 33.4 , the provisions of this Section 33.4 shall be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other hand, on the terms set forth above in this Section 33.4 provided, however, that upon the request of Landlord or its designee, Tenant shall enter into a separate management agreement on the terms set forth in this Section 33.4 and on such other terms and provisions as may be specified by Landlord or its designee.

33.5 Tenant shall provide Landlord with an accounting within fifteen (15) days after the Closing Date of all funds belonging to patients at the Facilities that are held by Tenant in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and Tenant’s warranty that the accounting is true, correct and complete. Additionally, Tenant, in accordance with all applicable rules and regulations, shall make all necessary arrangements to transfer such funds to a bank account designated by Landlord, and Landlord shall in writing acknowledge receipt of and expressly assume all Tenant’s financial and custodial obligations with respect thereto. Notwithstanding the foregoing, Tenant will indemnify, defend and hold Landlord and any other Landlord Party harmless from and against all liabilities, claims and demands, including reasonable attorney’s fees, in the event the amount of funds, if any, transferred to Landlord’s bank account as provided above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Tenant as custodian that remain undisbursed for the benefit of the patient for whom such funds were deposited, or with respect to any matters relating to patient funds that accrued during the Term.

33.6 All cash, checks and cash equivalent at the Demised Premises and deposits in bank accounts (other than patient trust accounts) relating to the Demised Premises on the Closing Date shall remain Tenant’s property after the Closing Date. Subject to the provisions of ARTICLE 23 , all accounts receivable, loans receivable and other receivables of Tenant, whether derived from operation of the Demised Premises or otherwise, shall remain the property of Tenant after the Closing Date. Tenant shall retain full responsibility for the collection thereof. Landlord shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Closing Date. In order to facilitate Tenant’s collection efforts, Tenant agrees to deliver to Landlord, within a reasonable time after the Closing Date, a schedule identifying all of those private pay balances owing for the month prior to the Closing Date and Landlord agrees to apply any payments received that are specifically designated as being applicable to services rendered prior to the Closing Date to reduce the pre-Closing Date balances of said patients by promptly remitting said payments to Tenant. All other payments

received shall be retained by Landlord as being applicable to services rendered after the Closing Date. Landlord shall cooperate with Tenant in Tenant’s collection of its preclosing accounts receivable. Landlord shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a result of such activities on behalf of Tenant. Subject to the provisions of ARTICLE 23 , Landlord shall remit to Tenant or its assignee those portions of any payments received by Landlord that are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending on or prior to the Closing Date.

33.7 With respect to residents at the Facilities on the Closing Date, Landlord and Tenant agree as follows:

(a) With respect to Medicare and Medicaid residents, Landlord and Tenant agree that subject to the provisions of ARTICLE 23 , payment for in-house residents covered by Medicare or Medicaid on the Closing Date will be made (on a per diem basis) by Medicare or Medicaid under current regulations directly to Tenant for services rendered at the Demised Premises prior to the Closing Date. Said payments shall be the sole responsibility of Tenant and Landlord shall in no way be liable therefor. After the Closing Date, Landlord and Tenant shall each have the right to review supporting books, records and documentation that are in the possession of the other relating to Medicaid or Medicare payments.

(b) If, following the Closing Date, Landlord receives payment from any state or federal agency or third-party provider that represents reimbursement with respect to services provided at the Demised Premises prior to the Closing Date, Landlord agrees that, subject to the provisions of ARTICLE 23 , it shall remit such payments to Tenant. Payments by Landlord to Tenant shall be accompanied by a copy of the appropriate remittance.

(c) If, following the Closing Date, Tenant receives payment from any state or federal agency or third-party provider that represents reimbursement with respect to services provided at the Facilities on or after the Closing Date, Tenant agrees that, it shall remit such payments to Landlord. Payments by Tenant to Landlord shall be accompanied by a copy of the appropriate remittance.

33.8 In addition to the obligations required to be performed hereunder by Tenant and Landlord on and after the Closing Date, Tenant and Landlord agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Closing Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein, including but not limited to any documents or filings that may be required to be delivered by Tenant to Landlord or be filed in order for the transaction contemplated hereunder to be in compliance with all local, state and federal laws, statutes, rules and regulations.

33.9 Tenant for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Landlord and the other Landlord Parties and their respective successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) that any of them may suffer as a result of the breach by Tenant in the

performance of any of its commitments, covenants or obligations under this ARTICLE 33 , or with respect to any suits, arbitration proceedings, administrative actions or investigations that relate to the use by Tenant of the Demised Premises during the Term or for any liability that may arise from operation of the Demised Premises as nursing homes during the Term, including without limitation, any amounts due or to be reimbursed to any governmental authority based upon any audit or review of Tenant or of any Facility or the operation thereof and pertaining to the period prior to the Closing Date or any amounts recaptured under Titles XVIII or XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Landlord under this paragraph are without prejudice to any other remedies not inconsistent herewith that Landlord may have against Tenant pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise.

33.10 So long as the termination of this Lease is not due to a default by Tenant hereunder and provided further that Tenant has performed in accordance with this ARTICLE 33 , Landlord for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Tenant and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) that any of them may suffer as a result of the breach by Landlord in the performance of any of its commitments, covenants or obligations under this ARTICLE 33 , or with respect to any suits, arbitration proceedings, administrative actions or investigations that relate to the use of the Demised Premises after the Term or for any liability that may arise from operation of the Demised Premises as a nursing home after the Term. The rights of Tenant under this paragraph are without prejudice to any other remedies not inconsistent herewith that Tenant may have against Landlord pursuant to the terms of this Lease or otherwise.

33.11 Landlord shall have the right, upon five (5) business days’ prior notice to Tenant (unless the facts and circumstance giving rise to the implementation of this ARTICLE 33 involve an Event of Default, in which case no prior notice shall be required), to offset against any monies due Tenant pursuant to the terms of this ARTICLE 33 , any amounts due by Tenant to Landlord pursuant to this Lease, including without limitation any amounts due for taxes or insurance premiums.

33.12 Anything to the contrary contained in this ARTICLE 33 notwithstanding, in the event the termination of this Lease is due to a default by Tenant hereunder, none of the provisions of this ARTICLE 33 shall in any way limit, reduce, restrict or modify the rights granted to Landlord pursuant to ARTICLE 21 , ARTICLE 22 , and ARTICLE 23 .

33.13 Landlord and Tenant agree to cooperate with each other in order to effectuate the terms and provisions of this ARTICLE 33 .

ARTICLE 34

HAZARDOUS SUBSTANCES

34.1 Tenant shall not install or permit to be installed in the Leased Property, any asbestos or asbestos-containing materials, nor install, permit to be installed, generate, transport, store, treat or dispose of, at the Leased Property any asbestos or any substance containing

asbestos or hazardous substance (as hereinafter defined). Except with respect to any hazardous substance or condition that existed at or with respect to the Leased Property as of the Commencement Date, Tenant shall promptly either: (a) remove or remediate any such hazardous substance or condition; or (b) otherwise comply with such federal, state or local laws, rules, regulations or orders, in all such events at Tenant’s sole expense, and provide evidence thereof that is satisfactory to Landlord. If Tenant shall fail to so remove or otherwise comply, Landlord may, after notice to Tenant and the expiration of the earlier of (i) the applicable cure period hereunder or (ii) the cure period permitted under the applicable law, rule, regulation or order, either declare this Lease to be in default or do whatever is necessary to remove or remediate said hazardous substance(s) or condition(s) from the Leased Property or otherwise comply with the applicable law, rule, regulation or order, and Landlord’s costs and expenses in respect thereof shall be due and payable upon demand. Tenant shall give to Landlord and its agents and employees access to the Leased Property for purposes of removing or remediating said asbestos or other hazardous substance(s) or condition(s) and conducting appropriate tests for the purpose of ascertaining compliance with the terms hereof. Tenant shall promptly provide Landlord copies of all communications, permits or agreements with any governmental authority or agency (federal, state or local) or any private entity relating in any way to any hazardous substance or condition.

34.2 For purposes of this ARTICLE 34 “ hazardous substance ” means any material, chemical, compound or other substance defined or regulated as a hazardous toxic or dangerous substance, contaminant, chemical waste (including medical waste) waste, pollutant or material, or otherwise giving rise to liability, under the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 52 U.S.C. Section 9601 et seq. or any other federal, state or local law, ordinance or regulation relating to the protection of public health or safety, the environment or natural resources, including without limitation any common law theory based on nuisance or strict liability now or at any time in effect applicable to the jurisdiction affecting the Demised Premises (collectively, the “ environmental laws ”).

34.3 Except as reasonably necessary for or consistent with the permitted use of the Leased Property, Tenant shall not conduct or authorize the generation, transportation, storage, treatment or disposal at the Leased Property of any hazardous substance, without prior written authorization by Landlord, and Tenant’s failure to comply with the foregoing prohibition shall constitute a default under this Lease.

34.4 Except with respect to any hazardous substance or condition that existed at or with respect to the Leased Property as of the Commencement Date, if the presence, release, threat of release or placement on or in the Leased Property, or the generation, transportation, storage, treatment or disposal at the Leased Property of any hazardous substance: (i) gives rise to liability (including, but not limited to, a response action, remedial action or removal action) under any of the environmental laws, (ii) poses a significant threat to public health or safety, or (iii) pollutes or threatens to pollute the environment, then Tenant shall promptly take any and all remedial and removal action necessary to eliminate such liability, threat to public health or safety or pollution, as the case may be, and take all actions to mitigate to the maximum extent possible, liability arising from the hazardous substance, whether or not required by law.

34.5 Tenant shall defend (with counsel reasonably satisfactory to Landlord), indemnify the Landlord Parties and hold the Landlord Parties harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys’ fees and costs incurred in the investigation, defense and settlement of claims) that any Landlord Party may incur as a result of or in connection with (a) the assertion against any Landlord Party of any claim relating to the presence or removal of any asbestos or other hazardous substance at the Leased Property that did not exist at or with respect to the Leased Property as of the Commencement Date, or (b) failure of the Leased Property or any portion of the Leased Property to comply with any and all environmental laws (except with respect to conditions that existed at or with respect to the Leased Property as of the Commencement Date), or (c) the breach by Tenant of any of its covenants contained in this ARTICLE 34 . The foregoing indemnity shall survive the expiration or termination of this Lease.

ARTICLE 35

LIMITATION OF LANDLORD’S LIABILITY

35.1 In the event of any conveyance or other divestiture of title to the Leased Property the grantor or the person who is divested of title shall be entirely freed and relieved of all covenants and obligations thereafter accruing hereunder, and the grantee or the person who otherwise succeeds to title shall be deemed to have assumed the covenants and obligations of Landlord thereafter accruing hereunder and shall then be Landlord under this Lease. Notwithstanding anything to the contrary provided in this Lease, if Landlord or any successor in interest of Landlord shall be an individual, partnership, limited liability company, corporation, trust, tenant in common or mortgagee, there shall be absolutely no personal, corporate or entity liability on the part of Landlord or any individual or member of Landlord or any manager, stockholder, director, officer, employee, partner or trustee of Landlord with respect to the terms, covenants or conditions of this Lease, and Tenant shall look solely to the interest of Landlord in the Leased Property for the satisfaction of each and every remedy that Tenant may have for the breach of this Lease; such exculpation from personal, corporate or entity liability to be absolute and without any exception, whatsoever. Anything to the contrary notwithstanding, under no circumstances shall any personal liability attach to or be imposed upon Landlord or any partners, officers, directors, managers, members, agents or employees of Landlord.

[SIGNATURE PAGE FOLLOWS THIS PAGE]

IN WITNESS WHEREOF , the parties hereto have caused this Master Lease to be signed by persons authorized so to do on behalf of each of them respectively the day and year first above written.


LANDLORD:

MRT OF SAN ANTONIO TX – SNF I, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF SAN ANTONIO TX – SNF II, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF GRAHAM TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KEMP TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KERENS TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF BROWNWOOD TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer


MRT OF EL PASO TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF KAUFMAN TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF LONGVIEW TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer

MRT OF MT. PLEASANT TX – SNF, LLC a Delaware limited liability company

By:		/s/ Jeffery C. Walraven
		Jeffrey C. Walraven,
		Executive Vice President and Chief Financial Officer



TENANT:

GRUENEPOINTE 1 GRAHAM, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 EL PASO, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President


GRUENEPOINTE 1 KERENS, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 CASA RIO, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 RIVER CITY, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 BROWNWOOD, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 LONGVIEW, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 KEMP, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President


GRUENEPOINTE 1 MT. PLEASANT, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

GRUENEPOINTE 1 KAUFMAN, LLC a Texas limited liability company

By:		/s/ Jerry Williamson
Print Name:		Jerry Williamson
Title:		President

EXHIBIT A

FACILITIES


Facility Name	Address	Lic. Beds
Casa Rio Health Care and Rehabilitation	6211 S New Braunfels Avenue, San Antonio, 78223, Bexar County	124

Graham Oaks Care Center ¹	1325 First Street Graham, 76450 Young County	120

Greenhill Villas	2530 Greenhill Road, Mount Pleasant, 75455-6744, Titus County	150

Kemp Care Center	1351 South Elm Street, Kemp, 75143, Kaufman County	124

Kerens Care Center	809 NE 4 ^th Street, Kerens, 75144 Navarro County	70

River City Care Center	921 Nolan Street, San Antonio, 78202, Bexar County	100

Songbird Lodge	2500 Songbird Circle, Brownwood, 76801, Brown County	125

Sunflower Park Health Care	1803 Highway 243 East, Kaufman, 75142, Kaufman County	92

St. Teresa Nursing and Rehabilitation Center	10350 Montana Avenue, El Paso, 79925, El Paso County	124

Whispering Pines Lodge I LLP	2131 Alpine Road, Longview, 75601, Gregg County	116

¹	Graham Oaks Care Center is intended to be added following the Closing in accordance with the terms of the Letter Agreement, dated July 29, 2015, between Landlord and Tenant.

A-1

EXHIBIT B

LEGAL DESCRIPTIONS OF LAND

Kerens

PARCEL ONE:

BEGINNING at the intersection of the North line of 4th Street and the East line of Margaret Avenue

THENCE Eastward with the North line of 4th Street 300 feet to the intersection of the West line of Lella Avenue and North line of 4th Street;

THENCE North with the West line of Lella Avenue 600 feet to the intersection of the South line of 6th Street and West line Lella Avenue,

THENCE Westward 300 feet to the intersection of East line of Margaret Avenue and South line of 6th Street;

THENCE with the East line of Margaret Avenue 600 feet to the PLACE OF BEGINNING .

PARCEL TWO:

BEGINNING at the Southwest corner of the Joe M. Daniel Brock 3;

THENCE N 29 deg. 50’ W a distance of 1,240 feet to a point;

THENCE N 60 deg. 10’ E a distance of 255 feet 3 inches to a point for the PLACE OF BEGINNING of the center line of such right of way;

THENCE N 29 deg. 50’ W to the point of intersection with the existing City of Kerens, Texas, sewer line, the PLACE OF ENDING of the center line of such right of way

And further described as Tract 46A. H. Bush Abstract, by the Navarro Central Appraisal District (formerly R07607, and now Account No. 31518)

B-1

KEMP

B-2

SUNFLOWER

TRACT 1:

TRACT 2:

TRACT 3:

B-3

SUNFLOWER

EXHIBIT “A-1”

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 7.338 acre tract conveyed to Ricky R Vrzalik, et al from Andrew J. Kupper, and wife on January 13, 1988 and recorded in Volume 917, Page 85 of the Deed Records of Kaufman County. Texas and being more completely described as follows, to wit:

BEGINNING at an iron rod for corner in the Northwest line of the above mentioned 7.338 acre tract and being N 45 deg. 45 min. 31 sec. E 265.85 feet from the Southwest corner of same;

THENCE S 45 deg. 45 min. 31 sec. W, a distance of 159.83 foot to an iron rod for corner;

THENCE S 60 deg. 40 min. 34 sec. E, a distance of 239.72 feet to an iron rod for corner;

THENCE S 30 deg. 56 min. 56 sec. W, a distance of 248.90 feet to an iron rod in the South line of the above mentioned 7.338 acre tract and in the North right of way line of State Highway No. 243;

THENCE N 84 deg. 33 min. 19 sec. W, with said South line and with said right of way line, a distance of 279.00 feet to an iron rod for corner;

THENCE N 5 deg. 43 min. 35 sec. E, a distance of 203.36 feet to the PLACE OF BEGINNING, containing 2.391 acres of land, more or less.

B-4

SUNFLOWER

EXHIBIT “A-2”

BEGINNING at a 3/8” iron rod found at the East corner of the above mentioned 3.551 acre tract and being in the Southwest right of way line of Old State Highway No. 243;

THENCE N 60 deg. 40 min 34 sec. W, with the Southerly Northeast line of said 2.391 acre tract, a distance of 239.72 ft. to a 3/8” iron rod found at an ell corner of same;

B-5

SUNFLOWER

EXHIBIT “A-3”

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey, Abstract No. 21, Kaufman County, Texas, part of that certain called 3.551 acre tract conveyed to Dorothea Spencer by Ricky R, Vrzalik, etal on March 30, 1990, recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas, and being more completely described as follows, to wit:

B-6

CASA RIO

B-7

RIVER CITY

B-8

ST. TERESA

B-9

GREENHILL

Tract 1: Fee Simple Estate

B-10

THENCE S 88º 50’ 50“ W along the South boundary line of said 20.594 acre tract a distance of 517.81 feet to a 1/2” rebar set for a corner, and being on the Point of Beginning;

THENCE in a Northerly direction as follows:

S 89º 13’ 00“ W a distance of 15.30 feet to a 1/2” rebar set, and

N 14º 03’ 27“ W a distance of 252.21 feet to a 1/2” rebar set on the South boundary line of a 2.637 acre Access Easement surveyed this 1st date of July, 2008 out of said 20.594 acre tract;

THENCE S 89º 50’ 49“ E along the south boundary line of said Access Easement a distance of 562.92 Feet to a 1/2” rebar set for a corner;

THENCE in a Southerly direction as follows:

S 0° 09’ 11“ W a distance of 47.43 feet to a 1/2” rebar set,

S 15° 11’ 37“ E a distance of 350.97 feet to a 1/2” rebar set,

S 74° 48’ 23“ W a distance of 132.04 feet to a 1/2” rebar set, and

S 12° 33’ 54“ E a distance of 106.42 feet to the PLACE OF BEGINNING and containing 6.467 acres of land, more or less.

Tract 2: Easement Estate

Tract 3: Easement Estate

Tract 4: Easement Estate

B-11

WHISPERING PINES

Exhibit A

Legal Description

BEGINNING at a 1/2” iron rod set at the intersection of the South ROW line of Eden Drive and the West ROW line of Alpine Road for corner, said corner being the Northeast corner of said Lot 1, Block 8215 of said Jefferson Village East—Unit 1, same being the Northeast corner of said called 14.48 acre tract and PLACE OF BEGINNING of the herein described 4.96 acre tract of land;

THENCE N 42 deg. 10 min 00 sec. W, 250.00 feet to a 1/2 inch iron rod set for an angle point of this tract;

THENCE N 01 deg. 09 min. 00 sec. W, 245.50 feet to a 1/2 inch iron rod set in the South ROW line of said Eden Drive for corner, said corner also being in the North line of said Lot 2, Block 8215 and said 14.48 acre tract for the Northwest corner of the herein described 4.96 acre tract of land;

THENCE N 88 deg. 50 min. 26 sec. E, 88.21 feet along the South ROW line of said Eden Drive to a 1/2 inch iron rod set in same for angle point of this tract;

THENCE S 87 deg. 46 min. 01 sec. E, 84.50 feet along the South ROW line of said Eden Drive to a PK nail set in concrete for angle point of this tract;

THENCE S 86 deg. 06 min. 00 sec. E, 526.70 feet along the South ROW line of said Eden Drive to the PLACE OF BEGINNING and containing 4.96 acres of land.

B-12

SONGBIRD LODGE

Exhibit A

Legal Description

Tract 1:

All of that certain 4.00 acre tract, lot, or parcel of land being out of the Taylor Smith Survey No. 600, Abstract No. 821, being situated in the City of Brownwood, Brown County, Texas, 3.06895 miles, S 12°29’22.8” W, of the Court House of Brown County, Texas, and being 23.37513 miles, N 39 39°03’04.8“E, of the Geographical Center of the State of Texas, and being more particularly described by metes and bounds on Exhibit “A-1” attached hereto and made a part hereof.

Tract 2:

Those certain non-exclusive easements for ingress to and from Tract 1 as described herein and a recognized public roadway, and being described in three parcels as follows:

Parcel 1:

Along the Northwest 25 feet of what is depicted as “Alamo Street” on that certain plat prepared by George M. Amthor, III, R.P.L.S. dated August 23, 1991, which said plat is attached hereto as Exhibit “B” and made a part hereof beginning at the intersection of the centerline of the said “Alamo Street”, and continuing Northeasterly to the intersection of said centerline with the Northwest line of an unnamed street adjoining the 4.0 acre tract hereby conveyed along its Northeast line;

Parcel 2:

A 50 foot wide roadway along the Northeast line of the 4.0 acre tract hereby conveyed, the centerline of which begins at the intersection of the centerline of an unnamed street and the centerline of “Alamo Street” as shown on the said George M. Amthor, III, plat, and running South 21 degrees, 24 minutes, 00 seconds East 398.95 feet to the end of this; and

Parcel 3:

A 50 foot wide roadway along the Southwest line of the 4.0 acre tract hereby conveyed, the centerline of which begins at the intersection of the centerline of another unnamed street and the center line of the said “Alamo Street” as shown on the said George M. Amthor, III, plat, and running North 21 degrees, 19 minutes, 38 seconds, West 398.95 feet to the end of this.

B-13

EXHIBIT “A-1”

All of that certain 4.00 acre tract, lot, or parcel of land being out of the Taylor Smith Survey No. 600, Abstract No. 821, being situated in the City of Brownwood, Brown County, Texas, 3.06895 miles, S 12°29’22.8” W, of the Court House of Brown County, Texas, and being 23.37513 miles, N 39 39°03’04.8“ E, of the Geographical Center of the State of Texas, and being the same land as conveyed by Deed from Howard Payne University to R. U. S. Inc, dated October 7, 1991, being of record in Volume 1091, Page 255, of the Real Property Records of Brown County, Texas, and being more particularly described by metes and bounds as follows:

THENCE North 21 degrees 30 minutes 06 seconds West, with the east line of said Songbird Circle, 373.75 feet to a 1/2” iron rod found in place, being the NWC of said 4 acre tract, and the SWC of same land as conveyed as a 3.155 acre tract, and described in a deed to Redstone Park L.P ., dated April 5, 1996, being of record in Volume 1224, Page 827, of the Real Property Records of Brown County, Texas, for the North West Corner of this;

THENCE North 68 degrees 24 minutes 41 seconds East, with southerly line of said 3.155 acre tract, and the northerly line of said 4.00 acre tract, 465.67 feet to a 1/2” iron rod found in the Westerly line of said Songbird Circle, being the SEC of said 3.155 acre tract, and the NEC of said 4.00 acre tract, for the North East Corner of this;

THENCE South 68 degrees 27 minutes 33 seconds West, with the northerly line of said Alamo Street, 466.40 feet to the Place of Beginning and calculated to contain 4.00 acres of land in area.

Special Warranty Deed- Songbird Lodge

B-14

GRAHAM OAKS

EXHIBIT “A”

A tract of land containing 6.05 acres, more or less, being part of Block 114 out of the Bell Hill Survey, Abstract No. 137 and being the same tract as described in a deed from Graham Oaks, Inc. to Graham Oaks Associates, L.P., recorded in Volume 754, Page 153, of the Deed Records of Young County, Texas, being more particularly described as follows:

Beginning at a 5/8 inch inch rod set in the north line of First Street and at the southeast corner of a 20 foot alley as shown on a plat of Morningside Addition to the City of Graham, recorded in Volume I, Page 179, of the Plot Records of Young County, Texas, said iron rod being the southwest corner of the tract described in a deed from Graham Oaks, Inc., to Graham Oaks Associates, L.P. recorded in Volume 754, Page 153, of the Deed Records of Young County, Texas;

Thence with the south line of said 8.5 acre tract, South 89 degrees 40 minutes 29 seconds East for a distance of 440.00 feet to a 5/8 inch iron rod set for corner at the northwest corner of a called 47.8 acre tract;

Thence with the northernmost west line of said 47.8 acre tract, South 00 degrees 19 minutes 31 seconds West for a distance of 599.00 to a 5/8 inch iron rod set for corner in the north R.O.W. line of First Street;

Thence with the North R.O.W. line of First Street, North 89 degrees 40 minutes 29 seconds West for a distance of 440.00 feet to the point of beginning.

B-15

Exhibit 10.32

FIRST AMENDMENT TO MASTER LEASE

This FIRST AMENDMENT TO MASTER LEASE (this “ Amendment ”) is made as of January 13, 2016, by and among MRT of San Antonio TX - SNF I, LLC, MRT of San Antonio TX - SNF II, LLC, MRT of Graham TX - SNF, LLC, MRT of Kemp TX - SNF, LLC, MRT of Kerens TX - SNF, LLC, MRT of Brownwood TX - SNF, LLC, MRT of El Paso TX - SNF, LLC, MRT of Kaufman TX - SNF, LLC, MRT of Longview TX - SNF, LLC, and MRT of Mt. Pleasant TX - SNF, LLC, each a Delaware limited liability company (collectively, the “ Landlord ”), and GruenePointe 1 Graham, LLC, GruenePointe 1 El Paso, LLC, GruenePointe 1 Kerens, LLC, GruenePointe 1 Casa Rio, LLC, GruenePointe 1 River City, LLC, GruenePointe 1 Brownwood, LLC, GruenePointe 1 Longview, LLC, GruenePointe 1 Kemp, LLC, GruenePointe 1 Mt. Pleasant, LLC, and GruenePointe 1 Kaufman, LLC, each a Texas limited liability company (collectively referred to herein as the “ Tenant ”).

W I T N E S S E T H :

WHEREAS , Landlord and Tenant are parties to that certain Master Lease, dated July 29, 2015 (the “ Master Lease ”), pursuant to which Landlord leases to Tenant, and Tenant leases from Landlord, those ten (10) properties comprising the Leased Property, as more fully described in the Master Lease; and

WHEREAS , Landlord and Tenant desire to amend the terms of the Master Lease, pursuant to the terms and conditions as provided herein; and

WHEREAS , all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Master Lease.

NOW THEREFORE , in consideration of the premises and the agreements and covenants contained herein, Landlord and Tenant agree that the Master Lease is amended and modified as follows:

1. Amendments to Master Lease .

Section 6.1 of the Master Lease is hereby amended by adding the following provision at the end of such Section:

“Tenant shall promptly, but in no event later than ten (10) days following the due date of any Taxes and Assessments, forward to Landlord copies of all invoices received by Tenant for such Taxes and Assessments and evidence of payment thereof. Further, Tenant shall provide to Landlord copies of all payment receipts for such Taxes and Assessments within ten (10) days after Tenant’s receipt thereof.”

Section 7.1 of the Master Lease is hereby deleted in its entirety and the following is substituted in place thereof:

“7.1 Following an Event of Default, Landlord, at its sole option and upon notice to Tenant, may require Tenant to (i) make deposits for Taxes and Assessments with Landlord of an amount

equal to one-twelfth (1/12) of the annual Taxes and Assessments or such greater amount as may be required by any Mortgage/Underlying Lease, and/or (ii) make deposits for insurance premiums with Landlord of an amount equal to one-twelfth (1/12 ^th ) of the annual premiums for insurance on the Leased Property. Said deposits, if so required, shall be due and payable on the first day of each month, shall not bear interest and shall be held, at Landlord’s option, by Landlord and/or Mortgagee/Underlying Lessor to pay the Taxes and Assessments and insurance premiums as they become due and payable. If the total of the monthly payments as made under this Article shall be insufficient to pay the Taxes and Assessments and insurance premiums when due, then Tenant shall within ten (10) days of written demand pay Landlord the amount necessary to make up the deficiency.”

Section 30.1 of the Master Lease is hereby deleted in its entirety and the following is substituted in place thereof:

“30.1 Within one hundred and twenty (120) days after the end of each calendar year (starting with the year ended December 31, 2015), Tenant shall cause GP Holdings to furnish to Landlord the full and complete audited financial statement of GP Holdings, prepared on a consolidated basis, reflecting the operations of the Facilities operated by the Tenants and GP Salvado for such year, which financial statement (i) shall contain a balance sheet, a detailed income and expense statement, and statement of cash flows for the Facilities (including St. Giles Nursing and Rehabilitation Center located in El Paso County, Texas and owned by GruenePoint 1 St. Giles, LLC), on a consolidated basis, (ii) shall contain supplemental consolidating financial statement schedules for each of the Facilities, each containing the balance sheet, detailed income and expense statement, and statement of cash flows for the applicable Facility, (iii) shall be duly certified by an officer of GP Holdings to fairly represent the financial condition of GP Holdings, the Tenants and GP Salvado, on a consolidated and consolidating basis, as of the date thereof, in accordance with GAAP, and (iv) shall be accompanied by a statement of a nationally recognized accounting firm acceptable to Landlord in its sole discretion (with Landlord hereby agreeing that McNair, McLemore, Middlebrooks & Co is acceptable to Landlord) that such consolidated financial statement of GP Holdings presents fairly, in all material respects, the financial condition of GP Holdings as of the end of the calendar year being reported on and that the results of the operations and cash flows for such year were prepared, and are being reported on, in conformity with GAAP (collectively called “ Financial Statements ”). In addition, within one hundred and twenty (120) days after the expiration or earlier termination of the Term, GP Holdings shall deliver to Landlord its Financial Statements for the period of time from the last day of the immediately preceding fiscal year to the date on which the Term expires or terminates, and any such obligation shall survive the expiration or earlier termination of this Lease.”

Section 31.2 of the Master Lease is hereby modified by deleting the phrase “twenty-five (25) miles” and substituting the phrase “ten (10) miles” in place thereof.

Section 32.6 of the Master Lease is hereby modified by deleting the notice address of the Tenants and substituting the following in place thereof:


“If to Tenants:		c/o GruenePointe Holdings, LLC
		101 W. Renner Road, Suite 140
		Richardson, Texas 75082
		Attn: David Gunderson
		Telephone: (214) 995-1900
		Facsimile No: None
		E-mail: David@USFreedomCap.com



With a copy to:		OnPointe Management LLC
		8820 Horizon Blvd.
		Albuquerque, NM 87113
		Attention: Jerry Williamson
		Telephone:
		Facsimile No:
		E-mail:

and a copy to:		Munsch Hardt Kopf & Harr, P.C.
		500 N. Akard Street, Suite 3800
		Dallas, Texas 75201
		Attn: Phill Geheb
		Telephone: (214) 855-7560
		Facsimile No: (214) 978-5313
		E-mail: pgeheb@munsch.com

and a copy to:		Richards Rodriguez & Skeith, LLP
		816 Congress Ave., Suite 1200
		Austin, TX 78701
		Attention: Cory Macdonald, Esq.
		Telephone:
		Facsimile No:
		E-mail: CMacdonald@rrsfirm.com”

All other provisions of Section 32.6 of the Master Lease (save for the Tenants’ notice address expressly modified herein) shall continue to apply and remain in full force and effect.

2. References to Master Lease . The Master Lease and any and all other documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Master Lease are hereby amended so that any reference in the Master Lease or in such other documents to the Master Lease shall mean a reference to the Master Lease as amended hereby.

3. Confirmation . Except as specifically set forth herein, all other terms and conditions of the Master Lease shall remain unmodified and in full force and effect, the same being confirmed and republished hereby. In the event of any conflict between the terms of the Master Lease and the terms of this Amendment, the terms of this Amendment shall control.

4. Counterparts . This Amendment may be executed in any number of counterparts all of which taken together shall constitute one and the same instrument and any of the parties or

signatories hereto may execute this Amendment by signing any such counterpart. Copies of original signatures sent by facsimile, portable document format (.pdf), or other electronic imaging means shall be deemed to be originals for all purposes of this Amendment.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF , Landlord and Tenant have executed this First Amendment to Master Lease as of the date first written above.


LANDLORD:

MRT OF SAN ANTONIO TX – SNF I, LLC		MRT OF BROWNWOOD TX – SNF, LLC
a Delaware limited liability company		a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	By:	/s/ Jeffery C. Walraven
	Jeffrey C. Walraven,		Jeffrey C. Walraven,
	Executive Vice President and CFO		Executive Vice President and CFO

MRT OF SAN ANTONIO TX – SNF II, LLC		MRT OF EL PASO TX – SNF, LLC
a Delaware limited liability company		a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	By:	/s/ Jeffery C. Walraven
	Jeffrey C. Walraven,		Jeffrey C. Walraven,
	Executive Vice President and CFO		Executive Vice President and CFO

MRT OF GRAHAM TX – SNF, LLC		MRT OF KAUFMAN TX – SNF, LLC
a Delaware limited liability company		a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	By:	/s/ Jeffery C. Walraven
	Jeffrey C. Walraven,		Jeffrey C. Walraven,
	Executive Vice President and CFO		Executive Vice President and CFO

MRT OF KEMP TX – SNF, LLC		MRT OF LONGVIEW TX – SNF, LLC
a Delaware limited liability company		a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	By:	/s/ Jeffery C. Walraven
	Jeffrey C. Walraven,		Jeffrey C. Walraven,
	Executive Vice President and CFO		Executive Vice President and CFO

MRT OF KERENS TX – SNF, LLC		MRT OF MT. PLEASANT TX – SNF, LLC
a Delaware limited liability company		a Delaware limited liability company

By:	/s/ Jeffery C. Walraven	By:	/s/ Jeffery C. Walraven
	Jeffrey C. Walraven,		Jeffrey C. Walraven,
	Executive Vice President and CFO		Executive Vice President and CFO


TENANT:

GRUENEPOINTE 1 GRAHAM, LLC		GRUENEPOINTE 1 BROWNWOOD, LLC
a Texas limited liability company		a Texas limited liability company

By:	/s/ Jerry Williamson	By:	/s/ Jerry Williamson
	Jerry Williamson, President		Jerry Williamson, President

GRUENEPOINTE 1 EL PASO, LLC		GRUENEPOINTE 1 LONGVIEW, LLC
a Texas limited liability company		a Texas limited liability company

By:	/s/ Jerry Williamson	By:	/s/ Jerry Williamson
	Jerry Williamson, President		Jerry Williamson, President

GRUENEPOINTE 1 KERENS, LLC		GRUENEPOINTE 1 KEMP, LLC
a Texas limited liability company		a Texas limited liability company

By:	/s/ Jerry Williamson	By:	/s/ Jerry Williamson
	Jerry Williamson, President		Jerry Williamson, President

GRUENEPOINTE 1 CASA RIO, LLC		GRUENEPOINTE 1 MT. PLEASANT, LLC
a Texas limited liability company		a Texas limited liability company

By:	/s/ Jerry Williamson	By:	/s/ Jerry Williamson
	Jerry Williamson, President		Jerry Williamson, President

GRUENEPOINTE 1 RIVER CITY, LLC		GRUENEPOINTE 1 KAUFMAN, LLC
a Texas limited liability company		a Texas limited liability company

By:	/s/ Jerry Williamson	By:	/s/ Jerry Williamson
	Jerry Williamson, President		Jerry Williamson, President

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

MedEquities Realty Trust, Inc.:

We consent to the use of our reports included herein and to the reference to our firm under the heading “Experts” in the prospectus.

/s/ KPMG LLP

Atlanta, Georgia

May 3, 2016

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

MedEquities Realty Trust, Inc.:

We consent to the use of our report included herein dated March 10, 2016, relating to the financial statements of GruenePointe Holdings, LLC and Subsidiaries, and to the reference to us under the heading “Experts” in the prospectus.

/s/ McNair, McLemore, Middlebrooks & Co., LLC

May 5, 2016

Macon, Georgia