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Real Estate Investments
 3 Months Ended
Mar. 31, 2012
Real Estate Investments  
Real Estate Investments

2.                                      Real Estate Investments

 

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 2012 (dollar amounts in thousands):

 

 

 

 

 

Percentage

 

 

 

Number

 

Number of

 

Average
Investment

 

Type of Property

 

Gross
Investments

 

of
Investments

 

Number
of Loans

 

of
Properties (1)

 

SNF
Beds

 

ALF
Units

 

per
Bed/Unit

 

Skilled Nursing

 

$

27,578

 

51.8

%

20

 

21

 

2,326

 

—

 

$

11.86

 

Assisted Living

 

22,666

 

42.5

%

9

 

14

 

—

 

424

 

53.46

 

Other Senior Housing (2)

 

3,038

 

5.7

%

1

 

1

 

99

 

74

 

17.56

 

Totals

 

$

53,282

 

100.0

%

30

 

36

 

2,425

 

498

 

 

 

 

 

(1)             We have investments in 12 states that include mortgages to 14 different operators.

 

(2)             Other senior housing consists of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.

 

At March 31, 2012, the mortgage loans had interest rates ranging from 10.0% to 14.6% and maturities ranging from 2012 to 2019.  In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 25-year amortization schedules.  The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points.

 

During the three months ended March 31, 2012, we received $718,000 in regularly scheduled principal payments. During April 2012, we received $2,264,000 plus accrued interest related to the early payoff of a mortgage loan secured by a 90-bed skilled nursing property in Florida.  In May 2012, we received $135,000 plus accrued interest related to the early payoff of a mortgage loan secured by a 124-bed skilled nursing property in California. During the three months ended March 31, 2011, we received $961,000 in regularly scheduled principal payments and we received $1,005,000 plus accrued interest related to the payoff of one mortgage loan secured by one assisted living property.

 

Owned Properties. The following table summarizes our investments in owned properties at March 31, 2012 (dollar amounts in thousands):

 

 

 

 

 

 

 

Number

 

Number of

 

Average
Investment

 

Type of Property

 

Gross
Investments

 

Percentage of
Investments

 

of
Properties (1)

 

SNF
Beds

 

ALF
Units

 

ILF
Units

 

per
Bed/Unit

 

Skilled Nursing

 

$

377,143

 

50.9

%

68

 

8,025

 

—

 

—

 

$

47.00

 

Assisted Living

 

285,981

 

38.6

%

88

 

—

 

3,941

 

—

 

72.57

 

Other Senior Housing (2)

 

64,704

 

8.7

%

13

 

814

 

256

 

423

 

43.34

 

School

 

12,229

 

1.7

%

2

 

—

 

—

 

—

 

N/A

 

Under Development (3)

 

894

 

0.1

%

—

 

—

 

—

 

—

 

N/A

 

Totals

 

$

740,951

 

100.0

%

171

 

8,839

 

4,197

 

423

 

 

 

 

 

(1)             We have investments in 25 states leased to 30 different operators.

 

(2)             Other senior housing consists of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services.

 

(3)             During 2011, we acquired a vacant parcel of land in Texas for $844 and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property.

 

Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years.  Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities.  Many of the leases contain renewal options and one contains a limited period option that permits the operator to purchase the property.  The leases provide for fixed minimum base rent during the initial and renewal periods.  The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

 

(i)                   a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%;

(ii)                a calculation based on the Consumer Price Index;

(iii)             as a percentage of facility net patient revenues in excess of base amounts; or

(iv)            specific dollar increases.

 

During the three months ended March 31, 2012, we purchased a 144-bed skilled nursing property located in Texas for an aggregate purchase price of $18,600,000.  Simultaneous with the purchase, we added the property to an existing master lease with a third party operator at an incremental GAAP yield of 10.8%. Additionally, we sold a 140-bed skilled nursing property located in Texas for $1,248,000 and recognized a gain, net of selling expenses, of $16,000. This property was leased under a master lease and the economic terms of this master lease did not change as a result of this sale.

 

Also during the three months ended March 31, 2012, we invested $66,000 at an average yield of 9.0%, under an agreement to expand and renovate two existing properties with one operator.  We also invested $136,000 in capital improvements to two existing properties under two lease agreements whose rental rates already reflected this investment.

 

At the time of acquisition, we preliminarily estimated the allocation of the assets acquired based upon historical valuations of similar acquisitions and the facts and circumstances available at the time. We will determine the final value of the identifiable assets as soon as information is available, but not more than 12 months from the date of acquisition. We are in the process of completing the final allocation of the 144-bed skilled nursing property described above.

 

During the three months ended March 31, 2011, we acquired two senior housing properties located in South Carolina with 118 skilled nursing beds, 40 assisted living units and 53 independent living units for $11,450,000.  Also during the three months ended March 31, 2011, we purchased four skilled nursing properties with 524-beds in Texas for $50,841,000 which consists of $41,000,000 in cash at closing with the remainder in the form of contingent earn-out payments.  The contingent earn-out payment arrangements require us to pay two earn-out payments totalling up to $11,000,000 upon the properties achieving a sustainable stipulated rent coverage ratio. During the third quarter of 2011, we paid $4,000,000 related to the first contingent earn-out payment. We estimated the fair value of the contingent earn-out payment using a discounted cash flow analysis.  This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement.

 

During the three months ended March 31, 2011, we invested $1,602,000 at an average yield of 9.9%, under agreements to expand and renovate six existing properties operated by three different operators.  We also invested $13,000 in capital improvements to one existing property under a lease agreement whose rental rates already reflected this investment.

 

Any reference to the number of properties, number of schools, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.