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Commitments and Contingencies
 3 Months Ended
Mar. 31, 2012
Commitments and Contingencies  
Commitments and Contingencies

7.                                      Commitments and Contingencies

 

During the three months ended March 31, 2011, we purchased four skilled nursing properties with a total of 524 beds. As part of the purchase agreement, we paid cash at closing and committed to provide contingent earn-out payments if certain operational thresholds are met.  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. We estimated the fair value of the contingent earn-out payments 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.  At March 31, 2012 and December 31, 2011, the remaining contingent earn-out payments had a fair value of $6,414,000 and $6,305,000, respectively. During the three months ended March 31, 2012, we recorded non-cash interest expense of $110,000 related to the earn-out liabilities which represents the accretion of the difference between the current fair value and estimated payment of the contingent earn-out liabilities. During the three months ended March 31, 2011, we did not record any non-cash interest expense related to the earn-out liabilities.

 

At March 31, 2012, we committed to provide the following capital improvement commitments and investments (dollar amounts in thousands):

 

Commitment

 

Expiration
Date

 

Used
Commitment

 

Open
Commitment

 

Estimated
Yield

 

Property
Type

 

Properties

 

Major Operator

 

$

100

 

8/1/12

 

$

98

 

$

2

 

 

(1)

SNF

 

1

 

N/A

 

8,250

 

10/11/13

 

50

 

8,200

 

9.00

%(2)

SNF(5)

 

—

 

N/A

 

5,000

(4)

12/31/14

 

—

 

5,000

 

 

(3)

ALF

 

37

 

ALC

 

$

13,350

 

 

 

$

148

 

$

13,202

 

 

 

 

 

 

 

 

 

 

 

(1)             The yield is included in the initial lease rate.

 

(2)             Minimum rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement.

 

(3)             9.5% plus the positive difference, if any, between the average yields on the U.S. Treasury 10-year note for the five days prior to funding, minus 420 basis points (expressed as a percentage).

 

(4)             $5,000 per year for the life of the lease.

 

(5)             Represents a commitment to construct a 120-bed skilled nursing property on a vacant parcel of land in Texas.

 

In April 2012, we committed to provide a $1,700,000 capital improvement commitment on two skilled nursing properties.  The commitment includes interest compounded at 9% on each advance made from the disbursement date until either the final distribution of the commitment or the maturity date in April 2013. Upon final distribution or maturity of the capital improvement commitment, minimum rent shall increase by the total commitment funded multiplied by 9%.  In April 2012, we funded $86,000 under this agreement.

 

The following table summarizes our loan commitments and investments as of March 31, 2012 (dollar amounts in thousands):

 

Commitment

 

Expiration
Date

 

Used
Commitment

 

Open
Commitment

 

Yield

 

Property
Type (1)

 

Properties

 

Major
Operator

 

$

2,500

(2)

12/31/12

 

$

1,267

 

$

1,233

 

8.50

%

Other

 

2

 

N/A

 

50

 

3/31/13

 

20

 

30

 

10.00

%

Other

 

1

 

N/A

 

$

2,550

 

 

 

$

1,287

 

$

1,263

 

 

 

 

 

 

 

 

 

 

 

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

 

(2)             Represents a construction and term loan for capital improvements at two senior housing properties we own and lease to the borrower. Upon the earlier of the full funding of the commitment or December 31, 2012, construction distribution under this loan will cease and this loan will fully amortize to maturity in November 2017.