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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2012
Commitments and Contingencies |
Commitments and Contingencies |
7. Commitments and Contingencies During 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 June 30, 2012 and December 31, 2011, the remaining contingent earn-out payments had a fair value of $6,524,000 and $6,305,000, respectively. During the three and six months ended June 30, 2012, we recorded non-cash interest expense of $110,000 and $220,000, respectively, 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 and six months ended June 30, 2011, we recorded $177,000 of non-cash interest expense related to the earn-out liabilities. At June 30, 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 |
$ 100 |  | 8/1/12 |  |  | $ 98 |  | $ 2 |  |  |  | (1) | SNF |  | 1 |
1,700 |  | 3/31/13 |  |  | 238 | (8)(a) | 1,462 |  |  | 9.00% | (2) | SNF |  | 2 |
8,250 |  | 10/11/13 |  |  | 115 |  | 8,135 |  |  | 9.00% | (2) | UDP(6) |  | — |
7,935 |  | 12/1/13 |  |  | 150 | (8)(b) | 7,785 |  |  | 9.25% | (2) | UDP(5) |  | — |
5,000 | (4) | 12/31/14 |  |  | — |  | 5,000 |  |  |  | (3) | ALF |  | 37 |
30 |  | 8/31/15 |  |  | — |  | 30 |  |  |  | (1) | EDU |  | 1 |
$23,015 | (7) |  |  |  | $601 |  | $22,414 |  |  |  |  |  |  |  |
(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) This commitment is to construct a 60-unit free-standing memory care property in Colorado. (6) This commitment is to construct a 120-bed skilled nursing property in Texas. (7) In July 2012, we committed to fund $1,700 expiring in July 2014 with an estimated yield of 9.00% for improvements to a SNF property not operated by a major operator. (8) In July 2012, we funded the following commitments: (a) $87 and (b) $145. The following table summarizes our loan commitments and investments as of June 30, 2012 (dollar amounts in thousands):
Commitment |  |  | Expiration Date |  | Used Commitment |  |  | Open Commitment |  | Yield |
$2,500 | (2) |  | 12/31/12 |  | $2,199 | (4) |  | $301 |  | 8.50% |
667 | (3) |  | 12/31/12 |  | 53 |  |  | 614 |  | 9.00% |
50 |  |  | 3/31/13 |  | 20 |  |  | 30 |  | 10.00% |
750 |  |  | 5/14/14 |  | — |  |  | 750 |  | 12.00% |
$ 3,967 |  |  |  |  | $2,272 |  |  | $1,695 |  |  |
(1) This commitment is 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. (2) This commitment is a construction and term loan for capital improvements at a skilled nursing property 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 May 2018. (3) This commitment is a note agreement with our operator of a 60-unit free standing memory care property under development. (4) In July 2012, we funded an additional $232 under this commitment.

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