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Real Estate Investments | 9 Months Ended
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Sep. 30, 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 September 30, 2012 (dollar amounts in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  |  | Average
|  |  |  | Percentage |  |  |  | Number |  | Number of |  | Investment
|  | Gross |  | of |  | Number |  | of |  | SNF |  | ALF |  | per
Type of Property |  | Investments |  | Investments |  | of Loans |  | Properties (1) |  | Beds |  | Units |  | Bed/Unit
Skilled Nursing |  | $23,780 |  | 48.4% |  | 18 |  | 18 |  | 1,994 |  | — |  | $11.93
Assisted Living |  | 22,438 |  | 45.7% |  | 9 |  | 14 |  | — |  | 424 |  | 52.92
Other Senior Housing (2) |  | 2,923 |  | 5.9% |  | 1 |  | 1 |  | 99 |  | 74 |  | 16.90
Totals |  | $49,141 |  | 100.0% |  | 28 |  | 33 |  | 2,093 |  | 498 |  |
(1) We have investments in 12 states that include mortgages to 12 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 September 30, 2012, the mortgage loans had interest rates ranging from 10.0% to 14.2% 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 September 30, 2012, we received a notice of prepayment from a borrower who holds seven mortgage loans secured by seven assisted living properties with a weighted average interest rate of 12.1%. We expect to receive a total of $15,157,000 plus accrued interest on or about November 24, 2012 related to this payoff. We intend to use the proceeds to partially repay amounts outstanding under our Unsecured Credit Agreement. During the three months ended September 30, 2012, we received $621,000 in regularly scheduled principal payments and $483,000 plus accrued interest related to the early payoff of a mortgage loan secured by a 118-bed skilled nursing property. During the nine months ended September 30, 2012, we received $2,010,000 in regularly scheduled principal payments and $2,846,000 plus accrued interest related to the early payoff of three mortgage loans secured by three skilled nursing properties. During the nine months ended September 30, 2011, we received $2,429,000 in regularly scheduled principal payments and we received $2,557,000 plus accrued interest related to the payoff of three mortgage loans secured by one assisted living property and five skilled nursing properties. Owned Properties. The following table summarizes our investments in owned properties at September 30, 2012 (dollar amounts in thousands):
|  |  |  |  |  |  |  | Number of |  | Average |
|  |  |  |  |  | Number |  |  |  |  |  |  |  | Investment |
|  | Gross |  | Percentage of |  | of |  | SNF |  | ALF |  | ILF |  | per |
Type of Property |  | Investments |  | Investments |  | Properties (1) |  | Beds |  | Units |  | Units |  | Bed/Unit |
Skilled Nursing |  | $438,135 |  | 54.4% |  | 71 |  | 8,403 |  | — |  | — |  |  | $52.14 |
Assisted Living |  | 285,981 |  | 35.5% |  | 88 |  | — |  | 3,941 |  | — |  |  | 72.57 |
Other Senior Housing (2) |  | 64,704 |  | 8.0% |  | 13 |  | 814 |  | 256 |  | 423 |  |  | 43.34 |
School |  | 12,268 |  | 1.5% |  | 2 |  | — |  | — |  | — |  |  | N/A |
Under Development (3) |  | 4,671 |  | 0.6% |  | — |  | — |  | — |  | — |  |  | N/A |
Totals |  | $805,759 |  | 100.0% |  | 174 |  | 9,217 |  | 4,197 |  | 423 |  |  |
(1) We have investments in 25 states leased to 32 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) We have two properties under development: 120-bed skilled nursing property in Texas which will replace an existing 90-bed skilled nursing property we own and 60-unit free-standing memory care property in Colorado. 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. 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. The following table summarizes our acquisitions during nine months ended September 30, 2012 (dollar amounts in thousands, unaudited):
|  |  |  |  |  | Total |  | Number |  | Number |
Type of Property |  | Purchase Price |  | Transaction Costs |  | Acquisition Costs |  | of Properties |  | of Beds |
Skilled Nursing (1) |  | $79,100 |  | $246 |  | $79,346 |  | 4 |  | 522 |
Land(2) |  | 1,882 |  | 120 |  | 2,002 |  | — |  | — |
Totals |  | $80,982 |  | $366 |  | $81,348 |  | 4 |  | 522 |
(1) Includes two skilled nursing properties with a total of 234 beds located in Texas. These properties were purchased separately for a total purchase price of $25,100. Simultaneous with these purchases, we added these properties to an existing master lease with a third party operator at an incremental GAAP yield of 10.7%. Also, includes two 144-bed skilled nursing properties located in Ohio purchased for an aggregate purchase price of $54,000. Simultaneous with the purchase, we leased the properties to an unrelated third-party operator at a GAAP yield of 10.1%. The initial term of the lease is 15 years with two 5-year renewal options and annual rent escalations of the lesser of i) 2.25% for the first seven years and 2.50% for the remainder of the term or ii) a calculation based on the consumer price index. (2) We purchased a vacant parcel of land in Colorado for $1,882. Simultaneous with the purchase, we entered into a lease agreement and development commitment in an amount not to exceed $7,935 to fund the construction of a 60-unit free-standing memory care property. Rent under the lease will begin upon the earlier of project completion or the improvement deadline of August 1, 2013. Initial rent at the rate of 9.25% will be calculated based on the land purchase price and construction costs funded plus 9.0% compounded on each advance under the commitment from the disbursement date until the earlier of project completion or the improvement deadline. The lease has an 11-year initial term, four 5-year renewal options and annual escalations of 2.5%. During the nine months ended September 30, 2012, 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. Additionally, during the nine months ended September 30, 2012, we invested $2,438,000 at an average yield of 9.1%, under agreements to expand and renovate four existing properties with two operators and to construct a skilled nursing property and a memory care property with two operators. We also invested $174,000 in capital improvements to two existing properties under two lease agreements whose rental rates already reflected these investments. In October 2012, we purchased vacant land in Kansas for $730,000. Simultaneous with the purchase, we entered into a lease agreement and development commitment in an amount not to exceed $9,855,000 to fund the construction of a 77-unit assisted living and memory care property. Concurrently with the purchase, we funded $492,000 under the development commitment. Rent under the lease will begin upon the earlier of project completion or the fifteenth month following the effective date of lease. Initial rent at the rate of 9.25% will be calculated based on the land purchase price and construction costs funded plus 9.0% compounded on each advance under the commitment from the disbursement date until the earlier of project completion or the improvement deadline. The lease has a 10-year initial term, two 5-year renewal options and annual escalations of 2.5%. The following table summarizes our acquisitions during the nine months ended September 30, 2011 (dollar amounts in thousands, unaudited):
|  |  |  |  |  | Total |  | Number |  | Number of |
Type of Property |  | Purchase Price |  | Transaction Costs |  | Acquisition Costs |  | of Properties |  | SNF Beds |  | ALF Units |  | ILF Units |
Skilled Nursing (1) |  | $60,841 |  | $188 |  | $61,029 |  | 5 |  | 664 |  | — |  | — |
Other Senior Housing (2) |  | 11,450 |  | 34 |  | 11,484 |  | 2 |  | 118 |  | 40 |  | 53 |
Totals |  | $72,291 |  | $222 |  | $72,513 |  | 7 |  | 782 |  | 40 |  | 53 |
(1) We purchased four skilled nursing properties with 524-beds in Texas for $50,841 which consisted of $41,000 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 upon the properties achieving a sustainable stipulated rent coverage ratio. During the quarter ended September 30, 2011, we paid $4,000 related to the first contingent earn-out payment. We estimated the fair value of the contingent earn-out payments using a discounted cash flow analysis. (2) Other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing, assisted living and/or independent living services. During the nine months ended September 30, 2011, we invested $2,421,000 at an average yield of 9.9%, under agreements to expand and renovate nine existing properties operated by five different operators. We also invested $35,000 in capital improvements to two existing properties under two lease agreements whose rental rates already reflected this investment.

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- Definition The entire disclosure for real estate owned (as defined). Generally, the largest component of real estate owned by lenders is assets taken in settlement of troubled loans through surrender or foreclosure. Real estate investments, real estate loans that qualify as investments in real estate, and premises that are no longer used in operations may also be included in real estate owned. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 01-6 -Paragraph 13 -Subparagraph f -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 40 -Section 40 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6905009&loc=d3e18511-111553 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 144 -Paragraph 7, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 35 -Paragraph 43 -URI http://asc.fasb.org/extlink&oid=16397438&loc=d3e1739-110224 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 34 -Paragraph 9, 11, 12, 13, 14, 15, 21 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03.10(4)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 10 -Subparagraph 4 -Article 9 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 35 -Paragraph 17 -URI http://asc.fasb.org/extlink&oid=16397438&loc=d3e1424-110224 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 28 -Article 12 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6375948&loc=d3e4437-111522 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 40 -Section 40 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6905009&loc=d3e18551-111553 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-DEP -Paragraph 2, 6, 9-11, 18, 20 -IssueDate 2006-05-01 -Chapter 11 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher OTS -Name Federal Regulation (FR) -Number Title 12 -Section 563c.102 -Paragraph 10 -Subparagraph a, b -Chapter V -Subsection I -LegacyDoc This is a non-GAAP reference that was included in the 2009 taxonomy. It will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 15 -Paragraph 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 11 -Article 9 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher OTS -Name Federal Regulation (FR) -Number Title 12 -Section 563c.102 -Paragraph 11 -Chapter V -Subsection I -LegacyDoc This is a non-GAAP reference that was included in the 2009 taxonomy. It will be removed from future versions of this taxonomy. Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Paragraph c -Subparagraph Schedule III -Article 5 + Details
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