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Commitments and Contingencies | 9 Months Ended
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Sep. 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. During 2011, we paid $4,000,000 related to the first contingent earn-out payment. At September 30, 2012 and December 31, 2011, the remaining contingent earn-out payments had a fair value of $6,634,000 and $6,305,000, respectively. During the three and nine months ended September 30, 2012, we recorded non-cash interest expense of $110,000 and $330,000, 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 nine months ended September 30, 2011, we recorded $177,000 and $354,000 of non-cash interest expense related to the earn-out liabilities. At September 30, 2012, we committed to provide the following capital improvement commitments and investments (dollar amounts in thousands):
Commitment |  | Expiration Date |  | Used Commitment |  | Open Commitment |  |  | Initial Cash Yield |  | Property Type |  | Properties |
$ 1,700 |  | 3/31/13 |  | $ 492 | (8)(a) | $ 1,208 |  |  | 9.00% | (1) | SNF |  | 2 |
8,250 |  | 10/11/13 |  | 492 | (8)(b) | 7,758 |  |  | 9.00% | (1) | UDP(7) |  | — |
7,935 |  | 12/1/13 |  | 1,438 | (8)(c) | 6,497 |  |  | 9.25% | (1) | UDP(6) |  | — |
1,700 |  | 6/12/14 |  | — |  | 1,700 |  |  | 9.00% | (1) | SNF |  | 1 |
8,000 |  | 8/01/14 |  | — |  | 8,000 |  |  |  | (4)(1) | ALF |  | 1 |
6,600 |  | 8/01/14 |  | — |  | 6,600 |  |  |  | (4)(1) | ALF |  | 1 |
5,000 | (5) | 12/31/14 |  | — |  | 5,000 |  |  |  | (3) | ALF |  | 37 |
30 |  | 8/31/15 |  | — | (8)(d) | 30 |  |  |  | (2) | EDU |  | 1 |
$39,215 | (9) |  |  | $2,422 |  | $36,793 |  |  |  |  |  |  |  |
(1) Minimum rent will increase upon final funding and project completion or in some cases, the improvement deadline as defined in each lease agreement. (2) The yield is included in the initial lease rate. (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) The greater of a) 580 basis points over the 10-year treasury note or b) 7.75% (5) $5,000 per year for the life of the lease. (6) This commitment is to construct a 60-unit free-standing memory care property in Colorado. (7) This commitment is to construct a 120-bed skilled nursing property in Texas which will replace an existing 90-bed skilled nursing property we own. (8) In October 2012, we funded the following amounts: (a) $219; (b) $426; (c) $847; and (d) $30. (9) In October 2012, we purchased vacant land in Kansas for $730 and funded $492 under a $9,855 development commitment to construct a 77-unit assisted living and memory care property. See Note 2. Real Estate Investments for further discussion on the acquisition. The following table summarizes our loan commitments and investments as of September 30, 2012 (dollar amounts in thousands):
Commitment |  |  | Expiration Date |  | Used Commitment |  | Open Commitment |  |  | Initial Cash Yield |
$ 250 |  |  | 11/30/12 |  | $200 | (3) |  | $ | 50 |  |  | 9.00% |
667 | (1) |  | 12/31/12 |  | 193 | (4) |  |  | 474 |  |  | 9.00% |
50 |  |  | 3/31/13 |  | 20 |  |  |  | 30 |  |  | 10.00% |
750 | (2) |  | 5/14/14 |  | — |  |  |  | 750 |  |  | 12.00% |
$1,717 |  |  |  |  | $413 |  |  | $ | 1,304 |  |  |  |
(1) 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. (2) This commitment is a note agreement with our operator of a 60-unit free-standing memory care property under development. (3) In October 2012, we received $50 in principal payment under this loan commitment. (4) In October 2012, we funded $177 under this loan commitment.

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- Definition The entire disclosure for commitments and contingencies. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 460 -SubTopic 10 -Section 50 -Paragraph 8 -URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 450 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 14 -Paragraph 3 -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 440 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6394976&loc=d3e25287-109308 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.25) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 5 -Paragraph 9, 10, 11, 12 -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. + Details
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