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Real Estate Investments
 9 Months Ended
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.