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Real Estate Investments | 12 Months Ended
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Dec. 31, 2012
Real Estate Investments |
Real Estate Investments | 6. Real Estate Investments Any reference to the number of properties, number of schools, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm's audit of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board. Owned Properties. The following table summarizes our investment in owned properties at December 31, 2012(dollar amounts in thousands):
|  |  |  |  |  |  |  | Number of |  |  |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  |  |  |  | Average Investment per Bed/Unit |
Type of Property |  | Gross Investments |  | Percentage of Investments |  | Number of Properties(1) |  | SNF Beds |  | ALF Units |
Skilled Nursing |  | $ | 438,388 |  |  | 48.7 | % |  | 71 |  |  | 8,211 |  |  | — |  | $ | 53.39 |
Assisted Living |  |  | 379,869 |  |  | 42.2 | % |  | 96 |  |  | — |  |  | 4,502 |  |  | 84.38 |
Range of Care |  |  | 52,870 |  |  | 5.9 | % |  | 10 |  |  | 814 |  |  | 318 |  |  | 46.70 |
Under Development |  |  | 16,642 |  |  | 1.8 | % |  | — |  |  | — |  |  | — |  |  | — |
School |  |  | 12,326 |  |  | 1.4 | % |  | 2 |  |  | — |  |  | — |  |  | — |
Totals |  | $ | 900,095 |  |  | 100.0 | % |  | 179 |  |  | 9,025 |  |  | 4,820 |  |  |  |
(1) We have investments in 26 states leased to 35 different operators. 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 annual 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. Contingent rent income for the years ended December 31, 2012, 2011 and 2010 was not significant in relation to contractual base rent income. The following table summarizes our acquisitions during 2012 (dollar amounts in thousands):
Type of Property |  | Purchase Price |  | Transaction Costs |  | Total Acquisition Costs |  | Number of Properties |  | Number of Beds/Units |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Skilled Nursing(1) |  | $ | 79,100 |  | $ | 275 |  | $ | 79,375 |  |  | 4 |  |  | 522 |
Assisted Living(2) |  |  | 81,987 |  |  | 285 |  |  | 82,272 |  |  | 5 |  |  | 266 |
Land(3) |  |  | 5,663 |  |  | 207 |  |  | 5,870 |  |  | — |  |  | — |
Totals |  | $ | 166,750 |  | $ | 767 |  | $ | 167,517 |  |  | 9 |  |  | 788 |
(1) Includes two skilled nursing properties with a total of 234 beds located in Texas and two skilled nursing properties with a total of 288 beds located in Ohio. The weighted average GAAP rent is 10.3%. (2) Includes two properties with a total of 100 units located in Colorado and three properties with a total of 166 units located in New Jersey. The weighted average GAAP rent is 8.1%. (3) We purchased four vacant parcels of land in the following states: Colorado, Kansas, Kentucky and Texas. Simultaneous with the purchase, we entered into lease agreements and development commitments in an amount not to exceed $49,702 to fund the construction of a memory care property with 60 units and two assisted living properties with a total of 158 units and one skilled nursing property with 143 beds. Rents due under the lease will begin upon the earlier of project completion or the improvement deadline specified in the lease. The weighted average initial rent rate is 9.2%. The following unaudited pro forma consolidated results of operations for the years ended December 31, 2012 and 2011 assume that the 2012 acquisitions of the above properties were completed as of January 1, 2011 as shown below (in thousands):
|  | For the year ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
Revenues |  | $ | 104,342 |  | $ | 100,636 |
Net Income |  | $ | 59,100 |  | $ | 58,686 |
Pro forma data may not be indicative of the results that would have been obtained had the acquisition actually occurred as of January 1, 2011, nor does it intend to be a projection of future results. The following table summarizes our investment commitments and year to date funding on our development, redevelopment, renovation and expansion projects (excludes capitalized interest, dollar amounts in thousands):
Type of Property |  | Investment Commitment |  | 2012 Funding(2) |  | Total Funded |  | Remaining Commitment |  | Number of Properties |  | Number of Beds/Units |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Skilled Nursing |  | $ | 36,094 |  | $ | 8,310 |  | $ | 9,204 |  | $ | 26,890 |  |  | 6 |  |  | 759 |
Assisted Living(1) |  |  | 40,927 |  |  | 8,242 |  |  | 8,242 |  |  | 32,685 |  |  | 6 |  |  | 458 |
Range of Care |  |  | 739 |  |  | 66 |  |  | 739 |  |  | — |  |  | 2 |  |  | 211 |
Totals |  | $ | 77,760 |  | $ | 16,618 | (3) | $ | 18,185 |  | $ | 59,575 |  |  | 14 |  |  | 1,428 |
(1) Includes the development of a 60-unit memory care property for $9,817 and two assisted living and memory care combination properties for a total of $16,385, the expansion of two assisted living properties for a total $14,600 and the renovation of a 140-unit independent living property for $125. (2) Includes acquired land of $5,663 and excludes $134 of capital improvement funding. (3) In January and February of 2013, we funded $2,484 and $488, respectively, under investment commitments. In addition, we committed to fund $5,000,000 per year for the life of a master lease which has a maturity date of December 2014. The estimated yield of this commitment is 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. During the year ended December 31, 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. The following table summarizes our acquisitions during 2011 (dollar amounts in thousands):
Type of Property |  | Purchase Price |  | Transaction Costs |  | Total Acquisition Costs |  | Number of Properties |  | Number of Beds/Units |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Skilled Nursing(1)(2) |  | $ | 93,841 |  | $ | 330 |  | $ | 94,171 |  |  | 7 |  |  | 1,016 |
Range of Care(3) |  |  | 11,450 |  |  | 34 |  |  | 11,484 |  |  | 2 |  |  | 211 |
Land(4) |  |  | 844 |  |  | 11 |  |  | 855 |  |  | — |  |  | — |
Totals |  | $ | 106,135 |  | $ | 375 |  | $ | 106,510 |  |  | 9 |  |  | 1,227 |
(1) Includes two skilled nursing properties with a total of 336 beds located in Texas for $25,500 and a 156-bed skilled nursing property located in California for $17,500. (2) We purchased four skilled nursing properties with 524-beds in Texas for $50,841 which consists 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 totaling up to $11,000 upon the properties achieving a sustainable stipulated rent coverage ratio. During 2011, we paid $4,000 related to the first contingent earn-out payment. See Note 11. Commitments and Contingencies for further discussion on the contingent earn-out. (3) We purchased two senior housing properties located in South Carolina with 118 skilled nursing beds, 40 assisted living units and 53 independent living units for $11,450. (4) We acquired a vacant parcel of land in Texas for the purpose of building a replacement skilled nursing property for a purchase price of $844. The following table summarizes our acquisitions during 2010 (dollar amounts in thousands):
Type of Property |  | Purchase Price |  | Transaction Costs |  | Total Acquisition Costs |  | Number of Properties |  | Number of Beds/Units |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Skilled Nursing |  | $ | 54,011 | (1) | $ | 140 | (2) | $ | 54,151 |  |  | 5 |  |  | 668 |
Assisted Living |  |  | 26,900 |  |  | 210 |  |  | 27,110 |  |  | 4 |  |  | 241 |
Range of Care |  |  | 13,339 |  |  | — | (3) |  | 13,339 |  |  | 1 |  |  | 230 |
Totals |  | $ | 94,250 |  | $ | 350 |  | $ | 94,600 |  |  | 10 |  |  | 1,139 |
(1) Includes three skilled nursing properties with a total of 458 beds located in Texas, a 120-bed skilled nursing property located in Florida, and a 90-bed skilled nursing property located in Virginia. (2) Includes a $125 lease inducement payment which is amortized as a yield adjustment over the life of the lease. (3) We purchased this range of care property along with a 90-bed skilled nursing property for $22,000 and incurred $7 in transaction costs. The transaction costs for this acquisition are included in the skilled nursing property transaction costs above. During the year ended December 31, 2011 and 2010, we invested $3,185,000 and $5,824,000 under agreements to develop new properties and redevelop, renovate and expand existing leased properties. During the year ended December 31, 2010, we sold a 195-bed skilled nursing property located in Virginia to the lessee under a purchase option for $4,935,000. As a result, we received net cash proceeds of $4,864,000 and recognized a gain net of selling expenses of $310,000. Depreciation expense on buildings and improvements, including properties classified as held-for-sale, was $22,002,000, $19,487,000, and $16,016,000 for the years ended December 31, 2012, 2011 and 2010. Future minimum base rents receivable under the remaining non-cancelable terms of operating leases excluding the effects of straight-line rent and extension options are as follows (in thousands):
|  | Annual Cash Rent |
--- | --- | --- | ---
2013 |  | $ | 95,425 |
2014 |  |  | 96,222 |
2015 |  |  | 83,163 |
2016 |  |  | 82,861 |
2017 |  |  | 82,529 |
Thereafter |  |  | 422,329 |
Set forth in the table below are the components of the loss from discontinued operations (in thousands):
|  | For the year ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Rental income |  | $ | — |  | $ | — |  | $ | 404 |
Interest and other income |  |  | — |  |  | — |  |  | — |
Total revenues |  |  | — |  |  | — |  |  | 404 |
Depreciation and amortization |  |  | — |  |  | (99 | ) |  | (256 | )
Provisions for doubtful accounts |  |  | — |  |  | — |  |  | — |
General and administrative expenses |  |  | — |  |  | — |  |  | — |
Total expenses |  |  | — |  |  | — |  |  | — |
(Loss) income from discontinued operations |  |  | — |  | $ | (99 | ) | $ | 148 |
Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at December 31, 2012(dollar amounts in thousands):
|  |  |  |  |  |  |  |  |  | Number of |  |  |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Type of Property |  | Gross Investments |  | Percentage of Investments |  | Number of Loans |  | Number of Properties(1) |  | SNF Beds |  | ALF Units |  | Investment per Bed/Unit |
Skilled Nursing |  | $ | 24,931 |  |  | 62.2 | % |  | 16 |  |  | 17 |  |  | 1,861 |  |  | — |  | $ | 13.40 |
Assisted Living |  |  | 12,288 |  |  | 30.7 | % |  | 3 |  |  | 8 |  |  | — |  |  | 211 |  | $ | 58.24 |
Range of Care |  |  | 2,862 |  |  | 7.1 | % |  | 1 |  |  | 1 |  |  | 99 |  |  | 74 |  | $ | 16.54 |
Totals |  | $ | 40,081 |  |  | 100.0 | % |  | 20 |  |  | 26 |  |  | 1,960 |  |  | 285 |  |  |  |
(1) We have investments in 9 states that include mortgages to 12 different operators. At December 31, 2012, the mortgage loans had interest rates ranging from 7.0% to 13.5% and maturities ranging from 2014 to 2019. In addition, the 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. At December 31, 2012 and 2011, the carrying values of the mortgage loans were $39,299,000 and $53,081,000, respectively. Scheduled principal payments on mortgage loans are as follows (in thousands):
|  | Scheduled Principal |
--- | --- | --- | ---
2013 |  | $ | 1,933 |
2014 |  |  | 14,244 |
2015 |  |  | 4,272 |
2016 |  |  | 2,195 |
2017 |  |  | 6,118 |
Thereafter |  |  | 11,319 |
During the year ended December 2012, we originated a $5,100,000 two-year interest-only bridge loan. The loan is secured by a 70-unit assisted living property in Pennsylvania and bears interest at 7.0% increasing annually by 1.5%. We also originated a $10,600,000 mortgage and construction loan secured by a currently operating skilled nursing property and a vacant parcel of land upon which a 106-bed replacement facility will be constructed. The term is 10 years and interest is 9.0% increasing 25 basis points annually. The agreement gives us the right to purchase the replacement facility for $13,500,000 during an 18 month period beginning on the first anniversary of the issuance of the certificate of occupancy. If the purchase option is exercised, the replacement facility will be added to an existing master lease at a lease rate equivalent to the interest rate in effect on the loan at the time the purchase option is exercised. As of December 31, 2012, we funded $2,619,000 of loan proceeds and we have a remaining commitment of $7,981,000 on this mortgage and construction loan. In January and February of 2013, we funded $776,000 and $128,000, respectively, under this mortgage and construction loan and we have a remaining commitment of $7,077,000. During the year ended December 31, 2012, we received $2,572,000 in regularly scheduled principal payments and we received $19,061,000 plus accrued interest related to the early payoff of eleven mortgage loans secured by four skilled nursing properties and seven assisted living properties. During the year ended December 31, 2011, we received $3,136,000 in regularly scheduled principal payments and we received $2,831,000 plus accrued interest related to the payoff of four mortgage loans secured by one assisted living property and seven skilled nursing properties. During the year ended December 31, 2010, we received $3,904,000 plus accrued interest related to the payoff of five mortgage loans secured by five skilled nursing properties. We invested $72,000 in a mortgage loan for capital improvements and $1,622,000 in a mortgage loan secured by a skilled nursing property to finance an expansion of the property and extend the loan maturity for an additional five years. We received $4,499,000 in regularly scheduled principal payments Also, during the year ended December 31, 2010, we recorded a $1,235,000 provision for doubtful accounts charge for two mortgage loans (one secured by a private school property in Minnesota and one secured by land in Oklahoma). We acquired the school property via deed-in-lieu of foreclosure as a result of the borrower filing for Chapter 7 bankruptcy. During 2011, we leased the school to a non-for-profit corporation providing therapeutic support and intensive home, school and center-based behavioral therapy for children, youth and families affected by Autism Spectrum Disorders.

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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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