2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF). Range of care communities (or ROC) property classification consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.

Any reference to the number of properties, 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 review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Owned Properties. The following table summarizes our investments in owned properties at September 30, 2016 (dollar amounts in thousands):


								Average
			Percentage		Number	Number of		Investment
	Gross		of		of	SNF	ALF	per
Type of Property	Investments		Investments		Properties(1)	Beds	Units	Bed/Unit
Assisted Living	$	681,365	52.7	%	103	—	5,607	$	121.52
Skilled Nursing		535,460	41.4	%	69	8,611	—	$	62.18
Range of Care		43,907	3.4	%	7	634	274	$	48.36
Under Development(2)		21,511	1.7	%	—	—	—		—
Other(3)		10,216	0.8	%	1	118	—		—
Totals	$	1,292,459	100.0	%	180	9,363	5,881

⁽¹⁾

We own properties in 28 states that are leased to 27 different operators.

⁽²⁾

Represents three development projects consisting of a 66-unit memory care community, a 108-unit independent living community and a 143-bed skilled nursing center.

⁽³⁾

Includes three parcels of land held-for-use, and one behavioral health care hospital. The behavioral health care hospital has two licensed skilled nursing beds and 116 acute care hospital beds which represents an investment of $78.39 per bed.

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.

Acquisitions and Development: The following table summarizes our acquisitions for the nine months ended September 30, 2016 (dollar amounts in thousands):


					Total		Number	Number
	Purchase		Transaction		Acquisition		of	of
Type of Property	Price		Costs(1)		Costs		Properties	Beds/Units
Skilled Nursing(2)	$	16,000	$	45	$	16,045	1	126
Assisted Living(3)		53,550		411		53,961	4	250
Land(4)		5,425		63		5,488	—	—
Totals	$	74,975	$	519	$	75,494	5	376

⁽¹⁾

Represents cost associated with our acquisitions; however, depending on the accounting treatment of our acquisitions, transaction costs may be capitalized to the properties’ basis and, for our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, transaction costs may include costs related to the prior year due to timing and terminated transactions.

⁽²⁾

We acquired a newly constructed 126-bed skilled nursing center in Texas.

⁽³⁾

We acquired a newly constructed memory care community in Kentucky for $14,250 including a $2,000 holdback, a newly constructed assisted living and memory care community in Georgia for $14,300 and two memory care communities in Kansas for an aggregate purchase price of $25,000.

⁽⁴⁾

We acquired a parcel of land and improvements and entered into a development commitment of up to $24,325, including the land and bed rights purchase, for the development of a 143-bed skilled nursing center in Kentucky.

Subsequent to September 30, 2016, we purchased a parcel of land in Illinois and entered into a development commitment to construct a memory care community. The commitment totals approximately $14,500,000, including the land purchase.

The following table summarizes our acquisitions for the nine months ended September 30, 2015 (dollar amounts in thousands):


					Total		Number	Number
	Purchase		Transaction		Acquisition		of	of
Type of Property	Price		Costs		Costs		Properties	Beds/Units
Skilled Nursing(1)	$	13,946	$	—	$	13,946	1	106
Assisted Living(2)		156,097	$	325		156,422	11	951
Land(3)		13,533		97		13,630	—	—
Totals	$	183,576	$	422	$	183,998	12	1,057

⁽¹⁾

We purchased and equipped the property by exercising our purchase option under a $10,600 mortgage and construction loan.

⁽²⁾

We acquired a newly constructed 60-unit memory care property for $14,250 including a $2,000 working capital reserve. We also acquired a portfolio comprised of 10 independent, assisted living and memory care propertied for $142,000.

⁽³⁾

We acquired parcels of land and entered into four development commitments in an amount not to exceed $55,529, including the land purchases, for the development of two MC, an ILF and a combination ALF and MC. Additionally, we acquired land and existing improvements on a MC and entered a development commitment up to $12,182 to complete the development of the property.

The following table summarizes our investment in development and improvement projects for the nine months ended September 30, 2016 and 2015 (in thousands):


	Nine months ended September 30, 2016				Nine months ended September 30, 2015
			Expansion,				Expansion,
			Renovation and				Renovation and
	Development		Improvements		Development		Improvements
Assisted Living Communities	$	35,623	$	2,134	$	12,630	$	3,843
Skilled Nursing Centers		—		3,432		1,830		2,349
	$	35,623	$	5,566	$	14,460	$	6,192

The following table summarizes our completed projects during the nine months ended September 30, 2016 (dollar amounts in thousands):


	Number		Number
	of	Type of	of
Type of Project	Properties	Property	Beds/Units	State	Total Funding
Development	1	ALF	66	Illinois	$	12,178
Development	1	ALF	56	Texas		11,776
Development	1	ALF	66	Illinois		11,886
Development	1	ALF	66	California		11,405
Development	1	ALF	89	South Carolina		13,974
Improvement	1	SNF	160	Arizona		4,672
	6		503		$	65,891

During the nine months ended September 30, 2016, we sold a 48-unit assisted living community located in Florida for $1,750,000 which was previously written down to its estimated sale price in the fourth quarter of 2015. Additionally, we sold two skilled nursing centers in Texas and an assisted living community in Florida for an aggregate price of $11,850,000. As a result of these sales, we recognized a net gain on sale of $3,775,000. Also, we sold a school in New Jersey for $3,850,000 and recorded a net loss on sale in the amount of $193,000.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 30, 2016 (dollar amounts in thousands):


			Percentage		Number	Number	Number of		Investment
	Gross		of		of	of	SNF	ALF	per
Type of Property	Investments		Investments		Loans	Properties(1)	Beds	Units	Bed/Unit
Skilled Nursing	$	222,030	93.8	%	12	28	3,644	—	$	60.93
Assisted Living		13,468	5.7	%	3	8	—	270	$	49.88
Other(2)		1,209	0.5	%	1	—	—	—		—
Totals	$	236,707	100.0	%	16	36	3,644	270

⁽¹⁾

We have investments in properties located in seven states that include mortgages to 10 different operators.

⁽²⁾

Includes a parcel of land secured under a short-term mortgage loan.

At September 30, 2016, the mortgage loans had interest rates ranging from 7.3% to 13.9% and maturities ranging from 2016 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 30-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.

The following table summarizes our mortgage loan activity for the nine months ended September 30, 2016 and 2015 (in thousands):


	2016		2015
Origination/Funding (1)	$	19,113	$	53,427
Pay-offs	$	746	$	2,487
Scheduled principal payments received	$	1,371	$	1,794

⁽¹⁾

Secured by skilled nursing centers

During the nine months ended September 30, 2015, we purchased and equipped a 106-bed skilled nursing center in Wisconsin for a total of $13,946,000 by exercising our purchase option under a $10,600,000 mortgage and construction loan.