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Real Estate Investments | 9 Months Ended
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Sep. 30, 2018
Real Estate Investments |
Real Estate Investments | 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). Any reference to the number of properties or facilities, number of units, number of beds, number of operators 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, 2018 (dollar amounts in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  | Average |
|  |  |  |  | Percentage |  | Number |  | Number of |  | Investment |
|  | Gross |  | of |  | of |  | SNF |  | ALF |  | per |
Type of Property |  | Investment |  | Investment |  | Properties (1) |  | Beds |  | Units |  | Bed/Unit |
Assisted Living |  | $ | 802,484 |  | 56.8 | % | 103 |  | — |  | 5,885 |  | $ | 136.36 |
Skilled Nursing |  |  | 569,141 |  | 40.2 | % | 73 |  | 8,919 |  | 261 |  | $ | 62.00 |
Under Development (2) |  |  | 31,602 |  | 2.2 | % | — |  | — |  | — |  |  | — |
Other (3) |  |  | 11,040 |  | 0.8 | % | 1 |  | 118 |  | — |  |  | — |
Total |  | $ | 1,414,267 |  | 100.0 | % | 177 |  | 9,037 |  | 6,146 |  |  |  |
| (1) |  | We own properties in 28 states that are leased to 29 different operators.
| (2) |  | Represents three development projects, consisting of a 143-bed SNF in Kentucky, a 78-unit ALF/MC located in Oregon and a 110-unit ILF/ALF/MC in Wisconsin.
| (3) |  | Includes three parcels of land held-for-use, and one behavioral health care hospital.
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 Developments: The following table summarizes our acquisitions for the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):
|  |  |  |  |  |  |  |  | Total |  | Number |  | Number
|  |  |  | Purchase |  | Transaction |  | Acquisition |  | of |  | of
Year |  | Type of Property |  | Price |  | Costs (1) |  | Costs |  | Properties |  | Beds/Units
2018 |  | Assisted Living (2) (3) |  | $ | 39,600 |  | $ | 65 |  | $ | 39,665 |  | 3 |  | 177
|  | Land (3) |  |  | 695 |  |  | 48 |  |  | 743 |  | — |  | —
Total |  |  |  | $ | 40,295 |  | $ | 113 |  | $ | 40,408 |  | 3 |  | 177
2017 |  | Assisted Living (4) |  | $ | 54,463 |  | $ | 341 |  | $ | 54,804 |  | 3 |  | 240
Total |  |  |  | $ | 54,463 |  | $ | 341 |  | $ | 54,804 |  | 3 |  | 240
| (1) |  | Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting in capitalization of transaction costs to the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Transaction costs per our consolidated statements of income and comprehensive income represents current and prior year transaction costs due to timing and terminated transactions.
| (2) |  | We acquired two MC in Texas.
| (3) |  | We entered into a joint venture (“JV”) to develop, purchase and own senior housing properties. During the second quarter of 2018, the JV purchased land for the development of a 78-unit ALF/MC in Oregon for a total anticipated project cost of $18,108. The non-controlling partner contributed $1,081 of cash and we committed to fund the remaining $17,027 project cost. During the third quarter of 2018, in a sale-leaseback transaction, the JV purchased an existing operational 89-unit ILF adjacent to the 78-unit ALF/MC we are developing for $14,400. The non-controlling partner contributed $2,857 of equity and we contributed $11,543 in cash. Upon completion of the development project, our combined economic interest in the JV will be approximately 88%. We account for the JV on a consolidated basis. See Note 7. Equity for further discussion related to our partnerships and non-controlling interests.
| (4) |  | We acquired an ALF and a MC in California. Additionally, we acquired a MC in Ohio.
During the nine months ended September 30, 2018 and 2017, we invested the following in development and improvement projects (in thousands):
|  | Nine months ended September 30, 2018 |  | Nine months ended September 30, 2017
Type of Property |  | Developments |  | Improvements |  |  | Developments |  |  | Improvements
Assisted Living Communities |  | $ | 19,251 |  | $ | 1,131 |  |  | $ | 10,366 |  | $ | 951
Skilled Nursing Centers |  |  | 6,466 |  |  | 500 |  |  |  | 3,573 |  |  | 1,357
Other |  |  | — |  |  | 432 |  |  |  | — |  |  | —
Total |  | $ | 25,717 |  | $ | 2,063 |  |  | $ | 13,939 |  | $ | 2,308
Completed Developments. The following table summarizes our completed developments during the nine months ended September 30, 2018 (dollar amounts in thousands):
|  | Number |  | Type |  | Number |  |  |  |  |
|  | of |  | of |  | of |  |  |  |  | Total
Type of Project |  | Properties |  | Property |  | Beds/Units |  | State |  | Investment
Development |  | 1 |  | MC |  | 66 |  | Illinois |  | $ | 13,974
Properties held-for-sale. The following table summarizes our properties held-for-sale as of September 30, 2018 (dollar amounts in thousands):
|  | Type |  | Number |  |  |  |  |  |  |  | Number
|  | of |  | of |  |  | Gross |  |  | Accumulated |  | of
State |  | Property |  | Properties |  |  | Investment |  |  | Depreciation |  | Beds/units
Florida (1) |  | SNF |  | 1 |  | $ | 2,497 |  | $ | 971 |  | 60
Texas |  | ILF |  | 1 |  |  | 5,746 |  |  | 1,916 |  | 140
Totals |  |  |  | 2 |  | $ | 8,243 |  | $ | 2,887 |  | 200
| (1) |  | Subsequent to September 30, 2018, we sold this 60-bed SNF for $5,000 and will recognize a gain of approximately $3,400.
Properties sold. The following table summarizes property sales during the nine months ended September 30, 2018 and 2017(dollar amounts in thousands):
|  |  |  | Type |  | Number |  | Number |  |  |  |  |  |  |  |  |
|  |  |  | of |  | of |  | of |  |  | Sales |  |  | Carrying |  |  | Net
Year |  | State |  | Properties |  | Properties |  | Beds |  |  | Price |  |  | Value |  |  | Gain
2018 |  | Alabama |  | SNF |  | 2 |  | 285 |  | $ | 17,525 |  | $ | 3,272 |  | $ | 14,253
|  | Kansas |  | ALF | (1) | — |  | — |  |  | 350 |  |  | 346 |  |  | —
|  | Ohio and Pennsylvania |  | ALF |  | 6 |  | 320 |  |  | 67,500 |  |  | 16,352 |  |  | 48,445
Total 2018 |  |  |  |  |  | 8 |  | 605 |  | $ | 85,375 |  | $ | 19,970 |  | $ | 62,698
2017 |  | Indiana and Iowa |  | ALF |  | 4 |  | 175 |  | $ | 14,250 |  | $ | 8,726 |  | $ | 5,054
Total 2017 |  |  |  |  |  | 4 |  | 175 |  | $ | 14,250 |  | $ | 8,726 |  | $ | 5,054
| (1) |  | We sold land adjacent to an existing ALF community in Kansas.
Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 30, 2018 (dollar amounts in thousands):
|  |  |  |  |  |  | Type |  | Percentage |  | Number of |  | Investment
|  |  |  | Gross |  | of |  | of |  |  |  |  |  | SNF |  | per
Interest Rate (1) |  | Maturity |  | Investment |  | Property |  | Investment |  | Loans (2) |  | Properties (3) |  | Beds |  | Bed/Unit
9.5% |  | 2043 |  | $ | 186,495 |  | SNF |  | 76.1 | % | 1 |  | 15 |  | 2,029 |  | $ | 91.91
9.2% |  | 2045 |  |  | 33,028 |  | SNF |  | 13.5 | % | 1 |  | 4 |  | 501 |  | $ | 65.92
9.4% |  | 2045 |  |  | 14,797 |  | SNF |  | 6.0 | % | 1 |  | 1 |  | 157 |  | $ | 94.25
9.5% |  | 2020 |  |  | 10,733 |  | SNF |  | 4.4 | % | 1 |  | 2 |  | 205 |  | $ | 52.36
Total |  |  |  | $ | 245,053 |  |  |  | 100.0 | % | 4 |  | 22 |  | 2,892 |  | $ | 84.73
| (1) |  | The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 2.25%.
| (2) |  | Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year term.
| (3) |  | We have investments in properties located in one state that includes mortgages to one operator.
The following table summarizes our mortgage loan activity for the nine months ended September 30, 2018 and 2017 (in thousands):
|  | Nine months ended September 30,
|  | 2018 |  | 2017
Originations and funding under mortgage loans receivable |  | $ | 20,530 | (1) | $ | 9,333
Pay-offs received |  |  | (1,086) |  |  | (16,665)
Scheduled principal payments received |  |  | (550) |  |  | (686)
Net increase (decrease) in mortgage loans receivable |  | $ | 18,894 |  | $ | (8,018)
| (1) |  | During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter. Also, we funded additional loan proceeds of $7,125 under an existing mortgage loan for the purchase of a 126-bed skilled nursing center in Michigan. This incremental funding bears interest at 9.41%, fixed for five years, and escalating by 2.25% thereafter.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 35 -Paragraph 43 -URI http://asc.fasb.org/extlink&oid=29634951&loc=d3e1739-110224 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 40 -Section 40 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=114775070&loc=d3e18511-111553 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=82891408&loc=d3e4437-111522 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(8)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 35 -Paragraph 17 -URI http://asc.fasb.org/extlink&oid=29634951&loc=d3e1424-110224 Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef -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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 40 -Section 40 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=114775070&loc=d3e18551-111553 + Details
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