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Real Estate Properties
 12 Months Ended
Dec. 31, 2011
Real Estate Properties  
Real Estate Properties

Note 3. Real Estate Properties

Our real estate properties, at cost, consisted of land of $564,628, buildings and improvements of $3,969,086 and furniture, fixtures and equipment of $187,877 as of December 31, 2011; and land of $446,622, buildings and improvements of $3,153,466 and furniture, fixtures and equipment of $161,624 as of December 31, 2010. Accumulated depreciation was $543,064 and $87,197 for buildings and improvements and furniture, fixtures and equipment, respectively, as of December 31, 2011; and $465,216 and $73,656 for buildings and improvements and furniture, fixtures and equipment, respectively, as of December 31, 2010.

The future minimum lease payments due to us during the current terms of our leases as of December 31, 2011, are $395,571 in 2012, $386,123 in 2013, $344,834 in 2014, $330,356 in 2015, $313,619 in 2016 and $2,628,386, thereafter.

In April 2010, we acquired one MOB with 14,695 square feet located in Wheat Ridge, Colorado for approximately $4,450, excluding closing costs. We recorded intangible lease assets of $775 and intangible lease liabilities of $168 for this acquisition. We funded this acquisition using cash on hand and by assuming a mortgage loan for $2,458 at interest of 6.73% per annum.

In June 2010, we acquired one MOB located in Lubbock, Texas with approximately 55,800 rentable square feet for approximately $12,175, excluding closing costs. We recorded intangible lease assets of $1,783 and intangible lease liabilities of $506 for this acquisition. We funded this acquisition using cash on hand.

In August 2010, we sold four skilled nursing facilities located in Nebraska with an aggregate 196 licensed beds for an aggregate sales price of $1,450. We recognized a gain on sale of these properties of approximately $109. These properties were leased to Five Star.

In September 2010, we acquired one MOB with 64,860 square feet located in Buffalo Grove, Illinois for approximately $18,400, excluding closing costs. We recorded intangible lease assets of approximately $3,144 related to this acquisition. We funded this acquisition using cash on hand.

In September 2010, we acquired one MOB with 38,030 square feet located in Conyers, Georgia for approximately $9,800, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $1,428 and $164, respectively, related to this acquisition. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In October 2010, we acquired one MOB with 58,605 square feet located in Conroe, Texas for approximately $15,000, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $1,867 and $1,561, respectively, related to this acquisition. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In November 2010, we entered into a series of agreements to acquire 27 MOBs located in 12 states from CWH for an aggregate purchase price of approximately $470,000. Between November and December 31, 2010, we acquired 21 of these properties containing 2.1 million square feet for approximately $374,130, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $18,840 and $7,806, respectively, related to these 2010 acquisitions. In January 2011, we acquired the remaining six properties containing 737,000 square feet for approximately $95,870, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $9,217 and $1,600, respectively, related to these six MOB acquisitions in 2011. We funded these acquisitions using cash on hand, proceeds from an equity issuance, proceeds from a debt issuance and borrowings under our revolving credit facility.

In January 2011, we acquired one MOB with 84,474 square feet located in Mendota Heights, Minnesota for approximately $14,150, excluding closing costs. We recorded intangible lease assets of approximately $2,722 related to this acquisition. We funded this acquisition using cash on hand and proceeds from a debt offering.

In March 2011, we agreed to acquire 20 senior living communities located in five states in the southeastern United States for approximately $304,000, excluding closing costs. In June 2011, we acquired 14 of these 20 communities for approximately $196,594, excluding closing costs; in July 2011, we acquired three of these communities for approximately $44,671, excluding closing costs; and in August 2011, we acquired one of these communities for approximately $17,158, excluding closing costs. We funded these acquisitions using cash on hand, proceeds from an equity offering, borrowings under our revolving credit facility and by assuming approximately $48,062 of mortgage loans in June 2011, $12,757 of mortgage loans in July 2011 and $12,459 of mortgage loans in August 2011.

In May 2011, Five Star agreed to manage 15 of these 20 communities, or the Managed Communities, under long term contracts. Ten of the 14 communities acquired in June 2011, two of the three communities acquired in July 2011 and the one community acquired in August are Managed Communities, and Five Star began managing each of these Managed Communities at those respective times. We use the taxable REIT subsidiary structure authorized by the REIT Investment Diversification and Empowerment Act, or RIDEA, for the Managed Communities. The results of operations for the Managed Communities are included in our consolidated results of operations in our short and long term residential care communities segment beginning as of June 2011. In June 2011, Five Star began leasing four of the five remaining communities, or the Leased Communities, and in July 2011, Five Star began leasing the remaining Leased Community. Our acquisition of the two remaining Managed Communities is contingent upon various closing conditions, including certain third party approvals; accordingly, we can provide no assurance that we will purchase these properties.

For further information regarding our leases and management agreements with Five Star, see Note 5. Related Person Transactions.

In May 2011, we acquired one senior living community located in Rockford, Illinois with 73 living units for approximately $7,500, excluding closing costs. We leased this property to Five Star and added this property to Five Star Lease No. 1, which has a current term expiring in 2024, for initial rent of approximately $608 per year. Percentage rent, based on increases in gross revenues at this property, will commence in 2013. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In May and June 2011, we sold seven properties, including four skilled nursing facilities, one assisted living community and two MOBs, for combined sales prices totaling $39,460, excluding closing costs. We recognized a gain on sale of these properties of approximately $21,315.

In May 2011, we acquired one MOB with 49,809 square feet located in Shoreview, Minnesota for approximately $7,200, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $1,403 and $51, respectively, related to this acquisition. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In June 2011, we acquired three MOBs with 125,990 square feet located in Alachua, Florida for approximately $14,550, excluding closing costs. In July 2011, we acquired one additional MOB located in Alachua, Florida, with 32,476 square feet for approximately $5,200, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $953 and $200, respectively, related to these acquisitions. In August 2011, we acquired 47 acres of land adjacent to these four MOBs for future development for $4,000, excluding closing costs. We funded these acquisitions with cash on hand, borrowings under our revolving credit facility and by assuming a mortgage loan for approximately $3,653 in July 2011.

In July 2011, we agreed to acquire nine senior living communities located in six states with an aggregate 2,226 living units for approximately $478,000, excluding closing costs. In December 2011, we acquired eight of these nine communities for approximately $379,000, excluding closing costs. Five Star manages these eight communities under long term contracts. We funded these acquisitions using cash on hand, proceeds from a debt offering and by assuming approximately $130,752 of mortgage loans. We currently expect to acquire the one remaining community in 2012, but such acquisition is contingent upon various closing conditions; accordingly, we can provide no assurance that we will purchase this property.

In September 2011, we acquired 13 MOBs located in eight states with 1.3 million square feet from CWH for an aggregate purchase price of approximately $167,000, excluding closing costs. We recorded intangible lease assets and liabilities of approximately $31,150 and $1,919, respectively, related to these acquisitions. We funded these acquisitions using cash on hand and borrowings under our revolving credit facility. For further information regarding our transaction with CWH, see Note 5. Related Person Transactions.

In November 2011, we acquired two MOBs with 45,645 square feet located in Richmond, Virginia for approximately $11,425, excluding closing costs. We recorded intangible lease assets of approximately $1,898 related to this acquisition. We funded this acquisition using cash on hand and by assuming a mortgage loan for approximately $9,633.

In December 2011, we acquired one MOB with 94,238 square feet located in Greenwood, Indiana for approximately $21,000, excluding closing costs. We recorded intangible lease assets of $4,867 related to this acquisition. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In December 2011, we acquired one senior living community located in Walnut Creek, California with 57 living units for approximately $11,300, excluding closing costs. Five Star manages this community under a long term contract. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In February 2012, we acquired one senior living community located in Priceville, Alabama with 92 living units for approximately $11,300, excluding closing costs. Five Star manages this community under a long term contract. We funded this acquisition using cash on hand.

In December 2011 and January and February 2012, we entered five separate agreements to acquire one senior living community and four MOBs for an aggregate purchase price of $144,750, excluding closing costs. The senior living community is located in Missouri and includes 87 living units, and the four MOBs are located in Connecticut, Georgia and Hawaii and include an aggregate of 514,409 square feet. The closings of these acquisitions are contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase these properties.

We amortize capitalized above market lease values (included in acquired real estate leases in our consolidated balance sheets) as a reduction in rental income over the remaining non-cancelable terms of the respective leases. We amortize capitalized below market lease values (presented as acquired real estate lease obligations in our consolidated balance sheets) as an increase in rental income over the non-cancelable periods of the respective leases. Such amortization resulted in an increase in rental income of $93 during the year ended December 31, 2011, and reductions in rental income of $891 and $1,006 during the years ended December 31, 2010 and 2009, respectively. We amortize the value of in place leases exclusive of the value of above market and below market in place leases to expense over the remaining non-cancelable periods of the respective leases. Such amortization included in depreciation and amortization totaled $11,318, $4,468 and $3,669 during the years ended December 31, 2011, 2010 and 2009, respectively. If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

At December 31, 2011 and 2010, we had recorded intangible lease assets of $130,153, including $39,075 of capitalized above market lease values and $91,078 of the value of in place leases, and $78,117, including $24,499 of capitalized above market lease values and $53,618 of the value of in place leases, and intangible lease liabilities of $25,487 and $21,735, respectively. We recorded intangible lease assets of $52,210 and $27,837 and intangible lease liabilities of $3,770 and $10,206 for properties acquired in 2011 and 2010, respectively. Accumulated amortization of capitalized above market lease values was $9,612 and $5,494 at December 31, 2011 and 2010, respectively. The weighted average amortization period of capitalized above market lease values is approximately 6.9 years. Accumulated amortization of capitalized below market lease values was $7,709 and $3,496 at December 31, 2011 and 2010, respectively. The weighted average amortization period of capitalized below market lease values is approximately 8.1 years. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $20,306 and $9,030 at December 31, 2011 and 2010, respectively. The weighted average amortization period of the value of in place leases exclusive of the value of above and below market in place leases is approximately 6.9 years. We expect to recognize net future amortization of these intangible lease assets and liabilities in the amounts of approximately $16,710 in 2012, $15,243 in 2013, $11,885 in 2014, $10,400 in 2015, $8,979 in 2016 and $19,240, thereafter.

We periodically evaluate our properties for impairment. Impairment indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the affected property by comparing it to the expected future undiscounted cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value. During 2011, we recorded impairment of assets charges of $1,990 to reduce the carrying value of four of our properties to their estimated fair value or sales prices less costs to sell. During 2010, we recorded impairment of assets charges of $5,965 to reduce the carrying value of seven of our properties to their estimated fair value or sales prices less costs to sell. During 2009, we recorded impairment charges of $15,530 related to 11 properties, including one of the properties classified as held for sale and one property sold in November 2009, to reduce the carrying value of these assets to their estimated sales prices less costs to sell.

At December 31, 2011, two of our properties, including one senior living community and one MOB, are classified as held for sale. These two properties are included in real estate properties on our consolidated balance sheets and have a net book value of approximately $1,715 and $3,603 at December 31, 2011 and 2010, respectively.

During 2011 and 2010, pursuant to the terms of our leases with Five Star, we purchased approximately $33,269 and $31,894, respectively, of improvements made to our properties which are leased by Five Star and the annual rent payable to us by Five Star was increased by approximately $2,665 and $2,555, respectively.

We committed $6,133 for expenditures related to 575,000 square feet of leases executed during 2011. Committed but unspent tenant related obligations based on executed leases as of December 31, 2011, were $6,912.

The allocation of the purchase price of our 2011 acquisitions is based upon preliminary estimates of the fair value of assets acquired. Consequently, amounts preliminarily allocated to assets acquired could change significantly from those used in these consolidated financial statements.