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Real Estate Properties
 9 Months Ended
Sep. 30, 2012
Real Estate Properties  
Real Estate Properties

Note 3.  Real Estate Properties

 

At September 30, 2012, we owned 384 properties located in 40 states and Washington, D.C.

 

In February 2012, we acquired a senior living community located in Alabama with 92 living units for approximately $11,300, excluding closing costs.  We recorded intangible assets of approximately $583 related to this acquisition.  A subsidiary of Five Star Quality Care, Inc., which, together with its subsidiaries, we refer to in this report as Five Star, manages this community for our account pursuant to a long term management agreement.  We funded this acquisition using cash on hand.  As of September 30, 2012, we own 30 communities that are managed by Five Star, or the Managed Communities.  We use the taxable REIT subsidiary, or TRS, structure authorized by the Real Estate Investment Trust Investment Diversification and Empowerment Act, or RIDEA, for our Managed Communities, which we began acquiring in June 2011.  The results of operations for the Managed Communities are included in our short and long term residential care communities segment.  See Note 11 for further information regarding the arrangements we have with Five Star regarding the lease, operations and management of our senior living communities and see Note 9 for further information regarding our reportable operating segments.

 

In May 2012, we acquired a senior living community located in South Carolina with 59 assisted living units for approximately $8,059, excluding closing costs.  We recorded intangible assets of approximately $362 related to this acquisition.  Five Star manages this community for our account pursuant to a long term management agreement.  We funded this acquisition using cash on hand and by assuming approximately $4,789 of mortgage debt, which approximated its fair value.

 

In May 2012, we acquired a property leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or an MOB, with 28,440 square feet located in Georgia for approximately $8,600, excluding closing costs.  We recorded intangible lease assets and liabilities of $1,392 and $10, respectively, related to this acquisition.  We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

 

In May 2012, we acquired another MOB with 111,538 square feet located in Georgia for approximately $23,100, excluding closing costs.  We recorded intangible lease assets of $6,421 related to this acquisition.  We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

 

In June 2012, we acquired a MOB with 204,429 square feet located in Hawaii for approximately $70,495, excluding closing costs.  We recorded intangible lease assets and liabilities of $4,306 and $629, respectively, related to this acquisition.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility and by assuming approximately $52,000 of mortgage debt, which approximated its fair value.

 

In June 2012, we acquired another MOB with 92,180 square feet located in Maryland for approximately $18,250, excluding closing costs.  We recorded intangible lease assets and liabilities of $3,570 and $78, respectively, related to this acquisition.  We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

 

In July 2012, we acquired a senior living community located in South Carolina with 232 living units for approximately $37,273, excluding closing costs.  We recorded intangible assets of approximately $1,762 related to this acquisition.  Five Star manages this community for our TRS pursuant to a long term management agreement.  We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

 

In July 2012, we acquired a MOB with 63,082 square feet located in Texas for approximately $16,850, excluding closing costs.  We recorded intangible lease assets of $1,973 related to this acquisition.  We funded this acquisition using cash on hand.

 

In July 2012, we acquired another MOB with 52,858 square feet located in Florida for approximately $7,750, excluding closing costs.  We recorded intangible lease assets of $789 related to this acquisition.  We funded this acquisition using cash on hand.

 

In July 2012, we acquired four senior living communities located in Colorado, Idaho and Washington State with a total of 511 living units for total purchase prices of approximately $36,500, excluding closing costs.  We recorded intangible assets of approximately $1,900 related to this acquisition.  We leased these properties to Stellar Senior Living, LLC, or Stellar, for an initial term expiring in 2027 at initial rent of approximately $2,920 per year.  Percentage rent, based on increases in gross revenues at these properties, will commence in 2014.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility and by assuming approximately $6,876 of mortgage debt, which was recorded at a fair value of $7,488.

 

In August 2012, we acquired a senior living community located in New York with 310 living units for approximately $99,000, excluding closing costs.  We recorded intangible assets of approximately $2,726 related to this acquisition.  Five Star manages this community for our account pursuant to a long term management agreement.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility and by assuming approximately $31,187 of mortgage debt, which was recorded at a fair value of $33,934.

 

In August 2012, we acquired another senior living community located in Missouri with 87 living units for approximately $11,280, excluding closing costs.  We recorded intangible assets of approximately $330 related to this acquisition.  Five Star manages this community for our account pursuant to a long term management agreement.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility and by assuming approximately $5,838 of mortgage debt, which was recorded at a fair value of $6,530.

 

In September 2012, we acquired a MOB with 33,600 square feet located in Massachusetts for approximately $16,400, excluding closing costs.  We funded this acquisition using cash on hand and by assuming approximately $11,462 of mortgage debt, which was recorded at a fair value of $12,529.

 

We have previously disclosed an agreement to acquire one MOB, which has not yet closed, for approximately $15,275, including the assumption of approximately $9,700 of mortgage debt and excluding closing costs.  The MOB is located in Minnesota and includes 76,637 square feet.  The closing of this acquisition is contingent upon customary closing conditions; accordingly, we can provide no assurance that we will purchase this property.

 

In August and October 2012, we entered into four separate agreements to acquire three senior living communities and one MOB for total purchase prices of approximately $68,300, including the assumption of approximately $12,300 of mortgage debt and excluding closing costs.  The three senior living communities are located in Mississippi, Tennessee and Washington State and include a total of 437 living units and the MOB is located in Tennessee and includes 33,796 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.

 

In May 2012, we entered into an operations transfer agreement, or the Operations Transfer Agreement, with Sunrise Senior Living, Inc., or Sunrise, and Five Star related to 10 senior living communities, or the 10 Communities, that we were then leasing to Sunrise.  The Operations Transfer Agreement provides that we and Sunrise will accelerate the December 31, 2013 termination date of these Sunrise leases, that we will lease the 10 Communities to our TRS and that Five Star will manage the 10 Communities pursuant to long term management agreements.  The Operations Transfer Agreement provides that these transactions will occur when we and Five Star have obtained required regulatory approvals to operate the 10 Communities.  In September and October 2012, we and Sunrise terminated Sunrise’s leases for three and five of the 10 Communities, respectively, and we entered into management agreements with Five Star with respect to these eight communities.  We currently expect the termination of the leases for, and the transition of the operations of, the remaining two communities to occur before December 31, 2012.  As a result of these lease terminations, we recorded a loss on lease terminations of approximately $104 during the three and nine months ended September 30, 2012.  Also, as a result of the three lease terminations in September 2012, during the three and nine months ended September 30, 2012, we recognized approximately $350 of percentage rent that is included in rental income in our condensed consolidated statements of income and comprehensive income as the contingencies for recognizing that income were then met.  Pursuant to the Operations Transfer Agreement, we paid Sunrise $1,000 to purchase the inventory and certain improvements owned by Sunrise at these 10 Communities, which were or will be transferred to our TRS.  The termination of the leases for those remaining two communities and Five Star’s management of those communities on our behalf are subject to conditions, including receipt of regulatory approvals.

 

In July 2012, we sold one MOB located in Massachusetts with approximately 18,900 square feet for a sale price of approximately $1,100 and recorded a loss on the sale of this property of approximately $101.  At September 30, 2012, one of our senior living communities located in Pennsylvania is classified as held for sale.  This property is included in real estate properties in our condensed consolidated balance sheets and has a net book value of approximately $850 at both September 30, 2012 and December 31, 2011.

 

We periodically evaluate our properties for impairments. 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 net cash flows to be generated from that property. If the sum of these expected future net cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.  During the nine months ended September 30, 2012, we recorded an impairment of assets charge of $3,071 to reduce the carrying value of one of our properties to its estimated sale price less costs to sell.  During the three and nine months ended September 30, 2011, we recorded impairment of assets charges of $1,028 and $1,194, respectively, to reduce the carrying value of one and three of our properties, respectively, to their estimated sales prices less costs to sell.

 

During the three and nine months ended September 30, 2012, pursuant to the terms of our existing leases with Five Star, we purchased $4,156 and $18,249, respectively, of improvements made to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $335 and $1,472, respectively.

 

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