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Real Estate Properties
 12 Months Ended
Dec. 31, 2012
Real Estate Properties  
Real Estate Properties

Note 3. Real Estate Properties

Our real estate properties, at cost, consisted of land of $615,623, buildings and improvements of $4,354,165 and furniture, fixtures and equipment, or FF&E, of $213,519 as of December 31, 2012; and land of $564,628, buildings and improvements of $3,969,086 and FF&E of $187,877 as of December 31, 2011. Accumulated depreciation was $645,585 and $105,318 for buildings and improvements and FF&E, respectively, as of December 31, 2012; and $543,064 and $87,197 for buildings and improvements and FF&E, respectively, as of December 31, 2011.

The future minimum lease payments due to us during the current terms of our leases as of December 31, 2012, are $406,068 in 2013, $389,755 in 2014, $373,938 in 2015, $356,626 in 2016, $315,917 in 2017 and $2,421,860, thereafter.

Senior Living Acquisitions—Leased:

During 2012, we acquired four senior living communities with a total of 511 living units for total purchase prices of approximately $36,500, including the assumption of approximately $6,876 of mortgage debt and excluding closing costs. During 2011, we acquired six senior living communities with a total of 679 living units for total purchase prices of approximately $99,808, including the assumption of approximately $11,458 of mortgage debt and excluding closing costs. Details of these acquisitions are as follows:

Date
  Location   Number
of
Properties		   Units/
Beds		   Purchase
Price(1)		   Land   Buildings and
Improvements		   FF&E   Intangible
Assets		   Assumed
Debt		   Premium
on Assumed
Debt		  

Senior Living Leased Acquisitions through December 31, 2012:

        

July 2012(2)

   Various     4     511   $ 36,500   $ 4,100   $ 29,728   $ 1,400   $ 1,900   $ 6,876   $ 628  
                                           

 

         4     511   $ 36,500   $ 4,100   $ 29,728   $ 1,400   $ 1,900   $ 6,876   $ 628  
                                           

Senior Living Leased Acquisitions through December 31, 2011:

        

May 2011(3)

   IL     1     73   $ 7,500   $ 200   $ 6,925   $ 375   $ —   $ —   $ —  

June 2011(3)

   Various     4     523     82,073     6,145     72,757     3,171     —     11,458     —  

July 2011(3)

   FL     1     83     10,235     890     8,728     617     —     —     —  
                                           

 

         6     679   $ 99,808   $ 7,235   $ 88,410   $ 4,163   $ —   $ 11,458   $ —  
                                           
(1)
Purchase price includes the assumption of mortgage debt, if any, and excludes closing costs. The allocation of the purchase price of certain of our acquisitions shown 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 consolidated financial statements.

(2)
We leased these properties to subsidiaries of Stellar Senior Living, LLC, or Stellar, for an initial term expiring in 2027 for initial rent of approximately $2,920 per year. Percentage rent, based on increased in gross revenues at these properties, will commence in 2014.

(3)
We leased these properties to Five Star and added them to existing leases with Five Star for initial rent of approximately $7,531 per year. Percentage rent, based on increases in gross revenues at these properties, will commence in 2013.

Senior Living Acquisitions—Managed Communities:

During 2012, we acquired seven senior living communities with a total of 948 living units for total purchase prices of approximately $187,462, including the assumption of approximately $41,814 of mortgage debt and excluding closing costs. During 2011, we acquired 22 senior living communities with a total of 3,187 living units for total purchase prices of approximately $556,415, including the assumption of approximately $192,573 of mortgage debt and excluding closing costs. Subsidiaries of Five Star, which we refer to in this report as Five Star, manage these communities pursuant to long term management agreements. As of December 31, 2012, we own 39 Managed Communities that are managed by Five Star. We use the TRS structure authorized by the Real Estate Investment Trust Investment Diversification and Empowerment Act 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. Details of these acquisitions are as follows:

Date
  Location   Number
of
Properties		   Units/
Beds		   Purchase
Price(1)		   Land   Buildings and
Improvements		   FF&E   Intangible
Assets		   Assumed
Debt		   Premium
on Assumed
Debt		  

Senior Living Managed Communities Acquisitions through December 31, 2012:

        

February 2012

   AL     1     92   $ 11,300   $ 1,300   $ 9,071   $ 346   $ 583   $ —   $ —  

May 2012

   SC     1     59     8,059     1,092     6,405     200     362     4,789     —  

July 2012

   SC     1     232     37,273     3,898     30,670     943     1,762     —     —  

August 2012

   NY     1     310     99,000     8,460     87,492     3,069     2,726     31,187     2,747  

August 2012

   MO     1     87     11,280     260     10,852     530     330     5,838     692  

December 2012

   TN     1     90     11,550     800     10,000     322     428     —     —  

December 2012

   TX     1     78     9,000     1,440     6,879     246     435     —     —  
                                           

 

         7     948   $ 187,462   $ 17,250   $ 161,369   $ 5,656   $ 6,626   $ 41,814   $ 3,439  
                                           

Senior Living Managed Communities Acquisitions through December 31, 2011:

        

June 2011

   Various     10     824   $ 114,521   $ 10,293   $ 99,270   $ 4,958   $ —   $ 36,605   $ —  

July 2011

   FL     2     269     34,436     1,300     31,989     1,147     —     12,757     —  

August 2011

   FL     1     121     17,158     2,390     14,369     399     —     12,459     —  

December 2011

   Various     8     1,916     379,000     49,180     320,370     9,450     —     130,752     —  

December 2011

   CA     1     57     11,300     2,010     8,951     339     —     —     —  
                                           

 

         22     3,187   $ 556,415   $ 65,173   $ 474,949   $ 16,293   $ —   $ 192,573   $ —  
                                           
(1)
Purchase price includes the assumption of mortgage debt, if any, and excludes closing costs. The allocation of the purchase price of certain of our acquisitions shown 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 consolidated financial statements.

See Note 5 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 10 for further information regarding our reportable operating segments.

MOB Acquisitions:

During 2012, we acquired 13 MOBs with a total of 839,194 square feet for total purchase prices of approximately $225,695, including the assumption of approximately $73,103 of mortgage debt and excluding closing costs. During 2011, we acquired 28 MOBs with a total of 2,480,159 square feet for total purchase prices of approximately $336,395, including the assumption of approximately $13,286 of mortgage debt and excluding closing costs. Details of these acquisitions are as follows:

Date
  Location   Number
of
Properties		   Square
Feet		   Purchase
Price(1)		   Land   Buildings and
Improvements		   Acquired
Real Estate
Leases		   Acquired
Real Estate
Lease
Obligations		   Assumed
Debt		   Premium
on Assumed
Debt		  

MOB Acquisitions through December 31, 2012:

                    

May 2012

   GA     1     28,440   $ 8,600   $ 1,080   $ 6,138   $ 1,392   $ 10   $ —   $ —  

May 2012

   GA     1     111,538     23,100     3,500     13,179     6,421     —     —     —  

June 2012

   HI     1     204,429     70,495     11,200     55,618     4,306     629     52,000     —  

June 2012

   MD     1     92,180     18,250     1,900     12,858     3,570     78     —     —  

July 2012

   TX     1     63,082     16,850     990     13,887     1,973     —     —     —  

July 2012

   FL     1     52,858     7,750     1,620     5,341     789     —     —     —  

September 2012

   MA     1     33,600     16,400     1,443     14,153     1,812     —     11,462     1,008  

November 2012

   TN     1     33,796     9,200     1,528     6,590     1,132     50     —     —  

December 2012

   MN     1     76,637     15,100     2,774     9,276     4,087     183     9,641     854  

December 2012

   CO     2     62,418     16,400     1,437     11,777     3,196     10     —     —  

December 2012

   TX     2     80,216     23,550     3,116     16,439     4,006     11     —     —  
                                           

 

         13     839,194   $ 225,695   $ 30,588   $ 165,256   $ 32,684   $ 971   $ 73,103   $ 1,862  
                                           

MOB Acquisitions through December 31, 2011:

                    

January 2011

   Various     6     737,018   $ 95,870   $ 16,210   $ 72,043   $ 9,217   $ 1,600   $ —   $ —  

January 2011

   MN     1     84,474     14,150     1,220     10,208     2,722     —     —     —  

May 2011

   MN     1     49,809     7,200     1,300     4,548     1,403     51     —     —  

June 2011(2)

   FL     3     125,990     14,550     2,600     11,551     599     200     —     —  

July 2011(2)

   FL     1     32,321     5,200     570     4,276     354     —     3,653     —  

September 2011

   Various     13     1,310,664     167,000     28,960     108,809     31,150     1,919     —     —  

November 2011

   VA     2     45,645     11,425     930     8,598     1,897     —     9,633     —  

December 2011

   IN     1     94,238     21,000     1,830     14,303     4,867     —     —     —  
                                           

 

         28     2,480,159   $ 336,395   $ 53,620   $ 234,336   $ 52,209   $ 3,770   $ 13,286   $ —  
                                           
(1)
Purchase price includes the assumption of mortgage debt, if any, and excludes closing costs. The allocation of the purchase price of certain of our acquisitions shown 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 consolidated financial statements.

(2)
In August 2011, we acquired 47 acres of land adjacent to these four MOBs for future development for an additional $4,000, excluding closing costs.

In January 2013, we acquired a senior living community located in Washington State with 150 living units for approximately $22,350, excluding closing costs. We leased this property to Stellar for an initial term expiring in 2028 at initial rent of approximately $1,732 per year. Percentage rent, based on increases in gross revenues at this property, will commence in 2016. We funded this acquisition using cash on hand and by assuming approximately $12,266 of mortgage debt.

In February 2013, we acquired two MOBs with a total of 144,900 square feet located in Washington State for approximately $38,000, excluding closing costs. We funded this acquisition using cash on hand and borrowings under our revolving credit facility.

In January 2013, we entered into an agreement to acquire an MOB for approximately $14,600, excluding closing costs. The MOB is located in Mississippi and includes 71,824 square feet. The closing of this acquisition is contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase this property.

In May 2012, we entered into an operations transfer agreement, or the Operations Transfer Agreement, with Sunrise and Five Star related to the 10 Communities that we were then leasing to Sunrise, pursuant to which we and Sunrise accelerated the December 31, 2013 termination date of these Sunrise leases, and we began leasing the 10 Communities to our TRS. Five Star is managing the 10 Communities pursuant to long term management agreements. As a result of these lease terminations, we recorded a gain on lease terminations of approximately $375 during the year ended December 31, 2012. 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 transferred to our TRS.

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. 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, and recognized a gain on sale of these properties of approximately $21,315. At December 31, 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 consolidated balance sheets and has a net book value of approximately $850 at both December 31, 2012 and December 31, 2011.

We amortize capitalized above market lease values (included in acquired real estate leases and other intangible assets 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 a reduction in rental income of $1,597 during the year ended December 31, 2012, an increase in rental income of $93 during the year ended December 31, 2011, and a reduction in rental income of $891 during the year ended December 31, 2010. 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 $19,340, $11,318, $4,468 during the years ended December 31, 2012, 2011 and 2010, respectively. If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

At December 31, 2012 and 2011, we had recorded intangible lease assets of $161,419, including $45,290 of capitalized above market lease values and $116,129 of the value of in place leases, and $130,153, including $39,075 of capitalized above market lease values and $91,078 of the value of in place leases, and intangible lease liabilities of $21,978 and $25,487, respectively. We recorded intangible lease assets of $41,764 and $52,210 and intangible lease liabilities of $971 and $3,770 for properties acquired in 2012 and 2011, respectively. Accumulated amortization of capitalized above market lease values was $13,675 and $9,612 at December 31, 2012 and 2011, respectively. The weighted average amortization period of capitalized above market lease values is approximately 6.7 years. Accumulated amortization of capitalized below market lease values was $8,286 and $7,709 at December 31, 2012 and 2011, respectively. The weighted average amortization period of capitalized below market lease values is approximately 7.5 years. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $31,907 and $20,306 at December 31, 2012 and 2011, 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 6.3 years. We expect to recognize net future amortization of these intangible lease assets and liabilities in the amounts of approximately $24,419 in 2013, $19,098 in 2014, $14,532 in 2015, $12,411 in 2016, $10,255 in 2017 and $21,430, thereafter.

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 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 2011, we recorded impairment of assets charges of $1,990 to reduce the carrying value of four of our properties to their estimated 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 price less costs to sell.

During 2012 and 2011, pursuant to the terms of our existing leases with Five Star, we purchased $30,520 and $33,269, 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 $2,456 and $2,665, respectively.

We committed $6,599 for expenditures related to 636,000 square feet of leases executed during 2012. Committed but unspent tenant related obligations based on executed leases as of December 31, 2012, were $6,033.