Note 3. Real Estate Properties

Our real estate properties, excluding those classified as held for sale, at cost, consisted of land of $623,756, buildings and improvements of $4,423,517 and furniture, fixtures and equipment, or FF&E, of $216,352 as of December 31, 2013; and land of $599,313, buildings and improvements of $4,222,832 and FF&E of $197,470 as of December 31, 2012. Accumulated depreciation was $723,258 and $117,502 for buildings and improvements and FF&E, respectively, as of December 31, 2013; and $615,001 and $99,686 for buildings and improvements and FF&E, respectively, as of December 31, 2012.

The future minimum lease payments due to us during the current terms of our leases as of December 31, 2013, are $407,401 in 2014, $391,338 in 2015, $372,131 in 2016, $329,421 in 2017, $289,009 in 2018 and $1,687,867 thereafter.

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

Triple Net Senior Living Communities Acquisitions:

During 2013, we acquired one triple net senior living community with 150 living units for approximately $22,350, including the assumption of approximately $12,266 of mortgage debt and excluding closing costs. During 2012, we acquired four triple net 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. Details of these acquisitions are as follows:

Date	Location			Cash Paid plus Assumed Debt⁽¹⁾		Land		Buildings and Improvements		FF&E		Intangible Assets		Assumed Debt		Premium on Assumed Debt

Triple Net Senior Living Communities Acquisitions during the year ended December 31, 2013:
January 2013⁽²⁾	WA	1	150	$	22,350	$	5,120	$	16,562	$	669	$	1,039	$	12,266	$	1,040


		1	150	$	22,350	$	5,120	$	16,562	$	669	$	1,039	$	12,266	$	1,040




Triple Net Senior Living Communities Acquisitions during the year ended December 31, 2012:
July 2012⁽³⁾	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

(1): Cash paid plus assumed debt, if any, excludes closing costs.
(2): We leased this property to a subsidiary of Stellar Senior Living, LLC, or Stellar, for an initial term expiring in 2028 for initial rent of approximately $1,732 per year. Percentage rent, based on increases in gross revenues at this property, will commence in 2016.
(3): We leased these properties to subsidiaries of Stellar, for an initial term expiring in 2027 for initial rent of approximately $2,920 per year. Percentage rent, based on increases in gross revenues at these properties, will commence in 2014.

Managed Senior Living Communities Acquisitions:

During 2013, we acquired five managed senior living communities with a total of 374 living units for total purchase prices of approximately $62,999, excluding closing costs. During 2012, we acquired seven managed 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. Subsidiaries of Five Star, which we refer to together with Five Star, collectively, in these notes to our consolidated financial statements as Five Star, manage these communities pursuant to long term management agreements. As of December 31, 2013, we own 44 managed senior living 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 nearly all of our managed senior living communities, which we began acquiring in June 2011. Details of these acquisitions are as follows:

Date	Location			Cash Paid plus Assumed Debt⁽¹⁾		Land		Buildings and Improvements		FF&E		Intangible Assets		Assumed Debt		Premium on Assumed Debt

Managed Senior Living Communities Acquisitions during the year ended December 31, 2013:
August 2013	GA	1	93	$	22,030	$	1,548	$	18,666	$	803	$	1,013	$	—	$	—
October 2013	Various	3	213		29,004		2,242		23,861		612		2,289		—		—
November 2013	WI	1	68		11,965		1,365		9,628		199		773		—		—


		5	374	$	62,999	$	5,155	$	52,155	$	1,614	$	4,075	$	—	$	—




Managed Senior Living Communities Acquisitions during the year ended 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

(1): Cash paid plus assumed debt, if any, excludes closing costs. The allocation of the purchase price of our 2013 acquisitions shown above is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed could change significantly.

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.

MOB Acquisitions:

During 2013, we acquired six MOBs (seven buildings) with a total of 385,171 square feet for total purchase prices of approximately $117,475, excluding closing costs. During 2012, we acquired 12 MOBs (13 buildings) 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. Details of these acquisitions are as follows:

Date	Location			Cash Paid plus Assumed Debt⁽¹⁾		Land		Buildings and Improvements		Acquired Real Estate Leases		Acquired Real Estate Lease Obligations		Assumed Debt		Premium on Assumed Debt

MOB Acquisitions during the year ended December 31, 2013:
February 2013	WA	1	144,900	$	38,000	$	5,639	$	27,213	$	6,736	$	1,588	$	—	$	—
March 2013	MS	1	71,983		14,600		1,269		12,516		1,498		683		—		—
August 2013⁽²⁾	MA	1	105,462		49,500		4,559		44,941		—		—		—		—
December 2013	FL	3	62,826		15,375		2,432		11,165		1,778		—		—		—


		6	385,171	$	117,475	$	13,899	$	95,835	$	10,012	$	2,271	$	—	$	—




MOB Acquisitions during the year ended 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	1	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		—		—


		12	839,194	$	225,695	$	30,588	$	165,256	$	32,684	$	971	$	73,103	$	1,862

(1): Cash paid plus assumed debt, if any, excludes closing costs. The allocation of the purchase price of certain of our 2013 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): This acquisition is accounted for as an asset purchase.

In February 2014, we entered into an agreement to acquire one MOB (two buildings) for approximately $1,125,420, excluding closing costs. The MOB is located in Massachusetts and includes 1,651,037 gross building 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, that the acquisition will not be delayed or that its terms will not change.

In May 2012, we entered into an operations transfer agreement, or the Operations Transfer Agreement, with Sunrise and Five Star related to the ten 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 ten communities to our TRS. Five Star is managing the ten 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 ten communities, which were transferred to our managed senior living communities segment.

In August and December 2013, we sold three properties, including one skilled nursing facility and two rehabilitation hospitals which were previously classified as held for sale, for combined sales prices of $92,550, excluding closing costs, and recognized an aggregate gain on sale of these properties of approximately $37,392. In July 2012, we sold one MOB (one building) 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 January 2014, we sold one senior living community located in Texas for a sale price of $2,400, excluding closing costs.

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 $3,656 during the year ended December 31, 2013, a reduction in rental income of $1,597 during the year ended December 31, 2012, and an increase in rental income of $93 during the year ended December 31, 2011. 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 $22,718, $19,340, $11,318 during the years ended December 31, 2013, 2012 and 2011, respectively. If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

At December 31, 2013 and 2012, we had recorded intangible lease assets of $166,247, including $44,279 of capitalized above market lease values and $121,968 of the value of in place leases, and $161,419, including $45,290 of capitalized above market lease values and $116,129 of the value of in place leases, and intangible lease liabilities of $22,170 and $21,978, respectively. We recorded intangible lease assets of $17,131 and $41,764 and intangible lease liabilities of $2,271 and $971 for properties acquired in 2013 and 2012, respectively. Accumulated amortization of capitalized above market lease values was $16,148 and $13,675 at December 31, 2013 and 2012, respectively. The weighted average remaining amortization period of capitalized above market lease values is approximately 6.0 years. Accumulated amortization of capitalized below market lease values was $9,642 and $8,286 at December 31, 2013 and 2012, respectively. The weighted average amortization period of capitalized below market lease values is approximately 6.9 years. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $46,605 and $31,907 at December 31, 2013 and 2012, 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 5.8 years. We expect to recognize net future amortization of these intangible lease assets and liabilities in the amounts of approximately $22,762 in 2014, $17,964 in 2015, $15,478 in 2016, $11,987 in 2017, $8,393 in 2018 and $14,384, thereafter.

Impairment

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 2013, we recorded an impairment of assets charge of $1,304 to reduce the carrying value of one of our properties to its estimated net sale price. 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 net sale price. During 2011, we recorded impairment of assets charges of $1,990 to reduce the carrying value of four of our properties to their estimated net sales prices.

As of December 31, 2013, we had 10 senior living communities with 744 living units and four MOBs (seven buildings) with 831,499 square feet categorized as properties held for sale. During 2013, we recorded impairment of assets charges of $44,295 to reduce the carrying value of 11 of these 17 properties to their aggregate estimated net sale price. These properties are included in other assets in our consolidated balance sheets and have a net book value (after impairment) of approximately $27,888 at December 31, 2013. As of December 31, 2012, we had one senior living community with 120 units held for sale (which is included within the 10 senior living communities held for sale as of December 31, 2013). This property is included in other assets in our consolidated balance sheets and had a net book value (after impairment) of approximately $850 at December 31, 2012. We decided to sell these properties due to underlying conditions in the markets where these properties are located. We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards Codification, or the Codification, as held for sale within other assets in our consolidated balance sheets.

Results of operations for properties sold or held for sale are included in discontinued operations in our consolidated statements of operations once the criteria for discontinued operations in the Presentation of Financial Statements Topic of the Codification are met. Summarized income statement information for the four MOBs (seven buildings) that meet the criteria for discontinued operations is included in discontinued operations as follows:

	For the year ended December 31,

	2013			2012			2011
Rental income	$	9,451		$	10,042		$	9,986
Property operating expenses		(3,609	)		(3,567	)		(3,567	)
Depreciation and amortization		(799	)		(2,414	)		(2,306	)


Income from discontinued operations	$	5,043		$	4,061		$	4,113

During 2013 and 2012, pursuant to the terms of our existing leases with Five Star, we purchased $27,208 and $30,520, 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 $2,177 and $2,456, respectively.

We committed $9,727 for expenditures related to 771,000 square feet of leases executed during 2013. Committed and unspent tenant related obligations based on executed leases as of December 31, 2013, were $9,024.