Note 3. Real Estate Properties

Our real estate properties, excluding those classified as held for sale, consisted of land of $781,426, buildings and improvements of $6,391,482 and FF&E of $284,032 as of December 31, 2015; and land of $681,808, buildings and improvements of $5,304,857 and FF&E of $235,695 as of December 31, 2014. Accumulated depreciation was $992,361 and $155,179 for buildings and improvements and FF&E, respectively, as of December 31, 2015; and $838,719 and $134,486 for buildings and improvements and FF&E, respectively, as of December 31, 2014.

The future minimum lease payments due to us during the current terms of our leases as of December 31, 2015, are $542,987 in 2016, $530,269 in 2017, $513,150 in 2018, $479,591 in 2019, $453,161 in 2020 and $2,980,205 thereafter.

We have accounted for the following acquisitions as business combinations unless otherwise noted.

Senior Living Community Acquisitions:

In December 2014, we entered into an agreement to acquire 38 senior living communities with 3,439 living units for an aggregate purchase price of $790,000, excluding net closing adjustments of $77 and closing costs. In May 2015, we acquired 37 of these 38 senior living communities and in September 2015 we acquired the one remaining community. We funded the acquisitions of these 38 senior living communities using cash on hand, borrowings under our revolving credit facility and the assumption of approximately $151,477 of mortgage debts with a weighted average annual interest rate of 4.57%.

Nineteen of the 38 communities are triple net leased senior living communities with 2,206 living units, and are leased to seven senior living operators. As of the date acquired, the weighted average amortization period for capitalized lease origination values was 11.5 years. The remaining 19 acquired managed communities with 1,233 living units were acquired using TRS structures and are being managed for our account. We paid fees of $975 and terminated the pre-existing management agreements that were in place for 14 of these 19 managed communities, with 838 living units and we entered into new management agreements with Five Star to manage those 14 communities. The remaining five managed communities, with 395 living units, continue to be managed by a third party senior living manager in place at the time of our acquisition of these communities. As of December 31, 2015, we own 65 managed senior living communities that are managed by Five Star and one third party senior living manager.

In September 2015, we acquired one triple net leased senior living community with 84 living units for a purchase price of $18,250, excluding closing costs. We funded the acquisition of this community using cash on hand and borrowings under our revolving credit facility. This community is leased to a privately owned third party senior living operator. This acquisition was accounted for as an acquisition of assets.

In May 2015, we acquired one senior living community with 40 private pay independent living units for a purchase price of approximately $9,750, excluding closing costs. Pursuant to the purchase agreement, $1,000 of the purchase price has been withheld until the seller satisfies various conditions. We anticipate these conditions will be satisfied and therefore have recorded the withheld $1,000 as a liability as of December 31, 2015. This liability is included in other liabilities in our consolidated balance sheets. This senior living community is adjacent to another community that we own which is managed by Five Star; and the operations of this community and the community we previously owned are now conducted as a single integrated community under one management agreement.

In February 2015, we acquired a land parcel adjacent to a senior living community we lease to Five Star for $490. This property was added to the lease for that senior living community and Five Star’s annual minimum rent payable to us increased by $39 as a result.

During 2014, we acquired two senior living communities with a total of 228 living units for total purchase prices of approximately $47,430, excluding closing costs, and entered into management agreements with Five Star to manage these communities.

The table below represents the purchase price allocations (including net closing adjustments) of the senior living community acquisitions described above.


					Cash Paid														(Premium) /
			Number		plus				Buildings				Acquired						Discount
		Leased /	of	Units/	Assumed				and				Real Estate		Other		Assumed		on Assumed
Date	Location	Managed	Properties	Beds	Debt(1)		Land		Improvements		FF&E		Leases		Liabilities		Debt		Debt
Senior Living Community Acquisitions during the year ended December 31, 2015:
May 2015	11 States	Leased	18	2,119	$	459,184	$	29,716	$	373,471	$	21,117	$	54,096	$	(18,091)	$	(44,395)	$	(1,125)
May 2015	5 States	Managed	19	1,233		313,345		12,267		214,064		12,342		73,840		—		(94,785)		832
September 2015	NC	Leased	1	87		17,548		1,134		13,749		1,022		2,208		—		(12,297)		(565)
Subtotal 38 senior living communities portfolio			38	3,439		790,077		43,117		601,284		34,481		130,144		(18,091)		(151,477)		(858)

May 2015	GA	Managed	— (2)	40		8,750		993		8,169		427		161		(1,000)		—		—
September 2015	GA	Leased	1	84		18,250		3,479		13,862		909		—		—		—		—

			39	3,563	$	817,077	$	47,589	$	623,315	$	35,817	$	130,305	$	(19,091)	$	(151,477)	$	(858)

Senior Living Community Acquisitions during the year ended December 31, 2014:
December 2014	WI	Managed	1	52	$	7,000	$	188	$	5,862	$	101	$	849	$	—	$	—	$	—
December 2014	WI	Managed	1	176		40,430		2,615		34,957		588		2,270		—		—		—
			2	228	$	47,430	$	2,803	$	40,819	$	689	$	3,119	$	—	$	—	$	—

(1)

Cash paid plus assumed debt, if any, excludes closing costs. The allocation of the purchase price of certain of our 2015 acquisitions shown above is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. Therefore, amounts preliminarily allocated to assets acquired and liabilities assumed could change significantly from those used in these consolidated financial statements.

(2)

This senior living community is adjacent to another community that we own which is managed by Five Star. The operations of this community and the community we previously owned are now conducted as a single integrated community under one management agreement.

See Note 5 for further information regarding the arrangements we have with Five Star.

MOB Acquisitions:

In January 2015, we acquired 23 properties (23 buildings) leased to MOBs for an aggregate purchase price of $539,000, excluding net credits received of $7,377 related to debt assumption costs and outstanding tenant improvement allowances and excluding closing costs. These MOBs include approximately 2,170,000 leasable square feet. We funded this acquisition using cash on hand, borrowings under our revolving credit facility and the assumption of $29,955 of mortgage debts with a weighted average annual interest rate of 4.73%. As of the date acquired, the weighted average amortization periods for capitalized above market lease values, lease origination costs and capitalized below market lease values were 9.7 years, 9.5 years and 11.2 years, respectively. These 23 properties were purchased from Select Income REIT, or SIR, in connection with the acquisition by SIR of Cole Corporate Income Trust, Inc., or CCIT. See Note 5 for further information regarding this transaction.

During 2014, we acquired two MOBs (three buildings) with a total of 1,776,277 square feet for total purchase prices of approximately $1,162,584 including the assumption of approximately $15,630 of mortgage debt and excluding closing costs.

The table below represents the purchase price allocations (including net closing adjustments) of the MOB acquisitions described above.


				Cash Paid								Acquired
		Number		plus				Buildings		Acquired		Real Estate				Premium
		of	Square	Assumed				and		Real Estate		Lease		Assumed		on Assumed
Date	Location	Properties	Feet (000's)	Debt(1)		Land		Improvements		Leases		Obligations		Debt		Debt
MOB Acquisitions during the year ended December 31, 2015:
January 2015	12 States	23	2,170	$	531,623	$	50,429	$	397,637	$	87,780	$	(3,150)	$	(29,955)	$	(1,073)
		23	2,170	$	531,623	$	50,429	$	397,637	$	87,780	$	(3,150)	$	(29,955)	$	(1,073)

MOB Acquisitions during the year ended December 31, 2014:
April 2014	TX	1	125	$	32,932	$	3,141	$	23,142	$	7,672	$	(10)	$	(15,630)	$	(1,013)
May 2014	MA	1	1,651		1,129,652		52,643		792,146		403,282		(118,419)		—		—
		2	1,776	$	1,162,584	$	55,784	$	815,288	$	410,954	$	(118,429)	$	(15,630)	$	(1,013)

(1)

Cash paid plus assumed debt, if any, excludes closing costs.

In January 2016, we entered into an agreement to acquire one senior living community located in Georgia with 38 private pay units for a purchase price of approximately $8,400, excluding closing costs. We expect to acquire this community using a TRS structure and to have Five Star manage this community. This acquisition is subject to various conditions; accordingly we can provide no assurance that we will purchase this property, that the acquisition or related expected management agreement with Five Star will not be delayed or that the terms will not change.

In February 2016, we acquired one MOB (three buildings) in Minnesota with approximately 128,000 square feet for a purchase price of approximately $22,700, excluding closing costs.

At December 31, 2015, we had recorded intangible lease assets of $779,761, including $48,048 of capitalized above market lease values and $731,713 of the value of in place leases. At December 31, 2014, we had recorded intangible assets of $577,177, including $47,107 of capitalized above market lease values and $530,070 of the value of in place leases. We had recorded intangible lease obligations of $139,346 and $138,469 at December 31, 2015 and 2014, respectively. Accumulated amortization of capitalized above market lease values was $26,828 and $22,749 at December 31, 2015 and 2014, respectively. At December 31, 2015, the remaining weighted average amortization period of capitalized above market lease values is approximately 5.3 years. Accumulated amortization of capitalized below market lease values was $23,819 and $15,643 at December 31, 2015 and 2014, respectively. At December 31, 2015, the remaining weighted average amortization period of intangible lease obligations is approximately 12.5 years. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $148,647 and $81,640 at December 31, 2015 and 2014, respectively. At December 31, 2015, the remaining 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 10.6 years. We expect to recognize net future amortization of these intangible lease assets and liabilities in the amounts of approximately $76,793 in 2016, $72,769 in 2017, $44,196 in 2018, $38,982 in 2019, $36,571 in 2020 and $219,611 thereafter.

Dispositions:

In February 2015, we sold one vacant senior living community for $250, excluding closing costs. In July 2015, we sold one senior living community for $155, excluding closing costs. In August 2015, we sold one senior living community for $850, excluding closing costs. In December 2015, we sold one senior living community for $21, excluding closing costs.

In April 2015, we sold one MOB (four buildings) previously included in discontinued operations for $1,500, excluding closing costs.

In January, June, and October 2014, we sold six senior living communities which were previously classified as held for sale, for combined sales prices of $15,650, excluding closing costs, and recognized an aggregate gain on sale on these properties of approximately $5,452. In April, June, and September 2014, we sold three MOBs (3 buildings) that were previously included in discontinued operations for combined sales prices of $11,675, excluding closing costs.

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 2015, we recorded net impairment charges of $796 to adjust the carrying values of one MOB (four buildings) and three senior living communities to their aggregate estimated net sale price. We classify all properties as held for sale in our consolidated balance sheets that meet the applicable criteria for that treatment as set forth in the Property, Plant and Equipment Topic of the Codification.

As of December 31, 2015, we had one senior living community with 140 living units and one vacant land parcel categorized as held for sale. The real estate assets of this senior living community and land parcel are included in other assets in our consolidated balance sheets and have a net book value (after impairment) of approximately $5,356 at December 31, 2015.

As of December 31, 2014, we had four senior living communities with 312 living units and one MOB (four buildings) with 323,541 square feet categorized as properties held for sale. During 2014, we recorded net impairment charges of $4,377 to adjust the carrying value of four MOBs (seven buildings) to their aggregate estimated net sale price. These properties have all been sold as of December 31, 2015, as described above.

Results of operations for properties sold or held for sale are included in discontinued operations in our consolidated statements of comprehensive income once the criteria for discontinued operations in the Presentation of Financial Statements Topic of the Codification are met. The senior living communities which we are or were offering for sale as of the applicable periods do not meet the criteria for discontinued operations. Summarized income statement information for the four MOBs (seven buildings) that met the criteria for discontinued operations is included in discontinued operations as follows:


	For the year ended December 31,
	2015		2014		2013
Rental income	$	56	$	3,949	$	9,451
Property operating expenses		(406)		(2,587)		(3,609)
Depreciation and amortization		—		—		(799)
(Loss) income from discontinued operations	$	(350)	$	1,362	$	5,043

Investments and Capital Expenditures:

During 2015 and 2014, pursuant to the terms of our existing leases with Five Star, we purchased $21,444 and $25,804, respectively, of improvements to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $1,734 and $2,066, respectively.

At our MOB communities, we committed $20,314 for expenditures related to 1,032,000 square feet of leases executed during 2015. Committed and unspent tenant related obligations based on executed leases as of December 31, 2015, were $16,671.