Real Estate Properties

6 Months Ended

Jun. 30, 2013

Real Estate Properties

Real Estate Properties

Note 3.  Real Estate Properties

At June 30, 2013, we owned 395 properties located in 40 states and Washington, D.C.

Triple Net Senior Living Communities Acquisitions:

In January 2013, we acquired a senior living community located in Redmond, WA with 150 living units for approximately $22,350, excluding closing costs.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility, and by assuming approximately $12,266 of mortgage debt which was recorded at a fair value of $13,306.  Details of this acquisition are as follows:

Triple Net Senior Living Communities Acquisitions since January 1, 2013:

		Number														Premium
		of	Units/	Purchase				Buildings and				Intangible		Assumed		on Assumed
Date	Location	Properties	Beds	Price (1)		Land		Improvements		FF&E		Assets		Debt		Debt
January 2013 (2)	Redmond, WA	1	150	$	22,350	$	5,120	$	16,562	$	669	$	1,039	$	12,266	$	1,040

(1) Purchase price includes the assumption of mortgage debt and excludes closing costs.  The allocation of the purchase price of our acquisition 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 condensed consolidated financial statements.

(2) We leased this property to a subsidiary of Stellar Senior Living, LLC for an initial term expiring in 2028 for initial rent of approximately $1,732 per year.  Percentage rent, based on an increase in gross revenues at this property, will commence in 2016.

Managed Senior Living Communities Acquisitions:

In April 2013, we entered into an agreement to acquire one senior living community for approximately $22,030, excluding closing costs.  The senior living community is located in Cumming, GA and includes 93 private pay assisted living units. In July 2013, we entered into an agreement to acquire one senior living community for approximately $10,000, excluding closing costs.  The senior living community is located in Jefferson City, TN and includes 60 private pay assisted living units. In July 2013, we entered into an agreement to acquire two senior living communities for approximately $19,100, excluding closing costs.  The senior living communities are located in Canton and Ellijay, GA and include 153 private pay assisted living units. We expect that a subsidiary of Five Star Quality Care, Inc., which together with its subsidiaries, we refer to in this report as Five Star, will manage these communities for our account pursuant to a long term management agreement. 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, that our purchases will not be delayed or that the terms will not change. As of June 30, 2013, we own 39 communities that are managed by Five Star. We use the taxable REIT subsidiary, or TRS, structures authorized by the Real Estate Investment Trust Investment Diversification and Empowerment Act for our managed senior living communities, which we began acquiring in June 2011. See Note 11 for more information regarding our management arrangements with Five Star.

MOB Acquisitions:

In February 2013, we acquired two properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with a total of 144,900 square feet located in Bothell, WA for approximately $38,000, excluding closing costs.  We funded this acquisition using cash on hand. In March 2013, we acquired another MOB with 71,824 square feet located in Hattiesburg, MS for approximately $14,600, excluding closing costs. We funded this acquisition using cash on hand. Details of these acquisitions are as follows:

MOB Acquisitions since January 1, 2013:

												Acquired
		Number								Acquired		Real Estate
		of	Square	Purchase				Buildings and		Real Estate		Lease
Date	Location	Properties	Feet	Price (1)		Land		Improvements		Leases		Obligations
February 2013	Bothell, WA	2	145	$	38,000	$	5,639	$	25,239	$	8,442	$	1,539
March 2013	Hattiesburg, MS	1	72	$	14,600	$	1,269	$	11,691	$	2,323	$	683
		3	217	$	52,600	$	6,908	$	36,930	$	10,765	$	2,222

(1) Purchase price excludes closing costs.  The allocation of the purchase price 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 condensed consolidated financial statements.

In July 2013, we entered into an agreement to acquire a MOB for approximately $49,500, excluding closing costs. The MOB is located in Boston, MA and includes 105,462 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, that our purchase will not be delayed or that the terms will not change.

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 the six months ended June 30, 2013 and 2012, we recorded impairment of assets charges of $1,304 and $3,071, respectively, to reduce the carrying value of one of our properties to its estimated net sale price.

As of June 30, 2013, we had 18 properties held for sale, including 11 senior living communities with 856 units and seven MOBs with 831,499 square feet. During the six months ended June 30, 2013, we recorded impairment of assets charges of $32,267 to reduce the carrying value of 11of these 18 properties to their aggregate estimated net sale price. These properties are included in other assets in our condensed consolidated balance sheets and have a net book value (after impairment) of approximately $42,551 at June 30, 2013. As of December 31, 2012, we had one senior living community with 120 units held for sale (which is included within the 11 senior living communities held for sale as of June 30, 2013). This property is included in other assets in our condensed 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 in our condensed consolidated balance sheets.

Results of operations for properties sold or held for sale are included in discontinued operations in our condensed 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 seven MOBs that meet the criteria for discontinued operations is included in discontinued operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Rental income	$	2,574		$	2,579		$	5,095		$	5,056
Property operating expenses	(862		)	(916		)	(1,773		)	(1,587		)
Depreciation and amortization	(199		)	(606		)	(799		)	(1,210		)
Income from discontinued operations	$	1,513		$	1,057		$	2,523		$	2,259

One of the 11 senior living communities, a skilled nursing facility with 112 units, is held for sale under an agreement to be sold for $2,600. Completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of this community will occur, or will be completed at all or that the terms for the sale will not change.