Note 3. Real Estate Properties

At September 30, 2013, we owned 396 properties located in 40 states and Washington, D.C. We account for the following acquisitions as business combinations unless otherwise noted.

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 may change 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 increases in gross revenues at this property, will commence in 2016.

Managed Senior Living Communities Acquisitions:

In August 2013, we acquired a senior living community located in Cumming, GA with 93 private pay assisted living units for approximately $22,030, excluding closing costs. We funded this acquisition using cash on hand and borrowings under our revolving credit facility. A subsidiary of Five Star Quality Care, Inc., which together with its subsidiaries, we refer to in this report as Five Star, will manage this community for our account pursuant to a long term management agreement. As of September 30, 2013, we owned 40 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. See Note 10 for more information regarding our management arrangements with Five Star. Details of this acquisition are as follows:

Senior Living Managed Communities Acquisitions since January 1, 2013:

		Number
		of	Units/	Purchase				Buildings and				Intangible
Date	Location	Properties	Beds	Price (1)		Land		Improvements		FF&E		Assets
August 2013	Cumming, GA	1	93	$	22,030	$	1,548	$	18,666	$	803	$	1,013

(1) Purchase price 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 may change from those used in these condensed consolidated financial statements.

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 a 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. In August 2013, we acquired another MOB with 105,462 square feet located in Boston, MA for approximately $49,500, excluding closing costs; we funded this acquisition using cash on hand and borrowings under our revolving credit facility. 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 (000’s)	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
August 2013 (2)	Boston, MA	1	105	49,500		4,600		44,900		—		—
		4	322	$	102,100	$	11,508	$	81,830	$	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 may change from those used in these condensed consolidated financial statements.

(2) This acquisition is accounted for as an asset purchase.

In October 2013, we acquired three senior living communities with an aggregate of 213 assisted living units for an aggregate purchase price of approximately $29,000, excluding closing costs. One of those communities is located in Tennessee, and the other two are located in Georgia. Subsidiaries of Five Star will manage these communities for our account pursuant to a long term management agreement.

In August 2013, we entered into an agreement to acquire one senior living community for approximately $12,000, excluding closing costs. The senior living community is located in Verona, WI and includes 68 assisted living units. We expect that a subsidiary of Five Star will manage this community for our account pursuant to a long term management agreement. In October 2013, we entered into an agreement to acquire a portfolio of three MOBs with 62,826 square feet located in Orlando, FL for approximately $15,375, excluding closing costs. The closings of these acquisitions are contingent upon completion of our diligence and other customary closing conditions; accordingly, we may not purchase some or all of these properties, these purchases may be delayed or the terms of these purchases may 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, or 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, 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 September 30, 2013, we had 10 senior living communities with 744 units, two rehabilitation hospitals with 364 licensed beds, and seven MOBs with 831,499 square feet categorized as properties held for sale. During the nine months ended September 30, 2013, we recorded impairment of assets charges of $32,267 to reduce the carrying value of 11 of these 19 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 $94,891 at September 30, 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 September 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 September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	2,189		$	2,525		$	7,284		$	7,581
Property operating expenses	(958		)	(1,002		)	(2,723		)	(2,766		)
Depreciation and amortization	—			(604		)	(799		)	(1,814		)
Income from discontinued operations	$	1,231		$	919		$	3,762		$	3,001

In August 2013, we sold a skilled nursing facility with 112 units that was previously classified as held for sale for $2,550 and recorded a gain on the sale of this property of approximately $1,141.

The senior living properties which we are offering for sale do not meet the criteria for discontinued operations as they are included within combination leases with other properties that we expect to continue leasing.

In August 2013, we and Five Star entered into an asset purchase agreement, or the Purchase Agreement, with certain unrelated parties pursuant to which we agreed to sell our two rehabilitation hospitals and certain related assets for a sale price of $90,000, subject to certain adjustments, and Five Star agreed to transfer the operations of the two hospitals and several in-patient and out-patient clinics affiliated with those hospitals, to those third parties. Each hospital is currently leased by us to Five Star under one of our combination leases with Five Star, or our Lease No. 2. The sale of these rehabilitation hospitals is subject to various closing conditions, including the purchaser obtaining appropriate licenses and regulatory approvals, and there can be no assurance that the sale will occur.