UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-53969
SENTIO HEALTHCARE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
| MARYLAND | 20-5721212 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 189 South Orange Avenue, Suite 1700, Orlando, FL | 32801 |
| (Address of principal executive offices) | (Zip Code) |
407-999-7679
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Check one:
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | x | Smaller reporting company | ¨ |
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
As of August 9, 2017, there were 11,546,503 shares of common stock of Sentio Healthcare Properties, Inc. outstanding.
Table of Contents
PART I — FINANCIAL INFORMATION
FORM 10-Q
SENTIO HEALTHCARE PROPERTIES, INC.
TABLE OF CONTENTS
| 2 |
SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 34,958,000 | $ | 34,921,000 | ||||
| Investments in real estate: | ||||||||
| Land | 48,146,000 | 48,146,000 | ||||||
| Buildings and improvements, net | 404,105,000 | 395,500,000 | ||||||
| Furniture, fixtures and vehicles, net | 13,432,000 | 12,592,000 | ||||||
| Construction in progress | - | 13,933,000 | ||||||
| Intangible lease assets, net | 4,642,000 | 4,833,000 | ||||||
| Total investment in real estate | 470,325,000 | 475,004,000 | ||||||
| Real estate note receivable | 39,380,000 | 34,181,000 | ||||||
| Investment in unconsolidated entities | - | 493,000 | ||||||
| Tenant and other receivables, net | 6,939,000 | 5,949,000 | ||||||
| Deferred costs and other assets | 9,145,000 | 9,973,000 | ||||||
| Restricted cash | 6,663,000 | 7,777,000 | ||||||
| Goodwill | 5,965,000 | 5,965,000 | ||||||
| Total assets | $ | 573,375,000 | $ | 574,263,000 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Notes payable, net | $ | 372,073,000 | $ | 366,097,000 | ||||
| Accounts payable and accrued liabilities | 13,416,000 | 15,783,000 | ||||||
| Prepaid rent and security deposits | 5,170,000 | 5,204,000 | ||||||
| Distributions payable | 1,439,000 | 1,449,000 | ||||||
| Total liabilities | 392,098,000 | 388,533,000 | ||||||
| Equity: | ||||||||
| Series C Preferred Stock, $0.01 par value; 1,000 shares authorized; 1,000 and 1,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively | - | - | ||||||
| Common stock, $0.01 par value; 580,000,000 shares authorized; 11,546,503 and 11,531,615 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively | 115,000 | 115,000 | ||||||
| Additional paid-in capital | 53,302,000 | 55,979,000 | ||||||
| Accumulated deficit | (29,073,000 | ) | (25,782,000 | ) | ||||
| Total stockholders' equity | 24,344,000 | 30,312,000 | ||||||
| Noncontrolling interests: | ||||||||
| Series B convertible preferred OP units | 152,778,000 | 151,080,000 | ||||||
| Other noncontrolling interest | 4,155,000 | 4,338,000 | ||||||
| Total equity | 181,277,000 | 185,730,000 | ||||||
| Total liabilities and equity | $ | 573,375,000 | $ | 574,263,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Rental revenues | $ | 23,757,000 | $ | 22,312,000 | $ | 47,140,000 | $ | 44,769,000 | ||||||||
| Resident fees and services | 8,164,000 | 8,087,000 | 16,397,000 | 16,442,000 | ||||||||||||
| Tenant reimbursements and other income | 1,560,000 | 2,379,000 | 2,896,000 | 3,381,000 | ||||||||||||
| 33,481,000 | 32,778,000 | 66,433,000 | 64,592,000 | |||||||||||||
| Expenses: | ||||||||||||||||
| Property operating and maintenance | 21,900,000 | 20,562,000 | 43,526,000 | 41,048,000 | ||||||||||||
| General and administrative | 3,943,000 | 405,000 | 5,542,000 | 1,096,000 | ||||||||||||
| Asset management fees | 1,679,000 | 1,696,000 | 2,608,000 | 2,679,000 | ||||||||||||
| Depreciation and amortization | 4,068,000 | 5,161,000 | 8,101,000 | 8,954,000 | ||||||||||||
| 31,590,000 | 27,824,000 | 59,777,000 | 53,777,000 | |||||||||||||
| Income from operations | 1,891,000 | 4,954,000 | 6,656,000 | 10,815,000 | ||||||||||||
| Other (income) expense: | ||||||||||||||||
| Interest expense, net | 4,439,000 | 3,791,000 | 8,761,000 | 7,632,000 | ||||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 129,000 | (3,699,000 | ) | 306,000 | ||||||||||
| Equity in (income) loss from unconsolidated entities | (50,000 | ) | 68,000 | (72,000 | ) | 128,000 | ||||||||||
| Gain on disposition of investment in unconsolidated entity | - | - | (1,534,000 | ) | - | |||||||||||
| Net income before income taxes | 1,201,000 | 966,000 | 3,200,000 | 2,749,000 | ||||||||||||
| Income tax expense (benefit) | 535,000 | (298,000 | ) | 437,000 | (900,000 | ) | ||||||||||
| Net income | 666,000 | 1,264,000 | 2,763,000 | 3,649,000 | ||||||||||||
| Preferred return to Series B preferred OP units | 2,886,000 | 2,706,000 | 5,760,000 | 5,322,000 | ||||||||||||
| Net income attributable to other noncontrolling interests | 143,000 | 198,000 | 294,000 | 296,000 | ||||||||||||
| Net loss attributable to common stockholders | $ | (2,363,000 | ) | $ | (1,640,000 | ) | $ | (3,291,000 | ) | $ | (1,969,000 | ) | ||||
| Basic and diluted weighted average number of common shares | 11,544,678 | 11,515,846 | 11,539,600 | 11,510,737 | ||||||||||||
| Basic and diluted net loss per common share attributable to common stockholders | $ | (0.20 | ) | $ | (0.14 | ) | $ | (0.29 | ) | $ | (0.17 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, 2017
(Unaudited)
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||
| Number of shares | Stock
Par Value | Number of Shares | Stock
Par Value | Paid-In Capital | Accumulated Deficit | Stockholders' Equity | Noncontrolling Interest | Total | ||||||||||||||||||||||||||||
| BALANCE - December 31, 2016 | 1,000 | $ | - | 11,531,615 | $ | 115,000 | $ | 55,979,000 | $ | (25,782,000 | ) | $ | 30,312,000 | $ | 155,418,000 | $ | 185,730,000 | |||||||||||||||||||
| Issuance of Common Stock | - | - | 14,888 | - | 185,000 | - | 185,000 | - | 185,000 | |||||||||||||||||||||||||||
| Issuance of Series B preferred OP Units, net | - | - | - | - | - | - | - | 1,700,000 | 1,700,000 | |||||||||||||||||||||||||||
| Distributions | - | - | - | - | (2,862,000 | ) | - | (2,862,000 | ) | (6,239,000 | ) | (9,101,000 | ) | |||||||||||||||||||||||
| Net (loss) income | - | - | - | - | - | (3,291,000 | ) | (3,291,000 | ) | 6,054,000 | 2,763,000 | |||||||||||||||||||||||||
| BALANCE - June 30, 2017 | 1,000 | $ | - | 11,546,503 | $ | 115,000 | $ | 53,302,000 | $ | (29,073,000 | ) | $ | 24,344,000 | $ | 156,933,000 | $ | 181,277,000 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 2,763,000 | $ | 3,649,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Amortization of deferred financing costs | 505,000 | 500,000 | ||||||
| Depreciation and amortization | 8,101,000 | 8,954,000 | ||||||
| Straight-line rent and above/below market lease amortization | (387,000 | ) | 186,000 | |||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 306,000 | |||||
| Amortization of loan discount/premium | (29,000 | ) | (29,000 | ) | ||||
| Equity in loss from unconsolidated entities | 27,000 | 222,000 | ||||||
| Gain on disposition of investment in unconsolidated entity | (1,534,000 | ) | - | |||||
| Bad debt expense | 88,000 | 102,000 | ||||||
| Deferred tax expense (benefit) | 301,000 | (900,000 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Tenant and other receivables | (658,000 | ) | 300,000 | |||||
| Deferred costs and other assets | 527,000 | (237,000 | ) | |||||
| Restricted cash | 1,026,000 | 438,000 | ||||||
| Prepaid rent and tenant security deposits | (34,000 | ) | (1,511,000 | ) | ||||
| Accounts payable and accrued expenses | 1,332,000 | (502,000 | ) | |||||
| Net cash provided by operating activities | 8,329,000 | 11,478,000 | ||||||
| Cash flows from investing activities: | ||||||||
| Additions to real estate | (3,455,000 | ) | (927,000 | ) | ||||
| Construction in progress | - | (4,207,000 | ) | |||||
| Real estate note receivable | (5,199,000 | ) | (11,541,000 | ) | ||||
| Restricted cash | 88,000 | 645,000 | ||||||
| Proceeds from disposition of investment in unconsolidated entity | 2,000,000 | - | ||||||
| Net cash used in investing activities | (6,566,000 | ) | (16,030,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Series B OP units, net | 1,700,000 | 14,377,000 | ||||||
| Proceeds from notes payable | 7,124,000 | 7,008,000 | ||||||
| Repayment of notes payable | (1,496,000 | ) | (1,633,000 | ) | ||||
| Payment of contingent consideration | - | (1,777,000 | ) | |||||
| Deferred financing costs | (129,000 | ) | (240,000 | ) | ||||
| Distributions paid to Series B preferred OP units and other noncontrolling interests | (6,239,000 | ) | (5,638,000 | ) | ||||
| Distributions paid to stockholders | (2,686,000 | ) | (2,704,000 | ) | ||||
| Net cash (used in) provided by financing activities | (1,726,000 | ) | 9,393,000 | |||||
| Net increase in cash and cash equivalents | 37,000 | 4,841,000 | ||||||
| Cash and cash equivalents - beginning of period | 34,921,000 | 22,801,000 | ||||||
| Cash and cash equivalents - end of period | $ | 34,958,000 | $ | 27,642,000 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 8,157,000 | $ | 7,060,000 | ||||
| Cash paid for income taxes | $ | - | $ | 164,000 | ||||
| Supplemental disclosure of non-cash financing and investing activities: | ||||||||
| Distributions declared not paid | $ | 1,439,000 | $ | 1,432,000 | ||||
| Distributions reinvested | $ | 92,000 | $ | 88,000 | ||||
| Reclassification of construction in progress to assets placed in service | $ | 13,933,000 | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
SENTIO HEALTHCARE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
1. Organization
Sentio Healthcare Properties, Inc., a Maryland corporation, was formed on October 16, 2006 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in and owning commercial real estate. As used in this report, the “Company”, “we”, “us” and “our” refer to Sentio Healthcare Properties, Inc. and its consolidated subsidiaries, except where context otherwise requires. Effective January 1, 2012, subject to certain restrictions and limitations, our business is managed by Sentio Investments, LLC, a Florida limited liability company that was formed on December 20, 2011 (the “Advisor”).
Sentio Healthcare Properties OP, LP, a Delaware limited partnership (the “Operating Partnership”), was formed on October 17, 2006. As of June 30, 2017, we owned 100% of the outstanding common units in the Operating Partnership and the HC Operating Partnership, LP, a subsidiary of the Operating Partnership. Pursuant to the terms of the KKR Equity Commitment (as described in Note 10), we have issued Series B Convertible Preferred Units in the Operating Partnership (“Series B Preferred Units”) to the Investor (as described in Note 10), the terms of which provide that the Investor may convert its preferred units into common units at its discretion. On an as-converted basis, as of June 30, 2017, the Investor owns 57.8% and we own the remaining interest in the Operating Partnership and the HC Operating Partnership, LP. We anticipate that we will conduct all of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.
Pending Merger
On May 3, 2017, the Company and the Operating Partnership (together, the “Company Parties”), KAREP Master JV, LLC (“Parent”), KAREP Acquisitions Vehicle, LLC, a wholly owned subsidiary of Parent (“Merger Sub” and together with Parent, the “Parent Parties”) and the Advisor, solely in its capacity as the Stockholders’ Representative (as defined in the Merger Agreement), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions, the Company will be merged with and into Merger Sub (the “Merger”). Upon completion of the Merger, the separate existence of the Company will cease, with Merger Sub surviving the Merger (as the surviving entity in the Merger, the “Surviving Entity”).
Under the terms of the Merger Agreement, each issued and outstanding share of the Company’s common stock will receive: (i) no less than $14.37 per share in cash at the closing of the Merger; (ii) up to an additional $0.55 per share in cash at the closing of the Merger based upon final pricing calculations pursuant to the terms of the Merger Agreement; and (iii) one Contingent Value Right for each share of the company’s common stock held. The Contingent Value Right represents a proportionate interest in up to an additional $8.76 million (subject to certain increases under the terms of the Merger Agreement) that could be released at various times from the closing of the Merger until three years after the closing of the Merger, with such amount being subject to reduction as a result of certain indemnification rights of the Parent Parties under the Merger Agreement. The resulting range of total cash consideration to be received by the holders of the Company’s common stock following the closing of the Merger is between $14.37 and $15.21 per share (subject to certain increases under the terms of the Merger Agreement).
We expect the Merger to close on September 1, 2017, although closing is subject to various conditions. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of the parties to the Merger Agreement. Therefore, we cannot provide any assurance that the Merger will close in a timely manner or at all. Additional information regarding the Merger, the Merger Agreement and the transactions contemplated thereby is included in our Current Report on Form 8-K filed with the SEC on May 4, 2017.
2. Summary of Significant Accounting Policies
For more information regarding our significant accounting policies and estimates, please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2016.
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the guidance for the consolidation of variable interest entities (“VIEs”), we analyze our variable interests, including investments in partnerships and joint ventures, to determine if the entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews, based on our review of the design of the entity, its organizational structure including decision-making ability, risk and reward sharing experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions and financial agreements. We also use quantitative and qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary.
Interim Financial Information
The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited condensed consolidated financial statements and the notes thereto included on our 2016 Annual Report on Form 10-K, as filed with the SEC.
Recent Accounting Pronouncements
Pending accounting standards
In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, “Other Income: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, which defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new standard is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. We do not anticipate early adoption, however, we are evaluating the impact of adopting ASU 2017-05 on our consolidated financial statements.
| 7 |
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. The amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact the adoption of ASU 2017-04 will have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The guidance is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company is evaluating the effect that ASU 2017-01 will have on our consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which enhances the presentation requirements of restricted cash. The standard aims to unify presentation and minimize the diversity in practice. These presentation changes include increased disclosures surrounding the restrictions on cash and the inclusion of the restricted cash balance in the reconciliation completed at the end of the statement of cash flows. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company does not expect ASU 2016-18 to have a significant impact on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which indicates that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. This ASU retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The new guidance will be effective for the Company beginning on January 1, 2019 and earlier adoption is permitted. The Company is evaluating the impact of the adoption of the new guidance on our financial statements.
In 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018, pursuant to ASU 2015-09 which deferred the adoption date by one year. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has begun its process of assessing the impact of the guidance. To date the Company’s assessment efforts include the identification of various revenue streams within the scope of the guidance and the evaluation of certain lease contracts with tenants. Although the Company is still evaluating the revenue streams and the timing of recognition under the new model, as well as the related disclosure requirements, a significant change to our current revenue recognition policies is not expected as a substantial portion of our revenue consists of rental income from leasing arrangements, which is excluded from ASU 2014-09. The Company has not yet selected a transition method.
3. Real Estate Note Receivable
On January 16, 2015, the Company, through indirect wholly owned subsidiaries, Sentio Georgetown, LLC and Sentio Georgetown TRS, LLC, originated a development loan in the amount of $41.9 million for the development of The Delaney at Georgetown Village located in Georgetown, Texas (the “Georgetown Loan”). The Georgetown Loan is secured by a first mortgage lien on the land, building, and all improvements made thereon. The Georgetown Loan matures on January 15, 2020 with one 12-month option to extend at the Company’s option, and bears interest at a fixed rate of 7.9% per annum for the term of the loan. At the maturity date, all unpaid principal, plus accrued and unpaid interest shall be due in full. Advances are made periodically during the construction period. The borrower paid a loan origination fee equal to 1% of the loan amount. Monthly payments are interest only for the term of the loan. The Company has the option to purchase the property at fair value at the earlier of stabilization or 48 months from the loan origination. Fair value is determined by the average asset value of independent appraisals obtained by the lender and borrower. Regardless of whether the Company exercises the option to purchase the property, the Company will be entitled to participate in the value creation which is the difference between the fair value and the total development cost. The Georgetown Loan is non-recourse to the borrowers, but one of the entities affiliated with the borrower has provided cost and completion guarantees as well as a guaranty of customary “bad boy” carve-outs.
| 8 |
Interest revenue on the loan receivable is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks. For the three and six months ended June 30, 2017, interest revenue from the real estate note receivable was $0.8 million and $1.5 million, respectively. Interest revenue is recorded as a component of tenant reimbursements and other income in the condensed consolidated statement of operations. As of June 30, 2017, the borrower had made draws on the Georgetown Loan totaling $39.4 million, and the remaining commitment from the Company is approximately $2.5 million.
4. Investments in Real Estate
As of June 30, 2017, cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
| Land | Buildings and Improvements | Furniture, Fixtures and Vehicles | Construction in Progress (1) | Intangible Lease Assets | ||||||||||||||||
| Cost | $ | 48,146,000 | $ | 456,322,000 | $ | 22,624,000 | $ | - | $ | 28,744,000 | ||||||||||
| Accumulated depreciation and amortization | - | (52,217,000 | ) | (9,192,000 | ) | - | (24,102,000 | ) | ||||||||||||
| Net | $ | 48,146,000 | $ | 404,105,000 | $ | 13,432,000 | $ | - | $ | 4,642,000 | ||||||||||
| (1) | In January 2017, the development of Accel at Golden was completed. The lease commenced on January 5, 2017 and we reclassified the construction in progress to the respective fixed asset accounts. This facility is reported in our triple-net leased segment. |
As of December 31, 2016, accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
| Land | Buildings and Improvements | Furniture, Fixtures and Vehicles | Construction in Progress | Intangible Lease Assets | ||||||||||||||||
| Cost | $ | 48,146,000 | $ | 440,985,000 | $ | 20,579,000 | $ | 13,933,000 | $ | 28,739,000 | ||||||||||
| Accumulated depreciation and amortization | - | (45,485,000 | ) | (7,987,000 | ) | - | (23,906,000 | ) | ||||||||||||
| Net | $ | 48,146,000 | $ | 395,500,000 | $ | 12,592,000 | $ | 13,933,000 | $ | 4,833,000 | ||||||||||
Depreciation expense associated with buildings and improvements and furniture, fixtures and vehicles for the three months ended June 30, 2017 and 2016 was approximately $4.0 million and $3.7 million, respectively. Amortization associated with intangible assets for the three months ended June 30, 2017 and 2016 was $0.1 million and $1.5 million, respectively.
Depreciation expense associated with buildings and improvements and furniture, fixtures and vehicles for the six months ended June 30, 2017 and 2016 was approximately $7.9 million and $7.3 million, respectively. Amortization associated with intangible assets for the six months ended June 30, 2017 and 2016 was $0.2 million and $1.7 million, respectively.
Estimated amortization for July 1, 2017 through December 31, 2017 and each of the subsequent years is as follows:
| Intangible Assets | ||||
| July 1, 2017 - December 31, 2017 | $ | 192,000 | ||
| 2018 | 385,000 | |||
| 2019 | 292,000 | |||
| 2020 | 292,000 | |||
| 2021 | 287,000 | |||
| 2022 and thereafter | 3,194,000 | |||
| $ | 4,642,000 | |||
The estimated useful lives for intangible assets range from approximately two to twenty years. As of June 30, 2017, the weighted-average amortization period for intangible assets was 17 years.
| 9 |
5. Investments in Unconsolidated Entities
As of June 30, 2017, the Company owns interest in one entity that is accounted for under the equity method of accounting:
| Entity (1) | Property Type | Acquired | Investment (2) | Ownership % | ||||||||
| Physicians Center MOB | Medical Office Building | April 2012 | $ | - | 71.9% | |||||||
| (1) | This entity is not consolidated because the Company exercises significant influence, but does not control or direct the activities that most significantly impact the entity’s performance. |
| (2) | Represents the carrying value of the Company’s investment in the unconsolidated entity. As of December 31, 2015, the Company’s carrying value of the investment in Physicians Center MOB reached zero and we discontinued applying the equity method of accounting. Since January 1, 2016, monthly distributions are recorded as a component of equity in (income) loss from unconsolidated entities in the condensed consolidated statement of operations. |
Summarized combined financial information for the Company’s unconsolidated entities is as follows:
| June 30, 2017 | December 31, 2016 | |||||||
| Cash and cash equivalents | $ | 46,000 | $ | 688,000 | ||||
| Investments in real estate, net | 7,772,000 | 22,747,000 | ||||||
| Other assets | 660,000 | 721,000 | ||||||
| Total assets | $ | 8,478,000 | $ | 24,156,000 | ||||
| Notes payable, net | $ | 8,655,000 | $ | 23,193,000 | ||||
| Accounts payable and accrued liabilities | 45,000 | 289,000 | ||||||
| Other liabilities | 304,000 | 454,000 | ||||||
| Total stockholders’ equity | (526,000 | ) | 220,000 | |||||
| Total liabilities and equity | $ | 8,478,000 | $ | 24,156,000 | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017(1) | 2016 | |||||||||||||
| Total revenues | $ | 437,000 | $ | 1,334,000 | $ | 1,297,000 | $ | 2,539,000 | ||||||||
| Net income (loss) | 25,000 | (128,000 | ) | 78,000 | (154,000 | ) | ||||||||||
| Company’s equity in loss from unconsolidated entities | - | 105,000 | 27,000 | 222,000 | ||||||||||||
| (1) | On February 2, 2017 the Company sold its interest in the joint venture entity Buffalo Crossings, which resulted in cash proceeds of $2.0 million. The Company recorded a gain of $1.5 million in the six months ended June 30, 2017. The Company’s equity in loss from Buffalo Crossings is included in the condensed consolidated statement of operations through the date of the sale. |
6. Income Taxes
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would not be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would establish a valuation allowance which would reduce the provision for income taxes.
| 10 |
The Master TRS recognized a $0.5 million expense and a $0.3 million benefit for federal and state income taxes in the three months ended June 30, 2017 and 2016, respectively, and a $0.4 million expense and a $0.9 million benefit for federal and state income taxes in the six months ended June 30, 2017 and 2016, respectively. Net deferred tax assets related to the TRS entities totaled approximately $7.4 million at June 30, 2017 and $7.7 million at December 31, 2016, respectively, related primarily to book and tax basis differences for straight-line rent and accrued liabilities. At June 30, 2017, the Master TRS had net operating loss carryforwards for federal income tax purposes of approximately $1.9 million, which, if unused, begin to expire in 2035.
7. Segment Reporting
As of June 30, 2017, we operated in three reportable business segments for management and internal financial reporting purposes: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. These operating segments are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our senior living operations segment primarily consists of investments in senior housing communities located in the United States for which we engage independent third-party managers. Our triple-net leased properties segment consists of investments in senior living, skilled nursing and hospital facilities in the United States. These facilities are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our MOB properties segment primarily consists of investing in medical office buildings and leasing those properties to healthcare providers under long-term leases, which may require tenants to pay property-related expenses.
We evaluate performance of the combined properties in each segment based on net operating income. Net operating income is defined as total revenue less property operating and maintenance expenses. There are no intersegment sales or transfers. We use net operating income to evaluate the operating performance of our real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization, asset management fees, real estate acquisition costs, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies.
The following tables reconcile the segment activity to consolidated net income (loss) for the three and six months ended June 30, 2017 and 2016:
| Three Months Ended June 30, 2017 | Three Months Ended June 30, 2016 | ||||||||||||||||||||||||
| Senior living
operations | Triple-net leased properties | MOB properties | Consolidated | Senior living
operations | Triple-net leased properties | MOB properties | Consolidated | ||||||||||||||||||
| Rental revenue | $ | 20,791,000 | $ | 2,758,000 | $ | 208,000 | $ | 23,757,000 | $ | 20,410,000 | $ | 1,673,000 | $ | 229,000 | $ | 22,312,000 | |||||||||
| Resident services and fee income | 8,164,000 | - | - | 8,164,000 | 8,087,000 | - | - | 8,087,000 | |||||||||||||||||
| Tenant reimbursements and other income | 1,221,000 | 259,000 | 80,000 | 1,560,000 | 687,000 | 1,614,000 | 78,000 | 2,379,000 | |||||||||||||||||
| 30,176,000 | 3,017,000 | 288,000 | 33,481,000 | 29,184,000 | 3,287,000 | 307,000 | 32,778,000 | ||||||||||||||||||
| Property operating and maintenance expenses | 21,548,000 | 271,000 | 81,000 | 21,900,000 | 19,982,000 | 468,000 | 112,000 | 20,562,000 | |||||||||||||||||
| Net operating income | $ | 8,628,000 | $ | 2,746,000 | $ | 207,000 | $ | 11,581,000 | $ | 9,202,000 | $ | 2,819,000 | $ | 195,000 | $ | 12,216,000 | |||||||||
| General and administrative | 3,943,000 | 405,000 | |||||||||||||||||||||||
| Asset management fees | 1,679,000 | 1,696,000 | |||||||||||||||||||||||
| Depreciation and amortization | 4,068,000 | 5,161,000 | |||||||||||||||||||||||
| Interest expense, net | 4,439,000 | 3,791,000 | |||||||||||||||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 129,000 | ||||||||||||||||||||||
| Equity in income from unconsolidated entities | (50,000 | ) | 68,000 | ||||||||||||||||||||||
| Income tax expense (benefit) | 535,000 | (298,000 | ) | ||||||||||||||||||||||
| Net income | 666,000 | 1,264,000 | |||||||||||||||||||||||
| Preferred return to series B preferred OP units and other noncontrolling interests | 3,029,000 | 2,904,000 | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (2,363,000 | ) | $ | (1,640,000 | ) | |||||||||||||||||||
| Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 | ||||||||||||||||||||||||
| Senior living operations | Triple-net leased properties | MOB properties | Consolidated | Senior living operations | Triple-net leased properties | MOB properties | Consolidated | ||||||||||||||||||
| Rental revenue | $ | 41,229,000 | $ | 5,496,000 | $ | 415,000 | $ | 47,140,000 | $ | 40,331,000 | $ | 4,003,000 | $ | 435,000 | $ | 44,769,000 | |||||||||
| Resident services and fee income | 16,397,000 | - | - | 16,397,000 | 16,442,000 | - | - | 16,442,000 | |||||||||||||||||
| Tenant reimbursements and other income | 2,226,000 | 509,000 | 161,000 | 2,896,000 | 1,406,000 | 1,819,000 | 156,000 | 3,381,000 | |||||||||||||||||
| 59,852,000 | 6,005,000 | 576,000 | 66,433,000 | 58,179,000 | 5,822,000 | 591,000 | 64,592,000 | ||||||||||||||||||
| Property operating and maintenance expenses | 42,843,000 | 524,000 | 159,000 | 43,526,000 | 40,177,000 | 679,000 | 192,000 | 41,048,000 | |||||||||||||||||
| Net operating income | $ | 17,009,000 | $ | 5,481,000 | $ | 417,000 | $ | 22,907,000 | $ | 18,002,000 | $ | 5,143,000 | $ | 399,000 | $ | 23,544,000 | |||||||||
| General and administrative | 5,542,000 | 1,096,000 | |||||||||||||||||||||||
| Asset management fees | 2,608,000 | 2,679,000 | |||||||||||||||||||||||
| Depreciation and amortization | 8,101,000 | 8,954,000 | |||||||||||||||||||||||
| Interest expense, net | 8,761,000 | 7,632,000 | |||||||||||||||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 306,000 | ||||||||||||||||||||||
| Equity in income from unconsolidated entities | (72,000 | ) | 128,000 | ||||||||||||||||||||||
| Gain on disposition of investment in unconsolidated entity | (1,534,000 | ) | - | ||||||||||||||||||||||
| Income tax expense (benefit) | 437,000 | (900,000 | ) | ||||||||||||||||||||||
| Net income | 2,763,000 | 3,649,000 | |||||||||||||||||||||||
| Preferred return to series B preferred OP units and other noncontrolling interests | 6,054,000 | 5,618,000 | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (3,291,000 | ) | $ | (1,969,000 | ) | |||||||||||||||||||
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The following table reconciles the segment activity to consolidated financial position as of June 30, 2017 and December 31, 2016:
| June 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Investment in real estate: | ||||||||
| Senior living operations | $ | 410,579,000 | $ | 410,007,000 | ||||
| Triple-net leased properties | 92,227,000 | 92,112,000 | ||||||
| Medical office building properties | 6,899,000 | 7,066,000 | ||||||
| Total reportable segments | $ | 509,705,000 | $ | 509,185,000 | ||||
| Reconciliation to consolidated assets: | ||||||||
| Cash and cash equivalents | 34,958,000 | 34,921,000 | ||||||
| Investment in unconsolidated entities | - | 493,000 | ||||||
| Tenant and other receivables, net | 6,939,000 | 5,949,000 | ||||||
| Deferred costs and other assets | 9,145,000 | 9,973,000 | ||||||
| Restricted cash | 6,663,000 | 7,777,000 | ||||||
| Goodwill | 5,965,000 | 5,965,000 | ||||||
| Total assets | $ | 573,375,000 | $ | 574,263,000 | ||||
As of June 30, 2017 and December 31, 2016, goodwill had a balance of approximately $6.0 million all related to our senior living operations segment.
8. Fair Value Measurements
The FASB Accounting Standards Codification (“ASC”) 825-10, “Financial Instruments,” requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value.
Fair value represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820, “Fair Value Measurement” establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability.
Our balance sheets include the following financial instruments: cash and cash equivalents, real estate note receivable, tenant and other receivables, net, deferred costs and other assets, restricted cash, notes payable, net, accounts payable and accrued liabilities, prepaid rent and security deposits and distributions payable. With the exception of notes payable and our contingent consideration discussed below, we consider the carrying values of our financial instruments to approximate fair value because they generally expose the Company to limited credit risk and because of the short period of time between origination of the financial assets and liabilities and their expected settlement.
As of June 30, 2017, the estimated fair value of the contingent consideration related to the Armbrook Village and Sumter Grand acquisitions is $1.7 million and $0.0 million, respectively, which represents a total reduction in fair value of contingent consideration in the condensed consolidated statements of operations of $3.7 million for the three and six months ended June 30, 2017. Based on the facts and circumstances that existed as of June 30, 2017, the Company derecognized the liability related to Sumter Grand due to the termination of the management agreement, delivered July 31, 2017, effective August 30, 2017. The termination of the management agreement contractually terminates the earnout agreement. A change in fair value of contingent consideration is recorded when a change in the projected timing to achieve certain specified net operating income thresholds occurs for Armbrook Village. The liability related to Armbrook Village is included in accounts payable and accrued liabilities in our accompanying condensed consolidated balance sheets.
The fair value of the contingent consideration is based on significant inputs which are not observable to the market and as a result are classified in Level 3 of the fair value hierarchy. The fair value is derived by making assumptions on the timing of the lease up process based on actual performance as compared to internal underwriting models and applying a discount rate of 9.0% to the actual Armbrook Village liability to obtain a present value.
The fair value of the Company’s notes payable is estimated by discounting future cash flows of each instrument at rates that reflect the current market rates available to the Company for debt of the same terms and maturities. The fair value of the notes payable was determined using Level 2 inputs of the fair value hierarchy. Based on the estimates used by the Company, the fair value of notes payable was $374.1 million and $369.2 million, compared to the carrying values of $375.7 million ($372.0 million, net of discount and deferred financing costs) and $370.1 million ($366.1 million, net of discount and deferred financing costs) at June 30, 2017 and December 31, 2016, respectively.
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There were no transfers between Level 1 or 2 during the three and six months ended June 30, 2017.
9. Notes Payable
Notes payable were $375.7 million ($372.0 million, net of discount and deferred financing costs) and $370.1 million ($366.1 million, net of discount and deferred financing costs) at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, we had total secured mortgage loans with effective interest rates ranging from 2.80% to 6.43% per annum and a weighted average effective interest rate of 4.42% per annum. As of June 30, 2017, notes payable consisted of $223.4 million of fixed rate debt, or approximately 59% of notes payable, at a weighted average interest rate of 4.79% per annum and $152.3 million of variable rate debt, or approximately 41% of notes payable, at a weighted average interest rate of 3.86% per annum. As of December 31, 2016, we had $219.6 million of fixed rate debt, or 59% of notes payable, at a weighted average interest rate of 4.78% per annum and $150.5 million of variable rate debt, or 41% of notes payable, at a weighted average interest rate of 3.41% per annum.
On March 31, 2017, in connection with the Note secured by Rome LTACH dated December 18, 2009, the Company entered into a Third Modification Agreement (“Modification”) to extend the maturity date of the Note to March 31, 2020. The remaining terms of the note remain unchanged.
We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. Any violation of financial covenants under the loans would constitute an event of default. If we were not able to secure a waiver of such covenant violations, the lender could, in its discretion, declare the loan to be immediately due and payable, take possession of the properties securing the loan, enforce the Company’s loan guarantees of the loan balance, or exercise other remedies available to it under law. If the lender were to declare the loan to be immediately due and payable, we expect to refinance the loan in satisfaction of the debt. Any such refinancing may be on terms and conditions less favorable than the terms currently available under the loan. As of June 30, 2017, we were in compliance with all such covenants and requirements.
Principal payments due on our notes payable for July 1, 2017 to December 31, 2017 and each of the subsequent years is as follows:
| Year | Principal Amount | |||
| July 1, 2017 - December 31, 2017 | $ | 2,011,000 | ||
| 2018 | 28,978,000 | |||
| 2019 | 133,529,000 | |||
| 2020 | 69,632,000 | |||
| 2021 | 18,525,000 | |||
| 2022 and thereafter | 123,067,000 | |||
| $ | 375,742,000 | |||
| Less: Deferred financing costs | 3,503,000 | |||
| Less: Discount | 166,000 | |||
| $ | 372,073,000 | |||
Interest Expense and Deferred Financing Cost
For the three months ended June 30, 2017 and 2016, the Company incurred interest expense, including amortization of deferred financing costs of $4.4 million and $3.8 million, respectively.
For the six months ended June 30, 2017 and 2016, the Company incurred interest expense, including amortization of deferred financing costs of $8.8 million and $7.6 million, respectively.
As of June 30, 2017 and December 31, 2016, the Company’s net deferred financing costs were approximately $3.5 million and $3.8 million, respectively. All deferred financing costs are capitalized and amortized over the life of the respective loan agreement.
10. Stockholders’ Equity
Common Stock
Our charter authorizes the issuance of 580,000,000 shares of common stock with a par value of $0.01 per share and 20,000,000 shares of preferred stock with a par value of $0.01 per share, of which 1,000 shares are designated as Series C Preferred Stock. As of June 30, 2017 and December 31, 2016, including distributions reinvested, we had issued approximately 13.4 million shares and 13.4 million shares of common stock for a total of approximately $133.8 million and $133.5 million of gross proceeds, respectively, in our public offerings.
| 13 |
Preferred Stock and OP Units
On February 10, 2013, we entered into a series of agreements, which have been amended at various points after February 10, 2013, with Sentinel RE Investment Holdings LP (the “Investor”), an affiliate of Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”) for the purpose of obtaining equity funding to finance investment opportunities (such investment and the related agreements, as amended, are referred to herein collectively as the “KKR Equity Commitment”). Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of up to three years, up to $158.7 million in aggregate issuance amount of preferred securities in the Company and the Operating Partnership. At June 30, 2017, no securities remain issuable under the KKR Equity Commitment.
As of June 30, 2017 and December 31, 2016 we had issued 1,000 shares of Series C Preferred Stock and 1,586,260 Series B Preferred Units to the Investor for a total commitment of $158.7 million, respectively. As of June 30, 2017, the Company has received the total commitment of $158.7 million. For the three and six months June 30, 2017, the Company received $0.6 million and $1.7 million of proceeds, respectively, from the Investor related to previously issued Series B Preferred Units. The Series B Preferred Units outstanding are classified within noncontrolling interests and are convertible into approximately 15,830,938 shares of the Company’s common stock, as of June 30, 2017 and December 31, 2016.
The Series C Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights on liquidation. The holders of the Series C Preferred Stock are entitled to receive dividends, as and if authorized by our board of directors out of funds legally available for that purpose, at an annual rate equal to 3% of the liquidation preference for each share. Dividends on the Series C Preferred Stock are payable annually in arrears.
The Series B Preferred Units rank senior to the Operating Partnership’s common units with respect to distribution rights and rights on liquidation. With the exception of certain Series B Preferred Units issued in connection with the put exercise related to the Georgetown Loan (the “Georgetown Put”), the Series B Preferred Units are entitled to receive cash distributions at an annual rate equal to 7.5% of the Series B liquidation preference in preference to any distributions paid to common units. In December 2014, the parties amended the Second Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”) to provide that the Series B Preferred Units issued in connection with the Georgetown Put would receive cash distributions at a reduced annual rate equal to 6.0%. In addition, the preferred return for the Series B Preferred Units issued in connection with the Georgetown Put would be calculated based solely on the exercise put amount that has been funded. Effective August 31, 2016, the parties further amended the Partnership Agreement to provide that, on a go forward basis, distributions paid on the Series B Preferred Units issued in connection with the Georgetown Put would be calculated at an annual rate of 6.0% for 219,120 units and at an annual rate of 7.5% for 200,000 units. If the Operating Partnership is unable to pay cash distributions, distributions will be paid in kind at an annual rate of 10.0% of the Series B liquidation preference.
After payment of the preferred distributions, additional distributions will be paid first to the common units until they have received an aggregate blended return equal to a weighted average interest rate determined taking into account the Series B Preferred Units receiving a 6.0% return and the Series B Preferred Units receiving a 7.5% return per unit in annual distributions commencing from February 10, 2013, and thereafter to the common units and Series B Preferred Units pro rata. For the three and six months ended June 30, 2017, the Operating Partnership paid distributions on the Series B Preferred Units in the amount of $2.9 million and $5.8 million, respectively. For the three and six months ended June 30, 2016, the Operating Partnership paid distributions on the Series B Preferred Units in the amount of $2.7 million and $5.3 million, respectively.
Distributions Available to Common Stockholders
The following are the distributions declared on our common stock during the six months ended June 30, 2017 and 2016:
| Distributions Declared (1)(2) | Cash Flow from | |||||||||||||||
| Period | Cash | Reinvested (3) | Total | Operations | ||||||||||||
| First quarter 2016 | $ | 1,342,000 | $ | 89,000 | $ | 1,431,000 | $ | 6,871,000 | ||||||||
| Second quarter 2016 | 1,343,000 | 88,000 | 1,431,000 | 4,607,000 | ||||||||||||
| $ | 2,685,000 | $ | 177,000 | $ | 2,862,000 | $ | 11,478,000 | |||||||||
| First quarter 2017 | $ | 1,329,000 | $ | 94,000 | $ | 1,423,000 | $ | 4,541,000 | ||||||||
| Second quarter 2017 | 1,439,000 | - | 1,439,000 | 3,788,000 | ||||||||||||
| $ | 2,768,000 | $ | 94,000 | $ | 2,862,000 | $ | 8,329,000 | |||||||||
| (1) | In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our stockholders each taxable year equal to at least 90% of our net ordinary taxable income. |
| 14 |
| (2) | This table represents distributions declared and paid to common stockholders for each respective period. These amounts do not include distribution payments to the Series B Preferred Unit holders for the three and six months ended June 30, 2017 and 2016. |
| (3) | On June 19, 2013, we filed a registration statement on Form S-3 to register up to $99,000,000 of shares of common stock to be offered to our existing stockholders pursuant to an amended and restated distribution reinvestment plan (the “DRIP offering”) pursuant to which our stockholders can elect to have their cash distributions reinvested in shares of our common stock. The purchase price for shares offered pursuant to the DRIP Offering is equal to the most recently announced estimated per-share value, as of the date the shares are purchased under the distribution reinvestment plan. The DRIP Offering shares were initially offered at a purchase price of $10.02; effective February 28, 2014 , DRIP offering shares were offered at a purchase price of $11.63 per share; and effective March 23, 2016 DRIP offering shares are being offered at $12.45, which is our most recent estimated per-share value. In connection with the Company’s entry into the Merger Agreement, on May 3, 2017, the board of directors approved the suspension of the Company’s distribution reinvestment plan, which suspension became effective May 13, 2017. As a result, distributions paid by the Company following May 13, 2017 will be paid in cash and not reinvested in shares of Company Common Stock. As of June 30, 2017 and December 31, 2016, 656,963 and 642,075 shares, respectively, had been issued under the distribution reinvestment plan. |
Commencing with the declaration of distributions for daily record dates occurring in the second quarter of 2013 and thereafter, our board of directors has declared distributions on our common stock in amounts per share that, if declared and paid each day for a 365-day period, would equate to an annualized rate of $0.50 per share (5.00% based on the initial purchase price of our common stock of $10.00).
On August 31, 2016 the board of directors adopted a Regular Quarterly Dividend Policy (the “Dividend Policy”), which documents the circumstances under which the board of directors may increase the regular quarterly dividend that may be paid to holders of the common stock of the Company (the “Regular Quarterly Dividend Rate”) from its current level of $0.125 per share without the consent of the Investor. The Dividend Policy provides that the Company may maintain the Regular Quarterly Dividend Rate at the current level and that the Company may also elect to reduce the Regular Quarterly Dividend Rate in its discretion. The policy expires on August 31, 2019.
The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis. The amount of distributions will depend on our funds from operations, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant.
11. Earnings Per Share
We report earnings (loss) per share pursuant to ASC Topic 260, “Earnings per Share.” Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of our common stock outstanding during the period. Diluted net earnings (loss) per common share attributable to common stockholders are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. The Series B Preferred Units give rise to potentially dilutive securities of our common stock. As of June 30, 2017 there were 1,586,260 Series B Preferred Units outstanding, but such units were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods.
12. Related Party Transactions
Advisory Relationship with the Advisor
We have been party to an Advisory Agreement with the Advisor since January 1, 2012. The Advisory Agreement has been renewed since 2012 for additional one-year terms commencing on January 1, 2013, January 1, 2014, January 1, 2015, January 1, 2016, and January 1, 2017, however, certain provisions of the Advisory Agreement have been amended as a result of the execution on February 10, 2013 of a Transition to Internal Management Agreement which was subsequently amended in April 2014, February 2015 and February 2017 (as amended, the “Transition Agreement”) with the Advisor and the Investor.
Pursuant to the provisions of the Advisory Agreement, the Advisor is responsible for managing, operating, directing and supervising the operation of our company and its assets. Generally, the Advisor is responsible for providing us with (i) property acquisition, disposition and financing services, (ii) asset management and operational services, including real estate services and financial and administrative services, (iii) stockholder services, and (iv) in the event we conduct a public offering of our securities, offering-related services. The Advisor is subject to the supervision and ultimate authority of our board of directors and has a fiduciary duty to us and our stockholders.
The Advisory Agreement with our Advisor and the terms of the Transition Agreement are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016.
| 15 |
The fees payable to the Advisor under the advisory agreement for the three and six months ended June 30, 2017 and 2016 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Asset Management Fees | $ | 1,679,000 | $ | 1,696,000 | $ | 2,608,000 | $ | 2,679,000 | ||||||||
The Transition Agreement limits the amount of the fees payable under the Advisory Agreement. Specifically, notwithstanding the provisions of the Advisory Agreement, acquisition fees, financing coordination fees, asset management fees, property management and leasing fees, and disposition fees payable under the Advisory Agreement (collectively, the “Advisory Agreement Fees”) are limited to (1) $3.2 million plus an excess amount (the “Excess Amount”) of $3.6 million during the period from February 11, 2017 through February 10, 2018, and (2) $3.2 million plus any remaining portion of the Excess Amount during the period from February 11, 2018 through February 10, 2019. The maximum aggregate amount of such fees payable to the Advisor during these periods under the caps (the “Maximum Fee Amount”) will be $10.0 million.
During the period from February 10, 2013 through February 10, 2015, and February 11, 2015 through February 10, 2017, the Advisory Agreement Fees were similarly capped, except that the Excess Amount was $3.2 million and as a result the Maximum Fee Amount was $9.6 million. In addition, solely with respect to any fees earned by the Advisor during the period from February 11, 2014 to February 10, 2015 in excess of the Maximum Fee Amount, such fees were included in fees payable during the one-year period from February 11, 2015 to February 10, 2016, subject to a maximum amount of $1.0 million. As of November 2015, the Advisor earned the Maximum Fee Amount of $9.6 million for the period from February 10, 2013 through February 10, 2016. As of December 31, 2016, the Advisor earned the maximum fee amount for February 11, 2016 through February 10, 2017 of $3.2 million.
For the four fiscal quarters ended June 30, 2017, our management fees and expenses and operating expenses totaled did not exceed the greater of 2% of our average invested assets and 25% of our net income.
KKR Equity Commitment
Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of three years, up to $158.7 million in aggregate issuance amount of shares of newly issued Series C Preferred Stock and newly issued Series B Preferred Units to fund real estate acquisitions, a self-tender offer and the origination of a development loan. As a result of the transactions contemplated by the KKR Equity Commitment, the Investor beneficially owns an aggregate of 15,830,938 shares of common stock of the Company, which represent, in the aggregate, approximately, 57.8% of the outstanding shares of common stock as of June 30, 2017.
As of June 30, 2017, pursuant to the terms of the KKR Equity Commitment, the Investor had purchased 1,000 newly issued Series C Preferred Stock and 1,586,260 newly issued Series B Preferred Units for an aggregate purchase price of $158.7 million. As of June 30, 2017 no Series B Preferred Units remain issuable under the KKR Equity Commitment.
The terms of the KKR Equity Commitment are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016
13. Commitments and Contingencies
We monitor our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that we believe would have a material effect on our financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our condensed consolidated financial position, cash flows and results of operations. We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against the Company which if determined unfavorably to us would have a material adverse effect on our cash flows, financial condition or results of operations.
Refer to Note 3 “Real Estate Note Receivable” for additional information on the remaining commitment to fund our real estate note receivable.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2017.
Our actual future results and trends may differ materially from expectations depending on a variety of factors discussed in our filings with the SEC. These factors include without limitation:
| • | our ability to consummate the proposed merger transaction on a timely basis or at all and the satisfaction of the conditions precedent to consummation of the proposed transaction; |
| • | unanticipated difficulties, expenditures or legal proceedings relating to the proposed merger and other transactions contemplated by the merger agreement; |
| • | changes in international and local economic conditions in the real estate and healthcare markets specifically; |
| • | legislative and regulatory changes impacting the healthcare industry, including the implementation of the healthcare reform legislation enacted in 2010; |
| • | legislative and regulatory changes impacting real estate investment trusts, or REITs, including their taxation; |
| • | volatility or uncertainty in capital markets, including the availability of debt and equity capital; |
| • | changes in interest rates; |
| • | competition in the real estate industry; |
| • | the supply and demand for operating properties in our market areas; and |
| • | changes in accounting principles generally accepted in the United States of America, or GAAP. |
Pending Merger
For information regarding the Merger, the Merger Agreement and the transactions contemplated thereby, see the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2017. The Merger is expected to close on September 1, 2017, although closing is subject to various conditions. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of the parties to the Merger Agreement. Therefore, we cannot provide any assurance that the Merger will close in a timely manner or at all.
Our ability to execute on our business plan could be adversely impacted by operating restrictions included in the Merger Agreement, including restrictions on acquiring new assets and raising additional capital. We have incurred and will incur a variety of merger-related costs which while not recurring in nature will not be recoverable if the Mergers are not consummated.
Overview
We were incorporated on October 16, 2006 for the purpose of engaging in the business of investing in and owning commercial real estate and real estate-related assets. We intend to invest primarily in healthcare properties and other real estate-related assets related to healthcare located in markets in the United States.
Our business has been managed by an external advisor since the commencement of our initial public offering in June 2008 and we have no employees. Since January 1, 2012, our Advisor has managed our business pursuant to the Advisory Agreement. Subject to certain restrictions and limitations, the Advisor is responsible for conducting our operations and managing our portfolio of real estate and real estate-related assets. In addition, to the extent we make additional investments, the Advisor is responsible for identifying and making acquisitions and investments on our behalf. Our Advisor has contractual and fiduciary responsibilities to us and our stockholders.
| 17 |
On February 10, 2013, we entered into the KKR Equity Commitment for the purpose of obtaining equity funding to finance investment opportunities. Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of up to three years, up to $158.7 million in aggregate issuance amount of preferred securities in the Company and the Operating Partnership. No securities remain issuable under the KKR Equity Commitment.
As of June 30, 2017, we had issued and outstanding 11,546,503 shares of common stock and 1,000 shares of Series C Preferred Stock. All 1,000 shares of the Series C Preferred Stock were issued to the Investor pursuant to the KKR Equity Commitment. In addition, as of June 30, 2017 the Operating Partnership had issued and outstanding 11,566,503 Common Units, 1,000 Series A Preferred Units, and 1,586,260 Series B Preferred Units.
In connection with the KKR Equity Commitment, we entered into the Transition Agreement with our Advisor and the Investor which sets forth the terms for a transition to an internal management structure for the Company. The Transition Agreement, as amended, requires that, unless the parties agree otherwise, the existing external advisory structure will remain in place upon substantially the same terms as currently in effect until February 10, 2019, upon which time the advisory function will be internalized in accordance with procedures set forth in the Transition Agreement.
We commenced an initial public offering of our common stock on June 20, 2008. We stopped making offers under the initial public offering on February 3, 2011 after raising gross offering proceeds of $123.9 million from the sale of approximately 12.4 million shares, including shares sold under the distribution reinvestment plan. On February 4, 2011, we commenced a follow-on offering of our common stock. We suspended primary offering sales in our follow-on offering on April 29, 2011 and completed the final sale of shares under the distribution reinvestment plan on May 10, 2011. We raised gross offering proceeds under the follow-on offering of $8.4 million from the sale of approximately 800,000 shares, including shares sold under the distribution reinvestment plan. On June 12, 2013, we deregistered all remaining unsold follow-on offering shares.
On June 19, 2013, we filed a registration statement on Form S-3 to register up to $99,000,000 of shares of common stock to be offered to our existing stockholders pursuant to the DRIP offering. The purchase price for shares offered pursuant to the DRIP Offering is equal to the most recently announced estimated per-share value, as of the date the shares are purchased under the distribution reinvestment plan. The DRIP Offering shares were initially offered at a purchase price of $10.02; effective February 28, 2014, DRIP offering shares were offered at a purchase price of $11.63 per share; and effective March 23, 2016 DRIP offering shares are being offered at $12.45, which is our most recent estimated per-share value.
Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of each lease. Our growth depends, in part, on our ability to (i) increase rental income and other earned income from leases by increasing rental rates and occupancy levels; and (ii) control operating and other expenses, including maximizing tenant recoveries as provided for in lease structures. Our operations are impacted by property specific, market specific, general economic and other conditions.
Critical Accounting Policies
There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.
Results of Operations
As of June 30, 2017, we operated in three reportable business segments: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. Our senior living operations segment invests in and operates assisted living, memory care and other senior housing communities located in the United States. We engage independent third party managers to operate these properties. Our triple-net leased properties segment invests in healthcare properties in the United States leased under long term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our MOB segment invests in medical office buildings and leases those properties to healthcare providers under long term “full service” leases which may require tenants to reimburse property related expenses to us.
As of June 30, 2017, we owned or had joint venture interests in 34 properties. These properties included 27 memory care, assisted-and independent-living facilities, which comprise our senior housing segment, one medical office building, which comprises our MOB segment, five operating healthcare facilities, which comprise our triple-net leased segment, and one facility held as an unconsolidated entity. As of June 30, 2016, we owned or had joint venture interests in 34 properties. These properties included 26 memory care, assisted-and independent-living facilities, which comprise our senior housing segment, one medical office building, which comprises our MOB segment, four operating healthcare facilities, which comprise our triple-net leased segment, one in-development facility, and two facilities held as unconsolidated entities. In the six months ended June 30, 2017 the Company sold its interest in the unconsolidated entity Buffalo Crossing and Accel at Golden completed its development.
| 18 |
Comparison of the Three Months Ended June 30, 2017 and 2016
| Three Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Net operating income, as defined (1) | ||||||||||||||||
| Senior living operations | $ | 8,628,000 | $ | 9,202,000 | $ | (574,000 | ) | (6 | )% | |||||||
| Triple-net leased properties | 2,746,000 | 2,819,000 | (73,000 | ) | (3 | )% | ||||||||||
| Medical office building properties | 207,000 | 195,000 | 12,000 | 6 | % | |||||||||||
| Total portfolio net operating income | $ | 11,581,000 | $ | 12,216,000 | $ | (635,000 | ) | (5 | )% | |||||||
| Reconciliation to net income: | ||||||||||||||||
| Net operating income, as defined (1) | $ | 11,581,000 | $ | 12,216,000 | $ | (635,000 | ) | (5 | )% | |||||||
| Other (income) expense: | ||||||||||||||||
| General and administrative | 3,943,000 | 405,000 | 3,538,000 | 874 | % | |||||||||||
| Asset management fees | 1,679,000 | 1,696,000 | (17,000 | ) | (1 | )% | ||||||||||
| Depreciation and amortization | 4,068,000 | 5,161,000 | (1,093,000 | ) | (21 | )% | ||||||||||
| Interest expense, net | 4,439,000 | 3,791,000 | 648,000 | 17 | % | |||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 129,000 | (3,828,000 | ) | (2967 | )% | |||||||||
| Equity in (income) loss from unconsolidated entities | (50,000 | ) | 68,000 | (118,000 | ) | (174 | )% | |||||||||
| Income tax expense (benefit) | 535,000 | (298,000 | ) | 833,000 | (280 | )% | ||||||||||
| Net income | $ | 666,000 | $ | 1,264,000 | (598,000 | ) | (47 | )% | ||||||||
| (1) | Net operating income, a non-GAAP supplemental measure, is defined as total revenue less property operating and maintenance expenses. We use net operating income to evaluate the operating performance of our consolidated real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of our consolidated income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as a gain or loss from investments in unconsolidated entities depreciation and amortization, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies |
Senior Living Operations
Total revenue for senior living operations includes rental revenue and resident fees and service income. Property operating and maintenance expenses include labor, food, utilities, marketing, management and other property operating costs. Net operating income for the three months ended June 30, 2017 decreased to $8.6 million from $9.2 million for the three months ended June 30, 2016 due to a decrease in gross margin in our senior living operations segment. This decrease is primarily driven by an increase in operating expenses, mainly attributable to property level payroll. Net operating income for the senior living operations segment also decreased due to the acquisition of Spring Village at Essex in the fourth quarter of 2016. This property is currently in lease-up and had an operating deficit for the three months ended June 30, 2017.
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| Three Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Senior Living Operations — Net operating income | ||||||||||||||||
| Rental revenue | $ | 20,791,000 | $ | 20,410,000 | $ | 381,000 | 2 | % | ||||||||
| Resident services and fee income | 8,164,000 | 8,087,000 | 77,000 | 1 | % | |||||||||||
| Tenant reimbursement and other income | 1,221,000 | 687,000 | 534,000 | 78 | % | |||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 21,548,000 | 19,982,000 | 1,566,000 | 8 | % | |||||||||||
| Total portfolio net operating income | $ | 8,628,000 | $ | 9,202,000 | $ | (574,000 | ) | (6 | )% | |||||||
Triple-Net Leased Properties
Total revenue for triple-net leased properties includes rental revenue and expense reimbursements from tenants. Net operating income for the three months ended June 30, 2017 decreased to $2.7 million from $2.8 million for the three months ended June 30, 2016. Rental revenue increased by $1.1 million, primarily as a result of the opening of Accel at Golden in January 2017; however, this was offset by a $1.3 million decrease in lease termination fee revenue earned in the three months ended June 30, 2016 from the prior tenant at the Global Inpatient Rehab facility.
| Three Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Triple-Net Leased Properties — Net operating income | ||||||||||||||||
| Rental revenue | $ | 2,758,000 | $ | 1,673,000 | $ | 1,085,000 | 65 | % | ||||||||
| Tenant reimbursement and other income | 259,000 | 1,614,000 | (1,355,000 | ) | (84 | )% | ||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 271,000 | 468,000 | (197,000 | ) | (42 | )% | ||||||||||
| Total portfolio net operating income | $ | 2,746,000 | $ | 2,819,000 | $ | (73,000 | ) | (3 | )% | |||||||
Medical Office Building Properties
Total revenue for medical office building properties includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include utilities, repairs and maintenance, insurance and property taxes. Net operating income for the three months ended June 30, 2017 of $0.2 million was comparable to net operating income for the three months ended June 30, 2016.
| Three Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Medical Office Building Properties — Net operating income | ||||||||||||||||
| Rental revenue | $ | 208,000 | $ | 229,000 | $ | (21,000 | ) | (9 | )% | |||||||
| Tenant reimbursement and other income | 80,000 | 78,000 | 2,000 | 3 | % | |||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 81,000 | 112,000 | (31,000 | ) | (28 | )% | ||||||||||
| Total portfolio net operating income | $ | 207,000 | $ | 195,000 | $ | 12,000 | 6 | % | ||||||||
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Unallocated (expenses) income
General and administrative expenses increased to $3.9 million for the three months ended June 30, 2017 from $0.4 million for the three months ended June 30, 2016. The increase was primarily due to $3.5 million in costs incurred during the three months ended June 30, 2017 by our board of directors, along with its advisors, to evaluate strategic alternatives in order to maximize shareholder value and professional fees incurred in connection with the proposed Merger.
Asset management fees for the three months ended June 30, 2017 of $1.7 million is comparable to the asset management fees for the three months ended June 30, 2016.
Depreciation and amortization for the three months ended June 30, 2017 decreased to $4.1 million from $5.2 million for the three months ended June 30, 2016 primarily due to a $1.4 million write-off of the in-place lease valve as a result of the lease termination of the prior tenant at the Global Inpatient Rehab facility for the three months ended June 30, 2016.
Interest expense, net, for the three months ended June 30, 2017 increased to $4.4 million from $3.8 million for the three months ended June 30, 2016 primarily as a result of the debt incurred related to Georgetown, Spring Village at Essex and Accel at Golden.
The change in fair value of contingent consideration increased to $3.7 million for the three months ended June 30, 2017 from $0.1 million decrease for the three months ended June 30, 2016. Based on the facts and circumstances that existed as of June 30, 2017, the Company derecognized the liability related to Sumter Grand due to the termination of the management agreement, delivered July 31, 2017, effective August 30, 2017. The termination of the management agreement contractually terminates the earnout agreement.
The Company recognized income from unconsolidated entities of $0.1 million for the three months ended June 30, 2017 as compared to a loss of $0.1 million for the three months ended June 30, 2016. The Company’s allocation of income from unconsolidated entities relates to distributions received from the operations of Physicians Center MOB, offset by the Company’s allocation of loss from Buffalo Crossings through the date of sale.
Comparison of the Six Months Ended June 30, 2017 and 2016
| Six Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Net operating income, as defined (1) | ||||||||||||||||
| Senior living operations | $ | 17,009,000 | $ | 18,002,000 | $ | (993,000 | ) | (6 | )% | |||||||
| Triple-net leased properties | 5,481,000 | 5,143,000 | 338,000 | 7 | % | |||||||||||
| Medical office building properties | 417,000 | 399,000 | 18,000 | 5 | % | |||||||||||
| Total portfolio net operating income | $ | 22,907,000 | $ | 23,544,000 | (637,000 | ) | (3 | )% | ||||||||
| Reconciliation to net income: | ||||||||||||||||
| Net operating income, as defined (1) | $ | 22,907,000 | $ | 23,544,000 | (637,000 | ) | (3 | )% | ||||||||
| Other (income) expense: | ||||||||||||||||
| General and administrative | 5,542,000 | 1,096,000 | 4,446,000 | 406 | % | |||||||||||
| Asset management fees | 2,608,000 | 2,679,000 | (71,000 | ) | (3 | )% | ||||||||||
| Depreciation and amortization | 8,101,000 | 8,954,000 | (853,000 | ) | (10 | )% | ||||||||||
| Interest expense, net | 8,761,000 | 7,632,000 | 1,129,000 | 15 | % | |||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 306,000 | (4,005,000 | ) | (1309 | )% | |||||||||
| Equity in (income) loss from unconsolidated entities | (72,000 | ) | 128,000 | (200,000 | ) | (156 | )% | |||||||||
| Gain on disposition of investment in unconsolidated entity | (1,534,000 | ) | - | (1,534,000 | ) | 100 | % | |||||||||
| Income tax expense (benefit) | 437,000 | (900,000 | ) | 1,337,000 | (149 | )% | ||||||||||
| Net income | $ | 2,763,000 | $ | 3,649,000 | (886,000 | ) | (24 | )% | ||||||||
| 21 |
| (1) | Net operating income, a non-GAAP supplemental measure, is defined as total revenue less property operating and maintenance expenses. We use net operating income to evaluate the operating performance of our consolidated real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of our consolidated income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as a gain or loss from investments in unconsolidated entities depreciation and amortization, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies. |
Senior Living Operations
Total revenue for senior living operations includes rental revenue and resident fees and service income. Property operating and maintenance expenses include labor, food, utilities, marketing, management and other property operating costs. Net operating income for the six months ended June 30, 2017 decreased to $17.0 million from $18.0 million for the six months ended June 30, 2016 due to a decrease in gross margin in our senior living operations segment. This decrease is primarily driven by an increase in operating expenses, mainly attributable to property level payroll. Net operating income for the senior living operations segment also decreased due to the acquisition of Spring Village at Essex in the fourth quarter of 2016. This property is currently in lease-up and has an operating deficit for the six months ended June 30, 2017.
| Six Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Senior Living Operations — Net operating income | ||||||||||||||||
| Rental revenue | $ | 41,229,000 | $ | 40,331,000 | $ | 898,000 | 2 | % | ||||||||
| Resident services and fee income | 16,397,000 | 16,442,000 | (45,000 | ) | 0 | % | ||||||||||
| Tenant reimbursement and other income | 2,226,000 | 1,406,000 | 820,000 | 58 | % | |||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 42,843,000 | 40,177,000 | 2,666,000 | 7 | % | |||||||||||
| Total portfolio net operating income | $ | 17,009,000 | $ | 18,002,000 | $ | (993,000 | ) | (6 | )% | |||||||
Triple-Net Leased Properties
Total revenue for triple-net leased properties includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include insurance and property taxes and other operating expenses reimbursed by our tenants. Net operating income for the six months ended June 30, 2017 increased to $5.5 million from $5.1 million for the six months ended June 30, 2016. Rental revenue increased by $1.5 million, primarily as a result of the opening of Accel at Golden in January 2017; however, this was offset by $1.3 million in lease termination fee revenue earned in the three months ended June 30, 2016 from the prior tenant at the Global Inpatient Rehab facility.
| Six Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Triple-Net Leased Properties — Net operating income | ||||||||||||||||
| Rental revenue | $ | 5,496,000 | $ | 4,003,000 | $ | 1,493,000 | 37 | % | ||||||||
| Tenant reimbursement and other income | 509,000 | 1,819,000 | (1,310,000 | ) | (72 | )% | ||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 524,000 | 679,000 | (155,000 | ) | (23 | )% | ||||||||||
| Total portfolio net operating income | $ | 5,481,000 | $ | 5,143,000 | $ | 338,000 | 7 | % | ||||||||
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Medical Office Building Properties
Total revenue for medical office building properties includes rental revenue and expense reimbursements from tenants. Property operating and maintenance expenses include utilities, repairs and maintenance, insurance and property taxes. Net operating income for the six months ended June 30, 2017 of $0.4 million is comparable to net operating income for the six months ended June 30, 2016.
| Six Months Ended June 30, | ||||||||||||||||
| 2017 | 2016 | $ Change | % Change | |||||||||||||
| Medical Office Building Properties — Net operating income | ||||||||||||||||
| Rental revenue | $ | 415,000 | $ | 435,000 | $ | (20,000 | ) | (5 | )% | |||||||
| Tenant reimbursement and other income | 161,000 | 156,000 | 5,000 | 3 | % | |||||||||||
| Less: | ||||||||||||||||
| Property operating and maintenance expenses | 159,000 | 192,000 | (33,000 | ) | (17 | )% | ||||||||||
| Total portfolio net operating income | $ | 417,000 | $ | 399,000 | $ | 18,000 | 5 | % | ||||||||
Unallocated (expenses) income
General and administrative expenses increased to $5.5 million for the six months ended June 30, 2017 from $1.1 million for the six months ended June 30, 2016. The increase was primarily due to $4.5 million in costs incurred during the six months ended June 30, 2017 by our board of directors, along with its advisors, to evaluate strategic alternatives in order to maximize shareholder value and professional fees incurred in connection with the proposed Merger.
Asset management fees for the six months ended June 30, 2017 of $2.6 million is comparable to the asset management fees of $2.7 million for the six months ended June 30, 2016.
Depreciation and amortization for the six months ended June 30, 2017 decreased to $8.1 million from $9.0 million for the six months ended June 30, 2016 primarily due to a $1.4 million write-off of the in-place lease valve as a result of the lease termination of the prior tenant at the Global Inpatient Rehab facility for the six months ended June 30, 2016.
Interest expense, net, for the six months ended June 30, 2017 increased to $8.7 million from $7.6 million for the six months ended June 30, 2016, primarily as a result of the debt incurred related to Georgetown, Spring Village at Essex and Accel at Golden.
The change in fair value of contingent consideration increased to $3.7 million for the six months ended June 30, 2017 from $0.3 million decrease for the six months ended June 30, 2016. Based on the facts and circumstances that existed as of June 30, 2017, the Company derecognized the liability related to Sumter Grand due to the termination of the management agreement, delivered July 31, 2017, effective August 30, 2017. The termination of the management agreement contractually terminates the earnout agreement.
The Company recognized income from unconsolidated entities of $0.1 million for the six months ended June 30, 2017 as compared to a loss of $0.1 million for the six months ended June 30, 2016. The Company’s allocation of income from unconsolidated entities relates to distributions received from the operations of Physicians Center MOB, offset by the Company’s allocation of loss from Buffalo Crossings through the date of sale.
The Company recognized a gain on the sale of an unconsolidated entity of $1.5 million for the six months ended June 30, 2017 as a result of the sale of the interest held in Buffalo Crossings on February 2, 2017.
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Liquidity and Capital Resources
On June 19, 2013, we filed a registration statement on Form S-3 to register up to $99,000,000 of shares of common stock to be offered to our existing stockholders pursuant to the DRIP offering. The purchase price for shares offered pursuant to the DRIP offering is equal to the most recently announced estimated per-share value, as of the date the shares are purchased under the distribution reinvestment plan. The DRIP offering shares were initially offered at a purchase price of $10.02; effective February 28, 2014, DRIP offering shares were offered at a purchase price of $11.63 per share; and effective March 23, 2016, DRIP offering shares were offered at $12.45, which is our most recent estimated per-share value. On May 3, 2017, in connection with the Company’s entry into the Merger Agreement, our board of directors approved the suspension of the DRIP offering, which was effective May 13, 2017.
On February 10, 2013, we entered into the KKR Equity Commitment for the purpose of obtaining equity funding to finance investment opportunities. Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of up to three years, up to $158.7 million in aggregate issuance amount of preferred securities in the Company and the Operating Partnership. As of June 30, 2017, the Company has received the total commitment of $158.7 million.
As of June 30, 2017, we had issued and outstanding 11,546,503 shares of common stock, and 1,000 shares of 3% Senior Cumulative Preferred Stock, Series C (the “Series C Preferred Stock”). All 1,000 shares of the Series C Preferred Stock were issued to the Investor pursuant to the KKR Equity Commitment. In addition, as of June 30, 2017 the Operating Partnership had issued and outstanding 11,566,503 Common Units, 1,000 Series A Preferred Units (the “Series A Preferred Units”), and 1,586,260 Series B Convertible Preferred Units (the “Series B Preferred Units”). As of June 30, 2017, we held all of the issued and outstanding Common Units and all of the issued and outstanding Series A Preferred Units. All of the issued Series B Preferred Units were issued to the Investor in connection with the KKR Equity Commitment.
As outlined in the Company’s Current Report on Form 8-K filed with the SEC on May 4, 2017, the Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants to conduct our business in all material respects in the ordinary course of business consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the merger. Until the pending merger closes, or the Merger Agreement is terminated, we will be subject to various restrictions under the Merger Agreement on raising additional capital, funding capital expenditures, issuing additional equity or debt, repurchasing equity, and entering into certain acquisitions and dispositions, among other restrictions.
We expect that primary sources of capital will include net cash flows from operations, and, subject to restrictions under the Merger Agreement, debt financing. We expect that, subject to restrictions under the Merger Agreement, our primary uses of capital will be for real estate investments, including earnouts and promote monetization payments for the payment of tenant improvements and capital improvements, operating expenses, including interest expense on any outstanding indebtedness, reducing outstanding indebtedness and for the payment of distributions.
We intend to own our stabilized properties with low to moderate levels of debt financing. We incur moderate to high levels of indebtedness when acquiring development or value-added properties and possibly other real estate investments. For our stabilized core plus properties, our long-term goal is to use low to moderate levels of debt financing with leverage ranging from 50% to 65% of the value of the asset. For development and value-added properties, our goal is to acquire and develop or redevelop these properties using moderate to high levels of debt financing with leverage ranging from 65% to 75% of the cost of the asset. Once these properties are developed, redeveloped and stabilized with tenants, we will reduce the levels of debt to fall within the loan to value target debt ranges appropriate for core properties. While we seek to fall within the outlined targets on a portfolio basis, for any specific property we may exceed these estimates. To the extent we do not have sufficient proceeds to repay debt financing down to the target ranges within a reasonable time as determined by our board of directors, we will, subject to restrictions under the Merger Agreement, endeavor to raise additional equity or sell properties to repay such debt so that we will own our properties with low to moderate levels of permanent financing. In the event that we are unable to raise additional equity, our ability to diversify our investments may be diminished.
One of our principal liquidity requirements includes debt service payments and the repayment of maturing debt. As of June 30, 2017, our notes payable were $375.7 million ($372.1 million, net of discount and deferred financing costs).
We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. Any violation of financial covenants under our loans could constitute an event of default. If we were not able to secure a waiver of such covenant violations, the lender could, at its discretion, declare the loan to be immediately due and payable, take possession of the properties securing the loan, enforce any loan guarantees by the Company of the loan balance, or exercise other remedies available to it under law. If the lender were to declare the loan to be immediately due and payable, we expect to refinance the loan in satisfaction of the debt. Any such refinancing may be on terms and conditions less favorable than the terms currently available under the loan. As of June 30, 2017, we were in compliance with all such covenants and requirements.
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As of June 30, 2017, we had approximately $35.0 million in cash and cash equivalents on hand. Our liquidity will increase, by reducing the amount of distributions to be paid in cash, if we receive excess loan proceeds in connection with refinancing, and increased cash flows from operations. Our liquidity will decrease as funds are expended in connection with real estate investments, including earnouts and promote monetization payments for the payment of tenant improvements and capital improvements and operating expenses, including interest expense on any outstanding indebtedness, and if distributions are made in excess of cash available from operating cash flows.
Cash flows provided by operating activities for the six months ended June 30, 2017 and 2016 were $8.3 million and $11.5 million, respectively. The decrease in cash flows from operations was primarily due to a decrease in net operating income and the timing of cash receipts and payments.
Cash flows used in investing activities for the six months ended June 30, 2017 and 2016 were $6.6 million and $16.0 million, respectively. The 2017 cash flows used in investing activities relates to the continued funding of the Accel at Golden development and the Georgetown Loan, offset by the proceeds from the disposition of our investment in Buffalo Crossings. The 2016 cash flows used in investing activities also relates to the funding of the Accel at Golden development and the Georgetown Loan.
Cash flows (used in) and provided by financing activities for the six months ended June 30, 2017 and 2016 were $(1.7) million and $9.4 million, respectively. The change was due primarily to activity related to the KKR Equity Commitment and proceeds of notes payable for the six months ended June 30, 2017 and 2016. During the six months ended June 30, 2017, the Company received $1.7 million of net proceeds from the issuance of Series B Preferred Units related to the KKR Equity Commitment and received proceeds from notes payable of $7.1 million related to the Georgetown Loan and Accel at Golden. These proceeds were offset by the distributions paid to stockholders of $2.7 million and distributions paid to noncontrolling interests of $6.2 million. During the six months ended June 30, 2016, the Company received $14.4 million of net proceeds from the issuance of Series B Preferred Units related to the KKR Equity Commitment and proceeds from notes payable of $7.0 million related to the Accel at Golden development. These proceeds were offset by the distributions paid to stockholders of $2.7 million, distributions paid to noncontrolling interests of $5.6 million and payment of contingent consideration of $1.8 million.
We expect to have sufficient cash available from cash on hand and operations to fund recurring capital improvements and principal payments due on our borrowings in the next twelve months. We expect to fund stockholder distributions from cash on hand and from the excess of cash provided by operations over required capital improvements and debt payments. This excess may be insufficient to make distributions at the current level or at all.
There may be a delay between the generation of cash available for investment and the funding of investments. During this period, proceeds may be temporarily invested in short-term, liquid investments that could yield lower returns than investments in real estate.
Subject to restrictions under the Merger Agreement, potential future sources of capital include proceeds from future equity offerings, proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations.
Funds from Operations and Modified Funds from Operations
Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by the accounting principles generally accepted in the United States of America (“GAAP”), and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, noncontrolling interests and subsidiaries. Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions, as well as dividend sustainability.
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Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-cash and non-operating items included in FFO, as defined. Therefore, we use modified funds from operations (“MFFO”), which excludes from FFO real estate acquisition expenses, and non-cash amounts related to straight-line rent to further evaluate our operating performance. We compute MFFO in accordance with the definition suggested by the Investment Program Association (the “IPA”), the trade association for direct investment programs (including non-listed REITs). However, certain adjustments included in the IPA’s definition are not applicable to us and are therefore not included in the foregoing definition.
We believe that MFFO is a helpful measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating changes. Accordingly, we believe that MFFO can be a useful metric to assist management, investors and analysts in assessing the sustainability of our operating performance. As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following considerations:
| · | Adjustments for straight-line rents. Under GAAP, rental income recognition can be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the economic impact of our lease terms and presents results in a manner more consistent with management’s analysis of our operating performance. |
| · | Real estate acquisition costs. In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analysis differentiate costs to acquire the investment from the operations derived from the investment. These acquisition costs have been funded from the proceeds of our initial public offering, proceeds from the KKR Equity Commitment and other financing sources and not from operations. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties. Real estate acquisition expenses include those paid to our Advisor and to third parties. |
| · | Non-recurring gains or losses included in net income from the extinguishment or sale of debt. |
| · | Unrealized gains or losses resulting from consolidation from, or deconsolidation to equity accounting. |
| · | Elimination of adjustments relating to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income. |
FFO or MFFO should not be considered as an alternative to net income (loss) nor as an indication of our liquidity. Nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and MFFO should be reviewed along with other GAAP measurements. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs. In addition, FFO and MFFO presented for different periods may not be directly comparable.
We believe that MFFO is helpful as a measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating changes.
Our calculations of FFO and MFFO for the three and six months ended June 30, 2017 and 2016 are presented below:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net loss attributable to common stockholders | $ | (2,363,000 | ) | $ | (1,640,000 | ) | $ | (3,291,000 | ) | $ | (1,969,000 | ) | ||||
| Adjustments: | ||||||||||||||||
| Real estate depreciation and amortization | 4,068,000 | 5,161,000 | 8,101,000 | 8,954,000 | ||||||||||||
| Joint venture depreciation and amortization | 60,000 | 138,000 | 145,000 | 275,000 | ||||||||||||
| Gain on sale of investment in unconsolidated entity | - | - | (1,534,000 | ) | - | |||||||||||
| Funds from operations (FFO) | 1,765,000 | 3,659,000 | 3,421,000 | 7,260,000 | ||||||||||||
| Adjustments: | ||||||||||||||||
| Straight-line rent and above/below market lease amortization | (199,000 | ) | 354,000 | (407,000 | ) | 184,000 | ||||||||||
| Change in fair value of contingent consideration | (3,699,000 | ) | 129,000 | (3,699,000 | ) | 306,000 | ||||||||||
| Modified funds from operations (MFFO) | (2,133,000 | ) | 4,142,000 | (685,000 | ) | 7,750,000 | ||||||||||
| Weighted average shares | 11,544,678 | 11,515,846 | 11,539,600 | 11,510,737 | ||||||||||||
| FFO per weighted average shares | $ | 0.15 | $ | 0.32 | $ | 0.30 | $ | 0.63 | ||||||||
| MFFO per weighted average shares | $ | (0.18 | ) | $ | 0.36 | $ | (0.06 | ) | $ | 0.67 | ||||||
Distributions Available to Common Stockholders
Commencing with the declaration of distribution for daily record dates occurring in the second quarter of 2013 and thereafter, our board of directors has declared distributions in amounts per share that, if declared and paid each day for a 365-day period, would equate to an annualized rate of $0.50 per share (5.00% based on share price of $10.00).
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On August 31, 2016, the board of directors adopted a Regular Quarterly Dividend Policy (the “Dividend Policy”), which documents the circumstances under which the board of directors may increase the regular quarterly dividend that may be paid to holders of the common stock of the Company (the “Regular Quarterly Dividend Rate”) from its current level of $0.125 per share without the consent of the Investor. The Dividend Policy provides that the Company may maintain the Regular Quarterly Dividend Rate at the current level and that the Company may also elect to reduce the Regular Quarterly Dividend Rate in its discretion. The policy expires on August 31, 2019.
The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis. The amount of distributions will depend on our funds from operations, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant.
| Distributions Declared (1) | ||||||||||||||||||||||||
| Period | Cash | Reinvested | Total | Distributions Paid | Cash Flow from Operations | Net Income | ||||||||||||||||||
| First quarter 2016 | $ | 1,342,000 | $ | 89,000 | $ | 1,431,000 | $ | 1,362,000 | $ | 6,871,000 | $ | 2,385,000 | ||||||||||||
| Second quarter 2016 | 1,343,000 | 88,000 | 1,431,000 | 1,342,000 | 4,607,000 | 1,264,000 | ||||||||||||||||||
| $ | 2,685,000 | $ | 177,000 | $ | 2,862,000 | $ | 2,704,000 | $ | 11,478,000 | $ | 3,649,000 | |||||||||||||
| First quarter 2017 | $ | 1,329,000 | $ | 94,000 | $ | 1,423,000 | $ | 1,357,000 | $ | 4,541,000 | $ | 2,097,000 | ||||||||||||
| Second quarter 2017 | 1,439,000 | - | 1,439,000 | 1,329,000 | 3,788,000 | 666,000 | ||||||||||||||||||
| $ | 2,768,000 | $ | 94,000 | $ | 2,862,000 | $ | 2,686,000 | $ | 8,329,000 | $ | 2,763,000 | |||||||||||||
| (1) | In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our stockholders each taxable year equal to at least 90% of our net ordinary taxable income. |
For the six months ended June 30, 2017, we declared distributions, including distributions reinvested, aggregating approximately $2.9 million to our stockholders. FFO for the six months ended June 30, 2017 was approximately $3.4 million and cash flow from operations was approximately $8.3 million. We funded our total distributions paid with cash flows from operations. See the reconciliation of FFO to net income above.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We invest our cash and cash equivalents in government-backed securities and FDIC-insured savings accounts which, by their nature, are subject to interest rate fluctuations. However, we believe that the primary market risk to which we will be exposed is interest rate risk relating the variable portion of our debt financing. As of June 30, 2017, we had approximately $152.3 million of variable rate debt, the majority of which is at a rate tied to short-term LIBOR. A 1.0% change in one-Month LIBOR would result in a change in annual interest expense of approximately $1.5 million per year. Our interest rate risk management objectives are to monitor and manage the impact of interest rate changes on earnings and cash flows. We may use certain derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on variable rate debt. We will not enter into derivative or interest rate transactions for speculative purposes.
In addition to changes in interest rates, the fair value of our real estate is subject to fluctuations based on changes in the real estate capital markets, market rental rates for healthcare facilities, local, regional and national economic conditions and changes in the credit worthiness of tenants. All of these factors may also affect our ability to refinance our debt if necessary.
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| Item 4. | Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| Item 6. | Exhibits |
| Ex. | Description | |
| 2.1 | Agreement and Plan of Merger, dated as of May 3, 2017, by and among the Registrant, Sentio Healthcare Properties OP, L.P., KAREP Master JV, LLC, KAREP Acquisitions Vehicle, LLC, and Sentio Investments, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s current report on Form 8-K filed on May 4, 2017). | |
| 3.1 | Articles of Amendment and Restatement of the Registrant, as amended on December 29, 2009 and January 24, 2012 (incorporated by reference to Exhibit 3.1 to the Registrant’s annual report on Form 10-K for the year ended December 31, 2011). | |
| 3.2 | Articles of Amendment of the Registrant, dated August 6, 2013 (incorporated by reference to Exhibit 3.2 to the Registrant’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2013). | |
| 3.3 | Articles Supplementary, 3% Senior Cumulative Preferred Stock, Series A, dated August 6, 2013 (incorporated by reference to Exhibit 3.3 to the Registrant’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2013). | |
| 3.4 | Articles Supplementary, 3% Senior Cumulative Preferred Stock, Series C, dated August 6, 2013 (incorporated by reference to Exhibit 3.4 to the Registrant’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2013). | |
| 3.5 | Second Amended and Restated Bylaws of the Registrant as adopted on August 6, 2013 as amended by Amendment no. 1 to the Second Amended and Restated Bylaws of the Registrant, effective as of March 20, 2015 (incorporated by reference to Exhibit 3.5 to the Registrant’s annual report on Form 10-K for the year ended December 31, 2014). | |
| 3.6 | Second Amended and Restated Limited Partnership Agreement of Sentio Healthcare Properties OP, L.P., dated August 5, 2013 (incorporated by reference to Exhibit 3.6 to the Registrant’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2013). | |
| 3.7 | First Amendment dated December 22, 2014 to the Second Amended and Restated Limited Partnership Agreement of Sentio Healthcare Properties OP, L.P., dated August 5, 2013 (incorporated by reference to Exhibit 3.1 to the Registrant’s current report on Form 8-K filed on December 30, 2014). | |
| 4.1 | Form of Distribution Reinvestment Enrollment Form (incorporated by reference to Appendix A to the Registrant’s prospectus filed on June 19, 2013). | |
| 4.2 | Statement regarding restrictions on transferability of the Registrant’s shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 (No. 333-139704) filed on June 15, 2007). | |
| 4.3 | Second Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix B to the Registrant’s prospectus filed on June 19, 2013). | |
| 10.1 | Merger Consideration Allocation Agreement, dated as of May 3, 2017, by and among KAREP Master JV, LLC, the Registrant, Sentio Healthcare Properties OP, L.P., Sentio Investments, LLC and Sentinel RE Investment Holdings LP (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on May 4, 2017). | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 101.INS | XBRL Instance Document (filed herewith). | |
| 101.SCH | XBRL Taxonomy Extension Schema (filed herewith). | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase (filed herewith). | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase (filed herewith). | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase (filed herewith). | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase (filed herewith). |
| 29 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 11th day of August 2017.
| SENTIO HEALTHCARE PROPERTIES, INC. | ||
| By: | /s/ JOHN MARK RAMSEY | |
| John Mark Ramsey | ||
|
President, Chief Executive Officer and Director (Principal Executive Officer) | ||
| By: | /s/ SPENCER A. SMITH | |
| Spencer A. Smith | ||
|
Chief Financial Officer, Treasurer and Secretary (Principal Financial and Principal Accounting Officer) | ||
| 30 |
Exhibit 31.1
CERTIFICATION
I, John Mark Ramsey, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Sentio Healthcare Properties, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| |
| /s/ JOHN MARK RAMSEY | |
| Date: August 11, 2017 | John Mark Ramsey |
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Spencer A. Smith, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Sentio Healthcare Properties, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| |
| /s/ SPENCER A. SMITH | |
| Date: August 11, 2017 | Spencer A. Smith |
|
Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. Sec.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
John Mark Ramsey and Spencer A. Smith, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge, the Quarterly Report of Sentio Healthcare Properties, Inc. on Form 10-Q for the six-month period ended June 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Sentio Healthcare Properties, Inc.
| /s/ JOHN MARK RAMSEY | |
| Date: August 11, 2017 | John Mark Ramsey |
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
| /s/ SPENCER A. SMITH | |
| Date: August 11, 2017 | Spencer A. Smith |
|
Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |
Document And Entity Information - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2017 |
Aug. 09, 2017 |
|
| Document Information [Line Items] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Jun. 30, 2017 | |
| Document Fiscal Year Focus | 2017 | |
| Document Fiscal Period Focus | Q2 | |
| Entity Registrant Name | Sentio Healthcare Properties Inc | |
| Entity Central Index Key | 0001378774 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 11,546,503 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 580,000,000 | 580,000,000 |
| Common stock, shares issued | 11,546,503 | 11,531,615 |
| Common stock, shares outstanding | 11,546,503 | 11,531,615 |
| Series C Preferred Stock [Member] | ||
| Preferred Stock, Par value | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized | 1,000 | 1,000 |
| Preferred Stock, Shares Issued | 1,000 | 1,000 |
| Preferred Stock, Shares Outstanding | 1,000 | 1,000 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Revenues: | ||||
| Rental revenues | $ 23,757,000 | $ 22,312,000 | $ 47,140,000 | $ 44,769,000 |
| Resident fees and services | 8,164,000 | 8,087,000 | 16,397,000 | 16,442,000 |
| Tenant reimbursements and other income | 1,560,000 | 2,379,000 | 2,896,000 | 3,381,000 |
| Total revenues | 33,481,000 | 32,778,000 | 66,433,000 | 64,592,000 |
| Expenses: | ||||
| Property operating and maintenance | 21,900,000 | 20,562,000 | 43,526,000 | 41,048,000 |
| General and administrative | 3,943,000 | 405,000 | 5,542,000 | 1,096,000 |
| Asset management fees | 1,679,000 | 1,696,000 | 2,608,000 | 2,679,000 |
| Depreciation and amortization | 4,068,000 | 5,161,000 | 8,101,000 | 8,954,000 |
| Total expenses | 31,590,000 | 27,824,000 | 59,777,000 | 53,777,000 |
| Income from operations | 1,891,000 | 4,954,000 | 6,656,000 | 10,815,000 |
| Other (income) expense: | ||||
| Interest expense, net | 4,439,000 | 3,791,000 | 8,761,000 | 7,632,000 |
| Change in fair value of contingent consideration | (3,699,000) | 129,000 | (3,699,000) | 306,000 |
| Equity in (income) loss from unconsolidated entities | (50,000) | 68,000 | (72,000) | 128,000 |
| Gain on disposition of investment in unconsolidated entity | 0 | 0 | (1,534,000) | 0 |
| Net income before income taxes | 1,201,000 | 966,000 | 3,200,000 | 2,749,000 |
| Income tax expense (benefit) | 535,000 | (298,000) | 437,000 | (900,000) |
| Net income | 666,000 | 1,264,000 | 2,763,000 | 3,649,000 |
| Preferred return to Series B preferred OP units | 2,886,000 | 2,706,000 | 5,760,000 | 5,322,000 |
| Net income attributable to other noncontrolling interests | 143,000 | 198,000 | 294,000 | 296,000 |
| Net loss attributable to common stockholders | $ (2,363,000) | $ (1,640,000) | $ (3,291,000) | $ (1,969,000) |
| Basic and diluted weighted average number of common shares | 11,544,678 | 11,515,846 | 11,539,600 | 11,510,737 |
| Basic and diluted net loss per common share attributable to common stockholders | $ (0.2) | $ (0.14) | $ (0.29) | $ (0.17) |
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY - 6 months ended Jun. 30, 2017 - USD ($) |
Total |
Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders' Equity |
Noncontrolling Interest |
|---|---|---|---|---|---|---|---|
| BALANCE at Dec. 31, 2016 | $ 185,730,000 | $ 0 | $ 115,000 | $ 55,979,000 | $ (25,782,000) | $ 30,312,000 | $ 155,418,000 |
| BALANCE (in shares) at Dec. 31, 2016 | 1,000 | 11,531,615 | |||||
| Issuance of Common Stock | 185,000 | $ 0 | $ 0 | 185,000 | 0 | 185,000 | 0 |
| Issuance of Common Stock (in shares) | 0 | 14,888 | |||||
| Issuance of Series B preferred OP Units, net | 1,700,000 | $ 0 | $ 0 | 0 | 0 | 0 | 1,700,000 |
| Distributions | (9,101,000) | 0 | 0 | (2,862,000) | 0 | (2,862,000) | (6,239,000) |
| Net (loss) income | 2,763,000 | 0 | 0 | 0 | (3,291,000) | (3,291,000) | 6,054,000 |
| BALANCE at Jun. 30, 2017 | $ 181,277,000 | $ 0 | $ 115,000 | $ 53,302,000 | $ (29,073,000) | $ 24,344,000 | $ 156,933,000 |
| BALANCE (in shares) at Jun. 30, 2017 | 1,000 | 11,546,503 |
Organization |
6 Months Ended | |
|---|---|---|
Jun. 30, 2017 | ||
| Organization, Consolidation and Presentation Of Financial Statements [Abstract] | ||
| Organization | 1. Organization Sentio Healthcare Properties, Inc., a Maryland corporation, was formed on October 16, 2006 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in and owning commercial real estate. As used in this report, the “Company”, “we”, “us” and “our” refer to Sentio Healthcare Properties, Inc. and its consolidated subsidiaries, except where context otherwise requires. Effective January 1, 2012, subject to certain restrictions and limitations, our business is managed by Sentio Investments, LLC, a Florida limited liability company that was formed on December 20, 2011 (the “Advisor”). Sentio Healthcare Properties OP, LP, a Delaware limited partnership (the “Operating Partnership”), was formed on October 17, 2006. As of June 30, 2017, we owned 100% of the outstanding common units in the Operating Partnership and the HC Operating Partnership, LP, a subsidiary of the Operating Partnership. Pursuant to the terms of the KKR Equity Commitment (as described in Note 10), we have issued Series B Convertible Preferred Units in the Operating Partnership (“Series B Preferred Units”) to the Investor (as described in Note 10), the terms of which provide that the Investor may convert its preferred units into common units at its discretion. On an as-converted basis, as of June 30, 2017, the Investor owns 57.8% and we own the remaining interest in the Operating Partnership and the HC Operating Partnership, LP. We anticipate that we will conduct all of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation. Pending Merger On May 3, 2017, the Company and the Operating Partnership (together, the “Company Parties”), KAREP Master JV, LLC (“Parent”), KAREP Acquisitions Vehicle, LLC, a wholly owned subsidiary of Parent (“Merger Sub” and together with Parent, the “Parent Parties”) and the Advisor, solely in its capacity as the Stockholders’ Representative (as defined in the Merger Agreement), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions, the Company will be merged with and into Merger Sub (the “Merger”). Upon completion of the Merger, the separate existence of the Company will cease, with Merger Sub surviving the Merger (as the surviving entity in the Merger, the “Surviving Entity”). Under the terms of the Merger Agreement, each issued and outstanding share of the Company’s common stock will receive: (i) no less than $14.37 per share in cash at the closing of the Merger; (ii) up to an additional $0.55 per share in cash at the closing of the Merger based upon final pricing calculations pursuant to the terms of the Merger Agreement; and (iii) one Contingent Value Right for each share of the company’s common stock held. The Contingent Value Right represents a proportionate interest in up to an additional $8.76 million (subject to certain increases under the terms of the Merger Agreement) that could be released at various times from the closing of the Merger until three years after the closing of the Merger, with such amount being subject to reduction as a result of certain indemnification rights of the Parent Parties under the Merger Agreement. The resulting range of total cash consideration to be received by the holders of the Company’s common stock following the closing of the Merger is between $14.37 and $15.21 per share (subject to certain increases under the terms of the Merger Agreement). We expect the Merger to close on September 1, 2017, although closing is subject to various conditions. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of the parties to the Merger Agreement. Therefore, we cannot provide any assurance that the Merger will close in a timely manner or at all. Additional information regarding the Merger, the Merger Agreement and the transactions contemplated thereby is included in our Current Report on Form 8-K filed with the SEC on May 4, 2017. |
Summary of Significant Accounting Policies |
6 Months Ended | |
|---|---|---|
Jun. 30, 2017 | ||
| Summary Of Significant Accounting Policies [Abstract] | ||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies For more information regarding our significant accounting policies and estimates, please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2016. Principles of Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the guidance for the consolidation of variable interest entities (“VIEs”), we analyze our variable interests, including investments in partnerships and joint ventures, to determine if the entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews, based on our review of the design of the entity, its organizational structure including decision-making ability, risk and reward sharing experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions and financial agreements. We also use quantitative and qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary. Interim Financial Information The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited condensed consolidated financial statements and the notes thereto included on our 2016 Annual Report on Form 10-K, as filed with the SEC. Recent Accounting Pronouncements Pending accounting standards In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, “Other Income: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, which defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new standard is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. We do not anticipate early adoption, however, we are evaluating the impact of adopting ASU 2017-05 on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. The amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact the adoption of ASU 2017-04 will have on our consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The guidance is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company is evaluating the effect that ASU 2017-01 will have on our consolidated financial statements and related disclosures. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which enhances the presentation requirements of restricted cash. The standard aims to unify presentation and minimize the diversity in practice. These presentation changes include increased disclosures surrounding the restrictions on cash and the inclusion of the restricted cash balance in the reconciliation completed at the end of the statement of cash flows. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company does not expect ASU 2016-18 to have a significant impact on our consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which indicates that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. This ASU retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The new guidance will be effective for the Company beginning on January 1, 2019 and earlier adoption is permitted. The Company is evaluating the impact of the adoption of the new guidance on our financial statements. In 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018, pursuant to ASU 2015-09 which deferred the adoption date by one year. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has begun its process of assessing the impact of the guidance. To date the Company’s assessment efforts include the identification of various revenue streams within the scope of the guidance and the evaluation of certain lease contracts with tenants. Although the Company is still evaluating the revenue streams and the timing of recognition under the new model, as well as the related disclosure requirements, a significant change to our current revenue recognition policies is not expected as a substantial portion of our revenue consists of rental income from leasing arrangements, which is excluded from ASU 2014-09. The Company has not yet selected a transition method. |
Real Estate Note Receivable |
6 Months Ended | |
|---|---|---|
Jun. 30, 2017 | ||
| Disclosure Text Block [Abstract] | ||
| Real Estate Notes Receivable | 3. Real Estate Note Receivable On January 16, 2015, the Company, through indirect wholly owned subsidiaries, Sentio Georgetown, LLC and Sentio Georgetown TRS, LLC, originated a development loan in the amount of $41.9 million for the development of The Delaney at Georgetown Village located in Georgetown, Texas (the “Georgetown Loan”). The Georgetown Loan is secured by a first mortgage lien on the land, building, and all improvements made thereon. The Georgetown Loan matures on January 15, 2020 with one 12-month option to extend at the Company’s option, and bears interest at a fixed rate of 7.9% per annum for the term of the loan. At the maturity date, all unpaid principal, plus accrued and unpaid interest shall be due in full. Advances are made periodically during the construction period. The borrower paid a loan origination fee equal to 1% of the loan amount. Monthly payments are interest only for the term of the loan. The Company has the option to purchase the property at fair value at the earlier of stabilization or 48 months from the loan origination. Fair value is determined by the average asset value of independent appraisals obtained by the lender and borrower. Regardless of whether the Company exercises the option to purchase the property, the Company will be entitled to participate in the value creation which is the difference between the fair value and the total development cost. The Georgetown Loan is non-recourse to the borrowers, but one of the entities affiliated with the borrower has provided cost and completion guarantees as well as a guaranty of customary “bad boy” carve-outs. Interest revenue on the loan receivable is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks. For the three and six months ended June 30, 2017, interest revenue from the real estate note receivable was $0.8 million and $1.5 million, respectively. Interest revenue is recorded as a component of tenant reimbursements and other income in the condensed consolidated statement of operations. As of June 30, 2017, the borrower had made draws on the Georgetown Loan totaling $39.4 million, and the remaining commitment from the Company is approximately $2.5 million. |
Investments in Real Estate |
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| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in Real Estate | 4. Investments in Real Estate As of June 30, 2017, cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
As of December 31, 2016, accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
Depreciation expense associated with buildings and improvements and furniture, fixtures and vehicles for the three months ended June 30, 2017 and 2016 was approximately $4.0 million and $3.7 million, respectively. Amortization associated with intangible assets for the three months ended June 30, 2017 and 2016 was $0.1 million and $1.5 million, respectively. Depreciation expense associated with buildings and improvements and furniture, fixtures and vehicles for the six months ended June 30, 2017 and 2016 was approximately $7.9 million and $7.3 million, respectively. Amortization associated with intangible assets for the six months ended June 30, 2017 and 2016 was $0.2 million and $1.7 million, respectively. Estimated amortization for July 1, 2017 through December 31, 2017 and each of the subsequent years is as follows:
The estimated useful lives for intangible assets range from approximately two to twenty years. As of June 30, 2017, the weighted-average amortization period for intangible assets was 17 years. |
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Investments in Unconsolidated Entities |
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| Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments In Unconsolidated Entities | 5. Investments in Unconsolidated Entities As of June 30, 2017, the Company owns interest in one entity that is accounted for under the equity method of accounting:
Summarized combined financial information for the Company’s unconsolidated entities is as follows:
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Income Taxes |
6 Months Ended | |
|---|---|---|
Jun. 30, 2017 | ||
| Income Tax Disclosure [Abstract] | ||
| Income Taxes | 6. Income Taxes We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would not be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would establish a valuation allowance which would reduce the provision for income taxes. The Master TRS recognized a $0.5 million expense and a $0.3 million benefit for federal and state income taxes in the three months ended June 30, 2017 and 2016, respectively, and a $0.4 million expense and a $0.9 million benefit for federal and state income taxes in the six months ended June 30, 2017 and 2016, respectively. Net deferred tax assets related to the TRS entities totaled approximately $7.4 million at June 30, 2017 and $7.7 million at December 31, 2016, respectively, related primarily to book and tax basis differences for straight-line rent and accrued liabilities. At June 30, 2017, the Master TRS had net operating loss carryforwards for federal income tax purposes of approximately $1.9 million, which, if unused, begin to expire in 2035. |
Segment Reporting |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting | 7. Segment Reporting As of June 30, 2017, we operated in three reportable business segments for management and internal financial reporting purposes: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. These operating segments are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our senior living operations segment primarily consists of investments in senior housing communities located in the United States for which we engage independent third-party managers. Our triple-net leased properties segment consists of investments in senior living, skilled nursing and hospital facilities in the United States. These facilities are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our MOB properties segment primarily consists of investing in medical office buildings and leasing those properties to healthcare providers under long-term leases, which may require tenants to pay property-related expenses. We evaluate performance of the combined properties in each segment based on net operating income. Net operating income is defined as total revenue less property operating and maintenance expenses. There are no intersegment sales or transfers. We use net operating income to evaluate the operating performance of our real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization, asset management fees, real estate acquisition costs, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies. The following tables reconcile the segment activity to consolidated net income (loss) for the three and six months ended June 30, 2017 and 2016:
The following table reconciles the segment activity to consolidated financial position as of June 30, 2017 and December 31, 2016:
As of June 30, 2017 and December 31, 2016, goodwill had a balance of approximately $6.0 million all related to our senior living operations segment. |
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Fair Value Measurements |
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Jun. 30, 2017 | ||
| Fair Value Disclosures [Abstract] | ||
| Fair Value Measurements | 8. Fair Value Measurements The FASB Accounting Standards Codification (“ASC”) 825-10, “Financial Instruments,” requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. Fair value represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820, “Fair Value Measurement” establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability. Our balance sheets include the following financial instruments: cash and cash equivalents, real estate note receivable, tenant and other receivables, net, deferred costs and other assets, restricted cash, notes payable, net, accounts payable and accrued liabilities, prepaid rent and security deposits and distributions payable. With the exception of notes payable and our contingent consideration discussed below, we consider the carrying values of our financial instruments to approximate fair value because they generally expose the Company to limited credit risk and because of the short period of time between origination of the financial assets and liabilities and their expected settlement. As of June 30, 2017, the estimated fair value of the contingent consideration related to the Armbrook Village and Sumter Grand acquisitions is $1.7 million and $0.0 million, respectively, which represents a total reduction in fair value of contingent consideration in the condensed consolidated statements of operations of $3.7 million for the three and six months ended June 30, 2017. Based on the facts and circumstances that existed as of June 30, 2017, the Company derecognized the liability related to Sumter Grand due to the termination of the management agreement, delivered July 31, 2017, effective August 30, 2017. The termination of the management agreement contractually terminates the earnout agreement. A change in fair value of contingent consideration is recorded when a change in the projected timing to achieve certain specified net operating income thresholds occurs for Armbrook Village. The liability related to Armbrook Village is included in accounts payable and accrued liabilities in our accompanying condensed consolidated balance sheets. The fair value of the contingent consideration is based on significant inputs which are not observable to the market and as a result are classified in Level 3 of the fair value hierarchy. The fair value is derived by making assumptions on the timing of the lease up process based on actual performance as compared to internal underwriting models and applying a discount rate of 9.0% to the actual Armbrook Village liability to obtain a present value. The fair value of the Company’s notes payable is estimated by discounting future cash flows of each instrument at rates that reflect the current market rates available to the Company for debt of the same terms and maturities. The fair value of the notes payable was determined using Level 2 inputs of the fair value hierarchy. Based on the estimates used by the Company, the fair value of notes payable was $374.1 million and $369.2 million, compared to the carrying values of $375.7 million ($372.0 million, net of discount and deferred financing costs) and $370.1 million ($366.1 million, net of discount and deferred financing costs) at June 30, 2017 and December 31, 2016, respectively. There were no transfers between Level 1 or 2 during the three and six months ended June 30, 2017. |
Notes Payable |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 9. Notes Payable Notes payable were $375.7 million ($372.0 million, net of discount and deferred financing costs) and $370.1 million ($366.1 million, net of discount and deferred financing costs) at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, we had total secured mortgage loans with effective interest rates ranging from 2.80% to 6.43% per annum and a weighted average effective interest rate of 4.42% per annum. As of June 30, 2017, notes payable consisted of $223.4 million of fixed rate debt, or approximately 59% of notes payable, at a weighted average interest rate of 4.79% per annum and $152.3 million of variable rate debt, or approximately 41% of notes payable, at a weighted average interest rate of 3.86% per annum. As of December 31, 2016, we had $219.6 million of fixed rate debt, or 59% of notes payable, at a weighted average interest rate of 4.78% per annum and $150.5 million of variable rate debt, or 41% of notes payable, at a weighted average interest rate of 3.41% per annum. On March 31, 2017, in connection with the Note secured by Rome LTACH dated December 18, 2009, the Company entered into a Third Modification Agreement (“Modification”) to extend the maturity date of the Note to March 31, 2020. The remaining terms of the note remain unchanged. We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. Any violation of financial covenants under the loans would constitute an event of default. If we were not able to secure a waiver of such covenant violations, the lender could, in its discretion, declare the loan to be immediately due and payable, take possession of the properties securing the loan, enforce the Company’s loan guarantees of the loan balance, or exercise other remedies available to it under law. If the lender were to declare the loan to be immediately due and payable, we expect to refinance the loan in satisfaction of the debt. Any such refinancing may be on terms and conditions less favorable than the terms currently available under the loan. As of June 30, 2017, we were in compliance with all such covenants and requirements. Principal payments due on our notes payable for July 1, 2017 to December 31, 2017 and each of the subsequent years is as follows:
Interest Expense and Deferred Financing Cost For the three months ended June 30, 2017 and 2016, the Company incurred interest expense, including amortization of deferred financing costs of $4.4 million and $3.8 million, respectively. For the six months ended June 30, 2017 and 2016, the Company incurred interest expense, including amortization of deferred financing costs of $8.8 million and $7.6 million, respectively. As of June 30, 2017 and December 31, 2016, the Company’s net deferred financing costs were approximately $3.5 million and $3.8 million, respectively. All deferred financing costs are capitalized and amortized over the life of the respective loan agreement. |
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Stockholders' Equity |
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| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | 10. Stockholders’ Equity Common Stock Our charter authorizes the issuance of 580,000,000 shares of common stock with a par value of $0.01 per share and 20,000,000 shares of preferred stock with a par value of $0.01 per share, of which 1,000 shares are designated as Series C Preferred Stock. As of June 30, 2017 and December 31, 2016, including distributions reinvested, we had issued approximately 13.4 million shares and 13.4 million shares of common stock for a total of approximately $133.8 million and $133.5 million of gross proceeds, respectively, in our public offerings. Preferred Stock and OP Units On February 10, 2013, we entered into a series of agreements, which have been amended at various points after February 10, 2013, with Sentinel RE Investment Holdings LP (the “Investor”), an affiliate of Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”) for the purpose of obtaining equity funding to finance investment opportunities (such investment and the related agreements, as amended, are referred to herein collectively as the “KKR Equity Commitment”). Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of up to three years, up to $158.7 million in aggregate issuance amount of preferred securities in the Company and the Operating Partnership. At June 30, 2017, no securities remain issuable under the KKR Equity Commitment. As of June 30, 2017 and December 31, 2016 we had issued 1,000 shares of Series C Preferred Stock and 1,586,260 Series B Preferred Units to the Investor for a total commitment of $158.7 million, respectively. As of June 30, 2017, the Company has received the total commitment of $158.7 million. For the three and six months June 30, 2017, the Company received $0.6 million and $1.7 million of proceeds, respectively, from the Investor related to previously issued Series B Preferred Units. The Series B Preferred Units outstanding are classified within noncontrolling interests and are convertible into approximately 15,830,938 shares of the Company’s common stock, as of June 30, 2017 and December 31, 2016. The Series C Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights on liquidation. The holders of the Series C Preferred Stock are entitled to receive dividends, as and if authorized by our board of directors out of funds legally available for that purpose, at an annual rate equal to 3% of the liquidation preference for each share. Dividends on the Series C Preferred Stock are payable annually in arrears. The Series B Preferred Units rank senior to the Operating Partnership’s common units with respect to distribution rights and rights on liquidation. With the exception of certain Series B Preferred Units issued in connection with the put exercise related to the Georgetown Loan (the “Georgetown Put”), the Series B Preferred Units are entitled to receive cash distributions at an annual rate equal to 7.5% of the Series B liquidation preference in preference to any distributions paid to common units. In December 2014, the parties amended the Second Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”) to provide that the Series B Preferred Units issued in connection with the Georgetown Put would receive cash distributions at a reduced annual rate equal to 6.0%. In addition, the preferred return for the Series B Preferred Units issued in connection with the Georgetown Put would be calculated based solely on the exercise put amount that has been funded. Effective August 31, 2016, the parties further amended the Partnership Agreement to provide that, on a go forward basis, distributions paid on the Series B Preferred Units issued in connection with the Georgetown Put would be calculated at an annual rate of 6.0% for 219,120 units and at an annual rate of 7.5% for 200,000 units. If the Operating Partnership is unable to pay cash distributions, distributions will be paid in kind at an annual rate of 10.0% of the Series B liquidation preference. After payment of the preferred distributions, additional distributions will be paid first to the common units until they have received an aggregate blended return equal to a weighted average interest rate determined taking into account the Series B Preferred Units receiving a 6.0% return and the Series B Preferred Units receiving a 7.5% return per unit in annual distributions commencing from February 10, 2013, and thereafter to the common units and Series B Preferred Units pro rata. For the three and six months ended June 30, 2017, the Operating Partnership paid distributions on the Series B Preferred Units in the amount of $2.9 million and $5.8 million, respectively. For the three and six months ended June 30, 2016, the Operating Partnership paid distributions on the Series B Preferred Units in the amount of $2.7 million and $5.3 million, respectively. Distributions Available to Common Stockholders The following are the distributions declared on our common stock during the six months ended June 30, 2017 and 2016:
Commencing with the declaration of distributions for daily record dates occurring in the second quarter of 2013 and thereafter, our board of directors has declared distributions on our common stock in amounts per share that, if declared and paid each day for a 365-day period, would equate to an annualized rate of $0.50 per share (5.00% based on the initial purchase price of our common stock of $10.00). On August 31, 2016 the board of directors adopted a Regular Quarterly Dividend Policy (the “Dividend Policy”), which documents the circumstances under which the board of directors may increase the regular quarterly dividend that may be paid to holders of the common stock of the Company (the “Regular Quarterly Dividend Rate”) from its current level of $0.125 per share without the consent of the Investor. The Dividend Policy provides that the Company may maintain the Regular Quarterly Dividend Rate at the current level and that the Company may also elect to reduce the Regular Quarterly Dividend Rate in its discretion. The policy expires on August 31, 2019. The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis. The amount of distributions will depend on our funds from operations, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant. |
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Earnings Per Share |
6 Months Ended | |
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Jun. 30, 2017 | ||
| Earnings Per Share [Abstract] | ||
| Earnings Per Share | 11. Earnings Per Share We report earnings (loss) per share pursuant to ASC Topic 260, “Earnings per Share.” Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of our common stock outstanding during the period. Diluted net earnings (loss) per common share attributable to common stockholders are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. The Series B Preferred Units give rise to potentially dilutive securities of our common stock. As of June 30, 2017 there were 1,586,260 Series B Preferred Units outstanding, but such units were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during these periods. |
Related Party Transactions |
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions | 12. Related Party Transactions Advisory Relationship with the Advisor We have been party to an Advisory Agreement with the Advisor since January 1, 2012. The Advisory Agreement has been renewed since 2012 for additional one-year terms commencing on January 1, 2013, January 1, 2014, January 1, 2015, January 1, 2016, and January 1, 2017, however, certain provisions of the Advisory Agreement have been amended as a result of the execution on February 10, 2013 of a Transition to Internal Management Agreement which was subsequently amended in April 2014, February 2015 and February 2017 (as amended, the “Transition Agreement”) with the Advisor and the Investor. Pursuant to the provisions of the Advisory Agreement, the Advisor is responsible for managing, operating, directing and supervising the operation of our company and its assets. Generally, the Advisor is responsible for providing us with (i) property acquisition, disposition and financing services, (ii) asset management and operational services, including real estate services and financial and administrative services, (iii) stockholder services, and (iv) in the event we conduct a public offering of our securities, offering-related services. The Advisor is subject to the supervision and ultimate authority of our board of directors and has a fiduciary duty to us and our stockholders. The Advisory Agreement with our Advisor and the terms of the Transition Agreement are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016. The fees payable to the Advisor under the advisory agreement for the three and six months ended June 30, 2017 and 2016 were as follows:
The Transition Agreement limits the amount of the fees payable under the Advisory Agreement. Specifically, notwithstanding the provisions of the Advisory Agreement, acquisition fees, financing coordination fees, asset management fees, property management and leasing fees, and disposition fees payable under the Advisory Agreement (collectively, the “Advisory Agreement Fees”) are limited to (1) $3.2 million plus an excess amount (the “Excess Amount”) of $3.6 million during the period from February 11, 2017 through February 10, 2018, and (2) $3.2 million plus any remaining portion of the Excess Amount during the period from February 11, 2018 through February 10, 2019. The maximum aggregate amount of such fees payable to the Advisor during these periods under the caps (the “Maximum Fee Amount”) will be $10.0 million. During the period from February 10, 2013 through February 10, 2015, and February 11, 2015 through February 10, 2017, the Advisory Agreement Fees were similarly capped, except that the Excess Amount was $3.2 million and as a result the Maximum Fee Amount was $9.6 million. In addition, solely with respect to any fees earned by the Advisor during the period from February 11, 2014 to February 10, 2015 in excess of the Maximum Fee Amount, such fees were included in fees payable during the one-year period from February 11, 2015 to February 10, 2016, subject to a maximum amount of $1.0 million. As of November 2015, the Advisor earned the Maximum Fee Amount of $9.6 million for the period from February 10, 2013 through February 10, 2016. As of December 31, 2016, the Advisor earned the maximum fee amount for February 11, 2016 through February 10, 2017 of $3.2 million. For the four fiscal quarters ended June 30, 2017, our management fees and expenses and operating expenses totaled did not exceed the greater of 2% of our average invested assets and 25% of our net income. KKR Equity Commitment Pursuant to the KKR Equity Commitment, we could issue and sell to the Investor and its affiliates on a private placement basis from time to time over a period of three years, up to $158.7 million in aggregate issuance amount of shares of newly issued Series C Preferred Stock and newly issued Series B Preferred Units to fund real estate acquisitions, a self-tender offer and the origination of a development loan. As a result of the transactions contemplated by the KKR Equity Commitment, the Investor beneficially owns an aggregate of 15,830,938 shares of common stock of the Company, which represent, in the aggregate, approximately, 57.8% of the outstanding shares of common stock as of June 30, 2017. As of June 30, 2017, pursuant to the terms of the KKR Equity Commitment, the Investor had purchased 1,000 newly issued Series C Preferred Stock and 1,586,260 newly issued Series B Preferred Units for an aggregate purchase price of $158.7 million. As of June 30, 2017 no Series B Preferred Units remain issuable under the KKR Equity Commitment. The terms of the KKR Equity Commitment are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016 |
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Commitments and Contingencies |
6 Months Ended | |
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Jun. 30, 2017 | ||
| Commitments and Contingencies [Abstract] | ||
| Commitments and Contingencies | 13. Commitments and Contingencies We monitor our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that we believe would have a material effect on our financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency. Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our condensed consolidated financial position, cash flows and results of operations. We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against the Company which if determined unfavorably to us would have a material adverse effect on our cash flows, financial condition or results of operations. Refer to Note 3 “Real Estate Note Receivable” for additional information on the remaining commitment to fund our real estate note receivable. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended | |
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Jun. 30, 2017 | ||
| Summary Of Significant Accounting Policies [Abstract] | ||
| Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the guidance for the consolidation of variable interest entities (“VIEs”), we analyze our variable interests, including investments in partnerships and joint ventures, to determine if the entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews, based on our review of the design of the entity, its organizational structure including decision-making ability, risk and reward sharing experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions and financial agreements. We also use quantitative and qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary. |
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| Interim Financial Information | Interim Financial Information The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited condensed consolidated financial statements and the notes thereto included on our 2016 Annual Report on Form 10-K, as filed with the SEC. |
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements Pending accounting standards In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, “Other Income: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, which defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new standard is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. We do not anticipate early adoption, however, we are evaluating the impact of adopting ASU 2017-05 on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. The amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact the adoption of ASU 2017-04 will have on our consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The guidance is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company is evaluating the effect that ASU 2017-01 will have on our consolidated financial statements and related disclosures. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which enhances the presentation requirements of restricted cash. The standard aims to unify presentation and minimize the diversity in practice. These presentation changes include increased disclosures surrounding the restrictions on cash and the inclusion of the restricted cash balance in the reconciliation completed at the end of the statement of cash flows. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company does not expect ASU 2016-18 to have a significant impact on our consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, which indicates that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. This ASU retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The new guidance will be effective for the Company beginning on January 1, 2019 and earlier adoption is permitted. The Company is evaluating the impact of the adoption of the new guidance on our financial statements. In 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018, pursuant to ASU 2015-09 which deferred the adoption date by one year. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has begun its process of assessing the impact of the guidance. To date the Company’s assessment efforts include the identification of various revenue streams within the scope of the guidance and the evaluation of certain lease contracts with tenants. Although the Company is still evaluating the revenue streams and the timing of recognition under the new model, as well as the related disclosure requirements, a significant change to our current revenue recognition policies is not expected as a substantial portion of our revenue consists of rental income from leasing arrangements, which is excluded from ASU 2014-09. The Company has not yet selected a transition method. |
Investments in Real Estate (Tables) |
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| Schedule Of Cost and Accumulated Depreciation and Amortization Related To Real Estate Assets and Related Lease Intangibles | As of June 30, 2017, cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
As of December 31, 2016, accumulated depreciation and amortization related to real estate assets and related lease intangibles were as follows:
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| Estimated Amortization | Estimated amortization for July 1, 2017 through December 31, 2017 and each of the subsequent years is as follows:
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Investments in Unconsolidated Entities (Tables) |
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| Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Equity Method Accounting | As of June 30, 2017, the Company owns interest in one entity that is accounted for under the equity method of accounting:
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| Schedule of Combined Financial Information For Unconsolidated Entities | Summarized combined financial information for the Company’s unconsolidated entities is as follows:
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Segment Reporting (Tables) |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of segment activity to consolidated net income (loss) | The following tables reconcile the segment activity to consolidated net income (loss) for the three and six months ended June 30, 2017 and 2016:
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| Reconciliation of segment activity to consolidated financial position | The following table reconciles the segment activity to consolidated financial position as of June 30, 2017 and December 31, 2016:
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Notes Payable (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principal payments due on notes payable | Principal payments due on our notes payable for July 1, 2017 to December 31, 2017 and each of the subsequent years is as follows:
|
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Stockholders' Equity (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of distributions declared | The following are the distributions declared on our common stock during the six months ended June 30, 2017 and 2016:
|
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Related Party Transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Party Transactions | The fees payable to the Advisor under the advisory agreement for the three and six months ended June 30, 2017 and 2016 were as follows:
|
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Organization (Details Textual) - USD ($) |
6 Months Ended | |
|---|---|---|
May 03, 2017 |
Jun. 30, 2017 |
|
| Organization [Line Items] | ||
| Percentage of interest owned | 57.80% | |
| Merger Agreement, Additional Per Share Consideration | $ 0.55 | |
| Business Combination, Contingent Consideration, Liability | $ 8.76 | |
| Minimum [Member] | ||
| Organization [Line Items] | ||
| Business Acquisition, Share Price | $ 14.37 | |
| Maximum [Member] | ||
| Organization [Line Items] | ||
| Business Acquisition, Share Price | $ 15.21 | |
| Sentio Investments, LLC [Member] | ||
| Organization [Line Items] | ||
| Formation date | December 20, 2011 | |
| Sentio Healthcare Properties OP, LP [Member] | ||
| Organization [Line Items] | ||
| Formation date | October 17, 2006 | |
| Operating Partnership and the HC Operating Partnership, LP [Member] | ||
| Organization [Line Items] | ||
| Percentage of interest owned | 100.00% |
Real Estate Note Receivable (Details Textual) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2017 |
Jan. 16, 2015 |
|
| Interest Income, Other | $ 0.8 | $ 1.5 | |
| Georgetown Loan [Member] | |||
| Debt Instrument, Face Amount | $ 41.9 | ||
| Debt Instrument, Interest Rate, Stated Percentage | 7.90% | 7.90% | |
| Loan Origination Fee Percent | 1.00% | ||
| Debt Instrument, Maturity Date, Description | on January 15, 2020 with one 12-month option to extend at the Company’s option | ||
| Secured Debt | $ 2.5 | $ 2.5 | |
| Loans Receivable | $ 39.4 | $ 39.4 |
Investments in Real Estate (Details) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
|---|---|---|---|---|---|
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Net | $ 470,325,000 | $ 475,004,000 | |||
| Land [Member] | |||||
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Cost | 48,146,000 | 48,146,000 | |||
| Accumulated depreciation and amortization | 0 | 0 | |||
| Net | 48,146,000 | 48,146,000 | |||
| Buildings and Improvements [Member] | |||||
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Cost | 456,322,000 | 440,985,000 | |||
| Accumulated depreciation and amortization | (52,217,000) | (45,485,000) | |||
| Net | 404,105,000 | 395,500,000 | |||
| Furniture, Fixtures and Vehicles [Member] | |||||
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Cost | 22,624,000 | 20,579,000 | |||
| Accumulated depreciation and amortization | (9,192,000) | (7,987,000) | |||
| Net | 13,432,000 | 12,592,000 | |||
| Construction in Progress [Member] | |||||
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Cost | 0 | [1] | 13,933,000 | ||
| Accumulated depreciation and amortization | 0 | [1] | 0 | ||
| Net | 0 | [1] | 13,933,000 | ||
| Intangible Lease Assets [Member] | |||||
| Cost and accumulated depreciation and amortization related to real estate assets and related lease intangibles | |||||
| Cost | 28,744,000 | 28,739,000 | |||
| Accumulated depreciation and amortization | (24,102,000) | (23,906,000) | |||
| Net | $ 4,642,000 | $ 4,833,000 | |||
| |||||
Investments in Real Estate (Details 1) |
Jun. 30, 2017
USD ($)
|
|---|---|
| Estimated amortization | |
| July 1, 2017 - December 31, 2017 | $ 192,000 |
| 2018 | 385,000 |
| 2019 | 292,000 |
| 2020 | 292,000 |
| 2021 | 287,000 |
| 2022 and thereafter | 3,194,000 |
| Intangible Assets | $ 4,642,000 |
Investments in Real Estate (Details Textual) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Property, Plant and Equipment [Line Items] | ||||
| Real Estate Accumulated Depreciation, Depreciation Expense | $ 4.0 | $ 3.7 | $ 7.9 | $ 7.3 |
| Finite-Lived Intangible Assets, Remaining Amortization Period | 17 years | |||
| Amortization associated with the intangible assets | $ 0.1 | $ 1.5 | $ 0.2 | $ 1.7 |
| Minimum [Member] | ||||
| Property, Plant and Equipment [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life | 2 years | |||
| Maximum [Member] | ||||
| Property, Plant and Equipment [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life | 20 years | |||
Investments in Unconsolidated Entities (Details) - Physicians Center MOB [Member] - Medical Office Building [Member] |
6 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Jun. 30, 2017
USD ($)
|
[1] | |||||
| Acquired | Apr. 30, 2012 | |||||
| Investment | $ 0 | [2] | ||||
| Ownership | 71.90% | |||||
| ||||||
Investments in Unconsolidated Entities (Details 1) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Equity Method Investment, Summarized Financial Information, Assets | $ 8,478,000 | $ 24,156,000 |
| Equity Method Investment Summarized Financial Information, Equity | (526,000) | 220,000 |
| Equity Method Investment, Summarized Financial Information, Liabilities and Equity | 8,478,000 | 24,156,000 |
| Cash and Cash Equivalents [Member] | ||
| Equity Method Investment, Summarized Financial Information, Assets | 46,000 | 688,000 |
| Investments In Real Estate Net [Member] | ||
| Equity Method Investment, Summarized Financial Information, Assets | 7,772,000 | 22,747,000 |
| Other Assets [Member] | ||
| Equity Method Investment, Summarized Financial Information, Assets | 660,000 | 721,000 |
| Notes Payable Net [Member] | ||
| Equity Method Investment, Summarized Financial Information, Liabilities | 8,655,000 | 23,193,000 |
| Accounts Payable and Accrued Liabilities [Member] | ||
| Equity Method Investment, Summarized Financial Information, Liabilities | 45,000 | 289,000 |
| Other Liabilities [Member] | ||
| Equity Method Investment, Summarized Financial Information, Liabilities | $ 304,000 | $ 454,000 |
Investments in Unconsolidated Entities (Details 2) - USD ($) |
3 Months Ended | 6 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
[1] | Jun. 30, 2016 |
|||
| Total revenues | $ 437,000 | $ 1,334,000 | $ 1,297,000 | $ 2,539,000 | |||
| Net income (loss) | 25,000 | (128,000) | 78,000 | (154,000) | |||
| Company’s equity in loss from unconsolidated entities | $ 0 | $ 105,000 | $ 27,000 | $ 222,000 | |||
| |||||||
Investments in Unconsolidated Entities (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Proceeds from Sale of Equity Method Investments | $ 2,000,000 | $ 0 | ||
| Equity Method Investment, Realized Gain (Loss) on Disposal | $ 0 | $ 0 | 1,534,000 | $ 0 |
| Buffalo Crossings [Member] | ||||
| Proceeds from Sale of Equity Method Investments | 2,000,000 | |||
| Equity Method Investment, Realized Gain (Loss) on Disposal | $ 1,500,000 | |||
Income Taxes (Details Textual) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
| Deferred State and Local Income Tax Expense (Benefit) | $ 0.5 | $ (0.3) | $ 0.4 | $ (0.9) | |
| Deferred Tax Assets, Net | 7.4 | $ 7.4 | $ 7.7 | ||
| Federal Statutory Authority [Member] | |||||
| Operating Loss Carryforwards Expiration, Description | which, if unused, begin to expire in 2035. | ||||
| Operating Loss Carryforwards | $ 1.9 | $ 1.9 | |||
Segment Reporting (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Reconciliation of segment activity to consolidated net income | ||||
| Rental revenue | $ 23,757,000 | $ 22,312,000 | $ 47,140,000 | $ 44,769,000 |
| Resident services and fee income | 8,164,000 | 8,087,000 | 16,397,000 | 16,442,000 |
| Tenant reimbursements and other income | 1,560,000 | 2,379,000 | 2,896,000 | 3,381,000 |
| Total revenues | 33,481,000 | 32,778,000 | 66,433,000 | 64,592,000 |
| Property operating and maintenance expenses | 21,900,000 | 20,562,000 | 43,526,000 | 41,048,000 |
| Net operating income | 11,581,000 | 12,216,000 | 22,907,000 | 23,544,000 |
| General and administrative | 3,943,000 | 405,000 | 5,542,000 | 1,096,000 |
| Asset management fees | 1,679,000 | 1,696,000 | 2,608,000 | 2,679,000 |
| Depreciation and amortization | 4,068,000 | 5,161,000 | 8,101,000 | 8,954,000 |
| Interest expense, net | 4,439,000 | 3,791,000 | 8,761,000 | 7,632,000 |
| Change in fair value of contingent consideration | (3,699,000) | 129,000 | (3,699,000) | 306,000 |
| Equity in (income) loss from unconsolidated entities | (50,000) | 68,000 | (72,000) | 128,000 |
| Gain on disposition of investment in unconsolidated entity | 0 | 0 | (1,534,000) | 0 |
| Income tax expense (benefit) | 535,000 | (298,000) | 437,000 | (900,000) |
| Net income | 666,000 | 1,264,000 | 2,763,000 | 3,649,000 |
| Preferred return to series B preferred OP units and other noncontrolling interests | 3,029,000 | 2,904,000 | 6,054,000 | 5,618,000 |
| Net loss attributable to common stockholders | (2,363,000) | (1,640,000) | (3,291,000) | (1,969,000) |
| Senior living operations [Member] | ||||
| Reconciliation of segment activity to consolidated net income | ||||
| Rental revenue | 20,791,000 | 20,410,000 | 41,229,000 | 40,331,000 |
| Resident services and fee income | 8,164,000 | 8,087,000 | 16,397,000 | 16,442,000 |
| Tenant reimbursements and other income | 1,221,000 | 687,000 | 2,226,000 | 1,406,000 |
| Total revenues | 30,176,000 | 29,184,000 | 59,852,000 | 58,179,000 |
| Property operating and maintenance expenses | 21,548,000 | 19,982,000 | 42,843,000 | 40,177,000 |
| Net operating income | 8,628,000 | 9,202,000 | 17,009,000 | 18,002,000 |
| Triple-net leased properties [Member] | ||||
| Reconciliation of segment activity to consolidated net income | ||||
| Rental revenue | 2,758,000 | 1,673,000 | 5,496,000 | 4,003,000 |
| Resident services and fee income | 0 | 0 | 0 | 0 |
| Tenant reimbursements and other income | 259,000 | 1,614,000 | 509,000 | 1,819,000 |
| Total revenues | 3,017,000 | 3,287,000 | 6,005,000 | 5,822,000 |
| Property operating and maintenance expenses | 271,000 | 468,000 | 524,000 | 679,000 |
| Net operating income | 2,746,000 | 2,819,000 | 5,481,000 | 5,143,000 |
| MOB [Member] | ||||
| Reconciliation of segment activity to consolidated net income | ||||
| Rental revenue | 208,000 | 229,000 | 415,000 | 435,000 |
| Resident services and fee income | 0 | 0 | 0 | 0 |
| Tenant reimbursements and other income | 80,000 | 78,000 | 161,000 | 156,000 |
| Total revenues | 288,000 | 307,000 | 576,000 | 591,000 |
| Property operating and maintenance expenses | 81,000 | 112,000 | 159,000 | 192,000 |
| Net operating income | $ 207,000 | $ 195,000 | $ 417,000 | $ 399,000 |
Segment Reporting (Details 1) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|---|---|
| Investment in real estate: | ||||
| Total reportable segments | $ 509,705,000 | $ 509,185,000 | ||
| Reconciliation to consolidated assets: | ||||
| Cash and cash equivalents | 34,958,000 | 34,921,000 | $ 27,642,000 | $ 22,801,000 |
| Investment in unconsolidated entities | 0 | 493,000 | ||
| Tenant and other receivables, net | 6,939,000 | 5,949,000 | ||
| Deferred costs and other assets | 9,145,000 | 9,973,000 | ||
| Restricted cash | 6,663,000 | 7,777,000 | ||
| Goodwill | 5,965,000 | 5,965,000 | ||
| Total assets | 573,375,000 | 574,263,000 | ||
| Senior living operations [Member] | ||||
| Investment in real estate: | ||||
| Total reportable segments | 410,579,000 | 410,007,000 | ||
| Reconciliation to consolidated assets: | ||||
| Goodwill | 6,000,000 | 6,000,000 | ||
| Triple-net leased properties [Member] | ||||
| Investment in real estate: | ||||
| Total reportable segments | 92,227,000 | 92,112,000 | ||
| MOB [Member] | ||||
| Investment in real estate: | ||||
| Total reportable segments | $ 6,899,000 | $ 7,066,000 |
Segment Reporting (Details Textual) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Segment Reporting Information [Line Items] | ||
| Goodwill | $ 5,965,000 | $ 5,965,000 |
| Senior living operations [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Goodwill | $ 6,000,000 | $ 6,000,000 |
Fair Value Measurements (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2017 |
Dec. 31, 2016 |
|
| Notes Payable carrying Value | $ 375,742,000 | $ 375,742,000 | $ 370,100,000 |
| Notes Payable net of discount and prmium | 372,073,000 | 372,073,000 | 366,097,000 |
| Liabilities, Fair Value Adjustment | 3,700,000 | 3,700,000 | |
| Sumter Grand [Member] | |||
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other | 0 | $ 0 | |
| Armbrook Village [Member] | |||
| Change In Fair Value of Liabilities Discount Rate Percentage | 9.00% | ||
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other | 1,700,000 | $ 1,700,000 | |
| Fair Value, Inputs, Level 2 [Member] | |||
| Notes Payable carrying Value | $ 374,100,000 | $ 374,100,000 | $ 369,200,000 |
Notes Payable (Details) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Principal payments due on notes payable | ||
| Principal amount | $ 375,742,000 | $ 370,100,000 |
| Less: Deferred financing costs | 3,503,000 | 3,800,000 |
| Less: Discount | 166,000 | |
| Notes payable | 372,073,000 | $ 366,097,000 |
| July 1, 2017 - December 31, 2017 [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | 2,011,000 | |
| 2018 [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | 28,978,000 | |
| 2019 [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | 133,529,000 | |
| 2020 [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | 69,632,000 | |
| 2021 [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | 18,525,000 | |
| 2022 and thereafter [Member] | ||
| Principal payments due on notes payable | ||
| Principal amount | $ 123,067,000 |
Notes Payable (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
| Notes Payable (Additional Textual) [Abstract] | |||||
| Notes payable | $ 372,073,000 | $ 372,073,000 | $ 366,097,000 | ||
| Fixed rate debt | $ 223,400,000 | $ 223,400,000 | $ 219,600,000 | ||
| Fixed rate debt, notes payable | 59.00% | 59.00% | 59.00% | ||
| Variable rate debt | $ 152,300,000 | $ 152,300,000 | $ 150,500,000 | ||
| Variable rate debt, notes payable | 41.00% | 41.00% | 41.00% | ||
| Fixed and variable rate secured mortgage loans with average effective interest rate | 4.42% | 4.42% | |||
| Fixed rate debt, weighted average interest rate | 4.79% | 4.79% | 4.78% | ||
| Variable rate debt, weighted average interest rate | 3.86% | 3.86% | 3.41% | ||
| Deferred Finance Costs, Net | $ 3,503,000 | $ 3,503,000 | $ 3,800,000 | ||
| Interest Expense Deferred Financing Cost | 4,400,000 | $ 3,800,000 | 8,800,000 | $ 7,600,000 | |
| Notes Payable Carrying Value | $ 375,742,000 | $ 375,742,000 | $ 370,100,000 | ||
| Maximum [Member] | |||||
| Notes Payable (Additional Textual) [Abstract] | |||||
| Fixed rate debt, notes payable | 6.43% | 6.43% | |||
| Minimum [Member] | |||||
| Notes Payable (Additional Textual) [Abstract] | |||||
| Fixed rate debt, notes payable | 2.80% | 2.80% | |||
Stockholders' Equity (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Mar. 31, 2017 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||
| Summary of distributions declared | |||||||||||||
| Distributions Declared, Cash | [1],[2] | $ 1,439,000 | $ 1,329,000 | $ 1,343,000 | $ 1,342,000 | $ 2,768,000 | $ 2,685,000 | ||||||
| Distributions Declared, Reinvested | [1],[2],[3] | 0 | 94,000 | 88,000 | 89,000 | 94,000 | 177,000 | ||||||
| Distributions Declared, Total | [1],[2] | 1,439,000 | 1,423,000 | 1,431,000 | 1,431,000 | 2,862,000 | 2,862,000 | ||||||
| Cash Flow From Operations | $ 3,788,000 | $ 4,541,000 | $ 4,607,000 | $ 6,871,000 | $ 8,329,000 | $ 11,478,000 | |||||||
| |||||||||||||
Stockholders' Equity (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2016 |
Jun. 19, 2013 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
Mar. 23, 2016 |
Feb. 28, 2014 |
Jun. 30, 2013 |
|
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Common stock, shares authorized | 580,000,000 | 580,000,000 | 580,000,000 | |||||||
| Common stock, par value | $ 0.01 | $ 0.01 | $ 0.01 | |||||||
| Percentage of annualized rate | 5.00% | |||||||||
| Annualized rate per share | $ 0.50 | |||||||||
| Common Stock Reinvested | 13,400,000 | 13,400,000 | ||||||||
| Proceeds from Issuance of Preferred Stock and Preference Stock | $ 158,700,000 | |||||||||
| Gross Proceeds From Common Stock | $ 133,800,000 | $ 133,800,000 | $ 133,500,000 | |||||||
| Common Stock To Be Offered Shares Dividend Reinvestment Plan | $ 99,000,000 | |||||||||
| Stock Issued During Period, Shares, Dividend Reinvestment Plan | 656,963 | 642,075 | ||||||||
| Net Ordinary Taxable Income | 90.00% | |||||||||
| Stock Issued During Period, Value, New Issues | $ 185,000 | |||||||||
| Sale of Stock, Price Per Share | $ 10.02 | $ 10.00 | ||||||||
| Dividends Payable, Amount Per Share | $ 0.125 | $ 0.125 | ||||||||
| Proceeds from Issuance of Convertible Preferred Stock | $ 158,700,000 | |||||||||
| Preferred Stock [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 | 20,000,000 | |||||||
| Preferred stock, par value | $ 0.01 | $ 0.01 | $ 0.01 | |||||||
| Stock Issued During Period, Shares, New Issues | 0 | |||||||||
| Stock Issued During Period, Value, New Issues | $ 0 | |||||||||
| Distribution Reinvestment Plan [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Sale of Stock, Price Per Share | $ 12.45 | $ 11.63 | ||||||||
| Series B [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Dividends, Preferred Stock, Cash | $ 2,900,000 | $ 2,700,000 | $ 5,800,000 | $ 5,300,000 | ||||||
| Series B Preferred Stock [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Percentage of annualized rate | 7.50% | 7.50% | ||||||||
| Preferred Stock Convertible Number Of Equity Instruments | 15,830,938 | 15,830,938 | ||||||||
| Construction Loan Originations Percentage | 6.00% | 6.00% | ||||||||
| Preferred Stock Liquidation Preference Percentage | 10.00% | 10.00% | ||||||||
| Stock Issued During Period, Value, New Issues | $ 158,700,000 | $ 158,700,000 | ||||||||
| Stock Issued During Period, Shares, Conversion of Units | 1,586,260 | |||||||||
| Series B Preferred Stock [Member] | Georgetown Loan [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Preferred Stock, Dividend Rate, Percentage | 6.00% | |||||||||
| Series B Preferred Stock [Member] | Georgetown Loan [Member] | Issue One [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Stock Issued During Period, Shares, New Issues | 219,120 | |||||||||
| Series B Preferred Stock [Member] | Georgetown Loan [Member] | Issue Two [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Stock Issued During Period, Shares, New Issues | 200,000 | |||||||||
| Preferred Stock, Dividend Rate, Percentage | 7.50% | |||||||||
| Series B Preferred Stock [Member] | KKR Equity Commitment [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Proceeds from Issuance of Preferred Stock and Preference Stock | $ 600,000 | $ 1,700,000 | ||||||||
| Stock Issued During Period, Shares, New Issues | 1,586,260 | |||||||||
| Series B Preferred Stock [Member] | Series B [Member] | Georgetown Loan [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Preferred Stock, Dividend Rate, Percentage | 7.50% | |||||||||
| Series C Preferred Stock [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Preferred stock, shares authorized | 1,000 | 1,000 | 1,000 | |||||||
| Preferred stock, par value | $ 0.01 | $ 0.01 | $ 0.01 | |||||||
| Percentage of annualized rate | 3.00% | 3.00% | ||||||||
| Stock Issued During Period, Shares, Other | 1,000 | 1,000 | ||||||||
| Series C Preferred Stock [Member] | KKR Equity Commitment [Member] | ||||||||||
| Stockholders' Equity (Textual) [Abstract] | ||||||||||
| Stock Issued During Period, Shares, New Issues | 1,000 | |||||||||
Earnings Per Share (Details Textual) |
6 Months Ended |
|---|---|
|
Jun. 30, 2017
shares
| |
| Series B Preferred Stock [Member] | |
| Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | |
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 1,586,260 |
Related Party Transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Asset Management Fees | $ 1,679,000 | $ 1,696,000 | $ 2,608,000 | $ 2,679,000 |
Related Party Transactions (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Percentage of average invested assets | 2.00% | ||||
| Percentage of net income | 25.00% | ||||
| Asset Management Fees | $ 1,679,000 | $ 1,696,000 | $ 2,608,000 | $ 2,679,000 | |
| Stock Issued During Period, Value, New Issues | $ 185,000 | ||||
| Management Fees, Amount Payable Terms | The Transition Agreement limits the amount of the fees payable under the Advisory Agreement. Specifically, notwithstanding the provisions of the Advisory Agreement, acquisition fees, financing coordination fees, asset management fees, property management and leasing fees, and disposition fees payable under the Advisory Agreement (collectively, the “Advisory Agreement Fees”) are limited to (1) $3.2 million plus an excess amount (the “Excess Amount”) of $3.6 million during the period from February 11, 2017 through February 10, 2018, and (2) $3.2 million plus any remaining portion of the Excess Amount during the period from February 11, 2018 through February 10, 2019. The maximum aggregate amount of such fees payable to the Advisor during these periods under the caps (the “Maximum Fee Amount”) will be $10.0 million. During the period from February 10, 2013 through February 10, 2015, and February 11, 2015 through February 10, 2017, the Advisory Agreement Fees were similarly capped, except that the Excess Amount was $3.2 million and as a result the Maximum Fee Amount was $9.6 million. In addition, solely with respect to any fees earned by the Advisor during the period from February 11, 2014 to February 10, 2015 in excess of the Maximum Fee Amount, such fees were included in fees payable during the one-year period from February 11, 2015 to February 10, 2016, subject to a maximum amount of $1.0 million. As of November 2015, the Advisor earned the Maximum Fee Amount of $9.6 million for the period from February 10, 2013 through February 10, 2016. As of December 31, 2016, the Advisor earned the maximum fee amount for February 11, 2016 through February 10, 2017 of $3.2 million. | ||||
| Advisory Agreement [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Asset Management Fees | $ 3,200,000 | ||||
| Common Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Stock Issued During Period, Value, New Issues | $ 0 | ||||
| Stock Issued During Period, Shares, New Issues | 14,888 | ||||
| Series B Preferred Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Stock Issued During Period, Value, New Issues | $ 158,700,000 | $ 158,700,000 | |||
| KKR Equity Commitment [Member] | Common Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Investment Owned, Balance, Shares | 15,830,938 | 15,830,938 | |||
| Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners | 57.80% | 57.80% | |||
| KKR Equity Commitment [Member] | Series C And Series B Preferred Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Stock Issued During Period, Value, New Issues | $ 158,700,000 | ||||
| Equity Interests Issued Or Issuable Amount | $ 158,700,000 | $ 158,700,000 | |||
| KKR Equity Commitment [Member] | Series C Preferred Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Stock Issued During Period, Shares, New Issues | 1,000 | ||||
| KKR Equity Commitment [Member] | Series B Preferred Stock [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Stock Issued During Period, Shares, New Issues | 1,586,260 | ||||
| Transition to Internal Management Agreement [Member] | Purchase Agreements [Member] | |||||
| Related Party Transactions (Additional Textual) [Abstract] | |||||
| Investment Advisory, Management and Administrative Fees | $ 10,000,000 | ||||