Acquisitions |
Real Estate Investment Properties — During the nine months
ended September 30, 2014, the Company acquired the following
22 properties, which were comprised of 13 senior housing
communities, three medical office buildings (“MOB”),
three post-acute care hospitals, and three acute care
hospitals:
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Name and Location
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Structure |
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Date
Acquired |
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Purchase Price
(in thousands) |
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Acute Care
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Houston Orthopedic & Spine Hospital
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Triple-net Lease |
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6/2/2014 |
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$ |
49,000 |
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Bellaire, TX (“Houston”)
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Medical Portfolio II Properties
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Hurst Specialty Hospital
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Modified Lease |
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8/15/2014 |
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29,465 |
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Hurst, TX (“Dallas/Fort Worth”)
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Beaumont Specialty Hospital
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Modified Lease |
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8/15/2014 |
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33,600 |
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Beaumont, TX (“Houston”)
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Medical Office
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Chula Vista Medical Arts Center - Plaza I
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Modified Lease |
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1/21/2014 |
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17,863 |
(1) |
Chula Vista, CA (“San Diego”)
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Houston Orthopedic & Spine Hospital Medical Office
Building
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Modified Lease |
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6/2/2014 |
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27,000 |
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Bellaire, TX (“Houston”)
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Lee Hughes Medical Building
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Modified Lease |
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9/29/2014 |
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29,870 |
(1) |
Glendale, CA (“Los Angeles”)
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Post-Acute Care
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Medical Portfolio II Properties
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Oklahoma City Inpatient Rehabilitation Hospital
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Modified Lease |
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7/15/2014 |
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25,504 |
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Oklahoma City, OK
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Las Vegas Inpatient Rehabilitation Hospital
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Modified Lease |
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7/15/2014 |
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22,292 |
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Las Vegas, NV
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South Bend Inpatient Rehabilitation Hospital
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Modified Lease |
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7/15/2014 |
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20,240 |
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Mishawaka, IN (“South Bend”)
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Senior Housing
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Pacific Northwest II Communities
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Prestige Senior Living Auburn Meadows
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Managed |
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2/3/2014 |
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21,930 |
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Auburn, WA (“Seattle”)
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Prestige Senior Living Bridgewood
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Managed |
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2/3/2014 |
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22,096 |
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Vancouver, WA (“Portland”)
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Prestige Senior Living Monticello Park
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Managed |
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2/3/2014 |
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27,360 |
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Longview, WA
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Prestige Senior Living Rosemont
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Managed |
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2/3/2014 |
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16,877 |
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Yelm, WA
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Prestige Senior Living West Hills
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Managed |
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3/3/2014 |
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14,986 |
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Corvallis, OR
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South Bay II Communities
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Isle at Cedar Ridge
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Managed |
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2/28/2014 |
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21,630 |
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Cedar Park, TX (“Austin”)
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HarborChase of Plainfield
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Managed |
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3/28/2014 |
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26,500 |
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Plainfield, IL
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Legacy Ranch Alzheimer’s Special Care Center
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Managed |
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3/28/2014 |
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11,960 |
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Midland, TX
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The Springs Alzheimer’s Special Care Center
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Managed |
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3/28/2014 |
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10,920 |
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San Angelo, TX
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Isle at Watercrest – Bryan
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Managed |
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4/21/2014 |
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22,050 |
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Bryan, TX
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Watercrest at Bryan
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Managed |
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4/21/2014 |
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28,035 |
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Bryan, TX
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Isle at Watercrest – Mansfield
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Managed |
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5/5/2014 |
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31,300 |
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Mansfield, TX (“Dallas/Fort Worth”)
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Watercrest at Mansfield
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Managed |
|
|
6/30/2014 |
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49,000 |
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Mansfield, TX (“Dallas/Fort Worth”)
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$ |
559,478 |
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|
FOOTNOTE:
(1) |
This represents a single property
acquisition that is not considered material to the Company and as
such no pro forma financial information has been included related
to this property. |
During the nine months ended September 30, 2013, the Company
acquired the following properties, which were comprised of 13
medical office buildings, six post-acute care facilities, three
senior housing communities, and one acute care hospital:
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Name and Location
|
|
Structure |
|
Date
Acquired |
|
|
Purchase Price (in thousands) |
|
Acute Care
|
|
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|
Medical Portfolio I Properties
|
|
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Doctors Specialty Hospital
|
|
Modified Lease |
|
|
8/16/2013 |
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|
$ |
10,003 |
|
Leawood, KS (“Kansas City”)
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Medical Office
|
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LaPorte Cancer Center
|
|
Modified Lease |
|
|
6/14/2013 |
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13,100 |
|
Westville, IN
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Knoxville Medical Office Properties
|
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Physicians Plaza A at North Knoxville Medical Center
|
|
Modified Lease |
|
|
7/10/2013 |
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18,124 |
|
Powell, TN (“Knoxville”)
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Physicians Plaza B at North Knoxville Medical Center
|
|
Modified Lease |
|
|
7/10/2013 |
|
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21,800 |
|
Powell, TN (“Knoxville”)
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Jefferson Medical Commons
|
|
Modified Lease |
|
|
7/10/2013 |
|
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11,616 |
|
Jefferson City, TN (“Knoxville”)
|
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Physicians Regional Medical Center - Central Wing Annex
|
|
Modified Lease |
|
|
7/10/2013 |
|
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5,775 |
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Knoxville, TN
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Medical Portfolio I Properties
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John C. Lincoln Medical Office Plaza I
|
|
Modified Lease |
|
|
8/16/2013 |
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4,420 |
|
Phoenix, AZ
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John C. Lincoln Medical Office Plaza II
|
|
Modified Lease |
|
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8/16/2013 |
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3,106 |
|
Phoenix, AZ
|
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North Mountain Medical Plaza
|
|
Modified Lease |
|
|
8/16/2013 |
|
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6,185 |
|
Phoenix, AZ
|
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Escondido Medical Arts Center
|
|
Modified Lease |
|
|
8/16/2013 |
|
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15,602 |
|
Escondido, CA (“San Diego”)
|
|
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|
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Chestnut Commons Medical Office Building
|
|
Modified Lease |
|
|
8/16/2013 |
|
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20,205 |
|
Elyria, OH (“Cleveland”)
|
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Calvert Medical Office Properties
|
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Calvert Medical Office Buildings I, II, III
|
|
Modified Lease |
|
|
8/30/2013 |
|
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16,409 |
|
Prince Frederick, MD (“Washington D.C.”)
|
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Calvert Medical Arts Center
|
|
Modified Lease |
|
|
8/30/2013 |
|
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19,320 |
|
Prince Frederick, MD (“Washington D.C.”)
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Dunkirk Medical Center
|
|
Modified Lease |
|
|
8/30/2013 |
|
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4,617 |
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Dunkirk, MD (“Washington D.C.”)
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Post-Acute Care
|
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Perennial Communities
|
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Batesville Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
6,206 |
|
Batesville, AR
|
|
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|
|
|
|
|
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|
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Broadway Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
11,799 |
|
West Memphis, AR
|
|
|
|
|
|
|
|
|
|
|
Jonesboro Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
15,232 |
|
Jonesboro, AR
|
|
|
|
|
|
|
|
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|
|
Magnolia Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
11,847 |
|
Magnolia, AR
|
|
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|
|
|
|
|
|
|
|
Mine Creek Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
3,373 |
|
Nashville, AR
|
|
|
|
|
|
|
|
|
|
|
Searcy Healthcare Center
|
|
Triple-net Lease |
|
|
5/31/2013 |
|
|
|
7,898 |
|
Searcy, AR
|
|
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|
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|
|
|
|
|
|
|
|
Senior Housing
|
|
|
|
|
|
|
|
|
|
|
HarborChase of Jasper
|
|
Managed |
|
|
8/1/2013 |
|
|
|
7,300 |
|
Jasper, AL
|
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South Bay I Communities
|
|
|
|
|
|
|
|
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|
|
Raider Ranch
|
|
Managed |
|
|
8/29/2013 |
|
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55,000 |
|
Lubbock, TX
|
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|
|
|
|
|
|
|
|
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Town Village
|
|
Managed |
|
|
8/29/2013 |
|
|
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22,500 |
|
Oklahoma City, OK
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
311,437 |
|
|
|
|
|
|
|
|
|
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|
The following summarizes the purchase price allocation for the
above properties, and the estimated fair values of the assets
acquired and liabilities assumed (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2014 |
|
|
September 30,
2013 |
|
Land and land improvements
|
|
$ |
46,064 |
|
|
$ |
13,086 |
|
Buildings and building improvements
|
|
|
442,887 |
|
|
|
263,516 |
|
Furniture, fixtures and equipment
|
|
|
10,014 |
|
|
|
5,135 |
|
Intangibles (1)
|
|
|
67,431 |
|
|
|
33,138 |
|
Other liabilities
|
|
|
(8,718 |
) |
|
|
(2,931 |
) |
Mortgage note payable assumed (2)
|
|
|
(27,657 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
530,021 |
|
|
|
311,944 |
|
Contingent purchase price consideration
|
|
|
(12,395 |
) |
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
Total purchase price consideration
|
|
$ |
517,626 |
|
|
$ |
311,437 |
|
|
|
|
|
|
|
|
|
|
FOOTNOTES:
(1) |
At the acquisition date, the
weighted-average amortization period on the acquired lease
intangibles for the nine months ended September 30, 2014 and
2013 was approximately 7.1 years and 6.5 years, respectively. The
acquired lease intangibles during the nine months ended
September 30, 2014 were comprised of approximately $61.4
million and $6.0 million of in-place lease intangibles and other
lease intangibles, respectively, and the acquired lease intangibles
during the nine months ended September 30, 2013 were comprised
of approximately $25.8 million and $7.3 million of in-place lease
intangibles and other lease intangibles, respectively. |
(2) |
At the acquisition date, the fair
value of the mortgage note payable assumed reflects an approximate
$0.4 million premium on the above-market mortgage note payable
assumed. |
The revenues and net loss (including deductions for acquisition
fees and expenses and depreciation and amortization expense)
attributable to the acquired properties included in the
Company’s condensed consolidated statements of operations
were approximately $19.8 million and $4.7 million, respectively,
and $36.5 million and $15.3 million, respectively, for the quarter
and nine months ended September 30, 2014; and approximately
$5.9 million and $2.3 million, respectively, and $6.5 million and
$3.9 million, respectively, for the quarter and nine months ended
September 30, 2013.
The following table presents the unaudited pro forma results of
operations for the Company as if each of the properties were
acquired as of January 1, 2013 and owned during the quarter
and nine months ended September 30, 2014 and 2013 (in
thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
Quarter Ended
September 30, |
|
|
(Unaudited)
Nine Months Ended
September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Revenues
|
|
$ |
50,724 |
|
|
$ |
36,188 |
|
|
$ |
146,933 |
|
|
$ |
105,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
(1)
|
|
$ |
(8,963 |
) |
|
$ |
2,326 |
|
|
$ |
(29,640 |
) |
|
$ |
(20,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock (basic and diluted)
|
|
$ |
(0.10 |
) |
|
$ |
0.04 |
|
|
$ |
(0.33 |
) |
|
$ |
(0.39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding
(basic and diluted) (2)
|
|
|
93,530 |
|
|
|
62,864 |
|
|
|
88,840 |
|
|
|
52,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOOTNOTES:
(1) |
The unaudited pro forma results for
the quarter and nine months ended September 30, 2014, were
adjusted to exclude approximately $3.1 million and $13.8 million,
respectively, of acquisition related expenses directly attributable
to the properties acquired during the quarter and nine months ended
September 30, 2014. The unaudited pro forma results for the
nine months ended September 30, 2013 were adjusted to include
the approximate $13.8 million of acquisition related expenses, as
if the properties acquired during the nine months ended
September 30, 2014 had been acquired on January 1, 2013.
The unaudited pro forma results for the quarter and nine months
ended September 30, 2013 were adjusted to exclude
approximately $6.3 million and $8.3 million, respectively, of
acquisition related expenses directly attributable to the
properties acquired during the quarter and nine months ended
September 30, 2013. |
(2) |
As a result of the acquired
properties being treated as operational since January 1, 2013,
the Company assumed approximately 18.1 million shares were
issued as of January 1, 2013. Consequently the weighted
average shares outstanding was adjusted to reflect this amount of
shares being issued on January 1, 2013 instead of actual dates
on which the shares were issued, and such shares were treated as
outstanding as of the beginning of the period presented. |
Real Estate Under Development — In February 2014, the Company
acquired a tract of land in Tega Cay, South Carolina for $2.8
million (“Wellmore of Tega Cay”), which is a suburb of
Charlotte, North Carolina. In connection with the acquisition, the
Company entered into a development agreement with a third party
developer for the construction and development of a continuing care
retirement community with a maximum development budget of
approximately $35.6 million, including the allocated purchase price
of the land. The Company determined that Wellmore of Tega Cay is a
VIE because it believes there is insufficient equity at risk due to
the development nature of the property. The Company is the primary
beneficiary while the developer or its affiliates manage the
development, construction and certain day-to-day operations of the
property subject to the Company’s oversight. Under a promoted
interest agreement with the developer, certain net operating income
targets have been established which, upon meeting such targets,
result in the developer being entitled to additional payments based
on enumerated percentages of the assumed net proceeds of a deemed
sale, subject to achievement of an established internal rate of
return on the Company’s investment in the development.
In June 2014, the Company entered into a joint venture agreement
with a third party and acquired a 95% membership interest in a
tract of land in Katy, Texas for $4.0 million (“Watercrest at
Katy”), which is a suburb of Houston, Texas. The joint
venture plans to construct and develop an independent living
community with a maximum development budget of approximately $38.2
million, including the allocated purchase price of the land. The
Company determined that Watercrest at Katy is a VIE because it
believes there is insufficient equity at risk due to the
development nature of the joint venture. The Company is the primary
beneficiary and managing member while the joint venture partner or
its affiliates manage the development, construction and certain
day-to-day operations of the property subject to the
Company’s oversight. Refer to Note 13, “Equity –
Redeemable Noncontrolling Interest,” for additional
information on a put option held by the joint venture partner.
Pursuant to the joint venture agreement, distributions of operating
cash flow will be distributed pro rata based on each member’s
ownership interest until the members of the joint venture receive a
specified minimum return on their invested capital, and thereafter,
the joint venture partner will receive a disproportionately higher
share of any remaining proceeds at varying levels based on the
Company having received certain minimum threshold returns.
In July 2014, the Company acquired a tract of land in Shorewood,
Wisconsin for $2.2 million (“HarborChase of
Shorewood”), which is a suburb of Milwaukee, Wisconsin. In
connection with the acquisition, the Company entered into a
development agreement with a third party developer for the
construction and development of an assisted living and memory care
community with a maximum development budget of approximately $25.6
million, including the allocated purchase price of the land. The
Company determined that HarborChase of Shorewood is a VIE because
it believes there is insufficient equity at risk due to the
development nature of the property. The Company is the primary
beneficiary while the developer or its affiliates manage the
development, construction and certain day-to-day operations of the
property subject to the Company’s oversight. Under a promoted
interest agreement with the developer, certain net operating income
targets have been established which, upon meeting such targets,
result in the developer being entitled to additional payments based
on enumerated percentages of the assumed net proceeds of a deemed
sale, subject to achievement of an established internal rate of
return on the Company’s investment in the development.
Purchase of Controlling Interest in Montecito Joint Venture
— In
January 2013, the Company acquired a 90% membership interest in a
two-story MOB in Claremont, California for approximately $7.0
million in equity through a joint venture (“Montecito Joint
Venture”) formed by the Company and its co-venture partner,
an unrelated party, that initially held the remaining 10% interest.
The Montecito Joint Venture was previously recorded under the
equity method of accounting because the decisions that
significantly impacted the entity were shared between the Company
and its co-venture partner.
In August 2014, the Company acquired its co-venture partner’s
10% interest in the Montecito Joint Venture for approximately $1.6
million. As a result of this transaction, the Company owns 100% of
the Montecito Joint Venture, and began consolidating all of the
assets, liabilities and results of operations in the
Company’s consolidated financial statements upon acquisition.
Accordingly, the Company recorded a step up from its carrying value
of the investment in the Montecito Joint Venture to the estimated
fair value of the net assets acquired and liabilities assumed. The
following summarizes the allocation of the purchase price, and the
estimated fair values of the assets acquired and liabilities
assumed as of the acquisition date (in thousands):
|
|
|
|
|
Land and land improvements
|
|
$ |
6,135 |
|
Buildings and building improvements
|
|
|
13,728 |
|
Intangibles (1)
|
|
|
2,677 |
|
Working capital, net
|
|
|
87 |
|
Other liabilities
|
|
|
(167 |
) |
Mortgage note payable assumed (2)
|
|
|
(12,331 |
) |
|
|
|
|
|
Net assets acquired
|
|
$ |
10,129 |
|
|
|
|
|
|
FOOTNOTES:
(1) |
At the acquisition date, the
weighted-average amortization period on the acquired lease
intangibles was approximately 5.1 years and was comprised of
approximately $1.9 million and $0.6 million of in-place lease
intangibles and other lease intangibles, respectively. |
(2) |
At the acquisition date, the fair
value of the mortgage note payable assumed reflects an approximate
$0.6 million discount on the below-market mortgage note payable
assumed. |
The fair value of the Company’s equity interest in the
Montecito Joint Venture immediately before the acquisition date was
approximately $5.7 million. The Company recorded a gain of
approximately $2.8 million based on the acquisition-date fair value
of its equity interest in the Montecito Joint Venture. The
following summarizes the gain that resulted from the change of
control in the equity method investment for the quarter and nine
months ended September 30, 2014 (in thousands):
|
|
|
|
|
Fair value of net assets acquired
|
|
$ |
10,129 |
|
Less: Previous investment in Montecito Joint Venture
|
|
|
(5,747 |
) |
Less: Cash paid to acquire co-venture partner’s interest
|
|
|
(1,584 |
) |
|
|
|
|
|
Gain on purchase of controlling interest of investment in
unconsolidated entity
|
|
$ |
2,798 |
|
|
|
|
|
|
Refer to Note 8, “Unconsolidated Entities,” for
additional information on the Montecito Joint Venture prior to the
Company’s purchase of the controlling interest in August
2014.
|