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Acquisitions
9 Months Ended
Sep. 30, 2014
Acquisitions
3. 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:

 

Name and Location

   Structure    Date
Acquired
     Purchase Price
(in thousands)
 

Acute Care

        

Houston Orthopedic & Spine Hospital

   Triple-net Lease      6/2/2014       $ 49,000   

Bellaire, TX (“Houston”)

        

Medical Portfolio II Properties

        

Hurst Specialty Hospital

   Modified Lease      8/15/2014         29,465   

Hurst, TX (“Dallas/Fort Worth”)

        

Beaumont Specialty Hospital

   Modified Lease      8/15/2014         33,600   

Beaumont, TX (“Houston”)

        

Medical Office

        

Chula Vista Medical Arts Center - Plaza I

   Modified Lease      1/21/2014         17,863  (1) 

Chula Vista, CA (“San Diego”)

        

Houston Orthopedic & Spine Hospital Medical Office Building

   Modified Lease      6/2/2014         27,000   

Bellaire, TX (“Houston”)

        

Lee Hughes Medical Building

   Modified Lease      9/29/2014         29,870  (1) 

Glendale, CA (“Los Angeles”)

        

Post-Acute Care

        

Medical Portfolio II Properties

        

Oklahoma City Inpatient Rehabilitation Hospital

   Modified Lease      7/15/2014         25,504   

Oklahoma City, OK

        

Las Vegas Inpatient Rehabilitation Hospital

   Modified Lease      7/15/2014         22,292   

Las Vegas, NV

        

South Bend Inpatient Rehabilitation Hospital

   Modified Lease      7/15/2014         20,240   

Mishawaka, IN (“South Bend”)

        

Senior Housing

        

Pacific Northwest II Communities

        

Prestige Senior Living Auburn Meadows

   Managed      2/3/2014         21,930   

Auburn, WA (“Seattle”)

        

Prestige Senior Living Bridgewood

   Managed      2/3/2014         22,096   

Vancouver, WA (“Portland”)

        

Prestige Senior Living Monticello Park

   Managed      2/3/2014         27,360   

Longview, WA

        

Prestige Senior Living Rosemont

   Managed      2/3/2014         16,877   

Yelm, WA

        

Prestige Senior Living West Hills

   Managed      3/3/2014         14,986   

Corvallis, OR

        

South Bay II Communities

        

Isle at Cedar Ridge

   Managed      2/28/2014         21,630   

Cedar Park, TX (“Austin”)

        

HarborChase of Plainfield

   Managed      3/28/2014         26,500   

Plainfield, IL

        

Legacy Ranch Alzheimer’s Special Care Center

   Managed      3/28/2014         11,960   

Midland, TX

        

The Springs Alzheimer’s Special Care Center

   Managed      3/28/2014         10,920   

San Angelo, TX

        

Isle at Watercrest – Bryan

   Managed      4/21/2014         22,050   

Bryan, TX

        

Watercrest at Bryan

   Managed      4/21/2014         28,035   

Bryan, TX

        

Isle at Watercrest – Mansfield

   Managed      5/5/2014         31,300   

Mansfield, TX (“Dallas/Fort Worth”)

        

Watercrest at Mansfield

   Managed      6/30/2014         49,000   

Mansfield, TX (“Dallas/Fort Worth”)

        
        

 

 

 
         $ 559,478   
        

 

 

 

 

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:

 

Name and Location

   Structure    Date
Acquired
     Purchase Price
(in thousands)
 

Acute Care

        

Medical Portfolio I Properties

        

Doctors Specialty Hospital

   Modified Lease      8/16/2013       $ 10,003   

Leawood, KS (“Kansas City”)

        

Medical Office

        

LaPorte Cancer Center

   Modified Lease      6/14/2013         13,100   

Westville, IN

        

Knoxville Medical Office Properties

        

Physicians Plaza A at North Knoxville Medical Center

   Modified Lease      7/10/2013         18,124   

Powell, TN (“Knoxville”)

        

Physicians Plaza B at North Knoxville Medical Center

   Modified Lease      7/10/2013         21,800   

Powell, TN (“Knoxville”)

        

Jefferson Medical Commons

   Modified Lease      7/10/2013         11,616   

Jefferson City, TN (“Knoxville”)

        

Physicians Regional Medical Center - Central Wing Annex

   Modified Lease      7/10/2013         5,775   

Knoxville, TN

        

Medical Portfolio I Properties

        

John C. Lincoln Medical Office Plaza I

   Modified Lease      8/16/2013         4,420   

Phoenix, AZ

        

John C. Lincoln Medical Office Plaza II

   Modified Lease      8/16/2013         3,106   

Phoenix, AZ

        

North Mountain Medical Plaza

   Modified Lease      8/16/2013         6,185   

Phoenix, AZ

        

Escondido Medical Arts Center

   Modified Lease      8/16/2013         15,602   

Escondido, CA (“San Diego”)

        

Chestnut Commons Medical Office Building

   Modified Lease      8/16/2013         20,205   

Elyria, OH (“Cleveland”)

        

Calvert Medical Office Properties

        

Calvert Medical Office Buildings I, II, III

   Modified Lease      8/30/2013         16,409   

Prince Frederick, MD (“Washington D.C.”)

        

Calvert Medical Arts Center

   Modified Lease      8/30/2013         19,320   

Prince Frederick, MD (“Washington D.C.”)

        

Dunkirk Medical Center

   Modified Lease      8/30/2013         4,617   

Dunkirk, MD (“Washington D.C.”)

        

Post-Acute Care

        

Perennial Communities

        

Batesville Healthcare Center

   Triple-net Lease      5/31/2013         6,206   

Batesville, AR

        

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

        

Magnolia Healthcare Center

   Triple-net Lease      5/31/2013         11,847   

Magnolia, AR

        

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

        

Senior Housing

        

HarborChase of Jasper

   Managed      8/1/2013         7,300   

Jasper, AL

        

South Bay I Communities

        

Raider Ranch

   Managed      8/29/2013         55,000   

Lubbock, TX

        

Town Village

   Managed      8/29/2013         22,500   

Oklahoma City, OK

        
        

 

 

 
         $ 311,437   
        

 

 

 

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.