Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

Commitments and Contingencies

11. Commitments and Contingencies

        During 2011, we purchased four skilled nursing properties with 524-beds in Texas as described in Note 6. Real Estate Investments. As part of the purchase agreement, we paid cash at closing and committed to provide contingent earn-out payments if certain operational thresholds are met. The contingent earn-out payment arrangements require us to pay two earn-out payments totaling up to $11,000,000 upon the properties achieving a sustainable stipulated rent coverage ratio. We recorded the contingent earn-out payments at fair value, which was estimated using a discounted cash flow analysis, and are accreting the earn-out liability to the estimated settlement amount as of the payment date. This fair value measurement was based on significant input not observable in the market and thus represented a Level 3 measurement. During 2011, we paid $4,000,000 related to the first contingent earn-out payment. During 2012 and 2011, we recorded non-cash interest expense of $439,000 and $464,000, respectively, related to the earn-out liability. At December 31, 2012 and 2011, the earn-out liability had a carrying value of $6,744,000 and $6,305,000, respectively.

        At December 31, 2012, we committed to provide $76,921,000 to develop, re-develop, renovate and expand five skilled nursing properties with a total of 619 beds, a memory care property with 60 units, an independent living property with 140 units and four assisted living and memory care combination properties with a total of 258 units. We also have a commitment to fund $5,000,000 per year for the life of the lease which has a maturity date of December 2014. See Note 6. Real Estate Investments for further discussion of these commitments. Additionally at December 31, 2012, we had a $10,600,000 mortgage and construction commitment. As of December 31, 2012, we funded $2,619,000 under this commitment and have a remaining commitment of $7,981,000. See Note 6. Real Estate Investments for further discussion of this mortgage and construction loan. We also committed to provide $1,400,000 in loan and line of credit agreements to certain operators. As of December 31, 2012, we had funded $20,000 under these commitments and have a remaining commitment of $1,380,000. See Note 7. Notes Receivables for further discussion of these commitments.