Transactions with Related Party

6 Months Ended

Jun. 30, 2012

Transactions with Related Party

Transactions with Related Party

9.Transactions with Related Party

We have entered into transactions with Skilled Healthcare Group, Inc. (or SHG).  One of our directors, Boyd W. Hendrickson, serves as Chief Executive Officer of SHG.

In December 2005, we purchased, on the open market, $10,000,000 face value of SHG Senior Subordinated Notes with a face rate of 11.0% and an effective yield of 11.1%.  Our Board of Directors, with Mr. Hendrickson abstaining, ratified the purchase of SHG Senior Subordinated Notes.  As a result of an early redemption by SHG in 2007, we had a remaining investment in $6,500,000 face value of SHG Senior Subordinated Notes at December 31, 2011.  During the three months ended June 30, 2012, SHG redeemed all of their outstanding Senior Subordinated Notes at par value plus accrued and unpaid interest up to the redemption date. During the three and six months ended June 30, 2012 and 2011, we recognized $55,000 and $180,000, respectively, and $235,000 and $360,000, respectively, of interest income related to the SHG Senior Subordinated Notes.

In addition, during September 2007 SHG purchased the assets of Laurel Healthcare (or Laurel).  We were not a direct party to this transaction.  One of the assets SHG purchased was Laurel’s leasehold interests in the skilled nursing properties in New Mexico Laurel leased from us under a 15-year master lease agreement dated in February 2006.  Our Board of Directors, with Mr. Hendrickson abstaining, ratified our consent to the assignment of Laurel’s master lease to subsidiaries of SHG.  The economic terms of the master lease agreement did not change as a result of our assignment of the master lease to subsidiaries of SHG.  During the three and six months ended June 30, 2012, we received $1,095,000 and $2,181,000, respectively, in rental income and recorded $31,000 and $70,000, respectively, in straight-line rental income from subsidiaries of SHG.  During the three and six months ended June 30, 2011, we received $1,068,000 and $2,127,000, respectively, in rental income and recorded $57,000 and $123,000, respectively, in straight-line rental income from subsidiaries of SHG.  At June 30, 2012 and December 31, 2011, the straight-line rent receivable from subsidiaries of SHG was $3,130,000 and $3,060,000, respectively.