2.Real Estate Investments

Assisted living properties, independent living properties, memory care properties, and combinations thereof are included in the assisted living property type. Range of care properties (or ROC) property type consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.

Any reference to the number of properties, number of schools, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Owned Properties. The following table summarizes our investments in owned properties at June 30, 2014 (dollar amounts in thousands):

						Average
			Number	Number of		Investment
Type of Property	Gross Investments	Percentage of Investments	of Properties (1)	SNF Beds	ALF Units	per Bed/Unit
Skilled Nursing	$ 459,470	48.0%	68	8,264	—	$ 55.60
Assisted Living	405,048	42.4%	96	—	4,496	$ 90.09
Range of Care	43,906	4.6%	8	634	274	$ 48.35
Under Development (2)	37,659	3.9%	—	—	—	—
Other (3)	10,433	1.1%	1	—	—	—
Totals	$ 956,516	100.0%	173	8,898	4,770

(1)

We own properties in 26 states that are leased to 31 different operators.

(2)

Includes three MC developments with a total of 168 units, a combination ALF and MC development with 81 units, and a SNF development with 143 beds.

(3)

Includes one school property and four parcels of land held-for-use.

Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

(i)

a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%;

(ii)

a calculation based on the Consumer Price Index;

(iii)

as a percentage of facility net patient revenues in excess of base amounts; or

(iv)

specific dollar increases.

During the three months ended June 30, 2014, we sold two assisted living properties located in Florida and Georgia with a total of 133 units and one school property located in Minnesota for a combined sales price of $7,850,000, resulting in net sales proceeds of $7,707,000, and a net gain on sale of $1,140,000. During the six months ended June 30, 2013, we sold a 47-bed skilled nursing property in Colorado for $1,000 and recognized a $1,014,000 loss on sale.

We have a commitment to provide, under certain conditions, up to $5,000,000 per year through December 2014 to an existing operator for expansion of the 37 properties they lease from us. The estimated yield of this commitment is 9.5% plus the positive difference, if any, between the average yields on the U.S. Treasury 10-year note for the five days prior to funding, minus 420 basis points. As of June 30, 2014, no funds have been requested under this commitment and it is highly unlikely any funds will be expended based on the lease termination date.

Excluding the $5,000,000 per year commitment above, the following table summarizes our investment commitments as of June 30, 2014 and year-to-date funding on our development, redevelopment, renovation, and expansion projects (excludes capitalized interest, dollar amounts in thousands):

Type of Property	Investment Commitment	2014 Funding (2)	Commitment Funded	Remaining Commitment	Number of Properties	Number of Beds/Units
Skilled	$ 30,150	$ 4,290	$ 17,047	$ 13,103	7	760
Assisted Living (1)	50,656	22,788	33,449	17,207	7	385
Totals	$ 80,806	$27,078(3)	$50,496(4)	$30,310(3)	14	1,145

(1)

Includes the development of three MC properties for a total commitment of $30,256, one ALF/MC property for a total commitment of $5,800, and the expansion of three ALFs for a total commitment of $14,600.

(2)

Excludes funding for a completed development of $450.

(3)

In July 2014, we funded $2,794 under investment commitments. Accordingly, we have a remaining commitment of $27,516.

(4)

Includes land purchase and completed projects with remaining commitment funding and excludes capitalized interest.

Our construction in progress (or CIP) activity during the six months ended June 30, 2014 for our development, redevelopment, renovation, and expansion projects is as follows (dollar amounts in thousands):

Properties	Projects	CIP Balance at 12/31/13	Funded(1)	Capitalized Interest	Conversions out of CIP	CIP Balance at 6/30/14
Development projects:
Assisted living	5	$ 6,334	$ 12,051	$ 335	$ (8)	$ 18,712
Skilled nursing	1	5,893	3,579	261	—	9,733
Subtotal	6	12,227	15,630	596	(8)	28,445
Redevelopment, renovation and expansion projects:
Assisted living	3	8	10,737	146	—	10,891
Skilled nursing	5	2,433	711	—	(1,433)	1,711
Subtotal	8	2,441	11,448	146	(1,433)	12,602
Total	14	$ 14,668	$ 27,078	$ 742	$ (1,441)	$41,047(2)

(1)

Excludes $450 of capital improvement commitment funding on a completed project which was capitalized directly into building.

(2)

Includes capitalized interest and excludes completed projects.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at June 30, 2014 (dollar amounts in thousands):

		Percentage		Number	Number of		Investment
	Gross	of	Number	of	SNF	ALF	per
Type of Property	Investments	Investments	of Loans	Properties(1)	Beds	Units	Bed/Unit
Skilled Nursing(2)	$ 155,287	91.5%	16	33	3,919	—	$ 39.62
Assisted Living	12,018	7.1%	3	8	—	211	$ 56.96
Range of Care	2,461	1.4%	1	1	99	74	$ 14.23
Totals	$ 169,766	100.0%	20	42	4,018	285

(1)

We have investments in properties located in 9 states that include mortgages to 12 different operators.

(2)

Includes a mortgage and construction loan secured by a closed skilled nursing property and a newly constructed 106-bed replacement property.

At June 30, 2014, the mortgage loans had interest rates ranging from 7.1% to 13.6% and maturities ranging from 2014 to 2043. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 30-year amortization schedules. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points.

During the six months ended June 30, 2014 and 2013, we received $1,054,000 and $938,000, respectively, in regularly scheduled principal payments. Additionally, during the six months ended June 30, 2014 and 2013, we funded $3,010,000 and $913,000, respectively, under a $10,600,000 mortgage and construction loan. This mortgage and construction loan has been fully funded with no remaining commitments and is secured by a skilled nursing property and a newly constructed 106-bed replacement skilled nursing property. The residents of the old skilled nursing property were relocated to the newly constructed 106-bed replacement skilled nursing property. The borrower closed the old skilled nursing property and is responsible for marketing and selling it. In July 2014, we funded a $3,027,000 mortgage loan secured by a 100-unit independent living property in Arizona. The loan is for a term of five years and bears interest at 7.0%, escalating 0.25% annually. During the six months ended June 30, 2014, we funded $697,000 under a $12,000,000 capital improvement commitment to an existing borrower and we have a remaining commitment of $11,303,000 at June 30, 2014.