Real Estate Investments

3 Months Ended

Mar. 31, 2018

Real Estate Investments

Real Estate Investments

2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF).

Any reference to the number of properties or facilities, number of units, number of beds, number of operators 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 March 31, 2018 (dollar amounts in thousands):

								Average
			Percentage		Number	Number of		Investment
	Gross		of		of	SNF	ALF	per
Type of Property	Investments		Investments		Properties(1)	Beds	Units	Bed/Unit
Assisted Living	$	784,229	56.0	%	105	—	5,962	$	131.54
Skilled Nursing		577,808	41.2	%	75	9,204	261	$	61.05
Under Development(2)		28,729	2.0	%	—	—	—		—
Other(3)		10,740	0.8	%	1	118	—		—
Totals	$	1,401,506	100.0	%	181	9,322	6,223

⁽¹⁾ We own properties in 28 states that are leased to 29 different operators.

⁽²⁾ Represents three development projects, consisting of a 66-unit MC located in Illinois, a 110-unit ILF/ALF/MC in Wisconsin and a 143-bed SNF in Kentucky.

⁽³⁾ Includes three parcels of land held-for-use, and one behavioral health care hospital.

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 March 31, 2018 and 2017, we invested the following in development and improvement projects (in thousands):

	Three months ended March 31, 2018				Three months ended March 31, 2017
	Developments		Improvements		Developments			Improvements
Assisted Living Communities	$	6,803	$	122	$	2,941	$	41
Skilled Nursing Centers		1,788		279		502		701
Other		—		133		—		—
Totals	$	8,591	$	534	$	3,443	$	742

Properties held-for-sale.  The following summarizes our properties held-for-sale as of March 31, 2018 (dollar amounts in thousands):

		Number
		of		Gross		Accumulated	Number of
State	Type of Property	Properties		Investment		Depreciation	Beds/units
Ohio (1)	ALF	5	$	29,332	$	17,574	251
Pennsylvania (1)	ALF	1		8,327		3,733	69
Texas	ALF	1		5,746		1,916	140
Totals		7	$	43,405	$	23,223	460

⁽¹⁾ Represents a portfolio of six assisted living communities that are leased under a master lease agreement expiring on April 30, 2018. Subsequent to March 31, 2018, we sold these properties for $67,500.

Property Sales. We did not sell properties during the three months ended March 31, 2018 and 2017. Subsequent to March 31, 2018, we sold a portfolio of six assisted living communities in Ohio and Pennsylvania with a total of 320 units for an aggregate price of $67,500,000. These properties have a combined net book value of approximately $16,350,000. As a result of this transaction, we expect to recognize a net gain on sale of approximately $48,000,000. These properties were classified as held-for-sale during the first quarter of 2018. See Properties held-for-sale abovefor more information.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 2018 (dollar amounts in thousands):

				Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per
Interest Rate(1)	Maturity	Investments		Property	Investments		Loans(2)	Properties(3)	Beds	Bed/Unit
9.2%	2045	$	25,196	SNF	10.7	%	1	3	375	$	67.19
9.4%	2020		9,429	SNF	4.0	%	1	2	205	$	46.00
9.4%	2045		13,306	SNF	5.6	%	1	1	157	$	84.75
9.5%	2043		186,705	SNF	79.2	%	1	15	2,043	$	91.39
11.4%	2019		1,098	SNF	0.5	%	1	1	84	$	13.07
Totals		$	235,734		100.0	%	5	22	2,864	$	82.31

⁽¹⁾ The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase by 2.25%.

⁽²⁾ Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have 30-year amortization schedules.

⁽³⁾ We have investments in properties located in two states that include mortgages to two operators.

The following table summarizes our mortgage loan activity for the three months ended March 31, 2018 and 2017 (in thousands):

	Three months ended  March 31,
	2018			2017
Originations and funding under mortgage loans receivable	$	9,610	(1)	$	4,384
Pay-offs received		—			(10,796)
Scheduled principal payments received		(37)			(162)
Net increase (decrease) in mortgage loans receivable	$	9,573		$	(6,574)

⁽¹⁾ During the first quarter of 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter.