Real Estate Properties

9 Months Ended

Sep. 30, 2011

Real Estate Properties

Real Estate Properties

Note 3.  Real Estate Properties

At September 30, 2011, we owned 357 properties located in 37 states and Washington, D.C.

In March 2011, we agreed to acquire 20 senior living communities located in five states in the southeastern United States for approximately $304,000, excluding closing costs. In June 2011, we acquired 14 of these 20 communities for approximately $196,594, excluding closing costs, in July 2011, we acquired three of these communities for approximately $44,671, excluding closing costs, and in August 2011, we acquired one of these communities for approximately $17,158, excluding closing costs.  We funded these acquisitions using cash on hand, proceeds from an equity offering (see Note 7), borrowings under our revolving credit facility and by assuming approximately $48,062 of mortgage loans in June 2011, $12,757 of mortgage loans in July 2011 and $12,459 of mortgage loans in August 2011.

In May 2011, Five Star Quality Care, Inc., or Five Star, agreed to manage 15 of these 20 communities, or the Managed Communities, under long term contracts. Ten of the 14 communities acquired in June 2011, two of the three communities acquired in July 2011 and the one community acquired in August are Managed Communities, and Five Star began managing each of these Managed Communities at those respective times.  We use the taxable real estate investment trust, or REIT, subsidiary structure authorized by the REIT Investment Diversification and Empowerment Act, or RIDEA, for the Managed Communities.  The results of operations for the Managed Communities are included in our consolidated results of operations in our short and long term residential care communities segment beginning as of June 2011.  In June 2011, Five Star began leasing four of the five remaining communities, or the Leased Communities, and in July 2011, Five Star began leasing the remaining Leased Community. Our acquisition of the two remaining Managed Communities is contingent upon various closing conditions, including certain third party approvals; accordingly, we can provide no assurance that we will purchase these properties.

For further information regarding our leases and management agreements with Five Star, see Note 12. Related Person Transactions.

In July 2011, we acquired one building used for medical related services, manufacturing or research activities, or an MOB, located in Alachua, Florida, with 32,476 square feet for approximately $5,200, excluding closing costs.  We recorded intangible lease assets of approximately $354 related to this acquisition.  In August 2011, we acquired 47 acres of adjacent land for future development for $4,000, excluding closing costs.  We funded these acquisitions with cash on hand and by assuming a mortgage loan for approximately $3,653 in July 2011.

In September 2011, we acquired 13 MOBs located in eight states with 1.3 million square feet from CommonWealth REIT, or CWH, for an aggregate purchase price of approximately $167,000, excluding closing costs.  We recorded intangible lease assets and liabilities of approximately $31,150 and $1,919, respectively, related to these acquisitions.  We funded these acquisitions using cash on hand and borrowings under our revolving credit facility.  For further information regarding our transaction with CWH, see Note 12. Related Person Transactions.

In May, July and September 2011, we entered three separate agreements to acquire one senior living community and three MOBs for an aggregate purchase price of $43,725, excluding closing costs.  The senior living community is located in California and includes 57 assisted living units, and the three MOBs are located in Indiana and Virginia and include an aggregate of 138,606 square feet.  We expect to fund these acquisitions using cash on hand, borrowings under our revolving credit facility and by assuming approximately $9,700 of mortgage debt.  The closings of these acquisitions are contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase these properties.

In July 2011, we agreed to acquire nine senior living communities located in six states with an aggregate 2,226 living units for approximately $478,000, excluding closing costs.  Following these acquisitions, we expect eight of these communities to be leased to our taxable REIT subsidiary, or TRS, and all nine communities to be managed by Five Star under long term contracts on terms similar to the terms of our existing management contracts with Five Star.  We currently expect to acquire the majority of these communities during the fourth quarter of 2011, subject to required regulatory approvals and lender approvals of our assumption of mortgage debts on certain properties.  The purchase of certain communities may be delayed until 2012 to obtain required regulatory and other third party approvals.  We currently expect to fund these acquisitions with cash on hand, borrowings under our revolving credit facility and the assumption of approximately $164,000 of mortgage debt.

As of September 30, 2011, one of our properties located in Pennsylvania with 103 licensed units is classified as held for sale.  Five Star leases and operates this property, which is included in real estate properties on our condensed consolidated balance sheets and has a net carrying value of approximately $850 at September 30, 2011.

We periodically evaluate our properties for impairments. Impairment indicators include declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the affected property by comparing it to the expected future undiscounted cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.  During the three and nine months ended September 30, 2011, we recorded impairment of assets charges of $1,028 and $1,194, respectively, to reduce the carrying value of one and three of our properties, respectively, to their estimated fair value based upon expected sales prices less costs to sell.  During the nine months ended September 30, 2010, we recorded impairment of assets charges of $1,095 to reduce the carrying value of five of our properties to their estimated fair value based upon expected sales prices less costs to sell.

During the three and nine months ended September 30, 2011, pursuant to the terms of our existing leases with Five Star, we purchased $10,554 and $25,877, respectively, of improvements made to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $845 and $2,073, respectively.