Investments in Real Estate

9 Months Ended

Sep. 30, 2011

Investments in Real Estate [Abstract]

Investments in Real Estate

Note 3 — Investments in Real Estate

     As of September 30, 2011 and December 31, 2010, we owned 17 and 14 senior living properties, respectively. In 2008, we acquired 14 senior living properties located in four (4) states, of which six (6) are in Iowa, five (5) in Illinois, two (2) in Nebraska and one (1) in Indiana. These 14 properties were acquired in two separate transactions from Bickford Senior Living Group, LLC, an unaffiliated party. The initial transaction was completed on June 26, 2008, whereby we acquired 12 of the aforementioned 14 senior living properties for approximately $100.8 million. Concurrent with that purchase, we leased those properties to Bickford Master I, LLC (the “Master Lessee” or “Bickford”), for an initial annual base rent of approximately $8.3 million and additional base rent of approximately $0.3 million, with fixed escalations of 3.0% per annum for 15 years. The lease provides for four (4) renewal options of ten (10) years each. The additional base rent was deferred and accrued for the first three (3) years of the initial lease term and then is paid over a 24 month period commencing with the first month of the fourth year (July 2011). We funded this acquisition using cash on hand and mortgage financing of approximately $74.6 million (see Note 7 to the Condensed Consolidated Financial Statements).

     On September 30, 2008, we purchased the remaining two (2) Bickford senior living properties for approximately $10.3 million. Concurrent with the purchase, we amended the aforementioned lease with Bickford (the “Bickford Master Lease”) to include these two (2) properties at an initial annual base rent of approximately $0.8 million and additional base rent of approximately $0.03 million with fixed escalations of 3% per annum for 14.75 years (the remaining term of the Bickford Master Lease). The additional base rent was deferred and accrued for the first 33 months of the initial lease term and then is paid over a 24 month period starting with the first month of the fourth year (July 2011). We funded this acquisition using cash on hand and mortgage financing of approximately $7.6 million (see Note 7 to the Condensed Consolidated Financial Statements).

     As an enticement for the Company to enter into the leasing arrangement for the properties, Care received additional collateral and guarantees of the lease obligation from parties affiliated with Bickford who act as subtenants under the Bickford Master Lease. The additional collateral pledged in support of Bickford’s obligation to the lease commitment included properties and ownership interests in affiliated companies of the subtenants. In June 2011, Care released its 49% equity pledge on one (1) of these properties in exchange for: (i) a 49% equity pledge on a different Bickford property located in Sioux City, Iowa and (ii) purchase options on three (3) additional Bickford properties located in Iowa and a fourth Bickford property located in Indiana.

     Additionally, as part of the June 26, 2008 transaction, we sold back a property acquired on March 31, 2008 from Bickford Senior Living Group, LLC. The property was sold at its net carrying amount, which did not result in a gain or a loss to the Company.

     In connection with the Tiptree Transaction discussed in Note 2 to the Condensed Consolidated Financial Statements, the Company completed an assessment of the allocation of the fair value of the acquired assets (including land, buildings, equipment and in-place leases) in accordance with ASC 805 and ASC 350, Intangibles — Goodwill and Other. Based upon that assessment, the allocation of the fair value on August 13, 2010 of the Bickford assets acquired was as follows (in millions):

Buildings and improvements	$	95.6
Furniture, fixtures and equipment		6.4
Land		5.0
Identifiable intangibles — leases in-place including above market leases		6.7
Total	$	113.7

     As of September 30, 2011, the properties owned by Care and leased to Bickford were 100% operated by Bickford Senior Living Group, LLC. Due to low occupancy at two (2) of the 14 properties, there is a covenant default under the Bickford Master Lease as net operating income (“NOI”) was not sufficient to satisfy the NOI to lease payment coverage ratio covenant. Under the Company’s mortgage documents with its secured lender for these properties, a default under the Bickford Master Lease constitutes a default under both mortgages. The Company has presented a lease modification proposal to the mortgage loan servicer which would remedy this situation. Based on guidance received from the mortgage loan servicer, we anticipate that such proposal will be accepted. To date, the Company has not been provided with or received a notice of default with regard to the Bickford mortgages and based on the foregoing, does not believe a notice of default is forthcoming. Accordingly, the Company is of the opinion that such covenant default will not have a material impact on the financial statements, results of operations and/or the liquidity of the Company. Notwithstanding the foregoing, potential lender actions as a result of the default include an acceleration of the mortgages. The Company continues to actively monitor the acceptance and approval of its proposed lease modification in order to resolve this issue.

     The Bickford assets consist of the following at each period end (in millions):

	September 30, 2011			December 31, 2010
Land	$	5.0		$	5.0
Buildings and improvements		102.0			102.0
Less: accumulated depreciation and amortization		(3.6	)		(1.3	)
Total real estate, net	$	103.4		$	105.7

     In September, 2011, the Company acquired three (3) assisted living and memory care facilities located in Virginia from affiliates of Greenfield Senior Living, Inc. (“Greenfield”). The aggregate purchase price for the three (3) properties was $20.8 million, of which approximately $15.5 million was funded with the proceeds of a first mortgage bridge loan (see Note 7 to the Condensed Consolidated Financial Statements), and the balance with cash on hand. Concurrent with the acquisition, the properties were leased to three (3) wholly-owned affiliates of Greenfield, which are responsible for operating each of the properties pursuant to a triple net master lease (the “Greenfield Master Lease”). The initial term of the Greenfield Master Lease is 12 years with two (2) renewal options of ten years each. Rent payments during the first year are $1,650,000, or a lease rate of approximately 7.9%, with annual rental increases of 2.75% during the initial term of the lease. At the end of the initial term, Greenfield, subject to certain conditions, holds a one-time purchase option which provides the right to acquire all three of the properties at the then fair market value. Greenfield has guaranteed the obligations of the tenants under the Greenfield Master Lease.

     We completed a preliminary assessment of the allocation of the fair value of the acquired assets from Greenfield (including land, buildings, and equipment) in accordance with ASC 805 Business Combinations. The allocation of the purchase price is preliminary pending the receipt of information necessary to identify and measure the real estate and intangible assets acquired. The Company does not expect the finalization of these items to materially impact the purchase price allocation. The preliminary allocation of the purchase price to the fair values of the assets acquired is as follows (in millions):

Buildings, improvements and equipment	$	18.0
Furniture, fixtures and equipment		0.5
Land		2.3
	$	20.8

     Depreciation was recognized on buildings and improvements from the date of acquisition through September 30, 2011.