Derivative Financial Instruments (Predecessor) (Ziegler Healthcare Real Estate Funds)

6 Months Ended

Jun. 30, 2013

Ziegler Healthcare Real Estate Funds

Derivative financial instruments

Derivative financial instruments

Note 6—Derivative Financial Instruments

The Ziegler Funds are exposed to certain risks in the normal course of its business operations. One risk relating to the variability of interest on variable rate debt is managed through the use of derivatives. All derivative financial instruments are reported in the balance sheet at fair value.

In particular, interest rate swaps, which are designated as cash flow hedges are used to manage the risk associated with interest rates on variable-rate borrowings.

Generally, the funds enter into hedging relationships such that changes in the fair value or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives.

As of December 31, 2012, the Ziegler Funds held swaps to receive variable\pay fixed interest rates swaps with a total notional amount of $25,609,755, of which $17,441,821 expires in July 2013, with the remaining amount expiring in May 2016. As of June 30, 2013, the Ziegler Funds held swaps to receive variable/pay fixed interest rate swaps with a total notional amount of $23,326,511, of which $17,261,940 expires in July 2013, with the remaining amount expiring in May 2016. Gains recognized on the interest rate swaps of $115,307 and $31,955 were included in change in fair value of derivatives, net in the combined statements of operations for the three months ended June 30, 2013 and 2012, respectively and $189,688 and $58,138 for the six months ended June 30, 2013 and 2012, respectively.

Subsequent to June 30, 2013:

The variable/fixed interest rate swap with a notional amount of $17,261,940 expired on July 1, 2013.