Related Party Transactions

3 Months Ended

Mar. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

6. RELATED PARTY TRANSACTIONS

Allocation of corporate expenses—For the three months ended March 31, 2014, the condensed consolidated and combined statements of operations of the Company include Ensign revenues and expenses that are specifically identifiable or otherwise attributable to the Company. The specific identification methodology was utilized for all of the items on the condensed statements of operations excluding general corporate expenses. For the periods prior to the Spin-Off, Ensign Properties’ operations were fully integrated with Ensign, including executive management, finance, treasury, corporate income tax, human resources, legal services and other shared services. These costs were allocated to the Company on a systematic basis utilizing a direct usage basis when identifiable, with the remainder allocated on time study, or percentage of the total revenues. The primary allocation method was a time study based on time devoted to Ensign Properties’ activities.

Allocated expenses for these general and administrative services of $1.9 million for the three months ended March 31, 2014 are reflected in general and administrative expense, in addition to direct expenses which are included in total expenses. There was no allocation for the three months ended March 31, 2015. The Company’s financial statements may not be indicative of future performance and do not necessarily reflect what the results of operations, financial position and cash flows would have been had the Company operated as an independent, publicly-traded company during the three months ended March 31, 2014.

Rental income from Ensign—The Company derives almost all of its rental income through operating lease agreements with Ensign. Ensign is a holding company with no direct operating assets, employees or revenue. All of Ensign’s operations are conducted by separate independent subsidiaries, each of which has its own management, employees and assets. See Note 12, Concentration of Risk, for a discussion of major operator concentration.

Christopher R. Christensen, one of the Company’s directors as of March 31, 2015, serves as the chief executive officer of Ensign as well as a member of Ensign’s board of directors (see Note 14). Prior to June 1, 2014, all rental income and tenant reimbursement revenue were derived from intercompany leases between Ensign and Ensign Properties. For the three months ended March 31, 2015, the Company recognized $14.0 million in rental income from Ensign related to the Ensign Master Leases and $1.2 million of tenant reimbursements. For the three months ended March 31, 2014, the Company recognized $11.0 million in rental income and $1.3 million in tenant reimbursements from the intercompany leases between Ensign Properties and Ensign. As of March 31, 2015 and December 31, 2014, the Company also had accounts receivable totaling $2.0 million and $2.3 million, respectively, due from Ensign for tenant reimbursements.

Centralized cash management system—Prior to the Spin-Off, the Company participated in Ensign’s centralized cash management system. In conjunction therewith, the intercompany transactions between the Company and Ensign had been considered to be effectively settled in cash in these financial statements. The net effect of the settlement of these intercompany transactions, in addition to cash transfers to and from Ensign, are reflected in “Net contribution from Ensign” on the condensed consolidated and combined statements of cash flows. The “Net contribution from Ensign” was $10.2 million for the three months ended March 31, 2014.