NOTE 5. Real Estate Acquisitions, Dispositions and Impairments

Acquisitions

During the year ended December 31, 2014, the Company acquired one medical office building for $32.0 million, the purchase price of which was allocated $26.9 million to real estate and $5.1 million to intangible assets, with no goodwill recognized.

During the year ended December 31, 2015, the Company acquired seven post‑acute/skilled nursing properties from HCRMC for $183.4 million, the proceeds of which were used to settle a portion of the Tranche A DRO (see Note 4). The purchase price was allocated $173.1 million to real estate and $10.3 million to intangible assets, with no goodwill recognized.

One of the seven properties purchased from HCRMC during 2015 was identified for use in a tax deferred exchange under Section 1031 of the Code (“1031 exchange”) that was not completed as of December 31, 2015. As part of electing tax deferred treatment, the Company is required to sell a property to generate proceeds to be used in the 1031 exchange (a “reverse 1031” transaction). During the intermediate period between acquiring a replacement property and selling a current property, the acquired property is held by an EAT. As of December 31, 2015, the Company had not completed the reverse 1031 transaction, and as such, the acquired post‑acute/skilled nursing property remained in the possession of the EAT. The EAT was classified as a VIE as it does not have sufficient equity investment at risk to finance its activities without additional subordinated financial support. The Company consolidates the EAT as its primary beneficiary because it has the ability to control the activities that most significantly impact the EAT’s economic performance. The property held by the EAT was reflected as real estate with a carrying value of $27.1 million as of December 31, 2015. The Company closed on the property held by the EAT in the first quarter of 2016.

During the year ended December 31, 2016, the Company completed the remaining two of the nine post‑acute/skilled nursing property purchases from HCRMC for $91.6 million, which proceeds were used to settle the remaining portion of the Tranche A DRO (see Note 4). The purchase price was allocated $86.4 million to real estate and $5.2 million to intangible assets, with no goodwill recognized.

Additionally, during the year ended December 31, 2016, the Company acquired a memory care/assisted living property for $15.0 million. The property was developed by HCRMC and was added to the Master Lease. The purchase price was allocated $14.1 million to real estate and $0.9 million to intangible assets, with no goodwill recognized. The actual revenues and earnings of the property since the acquisition date, as well as the supplementary pro forma information assuming the acquisition had occurred as of the beginning of the prior period, are deemed insignificant to the Company.

One of the three acquisitions during the year ended December 31, 2016 (the “acquired property”) was structured as a reverse 1031 exchange. On September 9, 2016, the Company completed the reverse 1031 exchange and as such, the acquired property is no longer in the possession of the EAT, which had been classified as a VIE as it is a thinly capitalized entity. The Company had consolidated the EAT because it was the primary beneficiary as it had the ability to control the activities that most significantly impacted the EAT’s economic performance.

Dispositions

During the year ended December 31, 2014 the Company disposed of one HCRMC Property for $13.1 million and recognized a loss on sale of $1.9 million.

During the three months ended March 31, 2015, the Company and HCRMC agreed to market for sale the real estate and operations associated with 50 non‑strategic properties that were under the Master Lease (see Note 4). During the year ended December 31, 2015, the Company completed 22 of the sales for $218.8 million, resulting in gain on sales of $39.1 million. From the proceeds, $14.5 million was held by a Qualified Intermediary for a 1031 exchange that was not completed at December 31, 2015 and was classified as restricted cash as of December 31, 2015. The 1031 exchange closed in the first quarter of 2016.

During the year ended December 31, 2016, the Company completed 21 of the non-strategic property sales, bringing the total sold to 43 through December 31, 2016, and sold one additional HCRMC Property for an aggregate amount of $114.6 million, resulting in a gain on sales of $10.6 million. All seven of the remaining non-strategic properties were sold in the first quarter of 2017 (see Note 16 for details).

Real Estate Impairments

In March 2015, the Company recognized an impairment charge of $47.1 million related to the 50 non‑strategic properties to be sold. The impairment was based on the expected cash flows amounting to the projected net sales prices as compared to the carrying values. During 2016, the Company recognized an additional impairment charge of $21.4 million related to the 17 then remaining non-strategic properties as of September 30, 2016 as well as one additional property sold during the fourth quarter of 2016 as a result of a reduction in the expected cash flows amounting to the projected net sales prices as compared to the carrying values. Projected sales prices in active markets are considered a Level 2 input in the fair value measurement hierarchy.

Additionally, during the fourth quarter of 2016, the Company recognized an impairment charge of $145.7 million related to seven skilled nursing properties classified as held for use as a result of their expected future undiscounted cash flows being less than their carrying values due in large part to the continued financial deterioration of the post-acute/skilled nursing sector. Expected future cash flows using market-based data, including recent comparable sales, market knowledge, brokers’ opinions of value and the income approach, are considered a Level 3 input in the fair value measurement hierarchy. A significant assumption used in determining the estimated fair value of these properties was a per bed market rate specific to each individual market, the range of which was $25,000 to $50,000 per bed.

The following table summarizes the real estate impairments recorded during the years ended December 31, 2016 and 2015 by asset class (in thousands):


	Year Ended December 31,
	2016		2015
Assets held for use	$	145,700	$	—
Assets held for sale		21,357		47,135
Total	$	167,057	$	47,135

Real Estate and Related Assets Held for Sale

The seven remaining non‑strategic properties not yet sold described above were classified as held for sale, net as of December 31, 2016.

The major classes of assets classified as real estate and related assets held for sale, net are as follows (in thousands):


	December 31,
	2016		2015
Real estate:
Building and improvements	$	19,170	$	113,275
Land		2,380		21,746
Accumulated depreciation		(7,405)		(32,823)
Net real estate		14,145		102,198
Intangible assets, net		1,252		5,976
Straight-line rent receivables, net		622		9,775
Real estate and related assets held for sale, net	$	16,019	$	117,949