Real Property Acquisitions and Development

6 Months Ended

Jun. 30, 2011

Real Property Acquisitions and Development [Abstract]

Real Property Acquisitions and Development

3. Real Property Acquisition and Development

Genesis Acquisition

     On April 1, 2011, we completed the acquisition of substantially all of the real estate assets (147 properties) of privately-owned Genesis HealthCare Corporation. The total purchase price of approximately $2,475,144,000 is comprised of the $2,400,000,000 cash consideration and the fair value of capital lease obligations totaling approximately $75,144,000 and has been allocated on a preliminary basis in the amounts of $144,091,000 to land and land improvements and $2,331,053,000 to buildings and improvements. We funded the cash consideration and other associated costs of the acquisition primarily through the proceeds of the offerings of common stock, preferred stock and senior unsecured notes completed in March 2011. Effective April 1, 2011, we began leasing the acquired facilities to Genesis pursuant to a master lease. In addition to rent, the triple net master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC, which was spun-off by Genesis prior to closing the acquisition. The initial term is fifteen years. Genesis has one option to renew for an additional term of fifteen years. The master lease provides that the base rent for the first year is $198,000,000 and will increase at least 1.75% but no more than 3.50% (subject to CPI changes) for each of the years two through six during the initial term and at least 1.50% but no more than 3.00% per year thereafter (subject to CPI changes). We expect to recognize rental income based on the minimum rent escalators during the initial term.

     The following unaudited pro forma consolidated results of operations have been prepared as if the Genesis acquisition had occurred as of January 1, 2010 based on the preliminary purchase price allocations discussed above. Amounts are in thousands, except per share data:

	Six Months Ended June 30,
	2011		2010
Revenues	$	689,630	$	408,005
Income from continuing operations attributable to common stockholders	$	50,550	$	73,928
Income from continuing operations attributable to common stockholders per share:
Basic	$	0.29	$	0.49
Diluted	$	0.29	$	0.48

Silverado Partnership

     During the three months ended March 31, 2011, we completed the formation of our partnership with Silverado Senior Living, Inc. to own and operate a portfolio of 18 combination senior housing and care communities located in California, Texas, Arizona and Utah. We own a 95.4% partnership interest and Silverado owns the remaining 4.6% interest and continues to manage the communities. The partnership owns and operates six communities previously owned by us and 12 additional communities previously owned by Silverado. The transaction took advantage of the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). The results of operations for this partnership have been included in our consolidated results of operations beginning as of January 1, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

     In conjunction with the formation of the partnership, we contributed $163,368,000 of cash and the six properties previously owned by us. Silverado contributed the remaining 12 properties to the partnership and the secured debt relating to these properties in exchange for its 4.6% interest in the partnership. The six properties are recorded at their historical carrying values and the noncontrolling interest was established based on such values. The difference between the fair value of the consideration received relating to these properties and the historical allocation of the 4.6% noncontrolling interest was recorded in capital in excess of par value. The total purchase price for the 12 communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values in accordance with the company’s accounting policies. Such allocations have not been finalized as we await final asset valuations and, as such, the allocation of the purchase consideration included in the accompanying Consolidated Balance Sheet at June 30, 2011 is preliminary and subject to adjustment. The 4.6% noncontrolling interest relating to the acquired 12 properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):

Land and land improvements	$	11,170
Buildings and improvements		173,841
Acquired lease intangibles		19,305
Investment in unconsolidated subsidiary		14,960
Cash and cash equivalents		4,084
Total assets acquired		223,360
Secured debt		60,667
Total liabilities assumed		60,667
Capital in excess of par		6,017
Noncontrolling interests		7,836
Net assets acquired	$	148,840

Benchmark Partnership

     During the three months ended March 31, 2011, we completed the formation of our partnership with Benchmark Senior Living to own and operate a portfolio of 34 senior housing communities located in New England. We own a 95% partnership interest and Benchmark owns the remaining 5% interest and continues to manage the communities. The 34 communities included in the partnership were previously owned by The GPT Group and Benchmark. The transaction took advantage of the structure authorized by RIDEA. The results of operations for this partnership have been included in our consolidated results of operations beginning as of March 28, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

     In conjunction with the formation of the partnership, we contributed $380,278,000 of cash and the partnership assumed the secured debt relating to these properties. Benchmark contributed the 34 properties to the partnership and the secured debt relating to these properties in exchange for its 5% interest in the partnership. The total purchase price for the communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values in accordance with the company’s accounting policies. Such allocations have not been finalized as we await final asset valuations and, as such, the allocation of the purchase consideration included in the accompanying Consolidated Balance Sheet at June 30, 2011 is preliminary and subject to adjustment. The 5% noncontrolling interest relating to the acquired properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):

Land and land improvements	$	60,440
Buildings and improvements		792,394
Acquired lease intangibles		68,980
Cash and cash equivalents		28,258
Restricted cash		5,451
Total assets acquired		955,523
Secured debt		524,989
Accrued expenses and other liabilities		17,412
Entrance fee liability		13,269
Total liabilities assumed		555,670
Noncontrolling interests		19,575
Net assets acquired	$	380,278

Real Property Investment Activity

     The following is a summary of our real property investment activity for the periods presented (in thousands):

	Six Months Ended
	June 30, 2011					June 30, 2010
	Properties		Amount			Properties		Amount
Real property acquisitions:
Senior housing operating		46	$	1,126,130			—	$	—
Senior housing triple-net		165		2,849,603			10		109,492
Medical facilities		6		65,599			19		246,582
Land parcels		1		6,770			—		—
Total acquisitions		218		4,048,102			29		356,074
Less: Assumed debt				(721,632	)				(117,892	)
Assumed other items, net(1)				(147,500	)				(31,690	)
Cash disbursed for acquisitions				3,178,970					206,492
Construction in progress additions:
Senior housing triple-net				75,999					50,726
Medical facilities				124,150					129,568
Total construction in progress additions				200,149					180,294
Less: Capitalized interest				(6,979	)				(11,983	)
Accruals(2)				(30,736	)				(5,775	)
Cash disbursed for construction in progress				162,434					162,536
Capital improvements to existing properties				29,193					20,845
Total cash invested in real property			$	3,370,597				$	389,873

(1)	Includes $75,144,000 of capital lease obligations.
(2)	Represents non-cash accruals for amounts to be paid in future periods relating to properties that converted in the period noted above.

     The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented:

	Six Months Ended
	June 30, 2011		June 30, 2010
Development projects:
Senior housing triple-net	$	—	$	269,260
Medical facilities		325,563		110,481
Total development projects		325,563		379,741
Expansion projects		19,218		1,502
Total construction in progress conversions	$	344,781	$	381,243

     Transaction costs for the six months ended June 30, 2011 primarily represent costs incurred with the Genesis, Silverado and Benchmark transactions (including due diligence costs, fees for legal and valuation services, and termination of a pre-existing relationship computed based on the fair value of the assets acquired), lease termination fees and costs incurred in connection with the new property acquisitions.