Real Estate

3 Months Ended

Mar. 31, 2012

Real Estate Investments [Abstract]

Real Estate

REAL ESTATE

At March 31, 2012, exclusive of assets held for sale, we had investments in 97 health care real estate properties leased to operators, of which 41 properties were leased to National HealthCare Corporation (“NHC”), a publicly-held company and our largest customer. The 41 properties leased to NHC include four facilities subleased to and operated by other companies, the lease payments of which are guaranteed by NHC. Our current lease with NHC expires December 31, 2021 (excluding 3 additional 5-year renewal options).

For the three months ended March 31, 2012, rental income from continuing operations was $21,307,000, of which $9,903,000 (46%) was recognized from NHC. For the three months ended March 31, 2011, rental income from continuing operations was $18,929,000, of which $9,477,000 (50%) was recognized from NHC.

Under the terms of the lease, base rent for 2007 was $33,700,000 with additional percentage rent being equal to 4% of the increase in the gross revenue of each facility over the 2007 base year. The following table summarizes the percentage rent received and recognized from NHC (in thousands):

	Three Months Ended
	March 31,
	2012		2011
Current year	$	415	$	417
Prior year final certification1	1,063		635
	$	1,478	$	1,052

¹ For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

Polaris Hospital

In September 2011, we entered into a $21,500,000 development and lease transaction with affiliates of Polaris Hospital Company ("Polaris") to develop a 60-bed general acute care hospital in Murfreesboro, Tennessee that will provide acute psychiatric and in-patient rehabilitation services. Construction commenced in October 2011 and the hospital is expected to open in the fourth quarter of 2012. Once the facility is open, a lease rate of 10% will be calculated on NHI’s total invested amount with annual fixed escalators beginning in the second year. The initial lease term is for 15 years. At March 31, 2012, our investment in land, pre-construction and construction costs was $9,864,000 and is shown as construction in progress in the Condensed Consolidated Balance Sheet.

Planned or Completed Dispositions of Certain Real Estate

We have an agreement with our current lessee, affiliates of Fundamental Long Term Care Holdings, LLC (“Fundamental”), to sell six (five remaining) skilled nursing facilities in Texas. The planned sale of these facilities meets the accounting criteria as being held for sale and is expected to close when HUD financing is arranged by Fundamental.  In January 2011, the first of these six facilities having a carrying value of $4,039,000 was sold for total cash proceeds of $4,500,000.  As of March 31, 2012, the carrying value of $29,381,000 represented the lesser of the remaining five facilities’ net book value or estimated fair value less cost to sell. We have reclassified the results of operations of these facilities as discontinued operations for all periods presented in our Condensed Consolidated Statements of Comprehensive Income.

In February 2011, we completed the sale of two medical office buildings having a carrying value of $3,433,000 for cash proceeds of $5,271,000. For the first quarter of 2011, we have classified the results of operations of these facilities as discontinued operations in our Condensed Consolidated Statements of Comprehensive Income.

The summary of operating results of all facilities classified as discontinued operations is shown in Note 11.