MORTGAGE NOTES RECEIVABLE

12 Months Ended

Dec. 31, 2012

Mortgage Notes Receivable Investments [Abstract]

NOTE 5 - MORTGAGE NOTES RECEIVABLE

As of December 31, 2012, mortgage notes receivable relate to 12 fixed-rate mortgages on 31 long-term care facilities and two construction mortgages on two facilities currently under construction. The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property. The mortgage notes receivable relate to facilities located in five (5) states, operated by five (5) independent healthcare operating companies. We monitor compliance with mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding loans.

The outstanding principal amounts of mortgage notes receivable, net of allowances, were as follows:

	December 31,
	2012		2011
	(in thousands)

Two Construction Mortgage notes; interest at 12.50%	$	11,751	$	2,234
Mortgage note due 2013; interest at 11.00%		5,000		5,000
Mortgage note due 2016; interest at 11.50%		-		11,545
Mortgage note due 2021; interest at 12.50%		5,574		5,574
Mortgage note due 2021; monthly payment of $34,500, including interest at 11.00%		91,585		92,000
Mortgage note due 2022; interest at 12.50%		5,310		4,990
Mortgage notes due 2022; interest at 12.00%		7,076		6,504
Mortgage note due 2023; interest at 11.00%		69,928		69,928
Mortgage note due 2030; interest at 10.40%		15,897		15,900
Four Mortgage notes due 2046; interest at 12.00%		26,500		25,000
Total mortgages — net (1)	$	238,621	$	238,675

(1)

As of December 31, 2011 and 2012 we have no allowance for loan loss for any of our mortgages.

2012 Mortgage Note Activity

2012 Mortgage Payoff

In October 2012, we received cash from the mortgagee for the payoff of a first mortgage loan on two Florida SNFs. As a result of the payoff, during the fourth quarter of 2012, we accelerated recognition of mortgage fees we had previously deferred. We recorded the accelerated deferred mortgage fees as Mortgage interest income.

Two Construction Mortgage Notes

In October 2011 we entered into a $7.8 million construction mortgage to construct a new 120 bed SNF in Michigan. The construction mortgage converts into a 10 year interest only mortgage upon completion of construction. The 120 bed SNF is still under construction with total funding of approximately $7.4 million as of December 31, 2012.

In July 2012, we entered into a $6.2 million construction mortgage to construct a new 138 bed SNF in Michigan. The construction mortgage converts into a 10 year interest only mortgage upon completion of construction. The 138 bed SNF is still under construction with total funding of approximately $4.3 million as of December 31, 2012.

Mortgage Note due 2021

In September 2011, the construction loan that we entered into in 2010 to construct a new SNF in Michigan was completed. The $5.6 million loan is an interest only loan and bears interest at an annual rate of 12.5% and matures on the 10th anniversary of the completion of construction of the facility.

Mortgage Note due 2022

In March 2012, the second construction loan that we entered into in 2010 to construct a new SNF in Michigan was completed. The $5.3 million loan is an interest only loan and bears interest at an annual rate of 12.5% and matures on the 10th anniversary of the completion of construction of the facility.

Mortgage Notes due 2022

On August 1, 2012, we entered into an additional $0.8 million mortgage loan with an existing operator. The loan was added to an existing mortgage for one property to fund renovations. As of December 31, 2012, the balance of the loan related to the property was approximately $7.1 million. The mortgage loans mature on July 31, 2022 and carry an annual interest rate of 12%.

Four Mortgage Notes due 2046

On November 30, 2012, we entered into a $1.5 million first mortgage loan secured by a lien on a 60 bed SNF located in Michigan. The mortgage currently bears interest at 12% and increases to 13.5% in year 7. The mortgage matures in 2046.

2011 Mortgage Note Activity

$92.0 Million Mortgage Note due 2021

On November 14, 2011, we entered into a $92.0 million first mortgage loan to finance a new operator’s purchase of 13 SNFs in Michigan, totaling 1,421 beds. The term of the mortgage is 10 years. The interest rate during the first 3 years will accrue at a fixed annual rate of 11%. During loan years 4, 5 and 6, interest will accrue at a fixed annual rate of 11.75% and during the remaining term of the note, interest will accrue at a fixed annual rate of 12.5%.

Four Mortgage Notes due 2046

On October 31, 2011, we entered into a $25.0 million first mortgage loan secured by a lien on three SNFs, totaling 352 beds, all located in Maryland. The mortgage currently bears interest at 12% and increases to 13.5% in year 7. The mortgages mature in 2046.

Mortgage Note due 2013

On July 18, 2011, we entered into a $5.0 million first mortgage loan with an existing operator to finance the purchase of one SNF in Texas. The mortgage loan matures in July 2013 and carries an annual interest rate of 10%.