Mortgage Notes Receivable

All of the Company’s mortgage notes receivable are classified as held-for-investment based on management’s intent and ability to hold the loans until maturity. As such, the loans are carried at amortized cost. Also, all of the Company’s mortgage notes receivable are secured by existing buildings or buildings under construction. Approximately $58.7 million and $78.3 million, respectively, were funded on existing construction mortgage loans during the years ended December 31, 2013 and 2012. A summary of the Company’s mortgage notes receivable is shown in the table below:



							Balance as of December 31,
State	Property Type (1)	Face Amount		Interest Rate		Maturity Date	2013		2012
(dollars in thousands)
Construction mortgage notes:
Oklahoma	MOB	$	94,889	7.72	%	09/30/14	$	79,969	$	56,842
Missouri	Inpatient	111,400		8.17	%	12/31/13	—		61,599
Total construction mortgage notes							79,969		118,441

Other mortgage notes:
Iowa	Other	$	40,000	7.70	%	01/10/14	39,973		40,000
Florida	MOB	3,750		7.50	%	04/10/15	3,750		3,750
Texas	Land	3,666		5.00%-6.00%		03/25/15	1,855		—
Total other mortgage notes							45,578		43,750

Total Mortgage notes receivable							$	125,547	$	162,191

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(1) MOB - Medical office building.

Construction Mortgage Note Fundings

During 2013, the Company funded $58.7 million on two construction mortgage notes for build-to-suit facilities leased to Mercy Health based in St. Louis, Missouri. Details on the two projects are as follows:

•

At December 31, 2013, the Company had a construction mortgage note receivable on a medical office building under construction in Oklahoma. The Company provided $23.1 million in fundings during 2013, bringing cumulative fundings to date to $80.0 million. This project, which was originally scheduled to be completed in July 2013, sustained tornado damage in late May 2013. The tornado damage caused a delay in the completion date, and while subject to change, is now expected to be completed by June 2014. Builder's risk insurance is expected to fund the total scope of necessary repairs. The Company will continue to recognize mortgage interest income through the delayed completion and expects to receive interest payments in cash from insurance proceeds. The interest rate on this construction mortgage note increased effective October 1, 2013 from 6.75% to 7.72%. Approximately $14.9 million remained available under the loan at December 31, 2013. The Company expects the remaining funding to complete the project to be $11.2 million. Upon completion, the Company will acquire the property for an expected purchase price of $91.2 million, subject to change based on the final project costs.

•

In September 2013, the Company acquired an orthopedic facility in Missouri for $102.6 million, including the elimination of the construction mortgage note receivable totaling $97.2 million and cash consideration of approximately $5.4 million. The facility is 100% leased to Mercy Health. The Company provided $35.6 million in fundings toward the facility under a construction mortgage note during 2013. See Note 4 for details regarding the Company's acquisition.

Mortgage Note Receivable Default

The Company holds a $40.0 million loan that is secured by a first position mortgage on a multi-tenant office building in Iowa that is 93% leased. Interest only payments at a fixed rate of 7.7% were due, and paid, through the maturity of the loan on January 10, 2014. In addition, an exit fee of $1.5 million was due upon maturity of the loan. The borrower has not made the balloon principal and exit fee payments at maturity. The borrower has agreed to transfer its interest the property to the Company in satisfaction of the debt. Cash flows from operations of the property continue to cover monthly interest payments. Management believes the fair value of the property that secures the mortgage loan equals or exceeds the carrying value of the mortgage note receivable and expects that cash flows from operations will continue to provide a return to the Company at a rate greater than the fixed interest payments due prior to maturity.