Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2011

Acquisitions and Dispositions [Abstract]

Note 3. Acquisitions and Dispositions

Real Estate Acquisitions

On June 29, 2011, the Company entered into an agreement to purchase a portfolio of eight outpatient buildings in Virginia from affiliates of Woolfolk Medical Group, LLC for an aggregate purchase price of approximately $160.7 million, including the assumption of debt of approximately $58.4 million. Concurrent with the acquisitions, the Company will also prepay ground rent of approximately $12.8 million. Bon Secours Health System (“BSHS”) and its affiliates lease approximately 40% of the total square footage of the portfolio. BSHS is a not-for-profit, “A-” rated, health system, based in Marriottsville, Maryland, that generates $2.8 billion in revenue and operates 18 acute care hospitals with approximately 2,938 beds throughout 15 markets in seven states. The seven properties on BSHS hospital campuses and the one off-campus property comprise 595,000 square feet and were approximately 96% leased at June 30, 2011. On June 30, 2011, the Company acquired one of the eight buildings for cash consideration of approximately $34.8 million, including prepaid ground rent of approximately $2.9 million, and also made earnest money deposits totaling approximately $2.4 million for the remaining seven buildings. The Company expects that the acquisitions of the remaining buildings, for additional cash consideration of approximately $78.5 million, will occur in a series of closings through the end of the third quarter of 2011, subject to customary closing conditions.

The Company has expensed a total of approximately $0.9 million in project costs related to the acquisition of this portfolio, including approximately $0.3 million and $0.6 million, respectively, expensed during the three and six months ended June 30, 2011. The purchase price allocation reflected in the Company’s Condensed Consolidated Financial Statements for the building acquired on June 30, 2011 is preliminary and is pending information necessary to complete the valuation of real estate and intangible assets, which may result in a change from the initial estimate. The Company expects that the allocation of the purchase price will be finalized during the third quarter of 2011.

Mortgage Note Financings

On June 30, 2011, the Company entered into two construction mortgage loans to fund the development of two build-to-suit facilities affiliated with Mercy Health. The two projects include a 200,000 square foot medical office building in Oklahoma with a construction budget of approximately $91.2 million and a 186,000 square foot orthopedic surgical facility in Missouri with a construction budget of approximately $111.4 million. The loans have stated interest rates of 6.75% and are scheduled to mature upon substantial completion which is estimated to be in the latter half of 2013. The Company has agreed to acquire the facilities upon substantial completion of construction at a price equal to the amount outstanding under the mortgage notes. The facilities are leased by affiliates of Mercy Health under 14-year absolute net leases with options to purchase the buildings contingent on certain provisions in the lease agreements. Mercy Health, based in St. Louis, Missouri is the eighth largest Catholic healthcare system in the U.S., has a net worth of more than $2 billion, and maintains a “AA-” credit rating. Mercy Health operates 26 acute care hospitals and two heart hospitals in a seven-state area. On June 30, 2011, the Company funded approximately $24.0 million toward the development of the two facilities, with the remaining $178.6 million expected to be funded over a 28-month period.

During the first quarter of 2011, the Company originated the following mortgage notes receivable:

•

a $40.0 million mortgage loan that is secured by a multi-tenanted office building located in Iowa that was 94% leased at the time the mortgage was originated. The mortgage loan requires interest only payments through maturity, has a stated fixed interest rate of 7.7% and matures in January 2014;

•

a $2.7 million mortgage note receivable with the purchaser in conjunction with the disposal of a medical office building located in Florida as discussed below. The loan has a stated fixed interest rate of 7.0% and matures in March 2016; and

•

a $3.7 million loan for the construction of a medical office building located in Missouri. The loan has a stated interest rate of 11.0% and matures in 2012. The Company had funded $1.4 million on the loan as of June 30, 2011.

Also, during the three and six months ended June 30, 2011, the Company funded approximately $10.4 million and $17.8 million, respectively, on existing construction mortgage loans.

Purchase of Noncontrolling Interests

In March 2011, the Company purchased from the noncontrolling interest holder the remaining 20% equity interest in its HR Ladco Holdings, LLC joint venture and the remaining 1.25% equity interest in its Lakewood MOB, LLC joint venture, for a total aggregate purchase price of $5.1 million. The book value of the noncontrolling interests prior to the equity purchase was $3.6 million. Concurrent with these purchases, the noncontrolling interest holder repaid a loan receivable to the Company totaling $3.5 million. The loan receivable had been secured by the noncontrolling joint venture interests. The Company had previously consolidated these joint ventures in its financial statements. HR Ladco Holdings, LLC at March 31, 2011 owned nine 100% leased outpatient facilities located in Iowa with an aggregate investment of approximately $87.6 million and 369,000 square feet. Lakewood MOB, LLC is constructing two medical office buildings and a parking garage located in Colorado with an aggregate budget of approximately $54.9 million.

The following table details the Company’s acquisitions for the six months ended June 30, 2011.


							Note Receivable			Mortgage Note		Noncontrolling
(Dollars in millions)	Date Acquired		Cash Consideration		Real Estate		Repayment			Financing		interests		APIC		Other			Square Footage

Real estate acquisitions
Virginia		06/30/2011	$	34.8	$	32.0	$	—		$	—	$	—	$	—	$	2.8			142,000
Purchase of noncontrolling interests
Lakewood MOB, LLC		03/15/2011	$	0.5	$	—	$	—		$	—	$	0.2	$	—	$	0.3			—
HR Ladco Holdings, LLC		03/31/2011		0.8		—		(3.5	)		—		3.4		1.5		(0.6	)		—

				1.3		—		(3.5	)		—		3.6		1.5		(0.3	)		—
Mortgage note financings (1)
Iowa		01/03/2011		40.0		—		—			40.0		—		—		—			—
Florida		02/03/2011		2.7		—		—			2.7		—		—		—			—
Missouri		03/24/2011		1.4		—		—			1.4		—		—		—			—
Missouri		06/30/2011		11.0		—		—			11.0		—		—		—			—
Oklahoma		06/30/2011		13.0		—		—			13.0		—		—		—			—

				68.1		—		—			68.1		—		—		—			—

			$	104.2	$	32.0	$	(3.5	)	$	68.1	$	3.6	$	1.5	$	2.5			142,000


(1)		Amounts in table include fundings through June 30, 2011.

Asset Dispositions

During the first quarter of 2011, the Company disposed of the following properties:

•

a 35,761 square foot medical office building in Maryland in which the Company had a net investment of approximately $3.5 million. The Company received approximately $3.4 million in net proceeds and recorded a $0.1 million impairment charge on the disposal.

•

a 28,861 square foot physician clinic in Florida in which the Company had a net investment of approximately $3.1 million. The Company received approximately $0.4 million in net cash proceeds, originated a $2.7 million mortgage note receivable with the purchaser as discussed above, and recognized an immaterial gain on the disposition.

The following table details the Company’s dispositions for the three and six months ended June 30, 2011.


					Net Real Estate		Mortgage Note			Gain/
(Dollars in millions)	Date Disposed		Net Proceeds		Investment		Receivable			(Loss)			Square Footage

Real estate dispositions
Maryland		01/19/2011	$	3.4	$	3.5	$	—		$	(0.1	)		35,761
Florida		02/03/2011		0.4		3.1		(2.7	)		—			28,861

Total dispositions			$	3.8	$	6.6	$	(2.7	)	$	(0.1	)		64,622

Potential Dispositions

In the fourth quarter of 2010, the Company received notice from a tenant of its intent to purchase six skilled nursing facilities in Michigan and Indiana pursuant to purchase options contained in its leases with the Company. The Company’s aggregate net investment in the buildings, which are classified as held for sale, was approximately $8.2 million at June 30, 2011. The aggregate purchase price for the properties is expected to be approximately $17.3 million, resulting in an expected net gain of approximately $9.1 million. The Company expects the sale to close during the third quarter of 2011.

Discontinued Operations and Assets Held for Sale

During the first quarter of 2011, the Company sold one property in Florida and one property in Maryland and reclassified one property located in Tennessee that was previously classified as held for sale to held for use upon execution of a long-term lease. The Company’s gross investment in the Tennessee property was approximately $1.1 million ($0.5 million, net) at June 30, 2011.

The tables below detail the assets, liabilities, and results of operations included in discontinued operations on the Company’s Condensed Consolidated Statements of Operations and in assets and liabilities of discontinued operations on the Company’s Condensed Consolidated Balance Sheets. At June 30, 2011 and December 31, 2010, the Company had eight and 11 properties, respectively, classified as held for sale, including the six properties discussed above in “Potential Dispositions.” Of the 11 properties classified as held for sale at December 31, 2010, two of the properties were sold and one was reclassified to held for use during the first quarter of 2011.


	June 30,			December 31,
(Dollars in thousands)	2011			2010

Balance Sheet data (as of the period ended):
Land	$	4,766		$	7,099
Buildings, improvements and lease intangibles		27,117			35,424
Personal property		425			429

		32,308			42,952
Accumulated depreciation		(15,883	)		(19,447	)

Assets held for sale, net		16,425			23,505

Other assets, net (including receivables)		60			410

Assets of discontinued operations, net		60			410


Assets held for sale and discontinued operations, net	$	16,485		$	23,915


Accounts payable and accrued liabilities	$	107		$	229
Other liabilities		108			194

Liabilities of discontinued operations	$	215		$	423


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Dollars in thousands, except per share data)	2011			2010		2011			2010

Statements of Operations data (for the period ended):
Revenues
Master lease rent	$	669		$	888	$	1,337		$	2,749
Property operating		135			592		375			1,206
Straight-line rent		(1	)		9		(1	)		(7	)
Other operating		—			—		—			1

		803			1,489		1,711			3,949

Expenses
General and administrative		2			4		3			6
Property operating		303			543		705			1,104
Bad debt, net		—			21		15			21
Depreciation		—			374		—			761

		305			942		723			1,892

Other Income (Expense)
Interest and other income, net		—			183		—			224

		—			183		—			224


Discontinued Operations
Income from discontinued operations		498			730		988			2,281
Impairment		—			—		(147	)		—
Gain on sales of real estate properties		—			1,525		36			4,221


Income from Discontinued Operations	$	498		$	2,255	$	877		$	6,502


Income from Discontinued Operations per Common Share — Basic	$	0.01		$	0.04	$	0.02		$	0.10


Income from Discontinued Operations per Common Share — Diluted	$	0.01		$	0.03	$	0.02		$	0.10