3. ACQUISITIONS

On November 1, 2010, ALC completed the acquisition of nine senior living residences from HCP, Inc. The nine residences, two of which are located in New Jersey and seven in Texas, contain a total of 365 units and were previously leased and operated by ALC under leases expiring between November 2010 and May 2012. The cash purchase price was $27.5 million plus certain transaction costs and was allocated $24.1 million to buildings and $3.4 million to land. As part of the consideration, ALC reclassified $0.5 million of unamortized leasehold improvements to property and equipment.

Because ALC has operated these nine properties in all periods presented, no transaction related pro forma adjustments to revenues are necessary in the consolidated financial statements of operations for all periods presented.

The pro forma impact on income from operations before tax and net income would have been an increase in each reported amount by approximately $0.1 million in 2010. The pro forma impact for the 2010 period consists of a decrease from reported residence lease expense of $2.7 million and an increase in reported interest expense, depreciation and amortization, and income tax expense of $1.8 million, $0.7 million, and $0.1 million, respectively. The pro forma impact related to interest expense assumes the transaction was 100% financed using an interest rate of 6.5%.

On June 15, 2012, ALC signed and closed on an agreement (the "Purchase Agreement") with Ventas Realty, Limited Partnership ("Ventas Realty") and MLD Delaware Trust ("MLD") to purchase 12 residences consisting of 696 units (the "Properties") for a purchase price of $97 million plus $3 million for a litigation settlement fee plus Ventas's expenses in connection with the litigation. The Properties, five located in Georgia, four in South Carolina and one in each of Florida, Alabama and Pennsylvania were previously operated by ALC under (i) the Amended and Restated Master Lease Agreement, dated as of January 1, 2008, between Ventas Realty and various ALC subsidiaries signatory thereto, and (ii) the Master Lease and Security Agreement, effective January 1, 2002, between MLD and ALC (together the "Master Leases"). The transaction was funded with borrowings available under ALC's $125 million revolving credit agreement.

As part of the Purchase Agreement, Ventas Realty and MLD have agreed to release all past, present and future claims with respect to the Master Leases, the Properties and the Guaranty of Lease dated as of January 1, 2008, made by ALC for the benefit of Ventas Realty, as well as those set forth in the complaint and amended complaint filed in Ventas Realty, Limited Partnership v. ALC CVMA, LLC, et al., 12-cv-03107, in the United States District Court for the Northern District of Illinois. Additionally, pursuant to the Purchase Agreement, ALC is obligated to indemnify Ventas against losses from third party claims, arising on or prior to the nine year anniversary of the Purchase Agreement, relating to the Master Leases or the Properties. No claims are expected to arise and none have been recorded in connection with the acquisition.

The 2012 pro forma impact on net income from operations and net income would have been an increase in each reported amount by approximately $0.6 million and $0.4 million, respectively. The pro forma impact for the 2012 period consists of a decrease from reported residence lease expense of $3.0 million and an increase in reported interest expense, depreciation and amortization, and income tax expense of $1.5 million, $0.9 million, and $0.2 million, respectively. The pro forma impact related to interest expense assumes the transaction was 100% financed using an interest rate of 3.3%.

The following table summarizes the initial estimated fair values of the assets acquired at the acquisition date (no liabilities were assumed):

	(In thousands)
Land	$	5,770
Building and building improvements		56,800
Total	$	62,570

ALC also reclassified $3.1 million of unamortized leasehold improvements to land improvements, building and building improvements.

ALC obtained third party appraisals to determine the fair value received. Such appraisals are preliminary and subject to change. In conjunction with the acquisition, ALC also recorded a $37.5 million lease termination and settlement fee, an $8.7 million write-off of an operating lease intangible, and $1.0 million of transaction costs.