Real Estate and Loans Receivable | 12 Months Ended |
Dec. 31, 2013 |
Text Block [Abstract] | ' |
Real Estate and Loans Receivable | ' |
3 | Real Estate and Loans Receivable | | | | | | | | | | | | | | | | | |
|
Acquisitions |
|
We acquired the following assets: |
|
|
| | | | | | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | 2011 | | | | | | | |
Assets Acquired | | | (in thousands) | | | | | | | |
Land | | $ | 41,473 | | | $ | 518 | | | $ | 19,705 | | | | | | | |
Building | | | 439,030 | | | | 8,942 | | | | 220,769 | | | | | | | |
Intangible lease assets — subject to amortization (weighted average useful life 21.0 years in 2013, 15.0 years in 2012 and 13.9 years in 2011) | | | 38,589 | | | | 1,040 | | | | 20,630 | | | | | | | |
Net investments in direct financing leases | | | 110,580 | | | | 310,000 | | | | — | | | | | | | |
Mortgage loans | | | 20,000 | | | | 200,000 | | | | — | | | | | | | |
Other loans | | | 5,250 | | | | 95,690 | | | | 27,283 | | | | | | | |
Equity investments | | | — | | | | 5,300 | | | | 5,168 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total assets acquired | | $ | 654,922 | | | $ | 621,490 | | | $ | 293,555 | | | | | | | |
Total liabilities assumed | | | — | | | | — | | | | (14,592 | ) | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 654,922 | | | $ | 621,490 | | | $ | 278,963 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
2013 Activity |
|
RHM Portfolio Acquisition |
|
On November 29, 2013, we acquired 11 rehabilitation facilities in the Federal Republic of Germany from RHM Klinik-und Altenheimbetriebe GmbH & Co. KG (“RHM”) for an aggregate purchase price, excluding €9 million applicable transfer taxes, of €175 million or $237.8 million. Each of the facilities are leased to RHM under a master lease providing for a term of 27 years and for annual rent increases of 2.0% from 2015 through 2017, and of 0.5% thereafter. On December 31, 2020 and every three years thereafter, rent will be increased to reflect 70% of cumulative increases in the German consumer price index. |
|
The RHM Acquisition represents our first acquisition outside of the United States. This acquisition adds a portfolio of assets with a financially stable long-term operating history and helps improve both our tenant and geographic diversification. As of December 31, 2013, we had $240.5 million of gross real estate assets located outside of the United States that generated $1.8 million of revenue in 2013. |
|
On December 12, 2013, we acquired the real estate of Dallas Medical Center in Dallas, Texas from affiliates of Prime for a purchase price of $25 million and leased the facility to Prime with an initial 10-year lease term under the master lease agreement, plus two renewal options of five years each. This lease is accounted for as a direct financing lease. |
|
On September 26, 2013, we acquired three general acute care hospitals from affiliates of IASIS for a combined purchase price of $281.3 million. Each of the facilities were leased back to IASIS under leases with initial 15-year terms plus two renewal options of five years each, and consumer price-indexed rent increases limited to a 2.5% ceiling annually. The lessees have a right of first refusal option with respect to subsequent proposed sales of the facilities. All of our leases with affiliates of IASIS will be cross-defaulted with each other. In addition to the IASIS acquisitions transactions, we have amended our lease with IASIS for the Pioneer Valley Hospital in West Valley City, Utah, which extended the lease to 2028 from 2019 and adjusted the rent. |
|
|
|
On July 18, 2013, we acquired the real estate of Esplanade Rehab Hospital in Corpus Christi, Texas (now operating as Corpus Christi Rehabilitation Hospital). The total purchase price was $10.5 million including $0.5 million for adjacent land. The facility is leased to an affiliate of Ernest under the master lease agreement entered into with Ernest in 2012 that initially provided for a 20-year term with three five-year extension options, plus consumer price-indexed rent increases, limited to a 2% floor and 5% ceiling annually. This lease is accounted for as a DFL. In addition, we made a $5.3 million loan on this property with terms similar to the lease terms. |
|
On June 11, 2013, we acquired the real estate of two acute care hospitals in Kansas from affiliates of Prime for a combined purchase price of $75 million and leased the facilities to the operator under a master lease agreement. The master lease is for 10 years and contains two renewal options of five years each, and the rent increases annually based on the greater of the consumer price-index or 2%. This lease is accounted for as a DFL. |
|
On December 31, 2013, we provided a $20 million mortgage financing to Alecto Healthcare Services for the 204-bed Olympia Medical Center. |
|
The purchase price allocations attributable to the RHM and IASIS acquisitions are preliminary. When all relevant information is obtained, resulting changes, if any, to our provisional purchase price allocation will be retrospectively adjusted to reflect new information obtained about the facts and circumstances that existed as of the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates. |
|
From the respective acquisition dates, these 2013 acquisitions contributed $13.6 million and $10.6 million of revenue and income (excluding related acquisition expenses) for the period ended December 31, 2013. In addition, we incurred $19.5 million of acquisition related expenses in 2013, of which $18.0 million (including $12 million in transfer taxes as a part of the RHM acquisition) related to acquisitions consummated as of December 31, 2013. |
|
2012 Activity |
|
On February 29, 2012, we made loans to and acquired assets from Ernest for a combined purchase price and investment of $396.5 million (“Ernest Transaction”). |
|
Real Estate Acquisition and Mortgage Loan Financing |
|
Pursuant to a definitive real property asset purchase agreement, we acquired from Ernest and certain of its subsidiaries (i) a portfolio of five rehabilitation facilities (including a ground lease interest relating to a community-based acute rehabilitation facility in Wyoming), (ii) seven long-term acute care facilities located in seven states and (iii) undeveloped land in Provo, Utah (collectively, the “Acquired Facilities”) for an aggregate purchase price of $200 million, subject to certain adjustments. The Acquired Facilities are leased to subsidiaries of Ernest pursuant to a master lease agreement. The master lease agreement has a 20-year term with three five-year extension options and provided for an initial rental rate of 9%, with consumer price-indexed increases, limited to a 2% floor and 5% ceiling annually thereafter. In addition, we made Ernest a $100 million loan secured by a first mortgage interest in four subsidiaries of Ernest, which has terms similar to the leasing terms described above. |
|
Acquisition Loan and Equity Contribution |
|
Through an affiliate of one of our TRSs, we made investments of approximately $96.5 million in Ernest Health Holdings, LLC, which is the owner of Ernest. These investments are structured as a $93.2 million acquisition loan and a $3.3 million equity contribution. |
|
The interest rate on the acquisition loan is 15%. Ernest is required to pay us a minimum of 6% and 7% of the loan amount in years one and two, respectively, and 10% thereafter, although there are provisions in the loan agreement that are expected to result in full payment of the 15% preference when funds are sufficient. Any of the 15% in excess of the minimum that is not paid may be accrued and paid upon the occurrence of a capital or liquidity event and is payable at maturity. The loan may be prepaid without penalty at any time. |
|
On July 3, 2012, we funded a $100 million mortgage loan secured by the real property of Centinela Hospital Medical Center. Centinela is a 369 bed acute care facility that is operated by Prime. This mortgage loan is cross-defaulted with other mortgage loans to Prime and certain master lease agreements. The initial term of this mortgage loan runs through 2022. |
|
On September 19, 2012, we acquired the real estate of the 380 bed St. Mary’s Regional Medical Center, an acute care hospital in Reno, Nevada for $80 million and the real estate of the 140 bed Roxborough Memorial Hospital in Pennsylvania for $30 million. The acquired facilities are leased to Prime pursuant to a master lease agreement, which is more fully described below in the Leasing Operations section. |
|
On December 14, 2012, we acquired the real estate of a 40 bed long-term acute care hospital in Hammond, Louisiana for $10.5 million and leased the facility to the operator under a 15-year lease, with three five-year extension options. The rent escalates annually based on consumer price indexed increases. As part of this transaction, we made a secured working capital loan of $2.5 million as well as a revolving loan of up to $2.0 million. In addition, we made a $2.0 million equity investment for a 25% equity ownership in the operator of this facility. |
|
From the respective acquisition dates in 2012 through that year end, these 2012 acquisitions contributed $46.3 million and $46.1 million of revenue and income (excluding related acquisition expenses) for the period ended December 31, 2012. In addition, we incurred $5.4 million of acquisition related expenses in 2012, of which $5.1 million related to acquisitions consummated as of December 31, 2012. |
|
2011 Activity |
|
On January 4, 2011, we acquired the real estate of the 19-bed, 4-year old Gilbert Hospital in a suburb of Phoenix, Arizona area for $17.1 million. Gilbert Hospital is operated by affiliates of Visionary Health, LLC, the same group that operates our Florence, Arizona facility. We acquired this asset subject to an existing lease that expires in May 2022. The lease contains three five-year extension options, and the rent escalates annually at 2.5%. |
|
On January 31, 2011, we acquired for $23.5 million the real estate of the 60-bed Atrium Medical Center at Corinth in the Dallas area, a long-term acute care hospital that was completed in 2009 and is subject to a lease that expires in June 2024. The lease contains two ten-year extension options, and the rent escalates annually based on consumer price indexed increases and to be not less than 1% or greater than 5%. In addition, through one of our affiliates, we invested $1.3 million to acquire approximately 19% of a joint venture arrangement with an affiliate of Vibra Healthcare, LLC (“Vibra”) that will manage and has acquired a 51% interest in the operations of the facility. We also made a $5.2 million working capital loan to the joint venture. The former operators of the hospital, comprised primarily of local physicians, retained ownership of 49% of the operating entity. |
|
On February 4, 2011, we purchased for $58 million the real estate of Bayonne Medical Center, a 6-story, 278-bed acute care hospital in the New Jersey area of metropolitan New York, and leased the facility to the operator under a 15-year lease, with six five-year extension options. The rent escalates annually based on consumer price indexed increases. The operator is an affiliate of a private hospital operating company that acquired the hospital in 2008. |
|
On February 9, 2011, we acquired the real estate of the 306-bed Alvarado Hospital in San Diego, California for $70 million from Prime. Prime is the operator of the facility. |
|
|
|
On February 14, 2011, we completed the acquisition of the Northland LTACH Hospital located in Kansas City, a 35-bed hospital that opened in April 2008 and has a lease that expires in 2028. The lease contains three five-year extension options, and the rent increases annually at 2.75%. This hospital is currently being operated by Kindred Healthcare Inc. The purchase price of this hospital was $19.5 million, which included the assumption of a $15 million existing mortgage loan that matures in January 2018. |
|
On July 18, 2011, we acquired the real estate of the 40-bed Vibra Specialty Hospital of DeSoto in Desoto, Texas for $13.0 million. This long-term acute care facility is leased to a subsidiary of Vibra for a fixed term of 15 years with three five-year extension options. Rent escalates annually based on consumer priced indexed increases. In addition, we made a $2.5 million equity investment in the operator of this facility for a 25% equity ownership. |
|
On September 30, 2011, we purchased the real estate of a 40-bed long-term acute care facility in New Braunfels, Texas for $10.0 million. This facility is leased to an affiliate of Post Acute Medical, LLC for a fixed term of 15 years with three five-year extension options. Rent escalates annually based on consumer priced indexed increases. In addition, we made a $1.4 million equity investment for a 25% equity ownership in the operator of this facility and funded a $2.0 million working capital loan. |
|
On November 4, 2011, we made investments in Hoboken University Medical Center in Hoboken, New Jersey, a 350-bed acute care facility. The total investment for this transaction was $75.0 million, comprising $50.0 million for the acquisition of an 100% ownership of the real estate, a secured working capital loan of up to $20.0 million (of which $15.1 million has been funded to-date), and the funding of a $5.0 million convertible note, which provides us with the option to acquire up to 25% of the hospital operator—See Loans section of this Note 3 for an update. The lease with the tenant has an initial term of 15 years, contains six five-year extension options, and the rent escalates annually based on consumer price indexed increases. |
|
From the respective acquisition dates in 2011 through that year-end, these 2011 acquisitions contributed $21.2 million of revenue and $14.1 million of income (excluding related acquisition expenses). In addition, we incurred $4.2 million in acquisition related expenses in 2011, of which $1.9 million related to acquisitions consummated as of December 31, 2011. |
|
The results of operations for each of the properties acquired in 2013 and 2012 are included in our consolidated results from the effective date of each acquisition. The following table sets forth certain unaudited pro forma consolidated financial data for 2013 and 2012, as if each acquisition was consummated on the same terms at the beginning of 2012 and 2011, respectively. Supplemental pro forma earnings were adjusted to exclude $18.0 million and $5.1 million of acquisition-related costs on these consummated deals incurred during 2013 and 2012, respectively (dollar amounts in thousands except per share/unit data). |
|
|
| | | | | | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | | | |
| | (Amounts in thousands | | | | | | | | | | | |
except per share/unit | | | | | | | | | | |
amounts) | | | | | | | | | | |
Total revenues | | $ | 288,159 | | | $ | 280,539 | | | | | | | | | | | |
Net income | | | 133,258 | | | | 135,402 | | | | | | | | | | | |
Net income per share/unit | | $ | 0.82 | | | $ | 0.85 | | | | | | | | | | | |
|
|
|
Development Activities |
|
On June 11, 2013, we entered into a master funding and development agreement with First Choice Emergency Room, LLC (“First Choice”) to develop up to 25 freestanding emergency room facilities for a maximum aggregate funding of $100 million. During 2013, we began construction on eight of these emergency room facilities for a total development price of $37.8 million. One of the facilities was completed in the fourth quarter of 2013, while the others are expected to be completed in 2014. We have funded $9.1 million through the end of 2013 for these facilities still under construction. |
|
On May 20, 2013, we entered into an agreement to finance the development of and lease an inpatient rehabilitation facility in South Ogden, Utah for $19.2 million, which will be leased to Ernest under the 2012 master lease. The facility is expected to be completed in the 2014 second quarter. We have funded $16.4 million through the end of 2013. |
|
On March 4, 2013, we entered into an agreement to finance the development of and lease an inpatient rehabilitation facility in Post Falls, Idaho for $14.4 million, which will be leased to Ernest under the 2012 master lease. |
|
On December 20, 2012, we entered into an agreement to finance the development of and lease an acute care facility in Altoona, Wisconsin for $33.5 million, which will be leased to an affiliate of National Surgical Hospitals. |
|
On October 1, 2012, we agreed to fund the construction of an inpatient rehabilitation hospital in Spartanburg, South Carolina that will be operated by Ernest. The facility was completed in 2013 for a total development cost of $16.9 million, and we began recognizing rent in August 2013. |
|
On June 13, 2012, we entered into an agreement with Ernest to fund the development of and lease a 40-bed rehabilitation hospital in Lafayette, Indiana. The facility was completed in 2013 for a total development costs of $15.7 million, and we began recognizing rent in February 2013. |
|
On May 4, 2012, we amended the current lease on our Victoria, Texas facility with Post Acute Medical to extend the current lease term to 2028, and we agreed to develop and lease a 26-bed facility next to the existing facility. The facilities will be operated as separate LTACH and rehabilitation hospitals. We completed development of the rehabilitation facility in 2013 for a total development costs of $9.4 million, and began recognizing rent in December 2013. |
|
On March 1, 2012, we received a certificate of occupancy for our constructed Florence acute care facility near Phoenix, Arizona. With this, we started recognizing rent on this facility in March 2012. Land and building costs associated with this property approximates $30 million, and the lease term is 25 years. |
|
On October 14, 2011, we entered into agreements with a joint venture of Emerus Holding, Inc. and Baptist Health System, to acquire, provide for development funding and lease three acute care hospitals for $30.0 million in the suburban markets of San Antonio, Texas. The three facilities are subject to a master lease structure with an initial term of 15 years and three five-year extension options. Rent escalates annually based on consumer priced indexed increases and to be not less than one percent or greater than three percent. We completed development and started recognizing rent on one of the facilities in October 2012 and in 2013 for the remaining two facilities. |
|
In regards to our Twelve Oaks facility, approximately 55% of this facility became occupied as of January 23, 2013, pursuant to a 15 year lease. |
|
|
|
See table below for a status update on our current development projects (in thousands): |
|
|
| | | | | | | | | | | | | | | | | | |
Property | | Location | | Property Type | | Operator | | Commitment | | | Costs Incurred | | | Estimated | |
as of | Completion |
12/31/13 | Date |
First Choice ER- Nacogdoches | | San Antonio, TX | | Acute Care Hospital | | First Choice ER, LLC | | $ | 5,100 | | | $ | 2,681 | | | | 1Q 2014 | |
First Choice ER- Brodie | | Austin, TX | | Acute Care Hospital | | First Choice ER, LLC | | | 5,470 | | | | 1,950 | | | | 2Q 2014 | |
First Choice ER- Alvin | | Houston, TX | | Acute Care Hospital | | First Choice ER, LLC | | | 5,240 | | | | 1,328 | | | | 2Q 2014 | |
Northern Utah Rehabilitation Hospital | | South Ogden, UT | | Inpatient Rehabilitation Hospital | | Ernest Health, Inc. | | | 19,153 | | | | 16,391 | | | | 2Q 2014 | |
First Choice ER- Briar Forest | | Houston, TX | | Acute Care Hospital | | First Choice ER, LLC | | | 5,833 | | | | 1,386 | | | | 3Q 2014 | |
First Choice ER- Cedar Hill | | Cedar Hill, TX | | Acute Care Hospital | | First Choice ER, LLC | | | 5,768 | | | | 1,167 | | | | 3Q 2014 | |
First Choice ER- Firestone | | Firestone, CO | | Acute Care Hospital | | First Choice ER, LLC | | | 5,172 | | | | 544 | | | | 3Q 2014 | |
Oakleaf Surgical Hospital | | Altoona, WI | | Acute Care Hospital | | National Surgical | | | 33,500 | | | | 16,324 | | | | 3Q 2014 | |
Hospitals |
First Choice Emergency Rooms | | Various | | Acute Care Hospital | | First Choice | | | 62,217 | | | | — | | | | Various | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 147,453 | | | $ | 41,771 | | | | | |
| | | | | | | | | | | | | | | | | | |
|
Disposals |
|
On November 27, 2013, we sold the real estate of an inpatient rehabilitation facility, Warm Springs Rehabilitation Hospital of San Antonio, for $14 million, resulting in a gain on sale of $5.6 million. |
|
On April 17, 2013, we sold two long-term acute care hospitals, Summit Hospital of Southeast Arizona and Summit Hospital of Southeast Texas, for total proceeds of $18.5 million, resulting in a gain of $2.1 million. |
|
On December 27, 2012, we sold our Huntington Beach facility for $12.5 million, resulting in a gain of $1.9 million. Due to this sale, we wrote-off $0.7 million of straight-line rent receivable. |
|
During the third quarter of 2012, we entered into a definitive agreement to sell the real estate of two LTACH facilities, Thornton and New Bedford, to Vibra for total cash proceeds of $42 million. The sale of Thornton was completed on September 28, 2012, resulting in a gain of $8.4 million. Due to this sale, we wrote-off $1.6 million in straight-line rent receivables. The sale of New Bedford was completed on October 22, 2012, resulting in a gain of $7.2 million. Associated with this sale, we wrote-off $4.1 million in straight-line rent receivables in the fourth quarter 2012. |
|
On August 21, 2012, we sold our Denham Springs facility for $5.2 million, resulting in a gain of $0.3 million. |
|
On June 15, 2012, we sold the HealthSouth Rehabilitation Hospital of Fayetteville in Fayetteville, Arkansas for $16 million, resulting in a loss of $1.4 million. In connection with this sale, HealthSouth Corporation agreed to extend the lease on our Wichita, Kansas property, which is now set to end in March 2022. |
|
On December 30, 2011, we sold Sherman Oaks Hospital in Sherman Oaks, California to Prime for $20.0 million, resulting in a gain of $3.1 million. Due to this sale, we wrote-off $1.2 million in straight-line rent receivables. |
|
On December 30, 2011, we sold MountainView Regional Rehabilitation Hospital in Morgantown, West Virginia to HealthSouth Corporation for $21.1 million, resulting in a gain of $2.3 million. |
|
|
|
For each of these disposals, the operating results of these facilities for the current and all prior periods have been included in discontinued operations, and we have reclassified the related real estate to Real Estate Held for Sale. |
|
Intangible Assets |
|
At December 31, 2013 and 2012, our intangible lease assets were $90.5 million ($75.0 million, net of accumulated amortization) and $52.0 million ($40.1 million, net of accumulated amortization), respectively. |
|
We recorded amortization expense related to intangible lease assets of $4.0 million, $3.9 million, and $5.2 million in 2013, 2012, and 2011, respectively, and expect to recognize amortization expense from existing lease intangible assets as follows: (amounts in thousands) |
|
|
| | | | | | | | | | | | | | | | | | |
For the Year Ended December 31: | | | | | | | | | | | | | | | | | |
2014 | | $ | 5,086 | | | | | | | | | | | | | | | |
2015 | | | 4,896 | | | | | | | | | | | | | | | |
2016 | | | 4,855 | | | | | | | | | | | | | | | |
2017 | | | 4,845 | | | | | | | | | | | | | | | |
2018 | | | 4,784 | | | | | | | | | | | | | | | |
|
As of December 31, 2013, capitalized lease intangibles have a weighted average remaining life of 18.6 years. |
|
Leasing Operations |
|
All of our leases are accounted for as operating leases except we are accounting for 13 Ernest facilities and five Prime facilities as DFLs. The components of our net investment in DFLs consisted of the following (dollars in thousands): |
|
|
| | | | | | | | | | | | | | | | | | |
| | As of December 31, | | | | | | | | | | | | | | | |
2013 | | | | | | | | | | | | | | |
Minimum lease payments receivable | | $ | 1,647,567 | | | | | | | | | | | | | | | |
Estimated residual values | | | 211,863 | | | | | | | | | | | | | | | |
Less unearned income | | | (1,428,406 | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net investment in direct financing leases | | $ | 431,024 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
Minimum rental payments due to us in future periods under operating leases and DFL, which have non-cancelable terms extending beyond one year at December 31, 2013, are as follows: (amounts in thousands) |
|
|
| | | | | | | | | | | | | | | | | | |
| | Total Under | | | Total Under | | | Total | | | | | | | |
Operating Leases | DFLs | | | | | | |
2014 | | $ | 166,602 | | | $ | 42,535 | | | $ | 209,137 | | | | | | | |
2015 | | | 164,754 | | | | 43,386 | | | | 208,140 | | | | | | | |
2016 | | | 165,517 | | | | 44,254 | | | | 209,771 | | | | | | | |
2017 | | | 165,418 | | | | 45,139 | | | | 210,557 | | | | | | | |
2018 | | | 165,679 | | | | 46,041 | | | | 211,720 | | | | | | | |
Thereafter | | | 1,536,759 | | | | 601,981 | | | | 2,138,740 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 2,364,729 | | | $ | 823,336 | | | $ | 3,188,065 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
On July 3, 2012, we entered into master lease agreements with certain subsidiaries of Prime, which replaced the then current leases with the same tenants covering the same properties. The master leases are for 10 years and contain two renewal options of five years each. The initial lease rate is generally consistent with the blended average rate of the prior lease agreements. However, the annual escalators, which in the prior leases were limited, have been increased to 100% of consumer price index increases, along with a minimum floor. The master leases include repurchase options substantially similar to those in the prior leases, including provisions establishing minimum repurchase prices equal to our total investment. |
|
In the 2011 fourth quarter, we consented to the sale by Vibra of its Dallas LTACH, for which we own the real estate to an affiliate of LifeCare Reit 2, Inc. (“LifeCare”) and LifeCare executed a restated lease agreement. As a result of this transaction, we wrote off the related straight line rent receivables of $1.3 million and accelerated the amortization of the related lease intangibles resulting in $0.6 million of expense in the 2011 fourth quarter. |
|
Monroe Facility |
|
As of December 31, 2013, we have advanced $31.1 million to the operator/lessee of Monroe Hospital in Bloomington, Indiana pursuant to a working capital loan agreement, including $1.2 million in advances during 2013. In addition, as of December 31, 2013, we have $21.0 million of rent, interest and other charges owed to us by the operator, of which $6.0 million of interest receivables are significantly more than 90 days past due. Because the operator has not made all payments required by the working capital loan agreement and the related real estate lease agreement, we consider the loan to be impaired. During 2010, we recorded a $12 million impairment charge on the working capital loan and recorded a valuation allowance for unbilled straight-line rent in the amount of $2.5 million. We have not recognized any interest income on the Monroe loan since it was considered impaired and have not recorded any unbilled rent since 2010. In addition, we stopped recording rental revenue on April 1, 2013, until we begin receiving cash payments. |
|
At December 31, 2013, our net investment (exclusive of the related real estate) of approximately $40.3 million is our maximum exposure to Monroe and the amount is deemed collectible/recoverable. In making this determination, we considered our first priority secured interest in approximately (i) $4 million in hospital patient receivables, (ii) cash balances of approximately $0.1 million, (iii) our assessment of the realizable value of our other collateral and (iv) projected EBITDA of the hospital operations that we have modeled under various scenarios for sensitivity purposes. In order to recover our aggregate net investment in Monroe, we believe a restructuring of our lease and loan with a new operator may be needed. Among other provisions, we expect this would include our participation in future operating income and sale proceeds, if any, over a multi-year period. We are presently negotiating the potential terms of such a restructuring with several separate parties, although there is no assurance that we will complete a transaction with any of these parties. Moreover, we may conclude that the potential lease income and our share of operating income and sale proceeds would be insufficient for us to recover all of our net investment , in which case further impairment charges would be necessary. The amount, if any, of such further impairment is uncertain, and no assurances can be made that we will not have additional impairment charges on our working capital loan or other receivables in the future. Additional uncertainty may result if our current lessee/borrower enters bankruptcy proceedings, which is possible. |
|
Florence facility |
|
On March 6, 2013, the tenant of our $29.4 million facility in Phoenix, Arizona filed for Chapter 11 bankruptcy. Florence is current on its rent, and at December 31, 2013, we had less than $0.8 million of receivables outstanding. In addition, we have a letter of credit for approximately $1.2 million to cover any rent and other monetary payments not paid in the future. Although no assurances can be made that we will not have any impairment charges in the future, we believe our investment in Florence at December 31, 2013, is fully recoverable. |
|
|
|
Gilbert facility |
|
In 2014, the tenant of our $17.1 million facility in Gilbert, Arizona filed for Chapter 11 bankruptcy, and we sent notice of termination of the lease prior to the bankruptcy filing. Gilbert was current on its rent through December 31, 2013. However, we did have approximately $0.9 million of straight-line rent receivables associated with this lease at December 31, 2013. Although no assurances can be made that we will not have any impairment charges or write-offs of receivables in the future, we believe our investment in Gilbert at December 31, 2013, is fully recoverable. |
|
Loans |
|
The following is a summary of our loans ($ amounts in thousands): |
|
|
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 | | | As of December 31, 2012 | | | |
| | Balance | | | Weighted Average | | | Balance | | | Weighted Average | | | |
Interest Rate | Interest Rate | | |
Mortgage loans | | $ | 388,650 | | | | 10.2 | % | | $ | 368,650 | | | | 10 | % | | |
Acquisition loans | | | 103,266 | | | | 14.5 | % | | | 98,433 | | | | 14.7 | % | | |
Working capital and other loans | | | 57,724 | | | | 10.9 | % | | | 60,810 | | | | 10.8 | % | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 549,640 | | | | | | | $ | 527,893 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
Our mortgage loans cover 9 of our properties with four operators. The increase from 2012 is primarily related to the $20 million loan for the Olympia property as previously discussed under the heading of Acquisitions in this Note 3. |
|
Other loans typically consist of loans to our tenants for acquisitions and working capital purposes. Our $98.0 million acquisition loans with Ernest, our Hoboken convertible loan and our $19.1 million working capital loan to Monroe (net of $12 million loan loss reserve) are included in other loans. |
|
On March 1, 2012, pursuant to our convertible note agreement, we converted $1.6 million of our $5.0 million convertible note into a 9.9% equity interest in the operator of our Hoboken University Medical Center facility. At December 31, 2013, $3.4 million remains outstanding on the convertible note, and we retain the option, to convert this remainder into an additional 15.1% equity interest in the operator. |
|
Concentration of Credit Risks |
|
For the year ended December 31, 2013 and 2012, revenue from affiliates of Ernest (including rent and interest from mortgage and acquisition loans) accounted for 20.2% and 18.6% of total revenue, respectively. From an investment concentration perspective, Ernest represented 15.9% and 18.2% of our total assets at December 31, 2013 and December 31, 2012, respectively. |
|
For the years ended December 31, 2013 and 2012, revenue from affiliates of Prime (including rent and interest from mortgage loans) accounted for 32.0% and 27.3%, respectively, of total revenue. From an investment concentration perspective, Prime represented 24.5% and 27.9% of our total assets at December 31, 2013 and December 31, 2012, respectively. |
|
On an individual property basis, we had no investment of any single property greater than 4% of our total assets as of December 31, 2013. |
|
From a geographic perspective, Investments located in California represented 18.7% of our total assets at December 31, 2013, down from 24.0% in the prior year. Investments located in Texas represented 22.7% of our total assets at December 31, 2013, down from 23.6% in the prior year. In addition, we further expanded our portfolio into Europe with the RHM portfolio acquisition, which represents less than 9% of total assets at December 31, 2013. |
|
|
|
Related Party Transactions |
|
Lease and interest revenue earned from tenants in which we have an equity interest in were $70.0 million, $54.3 million and $5.5 million in 2013, 2012 and 2011, respectively. |