Real Estate Investments | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Real Estate Investments | ' |
Real Estate Investments |
2014 Acquisitions |
Third Quarter |
In July 2014, the Company purchased a 60,476 square foot medical office building located in Minnesota for a purchase price of $19.8 million including cash consideration of $8.4 million and the assumption of debt of $11.4 million (excluding a $1.2 million fair value adjustment premium recorded upon acquisition). The mortgage notes payable assumed by the Company bear a weighted average contractual interest rate of 6.67% with maturities from 2017 to 2040. See Note 3 for more information on the debt assumed. The property was constructed in 2010 and is 100% leased with expirations through 2025. The building is connected to Unity Hospital, a 220-bed hospital operated by Allina Health. |
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In September 2014, the Company purchased a 47,962 square foot medical office building located in Florida for a purchase price and cash consideration of $7.9 million. The property is 89% leased with expirations through 2019. The building is adjacent to Tampa General Hospital, a 1,018-bed hospital. |
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Second Quarter |
In May 2014, the Company purchased a 200,000 square foot medical office building in Oklahoma for a purchase price of approximately $85.4 million that is 100% leased to Mercy Health, based in Missouri, through 2028 under a single-tenant net lease. The Company funded the development of the facility through a construction mortgage loan of approximately $81.2 million that upon purchase was eliminated in the Company's Condensed Consolidated Financial Statements. At the closing of the purchase, the outstanding loan balance was credited to the purchase price and the Company paid an additional $4.2 million in cash consideration. Subsequent to the purchase, the Company funded an additional $4.0 million and anticipates funding approximately $1.8 million to complete the $91.2 million development during the fourth quarter of 2014. |
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In June 2014, the Company purchased a 56.9% equity interest in a limited liability company that owns a medical office building and related land in Texas. The Company paid $8.8 million in cash consideration including closing costs of $0.1 million. Based on the nature of the transaction, the Company has accounted for the acquisition as an asset acquisition and has recorded the amounts in real estate assets on the Company's Condensed Consolidated Balance Sheet. The building is adjacent to Seton Medical Center, a 534-bed hospital. |
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Also in June 2014, the Company purchased a 35,292 square foot medical office building located in North Carolina for a purchase price and cash consideration of $6.5 million. The property is 100% leased with expirations through 2024. The building is adjacent to Wesley Long Hospital, a 175-bed hospital. |
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First Quarter |
In March 2014, the Company acquired ownership of a multi-tenanted office building in Iowa in satisfaction of a $40.0 million mortgage note receivable that matured on January 10, 2014. The cash flows from the operations of the property were sufficient to pay the Company interest from the maturity date through the date of the transfer of ownership to the Company at the 7.7% fixed interest rate plus an additional 3% of interest for the default interest rate. The Company has accounted for this transaction as a business combination and recorded the acquisition of the property at its estimated fair value based primarily on Level 3 inputs. The Company did not recognize any of the $1.5 million exit fee receivable that was due upon maturity of the mortgage note receivable. The following table details the purchase price accounting for this transaction. |
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| Estimated Fair Value | | | Estimated Useful Life | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| (In millions) | | (In years) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Building | $ | 38.1 | | | 11.5-33.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Intangibles: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At-market lease intangibles | 2.1 | | | 5.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Below-market ground lease intangibles | (0.1 | ) | | 91.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Below-market lease intangibles | (0.4 | ) | | 3.8-6.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total intangibles | 1.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreclosed mortgage note receivable | (40.0 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets acquired | 1.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable, accrued liabilities and other liabilities assumed | (1.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash acquired | 0.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total cash paid | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table details the Company's acquisitions for the nine months ended September 30, 2014: |
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(Dollars in millions) | Date | | Purchase Price | | Elimination of Mortgage Note Receivable | | Mortgage | | Cash | | Real | | Other | | Square | | | | |
Acquired | Notes Payable Assumed | Consideration | Estate | Footage | | | | |
Real estate acquisitions | | | | | | | | | | | | | | | | | | |
Iowa | 3/28/14 | | $ | — | | | $ | (40.0 | ) | | $ | — | | | $ | — | | | $ | 40.2 | | | $ | (0.2 | ) | | 152,655 | | | | | |
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Oklahoma | 5/22/14 | | 85.4 | | | (81.2 | ) | | — | | | 4.2 | | | 85.4 | | | — | | | 200,000 | | | | | |
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Texas | 6/4/14 | | 8.7 | | | — | | | — | | | 8.8 | | | 8.8 | | | — | | | 48,048 | | | | | |
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North Carolina | 6/6/14 | | 6.5 | | | — | | | — | | | 6.5 | | | 6.5 | | | — | | | 35,292 | | | | | |
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Minnesota (1) | 7/28/14 | | 19.8 | | | — | | | (11.4 | ) | | 8.4 | | | 21 | | | (1.2 | ) | | 60,476 | | | | | |
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Florida | 9/16/14 | | 7.9 | | | — | | | — | | | 7.9 | | | 7.9 | | | — | | | 47,962 | | | | | |
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| | | $ | 128.3 | | | $ | (121.2 | ) | | $ | (11.4 | ) | | $ | 35.8 | | | $ | 169.8 | | | $ | (1.4 | ) | | 544,433 | | | | | |
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(1) The mortgage note payable assumed in the acquisition does not reflect the fair value adjustment of $1.2 million recorded by the Company upon acquisition (included in Other). |
Subsequent Acquisition |
In October 2014, the Company acquired a 68,860 square foot medical office building in Oklahoma for a purchase price of $17.4 million, including cash consideration of $10.6 million and the assumption of debt of $6.8 million. The mortgage note payable, assumed by the Company, bears a contractual interest rate of 6.1% and matures on August 1, 2020. The property is 96.7% leased with expirations through 2027. The building is located on the Norman Regional Healthplex campus, a 152-bed specialty hospital. |
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2014 Dispositions |
Third Quarter |
In September 2014, the Company disposed of an on-campus 31,026 square foot medical office building located in Nevada in which the Company had a $4.9 million net investment. The sales price was approximately $2.3 million, comprised of net cash proceeds of approximately $0.2 million, a seller-financed mortgage note of $1.9 million, and closing costs of $0.2 million. The Company recognized a $2.8 million impairment on the disposal of this property that was not previously classified as held for sale. |
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Second Quarter |
In April 2014, the Company disposed of an off-campus, medical office building located in Florida that was previously classified as held for sale and in which the Company had a $1.7 million net investment, including a $0.9 million impairment charge recorded in the first quarter of 2014 as a result of the pending sale and previously recorded impairment charges of $2.4 million. The sales price was $1.8 million, comprised of $1.7 million in net cash proceeds and closing costs of $0.1 million. |
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Also in April 2014, the Company disposed of an off-campus, medical office building located in Texas that was classified as held for sale and in which the Company had a $4.1 million net investment, including a $2.6 million impairment charge recorded in the first quarter of 2014 as a result of the pending sale. The sales price was $4.4 million, comprised of $4.2 million in net cash proceeds and closing costs of $0.2 million. |
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A summary of the Company's 2014 dispositions are as follows: |
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(Dollars in millions) | Date | | Sales Price | | Closing Adjustments | | Company-financed Mortgage | | Net | | Net Real | | Other | | Gain/ | | Square |
Disposed | Notes | Proceeds | Estate | (including | (Impairment) | Footage |
| | | Investment | receivables) | | |
Real estate dispositions |
Florida (1) | 4/11/14 | | $ | 1.8 | | | $ | (0.1 | ) | | $ | — | | | $ | 1.7 | | | $ | 1.7 | | | $ | — | | | $ | — | | | 52,608 | |
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Texas (1) | 4/23/14 | | 4.4 | | | (0.2 | ) | | — | | | 4.2 | | | 4.1 | | | 0.1 | | | — | | | 58,365 | |
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Nevada | 9/12/14 | | 2.3 | | | (0.2 | ) | | (1.9 | ) | | 0.2 | | | 4.9 | | | — | | | (2.8 | ) | | 31,026 | |
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Total dispositions | | 8.5 | | | (0.5 | ) | | (1.9 | ) | | 6.1 | | | 10.7 | | | 0.1 | | | (2.8 | ) | | 141,999 | |
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Mortgage note repayments | | — | | | — | | | 4.9 | | | 4.9 | | | — | | | — | | | — | | | — | |
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| | $ | 8.5 | | | $ | (0.5 | ) | | $ | 3 | | | $ | 11 | | | $ | 10.7 | | | $ | 0.1 | | | $ | (2.8 | ) | | 141,999 | |
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(1) Previously included in assets held for sale. |
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Potential Disposition |
In September 2014, the Company received notice from a tenant of its intent to purchase a medical office building in Pennsylvania pursuant to a purchase option contained in its lease with the Company. The Company's net investment in the building is $7.7 million at September 30, 2014, including straight-line rent receivables. The purchase price for the property will be the greater of a fair market value or approximately $15.0 million. The appraisal process is on-going and the sale will result in a potential gain of at least $7.3 million. The Company preliminarily expects the sale to occur during the first quarter of 2015. The property was reclassified as held for sale as of September 30, 2014. |
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Company-Financed Mortgage Notes |
During the third quarter of 2014, two mortgage notes receivable were repaid generating an aggregate of $4.9 million in net proceeds. |
In September 2014, the Company originated a $1.9 million seller-financed mortgage note receivable with the purchaser of a medical office building located in Nevada that was sold by the Company as discussed in "2014 Dispositions" above. |
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Noncontrolling Interest Purchase |
In April 2014, the Company purchased the outstanding 40% noncontrolling equity interest in a consolidated partnership that owns a medical office building and parking garage in Texas, which were developed by the partnership, for an aggregate purchase price and cash consideration of $8.2 million. The book value of the noncontrolling interest prior to the equity purchase was $1.6 million. The Company held a term loan that was secured by the property and was payable from the partnership. Upon acquisition of the noncontrolling interest, the term loan, which was previously eliminated in the Company's Condensed Consolidated Financial Statements, was extinguished. |
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Discontinued Operations and Assets Held for Sale |
During the third quarter of 2014, the Company reclassified one property to held for sale. See "Potential Dispositions" above for more information. |
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Also, during the third quarter of 2014, the Company received an offer and is in negotiations regarding the purchase one of its buildings that was classified as held for sale. The offer is less than the Company's net investment resulting in an impairment charge of $1.8 million which was recorded in the third quarter of 2014. The fair value amount used to calculate the impairment was based on the expected sales price less costs to sell, which is a Level 3 input. |
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At September 30, 2014 and December 31, 2013, the Company had four and three properties classified as held for sale, respectively. |
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The tables below reflect the assets and liabilities of the properties classified as held for sale and discontinued operations as of September 30, 2014 and December 31, 2013 and the results of operations of the properties included in discontinued operations on the Company's Consolidated Statements of Operations for three and nine months ended September 30, 2014 and 2013. |
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(Dollars in thousands) | September 30, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Land | $ | 1,674 | | | $ | 1,578 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Buildings, improvements and lease intangibles | 22,232 | | | 15,400 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Personal property | 14 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| 23,920 | | | 16,978 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Accumulated depreciation | (12,901 | ) | | (10,211 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets held for sale, net | 11,019 | | | 6,767 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other assets, net (including receivables) | 460 | | | 85 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Assets of discontinued operations, net | 460 | | | 85 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Assets held for sale and discontinued operations, net | $ | 11,479 | | | $ | 6,852 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable and accrued liabilities | $ | 482 | | | $ | 1,091 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other liabilities | 26 | | | 21 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Liabilities of discontinued operations | $ | 508 | | | $ | 1,112 | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | | | | | | |
Statements of Operations data: | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | $ | 465 | | | $ | 2,608 | | | $ | 1,689 | | | $ | 9,771 | | | | | | | | | | | | | | | | | | |
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Other Operating Income | — | | | — | | | — | | | 1 | | | | | | | | | | | | | | | | | | |
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| 465 | | | 2,608 | | | 1,689 | | | 9,772 | | | | | | | | | | | | | | | | | | |
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Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Property operating | 251 | | | 724 | | | 1,223 | | | 2,221 | | | | | | | | | | | | | | | | | | |
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General and administrative | 1 | | | 1 | | | 3 | | | 4 | | | | | | | | | | | | | | | | | | |
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Depreciation | 104 | | | 649 | | | 544 | | | 2,390 | | | | | | | | | | | | | | | | | | |
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Amortization | — | | | 12 | | | — | | | 55 | | | | | | | | | | | | | | | | | | |
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Bad debt, net of recoveries | (4 | ) | | 3 | | | 3 | | | 3 | | | | | | | | | | | | | | | | | | |
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| 352 | | | 1,389 | | | 1,773 | | | 4,673 | | | | | | | | | | | | | | | | | | |
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Other Income (Expense) | | | | | | | | | | | | | | | | | | | | | | | | |
Loss on extinguishment of debt | — | | | — | | | — | | | (270 | ) | | | | | | | | | | | | | | | | | |
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Interest expense | — | | | — | | | — | | | (40 | ) | | | | | | | | | | | | | | | | | |
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Interest and other income, net | 8 | | | 22 | | | 9 | | | 29 | | | | | | | | | | | | | | | | | | |
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| 8 | | | 22 | | | 9 | | | (281 | ) | | | | | | | | | | | | | | | | | |
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Discontinued Operations | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from discontinued operations | 121 | | | 1,241 | | | (75 | ) | | 4,818 | | | | | | | | | | | | | | | | | | |
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Impairments | (4,505 | ) | | (6,259 | ) | | (11,034 | ) | | (9,889 | ) | | | | | | | | | | | | | | | | | |
Gain on sales of real estate properties | — | | | 20,187 | | | 3 | | | 21,970 | | | | | | | | | | | | | | | | | | |
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Income (Loss) from Discontinued Operations | $ | (4,384 | ) | | $ | 15,169 | | | $ | (11,106 | ) | | $ | 16,899 | | | | | | | | | | | | | | | | | | |
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