Note 3 – Property Portfolio

Summary of Properties Acquired During the Six Months Ended June 30, 2019

During the six months ended June 30, 2019 the Company completed six acquisitions.  For each acquisition, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, each acquisition represents an asset acquisition.  Accordingly, transaction costs for these acquisitions were capitalized. 

A rollforward of the gross investment in land, building and improvements as of June 30, 2019 resulting from these acquisitions as well as other tenant improvements and the implementation of ASC 842 is as follows:

 

Depreciation expense was $4,608 and $8,475 for the three and six months ended June 30, 2019, respectively, and $3,445 and $6,351 for the three and six months ended June 30, 2018, respectively.

As of June 30, 2019, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s facilities of $20,771. Many of these allowances are subject to contingencies that make it difficult to predict when such allowances will be utilized, if at all. In accordance with the terms of a number of the Company’s leases, capital improvement obligations in 2019 could total up to approximately $12,736.

The following is a summary of the acquisitions completed during the six months ended June 30, 2019.

Zachary Facility

On February 28, 2019, the Company assumed the following leasehold interests in the real property located in Zachary, Louisiana for a purchase price of $4.6 million: (i) the interest, as ground lessee, in an existing ground lease of the facility with the fee owner as ground lessor, with approximately 46 years remaining in the initial term with no extension options; (ii) the interest arising under the ground lease in and to the long-term acute-care hospital located at the facility; and (iii) the interest, as landlord, in an existing lease of the facility with LTAC Hospital of Feliciana, LLC, as tenant, with approximately 16 years remaining in the initial term with three consecutive 10-year extension options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Gilbert and Chandler Facilities

On March 19, 2019, the Company purchased the following facilities located in Gilbert, Arizona and Chandler, Arizona for a total purchase price of $16.1 million: (i) a medical office building located in Gilbert, Arizona (the “Val Vista Facility”); (ii) a medical office building located in Gilbert, Arizona (the “Dobson Facility”); (iii) a medical office suite located in Chandler, Arizona (the “Pecos I Facility”); and (iv) a medical office suite located in Chandler, Arizona (the “Pecos II Facility”). Upon the closing of the acquisition, the Company assumed the seller’s interest, as lessor, in the existing leases of: (i) the Pecos I Facility to Chandler Endoscopy Center LLC with approximately seven years remaining in its initial term with two consecutive five-year extension options; and (ii) the Pecos II Facility to Valley Heart Associates, P.C, with approximately four years remaining on its initial term with one three-year extension option, and Valley Anesthesiology Consultants Inc. with approximately four years remaining on its initial term with two consecutive five-year extension options. Also, upon the closing of the acquisition, the Company (i) leased the Dobson Facility to East Valley Gastroenterology & Hepatology Associates, P.C., (“EVGHA”); (ii) leased a portion of the Val Vista Facility to EVGHA; and (iii) leased another portion of the Val Vista Facility to Premier Endoscopy Center, LLC. The Dobson Facility lease and the Val Vista Facility leases each have an initial term of 15 years with two consecutive five-year extension options.

IRF Portfolio

On April 15, 2019, the Company purchased four in-patient rehabilitation facilities located in Las Vegas, Nevada; Surprise, Arizona; Oklahoma City, Oklahoma and Mishawaka, Indiana (collectively, the “IRF Portfolio”) for a total purchase price of approximately $94.6 million. Upon the closing of the acquisition, the Company assumed the sellers’ interest, as lessor, in four triple-net leases (collectively, the “IRF Portfolio Leases”) with (i) Encompass Health (Las Vegas, Nevada facility); (ii) a joint venture between Cobalt Rehabilitation and Tenet Healthcare (the Surprise, Arizona facility); (iii) a joint venture between Mercy Health and Kindred Healthcare (the Oklahoma City, Oklahoma facility); and (iv) St. Joseph’s Health System (the Mishawaka, Indiana facility). The IRF Portfolio leases have a weighted average remaining lease term of approximately 8.3 years, with the Las Vegas, Nevada facility lease containing four, five-year renewal options; the Surprise, Arizona facility lease containing two, five-year renewal options; the Oklahoma City, Oklahoma facility lease containing three, 10-year renewal options and the Mishawaka, Indiana facility lease containing two, five-year renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Summary of Properties Acquired During the Six Months Ended June 30, 2018

During the six months ended June 30, 2018, the Company completed six acquisitions.  For all six acquisitions, substantially all of the fair value of the acquisitions was concentrated in a single identifiable asset or group of similar identifiable assets and therefore all of the acquisitions represent asset acquisitions under the guidance provided by ASU 2017-01.  Accordingly, transaction costs for these acquisitions were capitalized. 

A rollforward of the gross investment in land, building and improvements as of June 30, 2018, resulting from these acquisitions is as follows:

 

(1) The Belpre acquisition included $4,742 of OP Units issued as part of the total consideration.  An aggregate of $886 of intangible liabilities were acquired from the acquisitions that occurred during the six months ended June 30, 2018, resulting in total gross investments funded using cash of $124,874.

The following is a summary of the acquisitions completed during the six months ended June 30, 2018.  Each acquisition was accounted for as an asset acquisition in accordance with the provisions of ASU 2017-01:

Moline / Silvis Facilities

Moline Facility -  On January 24, 2018, the Company purchased a medical office building located in Moline, Illinois, which included the seller’s interest, as ground lessee, in an existing ground lease.  The ground lease has approximately 10 years remaining in the initial term, with 12 consecutive five-year renewal options.  Upon the closing of this acquisition, the Company assumed two subleases: one sublease with Fresenius Medical Care Quad Cities, LLC (“Fresenius”) with approximately 13 years remaining in the initial term, with three consecutive five-year renewal options; and one sublease with Quad Cities Nephrology Associates, P.L.C. with approximately 15 years remaining in the initial term, with three consecutive five-year renewal options. 

Silvis Facility - On January 24, 2018, the Company purchased a medical office building located in Silvis, Illinois from the same seller as the Moline facility, which included the seller’s interest, as ground lessee, in an existing ground lease.  The ground lease has approximately 67 years remaining in the initial term, with no renewal options. Upon the closing of this acquisition, the Company assumed one sublease with Fresenius with approximately 13 years remaining in the initial term, with three consecutive 5-year renewal options. 

The aggregate purchase price for the Moline/Silvis facilities was $6.9 million.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed for this acquisition:

 

 

Fremont Facility - On February 9, 2018, the Company purchased a medical office building located in Fremont, Ohio for a purchase price of approximately $8.5 million.  Upon the closing of this acquisition, the Company entered into a new 12-year lease with Northern Ohio Medical Specialists, LLC (NOMS) with four consecutive five-year renewal options.

Gainesville Facility - On February 23, 2018, the Company purchased a medical office building and ambulatory surgery center located in Gainesville, Georgia for a purchase price of approximately $10.5 million.  Upon the closing of this acquisition, the Company entered into a new 12-year lease with SCP Eye Care Services, LLC with four consecutive five-year renewal options.

Dallas Facility - On March 1, 2018, the Company purchased a hospital, a three-story parking garage, and land all located in Dallas, Texas for an aggregate purchase price of $23.3 million.  In addition to the hospital and the parking garage, the land underlays two medical office buildings that are not owned by the Company, each of which is ground leased to the hospital.  Upon the closing of this acquisition, the Company entered into two leases with Pipeline East Dallas, LLC, with one lease relating to the hospital and the other lease relating to the underlying land and parking garage. 

Orlando Facilities - On March 22, 2018, the Company purchased five medical office buildings from five affiliated sellers for an aggregate purchase price of $16.4 million.  Upon the closing of this acquisition, the Company assumed five existing leases with Orlando Health, Inc. One lease has approximately one year remaining in its initial term, with one 10-year renewal option; one lease has approximately six years remaining in its initial term, with three consecutive five-year renewal options; one lease has approximately six years remaining in its initial term, with four consecutive five-year renewal options; one lease has approximately six years remaining in its initial term, with three consecutive five-year renewal options; and one lease was amended at closing to extend the remaining term to five years with four consecutive five-year renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Belpre Portfolio - On April 19, 2018, the Company purchased a portfolio of four medical office buildings and a right of first refusal to purchase a fifth, yet to be built, medical office building on the same campus, for an aggregate purchase price of $64.1 million. Upon the closing of the acquisition the Company assumed the existing leases with Marietta Memorial Hospital, a subsidiary of Memorial Health System.  Upon the closing of the acquisition, the leases had a weighted average remaining lease term of approximately 11.35 years, each with three consecutive five-year tenant renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Intangible Assets and Liabilities

The following is a summary of the carrying amount of intangible assets and liabilities as of the dates presented:

 

 

 

The following is a summary of the acquired lease intangible amortization:

 

 

As of June 30, 2019, scheduled future aggregate net amortization of the acquired lease intangible assets and liabilities for each fiscal year ended December 31 is listed below:

 

 

As of June 30, 2019 the weighted average amortization periods for asset lease intangibles and liability lease intangibles were 6.85 years and 7.41 years, respectively.