Note 3 – Property Portfolio

Summary of Properties Acquired During the Nine Months Ended September 30, 2019

During the nine months ended September 30, 2019 the Company completed 13 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 September 30, 2019 resulting from these acquisitions as well as other tenant improvements and the implementation of ASC 842 is as follows:

 

 

(1)  Represents tenant improvements that were completed and placed in service during the nine months ended September 30, 2019 related to the Sherman facility that was acquired in June 2017 and the Bountiful facility that was acquired in October 2018.  Also includes site improvements at the Watertown facility that was acquired in September 2016.

(2)Represents capitalized costs incurred during the nine months ended September 30, 2019 at the Derby facility that was acquired in August 2018.

 

Depreciation expense was $5,006 and $13,481 for the three and nine months ended September 30, 2019, respectively, and $3,614 and $9,965 for the three and nine months ended September 30, 2018, respectively.

As of September 30, 2019, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s existing facilities of $19,137. Many of these amounts are subject to contingencies that make it difficult to predict when they will be utilized, if at all. In accordance with the terms of the Company’s leases, capital improvement obligations in the next 12 months could total up to approximately $10,867.

The following is a summary of the acquisitions completed during the nine months ended September 30, 2019. The purchase price allocations are preliminary and subject to revision within the measurement period, not to exceed one year from the date of the acquisition.

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 approximately 46 years remaining in the initial term with no extension options; and (ii) 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,  exclusive of tenant renewal 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 $16.3 million: (i) a medical office building located in Gilbert, Arizona; (ii) a medical office building located in Gilbert, Arizona; (iii) a medical office suite located in Chandler, Arizona; and (iv) a medical office suite located in Chandler, Arizona (collective, the “Gilbert and Chandler Facilities”). Upon the closing of the acquisition, the Company assumed the seller’s interest, as lessor, in two existing leases and entered into three new leases, as lessor, at the Gilbert and Chandler Facilities. The Gilbert and Chandler Leases have a weighted average remaining lease term of 10.5 years, exclusive of tenant renewal 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 existing leases at the properties (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, exclusive of tenant renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

San Marcos Facility

On July 12, 2019, the Company purchased a medical office building located in San Marcos, California (the “San Marcos Facility”), for a purchase price of $12.0 million. Upon closing, the Company assumed the existing lease of the San Marcos Facility with California Cancer Associates for Research and Excellence, Inc., as tenant. The lease has eight years remaining in the initial term, exclusive of tenant renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Lansing Facilities

On August 1, 2019, the Company purchased the following real property and buildings thereon located in Lansing, Michigan for a total purchase price of $11.1 million: (i) 3390 East Jolly Road; (ii) 3955 Patient Care Drive; and (iii) 3400 East Jolly Road (“collectively, the “Lansing Facilities”). Upon closing, the Company assumed sellers’ interest, as lessor, in four existing leases and entered into two new leases at the Lansing Facilities (the “Lansing Leases”).  The Lansing Leases have a weighted-average remaining term of 8.5 years, exclusive of tenant renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Bannockburn Facility

On August 5, 2019, the Company purchased an office building located in Bannockburn, Illinois (the “Bannockburn Facility”), for a purchase price of $6.6 million. Upon closing, the Company assumed seller’s interest, as lessor, in 14 existing leases at the Bannockburn Facility (the “Bannockburn Leases”).  The Bannockburn Leases have a weighted-average remaining term of 6.3 years, exclusive of tenant renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Aurora Facility

On August 6, 2019, the Company purchased a medical office building located in Aurora, Illinois (the “Aurora Facility”), for a purchase price of $12.6 million. Upon closing, the Company assumed the existing lease of the Aurora Facility with Dreyer Clinic Inc., as tenant (the “Dreyer Lease”). The Dreyer Lease has approximately six years remaining in the initial term, exclusive of tenant renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Livonia Facility

On August 14, 2019, the Company purchased a medical office building located in Livonia, Michigan (the “Livonia Facility”) for a purchase price of $10.4 million. Upon closing, the Company assumed 10 existing leases at the Livonia Facility (the “Livonia Leases”).  The Livonia Leases have a weighted-average remaining term of 3.2 years, exclusive of tenant renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Gilbert Facility

On August 23, 2019, the Company purchased certain condominium units within two medical office buildings located in Gilbert, Arizona (the “Gilbert Facility”) for a total purchase price of $5.6 million. Upon closing, the Company leased the Gilbert Facility to Covenant Surgical Partners, Inc., a Delaware corporation (the “Covenant Lease”). The Covenant Lease has approximately ten (10) years remaining in the initial term, exclusive of tenant renewal options.  The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Morgantown Facility

On September 26, 2019, the Company purchased a parcel of land and an office building that is being constructed thereon, located in Morgantown, West Virginia (the “Morgantown Facility”) for a total purchase price of $8.0 million. Upon closing, the Company assumed the existing lease of the Morgantown Facility with Urgent Care MSO, LLC, as tenant (the “Urgent Care Lease”). The Urgent Care Lease has approximately ten years remaining in the initial term, exclusive of tenant renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

Summary of Properties Acquired During the Nine Months Ended September 30, 2018

During the nine months ended September 30, 2018, the Company completed eight acquisitions.  For all eight 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 September 30, 2018, resulting from these acquisitions is as follows:

 

(1)Represents tenant improvements that were completed and placed in service during the three months ended September 30, 2018 related to the Silvis and Sherman facilities that were acquired in January 2018 and June 2017, respectively.  These amounts were recorded as construction-in-process within the “Other Assets” line item in the Company’s Consolidated Balance Sheet as of September 30, 2018, and reclassified to investment in real estate once completed.

The following is a summary of the acquisitions completed during the nine months ended September 30, 2018.

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, exclusive of tenant renewal options; and one sublease with Quad Cities Nephrology Associates, P.L.C. with approximately 15 years remaining in the initial term, exclusive of tenant 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, exclusive of tenant 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), exclusive of tenant 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,  exclusive of tenant 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. (the “Orlando Leases”)  The Orlando Leases have a weighted average remaining term of 4.5 years,  exclusive of tenant 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 and such leases had a weighted average remaining lease term of approximately 11.35 years, exclusive of tenant renewal options. The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:

 

 

McAllen Facility - On July 3, 2018, the Company purchased a medical office building (and adjacent condominium) located in McAllen, Texas for a purchase price of $5.4 million.  Upon the closing of this acquisition, the Company entered into a new 11-year lease with Valley Ear, Nose, and Throat Specialists, PA, exclusive of tenant renewal options.

Derby Facility - On August 3, 2018, the Company purchased a medical office building located in Derby, Kansas for a purchase price of $3.6 million.  Upon the closing of this acquisition, the Company assumed the existing lease with Rock Surgery Center, LLC. The lease has approximately nine years remaining in its initial term, exclusive of a tenant renewal option.  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 September 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 September 30, 2019, the weighted average amortization periods for asset lease intangibles and liability lease intangibles were 6.42 years and 6.41 years, respectively.