Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v2.4.0.8
ACQUISITIONS
 6 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
ACQUISITIONS
2.    ACQUISITIONS
 
Acquisitions of Senior Housing properties
 
i.
Managed Properties
In January and May 2014, Newcastle completed the acquisitions of five senior housing properties in three different portfolios for an aggregate purchase price of approximately $44.5 million plus acquisition-related costs. Each of these acquisitions was accounted for as a business combination, under which all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. For two of the properties, Newcastle has retained Holiday to manage the properties. Pursuant to the property management agreements with Holiday, Newcastle pays management fees equal to either (i) 5% of the property’s effective gross income (as defined in the agreements) or (ii) 6% of the property’s effective gross income (as defined in the agreements) for the first two years and 7% thereafter. For the other three properties acquired, Newcastle has retained Blue Harbor to manage the properties. Pursuant to the agreements with Blue Harbor, Newcastle pays management fees equal to 6% of the property’s effective gross income (as defined in the agreements) for the first two years and 7% thereafter. In addition, Newcastle will reimburse Holiday and Blue Harbor for certain expenses, primarily the compensation expense associated with the on-site employees.
 
ii.
Triple Net Lease Properties
On June 30, 2014, Newcastle completed the acquisition of six senior housing properties for an aggregate purchase price of approximately $183.0 million plus acquisition-related costs. The acquisition was accounted for as a business combination, under which all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred.
 
On June 30, 2014, Newcastle also entered into a triple net lease of these properties with a third party (the “June 2014 Master Tenant”). The lease has a 15-year term with two five-year renewal options and first-year rent equal to approximately $14.2 million with annual increases during the following three years of 3.75% and up to 2.5% thereafter. Under the lease, the June 2014 Master Tenant is responsible for (i) operating the properties and bearing the related costs, including maintenance, utilities, taxes, insurance, repairs and capital improvements, and (ii) complying with the terms of the mortgage financing documents.
 
As part of the June 2014 Master Tenant lease, Newcastle committed to making available $6.5 million immediately for capital improvements and other repairs in the properties under the lease agreement and also agreed to make available to the June 2014 Master Tenant an additional $9.0 million at certain intervals during the lease period to be used for further capital improvements. Upon funding the capital improvements, Newcastle will be entitled to a rent increase.
 
The following table summarizes the allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed in connection with the acquisition, in accordance with the acquisition method of accounting:
 
Three months ended March 31, 2014 Acquisitions
 
Three months ended June 30, 2014 Acquisitions (A)
 
 
 
Managed Properties
 
Managed Properties
 
Triple Net Lease Properties
 
Total
Allocation of Purchase Price
 
 
 
 
 
 
 
Investments in Real Estate
$
20,630
 
$
13,785
 
$
167,828
 
$
202,243
Resident Lease Intangibles
2,370
 
3,361
 
16,828
 
22,559
Other Intangibles
—
 
4,847
 
—
 
4,847
Other Liabilities, net of other Assets
(200
)
 
(288
)
 
(1,625
)
 
(2,113
)
Total purchase price
$
22,800
 
$
21,705
 
$
183,031
 
$
227,536
 
 
 
 
 
 
 
 
Mortgage Notes Payable (B)
(17,250
)
 
(15,607
)
 
—
 
(32,857
)
Net assets acquired
$
5,550
 
$
6,098
 
$
183,031
 
$
194,679
Total acquisition related costs (C)
$
368
 
$
573
 
$
792
 
$
1,733
(A)
The values assigned above are not yet finalized as Newcastle is in the process of identifying all acquired intangibles and gathering market and other information with which to determine the fair values of the real estate property and intangible assets acquired. Therefore the purchase price allocations set forth above are preliminary and are subject to change. The final determination of fair values for these assets may result in different allocations among the various asset classes from those set forth above and any such differences could be material.
(B)
See Note 10.
(C)
Acquisition-related costs are expensed as incurred and included within general and administrative expense on the consolidated statements of income.