SBRA 10Q 2012 Q2
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34950
 
 SABRA HEALTH CARE REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
Maryland
 
27-2560479
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
18500 Von Karman Avenue, Suite 550
Irvine, CA 92612
(888) 393-8248
(Address, zip code and telephone number of Registrant)
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
o
  
Accelerated filer
 
x
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of July 27, 2012, there were 37,051,242 shares of the Registrant’s $0.01 par value Common Stock outstanding.


Table of Contents

SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES
Index
 
 
Page
Numbers
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1a.
 
 
 
Item 6.
 
 

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Table of Contents

References throughout this document to “Sabra,” “we,” “our,” “ours” and “us” refer to Sabra Health Care REIT, Inc. and its direct and indirect consolidated subsidiaries and not any other person.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q (this “10-Q”) contain “forward-looking” information as that term is defined by the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include all statements regarding our expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, budgets, the expected amounts and timing of dividends and other distributions, projected expenses and capital expenditures, competitive position, growth opportunities, potential acquisitions, plans and objectives for future operations, the expected impact to us of the pending acquisition of Sun (as defined below) by Genesis HealthCare LLC (“Genesis”), and compliance with and changes in governmental regulations. You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.
Our actual results may differ materially from those projected or contemplated by our forward-looking statements as a result of various factors, including, among others, the following:
our dependence on Sun until we are able to further diversify our portfolio;
our dependence on the operating success of our tenants;
changes in general economic conditions and volatility in financial and credit markets;
the dependence of our tenants on reimbursement from governmental and other third-party payors;
the significant amount of and our ability to service our indebtedness;
covenants in our debt agreements that may restrict our ability to make acquisitions, incur additional indebtedness and refinance indebtedness on favorable terms;
increases in market interest rates;
our ability to raise capital through equity financings;
the relatively illiquid nature of real estate investments;
competitive conditions in our industry;
the loss of key management personnel or other employees;
the impact of litigation and rising insurance costs on the business of our tenants;
uninsured or underinsured losses affecting our properties and the possibility of environmental compliance costs and liabilities;
our ability to qualify and maintain our status as a real estate investment trust ("REIT"); and
compliance with REIT requirements and certain tax matters related to status as a REIT.
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors that may affect our business and operating results, including those referred to in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2011 (our “2011 Annual Report on Form 10-K”), as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”) in the future, including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. We caution you that any forward-looking statements made in this 10-Q are not guarantees of future performance and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not intend, and we undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this 10-Q or to reflect the occurrence of unanticipated events, unless required by law to do so.
SUN HEALTHCARE GROUP, INC. INFORMATION
This 10-Q includes information regarding Sun Healthcare Group, Inc. (formerly known as SHG Services, Inc.; “Sun”), a Delaware corporation. Sun is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Sun provided in this 10-Q has been provided by Sun or derived from its public filings. We have not independently verified this information. We have no reason to believe that such information is inaccurate in any material respect. We are providing this data for informational purposes only. Sun’s filings with the SEC can be found at www.sec.gov.

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PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)  
 
 
June 30,
2012
 
December 31,
2011
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net of accumulated depreciation of $123,651 and $108,916 as of June 30, 2012 and December 31, 2011, respectively
$
698,578

 
$
658,377

Loans receivable, net
21,193

 

Cash and cash equivalents
3,110

 
42,250

Restricted cash
7,076

 
6,093

Deferred tax assets
25,540

 
25,540

Prepaid expenses, deferred financing costs and other assets
23,021

 
17,390

Total assets
$
778,518

 
$
749,650

Liabilities and stockholders’ equity
 
 
 
Mortgage notes payable
$
157,872

 
$
158,398

Secured revolving credit facility
42,500

 

Senior unsecured notes payable
225,000

 
225,000

Accounts payable and accrued liabilities
11,181

 
14,139

Tax liability
25,540

 
25,540

Total liabilities
462,093

 
423,077

Commitments and contingencies (Note 11)

 

Stockholders’ equity
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2012 and December 31, 2011

 

Common stock, $.01 par value; 125,000,000 shares authorized, 37,051,242 and 36,891,712 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
371

 
369

Additional paid-in capital
349,272

 
344,995

Cumulative distributions in excess of net income
(33,218
)
 
(18,791
)
Total stockholders’ equity
316,425

 
326,573

Total liabilities and stockholders’ equity
$
778,518

 
$
749,650

See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)  
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Rental income
$
24,820

 
$
18,628

 
$
48,483

 
$
36,190

Interest income
297

 
177

 
361

 
217

 
 
 
 
 
 
 
 
Total revenues
25,117

 
18,805

 
48,844

 
36,407

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Depreciation and amortization
7,557

 
6,290

 
14,860

 
12,377

Interest
8,148

 
7,505

 
15,846

 
15,103

General and administrative
3,489

 
2,923

 
7,810

 
5,592

 
 
 
 
 
 
 
 
Total expenses
19,194

 
16,718

 
38,516

 
33,072

 
 
 
 
 
 
 
 
Net income
$
5,923

 
$
2,087

 
$
10,328

 
$
3,335

 
 
 
 
 
 
 
 
Net income per common share, basic
$
0.16

 
$
0.08

 
$
0.28

 
$
0.13

 
 
 
 
 
 
 
 
Net income per common share, diluted
$
0.16

 
$
0.08

 
$
0.28

 
$
0.13

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, basic
37,147,942

 
25,154,284

 
37,092,683

 
25,140,781

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, diluted
37,191,687

 
25,226,179

 
37,119,005

 
25,210,575

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands, except per share data)  
(unaudited)
 
 
Common Stock
 
Additional
Paid-in Capital
 
Cumulative Distributions in Excess of Net Income
 
Total
Stockholders’
Equity
 
Shares
 
Amounts
 
 
 
Balance, December 31, 2010
25,061,072

 
$
251

 
$
177,275

 
$
7

 
$
177,533

Net income

 

 

 
3,335

 
3,335

Amortization of stock-based compensation

 

 
2,478

 

 
2,478

Stock issuance
77,176

 

 
547

 

 
547

Common dividends ($0.32 per share)

 

 

 
(8,051
)
 
(8,051
)
Balance, June 30, 2011
25,138,248

 
$
251

 
$
180,300

 
$
(4,709
)
 
$
175,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
Cumulative Distributions in Excess of Net Income
 
Total
Stockholders’
Equity
 
Shares
 
Amounts
 
 
 
Balance, December 31, 2011
36,891,712

 
$
369

 
$
344,995

 
$
(18,791
)
 
$
326,573

Net income

 

 

 
10,328

 
10,328

Amortization of stock-based compensation

 

 
4,135

 

 
4,135

Stock issuance
159,530

 
2

 
142

 

 
144

Common dividends ($0.66 per share)

 

 

 
(24,755
)
 
(24,755
)
Balance, June 30, 2012
37,051,242

 
$
371

 
$
349,272

 
$
(33,218
)
 
$
316,425

 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Six Months Ended June 30,
 
2012
 
2011
Cash flows from operating activities:

 
 
Net income
$
10,328

 
$
3,335

Adjustments to reconcile net income to net cash provided by operating activities:

 
 
Depreciation and amortization
14,860

 
12,377

Non-cash interest income adjustments
9

 

Amortization of deferred financing costs
1,447

 
995

Stock-based compensation expense
3,842

 
2,478

Amortization of premium on notes payable
(8
)
 
(8
)
Straight-line rental income adjustments
(1,690
)
 
(128
)
Changes in operating assets and liabilities:


 
 
Prepaid expenses and other assets
(779
)
 
219

Accounts payable and accrued liabilities
(1,914
)
 
485

Restricted cash
(2,008
)
 
(1,825
)

 
 
 
Net cash provided by operating activities
24,087

 
17,928


 
 
 
Cash flows from investing activities:

 
 
Acquisitions of real estate
(55,550
)
 
(74,000
)
Origination of loans receivable
(21,176
)
 

Acquisition of note receivable

 
(5,348
)
Additions to real estate
(730
)
 
(86
)

 
 
 
Net cash used in investing activities
(77,456
)
 
(79,434
)

 
 
 
Cash flows from financing activities:

 
 
Proceeds from secured revolving credit facility
42,500

 

Proceeds from mortgage notes payables
21,947

 

Principal payments on mortgage notes payable
(22,464
)
 
(1,499
)
Payments of deferred financing costs
(3,435
)
 
(270
)
Issuance of common stock
144

 
547

Dividends paid
(24,463
)
 
(8,051
)

 
 
 
Net cash provided by (used in) financing activities
14,229

 
(9,273
)

 
 
 
Net decrease in cash and cash equivalents
(39,140
)
 
(70,779
)
Cash and cash equivalents, beginning of period
42,250

 
74,233


 
 
 
Cash and cash equivalents, end of period
$
3,110

 
$
3,454


 
 
 
Supplemental disclosure of cash flow information:

 
 
Interest paid
$
14,677

 
$
14,476


 
 
 
See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
BUSINESS
Overview
Sabra Health Care REIT, Inc. (“Sabra” or the “Company”) was incorporated on May 10, 2010 as a wholly owned subsidiary of Sun Healthcare Group, Inc. (“Old Sun”) and commenced operations on November 15, 2010. Sabra is organized to qualify as a real estate investment trust (“REIT”) and intends to elect to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year beginning on January 1, 2011. Sabra’s primary business consists of acquiring, financing and owning real estate property to be leased to third party tenants in the healthcare sector. Sabra owns substantially all of its assets and properties and conducts its operations through Sabra Health Care Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), of which Sabra is the sole general partner, or by subsidiaries of the Operating Partnership. As of June 30, 2012, Sabra’s investment portfolio included 103 properties (consisting of (i) 93 skilled nursing/post-acute facilities, (ii) nine senior housing facilities, and (iii) one acute care hospital). In addition, as of June 30, 2012, a wholly owned subsidiary of the Company was the lender of a mortgage loan secured by a first trust deed in a skilled nursing facility located in Texas and a mezzanine loan secured by the borrowers' equity interests in three skilled nursing facilities and one assisted living facility located in Texas.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of Sabra and its wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results for such periods. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s 2011 Annual Report on Form 10-K filed with the SEC.

Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Real Estate Acquisition Valuation
The Company accounts for the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition pursuit costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. During the three and six months ended June 30, 2012, the Company expensed $0.4 million and $0.9 million, respectively, of acquisition pursuit costs, which is included in general and administrative expense on the accompanying condensed consolidated statements of income.
Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income.


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Interest Income
Interest income on the Company’s loans receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination costs are amortized over the term of the loan as an adjustment to interest income. When concerns exist as to the ultimate collection of principal or interest due under a loan, the loan is placed on nonaccrual status and the Company will not recognize interest income until the cash is received, or the loan returns to accrual status. If the Company determines the collection of interest according to the contractual terms of the loan is probable, the Company will resume the accrual of interest.

3.
RECENT ACQUISITIONS AND ORIGINATIONS

Real Estate Acquisitions
During the six months ended June 30, 2012, the Company acquired six skilled nursing facilities for a total purchase price of $55.6 million. The purchase price was allocated as follows (in thousands):
 
 
Intangibles
 
Land
Building and Improvements
Tenant Origination and Absorption Costs
Tenant Relationship
Total Purchase Price
$
9,194

$
45,115

$
1,061

$
180

$
55,550

    
As of June 30, 2012, the purchase price allocations for acquisitions completed during the three months ended June 30, 2012 are preliminary pending the receipt of information necessary to complete the valuation of certain tangible and intangible assets and liabilities and therefore are subject to change.
The tenant origination and absorption costs intangible assets and tenant relationship intangible assets acquired in connection with these acquisitions have weighted-average amortization periods as of the date of acquisition of 15 years and 25 years, respectively.
For the three and six months ended June 30, 2012, the Company recognized $1.2 million of total revenues from these properties.

Loan Originations
On March 15, 2012, a wholly owned subsidiary of the Company entered into a $10.0 million mezzanine loan (the “Mezzanine Loan”). The Mezzanine Loan has a five year term, bears interest at a fixed rate of 11.0% per annum and is secured by the borrowers' equity interests in three skilled nursing facilities and one assisted living facility located in Texas. The Company has an option to purchase the three skilled nursing facilities and one assisted living facility before March 31, 2013 for up to an aggregate purchase price of $43.0 million and increasing 2.5% for each of the two years thereafter. Upon exercise of the purchase option, the Company would expect to enter into a new 15 year triple-net master lease having 2 five-year renewal options.
On June 22, 2012, a wholly owned subsidiary of the Company entered into an $11.0 million mortgage loan agreement secured by a first trust deed on a 125-bed skilled nursing facility in Texas that was built in 2010 (the “Onion Creek Mortgage Loan”) with affiliates of Meridian Equity Investors, L.P. as borrowers. The Onion Creek Mortgage Loan has a five year term, bears interest at a fixed rate of 8.5% per annum and cannot be prepaid during the first three years of the loan term. In addition, the Company has an option to purchase and the borrowers have an option to sell the facility securing the Onion Creek Mortgage Loan from July 1, 2013 through the time the loan is repaid for between $12.5 million and $14.5 million, depending on the annualized earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) of the facility for the three month period preceding the option exercise date; however, in no event can the borrowers require the Company to purchase the property if the three month annualized EBITDAR is below $1.7 million. The loan was funded with available cash and proceeds from the Amended Secured Revolving Credit Facility (as defined below).


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4.
REAL ESTATE INVESTMENTS
The Company’s investments in real estate consisted of the following (dollars in thousands):
As of June 30, 2012
Property Type
 
Number of
Properties
 
Number of
Beds/Units
 
Total
Real Estate
at Cost
 
Accumulated
Depreciation
 
Total
Real Estate
Investments, Net
Skilled Nursing/Post-Acute
 
93

 
10,549

 
$
712,458

 
$
(112,476
)
 
$
599,982

Senior Housing
 
9

 
773

 
47,892

 
(9,021
)
 
38,871

Acute Care Hospital
 
1

 
70

 
61,640

 
(2,077
)
 
59,563

 
 
103

 
11,392

 
821,990

 
(123,574
)
 
698,416

Corporate Level
 
 
 
 
 
239

 
(77
)
 
162

 
 
 
 
 
 
$
822,229

 
$
(123,651
)
 
$
698,578

As of December 31, 2011
Property Type
 
Number of
Properties
 
Number of
Beds/Units
 
Total
Real Estate
at Cost
 
Accumulated
Depreciation
 
Total
Real Estate
Investments, Net
Skilled Nursing/Post-Acute
 
87

 
10,034

 
$
658,222

 
$
(99,570
)
 
$
558,652

Senior Housing
 
9

 
773

 
47,192

 
(8,140
)
 
39,052

Acute Care Hospital
 
1

 
70

 
61,640

 
(1,154
)
 
60,486

 
 
97

 
10,877

 
767,054

 
(108,864
)
 
658,190

Corporate Level
 
 
 
 
 
239

 
(52
)
 
187

 
 
 
 
 
 
$
767,293

 
$
(108,916
)
 
$
658,377

 
June 30, 2012
 
December 31, 2011
Building and improvements
$
670,605

 
$
626,877

Furniture and equipment
46,043

 
44,045

Land improvements
4,640

 
4,640

Land
100,941

 
91,731

 
822,229

 
767,293

Accumulated depreciation
(123,651
)
 
(108,916
)
 
$
698,578

 
$
658,377


Operating Leases
As of June 30, 2012, all of the Company’s real estate properties are leased under triple-net operating leases with expirations ranging from nine to 22 years. As of June 30, 2012, the leases have a weighted-average remaining term of 12 years. The leases include provisions to extend the lease terms and other negotiated terms and conditions. The Company, through its subsidiaries, retains substantially all of the risks and benefits of ownership of the real estate assets leased to the tenants. In addition, the Company may receive additional security under these operating leases in the form of security deposits from the lessee or guarantees from the parent of the lessee. As of June 30, 2012, 86 of the Company's 103 real estate properties were leased to subsidiaries of Sun Healthcare Group, Inc. (“Sun”).
The Company monitors the creditworthiness of its tenants by reviewing credit ratings (if available) and evaluating the ability of tenants to meet their lease obligations to the Company based on the tenants' financial performance, including the evaluation of any parent guarantees of tenant lease obligations. Because formal credit ratings may not be available for most of the Company's tenants, the primary basis for the Company's evaluation of the credit quality of its tenants (and more specifically the tenants' ability to pay their rent obligations to the Company) is the tenants' lease coverage ratios. These coverage ratios include EBITDAR to rent coverage and EBITDARM to rent coverage at the facility level and consolidated EBITDAR to total rent coverage at the parent guarantor level when such a guarantee exists (currently the Sun lease portfolio). EBITDARM is defined as EBITDAR before management fees. The Company obtains various financial and operational information from its tenants each month and reviews this information in conjunction with the above-described coverage metrics to determine trends and the operational and financial impact of the environment in the industry (including the impact of government reimbursement) and the management of the tenant's operations. These metrics help the Company identify potential areas of

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concern relative to its tenants' credit quality and ultimately the tenants' ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company. For further discussion of the Company's tenant and revenue concentration, see “Note 11. Commitments and Contingencies—Concentration of Credit Risk.”
As of June 30, 2012, the future minimum rental income from the Company’s properties under non-cancelable operating leases is as follows (in thousands):
July 1, 2012 through December 31, 2012
$
50,633

2013
101,267

2014
101,267

2015
101,267

2016
101,267

Thereafter
711,325

 
$
1,167,026

 
 
 

5.
DEBT
Mortgage Indebtedness. The Company’s mortgage notes payable consist of the following (dollars in thousands):
 
Interest Rate Type
Principal
Outstanding as of
June 30, 2012 (2)
 
Principal
Outstanding as of
December 31, 2011 (2)
 
Weighted Average
Interest Rate at
June 30, 2012
 
Maturity
Date
Fixed Rate
$
98,818

 
$
98,739

 
5.56
%
 
August 2015 - June 2047
Variable Rate(1)
58,562

 
59,159

 
5.00
%
 
August 2015
 
$
157,380

 
$
157,898

 
 
 
 
 
(1) 
Contractual interest rates under variable rate mortgages are equal to the 90-day LIBOR plus 4.0% (subject to a 1.0% LIBOR floor). 
(2) 
Outstanding principal balance for mortgage indebtedness does not include mortgage premium of $0.5 million as of June 30, 2012 and December 31, 2011. 
On June 28, 2012, the Company refinanced four of its existing United States Department of Housing and Urban Development (“HUD”) mortgage notes totaling $20.9 million. The Company maintained the original maturity dates, reduced the weighted average interest rate from 5.75% to 2.49% per annum and increased the aggregate outstanding principal amount of the mortgage notes by $1.1 million. In connection with the refinancing, the Company wrote off $0.2 million in unamortized deferred financing costs related to the original mortgage notes. Subsequent to June 30, 2012, the Company refinanced one additional HUD mortgage note totaling $13.5 million. The Company maintained the original maturity date, reduced the interest rate from 5.90% to 2.49% per annum and increased the aggregate outstanding principal amount of the mortgage note by $0.4 million.

On May 1, 2012, the Company amended the Amended, Restated and Consolidated Loan Agreement with General Electric Capital Corporation. The Company reduced the interest rate spread of the floating rate portion (totaling $58.6 million as of June 30, 2012) by 50 basis points and maintained the fixed rate portion (totaling $31.1 million as of June 30, 2012) at the original pricing of 6.82%; however, the reduced pricing will apply to the fixed portion of the loan beginning on December 19, 2013 when it converts to a floating rate loan. The Company also agreed to prepayment terms that do not allow for prepayment for the loan prior to May 1, 2014 unless the prepayment is either approved by the lender in its sole discretion or arises from a refinancing of one or more of the applicable facilities under a loan program insured or otherwise supported by HUD.
8.125% Senior Notes due 2018. On October 27, 2010, the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company (the “Issuers”), issued $225.0 million aggregate principal amount of 8.125% senior, unsecured notes (the “Senior Notes”) in a private placement. The Senior Notes were sold at par, resulting in gross proceeds of $225.0 million and net proceeds of approximately $219.9 million after deducting commissions and expenses. On December 6, 2010, substantially all of the net proceeds were used by Sun to redeem the $200.0 million in aggregate principal amount outstanding of Old Sun’s 9.125% senior subordinated notes due 2015, including accrued and unpaid interest and the applicable redemption premium. In March 2011, the Issuers completed an exchange offer to exchange the Senior Notes for substantially identical 8.125% senior unsecured notes registered under the Securities Act of 1933, as amended (also referred to herein as the “Senior Notes”).

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On July 26, 2012, the Issuers issued an additional $100.0 million aggregate principal amount of 8.125% senior notes, which are treated as a single class with the existing Senior Notes. The notes were issued at 106.0% providing net proceeds of $103.8 million after underwriting costs but before other offering expenses and a yield-to-maturity of 6.92%.
The obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain of Sabra’s existing and, subject to certain exceptions, future material subsidiaries; provided, however, that such guarantees are subject to release under certain customary circumstances.  See "Note 9. Summarized Condensed Consolidating Information" for additional information concerning the circumstances pursuant to which the guarantors will be automatically and unconditionally released from their obligations under the guarantees.
The Senior Notes are redeemable at the option of the Issuers, in whole or in part, at any time, and from time to time, on or after November 1, 2014, at the redemption prices set forth in the indenture governing the Senior Notes (the “Indenture”), plus accrued and unpaid interest to the applicable redemption date. In addition, prior to November 1, 2014, the Issuers may redeem all or a portion of the Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus a “make-whole” premium, plus accrued and unpaid interest to the applicable redemption date. At any time, or from time to time, on or prior to November 1, 2013, the Issuers may redeem up to 35% of the principal amount of the Senior Notes, using the proceeds of specific kinds of equity offerings, at a redemption price of 108.125% of the principal amount to be redeemed, plus accrued and unpaid interest, if any, to the applicable redemption date. Assuming the Senior Notes are not redeemed, the Senior Notes mature on November 1, 2018.
The Indenture governing the Senior Notes contains restrictive covenants that, among other things, restrict the ability of Sabra, the Issuers and their restricted subsidiaries to: (i) incur or guarantee additional indebtedness; (ii) incur or guarantee secured indebtedness; (iii) pay dividends or distributions on, or redeem or repurchase, their capital stock; (iv) make certain investments or other restricted payments; (v) sell assets; (vi) create liens on their assets; (vii) enter into transactions with affiliates; (viii) merge or consolidate or sell all or substantially all of their assets; and (ix) create restrictions on the ability of Sabra's restricted subsidiaries to pay dividends or other amounts to Sabra. The Indenture governing the Senior Notes also provides for customary events of default, including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal of, the Senior Notes, the failure to comply with certain covenants and agreements specified in the Indenture for a period of time after notice has been provided, the acceleration of other indebtedness resulting from the failure to pay principal on such other indebtedness prior to its maturity, and certain events of insolvency. If any event of default occurs, the principal of, premium, if any, and accrued interest on all the then outstanding Senior Notes may become due and payable immediately. As of June 30, 2012, the Company was in compliance with all applicable financial covenants under the Senior Notes.

Amended Secured Revolving Credit Facility. On November 3, 2010, the Operating Partnership and certain subsidiaries of the Operating Partnership (together with the Operating Partnership, the “Borrowers”) entered into a secured revolving credit facility with certain lenders as set forth in the related credit agreement and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (each as defined in such credit agreement). The secured revolving credit facility is secured by, among other things, a first priority lien against certain of the properties owned by certain of the Company’s subsidiaries. The obligations of the Borrowers under the secured revolving credit facility are guaranteed by the Company and certain of its subsidiaries. On February 10, 2012, the Borrowers amended the secured revolving credit facility (the “Amended Secured Revolving Credit Facility”) to increase the borrowing capacity from $100.0 million to $200.0 million (up to $20.0 million of which may be utilized for letters of credit) and to include an accordion feature that allows the Borrowers to increase borrowing availability under the Amended Secured Revolving Credit Facility by up to an additional $150.0 million, subject to certain terms and conditions. Borrowing availability under the Amended Secured Revolving Credit Facility is subject to a borrowing base calculation based on, among other factors, the lesser of (i) the mortgageability cash flow (as such term is defined in the credit agreement ) or (ii) the appraised value, in each case of the properties securing the Amended Secured Revolving Credit Facility. Borrowing availability under the Amended Secured Revolving Credit Facility terminates, and all borrowings mature, on February 10, 2015, subject to a one-year extension option. As of June 30, 2012, there was $42.5 million outstanding on the Company’s Amended Secured Revolving Credit Facility and $157.5 million available for borrowing. The Company used a portion of the proceeds from its July 2012 offering of $100.0 million aggregate principal amount of 8.125% senior notes to repay the borrowings outstanding on the Amended Secured Revolving Credit Facility.
Borrowings under the Amended Secured Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable percentage plus, at the Borrowers' option, either (a) LIBOR or (b) a base rate determined as the greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) one-month LIBOR plus 1.0% (the “Base Rate”). The applicable percentage for borrowings will vary based on the Consolidated Leverage Ratio, as defined in the credit agreement, and will range from 2.00% to 3.00% per annum for borrowings at the Base Rate and 3.00% to 4.00% per annum for LIBOR based borrowings. As of June 30, 2012, the interest rate on the Amended Secured Revolving Credit Facility was 3.49%. In addition, the Borrowers are required to pay a facility fee to the lenders equal to between 0.35% and 0.50% per annum based on

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the amount of unused borrowings under the Amended Secured Revolving Credit Facility. During the three and six months ended June 30, 2012, the Company incurred $0.2 million in interest expense on amounts outstanding on the Amended Secured Revolving Credit Facility. During the three and six months ended June 30, 2012, the Company incurred $0.2 million and $0.4 million, respectively, of unused facility fees.
The Amended Secured Revolving Credit Facility contains customary covenants that include restrictions on the ability to make acquisitions and other investments, pay dividends, incur additional indebtedness, engage in non-healthcare related business activities, enter into transactions with affiliates and sell or otherwise transfer certain assets as well as customary events of default. The Amended Secured Revolving Credit Facility also requires the Company, through the Borrowers, to comply with specified financial covenants, which include a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum tangible net worth requirement. As of June 30, 2012, the Company was in compliance with all applicable financial covenants under the Amended Secured Revolving Credit Facility.
The Company incurred interest expense of $8.1 million and $15.8 million for the three and six months ended June 30, 2012, respectively, and $7.5 million and $15.1 million for the three and six months ended June 30, 2011, respectively. Interest expense includes deferred financing costs amortization of $0.9 million and $1.4 million for the three and six months ended June 30, 2012, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2011, respectively. Amortization of deferred financing costs for the three and six months ended June 30, 2012 includes $0.2 million in write-offs related to the refinancing of the mortgage notes. As of June 30, 2012 and December 31, 2011, the Company had $3.7 million and $4.0 million, respectively, of accrued interest included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.
The following is a schedule of maturities for the Company’s outstanding debt as of June 30, 2012 (in thousands): 
 
Mortgage
Indebtedness  (1)
 
Senior Notes
 
Amended Secured Revolving
Credit Facility
 
Total
July 1, 2012 through December 31, 2012
$
1,701

 
$

 
$

 
$
1,701

2013
3,690

 

 

 
3,690

2014
3,902

 

 

 
3,902

2015
86,291

 

 
42,500

 
128,791

2016
1,920

 

 

 
1,920

Thereafter
59,876

 
225,000

 

 
284,876

 
$
157,380

 
$
225,000

 
$
42,500

 
$
424,880

 
(1) 
Outstanding principal balance for mortgage indebtedness does not include mortgage premium of $0.5 million as of June 30, 2012.

6.FAIR VALUE DISCLOSURES

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments.
Financial instruments for which actively quoted prices or pricing parameters are available and whose markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments whose markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The carrying values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities are reasonable estimates of fair value because of the short-term maturities of these instruments. Fair values for other financial instruments are derived as follows:
Loans receivable: These instruments are presented in the accompanying condensed consolidated balance sheets at their amortized cost and not at fair value. The fair value of the loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans receivable, the underlying collateral value and other credit enhancements.
Senior Notes: The fair values of the Senior Notes were determined using third-party market quotes derived from orderly trades.
Mortgage indebtedness: The fair values of the Company’s notes payable were estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements.

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The following are the carrying amounts and fair values of the Company’s financial instruments as of June 30, 2012 and December 31, 2011 whose carrying amounts do not approximate their fair value:
 
 
June 30, 2012
 
December 31, 2011
 
Face
Value (1)
 
Carrying
Amount (2)
 
Fair
Value
 
Face
Value (1)
 
Carrying
Amount
(2)
 
Fair
Value
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable
$
21,000

 
$
21,193

 
$
21,000

 
$

 
$

 
$

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
Senior Notes
225,000

 
225,000

 
241,875

 
225,000

 
225,000

 
227,813

Mortgage indebtedness
157,380

 
157,872

 
173,548

 
157,898

 
158,398

 
172,829

Amended Secured Revolving
Credit Facility
42,500

 
42,500

 
42,500

 

 

 

 
(1) Face value represents amounts contractually due under the terms of the respective agreements.
(2) Carrying amount represents the book value of financial instruments and includes unamortized premiums (discounts).
The Company determined the fair value of financial instruments as of June 30, 2012 whose carrying amounts do not approximate their fair value with valuation methods utilizing the following types of inputs (in thousands):
 
 
 
Fair Value Measurements Using
 
 
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Financial assets:
 
 
 
 
 
 
 
Loans receivable
$
21,000

 
$

 
$

 
$
21,000

Financial liabilities:
 
 
 
 
 
 
 
Senior Notes
241,875

 

 
241,875

 

Mortgage indebtedness
173,548

 

 

 
173,548

Amended Secured Revolving
Credit Facility
42,500

 

 

 
42,500

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company at the applicable dates and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of fair value at a future date could be materially different.

7.
EQUITY

Common Stock
 
The following table lists the cash dividends on common stock declared and paid by the Company during the six months ended June 30, 2012:
 
Declaration Date
 
Record Date
 
Amount Per Share
 
Dividend Payable Date
February 29, 2012
 
March 15, 2012
 
$
0.33

 
March 30, 2012
April 24, 2012
 
May 15, 2012
 
$
0.33

 
May 31, 2012
 
On August 1, 2012, the Company announced that its board of directors declared a quarterly cash dividend of $0.33 per share of common stock. The dividend will be paid on August 31, 2012 to stockholders of record as of the close of business on August 15, 2012.
On August 1, 2011, the Company completed an underwritten public offering of 11.7 million newly issued shares of its common stock pursuant to a registration statement filed with the SEC, which became effective on July 26, 2011.  The Company received net proceeds, before expenses, of $163.9 million from the offering, after giving effect to the issuance and sale of all 11.7 million shares of common stock (which included 1.5 million shares sold to the underwriters upon exercise of their option to purchase additional shares to cover over-allotments), at a price to the public of $14.75 per share.
During the six months ended June 30, 2012, the Company issued 117,890 shares of common stock as a result of restricted stock unit vestings and in connection with incentive bonus payments payable under the Company's 2011 Bonus Plan pursuant to an election to receive the bonus payment in shares of the Company's common stock. During the six months ended June 30, 2012, the Company issued 41,640 shares of common stock as a result of stock options exercised.
8.
EARNINGS PER COMMON SHARE
The following table illustrates the computation of basic and diluted earnings per share for the three and six months ended June 30, 2012 and 2011 (in thousands, except share and per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Numerator
 
 
 
 
 
 
 
Net income
$
5,923

 
$
2,087

 
$
10,328

 
$
3,335

 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Basic weighted average common shares
37,147,942

 
25,154,284

 
37,092,683

 
25,140,781

Dilutive stock options and restricted stock units
43,745

 
71,895

 
26,322

 
69,794

 
 
 
 
 
 
 
 
Diluted weighted average common shares
37,191,687

 
25,226,179

 
37,119,005

 
25,210,575

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.16

 
$
0.08

 
$
0.28

 
$
0.13

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.16

 
$
0.08

 
$
0.28

 
$
0.13

Certain of the Company’s restricted stock units are considered participating securities which require the use of the two-class method when computing basic and diluted earnings per share. During the three and six months ended June 30, 2012, approximately 0.3 million and 0.4 million restricted stock units, respectively, and options to purchase approximately 0.4 million shares were not included because they were anti-dilutive. During the three and six months ended June 30, 2011, approximately 0.3 million restricted stock units and options to purchase approximately 0.4 million shares were not included because they were anti-dilutive.

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9.SUMMARIZED CONDENSED CONSOLIDATING INFORMATION
In connection with the offering of the Senior Notes by the Issuers in October 2010, the Company and certain 100% owned subsidiaries of the Company (the “Guarantors”) have, jointly and severally, fully and unconditionally guaranteed the Senior Notes, subject to release under certain customary circumstances as described below. These guarantees are subordinated to all existing and future senior debt and senior guarantees of the Guarantors and are unsecured. The Company conducts all of its business through and derives virtually all of its income from its subsidiaries. Therefore, the Company’s ability to make required payments with respect to its indebtedness (including the Senior Notes) and other obligations depends on the financial results and condition of its subsidiaries and its ability to receive funds from its subsidiaries.
A Guarantor will be automatically and unconditionally released from its obligations under the guarantees with respect to the Senior Notes in the event of:
Any sale of the subsidiary Guarantor or of all or substantially all of its assets;
A merger or consolidation of a subsidiary Guarantor with an issuer of the Senior Notes or another Guarantor, provided that the surviving entity remains a Guarantor;
A subsidiary Guarantor is declared “unrestricted” for covenant purposes under the Indenture;
The requirements for legal defeasance or covenant defeasance or to discharge the Indenture have been satisfied;
A liquidation or dissolution, to the extent permitted under the Indenture, of a subsidiary Guarantor; and
The release or discharge of the guaranty that resulted in the creation of the subsidiary guaranty, except a discharge or release by or as a result of payment under such guaranty.
Pursuant to Rule 3-10 of Regulation S-X, the following summarized consolidating information is provided for the Company (the “Parent Company”), the Issuers, the Guarantors, and the Company’s non-Guarantor subsidiaries with respect to the Senior Notes. This summarized financial information has been prepared from the books and records maintained by the Company, the Issuers, the Guarantors and the non-Guarantor subsidiaries. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Issuers, the Guarantors or non-Guarantor subsidiaries operated as independent entities. Sabra’s investments in its consolidated subsidiaries are presented based upon Sabra's proportionate share of each subsidiary's net assets. The Guarantor subsidiaries’ investments in the non-Guarantor subsidiaries and non-Guarantor subsidiaries’ investments in Guarantor subsidiaries are presented under the equity method of accounting. Intercompany activities between subsidiaries and the Parent Company are presented within operating activities on the condensed consolidating statement of cash flows.
Condensed consolidating financial statements for the Company and its subsidiaries, including the Parent Company only, the Issuers, the combined Guarantor subsidiaries and the combined non-Guarantor subsidiaries, are as follows:

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CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2012
(in thousands, except share and per share amounts)
(unaudited)
 
 
Parent
Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Real estate investments, net of accumulated depreciation
$
162

 
$

 
$
518,588

 
$
179,828

 
$

 
$
698,578

Loans receivable, net

 

 
21,193

 

 

 
21,193

Cash and cash equivalents
1,583

 

 

 
1,527

 

 
3,110

Restricted cash

 

 

 
7,076

 

 
7,076

Deferred tax assets
25,540

 

 

 

 

 
25,540

Prepaid expenses, deferred financing costs and other assets
941

 
4,706

 
13,698

 
3,676

 

 
23,021

Intercompany
72,861

 
135,875

 

 
30,054

 
(238,790
)
 

Investment in subsidiaries
247,171

 
334,637

 
24,894

 

 
(606,702
)
 

Total assets
$
348,258

 
$
475,218

 
$
578,373

 
$
222,161

 
$
(845,492
)
 
$
778,518

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
$

 
$

 
$

 
$
157,872

 
$

 
$
157,872

Secured revolving credit facility

 

 
42,500

 

 

 
42,500

Senior unsecured notes payable

 
225,000

 

 

 

 
225,000

Accounts payable and accrued liabilities
6,293

 
3,047

 
1,158

 
683

 

 
11,181

Tax liability
25,540

 

 

 

 

 
25,540

Intercompany

 

 
238,790

 

 
(238,790
)
 

Total liabilities
31,833

 
228,047

 
282,448

 
158,555

 
(238,790
)
 
462,093

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2012

 

 

 

 

 

Common stock, $.01 par value; 125,000,000 shares authorized, 37,051,242 shares issued and outstanding as of June 30, 2012
371

 

 

 

 

 
371

Additional paid-in capital
349,272

 
205,389

 
233,433

 
52,549

 
(491,371
)
 
349,272

Cumulative distributions in excess of net income

(33,218
)
 
41,782

 
62,492

 
11,057

 
(115,331
)
 
(33,218
)
Total stockholders’ equity
316,425

 
247,171

 
295,925

 
63,606

 
(606,702
)
 
316,425

Total liabilities and stockholders’ equity
$
348,258

 
$
475,218

 
$
578,373

 
$
222,161

 
$
(845,492
)
 
$
778,518


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CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2011
(in thousands, except share and per share amounts)
 
 
Parent
Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Real estate investments, net of accumulated depreciation
$
187

 
$

 
$
474,256

 
$
183,934

 
$

 
$
658,377

Cash and cash equivalents
41,736

 

 

 
514

 

 
42,250

Restricted cash

 

 

 
6,093

 

 
6,093

Deferred tax assets
25,540

 

 

 

 

 
25,540

Prepaid expenses, deferred financing costs and other assets
874

 
5,079

 
8,544

 
2,893

 

 
17,390

Intercompany

 
145,018

 

 
25,237

 
(170,255
)
 

Investment in subsidiaries
313,181

 
391,131

 
23,611

 

 
(727,923
)
 

Total assets
$
381,518

 
$
541,228

 
$
506,411

 
$
218,671

 
$
(898,178
)
 
$
749,650

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
$

 
$

 
$

 
$
158,398

 
$

 
$
158,398

Senior unsecured notes payable

 
225,000

 

 

 

 
225,000

Accounts payable and accrued liabilities
6,296

 
3,047

 
4,107

 
689

 

 
14,139

Tax liability
25,540

 

 

 

 

 
25,540

Intercompany
23,109

 

 
147,146

 

 
(170,255
)
 

Total liabilities
54,945

 
228,047

 
151,253

 
159,087

 
(170,255
)
 
423,077

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized, zero shares issued and outstanding as of December 31, 2011

 

 

 

 

 

Common stock, $.01 par value; 125,000,000 shares authorized, 36,891,712 shares issued and outstanding as of December 31, 2011
369

 

 

 

 

 
369

Additional paid-in capital
344,995

 
288,665

 
316,011

 
52,110

 
(656,786
)
 
344,995

Cumulative distributions in excess of net income

(18,791
)
 
24,516

 
39,147

 
7,474

 
(71,137
)
 
(18,791
)
Total stockholders’ equity
326,573

 
313,181

 
355,158

 
59,584

 
(727,923
)
 
326,573

Total liabilities and stockholders’ equity
$
381,518

 
$
541,228

 
$
506,411

 
$
218,671

 
$
(898,178
)
 
$
749,650


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Table of Contents


CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended June 30, 2012
(in thousands, except share and per share amounts)
(unaudited)
 
 
Parent Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$

 
$
18,372

 
$
6,448

 
$

 
$
24,820

Interest income
1

 

 
296

 

 

 
297

Total revenues
1

 

 
18,668

 
6,448

 

 
25,117

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
12

 

 
5,492

 
2,053

 

 
7,557

Interest

 
4,757

 
715

 
2,676

 

 
8,148

General and administrative
3,083

 
1

 
376

 
29

 

 
3,489

(Income) loss in subsidiary
(9,017
)
 
(13,775
)
 
55

 

 
22,737

 

Total expenses
(5,922
)
 
(9,017
)
 
6,638

 
4,758

 
22,737

 
19,194

Net income
$
5,923

 
$
9,017

 
$
12,030

 
$
1,690

 
$
(22,737
)
 
$
5,923

Net income per common share, basic
 
 
 
 
 
 
 
 
 
 
$
0.16

Net income per common share, diluted
 
 
 
 
 
 
 
 
 
 
$
0.16

Weighted-average number of common shares outstanding, basic
 
 
 
 
 
 
 
 
 
 
37,147,942

Weighted-average number of common shares outstanding, diluted
 
 
 
 
 
 
 
 
 
 
37,191,687


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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended June 30, 2011
(in thousands, except share and per share amounts)
(unaudited)

 
Parent Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$

 
$
12,337

 
$
6,291

 
$

 
$
18,628

Interest income
13

 

 
162

 
2

 

 
177

Total revenues
13

 

 
12,499

 
6,293

 

 
18,805

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
12

 

 
4,173

 
2,105

 

 
6,290

Interest

 
4,653

 
324

 
2,528

 

 
7,505

General and administrative
2,686

 

 
208

 
29

 

 
2,923

Income in subsidiary
(4,772
)
 
(9,425
)
 
(105
)
 

 
14,302

 

Total expenses
(2,074
)
 
(4,772
)
 
4,600

 
4,662

 
14,302

 
16,718

Net income
$
2,087

 
$
4,772

 
$
7,899

 
$
1,631

 
$
(14,302
)
 
$
2,087

Net income per common share, basic
 
 
 
 
 
 
 
 
 
 
$
0.08

Net income per common share, diluted
 
 
 
 
 
 
 
 
 
 
$
0.08

Weighted-average number of common shares outstanding, basic
 
 
 
 
 
 
 
 
 
 
25,154,284

Weighted-average number of common shares outstanding, diluted
 
 
 
 
 
 
 
 
 
 
25,226,179


18

Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended June 30, 2012
(in thousands, except share and per share amounts)
(unaudited)

 
Parent Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$

 
$
35,586

 
$
12,897

 
$

 
$
48,483

Interest income
7

 

 
354

 

 

 
361

Total revenues
7

 

 
35,940

 
12,897

 

 
48,844

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
24

 

 
10,724

 
4,112

 

 
14,860

Interest

 
9,514

 
1,178

 
5,154

 

 
15,846

General and administrative
6,920

 
2

 
839

 
49

 

 
7,810

Income in subsidiary
(17,265
)
 
(26,781
)
 
(147
)
 

 
44,193

 

Total expenses
(10,321
)
 
(17,265
)
 
12,594

 
9,315

 
44,193

 
38,516

Net income
$
10,328

 
$
17,265

 
$
23,346

 
$
3,582

 
$
(44,193
)
 
$
10,328

Net income per common share, basic
 
 
 
 
 
 
 
 
 
 
$
0.28

Net income per common share, diluted
 
 
 
 
 
 
 
 
 
 
$
0.28

Weighted-average number of common shares outstanding, basic
 
 
 
 
 
 
 
 
 
 
37,092,683

Weighted-average number of common shares outstanding, diluted
 
 
 
 
 
 
 
 
 
 
37,119,005


19

Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended June 30, 2011
(in thousands, except share and per share amounts)
(unaudited)

 
Parent Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$

 
$
23,608

 
$
12,582

 
$

 
$
36,190

Interest income
41

 

 
175

 
1

 

 
217

Total revenues
41

 

 
23,783

 
12,583

 

 
36,407

Expenses:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
29

 

 
8,111

 
4,237

 

 
12,377

Interest

 
9,403

 
646

 
5,054

 

 
15,103

General and administrative
5,315

 

 
211

 
66

 

 
5,592

Income in subsidiary
(8,638
)
 
(18,041
)
 
(199
)
 

 
26,878

 

Total expenses
(3,294
)
 
(8,638
)
 
8,769

 
9,357

 
26,878

 
33,072

Net income
$
3,335

 
$
8,638

 
$
15,014

 
$
3,226

 
$
(26,878
)
 
$
3,335

Net income per common share, basic
 
 
 
 
 
 
 
 
 
 
$
0.13

Net income per common share, diluted
 
 
 
 
 
 
 
 
 
 
$
0.13

Weighted-average number of common shares outstanding, basic
 
 
 
 
 
 
 
 
 
 
25,140,781

Weighted-average number of common shares outstanding, diluted
 
 
 
 
 
 
 
 
 
 
25,210,575



20

Table of Contents


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2012
(in thousands)
(unaudited)

Parent Company
 
Issuers
 
Combined
Guarantor
Subsidiaries
 
Combined  Non-
Guarantor
Subsidiaries
 
Elimination
 
Consolidated
Net cash provided by operating activities
$
22,525

 
$

 
$

 
$
1,562

 
$

 
$
24,087

Cash flows from investing activities:

 

 

 

 

 

Acquisitions of real estate