UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K/A

 

 

(Amendment No. 2)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): January 10, 2012

 

 

Griffin-American Healthcare REIT II, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland		000-54371		26-4008719
(State or other jurisdiction of incorporation)		Commission File Number)		(I.R.S. Employer Identification No.)
4000 MacArthur Boulevard, West Tower, Suite 200, Newport Beach, California				92660
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code: (949) 270-9200

Not Applicable

Former name or former address, if changed since last report

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)

 

 

 

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INFORMATION TO BE INCLUDED IN THE REPORT

We previously filed a Current Report on Form 8-K on January 17, 2012 reporting our acquisition of ten skilled nursing facilities: (i) Rockdale Healthcare Center, Riverside Health Care Center, New London Healthcare, Bell Minor Home, Westminister Commons and Nurse Care of Buckhead, located in Conyers, Covington, Snellville, Gainsville, Atlanta and Atlanta, Georgia, respectively; (ii) Parkway Health and Rehabilitation Center and Millington Healthcare Center, located in Memphis and Millington, Tennessee, repectively; (iii) Nurse Care of Shreveport, located in Shreveport, Lousisiana; and (iv) Sea Breeze Health Care Center, located in Mobile, Alabama, or collectively the Southeastern SNF Portfolio, for an aggregate purchase price of $166,500,000, plus closing costs. We subsequently filed a Current Report on Form 8-K/A, Amendment No. 1, on January 18, 2012, to amend the Form 8-K. We are filing this Current Report on Form 8-K/A, Amendment No. 2, to provide the financial information required by Item 9.01.

On January 10, 2012, we acquired the Southeastern SNF Portfolio which is leased to a majority-owned subsidiary of Wellington Healthcare Services, LP, or Wellington, whereby Wellington and subsidiaries serve as the guarantors of the leased properties.

In evaluating the Southeastern SNF Portfolio as a potential acquisition and determining the appropriate amount of consideration to be paid for the portfolio, a variety of factors were considered, including our evaluation of property condition reports, the respective locations, visibility and access to the ten facilities, the age, physical condition and curb appeal of the ten facilities, neighboring property uses, local market conditions and general economic conditions and patient demand.

The Southeastern SNF Portfolio was built between 1969 and 1999 and consists of approximately 454,000 square feet of gross leasable area, or GLA, in the aggregate, and each facility has between 84 and 227 beds. The Southeastern SNF Portfolio is 100% leased to one tenant which has operations at each of the ten facilities. We believe that the financial condition and results of operations of the guarantor, Wellington Healthcare Services, LP and Subsidiaries, are more relevant to investors than the financial statements of the individual properties and enable investors to evaluate the credit-worthiness of the guarantor of the lease and pursuant to the guidance provided by the United States Securities and Exchange Commission, or the SEC, we have provided the audited financial statements of Wellington Healthcare Services, LP and Subsidiaries, below.

 

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Item 9.01 Financial Statements and Exhibits.

 

		Page
(a)    Financial statements of businesses acquired.
1.      Wellington Healthcare Services, LP and Subsidiaries
I.       Independent Auditors’ Report			4
II.     Consolidated Balance Sheets as of December 31, 2011 and 2010			5
III.    Consolidated Statements of Income for the Years Ended December 31, 2011 and 2010			7
IV.   Consolidated Statements of Partners’ Equity for the Years Ended December 31, 2011 and 2010			8
V.     Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010			9
VI.   Notes to Consolidated Financial Statements			10
VII.  Supplementary Information			20
2.      Wellington Healthcare Services, LP and Subsidiaries
I.       Independent Auditors’ Report			36
II.     Consolidated Balance Sheets as of December 31, 2010 and 2009			37
III.    Consolidated Statements of Income for the Years Ended December 31, 2010 and 2009			39
IV.   Consolidated Statements of Partners’ Equity for the Years Ended December 31, 2010 and 2009			40
V.     Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009			41
VI.   Notes to Consolidated Financial Statements			42
VII.  Supplementary Information			52
(b)    Pro forma financial information.
Grriffin-American Healthcare REIT II, Inc.
I.       Unaudited Pro Forma Condensed Consolidated Financial Statements as of December 31, 2011 and for the Year Ended December 31, 2011			68
II.     Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2011			69
III.    Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2011			70
IV.   Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements as of December 31, 2011 and for the Year Ended December 31, 2011			71

 

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To the Partners

of Wellington Healthcare Services, LP and Subsidiaries

Independent Auditor’s Report

We have audited the accompanying consolidated balance sheets of Wellington Healthcare Services, LP and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, partners’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wellington Healthcare Services, LP and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The December 31, 2011 consolidating balance sheet and related statement of income on pages 21 through 35 are presented for the purposes of additional analysis of the consolidated financial statement rather than to present the financial position and the results of operations of the individual companies, and is not a required part of the consolidated financial statement. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statement. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statement and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statement or to the consolidated financial statement itself, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in relation to the consolidated financial statement taken as a whole.

/s/ Bradley Associates

Indianapolis, Indiana

March 16, 2012

201 S. Capitol Avenue, Suite 910 Indianapolis, IN 46225 P 317.237.5500 F317.237.5503 bradleycpa.com

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010

ASSETS

 

		2011				2010
Current assets:
Cash		$	3,821,639			$	3,832,645
Patient accounts receivable, net of allowance for doubtful accounts of $1,020,315 and $812,964 for 2011 and 2010, respectively			7,694,602				6,868,754
Third party receivables			432,522				623,971
Accounts receivable, related parties							9,378
Escrow accounts			1,388,248				944,121
Prepaid expenses			799,221				1,098,278
Total current assets			14,136,232				13,377,147
Investments			2,465,987				2,470,432
Restricted cash			4,344,115				4,344,115
Property and equipment, net			76,130,030				74,994,734
Other assets:
Deferred loan costs, net			2,731,135				2,946,912
Goodwill			4,015,652				4,015,652
Other assets			420,799				209,714
Total other assets			7,167,586				7,172,278
Total assets		$	104,243,950			$	102,358,706

The accompanying notes are an integral part

of the consolidated financial statements.

 

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LIABILITIES AND PARTNERS’ EQUITY

 

		2011				2010
Current liabilities:
Current maturities of long-term debt		$	14,078,955			$	1,481,103
Accounts payable, trade			4,267,679				4,093,360
Third party payables			132,694
Accrued expenses			5,467,397				4,566,404
Total current liabilities			23,946,725				10,140,867
Long-term debt, less current maturities			69,521,028				83,968,946
Partners’ equity			10,776,197				8,248,893
Total liabilities and partners’ equity		$	104,243,950			$	102,358,706

The accompanying notes are an integral part

of the consolidated financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2011 AND 2010

 

		2011				2010
Revenue:
Net routine services		$	101,449,027			$	85,731,775
Net special services			4,099,691				2,933,434
Billing service fees			492,989				481,714
Management fees							10,500
			106,041,707				89,157,423
Other operating revenue			40,890				38,693
Operating expenses:
Routine service			33,088,782				29,721,447
Special service			13,946,211				11,549,915
Dietary			6,941,499				6,175,370
Laundry and housekeeping			3,504,150				3,101,465
Plant operation and maintenance			4,606,072				4,118,404
General and administrative			19,937,030				16,644,022
Property and related			2,475,930				2,116,753
Depreciation and amortization			2,796,788				2,680,554
Bad debts			1,068,996				665,496
			88,365,458				76,773,426
Operating income			17,717,139				12,422,690
Financial income:
Interest income			18,954				9,731
Gain on sale of assets			(154,312	)			2,398
Interest expense			(4,127,233	)			(4,485,909	)
Other							(249,141	)
			(4,262,591	)			(4,722,921	)
Net income		$	13,454,548			$	7,699,769

The accompanying notes are an integral part

of the consolidated financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

YEARS ENDED DECEMBER 31, 2011 AND 2010

 

		2011				2010
Balance, beginning		$	8,248,893			$	1,800,169
Net income			13,454,548				7,699,769
Contributions							4,344,115
Distributions			(10,927,244	)			(5,595,160	)
Balance, ending		$	10,776,197			$	8,248,893

The accompanying notes are an integral part

of the consolidated financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2011 AND 2010

 

		2011				2010
Cash flows from operating activities:
Net income		$	13,454,548			$	7,699,769
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization			2,796,788				2,680,554
Bad debt			1,068,996				665,496
Gain on sale of assets			154,312				(2,398	)
Changes in assets and liabilities:
Patient accounts receivable			(1,894,844	)			(263,676	)
Third party receivables			191,449				27,694
Accounts receivable, related parties			9,378				(3,113	)
Prepaid expenses			299,057				(29,942	)
Other assets			(211,085	)			(136,805	)
Accounts payable, trade			174,319				551,173
Third party payables			132,694
Accrued expenses			900,993				3,585
Cash flows from operating activities			17,076,605				11,192,337
Cash flows from investing activities:
Purchase of property and equipment			(3,835,880	)			(13,981,971	)
Change in escrow accounts			(439,682	)			(3,086,025	)
Change in restricted cash							(4,344,115	)
Cash flows from investing activities			(4,275,562	)			(21,412,111	)
Cash flows from financing activities:
Contributions							4,344,115
Distributions			(10,927,244	)			(5,595,160	)
Net payments on revolving line of credit							(2,140,000	)
Proceeds from short-term borrowings			1,008,676				737,057
Proceeds from long-term borrowings							85,143,534
Costs incurred to obtain financing			(34,739	)			(2,389,159	)
Principal payments on notes payable			(2,858,742	)			(68,489,463	)
Cash flows from financing activities			(12,812,049	)			11,610,924
Change in cash			(11,006	)			1,391,150
Cash at beginning of year			3,832,645				2,441,495
Cash at end of year		$	3,821,639			$	3,832,645
Supplemental disclosures of cash flow information:
Cash payments for interest		$	4,076,631			$	4,667,028

The accompanying notes are an integral part

of the consolidated financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business

Wellington Healthcare Services, LP (Partnership), was organized as a Limited Partnership for the purpose of owning, operating and managing long-term care facilities and related businesses. Under the terms of the partnership agreement, the limited partnership has an infinite life. The Partnership’s subsidiaries (which operate in Alabama, Louisiana, Georgia, and Tennessee) are as follows:

Andrees Investments, LP owns a parcel of undeveloped real estate in Millington, Tennessee.

Bombay Lane, LP provides consulting services to Wellington Healthcare Services, LP and Subsidiaries.

Congress Street Partners, LP subleases and operates Sea Breeze Health Care Center, a nursing facility located in Mobile, Alabama.

Elkins Road Associates, LP is the general partner of each of the Partnership’s subsidiaries.

England Associates, LP leases and operates New London Health Center, a nursing facility located in Snellville, Georgia.

Facility Investments, LP subleases and operates Westminster Commons, a nursing facility located in Atlanta, Georgia.

Falligant Associates, LP owns the real property occupied as Rockdale Healthcare Center located in Conyers, Georgia.

Hamilton Mill Associates, LP subleases and operates Bell Minor Home, a nursing facility located in Gainesville, Georgia.

Irving Place Associates, LP subleases and operates Nursecare of Shreveport, a nursing facility located in Shreveport, Louisiana.

Ivan Associates, LP owns the real property occupied as Sea Breeze Health Care Center located in Mobile, Alabama.

LTC Consulting, LP leases and operates Rockdale Healthcare Center, a nursing facility located in Conyers, Georgia.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business (Continued)

 

McGee Road Associates, LP owns the real property occupied as New London Health Center in Snellville, Georgia.

Wellington Healthcare Properties, LP subleases and operates Millington Healthcare Center, a nursing facility located in Millington, Tennessee.

Pharr Court Associates, LP leases and operates Nursecare of Buckhead, a nursing facility located in Atlanta, Georgia.

Powder Springs Road Associates, LP owns the real property occupied as Nursecare of Buckhead located in Atlanta, Georgia.

Red River Associates, LP owns the real property occupied as Nursecare of Shreveport located in Shreveport, Louisiana.

Riverside Healthcare, LP subleases and operates Riverside Health Care Center, a nursing facility located in Conyers, Georgia.

San Alejandro Associates, LP owns the real property occupied as Bell Minor Home located in Gainesville, Georgia.

San Carlos Associates, LP owns the real property occupied as Westminster Commons located in Atlanta, Georgia.

South Parkway Associates, LP subleases and operates Parkway Health & Rehabilitation Center, a nursing facility located in Memphis, Tennessee.

Tennessee Property Associates, LP owns the real property occupied as Parkway Health & Rehabilitation Center located in Memphis, Tennessee.

Warsaw Road, LP holds a master lease agreement for seven of the nursing facilities.

Wellington Healthcare Billing, LP provides Part B billing services for nursing facilities operated by Wellington Healthcare Services, LP and its subsidiaries.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business (Continued)

 

Wellington Realty, LP owned the real property at 500 Bombay Lane in Roswell, Georgia and leased the real property at 400 Bombay Lane in Roswell, Georgia. Both locations were occupied as the corporate offices until October 2008. During 2011 Wellington Realty sold the real property at 500 Bombay Lane and terminated the lease at 400 Bombay Lane. Wellington Realty LP also leases the current corporate offices located at 20 Mansell Court East, Suite 200 in Roswell, Georgia and owns a parking lot used in connection with the Westminster Commons facility.

Wellington Retirement Management, LP provided management and marketing services up to July 2010 to North Metro Property Development Corp. which owns an assisted living facility located in Roswell, Georgia.

West Point Road Associates, LP owns the real property occupied as Millington Healthcare Center located in Millington, Tennessee.

West Street Associates, LP owns the real property occupied as Riverside Health Care Center located in Covington, Georgia.

 

2.	Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Partnership and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation. All subsidiaries are wholly-owned.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

For purpose of reporting the statement of cash flows, the Partnership considers all cash accounts which are not subject to withdrawal restrictions or penalties, all money market accounts and all highly liquid investments purchased with a maturity of 90 days or less as cash on the accompanying balance sheets.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	Significant Accounting Policies (Continued)

 

Cash (Continued)

The Partnership maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts.

Patient Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an adjustment to bad debt expense and a credit to a valuation allowance based on its current assessment of accounts receivable. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Changes in the valuation allowance have not been material to the financial statements.

Investments

The Partnership is required by the U.S. Department of Housing and Urban Development (HUD) to set aside amounts for the replacement of property and other project expenditures approved by HUD in replacement reserve accounts. The reserves are stated at confirmed, fair market value. At times, these reserve balances may exceed federally insured limits. The Partnership believes it is not exposed to any significant credit risk on these reserve accounts.

Restricted Cash

The Partnership has restricted cash in a savings account that holds the cash collateral related to the term loan discussed in Note 6. The Partnership can not withdraw the money until the loan is refinanced or paid in full.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. When equipment is retired, its cost and the related accumulated depreciation are eliminated from the respective accounts and gains or losses arising from the disposition are reflected as income or expense. The cost of maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	Significant Accounting Policies (Continued)

 

Deferred Loan Costs

Deferred loan costs consist of costs incurred to obtain financing. Deferred loan costs are amortized using the interest method over the life of the related loan.

Patient Service Revenue

Revenue from the Medicaid and Medicare programs accounted for approximately 45% and 40%, respectively of net routine and special services revenue for the year ended December 31, 2011. Revenue from the Medicaid and Medicare programs accounted for approximately 48% and 37%, respectively of net routine and special services revenue for the year ended December 31, 2010.

Revenue received under the Medicaid program is based in part on cost reimbursement principles and are subject to audit by state agencies. Medicaid cost reports through June 30, 2011, have been accepted by the respective intermediaries without significant adjustments. Management believes it has properly applied cost reimbursement principles in the preparation of those cost reports that have not yet been audited.

Revenue for services rendered under the Medicare program is based on a prospective payment system, under which the facility is paid varying amounts based on individual patient acuity, regardless of the cost incurred to care for that patient. Under this reimbursement methodology, each facility prepares an annual cost report and has a settlement with the Medicare program for bad debts that are deemed to be reimbursable under existing Medicare regulations. All other costs are considered to be reimbursed through the prospective payment rates.

Revenue under third-party payer agreements is subject to audit and retroactive adjustment. Differences between interim and final statements are reported in operations in the year of settlement. The effect of these differences was not material to the financial statements for 2011 or 2010.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	Significant Accounting Policies (Continued)

 

Income Taxes

As a limited partnership, the Partnership’s taxable income or loss is allocated to partners in accordance with their respective ownership percentage. Therefore, no provision or liability for federal income taxes has been included in the financial statements. In the states of Alabama, Georgia and Louisiana, the Partnership has elected to file using the composite method whereby the partnership pays applicable state income taxes on behalf of the partners.

 

3.	Property and Equipment

At December 31, 2011, the cost and accumulated depreciation by major classes of assets were as follows:

 

Property and equipment
		Useful Life		Cost				Accumulated Depreciation
Land				$	12,557,979			$
Buildings and improvements		8-40			64,180,784				7,707,969
Leasehold improvements		20			1,907,631				300,511
Fixed equipment		10-20			1,946,376				591,775
Major moveable equipment		10-20			3,488,732				1,551,933
Computers and electronics		5			2,091,997				1,002,128
Construction in progress					1,110,847
				$	87,284,346			$	11,154,316

Depreciation expense totaled $2,546,272 and $2,032,214 for the years ending December 31, 2011 and 2010, respectively. At December 31, 2011, the estimated cost to complete construction in progress is approximately $500,000.

On December 8, 2010, a subsidiary of the Partnership purchased property and equipment known as New London Nursing Facility, located in Snellville, Georgia, for $12,000,000 through the issuance of a note payable.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.	Deferred Loan Costs

Costs incurred in connection with obtaining long-term debt have been deferred. These costs will be amortized over the period the obligations are outstanding. At December 31, 2011 the Partnership had total cost and accumulated amortization of $3,000,492 and $269,357, respectively.

 

5.

Goodwill

Goodwill is not subject to amortization. Management tests goodwill at the facility level for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the goodwill below its carrying amount. There was no impairment of goodwill for the year ended December 31, 2011 or 2010.

 

6.	Pledged Assets and Long-Term Debt

Long-term debt and the collateral pledged thereon as of December 31, 2011 are as follows:

 

Mortgage loans insured HUD		$	70,569,819
Term loan			12,674,734
Notes payable to finance insurance			355,430
			83,599,983
Less current maturities			14,078,955
Total long-term debt		$	69,521,028

Aggregate maturities of long-term debt at December 31, 2011, are due in future years as follows:

 

2012		$	14,078,955
2013			1,096,529
2014			1,152,728
2015			1,208,511
2016			1,267,001
Later years			64,796,259
		$	83,599,983

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6.	Pledged Assets and Long-Term Debt (Continued)

 

The HUD insured loans are secured by a mortgage on the real estate and buildings of nine nursing facilities, and are due in monthly installments of $23,384 to $63,296, including interest ranging from 4.57% to 5.25%, and mature through August 2045. The HUD insured loans do not have any financial covenants.

The term loan is to finance the purchase of New London Health Center, in which monthly installments are due for interest only. Of the original loan amount, $8,330,619 is collateralized by the real estate and property of McGee Road Associates and the other $4,344,115 is collateralized by restricted cash of McGee Road Associates. Monthly installments are due for interest only at 2.0% above LIBOR on the cash collateralized portion and 6.5% above LIBOR for the property collateralized portion. All principal is due upon maturity in May 2012. At December 31, 2010 LIBOR is 0.375%. This term loan requires compliance with certain restrictions and financial and operating ratios.

The notes payable to finance insurance are due in monthly installments of $1,816 to $17,789, including interest ranging from 3.95% to 4.25%, and mature through May 2012. All notes are collateralized by the unearned premiums.

During January 2011 the Partnership obtained a $750,000 line of credit. At December 31, 2011, the outstanding balance on the line of credit was $0. The line of credit was extended in January 2012 (see Note 10) and bears interest at 3.5% above LIBOR. The line of credit is unsecured. This line of credit requires compliance with certain restrictions and financial and operating ratios.

 

7.	Concentration of Credit Risk

The Partnership grants credit without collateral to its clients, most of whom are local residents. Receivables from Medicare, Medicaid, other third-party payors and clients were as follows:

 

		2011				2010
Medicaid			36	%			31	%
Medicare			32				37
Other third-party payors			24				24
Private payors			8				8
			100	%			100	%

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8.	Insured Risks

The Partnership has a partially funded, minimum premium plan for the cost of employee related workers’ compensation benefits. Under this plan, the Partnership has an Individual Stop Level (ISL) and an Aggregate Stop Level (ASL) of $250,000 and $690,000, respectively. The ASL is based on the number of employees enrolled in the plan on a month to month basis. Amounts in excess of the ISL or ASL are covered through a commercial stop-loss policy. At December 31, 2011, the Partnership estimated $180,746 of workers’ compensation benefit claims were incurred prior to year end, but not reported to the plan. This amount is included in accrued expenses on the Consolidated Balance Sheets and general and administrative expense on the Consolidated Statements of Income.

 

9.	Risk Management

The Partnership operates in the long-term care industry. Over time, the industry has seen an increase in litigation related to patient care issues. The Partnership carries professional liability insurance on all of its nursing facilities to cover potential losses resulting from litigation. Based on insurance coverage in effect during the period, there is no pending litigation or unasserted claims that would result in significant losses to the Partnership.

In addition to professional liability claims, the partnership is involved in litigation and regulatory investigations arising in the ordinary course of business. These matters are expected to be resolved without material adverse effect on the partnership’s consolidated financial position.

 

10.	Reclassifications

Certain 2010 balances were reclassified to agree with the 2011 presentation.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

11.	Healthcare Reform

During 2010, the federal government enacted various laws including the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act. These laws and their related regulations will lead to significant changes in how health care companies are regulated and reimbursed for the services they provide. In addition, these laws may have a significant impact on the health insurance programs that the company offers to its employees which will have an impact on the cost of these programs. The Partnership cannot currently predict with certainty the ultimate impact of any of the above laws on the Partnership’s financial condition, cash flows or results of operations.

 

12.	Subsequent Events

On January 10, 2012, the Partnership sold substantially all of the assets and long-term debt of the 10 nursing facilities to an unrelated party under a sale-leaseback transaction. The sale resulted in a gain of approximately $84,000,000 that will be deferred over the lives of the new leases. The new leases have covenant tests that will be tested each test period.

During January 2012, the Partnership extended its $750,000 line of credit. As of March 16, 2012, the balance on the line of credit is $0.

Subsequent events have been evaluated through March 16, 2012, which is the date the financial statements were available to be issued.

 

-19-

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SUPPLEMENTARY INFORMATION

 

 

 

 

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2011

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Assets
Current assets:
Cash		$				$	125,511			$	104,548			$	225,321			$	53,664			$	103,957
Patient accounts receivable, net											473,560				831,669				494,493
Third party receivables											8,651				56,910
Accounts receivable, related parties
Escrow accounts							441,922																54,527
Prepaid expenses							19,484				86,211				25,954				53,190				10,033
Total current assets							586,917				672,970				1,139,854				601,347				168,517
Investments																							399,357
Restricted cash
Property and equipment, net			202,755				404,850				220,867								150,013				7,758,764
Other assets:
Deferred loan costs, net																							268,761
Goodwill
Other assets							6,988				1,520				414				4,507				34,182
Total other assets							6,988				1,520				414				4,507				302,943
Total assets		$	202,755			$	998,755			$	895,357			$	1,140,268			$	755,867			$	8,629,581

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

																						Wellington
		Hamilton Mill				Irving Place				Ivan				LTC				McGee Road				Healthcare
		Associates, LP				Associates, LP				Associates, LP				Consulting, LP				Associates, LP				Properties, LP
Assets
Current assets:
Cash		$	66,498			$	119,645			$	255,889			$	120,476			$	67,755			$	52,264
Patient accounts receivable, net			497,103				1,218,664								877,113								493,760
Third party receivables			89,736												79,014								129,092
Accounts receivable, related parties															787,080				133,455				167,118
Escrow accounts											46,338								257,419
Prepaid expenses			79,668				128,996				16,800				100,242								29,744
Total current assets			733,005				1,467,305				319,027				1,963,925				458,629				871,978
Investments											231,190								49,560
Restricted cash																			4,344,115
Property and equipment, net			138,283				207,123				5,914,863				68,334				13,259,126				376,221
Other assets:
Deferred loan costs, net											252,352								197,999
Goodwill
Other assets			2,314				1,590				33,682				5,300				72,570				32,381
Total other assets			2,314				1,590				286,034				5,300				270,569				32,381
Total assets		$	873,602			$	1,676,018			$	6,751,114			$	2,037,559			$	18,381,999			$	1,280,580

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Powder Springs
		Pharr Court				Road				Red River				Riverside				San Alejandro				San Carlos
		Associates, LP				Associates, LP				Associates, LP				Healthcare, LP				Associates, LP				Associates, LP
Assets
Current assets:
Cash		$	154,156			$	297,195			$	430,301			$	49,435			$	402,695			$	60,630
Patient accounts receivable, net			1,142,148												725,806
Third party receivables			69,119
Accounts receivable, related parties			151,986												1,746,670
Escrow accounts							104,054				121,085								48,545				41,004
Prepaid expenses			156,972				14,869				36,150				75,540				23,580				15,289
Total current assets			1,674,381				416,118				587,536				2,597,451				474,820				116,923
Investments							360,326				310,868								329,972				140,371
Restricted cash
Property and equipment, net			227,464				12,854,845				10,306,372				100,834				7,302,639				3,999,171
Other assets:
Deferred loan costs, net							328,245				353,363								268,373				224,741
Goodwill											2,680,150
Other assets			974				33,682				33,682				972				33,682				33,682
Total other assets			974				361,927				3,067,195				972				302,055				258,423
Total assets		$	1,902,819			$	13,993,216			$	14,271,971			$	2,699,257			$	8,409,486			$	4,514,888

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Tennessee				Wellington								Wellington				West Point
		South Parkway				Property				Healthcare				Wellington				Retirement				Road
		Associates, LP				Associates, LP				Billing, LP				Realty, LP				Management, LP				Associates, LP
Assets
Current assets:
Cash		$	104,857			$	333,611			$	45,941			$	771			$	32			$	236,907
Patient accounts receivable, net			808,765								131,521
Third party receivables
Accounts receivable, related parties											211,770				99,129				4,523
Escrow accounts							108,163																74,304
Prepaid expenses			31,267				22,511				17,939				2,749								15,957
Total current assets			944,889				464,285				407,171				102,649				4,555				327,168
Investments							188,723																180,237
Restricted cash
Property and equipment, net			138,693				4,198,351								721,165								4,498,090
Other assets:
Deferred loan costs, net							272,225																211,556
Goodwill
Other assets			(27,299	)			33,682								14,930								33,682
Total other assets			(27,299	)			305,907								14,930								245,238
Total assets		$	1,056,283			$	5,157,266			$	407,171			$	838,744			$	4,555			$	5,250,733

 

-24-

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Wellington
		West Street				Healthcare
		Associates, LP				Services, LP				Subtotal				Eliminations				Consolidated
Assets
Current assets:
Cash		$	377,806			$	31,774			$	3,821,639							$	3,821,639
Patient accounts											—
receivable, net											7,694,602								7,694,602
Third party receivables											432,522								432,522
Accounts receivable, related parties							272,563				3,574,294				(3,574,294	)
Escrow accounts			90,887								1,388,248								1,388,248
Prepaid expenses			37,765				4,367				1,005,277				(206,056	)			799,221
Total current assets			506,458				308,704				17,916,582				(3,780,350	)			14,136,232
Investments			275,383				10,743,635				13,209,622				(10,743,635	)			2,465,987
Restricted cash											4,344,115								4,344,115
Property and equipment, net			3,081,207								76,130,030								76,130,030
Other assets:
Deferred loan costs, net			353,520								2,731,135								2,731,135
Goodwill			1,335,502								4,015,652								4,015,652
Other assets			33,682								420,799								420,799
Total other assets			1,722,704				—				7,167,586								7,167,586
Total assets		$	5,585,752			$	11,052,339			$	118,767,935			$	(14,523,985	)		$	104,243,950

 

-25-

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Liabilities and Partners’ Equity
Current liabilities:
Current maturities of long-term debt		$				$	1,816			$	40,884			$				$	23,596			$	91,988
Accounts payable, trade							419,350				321,881				352,843				250,856				971
Third party payables																			5,994
Accounts payable, related parties			1,406				1,806,397				578,445				179,780				108,479				8,713
Accrued expenses			500				1,293,567				281,264				330,351				162,166				39,227
Total current liabilities			1,906				3,521,130				1,222,474				862,974				551,091				140,899
Long-term debt, less current maturities																							7,959,987
Partners’ equity			200,849				(2,522,375	)			(327,117	)			277,294				204,776				528,695
Total liabilities and partners’ equity		$	202,755			$	998,755			$	895,357			$	1,140,268			$	755,867			$	8,629,581

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

																						Wellington
		Hamilton Mill				Irving Place				Ivan				LTC				McGee Road				Healthcare
		Associates, LP				Associates, LP				Associates, LP				Consulting, LP				Associates, LP				Properties, LP
Liabilities and Partners’ Equity
Current liabilities:
Current maturities of long-term debt		$	43,551			$	67,900			$	87,077			$	58,349			$	12,674,734			$
Accounts payable, trade			176,784				531,454								318,565								230,543
Third party payables							53,963
Accounts payable, related parties			172,433				502,402
Accrued expenses			225,391				612,234				23,389				343,154				56,838				311,403
Total current liabilities			618,159				1,767,953				110,466				720,068				12,731,572				541,946
Long-term debt, less current maturities											4,970,869
Partners’ equity			255,443				(91,935	)			1,669,779				1,317,491				5,650,427				738,634
Total liabilities and partners’ equity		$	873,602			$	1,676,018			$	6,751,114			$	2,037,559			$	18,381,999			$	1,280,580

 

-27-

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Powder Springs
		Pharr Court				Road				Red River				Riverside				San Alejandro				San Carlos
		Associates, LP				Associates, LP				Associates, LP				Healthcare, LP				Associates, LP				Associates, LP
Liabilities and Partners’ Equity
Current liabilities:
Current maturities of long-term debt		$	86,064			$	136,325			$	187,370			$	33,269			$	122,840			$	79,647
Accounts payable, trade			779,187								238,640				396,650								3,895
Third party payables															47,186
Accounts payable, related parties							12,256				19,237								831
Accrued expenses			534,252				56,207				45,720				371,308				31,037				21,530
Total current liabilities			1,399,503				204,788				490,967				848,413				154,708				105,072
Long-term debt, less current maturities							11,796,634				10,696,217								6,976,551				4,523,454
Partners’ equity			503,316				1,991,794				3,084,787				1,850,844				1,278,227				(113,638	)
Total liabilities and partners’ equity		$	1,902,819			$	13,993,216			$	14,271,971			$	2,699,257			$	8,409,486			$	4,514,888

 

-28-

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Tennessee				Wellington								Wellington				West Point
		South Parkway				Property				Healthcare				Wellington				Retirement				Road
		Associates, LP				Associates, LP				Billing, LP				Realty, LP				Management, LP				Associates, LP
Liabilities and Partners’ Equity
Current liabilities:
Current maturities of long-term debt		$				$	86,712			$				$				$				$	61,091
Accounts payable, trade			330,602								47,226
Third party payables			25,551
Accounts payable, related parties			106,880				3,898																3,537
Accrued expenses			383,881				54,989								57,397								40,660
Total current liabilities			846,914				145,599				47,226				57,397								105,288
Long-term debt, less current maturities							6,684,456																4,738,697
Partners’ equity			209,369				(1,672,789	)			359,945				781,347				4,555				406,748
Total liabilities and partners’ equity		$	1,056,283			$	5,157,266			$	407,171			$	838,744			$	4,555			$	5,250,733

 

-29-

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2011

 

						Wellington
		West Street				Healthcare
		Associates, LP				Services, LP				Subtotal				Eliminations				Consolidated
Liabilities and Partners’ Equity
Current liabilities:
Current maturities of long-term debt		$	195,742			$				$	14,078,955							$	14,078,955
Accounts payable, trade							132,795				4,532,242				(264,563	)			4,267,679
Third party payables											132,694								132,694
Accounts payable, related parties			11,093								3,515,787				(3,515,787	)
Accrued expenses			47,585				143,347				5,467,397								5,467,397
Total current liabilities			254,420				276,142				27,727,075				(3,780,350	)			23,946,725
Long-term debt, less current maturities			11,174,163								69,521,028								69,521,028
Partners’ equity			(5,842,831	)			10,776,197				21,519,832				(10,743,635	)			10,776,197
Total liabilities and partners’ equity		$	5,585,752			$	11,052,339			$	118,767,935			$	(14,523,985	)		$	104,243,950

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT

DECEMBER 31, 2011

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Revenue:
Net routine services		$				$				$	7,297,464			$	11,564,041			$	5,266,505			$
Net special services											135,120				653,113				120,652
Billing service fees
Management fees							5,279,535
Lease income																							747,844
							5,279,535				7,432,584				12,217,154				5,387,157				747,844
Other operating revenue							2,728				4,087				1,408
Operating expenses:
Routine service											2,632,362				3,266,778				1,976,799
Special service											602,631				1,715,362				650,238
Dietary											665,464				739,952				371,001
Laundry and housekeeping											307,508				349,226				224,455
Plant operation and maintenance							48,990				485,231				423,698				296,034
General and administrative			14				5,340,861				1,507,132				1,996,149				1,251,402				4,243
Property and related			593				304,437				848,915				1,537,636				707,078				50,493
Depreciation and amortization							161,525				45,235								30,433				245,683
Bad debts							50,850				95,928				108,576				27,553
			607				5,906,663				7,190,406				10,137,377				5,534,993				300,419
Operating income			(607	)			(624,400	)			246,265				2,081,185				(147,836	)			447,425
Financial income:
Interest income											25				15				238				774
Gain on sale of assets
Interest expense							(13,276	)															(424,849	)
							(13,276	)			25				15				238				(424,075	)
Equity in earnings of subsidiaries
Net income		$	(607	)		$	(637,676	)		$	246,290			$	2,081,200			$	(147,598	)		$	23,350

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2011

 

																						Wellington
		Hamilton Mill				Irving Place				Ivan				LTC				McGee Road				Healthcare
		Associates, LP				Associates, LP				Associates, LP				Consulting, LP				Associates, LP				Properties, LP
Revenue:
Net routine services		$	7,279,816			$	14,411,903			$				$	11,413,795			$				$	6,972,521
Net special services			288,859				1,049,104								112,112								177,827
Billing service fees
Management fees
Lease income											764,346								1,422,100
			7,568,675				15,461,007				764,346				11,525,907				1,422,100				7,150,348
Other operating revenue			5,106				4,292								3,152								1,755
Operating expenses:
Routine service			2,279,077				5,499,962								2,843,264								1,997,669
Special service			831,152				2,110,328								1,990,635								1,018,216
Dietary			502,438				1,148,270								517,728								488,598
Laundry and housekeeping			268,890				527,901								261,773								239,003
Plant operation and maintenance			351,492				652,768								340,478								277,653
General and administrative			1,389,254				2,693,266				4,501				1,803,717				2,009				1,255,746
Property and related			1,023,869				2,003,309				42,549				896,517								874,530
Depreciation and amortization			22,573				35,154				201,100				13,094				539,000				49,728
Bad debts			38,247				186,751								116,500								80,242
			6,706,992				14,857,709				248,150				8,783,706				541,009				6,281,385
Operating income			866,789				607,590				516,196				2,745,353				881,091				870,718
Financial income:
Interest income			12				2,550				1,670				477
Gain on sale of assets
Interest expense							(1,423	)			(234,434	)							(673,188	)			(89	)
			12				1,127				(232,764	)			477				(673,188	)			(89	)
Equity in earnings of subsidiaries
Net income		$	866,801			$	608,717			$	283,432			$	2,745,830			$	207,903			$	870,629

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2011

 

						Powder Springs
		Pharr Court				Road				Red River				Riverside				San Alejandro				San Carlos
		Associates, LP				Associates, LP				Associates, LP				Healthcare, LP				Associates, LP				Associates, LP
Revenue:
Net routine services		$	17,117,782			$				$				$	11,244,300			$				$
Net special services			904,787												334,371
Billing service fees
Management fees
Lease income							1,151,845				1,684,775								945,690				595,285
			18,022,569				1,151,845				1,684,775				11,578,671				945,690				595,285
Other operating revenue			13,233												742
Operating expenses:
Routine service			5,763,319												3,923,247
Special service			2,566,848												1,230,004
Dietary			1,199,176												720,295
Laundry and housekeeping			586,829												405,698
Plant operation and maintenance			949,795												392,874
General and administrative			3,390,115				4,742				4,651				2,111,950				4,243				4,267
Property and related			1,465,562				74,976				91,556				1,425,626				59,725				38,725
Depreciation and amortization			47,573				266,545				329,287				17,129				200,210				106,880
Bad debts			191,734												62,742
			16,160,951				346,263				425,494				10,289,565				264,178				149,872
Operating income			1,874,851				805,582				1,259,281				1,289,848				681,512				445,413
Financial income:
Interest income			222				727				2,373				253				2,683				1,005
Gain on sale of assets
Interest expense			(317	)			(629,622	)			(504,449	)							(326,921	)			(211,969	)
			(95	)			(628,895	)			(502,076	)			253				(324,238	)			(210,964	)
Equity in earnings of subsidiaries
Net income		$	1,874,756			$	176,687			$	757,205			$	1,290,101			$	357,274			$	234,449

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2011

 

						Tennessee				Wellington								Wellington				West Point
		South Parkway				Property				Healthcare				Wellington				Retirement				Road
		Associates, LP				Associates, LP				Billing, LP				Realty, LP				Management, LP				Associates, LP
Revenue:
Net routine services		$	8,880,900			$				$				$				$				$
Net special services			323,746
Billing service fees											492,989
Management fees
Lease income							979,207								243,907								716,587
			9,204,646				979,207				492,989				243,907				—				716,587
Other operating revenue			4,358								29
Operating expenses:
Routine service			2,895,728								10,577
Special service			1,001,250								229,547
Dietary			588,577
Laundry and housekeeping			332,867
Plant operation and maintenance			387,059
General and administrative			1,727,152				4,505				46,324				4,890				167				4,501
Property and related			1,166,587				88,850								185,901								67,381
Depreciation and amortization			25,635				153,223								40,073								138,318
Bad debts			109,873
			8,234,728				246,578				286,448				230,864				167				210,200
Operating income			974,276				732,629				206,570				13,043				(167	)			506,387
Financial income:
Interest income			181				1,433																1,341
Gain on sale of assets															(137,265	)
Interest expense			(151	)			(311,192	)							(34,232	)							(222,031	)
			30				(309,759	)							(171,497	)							(220,690	)
Equity in earnings of subsidiaries
Net income		$	974,306			$	422,870			$	206,570			$	(158,454	)		$	(167	)		$	285,697

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2011

 

						Wellington
		West Street				Healthcare
		Associates, LP				Services, LP				Subtotal				Eliminations				Consolidated
Revenue:
Net routine services		$				$				$	101,449,027			$				$	101,449,027
Net special services											4,099,691								4,099,691
Billing service fees											492,989								492,989
Management fees											5,279,535				(5,279,535	)
Lease income			1,323,104								10,574,690				(10,574,690	)
			1,323,104								121,895,932				(15,854,225	)			106,041,707
Other operating revenue											40,890								40,890
Operating expenses:
Routine service											33,088,782								33,088,782
Special service											13,946,211								13,946,211
Dietary											6,941,499								6,941,499
Laundry and housekeeping											3,504,150								3,504,150
Plant operation and maintenance											4,606,072								4,606,072
General and administrative			4,229				656,535				25,216,565				(5,279,535	)			19,937,030
Property and related			95,705				100				13,050,620				(10,574,690	)			2,475,930
Depreciation and amortization			128,390								2,796,788								2,796,788
Bad debts											1,068,996								1,068,996
			228,324				656,635				104,219,683				(15,854,225	)			88,365,458
Operating income			1,094,780				(656,635	)			17,717,139								17,717,139
Financial income:
Interest income			1,980				995				18,954								18,954
Gain on sale of assets							(17,047	)			(154,312	)							(154,312	)
Interest expense			(526,990	)			(12,100	)			(4,127,233	)							(4,127,233	)
			(525,010	)			(28,152	)			(4,262,591	)							(4,262,591	)
Equity in earnings of subsidiaries							14,139,335				14,139,335				(14,139,335	)
Net income		$	569,770			$	13,454,548			$	27,593,883			$	(14,139,335	)		$	13,454,548

 

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To the Partners

of Wellington Healthcare Services, LP and Subsidiaries

Independent Auditor’s Report

We have audited the accompanying consolidated balance sheets of Wellington Healthcare Services, LP and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, partners’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wellington Healthcare Services, LP and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The December 31, 2010 consolidating balance sheets and related statements of income on pages 53 through 67 are presented for the purposes of additional analysis of the consolidated financial statements rather than to present the financial position and the results of operations of the individual companies, and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

/s/ Bradley & Associates, Inc.

Indianapolis, Indiana

March 25, 2011

201 S. Capitol Avenue, Suite 910 Indianapolis, IN 46225 P 317.237.5500 F317.237.5503 bradleycpa.com

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2010 AND 2009

ASSETS

 

		2010				2009
Current assets:
Cash		$	3,832,645			$	2,441,495
Patient accounts receivable, net of allowance for doubtful accounts of $812,964 and $1,082,573 for 2010 and 2009, respectively			6,868,754				7,270,574
Estimated third party payor receivables			623,971				651,665
Accounts receivable, related parties			9,378				6,265
Escrow accounts			944,121				288,867
Prepaid expenses			1,098,278				1,068,336
Total current assets			13,377,147				11,727,202
Investments			2,470,432				39,661
Restricted cash			4,344,115
Property and equipment, net			74,994,734				63,042,580
Other assets:
Deferred loan costs, net			2,946,912				1,206,092
Goodwill			4,015,652				4,015,652
Other assets			209,714				72,909
Total other assets			7,172,278				5,294,653
Total assets		$	102,358,706			$	80,104,096

The accompanying notes are an integral part

of the consolidated financial statements

 

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LIABILITIES AND PARTNERS’ EQUITY

 

		2010				2009
Current liabilities:
Revolving line of credit		$				$	2,140,000
Current maturities of long-term debt			1,481,103				1,870,674
Accounts payable, trade			4,093,360				3,542,187
Accrued expenses			4,566,404				4,562,819
Total current liabilities			10,140,867				12,115,680
Long-term debt, less current maturities			83,968,946				66,188,247
Partners’ equity			8,248,893				1,800,169
Total liabilities and partners’ equity		$	102,358,706			$	80,104,096

The accompanying notes are an integral part

of the consolidated financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2010 AND 2009

 

		2010				2009
Revenue:
Net routine services		$	85,731,775			$	83,363,364
Net special services			2,933,434				2,682,244
Management fees			10,500				22,500
Billing service fees			481,714				591,642
			89,157,423				86,659,750
Other operating revenue			38,693				41,070
Operating expenses:
Routine service			29,721,447				29,049,616
Special service			11,549,915				11,674,619
Dietary			6,175,370				5,990,544
Laundry and housekeeping			3,101,465				3,002,727
Plant operation and maintenance			4,118,404				4,059,315
General and administrative			16,644,022				17,389,306
Property and related			2,116,753				1,499,421
Depreciation and amortization			2,680,554				2,188,362
Bad debts			665,496				1,012,633
			76,773,426				75,866,543
Operating income			12,422,690				10,834,277
Financial income (expense):
Interest income			9,731				2,747
Gain (loss) on sale of assets			2,398				(2,267	)
Interest expense			(4,485,909	)			(5,631,579	)
Other			(249,141	)
			(4,722,921	)			(5,631,099	)
Net income		$	7,699,769			$	5,203,178

The accompanying notes are an integral part

of the consolidated financial statements

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

YEARS ENDED DECEMBER 31, 2010 AND 2009

 

		2010				2009
Balance, beginning		$	1,800,169			$	3,124,025
Net income			7,699,769				5,203,178
Contributions			4,344,115
Distributions			(5,595,160	)			(6,527,034	)
Balance, ending		$	8,248,893			$	1,800,169

The accompanying notes are an integral part

of the consolidated financial statements

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2010 AND 2009

 

		2010				2009
Cash flows from operating activities:
Net income		$	7,699,769			$	5,203,178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,680,554				2,188,362
Bad debt			665,496				1,012,633
(Gain) loss on sale of assets			(2,398	)			2,267
Changes in assets and liabilities:
Patient accounts receivable			(263,676	)			(1,944,762	)
Estimated third party payor receivables			27,694				(535,167	)
Accounts receivable, related parties			(3,113	)			(2,415	)
Prepaid expenses			(29,942	)			(42,306	)
Other assets			(136,805	)			5,971
Accounts payable, trade			551,173				593,510
Estimated third party payor payables							(372,234	)
Accrued expenses			3,585				514,008
Net cash provided by operating activities			11,192,337				6,623,045
Cash used in investing activities:
Purchase of property and equipment			(13,981,971	)			(1,077,463	)
Change in escrow accounts			(3,086,025	)			(9,059	)
Change in restricted cash			(4,344,115	)
Net cash (used) by investing activities			(21,412,111	)			(1,086,522	)
Cash flows from financing activities:
Contributions			4,344,115
Distributions			(5,595,160	)			(6,527,034	)
Net payments on revolving line of credit			(2,140,000	)			(319,000	)
Proceeds from long-term borrowings			85,880,591				1,422,702
Costs incurred to obtain financing			(2,389,159	)			(537,262	)
Principal payments on notes payable			(68,489,463	)			(2,523,104	)
Net cash provided (used) by financing activities			11,610,924				(8,483,698	)
Change in cash			1,391,150				(2,947,175	)
Cash at beginning of year			2,441,495				5,388,670
Cash at end of year		$	3,832,645			$	2,441,495
Supplemental disclosures of cash flow information:
Cash payments for interest		$	4,667,028			$	5,645,281

The accompanying notes are an integral part

of the consolidated financial statements

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business

Wellington Healthcare Services, LP (the Partnership), was organized as a Limited Partnership for the purpose of owning, operating and managing long-term care and assisted living facilities and related businesses. Under the terms of the partnership agreement, the limited partnership has an infinite life. The Partnership’s subsidiaries (which operate in Alabama, Louisiana, Georgia, and Tennessee) are as follows:

Andrees Investments, LP owns a parcel of undeveloped real estate in Millington, Tennessee.

Bombay Lane, LP provides consulting services to Wellington Healthcare Services, LP and Subsidiaries.

Congress Street Partners, LP subleases and operates Sea Breeze Health Care Center, a nursing facility located in Mobile, Alabama.

England Associates, LP leases and operates New London Health Center, a nursing facility located in Snellville, Georgia.

Facility Investments, LP subleases and operates Westminster Commons, a nursing facility located in Atlanta, Georgia.

Falligant Associates, LP owns the real property occupied as Rockdale Healthcare Center located in Conyers, Georgia.

Hamilton Mill Associates, LP subleases and operates Bell Minor Home, a nursing facility located in Gainesville, Georgia.

Irving Place Associates, LP subleases and operates Nursecare of Shreveport, a nursing facility located in Shreveport, Louisiana.

Ivan Associates, LP owns the real property occupied as Sea Breeze Health Care Center located in Mobile, Alabama.

LTC Consulting, LP leases and operates Rockdale Healthcare Center, a nursing facility located in Conyers, Georgia.

McGee Road Associates, LP owns the real property occupied as New London Health Center in Snellville, Georgia.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business (Continued)

 

Wellington Healthcare Properties, LP subleases and operates Millington Healthcare Center, a nursing facility located in Millington, Tennessee.

Pharr Court Associates, LP leases and operates Nursecare of Buckhead, a nursing facility located in Atlanta, Georgia.

Powder Springs Road Associates, LP owns the real property occupied as Nursecare of Buckhead located in Atlanta, Georgia.

Red River Associates, LP owns the real property occupied as Nursecare of Shreveport located in Shreveport, Louisiana.

Riverside Healthcare, LP subleases and operates Riverside Health Care Center, a nursing facility located in Conyers, Georgia.

San Alejandro Associates, LP owns the real property occupied as Bell Minor Home located in Gainesville, Georgia.

San Carlos Associates, LP owns the real property occupied as Westminster Commons located in Atlanta, Georgia.

South Parkway Associates, LP subleases and operates Parkway Health & Rehabilitation Center, a nursing facility located in Memphis, Tennessee.

Tennessee Property Associates, LP owns the real property occupied as Parkway Health & Rehabilitation Center located in Memphis, Tennessee.

Warsaw Road, LP holds a master lease agreement for seven of the nursing facilities.

Wellington Healthcare Billing, LP provides Part B billing services for nursing facilities owned or leased by Wellington Healthcare Services, LP and its subsidiaries.

Wellington Realty, LP owns the real property at 500 Bombay Lane in Roswell, Georgia and leases the real property at 400 Bombay Lane in Roswell, Georgia. Both locations were occupied as the corporate offices until October 2008. Wellington Realty LP also leases the current corporate offices located at 20 Mansell Court East, Suite 200 in Roswell, Georgia and owns a parking lot used in connection with the Westminster Commons facility.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Nature of Business (Continued)

 

Wellington Retirement Management, LP provided management and marketing services to North Metro Property Development Corp. which owns an assisted living facility located in Roswell, Georgia.

West Point Road Associates, LP owns the real property occupied as Millington Healthcare Center located in Millington, Tennessee.

West Street Associates, LP owns the real property occupied as Riverside Health Care Center located in Covington, Georgia.

 

2.	Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Partnership and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation. All subsidiaries are wholly-owned.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

For purpose of reporting the statement of cash flows, the Partnership considers all cash accounts which are not subject to withdrawal restrictions or penalties, all money market accounts and all highly liquid investments purchased with a maturity of 90 days or less as cash and cash equivalents on the accompanying balance sheets.

The Partnership maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	Significant Accounting Policies (Continued)

 

Patient Service Revenues

Revenue from patient services includes room and board and ancillary services and is recognized as the services are rendered. Georgia Medicaid residents are normally billed weekly for services rendered during the period. Tennessee Medicaid residents are billed at the end of the month for services rendered during the previous period. Alabama Medicaid residents are normally billed twice monthly for services rendered during the period. Louisiana Medicaid residents are billed at the end of the month for services rendered during the previous month. Medicare residents are billed at the beginning of the month for services rendered during the previous month. Private pay patients are billed in advance at the end of the prior month. If a private pay patient leaves the facility prior to the end of the month, a refund is provided for services not rendered.

Revenues from the Medicaid and Medicare programs accounted for approximately 48% and 37%, respectively of net patient service revenues for the year ended December 31, 2010. Revenues from the Medicaid and Medicare programs accounted for approximately 49% and 38%, respectively of net patient service revenues for the year ended December 31, 2009.

Revenues received under the Medicaid program are based in part on cost reimbursement principles and are subject to audit by state agencies. Medicaid cost reports through June 30, 2010, have been accepted by the respective intermediaries without significant adjustments. Management believes it has properly applied cost reimbursement principles in the preparation of those cost reports that have not yet been audited.

Revenues for services rendered under the Medicare program are based on a prospective payment system, under which the facility is paid varying amounts based on individual patient acuity, regardless of the cost incurred to care for that patient. Under this reimbursement methodology, each facility prepares an annual cost report and has a settlement with the Medicare program for bad debts that are deemed to be reimbursable under existing Medicare regulations. All other costs are considered to be reimbursed through the prospective payment rates.

Revenue under third-party payer agreements is subject to audit and retroactive adjustment. Differences between interim and final statements are reported in operations in the year of settlement. The effect of these differences could be material to the financial statements.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	Significant Accounting Policies (Continued)

 

Patient Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an adjustment to bad debt expense and a credit to a valuation allowance based on its current assessment of accounts receivable. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Changes in the valuation allowance have not been material to the financials statements.

Restricted Cash

The Partnership has restricted cash in a savings account that holds the cash collateral related to the term loan discussed in Note 4. The Partnership can not withdraw the money until the loan is refinanced or paid in full.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. When equipment is retired, its cost and the related accumulated depreciation are eliminated from the respective accounts and gains or losses arising from the disposition are reflected as income or expense. The cost of maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized.

Deferred Loan Costs

Deferred loan costs consist of costs incurred to obtain financing. Deferred loan costs are amortized using the interest method over the life of the related loan.

Income Taxes

As a limited partnership, the Partnership’s taxable income or loss is allocated to partners in accordance with their respective ownership percentage. Therefore, no provision or liability for federal income taxes has been included in the financial statements. In the states of Alabama, Georgia and Louisiana, the Partnership has elected to file using the composite method whereby the partnership pays applicable state income taxes on behalf of the partners.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.	Property and Equipment and Intangible Assets

At December 31, 2010, the cost and accumulated depreciation and amortization by major classes of assets were as follows:

 

Property and equipment
		Useful Life		Cost				Accumulated Depreciation
Land				$	12,488,079			$
Buildings and improvements		8-40			63,892,265				6,197,910
Leasehold improvements		20			1,052,303				198,895
Fixed equipment		10-20			1,801,023				452,677
Major moveable equipment		10-20			3,012,402				1,164,625
Computers and electronics		5			1,336,720				688,838
Construction in progress					114,887
				$	83,697,679			$	8,702,945

Depreciation expense totaled $2,032,214 and $1,917,693 for the years ending December 31, 2010 and 2009, respectively. Amortization expense totaled $648,340 and $270,669 for the years ending December 31, 2010 and 2009 respectively. At December 31, 2010, the estimated cost to complete construction in progress is $605,000.

On December 8, 2010, the Partnership purchased property and equipment known as New London Nursing Facility, located in Snellville, Georgia, for $12,000,000 through the issuance of a note payable. Based on the appraised values, $790,000 was allocated to land, $10,950,000 was allocated to buildings and improvements, and $500,000 was allocated to equipment. The fair value exceeded the purchase price by $240,000, which is included as a gain in other financial income on the Consolidated Statement of Income.

Goodwill is not subject to amortization. Management tests goodwill at the facility level for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the goodwill below its carrying amount. There was no impairment of goodwill for the year ended December 31, 2010.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.	Property and Equipment and Intangible Assets (Continued)

 

Costs incurred in connection with obtaining long-term debt have been deferred. These costs will be amortized over the period the obligations are outstanding. At December 31, 2010 the Partnership had total cost and accumulated amortization of $2,996,321 and $49,409, respectively.

 

4.	Pledged Assets and Long-Term Debt

Long-term debt and the collateral pledged thereon as of December 31, 2010 are as follows:

 

Mortgage loans insured by U.S Department of Housing and Urban Development (HUD)		$	71,570,219
Term loan			12,674,734
Other notes payable			872,055
Notes payable to finance insurance			333,041
			85,450,049
Less current maturities			1,481,103
Total long-term debt		$	83,968,946

Aggregate maturities of long-term debt at December 31, 2010, are due in future years as follows:

 

2011		$	1,481,103
2012			13,838,745
2013			1,219,833
2014			1,284,618
2015			1,262,167
Later years			66,363,583
		$	85,450,049

The HUD insured loans are secured by a mortgage on the real estate and buildings of nine nursing facilities, and are due in monthly installments of $23,384 to $63,296, including interest ranging from 4.57% to 5.25%, and mature through August 2045.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.	Pledged Assets and Long-Term Debt (Continued)

 

The term loan is to finance the purchase of New London Health Center, in which monthly installments are due for interest only. Of the original loan amount, $8,330,619 is collateralized by the real estate and property of McGee Road Associates and the other $4,344,115 is collateralized by restricted cash of McGee Road Associates. Monthly installments are due for interest only at 2.0% above LIBOR on the cash collateralized portion and 6.5% above LIBOR for the property collateralized portion. All principal is due upon maturity in May 2012. At December 31, 2010 LIBOR is 0.375%.

The first note payable in the amount of $448,630 at December 31, 2010 is for the purchase of a parking lot used by Westminster Commons. It is due in monthly installments of $9,703, including interest at 7.00%, and matures in June 2015. The note is collateralized by the real estate.

The second note payable in the amount of $412,195 at December 31, 2010 is for the purchase of an office building. It is due in monthly installments of $3,864, including interest at 6.86%, and matures in December 2024. The note is collateralized by the real estate.

The other note payable in the amount of $11,230 at December 31, 2010 is due in monthly installments of $11,230, including interest at 3.00%, and matured in February 2011.

The notes payable to finance insurance are due in monthly installments of $3,710 to $15,040, including interest ranging from 4.95% to 5.95%, and mature through May 2011. All notes are collateralized by the unearned premiums.

On February 10, 2010, a loan held by CIT for two of the nursing facilities was refinanced with Greystone and issued by HUD with an interest rate of 5.25%. The old CIT loan was to mature in February of 2011; however, the two new HUD backed loans will not mature until March of 2045.

On July 12, 2010, a CIT loan held for seven of the nursing facilities was refinanced with Capital Funding, LLC and issued by HUD. The old CIT loan was to mature in November of 2012; however, the seven new HUD backed loans do not mature until August 2040 or 2045.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5.	Concentration of Credit Risk

The Partnership grants credit without collateral to its clients, most of whom are local residents. Receivables from Medicare, Medicaid, other third-party payors and clients were as follows:

 

		2010				2009
Medicare			37	%			36	%
Medicaid			31				40
Other third-party payors			24				21
Private payors			8				3
			100	%			100	%

 

6.	Related Party Transactions

Wellington Healthcare Services, LP, through various subsidiaries, provides consulting services to owned facilities and receives a monthly fee for this service. Up until July 2010 Wellington also provided consulting services to a third party facility and received a monthly fee for this service. All fees for the Partnership’s subsidiaries are eliminated in the consolidated financial statements.

The Partnership provides workers’ compensation and liability insurance to owned facilities and property insurance to owned and client facilities under a blanket insurance policy. The facilities are billed monthly.

 

7.	Insured Risks

The Partnership also has a partially funded, minimum premium plan for the cost of employee related workers’ compensation benefits. Under this plan, the Partnership has an Individual Stop Level (ISL) and an Aggregate Stop Level (ASL) of $250,000 and $625,000, respectively. The ASL is based on the number of employees enrolled in the plan on a month to month basis. Amounts in excess of the ISL or ASL are covered through a commercial stop-loss policy. At December 31, 2010, the Partnership estimated $232,834 of workers’ compensation benefit claims were incurred prior to year end, but not reported to the plan. This amount is included in accrued expenses on the Consolidated Balance Sheet and general and administrative expense on the Consolidated Statement of Income.

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8.	Risk Management

The Partnership operates in the long-term care industry. Over time, the industry has seen an increase in litigation related to patient care issues. The Partnership carries professional liability insurance on all of its nursing facilities to cover potential losses resulting from litigation. In the opinion of management and counsel, and based on insurance coverage in effect during the period, there is no pending litigation or unasserted claims that would result in significant losses to the Partnership.

In addition to professional liability claims, the partnership is involved in litigation and regulatory investigations arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, these matters are expected to be resolved without material adverse effect on the partnership’s consolidated financial position.

 

9.	Reclassifications

Certain 2009 balances were reclassified to agree with the 2010 presentation.

 

10.	Healthcare Reform

During March, 2010, the federal government enacted various laws including the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act. These laws and their related regulations will lead to significant changes in how health care companies are regulated and reimbursed for the services they provide. In addition, these laws may have a significant impact on the health insurance programs that the company offers to its employees which will have an impact on the cost of these programs. The Partnership cannot currently predict with certainty the ultimate impact of any of the above laws on the Partnership's financial condition, cash flows or results of operations.

 

11.	Subsequent Events

As of January 26, 2011, the Partnership has completed a $750,000 line of credit with Fifth Third Bank. As of March 25, 2011, the balance on the line of credit is $0.

Subsequent events have been evaluated through March 25, 2011, which is the date the financial statements were available to be issued. The Partnership has not evaluated subsequent events after March 25, 2011.

 

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SUPPLEMENTARY INFORMATION

 

 

 

 

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Assets
Current assets:
Cash		$				$	28,725			$	119,457			$	121,755			$	133,088			$	117,766
Patient accounts receivable, net											467,679				326,503				284,626
Estimated third party payor receivables											11,756								8,888
Accounts receivable, related parties															10,398				69,911				82,187
Escrow accounts							168,553																67,810
Prepaid expenses							14,486				88,153				1,018				37,228				20,174
Total current assets							211,764				687,045				459,674				533,741				287,937
Investments																							335,964
Restricted cash
Property and equipment, net			202,755				454,891				266,102								180,447				7,800,035
Other assets:
Deferred loan costs, net																							276,844
Goodwill
Other assets							50,928				548				82,361				3,780				500
Total other assets							50,928				548				82,361				3,780				277,344
Total assets		$	202,755			$	717,583			$	953,695			$	542,035			$	717,968			$	8,701,280

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

																						Wellington
		Hamilton Mill				Irving Place				Ivan				LTC				McGee Road				Healthcare
		Associates, LP				Associates, LP				Associates, LP				Consulting, LP				Associates, LP				Properties, LP
Assets
Current assets:
Cash		$	89,069			$	752,878			$	149,782			$	287,946			$	1,257			$	79,265
Patient accounts receivable, net			502,290				837,149								898,425								593,955
Estimated third party payor receivables			6,681				160,945								20,431								81,727
Accounts receivable, related parties											54,668				488,660								88,388
Escrow accounts											29,691								262,846
Prepaid expenses			78,162				113,060				34,149				77,332								37,047
Total current assets			676,202				1,864,032				268,290				1,772,794				264,103				880,382
Investments											228,653								9,960
Restricted cash																			4,344,115
Property and equipment, net			160,857				242,277				6,009,081				81,428				12,539,313				425,949
Other assets:
Deferred loan costs, net											261,155								304,009
Goodwill
Other assets			1,342				962								3,700				38,888				6,766
Total other assets			1,342				962				261,155				3,700				342,897				6,766
Total assets		$	838,401			$	2,107,271			$	6,767,179			$	1,857,922			$	17,500,388			$	1,313,097

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

						Powder Springs
		Pharr Court				Road				Red River				Riverside				San Alejandro				San Carlos
		Associates, LP				Associates, LP				Associates, LP				Healthcare, LP				Associates, LP				Associates, LP
Assets
Current assets:
Cash		$	429,800			$	139,931			$	219,370			$	291,764			$	181,729			$	99,379
Patient accounts receivable, net			1,304,861												658,464
Estimated third party payor receivables			126,601												(33,573	)
Accounts receivable, related parties							159,105				266,980				1,213,794				59,479				46,760
Escrow accounts							140,367				76,032								31,618				26,837
Prepaid expenses			129,572				30,044				73,481				65,750				47,935				31,080
Total current assets			1,990,834				469,447				635,863				2,196,199				320,761				204,056
Investments							322,405				379,436								389,851				144,309
Restricted cash
Property and equipment, net			275,037				12,915,822				9,394,555				117,963				7,360,520				3,379,714
Other assets:
Deferred loan costs, net							338,117				365,689								277,735				232,581
Goodwill											2,680,150
Other assets			1,928												(3,440	)
Total other assets			1,928				338,117				3,045,839				(3,440	)			277,735				232,581
Total assets		$	2,267,799			$	14,045,791			$	13,455,693			$	2,310,722			$	8,348,867			$	3,960,660

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

						Tennessee				Wellington								Wellington				West Point
		South Parkway				Property				Healthcare				Wellington				Retirement				Road
		Associates, LP				Associates, LP				Billing, LP				Realty, LP				Management, LP				Associates, LP
Assets
Current assets:
Cash		$	81,904			$	168,962			$	22,546			$	1,330			$	353			$	122,546
Patient accounts receivable, net			930,192								64,610
Estimated third party payor receivables			240,515
Accounts receivable, related parties							93,000				153,970				93,300				4,370				13,120
Escrow accounts							41,706																59,572
Prepaid expenses			39,957				45,553				17,133				2,736								32,288
Total current assets			1,292,568				349,221				258,259				97,366				4,723				227,526
Investments							200,580																186,129
Restricted cash
Property and equipment, net			164,329				4,230,534								1,216,342								4,510,507
Other assets:
Deferred loan costs, net							280,311								26,779								217,840
Goodwill
Other assets			2,771												14,930
Total other assets			2,771				280,311								41,709								217,840
Total assets		$	1,459,668			$	5,060,646			$	258,259			$	1,355,417			$	4,723			$	5,142,002

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

						Wellington
		West Street				Healthcare
		Associates, LP				Services, LP				Subtotal				Eliminations				Consolidated
Assets
Current assets:
Cash		$	183,957			$	8,086			$	3,832,645							$	3,832,645
Patient accounts receivable, net											6,868,754								6,868,754
Estimated third party payor receivables											623,971								623,971
Accounts receivable, related parties			59,292				196,674				3,154,056				(3,144,678	)			9,378
Escrow accounts			39,089								944,121								944,121
Prepaid expenses			76,823				5,117				1,098,278								1,098,278
Total current assets			359,161				209,877				16,521,825				(3,144,678	)			13,377,147
Investments			273,145				8,232,311				10,702,743				(8,232,311	)			2,470,432
Restricted cash											4,344,115								4,344,115
Property and equipment, net			3,066,276								74,994,734								74,994,734
Other assets:
Deferred loan costs, net			365,852								2,946,912								2,946,912
Goodwill			1,335,502								4,015,652								4,015,652
Other assets							3,750				209,714								209,714
Total other assets			1,701,354				3,750				7,172,278								7,172,278
Total assets		$	5,399,936			$	8,445,938			$	113,735,695			$	(11,376,989	)		$	102,358,706

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Liabilities and Partners’ Equity (Deficit)
Current liabilities:
Current maturities of long-term debt		$				$	18,278			$	43,928			$				$	15,279			$	87,293
Accounts payable, trade			270				578,179				204,044				279,667				211,334
Accounts payable, related parties			676				1,501,205				422,332
Accrued expenses			354				572,353				324,297				198,773				174,981				35,609
Total current liabilities			1,300				2,670,015				994,601				478,440				401,594				122,902
Long-term debt, less current maturities																							8,051,974
Partners’ equity (deficit)			201,455				(1,952,432	)			(40,906	)			63,595				316,374				526,404
Total liabilities and partners’ equity		$	202,755			$	717,583			$	953,695			$	542,035			$	717,968			$	8,701,280

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

 

																						Wellington
		Hamilton Mill Associates, LP				Irving Place Associates, LP				Ivan Associates, LP				LTC Consulting, LP				McGee Road Associates, LP				Healthcare Properties, LP
Liabilities and Partners’ Equity (Deficit)
Current liabilities:
Current maturities of long-term debt		$	48,220			$	58,133			$	83,169			$	46,261			$				$
Accounts payable, trade			189,891				604,962								297,033				64,206				266,514
Accounts payable, related parties			39,811				617,091												115,788
Accrued expenses			241,838				638,737				19,708				338,967								292,078
Total current liabilities			519,760				1,918,923				102,877				682,261				179,994				558,592
Long-term debt, less current maturities											5,057,946								12,674,734
Partners’ equity (deficit)			318,641				188,348				1,606,356				1,175,661				4,645,660				754,505
Total liabilities and partners’ equity		$	838,401			$	2,107,271			$	6,767,179			$	1,857,922			$	17,500,388			$	1,313,097

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

		Pharr Court Associates, LP				Powder Springs Road Associates, LP				Red River Associates, LP				Riverside Healthcare, LP				San Alejandro Associates, LP				San Carlos Associates, LP
Liabilities and Partners’ Equity (Deficit)
Current liabilities:
Current maturities of long-term debt		$	74,278			$	129,367			$	178,962			$	28,709			$	117,363			$	76,095
Accounts payable, trade			695,892												388,479
Accounts payable, related parties			43,909
Accrued expenses			536,159				52,773				42,406				401,991				27,484				17,820
Total current liabilities			1,350,238				182,140				221,368				819,179				144,847				93,915
Long-term debt, less current maturities							11,932,959				10,883,587								7,099,391				4,603,101
Partners’ equity (deficit)			917,561				1,930,692				2,350,738				1,491,543				1,104,629				(736,356	)
Total liabilities and partners’ equity		$	2,267,799			$	14,045,791			$	13,455,693			$	2,310,722			$	8,348,867			$	3,960,660

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

		South Parkway Associates, LP				Tennessee Property Associates, LP				Wellington Healthcare Billing, LP				Wellington Realty, LP				Wellington Retirement Management, LP				West Point Road Associates, LP
Liabilities and Partners’ Equity (Deficit)
Current liabilities:
Current maturities of long- term debt		$				$	82,846			$				$	136,384			$				$	58,350
Accounts payable, trade			379,623								52,484
Accounts payable, related parties			202,675
Accrued expenses			366,307				37,057								75,649								22,920
Total current liabilities			948,605				119,903				52,484				212,033								81,270
Long-term debt, less current maturities							6,771,168								724,393								4,799,788
Partners’ equity (deficit)			511,063				(1,830,425	)			205,775				418,991				4,723				260,944
Total liabilities and partners’ equity		$	1,459,668			$	5,060,646			$	258,259			$	1,355,417			$	4,723			$	5,142,002

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (CONTINUED)

DECEMBER 31, 2010

 

		West Street Associates, LP				Wellington Healthcare Services, LP				Subtotal				Eliminations				Consolidated
Liabilities and Partners’ Equity (Deficit)
Current liabilities:
Current maturities of long- term debt		$	186,958			$	11,230			$	1,481,103							$	1,481,103
Accounts payable, trade							81,973				4,294,551				(201,191	)			4,093,360
Accounts payable, related parties											2,943,487				(2,943,487	)
Accrued expenses			44,301				103,842				4,566,404								4,566,404
Total current liabilities			231,259				197,045				13,285,545				(3,144,678	)			10,140,867
Long-term debt, less current maturities			11,369,905								83,968,946								83,968,946
Partners’ equity (deficit)			(6,201,228	)			8,248,893				16,481,204				(8,232,311	)			8,248,893
Total liabilities and partners’ equity		$	5,399,936			$	8,445,938			$	113,735,695			$	(11,376,989	)		$	102,358,706

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT

DECEMBER 31, 2010

 

										Congress
		Andrees				Bombay				Street				England				Facility				Falligant
		Investments, LP				Lane, LP				Partners, LP				Associates, LP				Investments, LP				Associates, LP
Revenue:
Net routine services		$				$				$	6,757,452			$	628,213			$	4,891,242			$
Net special services											236,734				17,253				164,837
Management fees							4,435,190
Billing service fees
Lease income																							788,966
							4,435,190				6,994,186				645,466				5,056,079				788,966
Other operating revenue							1,076				3,571				174
Operating expenses:
Routine service											2,637,706				240,729				1,930,215
Special service											556,425				73,948				554,114
Dietary											641,796				43,206				375,728
Laundry and housekeeping											311,685				22,592				222,606
Plant operation and maintenance							57,884				536,593				32,998				250,347
General and administrative			278				4,121,524				1,322,182				120,005				1,089,269				691
Property and related			935				361,806				779,014				94,437				485,704				72,628
Depreciation and amortization							150,588				45,437								30,449				262,828
Bad debts											120,086								49,360
			1,213				4,691,802				6,950,924				627,915				4,987,792				336,147
Operating income (loss)			(1,213	)			(255,536	)			46,833				17,725				68,287				452,819
Financial income (expense):
Interest income											635				3				110				714
Gain (loss) on sale of assets							2,400
Gain (loss) on refinancing																							1,573,742
Interest expense							(27,078	)															(454,907	)
Other
							(24,678	)			635				3				110				1,119,549
Equity in earnings of subsidiaries
Net income (loss)		$	(1,213	)		$	(280,214	)		$	47,468			$	17,728			$	68,397			$	1,572,368

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2010

 

																						Wellington
		Hamilton Mill				Irving Place				Ivan				LTC				McGee Road				Healthcare
		Associates, LP				Associates, LP				Associates, LP				Consulting, LP				Associates, LP				Properties, LP
Revenue:
Net routine services		$	7,068,432			$	14,275,893			$				$	9,581,750			$				$	6,585,133
Net special services			253,202				760,792								114,500								149,716
Management fees
Billing service fees
Lease income											698,490								85,500
			7,321,634				15,036,685				698,490				9,696,250				85,500				6,734,849
Other operating revenue			5,732				12,540								497								3,243
Operating expenses:
Routine service			2,409,840				5,464,551								2,718,655								2,025,413
Special service			771,106				2,176,436								1,698,099								1,051,141
Dietary			541,771				1,110,760								505,430								503,256
Laundry and housekeeping			261,708				507,647								254,496								240,255
Plant operation and maintenance			302,863				604,934								284,906								273,267
General and administrative			1,330,036				2,689,920				979				1,643,629				375				1,140,209
Property and related			853,661				1,517,063				24,312				902,195								699,973
Depreciation and amortization			22,390				34,314				251,932				13,326				40,281				50,122
Bad debts			26,505				194,494								51,503								39,311
			6,519,880				14,300,119				277,223				8,072,239				40,656				6,022,947
Operating income (loss)			807,486				749,106				421,267				1,624,508				44,844				715,145
Financial income (expense):
Interest income			45				546				655				360								61
Gain (loss) on sale of assets
Gain (loss) on refinancing											1,509,667
Interest expense			(87	)			(1,028	)			(382,901	)			17				(44,443	)			2
Other											(47,998	)							240,000
			(42	)			(482	)			1,079,423				377				195,557				63
Equity in earnings of subsidiaries
Net income (loss)		$	807,444			$	748,624			$	1,500,690			$	1,624,885			$	240,401			$	715,208

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2010

 

						Powder Springs
		Pharr Court				Road				Red River				Riverside				San Alejandro				San Carlos
		Associates, LP				Associates, LP				Associates, LP				Healthcare, LP				Associates, LP				Associates, LP
Revenue:
Net routine services		$	16,516,148			$				$				$	11,026,819			$				$
Net special services			589,395												299,155
Management fees
Billing service fees
Lease income							1,140,970				1,207,008								779,921				379,051
			17,105,543				1,140,970				1,207,008				11,325,974				779,921				379,051
Other operating revenue			6,372												959
Operating expenses:
Routine service			5,685,359												3,848,768
Special service			2,210,413												1,154,329
Dietary			1,173,506												702,163
Laundry and housekeeping			565,635												391,477
Plant operation and maintenance			943,736												444,369
General and administrative			3,182,507				881				362				1,999,805				65				53
Property and related			1,374,598				107,489				52,313				1,025,240				34,127				22,127
Depreciation and amortization			52,204				315,410				402,541				16,623				258,128				130,769
Bad debts			163,095												(8,945	)
			15,351,053				423,780				455,216				9,573,829				292,320				152,949
Operating income (loss)			1,760,862				717,190				751,792				1,753,104				487,601				226,102
Financial income (expense):
Interest income			312				684				1,103				197				1,166				409
Gain (loss) on sale of assets
Gain (loss) on refinancing							(1,573,742	)			(1,399,141	)							352,741				(1,991,891	)
Interest expense			(1,163	)			(650,260	)			(684,749	)			24				(461,724	)			(208,448	)
Other											(105,986	)							(67,693	)			(44,327	)
			(851	)			(2,223,318	)			(2,188,773	)			221				(175,510	)			(2,244,257	)
Equity in earnings of subsidiaries
Net income (loss)		$	1,760,011			$	(1,506,128	)		$	(1,436,981	)		$	1,753,325			$	312,091			$	(2,018,155	)

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2010

 

						Tennessee				Wellington								Wellington				West Point
		South Parkway				Property				Healthcare				Wellington				Retirement				Road
		Associates, LP				Associates, LP				Billing, LP				Realty, LP				Management, LP				Associates, LP
Revenue:
Net routine services		$	8,400,693			$				$				$				$				$
Net special services			347,850
Management fees																			10,500
Billing service fees											481,714
Lease income							849,355								256,113								555,645
			8,748,543				849,355				481,714				256,113				10,500				555,645
Other operating revenue			3,134								1,184
Operating expenses:
Routine service			2,748,076								12,135
Special service			1,101,132								202,772
Dietary			577,754
Laundry and housekeeping			323,364
Plant operation and maintenance			386,507
General and administrative			1,746,709				1,216				49,005				4,746				30				331
Property and related			1,038,230				56,664								190,551								36,521
Depreciation and amortization			23,799				192,999								22,468								179,386
Bad debts			30,087
			7,975,658				250,879				263,912				217,765				30				216,238
Operating income (loss)			776,019				598,476				218,986				38,348				10,470				339,407
Financial income (expense):
Interest income			99				580																545
Gain (loss) on sale of assets
Gain (loss) on refinancing							2,889,301																670,217
Interest expense			(2,864	)			(550,274	)							(40,331	)							(327,309	)
Other							(65,240	)															(45,621	)
			(2,765	)			2,274,367								(40,331	)							297,832
Equity in earnings of subsidiaries
Net income (loss)		$	773,254			$	2,872,843			$	218,986			$	(1,983	)		$	10,470			$	637,239

 

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WELLINGTON HEALTHCARE SERVICES, LP AND SUBSIDIARIES

CONSOLIDATING INCOME STATEMENT (CONTINUED)

DECEMBER 31, 2010

 

						Wellington
		West Street				Healthcare
		Associates, LP				Services, LP				Subtotal				Eliminations				Consolidated
Revenue:
Net routine services		$				$				$	85,731,775			$				$	85,731,775
Net special services											2,933,434								2,933,434
Management fees											4,445,690				(4,435,190	)			10,500
Billing service fees											481,714								481,714
Lease income			936,270								7,677,289				(7,677,289	)
			936,270								101,269,902				(12,112,479	)			89,157,423
Other operating revenue							211				38,693								38,693
Operating expenses:
Routine service											29,721,447								29,721,447
Special service											11,549,915								11,549,915
Dietary											6,175,370								6,175,370
Laundry and housekeeping											3,101,465								3,101,465
Plant operation and maintenance											4,118,404								4,118,404
General and administrative			1,274				633,131				21,079,212				(4,435,190	)			16,644,022
Property and related			54,593				9,861				9,794,042				(7,677,289	)			2,116,753
Depreciation and amortization			184,560								2,680,554								2,680,554
Bad debts											665,496								665,496
			240,427				642,992				88,885,905				(12,112,479	)			76,773,426
Operating income (loss)			695,843				(642,781	)			12,422,690								12,422,690
Financial income (expense):
Interest income			792				715				9,731								9,731
Gain (loss) on sale of assets							(2	)			2,398								2,398
Gain (loss) on refinancing			(2,030,894	)
Interest expense			(648,386	)							(4,485,909	)							(4,485,909	)
Other			(112,276	)							(249,141	)							(249,141	)
			(2,790,764	)			713				(4,722,921	)							(4,722,921	)
Equity in earnings of subsidiaries							8,341,837				8,341,837				(8,341,837	)
Net income (loss)		$	(2,094,921	)		$	7,699,769			$	16,041,606			$	(8,341,837	)		$	7,699,769

 

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Griffin-American Healthcare REIT II, Inc.

Unaudited Pro Forma Condensed Consolidated Financial Statements

As of December 31, 2011 and for the Year Ended December 31, 2011

The accompanying unaudited pro forma condensed consolidated financial statements (including the notes thereto) are qualified in their entirety by reference to and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011. In management’s opinion, all adjustments necessary to reflect the transactions have been made.

The accompanying unaudited pro forma condensed consolidated balance sheet as of December 31, 2011 is presented as if we acquired the Southeastern SNF Portfolio on December 31, 2011. The Southeastern SNF Portfolio was acquired using a combination of debt financings, including assumed mortgage loans and borrowings under our line of credit with Bank of America, N.A., or Bank of America, or our Bank of America line of credit, and our line of credit with KeyBank National Association, or KeyBank, or our KeyBank line of credit, or collectively our lines of credit, and cash proceeds, net of offering costs, received from our initial public offering, or our offering, through the acquisition date. However, the pro forma adjustments assume that the proceeds from our debt financings, borrowings under our lines of credit and the offering proceeds, at a price of $10.00 per share, net of offering costs, were raised as of December 31, 2011.

The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2011 is presented as if we acquired the Philadelphia SNF Portfolio and the Southeastern SNF Portfolio, or collectively the Properties, on January 1, 2011. The Properties were acquired using a combination of debt financing from either assumed mortgage loans or proceeds from our lines of credit, and cash proceeds, net of offering costs, received from our initial public offering through the acquisition date. However, the pro forma adjustments assume that the debt proceeds and the offering proceeds, at a price of $10.00 per share, net of offering costs, were raised as of January 1, 2011.

The accompanying pro forma condensed consolidated financial statements are unaudited and are subject to a number of estimates, assumptions, and other uncertainties, and do not purport to be indicative of the actual results of operations that would have occurred had the acquisitions reflected therein in fact occurred on the date specified, nor do such financial statements purport to be indicative of the results of operations that may be achieved in the future.

 

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Griffin-American Healthcare REIT II, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of December 31, 2011

 

						Acquisition of
		Company				the Southeastern				Company
		Historical (A)				SNF Portfolio (B)				Pro Forma
ASSETS
Real estate investments:
Operating properties, net		$	369,317,000			$	148,060,000			$	517,377,000
Cash and cash equivalents			44,682,000				(25,160,000	)			19,522,000
Accounts and other receivables, net			1,763,000				—				1,763,000
Accounts receivable due from affiliate			121,000				—				121,000
Restricted cash			2,289,000				2,528,000				4,817,000
Real estate and escrow deposits			7,550,000				(5,000,000	)			2,550,000
Identified intangible assets, net			66,115,000				22,940,000				89,055,000
Other assets, net			7,315,000				372,000				7,687,000
Total assets		$	499,152,000			$	143,740,000			$	642,892,000
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans payable, net		$	80,466,000			$	87,659,000			$	168,125,000
Lines of credit			—				58,435,000				58,435,000
Accounts payable and accrued liabilities			7,703,000				101,000				7,804,000
Accounts payable due to affiliates			1,111,000				—				1,111,000
Derivative financial instruments			819,000				—				819,000
Identified intangible liabilities, net			623,000				—				623,000
Security deposits, prepaid rent and other liabilities			10,950,000				2,254,000				13,204,000
Total liabilities			101,672,000				148,449,000				250,121,000
Commitments and contingencies
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding			—				—				—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 48,869,669 issued and outstanding			489,000				—	(C)			489,000
Additional paid-in capital			435,252,000				—	(C)			435,252,000
Accumulated deficit			(38,384,000	)			(4,709,000	)(D)			(43,093,000	)
Total stockholders’ equity			397,357,000				(4,709,000	)			392,648,000
Noncontrolling interests			123,000				—				123,000
Total equity			397,480,000				(4,709,000	)			392,771,000
Total liabilities and equity		$	499,152,000			$	143,740,000			$	642,892,000

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.

 

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Griffin-American Healthcare REIT II, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2011

 

						Acquisition of				Acquisition of
		Company				the Philadelphia				the Southeastern				Company
		Historical (E)				SNF Portfolio (F)				SNF Portfolio (G)				Pro Forma
Revenue:
Rental income		$	40,457,000			$	4,449,000			$	16,715,000			$	61,621,000
Expenses:
Rental expenses			8,330,000				564,000				898,000	(H)			9,792,000
General and administrative			5,992,000				626,000				1,514,000	(I)			8,132,000
Acquisition related expenses			10,389,000				(3,855,000	)			(156,000	)(J)			6,378,000
Depreciation and amortization			14,826,000				1,555,000				5,853,000	(K)			22,234,000
Total expenses			39,537,000				(1,110,000	)			8,109,000				46,536,000
Income from operations			920,000				5,559,000				8,606,000				15,085,000
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount and premium):
Interest expense			(6,345,000	)			(1,723,000	)			(5,260,000	)(L)			(13,328,000	)
Loss in fair value of derivative financial instruments			(366,000	)			—				—				(366,000	)
Interest income			17,000				—				—				17,000
Net (loss) income			(5,774,000	)			3,836,000				3,346,000				1,408,000
Less: Net income attributable to noncontrolling interests			(2,000	)			—				—				(2,000	)
Net (loss) income attributable to controlling interest		$	(5,776,000	)		$	3,836,000			$	3,346,000			$	1,406,000
Net (loss) income per common share attributable to controlling interest — basic and diluted		$	(0.19	)										$	0.04
Weighted average number of common shares outstanding — basic and diluted			30,808,725												37,537,123	(M)

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.

 

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Griffin-American Healthcare REIT II, Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1. Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2011

(A) As reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

(B) Amounts represent the purchase price of the assets acquired and liabilities incurred or assumed by us in connection with the acquisition of the Southeastern SNF Portfolio. The purchase price, plus closing costs and acquisition fees, was financed using $83,159,000 in assumed mortgage loans, $58,435,000 in borrowings under our lines of credit and proceeds, net of offering costs, received from our offering.

In connection with the acquisition, we paid an acquisition fee of approximately $4,579,000, or 2.75% of the contract purchase price, to Grubb & Ellis Equity Advisors, LLC, an affiliate of our former advisor.

For purposes of the pro forma condensed consolidated balance sheet in this Form 8-K/A, we allocated the purchase price to the fair value of the assets acquired and liabilities assumed as follows: $12,063,000 to land, $134,419,000 to building and improvements, $1,578,000 to furniture, fixtures and equipment, $13,639,000 to in-place leases, $9,301,000 to tenant relationships and $(4,500,000) to debt premium.

The purchase price allocations are preliminary and are subject to change.

(C) The Southeastern SNF Portfolio was acquired using proceeds, net of offering costs, received from our offering through the acquisition date at $10.00 per share. We had excess cash on hand as of December 31, 2011, and therefore no additional proceeds are assumed raised as of December 31, 2011.

(D) Amount represents the estimated one-time acquisition related expenses incurred in connection with the acquisition of the Southeastern SNF Portfolio, not included in the historical results.

2. Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2011

(E) As reported in our Aunnual Report on Form 10-K for the year ended December 31, 2011.

(F) Amounts represent the estimated operations, including pro forma adjustments, based on historical operations of the Philadelphia SNF Portfolio, which was acquired on June 30, 2011.

(G) The Southeastern SNF Portfolio is leased under the terms of a bond net lease and the related pro forma adjustments include the rental revenues, tenant recoveries and rental expenses directly attributable to the bond net leased property based on the master lease entered into on January 10, 2012.

(H) Amount represents the estimated rental expenses of the Southeastern SNF Portfolio. Pursuant to our former advisory agreement which was effective through January 6, 2012, our advisor or its affiliates were entitled to receive, for services in managing each of our properties, either a monthly property management fee or a monthly oversight fee of up to 4.0% of the gross monthly cash receipts of the property. As a result, the pro forma amounts shown are reflective of our former advisory agreement for an oversight fee at a rate of 1.0%.

Also, adjustments were made for an incremental property tax expense assuming the acquisition price and historical property tax rate.

(I) Pursuant to our former advisory agreement, our advisor or its affiliates were entitled to receive a monthly asset management fee for services rendered in connection with the management of our assets equal to one-twelfth of 0.85% of average invested assets, subject to our stockholders receiving distributions in an amount equal to 5.0% per annum, cumulative, non-compounded, of invested capital. At the time of the acquisition of the Southeastern SNF Portfolio, our stockholders had received annualized distributions greater than 5.0% per annum. As such, we assumed an asset management fee of 0.85% of average invested assets was incurred for the year ended December 31, 2011.

 

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Griffin-American Healthcare REIT II, Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements – (Continued)

(J) We incurred a total of approximately $4,865,000 in acquisition related expenses, $156,000 of which was incurred in 2011, in connection with the acquisition of the Southeastern SNF Portfolio. As these are nonrecurring charges, they have been excluded from the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2011.

(K) Amount represents depreciation and amortization expense on the allocation of the purchase price. Depreciation and amortization expense is recognized using the straight-line method over an estimated useful life of 39.0 years, 4.5 to15.0 years, 6.0 years, 15.0 years, and 30.0 years for building, improvements, furniture, fixtures and equipment, in-place leases and tenant relationships, respectively.

The purchase price allocations, and therefore, depreciation and amortization expense are preliminary and are subject to change.

(L) We financed the purchase price, plus closing costs, of the Southeastern SNF Portfolio, using assumed mortgage loans of $83,159,000, borrowings of $38,435,000 and $20,000,000 under our Bank of America line of credit and our KeyBank line of credit, respectively, and the remaining balance using cash proceeds from our offering. Borrowings under our Bank of America line of credit and our KeyBank line of credit are limited to the availability of credit on the line of credit at the time of acquisition which was $38,435,000 and $71,500,000, respectively. For the purposes of the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2011, we have reflected the amount of interest expense calculated on $22,000,000 and $52,870,000 in borrowings under our Bank of America line of credit and our KeyBank line credit, respectively, in the amount listed in the Acquisition of the Philadelphia SNF Portfolio column. Therefore, we have assumed the purchase price, plus closing costs, was financed using assumed mortgage loans of $83,159,000, $16,435,000 in borrowings under our Bank of America line of credit, $18,630,000 in borrowings under our KeyBank line of credit and the remaining balance from cash proceeds from our offering.

As such, this amount represents interest expense on the assumed mortgage loans and our lines of credit. Also, this amount represents amortization of the corresponding loan fees and amortization of the debt premiums on the assumed mortgage loans.

Our Bank of America line of credit, our KeyBank line of credit and one of our assumed mortgage loans on the Southeastern SNF Portfolio bear interest at variable interest rates. If interest rates increase by 0.125%, interest expense would increase by $61,000 for the year ended December 31, 2011.

(M) Amount represents the weighted average number of shares of our common stock from our offering, at $10.00 per share, required to generate sufficient offering proceeds, net of offering costs, to fund the purchase of the Properties. The calculation assumes these proceeds were raised as of January 1, 2011.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				Griffin-American Healthcare REIT II, Inc.
Date: March 28, 2012				By:		/s/ Jeffrey T. Hanson
						Name: Jeffrey T. Hanson
						Title: Chief Executive Officer

 

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