e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-133652
GRUBB &
ELLIS HEALTHCARE REIT, INC.
SUPPLEMENT NO. 6 DATED APRIL 7, 2008
TO THE PROSPECTUS DATED DECEMBER 14, 2007
This document supplements, and should be read in conjunction
with, our prospectus dated December 14, 2007, as
supplemented by Supplement No. 1, dated January 4,
2008, Supplement No. 2, dated January 30, 2008,
Supplement No. 3, dated February 12, 2008, Supplement
No. 4, dated February 27, 2008, and Supplement
No. 5, dated March 17, 2008, relating to our offering
of 221,052,632 shares of common stock. The purpose of this
Supplement No. 6 is to disclose:
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the status of our initial public offering;
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our acquisition of Liberty Falls Medical Plaza in Liberty
Township, Ohio;
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our acquisition of Epler Parke Building B in Indianapolis,
Indiana;
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our acquisition of Cypress Station Medical Office Building in
Houston, Texas;
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our acquisition of Vista Professional Center in Lakeland,
Florida; and
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our acquisition of the Texas properties of Senior Care Portfolio
1 in Arlington, Galveston, Port Arthur and Texas City, Texas and
our probable acquisition of the California properties of Senior
Care Portfolio 1 in El Monte and Lomita, California.
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Status of
Our Initial Public Offering
As of March 21, 2008, we had received and accepted
subscriptions in our offering for 26,428,251 shares of our
common stock, or approximately $263,986,000, excluding shares
issued under our distribution reinvestment plan.
Acquisition
of Liberty Falls Medical Plaza
On March 19, 2008, we, through our subsidiary, G&E
Healthcare REIT Liberty Falls Medical Plaza, LLC, acquired a fee
simple interest in Liberty Falls Medical Plaza located in
Liberty Township, Ohio, or the Liberty Falls property, from an
unaffiliated third party for a purchase price of $8,150,000,
plus closing costs.
Financing
and Fees
We financed the purchase price of the Liberty Falls property
with $7,600,000 in borrowings under our secured revolving line
of credit with La Salle National Bank Association, or
LaSalle, and KeyBank National Association, or KeyBank, as
disclosed in our prospectus. An acquisition fee of $245,000, or
3.0% of the purchase price, was paid to Grubb & Ellis
Healthcare REIT Advisor, LLC, or our advisor, and its affiliates
in connection with the acquisition.
Description
of the Property
The Liberty Falls property consists of a Class A
multi-tenant medical office building in Liberty Township, Ohio.
The construction of this two story medical office building was
completed in January 2008. The property consists of
approximately 44,000 square feet of gross leasable area, or
GLA, located on approximately 2.2 acres of land. The
Liberty Falls property is approximately 91.0% leased.
We anticipate that the principal businesses which will occupy
the building will be healthcare providers. The largest tenant,
Mercy Hospital Fairfield, occupies approximately
22,000 square feet, or approximately 50.0% of the Liberty
Falls property, pursuant to a lease that expires on
January 31, 2018, with one five-year renewal option. Mercy
Hospital Fairfield is part of the Mercy Health Partners of
Southwest Ohio, which is a member of Catholic Healthcare
Partners. Mercy Hospital Fairfields main hospital campus
is approximately nine miles east of the Liberty Falls property.
Mercy Hospital Fairfield employs approximately
1,150 persons,
1
and has approximately 600 affiliated physicians. The first year
rental rate for Mercy Hospital Fairfield is approximately
$351,000, or $16.00 per square foot.
Liberty Falls, LLC, the seller, has executed a three year lease
for approximately 18,000 square feet, or approximately
41.0% of the Liberty Falls property, during which they may find
qualified replacement tenants to lease the space.
Triple Net Properties Realty, Inc., or Realty, serves as the
property manager and provides services and receives certain fees
and expense reimbursements in connection with the operation and
management of the Liberty Falls property.
There are approximately five comparable properties located in
the surrounding market that might compete with the Liberty Falls
property.
Management currently has no renovation plans for the property
and believes that the property is suitable for its intended
purpose and adequately covered by insurance. For federal income
tax purposes, the depreciable basis in the Liberty Falls
property will be approximately $7.6 million. We calculate
depreciation for income tax purposes using the straight line
method. We depreciate buildings based upon estimated useful
lives of 39 years. For 2007, the Liberty Falls property
paid real estate taxes of approximately $19,000 at a rate of
1.81%.
The following table sets forth the lease expirations of the
Liberty Falls property for the next ten years, including the
number of tenants whose leases will expire in the applicable
year, the total area in square feet covered by such leases and
the percentage of gross annual rent represented by such leases.
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% of Gross
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Annual Rent
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Total Square
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Gross Annual
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Represented
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No. of Leases
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Feet of Expiring
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Rent of
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by Expiring
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Year
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Expiring
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Leases
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Expiring Leases
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Leases
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2008
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$
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%
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2009
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$
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%
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2010
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$
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%
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2011
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1
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18,000
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$
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243,000
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40.92
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%
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2012
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$
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%
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2013
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$
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%
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2014
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$
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%
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2015
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$
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%
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2016
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$
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%
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2017
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$
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%
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The Liberty Falls property is a newly constructed building,
therefore there are no historical figures related to the
propertys average occupancy rate or average effective
annual rental rate per square foot.
Acquisition
of Epler Parke Building B
On March 24, 2008, we, through our subsidiary, G&E
Healthcare REIT Epler Parke Building B, LLC, acquired a fee
simple interest in Epler Parke Building B located in
Indianapolis, Indiana, or the Epler B property, from an
unaffiliated third party for a purchase price of $5,850,000,
plus closing costs.
Financing
and Fees
We financed the purchase price of the Epler B property with
$6,100,000 in borrowings under our secured revolving line of
credit with La Salle and KeyBank. An acquisition fee of
$176,000, or 3.0% of the purchase price, was paid to our advisor
and its affiliates.
2
Description
of the Property
The Epler B property consists of a multi-tenant medical office
building in Indianapolis, Indiana. The property is approximately
four miles north of Community Hospital South, the areas
major regional hospital. The Epler B property was built in 2004
and consists of approximately 34,000 square feet of GLA,
located on approximately 4.0 acres of land. The Epler B
property is approximately 95.0% leased.
The principal businesses occupying the building are healthcare
providers and an insurance provider. The four largest tenants,
IU Medical Group-Primary Care, or IU Medical Group, World
Harvest Dental, Inc., Dr. Jeffrey N. Dewester, MD and State
Farm Mutual Automobile Insurance Company, or State Farm, have
been occupants of the property since 2007, 2004, 2007 and 2004,
respectively.
IU Medical Group leases approximately 10,000 square feet,
or approximately 29.2% of the Epler B property, pursuant to a
lease that expires in March 2017. The rental rate per annum for
IU Medical Group is approximately $140,000, or $14.00 per square
foot.
World Harvest Dental, Inc. leases approximately
6,000 square feet, or approximately 17.7% of the Epler B
property, pursuant to a lease that expires in July 2015. The
rental rate per annum for World Harvest Dental, Inc. is
approximately $105,000, or $17.27 per square foot.
Dr. Jeffrey N. Dewester, MD leases approximately
5,000 square feet, or approximately 14.7% of the Epler B
property, pursuant to a lease that expires in October 2012. The
rental rate per annum for Dr. Jeffrey N. Dewester, MD is
approximately $97,000, or $19.25 per square foot.
State Farm leases approximately 4,000 square feet, or
approximately 11.4% of the Epler B property, pursuant to a lease
that expires in June 2009. The rental rate per annum for State
Farm is approximately $56,000, or $14.00 per square foot.
Realty serves as the property manager and provides services and
receives certain fees and expense reimbursements in connection
with the operation and management of the Epler B property.
The Epler B property faces competition from other nearby medical
office buildings that provide comparable services. Most of the
medical office buildings with which the Epler B property
competes are similarly located in proximity to Community
Hospital South.
Management currently has no renovation plans for the property
and believes that the property is suitable for its intended
purpose and adequately covered by insurance. For federal income
tax purposes, the depreciable basis in the Epler B property will
be approximately $4.7 million. We calculate depreciation
for income tax purposes using the straight line method. We
depreciate buildings based upon estimated useful lives of
39 years. For 2007, the Epler B property paid real estate
taxes of approximately $76,000 at a rate of 2.15%.
3
The following table sets forth the lease expirations of the
Epler B property for the next ten years, including the number of
tenants whose leases will expire in the applicable year, the
total area in square feet covered by such leases and the
percentage of gross annual rent represented by such leases.
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% of Gross
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Annual Rent
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Total Square
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Gross Annual
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Represented
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No. of Leases
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Feet of Expiring
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Rent of
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by Expiring
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Year
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Expiring
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Leases
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Expiring Leases
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Leases
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2008
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$
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%
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2009
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1
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4,000
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$
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55,000
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10.67
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%
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2010
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$
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%
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2011
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1
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1,000
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$
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10,000
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1.93
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%
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2012
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1
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5,000
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$
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97,000
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18.95
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%
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2013
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2
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5,000
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$
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81,000
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16.03
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%
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2014
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$
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%
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2015
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1
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6,000
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$
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105,000
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20.48
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%
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2016
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1
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2,000
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$
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24,000
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4.62
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%
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2017
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1
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10,000
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$
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140,000
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27.33
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%
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The following table shows the average occupancy rate and the
average effective annual rental rate per square foot for the
Epler B property for the last four years:
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Average Effective Annual Rental
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Year
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Average Occupancy Rate
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Rate per Square Foot
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2004
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27
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%
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$
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14.58
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2005
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29
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%
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$
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15.59
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2006
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37
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%
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$
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15.55
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2007
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72
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%
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$
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15.07
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Acquisition
of Cypress Station Medical Office Building
On March 25, 2008, we, through our subsidiary, G&E
Healthcare REIT Cypress Station, LLC, acquired a fee simple
interest in Cypress Station Medical Office Building located in
Houston, Texas, or the Cypress Station property, from an
unaffiliated third party for a purchase price of $11,200,000,
plus closing costs. We previously referred to this property as
the Cypress Station Medical Building.
Financing
and Fees
We financed the purchase price of the Cypress Station property
with a secured loan of $7,300,000 from National City Bank, or
National City, and $4,500,000 in borrowings under our secured
revolving line of credit with LaSalle and KeyBank. An
acquisition fee of $336,000, or 3.0% of the purchase price, was
paid to our advisor and its affiliates.
On March 25, 2008, we, through G&E Healthcare REIT
Cypress Station, LLC, obtained a secured loan, or the Cypress
Station loan, with National City. The Cypress Station loan is
evidenced by a Promissory Note in the principal amount of
$7,300,000, or the Cypress Station note. The Cypress Station
note is secured by a Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Financing Statement on the
Cypress Station property, and a Limited Guaranty of Payment by
which we guarantee payment of up to $730,000 plus all accrued
interest and enforcement costs. The Cypress Station loan matures
on September 1, 2011, but may be extended for two
consecutive
12-month
periods, each subject to satisfaction of certain conditions,
including payment of an extension fee equal to fifteen
one-hundredths of the outstanding principal balance of the loan.
The loan provides for monthly principal and interest payments
due on the first day of each calendar month, beginning on
May 1, 2008. The loan bears interest at per annum rates
equal to the LIBOR rate, as defined in the Cypress Station note,
plus 1.75%. If any monthly payment that is due is not received
by National City
4
within 10 days after such payment is due, the loan provides
for a late charge equal to 5.0% of such payment. In the event of
a default, the loan also provides for a default interest rate
equal to the lesser of: (a) the maximum lawful rate, or
(b) 5.0% over National Citys corporate market rate,
as described in the Cypress Station note. Subject to certain
conditions, the loan may be prepaid in whole or in part, without
paying a prepayment premium. The loan documents contain certain
customary representations, warranties, covenants and indemnities.
Description
of the Property
The Cypress Station property consists of a multi-tenant medical
office building in Houston, Texas. The property is adjacent to
Houston Northwest Medical Center, the largest provider of
healthcare services in North Houston. The Cypress Station
property was built in 1981 and renovated between 2004 and 2006,
and consists of approximately 52,000 square feet of GLA,
located on approximately 2.7 acres of land. The Cypress
Station property is 100% leased.
The principal businesses occupying the building are healthcare
providers. Tenants of the Cypress Station property typically
require proximity to the Houston Northwest Medical Center, a
380-bed full-service hospital, and also typically have an
affiliation with the hospital campus. The largest tenants,
Northwest Diagnostic Clinic, P.A., North Houston
Gastroenterology Clinic and Southeast Texas Oncology, have been
occupants of the property since 2005, 2006 and 2005,
respectively.
Northwest Diagnostic Clinic leases approximately
34,000 square feet, or approximately 65.4% of the Cypress
Station property, pursuant to a lease that expires in December
2019 with rent increases throughout the term. Northwest
Diagnostic Clinic is an imaging center that provides
comprehensive outpatient diagnostic services, including magnetic
resonance imaging/magnetic resonance angiography (MRI/MRA)
equipment, computed tomography (CT), nuclear medicine,
ultrasound and plain film radiography (XRAY). Northwest
Diagnostic Clinic also features virtual colonoscopy,
an imaging method that minimizes the patients discomfort,
while providing significant clinical information for screening
for pre-cancerous lesion of the colon. The Northwest Diagnostic
Clinic has joined with Houston Medical Research Associates to
conduct clinical research studies and pharmaceutical trials in a
controlled and academic setting. The Northwest Diagnostic Clinic
employs more than 20 persons and 10 physicians. The rental
rate per annum for 2008 is approximately $589,000, or $17.00 per
square foot.
Realty serves as the property manager and provides services and
receives certain fees and expense reimbursements in connection
with the operation and management of the Cypress Station
property.
There are approximately five comparable properties located in
the surrounding market that might compete with the Cypress
Station property. Most of the medical office buildings with
which the Cypress Station property competes are similarly
located in proximity to Houston Northwest Medical Center.
Management currently has no renovation plans for the property
and believes that the property is suitable for its intended
purpose and adequately covered by insurance. For federal income
tax purposes, the depreciable basis in the Cypress Station
property will be approximately $10.1 million. We calculate
depreciation for income tax purposes using the straight line
method. We depreciate buildings based upon estimated useful
lives of 39 years. For 2007, the Cypress Station property
paid real estate taxes of approximately $67,000 at a rate of
6.0%.
5
The following table sets forth the lease expirations of the
Cypress Station property for the next ten years, including the
number of tenants whose leases will expire in the applicable
year, the total area in square feet covered by such leases and
the percentage of gross annual rent represented by such leases.
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% of Gross
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Annual Rent
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Total Square
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Gross Annual
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Represented
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No. of Leases
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Feet of Expiring
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Rent of
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by Expiring
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Year
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Expiring
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Leases
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Expiring Leases
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Leases
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2008
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$
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%
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2009
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$
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%
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2010
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3
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8,000
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$
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132,000
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14.48
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%
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2011
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3
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10,000
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$
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190,000
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21.88
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%
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2012
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$
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%
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2013
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$
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%
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2014
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$
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%
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2015
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$
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%
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2016
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$
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%
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2017
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$
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%
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The following table shows the average occupancy rate and the
average effective annual rental rate per square foot for the
Cypress Station property for the last five years:
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Average Effective Annual Rental
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Year
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Average Occupancy Rate
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Rate per Square Foot
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2003
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66
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%
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$
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13.50
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2004
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95
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%
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$
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13.50
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2005
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100
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%
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$
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16.65
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2006
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100
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%
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$
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18.23
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2007
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100
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%
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$
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17.52
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Acquisition
of Vista Professional Center
On March 27, 2008, we, through our subsidiary, G&E
Healthcare REIT Vista Professional Center, LLC, acquired a fee
simple interest in Vista Professional Center located in
Lakeland, Florida, or the Vista Professional property, from an
unaffiliated third party for a purchase price of $5,250,000,
plus closing costs.
Financing
and Fees
We financed the purchase price of the Vista Professional
property with $5,300,000 in borrowings under our secured
revolving line of credit with La Salle and KeyBank and the
remaining balance from funds raised through this offering. An
acquisition fee of $158,000, or 3.0% of the purchase price, was
paid to our advisor and its affiliates.
Description
of the Property
The Vista Professional property consists of four multi-tenant
medical office buildings in Lakeland, Florida. The property is
located in close proximity to Lakeland Regional Medical Center,
a not-for-profit hospital. The Vista Professional property was
constructed in two separate phases, with the first phase
completed in 1996 and the second phase completed in 1998. The
Vista Professional property consists of approximately
32,000 square feet of GLA and is located on approximately
4.6 acres of land. The Vista Professional property is
approximately 95.0% leased.
The principal businesses occupying the building are healthcare
providers and healthcare-related service providers. Five
tenants, First Service Administrators, Inc., or First Service,
Pediatric Health Choice, Senior
6
Home Care, Inc., or Senior Home, The Center for
Retina & Macular Disease, Inc., and Laboratory
Corporation of America, have been occupants of the property
since 2007, 2000, 2001, 1996 and 2003, respectively.
First Service leases approximately 11,000 square feet, or
approximately 34.7% of the Vista Professional property, pursuant
to a lease that expires in February 2014, with three additional
five-year renewal options. First Service is a third party
administrator that specializes in offering private and public
employers employee benefit consulting, benefits administration,
cost containment strategies and stop loss coverage. The rental
rate per annum for First Service is approximately $161,000, or
$14.50 per square foot.
Pediatric Health Choice leases approximately 6,000 square
feet, or approximately 17.5% of the Vista Professional property,
pursuant to a lease that expires in December 2009. Pediatric
Health Choice specializes in providing health care services to
children with short-term, intermittent
and/or
complex chronic care needs, either in the home or in an
ambulatory care center. The rental rate per annum for Pediatric
Health Choice is approximately $77,000, or $13.70 per square
foot.
Senior Home leases approximately 4,000 square feet, or
approximately 13.1% of the Vista Professional property, pursuant
to a lease that expires in November 2008. Senior Home provides
patients with home health care services throughout the state of
Florida, including treatment of medical or surgical conditions,
medical condition observation and education, medication
education and administration, mental health services and wound
care. The rental rate per annum for Senior Home is approximately
$60,000, or $14.32 per square foot.
The Center for Retina & Macular Disease, Inc. leases
approximately 4,000 square feet, or approximately 12.5% of
the Vista Professional property, pursuant to a lease that
expires in November 2012, with three additional five-year
renewal options. The Center for Retina & Macular
Disease, Inc. assists patients with a variety of eye ailments,
including low vision evaluation and rehabilitation, retinal
tears/retinal detachments and macular degeneration. The rental
rate per annum for The Center for Retina & Macular
Disease, Inc. is approximately $58,000, or $14.50 per square
foot.
Laboratory Corporation of America leases approximately
3,000 square feet, or approximately 10.0% of the Vista
Professional property, pursuant to a lease that expires in May
2009. Laboratory Corporation of America is one of the
worlds largest clinical laboratories, with over
$4.1 billion in annual revenues in 2007 and approximately
26,000 employees. The company is listed on the New York
Stock Exchange and offers a broad range of genomic/esoteric
tests. The rental rate per annum for Laboratory Corporation of
America is approximately $53,000, or $15.50 per square foot.
Realty serves as the property manager and provides services and
receives certain fees and expense reimbursements in connection
with the operation and management of the Vista Professional
property.
The Vista Professional property faces competition from
approximately seven other nearby medical office buildings that
provide comparable services. Most of the medical office
buildings with which the Vista Professional property competes
are similarly located in proximity to Lakeland Regional Medical
Center.
Management currently has no renovation plans for the property
and believes that the property is suitable for its intended
purpose and adequately covered by insurance. For federal income
tax purposes, the depreciable basis in the Vista Professional
property will be approximately $4.9 million. We calculate
depreciation for income tax purposes using the straight line
method. We depreciate buildings based upon estimated useful
lives of 39 years. For 2007, the Vista Professional
property paid real estate taxes of approximately $63,000 at a
rate of 1.87%.
7
The following table sets forth the lease expirations of the
Vista Professional property for the next ten years, including
the number of tenants whose leases will expire in the applicable
year, the total area in square feet covered by such leases and
the percentage of gross annual rent represented by such leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Gross
|
|
|
|
|
|
|
|
|
Annual Rent
|
|
|
|
|
Total Square
|
|
Gross Annual
|
|
Represented
|
|
|
No. of Leases
|
|
Feet of Expiring
|
|
Rent of
|
|
by Expiring
|
Year
|
|
Expiring
|
|
Leases
|
|
Expiring Leases
|
|
Leases
|
|
2008
|
|
|
1
|
|
|
|
4,000
|
|
|
$
|
60,000
|
|
|
|
13.61
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%
|
2009
|
|
|
1
|
|
|
|
6,000
|
|
|
$
|
77,000
|
|
|
|
17.31
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%
|
2010
|
|
|
1
|
|
|
|
2,000
|
|
|
$
|
34,000
|
|
|
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7.60
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%
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2011
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|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2012
|
|
|
1
|
|
|
|
4,000
|
|
|
$
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58,000
|
|
|
|
13.11
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%
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2013
|
|
|
1
|
|
|
|
3,000
|
|
|
$
|
53,000
|
|
|
|
11.97
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%
|
2014
|
|
|
1
|
|
|
|
11,000
|
|
|
$
|
161,000
|
|
|
|
36.39
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%
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2015
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2016
|
|
|
|
|
|
|
|
|
|
$
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|
|
|
|
|
%
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2017
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
The following table shows the average occupancy rate and the
average effective annual rental rate per square foot for the
Vista Professional property for the last five years:
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|
|
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|
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|
|
|
Average Effective Annual Rental
|
Year
|
|
Average Occupancy Rate
|
|
Rate per Square Foot
|
|
2003
|
|
|
93
|
%
|
|
$
|
12.53
|
|
2004
|
|
|
100
|
%
|
|
$
|
12.88
|
|
2005
|
|
|
100
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%
|
|
$
|
13.31
|
|
2006
|
|
|
96
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%
|
|
$
|
13.51
|
|
2007
|
|
|
84
|
%
|
|
$
|
14.26
|
|
Acquisition
of Senior Care Portfolio 1
On March 31, 2008, we, through our subsidiary, G&E
Healthcare REIT Senior Care Portfolio 1, LLC, entered into a
Purchase and Sale Agreement and Escrow Instructions, or the
Agreement, to acquire Senior Care Portfolio 1, from an
unaffiliated third party, for a purchase price of $39,600,000.
Senior Care Portfolio 1 consists of six properties, four of
which are located in Texas, or the Texas properties, and two of
which are located in California, or the California properties.
The purchase price of Senior Care Portfolio 1 is allocated as
$29,900,000 for the Texas properties and $9,700,000 for the
California properties. The Agreement provides that the closing
date for both the Texas properties and the California properties
shall have occurred on or before March 31, 2008. However,
the Agreement further provides that should the seller be unable
to obtain ground lease documents pertaining to one of the
California properties, the closing date of the Texas properties
shall remain the same, but the closing date for the California
properties is to be postponed to 10 days after the receipt
of the ground lease documents, but not earlier than
April 23, 2008 and not later than May 30, 2008.
On March 31, 2008, we acquired a fee simple interest in the
Texas properties of Senior Care Portfolio 1 for a purchase price
of $29,900,000, plus closing costs. The Texas properties are
located in Arlington, Galveston, Port Arthur and Texas City,
Texas.
Financing
and Fees
We financed the purchase price of the Texas properties with an
advance of $18,000,000 under a $24,800,000 secured loan with Red
Mortgage Capital, Inc. and $14,800,000 in borrowings under our
secured revolving line of credit with LaSalle and KeyBank. An
acquisition fee of $897,000, or 3.0% of the purchase price, was
paid to our advisor and its affiliates.
8
On March 31, 2008, we, through G&E Healthcare REIT
Senior Care Portfolio 1, LLC, obtained a secured loan, or the
Senior Care loan, with Red Mortgage Capital, Inc. The Senior
Care loan is evidenced by a Loan Agreement, or the Senior Care
loan agreement, and a Secured Promissory Note in the principal
amount of $24,800,000, or the Senior Care note. The Senior Care
loan agreement provides that the loan amount shall be in the
maximum principal amount of $18,000,000 if we subsequently do
not acquire the California properties. The Senior Care note is
currently secured by a Deed of Trust on the each of the Texas
properties, a Key Principal Guaranty by which we guarantee the
full, prompt and complete repayment of the Senior Care note, and
a Security Agreement of Membership Interests by which we pledge
100% of our membership interest in G&E Healthcare REIT
Senior Care Portfolio 1, LLC. Upon the closing date of the
California properties, we are required to secure the remaining
principal amount of $6,800,000 with the California properties.
The Senior Care loan matures on March 31, 2010, but may be
extended for one
12-month
period, subject to satisfaction of certain conditions, including
payment of an extension fee equal to 0.25% of the then
outstanding principal balance of the loan. The loan provides for
monthly interest-only payments due on the first day of each
calendar month, beginning on May 1, 2008. Should we elect
to utilize the
12-month
extension period, the loan provides for monthly principal and
interest payments due on the first day of each calendar month,
beginning on April 1, 2010. The loan bears interest at per
annum rates equal to the
30-day LIBOR
rate, plus 2.0%. In no event and at no time shall the interest
rate be less than 4.75%. If any monthly payment that is due is
not received by Red Mortgage Capital, Inc. within 10 days
after such payment is due, the Senior Care loan provides for a
late charge equal to 4.0% of such payment. In the event of a
default, the Senior Care loan also provides for a default
interest rate equal to 4.0% over the interest rate. Subject to
certain conditions, the loan may be prepaid in whole or in part,
after the first 12 months, without paying a prepayment
premium. The Senior Care loan also requires an exit fee, upon
the earlier of repayment of all or any portion of the Senior
Care loan or at the maturity date, in an amount equal to 0.75%
of the loan amount. The entire exit fee or a proportionate share
of the exit fee may be waived if all or a portion of the Senior
Care loan is refinanced by Red Mortgage Capital, Inc. or its
affiliates, or in the event a corporate debt placement or a
secured or unsecured line of credit is utilized to pay off all
or a portion of the Senior Care loan. The loan documents contain
certain customary representations, warranties, covenants and
indemnities.
Description
of Senior Care Portfolio 1
Senior Care Portfolio 1 consists of one assisted living facility
located in Arlington, Texas, three skilled nursing facilities
located in Galveston, Port Arthur and Texas City, Texas, and two
skilled nursing facilities located in El Monte and Lomita,
California. The Texas properties were constructed between 1993
and 1994, and the California properties were constructed in 1959
and 1965. Combined, the Texas properties and the California
properties consist of 749 Licensed Beds/Units and approximately
226,000 square feet of GLA located on approximately
18.0 acres of land.
The Texas properties are operated and master-leased by Southwest
LTC, a Texas-based operator of 18 skilled nursing facilities and
one assisted living facility. The master lease is a
triple-net
lease that commenced in 1998, with the current term expiring in
June 2016. The primary focus of Southwest LTC, is to provide
skilled nursing and rehabilitative care, as well as traditional
long term care services to its residents. The rental rate per
annum for Southwest LTC is approximately $2,650,000, or $17.10
per square foot.
The Texas properties face competition from other nearby senior
care facilities that provide comparable services. Most of the
senior care facilities with which the Texas properties compete
are similarly located throughout the Houston-Galveston
metropolitan area as well as the
Arlington-Dallas-Fort Worth metropolitan area.
The California properties are operated and leased by
subsidiaries of North American Health Care, Inc., a
California-based operator of skilled nursing facilities. The two
leases for the California properties commenced in 1997 and
expire in July 2017. The primary focus of North American Health
Care is to provide skilled nursing and rehabilitative care to
its residents. Additional services provided include providing
procurement suggestions, procurement services, accounting
services and other services for owners
and/or
operators of long-term health care facilities, as well as
sub-acute care and assisted living facilities. The rental rate
per annum for North American Health Care is approximately
$814,000, or $11.41 per square foot.
9
The California properties face competition from other nearby
senior care facilities that provide comparable services. Most of
the senior care facilities with which the Senior Care Portfolio
1 competes are similarly located throughout the greater Los
Angeles metropolitan area.
Realty serves as the property manager and receives certain fees
and expense reimbursements in connection with the operation and
management of Senior Care Portfolio 1.
Management currently has no renovation plans for Senior Care
Portfolio 1 and believes that Senior Care Portfolio 1 is
suitable for its intended purpose and adequately covered by
insurance. For federal income tax purposes, the depreciable
basis in Senior Care Portfolio 1 will be approximately
$24.4 million. We calculate depreciation for income tax
purposes using the straight line method. We depreciate buildings
based upon estimated useful lives of 39 years. For 2007,
Senior Care Portfolio 1 paid real estate taxes of approximately
$335,000 at a rate of 1.80%.
The following table sets forth the lease expirations of Senior
Care Portfolio 1 for the next ten years, including the number of
tenants whose leases will expire in the applicable year, the
total area in square feet covered by such leases and the
percentage of gross annual rent represented by such leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Gross
|
|
|
|
|
|
|
|
|
Annual Rent
|
|
|
|
|
Total Square
|
|
Gross Annual
|
|
Represented
|
|
|
No. of Leases
|
|
Feet of Expiring
|
|
Rent of
|
|
by Expiring
|
Year
|
|
Expiring
|
|
Leases
|
|
Expiring Leases
|
|
Leases
|
|
2008
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2009
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2010
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2011
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2012
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2013
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2014
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2015
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
2016
|
|
|
1
|
|
|
|
155,000
|
|
|
$
|
2,650,000
|
|
|
|
76.51
|
%
|
2017
|
|
|
2
|
|
|
|
71,000
|
|
|
$
|
814,000
|
|
|
|
23.49
|
%
|
The following table shows the average occupancy rate and the
average effective annual rental rate per square foot for the
Senior Care Portfolio 1 for the last five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Effective Annual Rental
|
Year
|
|
Average Occupancy Rate
|
|
Rate per Square Foot
|
|
2003
|
|
|
100
|
%
|
|
$
|
14.20
|
|
2004
|
|
|
100
|
%
|
|
$
|
14.28
|
|
2005
|
|
|
100
|
%
|
|
$
|
14.43
|
|
2006
|
|
|
100
|
%
|
|
$
|
14.75
|
|
2007
|
|
|
100
|
%
|
|
$
|
14.99
|
|
10