Form: 8-K/A

Current report filing

January 15, 2010

8-K/A: Current report filing

Published on January 15, 2010


Exhibit 99.2
 
OMEGA HEALTHCARE INVESTORS, INC.
 
Unaudited Pro Forma Condensed Consolidated Financial Statements
 
On December 22, 2009, Omega Healthcare Investors, Inc. (the “Company”) acquired certain subsidiaries of CapitalSource Inc. (“CapitalSource”) owning 40 long-term care facilities (Closing 1) and acquired a purchase option to acquire entities owning an additional 63 facilities.   The Company expects to acquire other subsidiaries of CapitalSource owning 40 additional facilities during on or about April 1, 2010 (Closing 2) pursuant to an existing securities purchase agreement. The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the acquired properties and the related in-place leases, but is awaiting additional information to complete the process. Accordingly, the purchase price allocations are preliminary and subject to change.
 
The following unaudited pro forma condensed consolidated financial statements are based on the historical consolidated financial statements of the Company and the  combined statements of revenues and certain expenses of the Healthcare Real Estate Carve-out of CapitalSource Inc.: Closings I & II (the “Carve-out Financial Information”) included as Exhibit 99.1 to the accompanying Form 8-K/A.  The unaudited pro forma condensed consolidated balance sheet as of September 30, 2009 and condensed consolidated statements of operations for the nine-months ended September 30, 2009 and for the year-ended December 31, 2008 give effect to Closing 1 and Closing 2 and the related financings and debt assumption as if each of these transactions had occurred on September 30, 2009 for the unaudited pro forma condensed consolidated balance sheet and on January 1, 2008 for the unaudited pro forma condensed consolidated statements of operations.
 
The information included in the “Company Historical” column of the unaudited pro forma condensed consolidated balance sheet and statement of operations as of and for the nine-months ended September 30, 2009 is derived from the Company’s unaudited consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarterly period ended September 30, 2009.  The information included in the “Company Historical” column of the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2008 is derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2008.  The information included in the “Closing 1 Acquisition Properties Historical” and the “Closing 2 Acquisition Properties Historical” columns of the following unaudited pro forma condensed consolidated statements of operations is derived from the Carve-Out Financial Information.
 
The unaudited pro forma adjustments are prepared for informational purposes only and are based on available information and certain assumptions that the Company believes are appropriate.  The unaudited pro forma condensed consolidated financial statements do not purport to represent the Company’s financial position or the results of operations that would have actually occurred assuming such transactions along with their related financing transactions had been completed as set forth above nor do they purport to represent the Company’s financial position or results of operations of the Company as of any future date or for any future period.  All pro forma adjustments are based on preliminary estimates and assumptions and are subject to revision upon completion of the purchase price allocations in connection with Closing 1 and Closing 2.
 
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and in the Company’s Form 10-Q for the quarterly period ended September 30, 2009, and the Carve-out Financial Information included in Exhibit 99.1 to the accompanying Form 8-K/A.
 
1

 
Omega Pro Forma Financial Statements
                                       
Unaudited Pro Forma Balance Sheet
                                       
CapitalSource Transaction
                                       
                                         
                                         
   
As of September 30, 2009
($ in thousands)
 
                                         
   
Company
Historical
   
Closing 1
Acquisition
Properties
Historical
         
Company Pro
Forma after
Closing 1
Acquisition
   
Closing 2
Acquisition
Properties
Historical
       
Company Pro
Forma after
Closing 1 & 2
Acquisition
 
    a     b                 m            
ASSETS
                                             
Real estate properties
                                             
Land and buildings at cost
  $ 1,385,625     $ 269,392     c     $ 1,655,017     $ 281,131   n     $ 1,936,148  
Less accumulated depreciation
    (284,782 )     -             (284,782 )     -           (284,782 )
Real estate properties - net
    1,100,843       269,392             1,370,235       281,131           1,651,366  
Mortgage notes receivable - net
    100,531       -             100,531       -           100,531  
      1,201,374       269,392             1,470,766       281,131           1,751,897  
Other investments - net
    29,440       -             29,440       -           29,440  
      1,230,814       269,392             1,500,206       281,131           1,781,337  
Assets held for sale - net
    887       -             887       -           887  
     Total investments
    1,231,701       269,392             1,501,093       281,131           1,782,224  
                                                   
Cash and cash equivalents
    646       4,520     d       5,166       -           5,166  
Restricted cash
    6,678       2,619     e       9,297       2,170   o       11,467  
Accounts receivable - net
    81,274       -             81,274       -           81,274  
Other assets
    12,145       27,580     f,g       39,725       -           39,725  
Operating assets for owned properties
    3,949       -             3,949       -           3,949  
     Total assets
  $ 1,336,393     $ 304,111           $ 1,640,504     $ 283,301         $ 1,923,805  
                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                 
Revolving line of credit
  $ 9,000       88,359     g,h,s       97,359       68,034   p,s       165,393  
Unsecured borrowings
    485,000       -             485,000       -           485,000  
Premium/Discount on unsecured borrowings (net)
    (315 )     -             (315 )     -           (315 )
Other long-term borrowings
    -       59,354     i       59,354       214,147   q       273,501  
New Term Loan
    -       100,000     j       100,000       -           100,000  
Accrued expenses and other liabilities
    27,106       7,398     k       34,504       2,170   r       36,674  
Accrued income tax liabilities
    -       -             -       -           -  
Operating liabilities for owned properties
    1,449       -             1,449       -           1,449  
Total liabilities
    522,240       255,111             777,351       284,351           1,061,702  
                                                   
Stockholders' equity:
                                                 
Preferred stock
    108,488       -             108,488       -           108,488  
Common stock
    8,490       271     l       8,761       -           8,761  
Additional paid-in capital
    1,095,578       50,290     l       1,145,868       -           1,145,868  
Cumulative net earnings
    506,149       (1,561 )   s       504,588       (1,050 ) s       503,538  
Cumulative dividends paid
    (904,552 )     -             (904,552 )     -           (904,552 )
Total stockholders' equity
    814,153       49,000             863,153       (1,050 )         862,103  
Total liabilities and stockholders' equity
  $ 1,336,393     $ 304,111           $ 1,640,504     $ 283,301         $ 1,923,805  
 
2

 
Omega Pro Forma Financial Statements
               
Unaudited Pro Forma Balance Sheet Adjustments
               
CapitalSource Transaction
                 
                         
                         
                         
Balance Sheet Pro Forma Adjustments:
               
                         
a
Reflects the Company's historical balance sheet for the period ended September 30, 2009.
                         
b
The aggregate consideration for the entities owning the 40 facilities acquired at Closing 1 and the purchase options to acquire an additional 63 facilities was approximately $294.1 million and consists of the following:

      $ in millions  
           
 
Preliminary estimated fair value of land, building and FF&E
  $ 269.4  
 
Payment of deposit for purchase option
    25.0  
 
Adjustment to the closing consideration for assumed prepaid and accrued rents paid or in arrears as of December 22, 2009
    (0.3 )
 
Total Consideration paid at closing
  $ 294.1  
           
 
Funding of Consideration:
       
 
Assumption of 6.8% debt
  $ 59.4  
 
Issuance of new term loan
    100.0  
 
Issuance of shares of common stock
    50.6  
 
Funds drawn from the Company's revolving credit facility
    84.1  
 
Total Funding of consideration at Closing 1
  $ 294.1  
 
c
Reflects the acquisition of entities owning 40 facilities from CapitalSource Inc. (Closing 1), which closed on December 22, 2009.  The aggregate consideration for the entities owning the 40 facilities acquired at Closing 1 was approximately $269.4 million, offset by $0.3 million in adjustments relating to prepaid and accrued rent as of December 22, 2009.  The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the acquired properties and the related in-place leases.  The Company estimates that the value of the above and below market lease intangibles approximates one another and as a result no value has been assigned to in-place leases and no adjustment has been reflected for the amortization of the acquired lease intangibles.  The purchase price allocations are preliminary and subject to change.  Our preliminary allocation of the purchase price is as follows:
                         

      $ in millions  
           
 
Land
  $ 20.5  
 
Building and FF&E
    248.9  
 
Total
  $ 269.4  

d
Reflects cash received from CapitalSource that relates to escrow deposits held for several leases.
                         
e
Reflects cash received from CapitalSource that relates to liquidity deposits held for leases.
                         
f
Reflects a $25.0 million payment for an option to purchase entities owning 63 additional facilities.
                         
g
Reflects deferred finance costs of $2.6 million associated with issuing the $100.0 million term loan.  The Company assumed that the deferred finance costs were paid with funds from the Company's revolving credit facility.
                         
h
Reflects $84.1 million of funds from the Company's revolving credit facility used to fund the purchase price for Closing 1. At September 30, 2009, borrowings under the credit facility bear interest at a variable rate of LIBOR plus 400 basis points, with a LIBOR floor of 2%, and currently bears interest at approximately 6.0%.
                         
i
Reflects approximately $59.4 million in debt assumed as part of Closing 1.  The assumed debt bears interest at a weighted average of 6.8% and matures in December 2011 and has a one year extension right.  The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the assumed debt.  The Company has currently estimated that the carrying amount of the assumed debt approximates fair value based on current borrowings rates of similar instruments and therefore, no adjustment has been reflected to the carrying value of the assumed debt. The purchase price allocations are preliminary and subject to change.
 
3

 
j
Reflects the $100 million term loan that was issued on December 20, 2009, which matures on December 31, 2014 and bears interest at LIBOR plus 550 basis points with a LIBOR floor of 1%.  The proceeds of the term loan were used to fund the purchase price paid at Closing 1.
                         
k
Reflects the liabilities associated with escrow and liquidity deposits noted above in footnotes (d) and (e) in the amount of approximately $7.1 million and  adjustment to the closing consideration for assumed prepaid and accrued rents paid or in arrears as of December 22, 2009 of approximately $0.3 million.
                         
l
Reflects the value of the approximately 2.7 million shares of common stock issued as part of the consideration for Closing 1 at the closing stock price of $18.62.
                         
m
The aggregate consideration for the entities owning the additional 40 facilities to be acquired at Closing 2 is estimated to be approximately $270.4 million, to consist of the following:
                         

      $ in millions  
           
 
Preliminary estimated fair value of land, building and FF&E
  $
281.1
 
 
Estimated market adjustment for assumed HUD debt
   
(10.7
)
 
Total Consideration paid at closing
  $
270.4
 
           
 
Funding of Consideration:
       
 
Assumption of 9.0% subordinated debt
  $
20.0
 
 
Assumption of 6.41% HUD debt
   
53.8
 
 
Assumption of 4.85% HUD debt
   
129.6
 
 
Funds drawn from the Company's revolving credit facility
   
67.0
 
 
Total Funding of consideration at Closing 2
  $
270.4
 

n
Reflects the pending acquisition of entities owning an additional 40 facilities from CapitalSource Inc. (Closing 2), which is expected to be completed on or about April 1, 2010.  The aggregate consideration for the additional 40 facilities is estimated to be $270.4 million. The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the acquired properties and the related in-place leases.  The Company estimates that the value of the above and below market lease intangibles approximates one another and as a result no value has been assigned to in-place leases and no adjustment has been reflected for the amortization of the acquired lease intangibles.  The purchase price allocations are preliminary and subject to change.  Our preliminary allocation of the purchase price to real estate assets is as follows:

      $ in millions  
           
 
Land
  $ 34.3  
 
Building and FF&E
    246.8  
 
Total
  $ 281.1  

o
Reflects the estimated liquidity deposits held by CapitalSource for several leases that are expected to be transferred to the Company as part of Closing 2 during the second quarter of 2010.
                         
p
Reflects $67.0 million of funds used from the Company's revolving credit facility for Closing 2.
                         
q
Reflects debt that the Company expects to assume as part of Closing 2.  The $203.4 million in assumed debt includes:  $20.0 million in 9% subordinated debt that matures in December 2021, $53.8 million in Housing and Urban Development ("HUD") Mortgage debt at a weighted average of 6.41% that matures between January 2036 and May 2040, and $129.6 million of new HUD debt at 4.85% that matures in 2039.  The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the assumed debt.  The Company estimates that the current fair market value of the $53.8 million HUD debt at current market rates is approximately $64.5 million.  No other adjustments have been made regarding fair market value adjustments for any of the other assumed debt as the Company has estimated that the carrying amount of such debt approximates fair value based on current borrowing rates of similar instruments.  The purchase price allocations are preliminary and subject to change.  Closing 2 is expected to occur on or about April 1, 2010.
                         
r
Reflects the liabilities associated with liquidity deposits noted above in footnote (o).
                         
s
Reflects the Company's estimate of acquisition related costs associated with Closing 1 and Closing 2.  The Company assumed that the costs were paid with funds drawn from the Company's revolving credit facility.
 
4

 
Omega Pro Forma Financial Statements
                                   
Unaudited Pro Forma Statement of Operations
                                   
CapitalSource Transaction
                                   
                                     
                                     
   
For the Year-end December 31, 2008
($ in thousands, except per share data)
 
   
Company Historical
   
Closing 1 Acquisition Properties Historical
   
Closing 1 Acquisition Properties Pro Forma Adjustments
     
Company Pro Forma after Closing 1 Acquisition
   
Closing 2 Acquisition Properties Historical
   
Closing 2 Acquisition Properties Pro Forma Adjustments
     
Company Pro Forma after Closing 1 & 2 Acquisition
 
    a     b                   c                
Revenues
                                                   
Rental income
  $ 155,765     $ 30,280     $ (97 ) d   $ 185,948     $ 29,187     $ 968   d   $ 216,103  
Mortgage interest income
    9,562       -       -         9,562       -       -         9,562  
Other investment income - net
    2,031       -       -         2,031       -       -         2,031  
Miscellaneous
    2,234       -       -         2,234       -       -         2,234  
Nursing home revenues of owned and
    operated assets
    24,170       -       -         24,170       -       -         24,170  
    Total operating revenues
    193,762       30,280       (97 )       223,945       29,187       968         254,100  
                                                             
Expenses
                                                           
Depreciation and amortization
    39,890       10,516       1,816   e     52,222       9,492       2,740   e     64,454  
General and administrative
    11,701       2,372       (1,822 ) f     12,251       2,394       (1,744 ) f     12,901  
Provisions for impairment on real estate
    properties
    5,584       -       -         5,584       -       -         5,584  
Provisions for uncollectible mortgages,
    notes and accounts receivable
    4,248       -       -         4,248       -       -         4,248  
Nursing home revenues and expenses
    of owned and operated assets
    27,601       -       -         27,601       -       -         27,601  
    Total operating expenses
    89,024       12,888       (6 )       101,906       11,886       996         114,788  
                                                             
 Income before other income and expense
    104,738       17,392       (91 )       122,039       17,301       (28 )       139,312  
  Other income (expense):
                                                           
Interest and other investment income
    240       -       -         240       -       -         240  
Interest
    (37,745 )     (4,929 )     (10,909 ) g     (53,583 )     (9,413 )     (5,365 ) g     (68,361 )
Interest - amortization of deferred financing
    costs
    (2,001 )     -       (516 ) h     (2,517 )     -       -         (2,517 )
Interest - refinancing costs
    -       -       -         -       -       -         -  
Litigation settlements
    526       -       -         526       -       -         526  
  Total other (expense) income
    (38,980 )     (4,929 )     (11,425 )       (55,334 )     (9,413 )     (5,365 )       (70,112 )
                                                             
 Income before gain on assets sold
    65,758       12,463       (11,516 )       66,705       7,888       (5,393 )       69,200  
Gain (loss) on assets sold - net
    11,861       -       -         11,861       -       -         11,861  
 Income from continuing operations before
    income taxes
    77,619       12,463       (11,516 )       78,566       7,888       (5,393 )       81,061  
Income taxes
    72       -       -         72       -       -         72  
 Income from continuing operations
    77,691       12,463       (11,516 )       78,638       7,888       (5,393 )       81,133  
Discontinued operations
    446       -       -         446       -       -         446  
Net income
    78,137       12,463       (11,516 )       79,084       7,888       (5,393 )       81,579  
Preferred stock dividends
    (9,714 )     -       -         (9,714 )     -       -         (9,714 )
Series C preferred stock conversion charges
    2,128       -       -         2,128       -       -         2,128  
Net income available to common
  $ 70,551     $ 12,463     $ (11,516 )     $ 71,498     $ 7,888     $ (5,393 )     $ 73,993  
                                                             
Income per common share:
                                                           
Basic:
                                                           
Income from continuing operations
  $ 0.93                       $ 0.91                       $ 0.94  
Net income
  $ 0.94                       $ 0.92                       $ 0.95  
Diluted:
                                                           
Income from continuing operations
  $ 0.93                       $ 0.91                       $ 0.94  
Net income
  $ 0.94                       $ 0.92                       $ 0.95  
                                                             
Dividends declared and paid per common share
  $ 1.19                       $ 1.19                       $ 1.19  
                                                             
Weighted-average shares outstanding, basic
    75,127       -       2,714   i     77,841       -       -         77,841  
Weighted-average shares outstanding, diluted
    75,213       -       2,714   i     77,927       -       -         77,927  
 
5

 
Omega Pro Forma Financial Statements
                             
Unaudited Pro Forma Statement of Operations
                             
CapitalSource Transaction
                             
                               
                               
   
For the Nine Months Ended September 30, 2009
($ in thousands, except per share data)
 
   
Company Historical
   
Closing 1 Acquisition Properties Historical
   
Closing 1 Acquisition Properties Pro Forma Adjustments
     
Company Pro Forma after Closing 1 Acquisition
   
Closing 2 Acquisition Properties Historical
   
Closing 2 Acquisition Properties Pro Forma Adjustments
     
Company Pro Forma after Closing 1 & 2 Acquisition
 
    a     b                   c                
Revenues
                                                   
Rental income
  $ 123,626     $ 22,665     $ (28 ) d   $ 146,263     $ 21,854     $ 762   d   $ 168,879  
Mortgage interest income
    8,686       -       -         8,686       -       -         8,686  
Other investment income - net
    1,844       -       -         1,844       -       -         1,844  
Miscellaneous
    364       -       -         364       -       -         364  
Nursing home revenues of owned and
    operated assets
    13,545       -       -         13,545       -       -         13,545  
    Total operating revenues
    148,065       22,665       (28 )       170,702       21,854       762         193,318  
                                                             
Expenses
                                                           
Depreciation and amortization
    33,014       7,791       1,458   e     42,263       7,120       2,054   e     51,437  
General and administrative
    8,920       2,042       (1,630 ) f     9,332       1,757       (1,270 ) f     9,819  
Provisions for impairment on real estate
    properties
    159       -       -         159       -       -         159  
Provisions for uncollectible mortgages,
    notes and accounts receivable
    -       -       -         -       -       -         -  
Nursing home revenues and expenses of
    owned and operated assets
    15,750       -       -         15,750       -       -         15,750  
    Total operating expenses
    57,843       9,833       (172 )       67,504       8,877       784         77,165  
                                                             
 Income before other income and expense
    90,222       12,832       144         103,198       12,977       (22 )       116,153  
  Other income (expense):
                                                           
Interest and other investment income
    19       -       -         19       -       -         19  
Interest
    (26,656 )     (3,026 )     (8,852 ) g     (38,534 )     (3,984 )     (7,099 ) g     (49,617 )
Interest - amortization of deferred financing
    costs
    (2,216 )     -       (387 ) h     (2,603 )     -       -         (2,603 )
Interest - refinancing costs
    -       -       -         -       -       -         -  
Litigation settlements
    4,527       -       -         4,527       -       -         4,527  
  Total other (expense) income
    (24,326 )     (3,026 )     (9,239 )       (36,591 )     (3,984 )     (7,099 )       (47,674 )
                                                             
 Income before gain on assets sold
    65,896       9,806       (9,095 )       66,607       8,993       (7,121 )       68,479  
Gain (loss) on assets sold - net
    (24 )     -       -         (24 )     -       -         (24 )
 Income from continuing operations before
    income taxes
    65,872       9,806       (9,095 )       66,583       8,993       (7,121 )       68,455  
Income taxes
    -       -       -         -       -       -         -  
 Income from continuing operations
    65,872       9,806       (9,095 )       66,583       8,993       (7,121 )       68,455  
Discontinued operations
    -       -                 -                         -  
Net income
    65,872       9,806       (9,095 )       66,583       8,993       (7,121 )       68,455  
Preferred stock dividends
    (6,814 )     -       -         (6,814 )     -       -         (6,814 )
Series C preferred stock conversion charges
    -       -       -         -       -       -         -  
Net income available to common
  $ 59,058     $ 9,806     $ (9,095 )     $ 59,769     $ 8,993     $ (7,121 )     $ 61,641  
                                                             
Income per common share:
                                                           
Basic:
                                                           
Income from continuing operations
  $ 0.71                       $ 0.70                       $ 0.72  
Net income
  $ 0.71                       $ 0.70                       $ 0.72  
Diluted:
                                                           
Income from continuing operations
  $ 0.71                       $ 0.70                       $ 0.72  
Net income
  $ 0.71                       $ 0.70                       $ 0.72  
                                                             
Dividends declared and paid per common share
  $ 0.90                       $ 0.90                       $ 0.90  
                                                             
Weighted-average shares outstanding, basic
    82,903       -       2,714 i       85,617                         85,617  
Weighted-average shares outstanding, diluted
    83,004       -       2,714 i       85,718                         85,718  
 
6

 
Omega Pro Forma Financial Statements
               
Unaudited Pro Forma Statement of Operation Adjustments
             
CapitalSource Transaction
                 
                         
                         
                         
Statement of Operations Pro Forma Adjustments:
               
                         
a
Reflects the Company's historical statements of operation for the year-ended December 31, 2008 and for the nine months ended September 30, 2009.
                         
b
Reflects the historical financial results of operations for the 40 facilities acquired from CapitalSource Inc. (Closing 1) on December 22, 2009 for the year-end December 31, 2008 and the nine months ended September 30, 2009.  The aggregate consideration for the 40 facilities was approximately $269.4 million.  The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the acquired properties and the related in-place leases.  The Company estimates that the value of the above and below market lease intangibles approximates one another and as a result no value has been assigned to in-place leases and no adjustment has been reflected for the amortization of the acquired lease intangibles.  The purchase price allocations are preliminary and subject to change.
                         
c
Reflects the historical financial results of operations for an additional 40 facilities to be acquired from CapitalSource Inc. (Closing 2), which the Company expects to acquire during the second quarter of 2010, for the year-end December 31, 2008 and the nine months ended September 30, 2009.  The aggregate consideration for the additional 40 facilities to be acquired at Closing 2 is estimated to be $270.4 million.  The Company intends to account for the acquisition in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of the acquired properties and the related in-place leases.  The Company estimates that the value of the above and below market lease intangibles approximates one another and as a result no value has been assigned to in-place leases and no adjustment has been reflected for the amortization of the acquired lease intangibles.  The purchase price allocations are preliminary and subject to change.

d
Reflects increased straight-line rents as if the lease start dates were January 1, 2008.
 
      $ in thousands    
                 
     
Year-end
December 31,
2008
   
Nine-months
Ended September
30, 2009
   
                 
 
Closing 1, 40 Facilities acquired on December 22, 2009:
             
                 
 
Rental income recorded by CapitalSource
  $ 30,280     $ 22,665    
 
Revenue income assuming the acquisition occurred on January 1, 2008
    30,183       22,637    
 
Pro Forma adjustment to rental income
  $ (97 )   $ (28 )  
                     
 
Closing 2, 40 Facilities expected to be acquired in early 2010:
                 
                     
 
Rental income recorded by CapitalSource
  $ 29,187     $ 21,854    
 
Revenue income assuming the acquisition occurred on January 1, 2008
    30,155       22,616    
 
Pro Forma adjustment to rental income
  $ 968     $ 762    

e
Reflects an adjustment to depreciation and amortization as if the facilities were purchased on January 1, 2008.  The estimate is based on our preliminary estimate of the purchase price allocation for the 40 facilities acquired at Closing 1 on December 22, 2009 and the 40 additional facilities that are expected to be acquired on or about April 1, 2010.  The aggregate consideration for the facilities that we acquired on December 22, 2009 was approximately $269.4 million and the aggregate consideration for the additional facilities that we expect to acquire during at Closing 2 is expected to be approximately $270.4 million. The Company intends to account for both of these acquisitions in accordance with guidance for business combinations and is currently in the process of analyzing the fair value of these facilities and the related in-place leases.  The Company estimates that the value of the above and below market lease intangibles approximates one another and as a result no value has been assigned to in-place leases and no adjustment has been reflected for the amortization of the acquired lease intangibles.  The purchase price allocations are preliminary and subject to change.

      $ in thousands    
                 
     
Year-end
December 31,
2008
   
Nine-months
Ended September
30, 2009
   
                 
 
Closing 1, 40 Facilities acquired on December 22, 2009:
             
 
Depreciation & amortization recorded by CapitalSource
  $ 10,516     $ 7,791    
 
Depreciation & amortization  assuming the acquisition occurred on January 1, 2008
    12,332       9,249    
 
Pro Forma adjustment to depreciation & amortization
  $ 1,816     $ 1,458    
                     
 
Closing 2, 40 Facilities expected to be acquired in early 2010:
                 
 
Depreciation & amortization recorded by CapitalSource
  $ 9,492     $ 7,120    
 
Depreciation & amortization  assuming the acquisition occurred on January 1, 2008
    12,232       9,174    
 
Pro Forma adjustment to depreciation & amortization
  $ 2,740     $ 2,054    
 
7

 
f
Reflects the estimated reduction in general and administrative costs relating to allocations of corporate costs of CapitalSource that are not recurring direct cost of the acquired facilities.
                         
g
Represents interest expense on the assumed debt, issuance of a new term loan and use of the Company's revolving credit facility.

      $ in thousands    
                 
     
Year-end
December 31,
2008
   
Nine-months
Ended September
30, 2009
   
                 
 
Closing 1, 40 Facilities acquired on December 22, 2009:
             
 
Interest Expense Recorded by CapitalSource
  $ (4,929 )   $ (3,026 )  
 
Interest expense assuming the acquisition occurred on January 1, 2008
    (15,838 )     (11,878 )  
 
Pro Forma adjustment to interest expense
  $ (10,909 )   $ (8,852 )  
                     
 
Closing 2, 40 Facilities expected to be acquired in early 2010:
                 
 
Interest Expense Recorded by CapitalSource
  $ (9,413 )   $ (3,984 )  
 
Interest expense assuming the acquisition occurred on January 1, 2008
    (14,778 )     (11,083 )  
 
Pro Forma adjustment to interest expense
  $ (5,365 )   $ (7,099 )  

h
Represents amortization of deferred financing costs associated with issuing the new term loan and the cost incurred to transfer the HUD debt from CapitalSource to the Company.
 
      $ in thousands    
                 
     
Year-end
December 31,
2008
   
Nine-months
ended September
30, 2009
   
                 
 
Closing 1, 40 Facilities acquired on December 22, 2009:
             
 
Interest Expense Recorded by CapitalSource
  $ -     $ -    
 
Interest expense  assuming the acquisition occurred on January 1, 2008
    (516 )     (387 )  
 
Pro Forma adjustment to interest expense
  $ (516 )   $ (387 )  
                     
 
Closing 2, 40 Facilities expected to be acquired in early 2010:
                 
 
Interest Expense Recorded by CapitalSource
  $ -     $ -    
 
Interest expense  assuming the acquisition occurred on January 1, 2008
    -       -    
 
Pro Forma adjustment to interest expense
  $ -     $ -    
 
i
Represents the number of shares issued to acquire the entities in Closing 1.
         
 
 
8