Segment Reporting

3 Months Ended

Mar. 31, 2017

7. Segment Reporting

As of March 31, 2017, we operated in three reportable business segments for management and internal financial reporting purposes: senior living operations, triple-net leased properties, and medical office building (“MOB”) properties. These operating segments are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our senior living operations segment primarily consists of investments in senior housing communities located in the United States for which we engage independent third-party managers. Our triple-net leased properties segment consists of investments in senior living, skilled nursing and hospital facilities in the United States. These facilities are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our MOB properties segment primarily consists of investing in medical office buildings and leasing those properties to healthcare providers under long-term leases, which may require tenants to pay property-related expenses.

We evaluate performance of the combined properties in each segment based on net operating income. Net operating income is defined as total revenue less property operating and maintenance expenses. There are no intersegment sales or transfers. We use net operating income to evaluate the operating performance of our real estate investments and to make decisions concerning the operation of the property. We believe that net operating income is useful to investors in understanding the value of income-producing real estate. Net income is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization, asset management fees, real estate acquisition costs, interest expense and corporate general and administrative expenses. Additionally, net operating income as we define it may not be comparable to net operating income as defined by other REITs or companies.

The following tables reconcile the segment activity to consolidated net loss for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31, 2017
	Senior living operations		Triple-net leased properties		MOB properties		Consolidated

Rental revenue	$	20,437,000	$	2,738,000	$	208,000	$	23,383,000
Resident services and fee income		8,233,000		-		-		8,233,000
Tenant reimbursements and other income		1,006,000		250,000		80,000		1,336,000
		29,676,000		2,988,000		288,000		32,952,000
Property operating and maintenance expenses		21,294,000		254,000		77,000		21,625,000
Net operating income	$	8,382,000	$	2,734,000	$	211,000	$	11,327,000
General and administrative								1,599,000
Asset management fees								929,000
Depreciation and amortization								4,033,000
Interest expense, net								4,322,000
Change in fair value of contingent consideration								-
Equity in income from unconsolidated entities								(22,000)
Gain on disposition of investment in unconsolidated entity								(1,534,000)
Income tax benefit								(98,000)
Net income							$	2,098,000
Preferred return to series B preferred OP units and other noncontrolling interests								3,027,000
Net loss attributable to common stockholders							$	(929,000)

	Three Months Ended March 31, 2016
	Senior living operations		Triple-net leased properties		MOB properties		Consolidated

Rental revenue	$	19,923,000	$	2,329,000	$	205,000	$	22,457,000
Resident services and fee income		8,355,000		-		-		8,355,000
Tenant reimbursements and other income		720,000		205,000		77,000		1,002,000
		28,998,000		2,534,000		282,000		31,814,000
Property operating and maintenance expenses		20,195,000		211,000		80,000		20,486,000
Net operating income	$	8,803,000	$	2,323,000	$	202,000	$	11,328,000
General and administrative								691,000
Asset management fees								983,000
Depreciation and amortization								3,793,000
Interest expense, net								3,848,000
Change in fair value of contingent consideration								177,000
Equity in loss from unconsolidated entities								60,000
Gain on disposition of investment in unconsolidated entity								-
Income tax benefit								(602,000)
Net income							$	2,378,000
Preferred return to series B preferred OP units and other noncontrolling interests								2,712,000
Net loss attributable to common stockholders							$	(334,000)

The following table reconciles the segment activity to consolidated financial position as of March 31, 2017 and December 31, 2016.

	March 31, 2017		December 31, 2016
Assets
Investment in real estate:
Senior living operations	$	410,519,000	$	410,007,000
Triple-net leased properties		92,874,000		92,112,000
Medical office building properties		6,985,000		7,066,000
Total reportable segments	$	510,378,000	$	509,185,000
Reconciliation to consolidated assets:
Cash and cash equivalents		36,964,000		34,921,000
Investment in unconsolidated entities		-		493,000
Tenant and other receivables, net		7,655,000		5,949,000
Deferred costs and other assets		9,507,000		9,973,000
Restricted cash		7,119,000		7,777,000
Goodwill		5,965,000		5,965,000
Total assets	$	577,588,000	$	574,263,000

As of March 31, 2017 and December 31, 2016, goodwill had a balance of approximately $6.0 million all related to our senior living operations segment.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599

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+ Details

Sentio Healthcare Properties Inc 10-Q