Schedule IV - Mortgage Loans on Real Estate Schedule IV - Mortgage Loans on Real Estate

12 Months Ended

Dec. 31, 2017

Mortgage Loans on Real Estate [Abstract]

Schedule IV - Mortgage Loans on Real Estate

Mortgage Note Receivable

The Company had one mortgage note receivable outstanding as of December 31, 2017 and 2016 with a principal balance of $10.6 million and $10.9 million, respectively, which bears interest at 9.5%. Principal and interest are due monthly based on a 20-year amortization schedule, with a balloon payment due at maturity on September 30, 2026. At December 31, 2017 and 2016, approximately $0.6 million and $87,000, respectively, in interest was due from the borrower and is included in other assets on our Consolidated Balance Sheets, of which approximately $0.5 million and $0, respectively, was past due in accordance the terms of the underlying note. The borrower and several related entities (the "Borrower") filed for voluntary bankruptcy on June 23, 2017. At the time of filing for bankruptcy, the Borrower was current on all obligations to the Company, but no payments have been received during the bankruptcy.

On February 21, 2018, the Borrower filed an amended bankruptcy exit plan (the "Amended Plan"), agreed upon by the secured lenders and the unsecured creditor's committee of the Borrower, whereby the Company will provide financing for the Borrower to exit bankruptcy (the "Exit Financing"). Based on information currently available, the Company believes that the Amended Plan will be confirmed by the court substantially in the form as filed. Assuming the Amended Plan is confirmed by the bankruptcy court, the Company will enter into a new note and fund the Exit Financing, with a newly established entity ("Newco"), that will be secured by the ownership interests, cash, accounts receivable, other assets and cash flows of nine long-term acute care or rehabilitation hospitals, which includes two specialty hospitals that were not part of the bankruptcy but will be owned and operated by Newco.

On December 28, 2017, in anticipation of the Exit Financing, the Company purchased $11.45 million face value of certain promissory notes, secured by accounts receivable of the Borrower, for $8.75 million from a syndicate of banks, a $2.7 million discount to face value. Additionally, subsequent to December 31, 2017, the Company acquired $2.2 million of certain promissory notes, secured by the operations of two facilities of the Borrower, which were not included in the bankruptcy but will be owned and operated by Newco.

Under the terms of the Exit Financing, the existing mortgage note and other promissory notes of the Borrower held by the Company will be satisfied with proceeds from the Exit Financing, which will include approximately $5.35 million of additional cash to be funded by the Company. Also, as part of the Amended Plan, the Company, through a deed in lieu of foreclosure, will receive the real estate property currently secured by the mortgage note receivable.

The Company evaluated the collectability of the mortgage note and other promissory notes that it acquired, including the underlying loan collateral. Based on information currently available, the present value of the expected future cash flows to be received was not materially different from the recorded investment balance of the mortgage note and promissory notes as of December 31, 2017, and therefore, no impairment was recognized.

During 2015, the Company identified the borrower of the mortgage note discussed above as a VIE. The underlying$11.0 million mortgage note included a purchase option in which the Company could acquire the underlying property securing the mortgage through September 30, 2016. The Company elected not to acquire the property and the purchase option expired. Management concluded that the Company was not the primary beneficiary of the VIE as we did not have the ability to make decisions or direct the activities of the VIE that would impact its economic performance.

Schedule IV - Mortgage Loans on Real Estate as of December 31, 2017

(Dollars in thousands)

Description of Collateral	Interest Rate		Maturity Date	Periodic Payment Terms	Original Face Amount		Carrying Amount (3)		Principal amount of loans subject to delinquent principal or interest (2)
Long-term care acute care facility in Louisiana	9.5	%	9/30/2026	(1)	$	11,000	$	10,633	$	10,633
Total Mortgage Loans							$	10,633

___________

(1) Was interest only until September 30, 2016. Thereafter, principal and interest payments are due monthly through the maturity date with a balloon payment due at maturity.

(2) The borrower filed for bankruptcy in June 2017. See Note 5 to the Consolidated Financial Statements for more details on the bankruptcy.

(3) A rollforward of Mortgage loans on real estate for the years ended December 31, 2017, 2016 and 2015 is provided below.

		Year Ended December 31,
		2017			2016			2015
Balance at beginning of period		$	10,786		$	10,897		$	—
Additions during the period:
	New or acquired mortgages, net	—			12,406			10,863
	Amortization/write-off of loan and commitment fees	122			75			34
		122			12,481			10,897
Deductions during the period:
	Conversion upon acquisition (a)	—			(12,500		)	—
	Scheduled principal payments	(275		)	(92		)	—
		(275		)	(12,592		)	—
Balance at end of period (b)		$	10,633		$	10,786		$	10,897

___________

(a) Conversion of a $12.5 million mortgage note upon the acquisition of the property that secured the note on May 23, 2016.

(b) Total mortgage loans as of December 31, 2017 had an aggregate total cost of $10.6 million (unaudited) for federal income tax purposes.