Loans Receivable

6 Months Ended

Jun. 30, 2015

Loans Receivable.

Loans Receivable

NOTE 7.  Loans Receivable

The following table summarizes the Company’s loans receivable (in thousands):

	June 30, 2015						December 31, 2014
	Real Estate		Other				Real Estate		Other
	Secured		Secured		Total		Secured		Secured		Total
Mezzanine	$	—	$	795,794	$	795,794	$	—	$	799,064	$	799,064
Other(1)		90,549		—		90,549		135,363		—		135,363
Unamortized discounts, fees and costs		—		(10,312)		(10,312)		—		(14,056)		(14,056)
Allowance for loan losses		—		(13,410)		(13,410)		—		(13,410)		(13,410)
	$	90,549	$	772,072	$	862,621	$	135,363	$	771,598	$	906,961

(1)Represents construction loans outstanding related to senior housing development projects. At June 30, 2015, the Company had $3 million remaining under its commitments to fund development projects.

Loans Receivable Internal Ratings

The following table summarizes the Company’s internal ratings for loans receivable at June 30, 2015 (dollars in thousands):

	Carrying		Percentage of	Internal Ratings
Investment Type	Amount		Loan Portfolio	Performing Loans		Watch List Loans		Workout Loans
Real estate secured	$	90,549	10	$	90,549	$	—	$	—
Other secured		772,072	90		755,085		—		16,987
	$	862,621	100	$	845,634	$	—	$	16,987

Other Secured Loans

HC-One Facility.  In November 2014, the Company was the lead investor in the financing for Formation Capital and Safanad’s acquisition of NHP, a company that, at closing, owned 273 nursing and residential care homes representing over 12,500 beds in the U.K. principally operated by HC-One. The Company provided a loan facility (the “HC-One Facility”), secured by substantially all of NHP’s assets, totaling £395 million, with £363 million ($574 million) drawn at closing. The HC-One Facility has a five-year term and was initially funded by a £355 million draw on the Company’s revolving line of credit facility that is discussed in Note 11. In February 2015, the Company increased the HC-One Facility by £108 million ($164 million) to £502 million ($795 million), in conjunction with HC-One’s acquisition of Meridian Healthcare. In April 2015, the Company converted £174 million of the HC-One Facility into a sale-leaseback transaction for 36 nursing and residential care homes located throughout the U.K. (see Note 4).

Tandem Health Care Loan. On July 31, 2012, the Company closed a mezzanine loan facility to lend up to $205 million to Tandem Health Care (“Tandem”), as part of the recapitalization of a post-acute/skilled nursing portfolio. The Company funded $100 million (the “First Tranche”) at closing and funded an additional $102 million (the “Second Tranche”) in June 2013. In May 2015, the Company increased and extended the mezzanine loan facility with Tandem to (i) fund $50 million (the “Third Tranche”) and $5 million (the “Fourth Tranche”), which proceeds were used to repay a portion of Tandem’s existing senior and mortgage debt, respectively; (ii) extend its maturity to October 2018; and (iii) extend the prepayment penalty period to January 2017. The loans bear interest at fixed rates of 12%,14%,6% and 6% per annum for the First, Second, Third and Fourth Tranches, respectively. At June 30, 2015, the facility had an outstanding balance of $256 million at an 11.5% blended interest rate and was subordinate to $383million of senior mortgage debt.

Delphis Operations, L.P. Loan. The Company holds a secured term loan made to Delphis Operations, L.P. (“Delphis” or the “Borrower”) that is collateralized by assets of the Borrower. The Borrower’s collateral is comprised primarily of a partnership interest in an operating surgical facility that leases a property owned by the Company. This loan is on cost recovery status and has an internal rating of “workout”. The carrying value of the loan, net of an allowance for loan losses, was $17 million at both June 30, 2015 and December 31, 2014. During the three and six months ended June 30, 2014, the Company received cash payments from the Borrower of $0.6 million. At both June 30, 2015 and December 31, 2014, the allowance related to the Company’s senior secured loan to Delphis was $13 million with no additional allowances recognized during the six months ended June 30, 2015 or the year ended December 31, 2014. At June 30, 2015, the Company continues to believe that the fair value of the collateral supporting this loan is in excess of the loan’s carrying value.

Subsequent Event.  In July 2015, the Company exercised the purchase option right under its £27 million ($42 million) loan with MMCG, which was originated in May 2015, and acquired two care homes located in the U.K. (see Note 4).