NOTE 7. Loans Receivable

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


	December 31,
	2016						2015
	Real Estate		Other				Real Estate		Other
	Secured		Secured		Total		Secured		Secured		Total
Mezzanine(1)(2)	$	—	$	615,188	$	615,188	$	—	$	660,138	$	660,138
Other		195,946		—		195,946		114,322		—		114,322
Unamortized premiums (discounts), fees and costs, net		413		(3,593)		(3,180)		961		(6,678)		(5,717)
Allowance for loan losses		—		—		—		—		—		—
	$	196,359	$	611,595	$	807,954	$	115,283	$	653,460	$	768,743

(1)

At December 31, 2016, included £282 million ($348 million) outstanding and £2 million ($3 million) of associated unamortized discounts, fees and costs both related to the HC-One Facility. At December 31, 2015, included £273 million ($403 million) outstanding and £4 million ($5 million) of associated unamortized discounts, fees and costs both related to the HC-One Facility.

(2)

At December 31, 2016, the Company had £35 million ($43 million) remaining under its commitments to fund development projects and capital expenditures under it U.K. development projects.

The following table summarizes the Company’s internal ratings for loans receivable at December 31, 2016 (dollars in thousands):


			Percentage	Internal Ratings
	Carrying		of Loan	Performing		Watch List		Workout
Investment Type	Amount		Portfolio	Loans		Loans		Loans
Real estate secured	$	196,359	24	$	196,359	$	—	$	—
Other secured		611,595	76		355,130		256,465		—
	$	807,954	100	$	551,489	$	256,465	$	—

Real Estate Secured Loans

The following table summarizes the Company’s loans receivable secured by real estate at December 31, 2016 (dollars in thousands):


Final	Number
Maturity	of		Principal		Carrying
Date	Loans	Payment Terms	Amount(1)		Amount
2017	1	monthly interest-only payments, accrues interest at LIBOR plus 6.0%, and secured by, among other things, the issuer’s real estate assets	$	34,602	$	35,015
2018	1	monthly interest-only payments, accrues interest at 8.0% and secured by a senior housing facility in Pennsylvania(2)		21,473		21,566
2021	2	aggregate monthly interest-only payments, accrues interest at 8.0% and 9.75% and secured by two senior housing facility in the U.K.(3)		9,008		9,339
2023	1	monthly interest-only payments, accrues interest at 7.0% and secured by seven senior housing facilities in the U.K.		130,439		130,439
	5		$	195,522	$	196,359

(1)

Represents future contractual principal payments to be received on loans receivable secured by real estate.

(2)

Represents commitments to fund an aggregate of $0.1 million for a development project that is at or near completion as of December 31, 2016.

(3)

Represents commitments to fund an aggregate of £12 million ($15 million) for two development projects as of December 31, 2016.

During the year ended December 31, 2016, the Company recognized $26 million in interest income related to loans secured by real estate.

In December 2015, the Company purchased £28 million ($42 million) of Four Seasons Health Care’s (“Four Seasons”) £40 million senior secured term loan. The loan is secured by, among other things, the real estate assets of Four Seasons, and represents the most senior debt tranche. The loan bears interest at a rate of LIBOR plus 6.0% per annum and matures in December 2017.

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 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). In September 2015, the Company amended and increased its commitment under the HC-One Facility by £11 million primarily for the funding of capital expenditures and a development project. As part of the amendments, the Company shortened the non-call period by 17 months and provided consent for (i) the pay down of £34 million from disposition proceeds without a prepayment premium and (ii) the spin-off of 36 properties into a separate joint venture. In return, the Company retained security over the spin-off properties for a period of two years. Through the year ended December 31, 2015, the Company received paydowns of £34 million ($52 million). At December 31, 2016, the HC-One Facility had an outstanding balance of $345 million.

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.

Due to a decline in Tandem’s operating performance, as of September 30, 2016, the Company assigned an internal rating of “Watch List” to its Tandem Health Care Loan. Although Tandem continues to remain current on its payment obligations, the collection and timing of all future amounts owed is no longer reasonably assured. During the year ended December 31, 2016, 2015 and 2014, the Company recognized interest income of $31 million, $29 million and $27 million, respectively, and received cash payments of $30 million, $29 million and $27 million, respectively, from Tandem. At December 31, 2016, the facility had an outstanding balance of $256 million at an 11.5% blended interest rate and was subordinate to $374 million of senior mortgage debt.