Loans Receivable

3 Months Ended

Mar. 31, 2022

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


	March 31, 2022		December 31, 2021
Secured loans(1)	$	388,746	$	396,281
Mezzanine and other	26,252		25,529
Unamortized discounts, fees, and costs	(3,301)		(4,186)
Reserve for loan losses	(1,944)		(1,813)
Loans receivable, net	$	409,753	$	415,811

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(1)At March 31, 2022, the Company had $49 million remaining of commitments to fund additional loans for senior housing redevelopment and capital expenditure projects. At December 31, 2021, the Company had $58 million remaining of commitments to fund additional loans for senior housing redevelopment and capital expenditure projects.

SHOP Seller Financing

In conjunction with the sale of 32 SHOP facilities in the Sunrise Senior Housing Portfolio for $664 million in January 2021 (see Note 4), the Company provided the buyer with initial financing of $410 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $92 million of additional financing for capital expenditures (up to 65% of the estimated cost of capital expenditures). The additional financing was subsequently reduced to $56 million in June 2021 and $47 million in February 2022 in conjunction with the principal repayments discussed below. Through March 31, 2022, $0.4 million of the additional financing had been funded. The initial and additional financing is secured by the buyer's equity ownership in each property.

In June 2021, the Company received principal repayments of $246 million on the initial financing provided in conjunction with the sale of the Sunrise Senior Housing Portfolio. Additionally, in February 2022, the Company received principal repayments of $8 million in conjunction with the disposition of the underlying collateral. As of March 31, 2022 and December 31, 2021, this secured loan had an outstanding balance of $157 million and $165 million, respectively.

In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 4), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property.

During the first quarter of 2021, the Company reduced the consideration and reported gain on sales of real estate and recognized a mark-to-market discount of $16 million for certain transactions with seller financing. The Company’s discount is based on the difference between the stated interest rates (ranging from 3.50% to 4.50%) and corresponding prevailing market rates of approximately 5.25% as of the transaction dates. The discount is recognized as interest income over the term of the discounted loans (ranging from one to three years) using the effective interest rate method. During the three months ended March 31, 2022 and 2021, the Company recognized $1 million and $2 million, respectively, of non-cash interest income related to the amortization of its mark-to-market discounts.

2021 Other Loans Receivable Transactions

The Company classifies a loan receivable as held for sale when management no longer has the intent or ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, previously recorded reserves for loan losses are reversed and the loan is reported at the lower of amortized cost or fair value. During the second quarter of 2021, two loans receivable with a total amortized cost of $64 million were classified as held for sale. Upon the transfer of these two loans to held for sale, the carrying value was decreased by $11 million to an estimated fair value of $53 million, $8 million of which was previously recognized as a reserve for loan losses. In 2021, the Company sold these two loans receivable previously classified as held for sale for their aggregate carrying value of $53 million.

These fair value estimates were made for each individual loan classified as held for sale and primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, and negotiations with prospective buyers. These estimates are considered to be a Level 3 measurement within the fair value hierarchy, and are subject to inherent uncertainties.

Additionally, in April 2021, the Company sold two mezzanine loans as part of the Discovery SHOP Portfolio disposition (see Note 4), resulting in no gain or loss on sale of the mezzanine loans.

In May 2021, the Company received a $10 million principal repayment related to one of its secured loans. In September 2021, the Company received repayment of the remaining $15 million balance.

In July 2021, the Company received full repayment of the outstanding balance of an $8 million secured loan.

CCRC Resident Loans

For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the previous residence. At March 31, 2022 and December 31, 2021, the Company held $25 million and $24 million, respectively, of such notes receivable, which are included in mezzanine and other in the table above.

Loans Receivable Internal Ratings

In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.

The following table summarizes, by year of origination, the Company’s internal ratings for loans receivable, net of unamortized discounts, fees, and reserves for loan losses, as of March 31, 2022 (in thousands):


Investment Type	Year of Origination												Total
	2022		2021		2020		2019		2018		Prior
Secured loans
Risk rating:
Performing loans	$	—	$	301,796	$	79,512	$	2,199	$	—	$	—	$	383,507
Watch list loans	—		—		—		—		—		—		—
Workout loans	—		—		—		—		—		—		—
Total secured loans	$	—	$	301,796	$	79,512	$	2,199	$	—	$	—	$	383,507



Mezzanine and other
Risk rating:
Performing loans	$	12,521	$	12,284	$	1,441	$	—	$	—	$	—	$	26,246
Watch list loans	—		—		—		—		—		—		—
Workout loans	—		—		—		—		—		—		—
Total mezzanine and other	$	12,521	$	12,284	$	1,441	$	—	$	—	$	—	$	26,246

Reserve for Loan Losses

The Company evaluates the liquidity and creditworthiness of its borrowers on a quarterly basis to determine whether any updates to the future expected losses recognized upon inception are necessary. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The determination of loan losses also considers concentration of credit risk associated with the senior housing industry to which its loans receivable relate. The Company’s borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis, which the Company utilizes to calculate the debt service coverages used in its assessment of internal ratings, which is a primary credit quality indicator. Debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, NOI, occupancy, rental rates, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures.

In its assessment of current expected credit losses for loans receivable and unfunded loan commitments, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each loan to estimate a probability of default and a resulting loss for each loan receivable. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends.

The following table summarizes the Company’s reserve for loan losses (in thousands):


	March 31, 2022						December 31, 2021
	Secured Loans		Mezzanine and Other		Total		Secured Loans		Mezzanine and Other		Total
Reserve for loan losses, beginning of period	$	1,804	$	9	$	1,813	$	3,152	$	7,128	$	10,280

Provision for expected loan losses	134		(3)		131		793		896		1,689
Expected loan losses related to loans sold or repaid(1)	—		—		—		(2,141)		(8,015)		(10,156)



Reserve for loan losses, end of period	$	1,938	$	6	$	1,944	$	1,804	$	9	$	1,813

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(1)Includes six loans sold or repaid during the year ended December 31, 2021.

Additionally, at each of March 31, 2022 and December 31, 2021, a liability of $0.3 million related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities.