5. Real Estate Investments

Owned Properties. As of December 31, 2018, we owned 175 health care real estate properties located in 28 states and consisting of 103 ALFs, 71 SNFs and 1 behavioral health care hospital. These properties are operated by 28 operators.

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (collectively “ALF”). Any reference to the number of properties, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Depreciation expense on buildings and improvements, including properties classified as held‑for‑sale, was $37,416,000, $37,492,000, and $35,809,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

Future minimum base rents receivable under the remaining non‑cancelable terms of operating leases excluding the effects of straight‑line rent, amortization of lease inducement and renewal options are as follows (in thousands):


	Annual Cash
	Rent (1)
2019	$	133,666
2020		140,353
2021		131,284
2022		121,235
2023		124,897
Thereafter		760,163

(1)

Represents contractual annual cash rent, except for two master leases which are based on agreed upon cash rents. See below for more information.

During 2017, we issued a notice of default to Anthem Memory Care (“Anthem”) resulting from Anthem’s partial payment of minimum rent. Anthem operates 11 operational memory care communities under a master lease. We are currently not pursuing enforcement of the guarantees and our rights and remedies pertaining to known events of default under the master lease, with the stipulation that Anthem achieve sufficient performance and pay an agreed upon cash rent for these 11 properties. During 2018, Anthem paid the agreed upon minimum cash rent of $5,200,000. We receive regular financial performance updates from Anthem and continue to monitor Anthem’s performance obligations under the master lease agreement.

On December 4, 2018, Senior Care Centers, LLC. and affiliates and subsidiaries (“Senior Care”) filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges. Pursuant to the U.S. Bankruptcy Code, Senior Care has an initial period of 120 days from the petition date to assume or reject the lease. As security under the lease, we hold a letter of credit in the amount of approximately $2,000,000, maintenance and repair escrows of approximately $2,200,000 and property tax escrows of approximately $1,800,000. Senior Care did not pay us December 2018 rent, but has paid us January and February 2019 rent.

Acquisitions. The following table summarizes our acquisitions for the years ended December 31, 2018 through 2016 (dollar amounts in thousands):


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year	Type of Property	Price		Costs (1)		Costs		Properties	Beds/Units
2018 (2)	Assisted Living (3) (4)	$	39,600	$	65	$	39,665	3	177
	Land (4)		695		48		743	—	—
Total		$	40,295	$	113	$	40,408	3	177

2017	Assisted Living (5)	$	81,018	$	569	$	81,587	5	400
	Land (6)		800		18		818	—	—
Total		$	81,818	$	587	$	82,405	5	400

2016	Skilled Nursing (7)	$	16,000	$	45	$	16,045	1	126
	Assisted Living (8)		53,550		423		53,973	4	250
	Land (9)		6,891		108		6,999	—	—
Total		$	76,441	$	576	$	77,017	5	376

(1)

Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting in capitalization of transaction costs to the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Transaction costs per our consolidated statements of income and comprehensive income represents current and prior year transaction costs due to timing and terminated transactions.

(2)

Subsequent to December 31, 2018, we entered into a joint venture (“JV”) to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,950 in cash. Our economic interest in the real estate JV will be approximately 95%.

(3)

We acquired two MC in Texas.

(4)

We entered into a JV to develop, purchase and own seniors housing properties. During 2018, the JV purchased land for the development of a 78-unit ALF/MC in Oregon for a total anticipated project cost of $18,108. The non-controlling partner contributed $1,081 of cash and we committed to fund the remaining $17,027 project cost. Additionally, during 2018, in a sale-leaseback transaction, the JV purchased an existing operational 89-unit ILF adjacent to the 78-unit ALF/MC we are developing for $14,400. The non-controlling partner contributed $2,857 of equity and we contributed $11,543 in cash. Upon completion of the development project, our combined economic interest in the JV will be approximately 88%. We account for the JV on a consolidated basis. See Note 10. Equity for further discussion related to our partnerships and non-controlling interests.

(5)

We acquired an ALF and a MC in California, a MC in Ohio and an ALF/MC in Missouri. Furthermore, we entered into a JV and acquired an ALF/MC community. See Note 10. Equity for further discussion related to our partnerships and non-controlling interest.

(6)

We entered into a JV for the acquisition of land and development of an ALF/MC/ILF community in Wisconsin. See Note 10. Equity for further discussion related to our partnerships and non-controlling interest.

(7)

We acquired a newly constructed SNF in Texas.

(8)

We acquired a newly constructed MC in Kentucky, a newly constructed ALF/MC in Georgia and two MCs in Kansas.

(9)

We acquired a parcel of land and improvement and entered into a development commitment for the development of a SNF. Also, we purchased a parcel of land in Illinois and entered into a development commitment to construct a MC.

Developments and Improvements. The following table summarizes our investment in development and improvement projects for the years 2018, 2017 and 2016 (in thousands):


	2018				2017				2016
Type of Property	Developments		Improvements		Developments			Improvements		Developments		Improvements
Assisted Living Communities	$	27,505	$	2,292	$	17,667	$	1,152	$	41,859	$	3,034
Skilled Nursing Centers		7,774		500		5,234		1,356		483		3,758
Other		—		457		—		391		—		—
Total	$	35,279	$	3,249	$	22,901	$	2,899	$	42,342	$	6,792

Completed Projects. The following table summarizes our completed projects during the years ended December 31, 2018, 2017 and 2016 (dollar amounts in thousands):


		Number	Type	Number
		of	of	of			Total
Year	Type of Project	Properties	Property	Beds/Units	State	Investment
2018	Development	1	MC	66	Illinois	$	14,998
Total		1		66		$	14,998

2017	Development	1	MC	66	Illinois	$	13,498
Total		1		66		$	13,498

2016	Development	1	MC	66	Illinois	$	12,248
	Development	1	MC	56	Texas		11,776
	Development	1	MC	66	Illinois		11,962
	Development	1	MC	66	California		12,400
	Development	1	ALF/MC	89	South Carolina		15,080
	Development	1	ILF	108	Kansas		13,423
	Improvement	1	SNF	160	Arizona		4,672
Total		7		611		$	81,561

Properties held-for-sale. The following table summarizes our properties held-for-sale at December 31, 2018 (dollar amounts in thousands):

Type

Number

Gross

Accumulated

State

Property

Properties

Investment

Depreciation

Beds/units

Texas

ILF

5,746

1,916

140

Totals

5,746

1,916

140

Property Sales. The following table summarizes property sales during the years ended December 31, 2018 through 2016 (dollar amounts in thousands):


		Type		Number	Number						Net
		of		of	of		Sales		Carrying		Gain
Year	State	Properties		Properties	Beds		Price		Value		(Loss)
2018	Alabama, Florida and Georgia	SNF		4	454	$	27,975	$	5,695	$	21,987
	Kansas	ALF	(1)	—	—		350		346		—
	Ohio and Pennsylvania	ALF		6	320		67,500		16,352		48,695
Total 2018				10	774	$	95,825	$	22,393	$	70,682

2017	Indiana, Iowa and Oregon	ALF		5	211	$	15,650	$	10,107	$	4,985
	Texas	SNF	(2)	1	85		—		1,170		(1,171)
Total 2017				6	296	$	15,650	$	11,277	$	3,814

2016	Florida	ALF		2	174	$	6,850	$	4,869	$	1,973
	Texas	SNF		2	235		6,750		4,923		1,802
	New Jersey	OTH		1	—		3,850		3,997		(193)
Total 2016				5	409	$	17,450	$	13,789	$	3,582

(1)

We sold land adjacent to an existing ALF community in Kansas.

(2)

We donated a SNF with a carrying value of $1,170 to a nonprofit health care provider.

Mortgage Loans. At December 31, 2018, the mortgage loans had interest rates ranging from 9.2% to 9.7% and maturities ranging from 2020 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30‑year term. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 2.25%. Please see Item 1. Business. Portfolio for a table that summarizes our loaned properties as of December 31, 2018.

The following table summarizes our mortgage loan activity for the years ended December 31, 2018, 2017 and 2016 (in thousands):


	2018			2017		2016
Originations and funding under mortgage loans receivable	$	21,364	(1)	$	11,913	$	20,685
Pay-offs received		(1,086)			(16,665)		(6,036)
Scheduled principal payments received		(1,050)			(1,198)		(2,242)
Mortgage loan (premiums)		(4)			(4)		(10)
(Provision for)/ recovery of loan loss reserve		(192)			60		(125)
Net increase (decrease) in mortgage loans receivable	$	19,032		$	(5,894)	$	12,272

(1)

During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed SNF in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter. Also, we funded additional loan proceeds of $7,125 under an existing mortgage loan for the purchase of a 126-bed SNF in Michigan. This incremental funding bears interest at 9.41%, fixed for five years, and escalating by 2.25% thereafter.

At December 31, 2018 and 2017 the carrying values of the mortgage loans were $242,939,000 and $223,907,000, respectively. Scheduled principal payments on mortgage loan receivables are as follows (in thousands):


	Scheduled
	Principal
2019	$	1,065
2020		8,815
2021		1,175
2022		1,175
2023		1,175
Thereafter		231,981
Total	$	245,386

The following table summarizes our early mortgage loan payoffs during the years 2018, 2017 and 2016 (dollar amounts in thousands):



		Early	Number
		Principal	of
		Payoff	Loans	State
2018	$	1,086	1	UT
2017	$	10,795	4	AZ/MO/TX
2016	$	6,036	9	MO/TX/WA