Real Estate Investments (Tables)

6 Months Ended

Jun. 30, 2019

Summary of investments in owned properties

The following table summarizes our investments in owned properties at June 30, 2019 (dollar amounts in thousands):


								Average
			Percentage		Number	Number of		Investment
	Gross		of		of	SNF	ALF	per
Type of Property	Investment		Investment		Properties ⁽¹⁾	Beds	Units	Bed/Unit
Assisted Living	$	843,682	58.1	%	105	—	6,070	$	138.99
Skilled Nursing		589,581	40.5	%	72	8,893	261	$	64.41
Under Development ⁽²⁾		8,167	0.6	%	—	—	—		—
Other ⁽³⁾		11,239	0.8	%	1	118	—		—
Total	$	1,452,669	100.0	%	178	9,011	6,331

(1)	We own properties in 28 states that are leased to 30 different operators.

(2)	Represents a 78-unit ALF/MC located in Oregon.

(3)	Includes three parcels of land held-for-use, and one behavioral health care hospital.

Schedule of future minimum base rents receivable

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


	Annual Cash
	Rent ⁽¹⁾
2019	$	68,450
2020		143,029
2021		133,232
2022		120,952
2023		122,235
Thereafter		682,320

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

Summary of information about purchase options included in our lease agreements


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value ⁽¹⁾	Window
California	ALF/MC	2	$	38,895	$	37,013	2024-2029
California	ALF	2		28,099		15,565	2021-TBD	⁽²⁾
Kansas	MC	2		25,692		23,549	2019-2021
Kentucky and Ohio	MC	2		30,087		28,192	2028-2029
Texas	MC	2		25,265		24,645	2025-2027
Virginia	ALF/MC	1		16,895		16,723	2025-2029
Total			$	164,933	$	145,687

(1)	Subsequent to June 30, 2019, we entered into two master lease agreements that provide the lessees with purchase options. The purchase options are available in 2029.

(2)	The option window ending date will be either 24 months or 48 months after the option window commences, based on certain contingencies.

Summary of components of our rental income

The following table summarizes components of our rental income for the three and six months ended June 30, 2019 and 2018 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Rental Income		2019			2018			2019			2018
Base cash rental income	$	33,019	⁽¹⁾	$	32,312		$	66,933	⁽¹⁾	$	63,767
Variable cash rental income		4,077	⁽²⁾		169	⁽²⁾		8,562	⁽²⁾		319	⁽²⁾
Straight-line rent		1,275	⁽³⁾		2,000			2,513	⁽³⁾		5,440
Adjustment for collectibility of rental income		—			—			(1,926)	⁽⁴⁾		—
Amortization of lease incentives		(94)			(551)			(181)			(1,091)
Total	$	38,277		$	33,930		$	75,901		$	68,435

(1)	Increased due to acquisitions, developments and capital improvements partially offset due to reduced rent from properties sold in 2018.

(2)

The three months ended June 30, 2019 variable rental income includes $167 related to contingent rental income and $3,910 related to our real estate taxes which were reimbursed by our operators. The six months ended June 30, 2019 variable rental income includes $317 related to contingent rental income and $8,245 related to our real estate taxes which were reimbursed by our operators. Per the provisions of ASC 842, any lessor cost, paid by the lessor and reimbursed by the lessee, must be included as a lease payment. As discussed above, we adopted ASC 842 using a modified retrospective approach as of the adoption date of January 1, 2019. Accordingly, we are not required to report this revenue stream for periods prior to January 1, 2019.

(3)

In accordance with ASC 842 lease accounting guidance, we evaluated the collectibility of lease payments through maturity and determined that it was not probable that we would collect substantially all of the contractual obligations from Anthem, Thrive, Preferred Care and Senior Care leases through maturity. Decreased due to these leases being accounted for on cash-basis as of January 1, 2019.

(4)

During the first quarter of 2019, we terminated a lease agreement and transitioned two operating seniors housing communities under the lease agreement to a new operator. As a result of the lease termination, we wrote-off $1,926 straight-line rent receivable to contra-revenue in accordance with ASC 842.

Summary of investments acquired


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year ⁽¹⁾	Type of Property	Price		Costs ⁽²⁾		Costs		Properties	Beds/Units
2019	Assisted Living ⁽³⁾	$	16,719	$	176	$	16,895	1	74
	Land ⁽⁴⁾		110		26		136	—	—
Total		$	16,829	$	202	$	17,031	1	74

2018	Assisted Living ⁽⁵⁾	$	25,200	$	66	$	25,266	2	88
	Land ⁽⁶⁾		600		36		636	—	—
Total		$	25,800	$	102	$	25,902	2	88

(1)

Subsequent to June 30, 2019, we entered into a purchase and sale agreement for the acquisition of a newly constructed 90-bed skilled nursing center located in Missouri for approximately $19,500. Additionally, we entered into a separate purchase and sale agreement for the acquisition of a parcel of land and development of a 90-bed skilled nursing center in Missouri. The commitment totals approximately $18,400. These transactions are expected to close in the third quarter of 2019.

(2)

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.

(3)

We entered into a joint venture (“JV”) and we consolidated the JV on our financial statements, to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,971 in cash. Our economic interest in the real estate JV is approximately 95%.

(4)	We acquired a parcel of land adjacent to an existing SNF in California.

(5)	We acquired MCs in Texas.

(6)	We entered into a JV and we consolidated the JV on our financial statements, to own the real estate and develop a 78-unit ALF/MC in Medford, OR for $18,108 and committed to purchase an existing operational 89-unit ILF in Oregon. The ILF was acquired in the third quarter of 2018.

Schedule of investment in development and improvement projects

During the six months ended June 30, 2019 and 2018, we invested the following in development and improvement projects (in thousands):


	Six Months Ended June 30,
	2019				2018
Type of Property	Developments		Improvements		Developments			Improvements
Assisted Living Communities	$	8,520	$	893	$	14,653	$	1,048
Skilled Nursing Centers		4,492		—		3,970		500
Other		—		175		—		215
Total	$	13,012	$	1,068	$	18,623	$	1,763

Schedule of completed projects

Completed Developments. The following table summarizes our completed developments during the six months ended June 30, 2019 and 2018 (dollar amounts in thousands):


		Number	Type	Number
		of	of	of			Total
Year	Type of Project	Properties	Property	Beds/Units	State	Investment
2019	Development	1	SNF	143	Kentucky	$	24,493
	Development	1	ILF/ALF/MC	110	Wisconsin		21,872
Total		2		253		$	46,365

2018	Development	1	MC	66	Illinois	$	13,974
Total		1		66		$	13,974

Summary of properties held-for-sale

Type

Number

Gross

Accumulated

State

Property

Properties

Investment

Depreciation

Beds/units

Texas

ILF

5,746

1,916

140

Schedule of real estate investment property sold

Type

Number

Net

Sales

Carrying

Gain

Year

State

Properties

Beds

Price

Value

(Loss)

2019

n.a

—

500

⁽¹⁾

2018

Ohio and Pennsylvania

ALF

320

67,500

16,352

48,345

(1)	Gain recognized due to the receipt of funds held in escrow related to a portfolio of six ALFs sold during the second quarter of 2018.

Summary of investments in mortgage loans secured by first mortgages


				Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per
Interest Rate ⁽¹⁾	Maturity	Investment		Property	Investment		Loans ⁽²⁾	Properties ⁽³⁾	Beds	Bed/Unit
9.7%	2043	$	186,226	SNF	73.2	%	1	15	2,029	$	91.78
9.2%	2045		34,195	SNF	13.4	%	1	4	501	$	68.25
9.4%	2045		14,950	SNF	5.9	%	1	1	157	$	95.22
9.4%	2045		19,184	SNF	7.5	%	1	2	205	$	93.58
Total		$	254,555		100.0	%	4	22	2,892	$	88.02

(1)	The majority of the mortgage loans provide for annual increases in the interest rate after a certain time period based upon a specified increase of 2.25%.

(2)	Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year term.

(3)	The properties securing these mortgage loans are located in one state and are operated by one operator.

Schedule of mortgage loan activity

The following table summarizes our mortgage loan activity for the six months ended June 30, 2019 and 2018 (in thousands):


	Six Months Ended June 30,
	2019			2018
Originations and funding under mortgage loans receivable	$	9,736	⁽¹⁾	$	11,654	⁽²⁾
Pay-offs received		—			(1,086)
Scheduled principal payments received		(565)			(550)
Mortgage loan (premiums)		(2)			(2)
Provision for loan loss reserve		(92)			(100)
Net increase in mortgage loans receivable	$	9,077		$	9,916

(1)	During 2019, we funded an additional $7,500 under an existing mortgage loan. The incremental funding bears interest at 9.41%, fixed for two years, and escalating by 2.25% thereafter.

(2)	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.