Owned Properties. As of December 31, 2019, we owned 177 health care real estate properties located in 28 states and consisting of 106 ALFs, 70 SNFs and 1 behavioral health care hospital. These properties are operated by 30 operators.

Independent living communities, assisted 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

Depreciation expense on buildings and improvements, including properties classified as held-for-sale, was $39,094,000, $37,416,000, and $37,492,000 for the years ended December 31, 2019, 2018 and 2017, 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):

(1)

Represents contractual annual cash rent, except for two master leases which are based on agreed upon cash rents. See below for more information. Includes rental income due to lessee reimbursement of our real estate taxes and subsequent acquisitions and excludes properties held-for-sale at December 31, 2019.

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 memory care communities under a master lease. During 2019, Anthem paid the agreed upon minimum cash rent of $7,500,000. This amount represents approximately 50% of the contractual amount due under the lease in 2019. In accordance with Accounting Standard Codification (“ASC”) Topic 842, Leases (“ASC 842”), at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. 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. Senior Care did not pay us December 2018 rent and accordingly, in December 2018, we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balance related to Senior Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.

In July 2019, Senior Care filed a motion to affirm the lease, which caused us to file an objection in opposition to Senior Care’s motion. During the fourth quarter of 2019, the court rejected our motion and accordingly, our master lease with Senior Care was affirmed. Furthermore, we received the court ordered reimbursement from Senior Care for the December 2018 unpaid rent, late fees and legal costs totaling $1,596,000. Senior Care has paid us January 2019 to February 2020 rent, real estate property tax and maintenance deposits.

During 2017, Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. The affiliated entities named in the lawsuit operate properties in Kentucky and New Mexico. Preferred Care leased 24 properties under two master leases from us and none of the 24 properties are located in Kentucky or New Mexico. Those 24 properties are in Arizona, Colorado, Iowa, Kansas and Texas. The Preferred Care operating entities that sublease

those properties did not file for bankruptcy. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance. Preferred Care did not affirm our master leases and began paying only $55,000 of monthly rent in the third quarter of 2019. The monthly contractual obligation under the master leases was approximately $1,000,000. We applied all of their security deposit to rental income during the third quarter and recorded only the $55,000 monthly cash received in the fourth quarter of 2019 to rental income. During the fourth quarter of 2019, we entered into multiple contracts, subject to standard due diligence and other contingencies, to sell a majority of the properties. Two of these contracts were completed during the fourth quarter of 2019, resulting in the sale of two properties in Arizona and Texas. See Property Sales below for further discussion. At December 31, 2019, 20 of the properties under purchase and sale agreements met the criteria under GAAP as held-for-sale. Accordingly, these properties have been classified as held-for-sale at December 31, 2019.

During the three months ended March 31, 2019, we placed Thrive Senior Living, LLC (“Thrive”) on a cash basis due to short-payment of contractual rent in November 2018 and non-payment of rent in December 2018 totaling $700,000. Thrive subsequently paid the delinquent rent in 2019 but failed to pay 2019 contractual rent. In April 2019, we issued a notice of default to Thrive. In accordance with ASC 842 lease accounting guidance, at January 1, 2019, we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Thrive and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as of January 1, 2019, as required by the ASC 842 transition guidance.

During 2019, we completed the following for all of the properties in the Thrive portfolio. As of December 31, 2019, Thrive does not operate any properties in our portfolio:

●

Transitioned two memory care communities located in Ohio and Kentucky with a total of 120-units to an operator new to our portfolio during the second quarter of 2019. The memory care communities are under a 10-year lease term with initial cash rent of $1,250,000 in year one, $1,500,000 in year two, $1,975,000 in year three and $2,150,000 in year four. Rent may increase subject to a contingent escalation formula commencing in year five and annually thereafter. The lease provides the lessee with a purchase option available between 2028-2029;

●

Transitioned a 56-unit memory care community located in Texas to an existing operator and added the memory care community to an existing master lease during the second quarter of 2019. As a result of this transition, annual cash rent under the existing master lease was increased by $400,000 effective June 1, 2019 and will increase by an additional $300,000 on June 1, 2020 and 2.5% annually thereafter. Additionally, LTC will be entitled to incremental rent calculated as a percentage of increases in gross revenues generated by the property above an established threshold;

●

Transitioned two memory care communities in Georgia and South Carolina with a total of 159-units to an existing operator during the third quarter of 2019. The new 2-year lease agreement has an initial annual cash rent of $1,762,000. Rent increases 3.5% in year two; and

●

Transitioned the remaining 60-unit memory care community located in Florida to an existing operator effective August 1, 2019. The new 10-year lease provides the lessee twelve months free rent, rent of $450,000 in year two and $600,000 in year three and thereafter. In year two, the lessee has the option to defer rent in an amount not to exceed $150,000. Rent may increase subject to a contingent escalation formula commencing in year three and annually thereafter. Additionally, the lease provides the lessee with a purchase option available between 2028 and 2029. See below for a table that summarizes information about purchase options included in our lease agreements.

The following table summarizes components of our rental income for the years ended December 31, 2019, 2018 and 2017 (in thousands):


	Year Ended December 31,
Rental Income		2019			2018			2017
Base cash rental income	$	134,117	⁽¹⁾	$	127,477		$	128,715
Variable cash rental income		16,462	⁽²⁾		470	⁽²⁾		457	⁽²⁾
Straight-line rent		4,487	⁽³⁾		9,550			10,694
Adjustment for collectibility of rental income		(1,926)	⁽⁴⁾		—			—
Amortization of lease incentives		(385)			(2,092)			(2,209)
Total	$	152,755		$	135,405		$	137,657

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

(2)

The year ended December 31, 2019 variable rental income includes $464 related to contingent rental income and $15,998 related to 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 variable 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. For the year ended December 31, 2018, and 2017, the variable income represents contingent rental income.

(3)

In accordance with ASC 842 lease accounting guidance, we evaluated the collectibility of lease payments through maturity and determined 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.

Some of our lease agreements provide purchase options allowing the lessees to purchase the properties they currently lease from us. The following table summarizes information about purchase options included in our lease agreements (dollar amount in thousands):


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value	Window
California	ALF/MC	2	$	38,895	$	36,542	2024-2029
California	ALF	2		28,926		16,056	2021-TBD	⁽¹⁾
Florida	MC	1		14,201		12,757	2028-2029
Kentucky and Ohio	MC	2		30,126		27,859	2028-2029
Texas	MC	2		25,265		24,335	2025-2027
South Carolina	ALF/MC	1		11,680		10,794	2028-2029
Total			$	149,093	$	128,343

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

Acquisitions. The following table summarizes our acquisitions for the years ended December 31, 2019 through 2017. (dollar amounts in thousands):


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year ⁽¹⁾	Type of Property	Price		Costs ⁽²⁾		Costs		Properties	Beds/Units
2019	Assisted Living ⁽³⁾	$	35,719	$	315	$	36,034	3	230
	Skilled Nursing ⁽⁴⁾		19,500		97		19,597	1	90
	Land ⁽⁵⁾		2,732		51		2,783	—	—
Total		$	57,951	$	463	$	58,414	4	320

2018	Assisted Living ^{(6) (7)}	$	39,600	$	65	$	39,665	3	177
	Land ⁽⁷⁾		695		48		743	—	—
Total		$	40,295	$	113	$	40,408	3	177

2017	Assisted Living ⁽⁸⁾	$	81,018	$	569	$	81,587	5	400
	Land ⁽⁹⁾		800		18		818	—	—
Total		$	81,818	$	587	$	82,405	5	400

(1)	Subsequent to December 31, 2019, we acquired a 140-bed SNF located in Texas for approximately $13,500 million and entered into a 10-year master lease agreement with an initial cash yield of 8.5%, escalating 2% annually starting in the second year of the lease, with two five-year renewal options.

(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 Consolidated Statements of Income and Comprehensive Income represent current and prior year transaction costs due to timing and terminated transactions.

(3)

We entered into a JV (consolidated 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 $15,976 in cash. Our economic interest in the real estate JV is approximately 95%. See Note 10. Equity for further discussion related to our partnerships and non-controlling interests. Additionally, we acquired an 80-unit MC and a 76-unit ALF/MC in Michigan for an aggregate purchase price of $19,000.

(4)	We acquired a newly constructed 90-bed SNF located in Missouri.

(5)	We acquired a parcel of land adjacent to an existing SNF in California. Additionally, we acquired a parcel of land and committed to develop a 90-bed SNF in Missouri. The commitment totals approximately $17,400.

(6)	We acquired two MC in Texas.

(7)	We entered into a JV (consolidated on our financial statements) to purchase an existing operational 89-unit ILF for $14,400 and to own the real estate and develop a 78-unit ALF/MC for $18,108 in Oregon

(8)	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.

(9)	We entered into a JV for the acquisition of land and development of an ILF/ALF/MC community in Wisconsin.

For further discussion related to the JV transactions discussed above and our partnerships and non-controlling interests, see Note 10. Equity.

Developments and Improvements. During the years ended December 31, 2019, 2018 and 2017, we invested the following in development and improvement projects (in thousands):


	2019				2018				2017
Type of Property	Developments		Improvements		Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	14,088	$	2,544	$	27,505	$	2,292	$	17,667	$	1,152
Skilled Nursing Centers		6,436		—		7,774		500		5,234		1,356
Other		—		295		—		457		—		391
Total	$	20,524	$	2,839	$	35,279	$	3,249	$	22,901	$	2,899

Completed Projects. The following table summarizes our completed projects during the years ended December 31, 2019, 2018 and 2017 (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	$	24,974
	Development	1	ILF/ALF/MC	110	Wisconsin		21,999
Total		2		253		$	46,973

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

Properties held-for-sale. The following table summarizes our properties held-for-sale at years ended December 31, 2019 and 2018 (dollar amounts in thousands):


		Type	Number	Number
		of	of	of		Gross		Accumulated
At December 31,	State	Property	Properties	Beds/units		Investment		Depreciation
2019	Colorado	SNF	3	275	$	8,045	$	3,774
	Iowa	SNF	7	544		14,610		9,723
	Kansas	SNF	3	250		14,111		6,674
	Texas	SNF	7	1,148		25,203		14,942
Total			20	2,217	$	61,969	$	35,113

2018	Texas	ILF	1	140	$	5,746	$	1,916
Total			1	140	$	5,746	$	1,916

Property Sales. The following table summarizes property sales during the years ended December 31, 2019 through 2017 (dollar amounts in thousands):


		Type		Number	Number						Net
		of		of	of		Sales		Carrying		Gain
Year	State	Properties		Properties	Beds/Units		Price		Value		(Loss)
2019	N/A	N/A		—	—	$	—	$	—	$	500	⁽¹⁾
	Arizona, Georgia and Texas	SNF	⁽²⁾	3	478		15,310		8,995		5,556
	Texas	ALF	⁽³⁾	1	140		1		3,830		(3,950)
Total 2019				4	618	$	15,311	$	12,825	$	2,106

2018	Alabama	SNF		4	454	$	27,975	$	5,695	$	21,987
	Kansas	ALF	⁽⁴⁾	—	—		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	⁽⁵⁾	1	85		—		1,170		(1,171)
Total 2017				6	296	$	15,650	$	11,277	$	3,814

(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.

(2)

We sold a property, previously operated by Preferred Care, located in Texas with a carrying value of $871 for $140. Additionally, we sold a property, previously operated by Preferred Care, located in Arizona with a carrying value of $6,485 for $7,250. This transaction includes a holdback of $1,091 which is held in an interest-bearing account with an escrow holder on behalf of the buyer for potential specific losses. Using the expected value model per ASC 606, we estimated and recorded the holdback value of $613. Also, we sold a SNF located in Georgia with a carrying value of $1,639 for $7,920.

(3)	We sold an ALF located in Texas with a carrying value of $3,830.

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

(5)	We donated a SNF located in Texas, with a carrying value of $1,170 to a nonprofit health care provider.

Mortgage Loans. At December 31, 2019, the mortgage loans had interest rates ranging from 9.2% to 9.9% and maturities ranging from 2043 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees. Please see Item 1. Business—Portfolio for a table that summarizes our loaned properties as of December 31, 2019.

The following table summarizes our mortgage loan activity for the years ended December 31, 2019, 2018 and 2017 (in thousands):



	2019			2018			2017
Originations and funding under mortgage loans receivable	$	12,342	⁽¹⁾	$	21,364	⁽²⁾	$	11,913
Pay-offs received		—			(1,086)			(16,665)
Scheduled principal payments received		(1,065)			(1,050)			(1,198)
Mortgage loan premium amortization		(4)			(4)			(4)
(Provision for) recovery of loan loss reserve		(113)			(192)			60
Net increase (decrease) in mortgage loans receivable	$	11,160		$	19,032		$	(5,894)

(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. 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, 2019 and 2018 the carrying values of the mortgage loans were $254,099,000 and $242,939,000, respectively. Scheduled principal payments on mortgage loan receivables are as follows (in thousands):


	Scheduled
	Principal
2020	$	1,065
2021		1,175
2022		1,175
2023		1,175
2024		1,175
Thereafter		250,894
Total	$	256,659

The following table summarizes our early mortgage loan payoffs during the years 2019, 2018 and 2017 (dollar amounts in thousands):



		Early	Number
		Principal	of
		Payoff	Loans	State
2019	$	—	—	N/A
2018	$	1,086	1	UT
2017	$	10,795	4	AZ/MO/TX