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 or facilities, number of units, number of beds, number of operators 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.

Owned Properties. Our Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

Our leases that contain fixed annual rental escalations and/or have annual rental escalations that are contingent upon changes in the Consumer Price Index, are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.

The following table summarizes our investments in owned properties at March 31, 2020 (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	$	876,319	60.9	%	107	—	6,164	$	142.17
Skilled Nursing		543,814	37.8	%	50	6,283	212	$	83.73
Under Development ⁽²⁾		6,684	0.5	%	—	—	—		—
Other ⁽³⁾		11,360	0.8	%	1	118	—		—
Total	$	1,438,177	100.0	%	158	6,401	6,376

(1)	We own properties in 27 states that are leased to 29 different operators.

(2)	Represents a 90-bed SNF development project located in Missouri.

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

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):


	Cash
	Rent ⁽¹⁾
2020	$	101,584
2021		127,050
2022		128,250
2023		129,900
2024		126,374
Thereafter		625,531

(1)	Represents contractual cash rent, except for Anthem Memory Care (“Anthem”) lease which is based on cash rent received. See below for more information.

Anthem operates 11 operational memory care communities under a master lease and was placed in default in 2017 resulting from Anthem’s partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. We currently anticipate that Anthem will pay $9,900,000 of annual cash rent during 2020. However, COVID-19 may adversely impact Anthem’s operating cash flow and ability to pay rent. 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 Anthem 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.

Preferred Care, Inc. (“Preferred Care”) and affiliated entities filed for Chapter 11 bankruptcy in 2017 as a result of a multi-million-dollar judgment in a lawsuit in Kentucky against Preferred Care and certain affiliated entities. Preferred Care leased 24 properties (“Properties”) under two master leases from us and 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 subsequently filed for Chapter 7 bankruptcy in 2019. The monthly contractual obligation under the master leases was approximately $1,000,000, however, during the third quarter of 2019, Preferred Care began paying only $55,000 of monthly rent.

During the fourth quarter of 2019, we entered into multiple contracts to sell the Properties, all of which were completed during the first quarter of 2020. The combined net proceeds from the sales, including the 2019 transactions, was approximately $77,900,000 resulting in a total gain of approximately $44,000,000. The Properties had a combined net book value of $35,600,000. The 21 properties sold in the first quarter of 2020, which included 2,411 beds in Arizona, Colorado, Iowa, Kansas and Texas, were sold through multiple transactions and generated net proceeds of approximately $71,900,000. These 21 properties had a combined net book value of $29,100,000 and resulted in total gain on sale of $43,900,000 in the first quarter of 2020 which was recorded as Gain on sale of real estate, net in the consolidated statements of income and comprehensive income.

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 in December 2018. 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. During 2019, we received a court ordered reimbursement from Senior Care for the December 2018 unpaid rent, late fees and legal costs totaling $1,596,000. In March 2020, Senior Care emerged from bankruptcy and affirmed our master lease. Senior Care is current on all its rent, real estate property tax escrow and maintenance deposits.

The following table summarizes components of our rental income for the three months ended March 31, 2020 and 2019 (in thousands):


Rental Income		2020			2019
Base cash rental income	$	33,015		$	33,914
Variable cash rental income		4,282	⁽¹⁾		4,485	⁽¹⁾
Straight-line rent		839			1,238
Adjustment for collectibility of rental income		—			(1,926)	⁽²⁾
Amortization of lease incentives		(101)			(87)
Total	$	38,035		$	37,624

(1)

The variable rental income for the three months ended March 31, 2020, includes $60 related to contingent rental income and $4,222 related to our real estate taxes which were reimbursed by our operators. The variable rental income for the three months ended March 31, 2019 includes $150 related to contingent rental income and $4,335 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.

(2)

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	$	36,307	2024-2029
California	ALF	2		29,655		16,588	2021-TBD	⁽¹⁾
Florida	MC	1		14,201		12,670	2028-2029
Kentucky and Ohio	MC	2		30,152		27,698	2028-2029
Texas	MC	2		25,265		24,180	2025-2027
South Carolina	ALF/MC	1		11,680		10,648	2028-2029
Total			$	149,848	$	128,091

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

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and on March 13, 2020, the United States declared a national emergency with regard to COVID-19. As required by ASC 842, we assess the collectibility of our lease payments through maturity on a quarterly basis. At March 31, 2020, in conjunction with the rising levels of uncertainty related to the adverse effects of COVID-19, we assessed the probability of collecting substantially all of our lease payments through maturity and concluded that we did not have sufficient information available to evaluate the impact of COVID-19 on the collectibility of our lease payments. The extent to which COVID-19 could impact our operators and the collectibility of our future lease payments will depend on the future developments including the financial impact significance and the duration of the pandemic. We will continue to evaluate the collectibility of our lease payments through maturity on a quarterly basis, including the financial impact of COVID-19. If we determine that we do not have the level of collectibility certainty required by ASC 842 related to certain operators, all or a portion of our straight-line rent receivable and other lease receivables will be written-off. In recognition of the unique conditions affecting our operators, we have agreed to rent deferrals for certain operators totaling $772,000 for April 2020, of which $137,000 was returned back to us. The $772,000 April rent deferrals represent approximately 7% of our April contractual rent.

Acquisitions and Developments: The following table summarizes our acquisitions for the three months ended March 31, 2020 and 2019 (dollar amounts in thousands):


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year	Type of Property	Price		Costs ⁽¹⁾		Costs		Properties	Beds/Units
2020	Skilled Nursing ⁽²⁾	$	13,500	$	81	$	13,581	1	140

2019	Assisted Living ⁽³⁾	$	16,719	$	171	$	16,890	1	74

(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)	We acquired a SNF located in Texas.

(3)

We entered into a joint venture (“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 $15,971 in cash. Our economic interest in the real estate JV is approximately 95%.

During the three months ended March 31, 2020 and 2019, we invested the following in development and improvement projects (in thousands):


	2020				2019
Type of Property	Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	2,386	$	1,116	$	4,507	$	256
Skilled Nursing Centers		2,468		3		2,450		—
Other		—		—		—		3
Total	$	4,854	$	1,119	$	6,957	$	259

Completed Developments. The following table summarizes our completed developments during the three months ended March 31, 2020 and 2019 (dollar amounts in thousands):

Number

Type

Number

Total

Year

Type of Project

Properties

Property

Beds/Units

State

Investment

2020

Development ⁽¹⁾

ALF/MC

Oregon

16,341

2019

Development

SNF

143

Kentucky

24,974

(1)	Certificate of occupancy was received in March 2020, however, due to the COVID-19 pandemic, we have consented to delay the opening of this community to a later date to be determined.

Properties Sold. The following table summarizes property sales during the three months ended March 31, 2020 and 2019 (dollar amounts in thousands):


		Type		Number		Number
		of		of		of			Sales			Carrying			Net
Year	State	Properties		Properties		Beds/Units			Price			Value			Gain
2020	Arizona	SNF		1		194		$	12,550		$	2,229		$	10,293
	Colorado	SNF		3		275			15,000			4,271			10,365
	Iowa	SNF	⁽¹⁾	7		544			14,500			4,886			8,914
	Kansas	SNF		3		250			9,750			7,438			1,994
	Texas	SNF		7		1,148			23,000			10,260			12,288
Total 2020 ⁽²⁾				21	⁽²⁾	2,411	⁽²⁾	$	74,800	⁽²⁾	$	29,084	⁽²⁾	$	43,854	⁽²⁾

2019	N/A	N/A		—		—		$	—		$	—		$	—

(

(1)	This transaction includes a holdback of $838 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 Topic 606, Contracts with Customers, we estimated and recorded the holdback value of $471.

(2)	Properties sold within the Preferred Care portfolio.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 2020 (dollar amounts in thousands):


				Type	Percentage		Number of			Investment
		Gross		of	of				SNF	per
Interest Rate ⁽¹⁾	Maturity	Investment		Property	Investment		Loans ⁽²⁾	Properties ⁽³⁾	Beds	Bed/Unit
9.9%	2043	$	186,159	SNF	72.4	%	1	15	1,941	$	95.91
9.2%	2045		36,362	SNF	14.2	%	1	4	501	$	72.58
9.4%	2045		19,513	SNF	7.6	%	1	2	205	$	95.19
9.6%	2045		14,925	SNF	5.8	%	1	1	157	$	95.06
Total		$	256,959		100.0	%	4	22	2,804	$	91.64

(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.

The following table summarizes our mortgage loan activity for the three months ended March 31, 2020 and 2019 (in thousands):



	2020		2019
Originations and funding under mortgage loans receivable	$	366	$	1,454
Scheduled principal payments received		(65)		(65)
Mortgage loan premium amortization		(1)		—
Provision for loan loss reserve		(3)		(14)
Net increase in mortgage loans receivable	$	297	$	1,375