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. 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 majority of our leases contain provisions for specified annual increases over the rents of the prior year.

The following table summarizes our investments in owned properties at June 30, 2022 (dollar amounts in thousands):

(1)	We own properties in 26 states that are leased to 25 different operators.

(2)	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⁾
2022	$	57,820
2023		113,626
2024		93,786
2025		85,214
2026		68,753
Thereafter		269,038

(1)	Represents contractual cash rent, except for certain master leases which are based on estimated cash payments. Includes rent from subsequent acquisitions and excludes rent from subsequent dispositions. See Footnote 12 for more information.

We monitor the collectability of our receivable balances, including deferred rent receivable balances, on an ongoing basis. We write-off uncollectible operator receivable balances, including straight- line rent receivable and lease incentives balances, as a reduction to rental income in the period such balances are no longer probable of being collected. Therefore, recognition of rental income is limited to the lesser of the amount of cash collected or rental income reflected on a “straight-line” basis for those customer receivable balances deemed uncollectible. We wrote-off straight-line rent receivable and lease incentives balances of $173,000 and $758,000 for the six months ended June 30, 2022 and 2021, respectively.

We continue to take into account the current financial condition of our operators, including consideration of the impact of COVID-19, in our estimation of uncollectible accounts and deferred rents receivable at June 30, 2022. We are closely monitoring the collectability of such rents and will adjust future estimations as appropriate as further information becomes known.

The following table summarizes components of our rental income for the three and six months ended June 30, 2022 and 2021 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Rental Income		2022			2021			2022			2021
Base cash rental income	$	28,108	⁽¹⁾	$	26,410		$	55,023	⁽¹⁾	$	55,033
Variable cash rental income		4,019	⁽²⁾		3,529	⁽²⁾		8,058	⁽²⁾		7,067	⁽²⁾
Straight-line rent		(293)	⁽³⁾		(19)	⁽³⁾		(527)	⁽³⁾		663	⁽³⁾
Adjustment for collectability of rental income and lease incentives		—			—			(173)	⁽⁴⁾		(758)	⁽⁵⁾
Amortization of lease incentives		(206)			(116)			(429)			(228)
Total	$	31,628		$	29,804		$	61,952		$	61,777

(1)

Increased primarily due to a $1,181 lease termination fee received in connection with the sale of a 74-unit ALF, rent received from properties transitioned from the former Senior Care Centers, LLC (“Senior Care”) and Senior Lifestyle Corporation (“Senior Lifestyle”) portfolios and rental income from completed development projects and annual rent escalations.

(2)

The variable rental income for the three and six months ended June 30, 2022, includes reimbursement of real estate taxes by our lessees of $4,019 and $8,001, respectively and contingent rental income of $0 and $57, respectively. The variable rental income for the three and six months ended June 30, 2021, only includes reimbursement of real estate taxes by our lessees of $3,529 and $7,067. Increased primarily due to properties transitioned from Senior Care and new acquisitions.

(3)	Decreased primarily due to the impact of prior year’s 50% reduction of 2021 rent escalations for those leases accounted for on a straight-line basis.

(4)	Represents a lease incentive balance write-off related to a closed property and subsequent lease termination.

(5)	Represents a straight-line rent receivable write-off due to transitioning rental revenue recognition to cash basis for one lease in accordance with Accounting Standard Codification Topic 842, Leases.

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 amounts in thousands):


	Type	Number
	of	of		Gross		Carrying	Option
State	Property	Properties		Investments		Value	Window
California	ALF/MC	2	$	38,895	$	34,189	2024-2029
Florida	MC	1		15,201		12,728	2029
Kentucky and Ohio	MC	2		30,421		26,191	2025
Nebraska	ALF	3		7,633		3,067	TBD	⁽¹⁾
South Carolina	ALF/MC	1		11,680		9,341	2029
Texas	SNF	4		51,815		51,485	2027-2029	⁽²⁾
Total			$	155,645	$	137,001

(1)	Subject to the properties achieving certain coverage ratios.

(2)

During the second quarter of 2022, we purchased four skilled nursing centers and leased these properties under a 10-year lease with an existing operator. The lease provides either an earn-out payment or purchase option but not both. If neither option is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the earn-out see Footnote 8.

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. At June 30, 2022, in conjunction with the continued 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 collectability of our lease payments. The extent to which COVID-19 could impact our operators and the collectability of our future lease payments will depend on

the future developments including the financial impact significance, government support and subsidies and the duration of the pandemic.

In recognition of the pandemic’s ongoing impact affecting our operators, we have agreed to rent abatements totaling $1,891,000 and rent deferrals for certain operators totaling $1,987,000, net of repayments of $124,000, during the six months ended June 30, 2022. The $3,878,000 in rent abatements and deferrals, net of repayments during the six months ended June 30, 2022, represented approximately 5.2% of our contractual rent for the six months ended June 30, 2022.

Acquisitions and Improvements: The following table summarizes our acquisitions for the six months ended June 30, 2022 and 2021 (dollar amounts in thousands):


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year	Type of Property	Price		Costs		Costs		Properties	Beds/Units
2022	SNF ⁽¹⁾	$	51,534	$	281	$	51,815	4	339

2021	n/a	$	—	$	—	$	—	—	—

(1)

The properties are located in Texas and are leased to an affiliate of an existing operator under a 10-year lease with two 5-year renewal options. Additionally, the lease provides either an earn-out payment or purchase option but not both. If neither option is elected within the timeframe defined in the lease, both elections are terminated. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. The purchase option is available beginning in the sixth lease year through the end of the seventh lease year. The initial cash yield is 8% for the first year, increasing to 8.25% for the second year, then increases annually by 2.0% to 4.0% based on the change in the Medicare Market Basket Rate. In connection with the transaction, we provided the lessee a 10-year working capital loan for up to $2,000, of which $1,867 has been funded, at 8% for first year, increasing to 8.25% for the second year, then increasing annually with the lease rate.

During the six months ended June 30, 2022 and 2021, we invested the following in improvement projects (in thousands):



Type of Property		2022		2021
Assisted Living Communities	$	1,964	$	2,046
Skilled Nursing Centers		620		—
Other		321		—
Total	$	2,905	$	2,046

Properties Sold. The following table summarizes property sales during the six months ended June 30, 2022 and 2021 (dollar amounts in thousands):


		Type	Number	Number
		of	of	of		Sales		Carrying		Net
Year	State	Properties	Properties	Beds/Units		Price		Value		Gain (loss)⁽¹⁾
2022	California	ALF	2	232	$	43,715	$	17,832	$	25,867
	California	SNF	1	121		13,250		1,846		10,849
	Virginia	ALF	1	74		16,895		15,549		1,336	⁽²⁾
	n/a	n/a	—	—		—		—		144	⁽³⁾
Total 2022			4	427	$	73,860	$	35,227	$	38,196

2021	Florida	ALF	1	—	$	2,000	$	2,625	$	(858)
	Nebraska	ALF	1	40		900		1,079		(205)
	Wisconsin	ALF	3	263		35,000		28,295		5,594
	n/a	n/a	—	—		—		—		159	⁽³⁾
Total 2021			5	303	$	37,900	$	31,999	$	4,690

(

(1)	Calculation of net gain (loss) includes cost of sales.

(2)	In connection with this sale, the former operator paid us a lease termination fee of $1,181 which is not included in the gain on sale.

(3)	We recognized additional gain due to the reassessment adjustment of the holdbacks related to properties sold during 2019 and 2020, under the expected value model per Accounting Standard Codification (“ASC”) Topic 606, Contracts with Customers (“ASC 606”).

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at June 30, 2022 (dollar amounts in thousands):


					Type	Percentage		Number of					Investment
			Gross		of	of					SNF	ALF	per
Interest Rate	Maturity	State	Investment		Property	Investment		Loans ⁽¹⁾	Properties ⁽²⁾		Beds	Units	Bed/Unit
7.5%	2022	MO	$	1,780	OTH	0.5	%	1	—	⁽³⁾	—	—	$	n/a
7.5%	2024	LA		27,347	SNF	7.1	%	1	1		189	—	$	144.69
7.8%	2025	FL		12,779	ALF	3.3	%	1	1		—	68	$	187.93
7.3% ⁽⁴⁾	2025	NC/SC		50,889	ALF	13.3	%	1	13		—	523	$	97.30
7.3%	2026	NC		31,539	ALF	8.2	%	1	4		—	217	$	145.34
7.3%	2026	NC		766	OTH	0.2	%	1	—	⁽⁵⁾	—	—	$	—
10.4% ⁽⁶⁾	2043	MI		184,854	SNF	48.2	%	1	15		1,875	—	$	98.59
9.5% ⁽⁶⁾	2045	MI		39,068	SNF	10.2	%	1	4		501	—	$	77.98
9.8%⁽⁶⁾	2045	MI		19,750	SNF	5.1	%	1	2		205	—	$	96.34
10% ⁽⁶⁾	2045	MI		14,875	SNF	3.9	%	1	1		146	—	$	101.88
Total			$	383,647		100.0	%	10	41		2,916	808	$	103.02

(1)	Some loans contain certain guarantees and provide for certain facility fees.

(2)	Our mortgage loans are secured by properties located in six states with five borrowers.

(3)	Represents a mortgage loan secured by a parcel of land for the future development of a 91-bed post-acute SNF.

(4)	Represents the initial rate. This loan has an IRR of 8%.

(5)	Represents a mortgage loan secured by a parcel of land in North Carolina held for future development of a seniors housing community.

(6)	Mortgage loans provide for 2.25% annual increases in the interest rate after a certain time period.

The following table summarizes our mortgage loan activity for the six months ended June 30, 2022 and 2021 (in thousands):


	Six Months Ended June 30,
	2022			2021
Originations and funding under mortgage loans receivable	$	33,910	⁽¹⁾	$	426
Application of interest reserve		2,451			—
Scheduled principal payments received		(625)			(625)
Mortgage loan premium amortization		(3)			(3)
(Provision) recovery for loan loss reserve		(358)			2
Net increase (decrease) in mortgage loans receivable	$	35,375		$	(200)

(1)

We originated two senior mortgage loans, secured by four ALFs operated by an existing operator, as well as a land parcel in North Carolina. The communities have a combined total of 217 units, with an average age of less than four years. The land parcel is approximately 7.6 acres adjacent to one of the ALFs and is being held for the future development of a seniors housing community. The mortgage loans have a four-year term, an interest rate of 7.25% and an IRR of 8%.

We apply ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and the “expected loss” model to estimate our loan losses on our mortgage loans and notes receivable. In determining the expected losses on these receivables, we utilize the probability of default and discounted cash flow methods. Further, we stress-test the results to reflect the impact of unknown adverse future events including recessions.

As of June 30, 2022, the accrued interest receivable of $42,713,000 was not included in the measurement of expected credit losses on the mortgage loan receivable and notes receivable (see Note 4). We elected not to measure an allowance for expected credit losses on the related accrued interest receivable using the expected credit loss standard. Rather, we have elected to write-off accrued interest receivable by reversing interest income and/or recognizing credit loss expense as incurred. We review the collectability of the accrued interest receivable quarterly as part of our review of the mortgage loan or notes receivables including the performance of the underlying collateral and net worth of the borrower. For the six months ended June 30, 2022 and 2021, the Company did not write-off any accrued interest receivable.