Real Estate Investments (Tables)

9 Months Ended

Sep. 30, 2022

Summary of investments in owned properties

The following table summarizes our investments in owned properties at September 30, 2022 (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	$	797,426	56.6	%	99	—	5,497	$	145.07
Skilled Nursing		599,058	42.5	%	52	6,348	236	$	90.99
Other ⁽²⁾		11,918	0.9	%	1	118	—		—
Total	$	1,408,402	100.0	%	152	6,466	5,733

(1)	We own properties in 26 states that are leased to 24 different operators.

(2)	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):


	Cash
	Rent ⁽¹⁾
2022	$	31,970
2023		114,037
2024		94,257
2025		85,460
2026		68,784
Thereafter		263,280

(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 Note 12. Subsequent Events for more information.

Summary of components of our rental income

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Rental Income		2022			2021			2022			2021
Base cash rental income	$	28,180	⁽¹⁾	$	25,934	⁽¹⁾	$	83,203	⁽²⁾	$	80,967	⁽²⁾
Variable cash rental income		4,160	⁽³⁾		3,588	⁽³⁾		12,218	⁽³⁾		10,655	⁽³⁾
Straight-line rent		(436)	⁽⁴⁾		(44)	⁽⁴⁾		(963)	⁽⁵⁾		619	⁽⁵⁾
Adjustment for lease incentives and rental income		(83)	⁽⁶⁾		—			(256)	⁽⁷⁾		(758)	⁽⁸⁾
Amortization of lease incentives		(236)			(158)			(665)			(386)
Total	$	31,585		$	29,320		$	93,537		$	91,097

(1)	Increased primarily due to 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 acquisitions, completed development projects and annual rent escalations.

(2)	Increased primarily due to (1) above. Also relates to a $1,181 lease termination fee received in connection with the sale of a 74-unit ALF.

(3)

The variable rental income for the three and nine months ended September 30, 2022, primarily includes reimbursement of real estate taxes by our lessees of $4,160 and $12,161, respectively. The variable rental income for the three and nine months ended September 30, 2021, only includes reimbursement of real estate taxes by our lessees of $3,588 and $10,655. Increases primarily due to properties transitioned from Senior Care and new acquisitions partially offset by properties sold.

(4)	Decreased primarily due to a deferred rent repayment and normal amortization.

(5)	Decreased primarily due to (4) above. Also relates to the impact of prior year’s 50% reduction of 2021 rent escalations for those leases accounted for on a straight-line basis.

(6)	Represents lease incentive balance write-off related to two properties that were transitioned to another operator in our portfolio.

(7)	Represents a lease incentive balance write-off related to a closed property and subsequent lease termination and (6) above.

(8)	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.

Summary of information about purchase options included in our lease agreements

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	$	33,954	2023-2029
Florida	MC	1		15,201		12,614	2029
Florida	SNF	3		76,267		76,267	2025-2027	⁽¹⁾
Nebraska	ALF	3		7,633		3,008	TBD	⁽²⁾
South Carolina	ALF/MC	1		11,680		9,197	2029
Texas	SNF	4		51,816		51,157	2027-2029	⁽³⁾
Total			$	201,492	$	186,197

(1)	During the third quarter of 2022, we entered into a joint venture (“JV”) to purchase three skilled nursing centers. The JV leased the properties under a 10-year master lease. For more information regarding this transaction see Financing Receivable below.

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

(3)

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 the operator to elect either an earn-out payment or purchase option. If neither option is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the earn-out see Note 8. Commitments and Contingencies.

Schedule of properties held-for-sale

Type

Number

Gross

Accumulated

State

Property

Properties

Beds/units

Investment

Depreciation

ALF

13,015

2,305

Summary of acquisitions

Total

Number

Purchase

Transaction

Acquisition

Year

Type of Property

Price

Costs

Properties

Beds/Units

2022

SNF

51,534

281

51,815

339

We accounted for the above acquisition as an asset acquisition. 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 the operator to elect either an earn-out payment or purchase option. 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.

Schedule of improvement projects

During the nine months ended September 30, 2022 and 2021, we invested the following developments and improvements projects (in thousands):



Type of Property		2022				2021
	Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	105	$	3,015	$	—	$	4,560
Skilled Nursing Centers		—		981		—		279
Other		—		559		—		—
Total	$	105	$	4,555	$	—	$	4,839

Schedule of property sold


		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		10,846
	Texas	SNF	1	—		485		697		(434)
	Virginia	ALF	1	74		16,895		15,549		1,344	⁽²⁾
	n/a	n/a	—	—		—		—		186	⁽³⁾
Total 2022			5	427	$	74,345	$	35,924	$	37,809

2021	Florida	ALF	1	—	$	2,000	$	2,626	$	(858)
	Nebraska	ALF	1	40		900		1,079		(198)
	Washington	SNF	1	123		7,700		4,528		2,562
	Wisconsin	ALF	3	263		35,000		28,295		5,594
	n/a	n/a	—	—		—		—		292	⁽³⁾
Total 2021			6	426	$	45,600	$	36,528	$	7,392

(

(1)	Calculation of net gain (loss) includes cost of sales and write-off of straight-line receivable and lease incentives, when applicable.

(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 ASC Topic 606, Contracts with Customers (“ASC 606”).

Summary of investments in mortgage loans secured by first mortgages

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 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%	2023	MO	$	1,886	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		13,123	ALF	3.4	%	1	1		—	68	$	192.99
7.3% ⁽⁴⁾	2025	NC/SC		52,812	ALF	13.6	%	1	13		—	523	$	100.98
7.3%	2026	NC		32,373	ALF	8.4	%	1	4		—	217	$	149.18
7.3%	2026	NC		782	OTH	0.2	%	1	—	⁽⁵⁾	—	—	$	n/a
10.4% ⁽⁶⁾	2043	MI		184,854	SNF	47.8	%	1	15		1,875	—	$	98.59
9.5% ⁽⁶⁾	2045	MI		39,066	SNF	10.1	%	1	4		501	—	$	77.98
9.9%⁽⁶⁾	2045	MI		19,750	SNF	5.1	%	1	2		205	—	$	96.34
10% ⁽⁶⁾	2045	MI		14,875	SNF	3.8	%	1	1		146	—	$	101.88
Total			$	386,868		100.0	%	10	41		2,916	808	$	103.89

(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.

Schedule of mortgage loan activity

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


	Nine Months Ended September 30,
	2022			2021
Originations and funding under mortgage loans receivable	$	35,234	⁽¹⁾	$	2,223
Application of interest reserve		4,348			—
Scheduled principal payments received		(625)			(625)
Mortgage loan premium amortization		(4)			(4)
(Provision) recovery for loan loss reserve		(389)			(16)
Net increase in mortgage loans receivable	$	38,564		$	1,578

(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%.