Loans Receivable

6 Months Ended

Jun. 30, 2020

The following table summarizes the Company’s loans receivable (in thousands):



	June 30, 2020			December 31, 2019
Secured mortgage loans⁽¹⁾	$	208,762		$	161,964
Mezzanine and other	58,405			27,752
Unamortized discounts, fees, and costs	722			863
Reserve for loan losses	(14,115		)	—
	$	253,774		$	190,579

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(1)	At June 30, 2020, the Company had $9 million remaining of commitments to fund $174 million of senior housing development and redevelopment projects. At December 31, 2019, the Company had $25 million remaining of commitments to fund $174 million of senior housing development and redevelopment projects.

2020 Loans Receivable Transactions

For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the previous residence. Upon completing the CCRC Acquisition (see Note 3) in January 2020, the Company began consolidating 13 CCRCs, which held approximately $30 million of such notes receivable from various community residents at the time of acquisition. At June 30, 2020, the Company held $27 million of such receivables.

Loans Receivable Internal Ratings

In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.

The following table summarizes, by year of origination, the Company’s internal ratings for loans receivables, net of reserves for loan losses, as of June 30, 2020 (dollars in thousands):



Investment Type	Year of Origination										Total
Investment Type	2020		2019		2018		2017		2016		Total
Secured mortgage loans
Risk rating:
Performing loans	$	36,037	$	53,826	$	—	$	112,248	$	—	$	202,111
Watch list loans	—		—		—		—		—		—
Workout loans	—		—		—		—		—		—
Total secured mortgage loans	$	36,037	$	53,826	$	—	$	112,248	$	—	$	202,111
Mezzanine and other
Risk rating:
Performing loans	$	17,860	$	19,684	$	—	$	7,898	$	6,221	$	51,663
Watch list loans	—		—		—		—		—		—
Workout loans	—		—		—		—		—		—
Total mezzanine and other	$	17,860	$	19,684	$	—	$	7,898	$	6,221	$	51,663

Reserve for Loan Losses

The Company evaluates the liquidity and creditworthiness of its borrowers on a quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The Company’s borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis, which the Company utilizes to calculate the debt service coverages used in its assessment of internal ratings, which is a primary credit quality indicator. Debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rates, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures.

In its assessment of credit losses for loans receivable and unfunded loan commitments, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each loan to estimate a probability of default and a resulting loss for each loan receivable. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends.

The following table summarizes the Company’s reserve for loan losses at June 30, 2020 (in thousands):



	June 30, 2020
	Secured Mortgage Loans		Mezzanine and Other		Total
Reserve for loan losses, December 31, 2019	$	—	$	—	$	—
Cumulative-effect of adopting of ASU 2016-13 to beginning retained earnings	513		907		1,420
Provision for expected loan losses	6,138		6,557		12,695
Reserve for loan losses, June 30, 2020	$	6,651	$	7,464	$	14,115

Additionally, at June 30, 2020, a liability of $1 million related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities.

Credit loss expenses and recoveries are recorded in impairments and loan loss reserves (recoveries), net. During the three and six months ended June 30, 2020, net credit loss expenses were $5 million and $13 million, respectively. The change in the provision for expected loan losses during the three and six months ended June 30, 2020 is primarily due to additional funding under existing loans, new loans funded, and the current and anticipated economic impact of COVID-19.