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Real Estate Investments | 6 Months Ended
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Jun. 30, 2021
Real Estate Investments |
Real Estate Investments |
2. | Real Estate Investments
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: (i)a specified percentage increase over the prior year’s rent, generally between 2.0% and 2.5%; (ii)a calculation based on the Consumer Price Index; (iii)as a percentage of facility net patient revenues in excess of base amounts; or (iv)specific dollar increases. 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 June 30, 2021 (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 | ​ | $ | 840,502 | ​ | 59.5 | % | 102 | ​ | — | ​ | 5,799 | ​ | $ | 144.94 | ​
Skilled Nursing | ​ | ​ | 560,467 | ​ | 39.7 | % | 51 | ​ | 6,277 | ​ | 212 | ​ | $ | 86.37 | ​
Other (2) | ​ | ​ | 11,360 | ​ | 0.8 | % | 1 | ​ | 118 | ​ | — | ​ | ​ | — | ​
Total | ​ | $ | 1,412,329 | ​ | 100.0 | % | 154 | ​ | 6,395 | ​ | 6,011 | ​ | ​ | ​ | ​
(1) | We own properties in 27 states that are leased to 31 different operators.
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(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) |
July-December 2021 | ​ | $ | 62,347 | ​
2022 | ​ |  | 132,240 | ​
2023 | ​ |  | 117,928 | ​
2024 | ​ |  | 119,292 | ​
2025 | ​ |  | 102,843 | ​
Thereafter | ​ |  | 412,942 | ​
(1) | Represents contractual cash rent, except for certain master leases which are based on estimated cash payments and the Senior Lifestyle Corporation master lease.
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. As of June 30, 2021, we have 18 operators that are being accounted for on a “cash-basis” representing approximately 51% of our rental income for the three months ended June 30, 2021. We wrote-off straight-line rent receivable and lease incentives balances of $758,000 and $17,742,000 for the six months ended June 30, 2021 and 2020, 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 our uncollectible accounts and deferred rents receivable at June 30, 2021. 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, 2021 and 2020 (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Six Months Ended | ​
​ | ​ | June 30, | ​ | June 30, | ​
Rental Income | ​ | ​ | 2021 | ​ | ​ | 2020 | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Base cash rental income | ​ | $ | 26,410 | (1) | $ | 33,336 | ​ | $ | 55,033 | (1) | $ | 66,351 | ​
Variable cash rental income | ​ | ​ | 3,529 | (2) | ​ | 4,155 | (2) | ​ | 7,067 | (2) | ​ | 8,437 | (2)
Straight-line rent | ​ | ​ | (19) | (3) | ​ | 634 | (3) | ​ | 663 | (3) | ​ | 1,473 | (3)
Adjustment for collectability of rental income and lease incentives | ​ | ​ | — | ​ | ​ | (17,742) | (4) | ​ | (758) | (4) | ​ | (17,742) | (4)
Amortization of lease incentives | ​ | ​ | (116) | ​ | ​ | (108) | ​ | ​ | (228) | ​ | ​ | (209) | ​
Total | ​ | $ | 29,804 | ​ | $ | 20,275 | ​ | $ | 61,777 | ​ | $ | 58,310 | ​
(1) | Decreased primarily due to non-payment of rent collected from Senior Lifestyle Corporation (“Senior Lifestyle”), Senior Care Centers, LLC (“Senior Care”) and Abri Health Services, LLC (“Abri Health”) unpaid lease obligations and abated and deferred rent partially offset by increased rent from completion of development projects and contractual rent increases.
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(2) | The variable rental income for the three and six months ended June 30, 2021, includes reimbursement of real estate taxes by our lessees of $3,529 and $7,067, respectively. The variable rental income for the three and six months ended June 30, 2020 includes contingent rental income of $44 and $104, respectively and reimbursement of real estate taxes by our lessees of $4,111 and $8,333, respectively.
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(3) | Decreased due to more leases accounted for on a cash basis and normal amortization.
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(4) | Represents straight-line rent receivable and lease incentives write-offs.
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 | ​ | $ | 35,130 | ​ | 2024-2029 | ​
California | ​ | ALF | ​ | 2 | ​ | ​ | 31,577 | ​ | ​ | 17,323 | ​ | 2021-TBD | (1)
Colorado | ​ | ALF | ​ | 1 | ​ | ​ | 6,764 | ​ | ​ | 5,418 | ​ | 2022-2026 | ​
Florida | ​ | MC | ​ | 1 | ​ | ​ | 15,173 | ​ | ​ | 13,153 | ​ | 2028-2029 | ​
Kentucky and Ohio | ​ | MC | ​ | 2 | ​ | ​ | 30,342 | ​ | ​ | 26,918 | ​ | 2028-2029 | ​
Texas | ​ | MC | ​ | 2 | ​ | ​ | 25,265 | ​ | ​ | 23,405 | ​ | 2021-2027 | ​
South Carolina | ​ | ALF/MC | ​ | 1 | ​ | ​ | 11,680 | ​ | ​ | 9,922 | ​ | 2028-2029 | ​
Total | ​ | ​ | ​ | ​ | ​ | $ | 159,696 | ​ | $ | 131,269 | ​ | ​ | ​
(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. At June 30, 2021, 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 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, government support and subsidies and the duration of the pandemic. In recognition of the pandemic impact affecting our operators, we have agreed to rent abatements totaling $1,669,000 and rent deferrals, net of repayments, for certain operators totaling $2,243,000 during the six months ended June 30, 2021. The $3,912,000 in rent abatements and deferrals, net of repayments, during the six months ended June 30, 2021, represented approximately 4.8% of our contractual rent for the six months ended June 30, 2021. Additionally, we reduced 2021 rent and interest escalations by 50% to support eligible operators during the continuing COVID-19 crisis. The rent and interest escalation reductions were given in the form of a rent and interest credit in recognition of operators’ increased costs due to COVID-19. We have elected to recognize the rent credits given to the eligible operators where we accrue rent on a straight-line basis over the remaining life of those respective leases. During the six months ended June 30, 2021, we recognized a decrease of $462,000 of GAAP revenue and $1,337,000 of cash revenue. Acquisitions and Developments: The following table summarizes our acquisitions for the six months ended June 30, 2021 and 2020 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Total | ​ | Number | ​ | Number
​ | ​ | ​ | ​ | Purchase | ​ | Transaction | ​ | Acquisition | ​ | of | ​ | of
Year | ​ | Type of Property | ​ | Price | ​ | Costs | ​ | Costs | ​ | Properties | ​ | Beds/Units
2021 | ​ | n/a | ​ | $ | — | ​ | $ | — | ​ | $ | — |  | — | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
2020 | ​ | Skilled Nursing (1) | ​ | $ | 13,500 | ​ | $ | 81 | ​ | $ | 13,581 | ​ | 1 | ​ | 140
(1) | We acquired a SNF located in Texas.
During the six months ended June 30, 2021 and 2020, we invested the following in development and improvement projects (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six Months Ended June 30,
​ | ​ | 2021 | ​ | 2020
Type of Property | ​ | Developments | ​ | Improvements | ​ | ​ | Developments | ​ | Improvements | ​
Assisted Living Communities | ​ | $ | — | ​ | $ | 2,046 | ​ | ​ | $ | 4,487 | ​ | $ | 3,039 | ​
Skilled Nursing Centers | ​ | ​ | — | ​ | ​ | — | ​ | ​ | ​ | 5,861 | ​ | ​ | 14 | ​
Total | ​ | $ | — | ​ | $ | 2,046 | ​ | ​ | $ | 10,348 | ​ | $ | 3,053 | ​
​ Completed Developments. We had no completed developments during the six months ended June 30, 2021. The following table summarized our completed developments during the six months ended June 30, 2020 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Number | ​ | Type | ​ | Number | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | of | ​ | of | ​ | of | ​ | ​ | ​ | ​ | Total
Year | ​ | Type of Project | ​ | Properties | ​ | Property | ​ | Beds/Units | ​ | State | ​ | Investment
2020 | ​ | Development | ​ | 1 | ​ | ALF/MC | ​ | 78 | ​ | Oregon | ​ | $ | 18,443
​ Properties Sold. The following table summarizes property sales during the six months ended June 30, 2021 and 2020 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Type | ​ | Number | ​ | Number | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | of | ​ | of | ​ | of | ​ | ​ | Sales | ​ | ​ | Carrying | ​ | ​ | Net | ​
Year | ​ | State (1) | ​ | Properties | ​ | Properties | ​ | Beds/Units | ​ | ​ | Price | ​ | ​ | Value | ​ | ​ | (Loss) gain (2) | ​
2021 | ​ | n/a | ​ | n/a | ​ | — | ​ | — | ​ | $ | — | ​ | $ | — | ​ | $ | 159 | (3) (4)
​ | ​ | 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 | ​
Total 2021 | ​ | ​ | ​ | ​ | ​ | 5 | ​ | 303 | ​ | $ | 37,900 | ​ | $ | 31,999 | ​ | $ | 4,690 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
2020 | ​ | n/a | ​ | n/a | ​ | — | ​ | — | ​ | $ | — | ​ | $ | — | ​ | $ | 102 | (3) (4)
​ | ​ | Arizona | ​ | SNF | ​ | 1 | ​ | 194 | ​ | ​ | 12,550 | ​ | ​ | 2,229 | ​ | ​ | 10,292 | ​
​ | ​ | Colorado | ​ | SNF | ​ | 3 | ​ | 275 | ​ | ​ | 15,000 | ​ | ​ | 4,271 | ​ | ​ | 10,364 | ​
​ | ​ | Iowa | ​ | SNF | (4) | 7 | ​ | 544 | ​ | ​ | 14,500 | ​ | ​ | 4,886 | ​ | ​ | 9,005 | ​
​ | ​ | Kansas | ​ | SNF | ​ | 3 | ​ | 250 | ​ | ​ | 9,750 | ​ | ​ | 7,438 | ​ | ​ | 1,993 | ​
​ | ​ | Texas | ​ | SNF | ​ | 7 | ​ | 1,148 | ​ | ​ | 23,000 | ​ | ​ | 10,260 | ​ | ​ | 12,287 | ​
Total 2020 | ​ | ​ | ​ | ​ | ​ | 21 | ​ | 2,411 | ​ | $ | 74,800 | ​ | $ | 29,084 | ​ | $ | 44,043 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(
(1) | Subsequent to June 30, 2021, we sold a 123-bed SNF in Washington for $7,700. We received proceeds of $7,200 and expect to recognize a gain on sale of $2,600.
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(2) | Calculation of net (loss) gain includes cost of sales.
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(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”).
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(4) | One of the transactions 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. During 2020, we received $150 of the holdback. The remaining holdback expires in March 2022. Using the expected value model per ASC 606, we estimated and recorded the holdback value of $471 at closing.
​ Properties held-for-sale. The following table summarizes our properties held-for-sale at June 30, 2021 and December 31, 2020 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Type | ​ | Number | ​ | Number | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | of | ​ | of | ​ | of | ​ | ​ | Gross | ​ | ​ | Accumulated | ​
​ | ​ | State | ​ | Property | ​ | Properties | ​ | Beds/units | ​ | ​ | Investment | ​ | ​ | Depreciation | ​
2021 (1) | ​ | WA | ​ | SNF | ​ | 1 | ​ | 123 | ​ | $ | 8,024 | ​ | $ | 3,512 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
2020 | ​ | n/a | ​ | n/a | ​ | — | ​ | — | ​ | $ | — | ​ | $ | — | ​
(1) | Subsequent to June 30, 2021, we sold this SNF for $7,700. We received proceeds of $7,200 and expect to recognize a gain on sale of $2,600.
​ Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at June 30, 2021 (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
10.1% | ​ | 2043 | ​ | $ | 185,861 | ​ | SNF | ​ | 71.6 | % | 1 | ​ | 15 | ​ | 1,887 | ​ | $ | 98.50
9.3% | ​ | 2045 | ​ | ​ | 39,130 | ​ | SNF | ​ | 15.1 | % | 1 | ​ | 4 | ​ | 501 | ​ | $ | 78.10
9.6% | ​ | 2045 | ​ |  | 19,750 | ​ | SNF | ​ | 7.6 | % | 1 | ​ | 2 | ​ | 205 | ​ | $ | 96.34
9.6% | ​ | 2045 | ​ | ​ | 14,900 | ​ | SNF | ​ | 5.7 | % | 1 | ​ | 1 | ​ | 146 | ​ | $ | 102.05
Total | ​ | ​ | ​ | $ | 259,641 | ​ | ​ | ​ | 100.0 | % | 4 | ​ | 22 | ​ | 2,739 | ​ | $ | 94.79
(1) | The majority of the mortgage loans provide for annual increases in the interest rate after a certain time period increasing by 2.25%.
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(2) | Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year term.
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(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 six months ended June 30, 2021 and 2020 (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six Months Ended June 30, | ​
​ | ​ | 2021 | ​ | 2020 | ​
Originations and funding under mortgage loans receivable | ​ | $ | 426 | ​ | $ | 2,557 | ​
Scheduled principal payments received | ​ | ​ | (625) | ​ | ​ | (565) | ​
Mortgage loan premium amortization | ​ | ​ | (3) | ​ | ​ | (2) | ​
Provision for loan loss reserve | ​ | ​ | 2 | ​ | ​ | (20) | ​
Net (decrease) increase in mortgage loans receivable | ​ | $ | (200) | ​ | $ | 1,970 | ​
​ 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, 2021, the accrued interest receivable of $35,977,000 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. For the six months ended June 30, 2021 and 2020, the Company did not write-off any accrued interest receivable. ​

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- Definition The entire disclosure for real estate owned (as defined). Generally, the largest component of real estate owned by lenders is assets taken in settlement of troubled loans through surrender or foreclosure. Real estate investments, real estate loans that qualify as investments in real estate, and premises that are no longer used in operations may also be included in real estate owned. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=121593590&loc=d3e4437-111522 + Details
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