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 March 31, 2022 (dollar amounts in thousands):

(1)	We own properties in 26 states that are leased to 28 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	$	85,484
2023		101,561
2024		96,676
2025		88,161
2026		71,761
Thereafter		276,323

(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 three months ended March 31, 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 March 31, 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 months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended
	March 31,
Rental Income		2022			2021
Base cash rental income	$	26,915	⁽¹⁾	$	28,623
Variable cash rental income		4,039	⁽²⁾		3,538	⁽²⁾
Straight-line rent		(234)	⁽³⁾		682	⁽³⁾
Adjustment for collectability of rental income and lease incentives		(173)	⁽⁴⁾		(758)	⁽⁵⁾
Amortization of lease incentives		(223)			(112)
Total	$	30,324		$	31,973

(1)

Decreased primarily due to Senior Care and Abri Health portfolio transitions, abated and deferred rent, and reduced income from a sold SNF in Washington. The decrease was partially offset by rent increase increases from properties transitioned from Senior Lifestyle, the one-time 50% reduction of 2021 rent escalations provided to the majority of our operating partners, and increases from completed projects, annual rent escalations and capital improvement fundings.

(2)

The variable rental income for the three months ended March 31, 2022, includes reimbursement of real estate taxes by our lessees of $3,982 and contingent rental income of $57. The variable rental income for the three months ended March 31, 2021, only includes reimbursement of real estate taxes by our lessees of $3,538. Increased primarily due to properties transitioned from Senior Lifestyle.

(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	$	34,425	2024-2029
California	ALF	2		31,814		16,765	2022-2023	⁽¹⁾
Florida	MC	1		15,201		12,842	2029
Kentucky and Ohio	MC	2		30,421		26,393	2025
Nebraska	ALF	3		7,633		3,128	TBD	⁽²⁾
South Carolina	ALF/MC	1		11,680		9,486	2029
Total			$	135,644	$	103,039

(1)

The option window ending date will be either 24 months or 48 months after the option window commences, based on certain contingencies. During the three months ended March 31, 2022, the current operator exercised the purchase option under their lease to buy both properties for approximately $43,700. The exercise of the option does not legally obligate the operator to complete the acquisition of the properties. We currently expect to complete the sale in the second quarter of 2022.

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

(3)

Subsequent to March 31, 2022, we purchased four skilled nursing centers for $51,534 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. The purchase option is available at the end of the fifth lease year through the end of the seventh lease year. 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 March 31, 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 $720,000 and rent deferrals for certain operators totaling $1,295,000 during the three months ended March 31, 2022. The $2,015,000 in rent abatements and deferrals during the three months ended March 31, 2022, represented approximately 5.4% of our contractual rent for the three months ended March 31, 2022.

Acquisitions and Developments: We had no acquisitions during the three months ended March 31, 2022 and 2021. Subsequent to March 31, 2022, we acquired four skilled nursing centers for $51,534,000. The properties, which are located in Texas, have a combined total of 339 beds primarily in private rooms and will be operated by 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 at the end of the fifth 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 conjunction with the transaction, we provided the lessee a 10-year working capital loan for up to $2,000,000, of which $1,867,000 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 three months ended March 31, 2022 and 2021, we invested the following in development and improvement projects (in thousands):


	Three Months Ended March 31,
	2022				2021
Type of Property	Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	—	$	694	$	—	$	1,044
Skilled Nursing Centers		—		177		—		—
Other		—		197		—		—
Total	$	—	$	1,068	$	—	$	1,044

Properties Sold. The following table summarizes property sales during the three months ended March 31, 2022 and 2021 (dollar amounts in thousands):


		Type	Number	Number
		of	of	of		Sales		Carrying		Net
Year ⁽¹⁾	State	Properties	Properties	Beds/Units		Price		Value		Gain (loss)⁽²⁾
2022	n/a	n/a	—	—	$	—	$	—	$	102	⁽³⁾

2021	Florida	ALF	1	—	$	2,000	$	2,625	$	(861)
	n/a	n/a	—	—		—		—		88	⁽³⁾
Total 2021			1	—	$	2,000	$	2,625	$	(773)

(

(1)

Subsequent to March 31, 2022, we sold a 74-unit ALF in Virginia for $16,895. The ALF has a gross book value of $16,895 and a net book value of $15,549. We anticipate recognizing a gain on sale of approximately $1,300 in the second quarter of 2022. In connection with the sale, the current operator paid us a lease termination fee of approximately $1,200.

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

(3)	We recognized additional gain due to the reassessment adjustment of the holdbacks related to properties sold during 2019 and 2020.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 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		27,277	SNF	7.8	%	1	1		189	—	$	144.32
7.8%	2025	FL		12,126	ALF	3.5	%	1	1		—	68	$	178.32
7.3% ⁽⁴⁾	2025	NC/SC		49,834	ALF	14.2	%	1	13		—	523	$	95.28
10.4% ⁽⁵⁾	2043	MI		185,356	SNF	53.0	%	1	15		1,875	—	$	98.86
9.5% ⁽⁵⁾	2045	MI		39,039	SNF	11.2	%	1	4		501	—	$	77.92
9.6%⁽⁵⁾	2045	MI		19,750	SNF	5.6	%	1	2		205	—	$	96.34
10.0% ⁽⁵⁾	2045	MI		14,875	SNF	4.2	%	1	1		146	—	$	101.88
Total			$	350,037		100.0	%	8	37		2,916	591	$	99.81

(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)	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 three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Originations and funding under mortgage loans receivable	$	1,026	$	158
Application of interest reserve		1,223		—
Scheduled principal payments received		(125)		(125)
Mortgage loan premium amortization		(2)		(2)
Provision for credit losses		(21)		—
Net increase in mortgage loans receivable	$	2,101	$	31

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 March 31, 2022, the accrued interest receivable of $41,165,000 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 three months ended March 31, 2022 and 2021, the Company did not write-off any accrued interest receivable.