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Real Estate Investments | 9 Months Ended
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Sep. 30, 2022
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. 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 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.
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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) |
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.
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 $256,000 and $758,000 for the nine months ended September 30, 2022 and 2021, respectively, as a result of lease terminations and transitioning rental revenue recognition to cash basis. 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 September 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 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.
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(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.
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(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.
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(4) | Decreased primarily due to a deferred rent repayment and normal amortization.
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(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.
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(6) | Represents lease incentive balance write-off related to two properties that were transitioned to another operator in our portfolio.
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(7) | Represents a lease incentive balance write-off related to a closed property and subsequent lease termination and (6) above.
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(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.
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 | ​ | $ | 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.
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(2) | Subject to the properties achieving certain coverage ratios.
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(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.
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 September 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 provide assistance in form of rent abatements and rent deferrals and we will continue to provide assistance as needed. Impairment Charges. During 2022, we made the decision to sell an assisted living community located in Kentucky which decreased the period over which we could recover the carrying value of the community. As a result of our decision to sell, we determined that the property’s carrying value would not be fully recoverable and recorded an impairment loss of $1,286,000. As of September 30, 2022, the community was classified as held-for-sale. Properties Held -for-Sale: The following summarizes our held-for-sale properties as of September 30, 2020 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Type | ​ | Number | ​ | Number | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | of | ​ | of | ​ | of | ​ | ​ | Gross | ​ | ​ | Accumulated | ​
State | ​ | Property | ​ | Properties | ​ | Beds/units | ​ | ​ | Investment | ​ | ​ | Depreciation | ​
KY | ​ | ALF | ​ | 1 | ​ | 60 | ​ | $ | 13,015 | ​ | $ | 2,305 | ​
​ Acquisitions and Improvements: During the nine months ended September 30, 2021 we did not have any acquisitions. The following table summarizes our acquisitions for the nine months ended September 30, 2022 (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Total | ​ | Number | ​ | Number
​ | ​ | ​ | ​ | Purchase | ​ | Transaction | ​ | Acquisition | ​ | of | ​ | of
Year | ​ | Type of Property | ​ | Price | ​ | Costs | ​ | Costs | ​ | Properties | ​ | Beds/Units
2022 | ​ | SNF | ​ | $ | 51,534 | ​ | $ | 281 | ​ | $ | 51,815 | ​ | 4 | ​ | 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. 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 | ​
​ Properties Sold. During the three months ended September 30, 2022 and 2021, we recorded a net (loss)/gain on sale of ($387,000) and $2,702,000, respectively. The following table summarizes property sales during the nine months ended September 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 | ​ | ​ | 10,846 | ​
​ | ​ | 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.
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(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.
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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”).
Financing Receivable. As part of our acquisitions, we may from time to time, invest in sale and leaseback transactions. In accordance with ASC Topic 842, Leases (“ACS 842”), we are required to determine whether the sale and leaseback transaction qualifies as a sale. ASC 842 clarifies that an option for the seller-lessee to repurchase a real estate asset would generally preclude accounting for the transfer of the asset as a sale. Therefore, a sale and leaseback transaction of real estate that includes a seller-lessee repurchase option is accounted for as a failed sale and leaseback transaction. As a result, the purchased assets of a failed sale and leaseback transaction would be presented as a Financing receivable on our Consolidated Balance Sheets and the rental revenue from these properties is recorded as Interest income from financing receivable on our Consolidated Statements of Income. Furthermore, upon expiration of the purchase option if the purchase option remains unexercised by the seller-lessee, the purchased assets will be reclassified from Financing receivable to Real property investments on our Consolidated Balance Sheets. During the third quarter of 2022, we entered into a joint venture and contributed $61,661,000 into the JV that purchased three skilled nursing centers located in Florida for $75,825,000. Our JV partner contributed the remaining $14,325,000 of equity. The JV leased the centers back to an affiliate of the seller under a 10-year master lease, with two five-year renewal options and provided the seller-lessee with a purchase option, exercisable at the beginning of the fourth year through the end of the fifth year. Accordingly, the transaction has been accounted for as a failed sale and leaseback transaction and recorded as a Financing receivable. During this quarter, we recognized $357,000 of Interest income from financing receivable on our Consolidated Statements of Income. Additionally, we recorded $760,000 provision for expected loan losses during the three months ended September 30, 2022. 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.
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(2) | Our mortgage loans are secured by properties located in six states with five borrowers.
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(3) | Represents a mortgage loan secured by a parcel of land for the future development of a 91-bed post-acute SNF.
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(4) | Represents the initial rate. This loan has an IRR of 8%.
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(5) | Represents a mortgage loan secured by a parcel of land in North Carolina held for future development of a seniors housing community.
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(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 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%.
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 September 30, 2022, the accrued interest receivable of $44,290,000 was not included in the measurement of expected credit losses on the mortgage loan receivable and notes receivable (see Note 4. Notes Receivable). 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 nine months ended September 30, 2022 and 2021, 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 https://asc.fasb.org/extlink&oid=124259787&loc=d3e4437-111522 + Details
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