Owned Properties. As of December 31, 2022, we owned 152 health care real estate properties consisting of 99 ALFs, 52 SNFs and one behavioral health care hospital located in 26 states. These properties are operated by 24 operators.

Independent living communities, assisted 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, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s audit of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Depreciation expense on buildings and improvements, including properties classified as held-for-sale, was $37,394,000, $38,192,000, and $38,945,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

Future minimum base rents receivable under the remaining non-cancelable terms of operating leases excluding the effects of straight-line rent, amortization of lease incentives and renewal options are as follows (in thousands):

(1)	Represents contractual cash rent, except for certain master leases which are based on estimated cash. Includes rent from subsequent acquisitions and excludes rent from subsequent dispositions. See Note 16. Subsequent Events for more information.

Many of our existing leases contain renewal options that, if exercised, could result in the amount of rent receivable upon renewal being greater of less than that currently being paid. Subsequent to December 31, 2022, a master lease covering two skilled nursing centers that was scheduled to mature in 2023 was renewed at the contractual rate for another five years extending the maturity to November 2028. The centers have a total 216 beds and are located in Florida.

We monitor the collectability of our receivable balances, including deferred rent receivable balances, on an ongoing basis. We write-off uncollectable 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 uncollectable. We wrote-off straight-line rent receivable and lease incentives balances of $256,000, $758,000 and $23,214,000 for the years ended December 31, 2022, 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 uncollectable accounts and deferred rents receivable at December 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 years ended December 31, 2022, 2021 and 2020 (in thousands):


	December 31,
Rental Income		2022			2021			2020
Base cash rental income	$	115,230	⁽¹⁾	$	107,692	⁽²⁾	$	132,789
Variable cash rental income		15,516	⁽³⁾		14,332	⁽³⁾		15,167	⁽³⁾
Straight-line rent		(1,369)	⁽⁴⁾		467	⁽⁵⁾		1,778
Adjustment for collectability of lease incentives and rental income		(256)	⁽⁶⁾		(758)	⁽⁶⁾		(23,214)	⁽⁶⁾
Amortization of lease incentives		(877)			(608)			(426)
Total	$	128,244		$	121,125		$	126,094

(1)

Increased primarily due to rent received from transitioned portfolios, rental income from acquisitions, completed development projects, annual rent escalations, and lease termination fee income of $1,181 received in connection with the sale of a 74-unit ALF partially offset by decreased rent from the sold properties.

(2)

Decreased primarily due to defaults of payments for lease obligations from Senior Lifestyle and Senior Care, abated and deferred rent and reduced rent from a sold property. This decrease was partially offset by increased rent from re-leasing 18 properties previously leased to Senior Lifestyle, completion of development projects and contractual rent increases.

(3)	The variable cash rental income for the years ended December 31, 2022, 2021 and 2020 primarily includes reimbursement of real estate taxes by our lessees.

(4)	Decreased primarily due to a deferred rent repayment, normal amortization and the impact of the 50% reduction of 2021 rent escalations for those leases accounted for on a straight-line basis.

(5)	Decreased due to more leases accounted for on a cash basis, normal amortization and the impact of the 50% reduction of 2021 rent escalations for those leases accounted for on a straight-line basis.

(6)	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	$	33,719	2023-2029
Florida	MC	1		15,201		12,500	2029
Florida	SNF	3		76,767		75,999	2025-2027	⁽¹⁾
Nebraska	ALF	3		7,633		2,948	TBD	⁽²⁾
South Carolina	ALF/MC	1		11,680		9,052	2029
Texas	SNF	4		51,837		50,848	2027-2029	⁽³⁾
Total			$	202,013	$	185,066

(1)	During 2022, we entered into a joint venture to purchase three SNFs. For more information regarding this transaction, see Financing Receivable below.

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

(3)

During 2022, we purchased four SNFs and leased these properties under a 10-year lease with an existing operator. The lease allows the operator to elect either an earn-out payment or purchase option. If neither is elected within the timeframe defined in the lease, both elections are terminated. For more information regarding the earn-out see Note 11 Commitments and Contingencies.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. At December 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 impact affecting our operators, we have agreed to provide assistance in form of rent abatements and rent deferrals and we may continue to provide assistance as needed.

Impairment Loss. 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 community’s carrying value would not be fully recoverable and recorded an impairment loss of $1,286,000. This community was classified as held-for sale at December 31, 2022. See Properties Held-for-Sale below for more information regarding this community. Additionally, during 2022, we concluded that the carrying value of a 70-unit assisted living community in Florida and a closed memory care community in Colorado may not be recoverable through future undiscounted cash flows, Accordingly, we recorded a combined impairment loss of $2,136,000 which represents the amount by which the carrying value of these properties exceeds their estimated fair value.

Properties Held-for-Sale. The following summarizes our held for sale as of December 31, 2022 (dollar amounts in thousands):

Type

Number

Gross

Accumulated

State ⁽¹⁾

Property

Properties

Beds/units

Investment

Depreciation

ALF

13,015

2,305

(1)	During 2022, we recorded an impairment loss of $1,286 to write-down the carrying value of the community to its anticipated selling price.

Acquisitions. The following table summarizes our acquisitions for the years ended December 31, 2022 through 2020 (dollar amounts in thousands):


						Total		Number	Number
		Purchase		Transaction		Acquisition		of	of
Year	Type of Property	Price		Costs		Costs		Properties	Beds/Units
2022 ⁽¹⁾	SNF	$	51,534	$	283	$	51,817	4	339

2021	n/a	$	—	$	—	$	—	—	—

(1)

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 allows 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 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 transaction, we provided the lessee a 10-year working capital loan for up to $2,000 at 8% for first year, increasing to 8.25% for the second year, then increasing annually with the lease rate. At December 31, 2022, the working capital loan had an outstanding balance of $1,642.

Developments and Improvements. During the years ended December 31, 2022, 2021 and 2020, we invested the following in development and improvement projects (in thousands):


Type of Property		2022				2021			2020
	Developments		Improvements		Developments		Improvements		Developments		Improvements
Assisted Living Communities	$	105	$	5,538	$	—	$	5,846	$	4,491	$	6,842
Skilled Nursing Centers		—		2,897		—		452		12,208		71
Other		—		559		—		—		—		—
Total	$	105	$	8,994	$	—	$	6,298	$	16,699	$	6,913

Completed Projects. During the years ended December 31, 2022 and 2021, we had no completed development projects. The following table summarizes our completed development projects during the years ended December 31, 2020 (dollar amounts in thousands):


	Number	Type	Number
	of	of	of			Total
Year	Properties	Property	Beds/Units	State	Investment
2020	1	ALF/MC	78	Oregon	$	18,447
	1	SNF	90	Missouri		16,587
Total 2020	2		168		$	35,034

Property Sales. The following table summarizes property sales during the years ended December 31, 2022 through 2020 (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		(441)
	Virginia	ALF	1	74		16,895		15,549		1,344	⁽²⁾
	n/a	n/a	—	—		—		—		214	⁽³⁾
Total 2022			5	427	$	74,345	$	35,924	$	37,830

2021	Florida	ALF	1	—	$	2,000	$	2,626	$	(858)
	Nebraska	ALF	1	40		900		1,079		(200)
	Washington	SNF	1	123		7,700		4,513		2,562
	Wisconsin	ALF	3	263		35,000		28,295		5,595
	n/a	n/a	—	—		—		—		363	⁽³⁾
Total 2021			6	426	$	45,600	$	36,513	$	7,462

2020	Arizona	SNF	1	194	$	12,550	$	2,229	$	10,293
	Colorado	SNF	3	275		15,000		4,271		10,364
	Iowa	SNF	7	544		14,500		4,886		9,051
	Kansas	SNF	3	250		9,750		7,438		1,993
	Texas	SNF	7	1,148		23,000		10,260		12,287
	n/a	n/a	—	—		—		—		129	⁽³⁾
Total 2020			21	2,411	$	74,800	$	29,084	$	44,117

(1)	Calculation of net gain (loss) includes cost of sales and write-off of straight-line rent 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 2020 and 2019, under the expected value model per ASC Topic 606, Contracts with Customers.

During 2020, we sold a 114-bed skilled nursing center in Texas and recorded $373,000 from insurance proceeds related to the property’s roof damage as Gain from property insurance proceeds on the Consolidated Statements of Income.

Financing Receivable. During 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 Financing receivable on our Consolidated Balance Sheets. During 2022, we recognized $1,762,000 of Interest income from financing receivable on our Consolidated Statements of Income. Additionally, we recorded $768,000 Provisions for expected loan losses during 2022.

Subsequent to December 31, 2022, we entered into a $121,321,000 JV with an affiliate of an existing operator and contributed $117,900,000 into the JV that purchased 11 assisted living and memory care communities from an affiliate of our JV partner. The JV leased the communities back to an affiliate of the seller under a 10-year master lease, with two five-year renewal options. The contractual initial cash yield of 7.25% increases to 7.5% in year three then escalates thereafter based on CPI subject to a floor of 2.0% and a ceiling of 4.0%. Additionally, the JV provided the seller-lessee with a purchase option to buy up to 50% of the properties at the beginning of the third lease year and the remaining properties at the beginning of the fourth lease year through the end of the sixth lease year, with an exit Internal Rate of Return (“IRR”) of 9.0%. In accordance with GAAP, the communities acquired by the JV are required to be presented as a Financing receivable on our Consolidated Balance Sheets.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at December 31, 2022 (dollar amounts in thousands):


					Type	Percentage		Number of					Investment
			Gross		of	of					SNF	ALF	per
Interest Rate	Maturity	State	Investment ⁽¹⁾		Property	Investment		Loans ⁽²⁾	Properties ⁽³⁾		Beds	Units	Bed/Unit
7.5%	2023	MO	$	1,886	OTH	0.5	%	1	—	⁽⁴⁾	—	—	$	n/a
7.5%	2024	LA		29,347	SNF	7.5	%	1	1		189	—	$	155.28
7.8%	2025	FL		14,308	ALF	3.6	%	1	1		—	68	$	210.41
7.3% ⁽⁵⁾	2025	NC/SC		56,317	ALF	14.3	%	1	13		—	523	$	107.68
7.3%	2026	NC		33,001	ALF	8.4	%	1	4		—	217	$	152.08
7.3%	2026	NC		797	OTH	0.2	%	1	—	⁽⁶⁾	—	—	$	—
10.6% ⁽⁷⁾	2043	MI		184,351	SNF	46.8	%	1	15		1,875	—	$	98.32
9.6% ⁽⁷⁾	2045	MI		39,026	SNF	9.9	%	1	4		480	—	$	81.30
9.8%⁽⁷⁾	2045	MI		19,750	SNF	5.0	%	1	2		201	—	$	98.26
10.1% ⁽⁷⁾	2045	MI		14,875	SNF	3.8	%	1	1		146	—	$	101.88
Total			$	393,658		100.0	%	10	41		2,891	808	$	106.42

(1)	Subsequent to December 31, 2022, we originated a $10,750 mortgage loan secured by a MC located in North Carolina. The loan carries a two-year term with an interest-only rate of 7.25% and an IRR of 9.0%.

(2)	Some loans contain certain guarantees and/or provide for certain facility fees.

(3)	Our mortgage loans are secured by properties located in six states with five borrowers.

(4)	Represents a mortgage loan secured by a parcel of land for the future development of a 91-bed post-acute SNF.

(5)	Represents the initial rate. This loan has an IRR of 8%.

(6)	Represents a mortgage loan secured by a parcel of land in North Carolina held for future development of a seniors housing community.

(7)	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 years ended December 31, 2022, 2021 and 2020 (in thousands):


	Year Ended December 31,
	2022			2021			2020
Originations and funding under mortgage loans receivable	$	40,732	^{(1) (2)}	$	88,955	⁽³⁾	$	4,253	⁽⁴⁾
Application of interest reserve		6,192			298			—
Scheduled principal payments received		(1,175)			(1,175)			(1,065)
Mortgage loan premium amortization		(6)			(6)			(4)
Provision for loan loss reserve		(457)			(881)			(32)
Net increase in mortgage loans receivable	$	45,286		$	87,191		$	3,152

(1)	Subsequent to December 31, 2022, we originated a $10,750 mortgage loan secured by a MC located in North Carolina. The loan carries a two-year term with an interest-only rate of 7.25% and an IRR of 9.0%.

(2)

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 also funded an additional $2,000 under an existing mortgage loan.

(3)	We funded the following:

$1,638 mortgage loan secured by a parcel of land for the future development of a 91-bed post-acute SNF in Missouri and withheld an interest reserve of $142. The mortgage loan term is one year at a yield of 7.5%;

$27,047 mortgage loan secured by a 189-bed SNF in Louisiana with a regional operator new to us. The mortgage loan has a three-year term with one 12-month extension option and a yield of 7.5%;

$11,724 mortgage loan secured by a 68-unit ALF and MC in Florida operated by a regional operator new to us. At origination, we withheld an interest reserve of $806 and applied $156 of the reserve during 2021. The mortgage loan term is approximately 4 years at a 7.75% yield and includes an additional $4,177 loan commitment for the construction of a memory care addition to the property to be funded at a later date subject to satisfaction of various conditions;

$48,006 mortgage loan for the purchase of a 13-property seniors housing portfolio located in North (12) and South Carolina (1). The communities are operated by an existing LTC operator. At origination, we withheld an interest reserve of $4,496. The loan term is 4 years at a 7.25% yield and includes a commitment of $6,097 for capital improvements and $650 for working capital; and

$540 additional capital funding under our existing mortgage loans.

(4)	We funded an additional $2,000 under an existing mortgage loan.

At December 31, 2022 and 2021 the carrying values of the mortgage loans were $389,728,000 and $344,442,000, respectively. Scheduled principal payments on mortgage loan receivables are as follows (in thousands):


	Scheduled
	Principal
2023	$	3,061
2024		30,522
2025		71,801
2026		34,972
2027		1,175
Thereafter		252,127
Total	$	393,658