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Credit Loss Reserve | 9 Months Ended
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Sep. 30, 2024
Credit Loss Reserve |
Credit Loss Reserve |
6. | Credit Loss Reserve
We apply Accounting Standards Codification Topic 326, Financial Instruments-Credit Losses (“ASC 326”), which requires a forward-looking “expected loss” model, to estimate our loan losses. We determined our Financing receivables, Mortgage loans receivable and Notes receivable line items on our Consolidated Balance Sheets are within the scope of ASC 326. Financing receivables. We obtained controlling interests in JVs that acquired properties through sale and leaseback transactions. The JVs concurrently leased the purchased properties to affiliates of sellers and provided the sellers-lessees with purchase options. We consolidated the JVs as Financing receivables on our Consolidated Balance Sheets. For more information regarding these transactions See Note 2. Financing receivables above. At September 30, 2024, we had investments in four JVs accounted for as financing receivables that owned 31 properties in three states. In addition to owning the properties through our controlling interests in the JVs, generally, these leases provide one or more of the following: security deposits, property tax impounds, repair and maintenance escrows and other credit enhancements such as corporate or personal guarantees or letters of credit. Mortgage loans. As part of our strategy of making investments in properties used in the provision of long-term health care services, we provided mortgage loan financing on such properties. At September 30, 2024, we had ten mortgage loans secured by 27 properties in five states with seven borrowers. In addition to a lien on the mortgaged properties, the loans are generally secured by non-real estate assets of the properties and contain certain other security provisions in the form of letters of credit and/or security deposits. Notes receivable. Our notes receivable consist of mezzanine loans and working capital notes. Security for these notes can include all or a portion of the following credit enhancements: secured second mortgage, pledge of equity interests and personal/corporate guarantees. The following table summarizes our financial instruments within the scope of ASC 326 by year of origination (dollar amounts in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Year of origination (1) | ​ | At September 30, 2024
Investment Type: | ​ | 2024 | ​ | 2023 | ​ | 2022 | ​ | 2021 | ​ | 2020 | ​ | Prior | ​ | Total | ​ | Credit loss reserve
Financing receivables | ​ | $ | 163,460 | ​ | $ | 121,418 | ​ | $ | 76,626 | ​ | $ | — | ​ | $ | — | ​ | $ | — | ​ | $ | 361,504 | ​ | $ | 3,615
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Mortgage loans receivable | ​ | $ | — | ​ | $ | 92,360 | ​ | $ | — | ​ | $ | 16,706 | ​ | $ | — | ​ | $ | 255,348 | ​ | $ | 364,414 | ​ | $ | 3,638
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Mezzanine loans | ​ | $ | — | ​ | $ | 17,000 | ​ | $ | 25,000 | ​ | $ | — | ​ | $ | — | ​ | $ | — | ​ | $ | 42,000 | ​ | $ | 420
Working Capital loans | ​ | ​ | 50 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 2,045 | ​ | ​ | 1,095 | ​ | ​ | 2,983 | ​ | ​ | 6,173 | ​ | ​ | 62
Total Notes Receivable | ​ | $ | 50 | ​ | $ | 17,000 | ​ | $ | 25,000 | ​ | $ | 2,045 | ​ | $ | 1,095 | ​ | $ | 2,983 | ​ | $ | 48,173 | ​ | $ | 482
(1) | Excludes paid-off loans. Additional funding, if any, is included in the year of the origination of the initial loan.
We monitor the credit quality of our financial instruments through a variety of methods determined by the underlying collateral or other protective rights, operator’s payment history and other internal metrics. Our monitoring process includes periodic review of financial statements for each facility, scheduled property inspections and review of covenant compliance, industry conditions and current and future economic conditions. The future economic conditions are based on the economic data from the Federal Reserve and reasonable assumptions for the future economic trends. In determining the “expected” credit loss reserves on these instruments, 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. The expected credit losses related to our financial instruments that are within the scope of ASC 326 are as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Balance | ​ | ​ | Recovery | ​ | due to | ​ | Balance | ​
​ | ​ | at | ​ | ​ | due to | ​ | Originations/ | ​ | at | ​
Description | ​ | 12/31/2023 | ​ | ​ | payoffs | ​ | additional funding | ​ | 9/30/2024 | ​
Credit Loss Reserve- Financing Receivables | ​ | $ | 1,980 | ​ | $ | — | ​ | $ | 1,635 | ​ | $ | 3,615 | ​
Credit Loss Reserve- Mortgage Loans Receivable | ​ | ​ | 4,814 | ​ | ​ | (1,369) | ​ | ​ | 193 | ​ | ​ | 3,638 | ​
Credit Loss Reserve-Notes Receivable | ​ | ​ | 611 | ​ | ​ | (132) | ​ | ​ | 3 | ​ | ​ | 482 | ​
​ We elected not to measure an allowance for expected credit losses on accrued interest receivable under the expected credit loss standard as we have a policy in place to reserve or write off accrued interest receivable in a timely manner through our quarterly review of the loan and property performance. Therefore, we elected the policy to write off accrued interest receivable by recognizing credit loss expense. As of September 30, 2024, the total balance of accrued interest receivable of $58,421,000 was not included in the measurement of expected credit loss. During the three and nine months ended September 30, 2024, we wrote-off $613,000 related to accrued interest receivable. During the three and nine months ended September 30, 2023, we did not recognize any write-off related to accrued interest receivable.

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