Real Estate Investments, Net

9 Months Ended

Sep. 30, 2020

REAL ESTATE INVESTMENTS, NET

The following table summarizes the Company’s investment in owned properties as of September 30, 2020 and December 31, 2019 (dollars in thousands):


	September 30, 2020		December 31, 2019
Land	$	209,280	$	204,154
Buildings and improvements	1,441,949		1,400,927
Integral equipment, furniture and fixtures	95,392		93,005
Identified intangible assets	1,650		1,650

Real estate investments	1,748,271		1,699,736
Accumulated depreciation and amortization	(325,033)		(285,536)

Real estate investments, net	$	1,423,238	$	1,414,200

As of September 30, 2020, 214 of the Company’s facilities were leased to various operators under triple-net leases. All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (but not less than zero), some of which are subject to a cap, or fixed rent escalators.

As of September 30, 2020, the Company had one independent living facility that the Company owned and operated.

As of September 30, 2020, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):


Year	Amount
2020 (three months)	$	42,533
2021	170,186
2022	170,284
2023	169,980
2024	170,080
2025	170,183
Thereafter	973,638
Total	$	1,866,884

The following table summarizes components of the Company’s rental revenue (dollars in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Rental Income	2020		2019		2020		2019
Contractual rent due(1)	$	42,866	$	43,109	$	127,789	$	124,642
Straight-line rent	17		546		65		1,483
Adjustment for collectibility(2)	—		(12,078)		—		(12,078)
Recovery of previously reversed rent(3)	1,047		—		1,047		—
Lease termination revenue(4)	1,106		—		1,106		—
Total	$	45,036	$	31,577	$	130,007	$	114,047

(1) Includes initial cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received.

(2) During the three and nine months ended September 30, 2019, and in accordance with ASC 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from five operators through maturity. As such, the Company reversed $7.8 million of contractual rent, $3.5 million of straight-line rent and $0.8 million of property taxes during the three and nine months ended September 30, 2019. If lease payments are subsequently deemed probable of collection, the Company increases rental income for such recoveries.

(3) During the three and nine months ended September 30, 2020, the Company recovered $1.0 million in rental revenue related to one operator that was previously written off.

(4) During the three and nine months ended September 30, 2020, in connection with the agreement to terminate its lease agreements with affiliates of Metron Integrated Health Systems (“Metron”) and to sell the facilities to a third-party, the Company received $1.1 million from Metron affiliates.

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2020 (dollars in thousands):


Type of Property	Purchase Price(1)		Initial Annual Cash Rent		Number of Properties	Number of Beds/Units(2)
Skilled nursing	$	34,845	$	3,219	3	249

Assisted living	7,396		590		1	62
Total	$	42,241	$	3,809	4	311

(1) Purchase price includes capitalized acquisition costs.

(2) The number of beds/units includes operating beds at acquisition date.

Sale of Real Estate

On February 14, 2020, the Company closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron. In connection with the sale for $36.0 million, the Company received $3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $32.4 million. The mortgage loan bore interest at 7.5% and initially had a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of approximately $0.1 million. In April 2020, the mortgage loan was settled with $18.9 million in cash and a new mortgage loan for $13.9 million. In July 2020, the Company received prepayment in full, including accrued interest, for the new $13.9 million mortgage loan. See Note 4, Other Real Estate Investments, Net, for further detail on the new mortgage loan.

Lease Amendments

On July 15, 2019, the Company terminated its then existing master lease (the “Original Trillium Lease”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”), which covered ten properties in Iowa, seven properties in Ohio and one property in Georgia. On August 16, 2019, the Company entered into a new master lease (the “New Trillium Lease”) with Trillium’s Iowa and Georgia affiliates covering the ten properties in Iowa and the one property in Georgia. The Company recorded an adjustment to reduce rental income for accounts and other receivables by approximately $3.8 million in the three months ended September 30, 2019.

On September 1, 2019, four of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease were transferred to affiliates of Providence Group, Inc. (“Providence”). In connection with the transfer, the Company amended its triple-net master lease with Providence. The amended lease had a remaining initial term of approximately 13 years as of September 1, 2019, and includes two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease with Providence increased by approximately $2.1 million.

Impairment of Real Estate Investments and Assets Held for Sale

On September 1, 2019, the Company sold three of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease for a purchase price of $28.0 million. During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairment expense of approximately $7.8 million. In connection with the sale, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”), the purchaser of the three Ohio properties, with a mortgage loan secured by the three Ohio properties for approximately $26.5 million. See Note 4, Other Real Estate Investments, Net, for additional information.

As of September 30, 2019, the Company met the criteria to classify six skilled nursing facilities operated by affiliates of Metron as held for sale, which resulted in an impairment expense of approximately $8.8 million to reduce the carrying value to fair value less costs to sell the facilities. The assets held for sale as of December 31, 2019 of $34.6 million were primarily comprised of real estate assets.

The fair value of the assets impaired during the three months ended September 30, 2019 was based on contractual sales prices, which are considered to be Level 2 measurements within the fair value hierarchy.