REAL ESTATE INVESTMENTS, NET

3 Months Ended

Mar. 31, 2023

The following table summarizes the Company’s investment in owned properties held for use at March 31, 2023 and December 31, 2022 (dollars in thousands):


	March 31, 2023		December 31, 2022
Land	$	235,013	$	238,738
Buildings and improvements	1,477,939		1,483,133
Integral equipment, furniture and fixtures	96,895		97,199
Identified intangible assets	2,833		2,832

Real estate investments	1,812,680		1,821,902
Accumulated depreciation and amortization	(411,867)		(400,492)

Real estate investments, net	$	1,400,813	$	1,421,410

As of March 31, 2023, 213 of the Company’s 215 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 (“CPI”) (but not less than zero), some of which are subject to a cap, or fixed rent escalators. During the year ended December 31, 2022, the Company entered into triple-net lease agreements for two of the Company’s 213 facilities which are being repurposed to behavioral health facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s 215 facilities are non-operational and are leased under a short term lease with an expected remaining term of less than one year as of March 31, 2023. As of March 31, 2023, 6 facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets Held for Sale, Net and Asset Sales for additional information.

As of March 31, 2023, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements and assets held for sale, was as follows (dollars in thousands):


Year	Amount
2023 (nine months)	$	137,942
2024	184,484
2025	184,644
2026	184,750
2027	181,742
2028	179,626
Thereafter	778,259
Total	$	1,831,447

Tenant Purchase Options

Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company. A summary of these purchase options is presented below (dollars in thousands):

Asset Type(1)

Properties

Lease Expiration

Option Period Open Date(2)

Option Type(3)

Current Cash Rent(4)

SNF

March 2029

4/1/2022

(6)

A / B(7)

805

SNF / Campus

October 2032

1/1/2023

(5)

1,097

SNF

November 2034

12/1/2024

(6)

3,891

(1) Excludes a purchase option on an 11 building SNF portfolio representing $5.1 million of current cash rent. Tenant is currently not eligible to elect the option.

(2) The Company has not received notice of exercise for the option periods that are currently open.

(3) Option type includes:

A - Fixed base price.

B - Fixed capitalization rate on lease revenue.

(4) Based on annualized cash revenue for contracts in place as of March 31, 2023.

(5) Option window is open for six months from the option period open date.

(6) Option window is open until the expiration of the lease term.

(7) Purchase option reflects two option types.

Rental Income

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


	For the Three Months Ended March 31,
Rental Income	2023		2022
Contractual rent due(1)	$	46,170	$	46,978
Straight-line rent	(7)		6
Adjustment for collectibility(2)	—		(977)


Total	$	46,163	$	46,007

(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. Tenant operating expense reimbursements for the three months ended March 31, 2023 and 2022 were $0.7 million and $0.6 million, respectively.

(2) During the three months ended March 31, 2022, and in accordance with Accounting Standards Codification 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 four existing and former operators. As such, the Company reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.1 million of straight-line rent during the three months ended March 31, 2022. If lease payments are subsequently deemed probable of collection, the Company will reestablish the receivable which will result in an increase in rental income for such recoveries.

Lease Amendments

Amended Premier Lease. Effective January 1, 2023, the Company amended its master lease with affiliates of Premier Senior Living, LLC (“Premier”). In connection with the lease amendment, the Company reduced the annual cash rent by $1.7 million, to approximately $2.6 million. The Premier lease has a remaining term of approximately 8 years with two five-year renewal options and CPI-based rent escalators.

Noble VA Lease Termination and New Pennant Lease. Effective March 16, 2023, two ALFs in Wisconsin were removed from a master lease with affiliates of Noble VA Holdings (“Noble”) and the Company terminated the applicable Noble master lease. Annual cash rent under the applicable Noble master lease prior to lease termination was approximately $2.3 million. In connection with the lease termination, the Company entered into a new lease with The Pennant Group, Inc. (“Pennant”) with respect to the two ALFs. The applicable Pennant lease has an initial term of approximately 15 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the new lease is approximately $0.8 million and the master lease provides Pennant with three months deferred rent to be repaid before the expiration or termination of the lease.

Amended Hillstone Lease. On March 24, 2023, the Company amended its master lease with affiliates of Hillstone Healthcare, Inc. (“Hillstone”). In connection with the lease amendment, the Company agreed to defer rent of approximately $0.7 million for 12 months from December 2022 through November 2023 to be repaid as a percentage of adjusted gross revenues of one underlying facility, as defined in the amended lease, beginning January 1, 2025, until deferred rent has been paid in full. The amended Hillstone lease has a remaining term of approximately 7 years with two five-year renewal options and 2% fixed rent escalators.