NOTE 6. Loans Receivable

The following table summarizes the Company’s loans receivable (in thousands):


	March 31, 2017						December 31, 2016
	Real Estate		Other				Real Estate		Other
	Secured		Secured		Total		Secured		Secured		Total
Mezzanine(1) (2)	$	—	$	625,116	$	625,116	$	—	$	615,188	$	615,188
Other(3)		166,595		—		166,595		195,946		—		195,946
Unamortized discounts, fees and costs		—		(3,225)		(3,225)		413		(3,593)		(3,180)
	$	166,595	$	621,891	$	788,486	$	196,359	$	611,595	$	807,954

(1)

At March 31, 2017, included £280 million ($350 million) outstanding and £2 million ($2 million) of associated unamortized discounts, fees and costs, both related to the HC-One Facility. At December 31, 2016, included £282 million ($348 million) outstanding and £2 million ($3 million) of associated unamortized discounts, fees and costs, both related to the HC-One Facility.

(2)

At March 31, 2017, the Company had £29 million ($36 million) remaining under its commitments to fund development projects and capital expenditures under its United Kingdom (“U.K.”) development projects.

(3)

At March 31, 2017, included £116 million ($145 million) outstanding related to Maria Mallaband loans.

Loans Receivable Internal Ratings

The following table summarizes the Company’s internal ratings for loans receivable at March 31, 2017 (dollars in thousands):


	Carrying		Percentage of	Internal Ratings
Investment Type	Amount		Loan Portfolio	Performing Loans		Watch List Loans		Workout Loans
Real estate secured	$	166,595	21	$	166,595	$	—	$	—
Other secured		621,891	79		365,318		256,573		—
	$	788,486	100	$	531,913	$	256,573	$	—

Real Estate Secured Loans

Four Seasons Health Care. In March 2017, the Company sold its investment in Four Seasons Health Care’s (“Four Seasons”) senior secured term loan at par plus accrued interest for £29 million ($35 million).

Other Secured Loans

Tandem Health Care Loan. On July 31, 2012, the Company closed a mezzanine loan facility to lend up to $205 million to Tandem Health Care (“Tandem”), as part of the recapitalization of a post-acute/skilled nursing portfolio (the “Tandem Portfolio”). The Company funded $100 million (the “First Tranche”) at closing and funded an additional $102 million (the “Second Tranche”) in June 2013. In May 2015, the Company increased and extended the mezzanine loan facility with Tandem to: (i) fund $50 million (the “Third Tranche”) and $5 million (the “Fourth Tranche”), which proceeds were used to repay a portion of Tandem’s existing senior and mortgage debt, respectively; (ii) extend its maturity to October 2018; and (iii) extend the prepayment penalty period through January 2017. The tranches (collectively, the “Tandem Mezzanine Loan”) bear interest at fixed annual rates of 12%, 14%, 6% and 6% per annum for the First, Second, Third and Fourth Tranches, respectively. The blended rate for the Tandem Mezzanine Loan is 11.5% per year. Due to a decline in the Tandem Portfolio’s operating performance, at September 30, 2016, the Company assigned an internal rating of “Watch List” to the Tandem Mezzanine Loan. At March 31, 2017, the Tandem Mezzanine Loan had an outstanding balance of $257 million and was subordinate to approximately $372 million of senior mortgage debt.

Tandem leases the entire Tandem Portfolio to Consulate Health Care (“Consulate”) under a master lease (the “Tandem and Consulate Lease”). At March 31, 2017, as a result of the Tandem Portfolio’s operating performance there are outstanding events of default under the Tandem and Consulate Lease (“Events of Default”) due to: (i) Consulate’s failure to meet certain financial covenants under the Tandem and Consulate Lease; and (ii) events of default under Consulate’s working capital facility, which, through a cross-default provision, are Events of Default. Additionally, Consulate failed to pay the full amount of its April 2017 rent under the Tandem and Consulate Lease which triggered another Event of Default. Through cross-default provisions, these Events of Default are also events of default under the Tandem Mezzanine Loan and Tandem’s senior mortgage debt (each, a “Loan Event of Default”). The Tandem Mezzanine Loan requires Tandem to pay default interest at a rate of 16.5% per year, during periods in which there is an outstanding Loan Event of Default. Tandem did not pay the additional 5% default interest rate spread above the 11.5% and, therefore created a monetary event of default under the Tandem Mezzanine Loan.

Although Tandem continues to remain current on its non-default interest payment obligations under the Tandem Mezzanine Loan, the Company believes that it is probable it will be unable to collect all interest and principal payments according to the contractual terms of the Tandem Mezzanine Loan. Because the Tandem Mezzanine Loan is deemed collateral-dependent, and the fair value of the underlying collateral, net of the fair value of the senior mortgage debt, at March 31, 2017, exceeds the carrying amount of the Tandem Mezzanine Loan, the Company has not recorded an impairment write-down at March 31, 2017. The Company will continue to monitor the fair value of the collateral, and other factors, to determine whether it will be required to record an impairment write-down in future periods. Additionally, beginning in the first quarter of 2017, the Company elected to recognize interest income on a cash basis. During both the three months ended March 31, 2017 and 2016, the Company recognized interest income and received cash payments of $7 million from Tandem.

The Company entered into a forbearance agreement with Tandem on May 1, 2017, pursuant to which it agreed to forbear from exercising remedies, including waiving default interest, with respect to the above-described Loan Events of Default under the Tandem Mezzanine Loan until June 30, 2017, subject to the satisfaction of certain conditions. Under the forbearance terms, among other conditions, Tandem is required to make timely non-default interest payments in full for each of May and June 2017, and no additional Event of Default or Loan Event of Default may occur. The Company’s forbearance is contingent on the senior mortgage lender also agreeing to forebear from exercising remedies, including waiving default interest, with respect to the above-described Loan Events of Default under the senior mortgage debt. The Company expects Tandem and Tandem’s senior mortgage lender to enter into such forbearance agreement in the near term.