Loans Receivable

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



	December 31,
	2018								2017
	Real Estate Secured		Other Secured			Total			Real Estate Secured		Other Secured			Total
Mezzanine⁽¹⁾	$	—	$	21,013		$	21,013		$	—	$	269,299		$	269,299
Other⁽²⁾	42,037		—			42,037			188,418		—			188,418
Unamortized discounts, fees and costs	—		(52		)	(52		)	—		(596		)	(596		)
Allowance for loan losses⁽¹⁾	—		—			—			—		(143,795		)	(143,795		)
	$	42,037	$	20,961		$	62,998		$	188,418	$	124,908		$	313,326

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(1)	At December 31, 2017, primarily related to the Company’s mezzanine loan facility to Tandem Health Care discussed below.


(2)	At December 31, 2018, the Company had $73 million remaining of commitments to fund a $115 million senior living development project. At December 31, 2017, includes the U.K. Bridge Loan discussed below.

The following table summarizes the Company’s internal ratings for loans receivable at December 31, 2018 (dollars in thousands):



	Carrying Amount		Percentage of Loan Portfolio	Internal Ratings
Investment Type	Carrying Amount		Percentage of Loan Portfolio	Performing Loans		Watch List Loans		Workout Loans
Real estate secured	$	42,037	67	$	42,037	$	—	$	—
Other secured	20,961		33	20,961		—		—
	$	62,998	100	$	62,998	$	—	$	—

Real Estate Secured Loans

The following table summarizes the Company’s loan receivable secured by real estate at December 31, 2018 (dollars in thousands):



Final Maturity Date	Number of Loans	Payment Terms	Principal Amount⁽¹⁾		Carrying Amount
2022	1	monthly interest-only payments, accrues interest at 6.5% and secured by a senior housing facility in Washington⁽²⁾	$	42,037	$	42,037

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(1)	Represents future contractual principal payments to be received on loans receivable secured by real estate.


(2)	Contains a participation feature that allows the Company to participate in up to 20% of the appreciation of the asset through the time the loan is refinanced or repaid.

During the year ended December 31, 2018, the Company recognized $5 million in interest income related to loans secured by real estate, including interest income related to the U.K. Bridge Loan discussed below.

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).

Additionally, in March 2017, pursuant to a shift in the Company’s investment strategy, the Company sold its £138.5 million par value Four Seasons senior notes (the “Four Seasons Notes”) for £83 million ($101 million). The disposition of the Four Seasons Notes generated a £42 million ($51 million) gain on sale, recognized in other income (expense), net.

Other Secured Loans

HC-One Facility

On June 30, 2017, the Company received £283 million ($367 million) from the repayment of its HC-One mezzanine loan.

Tandem Health Care Loan

From July 2012 through May 2015, the Company funded, in aggregate, $257 million under a collateralized mezzanine loan facility (the “Mezzanine Loan”) to certain affiliates of Tandem Health Care (together with its affiliates, “Tandem”).

As part of its quarterly review process, the Company recorded an impairment charge and related allowance of $57 million during the three months ended June 30, 2017, reducing the carrying value to $200 million. The decline in fair value was driven by a variety of factors, including recent operating results of the underlying real estate assets, as well as market and industry data, that reflect a declining trend in admissions and a continuing shift away from higher-rate Medicare plans in the post-acute/skilled nursing sector. The calculation of the fair value was primarily based on an income approach and relies on forecasted EBITDAR and market data, including, but not limited to, sales price per unit/bed, rent coverage ratios, and real estate capitalization rates. All valuation inputs are considered to be Level 2 measurements within the fair value hierarchy.

Additionally, on July 31, 2017, subsequent to its second quarter 2017 quarterly review process and the aforementioned impairment, the Company entered into a binding agreement (the “Repurchase Agreement”) with the borrowers to provide an option to repay the Mezzanine Loan at a discounted value of $197 million (the “Repayment Value”) by October 25, 2017, which date was subsequently extended to December 31, 2017 (the “Agreement Maturity Date”). As a result of entering into the Repurchase Agreement, the Company recorded an additional impairment charge and related allowance of $3 million during the quarter ended September 30, 2017 to write down the carrying value of the Mezzanine Loan to the Repayment Value and assigned the loan an internal rating of Workout. As part of the Repurchase Agreement, Tandem posted, in aggregate, $8 million of non-refundable deposits (the “Deposits”), which the Company was entitled to retain (without any credit against the Mezzanine Loan) if Tandem failed to make interest payments on the $257 million par value of the Mezzanine Loan through the repayment date or the Agreement Maturity Date, as applicable, adjusted for any principal payments received.

On November 17, 2017, the Company declared an event of default under the Mezzanine Loan. Tandem also failed to make its December 2017, January 2018 and February 2018 interest payments to the Company. As a result of the aforementioned events that occurred during the fourth quarter of 2017 and first quarter of 2018 (during the Company's fourth quarter 2017 financial statement close process), the Company concluded that the Mezzanine Loan was impaired and recorded an impairment charge and related allowance of $84 million, reducing the carrying value of the loan to $105 million as of December 31, 2017. Aggregate impairments on the Mezzanine Loan for the year ended December 31, 2017 were $144 million.

The decline in expected recoverable value of the Mezzanine Loan was primarily driven by the Company’s conclusion that the collateral supporting the Mezzanine Loan may no longer be the sole source in recovering the Company’s investment. As a result, the Company utilized a discounted cash flow model to determine expected recoverability of the Mezzanine Loan. Additionally, a variety of factors further impacted the impairment analysis completed during the Company’s fourth quarter 2017 financial statement close process including operating results of the underlying real estate assets, as well as market and industry data, that reflect a declining trend in admissions and a continuing shift away from higher-rate Medicare plans in the post-acute/skilled nursing sector. The calculation relied on: (i) forecasted EBITDAR and market data, including, but not limited to, sales price per unit/bed, rent coverage ratios, and real estate capitalization rates and (ii) bids for a sale of the Mezzanine Loan received in February 2018, which incorporate market participant required rates of return and expected hold periods.

Beginning in the first quarter of 2017, the Company elected to recognize interest income on a cash basis. During the years ended December 31, 2018, 2017 and 2016, the Company recognized interest income of zero, $23 million, and $31 million, respectively, and received cash payments of $25 million and $30 million, respectively, from Tandem. The carrying value of the Mezzanine Loan was $105 million at December 31, 2017.

In March 2018, the Company sold the Mezzanine Loan to a third party for approximately $112 million, resulting in an impairment recovery, net of transaction costs and fees, of $3 million included in other income (expense), net. The Company holds no further economic interest in the operations of Tandem.

U.K. Bridge Loan

In 2016, the Company provided a £105 million ($131 million at closing) bridge loan (the “U.K. Bridge Loan”) to Maria Mallaband Care Group Ltd. ("MMCG") to fund the acquisition of a portfolio of seven care homes in the U.K. Under the U.K. Bridge Loan, the Company retained a three-year call option to acquire those seven care homes at a future date for £105 million, subject to certain conditions precedent being met. In March 2018, upon resolution of all conditions precedent, the Company began the process of exercising its call option to acquire the seven care homes and concluded that it should consolidate the real estate. As a result, the Company derecognized the outstanding loan receivable of £105 million and recognized a £29 million ($41 million) loss on consolidation. Refer to Note 19 for further discussion regarding impact of consolidating the seven care homes during the first quarter of 2018.

In June 2018, the Company completed the process of exercising the above-mentioned call option. The seven care homes acquired through the call option were included in the U.K. JV transaction (see Note 5).