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Loans Receivable
 12 Months Ended
Dec. 31, 2022
Receivables [Abstract]  
Loans Receivable Loans Receivable
The following table summarizes the Company’s loans receivable (in thousands):
December 31,
 20222021
Secured loans(1)
$350,837 $396,281 
Mezzanine and other33,083 25,529 
Unamortized discounts, fees, and costs(808)(4,186)
Reserve for loan losses(8,280)(1,813)
Loans receivable, net$374,832 $415,811 
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(1)At December 31, 2022 and 2021, the Company had $40 million and $58 million, respectively, remaining of commitments to fund additional loans for senior housing redevelopment and capital expenditure projects.
During the years ended December 31, 2022, 2021, and 2020, the Company recognized $22 million, $36 million, and $13 million, respectively, of interest income related to loans secured by real estate.
SHOP Seller Financing
Sunrise Senior Housing Portfolio Seller Financing
In conjunction with the sale of 32 SHOP facilities in the Sunrise Senior Housing Portfolio for $664 million in January 2021 (see Note 5), the Company provided the buyer with initial financing of $410 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $92 million of additional financing for capital expenditures (up to 65% of the estimated cost of capital expenditures). As of December 31, 2022, the additional financing was reduced to $40 million, of which $0.4 million had been funded. The initial and additional financing is secured by the buyer’s equity ownership in each property.
In June 2021, the Company received principal repayments of $246 million on the initial financing provided in conjunction with the sale of the Sunrise Senior Housing Portfolio. In connection with the June 2021 principal repayment, the Company accelerated recognition of $7 million of the related mark-to-market discount, which is included in interest income in the Consolidated Statements of Operations. Additionally, in February 2022, July 2022, and December 2022, the Company received principal repayments of $8 million, $27 million, and $10 million, respectively, in conjunction with the disposition of the underlying collateral. As of December 31, 2022 and 2021, this secured loan had an outstanding principal balance of $120 million and $165 million, respectively.
Other Seller Financing
In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 5), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer’s equity ownership in each property.
During the first quarter of 2021, the Company reduced the consideration and reported gain on sales of real estate and recognized a mark-to-market discount of $16 million for certain transactions with seller financing. The Company’s discount is based on the difference between the stated interest rates (ranging from 3.50% to 4.50%) and corresponding prevailing market rates of approximately 5.25% as of the transaction dates. The discount is recognized as interest income over the term of the discounted loans (ranging from one to three years) using the effective interest rate method. During the year ended December 31, 2022, the Company recognized $3 million of non-cash interest income related to the amortization of its mark-to-market discounts. During the year ended December 31, 2021, the Company recognized $13 million of non-cash interest income related to the amortization of its mark-to-market discounts, of which $7 million was recognized during the year ended December 31, 2021 as a result of the accelerated recognition discussed above related to the Sunrise Senior Housing Portfolio. The Company recognized an immaterial amount of non-cash interest income associated with seller financing notes receivable during the year ended December 31, 2020.
2022 Other Loans Receivable Transactions
In May 2022, the Company received full repayment of the outstanding balance of a $2 million secured loan.
In November 2022, the Company received full repayment of the outstanding balance of a $1 million mezzanine loan.
In December 2022, the Company extended the maturity dates of four secured loans with an aggregate outstanding balance of $61 million, originally scheduled to mature in December 2022, by one year to December 2023. In connection with the extensions, the interest rates on the loans were increased to a variable rate based on the Secured Overnight Financing Rate (“SOFR”) administered by the Federal Reserve Bank of New York, with a floor of 8.5% for the first six months of the extended term, increasing to 10.5% for the last six months of the extended term.
Loans Receivable Transactions Subsequent to Year-End
In January 2023, one secured loan with an outstanding balance of $150 million reached maturity and the borrower did not make the required principal repayment. Accordingly, the loan is in default. The borrower is in discussions with the Company regarding repayment options and extension of the maturity date.
In February 2023, the Company received full repayment of the outstanding balance of a $35 million secured loan.
Refer to Schedule IV: Mortgage Loans on Real Estate for additional information.
2021 Other Loans Receivable Transactions
The Company classifies a loan receivable as held for sale when management no longer has the intent or ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, previously recorded reserves for loan losses are reversed and the loan is reported at the lower of amortized cost or fair value. During the second quarter of 2021, two loans receivable with a total amortized cost of $64 million were classified as held for sale. Upon the transfer of these two loans to held for sale, the carrying value was decreased by $11 million to an estimated fair value of $53 million, $8 million of which was previously recognized as a reserve for loan losses. As a result, a $3 million net loss was recognized in impairments and loan loss reserves (recoveries), net during the year ended December 31, 2021. In September 2021, the Company sold one of the loans receivable previously classified as held for sale for its carrying value of $2 million. In November 2021, the Company sold the other loan receivable previously classified as held for sale for its carrying value of $51 million.
These fair value estimates were made for each individual loan classified as held for sale and primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, and negotiations with prospective buyers. These estimates are considered to be a Level 3 measurement within the fair value hierarchy, and are subject to inherent uncertainties.
Additionally, in April 2021, the Company sold two mezzanine loans as part of the Discovery SHOP Portfolio disposition (see Note 5), resulting in no gain or loss on sale of the mezzanine loans.
In May 2021, the Company received a $10 million principal repayment related to one of its secured loans. In September 2021, the Company received repayment of the remaining $15 million balance.
In July 2021, the Company received full repayment of the outstanding balance of an $8 million secured loan.
2020 Other Loans Receivable Transactions
In November 2020, the Company sold one mezzanine loan with a $10 million principal balance for $8 million, resulting in a $2 million loss recognized in impairments and loan loss reserves (recoveries), net.
In December 2020, the Company sold one secured loan with a $115 million principal balance for $109 million, resulting in a $6 million loss recognized in impairments and loan loss reserves (recoveries), net.
CCRC Resident Loans
For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the previous residence. At December 31, 2022 and 2021, the Company held $33 million and $24 million, respectively, of such notes receivable, which are included in mezzanine and other in the table above.
Loans Receivable Internal Ratings
In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
The following table summarizes, by year of origination, the Company’s internal ratings for loans receivable, net of unamortized discounts, fees, and reserves for loan losses, as of December 31, 2022 (in thousands):
Investment TypeYear of OriginationTotal
20222021202020192018Prior
Secured loans
Risk rating:
Performing loans$— $266,197 $75,552 $— $— $— $341,749 
Watch list loans— — — — — — — 
Workout loans— — — — — — — 
Total secured loans$— $266,197 $75,552 $— $— $— $341,749 
Mezzanine and other
Risk rating:
Performing loans$32,410 $595 $78 $— $— $— $33,083 
Watch list loans— — — — — — — 
Workout loans— — — — — — — 
Total mezzanine and other$32,410 $595 $78 $— $— $— $33,083 
Reserve for Loan Losses
The Company evaluates the liquidity and creditworthiness of its borrowers on a quarterly basis to determine whether any updates to the future expected losses recognized upon inception are necessary. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The determination of loan losses also considers concentration of credit risk associated with the senior housing industry to which its loans receivable relate. The Company’s borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis, which the Company utilizes to calculate the debt service coverages used in its assessment of internal ratings, which is a primary credit quality indicator. Debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, NOI, occupancy, rental rates, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures.
In its assessment of current expected credit losses for loans receivable and unfunded loan commitments, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each loan to estimate a probability of default and a resulting loss for each loan receivable. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends.
The following table summarizes the Company’s reserve for loan losses (in thousands):
 December 31, 2022December 31, 2021
 Secured LoansMezzanine and OtherTotalSecured LoansMezzanine and OtherTotal
Reserve for loan losses, beginning of period$1,804 $9 $1,813 $3,152 $7,128 $10,280 
Provision for expected loan losses6,527 7 6,534 793 896 1,689 
Expected loan losses related to loans sold or repaid(1)
(51)(16)(67)(2,141)(8,015)(10,156)
Reserve for loan losses, end of period$8,280 $— $8,280 $1,804 $9 $1,813 
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(1)Includes two loans sold or repaid during the year ended December 31, 2022 and six loans sold or repaid during the year ended December 31, 2021.
Additionally, at December 31, 2022 and 2021, a liability of $0.8 million and $0.3 million, respectively, related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities.
The change in the reserve for expected loan losses during the year ended December 31, 2022 is primarily due to the following: (i) macroeconomic conditions and (ii) increased interest rates on our variable rate loans.