Loans Receivable

9 Months Ended

Sep. 30, 2021

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets, net of allowance for credit losses. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $26,361,000 and $15,615,000 as of September 30, 2021 and December 31, 2020, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):


	September 30, 2021		December 31, 2020
Mortgage loans	$	957,114	$	299,430
Other real estate loans	174,078		152,739
Allowance for credit losses on real estate loans receivable	(15,547)		(8,797)
Real estate loans receivable, net of credit allowance	1,115,645		443,372
Non-real estate loans	362,077		455,508
Allowance for credit losses on non-real estate loans receivable	(151,255)		(215,239)
Non-real estate loans receivable, net of credit allowance	210,822		240,269
Total loans receivable, net of credit allowance	$	1,326,467	$	683,641

The following is a summary of our loan activity for the periods presented (in thousands):


	Nine Months Ended
	September 30, 2021		September 30, 2020
Advances on loans receivable:
Investments in new loans	$	935,594	$	194,942
Draws on existing loans	17,412		21,365
Net cash advances on loans receivable	953,006		216,307

Receipts on loans receivable:
Loan payoffs	179,827		—
Principal payments on loans	70,588		14,345
Net cash receipts on loans receivable	250,415		14,345
Net cash advances (receipts) on loans receivable	$	702,591	$	201,962

During the quarter ended June 30, 2021, we provided £540 million (approximately $750,330,000 based on the Sterling/ U.S. Dollar exchange rate as of the date of funding) of senior loan financing and a £30 million delayed facility for working capital and capital expenditures to affiliates of Safanad, a global real estate and private equity firm, as part of the recapitalization of its investment in HC-One Group. The loan has a five-year term and is fully collateralized by the shares and assets of the HC-One Group, including its underlying property portfolio of owned assets across the U.K. As part of the transaction, we received equity warrants which provide us the right to participate in the capital appreciation of HC-One Group above a designated price upon liquidation. See Note 12 for additional details.

The allowance for credit losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of each of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral.

A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality, we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses. The following is a summary of our loans by credit loss category (in thousands):


	September 30, 2021
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2018	$	178,301	$	(148,438)	$	29,863	3
Collective loan pool	2007-2016	201,939		(3,061)		198,878		17
Collective loan pool	2017	125,661		(1,127)		124,534		7
Collective loan pool	2018	23,263		(346)		22,917		2
Collective loan pool	2019	22,047		(334)		21,713		4
Collective loan pool	2020	46,335		(703)		45,632		6
Collective loan pool	2021	895,723		(12,793)		882,930		17
Total loans		$	1,493,269	$	(166,802)	$	1,326,467	56

In March 2020, we recognized a provision for loan losses of $6,898,000 to fully reserve for one Triple-net non-real estate loan receivable that was no longer deemed collectible. Aside from this specific reserve, the remainder of the provision for loan losses relates to the application of the historical loss experience on the collective loan pools. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):


	Nine Months Ended
	September 30, 2021		September 30, 2020
Balance at beginning of period	$	224,036	$	68,372
Adoption of ASU 2016-13	—		5,212
Provision for loan losses	7,309		11,351
Loan write-offs (1)	(64,075)		—
Foreign currency translation	(468)		(40)
Balance at end of period	$	166,802	$	84,895

(1) Includes $64,075,000 related to the Genesis Healthcare lease terminations for the nine months ended September 30, 2021. See Note 9 for further details.

The following is a summary of our deteriorated loans (in thousands):


	Nine Months Ended
	September 30, 2021		September 30, 2020
Balance of deteriorated loans at end of period (1)	$	178,301	$	249,314
Allowance for credit losses	(148,438)		(76,695)
Balance of deteriorated loans not reserved	$	29,863	$	172,619
Interest recognized on deteriorated loans (2)	$	3,171	$	13,847

(1) Current year amounts include $2,157,000 and $3,623,000 of loans on non-accrual as of September 30, 2021 and December 31, 2020, respectively. Prior year amounts include $10,686,000 and $2,534,000 as of September 30, 2020 and December 31, 2019, respectively.

(2) Represents cash interest recognized in the period.