NOTE 5 - MORTGAGE NOTES RECEIVABLE

As of December 31, 2018, mortgage notes receivable relate to six fixed rate mortgages on 54 long-term care facilities. The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property. The mortgage notes receivable relate to facilities located in six states, operated by six independent healthcare operating companies. We monitor compliance with mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding loans.

The principal amounts outstanding of mortgage notes receivable, net of allowances, were as follows:


	December 31,
	2018		2017
	(in thousands)
Mortgage note due 2027; interest at 10.18%	$	112,500	$	112,500
Mortgage notes due 2029; interest at 9.87%(1)		537,515		476,320
Other mortgage notes outstanding(2)		65,748		87,317
Mortgage notes receivable, gross		715,763		676,137
Allowance for loss on mortgage notes receivable(3)		(4,905)		(4,905)
Total mortgages — net	$	710,858	$	671,232

(1)

Approximates the weighted average interest rate on 39 facilities. Two notes totaling approximately $20.5 million are construction mortgages maturing in 2019. The remaining loan balance matures in 2029.

(2)

Other mortgage notes outstanding have a weighted average interest rate of 11.25% per annum and maturity dates between 2019 and 2028.

(3)

The allowance for loss on mortgage notes receivable relates to one mortgage with an operator. The carrying value and fair value of the mortgage note receivable is approximately $1.5 million at December 31, 2018 and December 31, 2017.

$112.5 Million of Mortgage Note due 2027

On January 17, 2014, we entered into a $112.5 million first mortgage loan with an existing operator. The loan is secured by seven SNFs and two ALFs located in Pennsylvania and Ohio, respectively. The mortgage is cross-defaulted and cross-collateralized with our existing master lease with the operator. In March 2018, we extended the maturity date to January 31, 2027 and provided an option to extend the maturity for a five year period through January 31, 2032 and a second option to extend the maturity through September 30, 2034.

$537.5 Million of Mortgage Notes due 2029

On June 30, 2014, we entered into a mortgage loan agreement with Ciena Healthcare (“Ciena”) to refinance/consolidate $117 million in existing mortgages with maturity dates ranging from 2021 to 2023 on 17 facilities into one mortgage and simultaneously provide mortgage financing for an additional 14 facilities. The $415 million mortgage (the “Master Mortgage”) matures in 2029 and is secured by 30 facilities. The Master Mortgage note bore an initial interest rate of 9.0% per annum which increases by 0.225% per annum. As of December 31, 2018, the outstanding principal balance of the Master Mortgage note is approximately $409.3 million and the interest rate is 9.9% per annum.

Subsequent to June 30, 2014, the Company amended its Master Mortgage with Ciena to provide for additional borrowings in the form of incremental facility mortgages, construction and/or improvement mortgages with maturity dates in 2019 and 2029 with initial annual interest rates ranging between 8.5% and 10% and fixed annual escalators of 2% or 2.5% over the prior year’s interest rate, or a fixed increase of 0.225% per annum. As of December 31, 2018 the outstanding principal balance of these mortgage notes are approximately $84.1 million.

In June 2018, we amended the Master Mortgage with Ciena to provide an additional $44.7 million mortgage note related to five SNFs located in Michigan. The mortgage note matures on June 30, 2029 and bears an initial annual interest rate of 9.5% which increases each year by 0.225%. As of December 31, 2018, the outstanding principal balance of this mortgage note is approximately $44.2 million. Additionally, the Company committed to fund an additional $9.6 million to Ciena if certain performance metrics are achieved by the portfolio.

The mortgage notes with Ciena are cross-defaulted and cross-collateralized with our existing master lease and other investment notes with the operator.

Mortgage notes paid off

In January 2018, one of our operators repaid two construction loans with a total outstanding balance of approximately $21.2 million. These construction loans bore interest at 8.75%.