Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as "believes," "expects," "may," "will," "could," "would," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates," or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, our dependence on our operators for revenue and cash flow; the duration and extent of the effects of the COVID-19 pandemic; government regulation of the health care industry; federal and state health care cost containment measures including reductions in reimbursement from third-party payors such as Medicare and Medicaid; required regulatory approvals for operation of health care facilities; a failure to comply with federal, state, or local regulations for the operation of health care facilities; the adequacy of insurance coverage maintained by our operators; our reliance on a few major operators; our ability to renew leases or enter into favorable terms of renewals or new leases; operator financial or legal difficulties; the sufficiency of collateral securing mortgage loans; an impairment of our real estate investments; the relative illiquidity of our real estate investments; our ability to develop and complete construction projects; our ability to invest cash proceeds for health care properties; a failure to qualify as a REIT; our ability to grow if access to capital is limited; and a failure to maintain or increase our dividend. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under "Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 and in our publicly available filings with theSecurities and Exchange Commission . We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise.
Executive Overview
Business and Investment Strategy
We are a real estate investment trust ("REIT") that invests in seniors housing and health care properties through sale-leaseback transactions, mortgage financing, joint ventures, construction financing and structured finance solutions including mezzanine lending. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. 25
Table of Contents
The following graph summarizes our gross investments as of
[[Image Removed: Diagram Description automatically generated]]
Our primary seniors housing and health care property classifications include skilled nursing centers ("SNF"), assisted living communities ("ALF"), independent living communities ("ILF"), memory care communities ("MC") and combinations thereof. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision-making purposes. For purposes of this quarterly report and other presentations, we generally include ALF, ILF, MC, and combinations thereof in the ALF classification. As ofJune 30, 2021 , seniors housing and long-term health care properties comprised approximately 99.3% of our real estate investment portfolio. We have been operating sinceAugust 1992 . Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals, interest earned on outstanding loans receivable and income from investments in unconsolidated joint ventures. Income from our investments in owned properties and mortgage loans represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by property type and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance. In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross- 26 Table of Contents
defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.
Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related properties. New investments are generally funded from cash on hand, proceeds from periodic asset sales, temporary borrowings under our unsecured revolving line of credit and internally generated cash flows. Our investments generate internal cash from rent and interest receipts and principal payments on mortgage loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving line of credit, is expected to be provided through a combination of public and private offerings of debt and equity securities and secured and unsecured debt financing. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets' environment, especially to changes in interest rates. Changes in the capital markets' environment may impact the availability of cost-effective capital. We believe our business model has enabled and will continue to enable us to maintain the integrity of our property investments, including in response to financial difficulties that may be experienced by operators. Traditionally, we have taken a conservative approach to managing our business, choosing to maintain liquidity and exercise patience until favorable investment opportunities arise.
COVID-19
OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of coronavirus ("COVID-19") as a pandemic, and onMarch 13, 2020 ,the United States declared a national emergency with regard to COVID-19. The COVID-19 pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, includingthe United States , has significantly and adversely impacted public health and economic activity, and has contributed to significant volatility, dislocations and liquidity disruptions in financial markets. The operations and occupancy levels at our properties have been adversely affected by COVID-19 and could be further adversely affected by COVID-19 or another pandemic especially if there are infections on a large scale at our properties. The impact of COVID-19 has included, and another pandemic could include, early resident move-outs, our operators delaying accepting new residents due to quarantines, potential occupants postponing moves to our operators' facilities, and/or hospitals cancelling or significantly reducing elective surgeries thereby there were fewer people in need of skilled nursing care. Additionally, as our operators have responded to the pandemic, operating costs have begun to rise. A decrease in occupancy, ability to collect rents from residents and/or increase in operating costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent. In recognition of the pandemic impact affecting our operators, we have agreed to rent abatements totaling$2.8 million and rent deferrals for certain operators totaling$4.8 million betweenApril 2020 andJune 2021 , of which$1.5 million subsequently has been repaid. The$6.1 million in rent abatements and deferrals, net of repayments, represented approximately 2% of ourApril 2020 throughJune 2021 contractual rent and interest. The remaining balance of deferred rent is due to us over the next 24 months or upon receipt of government funds from theU.S. Coronavirus Aid, Relief, and Economic Security (the "CARES Act"). During the six months endedJune 30, 2021 , we proactively provided additional financial support to the majority of our operators by reducing 2021 rent and interest escalations by 50%. The rent and interest escalation reduction were given in the form of a rent and interest credit in recognition of operators' increased costs due to COVID-19. During six months endedJune 30, 2021 , we recognized a decrease of$0.5 million of GAAP revenue and a decrease of$1.3 million of cash revenue. We expect the 27
Table of Contents
escalation reductions to have a de minimis effect on GAAP revenue during the third and fourth quarters of 2021.
Real Estate Portfolio Overview
The following tables summarize our real estate investment portfolio by owned properties and mortgage loans and by type, as ofJune 30, 2021 (dollar amounts in thousands): Six Months Ended Percentage June 30, 2021 Percentage Number Number of Gross of Rental Interest of of SNF ALF Owned Properties Investments Investments Income (1) Income Revenues Properties (2) Beds (3) Units (3) Assisted Living$ 840,502 50.2 %$ 26,586 $ - 37.3 % 102 - 5,799 Skilled Nursing 560,467 33.5 % 28,399 - 39.8 % 51 6,277 212 Other (4) 11,360 0.7 % 483 - 0.7 % 1 118 -Total Owned Properties 1,412,329 84.4 % 55,468 - 77.8 % 154 6,395 6,011 Mortgage Loans Skilled Nursing 259,641 15.6 % - 15,855 22.2 % 22 2,739 - Total Mortgage Loans 259,641 15.6 % - 15,855 22.2 % 22 2,739 - Total Portfolio$ 1,671,970 100.0 %$ 55,468 $ 15,855 100.0 % 176 9,134 6,011 Six Months Ended Percentage June 30, 2021 Percentage Number Number of Gross of Rental Interest of of SNF ALF
Summary of Properties by Type Investments Investments Income (1)
Income Revenues Properties (2) Beds (3) Units (3) Assisted Living$ 840,502 50.2 %$ 26,586 $ - 37.3 % 102 - 5,799 Skilled Nursing 820,108 49.1 % 28,399 15,855 62.0 % 73 9,016 212 Other (4) 11,360 0.7 % 483 - 0.7 % 1 118 - Total Portfolio$ 1,671,970 100.0 %$ 55,468 $ 15,855 100.0 % 176 9,134 6,011
(1) Excludes variable rental income from lessee reimbursement and rental income
from sold properties.
(2) We have investments in owned properties and mortgage loans in 27 states
leased or mortgaged to 31 different operators.
(3) See Item 1. Financial Statements - Note 2. Real Estate Investments for
discussion of bed/unit count.
(4) Includes three parcels of land held-for-use and one behavioral health care
hospital. As ofJune 30, 2021 , we had$1.3 billion in net carrying value of real estate investments, consisting of$1.1 billion or 80.4% invested in owned and leased properties and$0.3 billion or 19.6% invested in mortgage loans secured by first mortgages. Our investment in mortgage loans mature in 2043 and beyond and contain interest rates between 9.3% and 10.1%. For the six months endedJune 30, 2021 , rental income represented 78.8% of total gross revenues, interest income represented 20.2% of total gross revenues and other investments represented 1.0% of total gross revenues. In most instances, our lease structure contains fixed annual rental escalations and/or annual rental escalations that are contingent upon changes in the Consumer Price Index, which are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved. For the six months endedJune 30, 2021 , we recorded$0.7 million in straight-line rental income and amortization of lease incentive cost of$0.2 million . During the six months endedJune 30, 2021 , we received$62.1 million of cash rental income, which includes$7.1 million of operator reimbursements for our real estate taxes. AtJune 30, 2021 , the straight-line rent receivable balance, net of write-offs for uncollectible amounts, on the balance sheet
was$24.4 million . 28 Table of Contents
Update on Certain Operators
Senior Care Centers, LLC and affiliates and subsidiaries ("Senior Care") filed for Chapter 11 bankruptcy inDecember 2018 . During 2019, while in bankruptcy, Senior Care assumed LTC's master lease and, inMarch 2020 , Senior Care emerged from bankruptcy. Concurrent with their emergence from bankruptcy, in accordance with the order confirming Senior Care's plan of reorganization,Abri Health Services, LLC ("Abri Health ") was formed as the parent company of reorganized Senior Care and became co-tenant and co-obligor with reorganized Senior Care under our master lease. InMarch 2021 , as a result of Senior Care's andAbri Health's (collectively, the "Lessee") unpaid lease obligations under the master lease, we sent a notice of default and applied proceeds from letters of credit to certain obligations owed under the master lease. Furthermore, onApril 7, 2021 , we sent the Lessee a notice of termination of the master lease to be effectiveApril 17, 2021 . OnApril 16, 2021 , the Lessee filed for Chapter 11 bankruptcy, which bankruptcy proceeding(s) remain pending.
During the third quarter of 2020, we consolidated our four leases withBrookdale Senior Living Communities, Inc ("Brookdale") into one master lease and extended the term by one year toDecember 31, 2021 . The master lease provides three renewal options consisting of a four-year renewal option, a five-year renewal option and a 10-year renewal option. The economic terms of rent remain the same as the consolidated rent terms under the previous four separate lease agreements. During the first quarter of 2021, the Brookdale master lease was amended to extend the current term by one year toDecember 31, 2022 . The notice period for this renewal option isJanuary 1, 2022 toApril 30, 2022 . Brookdale is current on rent payments throughJuly 2021 .
An affiliate ofSenior Lifestyle Corporation ("Senior Lifestyle") operated 23 of our properties under a master lease with a combination of independent living, assisted living and memory care units. Senior Lifestyle failed to pay full rent to us during the second quarter of 2020. Accordingly, we wrote-off a total$17.7 million of straight-line rent receivable and lease incentives related to this master lease and transitioned rental revenue recognition to cash basis effectiveJuly 2020 . During 2020, Senior Lifestyle paid us$13.8 million of their$18.4 million contractual rent and we applied their letter of credit and deposits totaling$3.7 million to past due rent of$3.6 million and to their outstanding notes receivable of$0.1 million . Accordingly, we recognized$17.4 million of rental revenue from Senior Lifestyle in 2020. To date in 2021, Senior Lifestyle has not paid rent or its other obligations under the master lease. During the six months endedJune 30, 2021 , we transitioned 12 assisted living communities previously leased to Senior Lifestyle to three operators. These communities are located inIllinois ,Ohio ,Colorado andWisconsin . Total cash rent expected under these three master lease agreements is$5.3 million for the first lease year,$7.3 million for the second lease year and$7.6 million for the third lease year, escalating 2% annually thereafter. Additionally, we sold three assisted living communities located inWisconsin and a closed community located inNebraska previously leased to Senior Lifestyle for a total sales price of$35.9 million . We received total combined proceeds of$34.8 million and recorded a net gain on sale of$5.4 million . 29 Table of Contents Subsequent toJune 30, 2021 , we transitioned an assisted living community inWisconsin , previously leased to Senior Lifestyle, to a regionally based operator new to us. The lease has a 10-year term with three 5-year renewal terms. Cash rent under the new lease is$0.9 million in the first lease year,$1.2 million in the second lease year,$1.3 million in the third lease year, and escalating 2% annually thereafter. Also, we entered into the following two lease agreements covering a total of six communities in the Senior Lifestyle portfolio:
three assisted living communities to an existing operator. Two properties are
? located in
with zero cash rent for the first three months then cash rent will be based on
mutually agreed fair market rent.
three assisted living communities in
? lease has a 2-year term with zero cash rent for the first three months then
cash rent will be based on mutually agreed fair market rent.
Genesis Healthcare, Inc
OnAugust 10, 2020 , in the Quarterly Report on Form 10-Q, Genesis Healthcare, Inc. ("Genesis") reported doubt regarding its ability to continue as a going concern. As a result, we wrote-off$4.3 million of straight-line rent receivable related to this master lease during the third quarter of 2020 and transitioned rental revenue recognition to cash basis effectiveSeptember 2020 . OnMarch 3, 2021 , Genesis announced its three-part strategic restructuring plan to strengthen its liquidity position and capital structure. As part of its plan, Genesis delisted its Class A common stock from theNew York Stock Exchange and deregistered its Class A Common Stock under the Securities Exchange Act of 1934, during the first quarter of 2021. Genesis is current on rent payments throughJuly 2021 . Other Operators During the third quarter of 2020, an operator failed to pay its full contractual rent. Accordingly, we wrote-off$1.2 million of straight-line rent receivable related to this master lease. EffectiveSeptember 1, 2020 , we consolidated our two master leases with the operator into one combined master lease. Under the new combined master lease, we agreed to abate$0.7 million of rent and allow the operator to defer rent as needed throughMarch 31, 2021 . During the first quarter of 2021, the new combined master lease was amended to extend the deferral period another three months startingApril 1, 2021 . During the second quarter of 2021, the combined master lease was further amended to extend the deferral period throughSeptember 30, 2021 . During the six months endedJune 30, 2021 , the operator deferred$2.1 million of rent and, atJune 30, 2021 , the remaining deferred rent balance due from the operator was$2.5 million . InJuly 2021 , the operator deferred$0.4 million and has a total deferred rent balance of$2.9 million . The operator can defer rent up to$0.4 million for each of August andSeptember 2021 . During 2020, we recorded an impairment charge of$1.0 million related to an assisted living community that was operated by the operator. The community was closed inOctober 2020 and sold during the first quarter of 2021. As a result of this transaction, we recognized a net loss on sale of$0.9 million during the first quarter of 2021. 30 Table of Contents
2021 Rent deferrals, net of repayments, and abatements (in thousands):
Three Months Ended
Three Months Ended
March 31, 2021 June 30, 2021 July 2021 Rent deferrals, net of repayments $ 1,122 $ 1,121$ 366 Rent abatements 600 1,069 323 50% reduction of 2021 rent & interest escalations 1,204
133 - $ 2,926 $ 2,323$ 689
We have agreed to provide rent deferrals up to
31 Table of Contents 2021 Activities Overview
The following tables summarize our transactions during the six months ended
Investment in Development and Improvement projects
Developments Improvements Assisted Living Communities $ -$ 2,046 Properties Sold Type Number Number of of of Sales Carrying Net State (1) Properties Properties Beds/Units Price Value (Loss) gain (2) n/a n/a - - $ - $ - $ 159 (3) Florida ALF 1 - 2,000 2,625 (858) Nebraska ALF 1 40 900 1,079 (205) Wisconsin ALF 3 263 35,000 28,295 5,594 5 303$ 37,900 $ 31,999 $ 4,690
Subsequent to
$2,600 .
(2) Calculation of net (loss) gain includes cost of sales.
We recognized additional gain due to the reassessment adjustment of the (3) holdbacks related to properties sold in 2019 and 2020 under the expected
value model per ASC Topic 606, Contracts with Customers ("ASC 606").
Investment in Mortgage Loans
Originations and funding under mortgage loans receivable
(625) Mortgage loan premium amortization (3) Recovery of loan loss reserve 2 Net decrease in mortgage loans receivable$ (200)
Investment in
Type Type Total Contractual Number 2021 Cash of of Preferred Cash of Carrying Capital Income Interest State Properties Investment Return Portion
Beds/ Units Value Contribution Recognized Received Washington (1) UDP Preferred Equity (1) 12 % 7 % -$ 6,340 $ -$ 225 $ 187 Washington (2) UDP Preferred Equity (2) 12 % 8 % - 13,000 8,000 440 353 -$ 19,340 $ 8,000 $ 665 $ 540
Invested
95-unit ALF/MC in
cash rate of 7% increasing to 9% in year four until the internal rate of
return ("IRR") is 8%. After achieving an 8% IRR, the cash rate drops to 8%
until achieving an IRR ranging between 12% to 14%.
Invested
estimated total investment. The preferred equity investment earns an initial
cash rate of 8% until achieving an IRR ranging between 12% and 14%.
Notes Receivable
Advances under notes receivable$ 1,811 (1)
Principal payments received under notes receivable (2,553) Notes receivable loan loss reserve
7 Net increase in notes receivable$ (735)
(1) Funding under working capital notes and mezzanine loans with interest ranging
between 5% and 8% and maturities between 2022 and 2030. 32 Table of Contents
Health Care Regulatory Climate
TheCenters for Medicare & Medicaid Services ("CMS") annually updates Medicare skilled nursing facility ("SNF") prospective payment system rates and other policies. OnJuly 30, 2019 , CMS issued its final fiscal year 2020 Medicare skilled nursing facility update. Under the final rule, CMS projected aggregate payments to SNFs would increase by$851 million , or 2.4%, for fiscal year 2020 compared with fiscal year 2019. The final rule also addressed implementation of the new Patient-Driven Payment Model case mix classification system that became effective onOctober 1, 2019 , changes to the group therapy definition in the skilled nursing facility setting, and various SNF Value-Based Purchasing and quality reporting program policies. OnApril 10, 2020 , CMS issued a proposed rule to update SNF rates and policies for fiscal year 2021, which startedOctober 1, 2020 , and issued the final rule onJuly 31, 2020 . CMS estimated that payments to SNFs would increase by$750 million , or 2.2%, for fiscal year 2021 compared to fiscal year 2020. CMS also adopted revised geographic delineations to identify a provider's status as an urban or rural facility and to calculate the wage index, applying a 5% cap on any decreases in a provider's wage index from fiscal year 2020 to fiscal year 2021. Finally, CMS also finalized updates to the SNF value-based purchasing program to reflect previously finalized policies, updated the 30-day phase one review and correction deadline for the baseline period quality measure quarterly report, and announced performance periods and performance standards for the fiscal year 2023 program year. OnApril 8, 2021 , CMS issued a proposed rule to update SNF rates and policies for fiscal year 2022, which startsOctober 1, 2021 . CMS estimates that under the proposed rule, overall payments to SNFs under the SNF prospective payment system in fiscal year 2022 are projected to increase by approximately$444 million , or 1.3%, compared with those in fiscal year 2021. The proposed rule also includes proposals for the SNF Quality Reporting Program, and the SNF Value-Based Program for fiscal year 2022. Since the announcement of the COVID-19 pandemic and beginning as ofMarch 13, 2020 , CMS has issued numerous temporary regulatory waivers and new rules to assist health care providers, including SNFs, respond to the COVID-19 pandemic. These include waiving the SNF 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced a temporary expansion of its Accelerated and Advance Payment Program to allow SNFs and certain other Medicare providers to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments they received from October-December 2019 ; this expansion was suspendedApril 26, 2020 in light of other CARES Act funding relief. The Continuing Appropriations Acts, 2021 and Other Extensions Act, enacted onOctober 1, 2020 , amended the repayment terms for all providers and suppliers that requested and received accelerated and advance payments during the COVID-19 public health emergency. Specifically,Congress gave providers and suppliers that received Medicare accelerated and advance payment(s) one year from when the first loan payment was made to begin making repayments. In addition, CMS has also enhanced requirements for nursing facilities to report COVID-19 infections to local, state and federal authorities. OnJuly 19, 2021 , HHS Secretary Becerra announced that he had renewed, effectiveJuly 20, 2021 , the declared public health emergency for an additional 90-day period. OnMarch 26, 2020 ,President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), sweeping legislation intended to bolster the nation's response to the COVID-19 pandemic. In addition to offering economic relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many other provisions. Notably, the CARES Act temporarily suspended the 2% across-the-board "sequestration" reduction during the periodMay 1, 2020 throughDecember 31, 2020 , and 33
Table of Contents
extends the current Medicare sequester requirement through fiscal year 2030. In addition, the law provides$100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. OnApril 10, 2020 , CMS announced the distribution of$30 billion in funds to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers were required to agree to certain terms and conditions in receiving these grants. In addition, theDepartment of Health and Human Services ("HHS") authorized$20 billion of additional funding for providers that have already received funds from the initial distribution of$30 billion . Unlike the first round of funds, which came automatically, providers were required to apply for these additional funds and submit the required supporting documentation, using the online portal provided by HHS. Providers were required to attest to and agree to specific terms and conditions for the use of such funds. HHS expressed a goal of allocating the whole$50 billion proportionally across all providers based on those providers' proportional share of 2018 net Medicare fee-for-service revenue, so that some providers will not be eligible for additional funds. OnMay 22, 2020 , HHS announced that it had begun distributing$4.9 billion in additional relief funds to SNFs to offset revenue losses and assist nursing homes with additional costs related to responding to the COVID-19 public health emergency and the shipments of personal protective equipment provided to nursing homes by theFederal Emergency Management Agency . OnJune 9, 2020 , HHS announced that it expected to distribute approximately$15 billion to eligible providers that participate in state Medicaid andChildren's Health Insurance Program ("CHIP") programs and have not received a payment from theProvider Relief Fund General Allocation. OnJuly 22, 2020 ,President Trump announced that HHS would devote$5 billion in Provider Relief Funds to Medicare-certified long-term care facilities and state veterans' homes to build nursing home skills and enhance nursing homes' response to COVID-19, including enhanced infection control. Nursing homes were required to t participate in the Nursing Home COVID-19 training to qualify for this funding. OnAugust 27, 2020 , HHS announced that it had distributed almost$2.5 billion to nursing homes to support increased testing, staffing, and personal protective equipment needs. OnSeptember 3, 2020 , HHS announced a$2 billion performance-based incentive payment distribution to nursing homes and SNFs. Finally, onOctober 1, 2020 , theTrump Administration announced$20 billion in additional funding for several types of providers, including thosewho previously received, rejected, or accepted a general distribution provider relief fund payment. The application deadline for these Phase 3 funds wasNovember 6, 2020 . OnDecember 27, 2020 ,President Trump signed the Consolidated Appropriations Act, 2021 (H.R. 133). The$1.4 trillion omnibus appropriations legislation funds the government throughSeptember 30, 2021 and was attached to a$900 billion COVID-19 relief package. Of the$900 billion in COVID-19 relief,$73 billion was allocated to HHS. Notably, the bill adds an additional$3 billion to theProvider Relief Fund , includes language specific to reporting requirements, and allows providers to use any reasonable method to calculate lost revenue, including the difference between such provider's budgeted and actual revenue budget if such budget had been established and approved prior toMarch 27, 2020 , to demonstrate entitlement for these funds. This change reverts to HHS' previous guidance fromJune 2020 on how to calculate lost revenues. The Consolidated Appropriations Act, 2021, also extended the CARES Act's sequestration suspension toMarch 31, 2021 . OnJanuary 15, 2021 , HHS announced that it would be amending the reporting timeline for Provider Relief Funds and indicated that it was working to update theProvider Relief Fund requirements to be consistent with the passage of the Consolidated Appropriations Act, 2021. OnApril 14, 2021 ,President Biden signed an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (H.R. 1868), which extended the sequestration suspension period toDecember 31, 2021 . OnJune 11, 2021 , HHS issued revised reporting requirements for recipients ofProvider Relief Fund payments. The announcement included expanding the amount of time providers will have to report information, aimed to reduce burdens on smaller providers, and extended key deadlines for expendingProvider Relief Fund payments for recipientswho received payments afterJune 30, 2020 . The revised reporting requirements would be applicable to providerswho received one or more payments 34 Table of Contents exceeding, in the aggregate,$10,000 during a single Payment Received Period from the PRF General Distributions, Targeted Distributions, and/or Skilled Nursing Facility and Nursing Home Infection Control Distributions. OnJuly 1, 2021 , HHS, through theHealth Resources and Services Administration ("HRSA"), notified recipients ofProvider Relief Fund payments by e-mail that the Provider Relief Fund Reporting Portal is now open for recipientswho are required to report on the use of funds in Reporting Period 1, as described by HHS'sJune 11, 2021 update to the reporting requirements. OnJuly 18, 2019 , CMS published a final rule that eliminates the prohibition on pre-dispute binding arbitration agreements between long-term care facilities and their residents. The rule also strengthens the transparency of arbitration agreements and makes other changes to arbitration requirements for long-term care facilities. There can be no assurance that these rules or future regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for SNFs and other Medicare providers, limiting state Medicaid funding allotments, encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services.Congress continues to consider further legislative action in response to the COVID-19 pandemic. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers, which subsequently could materially adversely impact our company. Additional reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls due to increased costs in addressing the COVID-19 pandemic.Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third-party payors.
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to concentration risk and credit strength. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results in making operating decisions and for budget planning purposes. Concentration Risk. We evaluate by gross investment our concentration risk in terms of asset mix, real estate investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our real estate investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or mortgage loans.The National Association of Real Estate Investment Trusts ("NAREIT"), an organization representingU.S. REITs and publicly traded real estate companies, classifies a company with 50% or more of assets directly or indirectly in the equity ownership of real estate as an equity REIT. Investment mix measures the portion of our investments that relate to our various property classifications. Operator mix measures the portion of our investments that relate to our top five operators. Geographic mix 35
Table of Contents
measures the portion of our real estate investment that relate to our top five states.
The following table reflects our recent historical trends of concentration risk (gross investment, in thousands):
6/30/21 3/31/21 12/31/20 9/30/20 6/30/20 Asset mix: Real property$ 1,412,329 $ 1,449,062 $ 1,452,001 $ 1,448,764 $ 1,445,691 Loans receivable 259,641 259,874 259,843 260,267 258,649 Real estate investment mix: Skilled nursing centers$ 820,108 $ 820,343 $ 820,312 $ 817,364 $ 812,637 Assisted living communities 840,502 877,233 880,172 880,307 880,343 Other (1) 11,360 11,360 11,360 11,360 11,360 Operator mix: Prestige Healthcare (1)$ 272,773 $ 273,007 $ 272,976 $ 273,399 $ 271,781 Senior Care Centers/ Abri Health Services 138,109 138,109 138,109 138,109 138,109Anthem Memory Care 136,483 136,483 136,483 136,483 136,483 Carespring Health Care Management 102,520 102,520 102,520
102,520 102,520 Brookdale Senior Living 101,240 101,012 100,613 98,921 98,921 Remaining operators 920,845 957,805 961,143 959,599 956,526 Geographic mix: Michigan$ 281,762 $ 281,995 $ 281,963 $ 282,103 $ 279,821 Texas 273,588 273,468 273,287 273,075 273,075 Wisconsin 114,250 149,403 149,403 149,403 149,403 California 105,892 105,352 105,163 104,924 104,687 Colorado 104,347 104,307 104,090 106,879 106,879 Remaining states 792,131 794,411 797,938 792,647 790,475
(1) Includes three parcels of land located adjacent to properties securing the
Prestige Healthcare mortgage loan and are managed by Prestige. Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our Consolidated Balance Sheets capitalization is related to long-term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest). The coverage ratios are based on earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") as defined by NAREIT. EBITDAre is calculated as net income available to common stockholders (computed in accordance with GAAP) excluding (i) interest expense, (ii) income tax expense, (iii) real estate depreciation and amortization, (iv) impairment write-downs of depreciable real estate, (v) gains or losses on the sale of depreciable real estate, and (vi) adjustments for unconsolidated partnerships and joint ventures. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures: 36 Table of Contents
© Edgar Online, source