Caution 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; the impact of inflation, 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 ended
December 31, 2021and in our publicly available filings with the Securities 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.
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. 24
The following graph summarizes our gross investments at
Description generated automatically with
medium confidence]] 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 of
March 31, 2022, seniors housing and long-term health care properties comprised approximately 98.6% of our investment portfolio. We have been operating since August 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. 25
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-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. We could also look to 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.
March 11, 2020, the World Health Organizationdeclared the outbreak of coronavirus ("COVID-19") as a pandemic, and on March 13, 2020, the United Statesdeclared 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, including the 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 ongoing pandemic impact affecting our operators, we have agreed to rent abatements totaling $5.2 millionand rent deferrals for certain operators totaling $8.7 millionbetween April 2020and March 2022, of which $1.7 millionsubsequently has been repaid. The $12.2 millionin rent abatements and deferrals, net of repayments, represented approximately 3.4% of our April 2020through March 2022contractual rent and interest. The remaining balance of deferred rent is due to us over the next 36 months or upon receipt of government funds from the U.S.Coronavirus Aid, Relief, and Economic Security (the "CARES Act"). 26 Table of Contents During the three months ended March 31, 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 three months ended March 31, 2021, we recognized a Generally Accepted Accounting Principles ("GAAP") revenue decrease of $0.3 millionand a cash revenue decrease of $1.2 millionrelated to the
50% escalation reduction. 27 Table of Contents
Overview of the real estate portfolio
The following tables summarize our real estate investment portfolio by owned properties and mortgage loans and by property type, as of
March 31, 2022(dollar amounts in thousands): Three Months Ended March 31, 2022 Number of Percentage Percentage Number of SNF ALF Gross of Rental of Total Owned Properties Properties (1) Beds Units Investments Investments Revenue Revenues Assisted Living 102 - 5,798 $ 844,99545.9 % $ 14,216 38.2 % Skilled Nursing 50 6,154 212 553,073 30.1 % 11,884 32.0 % Other (2) 1 118 - 11,557 0.6 % 242 0.7 % Total Owned Properties153 6,272 6,010 1,409,625 76.6 % 26,342 (4) 70.9 % Number of Percentage Interest Income Percentage Number of SNF ALF Gross of from Mortgage of Total Mortgage Loans Properties (1) Beds Units Investments Investments Loans Revenues Assisted Living 14 - 591 61,960 3.4 % 1,179 3.2 % Skilled Nursing 23 2,916 - 286,297 15.5 % 8,423 22.7 % Other (3) - - - 1,780 0.1 % 34 0.1 % Total Mortgage Loans 37 2,916 591 350,037 19.0 % 9,636 26.0 % Number of Percentage Interest Percentage Number of SNF ALF Gross of and other of Total Notes Receivable Properties (1) Beds Units Investments Investments Income Revenues Assisted Living (5) 7 - 961 43,347 2.4 % 629 1.7 % Skilled Nursing (6) - - - 18,780 1.0 % 160 0.4 % Total Notes Receivable 7 - 961 62,127 3.4 % 789 2.1 % Number of Percentage Income from Percentage Number of SNF ALF Gross of Unconsolidated of Total Unconsolidated Joint Ventures Properties (1) Beds Units Investments Investments Joint Ventures Revenues Assisted Living (7) 1 - 95 6,340 0.3 % 112 0.3 % Under Development (8) - - - 13,000 0.7 % 263 0.7 %
Total Unconsolidated Joint Ventures1 - 95
19,340 1.0 % 375 1.0 % Total Portfolio 198 9,188 7,657
$ 1,841,129100.0 % $ 37,142 100.0 % Number Number of Percentage of SNF ALF Gross of Summary of Properties by Type Properties (1) Beds Units Investments Investments Assisted Living 124 - 7,445 $ 956,64252.0 % Skilled Nursing 73 9,070 212 858,150 46.6 % Under Development - - - 13,000 0.7 % Other (2) (3) 1 118 - 13,337 0.7 % Total Portfolio 198 9,188 7,657 $ 1,841,129100.0 %
(1) We have investments in owned properties, mortgages, notes receivable and
unconsolidated joint ventures in 29 states to 35 operators.
(2) Includes three use plots and one behavioral health care plot
(3) Includes a parcel of land securing a first ranking mortgage held for
development of a qualified post-acute care centre.
(4) Excluding variable rental income from lessee reimbursement, adjustment for
collectability of rental income and sold properties. Includes a mezzanine loan on a 204-unit combination ILF, ALF, and MC in
(5) five ILF, ALF and MC combinations in
capital loans with interest rates between 5% and 7.5% with maturities between
2023 and 2031.
(6) Includes two working capital loans with interest between 4% and 6.5% and
deadlines between 2022 and 2030.
Includes a preferred share investment in an entity that has developed and owns a
95 ALF and MC units in
(7) total investment. Preferred stock investment earns initial cash rate
from 7% increasing to 9% in the fourth year until the internal rate of return (“IRR”)
is 8%. After achieving an 8% IRR, the cash rate drops to 8% with an IRR ranging between 12% to 14% depending on the timing of redemption.
Represents a preferred equity investment in an entity that will develop and
(8) hold an ILF/ALF of 267 housing units in
estimated total investment. Investment in preferred shares yields initial capital
cash rate of 8% with an IRR of 12%. 28 Table of Contents As of
March 31, 2022, we had $1.5 billionin net carrying value of investments, consisting of $1.0 billionor 70.6% invested in owned and leased properties and $0.3 billionor 23.9% invested in mortgage loans secured by first mortgages. Our investment in mortgage loans mature between 2022 and 2045 and contain interest rates between 7.3% and 10.4%. For the three months ended March 31, 2022, rental income represented 74.4% of total gross revenues, interest income from mortgage loans represented 23.6% of total gross revenues and interest and other income represented 2.0% 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. 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 three months ended March 31, 2022, we recorded $0.2 millionin straight-line rental adjustment and amortization of lease incentive cost of $0.2 million. Also, during the first quarter of 2022, we wrote-off a $0.2 millionlease incentive balance related to a property closure and subsequent lease termination. During the three months ended March 31, 2022, we received $31.0 millionof cash rental income, which includes $4.0 millionof operator reimbursements for our real estate taxes. At March 31, 2022, the straight-line rent receivable balance on the consolidated balance sheet was $23.9 million.
Update on some carriers and former carriers
Anthem Memory Care("Anthem") operates 11 memory care communities under a master lease and was placed in default in 2017 resulting from Anthem's partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. Anthem increased their rent payment every year between 2017 and 2021. Anthem paid us annual cash rent of $10.8 millionin 2021 and $9.9 millionin 2020. Recently, Anthem informed us that they may be unable to pay full agreed upon 2022 second quarter rent of $2.7 million. However, we anticipate receiving total cash rent from Anthem in 2022 of approximately $10.8 million. We receive regular financial performance updates from Anthem and continue to monitor their performance obligations under the master lease agreement. Anthem has paid their greed upon rent through April 2022.
Brookdale Senior Living Communities, Inc's("Brookdale") master lease was amended in the first quarter of 2021 to extend the term by one year through December 31, 2022. The renewal options under the amended master lease remained the same during the first quarter of 2022 and provided three renewal options consisting of a three-year renewal option, a five-year renewal option and a 10-year renewal option. The notice period for the first renewal option was January 1, 2022to April 30, 2022. Subsequent to March 31, 2022, Brookdale's master lease was again amended to extend the maturity to December 31, 2023. The renewal options under the new amended master lease remained unchanged except the term of the first renewal option was reduced from three years to two. Also, the notice period for the first renewal option was changed to November 1, 2022through February 28, 2023. During 2020, we extended to Brookdale a $4.0 millioncapital commitment which was fully funded during 2021, and a $2.0 millioncapital commitment which is available between January 1, 2022through December 31, 2022. Under the new amendment, the $2.0 millioncapital commitment was increased to $4.0 millionand the maturity was extended to February 28, 2023. The yield on these capital commitments is 7% with a reduced rate for 29
qualified ESG projects. During the three months ended
March 31, 2022, we funded $0.2 millionunder the $4.0 millioncapital commitment. Accordingly, we have a remaining commitment of $3.8 millionunder this commitment. Brookdale is current on rent payments through April 2022.
During 2020, an affiliate of Senior Lifestyle ("Senior Lifestyle") failed to pay its contractual obligations under its master lease. As a result, we applied their letter of credit and deposits to past due rent and to their outstanding notes receivable. Senior Lifestyle has not paid rent or its other obligations under the master lease since 2021. During 2021, we transition 18 assisted living communities previously leased to Senior Lifestyle to six operators. These communities are located in
Illinois, Ohio, Wisconsin, Colorado, Pennsylvaniaand Nebraska. Also, during 2021, we sold three Wisconsincommunities and a closed community in Nebraskapreviously leased to Senior Lifestyle for a combined total of $35.9 million. We received total proceeds of $34.8 millionand recorded a net gain on sale of $5.4 million. We expect to transition the remaining New Jerseycommunity to an existing operator during the second quarter of 2022. During the three months ended March 31, 2022, the assisted living community located in Colorado, which transitioned from Senior Lifestyle to a new operator during the first quarter of 2021, was closed and the lease was terminated. We have engaged a broker and intend to sell this assisted living community.
During 2020, we consolidated our two master leases with an operator into one combined master lease and agreed to abate
$0.7 millionof rent and allow the operator to defer rent as needed through March 31, 2021. The combined master lease was amended during 2021 and 2022 to extend the rent deferral period through April 30, 2022. The operator deferred rent of $1.3 millionduring the first quarter of 2022 and $0.4 millionin April 2022. The deferred balance due from this operator is $6.6 millionas of April 2022. We have not recorded this as revenue, nor have we abated the rent. We expect to address this deferred rent as we work with the operator toward a resolution for the portfolio.
Senior Care Centers, LLCand affiliates and subsidiaries ("Senior Care") filed for Chapter 11 bankruptcy in December 2018. During 2019, while in bankruptcy, Senior Care assumed LTC's master lease and, in March 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. In March 2021, Senior Care and Abri Health(collectively, "Lessee") failed to pay rent and additional obligations owed under the master lease. Accordingly, we sent a notice of default and applied proceeds from letters of credit to certain obligations owed under the master lease. Furthermore, we sent the Lessee a notice of termination of the master lease to be effective April 17, 2021. On April 16, 2021, the Lessee filed for Chapter 11 bankruptcy. In August 2021, the United States Bankruptcy Courtapproved a settlement agreement between Lessee and LTC. The settlement provides for, among other things, a one-time payment of $3.3 millionfrom LTC to the affiliates of Lessee in exchange for cooperation and assistance in facilitating an orderly transition of the 11 skilled nursing centers from the Lessee and its affiliates to affiliates of HMG Healthcare, LLCwhich occurred on October 1, 2021. As of October 1, 2021, Senior Care and Abri Healthno longer operator any properties in our portfolio. 2022 Activities Overview 30 Table of Contents
The following tables summarize our transactions during the three months ended
Acquisitions and investments in development and improvement projects
We had no acquisitions during the three months ended
March 31, 2022. Subsequent to March 31, 2022, we acquired four skilled nursing centers for $51.5 million. The properties, which are located in Texas, have a combined total of 339 beds primarily in private rooms and will be operated by an existing operator under a 10-year lease with two 5-year renewal options. Additionally, the lease provides either an earn-out payment or purchase option but not both. If neither option is elected within the timeframe defined in the lease, both elections are terminated. The earn-out payment is available, contingent on achieving certain thresholds per the lease, beginning at the end of the second lease year through the end of the fifth lease year. The purchase option is available beginning at the end of the fifth lease year through the end of the seventh lease year. The initial cash yield is 8% for the first year, increasing to 8.25% for the second year, then increases annually by 2.0% to 4.0% based on the change in the Medicare Market Basket Rate. In conjunction with the transaction, we provided the lessee a working capital loan for up to $2.0 millionof which $1.9 millionhas been funded, at the same yields and maturity as the lease.
In the three months ended
development and improvement projects (in thousands):
Developments Improvements Assisted Living Communities $ - $ 694 Skilled Nursing Centers - 177 Other - 197 Total $ -
$ 1,068Properties Sold Type Number Number of of of Sales Carrying Net Year (1) State Properties Properties Beds/Units Price Value Gain (loss) (2) 2022 n/a n/a - - $ - $ - $ 102 (3) (4)
ALF has a gross book value of
(1) anticipate the recognition of a gain on the sale of approximately
quarter of 2022. As part of the sale, the current operator paid us a
lease termination indemnity of approximately
(2) Calculation of net gain (loss) includes cost of sales.
We recorded an additional gain due to the revaluation adjustment of the
(3) holdbacks related to properties sold in 2019 and 2020, as part of the
value model according to section 606 of the accounting standard codification (“ASC”), Contracts
with customers (“ASC 606”).
One of the transactions includes a holdback of
(4) interest-bearing account with an escrow in the buyer’s name for
potential specific losses. In 2020, we received
remaining holdback was received during the first quarter of 2022. 31 Table of Contents Investment in Mortgage Loans
Mortgage originations and financing receivable
Application of interest reserve
1,223 Scheduled principal payments received (125) Mortgage loan premium amortization (2) Provision for credit losses (21) Net increase in mortgage loans receivable
Type Type Total Contractual Number Cash of of Preferred Cash of Carrying Income Interest State Properties Investment Return Portion
Beds/ Units Value Recognized Received Washington (1) ALF/MC Preferred Equity (1) 12 % 7 % 95
$ 6,340 $ 112 $ 112Washington (2) UDP Preferred Equity (2) 12 % 8 % - 13,000 263 263 95 $ 19,340 $ 375 $ 375
Investment in preferred shares in an entity that has developed and owns an ALF of 95 units
and MC in
investment. Preferred stock investment yields an initial cash rate of 7%
increasing to 9% in the fourth year until the internal rate of return (“IRR”) is
(1) 8%. After reaching an IRR of 8%, the cash rate drops to 8% until reaching a
IRR between 12% and 14%, depending on the timing of redemption. During
in the fourth quarter of 2021, the entity completed the development project and
received his certificate of occupancy. We have the possibility to require the JV
partner to purchase our preferred stake at any time between August
17, 2031 and
Investment in preferred shares in an entity that will develop and own a 267 housing unit
ILF and ALF in
total investment. Preferred stock investment earns initial cash rate
of 8% with an IRR of 12%. The JV partner has the option of buying out our
(2) investment at any time after
the option to require the JV partner to purchase our preferred shares
interest at any time between
rental of the property, before the end of the first renewal period of the
lease. Notes Receivable Advances under notes receivable
Main payments received for notes receivable (1,287)
Provision for credit losses
(333) Net increase in notes receivable
Includes the origin of a
of five service residences located in
(1) total of 621 lots. The mezzanine loan has a term of approximately five years
with two one-year extension options. It bears interest at 8% with an IRR of 11%.
32 Table of Contents
Health care regulatory climate
Centers for Medicare & Medicaid Services("CMS") annually updates Medicare skilled nursing facility ("SNF") prospective payment system rates and other policies. On July 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 on October 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. On April 10, 2020, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2021, which started October 1, 2020, and issued the final rule on July 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. On April 8, 2021, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2022, which started October 1, 2021, and issued the final rule on July 29, 2021. CMS estimated that the aggregate impact of the payment policies in the final rule would result in an increase of approximately $410 millionin Medicare Part A payments to SNFs in fiscal year 2022. The final rule also includes several policies that update the SNF Quality Reporting Program and the SNF Value-Based Program for fiscal year 2022. On April 11, 2022, CMS issued a proposed rule to update SNF rates and policies for fiscal year 2023. CMS estimates that the aggregate impact of the payment policies in the proposed rule would result in a decrease of approximately $320 millionin Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022. Since the announcement of the COVID-19 pandemic and beginning as of March 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 suspended April 26, 2020in light of other CARES Act funding relief. The Continuing Appropriations Acts, 2021 and Other Extensions Act, enacted on October 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, Congressgave 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. On April 12, 2022, HHS Secretary Becerra announced that he had renewed, effective April 16, 2022, the declared public health emergency for an additional 90-day period. On March 26, 2020, President Trumpsigned 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 33 Table of Contents 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 period May 1, 2020through December 31, 2020, and extended the current Medicare sequester requirement through fiscal year 2030. In addition, the law provides $100 billionin grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billionin 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, the Department of Health and Human Services("HHS") authorized $20 billionof 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 billionproportionally 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. On May 22, 2020, HHS announced that it had begun distributing $4.9 billionin 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 the Federal Emergency Management Agency. On June 9, 2020, HHS announced that it expected to distribute approximately $15 billionto eligible providers that participate in state Medicaid and Children's Health Insurance Program("CHIP") programs and have not received a payment from the Provider Relief FundGeneral Allocation. On July 22, 2020, President Trumpannounced that HHS would devote $5 billionin 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 participate in the Nursing Home COVID-19 training to qualify for this funding. On August 27, 2020, HHS announced that it had distributed almost $2.5 billionto nursing homes to support increased testing, staffing, and personal protective equipment needs. On September 3, 2020, HHS announced a $2 billionperformance-based incentive payment distribution to nursing homes and SNFs. Finally, on October 1, 2020, HHS announced $20 billionin additional funding for several types of providers, including those whopreviously received, rejected, or accepted a general distribution provider relief fund payment. The application deadline for these Phase 3 funds was November 6, 2020. On December 27, 2020, President Trumpsigned the Consolidated Appropriations Act, 2021 (H.R. 133). The $1.4 trillionomnibus appropriations legislation funds the government through September 30, 2021and was attached to a $900 billionCOVID-19 relief package. Of the $900 billionin COVID-19 relief, $73 billionwas allocated to HHS. Notably, the bill adds an additional $3 billionto the Provider 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 to March 27, 2020, to demonstrate entitlement for these funds. This change reverts to HHS' previous guidance from June 2020on how to calculate lost revenues. The Consolidated Appropriations Act, 2021, also extended the CARES Act's sequestration suspension to March 31, 2021. On January 15, 2021, HHS announced that it would be amending the reporting timeline for Provider Relief Funds and indicated that it was working to update the Provider Relief Fundrequirements to be consistent with the passage of the Consolidated Appropriations Act, 2021. On April 14, 2021, President Bidensigned an Act to Prevent Across-the-Board Direct Spending Cuts, and for Other Purposes (H.R. 1868), which extended the sequestration suspension period to December 31, 2021. On June 11, 2021, HHS issued revised reporting requirements for recipients of Provider Relief Fundpayments. The announcement included expanding the amount of time providers 34
would have to report information, aimed to reduce burdens on smaller providers, and extended key deadlines for expending
Provider Relief Fundpayments for recipients whoreceived payments after June 30, 2020. The revised reporting requirements are applicable to providers whoreceived one or more payments exceeding, in the aggregate, $10,000during a single Payment Received Period from the PRF General Distributions, Targeted Distributions, and/or Skilled Nursing Facility and Nursing Home Infection Control Distributions. On July 1, 2021, HHS, through the Health Resources and Services Administration("HRSA"), notified recipients of Provider Relief Fundpayments by e-mail that the Provider Relief Fund Reporting Portal was open for recipients whowere required to report on the use of funds in Reporting Period 1, as described by HHS's June 11, 2021update to the reporting requirements. On September 10, 2021, HHS announced a final 60-day grace period of the September 30, 2021reporting deadline for Provider Relief Funds exceeding $10,000in aggregate payments received from April 10, 2020to June 30, 2020. Although the September 30, 2021reporting deadline remained in place, HHS explained that recoupment or other enforcement actions would not be initiated during the 60-day grace period, which began on October 1, 2021and ended on November 30, 2021. Reporting Period 2, for providers whoreceived one or more payments exceeding $10,000, in the aggregate, from July 1, 2020to December 31, 2020, was from January 1, 2022to March 31, 2022. The Provider Relief Fundreporting portal will open for Reporting Period 3 on July 1, 2022, for providers whoreceived one or more Provider Relief Fundpayments exceeding $10,000, in the aggregate, from January 1, 2021to June 30, 2021. On September 10, 2021, the Biden Administrationannounced that HHS would be making available $25.5 billionin new funding for health care providers affected by the COVID-19 pandemic, including $8.5 billionin American Rescue Plan ("ARP") resources for providers whoserve rural Medicaid, CHIP, or Medicare patients, and an additional $17 billionfor Phase 4 Provider Relief Funds for a broad range of providers whocan document revenue loss and expenses associated with the pandemic, including assisted living facilities that were state-licensed/certified on or before December 31, 2020. Approximately 25% of the Phase 4 allocation will be put towards bonus payments based on the amount and type of services provided to Medicaid, CHIP, and Medicare beneficiaries from January 1, 2019through September 30, 2020. The deadline for submitting applications for Phase 4 funds was October 26, 2021.
American Farmers from Sequester Cuts Act, which suspended Medicare at 2%
reduction of sequestration by
sequestration reduced to 1% from April to
December 14, 2021, HHS announced the distribution of approximately $9 billionin Provider Relief Fund Phase 4 payments to health care providers whohave experienced revenue losses and expenses related to the COVID-19 pandemic. Further, on January 25, 2022, HHS announced that it would be making more than $2 billionin Provider Relief Fund Phase 4 General Distribution payments to more than 7,600 providers across the country that same week. On March 2022, HHS announced more than $413 millionin Provider Relief Fund Phase 4 payments to more than 3,600 providers across the country. On July 18, 2019, CMS published a final rule that eliminated the prohibition on pre-dispute binding arbitration agreements between long-term care facilities and their residents. The rule also strengthened 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.
policies, including legislation that could have the effect of reducing health insurance
reimbursement for SNF 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.
Congresscontinues 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. Congressand 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 representing U.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 measures the portion of our real estate investment that relate to our top five states. 36
The following table reflects our recent historical trends in concentration risk
(gross investment, in thousands):
3/31/22 12/31/21 9/30/21 6/30/21 3/31/21 Asset mix: Real property
$ 1,409,625 $ 1,408,557 $ 1,407,098 $ 1,412,329 $ 1,449,062Loans receivable 350,037 347,915 261,437 259,641 259,874 Notes receivable 62,127 28,623 18,864 13,869 13,714 Unconsolidated joint ventures 19,340 19,340 19,340 19,340 19,340 Real estate investment mix: Assisted living communities $ 956,642 $ 929,113 $ 868,081 $ 860,573 $ 897,154Skilled nursing centers 858,150 849,182 812,518 820,246 820,476 Under development 13,000 13,000 13,000 13,000 13,000 Other (1) 13,337 13,140 13,140 11,360 11,360 Operator mix: Prestige Healthcare (1) $ 272,326 $ 272,453 $ 272,789 $ 272,773 $ 273,007HMG Healthcare 180,662 171,920 23,705 23,705 23,705 Anthem Memory Care139,176 139,176 139,176 139,176 139,176 Brookdale Senior Living 103,136 102,921 102,261 101,240 101,012
Carespring Health Care Management 102,697 102,520 102,520
102,520 102,520 Remaining operators 1,043,132 1,015,445 1,066,288 1,065,765 1,102,570 Geographic mix: Michigan
$ 281,407 $ 281,512 $ 282,022 $ 281,762 $ 281,995Texas 274,803 274,626 274,204 273,588 273,468 Wisconsin 114,729 114,538 114,288 114,250 149,403 California 106,129 106,129 105,997 105,892 105,352 Colorado 104,514 104,514 104,445 104,347 104,307 Remaining states 959,547 923,116 825,783 825,340 827,465
(1) Includes three lots located next to properties securing the
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: 37