REAL ESTATE LTC INC – 10-Q

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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, 2021 and 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.

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.

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The following graph summarizes our gross investments at March 31, 2022:

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                              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.

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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.

COVID-19[feminine]

On March 11, 2020, the World Health Organization declared the outbreak of
coronavirus ("COVID-19") as a pandemic, and on March 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, 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 million and rent deferrals for certain operators
totaling $8.7 million between April 2020 and March 2022, of which $1.7 million
subsequently has been repaid. The $12.2 million in rent abatements and
deferrals, net of repayments, represented approximately 3.4% of our April 2020
through March 2022 contractual 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").

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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 million and a cash revenue decrease of $1.2 million related to the
50%
escalation reduction.

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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  $      844,995         45.9 %  $          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 Properties                          153  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 Ventures               1      -     95         
19,340          1.0 %                375             1.0 %

Total Portfolio                                 198  9,188  7,657  $    1,841,129        100.0 %  $          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  $    956,642         52.0 %
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  $  1,841,129        100.0 %

(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

hospital.

(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

Georgiaa mezzanine loan on a 136-unit ILF in Oregona mezzanine loan on
(5) five ILF, ALF and MC combinations in Oregon and Montanaand seven working

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 Washington. Our investment represents 15.5% of the
(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 Washington. Our investment represents 11.6% of the

estimated total investment. Investment in preferred shares yields initial capital

    cash rate of 8% with an IRR of 12%.


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As of March 31, 2022, we had $1.5 billion in net carrying value of investments,
consisting of $1.0 billion or 70.6% invested in owned and leased properties and
$0.3 billion or 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 million in
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 million
lease incentive balance related to a property closure and subsequent lease
termination. During the three months ended March 31, 2022, we received
$31.0 million of cash rental income, which includes $4.0 million of 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 Maintenance

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 million in 2021 and $9.9 million in 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.

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, 2022 to 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, 2022
through February 28, 2023. During 2020, we extended to Brookdale a $4.0 million
capital commitment which was fully funded during 2021, and a $2.0 million
capital commitment which is available between January 1, 2022 through December
31, 2022. Under the new amendment, the $2.0 million capital commitment was
increased to $4.0 million and the maturity was extended to February 28, 2023.
The yield on these capital commitments is 7% with a reduced rate for

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qualified ESG projects. During the three months ended March 31, 2022, we funded
$0.2 million under the $4.0 million capital commitment. Accordingly, we have a
remaining commitment of $3.8 million under this commitment. Brookdale is current
on rent payments through April 2022.

Senior Lifestyle Society

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, Pennsylvania and
Nebraska. Also, during 2021, we sold three Wisconsin communities and a closed
community in Nebraska previously leased to Senior Lifestyle for a combined total
of $35.9 million. We received total proceeds of $34.8 million and recorded a net
gain on sale of $5.4 million. We expect to transition the remaining New Jersey
community 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.

Other Operators

During 2020, we consolidated our two master leases with an operator into one
combined master lease and agreed to abate $0.7 million of 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 million during the
first quarter of 2022 and $0.4 million in April 2022. The deferred balance due
from this operator is $6.6 million as 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.

Aged Care Centers, LLC – Former Operator

Senior Care Centers, LLC and 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 Court
approved a settlement agreement between Lessee and LTC. The settlement provides
for, among other things, a one-time payment of $3.3 million from 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, LLC which occurred on October 1,
2021. As of October 1, 2021, Senior Care and Abri Health no longer operator any
properties in our portfolio.

2022 Activities Overview

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The following tables summarize our transactions during the three months ended
March 31, 2022 (amounts in thousands of dollars):

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 million of which $1.9 million
has been funded, at the same yields and maturity as the lease.

In the three months ended March 31, 2022we have invested the following in
development and improvement projects (in thousands):

                             Developments   Improvements
Assisted Living Communities  $           -  $         694
Skilled Nursing Centers                  -            177
Other                                    -            197
Total                        $           -  $       1,068


Properties 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)

After March 31, 2022we sold a 74 unit ALF in Virginia for $16,895.

ALF has a gross book value of $16,895 and a net book value of $15,549. We
(1) anticipate the recognition of a gain on the sale of approximately $1,300 in the second

quarter of 2022. As part of the sale, the current operator paid us a

lease termination indemnity of approximately $1,200.

(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 $838 who stands in a
(4) interest-bearing account with an escrow in the buyer’s name for

potential specific losses. In 2020, we received $150 restraint. the

    remaining holdback was received during the first quarter of 2022.


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Investment in Mortgage Loans

Mortgage originations and financing receivable $1,026
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                 $ 2,101


Investment in Unconsolidated joint ventures

                    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   $      112
Washington (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 Washington. Our investment represents 15.5% of the total

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 December 31, 2036.

Investment in preferred shares in an entity that will develop and own a 267 housing unit

ILF and ALF in Washington. Our investment represents 11.6% of the estimated amount

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 August 31, 2023 at the IRR rate. Also, we have

the option to require the JV partner to purchase our preferred shares

interest at any time between August 31, 2027 and, upon completion of the project and

rental of the property, before the end of the first renewal period of the

    lease.


Notes Receivable

Advances under notes receivable                       $  34,791 (1)

Main payments received for notes receivable (1,287)
Provision for credit losses

                               (333)
Net increase in notes receivable                      $  33,171


Includes the origin of a $25,000 mezzanine loan for recapitalization

of five service residences located in Oregon and Montana with a
(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%.

Also includes $8,742 net financing as part of a working capital loan to HMG.

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Health care regulatory climate

The 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 million in
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 million in 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, 2020
in 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,
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. 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 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

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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, 2020 through December 31, 2020, and extended
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. On April 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, the Department 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. On May 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 the Federal Emergency Management Agency.
On June 9, 2020, HHS announced that it expected to distribute approximately $15
billion to 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 Fund General Allocation. On July 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 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 billion to nursing homes to
support increased testing, staffing, and personal protective equipment needs. On
September 3, 2020, HHS announced a $2 billion performance-based incentive
payment distribution to nursing homes and SNFs. Finally, on October 1, 2020, HHS
announced $20 billion in additional funding for several types of providers,
including those who previously 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 Trump signed the Consolidated Appropriations
Act, 2021 (H.R. 133). The $1.4 trillion omnibus appropriations legislation funds
the government through September 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 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 2020 on 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 Fund requirements to be consistent with
the passage of the Consolidated Appropriations Act, 2021.

On April 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 to December 31, 2021. On June 11, 2021, HHS
issued revised reporting requirements for recipients of Provider Relief Fund
payments. The announcement included expanding the amount of time providers

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would have to report information, aimed to reduce burdens on smaller providers,
and extended key deadlines for expending Provider Relief Fund payments for
recipients who received payments after June 30, 2020. The revised reporting
requirements are applicable to providers who received one or more payments
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. On July 1,
2021, HHS, through the Health Resources and Services Administration ("HRSA"),
notified recipients of Provider Relief Fund payments by e-mail that the Provider
Relief Fund Reporting Portal was open for recipients who were required to report
on the use of funds in Reporting Period 1, as described by HHS's June 11, 2021
update to the reporting requirements. On September 10, 2021, HHS announced a
final 60-day grace period of the September 30, 2021 reporting deadline for
Provider Relief Funds exceeding $10,000 in aggregate payments received from
April 10, 2020 to June 30, 2020. Although the September 30, 2021 reporting
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, 2021 and ended on November 30, 2021. Reporting Period 2, for
providers who received one or more payments exceeding $10,000, in the aggregate,
from July 1, 2020 to December 31, 2020, was from January 1, 2022 to March 31,
2022. The Provider Relief Fund reporting portal will open for Reporting Period 3
on July 1, 2022, for providers who received one or more Provider Relief Fund
payments exceeding $10,000, in the aggregate, from January 1, 2021 to June 30,
2021.

On September 10, 2021, the Biden Administration announced that HHS would be
making available $25.5 billion in new funding for health care providers affected
by the COVID-19 pandemic, including $8.5 billion in American Rescue Plan ("ARP")
resources for providers who serve rural Medicaid, CHIP, or Medicare patients,
and an additional $17 billion for Phase 4 Provider Relief Funds for a broad
range of providers who can 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, 2019 through September 30, 2020. The deadline for submitting
applications for Phase 4 funds was October 26, 2021.

On December 10, 2021, President Biden signed health insurance protection and
American Farmers from Sequester Cuts Act, which suspended Medicare at 2%
reduction of sequestration by March 31, 2022then reduce the
sequestration reduced to 1% from April to June 2022.

On December 14, 2021, HHS announced the distribution of approximately $9 billion
in Provider Relief Fund Phase 4 payments to health care providers who have
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
billion in 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 million in 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.

Congress periodically reviews legislation revising Medicare and Medicaid
policies, including legislation that could have the effect of reducing health insurance
reimbursement for SNF and other Medicare

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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 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.

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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   $ 1,449,062
Loans 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   $   897,154
Skilled 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   $   273,007
HMG Healthcare                          180,662       171,920        23,705        23,705        23,705
Anthem Memory Care                      139,176       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   $   281,995
Texas                                   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

Prestige Health 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:

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