false--12-31FY20190000877860P3YP5YP10YP5YP3YP1YP2YP5Y0.010.01600000006000000042700411445874864270041144587486139100013200003030001238000P10YP10Y 0000877860 2019-01-01 2019-12-31 0000877860 2019-06-30 0000877860 2020-02-14 0000877860 2019-12-31 0000877860 2018-12-31 0000877860 2017-01-01 2017-12-31 0000877860 2018-01-01 2018-12-31 0000877860 2017-12-31 0000877860 2016-12-31 0000877860 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0000877860 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0000877860 us-gaap:ParentMember 2017-01-01 2017-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0000877860 us-gaap:ParentMember 2019-12-31 0000877860 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2017-01-01 2017-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0000877860 us-gaap:ParentMember 2018-01-01 2018-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2017-12-31 0000877860 us-gaap:CommonStockMember 2017-12-31 0000877860 us-gaap:NoncontrollingInterestMember 2019-12-31 0000877860 nhi:AtTheMarketMember us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000877860 us-gaap:ParentMember 2017-12-31 0000877860 us-gaap:ConvertibleDebtMember us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000877860 us-gaap:CommonStockMember 2018-12-31 0000877860 us-gaap:ParentMember 2019-01-01 2019-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000877860 us-gaap:ParentMember 2016-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2016-12-31 0000877860 us-gaap:NoncontrollingInterestMember 2018-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2018-01-01 2018-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2018-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2016-12-31 0000877860 us-gaap:ParentMember 2018-12-31 0000877860 us-gaap:CommonStockMember 2016-12-31 0000877860 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0000877860 us-gaap:NoncontrollingInterestMember 2017-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2019-01-01 2019-12-31 0000877860 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-01 2017-12-31 0000877860 us-gaap:RetainedEarningsAppropriatedMember 2019-12-31 0000877860 us-gaap:CommonStockMember 2019-12-31 0000877860 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:StraightLineRentReceivableMember 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:StraightLineRentReceivableMember 2019-12-31 0000877860 nhi:LifeCareServicesMember us-gaap:NotesReceivableMember nhi:LCSTimberRidgeMember 2019-12-31 0000877860 nhi:LifeCareServicesMember us-gaap:NotesReceivableMember nhi:LCSSagewoodMember 2019-12-31 0000877860 nhi:A41ManagementMember us-gaap:NotesReceivableMember 2019-12-31 0000877860 nhi:SeniorLivingManagementMember nhi:StraightLineRentReceivableMember 2019-12-31 0000877860 nhi:EvolveSeniorLivingMember us-gaap:NotesReceivableMember 2019-12-31 0000877860 srt:MinimumMember 2019-12-31 0000877860 srt:MaximumMember 2019-12-31 0000877860 us-gaap:BuildingImprovementsMember 2019-01-01 2019-12-31 0000877860 us-gaap:BuildingMember 2019-01-01 2019-12-31 0000877860 nhi:May2031Member nhi:A2021Member nhi:SeniorHousingCommunityMember 2019-12-31 0000877860 nhi:March2025Member nhi:A2020Member nhi:HospitalMember 2019-12-31 0000877860 nhi:May2031Member nhi:A2021Member nhi:SeniorHousingCommunityMember 2019-01-01 2019-12-31 0000877860 nhi:August2028Member nhi:A2025Member nhi:SkilledNursingFacilityMember 2019-12-31 0000877860 nhi:September2028Member nhi:A2028Member nhi:SkilledNursingFacilityMember 2019-01-01 2019-12-31 0000877860 nhi:February2025Member nhi:OpenNowMember nhi:MedicalOfficeBuildingMember 2019-12-31 0000877860 nhi:August2028Member nhi:A2025Member nhi:SkilledNursingFacilityMember 2019-01-01 2019-12-31 0000877860 nhi:September2027Member nhi:A2020Member nhi:HospitalMember 2019-01-01 2019-12-31 0000877860 nhi:June2022Member nhi:A2022Member nhi:HospitalMember 2019-01-01 2019-12-31 0000877860 nhi:June2022Member nhi:A2022Member nhi:HospitalMember 2019-12-31 0000877860 nhi:September2027Member nhi:A2020Member nhi:HospitalMember 2019-12-31 0000877860 nhi:September2028Member nhi:A2028Member nhi:SkilledNursingFacilityMember 2019-12-31 0000877860 nhi:February2025Member nhi:OpenNowMember nhi:MedicalOfficeBuildingMember 2019-01-01 2019-12-31 0000877860 nhi:March2025Member nhi:A2020Member nhi:HospitalMember 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:June2023Member 2019-01-01 2019-09-30 0000877860 nhi:BickfordSeniorLivingMember 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:May2031Member 2019-01-01 2019-09-30 0000877860 nhi:BickfordSeniorLivingMember nhi:September2024Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:September2024Member 2019-01-01 2019-09-30 0000877860 nhi:BickfordSeniorLivingMember nhi:June2023Member 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:April2033Member 2019-01-01 2019-09-30 0000877860 nhi:BickfordSeniorLivingMember nhi:April2033Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:May2031Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember 2019-01-01 2019-09-30 0000877860 nhi:BickfordSeniorLivingMember nhi:September2024Member 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:June2023Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:May2031Member 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:April2033Member 2019-12-31 0000877860 nhi:EscrowFundsReceivedFromTenantsMember 2018-01-01 2018-12-31 0000877860 nhi:VariableLeaseEscalationMember 2017-01-01 2017-12-31 0000877860 nhi:VariableLeaseEscalationMember 2019-01-01 2019-12-31 0000877860 nhi:FixedLeaseEscalationMember 2019-01-01 2019-12-31 0000877860 nhi:StraightLineRentIncomeMember 2019-01-01 2019-12-31 0000877860 nhi:StraightLineRentIncomeMember 2018-01-01 2018-12-31 0000877860 nhi:EscrowFundsReceivedFromTenantsMember 2019-01-01 2019-12-31 0000877860 nhi:VariableLeaseEscalationMember 2018-01-01 2018-12-31 0000877860 nhi:StraightLineRentIncomeMember 2017-01-01 2017-12-31 0000877860 nhi:FixedLeaseEscalationMember 2018-01-01 2018-12-31 0000877860 nhi:FixedLeaseEscalationMember 2017-01-01 2017-12-31 0000877860 nhi:EscrowFundsReceivedFromTenantsMember 2017-01-01 2017-12-31 0000877860 nhi:SHRegencyTransitionPropertiesMember 2018-01-01 2018-12-31 0000877860 nhi:HolidayLeaseAmendmentMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember 2017-01-01 2017-12-31 0000877860 nhi:GurneeILMember nhi:BickfordSeniorLivingMember 2019-12-31 0000877860 nhi:WingateHealthcareMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:NHC1991LeaseMember 2019-12-31 0000877860 nhi:WingateHealthcareMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:IndependentLivingFacilityMember 2019-12-31 0000877860 nhi:ChancellorHealthCareMember 2018-01-01 2018-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:April2019Member 2019-01-01 2019-12-31 0000877860 nhi:HospitalMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember 2019-12-31 0000877860 nhi:GurneeILMember nhi:BickfordSeniorLivingMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:NHC1991LeaseMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember 2019-01-01 2019-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:May2019Member nhi:AssistedLivingFacilityMember 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember nhi:BickfordLeaseAmendmentMember 2019-12-31 0000877860 nhi:ChancellorHealthCareMember 2017-01-01 2017-12-31 0000877860 nhi:ComfortCareSeniorLivingMember 2019-12-31 0000877860 nhi:ChancellorHealthCareMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:DiscoveryTransitionPropertyMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember 2019-01-01 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember 2019-01-01 2019-12-31 0000877860 nhi:SHRegencyTransitionPropertiesMember 2017-01-01 2017-12-31 0000877860 stpr:AZ nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember 2019-12-31 0000877860 nhi:CappellaLivingSolutionsMember 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember 2017-01-01 2017-12-31 0000877860 nhi:BAKAEnterprisesMember 2018-01-01 2018-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:JointVentureEquityInterestMember 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember nhi:HolidayLeaseAmendmentMember 2019-01-01 2019-12-31 0000877860 nhi:CappellaLivingSolutionsMember 2019-01-01 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember 2017-01-01 2017-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:IndependentLivingFacilityMember 2019-12-31 0000877860 nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2019-01-01 2019-12-31 0000877860 nhi:NonPerformingLeaseMember 2019-12-31 0000877860 nhi:AssetHeldForSaleMember 2019-01-01 2019-12-31 0000877860 nhi:MedicalOfficeBuildingMember 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember 2019-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:April2019Member 2019-12-31 0000877860 nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2018-01-01 2018-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:ContingentPaymentMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:DiscoveryTransitionPropertyMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:SkilledNursingFacilityMember 2019-12-31 0000877860 nhi:AssetHeldForSaleMember 2019-12-31 0000877860 nhi:A41ManagementMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember 2019-09-30 0000877860 nhi:NationalHealthcareCorporationMember 2018-01-01 2018-12-31 0000877860 nhi:ForfeitureAmountMember nhi:HolidayLeaseAmendmentMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:NHC2013LeaseMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:NHC2013LeaseMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember 2018-01-01 2018-12-31 0000877860 nhi:A41ManagementMember nhi:MNTransitionPropertiesMember 2019-01-01 2019-12-31 0000877860 nhi:A41ManagementMember nhi:MNTransitionPropertiesMember 2019-09-30 0000877860 nhi:DiscoverySeniorLivingMember us-gaap:LandMember 2019-01-01 2019-12-31 0000877860 nhi:SHRegencyTransitionPropertiesMember 2019-01-01 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:JointVentureNoncontrollingEquityInterestMember 2019-01-01 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember 2018-01-01 2018-12-31 0000877860 stpr:TN nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember 2019-01-01 2019-12-31 0000877860 nhi:BickfordLeaseAmendmentMember 2019-12-31 0000877860 nhi:A41ManagementMember nhi:MNTransitionPropertiesMember 2019-12-31 0000877860 nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2019-12-31 0000877860 nhi:SeniorHousingCommunityMember 2019-12-31 0000877860 nhi:LandmarkSeniorLivingMember 2019-12-31 0000877860 nhi:ChancellorHealthCareMember 2019-01-01 2019-12-31 0000877860 nhi:BAKAEnterprisesMember 2017-01-01 2017-12-31 0000877860 nhi:BAKAEnterprisesMember 2019-01-01 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember nhi:IndependentLivingFacilityMember nhi:VeroBeachAcquisitionMember 2019-12-31 0000877860 nhi:April2018AcquisitionMember nhi:BickfordSeniorLivingMember 2019-01-01 2019-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:May2019Member 2019-01-01 2019-12-31 0000877860 nhi:A41ManagementMember nhi:December2019TransactionMember 2019-12-31 0000877860 nhi:CashPortionMember nhi:HolidayLeaseAmendmentMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:SkilledNursingFacilityMember nhi:SubleasedFacilitiesMember 2019-12-31 0000877860 nhi:BickfordSeniorLivingMember 2018-01-01 2018-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:MemoryCareMember 2019-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:April2019Member us-gaap:AssetUnderConstructionMember 2019-12-31 0000877860 nhi:HolidayLeaseAmendmentMember 2019-12-31 0000877860 nhi:NonPerformingLeaseMember 2019-01-01 2019-12-31 0000877860 nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2017-01-01 2017-12-31 0000877860 nhi:GurneeILMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember 2017-01-01 2017-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:AssistedLivingFacilityMember 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember nhi:PriortoLeaseAmendmentMember 2019-01-01 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:JointVentureEquityInterestMember 2019-01-01 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:JointVentureControllingEquityInterestMember 2019-01-01 2019-12-31 0000877860 stpr:SC nhi:BrookdaleSeniorLivingMember nhi:AssetHeldForSaleMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember us-gaap:BuildingAndBuildingImprovementsMember 2019-01-01 2019-12-31 0000877860 nhi:WingateHealthcareMember nhi:RightofFirstOfferMember 2019-12-31 0000877860 nhi:HolidayAcquisitionHoldingsMember nhi:AssistedLivingFacilityMember nhi:VeroBeachAcquisitionMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:JointVenturePreferredEquityInterestMember 2019-01-01 2019-12-31 0000877860 nhi:SHRegencyLeasingLLCMember 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnCurrentYearRevenuesMember 2018-01-01 2018-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnPriorYearRevenuesMember 2018-01-01 2018-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnPriorYearRevenuesMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnPriorYearRevenuesMember 2017-01-01 2017-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnCurrentYearRevenuesMember 2019-01-01 2019-12-31 0000877860 nhi:NationalHealthcareCorporationMember nhi:FinalDeterminationBasedOnCurrentYearRevenuesMember 2017-01-01 2017-12-31 0000877860 nhi:IgniteMedicalResortsMember 2019-12-31 0000877860 nhi:A41ManagementMember nhi:June2019TransactionMember 2019-12-31 0000877860 nhi:CurrentPeriodInvestmentMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:July2019TransactionMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:September2019TransactionMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:June2019TransactionMember 2019-12-31 0000877860 nhi:NotSecuredByRealEstateMember 2018-12-31 0000877860 nhi:LCSTimberRidgeMember nhi:NoteBMember 2019-12-31 0000877860 nhi:LCSTimberRidgeMember nhi:NoteAMember 2019-12-31 0000877860 nhi:LCSTimberRidgeMember nhi:NoteAMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:NoteBMember 2019-01-01 2019-12-31 0000877860 nhi:A41ManagementMember us-gaap:SecondMortgageMember 2019-12-31 0000877860 nhi:LCSTimberRidgeMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:OriginalRevolvingCommittmentMember 2019-12-31 0000877860 nhi:CurrentPeriodInvestmentMember 2019-01-01 2019-12-31 0000877860 nhi:A41ManagementMember 2019-12-31 0000877860 nhi:LCSSagewoodMember nhi:NoteAMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:After2021Member 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:DiscoverySeniorLivingMember 2019-12-31 0000877860 nhi:LCSSagewoodMember nhi:NoteAMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:NotSecuredByRealEstateMember 2019-12-31 0000877860 nhi:LCSSagewoodMember nhi:NoteBMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:NoteAMember 2019-01-01 2019-12-31 0000877860 nhi:LCSSagewoodMember 2019-12-31 0000877860 nhi:NotSecuredByRealEstateMember 2019-12-31 0000877860 nhi:MemoryCareMember nhi:DiscoverySeniorLivingMember 2019-12-31 0000877860 nhi:SecuredByRealEstateMember 2018-12-31 0000877860 nhi:SecuredByRealEstateMember 2019-12-31 0000877860 nhi:A41ManagementMember nhi:December2019TransactionMember 2019-01-01 2019-12-31 0000877860 nhi:LCSSagewoodMember nhi:NoteBMember 2019-01-01 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:July2018Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:July2018Member 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:January2018Member 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:January2017Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:January2018Member 2019-01-01 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember nhi:January2017Member 2019-12-31 0000877860 nhi:BickfordNoteInvestmentMember 2019-01-01 2019-12-31 0000877860 nhi:FirstRenewalMember nhi:SeniorLivingManagementMember 2019-01-01 2019-12-31 0000877860 nhi:SecondRenewalMember nhi:SeniorLivingManagementMember 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameHUDMortgagesMember 2019-12-31 0000877860 nhi:AtInceptionMember 2019-01-01 2019-12-31 0000877860 nhi:A300MTermLoanMember 2019-12-31 0000877860 nhi:FNMABerkadiaNoteMember 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune2013Member 2019-12-31 0000877860 srt:MinimumMember nhi:DebtInstrumentNameHUDMortgagesMember 2019-01-01 2019-12-31 0000877860 nhi:BankTermLoansMember 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameFannieMaeTermLoansMember 2019-01-01 2019-12-31 0000877860 nhi:VariableInterestRateDebtMember 2019-12-31 0000877860 nhi:A250MTermLoanMember 2019-12-31 0000877860 nhi:CashPaidMember 2019-01-01 2019-12-31 0000877860 nhi:AllocatedtoDebtMember 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameRevolvingCreditFacilityMember nhi:InterestRateSwapsDateEnteredMarchJune2019Member 2019-12-31 0000877860 nhi:MiddletownOHMember nhi:BickfordSeniorLivingMember 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameRevolvingCreditFacilityMember 2019-12-31 0000877860 nhi:InterestRateSwapsMaturityDateAfterJune2020Member 2019-12-31 0000877860 nhi:DebtInstrumentNameConvertibleSeniorNotesMember 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameFannieMaeTermLoansMember 2019-12-31 0000877860 nhi:AtInceptionMember 2019-12-31 0000877860 srt:MaximumMember nhi:DebtInstrumentNameHUDMortgagesMember 2019-01-01 2019-12-31 0000877860 nhi:BankTermLoansMember nhi:InterestRateSwapsDateEnteredMarchJune2019Member 2019-12-31 0000877860 nhi:DebtInstrumentNameRevolvingCreditFacilityMember 2019-01-01 2019-12-31 0000877860 nhi:PrincipalAmountMember 2019-12-31 0000877860 nhi:DebtInstrumentNameConvertibleSeniorNotesMember 2019-12-31 0000877860 nhi:DebtInstrumentHUDMortgages2049MaturityMember 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch2014Member 2019-12-31 0000877860 nhi:DebtInstrumentHUDMortgages2047MaturityMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConvertibleDebtMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConvertibleDebtMember 2018-12-31 0000877860 us-gaap:ConvertibleDebtMember 2019-12-31 0000877860 nhi:ConvertibleDebtNetofDebtIssuanceCostsMember 2019-12-31 0000877860 nhi:ConvertibleDebtNetofDebtIssuanceCostsMember 2018-12-31 0000877860 nhi:January2027Member 2019-12-31 0000877860 nhi:November2025Member 2019-12-31 0000877860 nhi:September2024Member 2019-12-31 0000877860 nhi:November2023Member 2019-12-31 0000877860 nhi:January2023Member 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune20192.88Member 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch20193.47Member 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune20192.84Member 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch2014Member 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch20193.46Member 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch20193.47Member 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredMarch20193.46Member 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune2013Member 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune20192.88Member 2019-01-01 2019-12-31 0000877860 nhi:InterestRateSwapDateEnteredJune20192.84Member 2019-01-01 2019-12-31 0000877860 nhi:DebtInstrumentNameFannieMaeTermLoansMember 2018-12-31 0000877860 nhi:BankTermLoansMember 2019-12-31 0000877860 nhi:BankTermLoansMember 2018-12-31 0000877860 us-gaap:PrivatePlacementMember 2018-12-31 0000877860 nhi:DebtInstrumentNameHUDMortgagesMember 2018-12-31 0000877860 us-gaap:PrivatePlacementMember 2019-12-31 0000877860 nhi:DebtInstrumentNameQ32014HUDMortgagesMember 2018-12-31 0000877860 nhi:DebtInstrumentNameQ32014HUDMortgagesMember 2019-12-31 0000877860 nhi:DebtInstrumentNameConvertibleSeniorNotesMember 2018-12-31 0000877860 nhi:WingateHealthcareMember nhi:LeaseInducementMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:LeaseInducementMember 2019-12-31 0000877860 nhi:ComfortCareSeniorLivingMember nhi:LeaseInducementMember 2019-12-31 0000877860 nhi:IgniteMedicalResortsMember nhi:LeaseInducementMember 2019-12-31 0000877860 nhi:NavionSeniorSolutionsMember nhi:LeaseInducementMember 2019-12-31 0000877860 nhi:IgniteMedicalResortsMember nhi:DevelopmentCommitmentMember 2019-12-31 0000877860 nhi:VillageConceptsMember nhi:CapitalImprovementCommitmentMember 2019-12-31 0000877860 nhi:NavionSeniorSolutionsMember nhi:DevelopmentCommitmentMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:CapitalImprovementCommitmentMember 2019-12-31 0000877860 nhi:DiscoverySeniorLivingMember nhi:DevelopmentCommitmentMember 2019-12-31 0000877860 nhi:WingateHealthcareMember nhi:CapitalImprovementCommitmentMember 2019-12-31 0000877860 nhi:A41ManagementMember nhi:DevelopmentCommitmentMember 2019-12-31 0000877860 nhi:WingateHealthcareMember nhi:DevelopmentCommitmentMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember nhi:CapitalImprovementCommitmentMember 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember us-gaap:RevolvingCreditFacilityMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCommunitiesMember us-gaap:RevolvingCreditFacilityMember 2019-12-31 0000877860 nhi:NotesReceivableRemainUnfundedMember 2019-12-31 0000877860 nhi:LCSTimberRidgeMember 2019-01-01 2019-12-31 0000877860 nhi:GrantDate2222017Member 2019-12-31 0000877860 nhi:GrantDate2202015Member 2019-12-31 0000877860 nhi:GrantDate2222017Member 2019-01-01 2019-12-31 0000877860 nhi:GrantDate2202015Member 2019-01-01 2019-12-31 0000877860 nhi:GrantDate2222016Member 2019-12-31 0000877860 nhi:GrantDate2202018Member 2019-01-01 2019-12-31 0000877860 nhi:GrantDate1172019Member 2019-12-31 0000877860 nhi:GrantDate2212019Member 2019-01-01 2019-12-31 0000877860 nhi:GrantDate2212019Member 2019-12-31 0000877860 nhi:GrantDate2202018Member 2019-12-31 0000877860 nhi:GrantDate1172019Member 2019-01-01 2019-12-31 0000877860 nhi:GrantDate2222016Member 2019-01-01 2019-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2018-05-04 0000877860 nhi:PriorToShareholderApprovalofIncreaseMember 2019-01-01 2019-12-31 0000877860 2019-09-30 0000877860 nhi:ExpectedToBeRecognizedDuring2021Member 2019-09-30 0000877860 nhi:TwoThousandNineteenStockOptionPlanMember 2019-01-01 2019-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2015-05-07 0000877860 nhi:TwoThousandNineteenStockOptionPlanMember 2019-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2019-01-01 2019-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2019-12-31 0000877860 nhi:PriorToShareholderApprovalofSecondAmendmentMember 2019-01-01 2019-12-31 0000877860 nhi:TwoThousandNineteenStockOptionPlanMember 2019-05-03 0000877860 nhi:EmployeeRetirementMember 2019-01-01 2019-12-31 0000877860 nhi:ExpectedToBeRecognizedDuring2020Member 2019-09-30 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2012-05-31 0000877860 nhi:TwoThousandFivePlanMember 2018-01-01 2018-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2018-01-01 2018-12-31 0000877860 nhi:TwoThousandFivePlanMember 2019-01-01 2019-12-31 0000877860 nhi:TwoThousandFivePlanMember 2017-01-01 2017-12-31 0000877860 nhi:TwoThousandTwelveStockOptionPlanMember 2017-01-01 2017-12-31 0000877860 nhi:TwoThousandFiveStockOptionPlanMember 2018-01-01 2018-12-31 0000877860 nhi:OrdinaryIncomeMember 2018-01-01 2018-12-31 0000877860 nhi:CapitalGainMember 2018-01-01 2018-12-31 0000877860 nhi:OrdinaryIncomeMember 2019-01-01 2019-12-31 0000877860 nhi:CapitalGainMember 2017-01-01 2017-12-31 0000877860 nhi:ReturnofCapitalMember 2017-01-01 2017-12-31 0000877860 nhi:CapitalGainMember 2019-01-01 2019-12-31 0000877860 nhi:ReturnofCapitalMember 2019-01-01 2019-12-31 0000877860 nhi:OrdinaryIncomeMember 2017-01-01 2017-12-31 0000877860 nhi:ReturnofCapitalMember 2018-01-01 2018-12-31 0000877860 nhi:TexasFranchiseTaxMember 2017-01-01 2017-12-31 0000877860 nhi:TexasFranchiseTaxMember 2019-01-01 2019-12-31 0000877860 nhi:TexasFranchiseTaxMember 2018-01-01 2018-12-31 0000877860 us-gaap:FairValueInputsLevel2Member 2018-12-31 0000877860 nhi:InterestRateSwapDateEnteredMay2012Member us-gaap:FairValueInputsLevel2Member 2019-12-31 0000877860 us-gaap:FairValueInputsLevel2Member 2019-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:FixedInterestRateDebtMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0000877860 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:VariableInterestRateDebtMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:VariableInterestRateDebtMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000877860 us-gaap:FairValueInputsLevel3Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:FixedInterestRateDebtMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:FixedInterestRateDebtMember us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:VariableInterestRateDebtMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:VariableInterestRateDebtMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel2Member nhi:FixedInterestRateDebtMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0000877860 us-gaap:FairValueInputsLevel3Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0000877860 2019-01-01 2019-03-31 0000877860 2019-07-01 2019-09-30 0000877860 2019-04-01 2019-06-30 0000877860 2019-10-01 2019-12-31 0000877860 2018-01-01 2018-03-31 0000877860 2018-04-01 2018-06-30 0000877860 2018-07-01 2018-09-30 0000877860 2018-10-01 2018-12-31 0000877860 nhi:LCSTimberRidgeMember nhi:RealEstateOperatingCompanyMember us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:ConsiderationTypeCashMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 us-gaap:NoncontrollingInterestMember nhi:RealEstatePropertyCompanyMember us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:ConsiderationTypeTotalMortgageMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:BickfordSeniorLivingMember us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 nhi:ControllingandNonControllingInterestMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:BickfordSeniorLivingMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:JointVentureControllingEquityInterestMember nhi:RealEstateOperatingCompanyMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:SkilledNursingFacilityMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:ConsiderationTypeExistingMortgageMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:IndependentLivingFacilityMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 us-gaap:NoncontrollingInterestMember nhi:RealEstateOperatingCompanyMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:RealEstatePropertyCompanyMember us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:AssistedLivingFacilityMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:JointVentureControllingEquityInterestMember nhi:RealEstateOperatingCompanyMember us-gaap:SubsequentEventMember 2020-01-30 2020-01-31 0000877860 us-gaap:NoncontrollingInterestMember nhi:RealEstatePropertyCompanyMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:LCSTimberRidgeMember nhi:ConsiderationTypeAdditionalMortgageMember us-gaap:SubsequentEventMember 2020-01-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MidlothianVAMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LancasterOHMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MindenLaMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenvilleTxMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EulessTXMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:KennerLAMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VancouverWAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GrandIslandNEMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HendersonvilleTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:IowaCityIaMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BrightonMIMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:QuincyILMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:BridgeportCTMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GladewaterTXMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MarshalltownIAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MaitlandFlMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AustinTXMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:SilverdaleWaMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:AmesIAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:SouthburyCTMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BattleCreekMiMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MissionKsMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BossierCityLaMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:MyrtleBeachSCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WestMonroeLaMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenvilleTxMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RainbowCityALMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:NewBraunfelsTXMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ChattanoogaTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MuscatineIAMember 2018-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:StuartFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockwallTXMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AndersonScMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OmahaNEMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:RogersARMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LewisburgTnMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LawrenburgTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PortlandORMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MarylandHeightsMoMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LaurensScMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ChehalisWAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:Ft.DodgeIAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OntarioOrMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MaplewoodMnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VeroBeachFLMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GarlandTXMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PeoriaIlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:TinleyParkILMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:TulsaOKMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AvondaleAzMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:SpartanburgSCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ShelbyTownshipMIMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:PinoleCAMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:Mt.AiryNCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ConwayScMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:PulaskiTnMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SomervilleTnMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:SouthburyCTMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:FredericksburgVAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DeslogeMoMember 2019-12-31 0000877860 nhi:CorporateOfficeMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MaitlandFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:St.CharlesILMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:TauntonMAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ArlingtonTXMember 2019-01-01 2019-12-31 0000877860 nhi:MedicalOfficeBuildingMember nhi:CrestviewFlMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NeedhamMAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BurlingtonIAMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SuffolkVAMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:SavannahGAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CedarFallsIAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CreswellORMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:McAllenTXMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ClintonIaMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ColumbusGAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BridgeportMIMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BeaverDamWiMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ColumbusGAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ManchesterNHMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:McMinnvilleORMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:AthensGAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenfieldMAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:DurhamNCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CharlotteNCMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AnnistonAlMember 2019-01-01 2019-12-31 0000877860 nhi:TotalContinuingOperationsPropertiesMember 2019-12-31 0000877860 nhi:HospitalMember nhi:LaMesaCaMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MichiganCityINMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HolyokeMAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LincolnNEMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MarysvilleOHMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PortlandORMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MuscatineIAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CedarFallsIAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:JoplinMoMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SaginawMiMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:QuincyMAMember 2019-12-31 0000877860 nhi:HospitalMember nhi:MurfreesboroTnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FortWayneINMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SacramentoCAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:BrooksvilleFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:NorthBranchMnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ColumbusINMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EpsomNHMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MiddletownOHMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:TrentonFlMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FresnoCAMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BoiseIDMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ColumbusOHMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenfieldMAMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FortSmithARMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GladewaterTXMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:UrbandaleIAMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:PortageINMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:OrangeburgScMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OverlandParkKsMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:NorthBranfordCTMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:McminnvilleTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MolineILMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MidlandMiMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PuebloWestCOMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:WestCovinaCAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:NewPortRicheyFlMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SpartaTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CaldwellIDMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CharlotteNCMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SmithvilleTnMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KyleTxMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:EriePAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BeaverDamWiMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LansingMiMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:GreenvilleSCMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:PawleysIslandSCMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ChattanoogaTnMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MerrittIslandFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BaltimoreMDMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:WestPalmBeachFlMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LewisburgTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MoultonAlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BastropLaMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DunlapTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MilwaukeeWIMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HudsonFlMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:NewbergORMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ModestoCAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DicksonTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ValparaisoINMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:StCharlesMoMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:HemetCAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SomervilleTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:WaxahachieTXMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:FortWorthTXMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WeiserIdMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SouthBarringtonILMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NampaIdMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:HugoMnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OswegoILMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CantonTxMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CrystalRiverFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MarshalltownIAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DicksonTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MahtomediMNMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SacramentoCAMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BoiseIDMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SpringfieldILMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:GreenvilleSCMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenwoodScMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BrokenArrowOKMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MichiganCityINMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:McMinnvilleORMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:FernandinaBeachFLMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LakelandFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OswegoILMember 2018-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:StCloudFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GrandIslandNEMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:FranklinTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WorthingtonOHMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:FredericksburgVAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WestDesMoinesIAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AnnistonAlMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KatyTXMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:BristolVaMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CorinthTXMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:WinstonSalemNCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrystalLakeILMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:RoscommonMIMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:GreenvilleSCMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MilanTnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:MyrtleBeachSCMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:HendersonvilleNCMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:TulsaOKMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrystalLakeILMember 2018-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HoustonTxMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EpsomNHMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GreenwoodInMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:LomaLindaCaMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:HendersonvilleNCMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AvondaleAzMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MilwaukeeWIMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:SpartanburgSCMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrawfordsvilleINMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MadisonTNMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MerrittIslandFlMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:StCharlesMoMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MarbleFallsTXMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MadisonTNMember 2019-12-31 0000877860 nhi:HospitalMember nhi:MurfreesboroTnMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:LomaLindaCaMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:EriePAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:JohnsonCityTnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:YakimaWAMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NorthBranfordCTMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SanAntonioTxMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:YakimaWAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CarmelInMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AlbanyORMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ArlingtonTXMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BastropLaMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:RosevilleCAMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockyRiverOHMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ChehalisWAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DunlapTnMember 2019-12-31 0000877860 nhi:HospitalMember nhi:JacksonKyMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:KennerLAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CrystalRiverFlMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BellevueWAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EnnisTxMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ColumbusOHMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GlasgowKyMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:PlantCityFlMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrownPointInMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:GahannaOHMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GreensboroGaMember 2019-12-31 0000877860 nhi:MedicalOfficeBuildingMember nhi:PasadenaTxMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MarbleFallsTXMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AthensTnMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VoorheesNJMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KennettMoMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BolingbrookILMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:PinoleCAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:QuincyMAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BossierCityLaMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GurneeILMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:TinleyParkILMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:PawleysIslandSCMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FresnoCAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AndersonScMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:JohnsonCityTnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ChamplinMnMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BridgeportMIMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:MercedCAMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:WinstonSalemNCMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WestMonroeLaMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:AuroraILMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:SavannahGAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MiddletownOHMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ForestGroveORMember 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:MercedCAMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:FernandinaBeachFLMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MilwaukieORMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:SalisburyMDMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SuffolkVAMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FortSmithARMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:NewbergORMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BrokenArrowOKMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BourbonnaisILMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:NorthBranfordCTMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MaplewoodMnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SpringfieldILMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:McAllenTXMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockfordILMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VoorheesNJMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MilwaukieORMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NampaIdMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:OrangeburgScMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:McMinnvilleORMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockfordILMember 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CarmelInMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:IowaCityIaMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MolineILMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DadeCityFlMember 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:Mt.AiryNCMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ModestoCAMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:FortWayneINMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OverlandParkKsMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockwallTXMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:AthensGAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MahtomediMNMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BartowFlMember 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:St.SimonsIslandGAMember 2019-12-31 0000877860 nhi:HospitalMember nhi:LaMesaCaMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:QuincyILMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:RoscommonMIMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WestDesMoinesIAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BurlingtonIAMember 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AustinTXMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WeiserIdMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ChattanoogaTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GarlandTXMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:MyrtleBeachSCMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LancasterOHMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LakelandFlMember 2019-01-01 2019-12-31 0000877860 nhi:MedicalOfficeBuildingMember nhi:PasadenaTxMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ForestGroveORMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:AuroraILMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CorinthTXMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LaurensScMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KatyTXMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BartowFlMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:StCharlesMoMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:St.CharlesILMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OswegoILMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:OntarioOrMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:GahannaOHMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:TrentonFlMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:JohnsonCityTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ClintonIaMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:McMinnvilleORMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BaltimoreMDMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:SilverdaleWaMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KennettMoMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RainbowCityALMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ColumbusINMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MaitlandFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:TauntonMAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:RockyRiverOHMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:BellevueWAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:Ft.DodgeIAMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:WestPalmBeachFlMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:DurhamNCMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrawfordsvilleINMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:HugoMnMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:WestCovinaCAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:StCharlesMoMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ChamplinMnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BourbonnaisILMember 2019-01-01 2019-12-31 0000877860 nhi:MedicalOfficeBuildingMember nhi:CrestviewFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EulessTXMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SmithvilleTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CaldwellIDMember 2018-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WorthingtonOHMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:PlantCityFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:JoplinMoMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PuebloWestCOMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:BridgeportCTMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:PeoriaIlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:KyleTxMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:LawrenburgTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:PulaskiTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GreenwoodInMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VeroBeachFLMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:McminnvilleTnMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:VancouverWAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ShelbyTownshipMIMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:ChattanoogaTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MissionKsMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:WeiserIdMember 2018-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AthensTnMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SouthBarringtonILMember 2018-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:StuartFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:BrooksvilleFlMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ConwayScMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:MaitlandFlMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:SouthBarringtonILMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CrownPointInMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LansingMiMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DeslogeMoMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:SpartaTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:WaxahachieTXMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:AmesIAMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:JohnsonCityTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:DadeCityFlMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GurneeILMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:EnnisTxMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GlasgowKyMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BattleCreekMiMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MindenLaMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:RogersARMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:GreensboroGaMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HendersonvilleTnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CreswellORMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MuscatineIAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:LincolnNEMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MidlandMiMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MarylandHeightsMoMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:CantonTxMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:ValparaisoINMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:AuroraILMember 2018-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:ManchesterNHMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BrightonMIMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:St.SimonsIslandGAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:CaldwellIDMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:NorthBranchMnMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MilanTnMember 2019-01-01 2019-12-31 0000877860 nhi:HospitalMember nhi:JacksonKyMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:FortWorthTXMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:MyrtleBeachSCMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:UrbandaleIAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MidlothianVAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:StCloudFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:GreenwoodScMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:RosevilleCAMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NeedhamMAMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:NorthBranfordCTMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:BristolVaMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:HolyokeMAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BolingbrookILMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:AlbanyORMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:BolingbrookILMember 2018-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:SalisburyMDMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:FranklinTnMember 2019-01-01 2019-12-31 0000877860 nhi:SeniorLivingCampusMember nhi:PortageINMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:NewPortRicheyFlMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:MoultonAlMember 2019-01-01 2019-12-31 0000877860 nhi:EntranceFeeCommunitiesMember nhi:GreenvilleSCMember 2019-01-01 2019-12-31 0000877860 nhi:IndependentLivingFacilityMember nhi:HemetCAMember 2019-01-01 2019-12-31 0000877860 nhi:AssistedLivingFacilityMember nhi:MarysvilleOHMember 2019-01-01 2019-12-31 0000877860 nhi:SkilledNursingFacilityMember nhi:NewBraunfelsTXMember 2019-01-01 2019-12-31 0000877860 nhi:SubsequentPropertyAdditionsPurchasedFromNhcMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:VirginiaBeachVaMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:OviedoFLMember 2019-12-31 0000877860 us-gaap:SecondMortgageMember nhi:AssistedLivingFacilityMember nhi:GreenBayWIMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:GreenBayWIMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:PhoenixAZMember nhi:NoteBMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:LexingtonVAMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:GreenBayWIMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:IssaquahWAMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:CantonMIMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:IndianapolisINMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:BrooknealVAMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:EntranceFeeCommunitiesMember nhi:ColumbiaSCMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:IssaquahWAMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:PhoenixAZMember nhi:NoteBMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:LaurelForkVAMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:CantonMIMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:IndianapolisINMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:ShelbyTownshipMIMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:VirginiaBeachVaMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:OviedoFLMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:LexingtonVAMember 2019-01-01 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:PhoenixAZMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:RyeNHMember 2019-01-01 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:VirginiaBeachVaMember 2019-01-01 2019-12-31 0000877860 us-gaap:SecondMortgageMember nhi:AssistedLivingFacilityMember nhi:GreenBayWIMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:VirginiaBeachVaMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:LaurelForkVAMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:SkilledNursingFacilityMember nhi:BrooknealVAMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:PhoenixAZMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:EntranceFeeCommunitiesMember nhi:ColumbiaSCMember 2019-12-31 0000877860 us-gaap:FirstMortgageMember nhi:AssistedLivingFacilityMember nhi:RyeNHMember 2019-12-31 0000877860 us-gaap:ConstructionLoansMember nhi:ShelbyTownshipMIMember 2019-12-31 nhi:Master_Leases nhi:properties xbrli:pure iso4217:USD xbrli:shares xbrli:shares nhi:beds_or_units iso4217:USD nhi:renewalOptions nhi:number_of_loans
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
 
 
 
 
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
For the fiscal year ended
December 31, 2019
 
 
 
 
 
 
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
_____________
to
_____________
 

Commission File Number 001-10822
National Health Investors Inc
(Exact name of registrant as specified in its charter)
Maryland
 
62-1470956
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
222 Robert Rose Drive
 
 
Murfreesboro
Tennessee
 
37129
(Address of principal executive offices)
 
(Zip Code)
(615)
890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
NHI
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
 
Accelerated filer
☐
 
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
Emerging growth company
☐
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of shares of common stock held by non-affiliates on June 30, 2019 (based on the closing price of these shares on the New York Stock Exchange) was approximately $3,495,872,000. There were 44,591,660 shares of the registrant’s common stock outstanding as of February 14, 2020.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2020 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K.


Table of Contents

 
Page
 
3
4
15
21
22
22
23
 
 
 
24
26
27
56
89
89
92
 
 
 
93
93
93
93
93
 
 
 
93
97
98
94


2
Table of Contents

PART I.

Forward Looking Statements

References throughout this document to NHI or the Company include National Health Investors, Inc., and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s “Plain English” guidelines, this Annual Report on Form 10-K has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National Health Investors, Inc. and its consolidated subsidiaries and not any other person. Unless the context indicates otherwise, references herein to “the Company” include all of our consolidated subsidiaries.

This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange Commission (the “SEC”), as well as information included in oral statements made, or to be made, by our senior management contain certain “forward-looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations, cash flows, funds from operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitation, those containing words such as “may”, “will”, “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of factors including, but not limited to, the following:

*
We depend on the operating success of our tenants and borrowers for collection of our lease and note payments;

*
We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect;

*
We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings;

*
Certain tenants in our portfolio account for a significant percentage of the rent we expect to generate from our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders;

*
We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties;

*
We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants’ and borrowers’ business;

*
Legislative, regulatory, or administrative changes could adversely affect us or our security holders;

*
We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs;

*
We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests;

*
We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations;

*
We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances;

*
We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation;

*
We depend on the success of our future acquisitions and investments;

*
We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;


3
Table of Contents

*
We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us;

*
We have covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations;

*
When interest rates increase, our common stock may decline in price;

*
We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates;

*
We are subject to risks related to changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and result of operations;

*
We are exposed to the risk that our assets may be subject to impairment charges;

*
We depend on the ability to continue to qualify for taxation as a Real Estate Investment Trust;

*
Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder our performance;

*
We are subject to risks associated with our joint venture investment with Life Care Services for Timber Ridge, an Entrance Fee CCRC, associated with Type A benefits offered to the residents of the joint venture's Entrance Fee community and related accounting requirements;

*
We have ownership limits in our charter with respect to our common stock and other classes of capital stock which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders;

*
We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests; and

*
If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions.

See the notes to the annual audited consolidated financial statements, and “Business” and “Risk Factors” under Item 1 and Item 1A therein for a further discussion of these and of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. You should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones we face. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition, results of operations, or cash flows could be materially adversely affected. In that case, the trading price of our shares of stock could decline and you may lose part or all of your investment. Given these risks and uncertainties, we can give no assurance that these forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them.

ITEM 1. BUSINESS

General

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. Our portfolio consists of real estate investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.

At December 31, 2019, we had investments in real estate, mortgage and other notes receivable involving 238 facilities located in 34 states. These investments involve 157 senior housing properties, 76 skilled nursing facilities, 3 hospitals, 2 medical office

4

buildings and other notes receivable. These investments (excluding our corporate office of $2,519,000) consisted of properties with an original cost of $3,072,327,000, rented under triple-net leases to 32 lessees, and $340,143,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers.

Our investments in real estate and mortgage loans are secured by real estate located within the United States. We are managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision making. Therefore, we have concluded that we operate as a single segment. Information about revenues from our tenants and borrowers, our net income, cash flows and balance sheet can be found in Item 8 of this Form 10-K.

Classification of Properties in our Portfolio

Senior Housing

As of December 31, 2019, our portfolio included 146 senior housing properties (“SHO”) leased to operators and mortgage loans secured by 11 SHOs. The SHOs in our portfolio are either need-driven or discretionary for end users and consist of independent living facilities, assisted living facilities, senior living campuses, and entrance-fee communities which are more fully described below.

Need-Driven Senior Housing

Assisted Living Facilities. As of December 31, 2019, our portfolio included 90 assisted living facilities (“ALF”) leased to operators and mortgage loans secured by 8 ALFs. ALFs are free-standing facilities that provide basic room and board functions for elderly residents. As residents typically receive assistance with activities of daily living such as bathing, grooming, administering medication and memory care services, we consider these facilities to be need-driven senior housing. On-site staff personnel are available to assist in minor medical needs on an as-needed basis. Operators of ALFs are typically paid from private sources without assistance from government. ALFs may be licensed and regulated in some states, but generally do not require the issuance of a Certificate of Need (“CON”) as required for skilled nursing facilities.

Senior Living Campuses. As of December 31, 2019, our portfolio included 14 senior living campuses (“SLC”) leased to operators. SLCs contain one or more buildings that include skilled nursing beds combined with an independent or assisted living facility that provides basic room and board functions for elderly residents. They may also provide assistance to residents with activities of daily living such as bathing, grooming and administering medication. On-site staff personnel are available to assist in minor medical needs on an as-needed basis. As the decision to transition to a senior living campus is typically more than a lifestyle choice and is usually driven by the need to receive some moderate level of care, we consider this facility type to be need-driven. Operators of SLCs are typically paid from private sources and from government programs such as Medicare and Medicaid for skilled nursing residents.

Discretionary Senior Housing

Independent Living Facilities. As of December 31, 2019, our portfolio included 32 independent living facilities (“ILF”) leased to operators. ILFs offer specially designed residential units for active senior adults and provide various ancillary services for their residents including restaurants, activity rooms and social areas. Services provided by ILF operators are generally paid from private sources without assistance from government payors. ILFs may be licensed and regulated in some states, but generally do not require the issuance of a CON as required for skilled nursing facilities. As ILFs typically do not provide assistance with activities of daily living, we consider the decision to transition to an ILF to be discretionary.

Entrance-Fee Communities. As of December 31, 2019, our portfolio included 10 entrance-fee communities (“EFC”) leased to operators and mortgage loans secured by three EFCs. Entrance-fee communities, frequently referred to as continuing care retirement communities, or CCRCs, typically include a combination of detached cottages, an independent living facility, an assisted living facility and a skilled nursing facility on one campus. These communities appeal to residents because there is no need to relocate when health and medical needs change. EFCs are classified as either Type A, B, or C depending upon the amount of healthcare benefits included in the entrance fee. “Type A” EFCs, or “Lifecare” communities, such as the Sagewood community, which secures two of our mortgage loans, and Timber Ridge, held by us as of January 31, 2020, in a joint venture, include substantially all future healthcare costs in the payment of an Entrance Fee and thereafter payment of a set service fee paid monthly. The Entrance Fee is divided into a refundable and non-refundable portion depending upon the Resident’s chosen contract program. The service fee is determined at the time of move-in into an independent living (IL) unit and is subject to certain inflation-based adjustments regardless of the resident’s future care needs. A resident must move into an IL unit initially and not require care at the time of move-in. Thereafter the resident’s care requirements from assisted living to memory care to skilled nursing are provided for. Communities providing a

5

modified healthcare contract offering access to skilled nursing care but only paying for a maximum number of days are referred to as “Type B” EFCs. Finally, “Type C” EFCs, the type which is indicative of ten communities in our lease portfolio and one community securing a mortgage loan, are fee-for-service communities which do not provide any healthcare benefits and correspondingly have the lowest entrance fees. However, monthly fees may be higher to reflect the current healthcare components delivered to each resident. EFC licensure is state-specific, but generally skilled nursing beds included in our EFC portfolio are subject to state licensure and regulation. As the decision to transition to an EFC is typically made as a lifestyle choice and not as the result of a pressing medical concern, we consider the decision to transition to an EFC to be discretionary. Accordingly, the predominant source of revenue for operators of EFCs is from private payor sources.

Medical

As of December 31, 2019, our portfolio included 77 medical facilities leased to operators and mortgage loans secured by 4 medical facilities. The medical facilities within our portfolio consist of skilled nursing facilities, hospitals and medical office buildings, which are more fully described below.

Skilled Nursing Facilities. As of December 31, 2019, our portfolio included 72 skilled nursing facilities (“SNF”) leased to operators and mortgage loans secured by 4 SNFs. SNFs provide some combination of skilled and intermediate nursing and rehabilitative care, including speech, physical and occupational therapy. As the decision to utilize the services of a SNF is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility. The operators of the SNFs receive payment from a combination of private pay sources and government payors such as Medicaid and Medicare. SNFs are required to obtain state licenses and are highly regulated at the federal, state and local level. Operators in 11 of the 13 states in which we own SNFs must obtain a CON from the state before opening or expanding such facilities. Some SNFs also include assisted living beds.

Hospitals. As of December 31, 2019, our portfolio included 3 hospitals (“HOSP”) leased to operators. Hospitals provide a wide range of inpatient and outpatient services, including acute psychiatric and rehabilitation services, and are subject to extensive federal, state and local legislation and regulation. Hospitals undergo periodic inspections regarding standards of medical care, equipment and hygiene as a condition of licensure. Services provided by hospitals are generally paid for by a combination of private pay sources and government payors. As the decision to utilize the services of a hospital is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility.

Medical Office Buildings. As of December 31, 2019, our portfolio included 2 medical office buildings (“MOB”) leased to operators. MOBs are specifically configured office buildings whose tenants are primarily physicians and other medical practitioners. As the decision to utilize the services of an MOB is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility. MOBs differ from conventional office buildings due to the special requirements of the tenants. Each of our MOBs is leased to one lessee and is either physically attached to or located on an acute care hospital campus. The lessee sub-leases individual office space to the physicians or other medical practitioners. The lessee is responsible to us for the lease obligations of the entire building, regardless of their ability to sub-lease the individual office space.

Nature of Investments

Our investments are typically structured as acquisitions of properties through purchase-leaseback transactions, acquisitions of properties from other real estate investors, loans or operations through structures allowed by the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”). We have provided construction loans for facilities for which we were already committed to provide long-term financing or for which the operator agreed to enter into a purchase option and lease with us upon completion of construction or after the facility is stabilized. The annual lease rates on our leases and the annual interest rates on our mortgage, construction and mezzanine loans ranged between 6% and 13% during 2019. We believe our lease and loan terms are competitive within our peer group. Typical characteristics of these transactions are as follows:

Leases. Our leases generally have an initial leasehold term of 10 to 15 years with one or more 5-year tenant renewal options. The leases are “triple net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimum personal injury and property damage insurance, protecting us as well as the tenant. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release, discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to each facility.

6


Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease where the lease contains fixed escalators. Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. When present, tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) a sliding base dependent upon the extent of appreciation in the property plus a specified proportion of any appreciation; ii) our acquisition costs plus a specified proportion of any appreciation; iii) an agreed capitalization rate applied to the current rental; or iv) our acquisition costs plus a profit floor plus a specified proportion of any appreciation. Where stipulated above, appreciation may be established by independent appraisal.

Some of the obligations under the leases are guaranteed by the parent corporation of the lessee, if any, or affiliates or individual principals of the lessee. In some leases, a third-party manager will also guarantee some portion of the lease obligations. Some obligations are backed further by other collateral such as security deposits, trade receivables, equipment, furnishings and other personal property.

We monitor our triple-net lessee tenant credit quality and identify any material changes by performing the following activities:

•
Obtaining financial statements on a monthly, quarterly and annual basis to assess the operational trends of our tenants and the financial position and capability of those tenants
•
Calculating the operating cash flow for each of our tenants
•
Calculating the lease service coverage ratio and other ratios pertinent to our tenants
•
Obtaining property-level occupancy rates for our tenants
•
Verifying the payment of real estate taxes by our tenants
•
Obtaining certificates of insurance for each tenant
•
Obtaining financial statements of our lessee guarantors on an annual basis
•
Conducting a periodic inspection of our properties to ascertain proper maintenance, repair and upkeep
•
Monitoring those tenants with indications of continuing and material deteriorating credit quality through discussions with our executive management and Board of Directors

RIDEA Transactions. Our arrangement with an affiliate of Life Care Services, which we announced on January 7, 2020, and closed in January 2020, is structured to be compliant with the provisions of RIDEA, which permit NHI to receive rent payments through a triple-net lease between a property company and an operating company and give NHI the opportunity to capture additional value on the improving performance of the operating company through distributions to a Taxable REIT Subsidiary (“TRS”). Accordingly, the TRS holds our 25% equity interest in an unconsolidated operating company, and provides an organizational structure that allows the TRS to engage in a broad range of activities and share in revenues that would otherwise be non-qualifying income under the REIT gross income tests. The TRS is subject to state and federal income taxes.

Mortgage loans. We have first mortgage loans with original maturities generally greater than 5 years, with varying amortization schedules from interest-only to fully-amortizing. Most of the loans are at a fixed interest rate; however, some interest rates increase based on a fixed schedule. In most cases, the owner of the facility is committed to make minimum annual capital expenditures for the purpose of maintaining or upgrading their respective facility. Additionally, most of our loans are collateralized by first or second mortgage liens and corporate or personal guarantees. Currently, our mortgage loans carry interest rates which range from 6% to 13%.

Mezzanine loans. Frequently in situations calling for temporary financing or when our borrowers’ in-place lending arrangements prohibit the extension of first mortgage security, we typically accept a second mortgage position or extend credit based on corporate and/or personal guarantees. These mezzanine loans often combine with an NHI purchase option covering the subject property. Our mezzanine loans currently carry an interest rate of 10%.

Construction loans. From time to time, we also provide construction loans that become mortgage loans upon the completion of the construction of the subject facility. We may also obtain a purchase option to acquire the facility at a future date and lease the facility back to the operator. During the term of the construction loan, funds are usually advanced pursuant to draw requests made by the borrower in accordance with the terms and conditions of the loan. Interest is typically assessed on these loans at rates equivalent to the eventual mortgage rate upon conversion. In addition to the security of the lien against the property, we will generally require additional security and collateral in the form of either payment and performance completion bonds or completion guarantees by the borrower’s parent, affiliates of the borrower or one or more of the individuals who control the borrower. We currently have construction loans bearing interest ranging from 7.25% to 9%.


7

Other notes receivable. We have provided a revolving credit facility to a borrower whose business is to provide bridge loans to owner-operators who are qualifying for long-term HUD financing secured by real estate. Our interest rate on the credit facility is 10%. We have provided loans to borrowers involved in the skilled nursing and senior housing industries who have pledged personal and business guarantees as security for the loans. The interest rates on these loans typically range from 8.25% to 10%.

Investment in marketable securities. From time to time we have invested a portion of our funds in various marketable securities with quoted market prices, including the common shares of other publicly-held REITs. We classify these highly-liquid securities as available-for-sale and carry the investments at their then quoted fair market value at the balance sheet date. We may choose to liquidate these investments to invest the proceeds into real estate assets. We currently have no investments in marketable securities.

Competition and Market Conditions

We compete primarily with other REITs, private equity funds, banks and insurance companies in the acquisition, leasing and financing of health care real estate.

Operators of our facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for residents and/or patients and staff based on quality of care, reputation, location and physical appearance of facilities, services offered, family preference, physicians, staff and price. Competition is with other operators as well as companies managing multiple facilities, some of which are substantially larger and have greater resources than the operators of our facilities. Some of these facilities are operated for profit, while others are owned by governmental agencies or tax exempt not-for-profit entities.

The SNFs which either secure our mortgage loans or we lease to third-party operators receive the majority of their revenues from Medicare, Medicaid and other government payors. From time to time, these facilities have experienced revenue reductions brought about by the enactment of legislation to reduce government costs. In particular, the establishment of a Medicare Prospective Payment System (“PPS”) for SNF services, to replace the cost-based reimbursement system, significantly reduced Medicare reimbursement to SNF providers. While Congress subsequently took steps to mitigate the impact of PPS on SNFs, other federal legislative policies have been adopted and continue to be proposed that would reduce the growth rate of Medicare and/or Medicaid payments to SNFs. Effective October 1, 2019, a Patient Driven Payment Model (“PDPM”) was adopted as a case-mix system for classifying patient information payment groups under PPS. The new model shifts care delivery under Medicare away from fee-for-service, which in the past has based reimbursement on the amount of care provided, to focus on value-based care, which will base reimbursement on clinical complexity and the resident’s conditions and care needs. On August 7, 2019, CMS adopted a net 2.4% increase to Medicare skilled nursing payments for the fiscal year beginning October 1, 2019. We believe a rate increase in line with inflation, along with general demographic growth among the oldest seniors, will help to stabilize lease coverages among our skilled nursing tenants at a time when they are implementing the PDPM. Changes in government reimbursement methodology that reduce reimbursement to levels that are insufficient to cover the operating costs of our lessees and borrowers could indirectly and adversely impact us.

Our senior housing properties generally rely on private-pay residents who may be negatively impacted in an economic downturn. For example, a resident may intend to sell his or her house in order to afford the cost of residing in an ILF or ALF. In addition, the success of these properties is often impacted by the existence of comparable, competing facilities in a local market.

Operator Diversification

For the year ended December 31, 2019, approximately 23% of our portfolio revenue was from publicly-owned operators, 58% was from regional operators, 17% from privately owned national chains and 2% was from smaller operators. We consider the creditworthiness of the operator to be an important factor in underwriting the lease or loan investment, and we generally have the right to approve any changes in operators.

For the year ended December 31, 2019, tenants which provided more than 3% of our total revenues were (in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; The Ensign Group; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and Senior Living Management. We make reference to the parent company whenever we describe our business with these tenants, their subsidiaries and/or affiliates regardless of the specific subsidiary entity indicated on the lease or loan documents.

Major Customers


8

We have four operators, Holiday Retirement (“Holiday”), Senior Living Communities (“Senior Living”), National HealthCare Corporation (“NHC”) and Bickford Senior Living (“Bickford”), from whom we individually derive at least 10% of our total revenues, and 58% collectively.

Holiday

As of December 31, 2019, we leased 26 independent living facilities to Holiday including a $38,000,000 senior housing facility in Vero Beach, Florida which we acquired on January 31, 2019. The master lease, which matures in 2035, was amended in November 2018 and provides for annual lease escalators beginning November 1, 2020, with a floor of 2% and a ceiling of 3%. Of our total revenues, $40,459,000 (13%), $43,311,000 (15%) and $43,817,000 (16%) were derived from Holiday for the years ended December 31, 2019, 2018 and 2017, respectively, including $6,621,000, $5,616,000 and $7,397,000 in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Senior Living

As of December 31, 2019, we leased 10 retirement communities totaling 2,068 units to Senior Living. The 15-year master lease, which began in December 2014, contains two 5-year renewal options and provides for an annual escalator of 3%.

Of our total revenues, $46,927,000 (15%), $45,868,000 (16%) and $45,735,000 (16%) in rental income were derived from Senior Living for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,934,000, $5,436,000 and $6,984,000 in straight-line rent income,

In December 2014, we provided a $15,000,000 revolving line of credit, the maturity of which mirrors the 15-year term of the master lease. Borrowings are used to primarily finance construction projects within the Senior Living portfolio, including building additional units. The revolving line of credit facility, which may also be used to meet general working capital needs, was amended as of December 10, 2019, to reduce availability to $12,000,000 with a further reduction in capacity to $7,000,000 beginning January 1, 2022, through lease maturity in December 2029. Also effective December 10, 2019, a sub-limit on the availability of funding for working capital needs was established at $10,000,000 for this loan, extending through January 1, 2022, at which time the limit is to be reduced to $5,000,000. Amounts outstanding under the facility, $5,174,000 at December 31, 2019, bear interest at an annual rate equal to the prevailing 10-year U.S. Treasury rate, 1.92% at December 31, 2019, plus 6%.

In March 2016, we extended two mezzanine loans of up to $12,000,000 and $2,000,000, respectively, to affiliates of Senior Living, to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina, which opened in April 2018. The loans bear interest payable monthly at a 10% annual rate and mature in March 2021. The loans were fully drawn at December 31, 2019, and provide NHI with a fixed capitalization rate purchase option on the development upon its meeting certain operational metrics. The option is to remain open during the term of the loans, plus any extensions.

NHC

We lease 42 facilities under two master leases to NHC, a publicly-held company. The facilities leased to NHC consist of 3 independent living facilities and 39 skilled nursing facilities (4 of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”), which includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”), which includes 7 skilled nursing facilities acquired in 2013.

The 1991 lease expiration is December 31, 2026. There are two additional 5-year renewal options, each at fair rental value as negotiated between the parties and determined without including the value attributable to any improvements to the leased property voluntarily made by NHC at its expense. Under the terms of the 1991 lease, the base annual rental is $30,750,000 and rent escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. The 2013 lease provides for a base annual rental of $3,450,000 and has a lease expiration of August 2028. Under the terms of the 2013 lease, rent escalates 4% of the increase, if any, in each facility’s revenue over the 2014 base year. For both the 1991 lease and the 2013 lease, we refer to this additional rent component as “percentage rent.” During the last three years of the 2013 lease, NHC will have the option to purchase the facilities for $49,000,000.

Of our total revenues, $38,131,000 (12%), $37,843,000 (13%) and $37,467,000 (13%) in rental income were derived from NHC for the years ended December 31, 2019, 2018 and 2017, respectively.

The chairman of our board of directors is also a director on NHC’s board of directors. As of December 31, 2019, NHC owned 1,630,642 shares of our common stock.

9

Bickford

As of December 31, 2019, our Bickford lease portfolio consisted of the following (dollars in thousands):
 
Lease Expiration
 
 
June 2023
September 2024
May 2031
April 2033
Total
Number of Properties
13

10

19

5

47

2019 Contractual Rent
$
11,468

$
9,442

$
21,838

$
4,918

$
47,666

2019 Straight Line Rent
358

467

2,903

860

4,588

2019 Lease Incentive Amortization
—

—

(724
)
—

(724
)
 
$
11,826

$
9,909

$
24,017

$
5,778

$
51,530


On September 10, 2019, NHI amended a master lease, which matures in May 2031 and covers 14 Bickford properties, to change the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%. A four-building portfolio in Minnesota that had been leased by Bickford through September 30, 2019, transitioned to 41 Management, LLC, on October 1, 2019. Also, as of October 1, 2019, a master lease covering ten buildings subject to HUD mortgages was modified to reflect a decrease in monthly rent and provide for CPI-based escalators.

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs and the cancellation of an outstanding construction note receivable of $14,035,000, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to floor and ceiling. We accounted for the transaction as an asset purchase.

Of our total revenues, $52,570,000 (17%), $50,093,000 (17%) and $41,606,000 (15%) were recognized as rental income from Bickford for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,651,000, $5,028,000 and $5,102,000 in straight-line rent income, respectively.

At December 31, 2019, our construction loans to Bickford are summarized as follows:
Commencement
 
Rate
 
Maturity
 
Commitment
 
Drawn
 
Location
January 2017
 
9%
 
5 years
 
$
14,000,000

 
$
(14,000,000
)
 
Michigan
January 2018
 
9%
 
5 years
 
14,000,000

 
(11,804,000
)
 
Virginia
July 2018
 
9%
 
5 years
 
14,700,000

 
(11,312,000
)
 
Michigan
 
 
 
 
 
 
$
42,700,000

 
$
(37,116,000
)
 
 

On January 27, 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,091,000, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

The construction loans are secured by first mortgage liens on substantially all real and personal property as well as a pledge of any and all leases or agreements which may grant a right of use to the property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the properties at stabilization of the underlying operations. On these development projects, Bickford as borrower is entitled to up to $2,000,000 per project in incentive loan draws based on the achievement of predetermined operational milestones and, if funded, will increase the principal amount and NHI's future purchase price and eventual NHI lease payment.

Commitments and Contingencies

The following tables summarize information as of December 31, 2019 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements.

10

 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Loan Commitments:
 
 
 
 
 
 
 
 
 
LCS Sagewood Note A
SHO
 
Construction
 
$
118,800,000

 
$
(77,340,000
)
 
$
41,460,000

LCS Sagewood Note B
SHO
 
Construction
 
61,200,000

 
(45,938,000
)
 
15,262,000

LCS Timber Ridge Note A
SHO
 
Construction
 
60,000,000

 
(59,350,000
)
 
650,000

Bickford Senior Living
SHO
 
Construction
 
28,700,000

 
(23,116,000
)
 
5,584,000

Senior Living Communities
SHO
 
Revolving Credit
 
12,000,000

 
(5,174,000
)
 
6,826,000

41 Management
SHO
 
Construction
 
10,800,000

 
(6,045,000
)
 
4,755,000

Discovery Senior Living
SHO
 
Working Capital
 
750,000

 
(175,000
)
 
575,000

 
 
 
 
 
$
292,250,000

 
$
(217,138,000
)
 
$
75,112,000


 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Development Commitments:
 
 
 
 
 
 
 
 
 
Ignite Medical Resorts
SNF
 
Construction
 
$
25,350,000

 
$
(16,903,000
)
 
$
8,447,000

Woodland Village
SHO
 
Construction
 
7,515,000

 
(7,425,000
)
 
90,000

Senior Living Communities
SHO
 
Renovation
 
9,930,000

 
(9,067,000
)
 
863,000

Wingate Healthcare
SHO
 
Renovation
 
1,900,000

 
(357,000
)
 
1,543,000

Discovery Senior Living
SHO
 
Renovation
 
900,000

 
—

 
900,000

Navion Senior Solutions
SHO
 
Construction
 
650,000

 
—

 
650,000

41 Management
SHO
 
Renovation
 
400,000

 
—

 
400,000

 
 
 
 
 
$
46,645,000

 
$
(33,752,000
)
 
$
12,893,000


In addition to the commitments listed above, Discovery PropCo, discussed more fully in Note 2, has committed to funding up to $2,000,000 for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 had been funded toward the commitment.
 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Contingencies:
 
 
 
 
 
 
 
 
 
Comfort Care Senior Living
SHO
 
Lease Inducement
 
6,000,000

 
—

 
6,000,000

Wingate Healthcare
SHO
 
Lease Inducement
 
5,000,000

 
—

 
5,000,000

Navion Senior Solutions
SHO
 
Lease Inducement
 
4,850,000

 
(500,000
)
 
4,350,000

Discovery Senior Living
SHO
 
Lease Inducement
 
4,000,000

 
—

 
4,000,000

Ignite Medical Resorts
SNF
 
Lease Inducement
 
2,000,000

 
—

 
2,000,000

 
 
 
 
 
$
21,850,000

 
$
(500,000
)
 
$
21,350,000


Sources of Revenues

General. Our revenues are derived primarily from rental income and mortgage and other note interest income. During 2019, rental income was $294,182,000 (92.5%), and interest income from mortgages and other notes was $22,835,000 (7.2%) on total revenue of $318,081,000, an increase of 8.0% over 2018. Our revenues depend on the operating success of our tenants and borrowers whose source and amount of revenues are determined by (i) the licensed beds or other capacity of the facility, (ii) their occupancy rate, (iii) the extent to which the services provided at each facility are utilized by the residents and patients, (iv) the mix of private pay, Medicare and Medicaid patients, and (v) the rates paid by private payors and by the Medicare and Medicaid programs.

Government Regulation

Medicare and Medicaid. A significant portion of the revenue of our SNF lessees and borrowers is derived from government funded reimbursement programs, such as Medicare and Medicaid. Reimbursement under these programs is subject to periodic payment review and other audit by federal and state authorities. Medicare base rates are uniform nationwide and reimburse skilled nursing facilities under PPS which is based on a predetermined, fixed amount. PPS is an acuity-based classification system that uses nursing and therapy indexes adjusted by geographical wage indexes to calculate per diem rates for each Medicare patient. Payment rates are updated annually and are generally adjusted each October when the federal fiscal year begins. Federal legislative policies have been adopted and continue to be proposed that would provide small increases in annual Medicare payments to skilled nursing facilities. For example, the Centers for Medicare and Medicaid Services (“CMS”) announced the Skilled Nursing Facilities

11

– PPS final rule for fiscal year 2020 which increased net Medicare payments to SNF operators by only 2.4% beginning October 1, 2019.

Most notably, the new Patient Driven Payment Model (“PDPM”), which replaced the existing RUGs IV model beginning in FY 2020 (effective October 1, 2019), focuses on a resident’s clinical condition and care needs, rather than the volume of care provided.  PDPM is designed to move Medicare towards a more value-based, unified post-acute care payment system that prioritizes the unique care needs of patients and reduces administrative burdens, particularly for performing patient assessments. PDPM is a case-mix classifications system for classifying SNF patients in a Medicare Part A covered stay into payment groups under the SNF PPS.

Medicaid is a joint federal and state program designed to provide medical assistance to “eligible needy persons.” Medicaid programs are operated by state agencies that adopt their own medical reimbursement methodology and standards. Payment rates and covered services vary from state to state. In many instances, revenues from Medicaid programs are insufficient to cover the actual costs incurred in providing care to those patients. With regard to Medicaid payment increases to skilled nursing operators, changes in federal funding coupled with state budget problems have produced uncertainty. States will more than likely be unable to keep pace with SNF inflation. States are under pressure to pursue other alternatives to long term care such as community and home-based services. Furthermore, several of the states in which we have investments have actively sought to reduce or slow the increase of Medicaid spending for SNF care.

Medicare and Medicaid programs are highly regulated and subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations and administrative and judicial interpretations of existing law. Moreover, as health care facilities have experienced increasing pressure from private payors attempting to control health care costs, reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors. Healthcare reimbursement will likely continue to be of significant importance to federal and state programs. We cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our lessees’ and borrowers’ costs of doing business and on the amount of reimbursement by government and other third-party payors. There can be no assurance that future payment rates for either government or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in government or private payor reimbursement policies which reduce payments to levels that are insufficient to cover the cost of providing patient care could adversely affect the operating revenues of tenants and borrowers in our properties that rely on such payments, and thereby adversely affect their ability to make their lease or debt payments to us.

Licensure and Certification. The health care industry is highly regulated by federal, state and local law and is directly affected by state and local licensing requirements, facility inspections, state and federal reimbursement policies, regulations concerning capital and other expenditures, certification requirements and other such laws, regulations and rules. Sanctions for failure to comply with these regulations and laws include (but are not limited to) loss of licensure, fines and loss of certification to participate in the Medicare and Medicaid programs, as well as potential criminal penalties. The failure of any tenant or borrower to comply with such laws, requirements and regulations could affect their ability to operate the facility or facilities and could adversely affect such tenant’s or borrower’s ability to make lease or debt payments to us.

In the past several years, due to rising health care costs, there has been an increased emphasis on detecting and eliminating fraud and abuse in the Medicare and Medicaid programs. Payment of any consideration in exchange for referral of Medicare and Medicaid patients is generally prohibited by federal statute, which subjects violators to severe penalties, including exclusion from the Medicare and Medicaid programs, fines and even prison sentences. In recent years, both federal and state governments have significantly increased investigation and enforcement activity to detect and punish wrongdoers. In addition, legislation has been adopted at both state and federal levels, which severely restrict the ability of physicians to refer patients to entities in which they have a financial interest.

It is anticipated that the trend toward increased investigation and enforcement activity in the area of fraud and abuse, as well as self-referral, will continue in future years. Certain of our investments are with lessees or borrowers that are partially or wholly owned by physicians. In the event that any lessee or borrower were to be found in violation of laws regarding fraud and abuse or self-referral, that lessee’s or borrower’s ability to operate the facility could be jeopardized, which could adversely affect the lessee’s or borrower’s ability to make lease or debt payments to us and could thereby adversely affect us.

Certificates of Need . The SNFs and hospitals in which we invest are also generally subject to state statutes which may require regulatory approval in the form of a CON prior to the construction or expansion of facilities to accommodate new beds (or addition of new beds to existing facilities), the addition of services or certain capital expenditures. CON requirements are not uniform throughout the United States and are subject to change. We cannot predict the impact of regulatory changes with respect to CONs on the operations of our lessees and borrowers; however, in our primary market areas, a significant reduction in new construction of long-term care beds has occurred.

12


Investment Policies

Our investment objectives are (i) to provide consistent and growing current income for distribution to our stockholders through investments primarily in healthcare related facilities or in the operations thereof through independent third-party management, (ii) to provide the opportunity to realize capital growth resulting from appreciation, if any, in the residual value of our portfolio properties, and (iii) to preserve and protect stockholders’ capital through a balance of diversity, flexibility and liquidity. There can be no assurance that these objectives will be realized. Our investment policies include making investments in real estate, mortgage and other notes receivable, and joint ventures structured to comply with the provisions of RIDEA.

During 2019, we made commitments to fund new investments in real estate and loans totaling approximately $329,000,000. In making new investments, we consider such factors as (i) the geographic area and type of property, (ii) the location, construction quality, condition and design of the property, (iii) the current and anticipated cash flow and its adequacy to meet operational needs, and lease or mortgage obligations to provide a competitive income return to our investors, (iv) the growth, tax and regulatory environments of the communities in which the properties are located, (v) occupancy and demand for similar facilities in the same or nearby communities, (vi) the quality, experience and creditworthiness of the management operating the facilities located on the property and (vii) the mix of private and government-sponsored residents. There can be no assurances that investments meeting our standards regarding these attributes will be found or closed.

We will not, without the approval of a majority of the Board of Directors and review of a committee comprised of independent directors, enter into any joint venture relationships with or acquire from or sell to any director, officer or employee of NHI, or any affiliate thereof, as the case may be, any of our assets or other property.

The Board of Directors, without the approval of the stockholders, may alter our investment policies if it determines that such a change is in our best interests and our stockholders’ best interests. The methods of implementing our investment policies may vary as new investment and financing techniques are developed or for other reasons. Management may recommend changes in investment criteria from time to time.

Future investments in healthcare related facilities may utilize borrowed funds or issuance of equity when it is advisable in the opinion of the Board of Directors. We may negotiate lines of credit or arrange for other short or long-term borrowings from lenders. We may arrange for long-term borrowings from institutional investors or through public offerings. We have previously invested, and may in the future invest, in properties subject to existing loans or secured by mortgages, deeds of trust or similar liens with favorable terms or in mortgage investment pools.

Executive Officers of the Company

The table below sets forth the name, position and age of each of our executive officers. Each executive officer is appointed by the Board of Directors, serves at its pleasure and holds office for a term of one year. There is no “family relationship” among any of the named executive officers or with any director. All information is given as of February 14, 2020:
Name
Position
Age
Eric Mendelsohn
President and Chief Executive Officer
58
Kristin S. Gaines
Chief Credit Officer
48
Kevin Pascoe
Chief Investment Officer
39
John Spaid
Chief Financial Officer
60
Ron Reel
Chief Accounting Officer
63

Eric Mendelsohn joined NHI in January 2015. He has over 15 years of healthcare real estate and financing experience. Previously, Mr. Mendelsohn was with Emeritus Senior Living for 9 years, most recently as a Senior Vice President of Corporate Development where he was responsible for the financing and acquisition of assisted living properties, home health care companies, administration of joint venture relationships and executing corporate finance strategies. Prior to Emeritus, he was with the University of Washington as a Transaction Officer where he worked on the development, acquisition and financing of research, clinical and medical properties and has been a practicing transaction attorney, representing lenders and landlords. Mr. Mendelsohn holds a Bachelor of Science from American University in International Relations, a Law Degree from Pepperdine University, and a Masters (LLM) in Banking and Finance from Boston University. Mr. Mendelsohn is a member of the Florida and Washington State Bar Associations.

Kristin S. Gaines was appointed NHI’s Chief Credit Officer in February 2010. She joined NHI in 1998 as a Credit Analyst. During her tenure with NHI, Ms. Gaines has had a progressive career in the areas of finance and operations. Her experience has

13

resulted in a breadth of expertise in underwriting, portfolio oversight and real estate finance. Ms. Gaines holds an MBA and a Bachelor of Business Administration in Accounting from Middle Tennessee State University.

Kevin Pascoe joined NHI in June 2010. Mr. Pascoe oversees NHI’s portfolio of assets, relationship management with existing tenants and conducts operational due diligence on NHI’s existing investments and new investment opportunities. He has over 10 years of health care real estate background including his experience with General Electric - Healthcare Financial Services (“GE HFS”) (2006 – 2010) where he most recently served as a Vice President. With GE HFS, he moved up through the organization while working on various assignments including relationship management, deal restructuring, and special assets. He also was awarded an assignment in the GE Capital Global Risk Rotation Program. Mr. Pascoe holds an MBA and a Bachelor of Business Administration in Economics from Middle Tennessee State University.

John Spaid was named Chief Financial Officer in November 2019. He joined NHI in March 2016 as Executive Vice President of Finance. He oversees the Company’s banking relationships, financial transactions, accounting functions and SEC reporting. Mr. Spaid has over 30 years of experience in real estate, finance and senior housing. Previously, he was with Emeritus Senior Living as a Senior Vice President whose responsibilities included budget and forecasting, debt and lease obligation underwriting, merger and acquisition processes, financial modeling, due diligence, board and investor presentations, employee development and Sarbanes-Oxley compliance. Mr. Spaid has been an independent financial consultant and has also served as the CFO of a regional assisted living and memory care provider in Redmond, Washington. Mr. Spaid holds an MBA from the University of Michigan and a Bachelor of Business Administration from the University of Texas.

Ron Reel began working with NHI in a consulting role during the 2011 year-end close and continued periodically to provide expertise on various projects through 2013, when he joined NHI on a full-time basis as Controller. After six years as Controller, in November 2019, Mr. Reel was named Chief Accounting Officer for NHI. Mr. Reel was an audit partner in the Knoxville office of Rodefer Moss & Co, a regional accounting firm with ten offices in Tennessee, Indiana and Kentucky. Mr. Reel received his Bachelor of Science in Business Administration with a major in Accounting from the University of Tennessee in 1979 and is a CPA licensed in Tennessee.

We have a staff of 17, all reporting to our corporate office in Murfreesboro, TN. Essential services such as internal audit, tax compliance, information technology and legal services are outsourced to third-party professional firms.

Investor Information

We publish our annual report on Form 10-K, quarterly reports on Form 10-Q, quarterly Supplemental Information, current reports on Form 8-K, and press releases to our website at www.nhireit.com. We have a policy of publishing these on the website within two (2) business days after public release or filing with the SEC.

We also maintain the following documents on our web site:

▪
The NHI Code of Business Conduct and Ethics which has been adopted for all employees, officers and directors of the Company.

▪
Information on our “NHI Valuesline” which allows all interested parties to communicate with NHI executive officers and directors. The toll free number is 877-880-2974 and the communications may be made anonymously, if desired.

▪
The NHI Restated Audit Committee Charter.

▪
The NHI Revised Compensation Committee Charter.

▪
The NHI Revised Nominating and Corporate Governance Committee Charter.

▪
The NHI Corporate Governance Guidelines.

We will furnish, free of charge, a copy of any of the above documents to any interested investor upon receipt of a written request.

Our transfer agent is Computershare. Computershare will assist registered owners with the NHI Dividend Reinvestment plan, change of address, transfer of ownership, payment of dividends, replacement of lost checks or stock certificates. Computershare’s contact information is: Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. The toll free number is 800-942-5909 and the website is www.computershare.com.


14

The Annual Stockholders’ meeting will be held at 12:00 p.m. local time on Wednesday, May 6, 2020 at The View at Fountains, 1500 Medical Center Parkway, Murfreesboro, TN.

ITEM 1A. RISK FACTORS

We depend on the operating success of our tenants and borrowers for collection of our lease and note payments.

Revenues for the operators of our properties are primarily driven by occupancy, Medicare and Medicaid reimbursement and private pay rates. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts resulting from federal and state budget shortfalls and constraints. Periods of weak economic growth in the U.S. which affect housing sales, investment returns and personal incomes may adversely affect senior housing occupancy rates. An oversupply of senior housing real estate may also apply downward pressure to the occupancy rates our operators receive. Expenses for the facilities are driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Liability insurance and staffing costs continue to increase for our operators. Historically low unemployment has created significant wage pressure for our operators. To the extent any decrease in revenues and/or any increase in operating expenses results in a property not generating enough cash to make scheduled payments to us, our revenues, net income and funds from operations would be adversely affected. Such events and circumstances would cause us to evaluate whether there was an impairment of the real estate or mortgage loan that should be charged to earnings. Such impairment would be measured as the amount by which the carrying amount of the asset exceeded its fair value. Consequently, we might be unable to maintain or increase our current dividend and the market price of our stock may decline.

We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect.

When we decide to invest in the renovation of an existing property or in the development of a new property, we make assumptions about the future potential cash flows of that property. We estimate our return based on expected occupancy, rental rates and future capital costs. If our projections prove to be inaccurate due to increased capital costs, lower occupancy or other factors, our investment in that property may not generate the cash flow we expected. Recently developed properties may take longer than expected to achieve stabilized operating levels, if at all. To the extent such facilities fail to reach stabilized operating levels or achieve stabilization later than expected, it could materially adversely affect our tenants’ abilities to make payments to us under their leases and thus adversely affect our business and results of operations.

We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings.

Although our lease agreements provide us the right to evict a tenant/operator and demand immediate payment of rent and exercise other remedies, and our mortgage loans provide us the right to terminate any funding obligations, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. A tenant or borrower in bankruptcy may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and/or interest in the case of a mortgage loan and to exercise other rights and remedies. For example, a lessee may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the lessee for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap could be substantially less than the remaining rent owed under the lease, and any claim we have for unpaid rent might not be paid in full. In addition, a lessee may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to a landlord, are generally more limited. We may be required to fund certain expenses (e.g. real estate taxes, maintenance and capital improvements) to preserve the value of a property, avoid the imposition of liens on a property and/or transition a property to a new tenant or borrower. In some instances, we have terminated our lease with a tenant and leased the facility to another tenant. In some of those situations, we provided working capital loans to, and limited indemnification of, the new tenant. If we cannot transition a leased facility to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.

Certain tenants in our portfolio account for a significant percentage of the rent we expect to generate from our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants/operators. As of December 31, 2019, approximately 58% of our total revenue is generated by Bickford (17%), Senior Living (16%), Holiday (13%), and NHC (12%). Payment defaults or a decline in the operating performance by these or other tenants/operators could materially and adversely affect our business, financial condition and results of operations and our ability to pay

15

expected dividends to our stockholders. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we may not be able to re-lease the property for the rent previously received, or at all, or lease terminations may cause us to sell the property at a loss. The result of any of the foregoing risks could materially and adversely affect our business, financial conditions and results of operations and our ability to make distributions to our stockholders.

We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties.

Real estate investments are relatively illiquid and, therefore, our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions may be limited. All of our properties are "special purpose" properties that cannot be readily converted to general residential, retail or office use. Facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements. Transfers of operations of facilities are subject to regulatory approvals not required for transfers of other types of real estate. Thus, if the operation of any of our properties becomes unprofitable due to competition, age of improvements or other factors such that our lessee or borrower becomes unable to meet its obligations on the lease or mortgage loan, the liquidation value of the property may be less than the net book value or the amount owed on any related mortgage loan, because the property may not be readily adaptable to other uses. The sale of the property or the replacement of an operator that has defaulted on its lease or loan could also be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the operator with a new operator licensed to manage the facility. No assurances can be given that we will recognize full value for any property that we are required to sell for liquidity reasons. Should such events occur, our results of operations and cash flows could be adversely affected.

We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants’ and borrowers’ business.

Our tenants’ and borrowers’ businesses are affected by government reimbursement and the rates paid by private pay sources. To the extent that any of our facilities receive a significant portion of their revenues from governmental payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing governmental investigations and audits at such facilities. In recent years, governmental payors have frozen or reduced payments to health care providers due to budgetary pressures. Such reductions in Medicare reimbursement will have an adverse effect on the financial operations of our borrowers and lessees who operate SNFs. Changes in health care reimbursement will likely continue to be of paramount importance to federal and state programs. The President and members of the U.S. Congress may approve or propose various spending cuts and tax reform initiatives that could result in changes (including substantial reductions in funding) to Medicare, Medicaid or Medicare Advantage Plans. In addition, a number of states are currently managing budget deficits, which may put pressure on states to decrease reimbursement rates for our tenants and operators with a goal of decreasing state expenditures under their state Medicaid programs. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of the health care industry. There can be no assurance that adequate reimbursement levels will continue to be available for services provided by any facility operator, whether the facility receives reimbursement from Medicare, Medicaid or private pay sources. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an operator’s liquidity, financial condition and results of operations, which could adversely affect the ability of an operator to meet its obligations to us. In addition, the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility.

Legislative, regulatory, or administrative changes could adversely affect us or our security holders.

The tax laws or regulations governing REITs or the administrative interpretations thereof may be amended at any time. We cannot predict if or when any new or amended law, regulation, or administrative interpretation will be adopted, promulgated, or become effective, and any such change may apply retroactively. The last significant legislation affecting REITs came with the passage of The Tax Cuts and Jobs Act, effective for tax years beginning in 2018. We and our security holders may be adversely affected by any new or amended law, regulation, or administrative interpretation.

Prospective investors are urged to consult with their tax advisors with respect to the status of the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our securities.


16

We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs.

ALF and SNF operators have experienced substantial increases in both the number and size of patient care liability claims in recent years, particularly in the states of Texas and Florida. As a result, general and professional liability costs have increased and may continue to increase. Nationwide, long-term care liability insurance rates are increasing because of large jury awards in states like Texas and Florida. Both Texas and Florida have now adopted SNF liability laws that modify or limit tort damages. Despite some of these reforms, the long-term care industry overall continues to experience very high general and professional liability costs. Insurance companies have responded to this claims crisis by severely restricting their capacity to write long-term care general and professional liability policies. No assurance can be given that the climate for long-term care general and professional liability insurance will improve in any of the foregoing states or any other states where the facility operators conduct business. Insurance companies may continue to reduce or stop writing general and professional liability policies for ALFs and SNFs. Thus, general and professional liability insurance coverage may be restricted, very costly or not available, which may adversely affect the facility operators’ future operations, cash flows and financial condition and may have a material adverse effect on the facility operators’ ability to meet their obligations to us.

We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests.

Our investments in unconsolidated entities could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on the financial condition of other interests, any disputes that may arise between us and other partners, and our exposure to potential losses from the actions of partners. Risks of dealing with parties outside NHI include limitations on unilateral major decisions opposed by other interests, the prospect of divergent goals of ownership including disputes regarding management, ownership or disposition of a property, or limitations on the transfer of our interests without the consent of our partners. Risks of the unconsolidated entity extend to areas in which the financial health of our partners may impact our plans. Our partners might become bankrupt or fail to fund their share of required capital contributions, which may hinder significant action in the entity. We may disagree with our partners about decisions affecting a property or the entity itself, which could result in litigation or arbitration that increases our expenses, distracts our officers and directors and disrupts the day-to-day operations of the property, including by delaying important decisions until the dispute is resolved; and finally, we may suffer losses as a result of actions taken by our partners with respect to our investments.

We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations.

As of January 31, 2020, we have an investment in an unconsolidated entity that is structured to be in compliance with RIDEA. As such, we are exposed to various operational risks with respect to those operating properties that may increase our costs or adversely affect our ability to increase revenues. These risks include fluctuations in resident occupancy, operating expenses, economic conditions; competition; certification and inspection laws, regulations, and standards; the availability of and increases in cost of general and professional liability insurance coverage; litigation; federal, state and local taxes and regulations; costs associated with government investigations and enforcement actions; the availability and increases in cost of labor; and other risks applicable to any operating business. Any one or a combination of these factors may adversely affect our revenue and operations.

We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances.

Under various federal and state laws, owners or operators of real property may be required to respond to the release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination. These laws also expose us to the possibility that we may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property they occupy. Moreover, we review environmental site assessment of the properties that we purchase or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities, including mold, may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition.

We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation.


17

Our leases and notes require that the tenant/borrowers name us as an additional insured party on their insurance policies covering professional liability or personal injury claims. These instruments also require the tenant/borrower to indemnify and hold us harmless for all claims arising out of or incidental to the occupancy and use of each facility. We cannot give any assurance that these protective measures will completely eliminate any risk to us related to future litigation, the costs of which could have a material adverse impact on us.

We depend on the success of our future acquisitions and investments.

We are exposed to the risk that our future acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and newly acquired properties might require significant attention of NHI’s management that would otherwise be devoted to our existing business. If we agree to provide construction funding to a borrower and the project is not completed, we may need to take steps to ensure completion of the project. Moreover, if we issue equity securities or incur additional debt, or both, to finance future acquisitions, it may reduce our per share financial results.

We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms.

From time to time, we will have cash available from principal payments on our notes receivable and the sale of properties, including tenant purchase option exercises, under the terms of master leases or similar financial support arrangements. We must reinvest these proceeds, on a timely basis, in health care investments or in qualified short-term investments. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us. Delays in acquiring properties may negatively impact revenues and the amount of distributions to stockholders.

We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us.

We operate with a policy of incurring debt when, in the opinion of our Board of Directors, it is advisable. Currently, we believe that our current liquidity, availability under our unsecured credit facility, and our capacity to service additional debt will enable us to meet our obligations, including dividends, and continue to make investments in healthcare real estate. While we currently have a low debt ratio, in the future, we may increase our borrowings. We may incur additional debt by borrowing under our unsecured credit facility, mortgaging properties we own and/or issuing debt securities in a public offering or in a private transaction. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our existing indebtedness at or prior to its maturity. Our ability to raise reasonably priced capital is not guaranteed; we may be unable to raise reasonably priced capital because of reasons related to our business or for reasons beyond our control, such as market conditions. If our access to capital becomes limited, it could have an impact on our ability to refinance our debt obligations, fund dividend payments, acquire properties and fund acquisition activities.

We have covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations.

The terms of our current indebtedness as well as debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants. Among other things, these provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit operational flexibility. Breaches of these covenants could result in a default under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from a breach of any of these covenants in our debt instruments, could have a material adverse effect on our financial condition and results of operations.

When interest rates increase, our common stock may decline in price.

Our common stock, like other dividend stocks, is sensitive to changes in market interest rates. In response to changing interest rates the market price of our common stock may adjust like a long-term fixed-income security and, compared to shorter-term instruments, may have more volatility. A wide variety of market factors can cause interest rates to rise, including central bank monetary policy, an uptick in inflation and changes in general economic conditions. The risks associated with increasing rates are intensified given that interest rates have increased from historic lows and are expected to increase in the future, with unpredictable effects on capital markets and on the price of our common stock. Consequential effects of a general rise in interest rates may hamper our access to capital markets, affect the liquidity of our underlying investments in real estate, and, by extension, limit

18

management’s effective range of responses to changing tenant circumstances or in answer to investment opportunities. Limited operational alternatives may further hinder our ability to maintain or increase our dividend, and the market price of our common stock may decline as the result.

We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates.

Our business model assumes that we can earn a spread between the returns earned from our investments in real estate as compared to our cost of debt and/or equity capital. Current interest rates on our debt are at low levels, and, as a result, the spread and our profitability on our investments have been at high levels. We are exposed to interest rate risk in the potential for a narrowing of our spread and profitability if interest rates increase in the future. Certain of our debt obligations are floating rate obligations with interest rates that vary with the movement of LIBOR or other indexes. Our revenues are derived mainly from fixed rate investments in real estate assets. Although our leases generally contain escalating rent clauses that provide a partial hedge against interest rate fluctuations, if interest rates rise, our interest costs for our existing floating rate debt and any new debt we incur would also increase. This increasing cost of debt could reduce our profitability by increasing the cost of financing our existing portfolio and our investment activity. Rising interest rates could limit our ability to refinance existing debt upon maturity or cause us to pay higher rates upon refinancing. We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities and through the use of derivative instruments, such as interest rate swap agreements with major financial institutions. Increased interest rates may also negatively affect the market price of our common stock and increase the cost of new equity capital.

We are subject to risks related to changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and result of operations.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"). This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. We have a significant number of debt instruments with attributes that are dependent on LIBOR. The transition from LIBOR to an alternative reference rate could have a material adverse effect on our liquidity, financial condition and results of operations.

We are exposed to the risk that our assets may be subject to impairment charges.

We regularly evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our reported results of operations in the period in which the impairment charge occurs.

We depend on the ability to continue to qualify for taxation as a Real Estate Investment Trust.

We intend to operate as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and believe we have and will continue to operate in such a manner. Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them. If we fail to qualify as a REIT:

•
we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
•
we will be subject to corporate-level income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates;
•
we could be subject to increased state and local income taxes; and
•
unless we are entitled to relief under relevant statutory provisions, we will be disqualified from taxation as a REIT for the four taxable years following the year during which we fail to qualify as a REIT.

Because of all these factors, our failure to qualify as a REIT could also impair our ability to expand our business and could materially adversely affect the value of our common stock. The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the U.S. Internal Revenue Service (the “IRS”) and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in federal tax laws and interpretations thereof could affect or cause us to change our investments and commitments and affect the tax considerations of an investment in us.

19


Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder our performance.

To qualify as a REIT for U.S. Federal income tax purposes, we must continually satisfy certain tests, including tests concerning the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. To meet these tests, we may be required to forego investments or acquisitions we might otherwise make. Thus, compliance with the REIT requirements may materially hinder our performance.

We are subject to risks associated with our joint venture investment with Life Care Services for Timber Ridge, an Entrance Fee CCRC, associated with Type A benefits offered to the residents of the joint venture's Entrance Fee community and related accounting requirements.

Effective January 31, 2020, we entered into a joint venture with Life Care Services (“LCS”) which consists of two parts, PropCo which owns the real estate and is owned 80% NHI / 20% LCS and OpCo which operates the property and is owned 25% NHI / 75% LCS. Rents received from the OpCo in the RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they are paid pursuant to a lease of a “qualified healthcare property” and (ii) the operator qualifies as an “eligible independent contractor,” as defined in the Internal Revenue Code of 1986, as amended (the “Code”). If either of these requirements are not satisfied, then the rents will not be qualifying rents.

As a result of the RIDEA structure, we have an investment in the operations of Timber Ridge. Timber Ridge is a Class A quality, Type A care CCRC. A Type A Entrance Fee community generally means the care of the resident is provided for upon payment of an Entrance Fee and thereafter payment of a set service fee paid monthly. The Entrance Fee is divided into a refundable and non-refundable portion depending upon the Resident’s chosen contract program. The service fee is determined at the time of move-in into an independent living (IL) unit and is subject to certain inflation based adjustments regardless of the resident’s future care needs. A resident must move into an IL unit initially and not require care at the time of move-in. However, thereafter the resident’s care requirements from assisted living to memory care to skilled nursing are provided for. The refundable portion of the upfront Entrance Fee is recorded as a liability on the financial statements of the OpCo. The non-refundable portion of the upfront Entrance Fee is recorded as deferred revenue and amortized over the actuarial life of the resident. We believe we have structured the joint venture in a way that does not require that the OpCo’s financial statements be consolidated into NHI, but if we are unable to properly maintain that structure or become required for any reason to consolidate the OpCo’s financial statements into ours, the results would have a material adverse impact on our financial results.

We have ownership limits in our charter with respect to our common stock and other classes of capital stock which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.

Our charter, subject to certain exceptions, contains restrictions on the ownership and transfer of our common and preferred stock that are intended to assist us in preserving our qualification as a REIT. Our charter provides that any transfer that would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely held” under the Internal Revenue Code would be void, which, subject to certain exceptions, results in no person or entity being allowed to own, actually or constructively, more than 9.9% of the outstanding shares of our stock. Our Board of Directors, in its sole discretion, may exempt a proposed transferee from the ownership limit and such an exemption has been granted through Excepted Holder Agreements to members of the Carl E. Adams family. Based on the Excepted Holder Agreements currently outstanding, the individual ownership limit for all other stockholders is approximately 7.5%. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. These ownership limits may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.

We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests.

The Maryland Business Combination Act provides that, unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10% or more of its assets, issuances of shares of stock and other specified transactions with an “interested stockholder” or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter, unless specified criteria are met. An interested stockholder is generally a person owning or controlling, directly or indirectly, 10% or more of the voting power of the outstanding stock of a Maryland corporation. Unless our Board of Directors takes action to exempt us, generally or with respect to certain

20

transactions, from this statute in the future, the Maryland Business Combination Act will be applicable to business combinations between us and other persons. The Company’s charter and bylaws also contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for the common stock. These provisions include a staggered board of directors, blank check preferred stock, and the application of Maryland corporate law provisions on business combinations and control shares. The foregoing matters may, together or separately, have the effect of discouraging or making more difficult an acquisition or change of control of the Company.

If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions.

Our business, like that of other REITs, involves the receipt, storage and transmission of information about our Company, our tenants and borrowers, and our employees, some of which is entrusted to third-party service providers and vendors. We also work with third-party service providers and vendors to provide technology, systems and services that we use in connection with the receipt, storage and transmission of this information.

Our information systems, and those of our third-party service providers and vendors, may be vulnerable to continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to these systems or our information through fraud or deception of our associates, third-party service providers or vendors. Hardware, software or applications we obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or detect for long periods of time. We have implemented and regularly review and update processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our respective systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Any significant compromise or breach of our data security, whether external or internal, or misuse of our data, could result in significant costs, fines, lawsuits, and damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in significant additional costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

21

ITEM 2. PROPERTIES OWNED OR ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF DECEMBER 31, 2019

PROPERTIES OWNED
 
 
 
 
 
 
 
 
Location
 
SHO
 
SNF
 
HOSP & MOB
 
Investment
Alabama
 
1
 
2
 
—
 
$
17,260,000

Arizona
 
—
 
1
 
—
 
7,131,000

Arkansas
 
2
 
—
 
—
 
49,789,000

California
 
9
 
—
 
1
 
183,723,000

Colorado
 
1
 
—
 
—
 
7,600,000

Connecticut
 
3
 
—
 
—
 
132,918,000

Florida
 
8
 
10
 
1
 
251,027,000

Georgia
 
5
 
—
 
—
 
113,065,000

Idaho
 
4
 
—
 
—
 
29,373,000

Illinois
 
15
 
—
 
—
 
221,645,000

Indiana
 
11
 
—
 
—
 
136,867,000

Iowa
 
10
 
—
 
—
 
63,593,000

Kansas
 
2
 
—
 
—
 
42,072,000

Kentucky
 
—
 
1
 
1
 
20,746,000

Louisiana
 
5
 
—
 
—
 
39,569,000

Maryland
 
2
 
—
 
—
 
55,431,000

Massachusetts
 
1
 
4
 
—
 
64,387,000

Michigan
 
10
 
—
 
—
 
82,377,000

Minnesota
 
5
 
—
 
—
 
30,740,000

Missouri
 
1
 
5
 
—
 
27,757,000

Nebraska
 
4
 
—
 
—
 
34,278,000

New Hampshire
 
—
 
3
 
—
 
23,688,000

New Jersey
 
1
 
—
 
—
 
24,380,000

North Carolina
 
6
 
—
 
—
 
136,079,000

Ohio
 
8
 
—
 
—
 
131,884,000

Oklahoma
 
2
 
—
 
—
 
56,238,000

Oregon
 
8
 
3
 
—
 
134,572,000

Pennsylvania
 
2
 
—
 
—
 
28,446,000

South Carolina
 
6
 
4
 
—
 
335,632,000

Tennessee
 
3
 
16
 
1
 
91,913,000

Texas
 
2
 
21
 
1
 
322,416,000

Virginia
 
3
 
1
 
—
 
34,196,000

Washington
 
6
 
—
 
—
 
104,160,000

Wisconsin
 
1
 
1
 
—
 
37,375,000

 
 
147
 
72
 
5
 
$
3,072,327,000

Corporate Office
 
 
 
 
 
 
 
2,519,000

 
 
 
 
 
 
 
 
$
3,074,846,000


ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS
 
 
 
 
Location
 
SHO
 
SNF
 
Investment
Arizona
 
1
 
—
 
$
121,809,000

Florida
 
1
 
—
 
10,000,000

Indiana
 
1
 
—
 
6,422,000

Michigan
 
2
 
—
 
25,312,000

New Hampshire
 
1
 
—
 
9,948,000

South Carolina
 
1
 
—
 
32,700,000

Virginia
 
1
 
4
 
18,979,000

Washington
 
1
 
—
 
59,166,000

Wisconsin
 
2
 
—
 
9,784,000

 
 
11
 
4
 
$
294,120,000


10-YEAR LEASE EXPIRATIONS

The following table provides additional information on our leases which are scheduled to expire based on the maturity date contained in the most recent lease agreement or extension. We expect that, prior to maturity, we will negotiate new terms of a lease to either the current tenant or another qualified operator.
 
 
 
 
 
 
 
 
Annualized

 
Percentage of

 
 
Leases
 
Rentable
 
Number
 
Gross Rent**

 
Annualized

Year
 
 Expiring
 
Square Feet*
 
 of Units/Beds
 
 (in thousands)

 
 Gross Rent

2020
 
6
 
27,017
 
407
 
$
2,559

 
1.0
%
2021
 
7
 
—
 
567
 
3,896

 
1.5
%
2022
 
4
 
—
 
156
 
4,311

 
1.6
%
2023
 
15
 
—
 
852
 
14,549

 
5.4
%
2024
 
13
 
—
 
913
 
12,586

 
4.7
%
2025
 
3
 
61,500
 
132
 
2,769

 
1.0
%
2026
 
35
 
—
 
4,897
 
34,227

 
12.7
%
2027
 
4
 
—
 
407
 
6,832

 
2.5
%
2028
 
11
 
—
 
1,331
 
10,364

 
3.9
%
2029
 
31
 
—
 
4,149
 
69,978

 
26.1
%
Thereafter
 
93
 
—
 
8,744
 
106,475

 
39.6
%
 
 
 
 
 
 
 
 
 
 
100.0
%
*Rentable Square Feet represents total square footage in two MOB investments.
**Annualized Gross Rent refers to the amount of lease revenue that our portfolio would have generated in 2019 if all leases were in effect for the twelve-month calendar year, regardless of the commencement date, maturity date, or renewals.

ITEM 3. LEGAL PROCEEDINGS

Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no material adverse effect on our financial condition, results of operations or cash flows.

In June 2018, East Lake Capital Management LLC and certain related entities, including SH-Regency Leasing, LLC (“Regency”) (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

The LaSalle Group defaulted on its rent payment in November 2018. We transitioned the properties to a new operator on April 16, 2019, with NHI to receive operating cash flow, after management fees, generated by the facilities pending stabilization. We

22

also commenced litigation for the recovery of certain funds owed under the lease and against the principal executive personally, under a guaranty agreement. The LaSalle Group, the former operator of the properties, has declared bankruptcy under Chapter 11. In December 2019, we reached an agreement with TLG Family Management and Mitchell Warren, who, without making any admissions under a joint-liability settlement, have agreed to pay to NHI $2,850,000 over a five-year period, consisting of sixty-one scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of $60,000 in December 2019.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable


23

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s charter contains certain provisions which are designed to ensure that the Company’s status as a REIT is protected for federal income tax purposes. One of the provisions ensures that any transfer (of shares) which would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely-held” under the Internal Revenue Code would be void which, subject to certain exceptions, result in no stockholder being allowed to own, either directly or indirectly pursuant to certain tax attribution rules, more than 9.9% of the Company’s common stock with the exception of prior agreements in 1991 which were confirmed in writing in 2008 with the Company’s founders Dr. Carl E. Adams and Jennie Mae Adams and their lineal descendants. Based on these agreements, the ownership limit for all other stockholders is approximately 7.5%. If a stockholder’s stock ownership exceeds the limit, then such shares over the limit become Excess Stock within the meaning in the Company’s charter and lose rights to vote and receive dividends in certain situations. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. In addition, W. Andrew Adams’ Excess Holder Agreement also provides that he will not own shares of stock in any tenant of the Company if such ownership would cause the Company to constructively own more than a 9.9% interest in such tenant. The purpose of these provisions is to protect the Company’s status as a REIT for tax purposes.

In order to qualify for the beneficial tax treatment accorded to a REIT, we must make distributions to holders of our common stock equal on an annual basis to at least 90% of our REIT taxable income (excluding net capital gains), as defined in the Internal Revenue Code. Cash available for distribution to our stockholders is primarily derived from interest payments received on our notes and from rental payments received under our leases. All distributions will be made by us at the discretion of the Board of Directors and will depend on our cash flow and earnings, our financial condition, bank covenants contained in our financing documents and such other factors as the Board of Directors deems relevant. Our REIT taxable income is calculated without reference to our cash flow. Therefore, under certain circumstances, we may not have received cash sufficient to pay our required distributions.

Our common stock is traded on the New York Stock Exchange under the symbol “NHI”. As of February 14, 2020, there were 703 holders of record of shares and 47,830 beneficial owners of shares.

We currently maintain two equity compensation plans: the 2012 Stock Incentive Plan (the “2012 Plan”) and the 2019 Stock Incentive Plan (“the 2019 Plan”). These plans, as amended, have been approved by our stockholders. The following table provides information as of December 31, 2019 about our common stock that may be issued upon the exercise of options under our existing equity compensation plans.
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders
 
1,004,014
 
$74.35
 
3,319,669

1 
Equity compensation plans not approved by security holders
 
—
 
$—
 
—

 
1 Includes 319,669 shares remaining available for grant under the 2012 Plan and 3,000,000 shares available for grant under the 2019 Plan.

The following graph demonstrates the performance of the cumulative total return to the stockholders of our common stock during the previous five years in comparison to the cumulative total return on the MSCI US REIT Index and the Standard & Poor’s 500 Stock Index. The MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of Equity REIT securities. The MSCI US REIT Index includes securities with exposure to core real estate (e.g. residential and retail properties) as well as securities with exposure to other types of real estate (e.g. casinos, theaters).

24

CHART-845A4DC5C44A54A7A3A.JPG
 
2014
2015
2016
2017
2018
2019
NHI
$100.00
$91.57
$117.41
$125.39
$132.55
$150.51
MSCI
$100.00
$125.84
$120.09
$126.18
$137.03
$140.48
S&P 500
$100.00
$131.49
$125.72
$153.17
$171.49
$173.86


25

ITEM 6. SELECTED FINANCIAL DATA.

The following table represents our financial information for the five years ended December 31, 2019. This financial information has been derived from our historical financial statements including those for the most recent three years included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those consolidated financial statements, accompanying footnotes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

(in thousands, except share and per share amounts)
 
Years Ended December 31,
STATEMENT OF INCOME DATA:
2019
 
2018
 
2017
 
2016
 
2015
Revenues
$
318,081

 
$
294,612

 
$
278,659

 
$
248,460

 
$
228,948

 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
160,449

 
$
154,333

 
$
159,365

 
$
152,716

 
$
150,314

 
 
 
 
 
 
 
 
 
 
Net income
$
160,449

 
$
154,333

 
$
159,365

 
$
152,716

 
$
150,314

Net loss (income) attributable to noncontrolling interest
7

 
—

 
—

 
(1,176
)
 
(1,452
)
Net income attributable to common stockholders
$
160,456

 
$
154,333

 
$
159,365

 
$
151,540

 
$
148,862

 
 
 
 
 
 
 
 
 
 
PER SHARE DATA:
 
 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
3.70

 
$
3.68

 
$
3.90

 
$
3.88

 
$
3.96

 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
3.67

 
$
3.67

 
$
3.87

 
$
3.87

 
$
3.95

 
 
 
 
 
 
 
 
 
 
OTHER DATA:
 
 
 
 
 
 
 
 
 
Common shares outstanding, end of year
44,587,486

 
42,700,411

 
41,532,154

 
39,847,860

 
38,396,727

Weighted average common shares:
 
 
 
 
 
 
 
 
 
Basic
43,417,828

 
41,943,873

 
40,894,219

 
39,013,412

 
37,604,594

Diluted
43,703,248

 
42,091,731

 
41,151,453

 
39,155,380

 
37,644,171

 
 
 
 
 
 
 
 
 
 
Regular dividends declared per common share
$
4.20

 
$
4.00

 
$
3.80

 
$
3.60

 
$
3.40

 
 
 
 
 
 
 
 
 
 
BALANCE SHEET DATA: (at year end)
 
 
 
 
 
 
 
 
 
Real estate properties, net
$
2,560,393

 
$
2,366,882

 
$
2,285,701

 
$
2,159,774

 
$
1,836,807

Mortgages and other notes receivable, net
$
340,143

 
$
246,111

 
$
141,486

 
$
133,493

 
$
133,714

Investments in preferred stock and marketable securities
$
—

 
$
—

 
$
—

 
$
11,745

 
$
72,744

Assets held for sale, net
$
18,420

 
$
—

 
$
—

 
$
—

 
$
1,346

Total assets
$
3,042,235

 
$
2,750,570

 
$
2,545,821

 
$
2,403,633

 
$
2,133,218

Debt
$
1,440,465

 
$
1,281,675

 
$
1,145,497

 
$
1,115,981

 
$
914,443

Total liabilities
$
1,543,983

 
$
1,360,857

 
$
1,223,704

 
$
1,194,043

 
$
990,758

Total equity
$
1,498,252

 
$
1,389,713

 
$
1,322,117

 
$
1,209,590

 
$
1,142,460



26

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis is based primarily on the consolidated financial statements of National Health Investors, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1. Business” and “Item 1A. Risk Factors” above. This section of this Annual Report on Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Executive Overview

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed REIT specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. Our portfolio consists of lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. Other investments include a joint venture structured to comply with the provisions of the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”) through which we invested in facility operations managed by an independent third-party. We have funded our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.

Portfolio

At December 31, 2019, we had investments in real estate, mortgage and other notes receivable involving 238 facilities located in 34 states. These investments involve 157 senior housing properties, 76 skilled nursing facilities, 3 hospitals, 2 medical office buildings and other notes receivable. These investments (excluding our corporate office of $2,519,000) consisted of properties with an original cost of $3,072,327,000 rented under triple-net leases to 32 lessees, and $340,143,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers.

Our investments in real estate are located within the United States and our investments in mortgage loans are secured by real estate located within the United States. We are managed as one unit for internal reporting and decision making. Therefore, our reporting reflects our financial position and operations as a single segment.

We classify the properties in our portfolio as either senior housing or medical properties. We further classify our senior housing properties as either need-driven (assisted living facilities and senior living campuses) or discretionary (independent living facilities and entrance-fee communities). Medical properties within our portfolio include skilled nursing facilities, medical office buildings and specialty hospitals.

Senior Housing – Need-Driven includes assisted living and memory care facilities (“ALF”) and senior living campuses (“SLC”) which primarily attract private payment for services from residents who require assistance with activities of daily living. Need-driven properties are subject to regulatory oversight.

Senior Housing – Discretionary includes independent living facilities (“ILF”) and entrance-fee communities (“EFC”) which primarily attract private payment for services from residents who are making the lifestyle choice of living in an age-restricted multi-family community that offers social programs, meals, housekeeping and in some cases access to healthcare services. Discretionary properties are subject to limited regulatory oversight. There is a correlation between demand for this type of community and the strength of the housing market.

Medical Facilities within our portfolio receive payment primarily from Medicare, Medicaid and health insurance. These properties include skilled nursing facilities (“SNF”), medical office buildings (“MOB”) and hospitals that attract patients who have a need for acute or complex medical attention, preventative medicine, or rehabilitation services. Medical properties are subject to state and federal regulatory oversight and, in the case of hospitals, Joint Commission accreditation.

27

The following tables summarize our investments in real estate and mortgage and other notes receivable as of December 31, 2019 (dollars in thousands):

Real Estate Properties
Properties

 
Beds/Sq. Ft.*

 
Revenue
 
%
 
Investment
 
Senior Housing - Need-Driven
 
 
 
 
 
 
 
 
 
 
 
Assisted Living
90

 
4,940

 
$
77,104

 
24.2
%
 
$
908,741

 
 
Senior Living Campus
14

 
1,976

 
20,869

 
6.6
%
 
304,593

 
 
Total Senior Housing - Need-Driven
104

 
6,916

 
97,973

 
30.8
%
 
1,213,334

 
Senior Housing - Discretionary
 
 
 
 
 
 
 
 
 
 
 
Independent Living
32

 
3,703

 
46,534

 
14.6
%
 
599,321

 
 
Entrance-Fee Communities
10

 
2,306

 
51,201

 
16.1
%
 
605,093

 
 
Total Senior Housing - Discretionary
42

 
6,009

 
97,735

 
30.7
%
 
1,204,414

 
 
Total Senior Housing
146

 
12,925

 
195,708

 
61.5
%
 
2,417,748

 
Medical Facilities
 
 
 
 
 
 
 
 
 
 
 
Skilled Nursing Facilities
72

 
9,433

 
79,594

 
25.0
%
 
588,122

 
 
Hospitals
3

 
207

 
7,991

 
2.5
%
 
55,971

 
 
Medical Office Buildings
2

 
88,517

 
667

 
0.2
%
 
10,486

 
 
Total Medical Facilities
77

 
 
 
88,252

 
27.7
%
 
654,579

 
 
Total Real Estate Properties
223

 
 
 
283,960

 
89.2
%
 
$
3,072,327

 
 
Current Year Disposals and Held for Sale
 
 
 
 
4,424

 
 
 
 
 
 
Escrow Funds Received From Tenants
 
 
 
 
5,798

 
 
 
 
 
 
Total Rental Income
 
 
 
 
294,182

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage and Other Notes Receivable
 
 
 
 
 
 
 
 
 
 
Senior Housing - Need-Driven
8

 
487

 
4,592

 
1.5
%
 
$
73,271

 
Senior Housing - Discretionary
3

 
1,105

 
13,337

 
4.2
%
 
213,675

 
Medical Facilities
4

 
270

 
660

 
0.2
%
 
7,174

 
Other Notes Receivable
—

 
—

 
4,246

 
1.3
%
 
46,023

 
 
Total Mortgage and Other Notes Receivable
15

 
1,862

 
22,835

 
7.2
%
 
$
340,143

 
 
Current Year Note Payoffs
 
 
 
 
863

 
 
 
 
 
 
Other Income
 
 
 
 
201

 
 
 
 
 
 
Total Revenue


 
 
 
$
318,081

 


 



Portfolio Summary
Properties

 
Beds/Sq. Ft.*
 
Revenue
 
%
 
Investment
 
Real Estate Properties
223

 
 
 
$
283,960

 
92.6
%
 
$
3,072,327

 
Mortgage and Other Notes Receivable
15

 
 
 
22,835

 
7.4
%
 
340,143

 
 
Total Portfolio
238

 
 
 
$
306,795

 
100.0
%
 
$
3,412,470

 
 
 
 
 
 
 
 
 
 
 
 
Portfolio by Operator Type
 
 
 
 
 
 
 
 
 
 
Public
66

 
 
 
$
70,439

 
23.0
%
 
$
511,294

 
National Chain (Privately-Owned)
28

 
 
 
52,572

 
17.1
%
 
712,353

 
Regional
131

 
 
 
178,497

 
58.2
%
 
2,071,507

 
Small
13

 
 
 
5,287

 
1.7
%
 
117,316

 
 
Total Portfolio
238

 
 
 
$
306,795

 
100.0
%
 
$
3,412,470


For the year ended December 31, 2019, our tenants who provided more than 3% of our total revenues were (parent company, in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; The Ensign Group; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and Senior Living Management.

As of December 31, 2019, our average effective annualized rental income was $8,427 per bed for SNFs, $16,200 per unit for ALFs, $12,689 per unit for ILFs, $22,232 per unit for EFCs, $38,604 per bed for hospitals, and $8 per square foot for MOBs.

Areas of Focus

We are evaluating and will likely make additional real estate and note investments in 2020 while we continue to monitor and improve our existing properties. We seek tenants who will become mission-oriented partners in relationships where our business

28

goals are aligned. This approach fuels what we believe is, enduring growth for those partners and for NHI. Within the context of our growth model, we rely on cost-effective access to debt and equity capital to finance the acquisitions that drive our earnings. There is significant competition for healthcare assets from other REITs, both public and private, and from private equity sources. Large-scale portfolios continue to command premium pricing, due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate. This combination of circumstances creates pressure on our ability to execute acquisitions and negotiate leases that generate meaningful earnings growth for our shareholders. We emphasize growth with our existing tenants and borrowers as a way to mitigate the impact of competition.

With lower capitalization rates for existing healthcare facilities, there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital. Using our relationship-driven model, we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities. We concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive we have a competitive advantage. The projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction.

Following three 25 basis-point increases in 2017, the Federal Open Market Committee of the Federal Reserve announced four further interest rate increases during 2018. On July 31, 2019, the Federal Reserve lowered its benchmark interest rate 25 bps and on September 19, 2019, lowered it an additional 25 bps. On October 30, 2019, the Federal Reserve lowered its benchmark interest rate another 25 bps and indicated a target range for the federal funds rate of 1.50% to 1.75% percent. The actual path the federal funds rate takes will depend on the changing economic outlook as informed by incoming data. Considering that the vote approving the rate cut was split with two committee members voting to maintain the target range, we do not see this as the beginning of a rate-cutting cycle. Previous changes in the federal funds rate have been a primary source of much volatility in REIT equity markets. As a result, there has been pressure on the spread between our cost of capital and the returns we earn. We expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels. Managing long-term risk involves trade-offs with the competing alternative goal of maximizing short-term profitability. Our intention is to strike an appropriate balance between these competing interests within the context of our investor profile. If interest rates rise, our share price may decline as investors adjust prices to reflect a dividend yield that is sufficiently in excess of a risk-free rate.

For the year ended December 31, 2019, approximately 25.2% of our revenue was derived from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors, primarily Medicare and Medicaid. Such revenues are subject annually to statutory and regulatory changes and in recent years have been reduced due to federal and state budgetary pressures. Over the past five years, we have selectively diversified our portfolio by directing a significant portion of our investments into properties which do not rely primarily on Medicare and Medicaid reimbursement, but rather on private pay sources (assisted living and memory care facilities, senior living campuses, independent living facilities and entrance-fee communities). We will occasionally acquire skilled nursing facilities in good physical condition with a proven operator and strong local market fundamentals, because diversification implies a periodic rebalancing, but our recent investment focus has been on acquiring need-driven and discretionary senior housing assets.

For individual tenant revenue as a percentage of total lease revenue, Bickford is our largest assisted living tenant, an affiliate of Holiday is our largest independent living tenant, NHC is our largest skilled nursing tenant and Senior Living Communities is our largest entrance-fee community tenant. Our shift toward private payor facilities, as well as our expansion into the discretionary senior housing market, has further resulted in a portfolio whose current composition is relatively balanced between medical facilities, need-driven and discretionary senior housing.

We manage our business with a goal of increasing the regular annual dividends paid to shareholders. Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. Our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends. Taxable income is determined in accordance with the Internal Revenue Code and differs from net income for financial statements purposes determined in accordance with U.S. generally accepted accounting principles. Our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments. We consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity. We accept some level of risk associated with leveraging our investments. We intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of capital will generate sufficient returns to our shareholders.

Our dividends per share for the last three years are as follows:

29

2019
 
2018
 
2017
$
4.20

 
$
4.00

 
$
3.80


Our investments in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet. However, we continue to maintain a lower-leverage balance sheet when compared with many in our peer group. We believe that our fixed charge coverage ratio, which is the ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, excluding real estate asset impairments and gains on dispositions) to fixed charges (interest expense at contractual rates net of capitalized interest and principal payments on debt), and the ratio of consolidated net debt to Adjusted EBITDA are meaningful measures of our ability to service our debt. We use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group. We also believe this gives us a competitive advantage when accessing debt markets.

We calculate our fixed charge coverage ratio as approximately 5.4x for the year ended December 31, 2019 (see our discussion below under the heading Adjusted EBITDA along with a reconciliation to our net income). Giving effect to our acquisitions and financings on an annualized basis, our consolidated net debt to Adjusted EBITDA ratio is approximately 4.7x for the year ended December 31, 2019 (dollars in thousands):
Consolidated Total Debt
$
1,440,465

Less: cash and cash equivalents
(5,215
)
Consolidated Net Debt
$
1,435,250

 
 
Adjusted EBITDA
$
298,437

Annualized impact of recent investments
6,298


$
304,735

 
 
Consolidated Net Debt to Adjusted EBITDA
4.7
x

According to the Administration on Aging (“AoA”) of the US Department of Health and Human Services, in 2017, the latest year for which data is available, 50.9 million people were age 65 or older in the United States (a 34% increase over the last ten years). Census estimates showed that, by 2040, those 65 or older are expected to constitute 21.6% of the population. The population aged 85 and above is projected to rise from 6.4 million in 2016 to 14.4 million in the US by 2040 (a 123% increase). The median value of homes owned by older homeowners age 75 and over was $175,000 (with a median purchase price of $65,000). In comparison, the median home value of all homeowners was $200,000. Of the 12.9 million households headed by persons age 75 and over in 2017, 76% were owners.

Equipped with the basics of financial security, many will be economically able to enter the market for senior housing. These strong demographic trends provide the context for continued growth in senior housing in 2020 and the years ahead. We plan to fund any new real estate and mortgage investments during 2020 using our liquid assets and debt financing. As the weight of additional debt resulting from new acquisitions suggests the need to rebalance our capital structure, we would then expect to access the capital markets through an at-the-market (“ATM”) or other equity offering. Our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for access to capital at the lowest possible rates, annual dividend growth, continued low leverage, a portfolio of diversified, high-quality assets, and business relationships with experienced operators whom we make our priority, continue to be the key drivers of our business plan.

Critical Accounting Policies

Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition.

We consider an accounting estimate or assumption critical if:

30


1.
the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
2.
the impact of the estimates and assumptions on financial condition or operating performance is material.

Valuations and Impairments

Our tenants and borrowers who operate SNFs derive their revenues primarily from Medicare, Medicaid and other government programs. Amounts paid under these government programs are subject to legislative and government budget constraints. From time to time, there may be material changes in government reimbursement. In the past, SNFs have experienced material reductions in government reimbursement.

The long-term health care industry has experienced significant professional liability claims which have resulted in an increase in the cost of insurance to cover potential claims. In previous years, these factors have combined to cause a number of bankruptcy filings, bankruptcy court rulings and court judgments affecting our lessees and borrowers. In prior years, we have determined that impairment of certain of our loan investments had occurred as a result of these events.

We evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property.

Lease accounting standards require that, for purposes of lease classification, we assess whether the lease, by its terms, transfers substantially all of the fair value of the asset under lease. This consideration will drive accounting for the alternative classifications among either operating, sales, or direct financing types of leases. For classification purposes, we distinguish cash flows that follow under terms of the lease from those that will derive, subsequent to the lease, from the ultimate disposition or re-deployment of the asset. From this segregation of the sources of cash flow, we are able to establish whether the lease is, in essence, a sale or financing in its having transferred substantially all of the fair value of the leased asset. Accordingly, management’s projected residual values represent significant assumptions in our accounting for leases.

While we do not incorporate residual value guarantees in our lease provisions, the contractual structure of other provisions provides a basis for expectations of realizable value from our properties, upon expiration of their lease terms. We additionally consider historical, demographic and market trends in developing our estimates. For each new lease, we discount our estimate of unguaranteed residual value and include this amount along with the stream of lease payments (also discounted) called for in the lease. We assess the stream of lease payments and the value deriving from eventual return of our property to establish whether the lease payments themselves comprise a return of substantially all of the fair value of the property under lease. We do not use a “bright line” in considering what constitutes “substantially all of the fair value,” but we undertake heightened vigilance in our assessment when the lease payments approach 90% of the composition of all future cash flows expected from the asset.

For our mortgage and other notes receivable, we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis. We review our notes receivable for ability to realize on such notes when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If necessary, impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable. For fiscal periods beginning after December 15, 2019, our evaluation of the notes receivable in which we have invested will shift to a current expected loss approach. Under this new approach, which differs from the legacy incurred loss model, we will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In developing our expectation of losses, we will consider financial assets that share similar risk characteristics such as rate, age, type, location on a collective basis. Other note investments which do not share common features will continue to be evaluated on an instrument-by-instrument basis.

The determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at market rates, general economic conditions and trends, the duration of the fair value deficiency, and any other relevant factors. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

31


While we believe that the carrying amounts of our properties are recoverable and our notes receivable and other investments are realizable, it is possible that future events could require us to make significant adjustments or revisions to these estimates.

Revenue Recognition

We collect rent and interest from our tenants and borrowers. Generally, our policy is to recognize income on an accrual basis as earned. However, when we determine, based on current collections and the lack of expected future collections, that rent or interest is not probable of collection until received, our policy is to recognize rental or interest income when assured, which we consider to be the period in which cash is received or accrued on the basis of tenant security deposits available to us for the recognition of lease revenue in the period in which it was earned. We identify investments as nonperforming if a required payment is not received within 30 days of the date it is due. This policy could cause our revenues to vary significantly from period to period. Rental income from minimum lease payments under our leases is recognized on a straight-line basis to the extent that future lease payments are considered collectible. Lease payments that depend on a factor directly related to future use of the property, such as an increase in annual revenues over base year revenues, are considered to be contingent rentals and are included in rental income when they are determinable and earned.

REIT Qualification

As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. We believe that we have operated our business so as to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will be able to so qualify at all times. As of January 31, 2020, we began participating in a taxable REIT subsidiary under a joint venture structured to comply with the provisions of the RIDEA through which we invested in facility operations managed by independent third-parties. We record income tax expense or benefit with respect to the subsidiary which is taxed under provisions similar to those applicable to regular corporations. Aside from such income taxes that may be applicable to the taxable income in our taxable REIT subsidiary, we are not subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders equal to or in excess of our taxable income. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that typically applies to corporate dividends. Our failure to continue to qualify under the applicable REIT qualification rules and regulations would cause us to owe state and federal income taxes and would have a material adverse impact on our financial position, results of operations and cash flows.

Principles of Consolidation

The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint ventures in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick-out rights have been granted to the noncontrolling interests. In addition, we consolidate a legal entity deemed to be a variable interest entity (“VIE”) when we determine that we are the VIE’s primary beneficiary. All material inter-company transactions and balances have been eliminated in consolidation.

We apply Financial Accounting Standards Board (“FASB”) guidance for our arrangements with VIEs which requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. We may change our assessment of a VIE due to events such as modifications of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposal of all or a portion of an interest held by the primary beneficiary.

Real Estate Properties

Real property we develop is recorded at cost, including the capitalization of interest during construction. The cost of real property investments we acquire is allocated to net tangible and identifiable intangible assets and liabilities based on their relative fair values. We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. For properties acquired in transactions accounted for as asset purchases,

32

the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets and liabilities acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. The most significant components of our allocations are typically the allocation of fair value to land, equipment, buildings and other improvements, and intangible assets and liabilities, if any. Our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term.

Our leases are typically structured as “triple net leases” on single-tenant properties having an initial leasehold term of 10 to 15 years with one or more 5-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the year ended December 31, 2019, we modified a master lease governing ten properties held by Bickford and subject to HUD-guaranteed mortgages as well as another Bickford master lease covering thirteen properties. There were no additional renewing or expiring leases.

Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease. Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. Typically, for options open or coming open in the short term, we are engaged in negotiations to continue as lessor or in some other capacity.

We adjust rental income for the amortization of payment of contingent lease incentives. Amortization of these payments against revenues was $845,000, $387,000 and $119,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Major Tenants

As discussed in Note 2 to the consolidated financial statements, we have four lessees (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% of our rental income as follows (dollars in thousands):
 
 
 
Original
 
Rental Income
 
 
 
 
 
 
Investment
 
Year Ended December 31,
 
 
Lease
 
Asset Class
 
Amount
 
2019
 
 
2018
 
 
Renewal
Senior Living Communities
EFC
 
$
573,631

 
$
46,927

16%
 
$
45,868

16%
 
2029
Bickford Senior Living
ALF
 
519,276

 
52,570

18%
 
50,093

18%
 
Various
Holiday Retirement
ILF
 
531,378

 
40,459

14%
 
43,311

15%
 
2035
National HealthCare Corporation
SNF
 
171,297

 
38,131

13%
 
37,843

13%
 
2026
All others
Various
 
1,276,745

 
116,095

39%
 
103,698

38%
 
Various
 
 
 
$
3,072,327

 
$
294,182

 
 
$
280,813


 
 
 
 
 
 
 
 
 
 
 
 
 
 

Straight-line rent of $4,934,000 and $5,436,000 was recognized from the Senior Living lease for the years ended December 31, 2019 and 2018, respectively. Straight-line rent of $4,651,000 and $5,028,000 was recognized from the Bickford leases for the years ended December 31, 2019 and 2018, respectively. Straight-line rent of $6,621,000 and $5,616,000 was recognized from the Holiday lease for the years ended December 31, 2019 and 2018, respectively. For NHC, rent escalations are based on a percentage increase in revenue over a base year and do not give rise to non-cash, straight-line rental income.

Bickford

We are closely monitoring the occupancy and financial performance of our major customer Bickford. Their management is focused on improving occupancy in the Company’s facilities and have been successful through 2019. Bickford is also an active developer of new facilities in underserved markets.

The following table summarizes the average portfolio occupancy for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, assets held for sale and the four Minnesota properties recently transitioned to a new operator. Same-store (SS) occupancy excludes properties that have been operated by Bickford for less than 24 months.


33

 
Property Count
4Q18
1Q19
2Q19
3Q19
4Q19
December 2019
Bickford
45
84.5
%
83.1
%
84.5
%
86.0
%
86.1
%
85.3
%
Bickford (SS)
40
86.1
%
84.6
%
86.5
%
88.4
%
88.4
%
87.5
%

In addition to closely monitoring the occupancy and financial performance of Bickford, NHI has either completed or is currently undertaking certain measures which we believe will improve the financial and operational strength of Bickford. Examples of these measures include:

•
The contemplated sale of two assisted living communities to Bickford. NHI expects to sell the buildings, which are currently classified as held for sale, to Bickford by the end of Q1 2020. NHI will in turn provide a senior note to Bickford for the purchase of these facilities which largely preserves cash flow generated from these communities until they are refinanced by Bickford.

•
The transition of four properties in Minnesota to another existing NHI operator. NHI transitioned the lease of these four properties on October 1, 2019 which were outside of Bickford’s existing geographic footprint. We believe this transition better aligns Bickford with markets in which they have deeper experience and improves their longer term cash flow. The transition eliminates Bickford’s purchase option while extending the lease by seven years with renewal options.

•
The amendment to lease escalators on certain Bickford properties. Effective September 1, 2019, NHI amended a master lease covering 14 Bickford properties. Included in the amendment, NHI changed the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%.

•
NHI’s purchase option price on the Gurnee community was reduced to $15.1 million while the initial yield was reduced to 8.0%. As noted in Note 2 to the consolidated financial statements, NHI exercised the purchase option on the Gurnee, IL facility on September 10, 2019. NHI exercised a similar purchase option on a 60-unit Bickford-developed community in Shelby, MI as discussed in the Note 15 to the consolidated financial statements.

•
For our Bickford communities secured by HUD financing, as of October 1, 2019, we amended the master lease to better align rates with the current market, a change of approximately $100,000 per quarter or 0.1% of our total revenues. Included in the amendment, NHI changed the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%.

Tenant Monitoring

Our operators report to us the results of their operations on a periodic basis, which we in turn subject to further analysis as a means of monitoring potential concerns within our portfolio. We have identified EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) as the most elemental barometer of success for our tenants, based on results they have reported to us. We believe EBITDARM is useful in our most fundamental analyses, as it is a property-level measure of our operators’ success, by eliminating the effects of the operator’s method of acquiring the use of its assets (interest and rent), its non-cash expenses (depreciation and amortization), expenses that are dependent on its level of success (income taxes), and also excluding the effect of the operator’s payment of its management fees, as typically those fees are contractually subordinate to our lease payment. For operators of our entrance-fee communities, our calculation of EBITDARM includes other cash flow adjustments typical of the industry which may include, but are not limited to, net cash flows from entrance fees; amortization of deferred entrance fees; adjustments for tenant rent obligations, depreciation and amortization; and management fee true-ups. The eliminations and adjustments reflect covenants in our leases and provide a comparable basis for assessing our various relationships.

We believe that EBITDARM is a useful way to analyze the cash potential of a group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/Cash Rent), measuring the ability of the operator to meet its monthly obligation. In addition to EBITDARM and the coverage ratio, we rely on, a careful balance sheet analysis, and other analytical procedures to help us identify potential areas of concern relative to our operators’ ability to generate sufficient liquidity to meet their obligations, including their obligation to continue to pay the amount due to us. Typical among our operators is a varying lag in reporting to us the results of their operations. Across our portfolio, however, our operators report their results, typically within either 30 or 45 days and at the latest, within ninety days of month’s end. For computational purposes, we exclude development and lease-up properties that have been in operation less than 24 months and selected immaterial properties identified in 2019 as available for sale. For stabilized acquisitions in the portfolio less than 24 months and renewing leases with changes in scheduled rent, we include pro forma cash rent. Same-store portfolio coverage excludes properties that have transitioned operators in past 24 months.


34

The results by asset type are presented below on a trailing twelve-month basis, as of September 30, 2019 and 2018 (the most recent periods available):
Total Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
SHO
SNF
HOSP
MOB
TOTAL
 
Properties
129
74
3
2
208
 
3Q18
1.23x
2.55x
1.66x
4.12x
1.65x
 
3Q19
1.14x
2.73x
1.95x
5.61x
1.66x
 
 
 
 
 
 
 
 
 
Need Driven
Need Driven excl. Bickford
Discretionary
Discretionary excl. SLC & Holiday
Medical
Medical excl. NHC
Properties
91
46
38
3
79
37
3Q18
1.17x
1.18x
1.29x
2.24x
2.48x
1.58x
3Q19
1.10x
1.13x
1.19x
1.61x
2.68x
1.92x
 
 
 
 
 
 
 
 
NHC
SLC
Bickford
Holiday
 
 
Properties
42
9
45
26
 
 
3Q18
3.67x
1.28x
1.15x
1.18x
 
 
3Q19
3.69x
1.10x
1.07x
1.21x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same-Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
SHO
SNF
HOSP
MOB
Total
 
Properties
117
74
2
2
195
 
3Q18
1.24x
2.55x
1.21x
4.12x
1.66x
 
3Q19
1.16x
2.73x
1.60x
5.61x
1.68x
 
 
 
 
 
 
 
 
 
Need Driven
Need Driven excl. Bickford
Discretionary
Discretionary excl. SLC & Holiday
Medical
Medical excl. NHC
Properties
80
40
37
2
78
36
3Q18
1.20x
1.19x
1.29x
2.37x
2.48x
1.52x
3Q19
1.13x
1.15x
1.19x
1.72x
2.68x
1.88x
 
 
 
 
 
 
 
 
NHC
SLC
Bickford
Holiday
 
 
Properties
42
9
40
26
 
 
3Q18
3.67x
1.28x
1.20x
1.18x
 
 
3Q19
3.69x
1.10x
1.12x
1.21x
 
 
NHC based on corporate-level FCCR and includes 3 independent living facilities

Fluctuations in portfolio coverage are a result of market and economic trends, local market competition, and regulatory factors as well as the operational success of our tenants. We use the results of individual leases to inform our decision making with respect to specific tenants, but trends described above by property type and operator bear analysis. Our Need-Driven SHO portfolio shows a decline brought about primarily by a softening in occupancy within particular markets, as well as rising wage pressures. For many of the affected operators, as is typical of our portfolio in general, NHI has security deposits in place and/or corporate guarantees should actual cash rental shortfalls eventually materialize. In certain instances, our operators may increase their security deposits with us in an amount equal to the coverage shortfall, and, upon subsequent compliance with the required lease coverage ratio, the operator would then be entitled to a full refund. The metrics presented in the tables above give no effect to the presence of these security deposits. For Skilled Nursing, coverage in the Medical category of our portfolio has improved due to the impact of four new Ensign developments reaching stabilization. Each MOB’s coverage is driven by the underlying

35

performance of its on-campus hospital as the tenant or guarantor under the lease. As a result, it is typical for MOB operations to have large fluctuations in coverage resulting from hospital operations.

Potential Effects of Medicare Reimbursement

Our SNF operators receive a significant portion of their revenues from governmental payors, primarily Medicare (federal) and Medicaid (states). Changes in reimbursement rates and limits on the scope of services reimbursed to skilled nursing facilities could have a material impact on the operators’ liquidity and financial condition. On August 1, 2018, the Centers for Medicare and Medicaid Services (“CMS”) announced the CMS Skilled Nursing Prospective Payment System (“PPS”) final rule whereby, effective October 1, 2019, a Patient Driven Payment Model (“PDPM”) was adopted as a case-mix system for classifying patient information payment groups under PPS. The new model shifts care delivery under Medicare away from fee-for-service, which in the past has based reimbursement on the amount of care provided, to focus on value-based care, which will base reimbursement on clinical complexity and the resident’s conditions and care needs. On August 7, 2019, CMS adopted a net 2.4% increase to Medicare skilled nursing payments for the fiscal year beginning October 1, 2019. We believe a rate increase in line with inflation, along with general demographic growth among the oldest seniors, will help to stabilize lease coverages among our skilled nursing tenants at a time when they are implementing the PDPM. Changes in government reimbursement methodology that reduce reimbursement to levels that are insufficient to cover the operating costs of our lessees and borrowers could indirectly and adversely impact us.

We currently estimate that our borrowers and lessees will find these Medicare increases to be adequate in the near term due to their credit quality, profitability and their debt or lease coverage ratios, although no assurances can be given as to what the ultimate effect that PDPM increases on an annual basis will have on each of our borrowers and lessees. According to industry studies, state Medicaid funding is not expected to keep pace with inflation. Any future acquisitions by NHI of skilled nursing facilities are planned on a selective basis, with emphasis on operator quality and newer construction.

Investment Highlights

Since January 1, 2019, we have made or announced the following real estate and note investments (dollars in thousands):

 
 
Date
 
Properties
 
Asset Class
 
Amount
2019
 
 
 
 
 
 
 
 
Lease Investments
 
 
 
 
 
 
 
 
Wingate Healthcare
 
January 2019
 
1
 
SHO
 
$
52,200

Holiday Retirement
 
January 2019
 
1
 
SHO
 
38,000

Comfort Care Senior Living
 
April 2019
 
1
 
SHO
 
10,800

Comfort Care Senior Living
 
May 2019
 
1
 
SHO
 
13,500

Discovery Senior Living
 
May 2019
 
6
 
SHO
 
127,917

Cappella Living Solutions
 
July 2019
 
1
 
SHO
 
7,600

Bickford Senior Living
 
September 2019
 
1
 
SHO
 
15,100

41 Management
 
December 2019
 
1
 
SHO
 
9,340

 
 
 
 
 
 
 
 
 
Note Investments
 
 
 
 
 
 
 
 
Senior Living Communities
 
June 2019
 
1
 
SHO
 
32,700

41 Management
 
June 2019
 
1
 
SHO
 
10,800

Discovery Senior Living
 
July 2019
 
1
 
SHO
 
750

Discovery Senior Living
 
August 2019
 
1
 
SHO
 
6,423

41 Management
 
December 2019
 
1
 
SHO
 
3,870

 
 
 
 
 
 
 
 
$
329,000

 
 
 
 
 
 
 
 
 
2020
 
 
 
 
 
 
 
 
Life Care Services - RIDEA
 
January 2020
 
1
 
SHO
 
$
138,392

Bickford Senior Living
 
January 2020
 
1
 
SHO
 
15,100

 
 
 
 
 
 
 
 
$
153,492


Wingate

On January 15, 2019, we acquired a 267-unit senior living campus in Massachusetts for a purchase price of $50,300,000, including closing costs of $300,000. The facility is being leased to Wingate Healthcare, Inc. (“Wingate”) for a term of 10 years,

36

with three five-year renewal options, at an initial lease rate of 7.5% plus annual fixed escalators. We have committed to the additional funding of up to $1,900,000 in capital improvements, and the lease provides for incentive payments up to $5,000,000 to become available beginning in 2020 upon the attainment of certain operating metrics. NHI has a right of first offer on two additional Wingate-operated facilities. We accounted for the transaction as an asset purchase.

Holiday

In November 2018, we entered into a lease amendment and guaranty release (“the Agreement”) with an affiliate of Holiday Retirement (“Holiday”). Among other provisions, the Agreement decreased base rent beginning in 2019 from $39,000,000 to $31,500,000, extended the term of the original lease through 2035, improved the credit position of the tenant and increased required minimum capital expenditure per unit. As consideration for amending provisions included in the original 2013 lease, Holiday agreed to pay NHI $55,125,000 in cash or real estate and forfeit $10,637,000 of their original $21,275,000 security deposit.

On January 31, 2019, we acquired a senior housing facility in Vero Beach, Florida from Holiday consisting of 157 independent living and 71 assisted living units in exchange for $38,000,000 toward the $55,125,000 receivable arising from the lease amendment, discussed above. The property was added to the master lease at a 6.71% lease rate. Under the restructured master lease, annual lease escalators ranging from 2% to 3%, based on portfolio revenue growth, will go into effect on November 1, 2020. Holiday settled the remaining commitment to NHI with cash of $17,125,000 at closing. Receipt of the Vero Beach property and collection of remaining commitment in cash was recognized as adjustments to outstanding Holiday lease receivable and resulted in the change of our straight-line receivable from Holiday at the beginning of the year into a straight-line payable, which is included in the accompanying Consolidated Balance Sheet at December 31, 2019 as “deferred income.”

Comfort Care

On April 30, 2019, we acquired a newly-constructed 60-unit assisted living facility in Shelby, Michigan which has 14 newly-constructed memory care units currently undergoing stabilization. The total commitment of $10,800,000 includes $9,560,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. On May 20, 2019, we acquired a property in Brighton, Michigan, consisting of 73 assisted living/memory care units. The purchase price for the Brighton acquisition was $13,500,000, inclusive of $13,000,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. We leased the properties to Comfort Care Senior Living (“Comfort Care”), under leases which provide for initial lease rate of 7.75%, with annual fixed escalators beginning in year three over the term of ten years plus two five-year renewal options. Each lease includes a $3,000,000 earnout incentive which will be added to the lease base if funded. We accounted for the acquisitions as asset purchases.

Discovery

On May 31, 2019, we invested $25,028,000 in cash for a 97.5% equity interest in a consolidated subsidiary ("Discovery PropCo"), which simultaneously acquired from a third party six senior housing facilities comprising 145 independent-living units, 356 assisted-living units and 95 memory-care units, for a total of 596 units. Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) contributed $631,000 for its non-controlling 2.5% equity interest. We invested an additional $102,258,000 as a preferred equity contribution, for a total NHI investment of $127,286,000. The additional equity contribution of $102,258,000 carries a preference in liquidation as well as in the distribution of operating cash flow. Total cash of $127,917,000 invested in Discovery PropCo included approximately $1,067,000 in closing costs.

The facilities were leased by Discovery PropCo to an affiliate of Discovery for a term of ten years with two five-year renewal periods at an initial lease rate of 6.5% with fixed annual escalators through the fifth year of the initial lease term followed by CPI-based escalators, subject to floor and ceiling, thereafter.

Discovery is eligible, beginning in 2023, for up to $4,000,000 of lease inducement payments upon meeting specified performance metrics. Inducement payments funded under the agreement will be added to the lease base. Additionally, PropCo has committed to Discovery for funding up to $2,000,000 toward the purchase of condominium units located at one of the facilities, $969,000 of which has been funded in total as a result of transactions in November 2019 and January 2020. The total purchase price for the properties acquired, as discussed above, was allocated to the tangible assets based upon their relative fair values consisting of $6,301,000 to the land and $121,616,000 to the buildings and improvements. We accounted for the transaction as an asset purchase.

As the managing member, NHI manages Discovery PropCo, subject to certain consent rights of Discovery for significant business decisions. Because of our control of Discovery PropCo, we include its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements.


37

On August 30, 2019, NHI extended a senior mortgage loan of $6,423,000 at 7% annual interest to affiliates of Discovery to acquire a senior housing facility in Indiana for which Discovery PropCo, will have the option to purchase at stabilization. The facility consists of 52 assisted living units and 22 memory care units. As discussed below under the caption “Tenant Transitioning,” effective July 1, 2019, NHI provided an additional working capital loan for amounts up to $750,000 at an interest rate of 6.5%.

Cappella

On July 23, 2019, for $7,600,000 including $100,000 of closing costs, we acquired a 54-unit assisted living facility in Pueblo, Colorado. We leased the facility to Christian Living Services, Inc., d/b/a Cappella Living Solutions, for a term of fifteen years at an initial lease rate of 7.25%, with CPI escalators subject to floor and ceiling. We accounted for this transaction as an asset purchase.

Bickford

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,035,000, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

As part of a geographical realignment by Bickford, we transitioned four Minnesota properties on October 1, 2019, to 41 Management, discussed below. Bickford has agreed to fund a monthly lease termination fee through December 2020, totaling $734,000. Additionally, two Bickford properties were reclassified during the year as held-for-sale.

On January 27, 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,091,000, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

41 Management

On June 14, 2019, we committed to providing first mortgage financing to 41 Management, LLC for up to $10,800,000 to fund the construction of a 51-unit assisted living facility in Wisconsin. The loan carries an interest rate of 8.50% for its term of five years, subject to two renewals of one year each. The agreement includes a purchase option, which is to open upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $2,400,000 working capital escrow. The total amount funded on the note was $6,045,000 as of December 31, 2019.

On December 20, 2019, we extended a second mortgage loan of $3,870,000 to 41 Management to refinance the subordinated debt on a newly constructed 43-unit assisted living/memory care facility in Wisconsin. The loan provides for interest of 13% and a one-year maturity plus two renewal terms at the option of the borrower. The loan is secured by corporate and personal guarantees. Upon stabilization, NHI has the option to purchase the facility at fair market value based on a metric-driven formula.

As part of Bickford’s geographical realignment mentioned above, we transitioned four Minnesota properties on October 1, 2019, to 41 Management. The transitioned properties are under a master lease which calls for total first-year rent of $906,000 and includes our commitment to make available up to $400,000 in targeted improvements. The lease term of 15 years has two renewal options of five years each and an initial rate of 7.0%. Under the master lease, escalators are fixed at 2.5%, and the lease is secured by corporate and personal guarantees. On December 27, 2019, for a cash purchase price of $9,340,000, including closing costs of $140,000, we acquired a 48 unit assisted living and memory care facility in the St. Paul, Minnesota area. The St. Paul facility was added to the existing master lease described above. We accounted for the St. Paul transaction as an asset purchase.

Senior Living Communities

On June 25, 2019, we provided a mortgage loan of $32,700,000 to Senior Living for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The financing is for a term of five years with two one year extensions and carries an interest rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38,250,000, subject to adjustment for market conditions.

Life Care Services

On January 31, 2020, in a joint venture transaction, we acquired an 80% interest in a 401-unit Continuing Care Retirement Community (CCRC) comprising 330 independent living units, 26 assisted living/memory care units and 45 skilled nursing beds.

38

Additionally, the transaction conveyed to NHI a 25% interest in the operations of the community. The transaction arose as the culmination of a relationship beginning in 2015 in which NHI provided LCS Timber Ridge, LLC, (“LCS”), and its JV partner, Westminster-LCS, LLC, (“Westminster”), with a senior mortgage loan on the Timber Ridge campus in the Seattle area. Proceeds of the loan were used to facilitate expansion of the community to 401 units. By terms of the 2015 agreement, NHI acquired a fair-value purchase option on the property.

Consideration given for NHI’s interest in the joint venture was $124,989,000 and included assignment from the divesting owners of debt having a current carrying value of $59,350,000. To fund the transaction, NHI provided an additional loan of $21,650,000, leaving total debt in the project of $81,000,000, bearing interest to NHI at 5.75%. Further, NHI paid $43,114,000 for an 80% equity stake in the property company (“PropCo”), and we provided initial capitalization totaling $875,000 for the operating company (“OpCo”). LCS paid $10,778,000 for its 20% equity stake in PropCo and provided $2,625,000 in initial capitalization of the operations in return for a 75% equity participation in OpCo.

The lease between PropCo and OpCo carries a rate of 6.75% for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. Including interest payments on debt funded by NHI and our lease participation in the PropCo JV, as detailed above, NHI is entitled to $8,216,000 in the first twelve months plus 25% of the remaining OpCo cash flow. The total enterprise capitalization was $138,392,000 for the OpCo and PropCo entities, as discussed above, of which $124,989,000 was allocated to our interest in the tangible assets of PropCo and equity interest in OpCo, based upon their relative fair values.

Other Portfolio Activity

Tenant Transitioning

We have completed the contractual transition of three lease portfolios to new tenants following a period of non-compliance by the former operators. The portfolios consist of three former SH-Regency Leasing, LLC (“Regency”) buildings, five former LaSalle Group buildings and one facility formerly leased to Landmark Senior Living (“Landmark”). To expedite stabilization of the facilities, we committed to specified income-generating capital expenditures for the re-branding and refurbishment of certain of these properties. The new leases for the former Regency and LaSalle facilities each specify initial periods during which rental income to NHI shall be based on net operating income (“NOI”), after deduction of management fees. Following the initial periods, each lease converts to a structured payment based on a fair-value calculation.

The former Regency buildings have been leased to three operators, Senior Living Communities, Discovery, and Vitality MC TN, LLC (“Vitality”). Of our total revenues, $1,277,000 (0.4%), $5,103,000 (1.7%) and $5,466,000 (2.0%) in rental income were derived from the three former Regency buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective July 1, 2019 we transitioned one of the three Regency buildings located in Indiana, an independent living/assisted living facility, to Discovery in conjunction with our other properties in transition. The triple-net lease matures in June 2024 with two five-year options to extend. Rent is initially based on net operating income. Beginning in 2022, rent is to reset to the greater of $1,400,000 or fair value as provided by formula. For the duration of the lease, the rent, as reset, is subject to a 2.5% escalator. Concurrent with Discovery’s entrance into the lease, NHI provided a working capital loan for amounts up to $750,000 at an interest rate of 6.5% and a $900,000 capital improvement commitment to fund improvements to the facility. The loan extends during the term of the lease.

On April 16, 2019, Chancellor Health Care leased the five former LaSalle Group buildings. Our lease agreement with Chancellor provides for NHI to receive 100% of net operating cash flow generated by the facilities, after management fees, pending stabilization of the operations of the facility. During the first quarter of 2019, we also commenced litigation for the recovery of certain funds owed by LaSalle Group under the lease and against the principal executive personally under the guaranty agreement. Of our total revenues, $1,162,000 (0.4%), $4,455,000 (1.5%) and $4,184,000 (1.5%) in rental income were derived from the five former LaSalle Group buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

In February 2019, we transitioned a non-performing single-property lease in Wisconsin with Landmark to BAKA Enterprises, temporarily acting under a management agreement with Landmark. Under the terms of a short-term agreement, NHI received 95% of net operating cash flow, after management fees, as generated by the facilities. We have entered into a new lease with an initial term of 8 years and a fixed payment schedule through October 2022. In November 2022, the lease indicates a reset of rent to fair market rental value as agreed with the tenant. Of our total revenues, $1,204,000 (0.4%), $1,085,000 (0.4%) and $1,957,000 (0.4%) were derived from the former Landmark property for the years ended December 31, 2019, 2018 and 2017 respectively, including $625,000 received during 2019 as a settlement payment.


39

As we seek to stabilize the operations of these facilities, if our resulting tenants or operating partners do not have adequate liquidity to accept the risks and rewards of a tenant-lessee, NHI might be deemed the primary beneficiary of the operations and might be required to consolidate those statements of financial position and results of operations of the managers or operating partners into our consolidated financial statements.

The following table summarizes the transition properties during the year ended December 31, 2019:
 
 
 
Occupancy
Former Tenant / Facility Name (New Tenant)
Units
State
March1
June1
September1
December1
SH-Regency Leasing, LLC
 
 
 
 
 
 
    The Cypress of College Park (Discovery)
148
IN
19.6%
18.9%
16.2%
15.5%
    The Charlotte (SLC)
99
NC
—%
—%
13.0%
21.0%
    Maybelle Carter (Vitality)
135
TN
73.3%
77.6%
78.5%
80.1%
LaSalle Autumn Leaves (Chancellor)
196
IL/TX
73.5%
66.1%
66.0%
65.9%
Landmark Senior Living (BAKA)
120
WI
67.6%
72.2%
68.3%
66.9%
 
698
 
50.7%
50.1%
50.8%
51.8%
1 2019 Monthly Average

Assets Held for Sale

In September 2019, we classified a portfolio of eight assisted living properties located in Arizona (4), Tennessee (3) and South Carolina (1) as held for sale, after the current tenant expressed an intention to exercise its purchase option on the properties. Of our total revenues, $4,250,000 (1.3%) in rental income were derived from this eight-property portfolio for the years ended December 31, 2019, 2018 and 2017. The purchase option called for the parties to split any appreciation on a 50/50 basis above $37,520,000. During the fourth quarter of 2019, NHI and the tenant reached preliminary agreement on a fair valuation of $41,000,000 for the properties, and, accordingly, on January 22, 2020, we disposed of the properties at the specified mid-point of $39,260,000. With the expectation of deferring, for tax purposes, our gain recognition from this disposition, we have engaged a qualified intermediary to effect a like-kind exchange under §1031 of the Internal Revenue Code.

We identified two assisted living properties for disposal and began active marketing of the properties. The buildings are smaller than are typical of our portfolio and are no longer considered to be an appropriate investment for NHI. In January 2019 we ceased recording depreciation on the properties, and we booked an adjustment to lease revenues to write off the associated $124,000 in straight-line receivables. We recognized an impairment loss of $2,500,000 to write down the properties to their estimated net realizable value. We have classified the assets as held for sale on the Consolidated Balance Sheet at December 31, 2019.

Tenant Purchase Options

Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. For options open or coming open in the near future, we are engaged in preliminary negotiations to continue as lessor or in some other capacity.

A summary of these tenant options, excluding properties classified as held for sale, is presented below (dollars in thousands):
Asset
Number of
Lease
1st Option
Option
Contractual
Type
Properties
Expiration
Open Year
Basis
Rent
MOB
1
February 2025
Open
i
$
306

HOSP
1
March 2025
2020
iv
$
1,957

HOSP
1
September 2027
2021
ii
$
2,760

SHO
2
May 2031
2021
iv
$
5,063

HOSP
1
June 2022
2022
i
$
3,502

SNF
7
August 2028
2025
iii
$
3,671

SNF
1
September 2028
2028
iii
$
472




40

Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) greater of fixed base price or fair market value; ii) a fixed base price plus a specified share in any appreciation; iii) fixed base price; or iv) a fixed capitalization rate on lease revenue.

Real Estate and Mortgage Write-downs

Our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers. Governments at both the federal and state levels have enacted legislation to lower, or at least slow, the growth in payments to health care providers. Furthermore, the cost of professional liability insurance has increased significantly during this same period. Since our inception in 1991, a number of our facility operators and mortgage loan borrowers have undergone bankruptcy. Others have been forced to surrender properties to us in lieu of foreclosure or, for certain periods, have failed to make timely payments on their obligations to us.

While we continually monitor our portfolio to identify potential tenant delinquencies, in some cases, a tenant may not stay current with its rent obligation to the Company. In limited cases, when a tenant becomes delinquent on their rent obligations, NHI employs a variety of strategies including installment payment plans designed to bring the tenant current on their obligation within a short period of time (usually less than 12 months). We are currently engaged with tenants employing such payment plans which comprise lease revenue of less than 1% of our total rental income. No rent concessions have been offered.

We believe that the current carrying amounts of our real estate properties are recoverable and that mortgage notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make significant adjustments to these carrying amounts.


41

Results of Operations

The significant items affecting revenues and expenses are described below (in thousands):
 
Years ended December 31,
 
Period Change
 
2019
 
2018
 
$
 
%
Revenues:
 
 
 
 
 
 
 
Rental income
 
 
 
 
 
 
 
SLC leased to Wingate Healthcare
$
3,642

 
$
—

 
$
3,642

 
NM

SHOs leased to Discovery Senior Living
8,370

 
5,321

 
3,049

 
57.3
 %
ALFs leased to Bickford Senior Living
46,749

 
44,778

 
1,971

 
4.4
 %
ALFs leased to Comfort Care Senior Living
2,377

 
662

 
1,715

 
NM

SNFs leased to Ensign Group
23,719

 
22,339

 
1,380

 
6.2
 %
ALFs leased to Brookdale Senior Living
1,341

 
5,612

 
(4,271
)
 
(76.1
)%
ILFs leased to an affiliate of Holiday Retirement
33,837

 
37,695

 
(3,858
)
 
(10.2
)%
SHOs leased to Chancellor Health Care
9,186

 
11,494

 
(2,308
)
 
(20.1
)%
SLC leased to Vitality Senior Living
172

 
1,648

 
(1,476
)
 
(89.6
)%
Other new and existing leases
132,131

 
128,191

 
3,940

 
3.1
 %
Assets held for sale
4,776

 
286

 
4,490

 
NM

 
266,300

 
258,026

 
8,274

 
3.2
 %
Straight-line rent adjustments, new and existing leases
22,084

 
22,787

 
(703
)
 
(3.1
)%
Escrow funds received from tenants for property taxes and insurance
5,798

 
—

 
5,798

 
NM

Total Rental Income
294,182

 
280,813

 
13,369

 
4.8
 %
Interest income from mortgage and other notes
 
 
 
 
 
 
 
Life Care Services mortgages and construction loans
12,113

 
4,592

 
7,521

 
NM

Bickford construction loans
2,603

 
1,030

 
1,573

 
NM

Senior Living Communities mortgage and other notes
2,970

 
1,528

 
1,442

 
94.4
 %
Bickford construction loan (Gurnee, IL)1
863

 
1,170

 
(307
)
 
(26.2
)%
Other existing mortgages and notes
5,149

 
4,901

 
248

 
5.1
 %
Total Interest Income from Mortgage and Other Notes
23,698

 
13,221

 
10,477

 
79.2
 %
Other income
201

 
578

 
(377
)
 
NM

Total Revenue
318,081

 
294,612

 
23,469

 
8.0
 %
Expenses:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
 
SHOs leased to Discovery Senior Living
4,026

 
1,934

 
2,092

 
NM

SLC leased to Wingate Healthcare
1,395

 
—

 
1,395

 
NM

ILFs leased to an affiliate of Holiday Retirement
13,885

 
12,918

 
967

 
NM

ALFs leased to Comfort Care Senior Living
904

 
232

 
672

 
NM

Other new and existing assets
56,606

 
56,265

 
341

 
0.6
 %
Total Depreciation
76,816

 
71,349

 
5,467

 
7.7
 %
Interest
56,299

 
49,055

 
7,244

 
14.8
 %
Payroll and related compensation expenses
5,812

 
6,318

 
(506
)
 
(8.0
)%
Non-cash share-based compensation expense
3,646

 
2,490

 
1,156

 
46.4
 %
Loan and realty losses
2,440

 
5,115

 
(2,675
)
 
(52.3
)%
Property taxes and insurance on leased properties
5,798

 
—

 
5,798

 
NM

Other expenses
5,998

 
5,214

 
784

 
15.0
 %
 
156,809

 
139,541

 
17,268

 
12.4
 %
Income before loss on convertible note retirement
161,272

 
155,071

 
6,201

 
4.0
 %
Loss on convertible note retirement
(823
)
 
(738
)
 
(85
)
 
11.5
 %
Net income
160,449

 
154,333

 
6,116

 
4.0
 %
Less: net loss attributable to noncontrolling interest
7

 
—

 
7

 
NM

Net income attributable to common stockholders
$
160,456

 
$
154,333

 
$
6,123

 
4.0
 %
 
 
 
 
 
 
 
 
NM - not meaningful
 
 
 
 
 
 
 
Rental income by tenant reflects portfolio transitions effected during 2019
 
 
 
 
 
 
 
1 construction loan cancelled as part of property purchase transaction discussed at Note 2
 
 
 
 
 
 
 

42

Financial highlights of the year ended December 31, 2019, compared to 2018 were as follows:

•
Rental income received from our tenants increased $13,369,000, or 4.8%, primarily as a result of new investments funded since December 2018. Included in the year-over-year increase in rental income, escrow funds received from tenants totaling $5,798,000 were used to pay property taxes and insurance, which is typical of triple net leases. Narrow-Scope Improvements for Lessors under ASU 2018-20 requires these items to be included as revenue and expense in our condensed consolidated financial statements beginning with the 2019 period.
 
•
The increase in rental income includes a $703,000 decrease in straight-line rent adjustments. Generally, future increases in rental income depend on our ability to make new investments that meet our underwriting criteria.

•
Interest income from mortgage and other notes increased $10,477,000, primarily due to interest income received on loans to Life Care Services, Bickford Senior Living and Senior Living Communities.

•
Depreciation expense increased $5,467,000 primarily due to new real estate investments completed since December 2018.

•
Interest expense, including amortization of debt discount and issuance costs, increased $7,244,000 primarily as a result of the September 2018 conversion of $300,000,000 of debt initially drawn on our revolving facility into a five-year term loan and the impact of additional borrowings on our revolving credit facility.

•
Payroll and related compensation expenses decreased $506,000 due primarily to the timing and amount of incentive compensation related to achieving certain company goals.

•
Non-cash share-based compensation expense increased $1,156,000 due primarily to fluctuations in the valuation assumptions used in the Black-Scholes pricing model.

•
Loan and realty losses include $2,500,000 recorded as a writedown related to two facilities classified as held for sale.

•
The following table summarizes our real estate under lease to transitioning tenants (in thousands):
 
Years Ended
 
 
 
 
 
December 31,
 
Period Change
 
2019
 
2018
 
$
 
%
Revenues:
 
 
 
 
 
 
 
Rental income
 
 
 
 
 
 
 
SHOs leased to Chancellor Health Care
$
1,162

 
$
4,455

 
$
(3,293
)
 
(73.9
)%
SHO leased to Senior Living Communities
725

 
1,382

 
(657
)
 
(47.5
)%
SHO leased to Discovery Senior Living
380

 
1,982

 
(1,602
)
 
(80.8
)%
SLC leased to Vitality Senior Living
172

 
1,739

 
(1,567
)
 
(90.1
)%
ALF leased to BAKA Enterprises1
1,204

 
1,085

 
119

 
11.0
 %
Total Revenues
3,643

 
10,643

 
(7,000
)
 
(65.8
)%
Expenses:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
 
SHOs leased to Chancellor Health Care
1,623

 
1,623

 
—

 
—
 %
SHO leased to Senior Living Communities
527

 
492

 
35

 
7.1
 %
SHO leased to Discovery Senior Living
684

 
690

 
(6
)
 
(0.9
)%
SLC leased to Vitality Senior Living
616

 
622

 
(6
)
 
(1.0
)%
ALF leased to BAKA Enterprises
581

 
581

 
—

 
—
 %
Total Depreciation
4,031

 
4,008

 
23

 
0.6
 %
Legal
491

 
—

 
491

 
NM

Franchise, excise and other taxes
660

 
—

 
660

 
NM

 
5,182

 
4,008

 
1,174

 
29.3
 %
Net income (loss)
$
(1,539
)
 
$
6,635

 
$
(8,174
)
 
NM

 
 
 
 
 
 
 
 
1 includes $625,000 received during 2019 as a settlement payment
 
 
 
 
 
 
 

43

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of cash include rent payments, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our term loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our shareholders and general corporate overhead.

These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below (dollars in thousands):
 
Year Ended
 
One Year Change
 
Year Ended
 
One Year Change
 
12/31/2019
 
12/31/2018
 
$
 
%
 
12/31/2017
 
$
 
%
Cash and cash equivalents and restricted cash, January 1
$
9,912

 
$
8,075

 
$
1,837

 
NM

 
8,878

 
$
(803
)
 
(9.0
)%
Net cash provided by operating activities
240,955

 
207,869

 
33,086

 
15.9
%
 
198,095

 
9,774

 
4.9
 %
Net cash used in investing activities
(342,521
)
 
(250,290
)
 
(92,231
)
 
NM

 
(163,846
)
 
(86,444
)
 
52.8
 %
Net cash provided by (used in) financing activities
107,323

 
44,258

 
63,065

 
NM

 
(35,052
)
 
79,310

 
(226.3
)%
Cash and cash equivalents and restricted cash, December 31
$
15,669

 
$
9,912

 
$
5,757

 
58.1
%
 
8,075

 
$
1,837

 
NM


Operating Activities – Net cash provided by operating activities for the years ended December 31, 2019 and 2018 increased primarily as a result of the collection of lease and interest payments on new real estate and note investments completed during 2018 and 2019. Working capital changes contributed an additional $19,271,000 to operating cash flow that included approximately $17,125,000 in cash receipts in settlement of a Holiday receivable, charged to deferred revenues and straight line rent receivables related to the Holiday restructure.

Investing Activities – Net cash flows used in investing activities for the year ended December 31, 2019 were comprised primarily of $345,418,000 of investments in real estate and notes, and was partially offset by the collection of principal on mortgage and other notes receivable of $2,897,000. Net cash flows used in investing activities for the year ended December 31, 2018 increased primarily due to $254,636,000 of investments in real estate and notes, which were partially offset by collection of notes receivable.

Financing Activities – Net cash provided by financing activities for the years ended December 31, 2019 compared to the same period in 2018 is primarily the result of (1) net proceeds of $95,774,000 from the issuance of common shares in 2019, (2) $29,985,000 used to complete targeted repurchases of a portion of our outstanding convertible notes during 2018 and $22,468,000 for the same purpose in 2019 (3) dividend payments which increased $14,348,000 in 2019 over the same period in 2018.

Liquidity

Apart from operations, a primary source of our liquidity is our unsecured bank credit facility. At December 31, 2019, we had $250,000,000 available to draw on our revolving credit facility.

Our bank credit facility is a combination of our Credit Agreement dated as of August 3, 2017 (the "2017 Agreement") and the Term Loan Agreement dated as of September 17, 2018 (the "2018 Agreement"). Together these agreements establish our unsecured $1,100,000,000 bank credit facility, which consists of $250,000,000 and $300,000,000 term loans and a $550,000,000 revolving credit facility. The $250,000,000 term loan and $550,000,000 revolving facility mature in August 2022, and the $300,000,000 term loan matures in September 2023.

The revolving facility fee is currently 20 basis points per annum, and based on our current leverage ratios, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 120 bps and a blended 132 bps, respectively. At December 31, 2019 and December 2018, 30-day LIBOR was 176 and 252 bps, respectively. Within the facility, the employment of interest rate swaps for a portion of our fixed term debt leaves only $240,000,000 of our revolving credit facility exposed to interest rate risk through June 2020, when our $80,000,000 and $130,000,000 swaps expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.” The current interest spreads and facility fee reflect our leverage-ratio compliance based on the applicable margin for LIBOR loans, measuring debt to “Total Asset Value,” at Level 3 in the Interest Rate Schedule provided below in abridged format:

Interest Rate Schedule

44

 
 
LIBOR Margin
 
Level
Leverage Ratio
Revolver
$300m Term Loan
$250m Term Loan
Facility Fee
1
< 0.35
1.10%
1.20%
1.25%
0.15%
2
≥ 0.35 & < 0.40
1.15%
1.25%
1.30%
0.20%
3
≥ 0.40 & < 0.45
1.20%
1.30%
1.35%
0.20%
4
≥ 0.45 & < 0.50
1.25%
1.40%
1.45%
0.25%

Beyond the applicable ratios detailed above, increasing levels of leverage (not shown) will subject our debt to defined increases in interest rates and fees.

LIBOR is scheduled for discontinuation by December 2021. In the United States, the Alternative Reference Rates Committee, a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York has identified the Secured Overnight Financing Rate as its preferred alternative rate for USD LIBOR. The Company continues to monitor the establishment of a new replacement index with the assistance of its banking advisors.

If a suitable replacement to LIBOR is not identified, the bank facilities provide for rate alternatives which have historically been disadvantageous. Upon the discontinuation of LIBOR, interest expense and the credit spread determined in the Company’s bank facilities using a new index rate may materially change interest expense relative to what it would have been if LIBOR had not been discontinued.

The Company will continue to monitor the progress of a LIBOR replacement index rate and will seek to modify its existing bank facilities once the new index rate is sufficiently established within the capital markets.

The 2017 Agreement requires that we calculate specified financial statement metrics and meet or exceed a variety of financial ratios, which are usual and customary in nature. These ratios are calculated quarterly and as of December 31, 2019, were within required limits. The calculation of our leverage ratio involves intermediate determinations of our “total indebtedness” and of our “total asset value,” as defined.

Aside from a more favorable rate, the 2018 Agreement generally calls for the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement. Although we are currently eligible under the 2017 and 2018 Agreements to transact in our unsecured bank credit facilities at the respective scheduled rates represented by Level 3, the movement of our leverage ratio into Level 4 at current levels of debt would result in additional annual interest charges of $1,300,000, assuming an average revolver balance of approximately $200,000,000. Further movement of our leverage ratio beyond levels currently contemplated by management would be subject to escalating increases in interest. If, in addition to changes in the leverage ratio, certain qualitative indicators of our risk profile were to materially change, further interest-rate escalations may result.

In November 2015, Fitch Ratings issued to us a private monitored credit rating of BBB- with a ‘Stable’ rating outlook. In December 2018 and again on October 31, 2019, Fitch Ratings affirmed their BBB- rating and ‘Stable’ rating outlook. NHI has elected to make this rating public and to that effect, on November 4, 2019, Fitch Ratings announced a public issuer credit rating of BBB- with an outlook of ‘Stable’. On the same day, S&P Global Ratings announced our public issuer credit rating of BBB- with an outlook of ‘Stable’. The ratings from both agencies were provided on NHI as an issuer as well as on our senior unsecured debt. Our unsecured bank credit facility includes an option to shift from the leverage-based LIBOR margin schedule in the table above to a ratings-based LIBOR margin schedule. Shifting to a ratings-based LIBOR margin schedule potentially reduces volatility of our interest cost during periods of time when our leverage may fluctuate modestly. Our decision to move to a ratings-based margin schedule will be based on several factors including the relative cost of the ratings-based versus leverage-based margin schedules, and our desire to have a more stable interest cost if our leverage modestly changes as compared to the existing leverage-based margin schedule. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating below investment grade and our compliance leverage increases to 50% or more.

Our at-the-market (“ATM”) offering represents an additional source of liquidity. Through the program in 2019, we issued 1,209,522 common shares, with an average price for shares sold of $80.58, resulting after commissions and legal and accounting costs in net proceeds of $95,774,000. Cash from these issuances was initially used to pay down our revolving credit facility.

As we anticipate a continuation of our activity in the ATM program in 2020, we intend to use the proceeds for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. Acquisitions, if any, whose magnitude would entail an equity match unable to be efficiently sourced through the ATM would likely trigger a prospectus supplement and an underwritten or overnight offering of NHI common stock, rather than placement through the ATM. Previous offerings made under the ATM program were pursuant to a prospectus dated February 22, 2017, which constituted

45

part of NHI’s effective shelf registration statement previously filed with the Securities and Exchange Commission. Since the effective registration statement covering the ATM program expires in 2020, the Company intends to file a new shelf registration statement and approve a new ATM program to replace the expiring program.

Traditionally, debt financing, equity proceeds, operating and financing cash flows derived from proceeds of lease and mortgage collections, loan payoffs and the recovery of previous write-downs, have been used to satisfy our operational and investing needs and to provide a return to our shareholders. We expect to continue to access these sources of capital to meet those operational and investing needs, which are necessary to maintain and cultivate our funding sources and have generally fallen into three categories: debt service, the payment of dividends, REIT operating expenses, and new real estate investments.

The following table summarizes the share issuances since inception of our ATM as of December 31, 2019:
Year
Shares
Weighted Average Share Price
Net Proceeds
2015
830,506

$
60.33

$
49,389,000

2016
1,395,642

$
75.79

104,190,000

2017
1,661,161

$
74.87

122,500,000

2018
1,112,363

$
74.84

82,001,000

2019
1,209,522

$
80.58

95,999,000

 
6,209,194

 
$
454,079,000


The table above does not include indirect legal and accounting costs associated with updating and maintaining our shelf registration statement.

Our use of ATM proceeds rebalanced our leverage in response to our acquisitions and keeps our options flexible for further expansion. We continue to explore various other funding sources including bank term loans, convertible debt, traditional equity placement, unsecured bonds and senior notes, debt private placement, public debt and secured government agency financing. We view our ATM program as an effective way to match-fund our smaller acquisitions by exercising control over the timing and size of transactions and achieving a more favorable cost of capital as compared to larger follow-on offerings.

We anticipate continued use of proceeds from the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. Acquisitions, if any, whose magnitude would entail an equity match unable to be efficiently sourced through the ATM would likely trigger a prospectus supplement and an overnight or marketed offering of NHI common stock, rather than placement through the ATM.

We expect that borrowings on our revolving credit facility, borrowings on term loans, and our ATM program will allow us to continue to make real estate investments in 2020 and beyond. Recent actions by the federal government to reduce the federal funds rate may temporarily reduce anticipated upward pressure on our historically low cost of debt capital. If the federal government decides to reverse this trend as it seeks to hold inflation to acceptable levels, we can expect that our cost of debt capital will increase in the mid-term.

Concurrent with the amendments to our credit facility and with the exception of specific debt-coverage ratios, covenants pertaining to our private placement term loans were generally conformed with those governing the credit facility.

Beginning in December 2019, through the issuance of unregistered common stock and cash in retirement of $60,000,000 of our convertible notes, we funded our Timber Ridge acquisition, which closed January 2020. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by fair valuing the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account.

A roll-forward for 2019 of our convertible note balances, including the effect of year-to-date amortization, net of issuance costs, is presented below:

46

 
December 31,
2018
Exchange
Amortization
December 31,
2019
Face Amount
$
120,000

$
(60,000
)
$
—

$
60,000

Discount
(1,391
)
$
328

$
760

(303
)
Issuance Costs
(910
)
$
210

$
505

(195
)
Carrying Value
$
117,699

 
 
$
59,502


Total consideration given in the exchange of $73,102,000 included the issuance of 626,397 shares of NHI common stock with a fair value of $51,002,000 and cash disbursed of $22,100,000.

Total consideration given in the exchange was allocated as $60,285,000 to the note retirement with the remaining expenditure of $12,816,000 allocated to retirement of the equity feature of the notes. A loss of $823,000 for the year ended December 31, 2019, resulted from the excess allocation of cash expenditures over the book value of the notes retired, net of discount and issuance costs.

As of December 31, 2019, our $60,000,000 of senior unsecured convertible notes were convertible at a rate of 14.62 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $68.39 per share for a total of 877,356 remaining underlying shares. For the year ended December 31, 2019, dilution resulting from the conversion option within our convertible debt is 210,224 shares. If NHI’s current share price increases above the adjusted $68.39 conversion price, further dilution will be attributable to the conversion feature. On December 31, 2019, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $11,487,000.

We may continue from time to time to seek to retire or purchase some of our outstanding convertible notes through cash open market purchases, privately-negotiated transactions or otherwise. As with our 2019 repurchases, amounts and timing of further repurchases or exchanges, if any, will be dependent on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

When we take on new debt or when we modify or replace existing debt, we incur debt issuance costs. These costs are subject to amortization over the term of the new debt instrument and may result in the write-off of fees associated with debt which has been replaced or modified. Sustaining long-term dividend growth will require that we consider all sources of capital mentioned above, with the goal of maintaining a low-leverage balance sheet and staggered debt maturities as mitigation against potential adverse changes in the business of our industry, tenants and borrowers.

Interest Rate Swap Agreements

To mitigate our exposure to interest rate risk, we have the following interest rate swap contracts in place to hedge against floating rates on our bank term loans and a portion of our revolving credit facility as of December 31, 2019 (dollars in thousands):
Date Entered
 
Maturity Date
 
Fixed Rate
 
Rate Index
 
Notional Amount
 
Fair Value (Liability)
June 2013
 
June 2020
 
3.46%
 
1-month LIBOR
 
$
80,000,000

 
$
(177
)
March 2014
 
June 2020
 
3.51%
 
1-month LIBOR
 
$
130,000,000

 
$
(316
)
March 2019
 
December 2021
 
3.51%
 
1-month LIBOR
 
$
100,000,000

 
$
(1,318
)
March 2019
 
December 2021
 
3.52%
 
1-month LIBOR
 
$
100,000,000

 
$
(1,344
)
June 2019
 
December 2021
 
2.89%
 
1-month LIBOR
 
$
150,000,000

 
$
(200
)
June 2019
 
December 2021
 
2.93%
 
1-month LIBOR
 
$
50,000,000

 
$
(79
)

For instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative has been reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness have been recognized in earnings. With the 2017 Agreement, discussed above, we introduced into the credit facility a LIBOR floor not present in the hedges which resulted in hedge inefficiency of approximately $353,000 for the year ended December 31, 2017, which we credited to interest expense.

On January 1, 2018 we adopted ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, as discussed in the Notes to the consolidated financial statements. The transition method is a modified retrospective approach that required the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of 2018. The

47

primary provision in the ASU requiring adjustment to our beginning retained earnings is the change in timing and income statement line item for ineffectiveness related to cash flow hedges. Upon the adoption of the new standard, we reversed cumulative ineffectiveness occurring in the last six months of 2017, resulting in a retroactive net charge to retained earnings and a credit to accumulated other comprehensive income of $235,000 as of January 1, 2018. Upon adoption of the ASU, the Company achieved a better alignment of its financial reporting for hedging activities with the economic objectives of those activities.

Dividend Policy

We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year ending December 31, 2019 and thereafter. Dividends declared for the fourth quarter of each fiscal year are paid by the end of the following January and are, with some exceptions, treated for tax purposes as having been paid in the fiscal year just ended as provided in IRS Code Sec. 857(b)(8). We may need to declare a special dividend when we compute our REIT taxable income in an amount that exceeds our regular dividends for the fiscal year.

Off Balance Sheet Arrangements

We currently have no outstanding guarantees. As described in Note 1 to the consolidated financial statements, our leases, mortgages and other notes receivable with certain entities represent variable interests in those enterprises. However, because we do not control these entities, nor do we have any role in their day-to-day management, we are not their primary beneficiary and therefore do not consolidate their financial statements. Except as discussed under Contractual Obligations and Commitments and Contingencies below, we have no further material obligations arising from our transactions with these entities, and we believe our maximum exposure to loss at December 31, 2019, due to this involvement would be limited to our contractual commitments and contingent liabilities and the amount of our current investments with them, as detailed further in Notes 1, 2, 3 and 6 to the consolidated financial statements. As of December 31, 2019, we furnished no direct support to any of these entities.

In March 2014 we issued convertible notes, which have a carrying amount of $59,502,000 as of December 31, 2019, with the conversion feature being intended to broaden the Company’s credit profile and as a means to obtain a more favorable coupon rate. For this feature we calculate the dilutive effect using market prices prevailing over the reporting period. Because the dilution calculation is market-driven, and per share guidance we provide is based on diluted amounts, the theoretical effects of the conversion feature result in per share unpredictability.

Additional disclosure requirements also give widely ranging results depending on market price variability. The notes will be freely convertible in the last six months of their contractual life, beginning in the fourth quarter of 2020; however, generally accepted accounting principles require us to periodically report the amount by which the notes’ convertible value exceeds their principal amount, without regard to the current availability of the conversion feature. Further, the mechanics of the calculation require the use of an end-of-period stock price, so that using that amount for the remaining notes outstanding of $60,000,000 at December 31, 2019, delivers an excess of $11,487,000, whereas the use of another price point would give a different result.

The conversion feature is generally available to the noteholders entering the last six months of the notes’ term but may also become actionable if the market price of NHI’s common stock should, for 20 of 30 consecutive trading days within a calendar quarter, sustain a level in excess of 130% of the adjusted conversion price, or $88.90 per share, down from $93.55 per share, initially. The notes are “optional net-share settlement” instruments, meaning that NHI has the ability and intent to settle the principal amount of the indebtedness in cash, with possible dilutive share issuances for any excess, at NHI’s option. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by valuing the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes will be recognized first as a settlement of the notes at par and then will be recognized in income to the extent the portion allocated to the debt instrument differs from par value. The remainder of the allocation, if any, will be treated as settlement of equity and adjusted through our paid in capital account.

Contractual Obligations

As of December 31, 2019, our contractual payment obligations were as follows (in thousands):

48

 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
Debt, including interest1
$
1,500,478

 
$
51,959

 
$
613,274

 
$
552,808

 
$
282,437

Development commitments
12,893

 
12,893

 
—

 
—

 
—

Loan commitments
75,112

 
75,112

 
—

 
—

 
—

 
$
1,588,483

 
$
139,964

 
$
613,274

 
$
552,808

 
$
282,437

1 Interest is calculated based on the weighted average interest rate of outstanding debt balances as of December 31, 2019. The calculation also includes a facility fee of .20%.

Commitments and Contingencies

The following tables summarize information as of December 31, 2019 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements.
 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Loan Commitments:
 
 
 
 
 
 
 
 
 
LCS Sagewood Note A
SHO
 
Construction
 
$
118,800,000

 
$
(77,340,000
)
 
$
41,460,000

LCS Sagewood Note B
SHO
 
Construction
 
61,200,000

 
(45,938,000
)
 
15,262,000

LCS Timber Ridge Note A
SHO
 
Construction
 
60,000,000

 
(59,350,000
)
 
650,000

Bickford Senior Living
SHO
 
Construction
 
28,700,000

 
(23,116,000
)
 
5,584,000

Senior Living Communities
SHO
 
Revolving Credit
 
12,000,000

 
(5,174,000
)
 
6,826,000

41 Management
SHO
 
Construction
 
10,800,000

 
(6,045,000
)
 
4,755,000

Discovery Senior Living
SHO
 
Working Capital
 
750,000

 
(175,000
)
 
575,000

 
 
 
 
 
$
292,250,000

 
$
(217,138,000
)
 
$
75,112,000


See Note 3 to our consolidated financial statements for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.

 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Development Commitments:
 
 
 
 
 
 
 
 
 
Ignite Medical Resorts
SNF
 
Construction
 
$
25,350,000

 
$
(16,903,000
)
 
$
8,447,000

Woodland Village
SHO
 
Renovation
 
7,515,000

 
(7,425,000
)
 
90,000

Senior Living Communities
SHO
 
Renovation
 
9,930,000

 
(9,067,000
)
 
863,000

Wingate Healthcare
SHO
 
Renovation
 
1,900,000

 
(357,000
)
 
1,543,000

Discovery Senior Living
SHO
 
Renovation
 
900,000

 
—

 
900,000

Navion Senior Solutions
SHO
 
Construction
 
650,000

 
—

 
650,000

41 Management
SHO
 
Construction
 
400,000

 
—

 
400,000

 
 
 
 
 
$
46,645,000

 
$
(33,752,000
)
 
$
12,893,000


In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding up to $2,000,000 for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 has been funded toward the commitment.
 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Contingencies:
 
 
 
 
 
 
 
 
 
Comfort Care Senior Living
SHO
 
Lease Inducement
 
6,000,000

 
—

 
6,000,000

Wingate Healthcare
SHO
 
Lease Inducement
 
5,000,000

 
—

 
5,000,000

Navion Senior Solutions
SHO
 
Lease Inducement
 
4,850,000

 
(500,000
)
 
4,350,000

Discovery Senior Living
SHO
 
Lease Inducement
 
4,000,000

 
—

 
4,000,000

Ignite Medical Resorts
SNF
 
Lease Inducement
 
2,000,000

 
—

 
2,000,000

 
 
 
 
 
$
21,850,000

 
$
(500,000
)
 
$
21,350,000




Litigation

49


Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no material adverse effect on our financial condition, results of operations or cash flows.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

The LaSalle Group defaulted on its rent payment in November 2018. We transitioned the properties to a new operator on April 16, 2019, with NHI to receive operating cash flow, after management fees, generated by the facilities pending stabilization. We also commenced litigation for the recovery of certain funds owed under the lease and against the principal executive personally, under a guaranty agreement. The LaSalle Group, the former operator of the properties, has declared bankruptcy under Chapter 11. In December 2019, we reached an agreement with TLG Family Management and Mitchell Warren, who, without making any admissions under a joint-liability settlement, have agreed to pay to NHI $2,850,000 over a five-year period, consisting of sixty-one scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of $60,000 in December 2019.

50

FFO, AFFO & FAD

These supplemental operating performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations (“FFO”), Normalized FFO, Normalized Adjusted Funds From Operations (“AFFO”) and Normalized Funds Available for Distribution (“FAD”) may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these operating performance measures, caution should be exercised when comparing our Company’s FFO, Normalized FFO, Normalized AFFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”) (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of operating performance, or to net cash flow from operating activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs.

Funds From Operations - FFO

Our FFO per diluted common share for the year ended December 31, 2019 increased $0.13 (2.4%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, impairments of real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company’s computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company’s FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities.

Our Normalized FFO per diluted common share for the year ended December 31, 2019 increased $0.04 (0.7%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs.

FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue. Accordingly, we believe that FFO and normalized FFO provide useful information to investors regarding our operating results.

Adjusted Funds From Operations - AFFO

Our Normalized AFFO per diluted common share for the year ended December 31, 2019 increased $0.06 (1.2%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. In addition to the adjustments included in the calculation of Normalized FFO, Normalized AFFO excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our convertible senior notes and amortization of debt issuance costs.

Normalized AFFO is an important supplemental measure of operating performance for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires the original issue discount of our convertible senior notes and debt issuance costs to be amortized as non-cash adjustments to earnings. Normalized AFFO is useful to our investors as it reflects the growth inherent in the contractual lease payments of our real estate portfolio.

Funds Available for Distribution - FAD

Our Normalized FAD for the year ended December 31, 2019 increased $12,105,000 (5.6%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. In addition to the adjustments included in the calculation of Normalized AFFO, Normalized FAD excludes the impact of non-cash stock based compensation. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to shareholders.

51


The following table reconciles net income attributable to common stockholders, the most directly comparable GAAP metric, to FFO, Normalized FFO, Normalized AFFO and Normalized FAD and is presented for both basic and diluted weighted average common shares (in thousands, except share and per share amounts):
 
Years ended December 31,
 
2019
 
2018
 
2017
Net income attributable to common stockholders
$
160,456

 
$
154,333

 
$
159,365

Elimination of certain non-cash items in net income:
 
 
 
 
 
Depreciation
76,816

 
71,349

 
67,173

Depreciation related to noncontrolling interest
(52
)
 
—

 
—

Gain on sale of real estate
—

 
—

 
(50
)
Impairment of real estate
2,500

 
—

 
—

NAREIT FFO attributable to common stockholders
$
239,720

 
$
225,682

 
$
226,488

Gains on sales of marketable securities
—

 
—

 
(10,038
)
Loss on convertible note retirement
823

 
738

 
2,214

Debt issuance costs written-off due to credit facility modifications
—

 
—

 
407

Ineffective portion of cash flow hedges
—

 
—

 
(353
)
Non-cash write-off of straight-line rent receivable
—

 
3,701

 
—

Note receivable impairment
—

 
363

 
—

Recognition of unamortized note receivable commitment fees
—

 
(515
)
 
(922
)
Normalized FFO attributable to common stockholders
$
240,543

 
$
229,969

 
$
217,796

Straight-line lease revenue, net
(22,084
)
 
(21,736
)
 
(26,090
)
Straight-line lease revenue, net, related to noncontrolling interest
13

 
—

 
—

Amortization of lease incentives
845

 
387

 
119

Amortization of original issue discount
761

 
788

 
1,109

Amortization of debt issuance costs
2,805

 
2,526

 
2,483

Normalized AFFO attributable to common stockholders
$
222,883

 
$
211,934

 
$
195,417

Non-cash share-based compensation
3,646

 
2,490

 
2,612

Normalized FAD attributable to common stockholders
$
226,529

 
$
214,424

 
$
198,029

 
 
 
 
 
 
 
 
 
 
 
 
BASIC
 
 
 
 
 
Weighted average common shares outstanding
43,417,828

 
41,943,873

 
40,894,219

NAREIT FFO attributable to common stockholders per share
$
5.52

 
$
5.38

 
$
5.54

Normalized FFO attributable to common stockholders per share
$
5.54

 
$
5.48

 
$
5.33

Normalized AFFO attributable to common stockholders per share
$
5.13

 
$
5.05

 
$
4.78

 
 
 
 
 
 
DILUTED
 
 
 
 
 
Weighted average common shares outstanding
43,703,248

 
42,091,731

 
41,151,453

NAREIT FFO attributable to common stockholders per share
$
5.49

 
$
5.36

 
$
5.50

Normalized FFO attributable to common stockholders per share
$
5.50

 
$
5.46

 
$
5.29

Normalized AFFO attributable to common stockholders per share
$
5.10

 
$
5.04

 
$
4.75


52

Adjusted EBITDA

We consider Adjusted EBITDA to be an important supplemental measure because it provides information which we use to evaluate our performance and serves as an indication of our ability to service debt. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization, including amounts in discontinued operations, excluding real estate asset impairments and gains on dispositions and certain items which may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA:
 
Years ended December 31,
 
2019
 
2018
 
2017
Net income
$
160,449

 
$
154,333

 
$
159,365

Interest expense
56,299

 
49,055

 
46,324

Franchise, excise and other taxes
1,550

 
1,166

 
960

Depreciation
76,816

 
71,349

 
67,173

Gain on sale of real estate
—

 
—

 
(50
)
Impairment of real estate
2,500

 
—

 
—

Gains on sales of marketable securities
—

 
—

 
(10,038
)
Loss on convertible note retirement
823

 
738

 
2,214

Non-cash write-off of straight-line rent receivable
—

 
3,701

 
—

Note receivable impairment
—

 
363

 
—

Recognition of unamortized note receivable commitment fees
—

 
(515
)
 
(922
)
Adjusted EBITDA
$
298,437

 
$
280,190

 
$
265,026

 
 
 
 
 
 
Interest expense at contractual rates
$
53,923

 
$
45,789

 
$
40,385

Principal payments
1,187

 
1,062

 
794

Fixed Charges
$
55,110

 
$
46,851

 
$
41,179

 
 
 
 
 
 
Fixed Charge Coverage
5.4x

 
6.0x

 
6.4x


For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.


53

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

At December 31, 2019, we were exposed to market risks related to fluctuations in interest rates on approximately $240,000,000 of variable-rate indebtedness (excludes $610,000,000 of variable-rate debt that has been hedged through interest-rate swap contracts) and on our mortgage and other notes receivable. The unused portion ($250,000,000 at December 31, 2019) of our revolving credit facility, should it be drawn upon, is subject to variable rates.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. Assuming a 50 basis-point increase or decrease in the interest rate related to variable-rate debt, and assuming no change in the outstanding balance as of December 31, 2019, net interest expense would increase or decrease annually by approximately $1,200,000 or $0.03 per common share on a diluted basis.

We use derivative financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative purposes. Derivatives are included in the Condensed Consolidated Balance Sheets at their fair value. We may engage in hedging strategies to manage our exposure to market risks in the future, depending on an analysis of the interest rate environment and the costs and risks of such strategies.

The following table sets forth certain information with respect to our debt (dollars in thousands):
 
December 31, 2019
 
December 31, 2018
 
Balance1
 
% of total
 
Rate3
 
Balance1
 
% of total
 
Rate3
Fixed rate:
 
 
 
 
 
 
 
 
 
 
 
Convertible senior notes
$
60,000

 
4.1
%
 
3.25
%
 
$
120,000

 
9.3
%
 
3.25
%
Private placement term loans
400,000

 
27.6
%
 
4.15
%
 
400,000

 
30.9
%
 
4.15
%
Bank term loans - unsecured
550,000

 
38.0
%
 
3.36
%
 
250,000

 
19.3
%
 
3.34
%
HUD mortgage loans2
43,376

 
3.0
%
 
4.04
%
 
44,226

 
3.4
%
 
4.04
%
Fannie Mae term loans
95,706

 
6.6
%
 
3.94
%
 
96,044

 
7.4
%
 
3.94
%
Revolving credit facility - unsecured
60,000

 
4.1
%
 
2.81
%
 
—

 
—
%
 
—
%
Variable rate:
 
 
 
 
 
 
 
 
 
 
 
Bank term loans - unsecured
—

 
—
%
 
—
%
 
300,000

 
23.2
%
 
3.77
%
Revolving credit facility - unsecured
240,000

 
16.6
%
 
2.96
%
 
84,000

 
6.5
%
 
3.92
%
 
$
1,449,082

 
100.0
%
 
3.54
%
 
$
1,294,270

 
100.0
%
 
3.88
%
 
 
 
 
 
 
 
 
 
 
 
 
1 Differs from carrying amount due to unamortized discounts and loan costs.
 
 
 
 
 
 
2 Includes 10 HUD mortgages; rate is a weighted average inclusive of a mortgage insurance premium
 
 
 
 
 
 
3 Total is weighted average rate
 
 
 
 
 
 

The unsecured bank term loans in the table above reflect the effect of $50,000,000, $80,000,000, $130,000,000, two $100,000,000 and $150,000,000 notional amount interest rate swaps with maturities of June 2020, and December 2021, that effectively convert variable rate debt to fixed rate debt. These loans bear interest at LIBOR plus a spread, currently a blended 131 basis points, based on our Leverage-Based Applicable Margin, as defined.

54

To highlight the sensitivity of our convertible senior notes and secured mortgage debt to changes in interest rates, the following summary shows the effects on fair value (“FV”) assuming a parallel shift of 50 basis points (“bps”) in market interest rates for a contract with similar maturities as of December 31, 2019 (dollars in thousands):
 
Balance
 
Fair Value1
 
FV reflecting change in interest rates
Fixed rate:
 
 
 
 
-50 bps
 
+50 bps
Private placement term loans - unsecured
$
400,000

 
$
401,769

 
$
410,607

 
$
393,157

Convertible senior notes
60,000

 
60,066

 
60,460

 
59,673

Fannie Mae loans
95,706

 
94,409

 
96,692

 
92,186

HUD mortgage loans
43,376

 
46,682

 
49,895

 
43,750

1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.

At December 31, 2019, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $347,543,000. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $16,828,000, while a 50 basis point decrease in such rates would increase their estimated fair value by approximately $5,130,000.

Equity Price Risk

The Company is no longer subject to equity risk since it no longer owns any marketable securities.


55

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm



Board of Directors and Stockholders
National Health Investors, Inc.
Murfreesboro, Tennessee

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of National Health Investors, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 19, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Asset Impairment - Real Estate Properties

As described in the Company's consolidated financial statements, the Company had total real estate properties, net of approximately $2.6 billion as of December 31, 2019. As described in Note 1 to the Company’s consolidated financial statements, management evaluates the recoverability of the carrying amounts of real estate properties on a property-by-property basis when events or circumstances indicate that the carrying amounts may not be fully recoverable. A real estate property is impaired when the estimated undiscounted future cash flows of the property are less than the net carrying amount.


56

We identified management’s identification and assessment of the indicators of potential impairment of real estate properties as a critical audit matter. Indicators of an impairment of real estate properties may include significant physical changes in the property, significant adverse changes in general economic conditions, or significant deteriorations of the underlying cash flows of the lessee operating the property. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of auditor effort required to address these matters, including the degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included:

•
Testing the design and operating effectiveness of controls related to management’s identification and assessment of indicators of an impairment of real estate properties, including significant physical changes in the property, significant adverse changes in general economic conditions, or significant deteriorations of the underlying cash flows of the lessee operating the property.
•
Assessing the reasonableness of management’s assumptions and inputs, including certain factors such as the evaluation of the condition of the properties, changes in general economic conditions, and deterioration of the underlying cash flows of the lessee operating the property, which are used by management to identify and assess whether an impairment indicator existed.
•
Testing the completeness and accuracy of underlying real estate property data including validating the number of properties and certain financial results to the general ledger.
•
Reviewing internal documentation including Board of Director minutes, letters of intent for properties held for sale, and operations department communications for real estate properties, including those with lower lease coverage ratios, to assess whether additional indicators of impairment were present.

Estimation of Overall Fair Value

As described in Note 2 to the Company's consolidated financial statements, the Company acquired a senior housing facility in Vero Beach, Florida from one of its major tenants in exchange for a $38.0 million reduction in an existing receivable of approximately $55.1 million due from the tenant. Changes in the assumptions used by management to estimate the overall fair value of the property acquired in exchange for a reduction in the receivable could have a material impact on the amount and timing of rental income and depreciation expense recorded subsequent to the acquisition date.

We identified management’s estimation of the overall fair value of the property received as a critical audit matter. Estimating the overall fair value of the property received required management to make significant judgments related to market capitalization rates and to identify appropriate guideline transactions, which involved complexity and judgment in applying relevant accounting guidance. Performing audit procedures to evaluate the reasonableness of these assumptions and estimates required a high degree of auditor judgment and increased extent of auditor effort, including the need to involve professionals with specialized skills.

The primary procedures we performed to address this critical audit matter included:

•
Utilizing professionals with specialized skills and knowledge to assist in: (i) evaluating the reasonableness of the methodology used by management to determine the overall fair value of the property received, and (ii) obtaining independent comparable sales transactions to test the market capitalization rates and to identify appropriate guideline transactions.


/s/ BDO USA, LLP

We have served as the Company's auditor since 2004.

Nashville, Tennessee
February 19, 2020


57

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

 
December 31,
Assets:
2019
 
2018
Real estate properties:
 
 
 
Land
$
213,617

 
$
202,196

Buildings and improvements
2,836,673

 
2,599,526

Construction in progress
24,556

 
16,643

 
3,074,846

 
2,818,365

Less accumulated depreciation
(514,453
)
 
(451,483
)
Real estate properties, net
2,560,393

 
2,366,882

Mortgage and other notes receivable, net
340,143

 
246,111

Cash and cash equivalents
5,215

 
4,659

Straight-line rent receivable
86,044

 
105,620

Other assets
32,020

 
27,298

Assets held for sale, net
18,420

 
—

Total Assets
$
3,042,235

 
$
2,750,570

 
 
 
 
Liabilities and Equity:
 
 
 
Debt
$
1,440,465

 
$
1,281,675

Accounts payable and accrued expenses
26,313

 
19,890

Dividends payable
46,817

 
42,700

Lease deposit liabilities
10,638

 
10,638

Deferred income
19,750

 
5,954

Total Liabilities
1,543,983

 
1,360,857

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
National Health Investors Stockholders' Equity:
 
 
 
Common stock, $.01 par value; 60,000,000 shares authorized;
 
 
 
44,587,486 and 42,700,411 shares issued and outstanding
446

 
427

Capital in excess of par value
1,505,948

 
1,369,919

Cumulative net income in excess (deficit) of dividends
(5,331
)
 
18,068

Accumulated other comprehensive (loss) income
(3,432
)
 
1,299

Total National Health Investors Stockholders' Equity
1,497,631

 
1,389,713

Noncontrolling interest
621

 
—

Total Equity
1,498,252

 
1,389,713

Total Liabilities and Equity
$
3,042,235

 
$
2,750,570


The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

58

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)

 
Years Ended December 31,
 
2019
 
2018
 
2017
 
 
 
 
 
 
Revenues:
 
 
 
 
 
Rental income
$
294,182

 
$
280,813

 
$
265,169

Interest income and other
23,899

 
13,799

 
13,490

 
318,081

 
294,612

 
278,659

Expenses:
 
 
 
 
 
Depreciation
76,816

 
71,349

 
67,173

Interest
56,299

 
49,055

 
46,324

Legal
507

 
309

 
494

Franchise, excise and other taxes
1,550

 
1,166

 
960

General and administrative
13,399

 
12,547

 
12,217

Property taxes and insurance on leased properties
5,798

 
—

 
—

Loan and realty losses
2,440

 
5,115

 
—

 
156,809

 
139,541

 
127,168

Income before investment and other gains and losses
161,272

 
155,071

 
151,491

Loss on convertible note retirement
(823
)
 
(738
)
 
(2,214
)
Investment and other gains
—

 
—

 
10,088

Net income
160,449

 
154,333

 
159,365

Less: net loss attributable to noncontrolling interest
7

 
—

 
—

Net income attributable to common stockholders
$
160,456

 
$
154,333

 
$
159,365

 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
Basic
43,417,828

 
41,943,873

 
40,894,219

Diluted
43,703,248

 
42,091,731

 
41,151,453

 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Net income per common share attributable to common stockholders - basic
$
3.70

 
$
3.68

 
$
3.90

Net income per common share attributable to common stockholders - diluted
$
3.67

 
$
3.67

 
$
3.87



The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

59

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
Years Ended December 31,
 
2019
 
2018
 
2017
 
 
 
 
 
 
Net income
$
160,449

 
$
154,333

 
$
159,365

Other comprehensive income (loss):
 
 
 
 
 
Change in unrealized (gains) on securities
—

 
—

 
(26
)
Less: reclassification adjustment for gains in net income
—

 
—

 
(10,038
)
(Decrease) increase in fair value of cash flow hedge
(3,940
)
 
1,722

 
884

Reclassification adjustment for amounts recognized in net income
(791
)
 
164

 
2,627

Total other comprehensive (loss) income
(4,731
)
 
1,886

 
(6,553
)
Comprehensive income
155,718

 
156,219

 
152,812

Less: comprehensive loss attributable to noncontrolling interest
7

 
—

 
—

Comprehensive income attributable to common stockholders
$
155,725

 
$
156,219

 
$
152,812



The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

60

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years Ended December 31,
 
2019
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
 
Net income
$
160,449

 
$
154,333

 
$
159,365

Adjustments to reconcile net income to net cash provided by
 
 
 
 
 
operating activities:
 
 
 
 
 
Depreciation
76,816

 
71,349

 
67,173

Amortization of debt issuance costs, debt discounts and prepaids
5,117

 
4,437

 
5,790

Amortization of commitment fees and note receivable discounts
(493
)
 
(662
)
 
(517
)
Amortization of lease incentives
845

 
387

 
119

Straight-line lease revenue
(22,084
)
 
(22,787
)
 
(26,090
)
Non-cash interest income on construction loan
(2,204
)
 
(1,680
)
 
(792
)
Gain on sales of real estate
—

 
—

 
(50
)
Loss on convertible note retirement
823

 
738

 
2,214

Loan and realty losses
2,440

 
5,115

 
—

Payment of lease incentives
(3,100
)
 
(5,280
)
 
—

Gains on sales of marketable securities, net
—

 
—

 
(10,038
)
Non-cash share-based compensation
3,646

 
2,490

 
2,612

Change in operating assets and liabilities:
 
 
 
 
 
Other assets
1,604

 
(5,298
)
 
(3,602
)
Accounts payable and accrued expenses
300

 
4,587

 
1,607

Deferred income
16,796

 
140

 
304

Net cash provided by operating activities
240,955

 
207,869

 
198,095

Cash flows from investing activities:
 
 
 
 
 
Investment in mortgage and other notes receivable
(108,232
)
 
(106,991
)
 
(49,853
)
Collection of mortgage and other notes receivable
2,897

 
4,346

 
43,168

Investment in real estate
(219,187
)
 
(131,758
)
 
(157,214
)
Investment in real estate development
—

 
—

 
(10,691
)
Investment in renovations of existing real estate
(17,999
)
 
(15,887
)
 
(7,888
)
Proceeds from disposition of real estate properties
—

 
—

 
450

Proceeds from sales of marketable securities
—

 
—

 
18,182

Net cash used in investing activities
(342,521
)
 
(250,290
)
 
(163,846
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from revolving credit facility
397,000

 
306,000

 
269,000

Payments on revolving credit facility
(181,000
)
 
(443,000
)
 
(206,000
)
Proceeds from borrowings on term loans
—

 
300,000

 
250,000

Payments on term loans
(1,187
)
 
(1,144
)
 
(250,822
)
Deferred loan costs
(126
)
 
(2,171
)
 
(4,935
)
Distributions to noncontrolling interest
(15
)
 
—

 
—

Proceeds from noncontrolling interest
643

 
—

 
—

Taxes remitted in relation to employee stock options exercised
(1,559
)
 
(1,835
)
 
(571
)
Proceeds from equity offering, net
95,774

 
81,784

 
122,237

Convertible bond redemption
(22,468
)
 
(29,985
)
 
(60,921
)
Dividends paid to stockholders
(179,739
)
 
(165,391
)
 
(153,040
)
Net cash provided by (used in) financing activities
107,323

 
44,258

 
(35,052
)
 
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
5,757

 
1,837

 
(803
)
Cash and cash equivalents and restricted cash, beginning of period
9,912

 
8,075

 
8,878

Cash and cash equivalents and restricted cash, end of period
$
15,669

 
$
9,912

 
$
8,075


The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

61

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)

 
Years Ended December 31,
 
2019
 
2018
 
2017
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Interest paid, net of amounts capitalized
$
54,027

 
$
45,882

 
$
43,191

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
 
Real estate acquired in exchange for straight-line rent receivable
$
38,000

 
$
—

 
$
—

Real estate acquired in exchange for mortgage notes receivable
$
14,000

 
$
—

 
$
—

Change in other assets related to investments in real estate
$
291

 
$
—

 
$
—

Change in accounts payable related to investments in real estate construction
$
(1,082
)
 
$
—

 
$
—

Change in accounts payable related to investments in real estate acquisition
$
2,911

 
$
1,689

 
$
(1,855
)
Tenant investment in leased asset
$
—

 
$
3,775

 
$
1,250

Tenant forfeiture of lease escrow deposit
$
—

 
$
10,637

 
$
—

Settlement of contingent asset acquisition liability
$
—

 
$
750

 
$
—

Assumption of debt in real estate acquisition
$
—

 
$
—

 
$
18,311


The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

62

NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands except share and per share amounts)

 
Common Stock
 
Capital in Excess of Par Value
 
Cumulative Net Income in Excess (Deficit) of Dividends
 
Accumulated Other Comprehensive Income (Loss)
 
Total National Health Investors Stockholders’ Equity
 
Noncontrolling Interest
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
 
Balances at December 31, 2016
39,847,860

 
$
398

 
$
1,173,588

 
$
29,873

 
$
5,731

 
$
1,209,590

 
$
—

 
$
1,209,590

Total comprehensive income
—

 
—

 
—

 
159,365

 
(6,553
)
 
152,812

 
—

 
152,812

Equity component in redemption of convertible notes
—

 
—

 
(7,930
)
 
—

 
—

 
(7,930
)
 
—

 
(7,930
)
Issuance of common stock, net
1,661,161

 
17

 
122,220

 
—

 
—

 
122,237

 
—

 
122,237

Taxes paid on employee stock awards
—

 
—

 
(571
)
 
—

 
—

 
(571
)
 
—

 
(571
)
Shares issued on stock options exercised
23,133

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
2,612

 
—

 
—

 
2,612

 
—

 
2,612

Dividends declared, $3.80 per common share
—

 
—

 
—

 
(156,633
)
 
—

 
(156,633
)
 
—

 
(156,633
)
Balances at December 31, 2017
41,532,154

 
415

 
1,289,919

 
32,605

 
(822
)
 
1,322,117

 
—

 
1,322,117

Cumulative effect of change in accounting principle
—

 
—

 
—

 
(235
)
 
235

 
—

 
—

 
—

Total comprehensive income
—

 
—

 
—

 
154,333

 
1,886

 
156,219

 
—

 
156,219

Equity component in redemption of convertible notes
—

 
—

 
(2,427
)
 
—

 
—

 
(2,427
)
 
—

 
(2,427
)
Issuance of common stock, net
1,112,363

 
12

 
81,772

 
—

 
—

 
81,784

 
—

 
81,784

Taxes paid on employee stock awards
—

 
—

 
(1,835
)
 
—

 
—

 
(1,835
)
 
—

 
(1,835
)
Shares issued on stock options exercised
55,894

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
2,490

 
—

 
—

 
2,490

 
—

 
2,490

Dividends declared, $4.00 per common share
—

 
—

 
—

 
(168,635
)
 
—

 
(168,635
)
 
—

 
(168,635
)
Balances at December 31, 2018
42,700,411

 
427

 
1,369,919

 
18,068

 
1,299

 
1,389,713

 
—

 
1,389,713

Noncontrolling interest capital contribution
—

 
—

 
—

 
—

 
—

 
—

 
643

 
643

Noncontrolling interest distribution
—

 
—

 
—

 
—

 
—

 
—

 
(15
)
 
(15
)
Total comprehensive income
—

 
—

 
—

 
160,456

 
(4,731
)
 
155,725

 
(7
)
 
155,718

Issuance of common stock, net
1,209,522

 
12

 
95,762

 
—

 
—

 
95,774

 
—

 
95,774

Shares issued in convertible debt redemption
626,397

 
6

 
38,180

 
—

 
—

 
38,186

 
—

 
38,186

Taxes paid on employee stock awards
—

 
—

 
(1,559
)
 
—

 
—

 
(1,559
)
 
—

 
(1,559
)
Shares issued on stock options exercised
51,156

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Share-based compensation
—

 
—

 
3,646

 
—

 
—

 
3,646

 
—

 
3,646

Dividends declared, $4.20 per common share
—

 
—

 
—

 
(183,855
)
 
—

 
(183,855
)
 
—

 
(183,855
)
Balances at December 31, 2019
44,587,486

 
$
446

 
$
1,505,948

 
$
(5,331
)
 
$
(3,432
)
 
$
1,497,631

 
$
621

 
$
1,498,252


The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

63

NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

The Company - National Health Investors, Inc. (“NHI”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. Our portfolio consists of lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. Other investments include joint ventures structured to comply with the provisions of the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”) through which we invest in facility operations managed by independent third-parties. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities. Units, beds and square footage disclosures in these consolidated financial statements are unaudited.

Principles of Consolidation - The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, joint ventures, partnerships and consolidated variable interest entities (“VIE”), if any. All intercompany transactions and balances have been eliminated in consolidation. Net income is adjusted by the portion of net income (loss) attributable to noncontrolling interests.

A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

We apply Financial Accounting Standards Board (“FASB”) guidance for our arrangements with VIEs which requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of the VIE. In accordance with FASB guidance, management must evaluate each of the Company’s contractual relationships which creates a variable interest in other entities. If the Company has a variable interest and the entity is a VIE, then management must determine whether the Company is the primary beneficiary of the VIE. If it is determined that the Company is the primary beneficiary, NHI would consolidate the VIE. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We perform this analysis on an ongoing basis.

If the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of Accounting Standards Codification (“ASC”) Topic 810 Consolidation. These provisions provide for consolidation of majority-owned entities where a majority voting interest held by the Company demonstrates control of such entities in the absence of any legal constraints.

At December 31, 2019, we held interests in seven unconsolidated VIEs, and, because we generally lack either directly or through related parties any material input or control in the activities that most significantly impact their economic performance, we have concluded that NHI is not the primary beneficiary. Our VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of our exposure to these VIEs, see the notes to our consolidated financial statements cross-referenced below.


64

Date
Name
Source of Exposure
Carrying Amount
Maximum Exposure to Loss
Note Reference
2012
Bickford Senior Living
Various1
$
63,939,000

$
69,523,000

Notes 2, 3
2014
Senior Living Communities
Notes and straight-line receivable
$
85,440,000

$
95,267,000

Notes 2, 3
2015
Timber Ridge, LCS affiliate
Notes receivable
$
59,166,000

$
59,816,000

Note 3
2016
Senior Living Management
Notes and straight-line receivable
$
26,825,000

$
26,825,000

—
2017
Evolve Senior Living
Note receivable
$
9,948,000

$
9,948,000

—
2018
Sagewood, LCS affiliate
Notes receivable
$
121,809,000

$
178,531,000

Note 3
2019
41 Management, LLC
Notes receivable
$
10,469,000

$
15,355,000

Note 3

1 Notes, straight-line rent receivables & unamortized lease incentives

We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we identify as VIEs, and accordingly, our maximum exposure to loss as a result of these relationships is limited to the amount of our commitments, as shown above and discussed in the notes. When the above relationships involve leases, some additional exposure to economic loss is present. Generally, additional economic loss on a lease, if any, would be limited to that resulting from a short period of arrearage and non-payment of monthly rent before we are able to take effective remedial action, as well as costs incurred in transitioning the lease to a new tenant. The potential extent of such loss will be dependent upon individual facts and circumstances, cannot be quantified, and is therefore not included in the tabulation above. Typically, the only carrying amounts involving our leases are accumulated straight-line receivables and unamortized lease incentives.

We structure our operating company joint venture to be compliant with the provisions of RIDEA which permits NHI to receive rent payments through a triple-net lease between a property company and an operating company and allows NHI to receive distributions from the operating company to a taxable REIT subsidiary (“TRS”). Our TRS holds NHI’s equity interests in unconsolidated operating companies thus providing an organizational structure that allows the TRS to engage in a broad range of activities and share in revenues that are otherwise non-qualifying income under the REIT gross income tests.

Noncontrolling Interest - As of December 31, 2019, and for the year then ended, our non-controlling interest relates to our property company joint venture with Discovery Senior Living. During the years ended December 31, 2018 and December 31, 2017, there were no noncontrolling interests.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings Per Share - The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options using the treasury stock method, to the extent dilutive. Diluted earnings per share also incorporate the potential dilutive impact of our 3.25% convertible senior notes due 2021. We apply the treasury stock method to our convertible debt instruments, the effect of which is that conversion will not be assumed for purposes of computing diluted earnings per share unless the average share price of our common stock for the period exceeds the conversion price per share.

Fair Value Measurements - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy is required to prioritize the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


65

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

If the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When an event or circumstance alters our assessment of the observability and thus the appropriate classification of an input to a fair value measurement which we deem to be significant to the fair value measurement as a whole, we will transfer that fair value measurement to the appropriate level within the fair value hierarchy.

Real Estate Properties - Real estate properties are recorded at cost or, if acquired through business combination, at fair value, including the fair value of contingent consideration, if any. Cost or fair value at the time of acquisition is allocated among land, buildings, improvements, personal property and lease and other intangibles. For properties acquired in transactions accounted for as asset purchases, the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. Cost also includes capitalized interest during construction periods. We use the straight-line method of depreciation for buildings over their estimated useful lives of 40 years, and improvements over their estimated useful lives ranging to 25 years. For contingent consideration arising from business combinations, the liability is adjusted to estimated fair value at each reporting date through earnings. For contingent consideration arising from asset acquisitions, the liability is adjusted to the amount considered probable each reporting period, with changes reflected as an adjustment to the basis of the related assets.

We evaluate the recoverability of the carrying amount of our real estate properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying amount of that property. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property.

Leases - Leases entered into during 2019 are accounted for under the guidance of ASC Topic 842, Leases. Our leases generally have an initial leasehold term of 10 to 15 years followed by one or more 5-year tenant renewal options. The leases are “triple net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimal personal injury and property damage insurance. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release, discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to each facility. These provisions, along with a growing senior demographic and the historical propensity for real estate to hold its value, collectively constitute much of the means by which the risk associated with the residual value of our properties is mitigated. While we do not incorporate residual value guarantees, the above lease provisions and considerations inform our expectation of realizable value from our properties upon the expiration of their lease terms. The residual value of our real estate under lease is still subject to various market, asset, and tenant-specific risks and characteristics. As the classification of our leases is dependent on the fair value of estimated cash flows at lease commencement, management’s projected residual values represent significant assumptions in our accounting for operating leases. Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows.

Mortgage and Other Notes Receivable - Each quarter, we evaluate the carrying amount of our notes receivable on an instrument-by-instrument basis for recoverability when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If a note receivable becomes more than 30 days delinquent as to contractual principal or interest payments, the loan is classified as non-performing, and thereafter we recognize all amounts due when received. If necessary, an impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.


66

Cash and Cash Equivalents and Restricted Cash - Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit in accordance with agency agreements governing our Fannie Mae and HUD mortgages.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s Consolidated Balance Sheets with the same amounts shown on the Company’s Consolidated Statements of Cash Flows (in thousands):
 
As of December 31,
 
2019
 
2018
Cash and cash equivalents
$
5,215

 
$
4,659

Restricted cash
10,454

 
5,253

 
$
15,669

 
$
9,912



Concentration of Credit Risks - Our credit risks primarily relate to cash and cash equivalents and investments in mortgage and other notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. We maintain our bank deposit accounts with large financial institutions in amounts that often exceed federally-insured limits. We have not experienced any losses in such accounts. Our mortgages and other notes receivable consist primarily of secured loans on facilities.

Our financial instruments, principally our investments in notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations which may make the instruments less valuable. We obtain collateral in the form of mortgage liens and other protective rights for notes receivable and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide for reserves for potential losses on our financial instruments based on management’s periodic review of our portfolio on an instrument-by-instrument basis.

Deferred Loan Costs - Costs incurred to acquire debt are capitalized and amortized by the straight-line method, which approximates the effective-interest method, over the term of the related debt.

Deferred Income - Deferred income primarily includes non-refundable commitment fees received by us, which are amortized into income over the expected period of the related loan or lease. In the event that our financing commitment to a potential borrower or lessee expires, the related commitment fees are recognized into income immediately. Commitment fees may be charged based on the terms of the lease agreements and the creditworthiness of the parties.

Rental Income - Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectible. Under certain leases, we receive additional contingent rent, which is calculated on the increase in revenues of the lessee over a base year or base quarter. We recognize contingent rent annually or quarterly based on the actual revenues of the lessee once the target threshold has been achieved. Lease payments that depend on a factor directly related to future use of the property, such as an increase in annual revenues over a base year, are considered to be contingent rentals and are excluded from the schedule of minimum lease payments.

If rental income calculated on a straight-line basis exceeds the cash rent due under a lease, the difference is recorded as an increase to straight-line rent receivable in the Consolidated Balance Sheets and an increase in rental income in the Consolidated Statements of Income. If rental income on a straight-line basis is calculated to be less than cash received, there is a decrease in the same accounts.

Rental income is reduced for the non-cash amortization of payments made upon the eventual settlement of commitments and contingencies originally identified and recorded as lease inducements. We record lease inducements to the extent that it is probable that a significant reversal of amounts recognized will not occur when the uncertainty associated with the contingent consideration is subsequently resolved.

We identify a lease as non-performing if a required payment is not received within 30 days of the date it is due. Rental income on non-performing leased real estate properties is recognized in the period when the related cash is received.

Interest Income from Mortgage and Other Notes Receivable - Interest income is recognized based on the interest rates and principal amounts outstanding on the notes receivable. We identify a mortgage loan as non-performing if a required payment is not received within 30 days of the date it is due. Our policy related to mortgage interest income on non-performing mortgage loans is to recognize mortgage interest income in the period when the cash is received. As of December 31, 2019, we had not identified any of our mortgages as non-performing.

67

Derivatives - In the normal course of business, we are subject to risk from adverse fluctuations in interest rates. We have chosen to manage this risk through the use of derivative financial instruments, primarily interest rate swaps. Counterparties to these contracts are major financial institutions. We are exposed to credit loss in the event of nonperformance by these counterparties. We do not use derivative instruments for trading or speculative purposes. Our objective in managing exposure to market risk is to limit the impact on cash flows relating to the change in market interest rates on our variable rate debt.

To qualify for hedge accounting, our interest rate swaps must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with our related assertions. All of our hedges are cash flow hedges.

We recognize all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities at their fair value in the Consolidated Balance Sheets. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the criteria of hedge accounting are recognized in earnings. For derivatives designated in qualifying cash flow hedging relationships, the change in fair value of the effective portion of the derivatives is recognized in accumulated other comprehensive income (loss), whereas the change in fair value of the ineffective portion is recognized in earnings. Gains and losses are reclassified from accumulated other comprehensive income (loss) into earnings once the underlying hedged transaction is recognized in earnings.

Federal Income Taxes - We intend at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Aside from such income taxes which may be applicable to the taxable income in the TRS, we will not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders at least equal to or in excess of 90% our taxable income. Accordingly, no provision for federal income taxes has been made in the consolidated financial statements. A failure to qualify under the applicable REIT qualification rules and regulations would have a material adverse impact on our financial position, results of operations and cash flows.

Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in the basis of assets, estimated useful lives used to compute depreciation expense, gains on sales of real estate, non-cash compensation expense and recognition of commitment fees.

Our tax returns filed for years beginning in 2016 are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our Consolidated Statements of Income as a component of income tax expense.

Segment Disclosures - We are in the business of owning and financing health care properties. We are managed as one segment, rather than multiple segments, for internal purposes and for internal decision making.

New Accounting Pronouncements - For a review of recent accounting pronouncements pertinent to our operations and management’s judgment as to the impact that the eventual adoption of these pronouncements will have on our financial position and results of operation, see Note 14.

NOTE 2. REAL ESTATE

As of December 31, 2019, we owned 223 health care real estate properties located in 34 states and consisting of 146 senior housing communities, 72 skilled nursing facilities, 3 hospitals and 2 medical office buildings. Our senior housing properties include assisted living facilities, senior living campuses, independent living facilities, and entrance-fee communities. These investments (excluding our corporate office of $2,519,000) consisted of properties with an original cost of approximately $3,072,327,000, rented under triple-net leases to 32 lessees.

Acquisitions and New Leases of Real Estate

During the year ended December 31, 2019, we announced the following real estate investments and commitments as described below (dollars in thousands):

68

Operator
 
Date
 
Properties
 
Asset Class
 
Amount
Wingate Healthcare
 
January 2019
 
1
 
SHO
 
$
52,200

Holiday Retirement
 
January 2019
 
1
 
SHO
 
38,000

Comfort Care Senior Living
 
April 2019
 
1
 
SHO
 
10,800

Comfort Care Senior Living
 
May 2019
 
1
 
SHO
 
13,500

Discovery Senior Living
 
May 2019
 
6
 
SHO
 
127,917

Cappella Living Solutions
 
July 2019
 
1
 
SHO
 
7,600

Bickford Senior Living
 
September 2019
 
1
 
SHO
 
15,100

41 Management
 
December 2019
 
1
 
SHO
 
9,340

 
 
 
 
 
 
 
 
$
274,457



Wingate

On January 15, 2019, we acquired a 267-unit senior living campus in Massachusetts for a purchase price of $50,300,000, including closing costs of $300,000. The facility is being leased to Wingate Healthcare, Inc. (“Wingate”) for a term of ten years, with three renewal options of five years each, at an initial lease rate of 7.5% plus annual fixed escalators. We have committed to the additional funding of up to $1,900,000 in capital improvements, and the lease provides for incentive payments up to $5,000,000 to become available beginning in 2020 upon the attainment of certain operating metrics. NHI has a right of first offer on two additional Wingate-operated facilities. We accounted for the transaction as an asset purchase.

Comfort Care

On April 30, 2019, we acquired a newly-constructed 60-unit assisted living facility in Shelby, Michigan which has 14 memory care units currently undergoing stabilization. The total commitment of $10,800,000 includes $9,560,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. On May 20, 2019, we acquired a property in Brighton, Michigan, consisting of 73 assisted living/memory care units. The purchase price for the Brighton acquisition was $13,500,000, inclusive of closing costs. We leased the properties to Comfort Care Senior Living (“Comfort Care”), under leases which provide for initial lease rate of 7.75%, with annual fixed escalators beginning in year three over the term of ten years plus two renewal options of five years each. The leases each include a $3,000,000 earnout incentive which will be added to the respective lease base if funded. We accounted for the acquisitions as asset purchases.

Discovery

On May 31, 2019, we contributed $25,028,000 in cash for a 97.5% equity interest in a consolidated subsidiary ("Discovery PropCo"), which simultaneously acquired from a third party six senior housing facilities comprising 145 independent-living units, 356 assisted-living units and 95 memory-care units, for a total of 596 units. Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) contributed $631,000 for its non-controlling 2.5% equity interest. We invested an additional $102,258,000 as a preferred equity contribution, for a total NHI investment of $127,286,000. The additional equity contribution of $102,258,000 carries a preference in liquidation as well as in the distribution of operating cash flow. Total cash of $127,917,000 invested in Discovery PropCo included approximately $1,067,000 in closing costs.

The facilities were leased by Discovery PropCo to an affiliate of Discovery for a term of ten years with two renewal periods of five years at an initial lease rate of 6.5% with fixed annual escalators through the fifth year of the initial lease term followed by CPI-based escalators, subject to floor and ceiling, thereafter.

Discovery is eligible, beginning in 2023, for up to $4,000,000 of lease inducement payments upon meeting specified performance metrics. Inducement payments funded under the agreement will be added to the lease base. Additionally, PropCo has committed to Discovery for funding up to $2,000,000 toward the purchase of condominium units located at one of the facilities, $497,000 of which has been funded as a result of transactions in November 2019. The total purchase price for the properties acquired, as discussed above, was allocated to the tangible assets based upon their relative fair values consisting of $6,301,000 to the land and $121,616,000 to the buildings and improvements. We accounted for the transaction as an asset purchase.

As the managing member, NHI directs the activities of Discovery PropCo that most significantly impact economic performance, subject to limited protective rights of Discovery for significant business decisions. We consider Discovery PropCo a VIE, based on our determination that the total equity at risk is insufficient to finance activities without additional subordinated financial support. Because of our control of Discovery PropCo, we consolidate its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements.


69

Cappella Living Solutions

On July 23, 2019, we acquired a 51-unit assisted living facility in Pueblo, Colorado for $7,600,000 including $100,000 of closing costs. We leased the facility to Christian Living Services, Inc., d/b/a Cappella Living Solutions, for a term of 15 years at an initial lease rate of 7.25%, with CPI escalators subject to floor and ceiling. We accounted for this transaction as an asset purchase.

41 Management

We transitioned four Minnesota properties on October 1, 2019, from Bickford Senior Living to 41 Management. The transitioned properties are under a master lease which calls for total first-year rent of $906,000 and includes our commitment to make available up to $400,000 in targeted improvements. The lease term of 15 years has 2 renewal options of five years each and an initial rate of 7%. Under the master lease, escalators are fixed at 2.5%, and the lease is secured by corporate and personal guarantees. On December 27, 2019, for a cash purchase price of $9,340,000, including closing costs of $140,000, we acquired a 48 unit assisted living and memory care facility in the St. Paul, Minnesota area. The St. Paul facility was added to the existing master lease described above. We accounted for the St. Paul transaction as an asset purchase.

Major Tenants

Holiday

In November 2018, we entered into a lease amendment and guaranty release (“the Agreement”) with an affiliate of Holiday Retirement (“Holiday”). Among other provisions, the Agreement decreased base rent beginning in 2019 from $39,000,000 to $31,500,000, extended the term of the original lease through 2035, improved the credit position of the tenant and increased required minimum capital expenditure per unit. As consideration for amending provisions included in the original 2013 lease, Holiday agreed to pay NHI $55,125,000 in cash or real estate and forfeit $10,637,000 of their original $21,275,000 security deposit.

On January 31, 2019, we acquired a senior housing facility in Vero Beach, Florida from Holiday consisting of 157 independent living and 71 assisted living units in exchange for $38,000,000 toward the $55,125,000 receivable arising from the lease amendment, discussed above. The property was added to the master lease at a 6.71% lease rate. Under the restructured master lease, annual lease escalators ranging from 2% to 3%, based on portfolio revenue growth, will go into effect on November 1, 2020. Holiday settled the remaining commitment to NHI with cash of $17,125,000 at closing. Receipt of the Vero Beach property and collection of the remaining commitment in cash was recognized as adjustments to the outstanding Holiday lease receivable and resulted in the change of our straight-line receivable from Holiday at the beginning of the year into a straight-line payable, which is included in the accompanying Consolidated Balance Sheet at December 31, 2019 as “deferred income.”

As of December 31, 2019, we leased 26 independent living facilities to Holiday, including the Vero Beach property mentioned above. The master lease, which matures in 2035, provides for annual lease escalators beginning November 1, 2020. Of our total revenues, $40,459,000 (13%), $43,311,000 (15%) and $43,817,000 (16%) were derived from Holiday for the years ended December 31, 2019, 2018 and 2017, respectively, including $6,621,000, $5,616,000 and $7,397,000 in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Senior Living Communities

As of December 31, 2019, we leased 10 retirement communities totaling 2,068 units to Senior Living Communities, LLC (“Senior Living”). The 15-year master lease, which began in December 2014, contains two renewal options of five years each and provides for an annual escalator of 3% effective January 1, 2019.

Of our total revenues, $46,927,000 (15%), $45,868,000 (16%) and $45,735,000 (16%) in rental income were derived from Senior Living for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,934,000, $5,436,000 and $6,984,000 in straight-line rent.


NHC

We lease 42 facilities under two master leases to National HealthCare Corporation (“NHC”), a publicly-held company. The facilities leased to NHC consist of three independent living facilities and 39 skilled nursing facilities (4 of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms

70

of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”) which includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”) which includes 7 skilled nursing facilities acquired in 2013.

The 1991 lease expiration is December 31, 2026. There are two additional renewal options of five years, each at fair rental value as negotiated between the parties. Under the terms of the 1991 lease, the base annual rental is $30,750,000 and rent escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. The 2013 lease provides for a base annual rental of $3,450,000 and has a lease expiration of August 2028. Under the terms of the 2013 lease, rent escalates 4% of the increase, if any, in each facility’s revenue over the 2014 base year. For both the 1991 lease and the 2013 lease, we refer to this additional rent component as “percentage rent.” During the last three years of the 2013 lease, NHC will have the option to purchase the facilities for $49,000,000.

The following table summarizes the percentage rent income from NHC (in thousands):
 
Year Ended December 31,
 
2019
 
2018
 
2017
Current year
$
3,650

 
$
3,411

 
$
3,127

Prior year final certification1
334

 
285

 
194

Total percentage rent income
$
3,984

 
$
3,696

 
$
3,321

1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

Of our total revenues, $38,131,000 (12%), $37,843,000 (13%) and $37,467,000 (13%) in rental income were derived from NHC for the years ended December 31, 2019, 2018 and 2017, respectively.

The chairman of our board of directors is also a director on NHC’s board of directors. As of December 31, 2019, NHC owned 1,630,642 shares of our common stock.

Bickford

As of December 31, 2019, our Bickford Senior Living (“Bickford”) lease portfolio consists of the following (dollars in thousands):
 
Lease Expiration
 
 
June 2023
September 2024
May 2031
April 2033
Total
Number of Properties
13

10

19

5

47

2019 Contractual Rent
$
11,468

$
9,442

$
21,838

$
4,918

$
47,666

2019 Straight Line Rent
358

467

2,903

860

4,588

2019 Lease Incentive Amortization
—

—

(724
)
—

(724
)
 
$
11,826

$
9,909

$
24,017

$
5,778

$
51,530



On September 10, 2019, NHI amended a master lease, which matures in May 2031 and covers 14 Bickford properties, to change the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%. A four-building portfolio in Minnesota that had been held by Bickford through September 30, 2019, transitioned to 41 Management, LLC, on October 1, 2019. Also, as of October 1, 2019, a master lease covering nine buildings subject to HUD mortgages was modified to reflect a decrease in monthly rent and provide for CPI-based escalators.

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,035,000, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

Of our total revenues, $52,570,000 (17%), $50,093,000 (17%) and $41,606,000 (15%) were recognized as rental income from Bickford for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,651,000, $5,028,000 and $5,102,000 in straight-line rent income, respectively.





71

Other Portfolio Activity

Tenant Transitioning

We have completed the contractual transition of three lease portfolios to new tenants following a period of non-compliance by the former operators. The portfolios consist of three former SH-Regency Leasing, LLC (“Regency”) buildings, five former LaSalle Group buildings and one facility formerly leased to Landmark Senior Living (“Landmark”). To expedite stabilization of the facilities, we committed to specified income-generating capital expenditures for the re-branding and refurbishment of certain of these properties. The new leases each specify initial periods during which rental income to NHI shall be based on net operating income (“NOI”), after deduction of management fees. Following the initial periods, each lease converts to a structured payment based on a fair-value calculation.

The former Regency buildings have been leased to 3 operators, Senior Living Communities, Discovery, and Vitality MC TN, LLC (“Vitality”). Of our total revenues, $1,277,000 (0.4%), $5,103,000 (1.7%) and $5,466,000 (2.0%) in rental income were derived from the three former Regency buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective July 1, 2019 we transitioned an Indiana independent living/assisted living facility to Discovery in conjunction with our other properties in transition. The triple-net lease matures in June 2024 with two five-year options to extend. Rent is initially based on net operating income. Beginning in 2022, rent is to reset to the greater of $1,400,000 or a market rate as provided by formula. For the duration of the lease, the rent, as reset, is subject to a 2.5% escalator. Concurrent with Discovery’s entrance into the lease, NHI provided a working capital loan for amounts up to $750,000 at an interest rate of 6.5% and a $900,000 capital improvement commitment to fund improvements to the facility. The loan extends during the term of the lease.

On April 16, 2019, Chancellor Health Care leased the five former LaSalle Group buildings. Our lease agreement with Chancellor provides for NHI to receive 100% of net operating cash flow generated by the facilities, after management fees, pending stabilization of the operations of the facility. During the first quarter of 2019, we also commenced litigation for the recovery of certain funds owed by LaSalle Group under the lease and against the principal executive personally under the guaranty agreement. Of our total revenues, $1,162,000 (0.4%), $4,455,000 (1.5%) and $4,184,000 (1.5%) in rental income were derived from the five former LaSalle Group buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

In February 2019, we transitioned a non-performing single-property lease in Wisconsin with Landmark to BAKA Enterprises, temporarily acting under a management agreement with Landmark. Under the terms of a short-term agreement, NHI received 95% of net operating cash flow, after management fees, as generated by the facilities. We have entered into a new lease with an initial term of 8 years and a fixed payment schedule through October 2022. In November 2022, the lease indicates a reset of rent to fair market rental value as agreed with the tenant. Of our total revenues, $1,204,000 (0.4%), $1,085,000 (0.4%) and $1,957,000 (0.7%) were derived from the former Landmark property for the years ended December 31, 2019, 2018 and 2017 respectively, including $625,000 received during 2019 as a settlement payment.

As we seek to stabilize the operations of these facilities, if our resulting tenants or operating partners do not have adequate liquidity to accept the risks and rewards of a tenant-lessee, NHI might be deemed the primary beneficiary of the operations and might be required to consolidate those statements of financial position and results of operations of the managers or operating partners into our consolidated financial statements.

Assets Held For Sale

In September 2019, we classified a portfolio of eight assisted living properties located in Arizona (4), Tennessee (3) and South Carolina (1) as held for sale, after the current tenant expressed an intention to exercise its purchase option on the properties. Of our total revenues, $4,250,000 (1.3%), $4,250,000 (1.4%) and $4,250,000 (1.5%) in rental income were derived from this eight property portfolio for the years ended December 31, 2019, 2018 and 2017 respectively. The purchase option called for the parties to split any appreciation on a 50/50 basis above $37,520,000. During the first quarter of 2020, NHI and the tenant agreed to a fair valuation of $41,000,000 for the properties, and, accordingly, on January 22, 2020, we disposed of the properties at the agreed price of $39,260,000. With the expectation of deferring gain recognition from this disposition, we have engaged a qualified intermediary to effect a like-kind exchange under §1031 of the Internal Revenue Code.

We have identified two assisted living properties for disposal and began active marketing of the properties. The buildings are smaller than are typical of our portfolio. In January 2019 we ceased recording depreciation on the properties, and we booked an adjustment to lease revenues to write off the associated $124,000 in straight-line receivables. We recognized an impairment loss of $2,500,000 in 2019 to write down the properties to their estimated net realizable value.


72

Tenant Purchase Options

Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. For options open or coming open in the near future, we are engaged in preliminary negotiations to continue as lessor or in some other capacity.

A summary of these tenant options, excluding properties classified as held for sale, is presented below (dollars in thousands):
Asset
Number of
Lease
1st Option
Option
Contractual
Type
Properties
Expiration
Open Year
Basis
Rent
MOB
1
February 2025
Open
i
$
306

HOSP
1
March 2025
2020
iv
$
1,957

HOSP
1
September 2027
2021
ii
$
2,760

SHO
2
May 2031
2021
iv
$
5,063

HOSP
1
June 2022
2022
i
$
3,502

SNF
7
August 2028
2025
iii
$
3,671

SNF
1
September 2028
2028
iii
$
472


Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) greater of fixed base price or fair market value; ii) a fixed base price plus a specified share in any appreciation; iii) fixed base price; or iv) a fixed capitalization rate on lease revenue.

Future Minimum Lease Payments

With the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases, as discussed in Note 14, our minimum lease payments are now determined under guidance different from that required as of December 31, 2018, when we were subject to ASC Topic 840 Leases. Presented in the following table are future minimum lease payments, as of December 31, 2019, to be received by us under our operating leases, as determined under ASC 842 (in thousands):
Twelve months ended December 31, 2019
 
2020
$
266,320

2021
267,871

2022
271,528

2023
265,584

2024
257,726

Thereafter
1,569,556

 
$
2,898,585



We assess the collectibility of our lease receivables, consisting primarily of straight-line rents receivable, based on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all of the receivable, we de-recognize all rent receivable assets, including the straight-line rent receivable asset and record as a reduction in rental revenue.

Variable Lease Payments

Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease where the lease contains fixed escalators. Some of our leases contain escalators that are determined annually based on a variable index or other factor that is indeterminable at the inception of the lease. The table below indicates the amount of lease revenue recognized as a result of fixed and variable lease escalators (in thousands):

73

 
Year Ended December 31,
 
2019
 
2018
 
2017
Lease payments based on fixed escalators
$
260,488

 
$
253,528

 
$
235,343

Lease payments based on variable escalators
4,967

 
4,111

 
3,617

Straight-line rent income
22,084

 
22,787

 
26,090

Escrow funds received from tenants
5,798

 
—

 
—

Amortization of lease incentives
845

 
387

 
119

Rental income
$
294,182

 
$
280,813

 
$
265,169



NOTE 3. MORTGAGE AND OTHER NOTES RECEIVABLE

At December 31, 2019, we had investments in mortgage notes receivable with a carrying value of $294,120,000 secured by real estate and UCC liens on the personal property of 15 facilities and other notes receivable with a carrying value of $46,023,000 guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At December 31, 2018, we had investments in mortgage notes receivable with a carrying value of $202,877,000 and other notes receivable with a carrying value of $43,234,000. No allowance for credit losses was considered necessary at December 31, 2019 or 2018.

During the year ended December 31, 2019, we announced the following note receivable investments and commitments as described below (dollars in thousands):
Operator
 
Date
 
Properties
 
Asset Class
 
Amount
Note Investments
 
 
 
 
 
 
 
 
Senior Living Communities
 
June 2019
 
1
 
SHO
 
32,700

41 Management
 
June 2019
 
1
 
SHO
 
10,800

Discovery Senior Living
 
July 2019
 
1
 
SHO
 
750

Discovery Senior Living
 
August 2019
 
1
 
SHO
 
6,423

41 Management
 
December 2019
 
1
 
SHO
 
3,870

 
 
 
 
 
 
 
 
$
54,543



Discovery

On August 30, 2019, NHI extended a senior mortgage loan of $6,423,000 at 7% annual interest to affiliates of Discovery to acquire a senior housing facility in Indiana for which Discovery PropCo, will have the option to purchase at stabilization. The facility consists of 52 assisted living units and 22 memory care units. As discussed earlier in Note 2, effective July 1, 2019, NHI provided an additional working capital loan for amounts up to $750,000 at an interest rate of 6.5%.

41 Management

On June 14, 2019, we committed to providing first mortgage financing to 41 Management, LLC for up to $10,800,000 to fund the construction of a 51-unit assisted living facility in Wisconsin. The loan carries an interest rate of 8.50% for its term of five years, subject to two renewals of one year each. The agreement includes a purchase option, which is effective upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $2,400,000 working capital escrow. The total amount funded on the note was $6,045,000 as of December 31, 2019.

On December 20, 2019, we extended a second mortgage loan of $3,870,000 to 41 Management to refinance the subordinated debt on a newly constructed 48-unit assisted living/memory care facility in Wisconsin. The loan provides for interest of 13% and a one year maturity plus two six-month renewal terms at the option of the borrower. The loan is secured by corporate and personal guarantees. Upon stabilization, NHI has the option to purchase the facility at fair market value based on a metric-driven formula.

Our loans to and receivables from 41 Management represent variable interests. 41 Management is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of 41 Management.

Bickford

At December 31, 2019, our construction loans to Bickford are summarized as follows:

74

Commencement
 
Rate
 
Maturity
 
Commitment
 
Drawn
 
Location
January 2017
 
9%
 
5 years
 
14,000,000

 
(14,000,000
)
 
Michigan
January 2018
 
9%
 
5 years
 
14,000,000

 
(11,804,000
)
 
Virginia
July 2018
 
9%
 
5 years
 
14,700,000

 
(11,312,000
)
 
Michigan
 
 
 
 
 
 
$
42,700,000

 
$
(37,116,000
)
 
 


The construction loans are secured by first mortgage liens on substantially all real and personal property as well as a pledge of any and all leases or agreements which may grant a right of use to the property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the properties at stabilization of the underlying operations. On exercise of our purchase option on these development projects, Bickford as borrower may receive up to $2,000,000 per project based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price.

As discussed in Note 2, on September 10, 2019, we acquired the Illinois location constructed by Bickford for $15,100,000. In the exchange we cancelled Bickford’s outstanding debt, including interest due, on the property of $14,035,000.

Our loans to Bickford represent a variable interest. Bickford is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of Bickford Senior Living.

Life Care Services - Sagewood

On December 21, 2018, we entered into an agreement to lend LCS-Westminster Partnership IV LLP (“LCS-WP IV”), an affiliate of Life Care Services (“LCS”), the manager of the facility, up to $180,000,000. The loan agreement conveys a mortgage interest and will facilitate the construction of Phase II of Sagewood, a Type-A Continuing Care Retirement Community in Scottsdale, AZ. As an affiliate of a larger company, LCS-WP IV is structured to limit liability for potential damage claims, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of LCS-WP IV.

The loan takes the form of two notes under a master credit agreement. The senior note (“Note A”) totals $118,800,000 at a 7.25% interest rate with 10 basis-point annual escalators after three years and has a term of 10 years. We have funded $77,340,000 of Note A as of December 31, 2019. Note A is interest-only and is locked to prepayment until January 2021. After 2020, the prepayment penalty starts at 2% and declines to 1% in 2022. The second note (“Note B”) is a construction loan for up to $61,200,000 at an annual interest rate of 8.5% and carries a maturity of five years. The total amount funded on Note B was $45,938,000 as of December 31, 2019.

Life Care Services - Timber Ridge

In February 2015, we entered into an agreement with LCS-Westminster Partnership III LLP (“LCS-WP III”), an affiliate of LCS, the manager of the facility, to lend up to $154,500,000. The loan agreement conveys a mortgage interest and facilitated the construction of Phase II of Timber Ridge at Talus (“Timber Ridge”), a Type-A continuing care retirement community in Issaquah, Washington. Our loan to LCS-WP III represents a variable interest. As an affiliate of a larger company, LCS-WP III is structured to limit liability for potential damage claims, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1.

The loan took the form of two notes under a master credit agreement. The senior note (“Note A”) totals $60,000,000 at an initial rate of 6.75% (currently 6.95%) with 10 basis-point escalators after three years and has a term of 10 years. We have funded $59,350,000 of Note A as of December 31, 2019. Note A is interest-only and is locked to prepayment for three years. Beginning in February 2018, the prepayment penalty started at 5% and will decline 1% annually for five years. Note B was a construction loan for up to $94,500,000, with the remaining outstanding balance being fully repaid during the first quarter of 2018.

As discussed more fully at Note 15, on January 31, 2020 we entered into a joint venture transaction with LCS to create Timber Ridge PropCo which acquired the Timber Ridge property.

Senior Living Communities

On June 25, 2019, we provided a mortgage loan of $32,700,000 to Senior Living for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The financing is for a term of five years with two one year extensions

75

and carries an interest rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38,250,000, subject to adjustment for market conditions.

In December 2014, we provided a $15,000,000 revolving line of credit, the maturity of which mirrors the 15-year term of the master lease. Borrowings are used primarily to finance construction projects within the Senior Living portfolio, including building additional units. The facility, which may also be used to meet general working capital needs, was amended as of December 10, 2019, to reduce availability to $12,000,000 with a further reduction in capacity to $7,000,000 beginning January 1, 2022 through lease maturity in December 2029. Also effective December 10, 2019, a sub-limit on the availability of funding for working capital needs was established at $10,000,000 for this loan, extending through January 1, 2022, at which time the limit is to be reduced to $5,000,000. Amounts outstanding under the facility, $5,174,000 at December 31, 2019, bear interest at an annual rate equal to the prevailing 10-year U.S. Treasury rate, 1.92% at December 31, 2019, plus 6%.

NHI has two mezzanine loans of up to $12,000,000 and $2,000,000, respectively, to affiliates of Senior Living, whose purpose was to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina, which opened in April 2018. The loans bear interest payable monthly at a 10% annual rate and mature in March 2021. The loans were fully drawn at December 31, 2019, and provided NHI with a fixed capitalization rate purchase option on the development upon its meeting certain operational metrics. The option is to remain open during the term of the loans, plus any extensions.

Our loans to Senior Living and its subsidiaries represent a variable interest. Senior Living is structured to limit liability for potential claims for damages, is appropriately capitalized for that purpose and is considered a VIE. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of Senior Living.

NOTE 4. OTHER ASSETS

Our other assets consist of the following (in thousands):
 
As of December 31,
 
2019
 
2018
Accounts receivable and prepaid expenses
$
3,212

 
$
6,381

Unamortized lease incentive payments
10,146

 
7,456

Regulatory escrows
8,208

 
8,208

Restricted cash
10,454

 
5,253

 
$
32,020

 
$
27,298



Regulatory escrows include mandated deposits in connection with our entrance fee communities in Connecticut. Restricted cash includes amounts required to be held on deposit in accordance with agency agreements governing our Fannie Mae and HUD mortgages.

NOTE 5. DEBT

Debt consists of the following (in thousands):
 
December 31,
2019
 
December 31,
2018
Revolving credit facility - unsecured
$
300,000

 
$
84,000

Bank term loans - unsecured
550,000

 
550,000

Private placement term loans - unsecured
400,000

 
400,000

HUD mortgage loans (net of discount of $1,238 and $1,320)
42,138

 
42,906

Fannie Mae term loans - secured, non-recourse
95,706

 
96,044

Convertible senior notes - unsecured (net of discount of $303 and $1,391)
59,697

 
118,609

Unamortized loan costs
(7,076
)
 
(9,884
)
 
$
1,440,465

 
$
1,281,675




76

Aggregate principal maturities of debt as of December 31, 2019 for each of the next five years and thereafter are as follows (in thousands):
For The Year Ended December 31,
 
2020
$
1,230

2021
61,279

2022
551,328

2023
476,379

2024
76,429

Thereafter
282,437

 
1,449,082

Less: discount
(1,541
)
Less: unamortized loan costs
(7,076
)
 
$
1,440,465



Revolving credit facility and bank term loans - unsecured

Our unsecured bank credit facility consists of $250,000,000 and $300,000,000 term loans and a $550,000,000 revolving credit facility. The $250,000,000 term loan and $550,000,000 revolving facility mature in August 2022, and the $300,000,000 term loan matures in September 2023. On March 22, 2019 and June 28, 2019, we entered into swap agreements to fix the interest rates on $340,000,000 of term loans and $60,000,000 of our revolving credit facility through December 2021, when LIBOR is scheduled for discontinuation.

The revolving facility fee is currently 20 basis points per annum, and based on our current leverage ratios, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 120 bps and a blended 132 bps, respectively. At December 31, 2019 and December 31, 2018, 30-day LIBOR was 176 and 252 bps, respectively. Within the facility, the employment of interest rate swaps on our debt leaves only $240,000,000 of our revolving credit facility exposed to interest rate risk through June 2020, when our $80,000,000 and $130,000,000 swaps expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.”

At December 31, 2019, we had $250,000,000 available to draw on the revolving portion of our credit facility, subject to usual and customary covenants. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. At December 31, 2019, we were in compliance with these ratios.

Pinnacle Bank is a participating member of our banking group. A member of NHI’s board of directors and chairman of our audit committee is also the chairman of Pinnacle Financial Partners, Inc., the holding company for Pinnacle Bank. NHI’s local banking transactions are conducted primarily through Pinnacle Bank.

Private placement term loans - unsecured

Our unsecured private placement term loans, payable interest-only, are summarized below (in thousands):
Amount
 
Inception
 
Maturity
 
Fixed Rate
 
 
 
 
 
 
 
$
125,000

 
January 2015
 
January 2023
 
3.99%
50,000

 
November 2015
 
November 2023
 
3.99%
75,000

 
September 2016
 
September 2024
 
3.93%
50,000

 
November 2015
 
November 2025
 
4.33%
100,000

 
January 2015
 
January 2027
 
4.51%
$
400,000

 
 
 
 
 
 


Except for specific debt-coverage ratios, covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating on our senior unsecured debt below investment grade and our compliance leverage increases to 50% or more.


77

HUD mortgage loans

Our HUD mortgage loans are secured by 10 properties leased to Bickford and having a net book value of $49,147,000 at December 31, 2019. Nine mortgage notes require monthly payments of principal and interest from 4.3% to 4.4% (inclusive of mortgage insurance premium) and mature in August and October 2049. One additional HUD mortgage loan assumed in 2014, at a discount, requires monthly payments of principal and interest of 2.9% (inclusive of mortgage insurance premium) and matures in October 2047. The loan has an outstanding principal balance of $8,492,000 and a carrying value of $7,254,000, which approximates fair value.

Fannie Mae term loans - secured, non-recourse

In March 2015 we obtained $78,084,000 in Fannie Mae financing. The term debt financing consists of interest-only payments at an annual rate of 3.79% and a 10-year maturity. The mortgages are non-recourse and secured by thirteen properties leased to Bickford. In a December 2017 acquisition, we assumed additional Fannie Mae debt that amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, bears interest at a nominal rate of 4.60%, and has remaining balance of $17,622,000 at December 31, 2019. All together, these notes are secured by facilities having a net book value of $134,192,000 at December 31, 2019.

Convertible senior notes - unsecured

In March 2014 we issued $200,000,000 of 3.25% senior unsecured convertible notes due April 2021 (the “Notes”) with interest payable April 1st and October 1st of each year. The Notes were convertible at an initial rate of 13.93 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $71.81 per share for a total of approximately 2,785,200 underlying shares. The conversion rate is subsequently adjusted upon each occurrence of certain events, as defined in the indenture governing the Notes, including the payment of dividends at a rate exceeding that prevailing in 2014. The conversion option was accounted for as an “optional net-share settlement conversion feature,” meaning that upon conversion, NHI’s conversion obligation may be satisfied, at our option, in cash, shares of common stock or a combination of cash and shares of common stock. Because we have the ability and intent to settle the convertible securities in cash upon exercise, we use the treasury stock method to account for potential dilution.

During the years ended December 31, 2019 and 2018, we undertook targeted open-market repurchases of certain of these convertible notes. Payments of cash negotiated in the transactions were dependent on prevailing market conditions, our liquidity requirements, contractual restrictions, individual circumstances of the selling parties and other factors. Beginning in December 2019, through the issuance of common stock and cash in retirement of $60,000,000 of our convertible notes, we funded our Timber Ridge acquisition, which closed January 2020. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by recording the fair value of the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account.

A roll-forward for 2019 of our convertible note balances, including the effect of year-to-date amortization, net of issuance costs, is presented below:
 
December 31,
2018
Exchange
Amortization
December 31,
2019
Face amount
$
120,000

$
(60,000
)
$
—

$
60,000

Discount
(1,391
)
$
328

$
760

(303
)
Unamortized loan costs
(910
)
$
210

$
505

(195
)
Carrying value
$
117,699

 
 
$
59,502



Total consideration given in the exchange of $73,102,000 included the issuance of 626,397 shares of NHI common stock with a fair value of $51,002,000 and cash disbursed of $22,100,000.

Total consideration given in the exchange was allocated as $60,285,000 to the note retirement with the remaining expenditure of $12,816,000 allocated to retirement of the equity feature of the notes. A loss of $823,000 for the year ended December 31, 2019, resulted from the excess allocation of cash expenditures over the book value of the notes retired, net of discount and issuance costs.


78

As of December 31, 2019, our $60,000,000 of senior unsecured convertible notes were convertible at a rate of 14.62 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $68.39 per share for a total of 877,356 remaining underlying shares. For the year ended December 31, 2019, dilution resulting from the conversion option within our convertible debt is 210,224 shares. If NHI’s current share price increases above the adjusted $68.39 conversion price, further dilution will be attributable to the conversion feature. On December 31, 2019, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $11,487,000.

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through December 2021 to hedge against fluctuations in variable interest rates applicable to $610,000,000 ($400,000,000 after June 2020) of our bank loans. During the next year, approximately $1,710,000 of gains, which are included in accumulated other comprehensive income (loss), are projected to be reclassified into earnings.

As of December 31, 2019, we employ the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above (dollars in thousands):
Date Entered
 
Maturity Date
 
Fixed Rate
 
Rate Index
 
Notional Amount
 
Fair Value (Liability)
June 2013
 
June 2020
 
3.46%
 
1-month LIBOR
 
$
80,000

 
$
(177
)
March 2014
 
June 2020
 
3.51%
 
1-month LIBOR
 
$
130,000

 
$
(316
)
March 2019
 
December 2021
 
3.51%
 
1-month LIBOR
 
$
100,000

 
$
(1,318
)
March 2019
 
December 2021
 
3.52%
 
1-month LIBOR
 
$
100,000

 
$
(1,344
)
June 2019
 
December 2021
 
2.89%
 
1-month LIBOR
 
$
150,000

 
$
(200
)
June 2019
 
December 2021
 
2.93%
 
1-month LIBOR
 
$
50,000

 
$
(79
)


If the fair value of the hedge is an asset, we include it in our Consolidated Balance Sheets among other assets, and, if a liability, as a component of accounts payable and accrued expenses. See Note 11 for fair value disclosures about our interest rate swap agreements. Net asset (liability) balances for our hedges included as components of consolidated other comprehensive income (loss) on December 31, 2019 and December 31, 2018 were $(3,434,000) and $1,297,000, respectively.

The following table summarizes interest expense (in thousands):
 
Year Ended December 31,
 
2019
 
2018
 
2017
Interest expense on debt at contractual rates
$
53,923

 
$
45,789

 
$
40,385

Losses reclassified from accumulated other
 
 
 
 
 
comprehensive income (loss) into interest expense
(791
)
 
164

 
2,627

Ineffective portion of cash flow hedges
—

 
—

 
(353
)
Capitalized interest
(399
)
 
(212
)
 
(510
)
Charges taken on amending bank credit facility
—

 
—

 
583

Amortization of debt issuance costs and debt discount
3,566

 
3,314

 
3,592

Total interest expense
56,299

 
49,055

 
46,324



NOTE 6. COMMITMENTS AND CONTINGENCIES

In the normal course of business, we enter into a variety of commitments, typically consisting of funding of revolving credit arrangements, construction and mezzanine loans to our operators to conduct expansions and acquisitions for their own account, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. In our leasing operations, we offer to our tenants and to sellers of newly-acquired properties a variety of inducements which originate contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent payments earned will be included in the respective lease bases when funded. The tables below summarize our existing, known commitments and contingencies as of December 31, 2019 according to the nature of their impact on our leasehold or loan portfolios.


79

 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Loan Commitments:
 
 
 
 
 
 
 
 
 
LCS Sagewood Note A
SHO
 
Construction
 
$
118,800,000

 
$
(77,340,000
)
 
$
41,460,000

LCS Sagewood Note B
SHO
 
Construction
 
61,200,000

 
(45,938,000
)
 
15,262,000

LCS Timber Ridge Note A
SHO
 
Construction
 
60,000,000

 
(59,350,000
)
 
650,000

Bickford Senior Living
SHO
 
Construction
 
28,700,000

 
(23,116,000
)
 
5,584,000

Senior Living Communities
SHO
 
Revolving Credit
 
12,000,000

 
(5,174,000
)
 
6,826,000

41 Management
SHO
 
Construction
 
10,800,000

 
(6,045,000
)
 
4,755,000

Discovery Senior Living
SHO
 
Working Capital
 
750,000

 
(175,000
)
 
575,000

 
 
 
 
 
$
292,250,000

 
$
(217,138,000
)
 
$
75,112,000



See Note 3 to our consolidated financial statements for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.

 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Development Commitments:
 
 
 
 
 
 
 
 
 
Ignite Medical Resorts
SNF
 
Construction
 
$
25,350,000

 
$
(16,903,000
)
 
$
8,447,000

Woodland Village
SHO
 
Construction
 
7,515,000

 
(7,425,000
)
 
90,000

Senior Living Communities
SHO
 
Renovation
 
9,930,000

 
(9,067,000
)
 
863,000

Wingate Healthcare
SHO
 
Renovation
 
1,900,000

 
(357,000
)
 
1,543,000

Discovery Senior Living
SHO
 
Renovation
 
900,000

 
—

 
900,000

Navion Senior Solutions
SHO
 
Construction
 
650,000

 
—

 
650,000

41 Management
SHO
 
Renovation
 
400,000

 
—

 
400,000

 
 
 
 
 
$
46,645,000

 
$
(33,752,000
)
 
$
12,893,000


In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding up to $2,000,000 for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 has been funded toward the commitment.
 
Asset Class
 
Type
 
Total
 
Funded
 
Remaining
Contingencies:
 
 
 
 
 
 
 
 
 
Comfort Care Senior Living
SHO
 
Lease Inducement
 
6,000,000

 
—

 
6,000,000

Wingate Healthcare
SHO
 
Lease Inducement
 
5,000,000

 
—

 
5,000,000

Navion Senior Solutions
SHO
 
Lease Inducement
 
4,850,000

 
(500,000
)
 
4,350,000

Discovery Senior Living
SHO
 
Lease Inducement
 
4,000,000

 
—

 
4,000,000

Ignite Medical Resorts
SNF
 
Lease Inducement
 
2,000,000

 
—

 
2,000,000

 
 
 
 
 
$
21,850,000

 
$
(500,000
)
 
$
21,350,000



Litigation

Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no material adverse effect on our financial condition, results of operations or cash flows.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

The LaSalle Group defaulted on its rent payment in November 2018. We transitioned the properties to a new operator on April 16, 2019, with NHI to receive operating cash flow, after management fees, generated by the facilities pending stabilization. We

80

also commenced litigation for the recovery of certain funds owed under the lease and against the principal executive personally, under a guaranty agreement. The LaSalle Group, the former operator of the properties, has declared bankruptcy under Chapter 11. In December 2019, we reached an agreement with TLG Family Management and Mitchell Warren, who, without making any admissions under a joint-liability settlement, have agreed to pay to NHI $2,850,000 over a five-year period, consisting of scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of $60,000 December 2019.

NOTE 7. INVESTMENT AND OTHER GAINS

The following table summarizes our investment and other gains (in thousands):
 
Year Ended December 31,
 
2019
 
2018
 
2017
Gains on sales of marketable securities
$
—

 
$
—

 
$
10,038

Gain on sale of real estate
—

 
—

 
50

 
$
—

 
$
—

 
$
10,088



During the year ended December 31, 2017 we recognized gains on sales of marketable securities which were reclassified from accumulated other comprehensive income.

NOTE 8. SHARE-BASED COMPENSATION

We recognize share-based compensation for all stock options granted over the requisite service period using the fair value of these grants as estimated at the date of grant using the Black-Scholes pricing model over the requisite service period using the market value of our publicly-traded common stock on the date of grant.

Share-Based Compensation Plans

The Compensation Committee of the Board of Directors (the “Committee”) has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option (“ISO”), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2012, our stockholders approved the 2012 Stock Incentive Plan (the “2012 Plan”) pursuant to which 1,500,000 shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. Through a vote of our shareholders in May 2015, we increased the maximum number of shares under the plan from 1,500,000 shares to 3,000,000 shares; increased the automatic annual grant to non-employee directors from 15,000 shares to 20,000 shares; and limited the Company’s ability to re-issue shares under the Plan. Through a second amendment approved on May 4, 2018, our shareholders voted to increase the maximum number of shares under the plan to 3,500,000 and to increase the automatic annual grant to non-employee directors to 25,000. The individual restricted stock and option grant awards may vest over periods up to five years. The term of the options under the 2012 Plan is up to 10 years from the date of grant. As of December 31, 2019, there were 319,669 shares available for future grants under the 2012 Plan.

On May 3, 2019, our stockholders approved the 2019 Stock Incentive Plan (“the 2019 Plan”) pursuant to which 3,000,000 shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. The individual option grant awards may vest over periods up to five years. The term of the options under the 2019 Plan is up to ten years from the date of grant. As of December 31, 2019, there were 3,000,000 shares available for future grants under the 2019 Plan.

Compensation expense is recognized only for the awards that ultimately vest. Accordingly, forfeitures that were not expected may result in the reversal of previously recorded compensation expense. We consider the historical employee turnover rate in our estimate of the number of stock option forfeitures. Our compensation expense reported for the years ended December 31, 2019, 2018 and 2017 was $3,646,000, $2,490,000 and $2,612,000, respectively, and is included in general and administrative expense in the Consolidated Statements of Income.

Determining Fair Value of Option Awards

The fair value of each option award was estimated on the grant date using the Black-Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employee and termination behavior. Compensation cost is recognized on the graded vesting method over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. The expected volatility is derived using daily historical data for periods preceding the date of grant. The risk-free interest rate is

81

the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised.

Stock Options

The weighted average fair value per share of options granted was $6.30, $4.49 and $5.76 for 2019, 2018 and 2017, respectively.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

 
2019
 
2018
 
2017
Dividend yield
5.5%
 
6.5%
 
5.3%
Expected volatility
18.2%
 
19.4%
 
19.8%
Expected lives
2.7 years
 
2.9 years
 
2.9 years
Risk-free interest rate
2.39%
 
2.39%
 
1.49%


Stock Option Activity

The following tables summarize our outstanding stock options, after giving effect to modifications of 83,334 options in November 2019 as, in substance, the forfeiture of old and issuance of new options concurrent with an employee’s retirement:
 
 
 
 
 
Weighted Average
 
 
 
Number

 
Weighted Average
 
Remaining
 
Aggregate
 
of Shares

 
Exercise Price
 
Contractual Life (Years)
 
Intrinsic Value
Outstanding December 31, 2016
541,679

 
$65.84
 
 
 
 
Options granted under 2012 Plan
495,000

 
$74.90
 
 
 
 
Options granted under 2005 Plan
—

 
$0.00
 
 
 
 
Options exercised under 2005 Plan
(15,000
)
 
$47.52
 
 
 
 
Options exercised under 2012 Plan
(155,829
)
 
$65.73
 
 
 
 
Options canceled under 2012 Plan
(6,668
)
 
$60.52
 
 
 
 
Outstanding December 31, 2017
859,182

 
$70.11
 
 
 
 
Options granted under 2012 Plan
560,000

 
$64.33
 
 
 
 
Options granted under 2005 Plan
—

 
$0.00
 
 
 
 
Options exercised under 2005 Plan
(6,668
)
 
$72.11
 
 
 
 
Options exercised under 2012 Plan
(462,167
)
 
$65.03
 
 
 
 
Options canceled under 2012 Plan
(30,001
)
 
$66.73
 
 
 
 
Outstanding December 31, 2018
920,346

 
$69.24
 
 
 
 
Options granted under 2012 Plan
685,334

 
$79.08
 
 
 
 
Options exercised under 2012 Plan
(501,664
)
 
$71.52
 
 
 
 
Options forfeited under 2012 Plan
(100,002
)
 
$73.89
 
 
 
 
Options forfeited under 2005 Plan
—

 
$0.00
 
 
 
 
Options outstanding, December 31, 2019
1,004,014

 
$74.35
 
3.24
 
$
7,157,000

 
 
 
 
 
 
 
 
Exercisable at December 31, 2019
530,163

 
$73.93
 
2.91
 
$
4,001,000


82

 
 
 
 
 
 
Remaining
Grant
 
Number

 
Exercise

 
Contractual
Date
 
of Shares

 
Price

 
Life in Years
2/20/2015
 
20,000

 
$
72.11

 
0.14
2/22/2016
 
20,000

 
$
60.52

 
1.15
2/22/2017
 
121,669

 
$
74.78

 
2.15
2/20/2018
 
246,177

 
$
64.33

 
3.14
2/21/2019
 
512,834

 
$
79.96

 
4.15
11/7/2019
 
83,334

 
$
72.67

 
0.85
Options outstanding, December 31, 2019
 
1,004,014

 
 
 
 


The weighted average remaining contractual life of all options outstanding at December 31, 2019 is 3.24 years. Including outstanding stock options, our stockholders have authorized an additional 4,323,683 shares of common stock that may be issued under the share-based payments plans.

The following table summarizes our outstanding non-vested stock options:
 
Number of Shares

 
Weighted Average Grant Date Fair Value
Non-vested December 31, 2018
443,354

 
$4.87
Options granted under 2012 Plan
685,334

 
$6.11
Options vested under 2012 Plan
(554,835
)
 
$5.62
Non-vested options forfeited under 2012 Plan
(100,002
)
 
$5.56
Non-vested December 31, 2019
473,851

 
$5.64


At December 31, 2019, we had, net of expected forfeitures, $780,000 of unrecognized compensation cost related to unvested stock options which is expected to be expensed over the following periods: 2020 - $698,000 and 2021 - $82,000 share-based compensation is included in general and administrative expense in the Consolidated Statements of Income.

The intrinsic value of the total options exercised for the years ended December 31, 2019, 2018 and 2017 was $5,659,000 or $11.28 per share; $6,105,000 or $13.02 per share, and $2,314,000 or $13.55 per share, respectively.

NOTE 9. EARNINGS AND DIVIDENDS PER COMMON SHARE

The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options and vesting of restricted shares using the treasury stock method, to the extent dilutive. Dilution resulting from the conversion option within our convertible debt is determined by computing an average of incremental shares included in each quarterly diluted EPS computation. If NHI’s current share price increases above the adjusted conversion price, further dilution will be attributable to the conversion feature.

The following table summarizes the average number of common shares and the net income used in the calculation of basic and diluted earnings per common share (in thousands, except share and per share amounts):

83

 
Year Ended December 31,
 
2019
 
2018
 
2017
Net income attributable to common stockholders
$
160,456

 
$
154,333

 
$
159,365

 
 
 
 
 
 
BASIC:
 
 
 
 
 
Weighted average common shares outstanding
43,417,828

 
41,943,873

 
40,894,219

 
 
 
 
 
 
DILUTED:
 
 
 
 
 
Weighted average common shares outstanding
43,417,828

 
41,943,873

 
40,894,219

Stock options and restricted shares
75,196

 
67,735

 
67,703

Convertible senior notes - unsecured
210,224

 
80,123

 
189,531

Average dilutive common shares outstanding
43,703,248

 
42,091,731

 
41,151,453

 
 
 
 
 
 
Net income attributable to common stockholders - basic
$
3.70

 
$
3.68

 
$
3.90

Net income attributable to common stockholders - diluted
$
3.67

 
$
3.67

 
$
3.87

 
 
 
 
 
 
Net share effect of anti-dilutive stock options
4,678

 
518

 
573

 
 
 
 
 
 
Regular dividends declared per common share
$
4.20

 
$
4.00

 
$
3.80



NOTE 10. INCOME TAXES


84

Beginning with our inception in 1991, we have elected to be taxed as a REIT under the Internal Revenue Code (the “Code”). For the years ended December 31, 2019, 2018, and 2017, respectively, we have recorded state income tax expense of $142,000, $138,000 and $124,000 related to a Texas franchise tax that has attributes of an income tax. State income taxes are combined in franchise, excise and other taxes in our Consolidated Statements of Income.

Dividend payments to common stockholders for the last three years are characterized for tax purposes as follows on a per share basis:
(Unaudited)
2019
 
2018
 
2017
Ordinary income
$
4.20000

 
$
3.33730

 
$
2.93054

Capital gain
—

 
—

 
0.20643

Return of capital
—

 
0.66270

 
0.66303

Dividends paid per common share
$
4.20

 
$
4.00

 
$
3.80



During the years 2012 through 2016, we participated in the operations of a joint venture, structured as a taxable REIT subsidiary (“TRS”) under provisions of the Code. In regard to that TRS, upon the dissolution of the underlying joint venture, we carry a deferred tax asset, which is fully reserved through a valuation allowance, of $273,000 as of December 31, 2019. See Note 15 for a discussion of Timber Ridge OpCo which will also be held in our TRS.

We made state income tax payments of $112,000, $124,000,and $170,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial assets and liabilities measured at fair value (based on the hierarchy of the three levels of inputs described in Note 1 on a recurring basis have included marketable securities, derivative financial instruments and contingent consideration arrangements. Marketable securities have consisted of common stock of other healthcare REITs. Derivative financial instruments include our interest rate swap agreements. Contingent consideration arrangements relate to certain provisions of recent real estate purchase agreements involving property acquisitions.

Derivative financial instruments. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate primarily Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
 
 
 
Fair Value Measurement
 
Balance Sheet Classification
 
December 31,
2019
 
December 31,
2018
Level 2
 
 
 
 
 
Interest rate swap asset
Other assets
 
$
—

 
$
1,297

Interest rate swap liability
Accounts payable and accrued expenses
 
$
3,433

 
$
—



Carrying values and fair values of financial instruments that are not carried at fair value at December 31, 2019 and 2018 in the Consolidated Balance Sheets are as follows (in thousands):
 
Carrying Amount
 
Fair Value Measurement
 
2019
 
2018
 
2019
 
2018
Level 2
 
 
 
 
 
 
 
Variable rate debt
$
845,744

 
$
628,010

 
$
850,000

 
$
634,000

Fixed rate debt
$
594,721

 
$
653,665

 
$
602,926

 
$
644,745

 
 
 
 
 
 
 
 
Level 3
 
 
 
 
 
 
 
Mortgage and other notes receivable
$
340,143

 
$
246,111

 
$
347,543

 
$
244,206




85

The fair value of mortgage and other notes receivable is based on credit risk and discount rates that are not observable in the marketplace and therefore represents a Level 3 measurement.

Fixed rate debt is classified as Level 2 and its value is based on quoted prices for similar instruments or calculated utilizing model derived valuations in which significant inputs are observable in active markets.

Carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair value of our borrowings under our credit facility are reasonably estimated at their contractual value at December 31, 2019 and 2018, due to the predominance of floating interest rates, which generally reflect market conditions.

NOTE 12. LIMITS ON COMMON STOCK OWNERSHIP (UNAUDITED)

The Company’s charter contains certain provisions which are designed to ensure that the Company’s status as a REIT is protected for federal income tax purposes. One of the provisions ensures that any transfer (of shares) which would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely-held” under the Internal Revenue Code would be void which, subject to certain exceptions, result in no stockholder being allowed to own, either directly or indirectly pursuant to certain tax attribution rules, more than 9.9% of the Company’s common stock with the exception of prior agreements in 1991 which were confirmed in writing in 2008 with the Company’s founders Dr. Carl E. Adams and Jennie Mae Adams and their lineal descendants. Based on these agreements, the ownership limit for all other stockholders is approximately 7.5%. If a stockholder’s stock ownership exceeds the limit, then such shares over the limit become Excess Stock within the meaning in the Company’s charter whose rights to vote and receive dividends in certain situations. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits.  In addition, W. Andrew Adams’ Excepted Holder Agreement also provides that he will not own shares of stock in any tenant of the Company if such ownership would cause the Company to constructively own more than a 9.9% interest in such tenant.  The purpose of these provisions is to protect the Company’s status as a REIT for tax purposes.

NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth selected quarterly financial data for the two most recent fiscal years (in thousands, except share and per share amounts).
2019
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
Net revenues
$
76,107

 
$
78,096

 
$
81,682

 
$
82,196

 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
35,679

 
$
39,979

 
$
42,758

 
$
42,040

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
42,825,824

 
43,232,384

 
43,505,332

 
44,107,770

Diluted
43,125,032

 
43,498,021

 
43,861,089

 
44,328,847

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Net income attributable to common stockholders - basic
$
.83

 
$
.92

 
$
.98

 
$
.95

Net income attributable to common stockholders - diluted
$
.83

 
$
.92

 
$
.97

 
$
.95


2018
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
Net revenues
$
72,746

 
$
72,956

 
$
74,915

 
$
73,995

 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
38,432

 
$
37,839

 
$
40,979

 
$
37,083

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
41,532,154

 
41,704,819

 
42,187,077

 
42,351,443

Diluted
41,576,876

 
41,786,829

 
42,434,499

 
42,568,720

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Net income attributable to common stockholders - basic
$
.93

 
$
.91

 
$
.97

 
$
.88

Net income attributable to common stockholders - diluted
$
.92

 
$
.91

 
$
.97

 
$
.87




86

NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers using the modified retrospective method. ASU 2014-09 provides a principles-based approach for a broad range of revenue generating transactions, including the sale of real estate, and generally requires more estimates, judgment and disclosures than under previous guidance. The ASU provides for revenues from leases to continue to follow the guidance in Topics 840 and 842 and provides for loans to follow established guidance in Topic 310. Because this ASU specifically excludes these areas of our operations from its scope, there was no impact to our accounting for lease revenue and interest income resulting from the ASU. Additionally, the other significant types of contracts in which we periodically engage, sales of real estate to customers, typically never remain executory across points in time, so that nuances related to the timing of revenue recognition as mandated under Topic 606 have not impacted our results of operations or financial position. We realized no significant revenues in 2018 or 2019 within the scope of ASU 2014-09, and, accordingly, adoption of the ASU did not have a material impact on the timing and measurement of the Company’s revenues.

On January 1, 2019 we adopted Accounting Standards Update (“ASU”) 2016-02, Leases, which has been codified under ASC Topic 842. The principal difference between Topic 842 and previous guidance is that, for lessees, lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. While the accounting applied by a lessor is largely unchanged from that applied under previous GAAP, changes have been made to align i) certain lessor and lessee accounting guidance, and ii) key aspects of the lessor accounting model with the revenue recognition guidance in Topic 606, Revenue from Contracts with Customers, which we adopted as of January 1, 2018.

Under Topic 842 and unlike prior GAAP, a buyer-lessor in a sale-leaseback transaction will be required to apply the sale and leaseback guidance to determine whether the transaction qualifies as a sale. Topic 842 includes provisions which generally conform with Topic 606, and the presence of a seller-lessee repurchase option on real estate in a sale and leaseback transaction will result in recording the transaction as a financing that would otherwise meet the lease accounting requirements for buyer-lessors under previous guidance. NHI has largely ceased inclusion of repurchase options in new sale-leaseback transactions, and there were no material effects from the change in sale-leaseback guidance as it relates to repurchase options. Consistent with present standards, upon the adoption of Topic 842, NHI continues to account for lease revenue on a straight-line basis for most leases. Under Topic 842, an assessment of collectibility is made at the inception of the lease and, for operating leases, if collectibility is assessed as not probable lease income is recognized as payments are received. Recognition of changes in our assessment of collectibility under 842 differs from legacy accounting in that a change in our assessment of collectibility will be recognized as an adjustment to lease income rather than as bad debt expense. Under Topic 842 only initial direct costs that are incremental to the lessor are capitalized, a standard consistent with NHI’s prior practice.

In July and December 2018 the FASB updated the pending Topic 842 with ASU 2018-11, Leases - Targeted Improvements, and ASU 2018-20, Narrow-Scope Improvements for Lessors, respectively. ASU 2018-11 provides a simplified transition method under which we applied the new leases standard as of the adoption date. Consequently, our reporting for the comparative prior periods presented in the financial statements in which we adopted the new leases standard will continue to be in accordance with prior GAAP (Topic 840, Leases).

Initial Impact

ASU 2018-20 was issued to address implementation issues related to Topic 842. We adopted Topic 842 on January 1, 2019 (the “application date”), and, effective with our adoption, we elected the package of practical expedients allowing, among other provisions, for transition with no initial reassessment of the lease classification for any expired or existing leases. Going forward under Topic 842, for us as lessor, subsequent modification of existing leases accounted for under previous guidance, which were brought forward under conventions allowing no reassessment on the application date of Topic 842, may trigger reconsideration of continued accounting for the lease. Upon reconsideration under Topic 842, leases previously classified under Topic 840 as operating leases may be classified as either a sales-type or direct financing lease.

Further under ASU 2018-20, we elected the available practical expedient under ASU 2018-11 that allows us to make an accounting policy election and assess whether a contract is predominantly lease or service-based and recognize the entire contract under the relevant accounting guidance. No cumulative effect adjustment to retained earnings was necessary, based on our analysis.

In April 2018, we entered into a ground lease as lessee in connection with our acquisition of certain real estate assets. In accordance with transition elections allowed under Topic 842, discussed above, we have continued to account for the lease as an operating lease. Upon adoption of the standard, as lessee we recognized a right-of-use asset and a lease liability at the adoption date.


87

Variable Payments

ASU 2018-20 requires NHI to exclude from variable payments, and therefore revenue, our costs paid by our tenants directly to third parties. Some of our leases require property tax and insurance costs be covered by our tenants through escrow reimbursement. We serve as the administrative agent for these escrow transactions and ASU 2018-20 requires the associated revenue and expense to be included in our consolidated financial statements. We have included $5,798,000 of reimbursements within revenue and in expenses in our Consolidated Statements of Income for the year ended December 31, 2019, under the captions “Rental income” and “Property taxes and insurance on leased properties,” respectively.

Going forward under Topic 842, for us as lessor, subsequent modification of existing sale-leaseback or other leases accounted for under previous guidance, which were brought forward under conventions allowing no reassessment the date of application of Topic 842, that undergo modifications may trigger reconsideration of continued accounting for the lease. Upon reconsideration under Topic 842, leases previously classified under Topic 840 as operating leases may be classified as either a sales-type or direct financing lease.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 will require more timely recognition of credit losses associated with financial assets. While current GAAP includes multiple credit impairment objectives for instruments, the previous objectives generally delayed recognition of the full amount of credit losses until the loss was probable of occurring. The amendments in ASU 2016-13, whose scope is asset-based and not restricted to financial institutions, eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current estimate of all expected credit losses. Under legacy accounting, when credit losses were measured under GAAP, we generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that we must consider in developing our expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss that will be more useful to users of the financial statements. ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, aligns the transition requirements and clarifies that operating lease receivables are excluded from the scope of ASU 2016-13. Instead, impairment of operating lease receivables is to be accounted for under ASC 842. Because we are likely to continue to invest in loans and generate receivables, adoption of ASU 2016-13 and the clarifying ASU 2018-19 in 2020 will have some effect on our accounting for our loan investments, though the nature of those effects will depend on the composition of our loan portfolio at that time; accordingly, we are evaluating the extent of the impact that adopting the provisions of ASU 2016-13 in 2020 will have on NHI. Our secured borrowings have exhibited a historically low rate of default, a circumstance upon which we largely base future expectations. Accordingly, after the establishment through a charge to retained earnings of a credit reserve expected to approximate one percent of the outstanding balance in our loan portfolio, the adoption of ASU 2016-13 is not expected to have a material effect on our financial position, results of operations or cash flows.

In August 2017 the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which was available for early adoption in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. On January 1, 2018, we adopted ASU 2017-12, among whose provisions is a change in the timing and income statement line item for ineffectiveness related to cash flow hedges. The transition method is a modified retrospective approach that requires the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income (loss) with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that we adopt the update. The primary provision in the ASU requiring an adjustment to our beginning consolidated retained earnings in 2018 is the change in timing and income statement line item for ineffectiveness related to cash flow hedges.

NOTE 15. SUBSEQUENT EVENTS

Life Care Services

On January 31, 2020, in a joint venture transaction, we acquired an 80% interest in a 401-unit Continuing Care Retirement Community (CCRC) comprising 330 independent living units, 26 assisted living/memory care units and 45 skilled nursing beds. Additionally, the transaction conveyed to NHI a 25% interest in the operations of the community. The transaction arose as the culmination of a relationship beginning in 2015 in which NHI provided LCS Timber Ridge, LLC, (“LCS”), and its JV partner, Westminster-LCS, LLC, (“Westminster”), with a senior mortgage loan on the Timber Ridge campus in the Seattle area. Proceeds of the loan were used to facilitate expansion of the community to 401 units. By terms of the 2015 agreement, NHI acquired a fair-value purchase option on the property.


88

Consideration given for NHI’s interest in the joint venture was $124,989,000 and included assignment from the divesting owners of debt having a current carrying value of $59,350,000. To fund the transaction, NHI provided an additional loan of $21,650,000, leaving total debt in the project of $81,000,000, bearing interest to NHI at 5.75%. Further, NHI paid $43,114,000 for an 80% equity stake in the property company (“PropCo”), and we provided initial capitalization totaling $875,000 for the operating company (“OpCo”). LCS paid $10,778,000 for its 20% equity stake in PropCo and provided $2,625,000 in initial capitalization of the operations in return for a 75% equity participation in OpCo.

The lease between PropCo and OpCo carries a rate of 6.75% for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. Including interest payments on debt funded by NHI and our lease participation in the PropCo JV, as detailed above, NHI is entitled to $8,216,000 in the first twelve months plus 25% of the remaining OpCo cash flow. The total enterprise capitalization was $138,392,000 for the OpCo and PropCo entities, as discussed above, of which $124,989,000 was allocated to our interest in the tangible assets of PropCo and equity interest in OpCo, based upon their relative fair values.

Bickford - Shelby, MI

On January 27, 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,091,000, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Control and Procedures. As of December 31, 2019, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of management’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) to ensure information required to be disclosed in our filings under the Securities and Exchange Act of 1934, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms; and (ii) accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving desired control objectives, and management is necessarily required to apply its judgment when evaluating the cost-benefit relationship of potential controls and procedures. Based upon the evaluation, the CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2019.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in management’s evaluation during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


89



MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of National Health Investors, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019. The Company’s independent registered public accounting firm, BDO USA, LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included herein.


90



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
National Health Investors, Inc.
Murfreesboro, Tennessee

Opinion on Internal Control over Financial Reporting

We have audited National Health Investors, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules and our report dated February 19, 2020 expressed an unqualified opinion.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP
Nashville, Tennessee
February 19, 2020

91

ITEM 9B. OTHER INFORMATION.

None.

92

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

We have filed with the New York Stock Exchange (“NYSE”) the Annual CEO Certification regarding the Company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A.12(a) of the NYSE Listed Company Manual. Additionally, we have filed as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2019, the applicable certifications of our Chief Executive Officer and our Chief Accounting Officer as required under Section 302 of the Sarbanes-Oxley Act of 2002.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

ITEM 11.  EXECUTIVE COMPENSATION.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)    (1)    Financial Statements

The Consolidated Financial Statements are included in Item 8 and are filed as part of this report.

(2)    Financial Statement Schedules

The Financial Statement Schedules and Report of Independent Registered Public Accounting Firm on Financial Statement Schedules are listed in Exhibit 99.1.

(3)    Exhibits

Exhibits required as part of this report are listed in the Exhibit Index.


93

NATIONAL HEALTH INVESTORS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

 
Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-11 Registration Statement No. 33-41863, filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)
3.2
Amendment to Articles of Incorporation dated May 1, 2009 (Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement filed March 23, 2009)
3.3
Amendment to Articles of Incorporation approved by shareholders on May 2, 2014 (Incorporated by reference to Exhibit 3.3 to Form 10-Q dated August 4, 2014)
3.4
Restated Bylaws, as amended November 5, 2012 (Incorporated by reference to Exhibit 3.3 to Form 10-K filed February 15, 2013)
3.5
Amendment No. 1 to Restated Bylaws dated February 14, 2014 (Incorporated by reference to Exhibit 3.4 to Form 10-K filed February 14, 2014)
4.1
Form of Common Stock Certificate (incorporated by reference to Exhibit 39 to Form S-11 Registration Statement No. 33-41863, filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)
4.2
4.3
4.4
Description of Securities (filed herewith)
10.1

10.2
Amendment No. 5 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.2 to Form 10-K dated March 10, 2006)
10.3
Amendment No. 6 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated November 4, 2013)
10.4
Amended and Restated Amendment No. 6 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.4 to Form 10-K filed February 14, 2014)
*10.5
2005 Stock Option Plan (Incorporated by reference to Exhibit 4.10 to the Company’s registration statement on Form S-8 filed August 4, 2005)
*10.6
2012 Stock Option Plan (Incorporated by reference to Exhibit A to the Company’s Proxy Statement filed March 23, 2012)
*10.7
First Amendment to the 2005 Stock Option, Restricted Stock & Stock Appreciation Rights Plan (Incorporated by reference to Appendix A to the Company’s Proxy Statement filed March 17, 2006)
*10.8
Second Amendment to the 2005 Stock Option, Restricted Stock & Stock Appreciation Rights Plan (Incorporated by reference to Exhibit B to the Company’s Proxy Statement filed March 23, 2009)
10.9
Excepted Holder Agreement - W. Andrew Adams (Incorporated by reference to Exhibit 10.6 to Form 10-K dated February 24, 2009)
10.10
10.11
Agreement with Care Foundation of America, Inc. (Incorporated by reference to Exhibit 10.11 to Form 10-K dated February 22, 2010)
10.12
Extension of Master Agreement to Lease dated December 28, 2012 (Incorporated by reference to Exhibit 10.22 to Form 10-K dated February 15, 2013)
10.13
10.14

94

10.15
10.16
10.17
Amendment No. 7 to Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.32 to Form 10-K filed February 14, 2014)
10.18
10.19
$225 million Note Purchase Agreement dated January 13, 2015 with Prudential Capital Group and certain of its affiliates (Incorporated by reference to Exhibit 10.32 to Form 10-K filed February 17, 2015)
*10.20
First amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 20, 2015)
10.21
Construction and Term Loan Agreement dated February 10, 2015 between the Company and LCS-Westminster Partnership (Incorporated by reference to Exhibit 10.21 to Form 10-K filed February 16, 2018)
10.22
10.23
10.24
*10.25
10.26
10.27
10.28
NHI PropCo, LLC Membership Interest Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 7, 2016)
10.29
$75,000,000 of 8-year notes with a coupon of 3.93% issued to a private placement lender (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 7, 2016)
10.30
10.31
Third Amendment to the Note Purchase Agreement dated as of November 3, 2015, made and entered into as of August 8, 2017 (Incorporated by reference to Exhibit 99.1 to Form 8-k filed August 14, 2017)
10.32
Fifth Amendment to Note Purchase Agreement dated January 13, 2015, made and entered into as of August 8, 2017  (Incorporated by reference to Exhibit 99.2 to Form 8-k filed August 14, 2017)
*10.33
Second Amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 20, 2018)

95

10.34
10.35
10.36
Construction and Term Loan Agreement dated December 21, 2018 between the Company and LCS-Westminster Partnership IV, LLP (Incorporated by reference to Exhibit 10.36 to Form 10-K filed February 19, 2018)
*10.37
National Health Investors, Inc. 2019 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 19, 2019)
*10.38
21
Subsidiaries (filed herewith)
23.1
31.1
31.2
32
99.1
Financial Statement Schedules (filed herewith)
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
0.104
Cover Page Interactive Data File (embedded within the Inline XBRL document).



* Indicates management contract or compensatory plan or arrangement.


96

ITEM 16. SUMMARY

None.

97

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
NATIONAL HEALTH INVESTORS, INC.
 
 
BY:/s/ D. Eric Mendelsohn
 
D. Eric Mendelsohn
DATE: February 19, 2020
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature
 
Title
Date
 
 
 
 
 
 
 
 
/s/ D. Eric Mendelsohn
 
President and Chief Executive Officer
February 19, 2020
D. Eric Mendelsohn
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
/s/ John L. Spaid
 
Chief Financial Officer
February 19, 2020
John L. Spaid
 
(Principal Financial Officer and Principal Accounting Officer)
 
 
 
 
 
 
 
 
 
/s/ W. Andrew Adams
 
Chairman of the Board
February 19, 2020
W. Andrew Adams
 
 
 
 
 
 
 
 
 
 
 
/s/ James R. Jobe
 
Director
February 19, 2020
James R. Jobe
 
 
 
 
 
 
 
 
 
 
 
/s/ Robert A. McCabe, Jr.
 
Director
February 19, 2020
Robert A. McCabe, Jr.
 
 
 
 
 
 
 
 
 
 
 
/s/ Robert T. Webb
 
Director
February 19, 2020
Robert T. Webb
 
 
 


98
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED December 31, 2019, 2018, AND 2017
(in thousands)
 
Balance
 
Additions
 
 
 
 
 
Beginning
 
Charged to Costs
 
 
 
Balance
 
of Period
 
and Expenses1
 
Deductions
 
End of Period
 
 
 
 
 
 
 
 
For the year ended December 31, 2019
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
For the year ended December 31, 2018
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
For the year ended December 31, 2017
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—


1 In the Consolidated Statements of Income, we report the net amount of our provision for loan and realty losses and our recoveries of amounts previously written down.

99
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Skilled Nursing Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anniston, AL
$
—

 
$
70

 
$
4,477

 
$
—

 
$
70

 
$
4,477

 
$
4,547

 
$
3,536

10/17/1991
Moulton, AL
—

 
25

 
688

 
—

 
25

 
688

 
713

 
688

10/17/1991
Avondale, AZ
—

 
453

 
6,678

 
—

 
453

 
6,678

 
7,131

 
4,029

8/13/1996
Brooksville, FL
—

 
1,217

 
16,166

 
—

 
1,217

 
16,166

 
17,383

 
4,008

2/1/2010
Crystal River, FL
—

 
912

 
12,117

 
—

 
912

 
12,117

 
13,029

 
3,004

2/1/2010
Dade City, FL
—

 
605

 
8,042

 
—

 
605

 
8,042

 
8,647

 
1,994

2/1/2010
Hudson, FL (2 facilities)
—

 
1,290

 
22,392

 
—

 
1,290

 
22,392

 
23,682

 
11,389

Various
Merritt Island, FL
—

 
701

 
8,869

 
—

 
701

 
8,869

 
9,570

 
7,364

10/17/1991
New Port Richey, FL
—

 
228

 
3,023

 
—

 
228

 
3,023

 
3,251

 
749

2/1/2010
Plant City, FL
—

 
405

 
8,777

 
—

 
405

 
8,777

 
9,182

 
7,228

10/17/1991
Stuart, FL
—

 
787

 
9,048

 
—

 
787

 
9,048

 
9,835

 
7,653

10/17/1991
Trenton, FL
—

 
851

 
11,312

 
—

 
851

 
11,312

 
12,163

 
2,804

2/1/2010
Glasgow, KY
—

 
33

 
2,110

 
—

 
33

 
2,110

 
2,143

 
2,059

10/17/1991
Greenfield, MA
—

 
370

 
4,341

 
—

 
370

 
4,341

 
4,711

 
725

8/30/2013
Holyoke, MA
—

 
110

 
944

 
—

 
110

 
944

 
1,054

 
166

8/30/2013
Quincy, MA
—

 
450

 
710

 
—

 
450

 
710

 
1,160

 
115

8/30/2013
Taunton, MA
—

 
900

 
5,906

 
—

 
900

 
5,906

 
6,806

 
995

8/30/2013
Desloge, MO
—

 
178

 
3,804

 
—

 
178

 
3,804

 
3,982

 
3,580

10/17/1991
Joplin, MO
—

 
175

 
4,034

 
—

 
175

 
4,034

 
4,209

 
2,990

10/17/1991
Kennett, MO
—

 
180

 
4,928

 
—

 
180

 
4,928

 
5,108

 
4,593

10/17/1991
Maryland Heights, MO
—

 
482

 
5,512

 
—

 
482

 
5,512

 
5,994

 
5,512

10/17/1991
St. Charles, MO
—

 
150

 
4,790

 
—

 
150

 
4,790

 
4,940

 
4,405

10/17/1991
Manchester, NH (2 facilities)
—

 
790

 
20,077

 
—

 
790

 
20,077

 
20,867

 
3,294

8/30/2013
Epsom, NH
—

 
630

 
2,191

 
—

 
630

 
2,191

 
2,821

 
382

8/30/2013
Albany, OR
—

 
190

 
10,415

 
—

 
190

 
10,415

 
10,605

 
1,829

3/31/2014
Creswell, OR
—

 
470

 
8,946

 
—

 
470

 
8,946

 
9,416

 
1,505

3/31/2014
Forest Grove, OR
—

 
540

 
11,848

 
—

 
540

 
11,848

 
12,388

 
2,006

3/31/2014
Anderson, SC
—

 
308

 
4,643

 
—

 
308

 
4,643

 
4,951

 
4,477

10/17/1991
Greenwood, SC
—

 
222

 
3,457

 
—

 
222

 
3,457

 
3,679

 
3,199

10/17/1991
Laurens, SC
—

 
42

 
3,426

 
—

 
42

 
3,426

 
3,468

 
3,042

10/17/1991
Orangeburg, SC
—

 
300

 
3,714

 
—

 
300

 
3,714

 
4,014

 
1,109

9/25/2008
Athens, TN
—

 
38

 
1,463

 
—

 
38

 
1,463

 
1,501

 
1,350

10/17/1991
Chattanooga, TN
—

 
143

 
2,309

 
—

 
143

 
2,309

 
2,452

 
2,313

10/17/1991

100
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Dickson, TN
—

 
90

 
3,541

 
—

 
90

 
3,541

 
3,631

 
3,108

10/17/1991
Franklin, TN
—

 
47

 
1,130

 
—

 
47

 
1,130

 
1,177

 
1,110

10/17/1991
Hendersonville, TN
—

 
363

 
3,837

 
—

 
363

 
3,837

 
4,200

 
3,122

10/17/1991
Johnson City, TN
—

 
85

 
1,918

 
—

 
85

 
1,918

 
2,003

 
1,918

10/17/1991
Lewisburg, TN (2 facilities)
—

 
46

 
994

 
—

 
46

 
994

 
1,040

 
999

10/17/1991
McMinnville, TN
—

 
73

 
3,618

 
—

 
73

 
3,618

 
3,691

 
3,089

10/17/1991
Milan, TN
—

 
41

 
1,826

 
—

 
41

 
1,826

 
1,867

 
1,667

10/17/1991
Pulaski, TN
—

 
53

 
3,921

 
—

 
53

 
3,921

 
3,974

 
3,384

10/17/1991
Lawrenceburg, TN
—

 
98

 
2,900

 
—

 
98

 
2,900

 
2,998

 
2,349

10/17/1991
Dunlap, TN
—

 
35

 
3,679

 
—

 
35

 
3,679

 
3,714

 
3,040

10/17/1991
Smithville, TN
—

 
35

 
3,816

 
—

 
35

 
3,816

 
3,851

 
3,258

10/18/1991
Somerville, TN
—

 
26

 
677

 
—

 
26

 
677

 
703

 
678

10/19/1991
Sparta, TN
—

 
80

 
1,602

 
—

 
80

 
1,602

 
1,682

 
1,518

10/20/1991
Austin, TX
—

 
606

 
9,895

 
—

 
606

 
9,895

 
10,501

 
1,092

4/1/2016
Canton, TX
—

 
420

 
12,330

 
—

 
420

 
12,330

 
12,750

 
2,728

4/18/2013
Corinth, TX
—

 
1,075

 
13,935

 
—

 
1,075

 
13,935

 
15,010

 
3,315

4/18/2013
Ennis, TX
—

 
986

 
9,025

 
—

 
986

 
9,025

 
10,011

 
2,483

10/31/2011
Euless, TX
—

 
1,241

 
12,629

 
—

 
1,241

 
12,629

 
13,870

 
1,515

4/1/2016
Fort Worth, TX
—

 
1,380

 
14,370

 
—

 
1,380

 
14,370

 
15,750

 
805

5/10/2018
Garland, TX
—

 
1,440

 
14,310

 
—

 
1,440

 
14,310

 
15,750

 
800

5/10/2018
Gladewater, TX
—

 
70

 
17,840

 
—

 
70

 
17,840

 
17,910

 
1,871

4/1/2016
Greenville, TX
—

 
1,800

 
13,948

 
—

 
1,800

 
13,948

 
15,748

 
3,517

10/31/2011
Houston, TX (3 facilities)
—

 
2,808

 
42,511

 
—

 
2,808

 
42,511

 
45,319

 
11,429

Various
Katy, TX
—

 
610

 
13,893

 
—

 
610

 
13,893

 
14,503

 
1,549

4/1/2016
Kyle, TX
—

 
1,096

 
12,279

 
—

 
1,096

 
12,279

 
13,375

 
3,188

6/11/2012
Marble Falls, TX
—

 
480

 
14,989

 
—

 
480

 
14,989

 
15,469

 
1,629

4/1/2016
McAllen, TX
—

 
1,175

 
8,259

 
—

 
1,175

 
8,259

 
9,434

 
1,010

4/1/2016
New Braunfels, TX
—

 
1,430

 
13,666

 
—

 
1,430

 
13,666

 
15,096

 
1,316

2/24/2017
San Antonio, TX (3 facilities)
—

 
2,370

 
40,054

 
—

 
2,370

 
40,054

 
42,424

 
7,119

Various
Waxahachie, TX
—

 
1,330

 
14,349

 
—

 
1,330

 
14,349

 
15,679

 
960

1/17/2018
Bristol, VA
—

 
176

 
2,511

 
—

 
176

 
2,511

 
2,687

 
2,320

10/17/1991
Oak Creek, WI
—

 
2,000

 
14,903

 
—

 
2,000

 
14,903

 
16,903

 
—

12/7/2018
 
—

 
37,810

 
550,312

 
—

 
37,810

 
550,312

 
588,122

 
181,978

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

101
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Assisted Living Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rainbow City, AL
—

 
670

 
11,330

 
—

 
670

 
11,330

 
12,000

 
2,049

10/31/2013
Sacramento, CA
—

 
660

 
10,840

 
—

 
660

 
10,840

 
11,500

 
1,772

6/1/2014
Pueblo West, CO
—

 
169

 
7,431

 
—

 
169

 
7,431

 
7,600

 
93

7/23/2019
Bartow, FL
—

 
225

 
3,192

 
—

 
225

 
3,192

 
3,417

 
834

11/30/2010
Lakeland, FL
—

 
307

 
3,117

 
—

 
307

 
3,117

 
3,424

 
820

11/30/2010
Maitland, FL
—

 
1,687

 
5,428

 
—

 
1,687

 
5,428

 
7,115

 
3,513

8/6/1996
St. Cloud, FL
—

 
250

 
3,167

 
—

 
250

 
3,167

 
3,417

 
834

11/30/2010
Greensboro, GA
—

 
672

 
4,849

 
631

 
672

 
5,480

 
6,152

 
1,156

9/15/2011
Ames, IA
3,193

 
360

 
4,670

 
—

 
360

 
4,670

 
5,030

 
874

6/28/2013
Burlington, IA
3,901

 
200

 
8,374

 
—

 
200

 
8,374

 
8,574

 
1,570

6/28/2013
Cedar Falls, IA
3,752

 
260

 
4,700

 
30

 
260

 
4,730

 
4,990

 
909

6/28/2013
Clinton, IA
2,596

 
133

 
3,215

 
60

 
133

 
3,275

 
3,408

 
838

6/30/2010
Ft. Dodge, IA
4,008

 
100

 
7,208

 
—

 
100

 
7,208

 
7,308

 
1,320

6/28/2013
Iowa City, IA
2,357

 
297

 
2,725

 
33

 
297

 
2,758

 
3,055

 
767

6/30/2010
Marshalltown, IA
5,714

 
240

 
6,208

 
—

 
240

 
6,208

 
6,448

 
1,155

6/28/2013
Muscatine, IA
—

 
140

 
1,802

 
—

 
140

 
1,802

 
1,942

 
385

6/28/2013
Urbandale, IA
8,113

 
540

 
4,292

 
—

 
540

 
4,292

 
4,832

 
845

6/28/2013
West Des Moines, IA
—

 
600

 
17,406

 
—

 
600

 
17,406

 
18,006

 
1,670

7/12/2013
Caldwell, ID
—

 
320

 
9,353

 
—

 
320

 
9,353

 
9,673

 
1,547

3/31/2014
Weiser, ID
—

 
20

 
2,433

 
—

 
20

 
2,433

 
2,453

 
447

12/21/2012
Aurora, IL
—

 
1,195

 
11,713

 
—

 
1,195

 
11,713

 
12,908

 
1,118

5/9/2017
Bolingbrook, IL
—

 
1,290

 
14,677

 
—

 
1,290

 
14,677

 
15,967

 
1,134

3/16/2017
Bourbonnais, IL
7,974

 
170

 
16,594

 
—

 
170

 
16,594

 
16,764

 
3,009

6/28/2013
Crystal Lake, IL (2 facilities)
—

 
1,060

 
30,043

 
170

 
1,060

 
30,213

 
31,273

 
2,634

Various
Gurnee, IL
—

 
1,244

 
13,856

 
—

 
1,244

 
13,856

 
15,100

 
137

9/10/2019
Moline, IL
3,896

 
250

 
5,630

 
—

 
250

 
5,630

 
5,880

 
1,061

6/28/2013
Oswego, IL
—

 
390

 
20,957

 
212

 
390

 
21,169

 
21,559

 
2,008

6/1/2016
Peoria, IL
3,933

 
403

 
4,532

 
224

 
403

 
4,756

 
5,159

 
1,360

10/19/2009
Quincy, IL
6,055

 
360

 
12,403

 
—

 
360

 
12,403

 
12,763

 
2,252

6/28/2013
Rockford, IL
6,412

 
390

 
12,575

 
—

 
390

 
12,575

 
12,965

 
2,346

6/28/2013
South Barrington, IL
—

 
1,610

 
13,456

 
—

 
1,610

 
13,456

—

15,066

 
1,061

3/16/2017
Springfield, IL
15,386

 
450

 
19,355

 
200

 
450

 
19,555

 
20,005

 
3,517

6/28/2013
St. Charles, IL
—

 
820

 
22,188

 
252

 
820

 
22,440

 
23,260

 
2,148

6/1/2016

102
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Tinley Park, IL
—

 
1,622

 
11,354

 
—

 
1,622

 
11,354

 
12,976

 
1,296

6/23/2016
Carmel, IN
—

 
463

 
7,055

 
—

 
463

 
7,055

 
7,518

 
1,578

11/12/2014
Crawfordsville, IN
2,559

 
300

 
3,134

 
—

 
300

 
3,134

 
3,434

 
597

6/28/2013
Crown Point, IN
—

 
574

 
7,336

 
353

 
574

 
7,689

 
8,263

 
1,474

10/30/2013
Greenwood, IN
—

 
791

 
7,020

 
227

 
791

 
7,247

 
8,038

 
1,619

11/7/2013
Valparaiso, IN
—

 
1,414

 
16,099

 
—

 
1,414

 
16,099

 
17,513

 
269

5/31/2019
Mission, KS
—

 
1,901

 
17,310

 
636

 
1,901

 
17,946

 
19,847

 
4,455

9/30/2012
Overland Park, KS
—

 
2,199

 
20,026

 
—

 
2,199

 
20,026

 
22,225

 
5,049

9/30/2012
Bastrop, LA
—

 
325

 
2,456

 
—

 
325

 
2,456

 
2,781

 
650

4/30/2011
Bossier City, LA
—

 
500

 
3,344

 
—

 
500

 
3,344

 
3,844

 
920

4/30/2011
Minden, LA
—

 
280

 
1,698

 
—

 
280

 
1,698

 
1,978

 
446

4/30/2011
West Monroe, LA
—

 
770

 
5,627

 
—

 
770

 
5,627

 
6,397

 
1,415

4/30/2011
Baltimore, MD
—

 
860

 
8,078

 
534

 
860

 
8,612

 
9,472

 
1,498

10/31/2013
Battle Creek, MI
2,866

 
398

 
3,093

 
197

 
398

 
3,290

 
3,688

 
962

10/19/2009
Bridgeport, MI
—

 
220

 
7,849

 
—

 
220

 
7,849

—

8,069

 
327

6/20/2018
Brighton, MI
—

 
410

 
13,090

 
—

 
410

 
13,090

 
13,500

 
232

5/22/2019
Lansing, MI (2 facilities)
6,218

 
1,360

 
17,766

 
174

 
1,360

 
17,940

 
19,300

 
3,035

10/19/2009
Midland, MI
5,416

 
504

 
6,612

 
162

 
504

 
6,774

 
7,278

 
1,842

10/19/2009
Saginaw, MI (2 facilities)
3,566

 
538

 
12,991

 
163

 
538

 
13,154

 
13,692

 
1,603

Various
Shelby Township, MI
—

 
570

 
10,230

 
—

 
570

 
10,230

 
10,800

 
207

4/30/2019
Champlin, MN
—

 
980

 
4,430

 
—

 
980

 
4,430

 
5,410

 
1,230

3/10/2010
Hugo, MN
—

 
400

 
3,800

 
—

 
400

 
3,800

 
4,200

 
1,040

3/10/2010
Maplewood, MN
—

 
1,700

 
6,510

 
—

 
1,700

 
6,510

 
8,210

 
1,798

3/10/2010
North Branch, MN
—

 
595

 
2,985

 
—

 
595

 
2,985

 
3,580

 
875

3/10/2010
Mahtomedi, MN
—

 
515

 
8,825

 
—

 
515

 
8,825

 
9,340

 
—

12/27/2019
Charlotte, NC
—

 
650

 
17,663

 
2,000

 
650

 
19,663

 
20,313

 
2,221

7/1/2015
Durham, NC
—

 
860

 
6,690

 
—

 
860

 
6,690

 
7,550

 
405

3/16/2017
Hendersonville, NC (2 facilities)
—

 
3,120

 
12,980

 
—

 
3,120

 
12,980

 
16,100

 
1,103

3/16/2017
Grand Island, NE
4,180

 
370

 
5,029

 
197

 
370

 
5,226

 
5,596

 
1,056

6/28/2013
Lincoln, NE
8,418

 
380

 
10,904

 
—

 
380

 
10,904

 
11,284

 
1,959

6/28/2013
Omaha, NE (2 facilities)
2,455

 
1,110

 
15,437

 
851

 
1,110

 
16,288

 
17,398

 
2,164

Various
Columbus, OH (2 facilities)
—

 
1,100

 
26,002

 
—

 
1,100

 
26,002

 
27,102

 
1,206

4/30/2018
Lancaster, OH
—

 
530

 
20,530

 
—

 
530

 
20,530

 
21,060

 
2,800

7/31/2015
Marysville, OH
—

 
1,250

 
13,950

 
—

 
1,250

 
13,950

 
15,200

 
2,755

7/1/2013

103
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Middletown, OH
8,492

 
940

 
15,548

 
—

 
940

 
15,548

 
16,488

 
2,340

10/31/2014
Rocky River, OH
—

 
650

 
7,201

 
—

 
650

 
7,201

 
7,851

 
360

4/30/2018
Worthington, OH
—

 
—

 
18,869

 
1,476

 
—

 
20,345

—

20,345

 
1,161

4/30/2018
McMinnville, OR
—

 
390

 
9,183

 
—

 
390

 
9,183

 
9,573

 
896

8/31/2016
Milwaukie, OR
—

 
370

 
5,283

 
64

 
370

 
5,347

 
5,717

 
743

9/30/2014
Ontario, OR (2 facilities)
—

 
429

 
6,128

 
—

 
429

 
6,128

 
6,557

 
1,131

12/21/2012
Portland, OR (2 facilities)
—

 
1,430

 
31,542

 
—

 
1,430

 
31,542

 
32,972

 
2,688

8/31/2015
Erie, PA
—

 
1,030

 
15,206

 
3

 
1,030

 
15,209

—

16,239

 
696

4/30/2018
Reading, PA
—

 
1,027

 
11,179

 
—

 
1,027

 
11,179

 
12,206

 
196

5/31/2019
Arlington, TX
—

 
450

 
4,555

 
26

 
450

 
4,581

 
5,031

 
407

3/16/2017
Rockwall, TX
—

 
1,250

 
10,562

 
—

 
1,250

 
10,562

 
11,812

 
854

3/16/2017
Fredericksburg, VA
—

 
1,615

 
9,271

 
—

 
1,615

 
9,271

 
10,886

 
992

9/20/2016
Midlothian, VA
—

 
1,646

 
8,635

 
—

 
1,646

 
8,635

 
10,281

 
945

10/31/2016
Suffolk, VA
—

 
1,022

 
9,320

 
—

 
1,022

 
9,320

 
10,342

 
777

3/25/2016
Beaver Dam, WI
—

 
210

 
20,149

 
113

 
210

 
20,262

 
20,472

 
4,068

12/21/2012
 
121,460

 
59,500

 
840,253

 
8,988

 
59,500

 
849,241

 
908,741

 
115,523

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent Living Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Smith, AR
—

 
590

 
22,447

 
—

 
590

 
22,447

 
23,037

 
3,674

12/23/2013
Rogers, AR
—

 
1,470

 
25,282

 
—

 
1,470

 
25,282

 
26,752

 
4,138

12/23/2013
Fresno, CA
—

 
420

 
10,899

 
—

 
420

 
10,899

 
11,319

 
1,876

12/23/2013
Hemet, CA
—

 
1,250

 
12,645

 
—

 
1,250

 
12,645

 
13,895

 
2,153

12/23/2013
Merced, CA
—

—

350

350

18,712

18,712

—

—

350

350

18,712


19,062

19,062

3,075

12/23/2013
Modesto, CA
—

 
1,170

 
22,673

 
—

 
1,170

350

22,673

 
23,843

 
3,661

12/23/2013
Pinole, CA
—

 
1,020

 
18,066

 
—

 
1,020

350

18,066

 
19,086

 
2,954

12/23/2013
Roseville, CA
—

 
630

 
31,343

 
—

 
630

350

31,343

 
31,973

 
5,070

12/23/2013
West Covina, CA
—

 
940

 
20,280

 
—

 
940

350

20,280

 
21,220

 
3,270

12/23/2013
Vero Beach, FL
—

 
550

 
37,450

 
—

 
550

350

37,450

 
38,000

 
967

2/1/2019
Athens, GA
—

 
910

 
31,940

 
—

 
910

 
31,940

 
32,850

 
5,162

12/23/2013
Columbus, GA
—

 
570

 
8,639

 
—

 
570

 
8,639

 
9,209

 
1,508

12/23/2013
Savannah, GA
—

 
1,200

 
15,851

 
—

 
1,200

 
15,851

 
17,051

 
2,636

12/23/2013
Boise, ID
—

 
400

 
12,422

 
—

 
400

 
12,422

 
12,822

 
2,069

12/23/2013
Columbus, IN
—

 
348

 
6,124

 
—

 
348

 
6,124

 
6,472

 
103

5/31/2019
Fort Wayne, IN
—

 
310

 
12,864

 
—

 
310

 
12,864

 
13,174

 
2,201

12/23/2013

104
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Kenner, LA
—

 
310

 
24,259

 
—

 
310

 
24,259

 
24,569

 
3,881

12/23/2013
St. Charles, MO
—

 
344

 
3,181

 
—

 
344

 
3,181

 
3,525

 
2,558

10/17/1991
Voorhees, NJ
—

 
670

 
23,710

 
—

 
670

 
23,710

 
24,380

 
3,816

12/23/2013
Gahanna, OH
—

 
920

 
22,919

 
—

 
920

 
22,919

 
23,839

 
3,771

12/23/2013
Broken Arrow, OK
—

 
2,660

 
18,477

 
—

 
2,660

 
18,477

 
21,137

 
3,079

12/23/2013
Tulsa, OK
17,622

 
1,980

 
32,620

 
501

 
1,980

 
33,121

 
35,101

 
1,929

12/1/2017
Newberg, OR
—

 
1,080

 
19,187

 
—

 
1,080

 
19,187

 
20,267

 
3,178

12/23/2013
Greenville, SC
—

 
560

 
16,547

 
—

 
560

 
16,547

 
17,107

 
2,761

12/23/2013
Myrtle Beach, SC
—

 
1,310

 
26,229

 
—

 
1,310

 
26,229

 
27,539

 
4,231

12/23/2013
Chattanooga, TN
—

 
9

 
1,567

 
—

 
9

 
1,567

 
1,576

 
1,329

10/17/1991
Johnson City, TN
—

 
55

 
4,077

 
—

 
55

 
4,077

 
4,132

 
3,040

10/17/1991
Bellevue, WA
—

 
780

 
18,692

 
—

 
780

 
18,692

 
19,472

 
3,044

12/23/2013
Chehalis, WA
—

 
1,980

 
7,710

 
7,445

 
1,980

 
15,155

 
17,135

 
879

1/15/2016
Vancouver, WA (2 facilities)
—

 
1,740

 
23,411

 
—

 
1,740

 
23,411

 
25,151

 
3,950

12/23/2013
Yakima, WA
—

 
440

 
14,186

 
—

 
440

 
14,186

 
14,626

 
2,348

12/23/2013
 
17,622

 
26,966

 
564,409

 
7,946

 
26,966

 
572,355

 
599,321

 
88,311

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Living Campuses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loma Linda, CA
—

 
1,200

 
10,800

 
7,326

 
1,200

 
18,126

 
19,326

 
3,169

9/28/2012
Bonita Springs, FL
—

 
1,810

 
24,382

 
—

 
1,810

 
24,382

 
26,192

 
3,078

7/1/2015
Maitland, FL
—

 
2,317

 
9,161

 
491

 
2,317

 
9,652

 
11,969

 
6,376

8/6/1996
West Palm Beach, FL
—

 
2,771

 
4,286

 
—

 
2,771

 
4,286

 
7,057

 
3,803

8/6/1996
Nampa, ID
—

 
243

 
4,182

 
—

 
243

 
4,182

 
4,425

 
2,552

8/13/1996
Michigan City, IN
—

 
974

 
22,667

 
—

 
974

 
22,667

 
23,641

 
378

5/31/2019
Portage, IN
—

 
661

 
21,959

 
—

 
661

 
21,959

 
22,620

 
368

5/31/2019
Needham, MA
—

 
5,500

 
45,157

 
—

 
5,500

 
45,157

 
50,657

 
1,395

1/15/2019
Salisbury, MD
—

 
1,876

 
44,084

 
—

 
1,876

 
44,084

 
45,960

 
763

5/31/2019
Roscommon, MI
—

 
44

 
6,005

 
—

 
44

 
6,005

 
6,049

 
805

8/31/2015
Mt. Airy, NC
—

 
1,370

 
7,470

 
150

 
1,370

 
7,620

 
8,990

 
1,125

12/17/2014
McMinnville, OR
—

 
410

 
26,667

 
—

 
410

 
26,667

 
27,077

 
2,451

8/31/2016
Madison, TN
—

 
920

 
21,829

 
104

 
920

 
21,933

 
22,853

 
2,748

7/1/2015
Silverdale, WA
—

 
1,750

 
23,860

 
2,167

 
1,750

 
26,027

 
27,777

 
5,392

8/16/2012
 
—

 
21,846

 
272,509

 
10,238

 
21,846

 
282,747

 
304,593

 
34,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

105
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Entrance-Fee Communities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bridgeport, CT
—

 
4,320

 
23,494

 
2,774

 
4,320

 
26,268

 
30,588

 
2,875

6/1/2016
North Branford, CT
—

 
7,724

 
64,430

 
—

 
7,724

 
64,430

 
72,154

 
5,700

11/3/2016
Southbury, CT
—

 
10,320

 
17,143

 
2,713

 
10,320

 
19,856

 
30,176

 
2,046

11/8/2016
Fernandina Beach, FL
—

 
1,430

 
63,420

 
1,522

 
1,430

 
64,942

 
66,372

 
8,826

12/17/2014
St. Simons Island, GA
—

 
8,770

 
38,070

 
963

 
8,770

 
39,033

 
47,803

 
5,547

12/17/2014
Winston-Salem, NC
—

 
8,700

 
73,920

 
507

 
8,700

 
74,427

 
83,127

 
10,356

12/17/2014
Greenville, SC
—

 
5,850

 
90,760

 
—

 
5,850

 
90,760

 
96,610

 
12,526

12/17/2014
Myrtle Beach, SC
—

 
3,910

 
82,140

 
542

 
3,910

 
82,682

 
86,592

 
11,630

12/17/2014
Pawleys Island, SC
—

 
1,480

 
38,620

 
460

 
1,480

 
39,080

 
40,560

 
5,718

12/17/2014
Spartanburg, SC
—

 
900

 
49,190

 
1,021

 
900

 
50,211

 
51,111

 
7,029

12/17/2014
 
—

 
53,404

 
541,187

 
10,502

 
53,404

 
551,689

 
605,093

 
72,253

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medical Office Buildings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crestview, FL
—

 
165

 
3,349

 
—

 
165

 
3,349

 
3,514

 
2,505

6/30/1993
Pasadena, TX
—

 
631

 
6,341

 
—

 
631

 
6,341

 
6,972

 
4,869

1/1/1995
 
—

 
796

 
9,690

 
—

 
796

 
9,690

 
10,486

 
7,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hospitals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
La Mesa, CA
—

 
4,180

 
8,320

 
—

 
4,180

 
8,320

 
12,500

 
2,676

3/10/2010
Jackson, KY
—

 
540

 
10,163

 
7,899

 
540

 
18,062

 
18,602

 
8,309

6/12/1992
Murfreesboro, TN
—

 
7,284

 
17,585

 
—

 
7,284

 
17,585

 
24,869

 
3,190

10/1/2012
 
—

 
12,004

 
36,068

 
7,899

 
12,004

 
43,967

 
55,971

 
14,175

 
Total continuing operations properties
139,082

 
212,326

 
2,814,428

 
45,573

 
212,326

 
2,860,001

 
3,072,327

 
514,017

 
Corporate office
—

 
1,291

 
677

 
551

 
1,291

 
1,228

 
2,519

 
436

 
 
$
139,082

 
$
213,617

 
$
2,815,105

 
$
46,124

 
$
213,617

 
$
2,861,229

 
$
3,074,846

 
$
514,453

 

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(A) See the notes to the consolidated financial statements.
(B) Depreciation is calculated using estimated useful lives up to 40 years for all completed facilities.
(C) Subsequent to NHC’s transfer of the original real estate properties in 1991, we have purchased from NHC $33,909,000 of additions to those properties. As the additions were purchased from NHC rather than developed by us, the $33,909,000 has been included as Initial Cost to Company.
(D) At December 31, 2019, the tax basis of the Company’s net real estate assets was $2,541,329,000.

106
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
 
December 31,
 
2019
 
2018
 
2017
Investment in Real Estate:
 
 
 
 
 
Balance at beginning of period
$
2,818,365

 
$
2,665,903

 
$
2,472,854

Additions through cash expenditures
237,186

 
147,645

 
175,793

Change in accounts payable related to investments in real estate construction
1,829

 
1,689

 
(1,855
)
Change in other assets related to investments in real estate
292

 
171

 
—

Tenant investment in leased asset
—

 
3,775

 
1,250

Contingent asset acquisition liability relieved
—

 
(818
)
 
—

Additions through assumption of debt
—

 
—

 
18,311

Real estate acquired in exchange for straight-line rent receivable
38,000

 
—

 
—

Real estate acquired in exchange for mortgage notes receivable
14,000

 
—

 
—

Sale of properties for cash
—

 
—

 
(450
)
Properties classified as held for sale
(34,826
)
 
—

 
—

Balance at end of period
$
3,074,846

 
$
2,818,365

 
$
2,665,903

 

 
 
 
 
Accumulated Depreciation:

 
 
 
 
Balance at beginning of period
$
451,483

 
$
380,202

 
$
313,080

Addition charged to costs and expenses
76,816

 
71,349

 
67,173

Amortization of right-of-use asset
60

 
—

 
—

Sale of properties
—

 
—

 
(51
)
Properties classified as held for sale
(13,906
)
 
—

 
—

Contingent asset acquisition liability relieved
—

 
(68
)
 
—

Balance at end of period
$
514,453

 
$
451,483

 
$
380,202




107
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2019
 
 
 
Monthly
 
 
 
 
Amount Subject To
 
Interest
Maturity
Payment
Prior
Original
Carrying
 
Delinquent Principal
 
Rate
Date
Terms
Liens
Face Amount
Amount
 
or Interest
 
 
 
 
 
(in thousands)
 
 
First Mortgages:
 
 
 
 
 
 
 
 
Skilled nursing facilities:
 
 
 
 
 
 
 
 
Virginia Beach, VA
8.0%
2031-12-31
$31,000
 
$
3,814

$
2,313

 
 
Lexington, VA
8.0%
2032-12-31
$21,000
 
$
3,089

$
1,686

 
 
Brookneal, VA
8.0%
2031-12-31
$21,000
 
$
2,780

$
1,640

 
 
Laurel Fork, VA
8.0%
2030-12-31
$20,000
 
$
2,672

$
1,535

 
 
 
 
 
 
 
 
 
 
 
Assisted living facilities:
 
 
 
 
 
 
 
 
Oviedo, FL
8.25%
2021-12-31
Interest Only
 
$
10,000

$
10,000

 
 
Rye, NH
8.0%
2022-12-31
Interest Only
 
$
10,000

$
9,948

 
 
Indianapolis, IN
7.0%
2022-12-31
Interest Only
 
$
6,423

$
6,423

 
 
 
 
 
 
 
 
 
 
 
Entrance fee communities:
 
 
 
 
 
 
 
 
Columbia, SC
7.3%
2024-12-31
Interest Only
 
$
32,700

$
32,700

 
 
 
 
 
 
 
 
 
 
 
Second Mortgages:
 
 
 
 
 
 
 
 
Assisted living facilities:
 
 
 
 
 
 
 
 
Green Bay, WI
13.0%
2020-12-31
Interest Only
 
$
3,870

$
3,834

 
 
 
 
 
 
 
 
 
 
 
Construction Loan:
 
 
 
 
 
 
 
 
Phoenix, AZ
7.25%
2028-12-31
Interest Only
 
$
77,340

$
75,871

 
 
Phoenix, AZ
8.50%
2023-12-31
Interest Only
 
$
45,938

$
45,938

 
 
Canton, MI
9.0%
2023-12-31
Interest Only
 
$
11,312

$
11,312

 
 
Shelby Township, MI
9.0%
2022-12-31
Interest Only
 
$
14,000

$
14,000

 
 
Virginia Beach, VA
9.0%
2023-12-31
Interest Only
 
$
11,804

$
11,804

 
 
Issaquah, WA
6.75%
2025-12-31
Interest Only
 
$
59,349

$
59,166

 
 
Oshkosh, WI
8.50%
2024-12-31
Interest Only
 
$
6,045

$
5,950

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
294,120

 
$
—


At December 31, 2019, the tax basis of our mortgage loans on real estate was $296,385,000. Balloon payments on our interest only mortgage receivables are equivalent to the carrying amounts listed above except for unamortized commitment fees of $1,835,000.

See the notes to our consolidated financial statements for more information on our mortgage loan receivables.

108
Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
 
December 31,
 
2019
 
2018
 
2017
Reconciliation of mortgage loans on real estate
 
 
 
 
 
Balance at beginning of period
$
202,877

 
$
98,110

 
$
99,179

Additions:
 
 
 
 
 
New mortgage loans
105,345

 
108,266

 
33,823

Amortization of loan discount and commitment fees
440

 
608

 
1,005

Total Additions
105,785

 
108,874

 
34,828

 
 
 
 
 
 
Deductions:
 
 
 
 
 
Loan commitment fees received
108

 
1,800

 
—

Mortgage notes receivable related to investments in real estate
14,000

 
—

 
—

Collection of principal, less recoveries of previous write-downs
434

 
2,307

 
35,897

Total Deductions
14,542

 
4,107

 
35,897

 
 
 
 
 
 
Balance at end of period
$
294,120

 
$
202,877

 
$
98,110





109


Exhibit 4.4


DESCRIPTION OF SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

The following description of the capital stock of National Health Investors, Inc. (the “Company,” “us,” “our” or “we,”) is a summary of the rights of our common stock and certain provisions of our charter, and our bylaws, as currently in effect. This summary does not purport to be complete and is qualified in its entirety by the provisions of our charter and bylaws, copies of which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein, and to the applicable provisions of Maryland and U.S. federal law. We encourage you to read our charter and bylaws, and the applicable provisions of Maryland and U.S. federal law for additional information.
Authorized Capital
Our charter authorizes us to issue up to 70,000,000 shares of capital stock, consisting of 60,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.
Voting Rights. With respect to all matters upon which shareholders are entitled to vote, except as required by applicable law, the holders of our common stock will be entitled to one vote in person or by proxy for each share of our common stock outstanding in the name of such shareholder on the record of shareholders. The holders of our outstanding common stock do not have the right to cumulate their votes with respect to the election of directors or any other matters. Generally, all matters to be voted on by our shareholders must be approved by a majority (or by a plurality in the case of election of directors where the number of candidates nominated for election exceeds the number of directors to be elected) of the votes entitled to be cast by all shares of our common stock present in person or by proxy.
Dividends. Subject to applicable law and rights, if any, of the holders of any outstanding class or series of preferred stock having a preference over our common stock with respect to the payment of dividends, dividends may be declared and paid on our common stock from time to time and in amounts as our board of directors may determine.
Liquidation Rights. Upon our liquidation or dissolution or the winding up of our business, whether voluntarily or involuntarily, the holders of our common stock will be entitled to share ratably in all assets available for distribution after payment or provision for the payment of our debt and liabilities and to holders of preferred stock then outstanding of any amount required to be paid to them.
Other Provisions. The holders of our common stock will not be entitled to any preemptive, subscription or redemption rights, and will not be entitled to the benefit of any sinking fund. All outstanding shares of our common stock are fully paid and nonassessable.
Miscellaneous. The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. Our common stock is listed on the NYSE under the symbol “NHI.”
Preferred Stock
Our board of directors is authorized to issue preferred stock in one or more series and, with respect to each series, to determine the number of shares constituting any series, and the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption.
We have no plans to issue any preferred stock or other new class of stock. Our preferred stock and the variety of characteristics available for it offers us flexibility in financing and acquisition transactions. An issuance of stock could dilute the book value or adversely affect the relative voting power of our common stock. The issuance of such shares could be used to discourage unsolicited business combinations, for example, by providing for class voting rights which would enable the holder to block such a transaction. Although our board of directors is required when issuing such stock to act based on its judgment as to the best interests of our shareholders, our board of directors could act in a manner which would discourage or prevent a transaction some shareholders might believe is in the Company’s best interests or in which shareholders could or would receive a premium for their shares over the market price. Our board of directors has authority to classify or reclassify authorized but unissued shares of stock by setting or changing the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications, and terms and conditions of redemption of stock.

1


Restrictions on Ownership and Transfer
Our charter contains certain limitations on the number of shares of our stock that any one shareholder may own, which limitations are designed to ensure that the Company maintains its status as a real estate investment trust, or REIT. Our charter provides that any transfer that would cause the Company to be beneficially owned by fewer than 100 persons or would cause the Company to be “closely held” under the Internal Revenue Code of 1986, or the Code, would be void. In addition, our charter provides that no person (as defined in the Code) may own directly or indirectly 9.9 percent or more of our common stock (as adjusted downward in accordance with our charter to take into account shares beneficially owned by “Excepted Holders” (as such term is defined in our charter)). These limitations are referred to below as the “ownership limits.” For purposes of the ownership limits, shares are beneficially owned by the person who is the actual owner or who is treated as the owner of such shares, directly, indirectly or constructively under the Code. The beneficial ownership of shares of common or preferred stock in excess of the ownership limits and any attempted transfer in violation of the ownership limits is void.
Our board of directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. Our charter provides that any shares owned in violation of the ownership limits will be automatically converted into shares of Excess Stock (as defined in our charter) effective as of the day before the transaction giving rise to the conversion. Upon conversion, shares of Excess Stock will be deemed to be contributed into a trust held for the sole benefit of a tax exempt charitable organization designated by our board of directors. Shares of Excess Stock will carry the same voting rights and rights to distributions and dividends as the shares from which they were converted. However, any distributions or dividends paid on the shares of Excess Stock will be held in the trust and all voting rights with respect to the shares of Excess Stock may be exercised only by the trustee. The trustee may sell shares of Excess Stock provided that any such sale would not result in a violation of the ownership limits. From the proceeds of such sale, the trustee is required to distribute to the record holder of such shares the lesser of (i) the price paid by the record owner for such shares (or, if no consideration was paid by such record owner, the average closing price for such shares for the ten trading days immediately preceding the date the record owner acquired such shares) or (ii) the proceeds receive by the trustee. All remaining proceeds will be distributed to the charitable beneficiary.
Our board of directors has the power to permit persons to own shares in excess of the percentage ownership limits described above (thereby causing such persons to become Excepted Holders) provided that our board of directors believes that our REIT status will not be jeopardized and any such persons enter into Excepted Holder agreements with the Company. The percentage ownership limit with respect to each Excepted Holder will be as set forth in such Excepted Holder’s agreement with the Company.
Effective April 29, 2008, we entered into Excepted Holder Agreements with W. Andrew Adams and certain members of his family. These written agreements are intended to restate and replace the parties’ prior verbal agreement. A separate agreement was entered into with each of the spouse and children of Dr. Carl E. Adams and others within Mr. W. Andrew Adams’ family. We needed to enter into such an agreement with each family member because of the complicated ownership attribution rules under the Code. These agreements permit the “Excepted Holders” to own stock in excess of 9.9% up to the limit specifically provided in the individual agreement and not lose rights with respect to such shares. However, if the shareholder’s stock ownership exceeds the limit then such shares in excess of the limit become Excess Stock. The purpose of these agreements is to ensure that the Company does not violate the prohibition against a REIT being closely held.
Based on the Excepted Holder Agreements currently outstanding, as of the date of this prospectus, the ownership limit of our outstanding common stock for all other shareholders who are not Excepted Holders is approximately 7.5%. This ownership limit may change if we enter into additional Excepted Holder Agreements. Our charter gives our board of directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limit.
Upon demand of the Company, each shareholder must disclose to the Company such information with respect to direct and indirect ownership of stock owned (or deemed to be owned after applying the rules applicable to REITs under the Code) as our board of directors deems reasonably necessary in order that the Company may fully comply with the REIT provisions of the Code. Proposed transferees of stock must also satisfy our board of directors, upon demand, that such transferees will not cause the Company to fall out of compliance with such provisions.



2


Anti-Takeover Effect of Certain Provisions of our Charter and Bylaws
Classified board of directors. Our charter divides our board of directors into three classes. Moreover, no director may be removed prior to the expiration of his or her term except for cause. These provisions in our charter may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of our company and may maintain the incumbency of our board of directors, because this structure generally increases the difficulty of, or may delay, replacing a majority of the directors.
Meetings of shareholders. Under our bylaws, annual meetings of shareholders are to be held each year on the last Thursday of April or at such other date and time as determined by our board of directors Special meetings of Shareholders a majority of the directors then in office, by the chairman of our board of directors or our president. Additionally, subject to the provisions of our bylaws, special meetings of the shareholders shall be called by our secretary upon the written request of shareholders entitled to cast not less than 25% of the votes entitled to be cast at such meeting. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Maryland law and our bylaws provide that any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting by unanimous written consent, if that consent sets forth that action and is signed by each shareholder entitled to vote on the matter.
Filling of board vacancies. Vacancies on our board of directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of our directors then in office. Each person so appointed will hold office until his or her successor has been duly elected or qualified, or until his or her earlier resignation, removal or disqualification.
Amendment of the bylaws. To the fullest extent permitted by the Maryland General Corporation Law, our board of directors shall have the power at any annual, regular or special meeting (with appropriate notice), to alter or repeal any of our bylaws and to make new bylaws. Our shareholders shall have the power at any annual or special meeting (with appropriate notice), with the approval of shareholders holding more than 66 2/3% of all outstanding shares of our capital stock, to alter or repeal any of our bylaws and to make new bylaws.
Advance notice of director nominations. Our bylaws include an advance notice provision, informational requirements and time limitations on any director nomination that a shareholder wishes to make at a meeting of shareholders. Failure to comply with these advance notice, timing and informational requirements can result in a shareholder’s director nomination not being considered at a meeting of shareholders. The purpose of requiring shareholders to give advance notice of nominations is to afford our board of directors the opportunity to consider the qualifications of the proposed nominees and, to the extent considered necessary by our board of directors, to inform shareholders and make recommendations regarding the nominations. The advance notice procedures also permit a more orderly procedure for conducting our shareholder meetings. Although our bylaws do not give our board of directors the power to disapprove timely shareholder nominations made in accordance with our bylaws, our bylaws may have the effect of precluding a contest for the election of directors if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors to our board of directors.
Ownership limitations. Primarily to protect us against the risk of losing our status as a REIT, our charter contains provisions that limit the ownership by any person of shares of any class or series of our capital stock. These provisions may have the effect of inhibiting or impeding a change in control.
Anti-Takeover Effect of Maryland Law
In addition to certain provisions of our charter and bylaws discussed above, Maryland has adopted a series of statutes which can have an anti-takeover effect and may delay or prevent a takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for our capital stock.
The Maryland General Corporation Law
The Maryland General Corporation Law applies to all Maryland corporations. It imposes a five-year standstill on transactions such as mergers, share exchanges, sales of assets, liquidations and other interested party transactions between Maryland corporations and “interested shareholders” and their associates or affiliates, unless the business combination is approved by the board of directors before the interested shareholder goes above a 10% ownership threshold. Thereafter, the transaction either requires a two-thirds vote of the shareholders other than the interested shareholder and an 80% vote of all shareholders or satisfaction of minimum price standards.

3


Control Share Acquisitions
The provisions of the Maryland Control Share Acquisition Act provide that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to those shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:
•
one-tenth or more but less than one-third;
•
one-third or more but less than a majority; or
•
majority or more of all voting power.

Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval or shares acquired directly from the corporation. A control share acquisition means, subject to certain exceptions, the acquisition of issued and outstanding control shares.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any shareholders’ meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or, if a meeting of shareholders at which the voting rights of the shares are considered and not approved, as of the date of that meeting. If voting rights for control shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to (a) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) acquisitions approved or exempted by the charter or bylaws of the corporation. Our charter provides that the voting rights of shares of our stock held by a person identified by our board of directors as a “Current Excepted Holder” and their affiliates shall not be governed by the control share provisions of the Maryland General Corporation Law.

27794911.1


4



 
MASTER AGREEMENT TO LEASE

between

NATIONAL HEALTH INVESTORS, INC., Landlord

and

NATIONAL HEALTHCORP L.P., Tenant

Dated: October 17, 1991

 
 
 
 
 
 
 
 
 





Table of Contents
 
 
 
 
 
 
 
Page
ARTICLE I:
SEPARATE LEASE AGREEMENTS; PREMISES AND TERM
1
 
1.01
Separate Lease Agreements
1
 
1.02
Leased Property
2
 
1.03
Term
2
 
1.05
Holding Over
3
 
1.06
Surrender
3
 
 
 
 
ARTICLE II:
RENT
3
 
2.01
Base Rent
3
 
2.02
Additional Rent
4
 
2.03
Place(s) of Payment of Rent; Direct
 
 
 
    Payment of Additional Rent
4
 
2.04
Net Lease
5
 
2.05
No Termination, Abatement, Etc
5
 
2.06
Percentage Rent
6
 
 
 
 
ARTICLE III:
IMPOSITIONS AND UTILITIES
7
 
3.0l
Payment of Impositions
7
 
3.02
Definition of Impositions
9
 
3.03
Escrow of Impositions
9
 
3.04
Utilities
10
 
3.05
Discontinuance of Utilities
11
 
 
 
 
ARTICLE IV:
INSURANCE
11
 
4.01
Property Insurance
11
 
4.02
Liability Insurance
12
 
4.03
Insurance Requirements
12
 
4.04
Replacement Cost
13
 
4.05
Blanket Policy
13
 
4.06
No Separate Insurance
13
 
4.07
Waiver of Subrogation
14
 
4.08
Mortgages
14
 
4.09
Escrows
14
 
 
 
 
ARTICLE V:
INDEMNITY; HAZARDOUS SUBSTANCES
14
 
5.01
Tenant's Indemnification
14
 
5.02
Hazardous Substances or Materials
15
 
5.03
Limitation of Landlord's Liability
16
 
 
 
 
ARTICLE VI:
USE AND ACCEPTANCE OF PREMISES
16
 
6.01
Use of Leased Property
16
 
6.02
Acceptance of Leased Property
16
 
6.03
Conditions of Use and Occupancy
17
 
6.04
Financial Statements
17
i




 
 
 
 
ARTICLE VII:
REPAIRS, COMPLIANCE WITH LAWS,
 
 
    AND MECHANICS' LIENS
17
 
7.01
Maintenance
17
 
7.02
Compliance With Laws
18
 
7.03
Required Alterations
18
 
7.04
Mechanic's Liens
18
 
7.05
Replacements of Fixtures
19
 
 
 
 
ARTICLE VIII:
ALTERATIONS AND SIGNS
19
 
8.01
Prohibition on Alterations and Improvements
19
 
8.02
Requirements for Permitted Alterations
20
 
8.03
Ownership and Removal of Permitted Alterations
21
 
8.04
Signs
21
 
 
 
 
ARTICLE IX:
DEFAULTS AND REMEDIES
21
 
9.01
Events of Default
21
 
9.02
Remedies
23
 
9.03
Right of Set-Off
26
 
9.04
Performance of Tenant's Covenants
26
 
9.05
Late Charge
26
 
9.06
Litigation; Attorneys' Fees
26
 
9.07
Remedies Cumulative
27
 
9.08
Escrows and Application of Payments
27
 
9.09
Power of Attorney
27
 
 
 
 
ARTICLE X:
DAMAGE AND DESTRUCTION
27
 
10.01
General
27
 
10.02
Landlord's Inspection
28
 
10.03
Landlord's Costs
29
 
10.04
Rent Abatement
29
 
10.05
Substantial Damage During Lease Term
29
 
 
 
 
ARTICLE XI:
CONDEMNATION
 
 
11.01
Total Taking
30
 
11.02
Partial Taking
30
 
 
 
 
ARTICLE XII:
TENANT'S PROPERTY
31
 
12.01
Tenant's Property
31
 
12.02
Requirements for Tenant's Property
31
 
 
 
 
ARTICLE XIII:
TENANT'S RIGHTS OF FIRST REFUSAL
32
 
13.01
Rights of First Refusal
 
 
 
 
 
ARTICLE XIV:
ASSIGNMENT AND SUBLETTING; ATTORNMENT
34
 
14.01
Subletting and Assignment; Attornment
34
 
14.02
Attornment
34
 
14.03
Sublease Limitation
34
ii




 
 
 
 
ARTICLE XVI:
ARBITRATION
35
 
 
 
 
16.01
Arbitration
35
 
16.02
Appointment of
35
 
16.03
Third Arbitrator
36
 
16.04
Arbitration Procedure
36
 
16.05
Expenses
36
 
 
 
 
ARTICLE XVII:
QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,
 
 
 
       BOND FINANCING AND ESTOPPEL CERTIFICATES
36
 
17.01
Quiet Enjoyment
36
 
17.02
Subordination
36
 
17.03
Attornment; Non-Disturbance
37
 
17.04
Estoppel Certificates
37
 
 
 
 
ARTICLE XVIII:
MISCELLANEOUS
38
 
18.01
Notices
38
 
18.02
Advertisement of Leased Property
39
 
18.03
Entire Agreement
39
 
18.04
Severability
39
 
18.05
Captions and Headings
40
 
18.06
Governing Law
40
 
18.07
Recording of Lease
40
 
18.08
Waiver
40
 
18.09
Binding Effect
40
 
18.10
Authority
40
 
18.11
Transfer of Permits, Etc
40
 
18.12
Modification
41
 
18.13
Incorporation by Reference
41
 
18.14
No Merger
41
 
18.15
Laches
41
 
18.16
Waiver of Jury Trial
41
 
18.18
Permitted Contests
42
 
18.19
Construction of Lease
43
 
18.20
Counterparts
43
 
18.21
Relationship of Landlord and Tenant
43
 
18.22
Custody of Escrow Funds
43
 
18.23
Landlord's Status as a REIT
43
 
18.24
Sale of Real Estate Assets
43
 
18.25
Use of Tenant's Name
44
iii






                                       MASTER AGREEMENT TO LEASE


AGREEMENT dated as of the ___ day of ________, 1991 by and between
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation, ("Landlord") and
NATIONAL HEALTHCORP L.P., a Delaware limited partnership ("Tenant").

RECITALS

WHEREAS, Tenant has concurrently conveyed to Landlord various
properties upon which Tenant engages in the business of operating nursing homes
and healthcare facilities, which properties are listed on Schedule A attached
hereto (the "Real Estate Conveyance"), and Landlord and Tenant desire to provide
for the lease by Landlord back to the Tenant of such properties; and

WHEREAS, Landlord may from time to time lease additional properties
that Landlord may acquire to Tenant; and

WHEREAS, Landlord and Tenant desire that each of the properties
listed on Schedule A and each additional property that Landlord may lease to
Tenant shall be the subject of a separate and individual Lease Agreement
describing said property, the rent and various other terms of said lease (each
such Lease Agreement referred to individually as a "Lease" and the property that
is the subject of an individual Lease being referred to as "Leased Property");
and

WHEREAS, Landlord and Tenant desire to set forth in this Agreement
certain terms and conditions applicable to all Leases of all Leased Properties,
except as any individual Lease with respect to a particular Leased Property may
otherwise provide;

NOW, THEREFORE, in consideration of the premises and of their
respective agreements and undertakings herein and in each Lease, Landlord and
Tenant agree as follows:

ARTICLE I: SEPARATE LEASE AGREEMENTS; PREMISES AND TERM

1.01 Separate Lease Agreements. Landlord and Tenant are
concurrently entering into a separate Lease for each of the Leased Properties
referred to in Schedule A hereto, and may in the future enter into one or more
additional separate Leases for one or more additional Leased Properties. Except
as specifically set forth in a separate Lease, or any amendment, supplement,
schedule or exhibit thereto, all of the provisions of this Agreement shall be
deemed to be incorporated into and made a part of each such separate Lease made
between the Landlord as landlord (or lessor) and the Tenant as tenant (or
Lessee) during the Term of such separate Lease.







                                                      1






1.02 Leased Property. Except as set forth in an individual Lease
(including any schedule or exhibit thereto), the property that is the subject of
each Lease and that shall be considered as leased by the Landlord to the Tenant
thereunder shall consist of:

(a) The land described in the Lease ("Land");

(b) All buildings, structures, and other improvements,
including without limitation sidewalks, alleys, utility pipes,
conduits, and lines, parking areas, and roadways, now or hereafter
situated upon the Land ("Improvements");

(c) All easements, rights and other appurtenances relating
to the Land and Improvements ("Appurtenances");

(d) All permanently affixed equipment, machinery, fixtures,
and other items of real property, including all components thereof,
located in, or used in connection with, and permanently affixed to or
incorporated into the Improvements, including without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating (but not movable refrigerators),
incineration, air and water pollution control, waste disposal
air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, and built-in oxygen
and vacuum systems, all of which, to the greatest extent permitted by
law, are hereby deemed by the parties hereto to constitute real estate,
together with all replacements, modifications, alterations and
additions thereto, but specifically excluding items within the category
of "Tenant's Property" defined in Section 12.01 hereof (collectively
the "Fixtures").

The Land, Improvements, Appurtenances and Fixtures are hereinafter referred to
as the "Leased Property".

SUBJECT, HOWEVER, to the easements, liens, encumbrances, restrictions,
agreements, and other title matters listed or specifically referred to in any
individual Lease ("Permitted Exceptions").

1.03 Term. To have and to hold, unless otherwise provided in an
individual Lease, the initial term (the "Initial Term") of each Lease is ten
(10) years and three (3) months commencing on October 1, 1991, (the
"Commencement Date") and expiring on December 31, 2001. Provided that no Event
of Default has occurred and that Tenant gives Landlord notice on or before
December 31, 2000, Tenant shall have the option to renew all (but except as
Landlord shall otherwise specifically agree in writing not less than all) Leases
for one (1) additional five (5) year term commencing January 1, 2002 (the "First
Renewal Term") on the same terms (other than with respect to renewal) as the
Initial Term; and provided that no Event



                                                               2






of Default has occurred and that Tenant gives Landlord notice on or before
December 31, 2005, Tenant shall have the option to renew all (but except as
Landlord shall otherwise specifically agree in writing not less than all) Leases
for one (1) further five (5) year term commencing January 1, 2007 (the "Second
Renewal Term") on the same terms (other than with respect to renewal and except
that Base Rent shall be determined in accordance with Section 2.01.01). The term
"Term" means the Initial Term and each Renewal Term as appropriate. The term
"Lease Year" means each twelve (12) month period during the Term commencing on
January 1 and ending on December 31, except the first Lease Year shall be the
period from the Commencement Date through the following December 31, and the
last Lease Year shall end on the date of termination of the Lease if a day other
than December 31.

1.05 Holding Over. Should Tenant, without the express consent of
Landlord, continue to hold and occupy the Leased Property after the expiration
of the Term, such holding over beyond the Term and the acceptance or collection
of Rent by the Landlord shall operate and be construed as creating a tenancy
from month-to-month and not for any other term whatsoever. During any such
holdover period Tenant shall pay to Landlord for each month Tenant remains in
the Leased Property one hundred fifty (150%) percent of the Base Rent in effect
on the expiration date. Said month-to-month tenancy may be terminated by
Landlord by giving Tenant ten (10) days written notice, and at any time
thereafter Landlord may re-enter and take possession of the Leased Property.

1.06 Surrender. Except for (i) Permitted Alterations; (ii) normal and
reasonable wear and tear (subject to the obligation of Tenant to maintain the
Leased Property in good order and repair during the Term); and (iii) casualty,
taking or other damage and destruction not required to be repaired by Tenant,
Tenant shall surrender and deliver up the Leased Property at the expiration or
termination of the Term broom clean, free of all Tenant's equipment and personal
property, and in as good order and condition as of the Commencement Date.

ARTICLE II: RENT

2.01 Base Rent. Unless otherwise provided in an individual Lease and
subject to the provisions of Section 2.01.01 with respect to Base Rent in the
Second Renewal Term (if any), Tenant shall pay Landlord base rent for each
Property that is the subject of a Lease in the amount specified therein (the
"Base Rent") for the Term in consecutive monthly installments payable in advance
on the Commencement Date of each Lease and thereafter on the first day of each
month during the Term, in accordance with the Base Rent Schedule set forth in or
attached to each individual Lease.

2.01.01 Base Rent During Second Renewal Term. The Base Rent for each
Leased Property during the Second Renewal Term shall be



                                                               3






the then fair rental value of such Leased Property as negotiated between the
parties and determined without including any value attributable to improvements
to the Leased Property voluntarily made by Tenant at its expense.

2.02 Additional Rent. The Tenant shall pay Additional Rent
consisting of the Assumed Mortgage Debt Service Rent and Other
Additional Debt described in this Section 2.02.

2.02.01 Assumed Mortgage Debt Service Rent. Landlord and Tenant
acknowledge that, in connection with the Real Estate Conveyance, Landlord has
purchased the Leased Property subject to all existing mortgages, deeds of trust
and other debt instruments which were incurred by Tenant or on behalf of Tenant
on or prior to the closing of the Real Estate Conveyance (or through any
refinancing of the same) as more specifically described in the Permitted
Exceptions (hereinafter collectively referred to as "Assumed Mortgage Debt"). In
connection with the Assumed Mortgage Debt, arrangements have been made with the
various holders of the Assumed Mortgage Debt with respect to the continuing
payment of the same directly by Tenant, and the amount so payable from time to
time is herein called "Assumed Mortgage Debt Service Rent." "Assumed Mortgage
Debt" also includes the amount of any Assumed Mortgage Debt secured by a Leased
Property that is refinanced because such Assumed Mortgage Debt matures or the
maker of such Debt is required to pay it in its entirety during the Term of a
Lease. In the event that Landlord shall for any reason itself discharge
(including by prepayment) any Assumed Mortgage Debt, Tenant shall thereafter pay
the relevant Assumed Mortgage Debt Service Rent directly to Landlord in
accordance with the original payment terms of the Assumed Mortgage Debt so
discharged.

2.02.02 Other Additional Rent. In addition to Base Rent, Assumed
Mortgage Service Debt Rent and Percentage Rent (as hereinafter defined in
Section 2.06), Tenant shall pay all other amounts, liabilities, obligations and
Impositions (as hereinafter defined) which Tenant assumes or agrees to pay under
this Agreement or any Lease and any fine, penalty, interest, charge and cost
which may be added for nonpayment or late payment of such items (collectively
the "Other Additional Rent").

2.03 Place(s) of Payment of Rent; Direct Payment of Additional Rent.
The Base Rent, Percentage Rent, and Additional Rent are hereinafter referred to
as "Rent". Landlord shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Agreement, in any Lease or by
statute or otherwise in the case of nonpayment of the Rent. Tenant shall make
all payments of Base Rent and of Percentage Rent at Landlord's principal place
of business or as Landlord may otherwise from time to time direct in writing,
and all payments of Assumed Mortgage Debt Service Rent and of Other Additional
Rent directly to the person or persons to whom such amount is owing at the time
and

                                                               4






times when such payments are due, and shall give to Landlord such evidence of
such direct payments as Landlord shall reasonably request.

2.04 Net Lease. This Lease shall be deemed and construed to be an
"absolute net lease" or "triple net lease", and Tenant shall pay all Rent and
other charges and expenses in connection with the Leased Property throughout the
Term, without abatement, deduction or set-off.

2.05 No Termination, Abatement, Etc. Except as otherwise specifically
provided in this Agreement or a particular Lease, Tenant shall remain bound by
this Agreement or such Lease in accordance with its terms. Except as otherwise
specifically provided in the Agreement or a particular Lease, Tenant shall not,
without the prior written consent of Landlord modify, surrender or terminate the
Agreement or such Lease, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent. Except as
specifically provided in this Agreement or a particular Lease, the obligations
of Landlord and Tenant shall not be affected by reason of [i] the lawful or
unlawful prohibition of, or restriction upon, Tenant's use of the Leased
Property, or any part thereof, the interference with such use by any person,
corporation, partnership or other entity, or by reason of eviction by paramount
title; [ii] any claim which Tenant has or might have against Landlord or by
reason of any default or breach of any warranty by Landlord under this Agreement
or a particular Lease or any other agreement between Landlord and Tenant, or to
which Landlord and Tenant are parties; [iii] any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceeding affecting Landlord or any assignee or transferee of
Landlord; or [iv] any other cause, whether similar or dissimilar to any of the
foregoing, other than a discharge of Tenant from any such obligations as a
matter of law. Except as otherwise specifically provided in this Agreement or a
particular Lease, and to the maximum extent permitted by law, Tenant hereby
specifically waives all rights, including but not limited to any rights under
any statute relating to rights of tenants in any state in which any Leased
Property is located, arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law [a] to modify, surrender or terminate this
Lease or quit or surrender the Leased Property or any portion thereof; or [b]
entitling Tenant to any abatement, reduction, suspension or deferment of the
Rent or other sums payable by Tenant hereunder. The obligations of Landlord and
Tenant hereunder shall be separate and independent covenants and agreements and
the Rent and all other sums payable by Tenant hereunder shall continue to be
payable in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Agreement or a particular Lease or by
termination of this Agreement or a particular Lease other than by reason of an
Event of Default.



                                                               5






2.06 Percentage Rent. In addition to the Base Rent, with respect to
each Lease Year after 1992 Tenant shall pay Landlord percentage rent
("Percentage Rent") in accordance with this Section 2.06 equal to three percent
(3%) of the amount by which the Gross Revenues (as defined in Section 2.06.01)
of each Leased Property in the applicable Lease Year exceed the Gross Revenues
of each Leased Property during 1992.

2.06.01 "Gross Revenues" means all revenues received or receivable by
the Tenant from or by reason of the operation of the Leased Property, or any
other use of the Leased Property, as calculated in accordance with generally
accepted accounting principles and as adjusted as set forth in this Section
2.06.01. Gross Revenues shall not include non-operating revenues such as
interest income or income from the sale of assets other than in the ordinary
course of business. Gross Revenues shall be adjusted by the following items: [i]
contractual allowances (difference between customary charges and amounts
receivable based on contract) relating to any period during the Term of the
Lease; [ii] all proper patient billing credits and adjustments (including
adjustments for bad debts) according to generally accepted accounting principles
relating to health care accounting; and [iii] federal, state or local excise
taxes and any tax based upon or measured by said revenues which is added to or
made a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately. To the
extent that the Leased Property is subleased by Tenant, Gross Revenues shall be
calculated for purposes of the Lease by including the rent received or
receivable by the Tenant if the space rental does not replace an operating bed
and is for not more than 10% of the square footage of the Leased Property.
Otherwise, Gross Revenues shall be calculated by including the Gross Revenues of
such sub-lessees with respect to the subleased property, i.e., the Gross
Revenues generated from the operations conducted on such subleased portion of
the Leased Property shall be included directly in the Gross Revenues for the
purpose of determining percentage rent payable under this Lease and the rent
received or receivable by Tenant under such subleases shall be excluded from
Gross Revenues for such purpose.

2.06.02 On or before March 31, 1993 with respect to the year ended
December 31, 1992 and on or before each following March 31 with respect to each
Lease Year thereafter, Tenant shall deliver to Landlord a notarized, sworn
statement (the "Tenant's Certification") setting forth the Gross Revenues for
the prior year. Annually a certificate from a nationally reputable accounting
firm satisfactory to Landlord shall be delivered to Landlord which certificate
shall state that, in the course of the regular audit of Tenant's financial
statements, such firm has reviewed Tenant's calculations of the amount of Gross
Revenues for each of the Leased Properties as set forth in Tenant's



                                                               6






Certification and that nothing has come to its attention to make such firm
believe the Tenant's Certification is incorrect in any material respect (and/or
stating, if applicable, any proposed audit adjustments with respect to Gross
Revenue which Tenant elected not to record and set forth in Tenant's
Certification). In addition to the Tenant's Certification and upon the request
of Landlord, Tenant shall deliver the following: [i] any reports sent to any
reimbursement agency, including, but not limited to Medicaid Cost Reports; [ii]
copies of Medicare Cost Reports; [iii] copies of interim or final cost
settlements with Medicare authorities concerning Medicare receivables with a
debit or credit balance; [iv] patient census data by type of patient on a
quarterly basis within thirty (30) days after the end of each calendar quarter
beginning January 31, 1991; [v] copies of changes in rates for Medicare,
Medicaid, private payor or any other provider paying for patients in the Leased
Property; and [vi] Tenant's calculation supporting any estimated contractual
allowances in the Financial Statements.

2.06.03 In each Lease Year commencing 1994, Tenant shall for such Lease
Year make anticipated payments of Percentage Rent monthly at the time of paying
installments of Base Rent, which payments shall be equal to one-twelfth (1/12th)
of the Percentage Rent determined for the preceding Lease Year, subject to final
determination and adjustment in payment by March 31 of the following year.

2.06.04 Landlord or its duly authorized representatives may, upon
reasonable notice and on any business day and during reasonable office hours,
inspect Tenant's records of Gross Revenues, either at the Leased Property or
elsewhere as reasonably designated by Tenant, provided such inspection is made
within twelve months after a Tenant's Certification is furnished to Landlord by
Tenant. Any claim by Landlord for a revision of any Tenant's Certification must
be made in writing to Tenant within twelve (12) months after the date such
Tenant's Certification is furnished to Landlord; otherwise it shall be deemed
waived by Landlord. If Landlord inspects Tenant's records and such inspection
shows an error(s) in the Tenant's Certification which results in an
understatement of Gross Revenues of five percent (5%) or more for any Leased
Property, then in addition to paying the additional Percentage Rent on demand,
Tenant shall pay Landlord, on demand, the reasonable cost of such inspection as
Additional Rent.

ARTICLE III: IMPOSITIONS AND UTILITIES

3.0l Payment of Impositions. Subject to the adjustments set forth
herein, Tenant shall pay, as Additional Rent, all Impositions (as hereinafter
defined) that may be levied or become a lien on the Leased Property or any part
thereof at any time (whether prior to or during the Term), without regard to
prior ownership of said



                                                               7






Leased Property, before any fine, penalty, interest, or cost is incurred. Tenant
shall, upon request from Landlord, promptly furnish to Landlord copies of
official receipts or other satisfactory proof evidencing such payments. Tenant's
obligation to pay such Impositions shall be deemed absolutely fixed upon the
date such Impositions become a lien upon the Leased Property or any part
thereof. Tenant, at its expense, shall prepare and file all tax returns and
reports in respect of any Imposition as may be required by governmental
authorities. Tenant shall be entitled to any refund due from any taxing
authority if no Event of Default (as hereinafter defined) shall have occurred
hereunder and be continuing. Landlord shall be entitled to any refund from any
taxing authority if an Event of Default has occurred and is continuing. Any
refunds retained by Landlord due to an Event of Default shall be applied as
provided in Section 9.08. Landlord and Tenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. In the event governmental authorities classify any property
covered by this Lease as personal property, Tenant shall file all personal
property tax returns in such jurisdictions where it may legally so file.
Landlord, to the extent it possesses the same, and Tenant, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property. Where Landlord is legally required to file personal
property tax returns, Tenant will be provided with copies of assessment notices
indicating a value in excess of the reported value in sufficient time for Tenant
to file a protest. Tenant may, upon notice to Landlord, at Tenant's option and
at Tenant's sole cost and expense, protest, appeal, or institute such other
proceedings as Tenant may deem appropriate to effect a reduction of real estate
or personal property assessments and Landlord, at Tenant's expense as aforesaid,
shall fully cooperate with Tenant in such protest, appeal, or other action.
Tenant shall promptly reimburse Landlord for all personal property taxes paid by
Landlord upon receipt of billings accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made. Impositions imposed in respect to the tax-fiscal period
during which the Term commences and terminates shall be adjusted and prorated
between Landlord and Tenant on a per diem basis, with Tenant being obligated to
pay its pro rata share from and including the Commencement Date to and including
the expiration or termination date of the Term, whether or not such Imposition
is imposed before or after such commencement or termination, and Tenant's
obligation to pay its prorated share thereof shall survive such termination.
Tenant shall also pay to Landlord a sum equal to the amount which Landlord may
be caused to pay of any privilege tax, sales tax, gross receipts tax, rent tax,
occupancy tax or like tax (excluding any tax based on net income), hereinafter
levied, assessed, or imposed by any federal, state,



                                                               8






county or municipal governmental authority, or any subdivision thereof, upon or
measured by or rent or other consideration required to be paid by Tenant under
this Lease.

3.02 Definition of Impositions. "Impositions" means, collectively, [i]
taxes (including without limitation, all real estate and personal property ad
valorem (whether assessed as part of the real estate or separately assessed as
unsecured personal property, sales and use, business or occupation, single
business, gross receipts, transaction privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to Landlord's
receipt of Rent); [ii] assessments (including without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed with the
Term); [iii] ground rents, water, sewer or other rents and charges, excises, tax
levies, and fees (including without limitation, license, permit, inspection,
authorization and similar fees); [iv] to the extent they may become a lien on
the Leased Property all taxes imposed on Tenant's operations of the Leased
Property including without limitation, employee withholding taxes, income taxes
and intangible taxes; and [v] all other governmental charges, in each case
whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or any part
thereof and/or the Rent (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time prior to, during or in respect
of the Term hereof may be assessed or imposed on or in respect of or be a lien
upon [a] Landlord or Landlord's interest in the Leased Property or any part
thereof; [b] the Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein; or [c] any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Leased Property or the leasing or use of the Leased Property or any
part thereof. Tenant shall not, however, be required to pay [i] any tax based on
net income (whether denominated as a franchise or capital stock or other tax)
imposed on Landlord; or [ii] except as provided in Section 13.01, any tax
imposed with respect to the sale, exchange or other disposition by Landlord of
any Leased Property or the proceeds thereof; provided, however, that if any tax,
assessment, tax levy or charge which Tenant is obligated to pay pursuant to the
first sentence of this definition and which is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause [i] or [ii] immediately above is levied, assessed or
imposed expressly in lieu thereof Tenant shall then pay such tax, levy, or
charge set forth in said clause [i] or [ii].

3.03 Escrow of Impositions. If Landlord's lender requires Landlord to
escrow real property taxes or other Impositions on a periodic basis during the
Term, Tenant, on notice from Landlord indicating this requirement, shall pay a
sum of money toward its


                                                               9






liability under this Article to lender on a periodic basis in accordance with
the lender's requirements. Landlord shall escrow the payments received from
Tenant in accordance with the requirements of its lender, and shall furnish
Tenant with a copy of the lender's requirements for escrow. Further, if an Event
of Default occurs hereunder which is not cured within any applicable grace
period, Tenant shall thereafter, at Landlord's election, deposit with Landlord
on the first day of each month during the remaining Term hereof and any extended
Term, a sum equal to one-twelfth (1/12th) of the Impositions assessed against
the Leased Property for the preceding tax year, which sums shall be used by
Landlord toward payment of such Impositions. If, at the end of any applicable
tax year, any such funds held by Landlord are insufficient to make full payment
of taxes or other Impositions for which such funds are held, Tenant, on demand,
shall pay to Landlord any additional funds necessary to pay and discharge the
obligations of Tenant pursuant to the provisions of this section. If, however,
at the end of any applicable tax year, such funds held by Landlord are in excess
of the total payment required to satisfy taxes or other Impositions for which
such funds are held, Landlord shall apply such excess amounts to Tenant's tax
and Imposition escrow fund for the next tax year. If any such excess of funds
occurs at the end of the final Lease Year, and subject to Section 9.08 below,
Landlord shall promptly refund such excess amounts to Tenant. The receipt by
Landlord of the payment of such Impositions by and from Tenant shall only be as
an accommodation to Tenant, the mortgagees, and the taxing authorities, and
shall not be construed as rent or income to Landlord, Landlord serving, if at
all, only as a conduit for delivery purposes.

3.04 Utilities. Tenant shall pay, as Additional Rent all taxes,
assessments, charges/deposits, and bills for utilities, including without
limitation charges for water, gas, oil, sanitary and storm sewer, electricity,
telephone service, and trash collection, which may be charged against the
occupant of the Improvements during the Term. If an Event of Default occurs
hereunder and is not cured within any applicable grace period, Tenant shall
thereafter, at Landlord's election, deposit with Landlord on the first day of
each month during the remaining Term, a sum equal to one-twelfth (1/12th) of the
amount of the annual utility expenses for the preceding Lease Year, which sums
shall be used by Landlord to pay such utilities. If, at any time during the
Lease Year, such funds held by Landlord are insufficient to cover monthly,
annual, or other periodic charges for utilities, Tenant shall, on demand pay to
Landlord any additional amount needed to pay such utilities. Landlord's receipt
of such payments shall only be an accommodation to Tenant and the utility
companies and shall not constitute rent or income to Landlord. If, at any time
during the Lease Year, such funds held by Landlord are in excess of the total
monthly, annual or other periodic payment necessary to satisfy utility costs,
such excess amounts shall be applied to Tenant's escrow fund for the next
payment of such utilities. If


                                                               10





any such excess exists following the expiration or earlier termination of the
Lease and after all utility bills and accounts have been settled, Landlord
shall, subject to Section 9.08 below, promptly refund such amounts to Tenant.
Tenant shall at all times maintain that amount of heat necessary to ensure
against the freezing of water lines. Tenant hereby agrees to indemnify and hold
Landlord harmless from and against any liability or damages to the utility
systems and the Leased Property that may result from Tenant's failure to
maintain sufficient heat in the Improvements.

3.05 Discontinuance of Utilities. Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of Rent or operate to
release Tenant from any of Tenant's obligations under this Lease.

ARTICLE IV: INSURANCE

4.01 Property Insurance. Tenant shall, at Tenant's expense, keep the
Improvements, Fixtures, and other components of the Leased Property insured
against the following risks:

(a) Loss or damage by fire, vandalism and malicious
mischief, sprinkler leakage and all other physical loss perils commonly
covered by "All Risk" insurance in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as
hereinafter defined). Such policy shall include an agreed amount
endorsement if available at a reasonable cost. Such policy shall also
include endorsements for contingent liability for operation of building
laws, demolition costs, and increased cost of construction.

(b) Loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter installed on the Leased
Property, in commercially reasonable amounts acceptable to Landlord.

(c) Loss of rent under a rental value insurance policy
covering risk of loss during the first nine (9) months of
reconstruction necessitated by the occurrence of any hazards described
in Sections 4.01(a) or 4.01(b) above, in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer, containing
endorsements for extended period of indemnity and premium adjustment,
and written with an agreed amount clause, if the insurance provided for
in this clause (c) is available at a reasonable cost.

(d) If the Land is located in whole or in part within a
designated flood plain area, loss or damage caused by flood in
commercially reasonable amounts acceptable to Landlord.



                                                               11

        




(e) Loss or damage commonly covered by blanket crime
insurance including employee dishonesty, loss of money orders or paper
currency, depositor's forgery, and loss of property of patients
accepted by Tenant for safekeeping, in commercially reasonable amounts
acceptable to the Landlord.

4.02 Liability Insurance. Tenant shall, at Tenant's expense, maintain
liability insurance against the following:

(a) Claims for personal injury or property damage commonly
covered by comprehensive general liability insurance with endorsements
for nursing home or comparable professional malpractice, blanket
contractual, personal injury, owner's protective liability, real
property fire damage legal liability, voluntary medical payments,
products and completed operations, broad form property damage, and
extended bodily injury, with commercially reasonable amounts for bodily
injury, property damage, and voluntary medical payments acceptable to
Landlord, but with a combined single limit of not less than One Million
Dollars ($1,000,000.00) per occurrence, One Million Dollars
($1,000,000.00) per location. If malpractice insurance coverage is
unavailable generally or is unreasonably expensive, Landlord and Tenant
will consult in good faith regarding an alternative.

(b) Claims for personal injury and property damage commonly
covered by comprehensive automobile liability insurance, covering all
owned and nonowned automobiles, with commercially reasonable amounts
for bodily injury, property damage, and for automobile medical payments
acceptable to Landlord, but with a combined single limit of not less
than One Million Dollars ($1,000,000.00) per occurrence, Three Million
Dollars ($3,000,000.00) aggregate.

(c) Claims commonly covered by worker's compensation
insurance for all persons employed by Tenant on the Leased Property.
Such worker's compensation insurance shall be in accordance with the
requirements of all applicable local, state, and federal law.

4.03 Insurance Requirements. The following provisions shall apply to
all insurance coverages required hereunder:

(a) The form and substance of all policies shall be subject
to the approval of Landlord, which approval will not be unreasonably
withheld.

(b) The carriers of all policies shall have a Best's Rating
of "A-" or better and a Best's Financial Category of XII or larger and
shall be authorized to do insurance business in the state in which the
Leased Property is located.


                                                               12


 




(c) Tenant shall be the "named insured" and Landlord shall
be an "additional named insured" on each policy.

(d) Tenant shall deliver to Landlord certificates or
policies showing the required coverages and endorsements. The policies
of insurance shall provide that the policy may not be cancelled or not
renewed, and no material change or reduction in coverage may be made,
without at least thirty (30) days' prior written notice to Landlord.

(e) The policies shall contain a severability of interest
and/or cross-liability endorsement, provide that the acts or omissions
of Tenant will not invalidate the Landlord's coverage, and provide that
Landlord shall not be responsible for payment of premiums.

(f) All loss adjustment shall require the written consent of
Landlord and Tenant, as their interests may appear.

(g) At least thirty (30) days prior to the expiration of
each policy, Tenant shall deliver to Landlord a certificate showing
renewal of such policy and payment of the annual premium therefor.

4.04 Replacement Cost. The term "full replacement cost" means the
actual replacement cost thereof from time to time including increased cost of
construction, with no reductions or deductions. Tenant shall, not later than
thirty (30) days after the anniversary of each Lease Year of the Term, increase
the amount of the replacement cost endorsement for the Improvements. If Tenant
makes any Permitted Alterations (as hereinafter defined) to the Leased Property,
Landlord may have such full replacement cost redetermined at any time after such
Permitted Alterations are made, regardless of when the full replacement cost was
last determined.

4.05 Blanket Policy. Tenant may carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Agreement.

4.06 No Separate Insurance. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing insurance
by securing an additional policy or additional policies, unless all parties
having an insurable interest in the subject matter of the insurance, including
Landlord and any mortgagees, are included therein as additional named insureds
or loss payees, the loss is payable under said insurance in the same manner as
losses are payable under this Agreement, and such additional insurance is not
prohibited by the existing policies of insurance. Tenant shall immediately
notify Landlord



                                                               13





of the taking out of such separate insurance or the increasing of any of the
amounts of the existing insurance by securing an additional policy or additional
policies. The term "mortgages" as used in this Agreement includes Deeds of Trust
and the term "mortgagees" includes trustees and beneficiaries under a Deed of
Trust.

4.07 Waiver of Subrogation. Each party hereto hereby waives any and
every claim which arises or may arise in its favor and against the other party
hereto during the Term or any extension or renewal thereof, for any and all loss
of, or damage to, any of its property located within or upon, or constituting a
part of, the Leased Property, which loss or damage is covered by valid and
collectible insurance policies, to the extent that such loss or damage is
recoverable under such policies. Said mutual waiver shall be in addition to, and
not in limitation or derogation of, any other waiver or release contained in
this Lease with respect to any loss or damage to property of the parties hereto.
Inasmuch as the said waivers will preclude the assignment of any aforesaid claim
by way of subrogation (or otherwise) to an insurance company (or any other
person), each party hereto agrees immediately to give each insurance company
which has issued to it policies of insurance, written notice of the terms of
said mutual waivers, and to have such insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers, so long as such endorsement is available at a reasonable cost.

4.08 Mortgages. The following provisions shall apply if Landlord now or
hereafter places a mortgage on the Leased Property or any part thereof: [i]
Tenant shall obtain a standard form of mortgage clause insuring the interest of
the mortgagee; [ii] Tenant shall deliver evidence of insurance to such
mortgagee; [iii] loss adjustment shall require the consent of the mortgagee; and
[iv] Tenant shall obtain such other coverages and provide such other information
and documents as may be reasonably required by the mortgagee.

4.09 Escrows. If Landlord's lender requires the Landlord to escrow
insurance premiums on a periodic basis, or if an Event of Default occurs
hereunder, Tenant, after notice from Landlord, shall make such periodic payments
in accordance with the lender's or Landlord's requirements.

ARTICLE V: INDEMNITY; HAZARDOUS SUBSTANCES

5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby
agrees to indemnify and hold harmless Landlord, its agents, and employees from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), losses, liabilities (including strict
liability), judgments, and expenses (including, without limitation,



                                                               14






attorneys' fees, court costs, and the costs set forth in Section 9.07) incurred
in connection with or arising from: [i] the use or occupancy of each Leased
Property by Tenant or any persons claiming under Tenant; [ii] any activity,
work, or thing done, or permitted or suffered by Tenant in or about the Leased
Property; [iii] any acts, omissions, or negligence of Tenant or any person
claiming under Tenant, or the contractors, agents, employees, invitees, or
visitors of Tenant or any such person; [iv] any breach, violation, or
nonperformance by Tenant or any person claiming under Tenant or the employees,
agents, contractors, invitees, or visitors of Tenant or of any such person, of
any term, covenant, or provision of this Agreement or any Lease or any law,
ordinance, or governmental requirement of any kind; and [v] any injury or damage
to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon the Leased
Property under the express or implied invitation of Tenant. If any action or
proceeding is brought against Landlord, its employees, or agents by reason of
any such claim, Tenant, upon notice from Landlord, will defend the claim at
Tenant's expense with counsel reasonably satisfactory to Landlord.

5.02 Hazardous Substances or Materials. Tenant shall not, either with
or without negligence, injure, overload, deface, damage or otherwise harm any
Leased Property or any part or component thereof; commit any nuisance; permit
the emission of any hazardous agents or substances; allow the release or other
escape of any biologically or chemically active or other hazardous substances or
materials so as to impregnate, impair or in any manner affect, even temporarily,
any element or part of any Leased Property, or allow the storage or use of such
substances or materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such substances
or materials; nor shall Tenant bring onto any Leased Property any such materials
or substances; permit the occurrence of objectionable noise or odors; or make,
allow or suffer any waste whatsoever to any Leased Property. Landlord may
inspect the Leased Property from time to time, and Tenant will cooperate with
such inspections. Without limitation, "hazardous substances" for the purposes of
this Section 5.02 shall include such substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601 et seq. and the regulations adopted thereunder, and hazardous
materials shall include such materials as are described in the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.; and hazardous
substances or hazardous materials shall also include any substance or material
described in any applicable statute of any state in which Leased Properties are
located, and in any regulations adopted under any of these acts. Upon request by
Landlord, Tenant shall submit to Landlord quarterly reports regarding Tenant's
use, storage, and disposal of any of the foregoing materials, said reports to
include information regarding continued hazardous materials inspections,
personal interviews, and federal, state and local agency listings.




                                                               15





In addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's request concerning Tenant's best knowledge and belief
regarding the presence or absence of hazardous materials on the Leased Property.
In all events, Tenant shall indemnify Landlord and all mortgagees of any Leased
Property from any release of hazardous materials on the Leased Property
occurring while Tenant is in possession, all costs and expenses and claims
arising from the release of, or discovery of the existence of, or need to clean
up or remove, or arising from any prior release or removal of any hazardous
substances or materials on or from any Leased Property, whether such release,
discovery or removal occurs during the Term or occurred prior to the
commencement of the Term. (At the request of Landlord, Tenant will from time to
time confirm such indemnity to mortgagees directly with such mortgagees.)

5.03 Limitation of Landlord's Liability. Landlord, its agents, and
employees, will not be liable for any loss, injury, death, or damage (including
consequential damages) to persons, property, or Tenant's business occasioned by
theft, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, order of governmental body or authority, fire,
explosion, falling objects, steam, water, rain or snow, leak or flow of water
(including water from the elevator system), rain or snow from any Leased
Property or into the Leased Property or from the roof, street, subsurface or
from any other place, or by dampness or from the breakage, leakage, obstruction,
or other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, or lighting fixtures of the Leased Property, or from construction,
repair, or alteration of the Leased Property or from any acts or omissions of
any other occupant or visitor of the Leased Property, or from the presence or
release of any hazardous substance or material on or from the Leased Property or
from any other cause beyond Landlord's control.

ARTICLE VI: USE AND ACCEPTANCE OF PREMISES

6.01 Use of Leased Property. Tenant shall use and occupy each Leased
Property exclusively as a nursing home, healthcare facility or other purpose for
which the Leased Property is being used at the Commencement Date of the Term,
and for no other purpose without the prior written consent of the Landlord,
which consent will not be unreasonably withheld. Tenant shall obtain and
maintain all approvals, licenses, and consents needed to use and operate each
Leased Property for such purposes. Tenant shall promptly deliver to Landlord
complete copies of surveys, examinations, certification and licensure
inspections, compliance certificates, and other similar reports issued to Tenant
by any governmental agency.

6.02 Acceptance of Leased Property. Except as otherwise specifically
provided in this Agreement or in any individual Lease,



                                                               16






Tenant acknowledges that [i] Tenant and its agents have had an opportunity to
inspect the Leased Property; [ii] Tenant has found the Leased Property fit for
Tenant's use; [iii] delivery of the Leased Property to Tenant is in "as-is"
condition; [iv] Landlord is not obligated to make any improvements or repairs to
the Leased Property; and [v] the roof, walls, foundation, heating, ventilating,
air conditioning, telephone, sewer, electrical, mechanical, utility, plumbing,
and other portions of the Leased Property are in good working order. Tenant
waives any claim or action against Landlord with respect to the condition of the
Leased Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS
FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.

6.03 Conditions of Use and Occupancy. Tenant agrees that during the
Term it shall use and keep the Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy the Leased
Property for any unlawful purposes; not use or occupy the Leased Property or
permit the same to be used or occupied, for any purpose or business deemed extra
hazardous on account of fire or otherwise; keep the Leased Property in such
repair and condition as may be required by the local board of health, or other
city, state or federal authorities, free of all cost to Landlord; not permit any
acts to be done which will cause the cancellation, invalidation, or suspension
of any insurance policy; and permit Landlord and its agents to enter upon the
Leased Property at all reasonable times after notice to Tenant to examine the
condition thereof.

6.04 Financial Statements. Within one hundred twenty (120) days after
the end of each fiscal year, Tenant shall deliver to Landlord audited
consolidated financial statements of Tenant, certified by a nationally
recognized accounting firm. The financial statements shall include a complete
schedule of contingent liabilities and transactions with affiliates. Within
forty-five (45) days after the end of each calendar quarter, Tenant shall
deliver to Landlord unaudited profit and loss statements.

ARTICLE VII: REPAIRS, COMPLIANCE WITH LAWS,
AND MECHANICS' LIENS

7.01 Maintenance. Tenant shall maintain, repair, and replace each
Leased Property, including without limitation, all structural and nonstructural
repairs and replacements to the roof, foundations, exterior walls, building
systems, HVAC systems, parking areas, sidewalks, water, sewer, and gas
connections, pipes, and mains. Tenant shall pay as Additional Rent, the full
cost of maintenance, repairs, and replacements. Tenant shall maintain all
drives, sidewalks, parking areas, and lawns on or about the Leased



                                                               17






Property in a clean and orderly condition, free of accumulations of dirt,
rubbish, snow and ice. Tenant shall permit Landlord to inspect the Leased
Property at all reasonable times, and shall implement all reasonable suggestions
of the Landlord as to the maintenance and replacement of the Leased Property.

7.02 Compliance With Laws. Tenant shall comply with all laws,
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, including
without limitation, [i] licensure requirements for operation as a nursing home
or medical facility, [ii] certification requirements needed to obtain
reimbursement under the Medicare and state Medicaid programs unless Tenant,
after notice to Landlord, determines to discontinue participation in such
programs; [iii] requirements of the board of fire insurance underwriters or
insurance service office or any other similar body having jurisdiction over the
Leased Property, and [iv] all zoning and building codes and Environmental Laws.
At Landlord's request, from time to time, Tenant shall deliver to Landlord
copies of certificates or permits evidencing compliance with such laws,
including without limitation, copies of the nursing home or health care facility
license, provider agreements, certificates of occupancy and building permits.
Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and
against any loss, liability (including strict liability), claim, damage
(including consequential damages), cost and expense (including attorneys' fees)
resulting from any failure by Tenant to comply with any laws, ordinances, rules,
regulations, and other governmental requirements.

7.03 Required Alterations. Tenant shall, at Tenant's sole cost and
expense, make any additions, changes, improvements or alterations to each Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue certification
under the Medicare and Medicaid programs (unless Tenant has elected not to
participate in such programs), whether such changes are required by Tenant's
use, changes in the law, ordinances, or governmental regulations, defects
existing as of the date of this Lease, or any other cause whatever. All such
additions, changes, improvements or alterations shall be deemed to be Permitted
Alterations and shall comply with all laws requiring such alterations and with
the provisions of Section 8.02.

7.04 Mechanic's Liens. Tenant shall have no authority to permit or
create a lien against Landlord's interest in the Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in the Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanic's
liens against the Leased Property by reason of work, labor services or materials
supplied or claimed to have been supplied on or to the



                                                               18






Leased Property. Tenant shall immediately remove, bond-off, or otherwise obtain
the release of any mechanic's lien filed against the Leased Property. Tenant
shall pay all expenses in connection therewith, including without limitation,
damages, interest, court costs and reasonable attorneys' fees.

7.05 Replacements of Fixtures. Tenant shall not remove Fixtures from
any Leased Property except to replace the Fixtures by other similar items of
equal quality and value. Items being replaced by Tenant may be removed and shall
become the property of Tenant and items replacing the same shall be and remain
the property of Landlord. Tenant shall execute, upon written request from
Landlord, any and all documents necessary to evidence Landlord's ownership of
the Fixtures and replacements therefor. Tenant may finance replacements for the
Fixtures by equipment lease or by a security agreement and financing statement;
provided, however, that for any item of Fixtures or Personal Property having a
cost greater than or equal to Ten Thousand Dollars ($10,000.00), Tenant may not
finance replacements by security agreement or equipment lease unless [i]
Landlord has consented to the terms and conditions of the equipment lease or
security agreement; [ii] the equipment lessor or lender has entered into a
nondisturbance agreement with Landlord upon terms and conditions acceptable to
Landlord, including without limitation, the following: [a] Landlord shall have
the right (but not the obligation) to assume such security agreement or
equipment lease upon the occurrence of an Event of Default by Tenant under this
Lease; [b] the equipment lessor or lender shall notify Landlord of any default
by Tenant under the equipment lease or security agreement and give Landlord a
reasonable opportunity to cure such default; and [c] Landlord shall have the
right to assign its rights under the equipment lease, security agreement, or
nondisturbance agreement; and [iii] Tenant shall, within thirty (30) days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and nondisturbance agreement, including without limitation,
reasonable attorneys' fees and costs.

ARTICLE VIII: ALTERATIONS AND SIGNS

8.01 Prohibition on Alterations and Improvements. Except for [i]
alterations required by Section 7.03; [ii] replacements of Fixtures provided for
in Section 7.05; and [iii] alterations at any Leased Property having an
aggregate cost of less than One hundred fifty thousand dollars ($150,000.00) in
any Lease Year, Tenant shall not make any structural or nonstructural changes,
alterations, additions and/or improvements (hereinafter collectively referred to
as "Alterations") to the Leased Property without the prior written consent of
Landlord which consent will not be unreasonably withheld. If Tenant desires to
perform any Alterations, Tenant shall deliver to Landlord plans, specifications,
drawings, and such other information as may be



                                                               19






reasonably requested by Landlord (collectively the "Plans and Specifications")
showing the Alterations that Tenant desires to perform. Landlord agrees not to
unreasonably delay its review of the Plans and Specifications. Tenant shall
comply with the requirements of Section 8.02 in making any Alterations approved
by Landlord (the "Permitted Alterations").

8.02 Requirements for Permitted Alterations. Tenant shall comply with
all of the following requirements in connection with any Permitted Alterations:

(a) The Permitted Alterations shall be made in accordance
with the approved Plans and Specifications.

(b) The Permitted Alterations and the installation thereof
shall comply with all applicable legal requirements and insurance
requirements.

(c) The Permitted Alterations shall be done in a good and
workmanlike manner, shall not impair the value or the structural
integrity of the Leased Property, and shall be free and clear of all
mechanic's liens.

(d) Tenant shall deliver to Landlord a payment and
performance bond, with a surety acceptable to Landlord, in an amount
equal to the estimated cost of the Permitted Alterations, guaranteeing
the completion of the work free and clear of liens and in accordance
with the approved Plans and Specifications, and naming Landlord and any
mortgagee of Landlord as joint obligees on such bond.

(e) Tenant shall, at Tenant's expense, obtain a builder's
completed value risk policy of insurance insuring against all risks of
physical loss, including collapse and transit coverage, in a
nonreporting form, covering the total value of the work performed, and
equipment, supplies, and materials, and insuring initial occupancy.
Landlord and any mortgagee of Landlord shall be additional named
insureds of such policy. Landlord shall have the right to approve the
form and substance of such policy, which approval shall not be
unreasonably withheld or delayed.

(f) Tenant shall pay the premiums required to increase the
amount of the insurance coverages required by Article IV to reflect the
increased value of the Improvements resulting from installation of the
Permitted Alterations, and shall deliver to Landlord a certificate
evidencing the increase in coverage.

(g) If the alterations are structural or additions, Tenant
shall, not later than sixty (60) days after completion of the Permitted
Alterations, deliver to Landlord a



                                                               20







certificate of substantial completion, certified by Tenant's architect
or engineer, in the form of AIA-G704, or in any other form reasonably
satisfactory to Landlord.

(h) Tenant shall not later than thirty (30) days after
completion of the Permitted Alterations, reimburse Landlord for any
costs and expenses, including attorneys' fees and architects' and
engineers' fees, reasonably incurred in connection with reviewing and
approving the Permitted Alterations and ensuring Tenant's compliance
with the requirements of this Section.

8.03 Ownership and Removal of Permitted Alterations. The Permitted
Alterations shall become a part of the Leased Property, owned by Landlord, and
leased to Tenant subject to the terms and conditions of this Agreement and the
Lease. Tenant shall not be required or permitted to remove any Permitted
Alterations.

8.04 Signs. Tenant may, at its own expense, erect and maintain
identification signs at the Leased Property, provided such signs comply with all
laws, ordinances, and regulations. Upon the occurrence of an Event of Default or
the termination or expiration of this Lease, Tenant shall, within thirty (30)
days after notice from Landlord, remove the signs and restore the Leased
Property to its original condition.

ARTICLE IX: DEFAULTS AND REMEDIES

9.01 Events of Default. The occurrence of any one or more of the
following shall be an an event of default ("Event of Default") hereunder:

(a) Tenant fails to pay in full any installment of Rent, or
any other monetary obligation payable by Tenant to Landlord (or to the
holder of any Assumed Mortgage Debt Service, as applicable) under this
Lease, within ten (10) business days after notice of nonpayment from
Landlord.

(b) Landlord gives three (3) or more notices of nonpayment
of Rent to Tenant in any Lease Year; provided, however, that such shall
not be an Event of Default if Landlord fails to exercise its remedies
under Section 9.02 within sixty (60) days after the last of such
notices. Notice of the same default with respect to more than one Lease
or Leased Property shall constitute only one notice for purposes of
this Section 9.01(b).

(c) Tenant fails to observe and perform any other covenant,
condition or agreement under this Agreement or the Lease to be
performed by Tenant (except those described in Section 9.01(a) and
9.01(b) of this Agreement) and [i] such failure continues for a period
of thirty (30) days after



                                                               21






written notice thereof is given to Tenant by Landlord; or [ii] if, by
reason of the nature of such default, the same cannot be remedied
within said thirty (30) days, Tenant fails to proceed with reasonable
diligence (satisfactory to Landlord) after receipt of the notice to
cure the same.

(d) Tenant ceases operations at any Leased Property for a
period in excess of one-hundred eighty (180) days during the Term
except pursuant to damage described in Section 10.05 or condemnation
pursuant to Article XI (other than Section 11.02) of this Agreement.

(e) [i] The filing by Tenant of a petition under 11 U.S.C.
or the commencement of a bankruptcy or similar proceeding by Tenant;
[ii] the failure by Tenant within ninety (90) days to dismiss an
involuntary bankruptcy petition or other commencement of a bankruptcy,
reorganization or similar proceeding against Tenant, or to lift or stay
any execution, garnishment or attachment of such consequence as will
impair its ability to carry on its operation at the Leased Property;
[iii] the entry of an order for relief under 11 U.S.C. in respect of
Tenant; [iv] any assignment by Tenant for the benefit of its creditors;
[v] the entry by Tenant into an agreement of composition with its
creditors; [vi] the approval by a court of competent jurisdiction of a
petition applicable to Tenant in any proceeding for its reorganization
instituted under the provisions of any state or federal bankruptcy,
insolvency, or similar laws; [vii] appointment by final order,
judgement, or decree of a court of competent jurisdiction of a receiver
of a whole or any substantial part of the properties of Tenant
(provided such receiver shall not have been removed or discharged
within sixty (60) days of the date of his qualification).

(f) [i] any administrator, custodian, trustee or other
legally authorized person takes possession or control of any Leased
Property or part thereof and continues in possession for ninety (90)
days; [ii] any writ against any of the Leased Property is not released
or bonded off within ninety (90) days; [iii] any judgment is rendered
or proceedings are instituted against any Leased Property or Tenant
which affect any Leased Property or any part thereof (other than a
condemnation proceeding) which is not dismissed for ninety (90) days
(except as otherwise provided in this Section); [iv] all or a
substantial part of the assets of Tenant are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come
into the possession of any receiver, trustee, custodian, or assignee
for the benefit of creditors and is not dismissed within sixty (60)
days; [v] Tenant is enjoined, restrained, or in any way prevented by
court order, or any proceeding is filed or commenced seeking to enjoin,
restrain or in any way prevent Tenant from conducting all or



                                                               22








a substantial part of its business or affairs and is not dismissed
within sixty (60) days; or [vi] except as permitted by Section 18.18, a
notice of lien, levy or assessment is filed of record with respect to
all or any part of the property of Tenant and is not dismissed or
bonded off within sixty (60) days.

(g) Tenant or any Affiliate defaults on any material
obligation to Landlord, Tenant defaults on any material obligation
under any debt associated with the Leased Properties or any debt
co-guaranteed by Landlord and Tenant. As used herein, "Affiliate" means
any person, corporation, partnership, trust, or other legal entity
that, directly or indirectly, controls or is controlled by, or is under
common control with, Tenant. "Control" (and the correlative meanings of
the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause a
direction of the management and policies of such entity.

9.02 Remedies. Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:

(a) Landlord may terminate the applicable Lease, exclude
Tenant from possession of the Leased Property and use reasonable
efforts to lease the Leased Property to others. If any Lease is
terminated pursuant to the provisions of this subparagraph (a), Tenant
will remain liable to Landlord for damages in an amount equal to the
Rent and other sums which would have been owing by Tenant under the
Lease for the balance of the Term if the Lease had not been terminated,
less the net proceeds, if any, of any re-letting of the Leased Property
by Landlord subsequent to such termination, after deducting all
Landlord's expenses in connection with such reletting, including
without limitation, the expenses set forth in Section 9.02(b)(2) below.
Landlord will be entitled to collect such damages from Tenant monthly
on the days on which the Rent and other amounts would have been payable
under the Lease if the Lease had not been terminated and Landlord will
be entitled to receive such damages from Tenant on each such day.
Alternatively, at the option of Landlord, if the Lease is terminated,
Landlord will be entitled to recover from Tenant (A) the worth at the
time of award of the unpaid Rent which had been earned at the time of
termination; (B) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until
the time of awards exceeds the amount of such Rent loss that Tenant
proves could reasonably have been avoided; (C) the worth at the time of
award of the amount by which the unpaid Rent for the balance of the
Term of the Lease after the time of award exceeds the amount of such
Rent loss that Tenant proves could reasonably be avoided; and (D) any
other amount


                                                               23


     




necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under the Lease
or which in the ordinary course of things would be likely to result
from such failure. The "worth at the time of award" of the amount
referred to in clauses (A) and (B) is computed at "present value" using
New York Prime Rate. For purposes of this Agreement, "New York Prime
Rate" shall mean that rate of interest identified as prime or national
prime by the Wall Street Journal, or if not published or found, then
the rate of interest charged by the American bank with the greatest
number of assets on ninety (90) day unsecured notes to its preferred
customers. The worth at the time of award of the amount referred to in
clause (C) is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of New York at the time of award. For the
purpose of determining unpaid Rent under clause (C), the Rent reserved
in the Lease will be deemed to be the sum of the following: [i] the
Base Rent computed pursuant to Section 2.01; [ii] the then outstanding
full balance of the Assumed Mortgage Debt; [iii] the Other Additional
Rent pursuant to Section 2.02.02 based upon the amount of such Other
Additional Rent for the month preceding the date of termination; and
[iv] the Percentage Rent pursuant to Section 2.06 based upon the amount
of the annualized Gross Revenues for the then Lease Year increased by
three percent (3%) per annum, to the date on which the Lease would have
expired if Landlord had not terminated the Lease, but not to exceed the
product of one (1%) percent of the initial Base Rent multiplied by the
number of years since 1992.

(b) (1) Without demand or notice, Landlord may re-enter and
take possession of the Leased Property or any part of the Leased
Property; and repossess the Leased Property as of the Landlord's former
estate; and expel the Tenant and those claiming through or under Tenant
from the Leased Property; and, remove the effects of both or either,
without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding breach of
covenants or conditions. If Landlord elects to re-enter, as provided in
this paragraph (b) or if Landlord takes possession of the Leased
Property pursuant to legal proceedings or pursuant to any notice
provided by law, Landlord may, from time to time, without terminating
this Lease, re-let the Leased Property or any part of the Leased
Property, either alone or in conjunction with other portions of the
Improvements of which the Leased Property are a part, in Landlord's
name but for the account of Tenant, for such term or terms (which may
be greater or less than the period which would otherwise have
constituted the balance of the Term of this Lease) and on such terms
and conditions (which may include concessions of free rent, and the
alteration and repair of the Leased Property) as Landlord, in its



                                                               24






uncontrolled discretion, may determine. Landlord may collect and
receive the Rents for the Leased Property. Landlord will not be
responsible or liable for any failure to re-let the Leased Property, or
any part of the Leased Property, or for any failure to collect any Rent
due upon such re-letting. No such re-entry or taking Possession of the
Leased Property by Landlord will be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention is given to Tenant. No notice from Landlord under this Lease
or under a forcible entry and detainer statute or similar law will
constitute an election by Landlord to terminate this Lease unless such
notice specifically says so. Landlord reserves the right following any
such re-entry or re-letting, or both, to exercise its right to
terminate this Lease by giving Tenant such written notice, and, in that
event the Lease will terminate as specified in such notice.

(b) (2) If Landlord elects to take possession of the Leased
Property according to this subparagraph (b) without terminating the
Lease, Tenant will pay Landlord (i) the Rent and other sums which would
be payable under the Lease if such repossession had not occurred, less
(ii) the net proceeds, if any, of any re-letting of the Leased Property
after deducting all of Landlord's expenses incurred in connection with
such re-letting, including without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, expenses of
employees, alteration, remodeling, repair costs, and expenses of
preparation for such re-letting. If, in connection with any reletting,
the new Lease term extends beyond the existing Term or the Leased
Property covered by such re-letting include areas which are not part of
the Lease Property, a fair apportionment of the Rent received from such
re-letting and the expenses incurred in connection with such re-letting
will be made in determining the net proceeds received from such
re-letting. In addition, in determining the net proceeds from such
re-letting, any rent concessions will be apportioned over the term of
the new Lease. Tenant will pay such amounts to Landlord monthly on the
days on which the Rent and all other amounts owing under this Agreement
or the Lease would have been payable if possession had not been
retaken, and Landlord will be entitled to receive the rent and other
amounts from Tenant on each such day.

(c) Landlord may re-enter the Leased Property and have,
repossess and enjoy the Leased Property as if the Lease had not been
made, and in such event, Tenant and its successors and assigns shall
remain liable for any contingent or unliquidated obligations or sums
owing at the time of such repossession.

(d) Landlord may have access to and inspect, examine and
make copies of the books and records and any and all



                                                               25







accounts, data and income tax and other returns of Tenant insofar as
they pertain to the Leased Property.

(e) Landlord may take whatever action at law or in equity as
may appear necessary or desirable to collect the Rent and other amounts
payable under the Lease then due and thereafter to become due, or to
enforce performance and observance of any obligations, agreements or
covenants of Tenant under this Lease.

9.03 Right of Set-Off. Landlord may, and is hereby authorized by
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord, any indebtedness of
Landlord to Tenant, and any claims by Tenant against Landlord, against any
obligations of Tenant under this Agreement or any Lease and against any claims
by Landlord against Tenant, whether or not Landlord has exercised any other
remedies hereunder. The rights of Landlord under this Section are in addition to
any other rights and remedies Landlord may have against Tenant.

9.04 Performance of Tenant's Covenants. Landlord may perform any
obligation of Tenant which Tenant has failed to perform within two (2) days
after Landlord has sent a written notice to Tenant informing it of its specific
failure. Tenant shall reimburse Landlord on demand, as Additional Rent, for any
expenditures thus incurred by Landlord and shall pay interest thereon at the
overdue Rate (as hereinafter defined).

9.05 Late Charge. Any payment not made by Tenant for more than ten (10)
days after the due date shall be subject to a late charge payable by tenant as
Rent of three percent (3%) of the amount of such overdue payment.

9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant has
knowledge of any litigation or other proceeding that may be instituted against
Tenant, against the Leased Property to secure or recover possession thereof, or
that may affect the title to or the interest of Landlord in the Leased Property,
Tenant shall give written notice thereof to Landlord. Tenant shall pay all
reasonable costs and expenses incurred by Landlord in enforcing or preserving
Landlord's rights under this Agreement and each Lease, whether or not an Event
of Default has actually occurred or has been declared and thereafter cured,
including without limitation, [i] the fees, expenses, and costs of any
litigation, receivership, administrative, bankruptcy, insolvency or other
similar proceeding; [ii] reasonable attorney, paralegal, consulting and witness
fees and disbursements; and [iii] the expenses, including without limitation,
lodging, meals, and transportation, of Landlord and its employees, agents.
attorneys, and witnesses in preparing for litigation, administrative,
bankruptcy, insolvency or other similar proceedings and attendance at hearings,
depositions, and trials in



                                                               26






connection therewith. All such costs, charges and fees as incurred shall be
deemed to be Additional Rent under this Lease.

9.07 Remedies Cumulative. The remedies of Landlord herein are
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity. The use of any one remedy shall not be taken to exclude or waive
the right to use any other remedy.

9.08 Escrows and Application of Payments. As security for the
performance of its obligations hereunder Tenant hereby assigns to Landlord all
its right, title, and interest in and to all monies escrowed with Landlord under
this Agreement or under any Lease and all deposits with utility companies,
taxing authorities, and insurance companies; provided, however, that Landlord
shall not exercise its rights hereunder until an Event of Default has occurred.
Any payments received by Landlord under any provisions of this Agreement or
under any Lease during the existence, or continuance of an Event of Default
shall be applied to Tenant's obligations in the order which Landlord may
determine.

9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally
appoints Landlord, or Landlord's authorized officer, agent, employee or
designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event
of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and
Landlord's use and benefit, to execute, deliver and file all applications and
any and all other necessary documents or things, to effect a transfer,
reinstatement, renewal and/or extension of any and all licenses and other
governmental authorizations issued to Tenant in connection with Tenant's
operation of the Leased Property, and to do any and all other acts incidental to
any of the foregoing. Tenant irrevocably and unconditionally grants to Landlord
as its attorney-in-fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as Tenant might or could do if personally present or acting, with full
power of substitution, hereby ratifying and confirming all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and is irrevocable prior to the full performance of
the Tenant's obligations under this Agreement and each Lease.

ARTICLE X: DAMAGE AND DESTRUCTION

10.01 General. Tenant shall notify Landlord if any of the Leased Property is
damaged or destroyed by reason of fire or any other cause. Tenant shall promptly
repair, rebuild, or restore the Leased Property, at Tenant's expense, so as to
make the Leased Property at least equal in value to the Leased Property existing
immediately prior to such occurrence and as nearly similar to it in character as
is practicable and reasonable. Before beginning such repairs or rebuilding, or
letting any contracts in connection



                                                               27






with such repairs or rebuilding, Tenant will submit for Landlord's approval,
which approval Landlord will not unreasonably withhold or delay, complete and
detailed plans and specifications for such repairs or rebuilding. Promptly after
receiving Landlord's approval of the plans and specifications, Tenant will begin
such repairs or rebuilding and will prosecute the repairs and rebuilding to
completion with diligence, subject, however, to strikes, lockouts, acts of God,
embargoes, governmental restrictions, and other causes beyond Tenant's
reasonable control. Landlord will make available to Tenant the net proceeds of
any fire or other casualty insurance paid to Landlord for such repair or
rebuilding as the same progresses, after deduction of any costs of collection,
including attorneys' fees. Payments will be made against properly certified
vouchers of a competent architect in charge of the work and approved by
Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver
to Landlord for Landlord's approval a schedule setting forth the estimated
monthly draws for such work. Landlord will contribute to such payments out of
the insurance proceeds an amount equal to the proportion that the total net
amount received by Landlord from insurers bears to the total estimated cost of
the rebuilding or repairing, multiplied by the payment by Tenant on account of
such work. Landlord may, however, withhold ten percent (10%) from each payment
until the work of repairing or rebuilding is completed and proof has been
furnished to Landlord that no lien or liability has attached or will attach to
the Leased Property or to Landlord in connection with such repairing or
rebuilding. Upon the completion of rebuilding and the furnishing of such proof,
the balance of the net proceeds of such insurance payable to Tenant on account
of such repairing or rebuilding will be paid to Tenant. Tenant will obtain and
deliver to Landlord a temporary or final certificate of occupancy before the
Leased Property is reoccupied for any purpose. Tenant shall complete such
repairs or rebuilding free and clear of mechanic's or other liens, and in
accordance with the building codes and all applicable laws, ordinances,
regulations, or orders of any state, municipal, or other public authority
affecting the repairs or rebuilding, and also in accordance with all
requirements of the insurance rating organization, or similar body. Any
remaining proceeds of insurance after such restoration will be Tenant's
property.

10.02 Landlord's Inspection. During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such repairs
or rebuilding. Tenant will keep all plans, shop drawings, and specifications at
the building, and Landlord and its architects and engineers may examine them at
all reasonable times. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the approved plans and specifications,



                                                               28






Landlord will give prompt notice in writing to Tenant, specifying in detail the
particular deficiency, omission, or other respect in which Landlord claims such
repairs or rebuilding do not accord with the approved plans and specifications.
Upon the receipt of any such notice, Tenant will cause corrections to be made to
any deficiencies, omissions, or such other respect. Tenant's obligations to
supply insurance, according to Article IV, will be applicable to any repairs or
rebuilding under this Section.

10.03 Landlord's Costs. Tenant shall, within thirty (30) days after receipt
of an invoice from Landlord, pay the reasonable costs, expenses, and fees of any
architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith; provided, however, that Landlord will consult
with Tenant and notify Tenant of the estimated amount of such expenses.

10.04 Rent Abatement. In the event that the provisions of Section 10.01 above
shall become applicable, the Base Rent, real estate taxes and other Impositions
shall be abated or reduced proportionately during any period in which, by reason
of such damage or destruction, there is substantial interference with the
operation of the business of Tenant in the Leased Property, having regard to the
extent to which Tenant may be required to discontinue its business in the Leased
Property, and such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending with the substantial
completion (defined below) by Tenant of such work or repair and/or
reconstruction. Nothing in this section shall be construed to abate or reduce
Percentage Rent. In the event that only a portion of the Leased Property is
rendered untenantable or incapable of such use, the Base Rent and all real
estate taxes and other Impositions payable hereunder shall be reduced on a pro
rata basis for the number of licensed nursing home beds which were rendered
incapable of occupancy because of such damage or destruction in proportion to
the total amount of licensed nursing home beds available for occupancy in the
Leased Property prior to such damage or destruction. For purposes of this
paragraph, substantial completion shall occur upon the earlier of (i) nine (9)
months from the date of the first disbursement of insurance proceeds, or (ii)
the issuance of a certificate of occupancy for the Leased Property.

10.05 Substantial Damage During Lease Term. Provided Tenant has fully
complied with Section 4.01 hereof (including actually maintaining in effect
rental value insurance provided for in clause (c) thereof), if, at any time
during the Term of the Lease, the Leased Property is so damaged by fire or
otherwise that more than fifty (50%) percent of the licensed nursing home beds
at the Leased


                                                               29






Property are rendered unusable, Tenant may, within thirty (30) days after such
damage, give notice of its election to terminate the Lease subject to the
particular Leased Property and, subject to the further provisions of this
Section, such Lease will cease on the tenth (lOth) day after the delivery of
such notice. If the Lease is so terminated, Tenant will have no obligation to
repair, rebuild or replace the Leased Property, and the entire insurance
proceeds will belong to Landlord. If the Lease is not so terminated, Tenant
shall rebuild the Leased Property in accordance with Section 10.01.

ARTICLE XI: CONDEMNATION

11.01 Total Taking. If, by exercise of the right of eminent domain or by
conveyance made in response to the threat of the exercise of such right
("Taking"), the entire Leased Property that is the subject of any Lease is
taken, or so much of the Leased Property is taken that the Leased Property
cannot be used by Tenant for the purposes for which it was used immediately
before the Taking, then the Lease will terminate on the earlier of the vesting
of title to the Leased Property in the condemning authority or the taking of
possession of the Leased Property by the condemning authority. All damages
awarded for such Taking under the power of eminent domain shall be the property
of the Landlord, except for damages awarded as compensation for diminution in
value of the leasehold in contrast to diminution in the value of the fee of the
Leased Property. Tenant shall also be entitled to any specific award made for
loss of business or the relocation thereof.

11.02 Partial Taking. If, after a Taking, so much of the Leased Property that
is the subject of any Lease remains that the Leased Property can be used for
substantially the same purposes for which it was used immediately before the
Taking, then [i] the Lease will end as to the part taken on the earlier of the
vesting of title to the Leased Property in the condemning authority or the
taking of possession of the Leased Property by the condemning authority; [ii]
Base Rent for so much of the Leased Property as remains will be reduced on a pro
rata basis by an amount equal to the difference between the number of available
nursing beds remaining after the Taking and the number of available nursing beds
before the Taking; [iii] at its cost, Tenant shall restore so much of the Leased
Property as remains to a sound architectural unit substantially suitable for the
purposes for which it was used immediately before the Taking, using good
workmanship and new, first-class materials; [iv] upon completion of the
restoration, or upon Tenant's request at intervals during the restoration
process, in accordance with the procedure set forth in Section 10.01, Landlord
will pay Tenant the lesser of the net award made to Landlord on the account of
the Taking (after deducting from the total award, attorneys', appraisers', and
other fees and costs incurred in connection with the obtaining of the award and
amounts paid to the holders of mortgages secured by the Leased Property), or
Tenant's actual out-of-pocket costs of restoring the Leased



                                                               30






Property; and [v] Landlord shall be entitled to the balance of the net award.

ARTICLE XII: TENANT'S PROPERTY

12.01 Tenant's Property. Tenant shall install, place, and use on the Leased
Property such fixtures, furniture, equipment, inventory and other personal
property in addition to the Fixtures as may be required or as Tenant may, from
time to time, deem necessary or useful to operate the Leased Property as a
nursing home or assisted living medical care facility. All fixtures, furniture,
equipment, inventory, and other personal property installed, placed, or used on
the Leased Property which is owned by Tenant or leased by Tenant from third
parties is hereinafter referred to as "Tenant's Property".

12.02 Requirements for Tenant's Property. Tenant shall comply with all of
the following requirements in connection with Tenant's Property:

(a) Tenant shall notify Landlord within one hundred twenty
(120) days after each anniversary of any Lease of any additions,
substitutions, or replacements of any item of Tenant's Property which
individually has a cost of more than $10,000.00 and shall furnish
Landlord with such other information as Landlord may reasonably request
from time to time.

(b) Tenant's Property shall be installed in a good and
workmanlike manner, in compliance with all governmental laws,
ordinances, rules, and regulations and all insurance requirements, and
be installed free and clear of any mechanic's liens.

(c) Tenant shall, at Tenant's sole cost and expense,
maintain, repair, and replace Tenant's Property.

(d) Tenant shall, at Tenant's sole cost and expense, keep
Tenant's Property insured against loss or damage by fire, vandalism and
malicious mischief, sprinkler leakage, and other physical loss perils
commonly covered by fire and extended coverage, boiler and machinery,
and difference in conditions insurance in an amount not less than
ninety percent (90%) of the then full replacement cost thereof. Tenant
shall use the proceeds from any such policy for the repair and
replacement of Tenant's Property. The insurance shall meet the
requirements of Section 4.03.

(e) Tenant shall pay all taxes applicable to Tenant's
Property.


                                                               31

 




(f) If Tenant's Property is damaged or destroyed by fire or
any other cause, Tenant shall promptly repair or replace Tenant's
Property unless Tenant is entitled to and elects to terminate the Lease
pursuant to Section 10.05.

(g) Unless an Event of Default (or any event which, with the
giving of notice or lapse of time, or both, would constitute an Event
of Default) has occurred and remains uncured beyond any applicable
grace period, Tenant may remove Tenant's property from the Leased
Property from time to time provided that [i] the items removed are not
required to operate the Leased Property as a licensed nursing home
facility (unless such items are being replaced by Tenant); and [ii)
Tenant repairs any damage to the Leased Property resulting from the
removal of Tenant's Property.

(h) Tenant shall remove Tenant's Property upon the
termination or expiration of the Lease and shall repair any damage to
the Leased Property resulting from the removal of Tenant's Property. If
Tenant fails to remove Tenant's Property within ninety (90) days after
the termination or expiration of the Lease, then Tenant shall be deemed
to have abandoned Tenant's Property, Tenant's Property shall become the
property of Landlord, and Landlord may remove, store and dispose of
Tenant's Property. In such event, Tenant shall have no claim or right
against Landlord for such property or the value thereof regardless of
the disposition thereof by Landlord. Tenant shall pay Landlord, upon
demand, all expenses incurred by Landlord in removing, storing, and
disposing of Tenant's Property and repairing any damage caused by such
removal. Tenant's obligations hereunder shall survive the termination
or expiration of the Lease.

(i) Tenant shall perform its obligations under any equipment
lease or security agreement for Tenant's Property.

ARTICLE XIII: TENANT'S RIGHTS OF FIRST REFUSAL

13.01 Rights of First Refusal.

(a) Subject to the terms and conditions set forth in this
Section 13.01, Tenant shall have a right of first refusal to purchase
any Leased Property (the "Purchase Refusal Right"). If during the Term
or for a period of six (6) months following termination of the Lease,
Landlord receives a bona fide third party offer to purchase any Leased
Property, Landlord shall, prior to accepting such third party offer,
send written notice thereof to Tenant ("Landlord's Notice") along with
a copy of such offer, and further setting forth in detail all of the
terms and conditions of such third party offer, including the price,
time for closing, and any contingencies. Tenant shall have fifteen (15)
days after



                                                               32







receipt of Landlord's Notice to exercise Tenant's Purchase Refusal
Right, by giving Landlord written notice thereof. Failure of Tenant to
exercise the Purchase Refusal Right within such time period set forth
above shall be deemed to extinguish the Purchase Refusal Right.
Thereafter, Landlord may sell such Leased Property to such third party
on the same terms and conditions as set forth in the Landlord's Notice.
Tenant's Purchase Refusal Right shall revive in the event that Landlord
fails to close such third party offer. In the event that Tenant elects
to exercise the Purchase Refusal Right and to purchase the Leased
Property thereby, (a) Tenant shall purchase such Leased Property on the
same terms and conditions and subject to all time periods and other
limitations as provided in Landlord's Notice, and (b) concurrently with
such purchase, the Lease of such Leased Property shall terminate (but
Tenant shall remain liable to pay any unpaid Rent with respect to such
Leased Property and all indemnifications and other provisions that
survive the expiration of any Lease or of this Agreement shall continue
in effect), and this Agreement shall be appropriately amended to
reflect the termination of such Lease.

(b) Subject to the terms and conditions set forth in this
Section 13.01, Tenant shall have a right of first refusal to lease any
Leased Property (the "Lease Refusal Right"). If during the Term or
within six (6) months thereafter Landlord receives a bona fide third
party offer to lease any Leased Property after expiration of the Lease
to Tenant, Landlord shall, prior to accepting such third party offer,
send written notice thereof to Tenant ("Landlord's Notice") along with
a copy of such offer, and further setting forth in detail all of the
terms and conditions of such third party offer, including the rent.
Tenant shall thereafter have thirty (30) days after the date of
Landlord's Notice to exercise Tenant's Lease Refusal Right, by giving
Landlord written notice thereof. Failure of Tenant to exercise the
Lease Refusal Right within such time period set forth above shall be
deemed to extinguish the Lease Refusal Right. Thereafter, Landlord may
lease such Leased Property to such third party on the same terms and
conditions as set forth in the Landlord's Notice. Tenant's Lease
Refusal Right shall revive in the event that Landlord fails to close
such third party offer. In the event that Tenant elects to exercise the
Lease Refusal Right and to lease the Leased Property thereby, Tenant
shall lease such Leased Property on the same terms and conditions and
subject to all time periods and other limitations as provided in
Landlord's Notice.




                                                               33






ARTICLE XIV: ASSIGNMENT AND SUBLETTING; ATTORNMENT

14.01 Subletting and Assignment; Attornment. Subject to the provisions of
Section 14.03 below and any other express conditions or limitations set forth
herein, Tenant may, without the consent of Landlord, (i) assign this Agreement
or any Lease or sublet all or any part of the Leased Property to any Affiliate
of Tenant, or (ii) sublet all or any part of the Leased Property (a) in the
normal course of the conduct of Tenant's business on the Leased Property (such
as but not limited to leasing of space for major moveable equipment or
functional departments such as pathology, pharmacy and radiology), or (b) as to
less than an aggregate of 20% of the rentable square footage of the buildings on
any Leased Property, to concessionaires or other third party users or operators
of portions of the Leased Property which are reasonably related to the
health-care industry or which provide direct services for patients or employees
of the Leased Property. Landlord shall not unreasonably withhold its consent to
any other or further subletting or assignment, provided that (a) in the case of
a subletting, the sublessee shall comply with the provisions of Section 14.02,
(b) in the case of an assignment, the assignee shall assume in writing and agree
to keep and perform all of the terms of this Lease on the part of Tenant to be
kept and performed and shall be, and become, jointly and severally liable with
Tenant for the performance thereof, (c) an original counterpart of each such
sublease and assignment and assumption, duly executed by Tenant and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
the Landlord, shall be delivered promptly to Landlord, and (d) in case of either
an assignment or subletting, Tenant shall remain primarily liable, as principal
rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Tenant hereunder.

14.02 Attornment. Tenant shall insert in each sublease permitted under
Section 14.01 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of the Lease (including this
Agreement) and to the rights of Landlord hereunder, (b) in the event the Lease
shall terminate before the expiration of such sublease, the sublessee thereunder
will, at Landlord's option, attorn to Landlord and waive any right the sublessee
may have to terminate the sublease or to surrender possession thereunder, as a
result of the termination of the Lease, and (c) in the event the sublessee
receives a written notice from Landlord or Landlord's assignees, if any, stating
that Tenant is in Default under the Lease, the sublessee shall thereafter be
obligated to pay all rentals accruing under said sublease directly to the party
giving such notice, or as such party may direct. All rentals received from the
sublessee by Landlord or Landlord's assignees, if any, as the case may be, shall
be credited against the amounts owing by Tenant under the Lease.



                                                               34






14.03 Sublease Limitation. Anything contained in this Agreement or any
Lease to the contrary notwithstanding, Tenant shall not sublet the Leased
Property on any basis such that the rental to be paid by the sublessee
thereunder would be based, in whole or in part, on either (i) the income or
profits derived by the business activities of the sublessee, or (ii) any other
manner such that any portion of the sublease rental received by Landlord would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Internal Revenue Code of 1986 as amended (the "Code"), or any
similar or successor provisions thereto.


ARTICLE XV: LIMITED RIGHT OF SUBSTITUTION

15.01 Substitution Upon Condemnation. With respect to any Leased Property or
Leased Properties whose Base Rent does not exceed in the aggregate five percent
(5%) of the Base Rent for all Leased Properties listed on Schedule A hereto
that, following notice received from any governmental authority not later than
December 31, 1994, is taken in its entirety by eminent domain or conveyed in its
entirety to such governmental authority in response to the threat of the
exercise of such governmental authority's right of eminent domain ("Condemned
Property"), Tenant shall have an option to acquire such Leased Property in
exchange for a reasonably satisfactory new Leased Property ("Substituted
Property") on terms reasonably acceptable to Landlord. Such terms with respect
to the Substituted Property shall include comparable fair rental value, a
tax-free exchange opinion and an opinion that the transaction will not
disqualify Landlord as a real estate investment trust for tax purposes.


ARTICLE XVI: ARBITRATION

16.01 Arbitration. Except with respect to the payment of Base Rent hereunder,
in case any controversy shall arise between the parties hereto as to any of the
requirements of this Lease or the performance thereof, which the parties shall
be unable to settle by agreement or as otherwise provided herein, such
controversy shall be determined by arbitration to be initiated and conducted as
provisions of this Article XVI.

16.02 Appointment of Arbitrators. The party or parties requesting arbitration
shall serve upon the other a demand therefor, in writing, specifying the matter
to be submitted to arbitration, and nominating some competent disinterested
person to act as an arbitrator; within twenty (20) days after receipt of such
written demand and notification, the other party shall, in writing, nominate a
competent disinterested person and the two (2) arbitrators so designated shall,
within ten (10) days thereafter, select a third arbitrator and give immediate
written notice of such


                                                               35






selection to the parties and shall fix in said notice a time and place for the
first meeting of the arbitrators, which meeting shall be held as soon as
conveniently possible after the selection of all arbitrators at which time and
place the parties to the controversy may appear and be heard.

16.03 Third Arbitrator. In case the notified party or parties shall fail to
make a selection upon notice, as aforesaid, or in case the first two (2)
arbitrators selected shall fail to agree upon a third arbitrator within ten (10)
days after their selection, then such arbitrator or arbitrators, may, upon
application made by either of the parties to the controversy, after twenty (20)
days' written notice thereof to the other party or parties, be appointed by the
Senior Judge of the United States District Court having jurisdiction of
controversies litigated in Nashville Tennessee.

16.04 Arbitration Procedure. Said arbitrators shall give each of the parties
not less than ten (10) days' written notice of the time and place of each
meeting at which the parties or any of them may appear and be heard and after
hearing the parties in regard to the matter in dispute and taking such other
testimony and making such other examinations and investigations as justice shall
require and as the arbitrators may deem necessary, they shall decide the
question submitted to them; and the decision of said arbitrators in writing
signed by a majority of them shall be final and binding upon the parties to such
controversy. In rendering such decision and award, the arbitrators shall not add
to, subtract from or otherwise modify the provisions of this Agreement or of any
applicable Lease.

16.05 Expenses. The expenses of such arbitration shall be divided between
Landlord and Tenant unless otherwise specified in award. Each party in interest
shall pay the fees and expenses of its own counsel.

ARTICLE XVII: QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,
BOND FINANCING AND ESTOPPEL CERTIFICATES

17.01 Quiet Enjoyment. So long as Tenant performs all of its obligations
under this Agreement and each Lease, Tenant's possession of the Leased Property
will not be disturbed by or through Landlord.

17.02 Subordination. This Agreement and each Lease and Tenant's rights under
this Agreement and each Lease are subordinate to any ground lease or underlying
lease, first mortgage, first deed of trust, or other first lien against the
Leased Property, together with any renewal, consolidation, extension,
modification or replacement thereof, which now or at any subsequent time affects
the Leased Property or any interest of Landlord in the Leased Property, except
to the extent that any such instrument expressly provides that this Agreement
and each Lease is superior. This



                                                               36






provision will be self-operative, and no further instrument or subordination
will be required in order to effect it. However, Tenant shall execute,
acknowledge and deliver to Landlord, at any time and from time to time upon
demand by Landlord, such documents as may be requested by Landlord or any
mortgagee or any holder of any mortgage or other instrument described in this
Section, to confirm or effect any such subordination. If Tenant fails or refuses
to execute, acknowledge, and deliver any such document within twenty (20) days
after written demand, Landlord may execute, acknowledge and deliver any such
document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby
constitutes and irrevocably appoints Landlord, its successors and assigns, as
Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any documents described in this Section. This power of attorney is
coupled with an interest and is irrevocable.

17.03 Attornment; Non-Disturbance. If any holder of any mortgage, indenture,
deed of trust, or other similar instrument described in Section 17.02 succeeds
to Landlord's interest in the Leased Property, Tenant will pay to such holder
all Rent subsequently payable under this Lease. Tenant shall, upon request of
anyone succeeding to the interest of Landlord, automatically become the tenant
of, and attorn to, such successor in interest without changing this Lease. The
successor in interest will not be bound by [i] any payment of Rent for more than
one (1) month in advance; [ii] any amendment or modification of this Lease made
without its written consent; [iii] any claim against Landlord arising prior to
the date on which the successor succeeded to Landlord's interest; or [iv] any
claim or offset of Rent against the Landlord. Upon request by Landlord or such
successor in interest and without cost to Landlord or such successor in
interest, Tenant will execute, acknowledge and deliver an instrument or
instruments confirming the attornment. If Tenant fails or refuses to execute,
acknowledge, and deliver any such instrument within twenty (20) days after
written demand, then Landlord or such successor in interest will be entitled to
execute, acknowledge, and deliver any document on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any such document. This power of
attorney is coupled with an interest and is irrevocable.

Landlord shall use reasonable efforts to obtain a non-disturbance
agreement from any such party referred to above which provides that in the event
such party succeeds to Landlord's interest under the Lease and provided that no
Event of Default by Tenant exists, such party will not disturb Tenant's
possession, use or occupancy of the Leased Property.

17.04 Estoppel Certificates. At the request of Landlord or any mortgagee or
purchaser of the Leased Property, Tenant shall



                                                               37





execute, acknowledge, and deliver an estoppel certificate, in recordable form,
in favor of Landlord or any mortgagee or purchaser of the Leased Property
certifying the following: [i] that the Lease is unmodified and in full force and
effect, or if there have been modifications that the same is in full force and
effect as modified and stating the modifications; [ii] the date to which Rent
and other charges have been paid; [iii] that neither Tenant nor Landlord is in
default nor is there any fact or condition which, with notice or lapse of time,
or both, would constitute a default, if that be the case, or specifying any
existing default; [iv] that Tenant has accepted and occupies the Leased
Property; [v] that Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord, if that be the case, or specifying such that
exist; [vi] that the Landlord has no outstanding construction or repair
obligations; and [vii] such other information as may reasonably be requested by
Landlord or any mortgagee or purchaser. Any purchaser or mortgagee may rely on
this estoppel certificate. If Tenant fails to deliver the estoppel certificates
to Landlord within ten (10) days after the request of the Landlord, then Tenant
shall be deemed to have certified that [a] the Lease is in full force and effect
and has not been modified, or that the Lease has been modified as set forth in
the certificate delivered to Tenant; [b] Tenant has not prepaid any Rent or
other charges except for the current month; [c] Tenant has accepted and occupies
the Leased Property; [d] neither Tenant nor Landlord is in default nor is there
any fact or condition which, with notice or lapse of time, or both, would
constitute a default; [e] Landlord has no outstanding construction or repair
obligation, and [f] Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord. Tenant hereby irrevocably appoints Landlord as
Tenant's attorney-in-fact to execute, acknowledge and deliver on Tenant's behalf
any estoppel certificate which Tenant does not object to within twenty (20) days
after Landlord sends the certificate to Tenant. This power of attorney is
coupled with an interest and is irrevocable.

ARTICLE XVIII: MISCELLANEOUS

18.01 Notices. Landlord and Tenant hereby agree that all notices, demands,
requests, and consents (hereinafter "notices") required to be given pursuant to
the terms of this Lease shall be in writing shall be addressed as follows:

If to Tenant: National HealthCorp L.P.
100 Vine Street
Suite 1400, City Center
Murfreesboro, Tennessee 37130




                                                               38









With a copy to: Richard F. LaRoche, Jr.
Senior Vice President and Secretary
National HealthCorp L.P.
100 Vine Street
Suite 1400, City Center
Murfreesboro, Tennessee 37130

If to Landlord: National Health Investors, Inc.
100 Vine Street
Suite 1400, City Center
Murfreesboro, Tennessee 37130

With a copy to: Ernest E. Hyne, II, Esq.
Harwell Martin & Stegall, P.C.
P.O. Box 2960
Nashville, Tennessee 37219;

and shall be served by [i] personal delivery, [ii] certified mail, return
receipt requested, postage prepaid, or [iii] nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any notices meeting the requirements of this Section
shall be effective, regardless of whether or not actually received. Landlord or
Tenant may change its notice address at any time by giving the other party
notice of such change.

18.02 Advertisement of Leased Property. In the event the parties hereto have
not executed a renewal lease of any Leased Property within ninety (90) days
prior to the expiration of the Term, then Landlord or its agent shall have the
right to enter such Leased Property at all reasonable times for the purpose of
exhibiting the Leased Property to others and to place upon the Leased Property
for and during the period commencing one hundred eighty (180) days prior to the
expiration of the Term "for sale" or "for rent" notices or signs.

18.03 Entire Agreement. This Agreement and the individual Leases contain the
entire agreement between Landlord and Tenant with respect to the subject matter
hereof and thereof. No representations, warranties, and agreements have been
made by Landlord except as set forth in this Lease.

18.04 Severability. If any term or provision of this Agreement or any Lease
is held or deemed by Landlord to be invalid or unenforceable, such holding shall
not affect the remainder of this Agreement or any Lease and the same shall
remain in full force and effect, unless such holding substantially deprives
Tenant of the use of the Leased Property or Landlord of the Rents therefor, in
which event the Lease for such Leased Property shall forthwith terminate as if
by expiration of the Term.


                                                               39






18.05 Captions and Headings. The captions and headings are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope of this Agreement or the intent of any provision hereof.

18.06 Governing Law. This Lease shall be construed under the laws of the
State of Tennessee.

18.07 Recording of Lease. Tenant shall not record this Agreement. Tenant may,
however, record the Lease approved by Landlord with respect to each Leased
Property; provided, however, such lease shall not disclose the Base Rent of
other economic terms of the Lease.

18.08 Waiver. No waiver by Landlord of any condition or covenant herein
contained, or of any breach of any such condition or covenant, shall be held or
taken to be a waiver of any subsequent breach of such covenant or condition, or
to permit or excuse its continuance or any future breach thereof or of any
condition or covenant, nor shall the acceptance of Rent by Landlord at any time
when Tenant is in default in the performance or observance of any condition or
covenant herein be construed as a waiver of such default, or of Landlord's right
to terminate this Agreement or any Lease or exercise any other remedy granted
herein on account of such existing default.

18.09 Binding Effect. This Agreement and each Lease will be binding upon and
inure to the benefit of the heirs, successors, personal representatives, and
permitted assigns of Landlord and Tenant.

18.10 Authority. The persons executing this Agreement or any Lease on behalf
of Tenant warrant that [i] Tenant has the power and authority to enter into this
Agreement or such Lease; [ii] Tenant is qualified to do business in the state in
which the Leased Property is located; and [iii] they are authorized to execute
this Lease on behalf of Tenant. Tenant shall, at the request of Landlord,
provide evidence satisfactory to Landlord confirming these representations.

18.11 Transfer of Permits, Etc. Upon the expiration or earlier termination of
the Term of any Lease (whether pursuant to the provisions of this Agreement of
such Lease), Tenant shall to transfer and relinquish to Landlord or Landlord's
nominee and to cooperate with Landlord or Landlord's nominee in connection with
the processing by Landlord or such nominee of all licenses, operating permits,
certificates of need and other governmental authorization and all contracts,
including without limitation, a Certificate of Need, the nursing home and/or
health care facility license, and any other contracts with governmental or
quasi-governmental entities which may be necessary or appropriate for the
operation by Landlord or such nominee of the Leased


                                                               40






Property for the purposes of operating a nursing home and health care facility;
provided that the costs and expenses of any such transfer or the processing of
any such application shall be paid by Landlord or Landlord's nominee. Any such
permits, licenses, certificates and contracts which are held in Landlord's name
now or at the termination of the Lease shall remain the property of Landlord. To
the extent permitted by law, Tenant hereby irrevocably appoints Landlord, its
successors and assigns and any nominee or nominees specifically designated by
Landlord or any successor or assign as Tenant's attorney-in-fact to execute,
acknowledge, deliver and file all documents appropriate to such transfer or
processing of any such application on behalf of Tenant; this power of attorney
is coupled with an interest and is irrevocable.

18.12 Modification. This Agreement and any Lease may only be modified by a
writing signed by both Landlord and Tenant.

18.13 Incorporation by Reference. All schedules and exhibits referred to in
this Agreement are incorporated into this Agreement, and all schedules and
exhibits referred to in any Lease (as well as the provisions of this Agreement,
except to the extent specifically excluded from or inconsistent with the terms
of such Lease) are incorporated into such Lease.

18.14 No Merger. The surrender of this Agreement or of any Lease by Tenant or
the cancellation of this Agreement or of any Lease by agreement of Tenant and
Landlord or the termination of this Agreement or of any Lease on account of
Tenant's default will not work a merger, and will, at Landlord's option,
terminate any subleases or operate as an assignment to Landlord of any
subleases. Landlord's option under this paragraph will be exercised by notice to
Tenant and all known subtenants of any applicable Leased Property.

18.15 Laches. No delay or omission by either party hereto to exercise any
right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.

18.16 Waiver of Jury Trial. To the extent that there is any claim by one
party against the other that is not to be settled by arbitration as provided in
Article XVI hereof, Landlord and Tenant waive trial by jury in any action,
proceeding or counterclaim brought by either of them against the other on all
matters arising out of this Lease or the use and occupancy of the Leased
Property (except claims for personal injury or property damage). If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant will not
interpose, and waives the right to interpose, any counterclaim in any such
proceeding.



                                                               41






18.17 Guarantee Fee Credit. Provided that no claim has been made against
Landlord under its subordinated guarantee of any letter of credit outstanding as
of the date of this Agreement (together with any renewal or replacement of such
letter of credit, "LOC") guaranteed primarily by Tenant, which LOC was issued to
secure indebtedness in connection with healthcare facilities managed by Tenant
and not constituting any of the Leased Properties, and which guarantee by
Landlord ("Managed Facility LOC Guarantee") is issued concurrently with and as
provided in the Contribution and Assumption Agreement of even date between
Tenant and Landlord (which provides among other things for the Real Estate
Conveyance), Tenant shall be entitled to a credit against the aggregate Base
Rent payable pursuant to Section 2.01 of this Agreement in an amount equal to
the full amount of any fees actually received by Landlord in consideration of
Landlord's Managed Facility LOC Guarantees. However, no portion of credit
provided for in this Section 18.17 shall be considered as a set-off or credit
against any rent payable under any individual Lease of any Leased Property, and
this Section 18.17 shall not be incorporated into or deemed to be a part of any
such Lease.

18.18 Permitted Contests. Tenant, on its own or on Landlord's behalf (or in
Landlord's name), but at Tenant's expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any legal
requirement or insurance requirement or any lien, attachment, levy, encumbrance,
charge or claim provided that [i] in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Landlord and from the Leased Property; [ii] neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in any
immediate danger of being sold, forfeited, attached or lost; [iii] in the case
of a legal requirement, Landlord would not be in any immediate danger of civil
or criminal liability for failure to comply therewith pending the outcome of
such Proceedings; [iv] in the event that any such contest shall involve a sum of
money or potential loss in excess of Fifty Thousand Dollars ($50,000.00), Tenant
shall deliver to Landlord and its counsel an opinion of Tenant's counsel to the
effect set forth in clauses [i], [ii] and [iii], to the extent applicable; [v]
in the case of a legal requirement and/or an Imposition, lien, encumbrance, or
charge, Tenant shall give such reasonable security as may be demanded by
Landlord to insure ultimate payment of the same and to prevent any sale or
forfeiture of the affected Leased Property or the Rent by reason of such
nonpayment or noncompliance; provided, however, the provisions of this Section
shall not be construed to permit Tenant to contest the payment of Rent (except
as to contests concerning the method of computation or the basis of levy of any
Imposition or the basis for the assertion of any other claim) or any other sums
payable by Tenant to Landlord hereunder; [vi] in the case of an insurance



                                                               42





requirement, the coverage required by Article IV shall be maintained: and [vii]
if such contest be finally resolved against Landlord or Tenant, Tenant shall, as
Additional Rent due hereunder, promptly pay the amount required to be paid,
together with all interest and penalties accrued thereon, or comply with the
applicable legal requirement or insurance requirement. Landlord, at Tenant's
expense, shall execute and deliver to Tenant such authorizations and other
documents as may be reasonably required in any such contest, and, if reasonably
requested by Tenant or if Landlord so desires, Landlord shall join as a party
therein. Tenant hereby agrees to indemnify and save Landlord harmless from and
against any liability, cost or expense of any kind that may be imposed upon
Landlord in connection with any such contest and any loss resulting therefrom.

18.19 Construction of Lease. This Agreement and each of the Leases for Leased
Properties described on Schedule A hereto have been prepared by Landlord and its
professional advisors and reviewed by Tenant and its professional advisors.
Landlord, Tenant, and their advisors believe that this Agreement and such Leases
are the product of all their efforts, that they express their agreement, and
agree that they shall not be interpreted in favor of either Landlord or Tenant
or against either Landlord or Tenant merely because of their efforts in
preparing such documents.

18.20 Counterparts. This Agreement and each Lease may be executed in
duplicate counterparts, each of which shall be deemed an original hereof or
thereof.

18.21 Relationship of Landlord and Tenant. The relationship of Landlord and
Tenant is the relationship of lessor and lessee. Landlord and Tenant are not
partners, joint venturers, or associates.

18.22 Custody of Escrow Funds. Any funds paid to Landlord in escrow hereunder
may be held by Landlord or, at Landlord's election, by a financial institution,
the deposits or accounts of which are insured or guaranteed by a federal or
state agency. The funds shall not be deemed to be held in trust, may be
commingled with the general funds of Landlord or such other institution, and
shall not bear interest.

18.23 Landlord's Status as a REIT. Tenant acknowledges that Landlord intends
to elect to be taxed as a real estate investment trust ("REIT") under the Code.
Tenant shall not do anything which would adversely affect Landlord's status as a
REIT. Tenant hereby agrees to modifications of this Lease which do not
materially adversely affect Tenant's rights and liabilities if such
modifications are required to retain or clarify Landlord's status as a REIT.



                                                               43






18.24 Sale of Real Estate Assets. Notwithstanding any other provision of this
Agreement or of any Lease, Landlord shall not be required to sell or transfer
Leased Property, or any portion thereof, which is a real estate asset as defined
in Section 856(c)(6) of the Code, to Tenant if Landlord's counsel advises
Landlord that such sale or transfer may not be a sale of property described in
Section 857(b)(6)(C) of the Code. If Landlord determines not to sell such
property pursuant to the above sentence, Tenant's right, if any, to purchase the
Leased Property shall continue and be exercisable at such time as the
transaction, upon the advice of Landlord's counsel, would be a sale of property
described in Section 857(b)(6)(C) of the Code.

18.25 Use of Tenant's Name. Following the expiration or earlier termination
of this Agreement and of all of the Leases, Landlord shall use its best efforts,
if requested by Tenant within 12 months of such expiration or termination, to
cause its name to be changed to a name that does not include the word "National"
or any variation thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.


NATIONAL HEALTH INVESTORS, INC.



By:
-----------------------------
Title: Secretary




NATIONAL HEALTHCORP L.P.
By its Managing General Partner,
NHC, Inc.





By:
-----------------------------

Title: President

                                 





              AMENDMENT NO. 1 TO MASTER AGREEMENT TO LEASE

This Amendment No. 1 (hereinafter "Amendment") is made to that certain
Master Agreement to Lease between National Health Investors, Inc. (Landlord) and
National HealthCorp L.P. ("Tenant") dated October 17, 1991, (hereinafter "Master
Lease"), and is entered into effective this 2nd day of June, 1993.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCorp
L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or
retirement centers in 40 geographical locations as identified on Exhibit A to
said Master Lease; and

WHEREAS, NHC has obtained Certificates of Need to expand the number of
licensed beds in three of said projects, namely the licensed nursing homes in
Hudson and Plant City, Florida, and in Anniston, Alabama; and

WHEREAS, pursuant to Board resolution of today's date, the Board of
National Health Investors, Inc. ("NHI") has agreed to finance said expansions
and NHC has agreed to pay an increased lease rate thereon, all on the following
terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby
amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Projects. Landlord and Tenant hereby agree that Tenant is
granted the right to increase the licensed bed capacity at the Leased
Property located in Hudson and Plant City, Florida, and Anniston, Alabama,
so long as its expansions are authorized with a certificate of need from
the appropriate governmental authority and are constructed in a
substantially similar manner as the existing Leased Property. Landlord
agrees (at the request of Tenant, and after the issuance of a certificate
of occupancy on the Expanded Project) to reimburse Tenant for such hard
costs, including land, construction, landscaping, fixtures or
appurtenances, as Tenant may have incurred in the expansion of the
project. At such time as this reimbursement is sought by Tenant, Tenant
agrees to amend the individual lease for that Leased Property, and to
increase the base rent thereon by an annual factor equal to 10% times the
expenses reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in
paragraph 2.02 above shall commence on that part of the Leased Property
expanded pursuant to the terms of this paragraph 2.07 effective the first
day of January of the calendar year commencing no sooner than six months
after the date of the commencement of Tenant's lease obligation on the
expanded property.

All the rest and residue of the Master Lease and the individual leases on
the Leased Properties located in Hudson and Plant City, Florida, and Anniston,
Alabama, are hereby ratified and affirmed. Executed this the 2nd day of June,
1993.

NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCORP L.P.

/s/ Robert G. Adams
Robert G. Adams, Senior Vice President





AMENDMENT NO. 2 TO MASTER AGREEMENT TO LEASE

This Amendment No. 2 (hereinafter "Amendment 2") is made to that certain
Master Agreement to Lease between National Health Investors, Inc. ("Landlord")
and National HealthCare L.P. (formerly National HealthCorp L.P., now known as
"Tenant") dated October 17, 1991, (hereinafter "Master Lease"), and is entered
into effective this 15th day of January, 1996.

PRELIMINARY STATEMENTS:

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare
L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or
retirement centers in 40 geographical locations as identified on Exhibit A to
said Master Lease; and

WHEREAS, NHC has agreed to pay as additional rent for these facilities
certain "Assumed Mortgage Debt,"; and

WHEREAS, certain of the Mortgage Debt has, as of today, been repaid,
defeased, refunded or otherwise changed; and

WHEREAS, the parties agree to amend the Master Lease to reflect how NHC's
obligations pursuant to the Master Lease are to be handled hereinafter;

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby
amend the Master Lease by deleting the last sentence of Section 2.02.01 and
substituting in lieu thereof the following:

In the event that Landlord shall for any reason itself discharge
(including by prepayment) any Assumed Mortgage Debt, Tenant shall
thereafter pay the relevant Assumed Mortgage Debt Service Rent as follows:

a) If the parties cannot otherwise reach agreement, Tenant shall
thereafter pay the relevant Assumed Mortgage Debt Service Rent directly to
Landlord in accordance with the original payment terms of the Assumed
Mortgage Debt so discharged, or by agreement only

b) At that interest rate as paid by Landlord on any secured or
unsecured indebtedness, excluding the Line of Credit Note with Bank of
Tokyo, issued in a transaction occurring within 30 days or more before or
after the date of Landlord's prepayment with the principal of the Assumed
Mortgage Debt to be paid as directed by Landlord to Tenant from time to
time; provided further that in no event shall the principal payments on
the Assumed Mortgage Debt be greater than the principal payments that were
assumed at the time of the execution of the original Master Lease. To the
extent that any prepayment by Landlord has the effect of prepaying debt
owed by Tenant outside of its Assumed Mortgage Debt obligations under this
Master Lease, then Tenant agrees to repay NHI said amount by its
promissory note with a rate of interest as calculated in 2.02.01(b), with
interest to only accrue during the calendar year in which the prepayment
occurred and thereafter with principal and interest to be made in 180
equal monthly payments of principal and interest with said note to balloon
on December 31, 2006, unless the Master lease is renewed in whole or part,
in which case said note shall not balloon until December 31, 2011.

The parties agree to amend the individual leases for the various




Lease Properties from time to time in order to reflect Landlord's
designated payment of the principal and rent component pursuant to this
Section 2.02.01(b).

All the rest and residue of the Master Lease is hereby ratified and
affirmed this the 15th day of January, 1996.

NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCARE L.P.

/s/ W. Andrew Adams
W. Andrew Adams, President






AMENDMENT NO. 3 TO MASTER AGREEMENT TO LEASE

This Amendment No. 3 (hereinafter "Amendment 3") is made to that certain
Master Agreement to Lease between National Health Investors, Inc. ("Landlord")
and National HealthCare L.P. ("Tenant") dated October 17, 1991, (hereinafter
"Master Lease"), and is entered into effective this 22nd day of July, 1997.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare
L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or
retirement centers in 43 locations as identified on Exhibit A to said Master
Lease; and

WHEREAS, NHC has obtained a Certificate of Need to expand the number of
licensed beds or has constructed ancillary space in fourteen of said projects,
namely eight licensed nursing homes in Tennessee -- Athens, Scott, Colonial Hill
Retirement, Milan, Nashville, Pulaski, Sequatchie, Smithville, two in Missouri
-- Joplin and St. Charles, two in South Carolina -- Laurens and Anderson,
Merritt Island in Florida and Glasgow in Kentucky; and

WHEREAS, pursuant to Board resolution of today's date, the Board of
National Health Investors, Inc. ("NHI") has agreed to finance said expansions
and NHC has agreed to pay an increased lease rate thereon, all on the following
terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby
amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Projects. Landlord and Tenant hereby agree that Tenant is
granted the right to increase the licensed bed capacity and/or create
revenue producing ancillary space at the Leased Property located in
Athens, NHC/Scott in Lawrenceburg, Colonial Hill Retirement in
Chattanooga, Milan, Nashville, Pulaski, Sequatchie, and Smithville,
Tennessee; Glasgow, Kentucky; Joplin and St. Charles, Missouri, Laurens
and Anderson, South Carolina; and Merritt Island, Florida, so long as its
expansions are either exempt from or authorized with a certificate of need
from the appropriate governmental authority and are constructed in a
substantially similar manner as the existing Leased Property. Landlord
agrees at the request of Tenant from time to time to reimburse Tenant for
such hard costs, including land, construction, landscaping, fixtures or
appurtenances, as Tenant may have incurred in the expansion of the
Project. At such time as this reimbursement is sought by Tenant, Tenant
agrees to amend the individual lease for that Leased Property, and to
increase the base rent thereon by an annual factor equal to 9.5% times the
expenses reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in
paragraph 2.02 above shall commence on that part of the Leased Property
expanded pursuant to the terms of this paragraph 2.07 effective the first
day of January of 1999, with 1998 as the Base Year.

All the rest and residue of the Master Lease and the individual lease on
the Leased Properties located in Athens, NHC/Scott in Lawrenceburg, Colonial
Hill Retirement in Chattanooga, Milan, Nashville, Pulaski, Sequatchie, and
Smithville, Tennessee; Glasgow, Kentucky; Joplin and St. Charles, Missouri,
Laurens and Anderson, South Carolina; and Merritt Island, Florida, are hereby
ratified and affirmed. Executed effective this 22nd day of July, 1997.






NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCARE L.P.

/s/ Robert G. Adams
Robert G. Adams, Senior Vice President









AMENDMENT NO. 4 TO MASTER AGREEMENT TO LEASE

This Amendment No. 4 (hereinafter "Amendment 4") is made to that certain
Master Agreement to Lease between National Health Investors, Inc. ("Landlord")
and National HealthCare L.P. ("Tenant") dated October 17, 1991, (hereinafter
"Master Lease"), and is entered into effective the 31st day of December, 1997.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare
L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or
retirement centers in 43 locations as identified on Exhibit A to said Master
Lease; and

WHEREAS, NHC has obtained a Certificate of Need to expand the number of
licensed beds and ancillary space in the project located in Hendersonville, TN;
and

WHEREAS, pursuant to resolution, the Board of National Health Investors,
Inc. ("NHI") has agreed to finance said expansions and NHC has agreed to pay an
increased lease rate thereon, all on the following terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby
amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Project. Landlord and Tenant hereby agree that Tenant is
granted the right to increase the licensed bed capacity and/or create
revenue producing ancillary space at the Leased Property located in
Hendersonville, TN, so long as the expansion is authorized with a
certificate of need from the appropriate governmental authority and is
constructed in a substantially similar manner as the existing Leased
Property. Landlord agrees, at the request of Tenant from time to time, to
reimburse Tenant for such hard costs, including land, construction,
landscaping, fixtures or appurtenances, and capitalized interest incurred
during construction as Tenant may have incurred in the expansion of the
Project. At such time as this reimbursement is sought by Tenant, Tenant
agrees to amend the individual lease for that Leased Property, and to
increase the base rent thereon by an annual factor equal to 9.5% times the
cost and expense reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in
paragraph 2.02 above shall commence on that part of the Leased Property
expanded pursuant to the terms of this paragraph 2.07 effective the first
day of January of 1999, with 1998 as the Base Year.

All the rest and residue of the Master Lease and the individual lease on
the Leased Property located in Hendersonville, TN, is hereby ratified and
affirmed. Executed effective this the 31st day of December, 1997.

LANDLORD: NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr., Vice President

TENANT: NATIONAL HEALTHCARE L.P.

/s/ Robert G. Adams
Robert G. Adams, Senior Vice President






Exhibit 10.38




SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is hereby entered into by and between Roger Hopkins (“Executive”) and National Health Investors, Inc., (hereinafter referred to as the “Company”) (collectively referred to hereinafter as “the Parties”).

WHEREAS, Executive and the Company have agreed that Executive shall resign from Executive’s position as Chief Accounting Officer and all positions Executive holds as an officer or director of any of the Company’s subsidiaries, effective November 7, 2019 (the “Resignation Date”); and

WHEREAS, the Company and Executive do not anticipate that there will be any disputes between them or legal claims arising out of Executive’s resignation from employment with the Company, but nevertheless, desire to ensure a completely amicable parting and to settle fully and finally any and all differences or claims that might arise out of Executive’s employment.

NOW, THEREFORE, it is hereby agreed that:

1.Payment Upon Resignation. On the next regularly scheduled pay day following the Resignation Date, the Company shall pay to Executive any earned or accrued, but unpaid base salary and vacation through the Resignation Date. The Company will deduct normal withholdings for federal and state income taxes and payroll taxes. Executive acknowledges that he is not owed any additional compensation, benefits, or payment by virtue of his employment, or termination of employment, except as provided pursuant to any benefit plans in which Executive has participated.

2.Severance Benefits. In exchange for the general release of claims and other good and valuable consideration, and only after the expiration of the seven day revocation period described in Section 13 below, the Company agrees to pay and provide to Executive the following (“Severance Benefits”):

A.
The Company shall pay Executive the amount of $303,000.00, which is calculated as the equivalent of twelve (12) months of Executive’s base salary from which all proper taxes and withholdings will be taken, payable on a semi-monthly basis over a twelve (12) month period in accordance with the Company’s regular payroll practices with the first payment (the “Initial Payment”) commencing upon execution of this Agreement and expiration of the seven (7) day Revocation Period described below (the “Severance Delay Period”). The Company, subject to authorization by the Company’s Board of Directors, will pay to Executive a lump sum of $137,500.00 on or before March 15, 2020 for that portion of all executive bonuses related to increase of dividends, to which Executive would have been entitled had he remained employed with the Company through that date. The Company will continue to provide group health and dental benefits that are in effect as of the Resignation Date for a period of twelve (12) months following the Resignation Date.

B.
Executive was granted the option to purchase (i) 50,000 shares of common stock at $64.33 per share on February 20, 2018, of which 16,668 will vest on February 20, 2020 and (ii) 50,000 shares of common stock at $79.96 per share on February 21, 2019, of which 16,666 will vest on February




21, 2020 and 16,668 will vest on February 21, 2021. With respect to those two grants, upon the execution and non-revocation of this Agreement, these options will continue to vest according to the original vesting schedule over a period of twelve (12) months following the Resignation Date. All outstanding options held by the Executive as of the Resignation Date will become non-qualified options and the Executive will have the right to exercise all vested options during the twelve (12) months following the Resignation Date. All unexercised options (whether vested or not) shall terminate on the twelve month anniversary of the Resignation Date.

C.
Upon execution and non-revocation of this Agreement, Company will also provide to Executive a twelve (12) month outplacement services package for executives provided by Lee Hecht Harrison.

Executive agrees that the Severance Benefits are in addition to any compensation Executive has earned from the Company, and that Executive would not be entitled to the Severance Benefits but for Executive’s execution of this Agreement. The Executive further acknowledges that he will forfeit the Severance Benefits described above should he breach any portion of this Agreement.

3.General Release of Claims. (a) In consideration for the Company’s payment of the Severance Benefits to the Executive as set forth in this Agreement, and for other good and valuable consideration, the Executive hereby releases and forever discharges the Company and each of its predecessors, assigns, former and current executives, representatives, partners, owners, parent companies, subsidiaries, affiliates, including any and all persons acting with any of them (collectively “Released Parties”), from any and all causes of action, covenants, contracts, bonuses, agreements, claims, charges, complaints and demands whatsoever in law or equity, which the Executive (and the Executive’s heirs, executors, administrators, successors and/or assigns) may now have or hereafter may have had by reason of any matter, arising out of the Executive’s employment with the Company and the termination thereof, up to and including the date of this Agreement, except for the rights and obligations created by this Agreement.

(b) Without limiting the generality of the foregoing, this Agreement is intended to and shall release Released Parties from any and all claims, whether known or unknown, which the Executive ever had or may have against any Released Party with respect to the Executive’s employment, the terms and conditions of that employment, and/or the termination thereof, including without limitation those arising under the Civil Rights Act of 1866, 42 U.S.C.A. Section 1981, the Civil Rights Act of 1964, as amended, 42 U.S.C.A. Section 2000e, et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C.A. Section 645 et seq., the National Labor Relations Act, 29 U.S.C.A. Section 151 et seq., the Fair Labor Standards Act, 29 U.S.C.A. Section 201 et seq., the Labor Management Reporting and Disclosure Act of 1959, as amended, 29 U.S.C.A. Section 401 et seq., the Americans with Disabilities Act, 42 U.S.C.A. Section 14501, et. seq., Section 409A of the Internal Revenue Code, and the Genetic Information Nondiscrimination Act (GINA), all claims under the Family and Medical Leave Act (FMLA), and/or any other federal, state, or local human rights, civil rights, wage-hour, pension, or labor laws, rules and/or regulation, public policy, contract or tort law, including any and all claims for attorneys’ fees, costs, disbursements, or any action similar thereto.

THE EXECUTIVE SPECIFICALLY ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS AGREEMENT, HE IS WAIVING ALL RIGHTS OR CLAIMS, IF ANY, THAT HE HAS OR MAY HAVE UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, WHICH PROHIBITS DISCRIMINATION ON THE BASIS OF AGE.





4.    Covenant not to Sue. Executive hereby covenants and agrees not to file, commence or initiate any suits, grievances, demands or causes of action against the Released Parties based upon or relating to any of the claims released and forever discharged pursuant to this Agreement. In accordance with 29 C.F.R. § 1625.23(b), this covenant not to sue is not intended to preclude Executive from bringing a lawsuit to challenge the validity of the release language contained in this Agreement. If Executive breaches this covenant not to sue, he hereby agrees to pay all of the reasonable costs and attorneys’ fees actually incurred by the Released Parties in defending against such claims, demands or causes of action, together with such and further damages as may result, directly or indirectly, from that breach. Moreover, Executive agrees that he will not persuade or instruct any person to file a suit, claim or complaint with any state or federal court or administrative agency against the Released Parties. The Parties agree that this Agreement will not prevent Executive from filing a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) or otherwise participating in an EEOC investigation, provided that if the EEOC or any third party obtains an award of damages from the Company on Executive’s behalf, Executive agrees to turn over any such amounts to the Company.

5.    No Admission of Wrongdoing or Liability. Nothing contained in this Agreement shall constitute, or be construed as or is intended to be an admission or an acknowledgment by the Released Parties of any wrongdoing or liability, all such wrongdoing and liability being expressly denied.
 
6.    Confidentiality. Executive agrees to maintain absolute confidentiality and secrecy concerning the terms of this Agreement and will not reveal, or disseminate by publication in any manner whatsoever this document or any matters pertaining to it to any other person, including but not limited to any past or present executive, officer or director of the Company or any media representative except as required by legal process. This confidentiality provision does not apply to communications necessary between immediate family members or legal and financial planners or tax preparers who are also bound by this confidentiality provision.

7.     Disclosure. Executive acknowledges and warrants that Executive is not aware of, or that Executive has fully disclosed to the Company in writing, any matters for which Executive was responsible or which came to Executive’s attention as an employee of the Company that might give rise to, evidence or support any claim of illegal or improper conduct, regulatory violation, unlawful discrimination, retaliation or other cause of action against Company or any other Released Party.
8.     Cooperation. During the twelve (12) months following his separation, Executive agrees to reasonably cooperate with the Company with respect to reasonable information requests by any executive of the Company about subjects Executive worked on during his employment. Executive further agrees to reasonably cooperate in connection with any claim, investigation, regulatory or litigation matter in which the Company reasonably deems that Executive’s cooperation is necessary at any time following the end of Executive’s employment with the Company. The Company shall reimburse Executive for reasonable travel and accommodation expenses if Executive is required to travel to provide assistance requested pursuant to this provision.
9.    Non-Disparagement. Executive agrees that he will not make any statements, publicly or otherwise, orally or in writing to anyone, including but not limited to current or former employees and directors, disparaging the character, reputation or standing of the Company or its employees or customers. Executive acknowledges that no provision of this Agreement is intended to prevent Executive from making a truthful report in good faith to any governmental agency with oversight authority over the Company.

10.    Company Property. All records, files, lists, including computer generated lists, data, drawings, documents, equipment and similar items relating to the Company’s business that Executive




generated or received from the Company remains the Company’s sole and exclusive property. Executive agrees to promptly return to the Company all property of the Company in his possession. Executive further represents that he has not copied or caused to be copied, printed out, or caused to be printed out any documents or other material originating with or belonging to the Company. Executive additionally represents that he will not retain in his possession any such documents or other materials.

11.    Breach of Agreement. If either party brings a claim for breach of the terms of this Agreement, the prevailing party shall be entitled to its reasonable attorneys’ fees and expenses incurred in the prosecuting or defending such an action. This Agreement is to be governed by the laws of the State of Tennessee. The Parties agree that venue and jurisdiction for any legal action arising out of or in connection with this Agreement shall be exclusively with courts of the State of Tennessee located in Davidson County, Tennessee or the United States District Court for the Middle District of Tennessee.

12.    Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive and the Company, and their officers, directors, executives, agents, legal counsel, heirs, successors and assigns.

13.    Warranties/Representations. Executive hereby warrants and represents that:

A.
He has carefully read and fully understands the comprehensive terms and conditions of this Agreement and the releases set forth herein;

B.
He is executing this Agreement knowingly and voluntarily, without any duress, coercion or undue influence by the Company, its representatives, or any other person;

C.
He has been informed of his right to consult with legal counsel of his own choice before executing this Agreement;

D.
He has pending no claim, complaint, grievance or any document with any federal or state agency or any court seeking money damages or relief against the Company;

E.
The Severance Benefits recited above constitute good and valuable consideration;

F.
He is fully satisfied with the terms and conditions of this Agreement including, without limitation, the consideration paid to him by the Company;

G.
He is not waiving rights or claims that may arise after the date this Agreement is executed;

H.
Except as specifically provided herein, he has been paid all compensation owed to him by the Company;

I.
He has had the right to consider the terms of this Agreement for a full 21 days and he hereby waives any and all rights to any further review period; and

J.
He has the right to revoke this Agreement within seven (7) calendar days after signing it (the “Revocation Period”) by providing during this seven (7) day period written notice of revocation to Kimberly Ouimet, Director of Corporate Compliance and Human Resources, National Health Investors, Inc., 222 Robert Rose Drive, Murfreesboro, TN 37129. If he revokes this Agreement during the seven-day period, the Agreement and all obligations hereunder become null and void in their entirety.





14.    Entire Agreement; Severability of Terms. This Agreement contains the entire understanding of the Parties as to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. In executing this Agreement, neither party relies on any term, condition, promise, or representation other than those expressed in this Agreement. This Agreement may be amended or modified only by an agreement in writing, signed by both Parties. If any provision of this Agreement is determined to be invalid or otherwise unenforceable, then that invalidity or unenforceability will not affect any other provision of this Agreement, which will continue and remain in full force and effect.

15.    Contact with Company. All questions and correspondence regarding the content of this agreement or any other matters relating to the business of the Company should be directed solely to Kimberly Ouimet, Director of Corporate Compliance and Human Resources, via telephone: (615)-203-6260 or email: kouimet@nhireit.com. Under no circumstances will Executive contact other Company employees or members of the Company’s Board of Directors.

16.    Compliance with the Older Worker Benefit Protection Act. Executive warrants and represents that he has been given the opportunity to review this Agreement with legal counsel and that he has had fair and full opportunity to consider its terms and enters into this Agreement willingly and knowingly and knows he has the right to review this Agreement for 21 days and to revoke it within seven (7) days after signing it. Executive has the right to sign this Agreement sooner than 21 days, and if he chooses to do so, he understands he is waiving his right to the full 21-day period.

17.    Section 409A. It is intended that (i) each payment or installment of payments provided under this Agreement is a separate “payment” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay).

Notwithstanding any other provision to the contrary, in no event shall any payment under this Agreement that constitutes “deferred compensation” for purposes of Section 409A of the Code and the Treasury Regulations promulgated thereunder be subject to offset by any other amount unless otherwise permitted by Section 409A of the Code.

18.    Counterparts; Electronic Signatures.  This Agreement may be executed by facsimile and/or electronic signature in two or more counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.  Facsimile and electronic signatures shall, for all purposes, be treated as originals.


Dated: November 10, 2019
 
/s/Roger R. Hopkins
 
 
ROGER HOPKINS

 
 
 
Dated: November 11, 2019
 
NATIONAL HEALTH INVESTORS, INC.

By: /s/ Eric Mendelsohn
Title: President and CEO
        





Exhibit 21
Subsidiary Entity List
 
 
 
Entity Name
Ownership1
Tax Treatment
NHI/REIT, Inc.
100%
Corporation
Florida Holdings IV, LLC
100%
DE
Inchin Along, LLC
100%
DE
NHI REIT of Alabama, L.P.
100%
Partnership
NHI-REIT of Arizona, Limited Partnership
100%
Partnership
NHI-REIT of California, LP
100%
Partnership
NHI/REIT of Florida, L.P.
100%
Partnership
NHI-REIT of Georgia, L.P.
100%
Partnership
NHI-REIT of Idaho, L.P.
100%
Partnership
NHI-REIT of Missouri, LP
100%
Partnership
NHI-REIT of South Carolina, L.P.
100%
Partnership
NHI-REIT of Virginia, L.P.
100%
Partnership
NHI/Anderson, LLC
100%
DE
NHI/Laurens, LLC
100%
DE
Texas NHI Investors, LLC
100%
DE
NHI-REIT of Oregon, LLC
100%
DE
NHI-REIT of Florida, LLC
100%
DE
NHI-REIT of Maryland, LLC
100%
DE
NHI-REIT of Minnesota, LLC
100%
DE
NHI-REIT of Tennessee, LLC
100%
DE
NHI Selah Properties, LLC
100%
DE
NHI-REIT of Northeast, LLC
100%
DE
NHI-REIT of Wisconsin, LLC
100%
DE
NHI-REIT of Ohio, LLC
100%
DE
NHI-REIT of Washington, LLC
100%
DE
NHI-REIT of Next House, LLC
100%
DE
NHI-SS TRS, LLC
100%
Corporation
NHI-Bickford RE, LLC
100%
DE
Care YBE Subsidiary LLC
100%
DE
JV Landlord-Battle Creek, LLC
100%
DE
JV Landlord-Clinton, LLC
100%
DE
JV Landlord-Iowa City, LLC
100%
DE
JV Landlord-Lansing, LLC
100%
DE
JV Landlord-Midland, LLC
100%
DE
JV Landlord-Peoria II, LLC
100%
DE
JV Landlord-Saginaw, LLC
100%
DE
JV Landlord-Middletown, LLC
100%
DE
Grand Island Bickford Cottage, L.L.C.
100%
DE
Myrtle Beach Retirement Residence, LLC
100%
DE
Voorhees Retirement Residence, LLC
100%
DE
Cedar Falls Bickford Cottage, L.L.C.
100%
DE
NHI-REIT of Axel, LLC
100%
DE
NHI-REIT of Michigan, LLC
100%
DE
NHI-REIT of Seaside, LLC
100%
DE
NHI-REIT of Bickford, LLC
100%
DE




NHI-REIT of Evergreen, LLC
100%
DE
NHI-REIT of North Carolina, LLC
100%
DE
NHI-REIT of TX-IL, LLC
100%
DE
NHI-REIT of CCWH, LLC
100%
DE
NHI-REIT of Colorado, LLC
100%
DE
NHI-REIT of DSL PropCo, LLC
97.5%
Partnership
NHI-LCS JV I, LLC
80%
Partnership
NHI-LCS TRS, LLC
100%
DE
Timber Ridge OpCo, LLC
25%
Partnership

1Ownership: 100% means that National Health Investors, Inc. owns the reflected percentage of the entity through itself or its subsidiaries.





EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



National Health Investors, Inc.
Murfreesboro, Tennessee

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-216177) and Form S-8 (No. 333-127179, No. 333-186854, No. 333-206273, No. 333-226629 and No. 333-233129) of National Health Investors, Inc. of our reports dated February 19, 2020, relating to the consolidated financial statements and financial statement schedules and the effectiveness of National Health Investors, Inc.'s internal control over financial reporting, which appear in this Form 10-K.

/s/ BDO USA, LLP

Nashville, Tennessee
February 19, 2020





Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, D. Eric Mendelsohn, certify that:

1.
I have reviewed this annual report on Form 10-K of the registrant, National Health Investors, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
February 19, 2020
/s/ D. Eric Mendelsohn
 
 
D. Eric Mendelsohn
 
 
President and Chief Executive Officer
 
 
 





Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, John L. Spaid, certify that:

1.
I have reviewed this annual report on Form 10-K of the registrant, National Health Investors, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions) :
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
February 19, 2020
/s/ John L. Spaid
 
 
John L. Spaid
 
 
Chief Financial Officer
 
 
(Principal Financial Officer and Principal Accounting Officer)





Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the annual report on Form 10-K for National Health Investors, Inc. ("Issuer") for the period ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

(a)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date:
February 19, 2020
/s/ D. Eric Mendelsohn
 
 
D. Eric Mendelsohn
 
 
President and Chief Executive Officer,
 
 
 
 
 
 
Date:
February 19, 2020
/s/ John L. Spaid
 
 
John L. Spaid
 
 
Chief Financial Officer
 
 
(Principal Financial Officer and Principal Accounting Officer)





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED December 31, 2019, 2018, AND 2017
(in thousands)
 
Balance
 
Additions
 
 
 
 
 
Beginning
 
Charged to Costs
 
 
 
Balance
 
of Period
 
and Expenses1
 
Deductions
 
End of Period
 
 
 
 
 
 
 
 
For the year ended December 31, 2019
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
For the year ended December 31, 2018
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
For the year ended December 31, 2017
 
 
 
 
 
 
 
Loan loss allowance
$
—

 
$
—

 
$
—

 
$
—


1 In the Consolidated Statements of Income, we report the net amount of our provision for loan and realty losses and our recoveries of amounts previously written down.





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Skilled Nursing Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anniston, AL
$
—

 
$
70

 
$
4,477

 
$
—

 
$
70

 
$
4,477

 
$
4,547

 
$
3,536

10/17/1991
Moulton, AL
—

 
25

 
688

 
—

 
25

 
688

 
713

 
688

10/17/1991
Avondale, AZ
—

 
453

 
6,678

 
—

 
453

 
6,678

 
7,131

 
4,029

8/13/1996
Brooksville, FL
—

 
1,217

 
16,166

 
—

 
1,217

 
16,166

 
17,383

 
4,008

2/1/2010
Crystal River, FL
—

 
912

 
12,117

 
—

 
912

 
12,117

 
13,029

 
3,004

2/1/2010
Dade City, FL
—

 
605

 
8,042

 
—

 
605

 
8,042

 
8,647

 
1,994

2/1/2010
Hudson, FL (2 facilities)
—

 
1,290

 
22,392

 
—

 
1,290

 
22,392

 
23,682

 
11,389

Various
Merritt Island, FL
—

 
701

 
8,869

 
—

 
701

 
8,869

 
9,570

 
7,364

10/17/1991
New Port Richey, FL
—

 
228

 
3,023

 
—

 
228

 
3,023

 
3,251

 
749

2/1/2010
Plant City, FL
—

 
405

 
8,777

 
—

 
405

 
8,777

 
9,182

 
7,228

10/17/1991
Stuart, FL
—

 
787

 
9,048

 
—

 
787

 
9,048

 
9,835

 
7,653

10/17/1991
Trenton, FL
—

 
851

 
11,312

 
—

 
851

 
11,312

 
12,163

 
2,804

2/1/2010
Glasgow, KY
—

 
33

 
2,110

 
—

 
33

 
2,110

 
2,143

 
2,059

10/17/1991
Greenfield, MA
—

 
370

 
4,341

 
—

 
370

 
4,341

 
4,711

 
725

8/30/2013
Holyoke, MA
—

 
110

 
944

 
—

 
110

 
944

 
1,054

 
166

8/30/2013
Quincy, MA
—

 
450

 
710

 
—

 
450

 
710

 
1,160

 
115

8/30/2013
Taunton, MA
—

 
900

 
5,906

 
—

 
900

 
5,906

 
6,806

 
995

8/30/2013
Desloge, MO
—

 
178

 
3,804

 
—

 
178

 
3,804

 
3,982

 
3,580

10/17/1991
Joplin, MO
—

 
175

 
4,034

 
—

 
175

 
4,034

 
4,209

 
2,990

10/17/1991
Kennett, MO
—

 
180

 
4,928

 
—

 
180

 
4,928

 
5,108

 
4,593

10/17/1991
Maryland Heights, MO
—

 
482

 
5,512

 
—

 
482

 
5,512

 
5,994

 
5,512

10/17/1991
St. Charles, MO
—

 
150

 
4,790

 
—

 
150

 
4,790

 
4,940

 
4,405

10/17/1991
Manchester, NH (2 facilities)
—

 
790

 
20,077

 
—

 
790

 
20,077

 
20,867

 
3,294

8/30/2013
Epsom, NH
—

 
630

 
2,191

 
—

 
630

 
2,191

 
2,821

 
382

8/30/2013
Albany, OR
—

 
190

 
10,415

 
—

 
190

 
10,415

 
10,605

 
1,829

3/31/2014
Creswell, OR
—

 
470

 
8,946

 
—

 
470

 
8,946

 
9,416

 
1,505

3/31/2014
Forest Grove, OR
—

 
540

 
11,848

 
—

 
540

 
11,848

 
12,388

 
2,006

3/31/2014
Anderson, SC
—

 
308

 
4,643

 
—

 
308

 
4,643

 
4,951

 
4,477

10/17/1991
Greenwood, SC
—

 
222

 
3,457

 
—

 
222

 
3,457

 
3,679

 
3,199

10/17/1991
Laurens, SC
—

 
42

 
3,426

 
—

 
42

 
3,426

 
3,468

 
3,042

10/17/1991
Orangeburg, SC
—

 
300

 
3,714

 
—

 
300

 
3,714

 
4,014

 
1,109

9/25/2008
Athens, TN
—

 
38

 
1,463

 
—

 
38

 
1,463

 
1,501

 
1,350

10/17/1991
Chattanooga, TN
—

 
143

 
2,309

 
—

 
143

 
2,309

 
2,452

 
2,313

10/17/1991





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Dickson, TN
—

 
90

 
3,541

 
—

 
90

 
3,541

 
3,631

 
3,108

10/17/1991
Franklin, TN
—

 
47

 
1,130

 
—

 
47

 
1,130

 
1,177

 
1,110

10/17/1991
Hendersonville, TN
—

 
363

 
3,837

 
—

 
363

 
3,837

 
4,200

 
3,122

10/17/1991
Johnson City, TN
—

 
85

 
1,918

 
—

 
85

 
1,918

 
2,003

 
1,918

10/17/1991
Lewisburg, TN (2 facilities)
—

 
46

 
994

 
—

 
46

 
994

 
1,040

 
999

10/17/1991
McMinnville, TN
—

 
73

 
3,618

 
—

 
73

 
3,618

 
3,691

 
3,089

10/17/1991
Milan, TN
—

 
41

 
1,826

 
—

 
41

 
1,826

 
1,867

 
1,667

10/17/1991
Pulaski, TN
—

 
53

 
3,921

 
—

 
53

 
3,921

 
3,974

 
3,384

10/17/1991
Lawrenceburg, TN
—

 
98

 
2,900

 
—

 
98

 
2,900

 
2,998

 
2,349

10/17/1991
Dunlap, TN
—

 
35

 
3,679

 
—

 
35

 
3,679

 
3,714

 
3,040

10/17/1991
Smithville, TN
—

 
35

 
3,816

 
—

 
35

 
3,816

 
3,851

 
3,258

10/18/1991
Somerville, TN
—

 
26

 
677

 
—

 
26

 
677

 
703

 
678

10/19/1991
Sparta, TN
—

 
80

 
1,602

 
—

 
80

 
1,602

 
1,682

 
1,518

10/20/1991
Austin, TX
—

 
606

 
9,895

 
—

 
606

 
9,895

 
10,501

 
1,092

4/1/2016
Canton, TX
—

 
420

 
12,330

 
—

 
420

 
12,330

 
12,750

 
2,728

4/18/2013
Corinth, TX
—

 
1,075

 
13,935

 
—

 
1,075

 
13,935

 
15,010

 
3,315

4/18/2013
Ennis, TX
—

 
986

 
9,025

 
—

 
986

 
9,025

 
10,011

 
2,483

10/31/2011
Euless, TX
—

 
1,241

 
12,629

 
—

 
1,241

 
12,629

 
13,870

 
1,515

4/1/2016
Fort Worth, TX
—

 
1,380

 
14,370

 
—

 
1,380

 
14,370

 
15,750

 
805

5/10/2018
Garland, TX
—

 
1,440

 
14,310

 
—

 
1,440

 
14,310

 
15,750

 
800

5/10/2018
Gladewater, TX
—

 
70

 
17,840

 
—

 
70

 
17,840

 
17,910

 
1,871

4/1/2016
Greenville, TX
—

 
1,800

 
13,948

 
—

 
1,800

 
13,948

 
15,748

 
3,517

10/31/2011
Houston, TX (3 facilities)
—

 
2,808

 
42,511

 
—

 
2,808

 
42,511

 
45,319

 
11,429

Various
Katy, TX
—

 
610

 
13,893

 
—

 
610

 
13,893

 
14,503

 
1,549

4/1/2016
Kyle, TX
—

 
1,096

 
12,279

 
—

 
1,096

 
12,279

 
13,375

 
3,188

6/11/2012
Marble Falls, TX
—

 
480

 
14,989

 
—

 
480

 
14,989

 
15,469

 
1,629

4/1/2016
McAllen, TX
—

 
1,175

 
8,259

 
—

 
1,175

 
8,259

 
9,434

 
1,010

4/1/2016
New Braunfels, TX
—

 
1,430

 
13,666

 
—

 
1,430

 
13,666

 
15,096

 
1,316

2/24/2017
San Antonio, TX (3 facilities)
—

 
2,370

 
40,054

 
—

 
2,370

 
40,054

 
42,424

 
7,119

Various
Waxahachie, TX
—

 
1,330

 
14,349

 
—

 
1,330

 
14,349

 
15,679

 
960

1/17/2018
Bristol, VA
—

 
176

 
2,511

 
—

 
176

 
2,511

 
2,687

 
2,320

10/17/1991
Oak Creek, WI
—

 
2,000

 
14,903

 
—

 
2,000

 
14,903

 
16,903

 
—

12/7/2018
 
—

 
23,565

 
329,155

 
—

 
23,565

 
329,155

 
352,720

 
77,886

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Assisted Living Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rainbow City, AL
—

 
670

 
11,330

 
—

 
670

 
11,330

 
12,000

 
2,049

10/31/2013
Sacramento, CA
—

 
660

 
10,840

 
—

 
660

 
10,840

 
11,500

 
1,772

6/1/2014
Pueblo West, CO
—

 
169

 
7,431

 
—

 
169

 
7,431

 
7,600

 
93

7/23/2019
Bartow, FL
—

 
225

 
3,192

 
—

 
225

 
3,192

 
3,417

 
834

11/30/2010
Lakeland, FL
—

 
307

 
3,117

 
—

 
307

 
3,117

 
3,424

 
820

11/30/2010
Maitland, FL
—

 
1,687

 
5,428

 
—

 
1,687

 
5,428

 
7,115

 
3,513

8/6/1996
St. Cloud, FL
—

 
250

 
3,167

 
—

 
250

 
3,167

 
3,417

 
834

11/30/2010
Greensboro, GA
—

 
672

 
4,849

 
631

 
672

 
5,480

 
6,152

 
1,156

9/15/2011
Ames, IA
3,193

 
360

 
4,670

 
—

 
360

 
4,670

 
5,030

 
874

6/28/2013
Burlington, IA
3,901

 
200

 
8,374

 
—

 
200

 
8,374

 
8,574

 
1,570

6/28/2013
Cedar Falls, IA
3,752

 
260

 
4,700

 
30

 
260

 
4,730

 
4,990

 
909

6/28/2013
Clinton, IA
2,596

 
133

 
3,215

 
60

 
133

 
3,275

 
3,408

 
838

6/30/2010
Ft. Dodge, IA
4,008

 
100

 
7,208

 
—

 
100

 
7,208

 
7,308

 
1,320

6/28/2013
Iowa City, IA
2,357

 
297

 
2,725

 
33

 
297

 
2,758

 
3,055

 
767

6/30/2010
Marshalltown, IA
5,714

 
240

 
6,208

 
—

 
240

 
6,208

 
6,448

 
1,155

6/28/2013
Muscatine, IA
—

 
140

 
1,802

 
—

 
140

 
1,802

 
1,942

 
385

6/28/2013
Urbandale, IA
8,113

 
540

 
4,292

 
—

 
540

 
4,292

 
4,832

 
845

6/28/2013
West Des Moines, IA
—

 
600

 
17,406

 
—

 
600

 
17,406

 
18,006

 
1,670

7/12/2013
Caldwell, ID
—

 
320

 
9,353

 
—

 
320

 
9,353

 
9,673

 
1,547

3/31/2014
Weiser, ID
—

 
20

 
2,433

 
—

 
20

 
2,433

 
2,453

 
447

12/21/2012
Aurora, IL
—

 
1,195

 
11,713

 
—

 
1,195

 
11,713

 
12,908

 
1,118

5/9/2017
Bolingbrook, IL
—

 
1,290

 
14,677

 
—

 
1,290

 
14,677

 
15,967

 
1,134

3/16/2017
Bourbonnais, IL
7,974

 
170

 
16,594

 
—

 
170

 
16,594

 
16,764

 
3,009

6/28/2013
Crystal Lake, IL (2 facilities)
—

 
1,060

 
30,043

 
170

 
1,060

 
30,213

 
31,273

 
2,634

Various
Gurnee, IL
—

 
1,244

 
13,856

 
—

 
1,244

 
13,856

 
15,100

 
137

9/10/2019
Moline, IL
3,896

 
250

 
5,630

 
—

 
250

 
5,630

 
5,880

 
1,061

6/28/2013
Oswego, IL
—

 
390

 
20,957

 
212

 
390

 
21,169

 
21,559

 
2,008

6/1/2016
Peoria, IL
3,933

 
403

 
4,532

 
224

 
403

 
4,756

 
5,159

 
1,360

10/19/2009
Quincy, IL
6,055

 
360

 
12,403

 
—

 
360

 
12,403

 
12,763

 
2,252

6/28/2013
Rockford, IL
6,412

 
390

 
12,575

 
—

 
390

 
12,575

 
12,965

 
2,346

6/28/2013
South Barrington, IL
—

 
1,610

 
13,456

 
—

 
1,610

 
13,456

 
15,066

 
1,061

3/16/2017
Springfield, IL
15,386

 
450

 
19,355

 
200

 
450

 
19,555

 
20,005

 
3,517

6/28/2013
St. Charles, IL
—

 
820

 
22,188

 
252

 
820

 
22,440

 
23,260

 
2,148

6/1/2016





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Tinley Park, IL
—

 
1,622

 
11,354

 
—

 
1,622

 
11,354

 
12,976

 
1,296

6/23/2016
Carmel, IN
—

 
463

 
7,055

 
—

 
463

 
7,055

 
7,518

 
1,578

11/12/2014
Crawfordsville, IN
2,559

 
300

 
3,134

 
—

 
300

 
3,134

 
3,434

 
597

6/28/2013
Crown Point, IN
—

 
574

 
7,336

 
353

 
574

 
7,689

 
8,263

 
1,474

10/30/2013
Greenwood, IN
—

 
791

 
7,020

 
227

 
791

 
7,247

 
8,038

 
1,619

11/7/2013
Valparaiso, IN
—

 
1,414

 
16,099

 
—

 
1,414

 
16,099

 
17,513

 
269

5/31/2019
Mission, KS
—

 
1,901

 
17,310

 
636

 
1,901

 
17,946

 
19,847

 
4,455

9/30/2012
Overland Park, KS
—

 
2,199

 
20,026

 
—

 
2,199

 
20,026

 
22,225

 
5,049

9/30/2012
Bastrop, LA
—

 
325

 
2,456

 
—

 
325

 
2,456

 
2,781

 
650

4/30/2011
Bossier City, LA
—

 
500

 
3,344

 
—

 
500

 
3,344

 
3,844

 
920

4/30/2011
Minden, LA
—

 
280

 
1,698

 
—

 
280

 
1,698

 
1,978

 
446

4/30/2011
West Monroe, LA
—

 
770

 
5,627

 
—

 
770

 
5,627

 
6,397

 
1,415

4/30/2011
Baltimore, MD
—

 
860

 
8,078

 
534

 
860

 
8,612

 
9,472

 
1,498

10/31/2013
Battle Creek, MI
2,866

 
398

 
3,093

 
197

 
398

 
3,290

 
3,688

 
962

10/19/2009
Bridgeport, MI
—

 
220

 
7,849

 
—

 
220

 
7,849

 
8,069

 
327

6/20/2018
Brighton, MI
—

 
410

 
13,090

 
—

 
410

 
13,090

 
13,500

 
232

5/22/2019
Lansing, MI (2 facilities)
6,218

 
1,360

 
17,766

 
174

 
1,360

 
17,940

 
19,300

 
3,035

10/19/2009
Midland, MI
5,416

 
504

 
6,612

 
162

 
504

 
6,774

 
7,278

 
1,842

10/19/2009
Saginaw, MI (2 facilities)
3,566

 
538

 
12,991

 
163

 
538

 
13,154

 
13,692

 
1,603

Various
Shelby Township, MI
—

 
570

 
10,230

 
—

 
570

 
10,230

 
10,800

 
207

4/30/2019
Champlin, MN
—

 
980

 
4,430

 
—

 
980

 
4,430

 
5,410

 
1,230

3/10/2010
Hugo, MN
—

 
400

 
3,800

 
—

 
400

 
3,800

 
4,200

 
1,040

3/10/2010
Maplewood, MN
—

 
1,700

 
6,510

 
—

 
1,700

 
6,510

 
8,210

 
1,798

3/10/2010
North Branch, MN
—

 
595

 
2,985

 
—

 
595

 
2,985

 
3,580

 
875

3/10/2010
Mahtomedi, MN
—

 
515

 
8,825

 
—

 
515

 
8,825

 
9,340

 
—

12/27/2019
Charlotte, NC
—

 
650

 
17,663

 
2,000

 
650

 
19,663

 
20,313

 
2,221

7/1/2015
Durham, NC
—

 
860

 
6,690

 
—

 
860

 
6,690

 
7,550

 
405

3/16/2017
Hendersonville, NC (2 facilities)
—

 
3,120

 
12,980

 
—

 
3,120

 
12,980

 
16,100

 
1,103

3/16/2017
Grand Island, NE
4,180

 
370

 
5,029

 
197

 
370

 
5,226

 
5,596

 
1,056

6/28/2013
Lincoln, NE
8,418

 
380

 
10,904

 
—

 
380

 
10,904

 
11,284

 
1,959

6/28/2013
Omaha, NE (2 facilities)
2,455

 
1,110

 
15,437

 
851

 
1,110

 
16,288

 
17,398

 
2,164

Various
Columbus, OH (2 facilities)
—

 
1,100

 
26,002

 
—

 
1,100

 
26,002

 
27,102

 
1,206

4/30/2018
Lancaster, OH
—

 
530

 
20,530

 
—

 
530

 
20,530

 
21,060

 
2,800

7/31/2015
Marysville, OH
—

 
1,250

 
13,950

 
—

 
1,250

 
13,950

 
15,200

 
2,755

7/1/2013





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Middletown, OH
8,492

 
940

 
15,548

 
—

 
940

 
15,548

 
16,488

 
2,340

10/31/2014
Rocky River, OH
—

 
650

 
7,201

 
—

 
650

 
7,201

 
7,851

 
360

4/30/2018
Worthington, OH
—

 
—

 
18,869

 
1,476

 
—

 
20,345

 
20,345

 
1,161

4/30/2018
McMinnville, OR
—

 
390

 
9,183

 
—

 
390

 
9,183

 
9,573

 
896

8/31/2016
Milwaukie, OR
—

 
370

 
5,283

 
64

 
370

 
5,347

 
5,717

 
743

9/30/2014
Ontario, OR (2 facilities)
—

 
429

 
6,128

 
—

 
429

 
6,128

 
6,557

 
1,131

12/21/2012
Portland, OR (2 facilities)
—

 
1,430

 
31,542

 
—

 
1,430

 
31,542

 
32,972

 
2,688

8/31/2015
Erie, PA
—

 
1,030

 
15,206

 
3

 
1,030

 
15,209

 
16,239

 
696

4/30/2018
Reading, PA
—

 
1,027

 
11,179

 
—

 
1,027

 
11,179

 
12,206

 
196

5/31/2019
Arlington, TX
—

 
450

 
4,555

 
26

 
450

 
4,581

 
5,031

 
407

3/16/2017
Rockwall, TX
—

 
1,250

 
10,562

 
—

 
1,250

 
10,562

 
11,812

 
854

3/16/2017
Fredericksburg, VA
—

 
1,615

 
9,271

 
—

 
1,615

 
9,271

 
10,886

 
992

9/20/2016
Midlothian, VA
—

 
1,646

 
8,635

 
—

 
1,646

 
8,635

 
10,281

 
945

10/31/2016
Suffolk, VA
—

 
1,022

 
9,320

 
—

 
1,022

 
9,320

 
10,342

 
777

3/25/2016
Beaver Dam, WI
—

 
210

 
20,149

 
113

 
210

 
20,262

 
20,472

 
4,068

12/21/2012
 
8,492

 
12,459

 
182,631

 
1,682

 
12,459

 
184,313

 
196,772

 
18,254

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent Living Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Smith, AR
—

 
590

 
22,447

 
—

 
590

 
22,447

 
23,037

 
3,674

12/23/2013
Rogers, AR
—

 
1,470

 
25,282

 
—

 
1,470

 
25,282

 
26,752

 
4,138

12/23/2013
Fresno, CA
—

 
420

 
10,899

 
—

 
420

 
10,899

 
11,319

 
1,876

12/23/2013
Hemet, CA
—

 
1,250

 
12,645

 
—

 
1,250

 
12,645

 
13,895

 
2,153

12/23/2013
Merced, CA
—

 
350

 
18,712

 
—

—

350

 
18,712

 
19,062

 
3,075

12/23/2013
Modesto, CA
—

 
1,170

 
22,673

 
—

 
1,170

 
22,673

 
23,843

 
3,661

12/23/2013
Pinole, CA
—

 
1,020

 
18,066

 
—

 
1,020

 
18,066

 
19,086

 
2,954

12/23/2013
Roseville, CA
—

 
630

 
31,343

 
—

 
630

 
31,343

 
31,973

 
5,070

12/23/2013
West Covina, CA
—

 
940

 
20,280

 
—

 
940

 
20,280

 
21,220

 
3,270

12/23/2013
Vero Beach, FL
—

 
550

 
37,450

 
—

 
550

 
37,450

 
38,000

 
967

2/1/2019
Athens, GA
—

 
910

 
31,940

 
—

 
910

 
31,940

 
32,850

 
5,162

12/23/2013
Columbus, GA
—

 
570

 
8,639

 
—

 
570

 
8,639

 
9,209

 
1,508

12/23/2013
Savannah, GA
—

 
1,200

 
15,851

 
—

 
1,200

 
15,851

 
17,051

 
2,636

12/23/2013
Boise, ID
—

 
400

 
12,422

 
—

 
400

 
12,422

 
12,822

 
2,069

12/23/2013
Columbus, IN
—

 
348

 
6,124

 
—

 
348

 
6,124

 
6,472

 
103

5/31/2019
Fort Wayne, IN
—

 
310

 
12,864

 
—

 
310

 
12,864

 
13,174

 
2,201

12/23/2013





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Kenner, LA
—

 
310

 
24,259

 
—

 
310

 
24,259

 
24,569

 
3,881

12/23/2013
St. Charles, MO
—

 
344

 
3,181

 
—

 
344

 
3,181

 
3,525

 
2,558

10/17/1991
Voorhees, NJ
—

 
670

 
23,710

 
—

 
670

 
23,710

 
24,380

 
3,816

12/23/2013
Gahanna, OH
—

 
920

 
22,919

 
—

 
920

 
22,919

 
23,839

 
3,771

12/23/2013
Broken Arrow, OK
—

 
2,660

 
18,477

 
—

 
2,660

 
18,477

 
21,137

 
3,079

12/23/2013
Tulsa, OK
17,622

 
1,980

 
32,620

 
501

 
1,980

 
33,121

 
35,101

 
1,929

12/1/2017
Newberg, OR
—

 
1,080

 
19,187

 
—

 
1,080

 
19,187

 
20,267

 
3,178

12/23/2013
Greenville, SC
—

 
560

 
16,547

 
—

 
560

 
16,547

 
17,107

 
2,761

12/23/2013
Myrtle Beach, SC
—

 
1,310

 
26,229

 
—

 
1,310

 
26,229

 
27,539

 
4,231

12/23/2013
Chattanooga, TN
—

 
9

 
1,567

 
—

 
9

 
1,567

 
1,576

 
1,329

10/17/1991
Johnson City, TN
—

 
55

 
4,077

 
—

 
55

 
4,077

 
4,132

 
3,040

10/17/1991
Bellevue, WA
—

 
780

 
18,692

 
—

 
780

 
18,692

 
19,472

 
3,044

12/23/2013
Chehalis, WA
—

 
1,980

 
7,710

 
7,445

 
1,980

 
15,155

 
17,135

 
879

1/15/2016
Vancouver, WA (2 facilities)
—

 
1,740

 
23,411

 
—

 
1,740

 
23,411

 
25,151

 
3,950

12/23/2013
Yakima, WA
—

 
440

 
14,186

 
—

 
440

 
14,186

 
14,626

 
2,348

12/23/2013
 
17,622

 
14,838

 
256,772

 
7,946

 
14,838

 
264,718

 
279,556

 
43,794

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Living Campuses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loma Linda, CA
—

 
1,200

 
10,800

 
7,326

 
1,200

 
18,126

 
19,326

 
3,169

9/28/2012
Bonita Springs, FL
—

 
1,810

 
24,382

 
—

 
1,810

 
24,382

 
26,192

 
3,078

7/1/2015
Maitland, FL
—

 
2,317

 
9,161

 
491

 
2,317

 
9,652

 
11,969

 
6,376

8/6/1996
West Palm Beach, FL
—

 
2,771

 
4,286

 
—

 
2,771

 
4,286

 
7,057

 
3,803

8/6/1996
Nampa, ID
—

 
243

 
4,182

 
—

 
243

 
4,182

 
4,425

 
2,552

8/13/1996
Michigan City, IN
—

 
974

 
22,667

 
—

 
974

 
22,667

 
23,641

 
378

5/31/2019
Portage, IN
—

 
661

 
21,959

 
—

 
661

 
21,959

 
22,620

 
368

5/31/2019
Needham, MA
—

 
5,500

 
45,157

 
—

 
5,500

 
45,157

 
50,657

 
1,395

1/15/2019
Salisbury, MD
—

 
1,876

 
44,084

 
—

 
1,876

 
44,084

 
45,960

 
763

5/31/2019
Roscommon, MI
—

 
44

 
6,005

 
—

 
44

 
6,005

 
6,049

 
805

8/31/2015
Mt. Airy, NC
—

 
1,370

 
7,470

 
150

 
1,370

 
7,620

 
8,990

 
1,125

12/17/2014
McMinnville, OR
—

 
410

 
26,667

 
—

 
410

 
26,667

 
27,077

 
2,451

8/31/2016
Madison, TN
—

 
920

 
21,829

 
104

 
920

 
21,933

 
22,853

 
2,748

7/1/2015
Silverdale, WA
—

 
1,750

 
23,860

 
2,167

 
1,750

 
26,027

 
27,777

 
5,392

8/16/2012
 
—

 
21,846

 
272,509

 
10,238

 
21,846

 
282,747

 
304,593

 
34,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
 
Initial Cost to Company(C)
 
Capitalized
 
 
 
 
 
 
 
 
Date
 
 
 
 
 
Buildings &
 
Subsequent to
 
 
 
Buildings &
 
 
 
Accumulated
Acquired/
 
Encumbrances
 
Land
 
Improvements
 
Acquisition
 
Land
 
Improvements
 
Total
 
Depreciation(B)
Constructed
Entrance-Fee Communities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bridgeport, CT
—

 
4,320

 
23,494

 
2,774

 
4,320

 
26,268

 
30,588

 
2,875

6/1/2016
North Branford, CT
—

 
7,724

 
64,430

 
—

 
7,724

 
64,430

 
72,154

 
5,700

11/3/2016
Southbury, CT
—

 
10,320

 
17,143

 
2,713

 
10,320

 
19,856

 
30,176

 
2,046

11/8/2016
Fernandina Beach, FL
—

 
1,430

 
63,420

 
1,522

 
1,430

 
64,942

 
66,372

 
8,826

12/17/2014
St. Simons Island, GA
—

 
8,770

 
38,070

 
963

 
8,770

 
39,033

 
47,803

 
5,547

12/17/2014
Winston-Salem, NC
—

 
8,700

 
73,920

 
507

 
8,700

 
74,427

 
83,127

 
10,356

12/17/2014
Greenville, SC
—

 
5,850

 
90,760

 
—

 
5,850

 
90,760

 
96,610

 
12,526

12/17/2014
Myrtle Beach, SC
—

 
3,910

 
82,140

 
542

 
3,910

 
82,682

 
86,592

 
11,630

12/17/2014
Pawleys Island, SC
—

 
1,480

 
38,620

 
460

 
1,480

 
39,080

 
40,560

 
5,718

12/17/2014
Spartanburg, SC
—

 
900

 
49,190

 
1,021

 
900

 
50,211

 
51,111

 
7,029

12/17/2014
 
—

 
53,404

 
541,187

 
10,502

 
53,404

 
551,689

 
605,093

 
72,253

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medical Office Buildings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crestview, FL
—

 
165

 
3,349

 
—

 
165

 
3,349

 
3,514

 
2,505

6/30/1993
Pasadena, TX
—

 
631

 
6,341

 
—

 
631

 
6,341

 
6,972

 
4,869

1/1/1995
 
—

 
796

 
9,690

 
—

 
796

 
9,690

 
10,486

 
7,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hospitals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
La Mesa, CA
—

 
4,180

 
8,320

 
—

 
4,180

 
8,320

 
12,500

 
2,676

3/10/2010
Jackson, KY
—

 
540

 
10,163

 
7,899

 
540

 
18,062

 
18,602

 
8,309

6/12/1992
Murfreesboro, TN
—

 
7,284

 
17,585

 
—

 
7,284

 
17,585

 
24,869

 
3,190

10/1/2012
 
—

 
12,004

 
36,068

 
7,899

 
12,004

 
43,967

 
55,971

 
14,175

 
Total continuing operations properties
—

 
66,204

 
586,945

 
18,401

 
66,204

 
605,346

 
671,550

 
93,802

 
Corporate office
—

 
1,291

 
677

 
551

 
1,291

 
1,228

 
2,519

 
436

 
 
$
—

 
$
67,495

 
$
587,622

 
$
18,952

 
$
67,495

 
$
606,574

 
$
674,069

 
$
94,238

 

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(A) See the notes to the consolidated financial statements.
(B) Depreciation is calculated using estimated useful lives up to 40 years for all completed facilities.
(C) Subsequent to NHC’s transfer of the original real estate properties in 1991, we have purchased from NHC $33,909,000 of additions to those properties. As the additions were purchased from NHC rather than developed by us, the $33,909,000 has been included as Initial Cost to Company.
(D) At December 31, 2019, the tax basis of the Company’s net real estate assets was $2,541,329,000.








NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
 
December 31,
 
2019
 
2018
 
2017
Investment in Real Estate:
 
 
 
 
 
Balance at beginning of period
$
2,818,365

 
$
2,665,903

 
$
2,472,854

Additions through cash expenditures
237,186

 
147,645

 
175,793

Change in accounts payable related to investments in real estate construction
1,829

 
1,689

 
(1,855
)
Change in other assets related to investments in real estate
292

 
171

 
—

Tenant investment in leased asset
—

 
3,775

 
1,250

Contingent asset acquisition liability relieved
—

 
(818
)
 
—

Additions through assumption of debt
—

 
—

 
18,311

Real estate acquired in exchange for straight-line rent receivable
38,000

 
—

 
—

Real estate acquired in exchange for mortgage notes receivable
14,000

 
—

 
—

Sale of properties for cash
—

 
—

 
(450
)
Properties classified as held for sale
(34,826
)
 
—

 
—

Balance at end of period
$
3,074,846

 
$
2,818,365

 
$
2,665,903

 
 
 
 
 
 
Accumulated Depreciation:
 
 
 
 
 
Balance at beginning of period
$
451,483

 
$
380,202

 
$
313,080

Addition charged to costs and expenses
76,816

 
71,349

 
67,173

Amortization of right-of-use asset
60

 
—

 
—

Sale of properties
—

 
—

 
(51
)
Properties classified as held for sale
(13,906
)
 
—

 
—

Contingent asset acquisition liability relieved
—

 
(68
)
 
—

Balance at end of period
$
514,453

 
$
451,483

 
$
380,202