UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-K
(Mark One)
[ x ]☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 20172023
[ ]☐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)
Maryland62-1470956
Maryland62-1470956
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
222 Robert Rose Drive Murfreesboro, Tennessee
MurfreesboroTennessee37129
(Address of principal executive offices)(Zip Code)
(615)890-9100
(615) 890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common stock, $.01Stock, $0.01 par valueNHINew 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 [ x ]☒ 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 [ x ]☒


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 [ x ]☒ No [ ]☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files) Yes [ x ]☒ No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§292.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ x ]

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

Large Accelerated Filer☒Accelerated filer☐Emerging growth company☐
Large accelerated filer          [ x ]Accelerated filer                      [ ]
Non-accelerated filer            [ ]☐Smaller reporting company     [ ]
(Do not check if a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐

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


The aggregate market value of shares of common stock held by non-affiliates on June 30, 20172023 (based on the closing price of these shares on the New York Stock Exchange) was approximately $3,117,380,000.$2,165,587,000. There were 41,532,15443,409,841 shares of the registrant’s common stock outstanding as of February 14, 2018.15, 2024.


DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’sregistrant’s definitive proxy statement for its 20182024 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K.

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Table of Contents

Page
Cautionary Statement Regarding Forward Looking Statements.
3
Item 1. Business.
45
Item 1A. Risk Factors.
1421
Item 1B. Unresolved Staff Comments.
1934
Item 1C. Cybersecurity
34
Item 2. Properties Owned or Associated with Mortgage Loan Investments..
2036
Item 3. Legal Proceedings.
2137
Item 4. Mine Safety Disclosures.
2137
Item 5. Market for Registrant's Common Equity, Related ShareholderStockholder Matters and Issuer Purchases of Equity Securities.
2238
Item 6. Selected Financial Data.Reserved.
2440
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
2541
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
62
Item 8. Financial Statements and Supplementary Data.
5368
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
84105
Item 9A. Controls and Procedures.
84105
Item 9B. Other Information.
88108
108
Item 10. Directors, Executive Officers and Corporate Governance.
89109
Item 11. Executive Compensation.
89109
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
89109
Item 13. Certain Relationships and Related Transactions.Transactions, and Director Independence.
89109
Item 14. Principal Accountant Fees and Services.
89109
Item 15. Exhibits and Financial Statement Schedules.
89109
Exhibit Index.
110
Item 16. Summary
93113
Signatures.
94114
Exhibit Index.
90



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PART I.


Forward Looking Statements

ReferencesUnless the context otherwise requires, references throughout this document to NHI“NHI” or the Company“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.


Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange Commission, 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”, “should,” “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, “likely” 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. Suchstatements as a result of factors including, but not limited to, the following:

*    We depend on the operating success of our tenants, managers and borrowers and if their financial condition or business prospects deteriorate, our financial condition and results of operations could be adversely affected;

*    We are exposed to the risk that our managers, 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;

*Actual or perceived risks associated with pandemics, epidemics or outbreaks, such as the COVID-19 pandemic, have had and uncertainties include, amongmay in the future have a material adverse effect on our operators’ business and results of operations;

*    Two members of our Board of Directors are also members of the board of directors of National HealthCare Corporation, and their interests may differ from those of our stockholders;

*    We are exposed to risks related to governmental regulation and payors, principally Medicare and Medicaid, and the effect of changes to laws, regulations and reimbursement rates on our tenants’ and borrowers’ business;

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

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

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

*    We are subject to risks related to our joint venture investment with Life Care Services for Timber Ridge, an entrance-fee continuing care retirement community, associated with Type A benefits offered to the followingresidents of the joint venture's entrance-fee community and the related accounting requirements;

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

*    Inflation and increased interest rates may adversely affect our financial condition and results of operations;

*    Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults, or non-performance by financial institutions, could adversely affect our business, financial condition, results of operations, or prospects;

*    We are exposed to operational risks with respect to our senior housing operating portfolio structured communities;

*    A cybersecurity incident or other form of data breach involving Company information could cause a loss of confidential consumer and other personal information, give rise to remediation and other expenses, expose us to liability under privacy and security and consumer protection laws, subject us to federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business;

*    We are exposed to risks related to environmental laws and the heading “Risk Factors” under Item 1A:costs associated with liabilities related to hazardous substances;

*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;

*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;

*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 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;

*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;

*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;

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

*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 subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change;
*We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt capital used to finance those investments bear interest at variable rates. This circumstance creates interest rate risk to the Company;


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

*    We depend on the success of our future acquisitions and investments;
*We depend on the ability to continue to qualify for taxation as a real estate investment trust;


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


*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.

*    Competition for acquisitions may result in increased prices for properties;

*    We depend on our ability to retain our management team and other personnel and attract suitable replacements should any such personnel leave;

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

*    Our ability to raise capital through equity sales is dependent, in part, on the market price of our common stock, and our failure to meet market expectations with respect to our business, or other factors we do not control, could negatively impact such market price and availability of equity capital;

*    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;

*    Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;

*    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, which subjects us to interest rate risk;

*    We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing commitments;

*    Changes in our variable interest rates may adversely affect our cash flows;

*    We depend on the ability to continue to qualify for taxation as a real estate investment trust (“REIT”) for U.S. federal income tax purposes;

*    There are no assurances of our ability to pay dividends in the future;

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

*    Our ownership of and relationship with any taxable REIT subsidiaries that we have formed or will form will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax;

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

*    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; and

*    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.

See the notes to the annual audited consolidated financial statements, and “Business”“Item 1. Business” and “Risk“Item 1A. Risk Factors” under Item 1 and Item 1A thereinherein for a further discussion of these and of various governmental regulations and other operating factors relatingthat could cause our future results to the healthcare industry and the risk factors inherent in them.differ materially from any forward-looking statements. 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.facing the Company. 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 and adversely affected. In that case, the trading price of our shares ofcommon stock could decline and you may lose part or all of your investment. Our forward-looking statements speak only as of the date made and we expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. 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”)REIT specializing in sale-leaseback, joint-venture,joint venture, and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable segments: Real Estate Investments and Senior Housing Operating Portfolio (“SHOP”).

Our portfolioReal Estate Investments segment consists of real estate investments and lease, mortgage and other note investmentsnotes receivables in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities specialty hospitals and medical office buildings. Other investments have included marketable securities and a joint venture structuredhospital.

As of December 31, 2023, we had gross investments of approximately $2.4 billion in 163 healthcare real estate properties located in 31 states and leased primarily pursuant to complytriple-net leases to 25 tenants, consisting of 97 senior housing communities, 65 skilled nursing facilities and one hospital, excluding one property classified as assets held for sale. Our portfolio of 16 mortgages along with other notes receivable totaled $260.7 million, excluding an allowance for expected credit losses of $15.5 million, as of December 31, 2023.

Our SHOP segment is comprised of two ventures that own the provisionsoperations of independent living facilities. As of December 31, 2023, we had gross investments of approximately $347.4 million in 15 properties located in eight states with a combined 1,733 units that are operated on behalf of the REIT Investment Diversification Empowerment ActCompany by independent managers pursuant to the terms of 2007 (“RIDEA”) through which we investedseparate management agreements that commenced April 1, 2022. The third-party managers, or related parties of the managers, own equity interests in facility operations managed by an independent third-party. the respective ventures.

We have fundedfund 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, 2017, we had investments in real estate, mortgage and other notes receivable involving 218 facilities located in 32 states. These investments involve 141 senior housing properties, 72 skilled nursing facilities, 3 hospitals, 2 medical office buildings and other notes receivable. These investments (excluding our corporate office of $1,298,000) consisted of properties with an original cost of $2,664,605,000, rented under triple-net leases to 27 lessees, and $141,486,000 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, resident fees, and borrowers, and our net income, cash flows and balance sheet can be found in Item 8“Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.


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Sources of Revenues

Our revenues are derived primarily from rental income, mortgage and other notes receivable interest income and resident fees and services. During 2023, rental income was $249.2 million (77.9%), interest income from mortgages and other notes receivable was $21.8 million (6.8%) and SHOP revenue was $48.8 million (15.3%) of total revenue of $319.8 million, an increase of 15.0% from 2022. Our revenues depend on the operating success of our tenants, borrowers and managers, whose sources and amounts 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.

Classification of Properties in our Portfolio


We operate our business through two reportable segments: Real Estate Investments and SHOP. We classify all of the properties in our Real Estate Investments portfolio as either senior housing or medical properties. Because our leases represent different underlying revenue sources and result in differing risk profiles, 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). Our SHOP segment is comprised of 15 independent living facilities located throughout the United States.

Real Estate Investments

Senior HousingHousing.


As of December 31, 2017,2023, our portfolio included 13697 senior housing properties (“SHO”) leased to operators and mortgage loans secured by 5nine 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, independent living facilities, and entrance-fee communities, which are more fully described below.


Need-Driven Senior Housing


Assisted Living Facilities.As of December 31, 2017,2023, our portfolio included 8671 assisted living facilities (“ALF”) leased to operators and mortgage loans secured by 4eight 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 the government. ALFs may be licensed and regulated in some states, but generally do not require the issuance of a Certificate of Need (“CON”) as is often required for skilled nursing facilities.facilities (“SNFs”).


Senior Living Campuses. As of December 31, 2017,2023, our portfolio included 10eight 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 inwith minor medical needs on an as-needed basis. As the decision to transition to a senior living campusSLC 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. SLCs may be licensed and regulated as nursing homes in some states and may also require a CON.


Discretionary Senior Housing


Independent Living Facilities.As of December 31, 2017,2023, our portfolio included 30seven 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 licensedare generally, but not always, unlicensed facilities and regulated in some states, but generally do not require the issuance of a CON as required for skilled nursing facilities.SNFs. As ILFs typically do not provide assistance with activities of daily living, we consider the decision to transition to an ILF facility to be discretionary.


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Entrance-Fee Communities. As of December 31, 2017,2023, our portfolio included 1011 entrance-fee communities (“EFC”) leased to operators and a mortgage loanloans secured by 1one EFC. Entrance-fee communities,EFCs, frequently referred to as continuing care retirement communities or CCRCs,(“CCRC”), typically include a combination of detached cottages, an independent living facility,ILF, an assisted living facilityALF and a skilled nursing facilitySNF 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 Timber Ridge, held by us since January 31, 2020 in a joint venture, include substantially all future healthcare costs. Communitiescosts in the payment of an entrance fee and thereafter payment of a monthly set service fee. 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. “Type B” EFCs are communities providing a 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.days. Finally, “Type C” EFCs, the typeclassification applicable to 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 the skilled nursing beds included in our EFC portfolio are subject to state licensure and regulation. Certain services may also require a CON. 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.


MedicalMedical.


As of December 31, 2017,2023, our portfolio included 7366 medical facilities leased to operators and mortgage loans secured by 4seven medical facilities. The medical facilities within our portfolio consist of skilled nursing facilities, hospitalsSNFs and medical office buildings,a hospital, which are more fully described below.


Skilled Nursing Facilities.As of December 31, 2017,2023, our portfolio included 68 skilled nursing facilities (“SNF”)65 SNFs leased to operators and mortgage loans secured by 4seven 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. Most levels. Operators in 9 of the 11 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. 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.


Hospitals.As of December 31, 2017,2023, our portfolio included 3 hospitalsone hospital (“HOSP”) leased to operators. Hospitalsan operator. HOSPs provide a wide range of inpatient and outpatient services, includingwhich may include acute psychiatric, behavioral and rehabilitation services, and are subject to extensive federal, state and local legislation and regulation. HospitalsHOSPs undergo periodic inspections regarding standards of medical care, equipment and hygiene as a condition of licensure. Services provided by hospitalsHOSPs are generally paid for by a combination of private pay sources and government payors. As the decision to utilize the services of a hospitalHOSP is typically made as the result of a pressing medical concern, we consider this to be a need drivenneed-driven medical facility.


Medical Office Buildings.Building.As of December 31, 2017,2023, our portfolio included 2no medical office buildings (“MOB”) leased to operators.. We have a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a fund that invests in medical real estate, including MOBs. Historically, our investment strategy has included owning and leasing 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 a the result of a pressing medical concern, we consider this to be a need drivenneed-driven medical facility. MOBs differThe MOB differs from conventional office buildings due to the special requirements of the tenants. Each

Senior Housing Operating Portfolio

As of December 31, 2023, our MOBs is leasedportfolio included 15 ILFs with a combined 1,733 units located throughout the United States, which we consider 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.be discretionary senior housing as discussed in more detail above.


Nature of Investments


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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 RIDEA.the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”). We have provided construction loans for certain 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 leaseinterest rates on our leases and the annual interest rateswe receive on our mortgage, construction and mezzanine loans ranged between 6.75%6.0% and 10%12.0% during 2017.2023. We believe our lease and loan terms are competitive within our peer group. Typical characteristics of theseour investment transactions are as follows:


Leases. Our leases for the properties in our Real Estate Investments segment generally have an initial leasehold term of 10 to 15 years with one or more 5-yearfive-year tenant renewal options. The leases are “triple net“triple-net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premium costs,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 minimalminimum 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.


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 operatorstenants hold purchase options allowing them to acquire properties they currently lease from NHI. When present, tenant purchase options generally give the lesseetenant 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)not less than 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 is to be established by independent appraisal.net investment basis.


Some of the obligations under the leases are guaranteed by the parent corporation of the lessee,tenant, if any, or affiliates or individual principals of the lessee.tenant. In some leases, the third party operatorparties or affiliated entities will also guarantee some portion of the lease obligations. Some obligations are backed further by other collateral such as security deposits, machinery,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 reviewed or audited financial statements of our lesseetenant corporate guarantors on an annual basis, if applicable
•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 Bickford Senior Living (“Bickford”) was structured to be compliant with the provisions of RIDEA which permitted NHI to receive rent payments through a triple-net lease between a property company and an operating company and gave 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 held our 85% equity interest in an unconsolidated operating company, which we did not control, and provided an organizational structure that allowed 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. Our RIDEA arrangement was terminated on September 30, 2016.

Mortgage loans. We have first mortgage loans with original maturities of at least 5generally less than five years, from inception with varying amortization schedules from interest-only to fully-amortizing.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 firstAs of December 31, 2023, we had eight mortgage loans carrybearing interest rates which rangeranging from 6.75%7.0% to 8.25%.12.0% per annum.


We have made mortgage loans to borrowers secured by a second deed-of-trust where there is a process in place for the borrower to obtain long-term financing, primarily with a U.S. government agency, and where the historical financial performance of the underlying facility meets our loan underwriting criteria.

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 oftensometimes combine with an NHI purchase option covering the subject property. OurAs of December 31, 2023, we had seven mezzanine loans currently carrybearing interest rates of 10%.ranging from approximately 6.0% to 10.0% per annum.


Construction loans. From time to time, we also provide construction loans that convert tobecome 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, if purchased, will lease the facility back to the operator.borrower. During the term of the construction loan, funds are usually advanced
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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 fourAs of December 31, 2023, we had three construction loans bearing interest ranging from 6.75%8.5% to 9%.9.0% per annum.


Other notes receivable. We have provided atwo revolving lines of 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 industriesindustry who have pledgedprovided either personal and business guarantees or other assets as security that bear interest at a fixed rate of 8.0% per annum and a variable rate of 8.9% as of December 31, 2023.

RIDEA Transactions. Our arrangement with an affiliate of Life Care Services, which we completed in January 2020 and is structured to be compliant with the provisions of RIDEA, permits NHI to receive rent payments through a triple-net lease between a property company owned 80% by NHI and an unconsolidated operating company owned 25% by a taxable REIT subsidiary (“TRS”) of NHI and gives NHI the opportunity to capture additional value on the improving performance of the operating company through distributions to the TRS. This organizational structure 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.

Senior Housing Operating Portfolio. Effective April 1, 2022, 15 senior housing ILFs previously part of the legacy Holiday Retirement (“Holiday”) properties were transferred from a triple-net lease to two separate ventures comprising our SHOP segment, which represents a new reportable segment in 2022. These ventures, in which NHI holds a majority interest, own the underlying independent living operations and are structured to comply with REIT requirements that utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. These properties are operated by two third-party property managers that manage our communities in exchange for the loans. The interest ratesreceipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on these loans typically range from 8.45% to10%.

Investmentthe property managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the property managers to set appropriate resident fees and otherwise operate our communities in marketable securities. From time to time we have invested a portioncompliance with the terms of our fundsmanagement agreements and all applicable laws and regulations. As of December 31, 2023, our SHOP segment consisted of 15 ILFs located in various marketable securitieseight states with quoteda combined 1,733 units.

Operator Composition

For the year ended December 31, 2023, approximately 24% of our Real Estate Investments and SHOP portfolio net operating income (“NOI”) was from publicly owned operators, 68% was from regional operators, 4% was from privately owned national chains and 1% was from smaller operators. Tenants in our Real Estate Investments portfolio which individually provided more than 3% and collectively 61% of our total revenues were (parent companies, in alphabetical order): Bickford Senior Living (“Bickford”); Discovery Senior Living (“Discovery”); Encore Senior Living; Health Services Management; Life Care Services; National HealthCare Corporation (“NHC”); Senior Living Communities (“Senior Living”); and The Ensign Group. We make reference to the parent companies 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. For the year ended December 31, 2023, our SHOP segment comprised approximately 3% of our NOI which is managed by two regional operators.

Tenant Concentration

The following table contains information regarding tenant concentration in our Real Estate Investments portfolio, excluding $2.6 million for our corporate office, $347.4 million for the SHOP segment, and a credit loss reserve of $15.5 million, based on the percentage of revenues for the years ended December 31, 2023, 2022 and 2021 related to tenants or affiliates of tenants that exceed 10% of total revenue ($ in thousands):
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As of December 31, 2023
Revenues1
AssetGross RealNotesYear Ended December 31,
Class
Estate2
Receivable202320222021
Senior LivingEFC$573,631 $48,950 $51,274 16%$51,183 18%$50,726 17%
NHCSNF133,770 — 37,335 12%36,893 13%37,735 12%
Bickford3
ALF429,043 16,795 38,688 12%N/AN/A34,599 12%
All others, netVarious1,293,969 195,002 132,216 41%144,534 52%164,017 55%
Escrow funds received from tenants
   for property operating expensesVarious— — 11,513 4%9,788 4%11,638 4%
$2,430,413 $260,747 271,026 242,398 298,715 
Resident fees and services4
48,809 15%35,796 13%— —%
$319,835 $278,194 $298,715 


1 Includes interest income on notes receivable and rental income from properties classified as held for sale.
2 Amounts include any properties classified as held for sale.
3 Revenues included in All others, net for years when less than 10%.
4 There is no tenant concentration in Resident fees and services because these agreements are with individual residents.

At both December 31, 2023 and 2022, the two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (10.7%).

Senior Living - As of December 31, 2023, we leased ten retirement communities totaling 2,216 units to Senior Living pursuant to triple-net lease agreements maturing through December 2029. Straight-line rent revenue of $(1.2) million, $0.4 million and $2.5 million and interest revenue of $3.7 million, $3.7 million and $3.2 million were recognized from Senior Living for the years ended December 31, 2023, 2022 and 2021, respectively.

We have provided a $20.0 million revolving line of credit to Senior Living whose borrowings under the revolver are to be used for working capital and to finance construction projects within its portfolio, including building additional units. Beginning January 1, 2025, availability under the revolver will be reduced to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. At December 31, 2023, the $16.3 million outstanding under the revolver bore interest at 8.0% per annum.

The Company also provided a mortgage loan of $32.7 million to Senior Living that originated in July 2019 for the acquisition of a 248-unit CCRC in Columbia, South Carolina. The mortgage loan is for a term of five years with two one-year extensions and bears interest at a rate of 7.25% per annum. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38.3 million, subject to adjustment for market prices,conditions.

NHC - The facilities leased to NHC, a publicly held company, are under a master lease and consist of three ILFs and 32 SNFs (four of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). Effective September 1, 2022, we amended the master lease dated October 17, 1991, concurrently with the sale of a portfolio of seven SNFs to increase the annual base rent due each year through the expiration of the master lease on December 31, 2026. There are two additional five-year renewal options at a fair rental value as negotiated between the parties. In addition to the base rent, NHC pays any additional rent and percentage rent as required by the master lease. Under the terms of the amended lease, the base annual rent escalates by 4% of the increase, if any, in each facility’s annual revenue over a 2007 base year. We refer to this additional rent component as “percentage rent.” Total percentage rent of $4.5 million, $3.1 million, and $3.5 million was recognized for the years ended December 31, 2023, 2022 and 2021, respectively. Straight-line rent revenue of $(1.2) million and $(0.5) million was recognized for NHC for the years ended December 31, 2023 and 2022, respectively. No material straight-line rent was recognized for the year ended December 31, 2021.

Two of our board members, including our chairperson, are also members of NHC’s board of directors. As of December 31, 2023, NHC owned 1,630,642 shares of our common stock.

Bickford - As of December 31, 2023, we leased 39 facilities, under four leases to Bickford. During the second quarter of 2022, we converted Bickford to the cash basis of revenue recognition based upon information obtained from Bickford regarding
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its financial condition that raised substantial doubt as to its ability to continue as a going concern. As a result, we wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives, that were included in “Other assets, net” on the Consolidated Balance Sheet, to rental income in 2022. Straight-line rent revenue of $(18.2) million and $1.7 million was recognized from the Bickford leases for the years ended December 31, 2022 and 2021, respectively.

In February 2023, we acquired a 64-unit assisted living and memory care community in Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including the common sharessatisfaction of other publicly-held REITs.an outstanding construction note receivable of $14.2 million including interest, cash consideration of $0.5 million and approximately $0.1 million in closing costs. The acquisition price also included a reduction of $2.5 million in Bickford’s outstanding pandemic-related rent deferrals that has been recognized in “Rental income” during the year ended December 31, 2023. We classifyadded the community to an existing master lease with Bickford at an initial rate of 8.0%.

During the first quarter of 2023, we disposed of one property that is included in the asset dispositions table in Note 3to our consolidated financial statements under “2023 Asset Dispositions.”

Cash rent received from Bickford for the years ended December 31, 2023, 2022 and 2021 was $33.4 million, $27.6 million and $29.5 million, respectively, including its repayment of outstanding pandemic-related rent deferrals of $2.3 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively. These amounts exclude $2.5 million and $3.0 million of rental income for the years ended December 31, 2023 and 2022, respectively, related to the reduction of pandemic-related rent deferrals in connection with the acquisition of two ALFs located in Virginia discussed above and in Note 3to our consolidated financial statements. As of December 31, 2023, Bickford’s outstanding pandemic-related rent deferrals were $18.0 million.

During the first half of 2022, we transferred one ALF located in Pennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a ten-year triple-net lease and wrote off approximately $0.7 million in a straight-line rents receivable, reducing rental income. Effective April 1, 2022, we restructured and amended three of Bickford’s master lease agreements covering 28 properties and reached agreement on the repayment terms of its outstanding pandemic-related rent deferrals. Significant terms of these highly-liquid securitiesagreements are as available-for-salefollows:

• Extended the maturity dates of the modified leases to 2033 and carry2035. The remaining master lease agreement covering 11 properties with an original maturity in 2023 was previously extended to 2028.

• Reduced the investmentscombined rent for the portfolio (excluding the ALF in Virginia Beach acquired in the fourth quarter of 2022) to approximately $28.3 million per year through April 1, 2024, subject to a nominal annual increase, at their then quotedwhich time the rent will be reset to a fair market value, but not less than 8.0% of our initial gross investment.

• Required monthly payments from October 2022 through December 2024 based on a percentage of Bickford’s monthly revenues exceeding an established threshold to be applied to the outstanding pandemic-related rent deferrals granted to Bickford. The deferrals may be reduced by up to $6.0 million upon Bickford achieving certain performance targets and the sale or transition of certain properties to new operators of which $2.5 million was earned in the first quarter of 2023 and $3.0 million was earned in the fourth quarter of 2022.

Bickford Construction Loans - As of December 31, 2023, we had one fully funded construction loan of $14.7 million to Bickford bearing interest at 9.0% per annum. The construction loan is 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 balance sheet date. We may chooseproperty. Usual and customary covenants extend to liquidate these investmentsthe agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the property at stabilization of the underlying operations.

During the third quarter of 2023, we designated as non-performing a mortgage note receivable of $2.1 million due from Bickford. The note, due February 2025, bears interest at 7.0% per annum, and began amortizing on a twenty-five-year basis in January 2021.

Holiday Portfolio Transition

On April 1, 2022, we completed the restructuring of our legacy Holiday portfolio comprised of 26 ILFs as of the beginning of 2021. Below is a summary of the pertinent restructuring activities:
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•On July 30, 2021, Welltower Inc. (“Welltower”) completed the acquisition of a portfolio of legacy Holiday properties from Fortress Investment Group and entered into a new agreement with Atria Senior Living to investassume operations of the proceeds intoHoliday portfolio. These transactions resulted in a Welltower-controlled subsidiary becoming the tenant under our existing master lease for the NHI-owned Holiday real estate assets. Rental income from our Holiday portfolio was $23.5 million in 2021 prior to the change in tenant ownership.

•In the third quarter of 2021, we sold nine of these properties for net proceeds of $119.7 million.

•We currently havereceived no investmentsrent from the Welltower-controlled affiliate due under the master lease after the change in marketable securities.tenant ownership occurred in late July 2021. Accordingly, we placed the tenant on cash basis and filed suit against Welltower and certain of its subsidiaries for default under the master lease. Reference Note 9 to the consolidated financial statements for further discussion of the litigation and its settlement in 2022.


•During the first quarter of 2022, we applied the remaining approximately $8.8 million legacy Holiday lease deposit to past due rents.

•On April 1, 2022, we received $6.9 million upon settlement and dismissal of the Welltower litigation. Concurrently with the settlement and dismissal, we transitioned 15 of the legacy Holiday ILFs into two separate partnership ventures that own the underlying independent living operations, forming our SHOP segment. Reference Notes 5 and 9 to the consolidated financial statements for more discussion.

•On April 1, 2022, we disposed of one property classified in assets held for sale for net proceeds of $3.0 million and transitioned one assisted living community in Florida to our existing real estate partnership with Discovery. The transitioned property was added to the partnership’s in-place master lease.

Commitments and Contingencies

In the normal course of business, we enter into a variety of commitments, typically consisting of funding revolving credit arrangements, and 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 that 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.

As of December 31, 2023, we had working capital, construction and mezzanine loan commitments to six operators or borrowers for an aggregate of $130.7 million, of which we had funded $89.3 million toward these commitments. As of December 31, 2023, $11.7 million of the funding obligations are payable within 12 months with the remaining commitments due between three to five years.

As of December 31, 2023, we had $14.5 million of development commitments for construction and renovation of four properties, of which we had funded $11.0 million toward these commitments, with the remaining amount expected to be payable within 12 months. In addition to these commitments, we had approximately $1.0 million in various other commitments not yet funded as of December 31, 2023.

As of December 31, 2023, we had an aggregate of $11.6 million in remaining contingent lease inducement commitments in four lease agreements which are generally based on the performance of facility operations and may or may not be met by the tenant. At December 31, 2023, we had funded $2.7 million toward these commitments. In addition, we funded a $10.0 million lease incentive in February 2023 to Timber Ridge OpCo based upon the achievement of all performance conditions.

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 carehealthcare 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
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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 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. State Medicaid funding is not expected to keep pace with inflation according to industry studies. Any 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 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 their home to afford the cost of living in an ILF or ALF. In addition, the success of these facilitiesproperties is often impacted by the existence of comparable, competing facilities in a local market.


Operator DiversificationEnvironmental Matters


ForWe believe that integrating environmental and sustainability initiatives into our strategic business objectives will contribute to our long-term success and to the year ended December 31, 2017, approximately 25%success of our portfolio revenue was from publicly-owned operators, 57% was from regional operators, 17% from national chains which are privately owned and 1% was from smaller operators. We considertenants by enhancing the creditworthinessquality of life of the operator to be an important factor in underwritingresidents of the lease or loan investment, and we generally havefacilities. Listed below are some of the right to approve any changes in operators.

For the year ended December 31, 2017, tenants which provided more than 3%highlights of our total revenues were (in alphabetical order): Bickford Senior Living; Chancellor Health Care; East Lakeefforts to promote environmental sustainability at our properties and with our tenants.

•We provide our triple-net lease operators capital improvement allowances for the redevelopment, expansions and renovations at our properties which may include energy efficient improvements like LED lighting and low emission carpeting, recycled materials and solar power;
•We provide our development partners with capital to build new state-of-the-art properties with energy efficient components and design features;

•We obtain Phase I and Phase II environmental reports if warranted as part of our due diligence procedures when acquiring properties and attempt to avoid buying real estate with known environmental contamination; and
•We strive for efficiency and sustainability in our corporate headquarters, participate in a recycling program, and encourage our employees to reduce, reuse and recycle waste. Our document retention practices strive to reduce paper usage and encourage electronic file sharing.

We are also subject to environmental risks and regulations in our business. See “– Government Regulation – Environmental Regulations” below; “Item 1A. Risk Factors – Risks Related to our Business and Operations - We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances”and“We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change”for a description of the risks and regulations associated with environmental matters.

Human Capital Management; The Ensign Group; Health Services Management; Holiday Retirement; National HealthCare Corporation; and Senior Living Communities.

Major Customers


We have four operators,employ individuals who possess a broad range of experiences, background and skills. We believe that to continue to deliver long-term value to our stockholders, we must provide and maintain a work environment that attracts, develops, and retains top talent and affords our employees an affiliate of Holiday Retirement (“Holiday”), Senior Living Communities, LLC (“Senior Living”), National HealthCare Corporation (“NHC”)engaging work experience that allows for career development and opportunities. Along with a competitive compensation program including incentive bonuses and an affiliate of Bickford, from whom we individually derive at least 10% of our total revenues,equity incentive plan, NHI provides a 401(k) plan with a safe harbor contribution limit, paid employee health insurance coverage and 60% collectively.tuition reimbursement.

Holiday


As of December 31, 2017,2023, we leased 25 independent living facilities tohad 26 full-time employees, an affiliateincrease of Holiday. The 17-year master lease began in December 2013 and provides for a minimum escalator of 3.5% after 2017.

Of ourone over the total revenues, $43,817,000 (16%), $43,817,000 (18%) and $43,817,000 (19%) were derived from Holiday for the years ended December 31, 2017, 2016 and 2015, respectively, including $7,397,000, $8,965,000 and $10,466,000 in straight-line rent, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Senior Living Communities

In December 2014 we acquired a portfolio of eight retirement communities totaling 1,671 units from Health Care REIT, Inc. and certain of its affiliates for a cash purchase price of $476,000,000. We leased the portfolio under a triple-net master lease to an affiliate of Senior Living, the current tenant of the facilities. The Senior Living portfolio initially included seven entrance-fee communities and one senior living campus. In November 2016 we expanded the portfolio under lease to Senior Living with the acquisition, for $74,000,000, of Evergreen Woods, a 299-unit entrance fee community in Connecticut. As currently configured, the 15-year master lease contains two 5-year renewal options and provides for 2017 cash rent of $38,740,000, subject to 3% annual escalators through lease expiration in 2029 and any renewal periods.

In connection with the 2014 acquisition, we provided a $15,000,000 revolving line of credit to Senior Living, the maturity of which mirrors the term of the master lease. Borrowings are used primarily to finance construction projects within the Senior Living portfolio, including building additional units. Amounts outstanding under the facility, $616,000 at December 31, 2017, bear interest at an annual rate equal2022. Of those employees, 22 are located in the Murfreesboro, Tennessee office, with one employee in each of Colorado, Florida, Oregon and Texas. The tenure of our current employees includes six who have been with the Company for over five years (but less than ten years), and three who have been with the Company over ten years (but less than 20 years). Two of our employees have been with the Company over 20 years. None of our employees are subject to the 10-year U.S. Treasury rate, 2.40% at December 31, 2017, plus 6%.a collective bargaining agreement. We empower our employees and reinforce our corporate culture through onboarding, training, and social and team-building events. We actively support charitable organizations within our community that promote health education and social well-being, and we encourage our employees to personally volunteer with organizations that are meaningful to them. We consider our employee relations to be good.



Certain essential services such as internal audit, tax compliance, information technology and legal services are outsourced to third-party professional firms.
In March 2016, we extended two mezzanine loans
Government Regulation

Overview. Our tenants and borrowers that operate SNFs, nursing homes, HOSPs, SLCs, ALFs and EFCsare typically subject to extensive and complex federal, state and local healthcare laws and regulations, including those relating to Medicare
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and $2,000,000, respectively, to affiliatesMedicaid reimbursement, fraud and abuse, relationships with referral sources and referral recipients, licensure and certification, building codes, privacy and security of Senior Living, to partially fund constructionhealth information and other personal data, CON, appropriateness and classification of a 186-unit senior living campus on Daniel Island in South Carolina. The loans bear interest payable monthly at a 10% annual ratecare, qualifications of medical and mature in March 2021. The loans were fully drawn at December 31, 2017,support personnel, distribution, maintenance and provide NHIdispensing of pharmaceuticals, communications with a 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.

Of our total revenues, $45,735,000 (16%), $40,332,000 (16%)patients and $39,422,000 (17%) were derived from Senior Living for the years ending December 31, 2017, 2016 and 2015, respectively, including $6,984,000, $7,369,000 and $8,422,000, respectively, in straight-line rent.

NHC

NHC is a publicly-held companyconsumers, and the lesseeoperation of our legacy properties. We lease 42 facilities to NHC comprised 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 dated October 17, 1991 (“the 1991 lease”) which includes our 35 remaining legacy properties and a Master Lease Agreement dated August 30, 2013 (“the 2013 lease”) which includes 7 skilled nursing facilities acquired from a third party. Under the terms of the 1991 lease, base annual rental of $30,750,000 escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. Similarly, the 2013 lease provides for base annual rental of $3,450,000 plus percentage rent equal to 4% of the increase, if any, in each facility’s annual revenue over a 2014 base year. The NHC escalator is contingent upon future facility revenue increases and therefore does not give rise to straight-line revenues.

Of our total revenues, $37,467,000 (13%), $37,626,000 (15%) and $36,625,000 (16%) in 2017, 2016 and 2015, respectively, were derived from the two lease agreements with NHC.

NHC owned 1,630,462 shares of our common stock at December 31, 2017. The chairman of our board of directors is also a director on NHC’s board.

Bickford

As of December 31, 2017 our Bickford portfolio consists of leases with primary lease expiration dates as follows (in thousands):

 Lease Expiration 
 Sept / Oct 2019June 2023Sept 2027May 2031Total
Number of Properties10
13
4
20
47
2017 Annual Contractual Rent$8,994
$10,809
$125
$16,576
$36,504
Straight Line Rent Adjustment(347)226
309
4,914
5,102
Total Revenues$8,647
$11,035
$434
$21,490
$41,606
      

On June 1, 2017, we acquired an assisted living/memory-care facilitytotaling 60 units in Lansing, Michigan for $10,400,000 in cash, inclusive of $200,000 in closing costs. Additionally, we committed to the funding of $475,000 in specified capital improvements, which will be added to the lease base. We included this facility in a master lease to Bickford for an initial term of 14 years plus renewal options. The initial lease rate is 7.25%, plus annual fixed escalators. We accounted for the acquisition as an asset purchase.

healthcare facilities. In April and August 2017, Bickford opened the last two of the five-facility development project announced in 2015. Newly-constructed facilities have an annual lease rate of 9% at completion, after 6 months of free rent. As of December 31, 2017, our Bickford lease portfolio consists of 47 facilities. Of these facilities, 35 were held in a RIDEA structure and operated as a joint venture until September 30, 2016, when NHI and Sycamore, an affiliate of Bickford, entered into a definitive agreement terminating the joint venture and converting Bickford’s participation to a triple-net tenancy with assumption of existing leases and terms. Through September 30, 2016, NHI owned an 85% equity interest and Sycamore owned a 15% equity interest in our consolidated subsidiary (“PropCo”). The facilities were leased to an operating company (“OpCo”), in which NHI previously held a non-controlling 85% ownership interest. The facilities are managed by Bickford. Our joint venture was structured to comply with the provisions of RIDEA. On September 30, 2016, we unwound the joint venture underlying the RIDEA and reacquired Bickford’s share of its assets. Effective June 1, 2017, NHI and Bickford announced two new amended and restated master leases covering twenty Bickford properties. Under terms of the new master lease, the base term for these properties will now extend to May 2031.

Additionally, effective June 28, 2017, the lease of thirteen properties acquired in June 2013 and initially set for expiration in June 2018 has been renewed and extended through June 2023. NHI has a right to future Bickford acquisitions, development projects and refinancing transactions.

In September 2017, upon collection of all past-due rents, we transitioned the lease of a 126-unit assisted living portfolio from our then tenant as the result of material noncompliance with lease terms. On October 1, 2017, we entered with Bickford into a 10-year lease, beginning October 1. The agreement provides for an initial annual lease payment of $1,500,000 with a 4% escalator in effect for years two through four and 3% thereafter. Additionally, the lease provides a purchase option which opens immediately and is co-terminus with the lease. The option will be exercisable for the greater of $21,400,000 or at a capitalization rate of 8.5% on the forward 12-month rental at the time of exercise.

Of our total revenues, $41,606,000 (15%), $30,732,000 (12%) and $24,121,000 (11%) were recognized as rental income from Bickford for the years ended December 31, 2017, 2016 and 2015, including $5,102,000, $858,000, and $267,000 in straight-line rent income, respectively.

At December 31, 2017, our construction loans to Bickford are summarized as follows:
 Rate Maturity Commitment Drawn Location
July 20169% 5 years $14,000,000
 $(11,096,000) Illinois
January 20179% 5 years 14,000,000
 (4,462,000) Michigan
     $28,000,000
 $(15,558,000)  

The promissory notes 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 subject property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a purchase option on the properties at stabilization, whereby annual rent will be set with a floor of 9.55%, based on NHI’s total investment, plus fixed annual escalators.

In January 2018, we made a construction loan to Bickford of $14,000,000 for a new assisted living and memory care facility in Virginia under the same terms as described above.

Commitments and Contingencies

The following tables summarize information as of December 31, 2017 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements, included herein.

 Asset Class Type Total Funded Remaining
Loan Commitments:         
Life Care Services Note ASHO Construction $60,000,000
 $(53,622,000) $6,378,000
BickfordSHO Construction 28,000,000
 (15,558,000) 12,442,000
Senior LivingSHO Revolving Credit 15,000,000
 (616,000) 14,384,000
     $103,000,000
 $(69,796,000) $33,204,000
 Asset Class Type Total Funded Remaining
Development Commitments:         
Legend/The Ensign GroupSNF Purchase $56,000,000
 $(14,000,000) $42,000,000
East Lake/Watermark RetirementSHO Renovation 10,000,000
 (5,900,000) 4,100,000
Santé PartnersSHO Renovation 3,500,000
 (2,621,000) 879,000
BickfordSHO Renovation 2,400,000
 (122,000) 2,278,000
East Lake Capital ManagementSHO Renovation 400,000
 —
 400,000
Senior LivingSHO Renovation 6,830,000
 (970,000) 5,860,000
Discovery Senior LivingSHO Renovation 500,000
 —
 500,000
Woodland VillageSHO Renovation 7,450,000
 (762,000) 6,688,000
Chancellor Health CareSHO Construction 650,000
 (62,000) 588,000
Navion Senior SolutionsSHO Construction 650,000
 —
 650,000
     $88,380,000
 $(24,437,000) $63,943,000

 Asset Class Type Total Funded Remaining
Contingencies:         
BickfordSHO Lease Inducement $14,000,000
 $(2,250,000) $11,750,000
East Lake Capital ManagementSHO Lease Inducement 8,000,000
 —
 8,000,000
Navion Senior SolutionsSHO Lease Inducement 4,850,000
 —
 4,850,000
Prestige CareSHO Lease Inducement 1,000,000
 —
 1,000,000
The LaSalle GroupSHO Lease Inducement 5,000,000
 —
 5,000,000
     $32,850,000
 $(2,250,000) $30,600,000

Sources of Revenues

General. Our revenues are derived primarily from rental income, mortgage and other note interest income and income from our other investments, substantially all of which are in marketable securities, including the common stock of other healthcare REITs. During 2017, rental income was $265,127,000 (95.1%), interest income from mortgages and other notes was $13,134,000 (4.7%) and income from our other investments was $398,000 (0.2%) of total revenue of $278,659,000. Our revenues depend on the operating successaddition, many of our tenants and borrowers whose sourcethat operate ILFs may be subject to state licensing, and amountall of revenuesour properties are determinedsubject to environmental regulations related to real estate. Applicable laws and regulations are wide-ranging, vary across jurisdictions, and are administered by (i)several government agencies. Further, these laws and regulations are subject to change, enforcement practices may evolve, and it is difficult to predict the licensed bedsimpact of new laws and regulations. We expect that the healthcare industry, in general, will continue to face increased regulation. Our tenants may find it increasingly difficult and costly to operate within this complex and evolving regulatory environment. Noncompliance with applicable laws and regulations may result in the imposition of civil and criminal penalties that could adversely affect the operations and financial condition of tenants, managers or borrowers, which in turn may adversely affect us. The following is a brief discussion of certain laws and regulations applicable to certain of our tenants, managers and borrowers and, in some cases, to us.

Licensure and Certification. Various licenses, certifications and permits are required to operate SNFs, ALFs, EFCs, HOSPs and, to a lesser degree, ILFs, to dispense narcotics, to handle radioactive materials and to operate equipment, among other capacityregulated actions. Licensure, certification and enrollment with government programs may be conditioned on requirements related to, among other things, the quality of medical care provided, qualifications of the facility, (ii) their occupancy rate, (iii) the extent to which the services provided at each facility are utilized by the residentsoperator’s administrative personnel and patients, (iv) the mixclinical staff, disclosure of private pay, Medicareownership 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 portionrelated information, adequacy of the revenue of our SNF lesseesphysical plant and borrowers is derived from government funded reimbursement programs, such as Medicare and Medicaid. Reimbursement under these programs is subject to periodic payment reviewequipment, staff-to-patient or resident ratios, capital and other audits by federalexpenditures, record keeping, dietary services, infection prevention and state authorities. Medicare is uniform nationwidecontrol, and reimburses 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. The current acuity classification system is named Resource Utilization Groups IV (“RUGs IV”) and was effective October 1, 2010. Federal legislative policies have been adopted and continue to be proposed that would provide small increases in annual Medicare payments to skilled nursing facilities.patient rights. For example, a final rule issued by the Centers for Medicare and& Medicaid Services (“CMS”) announcedin November 2023 requires Medicare-enrolled SNFs and Medicaid-enrolled nursing homes to disclose additional information about owners, operators and management, which will be publicly available. To increase transparency with regard to direct and indirect owning and managing entities, the Skilled Nursing Facilities – PPS final rule establishes definitions of REIT and private equity company for fiscal year 2018 which increasedpurposes of Medicare paymentsenrollment and requires providers to SNF operators by only 1.0% beginning October 1, 2017. The fiscal year 2017 increase was 1.6%, the fiscal year 2016 increase was 1.2% and the fiscal year 2015 increase was 2.0%. In the future, any failure of Congress to agree on spending reductions to meet long-term mandated deficit reduction goals would trigger automatic spending cuts of 2% to Medicare.

RUGs IV incorporated changes to PPS that significantly altered how SNFs are paid for rendering care. Some examples are as follows:

A shift to 66 payment categories from 53 payment categories;

Changes related to assessment reference dates and qualifiers that will significantly reduce utilization of rehabilitation and extensive service categories;

Modification to therapy services related to estimating treatments and utilization of concurrent therapy that will likely result in RUG classifications at much lower levels of therapy than previous results; and

Adjustments related to assistance with activities of daily living (“ADL”s) anddisclose whether an increased emphasis on ADL scores in the nursing case mix indices and related RUG payment rates.

Medicaidowner or manager is a joint federalREIT or private equity company. In addition, CMS issued requirements for certain healthcare facilities in response to the COVID-19 pandemic. Most of these requirements have expired, but requirements to report certain COVID-19-related data remain in effect. Licensed facilities are generally subject to periodic inspections by regulators to determine compliance with applicable licensure 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 andcertification 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 problemsFurther, some states 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 Medicaidestablished requirements for facility spending, for SNF care.


Medicare and Medicaid programs are highly regulated and subjectexample requiring nursing homes to frequent and substantial changes resulting from legislation, adoptionspend a certain percentage of rules and regulations and administrative and judicial interpretations of existing law. Moreover, as healthrevenue on direct 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. Failure of our tenants and borrowers to make their scheduled lease and loan payments to us would have a direct and material adverse impact on 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.residents. Sanctions for failure to comply with these regulationslaws and lawsregulations include (but are not limited to) loss of licensure fines and loss of certificationability to participate in the Medicare, Medicaid, and Medicaidother government healthcare programs, suspension of or non-payment for new admissions, fines, as well as potential criminal penalties. The failure of any tenant, manager or borrower to comply with such laws requirements and regulations could affect theirits ability to operate theits facility or facilities and could adversely affect any such tenant���stenant’s or borrower’s ability to make lease or debt payments to us.

In addition, if we have to replace a tenant, we may experience difficulties in finding a replacement because our ability to replace 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 prohibitedtenant may be affected 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 investigationlaws governing changes in control 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.ownership.


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 which 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 hospitalshealthcare facilities in which we invest are also generallymay be subject to state statutesCON or similar laws, which may require regulatorygovernment approval in the form of a CON prior to the construction or establishment of new facilities, the expansion of existing facilities, to accommodate new beds (orthe addition of new beds to existing facilities),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 lesseestenants, managers and borrowers; however,borrowers.

Medicare and Medicaid Reimbursement. A significant portion of the revenue of our SNF tenants and borrowers is derived from government-funded reimbursement programs, primarily Medicare and Medicaid. The Medicare and Medicaid programs are highly regulated and subject to frequent and substantial changes resulting from legislation, regulations and administrative and judicial interpretations of existing law.

Medicare is a federal health insurance program for persons age 65 and over, some disabled persons, and persons with end-stage renal disease or Lou Gehrig’s disease/amyotrophic lateral sclerosis. Medicare generally covers SNF services for beneficiaries who require skilled nursing or therapy services after a qualifying hospital stay. Medicare Part A generally pays a per diem rate for each beneficiary. The reimbursement rates are set forth under a prospective payment system (“PPS”), an acuity-based classification system that uses nursing and therapy indexes, adjusted by additional factors such as geographic differences in wage rates, to calculate per diem rates for each Medicare beneficiary. The Medicare Part A payment rates cover most services to be provided to a beneficiary for a limited benefit period, including room and board, skilled nursing care, therapy, and medications. CMS updates Medicare payment rates annually. For fiscal year 2024, which started October 1, 2023, CMS estimates that payments to SNFs under the SNF PPS will increase by approximately $1.4 billion, or 4.0%, compared to fiscal year 2023.

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CMS has implemented policies intended to shift Medicare to value-based payment methodologies that tie reimbursement to quality of care rather than quantity. For example, CMS uses the Patient Driven Payment Model (“PDPM”) payment methodology for SNF services, which classifies beneficiaries into payment groups based on clinical factors using diagnosis codes rather than by volume of services. In addition, under the SNF Quality Reporting Program, CMS requires SNFs to report certain quality data, and SNFs that fail to do so are subject to payment reductions. Under the SNF Value-Based Purchasing Program, CMS reduces SNF Medicare payments by 2 percentage points, and redistributes the majority of these funds as incentive payments based on SNF quality measure performance.

From time to time, the U.S. Department of Health and Human Services (“HHS”) revises the reimbursement systems used to reimburse healthcare providers. For example, the Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”) requires HHS, in conjunction with the Medicare Payment Advisory Commission (“MedPAC”), to work toward a unified payment system for post-acute care services provided by SNFs, inpatient rehabilitation facilities, home health agencies, and long-term care hospitals. A unified post-acute care payment system would pay post-acute care providers, including SNFs, under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting where the patient receives treatment. As required under the statute, CMS issued a report in July 2022 that presented a prototype for a unified post-acute care payment model, and MedPAC issued a report in June 2023 evaluating a prototype design. Although both CMS and MedPAC determined that designing a unified prospective payment system for post-acute care providers is feasible, CMS noted that universal implementation of a unified model would require congressional action and MedPAC cautioned that implementation would be complex. Due to the agency resources required to implement a unified model, MedPAC noted that CMS may consider smaller-scale site-neutral policies to address some of the overlap in patients treated in different settings and highlighted that recent changes to various post-acute care payment systems address some of the concerns underlying the push for a unified model.

Medicaid is a medical assistance program for eligible low-income persons that is funded jointly by federal and state governments. Medicaid programs are operated by state agencies under plans approved by the federal government. Reimbursement methodologies, eligibility requirements 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 patients, particularly in nursing facilities. Outside of the government response to the COVID-19 pandemic, budgetary pressures have, in recent years, resulted in decreased spending, or decreased spending growth, for Medicaid programs in many states. Changes in federal policy and funding may be an additional source of uncertainty. For example, under early COVID-related legislation, states that maintain continuous Medicaid enrollment are eligible for a temporary increase in federal funds for state Medicaid expenditures. The resumption of redetermination for Medicaid enrollees in 2023 resulted in coverage disruptions and dis-enrollments of Medicaid enrollees. Budgetary pressures are expected to continue in the future, and many states are actively seeking ways to reduce Medicaid spending, including for nursing home and assisted living care, by methods such as capitated payments, reductions in reimbursement rates, and increased enrollment in managed Medicaid plans. Some states and managed care plans are pursuing alternatives to institutional care, such as home-based and community services. Several of the states in which we have investments have actively sought to reduce or slow the increase of Medicaid spending for care in nursing homes and other settings.

In addition to reimbursement pressures and changes in governmental healthcare programs, healthcare facilities are experiencing increasing pressure from private payors attempting to control healthcare costs. In some cases, private payors rely on governmental reimbursement systems to determine reimbursement rates and policies. Changes to Medicare and Medicaid that reduce payments under these programs or negatively affect utilization of services may negatively impact payments from private payors. We cannot make any assessment as to the timing or the effect that any such changes may have on our tenants’, managers’ 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 the cost of providing services to patients, including any cost increases. Any changes in government or private payor reimbursement policies that reduce payments to levels that are insufficient to cover the cost of providing patient care could adversely affect the operating revenues of managers, tenants and borrowers in our primaryproperties that rely on such payments, and thereby adversely affect their ability to make their lease or debt payments to us.

COVID-19 Pandemic Provider Relief Fund. In response to the COVID-19 pandemic, the federal government authorized financial relief for eligible healthcare providers through the Public Health and Social Services Emergency Fund (“Provider Relief Fund”). Although, recipients are not required to repay Provider Relief Fund payments as long as they attest to and comply with certain terms and conditions, changes to interpretation of guidance on the underlying terms and conditions may result in derecognition of amounts previously received. A number of our tenants and borrowers received grants through the Provider Relief Fund.

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Fraud and Abuse. Participants in the healthcare industry are subject to various complex federal and state civil and criminal laws and regulations governing a wide array of healthcare provider referrals, relationships and arrangements. These laws include but are not limited to: (i) federal and state false claims acts, which generally prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs; (ii) federal and state anti-kickback and fee-splitting statutes, including the federal Anti-Kickback Statute, which prohibits the payment or receipt of any consideration in exchange for referral of Medicare and Medicaid patients; (iii) federal and state physician self-referral laws, including the federal prohibition commonly referred to as the Stark Law, which generally prohibits referrals by physicians to entities for designated health services (which include hospital inpatient and outpatient services and some of the services provided in SNFs) with which the physician or an immediate family member has a financial relationship; and (iv) the federal Civil Monetary Penalties Law, which requires a lower burden of proof than other fraud and abuse laws. These laws and regulations subject violators to severe penalties, including exclusion from the Medicare and Medicaid programs, denial of Medicare and Medicaid payments, punitive sanctions, fines and even prison sentences. They are enforced by a variety of federal, state and local agencies, and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. In recent years, both federal and state governments have significantly increased investigation and enforcement activity to detect and punish wrongdoers.

It is anticipated that the trend toward increased investigation and enforcement activity will continue. In the event that any manager, tenant or borrower were to be found in violation of any of these laws and regulations, that manager’s, tenant’s or borrower’s ability to operate the facility could be jeopardized, which could adversely affect any such tenant’s or borrower’s ability to make lease or debt payments to us and could thereby adversely affect us.

Privacy and Security and Data Interoperability. Privacy and security regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) restrict the use and disclosure of individually identifiable health information (“protected health information”), provide for individual rights, require safeguards for protected health information and require notification of breaches of unsecure protected health information. Entities subject to HIPAA include health plans, healthcare clearinghouses, and most healthcare providers (including some of our managers, tenants and borrowers). Business associates of these entities who create, receive, maintain or transmit protected health information are also subject to certain HIPAA provisions. Covered entities must report breaches involving unsecured protected health information to the affected individuals, HHS and, in large breaches, the media. Violations of HIPAA may result in substantial civil and/or criminal fines and penalties.

There are several other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security of personal data that may not be preempted by HIPAA. For example, the California Consumer Privacy Act (the “CCPA”) as amended by the California Privacy Rights Act, affords consumers, including those acting in an employment context, expanded privacy protections such as the right to know what personal information is collected and how it is used. Several other states have enacted comprehensive consumer data privacy laws, providing residents of those states with additional or expanded rights with respect to their personal information such as a right to opt out of certain processing activities for sensitive data and a right to a portable copy of their personal information. State privacy laws typically provide for civil penalties for violations, and some states provide a private right of action for data breaches, which may increase data breach litigation. Beyond providing residents with certain explicit rights, consumer data privacy laws call for affirmative data protection impact assessments to be conducted by subject businesses for certain personal information processing activities. Additional states are considering expanding or passing privacy laws in the near term. Specifically, Washington, Connecticut, and Nevada recently passed legislation aimed at protecting consumer health data, including but not limited to, reproductive health information. Washington’s My Health My Data Act provides for a private right of action. In addition, the Federal Trade Commission continues to pursue privacy as an enforcement priority, including addressing unfair or deceptive practices relating to privacy policies, consumer data collection and processing consent, and digital advertising practices.

Federal and state legislative and regulatory bodies, including at the executive level, continue to signal increased scrutiny and potential rulemaking surrounding the creation, adoption, and leveraging of artificial intelligence and/or machine learning based or enhanced tools, systems, and functions. The shifting regulatory and enforcement landscape in this space may require additional disclosures, risk assessments, or adjustments to our operations and systems that may leverage such technologies.

Marketing and patient engagement activities that the Company may engage in are subject to communications laws such as the Telephone Consumer Protection Act (the “TCPA”) and the Controlling the Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM”). A determination by a court or regulatory agency that the Company engaged in communication or marketing practices that violate the TCPA or CAN-SPAM could subject us to civil penalties and result in negative publicity.

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The costs to the business or, for an operator of a healthcare property, associated with developing and maintaining programs and systems to comply with shifting data privacy and security laws, defending against privacy and security related claims or enforcement actions and paying any assessed fines can be substantial. Many of these privacy laws and regulations and related interpretations are subject to uncertain application, interpretation or enforcement standards that could result in claims against us and/or our tenants, borrowers, and operators, extensive changes to our business practices, systems and operational processes, including our data processing and security systems, penalties, increased operating costs or other impacts on our businesses. New or expanding privacy and security laws could require substantial further investment in resources to comply with regulatory changes as privacy and security laws impose additional obligations.

In addition, healthcare providers and industry participants are subject to a growing number of requirements intended to promote the interoperability and exchange of patient information. Noncompliance may result in penalties or other disincentives.

Americans with Disabilities Act. Our properties generally must comply with the Americans with Disabilities Act (the “ADA”) and any similar state or local laws to the extent that such properties are public accommodations as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. While under our triple-net lease structure, our tenants would generally be responsible for additional costs that may be required to make our facilities ADA-compliant, should barriers to access by persons with disabilities be discovered, we may be indirectly responsible for additional costs that may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. Our commitment to make readily achievable accommodations pursuant to the ADA is ongoing, and we continue to assess our properties and make modifications as appropriate in this respect.

Environmental Regulations. As an owner of real property, we are subject to various federal, state and local laws and regulations regarding environmental, health and safety matters. These laws and regulations address, among other things, asbestos, polychlorinated biphenyls, fuel, oil management, wastewater discharges, air emissions, radioactive materials, medical wastes, and hazardous wastes, and in certain cases, the costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. We may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any property that we own from which there is or has been an actual or threatened release of a regulated material and any other affected properties, regardless of whether we knew of or caused the release. Such costs typically are not limited by law or regulation and could exceed the property’s value. In addition, we may be liable for certain other costs, such as governmental fines and injuries to persons, property or natural resources, as a result of any such actual or threatened release. Under the terms of our triple-net leases, we generally have a right to indemnification by our tenants for any contamination caused by them. However, we cannot assure you that our tenants will have the financial capability or willingness to satisfy their respective indemnification obligations to us, and any such inability or unwillingness to do so may require us to satisfy the underlying environmental claims.

Tax Regulation

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and since our formation, have filed our U.S. federal income tax return as a REIT. We believe that we have met the requirements for qualification as a REIT since our initial REIT election in 1991, and we expect to qualify as such for each of our taxable years. Our qualification and taxation as a REIT depends upon our ability to meet on a continuing basis, through actual annual operating results, the various qualification tests and organizational requirements imposed under the Internal Revenue Code, including qualification tests based on NHI’s assets, income, distributions and stock ownership. Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income (computed without regard to the dividends-paid deduction or our net capital gain or loss) that is currently distributed to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily results from investment in a C corporation. We will, however, be required to pay U.S. federal income tax in certain circumstances.

The sections of the Internal Revenue Code relating to qualification and operation as a REIT, and the U.S. federal income taxation of a REIT and its stockholders, are highly technical and complex. Some of the requirements depend upon actual operating results, distribution levels, diversity of stock ownership, asset composition, source of income and record keeping. Accordingly, while we intend to continue to qualify to be taxed as a REIT, the actual results of our operations for any particular year might not satisfy these requirements for qualification and taxation as a REIT. Accordingly, no assurance can be given that the actual results of our operation for any particular taxable year will satisfy such requirements. Further, the anticipated U.S. federal income tax treatment may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time.

To qualify as a REIT, we must elect to be treated as a REIT, and we must meet various (a) organizational requirements, (b) gross income tests, (c) asset tests, and (d) annual dividend requirements.
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Organizational Requirements. The Internal Revenue Code defines a REIT as a corporation, trust or association:

(1) that is managed by one or more trustees or directors;

(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

(3) that would otherwise be taxable as a domestic corporation, but for Sections 856 through 859 of the Internal Revenue Code;

(4) that is neither a financial institution nor an insurance company to which certain provisions of the Internal Revenue Code apply;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) during the last half of each taxable year, not more than 50% in value of the outstanding stock of which is owned, directly or constructively, by five or fewer individuals, as defined in the Internal Revenue Code to also include certain entities; and

(7) which meets certain other tests regarding the nature of its income and assets.

We believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, to satisfy conditions (1) through (7) inclusive, during the relevant time periods, and we intend to continue to be organized and operate in this manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Internal Revenue Code, including through actual operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we will be organized or will be able to operate in a manner so as to qualify or remain qualified as a REIT.

Income Tests. We must satisfy two gross income tests annually to maintain our qualification as a REIT.

First, at least 75% of our gross income for each taxable year (excluding gross income from prohibited transactions) must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of that 75% gross income test generally includes:

•rents from real property;
•interest on debt secured by mortgages on real property, or on interests in real property (including interest on an obligation secured by a mortgage on both real property and personal property if the fair market areas,value of the personal property does not exceed 15% of the total fair market value of all the property securing the obligation);
•dividends or other distributions on, and gain from the sale of, shares in other REITs;
•gain from the sale of real estate assets; and
•income derived from the temporary investment of new capital that is attributable to the issuance of our shares of beneficial interest or a significantpublic offering of our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we received such new capital.

Second, in general, at least 95% of our gross income for each taxable year (excluding gross income from prohibited transactions) must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities or any combination of these.

Asset Tests. To maintain our qualification as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year:

•First, at least 75% of the value of our total assets must consist of: (a) cash or cash items, including certain receivables, (b) government securities, (c) real estate assets, including interests in real property, leaseholds and options to acquire real property and leaseholds, (d) interests in mortgages on real property (including an interest in an obligation secured by a mortgage on both real property and personal property if the fair market value of the personal property does not exceed 15% of the total fair market value of all the property securing the obligation) or on interests in real property, (e) stock in other REITs, (f) debt instruments issued by publicly offered REITs (i.e., REITs which are required to file
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annual and periodic reports with the SEC under the Securities Exchange Act of 1943, as amended (the “Exchange Act”)), (g) personal property leased in connection with real property to the extent that rents attributable to such personal property do not exceed 15% of the total rent received under the lease and are treated as “rents from real property”; and (h) investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or offerings of debt with at least a five year term;

•Second, of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities may not exceed 5% of the value of our total assets;

•Third, we may not own more than 10% of the voting power or value of any one issuer’s outstanding securities;

•Fourth, no more than 20% of the value of our total assets may consist of the securities of one or more TRSs;

•Fifth, no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS taxable subsidiaries and other assets that are not qualifying assets for purposes of the 75% asset test; and

•Sixth, no more than 25% of our total assets may consist of debt instruments issued by publicly offered REITs that qualify as “real estate assets” only because of the express inclusion of “debt instruments issued by publicly offered REITs” in the definition of “real estate assets”.

Distribution Requirements. Each taxable year, we must distribute dividends, other than capital gain dividends, to our stockholders in an aggregate amount not less than: the sum of (a) 90% of our “REIT taxable income,” computed without regard to the dividends-paid deduction or our net capital gain or loss, and (b) 90% of our after-tax net income, if any, from foreclosure property, minus the sum of certain items of non-cash income.

Taxable REIT Subsidiary. A REIT may directly or indirectly own stock in a TRS. A TRS may be any corporation in which we directly or indirectly own stock and where both NHI and the subsidiary make a joint election to treat the corporation as a TRS, in which case it is treated separately from us and will be subject to U.S. federal corporate income taxation. Our stock, if any, of a TRS is not subject to the 10% or 5% asset tests. Instead, the value of all TRSs owned by us cannot exceed 20% of the value of our assets. We currently own all of the membership interests of NHI-SS TRS, LLC, and NHI-Discovery I TRS, LLC, and may form additional TRSs in the future.

We also lease “qualified healthcare properties” on an arm’s-length basis to a TRS (or subsidiary thereof) and the property is operated on behalf of such subsidiary by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating healthcare facilities for any person unrelated to us or our TRS. Generally, the rent that we receive from our TRS in such structures will be treated as “rents from real property.”

Subsidiary REITs. We, along with our TRS, currently own all of the common interests in NHI PropCo Member LLC, an entity that has elected to be taxed as a REIT under the Internal Revenue Code (the “Subsidiary REIT”) and we may own and acquire direct or indirect interests in additional Subsidiary REITs in the future. We believe that the Subsidiary REIT is organized and operates in a manner that permits it to qualify for taxation as a REIT for U.S. federal income tax purposes. However, if the Subsidiary REIT were to fail to qualify as a REIT, then (i) the Subsidiary REIT would become subject to regular U.S. corporate income tax and (ii) our equity interest in the Subsidiary REIT would cease to be a qualifying real estate asset for purposes of the 75% asset test and could become subject to the 5% asset test, the 10% voting share asset test, and the 10% value asset test generally applicable to our ownership in corporations other than REITs, qualified REIT subsidiaries (“QRSs”) and TRSs. If the Subsidiary REIT were to fail to qualify as a REIT and if we were not able to treat the Subsidiary REIT as a TRS of ours pursuant to certain prophylactic elections we have made, it is possible that we would not meet the 10% voting share test and the 10% value test with respect to our interest in the Subsidiary REIT, in which event we could fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.

Failure to Qualify. If we lose our status as a REIT (currently or with respect to any tax years for which the statute of limitations has not expired), we will face serious tax consequences that will substantially reduce the funds available to satisfy our obligations, to implement our business strategy and to make distributions to our stockholders for each of the years involved because:

•We would be subject to U.S. federal income tax at the regular corporate rate applicable to regular C corporations on our taxable income, determined without reduction in new constructionfor amounts distributed to stockholders;

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•For tax years beginning after December 31, 2022, we would possibly be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the nondeductible 1% excise tax on certain stock repurchases;

•We would not be required to make any distributions to stockholders, and any dividends to stockholders would be taxable as ordinary income to the extent of our current and accumulated earnings and profits (which may be subject to tax at preferential rates to individual stockholders); and

•Unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we were disqualified.

In the event we are no longer required to pay dividends to maintain REIT status, this could adversely affect the value of our common stock. See “Item 1A. Risk Factors - Risks Related to Our Status as a REIT.”

Investment Policies


Our investment objectives are to (i) to provide consistent and growing current income for distribution to our stockholders through investments primarily in health care relatedhealthcare-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, marketable securities, including the common stock of other REITs, and joint ventures structured to comply with the provisions of RIDEA. 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.


As described in Item 7 on page 33,During 2023, we have funded or made commitments to fund new investments in real estate and loans of $215,231,000 in 2017 and $28,400,000 in January 2018, and we anticipate making additional investments in 2018 that meet our underwriting criteria.totaling approximately $74.5 million. 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. Our intention is to make investments in properties with substantial, long-term potential. However, we may choose to sell properties if they no longer meet our investment objectives.


We will not, without the approval of a majority of the Board of Directors and review of a committee comprised of independentdisinterested directors, enter into any joint venture or partnership 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.


FutureOur investments in health care relatedhealthcare-related facilities may utilize borrowed funds or the issuance of equity when it is advisable in the opinion of the Board of Directors.equity. 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 15, 2018:
NamePositionAge
Eric MendelsohnPresident and Chief Executive Officer56
Roger R. HopkinsChief Accounting Officer56
Kristin S. GainesChief Credit Officer46
Kevin PascoeChief Investment Officer37
John SpaidExecutive Vice President Finance58

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.

Roger R. Hopkins joined the former management advisor of NHI in July 2006 and was named Chief Accounting Officer for NHI in December 2006. With over 35 years of combined financial experience in public accounting and the real estate industry, he positioned companies to access public and private capital markets for equity and debt. Mr. Hopkins is responsible for the development of financial and tax strategies, reporting metrics, supplemental data reports and NHI’s internal control system. He has accounted for significant acquisitions and financings by NHI, including the successful executions of convertible debt and follow-on equity offerings, private debt placements and bank financing arrangements. Mr. Hopkins was an Audit Partner in the Nashville office of Rodefer Moss & Co, a regional accounting firm with seven offices in Tennessee, Indiana and Kentucky, where he brought extensive experience in Securities and Exchange Commission filing requirements and compliance issues. He was previously a Senior Manager in the Nashville office of Deloitte. Mr. Hopkins received his Bachelor of Science in Accounting from Tennessee Technological University in 1982 and is a CPA licensed in Tennessee.
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 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 joined NHI in March 2016. He oversees the Company’s banking relationships and financial transactions. Mr. Spaid has nearly 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.

We have a staff of 16, 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 reportAnnual Report on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, quarterly Supplemental Information, current reportsCurrent Reports on Form 8-K, and press releasesamendments to such reports on our website at www.nhireit.com. We have a policy of publishing these on the website within two (2) business daysas soon as reasonably practicable after public releasefiling them with, or filing withfurnishing them to, the SEC. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC also maintains reports, proxy statements, information statements, and other information regarding issuers that file electronically at http://www.sec.gov.


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We also maintain the following documents on our web site:website:


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

▪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.

▪Information on our “NHI EthicsPoint” 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 Revised Compensation Committee Charter.


▪The NHI Revised Nominating and Corporate Governance Committee Charter.

▪The NHI Restated Audit Committee Charter.
▪The NHI Corporate Governance Guidelines.


▪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,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 800-942-5909800-568-3476 and the website is www.computershare.com.


The Annual Stockholders’ meeting will be held at 12:00 p.m. local time on Friday, May 4, 2018 at Pinnacle Bank at Symphony Place, The Learning Center 8th Floor, 150 3rd Avenue South, Nashville, Tennessee 37201.

ITEM 1A. RISK FACTORS


There are many significant factors that could materially adversely impact our financial condition, results of operations, cash flows, distributions and stock price. The following are risks we believe are material to our stockholders. There may be additional risks and uncertainties that we have not presently identified or have not deemed material. Some of the following risk factors constitute forward-looking statements. Please refer to “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.

Risks Related to Our Managers, Tenants and Borrowers

We depend on the operating success of our tenants, managers and borrowers for collectionand if their financial condition or business prospects deteriorate, our financial condition and results of operations could be adversely affected.

We rely on our tenants, managers and borrowers and their ability to perform their obligations to us. Any of our lease and note payments.tenants, managers or borrowers may experience a weakening in their overall financial condition as a result of deteriorating operating performance, changes in industry or market conditions, such as rising interest rates or inflation, or other factors. If the financial condition of any of our tenants, managers or borrowers deteriorates, they may be unable or unwilling to make payments or perform their obligations to us in a timely manner if at all.


Revenues tofor the operators of our properties are primarily driven by occupancy and reimbursement by Medicare, and Medicaid reimbursement and private pay rates.payors. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts andresulting from widely-publicized federal and state budget shortfalls and constraints.constraints, and both governmental and private payors are increasingly imposing more stringent cost control measures. 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 of our operators. 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.

In addition, inflation, both real and anticipated, as well as any resulting governmental policies, could adversely affect the economy and the costs of labor, goods and services for our operators. Because our operators are typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not directly affect us. Increased operating costs could have an adverse impact on our operators if increases in their operating expenses exceed increases in their revenue, which may adversely affect their ability to pay rent owed to us. An increase in our operators’ expenses and a failure of their revenues to increase at least with inflation could adversely affect our operators’ and our financial condition and our results of operations.
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To the extent any decrease in revenues and/or any increase in operating expenses

of our operators 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 dividenddividends 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 managers, tenants and borrowers may become subject to bankruptcy or insolvency proceedings for other reasons.proceedings.


Although our operating lease agreements provide us the right to evict an 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 tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the tenant 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 tenant 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.(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 somecertain 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. For the year ended December 31, 2023, approximately 40% of our total revenue was generated by three tenants, Senior Living (16%), NHC (12%) and Bickford (12%). Payment defaults or a decline in the operating performance by any of these tenants or other tenants/operators could materially and adversely affect our business, financial condition and results of operations and our ability to pay 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.

Actual or perceived risks associated with pandemics, epidemics or outbreaks, such as the COVID-19 pandemic, have had and may in the future have a material adverse effect on our operators’ business and results of operations.

The business and results of operations of the operators of our properties and the Company have been and may continue to be affected by the COVID-19 pandemic, and could in the future be adversely affected by other pandemics, epidemics, outbreaks of infectious disease or other public health crises. Most of our properties are designed for elderly patients, who comprise the population most impacted by COVID-19. Nearly 90% of deaths and 63% of hospitalizations in 2023 as a result of COVID-19 were individuals in the 65+ age group.

Revenues for the tenants and operators of our properties are significantly impacted by occupancy. A public health crisis may diminish the public trust in senior housing properties or medical facilities, especially those that have treated or house consumers affected by contagious diseases, which may result in a decline in consumers seeking services offered through our properties. As a result, we may be more vulnerable to the effects of a public health crisis. In addition, actions our operators have taken to address contagious diseases such as COVID-19 have materially increased their operating costs, in comparison to pre-pandemic levels, and a future health crisis may also result in increased operating costs. Such costs include those related to enhanced health and safety precautions and increased retention and recruitment labor costs among other measures. A decrease in occupancy or increase in costs is likely to have a material adverse effect on the ability of our tenants and operators to meet their financial and
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other contractual obligations to us, including the payment of rent, as well as on our results of operations. In some cases, we have had to, and we may continue to have to, write-off unpaid rental payments, incur lease accounting charges due to the uncollectibility of rental payments and/or restructure our tenants’ and operators’ long-term rent obligations. In response to requests by operators adversely impacted by COVID-19, we provided pandemic-related rent concessions totaling $10.7 million during 2022. Furthermore, infections of contagious diseases at our facilities could lead to material increases in litigation costs for which our operators, or possibly we, may be liable.

The measures that federal, state and local governments, agencies and health authorities implement to address an epidemic, pandemic or other outbreaks of infectious diseases, may be insufficient to offset any downturn in business of our tenants and operators, may increase operating costs for our tenants, managers and borrowers or may otherwise disrupt or affect the operation of our properties. The rapid development and fluid nature of an epidemic, pandemic or outbreak of infectious disease precludes any prediction as to the ultimate adverse impact on NHI or its operators. Nevertheless, an epidemic, pandemic or outbreak of infectious disease, and the public’s and government responses to such future public health crisis, could have a material, adverse effect on our business.

Two members of our Board of Directors are also members of the board of directors of NHC, and their interests may differ from those of our stockholders.

Two of our board members, including our chairman of the Board of Directors, are also members of NHC’s board of directors. Those directors may have conflicting interests with holders of the Company’s common stock with respect to the NHC properties. During the year ended December 31, 2023, revenue from NHC represented 12% of our total revenue. With respect to all decisions by our Board of Directors related to the NHC properties, the two directors that are also members of NHC’s board of directors are recused and do not participate in the NHI board discussions or vote related to such matters. However, these relationships could influence the Board of Directors’ decisions with respect to the properties leased to and operated by NHC. As of December 31, 2023, NHC owned 1,630,642 shares of our common stock.

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


Our tenants, managers and borrowers are subject to complex federal, state and local laws and regulations relating to governmental healthcare programs. See “Item 1. Business - Government Regulation.” Regulation of the healthcare industry generally has intensified over time both in the number and type of regulations and in the efforts to enforce those regulations. Federal, state and local laws and regulations affecting the healthcare industry include those relating to, among other things, licensure; certification and enrollment with government programs; facility operations; addition or expansion of facilities; services and equipment; allowable costs; the preparation and filing of cost reports; privacy and security of health-related and other personal information; prices for services; quality of medical equipment and services; necessity and adequacy of medical care; patient rights; billing and coding for services and properly handling overpayments; maintenance of adequate records; relationships with physicians and other referral sources and referral recipients; debt collection; communications with patients and consumers; interoperability; and information blocking. If our tenants, operators or borrowers fail to comply with applicable laws and regulations, they may be subject to liabilities and other consequences including civil penalties, loss of facility licensure, exclusion from participation in the Medicare, Medicaid, and other government healthcare programs, civil lawsuits and criminal penalties. In addition, different interpretations or enforcement of, or changes to, applicable laws and regulations in the future could subject current or past practices to allegations of illegality or impropriety or could require our tenants, managers and borrowers to make changes to their facilities, equipment, personnel, services, and operating expenses. If the operations, cash flows or financial condition of our tenants, operators and/or borrowers are materially adversely impacted by current or future government regulation, our revenue and operations may be adversely affected as well. In addition, if an operator, borrower or tenant defaults on its lease or loan with us, our ability to replace the operator or tenant may be delayed by federal, state, or local approval processes.

Our tenants’, operators’ and borrowers’ businesses are also affected by government and private payor reimbursement rates and the rates paid bypolicies. Payments from government programs and 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 beare 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 payorslegislative and regulatory changes have frozenresulted in limitations and reductions in payments for certain services under government programs. For example, the Budget Control Act of 2011 (“BCA”) requires automatic spending reductions to reduce the federal deficit, resulting in a uniform payment reduction across all Medicare programs of 2% per fiscal year that extends through the first seven months of 2032. As a result of COVID-19-related relief legislation, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022, but Congress has delayed implementation of this
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reduction until 2025. State budgetary pressures have resulted, and will likely continue to result, in reduced spending or reduced paymentsspending growth for Medicaid programs in many states, including measures such as tightening patient eligibility requirements, reducing coverage, and enrolling Medicaid recipients in managed care programs. In addition, CMS may implement or oversee changes affecting reimbursement through new or modified demonstration projects, including those authorized pursuant to health care providers due to budgetary pressures. SuchMedicaid waivers.

Any reductions in Medicare or Medicaid reimbursement willcould have an adverse effect on the financial operations of our borrowers, operators and lesseestenants who operate SNFs. ChangesFurther, reductions in health care reimbursement will likely continuepayments under government healthcare programs may negatively impact payments from private payors, as some private payors rely on government payment systems to be of paramount importance to federal and state 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.determine payment rates. 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 paypayor 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,

More generally, the replacementlegislative and regulatory environment for healthcare products and services is dynamic, and Congress and certain state legislatures have considered or enacted a large number of an operatorlaws and regulations intended to make major changes in the healthcare system, including laws that has defaultedaffect how healthcare services are delivered and reimbursed. Recent government initiatives and proposals relevant to our properties include those focused on its leasetransparency of SNF ownership and minimum SNF staffing requirements. For example, a final rule issued by CMS in November 2023 requires Medicare-enrolled SNFs and Medicaid-enrolled nursing homes to disclose additional information about owners, operators, and management, including whether they are a REIT or loan couldprivate equity company. This information will be delayed bypublicly available. This rule may result in increased scrutiny of REITs, private equity companies, and similar entities involved in owning or operating SNFs and nursing homes. Other industry participants, such as private payors, may also introduce financial or delivery system reforms. There is uncertainty with regard to whether, when and what health reform initiatives will be adopted in the approval processfuture and the impact 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.such reform efforts on providers and other healthcare industry participants, including our tenants, managers and borrowers.


We are exposed to the risk that the cash flows of our tenants, managers and borrowers wouldmay 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.years. 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 anyeither of the foregoing states or any other states where the facilityfacilities 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, whichavailable. Increased general and professional liability costs may adversely affect the facilityour tenants’ or operators’ future operations, cash flows and financial condition and may have a material adverse effect on the facilitytenants’ or operators’ ability to meet their obligations to us.

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 and since we are a passive landlord, we do not “participate in the management” of any property in which we have an interest. 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 lesseestenants, managers and borrowers against future litigation.


Our facility leases and notes require that the lesseetenants/managers/borrowers name us as an additional insured party on the tenant’stheir insurance policy in regard to claims made forpolicies covering professional liability or personal injury. The leasesinjury claims. These instruments also require the tenanttenants/borrowers to indemnify and hold us harmless for all claims arising out of or incidental to the occupancy and use of each facility. However, claims could exceed the policy limits, the insurance company could fail or coverage may not otherwise be available. 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.


Risks Related to Our Business and Operations

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

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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 acquisitions and investments.

We are exposed to the risk thatcapital costs. If our future acquisitions may notprojections prove to be successful. Weinaccurate due to increased capital costs, lower occupancy or other factors, our investment in that property may not generate the cash flow we expected. Construction and development projects involve risks such as (i) development of a project could encounter unanticipated difficultiesbe abandoned after expending significant resources resulting in loss of deposits or failure to recover expenses already incurred; (ii) development and expenditures relatingconstruction costs of a project could exceed original estimates due to any acquired properties, including contingent liabilities,increased interest rates and newly acquired properties might require significant management attention that would otherwise be devoted to our existing business. If we agree to providehigher material costs; (iii) project delays could result in increases in construction funding tocosts and debt service expenses as a borrower and the project is not completed, we may need to take steps to ensure completionresult of the project or we could lose the property. Moreover, if we issue equity securities or incur additional debt, or both, to finance future acquisitions, it may reduce our per share financial results. These costs may negatively affect our results of operations.

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 (1) the proceeds of sales of our securities, (2) principal payments on our notes receivable and (3) 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 believefactors 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 very 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 reasonsare beyond our control, including natural disasters, labor conditions, material shortages, and regulatory hurdles; and (iv) financing for a project could be unavailable on favorable terms or at all. Recently developed properties may take longer than expected to achieve stabilized operating levels, if at all. To the extent such as market conditions. If our accessfacilities experience such increases in cost or delays in construction or financing, or otherwise fail to capital becomes limited,reach stabilized operating levels or achieve stabilization later than expected, 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 conditiontenants’ abilities to make payments to us under their leases and thus adversely affect our business 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.


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, including rising interest rates, 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, which are revised from time to time.requirements. Transfers of operations of facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and 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 lesseetenant 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.


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

Our common stock, like other dividend stocks, is sensitiveWe are exposed to changes in market interest rates. In response to changing interest rates the price of our common stock may behave 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 ratesour 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 of 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 intensified givensubject to risks relating to 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, NHI-LCS JV I, LLC (“Timber Ridge PropCo”), which owns the real estate and is owned 80% by NHI and 20% by LCS, and Timber Ridge OpCo, LLC (“Timber Ridge OpCo”) which operates the property and is owned 25% by NHI’s TRS and 75% by LCS. Rents received from the Timber Ridge 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. If either of these requirements are not satisfied, then the rents will not be qualifying rents.

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As part of acquisition of the real estate in January 2020, Timber Ridge PropCo accepted the property subject to trust liens previously granted to residents of Timber Ridge. Beginning in 2008, early residents of Timber Ridge executed loans to the then-owner/operators backed by liens and entered into a Deed of Trust and Indenture of Trust (the “Deed and Indenture”) for the benefit of the trustee on behalf of all residents who made mortgage loans to the owner/operator in accordance with a resident agreement. The Deed and Indenture granted a security interest in the Timber Ridge property to secure the loans made by the early residents of the property. This practice was discontinued at Timber Ridge in 2008, prior to our investment. However, the remaining outstanding “old” loans made by the residents are still secured by a security interest in the Timber Ridge property. The trustee for all of the residents who made “old” loans in accordance with the resident agreements entered into a subordination agreement concurrent with Timber Ridge PropCo’s acquisition of the property, pursuant to which the trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI to Timber Ridge PropCo. With the periodic settlement of some of the outstanding resident loans in the course of normal entrance-fee community operations by Timber Ridge OpCo, the balance owing on the Deed and Indenture at December 31, 2023 was $11.8 million. By terms of the resident loan assumption agreement, during the term of the lease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any repayment by Timber Ridge PropCo of these liabilities under the guarantee. We cannot give any assurance that these protective measures will eliminate any risk to us related to claims under the Deed and Indenture.

As a result of the RIDEA structure, we have an investment in the operations of Timber Ridge, which is a Class A quality, Type A care CCRC. As a Type A entrance-fee community the entrance fee is divided into a refundable and non-refundable portion depending upon the resident’s chosen contract program. The refundable portion of the upfront entrance fee is recorded as a liability on the financial statements of Timber Ridge 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 the structure of the joint venture does not require that Timber Ridge 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 Timber Ridge OpCo’s financial statements into ours, the results would have a material adverse impact on our financial results.

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.

Since January 31, 2020, we have one investment in an unconsolidated entity, Timber Ridge OpCo. As such, we are exposed to various operational risks with respect to this investment that may increase our costs or adversely affect our ability to increase revenues. These risks include fluctuations in resident occupancy, operating expenses, and economic conditions; competition; certification and inspection laws, regulations, and standards; the availability 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.

Inflation and increased interest rates may adversely affect our financial condition and results of operations.

Although inflation has not materially impacted our operations in the recent past, inflation has recently been at a 40-year high and between March 2022 and July 2023, the Federal Reserve raised the federal funds rate in an effort to curb inflation. Although the federal funds rate increases have halted since July 2023, Federal Reserve officials have indicated that the federal funds rate may remain at current levels or be further increased. The Federal Reserve’s action, coupled with other macroeconomic factors, may trigger a recession in the United States and/or globally. Increased inflation and interest rates could have an adverse impact on our variable rate debt, our ability to borrow money, and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. Increases in the costs of owning and operating our properties due to inflation could reduce our net operating income and the value of an investment in us to the extent such increases are not reimbursed or paid by our tenants. If we are materially impacted by increasing inflation because, for example, inflationary increases in costs are not sufficiently offset by the contractual rent increases and operating expense reimbursement provisions or escalations in the leases with our tenants, our results of operations could be adversely affected. In addition, due to rising interest rates, we may experience restrictions in our liquidity based on certain financial covenant requirements, our inability to refinance maturing debt in part or in full as it comes due and higher debt service costs and reduced yields relative to cost of debt. If we are unable to find alternative credit arrangements or other funding in a high interest environment, our financial results may be negatively impacted.

Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults, or nonperformance by financial institutions, could adversely affect our business, financial condition, results of operations, or our prospects.

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The funds in our accounts are held in banks or other financial institutions. Our cash held in non-interest bearing and interest-bearing accounts may periodically exceed any applicable Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Should events, including limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, our liquidity may be adversely affected. For example, on March 10, 2023, the FDIC announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have any funds in Silicon Valley Bank or other institutions that have been near historic lowsclosed, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues.

In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us in connection with a potential business combination, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our prospects.

We are exposed to operational risks with respect to our SHOP structured communities.

During 2022, we transitioned 15 of our legacy Holiday properties to be SHOP structured communities. Our SHOP structured communities expose us to various operational risks that may increase our costs or adversely affect our ability to generate revenues. As the owner of a property under a SHOP structure, we are ultimately responsible for all operational risks and other liabilities of the property, other than those arising out of certain actions by our manager, such as gross negligence or willful misconduct. Operational risks include, and our revenues therefore depend on, among other things: (i) occupancy rates; (ii) rental rates charged to residents; (iii) our operators’ reputations and ability to attract and retain residents; (iv) general economic conditions and market factors that impact seniors including those exacerbated by the COVID-19 pandemic; (v) competition from other senior housing providers; (vi) compliance with federal, state, and local laws and regulations and industry standards, including but not limited to licensure requirements, where applicable; (vii) litigation involving our properties or residents; (viii) the availability and cost of general and professional liability insurance coverage or increases in insurance policy deductibles; and (ix) the ability to control operating expenses, which have increased, and may continue to increase. In addition, the success of our SHOP structured communities will depend largely on our ability to establish and maintain good relationships with our managers. Although the SHOP structure gives us certain oversight approval rights (e.g., budgets, material contracts, etc.) and the right to review operational and financial reporting information, we have outsourced to our third-party managers the day to day operations of the communities. Therefore, we are dependent on our managers to operate these communities in a manner that complies with applicable law, minimizes legal risk and maximizes the value of our investment. Failure by our managers to adequately manage these risks could have a material adverse effect on our business, results of operations and financial condition.

From time to time, disputes may arise between us and our managers regarding their performance or compliance with the terms of the agreements we have entered into with them, which in turn could adversely affect our results of operations. We will generally attempt to resolve any such disputes through discussions and negotiations; however, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate the applicable agreement, litigate the dispute or submit the matter to third-party dispute resolution, the outcome of which may be expectedunfavorable to increaseus.

In the event that any of the agreements with our managers are terminated, we can provide no assurances that we could find a replacement manager or that any replacement manager will be successful in managing our SHOP structured communities.

A cybersecurity incident or other form of data breach involving Company information could cause a loss of confidential consumer and other personal information, give rise to remediation and other expenses, expose us to liability under privacy and security and consumer protection laws, subject us to federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.

Our business, like that of other REITs, involves the receipt, storage and transmission of information about our Company, our tenants, managers 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. As a matter of course, we may store or process the personal data of employees and other persons as required to provide our services and such personal data or other data may be hosted or exchanged with our partners and other third-party providers.

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As with all companies that utilize information systems, our information systems, and those of our third-party service providers and vendors, may be vulnerable to continually evolving cybersecurity risks. We employ industry standard administrative, technical and physical safeguards designed to protect the integrity and security of personal data we collect or process. We have implemented and regularly review and update processes and procedures designed to protect against unauthorized access to or use of secured data and to prevent data loss. Unauthorized parties may attempt to gain access to these systems or our information through fraud or deception of our associates, ransomware, malware, and other malicious software, 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, misappropriate, manipulate, 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. 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. Furthermore, because the techniques used in cyber-attacks change frequently and may not be immediately recognized, the Company may experience security or data breaches that remain undetected for an extended time. Despite the security measures we have in place, and any additional measures we may implement in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to service interruptions, outages, cyber-attacks and security breaches and incidents, human error, earthquakes, hurricanes, floods, pandemics, fires, other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, ransomware, and other malicious software, changes in social, political, or regulatory conditions or in laws and policies, or other changes or events.

Any significant compromise or breach of our data security, whether external or internal, or misuse of our data, could disrupt our operations, result in significant costs, harm our business relationships, increase our security and insurance costs and damage our reputation. A security or data breach could also subject us to litigation and government enforcement actions, which could result in fines and other penalties. Moreover, any significant cybersecurity events could require us to devote significant management resources to address the problems created by such events, interfere with unpredictablethe pursuit of other important business strategies and initiatives, and cause us to incur additional expenditures, which could be material, including to investigate such events, remedy cybersecurity problems, recover lost data, prevent future compromises and adapt systems and practices in response to such events. There is no assurance that any remedial actions will meaningfully limit the success of future attempts to breach our information technology systems.

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.

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 contaminationof currently or formerly owned real estate, often regardless of knowledge of or responsibility for the 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. Although our tenants and operators are primarily responsible for the condition of the property they occupy, we also could be held liable to a governmental authority or to third parties for property damage, personal injuries, and investigation and clean-up costs incurred in connection with the contamination or we could be required to incur additional costs to change how the property is constructed or operated due to presence of such substances. However, we review environmental site assessments 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. Notwithstanding these assessments, 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. In addition, the presence of hazardous substances or a failure to properly remediate any resulting contamination could adversely affect our ability to lease, mortgage, or sell an affected property.

We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change.

Natural and man-made disasters, including terrorist attacks and acts of nature such as hurricanes, tornados, earthquakes, flooding and wildfires, may cause damage to our properties or business disruption to our tenants, managers and borrowers.
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These adverse weather and natural or man-made events could cause substantial damage or loss to our properties which could exceed applicable property insurance coverage. Such events could also have a material adverse impact on our tenants’, operators’ and borrowers’ operations and ability to meet their obligations to us. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property. Any such loss could materially and adversely affect our business and our financial condition and results of operations.

Climate change may also have indirect effects on our business by increasing the marketscost of (or making unavailable) property insurance on terms we find acceptable. To the extent that significant changes in the climate occur in areas where our properties are located, we may experience more frequent extreme weather events which may result in physical damage to, or a decrease in demand for, properties located in these areas or affected by these conditions. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue. Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.

We depend on the pricesuccess of our common stock. Consequential effects of a general rise in interest ratesfuture acquisitions and investments.

We are exposed to the risk that our future acquisitions may hamper our accessnot prove to capital markets, affect the liquiditybe 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 our underlying investmentsmanagement 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 by extension, limit management’s effective rangeon acceptable terms.

From time to time, we will have cash available from principal payments on our notes receivable and the sale of responses to changingproperties, including tenant circumstancespurchase option exercises, under the terms of master leases or similar financial support arrangements. We must reinvest these proceeds, on a timely basis, in new investments or in answer to investment opportunities. Limited operational alternativesqualified short-term investments. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may further hindernegatively affect our ability to maintainmake timely investments on terms acceptable to us. Delays in reinvesting our cash may negatively impact revenues and the amount of distributions to stockholders.

Competition for acquisitions may result in increased prices for properties.

We may face increased competition for acquisition opportunities from other well-capitalized investors, including publicly traded and privately held REITs, private real estate funds, partnerships and others. This may mean that we are unsuccessful in a potential acquisition of a desired property at an acceptable price, or even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price.

We depend on our ability to retain our management team and other personnel and attract suitable replacements should any such personnel leave.

The management and governance of the Company depends on the services of certain key personnel, including senior management. The departure of any key personnel could have an adverse effect on the Company and adversely affect our financial condition and results of operations. Our senior management team possesses substantial experience and expertise and has strong business relationships with our tenants and operators and other members of the business communities and industries in which we operate. As a result, the loss of these personnel could jeopardize our relationships and operations. We cannot predict the impact that any such departures could have on our ability to achieve our objectives. Furthermore, such a loss could be negatively perceived in the capital markets. Other than Mr. Mendelsohn, our Chief Executive Officer, we do not have employment agreements with any of our management team. In addition, we do not have key man insurance on any of our key employees. Our failure to retain and motivate our management team and other personnel and attract suitable replacements should any such personnel leave, could have a significant impact on our financial condition and results of operations.

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

As a REIT, a significant percentage of our assets is invested in real estate. 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,
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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.Such impairment charges may make it more difficult for us to meet the financial ratios in our indebtedness and may reduce the borrowing base, which may reduce the amounts of cash we would otherwise have available to pay expenses, make dividend distributions, service other indebtedness and operate our business.

In 2023, we recorded impairment charges totaling $1.6 million on four properties. In 2022, we recorded impairment charges of $51.6 million on 19 properties.

Our ability to raise capital through equity sales is dependent, in part, on the market price of our common stock, and our failure to meet market expectations with respect to our business, or other factors we do not control, could negatively impact such market price and availability of equity capital.

As of December 31, 2023, we had the potential to access all of the capacity of our $500.0 million at-the-market (“ATM”) equity program through the issuance of common stock. In addition, we maintain an effective automatic shelf registration statement through which capital could be raised via the issuance of equity securities. As with other publicly traded companies, the availability of equity capital will depend, in part, on the market price of our common stock which, in turn, will depend upon various market conditions and other factors, some of which we cannot control, that may experience further declines as change from time to time including:

•the result.extent of investor interest;
Certain tenants/operators•the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
•the financial performance of us and our tenants, managers and borrowers;
•investment and tenant concentrations in our portfolio account forinvestment portfolio;
•concerns about our operators’, tenants’ and borrowers’ financial condition due to uncertainty regarding reimbursement from governmental and other third-party payor programs;
•our credit ratings and analyst reports on us and the REIT industry in general, including recommendations, and our ability to meet our guidance estimates or analysts’ estimates;
•general economic, global and market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a significant percentagehigher annual yield from future distributions;
•our failure to maintain or increase our dividend, which is dependent, to a large part, on the increase in funds from operations, which in turn depends upon increased revenues from additional investments and rental increases; and
•other factors such as governmental regulatory action and changes in REIT tax laws, as well as changes in litigation and regulatory proceedings.

The market value of the rentequity securities of a REIT is generally based upon the market’s perception of the REIT’s growth potential and its current and potential future earnings and cash distributions. Our failure to meet the market’s expectation with regard to future earnings and cash distributions would likely adversely affect the market price of our common stock and, as a result, the availability of equity capital to us.

Risks Related to Our Debt

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 expect to generatebelieve that our current liquidity, availability under our unsecured credit facility, potential proceeds from our portfolio,ATM equity program and the failure of any of these tenants/operatorsour capacity to service additional debt will enable us to meet theirour obligations, including dividends, and continue to make investments in healthcare real estate. On March 31, 2022, we entered into a new unsecured revolving credit agreement (the “2022 Credit Agreement”) providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. In January 2023, we repaid $125 million in private placement notes upon maturity. In the first quarter of 2023, we repaid $20.0 million of a term loan with a maturity of September 2023 (the “2023 Term Loan”). In June 2023, we entered into a two-year $200.0 million term loan agreement (the “2025 Term Loan”) bearing interest at a variable rate which is SOFR-based with a margin determined according to our credit ratings plus a 0.10% credit spread adjustment. The Company incurred approximately $2.7 million of deferred financing costs associated with this loan. The 2025 Term Loan proceeds were used to repay a portion of the remaining $220.0 million 2023 Term Loan balance, which was repaid in full in June 2023. The 2023 Term Loan accrued interest on borrowings consistent with the new 2025 Term Loan. Upon repayment, we expensed approximately $0.1 million of unamortized loan costs associated with
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this loan which are included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the year ended December 31, 2023. In November 2023, the $50.0 million of private placement notes due November 2023 were repaid primarily with proceeds from the revolving credit facility. We may incur additional debt by borrowing under our 2022 Credit Agreement, mortgaging properties we own and/or issuing debt securities in a public offering or in a private transaction. As a result, as of January 31, 2024 we have approximately $1.2 billion in outstanding indebtedness and approximately $427.0 million available to draw under our unsecured revolving credit facility. 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 and rising interest rates. 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 and adversely affect our business, financial condition and results of operationsoperations.

The terms of our current indebtedness are, and debt instruments that the Company may enter into in the future may be, 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 distributionsinvestments or acquisitions. Our continued ability 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, 2017, approximately 60% of our total revenue is generated by Holiday (16%), Senior Living (16%), Bickford (15%),incur debt and NHC (13%). Lease or interest payment defaults by these or other tenants/operators or declines in their operating performance could materially and adversely affectoperate 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 operationsoperations.

Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital.

We plan to manage the Company to maintain a capital structure consistent with our ability to make distributions 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 cannot assure youcurrent profile, but there can be no assurance that we will be able to re-leasemaintain our current credit ratings. Moody's Investors Services (“Moody's”) reaffirmed its Baa3 rating and “Stable” outlook on the property forCompany on October 16, 2023; Fitch Ratings (“Fitch”) reaffirmed its BBB- and “Stable” outlook on the rent previously received,Company on May 15, 2023; and S&P Global Ratings (“S&P Global”) also reaffirmed its BBB- and “Stable” outlook on the Company at November 14, 2023. Any downgrades of ratings or atchanges to outlooks by any or all or that lease terminations will not cause us to sell the property at a loss. The result of any of the foregoing risksrating agencies could materiallyhave a material adverse effect on our cost and adversely affectavailability of capital, which could in turn have a material adverse effect on our business, financial conditions and results of operations, liquidity, cash flows, the trading/redemption price of our securities and our ability to makesatisfy our debt service obligations and to pay dividends and distributions to our stockholders.equity holders.


We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing commitments.

As a REIT under the Internal Revenue Code, we are required to, among other things, distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction or our net capital gain or loss) each year to our stockholders. Because of this distribution requirement, we may not be able to fund, from cash retained from operations, all future capital needs, including capital needed to make investments and to satisfy or refinance maturing commitments. As a result, we rely on external sources of capital, including debt and equity financing. If we are unable to obtain needed capital at all or only on unfavorable terms from these sources, we might not be able to make the investments needed to grow our business, or to meet our obligations and commitments as they mature, which could negatively affect the ratings of our debt and even, in extreme circumstances, affect our ability to continue operations. We may not be in a position to take advantage of future investment opportunities in the event that we are unable to access the capital markets on a timely basis or we are only able to obtain financing on unfavorable terms.

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 bearbears interest at variable rates. This circumstance createsrates, which subjects us to interest rate risk to the Company.risk.


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 capital, including debt and/or equity. Current interestequity capital. Interest rates on our debt are at historically low levels,have been increasing over the past year and, as a result, the spread and our profitability on our investments have been at high levels.decreased. We are exposed to interest rate risk in the potential for a further narrowing of our spread and profitability if interest rates continue to increase in the future. Certain of our debt obligations are floating rate obligations with interest rates that vary with the movement of LIBORthe Secured Overnight Financing Rate (“SOFR”) 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
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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 exposedChanges in our variable interest rates may adversely affect our cash flows.

Our 2022 Credit Agreement and our 2025 Term Loan each bear interest at a rate of either Term SOFR or Daily SOFR (in each case, plus a credit spread adjustment), or at the base rate, plus a margin, in each case, with the actual margin tied to the riskCompany’s credit rating. SOFR is the preferred alternative rate for LIBOR that has been identified by the Alternative Reference Rates Committee, a U.S.-based group convened by the Federal Reserve and the Federal Reserve Bank of New York. SOFR is calculated based on short-term repurchase agreements, backed by U.S. Treasury securities. SOFR is calculated differently from LIBOR and has inherent differences, which could give rise to uncertainties, including the limited historical data and volatility in the benchmark rates. Because of these and other differences, there is no assurance that SOFR will perform in the same way as LIBOR would have performed at any time, and there is no guarantee that it is a comparable substitute for LIBOR. Uncertainty as to the nature of such potential changes, alternative reference rates, including SOFR, or other reforms may adversely affect the trading market for LIBOR- or SOFR-based securities, including ours. As a result, our assetsinterest expense may increase, our ability to refinance some or all of our existing indebtedness may be subjectaffected, and our available cash flow may be adversely affected.

Risks Related to impairment charges.Our Status as a REIT

Each quarter we 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.REIT for U.S. federal income tax purposes.


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. In addition, we currently hold an interest in a Subsidiary REIT (and may in the future own or acquire additional interests in Subsidiary REITs). Since REIT qualification requires us to meet a number of complex requirements, it is possible that we (or our Subsidiary REIT) may fail to fulfill them,them. If we (or our Subsidiary REIT) fail to qualify as a REIT:

•we (or our Subsidiary REIT) will not be allowed a deduction for distributions to stockholders in computing our taxable income;
•we (or our Subsidiary REIT) will be subject to corporate-level income tax, on taxable income at regular corporate rates;
•we (or our Subsidiary REIT) could be subject to increased state and iflocal income taxes;
•For tax years beginning after December 31, 2022, we do,(or our Subsidiary REIT) would possibly be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the nondeductible 1% excise tax on certain stock repurchases; and
•unless we (or our Subsidiary REIT) are entitled to relief under relevant statutory provisions, we (or our Subsidiary REIT, as applicable) will be disqualified from taxation as a REIT for the four taxable years following the year during which we (or our Subsidiary REIT, as applicable) fail to qualify as a REIT.

Because of all these factors, our (or our Subsidiary REIT’s) 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 are constantly 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.

There are no assurances of our ability to pay dividends in the future.

Our ability to pay dividends may be adversely affected upon the occurrence of any of the risks described herein. Our payment of dividends is subject to compliance with restrictions contained in our credit agreements, notes and any preferred stock that our Board of Directors may from time to time designate and authorize for issuance. All dividends will be paid at the discretion of our Board of Directors and will depend upon our earnings, will be reduced byour financial condition, maintenance of our REIT status and such other factors as our Board of Directors may deem relevant from time to time. There are no assurances of our ability to
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pay dividends in the amountfuture. In addition, our dividends in the past have included, and may in the future include a return of capital.

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 taxes owed. A reduction inincome tax purposes, we (and any Subsidiary REIT of ours) must continually satisfy certain tests, including tests concerning the sources of our earnings would affectincome, the amountnature and diversification of our assets, the amounts we could distribute to our stockholders and the market priceownership of our common 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 believe that the ownership and management of assets in our SHOP structures is in compliance with the REIT requirements; however; application of the REIT rules to such assets is complex, fact dependent and subject to interpretation. There can be no assurances that the IRS will agree with our characterization of these assets and if the IRS were to successfully contend that our SHOP structures do not meet the REIT requirements, all or a portion of the rent that we receive under these structures could be non-qualifying income for purposes of the REIT gross income tests. In such event, we may be required to rely on the REIT savings provisions under the Internal Revenue Code, reorganize our SHOP structures, or take such other steps to avoid incurring non-qualifying income, any of which could be at a significant financial cost.

Our ownership of and relationship with any TRS that we have formed or will form will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns securities possessing more than 35% of the total voting power or total value of the outstanding securities of such corporation will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs.

Rents received from a TRS in a 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. If either of these requirements is not satisfied, then the rents will not be qualifying rents. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s length basis. Any domestic TRS that we form will pay U.S. federal, state and local income tax on its taxable income, and its after-tax net income will be available for distribution to us but is not required to be distributed to us unless necessary to maintain our REIT qualification.

Legislative, regulatory, or administrative tax 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. We and our security holders may be adversely affected by any new or amended law, regulation, or administrative interpretation.

Investors are urged to consult with their tax advisors with respect to the status of any tax legislation and any other regulatory or administrative developments and proposals and their potential effect on investment in our securities.

Risks Related to Our Organizational Structure

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 stock 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
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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

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. 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. 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.

Other risks.

See the notes to the consolidated financial statements, “Business” under Item 1 and “Legal Proceedings” under Item 3 herein for a discussion of various governmental regulations and operating factors relating to the health care industry and other factors and the risks inherent in them. You should carefully consider each of the foregoing risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones facing us. 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 or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurance that any forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them.

ITEM 1B. UNRESOLVED STAFF COMMENTS.COMMENTS


None.


ITEM 1C. CYBERSECURITY

Risk Management and Strategy

The Board recognizes the importance of maintaining the trust and confidence of our tenants/borrowers/operators and employees to safeguard sensitive information and the integrity of our information systems. We have systems in place to assess, identify and manage cybersecurity incidents and we invest in technology and third-party support to identify, mitigate, and quickly respond to cybersecurity incidents. We have maintained a strong focus in consistently reviewing our cybersecurity practices. We also conduct periodic information security and awareness training to ensure that employees are aware of information security risks and to enable them to take steps to mitigate those risks. As part of this program, we also take steps designed to provide appropriate guidance regarding security to our executive management and employees, including any employee who may come into possession of confidential financial information.

We have engaged the services of various third-party service providers to, among other things, review and evaluate our processes and procedures designed to control access to our information systems, perform penetration testing on our cybersecurity systems on a biannual basis, and provide regular information technology reviews based upon the NSIT Cybersecurity Framework. In addition, we contracted with a third-party managed detection and response security company in the fourth quarter of 2023 to commence testing for cyber vulnerabilities on a continual basis.

In order to identify and mitigate cybersecurity threats related to our use of material third-party vendors, we conduct periodic reviews of internal controls of certain third-party service providers to assess their procedures to mitigate material security risks.

Board & Management Responsibilities

We have formed an Information Technology Steering Committee comprised of employees from multiple departments within the Company including the Chief Executive Officer (“CEO”); the Chief Financial Officer; the Chief Accounting Officer; the Vice President, Controller; the Vice President, Investor Relations & Finance; and the Vice President of Human Resources and Compliance & Information Security Officer (“ISO”) to more effectively prevent, detect and respond to information security threats. The ISO has served in various roles in corporate compliance for over 20 years and reports directly to the Company’s CEO. To enhance our cybersecurity capabilities, we actively collaborate with third-party vendors. Notably, we engage a Managed Service Provider (“MSP”) and another service provider who specializes in cybersecurity issues. Our MSP plays a critical role in supporting our IT infrastructure, offering expertise and resources that complement our in-house capabilities. The
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third party cybersecurity specialist provides advanced cybersecurity solutions, including continuous monitoring and threat detection services, which are integral to our cybersecurity program.

The ISO is responsible for overseeing a company-wide information security strategy, including policy, standards, architecture, and processes, and managing many of the security services that run on personal computers and servers. The Audit Committee meets with the ISO at least annually to review and discuss the Company’s cyber risks and threats, incident responses, technology, the status of projects to strengthen the Company’s information security systems, assessments of the Company’s security program and the emerging threat landscape.

The Company periodically conducts cybersecurity “tabletop” exercises administered by an independent third party with respect to breach and other problematic information security scenarios. The administrator poses questions to participants and advises on typical responses to similar situations. Participants include various executives and other officers of the Company as well as the ISO, other information systems and security personnel, and relevant third-party vendors.

To date, no attempted cyber-attack or other attempted intrusion on our information technology networks has resulted in a material adverse impact on our consolidated operations or financial results, or in any penalties or settlements. In the event an attack or other intrusion were to be successful, we have a response team of internal and external resources engaged and prepared to respond. We also maintain cyber liability insurance to help mitigate potential liabilities resulting from cyber issues. However, there can be no assurance that our cyber risk insurance coverage will be sufficient in the event of a cyber-attack.

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ITEM 2. PROPERTIES OWNED OR ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF DECEMBER 31, 2017PROPERTIES.

PROPERTIES OWNED AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2023 ($ in thousands)
Real Estate InvestmentsSHOPGrossNet Operating
LocationSHOSNFHOSPILF
Investment1
Income
South Carolina44—2$337,957 $30,940 
Texas—21——298,599 28,187 
Florida210——213,658 24,234 
Tennessee316——50,792 17,681 
Washington3——1202,045 13,591 
Connecticut3———139,418 13,156 
North Carolina6———138,138 11,156 
Arkansas———250,973 1,190 
Oklahoma1—1197,257 8,491 
Wisconsin21——49,905 5,248 
Georgia2——297,761 6,192 
Oregon33——95,259 8,905 
Indiana9———93,063 7,298 
Iowa7———40,237 4,557 
Massachusetts1———52,108 3,596 
California1——5123,267 3,852 
Alabama12——17,260 3,326 
Missouri15——27,695 2,911 
Maryland2———65,788 4,360 
Michigan5———44,138 3,635 
Minnesota5———31,144 2,415 
Nebraska3———28,682 3,160 
Illinois13———196,481 13,177 
Kentucky—1——2,143 1,326 
Ohio6——1102,786 5,198 
Idaho1———9,673 932 
Arizona—1——7,131 886 
New Jersey———125,672 272 
Pennsylvania2———29,356 1,822 
Colorado1———7,600 646 
Louisiana4———15,000 2,267 
Virginia51——68,685 4,916 
Nevada1———18,137 1,434 
97651152,777,808 240,957 
Corporate office2,550 — 
Non-geographic— 55 
Net operating income from properties sold and held for sale— 5,924 
$2,780,358 $246,936 
1 Excludes assets held for sale.


36
PROPERTIES OWNED        
Location SHO SNF HOSP & MOB Investment
Alabama 1 2 — $17,260,000
Arkansas 2 — — 49,789,000
Arizona 4 1 — 22,835,000
California 9 — 1 183,723,000
Connecticut 3 — — 131,056,000
Florida 7 10 1 211,753,000
Georgia 5 — — 112,224,000
Iowa 10 — — 63,593,000
Idaho 4 — — 29,373,000
Illinois 14 — — 205,910,000
Indiana 8 — — 74,584,000
Kansas 2 — — 42,072,000
Kentucky — 1 1 20,746,000
Louisiana 5 — — 39,569,000
Massachusetts — 4 — 13,730,000
Maryland 1 — — 9,471,000
Michigan 6 — — 40,938,000
Minnesota 4 — — 21,400,000
Missouri 1 5 — 27,757,000
North Carolina 6 — — 133,710,000
Nebraska 4 — — 33,427,000
New Hampshire — 3 — 23,687,000
New Jersey 1 — — 24,380,000
Ohio 4 — — 76,586,000
Oklahoma 2 — — 55,737,000
Oregon 8 3 — 134,571,000
South Carolina 7 4 — 337,510,000
Tennessee 6 16 1 100,198,000
Texas 2 18 1 275,211,000
Virginia 3 1 — 34,196,000
Washington 6 — — 97,250,000
Wisconsin 1 — — 20,359,000
  136 68 5 $2,664,605,000
Corporate Office       1,298,000
        $2,665,903,000

Table of Contents
PROPERTIES ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2023 ($ in thousands)
PROPERTIES ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2023 ($ in thousands)
PROPERTIES ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2023 ($ in thousands)
NetNetInterest
LocationLocationSHOSNFInvestmentIncome
ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS  
Location SHO SNF Investment
Florida 1 — $10,000,000
Illinois 1 — 11,096,000
Florida
Florida
Indiana
Indiana
Indiana
Michigan 1 — 4,462,000
New Hampshire 1 — 9,908,000
Michigan
Michigan
South Carolina
South Carolina
South Carolina
Texas
Texas
Texas
Virginia — 4 7,839,000
Washington 1 — 54,805,000
 5 4 $98,110,000
Virginia
Virginia
Wisconsin
Wisconsin
Wisconsin
9
9
9
Other non-mortgage
$




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
2018 1 — 88 $447
 0.2%
2019 10 — 470 9,003
 3.7%
2020 6 27,017 224 2,977
 1.2%
2021 2 — 344 1,962
 0.8%
2022 4 — 156 4,168
 1.7%
2023 15 — 852 13,558
 5.6%
2024 10 — 674 7,009
 2.9%
2025 10 61,500 647 8,105
 3.4%
2026 32 — 4,624 32,559
 13.5%
2027 7 — 772 9,856
 4.1%
Thereafter 112 — 11,433 151,904
 62.9%
*Rentable Square Feet represents total square footage in two MOB investments.
AnnualizedPercentage of
NumberNumberGross Rent**Annualized
Yearof Properties of Units/Beds
 ($ in thousands)
 Gross Rent
20253296$2,370 1.1 %
2026354,89737,937 17.1 %
2027361913,949 6.3 %
20281259111,106 5.0 %
2029294,45173,457 33.1 %
203041831,615 0.7 %
203132744,934 2.2 %
203222133,210 1.4 %
Thereafter726,00273,182 33.1 %
100.0 %
**Annualized Gross Rent refers to the amount of lease revenue that our portfolio would have generated in 20172023 if all leases were in effect for the twelve-month calendar year, regardless of the commencement date, maturity date, or renewals.

The above table does not reflect purchase options. See Note 3 to the consolidated financial statements for discussion of purchase options.


ITEM 3. LEGAL PROCEEDINGS


OurHealthcare facilities in our portfolio are subject to claims and suits in the ordinary course of business. Our lesseesmanagers, tenants 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. Such claims may include, among other things, professional liability and general liability claims, as well as regulatory proceedings related to our SHOP segment. While there may be lawsuits pending against us and certain of the managers, owners and/or lesseestenants of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no direct material adverse effect on our financial condition, results of operations or cash flows. See Note 9 to the consolidated financial statements for further discussion of the Company’s legal proceedings.


ITEM 4. MINE SAFETY DISCLOSURES


Not Applicable



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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 thesethe provisions providesensures that any transfer thatof shares which would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely held”“closely-held” under the IRSInternal Revenue Code would be void which, subject to certain exceptions, resultsresult 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 stock. Incommon stock with the exception of prior agreements in 1991 which were confirmed in writing in 2008 with the Board created an exception to this ownership limitation forCompany’s founders Dr. Carl E. Adams his spouse,and Jennie Mae Adams and their lineal descendants. Effective May 12, 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. Based on these agreements, the Excepted Holder Agreements currently outstanding, the individual 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 Shares” 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. These agreements were entered into in connection with the Company’s announcement in 2008 of a stock purchase program pursuant to which the Company purchased 194,100 shares of its common stock in the public market from its stockholders.

A separate agreement was entered into severally with 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 Internal Revenue Code. The agreement permits 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 stockholder’s stock ownership exceeds the limit, then such shares in excess of the limit become “Excess Stock” and lose voting rights and entitlement to receive dividends. The Excess Stock classification remains in place until the stockholder no longer exceeds the threshold limit specified in the Agreement. The purpose of these agreements is to ensure that the Company does not violate the prohibition against a REIT being closely held.

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. Again, this prohibitionThe purpose of these provisions is designed 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 rental payments received under our leases and from interest payments received on our notes and from rental payments received under our leases.notes. 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.distributions may exceed the cash available for distribution.


Our common stock is traded on the New York Stock Exchange under the symbol “NHI”.“NHI.” As of February 14, 2018,15, 2024, there were approximately 726644 holders of record of shares and approximately 26,35453,236 beneficial owners of shares.


High and low stock prices of our common stock on the New York Stock Exchange and dividends declared for the last two years were:
  2017 2016
  Sales Price Cash Dividends Declared Sales Price Cash Dividends Declared
Quarter Ended High Low  High Low 
March 31 $79.93 $68.96 $.95 $67.26 $54.51 $.90
June 30 $79.73 $71.06 $.95 $75.11 $65.04 $.90
September 30 $81.21 $74.62 $.95 $82.53 $74.85 $.90
December 31 $81.60 $75.07 $.95 $79.09 $66.31 $.90

The closing price of our stock on February 14, 2018 was $63.33.


We currently maintain two equity compensation plans: the 2005 Stock Option, Restricted Stock and Stock Appreciation Rights Plan (“the 2005 Plan”) and the 2012 Stock Incentive Plan (“the 2012 Plan”). These plans, as amended, have been approved by our stockholders. The following table provides information as of December 31, 2017 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 859,182 $70.11 
951,6681
1These shares remain available for grant under the 2012 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 Equityequity REIT securities. The MSCI US REIT Index includes securities with exposure to core real estate (e.g.(e.g. residential and retail properties) as well as securities with exposure to other types of real estate (e.g.(e.g. casinos and theaters).



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 201220132014201520162017
NHI$100.00$104.04$136.08$124.61$159.77$170.62
MSCI$100.00$102.47$133.60$136.97$149.32$156.29
S&P 500$100.00$132.39$150.51$152.60$172.30$208.14
794



201820192020202120222023
NHI$100.00$113.55$103.30$91.29$88.28$100.99
MSCI$100.00$125.84$116.31$166.39$125.61$123.16
S&P 500$100.00$131.49$155.68$200.37$164.08$185.52

The graph above is not deemed to be “soliciting material” and is “furnished” and shall not be deemed to be “filed” with the SEC or incorporated by reference in any filing under Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filing.

Issuer Purchases of Equity Securities

None.

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ITEM 6. SELECTED FINANCIAL DATA.RESERVED.

The following table represents our financial information for the five years ended December 31, 2017. 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.


40
(in thousands, except share and per share amounts)
 Years Ended December 31,
STATEMENT OF INCOME DATA:2017 2016 2015 2014 2013
Revenues$278,659
 $248,460
 $228,948
 $177,469
 $117,788
          
Income from continuing operations159,365
 152,716
 150,314
 103,052
 79,498
Discontinued operations:         
Income from operations - discontinued—
 —
 —
 —
 5,426
Gain on sales of real estate—
 —
 —
 —
 22,258
Net income159,365
 152,716
 150,314
 103,052
 107,182
Net income attributable to noncontrolling interest—
 (1,176) (1,452) (1,443) (999)
Net income attributable to common stockholders$159,365
 $151,540
 $148,862
 $101,609
 $106,183
          
PER SHARE DATA:         
Basic earnings per common share:         
Income from continuing operations$3.90
 $3.88
 $3.96
 $3.04
 $2.77
Discontinued operations—
 —
 —
 —
 .97
Net income attributable to common stockholders$3.90
 $3.88
 $3.96
 $3.04
 $3.74
          
Diluted earnings per common share:         
Income from continuing operations$3.87
 $3.87
 $3.95
 $3.05
 $2.77
Discontinued operations—
 —
 —
 —
 .97
Net income attributable to common stockholders$3.87
 $3.87
 $3.95
 $3.05
 $3.74
          
OTHER DATA:         
Common shares outstanding, end of year41,532,154
 39,847,860
 38,396,727
 37,485,902
 33,051,176
Weighted average common shares:         
Basic40,894,219
 39,013,412
 37,604,594
 33,375,966
 28,362,398
Diluted41,151,453
 39,155,380
 37,644,171
 33,416,014
 28,397,702
          
Regular dividends declared per common share$3.80
 $3.60
 $3.40
 $3.08
 $2.90
          
BALANCE SHEET DATA: (at year end)
         
Real estate properties, net$2,285,701
 $2,159,774
 $1,836,807
 $1,776,549
 $1,247,740
Mortgages and other notes receivable, net$141,486
 $133,493
 $133,714
 $63,630
 $60,639
Investments in preferred stock and marketable securities$—
 $—
 $72,744
 $53,635
 $50,782
Assets held for sale, net$—
 $—
 $1,346
 $—
 $—
Total assets$2,545,821
 $2,403,633
 $2,133,218
 $1,982,960
 $1,455,820
Debt$1,145,497
 $1,115,981
 $914,443
 $862,726
 $617,080
Total equity$1,322,117
 $1,209,590
 $1,142,460
 $1,049,933
 $777,160

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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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on 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 year ended December 31, 2022.


Executive Overview


National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed REIT specializing in sale-leaseback, joint-venture,joint venture, and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable segments: Real Estate Investments and SHOP. Our portfolioReal Estate Investments segment consists of lease, mortgagereal estate investments and leases, mortgages and other note investmentsnotes receivables in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. Other investments have included marketable securitiesILFs, ALFs, EFCs, SLCs, SNFs and 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.HOSP. We have fundedfund 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. Our SHOP segment is comprised of two ventures that own the operations of 15 ILFs that provide residential living and other services for residents located throughout the United States that are operated on behalf of the Company by independent managers pursuant to the terms of separate management agreements that commenced April 1, 2022. The third-party managers, or related parties of the managers, own equity interests in the respective ventures.


PortfolioReal Estate Investments


AtAs of December 31, 2017,2023, we had investments in real estate, mortgage and other notes receivable involving 218 facilities located in 32 states. These investments involve 141 senior housing properties, 72 skilled nursing facilities, 3 hospitals, 2 medical office buildings and other notes receivable. These investments (excluding our corporate office of $1,298,000) consisted of properties with an original cost of $2,664,605,000, rented under triple-net leases to 27 lessees, and $141,486,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers.

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.

The following tables summarize our investments in real estate and mortgage and other notes receivable involving 179 facilities located in 31 states. These investments involve 106 senior housing properties, 72 SNFs and one HOSP, excluding one property classified as assets held for sale. These investments consisted of properties with an aggregate original cost of approximately $2.4 billion, rented under primarily triple-net leases to 25 tenants, and with $260.7 million in aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $15.5 million, due from 14 borrowers.

We classify all of the properties in our Real Estate Investments portfolio as either senior housing or medical facilities. Because our leases represent different underlying revenue sources and result in differing risk profiles, we further classify our senior housing properties as either need-driven (ALFs and SLCs) or discretionary (ILFs and EFCs).

Senior Housing – Need-Driven includes ALFs and SLCs 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 ILFs and EFCs 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 SNFs and a HOSP 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.

Senior Housing Operating Portfolio

Effective April 1, 2022, we transitioned the operations of 15 ILFs previously leased pursuant to a triple-net lease into two new ventures comprising our SHOP activities. These new ventures, consolidated by the Company, are structured to comply with REIT requirements and utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. The properties in each venture are operated by a property manager in exchange for a management fee, and as such, we are not directly exposed to the credit risk of the managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the managers to set appropriate
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resident fees and otherwise operate our communities in compliance with the terms of our management agreements and all applicable laws and regulations. As of December 31, 2023, our SHOP segment consisted of 15 ILFs located in eight states with a combined 1,733 units.
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The following tables summarize our portfolio, excluding $2.6 million for our corporate office, $5.0 million in assets held for sale and a credit loss reserve of $15.5 million, as of and for the year ended December 31, 2017 (dollars2023 ($ in thousands)thousands):


Real Estate Investments and SHOP
PropertiesBeds/Units
NOI1
% TotalInvestment
Real Estate Properties
Senior Housing - Need-Driven
Assisted Living71 3,882 $60,606 22.6 %$762,252 
Senior Living Campus8 995 15,754 5.9 %214,694 
Total Senior Housing - Need-Driven79 4,877 76,360 28.5 %976,946 
Senior Housing - Discretionary
Independent Living7 903 8,186 3.1 %108,486 
Entrance-Fee Communities11 2,927 60,421 22.5 %746,485 
Total Senior Housing - Discretionary18 3,830 68,607 25.6 %854,971 
Total Senior Housing97 8,707 144,967 54.1 %1,831,917 
Medical Facilities
Skilled Nursing Facilities65 8,614 82,734 30.8 %557,996 
Hospital1 64 4,089 1.5 %40,500 
Total Medical Facilities66 8,678 86,823 32.3 %598,496 
Disposals and Held for Sale5,924 2.2 %
Total Real Estate Properties16317,385 237,714 88.6 %2,430,413 
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven8 532 6,642 2.4 %84,767 
Senior Housing - Discretionary1 249 2,371 0.9 %32,700 
Skilled Nursing Facilities7 731 3,452 1.3 %44,967 
Other Notes Receivable— — 8,758 3.3 %98,313 
Current Year Note Payoffs225 0.1 %
Total Mortgage and Other Notes Receivable16 1,512 21,448 8.0 %260,747 
SHOP
Independent Living15 1,733 9,222 3.4 %347,394 
Total194 20,630 $268,384 100.0 %$3,038,554 
1Excludes Non-segment/Corporate NOI


Portfolio SummaryPropertiesNOI% PortfolioInvestment
Real Estate Properties163 $237,714 88.6 %$2,430,413 
Mortgage and Other Notes Receivable16 21,448 8.0 %260,747 
SHOP15 9,222 3.4 %347,394 
Total Portfolio194 $268,384 100.0 %$3,038,554 
Portfolio by Operator Type
Public55 $64,259 23.9 %$411,740 
National Chain (Privately Owned)3 11,096 4.1 %172,385 
Regional116 175,699 65.5 %2,073,366 
Small5 1,959 0.8 %33,669 
Disposals and Held for Sale5,924 2.2 %— 
Current Year Note Payoffs225 0.1 %— 
Total Real Estate Investments Portfolio179 259,162 96.6 %2,691,160 
SHOP15 9,222 3.4 %347,394 
Total Portfolio194 $268,384 100.0 %$3,038,554 


43
Real Estate PropertiesProperties
 Beds/Sq. Ft.*
 Revenue % Investment
 Senior Housing - Need-Driven         
  Assisted Living86
 4,192
 $70,663
 25.4% $765,479
  Senior Living Campus10
 1,323
 16,371
 5.9% 162,022
  Total Senior Housing - Need-Driven96
 5,515
 87,034
 31.3% 927,501
 Senior Housing - Discretionary         
  Independent Living30
 3,412
 46,268
 16.7% 547,436
  Entrance-Fee Communities10
 2,363
 50,447
 18.1% 599,171
  Total Senior Housing - Discretionary40
 5,775
 96,715
 34.8% 1,146,607
  Total Senior Housing136
 11,290
 183,749
 66.1% 2,074,108
 Medical Facilities         
  Skilled Nursing Facilities68
 8,813
 72,608
 26.1% 524,040
  Hospitals3
 181
 7,797
 2.8% 55,971
  Medical Office Buildings2
 88,517
*973
 0.3% 10,486
  Total Medical Facilities73
   81,378
 29.2% 590,497
  Total Real Estate Properties209
   $265,127
 95.3% $2,664,605
            
Mortgage and Other Notes Receivable         
 Senior Housing - Need-Driven4
 252
 $1,937
 0.7% $35,466
 Senior Housing - Discretionary1
 400
 5,119
 1.8% 54,805
 Medical Facilities4
 270
 1,820
 0.7% 7,839
 Other Notes Receivable—
 —
 4,258
 1.5% 43,376
  Total Mortgage and Other Notes Receivable9
 922
 13,134
 4.7% 141,486
  Total Portfolio218
   $278,261
 100.0% $2,806,091

Table of Contents
Portfolio SummaryProperties
 Beds/Sq. Ft.*
 Revenue % Investment
 Real Estate Properties209
   $265,127
 95.3% $2,664,605
 Mortgage and Other Notes Receivable9
   13,134
 4.7% 141,486
  Total Portfolio218
   $278,261
 100.0% $2,806,091
            
Summary of Facilities by Type         
 Senior Housing - Need-Driven         
  Assisted Living90
 4,444
 $72,600
 26.1% $800,945
  Senior Living Campus10
 1,323
 16,371
 5.9% 162,022
  Total Senior Housing - Need-Driven100
 5,767
 88,971
 32.0% 962,967
 Senior Housing - Discretionary         
  Entrance-Fee Communities11
 2,763
 55,565
 20.0% 653,976
  Independent Living30
 3,412
 46,268
 16.6% 547,436
  Total Senior Housing - Discretionary41
 6,175
 101,833
 36.6% 1,201,412
  Total Senior Housing141
 11,942
 190,804
 68.6% 2,164,379
 Medical Facilities         
  Skilled Nursing Facilities72
 9,083
 74,429
 26.8% 531,878
  Hospitals3
 181
 7,797
 2.8% 55,971
  Medical Office Buildings2
 88,517
*973
 0.3% 10,487
  Total Medical77
   83,199
 29.9% 598,336
 Other Notes Receivable—
   4,258
 1.5% 43,376
  Total Portfolio218
   $278,261
 100.0% $2,806,091
            
Portfolio by Operator Type         
 Public70
   $68,504
 24.7% $484,277
 National Chain (Privately-Owned)28
   46,949
 17.0% 531,047
 Regional115
   157,045
 56.8% 1,756,867
 Small5
   4,052
 1.5% 33,900
  Total Portfolio218
   $276,550
 100.0% $2,806,091

For the year ended December 31, 2017,2023, operators of facilities in our tenantsReal Estate Investments portfolio who provided 3% or more than 3%and collectively 61% of our total revenues were (parent company, in alphabetical order): Bickford, Discovery; Encore Senior Living; Chancellor Health Care, East Lake Capital Management; The Ensign Group; Health Services Management; Holiday Retirement; National HealthCare Corporation;LCS; NHC; Senior Living; and Senior Living Communities.The Ensign Group.


As of December 31, 2017,2023, our average effective annualized rental incomeNOI for the lease properties in our Real Estate Investments segment was $8,242$9,473 per bed for SNFs, $17,031$14,840 per unit for SLCs, $15,747 per unit for ALFs, $14,345$8,566 per unit for ILFs, $21,349$20,553 per unit for EFCs, $43,079and $63,899 per bed for hospitals,the HOSP. As of December 31, 2023, our average effective annualized NOI for the SHOP segment was $6,665 per unit.

COVID-19 Pandemic

During 2022 and $11 per square foot2021, we granted various rent concessions to tenants whose operations were adversely affected by the COVID-19 pandemic. When applicable, we elected not to apply the modification guidance under Accounting Standards Codification (“ASC”) Topic 842, Leases and accounted for MOBs.the related concessions as variable lease payments until those leases were subsequently modified under ASC Topic 842. Rent deferrals accounted for as variable lease payments, reducing rental income, granted for the years ended December 31, 2022 and 2021 totaled approximately $9.3 million and $26.4 million, respectively. Of these totals, Bickford accounted for $4.0 million and $18.3 million for the years ended December 31, 2022 and 2021, respectively. There were no pandemic-related rent concessions granted during the year ended December 31, 2023.


Areas of FocusCritical Accounting 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. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are evaluating and will potentially make additional investments in 2018 while we continue to monitor and improve our existing properties. We seek tenants who will become mission-oriented partners in relationships where our business goals are aligned. This approach aims to fuel steady, and thus, enduring growth for those partners and for NHI. Within the context of our growth model, we rely on a cost-effective access to debt and equity capital to finance acquisitions that will drive our earnings. There is significant competition for healthcare assetsnot readily apparent from other REITs, both public and private, andsources. Actual results could differ from private equity sources. Large-scale portfolios continue to command premium pricing,those estimates.

We consider an accounting estimate or assumption critical if:

1.the nature of the estimates or assumptions is material due to the continued abundancelevels of privatesubjectivity and foreign buyers seekingjudgment necessary to investaccount 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.

If actual experience differs from the assumptions and other considerations used in healthcare real estate. This combination of circumstances placesestimating amounts reflected in our consolidated financial statements, the resulting changes could have a premiummaterial adverse effect on our abilityconsolidated results of operations, liquidity and/or financial condition.

Our significant accounting policies are discussed in Note 2 to execute acquisitionsour consolidated financial statements in this Annual Report on Form 10-K. We believe the accounting estimates listed below are the most critical to fully understanding and negotiate leases that will generate meaningful earnings growth forevaluating our shareholders. We emphasize growth withfinancial results, and require our existing tenantsmost difficult, subjective or complex judgments.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and borrowers as a way to insulate us from other competition.

With lower capitalization rates for existing healthcare facilities, there has been increased interestsubsidiaries 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 perceivewhich we have a competitive advantage. The projects we agreecontrolling interest. We also consolidate certain entities, known as variable interest entities (“VIEs”), when control of such entities can be achieved through means other than voting rights if the Company is deemed to be the primary beneficiary of such entities. We make judgments about which entities are VIEs based on an assessment of whether (i) the total equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) as a group, the holders of the equity investment at risk do not have attractive upside potentiala controlling financial interest, or (iii) 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 expected to provide above-average returnsconducted on behalf of, an investor that has disproportionately few voting rights. Additionally, we make judgments with respect to our shareholderslevel of influence or control of an entity and whether we are the primary beneficiary of a VIE. These considerations include, but are not limited to, mitigateour power to direct the risks inherent with property development and construction.

The Federal Open Market Committeeactivities that most significantly impact the entity's economic performance, the obligation to absorb losses or the right to receive benefits of the Federal Reserve announced an increaseVIE that could be significant to the
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entity, and our ability and the rights of other investors to participate in its benchmark federal funds rate by 25 basis pointspolicy making decisions, replace the manager and/or liquidate the entity. Our ability to correctly determine the primary beneficiary of a VIE at inception of our involvement impacts the presentation of these entities in our consolidated financial statements.

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 March 15, 2017,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, the purchase price, which includes transaction costs, is allocated based on June 14, 2017,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. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on December 13, 2017. The anticipation of past and further increases in the federal funds rate in 2018 has beenour financial results. We do not believe there is a primary source of much volatility in REIT equity markets. As a result,reasonable likelihood that there will be pressurea material change in the future estimates or assumptions we use for real estate allocation.

Impairments of Real Estate Properties

We evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review each property for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, reclassification of real estate property as held for sale, or significant deterioration 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. Accordingly, management’s evaluation requires judgment to determine the existence of indicators of impairment and estimates of undiscounted cash flows. 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. Refer to Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K for more details.

There were no material changes in the accounting methodology we use to assess impairment charges during the year ended December 31, 2023. During the year ended December 31, 2023, we recorded impairment charges of approximately $1.6 million related to four properties all within the Real Estate Investments segment.

Lease Classification

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 operating, sales-type, 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 based on it 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. Additionally, we 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 a more focused assessment when the lease payments approach 90% of the composition of all future cash flows expected from the asset.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to assess lease classifications.

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Allowance for Credit Losses

For our mortgage and other notes receivable, we evaluate the estimated collectability of contractual loan payments amid general economic conditions on the spread betweenbasis of a like-kind pooling of our costloans. We estimate credit losses over the entire contractual term of capitalthe 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 and the returns we earn. We expect that pressureadequacy of collateral on a collective basis. Other note investments which do not share common features will continue to be partially mitigated by market forces that would tend to resultevaluated on an instrument-by-instrument basis.

The determination of fair value and whether a shortfall in higher capitalization rates for healthcare assets and higher lease ratesoperating revenues or the existence of operating losses is indicative of historical levels.a loss in value involves significant judgment. Our costestimates consider all available evidence including, as appropriate, the present value of capital has increased over the pastexpected future cash flows discounted at market rates, general economic conditions and trends, the duration of the fair value deficiency, and any other relevant factors. When an economic downturn whose duration is expected to span a year or more is encountered, such as the COVID-19 pandemic, we transition someconsider projections about an expected economic recovery before we conclude that evidence of impairment exists. While we believe that the net carrying amounts of our short term revolving borrowings into debt instruments with longer maturitiesnotes receivable and fixed interest rates. Managing long-term risk involves trade-offs withother investments are realizable, it is possible that future events could require us to make significant adjustments or revisions to these estimates. During the competing alternative goalthird quarter of maximizing short-term profitability. Our intention is to strike an appropriate balance between these competing interests within the context2023, we designated as non-performing a mortgage note receivable of our investor profile. As 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.

$2.1 million due from Bickford. For the year ended December 31, 2017,2023, we recognized credit loss charges of $(0.3) million of which $0.7 million related to this mortgage upon its designation as non-performing.

While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. Our model utilizes estimates of probability of default and loss given default. We review our assumptions and adjust these estimates accordingly on a quarterly basis. A 10% increase or decrease in either the probability of default or loss given default would result in an additional provision or recovery of $1.6 million.

2023 Activity

The following summarizes significant activity that occurred for the year ended December 31, 2023:

•Completed new real estate investments of $54.8 million, for which the consideration included the conversion of a $14.2 million construction loan.

•Repaid $175.0 million of private placement notes.

•Amended a mezzanine loan receivable with Capital Funding Group, Inc. to increase the loan balance from $8.1 million to $25.0 million, increase the interest rate to 10% and extend the maturity to December 31, 2028.

•Disposed of 12 facilities from our Real Estate Investments segment for aggregate net proceeds of $59.1 million, including seller financing of $2.2 million in total, net of discounts, on four of the transactions, with an aggregate net real estate investment of $45.1 million.

•The SHOP segment NOI was $9.2 million.

During the year ended December 31, 2023, we completed the following real estate acquisitions within our Real Estate Investments segment ($ in thousands):
DatePropertiesAsset ClassAmount
Silverado Senior LivingQ1 20232ALF$37,493 
BickfordQ1 20231ALF17,288 
$54,781 

In February 2023, we acquired two memory care communities operated by Silverado Senior Living for approximately 27%$37.5 million. The newly developed properties opened in 2022 and include a 60-unit community in Summerlin, Nevada and a 60-unit community in Frederick, Maryland. They are leased pursuant to 20-year leases with a first-year lease rate of our revenue was derived from operators7.5% and annual escalators of our skilled nursing facilities that receive2.0%.

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In February 2023, we also acquired 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 (assisted64-unit assisted living and memory care facilities, senior living campuses, independent living facilitiescommunity in Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including the satisfaction of an outstanding construction note receivable of $14.2 million including interest, cash consideration of $0.5 million and entrance-fee communities). We will occasionally acquire skilled nursing facilitiesapproximately $0.1 million in good physical condition withclosing costs. The acquisition price also included a proven operator and strong local market fundamentals, because diversification implies a periodic rebalancing, but our recent investment focusreduction of $2.5 million in Bickford’s outstanding pandemic-related rent deferrals that has been recognized in “Rental income.” We added the community to an existing master lease with Bickford at an initial lease rate of 8.0%.

Capital Funding Group, Inc. Loan Extension

In September 2023, we amended a mezzanine loan with Capital Funding Group, Inc. Pursuant to the terms of the amended agreement, the loan increased from its balance at June 30, 2023 of $8.1 million to $25.0 million. The interest rate on acquiring need-driventhe loan was increased to 10% and discretionary senior housing assets.the maturity was extended to December 31, 2028.


Considering individual tenant lease revenueAsset Dispositions

During the year ended December 31, 2023, we completed the following real estate property dispositions within our Real Estate Investments segment ($ in thousands):

OperatorDatePropertiesAsset ClassNet ProceedsNet Real Estate InvestmentGain
Impairment2
BAKA Enterprises, LLC1,3
Q1 20231ALF$7,478 $7,505 $— $27 
Bickford1
Q1 20231ALF2,553 1,421 1,132 — 
Chancellor Health Care1,3
Q2 20231ALF2,355 1,977 378 — 
Milestone Retirement1,3,4
Q2 20232ALF3,803 3,934 — 131 
Chancellor Health Care1,3
Q2 20231ALF7,633 6,140 1,493 — 
Milestone Retirement1,3,4
Q2 20231ALF1,602 1,452 150 — 
Chancellor Health CareQ2 20231ALF23,724 14,476 9,248 — 
Chancellor Health Care1,3
Q3 20231ALF2,923 2,292 631 — 
Senior Living Management1,4
Q4 20232ALF5,522 4,770 752 — 
Senior Living Management1,3
Q4 20231ALF1,515 1,100 415 — 
$59,108 $45,067 $14,199 $158 


1 Assets were previously classified as a percentage“Assets held for sale” in the Consolidated Balance Sheet at December 31, 2022.
2 Impairments are included in “Loan and realty losses, net” in the Consolidated Statement of total revenue, Bickford is our largest assisted living tenant, an affiliateIncome for the year ended December 31, 2023.
3 Total aggregate impairment charges previously recognized on these properties were $0.3 million and $17.4 million for the years ended December 31, 2023 and 2022, respectively.
4 The Company provided aggregate financing of Holiday is our largest independent living tenant, National HealthCare Corporation (“NHC”) is our largest skilled nursing tenant and Senior Living 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 goalapproximately $2.2 million, net of increasing the regular annual dividends paid to shareholders. Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable incomediscounts, on a recurring basis. Ourthese transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends. Taxablenotes receivable, which is included in net proceeds.

Total rental income related to the disposed properties was $3.3 million, $0.7 million and $6.1 million for years ended December 31, 2023, 2022 and 2021, respectively.

Assets Held for Sale and Long-Lived Assets

At December 31, 2023, one property in our Real Estate Investments segment, with a net real estate balance of $5.0 million, was classified as assets held for sale on our Consolidated Balance Sheet. Rental income associated with the asset held for sale was $1.7 million, $0.9 million, and $1.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the year ended December 31, 2023, we recorded aggregate impairments of approximately $1.6 million on four properties in our Real Estate Investments segment, of which $0.5 million related to three properties either sold or classified as assets held for sale. During the year ended December 31, 2022, we recorded impairments of approximately $51.6 million on 19 properties which were sold or classified as held for sale related to our Real Estate Investments segment. Impairment charges are included in “Loan and realty losses, net” in the Consolidated Statements of Income.

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Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. A summary of these tenant options is presented below ($ in thousands):

AssetNumber ofLease1st OptionOptionContractual Rent For Year Ended
TypePropertiesExpirationOpen Year
Basis1
December 31, 2023
SHO2May 20352027i$6,092 
SNF1September 20282028ii$511 
1 Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by (i) a fixed base price plus a specified share in any appreciation; or (ii) fixed base price.

We cannot reasonably estimate at this time the probability that any purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.

Other

Our leases for real estate 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 five-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, 2023, we did not have any significant renewing or expiring leases. Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is determinedrecognized on a straight-line basis over the term of the lease.

Discovery Senior Living - Effective November 1, 2023, we amended our master lease for the consolidated real estate partnership with Discovery Senior Housing Investor XXIV, LLC, a related party of Discovery that leases six senior housing properties to a related party of Discovery. Significant terms of this amendment are as follows:

•Deferred the contractual rate increase from November 1, 2023 to May 1, 2025;
•Lowered the contractual rent increase to a minimum of a 5% yield on gross investment from a 6.5% yield on gross investment;
•Required outstanding deferred rents be repaid at a minimum amount plus an additional repayment based on monthly revenues in accordanceexcess of a minimum threshold; and
•Extended the maturity date by six months to November 30, 2029.

Rental income associated with this master lease was $8.6 million, $7.4 million and $7.8 million for the Internal Revenue Codeyears ended December 31, 2023, 2022 and differs from net2021, respectively.

In addition, the Company modified its two other single-property triple-net leases with Discovery to abate rent temporarily throughout 2024 by approximately $1.1 million and extended the maturity dates by six months. Rental income associated with these leases was $3.7 million for both years ended December 31, 2023 and 2022, and $3.8 million for the year ended December 31, 2021.


Tenant Concentration

As discussed in Note 3 to the consolidated financial statements purposes determinedincluded in accordancethis Annual Report on Form 10-K, we have three tenants (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% of our total revenues.

Cash Basis Operators

We had three operators on the cash basis of accounting for their leases as of December 31, 2023. In addition to Bickford as discussed previously, we placed two operators on cash basis of accounting for their leases during 2022. During 2021, the Welltower-controlled tenant of our Holiday portfolio was the only tenant on the cash basis prior to the completion of the portfolio transition. Rental income associated with U.S. generally accepted accounting principles. these tenants totaled $48.3 million, $21.4 million and $68.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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Included in rental income are amounts received from prior rent deferrals granted to cash basis tenants totaling $2.8 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, aggregate rent deferrals subject to future collection from these cash basis tenants totaled approximately $22.8 million, of which approximately $18.0 million related to Bickford. See Note 3 to our consolidated financial statements for further discussion.

Occupancy

The following table summarizes the average portfolio occupancy for Senior Living, Bickford and SHOP for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, and properties transitioned to new tenants or disposed of.
Properties4Q221Q232Q233Q234Q23December 2023January 2024
Senior Living Same-Store983.5%83.5%82.2%81.9%83.0%83.1%83.3%
Senior Living1083.2%82.7%81.4%81.0%82.4%82.7%82.8%
Bickford Same-Store1
3883.6%81.3%81.6%83.8%84.8%84.6%85.3%
Bickford2
3983.9%81.6%82.0%84.2%85.2%85.0%85.7%
SHOP1575.8%75.2%75.5%79.0%83.2%84.4%84.7%

1All prior periods restated for the sale of an ALF in Iowa.
2Includes Chesapeake, Virginia building which opened in the second quarter of 2022. NHI exercised its purchase option in February 2023.


Tenant Monitoring

Our goaloperators report to us the results of increasing annual dividends requirestheir 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 a primary performance measure 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, 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 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, maturitiessheet analysis, and other terms) versus the higher costanalytical procedures to help us identify potential areas of new equity. We accept some level of risk associated with leveragingconcern relative to our investments. We intendoperators’ 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 90 days of month’s end. For computational purposes, we exclude mortgages and other notes receivable, development and lease-up properties that have been in operation less than 24 months. 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 the past 24 months or assets subsequently sold except as noted.

The results of our coverage ratio analysis are presented below on a trailing twelve-month basis, as of September 30, 2023 and 2022 (the most recent periods available).

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NHI Real Estate Investments Portfolio1
Property TypeSHOSNFMEDICAL NON-SNFTOTAL
Properties89681158
3Q221.20x2.41x2.51x1.66x
3Q22 Occupancy84.6%77.1%75.3%80.7%
3Q231.36x2.72x3.05x1.91x
3Q23 Occupancy84.3%80.7%77.9%82.4%
Property ClassNeed DrivenNeed Driven excl. BickfordDiscretionaryDiscretionary excl. SLCMedicalMedical excl. NHC
Properties75371456934
3Q221.06x1.03x1.36x1.69x2.42x2.03x
3Q22 Occupancy85.4%86.2%83.5%85.6%77.1%69.6%
3Q231.31x1.13x1.41x1.38x2.74x2.11x
3Q23 Occupancy85.0%86.8%83.3%84.1%80.6%72.9%
Major Tenants
NHC2
SLC3
Bickford3
Properties351038
3Q222.98x1.22x1.10x
3Q22 Occupancy83.2%82.2%84.2%
3Q233.54x1.39x1.52x
3Q23 Occupancy87.1%82.1%82.6%

1All tables based on trailing 12 months; excludes transitioned properties under cash-flow based leases, loans, mortgages; excludes development and lease up properties in operation less than 24 months; includes proforma cash rent for stabilized acquisitions in the portfolio less than 24 months.
2 NHC Fixed Charge Coverage Ratio and displayed occupancies are on corporate-level. The occupancies are for the SNF portfolio only as can be seen in NHC’s public filings.
3 There are no longer any significant paycheck protection program funds included in the coverages above. SLC operates nine discretionary CCRC properties and one need driven assisted living community.

Coverage ratios may include amounts provided by state and federal government programs to support businesses, including healthcare providers, that have been impacted by the COVID-19 pandemic. These funds were largely distributed in 2020 and 2021 and as such do not substantially impact the reported coverage ratios.

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. 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 sufficiency of credit enhancements (e.g. tenant deposits and guarantees) as a protection against economic downturn will be a focus as we monitor economic and financial conditions. The metrics presented in the tables above give no effect to the presence of these security deposits.

Other Portfolio Activity

Real Estate and Mortgage Write-downs

In addition to inflation risk and increased interest rates, our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other healthcare providers.

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We have established a reserve for estimated credit losses of $15.5 million and a liability of $0.3 million for estimated credit losses on unfunded loan commitments as of December 31, 2023. The provision for expected credit losses, reflected in “Loan and realty losses, net” on the Consolidated Statements of Income, totaled $(0.3) million, $10.4 million and $0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary.

Our consolidated financial statements for the year ended December 31, 2023 reflect impairment charges of our long-lived assets of approximately $1.6 million. We reduced the carrying value of any impaired properties to estimated fair values, or with respect to the properties classified as held for sale, to estimated fair value less estimated transactions costs. We have no significant intangible assets currently recorded on our Consolidated Balance Sheet as of December 31, 2023, that would require assessment for impairment.

We believe that the carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable, net of reserves, are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make additional significant adjustments to these carrying amounts. Refer to Notes 3 and 4 to the consolidated financial statements included in this Annual Report on Form 10-K for more information.

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Results of Operations

The significant items affecting revenues and expenses are described below ($ in thousands):
Years Ended
December 31,Period Change
20232022$%
Revenues:
Rental income
ALFs leased to Silverado Senior Living$2,445 $— $2,445 NM
EFCs leased to Senior Living48,836 47,209 1,627 3.4 %
ALFs leased to NHC38,567 34,990 3,577 10.2 %
ALFs leased to Chancellor Health Care4,755 2,471 2,284 92.4 %
SHOs leased to Discovery9,487 6,683 2,804 42.0 %
SHOs leased to Holiday Retirement— 15,588 (15,588)(100.0)%
ALFs leased to Bickford34,821 26,757 8,064 30.1 %
Other new and existing leases88,439 84,680 3,759 4.4 %
Disposals and assets held for sale5,924 13,770 (7,846)(57.0)%
233,274 232,148 1,126 0.5 %
Straight-line rent adjustments, new and existing leases6,961 (16,681)23,642 NM
Amortization of lease incentives(2,521)(7,555)5,034 (66.6)%
Escrow funds received from tenants for property operating expenses11,513 9,788 1,725 17.6 %
Total Rental Income249,227 217,700 31,527 14.5 %
Resident fees and services48,809 35,796 13,013 36.4 %
Interest income from mortgage and other notes
Encore Senior Living construction loans4,016 2,579 1,437 55.7 %
Capital Funding Group3,209 384 2,825 NM
Mortgage loan payoffs225 7,776 (7,551)(97.1)%
Other existing mortgages and notes13,998 13,644 354 2.6 %
Total Interest Income from Mortgage and Other Notes21,448 24,383 (2,935)(12.0)%
Other income351 315 36 11.4 %
Total Revenue319,835 278,194 41,641 15.0 %
Expenses:
Depreciation
SHOs leased to Holiday Retirement— 2,326 (2,326)(100.0)%
SHOP depreciation9,158 6,408 2,750 42.9 %
Disposals and assets held for sale268 2,629 (2,361)(89.8)%
Other new and existing assets60,547 59,517 1,030 1.7 %
Total Depreciation69,973 70,880 (907)(1.3)%
Interest58,160 44,917 13,243 29.5 %
Senior housing operating expenses39,587 28,193 11,394 40.4 %
Legal507 2,555 (2,048)(80.2)%
Share-based compensation4,605 8,613 (4,008)(46.5)%
Taxes and insurance on leased properties11,513 9,788 1,725 17.6 %
Loan and realty losses, net1,376 61,911 (60,535)(97.8)%
Other expenses15,158 14,999 159 1.1 %
200,879 241,856 (40,977)(16.9)%
Gain (loss) on operations transfer, net20 (710)730 NM
Gain on note receivable payoff— 1,113 (1,113)(100.0)%
Loss on early retirement of debt(73)(151)78 (51.7)%
Gains from equity method investment555 569 (14)(2.5)%
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Gains on sales of real estate, net14,721 28,342 (13,621)(48.1)%
   Other income202 — 202 NM
Net income134,381 65,501 68,880 NM
Less: net loss attributable to noncontrolling interests1,273 902 371 41.1 %
Net income attributable to stockholders135,654 66,403 69,251 NM
Less: net income attributable to unvested restricted stock awards(57)— (57)NM
Net income attributable to common stockholders$135,597 $66,403 $69,194 NM
NM - not meaningful

Financial highlights for the year ended December 31, 2023, compared to 2022, were as follows:

•Rental income recognized from our tenants increased $31.5 million, or 14.5%, primarily as a result of a decrease in pandemic-related rent concessions granted of approximately $10.7 million and new investments that meetfunded since December 2022. Included in rental income for the year ended December 31, 2022 are write offs in the second quarter of 2022 of $18.1 million of straight-line rents receivable and $7.1 million of lease incentives related to placing Bickford on the cash basis of revenue recognition, partially offset by the recognition of the Holiday lease deposit and escrow of $15.6 million.

•Resident fees and services and senior housing operating expenses include revenues and expenses from our underwriting criteriaSHOP activities which commenced on April 1, 2022. Revenues less expenses from our SHOP segment increased $1.6 million, or 21%. See Note 5 to the consolidated financial statements.

•Funds received for reimbursement of property operating expenses totaled $11.5 million for the year ended December 31, 2023, and whereare reflected as a component of rental income. These property operating expenses are recognized in operating expenses in the spreads overline item “Taxes and insurance on leased properties.” The increase in the reimbursement income and corresponding property expenses is the result of additional amounts received from tenants and expenses paid on their behalf in the current year.

•Interest income from mortgage and other notes decreased $2.9 million, or 12.0%, primarily related to net paydowns of loans offset by new and existing loan fundings.

•Depreciation expense decreased $0.9 million, or 1.3%, primarily as a result of dispositions of approximately $143.0 million since December 2022.

•Interest expense increased $13.2 million, or 29.5%, primarily as the result of increased interest rates and borrowings on the unsecured revolving credit facility, offset by partial repayments on term loans.

•Legal expenses decreased $2.0 million primarily related to the Welltower, Inc. litigation and transition activities for the legacy Holiday portfolio occurring in 2022.

•Non-cash share-based compensation expense decreased $4.0 million, or 46.5%, due primarily to the reduced number of stock options granted in 2023 compared to the prior year’s grants.

•Loan and realty losses, net decreased $60.5 million, or 97.8%. Impairment charges of $1.6 million were recognized in the year ended December 31, 2023 on four properties in the real estate investment segment compared to impairment charges on 19 real estate properties of $51.6 million in the year ended December 31, 2022. Credit loss expense decreased $10.7 million compared to 2022. Credit loss expense totaling $10.4 million was recognized in 2022 for a mortgage note receivable of $10.0 million and a mezzanine loan of $14.5 million with affiliates of one operator/borrower designated as non-performing.

•Gain on note receivable payoff of $1.1 million reflects the prepayment fee from the early repayment of an $111.3 million mortgage note receivable in the second quarter of 2022.

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•Gains on sales of real estate, net decreased $13.6 million, for the year ended December 31, 2023, compared to the prior year. For the year ended December 31, 2023, we recorded $14.7 million in gains primarily from dispositions of real estate assets as described under “Asset Dispositions” in Note 3 to the consolidated financial statements included in this Annual Report on Form 10-K. For the year ended December 31, 2022, we sold 22 properties generating gains on sales of real estate totaling $28.3 million.






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Liquidity and Capital Resources

At December 31, 2023, we had $455.0 million available to draw on our unsecured revolving credit facility, $22.3 million in unrestricted cash and cash equivalents, and the potential to access $500.0 million through the issuance of common stock under the Company’s ATM equity program. In addition, the Company maintains an effective automatic shelf registration statement through which capital could be raised via the issuance of debt and or equity securities.

Sources and Uses of Funds

Our primary sources of cash include rent payments, receipts from residents, 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 loans and unsecured 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 stockholders, operating expenses for SHOP and general corporate overhead.

These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below ($ in thousands):

Year EndedOne Year ChangeYear EndedOne Year Change
12/31/202312/31/2022$%12/31/2021$%
Cash and cash equivalents and restricted cash, January 1$21,516 $39,485 $(17,969)(45.5)%$46,343 $(6,858)(14.8)%
Net cash provided by operating activities184,450 185,340 (890)(0.5)%210,859 (25,519)(12.1)%
Net cash (used in) provided by investing activities(11,630)197,945 (209,575)(105.9)%185,277 12,668 6.8%
Net cash used in financing activities(169,719)(401,254)231,535 (57.7)%(402,994)1,740 (0.4)%
Cash and cash equivalents and restricted cash, December 31$24,617 $21,516 $3,101 14.4 %$39,485 $(17,969)(45.5)%

Operating Activities – Net cash provided by operating activities for the year ended December 31, 2023, which includes new investments completed, the SHOP ventures, lease payment collections arising from escalators on existing leases and interest payments on new real estate and note investments completed, decreased $0.9 million from the year ended December 31, 2022. Cash provided by operating activities was negatively impacted by the disposition of 34 properties since January 1, 2022, and the funding of a $10.0 million lease incentive to Timber Ridge OpCo and benefited by the reduction in pandemic-related rent concessions granted of approximately $10.7 million.

Investing Activities – Net cash used in investing activities for the year ended December 31, 2023 was comprised primarily of the proceeds from the sales of real estate of approximately $57.0 million and the collection of principal on mortgage and other notes receivable of $13.5 million, offset by $85.2 million of investments in mortgage and other notes receivable and renovations and acquisitions of real estate and equipment.

Financing Activities – Net cash used in financing activities for the year ended December 31, 2023 differs from the same period in 2022 primarily as a result of an approximately $81.0 million increase in net borrowings, a decrease of $8.8 million in proceeds from noncontrolling interests, a decrease in the repurchase of common stock of approximately $152.0 million, a decrease in debt issuance cost of capital will generate sufficient returns$1.9 million and a decrease in dividend payments of approximately $5.5 million compared to 2022.

Debt Obligations

As of December 31, 2023, we had outstanding debt of $1.1 billion. Reference Note 8 to the consolidated financial statements for additional information about our outstanding indebtedness. Also, reference “Item 7a. Quantitative and Qualitative Disclosures About Market Risk” for more details on our indebtedness and the impact of interest rate risk.

Unsecured Bank Credit Facility - On March 31, 2022, we entered into the 2022 Credit Agreement providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at one of the following (i) Term SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) Daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the “base rate” plus a margin ranging from 0.00% to 0.40%. In each election, the actual margin is determined according to our shareholders.credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the agent’s prime rate, (ii) the federal funds rate on such day plus

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Our dividends0.50% or (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.0%. We incurred $4.5 million of deferred financing costs in connection with the 2022 Credit Agreement.

Concurrently with the execution of the 2022 Credit Agreement, we amended our $300.0 million 2023 Term Loan to modify the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowings based on SOFR (plus a credit spread adjustment) that were previously based on LIBOR, with no change to the existing applicable interest rate margins. As of December 31, 2022, we had repaid $60.0 million of the 2023 Term Loan.

In the first quarter of 2023, we repaid $20.0 million of the 2023 Term Loan. In June 2023, we entered into the two-year $200.0 million 2025 Term Loan bearing interest at a variable rate which is SOFR-based with a margin determined according to our credit ratings plus a 0.10% credit spread adjustment. The Company incurred approximately $2.7 million of deferred financing cost associated with this loan. The 2025 Term Loan proceeds were used to repay a portion of the remaining $220.0 million 2023 Term Loan balance, which was repaid in full in June 2023. Upon repayment, we expensed approximately $0.1 million of unamortized loan costs associated with this loan which are included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the year ended December 31, 2023.

As of December 31, 2023, the unsecured revolving credit facility and 2025 Term Loan bore interest at a rate of one-month Term SOFR (plus a 10 bps spread adjustment) plus 105 bps and 125 bps, based on our debt ratings, or 6.49% and 6.69%, respectively. The facility fee for the unsecured revolving credit facility was 25 bps per annum.

During 2023, we repaid $175.0 million of private placement notes primarily with proceeds from the unsecured revolving credit facility. At January 31, 2024, $273.0 million was outstanding under the revolving credit facility.

The current SOFR spreads and facility fee for our revolving credit facility and 2025 Term Loan reflect our ratings compliance based on the applicable margin for SOFR loans at a debt rating of BBB-/Baa3 in the Interest Rate Schedule provided below in summary format:

Interest Rate Schedule

SOFR Spread
Debt RatingsRevolving Credit FacilityRevolving Credit Facility Fee2025 Term Loan
A+/A10.725%0.125%0.75%
A/A20.725%0.125%0.80%
A-/A30.725%0.125%0.85%
BBB+/Baa10.775%0.150%0.90%
BBB/Baa20.850%0.200%1.00%
BBB-/Baa31.050%0.250%1.25%
Lower than BBB-/Baa31.400%0.300%1.65%

Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below “BBB-/Baa3” the debt under our debt agreements will be subject to defined increases in interest rates and fees.

The 2022 Credit 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, 2023, we were within required limits for each reporting period in 2023 and 2022. The calculation of our leverage ratio involves intermediate determinations of our “Consolidated Total Indebtedness” and of our “Total Asset Value,” as defined in the 2022 Credit Agreement.

Senior Notes Offering - In January 2021, we issued $400.0 million in aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually on February 1 and August 1 of each year (the “2031 Senior Notes”). The 2031 Senior Notes were sold at an issue price of 99.196% of face value before the underwriters’ discount. Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $392.3 million and were used to repay a $100.0 million term loan and reduce borrowings outstanding under our unsecured revolving credit facility.

We remain in compliance with all debt covenants under the last two years are as follows:unsecured revolving credit facility, 2031 Senior Notes and other debt agreements.
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2017 2016 2015
$3.80
 $3.60
 $3.40


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.

Debt Maturities - Reference Note 8, Debt to the consolidated financial statements for more information on our debt maturities.

Credit Ratings - Moody's reaffirmed its credit rating and a senior unsecured debt rating of Baa3 and “Stable” outlook on the Company on October 16, 2023. Fitch reaffirmed its public issuer credit rating of BBB- and “Stable” outlook on the Company on May 15, 2023 and S&P Global reaffirmed its BBB- rating and “Stable” outlook on the Company on November 14, 2023. Our investmentsunsecured private placement note 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. Any reduction in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet. However, we continue to maintain a relatively low-leverage balance sheet compared with manyoutlook or downgrade in our peer group.credit ratings from the rating agencies could negatively impact our costs of borrowings.

Debt Metrics - We believe that our fixed charge coverage ratio, which is the ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including amounts in discontinued operations, 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 thisour balance sheet gives us a competitive advantage when accessing debt markets.


We calculate our fixed charge coverage ratio as approximately 6.4x4.5x for the year ended December 31, 20172023 (see our discussion of under the heading Adjusted EBITDA and including a reconciliation to our net income on page 50)income). Giving effect to oursignificant acquisitions, financings, disposals and financingspayoffs on an annualized basis, our consolidated net debt-todebt to Adjusted EBITDA ratio is approximately 4.2x4.5x for the year ended December 31, 2017 2023 ($ in thousands)thousands):


Consolidated Total Debt$1,135,051 
Less: cash and cash equivalents(22,347)
Consolidated Net Debt$1,112,704 
Adjusted EBITDA$249,603 
Annualized impact of recent investments, disposals and payoffs(1,669)
$247,934 
Consolidated Net Debt to Adjusted EBITDA4.5x
Consolidated Total Debt$1,145,497
Less: cash and cash equivalents(3,063)
Consolidated Net Debt$1,142,434
  
Adjusted EBITDA$265,026
Annualized impact of recent investments5,509
 $270,535
  
Consolidated Net Debt to Adjusted EBITDA4.2x


Supplemental Guarantor Financial Information
According to the Administration
The Company’s $900.0 million bank credit facility, unsecured private placement notes due September 2024 through January 2027 with an aggregate principal amount of $225.0 million and 2031 Senior Notes are fully and unconditionally guaranteed on Aging (“AoA”)a senior unsecured basis by each of the US Department of Health and Human Services, in 2014, the latest yearCompany’s subsidiaries, except for which data is available, 46.2 million people (or 14.5%certain excluded subsidiaries (“Guarantors”). The Guarantors are either owned by, controlled by or are affiliates of the population) were age 65 or older in the United States. Census estimates showed that, by 2040, those 65 or older are expected to comprise 21.7% of the population.Company.
Census estimates also project that close to half of those currently age 65 will reach age 84 or older. As Transgenerationalaging.org notes, “The fastest-growing segment of the total population is the oldest old - those 80 and over. Their growth rate is twice that of those 65 and over and almost 4-times that
The following tables present summarized financial information for the total population. InCompany and the United States, this group now represents 10%Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands):

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Table of the older population and will more than triple from 5.7 million in 2010 to over 19 million by 2050.” If the growth rate holds steady, from 5.7 million in 2010, the “oldest old” will comprise close to 12 million in the US by 2030.Contents
Per the AoA, in 2013 the median
As of
December 31, 2023
Real estate properties, net$1,827,086 
Other assets, net359,148 
Note receivable due from non-guarantor subsidiary81,396 
Totals assets$2,267,630 
Debt$1,059,013 
Other liabilities76,092 
Total liabilities$1,135,105 
Redeemable noncontrolling interest$9,656 
Noncontrolling interest$918 
Year Ended
December 31, 2023
Revenues$290,369 
Interest revenue on note due from non-guarantor subsidiary4,657 
Expenses182,467 
Gain from equity method investee555 
Gains on sales of real estate14,721 
Gain on operations transfer20 
Loss on early retirement of debt(73)
Other income202 
Net income$127,984 
Net income attributable to NHI and the subsidiary guarantors$129,256 

Equity

At December 31, 2023, we had 43,409,841 shares of common stock outstanding with a market value of homes owned by older persons was $150,000 (with a median purchase price of $63,900) compared to a median home value of $160,000 for all homeowners. Of the 26.8 million households headed by older persons in 2013, 81% were homeowners, about 65% of whom owned their homes free and clear. Home ownership provides the elderly with the freedom to choose their lifestyles.
Equipped with the basics of financial security, many will be economically able to enter the market for senior housing. Strong demographic trends provide the context for continued growth in 2018 and the years ahead. We plan to fund any new real estate and mortgage investments during 2018 using operational cash flow, debt, and equity financing. As the weight of additional debt to fund new acquisitions suggests the need to rebalance our capital structure, we will then expect to access the capital markets through an ATM or other equity offerings. Our disciplined investment strategy implemented through measured increments of debt

and equity sets the stage for annual dividend growth and continued low leverage. This discipline combined with a portfolio of diversified, high-quality assets and business relationships with experienced operators continue to be the key drivers of our business plan.

Critical Accounting Policies

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 and cause our reported net income to vary significantly from period to period. 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$2.4 billion. Equity on our consolidated resultsConsolidated Balance Sheet totaled $1.3 billion.
Dividends - Our Board of operations, liquidity and/or financial condition.

We consider an accounting estimate or assumption critical if:

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.

Our significant accounting policies and the associated estimates, judgments and the issuesDirectors approves a regular quarterly dividend which impact these estimates are as follows:

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 costis reflective 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 investments had occurred as a result of these events.

We evaluate the recoverability of the carrying values of our propertiesexpected taxable income on a property-by-propertyrecurring basis. On a quarterly basis, we review our properties for recoverability when events or circumstances, including significant physical changesTaxable income is determined 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.

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. On a quarterly 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.

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.

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 revenues on an accrual basis as earned. However, when we determine, based on insufficient historical 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 the amounts are collected. 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. Revenue 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 complianceaccordance 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 differs from net income for financial statements purposes determined in accordance with U.S. generally accepted accounting principles (“GAAP”). Our Board of Directors has historically directed the Company towards maintaining a strong balance sheet. Therefore, we consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity, and we accept some level of risk associated with leveraging our investments. 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. Until September 30, 2016, we operated a TRS 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. On September 30, 2016, NHI and Bickford entered into a definitive agreement terminating the joint venture. In the past we recorded income tax expense or benefit with respect to the subsidiary which was taxed as a TRS under provisions similar to those applicable to regular corporations. Aside from such income taxes that may have been applicable to the taxable income in our TRS, 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 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, the purchase price allocation is 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. The most significant components of our allocations are typically the allocation of fair value to land,

equipment, buildings and other improvements, and intangible assets, 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.

Significant Operators

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 2017  2016  Renewal
Holiday RetirementILF $493,378
 $43,817
17% $43,817
19% 2031
Senior Living CommunitiesEFC 547,262
 45,735
17% 40,332
17% 2029
Bickford Senior LivingALF 460,245
 41,606
16% 30,732
13% Various
National HealthCare CorporationSNF 171,297
 37,467
14% 37,626
16% 2026
All othersVarious 992,423
 96,502
36% 79,846
35% Various
   $2,664,605
 $265,127

 $232,353

  
            

Straight-line rent of $7,397,000 and $8,965,000 was recognized from the Holiday lease for the years ended December 31, 2017 and 2016, respectively. Straight-line rent of $6,984,000 and $7,369,000 was recognized from the Senior Living lease for the years ended December 31, 2017 and 2016, respectively. Straight-line rent of $5,102,000 and $858,000 was recognized from the Bickford leases for the years ended December 31, 2017 and 2016, respectively. The increase in straight-line rent from Bickford reflects the extension of leases in the second quarter of 2017. 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.

Our operators report to us the results of their operations, which we in turn subject to further analysis as a means of monitoring potential concerns within our portfolio. In our most fundamental analyses, we will typically compute EBITDARM, a property level measure of our operators’ success, by eliminating the effects of the operator’s method of acquiring the use of the 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 those fees are contractually subordinate to our lease payment. The eliminations provide a comparable basis for assessing our various relationships.

EBITDARM attempts to tell a story in shorthand of the cash potential of a group of assets - for NHI this would be a senior housing community or a portfolio of communities. Social and other non-quantifiable benefits are disregarded. We rely on these, a careful balance sheet analysis, and other analytical procedures to guide us in making decisions and in managing our assets - our primary function as a REIT, from which flow the expected rewards of real estate ownership.

Typical among our operators is a varying lag in reporting to us the results of their operations. Across our portfolio, however, our operators can be counted on to have reported their results, at the latest, within ninety days of month’s end. We have identified EBITDARM as the most elemental barometer of success, based on results they have reported to us. From EBITDARM we calculate a lease coverage ratio (EBITDARM/Cash Rent), measuring the ability of the operator to meet its monthly rental obligation. The results are presented below on a trailing twelve-month basis, as of the quarters ended September 30, 2017, 2016 and 2015:
  2017 2016 2015
  EBITDARM/ Cash RentNumber of Properties EBITDARM/ Cash RentNumber of Properties EBITDARM/ Cash RentNumber of Properties
Senior Housing (SHO)        
 Need-Driven1.19x89 1.20x80 1.33x69
 Discretionary1.23x37 1.26x36 1.22x33
 Total SHO1.21x126 1.23x116 1.27x102
          
Skilled Nursing2.52x71 2.78x70 3.09x65
Hospitals2.17x3 2.62x3 2.29x3
Medical Office4.79x2 11.3x2 7.72x2

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. While the coverages above can be seen as informational only, and we use the results of individual leases to inform our decision making with respect to our specific tenants, overall trends bear analysis. The decline in coverage in our SHO portfolio was driven primarily by changing contractual responsibility for coverages with the unwinding of our RIDEA structure in 2016 and by the inclusion of development properties in 2016 and 2017 among the population under consideration. Coverages in skilled nursing reflect changes in the operational structure of our largest skilled nursing tenant, a larger presence of new tenants within the population, and the renegotiation of certain leases resulting in the recognition of higher rental revenues by NHI. The decline in MOB coverage in 2017 followed the devastation of Hurricane Harvey along the Texas coast.

Presented below are coverages from our four largest tenants during the same periods described above. Trends discussed for our SNFs and ALFs incorporate relevant information for NHC and Bickford. Holiday undertook significant operational restructuring affecting 2017 that led to a slight downturn in trailing twelve-month coverage. Recent three-month results indicate a significant recovery toward previous occupancy levels. We regard SLC trends as within the range of normal expected deviation.

 2017 2016 2015
 EBITDARM/ Cash RentNumber of Properties EBITDARM/ Cash RentNumber of Properties EBITDARM/ Cash RentNumber of Properties
NHC3.61x42 3.67x42 3.91x42
Senior Living1.21x9 1.22x8 1.24x8
Bickford1.22x38 1.19x37 1.44x29
Holiday1.16x25 1.19x25 1.21x25

RIDEA

On September 30, 2016, NHI and Sycamore Street, LLC (“Sycamore”), an affiliate of Bickford entered into a definitive agreement terminating our joint venture which consisted of the ownership and operation of 35 properties and converting Bickford’s participation to a triple-net tenancy with assumption of existing leases and terms. Through September 30, 2016, NHI owned an 85% equity interest and Sycamore owned a 15% equity interest in our consolidated subsidiary, PropCo which owned 35 assisted living/memory care facilities, three new facilities and two facilities in development. The facilities had been leased to OpCo, in which NHI previously held a non-controlling 85% ownership interest. The facilities are managed by Bickford. The joint venture was structured to comply with the provisions of RIDEA. For the combined transaction, we recognized a gain of $1,657,000 on the sale of OpCo; we recognized $462,000 of income tax expense in applying a full valuation allowance to our state net operating loss carry-forwards on our Taxable REIT Subsidiary; Bickford’s non-controlling interest was de-recognized; and the difference between the fair value of NHI’s cost allocated to the redemption and the carrying amount of the 15% non-controlling interest was recorded as an adjustment to equity through additional-paid-in capital.

Investment Highlights

Since January 1, 2017, we have made or announced the following real estate and note investments ($ in thousands):

  Date Properties Asset Class Amount
2017        
Lease Investments        
Navion Senior Solutions February 2017 2 SHO $16,100
Prestige Care March 2017 1 SHO 26,200
The LaSalle Group March 2017 5 SHO 61,865
The Ensign Group March 2017 1 SNF 15,096
Bickford Senior Living June 2017 1 SHO 10,400
Acadia Healthcare July 2017 1 HOSP 4,840
Senior Living Communities August 2017 1 SHO 6,830
Marathon/Village Concepts October 2017 1 SHO 7,100
Discovery Senior Living December 2017 1 SHO 34,600
Navion Senior Solutions December 2017 1 SHO 8,200
         
Note Investments        
Bickford Senior Living January 2017 1 SHO 14,000
Evolve Senior Living August 2017 1 SHO 10,000
        $215,231
         
2018        
The Ensign Group - lease investment January 2018 1 SNF $14,400
Bickford Senior Living - construction loan January 2018 1 SHO 14,000
        $28,400

Navion Senior Solutions

In two acquisitions, we acquired three assisted living/memory-care facilities totaling 118 units in North Carolina. In the first acquisition, on February 21, 2017, we paid $16,100,000, inclusive of $100,000 in closing costs and the funding of $207,000 in specified capital improvements for two assisted living/memory-care facilities totaling 86 units in Hendersonville, North Carolina. We leased the facilities to Navion Senior Solutions (“NSS,” previously known as Ravn Senior Solutions) for an initial lease term of 15 years plus renewal options. The initial annual lease rate is 7.35%, plus fixed annual escalators. For the two facilities acquired in February, we have additionally committed to NSS certain earnout payments contingent on reaching and maintaining certain performance metrics. As earned, the earnout payments, totaling $1,500,000, would be due in installments of up to $1,000,000 for performance measured as of December 31, 2018, with any subsequently earned cumulative unpaid amounts to be measured and due as earned for the periods ending December 31, 2019 and/or 2020. Upon funding, contingent payments earned will be added to the lease base.

On December 14, 2017, for $7,550,000, inclusive of $100,000 in closing costs, we acquired a third assisted living/memory-care facility totaling 32 units in Durham, North Carolina. We leased the facility to NSS for an initial lease term of 15 years plus renewal options. Additionally, the lease provides for lease incentives of up to $3,350,000 based upon the achievement of certain performance metrics, and we have committed $650,000 to an expansion program. The initial annual lease rate is 7.15%, plus fixed annual escalators. Payment of any incentives will be added to the lease base at the rate prevailing when funded. The Durham acquisition was incorporated into the existing master lease, which was extended for all properties through December 2032.

NSS’s relationship to NHI consists of its leasehold interests and purchase options and is considered a variable interest, analogous to a financing arrangement. NSS is structured to limit liability for potential damage claims, is capitalized for that purpose and is considered a VIE. Additionally, the master lease conveys to NHI an option to purchase a third facility currently operated by NSS.

Prestige

On March 10, 2017, we acquired a 102-unit assisted living community in Portland, Oregon for $26,200,000, inclusive of closing costs of $112,000. We leased the facility to Prestige Care (“Prestige”) under our existing master lease, which has a remaining lease term of 12 years plus renewal options. The lease provides for an initial annual lease rate of 7% plus annual escalators of 3.5% in years two through four and 2.5% thereafter. The acquisition was accounted for as an asset purchase.

In addition, we have committed to Prestige certain earnout payments contingent on reaching and maintaining specified performance metrics. If earned, the earnout payments, totaling $1,000,000, would be due in installments of up to $1,000,000 for performance measured as of December 31, 2017, with any subsequently earned cumulative unpaid amounts to be measured and due as earned for the period ending December 31, 2018. Upon funding, contingent payments earned will be added to the lease base.

The LaSalle Group

On March 16, 2017, we acquired five memory care communities totaling 223 units in Texas and Illinois for $61,800,000 plus closing costs of $65,000. We leased the facilities to The LaSalle Group (“LaSalle”) for an initial lease term of 15 years. The lease provides for an initial annual lease rate of 7% plus annual escalators of 3.5% in years two through three and 2.5% thereafter. The acquisition was accounted for as an asset purchase.

In addition, we have committed to LaSalle certain earnout payments contingent on reaching and maintaining certain performance metrics. As earned, the earnout payments, totaling $5,000,000, would be due in installments of up to $2,500,000 for performance measured as of December 31, 2018, with any subsequently earned cumulative unpaid amounts to be measured and due as earned for the trailing periods ending December 31, 2019 and/or 2020. Upon funding, contingent payments earned will be added to the lease base.

The Ensign Group

On March 24, 2017, we acquired from a developer a 126-bed skilled nursing facility in New Braunfels, Texas for a cash investment of $13,846,000 plus $1,250,000 contributed by the lessee, The Ensign Group (“Ensign”). The facility was then included under our existing master lease for the remaining lease term of 14 years plus renewal options. The initial lease rate is set at 8.35% subject to annual escalators based on prevailing inflation rates. The acquisition was accounted for as an asset purchase.

On January 12, 2018, NHI we acquired from a developer a 121-bed skilled nursing facility in Waxahachie, Texas for a cash investment of $14,400,000 plus $1,275,000 contributed by the lessee, Ensign. The facility will be included under our existing master lease with Ensign for the remaining lease term of 13 years plus renewal options. The initial lease rate is set at 8.2% subject to annual escalators based on prevailing inflation rates. The acquisition was accounted for as an asset purchase.

With the acquisition of the New Braunfels and Waxahachie properties, NHI has a continuing commitment to purchase, from the developer, two new skilled nursing facilities in Texas for approximately $28,000,000 which are newly developed and are leased to Legend Healthcare and subleased to Ensign. The fixed-price nature of the commitment creates a variable interest for NHI in the developer, whom NHI considers to lack sufficient equity to finance its operations without recourse to additional subordinated debt. The presence of these conditions causes the developer to be considered a VIE.

Bickford

As of December 31, 2017 our Bickford portfolio is structured as following (in thousands):

 Lease Expiration 
 Sept / Oct 2019June 2023Sept 2027May 2031Total
Number of Properties10
13
4
20
47
2017 Annual Contractual Rent$8,994
$10,809
$125
$16,576
$36,504
Straight Line Rent Adjustment(347)226
309
4,914
5,102
Total Revenues$8,647
$11,035
$434
$21,490
$41,606
      

On June 1, 2017, we acquired an assisted living/memory-care facilitytotaling 60 units in Lansing, Michigan, for $10,400,000, inclusive of $200,000 in closing costs. Additionally, we have committed to the funding of $475,000 in specified capital improvements, which will be added to the lease base. We included this facility in a master lease to Bickford for a remaining term of 14 years plus renewal options. The initial lease rate is 7.25%, plus annual fixed escalators. We accounted for the acquisition as an asset purchase.

In April and August 2017, Bickford opened the last two of the five-facility development project announced in 2015. Newly-constructed facilities have an annual lease rate of 9% at completion, after six months of free rent. NHI has a right to future Bickford

acquisitions, development projects and refinancing transactions. Of these facilities, 35 were held in a RIDEA structure and operated as a joint venture until September 30, 2016, when NHI and Sycamore, an affiliate of Bickford, entered into a definitive agreement terminating the joint venture and converting Bickford’s participation to a triple-net tenancy with assumption of existing leases and terms. Through September 30, 2016, NHI owned an 85% equity interest and Sycamore owned a 15% equity interest in our consolidated subsidiary, PropCo. The facilities were leased to an operating company , in which NHI previously held a non-controlling 85% ownership interest. The facilities are managed by Bickford. Our joint venture was structured to comply with the provisions of RIDEA. On September 30, 2016, we unwound the joint venture underlying the RIDEA and reacquired Bickford’s share of its assets. Effective May 1, 2017, NHI and Bickford announced a new amended and restated master lease covering 20 Bickford properties. Under terms of the new master lease, the base term for these properties will now extend to May 2031. Additionally, effective June 28, 2017, the leases of thirteen properties acquired in June 2013 and initially set for expiration in June 2018 have been renewed and extended through June 2023.

In September 2017, upon collection of all past-due rents, we transitioned the lease of a 126-unit assisted living portfolio from our then tenant as the result of material noncompliance with lease terms. On September 30, 2017, we entered into a 10-year lease with Bickford, beginning October 1, 2017. The agreement provides for initial annual lease payments of $1,500,000 with a 4% escalator in effect for years two through four and 3% thereafter. Additionally, the lease provides a purchase option which opens immediately and is co-terminus with the lease. The option will be exercisable for the greater of $21,400,000 or at a capitalization rate of 8.5% on the forward 12-month rental at the time of exercise. The former lease provided for a contractual payment of $2,237,000 in 2016.

Acadia

In July 2017, we acquired a 10-acre parcel of land (“Property”) for $4,840,000. The Property was conveyed to NHI by a subsidiary of our tenant, Acadia Healthcare Company (“Acadia”), who is the lessee of NHI’s TrustPoint Hospital in Murfreesboro, Tennessee, which is situated on adjacent land. Our ground lease with Acadia covers a 10-year period and bears an initial rate of 7%, subject to escalation after the third year. Additionally, the lease confers a purchase option on the property, on which Acadia intends to construct a sister facility. The option opens in 2020, extends through June 2023, and is to be exercisable at our original purchase price. In connection with the ground lease, the window of Acadia’s existing purchase option on the TrustPoint Hospital facility was shifted from 2018 to 2020 to coincide with the option window on the Property. Of our total revenues, $2,537,000 and $2,392,000 were derived from Acadia for the years ended December 31, 2017 and 2016, respectively.

Evolve

On August 7, 2017, we extended a first mortgage loan of $10,000,000 to Evolve Senior Living (“Evolve”) to fund the purchase of a 40 unit memory care facility in New Hampshire. The loan provides for annual interest of 8% and a maturity of five years plus renewal terms at the option of the borrower. NHI has the option to purchase the facility at fair market value after year two of the loan.

Senior Living Communities

On August 25, 2017, we committed to fund up to $6,830,000 in upgrades covering identified needs within the nine independent living facilities operated by Senior Living. Amounts funded will be added to the lease base. No funding had occurred under the agreement as of December 31, 2017.

Marathon/Village Concepts

On October 15, 2017, we committed up to $7,100,000 to fund the expansion of our independent living community in Chehalis, Washington leased to Marathon Development and Village Concepts Retirement Communities (“Marathon”). Upon funding, incurred amounts will be added to the lease base. As of December 31, 2017, no funding had occurred under the agreement.

Discovery

On December 1, 2017, we acquired a 200-unit independent living facility in Tulsa, Oklahoma, for $34,600,000 including the assumption of a Fannie Mae mortgage with remaining balance of $18,311,000. The mortgage amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, and bears interest at an annual rate of 4.6%. We leased the property to Discovery Senior Living (“Discovery”) at an initial lease rate of 7% with fixed annual escalators beginning in year two of the fifteen-year term. We have additionally committed up to $500,000 in capital improvements, which upon funding will be added to the lease base. The acquisition was accounted for as an asset purchase.


Potential Effects of Medicare Reimbursement

Our tenants who operate SNFs 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. CMS released a rule outlining a 1% increase in their Medicare reimbursement for fiscal year 2018 beginning on October 1, 2017. We currently estimate that our borrowers and lessees will be able to withstand this nominal Medicare increase 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 similar Medicare increases on an annual basis would have on each of our borrowers and lessees. According to industry studies, state Medicaid funding is not expected to keep pace with inflation. Federal legislative policies have been adopted and continue to be proposed that would reduce Medicare and/or Medicaid payments to SNFs. Any near-term acquisitions of skilled nursing facilities are planned on a selective basis, with emphasis on operator quality and newer construction.

Other Portfolio Activity

HSM Lease Extension

Effective as of May 1, 2017, we amended and extended our lease with Health Services Management (“HSM”) covering six skilled nursing facilities in Florida. The amended lease calls for $9,800,000 in first year cash rent, plus fixed annual escalators over a 12-year term. The new agreement replaced the lease set to expire September 30, 2017, which provided for a total cash rent of $7,241,000 in 2016.

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, 2017, except as noted above, we did not have any 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. For options open or coming open in 2018, we are engaged in negotiations to continue as lessor or in some other capacity.

We adjust rental income for the amortization of payments recorded as the result of the eventual settlement of commitments and contingencies listed later in Item 7 as lease inducements. Amortization of these payments against revenues was $119,000, $40,000 and $40,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

Tenant Non-Compliance

In October 2017, we issued a letter of forbearance to one of our tenants for a default on our lease terms involving coverage and liquidity ratios. Rent to the Company was current as of December 31, 2017. Lease revenues from the tenant and its affiliates comprise 3% of our rental income, and the related straight-line rent receivable was approximately $3,482,000 at December 31, 2017.

We continue to work with the tenant to resolve their defaults. In this effort, we have established a physical presence and visited specific touchpoints that concentrate on the tenant’s revenue and expenditure cycles, and we have identified potential efficiencies. The combination of monitoring and the redoubling of the operator’s efforts has yielded early (unaudited) results that indicate some improvement in collections, occupancy and margins, an attendant strengthening of operating ratios, and point the way to renewed profitability. With these developments, we continue to maintain a heightened vigilance toward the performance of the portfolio. No rent concessions have been offered to this tenant.

The defaults mentioned above typically give rise to considerations regarding the impairment or recoverability of the related assets, and we give additional attention to the nature of the default’s underlying causes. At this time, consequently, our assessment of likely undiscounted cash flows, calculated at the lowest level for which identifiable asset-specific cash flows are largely independent, reveals no basis for an impairment charge on the underlying real estate.

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 inception, 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.

We believe that the 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.

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.

Mortgage Loans

Bickford

We have the following note investments with Bickford:
 Rate Maturity Commitment Drawn Location
July 20169% 5 years 14,000,000
 (11,096,000) Illinois
January 20179% 5 years 14,000,000
 (4,462,000) Michigan
January 20189% 5 years 14,000,000
 (1,490,000) Virginia
     $42,000,000
 $(17,048,000)  

The promissory notes 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 subject property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a purchase option on the properties at stabilization, whereby annual rent will be set with a floor of 9.55%, based on NHI’s total investment, plus fixed annual escalators.

Our loans to Bickford represent a variable interest as do our leases, which are considered analogous to financing arrangements. Bickford is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE. On these and future loan development projects, Bickford as the borrower is entitled to up to $2,000,000 per project in incentive loan draws based upon the achievement of predetermined operational milestones, the funding of which will increase the principal amount and NHI's future purchase price and eventual NHI lease payment.

Evolve

In August 2017, we completed a first mortgage loan of $10,000,000 to Evolve for the purchase of a 40 unit memory care facility in New Hampshire. The loan provides for annual interest of 8% and a maturity of five years plus renewal terms at the option of the borrower. Terms of the loan grant NHI a 10% participation in the property’s appreciation during the period the loan is outstanding, and NHI also has the option to purchase the facility at fair market value after the second year of the loan. Our loan to Evolve represents a variable interest. Evolve is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE.

Timber Ridge

In February 2015, we entered into an agreement to lend up to $154,500,000 to LCS-Westminster Partnership III LLP (“LCS-WP”), an affiliate of Life Care Services (“LCS”) . The loan agreement conveys a mortgage interest and facilitates the construction of Phase II of Timber Ridge at Talus (“Timber Ridge”), a Type-A Continuing Care Retirement Community in Issaquah, WA managed by LCS.

The loan takes the form of two notes under a master credit agreement. The senior note (“Note A”) totals $60,000,000 at a 6.75% interest rate with 10 basis-point escalators after year three, and has a term of 10 years. We have funded $53,622,000 of Note A as of December 31, 2017. Note A is interest-only and is locked to prepayment for three years. After year three, the prepayment penalty starts at 5% and declines 1% per year. The second note (“Note B”) is a construction loan for up to $94,500,000 at an annual interest rate of 8% and a five-year maturity and was fully funded as of December 31, 2017. We expect substantial repayment with new

resident entrance fees from the opening of Phase II in October, 2016. Repayment of Note B amounted to $92,547,000 as of December 31, 2017.

NHI has a purchase option on the entire Timber Ridge property for the greater of fair market value or $115,000,000 during a purchase option window of 120 days that will contingently open in year five or upon earlier stabilization of the development, as defined. The current basis of our investment in Timber Ridge loans, net of unamortized commitment fees, is $54,805,000, but we are obligated to complete the funding of Note A up to $60,000,000.

Other Note Activity

In June 2017 Traditions of Minnesota paid off the undiscounted balance of $4,256,000 on its mortgage note outstanding to NHI. With the early payoff, we recognized interest income of $922,000 related to a prepayment penalty and the retirement of the remaining unamortized discount.

Tenant Purchase Options

Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income with fixed contractual escalations is ordinarily 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. For options open or coming open in 2018, we are engaged in preliminary negotiations to continue as lessor or in some other capacity. A summary of these tenant options to purchase senior housing communities, hospitals, medical office buildings and skilled nursing facilities is presented below ($ in thousands):
AssetNumber ofLease1st OptionCurrent
TypeFacilitiesExpirationOpen YearCash Rent
MOB1February 2025Open$300
HOSP1September 20272020$2,398
SHO8December 20242020$4,144
HOSP1March 20252020$1,831
SHO3June 20252020$4,961
SHO2May 20312021$4,421
HOSP1June 20222022$3,398
Various8—Thereafter$4,061

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.

Results of Operations

The significant items affecting revenues and expenses are described below (in thousands):
 Years ended December 31, Period Change
 2017 2016 $ %
Revenues:       
Rental income       
ALFs leased to Bickford36,504
 29,874
 6,630
 22.2 %
8 EFCs and 1 SLC leased to Senior Living Communities38,751
 32,964
 5,787
 17.6 %
ALFs leased to The LaSalle Group3,437
 —
 3,437
 NM
15 SNFs leased to Ensign Group transitioned from Legend19,025
 16,653
 2,372
 14.2 %
1 ALF and 2 SLCs leased to East Lake Capital Management9,382
 7,110
 2,272
 32.0 %
ALFs leased to Chancellor Health Care7,559
 5,558
 2,001
 36.0 %
SNFs leased to Health Services Management9,001
 7,241
 1,760
 24.3 %
2 ALFs and 3 SNFs leased to Prestige Senior Living5,293
 3,712
 1,581
 42.6 %
ILFs leased to an affiliate of Holiday Retirement36,420
 34,852
 1,568
 4.5 %
Other new and existing leases73,665
 72,191
 1,474
 2.0 %
 239,037
 210,155
 28,882
 13.7 %
Straight-line rent adjustments, new and existing leases26,090
 22,198
 3,892
 17.5 %
Total Rental Income265,127
 232,353
 32,774
 14.1 %
Interest income from mortgage and other notes       
Timber Ridge5,118
 8,249
 (3,131) NM
Senior Living Management2,006
 444
 1,562
 NM
Bickford construction loans782
 69
 713
 NM
Senior Living Communities1,575
 997
 578
 NM
Mortgage and other notes paid off during the period1,104
 940
 164
 17.4 %
Other new and existing mortgages2,549
 3,106
 (557) (17.9)%
Total Interest Income from Mortgage and Other Notes13,134
 13,805
 (671) (4.9)%
Investment income and other398
 2,302
 (1,904) (82.7)%
Total Revenue278,659
 248,460
 30,199
 12.2 %
Expenses:       
Depreciation       
ALFs operated by Bickford Senior Living12,024
 9,783
 2,241
 22.9 %
7 EFCs and 1 SLC leased to Senior Living Communities14,328
 12,821
 1,507
 11.8 %
ALFs leased to The LaSalle Group1,217
 —
 1,217
 NM
15 SNFs leased to Ensign Group transitioned from Legend5,665
 4,487
 1,178
 26.3 %
ALFs leased to Chancellor Health Care2,437
 1,767
 670
 37.9 %
Other new and existing assets31,502
 30,667
 835
 2.7 %
Total Depreciation67,173
 59,525
 7,648
 12.8 %
Interest expense and amortization of debt issuance costs and discounts46,324
 43,108
 3,216
 7.5 %
Payroll and related compensation expenses6,352
 4,272
 2,080
 48.7 %
Compliance, consulting and administrative fees2,514
 3,048
 (534) (17.5)%
Non-cash share-based compensation expense2,612
 1,732
 880
 50.8 %
Loan and realty losses (recoveries)—
 15,856
 (15,856) NM
Other expenses2,193
 2,152
 41
 1.9 %
 127,168
 129,693
 (2,525) (1.9)%
Income before equity-method investee, income tax benefit (expense),       
 investment and other gains and noncontrolling interest151,491
 118,767
 32,724
 27.6 %
Loss from equity-method investee—
 (1,214) 1,214
 NM
Loss on convertible note retirement(2,214) —
 (2,214) NM
Income tax (expense) benefit of taxable REIT subsidiary—
 (749) 749
 NM
Investment and other gains10,088
 35,912
 (25,824) (71.9)%
Net income159,365
 152,716
 6,649
 4.4 %
Net income attributable to noncontrolling interest—
 (1,176) 1,176
 (100.0)%
Net income attributable to common stockholders$159,365
 $151,540
 $7,825
 5.2 %
        
NM - not meaningful       

Financial highlights of the year ended December 31, 2017, compared to 2016 were as follows:

Rental income increased $32,774,000, or 14.1%, primarily as a result of new investments funded in 2017 and 2016. The increase in rental income included a $3,892,000 increase in straight-line rent adjustments. Generally accepted accounting principles require rental income to be recognized on a straight-line basis over the term of the lease to give effect to scheduled rent escalators that are determinable at lease inception. Generally, future increases in rental income depend on our ability to make new investments whichthat meet our underwriting criteria.

Interest income from mortgagecriteria and other notes decreased $671,000, due to a combination ofwhere the continued repayment of our construction loan to Timber Ridge, interest income received on development loans to Bickford Senior Living and Senior Living Management and the recognition of an unamortized note discount related to a mortgage note which was paid in full during the second quarter. We expect total interest income from our loan portfolio to decrease with the full repayment of our $94,500,000 construction loan to Timber Ridge in January 2018.

Depreciation expense increased $7,648,000 primarily due to new real estate investments completed during 2017 and 2016.

Interest expense, including amortization of debt discount and issuance costs, increased $3,216,000 primarily as a result of an increase in 30-day LIBOR, which is the benchmark for our revolving debt, and the refinancing of $75,000,000 in September 2016 to an 8-year note with annual interest at 3.93%.

Payroll and related compensation expenses increased $2,080,000 due primarily to the addition of new corporate employees and the expense of certain incentive bonuses.

Investment and other gains for the year ended December 31, 2017 consist of $10,038,000 from the sale of marketable securities. For the year ended December 31, 2016, investment and other gains include $29,673,000 from the sale of marketable securities, $2,805,000 from the sale of two Texas skilled nursing facilities, $1,654,000 from the sale of an Idaho skilled nursing facility, $123,000 from the sale of a vacant land parcel in Alabama and $1,657,000 recorded as a gain on the sale of our 85% non-controlling interest in OpCo.

Loan and realty losses of $15,856,000 for the year ended December 31, 2016 relate to non-cash transactional write-offs involving the acquisition of eight skilled nursing facilities from Legend and transition of a total of 15 SNF leases to Ensign in the second quarter of 2016, and the non-cash write-off of straight-line rent receivable during the third quarter of 2016 resulting from a tenant’s material non-compliance with our lease terms which, as of October 1, 2017, NHI has transitioned to another tenant.

The significant items affecting revenues and expenses are described below (in thousands):
 Years ended December 31, Period Change
 2016 2015 $ %
Revenues:       
Rental income       
15 SNFs leased to Ensign Group transitioned from Legend15,660
 9,394
 6,266
 66.7 %
ALFs leased to Bickford29,874
 23,853
 6,021
 25.2 %
1 ALF and 2 SLCs leased to East Lake Capital Management7,110
 2,342
 4,768
 NM
8 EFCs and 1 SLC leased to Senior Living Communities32,964
 31,000
 1,964
 6.3 %
ALFs leased to Chancellor Health Care5,558
 3,738
 1,820
 48.7 %
ILFs leased to an affiliate of Holiday Retirement34,852
 33,351
 1,501
 4.5 %
SNFs leased to Fundamental Long Term Care1
2,682
 5,416
 (2,734) (50.5)%
2 SNFs leased to Legend2
993
 3,127
 (2,134) (68.2)%
Other new and existing leases80,462
 77,563
 2,899
 3.7 %
 210,155
 189,784
 20,371
 10.7 %
Straight-line rent adjustments, new and existing leases22,198
 24,623
 (2,425) (9.8)%
Total Rental Income232,353
 214,407
 17,946
 8.4 %
Interest income from mortgage and other notes       
Timber Ridge7,976
 3,569
 4,407
 NM
Senior Living Communities976
 411
 565
 NM
Mortgage and other notes paid off during the period556
 2,189
 (1,633) (74.6)%
Other new and existing mortgages4,297
 4,037
 260
 6.4 %
Total Interest Income from Mortgage and Other Notes13,805
 10,206
 3,599
 35.3 %
Investment income and other2,302
 4,335
 (2,033) (46.9)%
Total Revenue248,460
 228,948
 19,512
 8.5 %
Expenses:       
Depreciation       
1 ALF, 2 SLCs and 2 EFCs leased to East Lake Capital2,495
 889
 1,606
 NM
15 SNFs leased to Ensign Group transitioned from Legend4,487
 2,102
 2,385
 NM
ALFs operated by Bickford Senior Living9,783
 7,669
 2,114
 27.6 %
ALFs leased to Chancellor Health Care1,767
 1,104
 663
 60.1 %
Other new and existing assets40,993
 41,359
 (366) (0.9)%
Total Depreciation59,525
 53,123
 6,402
 12.1 %
Interest expense and amortization of debt issuance costs and discounts43,108
 37,629
 5,479
 14.6 %
Payroll and related compensation expenses4,272
 4,375
 (103) (2.4)%
Compliance, consulting and professional fees3,048
 3,292
 (244) (7.4)%
Non-cash share-based compensation expense1,732
 2,134
 (402) (18.8)%
Loan and realty losses (recoveries)15,856
 (491) 16,347
 NM
Other expenses2,152
 2,167
 (15) (0.7)%
 129,693
 102,229
 27,464
 26.9 %
Income before equity-method investee, income tax benefit (expense),       
 investment and other gains and noncontrolling interest118,767
 126,719
 (7,952) (6.3)%
Loss from equity-method investee(1,214) (1,767) 553
 31.3 %
Income tax (expense) benefit of taxable REIT subsidiary(749) 707
 (1,456) NM
Investment and other gains35,912
 24,655
 11,257
 45.7 %
Net income152,716
 150,314
 2,402
 1.6 %
Net income attributable to noncontrolling interest(1,176) (1,452) 276
 (19.0)%
Net income attributable to common stockholders$151,540
 $148,862
 $2,678
 1.8 %
        
NM - not meaningful       
1 2015 includes two Texas SNFs disposed April 2016
       
2 Disposed May 2016
       


Financial highlights of the year ended December 31, 2016, compared to 2015 were as follows:

Rental income increased $17,946,000, or 8.4%, primarily as a result of new investments funded in 2015 and 2016. The increase in rental income included a $2,425,000 decrease in straight-line rent adjustments. Generally accepted accounting principles require rental income to be recognized on a straight-line basisspreads over the term of the lease to give effect to scheduled rent escalators that are determinable at lease inception. Generally, future increases in rental income depend on our ability to make new investments which meet our underwriting criteria.

Interest income from mortgage and other notes increased $3,599,000 primarily due to advances made on our mortgage and construction loan commitment to the Timber Ridge entrance fee community as described in Investment Highlights, partially offset by lower interest income from notes paid off during 2016. We expect total interest income from our loan portfolio to decrease as repayments of our $94,500,000 construction loan to Timber Ridge began in October 2016, and the loan was substantially repaid during 2017. Repayments amounted to $61,289,000 as of December 31, 2016, plus an additional $7,304,000 through February 15, 2017.

Interest income from our loan portfolio is also subject to decrease due to normal maturities, scheduled principal amortization and early payoffs of individual loans.

Investment income decreased primarily due to our decision to sell 1,043,800 shares of LTC, Inc. common stock.

Depreciation expense increased $6,402,000 primarily due to new real estate investments completed during 2015 and 2016.

Interest expense, including amortization of debt issuance costs and discounts, increased $5,479,000 primarily as a result of the timing and amount of new borrowings and our strategic focus to refinance short-term borrowings on our revolving credit facility at variable interest rates with long-term debt at fixed rates. This strategy helps to mitigate the risk of rising interest rates and locks in the investment spread between our lease revenue and our cost of equity and debt capital.

Loan and realty losses of $15,856,000 relate to non-cash transactional write-offs involving the acquisition of eight skilled nursing facilities from Legend and transition ofcapital on a total of 15 SNF leases to Ensign in the second quarter of 2016, and the non-cash write-off of straight-line rent receivable during the third quarter of 2016 resulting from a tenant’s material non-compliance with our lease terms and our planned transition to another tenant or to market the properties.

The loss from equity method investee of $1,214,000 reflects our pro rata portion of the investee’s net loss for 2016 as described earlier in our discussion of our joint venture with a Bickford affiliate which was terminated on September 30, 2016.

Investment and other gains includes $29,673,000 from the sale of marketable securities, $2,805,000 from the sale of two Texas skilled nursing facilities in May 2016, $1,654,000 from the sale of an Idaho skilled nursing facility in March 2016, $123,000 from the sale of a vacant land parcel in Alabama and $1,657,000 recorded as a gain on the sale of our 85% non-controlling interest in OpCo.




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, interest and dividends received on our marketable securities, 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, dividend distributionsleverage neutral basis will generate sufficient returns 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
 12/31/2017 12/31/2016 $ % 12/31/2015 $ %
Cash and cash equivalents at beginning of period$4,636
 $13,090
 $(8,454) NM
 3,091
 $9,999
 323.5 %
Net cash provided by operating activities197,325
 177,219
 20,106
 11.3 % 164,425
 12,794
 7.8 %
Net cash used in investing activities(163,846) (329,838) 165,992
 NM
 (136,326) (193,512) 141.9 %
Net cash (used in) provided by financing activities(35,052) 144,165
 (179,217) NM
 (18,100) 162,265
 (896.5)%
Cash and cash equivalents at end of period$3,063
 $4,636
 $(1,573) (33.9)% 13,090
 $(8,454) NM

Operating Activities – Net cash provided by operating activities for the year ended December 31, 2017 increased primarily as a result of the collection of lease and interest payments on new real estate investments completed during 2017 and 2016.

Investing Activities – Net cash flows used in investing activities for the year ended December 31, 2017 decreased primarily duestockholders. We do not expect to $225,646,000 of investments in real estate and notes, which were partially offset by collection of notes receivable, sales of marketable securities and certain real estate assets, compared with $486,788,000 of investments in real estate and notes in 2016 that were similarly offset by collections.

Financing Activities – The use of cash in financing activities resulted primarily from the excess of dividend payments over proceeds from equity offerings, the impact of other large transactions primarily being the restructuring of our debt.

Liquidity

At December 31, 2017, our liquidity was strong, with $332,063,000 available in cash and borrowing capacity on our revolving credit facility.

We began liquidating our position in LTC Properties, Inc. (“LTC”) common stock in the fourth quarter of 2015, realizing cumulative total proceeds of $109,318,000 through December 31, 2017. We realized taxable gains of $10,038,000, $29,673,000, and $23,529,000 for the years ended December 31, 2017, 2016 & 2015 respectively.

Our ATM program, discussed below, represents an additional source of liquidity. Traditionally, debt financing and cash resulting from operating and investing activities, which are derived from proceeds of lease and note collections, loan payoffs and the recovery of previous write-downs, have been usedutilize borrowings to satisfy our operational and investing needs and to provide a return to our shareholders. Those operational and investing needs reflect the resources necessary to maintain and cultivate our funding sources and have generally fallen into three categories: debt service, REIT operating expenses, and new real estate and note investments.

In June 2016, we completed an at-the market (“ATM”) equity offering. The following table summarizes the issuances on our ATM as of December 31, 2017.
 SharesWeighted Average Share PriceNet Proceeds
June 2016714,666
$71.30
$50,189,000
August - September 2016680,976
$80.51
$54,001,000
March 20171,123,184
$72.31
$79,722,000
August - October 2017537,977
$80.20
$42,515,000
 3,056,803
 $226,427,000


The use of funds from our ATM and the liquidation of our position in LTC common stock effected a rebalancing of our leverage in response to our acquisitions and has kept 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 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 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 during 2018. However, we anticipate that our historically low cost of debt capital will continue to rise in the near to mid-term, as the federal government prolongs the upward transitioning of the federal funds rate. In response to the changed interest-rate environment, we may find it advisable within the coming year to acquire a public credit rating as a tool for managing our interest costs.

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. The ATM offerings have been made pursuant to a prospectus supplement dated February 17, 2015 and a related prospectus dated March 18, 2014, as well as the new prospectus, effective February 22, 2017, filed as part of our automatic “shelf” registration statement on Form S-3 and updating our previous filings with the Securities and Exchange Commission.

In August 2017, we amended our unsecured $800,000,000 credit facility, scheduled to mature in June 2020, consolidated our three bank term loans into a single $250,000,000 term loan and extended the maturity of the term loan and $550,000,000 revolving credit facility to August 2022. The facility provides for floating interest on the term loan and revolver to be initially set at 30-day LIBOR plus 130 and 115 bps, respectively, based on current leverage metrics. Additional significant amendments to the facility include the refinement of the collateral pool, imposition of a 0% floor to the LIBOR base, movement from the payment of unused commitment fees to a facility fee of 20 basis pointsdividends and the composition of creditors participating in our loan syndication. The employment of interest rate swaps to fix LIBOR on our bank term debt leaves only our revolving credit facility exposed to variable rate risk. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.” Also in August 2017, we amended our private placement term loan agreements to largely conform those agreements with our bank credit facility.

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. We generally accounted for these transactions and related fees as modifications of the debt, recording $3,806,000 in fees to creditors, $478,000 in third party fees and wrote off $407,000 of unamortized debt issuance costs pertaining to members of the lending syndicate whose roles in the amended facility had been reduced or eliminated.

During the year ended December 31, 2017, we undertook targeted open-market repurchases of certain of our convertible notes having an original face amount of $200,000,000. Payments ofproject that 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. The total balance of notes repurchased and retired through December 31, 2017, net of unamortized original issue discount and associated issuance costs, was $50,785,000, resulting in the recognition of losses on the note retirements for the year ended December 31, 2017, of $2,214,000, calculated as the excess of cash paid over the carrying value of that portion of the notes accounted for as debt. For the retirement of that portion of the outlay allocated to the fair value of the conversion feature, $7,930,000 was charged to additional paid-in capital during the year ended December 31, 2017.

Generally, the targeted noteholders have been and will continue to be large institutional investors who may also hold a position in our common stock. The focus on “sophisticated investors,” will likely restrict the extent of the program to only a portion of our noteholders. Beginning with favorable market conditions, the circumstances enumerated above outline when,flows from time to time, we might expect to find the climate favorable for us to negotiate a fair price with these stakeholders. We expect to extend the targeted repurchase program to allow willing sellers the opportunity to participate, though we anticipate that the continuity of the buy-backs will likely be affected by quarterly and event-specific blackout periods, if any. Critical to our ability to prolong the targeted repurchase program is the necessity that we continue to be in compliance with all restrictive covenants embodied in our institutional debt. Should we be successful in negotiating further buy-backs of our notes, we expect each transaction to stand on its own merits as either an open-market or privately negotiated transaction.





To mitigate our exposure to interest rate risk, we have in place the following interest rate swap contracts in place to hedge against floating rates on our $250,000,000 bank term loan as of December 31, 2017 (dollars in thousands):
Date Entered Maturity Date Fixed Rate Rate Index Notional Amount Fair Value
May 2012 April 2019 3.29% 1-month LIBOR $40,000
 $159
June 2013 June 2020 3.86% 1-month LIBOR $80,000
 $(227)
March 2014 June 2020 3.91% 1-month LIBOR $130,000
 $(520)

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. Hedge ineffectiveness related to our cash flow hedges, which is reported in current period earnings as interest expense, was not significant for the two years ended December 31, 2016 and 2015. With the amendment of our bank credit facility in August 2017, discussed above, the introduction to the debt instrument of a LIBOR floor not present in the hedges resulted in hedge inefficiency of approximately $353,000 for the year ended December 31, 2017, which we credited to interest expense.

In the first quarter of 2018, we intend to adopt ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, 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 will require 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 the opening balance of retained earnings as of the beginning of the fiscal year in which we adopt the update. The primary provision in the ASU requiring an adjustment to our beginning retained earnings is the change in timing and income statement line item for ineffectiveness related to cash flow hedges. As a result of the transition guidance provided in the ASU, as of January 1, 2018, cumulative ineffectiveness as adjusted for any prior off-market cashflow hedgesoperations will be reclassified out of beginning retained earnings and into accumulated other comprehensive income. Upon adoption ofadequate to fund dividends at the ASU, a better alignment of the Company’s financial reporting for hedging activities with the economic objectives of those activities should result.current rate.

We periodically refinance the borrowings on our revolving credit facility through the ATM and longer-term debt instruments. We consider secured debt from U.S. Govt. agencies, including HUD, private placements of unsecured debt, and public offerings of debt and equity. We anticipate that our historically low cost of debt capital will rise in the near to mid-term, as the federal government continues its upward transitioning of the Federal funds rate.

If we modify or replace existing debt, we would incur debt issuance costs. These fees would be 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 forms of capital mentioned above, with the goal of maintaining a low-leverage balance sheet as mitigation against potential adverse changes in the business of our tenants and borrowers.


We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year endingended December 31, 20172023 and thereafter. Historically, the Company has distributed at least 100% of annual taxable income. 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 IRSInternal Revenue Service Code Sec.Section 857(b)(8). We declare special
Our dividends when we compute our REIT taxable income in an amount that exceeds our regular dividendsper share for the fiscal year.last three years are as follows:
202320222021
$3.60 $3.60 $3.8025 


Off
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Table of Contents
Share Repurchase Plan - Beginning in April 2022, our Board of Directors has authorized a stock repurchase plan. No common stock was repurchased under this plan during 2023. During the year ended December 31, 2022, we repurchased through open market transactions 2,468,354 shares of common stock for an average price of $61.56 per share, excluding commissions. All shares received were constructively retired upon receipt, and the excess of the purchase price over the par value per share was recorded to “Retained earnings” in the Consolidated Balance Sheet ArrangementsSheet.


On February 16, 2024, our Board of Directors renewed the stock repurchase plan pursuant to which we may purchase up to $160.0 million in shares of our issued and outstanding common stock, par value $0.01 per share. The stock repurchase plan is effective for a period of one year and does not require us to repurchase any specific number of shares. It may be suspended or discontinued at any time. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and shall be made in accordance with all applicable laws and regulations in effect. The timing and number of shares repurchased, if any, will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations.

Shelf Registration Statement - We currently have no outstanding guarantees. Asan automatic shelf registration statement on file with the Securities and Exchange Commission that allows the Company to offer and sell to the public an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units at prices and on terms to be announced when and if such securities are offered. The details of any future offerings, along with the use of proceeds from any securities offered, will be described in Note 1a prospectus supplement or other offering materials, at the time of offering. Our shelf registration statement expires in March 2026.

At-the-Market (ATM) Equity Program - We maintain an ATM equity program which allows us to sell our common stock directly into the consolidated financial statements, our leases, mortgagesmarket 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. Except as discussed belowentered into an ATM equity offering sales agreement pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $500.0 million of the Company’s common shares. No shares were issued under Contractual Obligations and Contingent Liabilities, we have no further material obligations arising from our transactions with these entities, and we believe our maximum exposure to loss atthe ATM equity program during the years ended December 31, 2017, due2023 and 2022.

Our use of ATM proceeds is to this involvement would be limitedallow us to rebalance our leverage in response to our contractual commitmentsacquisitions and contingent liabilitieskeeps our options flexible for further expansion. We have historically used proceeds from the ATM equity program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. We view our ATM program as an effective way to match-fund our smaller acquisitions by exercising control over the amounttiming and size of our current investments with them, as detailed further in in Notes 1, 2, 3transactions and 6 to the consolidated financial statements.

In March 2014 we issued $200,000,000 of convertible notes, the conversion feature being intended to broaden the Company’s credit profile and as a means to obtainachieving a more favorable coupon rate. For this featurecost of capital as compared to larger follow-on offerings.

Material Cash Requirements

We had approximately $18.8 million in cash and cash equivalents on hand and $427.0 million in availability under our unsecured revolving credit facility as of January 31, 2024.Our expected material cash requirements for the twelve months ended December 31, 2024 and thereafter consist of long-term debt maturities; interest on long-term debt; and contractually obligated expenditures. We expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our unsecured revolving credit facility (refer to the Unsecured Bank Credit Facility discussion above) and sales from real estate investments, although we calculate the dilutive effect using market

prices prevailing over the reporting period. Because the dilution calculation is market-driven, and per share guidancemay choose to seek alternative sources of liquidity. Should 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 convertiblehave additional liquidity needs, we believe that we could access long-term financing 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 $147,575,000 at December 31, 2017, delivers an excess of $10,776,000, whereas the use of another price point would give a different result.debt and equity capital markets.


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 $91.35 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, 2017, our contractual payment obligations were as follows (in thousands):
 Total Less than 1 year 1-3 years 3-5 years More than 5 years
Debt, including interest1
$1,425,101
 $44,168
 $276,452
 $787,572
 $316,909
Real estate purchase liabilities42,000
 14,000
 28,000
 —
 —
Construction commitments24,186
 24,186
 —
 —
 —
Loan commitments33,204
 33,204
 —
 —
 —
 $1,524,491
 $115,558
 $304,452
 $787,572
 $316,909
1 Interest is calculated based on the weighted average interest rate of outstanding debt balancesfollowing table summarizes information as of December 31, 2017. The calculation also includes a commitment fee2023 related to our material cash requirements ($ in thousands):

TotalTwelve Months Ended December 31, 2024Thereafter
Debt maturities$1,146,241 $75,425 $1,070,816 
Interest payments95,112 54,966 40,146 
Construction and loan commitments44,958 15,213 29,745 
$1,286,311 $145,604 $1,140,707 
Our debt maturities in 2024 are comprised primarily of .20%.private placement notes of $75.0 million due in September 2024.


We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our low net leverage will be sufficient to meet all of our short-term and long-term financial commitments.

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Table of Contents
Loan and Development Commitments and Contingencies


The following tables summarize information as of December 31, 20172023 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements.statements ($ in thousands):

 Asset Class Type Total Funded Remaining
Loan Commitments:         
Life Care Services Note ASHO Construction $60,000,000
 $(53,622,000) $6,378,000
Bickford Senior LivingSHO Construction 28,000,000
 (15,558,000) 12,442,000
Senior Living CommunitiesSHO Revolving Credit 15,000,000
 (616,000) 14,384,000
     $103,000,000
 $(69,796,000) $33,204,000
Asset ClassTypeTotalFunded
Remaining1
Loan Commitments:
Encore Senior LivingSHOConstruction$50,725 $(49,846)$879 
Senior LivingSHORevolving Credit20,000 (16,250)3,750 
Timber Ridge OpCoSHOWorking Capital5,000 — 5,000 
Watermark RetirementSHOWorking Capital5,000 (2,976)2,024 
Montecito Medical Real EstateMOBMezzanine Loan50,000 (20,255)29,745 
$130,725 $(89,327)$41,398 

In addition to smaller ongoing renovation commitments which will be included in the lease base when funded, in 2014 we provided a $15,000,000 revolving line1As of credit to Senior Living, the maturity of which mirrors the 15-year termDecember 31, 2023, $11,653 of the master lease also dating from 2014. While borrowingsfunding obligations are usedexpected to be payable within 12 months with the Senior Living portfolioremaining commitment due between three to finance construction projects, including building additional units, up to $5,000,000 of the facility may be used to meet general working-capital needs. In March 2016, we extended two additional mezzanine loans totaling $14,000,000 to affiliates of Senior Living, to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina.five years.


See Note 34 to theour 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. LCS has been repaying its constructionThe credit loss liability for unfunded loan and indications are that additional draws on Note A in 2018 will not result in full funding under terms of the agreement. Funding of the promissory note commitment to Bickford is expected to continue monthly through 2018.

 Asset Class Type Total Funded Remaining
Development Commitments:         
Legend/The Ensign GroupSNF Purchase $56,000,000
 $(14,000,000) $42,000,000
East Lake/Watermark RetirementSHO Renovation 10,000,000
 (5,900,000) 4,100,000
Santé PartnersSHO Renovation 3,500,000
 (2,621,000) 879,000
Bickford Senior LivingSHO Renovation 2,400,000
 (122,000) 2,278,000
East Lake Capital ManagementSHO Renovation 400,000
 —
 400,000
Senior Living CommunitiesSHO Renovation 6,830,000
 (970,000) 5,860,000
Discovery Senior LivingSHO Renovation 500,000
 —
 500,000
Woodland VillageSHO Renovation 7,450,000
 (762,000) 6,688,000
Chancellor Health CareSHO Construction 650,000
 (62,000) 588,000
Navion Senior SolutionsSHO Construction 650,000
 —
 650,000
     $88,380,000
 $(24,437,000) $63,943,000

We remain obligated to purchase, from a developer, three new skilled nursing facilities in Texas for $42,000,000 which are leased to Legend and subleased to Ensign.
 Asset Class Type Total Funded Remaining
Contingencies:         
Bickford / SycamoreSHO Lease Inducement $14,000,000
 $(2,250,000) $11,750,000
East Lake Capital ManagementSHO Lease Inducement 8,000,000
 —
 8,000,000
Navion Senior SolutionsSHO Lease Inducement 4,850,000
 —
 4,850,000
Prestige CareSHO Lease Inducement 1,000,000
 —
 1,000,000
The LaSalle GroupSHO Lease Inducement 5,000,000
 —
 5,000,000
     $32,850,000
 $(2,250,000) $30,600,000

Contingent payments related to the five Bickford development properties constructed in 2016 and 2017 include a licensure incentive of $250,000 per property. Additionally, each property is subject to a three-tiered operator incentive schedule paying up to an additional $1,750,000, based on the attainment of certain performance metrics. As funded, these payments are added to the lease base and amortized against rental income.

In connection with our July 2015 lease to East Lake of three senior housing properties, NHI has committed to certain lease inducement payments of $8,000,000 contingent on reaching and maintaining certain metrics, which have been assessed as not probable of payment and which we have not recorded on our balance sheetcommitments was $0.3 million as of December 31, 2017. We are unaware of circumstances that would change2023 and is estimated using the same methodology as our initial assessment as to the contingent lease incentives. Not included in the above table is a seller earnout of $750,000, which was recorded on our consolidated balance sheet within accounts payablefunded mortgage and other accrued expensesnotes receivable based on the estimated amount that we expect to fund.

Asset ClassTypeTotalFunded
Remaining1
Development Commitments:
Woodland VillageSHORenovation$7,515 $(7,425)$90 
   Navion Senior SolutionsSHORenovation3,500 (2,059)1,441 
Vizion HealthSHORenovation2,000 (250)1,750 
SHOPILFRenovation1,500 (1,221)279 
$14,515 $(10,955)$3,560 
1 Expected to be payable within 12 months..

Discovery PropCo has committed to fund up to $2.0 million toward the purchase of condominium units located at acquisition in 2014.

In February 2014, we entered into a commitment on a letterone of credit for the benefitfacilities of Sycamore, an affiliate of Bickford, which previously held a minority interest in PropCo. In the fourth quarter of 2017, Sycamore began to draw on other means to furnish its resource provider the required letter of credit, and our commitment under the 2014 letter was ended. As$1.0 million has been funded as of December 31, 2017, we furnish no direct support2023.

Asset ClassTotalFundedRemaining
Contingencies (Lease Inducements):
IntegraCareSHO$750 — $750 
Navion Senior SolutionsSHO4,850 (2,700)2,150 
DiscoverySHO4,000 — 4,000 
Ignite Medical ResortsSNF2,000 — 2,000 
$11,600 $(2,700)$8,900 


We adjust rental income for the amortization of lease inducements paid to Sycamore. As an affiliate companyour tenants. Amortization of lease inducement payments against revenues was $2.5 million for the year ended December 31, 2023. Amortization of lease inducement payments against revenues was $7.6 million for the year ended December 31, 2022, which includes the write-off of $7.1 million of lease incentives related to Bickford Sycamore is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE.

Seein the second quarter of 2022 as discussed in more detail in Note 23 to the consolidated financial statements included in this Annual Report on Form 10-K. Amortization of lease inducement payments against revenues was $1.0 million for furtherthe year ended December 31, 2021.

Capital Funding Commitments

Capital expenditures related to our Real Estate Investments segment are primarily for the acquisition of new investments. The leases for our properties in the Real Estate Investments segment generally require the tenant to pay for all repairs and maintenance expenses and a minimum amount of capital expenditures each year. The tenants are also required to maintain
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insurance coverage at least equal to the replacement cost of a property. Therefore, we do not expect material expenditures in 2024 related to existing properties in the Real Estate Investments segment.

The capital funding commitments in our SHOP segment are principally for improvements to our facilities. We expect our SHOP ventures to incur approximately $12.0 million in capital expenditures during 2024 that we anticipate will be funded partially from the net operating income generated from the ventures and additional capital contributions from the partners. We expect to fund our commitments to the ventures for capital expenditures with our operating cash flow and other existing liquidity sources.

Natural Disasters

During the year ended December 31, 2023, our properties incurred minimal to no damage relating to natural disaster events. We or our tenants may incur unplanned costs for minor repairs and restoring operations, as well as costs to evacuate employees and residents. Our lease agreements require our tenants to maintain sufficient property and business interruption insurance, subject to certain deductibles.

Litigation

For a description of contingent lease inducements available to Navion, LaSalle and Prestige.our currently outstanding litigation, see “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.


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.

FFO AFFO & FAD


These supplemental operating performance measures described below 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”)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, 20172023 increased $0.25 (4.8%)$0.84 or 23.7% over the same period in 2016. Our normalized2022 due primarily to the write-offs of straight-line rents receivable and unamortized lease incentives totaling approximately $36.4 million incurred during 2022, a reduction of legal fees and pandemic-related rent concessions since December 2022, partially offset by the recognition of the Holiday lease deposit and escrow of $15.7 million in prior year rental income, increased interest expense in 2023 and the repurchase of common stock in the prior year. FFO for the year ended December 31, 2017 increased $0.42 (9%) over the same period in 2016, primarily as the result of our new real estate investments in 2016 and 2017. FFO,per share, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and applied by us, is calculated using the two-class method with net income allocated to common stockholders and holders of unvested restricted stock by applying the respective weighted-average shares outstanding during each period. The calculation of FFO begins with net income attributable to common stockholders (computed in accordance with GAAP), excludingand excludes gains (or losses) from sales of real estate property, plusimpairments of real estate, and real estate depreciation and amortization and impairment, if applicable, and after adjustmentsadjusting for unconsolidated partnerships and joint ventures, if any. The Company’s computation ofDiluted 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 FFOper share assumes the exercise of stock options and other potentially dilutive securities.

Our Normalized FFO per diluted common share for the year ended December 31, 2023 increased $0.03 or 0.7% over the same period in 2022. 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 non-real estate assets and liabilities, and recoveries of previous write-downs and the write off of debt issuance costs due to credit facility modifications.write-downs.


FFO and normalizedNormalized 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.


Adjusted
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Funds From OperationsAvailable for Distribution - AFFOFAD


Our normalized AFFO per diluted common shareNormalized FAD for the year ended December 31, 2017 increased $0.36 (8.2%)2023 decreased $13.2 million or 6.6% over the same period in 20162022 due primarily to the impact of real estate investmentsan increase in interest expense and property dispositions completed during 2016 and 2017.since December 2022. In addition to the adjustments included in the calculation of normalizedNormalized FFO, normalized AFFONormalized FAD excludes the impact of any straight-line rentlease revenue, amortization of the original issue discount on our convertible senior unsecured notes, and amortization of debt issuance costs.costs, and non-cash share based compensation. We also adjust Normalized FAD for the net change in our allowance for expected credit losses, non-cash share based compensation as well as certain non-cash items related to our equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments.


Normalized AFFOFAD is an important supplemental performance measure for a REIT and a useful measure of operating performance for a REIT.liquidity as an indicator of the ability to distribute dividends to stockholders. 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 issueany discount of our convertible senior notesor premium related to indebtedness 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, 2017 increased $24,290,000 (14.0%) over the same period in 2016 due primarily to the impact of real estate investments completed during 2016 and 2017. 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 operating performance for a REIT as a useful indicator of the ability to distribute dividends to shareholders. Additionally, normalized FAD improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods and (iii) results among REITs, more meaningful. Because FAD may function as a liquidity measure, we do not present FAD on a per-share basis.


The following table reconciles net“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 for FFO and Normalized FFO ($ in thousands, except share and per share amounts)amounts):

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 Years ended December 31,
 2017 2016 2015
Net income attributable to common stockholders$159,365
 $151,540
 $148,862
Elimination of certain non-cash items in net income:     
Depreciation67,173
 59,525
 53,123
Depreciation related to noncontrolling interest—
 (927) (1,150)
Net gain on sales of real estate(50) (4,582) (1,126)
NAREIT FFO attributable to common stockholders$226,488
 $205,556
 $199,709
Gain on sale of marketable securities(10,038) (29,673) (23,529)
Gain on sale of equity-method investee—
 (1,657) —
Write-off of deferred tax asset—
 1,192
 —
Loss on early retirement of convertible debt2,214
 —
 —
Debt issuance costs written-off due to credit facility modifications407
 —
 —
Ineffective portion of cash flow hedges(353) —
 —
Non-cash write-off of straight-line rent receivable—
 9,456
 —
Write-off of lease intangible—
 6,400
 —
Revenue recognized due to early lease termination—
 (303) —
Recognition of note discount and early payment penalty(922) (288) —
Recovery of previous write-down—
 —
 (491)
Normalized FFO attributable to common stockholders$217,796
 $190,683
 $175,689
Straight-line lease revenue, net(26,090) (22,198) (24,623)
Straight-line lease revenue, net, related to noncontrolling interest—
 (4) 40
Amortization of lease incentives119
 40
 40
Amortization of original issue discount1,109
 1,145
 1,101
Amortization of debt issuance costs2,483
 2,368
 2,311
Amortization of debt issuance costs related to noncontrolling interest—
 (27) (30)
Normalized AFFO$195,417
 $172,007
 $154,528
Non-cash stock based compensation2,612
 1,732
 2,134
Normalized FAD$198,029
 $173,739
 $156,662
      
      
BASIC     
Weighted average common shares outstanding40,894,219
 39,013,412
 37,604,594
FFO per common share$5.54
 $5.27
 $5.31
Normalized FFO per common share$5.33
 $4.89
 $4.67
Normalized AFFO per common share$4.78
 $4.41
 $4.11
      
DILUTED     
Weighted average common shares outstanding41,151,453
 39,155,380
 37,644,171
FFO per common share$5.50
 $5.25
 $5.31
Normalized FFO per common share$5.29
 $4.87
 $4.67
Normalized AFFO per common share$4.75
 $4.39
 $4.10
Years ended December 31,
202320222021
Net income attributable to common stockholders$135,597 $66,403 $111,804 
Elimination of certain non-cash items in net income:
Real estate depreciation69,436 70,734 80,798 
Real estate depreciation related to noncontrolling interests(1,585)(1,393)(839)
Gains on sales of real estate, net(14,721)(28,342)(32,498)
Impairments of real estate1,642 51,555 51,817 
NAREIT FFO attributable to common stockholders190,369 158,957 211,082 
Gain (loss) on operations transfer, net(20)710 — 
Portfolio transition costs, net of noncontrolling interests— 426 — 
Gain on note receivable payoff— (1,113)— 
Loss on early retirement of debt73 151 1,912 
Non-cash write-offs of straight-line receivable and lease incentives— 36,353 709 
Non-cash rental income(2,500)(3,000)— 
Recognition of unamortized note receivable commitment fees— — (375)
Lease termination fee— — (2,464)
Litigation settlement— — (616)
Normalized FFO attributable to common stockholders187,922 192,484 210,248 
Straight-line lease revenue, net(6,961)(12,563)(15,312)
Straight-line lease revenue, net, related to noncontrolling interests58 124 91 
Straight-line lease expense related to equity method investment(14)(16)46 
Non-real estate depreciation537 146 — 
Non-real estate depreciation related to noncontrolling interest(49)(16)— 
Amortization of lease incentives2,521 446 1,026 
Amortization of lease incentive related to noncontrolling interests(434)— — 
Amortization of original issue discount322 322 295 
Amortization of debt issuance costs2,325 2,155 2,404 
Amortization related to equity method investment(1,633)(847)1,109 
Note receivable credit loss (income) expense(266)10,356 949 
Equity method investment capital expenditures(210)(420)(420)
Equity method investment non-refundable fees received1,327 1,206 622 
Equity method investment distributions(555)(569)— 
Non-cash share-based compensation4,605 8,613 8,415 
SHOP recurring capital expenditures(1,845)(390)— 
SHOP recurring capital expenditures related to noncontrolling interests191 — — 
Normalized FAD attributable to common stockholders$187,841 $201,031 $209,473 
BASIC
Weighted average common shares outstanding43,388,794 44,774,708 45,714,221 
NAREIT FFO attributable to common stockholders per share$4.39 $3.55 $4.62 
Normalized FFO attributable to common stockholders per share$4.33 $4.30 $4.60 
DILUTED
Weighted average common shares outstanding43,389,466 44,794,236 45,729,497 
NAREIT FFO attributable to common stockholders per share$4.39 $3.55 $4.62 
Normalized FFO attributable to common stockholders per share$4.33 $4.30 $4.60 

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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, due to their infrequent or unpredictable nature, may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods, and mayperiods. These items 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. Adjusted EBITDA also includes our proportionate share of unconsolidated equity method investments presented on a similar basis. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies. EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.


The following table reconciles “Net income”, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):

Years ended December 31,
202320222021
Net income$134,381 $65,501 $111,967 
Interest expense58,160 44,917 50,810 
Franchise, excise and other taxes449 844 788 
Depreciation69,973 70,880 80,798 
NHI’s share of EBITDA adjustments for unconsolidated entities2,432 2,976 2,848 
Gains on sales of real estate, net(14,721)(28,342)(32,498)
Impairments of real estate1,642 51,555 51,817 
(Gain) loss on operations transfer, net(20)710 — 
Litigation settlement— — (616)
Gain on note receivable payoff— (1,113)— 
Loss on early retirement of debt73 151 1,912 
Non-cash write-off of straight-line rents receivable and lease amortization— 36,353 709 
Non-cash rental income(2,500)(3,000)— 
Note receivable credit loss expense(266)10,356 949 
Lease termination fee— — (2,464)
Recognition of unamortized note receivable commitment fees— — (375)
Adjusted EBITDA$249,603 $251,788 $266,645 
Interest expense at contractual rates$55,603 $42,487 $40,866 
Interest rate swap payments, net— — 7,306 
Principal payments408 389 371 
Fixed Charges$56,011 $42,876 $48,543 
Fixed Charge Coverage4.5x5.9x5.5x

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

Net Operating Income

NOI is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate. We define NOI as total revenues, less tenant reimbursements and property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

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The following table reconciles NOI to net income, the most directly comparable GAAP metric to Adjusted EBITDA:($ in thousands):


Years Ended December 31,
NOI Reconciliations:202320222021
Net income$134,381 $65,501 $111,967 
(Gains) losses from equity method investment(555)(569)1,545 
Other income(202)— (350)
Loss on early retirement of debt73 151 1,912 
Gain on note receivable payoff— (1,113)— 
(Gain) loss on operations transfer, net(20)710 — 
Gains on sales of real estate, net(14,721)(28,342)(32,498)
Loan and realty losses, net1,376 61,911 52,766 
General and administrative19,314 22,768 18,431 
Franchise, excise and other taxes449 844 788 
Legal507 2,555 908 
Interest58,160 44,917 50,810 
Depreciation69,973 70,880 80,798 
Consolidated NOI$268,735 $240,213 $287,077 
NOI by segment:
   Real Estate Investments$259,162 $232,295 $283,945 
   SHOP9,222 7,603 — 
   Non-Segment/Corporate351 315 3,132 
        Total NOI$268,735 $240,213 $287,077 
65
 December 31,
 2017 2016 2015
Net income$159,365
 $152,716
 $150,314
Interest expense46,324
 43,108
 37,629
Franchise, excise and other taxes960
 1,009
 985
Income tax of taxable REIT subsidiary—
 749
 (707)
Depreciation67,173
 59,525
 53,123
Net gain on sales of real estate(50) (4,582) (1,126)
Normalizing items—
 —
 —
Gain on sale of marketable securities(10,038) (29,673) (23,529)
Gain on sale of equity-method investee—
 (1,657) —
Loss on early retirement of convertible debt2,214
 —
 —
Non-cash write-off of straight-line rent receivable—
 9,456
 —
Write-off of lease intangible—
 6,400
 —
Revenue recognized due to early lease termination—
 (303) —
Acquisition costs under business combination accounting—
 —
 —
Recognition of note discount and early payment penalty(922) (288) —
Expenses related to abandoned capital offerring—
 —
 —
Write-off of previously accrued executive bonus—
 —
 —
Recovery of previous write-down—
 —
 (491)
Change in fair value of interest rate swap—
 —
 —
Other items, net—
 —
 —
Adjusted EBITDA$265,026
 $236,460
 $216,198
      
Interest expense at contractual rates$40,385
 $36,197
 $30,094
Principal payments794
 768
 743
Fixed Charges$41,179
 $36,965
 $30,837
      
Fixed Charge Coverage6.4x
 6.4x
 7.7x

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


Interest Rate Risk


At December 31, 2017,2023, we were exposed to market risks related to fluctuations in interest rates on approximately $221,000,000$445.0 million of variable-rate indebtedness (excluding $250,000,000 of variable-rate debt that has been hedged through interest-rate swap contracts) and on our mortgage and other notes receivable. The unused portion ($329,000,000($455.0 million at December 31, 2017)2023) of our unsecured 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 pointbasis-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, 2017,2023, net interest expense would increase or decrease annually by approximately $1,105,000$2.2 million or $.03$0.05 per common share on a diluted basis.


We usehave historically used 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, if any, are included in the 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. We had no derivative financial instruments outstanding during 2023.


The following table sets forth certain information with respect to our debt (dollar amounts$ in thousands):
December 31, 2023December 31, 2022
Balance1
% of total
Rate2
Balance1
% of total
Rate2
Fixed rate:
Private placement notes - unsecured$225,000 19.6 %4.28 %$400,000 34.5 %4.15 %
Senior notes - unsecured400,000 34.9 %3.00 %400,000 34.5 %3.00 %
Fannie Mae term loans - secured, non-recourse76,241 6.7 %3.96 %76,649 6.6 %3.96 %
Variable rate:
Bank term loans - unsecured200,000 17.4 %6.69 %240,000 20.8 %5.71 %
Revolving credit facility - unsecured245,000 21.4 %6.49 %42,000 3.6 %5.51 %
$1,146,241 100.0 %4.70 %$1,158,649 100.0 %3.91 %
1 Differs from carrying amount due to unamortized discounts and loan costs.
2 Total is weighted average rate

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 December 31, 2017 December 31, 2016
 
Balance1
 % of total 
Rate5
 
Balance1
 % of total 
Rate5
Fixed rate:           
Convertible senior notes$147,575
 12.7% 3.25% $200,000
 17.7% 3.25%
Unsecured term loans2
650,000
 56.0% 3.83% 650,000
 57.4% 4.01%
HUD mortgage loans3
45,047
 3.9% 4.04% 45,841
 4.0% 4.04%
Fannie Mae mortgage loans4
96,367
 8.3% 3.94% 78,084
 6.9% 3.79%
            
Variable rate:           
Unsecured revolving credit facility221,000
 19.1% 2.96% 158,000
 14.0% 2.27%
 $1,159,989
 100.0% 3.61% $1,131,925
 100.0% 3.62%
            
1 Differs from carrying amount due to unamortized discount.
      
2 Includes six term loans in 2017 and eight in 2016; rate is a weighted average
      
3 Includes 10 HUD mortgages; rate is a weighted average inclusive of a mortgage insurance premium
      
4 Includes 14 Fannie Mae mortgages in 2017 and 13 in 2016
      
5 Total is weighted average rate
      

The unsecured term loans in the table above give effect to $40,000,000, $80,000,000, and $130,000,000 notional amount interest rate swaps with maturities of April 2019, June 2020 and June 2020, respectively, that collectively are continuing to hedge against fluctuations in variable interest rates applicable to the $250,000,000 term loan maturing in 2022. These loans bear interest at LIBOR plus a spread, currently 130 basis points, based on our current Consolidated Coverage Ratio, as defined.










To highlight the sensitivity of our fixed-rateterm loans, 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, 2017 2023 (dollar amounts$ in thousands)thousands):
Balance
Fair Value1
FV reflecting change in interest rates
Fixed rate:-50 bps+50 bps
Private placement notes - unsecured$225,000 $216,435 $218,516 $214,379 
Senior notes - unsecured400,000 332,129 342,836 321,787 
Fannie Mae term loans - secured, non-recourse76,241 74,171 74,647 73,698 
1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.
 Balance 
Fair Value1
 FV reflecting change in interest rates
Fixed rate:    -50 bps +50 bps
Private placement term loans - unsecured$400,000
 $390,816
 $402,515
 $379,509
Convertible senior notes147,575
 150,172
 152,562
 147,821
Fannie Mae mortgage loans96,367
 92,055
 95,006
 89,206
HUD mortgage loans45,047
 46,342
 49,666
 43,323
        
1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.


At December 31, 2017,2023, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $140,049,000.$237.6 million. A 50 basis pointbasis-point increase in market rates would decrease the estimated fair value of our mortgage and other notes receivableloans by approximately $2,903,000,$2.7 million, while a 50 basis pointbasis-point decrease in such rates would increase their estimated fair value by approximately $2,990,000.$2.7 million.


Equity Price Risk


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



Inflation Risk

Our real estate leases generally provide for annual increases in contractual rent due based on a fixed amount or percentage or based on increases in the Consumer Price Index (“CPI”). Leases with increases based on CPI may contain a minimum or a cap on the maximum annual increase. Substantially all of our leases require the tenant to pay all operating expenses for the property, whether paid directly by the tenant or reimbursed to us. We believe that inflationary increases will be at least partially offset by the contractual rent increases and expense reimbursements described above.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm




Stockholders and 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”) and subsidiaries as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, 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 and subsidiaries at December 31, 20172023 and 2016,2022, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172023, 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, 2017,2023, 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 15, 201820, 2024 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 Matter


The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Asset Impairment - Real Estate Properties

The Company had total real estate properties, net of approximately $2.1 billion as of December 31, 2023. As described in Note 2 to the Company’s consolidated financial statements, management evaluates the recoverability of the carrying amount of its real estate properties when events or circumstances, including significant physical changes, significant adverse changes in general economic conditions, or significant deterioration of the underlying cash flows of the real estate properties, indicate that the carrying amount of the real estate properties may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows compared to the carrying amount. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the
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real estate properties. The Company recognized approximately $1.6 million in impairment charges for the year ended December 31, 2023.

We identified management’s identification and assessment of the indicators of potential impairment of real estate properties as a critical audit matter. Identification of a potential impairment of real estate properties including due to significant physical changes in the property, significant adverse changes in general economic conditions, or significant deterioration of the underlying cash flows of the property requires a high degree of judgment. Auditing these judgments was especially challenging and complex due to the nature and extent of auditor effort required to address these matters.

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

•Assessing the reasonableness of management’s assessment, including property specific factors for certain properties that included changes to the physical condition of the property, changes in general economic conditions, and deterioration of the underlying cash flows of the property, including due to changes in occupancy, which are used by management to identify and assess whether an impairment indicator existed.

•Examine internal documentation relevant to the analysis for certain properties including Board of Director minutes, letters of intent, and operations department communications, as applicable on a property-by-property basis, including for certain properties with lower lease coverage ratios, to assess whether additional indicators of impairment were present.




/s/ BDO USA, LLPP.C.


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


Nashville, Tennessee
February 15, 201820, 2024

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

December 31,
Assets:20232022
Real estate properties:
Land$180,749 $177,527 
Buildings and improvements2,593,696 2,549,019 
Construction in progress5,913 3,352 
2,780,358 2,729,898 
Less accumulated depreciation(673,276)(611,688)
Real estate properties, net2,107,082 2,118,210 
Mortgage and other notes receivable, net of reserve of $15,476 and $15,338, respectively245,271 233,141 
Cash and cash equivalents22,347 19,291 
Straight-line rents receivable84,713 76,895 
Assets held for sale, net5,004 43,302 
Other assets, net24,063 16,585 
Total Assets(a)
$2,488,480 $2,507,424 
Liabilities and Equity:
Debt$1,135,051 $1,147,511 
Accounts payable and accrued expenses34,304 25,905 
Dividends payable39,069 39,050 
Deferred income6,009 5,052 
Total Liabilities(a)
1,214,433 1,217,518 
Commitments and Contingencies
Redeemable noncontrolling interest9,656 9,825 
National Health Investors, Inc. Stockholders' Equity:
Common stock, $0.01 par value; 100,000,000 shares authorized;
43,409,841 and 43,388,742 shares issued and outstanding, respectively434 434 
Capital in excess of par value1,603,757 1,599,427 
Retained earnings2,466,844 2,331,190 
Cumulative dividends(2,817,083)(2,660,826)
Total National Health Investors, Inc. Stockholders' Equity1,253,952 1,270,225 
Noncontrolling interests10,439 9,856 
Total Equity1,264,391 1,280,081 
Total Liabilities and Equity$2,488,480 $2,507,424 

 December 31,
Assets:2017 2016
Real estate properties:   
Land$191,623
 $172,003
Buildings and improvements2,471,602
 2,285,122
Construction in progress2,678
 15,729
 2,665,903
 2,472,854
Less accumulated depreciation(380,202) (313,080)
Real estate properties, net2,285,701
 2,159,774
Mortgage and other notes receivable, net141,486
 133,493
Cash and cash equivalents3,063
 4,636
Straight-line rent receivable97,359
 72,518
Other assets18,212
 33,212
Total Assets$2,545,821
 $2,403,633
    
Liabilities and Equity:   
Debt$1,145,497
 $1,115,981
Accounts payable and accrued expenses17,476
 20,874
Dividends payable39,456
 35,863
Lease deposit liabilities21,275
 21,325
Total Liabilities1,223,704
 1,194,043
    
Commitments and Contingencies
 
    
Stockholders' Equity:   
Common stock, $.01 par value; 60,000,000 shares authorized;   
41,532,154 and 39,847,860 shares issued and outstanding, respectively415
 398
Capital in excess of par value1,289,919
 1,173,588
Cumulative net income in excess of dividends32,605
 29,873
Accumulated other comprehensive income (loss)(822) 5,731
Total Stockholders' Equity1,322,117
 1,209,590
Total Liabilities and Equity$2,545,821
 $2,403,633
(a) The consolidated balance sheets include the following amounts related to our consolidated Variable Interest Entities (VIEs): $513.2 million and $519.8 million of Real estate properties, net; $10.9 million and $10.3 million of Cash and cash equivalents; $9.7 million and $7.1 million of Straight-line rents receivable; $9.4 million and $1.3 million of Other assets, net; and $4.7 million and $3.3 million of Accounts payable and accrued expenses as of December 31, 2023 and 2022, respectively.



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

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

Years Ended December 31,
202320222021
Revenues:
Rental income$249,227 $217,700 $271,049 
Resident fees and services48,809 35,796 — 
Interest income and other21,799 24,698 27,666 
319,835 278,194 298,715 
Expenses:
Depreciation69,973 70,880 80,798 
Interest58,160 44,917 50,810 
Senior housing operating expenses39,587 28,193 — 
Legal507 2,555 908 
Franchise, excise and other taxes449 844 788 
General and administrative19,314 22,768 18,431 
Taxes and insurance on leased properties11,513 9,788 11,638 
Loan and realty losses, net1,376 61,911 52,766 
200,879 241,856 216,139 
Gain (loss) on operations transfer, net20 (710)— 
Gain on note receivable payoff— 1,113 — 
Loss on early retirement of debt(73)(151)(1,912)
Gains (losses) from equity method investment555 569 (1,545)
Gains on sales of real estate, net14,721 28,342 32,498 
     Other income202 — 350 
Net income134,381 65,501 111,967 
Add: net loss (income) attributable to noncontrolling interests1,273 902 (163)
Net income attributable to stockholders$135,654 $66,403 $111,804 
Less: net income attributable to unvested restricted stock awards(57)— — 
Net income attributable to common stockholders$135,597 $66,403 $111,804 
Weighted average common shares outstanding:
Basic43,388,794 44,774,708 45,714,221 
Diluted43,389,466 44,794,236 45,729,497 
Earnings per common share - basic$3.13 $1.48 $2.45 
Earnings per common share - diluted$3.13 $1.48 $2.44 

 Year Ended December 31,
 2017 2016 2015
      
Revenues:     
Rental income$265,127
 $232,353
 $214,407
Interest income from mortgage and other notes13,134
 13,805
 10,206
Investment income and other398
 2,302
 4,335
 278,659
 248,460
 228,948
Expenses:     
Depreciation67,173
 59,525
 53,123
Interest46,324
 43,108
 37,629
Legal494
 422
 464
Franchise, excise and other taxes960
 1,009
 985
General and administrative12,217
 9,773
 10,519
Loan and realty losses (recoveries), net—
 15,856
 (491)
 127,168
 129,693
 102,229
Income before equity-method investee, income tax benefit (expense),     
  investment and other gains (losses) and noncontrolling interest151,491
 118,767
 126,719
Loss from equity-method investee—
 (1,214) (1,767)
Loss on convertible note retirement(2,214) —
 —
Income tax benefit (expense) of taxable REIT subsidiary—
 (749) 707
Investment and other gains10,088
 35,912
 24,655
Net income159,365
 152,716
 150,314
Less: net income attributable to noncontrolling interest—
 (1,176) (1,452)
Net income attributable to common stockholders$159,365
 $151,540
 $148,862
      
Weighted average common shares outstanding:     
Basic40,894,219
 39,013,412
 37,604,594
Diluted41,151,453
 39,155,380
 37,644,171
      
Earnings per common share:     
Net income per common share attributable to common stockholders - basic$3.90
 $3.88
 $3.96
Net income per common share attributable to common stockholders - diluted$3.87
 $3.87
 $3.95



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

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

Years Ended December 31,
202320222021
Net income$134,381 $65,501 $111,967 
Other comprehensive income:
Decrease in fair value of cash flow hedges— — (137)
Reclassification adjustment for amounts recognized in net income— — 7,286 
Total other comprehensive income— — 7,149 
Comprehensive income134,381 65,501 119,116 
  Less: comprehensive loss (income) attributable to noncontrolling interests1,273 902 (163)
Comprehensive income attributable to stockholders$135,654 $66,403 $118,953 

 Year Ended December 31,
 2017 2016 2015
      
Net income$159,365
 $152,716
 $150,314
Other comprehensive income:     
Change in unrealized gains on securities(26) 5,072
 46,780
Less: reclassification adjustment for gains in net income(10,038) (29,673) (23,529)
Increase (decrease) in fair value of cash flow hedge884
 (1,506) (6,062)
Less: reclassification adjustment for amounts recognized in net income2,627
 3,928
 4,498
Total other comprehensive income (loss)(6,553) (22,179) 21,687
Comprehensive income152,812
 130,537
 172,001
Less: comprehensive income attributable to noncontrolling interest—
 (1,176) (1,452)
Comprehensive income attributable to common stockholders$152,812
 $129,361
 $170,549



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

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NATIONAL HEALTH INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
 Year Ended December 31,
 2017 2016 2015
Cash flows from operating activities:     
Net income$159,365
 $152,716
 $150,314
Adjustments to reconcile net income to net cash provided by     
operating activities:     
Depreciation67,173
 59,525
 53,123
Amortization5,790
 3,563
 3,472
Straight-line rental income(26,090) (22,198) (24,623)
Non-cash interest income on construction loan(792) (1,021) (411)
Gain on sale of real estate(50) (4,582) (1,126)
Loss on extinguishment of debt2,214
 —
 —
Loan and realty losses (recoveries), net—
 15,856
 (491)
Gain on sale of equity-method investee—
 (1,657) —
Net realized gains on sales of marketable securities(10,038) (29,673) (23,529)
Non-cash stock-based compensation2,612
 1,732
 2,134
Amortization of commitment fees and note receivable discounts(517) (693) —
Amortization of lease incentives119
 40
 40
Loss from equity-method investee—
 1,214
 1,767
Change in operating assets and liabilities:     
Equity-method investment and other assets(4,372) 1,018
 216
Accounts payable and accrued expenses1,607
 2,764
 1,038
Deferred income304
 (1,385) 2,501
Net cash provided by operating activities197,325
 177,219
 164,425
Cash flows from investing activities:     
Investment in mortgage and other notes receivable(49,853) (92,051) (92,249)
Collection of mortgage and other notes receivable43,168
 84,228
 21,495
Investment in real estate(157,214) (359,257) (106,315)
Investment in real estate development(10,691) (32,102) (14,641)
Investment in renovations of existing real estate(7,888) (3,378) (3,157)
Payment allocated to cancellation of lease purchase option—
 (6,400) —
Long-term escrow deposit—
 (8,208) —
Proceeds from disposition of real estate properties450
 27,723
 9,593
Purchases of marketable securities—
 —
 (8,458)
Proceeds from sales of marketable securities18,182
 59,607
 57,406
Net cash used in investing activities(163,846) (329,838) (136,326)
Cash flows from financing activities:     
Net change in borrowings under revolving credit facilities63,000
 124,000
 (340,000)
Proceeds from issuance of secured debt—
 —
 78,084
Proceeds from borrowings on term loans250,000
 75,000
 325,000
Payments of term loans(250,822) (767) (742)
Debt issuance costs(4,935) (258) (2,608)
Taxes remitted in relation to employee stock options exercised(571) (1,133) —
Proceeds from equity offering, net122,237
 104,190
 49,114
Convertible bond redemption(60,921) —
 —
Proceeds from exercise of stock options—
 1
 1
Distributions to noncontrolling interest—
 (1,565) (2,292)
Distribution to acquire non-controlling interest—
 (17,000) —
Dividends paid to stockholders(153,040) (138,303) (124,657)
Net cash (used in) provided by financing activities(35,052) 144,165
 (18,100)
      
Increase (decrease) in cash and cash equivalents(1,573) (8,454) 9,999
Cash and cash equivalents, beginning of period4,636
 13,090
 3,091
Cash and cash equivalents, end of period$3,063
 $4,636
 $13,090

thousands)
Years Ended December 31,
 202320222021
Cash flows from operating activities:  
Net income$134,381 $65,501 $111,967 
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation69,973 70,880 80,798 
Amortization of deferred loan costs, debt discounts and prepaids4,685 4,283 4,354 
Amortization of commitment fees and note receivable discounts(412)(872)(729)
Amortization of lease incentives2,521 7,555 1,026 
Straight-line lease revenue(6,961)16,681 (14,603)
Non-cash rental income(2,500)(3,000)— 
Non-cash interest income on mortgage and other notes receivable(1,302)(4,314)(2,614)
Non-cash lease deposit liability recognized as rental income— (8,838)— 
Gains on sales of real estate, net(14,721)(28,342)(32,498)
Gain on note receivable payoff— (1,113)— 
Loss on operations transfer, net— 710 — 
Loss on early retirement of debt73 151 1,912 
(Gains) losses from equity method investment(555)(569)1,545 
Loan and realty losses, net1,376 61,911 52,766 
Payment of lease incentives(10,000)(1,200)(1,042)
Non-cash share-based compensation4,605 8,613 8,415 
Changes in operating assets and liabilities:  
Other assets, net(2,743)(3,534)(4,050)
Accounts payable and accrued expenses5,929 425 3,352 
Deferred income101 412 260 
Net cash provided by operating activities184,450 185,340 210,859 
Cash flows from investing activities:  
Investment in mortgage and other notes receivable(35,625)(79,801)(72,236)
Collection of mortgage and other notes receivable13,465 119,212 67,790 
Acquisition of real estate(38,081)(6,364)(46,817)
Proceeds from sales of real estate57,031 168,958 238,864 
Investments in renovations of existing real estate(7,732)(4,629)(3,465)
Investments in equipment(3,743)— (64)
Distributions from equity method investment3,055 569 1,205 
Net cash (used in) provided by investing activities(11,630)197,945 185,277 
Cash flows from financing activities:  
Proceeds from revolving credit facility364,000 225,000 95,000 
Payments on revolving credit facility(161,000)(183,000)(393,000)
Borrowings on term loans200,000 — — 
Payments on term loans and private placement notes(415,427)(135,388)(293,316)
Proceeds from issuance of senior notes— — 396,784 
Prepayment fee for early retirement of debt— — (1,462)
Deferred loan costs(2,747)(4,612)(5,018)
Distributions to noncontrolling interests(1,280)(916)(910)
Proceeds from noncontrolling interests2,973 11,738 — 
Taxes remitted on employee stock awards— (288)— 
Proceeds from equity offering, net— — 47,904 
Equity issuance costs— (66)— 
Convertible bond redemption— — (66,076)
Dividends paid to stockholders(156,238)(161,771)(182,900)
Payments to repurchase shares of common stock— (151,951)— 
Net cash used in financing activities(169,719)(401,254)(402,994)
Increase (decrease) in cash and cash equivalents and restricted cash3,101 (17,969)(6,858)
Cash and cash equivalents and restricted cash, beginning of year21,516 39,485 46,343 
Cash and cash equivalents and restricted cash, end of year$24,617 $21,516 $39,485 
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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

Years Ended December 31,
 202320222021
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$51,897 $42,659 $43,680 
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for mortgage notes receivable$14,200 $23,071 $— 
Increase in mortgage note receivable from sale of real estate$2,249 $— $— 
Change in other assets related to sales of real estate$— $102 $(33)
Change in accounts payable related to investments in real estate construction$325 $20 $(62)
Right of use asset in exchange for lease liability$101 $— $— 
Change in accounts payable related to renovations of existing real estate$— $(37)$— 
Change in accounts payable related to distributions to noncontrolling interests$6 $139 $64 
Operating equipment received in lease termination$— $1,287 $— 
Increase in accounts payable related to transfer of operations$— $300 $— 
Reclassification of prepaid equity issuance costs to capital in excess of par value$275 $— $— 
 Year Ended December 31,
 2017 2016 2015
    
Supplemental disclosure of cash flow information:     
Interest paid, net of amounts capitalized$45,405
 $39,539
 $31,289
Supplemental disclosure of non-cash investing and financing activities:     
Settlement of contingent asset acquisition liability$—
 $—
 $(3,000)
Conditional consideration in asset acquisition$—
 $—
 $750
Change in accounts payable related to investments in real estate$(1,855) $(430) $1,076
Tenant investment in leased asset$1,250
 $—
 $—
Reclass of note balance into real estate investment upon acquisition$—
 $9,753
 $255
Assumption of debt in real estate acquisition$18,311
 $—
 $—
Unsettled marketable securities sales transactions$—
 $6,464
 $—
Non-cash sale of equity-method investment$—
 $8,100
 $—
Change in escrow deposit related to investment in real estate$—
 $(227) $—
Conversion of preferred stock to common$—
 $—
 $38,132


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

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

 Common StockCapital in Excess of Par ValueRetained EarningsCumulative DividendsAccumulated Other Comprehensive IncomeTotal National Health Investors Stockholders’ EquityNoncontrolling InterestsTotal Equity
 SharesAmount
Balances at December 31, 202045,185,992 $452 $1,540,946 $2,304,909 $(2,326,924)$(7,149)$1,512,234 $10,711 $1,522,945 
Distributions declared to noncontrolling interests— — — — — — — (974)(974)
Total other comprehensive income— — — 111,804 — 7,149 118,953 163 119,116 
Equity component in redemption of convertible debt— — (6,076)— — — (6,076)— (6,076)
Issuance of common stock, net661,951 7 47,897 — — — 47,904 — 47,904 
Shares issued on stock options exercised2,656 — — — — — — — — 
Share-based compensation— — 8,415 — — — 8,415 — 8,415 
Dividends declared, $3.8025 per common share— — — — (174,347)— (174,347)— (174,347)
Balances at December 31, 202145,850,599 459 1,591,182 2,416,713 (2,501,271)— 1,507,083 9,900 1,516,983 
Distributions declared to noncontrolling interests, excluding $40 attributable to redeemable noncontrolling interests— — — — — — — (1,015)(1,015)
Net income, excluding a loss of $843 attributable to redeemable noncontrolling interest— — — 66,403 — — 66,403 (59)66,344 
Reclassification of redeemable noncontrolling interest— — — — — — — 1,030 1,030 
Equity issuance cost— (80)— — — (80)— (80)
Taxes paid on employee stock options exercised— — (288)— — — (288)— (288)
Shares issued on stock options exercised6,497 — — — — — — — — 
Repurchases of common stock(2,468,354)(25)— (151,926)— — (151,951)— (151,951)
Share-based compensation— — 8,613 — — — 8,613 — 8,613 
Dividends declared, $3.60 per common share— — — — (159,555)— (159,555)— (159,555)
Balances at December 31, 202243,388,742 434 1,599,427 2,331,190 (2,660,826)— 1,270,225 9,856 1,280,081 
Noncontrolling interests capital contributions, excluding $922 attributable to redeemable noncontrolling interest— — — — — — — 2,051 2,051 
Distributions declared to noncontrolling interests— — — — — — — (1,286)(1,286)
Net income, excluding a loss of $1,091 attributable to redeemable noncontrolling interest— — — 135,654 — — 135,654 (182)135,472 
Equity issuance cost— — (275)— — — (275)— (275)
Grants of restricted stock21,000 — — — — — — — — 
Shares issued on stock options exercised99 — — — — — — — — 
Share-based compensation— — 4,605 — — — 4,605 — 4,605 
Dividends declared, $3.60 per common share— — — — (156,257)— (156,257)— (156,257)
Balances at December 31, 202343,409,841 $434 $1,603,757 $2,466,844 $(2,817,083)$— $1,253,952 $10,439 $1,264,391 

 Common Stock Capital in Excess of Par Value Cumulative Net Income in Excess (Deficit) of Dividends Accumulated Other Comprehensive Income Total National Health Investors Stockholders’ Equity Noncontrolling Interest Total Equity
 Shares Amount      
Balances at December 31, 201437,485,902
 $375
 $1,033,896
 $(569) $6,223
 $1,039,925
 $10,008
 $1,049,933
Total comprehensive income—
 —
 —
 148,862
 21,687
 170,549
 1,452
 172,001
Distributions to noncontrolling interest—
 —
 —
 —
 —
 —
 (2,292) (2,292)
Issuance of common stock, net830,506
 8
 49,381
 —
 —
 49,389
 —
 49,389
Equity offering costs—
 —
 (275) —
 —
 (275) —
 (275)
Shares issued on stock options exercised80,319
 1
 —
 —
 —
 1
 —
 1
Share-based compensation—
 —
 2,134
 —
 —
 2,134
 —
 2,134
Dividends declared, $3.40 per common share—
 —
 —
 (128,431) —
 (128,431) —
 (128,431)
Balances at December 31, 201538,396,727
 $384
 $1,085,136
 $19,862
 $27,910
 $1,133,292
 $9,168
 $1,142,460
Total comprehensive income—
 —
 —
 151,540
 (22,179) 129,361
 1,176
 130,537
Distributions to noncontrolling interest—
 —
 —
 —
 —
 —
 (1,565) (1,565)
Purchase of non-controlling interest—
 —
 (16,321) —
 —
 (16,321) (8,779) (25,100)
Issuance of common stock, net1,395,642
 14
 104,176
 —
 —
 104,190
 —
 104,190
Taxes paid on employee stock awards—
 —
 (1,133) —
 —
 (1,133) —
 (1,133)
Shares issued on stock options exercised55,491
 —
 (2) —
 —
 (2) —
 (2)
Share-based compensation—
 —
 1,732
 —
 —
 1,732
 —
 1,732
Dividends declared, $3.60 per common share—
 —
 —
 (141,529) —
 (141,529) —
 (141,529)
Balances at December 31, 201639,847,860
 $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
Partial redemption of equity component of convertible debt—
 —
 (7,930) —
 —
 (7,930) —
 (7,930)
Issuance of common stock, net1,661,161
 17
 122,220
 —
 —
 122,237
 —
 122,237
Taxes paid on employee stock awards—
 —
 (571) —
 —
 (571) —
 (571)
Shares issued on stock options exercised23,133
 —
 —
 —
 —
 —
 —
 —
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, 201741,532,154
 $415
 $1,289,919
 $32,605
 $(822) $1,322,117
 $—
 $1,322,117


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

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NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172023


NOTENote 1. SIGNIFICANT ACCOUNTING POLICIESOrganization and Nature of Business


The Company - National Health Investors, Inc. (“NHI”NHI,” “the Company,” “we,” “us” or “our”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint-venture,joint venture and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable segments: Real Estate Investments and Senior Housing Operating Portfolio (“SHOP”). Our portfolioReal Estate Investments segment consists of lease, mortgagereal estate investments and leases, mortgages and other note investmentsnotes receivables in independent living facilities (“ILF”), assisted living facilities (“ALF”), entrance-fee communities (“EFC”), senior living campuses (“SLC”), skilled nursing facilities specialty hospitals and medical office buildings. Other investments have included marketable securities(“SNF”) and a joint venture structured to comply with the provisionshospital (“HOSP”). As of the REIT Investment Diversification Empowerment ActDecember 31, 2023, we had gross investments of 2007 (“RIDEA”) through which we investedapproximately $2.4 billion in facility operations managed by independent third-parties. We fund our163 healthcare real estate investmentsproperties located in 31 states and leased pursuant primarily through: (1) operating cash flow, (2) debt offerings, including bank linesto triple-net leases to 25 tenants consisting of 97 senior housing communities (“SHO”), 65 SNFs and one HOSP, excluding one property classified as assets held for sale. Our portfolio of eight mortgages along with other notes receivable totaled $260.7 million, excluding an allowance for expected credit and term debt, both unsecured and secured, and (3) the salelosses of equity securities.$15.5 million, as of December 31, 2023. Units, beds and square footageproperty count disclosures in this annual reportthese footnotes to the consolidated financial statements are unaudited.

Our SHOP segment is comprised of two ventures that own the operations of ILFs. As of December 31, 2023, we had gross investments of approximately $347.4 million in 15 properties with a combined 1,733 units located in eight states that are operated on Form 10-K are unaudited.behalf of the Company by independent managers pursuant to the terms of separate management agreements that commenced April 1, 2022. The third-party managers, or related parties of the managers, own equity interests in the respective ventures.


Note 2. Basis of Presentation and Significant Accounting Policies

Principles of Consolidation - The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-ownedthe Company, and its wholly owned subsidiaries, joint ventures partnerships and consolidated subsidiaries in which we have a controlling interest. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities (“VIE”entities” or “VIEs”), if any.the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances have beenare eliminated in consolidation. Net income is reduced by the portion of net income 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 forevaluate 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 consolidateswould 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.


AtIf 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.

Effective April 1, 2022 and at December 31, 2017,2023, our consolidated total assets and liabilities include two consolidated ventures comprising our SHOP activities, each formed with a separate partner - Merrill Gardens, L.L.C. (“Merrill”) and DSHI NHI Holiday LLC (the “Discovery member”), a related party of Discovery Senior Living (“Discovery”). We consider both ventures to be VIEs as the members of each, as a group, lack the characteristics of a controlling financial interest. We are
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deemed to be the primary beneficiary of each VIE because we heldhave the ability to control the activities that most significantly impact each VIE’s economic performance. Reference Notes 5 and 17 for further discussion of our SHOP ventures.

We also consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, a related party of Discovery, beginning in June 2019, and LCS Timber Ridge LLC (“LCS”), beginning in January 2020, to invest in senior housing facilities. We consider both partnerships to be VIEs as either the members, as a group, lack the characteristics of a controlling financial interest or the total equity at risk is insufficient to finance activities without additional subordinated financial support. NHI directs the activities that most significantly impact economic performance of these partnerships, subject to limited protective rights extended to our partners for specified business decisions. Because of our control of these partnerships, we include their assets, liabilities, noncontrolling interests and operations in our consolidated financial statements. Reference Note 17 for further discussion of these real estate partnerships.

We use the equity method of accounting when we own an interest in eight unconsolidated VIEs. Becausean entity whereby we generallycan exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity. Reference Note 6 for further discussion of our equity method investment.    

We have concluded that the Company is not the primary beneficiary for certain investments where we lack either directly or through related parties any material input inthe power to direct the activities that most significantly impact theirthe investments’ economic performance, we have concluded that NHI is not the primary beneficiary.performance. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost.cost or net realizable value for straight-line rents receivable, excluding our investments accounted for under the equity method. See Note 17 for information on unconsolidated VIEs.


Our VIEsNoncontrolling Interests - Contingently redeemable noncontrolling interests are summarized below by date ofrecorded at their 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 condensed consolidated financial statements cross-referenced below.
DateNameSource of ExposureCarrying AmountMaximum Exposure to LossSources of Exposure
2012Bickford / Sycamore
Various1
$26,801,000
$39,243,000
Notes 2, 3
2014Senior Living CommunitiesNotes and straight-line receivable$37,628,000
$52,011,000
Note 2, 3
2014Life Care Services affiliateNotes receivable$54,805,000
$61,183,000
Note 3
2015East Lake Capital Mgmt.Straight-line receivable$3,171,000
$3,171,000
Note 2
2016The Ensign Group developerN/A$—
$—
Note 2
2016Senior Living ManagementNotes and straight-line receivable$26,095,000
$26,095,000
Note 3
2017Navion Senior SolutionsStraight-line receivable$251,000
$251,000
Note 2
2017Evolve Senior LivingNote receivable$9,908,000
$9,908,000
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 classify 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. 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 leasesupon issuance and are accumulated straight-line receivables.

We apply FASB guidance relatedsubsequently adjusted to investments in joint ventures based on the typereflect their share of controlling rights held by the members’ interests in limited liability companies that may preclude consolidation by the majority equity owner in certain circumstances in which the majority equity owner would otherwise consolidate the joint venture.

We have structured our joint ventures to be compliant with the provisions of RIDEA which permits NHI to receive rent payments through a triple-net lease between a property companygains or losses and an operating company and allows NHI the opportunity to capture additional value on the improving performance of the operating company through distributions to a taxable REIT subsidiary (“TRS”). Accordingly, prior to the termination of our joint venture on September 30, 2016, our TRS held NHI’s equity interest in an unconsolidated operating company, which we did not control, thus providing an organizational structure that allowed the TRS to engage in a broad range of activities and share in revenues that were otherwise non-qualifying income under the REIT gross income tests.

Noncontrolling Interest - We have excluded net income attributable to the noncontrolling interest from net income attributableinterests. In periods where they are or will become probable of redemption, an adjustment to common shareholdersthe redemption value of the noncontrolling interests is also recognized through “Capital in excess of par value” on the Company’s Consolidated Balance Sheets and included in our Consolidated Statementscomputation of Income for the years ended December 31, 2016 and December 31, 2015.earnings per share. As of December 31, 20172023 and during2022, the year endedMerrill SHOP venture noncontrolling interest was classified in mezzanine equity, as discussed further in Note 10.

The noncontrolling interests associated with our consolidated real estate partnerships, and our Discovery member SHOP venture were classified in equity as of December 31, 2017, we did not hold any noncontrolling interests.2023 and 2022.


Equity-Method Investment - Through September 30, 2016, we reported our TRS investment in an unconsolidated entity, over whose operating and financial policies we had the ability to exercise significant influence but not control, under the equity method of accounting. Under this accounting method, our pro rata share of the entity’s earnings or losses was included in our Condensed Consolidated Statements of Income. Additionally, we adjusted our investment carrying amount to reflect our share of changes in the equity-method investee’s capital resulting from its capital transactions. On September 30, 2016, we unwound the joint venture underlying the TRS and ceased participation in the operations which comprised all its activity.

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. Significant assumptions and estimates include purchase price allocations to record investments in real estate, impairment of real estate, and allowance for credit losses. Actual results could differ from those estimates.


Earnings Per Share - TheOur unvested restricted stock awards contain non-forfeitable rights to dividends, and accordingly, these awards are deemed to be participating securities. Therefore, the Company applies the two-class method to calculate basic and diluted earnings. Under the two-class method, we allocate net income attributable to stockholders to common stockholders and holders of unvested restricted stock by using the weighted-average shares of each class outstanding for quarter-to-date and year-to-date periods, based on their respective participation rights to dividends declared and undistributed earnings. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common sharesstock outstanding during the reporting period is used to calculate basic earnings per common share.period. Diluted earnings per common share assumereflects the exerciseeffect 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. securities.

We apply the treasury stock method to ourany 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. Diluted earnings per share for the year ended December 31, 2021 includes the potential dilutive impact of our convertible debt that was repaid in 2021.


Reclassifications - In prior years, the Company presented "Cumulative dividends in excess of net income" as a single line item on the Consolidated Balance Sheets and the Consolidated Statements of Equity. Beginning January 1, 2023, the Company separated this line item into two components, "Retained earnings" and "Cumulative dividends," and reclassified prior year information to conform to the current period presentation.

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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.



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 PropertiesProperty Owned - 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, tenant improvements, personal property and lease and other intangibles, and personal property.intangibles. For properties acquired in transactions accounted for as asset purchases, the purchase price, allocationwhich 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, including any equipment related to the SHOP segment, over their estimated useful lives ranging from 5 to 25 years. For contingent consideration arising from business combinations, the liability is adjusted to estimated fair value at each reporting date through earnings.


Expenditures for repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets - We evaluate the recoverability of the carrying valueamount of our real estate properties on a property-by-property basis. On a quarterly basis, we review our properties for recoverabilitylong-lived assets when events or circumstances, including significant physical changes, in the property, significant adverse changes in general economic conditions andor significant deteriorationsdeterioration of the underlying cash flows of the property,long-lived assets, indicate that the carrying amount of the propertylong-lived asset 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.amount. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property.long-lived asset.


MortgageDuring the years ended December 31, 2023, 2022 and Other Notes Receivable2021, we recognized impairment charges of approximately $1.6 million, $51.6 million and $51.8 million, respectively, included in “Loan and realty losses, net” in our Consolidated Statements of Income. Reference Note 3 for more discussion.

Leases - Each quarter, we evaluate the carrying valuesAll of our notes receivable onleases within the Real Estate Investment segment are classified as operating leases and generally have an instrument-by-instrument basisinitial leasehold term of 10 to 15 years followed by one or more five-year tenant renewal options. The leases are “triple-net leases” under which the tenant is responsible for recoverability when events or circumstances, including the non-receiptpayment of contractual principalall taxes, utilities, insurance premiums, repairs and interest payments, significant deteriorationsother charges relating to the operation of the financial conditionproperties, 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 borrowerproperties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and significant adverse changes in general economic conditions, indicate thatto maintain specified minimal personal injury and property damage insurance. The leases also require the carrying amounttenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the note receivable maytenant, 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
78
respect to each facility. While we do not be recoverable. If a note receivable becomes more than 30 days delinquent asincorporate residual value guarantees, the lease provisions and considerations discussed above impact 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 contractual principal or interest payments,various market, asset, and tenant-specific risks and characteristics. As the loanclassification of our leases 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,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 collateral securingexercise of renewal options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows. Initial direct costs that are incremental to entering into a lease are capitalized in accordance with the note receivable.provisions of ASC Topic 842.


FASB Lease Modifications Related to Effects of the COVID-19 Pandemic - In accordance with the FASB’s question-and-answer document issued in April 2020, we elected to account for qualified rent concessions provided as a result of the coronavirus pandemic (“COVID-19”) as variable lease payments, recorded as rental income when received and not as lease modifications under ASC Topic 842. This guidance was applicable to certain rent concessions granted in 2021 and 2022. Reference Note 3 for more detail.

Financial Instruments - Credit Losses - We estimate and record an allowance for credit losses upon origination of the loan, based on expected credit losses over the term of the loan and update this estimate each reporting period. We calculate the estimated credit losses on mortgages by pooling these loans into two groups – investments in existing or new mortgages and construction mortgages. Mezzanine, revolving lines of credit and loans designated as non-performing are evaluated at the individual loan level. We estimate the allowance for credit losses by utilizing a loss model that relies on future expected credit losses, rather than incurred losses. This loss model incorporates our historical experience, adjusted for current conditions and our forecasts, using the probability of default and loss given default method. Incorporated into the construction mortgage loss model is an estimate of the probability that NHI will acquire the property. Using the resulting estimate, a portion of the outstanding construction mortgage balance which we currently expect will be reduced by our acquisition of the underlying property when construction is complete, is deducted from the construction mortgage balance included in the expected loss calculation. Mezzanine loans, revolving lines of credit and loans designated as non-performing are also based on the loss model to recognize expected future credit losses and are applied to each individual loan using borrower specific information. We also perform a qualitative assessment beyond model estimates and apply adjustments as necessary. The credit loss estimate is based on the net amortized cost balance of our mortgage and other notes receivables as of the balance sheet date.

Calculation of the allowance for credit losses involves significant judgment. It is possible that actual credit losses will differ materially from our current estimates. Write-offs are deducted from the allowance for credit losses when we judge the principal to be uncollectible.

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 or subject to an agreement (e.g. with a qualified intermediary subject to an exchange agreement pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) or in accordance with agency agreements governing our mortgages).


The following table sets forth our “Cash and cash equivalents and restricted cash” reported within the Company’s Consolidated Statements of Cash Flows ($ in thousands):
As of December 31,
20232022
Beginning of period:
Cash and cash equivalents$19,291 $37,412 
Restricted cash (included in Other assets, net)
2,225 2,073 
     Cash, cash equivalents, and restricted cash$21,516 $39,485 
End of period:
Cash and cash equivalents$22,347 $19,291 
Restricted cash (included in Other assets, net)
2,270 2,225 
     Cash, cash equivalents, and restricted cash$24,617 $21,516 

Assets Held for Sale - We consider properties to be assets held for sale when (1) management commits to a plan to sell the property, (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we anticipate the completed sale will occur within one year; and (6) the property is actively being
79
marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated transaction costs. Depreciation and amortization of the property are discontinued. If a property subsequently no longer meets the criteria to be classified as held for sale, it is reclassified as held and used and measured at the lower of i) its original carrying amount before the asset was classified as held for sale, adjusted for any depreciation expense not recognized while it was classified as held for sale, and ii) its fair value.

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 oftenmay exceed federally-insuredfederally 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, and marketable securities, if any, are subject to the possibility of loss of the carrying values as a result of either the failure of other parties to perform according to their contractual obligations or changes in market prices 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.


Marketable Securities - Investments in marketable debt and equity securities must be categorized as trading, available-for-sale or held-to-maturity. Our investments in marketable equity securities are classified as available-for-sale securities. Unrealized gains and losses on available-for-sale securities are recorded in other comprehensive income. We evaluate our securities for other-than-temporary impairments on at least a quarterly basis. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis.


A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and consider whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end and forecasted performance of the investment.

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


Deferred Income - Deferred income primarily includes rents received in advance from tenants and residents and non-refundable lease 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 lesseetenant 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.


Revenue Recognition

Rental Income - Our leases generally provide for rent escalators throughout the term of the lease. 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.collectible and the lease provides for specific contractual escalators. Under certain leases, we receive additional contingent rent, which is calculated on the increase in revenues of the lesseetenant over a base year or base quarter.target threshold. We recognize contingent rent annually or quarterlyperiodically based on the actual revenues of the lesseetenant 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 rentalsrent payments and are excluded from the scheduledetermination 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 rentrents 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.


Property operating expenses that are reimbursed by our operators are recorded as “Rental income” in the Consolidated Statements of Income. Accordingly, we record a corresponding expense, reflected in “Taxes and insurance on leased properties” in the Consolidated Statements of Income. Rental income includes reimbursement of property operating expenses for the years ended December 2023, 2022 and 2021, totaling $11.5 million, $9.8 million and $11.6 million, respectively.

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 contingent consideration arising from 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 identifyThe Company reviews its operating lease receivables for collectability on a leaseregular basis, taking into consideration changes in factors such as non-performing if a requiredthe tenant’s payment history, the financial condition of the tenant, business conditions in which the tenant operates and economic conditions in the area where the property is located. In the event that collectability with respect to any tenant is not received within 30 daysprobable, a direct write-off of the date itreceivable is due. Our policy relatedmade as an adjustment to rental income and any future rental revenue is recognized only when the tenant makes a rental payment. As of December 31, 2023, we had three tenants, including
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Bickford Senior Living (“Bickford”), on non-performing leased real estate properties is to recognizethe cash basis of revenue recognition for their lease arrangements. During the year ended December 31, 2022, we placed three operators on the cash basis of rental income recognition. During the year ended December 31, 2021, we placed Holiday Retirement (“Holiday”) on cash basis for its master lease which was terminated in 2022 upon the period whenformation of the SHOP ventures. Reference Note 3 for further discussion of cash basis tenants.

Resident Fees and Services - Resident fee and services revenue associated with our SHOP activities is recognized as the related cashperformance obligations are satisfied and includes resident room charges, community fees and other resident charges.

Residency agreements are generally short term (30 days to one year), and entitle the resident to certain room and care services for a monthly fee billed in advance. Revenue for certain related services is received.billed monthly in arrears. The Company has elected the lessor practical expedient within ASC Topic 842, Leases, not to separate the lease and nonlease components within our resident agreements as the timing and pattern of transfer to the resident are the same. The Company has determined that the nonlease component is the predominant component within the contract and will recognize revenue under ASC Topic 606, Revenue Recognition from Contracts with Customers.


Interest Incomefrom Mortgage and Other Notes Receivable - Mortgage interestInterest income is recognized based on the interest rates and principal amounts outstanding on the mortgage notes receivable. Under certain mortgages, we receive additional contingent interest, which is calculated on the increase in the current year revenues of a borrower over a base year. We identify a mortgage loannote as non-performing if abased on various criteria including timeliness of required payment is not received within 30 dayspayments, compliance with other provisions under the related note agreement, and an evaluation of the dateborrower’s current financial condition for indicators that it is due. Our policy relatedprobable it cannot pay its contractual amounts. A non-performing loan is returned to mortgageaccrual status at such time as the note becomes contractually current and management believes all future principal and interest income on non-performing mortgage loans iswill be received according to recognize mortgage interest income in the period whencontractual terms of the cash is received.note. As of December 31, 2017,2023, we had not identified anytwo mortgage notes receivable and a mezzanine loan totaling an aggregate of our mortgages$26.6 million with affiliates of two operators/borrowers, including Bickford, designated as non-performing.


Investment Income and Other - Investment income and other includes dividends when declared and interest when earned from our investments in marketable securities, and interest on cash and cash equivalents when earned. Realized gains and losses on sales of marketable securities using the specific-identification method are included as a separate component of continuing operations in the Consolidated Statements of Income as investment and other gains.

Derivatives - In the normal course of business, we are subject to risk from adverse fluctuations in interest rates. We have chosenOccasionally, we may choose 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.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 theany 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. We record income tax expense or benefit with respect to one of our subsidiaries which is taxed TRS under provisions similar to those applicable to regular corporations. Aside from such income taxes which may be applicable to the taxable income in the TRS,Code. Accordingly, we will generally 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% of our taxable income. Accordingly, no provision for federal income taxes has been made in the consolidated financial statements, except for the provision on the taxable income of the TRS, which is included in our consolidated statements of income under the caption, “Income tax benefit (expense) of taxable REIT subsidiary.” OurA failure to continue 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.


Certain activities that we undertake may be conducted by subsidiary entities that have elected to be treated as TRSs. TRSs are subject to federal, state, and local income taxes. Accordingly, a provision for income taxes has been made in the consolidated financial statements.

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.


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Our tax returns filed for years beginning in 20132020 are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our consolidated financial statementsConsolidated Statements of Income as a component of income tax expense.


Segment DisclosuresSegments - We operate our business through two reportable segments: Real Estate Investments and SHOP. In our Real Estate Investments segment, we invest in (i) senior housing and healthcare real estate and lease those properties to healthcare operating companies under primarily triple-net leases that obligate tenants to pay all property-related expenses and (ii) mortgage and other notes receivable throughout the United States. Our SHOP segment is comprised of the operations of 15 ILFs located throughout the United States that are inoperated on behalf of 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.

Reclassifications - We have reclassified certain balances where necessary to conform the presentation of prior periodsCompany by independent managers pursuant to the current period. We have combined our investment in marketable securities intoterms of separate management agreements. Reference Notes 5 and 16 for additional information.

Recent Accounting Pronouncements - In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU enhances segment disclosures by requiring public entities to provide investors with additional, more detailed information about a reportable segment’s expenses. The ASU also requires disclosure of the chief operating decision maker’s (“CODM”) title and position on an annual basis, as well as an explanation of how the CODM uses the reported measures and other assets in our Consolidated Balance Sheet atdisclosures. The amendment is effective for the Company for the year ending December 31, 2016. These reclassifications had no effect on previously reported net income.2024.


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 14.3. Investment Activity


Asset Acquisition
NOTE 2. REAL ESTATE

As of December 31, 2017, we owned 209 health care real estate properties located in 32 states and consisting of 136 senior housing communities, 68 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 $1,298,000) consisted of properties with an original cost of approximately $2,664,605,000, rented under triple-net leases to 27 lessees.


2023 Acquisitions and New Leases of Real Estate


During the year ended December 31, 2017,2023, we announcedcompleted the following real estate investments and commitments as described below acquisitions within our Real Estate Investments segment (dollars$ in thousands)thousands):

Operator Date Properties Asset Class Amount
Navion Senior Solutions February 2017 2 SHO $16,100
Prestige Care March 2017 1 SHO 26,200
The LaSalle Group March 2017 5 SHO 61,865
The Ensign Group March 2017 1 SNF 15,096
Bickford Senior Living June 2017 1 SHO 10,400
Acadia Healthcare July 2017 1 HOSP 4,840
Senior Living Communities August 2017 1 SHO 6,830
Marathon/Village Concepts October 2017 1 SHO 7,100
Discovery Senior Living December 2017 1 SHO 34,600
Navion Senior Solutions December 2017 1 SHO 8,200
        $191,231
OperatorDatePropertiesAsset ClassLandBuilding and ImprovementsTotal
Silverado Senior LivingQ1 20232ALF$3,894 $33,599 $37,493 
BickfordQ1 20231ALF1,746 15,542 17,288 
$5,640 $49,141 $54,781 

Navion Senior Solutions


In two acquisitions,February 2023, we acquired threetwo memory care communities operated by Silverado Senior Living for approximately $37.5 million. The newly developed properties opened in 2022 and include a 60-unit community in Summerlin, Nevada and a 60-unit community in Frederick, Maryland. They are leased pursuant to 20-year leases with a first-year lease rate of 7.5% and annual escalators of 2.0%.

In February 2023, we also acquired a 64-unit assisted living/memory-care facilities totaling 118 unitsliving and memory care community in North Carolina. Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including the satisfaction of an outstanding construction note receivable of $14.2 million including interest, cash consideration of $0.5 million and approximately $0.1 million in closing costs. The acquisition price also included a reduction of $2.5 million in Bickford’s outstanding pandemic-related rent deferrals that has been recognized in “Rental income.” We added the community to an existing master lease with Bickford at an initial rate of 8.0%.

2022 Acquisitions and New Leases of Real Estate

During the year ended December 31, 2022, we completed the following real estate acquisitions within our Real Estate Investments segment ($ in thousands):

OperatorDatePropertiesAsset ClassLandBuilding and ImprovementsTotal
Encore Senior LivingQ2 20221ALF$542 $12,758 $13,300 
BickfordQ4 20221ALF2,052 15,148 17,200 
$2,594 $27,906 $30,500 

In April 2022, we acquired a 53-unit ALF located in Oshkosh, Wisconsin, from Encore Senior Living. The acquisition price was $13.3 million and included the firstcancellation of an outstanding construction note receivable to us of $9.1 million, including
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interest. We added the facility to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%.

In November 2022, we acquired a 60-unit ALF located in Virginia Beach, Virginia, from Bickford. The acquisition on February 21, 2017, we paid $16,100,000, inclusive of $100,000price was $17.2 million, including $0.2 million in closing costs, and the fundingcancellation of $207,000an outstanding construction note receivable of $14.0 million including interest. The acquisition price also included a reduction of $3.0 million in specified capital improvements for two assisted living/memory-care facilities totaling 86 unitsBickford’s outstanding pandemic-related rent deferrals that were recognized in Hendersonville, North Carolina.rental income in the fourth quarter of 2022 based on the fair value of the real estate assets received. We leased the facilities to Navion Senior Solutions (“NSS,” previously known as Ravn Senior Solutions) for an initial lease term of 15 years plus renewal options. The initial annual lease rate is 7.35%, plus fixed annual escalators. For the two facilities acquired in February, we have additionally committed to NSS certain earnout payments contingent on reaching and maintaining certain performance metrics. As earned, the earnout payments, totaling $1,500,000, would be due in installments of up to $1,000,000 for performance measured as of December 31, 2018, with any subsequently earned cumulative unpaid amounts to be measured and due as earned for the periods ending December 31, 2019 and/or 2020. Upon funding, contingent payments earned will be added to the lease base.

On December 14, 2017, for $7,550,000, inclusive of $100,000 in closing costs, we acquired a third assisted living/memory-care facility totaling 32 units in Durham, North Carolina. We leased the facility to NSS for an initial lease term of 15 years plus renewal options. Additionally, the lease provides for lease incentives of up to $3,350,000 based upon the achievement of certain performance metrics, and we have committed $650,000 to an expansion program. The initial annual lease rate is 7.15%, plus fixed annual escalators. Payment of any incentives will be added to the lease base at the rate prevailing when funded. The Durham acquisition was incorporated into the existing master lease which was extendedwith Bickford for all properties through December 2032.

NSS’s relationship to NHI consists of its leasehold interests and purchase options and is considered a variable interest, analogous to a financing arrangement. NSS is structured to limit liability for potential damage claims, is capitalized for that purpose and is considered a VIE. Additionally, the master lease conveys to NHI an option to purchase a third facility currently operated by NSS.

Prestige

On March 10, 2017, we acquired a 102-unit assisted living community in Portland, Oregon for $26,200,000, inclusive of closing costs of $112,000. We leased the facility to Prestige Care (“Prestige”) under our existing master lease, which has a remaining lease term of 1210.5 years plus renewal options. The lease provides for an initial annual lease rate of 7% plus annual escalators of 3.5% in years two through four and 2.5% thereafter. The acquisition was accounted for as an asset purchase.

In addition, we have committed to Prestige certain earnout payments contingent on reaching and maintaining specified performance metrics. If earned, the earnout payments, totaling $1,000,000, would be due for performance measured and earned as of December 31, 2018. Upon funding, contingent payments earned will be added to the lease base.

The LaSalle Group

On March 16, 2017, we acquired five memory care communities totaling 223 units in Texas and Illinois for $61,865,000 inclusive of closing costs of $65,000. We leased the facilities to The LaSalle Group (“LaSalle”) for an initial lease term of 15

years. The lease provides for an initial annual lease rate of 7% plus annual escalators of 3.5% in years two through three and 2.5% thereafter. The acquisition was accounted for as an asset purchase.

In addition, we have committed to LaSalle certain earnout payments contingent on reaching and maintaining certain performance metrics. As earned, the earnout payments, totaling $5,000,000, would be due in installments of up to $2,500,000 for performance measured as of December 31, 2018, with any subsequently earned cumulative unpaid amounts to be measured and due as earned for the trailing periods ending December 31, 2019 and/or 2020. Upon funding, contingent payments earned will be added to the lease base.

The Ensign Group

On March 24, 2017, we acquired from a developer a 126-bed skilled nursing facility in New Braunfels, Texas for $13,846,000 plus $1,250,000 contributed by the lessee, The Ensign Group (“Ensign”). The facility is included under our existing master lease for the remaining lease term of 14 years plus renewal options. The initial lease rate is set at 8.35% subject to annual escalators based on prevailing inflation rates. The acquisition was accounted for as an asset purchase.

With the acquisition of the New Braunfels property, NHI has a continuing commitment to purchase, from the developer, three new skilled nursing facilities in Texas for $42,000,000 which are newly developed and are leased to Legend Healthcare and subleased to Ensign. The fixed-price nature of the commitment creates a variable interest for NHI in the developer, whom NHI considers to lack sufficient equity to finance its operations without recourse to additional subordinated debt. The presence of these conditions causes the developer to be considered a VIE.

Acadia

In July 2017, we acquired a 10-acre parcel of land (“Property”) for $4,840,000. The Property was conveyed to NHI by a subsidiary of our tenant, Acadia Healthcare Company (“Acadia”), who is the lessee of NHI’s TrustPoint Hospital in Murfreesboro, Tennessee, which is situated on adjacent land. Our ground lease with Acadia covers a 10-year period and bears an initial rate of 7%8.0%, with annual CPI escalators subject to escalation aftera floor and ceiling.

Asset Dispositions

2023 Asset Dispositions

During the third year. Additionally,year ended December 31, 2023, we completed the lease confers a purchase optionfollowing real estate property dispositions within our Real Estate Investments segment ($ in thousands):

OperatorDatePropertiesAsset ClassNet ProceedsNet Real Estate InvestmentGain
Impairment2
BAKA Enterprises, LLC1,3
Q1 20231ALF$7,478 $7,505 $— $27 
Bickford1
Q1 20231ALF2,553 1,421 1,132 — 
Chancellor Health Care1,3
Q2 20231ALF2,355 1,977 378 — 
Milestone Retirement1,3,4
Q2 20232ALF3,803 3,934 — 131 
Chancellor Health Care1,3
Q2 20231ALF7,633 6,140 1,493 — 
Milestone Retirement1,3,4
Q2 20231ALF1,602 1,452 150 — 
Chancellor Health CareQ2 20231ALF23,724 14,476 9,248 — 
Chancellor Health Care1,3
Q3 20231ALF2,923 2,292 631 — 
Senior Living Management1,4
Q4 20232ALF5,522 4,770 752 — 
Senior Living Management1,3
Q4 20231ALF1,515 1,100 415 — 
12$59,108 $45,067 $14,199 $158 

1 Assets were previously classified as “Assets held for sale” in the Consolidated Balance Sheet at December 31, 2022.
2 Impairments are included in “Loan and realty losses, net” in the Consolidated Statements of Income for the year ended December 31, 2023.
3 Total aggregate impairment charges previously recognized on the property, on which Acadia intends to construct a sister facility. The option opens in 2020, extends through June 2023,these properties were $0.3 million and is to be exercisable at our original purchase price. In connection with the ground lease, the window of Acadia’s existing purchase option on the TrustPoint Hospital facility was shifted from 2018 to 2020 to coincide with the option window on the Property. Of our total revenues, $2,537,000 and $2,392,000 were derived from Acadia$17.4 million for the years ended December 31, 20172023 and 2016,2022, respectively.

4 The Company provided aggregate financing of approximately $2.2 million, net of discounts, on these transactions in the form of notes receivable, which is included net proceeds.
Evolve

On August 7, 2017, we extended a first mortgage loan of $10,000,000 to Evolve Senior Living (“Evolve”) to fund the purchase of a 40 unit memory care facility in New Hampshire. The loan provides for annual interest of 8% and a maturity of five years plus renewal terms at the option of the borrower. NHI has the option to purchase the facility at fair market value after year two of the loan.

Senior Living Communities

On August 25, 2017, we committed to fund up to $6,830,000 in upgrades covering identified needs within the nine-facility independent living portfolio operated by Senior Living Communities (“Senior Living”). Amounts funded will be addedTotal rental income related to the lease base. No funding had occurred underdisposed properties was $3.3 million, $0.7 million and $6.1 million for years ended December 31, 2023, 2022 and 2021, respectively.

2022 Asset Dispositions

During the agreementyear ended December 31, 2022, we completed the following real estate property dispositions within our Real Estate Investments segment ($ in thousands):

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OperatorDatePropertiesAsset ClassNet ProceedsNet Real Estate InvestmentGain
Impairment1
Hospital Corporation of AmericaQ1 20221MOB$4,868 $1,904 $2,964 $— 
Vitality Senior Living2
Q1 20221SLC8,302 8,285 17 — 
Holiday2
Q2 20221ILF2,990 3,020 — 30 
Chancellor Health Care2
Q2 20222ALF7,305 7,357 — 52 
Bickford2
Q2 20223ALF25,959 28,268 — 2,309 
Comfort CareQ2 20224ALF40,000 38,444 1,556 — 
Helix HealthcareQ2 20221HOSP19,500 10,535 8,965 — 
Discovery Senior Living2
Q3 20222ALF/SLC16,379 15,159 1,220 — 
National HealthCare Corporation (“NHC”)Q3 20227SNF43,686 30,066 13,620 — 
22$168,989 $143,038 $28,342 $2,391 

1 Impairments are included in “Loan and realty losses, net” in the Consolidated Statement of Income for the year ended December 31, 2022.
2 Total impairment charges recognized on these properties were $28.5 million for the year ended December 31, 2022.

Total rental income related to the disposed properties was $7.0 million and $10.9 million for years ended December 31, 2022 and 2021, respectively.

Assets Held for Sale and Long-Lived Assets

The following is a summary of our assets held for sale ($ in thousands):

For the Year Ended December 31,
20232022
Number of facilities113
Real estate, net$5,004$43,302
Rental income associated with the asset held for sale as of December 31, 2017.

Marathon/Village Concepts

On October 15, 2017, we committed up to $7,100,000 to fund the expansion of our independent living community in Chehalis, Washington leased to Marathon Development2023 totaled $1.7 million, $0.9 million, and Village Concepts Retirement Communities (“Marathon”). Upon funding, incurred amounts will be added to the lease base. As of December 31, 2017, no funding had occurred under the agreement.

Discovery

On December 1, 2017, we acquired a 200-unit independent living facility in Tulsa, Oklahoma, for $34,600,000 including the assumption of a Fannie Mae mortgage with remaining balance of $18,311,000. The mortgage amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, and bears interest at an annual rate of 4.6%. We leased the property to Discovery Senior Living (“Discovery”) at an initial lease rate of 7% with fixed annual escalators beginning in

year two of the fifteen year term. We have additionally committed up to $500,000 in capital improvements, which upon funding will be added to the lease base. The acquisition was accounted for as an asset purchase.

Major Customers

Bickford

As of December 31, 2017 our Bickford Senior Living (“Bickford”) portfolio consists of leases with primary lease expiration dates as follows (in thousands):
 Lease Expiration 
 Sept / Oct 2019June 2023Sept 2027May 2031Total
Number of Properties10
13
4
20
47
2017 Annual Contractual Rent$8,994
$10,809
$125
$16,576
$36,504
Straight Line Rent Adjustment(347)226
309
4,914
5,102
Total Revenues$8,647
$11,035
$434
$21,490
$41,606
      

On June 1, 2017, we acquired an assisted living/memory-care facilitytotaling 60 units in Lansing, Michigan, for $10,400,000, inclusive of $200,000 in closing costs. Additionally, we have committed to the funding of $475,000 in specified capital improvements, which will be added to the lease base. We included this facility in a master lease to Bickford for a remaining term of 14 years plus renewal options. The initial lease rate is 7.25%, plus annual fixed escalators. We accounted for the acquisition as an asset purchase.

In April and August 2017, Bickford opened the last two of the five-facility development project announced in 2015. Newly-constructed facilities have an annual lease rate of 9% at completion, after six months of free rent. Of these facilities, 35 were held in a RIDEA structure and operated as a joint venture until September 30, 2016, when NHI and Sycamore, an affiliate of Bickford, entered into a definitive agreement terminating the joint venture and converting Bickford’s participation to a triple-net tenancy with assumption of existing leases and terms. Through September 30, 2016, NHI owned an 85% equity interest and Sycamore owned a 15% equity interest in our consolidated subsidiary (“PropCo”). The facilities were leased to an operating company (“OpCo”), in which NHI previously held a non-controlling 85% ownership interest. The facilities are managed by Bickford. Our joint venture was structured to comply with the provisions of RIDEA. On September 30, 2016, we unwound the joint venture underlying the RIDEA and reacquired Bickford’s share of its assets. Effective May 1, 2017, NHI and Bickford announced a new amended and restated master lease covering 20 Bickford properties. Under terms of the new master lease, the base term for these properties will now extend to May 2031. Additionally, effective June 28, 2017, the leases of thirteen properties acquired in June 2013 and initially set for expiration in June 2018 have been renewed and extended through June 2023. NHI has a right to future Bickford acquisitions, development projects and refinancing transactions.

In September 2017, upon collection of all past-due rents, we transitioned the lease of a 126-unit assisted living portfolio from our then tenant as the result of material noncompliance with lease terms. On September 30, 2017, we entered with Bickford into a 10-year lease, beginning October 1, 2017. The agreement provides for initial annual lease payments of $1,500,000 with a 4% escalator in effect for years two through four and 3% thereafter. Additionally, the lease provides a purchase option which opens immediately and is co-terminus with the lease. The option will be exercisable for the greater of $21,400,000 or at a capitalization rate of 8.5% on the forward 12-month rental at the time of exercise. The former lease provided for a contractual payment of $2,237,000 in 2016.

Of our total revenues, $41,606,000 (15%), $30,732,000 (12%) and $24,121,000 (11%) were recognized as rental income from Bickford$1.1 million for the years ended December 31, 2017, 20162023, 2022 and 2015, including $5,102,000, $858,000, and $267,000 in straight-line rent2021, respectively. Rental income respectively.

Senior Living

Asassociated with the assets held for sale as of December 31, 2017, we leased nine retirement communities totaling 1,970 units to Senior Living . The 15-year master lease, which began in December 2014, contains two 5-year renewal options2022 totaled $2.1 million and provides for an annual escalator of 4% in 2018 and 3% thereafter.

Of our total revenue, $45,735,000 (16%), $40,332,000 (16%) and $39,422,000 (17%) in lease revenues were derived from Senior Living$5.6 million for the years ended December 31, 2017, 20162022 and 2015, respectively, including $6,984,000, $7,369,0002021, respectively.

During the year ended December 31, 2023, we recorded impairment charges of approximately $1.6 million for four properties in our Real Estate Investments segment, of which $0.5 million related to three properties either sold or classified as assets held for sale. During the year ended December 31, 2022, we recorded impairment charges of approximately $51.6 million for 19 properties which were sold or classified as held for sale in our Real Estate Investments segment. Impairment charges are included in “Loan and $8,422,000realty losses, net” in straight-line rent.the Consolidated Statements of Income.


On August 25, 2017, we committedWe reduce the carrying value of impaired properties to funding up to $6,830,000 toward a facilities upgrade program. Senior Living’s contributiontheir estimated fair value or, with respect to the program will include continuing its capital expenditures in amounts exceeding its contractual lease commitmentsproperties classified as held for sale, to estimated fair value less costs to sell. To estimate the fair values of the properties, we utilized a market approach which considered binding agreements for sales (Level 1 inputs), non-binding offers to purchase from unrelated third parties and/or broker quotes of estimated values (Level 3 inputs), and/or independent third-party valuations (Level 1 and covering identified needs within3 inputs).

Tenant Concentration

The following table contains information regarding tenant concentration, excluding $2.6 million for our corporate office, $347.4 million for the nine-facility independent living portfolio discussed above. Amounts funded by NHI will be added toSHOP segment, and a credit loss reserve of $15.5 million, based on the lease base on which NHI’s rental income is calculated. No funding had occurred under the agreement aspercentage of December 31, 2017.

Holiday

As of December 31, 2017, we leased 25 independent living facilities to an affiliate of Holiday Retirement (“Holiday”). The 17-year master lease began in December 2013 and provides for a minimum escalator of 3.5% after 2017.

Of our total revenues $43,817,000 (16%), $43,817,000 (18%) and $43,817,000 (19%) were derived from Holiday for the years ended December 31, 2017, 20162023, 2022 and 2015, respectively, including $7,397,000, $8,965,0002021 related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):
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As of December 31, 2023
Revenues1
Asset Gross RealNotesYear Ended December 31,
Class
Estate2
Receivable202320222021
Senior Living CommunitiesEFC$573,631 $48,950 $51,274 16%$51,183 18%$50,726 17%
NHCSNF133,770 — 37,335 12%36,893 13%37,735 12%
Bickford3
ALF429,043 16,795 38,688 12%N/AN/A34,599 12%
All others, netVarious1,293,969 195,002 132,216 41%144,534 52%164,017 55%
Escrow funds received from tenants
    for property operating expensesVarious— — 11,513 4%9,788 4%11,638 4%
$2,430,413 $260,747 271,026 242,398 298,715 
Resident fees and services4
48,809 15%35,796 13%— —%
$319,835 $278,194 $298,715 

1 Includes interest income on notes receivable and $10,466,000rental income from properties classified as held for sale.
2 Amounts include any properties classified as held for sale.
3 Revenues included in straight-line rent, respectively. OurAll others, net for years when less than 10%.
4 There is no tenant operatesconcentration in resident fees and services because these agreements are with individual residents.

At December 31, 2023 and 2022, the facilities pursuant to a management agreement with a Holiday-affiliated manager.two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (10.7%).


NHCSenior Living Communities


As of December 31, 2017,2023, we leased 42 facilities under two master leasesten retirement communities totaling 2,216 units to National HealthCare CorporationSenior Living Communities, LLC (“NHC”Senior Living”), a publicly-held company pursuant to triple-net lease agreements maturing through December 2029. We recognized straight-line rent revenue of $(1.2) million, $0.4 million and $2.5 million from the lessee of our legacy properties. Senior Living lease agreements for the years ended December 31, 2023, 2022 and 2021, respectively.

NHC

The facilities leased to NHC, a publicly held company, are under a master lease and consist of 3 independent living facilitiesthree ILFs and 39 skilled nursing facilities (432 SNFs (four of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC underEffective September 1, 2022, we amended the terms of an amended master lease agreement originally dated October 17, 1991, (“concurrently with the 1991 lease”) which includes our 35 remaining legacy properties andsale of a portfolio of seven SNFs to increase the annual base rent due each year through the expiration of the master lease agreement dated August 30, 2013 (“the 2013 lease”) which includes 7 skilled nursing facilities acquired from a third party.

The 1991 lease has been amended to extend the lease expiration toon December 31, 2026. There are two additional 5-yearfive-year renewal options each at a fair rental value of such leased property as negotiated between the parties and determined without including the value attributable to any improvementsparties. In addition to the leased property voluntarily madebase rent, NHC pays any additional rent and percentage rent as required by NHC at its expense.the master lease. Under the terms of the amended lease, the base annual rental is $30,750,000 and rent escalates by 4% of the increase, if any, in each facility’s annual 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 a 2014 base year. For both the 1991 lease and the 2013 lease, weWe refer to this additional rent component as “percentage rent.” DuringStraight-line rent of $(1.2) million and $(0.5) million was recognized for NHC for the last three years ofended December 31, 2023 and 2022, respectively. No material straight-line rent was recognized for the 2013 lease, NHC will have the option to purchase the facilities for $49,000,000.year ended December 31, 2021.


The following table summarizes the percentage rent income from NHC ($ in thousands):

Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
2017 2016 2015
Year Ended December 31,
2023202320222021
Current year$3,127
 $2,932
 $2,385
Prior year final certification1
194
 547
 94
Total percentage rent$3,321
 $3,479
 $2,479
Total percentage rent income
1 For purposes of the percentage rent calculation described in the Master Lease Agreement,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 revenue, $37,467,000 (13%), $37,626,000 (15%) and $36,625,000 (16%) in 2017, 2016 and 2015, respectively, were derived from NHC.

The chairmanTwo of our board of directors ismembers, including our chairman, are also a director onmembers of NHC’s board of directors. As of December 31, 2017,2023, NHC owned 1,630,4621,630,642 shares of our common stock.


Tenant Non-Compliance
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Bickford
In October 2017, we issued a letter of forbearance to one of our tenants for a default on our lease terms involving coverage and liquidity ratios. Rent to the Company was current as
As of December 31, 2017. Lease revenues2023, we leased 39 facilities to Bickford under four leases. During the second quarter of 2022, we converted Bickford to the cash basis of revenue recognition based upon information obtained from Bickford regarding its financial condition that raised substantial doubt as to its ability to continue as a going concern. As a result, we wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives, that were included in “Other assets, net” on the Consolidated Balance Sheet, to rental income in 2022. Straight-line rent revenue of $(18.2) million and $1.7 million was recognized from the tenant and its affiliates comprise 3% of our rental income, and the related straight-line rent receivable was approximately $3,482,000 at December 31, 2017.

We continue to work with the tenant to resolve their defaults. In this effort, we have established a physical presence and visited specific touchpoints that concentrate on the tenant’s revenue and expenditure cycles, and we have identified potential efficiencies. The combination of monitoring and the redoubling of the operator’s efforts has yielded early (unaudited) results that indicate

some improvement in collections, occupancy and margins, an attendant strengthening of operating ratios, and point the way to renewed profitability. With these developments, we continue to maintain a heightened vigilance toward the performance of the portfolio. No rent concessions have been offered to this tenant.

The defaults mentioned above typically give rise to considerations regarding the impairment or recoverability of the related assets, and we give additional attention to the nature of the default’s underlying causes. At this time, consequently, our assessment of likely undiscounted cash flows, calculated at the lowest level for which identifiable asset-specific cash flows are largely independent, reveals no basis for an impairment charge on the underlying real estate.

HSM Lease Extension

Effective as of May 1, 2017, we amended and extended our lease with Health Services Management (“HSM”) covering six skilled nursing facilities in Florida. The amended lease calls for $9,800,000 in first year cash rent, plus fixed annual escalators over a 12-year term. The new agreement replaced the lease set to expire September 30, 2017, which provided for a total cash rent of $7,241,000 in 2016.

Other Lease Activity

We adjust rental income for the amortization of payments recorded as the result of the eventual settlement of commitments and contingencies originally identified in Note 6 as lease inducements. Amortization of these payments against revenues was $119,000, $40,000 and $40,000Bickford leases for the years ended December 31, 2017, 20162022 and 2015,2021, respectively.


On March 22, 2016, we sold a skilled nursing facility in IdahoCash rent received from Bickford for cash considerationthe years ended December 31, 2023, 2022 and 2021 was $33.4 million, $27.6 million and $29.5 million, respectively, including its repayment of $3,000,000. The carrying valueoutstanding pandemic-related rent deferrals of $2.3 million and $0.2 million for the facility was $1,346,000,years ended December 31, 2023 and we recorded a gain2022, respectively. These amounts exclude $2.5 million and $3.0 million of $1,654,000. As discussed aboverental income for the years ended December 31, 2023 and 2022, respectively, related to the reduction of pandemic-related rent deferrals in connection with The Ensign Group,the acquisition of two ALFs located in Virginia discussed above. As of December 31, 2023, Bickford’s outstanding pandemic-related rent deferrals were $18.0 million.

During the first half of 2022, we sold two skilled nursing facilitiestransferred one ALF located in May 2016 for total considerationPennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a ten-year triple-net lease and wrote off approximately $0.7 million in a straight-line rents receivable, reducing rental income. Effective April 1, 2022, we restructured and amended three of $24,600,000Bickford’s master lease agreements covering 28 properties and realized a gain of $2,805,000reached agreement on the disposal. In June 2016, we recognizedrepayment terms of its outstanding pandemic-related rent deferrals. Significant terms of these agreements are as follows:

• Extended the maturity dates of the modified leases to 2033 and 2035. The remaining master lease agreement covering 11 properties with an original maturity in 2023 was previously extended to 2028.

• Reduced the combined rent for the portfolio to approximately $28.3 million (excluding the ALF in Virginia Beach acquired in the fourth quarter of 2022) per year through April 1, 2024, subject to a gainnominal annual increase, at which time the rent will be reset to a fair market value, but not less than 8.0% of $123,000our initial gross investment.

• Required monthly payments from October 2022 through December 2024 based on a percentage of Bickford’s monthly revenues exceeding an established threshold to be applied to the outstanding pandemic-related rent deferrals granted to Bickford. The deferrals may be reduced by up to $6.0 million upon Bickford achieving certain performance targets and the sale or transition of certain properties to new operators of which $2.5 million was earned in the first quarter of 2023 and $3.0 million was earned in the fourth quarter of 2022.

Holiday

During the third quarter of 2021, Welltower Inc. (“Welltower”) completed an acquisition that resulted in a Welltower-controlled subsidiary becoming a tenant under our master lease for the NHI-owned Holiday real estate assets. We placed the tenant on the salecash basis of accounting effective in the third quarter of 2021 because of non-payment of rent and completed the transitioning of the remaining properties in this portfolio effective April 1, 2022. Reference Note 9 for more discussion.

Other Portfolio Activity

Cash Basis Operators and Straight-line Rents Receivable Write-offs

We placed three operators on the cash basis of accounting for their leases during 2022, including Bickford discussed above. During 2021, the Welltower-controlled tenant of our Holiday portfolio was the only tenant on the cash basis prior to the completion of the portfolio transition. Rental income associated with these tenants totaled $48.3 million, $21.4 million and $68.8 million for the years ended December 31, 2023, 2022 and 2021, respectively, which includes the impact of write-offs of $26.0 million in total straight-line rents receivable and $7.1 million of lease incentives during the year ended December 31, 2022.

Included in rental income are amounts received from prior rent deferrals granted to cash basis tenants totaling $2.8 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively.

Tenant Purchase Options

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Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At December 31, 2023, we had tenant purchase options on three properties with an aggregate net investment of $58.4 million that will become exercisable between 2027 and 2028. Rental income from these properties with tenant purchase options was $7.2 million, $7.0 million and $6.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

We cannot reasonably estimate at this time the probability that any purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.

Lease Costs

As of December 31, 2023, we are a vacant land parcel.lessee under a ground lease related to an ALF located in Ohio. For the years ended December 31, 2023, 2022 and 2021, the expense associated with this operating lease was $0.1 million and is included within “General and administrative expense” on the Consolidated Statements of Income. Future minimum lease payments are approximately $0.1 million annually for 2024 through 2028 with cumulative payments of $2.5 million thereafter reflecting an aggregate of $1.3 million of imputed interest. At December 31, 2023, the discount rate for this lease approximated 4.7%. Supplemental balance sheet information related to the lease is as follows ($ in thousands):

As of December 31,
20232022
Buildings and improvements - right of use asset$1,562 $1,599 
Accounts payable and accrued expenses - lease liability$1,705 $1,724 

Rent Concessions

During 2022 and 2021, we granted various rent concessions to tenants whose operations were adversely affected by the COVID-19 pandemic. When applicable, we elected not to apply the modification guidance under ASC Topic 842 and accounted for the related concessions as variable lease payments until those leases were subsequently modified under ASC Topic 842. Rent deferrals accounted for as variable lease payments, reducing rental income, granted for the years ended December 31, 2022 and 2021 totaled approximately $9.3 million and $26.4 million, respectively. Of these totals, Bickford accounted for $4.0 million and $18.3 million for the years ended December 31, 2022 and 2021, respectively. There were no pandemic-related rent deferrals granted during the year ended December 31, 2023.

Future Minimum Lease Payments


At December 31, 2017, the futureFuture minimum lease payments (excluding percentage rent) to be received by us under our operating leases, with ourincluding cash basis tenants, at December 31, 2023 are as follows ($in thousands):

Year Ending December 31,Amount
2024$232,059 
2025237,981 
2026244,581 
2027198,598 
2028192,179 
Thereafter684,840 
$1,790,238 

Variable Lease Payments

Most of our existing leases contain annual escalators in rent payments. Some of our leases contain escalators that are determined annually based on a variable index or other factors that is indeterminable at the inception of the lease. The table below indicates the revenue recognized as a result of fixed and variable lease escalators ($in thousands):

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2018 $245,167
2019 248,297
2020 246,497
2021 248,414
2022 251,312
Thereafter 1,742,065
  $2,981,752
Year Ended December 31,
202320222021
Lease payments based on fixed escalators and deferral repayments$225,565 $226,873 $241,172 
Lease payments based on variable escalators7,709 5,275 4,662 
Straight-line rent income, net of write-offs6,961 (16,681)14,603 
Escrow funds received from tenants for property operating expenses11,513 9,788 11,638 
Amortization and write-off of lease incentives(2,521)(7,555)(1,026)
Rental income$249,227 $217,700 $271,049 


NOTE 3. MORTGAGE AND OTHER NOTES RECEIVABLENote 4. Mortgage and Other Notes Receivable


At December 31, 2017, we had2023, our investments in mortgage notes receivable with a carrying value of $98,110,000totaled $162.4 million secured by real estate and other assets of the borrower (e.g., UCC liens on the personal property of 9property) related to 16 facilities and in other notes receivable with a carrying valuetotaled $98.3 million, substantially all of $43,376,000which are guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At December 31, 2016, we had2022, our investments in mortgage notes receivable with a carrying value of $99,179,000totaled $164.6 million and other notes receivable withtotaled $83.9 million. These balances exclude a carrying valuecredit loss reserve of $34,314,000. No allowance for doubtful accounts was considered necessary$15.5 million and $15.3 million at December 31, 2017 or 2016.2023 and 2022, respectively.


Bickford

AtOur loans designated as non-performing as of December 31, 2017,2023 and 2022 include a mortgage note receivable of $10.0 million and a mezzanine loan of $14.5 million with affiliates of one operator/borrower. This operator/borrower is also one of the tenants on the cash basis of accounting for its leases discussed in Note 3. During the third quarter of 2023, we designated as non-performing a mortgage note receivable of $2.1 million due from Bickford. Interest income recognized from these non-performing loans was $1.8 million, $1.7 million and $2.1 million, respectively, for the years ended December 31, 2023, 2022 and 2021. All other loans were on full accrual basis at December 31, 2023 and 2022.

2023 Mortgage and Other Notes Receivable

Capital Funding Group, Inc. Loan Extension

In September 2023, we amended a mezzanine loan with Capital Funding Group, Inc. Pursuant to the terms of the agreement, the loan increased from its balance at June 30, 2023 of $8.1 million to $25.0 million. The interest rate on the loan was increased to 10% and the maturity was extended to December 31, 2028.

2022 Mortgage and Other Notes Receivable

Encore Senior Living

In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore Senior Living to construct a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized. The total amount funded on the note was $27.7 million and $14.2 million as of December 31, 2023 and 2022, respectively.

Capital Funding Group, Inc.

In November 2022, we funded a $42.5 million senior loan to refinance a portfolio of five skilled nursing facilities located in Texas. The loan was made to affiliates of Capital Funding Group and the properties are leased by subsidiaries of The Ensign Group. The five-year loan agreement has an annual interest rate of 7.25% and two one-year extensions.

Montecito Medical Real Estate

We have a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a fund that invests in medical real estate, including medical office buildings, throughout the United States. As of December 31, 2023 and 2022, we had funded $20.3 million of our construction loanscommitment that was used to Bickford are summarized as follows:acquire nine medical office buildings for a combined purchase price of approximately $86.7 million.

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 Rate Maturity Commitment Drawn Location
July 20169% 5 years $14,000,000
 $(11,096,000) Illinois
January 20179% 5 years 14,000,000
 (4,462,000) Michigan
     $28,000,000
 $(15,558,000)  
Interest accrues at an annual rate ranging between 7.5% and 9.5% that is paid monthly in arrears. Deferred interest accrues at an additional annual rate ranging between 2.5% and 4.5% to be paid upon certain future events including repayments, sales of fund investments, and refinancings. The deferred interest will be recognized as interest income upon receipt. For the years ended December 31, 2023, 2022 and 2021, we received interest of $1.8 million, $1.8 million and $0.2 million, respectively. For the year ended December 31, 2022, we received principal of $0.3 million. Funds drawn in accordance with this agreement are required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment, subject to two one-year extensions.


Other Activity

Bickford Construction and Mortgage Loans

As of December 31, 2023, we had one fully funded construction loan of $14.7 million to Bickford. The promissory notes areconstruction loan is 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 subject 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 atproperty upon stabilization whereby annual rent will be set with a floor of 9.55%, based on NHI’s total investment, plus fixed annual escalators.the underlying operations. On these and future loancertain development projects, Bickford as the borrower is entitled to up to $2,000,000$2.0 million per project in incentive loan drawsincentives based uponon the achievement of predetermined operational milestones, the funding of which if earned, will increase the principal amount and NHI's future purchase price and eventual NHI lease payment.payments to NHI.


Our loansWe held a second mortgage note receivable with a balance of $12.7 million and $13.0 million as of December 31, 2023 and 2022, respectively, originated in connection with the sale of six properties to Bickford representin 2021. This second mortgage note receivable bears interest at a variable interest as do our leases, which are considered analogous to financing arrangements. Bickford is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose10% annual rate and is considered a VIE.

Evolve

On August 7, 2017, we completed a first mortgage loan of $10,000,000 to Evolvematures in April 2026. Interest income was $1.2 million, $1.3 million and $0.9 million for the purchase of a 40 unit memory care facilityyears ended December 31, 2023, 2022 and 2021, respectively, related to the second mortgage. We did not include this note receivable in New Hampshire. The loan provides for annual interest of 8% and a maturity of five years plus renewal terms at the optiondetermination of the borrower. Termsgain recognized upon sale of the loan grant NHI a 10% participationportfolio. Therefore, this note receivable is not reflected in “Mortgage and other notes receivable, net” in the property’s appreciationConsolidated Balance Sheets as of December 31, 2023 and 2022. During the year ended December 31, 2023, Bickford repaid $0.3 million of principal on this note receivable which is reflected in “Gains on sale of real estate, net” in the Consolidated Statement of Income.

As noted previously, we designated a mortgage note receivable of $2.1 million due from Bickford as non-performing during the periodthird quarter of 2023.

Life Care Services - Sagewood

During the loan is outstanding, and NHI also has the option to purchase the facility at fair market value after the second year of the loan. Our loan to Evolve represents a variable interest. Evolve is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE.

Timber Ridge

In February 2015, we entered into an agreement to lend up to $154,500,000 to LCS-Westminster Partnership III LLP (“LCS-WP”),ended December 31, 2021, an affiliate of Life Care Services (“LCS”). The loan agreement conveysrepaid in full a $61.2 million mortgage note. As a result, we recognized the remaining commitment fee of $0.4 million in “Interest income and other” on the Consolidated Statement of Income for the year ended December 31, 2021.

In the second quarter of 2022, we received repayment of a $111.3 million mortgage note receivable along with all accrued interest and facilitateda prepayment fee of $1.1 million which is reflected in “Gain on note receivable payoff” on the constructionConsolidated Statement of Phase II of Timber Ridge at Talus (“Timber Ridge”), a Type-A Continuing Care Retirement Community in Issaquah, WA managed by LCS. Our loan to LCS-WP represents a variable interest. As an affiliate of a larger company, LCS-WP is structured to limit liabilityIncome for potential damage claims, is capitalized to achieve that purpose and is considered a VIE.

The loan takes the form of two notes under a master credit agreement. The senior note (“Note A”) totals $60,000,000 at a 6.75% interest rate with 10 basis-point escalators after year three, and has a term of 10 years. We have funded $53,622,000 of Note A as ofended December 31, 2017. Note A is interest-only2022. Interest income was $5.2 million and is locked to prepayment$10.2 million and for three years. After year three in February 2018, the prepayment penalty starts at 5% and declines 1% per year. Note B is a construction loan for up to $94,500,000 at an annual interest rate of 8% and a five-year maturity and was fully drawn during 2016. We began receiving repayment with new resident entrance fees upon the opening of Phase II during the fourth quarter of 2016. Repayment of Note B amounted to $92,547,000 as ofyears ended December 31, 2017.2022 and 2021, respectively.

NHI has a purchase option on the entire Timber Ridge property for the greater of fair market value or $115,000,000 during a purchase option window of 120 days that will contingently open in year five or upon earlier stabilization of the development, as defined.



Senior Living Communities


In connection with the acquisition in December 2014 of the properties leased to Senior Living, weWe have provided a $15,000,000$20.0 million revolving line of credit to Senior Living whose borrowings under the maturity of which mirrors the 15-year term of the master lease. Borrowingsrevolver are to be used for working capital and to finance construction projects within the Senior Livingits portfolio, including building additional units. UpBeginning January 1, 2025, availability under the revolver will be reduced to $5,000,000$15.0 million. The revolver matures in December 2029 at the time of lease maturity. At December 31, 2023, the facility may be used to meet general working capital needs. Amounts$16.3 million outstanding under the facility, $616,000revolver bears interest at 8.0% per annum.

The Company also has a mortgage loan of $32.7 million with Senior Living that originated in July 2019 secured by a 248-unit CCRC in Columbia, South Carolina. The mortgage loan 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 $38.3 million, subject to adjustment for market conditions.

Credit Loss Reserve

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Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans, collectively referred to as “Coverage”. A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the table below have been calculated utilizing the most recent date for which data is available, September 30, 2023, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, and (iii) less than 1.0x. We update the calculation of Coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. The tables below present outstanding note balances as of December 31, 2017, bear interest2023 at amortized cost.

We consider the guidance in ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs, when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of December 31, 2023, is presented below for the amortized cost, net by year of origination of ($ in thousands):
20232022202120202019PriorTotal
Mortgages
more than 1.5x$— $70,042 $— $22,337 $32,700 $2,587 $127,666 
between 1.0x and 1.5x1,550 — — — — 14,700 16,250 
less than 1.0x— — — — 6,423 — 6,423 
1,550 70,042 — 22,337 39,123 17,287 150,339 
Mezzanine
more than 1.5x720 — 14,933 — — — 15,653 
between 1.0x and 1.5x— — 23,934 — — — 23,934 
less than 1.0x— — — — — 25,000 25,000 
720 — 38,867 — — 25,000 64,587 
Non-performing
less than 1.0x— — — 2,095 — 24,500 26,595 
— — — 2,095 — 24,500 26,595 
Revolver
between 1.0x and 1.5x19,226 
19,226 
Credit loss reserve(15,476)
$245,271 

Due to the continuing challenges in financial markets and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted a 20% increase in the probability of a default and a 20% increase in the amount of loss from a default on all loans, other than those designated as non-performing, resulting in an effective adjustment of 44%. The methodology for estimating the reserves for non-performing loans incorporates the sufficiency of the under lying collateral and the current conditions and forecasts of future economic conditions of these loans, including qualitative factors, which may differ from conditions existing in the historical period.

The allowance for expected credit losses is presented in the following table for the year ended December 31, 2023 ($ in thousands):
Balance at January 1, 2023$15,338 
Provision for expected credit losses138 
Balance at December 31, 2023$15,476 

Note 5. Senior Housing Operating Portfolio Formation Activities

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Effective April 1, 2022, we transitioned the operations of 15 ILFs previously leased pursuant to a triple-net lease into two new ventures comprising our SHOP activities. These new ventures, consolidated by the Company, are structured to comply with REIT requirements and utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. The properties in each venture are operated by a property manager in exchange for a management fee. The equity structure of these ventures is comprised of preferred and common equity interests. The Company owns 100% of the preferred equity interests in these ventures with an annual rate equalfixed preferred return of approximately $10.2 million as of December 31, 2023. Additionally, the managers, or related parties of the managers, own common equity interests in their respective ventures. Each venture is discussed in more detail below.

Merrill Managed Portfolio

We transferred six ILFs located in California and Washington into a consolidated venture with Merrill. Merrill initially contributed $10.6 million in cash for its 20% common equity interest in the venture. In the second quarter of 2023, the members of this venture contributed an additional $4.6 million to fund additional capital expenditures, which was funded in cash in accordance with each member’s common equity interest percentage in the venture. The operating agreement for the venture provides for contingent distributions to the prevailing 10-year U.S. Treasury rate, 2.40%members based on the attainment of certain yields on investment calculated on an annual basis.

The properties are managed by Merrill pursuant to a management agreement with an initial term through March 2032 that automatically renews on a year-to-year basis thereafter unless terminated by either party with notice. The management agreement entitles Merrill to a base management fee of 5% of net revenue and a real estate services fee of 5% of real estate costs incurred during any calendar year that exceed $1,000 times the number of units at each facility. Given certain provisions of the operating agreement, including provisions related to a Company change in control, the noncontrolling interest associated with the venture was determined to be contingently redeemable and classified in mezzanine equity as of December 31, 2017, plus 6%.2023 and 2022, as discussed further in Note 10.


Discovery Managed Portfolio

We transferred nine ILFs located in Arkansas, Georgia, Ohio, Oklahoma, New Jersey, and South Carolina into a consolidated venture with the Discovery member, a related party of Discovery. The Discovery member initially contributed $1.1 million in cash for its 2% common equity interest in the venture. In the fourth quarter of 2023, the members contributed an additional $2.6 million to fund additional capital expenditures, which was funded in cash in accordance with each member’s common equity interest percentage in the venture. The operating agreement for the venture provides for contingent distributions to the members based on the attainment of certain yields on investment calculated on an annual basis. At inception, the noncontrolling interest associated with this venture was determined to be contingently redeemable and classified in mezzanine equity on the Consolidated Balance Sheet. Effective in the fourth quarter of 2022, the operating agreement was amended, resulting in the noncontrolling interest no longer being contingently redeemable. The noncontrolling interest is classified in “Equity” on the Consolidated Balance Sheets as of December 31, 2023 and 2022.

The properties are managed by separate related parties of Discovery pursuant to management agreements, each with an initial term through March 2016,2032 that automatically renews on a year-to-year basis thereafter unless terminated by either party with notice. The management agreements entitle the managers to a base management fee of 5% of net revenue.

Note 6. Equity Method Investment

Concurrently with the acquisition of a CCRC from LCS-Westminster Partnership III, LLP in January 2020, we extended two mezzanine loansinvested $0.9 million in the operating company, Timber Ridge OpCo, LLC (“Timber Ridge OpCo”) representing a 25% equity interest. This investment is held by a TRS to be compliant with the provisions of the REIT Investment Diversification and Empowerment Act of 2007. As part of our investment, we provided Timber Ridge OpCo a revolving credit facility of up to $12,000,000$5.0 million of which no funds have been drawn.

We account for our investment in Timber Ridge OpCo under the equity method and $2,000,000, respectively,decrease the carrying value of our investment for losses in the entity and distributions to affiliates of Senior Living,NHI for cumulative amounts up to partiallyand including our basis plus any guaranteed or implied commitments to fund constructionoperations. In February 2023, we received $2.5 million from Timber Ridge OpCo, representing the Company’s proportionate share of a 186-unit senior living campuslease incentive earned, as discussed in Note 7, based on Daniel Islandits equity interest in South Carolina. The loans bear interest payable monthly at a 10% annual ratethe entity. Our guaranteed and mature in March 2021. The loans were fully drawn atimplied commitments are currently limited to the additional $5.0 million under the revolving credit facility and the $2.5 million lease incentive distribution received. As of December 31, 2017,2023, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $5.0 million in excess of our original basis and providethe $2.5 million lease incentive distribution received are included in “Accounts payable and
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accrued expenses” in our Consolidated Balance Sheet as of December 31, 2023. Excess unrecognized equity method losses for the years ended December 31, 2023 and 2022 were $2.7 million and $4.2 million, respectively. Cumulative unrecognized losses were $9.1 million through December 31, 2023. We recognized gains of approximately $0.6 million, representing cash distributions received related to our investment in Timber Ridge OpCo for both the years ended December 31, 2023 and 2022, respectively and losses of approximately $1.5 million related to our investment in Timber Ridge OpCo for year ended December 31, 2021.

The Timber Ridge property is subject to early resident mortgages secured by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”). As part of our acquisition, NHI-LCS JV I, LLC (“Timber Ridge PropCo”) acquired the Timber Ridge CCRC property and a subordination agreement was entered into pursuant to which the trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI with a purchase option onto Timber Ridge PropCo. In addition, under the development upon its meeting certain operational metrics. The option is to remain openterms of the resident loan assumption agreement, during the term of the loans, pluslease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any extensions.

Our loans to Senior Livingrepayment by Timber Ridge PropCo of these liabilities under the guarantee. As a result of the subordination agreement and its subsidiaries represent a variable interest as does our lease, which is considered to be analogous to a financing arrangement. Senior Living is structured to limitthe resident loan assumption agreements, no liability for potential claims for damages, is appropriately capitalized for that purpose and is considered a VIE.

Senior Living Management

On August 3, 2016, we entered into an agreement to furnish to our current tenant, Senior Living Management, Inc. (“SLM”), through its affiliates, loans of up to $24,500,000 to facilitate SLM’s acquisition of five senior housing facilities that it currently operates. The loans consist of two notes under a master credit agreement, include both a mortgage and a corporate loan, and bear interest at 8.25% with terms of five years, plus optional one and two-year extensions. NHI has a right of first refusal if SLM elects to sell the facilities. The loans were fully fundedbeen recorded as of December 31, 2017.2023. The balance secured by the Deed and Indenture was $11.8 million at December 31, 2023.


Our loans to SLM represent a variable interest as do our leases, which are analogous to financing arrangements. SLM is structured to limit liability for potential damage claims, is capitalized for that purpose and is considered a VIE.

Note 7. Other Assets

Other Note Activity

In June 2017 Traditions of Minnesota paid off the undiscounted balance of $4,256,000 on its mortgage note outstanding to NHI. With the early payoff, we recognized interest income of $922,000 related to a prepayment penalty and the retirement of the remaining unamortized discount.

NOTE 4. OTHER ASSETS

Our other assets, net consist of the following ($in thousands):
December 31, 2023December 31, 2022
SHOP accounts receivable, net of allowance of $343 and $375, and other assets$1,620 $1,341 
Real estate investments accounts receivable and prepaid expenses3,296 3,621 
Lease incentive payments, net10,669 3,190 
Regulatory escrows6,208 6,208 
Restricted cash2,270 2,225 
$24,063 $16,585 

In February 2023, Timber Ridge PropCo, the consolidated senior housing partnership with LCS that owns the Timber Ridge CCRC, paid a $10.0 million lease incentive earned by Timber Ridge OpCo. The lease incentive is being amortized on a straight-line basis through the remaining initial lease term ending January 2027.

Note 8. Debt
 As of December 31,
 2017 2016
Accounts receivable and other assets$5,187
 $9,212
Regulatory escrows8,208
 8,208
Reserves for replacement, insurance and tax escrows4,817
 4,047
Marketable securities—
 11,745
 $18,212
 $33,212


Regulatory escrows include mandated deposits in connection with our entrance fee communities in Connecticut. Reserves for replacement, insurance and tax escrows include amounts required to be held on deposit in accordance with agency agreements governing our Fannie Mae and HUD mortgages.

As of December 31, 2016, our investments in marketable securities included available-for-sale equity securities which are reported at fair value. Unrealized gains and losses on available-for-sale securities are presented as components of accumulated other comprehensive income. Realized gains and losses from securities sales are determined based upon specific identification of the securities.

Net unrealized gains related to available-for-sale securities were $10,065,000 at December 31, 2016.

NOTE 5. DEBT

Debt consists of the following ($ in thousands):
December 31,
2023		December 31, 2022
Revolving credit facility - unsecured$245,000 $42,000 
Bank term loans - unsecured200,000 240,000 
2031 Senior Notes - unsecured, net of discount of $2,278 and $2,600397,722 397,400 
Private placement notes - unsecured225,000 400,000 
Fannie Mae term loans - secured, non-recourse76,241 76,649 
Unamortized loan costs(8,912)(8,538)
$1,135,051 $1,147,511 
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 December 31,
2017		 December 31,
2016
Convertible senior notes - unsecured (net of discount of $2,637 and $4,717)$144,938
 $195,283
Revolving credit facility - unsecured221,000
 158,000
Bank term loans - unsecured250,000
 250,000
Private placement term loans - unsecured400,000
 400,000
HUD mortgage loans (net of discount of $1,402 and $1,487)43,645
 44,354
Fannie Mae term loans - secured, non-recourse96,367
 78,084
Unamortized loan costs(10,453) (9,740)
 $1,145,497
 $1,115,981


Aggregate principal maturities of debt as of December 31, 20172023 for each of the next five years and thereafter are as followsincluded in
the table below. These maturities do not include the impact of any debt incurred or repaid subsequent to December 31, 2023 ($ in thousands):

Twelve months ended December 31, 
2018$1,144
20191,188
20201,230
2021148,854
2022472,328
Thereafter535,245
 1,159,989
Less: discounts(4,039)
Less: unamortized loan costs(10,453)
 $1,145,497
For The Year Ending December 31,Amount
2024$75,425 
2025325,816 
2026245,000 
2027100,000 
2028— 
Thereafter400,000 
1,146,241 
Less: discount(2,278)
Less: unamortized loan costs(8,912)
$1,135,051 


Unsecured revolving credit facility and bank term loans

On August 3, 2017,March 31, 2022, we entered into an unsecured revolving credit agreement (the “2022 Credit Agreement”) providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at one of the following (i) Term Secured Overnight Financing Rate (“SOFR”) (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) Daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the base rate plus a margin ranging from 0.00% to 0.40%. In each election, the actual margin is determined according to our credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the agent’s prime rate, (ii) the federal funds rate on such day plus 0.50% or (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.0%. We incurred $4.5 million of deferred financing costs in connection with the 2022 Credit Agreement which are included as a component of “Debt” on the Consolidated Balance Sheets as of December 31, 2023 and 2022.

Concurrently with the execution of the 2022 Credit Agreement, we amended our unsecured $800,000,000$300.0 million 2023 Term Loan. The amendment modified the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowings based on SOFR (plus a credit facility, originally scheduledspread adjustment) that were previously based on LIBOR, with no change to maturethe existing applicable interest rate margins. As of December 31, 2022, we had repaid $60.0 million of the 2023 Term Loan.

In the first quarter of 2023, we repaid $20.0 million of the 2023 Term Loan. In June 2023, we entered into the two-year $200.0 million 2025 Term Loan bearing interest at a variable rate which is SOFR-based with a margin determined according to our credit ratings plus a 0.10% credit spread adjustment. The Company incurred approximately $2.7 million of deferred financing cost associated with this loan. The 2025 Term Loan proceeds were used to repay a portion of the remaining $220.0 million 2023 Term Loan balance, which was repaid in full in June 2020, consolidating2023. Upon repayment, we expensed approximately $0.1 million of unamortized loan costs associated with this loan which are included in “Loss on early retirement of debt” in our three bank term loans intoConsolidated Statement of Income for the year ended December 31, 2023.

In March 2022, we repaid a single $250,000,000$75.0 million term loan and providing for an extension ofwith a maturity in August 2022 with proceeds primarily from the maturity of therevolving credit facility. The term loan andbore interest at a rate of 30-day LIBOR plus 135 basis points (“bps”), based on our current ratings. Upon repayment, we expensed approximately $0.2 million of unamortized loan costs associated with this loan which is included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the $550,000,000 revolving credit facility to Augustyear ended December 31, 2022.

In connectionJanuary 2021, we repaid a $100.0 million term loan that originated in July 2020 with the amendmentsnet proceeds from the 2031 Senior Notes offering discussed below. The term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 bps, based on our current leverage ratios. Upon repayment, the Company expensed approximately $1.9 million of deferred financing costs associated with this loan which is included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the year ended December 31, 2021.
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The 2022 Credit Agreement requires a facility fee equal to 0.125% to 0.30%, based on our credit rating, the facility we wrote off old and new costs of $583,000, inclusive of unamortized costs of $407,000 associated with retired or diminished participations among the previous lending group. The amended facilitypresently provides for floating interest on the term loan and revolver to be initially set at 30-day LIBOR plus 130 and 115 bps, respectively, based on current leverage metrics. Additional significant amendments to the facility include the refinement of the collateral pool, imposition of a 0% floor LIBOR base, movement from the payment of unused commitment fees to a facility fee of 20 basis points and the composition of creditors participating in our loan syndication. The employment of interest rate swaps to fix LIBOR on our bank term debt leaves only ourunsecured revolving credit facility exposed to variable rate risk. Our swaps and the financial instruments to which they relate are described in2025 Term Loan at SOFR CME Term Option one-month loan (plus a 10 bps spread adjustment) plus 105 bps and a blended 125 bps, respectively. At December 31, 2023 and 2022, the table below, under the caption “Interest Rate Swap Agreements.”SOFR CME Term Option one-month was 534 bps and 436 bps, respectively.

Our existing interest rate swap agreements collectively will continue through June 2020 to hedge against fluctuations in variable interest rates applicable to the $250,000,000 term loan. Some new hedge inefficiency will result from the introduction to the debt instrument of a LIBOR floor that is not present in the hedges. To better reflect earnings, in the first quarter of 2018 we expect to adopt ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, discussed in Note 14.

In November 2017 our acquisition of a facility in Tulsa entailed the assumption of a Fannie Mae mortgage loan with remaining balance of $18,311,000. The mortgage amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, and bears interest at a nominal rate of 4.6%.









Our unsecured private placement term loans 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
      

On August 8, 2017, we amended our private placement term loan agreements to largely conform those agreements with the amendment to our bank credit facility as noted above.


At December 31, 2017,2023, we had $329,000,000$455.0 million available to draw on the revolving portion of our credit facility. Thefacility, 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. To date,At December 31, 2023, we were in compliance with these ratios, which are calculated quarterly, have been within the limits required by the credit facility agreements.ratios.


Pinnacle Bank is a participating member of our banking group. A member of NHI’s boardBoard of directorsDirectors and chairmanchairperson of our audit committeethe Audit Committee of the Board of Directors 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.


2031 Senior Notes

In March 2015January 2021, we obtained $78,084,000issued $400.0 million aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually (the “2031 Senior Notes”). The 2031 Senior Notes were sold at an issue price of 99.196% of face value before the underwriters’ discount. Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $392.3 million. We used a portion of the net proceeds from the 2031 Senior Notes offering to repay a $100.0 million term loan and recognized a loss on early retirement of debt of $0.5 million for the year ended December 31, 2021, representing the unamortized loan costs expensed upon early repayment of the term loan.

The 2031 Senior Notes are subject to affirmative and negative covenants, including financial covenants with which we were in compliance at December 31, 2023.

Private Placement Notes

During 2023, we repaid $175.0 million of the private placement notes primarily with proceeds from the unsecured revolving credit facility.

Our remaining unsecured private placement notes as of December 31, 2023, payable interest-only, are summarized below ($ in thousands):

AmountInceptionMaturityFixed Rate
$75,000 September 2016September 20243.93 %
50,000 November 2015November 20254.33 %
100,000 January 2015January 20274.51 %
$225,000 

Covenants pertaining to the private placement notes are generally conformed with those governing our credit facility, except for specific debt-coverage ratios that are more restrictive. Our unsecured private placement notes 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.

Fannie Mae Term Loans

As of December 31, 2023, we had $60.1 million in Fannie Mae financing. The term debtterm-debt financing, consists ofthat originated in March 2015, requiring interest-only payments at an annual rate of 3.79% andwith a 10-year maturity. The mortgages are non-recourse and secured by thirteen11 properties leased to Bickford. These notes togetherFor the year ended December 31, 2021, we recognized a $1.5 million loss on early retirement of debt upon repayment of two Fannie Mae term loans with a combined balance of $17.9 million, plus accrued interest of $0.1 million.

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 rate of 4.6%, and has a remaining balance of $16.1 million at December 31, 2023. Collectively, the Fannie Mae debt assumed in connection with the Tulsa acquisition and having remaining balance of $18,283,000 at December 31, 2017, mentioned above, areis secured by facilitiesproperties having a net book value of $142,258,000$100.9 million at December 31, 2017.

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 conversion 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 the 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, but is not to be adjusted for any accrued and unpaid interest except in limited circumstances. 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.

The embedded conversion options (1) do not require net cash settlement, (2) are not conventionally convertible but can be classified in stockholders’ equity under Accounting Standards Codification (“ASC”) 815-40, and (3) are considered indexed to NHI’s own stock. Therefore, the conversion feature satisfies the conditions to qualify for an exception to the derivative liability rules, and the Notes are split into debt and equity components. The carrying value of the debt component was based upon the estimated fair value at the time of issuance of a similar debt instrument without the conversion feature and was estimated to be approximately $192,238,000. The $7,762,000 difference between the contractual principal on the debt and the value allocated to the debt was recorded as the equity component and represents the estimated value of the conversion feature of the instrument. The excess of the contractual principal amount of the debt over the estimated fair value of the debt component, the original issue discount, is being amortized to interest expense using the effective interest method over the estimated term of the Notes. The effective interest rate used to amortize the debt discount and the liability component of the debt issue costs is approximately 3.9% based on our estimated non-convertible borrowing rate at the date the Notes were issued. The total cost of issuing the Notes was $6,063,000, $275,000 of which was allocated to the equity component and $5,788,000 of which was allocated to the debt component and subject to amortization over the estimated term of the notes.

During the year ended December 31, 2017, we undertook targeted open-market repurchases of certain of the 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. The total balance of notes repurchased and retired through December 31, 2017, net of unamortized original issue discount and associated issuance costs, was $50,777,000,

resulting in the recognition of losses on the note retirements for the year ended December 31, 2017, of $2,214,000 calculated as the excess of cash paid over the carrying value of that portion of the notes accounted for as debt. For the retirement of that portion of the outlay allocated to the fair value of the conversion feature, $7,930,000 was charged to additional paid-in capital during the year ended December 31, 2017. The remaining unamortized balance of issuance costs at December 31, 2017, was $1,752,000.

As of December 31, 2017, the outstanding balance of our 3.25% senior unsecured convertible notes was $147,575,000. As adjusted for terms of the indenture, the Notes are convertible at a conversion rate of 14.23 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $70.25 per share for a total of 2,100,700 remaining underlying shares. For the year ended December 31, 2017, dilution resulting from the conversion option within our convertible debt is 189,531 shares. If NHI’s current share price increases above the adjusted $70.25 conversion price, further dilution will be attributable to the conversion feature. On December 31, 2017, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $10,776,000.

Our HUD mortgage loans are secured by ten properties leased to Bickford and having a net book value of $52,586,000 at December 31, 2017. 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 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 $8,911,000 and a carrying value of $7,509,000, which approximates fair value.

The following table summarizes interest expense (in thousands):2023.
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 Year Ended December 31,
 2017 2016 2015
Interest expense on debt at contractual rates$40,385
 $36,197
 $30,094
Losses reclassified from accumulated other     
comprehensive income into interest expense2,627
 3,928
 4,497
Ineffective portion of cash flow hedges(353) 18
 (18)
Capitalized interest(510) (549) (357)
Charges taken on amending bank credit facility583
 —
 —
Amortization of debt issuance costs and debt discount3,592
 3,514
 3,413
Total interest expense$46,324
 $43,108
 $37,629


Interest Expense and Rate Swap Agreements


Our existingOn December 31, 2021, our remaining $400.0 million interest rate swap agreements will collectively continue through June 2020in place to hedge against fluctuations in variable interest rates applicable to our $250,000,000 bank term loan.loans matured. The introduction tomatured swaps had an average interest rate of 1.92% for the debt instrument of a LIBOR floor not present in the hedges resulted in hedge inefficiency of approximately $353,000, which we credited to interest expense. During the next twelve months, approximately $775,000 of losses, which are included as a component of accumulated other comprehensive income, are projected to be reclassified into earnings. As ofyear ended December 31, 2017, we employ the2021.

The following table summarizes interest rate swap contracts to mitigate our interest rate risk on the $250,000,000 term loanexpense (dollars$ in thousands):

Year Ended December 31,
202320222021
Interest expense on debt at contractual rates$55,603 $42,487 $40,866 
Losses reclassified from accumulated other
comprehensive income into interest expense— — 7,286 
Capitalized interest(90)(46)(40)
Amortization of debt issuance costs, debt discount and other2,647 2,476 2,698 
Total interest expense$58,160 $44,917 $50,810 

Note 9. Commitments, Contingencies and Uncertainties
Date Entered Maturity Date Fixed Rate Rate Index Notional Amount Fair Value
May 2012 April 2019 2.84% 1-month LIBOR $40,000
 $159
June 2013 June 2020 3.41% 1-month LIBOR $80,000
 $(227)
March 2014 June 2020 3.46% 1-month LIBOR $130,000
 $(520)


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 accrued expenses. See Note 11 for fair value disclosures about our interest rate swap agreements. Net liability balances for our hedges included as components of consolidated other comprehensive income on December 31, 2017 and 2016 were $588,000 and $4,279,000, respectively.





NOTE 6. COMMITMENTS AND CONTINGENCIES

In the normal course of business, we enter into a variety of commitments, typicaltypically consisting of which are those for the funding of revolving credit arrangements, construction and mezzanine loans to our operators to conduct expansions and acquisitions for their own account classified below as loan commitments, and commitments for the funding of construction for expansion or renovation to our existing properties under lease.lease classified below as development commitments. In our leasing operations, we offer to our tenants and to sellers of newly-acquirednewly acquired properties a variety of inducements whichthat 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, 2023 according to the nature of their impact on our leasehold or loan portfolios.portfolios ($ in thousands):


Asset ClassTypeTotalFundedRemaining
Loan Commitments:
Encore Senior LivingSHOConstruction$50,725 $(49,846)$879 
Senior LivingSHORevolving Credit20,000 (16,250)3,750 
Timber Ridge OpCoSHOWorking Capital5,000 — 5,000 
Watermark RetirementSHOWorking Capital5,000 (2,976)2,024 
   Montecito Medical Real EstateMOBMezzanine Loan50,000 (20,255)29,745 
$130,725 $(89,327)$41,398 
 Asset Class Type Total Funded Remaining
Loan Commitments:         
Life Care Services Note ASHO Construction $60,000,000
 $(53,622,000) $6,378,000
Bickford Senior LivingSHO Construction 28,000,000
 (15,558,000) 12,442,000
Senior Living CommunitiesSHO Revolving Credit 15,000,000
 (616,000) 14,384,000
     $103,000,000
 $(69,796,000) $33,204,000


See Note 34 for fullfurther details of our loan commitments. As provided above, loansLoans funded do not include the effects of discounts or commitment fees. We

The credit loss liability for unfunded loan commitments is estimated using the same methodology as used for our funded mortgage and other notes receivable based on the estimated amount that we expect to fully fundfund. We applied the Life Care Services Note A during 2018. Funding of the promissory note commitments to Bickford is expected to transpire monthly throughout 2018.

 Asset Class Type Total Funded Remaining
Development Commitments:         
Legend/The Ensign GroupSNF Purchase $56,000,000
 $(14,000,000) $42,000,000
East Lake/Watermark RetirementSHO Renovation 10,000,000
 (5,900,000) 4,100,000
Santé PartnersSHO Renovation 3,500,000
 (2,621,000) 879,000
Bickford Senior LivingSHO Renovation 2,400,000
 (122,000) 2,278,000
East Lake Capital ManagementSHO Renovation 400,000
 —
 400,000
Senior Living CommunitiesSHO Renovation 6,830,000
 (970,000) 5,860,000
Discovery Senior LivingSHO Renovation 500,000
 —
 500,000
Woodland VillageSHO Renovation 7,450,000
 (762,000) 6,688,000
Chancellor Health CareSHO Construction 650,000
 (62,000) 588,000
Navion Senior SolutionsSHO Construction 650,000
 —
 650,000
     $88,380,000
 $(24,437,000) $63,943,000

Assame market adjustments as discussed in Note 2, we remain obligated to purchase, from a developer, three new skilled nursing facilities4.

The liability for expected credit losses on our unfunded loans reflected in Texas for $42,000,000 which are leased to Legend“Accounts payable and subleased to Ensign.

 Asset Class Type Total Funded Remaining
Contingencies:         
Bickford / SycamoreSHO Lease Inducement $14,000,000
 $(2,250,000) $11,750,000
East Lake Capital ManagementSHO Lease Inducement 8,000,000
 —
 8,000,000
Navion Senior SolutionsSHO Lease Inducement 4,850,000
 —
 4,850,000
Prestige CareSHO Lease Inducement 1,000,000
 —
 1,000,000
The LaSalle GroupSHO Lease Inducement 5,000,000
 —
 5,000,000
     $32,850,000
 $(2,250,000) $30,600,000

Contingent payments related to the five Bickford development properties constructed in 2016 and 2017 include a licensure incentive of $250,000 per property. Additionally, each property is subject to a three-tiered operator incentive schedule paying up to an additional $1,750,000, basedaccrued expenses” on the attainment of certain performance metrics. As funded, these payments are added to the lease base and amortized against rental income.

In connection with our July 2015 lease to East Lake of three senior housing properties, NHI has committed to certain lease inducement payments of $8,000,000 contingent on reaching and maintaining certain metrics. The inducements have been assessed

as not probable of payment, and we have not recorded them on our balance sheetsConsolidated Balance Sheets as of December 31, 2017. We are unaware of circumstances that would change our initial assessment as to the contingent lease incentives. Not included2023 and 2022 is presented in the abovefollowing table is a seller earnoutfor the year ended December 31, 2023 ($ in thousands):

Balance at December 31, 2022$683 
Provision for expected credit losses(404)
Balance at December 31, 2023$279 

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Asset ClassTypeTotalFundedRemaining
Development Commitments:
Woodland VillageSHORenovation$7,515 $(7,425)$90 
Navion Senior SolutionsSHORenovation3,500 (2,059)1,441 
Vizion HealthSHORenovation2,000 (250)1,750 
SHOPILFRenovation1,500 (1,221)279 
$14,515 $(10,955)$3,560 

In February 2014 we entered into a commitment on a letteraddition to these commitments listed above, Discovery PropCo has committed to fund up to $2.0 million toward the purchase of credit forcondominium units located at one of the benefitfacilities of Sycamore, an affiliatewhich $1.0 million had been funded as of Bickford, which previously held a minority interest in PropCo (see Note 2). In the fourth quarter of 2017, Sycamore began to draw on other means to furnish its resource provider the required letter of credit, and our commitment under the 2014 letter was ended. December 31, 2023.

As of December 31, 2017,2023, we furnish no direct support to Sycamore. As an affiliate companyhad the following contingent lease inducement commitments which are generally based on the performance of facility operations and may or may not be met by the tenant ($ in thousands):
Asset ClassTotalFundedRemaining
Contingencies (Lease Inducements):
IntegraCareSHO$750 — $750 
Navion Senior SolutionsSHO4,850 (2,700)2,150 
DiscoverySHO4,000 — 4,000 
Ignite Medical ResortsSNF2,000 — 2,000 
$11,600 $(2,700)$8,900 

Bickford Sycamore is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE.Contingent Note Arrangement


See Note 2Related to the consolidated financial statementssale of six properties to Bickford in 2021 we reached an agreement with Bickford whereby Bickford would owe us up to $4.5 million under a contingent note arrangement. We have the one-time option to determine fair market value of the portfolio between May 1, 2023 and April 30, 2026, at which time the amount owed under the contingent note arrangement, if any, will be determined as the lesser of (i) the difference between the fair market value of the portfolio and $52.1 million, which amount represents the purchase consideration for further descriptionthe portfolio of $52.9 million less $0.8 million in mortgage debt repayment fees previously paid by us associated with this portfolio, and (ii) $4.5 million. Any amount due on the contingent lease inducements available to Navion Senior Solutions, LaSallenote arrangement will accrue interest at an annual rate of 10% and Prestige.will be due in five years from the determination date.


Litigation


Our facilities are subject to claims and suits in the ordinary course of business. Our lesseesmanagers, tenants 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. In addition, such claims may include, among other things professional liability and general liability claims, as well as regulatory proceedings related to our SHOP segment. While there may be lawsuits pending against us and certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no direct material adverse effect on our financial condition, results of operations or cash flows.


Welltower Inc.
NOTE 7. INVESTMENT AND OTHER GAINS

In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company, that included 17 senior living facilities governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities after this change in tenant ownership occurred in late July 2021.

On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Voorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the “Defendants”) in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants repeatedly failed to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or
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provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent.

In connection with a memorandum of understanding between the parties dated March 4, 2022, NHI applied the remaining approximately $8.8 million lease deposit to past due rents in the first quarter of 2022. Also, as provided by the memorandum of understanding, Welltower transferred approximately $6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement dated March 31, 2022 with Defendants formalizing the terms to settle the lawsuit.

NHI and certain of its subsidiaries terminated the master lease with Well Churchill Leasehold Owner, LLC as successor in interest to NHI Master Tenant LLC, effective April 1, 2022, upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new SHOP partnership ventures. See Note 5 for more information on these new ventures.

Also effective April 1, 2022, the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation and the $6.9 million in escrowed funds were released to NHI and recognized as rental income during the year ended December 31, 2022. We recognized approximately $0.7 million as a “Loss on operations transfer, net” on the Consolidated Statements of Income for the year ended December 31, 2022. This net loss represents the amount of net working capital deficit assumed by NHI in connection with the transfer of operations following the termination of the master lease. The net working capital assumed by NHI on April 1, 2022 was comprised primarily of facility furniture, fixtures and equipment, net resident accounts receivable, accounts payable and other accrued liabilities.

Note 10. Redeemable Noncontrolling Interest

The interest held by Merrill in its SHOP venture was classified as a “Redeemable noncontrolling interest” in the mezzanine section between Total liabilities and Stockholders’ equity on our Consolidated Balance Sheet as of December 31, 2023 and 2022. Certain provisions within the operating agreement of the Merrill venture provide Merrill with put rights upon certain contingent events that are not solely within the control of the Company. Therefore, Merrill’s noncontrolling interest was determined to be contingently redeemable. The redeemable noncontrolling interest is not currently redeemable and we concluded a contingent redemption event is not probable to occur as of December 31, 2023. Consequently, the noncontrolling interest will not be subsequently remeasured to its redemption amount until such contingent event and the related redemption are probable to occur. We will continue to reflect the attribution of gains or losses to the redeemable noncontrolling interest each period.

The Discovery member’s noncontrolling interest in its SHOP venture was also determined to be contingently redeemable at inception of the arrangement. The Discovery member’s agreement was amended in the fourth quarter of 2022 to remove the contingently redeemable feature, among other things. The noncontrolling interest is presented within the “Liabilities andEquity” section in the Consolidated Balance Sheets as of December 31, 2023 and 2022.

The following table summarizes our investment and other gains (presents the change in thousands):
 Year Ended December 31,
 2017 2016 2015
Gains on sales of marketable securities10,038
 29,673
 23,529
Gain on sale of real estate50
 4,582
 1,126
Other gains—
 1,657
 —
 $10,088
 $35,912
 $24,655

During“Redeemable noncontrolling interest” for the years ended December 31, 2017, 20162023 and 2015,2022 ($ in thousands):

Year Ended December 31,
20232022
Balance at January 1,$9,825 $— 
  Initial carrying amount— 11,738 
  Reclassification of Discovery member noncontrolling interest— (1,030)
  Contributions922 — 
  Net loss(1,091)(843)
  Distributions— (40)
Balance at December 31,$9,656 $9,825 

Note 11. Equity and Dividends

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Share Repurchase Plan

Beginning in April 2022, our Board of Directors has authorized a stock repurchase plan. No common stock was repurchased under this plan during 2023. During the year ended December 31, 2022, we recognized gains on salesrepurchased through open market transactions 2,468,354 shares of marketable securities whichcommon stock for an average price of $61.56 per share, excluding commissions. All shares received were reclassified from accumulated other comprehensive incomeconstructively retired upon receipt, and are included in our Consolidated Statementsthe excess of Income as Investment and other gains. During 2016 and 2015 we recognized $1,697,000, and $1,330,000, respectively, of dividend and interest income from our marketable securities and have included these amounts in investment income and otherthe purchase price over the par value per share was recorded to “Retained earnings” in the Consolidated StatementsBalance Sheet.

On February 16, 2024, our Board of Income.Directors renewed the stock repurchase plan pursuant to which we may purchase up to $160.0 million in shares of our issued and outstanding common stock, par value $0.01 per share. The stock repurchase plan is effective for a period of one year and does not require us to repurchase any specific number of shares. It may be suspended or discontinued at any time. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and shall be made in accordance with all applicable laws and regulations in effect. The timing and number of shares repurchased, if any, will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations.


At-the-Market (“ATM”) Equity Program

Our ATM equity offering sales agreement allows us to sell, from time to time, up to an aggregate sales price of $500 million of the Company’s common shares through the ATM equity program. No shares were issued during the years ended December 31, 2023 and 2022. During the year ended December 31, 2021, we issued 661,951 common shares through the ATM equity program with an average price of $73.62, resulting in net proceeds after transaction costs of approximately $47.9 million.

Dividends

The following table summarizes dividends declared or paid by the Board of Directors during the years ended December 31, 2023 and 2022:


Year Ended December 31, 2023
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
February 17, 2023March 31, 2023May 5, 2023$0.90
May 5, 2023June 30, 2023August 4, 2023$0.90
August 4, 2023September 29, 2023November 3, 2023$0.90
November 3, 2023December 29, 2023January 26, 2024$0.90
Year Ended December 31, 2022
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
February 16, 2022March 31, 2022May 6, 2022$0.90
May 6, 2022June 30, 2022August 5, 2022$0.90
August 5, 2022September 30, 2022November 4, 2022$0.90
November 6, 2022December 30, 2022January 27, 2023$0.90

On February 16, 2024, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on March 28, 2024, payable May 3, 2024.

NOTE 8. SHARE-BASED COMPENSATIONNote 12. 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-tradedpublicly traded common stock on the date of grant. Restricted stock are issued with a grant date fair value based on the market value of our common stock on the date of grant. The restricted stock vest over five years, with 20% vesting on each anniversary of the date of grant. The restricted stock awards contain non-forfeitable rights to dividends or dividend equivalents during the vesting periods.


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Share-Based Compensation Plans


The Compensation Committee of the Board of Directors (“the Committee”(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 approvedThe Company’s outstanding stock incentive awards have been granted under two incentive plans – the 2012 Stock Incentive Plan (“and the 2012 Plan”) pursuant to2019 Stock Incentive Plan, 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 shareholderswas amended and restated in May 2015, we increased2023 (collectively the maximum number“2019 Plan”). The individual awards may vest over periods up to five years. The term of sharesthe award under the plan2019 Plan is up to ten years 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.date of grant. As of December 31, 2017, there were 951,6682023, shares available for future grants totaled 4,089,168 under the 20122019 Plan.

The individual option grant awards vest over periods up to five years. The termamendment and restatement of the options2019 Plan, which was approved by stockholders in May 2023, increased the number of shares of common stock authorized for issuance under the 20122019 Plan is upfrom 3,000,000 to ten years from6,000,000 and added the ability of the Company to award shares of restricted stock and restricted stock units subject to such conditions and restrictions as the Company may determine. In May 2023, 21,000 shares of restricted stock were issued to executive officers with a grant date fair value of $49.30 per share based on the market value of our common stock on the date of grant.

In May 2005, our stockholders approved the NHI 2005 Stock Option Plan (“the 2005 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. The 2005 Plan has expired and no additional shares may be granted under the 2005 Plan. The individual restricted stock and option grant awardswill vest over periods up to ten years. The termfive years, with 20% vesting on each anniversary of the options outstanding under the 2005 Plan is up to ten years from the date of grant. The restricted stock awards contain non-forfeitable rights to dividends or dividend equivalents during the vesting periods.


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 estimateThe following is a summary of the number of stock option forfeitures. Ourshare-based compensation expense, reported for the years ended December 31, 2017, 2016 and 2015 was $2,612,000, $1,732,000 and $2,134,000, respectively, and isnet of any forfeitures, included in general“General and administrative expenseexpenses” in the Consolidated Statements of Income.Income ($ in thousands):

December 31, 2023December 31, 2022December 31, 2021
Shared-based compensation components:
  Restricted stock expense$310 $— $— 
  Stock option expense4,295 8,613 8,415 
Total share-based compensation expense$4,605 $8,613 $8,415 

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 costexpense 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 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 $5.76, $3.65$10.56, $11.92 and $4.74$14.54 for 2017, 2016the years ended December 31, 2023, 2022 and 2015,2021, respectively.

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

December 31, 2023December 31, 2022December 31, 2021
Dividend yield6.9%7.0%6.7%
Expected volatility39.0%49.3%48.1%
Expected lives2.9 years2.9 years2.9 years
Risk-free interest rate4.56%1.75%0.33%
 2017 2016 2015
Dividend yield5.3% 6.2% 4.7%
Expected volatility19.8% 19.1% 17.8%
Expected lives2.9 years 2.9 years 2.8 years
Risk-free interest rate1.49% 0.91% 0.98%



Stock Option Activity

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The following tables summarize our outstanding stock options:
Weighted Average
NumberWeighted AverageRemaining
of SharesExercise PriceContractual Life (Years)
Outstanding December 31, 20201,033,838 $83.54
Options granted under 2012 Plan12,500 $69.20
Options granted under 2019 Plan639,500 $69.20
Options exercised under 2012 Plan(20,000)$60.52
Options forfeited under 2019 Plan(13,333)$90.79
Outstanding December 31, 20211,652,505 $78.10
Options granted under 2019 Plan718,000 $53.62
Options exercised under 2019 Plan(56,832)$53.41
Options forfeited(23,000)$62.33
Options expired(74,498)$77.93
Outstanding December 31, 20222,216,175 $70.97
Options granted under 2019 Plan385,500 $54.73
Options exercised(5,166)$53.41
Options forfeited(61,168)$66.44
Options expired(88,170)$64.33
Options outstanding, December 31, 20232,447,171 $68.802.26
Exercisable at December 31, 20232,078,827 $71.402.00
     Weighted Average  
 Number
 Weighted Average Remaining Aggregate
 of Shares
 Exercise Price Contractual Life (Years) Intrinsic Value
Outstanding December 31, 2014871,671
 $60.43    
Options granted under 2012 Plan450,000
 $72.11    
Options granted under 2005 Plan20,000
 $72.11    
Options exercised under 2005 Plan(66,670) $46.87    
Options exercised under 2012 Plan(421,657) $63.03    
Options canceled under 2012 Plan(111,668) $71.95    
Outstanding December 31, 2015741,676
 $60.43    
Options granted under 2012 Plan470,000
 $60.78    
Options exercised under 2005 Plan(61,666) $52.36    
Options exercised under 2012 Plan(608,331) $65.18    
Outstanding December 31, 2016541,679
 $65.84    
Options granted under 2012 Plan495,000
 $74.90    
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, 2017859,182
 $70.11 3.39 $4,531,000
        
Exercisable December 31, 2017465,831
 $69.85 3.01 $2,578,000

Remaining
GrantNumberExerciseContractual
Dateof SharesPriceLife in Years
2/21/2019301,837 $79.96 0.14
2/21/2020516,000 $90.79 1.15
5/1/20207,500 $53.76 1.33
2/25/2021616,000 $69.20 2.16
2/25/2022610,834 $53.41 3.16
6/1/202225,000 $59.43 3.42
2/24/2023370,000 $54.73 4.15
Options outstanding, December 31, 20232,447,171 
      Remaining
Grant Number
 Exercise
 Contractual
Date of Shares
 Price
 Life in Years
2/25/2013 15,000
 $64.49
 0.15
2/25/2014 48,334
 $61.31
 1.15
2/20/2015 120,004
 $72.11
 2.14
2/22/2016 185,842
 $60.52
 3.15
3/8/2016 26,667
 $63.63
 3.19
2/22/2017 453,335
 $74.78
 4.15
9/1/2017 10,000
 $80.55
 4.68
Outstanding December 31, 2017 859,182
    


The weighted average remaining contractual life of all options outstanding at December 31, 2017 is 3.4 years. Including outstanding stock options, our stockholders have authorized an additional 1,810,850 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 SharesWeighted Average Grant Date Fair Value
Non-vested December 31, 2022515,020 $12.51
Options granted under 2019 Plan385,500 $11.33
Options vested under 2012 Plan(4,168)$14.33
Options vested under 2019 Plan(505,007)$12.37
Non-vested options forfeited under 2019 Plan(23,001)$11.80
Non-vested December 31, 2023368,344 $11.48


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 Number of Shares
 Weighted Average Grant Date Fair Value
Non-vested December 31, 2016353,348
 $3.99
Options granted under 2012 Plan495,000
 $5.76
Options vested under 2012 Plan(441,661) $4.98
Options vested under 2005 Plan(6,668) $4.91
Non-vested options canceled under 2012 Plan(6,668) $3.61
Non-vested December 31, 2017393,351
 $5.10


At As of December 31, 2017, we had $617,000 of2023, unrecognized compensation cost related to unvested stock options, net of expected forfeitures, whichexpense totaling $1.8 million associated with stock-based awards is expected to be recognized over the following periods: 20182024 - $552,000$1.3 million, 2025 - $0.3 million, and 2019thereafter - $65,000. Stock-based$0.2 million. Share-based compensation expense is included in general“General and administrative expense” in the Consolidated Statements of Income.


TheAt December 31, 2023, the aggregate intrinsic value of the totalstock options outstanding and exercisable was $1.9 million and $1.3 million, respectfully. The aggregate intrinsic value of stock options exercised forduring the years ended December 31, 2017, 20162023, 2022 and 20152021 was $2,314,000less than $0.1 million or $13.55$1.23 per share; $4,730,000$0.1 million or $7.06$6.13 per share, and $5,551,000$0.2 million or $12.69$9.27 per share, respectively.


NOTE 9. EARNINGS AND DIVIDENDS PER COMMON SHARENote 13. Earnings Per Common Share


TheOur unvested restricted stock awards contain non-forfeitable rights to dividends, and accordingly, these awards are deemed to be participating securities. Therefore, the Company applies the two-class method to calculate basic and diluted earnings. Under the two-class method, we allocate net income attributable to stockholders to common stockholders and holders of unvested restricted stock by using the weighted-average shares of each class outstanding for quarter-to-date and year-to-date periods, based on their respective participation rights to dividends declared and undistributed earnings. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common sharesstock outstanding during the reporting period is used to calculate basic earnings per common share.period. Diluted earnings per common share assumereflects the exerciseeffect of stock options and vesting of restricted shares using the treasury stock method, to the extent dilutive.dilutive securities. Dilution resulting from the conversion option within our convertible debt isthat was repaid in April 2021 was determined by computing an average of incremental shares included in each quarterlythe three months ended March 31, 2021 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)amounts):
Year Ended December 31,
202320222021
Net income$134,381 $65,501 $111,967 
 Add: net loss (income) attributable to noncontrolling interests1,273 902 $(163)
Net income attributable to stockholders135,654 66,403 111,804 
Less: net income attributable to unvested restricted stock awards(57)— — 
Net income attributable to common stockholders$135,597 $66,403 $111,804 
BASIC:
Weighted average common shares outstanding43,388,794 44,774,708 45,714,221 
DILUTED:
Weighted average common shares outstanding43,388,794 44,774,708 45,714,221 
Stock options672 19,528 4,823 
Convertible debt— — 10,453 
Weighted average dilutive common shares outstanding43,389,466 44,794,236 45,729,497 
Earnings per common share - basic$3.13 $1.48 $2.45 
Earnings per common share - diluted$3.13 $1.48 $2.44 
Incremental anti-dilutive shares excluded:
Net share effect of stock options with an exercise price in excess of the
average market price for our common shares802,506 564,803 383,716 
Regular dividends declared per common share$3.60 $3.60 $3.8025 

 Year Ended December 31,
 2017 2016 2015
Net income attributable to common stockholders$159,365
 $151,540
 $148,862
      
BASIC:     
Weighted average common shares outstanding40,894,219
 39,013,412
 37,604,594
      
DILUTED:     
Weighted average common shares outstanding40,894,219
 39,013,412
 37,604,594
Stock options and restricted shares67,703
 52,497
 34,842
Convertible senior notes - unsecured189,531
 89,471
 4,735
Average dilutive common shares outstanding41,151,453
 39,155,380
 37,644,171
      
Net income per common share - basic$3.90
 $3.88
 $3.96
Net income per common share - diluted$3.87
 $3.87
 $3.95
      
Net share effect of anti-dilutive stock options573
 6,366
 51,603
      
Regular dividends declared per common share$3.80
 $3.60
 $3.40

NOTE 10. INCOME TAXES

Beginning with our inception in 1991, we have elected to be taxed as a REIT under the Internal Revenue Code (the “Code”). We elected that our subsidiary established on September 30, 2012 in connection with the Bickford arrangement (which previously held our ownership interest in an operating company) be taxed as a TRS under provisions of the Code. The TRS is subject to federal and state income taxes like those applicable to regular corporations. As discussed in Note 2, we terminated our participation in the joint venture resident in our TRS on September 30, 2016. Aside from such income taxes which have been applicable to any taxable income in the TRS, we will not be subject to federal income tax provided that we continue to qualify as a REIT and make distributions to stockholders equal to or in excess of 90% of our taxable income.

Per share dividend payments to common stockholders for the last three years are characterized for tax purposes as follows:
(Unaudited)2017 2016 2015
Ordinary income$2.93054
 $2.67863
 $2.62808
Capital gain0.20643
 0.92137
 0.69110
Return of capital0.66303
 —
 0.08082
Dividends paid per common share$3.80
 $3.60
 $3.40

Our consolidated provision for state and federal income tax expense (benefit) for the years ended 2017, 2016, and 2015 was $124,000, $854,000, and $(583,000), respectively. In 2016, we ended the RIDEA joint venture held by our TRS that gave rise to state and federal income tax expense of $749,000 in 2016 and a tax benefit of $707,000 in 2015. The entire tax benefit from 2015 and an equal and offsetting expense amount in 2016 was from deferred tax expense from temporary differences related to the assets held in our joint venture, primarily net operating losses. The remaining $42,000 of tax expense in 2016 was current state and federal income tax from the unwinding of our RIDEA joint venture. At the conclusion of 2016, we still maintained a deferred tax asset of approximately $433,000, all of which had been fully reserved through a valuation allowance. During 2017, as a result of the enactment of a new statutory federal income tax rate, that tax asset has been revalued at $334,000, all of which is still fully reserved.

We have recorded state income tax expense of $124,000, $105,000 and $124,000 or the years ended December 31, 2017, 2016, and 2015, respectively, related to a franchise tax levied by the state of Texas that has attributes of an income tax. Our state income taxes described above are combined in franchise, excise and other taxes in our Consolidated Statements of Income. Income taxes related to the equity interest in the unconsolidated operating company whose interest is owned by our TRS are included in our Consolidated Statements of Income under the caption Income tax benefit (expense) of taxable REIT subsidiary.

We made state income tax payments of $170,000, $30,000,and $122,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTSNote 14. 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 business combinations.

Marketable securities. We utilize quoted prices in active markets to measure equity securities; these items are classified as Level 1 in the hierarchy and include the common stock of other publicly held healthcare REITs.

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.

Contingent consideration. Contingent consideration arrangements are classified as Level 3 and are valued using unobservable inputs about the nature of the contingent arrangement and the counter-party to the arrangement, as well as our assumptions about the probability of full settlement of the contingency.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
   Fair Value Measurement
 Balance Sheet Classification December 31,
2017		 December 31,
2016
Level 1     
Common stock of other healthcare REITsOther assets $—
 $11,745
      
Level 2     
Interest rate swap assetOther assets $159
 $—
Interest rate swap liabilityAccounts payable and accrued expenses $747
 $4,279


Carrying valuesamounts and fair values of financial instruments that are not carried at fair value at December 31, 20172023 and 2016December 31, 2022 in the Consolidated Balance Sheets are as follows ($in thousands):
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Carrying Amount Fair Value Measurement
2017 2016 2017 2016
Carrying AmountCarrying AmountFair Value Measurement
20232023202220232022
Level 2       
Variable rate debt
Variable rate debt
Variable rate debt$465,642
 $404,828
 $471,000
 $408,000
Fixed rate debt$679,855
 $711,153
 $679,385
 $706,332
       
Level 3       
Mortgage and other notes receivable$141,486
 $133,493
 $140,049
 $133,229
Level 3
Level 3
Mortgage and other notes receivable, net
Mortgage and other notes receivable, net
Mortgage and other notes receivable, net


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.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.


Mortgage and other notes receivable. 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.

Carrying amounts of cash and cash equivalents and restricted cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair valuevalues of our borrowings under our unsecured revolving credit facility and other variable rate debt are reasonably estimated at their contractual valuenotional amounts at December 31, 20172023 and 2016,2022, due to the predominance of floating interest rates, which generally reflect market conditions.


NOTE 12. LIMITS ON COMMON STOCK OWNERSHIPNote 15. Income Taxes


The Company’s charter contains certain provisions which are designedBeginning with our inception in 1991, we have elected to ensure that the Company’s statusbe taxed as a REIT is protected for federal income tax purposes. One of these provisions ensures that any transfer 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, subjectCode. We have recorded state income tax expense of $0.1 million related to certain exceptions, results in no stockholder being allowed to own, either directly or indirectly pursuant to certaina Texas franchise tax attribution rules, more than 9.9%that has attributes of the Company’s common stock. In 1991, the Board created an exception to this ownership limitationincome tax for Dr. Carl E. Adams, his spouse, Jennie Mae Adams, and their lineal descendants. Effective May 12, 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. Based on the Excepted Holder Agreements currently outstanding, the 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 agreements were entered into in connection with the Company’s stock purchase program pursuant to which the Company announced that it would purchase up to 1,000,000 shares of its common stock in the public market from its stockholders.

A separate agreement was entered into severally with each of the spouseyears ended December 31, 2023, 2022, and children2021. Some of Dr. Carl E. Adamsour leases require taxes to be reimbursed by our tenants. State income taxes are combined in “Franchise, excise and others within Mr. W. Andrew Adams’ family. We needed to enter into such an agreement with each family member becauseother taxes” in our Consolidated Statements of Income.

The Company has a deferred tax asset, which is fully reserved through a valuation allowance, of $2.2 million and $1.5 million as of December 31, 2023 and 2022, respectively. The deferred tax asset is primarily a result of net operating losses from its participation in the complicated ownership attribution rulesoperations of a joint venture during the years 2012 through 2016 and by entities that are structured as TRSs under provisions of the Internal Revenue Code. See Notes 5 and 6 for a discussion of SHOP ventures and Timber Ridge OpCo.

The Agreement permitsCompany made state income tax payments of $0.1 million for each of the Excepted Holdersyears ended December 31, 2023, 2022, and 2021.

Dividend payments to own common stockstockholders for the last three years are characterized for tax purposes as follows on a per share basis:
(Unaudited)December 31, 2023December 31, 2022December 31, 2021
Ordinary income$2.40807 $2.61966 $2.87799 
Capital gain0.24805 — 0.43890 
Return of capital0.94388 0.98034 0.48562 
Dividends paid per common share$3.60 $3.60 $3.8025 

Note 16. Segment Reporting

We evaluate our business and make resource allocations on our two operating segments: Real Estate Investments and SHOP. Our Real Estate Investments segment includes real estate investments and mortgages and other note investments in excessILFs, ALFs, EFCs, SLCs, SNFs and a HOSP. Under the Real Estate Investments segment, we invest in senior housing and healthcare real estate through acquisition and financing of 9.9% upprimarily single-tenant properties. Properties acquired are primarily leased under triple-net leases, and we are not involved in the management of the properties. The SHOP segment includes multi-tenant ILFs. The SHOP properties and related operations are controlled by the Company and are operated by property managers in exchange for a management fee. See Note 5 for further discussion.

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We formed the SHOP segment effective April 1, 2022 upon termination of the triple-net lease for the legacy Holiday portfolio at which time the operations and properties of 15 ILFs were transferred into two separate ventures, as discussed further in Notes 5 and 8. The results associated with the prior triple-net lease structure for these properties are included in the Real Estate Investments segment and the results from operating these SHOP properties after the transition are included in our SHOP segment. There is no impact to the limit specifically providedprior year’s presentation.

Our CODM evaluates performance based upon segment net operating income (“NOI”). We define NOI as total revenues, less tenant reimbursements and property operating expenses. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties. There were no intersegment transactions for either the year ended December 31, 2023 and 2022. Capital expenditures for the year ended December 31, 2023 were approximately $56.9 million for the Real Estate Investments segment and $9.3 million for the SHOP segment. Capital expenditures for the year ended December 31, 2022 were approximately $30.8 million for the Real Estate Investments segment and $3.3 million for the SHOP segment.

Non-segment revenue consists mainly of other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI.

The accounting policies of the segments are the same as those described in the individual agreementsummary of significant accounting policies discussed in Note 2. The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and not lose rights with respect to such shares. However, if the stockholder’s stock ownership exceeds the limit then such shares in excessare components of the limit become “Excess Stock”appropriate segments.

Summary information for the reportable segments during the year ended December 31, 2023 and lose voting rights and entitlement to receive dividends.2022 is as follows ($ in thousands):

For the year ended December 31, 2023:Real Estate InvestmentsSHOPNon-segment/CorporateTotal
Rental income$249,227 $— $— $249,227 
Resident fees and services— 48,809 — 48,809 
Interest income and other21,448 — 351 21,799 
   Total revenues270,675 48,809 351 319,835 
Senior housing operating expenses— 39,587 — 39,587 
Taxes and insurance on leased properties11,513 — — 11,513 
   NOI259,162 9,222 351 268,735 
Depreciation60,764 9,158 51 69,973 
Interest3,071 — 55,089 58,160 
Legal— — 507 507 
Franchise, excise and other taxes— — 449 449 
General and administrative— — 19,314 19,314 
Loan and realty losses, net1,376 — — 1,376 
Gains on sales of real estate, net(14,721)— — (14,721)
Loss on operations transfer, net(20)— — (20)
Other income(202)— — (202)
Loss on early retirement of debt— — 73 73 
Gains from equity method investment(555)— — (555)
    Net income (loss)$209,449 $64 $(75,132)$134,381 
Total assets$2,202,647 $270,051 $15,782 $2,488,480 

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For the year ended December 31, 2022:Real Estate InvestmentsSHOPNon-segment/CorporateTotal
Rental income$217,700 $— $— $217,700 
Resident fees and services— 35,796 — 35,796 
Interest income and other24,383 — 315 24,698 
   Total revenues242,083 35,796 315 278,194 
Senior housing operating expenses— 28,193 — 28,193 
Taxes and insurance on leased properties9,788 — — 9,788 
   NOI232,295 7,603 315 240,213 
Depreciation64,407 6,408 65 70,880 
Interest3,089 — 41,828 44,917 
Legal— — 2,555 2,555 
Franchise, excise and other taxes— — 844 844 
General and administrative— — 22,768 22,768 
Loan and realty losses, net61,911 — — 61,911 
Gains on sales of real estate, net(28,342)— — (28,342)
Gain on operations transfer, net710 — — 710 
Gain on note receivable payoff(1,113)— — (1,113)
Loss on early retirement of debt— — 151 151 
Gains from equity method investment(569)— — (569)
    Net income (loss)$132,202 $1,195 $(67,896)$65,501 
Total assets$2,225,176 $274,135 $8,113 $2,507,424 




Note 17. Variable Interest Entities

Consolidated Variable Interest Entities

SHOP - The Excess Stock classification remains in place until the stockholder no longer exceeds the threshold limit specified in the Agreement. The purpose of these agreements is to ensure that the Company does not violate the prohibition against a REIT being closely held. W. Andrew Adams’ Excess Holder Agreement also provides that he will not own shares of stock in any tenantassets of the Company if such ownership would cause the Company to constructively own more than a 9.9% interest in such tenant. This prohibition is designed 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).
2017Quarter Ended
 March 31, June 30, September 30, December 31,
Net revenues$66,388
 $69,836
 $71,352
 $71,083
Investment and other gains10,088
 —
 —
 —
        
Net income attributable to common stockholders$44,230
 $38,245
 $39,092
 $37,798
        
Weighted average common shares outstanding:       
Basic39,953,804
 40,982,244
 41,108,699
 41,532,130
Diluted40,108,762
 41,245,173
 41,448,263
 41,803,615
        
Earnings per common share:       
Net income attributable to common stockholders - basic$1.11
 $.93
 $.95
 $.91
Net income attributable to common stockholders - diluted$1.10
 $.93
 $.94
 $.90
2016Quarter Ended
 March 31, June 30, September 30, December 31,
Net revenues$59,018
 $61,204
 $63,251
 $64,987
Investment and other gains1,665
 26,415
 1,657
 6,175
        
Net income attributable to common stockholders$32,725
 $44,595
 $33,032
 $41,188
        
Weighted average common shares outstanding:       
Basic38,401,647
 38,520,221
 39,283,919
 39,847,860
Diluted38,414,791
 38,561,384
 39,651,900
 39,993,445
        
Earnings per common share:       
Net income attributable to common stockholders - basic$.85
 $1.16
 $.84
 $1.03
Net income attributable to common stockholders - diluted$.85
 $1.16
 $.83
 $1.03

NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014 the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 provides a principles-based approach for a broad range of revenue generating transactions, including the saleSHOP ventures primarily consist of real estate which will generally require more estimates, judgment and disclosures than under current guidance. In August 2015 the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09. ASU 2014-09 is now effective for public entities for annual periods beginning after December 15, 2017, including interim periods therein.

The Company adopted this standard using the modified retrospective method on January 1, 2018. The ASU provides for revenues from leases to continue to follow the guidance in Topics 840 and 842 (when adopted) and provides for loans to follow established guidance in Topic 310. Because this ASU specifically excludes these areas of our operations from its scope, we do not expect any impact to our accounting for lease revenue and interest income to result from the ASU. Additionally, the other significant types of contracts in which we engage, sales of real estate to customers, typically never remain executory across points in time. Because all performance obligations from these contracts would therefore fall within a single period, the timing of our revenue recognition from sales of real estate is not expected to be affected by the ASU. Adoption of ASU 2014-09 is not expected to have a material impact on the timing and measurement of the Company’s income.

In February 2016 the FASB issued ASU 2016-02, Leases, which has been codified under Topic 842. Public companies will be required to apply ASU 2016-02 for all accounting periods beginning after December 15, 2018. Early adoption is permitted. All leases with lease terms greater than one year are subject to ASU 2016-02, including leases in place as of the adoption date. 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, significant changes to lessor accounting 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 withCustomers, which will be effective for NHI prior to our adoption of Topic 842. We are in the initial stages of evaluating the extent of the effects, if any, that adopting the provisions of ASU 2016-02 in 2019 will have on NHI.

Management believes changes from the alignment of lessor/lessee accounting and changes to conform with Topic 606 will present the most significant impact to NHI in our reporting of financial position and the results of operations. The Company will continue to evaluate the impact on our consolidated financial statements. Consistent with present standards, NHI will continue to account for lease revenue on a straight-line basis for most leases. Also consistent with NHI’s current practice, under ASU 2016-02 only initial direct costs that are incremental to the lessor will be capitalized.

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. Previously, 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. Because we are likely to continue to invest in loans and generate receivables, adoption of ASU 2016-13 in 2020 will have some effect on our accounting for these investments, though the nature of those effects will depend on the composition of our loan portfolio at that time; accordingly, we are in the initial stages of evaluating the extent of the effects, if any, that adopting the provisions of ASU 2016-13 in 2020 will have on NHI.

In November 2016 the FASB issued ASU 2016-18, Restricted Cash. ASU 2016-18 will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents, generally by requiring the inclusion of restricted cash and restricted cash equivalents withproperties, cash and cash equivalents, when reconcilingand resident fees and services (accounts receivable). The obligations of the beginning-of-periodventures primarily consist of operating expenses of the ILFs (accounts payable and end-of-period total amounts shown onaccrued expenses) and capital expenditures for the statementproperties. Aggregate assets of the consolidated SHOP ventures that can be used only to settle obligations of each respective SHOP venture primarily include approximately $260.7 million and $260.6 million of real estate properties, net, $7.7 million and $6.9 million of cash flows. The amendments in this ASUand cash equivalents, $0.9 million and $0.7 million of other assets, and $0.8 million and $0.7 million of accounts receivable, net as of December 31, 2023 and 2022, respectively. Liabilities of the consolidated SHOP ventures for which creditors do not have recourse to the general credit of the Company are $4.7 million and $3.3 million as of December 31, 2023 and 2022, respectively. Reference Note 5 for further discussion of these ventures.

Real Estate Partnerships - The aggregate assets of the two consolidated real estate partnerships that can be used only to settle obligations of each respective partnership for the years ended December 31, 2023 and 2022 include approximately $252.5 million and $259.2 million of real estate properties, net, $9.7 million and $7.1 million in straight-line rents receivable, $3.2 million and $3.4 million of cash and cash equivalents and $7.8 million and less than $0.1 million of other assets, respectively. Liabilities of these partnerships for which creditors do not have recourse to the general credit of the Company are not material.

Unconsolidated Variable Interest Entities

The Company’s unconsolidated VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of exposure to these VIEs, see the notes cross-referenced below ($ in thousands).
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DateNameSource of ExposureCarrying AmountMaximum Exposure to LossNote Reference
2014Senior LivingNotes and straight-line receivable$89,406 $93,156 Notes 3, 4
2016Senior Living ManagementNotes$24,500 $24,500 —
2018BickfordNotes and funding commitment$16,909 $29,550 Notes 3, 4
2019Encore Senior Living
Various1
$56,578 $57,432 —
2020Timber Ridge OpCo
Various2
$1,348 $6,348 Notes 6, 7
2020Watermark RetirementNotes and straight-line receivable$9,551 $11,574 —
2021Montecito Medical Real EstateNotes and funding commitment$20,509 $50,254 Note 4
2021Vizion HealthNotes and straight-line receivable$16,481 $16,481 —
2021Navion Senior Solutions
Various3
$7,992 $7,992 —
2023Kindcare Senior Living
Notes4
$751 $751 —

1 Notes, straight-line rents receivable, and lease receivables
2 Loan commitment, equity method investment, straight-line rents receivable and unamortized lease incentive
3 Notes, loan commitments, straight-line rents receivable, and unamortized lease incentive
4 Represents two mezzanine loans originated from the sales of real estate

We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we classify as VIEs, and accordingly, our maximum exposure to loss as a definitionresult of restricted cashthese relationships is limited to the amount of our commitments, as shown above and discussed in the notes. Economic loss on a lease, in excess of what is presented in the table above, if any, would be limited to that resulting from any period of non-payment of 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 would be dependent upon individual facts and circumstances, and is therefore not included in the table above.

In the future, NHI may be deemed the primary beneficiary of the operations if the tenants or restricted cash equivalents. ASU 2016-18 is effective for public entities for fiscal years beginning after December 15, 2017, including interim periods. The adoptionborrowers do not have adequate liquidity to accept the risks and rewards as the tenants and operators of ASU 2016-18 is not expectedthe properties and NHI may be required to have a material effect onconsolidate the financial position and results of operations of the tenants or borrowers into our consolidated financial statements.


In January 2017 the FASB issued ASU 2017-01, Clarifying the Definition of a Business. ASU 2017-01 narrowed the definition of a business in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs.

Currently the definition of outputs contributes to broad interpretations of the definition of a business. Additionally, the standard provides that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. For purposes of this test, land and buildings can be combined along with the intangible assets for any in-place leases. For most of NHI’s acquisitions of investment property, this screen would be met and, therefore, not meet the definition of a business. ASU 2017-01 became effective for public entities for fiscal years beginning after December 15, 2017, including interim periods. Early application of this standard is generally allowed for acquisitions acquired after the standard was issued but before the acquisition has been reflected in financial statements. We adopted the provisions of ASU 2017-01 in the first quarter of 2017. The adoption of ASU 2017-01 did not have a material effect on our consolidated financial statements. Our acquisitions in 2017 were accounted for as asset purchases.

In August 2017 the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which is 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.

In the first quarter of 2018, we adopted ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, 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 will require 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 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 is the change in timing and income statement line item for ineffectiveness related to cash flow hedges. As a result of the transition guidance provided in the ASU, as of January 1, 2018, cumulative ineffectiveness as adjusted for any prior off-market cashflow hedges will be reclassified out of beginning retained earnings and into accumulated other comprehensive income. Upon adoption of the ASU, a better alignment of the Company’s financial reporting for hedging activities with the economic objectives of those activities should result.

NOTE 15. SUBSEQUENT EVENTS

Ensign

On January 12, 2018, NHI acquired from a developer a 121-bed skilled nursing facility in Waxahachie, Texas for a cash investment of $14,400,000 plus $1,275,000 contributed by the lessee, Ensign. The facility will be included under our existing master lease with Ensign for the remaining lease term of 13 years plus renewal options. The initial lease rate is set at 8.2% subject to annual escalators based on prevailing inflation rates. The acquisition was accounted for as an asset purchase.

With the acquisition in 2017 of the New Braunfels and in 2018 of the Waxahachie properties, NHI has a continuing commitment to purchase, from the developer, two new skilled nursing facilities in Texas for approximately $28,000,000 which are newly developed and are leased to Legend Healthcare and subleased to Ensign. The fixed-price nature of the commitment creates a variable interest for NHI in the developer, whom NHI considers to lack sufficient equity to finance its operations without recourse to additional subordinated debt. The presence of these conditions causes the developer to be considered a VIE.

Bickford

In January 2018, we finalized and began funding a new loan commitment to Bickford. Initial funding on January 11, 2018, was $1,490,000 toward a maximum of $14,000,000 for the project. The agreement conveys a mortgage interest and will facilitate construction of an assisted living facility in Virginia Beach. The construction loan bears interest at 9% and conveys a purchase option to NHI, exercisable upon stabilization, as defined. Upon exercise of the purchase option, rent will be reset based on NHI's total investment, with a floor of 9.55%.

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, 2017,2023, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief AccountingFinancial Officer (“CAO”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)Act) 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;forms of the SEC; and (ii) accumulated and communicated to our management, including our CEO and our CAO,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 CAOCFO concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2017.2023.


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 three monthsquarter ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 1934.1934, as amended. 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.principles in the United States. 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 generally accepted 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, 20172023 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, 2017.2023. The Company’s independent registered public accounting firm, BDO USA, LLP,P.C., has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included herein.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Stockholders and 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, 2017,2023, 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, 2017,2023, 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 and subsidiaries as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes and financial statement schedules and our report dated February 15, 201820, 2024 expressed an unqualified opinion thereon.


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, LLPP.C.


Nashville, Tennessee
February 15, 201820, 2024

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ITEM 9B. OTHER INFORMATION.


None.None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended December 31, 2023.


ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not Applicable.
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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, 2017, 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 20182024 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this reportAnnual Report on Form 10-K relates.


ITEM 11.  EXECUTIVE COMPENSATION.


Incorporated by reference from the information in our definitive proxy statement for the 20182024 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this reportAnnual Report on Form 10-K 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 20182024 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this reportAnnual Report on Form 10-K relates.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.TRANSACTIONS, AND DIRECTOR INDEPENDENCE.


Incorporated by reference from the information in our definitive proxy statement for the 20182024 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this reportAnnual Report on Form 10-K relates.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.


Incorporated by reference from the information in our definitive proxy statement for the 20182024 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this reportAnnual Report on Form 10-K relates.


PART IV.


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


(a)    (1)    Financial Statements


The Consolidated Financial Statementsfollowing financial statements are included in Item 8 of this Annual Report on Form 10-K and are filed as part of this report.report:


(2)    Financial Statement Schedules

The Financial Statement Schedules and Report of Independent Registered Public Accounting Firm on(BDO USA, P.C.; Nashville, TN; PCAOB ID#243)
Consolidated Balance Sheets – At December 31, 2023 and 2022
Consolidated Statements of Income – Years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income – Years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows – Years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Equity – Years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements

    (2)    Financial Statement Schedules

The following Financial Statement Schedules are listed in Exhibit 99.1.included here following the signature page:


Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate

(3)    Exhibits


Exhibits required as part of this reportAnnual Report on Form 10-K are listed in the Exhibit Index.



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NATIONAL HEALTH INVESTORS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

2023
Description
3.1
Exhibit No.Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-3 Registration Statement No. 333-192322)
3.2
Articles of Amendment to Articles of Incorporation of National Health Investors, Inc. dated as of June 8, 1994. (incorporated by reference to Exhibit 3.2 to Form S-3 Registration Statement No. 333-194653)
3.3
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)
3.4
Amendment to Articles of Incorporation approved by stockholders on May 2, 2014 (incorporated by reference to Exhibit 3.3 to Form 10-Q filed August 4, 2014)
3.5
Amendment to Articles of Incorporation approved by stockholders on May 6, 2020 (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q filed August 10, 2020)
3.6
Amended and Restated Bylaws as approved February 17, 2023, as amended April 27, 2023 (incorporated by reference to Exhibit 3.5 to the Company’s Form 10-Q filed May 9, 2023
4.1Form 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)
3.24.2
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
Indenture, dated as of March 25, 2014, between National Health Investors, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated (incorporated by reference to Exhibit 4.1 to Form 8-K datedfiled March 31, 2014)
4.3
First Supplemental Indenture, dated as of March 25, 2014, to the Indenture, dated as of March 25, 2014, between National Health Investors, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated (incorporated by reference to Exhibit 4.2 to Form 8-K datedfiled March 31, 2014)
10.14.4
Material Contracts Indenture dated as of January 26, 2021, among National Health Investors, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibits 10.1 thru 10.9Exhibit 4.1 to Form S-4 Registration Statement No. No. 33-41863,8-K filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)January 26, 2021)
10.24.5
First Supplemental Indenture dated as of January 26, 2021, among National Health Investors, Inc., Regions Bank, as trustee, and the subsidiary guarantors set forth therein (incorporated by reference to Exhibit 4.2 to Form 8-K filed January 26, 2021)
4.6
Second Supplemental Indenture, dated as of March 31, 2022, among National Health Investors, Inc., Regions Bank, as trustee, and the subsidiary guarantors set forth therein (incorporated by reference to Exhibit 4.6 to the Company’s Form 10-Q filed May 9, 2022)
4.7
Description of Securities (filed herewith)
10.1
Master Agreement to Lease dated as of October 17, 1991 by and between National Health Investors, Inc. and National HealthCorp, L.P. including amendments No. 1 through 4 (incorporated by reference to Exhibit 10.1 to Form 10-K filed February 22, 2020)
10.2
Amendment No. 5 to the Company’s Master Agreement to Lease with NHC (Incorporated (incorporated by reference to Exhibit 10.2 to Form 10-K datedfiled March 10, 2006)
10.3
Amendment No. 6 to the Company’s Master Agreement to Lease with NHC (Incorporated (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 (incorporated by reference to Exhibit 10.4 to Form 10-K filed February 14,18, 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 (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’sDefinitive Proxy Statement filed March 23, 2009)

2012)
10.910.6
Excepted Holder Agreement - W. Andrew Adams (Incorporated (incorporated by reference to Exhibit 10.6 to Form 10-K datedfiled February 24, 2009)

10.1010.7
Excepted Holder Agreement between the Company and Andrea Adams Brown with Schedule A identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated (incorporated by reference to Exhibit 10.2 to Form 10-Q dated November 3,4, 2010)

10.1110.8
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 (incorporated by reference to Exhibit 10.22 to Form 10-K datedfiled February 15, 2013)

10.1310.9
Membership Interest Purchase Agreement dated as of June 24,301324, 2013 among Care Investment Trust Inc., Care YBE Subsidiary LLC and NHI-Bickford RE, LLC (Incorporated (incorporated by reference to Exhibit 10.1 to Form 10-Q datedfiled August 5,6, 2013)

10.1410.10
Master Lease dated as of December 23, 2013 between NHI- REIT of Next House, LLC, Myrtle Beach Retirement Residence LLC and Voorhees Retirement Residence LLC, individually and collectively as Landlord, and NH Master Tenant LLC, as Tenant (Incorporated (incorporated by reference to Exhibit 10.2 to Form 8-K datedfiled December 23,24, 2013)


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10.1510.11
Guarantee of Lease Agreement dated as of December 23, 2013 between NHI-REIT of Next House, LLC, Myrtle Beach Retirement Residence LLC and Voorhees Retirement Residence LLC, individually and collectively as Landlord, and Holiday AL Holdings, LP as Guarantor (Incorporated by reference to Exhibit 10.3 to Form 8-K datedfiled December 23,24, 2013)

10.1610.12

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 14,18, 2014)

10.1810.13

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)

*10.2010.14
First amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Definitive Proxy Statement filed March 20, 2015)

10.2110.15
Construction and Term Loan Agreement dated February 10, 2015 between the Company and LCS-Westminster Partnership (filed herewith) (Incorporated by reference to Exhibit 10.21 to Form 10-K filed February 16, 2018)
10.2210.16
Multifamily Loan and Security Agreement for Urbandale Bickford Cottage by and between Care YBE Subsidiary LLC, a Delaware limited liability company, and KeyBank National Association, a national banking association with Appendix 1 identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated by reference to Exhibit 10.3 to Form 10-Q datedfiled May 7, 2015)
10.2310.17
Multifamily Loan and Security Agreement for Omaha II Bickford Cottage by and between Care YBE Subsidiary LLC, a Delaware limited liability company, and KeyBank National Association, a national banking association with Appendix 1 identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated by reference to Exhibit 10.4 to Form 10-Q datedfiled May 7, 2015)
10.2410.18
Second Amendment to Note Purchase Agreement dated as of June 30,2015 among the Corporation, The Prudential Insurance Company of America and the other Purchasers named therein (Incorporated by reference to Exhibit 10.2 to Form 10-Q datedfiled August 5, 2015)

10.25*10.19
Amended and Restated Employment Agreement, dated as of October 5, 2015February 15, 2019, by and between National Health Investors, Inc. and D. Eric Mendelsohn (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated November 4, 2015)8-K filed February 22, 2019)
10.2610.20
$50,000,000 of 8-year notes with a coupon of 3.99% and $50,000,000 of 10-year notes with a coupon of 4.33% to a private placement lender (Incorporated by reference to Exhibit 10.40 to Form 10-K filed February 18, 2016)
10.2710.21

10.28
NHI PropCo, LLC Membership Interest Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 7, 2016)
10.2910.22
$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)

10.3010.23
Credit Agreement dated as of August 3, 2017 by and among National Health Investors, Inc., the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated August 8, 2017)

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 (Incorporated by reference to Exhibit 99.1 to Form 8-k8-K filed August 14, 2017)
10.3210.24
Fifth Amendment to Note Purchase Agreement dated January 13, 2015, made and entered into as of August 8, 2017(Incorporated (Incorporated by reference to Exhibit 99.2 to Form 8-k8-K filed August 14, 2017)

12.1*10.25
Second Amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Definitive Proxy Statement Regarding Computationfiled March 20, 2018)
10.26
Amendment To Master Lease and Termination Of Guaranty dated as of RatioNovember 5, 2018, by and among NHI-REIT of EarningsNext House, LLC, Myrtle Beach Retirement Residence LLC, Voorhees Retirement Residence LLC, NH Master Tenant LLC, and Holiday AL Holdings LP (Incorporated by reference to Fixed ChargesExhibit 99.2 to Form 8-K filed November 6, 2018)
10.27
Term Loan Agreement dated as of September 17, 2018, by and Ratio of Fixed Chargesamong National Health Investors, Inc., the Lenders Party thereto, and PreferredWells Fargo Bank, National Association as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 6, 2018)
10.28
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, 2019)
*10.29
National Health Investors, Inc. 2019 Stock DividendsIncentive Plan (filed herewith) (Incorporated by reference to Appendix A to Definitive Proxy Statement filed March 19, 2019)
10.30

Composite Note Purchase Agreement Reflecting: First Amendment dated March 20,2015; Second Amendment dated June 30, 2015; Third Amendment to Note Purchase Agreement dated November 3, 2015; Fourth Amendment to Note Purchase Agreement dated August 15, 2016; and Fifth Amendment to Note Purchase Agreement dated August 8, 2017, in HTML format (incorporated by reference to Exhibit 10.1 to Form 8-K filed March 19, 2020)

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2110.31
Subsidiaries (filed herewith)Credit Agreement effective March 31, 2022 by and among National Health Investors, Inc., Lenders party thereto, and Wells Fargo Bank, National Association as administrative agent (incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 9, 2022)
23.1010.32
Settlement Agreement dated March 31, 2022 by and among National Health Investors, Inc. and Welltower, Inc., Welltower Victory II TRS LLC, and WELL Churchill Leasehold Owner LLC (incorporated by reference to Exhibit 10.2 to Form10-Q filed May 9, 2022)
10.33
Amendment No. 1 to Term Loan Agreement, dated as of March 31, 2022, among National Health Investors, Inc., Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to Form 10-Q filed May 9, 2022)
10.34
First Amendment dated August 15, 2016 to Note Purchase Agreement dated November 3, 2015 (incorporated by reference to Exhibit 10.1 to Form 10-Q filed August 8, 2022)
10.35
Second Amendment dated September 30, 2016 to Note Purchase Agreement dated November 3, 2015 (incorporated by reference to Exhibit 10.2 to Form 10-Q filed August 8, 2022)
10.36
Fourth Amendment dated June 29, 2022 to Note Purchase Agreement dated November 3, 2015 (incorporated by reference to Exhibit 10.3 to Form 10-Q filed August 8, 2022)
10.37
Sixth Amendment dated June 29, 2022 to Note Purchase Agreement dated January 13, 2015 (incorporated by reference to Exhibit 10.4 to Form 10-Q filed August 8, 2022)
10.38
Amendment No. 8 to Master Lease Agreement to Lease with NHC (incorporated by reference to Exhibit 10.38 to Form 10-K filed February 21, 2023)
10.39
Amendment No. 9 to Master Lease Agreement to Lease with NHC (incorporated by reference to Exhibit 10.39 to Form 10-K filed February 21, 2023)
10.40
Amendment No. 10 to Master Lease Agreement to Lease with NHC) (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 8, 2022)
*10.41
Amended and Restated National Health Investors, Inc. 2019 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement filed March 23, 2023)
10.42
Term Loan Agreement dated as of June 16, 2023, by and among National Health Investors, Inc. the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 20, 2023)
21
Subsidiaries (filed herewith)
23.1
31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(filed (filed herewith)
31.2
32
Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(filed (filed herewith)
99.197

101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document).






* Indicates management contract or compensatory plan or arrangement.



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ITEM 16. SUMMARY


None.

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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this reportAnnual Report on Form 10-K 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:DATE: February 15, 201820, 2024President, and Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


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SignatureTitleDate
SignatureTitleDate
/s/ D. Eric MendelsohnPresident, and Chief Executive Officer and DirectorFebruary 15, 201820, 2024
D. Eric Mendelsohn(Principal Executive Officer)
/s/ John L. SpaidChief Financial OfficerFebruary 20, 2024
John L. Spaid(Principal Financial Officer)
/s/ Roger R. HopkinsDavid L. TravisChief Accounting OfficerFebruary 15, 201820, 2024
Roger R. HopkinsDavid L. Travis(Principal Financial Officer and Principal Accounting Officer)
/s/ W. Andrew AdamsChairman of the BoardFebruary 15, 201820, 2024
W. Andrew Adams
/s/ James R. JobeDirectorDirectorFebruary 15, 201820, 2024
James R. Jobe
/s/ Robert A. McCabe, Jr.DirectorDirectorFebruary 15, 201820, 2024
Robert A. McCabe, Jr.
/s/ Robert T. WebbDirectorDirectorFebruary 15, 201820, 2024
Robert T. Webb
/s/ Charlotte A. SwaffordDirectorFebruary 20, 2024
Charlotte A. Swafford
/s/ Robert G. AdamsDirectorFebruary 20, 2024
Robert G. Adams
/s/ Tracy M. J. ColdenDirectorFebruary 20, 2024
Tracy M. J. Colden



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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Real Estate Investments
Skilled Nursing Facilities
Anniston, AL$— $70 $4,477 $— $70 $4,477 $4,547 $3,795 10/17/1991
Moulton, AL— 25 688 — 25 688 713 688 10/17/1991
Avondale, AZ— 453 6,678 — 453 6,678 7,131 4,642 8/13/1996
Brooksville, FL— 1,217 16,166 — 1,217 16,166 17,383 5,624 2/1/2010
Crystal River, FL— 912 12,117 — 912 12,117 13,029 4,216 2/1/2010
Dade City, FL— 605 8,042 — 605 8,042 8,647 2,798 2/1/2010
Hudson, FL (2 facilities)— 1,290 22,392 — 1,290 22,392 23,682 13,323 Various
Merritt Island, FL— 701 8,869 — 701 8,869 9,570 7,832 10/17/1991
New Port Richey, FL— 228 3,023 — 228 3,023 3,251 1,052 2/1/2010
Plant City, FL— 405 8,777 — 405 8,777 9,182 7,687 10/17/1991
Stuart, FL— 787 9,048 — 787 9,048 9,835 8,146 10/17/1991
Trenton, FL— 851 11,312 — 851 11,312 12,163 3,935 2/1/2010
Glasgow, KY— 33 2,110 — 33 2,110 2,143 2,069 10/17/1991
Desloge, MO— 178 3,804 — 178 3,804 3,982 3,804 10/17/1991
Joplin, MO— 175 4,034 — 175 4,034 4,209 3,381 10/17/1991
Kennett, MO— 180 4,928 — 180 4,928 5,108 4,814 10/17/1991
Maryland Heights, MO— 150 4,790 — 150 4,790 4,940 4,675 10/17/1991
St. Charles, MO— 420 5,512 — 420 5,512 5,932 5,512 10/17/1991
Albany, OR— 190 10,415 — 190 10,415 10,605 2,959 3/31/2014
Creswell, OR— 470 8,946 — 470 8,946 9,416 2,439 3/31/2014
Forest Grove, OR— 540 11,848 — 540 11,848 12,388 3,286 3/31/2014
Anderson, SC— 308 4,643 — 308 4,643 4,951 4,504 10/17/1991
Greenwood, SC— 174 3,457 — 174 3,457 3,631 3,291 10/17/1991
Laurens, SC— 42 3,426 — 42 3,426 3,468 3,185 10/17/1991
Orangeburg, SC— 300 3,714 — 300 3,714 4,014 1,478 9/25/2008
Athens, TN— 38 1,463 — 38 1,463 1,501 1,377 10/17/1991
Chattanooga, TN— 143 2,309 — 143 2,309 2,452 2,300 10/17/1991
Dickson, TN— 90 3,541 — 90 3,541 3,631 3,294 10/17/1991
Franklin, TN— 47 1,130 — 47 1,130 1,177 1,130 10/17/1991
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Hendersonville, TN— 363 3,837 — 363 3,837 4,200 3,438 10/17/1991
Johnson City, TN— 85 1,918 — 85 1,918 2,003 1,917 10/17/1991
Lewisburg, TN (2 facilities)— 46 994 — 46 994 1,040 994 10/17/1991
McMinnville, TN— 73 3,618 — 73 3,618 3,691 3,283 10/17/1991
Milan, TN— 41 1,826 — 41 1,826 1,867 1,712 10/17/1991
Pulaski, TN— 53 3,921 — 53 3,921 3,974 3,536 10/17/1991
Lawrenceburg, TN— 98 2,900 — 98 2,900 2,998 2,509 10/17/1991
Dunlap, TN— 35 3,679 — 35 3,679 3,714 3,182 10/17/1991
Smithville, TN— 35 3,816 — 35 3,816 3,851 3,389 10/18/1991
Somerville, TN— 26 677 — 26 677 703 678 10/19/1991
Sparta, TN— 80 1,602 — 80 1,602 1,682 1,547 10/20/1991
Austin, TX— 606 9,895 — 606 9,895 10,501 2,232 4/1/2016
Canton, TX— 420 12,330 — 420 12,330 12,750 4,014 4/18/2013
Corinth, TX— 1,075 13,935 — 1,075 13,935 15,010 4,745 4/18/2013
Ennis, TX— 986 9,025 — 986 9,025 10,011 3,305 10/31/2011
Euless, TX— 1,241 12,629 — 1,241 12,629 13,870 3,070 4/1/2016
Fort Worth, TX— 1,380 14,370 — 1,380 14,370 15,750 2,738 5/10/2018
Garland, TX— 1,440 14,310 — 1,440 14,310 15,750 2,721 5/10/2018
Gladewater, TX— 70 17,840 — 70 17,840 17,910 3,835 4/1/2016
Greenville, TX— 1,800 13,948 — 1,800 13,948 15,748 4,886 10/31/2011
Houston, TX (3 facilities)— 2,808 42,511 — 2,808 42,511 45,319 15,482 Various
Katy, TX— 610 13,893 — 610 13,893 14,503 3,159 4/1/2016
Kyle, TX— 1,096 12,279 — 1,096 12,279 13,375 4,346 6/11/2012
Marble Falls, TX— 480 14,989 — 480 14,989 15,469 3,331 4/1/2016
McAllen, TX— 1,175 8,259 — 1,175 8,259 9,434 2,045 4/1/2016
New Braunfels, TX— 1,430 13,666 — 1,430 13,666 15,096 3,174 2/24/2017
San Antonio, TX (3 facilities)— 2,370 40,054 — 2,370 40,054 42,424 11,730 Various
Waxahachie, TX— 1,330 14,349 — 1,330 14,349 15,679 2,879 1/17/2018
Bristol, VA— 176 2,511 — 176 2,511 2,687 2,511 10/17/1991
Oak Creek, WI— 2,000 14,903 7,403 2,000 22,306 24,306 3,003 12/7/2018
— 34,450 516,143 7,403 34,450 523,546 557,996 226,627 
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Assisted Living Facilities
Rainbow City, AL— 670 11,330 — 670 11,330 12,000 3,211 10/31/2013
Sacramento, CA— 660 10,840 — 660 10,840 11,500 2,962 6/1/2014
Pueblo West, CO— 169 7,431 — 169 7,431 7,600 984 7/23/2019
Greensboro, GA— 672 4,849 631 672 5,480 6,152 1,694 9/15/2011
Ames, IA3,193 360 4,670 — 360 4,670 5,030 1,377 6/28/2013
Burlington, IA3,901 200 8,374 — 200 8,374 8,574 2,477 6/28/2013
Cedar Falls, IA— 260 4,700 30 260 4,730 4,990 1,428 6/28/2013
Ft. Dodge, IA4,008 100 7,208 — 100 7,208 7,308 2,090 6/28/2013
Iowa City, IA— 297 2,725 33 297 2,758 3,055 1,040 6/30/2010
Marshalltown, IA5,714 240 6,208 — 240 6,208 6,448 1,829 6/28/2013
Urbandale, IA8,113 540 4,292 — 540 4,292 4,832 1,305 6/28/2013
Caldwell, ID— 320 9,353 — 320 9,353 9,673 2,558 3/31/2014
Aurora, IL— 1,195 11,713 — 1,195 11,713 12,908 2,743 5/9/2017
Bolingbrook, IL— 1,290 14,677 — 1,290 14,677 15,967 2,783 3/16/2017
Bourbonnais, IL7,974 170 16,594 — 170 16,594 16,764 4,743 6/28/2013
Crystal Lake, IL (2 facilities)— 1,060 30,043 170 1,060 30,213 31,273 5,917 Various
Gurnee, IL— 1,244 13,856 — 1,244 13,856 15,100 1,781 9/10/2019
Moline, IL3,896 250 5,630 — 250 5,630 5,880 1,674 6/28/2013
Oswego, IL— 390 20,957 212 390 21,169 21,559 4,251 6/1/2016
Quincy, IL6,055 360 12,403 — 360 12,403 12,763 3,596 6/28/2013
Rockford, IL6,412 390 12,575 — 390 12,575 12,965 3,664 6/28/2013
South Barrington, IL— 1,610 13,456 — 1,610 13,456 — 15,066 2,604 3/16/2017
St. Charles, IL— 820 22,188 252 820 22,440 23,260 4,547 6/1/2016
Tinley Park, IL— 1,622 11,354 — 1,622 11,354 12,976 2,765 6/23/2016
Attica, IN— 284 7,891 — 284 7,891 8,175 874 5/1/2020
Carmel, IN— 463 7,055 — 463 7,055 7,518 2,346 11/12/2014
Crawfordsville, IN— 300 1,961 — 300 1,961 2,261 921 6/28/2013
Crown Point, IN— 574 7,336 353 574 7,689 8,263 2,473 10/30/2013
Greenwood, IN— 791 7,020 227 791 7,247 8,038 2,418 11/7/2013
Linton, IN— 60 6,015 — 60 6,015 6,075 668 5/1/2020
Bastrop, LA— 325 2,456 — 325 2,456 2,781 880 4/30/2011
Bossier City, LA— 500 3,344 — 500 3,344 3,844 1,230 4/30/2011
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Minden, LA— 280 1,698 — 280 1,698 1,978 606 4/30/2011
West Monroe, LA— 770 5,627 — 770 5,627 6,397 1,953 4/30/2011
Frederick, MD— 1,942 17,415 — 1,942 17,415 19,357 486 2/4/2023
Battle Creek, MI— 398 3,093 197 398 3,290 3,688 1,357 10/19/2009
Lansing, MI— 1,020 9,684 174 1,020 9,858 10,878 2,022 10/19/2009
Okemos, MI— 340 8,082 — 340 8,082 8,422 3,123 11/19/2009
Shelby, MI— 1,588 13,512 — 1,588 13,512 15,100 1,610 1/27/2020
Champlin, MN— 980 4,475 — 980 4,475 5,455 1,664 3/10/2010
Hugo, MN— 400 3,945 113 400 4,058 4,458 1,440 3/10/2010
Maplewood, MN— 1,700 6,544 — 1,700 6,544 8,244 2,433 3/10/2010
North Branch, MN— 595 3,053 — 595 3,053 3,648 1,165 3/10/2010
Mahtomedi, MN— 515 8,825 — 515 8,825 9,340 999 12/27/2019
Charlotte, NC— 650 17,663 2,000 650 19,663 20,313 4,642 7/1/2015
Durham, NC— 860 7,752 994 860 8,746 9,606 1,183 12/15/2017
Hendersonville, NC (2 facilities)— 3,120 12,980 — 3,120 12,980 16,100 2,661 3/16/2017
Lincoln, NE8,418 380 10,904 — 380 10,904 11,284 3,116 6/28/2013
Omaha, NE (2 facilities)2,455 1,110 15,437 851 1,110 16,288 17,398 4,099 Various
Las Vegas, NV— 1,951 16,184 — 1,951 16,184 18,135 447 2/14/2023
Arlington, OH— 570 7,917 — 570 7,917 8,487 1,965 4/30/2018
Columbus, OH— 530 6,776 — 530 6,776 7,306 1,757 4/30/2018
Lancaster, OH— 530 20,530 — 530 20,530 21,060 5,224 7/31/2015
Middletown, OH— 940 15,548 — 940 15,548 16,488 4,059 10/31/2014
Rocky River, OH— 650 4,189 — 650 4,189 4,839 871 4/30/2018
Worthington, OH— — 18,869 1,476 — 20,345 — 20,345 3,996 4/30/2018
McMinnville, OR— 390 9,183 — 390 9,183 9,573 1,959 8/31/2016
Portland, OR— 930 25,270 — 930 25,270 26,200 4,622 8/31/2015
Erie, PA— 1,030 15,206 914 1,030 16,120 — 17,150 2,418 4/30/2018
Reading, PA— 1,027 11,179 — 1,027 11,179 12,206 1,536 5/31/2019
Manchester, TN— 534 6,068 — 534 6,068 6,602 522 6/3/2021
Chesapeake, VA— 1,746 15,542 — 1,746 15,542 17,288 436 2/9/2023
Fredericksburg, VA— 1,615 9,271 — 1,615 9,271 10,886 2,238 9/20/2016
Midlothian, VA— 1,646 8,635 — 1,646 8,635 10,281 2,155 10/31/2016
Suffolk, VA— 1,022 9,320 — 1,022 9,320 10,342 2,064 3/25/2016
Virginia Beach, VA— 2,052 15,148 — 2,052 15,148 17,200 451 11/10/2022
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Bellevue, WI— 504 11,796 — 504 11,796 12,300 1,192 9/30/2020
Oshkosh, WI— 542 12,758 — 542 12,758 13,300 608 4/29/2022
60,139 53,043 700,582 8,627 53,043 709,209 762,252 148,912 
Independent Living Facilities
Vero Beach, FL— 550 37,450 2,543 550 350 39,993 40,543 5,343 2/1/2019
Columbus, IN— 348 6,124 — 348 6,124 6,472 812 5/31/2019
St. Charles, MO— 344 3,181 — 344 3,181 3,525 2,778 10/17/1991
Tulsa, OK16,102 1,980 32,620 502 1,980 33,122 35,102 5,698 12/1/2017
Chattanooga, TN— 9 1,567 1 9 1,568 1,577 1,473 10/17/1991
Johnson City, TN— 55 4,077 — 55 4,077 4,132 3,375 10/17/1991
Chehalis, WA— 1,980 7,710 7,445 1,980 15,155 17,135 2,686 1/15/2016
16,102 5,266 92,729 10,491 5,266 103,220 108,486 22,165 
Senior Living Campuses
Michigan City, IN— 974 22,667 — 974 22,667 23,641 2,973 5/31/2019
Portage, IN— 661 21,959 — 661 21,959 22,620 2,887 5/31/2019
Needham, MA— 5,500 45,157 1,451 5,500 46,608 52,108 7,268 1/15/2019
Salisbury, MD— 1,876 44,084 471 1,876 44,555 46,431 6,081 5/31/2019
Roscommon, MI— 44 6,005 1 44 6,006 6,050 1,525 8/31/2015
Mt. Airy, NC— 1,370 7,470 150 1,370 7,620 8,990 1,992 12/17/2014
McMinnville, OR— 410 26,667 — 410 26,667 27,077 5,375 8/31/2016
Silverdale, WA— 1,750 23,860 2,167 1,750 26,027 27,777 8,021 8/16/2012
— 12,585 197,869 4,240 12,585 202,109 214,694 36,122 
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Entrance-Fee Communities
Bridgeport, CT— 4,320 23,494 5,809 4,320 29,303 33,623 6,582 6/2/2016
North Branford, CT— 7,724 64,430 — 7,724 64,430 72,154 13,231 11/3/2016
Southbury, CT— 10,320 17,143 6,178 10,320 23,321 33,641 4,806 6/2/2016
Fernandina Beach, FL— 1,430 63,420 1,522 1,430 64,942 66,372 16,255 12/17/2014
St. Simons Island, GA— 8,770 38,070 963 8,770 39,033 47,803 9,930 12/17/2014
Winston-Salem, NC— 8,700 73,920 507 8,700 74,427 83,127 18,517 12/17/2014
Greenville, SC— 5,850 90,760 — 5,850 90,760 96,610 22,216 12/17/2014
Myrtle Beach, SC— 3,910 82,140 542 3,910 82,682 86,592 20,703 12/17/2014
Pawleys Island, SC— 1,480 38,620 460 1,480 39,080 40,560 10,088 12/17/2014
Spartanburg, SC— 900 49,190 1,021 900 50,211 51,111 12,615 12/17/2014
Issaquah, WA— 4,370 130,522 — 4,370 130,522 134,892 14,679 01/31/2020
— 57,774 671,709 17,002 57,774 688,711 746,485 149,622 
Hospitals
Tulsa, OK— 1,470 38,780 250 1,470 39,030 40,500 2,691 5/28/2021
— 1,470 38,780 250 1,470 39,030 40,500 2,691 
Total real estate investments properties76,241 164,588 2,217,812 48,013 164,588 2,265,825 2,430,413 586,139 
Senior Housing Operating
Independent Living Facilities
Fort Smith, AR— 590 22,447 486 590 22,933 23,523 6,080 4/01/2022
Rogers, AR— 1,470 25,282 697 1,470 25,979 27,449 6,839 4/01/2022
Fresno, CA— 420 10,899 404 420 11,303 11,723 3,052 4/01/2022
Modesto, CA— 1,170 22,673 727 1,170 23,400 24,570 6,067 4/01/2022
Pinole, CA— 1,020 18,066 722 1,020 18,788 19,808 4,881 4/01/2022
Roseville, CA— 630 31,343 928 630 32,271 32,901 8,391 4/01/2022
West Covina, CA— 940 20,280 1,545 940 21,825 22,765 5,525 4/01/2022
Athens, GA— 910 31,940 1,085 910 33,025 33,935 8,601 4/01/2022
Columbus, GA— 570 8,639 663 570 9,302 9,872 2,515 4/01/2022
Voorhees, NJ— 670 23,710 1,292 670 25,002 25,672 6,417 4/01/2022
Gahanna, OH— 920 22,919 423 920 23,342 24,262 6,244 4/01/2022
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2023
($ in thousands)
Costs
Initial Cost to Company(C)
CapitalizedDate
Buildings &Subsequent toBuildings &AccumulatedAcquired/
Encumbrances(A)
LandImprovementsAcquisitionLand
Improvements(D)
Total(E)
Depreciation(B)
Constructed
Broken Arrow, OK— 2,660 18,477 518 2,660 18,995 21,655 5,082 4/01/2022
Greenville, SC— 560 16,547 939 560 17,486 18,046 4,597 4/01/2022
Myrtle Beach, SC— 1,310 26,229 1,434 1,310 27,663 28,973 7,115 4/01/2022
Vancouver, WA— 1,030 19,183 2,027 1,030 21,210 22,240 5,254 4/01/2022
Total senior housing operating properties— 14,870 318,634 13,890 14,870 332,524 347,394 86,660 
Corporate office— 1,291 677 583 1,291 1,260 2,551 477 
$76,241 $180,749 $2,537,123 $62,486 $180,749 $2,599,609 $2,780,358 $673,276 


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 purchased from NHC $33.9 million of additions to those properties. As the additions were purchased from NHC rather than developed by us, the $33.9 million has been included as Initial Cost to Company.
(D) Includes construction in progress.
(E) At December 31, 2023, the tax basis of the Company’s net real estate assets was $2.1 billion.
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
($ in thousands)
December 31,
202320222021
Investment in Real Estate:
Balance at beginning of period$2,729,898 $2,894,548 $3,265,070 
Additions through cash expenditures49,556 10,993 50,346 
Change in accounts payable related to investments in real estate construction & equipment325 (69)(388)
Change in other assets related to investments in real estate454 200 — 
Right of use asset in exchange for lease liability101 — — 
Operating equipment received in lease termination— 1,287 — 
Real estate acquired in exchange for non-cash rental income2,500 3,000 — 
Real estate acquired in exchange for mortgage notes receivable14,200 23,071 — 
Sale of properties for cash(19,326)(104,691)(276,429)
Properties classified as held for sale(11,970)(84,761)(137,651)
Property reclassified as held for use15,793 7,851 — 
Impairment of property(1,173)(21,531)(6,400)
Balance at end of period$2,780,358 $2,729,898 $2,894,548 
Accumulated Depreciation:
Balance at beginning of period$611,688 $576,668 $597,638 
Addition charged to costs and expenses69,973 70,880 80,798 
Amortization of right-of-use asset38 36 36 
Sale of properties(4,851)(25,643)(70,063)
Properties classified as held for sale(6,965)(11,092)(31,741)
Property reclassified as held for use3,393 839 — 
Balance at end of period$673,276 $611,688 $576,668 

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2023
MonthlyAmount Subject To
InterestMaturityPaymentPriorOriginalCarryingDelinquent Principal
RateDateTermsLiensFace AmountAmountor Interest
($ in thousands)
First Mortgages:
Skilled nursing facilities:
Lexington, VA8.0%2032-12-31$21,000$3,089 $1,326 
Brookneal, VA8.0%2031-12-31$21,000$2,780 $1,261 
Austin/San Antonio, TX7.25%2027-11-30Interest Only$42,500 $42,380 
Assisted living facilities:
Oviedo, FL8.25%2025-07-31Interest Only$10,000 $10,000 
Indianapolis, IN7.0%2022-12-31Interest Only$6,423 $6,423 
Wabash, IN7.0%2025-12-31Interest Only$4,000 $2,094 
Entrance-fee communities:
Columbia, SC7.25%2024-12-31Interest Only$32,700 $32,700 
Second Mortgages:
     Winter Park, FL12.0%2025/10/31Interest Only$1,550 $1,550 
Construction Loans:
Canton, MI9.0%2023-12-31Interest Only$14,700 $14,700 
Fitchburg, WI8.50%2026-01-28Interest Only$28,525 $27,662 
Sussex, WI8.50%2024-12-31Interest Only$22,200 $22,337 
$162,433 $— 

At December 31, 2023, the tax basis of our mortgage loans on real estate was $175.2 million. Balloon payments on our interest only mortgage receivables are equivalent to the carrying amounts listed above except for unamortized commitment fees of $32.5 thousand.

See the notes to our consolidated financial statements for more information on our mortgage loan receivables.
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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
($ in thousands)
December 31,
202320222021
Reconciliation of mortgage loans on real estate
Balance at beginning of period$164,576 $230,927 $259,491 
Additions:
New mortgage loans15,083 67,978 33,160 
Amortization of loan discount and commitment fees428 907 741 
Total Additions15,511 68,885 33,901 
Deductions:
Loan commitment fees received— 497 — 
Mortgage notes receivable related to investments in real estate14,200 23,071 — 
Collection of principal, less recoveries of previous write-downs3,454 111,668 62,465 
Total Deductions17,654 135,236 62,465 
Balance at end of period$162,433 $164,576 $230,927 


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