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Section 1: 10-Q (10-Q)

nhi-20200331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended2020-03-31
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________

Commission File Number 001-10822
National Health Investors Inc
(Exact name of registrant as specified in its charter)
Maryland 62-1470956
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
222 Robert Rose Drive 
MurfreesboroTennessee37129
(Address of principal executive offices) (Zip Code)

(615)890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueNHINew York Stock Exchange

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

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

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

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

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

There were 44,650,002 shares of common stock outstanding of the registrant as of May 5, 2020.



Table of Contents

Page

2

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

March 31,
2020
December 31, 2019
(unaudited)
Assets:
Real estate properties:
Land$219,575  $213,617  
Buildings and improvements2,990,554  2,836,673  
Construction in progress18,003  24,556  
3,228,132  3,074,846  
Less accumulated depreciation(534,905) (514,453) 
Real estate properties, net2,693,227  2,560,393  
Mortgage and other notes receivable, net286,320  340,143  
Cash and cash equivalents46,049  5,215  
Straight-line rent receivable85,629  86,044  
Assets held for sale, net  18,420  
Equity method investment and other assets56,610  32,020  
Total Assets$3,167,835  $3,042,235  
Liabilities and Stockholders’ Equity:
Debt$1,548,904  $1,440,465  
Accounts payable and accrued expenses34,701  26,313  
Dividends payable49,226  46,817  
Lease deposit liabilities10,638  10,638  
Deferred income17,373  19,750  
Total Liabilities1,660,842  1,543,983  
Commitments and Contingencies
National Health Investors, Inc. Stockholders' Equity:
Common stock, $0.01 par value; 60,000,000 shares authorized;
44,650,002 and 44,587,486 shares issued and outstanding447  446  
Capital in excess of par value1,505,001  1,505,948  
Cumulative net income in excess (deficit) of dividends2,241  (5,331) 
Accumulated other comprehensive loss(12,131) (3,432) 
Total National Health Investors, Inc. Stockholders' Equity1,495,558  1,497,631  
Noncontrolling interests11,435  621  
Total Equity1,506,993  1,498,252  
Total Liabilities and Stockholders’ Equity$3,167,835  $3,042,235  

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. The Condensed Consolidated Balance Sheet at December 31, 2019 was derived from the audited consolidated financial statements at that date.
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Table of Contents
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)

Three Months Ended
March 31,
20202019
(unaudited)
Revenues:
Rental income$76,527  $70,953  
Interest income and other6,549  5,154  
83,076  76,107  
Expenses:
Depreciation20,443  18,491  
Interest14,140  13,518  
Legal334  270  
Franchise, excise and other taxes243  545  
General and administrative4,311  4,014  
Property taxes and insurance on leased properties1,553  1,090  
Loan and realty losses1,555  2,500  
42,579  40,428  
Loss from equity method investment(442)   
Investment and other gains21,007    
Net income61,062  35,679  
Less: net income attributable to noncontrolling interests(39)   
Net income attributable to common stockholders$61,023  $35,679  
Weighted average common shares outstanding:
Basic44,613,593  42,825,824  
Diluted44,618,139  43,125,032  
Earnings per common share:
Net income attributable to common stockholders - basic$1.37  $0.83  
Net income attributable to common stockholders - diluted$1.37  $0.83  


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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Table of Contents
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Three Months Ended
March 31,
20202019
(unaudited)
Net income$61,062  $35,679  
Other comprehensive income (loss):
Decrease in fair value of cash flow hedges(9,191) (665) 
Reclassification for amounts recognized as interest expense492  (292) 
Total other comprehensive loss(8,699) (957) 
Comprehensive income52,363  34,722  
Less: comprehensive income attributable to noncontrolling interest(39)   
Comprehensive income attributable to common stockholders$52,324  $34,722  


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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Table of Contents
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20202019
(unaudited)
Cash flows from operating activities:  
Net income$61,062  $35,679  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation20,443  18,491  
Amortization of debt issuance costs, debt discounts and prepaids1,173  1,263  
Amortization of commitment fees and note receivable discounts(129) (119) 
Amortization of lease incentives236  168  
Straight-line rent income(5,177) (5,228) 
Non-cash interest income on construction loans(888) (548) 
Gain on sales of real estate(21,007)   
Loss from equity method investment442    
Loan and realty losses1,555  2,500  
Payment of lease incentives  (1,250) 
Non-cash stock-based compensation1,845  2,001  
Changes in operating assets and liabilities: 
Other assets(357) 2,961  
Accounts payable and accrued expenses(1,497) 1,597  
Deferred income(619) 16,322  
Net cash provided by operating activities57,082  73,837  
Cash flows from investing activities:  
Investments in mortgage and other notes receivable(20,298) (11,002) 
Collections of mortgage and other notes receivable14,288  300  
Investments in real estate(80,335) (50,122) 
Investments in renovations of existing real estate(3,057) (4,215) 
Equity method investment(875)   
Proceeds from sale of real estate39,260    
Net cash used in investing activities(51,017) (65,039) 
Cash flows from financing activities:  
Proceeds from revolving credit facility125,000  95,000  
Payments on revolving credit facility(17,000) (90,000) 
Payments on term loans(304) (296) 
Debt issuance costs  (67) 
Distributions to noncontrolling interests(16)   
Proceeds from noncontrolling interests13    
Taxes remitted on employee stock awards(2,705) (1,006) 
Proceeds from issuance of common shares, net  35,913  
Equity issuance costs(87)   
Dividends paid to stockholders(46,817) (42,700) 
Net cash provided by (used in) financing activities58,084  (3,156) 
Increase in cash and cash equivalents and restricted cash64,149  5,642  
Cash and cash equivalents and restricted cash, beginning of period15,669  9,912  
Cash and cash equivalents and restricted cash, end of period$79,818  $15,554  


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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Table of Contents
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)

Three Months Ended
March 31,
20202019
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$12,462  $11,901  
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for straight-line rent receivable$  $38,000  
Real estate acquired in exchange for mortgage notes receivable$59,350  $  
Increase in mortgage note receivable from sale of real estate$4,000  $  
Change in other assets related to investments in real estate$  $176  
Change in accounts payable related to investments in real estate construction$(234) $(1,048) 
Change in accounts payable related to investments in real estate acquisition$  $1,178  


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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Table of Contents
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share and per share amounts)

Common StockCapital in Excess of Par ValueCumulative Net Income in Excess (Deficit) of DividendsAccumulated Other Comprehensive Income (Loss)Total National Health Investors, Inc. Stockholders’ EquityNoncontrolling InterestsTotal Equity
SharesAmount
Balances at December 31, 201944,587,486  $446  $1,505,948  $(5,331) $(3,432) $1,497,631  $621  $1,498,252  
Cumulative effect of change in accounting principle—  —  —  (4,225) —  (4,225) —  (4,225) 
Noncontrolling interest conveyed in acquisition—  —  —  —  —  —  10,791  10,791  
Noncontrolling interest distribution—  —  —  —  —  —  (16) (16) 
Total comprehensive income—  —  —  61,023  (8,699) 52,324  39  52,363  
Equity issuance costs—  —  (85) —  —  (85) —  (85) 
Taxes remitted on employee stock awards—  —  (2,705) —  —  (2,705) —  (2,705) 
Shares issued on stock options exercised62,516  1  (2) —  —  (1) —  (1) 
Stock-based compensation—  —  1,845  —  —  1,845  —  1,845  
Dividends declared, $1.1025 per common share—  —  —  (49,226) —  (49,226) —  (49,226) 
Balances at March 31, 202044,650,002  $447  $1,505,001  $2,241  $(12,131) $1,495,558  $11,435  $1,506,993  

Balances at December 31, 201842,700,411  $427  $1,369,919  $18,068  $1,299  $1,389,713  $  $1,389,713  
Total comprehensive income—  —  —  35,679  (957) 34,722  —  34,722  
Issuance of common stock, net462,925  5  35,908  —  —  35,913  —  35,913  
Taxes remitted on employee stock awards—  —  (1,006) —  —  (1,006) —  (1,006) 
Shares issued on stock options exercised35,982  —  —  —  —  —  —  —  
Stock-based compensation—  —  2,001  —  —  2,001  —  2,001  
Dividends declared, $1.05 per common share—  —  —  (45,359) —  (45,359) —  (45,359) 
Balances at March 31, 201943,199,318  $432  $1,406,822  $8,388  $342  $1,415,984  $  $1,415,984  



The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

We, the management of National Health Investors, Inc., (“NHI” or the “Company”) believe that the unaudited condensed consolidated financial statements of which these notes are an integral part include all normal, recurring adjustments that are necessary to fairly present the condensed consolidated financial position, results of operations and cash flows of NHI in all material respects. The Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date. We assume that users of these condensed consolidated financial statements have read or have access to the audited December 31, 2019 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except regarding material contingencies, may be determined in that context. Accordingly, notes and other disclosures which would substantially duplicate those contained in our most recent Annual Report on Form 10-K for the year ended December 31, 2019 have been omitted. This condensed consolidated financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons including, but not limited to, acquisitions and dispositions, changes in interest rates, rents and the timing of debt and equity financings. For a better understanding of NHI and its condensed consolidated financial statements, we recommend reading these condensed consolidated financial statements in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, which are included in our 2019 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”), a copy of which is available at our web site: www.nhireit.com.

Principles of Consolidation - The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, partnerships and consolidated variable interest entities (“VIE”), if any. All intercompany transactions and balances have been eliminated in consolidation.

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

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

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

At March 31, 2020, we held interests in seven unconsolidated VIEs, and, because we generally lack either directly or through related parties the power to direct the activities that most significantly impact their economic performance, we have concluded that NHI is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line receivables.

Our VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of our exposure to these VIEs, see the notes to our condensed consolidated financial statements cross-referenced below.
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DateNameSource of ExposureCarrying Amount Maximum Exposure to LossNote Reference
2012Bickford Senior Living
Various1
$57,024,000  $60,120,000  Notes 2, 3
2014Senior Living CommunitiesNotes and straight-line receivable$92,155,000  $96,454,000  Notes 2, 3
2016Senior Living ManagementNotes and straight-line receivable$26,940,000  $26,940,000  
2017Evolve Senior LivingNotes$9,953,000  $9,953,000  
2018Sagewood, LCS affiliateNotes$133,307,000  $178,614,000  Note 3
201941 Management, LLCNotes$12,133,000  $15,313,000  
2020Timber Ridge OpCo
Various1
$434,000  $5,434,000  Note 4
1 Notes, loan commitments, straight-line rent receivables, and 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 to a new tenant. The potential extent of such loss will be dependent upon individual facts and circumstances, cannot be quantified, and is therefore not included in the tabulation above. Typically, the only carrying amounts involving our leases are accumulated straight-line receivables and unamortized lease incentives.

As the managing member, we consolidate two property company (“PropCo”) joint ventures, which were formed in association with our JV partners, Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) and LCS Timber Ridge LLC (“LCS”) to invest in and own (1) six senior housing facilities initially comprising 596 units (“Discovery PropCo”) and (2) a 401-unit Continuing Care Retirement Community in Issaquah, Washington (“Timber Ridge PropCo”), respectively. NHI directs the activities that most significantly impact economic performance of these joint venture entities, subject to limited protective rights extended to our JV partners for specified business decisions. We consider both entities to be VIEs, based on our determination that the total equity at risk in each is insufficient to finance activities without additional subordinated financial support. Because of our control of these entities, we include their assets, liabilities, noncontrolling interests and operations in our consolidated financial statements.

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

The following table sets forth our cash, cash equivalents and restricted cash reported within the Company’s Condensed Consolidated Statements of Cash Flows (in thousands):
March 31,
2020
March 31,
2019
Cash and cash equivalents$46,049  $5,177  
Restricted cash (included in Other assets)33,769  10,377  
$79,818  $15,554  

Topic 842 - All of our leases are accounted for as operating leases. Our leases generally have an initial leasehold term of 10 to 15 years followed by one or more 5-year tenant renewal options. The leases are “triple net” leases under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimal personal injury and property damage insurance, 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, including bio-hazardous, substances or materials, or other environmental responsibility with respect to each facility. These provisions, along with a growing senior demographic and the historical propensity for real estate to hold its value, collectively constitute much of the means by which the risk associated with the residual value of our properties is mitigated. While we do not incorporate residual value guarantees, the above lease provisions and considerations inform our expectation of realizable value from our properties upon the expiration of their lease terms. The residual value of our real estate under lease is still subject to various market, asset, and tenant-specific risks and characteristics. As the
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classification of our leases is dependent on the fair value of estimated cash flows at lease commencement, management’s projected residual values represent significant assumptions in our accounting for operating leases. Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows. If lease concessions become necessary, NHI has elected to account for lease concessions which do not substantially increase either our rights as lessor or the obligations of the tenant and are related to the effects of COVID-19 consistent with how those concessions would be accounted for under Topic 842 as though the enforceable rights and obligations for those concessions existed under our leases, regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the related individual lease contract.

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

Allowance for Credit Losses - With the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses effective January 1, 2020, we estimate and record an allowance for credit losses upon origination of the loan, based on expected credit losses for the life of the loan balance and update this estimate quarterly as of the balance sheet date. 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 and revolving lines of credit 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 and collateral values, adjusted for current conditions and our forecasts, using the probability of default and loss given default method. The loss model incorporates our historical loss data for recessionary and non-recessionary periods. 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 NHI currently expects will be reduced by NHI’s acquisition of the underlying property when construction is complete, is deducted from the construction mortgage balance included in the expected loss calculation. Mezzanine loans and revolving lines of credit 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 judgement. It is possible that actual credit losses will differ from our current estimates. Write-offs are deducted from the allowance for credit losses when we judge the principal to be uncollectible.

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

Reclassifications - We have reclassified certain balances where necessary to conform the presentation of prior periods to the current period. These reclassifications had no effect on previously reported net income.

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 operations, see Note 10.

NOTE 2. REAL ESTATE

As of March 31, 2020, we owned 225 health care real estate properties located in 34 states and consisting of 148 senior housing communities (“SHO”), 72 skilled nursing facilities, 3 hospitals and 2 medical office buildings. Our senior housing communities include assisted living facilities, senior living campuses, independent living facilities, and entrance-fee communities. These investments (excluding our corporate office of $2,532,000) consisted of properties with an original cost of approximately $3,225,600,000 rented under triple-net leases to 33 lessees.

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During the three months ended March 31, 2020, we made the following real estate investments and related commitments as described below ($ in thousands):

OperatorDatePropertiesAsset ClassAmount
Bickford Senior LivingJanuary 20201SHO15,100  
Life Care ServicesJanuary 20201SHO134,892  
$149,992  

Bickford - Shelby, MI

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

Life Care Services

On January 31, 2020, in a joint venture transaction, we acquired an 80% interest in a 401-unit Continuing Care Retirement Community (CCRC) comprising 330 independent living units, 26 assisted living/memory care units and 45 skilled nursing beds. Additionally, the transaction conveyed to NHI a 25% interest in the operations of the community (Note 4). The transaction arose as the culmination of a relationship beginning in 2015 in which NHI provided LCS Timber Ridge, LLC, (“LCS”), and its JV partner, Westminster-LCS, LLC, (“Westminster”), with a senior mortgage loan on the Timber Ridge campus in the Seattle area. Proceeds of the loan were used to facilitate expansion of the community to 401 units. By terms of the 2015 agreement, NHI acquired a fair-value purchase option on the property.

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

The lease between Timber Ridge PropCo and Timber Ridge OpCo carries a rate of 6.75% for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. Including interest payments on debt to NHI and our lease participation in the Timber Ridge PropCo, as detailed above, NHI is entitled to $8,216,000 in the first twelve months plus 25% of the remaining Timber Ridge OpCo cash flow. Including the cash contributions of $3,500,000 by NHI and LCS to fund Timber Ridge OpCo working capital, the total enterprise capitalization was $138,392,000 for the Timber Ridge OpCo and Timber Ridge PropCo entities, as discussed above, of which NHI’s contribution of $124,989,000 was allocated to our interest in the tangible assets of Timber Ridge PropCo with no material fair value allocated to Timber Ridge OpCo beyond our working capital infusion. The lease between Timber Ridge PropCo and Timber Ridge OpCo includes an “earn out” provision whereby Timber Ridge OpCo could become eligible for a payment of $10,000,000 based on the attainment of certain operating metrics.

Certain major business decisions at Timber Ridge PropCo and Timber Ridge OpCo are to be board-managed with NHI and LCS each holding equal voting rights. At Timber Ridge PropCo, major business decisions subject to board management are restricted to areas involving LCS’s protective interests, therefore leaving control with NHI. Because of our control of ordinary-course-of-business activities in Timber Ridge PropCo under the variable interest entity model and the restriction of participation in its management to their protective interests on the part of LCS, we include the assets, liabilities, noncontrolling interest and operations of Timber Ridge PropCo in our consolidated financial statements.

NHI recorded the acquisition of Timber Ridge PropCo as follows ($ in thousands):

Land$4,370  
Building and improvements127,209  
Furniture, fixtures and equipment3,313  
$134,892  
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As a result of LCS’s 75% share in profits, retention of operations oversight, control over all ordinary-course-of business matters, and equal voting rights in major decisions, our participating influence at Timber Ridge OpCo does not amount to control of the entity. See Note 4 for a discussion of the resultant accounting for Timber Ridge OpCo.

Major Tenants

Bickford

As of March 31, 2020, our Bickford Senior Living (“Bickford”) lease portfolio consists of the following ($ in thousands):
Lease Expiration
June 2023September 2024May 2031April 2033Total
Number of Properties13  10  20  5  48  
2020 Contractual Rent$11,812  $9,343  $24,193  $5,072  $50,420  
2020 Straight Line Rent14  339  2,671  745  3,769  
2020 Lease Incentive Amortization    (775)   (775) 
$11,826  $9,682  $26,089  $5,817  $53,414  

Of our total revenues, $13,018,000 (16%) and $12,810,000 (17%) were recognized as rental income from Bickford, excluding income from properties recently sold or no longer leased to Bickford, for the three months ended March 31, 2020 and 2019, including $767,000 and $1,327,000 in straight-line rent income, respectively.

Senior Living Communities

As of March 31, 2020, we leased 10 retirement communities totaling 2,068 units to Senior Living Communities, LLC (“Senior Living”). The 15-year master lease, which began in December 2014, contains two renewal options of five years each and provides for an annual escalator of 3% effective January 1, 2019.

Of our total revenues, $11,938,000 (14%) and $11,532,000 (15%) in rental income were derived from Senior Living for the three months ended March 31, 2020 and 2019, including $1,068,000 and $1,058,000 in straight-line rent income, respectively.

NHC

As of March 31, 2020, we leased 42 facilities under two master leases to National HealthCare Corporation (“NHC”), a publicly-held company. The facilities leased to NHC consist of three independent living facilities and 39 skilled nursing facilities (4 of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”) that includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”) that includes 7 skilled nursing facilities acquired in 2013.

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

The following table summarizes the percentage rent income from NHC (in thousands):
Three Months Ended
March 31,
20202019
Current year  $926  $877  
Prior year final certification1
(14) 334  
Total percentage rent income  $912  $1,211  
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1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

Of our total revenues, $9,448,000 (11%) and $9,748,000 (13%) in rental income were derived from NHC for the three months ended March 31, 2020 and 2019, respectively.

The chairman of our board of directors is also a director on NHC’s board of directors. As of March 31, 2020, NHC owned 1,630,642 shares of our common stock.

Holiday

As of March 31, 2020, we leased 26 independent living facilities to Holiday Retirement (“Holiday”). Of our total revenues, $10,176,000 (12%) and $9,930,000 (13%) were derived from Holiday for the three months ended March 31, 2020 and 2019, including $1,664,000 and $1,630,000 in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Purchase Options

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

A summary of these tenant options is presented below ($ in thousands):

AssetNumber ofLease1st OptionOptionContractual
TypePropertiesExpirationOpen YearBasisRent
MOB1February 2025Openi$308  
HOSP1March 2025Openii$1,957  
HOSP1September 20272021iv$2,760  
SHO2May 20312021iv$5,063  
HOSP1June 20222022i$3,502  
SNF7August 20282025iii$3,485  
SNF1September 20282028iii$