Mortgage Notes Receivable

6 Months Ended

Jun. 30, 2011

Mortgage Notes Receivable

Mortgage Notes Receivable

NOTE 3.  MORTGAGE NOTES RECEIVABLE

    At June 30, 2011, we had investments in mortgage notes receivable secured by real estate and UCC liens on the personal property of 30 health care properties.  Certain of the notes receivable are also secured by guarantees of significant parties to the notes and by cross-collateralization of properties with the same owner.

    We have a construction loan commitment to provide up to $13,870,000 to Santé Mesa, LLC ("Santé") for the development and construction of a 70-bed transitional rehabilitation center with a skilled nursing license in Mesa, Arizona.  Construction on the facility began in June 2010 and was completed in March 2011.  NHI has the option to purchase and lease back the facility when it reaches a predetermined level of stabilized net operating income.  The $13,870,000 commitment includes an $11,870,000 construction loan and an additional $2,000,000 supplemental draw available to the borrower when the facility achieves certain operating metrics.  The loan is for a period of five years and requires payments of interest only at a rate of 10%.  Per the terms of the loan agreement, interest payments will be accrued as part of the construction loan balance until the full loan amount is drawn.  Santé meets the accounting criteria to be considered a variable interest entity.  However, we do not have any role in the day-to-day management of the entity; we do not have an obligation to absorb the entity's losses; and we do not have a right to receive benefits from the entity; therefore, we are not the primary beneficiary of the entity and have not consolidated the Santé assets, liabilities, non-controlling interests, and results of activities with our condensed consolidated financial statements.  During the six months ended June 30, 2011, we funded $3,634,000 of our loan commitment.  At June 30, 2011, the carrying amount of our loan of $11,376,000 is our maximum exposure to loss.  We have not provided any financial or other support other than amounts drawn on the construction loan in accordance with the terms of the loan agreement.