Mortgage And Other Notes Receivable

3 Months Ended

Mar. 31, 2015

Financing Receivable, Net [Abstract]

Mortgage Notes Receivable

MORTGAGE AND OTHER NOTES RECEIVABLE

At March 31, 2015, we had investments in mortgage notes receivable, secured by real estate and UCC liens on the personal property of 12 health care properties, with a carrying value of $71,521,000 and other notes receivable with a carrying value of $30,008,000, guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. No allowance for doubtful accounts was considered necessary at March 31, 2015.

Timber Ridge

On February 10, 2015, we entered into an agreement to lend Life Care Services, through its LCS-Westminster Partnership III LLP (“LCS-WP”), up to $154,500,000. The loan agreement conveys a mortgage interest and will facilitate the construction of Phase II of Timber Ridge at Talus (“Timber Ridge”), a Type-A Continuing Care Retirement Community in the Seattle, WA area.

The loan takes the form of two notes under a master credit agreement. The senior loan (“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 $28,000,000 of Note A as of March 31, 2015. 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 loan will be freely prepayable during the last 6 months of its term. The second note ("Note B") is a construction loan for up to $94,500,000 at an annual interest rate of 8% and a 5 year maturity. We anticipate funding Note B over twenty months and anticipate repayment with new resident entrance fees once Phase II opens. The total amount funded on Note B was $11,280,000 as of March 31, 2015.

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 loans constitute a variable interest in Phase II of the Timber Ridge project, creating an interest in specified assets of LCS-WP but not in LCS-WP as a whole. We have concluded that LCS-WP meets the accounting criteria to be considered a VIE. However, because we do not control the entity, nor do we have any role in its day-to-day management, we are not the primary beneficiary of the entity, and we account for our investment in LCS-WP at amortized cost. We believe our maximum exposure to loss at March 31, 2015, due to this involvement, would be limited to the amount of our loan to LCS-WP.

Senior Living Communities

In connection with the December 2014 Senior Living acquisition, we provided a $15,000,000 revolving line of credit, the maturity of which will mirror the 15-year term of the master lease. Borrowings are used to finance construction projects within the Senior Living Portfolio, including building additional units. Up to $5,000,000 of the facility may be used to meet general working capital needs. Amounts outstanding under the facility, $3,725,000 at March 31, 2015, bear interest at an annual rate equal to the 10-year U.S. Treasury rate at mid-month, plus 6%.

Sycamore

In July 2013 we extended a $9,200,000 loan to our joint venture partner, Sycamore, to fund a portion of their acquisition from a third party of six senior housing communities consisting of 342 units. The loan is guaranteed by principals of Bickford and has a 12% annual interest. As a result of the loan, PropCo acquired a $97,000,000 purchase option on the properties that is exercisable over the term of the loan. During the first quarter of 2015 we extended the terms of the loan and the purchase option through June 2018. In June 2014 we entered into a $500,000 revolving loan to Sycamore to fund pre-development expenses related to potential future projects. Interest is payable monthly at 10% and the note matures in August 2015. At March 31, 2015, the revolving loan had an outstanding balance of $359,000.

The loans to Sycamore and the related purchase option constitute variable interests, and we have concluded that Sycamore meets the accounting criteria to be considered a VIE. However, because we do not control Sycamore, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the entity, and we account for financing provided to Sycamore at historical cost. Sycamore is intended to be self-financing, and our direct support has been limited to the loans described herein and a $3,550,000 letter of credit for the benefit of Sycamore. Further, a decision to furnish additional direct support would be at our discretion and not obligatory. As a result, we believe our maximum exposure to loss at March 31, 2015, due to our investment in Sycamore, would be limited to the amount of our loans and letter of credit.