COMMITMENTS AND CONTINGENCIES

In the normal course of business, we enter into a variety of commitments, typical 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, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. In our leasing operations, we offer to our tenants and to sellers of newly-acquired properties a variety of inducements which originate contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent payments earned will be included in the respective lease bases when funded. The tables below summarize our existing, known commitments and contingencies at September 30, 2018, according to the nature of their impact on our leasehold or loan portfolios.



	Asset Class	Type	Total		Funded			Remaining
Loan Commitments:
Life Care Services Note A	SHO	Construction	$	60,000,000	$	(57,536,000	)	$	2,464,000
Bickford Senior Living	SHO	Construction	56,700,000		(27,744,000		)	28,956,000
Senior Living Communities	SHO	Revolving Credit	15,000,000		(997,000		)	14,003,000
			$	131,700,000	$	(86,277,000	)	$	45,423,000

See Note 3 for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees. We expect to fully fund the Life Care Services Note A during 2018. Funding of the commitments for construction is made monthly based on inspection of work performed.



	Asset Class	Type	Total		Funded			Remaining
Development Commitments:
EL FW Intermediary I, LLC	SHO	Renovation	$	8,937,000	$	(8,937,000	)	$	—
Bickford Senior Living	SHO	Renovation	4,150,000		(1,647,000		)	2,503,000
Senior Living Communities	SHO	Renovation	6,830,000		(2,413,000		)	4,417,000
Discovery Senior Living	SHO	Renovation	500,000		—			500,000
Woodland Village	SHO	Renovation	7,450,000		(4,480,000		)	2,970,000
Chancellor Health Care	SHO	Construction	62,000		(62,000		)	—
Navion Senior Solutions	SHO	Construction	650,000		—			650,000
			$	28,579,000	$	(17,539,000	)	$	11,040,000

As discussed in Note 2, we have satisfied our obligation to purchase skilled nursing facilities in Texas which had been leased to Legend and subleased to Ensign. Our commitment to fund renovations for EL FW Intermediary I, LLC, originally scheduled for up to $10,000,000, has expired. Our commitment to fund up to $650,000 in construction for Chancellor has expired.



	Asset Class	Type	Total		Funded			Remaining
Contingencies:
Bickford Senior Living	SHO	Lease Inducement	$	10,000,000	$	(6,250,000	)	$	3,750,000
Bickford Senior Living	SHO	Incentive Loan Draws	8,000,000		(250,000		)	7,750,000
SH Regency Leasing, LLC	SHO	Lease Inducement	8,000,000		—			8,000,000
Navion Senior Solutions	SHO	Lease Inducement	4,850,000		—			4,850,000
Prestige Care	SHO	Lease Inducement	1,000,000		—			1,000,000
The LaSalle Group	SHO	Lease Inducement	5,000,000		—			5,000,000
			$	36,850,000	$	(6,500,000	)	$	30,350,000

Contingent lease inducement payments of $10,000,000 related to the five Bickford development properties constructed in 2016 and 2017 include a licensure incentive of $250,000 per property and a three-tiered operator incentive schedule paying up to an additional $1,750,000, based on the attainment of certain performance metrics. Upon funding, these payments are added to the lease base and amortized against rental income.

For a discussion of incentive loan draws of $8,000,000 available to Bickford related to our development loans in Illinois, Michigan and Virginia, see Note 3.

In connection with our July 2015 lease to SH Regency 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 are assessed as not probable of payment, and we have not recorded them on our condensed consolidated balance sheets as of September 30, 2018. Not included in the above table is a seller earnout of $750,000, which is recorded on our condensed consolidated balance sheets within accounts payable and accrued expenses.

Litigation

On June 15, 2018, East Lake Capital Management LLC and certain related entities, including SH Regency Leasing LLC (“Regency”), filed suit against NHI and NHI-REIT of Axel, LLC (Case No. DC-18-07841 in the District Court of Dallas County, Texas; 95th Judicial District) for injunctive and declaratory relief and, unspecified monetary damages including attorney’s fees. The suit seeks, among other things, to enjoin NHI from making certain references to East Lake in NHI’s public filings. NHI asserts the claims are meritless and intends to vigorously defend itself. Subsequent to the receipt of the filed action, NHI has countersued Regency for declaratory judgment, specific performance, monetary damages, and attorneys’ fees relating to Regency’s alleged defaults under a lease with NHI-REIT of Axel, for, among other things, the failure to provide required financial information under the lease. During the pendency of this litigation, NHI in its public filings will endeavor to refer to tenant-specific names, namely “EL FW Intermediary I, LLC” (for the Watermark continuing care retirement communities) and “SH Regency Leasing, LLC” (for the three Regency assisted living facilities). Management believes that the eventual resolution of this controversy will have no material adverse effect on the Company. For the nine months ended September 30, 2018, we collected $3,829,000 in rent payments from SH Regency Leasing, LLC.

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.