DEBT

Debt consists of the following (in thousands):



	December 31, 2018			December 31, 2017
Revolving credit facility - unsecured	$	84,000		$	221,000
Bank term loans - unsecured	550,000			250,000
Private placement term loans - unsecured	400,000			400,000
HUD mortgage loans (net of discount of $1,320 and $1,402)	42,906			43,645
Fannie Mae term loans - secured, non-recourse	96,044			96,367
Convertible senior notes - unsecured (net of discount of $1,391 and $2,637)	118,609			144,938
Unamortized loan costs	(9,884		)	(10,453		)
	$	1,281,675		$	1,145,497

Aggregate principal maturities of debt as of December 31, 2018 for each of the next five years and thereafter are as follows (in thousands):



Twelve months ended December 31,
2019	$	1,187
2020	1,230
2021	121,279
2022	335,328
2023	476,379
Thereafter	358,867
	1,294,270
Less: discounts	(2,711		)
Less: unamortized loan costs	(9,884		)
	$	1,281,675

Revolving credit facility and bank term loans - unsecured

On September 17, 2018, we executed a $300,000,000 expansion of our bank credit facility, discussed below, whereby our total unsecured credit facility consists of $250,000,000 and $300,000,000 term loans and a $550,000,000 revolving credit facility. The $250,000,000 term loan and $550,000,000 revolving facility mature in August 2022, and the $300,000,000 term loan matures in September 2023.

The revolving facility fee is currently 20 basis points per annum, and based on our current leverage ratios, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 115 and a blended 127 basis points, respectively. At December 31, 2018 and December 31, 2017, 30-day LIBOR was 252 and 156 basis points, respectively. Within the facility, the employment of interest rate swaps for our fixed term debt leaves only our revolving credit facility and newly issued term loan of $300,000,000 exposed to interest rate risk through April 2019, when our $40,000,000 swap expires. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.”

At December 31, 2018, we had $466,000,000 available to draw on the revolving portion of our credit facility, to which usual and customary covenants extend. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. These ratios, which are calculated quarterly, have been within the limits specified in the credit facility agreements.

Pinnacle Bank is a participating member of our banking group. A member of NHI’s board of directors and chairman of our audit committee 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.

Private placement term loans - unsecured

Our unsecured private placement term loans, payable interest-only, 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

Except for specific debt-coverage ratios, covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility.

HUD mortgage loans

Our HUD mortgage loans are secured by ten properties leased to Bickford and having a net book value of $50,867,000 at December 31, 2018. 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, at a discount, 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 $8,705,000 and a carrying value of $7,385,000, which approximates fair value.

Fannie Mae term loans - secured, non-recourse

In March 2015 we obtained $78,084,000 in Fannie Mae financing. The term debt financing consists of interest-only payments at an annual rate of 3.79% and a 10-year maturity. The mortgages are non-recourse and secured by thirteen properties leased to Bickford. 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 nominal rate of 4.6%, and has remaining balance of $17,960,000 at December 31, 2018. All together, these notes are secured by facilities having a net book value of $138,273,000 at December 31, 2018.

Convertible senior notes - unsecured

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 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 each 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. 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.

During the years ended December 31, 2018 and 2017, we undertook targeted open-market repurchases of certain of these 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. 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 determining the fair value of the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account.

A roll-forward of our convertible note balances, including the effect of year-to-date amortization, net of issuance costs, is presented below:



	December 31, 2017			Cash Paid			Amortization		December 31, 2018
Face Amount	$	147,575		$	(27,575	)	$	—	$	120,000
Discount	(2,637		)	$	458		$	788	(1,391		)
Issuance Costs	(1,752		)	$	297		$	545	(910		)
Carrying Value	$	143,186							$	117,699

Total expenditures of $29,985,000 include paid amounts of $27,558,000 allocated to the note retirement with the remaining expenditure of $2,427,000 allocated to capital in excess of par. A loss of $738,000 for the year ended December 31, 2018, resulted from the excess of cash expenditures over the book value of the notes retired, net of discount and issuance costs.

As of December 31, 2018, our senior unsecured convertible notes were convertible at a rate of 14.42 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $69.36 per share for a total of 1,730,174 remaining underlying shares. For the year ended December 31, 2018, dilution resulting from the conversion option within our convertible debt is 80,123 shares. If NHI’s current share price increases above the adjusted $69.36 conversion price, further dilution will be attributable to the conversion feature. On December 31, 2018, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $10,697,000.

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through June 2020 to hedge against fluctuations in variable interest rates applicable to our $250,000,000 bank term loan. With the amendment to our credit facility in August 2017, the introduction to the bank term loan of a LIBOR floor not present in the hedges resulted in hedge inefficiency of $353,000, which we credited to interest expense in 2017. On January 1, 2018, we adopted ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, as discussed in Note 14. Upon the adoption of the new standard, we reversed cumulative ineffectiveness, resulting in a retroactive net charge to retained earnings and a credit to accumulated other comprehensive income (loss) of $235,000 as of January 1, 2018. During the next year, approximately $963,000 of gains, which are included in accumulated other comprehensive income (loss), are projected to be reclassified into earnings.

As of December 31, 2018, we employ the following interest rate swap contracts to mitigate our interest rate risk on the $250,000,000 term loan (dollars in thousands):



Date Entered	Maturity Date	Fixed Rate	Rate Index	Notional Amount		Fair Value
May 2012	April 2019	2.84%	1-month LIBOR	$	40,000	$	130
June 2013	June 2020	3.41%	1-month LIBOR	$	80,000	$	480
March 2014	June 2020	3.46%	1-month LIBOR	$	130,000	$	687

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 asset (liability) balances for our hedges included as components of consolidated other comprehensive income on December 31, 2018 and 2017 were $1,297,000 and $(588,000), respectively.

The following table summarizes interest expense (in thousands):



	Year Ended December 31,
	2018			2017			2016
Interest expense on debt at contractual rates	$	45,789		$	40,385		$	36,197
Losses reclassified from accumulated other
comprehensive income (loss) into interest expense	164			2,627			3,928
Ineffective portion of cash flow hedges	—			(353		)	18
Capitalized interest	(212		)	(510		)	(549		)
Charges taken on amending bank credit facility	—			583			—
Amortization of debt issuance costs and debt discount	3,314			3,592			3,514
Total interest expense	$	49,055		$	46,324		$	43,108