As of June 30, 2019, we owned 228 health care real estate properties located in 33 states and consisting of 151 senior housing communities (“SHO”), 72 skilled nursing facilities (“SNF”), 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 $2,505,000) consisted of properties with an original cost of approximately $3,056,215,000 rented under triple-net leases to 30 lessees.



Operator	Date	Properties	Asset Class	Amount
Wingate Healthcare	January 2019	1	SHO	$	52,200
Holiday Retirement	January 2019	1	SHO	38,000
Comfort Care Senior Living	April 2019	1	SHO	10,800
Comfort Care Senior Living	May 2019	1	SHO	13,500
Discovery Senior Living (PropCo Joint Venture)	May 2019	6	SHO	128,350
				$	242,850

On January 15, 2019, we acquired a 267-unit senior living campus in Massachusetts for a purchase price of $50,300,000, including closing costs of $300,000. The facility is being leased to Wingate Healthcare, Inc. (“Wingate”) for a term of 10 years, with three renewal options of five years each, at an initial lease rate of 7.5% plus annual fixed escalators. We have committed to the additional funding of up to $1,900,000 in capital improvements, and the lease provides for incentive payments up to $5,000,000 to become available beginning in 2020 upon the attainment of certain operating metrics. NHI has a right of first offer on two additional Wingate-operated facilities. We accounted for the transaction as an asset purchase.

On April 30, 2019, we acquired a newly-constructed 60-unit assisted living facility in Shelby, Michigan which has 14 memory care units under construction. The total commitment of $10,800,000 includes $9,282,000 funded at closing with the remaining

amount to be funded as construction progresses. On May 20, 2019, we acquired a property in Brighton, Michigan, consisting of 73 assisted living/memory care units. The purchase price for the Brighton acquisition was $13,500,000, inclusive of closing costs. We leased the properties to Comfort Care Senior Living (“Comfort Care”), under leases which provide for initial lease rate of 7.75%, with annual fixed escalators beginning in year three over the term of ten years plus two renewal options of five years each. The leases each include a $3,000,000 earnout incentive which will be added to the respective lease base if funded. We accounted for the acquisitions as asset purchases.

On May 31, 2019, we invested $25,028,000 in cash for a 97.5% equity interest in a consolidated subsidiary ("PropCo"), which simultaneously acquired from a third party six senior housing facilities comprising 145 independent-living units, 356 assisted-living units and 95 memory-care units, for a total of 596 units. Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) contributed $642,000 for its non-controlling 2.5% equity interest. We invested an additional $102,680,000 as a preferred equity contribution, for a total NHI investment of $127,708,000. The additional equity contribution of $102,680,000 carries a preference in liquidation as well as in the distribution of operating cash flow. Total cash of $128,350,000 invested in PropCo included approximately $1,067,000 in closing costs and $433,000 reserved for working capital needs.

The facilities were leased by PropCo to Discovery for a term of ten years with two renewal periods of five years each at an initial lease rate of 6.5% with fixed annual escalators through the fifth year of the initial lease term followed by CPI-based escalators, subject to floor and ceiling, thereafter. Discovery is eligible, beginning in 2023, for up to $4,000,000 of lease inducement payments upon meeting specified performance metrics. Inducement payments funded under the agreement will be added to the lease base. Additionally, PropCo has committed to Discovery for funding up to $2,000,000 toward the purchase of condominium units located at one of the facilities. The total purchase price for the properties acquired, as discussed above, was allocated to the tangible assets based upon their relative fair values consisting of $6,301,000 to the land and $121,616,000 to the buildings and improvements.

NHI as the managing member manages Propco, subject to certain consent rights of Discovery for certain significant business decisions. Because of our control of PropCo, we include its assets, liabilities, noncontrolling interest and operations in our condensed consolidated financial statements in accordance with FASB ASC Topic 810, Consolidation, and ASC Topic 970, Real Estate - General.

In November 2018, we entered into a lease amendment and guaranty release (“the Agreement”) with an affiliate of Holiday Retirement (“Holiday”). Among other provisions, the Agreement decreased base rent beginning in 2019 from $39,000,000 to $31,500,000, extended the term of the original lease through 2035, and increased required minimum capital expenditure per unit. As consideration for amending provisions included in the original 2013 lease, Holiday agreed to pay NHI $55,125,000 in cash or real estate and forfeit $10,637,000 of their original $21,275,000 security deposit.

On January 31, 2019, we acquired a senior housing facility in Vero Beach, Florida from Holiday consisting of 157 independent living and 71 assisted living units in exchange for $38,000,000 toward the $55,125,000 receivable arising from the lease amendment, discussed above. The property was added to the master lease at a 6.71% lease rate. Under the restructured master lease, annual lease escalators ranging from 2% to 3%, based on portfolio revenue growth, will go into effect on November 1, 2020. Holiday settled the remaining commitment to NHI with a cash payment of $17,125,000 at closing. Acquisition of the property and collection of residual cash flowed through our accounts as adjustments to lease receivables and resulted in the change of our straight-line receivable from Holiday at the beginning of the year into a straight-line payable, which is included in the accompanying Condensed Consolidated Balance Sheets as “deferred income” at June 30, 2019.

As of June 30, 2019, we leased 26 independent living facilities to Holiday. Of our total revenues, $10,176,000 (13%) and $10,954,000 (15%) were derived from Holiday for the three months ended June 30, 2019 and 2018, including $1,664,000 and $1,530,000 in straight-line rent income, respectively. Of our total revenues, $20,106,000 (13%) and $21,908,000 (15%) were derived from Holiday for the six months ended June 30, 2019 and 2018, including $3,294,000 and $3,061,000 in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.



	Lease Expiration
	June 2023		September 2027		May 2031		April 2033		Total
Number of Properties	13		4		28		5		50
2019 Contractual Rent	$	11,468	$	1,576	$	30,825	$	4,918	$	48,787
2019 Straight Line Rent	358		195		3,948		860		5,361
	$	11,826	$	1,771	$	34,773	$	5,778	$	54,148

Of our total revenues, $13,267,000 (17%) and $12,411,000 (17%) were recognized as rental income from Bickford for the three months ended June 30, 2019 and 2018, including $1,324,000 and $1,203,000 in straight-line rent income, respectively. Of our total revenues, $26,511,000 (17%) and $23,856,000 (16%) were recognized as rental income from Bickford for the six months ended June 30, 2019 and 2018, including $2,695,000 and $2,372,000 in straight-line rent income, respectively.

As of June 30, 2019, we leased 11 retirement communities totaling 2,216 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, $11,545,000 (15%) and $11,457,000 (16%) in rental income were derived from Senior Living for the three months ended June 30, 2019 and 2018, including $1,058,000 and $1,359,000 in straight-line rent income, respectively. Of our total revenues, $23,077,000 (15%) and $22,905,000 (16%) in rental income were derived from Senior Living for the six months ended June 30, 2019 and 2018, including $2,115,000 and $2,717,000 in straight-line rent income, respectively.

As of June 30, 2019, 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 and determined without including the value attributable to any improvements to the leased property voluntarily made by NHC at its expense. 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.



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Current year	$	924	$	853	$	1,801	$	1,706
Prior year final certification¹	—		—		334		285
Total percentage rent income	$	924	$	853	$	2,135	$	1,991

¹For 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, $9,461,000 (12%) and $9,389,000 (13%) in rental income were derived from NHC for the three months ended June 30, 2019 and 2018, respectively. Of our total revenues, $19,209,000 (12%) and $19,064,000 (13%) in rental income were derived from NHC for the six months ended June 30, 2019 and 2018, respectively.

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.



Asset	Number of	Lease	1st Option	Option	Contractual
Type	Properties	Expiration	Open Year	Basis	Rent
MOB	1	February 2025	Open	i	$	306
SHO	4	September 2027	Open	iv	$	1,560
HOSP	1	September 2027	2020	ii	$	2,713
SHO	8	December 2024	2020	ii	$	4,482
HOSP	1	March 2025	2020	iv	$	1,957
SHO	2	May 2031	2021	iv	$	4,949
HOSP	1	June 2022	2022	i	$	3,460
SNF	7	August 2028	2025	iii	$	3,671
SNF	1	September 2028	2028	iii	$	463

Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) greater of fixed base price or fair market value; ii) a fixed base price plus a specified share in any appreciation; iii) fixed base price; or iv) a fixed capitalization rate on lease revenue.

As of June 30, 2019, we have completed the contractual transition of three lease portfolios to new tenants following a period of non-compliance by the former operators, background for which is provided in the financial statements included in our Form 10-K for the year ended December 31, 2018. The portfolios consist of three former Regency buildings, five former LaSalle Group buildings and one facility formerly leased to Landmark. To expedite stabilization of the facilities, we committed to specified income-generating capital expenditures for the re-branding and refurbishment of certain of these properties. The new leases each specify initial periods during which rental income to NHI shall be based on net operating income (“NOI”), after deduction of management fees. Following the initial periods, each lease converts to a structured payment based on a fair-value calculation.

The former Regency buildings have been leased to three operators, Senior Living, Discovery, and Vitality MC TN, LLC (“Vitality”). Of our total revenues, $69,000 and $1,262,000 (2%) in rental income were derived from the three former Regency buildings for the three months ended June 30, 2019 and 2018, respectively. Of our total revenues, $145,000 and $2,523,000 (2%) in rental income were derived from the three former Regency buildings for the six months ended June 30, 2019 and 2018, respectively.

On April 16, 2019, Chancellor Health Care leased the five former LaSalle Group (“LaSalle”) buildings. Our lease agreement with Chancellor provides for NHI to receive 100% of net operating cash flow generated by the facilities, after management fees, pending stabilization of the operations of the facility. During the first quarter of 2019, we also commenced litigation for the recovery of certain funds owed by LaSalle under the lease and against the principal executive personally under the guaranty agreement. Of our total revenues, $287,000 and $1,119,000 (2%) in rental income were derived from the five former LaSalle buildings for the three months ended June 30, 2019 and 2018, respectively. Of our total revenues, $287,000 and $2,213,000 (2%) in rental income were derived from the five former LaSalle buildings for the six months ended June 30, 2019 and 2018, respectively.

At December 31, 2018, we had a single-property lease in Wisconsin with Landmark Senior Living that was non-performing. In February 2019, we transitioned the lease to BAKA Enterprises, temporarily acting under a management agreement with Landmark. Under terms of the new lease, NHI receives 95% of net operating cash flow, after management fees, as generated by the facilities. Upon the establishment of an operational baseline, beginning in year two, the agreement calls for a rent reset to fair value. The agreement provides for a term of 8 years, with renewal options. Of our total revenues, $150,000 and $305,000

were derived from the former Landmark property for the three months ended June 30, 2019 and 2018, respectively. Of our total revenues, $775,000 (1%) and $762,000 (1%) were derived from the former Landmark property for the six months ended June 30, 2019 and 2018, respectively, including $625,000 received during 2019 as a settlement payment.

As we seek to stabilize the operations of these facilities, if our resulting tenants or operating partners do not have adequate liquidity to accept the risks and rewards of a tenant-lessee, NHI might be deemed the primary beneficiary of the operations and might be required to consolidate those statements of financial position and results of operations of the managers or operating partners into our consolidated financial statements.

We have identified two assisted living properties for disposal and have begun active marketing of the properties. The buildings are smaller than are typical of our portfolio and are no longer considered to be an appropriate investment for NHI. In January 2019 we ceased recording depreciation on the properties, and we booked an adjustment to lease revenues to write off the associated $124,000 in straight-line receivables. We recognized an impairment loss of $2,500,000 to write down the properties to their estimated net realizable value of $3,745,000 and have classified the assets as available for sale on the Condensed Consolidated Balance Sheet at June 30, 2019.

With the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases, as discussed in Note 10, our minimum lease payments are now determined under guidance different from that required as of December 31, 2018, when we were subject to ASC Topic 840 Leases. Presented in the following table are future minimum lease payments, as of June 30, 2019, to be received by us under our operating leases, as determined under ASC 842 (in thousands):

We assess the collectibility of our lease receivables, consisting of straight-line rents receivable, based on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all of the receivable, we de-recognize all rent receivable assets, including the straight-line rent receivable asset and record as a reduction in rental revenue.