Debt

6 Months Ended

Jun. 30, 2019

DEBT

Debt consists of the following (in thousands):



	June 30, 2019			December 31, 2018
Revolving credit facility - unsecured	$	273,000		$	84,000
Bank term loans - unsecured	550,000			550,000
Private placement term loans - unsecured	400,000			400,000
HUD mortgage loans (net of discount of $1,278 and $1,320)	42,526			42,906
Fannie Mae term loans - secured, non-recourse	95,876			96,044
Convertible senior notes - unsecured (net of discount of $1,004 and $1,391)	118,996			118,609
Unamortized loan costs	(8,611		)	(9,884		)
	$	1,471,787		$	1,281,675

Aggregate principal maturities of debt as of June 30, 2019, and for each of the next five years and thereafter are as follows (in thousands):




2020	$	1,208
2021	121,256
2022	1,303
2023	649,353
2024	351,402
Thereafter	358,158
	1,482,680
Less: discount	(2,282		)
Less: unamortized loan costs	(8,611		)
	$	1,471,787

Revolving credit facility and bank term loans - unsecured

Our unsecured bank 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. On March 22, 2019 and June 28, 2019, we entered into swap agreements to fix the interest rates through December 2021 on $340,000,000 of term loans and $60,000,000 of our revolving credit facility, when LIBOR is scheduled to cease automatic recalculation.

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 a blended 126 bps. At June 30, 2019 and December 2018, 30-day LIBOR was 240 and 250 bps, respectively. Within the facility, the employment of interest rate swaps for a portion of our fixed term debt leaves only $213,000,000 of our revolving credit facility exposed to interest rate risk through June 2020, when our $80,000,000 and $130,000,000 swaps expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.”

At June 30, 2019, we had $277,000,000 available to draw on the revolving portion of our credit facility, subject to usual and customary covenants. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. At June 30, 2019, we were in compliance with these ratios.

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 $50,007,000 at June 30, 2019. 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 $8,599,000 and a carrying value of $7,321,000, 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 4.60%, and has remaining balance of $17,792,000 at June 30, 2019. All together, these notes are secured by facilities having a net book value of $136,342,000 at June 30, 2019.

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.

As of June 30, 2019, our senior unsecured convertible notes were convertible at a rate of 14.52 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $68.86 per share for a total of 1,742,736 remaining underlying shares. For the three months ended June 30, 2019, dilution resulting from the conversion option within our convertible debt is 199,492 shares. If NHI’s current share price increases above the adjusted $68.86 conversion price, further dilution will be attributable to the conversion feature. On June 30, 2019, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $15,986,000.

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through December 2021 to hedge against fluctuations in variable interest rates applicable to $610,000,000 ($400,000,000 after June 2020) of our bank loans. During the next year,

approximately $883,000 of gains, which are included in accumulated other comprehensive income (loss), are projected to be reclassified into earnings.

As of June 30, 2019, we employ the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above (dollars in thousands):



Date Entered	Maturity Date	Fixed Rate	Rate Index	Notional Amount		Fair Value
June 2013	June 2020	3.41%	1-month LIBOR	$	80,000,000	$	(208	)
March 2014	June 2020	3.46%	1-month LIBOR	$	130,000,000	$	(398	)
March 2019	December 2021	3.46%	1-month LIBOR	$	100,000,000	$	(1,436	)
March 2019	December 2021	3.47%	1-month LIBOR	$	100,000,000	$	(1,468	)
June 2019	December 2021	2.84%	1-month LIBOR	$	150,000,000	$	48
June 2019	December 2021	2.88%	1-month LIBOR	$	50,000,000	$	1

If the fair value of the hedge is an asset, we include it in our Condensed Consolidated Balance Sheets among other assets, and, if a liability, as a component of accrued expenses. See Note 9 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 June 30, 2019 and December 31, 2018 were $(3,461,000) and $1,297,000, respectively.

The following table summarizes interest expense (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Interest expense on debt at contractual rates	$	13,355		$	11,414		$	26,429		$	21,941
Losses reclassified from accumulated other
comprehensive income (loss) into interest expense	(349		)	76			(641		)	352
Capitalized interest	(158		)	(47		)	(315		)	(71		)
Amortization of debt issuance costs and debt discount	898			777			1,791			1,612
Total interest expense	$	13,746		$	12,220		$	27,264		$	23,834