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Mortgage And Other Notes Receivable
 12 Months Ended
Dec. 31, 2020
Mortgage and Other Notes Receivable [Abstract]  
Mortgage Notes Receivable Mortgage and Other Notes ReceivableAt December 31, 2020, our investments in mortgage notes receivable totaled $259,491,000 secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 14 facilities and other notes receivable totaled $37,883,000 guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At
December 31, 2019, our investments in mortgage notes receivable totaled $294,120,000 and other notes receivable totaled $46,023,000. The mortgage and other notes receivable balances, indicated above, exclude a credit loss reserve of $4,946,000 and $— at December 31, 2020 and 2019, respectively.

2020 Mortgage and Other Notes Receivable

During the year ended December 31, 2020 we made the following note receivable investments and commitments as described below ($ in thousands):

OperatorDatePropertiesAsset ClassAmountFundedRemaining
Note Investments
Timber Ridge OpCo (See Note 5)Q1 20201SHO$5,000 $— $5,000 
Bickford Senior Living (See Note 3)Q1 20202SHO4,000 (4,000)— 
Bickford Senior LivingQ2 20201SHO14,200 (1,918)12,282 
Watermark RetirementQ2 20202SHO5,000 — 5,000 
   41 ManagementQ4 20201SHO22,200 (4,040)18,160 
$50,400 $(9,958)$40,442 
Watermark Retirement

On June 12, 2020, we provided a $5,000,000 loan commitment to Watermark Retirement to provide working capital liquidity in connection with the renewal of an existing lease on two continuing care retirement communities. No amounts have been drawn as of December 31, 2020.

41 Management

On November 24, 2020, we committed to providing first mortgage financing to 41 Management, LLC for up to $22,200,000 to construct, a 110-unit independent living, assisted living and memory care community in Sussex, Wisconsin. The approximate four year loan has an annual interest rate of 8.5% and two one year extensions. The agreement includes a purchase option, effective upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $4,900,000 working capital escrow. The total amount funded on the note was $4,040,000 as of December 31, 2020.

Our loans to and receivables from 41 Management represent variable interests. 41 Management is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 2. As discussed more fully in Note 2, we have concluded that we are not the primary beneficiary of 41 Management

2019 Mortgage and Other Notes Receivable

During the year ended December 31, 2019 we made the following note receivable investments and commitments as described below ($ in thousands):

OperatorDatePropertiesAsset ClassAmountFundedRemaining
Note Investments
Senior Living CommunitiesQ2 20191SHO$32,700 $(32,700)$— 
41 ManagementQ2 20191SHO10,800 (8,717)2,083 
Discovery Senior LivingQ3 20191SHO750 (750)— 
Discovery Senior LivingQ3 20191SHO6,423 (6,423)— 
41 ManagementQ4 20191SHO3,870 (3,870)— 
$54,543 $(52,460)$2,083 

41 Management

In June 2019, we committed to providing first mortgage financing to 41 Management, LLC for up to $10,800,000 to fund the construction of a 51-unit assisted living facility in Wisconsin. The loan carries an interest rate of 8.50% for its term of five years, subject to two renewals of one year each. The agreement includes a purchase option, which is effective upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $2,400,000 working capital escrow. The total amount funded on the note was $8,717,000 as of December 31, 2020.
In December 2019, the Company extended a second mortgage loan of $3,870,000 to 41 Management to refinance the subordinated debt on a newly constructed 48-unit assisted living/memory care facility in Bellevue, Wisconsin. The loan was subsequently paid in full when we acquired the property in September 2020. See Note 3 for more details regarding the acquisition.

Discovery

In August 2019, NHI extended a senior mortgage loan of $6,423,000 at 7% annual interest to affiliates of Discovery to acquire a senior housing facility in Indiana for which Discovery PropCo, will have the option to purchase at stabilization. The facility consists of 52 assisted living units and 22 memory care units. NHI provided an additional working capital loan for amounts up to $750,000 at an interest rate of 6.5%, which was fully funded in 2020.

Other Activity

Bickford Senior Living

At December 31, 2020, our construction loans to Bickford Senior Living are summarized as follows ($ in thousands):
CommencementRateMaturityCommitmentDrawnLocation
January 20189%5 years14,000 (14,000)Virginia
July 20189%5 years14,700 (14,548)Michigan
June 20209%5 years14,200 (1,918)Virginia
$42,900 $(30,466)

On June 30, 2020, we entered into a $14,200,000 construction loan agreement with Bickford to develop a 64-unit assisted living facility.

The construction loans are secured by first mortgage liens on substantially all real and personal property as well as a pledge of any and all leases or agreements which may grant a right of use to the property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the properties at stabilization of the underlying operations. On these development projects, Bickford as borrower is entitled to up to $2,000,000 per project in incentives based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price and eventual NHI lease payment.

Our loans to Bickford represent a variable interest and Bickford is considered a VIE. We have concluded that we are not the primary beneficiary.

Life Care Services - Sagewood

In December 2018, we entered into an agreement to lend LCS-Westminster Partnership IV LLP (“LCS-WP IV”), an affiliate of LCS, the manager of the facility, up to $180,000,000. The loan agreement conveys a mortgage interest and will facilitate the construction of Phase II of Sagewood, a Type-A Continuing Care Retirement Community in Scottsdale, AZ.

The loan takes the form of two notes under a master credit agreement. The senior note (“Note A”) totals $118,800,000 at a 7.25% interest rate with 10 basis-point annual escalators after three years and has a term of 10 years. We have funded $98,752,000 and $77,340,000 of Note A as of December 31, 2020 and 2019, respectively. Note A is interest-only and is locked to prepayment until January 2021. After 2020, the prepayment penalty starts at 2% and declines to 1% in 2022. The second note (“Note B”) is a construction loan for up to $61,200,000 at an annual interest rate of 8.5% and carries a maturity of five years. The total amount funded on Note B was $61,200,000 and $45,938,000 as of December 31, 2020 and 2019, respectively. As an affiliate of a larger company, LCS-WP IV is structured to limit liability for potential damage claims, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 2. As discussed more fully in Note 2, we have concluded that we are not the primary beneficiary of LCS-WP IV.

Life Care Services - Timber Ridge

In February 2015, we entered into a loan agreement in which the proceeds were used to fund the construction of Phase II of Timber Ridge at Talus, a Type-A continuing care retirement community in Issaquah, Washington. The outstanding balance due from LCS-Westminster Partnership III LLP (“LCS-WP III”), an affiliate of LCS and the manager of the facility, was $59,350,000 as of January 31, 2020, when we acquired the property. Timber Ridge PropCo assumed the debt (see Note 3)
which was increased to $81,000,000 as part of the transaction. To provide working capital in support of the CCRC’s entry-fee model, NHI agreed to supply a revolving line of credit permitting draws up to a maximum of $5,000,000. Because of our control of Timber Ridge PropCo, we consolidate its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements. See Note 5 for more information about our equity-method investment in Timber Ridge OpCo.

Senior Living Communities

We provided a $12,000,000 revolving line of credit whose borrowings are to be used primarily to finance construction projects within the Senior Living portfolio, including building additional units. No more than $10,000,000 may be used to meet general working capital needs. Beginning January 1, 2022, availability under the revolver reduces to $7,000,000 with the limit for general working capital needs reduced to $5,000,000. The revolver matures in December 2029 at the time of lease maturity. The outstanding balance under the facility at December 31, 2020 and 2019, was $11,280,000 and $5,174,000, respectively and bears interest at 6.93% per annum, the prevailing 10-year U.S. Treasury rate plus 6%.

On July 31, 2020, Senior Living Communities repaid two fully drawn mezzanine loans of $12,000,000 and $2,000,000, respectively. The purpose of the mezzanine loans were to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina. The loans bore interest, payable monthly, at a 10% annual rate.
In June 2019, we provided a mortgage loan of $32,700,000 to Senior Living for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The financing is for a term of five years with two one year extensions and carries an interest rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38,250,000, subject to adjustment for market conditions.

Our loans to Senior Living and its subsidiaries totaling $43,980,000, represent a variable interest. Senior Living is structured to limit liability for potential claims for damages, is appropriately capitalized for that purpose and is considered a VIE. As discussed more fully in Note 2, we have concluded that we are not the primary beneficiary of Senior Living.

Credit Loss Reserve

Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans collectively (“Coverage”). A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the following table have been calculated utilizing the most recent date for which data is available, September 30, 2020, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, (iii) below 1.0x. We update the calculation of coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. As of December 31, 2020, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of December 31, 2020 at amortized cost.

We consider the guidance in ASC 310-20 when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of September 30, 2020, is presented below for the amortized cost, net by year of origination ($ in thousands):
20202019201820172016PriorTotal
Mortgages
more than 1.5x$5,755 $8,643 $187,362 $— $— $4,608 $206,368 
between 1.0x and 1.5x— — — — 10,000 — 10,000 
below 1.0x4,000 39,123 — — — — 43,123 
No coverage available— — — — — — — 
9,755 47,766 187,362 — 10,000 4,608 259,491 
Mezzanine
more than 1.5x— — — — — — — 
between 1.0x and 1.5x— — — — — — — 
below 1.0x— — — — 14,485 11,367 25,852 
No coverage available— 750 — — — — 750 
— 750 — — 14,485 11,367 26,602 
Revolver
more than 1.5x— 
between 1.0x and 1.5x11,280 
below 1.0x— 
11,280 
Credit loss reserve(4,946)
$292,427 

Due to the economic uncertainty created by COVID-19 and the potential impact on the collectibility of our mortgages and other notes receivable, we are forecasting a 20% increase in the probability of a default and a 20% increase in the amount of loss from a default resulting in an effective adjustment of 44%.

The allowance for expected credit losses for our commercial loans is presented in the following table for the year ended December 31, 2020 ($ in thousands):

Beginning balance January 1, 2020 (upon adoption of ASU 2016-13)$3,900 
Additions for expected credit losses1,639 
Deduction for expected credit losses(593)
Balance December 31, 2020$4,946