Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020, included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and subsidiaries in which we have a controlling interest. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances are eliminated in consolidation.

At March 31, 2021, we held interests in seven unconsolidated VIEs, and, because we lack either directly or through related parties the power to direct the activities that most significantly impact their economic performance, we have concluded that the Company is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line receivables, excluding our investment accounted for under the equity method discussed in Note 5.

The Company’s unconsolidated VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of exposure to these VIEs, see the notes to our condensed consolidated financial statements cross-referenced below.


Date	Name	Source of Exposure	Carrying Amount		Maximum Exposure to Loss		Note Reference
2012	Bickford Senior Living	Various1	$	64,495,000	$	76,317,000	Notes 3, 4
2014	Senior Living Communities	Notes and straight-line receivable	$	83,546,000	$	84,057,000	Notes 3, 4
2016	Senior Living Management	Notes and straight-line receivable	$	26,997,000	$	26,997,000	—
2018	Sagewood, LCS affiliate	Notes	$	164,763,000	$	178,945,000	Note 4
2019	41 Management, LLC	Notes and straight-line receivable	$	15,872,000	$	33,765,000	Note 7
2020	Timber Ridge OpCo, LLC	Various2	$	(3,346,000)	$	1,654,000	Notes 5, 7
2020	Watermark Retirement	Notes and straight-line receivable	$	4,403,000	$	9,403,000	Note 7

1 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives

2 Loan commitment, equity method investment and straight-line rent receivables

We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we classify as VIEs, and accordingly, our maximum exposure to loss as a result of these relationships is limited to the amount of our commitments, as shown above and discussed in the notes. Economic loss on a lease, in excess of what is presented in the table above, if any, would be limited to that resulting from a short period of arrearage and non-payment of monthly rent before we are able to take effective remedial action, as well as costs incurred in transitioning the lease to a new tenant. The potential extent of such loss would be dependent upon individual facts and circumstances, and is therefore not included in the table above.

In the future, NHI may be deemed the primary beneficiary of the operations if the tenants do not have adequate liquidity to accept the risks and rewards as the tenant and operator of the properties and might be required to consolidate the statements of financial position and results of operations of the operators into our consolidated financial statements.

We consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) and LCS Timber Ridge LLC (“LCS”), to invest in senior housing facilities. As of and for the three months ended March 31, 2021, our non-controlling interests relate to these partnerships with Discovery and LCS.

We use the equity method of accounting when we own an interest in an entity whereby we can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

Cash and Cash Equivalents and Restricted Cash

Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit or subject to an agreement (e.g., with a qualified intermediary subject to an Internal Revenue Code §1031 exchange agreement or in accordance with agency agreements governing our mortgages).

The following table sets forth our “Cash, cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):


	March 31, 2021		March 31, 2020
Cash and cash equivalents	$	113,375	$	46,049
Restricted cash (included in Other assets)	2,853		33,769
	$	116,228	$	79,818

Accounting for Lease Modifications related to Coronavirus Disease 2019

In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the coronavirus (“COVID-19”) pandemic. The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 pandemic is a lease modification under ASC 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 pandemic, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a modification can elect whether to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. NHI has elected not to apply the modification guidance under ASC 842 and has accounted for rent concessions as variable lease payments when applicable, recorded as rental income when received. During the three months ended March 31, 2021, the Company provided $4.2 million in lease concessions as a result of COVID-19 pandemic, as discussed in more detail in Note 7.