Commitments And Contingencies

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Commitments, Contingencies and Uncertainties

In the normal course of business, we enter into a variety of commitments, typically consisting of funding of revolving credit arrangements, construction and mezzanine loans to our operators to conduct expansions and acquisitions for their own account, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. In our leasing operations, we offer to our tenants and to sellers of newly acquired properties a variety of inducements which originate contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent payments earned will be included in the respective lease bases when funded.

As of September 30, 2021, we had working capital, construction and mezzanine loan commitments to seven operators for $274.7 million, of which we had funded $183.6 million toward these commitments.

As of September 30, 2021, we had $31.3 million of development commitments for construction and renovation for ten properties of which we had funded $21.6 million toward these commitments. In addition to these commitments, Discovery PropCo, discussed more fully in Note 2 to the condensed consolidated financial statements, has committed to funding up to $2.0 million for the purchase of condominium units located at one of the facilities of which $1.0 million had been funded.

As of September 30, 2021, we had $33.9 million of contingent lease inducement commitments in seven lease agreements which are generally based on the performance of facility operations and may or may not be met by the tenant. At September 30, 2021, we had funded $1.5 million toward these commitments of which $1.0 million was funded during the nine months ended September 30, 2021.

As provided above, loans funded do not include the effects of discounts or commitment fees.

The credit loss liability for unfunded loan commitments is estimated using the same methodology as for our funded mortgage and other notes receivable based on the estimated amount that we expect to fund. We applied the same COVID-19 pandemic adjustments as discussed in Note 4.

The liability for expected credit losses on our unfunded loans is presented in the following table for the nine months ended September 30, 2021 ($ in thousands):

Beginning balance January 1, 2021	$	270
Provision for expected credit losses	941
Balance at September 30, 2021	$	1,211

Bickford Contingent Note Arrangement

Related to the sale of six properties to Bickford discussed further in Note 3, we reached an agreement with Bickford in the third quarter of 2021 whereby Bickford would owe us up to $4.5 million under a contingent note arrangement. We have the one-time option to determine fair market value of the portfolio between May 1, 2023 and April 30, 2026, at which time the amount owed under the contingent note arrangement, if any, will be determined as the lesser of (i) the difference between the fair market value of the portfolio and $52.1 million, which amount represents the purchase consideration for the portfolio of $52.9 million less $0.8 million in mortgage debt repayment fees previously paid by us associated with this portfolio, and (ii) $4.5 million. Any amount due on the contingent note arrangement will accrue interest at an annual rate of 10% and will be due in five years from the determination date.

COVID-19 Pandemic Contingencies

Since the World Health Organization declared coronavirus disease 2019 a pandemic on March 11, 2020, the continually evolving pandemic has resulted in a widespread health crisis adversely affecting governments, businesses, and financial markets. The COVID-19 pandemic and related health and safety measures continue to impact the operations of many of the Company’s tenants, operators and borrowers. The federal government has provided economic assistance and other forms of assistance which mitigated to some extent the negative financial impact of the pandemic for certain of our tenants and operators who are eligible.

Revenues for the operators of our properties continue to be significantly impacted by occupancy. Building occupancy rates have been and may continue to be adversely affected by the COVID-19 pandemic if it continues to cause sustained negative trends such as early resident move-outs, delays in admitting new residents, or other collateral events. In addition, our operators may experience a material increase in their operating costs, including costs related to enhanced health and safety precautions among other measures. A decrease in occupancy or increase in costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent, as well as on our results of operations.

Since the pandemic began, our rent concessions activity is as shown in the following table ($ in thousands):

	Year ended				Three months ended				Nine months ended
	December 31, 2020				September 30, 2021				September 30, 2021				Cumulative Totals
	Deferrals		Abatements		Deferrals		Collections		Deferrals		Collections		Deferrals		Abatements		Collections
Bickford	$	3,750	$	2,100	$	3,500	$	—	$	13,750	$	—	$	17,500	$	2,100	$	—
Holiday	—		—		600		—		1,800		—		1,800		—		—
All Others	1,232		50		1,675		44		4,323		44		5,555		50		44
	$	4,982	$	2,150	$	5,775	$	44	$	19,873	$	44	$	24,855	$	2,150	$	44

The majority of the deferred amounts noted in the table above accrue interest starting at 8% per annum from the date of the deferral until paid in full under the terms of each tenant’s deferral agreement.

In addition to the concessions noted above, we have agreed with Bickford to defer $4.5 million in contractual rent due for the fourth quarter of 2021 and expect to grant up to $4.0 million in deferrals in the first quarter of 2022. We have also reached agreement with two other tenants regarding additional rent deferrals of approximately $0.5 million for the fourth quarter of 2021. We agreed with Holiday to utilize $0.6 million of the lease deposit towards July 2021 contractual rent. The balance of the lease deposit at September 30, 2021 was $8.8 million. Reference Note 2 for discussion of additional Holiday contractual rent activity.

When applicable, we have accounted for rent concessions as variable lease payments, recorded as rental income when received, in accordance with the FASB's Lease Modification Q&A. Reference Note 2 for further discussion. We will evaluate any rent deferral requests as a result of the COVID-19 pandemic on a tenant-by-tenant basis. The extent of future concessions we make as a result of the COVID-19 pandemic, which could have a material impact on our future operating results, cannot be reasonably or reliably projected by us at this time.

Litigation

Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further

obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no direct material adverse effect on our financial condition, results of operations or cash flows.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina) (“East Lake”), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. On September 22, 2021, all parties entered into an agreement whereby NHI is entitled to receive $0.4 million, due in the fourth quarter of 2021, to settle all claims for this matter. We will recognize the settlement amount as other income when it is received. In addition, we had approximately $0.3 million in liabilities recorded related to the facilities subject to the litigation that was reversed and recognized in “Interest and other income” during the third quarter of 2021.