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Mortgage and Other Notes Receivable
 12 Months Ended
Dec. 31, 2021
Mortgage and Other Notes Receivable [Abstract]  
Mortgage and Other Notes Receivable Mortgage and Other Notes Receivable
At December 31, 2021, our investments in mortgage notes receivable totaled $230.9 million 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 $74.2 million substantially all of which are guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At December 31, 2020, our investments in mortgage notes receivable totaled $259.5 million and other notes receivable totaled $37.9 million. These balances exclude a credit loss reserve of $5.2 million and $4.9 million at December 31, 2021 and 2020, respectively. All of our notes were on full accrual basis at December 31, 2021 and 2020, respectively.

2021 Mortgage and Other Notes Receivable

Montecito Medical Real Estate

In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the United States. Amounts under the loan agreement will be funded as real estate investments are identified for acquisition. Borrowings under the loan agreement will bear interest at an annual rate of 9.5% and accrue an additional 2.5% in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings. Funds drawn in accordance with this agreement are required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one-year extensions. At December 31, 2021, we had funded $12.3 million of our commitment that was used to acquire six medical related facilities for a combined purchase price of approximately $60.3 million.
Vizion Health - Brookhaven

In May 2021, we provided a $20.0 million, five year loan to Vizion Health-Brookhaven, LLC to finance the acquisition of healthcare operations, including the real and personal property of a behavioral hospital we acquired as discussed in Note 3. The loan requires monthly principal and interest payments and bears an initial annual interest rate of 8.5% with fixed annual escalators of 2.5% beginning June 1, 2022. Initial principal loan repayments are equal to 90% of the excess cash flow with a monthly minimum as defined in the agreement. Principal repayments are reduced to 50% of the excess cash flow once the outstanding loan balance is reduced below $15.0 million.

Navion Senior Solutions

In May 2021, we provided a ten-year corporate loan to Navion for $3.6 million. The loan requires interest-only payments at an annual interest rate of 8% until June 1, 2024, and gives us first option to provide permanent development financing for a future project.

Bickford

As part of the sale of six properties to Bickford discussed in Note 3, we executed a $13.0 million second mortgage as a component of the purchase price consideration. The loan is secured by a security interest in the portfolio that is subordinate only to the first mortgage on the portfolio held by a third party. This second mortgage note receivable bears interest at a 10% annual rate and matures in April 2026. As amended, payments of principal and interest commencing in April 2022, are required based on a 15-year amortization schedule. In addition, the interest rate will be reset to 8% if Bickford prepays approximately $5.3 million in principal prior to December 31, 2022. Interest income was $0.9 million for the year ended December 31, 2021.

Given the size of the Company financing provided relative to the purchase price, its subordination to the first mortgage outstanding and the ongoing negative impact of the COVID-19 pandemic on Bickford’s operating results, we did not include this note receivable in the determination of the gain to be recognized upon sale of the portfolio in accordance with the provisions of ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. Therefore, this note receivable is not reflected in “Mortgage and other notes receivable, net” in the Consolidated Balance Sheet as of December 31, 2021. We will re-evaluate the collectability of this note receivable each reporting period and recognize the note receivable and related deferred gain at such time the note receivable is considered probable of collection in accordance with ASC 610-20.

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 ClassAmount
Funded1
Remaining
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 (7,955)6,245 
Watermark RetirementQ2 20202SHO5,000 (3,307)1,693 
   Encore Senior LivingQ4 20201SHO22,200 (17,708)4,492 
$50,400 $(32,970)$17,430 
1Amounts as of December 31, 2021

Watermark Retirement

In June 2020, we provided a $5.0 million 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. The total funded amount on the loan was $3.3 million as of December 31, 2021.

Encore Senior Living

In November 2020, we committed to providing first mortgage financing to Encore for up to $22.2 million 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 $4.9 million working capital escrow. The total amount funded on the note was $17.7 million as of December 31, 2021.

2022 Mortgage and Other Notes Receivable

In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore to construct, a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized.

Other Activity

Bickford Senior Living

As of December 31, 2021, we had commitments of $42.9 million in three construction loans to Bickford. At December 31, 2021, we had funded $36.7 million toward these commitments. 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 $2.0 million 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.

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 $180.0 million. The loan took the form of two notes under a master credit agreement. The senior note (“Note A”) totals $118.8 million 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 $110.8 million and $98.8 million of Note A as of December 31, 2021 and 2020, respectively. Note A is interest-only and was locked to prepayment until January 2021. After 2020, the prepayment penalty started at 2% and declines to 1% in 2022. The second note (“Note B”) was a construction loan for up to $61.2 million at an annual interest rate of 8.5% and carried a maturity of five years. During the year ended December 31, 2021, LCS-WP IV repaid the fully drawn Note B principal balance of $61.2 million. As a result, we recognized the remaining Note B commitment fee of $0.4 million in “Interest income and other” during the year ended December 31, 2021.

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 $59.3 million as of January 31, 2020, when we acquired the property. Timber Ridge PropCo assumed the debt (see Note 3) which was increased to $81.0 million 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 $5.0 million. 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 $20.0 million 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 $10.0 million may be used to meet general working capital needs. Beginning January 1, 2023, availability under the revolver reduces to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. The outstanding balance under the facility at December 31, 2021 and 2020, was $9.6 million and $11.3 million, respectively and bears interest at 7.52% 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 $12.0 million and $2.0 million, 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 $32.7 million 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 $38.3 million, subject to adjustment for market conditions.

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, 2021, 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, and (iii) less than 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, 2021, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of December 31, 2021 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 December 31, 2021, is presented below for the amortized cost, net by year of origination of ($ in thousands):
20212020201920182017PriorTotal
Mortgages
more than 1.5x$— $25,579 $9,018 $138,932 $— $4,331 $177,860 
between 1.0x and 1.5x— — — — — — — 
less than 1.0x— 3,944 39,123 — — 10,000 53,067 
No coverage available— — — — — — — 
— 29,523 48,141 138,932 — 14,331 230,927 
Mezzanine
more than 1.5x3,568 — — — — 10,159 13,727 
between 1.0x and 1.5x32,385 — — — — — 32,385 
less than 1.0x— — — — — 14,500 14,500 
No coverage available— — 750 — — — 750 
35,953 — 750 — — 24,659 61,362 
Revolver
more than 1.5x— 
between 1.0x and 1.5x12,873 
less than 1.0x— 
12,873 
Credit loss reserve(5,210)
$299,952 

Due to the economic uncertainty created by the COVID-19 pandemic and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted at the beginning of the pandemic 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 is presented in the following table for the year ended December 31, 2021 ($ in thousands):
Beginning balance January 1, 2021$4,946 
Additions for expected credit losses457 
Deduction for expected credit losses(193)
Balance December 31, 2021$5,210