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Debt | 6 Months Ended
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Jun. 30, 2018
Debt Instruments [Abstract] |
Debt Disclosure | DEBT Debt consists of the following (in thousands):
| June 30, 2018 |  | December 31, 2017
Convertible senior notes - unsecured (net of discount of $1,771 and $2,637) | $ | 118,229 |  |  | $ | 144,938 |
Revolving credit facility - unsecured | 327,000 |  |  | 221,000 |
Bank term loan - unsecured | 250,000 |  |  | 250,000 |
Private placement term loans - unsecured | 400,000 |  |  | 400,000 |
HUD mortgage loans (net of discount of $1,361 and $1,402) | 43,279 |  |  | 43,645 |
Fannie Mae term loans - secured, non-recourse | 96,206 |  |  | 96,367 |
Unamortized loan costs | (8,994 | ) |  | (10,453 | )
| $ | 1,225,720 |  |  | $ | 1,145,497 |
Aggregate principal maturities of debt as of June 30, 2018 for each of the next five years and thereafter are as follows (in thousands):
Twelve months ended June 30, |
2018 | $ | 1,166 |
2019 | 1,207 |
2020 | 1,256 |
2021 | 121,303 |
2022 | 703,353 |
Thereafter | 409,561 |
| 1,237,846 |
Less: discount | (3,132 | )
Less: unamortized loan costs | (8,994 | )
| $ | 1,225,720 |
Our unsecured $800,000,000 credit facility provides for a $250,000,000 term loan and a $550,000,000 revolving credit facility with a due date of August 2022. The facility calls for floating interest on the term loan and revolver to be initially set at 30-day LIBOR plus 130 and 115 bps, respectively, based on current leverage metrics. Additional features include a 0% floor LIBOR base and a facility fee of 20 basis points. The employment of interest rate swaps to fix LIBOR on our bank term debt leaves only our revolving credit facility exposed to variable rate risk. 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, 2018, we had $223,000,000 available to draw on the revolving portion of our credit facility. The unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. To date, these ratios, which are calculated quarterly, have been within the limits required by the credit facility agreements. 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. The composition our private placement term loans is 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 |  |  |  |  |  |  |
In connection with our November 2017 acquisition of a facility in Tulsa, we assumed a Fannie Mae mortgage loan with remaining balance of $18,311,000. The mortgage amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, and bears interest at a nominal rate of 4.6% with a remaining balance of $18,123,000 at June 30, 2018. 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. These notes, together with the Fannie Mae debt assumed in connection with the 2017 Tulsa acquisition mentioned above, are secured by facilities having a net book value of $140,121,000 at June 30, 2018. 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 conversion 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. The embedded conversion options (1) do not require net cash settlement, (2) are not conventionally convertible but can be classified in stockholders’ equity under Accounting Standards Codification (“ASC”) 815-40, and (3) are considered indexed to NHI’s own stock. Therefore, the conversion feature satisfies the conditions to qualify for an exception to the derivative liability rules, and the Notes are split into debt and equity components. The carrying value of the debt component was based upon the estimated fair value at the time of issuance of a similar debt instrument without the conversion feature and was approximately $192,238,000 at issuance. The difference of $7,762,000 between the contractual principal on the debt and the value allocated to the debt component was recorded as the equity component and represented the estimated value of the conversion feature of the instrument. The excess of the contractual principal amount of the debt over the estimated fair value of the debt component, the original issue discount, is being amortized to interest expense using the effective interest method over the estimated term of the Notes. The effective interest rate used to amortize the debt discount and the liability component of the debt issue costs is approximately 3.9% based on our estimated non-convertible borrowing rate at the date the Notes were issued. The total cost of issuing the Notes was $6,063,000, of which $275,000 was allocated to the equity component and $5,788,000 was allocated to the debt component and subject to amortization over the estimated term of the notes. During the six months ended June 30, 2018, we continued to make targeted open-market repurchases of certain of the convertible notes. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by valuing the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account. A roll-forward of our note balances, including the effect of period amortization, net of issuance costs, is presented below:
| December 31, 2017 | Cash Paid | Amortization | June 30, 2018
Face Amount | $ | 147,575 |  | $ | (27,575 | ) | $ | — |  | $ | 120,000 |
Discount | (2,637 | ) | $ | 458 |  | $ | 408 |  | (1,771 | )
Issuance Costs | (1,752 | ) | $ | 297 |  | $ | 285 |  | (1,170 | )
Carrying Value | $ | 143,186 |  |  |  | $ | 117,059 |
Total expenditures of $29,985,000 include paid amounts of $27,558,000 allocated to the note retirement with the remaining expenditure of $2,427,000 allocated to capital in excess of par. A loss of $738,000 for the six months ended June 30, 2018, resulted from the excess of cash expenditures over the book value of the notes retired, net of discount and issuance costs. No notes were retired during the three months ended June 30, 2018. As of June 30, 2018, our senior unsecured convertible notes were convertible at a rate of 14.33 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $69.79 per share for a total of 1,719,500 remaining underlying shares. For the six months ended June 30, 2018, dilution resulting from the conversion option within our convertible debt is 12,126 shares. If NHI’s current share price increases above the adjusted $69.79 conversion price, further dilution will be attributable to the conversion feature. On June 30, 2018, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $6,693,000. Our HUD mortgage loans are secured by ten Bickford-operated properties having a net book value of $51,726,000 at June 30, 2018. 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 requires monthly payments of principal and interest of 2.9% (inclusive of mortgage insurance premium) and matures in October 2047. The following table summarizes interest expense (in thousands):
| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Interest expense on debt at contractual rates | $ | 11,414 |  |  | $ | 10,312 |  |  | $ | 21,941 |  |  | $ | 20,345 |
Losses reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income into interest expense | 76 |  |  | 645 |  |  | 352 |  |  | 1,434 |
Capitalized interest | (47 | ) |  | (93 | ) |  | (71 | ) |  | (160 | )
Amortization of debt issuance costs and debt discount | 777 |  |  | 868 |  |  | 1,612 |  |  | 1,774 |
Total interest expense | $ | 12,220 |  |  | $ | 11,732 |  |  | $ | 23,834 |  |  | $ | 23,393 |
Interest Rate Swap Agreements Our existing interest rate swap agreements will collectively continue through June 2020 to hedge against fluctuations in variable interest rates applicable to our $250,000,000 bank term loan. With the amendment to our credit facility in August 2017, the introduction to the bank term loan of a LIBOR floor not present in the hedges resulted in hedge inefficiency of $353,000, which we credited to interest expense in 2017. To better reflect earnings, on January 1, 2018, we adopted ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, as discussed in Note 11. Upon the adoption of the new standard, we reversed cumulative ineffectiveness, resulting in a retroactive net charge to retained earnings and a credit to accumulated other comprehensive income of $235,000 as of January 1, 2018. During the next twelve months, approximately $787,000 of gains, which are included in accumulated other comprehensive income, are projected to be reclassified into earnings. As of June 30, 2018, we employ the following interest rate swap contracts to mitigate our interest rate risk on the $250,000,000 term loan (dollars in thousands):
Date Entered |  | Maturity Date |  | Fixed Rate |  | Rate Index |  | Notional Amount |  | Fair Value
May 2012 |  | April 2019 |  | 2.84% |  | 1-month LIBOR |  | $ | 40,000 |  |  | $ | 265 |
June 2013 |  | June 2020 |  | 3.41% |  | 1-month LIBOR |  | $ | 80,000 |  |  | $ | 761 |
March 2014 |  | June 2020 |  | 3.46% |  | 1-month LIBOR |  | $ | 130,000 |  |  | $ | 1,111 |
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 10 for fair value disclosures about our interest rate swap agreements. Net asset/(liability) balances for our hedges included in accumulated other comprehensive income (loss) on our Condensed Consolidated Balance Sheets on June 30, 2018 and December 31, 2017 were $2,137,000 and $(588,000), respectively.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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