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Mortgage And Other Notes Receivable | 9 Months Ended
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Sep. 30, 2022
Mortgage and Other Notes Receivable [Abstract] |
Mortgage and Other Notes Receivable | Mortgage and Other Notes Receivable At September 30, 2022, our investments in mortgage notes receivable totaled $130.6 million secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 13 facilities and other notes receivable totaling $83.5 million, substantially all of which are guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. These balances exclude a credit loss reserve of $6.9 million at September 30, 2022. All our notes were on full accrual basis at September 30, 2022. Mortgage and Other Notes Receivable Life-Care Services - Sagewood In the second quarter of 2022, we received repayment of a $111.3 million mortgage note receivable along with all accrued interest and a prepayment fee of $1.1 million which is reflected in “Gain on note payoff” on the Condensed Consolidated Statements of Income for the nine months ended September 30, 2022. Interest income was $5.2 million for the nine months ended September 30, 2022, and $2.4 million and $8.1 million, for the three and nine months ended September 30, 2021, respectively. Encore Senior Living In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore Senior Living 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. The total amount funded on the note was $8.7 million as of September 30, 2022. Montecito Medical Real Estate We have a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a fund that invests in medical real estate, including medical office buildings, throughout the United States. During the nine months ended September 30, 2022, we funded $4.5 million on two real estate investments. As of September 30, 2022, we have funded $20.3 million of our commitment that was used to acquire nine medical office buildings for a combined purchase price of approximately $86.7 million. For the three and nine months ended September 30, 2022, we received interest of $0.5 million and $1.3 million, respectively. For the nine months ended September 30, 2022, we received principal of $0.3 million. The loan agreement was modified in April 2022, so that these two real estate investments accrue interest at an annual rate of 7.5% that is paid monthly in arrears and 4.5% per year in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings (the “Deferred Interest”). Prior borrowings under the loan agreement bear interest at an annual rate of 9.5% and accrue an additional 2.5% in Deferred Interest. 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. Bickford construction and mortgage loans As part of the June 2021 sale of six properties to Bickford, we executed a $13.0 million second mortgage as a component of the purchase price consideration. This second mortgage note receivable bears interest at a 10% annual rate and matures in April 2026. Interest income was $0.3 million and $1.0 million, respectively, for the three and nine months ended September 30, 2022. We did not include this note receivable in the determination of the gain to be recognized upon sale of the portfolio. Therefore, this note receivable is not reflected in “Mortgage and other notes receivable, net” in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021. As of September 30, 2022, we had two fully funded construction loans of $28.7 million and one $14.2 million construction loan with $13.8 million funded to Bickford. 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 certain 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. We also have a mortgage loan of $4.0 million to Bickford due February 2025, bearing interest at 7%, that amortizes on a twenty-five-year basis. Senior Living Communities We provided a $20.0 million revolving line of credit to Senior Living whose borrowings under the revolver are to be used for working capital needs and to finance construction projects within its portfolio, including building additional units. 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. At September 30, 2022, the $14.0 million outstanding under the facility bears interest at 9.83% per annum, the prevailing 10-year U.S. Treasury rate plus 6%. The Company also has a mortgage loan of $32.7 million with Senior Living that originated in July 2019 for the acquisition of a 248-unit continuing care retirement community (“CCRC”) in Columbia, South Carolina. The mortgage loan 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 $38.3 million, subject to adjustment for market conditions. Credit Loss Reserve Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans, collectively referred to as “Coverage.” A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the following table have been calculated utilizing the most recent date for which data is available, June 30, 2022, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, and (iii) less than 1.0x. We update the calculation of Coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. As of September 30, 2022, we did not have any construction loans that we considered underperforming. We consider the guidance in ASC 310-20 when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of September 30, 2022, is presented below for the amortized cost, net by year of origination of ($ in thousands):
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total
Mortgages |  |  |  |  |  |  |
more than 1.5x | $ | 8,571 |  | $ | — |  | $ | 36,173 |  | $ | 32,700 |  | $ | 14,000 |  | $ | 4,106 |  | $ | 95,550 |
between 1.0x and 1.5x | — |  | — |  | — |  | — |  | 14,700 |  | — |  | 14,700 |
less than 1.0x | — |  | — |  | 3,890 |  | 6,423 |  | — |  | 10,000 |  | 20,313 |
| 8,571 |  | — |  | 40,063 |  | 39,123 |  | 28,700 |  | 14,106 |  | 130,563 |
Mezzanine |  |  |  |  |  |  |
more than 1.5x | — |  | 19,195 |  | — |  | — |  | — |  | — |  | 19,195 |
between 1.0x and 1.5x | — |  | 23,978 |  | — |  | — |  | — |  | 9,178 |  | 33,156 |
less than 1.0x | — |  | — |  | — |  | — |  | — |  | 14,500 |  | 14,500 |
No coverage available | — |  | — |  | — |  | 750 |  | — |  | — |  | 750 |
| — |  | 43,173 |  | — |  | 750 |  | — |  | 23,678 |  | 67,601 |
Revolver |  |  |  |  |  |  |
more than 1.5x |  |  |  |  |  |  | 1,976 |
between 1.0x and 1.5x |  |  |  |  |  |  | 13,969 |
less than 1.0x |  |  |  |  |  |  | — |
|  |  |  |  |  |  | 15,945 |
|  |  |  |  | Credit loss reserve | (6,940) |
|  |  |  |  |  |  | $ | 207,169 |
Due to the economic uncertainty created by the COVID-19 pandemic and the continuing challenges in financial markets and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted 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 nine months ended September 30, 2022 ($ in thousands):
Beginning balance January 1, 2022 | $ | 5,210 |
Provision for expected credit losses | 1,730 |
Balance September 30, 2022 | $ | 6,940 |

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- Definition Mortgage and Other Notes Receivable + References No definition available. + Details
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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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