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Commitments, Contingencies and Uncertainties | 12 Months Ended
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Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments, Contingencies and Uncertainties | 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 classified below as loan commitments, and commitments for the funding of construction for expansion or renovation to our existing properties under lease classified below as development commitments. 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. The tables below summarize our existing, known commitments and contingencies as of December 31, 2022 according to the nature of their impact on our leasehold or loan portfolios ($ in thousands):
| Asset Class |  | Type |  | Total |  | Funded |  | Remaining
Loan Commitments: |  |  |  |  |  |  |  |  |
Bickford Senior Living | SHO |  | Construction |  | $ | 28,900 |  |  | $ | (28,853) |  |  | $ | 47 |
Encore Senior Living | SHO |  | Construction |  | 50,725 |  |  | (36,375) |  |  | 14,350 |
Senior Living Communities | SHO |  | Revolving Credit |  | 20,000 |  |  | (15,847) |  |  | 4,153 |
Timber Ridge OpCo | SHO |  | Working Capital |  | 5,000 |  |  | — |  |  | 5,000 |
Watermark Retirement | SHO |  | Working Capital |  | 5,000 |  |  | (1,976) |  |  | 3,024 |
Montecito Medical Real Estate | MOB |  | Mezzanine Loan |  | 50,000 |  |  | (20,255) |  |  | 29,745 |
|  |  |  |  | $ | 159,625 |  |  | $ | (103,306) |  |  | $ | 56,319 |
See Notes 4 and 5 to our consolidated financial statements for further details of our loan commitments. 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 economic uncertainty adjustments as discussed in Note 4. The liability for expected credit losses on our unfunded loans reflected in “Accounts payable and accrued expense” on the Consolidated Balance Sheets as of December 31, 2022 and 2021 is presented in the following table for the year ended December 31, 2022 ($ in thousands):
Balance at December 31, 2021 | $ | 955 |
Provision for expected credit losses | (272) |
Balance at December 31, 2022 | $ | 683 |
| Asset Class |  | Type |  | Total |  | Funded |  | Remaining
Development Commitments: |  |  |  |  |  |  |  |  |
Woodland Village | SHO |  | Construction |  | $ | 7,515 |  |  | $ | (7,425) |  |  | $ | 90 |
Senior Living Communities | SHO |  | Renovation |  | 9,930 |  |  | (9,930) |  |  | — |
Watermark Retirement | SHO |  | Renovation |  | 6,500 |  |  | (5,959) |  |  | 541 |
Navion Senior Solutions | SHO |  | Renovation |  | 3,500 |  |  | (1,062) |  |  | 2,438 |
Other | SHO |  | Various |  | 4,550 |  |  | (1,300) |  |  | 3,250 |
SHOP | ILF |  | Renovation |  | 1,500 |  |  | — |  |  | 1,500 |
|  |  |  |  | $ | 33,495 |  |  | $ | (25,676) |  |  | $ | 7,819 |
In addition to these commitments listed above, we have agreed to pay up to $0.8 million in additional cash consideration pending the results of an ongoing property tax appeal related to a property acquired in the second quarter of 2022. As of December 31, 2022, no amount of this consideration is expected to be paid. Discovery PropCo has committed to fund up to $2.0 million toward the purchase of condominium units located at one of the facilities of which $1.0 million had been funded as of December 31, 2022. As of December 31, 2022, we had the following contingent lease inducement commitments which are generally based on the performance of facility operations and may or may not be met by the tenant ($ in thousands):
| Asset Class |  | Total |  | Funded |  | Remaining
Contingencies (Lease Inducements): |  |  |  |  |  |  |
Timber Ridge OpCo | SHO |  | $ | 10,000 |  |  | $ | — |  |  | $ | 10,000 |
IntegraCare | SHO |  | 750 |  |  | — |  |  | 750 |
Wingate Healthcare | SHO |  | 5,000 |  |  | — |  |  | 5,000 |
Navion Senior Solutions | SHO |  | 4,850 |  |  | (2,700) |  |  | 2,150 |
Discovery Senior Living | SHO |  | 4,000 |  |  | — |  |  | 4,000 |
Ignite Medical Resorts | SNF |  | 2,000 |  |  | — |  |  | 2,000 |
Sante Partners | SHO |  | 2,000 |  |  | — |  |  | 2,000 |
|  |  | $ | 28,600 |  |  | $ | (2,700) |  |  | $ | 25,900 |
In February 2023, Timber Ridge OpCo formally requested payout of its $10.0 million lease inducement based upon the achievement of all performance conditions. Bickford Contingent Note Arrangement Related to the sale of six properties to Bickford in 2021 discussed further in Note 3, we reached an agreement with Bickford 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 The COVID-19 pandemic has had and may continue to have an impact on the operations of many of our tenants, managers and borrowers. Throughout the pandemic to date, we have granted various rent concessions to tenants whose operations have been adversely affected by the pandemic. When applicable, we have elected not to apply the modification guidance under ASC 842 and have decided to account for the related concessions as variable lease payments, recorded as rental income when received. As of December 31, 2022, aggregate pandemic-related rent concessions granted to tenants that have been accounted for as variable lease payments totaled approximately $44.3 million, of which $3.7 million were rent abatements. During the year ended December 31, 2022, we granted pandemic-related rent deferrals of $9.3 million to seven tenants, of which Bickford accounted for approximately $4.0 million. Repayments and other reductions of rent deferrals recognized in “Rental Income” during the year ended December 31, 2022 and 2021 were $3.5 million and $0.1 million, respectively. Additionally, $4.1 million of pandemic-related rent deferrals were forgiven during the year ended December 31, 2022. Rent deferrals accounted for as variable lease payments granted for the years ended December 31, 2021 and 2020 totaled approximately $26.4 million and $5.0 million, respectively, of which Bickford accounted for approximately $18.3 million and $3.8 million, respectively. Litigation Our facilities are subject to claims and suits in the ordinary course of business. Our managers, tenants 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. In addition, such claims may include, among other things professional liability and general liability claims, as well as regulatory proceedings related to our SHOP segment. While there may be lawsuits pending against us and 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. Welltower Inc. In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company, that included 17 senior living facilities governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities after this change in tenant ownership occurred in late July 2021. On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Voorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the “Defendants”) in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants repeatedly failed to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent. In connection with a memorandum of understanding between the parties dated March 4, 2022, NHI applied the remaining approximately $8.8 million lease deposit to past due rents in the first quarter of 2022. Also, as provided by the memorandum of understanding, Welltower transferred approximately $6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement dated March 31, 2022 with Defendants formalizing the terms to settle the lawsuit. NHI and certain of its subsidiaries terminated the master lease with Well Churchill Leasehold Owner, LLC as successor in interest to NHI Master Tenant LLC, effective April 1, 2022, upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new SHOP partnership ventures. See Note 5 for more information on these new ventures. Also effective April 1, 2022, the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation and the $6.9 million in escrowed funds were released to NHI and recognized as rental income during the year ended December 31, 2022. We recognized approximately $0.7 million as a “Loss on operations transfer, net” on the Consolidated Statements of Income for the year ended December 31, 2022. This net loss represents the amount of net working capital deficit assumed by NHI in connection with the transfer of operations following the termination of the master lease. The net working capital assumed by NHI on April 1, 2022 was comprised primarily of facility furniture, fixtures and equipment, net resident accounts receivable, accounts payable and other accrued liabilities.

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