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Investment Activity

12 Months Ended

Dec. 31, 2022

Asset Acquisition

2022 Acquisitions and New Leases of Real Estate

During the year ended December 31, 2022, we completed the following real estate acquisitions within our Real Estate Investments reportable segment as described below ($ in thousands):


Operator	Date	Properties	Asset Class	Land		Building and Improvements		Total
Encore Senior Living	Q2 2022	1	ALF	$	542	$	12,758	$	13,300
Bickford Senior Living	Q4 2022	1	ALF	2,052		15,148		17,200
				$	2,594	$	27,906	$	30,500

In April 2022, we acquired a 53-unit ALF located in Oshkosh, Wisconsin, from Encore Senior Living. The acquisition price was $13.3 million and included the cancellation of an outstanding construction note receivable to us of $9.1 million, including interest. We have agreed to pay up to $0.8 million in additional cash consideration pending the results of an ongoing property tax appeal. As of December 31, 2022, no amount of this consideration is expected to be paid. We added the facility to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%.

In November 2022, we acquired a 60-unit ALF located in Virginia Beach, Virginia, from Bickford Senior Living (“Bickford”). The acquisition price was $17.2 million, including $0.2 million in closing costs, and the cancellation of an outstanding construction note receivable of $14.0 million including interest. The acquisition price also included a reduction of $3.0 million in Bickford’s outstanding pandemic-related rent deferrals that were recognized in rental income in the fourth quarter of 2022 based on the fair value of the real estate assets received. We added the facility to an existing master lease with Bickford for a term of 10.5 years at an initial rate of 8.0%, with annual CPI escalators subject to a floor and ceiling.

2021 Acquisitions and New Leases of Real Estate

During the year ended December 31, 2021, we completed the following real estate acquisitions as described below ($ in thousands):


Operator	Date	Properties	Asset Class	Land		Building and Improvements		Total
Vizion Health	Q2 2021	1	HOSP	$	1,470	$	38,780	$	40,250
Navion Senior Solutions	Q2 2021	1	SHO	531		6,069		6,600
				$	2,001	$	44,849	$	46,850

Vizion Health

In May 2021, we acquired a 64-bed specialty behavioral hospital located in Oklahoma for a total purchase price of $40.3 million, including $0.3 million in closing costs, and concurrently leased the hospital to an affiliate of Vizion Health. The 15-year master lease, which includes two five-year extension options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%. We have committed to additional funding of capital improvements for the hospital of up to $2.0 million which will be added to the lease base as funded. At December 31, 2022, no funds have been drawn.

Navion Senior Solutions

In June 2021, we acquired a 48-unit assisted living and memory care community in Tennessee for a purchase price of $6.6 million, including closing costs of $0.1 million. The community was added to an existing master lease with Navion Senior Solutions (“Navion”) whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each.

2022 Asset Dispositions

During the year ended December 31, 2022, we completed the following real estate property dispositions within our Real Estate Investments segment as described below ($ in thousands):


Operator	Date	Properties	Asset Class	Net Proceeds		Net Real Estate Investment		Gain		Impairment1
Hospital Corporation of America	Q1 2022	1	MOB	$	4,868	$	1,904	$	2,964	$	—
Vitality Senior Living2	Q1 2022	1	SLC	8,302		8,285		17		—
Holiday2	Q2 2022	1	ILF	2,990		3,020		—		30
Chancellor Senior Living2	Q2 2022	2	ALF	7,305		7,357		—		52
Bickford2	Q2 2022	3	ALF	25,959		28,268		—		2,309
Comfort Care	Q2 2022	4	ALF	40,000		38,444		1,556		—
Helix Healthcare	Q2 2022	1	HOSP	19,500		10,535		8,965		—
Discovery Senior Living2	Q3 2022	2	ALF/SLC	16,379		15,159		1,220		—
National HealthCare Corporation (“NHC”)3	Q3 2022	7	SNF	43,686		30,066		13,620		—
		22		$	168,989	$	143,038	$	28,342	$	2,391

1 Impairments are included in “Loan and realty losses” in the Consolidated Statement of Income for the year ended December 31, 2022.

2 Total impairment charges recognized on these properties were $28.5 million for the year ended December 31, 2022.

3 See “Tenant Concentration” below for additional information on the NHC disposition.

Total rental income related to the disposed properties was $7.0 million, $10.9 million and $16.6 million for years ended December 31, 2022, 2021 and 2020, respectively.

The disposal transactions for the three Bickford properties in the second quarter of 2022 included $2.4 million in contingent consideration representing cash placed in escrow that will be returned to the buyers to the extent the sold properties generate negative monthly cash flows over the twelve months following from the dates of sale. After the twelve-month period, any remaining funds not distributed will be paid to the Company. We have assessed that it is not probable that any of the escrowed funds would be received by the Company. To the extent this assessment changes, or funds are ultimately received, we will recognize the amount as a gain on the sale of real estate.

2021 Asset Dispositions

During the year ended December 31, 2021, we completed the following real estate property dispositions within our Real Estate Investments reportable segments as described below ($ in thousands):


Tenant	Date	Properties	Asset Class	Net Proceeds		Net Real Estate Investment		Other1		Gain		Impairment2
Bickford	Q2 2021	6	SHO	$	39,924	$	34,485	$	1,871	$	3,568	$	—
Community Health Systems	Q2 2021	1	MOB	3,887		946		62		2,879		—
TrustPoint Hospital	Q3 2021	1	HOSP	31,215		21,018		1,562		8,635		—
Holiday	Q3 2021	8	SHO	114,133		113,611		(1,360)		1,882		—
Quorum Health	Q3 2021	1	HOSP	8,314		9,568		—		—		1,254
Senior Living Management	Q3 2021	1	SHO	12,847		3,212		210		9,425		—
Holiday	Q3 2021	1	SHO	5,666		10,388		(81)		—		4,641
Brookdale Senior Living	Q4 2021	1	ALF	11,880		11,696		—		184		—
Senior Living Management	Q4 2021	1	SLC	7,275		3,335		256		3,684		—
Genesis	Q4 2021	1	SLC	3,723		1,677		(166)		2,211		—
		22		$	238,864	$	209,936	$	2,354	$	32,468	$	5,895

1 Includes straight-line rent and deferred lease intangibles

2 Impairments are included in “Loan and realty losses” in the Consolidated Statements of Income for the year ended December 31, 2021.

Bickford

During the second quarter of 2021, we sold to affiliates of Bickford a portfolio of six properties that were being leased to Bickford for a purchase price of $52.9 million. We received approximately $39.9 million in cash consideration upon sale and originated a second mortgage note receivable for the remaining purchase price of $13.0 million. A gain was not recognized

related to the $13.0 million second mortgage note receivable, which is discussed in more detail in Note 4. We recorded a gain upon completion of this transaction totaling approximately $3.6 million representing the excess of the $39.9 million cash consideration received over the net book value of the assets sold of $34.5 million and the write-off of straight-line rents receivable of approximately $1.9 million. Rental income from this portfolio was $1.6 million and $5.6 million for the years ended December 31, 2021 and 2020, respectively.

Upon completion of the sale, Bickford satisfied the terms of our prior agreement that contingently abated $2.1 million in rental income for the third quarter of 2020. Reference Note 9 for discussion of additional contingent consideration associated with this disposition that was not included in the transaction price at the time of closing.

Holiday

In August 2021, we sold a portfolio of eight properties that was leased to Holiday with an aggregate net book value of $113.6 million for total cash consideration of $115.0 million, and incurred transaction costs of $0.9 million, and recognized a gain of approximately $1.9 million associated with this transaction. Rental income was $5.9 million and $10.0 million for the years ended December 31, 2021 and 2020, respectively.

In September 2021, we sold a property that was leased to Holiday located in Indiana with a net book value of $10.4 million for total cash consideration of $5.8 million, incurred transactions costs of $0.1 million, and recognized an impairment of approximately $4.6 million associated with this transaction. Rental income was $0.4 million and $0.6 million for the year ended December 31, 2021 and 2020, respectively.

Assets Held for Sale and Long-Lived Assets

The following is a summary of our assets held for sale ($ in thousands):


	For the Year Ended December 31,
	2022	2021
Number of facilities	13	10
Real estate, net	$43,302	$66,398

Rental income associated with the assets held for sale as of December 31, 2022 totaled $2.1 million, $5.6 million, and $7.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Rental income associated with the assets held for sale as of December 31, 2021 totaled $5.4 million and $8.0 million for the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2022, we recorded impairments of approximately $51.6 million on 19 properties which were sold or classified as held for sale related to our Real Estate Investments reportable segment.

During the year ended December 31, 2021, we recorded impairments of approximately $51.8 million on ten properties which were sold or classified as held for sale related to our Real Estate Investments reportable segment.

Impairment charges are included in “Loan and realty losses” in the Consolidated Statements of Income.

We reduce the carrying value of impaired properties to their estimated fair value or, with respect to the properties classified as held for sale, to estimated fair value less costs to sell. To estimate the fair values of the properties, we utilized a market approach which considered binding agreements for sales (Level 1 inputs), non-binding offers to purchase from unrelated third parties and/or broker quotes of estimated values (Level 3 inputs), and/or independent third-party valuations (Level 1 and 3 inputs).

2023 Asset Acquisitions

In February 2023, we acquired two memory care communities operated by Silverado Senior Living for approximately $37.5 million. The newly developed properties that opened in 2022 and include a 60-unit community in Summerlin, Nevada and a 60-unit community in Frederick, Maryland and are leased pursuant to a 20-year lease master lease with a first-year lease rate of 7.5% and annual escalators of 2.0%.

In February 2023, we acquired a 60-unit assisted living and memory care community in Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including approximately $0.1 million in closing costs, the satisfaction of an outstanding construction note receivable of $14.2 million including interest, and cash consideration of $0.5 million. The acquisition price also included a reduction of $2.5 million in Bickford’s outstanding pandemic-related deferrals. We added the community to an existing master lease with Bickford was added to an existing master lease with Bickford at an initial rate of 8.0%, with annual CPI escalators subject to a floor and ceiling.

Tenant Concentration

The following table contains information regarding tenant concentration in our Real Estate Investments portfolio, excluding $2.6 million for our corporate office, $338.1 million for the SHOP segment, and a credit loss reserve of $15.3 million, based on the percentage of revenues for the years ended December 31, 2022, 2021 and 2020 related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):


	As of December 31, 2022					Revenues1
	Asset	Gross Real		Notes		Year Ended December 31,
	Class	Estate2		Receivable		2022			2021			2020

Senior Living Communities	EFC	$	573,631	$	48,547	$	51,183	18%	$	50,726	17%	$	50,734	15%
National HealthCare Corporation	SNF	133,770		—		36,893		13%	37,735		12%	37,820		11%
Bickford3	ALF	414,870		32,727		N/A		N/A	34,599		12%	49,451		15%
Holiday3	ILF	—		—		N/A		N/A	N/A		N/A	40,705		12%
All others, net	Various	1,329,461		167,205		144,534		52%	164,017		55%	144,448		44%
Escrow funds received from tenants
for property operating expenses	Various	—		—		9,788		4%	11,638		4%	9,653		3%
		$	2,451,732	$	248,479	242,398			298,715			332,811
Resident fees and services4						35,796		13%	—		—%	—		—%
						$	278,194		$	298,715		$	332,811

1 Includes interest income on notes receivable and rental income from properties classified as held for sale.

2 Amounts include any properties classified as held for sale.

3 Revenues included in All others, net for years when less than 10%.

4 There is no tenant concentration in resident fees and services because these agreements are with individual residents.

At December 31, 2022, the two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (10.7%). At December 31, 2021, the two states in which we had an investment concentration of 10% or more were also South Carolina (11.6%) and Texas (10.3%).

Senior Living Communities

As of December 31, 2022, we leased ten retirement communities totaling 2,200 units to Senior Living Communities, LLC (“Senior Living”) pursuant to triple-net lease agreements maturing through December 2029. We recognized straight-line rent revenue of $0.4 million, $2.5 million and $4.3 million from the Senior Living lease for the years ended December 31, 2022, 2021 and 2020, respectively.

NHC

The facilities leased to NHC, a publicly held company, are under a master lease and consist of three independent living facilities and 32 skilled nursing facilities (four of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). Effective September 1, 2022, we amended the master lease dated October 17, 1991, concurrently with the sale of a portfolio of seven skilled nursing facilities to increase the annual base rent due each year through the expiration of the master lease on December 31, 2026. There are two additional five-year renewal options at a fair rental value as negotiated between the parties.

The annual base rent prior to the amendment was $30.8 million and was increased to $34.3 million for the year ended December 31, 2022, with credit given for rent paid in 2022 related to the sold portfolio. In addition to the base rent, NHC will continue to pay any additional rent and percentage rent as required by the master lease. Under the terms of the amended lease, the base annual rent escalates by 4% of the increase, if any, in each facility’s annual revenue over a 2007 base year. We refer to this additional rent component as “percentage rent.”

The following table summarizes the percentage rent income from NHC ($ in thousands):



	Year Ended December 31,
		2022		2021		2020
Current year		$	3,332	$	3,536	$	3,687
Prior year final certification1		(206)		(5)		(14)
Total percentage rent income		$	3,126	$	3,531	$	3,673

1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

Two of our board members, including our chairman, are also members of NHC’s board of directors. As of December 31, 2022, NHC owned 1,630,642 shares of our common stock.

Other Operators

Bickford

As of December 31, 2022, we leased 36 facilities, excluding three facilities classified as assets held for sale, under four leases to Bickford. Revenues from Bickford reflect the impact of pandemic-related rent concessions accounted for as variable lease payments of approximately $5.5 million, $18.3 million and $5.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2022, we wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives, which were included in “Other assets, net” on the Consolidated Balance Sheet, against rental income upon converting Bickford to the cash basis of accounting. These write-offs were the result of a change in our evaluation of collectability of future rent payments due under its four master lease agreements based upon information we obtained from Bickford in the second quarter of 2022 regarding its financial condition that raised substantial doubt as to its ability to continue as a going concern. Cash rent received from Bickford for the year ended December 31, 2022 was $27.6 million, which excludes $3.0 million of rental income related to the reduction of pandemic-related rent deferrals in connection with the acquisition of the ALF located in Virginia Beach, Virginia discussed above. Straight-line rent revenue of $1.7 million and $2.8 million was recognized from the Bickford leases for the years ended December 31, 2021 and 2020, respectively.

Other than the asset acquisition and the three properties sold discussed above, we completed various restructuring activities in the Bickford leased property portfolio during the first half of 2022. In March 2022, we transferred one ALF located in Pennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a ten-year triple-net lease and wrote off approximately $0.7 million in a straight-line rent receivable, reducing rental income. Effective April 1, 2022, we restructured and amended three of Bickford’s master lease agreements covering 28 properties and reached agreement on the repayment terms of its outstanding pandemic-related deferrals. Significant terms of these agreements are as follows:

• Extended the maturity dates of the modified leases to 2033 and 2035. The remaining master lease agreement covering 11 properties with an original maturity in 2023 was previously extended to 2028.

• Reduced the combined rent for the portfolio to approximately $28.3 million (excluding the ALF in Virginia Beach acquired in the fourth quarter of 2022) per year through April 1, 2024, subject to a nominal annual increase, at which time the rent will be reset to a fair market value, but not less than 8.0% of our initial gross investment.

• Required monthly payments beginning October 2022 through December 2024 based on a percentage of Bickford’s monthly revenues exceeding an established threshold to be applied to the outstanding pandemic-related deferrals granted to Bickford. The deferrals may be reduced by up to $6.0 million upon Bickford achieving certain performance targets and the sale or transition of certain properties to new operators of which $3.0 million was earned in the fourth quarter of 2022.

Holiday

During the third quarter of 2021, Welltower Inc. (“Welltower”) completed an acquisition that resulted in a Welltower-controlled subsidiary becoming a tenant under our master lease for the NHI-owned Holiday real estate assets. We placed the tenant on the cash basis of accounting effective in the third quarter of 2021 because of non-payment of rent and completed the transitioning of the remaining properties in this portfolio effective April 1, 2022. Reference Note 9 for more discussion.

Other Portfolio Activity

Cash Basis Operators and Straight-line Rents Receivable Write-offs

We placed three operators on the cash basis of accounting for their leases during 2022, including Bickford discussed above. During 2021, the Welltower-controlled tenant of our Holiday portfolio was the only tenant on the cash basis. Rental income associated with these tenants totaled $21.4 million, $68.8 million and $104.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, which includes the impact of write-offs of $26.0 million in total straight-line rents receivable and $7.1 million of lease incentives during the year ended December 31, 2022.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At December 31, 2022, we had tenant purchase options on three properties with an aggregate net investment of $59.6 million that will become exercisable between 2027 and 2028. Rental income from these properties with tenant purchase options was $7.0 million and $6.9 million and $6.5 million for years ended December 31, 2022, 2021 and 2020, respectively.

We cannot reasonably estimate at this time the probability that any purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.

Future Minimum Lease Payments

Future minimum lease payments to be received by us under our operating leases, including cash basis tenants, at December 31, 2022 are as follows ($ in thousands):


Year Ending December 31,	Amount
2023	$	218,112
2024	227,086
2025	231,745
2026	236,157
2027	197,793
Thereafter	796,452
	$	1,907,345

Variable Lease Payments

Most of our existing leases contain annual escalators in rent payments. Some of our leases contain escalators that are determined annually based on a variable index or other factors that is indeterminable at the inception of the lease. The table below indicates the revenue recognized as a result of fixed and variable lease escalators ($ in thousands):



	Year Ended December 31,
		2022		2021		2020
Lease payments based on fixed escalators, net of deferrals		$	226,873	$	241,172	$	272,630
Lease payments based on variable escalators		5,275		4,662		5,501
Straight-line rent income, net of write-offs		(16,681)		14,603		20,411
Escrow funds received from tenants for property operating expenses		9,788		11,638		9,653
Amortization and write-off of lease incentives		(7,555)		(1,026)		(987)
Rental income		$	217,700	$	271,049	$	307,208