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Investment Activity | 12 Months Ended
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Dec. 31, 2023
Real Estate [Abstract] |
Investment Activity | Investment Activity Asset Acquisition 2023 Acquisitions and New Leases of Real Estate During the year ended December 31, 2023, we completed the following real estate acquisitions within our Real Estate Investments segment ($ in thousands):
Operator |  | Date |  | Properties |  | Asset Class |  | Land |  | Building and Improvements |  | Total
Silverado Senior Living |  | Q1 2023 |  | 2 |  | ALF |  | $ | 3,894 |  |  | $ | 33,599 |  |  | $ | 37,493 |
Bickford |  | Q1 2023 |  | 1 |  | ALF |  | 1,746 |  |  | 15,542 |  |  | 17,288 |
|  |  |  |  |  |  |  | $ | 5,640 |  |  | $ | 49,141 |  |  | $ | 54,781 |
In February 2023, we acquired two memory care communities operated by Silverado Senior Living for approximately $37.5 million. The newly developed properties opened in 2022 and include a 60-unit community in Summerlin, Nevada and a 60-unit community in Frederick, Maryland. They are leased pursuant to 20-year leases with a first-year lease rate of 7.5% and annual escalators of 2.0%. In February 2023, we also acquired a 64-unit assisted living and memory care community in Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including the satisfaction of an outstanding construction note receivable of $14.2 million including interest, cash consideration of $0.5 million and approximately $0.1 million in closing costs. The acquisition price also included a reduction of $2.5 million in Bickford’s outstanding pandemic-related rent deferrals that has been recognized in “Rental income.” We added the community to an existing master lease with Bickford at an initial rate of 8.0%. 2022 Acquisitions and New Leases of Real Estate During the year ended December 31, 2022, we completed the following real estate acquisitions within our Real Estate Investments segment ($ 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 |  | 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 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. 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 $3.0 million in Bickford’s outstanding pandemic-related rent deferrals that were recognized in rental income in the fourth quarter of 2022 based on the fair value of the real estate assets received. We added the facility to an existing master lease with Bickford for a term of 10.5 years at an initial rate of 8.0%, with annual CPI escalators subject to a floor and ceiling. Asset Dispositions 2023 Asset Dispositions During the year ended December 31, 2023, we completed the following real estate property dispositions within our Real Estate Investments segment ($ in thousands):
Operator |  | Date |  | Properties |  | Asset Class |  | Net Proceeds |  | Net Real Estate Investment |  | Gain |  | Impairment 2
BAKA Enterprises, LLC 1,3 |  | Q1 2023 |  | 1 |  | ALF |  | $ | 7,478 |  |  | $ | 7,505 |  |  | $ | — |  |  | $ | 27 |
Bickford 1 |  | Q1 2023 |  | 1 |  | ALF |  | 2,553 |  |  | 1,421 |  |  | 1,132 |  |  | — |
Chancellor Health Care 1,3 |  | Q2 2023 |  | 1 |  | ALF |  | 2,355 |  |  | 1,977 |  |  | 378 |  |  | — |
Milestone Retirement 1,3,4 |  | Q2 2023 |  | 2 |  | ALF |  | 3,803 |  |  | 3,934 |  |  | — |  |  | 131 |
Chancellor Health Care 1,3 |  | Q2 2023 |  | 1 |  | ALF |  | 7,633 |  |  | 6,140 |  |  | 1,493 |  |  | — |
Milestone Retirement 1,3,4 |  | Q2 2023 |  | 1 |  | ALF |  | 1,602 |  |  | 1,452 |  |  | 150 |  |  | — |
Chancellor Health Care |  | Q2 2023 |  | 1 |  | ALF |  | 23,724 |  |  | 14,476 |  |  | 9,248 |  |  | — |
Chancellor Health Care 1,3 |  | Q3 2023 |  | 1 |  | ALF |  | 2,923 |  |  | 2,292 |  |  | 631 |  |  | — |
Senior Living Management 1,4 |  | Q4 2023 |  | 2 |  | ALF |  | 5,522 |  |  | 4,770 |  |  | 752 |  |  | — |
Senior Living Management 1,3 |  | Q4 2023 |  | 1 |  | ALF |  | 1,515 |  |  | 1,100 |  |  | 415 |  |  | — |
|  |  |  | 12 |  |  |  | $ | 59,108 |  |  | $ | 45,067 |  |  | $ | 14,199 |  |  | $ | 158 |
1 Assets were previously classified as “Assets held for sale” in the Consolidated Balance Sheet at December 31, 2022. 2 Impairments are included in “Loan and realty losses, net” in the Consolidated Statements of Income for the year ended December 31, 2023. 3 Total aggregate impairment charges previously recognized on these properties were $0.3 million and $17.4 million for the years ended December 31, 2023 and 2022, respectively. 4 The Company provided aggregate financing of approximately $2.2 million, net of discounts, on these transactions in the form of notes receivable, which is included net proceeds. Total rental income related to the disposed properties was $3.3 million, $0.7 million and $6.1 million for years ended December 31, 2023, 2022 and 2021, respectively. 2022 Asset Dispositions During the year ended December 31, 2022, we completed the following real estate property dispositions within our Real Estate Investments segment ($ in thousands):
Operator |  | Date |  | Properties |  | Asset Class |  | Net Proceeds |  | Net Real Estate Investment |  | Gain |  | Impairment 1
Hospital Corporation of America |  | Q1 2022 |  | 1 |  | MOB |  | $ | 4,868 |  |  | $ | 1,904 |  |  | $ | 2,964 |  |  | $ | — |
Vitality Senior Living 2 |  | Q1 2022 |  | 1 |  | SLC |  | 8,302 |  |  | 8,285 |  |  | 17 |  |  | — |
Holiday 2 |  | Q2 2022 |  | 1 |  | ILF |  | 2,990 |  |  | 3,020 |  |  | — |  |  | 30 |
Chancellor Health Care 2 |  | Q2 2022 |  | 2 |  | ALF |  | 7,305 |  |  | 7,357 |  |  | — |  |  | 52 |
Bickford 2 |  | 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 Living 2 |  | Q3 2022 |  | 2 |  | ALF/SLC |  | 16,379 |  |  | 15,159 |  |  | 1,220 |  |  | — |
National HealthCare Corporation (“NHC”) |  | 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, net” 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. Total rental income related to the disposed properties was $7.0 million and $10.9 million for years ended December 31, 2022 and 2021, respectively. Assets Held for Sale and Long-Lived Assets The following is a summary of our assets held for sale ($ in thousands):
|  | For the Year Ended December 31,
|  | 2023 |  | 2022
Number of facilities |  | 1 |  | 13
Real estate, net |  | $5,004 |  | $43,302
Rental income associated with the asset held for sale as of December 31, 2023 totaled $1.7 million, $0.9 million, and $1.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Rental income associated with the assets held for sale as of December 31, 2022 totaled $2.1 million and $5.6 million for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2023, we recorded impairment charges of approximately $1.6 million for four properties in our Real Estate Investments segment, of which $0.5 million related to three properties either sold or classified as assets held for sale. During the year ended December 31, 2022, we recorded impairment charges of approximately $51.6 million for 19 properties which were sold or classified as held for sale in our Real Estate Investments segment. Impairment charges are included in “Loan and realty losses, net” 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). Tenant Concentration The following table contains information regarding tenant concentration, excluding $2.6 million for our corporate office, $347.4 million for the SHOP segment, and a credit loss reserve of $15.5 million, based on the percentage of revenues for the years ended December 31, 2023, 2022 and 2021 related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):
| As of December 31, 2023 |  | Revenues 1
| Asset |  | Gross Real |  | Notes |  | Year Ended December 31,
| Class |  | Estate 2 |  | Receivable |  | 2023 |  |  | 2022 |  |  | 2021 |
Senior Living Communities | EFC |  | $ | 573,631 |  |  | $ | 48,950 |  |  | $ | 51,274 |  | 16% |  | $ | 51,183 |  | 18% |  | $ | 50,726 |  | 17%
NHC | SNF |  | 133,770 |  |  | — |  |  | 37,335 |  | 12% |  | 36,893 |  | 13% |  | 37,735 |  | 12%
Bickford 3 | ALF |  | 429,043 |  |  | 16,795 |  |  | 38,688 |  | 12% |  | N/A | N/A |  | 34,599 |  | 12%
All others, net | Various |  | 1,293,969 |  |  | 195,002 |  |  | 132,216 |  | 41% |  | 144,534 |  | 52% |  | 164,017 |  | 55%
Escrow funds received from tenants |  |  |  |  |  |  |  |  |  |  |  |  |  |
for property operating expenses | Various |  | — |  |  | — |  |  | 11,513 |  | 4% |  | 9,788 |  | 4% |  | 11,638 |  | 4%
|  |  | $ | 2,430,413 |  |  | $ | 260,747 |  |  | 271,026 |  |  |  | 242,398 |  |  |  | 298,715 |  |
Resident fees and services 4 |  |  |  |  |  |  | 48,809 |  | 15% |  | 35,796 |  | 13% |  | — |  | —%
|  |  |  |  |  |  | $ | 319,835 |  |  |  | $ | 278,194 |  |  |  | $ | 298,715 |  |
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, 2023 and 2022, the two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (10.7%). Senior Living Communities As of December 31, 2023, we leased ten retirement communities totaling 2,216 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 $(1.2) million, $0.4 million and $2.5 million from the Senior Living lease agreements for the years ended December 31, 2023, 2022 and 2021, respectively. NHC The facilities leased to NHC, a publicly held company, are under a master lease and consist of three ILFs and 32 SNFs (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 SNFs 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. In addition to the base rent, NHC pays 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.” Straight-line rent of $(1.2) million and $(0.5) million was recognized for NHC for the years ended December 31, 2023 and 2022, respectively. No material straight-line rent was recognized for the year ended December 31, 2021. The following table summarizes the percentage rent income from NHC ($ in thousands):
|  |  | Year Ended December 31,
|  |  |  |  | 2023 |  | 2022 |  | 2021
Current year |  |  |  |  | $ | 3,862 |  |  | $ | 3,332 |  |  | $ | 3,536 |
Prior year final certification 1 |  |  |  |  | 630 |  |  | (206) |  |  | (5) |
Total percentage rent income |  |  |  |  | $ | 4,492 |  |  | $ | 3,126 |  |  | $ | 3,531 |
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, 2023, NHC owned 1,630,642 shares of our common stock. Bickford As of December 31, 2023, we leased 39 facilities to Bickford under four leases. During the second quarter of 2022, we converted Bickford to the cash basis of revenue recognition based upon information obtained from Bickford regarding its financial condition that raised substantial doubt as to its ability to continue as a going concern. As a result, we wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives, that were included in “Other assets, net” on the Consolidated Balance Sheet, to rental income in 2022. Straight-line rent revenue of $(18.2) million and $1.7 million was recognized from the Bickford leases for the years ended December 31, 2022 and 2021, respectively. Cash rent received from Bickford for the years ended December 31, 2023, 2022 and 2021 was $33.4 million, $27.6 million and $29.5 million, respectively, including its repayment of outstanding pandemic-related rent deferrals of $2.3 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively. These amounts exclude $2.5 million and $3.0 million of rental income for the years ended December 31, 2023 and 2022, respectively, related to the reduction of pandemic-related rent deferrals in connection with the acquisition of two ALFs located in Virginia discussed above. As of December 31, 2023, Bickford’s outstanding pandemic-related rent deferrals were $18.0 million. During the first half of 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 rents 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 rent 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 from 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 rent 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 $2.5 million was earned in the first quarter of 2023 and $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 prior to the completion of the portfolio transition. Rental income associated with these tenants totaled $48.3 million, $21.4 million and $68.8 million for the years ended December 31, 2023, 2022 and 2021, 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. Included in rental income are amounts received from prior rent deferrals granted to cash basis tenants totaling $2.8 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively. Tenant Purchase Options Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At December 31, 2023, we had tenant purchase options on three properties with an aggregate net investment of $58.4 million that will become exercisable between 2027 and 2028. Rental income from these properties with tenant purchase options was $7.2 million, $7.0 million and $6.9 million for the years ended December 31, 2023, 2022 and 2021, 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. Lease Costs As of December 31, 2023, we are a lessee under a ground lease related to an ALF located in Ohio. For the years ended December 31, 2023, 2022 and 2021, the expense associated with this operating lease was $0.1 million and is included within “General and administrative expense” on the Consolidated Statements of Income. Future minimum lease payments are approximately $0.1 million annually for 2024 through 2028 with cumulative payments of $2.5 million thereafter reflecting an aggregate of $1.3 million of imputed interest. At December 31, 2023, the discount rate for this lease approximated 4.7%. Supplemental balance sheet information related to the lease is as follows ($ in thousands):
|  |  | As of December 31,
|  |  |  |  | 2023 |  | 2022
Buildings and improvements - right of use asset |  |  |  |  | $ | 1,562 |  |  | $ | 1,599 |
Accounts payable and accrued expenses - lease liability |  |  |  |  | $ | 1,705 |  |  | $ | 1,724 |
Rent Concessions During 2022 and 2021, we granted various rent concessions to tenants whose operations were adversely affected by the COVID-19 pandemic. When applicable, we elected not to apply the modification guidance under ASC Topic 842 and accounted for the related concessions as variable lease payments until those leases were subsequently modified under ASC Topic 842. Rent deferrals accounted for as variable lease payments, reducing rental income, granted for the years ended December 31, 2022 and 2021 totaled approximately $9.3 million and $26.4 million, respectively. Of these totals, Bickford accounted for $4.0 million and $18.3 million for the years ended December 31, 2022 and 2021, respectively. There were no pandemic-related rent deferrals granted during the year ended December 31, 2023. Future Minimum Lease Payments Future minimum lease payments to be received by us under our operating leases, including cash basis tenants, at December 31, 2023 are as follows ($ in thousands):
Year Ending December 31, | Amount
2024 | $ | 232,059 |
2025 | 237,981 |
2026 | 244,581 |
2027 | 198,598 |
2028 | 192,179 |
Thereafter | 684,840 |
| $ | 1,790,238 |
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,
|  |  |  |  | 2023 |  | 2022 |  | 2021
Lease payments based on fixed escalators and deferral repayments |  |  |  |  | $ | 225,565 |  |  | $ | 226,873 |  |  | $ | 241,172 |
Lease payments based on variable escalators |  |  |  |  | 7,709 |  |  | 5,275 |  |  | 4,662 |
Straight-line rent income, net of write-offs |  |  |  |  | 6,961 |  |  | (16,681) |  |  | 14,603 |
Escrow funds received from tenants for property operating expenses |  |  |  |  | 11,513 |  |  | 9,788 |  |  | 11,638 |
Amortization and write-off of lease incentives |  |  |  |  | (2,521) |  |  | (7,555) |  |  | (1,026) |
Rental income |  |  |  |  | $ | 249,227 |  |  | $ | 217,700 |  |  | $ | 271,049 |

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 976 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//976/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 978 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//978/tableOfContent Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 970 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//970/tableOfContent Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 972 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//972/tableOfContent Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 974 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//974/tableOfContent + Details
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