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Mortgage and Other Notes Receivable | 9 Months Ended
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Sep. 30, 2024
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] |
Mortgage and Other Notes Receivable | Mortgage and Other Notes Receivable At September 30, 2024, our investments in mortgage notes receivable totaled $163.2 million secured by real estate and other assets of the borrowers (e.g., Uniform Commercial Code liens on personal property) related to 17 facilities, and our investments in other notes receivable totaled $88.8 million, substantially all of which were 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 $19.4 million at September 30, 2024. Our loans designated as non-performing as of September 30, 2024 and December 31, 2023 include a mortgage note receivable of $1.9 million and $2.1 million, respectively, due from Bickford, and a mortgage note receivable of $10.0 million and a mezzanine loan of $14.5 million due from affiliates of SLM. Interest income recognized, representing cash received, from these non-performing loans was $0.3 million and $1.3 million, respectively, for the three and nine months ended September 30, 2024. Interest income recognized for the three and nine months ended September 30, 2023 was $0.5 million and $1.4 million, respectively. All other loans were on full accrual basis as of September 30, 2024. The credit loss reserve related to non-performing loans totaled $16.0 million and $11.9 million at September 30, 2024 and December 31, 2023, respectively. The credit loss reserve was increased $3.6 million during the three months ended September 30, 2024 related to the $14.5 million mezzanine loan due from SLM based upon further deterioration in SLM’s liquidity. Reference Note 3 for further discussion. The Sanders Trust, LLC In August 2024, we entered into an agreement to fund up to $27.7 million on a construction loan with TST Lake City IRF, LLC for the development of an in-patient rehabilitation facility to be located in Lake City, Florida. The four-year loan agreement provides for an annual interest rate of 9.0% and two one-year extensions. As of September 30, 2024, $1.1 million was outstanding on the loan. Compass Senior Living, LLC In June 2024, we funded $9.5 million on a mortgage note receivable secured by two facilities with Compass Senior Living, LLC. The five-year loan agreement provides for an annual interest rate of 8.5% with an option for the Company to purchase one or both facilities after July 2026. Carriage Crossing Senior Living Bloomington In February 2024, we funded $15.0 million on a mortgage note receivable with Carriage Crossing Senior Living Bloomington, with an additional $2.0 million available to be funded contingent upon the performance of facility operations through March 31, 2027. The five-year loan agreement provides for an annual interest rate of 8.75% and two one-year extensions. 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. In the second quarter of 2024, approximately $2.1 million of principal was repaid upon the sale by the fund of two of the underlying properties. As of September 30, 2024, $18.0 million was outstanding on the loan associated with seven medical office buildings with a combined purchase price of approximately $76.4 million. For the three and nine months ended September 30, 2024, we recognized interest income of $0.4 million and $1.4 million, respectively. Interest income recognized for the three and nine months ended September 30, 2023 was $0.5 million and $1.4 million, respectively. Bickford Construction and Mortgage Loans As of September 30, 2024, we had one fully funded construction loan of $14.7 million to Bickford. The construction loan is secured by a first mortgage lien on substantially all of the related 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 agreement, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the property upon stabilization of the underlying operations. At September 30, 2024, we held a $12.4 million second mortgage as a component of the purchase price consideration in connection with the sale of six properties to Bickford in 2021. 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 for both the three and nine months ended September 30, 2024 and 2023, respectively, related to the second mortgage. We did not include this note receivable in the determination of the gain 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, 2024 and December 31, 2023. During the three and nine months ended September 30, 2024 and 2023, Bickford repaid $0.1 million and $0.3 million, respectively, of principal on this note receivable which is reflected in “Gains on sale of real estate, net” in the Condensed Consolidated Statements of Income. Senior Living We have 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, 2025, availability under the revolver will reduce to $15.0 million. The revolver matures in December 2031 at the time of the Senior Living lease maturity. At September 30, 2024, the $10.3 million outstanding under the revolver bore interest at 8.0% per annum. 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 matures in July 2025, which may be extended for one-year, and bears interest at an annual rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38.3 million, subject to adjustment for market conditions. Credit Loss Reserve Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans, collectively referred to as “Coverage.” A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the table below have been calculated utilizing the most recent date for which data is available, June 30, 2024, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, and (iii) less than 1.0x. We update the calculation of Coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower, as well as economic and market conditions. We consider the guidance in ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of September 30, 2024 is presented below for the amortized cost, net by year of origination ($ in thousands):
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total
Mortgages |  |  |  |  |  |  |
more than 1.5x | $ | 10,227 |  | $ | — |  | $ | 42,443 |  | $ | — |  | $ | — |  | $ | 39,068 |  | $ | 91,738 |
between 1.0x and 1.5x | 14,870 |  | 930 |  | 28,368 |  | — |  | — |  | — |  | 44,168 |
less than 1.0x | — |  | 620 |  | — |  | — |  | — |  | 14,700 |  | 15,320 |
| 25,097 |  | 1,550 |  | 70,811 |  | — |  | — |  | 53,768 |  | 151,226 |
Mezzanine |  |  |  |  |  |  |
more than 1.5x | — |  | 518 |  | — |  | 13,547 |  | — |  | — |  | 14,065 |
between 1.0x and 1.5x | — |  | 226 |  | — |  | 21,521 |  | — |  | — |  | 21,747 |
less than 1.0x | — |  | — |  | — |  | — |  | — |  | 25,000 |  | 25,000 |
| — |  | 744 |  | — |  | 35,068 |  | — |  | 25,000 |  | 60,812 |
Non-performing |  |  |  |  |  |  |
more than 1.5x | — |  | — |  | — |  | — |  | — |  | 10,000 |  | 10,000 |
between 1.0x and 1.5x | — |  | — |  | — |  | — |  | — |  | 14,500 |  | 14,500 |
less than 1.0x | — |  | — |  | — |  | — |  | 1,947 |  | — |  | 1,947 |
| — |  | — |  | — |  | — |  | 1,947 |  | 24,500 |  | 26,447 |
Revolver |  |  |  |  |  |  |
more than 1.5x |  |  |  |  |  |  | 13,476 |
|  |  |  |  |  |  | 13,476 |
|  |  |  |  | Credit loss reserve | (19,411) |
|  |  |  |  |  |  | $ | 232,550 |
Due to 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 on all loans, other than those designated as non-performing, resulting in an effective adjustment of 44%. The methodology for estimating the reserves for non-performing loans incorporates the sufficiency of the underlying collateral and the current conditions and forecasts of future economic conditions of these loans, including qualitative factors, which may differ from conditions existing in the historical periods. The allowance for expected credit losses is presented in the following table for the nine months ended September 30, 2024 ($ in thousands):
Balance at January 1, 2024 | $ | 15,476 |
Provision for expected credit losses | 3,935 |
Balance at September 30, 2024 | $ | 19,411 |

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- Definition The entire disclosure for claims held for amounts due to 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 -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/310-10/tableOfContent Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 835 -SubTopic 30 -Name Accounting Standards Codification -Section 45 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482925/835-30-45-2 + Details
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