UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended		December 31, 2019
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from	_____________	to	_____________

Commission File Number 001-10822

National Health Investors Inc

(Exact name of registrant as specified in its charter)

Maryland		62-1470956
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
222 Robert Rose Drive
Murfreesboro	Tennessee	37129
(Address of principal executive offices)		(Zip Code)	(615)	890-9100
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(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	NHI	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of shares of common stock held by non-affiliates on June 30, 2019 (based on the closing price of these shares on the New York Stock Exchange) was approximately

$3,495,872,000

. There were

44,591,660

shares of the registrant’s common stock outstanding as of February 14, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2020 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K.

	Page
Part I.
Forward Looking Statements.	3
Item 1. Business.	4
Item 1A. Risk Factors.	15
Item 1B. Unresolved Staff Comments.	21
Item 2. Properties Owned or Associated with Mortgage Loan Investments.	22
Item 3. Legal Proceedings.	22
Item 4. Mine Safety Disclosures.	23
Part II.
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	24
Item 6. Selected Financial Data.	26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.	27
Item 8. Financial Statements and Supplementary Data.	56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	89
Item 9A. Controls and Procedures.	89
Item 9B. Other Information.	92
Part III.
Item 10. Directors, Executive Officers and Corporate Governance.	93
Item 11. Executive Compensation.	93
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	93
Item 13. Certain Relationships and Related Transactions.	93
Item 14. Principal Accountant Fees and Services.	93
Part IV.
Item 15. Exhibits and Financial Statement Schedules.	93
Item 16. Summary	97
Signatures.	98
Exhibit Index.	94

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PART I.

Forward Looking Statements

References throughout this document to NHI or the Company include National Health Investors, Inc., and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s “Plain English” guidelines, this Annual Report on Form 10-K has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National Health Investors, Inc. and its consolidated subsidiaries and not any other person. Unless the context indicates otherwise, references herein to “the Company” include all of our consolidated subsidiaries.

This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange Commission (the “SEC”), as well as information included in oral statements made, or to be made, by our senior management contain certain “forward-looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations, cash flows, funds from operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitation, those containing words such as “may”, “will”, “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of factors including, but not limited to, the following:

*	We depend on the operating success of our tenants and borrowers for collection of our lease and note payments;
*	We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect;
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*	We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings;
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*	Certain tenants in our portfolio account for a significant percentage of the rent we expect to generate from our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders;
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*	We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties;
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*	We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants’ and borrowers’ business;
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*	Legislative, regulatory, or administrative changes could adversely affect us or our security holders;
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*	We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs;
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*	We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests;
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*	We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations;
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*	We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances;
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*	We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation;
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*	We depend on the success of our future acquisitions and investments;
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*	We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;
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*	We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us;
*	We have covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations;
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*	When interest rates increase, our common stock may decline in price;
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*	We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates;
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*	We are subject to risks related to changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and result of operations;
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*	We are exposed to the risk that our assets may be subject to impairment charges;
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*	We depend on the ability to continue to qualify for taxation as a Real Estate Investment Trust;
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*	Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder our performance;
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*	We are subject to risks associated with our joint venture investment with Life Care Services for Timber Ridge, an Entrance Fee CCRC, associated with Type A benefits offered to the residents of the joint venture's Entrance Fee community and related accounting requirements;
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*	We have ownership limits in our charter with respect to our common stock and other classes of capital stock which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders;
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*	We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests; and
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*	If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions.
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See the notes to the annual audited consolidated financial statements, and “Business” and “Risk Factors” under Item 1 and Item 1A therein for a further discussion of these and of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. You should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones we face. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition, results of operations, or cash flows could be materially adversely affected. In that case, the trading price of our shares of stock could decline and you may lose part or all of your investment. Given these risks and uncertainties, we can give no assurance that these forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them.

ITEM 1. BUSINESS

General

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. Our portfolio consists of real estate investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.

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buildings and other notes receivable. These investments (excluding our corporate office of $2,519,000) consisted of properties with an original cost of $3,072,327,000, rented under triple-net leases to 32 lessees, and $340,143,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers.

Our investments in real estate and mortgage loans are secured by real estate located within the United States. We are managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision making. Therefore, we have concluded that we operate as a single segment. Information about revenues from our tenants and borrowers, our net income, cash flows and balance sheet can be found in Item 8 of this Form 10-K.

Classification of Properties in our Portfolio

Senior Housing

As of December 31, 2019, our portfolio included 146 senior housing properties (“SHO”) leased to operators and mortgage loans secured by 11 SHOs. The SHOs in our portfolio are either need-driven or discretionary for end users and consist of independent living facilities, assisted living facilities, senior living campuses, and entrance-fee communities which are more fully described below.

Need-Driven Senior Housing

Assisted Living Facilities. As of December 31, 2019, our portfolio included 90 assisted living facilities (“ALF”) leased to operators and mortgage loans secured by 8 ALFs. ALFs are free-standing facilities that provide basic room and board functions for elderly residents. As residents typically receive assistance with activities of daily living such as bathing, grooming, administering medication and memory care services, we consider these facilities to be need-driven senior housing. On-site staff personnel are available to assist in minor medical needs on an as-needed basis. Operators of ALFs are typically paid from private sources without assistance from government. ALFs may be licensed and regulated in some states, but generally do not require the issuance of a Certificate of Need (“CON”) as required for skilled nursing facilities.

Senior Living Campuses. As of December 31, 2019, our portfolio included 14 senior living campuses (“SLC”) leased to operators. SLCs contain one or more buildings that include skilled nursing beds combined with an independent or assisted living facility that provides basic room and board functions for elderly residents. They may also provide assistance to residents with activities of daily living such as bathing, grooming and administering medication. On-site staff personnel are available to assist in minor medical needs on an as-needed basis. As the decision to transition to a senior living campus is typically more than a lifestyle choice and is usually driven by the need to receive some moderate level of care, we consider this facility type to be need-driven. Operators of SLCs are typically paid from private sources and from government programs such as Medicare and Medicaid for skilled nursing residents.

Discretionary Senior Housing

Independent Living Facilities. As of December 31, 2019, our portfolio included 32 independent living facilities (“ILF”) leased to operators. ILFs offer specially designed residential units for active senior adults and provide various ancillary services for their residents including restaurants, activity rooms and social areas. Services provided by ILF operators are generally paid from private sources without assistance from government payors. ILFs may be licensed and regulated in some states, but generally do not require the issuance of a CON as required for skilled nursing facilities. As ILFs typically do not provide assistance with activities of daily living, we consider the decision to transition to an ILF to be discretionary.

Entrance-Fee Communities. As of December 31, 2019, our portfolio included 10 entrance-fee communities (“EFC”) leased to operators and mortgage loans secured by three EFCs. Entrance-fee communities, frequently referred to as continuing care retirement communities, or CCRCs, typically include a combination of detached cottages, an independent living facility, an assisted living facility and a skilled nursing facility on one campus. These communities appeal to residents because there is no need to relocate when health and medical needs change. EFCs are classified as either Type A, B, or C depending upon the amount of healthcare benefits included in the entrance fee. “Type A” EFCs, or “Lifecare” communities, such as the Sagewood community, which secures two of our mortgage loans, and Timber Ridge, held by us as of January 31, 2020, in a joint venture, include substantially all future healthcare costs in the payment of an Entrance Fee and thereafter payment of a set service fee paid monthly. The Entrance Fee is divided into a refundable and non-refundable portion depending upon the Resident’s chosen contract program. The service fee is determined at the time of move-in into an independent living (IL) unit and is subject to certain inflation-based adjustments regardless of the resident’s future care needs. A resident must move into an IL unit initially and not require care at the time of move-in. Thereafter the resident’s care requirements from assisted living to memory care to skilled nursing are provided for. Communities providing a

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modified healthcare contract offering access to skilled nursing care but only paying for a maximum number of days are referred to as “Type B” EFCs. Finally, “Type C” EFCs, the type which is indicative of ten communities in our lease portfolio and one community securing a mortgage loan, are fee-for-service communities which do not provide any healthcare benefits and correspondingly have the lowest entrance fees. However, monthly fees may be higher to reflect the current healthcare components delivered to each resident. EFC licensure is state-specific, but generally skilled nursing beds included in our EFC portfolio are subject to state licensure and regulation. As the decision to transition to an EFC is typically made as a lifestyle choice and not as the result of a pressing medical concern, we consider the decision to transition to an EFC to be discretionary. Accordingly, the predominant source of revenue for operators of EFCs is from private payor sources.

Medical

As of December 31, 2019, our portfolio included 77 medical facilities leased to operators and mortgage loans secured by 4 medical facilities. The medical facilities within our portfolio consist of skilled nursing facilities, hospitals and medical office buildings, which are more fully described below.

Skilled Nursing Facilities. As of December 31, 2019, our portfolio included 72 skilled nursing facilities (“SNF”) leased to operators and mortgage loans secured by 4 SNFs. SNFs provide some combination of skilled and intermediate nursing and rehabilitative care, including speech, physical and occupational therapy. As the decision to utilize the services of a SNF is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility. The operators of the SNFs receive payment from a combination of private pay sources and government payors such as Medicaid and Medicare. SNFs are required to obtain state licenses and are highly regulated at the federal, state and local level. Operators in 11 of the 13 states in which we own SNFs must obtain a CON from the state before opening or expanding such facilities. Some SNFs also include assisted living beds.

Hospitals. As of December 31, 2019, our portfolio included 3 hospitals (“HOSP”) leased to operators. Hospitals provide a wide range of inpatient and outpatient services, including acute psychiatric and rehabilitation services, and are subject to extensive federal, state and local legislation and regulation. Hospitals undergo periodic inspections regarding standards of medical care, equipment and hygiene as a condition of licensure. Services provided by hospitals are generally paid for by a combination of private pay sources and government payors. As the decision to utilize the services of a hospital is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility.

Medical Office Buildings. As of December 31, 2019, our portfolio included 2 medical office buildings (“MOB”) leased to operators. MOBs are specifically configured office buildings whose tenants are primarily physicians and other medical practitioners. As the decision to utilize the services of an MOB is typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility. MOBs differ from conventional office buildings due to the special requirements of the tenants. Each of our MOBs is leased to one lessee and is either physically attached to or located on an acute care hospital campus. The lessee sub-leases individual office space to the physicians or other medical practitioners. The lessee is responsible to us for the lease obligations of the entire building, regardless of their ability to sub-lease the individual office space.

Nature of Investments

Our investments are typically structured as acquisitions of properties through purchase-leaseback transactions, acquisitions of properties from other real estate investors, loans or operations through structures allowed by the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”). We have provided construction loans for facilities for which we were already committed to provide long-term financing or for which the operator agreed to enter into a purchase option and lease with us upon completion of construction or after the facility is stabilized. The annual lease rates on our leases and the annual interest rates on our mortgage, construction and mezzanine loans ranged between 6% and 13% during 2019. We believe our lease and loan terms are competitive within our peer group. Typical characteristics of these transactions are as follows:

Leases. Our leases generally have an initial leasehold term of 10 to 15 years with one or more 5-year tenant renewal options. The leases are “triple net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimum personal injury and property damage insurance, protecting us as well as the tenant. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release, discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to each facility.

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Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease where the lease contains fixed escalators. Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. When present, tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) a sliding base dependent upon the extent of appreciation in the property plus a specified proportion of any appreciation; ii) our acquisition costs plus a specified proportion of any appreciation; iii) an agreed capitalization rate applied to the current rental; or iv) our acquisition costs plus a profit floor plus a specified proportion of any appreciation. Where stipulated above, appreciation may be established by independent appraisal.

Some of the obligations under the leases are guaranteed by the parent corporation of the lessee, if any, or affiliates or individual principals of the lessee. In some leases, a third-party manager will also guarantee some portion of the lease obligations. Some obligations are backed further by other collateral such as security deposits, trade receivables, equipment, furnishings and other personal property.

We monitor our triple-net lessee tenant credit quality and identify any material changes by performing the following activities:

•	Obtaining financial statements on a monthly, quarterly and annual basis to assess the operational trends of our tenants and the financial position and capability of those tenants
•	Calculating the operating cash flow for each of our tenants
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•	Calculating the lease service coverage ratio and other ratios pertinent to our tenants
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•	Obtaining property-level occupancy rates for our tenants
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•	Verifying the payment of real estate taxes by our tenants
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•	Obtaining certificates of insurance for each tenant
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•	Obtaining financial statements of our lessee guarantors on an annual basis
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•	Conducting a periodic inspection of our properties to ascertain proper maintenance, repair and upkeep
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•	Monitoring those tenants with indications of continuing and material deteriorating credit quality through discussions with our executive management and Board of Directors
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RIDEA Transactions. Our arrangement with an affiliate of Life Care Services, which we announced on January 7, 2020, and closed in January 2020, is structured to be compliant with the provisions of RIDEA, which permit NHI to receive rent payments through a triple-net lease between a property company and an operating company and give NHI the opportunity to capture additional value on the improving performance of the operating company through distributions to a Taxable REIT Subsidiary (“TRS”). Accordingly, the TRS holds our 25% equity interest in an unconsolidated operating company, and provides an organizational structure that allows the TRS to engage in a broad range of activities and share in revenues that would otherwise be non-qualifying income under the REIT gross income tests. The TRS is subject to state and federal income taxes.

Mortgage loans. We have first mortgage loans with original maturities generally greater than 5 years, with varying amortization schedules from interest-only to fully-amortizing. Most of the loans are at a fixed interest rate; however, some interest rates increase based on a fixed schedule. In most cases, the owner of the facility is committed to make minimum annual capital expenditures for the purpose of maintaining or upgrading their respective facility. Additionally, most of our loans are collateralized by first or second mortgage liens and corporate or personal guarantees. Currently, our mortgage loans carry interest rates which range from 6% to 13%.

Mezzanine loans. Frequently in situations calling for temporary financing or when our borrowers’ in-place lending arrangements prohibit the extension of first mortgage security, we typically accept a second mortgage position or extend credit based on corporate and/or personal guarantees. These mezzanine loans often combine with an NHI purchase option covering the subject property. Our mezzanine loans currently carry an interest rate of 10%.

Construction loans. From time to time, we also provide construction loans that become mortgage loans upon the completion of the construction of the subject facility. We may also obtain a purchase option to acquire the facility at a future date and lease the facility back to the operator. During the term of the construction loan, funds are usually advanced pursuant to draw requests made by the borrower in accordance with the terms and conditions of the loan. Interest is typically assessed on these loans at rates equivalent to the eventual mortgage rate upon conversion. In addition to the security of the lien against the property, we will generally require additional security and collateral in the form of either payment and performance completion bonds or completion guarantees by the borrower’s parent, affiliates of the borrower or one or more of the individuals who control the borrower. We currently have construction loans bearing interest ranging from 7.25% to 9%.

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Other notes receivable. We have provided a revolving credit facility to a borrower whose business is to provide bridge loans to owner-operators who are qualifying for long-term HUD financing secured by real estate. Our interest rate on the credit facility is 10%. We have provided loans to borrowers involved in the skilled nursing and senior housing industries who have pledged personal and business guarantees as security for the loans. The interest rates on these loans typically range from 8.25% to 10%.

Investment in marketable securities. From time to time we have invested a portion of our funds in various marketable securities with quoted market prices, including the common shares of other publicly-held REITs. We classify these highly-liquid securities as available-for-sale and carry the investments at their then quoted fair market value at the balance sheet date. We may choose to liquidate these investments to invest the proceeds into real estate assets. We currently have no investments in marketable securities.

Competition and Market Conditions

We compete primarily with other REITs, private equity funds, banks and insurance companies in the acquisition, leasing and financing of health care real estate.

Operators of our facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for residents and/or patients and staff based on quality of care, reputation, location and physical appearance of facilities, services offered, family preference, physicians, staff and price. Competition is with other operators as well as companies managing multiple facilities, some of which are substantially larger and have greater resources than the operators of our facilities. Some of these facilities are operated for profit, while others are owned by governmental agencies or tax exempt not-for-profit entities.

The SNFs which either secure our mortgage loans or we lease to third-party operators receive the majority of their revenues from Medicare, Medicaid and other government payors. From time to time, these facilities have experienced revenue reductions brought about by the enactment of legislation to reduce government costs. In particular, the establishment of a Medicare Prospective Payment System (“PPS”) for SNF services, to replace the cost-based reimbursement system, significantly reduced Medicare reimbursement to SNF providers. While Congress subsequently took steps to mitigate the impact of PPS on SNFs, other federal legislative policies have been adopted and continue to be proposed that would reduce the growth rate of Medicare and/or Medicaid payments to SNFs. Effective October 1, 2019, a Patient Driven Payment Model (“PDPM”) was adopted as a case-mix system for classifying patient information payment groups under PPS. The new model shifts care delivery under Medicare away from fee-for-service, which in the past has based reimbursement on the amount of care provided, to focus on value-based care, which will base reimbursement on clinical complexity and the resident’s conditions and care needs. On August 7, 2019, CMS adopted a net 2.4% increase to Medicare skilled nursing payments for the fiscal year beginning October 1, 2019. We believe a rate increase in line with inflation, along with general demographic growth among the oldest seniors, will help to stabilize lease coverages among our skilled nursing tenants at a time when they are implementing the PDPM. Changes in government reimbursement methodology that reduce reimbursement to levels that are insufficient to cover the operating costs of our lessees and borrowers could indirectly and adversely impact us.

Our senior housing properties generally rely on private-pay residents who may be negatively impacted in an economic downturn. For example, a resident may intend to sell his or her house in order to afford the cost of residing in an ILF or ALF. In addition, the success of these properties is often impacted by the existence of comparable, competing facilities in a local market.

Operator Diversification

For the year ended December 31, 2019, approximately 23% of our portfolio revenue was from publicly-owned operators, 58% was from regional operators, 17% from privately owned national chains and 2% was from smaller operators. We consider the creditworthiness of the operator to be an important factor in underwriting the lease or loan investment, and we generally have the right to approve any changes in operators.

For the year ended December 31, 2019, tenants which provided more than 3% of our total revenues were (in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; The Ensign Group; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and Senior Living Management. We make reference to the parent company whenever we describe our business with these tenants, their subsidiaries and/or affiliates regardless of the specific subsidiary entity indicated on the lease or loan documents.

Major Customers

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We have four operators, Holiday Retirement (“Holiday”), Senior Living Communities (“Senior Living”), National HealthCare Corporation (“NHC”) and Bickford Senior Living (“Bickford”), from whom we individually derive at least 10% of our total revenues, and 58% collectively.

Holiday

As of December 31, 2019, we leased 26 independent living facilities to Holiday including a $38,000,000 senior housing facility in Vero Beach, Florida which we acquired on January 31, 2019. The master lease, which matures in 2035, was amended in November 2018 and provides for annual lease escalators beginning November 1, 2020, with a floor of 2% and a ceiling of 3%. Of our total revenues, $40,459,000 (13%), $43,311,000 (15%) and $43,817,000 (16%) were derived from Holiday for the years ended December 31, 2019, 2018 and 2017, respectively, including $6,621,000, $5,616,000 and $7,397,000 in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Senior Living

As of December 31, 2019, we leased 10 retirement communities totaling 2,068 units to Senior Living. The 15-year master lease, which began in December 2014, contains two 5-year renewal options and provides for an annual escalator of 3%.

Of our total revenues, $46,927,000 (15%), $45,868,000 (16%) and $45,735,000 (16%) in rental income were derived from Senior Living for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,934,000, $5,436,000 and $6,984,000 in straight-line rent income,

In December 2014, we provided a $15,000,000 revolving line of credit, the maturity of which mirrors the 15-year term of the master lease. Borrowings are used to primarily finance construction projects within the Senior Living portfolio, including building additional units. The revolving line of credit facility, which may also be used to meet general working capital needs, was amended as of December 10, 2019, to reduce availability to $12,000,000 with a further reduction in capacity to $7,000,000 beginning January 1, 2022, through lease maturity in December 2029. Also effective December 10, 2019, a sub-limit on the availability of funding for working capital needs was established at $10,000,000 for this loan, extending through January 1, 2022, at which time the limit is to be reduced to $5,000,000. Amounts outstanding under the facility, $5,174,000 at December 31, 2019, bear interest at an annual rate equal to the prevailing 10-year U.S. Treasury rate, 1.92% at December 31, 2019, plus 6%.

In March 2016, we extended two mezzanine loans of up to $12,000,000 and $2,000,000, respectively, to affiliates of Senior Living, to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina, which opened in April 2018. The loans bear interest payable monthly at a 10% annual rate and mature in March 2021. The loans were fully drawn at December 31, 2019, and provide NHI with a fixed capitalization rate purchase option on the development upon its meeting certain operational metrics. The option is to remain open during the term of the loans, plus any extensions.

NHC

We lease 42 facilities under two master leases to NHC, a publicly-held company. The facilities leased to NHC consist of 3 independent living facilities and 39 skilled nursing facilities (4 of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”), which includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”), which includes 7 skilled nursing facilities acquired in 2013.

The 1991 lease expiration is December 31, 2026. There are two additional 5-year renewal options, each at fair rental value as negotiated between the parties and determined without including the value attributable to any improvements to the leased property voluntarily made by NHC at its expense. Under the terms of the 1991 lease, the base annual rental is $30,750,000 and rent escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. The 2013 lease provides for a base annual rental of $3,450,000 and has a lease expiration of August 2028. Under the terms of the 2013 lease, rent escalates 4% of the increase, if any, in each facility’s revenue over the 2014 base year. For both the 1991 lease and the 2013 lease, we refer to this additional rent component as “percentage rent.” During the last three years of the 2013 lease, NHC will have the option to purchase the facilities for $49,000,000.

Of our total revenues, $38,131,000 (12%), $37,843,000 (13%) and $37,467,000 (13%) in rental income were derived from NHC for the years ended December 31, 2019, 2018 and 2017, respectively.

The chairman of our board of directors is also a director on NHC’s board of directors. As of December 31, 2019, NHC owned 1,630,642 shares of our common stock.

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Bickford

As of December 31, 2019, our Bickford lease portfolio consisted of the following (dollars in thousands):

	Lease Expiration
	June 2023		September 2024		May 2031			April 2033		Total
Number of Properties	13		10		19			5		47
2019 Contractual Rent	$	11,468	$	9,442	$	21,838		$	4,918	$	47,666
2019 Straight Line Rent	358		467		2,903			860		4,588
2019 Lease Incentive Amortization	—		—		(724		)	—		(724		)
	$	11,826	$	9,909	$	24,017		$	5,778	$	51,530

On September 10, 2019, NHI amended a master lease, which matures in May 2031 and covers 14 Bickford properties, to change the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%. A four-building portfolio in Minnesota that had been leased by Bickford through September 30, 2019, transitioned to 41 Management, LLC, on October 1, 2019. Also, as of October 1, 2019, a master lease covering ten buildings subject to HUD mortgages was modified to reflect a decrease in monthly rent and provide for CPI-based escalators.

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs and the cancellation of an outstanding construction note receivable of $14,035,000, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to floor and ceiling. We accounted for the transaction as an asset purchase.

Of our total revenues, $52,570,000 (17%), $50,093,000 (17%) and $41,606,000 (15%) were recognized as rental income from Bickford for the years ended December 31, 2019, 2018 and 2017, respectively, including $4,651,000, $5,028,000 and $5,102,000 in straight-line rent income, respectively.

At December 31, 2019, our construction loans to Bickford are summarized as follows:

Commencement	Rate	Maturity	Commitment		Drawn			Location
January 2017	9%	5 years	$	14,000,000	$	(14,000,000	)	Michigan
January 2018	9%	5 years	14,000,000		(11,804,000		)	Virginia
July 2018	9%	5 years	14,700,000		(11,312,000		)	Michigan
			$	42,700,000	$	(37,116,000	)

On January 27, 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,091,000, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

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 these development projects, Bickford as borrower is entitled to up to $2,000,000 per project in incentive loan draws based on the achievement of predetermined operational milestones and, if funded, will increase the principal amount and NHI's future purchase price and eventual NHI lease payment.

Commitments and Contingencies

The following tables summarize information as of December 31, 2019 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements.

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	Asset Class	Type	Total		Funded			Remaining
Loan Commitments:
LCS Sagewood Note A	SHO	Construction	$	118,800,000	$	(77,340,000	)	$	41,460,000
LCS Sagewood Note B	SHO	Construction	61,200,000		(45,938,000		)	15,262,000
LCS Timber Ridge Note A	SHO	Construction	60,000,000		(59,350,000		)	650,000
Bickford Senior Living	SHO	Construction	28,700,000		(23,116,000		)	5,584,000
Senior Living Communities	SHO	Revolving Credit	12,000,000		(5,174,000		)	6,826,000
41 Management	SHO	Construction	10,800,000		(6,045,000		)	4,755,000
Discovery Senior Living	SHO	Working Capital	750,000		(175,000		)	575,000
			$	292,250,000	$	(217,138,000	)	$	75,112,000
	Asset Class	Type	Total		Funded			Remaining
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Development Commitments:
Ignite Medical Resorts	SNF	Construction	$	25,350,000	$	(16,903,000	)	$	8,447,000
Woodland Village	SHO	Construction	7,515,000		(7,425,000		)	90,000
Senior Living Communities	SHO	Renovation	9,930,000		(9,067,000		)	863,000
Wingate Healthcare	SHO	Renovation	1,900,000		(357,000		)	1,543,000
Discovery Senior Living	SHO	Renovation	900,000		—			900,000
Navion Senior Solutions	SHO	Construction	650,000		—			650,000
41 Management	SHO	Renovation	400,000		—			400,000
			$	46,645,000	$	(33,752,000	)	$	12,893,000

In addition to the commitments listed above, Discovery PropCo, discussed more fully in Note 2, has committed to funding up to $2,000,000 for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 had been funded toward the commitment.

	Asset Class	Type	Total		Funded			Remaining
Contingencies:
Comfort Care Senior Living	SHO	Lease Inducement	6,000,000		—			6,000,000
Wingate Healthcare	SHO	Lease Inducement	5,000,000		—			5,000,000
Navion Senior Solutions	SHO	Lease Inducement	4,850,000		(500,000		)	4,350,000
Discovery Senior Living	SHO	Lease Inducement	4,000,000		—			4,000,000
Ignite Medical Resorts	SNF	Lease Inducement	2,000,000		—			2,000,000
			$	21,850,000	$	(500,000	)	$	21,350,000

Sources of Revenues

General. Our revenues are derived primarily from rental income and mortgage and other note interest income. During 2019, rental income was $294,182,000 (92.5%), and interest income from mortgages and other notes was $22,835,000 (7.2%) on total revenue of $318,081,000, an increase of 8.0% over 2018. Our revenues depend on the operating success of our tenants and borrowers whose source and amount of revenues are determined by (i) the licensed beds or other capacity of the facility, (ii) their occupancy rate, (iii) the extent to which the services provided at each facility are utilized by the residents and patients, (iv) the mix of private pay, Medicare and Medicaid patients, and (v) the rates paid by private payors and by the Medicare and Medicaid programs.

Government Regulation

Medicare and Medicaid. A significant portion of the revenue of our SNF lessees and borrowers is derived from government funded reimbursement programs, such as Medicare and Medicaid. Reimbursement under these programs is subject to periodic payment review and other audit by federal and state authorities. Medicare base rates are uniform nationwide and reimburse skilled nursing facilities under PPS which is based on a predetermined, fixed amount. PPS is an acuity-based classification system that uses nursing and therapy indexes adjusted by geographical wage indexes to calculate per diem rates for each Medicare patient. Payment rates are updated annually and are generally adjusted each October when the federal fiscal year begins. Federal legislative policies have been adopted and continue to be proposed that would provide small increases in annual Medicare payments to skilled nursing facilities. For example, the Centers for Medicare and Medicaid Services (“CMS”) announced the Skilled Nursing Facilities

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– PPS final rule for fiscal year 2020 which increased net Medicare payments to SNF operators by only 2.4% beginning October 1, 2019.

Most notably, the new Patient Driven Payment Model (“PDPM”), which replaced the existing RUGs IV model beginning in FY 2020 (effective October 1, 2019), focuses on a resident’s clinical condition and care needs, rather than the volume of care provided. PDPM is designed to move Medicare towards a more value-based, unified post-acute care payment system that prioritizes the unique care needs of patients and reduces administrative burdens, particularly for performing patient assessments. PDPM is a case-mix classifications system for classifying SNF patients in a Medicare Part A covered stay into payment groups under the SNF PPS.

Medicaid is a joint federal and state program designed to provide medical assistance to “eligible needy persons.” Medicaid programs are operated by state agencies that adopt their own medical reimbursement methodology and standards. Payment rates and covered services vary from state to state. In many instances, revenues from Medicaid programs are insufficient to cover the actual costs incurred in providing care to those patients. With regard to Medicaid payment increases to skilled nursing operators, changes in federal funding coupled with state budget problems have produced uncertainty. States will more than likely be unable to keep pace with SNF inflation. States are under pressure to pursue other alternatives to long term care such as community and home-based services. Furthermore, several of the states in which we have investments have actively sought to reduce or slow the increase of Medicaid spending for SNF care.

Medicare and Medicaid programs are highly regulated and subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations and administrative and judicial interpretations of existing law. Moreover, as health care facilities have experienced increasing pressure from private payors attempting to control health care costs, reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors. Healthcare reimbursement will likely continue to be of significant importance to federal and state programs. We cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our lessees’ and borrowers’ costs of doing business and on the amount of reimbursement by government and other third-party payors. There can be no assurance that future payment rates for either government or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in government or private payor reimbursement policies which reduce payments to levels that are insufficient to cover the cost of providing patient care could adversely affect the operating revenues of tenants and borrowers in our properties that rely on such payments, and thereby adversely affect their ability to make their lease or debt payments to us.

Licensure and Certification. The health care industry is highly regulated by federal, state and local law and is directly affected by state and local licensing requirements, facility inspections, state and federal reimbursement policies, regulations concerning capital and other expenditures, certification requirements and other such laws, regulations and rules. Sanctions for failure to comply with these regulations and laws include (but are not limited to) loss of licensure, fines and loss of certification to participate in the Medicare and Medicaid programs, as well as potential criminal penalties. The failure of any tenant or borrower to comply with such laws, requirements and regulations could affect their ability to operate the facility or facilities and could adversely affect such tenant’s or borrower’s ability to make lease or debt payments to us.

In the past several years, due to rising health care costs, there has been an increased emphasis on detecting and eliminating fraud and abuse in the Medicare and Medicaid programs. Payment of any consideration in exchange for referral of Medicare and Medicaid patients is generally prohibited by federal statute, which subjects violators to severe penalties, including exclusion from the Medicare and Medicaid programs, fines and even prison sentences. In recent years, both federal and state governments have significantly increased investigation and enforcement activity to detect and punish wrongdoers. In addition, legislation has been adopted at both state and federal levels, which severely restrict the ability of physicians to refer patients to entities in which they have a financial interest.

It is anticipated that the trend toward increased investigation and enforcement activity in the area of fraud and abuse, as well as self-referral, will continue in future years. Certain of our investments are with lessees or borrowers that are partially or wholly owned by physicians. In the event that any lessee or borrower were to be found in violation of laws regarding fraud and abuse or self-referral, that lessee’s or borrower’s ability to operate the facility could be jeopardized, which could adversely affect the lessee’s or borrower’s ability to make lease or debt payments to us and could thereby adversely affect us.

Certificates of Need . The SNFs and hospitals in which we invest are also generally subject to state statutes which may require regulatory approval in the form of a CON prior to the construction or expansion of facilities to accommodate new beds (or addition of new beds to existing facilities), the addition of services or certain capital expenditures. CON requirements are not uniform throughout the United States and are subject to change. We cannot predict the impact of regulatory changes with respect to CONs on the operations of our lessees and borrowers; however, in our primary market areas, a significant reduction in new construction of long-term care beds has occurred.

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Investment Policies

Our investment objectives are (i) to provide consistent and growing current income for distribution to our stockholders through investments primarily in healthcare related facilities or in the operations thereof through independent third-party management, (ii) to provide the opportunity to realize capital growth resulting from appreciation, if any, in the residual value of our portfolio properties, and (iii) to preserve and protect stockholders’ capital through a balance of diversity, flexibility and liquidity. There can be no assurance that these objectives will be realized. Our investment policies include making investments in real estate, mortgage and other notes receivable, and joint ventures structured to comply with the provisions of RIDEA.

During 2019, we made commitments to fund new investments in real estate and loans totaling approximately $329,000,000. In making new investments, we consider such factors as (i) the geographic area and type of property, (ii) the location, construction quality, condition and design of the property, (iii) the current and anticipated cash flow and its adequacy to meet operational needs, and lease or mortgage obligations to provide a competitive income return to our investors, (iv) the growth, tax and regulatory environments of the communities in which the properties are located, (v) occupancy and demand for similar facilities in the same or nearby communities, (vi) the quality, experience and creditworthiness of the management operating the facilities located on the property and (vii) the mix of private and government-sponsored residents. There can be no assurances that investments meeting our standards regarding these attributes will be found or closed.

We will not, without the approval of a majority of the Board of Directors and review of a committee comprised of independent directors, enter into any joint venture relationships with or acquire from or sell to any director, officer or employee of NHI, or any affiliate thereof, as the case may be, any of our assets or other property.

The Board of Directors, without the approval of the stockholders, may alter our investment policies if it determines that such a change is in our best interests and our stockholders’ best interests. The methods of implementing our investment policies may vary as new investment and financing techniques are developed or for other reasons. Management may recommend changes in investment criteria from time to time.

Future investments in healthcare related facilities may utilize borrowed funds or issuance of equity when it is advisable in the opinion of the Board of Directors. We may negotiate lines of credit or arrange for other short or long-term borrowings from lenders. We may arrange for long-term borrowings from institutional investors or through public offerings. We have previously invested, and may in the future invest, in properties subject to existing loans or secured by mortgages, deeds of trust or similar liens with favorable terms or in mortgage investment pools.

Executive Officers of the Company

The table below sets forth the name, position and age of each of our executive officers. Each executive officer is appointed by the Board of Directors, serves at its pleasure and holds office for a term of one year. There is no “family relationship” among any of the named executive officers or with any director. All information is given as of February 14, 2020:

Name	Position	Age
Eric Mendelsohn	President and Chief Executive Officer	58
Kristin S. Gaines	Chief Credit Officer	48
Kevin Pascoe	Chief Investment Officer	39
John Spaid	Chief Financial Officer	60
Ron Reel	Chief Accounting Officer	63

Eric Mendelsohn joined NHI in January 2015. He has over 15 years of healthcare real estate and financing experience. Previously, Mr. Mendelsohn was with Emeritus Senior Living for 9 years, most recently as a Senior Vice President of Corporate Development where he was responsible for the financing and acquisition of assisted living properties, home health care companies, administration of joint venture relationships and executing corporate finance strategies. Prior to Emeritus, he was with the University of Washington as a Transaction Officer where he worked on the development, acquisition and financing of research, clinical and medical properties and has been a practicing transaction attorney, representing lenders and landlords. Mr. Mendelsohn holds a Bachelor of Science from American University in International Relations, a Law Degree from Pepperdine University, and a Masters (LLM) in Banking and Finance from Boston University. Mr. Mendelsohn is a member of the Florida and Washington State Bar Associations.

Kristin S. Gaines was appointed NHI’s Chief Credit Officer in February 2010. She joined NHI in 1998 as a Credit Analyst. During her tenure with NHI, Ms. Gaines has had a progressive career in the areas of finance and operations. Her experience has

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resulted in a breadth of expertise in underwriting, portfolio oversight and real estate finance. Ms. Gaines holds an MBA and a Bachelor of Business Administration in Accounting from Middle Tennessee State University.

Kevin Pascoe joined NHI in June 2010. Mr. Pascoe oversees NHI’s portfolio of assets, relationship management with existing tenants and conducts operational due diligence on NHI’s existing investments and new investment opportunities. He has over 10 years of health care real estate background including his experience with General Electric - Healthcare Financial Services (“GE HFS”) (2006 – 2010) where he most recently served as a Vice President. With GE HFS, he moved up through the organization while working on various assignments including relationship management, deal restructuring, and special assets. He also was awarded an assignment in the GE Capital Global Risk Rotation Program. Mr. Pascoe holds an MBA and a Bachelor of Business Administration in Economics from Middle Tennessee State University.

John Spaid was named Chief Financial Officer in November 2019. He joined NHI in March 2016 as Executive Vice President of Finance. He oversees the Company’s banking relationships, financial transactions, accounting functions and SEC reporting. Mr. Spaid has over 30 years of experience in real estate, finance and senior housing. Previously, he was with Emeritus Senior Living as a Senior Vice President whose responsibilities included budget and forecasting, debt and lease obligation underwriting, merger and acquisition processes, financial modeling, due diligence, board and investor presentations, employee development and Sarbanes-Oxley compliance. Mr. Spaid has been an independent financial consultant and has also served as the CFO of a regional assisted living and memory care provider in Redmond, Washington. Mr. Spaid holds an MBA from the University of Michigan and a Bachelor of Business Administration from the University of Texas.

Ron Reel began working with NHI in a consulting role during the 2011 year-end close and continued periodically to provide expertise on various projects through 2013, when he joined NHI on a full-time basis as Controller. After six years as Controller, in November 2019, Mr. Reel was named Chief Accounting Officer for NHI. Mr. Reel was an audit partner in the Knoxville office of Rodefer Moss & Co, a regional accounting firm with ten offices in Tennessee, Indiana and Kentucky. Mr. Reel received his Bachelor of Science in Business Administration with a major in Accounting from the University of Tennessee in 1979 and is a CPA licensed in Tennessee.

We have a staff of 17, all reporting to our corporate office in Murfreesboro, TN. Essential services such as internal audit, tax compliance, information technology and legal services are outsourced to third-party professional firms.

Investor Information

We publish our annual report on Form 10-K, quarterly reports on Form 10-Q, quarterly Supplemental Information, current reports on Form 8-K, and press releases to our website at www.nhireit.com. We have a policy of publishing these on the website within two (2) business days after public release or filing with the SEC.

We also maintain the following documents on our web site:

▪	The NHI Code of Business Conduct and Ethics which has been adopted for all employees, officers and directors of the Company.
▪	Information on our “NHI Valuesline” which allows all interested parties to communicate with NHI executive officers and directors. The toll free number is 877-880-2974 and the communications may be made anonymously, if desired.
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▪	The NHI Restated Audit Committee Charter.
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▪	The NHI Revised Compensation Committee Charter.
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▪	The NHI Revised Nominating and Corporate Governance Committee Charter.
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▪	The NHI Corporate Governance Guidelines.
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We will furnish, free of charge, a copy of any of the above documents to any interested investor upon receipt of a written request.

Our transfer agent is Computershare. Computershare will assist registered owners with the NHI Dividend Reinvestment plan, change of address, transfer of ownership, payment of dividends, replacement of lost checks or stock certificates. Computershare’s contact information is: Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. The toll free number is 800-942-5909 and the website is www.computershare.com.

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The Annual Stockholders’ meeting will be held at 12:00 p.m. local time on Wednesday, May 6, 2020 at The View at Fountains, 1500 Medical Center Parkway, Murfreesboro, TN.

ITEM 1A. RISK FACTORS

We depend on the operating success of our tenants and borrowers for collection of our lease and note payments.

Revenues for the operators of our properties are primarily driven by occupancy, Medicare and Medicaid reimbursement and private pay rates. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts resulting from federal and state budget shortfalls and constraints. Periods of weak economic growth in the U.S. which affect housing sales, investment returns and personal incomes may adversely affect senior housing occupancy rates. An oversupply of senior housing real estate may also apply downward pressure to the occupancy rates our operators receive. Expenses for the facilities are driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Liability insurance and staffing costs continue to increase for our operators. Historically low unemployment has created significant wage pressure for our operators. To the extent any decrease in revenues and/or any increase in operating expenses results in a property not generating enough cash to make scheduled payments to us, our revenues, net income and funds from operations would be adversely affected. Such events and circumstances would cause us to evaluate whether there was an impairment of the real estate or mortgage loan that should be charged to earnings. Such impairment would be measured as the amount by which the carrying amount of the asset exceeded its fair value. Consequently, we might be unable to maintain or increase our current dividend and the market price of our stock may decline.

We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect.

When we decide to invest in the renovation of an existing property or in the development of a new property, we make assumptions about the future potential cash flows of that property. We estimate our return based on expected occupancy, rental rates and future capital costs. If our projections prove to be inaccurate due to increased capital costs, lower occupancy or other factors, our investment in that property may not generate the cash flow we expected. Recently developed properties may take longer than expected to achieve stabilized operating levels, if at all. To the extent such facilities fail to reach stabilized operating levels or achieve stabilization later than expected, it could materially adversely affect our tenants’ abilities to make payments to us under their leases and thus adversely affect our business and results of operations.

We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings.

Although our lease agreements provide us the right to evict a tenant/operator and demand immediate payment of rent and exercise other remedies, and our mortgage loans provide us the right to terminate any funding obligations, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. A tenant or borrower in bankruptcy may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and/or interest in the case of a mortgage loan and to exercise other rights and remedies. For example, a lessee may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the lessee for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap could be substantially less than the remaining rent owed under the lease, and any claim we have for unpaid rent might not be paid in full. In addition, a lessee may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to a landlord, are generally more limited. We may be required to fund certain expenses (e.g. real estate taxes, maintenance and capital improvements) to preserve the value of a property, avoid the imposition of liens on a property and/or transition a property to a new tenant or borrower. In some instances, we have terminated our lease with a tenant and leased the facility to another tenant. In some of those situations, we provided working capital loans to, and limited indemnification of, the new tenant. If we cannot transition a leased facility to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.

Certain tenants in our portfolio account for a significant percentage of the rent we expect to generate from our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants/operators. As of December 31, 2019, approximately 58% of our total revenue is generated by Bickford (17%), Senior Living (16%), Holiday (13%), and NHC (12%). Payment defaults or a decline in the operating performance by these or other tenants/operators could materially and adversely affect our business, financial condition and results of operations and our ability to pay

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expected dividends to our stockholders. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we may not be able to re-lease the property for the rent previously received, or at all, or lease terminations may cause us to sell the property at a loss. The result of any of the foregoing risks could materially and adversely affect our business, financial conditions and results of operations and our ability to make distributions to our stockholders.

We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties.

Real estate investments are relatively illiquid and, therefore, our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions may be limited. All of our properties are "special purpose" properties that cannot be readily converted to general residential, retail or office use. Facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements. Transfers of operations of facilities are subject to regulatory approvals not required for transfers of other types of real estate. Thus, if the operation of any of our properties becomes unprofitable due to competition, age of improvements or other factors such that our lessee or borrower becomes unable to meet its obligations on the lease or mortgage loan, the liquidation value of the property may be less than the net book value or the amount owed on any related mortgage loan, because the property may not be readily adaptable to other uses. The sale of the property or the replacement of an operator that has defaulted on its lease or loan could also be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the operator with a new operator licensed to manage the facility. No assurances can be given that we will recognize full value for any property that we are required to sell for liquidity reasons. Should such events occur, our results of operations and cash flows could be adversely affected.

We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants’ and borrowers’ business.

Our tenants’ and borrowers’ businesses are affected by government reimbursement and the rates paid by private pay sources. To the extent that any of our facilities receive a significant portion of their revenues from governmental payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing governmental investigations and audits at such facilities. In recent years, governmental payors have frozen or reduced payments to health care providers due to budgetary pressures. Such reductions in Medicare reimbursement will have an adverse effect on the financial operations of our borrowers and lessees who operate SNFs. Changes in health care reimbursement will likely continue to be of paramount importance to federal and state programs. The President and members of the U.S. Congress may approve or propose various spending cuts and tax reform initiatives that could result in changes (including substantial reductions in funding) to Medicare, Medicaid or Medicare Advantage Plans. In addition, a number of states are currently managing budget deficits, which may put pressure on states to decrease reimbursement rates for our tenants and operators with a goal of decreasing state expenditures under their state Medicaid programs. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of the health care industry. There can be no assurance that adequate reimbursement levels will continue to be available for services provided by any facility operator, whether the facility receives reimbursement from Medicare, Medicaid or private pay sources. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an operator’s liquidity, financial condition and results of operations, which could adversely affect the ability of an operator to meet its obligations to us. In addition, the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility.

Legislative, regulatory, or administrative changes could adversely affect us or our security holders.

The tax laws or regulations governing REITs or the administrative interpretations thereof may be amended at any time. We cannot predict if or when any new or amended law, regulation, or administrative interpretation will be adopted, promulgated, or become effective, and any such change may apply retroactively. The last significant legislation affecting REITs came with the passage of The Tax Cuts and Jobs Act, effective for tax years beginning in 2018. We and our security holders may be adversely affected by any new or amended law, regulation, or administrative interpretation.

Prospective investors are urged to consult with their tax advisors with respect to the status of the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our securities.

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We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs.

ALF and SNF operators have experienced substantial increases in both the number and size of patient care liability claims in recent years, particularly in the states of Texas and Florida. As a result, general and professional liability costs have increased and may continue to increase. Nationwide, long-term care liability insurance rates are increasing because of large jury awards in states like Texas and Florida. Both Texas and Florida have now adopted SNF liability laws that modify or limit tort damages. Despite some of these reforms, the long-term care industry overall continues to experience very high general and professional liability costs. Insurance companies have responded to this claims crisis by severely restricting their capacity to write long-term care general and professional liability policies. No assurance can be given that the climate for long-term care general and professional liability insurance will improve in any of the foregoing states or any other states where the facility operators conduct business. Insurance companies may continue to reduce or stop writing general and professional liability policies for ALFs and SNFs. Thus, general and professional liability insurance coverage may be restricted, very costly or not available, which may adversely affect the facility operators’ future operations, cash flows and financial condition and may have a material adverse effect on the facility operators’ ability to meet their obligations to us.

We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests.

Our investments in unconsolidated entities could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on the financial condition of other interests, any disputes that may arise between us and other partners, and our exposure to potential losses from the actions of partners. Risks of dealing with parties outside NHI include limitations on unilateral major decisions opposed by other interests, the prospect of divergent goals of ownership including disputes regarding management, ownership or disposition of a property, or limitations on the transfer of our interests without the consent of our partners. Risks of the unconsolidated entity extend to areas in which the financial health of our partners may impact our plans. Our partners might become bankrupt or fail to fund their share of required capital contributions, which may hinder significant action in the entity. We may disagree with our partners about decisions affecting a property or the entity itself, which could result in litigation or arbitration that increases our expenses, distracts our officers and directors and disrupts the day-to-day operations of the property, including by delaying important decisions until the dispute is resolved; and finally, we may suffer losses as a result of actions taken by our partners with respect to our investments.

We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations.

As of January 31, 2020, we have an investment in an unconsolidated entity that is structured to be in compliance with RIDEA. As such, we are exposed to various operational risks with respect to those operating properties that may increase our costs or adversely affect our ability to increase revenues. These risks include fluctuations in resident occupancy, operating expenses, economic conditions; competition; certification and inspection laws, regulations, and standards; the availability of and increases in cost of general and professional liability insurance coverage; litigation; federal, state and local taxes and regulations; costs associated with government investigations and enforcement actions; the availability and increases in cost of labor; and other risks applicable to any operating business. Any one or a combination of these factors may adversely affect our revenue and operations.

We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances.

Under various federal and state laws, owners or operators of real property may be required to respond to the release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination. These laws also expose us to the possibility that we may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property they occupy. Moreover, we review environmental site assessment of the properties that we purchase or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities, including mold, may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition.

We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation.

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Our leases and notes require that the tenant/borrowers name us as an additional insured party on their insurance policies covering professional liability or personal injury claims. These instruments also require the tenant/borrower to indemnify and hold us harmless for all claims arising out of or incidental to the occupancy and use of each facility. We cannot give any assurance that these protective measures will completely eliminate any risk to us related to future litigation, the costs of which could have a material adverse impact on us.

We depend on the success of our future acquisitions and investments.

We are exposed to the risk that our future acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and newly acquired properties might require significant attention of NHI’s management that would otherwise be devoted to our existing business. If we agree to provide construction funding to a borrower and the project is not completed, we may need to take steps to ensure completion of the project. Moreover, if we issue equity securities or incur additional debt, or both, to finance future acquisitions, it may reduce our per share financial results.

We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms.

From time to time, we will have cash available from principal payments on our notes receivable and the sale of properties, including tenant purchase option exercises, under the terms of master leases or similar financial support arrangements. We must reinvest these proceeds, on a timely basis, in health care investments or in qualified short-term investments. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us. Delays in acquiring properties may negatively impact revenues and the amount of distributions to stockholders.

We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us.

We operate with a policy of incurring debt when, in the opinion of our Board of Directors, it is advisable. Currently, we believe that our current liquidity, availability under our unsecured credit facility, and our capacity to service additional debt will enable us to meet our obligations, including dividends, and continue to make investments in healthcare real estate. While we currently have a low debt ratio, in the future, we may increase our borrowings. We may incur additional debt by borrowing under our unsecured credit facility, mortgaging properties we own and/or issuing debt securities in a public offering or in a private transaction. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our existing indebtedness at or prior to its maturity. Our ability to raise reasonably priced capital is not guaranteed; we may be unable to raise reasonably priced capital because of reasons related to our business or for reasons beyond our control, such as market conditions. If our access to capital becomes limited, it could have an impact on our ability to refinance our debt obligations, fund dividend payments, acquire properties and fund acquisition activities.

We have covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations.

The terms of our current indebtedness as well as debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants. Among other things, these provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit operational flexibility. Breaches of these covenants could result in a default under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from a breach of any of these covenants in our debt instruments, could have a material adverse effect on our financial condition and results of operations.

When interest rates increase, our common stock may decline in price.

Our common stock, like other dividend stocks, is sensitive to changes in market interest rates. In response to changing interest rates the market price of our common stock may adjust like a long-term fixed-income security and, compared to shorter-term instruments, may have more volatility. A wide variety of market factors can cause interest rates to rise, including central bank monetary policy, an uptick in inflation and changes in general economic conditions. The risks associated with increasing rates are intensified given that interest rates have increased from historic lows and are expected to increase in the future, with unpredictable effects on capital markets and on the price of our common stock. Consequential effects of a general rise in interest rates may hamper our access to capital markets, affect the liquidity of our underlying investments in real estate, and, by extension, limit

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management’s effective range of responses to changing tenant circumstances or in answer to investment opportunities. Limited operational alternatives may further hinder our ability to maintain or increase our dividend, and the market price of our common stock may decline as the result.

We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates.

Our business model assumes that we can earn a spread between the returns earned from our investments in real estate as compared to our cost of debt and/or equity capital. Current interest rates on our debt are at low levels, and, as a result, the spread and our profitability on our investments have been at high levels. We are exposed to interest rate risk in the potential for a narrowing of our spread and profitability if interest rates increase in the future. Certain of our debt obligations are floating rate obligations with interest rates that vary with the movement of LIBOR or other indexes. Our revenues are derived mainly from fixed rate investments in real estate assets. Although our leases generally contain escalating rent clauses that provide a partial hedge against interest rate fluctuations, if interest rates rise, our interest costs for our existing floating rate debt and any new debt we incur would also increase. This increasing cost of debt could reduce our profitability by increasing the cost of financing our existing portfolio and our investment activity. Rising interest rates could limit our ability to refinance existing debt upon maturity or cause us to pay higher rates upon refinancing. We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities and through the use of derivative instruments, such as interest rate swap agreements with major financial institutions. Increased interest rates may also negatively affect the market price of our common stock and increase the cost of new equity capital.

We are subject to risks related to changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and result of operations.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"). This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. We have a significant number of debt instruments with attributes that are dependent on LIBOR. The transition from LIBOR to an alternative reference rate could have a material adverse effect on our liquidity, financial condition and results of operations.

We are exposed to the risk that our assets may be subject to impairment charges.

We regularly evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our reported results of operations in the period in which the impairment charge occurs.

We depend on the ability to continue to qualify for taxation as a Real Estate Investment Trust.

We intend to operate as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and believe we have and will continue to operate in such a manner. Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them. If we fail to qualify as a REIT:

•	we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
•	we will be subject to corporate-level income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates;
---	---
•	we could be subject to increased state and local income taxes; and
---	---
•	unless we are entitled to relief under relevant statutory provisions, we will be disqualified from taxation as a REIT for the four taxable years following the year during which we fail to qualify as a REIT.
---	---

Because of all these factors, our failure to qualify as a REIT could also impair our ability to expand our business and could materially adversely affect the value of our common stock. The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the U.S. Internal Revenue Service (the “IRS”) and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in federal tax laws and interpretations thereof could affect or cause us to change our investments and commitments and affect the tax considerations of an investment in us.

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Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder our performance.

To qualify as a REIT for U.S. Federal income tax purposes, we must continually satisfy certain tests, including tests concerning the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. To meet these tests, we may be required to forego investments or acquisitions we might otherwise make. Thus, compliance with the REIT requirements may materially hinder our performance.

We are subject to risks associated with our joint venture investment with Life Care Services for Timber Ridge, an Entrance Fee CCRC, associated with Type A benefits offered to the residents of the joint venture's Entrance Fee community and related accounting requirements.

Effective January 31, 2020, we entered into a joint venture with Life Care Services (“LCS”) which consists of two parts, PropCo which owns the real estate and is owned 80% NHI / 20% LCS and OpCo which operates the property and is owned 25% NHI / 75% LCS. Rents received from the OpCo in the RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they are paid pursuant to a lease of a “qualified healthcare property” and (ii) the operator qualifies as an “eligible independent contractor,” as defined in the Internal Revenue Code of 1986, as amended (the “Code”). If either of these requirements are not satisfied, then the rents will not be qualifying rents.

As a result of the RIDEA structure, we have an investment in the operations of Timber Ridge. Timber Ridge is a Class A quality, Type A care CCRC. A Type A Entrance Fee community generally means the care of the resident is provided for upon payment of an Entrance Fee and thereafter payment of a set service fee paid monthly. The Entrance Fee is divided into a refundable and non-refundable portion depending upon the Resident’s chosen contract program. The service fee is determined at the time of move-in into an independent living (IL) unit and is subject to certain inflation based adjustments regardless of the resident’s future care needs. A resident must move into an IL unit initially and not require care at the time of move-in. However, thereafter the resident’s care requirements from assisted living to memory care to skilled nursing are provided for. The refundable portion of the upfront Entrance Fee is recorded as a liability on the financial statements of the OpCo. The non-refundable portion of the upfront Entrance Fee is recorded as deferred revenue and amortized over the actuarial life of the resident. We believe we have structured the joint venture in a way that does not require that the OpCo’s financial statements be consolidated into NHI, but if we are unable to properly maintain that structure or become required for any reason to consolidate the OpCo’s financial statements into ours, the results would have a material adverse impact on our financial results.

We have ownership limits in our charter with respect to our common stock and other classes of capital stock which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.

Our charter, subject to certain exceptions, contains restrictions on the ownership and transfer of our common and preferred stock that are intended to assist us in preserving our qualification as a REIT. Our charter provides that any transfer that would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely held” under the Internal Revenue Code would be void, which, subject to certain exceptions, results in no person or entity being allowed to own, actually or constructively, more than 9.9% of the outstanding shares of our stock. Our Board of Directors, in its sole discretion, may exempt a proposed transferee from the ownership limit and such an exemption has been granted through Excepted Holder Agreements to members of the Carl E. Adams family. Based on the Excepted Holder Agreements currently outstanding, the individual ownership limit for all other stockholders is approximately 7.5%. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. These ownership limits may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.

We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests.

The Maryland Business Combination Act provides that, unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10% or more of its assets, issuances of shares of stock and other specified transactions with an “interested stockholder” or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter, unless specified criteria are met. An interested stockholder is generally a person owning or controlling, directly or indirectly, 10% or more of the voting power of the outstanding stock of a Maryland corporation. Unless our Board of Directors takes action to exempt us, generally or with respect to certain

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transactions, from this statute in the future, the Maryland Business Combination Act will be applicable to business combinations between us and other persons. The Company’s charter and bylaws also contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for the common stock. These provisions include a staggered board of directors, blank check preferred stock, and the application of Maryland corporate law provisions on business combinations and control shares. The foregoing matters may, together or separately, have the effect of discouraging or making more difficult an acquisition or change of control of the Company.

If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions.

Our business, like that of other REITs, involves the receipt, storage and transmission of information about our Company, our tenants and borrowers, and our employees, some of which is entrusted to third-party service providers and vendors. We also work with third-party service providers and vendors to provide technology, systems and services that we use in connection with the receipt, storage and transmission of this information.

Our information systems, and those of our third-party service providers and vendors, may be vulnerable to continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to these systems or our information through fraud or deception of our associates, third-party service providers or vendors. Hardware, software or applications we obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or detect for long periods of time. We have implemented and regularly review and update processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our respective systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Any significant compromise or breach of our data security, whether external or internal, or misuse of our data, could result in significant costs, fines, lawsuits, and damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in significant additional costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2. PROPERTIES OWNED OR ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS AS OF DECEMBER 31, 2019

PROPERTIES OWNED
Location	SHO	SNF	HOSP & MOB	Investment
Alabama	1	2	—	$	17,260,000
Arizona	—	1	—	7,131,000
Arkansas	2	—	—	49,789,000
California	9	—	1	183,723,000
Colorado	1	—	—	7,600,000
Connecticut	3	—	—	132,918,000
Florida	8	10	1	251,027,000
Georgia	5	—	—	113,065,000
Idaho	4	—	—	29,373,000
Illinois	15	—	—	221,645,000
Indiana	11	—	—	136,867,000
Iowa	10	—	—	63,593,000
Kansas	2	—	—	42,072,000
Kentucky	—	1	1	20,746,000
Louisiana	5	—	—	39,569,000
Maryland	2	—	—	55,431,000
Massachusetts	1	4	—	64,387,000
Michigan	10	—	—	82,377,000
Minnesota	5	—	—	30,740,000
Missouri	1	5	—	27,757,000
Nebraska	4	—	—	34,278,000
New Hampshire	—	3	—	23,688,000
New Jersey	1	—	—	24,380,000
North Carolina	6	—	—	136,079,000
Ohio	8	—	—	131,884,000
Oklahoma	2	—	—	56,238,000
Oregon	8	3	—	134,572,000
Pennsylvania	2	—	—	28,446,000
South Carolina	6	4	—	335,632,000
Tennessee	3	16	1	91,913,000
Texas	2	21	1	322,416,000
Virginia	3	1	—	34,196,000
Washington	6	—	—	104,160,000
Wisconsin	1	1	—	37,375,000
	147	72	5	$	3,072,327,000
Corporate Office				2,519,000
				$	3,074,846,000
ASSOCIATED WITH MORTGAGE LOAN INVESTMENTS
---	---	---	---	---
Location	SHO	SNF	Investment
Arizona	1	—	$	121,809,000
Florida	1	—	10,000,000
Indiana	1	—	6,422,000
Michigan	2	—	25,312,000
New Hampshire	1	—	9,948,000
South Carolina	1	—	32,700,000
Virginia	1	4	18,979,000
Washington	1	—	59,166,000
Wisconsin	2	—	9,784,000
	11	4	$	294,120,000

10-YEAR LEASE EXPIRATIONS

The following table provides additional information on our leases which are scheduled to expire based on the maturity date contained in the most recent lease agreement or extension. We expect that, prior to maturity, we will negotiate new terms of a lease to either the current tenant or another qualified operator.

				Annualized		Percentage of
	Leases	Rentable	Number	Gross Rent**		Annualized
Year	Expiring	Square Feet*	of Units/Beds	(in thousands)		Gross Rent
2020	6	27,017	407	$	2,559	1.0	%
2021	7	—	567	3,896		1.5	%
2022	4	—	156	4,311		1.6	%
2023	15	—	852	14,549		5.4	%
2024	13	—	913	12,586		4.7	%
2025	3	61,500	132	2,769		1.0	%
2026	35	—	4,897	34,227		12.7	%
2027	4	—	407	6,832		2.5	%
2028	11	—	1,331	10,364		3.9	%
2029	31	—	4,149	69,978		26.1	%
Thereafter	93	—	8,744	106,475		39.6	%
						100.0	%

*Rentable Square Feet represents total square footage in two MOB investments.

**Annualized Gross Rent refers to the amount of lease revenue that our portfolio would have generated in 2019 if all leases were in effect for the twelve-month calendar year, regardless of the commencement date, maturity date, or renewals.

ITEM 3. LEGAL PROCEEDINGS

Our facilities are subject to claims and suits in the ordinary course of business. Our lessees 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. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no material adverse effect on our financial condition, results of operations or cash flows.

In June 2018, East Lake Capital Management LLC and certain related entities, including SH-Regency Leasing, LLC (“Regency”) (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

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also commenced litigation for the recovery of certain funds owed under the lease and against the principal executive personally, under a guaranty agreement. The LaSalle Group, the former operator of the properties, has declared bankruptcy under Chapter 11. In December 2019, we reached an agreement with TLG Family Management and Mitchell Warren, who, without making any admissions under a joint-liability settlement, have agreed to pay to NHI $2,850,000 over a five-year period, consisting of sixty-one scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of $60,000 in December 2019.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

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PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s charter contains certain provisions which are designed to ensure that the Company’s status as a REIT is protected for federal income tax purposes. One of the provisions ensures that any transfer (of shares) which would cause NHI to be beneficially owned by fewer than 100 persons or would cause NHI to be “closely-held” under the Internal Revenue Code would be void which, subject to certain exceptions, result in no stockholder being allowed to own, either directly or indirectly pursuant to certain tax attribution rules, more than 9.9% of the Company’s common stock with the exception of prior agreements in 1991 which were confirmed in writing in 2008 with the Company’s founders Dr. Carl E. Adams and Jennie Mae Adams and their lineal descendants. Based on these agreements, the ownership limit for all other stockholders is approximately 7.5%. If a stockholder’s stock ownership exceeds the limit, then such shares over the limit become Excess Stock within the meaning in the Company’s charter and lose rights to vote and receive dividends in certain situations. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. In addition, W. Andrew Adams’ Excess Holder Agreement also provides that he will not own shares of stock in any tenant of the Company if such ownership would cause the Company to constructively own more than a 9.9% interest in such tenant. The purpose of these provisions is to protect the Company’s status as a REIT for tax purposes.

In order to qualify for the beneficial tax treatment accorded to a REIT, we must make distributions to holders of our common stock equal on an annual basis to at least 90% of our REIT taxable income (excluding net capital gains), as defined in the Internal Revenue Code. Cash available for distribution to our stockholders is primarily derived from interest payments received on our notes and from rental payments received under our leases. All distributions will be made by us at the discretion of the Board of Directors and will depend on our cash flow and earnings, our financial condition, bank covenants contained in our financing documents and such other factors as the Board of Directors deems relevant. Our REIT taxable income is calculated without reference to our cash flow. Therefore, under certain circumstances, we may not have received cash sufficient to pay our required distributions.

Our common stock is traded on the New York Stock Exchange under the symbol “NHI”. As of February 14, 2020, there were 703 holders of record of shares and 47,830 beneficial owners of shares.

We currently maintain two equity compensation plans: the 2012 Stock Incentive Plan (the “2012 Plan”) and the 2019 Stock Incentive Plan (“the 2019 Plan”). These plans, as amended, have been approved by our stockholders. The following table provides information as of December 31, 2019 about our common stock that may be issued upon the exercise of options under our existing equity compensation plans.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders	1,004,014	$74.35	3,319,669	^1^
Equity compensation plans not approved by security holders	—	$—	—

^1^ Includes 319,669 shares remaining available for grant under the 2012 Plan and 3,000,000 shares available for grant under the 2019 Plan.

The following graph demonstrates the performance of the cumulative total return to the stockholders of our common stock during the previous five years in comparison to the cumulative total return on the MSCI US REIT Index and the Standard & Poor’s 500 Stock Index. The MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of Equity REIT securities. The MSCI US REIT Index includes securities with exposure to core real estate (e.g. residential and retail properties) as well as securities with exposure to other types of real estate (e.g. casinos, theaters).

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	2014	2015	2016	2017	2018	2019
NHI	$100.00	$91.57	$117.41	$125.39	$132.55	$150.51
MSCI	$100.00	$125.84	$120.09	$126.18	$137.03	$140.48
S&P 500	$100.00	$131.49	$125.72	$153.17	$171.49	$173.86

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ITEM 6. SELECTED FINANCIAL DATA.

The following table represents our financial information for the five years ended December 31, 2019. This financial information has been derived from our historical financial statements including those for the most recent three years included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those consolidated financial statements, accompanying footnotes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

(in thousands, except share and per share amounts)
	Years Ended December 31,
STATEMENT OF INCOME DATA:	2019		2018		2017		2016			2015
Revenues	$	318,081	$	294,612	$	278,659	$	248,460		$	228,948
Income from continuing operations	$	160,449	$	154,333	$	159,365	$	152,716		$	150,314
Net income	$	160,449	$	154,333	$	159,365	$	152,716		$	150,314
Net loss (income) attributable to noncontrolling interest	7		—		—		(1,176		)	(1,452		)
Net income attributable to common stockholders	$	160,456	$	154,333	$	159,365	$	151,540		$	148,862
PER SHARE DATA:
Basic earnings per common share:
Net income attributable to common stockholders	$	3.70	$	3.68	$	3.90	$	3.88		$	3.96
Diluted earnings per common share:
Net income attributable to common stockholders	$	3.67	$	3.67	$	3.87	$	3.87		$	3.95
OTHER DATA:
Common shares outstanding, end of year	44,587,486		42,700,411		41,532,154		39,847,860			38,396,727
Weighted average common shares:
Basic	43,417,828		41,943,873		40,894,219		39,013,412			37,604,594
Diluted	43,703,248		42,091,731		41,151,453		39,155,380			37,644,171
Regular dividends declared per common share	$	4.20	$	4.00	$	3.80	$	3.60		$	3.40
BALANCE SHEET DATA: (at year end)
Real estate properties, net	$	2,560,393	$	2,366,882	$	2,285,701	$	2,159,774		$	1,836,807
Mortgages and other notes receivable, net	$	340,143	$	246,111	$	141,486	$	133,493		$	133,714
Investments in preferred stock and marketable securities	$	—	$	—	$	—	$	11,745		$	72,744
Assets held for sale, net	$	18,420	$	—	$	—	$	—		$	1,346
Total assets	$	3,042,235	$	2,750,570	$	2,545,821	$	2,403,633		$	2,133,218
Debt	$	1,440,465	$	1,281,675	$	1,145,497	$	1,115,981		$	914,443
Total liabilities	$	1,543,983	$	1,360,857	$	1,223,704	$	1,194,043		$	990,758
Total equity	$	1,498,252	$	1,389,713	$	1,322,117	$	1,209,590		$	1,142,460

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis is based primarily on the consolidated financial statements of National Health Investors, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1. Business” and “Item 1A. Risk Factors” above. This section of this Annual Report on Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Executive Overview

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed REIT specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. Our portfolio consists of lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. Other investments include a joint venture structured to comply with the provisions of the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”) through which we invested in facility operations managed by an independent third-party. We have funded our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.

Portfolio

At December 31, 2019, we had investments in real estate, mortgage and other notes receivable involving 238 facilities located in 34 states. These investments involve 157 senior housing properties, 76 skilled nursing facilities, 3 hospitals, 2 medical office buildings and other notes receivable. These investments (excluding our corporate office of $2,519,000) consisted of properties with an original cost of $3,072,327,000 rented under triple-net leases to 32 lessees, and $340,143,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers.

Our investments in real estate are located within the United States and our investments in mortgage loans are secured by real estate located within the United States. We are managed as one unit for internal reporting and decision making. Therefore, our reporting reflects our financial position and operations as a single segment.

We classify the properties in our portfolio as either senior housing or medical properties. We further classify our senior housing properties as either need-driven (assisted living facilities and senior living campuses) or discretionary (independent living facilities and entrance-fee communities). Medical properties within our portfolio include skilled nursing facilities, medical office buildings and specialty hospitals.

Senior Housing – Need-Driven includes assisted living and memory care facilities (“ALF”) and senior living campuses (“SLC”) which primarily attract private payment for services from residents who require assistance with activities of daily living. Need-driven properties are subject to regulatory oversight.

Senior Housing – Discretionary includes independent living facilities (“ILF”) and entrance-fee communities (“EFC”) which primarily attract private payment for services from residents who are making the lifestyle choice of living in an age-restricted multi-family community that offers social programs, meals, housekeeping and in some cases access to healthcare services. Discretionary properties are subject to limited regulatory oversight. There is a correlation between demand for this type of community and the strength of the housing market.

Medical Facilities within our portfolio receive payment primarily from Medicare, Medicaid and health insurance. These properties include skilled nursing facilities (“SNF”), medical office buildings (“MOB”) and hospitals that attract patients who have a need for acute or complex medical attention, preventative medicine, or rehabilitation services. Medical properties are subject to state and federal regulatory oversight and, in the case of hospitals, Joint Commission accreditation.

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The following tables summarize our investments in real estate and mortgage and other notes receivable as of December 31, 2019 (dollars in thousands):

Real Estate Properties			Properties	Beds/Sq. Ft.*	Revenue		%		Investment
	Senior Housing - Need-Driven
		Assisted Living	90	4,940	$	77,104	24.2	%	$	908,741
		Senior Living Campus	14	1,976	20,869		6.6	%	304,593
		Total Senior Housing - Need-Driven	104	6,916	97,973		30.8	%	1,213,334
	Senior Housing - Discretionary
		Independent Living	32	3,703	46,534		14.6	%	599,321
		Entrance-Fee Communities	10	2,306	51,201		16.1	%	605,093
		Total Senior Housing - Discretionary	42	6,009	97,735		30.7	%	1,204,414
		Total Senior Housing	146	12,925	195,708		61.5	%	2,417,748
	Medical Facilities
		Skilled Nursing Facilities	72	9,433	79,594		25.0	%	588,122
		Hospitals	3	207	7,991		2.5	%	55,971
		Medical Office Buildings	2	88,517	667		0.2	%	10,486
		Total Medical Facilities	77		88,252		27.7	%	654,579
		Total Real Estate Properties	223		283,960		89.2	%	$	3,072,327
		Current Year Disposals and Held for Sale			4,424
		Escrow Funds Received From Tenants			5,798
		Total Rental Income			294,182
Mortgage and Other Notes Receivable
	Senior Housing - Need-Driven		8	487	4,592		1.5	%	$	73,271
	Senior Housing - Discretionary		3	1,105	13,337		4.2	%	213,675
	Medical Facilities		4	270	660		0.2	%	7,174
	Other Notes Receivable		—	—	4,246		1.3	%	46,023
		Total Mortgage and Other Notes Receivable	15	1,862	22,835		7.2	%	$	340,143
		Current Year Note Payoffs			863
		Other Income			201
		Total Revenue			$	318,081
Portfolio Summary			Properties	Beds/Sq. Ft.*	Revenue		%		Investment
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	Real Estate Properties		223		$	283,960	92.6	%	$	3,072,327
	Mortgage and Other Notes Receivable		15		22,835		7.4	%	340,143
		Total Portfolio	238		$	306,795	100.0	%	$	3,412,470
Portfolio by Operator Type
	Public		66		$	70,439	23.0	%	$	511,294
	National Chain (Privately-Owned)		28		52,572		17.1	%	712,353
	Regional		131		178,497		58.2	%	2,071,507
	Small		13		5,287		1.7	%	117,316
		Total Portfolio	238		$	306,795	100.0	%	$	3,412,470

For the year ended December 31, 2019, our tenants who provided more than 3% of our total revenues were (parent company, in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; The Ensign Group; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and Senior Living Management.

As of December 31, 2019, our average effective annualized rental income was $8,427 per bed for SNFs, $16,200 per unit for ALFs, $12,689 per unit for ILFs, $22,232 per unit for EFCs, $38,604 per bed for hospitals, and $8 per square foot for MOBs.

Areas of Focus

We are evaluating and will likely make additional real estate and note investments in 2020 while we continue to monitor and improve our existing properties. We seek tenants who will become mission-oriented partners in relationships where our business

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goals are aligned. This approach fuels what we believe is, enduring growth for those partners and for NHI. Within the context of our growth model, we rely on cost-effective access to debt and equity capital to finance the acquisitions that drive our earnings. There is significant competition for healthcare assets from other REITs, both public and private, and from private equity sources. Large-scale portfolios continue to command premium pricing, due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate. This combination of circumstances creates pressure on our ability to execute acquisitions and negotiate leases that generate meaningful earnings growth for our shareholders. We emphasize growth with our existing tenants and borrowers as a way to mitigate the impact of competition.

With lower capitalization rates for existing healthcare facilities, there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital. Using our relationship-driven model, we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities. We concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive we have a competitive advantage. The projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction.

Following three 25 basis-point increases in 2017, the Federal Open Market Committee of the Federal Reserve announced four further interest rate increases during 2018. On July 31, 2019, the Federal Reserve lowered its benchmark interest rate 25 bps and on September 19, 2019, lowered it an additional 25 bps. On October 30, 2019, the Federal Reserve lowered its benchmark interest rate another 25 bps and indicated a target range for the federal funds rate of 1.50% to 1.75% percent. The actual path the federal funds rate takes will depend on the changing economic outlook as informed by incoming data. Considering that the vote approving the rate cut was split with two committee members voting to maintain the target range, we do not see this as the beginning of a rate-cutting cycle. Previous changes in the federal funds rate have been a primary source of much volatility in REIT equity markets. As a result, there has been pressure on the spread between our cost of capital and the returns we earn. We expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels. Managing long-term risk involves trade-offs with the competing alternative goal of maximizing short-term profitability. Our intention is to strike an appropriate balance between these competing interests within the context of our investor profile. If interest rates rise, our share price may decline as investors adjust prices to reflect a dividend yield that is sufficiently in excess of a risk-free rate.

For the year ended December 31, 2019, approximately 25.2% of our revenue was derived from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors, primarily Medicare and Medicaid. Such revenues are subject annually to statutory and regulatory changes and in recent years have been reduced due to federal and state budgetary pressures. Over the past five years, we have selectively diversified our portfolio by directing a significant portion of our investments into properties which do not rely primarily on Medicare and Medicaid reimbursement, but rather on private pay sources (assisted living and memory care facilities, senior living campuses, independent living facilities and entrance-fee communities). We will occasionally acquire skilled nursing facilities in good physical condition with a proven operator and strong local market fundamentals, because diversification implies a periodic rebalancing, but our recent investment focus has been on acquiring need-driven and discretionary senior housing assets.

For individual tenant revenue as a percentage of total lease revenue, Bickford is our largest assisted living tenant, an affiliate of Holiday is our largest independent living tenant, NHC is our largest skilled nursing tenant and Senior Living Communities is our largest entrance-fee community tenant. Our shift toward private payor facilities, as well as our expansion into the discretionary senior housing market, has further resulted in a portfolio whose current composition is relatively balanced between medical facilities, need-driven and discretionary senior housing.

We manage our business with a goal of increasing the regular annual dividends paid to shareholders. Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. Our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends. Taxable income is determined in accordance with the Internal Revenue Code and differs from net income for financial statements purposes determined in accordance with U.S. generally accepted accounting principles. Our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments. We consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity. We accept some level of risk associated with leveraging our investments. We intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of capital will generate sufficient returns to our shareholders.

Our dividends per share for the last three years are as follows:

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2019		2018		2017
$	4.20	$	4.00	$	3.80

Our investments in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet. However, we continue to maintain a lower-leverage balance sheet when compared with many in our peer group. We believe that our fixed charge coverage ratio, which is the ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, excluding real estate asset impairments and gains on dispositions) to fixed charges (interest expense at contractual rates net of capitalized interest and principal payments on debt), and the ratio of consolidated net debt to Adjusted EBITDA are meaningful measures of our ability to service our debt. We use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group. We also believe this gives us a competitive advantage when accessing debt markets.

We calculate our fixed charge coverage ratio as approximately 5.4x for the year ended December 31, 2019 (see our discussion below under the heading Adjusted EBITDA along with a reconciliation to our net income). Giving effect to our acquisitions and financings on an annualized basis, our consolidated net debt to Adjusted EBITDA ratio is approximately 4.7x for the year ended December 31, 2019 (dollars in thousands):

Consolidated Total Debt	$	1,440,465
Less: cash and cash equivalents	(5,215		)
Consolidated Net Debt	$	1,435,250
Adjusted EBITDA	$	298,437
Annualized impact of recent investments	6,298
	$	304,735
Consolidated Net Debt to Adjusted EBITDA	4.7		x

According to the Administration on Aging (“AoA”) of the US Department of Health and Human Services, in 2017, the latest year for which data is available, 50.9 million people were age 65 or older in the United States (a 34% increase over the last ten years). Census estimates showed that, by 2040, those 65 or older are expected to constitute 21.6% of the population. The population aged 85 and above is projected to rise from 6.4 million in 2016 to 14.4 million in the US by 2040 (a 123% increase). The median value of homes owned by older homeowners age 75 and over was $175,000 (with a median purchase price of $65,000). In comparison, the median home value of all homeowners was $200,000. Of the 12.9 million households headed by persons age 75 and over in 2017, 76% were owners.

Equipped with the basics of financial security, many will be economically able to enter the market for senior housing. These strong demographic trends provide the context for continued growth in senior housing in 2020 and the years ahead. We plan to fund any new real estate and mortgage investments during 2020 using our liquid assets and debt financing. As the weight of additional debt resulting from new acquisitions suggests the need to rebalance our capital structure, we would then expect to access the capital markets through an at-the-market (“ATM”) or other equity offering. Our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for access to capital at the lowest possible rates, annual dividend growth, continued low leverage, a portfolio of diversified, high-quality assets, and business relationships with experienced operators whom we make our priority, continue to be the key drivers of our business plan.

Critical Accounting Policies

Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition.

We consider an accounting estimate or assumption critical if:

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1.	the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
2.	the impact of the estimates and assumptions on financial condition or operating performance is material.
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Valuations and Impairments

Our tenants and borrowers who operate SNFs derive their revenues primarily from Medicare, Medicaid and other government programs. Amounts paid under these government programs are subject to legislative and government budget constraints. From time to time, there may be material changes in government reimbursement. In the past, SNFs have experienced material reductions in government reimbursement.

The long-term health care industry has experienced significant professional liability claims which have resulted in an increase in the cost of insurance to cover potential claims. In previous years, these factors have combined to cause a number of bankruptcy filings, bankruptcy court rulings and court judgments affecting our lessees and borrowers. In prior years, we have determined that impairment of certain of our loan investments had occurred as a result of these events.

We evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property.

Lease accounting standards require that, for purposes of lease classification, we assess whether the lease, by its terms, transfers substantially all of the fair value of the asset under lease. This consideration will drive accounting for the alternative classifications among either operating, sales, or direct financing types of leases. For classification purposes, we distinguish cash flows that follow under terms of the lease from those that will derive, subsequent to the lease, from the ultimate disposition or re-deployment of the asset. From this segregation of the sources of cash flow, we are able to establish whether the lease is, in essence, a sale or financing in its having transferred substantially all of the fair value of the leased asset. Accordingly, management’s projected residual values represent significant assumptions in our accounting for leases.

While we do not incorporate residual value guarantees in our lease provisions, the contractual structure of other provisions provides a basis for expectations of realizable value from our properties, upon expiration of their lease terms. We additionally consider historical, demographic and market trends in developing our estimates. For each new lease, we discount our estimate of unguaranteed residual value and include this amount along with the stream of lease payments (also discounted) called for in the lease. We assess the stream of lease payments and the value deriving from eventual return of our property to establish whether the lease payments themselves comprise a return of substantially all of the fair value of the property under lease. We do not use a “bright line” in considering what constitutes “substantially all of the fair value,” but we undertake heightened vigilance in our assessment when the lease payments approach 90% of the composition of all future cash flows expected from the asset.

For our mortgage and other notes receivable, we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis. We review our notes receivable for ability to realize on such notes when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If necessary, impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable. For fiscal periods beginning after December 15, 2019, our evaluation of the notes receivable in which we have invested will shift to a current expected loss approach. Under this new approach, which differs from the legacy incurred loss model, we will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In developing our expectation of losses, we will consider financial assets that share similar risk characteristics such as rate, age, type, location on a collective basis. Other note investments which do not share common features will continue to be evaluated on an instrument-by-instrument basis.

The determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at market rates, general economic conditions and trends, the duration of the fair value deficiency, and any other relevant factors. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

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While we believe that the carrying amounts of our properties are recoverable and our notes receivable and other investments are realizable, it is possible that future events could require us to make significant adjustments or revisions to these estimates.

Revenue Recognition

We collect rent and interest from our tenants and borrowers. Generally, our policy is to recognize income on an accrual basis as earned. However, when we determine, based on current collections and the lack of expected future collections, that rent or interest is not probable of collection until received, our policy is to recognize rental or interest income when assured, which we consider to be the period in which cash is received or accrued on the basis of tenant security deposits available to us for the recognition of lease revenue in the period in which it was earned. We identify investments as nonperforming if a required payment is not received within 30 days of the date it is due. This policy could cause our revenues to vary significantly from period to period. Rental income from minimum lease payments under our leases is recognized on a straight-line basis to the extent that future lease payments are considered collectible. Lease payments that depend on a factor directly related to future use of the property, such as an increase in annual revenues over base year revenues, are considered to be contingent rentals and are included in rental income when they are determinable and earned.

REIT Qualification

As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. We believe that we have operated our business so as to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will be able to so qualify at all times. As of January 31, 2020, we began participating in a taxable REIT subsidiary under a joint venture structured to comply with the provisions of the RIDEA through which we invested in facility operations managed by independent third-parties. We record income tax expense or benefit with respect to the subsidiary which is taxed under provisions similar to those applicable to regular corporations. Aside from such income taxes that may be applicable to the taxable income in our taxable REIT subsidiary, we are not subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders equal to or in excess of our taxable income. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that typically applies to corporate dividends. Our failure to continue to qualify under the applicable REIT qualification rules and regulations would cause us to owe state and federal income taxes and would have a material adverse impact on our financial position, results of operations and cash flows.

Principles of Consolidation

The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint ventures in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick-out rights have been granted to the noncontrolling interests. In addition, we consolidate a legal entity deemed to be a variable interest entity (“VIE”) when we determine that we are the VIE’s primary beneficiary. All material inter-company transactions and balances have been eliminated in consolidation.

We apply Financial Accounting Standards Board (“FASB”) guidance for our arrangements with VIEs which requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. We may change our assessment of a VIE due to events such as modifications of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposal of all or a portion of an interest held by the primary beneficiary.

Real Estate Properties

Real property we develop is recorded at cost, including the capitalization of interest during construction. The cost of real property investments we acquire is allocated to net tangible and identifiable intangible assets and liabilities based on their relative fair values. We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. For properties acquired in transactions accounted for as asset purchases,

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the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets and liabilities acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. The most significant components of our allocations are typically the allocation of fair value to land, equipment, buildings and other improvements, and intangible assets and liabilities, if any. Our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term.

Our leases are typically structured as “triple net leases” on single-tenant properties having an initial leasehold term of 10 to 15 years with one or more 5-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the year ended December 31, 2019, we modified a master lease governing ten properties held by Bickford and subject to HUD-guaranteed mortgages as well as another Bickford master lease covering thirteen properties. There were no additional renewing or expiring leases.

Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease. Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. Typically, for options open or coming open in the short term, we are engaged in negotiations to continue as lessor or in some other capacity.

We adjust rental income for the amortization of payment of contingent lease incentives. Amortization of these payments against revenues was $845,000, $387,000 and $119,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Major Tenants

As discussed in Note 2 to the consolidated financial statements, we have four lessees (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% of our rental income as follows (dollars in thousands):

		Original		Rental Income
		Investment		Year Ended December 31,						Lease
	Asset Class	Amount		2019			2018			Renewal
Senior Living Communities	EFC	$	573,631	$	46,927	16%	$	45,868	16%	2029
Bickford Senior Living	ALF	519,276		52,570		18%	50,093		18%	Various
Holiday Retirement	ILF	531,378		40,459		14%	43,311		15%	2035
National HealthCare Corporation	SNF	171,297		38,131		13%	37,843		13%	2026
All others	Various	1,276,745		116,095		39%	103,698		38%	Various
		$	3,072,327	$	294,182		$	280,813

Straight-line rent of $4,934,000 and $5,436,000 was recognized from the Senior Living lease for the years ended December 31, 2019 and 2018, respectively. Straight-line rent of $4,651,000 and $5,028,000 was recognized from the Bickford leases for the years ended December 31, 2019 and 2018, respectively. Straight-line rent of $6,621,000 and $5,616,000 was recognized from the Holiday lease for the years ended December 31, 2019 and 2018, respectively. For NHC, rent escalations are based on a percentage increase in revenue over a base year and do not give rise to non-cash, straight-line rental income.

Bickford

We are closely monitoring the occupancy and financial performance of our major customer Bickford. Their management is focused on improving occupancy in the Company’s facilities and have been successful through 2019. Bickford is also an active developer of new facilities in underserved markets.

The following table summarizes the average portfolio occupancy for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, assets held for sale and the four Minnesota properties recently transitioned to a new operator. Same-store (SS) occupancy excludes properties that have been operated by Bickford for less than 24 months.

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	Property Count	4Q18		1Q19		2Q19		3Q19		4Q19		December 2019
Bickford	45	84.5	%	83.1	%	84.5	%	86.0	%	86.1	%	85.3	%
Bickford (SS)	40	86.1	%	84.6	%	86.5	%	88.4	%	88.4	%	87.5	%

In addition to closely monitoring the occupancy and financial performance of Bickford, NHI has either completed or is currently undertaking certain measures which we believe will improve the financial and operational strength of Bickford. Examples of these measures include:

•	The contemplated sale of two assisted living communities to Bickford. NHI expects to sell the buildings, which are currently classified as held for sale, to Bickford by the end of Q1 2020. NHI will in turn provide a senior note to Bickford for the purchase of these facilities which largely preserves cash flow generated from these communities until they are refinanced by Bickford.
•	The transition of four properties in Minnesota to another existing NHI operator. NHI transitioned the lease of these four properties on October 1, 2019 which were outside of Bickford’s existing geographic footprint. We believe this transition better aligns Bickford with markets in which they have deeper experience and improves their longer term cash flow. The transition eliminates Bickford’s purchase option while extending the lease by seven years with renewal options.
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•	The amendment to lease escalators on certain Bickford properties. Effective September 1, 2019, NHI amended a master lease covering 14 Bickford properties. Included in the amendment, NHI changed the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%.
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•	NHI’s purchase option price on the Gurnee community was reduced to $15.1 million while the initial yield was reduced to 8.0%. As noted in Note 2 to the consolidated financial statements, NHI exercised the purchase option on the Gurnee, IL facility on September 10, 2019. NHI exercised a similar purchase option on a 60-unit Bickford-developed community in Shelby, MI as discussed in the Note 15 to the consolidated financial statements.
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•	For our Bickford communities secured by HUD financing, as of October 1, 2019, we amended the master lease to better align rates with the current market, a change of approximately $100,000 per quarter or 0.1% of our total revenues. Included in the amendment, NHI changed the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%.
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Tenant Monitoring

Our operators report to us the results of their operations on a periodic basis, which we in turn subject to further analysis as a means of monitoring potential concerns within our portfolio. We have identified EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) as the most elemental barometer of success for our tenants, based on results they have reported to us. We believe EBITDARM is useful in our most fundamental analyses, as it is a property-level measure of our operators’ success, by eliminating the effects of the operator’s method of acquiring the use of its assets (interest and rent), its non-cash expenses (depreciation and amortization), expenses that are dependent on its level of success (income taxes), and also excluding the effect of the operator’s payment of its management fees, as typically those fees are contractually subordinate to our lease payment. For operators of our entrance-fee communities, our calculation of EBITDARM includes other cash flow adjustments typical of the industry which may include, but are not limited to, net cash flows from entrance fees; amortization of deferred entrance fees; adjustments for tenant rent obligations, depreciation and amortization; and management fee true-ups. The eliminations and adjustments reflect covenants in our leases and provide a comparable basis for assessing our various relationships.

We believe that EBITDARM is a useful way to analyze the cash potential of a group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/Cash Rent), measuring the ability of the operator to meet its monthly obligation. In addition to EBITDARM and the coverage ratio, we rely on, a careful balance sheet analysis, and other analytical procedures to help us identify potential areas of concern relative to our operators’ ability to generate sufficient liquidity to meet their obligations, including their obligation to continue to pay the amount due to us. Typical among our operators is a varying lag in reporting to us the results of their operations. Across our portfolio, however, our operators report their results, typically within either 30 or 45 days and at the latest, within ninety days of month’s end. For computational purposes, we exclude development and lease-up properties that have been in operation less than 24 months and selected immaterial properties identified in 2019 as available for sale. For stabilized acquisitions in the portfolio less than 24 months and renewing leases with changes in scheduled rent, we include pro forma cash rent. Same-store portfolio coverage excludes properties that have transitioned operators in past 24 months.

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The results by asset type are presented below on a trailing twelve-month basis, as of September 30, 2019 and 2018 (the most recent periods available):

Total Portfolio
	SHO	SNF	HOSP	MOB	TOTAL
Properties	129	74	3	2	208
3Q18	1.23x	2.55x	1.66x	4.12x	1.65x
3Q19	1.14x	2.73x	1.95x	5.61x	1.66x
	Need Driven	Need Driven excl. Bickford	Discretionary	Discretionary excl. SLC & Holiday	Medical	Medical excl. NHC
Properties	91	46	38	3	79	37
3Q18	1.17x	1.18x	1.29x	2.24x	2.48x	1.58x
3Q19	1.10x	1.13x	1.19x	1.61x	2.68x	1.92x
	NHC	SLC	Bickford	Holiday
Properties	42	9	45	26
3Q18	3.67x	1.28x	1.15x	1.18x
3Q19	3.69x	1.10x	1.07x	1.21x
Same-Store Portfolio
	SHO	SNF	HOSP	MOB	Total
Properties	117	74	2	2	195
3Q18	1.24x	2.55x	1.21x	4.12x	1.66x
3Q19	1.16x	2.73x	1.60x	5.61x	1.68x
	Need Driven	Need Driven excl. Bickford	Discretionary	Discretionary excl. SLC & Holiday	Medical	Medical excl. NHC
Properties	80	40	37	2	78	36
3Q18	1.20x	1.19x	1.29x	2.37x	2.48x	1.52x
3Q19	1.13x	1.15x	1.19x	1.72x	2.68x	1.88x
	NHC	SLC	Bickford	Holiday
Properties	42	9	40	26
3Q18	3.67x	1.28x	1.20x	1.18x
3Q19	3.69x	1.10x	1.12x	1.21x

NHC based on corporate-level FCCR and includes 3 independent living facilities

Fluctuations in portfolio coverage are a result of market and economic trends, local market competition, and regulatory factors as well as the operational success of our tenants. We use the results of individual leases to inform our decision making with respect to specific tenants, but trends described above by property type and operator bear analysis. Our Need-Driven SHO portfolio shows a decline brought about primarily by a softening in occupancy within particular markets, as well as rising wage pressures. For many of the affected operators, as is typical of our portfolio in general, NHI has security deposits in place and/or corporate guarantees should actual cash rental shortfalls eventually materialize. In certain instances, our operators may increase their security deposits with us in an amount equal to the coverage shortfall, and, upon subsequent compliance with the required lease coverage ratio, the operator would then be entitled to a full refund. The metrics presented in the tables above give no effect to the presence of these security deposits. For Skilled Nursing, coverage in the Medical category of our portfolio has improved due to the impact of four new Ensign developments reaching stabilization. Each MOB’s coverage is driven by the underlying

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performance of its on-campus hospital as the tenant or guarantor under the lease. As a result, it is typical for MOB operations to have large fluctuations in coverage resulting from hospital operations.

Potential Effects of Medicare Reimbursement

Our SNF operators receive a significant portion of their revenues from governmental payors, primarily Medicare (federal) and Medicaid (states). Changes in reimbursement rates and limits on the scope of services reimbursed to skilled nursing facilities could have a material impact on the operators’ liquidity and financial condition. On August 1, 2018, the Centers for Medicare and Medicaid Services (“CMS”) announced the CMS Skilled Nursing Prospective Payment System (“PPS”) final rule whereby, effective October 1, 2019, a Patient Driven Payment Model (“PDPM”) was adopted as a case-mix system for classifying patient information payment groups under PPS. The new model shifts care delivery under Medicare away from fee-for-service, which in the past has based reimbursement on the amount of care provided, to focus on value-based care, which will base reimbursement on clinical complexity and the resident’s conditions and care needs. On August 7, 2019, CMS adopted a net 2.4% increase to Medicare skilled nursing payments for the fiscal year beginning October 1, 2019. We believe a rate increase in line with inflation, along with general demographic growth among the oldest seniors, will help to stabilize lease coverages among our skilled nursing tenants at a time when they are implementing the PDPM. Changes in government reimbursement methodology that reduce reimbursement to levels that are insufficient to cover the operating costs of our lessees and borrowers could indirectly and adversely impact us.

We currently estimate that our borrowers and lessees will find these Medicare increases to be adequate in the near term due to their credit quality, profitability and their debt or lease coverage ratios, although no assurances can be given as to what the ultimate effect that PDPM increases on an annual basis will have on each of our borrowers and lessees. According to industry studies, state Medicaid funding is not expected to keep pace with inflation. Any future acquisitions by NHI of skilled nursing facilities are planned on a selective basis, with emphasis on operator quality and newer construction.

Investment Highlights

Since January 1, 2019, we have made or announced the following real estate and note investments (dollars in thousands):

	Date	Properties	Asset Class	Amount
2019
Lease Investments
Wingate Healthcare	January 2019	1	SHO	$	52,200
Holiday Retirement	January 2019	1	SHO	38,000
Comfort Care Senior Living	April 2019	1	SHO	10,800
Comfort Care Senior Living	May 2019	1	SHO	13,500
Discovery Senior Living	May 2019	6	SHO	127,917
Cappella Living Solutions	July 2019	1	SHO	7,600
Bickford Senior Living	September 2019	1	SHO	15,100
41 Management	December 2019	1	SHO	9,340
Note Investments
Senior Living Communities	June 2019	1	SHO	32,700
41 Management	June 2019	1	SHO	10,800
Discovery Senior Living	July 2019	1	SHO	750
Discovery Senior Living	August 2019	1	SHO	6,423
41 Management	December 2019	1	SHO	3,870
				$	329,000
2020
Life Care Services - RIDEA	January 2020	1	SHO	$	138,392
Bickford Senior Living	January 2020	1	SHO	15,100
				$	153,492

Wingate

On January 15, 2019, we acquired a 267-unit senior living campus in Massachusetts for a purchase price of $50,300,000, including closing costs of $300,000. The facility is being leased to Wingate Healthcare, Inc. (“Wingate”) for a term of 10 years,

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with three five-year renewal options, at an initial lease rate of 7.5% plus annual fixed escalators. We have committed to the additional funding of up to $1,900,000 in capital improvements, and the lease provides for incentive payments up to $5,000,000 to become available beginning in 2020 upon the attainment of certain operating metrics. NHI has a right of first offer on two additional Wingate-operated facilities. We accounted for the transaction as an asset purchase.

Holiday

In November 2018, we entered into a lease amendment and guaranty release (“the Agreement”) with an affiliate of Holiday Retirement (“Holiday”). Among other provisions, the Agreement decreased base rent beginning in 2019 from $39,000,000 to $31,500,000, extended the term of the original lease through 2035, improved the credit position of the tenant and increased required minimum capital expenditure per unit. As consideration for amending provisions included in the original 2013 lease, Holiday agreed to pay NHI $55,125,000 in cash or real estate and forfeit $10,637,000 of their original $21,275,000 security deposit.

On January 31, 2019, we acquired a senior housing facility in Vero Beach, Florida from Holiday consisting of 157 independent living and 71 assisted living units in exchange for $38,000,000 toward the $55,125,000 receivable arising from the lease amendment, discussed above. The property was added to the master lease at a 6.71% lease rate. Under the restructured master lease, annual lease escalators ranging from 2% to 3%, based on portfolio revenue growth, will go into effect on November 1, 2020. Holiday settled the remaining commitment to NHI with cash of $17,125,000 at closing. Receipt of the Vero Beach property and collection of remaining commitment in cash was recognized as adjustments to outstanding Holiday lease receivable and resulted in the change of our straight-line receivable from Holiday at the beginning of the year into a straight-line payable, which is included in the accompanying Consolidated Balance Sheet at December 31, 2019 as “deferred income.”

Comfort Care

On April 30, 2019, we acquired a newly-constructed 60-unit assisted living facility in Shelby, Michigan which has 14 newly-constructed memory care units currently undergoing stabilization. The total commitment of $10,800,000 includes $9,560,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. On May 20, 2019, we acquired a property in Brighton, Michigan, consisting of 73 assisted living/memory care units. The purchase price for the Brighton acquisition was $13,500,000, inclusive of $13,000,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. We leased the properties to Comfort Care Senior Living (“Comfort Care”), under leases which provide for initial lease rate of 7.75%, with annual fixed escalators beginning in year three over the term of ten years plus two five-year renewal options. Each lease includes a $3,000,000 earnout incentive which will be added to the lease base if funded. We accounted for the acquisitions as asset purchases.

Discovery

On May 31, 2019, we invested $25,028,000 in cash for a 97.5% equity interest in a consolidated subsidiary ("Discovery PropCo"), which simultaneously acquired from a third party six senior housing facilities comprising 145 independent-living units, 356 assisted-living units and 95 memory-care units, for a total of 596 units. Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) contributed $631,000 for its non-controlling 2.5% equity interest. We invested an additional $102,258,000 as a preferred equity contribution, for a total NHI investment of $127,286,000. The additional equity contribution of $102,258,000 carries a preference in liquidation as well as in the distribution of operating cash flow. Total cash of $127,917,000 invested in Discovery PropCo included approximately $1,067,000 in closing costs.

The facilities were leased by Discovery PropCo to an affiliate of Discovery for a term of ten years with two five-year renewal periods at an initial lease rate of 6.5% with fixed annual escalators through the fifth year of the initial lease term followed by CPI-based escalators, subject to floor and ceiling, thereafter.

Discovery is eligible, beginning in 2023, for up to $4,000,000 of lease inducement payments upon meeting specified performance metrics. Inducement payments funded under the agreement will be added to the lease base. Additionally, PropCo has committed to Discovery for funding up to $2,000,000 toward the purchase of condominium units located at one of the facilities, $969,000 of which has been funded in total as a result of transactions in November 2019 and January 2020. The total purchase price for the properties acquired, as discussed above, was allocated to the tangible assets based upon their relative fair values consisting of $6,301,000 to the land and $121,616,000 to the buildings and improvements. We accounted for the transaction as an asset purchase.

As the managing member, NHI manages Discovery PropCo, subject to certain consent rights of Discovery for significant business decisions. Because of our control of Discovery PropCo, we include its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements.

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On August 30, 2019, NHI extended a senior mortgage loan of $6,423,000 at 7% annual interest to affiliates of Discovery to acquire a senior housing facility in Indiana for which Discovery PropCo, will have the option to purchase at stabilization. The facility consists of 52 assisted living units and 22 memory care units. As discussed below under the caption “Tenant Transitioning,” effective July 1, 2019, NHI provided an additional working capital loan for amounts up to $750,000 at an interest rate of 6.5%.

Cappella

On July 23, 2019, for $7,600,000 including $100,000 of closing costs, we acquired a 54-unit assisted living facility in Pueblo, Colorado. We leased the facility to Christian Living Services, Inc., d/b/a Cappella Living Solutions, for a term of fifteen years at an initial lease rate of 7.25%, with CPI escalators subject to floor and ceiling. We accounted for this transaction as an asset purchase.

Bickford

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was $15,100,000, including $100,000 in closing costs, and the cancellation of an outstanding construction note receivable of $14,035,000, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

As part of a geographical realignment by Bickford, we transitioned four Minnesota properties on October 1, 2019, to 41 Management, discussed below. Bickford has agreed to fund a monthly lease termination fee through December 2020, totaling $734,000. Additionally, two Bickford properties were reclassified during the year as held-for-sale.

41 Management

On June 14, 2019, we committed to providing first mortgage financing to 41 Management, LLC for up to $10,800,000 to fund the construction of a 51-unit assisted living facility in Wisconsin. The loan carries an interest rate of 8.50% for its term of five years, subject to two renewals of one year each. The agreement includes a purchase option, which is to open upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $2,400,000 working capital escrow. The total amount funded on the note was $6,045,000 as of December 31, 2019.

On December 20, 2019, we extended a second mortgage loan of $3,870,000 to 41 Management to refinance the subordinated debt on a newly constructed 43-unit assisted living/memory care facility in Wisconsin. The loan provides for interest of 13% and a one-year maturity plus two renewal terms at the option of the borrower. The loan is secured by corporate and personal guarantees. Upon stabilization, NHI has the option to purchase the facility at fair market value based on a metric-driven formula.

As part of Bickford’s geographical realignment mentioned above, we transitioned four Minnesota properties on October 1, 2019, to 41 Management. The transitioned properties are under a master lease which calls for total first-year rent of $906,000 and includes our commitment to make available up to $400,000 in targeted improvements. The lease term of 15 years has two renewal options of five years each and an initial rate of 7.0%. Under the master lease, escalators are fixed at 2.5%, and the lease is secured by corporate and personal guarantees. On December 27, 2019, for a cash purchase price of $9,340,000, including closing costs of $140,000, we acquired a 48 unit assisted living and memory care facility in the St. Paul, Minnesota area. The St. Paul facility was added to the existing master lease described above. We accounted for the St. Paul transaction as an asset purchase.

Senior Living Communities

On June 25, 2019, we provided a mortgage loan of $32,700,000 to Senior Living for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The financing 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 $38,250,000, subject to adjustment for market conditions.

Life Care Services

On January 31, 2020, in a joint venture transaction, we acquired an 80% interest in a 401-unit Continuing Care Retirement Community (CCRC) comprising 330 independent living units, 26 assisted living/memory care units and 45 skilled nursing beds.

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Additionally, the transaction conveyed to NHI a 25% interest in the operations of the community. The transaction arose as the culmination of a relationship beginning in 2015 in which NHI provided LCS Timber Ridge, LLC, (“LCS”), and its JV partner, Westminster-LCS, LLC, (“Westminster”), with a senior mortgage loan on the Timber Ridge campus in the Seattle area. Proceeds of the loan were used to facilitate expansion of the community to 401 units. By terms of the 2015 agreement, NHI acquired a fair-value purchase option on the property.

Consideration given for NHI’s interest in the joint venture was $124,989,000 and included assignment from the divesting owners of debt having a current carrying value of $59,350,000. To fund the transaction, NHI provided an additional loan of $21,650,000, leaving total debt in the project of $81,000,000, bearing interest to NHI at 5.75%. Further, NHI paid $43,114,000 for an 80% equity stake in the property company (“PropCo”), and we provided initial capitalization totaling $875,000 for the operating company (“OpCo”). LCS paid $10,778,000 for its 20% equity stake in PropCo and provided $2,625,000 in initial capitalization of the operations in return for a 75% equity participation in OpCo.

The lease between PropCo and OpCo carries a rate of 6.75% for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. Including interest payments on debt funded by NHI and our lease participation in the PropCo JV, as detailed above, NHI is entitled to $8,216,000 in the first twelve months plus 25% of the remaining OpCo cash flow. The total enterprise capitalization was $138,392,000 for the OpCo and PropCo entities, as discussed above, of which $124,989,000 was allocated to our interest in the tangible assets of PropCo and equity interest in OpCo, based upon their relative fair values.

Other Portfolio Activity

Tenant Transitioning

We have completed the contractual transition of three lease portfolios to new tenants following a period of non-compliance by the former operators. The portfolios consist of three former SH-Regency Leasing, LLC (“Regency”) buildings, five former LaSalle Group buildings and one facility formerly leased to Landmark Senior Living (“Landmark”). To expedite stabilization of the facilities, we committed to specified income-generating capital expenditures for the re-branding and refurbishment of certain of these properties. The new leases for the former Regency and LaSalle facilities each specify initial periods during which rental income to NHI shall be based on net operating income (“NOI”), after deduction of management fees. Following the initial periods, each lease converts to a structured payment based on a fair-value calculation.

The former Regency buildings have been leased to three operators, Senior Living Communities, Discovery, and Vitality MC TN, LLC (“Vitality”). Of our total revenues, $1,277,000 (0.4%), $5,103,000 (1.7%) and $5,466,000 (2.0%) in rental income were derived from the three former Regency buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective July 1, 2019 we transitioned one of the three Regency buildings located in Indiana, an independent living/assisted living facility, to Discovery in conjunction with our other properties in transition. The triple-net lease matures in June 2024 with two five-year options to extend. Rent is initially based on net operating income. Beginning in 2022, rent is to reset to the greater of $1,400,000 or fair value as provided by formula. For the duration of the lease, the rent, as reset, is subject to a 2.5% escalator. Concurrent with Discovery’s entrance into the lease, NHI provided a working capital loan for amounts up to $750,000 at an interest rate of 6.5% and a $900,000 capital improvement commitment to fund improvements to the facility. The loan extends during the term of the lease.

On April 16, 2019, Chancellor Health Care leased the five former LaSalle Group buildings. Our lease agreement with Chancellor provides for NHI to receive 100% of net operating cash flow generated by the facilities, after management fees, pending stabilization of the operations of the facility. During the first quarter of 2019, we also commenced litigation for the recovery of certain funds owed by LaSalle Group under the lease and against the principal executive personally under the guaranty agreement. Of our total revenues, $1,162,000 (0.4%), $4,455,000 (1.5%) and $4,184,000 (1.5%) in rental income were derived from the five former LaSalle Group buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

In February 2019, we transitioned a non-performing single-property lease in Wisconsin with Landmark to BAKA Enterprises, temporarily acting under a management agreement with Landmark. Under the terms of a short-term agreement, NHI received 95% of net operating cash flow, after management fees, as generated by the facilities. We have entered into a new lease with an initial term of 8 years and a fixed payment schedule through October 2022. In November 2022, the lease indicates a reset of rent to fair market rental value as agreed with the tenant. Of our total revenues, $1,204,000 (0.4%), $1,085,000 (0.4%) and $1,957,000 (0.4%) were derived from the former Landmark property for the years ended December 31, 2019, 2018 and 2017 respectively, including $625,000 received during 2019 as a settlement payment.

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As we seek to stabilize the operations of these facilities, if our resulting tenants or operating partners do not have adequate liquidity to accept the risks and rewards of a tenant-lessee, NHI might be deemed the primary beneficiary of the operations and might be required to consolidate those statements of financial position and results of operations of the managers or operating partners into our consolidated financial statements.

The following table summarizes the transition properties during the year ended December 31, 2019:

			Occupancy
Former Tenant / Facility Name (New Tenant)	Units	State	March^1^	June^1^	September^1^	December^1^
SH-Regency Leasing, LLC
The Cypress of College Park (Discovery)	148	IN	19.6%	18.9%	16.2%	15.5%
The Charlotte (SLC)	99	NC	—%	—%	13.0%	21.0%
Maybelle Carter (Vitality)	135	TN	73.3%	77.6%	78.5%	80.1%
LaSalle Autumn Leaves (Chancellor)	196	IL/TX	73.5%	66.1%	66.0%	65.9%
Landmark Senior Living (BAKA)	120	WI	67.6%	72.2%	68.3%	66.9%
	698		50.7%	50.1%	50.8%	51.8%

^1^ 2019 Monthly Average

Assets Held for Sale

In September 2019, we classified a portfolio of eight assisted living properties located in Arizona (4), Tennessee (3) and South Carolina (1) as held for sale, after the current tenant expressed an intention to exercise its purchase option on the properties. Of our total revenues, $4,250,000 (1.3%) in rental income were derived from this eight-property portfolio for the years ended December 31, 2019, 2018 and 2017. The purchase option called for the parties to split any appreciation on a 50/50 basis above $37,520,000. During the fourth quarter of 2019, NHI and the tenant reached preliminary agreement on a fair valuation of $41,000,000 for the properties, and, accordingly, on January 22, 2020, we disposed of the properties at the specified mid-point of $39,260,000. With the expectation of deferring, for tax purposes, our gain recognition from this disposition, we have engaged a qualified intermediary to effect a like-kind exchange under §1031 of the Internal Revenue Code.

We identified two assisted living properties for disposal and began active marketing of the properties. The buildings are smaller than are typical of our portfolio and are no longer considered to be an appropriate investment for NHI. In January 2019 we ceased recording depreciation on the properties, and we booked an adjustment to lease revenues to write off the associated $124,000 in straight-line receivables. We recognized an impairment loss of $2,500,000 to write down the properties to their estimated net realizable value. We have classified the assets as held for sale on the Consolidated Balance Sheet at December 31, 2019.

Tenant Purchase Options

Certain of our operators hold purchase options allowing them to acquire properties they currently lease from NHI. For options open or coming open in the near future, we are engaged in preliminary negotiations to continue as lessor or in some other capacity.

A summary of these tenant options, excluding properties classified as held for sale, is presented below (dollars in thousands):

Asset	Number of	Lease	1st Option	Option	Contractual
Type	Properties	Expiration	Open Year	Basis	Rent
MOB	1	February 2025	Open	i	$	306
HOSP	1	March 2025	2020	iv	$	1,957
HOSP	1	September 2027	2021	ii	$	2,760
SHO	2	May 2031	2021	iv	$	5,063
HOSP	1	June 2022	2022	i	$	3,502
SNF	7	August 2028	2025	iii	$	3,671
SNF	1	September 2028	2028	iii	$	472

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Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by i) greater of fixed base price or fair market value; ii) a fixed base price plus a specified share in any appreciation; iii) fixed base price; or iv) a fixed capitalization rate on lease revenue.

Real Estate and Mortgage Write-downs

Our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers. Governments at both the federal and state levels have enacted legislation to lower, or at least slow, the growth in payments to health care providers. Furthermore, the cost of professional liability insurance has increased significantly during this same period. Since our inception in 1991, a number of our facility operators and mortgage loan borrowers have undergone bankruptcy. Others have been forced to surrender properties to us in lieu of foreclosure or, for certain periods, have failed to make timely payments on their obligations to us.

While we continually monitor our portfolio to identify potential tenant delinquencies, in some cases, a tenant may not stay current with its rent obligation to the Company. In limited cases, when a tenant becomes delinquent on their rent obligations, NHI employs a variety of strategies including installment payment plans designed to bring the tenant current on their obligation within a short period of time (usually less than 12 months). We are currently engaged with tenants employing such payment plans which comprise lease revenue of less than 1% of our total rental income. No rent concessions have been offered.

We believe that the current carrying amounts of our real estate properties are recoverable and that mortgage notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make significant adjustments to these carrying amounts.

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Results of Operations

The significant items affecting revenues and expenses are described below (in thousands):

	Years ended December 31,						Period Change
	2019			2018					%
Revenues:
Rental income
SLC leased to Wingate Healthcare	$	3,642		$	—				NM
SHOs leased to Discovery Senior Living	8,370			5,321			3,049		57.3	%
ALFs leased to Bickford Senior Living	46,749			44,778			1,971		4.4	%
ALFs leased to Comfort Care Senior Living	2,377			662			1,715		NM
SNFs leased to Ensign Group	23,719			22,339			1,380		6.2	%
ALFs leased to Brookdale Senior Living	1,341			5,612			(4,271	)	(76.1	)%
ILFs leased to an affiliate of Holiday Retirement	33,837			37,695			(3,858	)	(10.2	)%
SHOs leased to Chancellor Health Care	9,186			11,494			(2,308	)	(20.1	)%
SLC leased to Vitality Senior Living	172			1,648			(1,476	)	(89.6	)%
Other new and existing leases	132,131			128,191			3,940		3.1	%
Assets held for sale	4,776			286			4,490		NM
	266,300			258,026			8,274		3.2	%
Straight-line rent adjustments, new and existing leases	22,084			22,787			(703	)	(3.1	)%
Escrow funds received from tenants for property taxes and insurance	5,798			—			5,798		NM
Total Rental Income	294,182			280,813			13,369		4.8	%
Interest income from mortgage and other notes
Life Care Services mortgages and construction loans	12,113			4,592			7,521		NM
Bickford construction loans	2,603			1,030			1,573		NM
Senior Living Communities mortgage and other notes	2,970			1,528			1,442		94.4	%
Bickford construction loan (Gurnee, IL)^1^	863			1,170			(307	)	(26.2	)%
Other existing mortgages and notes	5,149			4,901			248		5.1	%
Total Interest Income from Mortgage and Other Notes	23,698			13,221			10,477		79.2	%
Other income	201			578			(377	)	NM
Total Revenue	318,081			294,612			23,469		8.0	%
Expenses:
Depreciation
SHOs leased to Discovery Senior Living	4,026			1,934			2,092		NM
SLC leased to Wingate Healthcare	1,395			—			1,395		NM
ILFs leased to an affiliate of Holiday Retirement	13,885			12,918			967		NM
ALFs leased to Comfort Care Senior Living	904			232			672		NM
Other new and existing assets	56,606			56,265			341		0.6	%
Total Depreciation	76,816			71,349			5,467		7.7	%
Interest	56,299			49,055			7,244		14.8	%
Payroll and related compensation expenses	5,812			6,318			(506	)	(8.0	)%
Non-cash share-based compensation expense	3,646			2,490			1,156		46.4	%
Loan and realty losses	2,440			5,115			(2,675	)	(52.3	)%
Property taxes and insurance on leased properties	5,798			—			5,798		NM
Other expenses	5,998			5,214			784		15.0	%
	156,809			139,541			17,268		12.4	%
Income before loss on convertible note retirement	161,272			155,071			6,201		4.0	%
Loss on convertible note retirement	(823		)	(738		)	(85	)	11.5	%
Net income	160,449			154,333			6,116		4.0	%
Less: net loss attributable to noncontrolling interest	7			—			7		NM
Net income attributable to common stockholders	$	160,456		$	154,333				4.0	%
NM - not meaningful
Rental income by tenant reflects portfolio transitions effected during 2019
^1^ construction loan cancelled as part of property purchase transaction discussed at Note 2

All values are in US Dollars.

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Financial highlights of the year ended December 31, 2019, compared to 2018 were as follows:

•	Rental income received from our tenants increased $13,369,000, or 4.8%, primarily as a result of new investments funded since December 2018. Included in the year-over-year increase in rental income, escrow funds received from tenants totaling $5,798,000 were used to pay property taxes and insurance, which is typical of triple net leases. Narrow-Scope Improvements for Lessors under ASU 2018-20 requires these items to be included as revenue and expense in our condensed consolidated financial statements beginning with the 2019 period.
•	The increase in rental income includes a $703,000 decrease in straight-line rent adjustments. Generally, future increases in rental income depend on our ability to make new investments that meet our underwriting criteria.
---	---
•	Interest income from mortgage and other notes increased $10,477,000, primarily due to interest income received on loans to Life Care Services, Bickford Senior Living and Senior Living Communities.
---	---
•	Depreciation expense increased $5,467,000 primarily due to new real estate investments completed since December 2018.
---	---
•	Interest expense, including amortization of debt discount and issuance costs, increased $7,244,000 primarily as a result of the September 2018 conversion of $300,000,000 of debt initially drawn on our revolving facility into a five-year term loan and the impact of additional borrowings on our revolving credit facility.
---	---
•	Payroll and related compensation expenses decreased $506,000 due primarily to the timing and amount of incentive compensation related to achieving certain company goals.
---	---
•	Non-cash share-based compensation expense increased $1,156,000 due primarily to fluctuations in the valuation assumptions used in the Black-Scholes pricing model.
---	---
•	Loan and realty losses include $2,500,000 recorded as a writedown related to two facilities classified as held for sale.
---	---
•	The following table summarizes our real estate under lease to transitioning tenants (in thousands):
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---	---	---	---	---	---	---	---	---
					Period Change
			2018				%
Revenues:
Rental income
SHOs leased to Chancellor Health Care	1,162		$	4,455		)	(73.9	)%
SHO leased to Senior Living Communities			1,382		(657	)	(47.5	)%
SHO leased to Discovery Senior Living			1,982		(1,602	)	(80.8	)%
SLC leased to Vitality Senior Living			1,739		(1,567	)	(90.1	)%
ALF leased to BAKA Enterprises1			1,085		119		11.0	%
Total Revenues			10,643		(7,000	)	(65.8	)%
Expenses:
Depreciation
SHOs leased to Chancellor Health Care			1,623		—		—	%
SHO leased to Senior Living Communities			492		35		7.1	%
SHO leased to Discovery Senior Living			690		(6	)	(0.9	)%
SLC leased to Vitality Senior Living			622		(6	)	(1.0	)%
ALF leased to BAKA Enterprises			581		—		—	%
Total Depreciation			4,008		23		0.6	%
Legal			—		491		NM
Franchise, excise and other taxes			—		660		NM
			4,008		1,174		29.3	%
Net income (loss)	(1,539	)	$	6,635		)	NM
1 includes 625,000 received during 2019 as a settlement payment

All values are in US Dollars.

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Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of cash include rent payments, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our term loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our shareholders and general corporate overhead.

These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below (dollars in thousands):

	Year Ended						One Year Change				Year Ended		One Year Change
	12/31/2019			12/31/2018					%		12/31/2017				%
Cash and cash equivalents and restricted cash, January 1	$	9,912		$	8,075				NM		8,878			)	(9.0	)%
Net cash provided by operating activities	240,955			207,869			33,086		15.9	%	198,095		9,774		4.9	%
Net cash used in investing activities	(342,521		)	(250,290		)	(92,231	)	NM		(163,846	)	(86,444	)	52.8	%
Net cash provided by (used in) financing activities	107,323			44,258			63,065		NM		(35,052	)	79,310		(226.3	)%
Cash and cash equivalents and restricted cash, December 31	$	15,669		$	9,912				58.1	%	8,075				NM

All values are in US Dollars.

Operating Activities – Net cash provided by operating activities for the years ended December 31, 2019 and 2018 increased primarily as a result of the collection of lease and interest payments on new real estate and note investments completed during 2018 and 2019. Working capital changes contributed an additional $19,271,000 to operating cash flow that included approximately $17,125,000 in cash receipts in settlement of a Holiday receivable, charged to deferred revenues and straight line rent receivables related to the Holiday restructure.

Investing Activities – Net cash flows used in investing activities for the year ended December 31, 2019 were comprised primarily of $345,418,000 of investments in real estate and notes, and was partially offset by the collection of principal on mortgage and other notes receivable of $2,897,000. Net cash flows used in investing activities for the year ended December 31, 2018 increased primarily due to $254,636,000 of investments in real estate and notes, which were partially offset by collection of notes receivable.

Financing Activities – Net cash provided by financing activities for the years ended December 31, 2019 compared to the same period in 2018 is primarily the result of (1) net proceeds of $95,774,000 from the issuance of common shares in 2019, (2) $29,985,000 used to complete targeted repurchases of a portion of our outstanding convertible notes during 2018 and $22,468,000 for the same purpose in 2019 (3) dividend payments which increased $14,348,000 in 2019 over the same period in 2018.

Liquidity

Apart from operations, a primary source of our liquidity is our unsecured bank credit facility. At December 31, 2019, we had $250,000,000 available to draw on our revolving credit facility.

Our bank credit facility is a combination of our Credit Agreement dated as of August 3, 2017 (the "2017 Agreement") and the Term Loan Agreement dated as of September 17, 2018 (the "2018 Agreement"). Together these agreements establish our unsecured $1,100,000,000 bank credit facility, which consists of $250,000,000 and $300,000,000 term loans and a $550,000,000 revolving credit facility. The $250,000,000 term loan and $550,000,000 revolving facility mature in August 2022, and the $300,000,000 term loan matures in September 2023.

The revolving facility fee is currently 20 basis points per annum, and based on our current leverage ratios, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 120 bps and a blended 132 bps, respectively. At December 31, 2019 and December 2018, 30-day LIBOR was 176 and 252 bps, respectively. Within the facility, the employment of interest rate swaps for a portion of our fixed term debt leaves only $240,000,000 of our revolving credit facility exposed to interest rate risk through June 2020, when our $80,000,000 and $130,000,000 swaps expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.” The current interest spreads and facility fee reflect our leverage-ratio compliance based on the applicable margin for LIBOR loans, measuring debt to “Total Asset Value,” at Level 3 in the Interest Rate Schedule provided below in abridged format:

Interest Rate Schedule

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		LIBOR Margin
Level	Leverage Ratio	Revolver	$300m Term Loan	$250m Term Loan	Facility Fee
1	< 0.35	1.10%	1.20%	1.25%	0.15%
2	≥ 0.35 & < 0.40	1.15%	1.25%	1.30%	0.20%
3	≥ 0.40 & < 0.45	1.20%	1.30%	1.35%	0.20%
4	≥ 0.45 & < 0.50	1.25%	1.40%	1.45%	0.25%

Beyond the applicable ratios detailed above, increasing levels of leverage (not shown) will subject our debt to defined increases in interest rates and fees.

LIBOR is scheduled for discontinuation by December 2021. In the United States, the Alternative Reference Rates Committee, a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York has identified the Secured Overnight Financing Rate as its preferred alternative rate for USD LIBOR. The Company continues to monitor the establishment of a new replacement index with the assistance of its banking advisors.

If a suitable replacement to LIBOR is not identified, the bank facilities provide for rate alternatives which have historically been disadvantageous. Upon the discontinuation of LIBOR, interest expense and the credit spread determined in the Company’s bank facilities using a new index rate may materially change interest expense relative to what it would have been if LIBOR had not been discontinued.

The Company will continue to monitor the progress of a LIBOR replacement index rate and will seek to modify its existing bank facilities once the new index rate is sufficiently established within the capital markets.

The 2017 Agreement requires that we calculate specified financial statement metrics and meet or exceed a variety of financial ratios, which are usual and customary in nature. These ratios are calculated quarterly and as of December 31, 2019, were within required limits. The calculation of our leverage ratio involves intermediate determinations of our “total indebtedness” and of our “total asset value,” as defined.

Aside from a more favorable rate, the 2018 Agreement generally calls for the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement. Although we are currently eligible under the 2017 and 2018 Agreements to transact in our unsecured bank credit facilities at the respective scheduled rates represented by Level 3, the movement of our leverage ratio into Level 4 at current levels of debt would result in additional annual interest charges of $1,300,000, assuming an average revolver balance of approximately $200,000,000. Further movement of our leverage ratio beyond levels currently contemplated by management would be subject to escalating increases in interest. If, in addition to changes in the leverage ratio, certain qualitative indicators of our risk profile were to materially change, further interest-rate escalations may result.

In November 2015, Fitch Ratings issued to us a private monitored credit rating of BBB- with a ‘Stable’ rating outlook. In December 2018 and again on October 31, 2019, Fitch Ratings affirmed their BBB- rating and ‘Stable’ rating outlook. NHI has elected to make this rating public and to that effect, on November 4, 2019, Fitch Ratings announced a public issuer credit rating of BBB- with an outlook of ‘Stable’. On the same day, S&P Global Ratings announced our public issuer credit rating of BBB- with an outlook of ‘Stable’. The ratings from both agencies were provided on NHI as an issuer as well as on our senior unsecured debt. Our unsecured bank credit facility includes an option to shift from the leverage-based LIBOR margin schedule in the table above to a ratings-based LIBOR margin schedule. Shifting to a ratings-based LIBOR margin schedule potentially reduces volatility of our interest cost during periods of time when our leverage may fluctuate modestly. Our decision to move to a ratings-based margin schedule will be based on several factors including the relative cost of the ratings-based versus leverage-based margin schedules, and our desire to have a more stable interest cost if our leverage modestly changes as compared to the existing leverage-based margin schedule. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating below investment grade and our compliance leverage increases to 50% or more.

Our at-the-market (“ATM”) offering represents an additional source of liquidity. Through the program in 2019, we issued 1,209,522 common shares, with an average price for shares sold of $80.58, resulting after commissions and legal and accounting costs in net proceeds of $95,774,000. Cash from these issuances was initially used to pay down our revolving credit facility.

As we anticipate a continuation of our activity in the ATM program in 2020, we intend to use the proceeds for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. Acquisitions, if any, whose magnitude would entail an equity match unable to be efficiently sourced through the ATM would likely trigger a prospectus supplement and an underwritten or overnight offering of NHI common stock, rather than placement through the ATM. Previous offerings made under the ATM program were pursuant to a prospectus dated February 22, 2017, which constituted

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part of NHI’s effective shelf registration statement previously filed with the Securities and Exchange Commission. Since the effective registration statement covering the ATM program expires in 2020, the Company intends to file a new shelf registration statement and approve a new ATM program to replace the expiring program.

Traditionally, debt financing, equity proceeds, operating and financing cash flows derived from proceeds of lease and mortgage collections, loan payoffs and the recovery of previous write-downs, have been used to satisfy our operational and investing needs and to provide a return to our shareholders. We expect to continue to access these sources of capital to meet those operational and investing needs, which are necessary to maintain and cultivate our funding sources and have generally fallen into three categories: debt service, the payment of dividends, REIT operating expenses, and new real estate investments.

The following table summarizes the share issuances since inception of our ATM as of December 31, 2019:

Year	Shares	Weighted Average Share Price		Net Proceeds
2015	830,506	$	60.33	$	49,389,000
2016	1,395,642	$	75.79	104,190,000
2017	1,661,161	$	74.87	122,500,000
2018	1,112,363	$	74.84	82,001,000
2019	1,209,522	$	80.58	95,999,000
	6,209,194			$	454,079,000

The table above does not include indirect legal and accounting costs associated with updating and maintaining our shelf registration statement.

Our use of ATM proceeds rebalanced our leverage in response to our acquisitions and keeps our options flexible for further expansion. We continue to explore various other funding sources including bank term loans, convertible debt, traditional equity placement, unsecured bonds and senior notes, debt private placement, public debt and secured government agency financing. We view our ATM program as an effective way to match-fund our smaller acquisitions by exercising control over the timing and size of transactions and achieving a more favorable cost of capital as compared to larger follow-on offerings.

We anticipate continued use of proceeds from the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. Acquisitions, if any, whose magnitude would entail an equity match unable to be efficiently sourced through the ATM would likely trigger a prospectus supplement and an overnight or marketed offering of NHI common stock, rather than placement through the ATM.

We expect that borrowings on our revolving credit facility, borrowings on term loans, and our ATM program will allow us to continue to make real estate investments in 2020 and beyond. Recent actions by the federal government to reduce the federal funds rate may temporarily reduce anticipated upward pressure on our historically low cost of debt capital. If the federal government decides to reverse this trend as it seeks to hold inflation to acceptable levels, we can expect that our cost of debt capital will increase in the mid-term.

Concurrent with the amendments to our credit facility and with the exception of specific debt-coverage ratios, covenants pertaining to our private placement term loans were generally conformed with those governing the credit facility.

Beginning in December 2019, through the issuance of unregistered common stock and cash in retirement of $60,000,000 of our convertible notes, we funded our Timber Ridge acquisition, which closed January 2020. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by fair valuing the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account.

A roll-forward for 2019 of our convertible note balances, including the effect of year-to-date amortization, net of issuance costs, is presented below:

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	December 31, <br>2018			Exchange			Amortization		December 31, <br>2019
Face Amount	$	120,000		$	(60,000	)	$	—	$	60,000
Discount	(1,391		)	$	328		$	760	(303		)
Issuance Costs	(910		)	$	210		$	505	(195		)
Carrying Value	$	117,699							$	59,502

Total consideration given in the exchange of $73,102,000 included the issuance of 626,397 shares of NHI common stock with a fair value of $51,002,000 and cash disbursed of $22,100,000.

Total consideration given in the exchange was allocated as $60,285,000 to the note retirement with the remaining expenditure of $12,816,000 allocated to retirement of the equity feature of the notes. A loss of $823,000 for the year ended December 31, 2019, resulted from the excess allocation of cash expenditures over the book value of the notes retired, net of discount and issuance costs.

As of December 31, 2019, our $60,000,000 of senior unsecured convertible notes were convertible at a rate of 14.62 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $68.39 per share for a total of 877,356 remaining underlying shares. For the year ended December 31, 2019, dilution resulting from the conversion option within our convertible debt is 210,224 shares. If NHI’s current share price increases above the adjusted $68.39 conversion price, further dilution will be attributable to the conversion feature. On December 31, 2019, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $11,487,000.

We may continue from time to time to seek to retire or purchase some of our outstanding convertible notes through cash open market purchases, privately-negotiated transactions or otherwise. As with our 2019 repurchases, amounts and timing of further repurchases or exchanges, if any, will be dependent on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

When we take on new debt or when we modify or replace existing debt, we incur debt issuance costs. These costs are subject to amortization over the term of the new debt instrument and may result in the write-off of fees associated with debt which has been replaced or modified. Sustaining long-term dividend growth will require that we consider all sources of capital mentioned above, with the goal of maintaining a low-leverage balance sheet and staggered debt maturities as mitigation against potential adverse changes in the business of our industry, tenants and borrowers.

Interest Rate Swap Agreements

To mitigate our exposure to interest rate risk, we have the following interest rate swap contracts in place to hedge against floating rates on our bank term loans and a portion of our revolving credit facility as of December 31, 2019 (dollars in thousands):

Date Entered	Maturity Date	Fixed Rate	Rate Index	Notional Amount		Fair Value (Liability)
June 2013	June 2020	3.46%	1-month LIBOR	$	80,000,000	$	(177	)
March 2014	June 2020	3.51%	1-month LIBOR	$	130,000,000	$	(316	)
March 2019	December 2021	3.51%	1-month LIBOR	$	100,000,000	$	(1,318	)
March 2019	December 2021	3.52%	1-month LIBOR	$	100,000,000	$	(1,344	)
June 2019	December 2021	2.89%	1-month LIBOR	$	150,000,000	$	(200	)
June 2019	December 2021	2.93%	1-month LIBOR	$	50,000,000	$	(79	)

For instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative has been reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness have been recognized in earnings. With the 2017 Agreement, discussed above, we introduced into the credit facility a LIBOR floor not present in the hedges which resulted in hedge inefficiency of approximately $353,000 for the year ended December 31, 2017, which we credited to interest expense.

On January 1, 2018 we adopted ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, as discussed in the Notes to the consolidated financial statements. The transition method is a modified retrospective approach that required the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of 2018. The

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primary provision in the ASU requiring adjustment to our beginning retained earnings is the change in timing and income statement line item for ineffectiveness related to cash flow hedges. Upon the adoption of the new standard, we reversed cumulative ineffectiveness occurring in the last six months of 2017, resulting in a retroactive net charge to retained earnings and a credit to accumulated other comprehensive income of $235,000 as of January 1, 2018. Upon adoption of the ASU, the Company achieved a better alignment of its financial reporting for hedging activities with the economic objectives of those activities.

Dividend Policy

We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year ending December 31, 2019 and thereafter. Dividends declared for the fourth quarter of each fiscal year are paid by the end of the following January and are, with some exceptions, treated for tax purposes as having been paid in the fiscal year just ended as provided in IRS Code Sec. 857(b)(8). We may need to declare a special dividend when we compute our REIT taxable income in an amount that exceeds our regular dividends for the fiscal year.

Off Balance Sheet Arrangements

We currently have no outstanding guarantees. As described in Note 1 to the consolidated financial statements, our leases, mortgages and other notes receivable with certain entities represent variable interests in those enterprises. However, because we do not control these entities, nor do we have any role in their day-to-day management, we are not their primary beneficiary and therefore do not consolidate their financial statements. Except as discussed under Contractual Obligations and Commitments and Contingencies below, we have no further material obligations arising from our transactions with these entities, and we believe our maximum exposure to loss at December 31, 2019, due to this involvement would be limited to our contractual commitments and contingent liabilities and the amount of our current investments with them, as detailed further in Notes 1, 2, 3 and 6 to the consolidated financial statements. As of December 31, 2019, we furnished no direct support to any of these entities.

In March 2014 we issued convertible notes, which have a carrying amount of $59,502,000 as of December 31, 2019, with the conversion feature being intended to broaden the Company’s credit profile and as a means to obtain a more favorable coupon rate. For this feature we calculate the dilutive effect using market prices prevailing over the reporting period. Because the dilution calculation is market-driven, and per share guidance we provide is based on diluted amounts, the theoretical effects of the conversion feature result in per share unpredictability.

Additional disclosure requirements also give widely ranging results depending on market price variability. The notes will be freely convertible in the last six months of their contractual life, beginning in the fourth quarter of 2020; however, generally accepted accounting principles require us to periodically report the amount by which the notes’ convertible value exceeds their principal amount, without regard to the current availability of the conversion feature. Further, the mechanics of the calculation require the use of an end-of-period stock price, so that using that amount for the remaining notes outstanding of $60,000,000 at December 31, 2019, delivers an excess of $11,487,000, whereas the use of another price point would give a different result.

The conversion feature is generally available to the noteholders entering the last six months of the notes’ term but may also become actionable if the market price of NHI’s common stock should, for 20 of 30 consecutive trading days within a calendar quarter, sustain a level in excess of 130% of the adjusted conversion price, or $88.90 per share, down from $93.55 per share, initially. The notes are “optional net-share settlement” instruments, meaning that NHI has the ability and intent to settle the principal amount of the indebtedness in cash, with possible dilutive share issuances for any excess, at NHI’s option. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by valuing the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes will be recognized first as a settlement of the notes at par and then will be recognized in income to the extent the portion allocated to the debt instrument differs from par value. The remainder of the allocation, if any, will be treated as settlement of equity and adjusted through our paid in capital account.

Contractual Obligations

As of December 31, 2019, our contractual payment obligations were as follows (in thousands):

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	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt, including interest^1^	$	1,500,478	$	51,959	$	613,274	$	552,808	$	282,437
Development commitments	12,893		12,893		—		—		—
Loan commitments	75,112		75,112		—		—		—
	$	1,588,483	$	139,964	$	613,274	$	552,808	$	282,437

^1^ Interest is calculated based on the weighted average interest rate of outstanding debt balances as of December 31, 2019. The calculation also includes a facility fee of .20%.

Commitments and Contingencies

	Asset Class	Type	Total		Funded			Remaining
Loan Commitments:
LCS Sagewood Note A	SHO	Construction	$	118,800,000	$	(77,340,000	)	$	41,460,000
LCS Sagewood Note B	SHO	Construction	61,200,000		(45,938,000		)	15,262,000
LCS Timber Ridge Note A	SHO	Construction	60,000,000		(59,350,000		)	650,000
Bickford Senior Living	SHO	Construction	28,700,000		(23,116,000		)	5,584,000
Senior Living Communities	SHO	Revolving Credit	12,000,000		(5,174,000		)	6,826,000
41 Management	SHO	Construction	10,800,000		(6,045,000		)	4,755,000
Discovery Senior Living	SHO	Working Capital	750,000		(175,000		)	575,000
			$	292,250,000	$	(217,138,000	)	$	75,112,000

See Note 3 to our consolidated financial statements for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.

	Asset Class	Type	Total		Funded			Remaining
Development Commitments:
Ignite Medical Resorts	SNF	Construction	$	25,350,000	$	(16,903,000	)	$	8,447,000
Woodland Village	SHO	Renovation	7,515,000		(7,425,000		)	90,000
Senior Living Communities	SHO	Renovation	9,930,000		(9,067,000		)	863,000
Wingate Healthcare	SHO	Renovation	1,900,000		(357,000		)	1,543,000
Discovery Senior Living	SHO	Renovation	900,000		—			900,000
Navion Senior Solutions	SHO	Construction	650,000		—			650,000
41 Management	SHO	Construction	400,000		—			400,000
			$	46,645,000	$	(33,752,000	)	$	12,893,000

In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding up to $2,000,000 for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 has been funded toward the commitment.

	Asset Class	Type	Total		Funded			Remaining
Contingencies:
Comfort Care Senior Living	SHO	Lease Inducement	6,000,000		—			6,000,000
Wingate Healthcare	SHO	Lease Inducement	5,000,000		—			5,000,000
Navion Senior Solutions	SHO	Lease Inducement	4,850,000		(500,000		)	4,350,000
Discovery Senior Living	SHO	Lease Inducement	4,000,000		—			4,000,000
Ignite Medical Resorts	SNF	Lease Inducement	2,000,000		—			2,000,000
			$	21,850,000	$	(500,000	)	$	21,350,000

Litigation

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In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

The LaSalle Group defaulted on its rent payment in November 2018. We transitioned the properties to a new operator on April 16, 2019, with NHI to receive operating cash flow, after management fees, generated by the facilities pending stabilization. We also commenced litigation for the recovery of certain funds owed under the lease and against the principal executive personally, under a guaranty agreement. The LaSalle Group, the former operator of the properties, has declared bankruptcy under Chapter 11. In December 2019, we reached an agreement with TLG Family Management and Mitchell Warren, who, without making any admissions under a joint-liability settlement, have agreed to pay to NHI $2,850,000 over a five-year period, consisting of sixty-one scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of $60,000 in December 2019.

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FFO, AFFO & FAD

These supplemental operating performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations (“FFO”), Normalized FFO, Normalized Adjusted Funds From Operations (“AFFO”) and Normalized Funds Available for Distribution (“FAD”) may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these operating performance measures, caution should be exercised when comparing our Company’s FFO, Normalized FFO, Normalized AFFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”) (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of operating performance, or to net cash flow from operating activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs.

Funds From Operations - FFO

Our FFO per diluted common share for the year ended December 31, 2019 increased $0.13 (2.4%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, impairments of real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company’s computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company’s FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities.

Our Normalized FFO per diluted common share for the year ended December 31, 2019 increased $0.04 (0.7%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs.

FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue. Accordingly, we believe that FFO and normalized FFO provide useful information to investors regarding our operating results.

Adjusted Funds From Operations - AFFO

Our Normalized AFFO per diluted common share for the year ended December 31, 2019 increased $0.06 (1.2%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. In addition to the adjustments included in the calculation of Normalized FFO, Normalized AFFO excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our convertible senior notes and amortization of debt issuance costs.

Normalized AFFO is an important supplemental measure of operating performance for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires the original issue discount of our convertible senior notes and debt issuance costs to be amortized as non-cash adjustments to earnings. Normalized AFFO is useful to our investors as it reflects the growth inherent in the contractual lease payments of our real estate portfolio.

Funds Available for Distribution - FAD

Our Normalized FAD for the year ended December 31, 2019 increased $12,105,000 (5.6%) over the same period in 2018 due primarily to the impact of new investments completed since December 2018. In addition to the adjustments included in the calculation of Normalized AFFO, Normalized FAD excludes the impact of non-cash stock based compensation. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to shareholders.

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The following table reconciles net income attributable to common stockholders, the most directly comparable GAAP metric, to FFO, Normalized FFO, Normalized AFFO and Normalized FAD and is presented for both basic and diluted weighted average common shares (in thousands, except share and per share amounts):

	Years ended December 31,
	2019			2018			2017
Net income attributable to common stockholders	$	160,456		$	154,333		$	159,365
Elimination of certain non-cash items in net income:
Depreciation	76,816			71,349			67,173
Depreciation related to noncontrolling interest	(52		)	—			—
Gain on sale of real estate	—			—			(50		)
Impairment of real estate	2,500			—			—
NAREIT FFO attributable to common stockholders	$	239,720		$	225,682		$	226,488
Gains on sales of marketable securities	—			—			(10,038		)
Loss on convertible note retirement	823			738			2,214
Debt issuance costs written-off due to credit facility modifications	—			—			407
Ineffective portion of cash flow hedges	—			—			(353		)
Non-cash write-off of straight-line rent receivable	—			3,701			—
Note receivable impairment	—			363			—
Recognition of unamortized note receivable commitment fees	—			(515		)	(922		)
Normalized FFO attributable to common stockholders	$	240,543		$	229,969		$	217,796
Straight-line lease revenue, net	(22,084		)	(21,736		)	(26,090		)
Straight-line lease revenue, net, related to noncontrolling interest	13			—			—
Amortization of lease incentives	845			387			119
Amortization of original issue discount	761			788			1,109
Amortization of debt issuance costs	2,805			2,526			2,483
Normalized AFFO attributable to common stockholders	$	222,883		$	211,934		$	195,417
Non-cash share-based compensation	3,646			2,490			2,612
Normalized FAD attributable to common stockholders	$	226,529		$	214,424		$	198,029
BASIC
Weighted average common shares outstanding	43,417,828			41,943,873			40,894,219
NAREIT FFO attributable to common stockholders per share	$	5.52		$	5.38		$	5.54
Normalized FFO attributable to common stockholders per share	$	5.54		$	5.48		$	5.33
Normalized AFFO attributable to common stockholders per share	$	5.13		$	5.05		$	4.78
DILUTED
Weighted average common shares outstanding	43,703,248			42,091,731			41,151,453
NAREIT FFO attributable to common stockholders per share	$	5.49		$	5.36		$	5.50
Normalized FFO attributable to common stockholders per share	$	5.50		$	5.46		$	5.29
Normalized AFFO attributable to common stockholders per share	$	5.10		$	5.04		$	4.75

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Adjusted EBITDA

We consider Adjusted EBITDA to be an important supplemental measure because it provides information which we use to evaluate our performance and serves as an indication of our ability to service debt. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization, including amounts in discontinued operations, excluding real estate asset impairments and gains on dispositions and certain items which may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA:

	Years ended December 31,
	2019		2018			2017
Net income	$	160,449	$	154,333		$	159,365
Interest expense	56,299		49,055			46,324
Franchise, excise and other taxes	1,550		1,166			960
Depreciation	76,816		71,349			67,173
Gain on sale of real estate	—		—			(50		)
Impairment of real estate	2,500		—			—
Gains on sales of marketable securities	—		—			(10,038		)
Loss on convertible note retirement	823		738			2,214
Non-cash write-off of straight-line rent receivable	—		3,701			—
Note receivable impairment	—		363			—
Recognition of unamortized note receivable commitment fees	—		(515		)	(922		)
Adjusted EBITDA	$	298,437	$	280,190		$	265,026
Interest expense at contractual rates	$	53,923	$	45,789		$	40,385
Principal payments	1,187		1,062			794
Fixed Charges	$	55,110	$	46,851		$	41,179
Fixed Charge Coverage	5.4x		6.0x			6.4x

For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

At December 31, 2019, we were exposed to market risks related to fluctuations in interest rates on approximately $240,000,000 of variable-rate indebtedness (excludes $610,000,000 of variable-rate debt that has been hedged through interest-rate swap contracts) and on our mortgage and other notes receivable. The unused portion ($250,000,000 at December 31, 2019) of our revolving credit facility, should it be drawn upon, is subject to variable rates.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. Assuming a 50 basis-point increase or decrease in the interest rate related to variable-rate debt, and assuming no change in the outstanding balance as of December 31, 2019, net interest expense would increase or decrease annually by approximately $1,200,000 or $0.03 per common share on a diluted basis.

We use derivative financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative purposes. Derivatives are included in the Condensed Consolidated Balance Sheets at their fair value. We may engage in hedging strategies to manage our exposure to market risks in the future, depending on an analysis of the interest rate environment and the costs and risks of such strategies.

The following table sets forth certain information with respect to our debt (dollars in thousands):

	December 31, 2019						December 31, 2018
	Balance^1^		% of total		Rate^3^		Balance^1^		% of total		Rate^3^
Fixed rate:
Convertible senior notes	$	60,000	4.1	%	3.25	%	$	120,000	9.3	%	3.25	%
Private placement term loans	400,000		27.6	%	4.15	%	400,000		30.9	%	4.15	%
Bank term loans - unsecured	550,000		38.0	%	3.36	%	250,000		19.3	%	3.34	%
HUD mortgage loans^2^	43,376		3.0	%	4.04	%	44,226		3.4	%	4.04	%
Fannie Mae term loans	95,706		6.6	%	3.94	%	96,044		7.4	%	3.94	%
Revolving credit facility - unsecured	60,000		4.1	%	2.81	%	—		—	%	—	%
Variable rate:
Bank term loans - unsecured	—		—	%	—	%	300,000		23.2	%	3.77	%
Revolving credit facility - unsecured	240,000		16.6	%	2.96	%	84,000		6.5	%	3.92	%
	$	1,449,082	100.0	%	3.54	%	$	1,294,270	100.0	%	3.88	%
^1^ Differs from carrying amount due to unamortized discounts and loan costs.
^2^ Includes 10 HUD mortgages; rate is a weighted average inclusive of a mortgage insurance premium
^3^ Total is weighted average rate

The unsecured bank term loans in the table above reflect the effect of $50,000,000, $80,000,000, $130,000,000, two $100,000,000 and $150,000,000 notional amount interest rate swaps with maturities of June 2020, and December 2021, that effectively convert variable rate debt to fixed rate debt. These loans bear interest at LIBOR plus a spread, currently a blended 131 basis points, based on our Leverage-Based Applicable Margin, as defined.

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To highlight the sensitivity of our convertible senior notes and secured mortgage debt to changes in interest rates, the following summary shows the effects on fair value (“FV”) assuming a parallel shift of 50 basis points (“bps”) in market interest rates for a contract with similar maturities as of December 31, 2019 (dollars in thousands):

	Balance		Fair Value^1^		FV reflecting change in interest rates
Fixed rate:					-50 bps		+50 bps
Private placement term loans - unsecured	$	400,000	$	401,769	$	410,607	$	393,157
Convertible senior notes	60,000		60,066		60,460		59,673
Fannie Mae loans	95,706		94,409		96,692		92,186
HUD mortgage loans	43,376		46,682		49,895		43,750
^1^ The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.

At December 31, 2019, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $347,543,000. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $16,828,000, while a 50 basis point decrease in such rates would increase their estimated fair value by approximately $5,130,000.

Equity Price Risk

The Company is no longer subject to equity risk since it no longer owns any marketable securities.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

National Health Investors, Inc.

Murfreesboro, Tennessee

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of National Health Investors, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 19, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Asset Impairment - Real Estate Properties

As described in the Company's consolidated financial statements, the Company had total real estate properties, net of approximately $2.6 billion as of December 31, 2019. As described in Note 1 to the Company’s consolidated financial statements, management evaluates the recoverability of the carrying amounts of real estate properties on a property-by-property basis when events or circumstances indicate that the carrying amounts may not be fully recoverable. A real estate property is impaired when the estimated undiscounted future cash flows of the property are less than the net carrying amount.

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We identified management’s identification and assessment of the indicators of potential impairment of real estate properties as a critical audit matter. Indicators of an impairment of real estate properties may include significant physical changes in the property, significant adverse changes in general economic conditions, or significant deteriorations of the underlying cash flows of the lessee operating the property. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of auditor effort required to address these matters, including the degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included:

•	Testing the design and operating effectiveness of controls related to management’s identification and assessment of indicators of an impairment of real estate properties, including significant physical changes in the property, significant adverse changes in general economic conditions, or significant deteriorations of the underlying cash flows of the lessee operating the property.
•	Assessing the reasonableness of management’s assumptions and inputs, including certain factors such as the evaluation of the condition of the properties, changes in general economic conditions, and deterioration of the underlying cash flows of the lessee operating the property, which are used by management to identify and assess whether an impairment indicator existed.
---	---
•	Testing the completeness and accuracy of underlying real estate property data including validating the number of properties and certain financial results to the general ledger.
---	---
•	Reviewing internal documentation including Board of Director minutes, letters of intent for properties held for sale, and operations department communications for real estate properties, including those with lower lease coverage ratios, to assess whether additional indicators of impairment were present.
---	---

Estimation of Overall Fair Value

As described in Note 2 to the Company's consolidated financial statements, the Company acquired a senior housing facility in Vero Beach, Florida from one of its major tenants in exchange for a $38.0 million reduction in an existing receivable of approximately $55.1 million due from the tenant. Changes in the assumptions used by management to estimate the overall fair value of the property acquired in exchange for a reduction in the receivable could have a material impact on the amount and timing of rental income and depreciation expense recorded subsequent to the acquisition date.

We identified management’s estimation of the overall fair value of the property received as a critical audit matter. Estimating the overall fair value of the property received required management to make significant judgments related to market capitalization rates and to identify appropriate guideline transactions, which involved complexity and judgment in applying relevant accounting guidance. Performing audit procedures to evaluate the reasonableness of these assumptions and estimates required a high degree of auditor judgment and increased extent of auditor effort, including the need to involve professionals with specialized skills.

The primary procedures we performed to address this critical audit matter included:

•	Utilizing professionals with specialized skills and knowledge to assist in: (i) evaluating the reasonableness of the methodology used by management to determine the overall fair value of the property received, and (ii) obtaining independent comparable sales transactions to test the market capitalization rates and to identify appropriate guideline transactions.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2004.

Nashville, Tennessee

February 19, 2020

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


Assets:			2018
Real estate properties:
Land	213,617		$	202,196
Buildings and improvements			2,599,526
Construction in progress			16,643
			2,818,365
Less accumulated depreciation		)	(451,483		)
Real estate properties, net			2,366,882
Mortgage and other notes receivable, net			246,111
Cash and cash equivalents			4,659
Straight-line rent receivable			105,620
Other assets			27,298
Assets held for sale, net			—
Total Assets	3,042,235		$	2,750,570
Liabilities and Equity:
Debt	1,440,465		$	1,281,675
Accounts payable and accrued expenses			19,890
Dividends payable			42,700
Lease deposit liabilities			10,638
Deferred income			5,954
Total Liabilities			1,360,857
Commitments and Contingencies
National Health Investors Stockholders' Equity:
Common stock, .01 par value; 60,000,000 shares authorized;
44,587,486 and 42,700,411 shares issued and outstanding			427
Capital in excess of par value			1,369,919
Cumulative net income in excess (deficit) of dividends		)	18,068
Accumulated other comprehensive (loss) income		)	1,299
Total National Health Investors Stockholders' Equity			1,389,713
Noncontrolling interest			—
Total Equity			1,389,713
Total Liabilities and Equity	3,042,235		$	2,750,570

All values are in US Dollars.

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

	Years Ended December 31,
	2019			2018			2017
Revenues:
Rental income	$	294,182		$	280,813		$	265,169
Interest income and other	23,899			13,799			13,490
	318,081			294,612			278,659
Expenses:
Depreciation	76,816			71,349			67,173
Interest	56,299			49,055			46,324
Legal	507			309			494
Franchise, excise and other taxes	1,550			1,166			960
General and administrative	13,399			12,547			12,217
Property taxes and insurance on leased properties	5,798			—			—
Loan and realty losses	2,440			5,115			—
	156,809			139,541			127,168
Income before investment and other gains and losses	161,272			155,071			151,491
Loss on convertible note retirement	(823		)	(738		)	(2,214		)
Investment and other gains	—			—			10,088
Net income	160,449			154,333			159,365
Less: net loss attributable to noncontrolling interest	7			—			—
Net income attributable to common stockholders	$	160,456		$	154,333		$	159,365
Weighted average common shares outstanding:
Basic	43,417,828			41,943,873			40,894,219
Diluted	43,703,248			42,091,731			41,151,453
Earnings per common share:
Net income per common share attributable to common stockholders - basic	$	3.70		$	3.68		$	3.90
Net income per common share attributable to common stockholders - diluted	$	3.67		$	3.67		$	3.87

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Years Ended December 31,
	2019			2018		2017
Net income	$	160,449		$	154,333	$	159,365
Other comprehensive income (loss):
Change in unrealized (gains) on securities	—			—		(26		)
Less: reclassification adjustment for gains in net income	—			—		(10,038		)
(Decrease) increase in fair value of cash flow hedge	(3,940		)	1,722		884
Reclassification adjustment for amounts recognized in net income	(791		)	164		2,627
Total other comprehensive (loss) income	(4,731		)	1,886		(6,553		)
Comprehensive income	155,718			156,219		152,812
Less: comprehensive loss attributable to noncontrolling interest	7			—		—
Comprehensive income attributable to common stockholders	$	155,725		$	156,219	$	152,812

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2019			2018			2017
Cash flows from operating activities:
Net income	$	160,449		$	154,333		$	159,365
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation	76,816			71,349			67,173
Amortization of debt issuance costs, debt discounts and prepaids	5,117			4,437			5,790
Amortization of commitment fees and note receivable discounts	(493		)	(662		)	(517		)
Amortization of lease incentives	845			387			119
Straight-line lease revenue	(22,084		)	(22,787		)	(26,090		)
Non-cash interest income on construction loan	(2,204		)	(1,680		)	(792		)
Gain on sales of real estate	—			—			(50		)
Loss on convertible note retirement	823			738			2,214
Loan and realty losses	2,440			5,115			—
Payment of lease incentives	(3,100		)	(5,280		)	—
Gains on sales of marketable securities, net	—			—			(10,038		)
Non-cash share-based compensation	3,646			2,490			2,612
Change in operating assets and liabilities:
Other assets	1,604			(5,298		)	(3,602		)
Accounts payable and accrued expenses	300			4,587			1,607
Deferred income	16,796			140			304
Net cash provided by operating activities	240,955			207,869			198,095
Cash flows from investing activities:
Investment in mortgage and other notes receivable	(108,232		)	(106,991		)	(49,853		)
Collection of mortgage and other notes receivable	2,897			4,346			43,168
Investment in real estate	(219,187		)	(131,758		)	(157,214		)
Investment in real estate development	—			—			(10,691		)
Investment in renovations of existing real estate	(17,999		)	(15,887		)	(7,888		)
Proceeds from disposition of real estate properties	—			—			450
Proceeds from sales of marketable securities	—			—			18,182
Net cash used in investing activities	(342,521		)	(250,290		)	(163,846		)
Cash flows from financing activities:
Proceeds from revolving credit facility	397,000			306,000			269,000
Payments on revolving credit facility	(181,000		)	(443,000		)	(206,000		)
Proceeds from borrowings on term loans	—			300,000			250,000
Payments on term loans	(1,187		)	(1,144		)	(250,822		)
Deferred loan costs	(126		)	(2,171		)	(4,935		)
Distributions to noncontrolling interest	(15		)	—			—
Proceeds from noncontrolling interest	643			—			—
Taxes remitted in relation to employee stock options exercised	(1,559		)	(1,835		)	(571		)
Proceeds from equity offering, net	95,774			81,784			122,237
Convertible bond redemption	(22,468		)	(29,985		)	(60,921		)
Dividends paid to stockholders	(179,739		)	(165,391		)	(153,040		)
Net cash provided by (used in) financing activities	107,323			44,258			(35,052		)
Increase (decrease) in cash and cash equivalents	5,757			1,837			(803		)
Cash and cash equivalents and restricted cash, beginning of period	9,912			8,075			8,878
Cash and cash equivalents and restricted cash, end of period	$	15,669		$	9,912		$	8,075

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

	Years Ended December 31,
	2019			2018		2017
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	54,027		$	45,882	$	43,191
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for straight-line rent receivable	$	38,000		$	—	$	—
Real estate acquired in exchange for mortgage notes receivable	$	14,000		$	—	$	—
Change in other assets related to investments in real estate	$	291		$	—	$	—
Change in accounts payable related to investments in real estate construction	$	(1,082	)	$	—	$	—
Change in accounts payable related to investments in real estate acquisition	$	2,911		$	1,689	$	(1,855	)
Tenant investment in leased asset	$	—		$	3,775	$	1,250
Tenant forfeiture of lease escrow deposit	$	—		$	10,637	$	—
Settlement of contingent asset acquisition liability	$	—		$	750	$	—
Assumption of debt in real estate acquisition	$	—		$	—	$	18,311

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands except share and per share amounts)

	Common Stock			Capital in Excess of Par Value			Cumulative Net Income in Excess (Deficit) of Dividends			Accumulated Other Comprehensive Income (Loss)			Total National Health Investors Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares	Amount
Balances at December 31, 2016	39,847,860	$	398	$	1,173,588		$	29,873		$	5,731		$	1,209,590		$	—		$	1,209,590
Total comprehensive income	—	—		—			159,365			(6,553		)	152,812			—			152,812
Equity component in redemption of convertible notes	—	—		(7,930		)	—			—			(7,930		)	—			(7,930		)
Issuance of common stock, net	1,661,161	17		122,220			—			—			122,237			—			122,237
Taxes paid on employee stock awards	—	—		(571		)	—			—			(571		)	—			(571		)
Shares issued on stock options exercised	23,133	—		—			—			—			—			—			—
Share-based compensation	—	—		2,612			—			—			2,612			—			2,612
Dividends declared, $3.80 per common share	—	—		—			(156,633		)	—			(156,633		)	—			(156,633		)
Balances at December 31, 2017	41,532,154	415		1,289,919			32,605			(822		)	1,322,117			—			1,322,117
Cumulative effect of change in accounting principle	—	—		—			(235		)	235			—			—			—
Total comprehensive income	—	—		—			154,333			1,886			156,219			—			156,219
Equity component in redemption of convertible notes	—	—		(2,427		)	—			—			(2,427		)	—			(2,427		)
Issuance of common stock, net	1,112,363	12		81,772			—			—			81,784			—			81,784
Taxes paid on employee stock awards	—	—		(1,835		)	—			—			(1,835		)	—			(1,835		)
Shares issued on stock options exercised	55,894	—		—			—			—			—			—			—
Share-based compensation	—	—		2,490			—			—			2,490			—			2,490
Dividends declared, $4.00 per common share	—	—		—			(168,635		)	—			(168,635		)	—			(168,635		)
Balances at December 31, 2018	42,700,411	427		1,369,919			18,068			1,299			1,389,713			—			1,389,713
Noncontrolling interest capital contribution	—	—		—			—			—			—			643			643
Noncontrolling interest distribution	—	—		—			—			—			—			(15		)	(15		)
Total comprehensive income	—	—		—			160,456			(4,731		)	155,725			(7		)	155,718
Issuance of common stock, net	1,209,522	12		95,762			—			—			95,774			—			95,774
Shares issued in convertible debt redemption	626,397	6		38,180			—			—			38,186			—			38,186
Taxes paid on employee stock awards	—	—		(1,559		)	—			—			(1,559		)	—			(1,559		)
Shares issued on stock options exercised	51,156	1		—			—			—			1			—			1
Share-based compensation	—	—		3,646			—			—			3,646			—			3,646
Dividends declared, $4.20 per common share	—	—		—			(183,855		)	—			(183,855		)	—			(183,855		)
Balances at December 31, 2019	44,587,486	$	446	$	1,505,948		$	(5,331	)	$	(3,432	)	$	1,497,631		$	621		$	1,498,252

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

The Company - National Health Investors, Inc. (“NHI”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. Our portfolio consists of lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office buildings. Other investments include joint ventures structured to comply with the provisions of the REIT Investment Diversification Empowerment Act of 2007 (“RIDEA”) through which we invest in facility operations managed by independent third-parties. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities. Units, beds and square footage disclosures in these consolidated financial statements are unaudited.

Principles of Consolidation - The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, joint ventures, partnerships and consolidated variable interest entities (“VIE”), if any. All intercompany transactions and balances have been eliminated in consolidation. Net income is adjusted by the portion of net income (loss) attributable to noncontrolling interests.

A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

We apply Financial Accounting Standards Board (“FASB”) guidance for our arrangements with VIEs which requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of the VIE. In accordance with FASB guidance, management must evaluate each of the Company’s contractual relationships which creates a variable interest in other entities. If the Company has a variable interest and the entity is a VIE, then management must determine whether the Company is the primary beneficiary of the VIE. If it is determined that the Company is the primary beneficiary, NHI would consolidate the VIE. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We perform this analysis on an ongoing basis.

If the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of Accounting Standards Codification (“ASC”) Topic 810 Consolidation. These provisions provide for consolidation of majority-owned entities where a majority voting interest held by the Company demonstrates control of such entities in the absence of any legal constraints.

At December 31, 2019, we held interests in seven unconsolidated VIEs, and, because we generally lack either directly or through related parties any material input or control in the activities that most significantly impact their economic performance, we have concluded that NHI is not the primary beneficiary. Our VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of our exposure to these VIEs, see the notes to our consolidated financial statements cross-referenced below.

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Date	Name	Source of Exposure	Carrying Amount		Maximum Exposure to Loss		Note Reference
2012	Bickford Senior Living	Various^1^	$	63,939,000	$	69,523,000	Notes 2, 3
2014	Senior Living Communities	Notes and straight-line receivable	$	85,440,000	$	95,267,000	Notes 2, 3
2015	Timber Ridge, LCS affiliate	Notes receivable	$	59,166,000	$	59,816,000	Note 3
2016	Senior Living Management	Notes and straight-line receivable	$	26,825,000	$	26,825,000	—
2017	Evolve Senior Living	Note receivable	$	9,948,000	$	9,948,000	—
2018	Sagewood, LCS affiliate	Notes receivable	$	121,809,000	$	178,531,000	Note 3
2019	41 Management, LLC	Notes receivable	$	10,469,000	$	15,355,000	Note 3

^1^ Notes, straight-line rent receivables & unamortized lease incentives

We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we identify as VIEs, and accordingly, our maximum exposure to loss as a result of these relationships is limited to the amount of our commitments, as shown above and discussed in the notes. When the above relationships involve leases, some additional exposure to economic loss is present. Generally, additional economic loss on a lease, if any, would be limited to that resulting from a short period of arrearage and non-payment of monthly rent before we are able to take effective remedial action, as well as costs incurred in transitioning the lease to a new tenant. The potential extent of such loss will be dependent upon individual facts and circumstances, cannot be quantified, and is therefore not included in the tabulation above. Typically, the only carrying amounts involving our leases are accumulated straight-line receivables and unamortized lease incentives.

We structure our operating company joint venture to be compliant with the provisions of RIDEA which permits NHI to receive rent payments through a triple-net lease between a property company and an operating company and allows NHI to receive distributions from the operating company to a taxable REIT subsidiary (“TRS”). Our TRS holds NHI’s equity interests in unconsolidated operating companies thus providing an organizational structure that allows the TRS to engage in a broad range of activities and share in revenues that are otherwise non-qualifying income under the REIT gross income tests.

Noncontrolling Interest - As of December 31, 2019, and for the year then ended, our non-controlling interest relates to our property company joint venture with Discovery Senior Living. During the years ended December 31, 2018 and December 31, 2017, there were no noncontrolling interests.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings Per Share - The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options using the treasury stock method, to the extent dilutive. Diluted earnings per share also incorporate the potential dilutive impact of our 3.25% convertible senior notes due 2021. We apply the treasury stock method to our convertible debt instruments, the effect of which is that conversion will not be assumed for purposes of computing diluted earnings per share unless the average share price of our common stock for the period exceeds the conversion price per share.

Fair Value Measurements - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy is required to prioritize the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

If the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When an event or circumstance alters our assessment of the observability and thus the appropriate classification of an input to a fair value measurement which we deem to be significant to the fair value measurement as a whole, we will transfer that fair value measurement to the appropriate level within the fair value hierarchy.

Real Estate Properties - Real estate properties are recorded at cost or, if acquired through business combination, at fair value, including the fair value of contingent consideration, if any. Cost or fair value at the time of acquisition is allocated among land, buildings, improvements, personal property and lease and other intangibles. For properties acquired in transactions accounted for as asset purchases, the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. Cost also includes capitalized interest during construction periods. We use the straight-line method of depreciation for buildings over their estimated useful lives of 40 years, and improvements over their estimated useful lives ranging to 25 years. For contingent consideration arising from business combinations, the liability is adjusted to estimated fair value at each reporting date through earnings. For contingent consideration arising from asset acquisitions, the liability is adjusted to the amount considered probable each reporting period, with changes reflected as an adjustment to the basis of the related assets.

We evaluate the recoverability of the carrying amount of our real estate properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying amount of that property. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property.

Leases - Leases entered into during 2019 are accounted for under the guidance of ASC Topic 842, Leases. Our leases generally have an initial leasehold term of 10 to 15 years followed by one or more 5-year tenant renewal options. The leases are “triple net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimal personal injury and property damage insurance. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release, discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to each facility. These provisions, along with a growing senior demographic and the historical propensity for real estate to hold its value, collectively constitute much of the means by which the risk associated with the residual value of our properties is mitigated. While we do not incorporate residual value guarantees, the above lease provisions and considerations inform our expectation of realizable value from our properties upon the expiration of their lease terms. The residual value of our real estate under lease is still subject to various market, asset, and tenant-specific risks and characteristics. As the classification of our leases is dependent on the fair value of estimated cash flows at lease commencement, management’s projected residual values represent significant assumptions in our accounting for operating leases. Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows.

Mortgage and Other Notes Receivable - Each quarter, we evaluate the carrying amount of our notes receivable on an instrument-by-instrument basis for recoverability when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If a note receivable becomes more than 30 days delinquent as to contractual principal or interest payments, the loan is classified as non-performing, and thereafter we recognize all amounts due when received. If necessary, an impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.

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Cash and Cash Equivalents and Restricted Cash - Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit in accordance with agency agreements governing our Fannie Mae and HUD mortgages.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s Consolidated Balance Sheets with the same amounts shown on the Company’s Consolidated Statements of Cash Flows (in thousands):

	As of December 31,
	2019		2018
Cash and cash equivalents	$	5,215	$	4,659
Restricted cash	10,454		5,253
	$	15,669	$	9,912

Concentration of Credit Risks - Our credit risks primarily relate to cash and cash equivalents and investments in mortgage and other notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. We maintain our bank deposit accounts with large financial institutions in amounts that often exceed federally-insured limits. We have not experienced any losses in such accounts. Our mortgages and other notes receivable consist primarily of secured loans on facilities.

Our financial instruments, principally our investments in notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations which may make the instruments less valuable. We obtain collateral in the form of mortgage liens and other protective rights for notes receivable and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide for reserves for potential losses on our financial instruments based on management’s periodic review of our portfolio on an instrument-by-instrument basis.

Deferred Loan Costs - Costs incurred to acquire debt are capitalized and amortized by the straight-line method, which approximates the effective-interest method, over the term of the related debt.

Deferred Income - Deferred income primarily includes non-refundable commitment fees received by us, which are amortized into income over the expected period of the related loan or lease. In the event that our financing commitment to a potential borrower or lessee expires, the related commitment fees are recognized into income immediately. Commitment fees may be charged based on the terms of the lease agreements and the creditworthiness of the parties.

Rental Income - Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectible. Under certain leases, we receive additional contingent rent, which is calculated on the increase in revenues of the lessee over a base year or base quarter. We recognize contingent rent annually or quarterly based on the actual revenues of the lessee once the target threshold has been achieved. Lease payments that depend on a factor directly related to future use of the property, such as an increase in annual revenues over a base year, are considered to be contingent rentals and are excluded from the schedule of minimum lease payments.

If rental income calculated on a straight-line basis exceeds the cash rent due under a lease, the difference is recorded as an increase to straight-line rent receivable in the Consolidated Balance Sheets and an increase in rental income in the Consolidated Statements of Income. If rental income on a straight-line basis is calculated to be less than cash received, there is a decrease in the same accounts.

Rental income is reduced for the non-cash amortization of payments made upon the eventual settlement of commitments and contingencies originally identified and recorded as lease inducements. We record lease inducements to the extent that it is probable that a significant reversal of amounts recognized will not occur when the uncertainty associated with the contingent consideration is subsequently resolved.

We identify a lease as non-performing if a required payment is not received within 30 days of the date it is due. Rental income on non-performing leased real estate properties is recognized in the period when the related cash is received.

Interest Income from Mortgage and Other Notes Receivable - Interest income is recognized based on the interest rates and principal amounts outstanding on the notes receivable. We identify a mortgage loan as non-performing if a required payment is not received within 30 days of the date it is due. Our policy related to mortgage interest income on non-performing mortgage loans is to recognize mortgage interest income in the period when the cash is received. As of December 31, 2019, we had not identified any of our mortgages as non-performing.

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Derivatives - In the normal course of business, we are subject to risk from adverse fluctuations in interest rates. We have chosen to manage this risk through the use of derivative financial instruments, primarily interest rate swaps. Counterparties to these contracts are major financial institutions. We are exposed to credit loss in the event of nonperformance by these counterparties. We do not use derivative instruments for trading or speculative purposes. Our objective in managing exposure to market risk is to limit the impact on cash flows relating to the change in market interest rates on our variable rate debt.

To qualify for hedge accounting, our interest rate swaps must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with our related assertions. All of our hedges are cash flow hedges.

We recognize all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities at their fair value in the Consolidated Balance Sheets. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the criteria of hedge accounting are recognized in earnings. For derivatives designated in qualifying cash flow hedging relationships, the change in fair value of the effective portion of the derivatives is recognized in accumulated other comprehensive income (loss), whereas the change in fair value of the ineffective portion is recognized in earnings. Gains and losses are reclassified from accumulated other comprehensive income (loss) into earnings once the underlying hedged transaction is recognized in earnings.

Federal Income Taxes - We intend at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Aside from such income taxes which may be applicable to the taxable income in the TRS, we will not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders at least equal to or in excess of 90% our taxable income. Accordingly, no provision for federal income taxes has been made in the consolidated financial statements. A failure to qualify under the applicable REIT qualification rules and regulations would have a material adverse impact on our financial position, results of operations and cash flows.

Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in the basis of assets, estimated useful lives used to compute depreciation expense, gains on sales of real estate, non-cash compensation expense and recognition of commitment fees.

Our tax returns filed for years beginning in 2016 are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our Consolidated Statements of Income as a component of income tax expense.

Segment Disclosures - We are in the business of owning and financing health care properties. We are managed as one segment, rather than multiple segments, for internal purposes and for internal decision making.

New Accounting Pronouncements - For a review of recent accounting pronouncements pertinent to our operations and management’s judgment as to the impact that the eventual adoption of these pronouncements will have on our financial position and results of operation, see Note 14.

NOTE 2. REAL ESTATE

As of December 31, 2019, we owned

223

health care real estate properties located in 34 states and consisting of

146

senior housing communities, 72 skilled nursing facilities, 3 hospitals and 2 medical office buildings. Our senior housing properties include assisted living facilities, senior living campuses, independent living facilities, and entrance-fee communities. These investments (excluding our corporate office of

$2,519,000

) consisted of properties with an original cost of approximately

$3,072,327,000

, rented under triple-net leases to 32 lessees.

Acquisitions and New Leases of Real Estate

During the year ended December 31, 2019, we announced the following real estate investments and commitments as described below (dollars in thousands):

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Operator	Date	Properties	Asset Class	Amount
Wingate Healthcare	January 2019	1	SHO	$	52,200
Holiday Retirement	January 2019	1	SHO	38,000
Comfort Care Senior Living	April 2019	1	SHO	10,800
Comfort Care Senior Living	May 2019	1	SHO	13,500
Discovery Senior Living	May 2019	6	SHO	127,917
Cappella Living Solutions	July 2019	1	SHO	7,600
Bickford Senior Living	September 2019	1	SHO	15,100
41 Management	December 2019	1	SHO	9,340
				$	274,457

Wingate

On January 15, 2019, we acquired a

267

-unit senior living campus in Massachusetts for a purchase price of

$50,300,000

, including closing costs of

$300,000

. The facility is being leased to Wingate Healthcare, Inc. (“Wingate”) for a term of ten years, with three renewal options of five years each, at an initial lease rate of

7.5%

plus annual fixed escalators. We have committed to the additional funding of up to

$1,900,000

in capital improvements, and the lease provides for incentive payments up to

$5,000,000

to become available beginning in 2020 upon the attainment of certain operating metrics. NHI has a right of first offer on two additional Wingate-operated facilities. We accounted for the transaction as an asset purchase.

Comfort Care

On April 30, 2019, we acquired a newly-constructed 60-unit assisted living facility in Shelby, Michigan which has 14 memory care units currently undergoing stabilization. The total commitment of

$10,800,000

includes

$9,560,000

funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met. On May 20, 2019, we acquired a property in Brighton, Michigan, consisting of 73 assisted living/memory care units. The purchase price for the Brighton acquisition was

$13,500,000

, inclusive of closing costs. We leased the properties to Comfort Care Senior Living (“Comfort Care”), under leases which provide for initial lease rate of

7.75%

, with annual fixed escalators beginning in year three over the term of ten years plus two renewal options of five years each. The leases each include a

$3,000,000

earnout incentive which will be added to the respective lease base if funded. We accounted for the acquisitions as asset purchases.

Discovery

On May 31, 2019, we contributed

$25,028,000

in cash for a

97.5%

equity interest in a consolidated subsidiary ("Discovery PropCo"), which simultaneously acquired from a third party six senior housing facilities comprising

145

independent-living units,

356

assisted-living units and 95 memory-care units, for a total of

596

units. Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) contributed

$631,000

for its non-controlling

2.5%

equity interest. We invested an additional

$102,258,000

as a preferred equity contribution, for a total NHI investment of

$127,286,000

. The additional equity contribution of

$102,258,000

carries a preference in liquidation as well as in the distribution of operating cash flow. Total cash of

$127,917,000

invested in Discovery PropCo included approximately

$1,067,000

in closing costs.

The facilities were leased by Discovery PropCo to an affiliate of Discovery for a term of ten years with two renewal periods of five years at an initial lease rate of

6.5%

with fixed annual escalators through the fifth year of the initial lease term followed by CPI-based escalators, subject to floor and ceiling, thereafter.

Discovery is eligible, beginning in 2023, for up to

$4,000,000

of lease inducement payments upon meeting specified performance metrics. Inducement payments funded under the agreement will be added to the lease base. Additionally, PropCo has committed to Discovery for funding up to

$2,000,000

toward the purchase of condominium units located at one of the facilities,

$497,000

of which has been funded as a result of transactions in November 2019. The total purchase price for the properties acquired, as discussed above, was allocated to the tangible assets based upon their relative fair values consisting of

$6,301,000

to the land and

$121,616,000

to the buildings and improvements. We accounted for the transaction as an asset purchase.

As the managing member, NHI directs the activities of Discovery PropCo that most significantly impact economic performance, subject to limited protective rights of Discovery for significant business decisions. We consider Discovery PropCo a VIE, based on our determination that the total equity at risk is insufficient to finance activities without additional subordinated financial support. Because of our control of Discovery PropCo, we consolidate its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements.

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Cappella Living Solutions

On July 23, 2019, we acquired a 51-unit assisted living facility in Pueblo, Colorado for

$7,600,000

including

$100,000

of closing costs. We leased the facility to Christian Living Services, Inc., d/b/a Cappella Living Solutions, for a term of 15 years at an initial lease rate of

7.25%

, with CPI escalators subject to floor and ceiling. We accounted for this transaction as an asset purchase.

41 Management

We transitioned four Minnesota properties on October 1, 2019, from Bickford Senior Living to 41 Management. The transitioned properties are under a master lease which calls for total first-year rent of

$906,000

and includes our commitment to make available up to

$400,000

in targeted improvements. The lease term of 15 years has 2 renewal options of five years each and an initial rate of 7%. Under the master lease, escalators are fixed at

2.5%

, and the lease is secured by corporate and personal guarantees. On December 27, 2019, for a cash purchase price of

$9,340,000

, including closing costs of

$140,000

, we acquired a 48 unit assisted living and memory care facility in the St. Paul, Minnesota area. The St. Paul facility was added to the existing master lease described above. We accounted for the St. Paul transaction as an asset purchase.

Major Tenants

Holiday

$39,000,000

$31,500,000

, extended the term of the original lease through 2035, improved the credit position of the tenant and increased required minimum capital expenditure per unit. As consideration for amending provisions included in the original 2013 lease, Holiday agreed to pay NHI

$55,125,000

in cash or real estate and forfeit

$10,637,000

of their original

$21,275,000

security deposit.

On January 31, 2019, we acquired a senior housing facility in Vero Beach, Florida from Holiday consisting of

157

independent living and 71 assisted living units in exchange for

$38,000,000

toward the

$55,125,000

receivable arising from the lease amendment, discussed above. The property was added to the master lease at a

6.71%

lease rate. Under the restructured master lease, annual lease escalators ranging from 2% to 3%, based on portfolio revenue growth, will go into effect on November 1, 2020. Holiday settled the remaining commitment to NHI with cash of

$17,125,000

at closing. Receipt of the Vero Beach property and collection of the remaining commitment in cash was recognized as adjustments to the outstanding Holiday lease receivable and resulted in the change of our straight-line receivable from Holiday at the beginning of the year into a straight-line payable, which is included in the accompanying Consolidated Balance Sheet at December 31, 2019 as “deferred income.”

As of December 31, 2019, we leased 26 independent living facilities to Holiday, including the Vero Beach property mentioned above. The master lease, which matures in 2035, provides for annual lease escalators beginning November 1, 2020. Of our total revenues,

$40,459,000

(

13%

$43,311,000

(

15%

) and

$43,817,000

(

16%

) were derived from Holiday for the years ended December 31, 2019, 2018 and 2017, respectively, including

$6,621,000

$5,616,000

and

$7,397,000

in straight-line rent income, respectively. Our tenant operates the facilities pursuant to a management agreement with a Holiday-affiliated manager.

Senior Living Communities

As of December 31, 2019, we leased 10 retirement communities totaling

2,068

units to Senior Living Communities, LLC (“Senior Living”). The 15-year master lease, which began in December 2014, contains two renewal options of five years each and provides for an annual escalator of 3% effective January 1, 2019.

Of our total revenues,

$46,927,000

(

15%

$45,868,000

(

16%

) and

$45,735,000

(

16%

) in rental income were derived from Senior Living for the years ended December 31, 2019, 2018 and 2017, respectively, including

$4,934,000

$5,436,000

and

$6,984,000

in straight-line rent.

NHC

We lease 42 facilities under two master leases to National HealthCare Corporation (“NHC”), a publicly-held company. The facilities leased to NHC consist of three independent living facilities and 39 skilled nursing facilities (4 of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms

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of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”) which includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”) which includes 7 skilled nursing facilities acquired in 2013.

The 1991 lease expiration is December 31, 2026. There are two additional renewal options of five years, each at fair rental value as negotiated between the parties. Under the terms of the 1991 lease, the base annual rental is

$30,750,000

and rent escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. The 2013 lease provides for a base annual rental of

$3,450,000

and has a lease expiration of August 2028. Under the terms of the 2013 lease, rent escalates 4% of the increase, if any, in each facility’s revenue over the 2014 base year. For both the 1991 lease and the 2013 lease, we refer to this additional rent component as “percentage rent.” During the last three years of the 2013 lease, NHC will have the option to purchase the facilities for

$49,000,000

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

	Year Ended December 31,
	2019		2018		2017
Current year	$	3,650	$	3,411	$	3,127
Prior year final certification^1^	334		285		194
Total percentage rent income	$	3,984	$	3,696	$	3,321

^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.

Of our total revenues,

$38,131,000

(

12%

$37,843,000

(

13%

) and

$37,467,000

(

13%

) in rental income were derived from NHC for the years ended December 31, 2019, 2018 and 2017, respectively.

The chairman of our board of directors is also a director on NHC’s board of directors. As of December 31, 2019, NHC owned

1,630,642

shares of our common stock.

Bickford

As of December 31, 2019, our Bickford Senior Living (“Bickford”) lease portfolio consists of the following (dollars in thousands):

	Lease Expiration
	June 2023		September 2024		May 2031			April 2033		Total
Number of Properties	13		10		19			5		47
2019 Contractual Rent	$	11,468	$	9,442	$	21,838		$	4,918	$	47,666
2019 Straight Line Rent	358		467		2,903			860		4,588
2019 Lease Incentive Amortization	—		—		(724		)	—		(724		)
	$	11,826	$	9,909	$	24,017		$	5,778	$	51,530

On September 10, 2019, NHI amended a master lease, which matures in May 2031 and covers 14 Bickford properties, to change the annual escalator from a fixed percentage to a CPI-based escalator with a floor of 2% and a ceiling of 3%. A four-building portfolio in Minnesota that had been held by Bickford through September 30, 2019, transitioned to 41 Management, LLC, on October 1, 2019. Also, as of October 1, 2019, a master lease covering nine buildings subject to HUD mortgages was modified to reflect a decrease in monthly rent and provide for CPI-based escalators.

On September 10, 2019, we acquired a 60-unit assisted living/memory care facility located in Gurnee, Illinois, from Bickford. The acquisition price was

$15,100,000

, including

$100,000

in closing costs, and the cancellation of an outstanding construction note receivable of

$14,035,000

, including interest. We leased the building for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling. We accounted for the transaction as an asset purchase.

Of our total revenues,

$52,570,000

(

17%

$50,093,000

(

17%

) and

$41,606,000

(

15%

) were recognized as rental income from Bickford for the years ended December 31, 2019, 2018 and 2017, respectively, including

$4,651,000

$5,028,000

and

$5,102,000

in straight-line rent income, respectively.

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Other Portfolio Activity

Tenant Transitioning

We have completed the contractual transition of three lease portfolios to new tenants following a period of non-compliance by the former operators. The portfolios consist of three former SH-Regency Leasing, LLC (“Regency”) buildings, five former LaSalle Group buildings and one facility formerly leased to Landmark Senior Living (“Landmark”). To expedite stabilization of the facilities, we committed to specified income-generating capital expenditures for the re-branding and refurbishment of certain of these properties. The new leases each specify initial periods during which rental income to NHI shall be based on net operating income (“NOI”), after deduction of management fees. Following the initial periods, each lease converts to a structured payment based on a fair-value calculation.

The former Regency buildings have been leased to 3 operators, Senior Living Communities, Discovery, and Vitality MC TN, LLC (“Vitality”). Of our total revenues,

$1,277,000

(

0.4%

$5,103,000

(

1.7%

) and

$5,466,000

(

2.0%

) in rental income were derived from the three former Regency buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective July 1, 2019 we transitioned an Indiana independent living/assisted living facility to Discovery in conjunction with our other properties in transition. The triple-net lease matures in June 2024 with two five-year options to extend. Rent is initially based on net operating income. Beginning in 2022, rent is to reset to the greater of

$1,400,000

or a market rate as provided by formula. For the duration of the lease, the rent, as reset, is subject to a

2.5%

escalator. Concurrent with Discovery’s entrance into the lease, NHI provided a working capital loan for amounts up to

$750,000

at an interest rate of

6.5%

and a

$900,000

capital improvement commitment to fund improvements to the facility. The loan extends during the term of the lease.

On April 16, 2019, Chancellor Health Care leased the five former LaSalle Group buildings. Our lease agreement with Chancellor provides for NHI to receive

100%

of net operating cash flow generated by the facilities, after management fees, pending stabilization of the operations of the facility. During the first quarter of 2019, we also commenced litigation for the recovery of certain funds owed by LaSalle Group under the lease and against the principal executive personally under the guaranty agreement. Of our total revenues,

$1,162,000

(

0.4%

$4,455,000

(

1.5%

) and

$4,184,000

(

1.5%

) in rental income were derived from the five former LaSalle Group buildings for the years ended December 31, 2019, 2018 and 2017, respectively.

$1,204,000

(

0.4%

$1,085,000

(

0.4%

) and

$1,957,000

(

0.7%

) were derived from the former Landmark property for the years ended December 31, 2019, 2018 and 2017 respectively, including

$625,000

received during 2019 as a settlement payment.

Assets Held For Sale

$4,250,000

(

1.3%

$4,250,000

(

1.4%

) and

$4,250,000

(

1.5%

) in rental income were derived from this eight property portfolio for the years ended December 31, 2019, 2018 and 2017 respectively. The purchase option called for the parties to split any appreciation on a 50/50 basis above

$37,520,000

. During the first quarter of 2020, NHI and the tenant agreed to a fair valuation of

$41,000,000

for the properties, and, accordingly, on January 22, 2020, we disposed of the properties at the agreed price of $

39,260,000

. With the expectation of deferring gain recognition from this disposition, we have engaged a qualified intermediary to effect a like-kind exchange under §1031 of the Internal Revenue Code.

We have identified two assisted living properties for disposal and began active marketing of the properties. The buildings are smaller than are typical of our portfolio. In January 2019 we ceased recording depreciation on the properties, and we booked an adjustment to lease revenues to write off the associated

$124,000

in straight-line receivables. We recognized an impairment loss of

$2,500,000

in 2019 to write down the properties to their estimated net realizable value.

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Tenant Purchase Options

A summary of these tenant options, excluding properties classified as held for sale, is presented below (dollars in thousands):

Asset	Number of	Lease	1st Option	Option	Contractual
Type	Properties	Expiration	Open Year	Basis	Rent
MOB	1	February 2025	Open	i	$	306
HOSP	1	March 2025	2020	iv	$	1,957
HOSP	1	September 2027	2021	ii	$	2,760
SHO	2	May 2031	2021	iv	$	5,063
HOSP	1	June 2022	2022	i	$	3,502
SNF	7	August 2028	2025	iii	$	3,671
SNF	1	September 2028	2028	iii	$	472

Future Minimum Lease Payments

With the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases, as discussed in Note 14, our minimum lease payments are now determined under guidance different from that required as of December 31, 2018, when we were subject to ASC Topic 840 Leases. Presented in the following table are future minimum lease payments, as of December 31, 2019, to be received by us under our operating leases, as determined under ASC 842 (in thousands):

Twelve months ended December 31, 2019
2020	$	266,320
2021	267,871
2022	271,528
2023	265,584
2024	257,726
Thereafter	1,569,556
	$	2,898,585

We assess the collectibility of our lease receivables, consisting primarily of straight-line rents receivable, based on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all of the receivable, we de-recognize all rent receivable assets, including the straight-line rent receivable asset and record as a reduction in rental revenue.

Variable Lease Payments

Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease where the lease contains fixed escalators. Some of our leases contain escalators that are determined annually based on a variable index or other factor that is indeterminable at the inception of the lease. The table below indicates the amount of lease revenue recognized as a result of fixed and variable lease escalators (in thousands):

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	Year Ended December 31,
	2019		2018		2017
Lease payments based on fixed escalators	$	260,488	$	253,528	$	235,343
Lease payments based on variable escalators	4,967		4,111		3,617
Straight-line rent income	22,084		22,787		26,090
Escrow funds received from tenants	5,798		—		—
Amortization of lease incentives	845		387		119
Rental income	$	294,182	$	280,813	$	265,169

NOTE 3. MORTGAGE AND OTHER NOTES RECEIVABLE

At December 31, 2019, we had investments in mortgage notes receivable with a carrying value of

$294,120,000

secured by real estate and UCC liens on the personal property of 15 facilities and other notes receivable with a carrying value of

$46,023,000

guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At December 31, 2018, we had investments in mortgage notes receivable with a carrying value of

$202,877,000

and other notes receivable with a carrying value of

$43,234,000

. No allowance for credit losses was considered necessary at December 31, 2019 or 2018.

During the year ended December 31, 2019, we announced the following note receivable investments and commitments as described below (dollars in thousands):

Operator	Date	Properties	Asset Class	Amount
Note Investments
Senior Living Communities	June 2019	1	SHO	32,700
41 Management	June 2019	1	SHO	10,800
Discovery Senior Living	July 2019	1	SHO	750
Discovery Senior Living	August 2019	1	SHO	6,423
41 Management	December 2019	1	SHO	3,870
				$	54,543

Discovery

On August 30, 2019, NHI extended a senior mortgage loan of

$6,423,000

at 7% annual interest to affiliates of Discovery to acquire a senior housing facility in Indiana for which Discovery PropCo, will have the option to purchase at stabilization. The facility consists of 52 assisted living units and 22 memory care units. As discussed earlier in Note 2, effective July 1, 2019, NHI provided an additional working capital loan for amounts up to

$750,000

at an interest rate of

6.5%

41 Management

On June 14, 2019, we committed to providing first mortgage financing to 41 Management, LLC for up to

$10,800,000

to fund the construction of a 51-unit assisted living facility in Wisconsin. The loan carries an interest rate of

8.50%

for its term of five years, subject to two renewals of one year each. The agreement includes a purchase option, which is effective upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a

$2,400,000

working capital escrow. The total amount funded on the note was

$6,045,000

as of December 31, 2019.

On December 20, 2019, we extended a second mortgage loan of

$3,870,000

to 41 Management to refinance the subordinated debt on a newly constructed 48-unit assisted living/memory care facility in Wisconsin. The loan provides for interest of

13%

and a one year maturity plus two six-month renewal terms at the option of the borrower. The loan is secured by corporate and personal guarantees. Upon stabilization, NHI has the option to purchase the facility at fair market value based on a metric-driven formula.

Our loans to and receivables from 41 Management represent variable interests. 41 Management is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of 41 Management.

Bickford

At December 31, 2019, our construction loans to Bickford are summarized as follows:

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Commencement	Rate	Maturity	Commitment		Drawn			Location
January 2017	9%	5 years	14,000,000		(14,000,000		)	Michigan
January 2018	9%	5 years	14,000,000		(11,804,000		)	Virginia
July 2018	9%	5 years	14,700,000		(11,312,000		)	Michigan
			$	42,700,000	$	(37,116,000	)

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 exercise of our purchase option on these development projects, Bickford as borrower may receive up to

$2,000,000

per project based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price.

As discussed in Note 2, on September 10, 2019, we acquired the Illinois location constructed by Bickford for

$15,100,000

. In the exchange we cancelled Bickford’s outstanding debt, including interest due, on the property of

$14,035,000

Our loans to Bickford represent a variable interest. Bickford is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of Bickford Senior Living.

Life Care Services - Sagewood

On December 21, 2018, we entered into an agreement to lend LCS-Westminster Partnership IV LLP (“LCS-WP IV”), an affiliate of Life Care Services (“LCS”), the manager of the facility, up to

$180,000,000

. The loan agreement conveys a mortgage interest and will facilitate the construction of Phase II of Sagewood, a Type-A Continuing Care Retirement Community in Scottsdale, AZ. As an affiliate of a larger company, LCS-WP IV is structured to limit liability for potential damage claims, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of LCS-WP IV.

The loan takes the form of two notes under a master credit agreement. The senior note (“Note A”) totals

$118,800,000

at a

7.25%

interest rate with 10 basis-point annual escalators after three years and has a term of 10 years. We have funded

$77,340,000

of Note A as of December 31, 2019. Note A is interest-only and is locked to prepayment until January 2021. After 2020, the prepayment penalty starts at 2% and declines to 1% in 2022. The second note (“Note B”) is a construction loan for up to

$61,200,000

at an annual interest rate of

8.5%

and carries a maturity of five years. The total amount funded on Note B was

$45,938,000

as of December 31, 2019.

Life Care Services - Timber Ridge

In February 2015, we entered into an agreement with LCS-Westminster Partnership III LLP (“LCS-WP III”), an affiliate of LCS, the manager of the facility, to lend up to

$154,500,000

. The loan agreement conveys a mortgage interest and facilitated the construction of Phase II of Timber Ridge at Talus (“Timber Ridge”), a Type-A continuing care retirement community in Issaquah, Washington. Our loan to LCS-WP III represents a variable interest. As an affiliate of a larger company, LCS-WP III is structured to limit liability for potential damage claims, is capitalized to achieve that purpose and is considered a VIE within the definition set forth in Note 1.

The loan took the form of two notes under a master credit agreement. The senior note (“Note A”) totals

$60,000,000

at an initial rate of

6.75%

(currently

6.95%

) with 10 basis-point escalators after three years and has a term of 10 years. We have funded

$59,350,000

of Note A as of December 31, 2019. Note A is interest-only and is locked to prepayment for three years. Beginning in February 2018, the prepayment penalty started at 5% and will decline 1% annually for five years. Note B was a construction loan for up to

$94,500,000

, with the remaining outstanding balance being fully repaid during the first quarter of 2018.

As discussed more fully at Note 15, on January 31, 2020 we entered into a joint venture transaction with LCS to create Timber Ridge PropCo which acquired the Timber Ridge property.

Senior Living Communities

On June 25, 2019, we provided a mortgage loan of

$32,700,000

to Senior Living for the acquisition of a

248

-unit continuing care retirement community in Columbia, South Carolina. The financing is for a term of five years with two one year extensions

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and carries an interest rate of

7.25%

. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of

$38,250,000

, subject to adjustment for market conditions.

In December 2014, we provided a

$15,000,000

revolving line of credit, the maturity of which mirrors the 15-year term of the master lease. Borrowings are used primarily to finance construction projects within the Senior Living portfolio, including building additional units. The facility, which may also be used to meet general working capital needs, was amended as of December 10, 2019, to reduce availability to

$12,000,000

with a further reduction in capacity to

$7,000,000

beginning January 1, 2022 through lease maturity in December 2029. Also effective December 10, 2019, a sub-limit on the availability of funding for working capital needs was established at

$10,000,000

for this loan, extending through January 1, 2022, at which time the limit is to be reduced to

$5,000,000

. Amounts outstanding under the facility,

$5,174,000

at December 31, 2019, bear interest at an annual rate equal to the prevailing 10-year U.S. Treasury rate,

1.92%

at December 31, 2019, plus 6%.

NHI has two mezzanine loans of up to

$12,000,000

and

$2,000,000

, respectively, to affiliates of Senior Living, whose purpose was to partially fund construction of a

186

-unit senior living campus on Daniel Island in South Carolina, which opened in April 2018. The loans bear interest payable monthly at a

10%

annual rate and mature in March 2021. The loans were fully drawn at December 31, 2019, and provided NHI with a fixed capitalization rate purchase option on the development upon its meeting certain operational metrics. The option is to remain open during the term of the loans, plus any extensions.

Our loans to Senior Living and its subsidiaries represent a variable interest. Senior Living is structured to limit liability for potential claims for damages, is appropriately capitalized for that purpose and is considered a VIE. As discussed more fully in Note 1, we have concluded that we are not the primary beneficiary of Senior Living.

NOTE 4. OTHER ASSETS

Our other assets consist of the following (in thousands):

	As of December 31,
	2019		2018
Accounts receivable and prepaid expenses	$	3,212	$	6,381
Unamortized lease incentive payments	10,146		7,456
Regulatory escrows	8,208		8,208
Restricted cash	10,454		5,253
	$	32,020	$	27,298

Regulatory escrows include mandated deposits in connection with our entrance fee communities in Connecticut. Restricted cash includes amounts required to be held on deposit in accordance with agency agreements governing our Fannie Mae and HUD mortgages.

NOTE 5. DEBT

Debt consists of the following (in thousands):

	December 31, <br>2019			December 31, <br>2018
Revolving credit facility - unsecured	$	300,000		$	84,000
Bank term loans - unsecured	550,000			550,000
Private placement term loans - unsecured	400,000			400,000
HUD mortgage loans (net of discount of $1,238 and $1,320)	42,138			42,906
Fannie Mae term loans - secured, non-recourse	95,706			96,044
Convertible senior notes - unsecured (net of discount of $303 and $1,391)	59,697			118,609
Unamortized loan costs	(7,076		)	(9,884		)
	$	1,440,465		$	1,281,675

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Aggregate principal maturities of debt as of December 31, 2019 for each of the next five years and thereafter are as follows (in thousands):

For The Year Ended December 31,
2020	$	1,230
2021	61,279
2022	551,328
2023	476,379
2024	76,429
Thereafter	282,437
	1,449,082
Less: discount	(1,541		)
Less: unamortized loan costs	(7,076		)
	$	1,440,465

Revolving credit facility and bank term loans - unsecured

Our unsecured bank credit facility consists of

$250,000,000

and

$300,000,000

term loans and a

$550,000,000

revolving credit facility. The

$250,000,000

term loan and

$550,000,000

revolving facility mature in August 2022, and the

$300,000,000

term loan matures in September 2023. On March 22, 2019 and June 28, 2019, we entered into swap agreements to fix the interest rates on

$340,000,000

of term loans and

$60,000,000

of our revolving credit facility through December 2021, when LIBOR is scheduled for discontinuation.

120

bps and a blended

132

bps, respectively. At December 31, 2019 and December 31, 2018, 30-day LIBOR was

176

and

252

bps, respectively. Within the facility, the employment of interest rate swaps on our debt leaves only

$240,000,000

of our revolving credit facility exposed to interest rate risk through June 2020, when our

$80,000,000

and

$130,000,000

swaps expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.”

At December 31, 2019, we had

$250,000,000

available to draw on the revolving portion of our credit facility, subject to usual and customary covenants. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. At December 31, 2019, we were in compliance with these ratios.

Pinnacle Bank is a participating member of our banking group. A member of NHI’s board of directors and chairman of our audit committee is also the chairman of Pinnacle Financial Partners, Inc., the holding company for Pinnacle Bank. NHI’s local banking transactions are conducted primarily through Pinnacle Bank.

Private placement term loans - unsecured

Our unsecured private placement term loans, payable interest-only, are summarized below (in thousands):

Amount		Inception	Maturity	Fixed Rate
$	125,000	January 2015	January 2023	3.99%
50,000		November 2015	November 2023	3.99%
75,000		September 2016	September 2024	3.93%
50,000		November 2015	November 2025	4.33%
100,000		January 2015	January 2027	4.51%
$	400,000

Except for specific debt-coverage ratios, covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating on our senior unsecured debt below investment grade and our compliance leverage increases to

50%

or more.

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HUD mortgage loans

Our HUD mortgage loans are secured by 10 properties leased to Bickford and having a net book value of

$49,147,000

at December 31, 2019. Nine mortgage notes require monthly payments of principal and interest from

4.3%

4.4%

(inclusive of mortgage insurance premium) and mature in August and October 2049. One additional HUD mortgage loan assumed in 2014, at a discount, requires monthly payments of principal and interest of

2.9%

(inclusive of mortgage insurance premium) and matures in October 2047. The loan has an outstanding principal balance of

$8,492,000

and a carrying value of

$7,254,000

, which approximates fair value.

Fannie Mae term loans - secured, non-recourse

In March 2015 we obtained

$78,084,000

in Fannie Mae financing. The term debt financing consists of interest-only payments at an annual rate of

3.79%

and a 10-year maturity. The mortgages are non-recourse and secured by thirteen properties leased to Bickford. In a December 2017 acquisition, we assumed additional Fannie Mae debt that amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, bears interest at a nominal rate of

4.60%

, and has remaining balance of

$17,622,000

at December 31, 2019. All together, these notes are secured by facilities having a net book value of

$134,192,000

at December 31, 2019.

Convertible senior notes - unsecured

In March 2014 we issued

$200,000,000

3.25%

senior unsecured convertible notes due April 2021 (the “Notes”) with interest payable April 1st and October 1st of each year. The Notes were convertible at an initial rate of

13.93

shares of common stock per

$1,000

principal amount, representing a conversion price of approximately

$71.81

per share for a total of approximately

2,785,200

underlying shares. The conversion rate is subsequently adjusted upon each occurrence of certain events, as defined in the indenture governing the Notes, including the payment of dividends at a rate exceeding that prevailing in 2014. The conversion option was accounted for as an “optional net-share settlement conversion feature,” meaning that upon conversion, NHI’s conversion obligation may be satisfied, at our option, in cash, shares of common stock or a combination of cash and shares of common stock. Because we have the ability and intent to settle the convertible securities in cash upon exercise, we use the treasury stock method to account for potential dilution.

During the years ended December 31, 2019 and 2018, we undertook targeted open-market repurchases of certain of these convertible notes. Payments of cash negotiated in the transactions were dependent on prevailing market conditions, our liquidity requirements, contractual restrictions, individual circumstances of the selling parties and other factors. Beginning in December 2019, through the issuance of common stock and cash in retirement of

$60,000,000

of our convertible notes, we funded our Timber Ridge acquisition, which closed January 2020. Settlement of the notes requires management to allocate the consideration we ultimately pay between the debt component and the equity conversion feature as though they were separate instruments. The allocation is effected by recording the fair value of the debt component first, with any remainder allocated to the conversion feature. Amounts expended to settle the notes are recognized first as a settlement of the notes at our carrying value and then are recognized in income to the extent the portion allocated to the debt instrument differs from carrying value. The remainder of the allocation, if any, is treated as settlement of equity and adjusted through our capital in excess of par account.

A roll-forward for 2019 of our convertible note balances, including the effect of year-to-date amortization, net of issuance costs, is presented below:

	December 31, <br>2018			Exchange			Amortization		December 31, <br>2019
Face amount	$	120,000		$	(60,000	)	$	—	$	60,000
Discount	(1,391		)	$	328		$	760	(303		)
Unamortized loan costs	(910		)	$	210		$	505	(195		)
Carrying value	$	117,699							$	59,502

Total consideration given in the exchange of

$73,102,000

included the issuance of

626,397

shares of NHI common stock with a fair value of

$51,002,000

and cash disbursed of

$22,100,000

Total consideration given in the exchange was allocated as

$60,285,000

to the note retirement with the remaining expenditure of

$12,816,000

allocated to retirement of the equity feature of the notes. A loss of

$823,000

for the year ended December 31, 2019, resulted from the excess allocation of cash expenditures over the book value of the notes retired, net of discount and issuance costs.

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As of December 31, 2019, our

$60,000,000

of senior unsecured convertible notes were convertible at a rate of

14.62

shares of common stock per

$1,000

principal amount, representing a conversion price of approximately

$68.39

per share for a total of

877,356

remaining underlying shares. For the year ended December 31, 2019, dilution resulting from the conversion option within our convertible debt is

210,224

shares. If NHI’s current share price increases above the adjusted

$68.39

conversion price, further dilution will be attributable to the conversion feature. On December 31, 2019, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by

$11,487,000

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through December 2021 to hedge against fluctuations in variable interest rates applicable to

$610,000,000

(

$400,000,000

after June 2020) of our bank loans. During the next year, approximately

$1,710,000

of gains, which are included in accumulated other comprehensive income (loss), are projected to be reclassified into earnings.

As of December 31, 2019, we employ the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above (dollars in thousands):

Date Entered	Maturity Date	Fixed Rate	Rate Index	Notional Amount		Fair Value (Liability)
June 2013	June 2020	3.46%	1-month LIBOR	$	80,000	$	(177	)
March 2014	June 2020	3.51%	1-month LIBOR	$	130,000	$	(316	)
March 2019	December 2021	3.51%	1-month LIBOR	$	100,000	$	(1,318	)
March 2019	December 2021	3.52%	1-month LIBOR	$	100,000	$	(1,344	)
June 2019	December 2021	2.89%	1-month LIBOR	$	150,000	$	(200	)
June 2019	December 2021	2.93%	1-month LIBOR	$	50,000	$	(79	)

If the fair value of the hedge is an asset, we include it in our Consolidated Balance Sheets among other assets, and, if a liability, as a component of accounts payable and accrued expenses. See Note 11 for fair value disclosures about our interest rate swap agreements. Net asset (liability) balances for our hedges included as components of consolidated other comprehensive income (loss) on December 31, 2019 and December 31, 2018 were

$(3,434,000)

and

$1,297,000

, respectively.

The following table summarizes interest expense (in thousands):

	Year Ended December 31,
	2019			2018			2017
Interest expense on debt at contractual rates	$	53,923		$	45,789		$	40,385
Losses reclassified from accumulated other
comprehensive income (loss) into interest expense	(791		)	164			2,627
Ineffective portion of cash flow hedges	—			—			(353		)
Capitalized interest	(399		)	(212		)	(510		)
Charges taken on amending bank credit facility	—			—			583
Amortization of debt issuance costs and debt discount	3,566			3,314			3,592
Total interest expense	56,299			49,055			46,324

NOTE 6. COMMITMENTS AND CONTINGENCIES

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, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. 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, 2019 according to the nature of their impact on our leasehold or loan portfolios.

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	Asset Class	Type	Total		Funded			Remaining
Loan Commitments:
LCS Sagewood Note A	SHO	Construction	$	118,800,000	$	(77,340,000	)	$	41,460,000
LCS Sagewood Note B	SHO	Construction	61,200,000		(45,938,000		)	15,262,000
LCS Timber Ridge Note A	SHO	Construction	60,000,000		(59,350,000		)	650,000
Bickford Senior Living	SHO	Construction	28,700,000		(23,116,000		)	5,584,000
Senior Living Communities	SHO	Revolving Credit	12,000,000		(5,174,000		)	6,826,000
41 Management	SHO	Construction	10,800,000		(6,045,000		)	4,755,000
Discovery Senior Living	SHO	Working Capital	750,000		(175,000		)	575,000
			$	292,250,000	$	(217,138,000	)	$	75,112,000

See Note 3 to our consolidated financial statements for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.

	Asset Class	Type	Total		Funded			Remaining
Development Commitments:
Ignite Medical Resorts	SNF	Construction	$	25,350,000	$	(16,903,000	)	$	8,447,000
Woodland Village	SHO	Construction	7,515,000		(7,425,000		)	90,000
Senior Living Communities	SHO	Renovation	9,930,000		(9,067,000		)	863,000
Wingate Healthcare	SHO	Renovation	1,900,000		(357,000		)	1,543,000
Discovery Senior Living	SHO	Renovation	900,000		—			900,000
Navion Senior Solutions	SHO	Construction	650,000		—			650,000
41 Management	SHO	Renovation	400,000		—			400,000
			$	46,645,000	$	(33,752,000	)	$	12,893,000

In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding up to

$2,000,000

for the purchase of condominium units located at one of the facilities. As of December 31, 2019, $497,000 has been funded toward the commitment.

	Asset Class	Type	Total		Funded			Remaining
Contingencies:
Comfort Care Senior Living	SHO	Lease Inducement	6,000,000		—			6,000,000
Wingate Healthcare	SHO	Lease Inducement	5,000,000		—			5,000,000
Navion Senior Solutions	SHO	Lease Inducement	4,850,000		(500,000		)	4,350,000
Discovery Senior Living	SHO	Lease Inducement	4,000,000		—			4,000,000
Ignite Medical Resorts	SNF	Lease Inducement	2,000,000		—			2,000,000
			$	21,850,000	$	(500,000	)	$	21,350,000

Litigation

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$2,850,000

over a five-year period, consisting of scheduled payments of varying amounts in full settlement of agreed judgments under manager and personal guarantees. We received the first installment of

$60,000

December 2019.

NOTE 7. INVESTMENT AND OTHER GAINS

The following table summarizes our investment and other gains (in thousands):

	Year Ended December 31,
	2019		2018		2017
Gains on sales of marketable securities	$	—	$	—	$	10,038
Gain on sale of real estate	—		—		50
	$	—	$	—	$	10,088

During the year ended December 31, 2017 we recognized gains on sales of marketable securities which were reclassified from accumulated other comprehensive income.

NOTE 8. SHARE-BASED COMPENSATION

We recognize share-based compensation for all stock options granted over the requisite service period using the fair value of these grants as estimated at the date of grant using the Black-Scholes pricing model over the requisite service period using the market value of our publicly-traded common stock on the date of grant.

Share-Based Compensation Plans

The Compensation Committee of the Board of Directors (the “Committee”) has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option (“ISO”), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2012, our stockholders approved the 2012 Stock Incentive Plan (the “2012 Plan”) pursuant to which

1,500,000

shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. Through a vote of our shareholders in May 2015, we increased the maximum number of shares under the plan from

1,500,000

shares to

3,000,000

shares; increased the automatic annual grant to non-employee directors from

15,000

shares to

20,000

shares; and limited the Company’s ability to re-issue shares under the Plan. Through a second amendment approved on May 4, 2018, our shareholders voted to increase the maximum number of shares under the plan to

3,500,000

and to increase the automatic annual grant to non-employee directors to

25,000

. The individual restricted stock and option grant awards may vest over periods up to five years. The term of the options under the 2012 Plan is up to 10 years from the date of grant. As of December 31, 2019, there were

319,669

shares available for future grants under the 2012 Plan.

On May 3, 2019, our stockholders approved the 2019 Stock Incentive Plan (“the 2019 Plan”) pursuant to which

3,000,000

shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. The individual option grant awards may vest over periods up to five years. The term of the options under the 2019 Plan is up to ten years from the date of grant. As of December 31, 2019, there were

3,000,000

shares available for future grants under the 2019 Plan.

Compensation expense is recognized only for the awards that ultimately vest. Accordingly, forfeitures that were not expected may result in the reversal of previously recorded compensation expense. We consider the historical employee turnover rate in our estimate of the number of stock option forfeitures. Our compensation expense reported for the years ended December 31, 2019, 2018 and 2017 was

$3,646,000

$2,490,000

and

$2,612,000

, respectively, and is included in general and administrative expense in the Consolidated Statements of Income.

Determining Fair Value of Option Awards

The fair value of each option award was estimated on the grant date using the Black-Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employee and termination behavior. Compensation cost is recognized on the graded vesting method over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. The expected volatility is derived using daily historical data for periods preceding the date of grant. The risk-free interest rate is

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the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised.

Stock Options

The weighted average fair value per share of options granted was

$6.30

$4.49

and

$5.76

for 2019, 2018 and 2017, respectively.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2019	2018	2017
Dividend yield	5.5%	6.5%	5.3%
Expected volatility	18.2%	19.4%	19.8%
Expected lives	2.7 years	2.9 years	2.9 years
Risk-free interest rate	2.39%	2.39%	1.49%

Stock Option Activity

The following tables summarize our outstanding stock options, after giving effect to modifications of

83,334

options in November 2019 as, in substance, the forfeiture of old and issuance of new options concurrent with an employee’s retirement:


	Number		Weighted Average	Aggregate
	of Shares		Exercise Price	Intrinsic Value
Outstanding December 31, 2016	541,679		65.84
Options granted under 2012 Plan	495,000		74.90
Options granted under 2005 Plan	—		0.00
Options exercised under 2005 Plan	(15,000	)	47.52
Options exercised under 2012 Plan	(155,829	)	65.73
Options canceled under 2012 Plan	(6,668	)	60.52
Outstanding December 31, 2017	859,182		70.11
Options granted under 2012 Plan	560,000		64.33
Options granted under 2005 Plan	—		0.00
Options exercised under 2005 Plan	(6,668	)	72.11
Options exercised under 2012 Plan	(462,167	)	65.03
Options canceled under 2012 Plan	(30,001	)	66.73
Outstanding December 31, 2018	920,346		69.24
Options granted under 2012 Plan	685,334		79.08
Options exercised under 2012 Plan	(501,664	)	71.52
Options forfeited under 2012 Plan	(100,002	)	73.89
Options forfeited under 2005 Plan	—		0.00
Options outstanding, December 31, 2019	1,004,014		74.35	$	7,157,000
Exercisable at December 31, 2019	530,163		73.93	$	4,001,000

All values are in US Dollars.

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				Remaining
Grant	Number	Exercise		Contractual
Date	of Shares	Price		Life in Years
2/20/2015	20,000	$	72.11	0.14
2/22/2016	20,000	$	60.52	1.15
2/22/2017	121,669	$	74.78	2.15
2/20/2018	246,177	$	64.33	3.14
2/21/2019	512,834	$	79.96	4.15
11/7/2019	83,334	$	72.67	0.85
Options outstanding, December 31, 2019	1,004,014

The weighted average remaining contractual life of all options outstanding at December 31, 2019 is

3.24

years. Including outstanding stock options, our stockholders have authorized an additional

4,323,683

shares of common stock that may be issued under the share-based payments plans.

The following table summarizes our outstanding non-vested stock options:

	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested December 31, 2018	443,354		$4.87
Options granted under 2012 Plan	685,334		$6.11
Options vested under 2012 Plan	(554,835	)	$5.62
Non-vested options forfeited under 2012 Plan	(100,002	)	$5.56
Non-vested December 31, 2019	473,851		$5.64

At December 31, 2019, we had, net of expected forfeitures,

$780,000

of unrecognized compensation cost related to unvested stock options which is expected to be expensed over the following periods: 2020 -

$698,000

and 2021 -

$82,000

share-based compensation is included in general and administrative expense in the Consolidated Statements of Income.

The intrinsic value of the total options exercised for the years ended December 31, 2019, 2018 and 2017 was

$5,659,000

$11.28

per share;

$6,105,000

$13.02

per share, and

$2,314,000

$13.55

per share, respectively.

NOTE 9. EARNINGS AND DIVIDENDS PER COMMON SHARE

The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options and vesting of restricted shares using the treasury stock method, to the extent dilutive. Dilution resulting from the conversion option within our convertible debt is determined by computing an average of incremental shares included in each quarterly diluted EPS computation. If NHI’s current share price increases above the adjusted conversion price, further dilution will be attributable to the conversion feature.

The following table summarizes the average number of common shares and the net income used in the calculation of basic and diluted earnings per common share (in thousands, except share and per share amounts):

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	Year Ended December 31,
	2019		2018		2017
Net income attributable to common stockholders	$	160,456	$	154,333	$	159,365
BASIC:
Weighted average common shares outstanding	43,417,828		41,943,873		40,894,219
DILUTED:
Weighted average common shares outstanding	43,417,828		41,943,873		40,894,219
Stock options and restricted shares	75,196		67,735		67,703
Convertible senior notes - unsecured	210,224		80,123		189,531
Average dilutive common shares outstanding	43,703,248		42,091,731		41,151,453
Net income attributable to common stockholders - basic	$	3.70	$	3.68	$	3.90
Net income attributable to common stockholders - diluted	$	3.67	$	3.67	$	3.87
Net share effect of anti-dilutive stock options	4,678		518		573
Regular dividends declared per common share	$	4.20	$	4.00	$	3.80

NOTE 10. INCOME TAXES

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Beginning with our inception in 1991, we have elected to be taxed as a REIT under the Internal Revenue Code (the “Code”). For the years ended December 31, 2019, 2018, and 2017, respectively, we have recorded state income tax expense of

$142,000

$138,000

and

$124,000

related to a Texas franchise tax that has attributes of an income tax. State income taxes are combined in franchise, excise and other taxes in our Consolidated Statements of Income.

Dividend payments to common stockholders for the last three years are characterized for tax purposes as follows on a per share basis:

(Unaudited)	2019		2018		2017
Ordinary income	$	4.20000	$	3.33730	$	2.93054
Capital gain	—		—		0.20643
Return of capital	—		0.66270		0.66303
Dividends paid per common share	$	4.20	$	4.00	$	3.80

During the years 2012 through 2016, we participated in the operations of a joint venture, structured as a taxable REIT subsidiary (“TRS”) under provisions of the Code. In regard to that TRS, upon the dissolution of the underlying joint venture, we carry a deferred tax asset, which is fully reserved through a valuation allowance, of

$273,000

as of December 31, 2019. See Note 15 for a discussion of Timber Ridge OpCo which will also be held in our TRS.

We made state income tax payments of

$112,000

$124,000

,and

$170,000

for the years ended December 31, 2019, 2018, and 2017, respectively.

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial assets and liabilities measured at fair value (based on the hierarchy of the three levels of inputs described in Note 1 on a recurring basis have included marketable securities, derivative financial instruments and contingent consideration arrangements. Marketable securities have consisted of common stock of other healthcare REITs. Derivative financial instruments include our interest rate swap agreements. Contingent consideration arrangements relate to certain provisions of recent real estate purchase agreements involving property acquisitions.

Derivative financial instruments. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate primarily Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):

		Fair Value Measurement
	Balance Sheet Classification	December 31, <br>2019		December 31, <br>2018
Level 2
Interest rate swap asset	Other assets	$	—	$	1,297
Interest rate swap liability	Accounts payable and accrued expenses	$	3,433	$	—

Carrying values and fair values of financial instruments that are not carried at fair value at December 31, 2019 and 2018 in the Consolidated Balance Sheets are as follows (in thousands):

	Carrying Amount				Fair Value Measurement
	2019		2018		2019		2018
Level 2
Variable rate debt	$	845,744	$	628,010	$	850,000	$	634,000
Fixed rate debt	$	594,721	$	653,665	$	602,926	$	644,745
Level 3
Mortgage and other notes receivable	$	340,143	$	246,111	$	347,543	$	244,206

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The fair value of mortgage and other notes receivable is based on credit risk and discount rates that are not observable in the marketplace and therefore represents a Level 3 measurement.

Fixed rate debt is classified as Level 2 and its value is based on quoted prices for similar instruments or calculated utilizing model derived valuations in which significant inputs are observable in active markets.

Carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair value of our borrowings under our credit facility are reasonably estimated at their contractual value at December 31, 2019 and 2018, due to the predominance of floating interest rates, which generally reflect market conditions.

NOTE 12. LIMITS ON COMMON STOCK OWNERSHIP (UNAUDITED)

100

persons or would cause NHI to be “closely-held” under the Internal Revenue Code would be void which, subject to certain exceptions, result in no stockholder being allowed to own, either directly or indirectly pursuant to certain tax attribution rules, more than

9.9%

of the Company’s common stock with the exception of prior agreements in 1991 which were confirmed in writing in 2008 with the Company’s founders Dr. Carl E. Adams and Jennie Mae Adams and their lineal descendants. Based on these agreements, the ownership limit for all other stockholders is approximately

7.5%

. If a stockholder’s stock ownership exceeds the limit, then such shares over the limit become Excess Stock within the meaning in the Company’s charter whose rights to vote and receive dividends in certain situations. Our charter gives our Board of Directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. In addition, W. Andrew Adams’ Excepted Holder Agreement also provides that he will not own shares of stock in any tenant of the Company if such ownership would cause the Company to constructively own more than a

9.9%

interest in such tenant. The purpose of these provisions is to protect the Company’s status as a REIT for tax purposes.

NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth selected quarterly financial data for the two most recent fiscal years (in thousands, except share and per share amounts).

2019	Quarter Ended
	March 31,		June 30,		September 30,		December 31,
Net revenues	$	76,107	$	78,096	$	81,682	$	82,196
Net income attributable to common stockholders	$	35,679	$	39,979	$	42,758	$	42,040
Weighted average common shares outstanding:
Basic	42,825,824		43,232,384		43,505,332		44,107,770
Diluted	43,125,032		43,498,021		43,861,089		44,328,847
Earnings per common share:
Net income attributable to common stockholders - basic	$	.83	$	.92	$	.98	$	.95
Net income attributable to common stockholders - diluted	$	.83	$	.92	$	.97	$	.95
2018	Quarter Ended
---	---	---	---	---	---	---	---	---
	March 31,		June 30,		September 30,		December 31,
Net revenues	$	72,746	$	72,956	$	74,915	$	73,995
Net income attributable to common stockholders	$	38,432	$	37,839	$	40,979	$	37,083
Weighted average common shares outstanding:
Basic	41,532,154		41,704,819		42,187,077		42,351,443
Diluted	41,576,876		41,786,829		42,434,499		42,568,720
Earnings per common share:
Net income attributable to common stockholders - basic	$	.93	$	.91	$	.97	$	.88
Net income attributable to common stockholders - diluted	$	.92	$	.91	$	.97	$	.87

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NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers using the modified retrospective method. ASU 2014-09 provides a principles-based approach for a broad range of revenue generating transactions, including the sale of real estate, and generally requires more estimates, judgment and disclosures than under previous guidance. The ASU provides for revenues from leases to continue to follow the guidance in Topics 840 and 842 and provides for loans to follow established guidance in Topic 310. Because this ASU specifically excludes these areas of our operations from its scope, there was no impact to our accounting for lease revenue and interest income resulting from the ASU. Additionally, the other significant types of contracts in which we periodically engage, sales of real estate to customers, typically never remain executory across points in time, so that nuances related to the timing of revenue recognition as mandated under Topic 606 have not impacted our results of operations or financial position. We realized no significant revenues in 2018 or 2019 within the scope of ASU 2014-09, and, accordingly, adoption of the ASU did not have a material impact on the timing and measurement of the Company’s revenues.

On January 1, 2019 we adopted Accounting Standards Update (“ASU”) 2016-02, Leases, which has been codified under ASC Topic 842. The principal difference between Topic 842 and previous guidance is that, for lessees, lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. While the accounting applied by a lessor is largely unchanged from that applied under previous GAAP, changes have been made to align i) certain lessor and lessee accounting guidance, and ii) key aspects of the lessor accounting model with the revenue recognition guidance in Topic 606, Revenue from Contracts with Customers, which we adopted as of January 1, 2018.

Under Topic 842 and unlike prior GAAP, a buyer-lessor in a sale-leaseback transaction will be required to apply the sale and leaseback guidance to determine whether the transaction qualifies as a sale. Topic 842 includes provisions which generally conform with Topic 606, and the presence of a seller-lessee repurchase option on real estate in a sale and leaseback transaction will result in recording the transaction as a financing that would otherwise meet the lease accounting requirements for buyer-lessors under previous guidance. NHI has largely ceased inclusion of repurchase options in new sale-leaseback transactions, and there were no material effects from the change in sale-leaseback guidance as it relates to repurchase options. Consistent with present standards, upon the adoption of Topic 842, NHI continues to account for lease revenue on a straight-line basis for most leases. Under Topic 842, an assessment of collectibility is made at the inception of the lease and, for operating leases, if collectibility is assessed as not probable lease income is recognized as payments are received. Recognition of changes in our assessment of collectibility under 842 differs from legacy accounting in that a change in our assessment of collectibility will be recognized as an adjustment to lease income rather than as bad debt expense. Under Topic 842 only initial direct costs that are incremental to the lessor are capitalized, a standard consistent with NHI’s prior practice.

In July and December 2018 the FASB updated the pending Topic 842 with ASU 2018-11, Leases - Targeted Improvements, and ASU 2018-20, Narrow-Scope Improvements for Lessors, respectively. ASU 2018-11 provides a simplified transition method under which we applied the new leases standard as of the adoption date. Consequently, our reporting for the comparative prior periods presented in the financial statements in which we adopted the new leases standard will continue to be in accordance with prior GAAP (Topic 840, Leases).

Initial Impact

ASU 2018-20 was issued to address implementation issues related to Topic 842. We adopted Topic 842 on January 1, 2019 (the “application date”), and, effective with our adoption, we elected the package of practical expedients allowing, among other provisions, for transition with no initial reassessment of the lease classification for any expired or existing leases. Going forward under Topic 842, for us as lessor, subsequent modification of existing leases accounted for under previous guidance, which were brought forward under conventions allowing no reassessment on the application date of Topic 842, may trigger reconsideration of continued accounting for the lease. Upon reconsideration under Topic 842, leases previously classified under Topic 840 as operating leases may be classified as either a sales-type or direct financing lease.

Further under ASU 2018-20, we elected the available practical expedient under ASU 2018-11 that allows us to make an accounting policy election and assess whether a contract is predominantly lease or service-based and recognize the entire contract under the relevant accounting guidance. No cumulative effect adjustment to retained earnings was necessary, based on our analysis.

In April 2018, we entered into a ground lease as lessee in connection with our acquisition of certain real estate assets. In accordance with transition elections allowed under Topic 842, discussed above, we have continued to account for the lease as an operating lease. Upon adoption of the standard, as lessee we recognized a right-of-use asset and a lease liability at the adoption date.

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Variable Payments

ASU 2018-20 requires NHI to exclude from variable payments, and therefore revenue, our costs paid by our tenants directly to third parties. Some of our leases require property tax and insurance costs be covered by our tenants through escrow reimbursement. We serve as the administrative agent for these escrow transactions and ASU 2018-20 requires the associated revenue and expense to be included in our consolidated financial statements. We have included $5,798,000 of reimbursements within revenue and in expenses in our Consolidated Statements of Income for the year ended December 31, 2019, under the captions “Rental income” and “Property taxes and insurance on leased properties,” respectively.

Going forward under Topic 842, for us as lessor, subsequent modification of existing sale-leaseback or other leases accounted for under previous guidance, which were brought forward under conventions allowing no reassessment the date of application of Topic 842, that undergo modifications may trigger reconsideration of continued accounting for the lease. Upon reconsideration under Topic 842, leases previously classified under Topic 840 as operating leases may be classified as either a sales-type or direct financing lease.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 will require more timely recognition of credit losses associated with financial assets. While current GAAP includes multiple credit impairment objectives for instruments, the previous objectives generally delayed recognition of the full amount of credit losses until the loss was probable of occurring. The amendments in ASU 2016-13, whose scope is asset-based and not restricted to financial institutions, eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current estimate of all expected credit losses. Under legacy accounting, when credit losses were measured under GAAP, we generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that we must consider in developing our expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss that will be more useful to users of the financial statements. ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, aligns the transition requirements and clarifies that operating lease receivables are excluded from the scope of ASU 2016-13. Instead, impairment of operating lease receivables is to be accounted for under ASC 842. Because we are likely to continue to invest in loans and generate receivables, adoption of ASU 2016-13 and the clarifying ASU 2018-19 in 2020 will have some effect on our accounting for our loan investments, though the nature of those effects will depend on the composition of our loan portfolio at that time; accordingly, we are evaluating the extent of the impact that adopting the provisions of ASU 2016-13 in 2020 will have on NHI. Our secured borrowings have exhibited a historically low rate of default, a circumstance upon which we largely base future expectations. Accordingly, after the establishment through a charge to retained earnings of a credit reserve expected to approximate one percent of the outstanding balance in our loan portfolio, the adoption of ASU 2016-13 is not expected to have a material effect on our financial position, results of operations or cash flows.

In August 2017 the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which was available for early adoption in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. On January 1, 2018, we adopted ASU 2017-12, among whose provisions is a change in the timing and income statement line item for ineffectiveness related to cash flow hedges. The transition method is a modified retrospective approach that requires the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income (loss) with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that we adopt the update. The primary provision in the ASU requiring an adjustment to our beginning consolidated retained earnings in 2018 is the change in timing and income statement line item for ineffectiveness related to cash flow hedges.

NOTE 15. SUBSEQUENT EVENTS

Life Care Services

On January 31, 2020, in a joint venture transaction, we acquired an

80%

interest in a

401

-unit Continuing Care Retirement Community (CCRC) comprising

330

independent living units, 26 assisted living/memory care units and 45 skilled nursing beds. Additionally, the transaction conveyed to NHI a

25%

interest in the operations of the community. The transaction arose as the culmination of a relationship beginning in 2015 in which NHI provided LCS Timber Ridge, LLC, (“LCS”), and its JV partner, Westminster-LCS, LLC, (“Westminster”), with a senior mortgage loan on the Timber Ridge campus in the Seattle area. Proceeds of the loan were used to facilitate expansion of the community to

401

units. By terms of the 2015 agreement, NHI acquired a fair-value purchase option on the property.

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Consideration given for NHI’s interest in the joint venture was

$124,989,000

and included assignment from the divesting owners of debt having a current carrying value of

$59,350,000

. To fund the transaction, NHI provided an additional loan of

$21,650,000

, leaving total debt in the project of

$81,000,000

, bearing interest to NHI at

5.75%

. Further, NHI paid

$43,114,000

for an

80%

equity stake in the property company (“PropCo”), and we provided initial capitalization totaling

$875,000

for the operating company (“OpCo”). LCS paid

$10,778,000

for its

20%

equity stake in PropCo and provided

$2,625,000

in initial capitalization of the operations in return for a

75%

equity participation in OpCo.

The lease between PropCo and OpCo carries a rate of

6.75%

for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. Including interest payments on debt funded by NHI and our lease participation in the PropCo JV, as detailed above, NHI is entitled to

$8,216,000

in the first twelve months plus

25%

of the remaining OpCo cash flow. The total enterprise capitalization was

$138,392,000

for the OpCo and PropCo entities, as discussed above, of which

$124,989,000

was allocated to our interest in the tangible assets of PropCo and equity interest in OpCo, based upon their relative fair values.

Bickford - Shelby, MI

On January 27, 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was

$15,100,000

, including

$100,000

in closing costs, and the cancellation of an outstanding construction note receivable of

$14,091,000

, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Control and Procedures. As of December 31, 2019, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of management’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) to ensure information required to be disclosed in our filings under the Securities and Exchange Act of 1934, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms; and (ii) accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving desired control objectives, and management is necessarily required to apply its judgment when evaluating the cost-benefit relationship of potential controls and procedures. Based upon the evaluation, the CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2019.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in management’s evaluation during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of National Health Investors, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019. The Company’s independent registered public accounting firm, BDO USA, LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

National Health Investors, Inc.

Murfreesboro, Tennessee

Opinion on Internal Control over Financial Reporting

We have audited National Health Investors, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules and our report dated February 19, 2020 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ BDO USA, LLP

Nashville, Tennessee

February 19, 2020

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ITEM 9B. OTHER INFORMATION.

None.

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PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

We have filed with the New York Stock Exchange (“NYSE”) the Annual CEO Certification regarding the Company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A.12(a) of the NYSE Listed Company Manual. Additionally, we have filed as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2019, the applicable certifications of our Chief Executive Officer and our Chief Accounting Officer as required under Section 302 of the Sarbanes-Oxley Act of 2002.

Incorporated by reference from the information in our definitive proxy statement for the 2020 annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year to which this report relates.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) (1) Financial Statements

The Consolidated Financial Statements are included in Item 8 and are filed as part of this report.

(2) Financial Statement Schedules

The Financial Statement Schedules and Report of Independent Registered Public Accounting Firm on Financial Statement Schedules are listed in Exhibit 99.1.

(3) Exhibits

Exhibits required as part of this report are listed in the Exhibit Index.

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NATIONAL HEALTH INVESTORS, INC.

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

	Description
3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-11 Registration Statement No. 33-41863, filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)
3.2	Amendment to Articles of Incorporation dated May 1, 2009 (Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement filed March 23, 2009)
3.3	Amendment to Articles of Incorporation approved by shareholders on May 2, 2014 (Incorporated by reference to Exhibit 3.3 to Form 10-Q dated August 4, 2014)
3.4	Restated Bylaws, as amended November 5, 2012 (Incorporated by reference to Exhibit 3.3 to Form 10-K filed February 15, 2013)
3.5	Amendment No. 1 to Restated Bylaws dated February 14, 2014 (Incorporated by reference to Exhibit 3.4 to Form 10-K filed February 14, 2014)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 39 to Form S-11 Registration Statement No. 33-41863, filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)
4.2	Indenture, dated as of March 25, 2014, between National Health Investors, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.1 to Form 8-K dated March 31, 2014)
4.3	First Supplemental Indenture, dated as of March 25, 2014, to the Indenture, dated as of March 25, 2014, between National Health Investors, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.2 to Form 8-K dated March 31, 2014)
4.4	Description of Securities (filed herewith)
10.1	Master Agreement of Lease dated as of October 17, 1991 by and among National Health Investors, Inc. and National HealthCorp, L.P. including amendments No. 1 through 4 (filed herewith) (formerly only filed in paper, but refiling in order to allow for hyperlinking)
10.2	Amendment No. 5 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.2 to Form 10-K dated March 10, 2006)
10.3	Amendment No. 6 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated November 4, 2013)
10.4	Amended and Restated Amendment No. 6 to the Company’s Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.4 to Form 10-K filed February 14, 2014)
*10.5	2005 Stock Option Plan (Incorporated by reference to Exhibit 4.10 to the Company’s registration statement on Form S-8 filed August 4, 2005)
*10.6	2012 Stock Option Plan (Incorporated by reference to Exhibit A to the Company’s Proxy Statement filed March 23, 2012)
*10.7	First Amendment to the 2005 Stock Option, Restricted Stock & Stock Appreciation Rights Plan (Incorporated by reference to Appendix A to the Company’s Proxy Statement filed March 17, 2006)
*10.8	Second Amendment to the 2005 Stock Option, Restricted Stock & Stock Appreciation Rights Plan (Incorporated by reference to Exhibit B to the Company’s Proxy Statement filed March 23, 2009)
10.9	Excepted Holder Agreement - W. Andrew Adams (Incorporated by reference to Exhibit 10.6 to Form 10-K dated February 24, 2009)
10.10	Excepted Holder Agreement between the Company and Andrea Adams Brown with Schedule A identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated by reference to Exhibit 10.2 to Form 10-Q dated November 3, 2010)
10.11	Agreement with Care Foundation of America, Inc. (Incorporated by reference to Exhibit 10.11 to Form 10-K dated February 22, 2010)
10.12	Extension of Master Agreement to Lease dated December 28, 2012 (Incorporated by reference to Exhibit 10.22 to Form 10-K dated February 15, 2013)
10.13	Membership Interest Purchase Agreement dated as of June 24, 2013 among Care Investment Trust Inc., Care YBE Subsidiary LLC and NHI-Bickford RE, LLC (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated August 5, 2013)
10.14	Master Lease dated as of December 23, 2013 between NHI- REIT of Next House, LLC, Myrtle Beach Retirement Residence LLC and Voorhees Retirement Residence LLC, individually and collectively as Landlord, and NH Master Tenant LLC, as Tenant (Incorporated by reference to Exhibit 10.2 to Form 8-K dated December 23, 2013)

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10.15	Guarantee of Lease Agreement dated as of December 23, 2013 between NHI-REIT of Next House, LLC, Myrtle Beach Retirement Residence LLC and Voorhees Retirement Residence LLC, individually and collectively as Landlord, and Holiday AL Holdings, LP as Guarantor (Incorporated by reference to Exhibit 10.3 to Form 8-K dated December 23, 2013)
10.16	Purchase Agreement dated as of November 18, 2013 between the Registrant and certain subsidiaries of Holiday Acquisition Holdings LLC (Incorporated by reference to Exhibit 10.31 to Form 10-K filed February 18, 2014)
10.17	Amendment No. 7 to Master Agreement to Lease with NHC (Incorporated by reference to Exhibit 10.32 to Form 10-K filed February 14, 2014)
10.18	Asset Purchase Agreement dated December 1, 2014 with Senior Living Communities, LLC and certain of its affiliates, relating to the acquisition of a portfolio of eight retirement communities (Incorporated by reference to Exhibit 10.31 to Form 10-K filed February 17, 2015)
10.19	$225 million Note Purchase Agreement dated January 13, 2015 with Prudential Capital Group and certain of its affiliates (Incorporated by reference to Exhibit 10.32 to Form 10-K filed February 17, 2015)
*10.20	First amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 20, 2015)
10.21	Construction and Term Loan Agreement dated February 10, 2015 between the Company and LCS-Westminster Partnership (Incorporated by reference to Exhibit 10.21 to Form 10-K filed February 16, 2018)
10.22	Multifamily Loan and Security Agreement for Urbandale Bickford Cottage by and between Care YBE Subsidiary LLC, a Delaware limited liability company, and KeyBank National Association, a national banking association with Appendix 1 identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated by reference to Exhibit 10.3 to Form 10-Q dated May 7, 2015)
10.23	Multifamily Loan and Security Agreement for Omaha II Bickford Cottage by and between Care YBE Subsidiary LLC, a Delaware limited liability company, and KeyBank National Association, a national banking association with Appendix 1 identifying substantially identical agreements and setting forth the material details in which such agreements differ from this agreement (Incorporated by reference to Exhibit 10.4 to Form 10-Q dated May 7, 2015)
10.24	Amendment to Note Purchase Agreement dated as of June 30,2015 among the Corporation, The Prudential Insurance Company of America and the other Purchasers named therein (Incorporated by reference to Exhibit 10.2 to Form 10-Q dated August 5, 2015)
*10.25	Amended and Restated Employment Agreement, dated as of February 15, 2019, by and between National Health Investors, Inc. and D. Eric Mendelsohn (Incorporated by reference to Exhibit 10.1 to Form 8-K dated February 22, 2019)
10.26	$50,000,000 of 8-year notes with a coupon of 3.99% and $50,000,000 of 10-year notes with a coupon of 4.33% to a private placement lender (Incorporated by reference to Exhibit 10.40 to Form 10-K filed February 18, 2016)
10.27	Purchase and Sale Agreement, dated as of April 1, 2016, between Texas NHI Investors, LLC and Gladewater Real Estate, LP, Firehole River Real Estate Holdings - Granite Mesa, Ltd, Firehole River Real Estate Holdings - Sonterra, Ltd, Firehole River Real Estate Holdings - West San Antonio, Ltd, RGV Real Estate Holdings, Ltd, Firehole River Real Estate Holdings - Euless, LP, and Firehole River Real Estate Holdings - Katy, LLC, and Legend Healthcare, LLC (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 6, 2016)
10.28	NHI PropCo, LLC Membership Interest Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 7, 2016)
10.29	$75,000,000 of 8-year notes with a coupon of 3.93% issued to a private placement lender (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 7, 2016)
10.30	Credit Agreement dated as of August 3, 2017 by and among National Health Investors, Inc., the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (Incorporated by reference to Exhibit 10.1 to Form 10-Q dated August 8, 2017)
10.31	Third Amendment to the Note Purchase Agreement dated as of November 3, 2015, made and entered into as of August 8, 2017 (Incorporated by reference to Exhibit 99.1 to Form 8-k filed August 14, 2017)
10.32	Fifth Amendment to Note Purchase Agreement dated January 13, 2015, made and entered into as of August 8, 2017 (Incorporated by reference to Exhibit 99.2 to Form 8-k filed August 14, 2017)
*10.33	Second Amendment to 2012 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 20, 2018)

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10.34	Amendment To Master Lease and Termination Of Guaranty dated as of November 5, 2018, by and among NHI-REIT of Next House, LLC, Myrtle Beach Retirement Residence LLC, Voorhees Retirement Residence LLC, NH Master Tenant LLC, and Holiday AL Holdings LP (Incorporated by reference to Exhibit 99.2 to Form 8-K filed November 6, 2018)
10.35	Term Loan Agreement dated as of September 17, 2018, by and among National Health Investors, Inc., the Lenders Party thereto, and Wells Fargo Bank, National Association as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 6, 2018)
10.36	Construction and Term Loan Agreement dated December 21, 2018 between the Company and LCS-Westminster Partnership IV, LLP (Incorporated by reference to Exhibit 10.36 to Form 10-K filed February 19, 2018)
*10.37	National Health Investors, Inc. 2019 Stock Incentive Plan (Incorporated by reference to Appendix A to Proxy Statement filed March 19, 2019)
*10.38	Separation Agreement dated November 7, 2019, by and between National Health Investors, Inc. and Roger Hopkins (filed herewith)
21	Subsidiaries (filed herewith)
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith)
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32	Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
99.1	Financial Statement Schedules (filed herewith)
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
0.104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Indicates management contract or compensatory plan or arrangement.

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ITEM 16. SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL HEALTH INVESTORS, INC.
	BY:/s/ D. Eric Mendelsohn
	D. Eric Mendelsohn
DATE: February 19, 2020	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ D. Eric Mendelsohn	President and Chief Executive Officer	February 19, 2020
D. Eric Mendelsohn	(Principal Executive Officer)
/s/ John L. Spaid	Chief Financial Officer	February 19, 2020
John L. Spaid	(Principal Financial Officer and Principal Accounting Officer)
/s/ W. Andrew Adams	Chairman of the Board	February 19, 2020
W. Andrew Adams
/s/ James R. Jobe	Director	February 19, 2020
James R. Jobe
/s/ Robert A. McCabe, Jr.	Director	February 19, 2020
Robert A. McCabe, Jr.
/s/ Robert T. Webb	Director	February 19, 2020
Robert T. Webb

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NATIONAL HEALTH INVESTORS, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED December 31, 2019, 2018, AND 2017

(in thousands)

	Balance		Additions
	Beginning		Charged to Costs				Balance
	of Period		and Expenses^1^		Deductions		End of Period
For the year ended December 31, 2019
Loan loss allowance	$	—	$	—	$	—	$	—
For the year ended December 31, 2018
Loan loss allowance	$	—	$	—	$	—	$	—
For the year ended December 31, 2017
Loan loss allowance	$	—	$	—	$	—	$	—

^1^ In the Consolidated Statements of Income, we report the net amount of our provision for loan and realty losses and our recoveries of amounts previously written down.

Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
							Costs
			Initial Cost to Company^(C)^				Capitalized										Date
					Buildings &		Subsequent to				Buildings &				Accumulated		Acquired/
	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Total		Depreciation^(B)^		Constructed
Skilled Nursing Facilities
Anniston, AL	$	—	$	70	$	4,477	$	—	$	70	$	4,477	$	4,547	$	3,536	10/17/1991
Moulton, AL	—		25		688		—		25		688		713		688		10/17/1991
Avondale, AZ	—		453		6,678		—		453		6,678		7,131		4,029		8/13/1996
Brooksville, FL	—		1,217		16,166		—		1,217		16,166		17,383		4,008		2/1/2010
Crystal River, FL	—		912		12,117		—		912		12,117		13,029		3,004		2/1/2010
Dade City, FL	—		605		8,042		—		605		8,042		8,647		1,994		2/1/2010
Hudson, FL (2 facilities)	—		1,290		22,392		—		1,290		22,392		23,682		11,389		Various
Merritt Island, FL	—		701		8,869		—		701		8,869		9,570		7,364		10/17/1991
New Port Richey, FL	—		228		3,023		—		228		3,023		3,251		749		2/1/2010
Plant City, FL	—		405		8,777		—		405		8,777		9,182		7,228		10/17/1991
Stuart, FL	—		787		9,048		—		787		9,048		9,835		7,653		10/17/1991
Trenton, FL	—		851		11,312		—		851		11,312		12,163		2,804		2/1/2010
Glasgow, KY	—		33		2,110		—		33		2,110		2,143		2,059		10/17/1991
Greenfield, MA	—		370		4,341		—		370		4,341		4,711		725		8/30/2013
Holyoke, MA	—		110		944		—		110		944		1,054		166		8/30/2013
Quincy, MA	—		450		710		—		450		710		1,160		115		8/30/2013
Taunton, MA	—		900		5,906		—		900		5,906		6,806		995		8/30/2013
Desloge, MO	—		178		3,804		—		178		3,804		3,982		3,580		10/17/1991
Joplin, MO	—		175		4,034		—		175		4,034		4,209		2,990		10/17/1991
Kennett, MO	—		180		4,928		—		180		4,928		5,108		4,593		10/17/1991
Maryland Heights, MO	—		482		5,512		—		482		5,512		5,994		5,512		10/17/1991
St. Charles, MO	—		150		4,790		—		150		4,790		4,940		4,405		10/17/1991
Manchester, NH (2 facilities)	—		790		20,077		—		790		20,077		20,867		3,294		8/30/2013
Epsom, NH	—		630		2,191		—		630		2,191		2,821		382		8/30/2013
Albany, OR	—		190		10,415		—		190		10,415		10,605		1,829		3/31/2014
Creswell, OR	—		470		8,946		—		470		8,946		9,416		1,505		3/31/2014
Forest Grove, OR	—		540		11,848		—		540		11,848		12,388		2,006		3/31/2014
Anderson, SC	—		308		4,643		—		308		4,643		4,951		4,477		10/17/1991
Greenwood, SC	—		222		3,457		—		222		3,457		3,679		3,199		10/17/1991
Laurens, SC	—		42		3,426		—		42		3,426		3,468		3,042		10/17/1991
Orangeburg, SC	—		300		3,714		—		300		3,714		4,014		1,109		9/25/2008
Athens, TN	—		38		1,463		—		38		1,463		1,501		1,350		10/17/1991
Chattanooga, TN	—		143		2,309		—		143		2,309		2,452		2,313		10/17/1991

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Dickson, TN	—	90	3,541	—	90	3,541	3,631	3,108	10/17/1991
Franklin, TN	—	47	1,130	—	47	1,130	1,177	1,110	10/17/1991
Hendersonville, TN	—	363	3,837	—	363	3,837	4,200	3,122	10/17/1991
Johnson City, TN	—	85	1,918	—	85	1,918	2,003	1,918	10/17/1991
Lewisburg, TN (2 facilities)	—	46	994	—	46	994	1,040	999	10/17/1991
McMinnville, TN	—	73	3,618	—	73	3,618	3,691	3,089	10/17/1991
Milan, TN	—	41	1,826	—	41	1,826	1,867	1,667	10/17/1991
Pulaski, TN	—	53	3,921	—	53	3,921	3,974	3,384	10/17/1991
Lawrenceburg, TN	—	98	2,900	—	98	2,900	2,998	2,349	10/17/1991
Dunlap, TN	—	35	3,679	—	35	3,679	3,714	3,040	10/17/1991
Smithville, TN	—	35	3,816	—	35	3,816	3,851	3,258	10/18/1991
Somerville, TN	—	26	677	—	26	677	703	678	10/19/1991
Sparta, TN	—	80	1,602	—	80	1,602	1,682	1,518	10/20/1991
Austin, TX	—	606	9,895	—	606	9,895	10,501	1,092	4/1/2016
Canton, TX	—	420	12,330	—	420	12,330	12,750	2,728	4/18/2013
Corinth, TX	—	1,075	13,935	—	1,075	13,935	15,010	3,315	4/18/2013
Ennis, TX	—	986	9,025	—	986	9,025	10,011	2,483	10/31/2011
Euless, TX	—	1,241	12,629	—	1,241	12,629	13,870	1,515	4/1/2016
Fort Worth, TX	—	1,380	14,370	—	1,380	14,370	15,750	805	5/10/2018
Garland, TX	—	1,440	14,310	—	1,440	14,310	15,750	800	5/10/2018
Gladewater, TX	—	70	17,840	—	70	17,840	17,910	1,871	4/1/2016
Greenville, TX	—	1,800	13,948	—	1,800	13,948	15,748	3,517	10/31/2011
Houston, TX (3 facilities)	—	2,808	42,511	—	2,808	42,511	45,319	11,429	Various
Katy, TX	—	610	13,893	—	610	13,893	14,503	1,549	4/1/2016
Kyle, TX	—	1,096	12,279	—	1,096	12,279	13,375	3,188	6/11/2012
Marble Falls, TX	—	480	14,989	—	480	14,989	15,469	1,629	4/1/2016
McAllen, TX	—	1,175	8,259	—	1,175	8,259	9,434	1,010	4/1/2016
New Braunfels, TX	—	1,430	13,666	—	1,430	13,666	15,096	1,316	2/24/2017
San Antonio, TX (3 facilities)	—	2,370	40,054	—	2,370	40,054	42,424	7,119	Various
Waxahachie, TX	—	1,330	14,349	—	1,330	14,349	15,679	960	1/17/2018
Bristol, VA	—	176	2,511	—	176	2,511	2,687	2,320	10/17/1991
Oak Creek, WI	—	2,000	14,903	—	2,000	14,903	16,903	—	12/7/2018
	—	37,810	550,312	—	37,810	550,312	588,122	181,978

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized						Date
			Buildings &	Subsequent to		Buildings &			Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements		Total	Depreciation^(B)^	Constructed
Assisted Living Facilities
Rainbow City, AL	—	670	11,330	—	670	11,330		12,000	2,049	10/31/2013
Sacramento, CA	—	660	10,840	—	660	10,840		11,500	1,772	6/1/2014
Pueblo West, CO	—	169	7,431	—	169	7,431		7,600	93	7/23/2019
Bartow, FL	—	225	3,192	—	225	3,192		3,417	834	11/30/2010
Lakeland, FL	—	307	3,117	—	307	3,117		3,424	820	11/30/2010
Maitland, FL	—	1,687	5,428	—	1,687	5,428		7,115	3,513	8/6/1996
St. Cloud, FL	—	250	3,167	—	250	3,167		3,417	834	11/30/2010
Greensboro, GA	—	672	4,849	631	672	5,480		6,152	1,156	9/15/2011
Ames, IA	3,193	360	4,670	—	360	4,670		5,030	874	6/28/2013
Burlington, IA	3,901	200	8,374	—	200	8,374		8,574	1,570	6/28/2013
Cedar Falls, IA	3,752	260	4,700	30	260	4,730		4,990	909	6/28/2013
Clinton, IA	2,596	133	3,215	60	133	3,275		3,408	838	6/30/2010
Ft. Dodge, IA	4,008	100	7,208	—	100	7,208		7,308	1,320	6/28/2013
Iowa City, IA	2,357	297	2,725	33	297	2,758		3,055	767	6/30/2010
Marshalltown, IA	5,714	240	6,208	—	240	6,208		6,448	1,155	6/28/2013
Muscatine, IA	—	140	1,802	—	140	1,802		1,942	385	6/28/2013
Urbandale, IA	8,113	540	4,292	—	540	4,292		4,832	845	6/28/2013
West Des Moines, IA	—	600	17,406	—	600	17,406		18,006	1,670	7/12/2013
Caldwell, ID	—	320	9,353	—	320	9,353		9,673	1,547	3/31/2014
Weiser, ID	—	20	2,433	—	20	2,433		2,453	447	12/21/2012
Aurora, IL	—	1,195	11,713	—	1,195	11,713		12,908	1,118	5/9/2017
Bolingbrook, IL	—	1,290	14,677	—	1,290	14,677		15,967	1,134	3/16/2017
Bourbonnais, IL	7,974	170	16,594	—	170	16,594		16,764	3,009	6/28/2013
Crystal Lake, IL (2 facilities)	—	1,060	30,043	170	1,060	30,213		31,273	2,634	Various
Gurnee, IL	—	1,244	13,856	—	1,244	13,856		15,100	137	9/10/2019
Moline, IL	3,896	250	5,630	—	250	5,630		5,880	1,061	6/28/2013
Oswego, IL	—	390	20,957	212	390	21,169		21,559	2,008	6/1/2016
Peoria, IL	3,933	403	4,532	224	403	4,756		5,159	1,360	10/19/2009
Quincy, IL	6,055	360	12,403	—	360	12,403		12,763	2,252	6/28/2013
Rockford, IL	6,412	390	12,575	—	390	12,575		12,965	2,346	6/28/2013
South Barrington, IL	—	1,610	13,456	—	1,610	13,456	—	15,066	1,061	3/16/2017
Springfield, IL	15,386	450	19,355	200	450	19,555		20,005	3,517	6/28/2013
St. Charles, IL	—	820	22,188	252	820	22,440		23,260	2,148	6/1/2016

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized						Date
			Buildings &	Subsequent to		Buildings &			Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements		Total	Depreciation^(B)^	Constructed
Tinley Park, IL	—	1,622	11,354	—	1,622	11,354		12,976	1,296	6/23/2016
Carmel, IN	—	463	7,055	—	463	7,055		7,518	1,578	11/12/2014
Crawfordsville, IN	2,559	300	3,134	—	300	3,134		3,434	597	6/28/2013
Crown Point, IN	—	574	7,336	353	574	7,689		8,263	1,474	10/30/2013
Greenwood, IN	—	791	7,020	227	791	7,247		8,038	1,619	11/7/2013
Valparaiso, IN	—	1,414	16,099	—	1,414	16,099		17,513	269	5/31/2019
Mission, KS	—	1,901	17,310	636	1,901	17,946		19,847	4,455	9/30/2012
Overland Park, KS	—	2,199	20,026	—	2,199	20,026		22,225	5,049	9/30/2012
Bastrop, LA	—	325	2,456	—	325	2,456		2,781	650	4/30/2011
Bossier City, LA	—	500	3,344	—	500	3,344		3,844	920	4/30/2011
Minden, LA	—	280	1,698	—	280	1,698		1,978	446	4/30/2011
West Monroe, LA	—	770	5,627	—	770	5,627		6,397	1,415	4/30/2011
Baltimore, MD	—	860	8,078	534	860	8,612		9,472	1,498	10/31/2013
Battle Creek, MI	2,866	398	3,093	197	398	3,290		3,688	962	10/19/2009
Bridgeport, MI	—	220	7,849	—	220	7,849	—	8,069	327	6/20/2018
Brighton, MI	—	410	13,090	—	410	13,090		13,500	232	5/22/2019
Lansing, MI (2 facilities)	6,218	1,360	17,766	174	1,360	17,940		19,300	3,035	10/19/2009
Midland, MI	5,416	504	6,612	162	504	6,774		7,278	1,842	10/19/2009
Saginaw, MI (2 facilities)	3,566	538	12,991	163	538	13,154		13,692	1,603	Various
Shelby Township, MI	—	570	10,230	—	570	10,230		10,800	207	4/30/2019
Champlin, MN	—	980	4,430	—	980	4,430		5,410	1,230	3/10/2010
Hugo, MN	—	400	3,800	—	400	3,800		4,200	1,040	3/10/2010
Maplewood, MN	—	1,700	6,510	—	1,700	6,510		8,210	1,798	3/10/2010
North Branch, MN	—	595	2,985	—	595	2,985		3,580	875	3/10/2010
Mahtomedi, MN	—	515	8,825	—	515	8,825		9,340	—	12/27/2019
Charlotte, NC	—	650	17,663	2,000	650	19,663		20,313	2,221	7/1/2015
Durham, NC	—	860	6,690	—	860	6,690		7,550	405	3/16/2017
Hendersonville, NC (2 facilities)	—	3,120	12,980	—	3,120	12,980		16,100	1,103	3/16/2017
Grand Island, NE	4,180	370	5,029	197	370	5,226		5,596	1,056	6/28/2013
Lincoln, NE	8,418	380	10,904	—	380	10,904		11,284	1,959	6/28/2013
Omaha, NE (2 facilities)	2,455	1,110	15,437	851	1,110	16,288		17,398	2,164	Various
Columbus, OH (2 facilities)	—	1,100	26,002	—	1,100	26,002		27,102	1,206	4/30/2018
Lancaster, OH	—	530	20,530	—	530	20,530		21,060	2,800	7/31/2015
Marysville, OH	—	1,250	13,950	—	1,250	13,950		15,200	2,755	7/1/2013

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
							Costs
			Initial Cost to Company^(C)^				Capitalized									Date
					Buildings &		Subsequent to				Buildings &				Accumulated	Acquired/
	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Total		Depreciation^(B)^	Constructed
Middletown, OH	8,492		940		15,548		—		940		15,548		16,488		2,340	10/31/2014
Rocky River, OH	—		650		7,201		—		650		7,201		7,851		360	4/30/2018
Worthington, OH	—		—		18,869		1,476		—		20,345	—	20,345		1,161	4/30/2018
McMinnville, OR	—		390		9,183		—		390		9,183		9,573		896	8/31/2016
Milwaukie, OR	—		370		5,283		64		370		5,347		5,717		743	9/30/2014
Ontario, OR (2 facilities)	—		429		6,128		—		429		6,128		6,557		1,131	12/21/2012
Portland, OR (2 facilities)	—		1,430		31,542		—		1,430		31,542		32,972		2,688	8/31/2015
Erie, PA	—		1,030		15,206		3		1,030		15,209	—	16,239		696	4/30/2018
Reading, PA	—		1,027		11,179		—		1,027		11,179		12,206		196	5/31/2019
Arlington, TX	—		450		4,555		26		450		4,581		5,031		407	3/16/2017
Rockwall, TX	—		1,250		10,562		—		1,250		10,562		11,812		854	3/16/2017
Fredericksburg, VA	—		1,615		9,271		—		1,615		9,271		10,886		992	9/20/2016
Midlothian, VA	—		1,646		8,635		—		1,646		8,635		10,281		945	10/31/2016
Suffolk, VA	—		1,022		9,320		—		1,022		9,320		10,342		777	3/25/2016
Beaver Dam, WI	—		210		20,149		113		210		20,262		20,472		4,068	12/21/2012
	121,460		59,500		840,253		8,988		59,500		849,241		908,741		115,523
Independent Living Facilities
Fort Smith, AR	—		590		22,447		—		590		22,447		23,037		3,674	12/23/2013
Rogers, AR	—		1,470		25,282		—		1,470		25,282		26,752		4,138	12/23/2013
Fresno, CA	—		420		10,899		—		420		10,899		11,319		1,876	12/23/2013
Hemet, CA	—		1,250		12,645		—		1,250		12,645		13,895		2,153	12/23/2013
Merced, CA	—	—	350	350	18,712	18,712	—	—	350	350	18,712		19,062	19,062	3,075	12/23/2013
Modesto, CA	—		1,170		22,673		—		1,170	350	22,673		23,843		3,661	12/23/2013
Pinole, CA	—		1,020		18,066		—		1,020	350	18,066		19,086		2,954	12/23/2013
Roseville, CA	—		630		31,343		—		630	350	31,343		31,973		5,070	12/23/2013
West Covina, CA	—		940		20,280		—		940	350	20,280		21,220		3,270	12/23/2013
Vero Beach, FL	—		550		37,450		—		550	350	37,450		38,000		967	2/1/2019
Athens, GA	—		910		31,940		—		910		31,940		32,850		5,162	12/23/2013
Columbus, GA	—		570		8,639		—		570		8,639		9,209		1,508	12/23/2013
Savannah, GA	—		1,200		15,851		—		1,200		15,851		17,051		2,636	12/23/2013
Boise, ID	—		400		12,422		—		400		12,422		12,822		2,069	12/23/2013
Columbus, IN	—		348		6,124		—		348		6,124		6,472		103	5/31/2019
Fort Wayne, IN	—		310		12,864		—		310		12,864		13,174		2,201	12/23/2013

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Kenner, LA	—	310	24,259	—	310	24,259	24,569	3,881	12/23/2013
St. Charles, MO	—	344	3,181	—	344	3,181	3,525	2,558	10/17/1991
Voorhees, NJ	—	670	23,710	—	670	23,710	24,380	3,816	12/23/2013
Gahanna, OH	—	920	22,919	—	920	22,919	23,839	3,771	12/23/2013
Broken Arrow, OK	—	2,660	18,477	—	2,660	18,477	21,137	3,079	12/23/2013
Tulsa, OK	17,622	1,980	32,620	501	1,980	33,121	35,101	1,929	12/1/2017
Newberg, OR	—	1,080	19,187	—	1,080	19,187	20,267	3,178	12/23/2013
Greenville, SC	—	560	16,547	—	560	16,547	17,107	2,761	12/23/2013
Myrtle Beach, SC	—	1,310	26,229	—	1,310	26,229	27,539	4,231	12/23/2013
Chattanooga, TN	—	9	1,567	—	9	1,567	1,576	1,329	10/17/1991
Johnson City, TN	—	55	4,077	—	55	4,077	4,132	3,040	10/17/1991
Bellevue, WA	—	780	18,692	—	780	18,692	19,472	3,044	12/23/2013
Chehalis, WA	—	1,980	7,710	7,445	1,980	15,155	17,135	879	1/15/2016
Vancouver, WA (2 facilities)	—	1,740	23,411	—	1,740	23,411	25,151	3,950	12/23/2013
Yakima, WA	—	440	14,186	—	440	14,186	14,626	2,348	12/23/2013
	17,622	26,966	564,409	7,946	26,966	572,355	599,321	88,311
Senior Living Campuses
Loma Linda, CA	—	1,200	10,800	7,326	1,200	18,126	19,326	3,169	9/28/2012
Bonita Springs, FL	—	1,810	24,382	—	1,810	24,382	26,192	3,078	7/1/2015
Maitland, FL	—	2,317	9,161	491	2,317	9,652	11,969	6,376	8/6/1996
West Palm Beach, FL	—	2,771	4,286	—	2,771	4,286	7,057	3,803	8/6/1996
Nampa, ID	—	243	4,182	—	243	4,182	4,425	2,552	8/13/1996
Michigan City, IN	—	974	22,667	—	974	22,667	23,641	378	5/31/2019
Portage, IN	—	661	21,959	—	661	21,959	22,620	368	5/31/2019
Needham, MA	—	5,500	45,157	—	5,500	45,157	50,657	1,395	1/15/2019
Salisbury, MD	—	1,876	44,084	—	1,876	44,084	45,960	763	5/31/2019
Roscommon, MI	—	44	6,005	—	44	6,005	6,049	805	8/31/2015
Mt. Airy, NC	—	1,370	7,470	150	1,370	7,620	8,990	1,125	12/17/2014
McMinnville, OR	—	410	26,667	—	410	26,667	27,077	2,451	8/31/2016
Madison, TN	—	920	21,829	104	920	21,933	22,853	2,748	7/1/2015
Silverdale, WA	—	1,750	23,860	2,167	1,750	26,027	27,777	5,392	8/16/2012
	—	21,846	272,509	10,238	21,846	282,747	304,593	34,403

105

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NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
							Costs
			Initial Cost to Company^(C)^				Capitalized										Date
					Buildings &		Subsequent to				Buildings &				Accumulated		Acquired/
	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Total		Depreciation^(B)^		Constructed
Entrance-Fee Communities
Bridgeport, CT	—		4,320		23,494		2,774		4,320		26,268		30,588		2,875		6/1/2016
North Branford, CT	—		7,724		64,430		—		7,724		64,430		72,154		5,700		11/3/2016
Southbury, CT	—		10,320		17,143		2,713		10,320		19,856		30,176		2,046		11/8/2016
Fernandina Beach, FL	—		1,430		63,420		1,522		1,430		64,942		66,372		8,826		12/17/2014
St. Simons Island, GA	—		8,770		38,070		963		8,770		39,033		47,803		5,547		12/17/2014
Winston-Salem, NC	—		8,700		73,920		507		8,700		74,427		83,127		10,356		12/17/2014
Greenville, SC	—		5,850		90,760		—		5,850		90,760		96,610		12,526		12/17/2014
Myrtle Beach, SC	—		3,910		82,140		542		3,910		82,682		86,592		11,630		12/17/2014
Pawleys Island, SC	—		1,480		38,620		460		1,480		39,080		40,560		5,718		12/17/2014
Spartanburg, SC	—		900		49,190		1,021		900		50,211		51,111		7,029		12/17/2014
	—		53,404		541,187		10,502		53,404		551,689		605,093		72,253
Medical Office Buildings
Crestview, FL	—		165		3,349		—		165		3,349		3,514		2,505		6/30/1993
Pasadena, TX	—		631		6,341		—		631		6,341		6,972		4,869		1/1/1995
	—		796		9,690		—		796		9,690		10,486		7,374
Hospitals
La Mesa, CA	—		4,180		8,320		—		4,180		8,320		12,500		2,676		3/10/2010
Jackson, KY	—		540		10,163		7,899		540		18,062		18,602		8,309		6/12/1992
Murfreesboro, TN	—		7,284		17,585		—		7,284		17,585		24,869		3,190		10/1/2012
	—		12,004		36,068		7,899		12,004		43,967		55,971		14,175
Total continuing operations properties	139,082		212,326		2,814,428		45,573		212,326		2,860,001		3,072,327		514,017
Corporate office	—		1,291		677		551		1,291		1,228		2,519		436
	$	139,082	$	213,617	$	2,815,105	$	46,124	$	213,617	$	2,861,229	$	3,074,846	$	514,453

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

(A) See the notes to the consolidated financial statements.

(B) Depreciation is calculated using estimated useful lives up to 40 years for all completed facilities.

1991

, we have purchased from NHC

$33,909,000

of additions to those properties. As the additions were purchased from NHC rather than developed by us, the

$33,909,000

has been included as Initial Cost to Company.

(D) At December 31, 2019, the tax basis of the Company’s net real estate assets was

$2,541,329,000

106

Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
	December 31,
	2019			2018			2017
Investment in Real Estate:
Balance at beginning of period	$	2,818,365		$	2,665,903		$	2,472,854
Additions through cash expenditures	237,186			147,645			175,793
Change in accounts payable related to investments in real estate construction	1,829			1,689			(1,855		)
Change in other assets related to investments in real estate	292			171			—
Tenant investment in leased asset	—			3,775			1,250
Contingent asset acquisition liability relieved	—			(818		)	—
Additions through assumption of debt	—			—			18,311
Real estate acquired in exchange for straight-line rent receivable	38,000			—			—
Real estate acquired in exchange for mortgage notes receivable	14,000			—			—
Sale of properties for cash	—			—			(450		)
Properties classified as held for sale	(34,826		)	—			—
Balance at end of period	$	3,074,846		$	2,818,365		$	2,665,903
Accumulated Depreciation:
Balance at beginning of period	$	451,483		$	380,202		$	313,080
Addition charged to costs and expenses	76,816			71,349			67,173
Amortization of right-of-use asset	60			—			—
Sale of properties	—			—			(51		)
Properties classified as held for sale	(13,906		)	—			—
Contingent asset acquisition liability relieved	—			(68		)	—
Balance at end of period	$	514,453		$	451,483		$	380,202

107

Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2019
			Monthly					Amount Subject To
	Interest	Maturity	Payment	Original		Carrying		Delinquent Principal
	Rate	Date	Terms	Face Amount		Amount		or Interest
				(in thousands)
First Mortgages:
Skilled nursing facilities:
Virginia Beach, VA	8.0%	2031-12-31	31,000	$	3,814	$	2,313
Lexington, VA	8.0%	2032-12-31	21,000	$	3,089	$	1,686
Brookneal, VA	8.0%	2031-12-31	21,000	$	2,780	$	1,640
Laurel Fork, VA	8.0%	2030-12-31	20,000	$	2,672	$	1,535
Assisted living facilities:
Oviedo, FL	8.25%	2021-12-31	Interest Only	$	10,000	$	10,000
Rye, NH	8.0%	2022-12-31	Interest Only	$	10,000	$	9,948
Indianapolis, IN	7.0%	2022-12-31	Interest Only	$	6,423	$	6,423
Entrance fee communities:
Columbia, SC	7.3%	2024-12-31	Interest Only	$	32,700	$	32,700
Second Mortgages:
Assisted living facilities:
Green Bay, WI	13.0%	2020-12-31	Interest Only	$	3,870	$	3,834
Construction Loan:
Phoenix, AZ	7.25%	2028-12-31	Interest Only	$	77,340	$	75,871
Phoenix, AZ	8.50%	2023-12-31	Interest Only	$	45,938	$	45,938
Canton, MI	9.0%	2023-12-31	Interest Only	$	11,312	$	11,312
Shelby Township, MI	9.0%	2022-12-31	Interest Only	$	14,000	$	14,000
Virginia Beach, VA	9.0%	2023-12-31	Interest Only	$	11,804	$	11,804
Issaquah, WA	6.75%	2025-12-31	Interest Only	$	59,349	$	59,166
Oshkosh, WI	8.50%	2024-12-31	Interest Only	$	6,045	$	5,950
						$	294,120	$	—

All values are in US Dollars.

At December 31, 2019, the tax basis of our mortgage loans on real estate was

$296,385,000

. Balloon payments on our interest only mortgage receivables are equivalent to the carrying amounts listed above except for unamortized commitment fees of

$1,835,000

See the notes to our consolidated financial statements for more information on our mortgage loan receivables.

108

Table of Contents

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
	December 31,
	2019		2018		2017
Reconciliation of mortgage loans on real estate
Balance at beginning of period	$	202,877	$	98,110	$	99,179
Additions:
New mortgage loans	105,345		108,266		33,823
Amortization of loan discount and commitment fees	440		608		1,005
Total Additions	105,785		108,874		34,828
Deductions:
Loan commitment fees received	108		1,800		—
Mortgage notes receivable related to investments in real estate	14,000		—		—
Collection of principal, less recoveries of previous write-downs	434		2,307		35,897
Total Deductions	14,542		4,107		35,897
Balance at end of period	$	294,120	$	202,877	$	98,110

109

		Exhibit

Exhibit 4.4

DESCRIPTION OF SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

The following description of the capital stock of National Health Investors, Inc. (the “Company,” “us,” “our” or “we,”) is a summary of the rights of our common stock and certain provisions of our charter, and our bylaws, as currently in effect. This summary does not purport to be complete and is qualified in its entirety by the provisions of our charter and bylaws, copies of which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein, and to the applicable provisions of Maryland and U.S. federal law. We encourage you to read our charter and bylaws, and the applicable provisions of Maryland and U.S. federal law for additional information.

Authorized Capital

Our charter authorizes us to issue up to 70,000,000 shares of capital stock, consisting of 60,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.

Voting Rights. With respect to all matters upon which shareholders are entitled to vote, except as required by applicable law, the holders of our common stock will be entitled to one vote in person or by proxy for each share of our common stock outstanding in the name of such shareholder on the record of shareholders. The holders of our outstanding common stock do not have the right to cumulate their votes with respect to the election of directors or any other matters. Generally, all matters to be voted on by our shareholders must be approved by a majority (or by a plurality in the case of election of directors where the number of candidates nominated for election exceeds the number of directors to be elected) of the votes entitled to be cast by all shares of our common stock present in person or by proxy.

Dividends. Subject to applicable law and rights, if any, of the holders of any outstanding class or series of preferred stock having a preference over our common stock with respect to the payment of dividends, dividends may be declared and paid on our common stock from time to time and in amounts as our board of directors may determine.

Liquidation Rights. Upon our liquidation or dissolution or the winding up of our business, whether voluntarily or involuntarily, the holders of our common stock will be entitled to share ratably in all assets available for distribution after payment or provision for the payment of our debt and liabilities and to holders of preferred stock then outstanding of any amount required to be paid to them.

Other Provisions. The holders of our common stock will not be entitled to any preemptive, subscription or redemption rights, and will not be entitled to the benefit of any sinking fund. All outstanding shares of our common stock are fully paid and nonassessable.

Miscellaneous. The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. Our common stock is listed on the NYSE under the symbol “NHI.”

Preferred Stock

Our board of directors is authorized to issue preferred stock in one or more series and, with respect to each series, to determine the number of shares constituting any series, and the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption.

We have no plans to issue any preferred stock or other new class of stock. Our preferred stock and the variety of characteristics available for it offers us flexibility in financing and acquisition transactions. An issuance of stock could dilute the book value or adversely affect the relative voting power of our common stock. The issuance of such shares could be used to discourage unsolicited business combinations, for example, by providing for class voting rights which would enable the holder to block such a transaction. Although our board of directors is required when issuing such stock to act based on its judgment as to the best interests of our shareholders, our board of directors could act in a manner which would discourage or prevent a transaction some shareholders might believe is in the Company’s best interests or in which shareholders could or would receive a premium for their shares over the market price. Our board of directors has authority to classify or reclassify authorized but unissued shares of stock by setting or changing the preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications, and terms and conditions of redemption of stock.

Restrictions on Ownership and Transfer

Our charter contains certain limitations on the number of shares of our stock that any one shareholder may own, which limitations are designed to ensure that the Company maintains its status as a real estate investment trust, or REIT. Our charter provides that any transfer that would cause the Company to be beneficially owned by fewer than 100 persons or would cause the Company to be “closely held” under the Internal Revenue Code of 1986, or the Code, would be void. In addition, our charter provides that no person (as defined in the Code) may own directly or indirectly 9.9 percent or more of our common stock (as adjusted downward in accordance with our charter to take into account shares beneficially owned by “Excepted Holders” (as such term is defined in our charter)). These limitations are referred to below as the “ownership limits.” For purposes of the ownership limits, shares are beneficially owned by the person who is the actual owner or who is treated as the owner of such shares, directly, indirectly or constructively under the Code. The beneficial ownership of shares of common or preferred stock in excess of the ownership limits and any attempted transfer in violation of the ownership limits is void.

Our board of directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limits. Our charter provides that any shares owned in violation of the ownership limits will be automatically converted into shares of Excess Stock (as defined in our charter) effective as of the day before the transaction giving rise to the conversion. Upon conversion, shares of Excess Stock will be deemed to be contributed into a trust held for the sole benefit of a tax exempt charitable organization designated by our board of directors. Shares of Excess Stock will carry the same voting rights and rights to distributions and dividends as the shares from which they were converted. However, any distributions or dividends paid on the shares of Excess Stock will be held in the trust and all voting rights with respect to the shares of Excess Stock may be exercised only by the trustee. The trustee may sell shares of Excess Stock provided that any such sale would not result in a violation of the ownership limits. From the proceeds of such sale, the trustee is required to distribute to the record holder of such shares the lesser of (i) the price paid by the record owner for such shares (or, if no consideration was paid by such record owner, the average closing price for such shares for the ten trading days immediately preceding the date the record owner acquired such shares) or (ii) the proceeds receive by the trustee. All remaining proceeds will be distributed to the charitable beneficiary.

Our board of directors has the power to permit persons to own shares in excess of the percentage ownership limits described above (thereby causing such persons to become Excepted Holders) provided that our board of directors believes that our REIT status will not be jeopardized and any such persons enter into Excepted Holder agreements with the Company. The percentage ownership limit with respect to each Excepted Holder will be as set forth in such Excepted Holder’s agreement with the Company.

Effective April 29, 2008, we entered into Excepted Holder Agreements with W. Andrew Adams and certain members of his family. These written agreements are intended to restate and replace the parties’ prior verbal agreement. A separate agreement was entered into with each of the spouse and children of Dr. Carl E. Adams and others within Mr. W. Andrew Adams’ family. We needed to enter into such an agreement with each family member because of the complicated ownership attribution rules under the Code. These agreements permit the “Excepted Holders” to own stock in excess of 9.9% up to the limit specifically provided in the individual agreement and not lose rights with respect to such shares. However, if the shareholder’s stock ownership exceeds the limit then such shares in excess of the limit become Excess Stock. The purpose of these agreements is to ensure that the Company does not violate the prohibition against a REIT being closely held.

Based on the Excepted Holder Agreements currently outstanding, as of the date of this prospectus, the ownership limit of our outstanding common stock for all other shareholders who are not Excepted Holders is approximately 7.5%. This ownership limit may change if we enter into additional Excepted Holder Agreements. Our charter gives our board of directors broad powers to prohibit and rescind any attempted transfer in violation of the ownership limit.

Upon demand of the Company, each shareholder must disclose to the Company such information with respect to direct and indirect ownership of stock owned (or deemed to be owned after applying the rules applicable to REITs under the Code) as our board of directors deems reasonably necessary in order that the Company may fully comply with the REIT provisions of the Code. Proposed transferees of stock must also satisfy our board of directors, upon demand, that such transferees will not cause the Company to fall out of compliance with such provisions.

Anti-Takeover Effect of Certain Provisions of our Charter and Bylaws

Classified board of directors. Our charter divides our board of directors into three classes. Moreover, no director may be removed prior to the expiration of his or her term except for cause. These provisions in our charter may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of our company and may maintain the incumbency of our board of directors, because this structure generally increases the difficulty of, or may delay, replacing a majority of the directors.

Meetings of shareholders. Under our bylaws, annual meetings of shareholders are to be held each year on the last Thursday of April or at such other date and time as determined by our board of directors Special meetings of Shareholders a majority of the directors then in office, by the chairman of our board of directors or our president. Additionally, subject to the provisions of our bylaws, special meetings of the shareholders shall be called by our secretary upon the written request of shareholders entitled to cast not less than 25% of the votes entitled to be cast at such meeting. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Maryland law and our bylaws provide that any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting by unanimous written consent, if that consent sets forth that action and is signed by each shareholder entitled to vote on the matter.

Filling of board vacancies. Vacancies on our board of directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of our directors then in office. Each person so appointed will hold office until his or her successor has been duly elected or qualified, or until his or her earlier resignation, removal or disqualification.

Amendment of the bylaws. To the fullest extent permitted by the Maryland General Corporation Law, our board of directors shall have the power at any annual, regular or special meeting (with appropriate notice), to alter or repeal any of our bylaws and to make new bylaws. Our shareholders shall have the power at any annual or special meeting (with appropriate notice), with the approval of shareholders holding more than 66 2/3% of all outstanding shares of our capital stock, to alter or repeal any of our bylaws and to make new bylaws.

Advance notice of director nominations. Our bylaws include an advance notice provision, informational requirements and time limitations on any director nomination that a shareholder wishes to make at a meeting of shareholders. Failure to comply with these advance notice, timing and informational requirements can result in a shareholder’s director nomination not being considered at a meeting of shareholders. The purpose of requiring shareholders to give advance notice of nominations is to afford our board of directors the opportunity to consider the qualifications of the proposed nominees and, to the extent considered necessary by our board of directors, to inform shareholders and make recommendations regarding the nominations. The advance notice procedures also permit a more orderly procedure for conducting our shareholder meetings. Although our bylaws do not give our board of directors the power to disapprove timely shareholder nominations made in accordance with our bylaws, our bylaws may have the effect of precluding a contest for the election of directors if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors to our board of directors.

Ownership limitations. Primarily to protect us against the risk of losing our status as a REIT, our charter contains provisions that limit the ownership by any person of shares of any class or series of our capital stock. These provisions may have the effect of inhibiting or impeding a change in control.

Anti-Takeover Effect of Maryland Law

In addition to certain provisions of our charter and bylaws discussed above, Maryland has adopted a series of statutes which can have an anti-takeover effect and may delay or prevent a takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for our capital stock.

The Maryland General Corporation Law

The Maryland General Corporation Law applies to all Maryland corporations. It imposes a five-year standstill on transactions such as mergers, share exchanges, sales of assets, liquidations and other interested party transactions between Maryland corporations and “interested shareholders” and their associates or affiliates, unless the business combination is approved by the board of directors before the interested shareholder goes above a 10% ownership threshold. Thereafter, the transaction either requires a two-thirds vote of the shareholders other than the interested shareholder and an 80% vote of all shareholders or satisfaction of minimum price standards.

Control Share Acquisitions

The provisions of the Maryland Control Share Acquisition Act provide that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to those shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

•	one-tenth or more but less than one-third;
•	one-third or more but less than a majority; or
---	---
•	majority or more of all voting power.
---	---

Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval or shares acquired directly from the corporation. A control share acquisition means, subject to certain exceptions, the acquisition of issued and outstanding control shares.

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any shareholders’ meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or, if a meeting of shareholders at which the voting rights of the shares are considered and not approved, as of the date of that meeting. If voting rights for control shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply to (a) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) acquisitions approved or exempted by the charter or bylaws of the corporation. Our charter provides that the voting rights of shares of our stock held by a person identified by our board of directors as a “Current Excepted Holder” and their affiliates shall not be governed by the control share provisions of the Maryland General Corporation Law.

27794911.1

		Exhibit

MASTER AGREEMENT TO LEASE<br><br><br><br>between<br><br><br><br>NATIONAL HEALTH INVESTORS, INC., Landlord<br><br><br><br>and<br><br><br><br>NATIONAL HEALTHCORP L.P., Tenant<br><br><br><br>Dated: October 17, 1991

Table of Contents
				Page
ARTICLE I:			SEPARATE LEASE AGREEMENTS; PREMISES AND TERM	1
	1.01		Separate Lease Agreements	1
	1.02		Leased Property	2
	1.03		Term	2
	1.05		Holding Over	3
	1.06		Surrender	3
ARTICLE II:			RENT	3
	2.01		Base Rent	3
	2.02		Additional Rent	4
	2.03		Place(s) of Payment of Rent; Direct
			Payment of Additional Rent	4
	2.04		Net Lease	5
	2.05		No Termination, Abatement, Etc	5
	2.06		Percentage Rent	6
ARTICLE III:			IMPOSITIONS AND UTILITIES	7
	3.0l		Payment of Impositions	7
	3.02		Definition of Impositions	9
	3.03		Escrow of Impositions	9
	3.04		Utilities	10
	3.05		Discontinuance of Utilities	11
ARTICLE IV:			INSURANCE	11
		4.01	Property Insurance	11
		4.02	Liability Insurance	12
		4.03	Insurance Requirements	12
		4.04	Replacement Cost	13
		4.05	Blanket Policy	13
		4.06	No Separate Insurance	13
		4.07	Waiver of Subrogation	14
		4.08	Mortgages	14
		4.09	Escrows	14
ARTICLE V:			INDEMNITY; HAZARDOUS SUBSTANCES	14
		5.01	Tenant's Indemnification	14
		5.02	Hazardous Substances or Materials	15
		5.03	Limitation of Landlord's Liability	16
ARTICLE VI:			USE AND ACCEPTANCE OF PREMISES	16
		6.01	Use of Leased Property	16
		6.02	Acceptance of Leased Property	16
		6.03	Conditions of Use and Occupancy	17
		6.04	Financial Statements	17
i

ARTICLE VII:		REPAIRS, COMPLIANCE WITH LAWS,
		AND MECHANICS' LIENS	17
	7.01	Maintenance	17
	7.02	Compliance With Laws	18
	7.03	Required Alterations	18
	7.04	Mechanic's Liens	18
	7.05	Replacements of Fixtures	19
ARTICLE VIII:		ALTERATIONS AND SIGNS	19
	8.01	Prohibition on Alterations and Improvements	19
	8.02	Requirements for Permitted Alterations	20
	8.03	Ownership and Removal of Permitted Alterations	21
	8.04	Signs	21
ARTICLE IX:		DEFAULTS AND REMEDIES	21
	9.01	Events of Default	21
	9.02	Remedies	23
	9.03	Right of Set-Off	26
	9.04	Performance of Tenant's Covenants	26
	9.05	Late Charge	26
	9.06	Litigation; Attorneys' Fees	26
	9.07	Remedies Cumulative	27
	9.08	Escrows and Application of Payments	27
	9.09	Power of Attorney	27
ARTICLE X:		DAMAGE AND DESTRUCTION	27
	10.01	General	27
	10.02	Landlord's Inspection	28
	10.03	Landlord's Costs	29
	10.04	Rent Abatement	29
	10.05	Substantial Damage During Lease Term	29
ARTICLE XI:		CONDEMNATION
	11.01	Total Taking	30
	11.02	Partial Taking	30
ARTICLE XII:		TENANT'S PROPERTY	31
	12.01	Tenant's Property	31
	12.02	Requirements for Tenant's Property	31
ARTICLE XIII:		TENANT'S RIGHTS OF FIRST REFUSAL	32
	13.01	Rights of First Refusal
ARTICLE XIV:		ASSIGNMENT AND SUBLETTING; ATTORNMENT	34
	14.01	Subletting and Assignment; Attornment	34
	14.02	Attornment	34
	14.03	Sublease Limitation	34
ii

ARTICLE XVI:		ARBITRATION		35
	16.01	Arbitration		35
	16.02	Appointment of		35
	16.03	Third Arbitrator		36
	16.04	Arbitration Procedure		36
	16.05	Expenses		36
ARTICLE XVII:		QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,
		BOND FINANCING AND ESTOPPEL CERTIFICATES		36
	17.01	Quiet Enjoyment		36
	17.02	Subordination		36
	17.03	Attornment; Non-Disturbance		37
	17.04	Estoppel Certificates		37
ARTICLE XVIII:			MISCELLANEOUS	38
	18.01	Notices		38
	18.02	Advertisement of Leased Property		39
	18.03	Entire Agreement		39
	18.04	Severability		39
	18.05	Captions and Headings		40
	18.06	Governing Law		40
	18.07	Recording of Lease		40
	18.08	Waiver		40
	18.09	Binding Effect		40
	18.10	Authority		40
	18.11	Transfer of Permits, Etc		40
	18.12	Modification		41
	18.13	Incorporation by Reference		41
	18.14	No Merger		41
	18.15	Laches		41
	18.16	Waiver of Jury Trial		41
	18.18	Permitted Contests		42
	18.19	Construction of Lease		43
	18.20	Counterparts		43
	18.21	Relationship of Landlord and Tenant		43
	18.22	Custody of Escrow Funds		43
	18.23	Landlord's Status as a REIT		43
	18.24	Sale of Real Estate Assets		43
	18.25	Use of Tenant's Name		44
iii

MASTER AGREEMENT TO LEASE

AGREEMENT dated as of the ___ day of ________, 1991 by and between

NATIONAL HEALTH INVESTORS, INC., a Maryland corporation, ("Landlord") and

NATIONAL HEALTHCORP L.P., a Delaware limited partnership ("Tenant").

RECITALS

WHEREAS, Tenant has concurrently conveyed to Landlord various

properties upon which Tenant engages in the business of operating nursing homes

and healthcare facilities, which properties are listed on Schedule A attached

hereto (the "Real Estate Conveyance"), and Landlord and Tenant desire to provide

for the lease by Landlord back to the Tenant of such properties; and

WHEREAS, Landlord may from time to time lease additional properties

that Landlord may acquire to Tenant; and

WHEREAS, Landlord and Tenant desire that each of the properties

listed on Schedule A and each additional property that Landlord may lease to

Tenant shall be the subject of a separate and individual Lease Agreement

describing said property, the rent and various other terms of said lease (each

such Lease Agreement referred to individually as a "Lease" and the property that

is the subject of an individual Lease being referred to as "Leased Property");

and

WHEREAS, Landlord and Tenant desire to set forth in this Agreement

certain terms and conditions applicable to all Leases of all Leased Properties,

except as any individual Lease with respect to a particular Leased Property may

otherwise provide;

NOW, THEREFORE, in consideration of the premises and of their

respective agreements and undertakings herein and in each Lease, Landlord and

Tenant agree as follows:

ARTICLE I: SEPARATE LEASE AGREEMENTS; PREMISES AND TERM

1.01 Separate Lease Agreements. Landlord and Tenant are

concurrently entering into a separate Lease for each of the Leased Properties

referred to in Schedule A hereto, and may in the future enter into one or more

additional separate Leases for one or more additional Leased Properties. Except

as specifically set forth in a separate Lease, or any amendment, supplement,

schedule or exhibit thereto, all of the provisions of this Agreement shall be

deemed to be incorporated into and made a part of each such separate Lease made

between the Landlord as landlord (or lessor) and the Tenant as tenant (or

Lessee) during the Term of such separate Lease.

1.02 Leased Property. Except as set forth in an individual Lease

(including any schedule or exhibit thereto), the property that is the subject of

each Lease and that shall be considered as leased by the Landlord to the Tenant

thereunder shall consist of:

(a) The land described in the Lease ("Land");

(b) All buildings, structures, and other improvements,

including without limitation sidewalks, alleys, utility pipes,

conduits, and lines, parking areas, and roadways, now or hereafter

situated upon the Land ("Improvements");

to the Land and Improvements ("Appurtenances");

(d) All permanently affixed equipment, machinery, fixtures,

and other items of real property, including all components thereof,

located in, or used in connection with, and permanently affixed to or

incorporated into the Improvements, including without limitation, all

furnaces, boilers, heaters, electrical equipment, heating, plumbing,

lighting, ventilating, refrigerating (but not movable refrigerators),

incineration, air and water pollution control, waste disposal

air-cooling and air-conditioning systems and apparatus, sprinkler

systems and fire and theft protection equipment, and built-in oxygen

and vacuum systems, all of which, to the greatest extent permitted by

law, are hereby deemed by the parties hereto to constitute real estate,

together with all replacements, modifications, alterations and

additions thereto, but specifically excluding items within the category

of "Tenant's Property" defined in Section 12.01 hereof (collectively

the "Fixtures").

The Land, Improvements, Appurtenances and Fixtures are hereinafter referred to

as the "Leased Property".

SUBJECT, HOWEVER, to the easements, liens, encumbrances, restrictions,

agreements, and other title matters listed or specifically referred to in any

individual Lease ("Permitted Exceptions").

1.03 Term. To have and to hold, unless otherwise provided in an

individual Lease, the initial term (the "Initial Term") of each Lease is ten

(10) years and three (3) months commencing on October 1, 1991, (the

"Commencement Date") and expiring on December 31, 2001. Provided that no Event

of Default has occurred and that Tenant gives Landlord notice on or before

December 31, 2000, Tenant shall have the option to renew all (but except as

Landlord shall otherwise specifically agree in writing not less than all) Leases

for one (1) additional five (5) year term commencing January 1, 2002 (the "First

Renewal Term") on the same terms (other than with respect to renewal) as the

Initial Term; and provided that no Event

of Default has occurred and that Tenant gives Landlord notice on or before

December 31, 2005, Tenant shall have the option to renew all (but except as

Landlord shall otherwise specifically agree in writing not less than all) Leases

for one (1) further five (5) year term commencing January 1, 2007 (the "Second

Renewal Term") on the same terms (other than with respect to renewal and except

that Base Rent shall be determined in accordance with Section 2.01.01). The term

"Term" means the Initial Term and each Renewal Term as appropriate. The term

"Lease Year" means each twelve (12) month period during the Term commencing on

January 1 and ending on December 31, except the first Lease Year shall be the

period from the Commencement Date through the following December 31, and the

last Lease Year shall end on the date of termination of the Lease if a day other

than December 31.

1.05 Holding Over. Should Tenant, without the express consent of

Landlord, continue to hold and occupy the Leased Property after the expiration

of the Term, such holding over beyond the Term and the acceptance or collection

of Rent by the Landlord shall operate and be construed as creating a tenancy

from month-to-month and not for any other term whatsoever. During any such

holdover period Tenant shall pay to Landlord for each month Tenant remains in

the Leased Property one hundred fifty (150%) percent of the Base Rent in effect

on the expiration date. Said month-to-month tenancy may be terminated by

Landlord by giving Tenant ten (10) days written notice, and at any time

thereafter Landlord may re-enter and take possession of the Leased Property.

1.06 Surrender. Except for (i) Permitted Alterations; (ii) normal and

reasonable wear and tear (subject to the obligation of Tenant to maintain the

Leased Property in good order and repair during the Term); and (iii) casualty,

taking or other damage and destruction not required to be repaired by Tenant,

Tenant shall surrender and deliver up the Leased Property at the expiration or

termination of the Term broom clean, free of all Tenant's equipment and personal

property, and in as good order and condition as of the Commencement Date.

ARTICLE II: RENT

2.01 Base Rent. Unless otherwise provided in an individual Lease and

subject to the provisions of Section 2.01.01 with respect to Base Rent in the

Second Renewal Term (if any), Tenant shall pay Landlord base rent for each

Property that is the subject of a Lease in the amount specified therein (the

"Base Rent") for the Term in consecutive monthly installments payable in advance

on the Commencement Date of each Lease and thereafter on the first day of each

month during the Term, in accordance with the Base Rent Schedule set forth in or

attached to each individual Lease.

2.01.01 Base Rent During Second Renewal Term. The Base Rent for each

Leased Property during the Second Renewal Term shall be

the then fair rental value of such Leased Property as negotiated between the

parties and determined without including any value attributable to improvements

to the Leased Property voluntarily made by Tenant at its expense.

2.02 Additional Rent. The Tenant shall pay Additional Rent

consisting of the Assumed Mortgage Debt Service Rent and Other

Additional Debt described in this Section 2.02.

2.02.01 Assumed Mortgage Debt Service Rent. Landlord and Tenant

acknowledge that, in connection with the Real Estate Conveyance, Landlord has

purchased the Leased Property subject to all existing mortgages, deeds of trust

and other debt instruments which were incurred by Tenant or on behalf of Tenant

on or prior to the closing of the Real Estate Conveyance (or through any

refinancing of the same) as more specifically described in the Permitted

Exceptions (hereinafter collectively referred to as "Assumed Mortgage Debt"). In

connection with the Assumed Mortgage Debt, arrangements have been made with the

various holders of the Assumed Mortgage Debt with respect to the continuing

payment of the same directly by Tenant, and the amount so payable from time to

time is herein called "Assumed Mortgage Debt Service Rent." "Assumed Mortgage

Debt" also includes the amount of any Assumed Mortgage Debt secured by a Leased

Property that is refinanced because such Assumed Mortgage Debt matures or the

maker of such Debt is required to pay it in its entirety during the Term of a

Lease. In the event that Landlord shall for any reason itself discharge

(including by prepayment) any Assumed Mortgage Debt, Tenant shall thereafter pay

the relevant Assumed Mortgage Debt Service Rent directly to Landlord in

accordance with the original payment terms of the Assumed Mortgage Debt so

discharged.

2.02.02 Other Additional Rent. In addition to Base Rent, Assumed

Mortgage Service Debt Rent and Percentage Rent (as hereinafter defined in

Section 2.06), Tenant shall pay all other amounts, liabilities, obligations and

Impositions (as hereinafter defined) which Tenant assumes or agrees to pay under

this Agreement or any Lease and any fine, penalty, interest, charge and cost

which may be added for nonpayment or late payment of such items (collectively

the "Other Additional Rent").

2.03 Place(s) of Payment of Rent; Direct Payment of Additional Rent.

The Base Rent, Percentage Rent, and Additional Rent are hereinafter referred to

as "Rent". Landlord shall have all legal, equitable and contractual rights,

powers and remedies provided either in this Agreement, in any Lease or by

statute or otherwise in the case of nonpayment of the Rent. Tenant shall make

all payments of Base Rent and of Percentage Rent at Landlord's principal place

of business or as Landlord may otherwise from time to time direct in writing,

and all payments of Assumed Mortgage Debt Service Rent and of Other Additional

Rent directly to the person or persons to whom such amount is owing at the time

and

times when such payments are due, and shall give to Landlord such evidence of

such direct payments as Landlord shall reasonably request.

2.04 Net Lease. This Lease shall be deemed and construed to be an

"absolute net lease" or "triple net lease", and Tenant shall pay all Rent and

other charges and expenses in connection with the Leased Property throughout the

Term, without abatement, deduction or set-off.

2.05 No Termination, Abatement, Etc. Except as otherwise specifically

provided in this Agreement or a particular Lease, Tenant shall remain bound by

this Agreement or such Lease in accordance with its terms. Except as otherwise

specifically provided in the Agreement or a particular Lease, Tenant shall not,

without the prior written consent of Landlord modify, surrender or terminate the

Agreement or such Lease, nor seek nor be entitled to any abatement, deduction,

deferment or reduction of Rent, or set-off against the Rent. Except as

specifically provided in this Agreement or a particular Lease, the obligations

of Landlord and Tenant shall not be affected by reason of [i] the lawful or

unlawful prohibition of, or restriction upon, Tenant's use of the Leased

Property, or any part thereof, the interference with such use by any person,

corporation, partnership or other entity, or by reason of eviction by paramount

title; [ii] any claim which Tenant has or might have against Landlord or by

reason of any default or breach of any warranty by Landlord under this Agreement

or a particular Lease or any other agreement between Landlord and Tenant, or to

which Landlord and Tenant are parties; [iii] any bankruptcy, insolvency,

reorganization, composition, readjustment, liquidation, dissolution, winding up

or other proceeding affecting Landlord or any assignee or transferee of

Landlord; or [iv] any other cause, whether similar or dissimilar to any of the

foregoing, other than a discharge of Tenant from any such obligations as a

matter of law. Except as otherwise specifically provided in this Agreement or a

particular Lease, and to the maximum extent permitted by law, Tenant hereby

specifically waives all rights, including but not limited to any rights under

any statute relating to rights of tenants in any state in which any Leased

Property is located, arising from any occurrence whatsoever, which may now or

hereafter be conferred upon it by law [a] to modify, surrender or terminate this

Lease or quit or surrender the Leased Property or any portion thereof; or [b]

entitling Tenant to any abatement, reduction, suspension or deferment of the

Rent or other sums payable by Tenant hereunder. The obligations of Landlord and

Tenant hereunder shall be separate and independent covenants and agreements and

the Rent and all other sums payable by Tenant hereunder shall continue to be

payable in all events unless the obligations to pay the same shall be terminated

pursuant to the express provisions of this Agreement or a particular Lease or by

termination of this Agreement or a particular Lease other than by reason of an

Event of Default.

2.06 Percentage Rent. In addition to the Base Rent, with respect to

each Lease Year after 1992 Tenant shall pay Landlord percentage rent

("Percentage Rent") in accordance with this Section 2.06 equal to three percent

(3%) of the amount by which the Gross Revenues (as defined in Section 2.06.01)

of each Leased Property in the applicable Lease Year exceed the Gross Revenues

of each Leased Property during 1992.

2.06.01 "Gross Revenues" means all revenues received or receivable by

the Tenant from or by reason of the operation of the Leased Property, or any

other use of the Leased Property, as calculated in accordance with generally

accepted accounting principles and as adjusted as set forth in this Section

2.06.01. Gross Revenues shall not include non-operating revenues such as

interest income or income from the sale of assets other than in the ordinary

course of business. Gross Revenues shall be adjusted by the following items: [i]

contractual allowances (difference between customary charges and amounts

receivable based on contract) relating to any period during the Term of the

Lease; [ii] all proper patient billing credits and adjustments (including

adjustments for bad debts) according to generally accepted accounting principles

relating to health care accounting; and [iii] federal, state or local excise

taxes and any tax based upon or measured by said revenues which is added to or

made a part of the amount billed to the patient or other recipient of such

services or goods, whether included in the billing or stated separately. To the

extent that the Leased Property is subleased by Tenant, Gross Revenues shall be

calculated for purposes of the Lease by including the rent received or

receivable by the Tenant if the space rental does not replace an operating bed

and is for not more than 10% of the square footage of the Leased Property.

Otherwise, Gross Revenues shall be calculated by including the Gross Revenues of

such sub-lessees with respect to the subleased property, i.e., the Gross

Revenues generated from the operations conducted on such subleased portion of

the Leased Property shall be included directly in the Gross Revenues for the

purpose of determining percentage rent payable under this Lease and the rent

received or receivable by Tenant under such subleases shall be excluded from

Gross Revenues for such purpose.

2.06.02 On or before March 31, 1993 with respect to the year ended

December 31, 1992 and on or before each following March 31 with respect to each

Lease Year thereafter, Tenant shall deliver to Landlord a notarized, sworn

statement (the "Tenant's Certification") setting forth the Gross Revenues for

the prior year. Annually a certificate from a nationally reputable accounting

firm satisfactory to Landlord shall be delivered to Landlord which certificate

shall state that, in the course of the regular audit of Tenant's financial

statements, such firm has reviewed Tenant's calculations of the amount of Gross

Revenues for each of the Leased Properties as set forth in Tenant's

Certification and that nothing has come to its attention to make such firm

believe the Tenant's Certification is incorrect in any material respect (and/or

stating, if applicable, any proposed audit adjustments with respect to Gross

Revenue which Tenant elected not to record and set forth in Tenant's

Certification). In addition to the Tenant's Certification and upon the request

of Landlord, Tenant shall deliver the following: [i] any reports sent to any

reimbursement agency, including, but not limited to Medicaid Cost Reports; [ii]

copies of Medicare Cost Reports; [iii] copies of interim or final cost

settlements with Medicare authorities concerning Medicare receivables with a

debit or credit balance; [iv] patient census data by type of patient on a

quarterly basis within thirty (30) days after the end of each calendar quarter

beginning January 31, 1991; [v] copies of changes in rates for Medicare,

Medicaid, private payor or any other provider paying for patients in the Leased

Property; and [vi] Tenant's calculation supporting any estimated contractual

allowances in the Financial Statements.

2.06.03 In each Lease Year commencing 1994, Tenant shall for such Lease

Year make anticipated payments of Percentage Rent monthly at the time of paying

installments of Base Rent, which payments shall be equal to one-twelfth (1/12th)

of the Percentage Rent determined for the preceding Lease Year, subject to final

determination and adjustment in payment by March 31 of the following year.

2.06.04 Landlord or its duly authorized representatives may, upon

reasonable notice and on any business day and during reasonable office hours,

inspect Tenant's records of Gross Revenues, either at the Leased Property or

elsewhere as reasonably designated by Tenant, provided such inspection is made

within twelve months after a Tenant's Certification is furnished to Landlord by

Tenant. Any claim by Landlord for a revision of any Tenant's Certification must

be made in writing to Tenant within twelve (12) months after the date such

Tenant's Certification is furnished to Landlord; otherwise it shall be deemed

waived by Landlord. If Landlord inspects Tenant's records and such inspection

shows an error(s) in the Tenant's Certification which results in an

understatement of Gross Revenues of five percent (5%) or more for any Leased

Property, then in addition to paying the additional Percentage Rent on demand,

Tenant shall pay Landlord, on demand, the reasonable cost of such inspection as

Additional Rent.

ARTICLE III: IMPOSITIONS AND UTILITIES

3.0l Payment of Impositions. Subject to the adjustments set forth

herein, Tenant shall pay, as Additional Rent, all Impositions (as hereinafter

defined) that may be levied or become a lien on the Leased Property or any part

thereof at any time (whether prior to or during the Term), without regard to

prior ownership of said

Leased Property, before any fine, penalty, interest, or cost is incurred. Tenant

shall, upon request from Landlord, promptly furnish to Landlord copies of

official receipts or other satisfactory proof evidencing such payments. Tenant's

obligation to pay such Impositions shall be deemed absolutely fixed upon the

date such Impositions become a lien upon the Leased Property or any part

thereof. Tenant, at its expense, shall prepare and file all tax returns and

reports in respect of any Imposition as may be required by governmental

authorities. Tenant shall be entitled to any refund due from any taxing

authority if no Event of Default (as hereinafter defined) shall have occurred

hereunder and be continuing. Landlord shall be entitled to any refund from any

taxing authority if an Event of Default has occurred and is continuing. Any

refunds retained by Landlord due to an Event of Default shall be applied as

provided in Section 9.08. Landlord and Tenant shall, upon request of the other,

provide such data as is maintained by the party to whom the request is made with

respect to the Leased Property as may be necessary to prepare any required

returns and reports. In the event governmental authorities classify any property

covered by this Lease as personal property, Tenant shall file all personal

property tax returns in such jurisdictions where it may legally so file.

Landlord, to the extent it possesses the same, and Tenant, to the extent it

possesses the same, will provide the other party, upon request, with cost and

depreciation records necessary for filing returns for any property so classified

as personal property. Where Landlord is legally required to file personal

property tax returns, Tenant will be provided with copies of assessment notices

indicating a value in excess of the reported value in sufficient time for Tenant

to file a protest. Tenant may, upon notice to Landlord, at Tenant's option and

at Tenant's sole cost and expense, protest, appeal, or institute such other

proceedings as Tenant may deem appropriate to effect a reduction of real estate

or personal property assessments and Landlord, at Tenant's expense as aforesaid,

shall fully cooperate with Tenant in such protest, appeal, or other action.

Tenant shall promptly reimburse Landlord for all personal property taxes paid by

Landlord upon receipt of billings accompanied by copies of a bill therefor and

payments thereof which identify the personal property with respect to which such

payments are made. Impositions imposed in respect to the tax-fiscal period

during which the Term commences and terminates shall be adjusted and prorated

between Landlord and Tenant on a per diem basis, with Tenant being obligated to

pay its pro rata share from and including the Commencement Date to and including

the expiration or termination date of the Term, whether or not such Imposition

is imposed before or after such commencement or termination, and Tenant's

obligation to pay its prorated share thereof shall survive such termination.

Tenant shall also pay to Landlord a sum equal to the amount which Landlord may

be caused to pay of any privilege tax, sales tax, gross receipts tax, rent tax,

occupancy tax or like tax (excluding any tax based on net income), hereinafter

levied, assessed, or imposed by any federal, state,

county or municipal governmental authority, or any subdivision thereof, upon or

measured by or rent or other consideration required to be paid by Tenant under

this Lease.

3.02 Definition of Impositions. "Impositions" means, collectively, [i]

taxes (including without limitation, all real estate and personal property ad

valorem (whether assessed as part of the real estate or separately assessed as

unsecured personal property, sales and use, business or occupation, single

business, gross receipts, transaction privilege, rent or similar taxes, but not

including income or franchise or excise taxes payable with respect to Landlord's

receipt of Rent); [ii] assessments (including without limitation, all

assessments for public improvements or benefits, whether or not commenced or

completed prior to the date hereof and whether or not to be completed with the

Term); [iii] ground rents, water, sewer or other rents and charges, excises, tax

levies, and fees (including without limitation, license, permit, inspection,

authorization and similar fees); [iv] to the extent they may become a lien on

the Leased Property all taxes imposed on Tenant's operations of the Leased

Property including without limitation, employee withholding taxes, income taxes

and intangible taxes; and [v] all other governmental charges, in each case

whether general or special, ordinary or extraordinary, or foreseen or

unforeseen, of every character in respect of the Leased Property or any part

thereof and/or the Rent (including all interest and penalties thereon due to any

failure in payment by Tenant), which at any time prior to, during or in respect

of the Term hereof may be assessed or imposed on or in respect of or be a lien

upon [a] Landlord or Landlord's interest in the Leased Property or any part

thereof; [b] the Leased Property or any part thereof or any rent therefrom or

any estate, right, title or interest therein; or [c] any occupancy, operation,

use or possession of, or sales from, or activity conducted on, or in connection

with the Leased Property or the leasing or use of the Leased Property or any

part thereof. Tenant shall not, however, be required to pay [i] any tax based on

net income (whether denominated as a franchise or capital stock or other tax)

imposed on Landlord; or [ii] except as provided in Section 13.01, any tax

imposed with respect to the sale, exchange or other disposition by Landlord of

any Leased Property or the proceeds thereof; provided, however, that if any tax,

assessment, tax levy or charge which Tenant is obligated to pay pursuant to the

first sentence of this definition and which is in effect at any time during the

Term hereof is totally or partially repealed, and a tax, assessment, tax levy or

charge set forth in clause [i] or [ii] immediately above is levied, assessed or

imposed expressly in lieu thereof Tenant shall then pay such tax, levy, or

charge set forth in said clause [i] or [ii].

3.03 Escrow of Impositions. If Landlord's lender requires Landlord to

escrow real property taxes or other Impositions on a periodic basis during the

Term, Tenant, on notice from Landlord indicating this requirement, shall pay a

sum of money toward its

liability under this Article to lender on a periodic basis in accordance with

the lender's requirements. Landlord shall escrow the payments received from

Tenant in accordance with the requirements of its lender, and shall furnish

Tenant with a copy of the lender's requirements for escrow. Further, if an Event

of Default occurs hereunder which is not cured within any applicable grace

period, Tenant shall thereafter, at Landlord's election, deposit with Landlord

on the first day of each month during the remaining Term hereof and any extended

Term, a sum equal to one-twelfth (1/12th) of the Impositions assessed against

the Leased Property for the preceding tax year, which sums shall be used by

Landlord toward payment of such Impositions. If, at the end of any applicable

tax year, any such funds held by Landlord are insufficient to make full payment

of taxes or other Impositions for which such funds are held, Tenant, on demand,

shall pay to Landlord any additional funds necessary to pay and discharge the

obligations of Tenant pursuant to the provisions of this section. If, however,

at the end of any applicable tax year, such funds held by Landlord are in excess

of the total payment required to satisfy taxes or other Impositions for which

such funds are held, Landlord shall apply such excess amounts to Tenant's tax

and Imposition escrow fund for the next tax year. If any such excess of funds

occurs at the end of the final Lease Year, and subject to Section 9.08 below,

Landlord shall promptly refund such excess amounts to Tenant. The receipt by

Landlord of the payment of such Impositions by and from Tenant shall only be as

an accommodation to Tenant, the mortgagees, and the taxing authorities, and

shall not be construed as rent or income to Landlord, Landlord serving, if at

all, only as a conduit for delivery purposes.

3.04 Utilities. Tenant shall pay, as Additional Rent all taxes,

assessments, charges/deposits, and bills for utilities, including without

limitation charges for water, gas, oil, sanitary and storm sewer, electricity,

telephone service, and trash collection, which may be charged against the

occupant of the Improvements during the Term. If an Event of Default occurs

hereunder and is not cured within any applicable grace period, Tenant shall

thereafter, at Landlord's election, deposit with Landlord on the first day of

each month during the remaining Term, a sum equal to one-twelfth (1/12th) of the

amount of the annual utility expenses for the preceding Lease Year, which sums

shall be used by Landlord to pay such utilities. If, at any time during the

Lease Year, such funds held by Landlord are insufficient to cover monthly,

annual, or other periodic charges for utilities, Tenant shall, on demand pay to

Landlord any additional amount needed to pay such utilities. Landlord's receipt

of such payments shall only be an accommodation to Tenant and the utility

companies and shall not constitute rent or income to Landlord. If, at any time

during the Lease Year, such funds held by Landlord are in excess of the total

monthly, annual or other periodic payment necessary to satisfy utility costs,

such excess amounts shall be applied to Tenant's escrow fund for the next

payment of such utilities. If

any such excess exists following the expiration or earlier termination of the

Lease and after all utility bills and accounts have been settled, Landlord

shall, subject to Section 9.08 below, promptly refund such amounts to Tenant.

Tenant shall at all times maintain that amount of heat necessary to ensure

against the freezing of water lines. Tenant hereby agrees to indemnify and hold

Landlord harmless from and against any liability or damages to the utility

systems and the Leased Property that may result from Tenant's failure to

maintain sufficient heat in the Improvements.

3.05 Discontinuance of Utilities. Landlord will not be liable for

damages to person or property or for injury to, or interruption of, business for

any discontinuance of utilities nor will such discontinuance in any way be

construed as an eviction of Tenant or cause an abatement of Rent or operate to

release Tenant from any of Tenant's obligations under this Lease.

ARTICLE IV: INSURANCE

4.01 Property Insurance. Tenant shall, at Tenant's expense, keep the

Improvements, Fixtures, and other components of the Leased Property insured

against the following risks:

(a) Loss or damage by fire, vandalism and malicious

mischief, sprinkler leakage and all other physical loss perils commonly

covered by "All Risk" insurance in an amount not less than one hundred

percent (100%) of the then full replacement cost thereof (as

hereinafter defined). Such policy shall include an agreed amount

endorsement if available at a reasonable cost. Such policy shall also

include endorsements for contingent liability for operation of building

laws, demolition costs, and increased cost of construction.

(b) Loss or damage by explosion of steam boilers, pressure

vessels, or similar apparatus, now or hereafter installed on the Leased

Property, in commercially reasonable amounts acceptable to Landlord.

covering risk of loss during the first nine (9) months of

reconstruction necessitated by the occurrence of any hazards described

in Sections 4.01(a) or 4.01(b) above, in an amount sufficient to

prevent Landlord or Tenant from becoming a co-insurer, containing

endorsements for extended period of indemnity and premium adjustment,

and written with an agreed amount clause, if the insurance provided for

in this clause (c) is available at a reasonable cost.

(d) If the Land is located in whole or in part within a

designated flood plain area, loss or damage caused by flood in

commercially reasonable amounts acceptable to Landlord.

(e) Loss or damage commonly covered by blanket crime

insurance including employee dishonesty, loss of money orders or paper

currency, depositor's forgery, and loss of property of patients

accepted by Tenant for safekeeping, in commercially reasonable amounts

acceptable to the Landlord.

4.02 Liability Insurance. Tenant shall, at Tenant's expense, maintain

liability insurance against the following:

(a) Claims for personal injury or property damage commonly

covered by comprehensive general liability insurance with endorsements

for nursing home or comparable professional malpractice, blanket

contractual, personal injury, owner's protective liability, real

property fire damage legal liability, voluntary medical payments,

products and completed operations, broad form property damage, and

extended bodily injury, with commercially reasonable amounts for bodily

injury, property damage, and voluntary medical payments acceptable to

Landlord, but with a combined single limit of not less than One Million

Dollars ($1,000,000.00) per occurrence, One Million Dollars

($1,000,000.00) per location. If malpractice insurance coverage is

unavailable generally or is unreasonably expensive, Landlord and Tenant

will consult in good faith regarding an alternative.

(b) Claims for personal injury and property damage commonly

covered by comprehensive automobile liability insurance, covering all

owned and nonowned automobiles, with commercially reasonable amounts

for bodily injury, property damage, and for automobile medical payments

acceptable to Landlord, but with a combined single limit of not less

than One Million Dollars ($1,000,000.00) per occurrence, Three Million

Dollars ($3,000,000.00) aggregate.

insurance for all persons employed by Tenant on the Leased Property.

Such worker's compensation insurance shall be in accordance with the

requirements of all applicable local, state, and federal law.

4.03 Insurance Requirements. The following provisions shall apply to

all insurance coverages required hereunder:

(a) The form and substance of all policies shall be subject

to the approval of Landlord, which approval will not be unreasonably

withheld.

(b) The carriers of all policies shall have a Best's Rating

of "A-" or better and a Best's Financial Category of XII or larger and

shall be authorized to do insurance business in the state in which the

Leased Property is located.

be an "additional named insured" on each policy.

(d) Tenant shall deliver to Landlord certificates or

policies showing the required coverages and endorsements. The policies

of insurance shall provide that the policy may not be cancelled or not

renewed, and no material change or reduction in coverage may be made,

without at least thirty (30) days' prior written notice to Landlord.

(e) The policies shall contain a severability of interest

and/or cross-liability endorsement, provide that the acts or omissions

of Tenant will not invalidate the Landlord's coverage, and provide that

Landlord shall not be responsible for payment of premiums.

(f) All loss adjustment shall require the written consent of

Landlord and Tenant, as their interests may appear.

(g) At least thirty (30) days prior to the expiration of

each policy, Tenant shall deliver to Landlord a certificate showing

renewal of such policy and payment of the annual premium therefor.

4.04 Replacement Cost. The term "full replacement cost" means the

actual replacement cost thereof from time to time including increased cost of

construction, with no reductions or deductions. Tenant shall, not later than

thirty (30) days after the anniversary of each Lease Year of the Term, increase

the amount of the replacement cost endorsement for the Improvements. If Tenant

makes any Permitted Alterations (as hereinafter defined) to the Leased Property,

Landlord may have such full replacement cost redetermined at any time after such

Permitted Alterations are made, regardless of when the full replacement cost was

last determined.

4.05 Blanket Policy. Tenant may carry the insurance required by this

Article under a blanket policy of insurance, provided that the coverage afforded

Tenant will not be reduced or diminished or otherwise be different from that

which would exist under a separate policy meeting all of the requirements of

this Agreement.

4.06 No Separate Insurance. Tenant shall not take out separate

insurance concurrent in form or contributing in the event of loss with that

required in this Article, or increase the amounts of any then existing insurance

by securing an additional policy or additional policies, unless all parties

having an insurable interest in the subject matter of the insurance, including

Landlord and any mortgagees, are included therein as additional named insureds

or loss payees, the loss is payable under said insurance in the same manner as

losses are payable under this Agreement, and such additional insurance is not

prohibited by the existing policies of insurance. Tenant shall immediately

notify Landlord

of the taking out of such separate insurance or the increasing of any of the

amounts of the existing insurance by securing an additional policy or additional

policies. The term "mortgages" as used in this Agreement includes Deeds of Trust

and the term "mortgagees" includes trustees and beneficiaries under a Deed of

Trust.

4.07 Waiver of Subrogation. Each party hereto hereby waives any and

every claim which arises or may arise in its favor and against the other party

hereto during the Term or any extension or renewal thereof, for any and all loss

of, or damage to, any of its property located within or upon, or constituting a

part of, the Leased Property, which loss or damage is covered by valid and

collectible insurance policies, to the extent that such loss or damage is

recoverable under such policies. Said mutual waiver shall be in addition to, and

not in limitation or derogation of, any other waiver or release contained in

this Lease with respect to any loss or damage to property of the parties hereto.

Inasmuch as the said waivers will preclude the assignment of any aforesaid claim

by way of subrogation (or otherwise) to an insurance company (or any other

person), each party hereto agrees immediately to give each insurance company

which has issued to it policies of insurance, written notice of the terms of

said mutual waivers, and to have such insurance policies properly endorsed, if

necessary, to prevent the invalidation of said insurance coverage by reason of

said waivers, so long as such endorsement is available at a reasonable cost.

4.08 Mortgages. The following provisions shall apply if Landlord now or

hereafter places a mortgage on the Leased Property or any part thereof: [i]

Tenant shall obtain a standard form of mortgage clause insuring the interest of

the mortgagee; [ii] Tenant shall deliver evidence of insurance to such

mortgagee; [iii] loss adjustment shall require the consent of the mortgagee; and

[iv] Tenant shall obtain such other coverages and provide such other information

and documents as may be reasonably required by the mortgagee.

4.09 Escrows. If Landlord's lender requires the Landlord to escrow

insurance premiums on a periodic basis, or if an Event of Default occurs

hereunder, Tenant, after notice from Landlord, shall make such periodic payments

in accordance with the lender's or Landlord's requirements.

ARTICLE V: INDEMNITY; HAZARDOUS SUBSTANCES

5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby

agrees to indemnify and hold harmless Landlord, its agents, and employees from

and against any and all demands, claims, causes of action, fines, penalties,

damages (including consequential damages), losses, liabilities (including strict

liability), judgments, and expenses (including, without limitation,

attorneys' fees, court costs, and the costs set forth in Section 9.07) incurred

in connection with or arising from: [i] the use or occupancy of each Leased

Property by Tenant or any persons claiming under Tenant; [ii] any activity,

work, or thing done, or permitted or suffered by Tenant in or about the Leased

Property; [iii] any acts, omissions, or negligence of Tenant or any person

claiming under Tenant, or the contractors, agents, employees, invitees, or

visitors of Tenant or any such person; [iv] any breach, violation, or

nonperformance by Tenant or any person claiming under Tenant or the employees,

agents, contractors, invitees, or visitors of Tenant or of any such person, of

any term, covenant, or provision of this Agreement or any Lease or any law,

ordinance, or governmental requirement of any kind; and [v] any injury or damage

to the person, property or business of Tenant, its employees, agents,

contractors, invitees, visitors, or any other person entering upon the Leased

Property under the express or implied invitation of Tenant. If any action or

proceeding is brought against Landlord, its employees, or agents by reason of

any such claim, Tenant, upon notice from Landlord, will defend the claim at

Tenant's expense with counsel reasonably satisfactory to Landlord.

5.02 Hazardous Substances or Materials. Tenant shall not, either with

or without negligence, injure, overload, deface, damage or otherwise harm any

Leased Property or any part or component thereof; commit any nuisance; permit

the emission of any hazardous agents or substances; allow the release or other

escape of any biologically or chemically active or other hazardous substances or

materials so as to impregnate, impair or in any manner affect, even temporarily,

any element or part of any Leased Property, or allow the storage or use of such

substances or materials in any manner not sanctioned by law or by the highest

standards prevailing in the industry for the storage and use of such substances

or materials; nor shall Tenant bring onto any Leased Property any such materials

or substances; permit the occurrence of objectionable noise or odors; or make,

allow or suffer any waste whatsoever to any Leased Property. Landlord may

inspect the Leased Property from time to time, and Tenant will cooperate with

such inspections. Without limitation, "hazardous substances" for the purposes of

this Section 5.02 shall include such substances described in the Comprehensive

Environmental Response, Compensation and Liability Act of 1980, as amended, 42

U.S.C. 9601 et seq. and the regulations adopted thereunder, and hazardous

materials shall include such materials as are described in the Resource

Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.; and hazardous

substances or hazardous materials shall also include any substance or material

described in any applicable statute of any state in which Leased Properties are

located, and in any regulations adopted under any of these acts. Upon request by

Landlord, Tenant shall submit to Landlord quarterly reports regarding Tenant's

use, storage, and disposal of any of the foregoing materials, said reports to

include information regarding continued hazardous materials inspections,

personal interviews, and federal, state and local agency listings.

In addition, Tenant shall execute affidavits, representations and the like from

time to time at Landlord's request concerning Tenant's best knowledge and belief

regarding the presence or absence of hazardous materials on the Leased Property.

In all events, Tenant shall indemnify Landlord and all mortgagees of any Leased

Property from any release of hazardous materials on the Leased Property

occurring while Tenant is in possession, all costs and expenses and claims

arising from the release of, or discovery of the existence of, or need to clean

up or remove, or arising from any prior release or removal of any hazardous

substances or materials on or from any Leased Property, whether such release,

discovery or removal occurs during the Term or occurred prior to the

commencement of the Term. (At the request of Landlord, Tenant will from time to

time confirm such indemnity to mortgagees directly with such mortgagees.)

5.03 Limitation of Landlord's Liability. Landlord, its agents, and

employees, will not be liable for any loss, injury, death, or damage (including

consequential damages) to persons, property, or Tenant's business occasioned by

theft, act of God, public enemy, injunction, riot, strike, insurrection, war,

court order, requisition, order of governmental body or authority, fire,

explosion, falling objects, steam, water, rain or snow, leak or flow of water

(including water from the elevator system), rain or snow from any Leased

Property or into the Leased Property or from the roof, street, subsurface or

from any other place, or by dampness or from the breakage, leakage, obstruction,

or other defects of the pipes, sprinklers, wires, appliances, plumbing, air

conditioning, or lighting fixtures of the Leased Property, or from construction,

repair, or alteration of the Leased Property or from any acts or omissions of

any other occupant or visitor of the Leased Property, or from the presence or

release of any hazardous substance or material on or from the Leased Property or

from any other cause beyond Landlord's control.

ARTICLE VI: USE AND ACCEPTANCE OF PREMISES

6.01 Use of Leased Property. Tenant shall use and occupy each Leased

Property exclusively as a nursing home, healthcare facility or other purpose for

which the Leased Property is being used at the Commencement Date of the Term,

and for no other purpose without the prior written consent of the Landlord,

which consent will not be unreasonably withheld. Tenant shall obtain and

maintain all approvals, licenses, and consents needed to use and operate each

Leased Property for such purposes. Tenant shall promptly deliver to Landlord

complete copies of surveys, examinations, certification and licensure

inspections, compliance certificates, and other similar reports issued to Tenant

by any governmental agency.

6.02 Acceptance of Leased Property. Except as otherwise specifically

provided in this Agreement or in any individual Lease,

Tenant acknowledges that [i] Tenant and its agents have had an opportunity to

inspect the Leased Property; [ii] Tenant has found the Leased Property fit for

Tenant's use; [iii] delivery of the Leased Property to Tenant is in "as-is"

condition; [iv] Landlord is not obligated to make any improvements or repairs to

the Leased Property; and [v] the roof, walls, foundation, heating, ventilating,

air conditioning, telephone, sewer, electrical, mechanical, utility, plumbing,

and other portions of the Leased Property are in good working order. Tenant

waives any claim or action against Landlord with respect to the condition of the

Leased Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR

IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS

FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR

OTHERWISE, AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR

PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.

6.03 Conditions of Use and Occupancy. Tenant agrees that during the

Term it shall use and keep the Leased Property in a careful, safe and proper

manner; not commit or suffer waste thereon; not use or occupy the Leased

Property for any unlawful purposes; not use or occupy the Leased Property or

permit the same to be used or occupied, for any purpose or business deemed extra

hazardous on account of fire or otherwise; keep the Leased Property in such

repair and condition as may be required by the local board of health, or other

city, state or federal authorities, free of all cost to Landlord; not permit any

acts to be done which will cause the cancellation, invalidation, or suspension

of any insurance policy; and permit Landlord and its agents to enter upon the

Leased Property at all reasonable times after notice to Tenant to examine the

condition thereof.

6.04 Financial Statements. Within one hundred twenty (120) days after

the end of each fiscal year, Tenant shall deliver to Landlord audited

consolidated financial statements of Tenant, certified by a nationally

recognized accounting firm. The financial statements shall include a complete

schedule of contingent liabilities and transactions with affiliates. Within

forty-five (45) days after the end of each calendar quarter, Tenant shall

deliver to Landlord unaudited profit and loss statements.

ARTICLE VII: REPAIRS, COMPLIANCE WITH LAWS,

AND MECHANICS' LIENS

7.01 Maintenance. Tenant shall maintain, repair, and replace each

Leased Property, including without limitation, all structural and nonstructural

repairs and replacements to the roof, foundations, exterior walls, building

systems, HVAC systems, parking areas, sidewalks, water, sewer, and gas

connections, pipes, and mains. Tenant shall pay as Additional Rent, the full

cost of maintenance, repairs, and replacements. Tenant shall maintain all

drives, sidewalks, parking areas, and lawns on or about the Leased

Property in a clean and orderly condition, free of accumulations of dirt,

rubbish, snow and ice. Tenant shall permit Landlord to inspect the Leased

Property at all reasonable times, and shall implement all reasonable suggestions

of the Landlord as to the maintenance and replacement of the Leased Property.

7.02 Compliance With Laws. Tenant shall comply with all laws,

ordinances, orders, rules, regulations, and other governmental requirements

relating to the use, condition, or occupancy of each Leased Property, including

without limitation, [i] licensure requirements for operation as a nursing home

or medical facility, [ii] certification requirements needed to obtain

reimbursement under the Medicare and state Medicaid programs unless Tenant,

after notice to Landlord, determines to discontinue participation in such

programs; [iii] requirements of the board of fire insurance underwriters or

insurance service office or any other similar body having jurisdiction over the

Leased Property, and [iv] all zoning and building codes and Environmental Laws.

At Landlord's request, from time to time, Tenant shall deliver to Landlord

copies of certificates or permits evidencing compliance with such laws,

including without limitation, copies of the nursing home or health care facility

license, provider agreements, certificates of occupancy and building permits.

Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and

against any loss, liability (including strict liability), claim, damage

(including consequential damages), cost and expense (including attorneys' fees)

resulting from any failure by Tenant to comply with any laws, ordinances, rules,

regulations, and other governmental requirements.

7.03 Required Alterations. Tenant shall, at Tenant's sole cost and

expense, make any additions, changes, improvements or alterations to each Leased

Property, including structural alterations, which may be required by any

governmental authorities, including those required to continue certification

under the Medicare and Medicaid programs (unless Tenant has elected not to

participate in such programs), whether such changes are required by Tenant's

use, changes in the law, ordinances, or governmental regulations, defects

existing as of the date of this Lease, or any other cause whatever. All such

additions, changes, improvements or alterations shall be deemed to be Permitted

Alterations and shall comply with all laws requiring such alterations and with

the provisions of Section 8.02.

7.04 Mechanic's Liens. Tenant shall have no authority to permit or

create a lien against Landlord's interest in the Leased Property, and Tenant

shall post notices or file such documents as may be required to protect

Landlord's interest in the Leased Property against liens. Tenant hereby agrees

to defend, indemnify, and hold Landlord harmless from and against any mechanic's

liens against the Leased Property by reason of work, labor services or materials

supplied or claimed to have been supplied on or to the

Leased Property. Tenant shall immediately remove, bond-off, or otherwise obtain

the release of any mechanic's lien filed against the Leased Property. Tenant

shall pay all expenses in connection therewith, including without limitation,

damages, interest, court costs and reasonable attorneys' fees.

7.05 Replacements of Fixtures. Tenant shall not remove Fixtures from

any Leased Property except to replace the Fixtures by other similar items of

equal quality and value. Items being replaced by Tenant may be removed and shall

become the property of Tenant and items replacing the same shall be and remain

the property of Landlord. Tenant shall execute, upon written request from

Landlord, any and all documents necessary to evidence Landlord's ownership of

the Fixtures and replacements therefor. Tenant may finance replacements for the

Fixtures by equipment lease or by a security agreement and financing statement;

provided, however, that for any item of Fixtures or Personal Property having a

cost greater than or equal to Ten Thousand Dollars ($10,000.00), Tenant may not

finance replacements by security agreement or equipment lease unless [i]

Landlord has consented to the terms and conditions of the equipment lease or

security agreement; [ii] the equipment lessor or lender has entered into a

nondisturbance agreement with Landlord upon terms and conditions acceptable to

Landlord, including without limitation, the following: [a] Landlord shall have

the right (but not the obligation) to assume such security agreement or

equipment lease upon the occurrence of an Event of Default by Tenant under this

Lease; [b] the equipment lessor or lender shall notify Landlord of any default

by Tenant under the equipment lease or security agreement and give Landlord a

reasonable opportunity to cure such default; and [c] Landlord shall have the

right to assign its rights under the equipment lease, security agreement, or

nondisturbance agreement; and [iii] Tenant shall, within thirty (30) days after

receipt of an invoice from Landlord, reimburse Landlord for all costs and

expenses incurred in reviewing and approving the equipment lease, security

agreement, and nondisturbance agreement, including without limitation,

reasonable attorneys' fees and costs.

ARTICLE VIII: ALTERATIONS AND SIGNS

8.01 Prohibition on Alterations and Improvements. Except for [i]

alterations required by Section 7.03; [ii] replacements of Fixtures provided for

in Section 7.05; and [iii] alterations at any Leased Property having an

aggregate cost of less than One hundred fifty thousand dollars ($150,000.00) in

any Lease Year, Tenant shall not make any structural or nonstructural changes,

alterations, additions and/or improvements (hereinafter collectively referred to

as "Alterations") to the Leased Property without the prior written consent of

Landlord which consent will not be unreasonably withheld. If Tenant desires to

perform any Alterations, Tenant shall deliver to Landlord plans, specifications,

drawings, and such other information as may be

reasonably requested by Landlord (collectively the "Plans and Specifications")

showing the Alterations that Tenant desires to perform. Landlord agrees not to

unreasonably delay its review of the Plans and Specifications. Tenant shall

comply with the requirements of Section 8.02 in making any Alterations approved

by Landlord (the "Permitted Alterations").

8.02 Requirements for Permitted Alterations. Tenant shall comply with

all of the following requirements in connection with any Permitted Alterations:

(a) The Permitted Alterations shall be made in accordance

with the approved Plans and Specifications.

(b) The Permitted Alterations and the installation thereof

shall comply with all applicable legal requirements and insurance

requirements.

workmanlike manner, shall not impair the value or the structural

integrity of the Leased Property, and shall be free and clear of all

mechanic's liens.

(d) Tenant shall deliver to Landlord a payment and

performance bond, with a surety acceptable to Landlord, in an amount

equal to the estimated cost of the Permitted Alterations, guaranteeing

the completion of the work free and clear of liens and in accordance

with the approved Plans and Specifications, and naming Landlord and any

mortgagee of Landlord as joint obligees on such bond.

(e) Tenant shall, at Tenant's expense, obtain a builder's

completed value risk policy of insurance insuring against all risks of

physical loss, including collapse and transit coverage, in a

nonreporting form, covering the total value of the work performed, and

equipment, supplies, and materials, and insuring initial occupancy.

Landlord and any mortgagee of Landlord shall be additional named

insureds of such policy. Landlord shall have the right to approve the

form and substance of such policy, which approval shall not be

unreasonably withheld or delayed.

(f) Tenant shall pay the premiums required to increase the

amount of the insurance coverages required by Article IV to reflect the

increased value of the Improvements resulting from installation of the

Permitted Alterations, and shall deliver to Landlord a certificate

evidencing the increase in coverage.

(g) If the alterations are structural or additions, Tenant

shall, not later than sixty (60) days after completion of the Permitted

Alterations, deliver to Landlord a

certificate of substantial completion, certified by Tenant's architect

or engineer, in the form of AIA-G704, or in any other form reasonably

satisfactory to Landlord.

(h) Tenant shall not later than thirty (30) days after

completion of the Permitted Alterations, reimburse Landlord for any

costs and expenses, including attorneys' fees and architects' and

engineers' fees, reasonably incurred in connection with reviewing and

approving the Permitted Alterations and ensuring Tenant's compliance

with the requirements of this Section.

8.03 Ownership and Removal of Permitted Alterations. The Permitted

Alterations shall become a part of the Leased Property, owned by Landlord, and

leased to Tenant subject to the terms and conditions of this Agreement and the

Lease. Tenant shall not be required or permitted to remove any Permitted

Alterations.

8.04 Signs. Tenant may, at its own expense, erect and maintain

identification signs at the Leased Property, provided such signs comply with all

laws, ordinances, and regulations. Upon the occurrence of an Event of Default or

the termination or expiration of this Lease, Tenant shall, within thirty (30)

days after notice from Landlord, remove the signs and restore the Leased

Property to its original condition.

ARTICLE IX: DEFAULTS AND REMEDIES

9.01 Events of Default. The occurrence of any one or more of the

following shall be an an event of default ("Event of Default") hereunder:

(a) Tenant fails to pay in full any installment of Rent, or

any other monetary obligation payable by Tenant to Landlord (or to the

holder of any Assumed Mortgage Debt Service, as applicable) under this

Lease, within ten (10) business days after notice of nonpayment from

Landlord.

(b) Landlord gives three (3) or more notices of nonpayment

of Rent to Tenant in any Lease Year; provided, however, that such shall

not be an Event of Default if Landlord fails to exercise its remedies

under Section 9.02 within sixty (60) days after the last of such

notices. Notice of the same default with respect to more than one Lease

or Leased Property shall constitute only one notice for purposes of

this Section 9.01(b).

condition or agreement under this Agreement or the Lease to be

performed by Tenant (except those described in Section 9.01(a) and

9.01(b) of this Agreement) and [i] such failure continues for a period

of thirty (30) days after

written notice thereof is given to Tenant by Landlord; or [ii] if, by

reason of the nature of such default, the same cannot be remedied

within said thirty (30) days, Tenant fails to proceed with reasonable

diligence (satisfactory to Landlord) after receipt of the notice to

cure the same.

(d) Tenant ceases operations at any Leased Property for a

period in excess of one-hundred eighty (180) days during the Term

except pursuant to damage described in Section 10.05 or condemnation

pursuant to Article XI (other than Section 11.02) of this Agreement.

(e) [i] The filing by Tenant of a petition under 11 U.S.C.

or the commencement of a bankruptcy or similar proceeding by Tenant;

[ii] the failure by Tenant within ninety (90) days to dismiss an

involuntary bankruptcy petition or other commencement of a bankruptcy,

reorganization or similar proceeding against Tenant, or to lift or stay

any execution, garnishment or attachment of such consequence as will

impair its ability to carry on its operation at the Leased Property;

[iii] the entry of an order for relief under 11 U.S.C. in respect of

Tenant; [iv] any assignment by Tenant for the benefit of its creditors;

[v] the entry by Tenant into an agreement of composition with its

creditors; [vi] the approval by a court of competent jurisdiction of a

petition applicable to Tenant in any proceeding for its reorganization

instituted under the provisions of any state or federal bankruptcy,

insolvency, or similar laws; [vii] appointment by final order,

judgement, or decree of a court of competent jurisdiction of a receiver

of a whole or any substantial part of the properties of Tenant

(provided such receiver shall not have been removed or discharged

within sixty (60) days of the date of his qualification).

(f) [i] any administrator, custodian, trustee or other

legally authorized person takes possession or control of any Leased

Property or part thereof and continues in possession for ninety (90)

days; [ii] any writ against any of the Leased Property is not released

or bonded off within ninety (90) days; [iii] any judgment is rendered

or proceedings are instituted against any Leased Property or Tenant

which affect any Leased Property or any part thereof (other than a

condemnation proceeding) which is not dismissed for ninety (90) days

(except as otherwise provided in this Section); [iv] all or a

substantial part of the assets of Tenant are attached, seized,

subjected to a writ or distress warrant, or are levied upon, or come

into the possession of any receiver, trustee, custodian, or assignee

for the benefit of creditors and is not dismissed within sixty (60)

days; [v] Tenant is enjoined, restrained, or in any way prevented by

court order, or any proceeding is filed or commenced seeking to enjoin,

restrain or in any way prevent Tenant from conducting all or

a substantial part of its business or affairs and is not dismissed

within sixty (60) days; or [vi] except as permitted by Section 18.18, a

notice of lien, levy or assessment is filed of record with respect to

all or any part of the property of Tenant and is not dismissed or

bonded off within sixty (60) days.

(g) Tenant or any Affiliate defaults on any material

obligation to Landlord, Tenant defaults on any material obligation

under any debt associated with the Leased Properties or any debt

co-guaranteed by Landlord and Tenant. As used herein, "Affiliate" means

any person, corporation, partnership, trust, or other legal entity

that, directly or indirectly, controls or is controlled by, or is under

common control with, Tenant. "Control" (and the correlative meanings of

the terms "controlled by" and "under common control with") means the

possession, directly or indirectly, of the power to direct or cause a

direction of the management and policies of such entity.

9.02 Remedies. Landlord may exercise any one or more of the following

remedies upon the occurrence of an Event of Default:

(a) Landlord may terminate the applicable Lease, exclude

Tenant from possession of the Leased Property and use reasonable

efforts to lease the Leased Property to others. If any Lease is

terminated pursuant to the provisions of this subparagraph (a), Tenant

will remain liable to Landlord for damages in an amount equal to the

Rent and other sums which would have been owing by Tenant under the

Lease for the balance of the Term if the Lease had not been terminated,

less the net proceeds, if any, of any re-letting of the Leased Property

by Landlord subsequent to such termination, after deducting all

Landlord's expenses in connection with such reletting, including

without limitation, the expenses set forth in Section 9.02(b)(2) below.

Landlord will be entitled to collect such damages from Tenant monthly

on the days on which the Rent and other amounts would have been payable

under the Lease if the Lease had not been terminated and Landlord will

be entitled to receive such damages from Tenant on each such day.

Alternatively, at the option of Landlord, if the Lease is terminated,

Landlord will be entitled to recover from Tenant (A) the worth at the

time of award of the unpaid Rent which had been earned at the time of

termination; (B) the worth at the time of award of the amount by which

the unpaid Rent which would have been earned after termination until

the time of awards exceeds the amount of such Rent loss that Tenant

proves could reasonably have been avoided; (C) the worth at the time of

award of the amount by which the unpaid Rent for the balance of the

Term of the Lease after the time of award exceeds the amount of such

Rent loss that Tenant proves could reasonably be avoided; and (D) any

other amount

necessary to compensate Landlord for all the detriment proximately

caused by Tenant's failure to perform its obligations under the Lease

or which in the ordinary course of things would be likely to result

from such failure. The "worth at the time of award" of the amount

referred to in clauses (A) and (B) is computed at "present value" using

New York Prime Rate. For purposes of this Agreement, "New York Prime

Rate" shall mean that rate of interest identified as prime or national

prime by the Wall Street Journal, or if not published or found, then

the rate of interest charged by the American bank with the greatest

number of assets on ninety (90) day unsecured notes to its preferred

customers. The worth at the time of award of the amount referred to in

clause (C) is computed by discounting such amount at the discount rate

of the Federal Reserve Bank of New York at the time of award. For the

purpose of determining unpaid Rent under clause (C), the Rent reserved

in the Lease will be deemed to be the sum of the following: [i] the

Base Rent computed pursuant to Section 2.01; [ii] the then outstanding

full balance of the Assumed Mortgage Debt; [iii] the Other Additional

Rent pursuant to Section 2.02.02 based upon the amount of such Other

Additional Rent for the month preceding the date of termination; and

[iv] the Percentage Rent pursuant to Section 2.06 based upon the amount

of the annualized Gross Revenues for the then Lease Year increased by

three percent (3%) per annum, to the date on which the Lease would have

expired if Landlord had not terminated the Lease, but not to exceed the

product of one (1%) percent of the initial Base Rent multiplied by the

number of years since 1992.

(b) (1) Without demand or notice, Landlord may re-enter and

take possession of the Leased Property or any part of the Leased

Property; and repossess the Leased Property as of the Landlord's former

estate; and expel the Tenant and those claiming through or under Tenant

from the Leased Property; and, remove the effects of both or either,

without being deemed guilty of any manner of trespass and without

prejudice to any remedies for arrears of Rent or preceding breach of

covenants or conditions. If Landlord elects to re-enter, as provided in

this paragraph (b) or if Landlord takes possession of the Leased

Property pursuant to legal proceedings or pursuant to any notice

provided by law, Landlord may, from time to time, without terminating

this Lease, re-let the Leased Property or any part of the Leased

Property, either alone or in conjunction with other portions of the

Improvements of which the Leased Property are a part, in Landlord's

name but for the account of Tenant, for such term or terms (which may

be greater or less than the period which would otherwise have

constituted the balance of the Term of this Lease) and on such terms

and conditions (which may include concessions of free rent, and the

alteration and repair of the Leased Property) as Landlord, in its

uncontrolled discretion, may determine. Landlord may collect and

receive the Rents for the Leased Property. Landlord will not be

responsible or liable for any failure to re-let the Leased Property, or

any part of the Leased Property, or for any failure to collect any Rent

due upon such re-letting. No such re-entry or taking Possession of the

Leased Property by Landlord will be construed as an election on

Landlord's part to terminate this Lease unless a written notice of such

intention is given to Tenant. No notice from Landlord under this Lease

or under a forcible entry and detainer statute or similar law will

constitute an election by Landlord to terminate this Lease unless such

notice specifically says so. Landlord reserves the right following any

such re-entry or re-letting, or both, to exercise its right to

terminate this Lease by giving Tenant such written notice, and, in that

event the Lease will terminate as specified in such notice.

(b) (2) If Landlord elects to take possession of the Leased

Property according to this subparagraph (b) without terminating the

Lease, Tenant will pay Landlord (i) the Rent and other sums which would

be payable under the Lease if such repossession had not occurred, less

(ii) the net proceeds, if any, of any re-letting of the Leased Property

after deducting all of Landlord's expenses incurred in connection with

such re-letting, including without limitation, all repossession costs,

brokerage commissions, legal expenses, attorneys' fees, expenses of

employees, alteration, remodeling, repair costs, and expenses of

preparation for such re-letting. If, in connection with any reletting,

the new Lease term extends beyond the existing Term or the Leased

Property covered by such re-letting include areas which are not part of

the Lease Property, a fair apportionment of the Rent received from such

re-letting and the expenses incurred in connection with such re-letting

will be made in determining the net proceeds received from such

re-letting. In addition, in determining the net proceeds from such

re-letting, any rent concessions will be apportioned over the term of

the new Lease. Tenant will pay such amounts to Landlord monthly on the

days on which the Rent and all other amounts owing under this Agreement

or the Lease would have been payable if possession had not been

retaken, and Landlord will be entitled to receive the rent and other

amounts from Tenant on each such day.

repossess and enjoy the Leased Property as if the Lease had not been

made, and in such event, Tenant and its successors and assigns shall

remain liable for any contingent or unliquidated obligations or sums

owing at the time of such repossession.

(d) Landlord may have access to and inspect, examine and

make copies of the books and records and any and all

accounts, data and income tax and other returns of Tenant insofar as

they pertain to the Leased Property.

(e) Landlord may take whatever action at law or in equity as

may appear necessary or desirable to collect the Rent and other amounts

payable under the Lease then due and thereafter to become due, or to

enforce performance and observance of any obligations, agreements or

covenants of Tenant under this Lease.

9.03 Right of Set-Off. Landlord may, and is hereby authorized by

Tenant, at any time and from time to time, after advance notice to Tenant, to

set-off and apply any and all sums held by Landlord, any indebtedness of

Landlord to Tenant, and any claims by Tenant against Landlord, against any

obligations of Tenant under this Agreement or any Lease and against any claims

by Landlord against Tenant, whether or not Landlord has exercised any other

remedies hereunder. The rights of Landlord under this Section are in addition to

any other rights and remedies Landlord may have against Tenant.

9.04 Performance of Tenant's Covenants. Landlord may perform any

obligation of Tenant which Tenant has failed to perform within two (2) days

after Landlord has sent a written notice to Tenant informing it of its specific

failure. Tenant shall reimburse Landlord on demand, as Additional Rent, for any

expenditures thus incurred by Landlord and shall pay interest thereon at the

overdue Rate (as hereinafter defined).

9.05 Late Charge. Any payment not made by Tenant for more than ten (10)

days after the due date shall be subject to a late charge payable by tenant as

Rent of three percent (3%) of the amount of such overdue payment.

9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant has

knowledge of any litigation or other proceeding that may be instituted against

Tenant, against the Leased Property to secure or recover possession thereof, or

that may affect the title to or the interest of Landlord in the Leased Property,

Tenant shall give written notice thereof to Landlord. Tenant shall pay all

reasonable costs and expenses incurred by Landlord in enforcing or preserving

Landlord's rights under this Agreement and each Lease, whether or not an Event

of Default has actually occurred or has been declared and thereafter cured,

including without limitation, [i] the fees, expenses, and costs of any

litigation, receivership, administrative, bankruptcy, insolvency or other

similar proceeding; [ii] reasonable attorney, paralegal, consulting and witness

fees and disbursements; and [iii] the expenses, including without limitation,

lodging, meals, and transportation, of Landlord and its employees, agents.

attorneys, and witnesses in preparing for litigation, administrative,

bankruptcy, insolvency or other similar proceedings and attendance at hearings,

depositions, and trials in

connection therewith. All such costs, charges and fees as incurred shall be

deemed to be Additional Rent under this Lease.

9.07 Remedies Cumulative. The remedies of Landlord herein are

cumulative to and not in lieu of any other remedies available to Landlord at law

or in equity. The use of any one remedy shall not be taken to exclude or waive

the right to use any other remedy.

9.08 Escrows and Application of Payments. As security for the

performance of its obligations hereunder Tenant hereby assigns to Landlord all

its right, title, and interest in and to all monies escrowed with Landlord under

this Agreement or under any Lease and all deposits with utility companies,

taxing authorities, and insurance companies; provided, however, that Landlord

shall not exercise its rights hereunder until an Event of Default has occurred.

Any payments received by Landlord under any provisions of this Agreement or

under any Lease during the existence, or continuance of an Event of Default

shall be applied to Tenant's obligations in the order which Landlord may

determine.

9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally

appoints Landlord, or Landlord's authorized officer, agent, employee or

designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event

of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and

Landlord's use and benefit, to execute, deliver and file all applications and

any and all other necessary documents or things, to effect a transfer,

reinstatement, renewal and/or extension of any and all licenses and other

governmental authorizations issued to Tenant in connection with Tenant's

operation of the Leased Property, and to do any and all other acts incidental to

any of the foregoing. Tenant irrevocably and unconditionally grants to Landlord

as its attorney-in-fact full power and authority to do and perform every act

necessary and proper to be done in the exercise of any of the foregoing powers

as fully as Tenant might or could do if personally present or acting, with full

power of substitution, hereby ratifying and confirming all that said attorney

shall lawfully do or cause to be done by virtue hereof. This power of attorney

is coupled with an interest and is irrevocable prior to the full performance of

the Tenant's obligations under this Agreement and each Lease.

ARTICLE X: DAMAGE AND DESTRUCTION

10.01 General. Tenant shall notify Landlord if any of the Leased Property is

damaged or destroyed by reason of fire or any other cause. Tenant shall promptly

repair, rebuild, or restore the Leased Property, at Tenant's expense, so as to

make the Leased Property at least equal in value to the Leased Property existing

immediately prior to such occurrence and as nearly similar to it in character as

is practicable and reasonable. Before beginning such repairs or rebuilding, or

letting any contracts in connection

with such repairs or rebuilding, Tenant will submit for Landlord's approval,

which approval Landlord will not unreasonably withhold or delay, complete and

detailed plans and specifications for such repairs or rebuilding. Promptly after

receiving Landlord's approval of the plans and specifications, Tenant will begin

such repairs or rebuilding and will prosecute the repairs and rebuilding to

completion with diligence, subject, however, to strikes, lockouts, acts of God,

embargoes, governmental restrictions, and other causes beyond Tenant's

reasonable control. Landlord will make available to Tenant the net proceeds of

any fire or other casualty insurance paid to Landlord for such repair or

rebuilding as the same progresses, after deduction of any costs of collection,

including attorneys' fees. Payments will be made against properly certified

vouchers of a competent architect in charge of the work and approved by

Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver

to Landlord for Landlord's approval a schedule setting forth the estimated

monthly draws for such work. Landlord will contribute to such payments out of

the insurance proceeds an amount equal to the proportion that the total net

amount received by Landlord from insurers bears to the total estimated cost of

the rebuilding or repairing, multiplied by the payment by Tenant on account of

such work. Landlord may, however, withhold ten percent (10%) from each payment

until the work of repairing or rebuilding is completed and proof has been

furnished to Landlord that no lien or liability has attached or will attach to

the Leased Property or to Landlord in connection with such repairing or

rebuilding. Upon the completion of rebuilding and the furnishing of such proof,

the balance of the net proceeds of such insurance payable to Tenant on account

of such repairing or rebuilding will be paid to Tenant. Tenant will obtain and

deliver to Landlord a temporary or final certificate of occupancy before the

Leased Property is reoccupied for any purpose. Tenant shall complete such

repairs or rebuilding free and clear of mechanic's or other liens, and in

accordance with the building codes and all applicable laws, ordinances,

regulations, or orders of any state, municipal, or other public authority

affecting the repairs or rebuilding, and also in accordance with all

requirements of the insurance rating organization, or similar body. Any

remaining proceeds of insurance after such restoration will be Tenant's

property.

10.02 Landlord's Inspection. During the progress of such repairs or

rebuilding, Landlord and its architects and engineers may, from time to time,

inspect the Leased Property and will be furnished, if required by them, with

copies of all plans, shop drawings, and specifications relating to such repairs

or rebuilding. Tenant will keep all plans, shop drawings, and specifications at

the building, and Landlord and its architects and engineers may examine them at

all reasonable times. If, during such repairs or rebuilding, Landlord and its

architects and engineers determine that the repairs or rebuilding are not being

done in accordance with the approved plans and specifications,

Landlord will give prompt notice in writing to Tenant, specifying in detail the

particular deficiency, omission, or other respect in which Landlord claims such

repairs or rebuilding do not accord with the approved plans and specifications.

Upon the receipt of any such notice, Tenant will cause corrections to be made to

any deficiencies, omissions, or such other respect. Tenant's obligations to

supply insurance, according to Article IV, will be applicable to any repairs or

rebuilding under this Section.

10.03 Landlord's Costs. Tenant shall, within thirty (30) days after receipt

of an invoice from Landlord, pay the reasonable costs, expenses, and fees of any

architect or engineer employed by Landlord to review any plans and

specifications and to supervise and approve any construction, or for any

services rendered by such architect or engineer to Landlord as contemplated by

any of the provisions of this Lease, or for any services performed by Landlord's

attorneys in connection therewith; provided, however, that Landlord will consult

with Tenant and notify Tenant of the estimated amount of such expenses.

10.04 Rent Abatement. In the event that the provisions of Section 10.01 above

shall become applicable, the Base Rent, real estate taxes and other Impositions

shall be abated or reduced proportionately during any period in which, by reason

of such damage or destruction, there is substantial interference with the

operation of the business of Tenant in the Leased Property, having regard to the

extent to which Tenant may be required to discontinue its business in the Leased

Property, and such abatement or reduction shall continue for the period

commencing with such destruction or damage and ending with the substantial

completion (defined below) by Tenant of such work or repair and/or

reconstruction. Nothing in this section shall be construed to abate or reduce

Percentage Rent. In the event that only a portion of the Leased Property is

rendered untenantable or incapable of such use, the Base Rent and all real

estate taxes and other Impositions payable hereunder shall be reduced on a pro

rata basis for the number of licensed nursing home beds which were rendered

incapable of occupancy because of such damage or destruction in proportion to

the total amount of licensed nursing home beds available for occupancy in the

Leased Property prior to such damage or destruction. For purposes of this

paragraph, substantial completion shall occur upon the earlier of (i) nine (9)

months from the date of the first disbursement of insurance proceeds, or (ii)

the issuance of a certificate of occupancy for the Leased Property.

10.05 Substantial Damage During Lease Term. Provided Tenant has fully

complied with Section 4.01 hereof (including actually maintaining in effect

rental value insurance provided for in clause (c) thereof), if, at any time

during the Term of the Lease, the Leased Property is so damaged by fire or

otherwise that more than fifty (50%) percent of the licensed nursing home beds

at the Leased

Property are rendered unusable, Tenant may, within thirty (30) days after such

damage, give notice of its election to terminate the Lease subject to the

particular Leased Property and, subject to the further provisions of this

Section, such Lease will cease on the tenth (lOth) day after the delivery of

such notice. If the Lease is so terminated, Tenant will have no obligation to

repair, rebuild or replace the Leased Property, and the entire insurance

proceeds will belong to Landlord. If the Lease is not so terminated, Tenant

shall rebuild the Leased Property in accordance with Section 10.01.

ARTICLE XI: CONDEMNATION

11.01 Total Taking. If, by exercise of the right of eminent domain or by

conveyance made in response to the threat of the exercise of such right

("Taking"), the entire Leased Property that is the subject of any Lease is

taken, or so much of the Leased Property is taken that the Leased Property

cannot be used by Tenant for the purposes for which it was used immediately

before the Taking, then the Lease will terminate on the earlier of the vesting

of title to the Leased Property in the condemning authority or the taking of

possession of the Leased Property by the condemning authority. All damages

awarded for such Taking under the power of eminent domain shall be the property

of the Landlord, except for damages awarded as compensation for diminution in

value of the leasehold in contrast to diminution in the value of the fee of the

Leased Property. Tenant shall also be entitled to any specific award made for

loss of business or the relocation thereof.

11.02 Partial Taking. If, after a Taking, so much of the Leased Property that

is the subject of any Lease remains that the Leased Property can be used for

substantially the same purposes for which it was used immediately before the

Taking, then [i] the Lease will end as to the part taken on the earlier of the

vesting of title to the Leased Property in the condemning authority or the

taking of possession of the Leased Property by the condemning authority; [ii]

Base Rent for so much of the Leased Property as remains will be reduced on a pro

rata basis by an amount equal to the difference between the number of available

nursing beds remaining after the Taking and the number of available nursing beds

before the Taking; [iii] at its cost, Tenant shall restore so much of the Leased

Property as remains to a sound architectural unit substantially suitable for the

purposes for which it was used immediately before the Taking, using good

workmanship and new, first-class materials; [iv] upon completion of the

restoration, or upon Tenant's request at intervals during the restoration

process, in accordance with the procedure set forth in Section 10.01, Landlord

will pay Tenant the lesser of the net award made to Landlord on the account of

the Taking (after deducting from the total award, attorneys', appraisers', and

other fees and costs incurred in connection with the obtaining of the award and

amounts paid to the holders of mortgages secured by the Leased Property), or

Tenant's actual out-of-pocket costs of restoring the Leased

Property; and [v] Landlord shall be entitled to the balance of the net award.

ARTICLE XII: TENANT'S PROPERTY

12.01 Tenant's Property. Tenant shall install, place, and use on the Leased

Property such fixtures, furniture, equipment, inventory and other personal

property in addition to the Fixtures as may be required or as Tenant may, from

time to time, deem necessary or useful to operate the Leased Property as a

nursing home or assisted living medical care facility. All fixtures, furniture,

equipment, inventory, and other personal property installed, placed, or used on

the Leased Property which is owned by Tenant or leased by Tenant from third

parties is hereinafter referred to as "Tenant's Property".

12.02 Requirements for Tenant's Property. Tenant shall comply with all of

the following requirements in connection with Tenant's Property:

(a) Tenant shall notify Landlord within one hundred twenty

(120) days after each anniversary of any Lease of any additions,

substitutions, or replacements of any item of Tenant's Property which

individually has a cost of more than $10,000.00 and shall furnish

Landlord with such other information as Landlord may reasonably request

from time to time.

(b) Tenant's Property shall be installed in a good and

workmanlike manner, in compliance with all governmental laws,

ordinances, rules, and regulations and all insurance requirements, and

be installed free and clear of any mechanic's liens.

maintain, repair, and replace Tenant's Property.

(d) Tenant shall, at Tenant's sole cost and expense, keep

Tenant's Property insured against loss or damage by fire, vandalism and

malicious mischief, sprinkler leakage, and other physical loss perils

commonly covered by fire and extended coverage, boiler and machinery,

and difference in conditions insurance in an amount not less than

ninety percent (90%) of the then full replacement cost thereof. Tenant

shall use the proceeds from any such policy for the repair and

replacement of Tenant's Property. The insurance shall meet the

requirements of Section 4.03.

(e) Tenant shall pay all taxes applicable to Tenant's

Property.

(f) If Tenant's Property is damaged or destroyed by fire or

any other cause, Tenant shall promptly repair or replace Tenant's

Property unless Tenant is entitled to and elects to terminate the Lease

pursuant to Section 10.05.

(g) Unless an Event of Default (or any event which, with the

giving of notice or lapse of time, or both, would constitute an Event

of Default) has occurred and remains uncured beyond any applicable

grace period, Tenant may remove Tenant's property from the Leased

Property from time to time provided that [i] the items removed are not

required to operate the Leased Property as a licensed nursing home

facility (unless such items are being replaced by Tenant); and [ii)

Tenant repairs any damage to the Leased Property resulting from the

removal of Tenant's Property.

(h) Tenant shall remove Tenant's Property upon the

termination or expiration of the Lease and shall repair any damage to

the Leased Property resulting from the removal of Tenant's Property. If

Tenant fails to remove Tenant's Property within ninety (90) days after

the termination or expiration of the Lease, then Tenant shall be deemed

to have abandoned Tenant's Property, Tenant's Property shall become the

property of Landlord, and Landlord may remove, store and dispose of

Tenant's Property. In such event, Tenant shall have no claim or right

against Landlord for such property or the value thereof regardless of

the disposition thereof by Landlord. Tenant shall pay Landlord, upon

demand, all expenses incurred by Landlord in removing, storing, and

disposing of Tenant's Property and repairing any damage caused by such

removal. Tenant's obligations hereunder shall survive the termination

or expiration of the Lease.

(i) Tenant shall perform its obligations under any equipment

lease or security agreement for Tenant's Property.

ARTICLE XIII: TENANT'S RIGHTS OF FIRST REFUSAL

13.01 Rights of First Refusal.

(a) Subject to the terms and conditions set forth in this

Section 13.01, Tenant shall have a right of first refusal to purchase

any Leased Property (the "Purchase Refusal Right"). If during the Term

or for a period of six (6) months following termination of the Lease,

Landlord receives a bona fide third party offer to purchase any Leased

Property, Landlord shall, prior to accepting such third party offer,

send written notice thereof to Tenant ("Landlord's Notice") along with

a copy of such offer, and further setting forth in detail all of the

terms and conditions of such third party offer, including the price,

time for closing, and any contingencies. Tenant shall have fifteen (15)

days after

receipt of Landlord's Notice to exercise Tenant's Purchase Refusal

Right, by giving Landlord written notice thereof. Failure of Tenant to

exercise the Purchase Refusal Right within such time period set forth

above shall be deemed to extinguish the Purchase Refusal Right.

Thereafter, Landlord may sell such Leased Property to such third party

on the same terms and conditions as set forth in the Landlord's Notice.

Tenant's Purchase Refusal Right shall revive in the event that Landlord

fails to close such third party offer. In the event that Tenant elects

to exercise the Purchase Refusal Right and to purchase the Leased

Property thereby, (a) Tenant shall purchase such Leased Property on the

same terms and conditions and subject to all time periods and other

limitations as provided in Landlord's Notice, and (b) concurrently with

such purchase, the Lease of such Leased Property shall terminate (but

Tenant shall remain liable to pay any unpaid Rent with respect to such

Leased Property and all indemnifications and other provisions that

survive the expiration of any Lease or of this Agreement shall continue

in effect), and this Agreement shall be appropriately amended to

reflect the termination of such Lease.

(b) Subject to the terms and conditions set forth in this

Section 13.01, Tenant shall have a right of first refusal to lease any

Leased Property (the "Lease Refusal Right"). If during the Term or

within six (6) months thereafter Landlord receives a bona fide third

party offer to lease any Leased Property after expiration of the Lease

to Tenant, Landlord shall, prior to accepting such third party offer,

send written notice thereof to Tenant ("Landlord's Notice") along with

a copy of such offer, and further setting forth in detail all of the

terms and conditions of such third party offer, including the rent.

Tenant shall thereafter have thirty (30) days after the date of

Landlord's Notice to exercise Tenant's Lease Refusal Right, by giving

Landlord written notice thereof. Failure of Tenant to exercise the

Lease Refusal Right within such time period set forth above shall be

deemed to extinguish the Lease Refusal Right. Thereafter, Landlord may

lease such Leased Property to such third party on the same terms and

conditions as set forth in the Landlord's Notice. Tenant's Lease

Refusal Right shall revive in the event that Landlord fails to close

such third party offer. In the event that Tenant elects to exercise the

Lease Refusal Right and to lease the Leased Property thereby, Tenant

shall lease such Leased Property on the same terms and conditions and

subject to all time periods and other limitations as provided in

Landlord's Notice.

ARTICLE XIV: ASSIGNMENT AND SUBLETTING; ATTORNMENT

14.01 Subletting and Assignment; Attornment. Subject to the provisions of

Section 14.03 below and any other express conditions or limitations set forth

herein, Tenant may, without the consent of Landlord, (i) assign this Agreement

or any Lease or sublet all or any part of the Leased Property to any Affiliate

of Tenant, or (ii) sublet all or any part of the Leased Property (a) in the

normal course of the conduct of Tenant's business on the Leased Property (such

as but not limited to leasing of space for major moveable equipment or

functional departments such as pathology, pharmacy and radiology), or (b) as to

less than an aggregate of 20% of the rentable square footage of the buildings on

any Leased Property, to concessionaires or other third party users or operators

of portions of the Leased Property which are reasonably related to the

health-care industry or which provide direct services for patients or employees

of the Leased Property. Landlord shall not unreasonably withhold its consent to

any other or further subletting or assignment, provided that (a) in the case of

a subletting, the sublessee shall comply with the provisions of Section 14.02,

(b) in the case of an assignment, the assignee shall assume in writing and agree

to keep and perform all of the terms of this Lease on the part of Tenant to be

kept and performed and shall be, and become, jointly and severally liable with

Tenant for the performance thereof, (c) an original counterpart of each such

sublease and assignment and assumption, duly executed by Tenant and such

sublessee or assignee, as the case may be, in form and substance satisfactory to

the Landlord, shall be delivered promptly to Landlord, and (d) in case of either

an assignment or subletting, Tenant shall remain primarily liable, as principal

rather than as surety, for the prompt payment of the Rent and for the

performance and observance of all of the covenants and conditions to be

performed by Tenant hereunder.

14.02 Attornment. Tenant shall insert in each sublease permitted under

Section 14.01 provisions to the effect that (a) such sublease is subject and

subordinate to all of the terms and provisions of the Lease (including this

Agreement) and to the rights of Landlord hereunder, (b) in the event the Lease

shall terminate before the expiration of such sublease, the sublessee thereunder

will, at Landlord's option, attorn to Landlord and waive any right the sublessee

may have to terminate the sublease or to surrender possession thereunder, as a

result of the termination of the Lease, and (c) in the event the sublessee

receives a written notice from Landlord or Landlord's assignees, if any, stating

that Tenant is in Default under the Lease, the sublessee shall thereafter be

obligated to pay all rentals accruing under said sublease directly to the party

giving such notice, or as such party may direct. All rentals received from the

sublessee by Landlord or Landlord's assignees, if any, as the case may be, shall

be credited against the amounts owing by Tenant under the Lease.

14.03 Sublease Limitation. Anything contained in this Agreement or any

Lease to the contrary notwithstanding, Tenant shall not sublet the Leased

Property on any basis such that the rental to be paid by the sublessee

thereunder would be based, in whole or in part, on either (i) the income or

profits derived by the business activities of the sublessee, or (ii) any other

manner such that any portion of the sublease rental received by Landlord would

fail to qualify as "rents from real property" within the meaning of Section

856(d) of the Internal Revenue Code of 1986 as amended (the "Code"), or any

similar or successor provisions thereto.

ARTICLE XV: LIMITED RIGHT OF SUBSTITUTION

15.01 Substitution Upon Condemnation. With respect to any Leased Property or

Leased Properties whose Base Rent does not exceed in the aggregate five percent

(5%) of the Base Rent for all Leased Properties listed on Schedule A hereto

that, following notice received from any governmental authority not later than

December 31, 1994, is taken in its entirety by eminent domain or conveyed in its

entirety to such governmental authority in response to the threat of the

exercise of such governmental authority's right of eminent domain ("Condemned

Property"), Tenant shall have an option to acquire such Leased Property in

exchange for a reasonably satisfactory new Leased Property ("Substituted

Property") on terms reasonably acceptable to Landlord. Such terms with respect

to the Substituted Property shall include comparable fair rental value, a

tax-free exchange opinion and an opinion that the transaction will not

disqualify Landlord as a real estate investment trust for tax purposes.

ARTICLE XVI: ARBITRATION

16.01 Arbitration. Except with respect to the payment of Base Rent hereunder,

in case any controversy shall arise between the parties hereto as to any of the

requirements of this Lease or the performance thereof, which the parties shall

be unable to settle by agreement or as otherwise provided herein, such

controversy shall be determined by arbitration to be initiated and conducted as

provisions of this Article XVI.

16.02 Appointment of Arbitrators. The party or parties requesting arbitration

shall serve upon the other a demand therefor, in writing, specifying the matter

to be submitted to arbitration, and nominating some competent disinterested

person to act as an arbitrator; within twenty (20) days after receipt of such

written demand and notification, the other party shall, in writing, nominate a

competent disinterested person and the two (2) arbitrators so designated shall,

within ten (10) days thereafter, select a third arbitrator and give immediate

written notice of such

selection to the parties and shall fix in said notice a time and place for the

first meeting of the arbitrators, which meeting shall be held as soon as

conveniently possible after the selection of all arbitrators at which time and

place the parties to the controversy may appear and be heard.

16.03 Third Arbitrator. In case the notified party or parties shall fail to

make a selection upon notice, as aforesaid, or in case the first two (2)

arbitrators selected shall fail to agree upon a third arbitrator within ten (10)

days after their selection, then such arbitrator or arbitrators, may, upon

application made by either of the parties to the controversy, after twenty (20)

days' written notice thereof to the other party or parties, be appointed by the

Senior Judge of the United States District Court having jurisdiction of

controversies litigated in Nashville Tennessee.

16.04 Arbitration Procedure. Said arbitrators shall give each of the parties

not less than ten (10) days' written notice of the time and place of each

meeting at which the parties or any of them may appear and be heard and after

hearing the parties in regard to the matter in dispute and taking such other

testimony and making such other examinations and investigations as justice shall

require and as the arbitrators may deem necessary, they shall decide the

question submitted to them; and the decision of said arbitrators in writing

signed by a majority of them shall be final and binding upon the parties to such

controversy. In rendering such decision and award, the arbitrators shall not add

to, subtract from or otherwise modify the provisions of this Agreement or of any

applicable Lease.

16.05 Expenses. The expenses of such arbitration shall be divided between

Landlord and Tenant unless otherwise specified in award. Each party in interest

shall pay the fees and expenses of its own counsel.

ARTICLE XVII: QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,

BOND FINANCING AND ESTOPPEL CERTIFICATES

17.01 Quiet Enjoyment. So long as Tenant performs all of its obligations

under this Agreement and each Lease, Tenant's possession of the Leased Property

will not be disturbed by or through Landlord.

17.02 Subordination. This Agreement and each Lease and Tenant's rights under

this Agreement and each Lease are subordinate to any ground lease or underlying

lease, first mortgage, first deed of trust, or other first lien against the

Leased Property, together with any renewal, consolidation, extension,

modification or replacement thereof, which now or at any subsequent time affects

the Leased Property or any interest of Landlord in the Leased Property, except

to the extent that any such instrument expressly provides that this Agreement

and each Lease is superior. This

provision will be self-operative, and no further instrument or subordination

will be required in order to effect it. However, Tenant shall execute,

acknowledge and deliver to Landlord, at any time and from time to time upon

demand by Landlord, such documents as may be requested by Landlord or any

mortgagee or any holder of any mortgage or other instrument described in this

Section, to confirm or effect any such subordination. If Tenant fails or refuses

to execute, acknowledge, and deliver any such document within twenty (20) days

after written demand, Landlord may execute, acknowledge and deliver any such

document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby

constitutes and irrevocably appoints Landlord, its successors and assigns, as

Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of

Tenant any documents described in this Section. This power of attorney is

coupled with an interest and is irrevocable.

17.03 Attornment; Non-Disturbance. If any holder of any mortgage, indenture,

deed of trust, or other similar instrument described in Section 17.02 succeeds

to Landlord's interest in the Leased Property, Tenant will pay to such holder

all Rent subsequently payable under this Lease. Tenant shall, upon request of

anyone succeeding to the interest of Landlord, automatically become the tenant

of, and attorn to, such successor in interest without changing this Lease. The

successor in interest will not be bound by [i] any payment of Rent for more than

one (1) month in advance; [ii] any amendment or modification of this Lease made

without its written consent; [iii] any claim against Landlord arising prior to

the date on which the successor succeeded to Landlord's interest; or [iv] any

claim or offset of Rent against the Landlord. Upon request by Landlord or such

successor in interest and without cost to Landlord or such successor in

interest, Tenant will execute, acknowledge and deliver an instrument or

instruments confirming the attornment. If Tenant fails or refuses to execute,

acknowledge, and deliver any such instrument within twenty (20) days after

written demand, then Landlord or such successor in interest will be entitled to

execute, acknowledge, and deliver any document on behalf of Tenant as Tenant's

attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,

its successors and assigns, as Tenant's attorney-in-fact to execute,

acknowledge, and deliver on behalf of Tenant any such document. This power of

attorney is coupled with an interest and is irrevocable.

Landlord shall use reasonable efforts to obtain a non-disturbance

agreement from any such party referred to above which provides that in the event

such party succeeds to Landlord's interest under the Lease and provided that no

Event of Default by Tenant exists, such party will not disturb Tenant's

possession, use or occupancy of the Leased Property.

17.04 Estoppel Certificates. At the request of Landlord or any mortgagee or

purchaser of the Leased Property, Tenant shall

execute, acknowledge, and deliver an estoppel certificate, in recordable form,

in favor of Landlord or any mortgagee or purchaser of the Leased Property

certifying the following: [i] that the Lease is unmodified and in full force and

effect, or if there have been modifications that the same is in full force and

effect as modified and stating the modifications; [ii] the date to which Rent

and other charges have been paid; [iii] that neither Tenant nor Landlord is in

default nor is there any fact or condition which, with notice or lapse of time,

or both, would constitute a default, if that be the case, or specifying any

existing default; [iv] that Tenant has accepted and occupies the Leased

Property; [v] that Tenant has no defenses, set-offs, deductions, credits, or

counterclaims against Landlord, if that be the case, or specifying such that

exist; [vi] that the Landlord has no outstanding construction or repair

obligations; and [vii] such other information as may reasonably be requested by

Landlord or any mortgagee or purchaser. Any purchaser or mortgagee may rely on

this estoppel certificate. If Tenant fails to deliver the estoppel certificates

to Landlord within ten (10) days after the request of the Landlord, then Tenant

shall be deemed to have certified that [a] the Lease is in full force and effect

and has not been modified, or that the Lease has been modified as set forth in

the certificate delivered to Tenant; [b] Tenant has not prepaid any Rent or

other charges except for the current month; [c] Tenant has accepted and occupies

the Leased Property; [d] neither Tenant nor Landlord is in default nor is there

any fact or condition which, with notice or lapse of time, or both, would

constitute a default; [e] Landlord has no outstanding construction or repair

obligation, and [f] Tenant has no defenses, set-offs, deductions, credits, or

counterclaims against Landlord. Tenant hereby irrevocably appoints Landlord as

Tenant's attorney-in-fact to execute, acknowledge and deliver on Tenant's behalf

any estoppel certificate which Tenant does not object to within twenty (20) days

after Landlord sends the certificate to Tenant. This power of attorney is

coupled with an interest and is irrevocable.

ARTICLE XVIII: MISCELLANEOUS

18.01 Notices. Landlord and Tenant hereby agree that all notices, demands,

requests, and consents (hereinafter "notices") required to be given pursuant to

the terms of this Lease shall be in writing shall be addressed as follows:

If to Tenant: National HealthCorp L.P.

100 Vine Street

Suite 1400, City Center

Murfreesboro, Tennessee 37130

With a copy to: Richard F. LaRoche, Jr.

Senior Vice President and Secretary

National HealthCorp L.P.

100 Vine Street

Suite 1400, City Center

Murfreesboro, Tennessee 37130

If to Landlord: National Health Investors, Inc.

100 Vine Street

Suite 1400, City Center

Murfreesboro, Tennessee 37130

With a copy to: Ernest E. Hyne, II, Esq.

Harwell Martin & Stegall, P.C.

P.O. Box 2960

Nashville, Tennessee 37219;

and shall be served by [i] personal delivery, [ii] certified mail, return

receipt requested, postage prepaid, or [iii] nationally recognized overnight

courier. All notices shall be deemed to be given upon the earlier of actual

receipt or three (3) days after mailing, or one (1) business day after deposit

with the overnight courier. Any notices meeting the requirements of this Section

shall be effective, regardless of whether or not actually received. Landlord or

Tenant may change its notice address at any time by giving the other party

notice of such change.

18.02 Advertisement of Leased Property. In the event the parties hereto have

not executed a renewal lease of any Leased Property within ninety (90) days

prior to the expiration of the Term, then Landlord or its agent shall have the

right to enter such Leased Property at all reasonable times for the purpose of

exhibiting the Leased Property to others and to place upon the Leased Property

for and during the period commencing one hundred eighty (180) days prior to the

expiration of the Term "for sale" or "for rent" notices or signs.

18.03 Entire Agreement. This Agreement and the individual Leases contain the

entire agreement between Landlord and Tenant with respect to the subject matter

hereof and thereof. No representations, warranties, and agreements have been

made by Landlord except as set forth in this Lease.

18.04 Severability. If any term or provision of this Agreement or any Lease

is held or deemed by Landlord to be invalid or unenforceable, such holding shall

not affect the remainder of this Agreement or any Lease and the same shall

remain in full force and effect, unless such holding substantially deprives

Tenant of the use of the Leased Property or Landlord of the Rents therefor, in

which event the Lease for such Leased Property shall forthwith terminate as if

by expiration of the Term.

18.05 Captions and Headings. The captions and headings are inserted only as a

matter of convenience and for reference and in no way define, limit or describe

the scope of this Agreement or the intent of any provision hereof.

18.06 Governing Law. This Lease shall be construed under the laws of the

State of Tennessee.

18.07 Recording of Lease. Tenant shall not record this Agreement. Tenant may,

however, record the Lease approved by Landlord with respect to each Leased

Property; provided, however, such lease shall not disclose the Base Rent of

other economic terms of the Lease.

18.08 Waiver. No waiver by Landlord of any condition or covenant herein

contained, or of any breach of any such condition or covenant, shall be held or

taken to be a waiver of any subsequent breach of such covenant or condition, or

to permit or excuse its continuance or any future breach thereof or of any

condition or covenant, nor shall the acceptance of Rent by Landlord at any time

when Tenant is in default in the performance or observance of any condition or

covenant herein be construed as a waiver of such default, or of Landlord's right

to terminate this Agreement or any Lease or exercise any other remedy granted

herein on account of such existing default.

18.09 Binding Effect. This Agreement and each Lease will be binding upon and

inure to the benefit of the heirs, successors, personal representatives, and

permitted assigns of Landlord and Tenant.

18.10 Authority. The persons executing this Agreement or any Lease on behalf

of Tenant warrant that [i] Tenant has the power and authority to enter into this

Agreement or such Lease; [ii] Tenant is qualified to do business in the state in

which the Leased Property is located; and [iii] they are authorized to execute

this Lease on behalf of Tenant. Tenant shall, at the request of Landlord,

provide evidence satisfactory to Landlord confirming these representations.

18.11 Transfer of Permits, Etc. Upon the expiration or earlier termination of

the Term of any Lease (whether pursuant to the provisions of this Agreement of

such Lease), Tenant shall to transfer and relinquish to Landlord or Landlord's

nominee and to cooperate with Landlord or Landlord's nominee in connection with

the processing by Landlord or such nominee of all licenses, operating permits,

certificates of need and other governmental authorization and all contracts,

including without limitation, a Certificate of Need, the nursing home and/or

health care facility license, and any other contracts with governmental or

quasi-governmental entities which may be necessary or appropriate for the

operation by Landlord or such nominee of the Leased

Property for the purposes of operating a nursing home and health care facility;

provided that the costs and expenses of any such transfer or the processing of

any such application shall be paid by Landlord or Landlord's nominee. Any such

permits, licenses, certificates and contracts which are held in Landlord's name

now or at the termination of the Lease shall remain the property of Landlord. To

the extent permitted by law, Tenant hereby irrevocably appoints Landlord, its

successors and assigns and any nominee or nominees specifically designated by

Landlord or any successor or assign as Tenant's attorney-in-fact to execute,

acknowledge, deliver and file all documents appropriate to such transfer or

processing of any such application on behalf of Tenant; this power of attorney

is coupled with an interest and is irrevocable.

18.12 Modification. This Agreement and any Lease may only be modified by a

writing signed by both Landlord and Tenant.

18.13 Incorporation by Reference. All schedules and exhibits referred to in

this Agreement are incorporated into this Agreement, and all schedules and

exhibits referred to in any Lease (as well as the provisions of this Agreement,

except to the extent specifically excluded from or inconsistent with the terms

of such Lease) are incorporated into such Lease.

18.14 No Merger. The surrender of this Agreement or of any Lease by Tenant or

the cancellation of this Agreement or of any Lease by agreement of Tenant and

Landlord or the termination of this Agreement or of any Lease on account of

Tenant's default will not work a merger, and will, at Landlord's option,

terminate any subleases or operate as an assignment to Landlord of any

subleases. Landlord's option under this paragraph will be exercised by notice to

Tenant and all known subtenants of any applicable Leased Property.

18.15 Laches. No delay or omission by either party hereto to exercise any

right or power accruing upon any noncompliance or default by the other party

with respect to any of the terms hereof shall impair any such right or power or

be construed to be a waiver thereof.

18.16 Waiver of Jury Trial. To the extent that there is any claim by one

party against the other that is not to be settled by arbitration as provided in

Article XVI hereof, Landlord and Tenant waive trial by jury in any action,

proceeding or counterclaim brought by either of them against the other on all

matters arising out of this Lease or the use and occupancy of the Leased

Property (except claims for personal injury or property damage). If Landlord

commences any summary proceeding for nonpayment of Rent, Tenant will not

interpose, and waives the right to interpose, any counterclaim in any such

proceeding.

18.17 Guarantee Fee Credit. Provided that no claim has been made against

Landlord under its subordinated guarantee of any letter of credit outstanding as

of the date of this Agreement (together with any renewal or replacement of such

letter of credit, "LOC") guaranteed primarily by Tenant, which LOC was issued to

secure indebtedness in connection with healthcare facilities managed by Tenant

and not constituting any of the Leased Properties, and which guarantee by

Landlord ("Managed Facility LOC Guarantee") is issued concurrently with and as

provided in the Contribution and Assumption Agreement of even date between

Tenant and Landlord (which provides among other things for the Real Estate

Conveyance), Tenant shall be entitled to a credit against the aggregate Base

Rent payable pursuant to Section 2.01 of this Agreement in an amount equal to

the full amount of any fees actually received by Landlord in consideration of

Landlord's Managed Facility LOC Guarantees. However, no portion of credit

provided for in this Section 18.17 shall be considered as a set-off or credit

against any rent payable under any individual Lease of any Leased Property, and

this Section 18.17 shall not be incorporated into or deemed to be a part of any

such Lease.

18.18 Permitted Contests. Tenant, on its own or on Landlord's behalf (or in

Landlord's name), but at Tenant's expense, may contest, by appropriate legal

proceedings conducted in good faith and with due diligence, the amount or

validity or application, in whole or in part, of any Imposition or any legal

requirement or insurance requirement or any lien, attachment, levy, encumbrance,

charge or claim provided that [i] in the case of an unpaid Imposition, lien,

attachment, levy, encumbrance, charge or claim, the commencement and

continuation of such proceedings shall suspend the collection thereof from

Landlord and from the Leased Property; [ii] neither the Leased Property nor any

Rent therefrom nor any part thereof or interest therein would be in any

immediate danger of being sold, forfeited, attached or lost; [iii] in the case

of a legal requirement, Landlord would not be in any immediate danger of civil

or criminal liability for failure to comply therewith pending the outcome of

such Proceedings; [iv] in the event that any such contest shall involve a sum of

money or potential loss in excess of Fifty Thousand Dollars ($50,000.00), Tenant

shall deliver to Landlord and its counsel an opinion of Tenant's counsel to the

effect set forth in clauses [i], [ii] and [iii], to the extent applicable; [v]

in the case of a legal requirement and/or an Imposition, lien, encumbrance, or

charge, Tenant shall give such reasonable security as may be demanded by

Landlord to insure ultimate payment of the same and to prevent any sale or

forfeiture of the affected Leased Property or the Rent by reason of such

nonpayment or noncompliance; provided, however, the provisions of this Section

shall not be construed to permit Tenant to contest the payment of Rent (except

as to contests concerning the method of computation or the basis of levy of any

Imposition or the basis for the assertion of any other claim) or any other sums

payable by Tenant to Landlord hereunder; [vi] in the case of an insurance

requirement, the coverage required by Article IV shall be maintained: and [vii]

if such contest be finally resolved against Landlord or Tenant, Tenant shall, as

Additional Rent due hereunder, promptly pay the amount required to be paid,

together with all interest and penalties accrued thereon, or comply with the

applicable legal requirement or insurance requirement. Landlord, at Tenant's

expense, shall execute and deliver to Tenant such authorizations and other

documents as may be reasonably required in any such contest, and, if reasonably

requested by Tenant or if Landlord so desires, Landlord shall join as a party

therein. Tenant hereby agrees to indemnify and save Landlord harmless from and

against any liability, cost or expense of any kind that may be imposed upon

Landlord in connection with any such contest and any loss resulting therefrom.

18.19 Construction of Lease. This Agreement and each of the Leases for Leased

Properties described on Schedule A hereto have been prepared by Landlord and its

professional advisors and reviewed by Tenant and its professional advisors.

Landlord, Tenant, and their advisors believe that this Agreement and such Leases

are the product of all their efforts, that they express their agreement, and

agree that they shall not be interpreted in favor of either Landlord or Tenant

or against either Landlord or Tenant merely because of their efforts in

preparing such documents.

18.20 Counterparts. This Agreement and each Lease may be executed in

duplicate counterparts, each of which shall be deemed an original hereof or

thereof.

18.21 Relationship of Landlord and Tenant. The relationship of Landlord and

Tenant is the relationship of lessor and lessee. Landlord and Tenant are not

partners, joint venturers, or associates.

18.22 Custody of Escrow Funds. Any funds paid to Landlord in escrow hereunder

may be held by Landlord or, at Landlord's election, by a financial institution,

the deposits or accounts of which are insured or guaranteed by a federal or

state agency. The funds shall not be deemed to be held in trust, may be

commingled with the general funds of Landlord or such other institution, and

shall not bear interest.

18.23 Landlord's Status as a REIT. Tenant acknowledges that Landlord intends

to elect to be taxed as a real estate investment trust ("REIT") under the Code.

Tenant shall not do anything which would adversely affect Landlord's status as a

REIT. Tenant hereby agrees to modifications of this Lease which do not

materially adversely affect Tenant's rights and liabilities if such

modifications are required to retain or clarify Landlord's status as a REIT.

18.24 Sale of Real Estate Assets. Notwithstanding any other provision of this

Agreement or of any Lease, Landlord shall not be required to sell or transfer

Leased Property, or any portion thereof, which is a real estate asset as defined

in Section 856(c)(6) of the Code, to Tenant if Landlord's counsel advises

Landlord that such sale or transfer may not be a sale of property described in

Section 857(b)(6)(C) of the Code. If Landlord determines not to sell such

property pursuant to the above sentence, Tenant's right, if any, to purchase the

Leased Property shall continue and be exercisable at such time as the

transaction, upon the advice of Landlord's counsel, would be a sale of property

described in Section 857(b)(6)(C) of the Code.

18.25 Use of Tenant's Name. Following the expiration or earlier termination

of this Agreement and of all of the Leases, Landlord shall use its best efforts,

if requested by Tenant within 12 months of such expiration or termination, to

cause its name to be changed to a name that does not include the word "National"

or any variation thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Lease or

caused the same to be executed by their respective duly authorized officers as

of the date first set forth above.

NATIONAL HEALTH INVESTORS, INC.

By:

Title: Secretary

NATIONAL HEALTHCORP L.P.

By its Managing General Partner,

NHC, Inc.

By:

Title: President

AMENDMENT NO. 1 TO MASTER AGREEMENT TO LEASE

This Amendment No. 1 (hereinafter "Amendment") is made to that certain

Master Agreement to Lease between National Health Investors, Inc. (Landlord) and

National HealthCorp L.P. ("Tenant") dated October 17, 1991, (hereinafter "Master

Lease"), and is entered into effective this 2nd day of June, 1993.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCorp

L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or

retirement centers in 40 geographical locations as identified on Exhibit A to

said Master Lease; and

WHEREAS, NHC has obtained Certificates of Need to expand the number of

licensed beds in three of said projects, namely the licensed nursing homes in

Hudson and Plant City, Florida, and in Anniston, Alabama; and

WHEREAS, pursuant to Board resolution of today's date, the Board of

National Health Investors, Inc. ("NHI") has agreed to finance said expansions

and NHC has agreed to pay an increased lease rate thereon, all on the following

terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby

amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Projects. Landlord and Tenant hereby agree that Tenant is

granted the right to increase the licensed bed capacity at the Leased

Property located in Hudson and Plant City, Florida, and Anniston, Alabama,

so long as its expansions are authorized with a certificate of need from

the appropriate governmental authority and are constructed in a

substantially similar manner as the existing Leased Property. Landlord

agrees (at the request of Tenant, and after the issuance of a certificate

of occupancy on the Expanded Project) to reimburse Tenant for such hard

costs, including land, construction, landscaping, fixtures or

appurtenances, as Tenant may have incurred in the expansion of the

project. At such time as this reimbursement is sought by Tenant, Tenant

agrees to amend the individual lease for that Leased Property, and to

increase the base rent thereon by an annual factor equal to 10% times the

expenses reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in

paragraph 2.02 above shall commence on that part of the Leased Property

expanded pursuant to the terms of this paragraph 2.07 effective the first

day of January of the calendar year commencing no sooner than six months

after the date of the commencement of Tenant's lease obligation on the

expanded property.

All the rest and residue of the Master Lease and the individual leases on

the Leased Properties located in Hudson and Plant City, Florida, and Anniston,

Alabama, are hereby ratified and affirmed. Executed this the 2nd day of June,

1993.

NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.

Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCORP L.P.

/s/ Robert G. Adams

Robert G. Adams, Senior Vice President

AMENDMENT NO. 2 TO MASTER AGREEMENT TO LEASE

This Amendment No. 2 (hereinafter "Amendment 2") is made to that certain

Master Agreement to Lease between National Health Investors, Inc. ("Landlord")

and National HealthCare L.P. (formerly National HealthCorp L.P., now known as

"Tenant") dated October 17, 1991, (hereinafter "Master Lease"), and is entered

into effective this 15th day of January, 1996.

PRELIMINARY STATEMENTS:

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare

L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or

retirement centers in 40 geographical locations as identified on Exhibit A to

said Master Lease; and

WHEREAS, NHC has agreed to pay as additional rent for these facilities

certain "Assumed Mortgage Debt,"; and

WHEREAS, certain of the Mortgage Debt has, as of today, been repaid,

defeased, refunded or otherwise changed; and

WHEREAS, the parties agree to amend the Master Lease to reflect how NHC's

obligations pursuant to the Master Lease are to be handled hereinafter;

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby

amend the Master Lease by deleting the last sentence of Section 2.02.01 and

substituting in lieu thereof the following:

In the event that Landlord shall for any reason itself discharge

(including by prepayment) any Assumed Mortgage Debt, Tenant shall

thereafter pay the relevant Assumed Mortgage Debt Service Rent as follows:

a) If the parties cannot otherwise reach agreement, Tenant shall

thereafter pay the relevant Assumed Mortgage Debt Service Rent directly to

Landlord in accordance with the original payment terms of the Assumed

Mortgage Debt so discharged, or by agreement only

b) At that interest rate as paid by Landlord on any secured or

unsecured indebtedness, excluding the Line of Credit Note with Bank of

Tokyo, issued in a transaction occurring within 30 days or more before or

after the date of Landlord's prepayment with the principal of the Assumed

Mortgage Debt to be paid as directed by Landlord to Tenant from time to

time; provided further that in no event shall the principal payments on

the Assumed Mortgage Debt be greater than the principal payments that were

assumed at the time of the execution of the original Master Lease. To the

extent that any prepayment by Landlord has the effect of prepaying debt

owed by Tenant outside of its Assumed Mortgage Debt obligations under this

Master Lease, then Tenant agrees to repay NHI said amount by its

promissory note with a rate of interest as calculated in 2.02.01(b), with

interest to only accrue during the calendar year in which the prepayment

occurred and thereafter with principal and interest to be made in 180

equal monthly payments of principal and interest with said note to balloon

on December 31, 2006, unless the Master lease is renewed in whole or part,

in which case said note shall not balloon until December 31, 2011.

The parties agree to amend the individual leases for the various

Lease Properties from time to time in order to reflect Landlord's

designated payment of the principal and rent component pursuant to this

Section 2.02.01(b).

All the rest and residue of the Master Lease is hereby ratified and

affirmed this the 15th day of January, 1996.

NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.

Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCARE L.P.

/s/ W. Andrew Adams

W. Andrew Adams, President

AMENDMENT NO. 3 TO MASTER AGREEMENT TO LEASE

This Amendment No. 3 (hereinafter "Amendment 3") is made to that certain

Master Agreement to Lease between National Health Investors, Inc. ("Landlord")

and National HealthCare L.P. ("Tenant") dated October 17, 1991, (hereinafter

"Master Lease"), and is entered into effective this 22nd day of July, 1997.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare

L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or

retirement centers in 43 locations as identified on Exhibit A to said Master

Lease; and

WHEREAS, NHC has obtained a Certificate of Need to expand the number of

licensed beds or has constructed ancillary space in fourteen of said projects,

namely eight licensed nursing homes in Tennessee -- Athens, Scott, Colonial Hill

Retirement, Milan, Nashville, Pulaski, Sequatchie, Smithville, two in Missouri

-- Joplin and St. Charles, two in South Carolina -- Laurens and Anderson,

Merritt Island in Florida and Glasgow in Kentucky; and

WHEREAS, pursuant to Board resolution of today's date, the Board of

National Health Investors, Inc. ("NHI") has agreed to finance said expansions

and NHC has agreed to pay an increased lease rate thereon, all on the following

terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby

amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Projects. Landlord and Tenant hereby agree that Tenant is

granted the right to increase the licensed bed capacity and/or create

revenue producing ancillary space at the Leased Property located in

Athens, NHC/Scott in Lawrenceburg, Colonial Hill Retirement in

Chattanooga, Milan, Nashville, Pulaski, Sequatchie, and Smithville,

Tennessee; Glasgow, Kentucky; Joplin and St. Charles, Missouri, Laurens

and Anderson, South Carolina; and Merritt Island, Florida, so long as its

expansions are either exempt from or authorized with a certificate of need

from the appropriate governmental authority and are constructed in a

substantially similar manner as the existing Leased Property. Landlord

agrees at the request of Tenant from time to time to reimburse Tenant for

such hard costs, including land, construction, landscaping, fixtures or

appurtenances, as Tenant may have incurred in the expansion of the

Project. At such time as this reimbursement is sought by Tenant, Tenant

agrees to amend the individual lease for that Leased Property, and to

increase the base rent thereon by an annual factor equal to 9.5% times the

expenses reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in

paragraph 2.02 above shall commence on that part of the Leased Property

expanded pursuant to the terms of this paragraph 2.07 effective the first

day of January of 1999, with 1998 as the Base Year.

All the rest and residue of the Master Lease and the individual lease on

the Leased Properties located in Athens, NHC/Scott in Lawrenceburg, Colonial

Hill Retirement in Chattanooga, Milan, Nashville, Pulaski, Sequatchie, and

Smithville, Tennessee; Glasgow, Kentucky; Joplin and St. Charles, Missouri,

Laurens and Anderson, South Carolina; and Merritt Island, Florida, are hereby

ratified and affirmed. Executed effective this 22nd day of July, 1997.

NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.

Richard F. LaRoche, Jr., Vice President

NATIONAL HEALTHCARE L.P.

/s/ Robert G. Adams

Robert G. Adams, Senior Vice President

AMENDMENT NO. 4 TO MASTER AGREEMENT TO LEASE

This Amendment No. 4 (hereinafter "Amendment 4") is made to that certain

Master Agreement to Lease between National Health Investors, Inc. ("Landlord")

and National HealthCare L.P. ("Tenant") dated October 17, 1991, (hereinafter

"Master Lease"), and is entered into effective the 31st day of December, 1997.

WHEREAS, pursuant to the terms of the Master Lease, National HealthCare

L.P. ("NHC") has heretofore agreed to lease certain licensed nursing homes or

retirement centers in 43 locations as identified on Exhibit A to said Master

Lease; and

WHEREAS, NHC has obtained a Certificate of Need to expand the number of

licensed beds and ancillary space in the project located in Hendersonville, TN;

and

WHEREAS, pursuant to resolution, the Board of National Health Investors,

Inc. ("NHI") has agreed to finance said expansions and NHC has agreed to pay an

increased lease rate thereon, all on the following terms and conditions; and

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the parties do hereby

amend the Master Lease by the addition of the following as paragraph 2.07:

2.07: Expanded Project. Landlord and Tenant hereby agree that Tenant is

granted the right to increase the licensed bed capacity and/or create

revenue producing ancillary space at the Leased Property located in

Hendersonville, TN, so long as the expansion is authorized with a

certificate of need from the appropriate governmental authority and is

constructed in a substantially similar manner as the existing Leased

Property. Landlord agrees, at the request of Tenant from time to time, to

reimburse Tenant for such hard costs, including land, construction,

landscaping, fixtures or appurtenances, and capitalized interest incurred

during construction as Tenant may have incurred in the expansion of the

Project. At such time as this reimbursement is sought by Tenant, Tenant

agrees to amend the individual lease for that Leased Property, and to

increase the base rent thereon by an annual factor equal to 9.5% times the

cost and expense reimbursed by Landlord.

The parties further agree that the Additional Rent provided for in

paragraph 2.02 above shall commence on that part of the Leased Property

expanded pursuant to the terms of this paragraph 2.07 effective the first

day of January of 1999, with 1998 as the Base Year.

All the rest and residue of the Master Lease and the individual lease on

the Leased Property located in Hendersonville, TN, is hereby ratified and

affirmed. Executed effective this the 31st day of December, 1997.

LANDLORD: NATIONAL HEALTH INVESTORS, INC.

/s/ Richard F. LaRoche, Jr.

Richard F. LaRoche, Jr., Vice President

TENANT: NATIONAL HEALTHCARE L.P.

/s/ Robert G. Adams

Robert G. Adams, Senior Vice President

		Exhibit

Exhibit 10.38

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is hereby entered into by and between Roger Hopkins (“Executive”) and National Health Investors, Inc., (hereinafter referred to as the “Company”) (collectively referred to hereinafter as “the Parties”).

WHEREAS, Executive and the Company have agreed that Executive shall resign from Executive’s position as Chief Accounting Officer and all positions Executive holds as an officer or director of any of the Company’s subsidiaries, effective November 7, 2019 (the “Resignation Date”); and

WHEREAS, the Company and Executive do not anticipate that there will be any disputes between them or legal claims arising out of Executive’s resignation from employment with the Company, but nevertheless, desire to ensure a completely amicable parting and to settle fully and finally any and all differences or claims that might arise out of Executive’s employment.

NOW, THEREFORE, it is hereby agreed that:

1.Payment Upon Resignation. On the next regularly scheduled pay day following the Resignation Date, the Company shall pay to Executive any earned or accrued, but unpaid base salary and vacation through the Resignation Date. The Company will deduct normal withholdings for federal and state income taxes and payroll taxes. Executive acknowledges that he is not owed any additional compensation, benefits, or payment by virtue of his employment, or termination of employment, except as provided pursuant to any benefit plans in which Executive has participated.

2.Severance Benefits. In exchange for the general release of claims and other good and valuable consideration, and only after the expiration of the seven day revocation period described in Section 13 below, the Company agrees to pay and provide to Executive the following (“Severance Benefits”):

The Company shall pay Executive the amount of $303,000.00, which is calculated as the equivalent of twelve (12) months of Executive’s base salary from which all proper taxes and withholdings will be taken, payable on a semi-monthly basis over a twelve (12) month period in accordance with the Company’s regular payroll practices with the first payment (the “Initial Payment”) commencing upon execution of this Agreement and expiration of the seven (7) day Revocation Period described below (the “Severance Delay Period”). The Company, subject to authorization by the Company’s Board of Directors, will pay to Executive a lump sum of $137,500.00 on or before March 15, 2020 for that portion of all executive bonuses related to increase of dividends, to which Executive would have been entitled had he remained employed with the Company through that date. The Company will continue to provide group health and dental benefits that are in effect as of the Resignation Date for a period of twelve (12) months following the Resignation Date.

Executive was granted the option to purchase (i) 50,000 shares of common stock at $64.33 per share on February 20, 2018, of which 16,668 will vest on February 20, 2020 and (ii) 50,000 shares of common stock at $79.96 per share on February 21, 2019, of which 16,666 will vest on February

---

21, 2020 and 16,668 will vest on February 21, 2021. With respect to those two grants, upon the execution and non-revocation of this Agreement, these options will continue to vest according to the original vesting schedule over a period of twelve (12) months following the Resignation Date. All outstanding options held by the Executive as of the Resignation Date will become non-qualified options and the Executive will have the right to exercise all vested options during the twelve (12) months following the Resignation Date. All unexercised options (whether vested or not) shall terminate on the twelve month anniversary of the Resignation Date.

C.	Upon execution and non-revocation of this Agreement, Company will also provide to Executive a twelve (12) month outplacement services package for executives provided by Lee Hecht Harrison.

Executive agrees that the Severance Benefits are in addition to any compensation Executive has earned from the Company, and that Executive would not be entitled to the Severance Benefits but for Executive’s execution of this Agreement. The Executive further acknowledges that he will forfeit the Severance Benefits described above should he breach any portion of this Agreement.

3.General Release of Claims. (a) In consideration for the Company’s payment of the Severance Benefits to the Executive as set forth in this Agreement, and for other good and valuable consideration, the Executive hereby releases and forever discharges the Company and each of its predecessors, assigns, former and current executives, representatives, partners, owners, parent companies, subsidiaries, affiliates, including any and all persons acting with any of them (collectively “Released Parties”), from any and all causes of action, covenants, contracts, bonuses, agreements, claims, charges, complaints and demands whatsoever in law or equity, which the Executive (and the Executive’s heirs, executors, administrators, successors and/or assigns) may now have or hereafter may have had by reason of any matter, arising out of the Executive’s employment with the Company and the termination thereof, up to and including the date of this Agreement, except for the rights and obligations created by this Agreement.

(b) Without limiting the generality of the foregoing, this Agreement is intended to and shall release Released Parties from any and all claims, whether known or unknown, which the Executive ever had or may have against any Released Party with respect to the Executive’s employment, the terms and conditions of that employment, and/or the termination thereof, including without limitation those arising under the Civil Rights Act of 1866, 42 U.S.C.A. Section 1981, the Civil Rights Act of 1964, as amended, 42 U.S.C.A. Section 2000e, et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C.A. Section 645 et seq., the National Labor Relations Act, 29 U.S.C.A. Section 151 et seq., the Fair Labor Standards Act, 29 U.S.C.A. Section 201 et seq., the Labor Management Reporting and Disclosure Act of 1959, as amended, 29 U.S.C.A. Section 401 et seq., the Americans with Disabilities Act, 42 U.S.C.A. Section 14501, et. seq., Section 409A of the Internal Revenue Code, and the Genetic Information Nondiscrimination Act (GINA), all claims under the Family and Medical Leave Act (FMLA), and/or any other federal, state, or local human rights, civil rights, wage-hour, pension, or labor laws, rules and/or regulation, public policy, contract or tort law, including any and all claims for attorneys’ fees, costs, disbursements, or any action similar thereto.

THE EXECUTIVE SPECIFICALLY ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS AGREEMENT, HE IS WAIVING ALL RIGHTS OR CLAIMS, IF ANY, THAT HE HAS OR MAY HAVE UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, WHICH PROHIBITS DISCRIMINATION ON THE BASIS OF AGE.

4. Covenant not to Sue. Executive hereby covenants and agrees not to file, commence or initiate any suits, grievances, demands or causes of action against the Released Parties based upon or relating to any of the claims released and forever discharged pursuant to this Agreement. In accordance with 29 C.F.R. § 1625.23(b), this covenant not to sue is not intended to preclude Executive from bringing a lawsuit to challenge the validity of the release language contained in this Agreement. If Executive breaches this covenant not to sue, he hereby agrees to pay all of the reasonable costs and attorneys’ fees actually incurred by the Released Parties in defending against such claims, demands or causes of action, together with such and further damages as may result, directly or indirectly, from that breach. Moreover, Executive agrees that he will not persuade or instruct any person to file a suit, claim or complaint with any state or federal court or administrative agency against the Released Parties. The Parties agree that this Agreement will not prevent Executive from filing a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) or otherwise participating in an EEOC investigation, provided that if the EEOC or any third party obtains an award of damages from the Company on Executive’s behalf, Executive agrees to turn over any such amounts to the Company.

5. No Admission of Wrongdoing or Liability. Nothing contained in this Agreement shall constitute, or be construed as or is intended to be an admission or an acknowledgment by the Released Parties of any wrongdoing or liability, all such wrongdoing and liability being expressly denied.

6. Confidentiality. Executive agrees to maintain absolute confidentiality and secrecy concerning the terms of this Agreement and will not reveal, or disseminate by publication in any manner whatsoever this document or any matters pertaining to it to any other person, including but not limited to any past or present executive, officer or director of the Company or any media representative except as required by legal process. This confidentiality provision does not apply to communications necessary between immediate family members or legal and financial planners or tax preparers who are also bound by this confidentiality provision.

Disclosure. Executive acknowledges and warrants that Executive is not aware of, or that Executive has fully disclosed to the Company in writing, any matters for which Executive was responsible or which came to Executive’s attention as an employee of the Company that might give rise to, evidence or support any claim of illegal or improper conduct, regulatory violation, unlawful discrimination, retaliation or other cause of action against Company or any other Released Party.
Cooperation. During the twelve (12) months following his separation, Executive agrees to reasonably cooperate with the Company with respect to reasonable information requests by any executive of the Company about subjects Executive worked on during his employment. Executive further agrees to reasonably cooperate in connection with any claim, investigation, regulatory or litigation matter in which the Company reasonably deems that Executive’s cooperation is necessary at any time following the end of Executive’s employment with the Company. The Company shall reimburse Executive for reasonable travel and accommodation expenses if Executive is required to travel to provide assistance requested pursuant to this provision.

9. Non-Disparagement. Executive agrees that he will not make any statements, publicly or otherwise, orally or in writing to anyone, including but not limited to current or former employees and directors, disparaging the character, reputation or standing of the Company or its employees or customers. Executive acknowledges that no provision of this Agreement is intended to prevent Executive from making a truthful report in good faith to any governmental agency with oversight authority over the Company.

10. Company Property. All records, files, lists, including computer generated lists, data, drawings, documents, equipment and similar items relating to the Company’s business that Executive

generated or received from the Company remains the Company’s sole and exclusive property. Executive agrees to promptly return to the Company all property of the Company in his possession. Executive further represents that he has not copied or caused to be copied, printed out, or caused to be printed out any documents or other material originating with or belonging to the Company. Executive additionally represents that he will not retain in his possession any such documents or other materials.

11. Breach of Agreement. If either party brings a claim for breach of the terms of this Agreement, the prevailing party shall be entitled to its reasonable attorneys’ fees and expenses incurred in the prosecuting or defending such an action. This Agreement is to be governed by the laws of the State of Tennessee. The Parties agree that venue and jurisdiction for any legal action arising out of or in connection with this Agreement shall be exclusively with courts of the State of Tennessee located in Davidson County, Tennessee or the United States District Court for the Middle District of Tennessee.

12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive and the Company, and their officers, directors, executives, agents, legal counsel, heirs, successors and assigns.

13. Warranties/Representations. Executive hereby warrants and represents that:

A.	He has carefully read and fully understands the comprehensive terms and conditions of this Agreement and the releases set forth herein;
B.	He is executing this Agreement knowingly and voluntarily, without any duress, coercion or undue influence by the Company, its representatives, or any other person;
---	---
C.	He has been informed of his right to consult with legal counsel of his own choice before executing this Agreement;
---	---
D.	He has pending no claim, complaint, grievance or any document with any federal or state agency or any court seeking money damages or relief against the Company;
---	---
E.	The Severance Benefits recited above constitute good and valuable consideration;
---	---
F.	He is fully satisfied with the terms and conditions of this Agreement including, without limitation, the consideration paid to him by the Company;
---	---
G.	He is not waiving rights or claims that may arise after the date this Agreement is executed;
---	---
H.	Except as specifically provided herein, he has been paid all compensation owed to him by the Company;
---	---
I.	He has had the right to consider the terms of this Agreement for a full 21 days and he hereby waives any and all rights to any further review period; and
---	---
J.	He has the right to revoke this Agreement within seven (7) calendar days after signing it (the “Revocation Period”) by providing during this seven (7) day period written notice of revocation to Kimberly Ouimet, Director of Corporate Compliance and Human Resources, National Health Investors, Inc., 222 Robert Rose Drive, Murfreesboro, TN 37129. If he revokes this Agreement during the seven-day period, the Agreement and all obligations hereunder become null and void in their entirety.
---	---

14. Entire Agreement; Severability of Terms. This Agreement contains the entire understanding of the Parties as to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. In executing this Agreement, neither party relies on any term, condition, promise, or representation other than those expressed in this Agreement. This Agreement may be amended or modified only by an agreement in writing, signed by both Parties. If any provision of this Agreement is determined to be invalid or otherwise unenforceable, then that invalidity or unenforceability will not affect any other provision of this Agreement, which will continue and remain in full force and effect.

15. Contact with Company. All questions and correspondence regarding the content of this agreement or any other matters relating to the business of the Company should be directed solely to Kimberly Ouimet, Director of Corporate Compliance and Human Resources, via telephone: (615)-203-6260 or email: kouimet@nhireit.com. Under no circumstances will Executive contact other Company employees or members of the Company’s Board of Directors.

16. Compliance with the Older Worker Benefit Protection Act. Executive warrants and represents that he has been given the opportunity to review this Agreement with legal counsel and that he has had fair and full opportunity to consider its terms and enters into this Agreement willingly and knowingly and knows he has the right to review this Agreement for 21 days and to revoke it within seven (7) days after signing it. Executive has the right to sign this Agreement sooner than 21 days, and if he chooses to do so, he understands he is waiving his right to the full 21-day period.

17. Section 409A. It is intended that (i) each payment or installment of payments provided under this Agreement is a separate “payment” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two (2) year exception) and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay).

Notwithstanding any other provision to the contrary, in no event shall any payment under this Agreement that constitutes “deferred compensation” for purposes of Section 409A of the Code and the Treasury Regulations promulgated thereunder be subject to offset by any other amount unless otherwise permitted by Section 409A of the Code.

18. Counterparts; Electronic Signatures. This Agreement may be executed by facsimile and/or electronic signature in two or more counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Facsimile and electronic signatures shall, for all purposes, be treated as originals.

Dated: November 10, 2019	/s/Roger R. Hopkins
	ROGER HOPKINS
Dated: November 11, 2019	NATIONAL HEALTH INVESTORS, INC.<br><br><br><br>By: /s/ Eric Mendelsohn<br><br>Title: President and CEO

		Exhibit

Exhibit 21

Subsidiary Entity List

Entity Name	Ownership^1^	Tax Treatment
NHI/REIT, Inc.	100%	Corporation
Florida Holdings IV, LLC	100%	DE
Inchin Along, LLC	100%	DE
NHI REIT of Alabama, L.P.	100%	Partnership
NHI-REIT of Arizona, Limited Partnership	100%	Partnership
NHI-REIT of California, LP	100%	Partnership
NHI/REIT of Florida, L.P.	100%	Partnership
NHI-REIT of Georgia, L.P.	100%	Partnership
NHI-REIT of Idaho, L.P.	100%	Partnership
NHI-REIT of Missouri, LP	100%	Partnership
NHI-REIT of South Carolina, L.P.	100%	Partnership
NHI-REIT of Virginia, L.P.	100%	Partnership
NHI/Anderson, LLC	100%	DE
NHI/Laurens, LLC	100%	DE
Texas NHI Investors, LLC	100%	DE
NHI-REIT of Oregon, LLC	100%	DE
NHI-REIT of Florida, LLC	100%	DE
NHI-REIT of Maryland, LLC	100%	DE
NHI-REIT of Minnesota, LLC	100%	DE
NHI-REIT of Tennessee, LLC	100%	DE
NHI Selah Properties, LLC	100%	DE
NHI-REIT of Northeast, LLC	100%	DE
NHI-REIT of Wisconsin, LLC	100%	DE
NHI-REIT of Ohio, LLC	100%	DE
NHI-REIT of Washington, LLC	100%	DE
NHI-REIT of Next House, LLC	100%	DE
NHI-SS TRS, LLC	100%	Corporation
NHI-Bickford RE, LLC	100%	DE
Care YBE Subsidiary LLC	100%	DE
JV Landlord-Battle Creek, LLC	100%	DE
JV Landlord-Clinton, LLC	100%	DE
JV Landlord-Iowa City, LLC	100%	DE
JV Landlord-Lansing, LLC	100%	DE
JV Landlord-Midland, LLC	100%	DE
JV Landlord-Peoria II, LLC	100%	DE
JV Landlord-Saginaw, LLC	100%	DE
JV Landlord-Middletown, LLC	100%	DE
Grand Island Bickford Cottage, L.L.C.	100%	DE
Myrtle Beach Retirement Residence, LLC	100%	DE
Voorhees Retirement Residence, LLC	100%	DE
Cedar Falls Bickford Cottage, L.L.C.	100%	DE
NHI-REIT of Axel, LLC	100%	DE
NHI-REIT of Michigan, LLC	100%	DE
NHI-REIT of Seaside, LLC	100%	DE
NHI-REIT of Bickford, LLC	100%	DE

NHI-REIT of Evergreen, LLC	100%	DE
NHI-REIT of North Carolina, LLC	100%	DE
NHI-REIT of TX-IL, LLC	100%	DE
NHI-REIT of CCWH, LLC	100%	DE
NHI-REIT of Colorado, LLC	100%	DE
NHI-REIT of DSL PropCo, LLC	97.5%	Partnership
NHI-LCS JV I, LLC	80%	Partnership
NHI-LCS TRS, LLC	100%	DE
Timber Ridge OpCo, LLC	25%	Partnership

^1^Ownership: 100% means that National Health Investors, Inc. owns the reflected percentage of the entity through itself or its subsidiaries.

		Exhibit

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

National Health Investors, Inc.

Murfreesboro, Tennessee

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-216177) and Form S-8 (No. 333-127179, No. 333-186854, No. 333-206273, No. 333-226629 and No. 333-233129) of National Health Investors, Inc. of our reports dated February 19, 2020, relating to the consolidated financial statements and financial statement schedules and the effectiveness of National Health Investors, Inc.'s internal control over financial reporting, which appear in this Form 10-K.

/s/ BDO USA, LLP

Nashville, Tennessee

February 19, 2020

		Exhibit

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, D. Eric Mendelsohn, certify that:

1.	I have reviewed this annual report on Form 10-K of the registrant, National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
---	---
Date:	February 19, 2020	/s/ D. Eric Mendelsohn
---	---	---
		D. Eric Mendelsohn
		President and Chief Executive Officer

		Exhibit

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John L. Spaid, certify that:

1.	I have reviewed this annual report on Form 10-K of the registrant, National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
---	---
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
---	---
a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
---	---
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
---	---
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions) :
---	---
a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
---	---
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
---	---
Date:	February 19, 2020	/s/ John L. Spaid
---	---	---
		John L. Spaid
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

		Exhibit

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the annual report on Form 10-K for National Health Investors, Inc. ("Issuer") for the period ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

(a)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
---	---
Date:	February 19, 2020	/s/ D. Eric Mendelsohn
---	---	---
		D. Eric Mendelsohn
		President and Chief Executive Officer,
Date:	February 19, 2020	/s/ John L. Spaid
		John L. Spaid
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

		Exhibit

NATIONAL HEALTH INVESTORS, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED December 31, 2019, 2018, AND 2017

(in thousands)

	Balance		Additions
	Beginning		Charged to Costs				Balance
	of Period		and Expenses^1^		Deductions		End of Period
For the year ended December 31, 2019
Loan loss allowance	$	—	$	—	$	—	$	—
For the year ended December 31, 2018
Loan loss allowance	$	—	$	—	$	—	$	—
For the year ended December 31, 2017
Loan loss allowance	$	—	$	—	$	—	$	—

^1^ In the Consolidated Statements of Income, we report the net amount of our provision for loan and realty losses and our recoveries of amounts previously written down.

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
							Costs
			Initial Cost to Company^(C)^				Capitalized										Date
					Buildings &		Subsequent to				Buildings &				Accumulated		Acquired/
	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Total		Depreciation^(B)^		Constructed
Skilled Nursing Facilities
Anniston, AL	$	—	$	70	$	4,477	$	—	$	70	$	4,477	$	4,547	$	3,536	10/17/1991
Moulton, AL	—		25		688		—		25		688		713		688		10/17/1991
Avondale, AZ	—		453		6,678		—		453		6,678		7,131		4,029		8/13/1996
Brooksville, FL	—		1,217		16,166		—		1,217		16,166		17,383		4,008		2/1/2010
Crystal River, FL	—		912		12,117		—		912		12,117		13,029		3,004		2/1/2010
Dade City, FL	—		605		8,042		—		605		8,042		8,647		1,994		2/1/2010
Hudson, FL (2 facilities)	—		1,290		22,392		—		1,290		22,392		23,682		11,389		Various
Merritt Island, FL	—		701		8,869		—		701		8,869		9,570		7,364		10/17/1991
New Port Richey, FL	—		228		3,023		—		228		3,023		3,251		749		2/1/2010
Plant City, FL	—		405		8,777		—		405		8,777		9,182		7,228		10/17/1991
Stuart, FL	—		787		9,048		—		787		9,048		9,835		7,653		10/17/1991
Trenton, FL	—		851		11,312		—		851		11,312		12,163		2,804		2/1/2010
Glasgow, KY	—		33		2,110		—		33		2,110		2,143		2,059		10/17/1991
Greenfield, MA	—		370		4,341		—		370		4,341		4,711		725		8/30/2013
Holyoke, MA	—		110		944		—		110		944		1,054		166		8/30/2013
Quincy, MA	—		450		710		—		450		710		1,160		115		8/30/2013
Taunton, MA	—		900		5,906		—		900		5,906		6,806		995		8/30/2013
Desloge, MO	—		178		3,804		—		178		3,804		3,982		3,580		10/17/1991
Joplin, MO	—		175		4,034		—		175		4,034		4,209		2,990		10/17/1991
Kennett, MO	—		180		4,928		—		180		4,928		5,108		4,593		10/17/1991
Maryland Heights, MO	—		482		5,512		—		482		5,512		5,994		5,512		10/17/1991
St. Charles, MO	—		150		4,790		—		150		4,790		4,940		4,405		10/17/1991
Manchester, NH (2 facilities)	—		790		20,077		—		790		20,077		20,867		3,294		8/30/2013
Epsom, NH	—		630		2,191		—		630		2,191		2,821		382		8/30/2013
Albany, OR	—		190		10,415		—		190		10,415		10,605		1,829		3/31/2014
Creswell, OR	—		470		8,946		—		470		8,946		9,416		1,505		3/31/2014
Forest Grove, OR	—		540		11,848		—		540		11,848		12,388		2,006		3/31/2014
Anderson, SC	—		308		4,643		—		308		4,643		4,951		4,477		10/17/1991
Greenwood, SC	—		222		3,457		—		222		3,457		3,679		3,199		10/17/1991
Laurens, SC	—		42		3,426		—		42		3,426		3,468		3,042		10/17/1991
Orangeburg, SC	—		300		3,714		—		300		3,714		4,014		1,109		9/25/2008
Athens, TN	—		38		1,463		—		38		1,463		1,501		1,350		10/17/1991
Chattanooga, TN	—		143		2,309		—		143		2,309		2,452		2,313		10/17/1991

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Dickson, TN	—	90	3,541	—	90	3,541	3,631	3,108	10/17/1991
Franklin, TN	—	47	1,130	—	47	1,130	1,177	1,110	10/17/1991
Hendersonville, TN	—	363	3,837	—	363	3,837	4,200	3,122	10/17/1991
Johnson City, TN	—	85	1,918	—	85	1,918	2,003	1,918	10/17/1991
Lewisburg, TN (2 facilities)	—	46	994	—	46	994	1,040	999	10/17/1991
McMinnville, TN	—	73	3,618	—	73	3,618	3,691	3,089	10/17/1991
Milan, TN	—	41	1,826	—	41	1,826	1,867	1,667	10/17/1991
Pulaski, TN	—	53	3,921	—	53	3,921	3,974	3,384	10/17/1991
Lawrenceburg, TN	—	98	2,900	—	98	2,900	2,998	2,349	10/17/1991
Dunlap, TN	—	35	3,679	—	35	3,679	3,714	3,040	10/17/1991
Smithville, TN	—	35	3,816	—	35	3,816	3,851	3,258	10/18/1991
Somerville, TN	—	26	677	—	26	677	703	678	10/19/1991
Sparta, TN	—	80	1,602	—	80	1,602	1,682	1,518	10/20/1991
Austin, TX	—	606	9,895	—	606	9,895	10,501	1,092	4/1/2016
Canton, TX	—	420	12,330	—	420	12,330	12,750	2,728	4/18/2013
Corinth, TX	—	1,075	13,935	—	1,075	13,935	15,010	3,315	4/18/2013
Ennis, TX	—	986	9,025	—	986	9,025	10,011	2,483	10/31/2011
Euless, TX	—	1,241	12,629	—	1,241	12,629	13,870	1,515	4/1/2016
Fort Worth, TX	—	1,380	14,370	—	1,380	14,370	15,750	805	5/10/2018
Garland, TX	—	1,440	14,310	—	1,440	14,310	15,750	800	5/10/2018
Gladewater, TX	—	70	17,840	—	70	17,840	17,910	1,871	4/1/2016
Greenville, TX	—	1,800	13,948	—	1,800	13,948	15,748	3,517	10/31/2011
Houston, TX (3 facilities)	—	2,808	42,511	—	2,808	42,511	45,319	11,429	Various
Katy, TX	—	610	13,893	—	610	13,893	14,503	1,549	4/1/2016
Kyle, TX	—	1,096	12,279	—	1,096	12,279	13,375	3,188	6/11/2012
Marble Falls, TX	—	480	14,989	—	480	14,989	15,469	1,629	4/1/2016
McAllen, TX	—	1,175	8,259	—	1,175	8,259	9,434	1,010	4/1/2016
New Braunfels, TX	—	1,430	13,666	—	1,430	13,666	15,096	1,316	2/24/2017
San Antonio, TX (3 facilities)	—	2,370	40,054	—	2,370	40,054	42,424	7,119	Various
Waxahachie, TX	—	1,330	14,349	—	1,330	14,349	15,679	960	1/17/2018
Bristol, VA	—	176	2,511	—	176	2,511	2,687	2,320	10/17/1991
Oak Creek, WI	—	2,000	14,903	—	2,000	14,903	16,903	—	12/7/2018
	—	23,565	329,155	—	23,565	329,155	352,720	77,886

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Assisted Living Facilities
Rainbow City, AL	—	670	11,330	—	670	11,330	12,000	2,049	10/31/2013
Sacramento, CA	—	660	10,840	—	660	10,840	11,500	1,772	6/1/2014
Pueblo West, CO	—	169	7,431	—	169	7,431	7,600	93	7/23/2019
Bartow, FL	—	225	3,192	—	225	3,192	3,417	834	11/30/2010
Lakeland, FL	—	307	3,117	—	307	3,117	3,424	820	11/30/2010
Maitland, FL	—	1,687	5,428	—	1,687	5,428	7,115	3,513	8/6/1996
St. Cloud, FL	—	250	3,167	—	250	3,167	3,417	834	11/30/2010
Greensboro, GA	—	672	4,849	631	672	5,480	6,152	1,156	9/15/2011
Ames, IA	3,193	360	4,670	—	360	4,670	5,030	874	6/28/2013
Burlington, IA	3,901	200	8,374	—	200	8,374	8,574	1,570	6/28/2013
Cedar Falls, IA	3,752	260	4,700	30	260	4,730	4,990	909	6/28/2013
Clinton, IA	2,596	133	3,215	60	133	3,275	3,408	838	6/30/2010
Ft. Dodge, IA	4,008	100	7,208	—	100	7,208	7,308	1,320	6/28/2013
Iowa City, IA	2,357	297	2,725	33	297	2,758	3,055	767	6/30/2010
Marshalltown, IA	5,714	240	6,208	—	240	6,208	6,448	1,155	6/28/2013
Muscatine, IA	—	140	1,802	—	140	1,802	1,942	385	6/28/2013
Urbandale, IA	8,113	540	4,292	—	540	4,292	4,832	845	6/28/2013
West Des Moines, IA	—	600	17,406	—	600	17,406	18,006	1,670	7/12/2013
Caldwell, ID	—	320	9,353	—	320	9,353	9,673	1,547	3/31/2014
Weiser, ID	—	20	2,433	—	20	2,433	2,453	447	12/21/2012
Aurora, IL	—	1,195	11,713	—	1,195	11,713	12,908	1,118	5/9/2017
Bolingbrook, IL	—	1,290	14,677	—	1,290	14,677	15,967	1,134	3/16/2017
Bourbonnais, IL	7,974	170	16,594	—	170	16,594	16,764	3,009	6/28/2013
Crystal Lake, IL (2 facilities)	—	1,060	30,043	170	1,060	30,213	31,273	2,634	Various
Gurnee, IL	—	1,244	13,856	—	1,244	13,856	15,100	137	9/10/2019
Moline, IL	3,896	250	5,630	—	250	5,630	5,880	1,061	6/28/2013
Oswego, IL	—	390	20,957	212	390	21,169	21,559	2,008	6/1/2016
Peoria, IL	3,933	403	4,532	224	403	4,756	5,159	1,360	10/19/2009
Quincy, IL	6,055	360	12,403	—	360	12,403	12,763	2,252	6/28/2013
Rockford, IL	6,412	390	12,575	—	390	12,575	12,965	2,346	6/28/2013
South Barrington, IL	—	1,610	13,456	—	1,610	13,456	15,066	1,061	3/16/2017
Springfield, IL	15,386	450	19,355	200	450	19,555	20,005	3,517	6/28/2013
St. Charles, IL	—	820	22,188	252	820	22,440	23,260	2,148	6/1/2016

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Tinley Park, IL	—	1,622	11,354	—	1,622	11,354	12,976	1,296	6/23/2016
Carmel, IN	—	463	7,055	—	463	7,055	7,518	1,578	11/12/2014
Crawfordsville, IN	2,559	300	3,134	—	300	3,134	3,434	597	6/28/2013
Crown Point, IN	—	574	7,336	353	574	7,689	8,263	1,474	10/30/2013
Greenwood, IN	—	791	7,020	227	791	7,247	8,038	1,619	11/7/2013
Valparaiso, IN	—	1,414	16,099	—	1,414	16,099	17,513	269	5/31/2019
Mission, KS	—	1,901	17,310	636	1,901	17,946	19,847	4,455	9/30/2012
Overland Park, KS	—	2,199	20,026	—	2,199	20,026	22,225	5,049	9/30/2012
Bastrop, LA	—	325	2,456	—	325	2,456	2,781	650	4/30/2011
Bossier City, LA	—	500	3,344	—	500	3,344	3,844	920	4/30/2011
Minden, LA	—	280	1,698	—	280	1,698	1,978	446	4/30/2011
West Monroe, LA	—	770	5,627	—	770	5,627	6,397	1,415	4/30/2011
Baltimore, MD	—	860	8,078	534	860	8,612	9,472	1,498	10/31/2013
Battle Creek, MI	2,866	398	3,093	197	398	3,290	3,688	962	10/19/2009
Bridgeport, MI	—	220	7,849	—	220	7,849	8,069	327	6/20/2018
Brighton, MI	—	410	13,090	—	410	13,090	13,500	232	5/22/2019
Lansing, MI (2 facilities)	6,218	1,360	17,766	174	1,360	17,940	19,300	3,035	10/19/2009
Midland, MI	5,416	504	6,612	162	504	6,774	7,278	1,842	10/19/2009
Saginaw, MI (2 facilities)	3,566	538	12,991	163	538	13,154	13,692	1,603	Various
Shelby Township, MI	—	570	10,230	—	570	10,230	10,800	207	4/30/2019
Champlin, MN	—	980	4,430	—	980	4,430	5,410	1,230	3/10/2010
Hugo, MN	—	400	3,800	—	400	3,800	4,200	1,040	3/10/2010
Maplewood, MN	—	1,700	6,510	—	1,700	6,510	8,210	1,798	3/10/2010
North Branch, MN	—	595	2,985	—	595	2,985	3,580	875	3/10/2010
Mahtomedi, MN	—	515	8,825	—	515	8,825	9,340	—	12/27/2019
Charlotte, NC	—	650	17,663	2,000	650	19,663	20,313	2,221	7/1/2015
Durham, NC	—	860	6,690	—	860	6,690	7,550	405	3/16/2017
Hendersonville, NC (2 facilities)	—	3,120	12,980	—	3,120	12,980	16,100	1,103	3/16/2017
Grand Island, NE	4,180	370	5,029	197	370	5,226	5,596	1,056	6/28/2013
Lincoln, NE	8,418	380	10,904	—	380	10,904	11,284	1,959	6/28/2013
Omaha, NE (2 facilities)	2,455	1,110	15,437	851	1,110	16,288	17,398	2,164	Various
Columbus, OH (2 facilities)	—	1,100	26,002	—	1,100	26,002	27,102	1,206	4/30/2018
Lancaster, OH	—	530	20,530	—	530	20,530	21,060	2,800	7/31/2015
Marysville, OH	—	1,250	13,950	—	1,250	13,950	15,200	2,755	7/1/2013

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized						Date
			Buildings &	Subsequent to			Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition		Land	Improvements	Total	Depreciation^(B)^	Constructed
Middletown, OH	8,492	940	15,548	—		940	15,548	16,488	2,340	10/31/2014
Rocky River, OH	—	650	7,201	—		650	7,201	7,851	360	4/30/2018
Worthington, OH	—	—	18,869	1,476		—	20,345	20,345	1,161	4/30/2018
McMinnville, OR	—	390	9,183	—		390	9,183	9,573	896	8/31/2016
Milwaukie, OR	—	370	5,283	64		370	5,347	5,717	743	9/30/2014
Ontario, OR (2 facilities)	—	429	6,128	—		429	6,128	6,557	1,131	12/21/2012
Portland, OR (2 facilities)	—	1,430	31,542	—		1,430	31,542	32,972	2,688	8/31/2015
Erie, PA	—	1,030	15,206	3		1,030	15,209	16,239	696	4/30/2018
Reading, PA	—	1,027	11,179	—		1,027	11,179	12,206	196	5/31/2019
Arlington, TX	—	450	4,555	26		450	4,581	5,031	407	3/16/2017
Rockwall, TX	—	1,250	10,562	—		1,250	10,562	11,812	854	3/16/2017
Fredericksburg, VA	—	1,615	9,271	—		1,615	9,271	10,886	992	9/20/2016
Midlothian, VA	—	1,646	8,635	—		1,646	8,635	10,281	945	10/31/2016
Suffolk, VA	—	1,022	9,320	—		1,022	9,320	10,342	777	3/25/2016
Beaver Dam, WI	—	210	20,149	113		210	20,262	20,472	4,068	12/21/2012
	8,492	12,459	182,631	1,682		12,459	184,313	196,772	18,254
Independent Living Facilities
Fort Smith, AR	—	590	22,447	—		590	22,447	23,037	3,674	12/23/2013
Rogers, AR	—	1,470	25,282	—		1,470	25,282	26,752	4,138	12/23/2013
Fresno, CA	—	420	10,899	—		420	10,899	11,319	1,876	12/23/2013
Hemet, CA	—	1,250	12,645	—		1,250	12,645	13,895	2,153	12/23/2013
Merced, CA	—	350	18,712	—	—	350	18,712	19,062	3,075	12/23/2013
Modesto, CA	—	1,170	22,673	—		1,170	22,673	23,843	3,661	12/23/2013
Pinole, CA	—	1,020	18,066	—		1,020	18,066	19,086	2,954	12/23/2013
Roseville, CA	—	630	31,343	—		630	31,343	31,973	5,070	12/23/2013
West Covina, CA	—	940	20,280	—		940	20,280	21,220	3,270	12/23/2013
Vero Beach, FL	—	550	37,450	—		550	37,450	38,000	967	2/1/2019
Athens, GA	—	910	31,940	—		910	31,940	32,850	5,162	12/23/2013
Columbus, GA	—	570	8,639	—		570	8,639	9,209	1,508	12/23/2013
Savannah, GA	—	1,200	15,851	—		1,200	15,851	17,051	2,636	12/23/2013
Boise, ID	—	400	12,422	—		400	12,422	12,822	2,069	12/23/2013
Columbus, IN	—	348	6,124	—		348	6,124	6,472	103	5/31/2019
Fort Wayne, IN	—	310	12,864	—		310	12,864	13,174	2,201	12/23/2013

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
				Costs
		Initial Cost to Company^(C)^		Capitalized					Date
			Buildings &	Subsequent to		Buildings &		Accumulated	Acquired/
	Encumbrances	Land	Improvements	Acquisition	Land	Improvements	Total	Depreciation^(B)^	Constructed
Kenner, LA	—	310	24,259	—	310	24,259	24,569	3,881	12/23/2013
St. Charles, MO	—	344	3,181	—	344	3,181	3,525	2,558	10/17/1991
Voorhees, NJ	—	670	23,710	—	670	23,710	24,380	3,816	12/23/2013
Gahanna, OH	—	920	22,919	—	920	22,919	23,839	3,771	12/23/2013
Broken Arrow, OK	—	2,660	18,477	—	2,660	18,477	21,137	3,079	12/23/2013
Tulsa, OK	17,622	1,980	32,620	501	1,980	33,121	35,101	1,929	12/1/2017
Newberg, OR	—	1,080	19,187	—	1,080	19,187	20,267	3,178	12/23/2013
Greenville, SC	—	560	16,547	—	560	16,547	17,107	2,761	12/23/2013
Myrtle Beach, SC	—	1,310	26,229	—	1,310	26,229	27,539	4,231	12/23/2013
Chattanooga, TN	—	9	1,567	—	9	1,567	1,576	1,329	10/17/1991
Johnson City, TN	—	55	4,077	—	55	4,077	4,132	3,040	10/17/1991
Bellevue, WA	—	780	18,692	—	780	18,692	19,472	3,044	12/23/2013
Chehalis, WA	—	1,980	7,710	7,445	1,980	15,155	17,135	879	1/15/2016
Vancouver, WA (2 facilities)	—	1,740	23,411	—	1,740	23,411	25,151	3,950	12/23/2013
Yakima, WA	—	440	14,186	—	440	14,186	14,626	2,348	12/23/2013
	17,622	14,838	256,772	7,946	14,838	264,718	279,556	43,794
Senior Living Campuses
Loma Linda, CA	—	1,200	10,800	7,326	1,200	18,126	19,326	3,169	9/28/2012
Bonita Springs, FL	—	1,810	24,382	—	1,810	24,382	26,192	3,078	7/1/2015
Maitland, FL	—	2,317	9,161	491	2,317	9,652	11,969	6,376	8/6/1996
West Palm Beach, FL	—	2,771	4,286	—	2,771	4,286	7,057	3,803	8/6/1996
Nampa, ID	—	243	4,182	—	243	4,182	4,425	2,552	8/13/1996
Michigan City, IN	—	974	22,667	—	974	22,667	23,641	378	5/31/2019
Portage, IN	—	661	21,959	—	661	21,959	22,620	368	5/31/2019
Needham, MA	—	5,500	45,157	—	5,500	45,157	50,657	1,395	1/15/2019
Salisbury, MD	—	1,876	44,084	—	1,876	44,084	45,960	763	5/31/2019
Roscommon, MI	—	44	6,005	—	44	6,005	6,049	805	8/31/2015
Mt. Airy, NC	—	1,370	7,470	150	1,370	7,620	8,990	1,125	12/17/2014
McMinnville, OR	—	410	26,667	—	410	26,667	27,077	2,451	8/31/2016
Madison, TN	—	920	21,829	104	920	21,933	22,853	2,748	7/1/2015
Silverdale, WA	—	1,750	23,860	2,167	1,750	26,027	27,777	5,392	8/16/2012
	—	21,846	272,509	10,238	21,846	282,747	304,593	34,403

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
							Costs
			Initial Cost to Company^(C)^				Capitalized										Date
					Buildings &		Subsequent to				Buildings &				Accumulated		Acquired/
	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Total		Depreciation^(B)^		Constructed
Entrance-Fee Communities
Bridgeport, CT	—		4,320		23,494		2,774		4,320		26,268		30,588		2,875		6/1/2016
North Branford, CT	—		7,724		64,430		—		7,724		64,430		72,154		5,700		11/3/2016
Southbury, CT	—		10,320		17,143		2,713		10,320		19,856		30,176		2,046		11/8/2016
Fernandina Beach, FL	—		1,430		63,420		1,522		1,430		64,942		66,372		8,826		12/17/2014
St. Simons Island, GA	—		8,770		38,070		963		8,770		39,033		47,803		5,547		12/17/2014
Winston-Salem, NC	—		8,700		73,920		507		8,700		74,427		83,127		10,356		12/17/2014
Greenville, SC	—		5,850		90,760		—		5,850		90,760		96,610		12,526		12/17/2014
Myrtle Beach, SC	—		3,910		82,140		542		3,910		82,682		86,592		11,630		12/17/2014
Pawleys Island, SC	—		1,480		38,620		460		1,480		39,080		40,560		5,718		12/17/2014
Spartanburg, SC	—		900		49,190		1,021		900		50,211		51,111		7,029		12/17/2014
	—		53,404		541,187		10,502		53,404		551,689		605,093		72,253
Medical Office Buildings
Crestview, FL	—		165		3,349		—		165		3,349		3,514		2,505		6/30/1993
Pasadena, TX	—		631		6,341		—		631		6,341		6,972		4,869		1/1/1995
	—		796		9,690		—		796		9,690		10,486		7,374
Hospitals
La Mesa, CA	—		4,180		8,320		—		4,180		8,320		12,500		2,676		3/10/2010
Jackson, KY	—		540		10,163		7,899		540		18,062		18,602		8,309		6/12/1992
Murfreesboro, TN	—		7,284		17,585		—		7,284		17,585		24,869		3,190		10/1/2012
	—		12,004		36,068		7,899		12,004		43,967		55,971		14,175
Total continuing operations properties	—		66,204		586,945		18,401		66,204		605,346		671,550		93,802
Corporate office	—		1,291		677		551		1,291		1,228		2,519		436
	$	—	$	67,495	$	587,622	$	18,952	$	67,495	$	606,574	$	674,069	$	94,238

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

(A) See the notes to the consolidated financial statements.

(B) Depreciation is calculated using estimated useful lives up to 40 years for all completed facilities.

(C) Subsequent to NHC’s transfer of the original real estate properties in 1991, we have purchased from NHC $33,909,000 of additions to those properties. As the additions were purchased from NHC rather than developed by us, the $33,909,000 has been included as Initial Cost to Company.

(D) At December 31, 2019, the tax basis of the Company’s net real estate assets was $2,541,329,000.

NATIONAL HEALTH INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
(in thousands)
	December 31,
	2019			2018			2017
Investment in Real Estate:
Balance at beginning of period	$	2,818,365		$	2,665,903		$	2,472,854
Additions through cash expenditures	237,186			147,645			175,793
Change in accounts payable related to investments in real estate construction	1,829			1,689			(1,855		)
Change in other assets related to investments in real estate	292			171			—
Tenant investment in leased asset	—			3,775			1,250
Contingent asset acquisition liability relieved	—			(818		)	—
Additions through assumption of debt	—			—			18,311
Real estate acquired in exchange for straight-line rent receivable	38,000			—			—
Real estate acquired in exchange for mortgage notes receivable	14,000			—			—
Sale of properties for cash	—			—			(450		)
Properties classified as held for sale	(34,826		)	—			—
Balance at end of period	$	3,074,846		$	2,818,365		$	2,665,903
Accumulated Depreciation:
Balance at beginning of period	$	451,483		$	380,202		$	313,080
Addition charged to costs and expenses	76,816			71,349			67,173
Amortization of right-of-use asset	60			—			—
Sale of properties	—			—			(51		)
Properties classified as held for sale	(13,906		)	—			—
Contingent asset acquisition liability relieved	—			(68		)	—
Balance at end of period	$	514,453		$	451,483		$	380,202