COMMITMENTS AND CONTINGENCIES

In the normal course of business, we enter into a variety of commitments, typical of which are those for the 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 according to the nature of their impact on our leasehold or loan portfolios.



	Asset Class	Type	Total		Funded			Remaining
Loan Commitments:
Life Care Services Note A	SHO	Construction	$	60,000,000	$	(51,871,000	)	$	8,129,000
Bickford Senior Living	SHO	Construction	28,000,000		(8,126,000		)	19,874,000
Senior Living Communities	SHO	Revolving Credit	29,000,000		(15,742,000		)	13,258,000
			$	117,000,000	$	(75,739,000	)	$	41,261,000

See Note 3 for full details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees. We expect to fully fund the Life Care Services Note A during 2017. Funding of the promissory note commitments to Bickford is expected to transpire monthly throughout 2017.



	Asset Class	Type	Total		Funded			Remaining
Development Commitments:
Legend/The Ensign Group	SNF	Purchase	$	56,000,000	$	(14,000,000	)	$	42,000,000
Bickford Senior Living	SHO	Construction	56,500,000		(53,857,000		)	2,643,000
Chancellor Health Care	SHO	Construction	650,000		(62,000		)	588,000
East Lake/Watermark Retirement	SHO	Renovation	10,000,000		(5,900,000		)	4,100,000
Santé Partners	SHO	Renovation	3,500,000		(2,621,000		)	879,000
Bickford Senior Living	SHO	Renovation	2,400,000		—			2,400,000
East Lake Capital Management	SHO	Renovation	400,000		—			400,000
Woodland Village	SHO	Renovation	350,000		(248,000		)	102,000
			$	129,800,000	$	(76,688,000	)	$	53,112,000

We remain obligated to purchase, from a developer, three new skilled nursing facilities in Texas for $42,000,000 which are leased to Legend and subleased to Ensign. We currently plan for the purchases to be completed in 2017 and 2018.

We previously committed to develop five senior housing facilities in Illinois and Virginia leased by Bickford, each consisting of 60 private-pay assisted living and memory care units. Total costs funded includes land and development costs incurred on the project as of June 30, 2017. One facility opened in July 2016, two opened in October 2016, one opened in April 2017 and one is planned to open in the third quarter of 2017.



	Asset Class	Type	Total		Funded			Remaining
Contingencies:
Bickford / Sycamore	SHO	Lease Inducement	$	10,000,000	$	(2,000,000	)	$	8,000,000
East Lake Capital Management	SHO	Lease Inducement	8,000,000		—			8,000,000
Sycamore Street (Bickford affiliate)	SHO	Letter-of-credit	1,930,000		—			1,930,000
Ravn Senior Solutions	SHO	Earnout	1,500,000		—			1,500,000
Prestige Care	SHO	Earnout	1,000,000		—			1,000,000
The LaSalle Group	SHO	Earnout	5,000,000		—			5,000,000
			$	27,430,000	$	(2,000,000	)	$	25,430,000

See Note 2 for a description of earnouts contingently payable to RSS, Prestige and LaSalle. Contingent developer’s fees and operator earnouts related to the five Bickford development properties under construction in 2016 and 2017 consist of a developer incentive of $250,000 per property. Additionally, each property is subject to a three-tiered operator incentive schedule whereby Bickford may receive up to an additional $1,750,000, based on the attainment of certain performance metrics. Upon funding, these payments will be added to the lease base.

In connection with our July 2015 lease to East Lake of three senior housing properties, NHI has committed to certain lease inducement payments of $8,000,000 contingent on reaching and maintaining certain metrics, which have been assessed as not probable of payment and which we have not recorded on our balance sheet as of June 30, 2017. We are unaware of circumstances that would change our initial assessment as to the contingent lease incentives. Not included in the above table is a seller earnout of $750,000, which is recorded on our balance sheet within accounts payable and accrued expenses.

In February 2014 we entered into a commitment on a letter of credit for the benefit of Sycamore, an affiliate of Bickford, which previously held a minority interest in PropCo (see Note 2). At June 30, 2017, our commitment on the letter of credit totaled $1,930,000. As of June 30, 2017, our direct support of Sycamore is limited to our guarantee on the letter of credit established for their benefit. Sycamore, as an affiliate company of Bickford, is structured to limit liability for potential claims for damages, is capitalized to achieve that purpose and is considered a VIE.

Litigation

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.