CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Persons
NHC employs four persons who are immediate family members of directors and/or executive officers as described in this Proxy Statement under the caption “Directors & Executive Officers of Registrant” and who receive in excess of $120,000 in compensation, including but not limited to, salary and benefits. J. Buckley Winfree is the son-in-law of Robert G. Adams and is the Administrator of AdamsPlace in Murfreesboro, Tennessee, a wholly-owned subsidiary of NHC. Lynn B. Foster is the daughter of Ernest G. Burgess, III and serves as Administrator of NHC HealthCare, Murfreesboro, which is managed by NHC. R. Marshall Ussery is the son of R. Michael Ussery and is the Administrator of NHC Place at the Trace in Nashville, TN, a wholly-owned subsidiary of NHC. Chelsey Norris is the granddaughter of Ernest G. Burgess, III and serves as Administrator of NHC HealthCare, Franklin, a wholly-owned subsidiary of NHC. These administrators are compensated in accordance with the same standards that are applied to administrators at NHC owned, managed or leased nursing facilities. Terry L. Leeman is the son-in-law of Robert G. Adams and is the President of Nutritional Support Services, an affiliate of NHC, located in Knoxville, Tennessee.
National Health Investors, Inc.
In 1991, NHC formed National Health Investors, Inc. (“NHI”) as a wholly-owned subsidiary. The Company then transferred to NHI certain healthcare facilities owned by us and distributed the shares of NHI to NHC’s shareholders. The distribution had the effect of separating NHC and NHI into two independent public companies. As a result of the distribution, all of the outstanding shares of NHI were distributed to the then NHC investors. NHI is listed on the New York Stock Exchange and on December 31, 2024, NHC owned 1,630,642 shares (3.6%) of NHI’s outstanding Common Stock.
As of December 31, 2024, we leased from NHI the real property of 28 skilled nursing facilities, five assisted living centers and three independent living centers under one lease agreement (the “Master Lease”). As part of the Master Lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. The lease includes base rent plus a percentage rent.
On January 1, 2007, a 15-year lease extension began which included three additional five-year renewal options. In December 2012, NHC extended the lease agreement through the first of the three additional five-year renewal options, which extended the lease date through 2026. The two additional five-year renewal options on the lease still remain.
Base rent expense under the NHI lease agreements for 2024, 2023, and 2022, was $32,625,000, $34,075,000, and $33,783,000, respectively. Percentage rent was based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Percentage rent expense for 2024, 2023, and 2022 was $6,289,000, $5,549,000, and $3,887,000, respectively. The annual base rent is $32,225,000 for 2025 and $31,975,000 for 2026 with the lease, subject to the extensions addressed above, expiring at December 31, 2026.
Mr. Robert G. Adams is both a director of NHI as well as NHC.
National Health Corporation
National Health Corporation (“National”), which is wholly-owned by the National Health Corporation Leveraged Employee Stock Ownership Plan (“ESOP”), was formed in 1986 and is NHC’s administrative services affiliate and contractor. Currently, NHC manages five centers for National under a management contract that has been extended until January 1, 2028.
In conjunction with NHC’s management contract, the Company has entered into a line of credit arrangement whereby amounts may be due to or from National from time to time. The maximum loan commitment under the line of credit is $2,000,000. There were no amounts outstanding as of December 31, 2024.
National provides payroll services to NHC and provides employee fringe benefits. We pay to National all the costs of personnel employed for our benefit, as well as an administrative fee equal to 1% of payroll costs. On December 31, 2024, National owned 1,030,887 shares (or approximately 6.7%) of NHC’s outstanding Common Stock. Please refer to Note 18 of the consolidated financial statements set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, for more detail regarding NHC’s relationship with National.