Settlement in National Health Investors case will liquidate nonprofit operators, pump $40 million to Tennessee charities

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Editor's Note: This article has been updated from its original version to incorporate comments from NHI President and CEO Justin Hutchens.

A real estate investment trust that allegedly engaged in questionable sales transactions with nonprofit operators recently settled with the state of Tennessee, which will lead to a $40 million payday for charities in the state.

The case involves REIT National Health Investors Inc. (NHI) and an affiliated long-term care operator, National Healthcare Corporation (NHC). Facing losses from failed investments and distressed nursing homes in its portfolio, NHI allegedly participated in the creation of two nonprofits in Tennessee in 2000, ElderTrust of Florida and SeniorTrust of Florida. The nonprofits' articles of incorporation falsely stated that their long-term care properties would not be managed by a for-profit corporation, even though they would be managed by NHC, according to the complaints.

NHI allegedly sold its troubled properties to the new nonprofits at a price above market value and charged unfairly high management fees, while all of the nonprofits' tax-free income ended up back in NHI and NHC coffers. The arrangement made it impossible for the nonprofits to remain solvent, and NHI attempted to recoup losses through taxpayer funds by refinancing the nonprofits' debt through the Department of Housing of Urban Development, according to the charges.

When NHI attempted to unwind the nonprofits in 2007, the Tennessee attorney general began to investigate claims that there was a conflict of interest among the various organizations. The state eventually withdrew approval for the deal, the nonprofits entered into court-appointed receiverships and the legal actions were brought.

An estimated $40 million from transactions agreed to in the negotiated resolution will go to charities. The receivers will sell 14 nursing homes owned by SeniorTrust and ElderTrust, with facilities in Massachusetts and New Hampshire being acquired by NHI for $23 million, and the nonprofits' assets will be liquidated. NHI will “discount amounts it claims remain due from SeniorTrust and ElderTrust,” and NHC will pay “additional amounts to resolve the receiver's claims,” according to a statement from the companies.

After the loan payoff to NHI and its purchase of the New Hampshire and Massachusetts facilities, NHI's net proceeds to the nonprofits will total $8 million, according to Justin Hutchens, the company's CEO and president. The company increased its second quarter dividend 5.8% from the first quarter, to $0.735 per common share, in part as a result of the settlement. “The financial outcome of the settlement is something we're pleased with,” Hutchens said.