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NATIONAL HEALTH INVESTORS INC - Quarter Report: 2021 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJune 30, 2021
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 
MurfreesboroTennessee37129
(Address of principal executive offices) (Zip Code)
(615)890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueNHINew York Stock Exchange

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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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

There were 45,850,599 shares of common stock outstanding of the registrant as of August 2, 2021.



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30,
2021
December 31, 2020
(unaudited)
Assets:
Real estate properties:
Land$212,609 $220,361 
Buildings and improvements3,024,923 3,041,616 
Construction in progress4,167 3,093 
3,241,699 3,265,070 
Less accumulated depreciation(622,943)(597,638)
Real estate properties, net2,618,756 2,667,432 
Mortgage and other notes receivable, net of reserve of $5,171 and $4,946, respectively
284,177 292,427 
Cash and cash equivalents32,544 43,344 
Straight-line rent receivable97,723 95,703 
Assets held for sale, net22,581 — 
Other assets21,664 21,583 
Total Assets$3,077,445 $3,120,489 
Liabilities and Stockholders’ Equity:
Debt$1,434,744 $1,499,285 
Accounts payable and accrued expenses25,728 25,189 
Dividends payable41,266 49,818 
Lease deposit liabilities9,438 10,638 
Deferred income9,209 12,614 
Total Liabilities1,520,385 1,597,544 
Commitments and Contingencies
National Health Investors, Inc. Stockholders' Equity:
              Common stock, $0.01 par value, 100,000,000 shares authorized
45,850,599 and 45,185,992 shares issued and outstanding, respectively459 452 
Capital in excess of par value1,589,205 1,540,946 
Cumulative dividends in excess of net income(39,316)(22,015)
Accumulated other comprehensive loss(3,633)(7,149)
Total National Health Investors, Inc. Stockholders' Equity1,546,715 1,512,234 
Noncontrolling interests10,345 10,711 
Total Equity1,557,060 1,522,945 
Total Liabilities and Stockholders’ Equity$3,077,445 $3,120,489 

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from the audited consolidated financial statements at that date.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(unaudited)(unaudited)
Revenues:
Rental income$68,351 $77,917 $143,101 $154,444 
Interest income and other5,979 6,257 12,114 12,827 
74,330 84,174 155,215 167,271 
Expenses:
Depreciation20,658 20,847 41,464 41,290 
Interest12,840 13,557 25,813 27,697 
Legal(40)250 90 585 
Franchise, excise and other taxes232 145 465 389 
General and administrative3,588 3,032 11,577 7,342 
Taxes and insurance on leased properties2,175 1,450 4,337 3,002 
Loan and realty losses (gains)1,221 (380)1,171 1,195 
40,674 38,901 84,917 81,500 
Loss from equity method investment(909)(848)(1,718)(1,290)
Gains on sales of real estate6,484 — 6,484 21,007 
Loss on early retirement of debt— — (451)— 
Net income39,231 44,425 74,613 105,488 
Less: net income attributable to noncontrolling interests(48)(57)(100)(96)
Net income attributable to common stockholders$39,183 $44,368 $74,513 $105,392 
Weighted average common shares outstanding:
Basic45,850,599 44,650,002 45,577,843 44,631,797 
Diluted45,858,074 44,650,002 45,607,924 44,634,070 
Earnings per common share:
Net income attributable to common stockholders - basic$0.85 $0.99 $1.63 $2.36 
Net income attributable to common stockholders - diluted$0.85 $0.99 $1.63 $2.36 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(unaudited)(unaudited)
Net income$39,231 $44,425 $74,613 $105,488 
Other comprehensive income (loss):
Increase in fair value of cash flow hedges(76)(867)(82)(10,058)
Reclassification for amounts recognized as interest expense1,820 2,263 3,598 2,755 
Total other comprehensive income (loss)1,744 1,396 3,516 (7,303)
Comprehensive income40,975 45,821 78,129 98,185 
Comprehensive income attributable to noncontrolling interest(48)(57)(100)(96)
Comprehensive income attributable to common stockholders$40,927 $45,764 $78,029 $98,089 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Six Months Ended
June 30,
 20212020
(unaudited)
Cash flows from operating activities:  
Net income$74,613 $105,488 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation41,464 41,290 
Amortization of debt issuance costs, debt discounts and prepaids2,255 2,350 
Amortization of commitment fees and note receivable discounts(252)(435)
Amortization of lease incentives522 485 
Straight-line rent income(8,391)(10,395)
Non-cash interest income on mortgage and other notes receivable(1,153)(1,844)
Gains on sales of real estate(6,484)(21,007)
Loss from equity method investment1,718 1,290 
Loss on early retirement of debt451 — 
Loan and realty losses1,171 1,195 
Payment of lease incentives(1,042)— 
Non-cash stock-based compensation6,438 2,315 
Changes in operating assets and liabilities: 
Other assets(2,691)(742)
Accounts payable and accrued expenses118 (3,318)
Deferred income(225)137 
Net cash provided by operating activities108,512 116,809 
Cash flows from investing activities:  
Investments in mortgage and other notes receivable(42,836)(32,826)
Collections of mortgage and other notes receivable52,266 14,579 
Acquisition of real estate(46,817)(94,630)
Investments in equipment(64)(54)
Investments in renovations of existing real estate(1,479)(5,579)
Investment in equity method investment— (875)
Distribution from equity method investment288 — 
Proceeds from sale of real estate43,871 39,260 
Net cash provided by (used in) investing activities5,229 (80,125)
Cash flows from financing activities:  
Proceeds from revolving credit facility60,000 145,000 
Payments on revolving credit facility(333,000)(32,000)
Payments on term loans(125,185)(609)
Proceeds from issuance of senior notes396,784 — 
Debt issuance costs(5,018)— 
Distributions to noncontrolling interests(402)(298)
Proceeds from noncontrolling interests— 13 
Taxes remitted on employee stock awards— (2,705)
Proceeds from issuance of common shares, net47,904 (293)
Convertible note redemption(66,076)— 
Dividends paid to stockholders(100,366)(96,043)
Net cash provided by (used in) financing activities(125,359)13,065 
(Decrease) Increase in cash and cash equivalents and restricted cash(11,618)49,749 
Cash and cash equivalents and restricted cash, beginning of period46,343 15,669 
Cash and cash equivalents and restricted cash, end of period$34,725 $65,418 
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Six Months Ended
June 30,
20212020
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$20,062 $26,288 
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for mortgage notes receivable$— $59,350 
Noncash portion of noncontrolling interest conveyed in acquisition$— $10,778 
Increase in mortgage note receivable from sale of real estate$— $4,000 
Change in accounts payable related to investments in real estate construction$888 $1,899 
Change in accounts payable related to distributions to noncontrolling interests$63 $100 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share and per share amounts)


Common StockCapital in Excess of Par ValueCumulative Dividends in Excess of Net IncomeAccumulated Other Comprehensive LossTotal National Health Investors, Inc. Stockholders’ EquityNoncontrolling InterestsTotal Equity
SharesAmount
Balances at December 31, 202045,185,992 $452 $1,540,946 $(22,015)$(7,149)$1,512,234 $10,711 $1,522,945 
Noncontrolling interest distribution— — — — — — (233)(233)
Total comprehensive income— — — 35,332 1,772 37,104 52 37,156 
Issuance of common stock, net661,951 47,944 — — 47,951 — 47,951 
Shares issued on stock options exercised2,656 — — — — — — — 
Stock-based compensation— — 5,446 — — 5,446 — 5,446 
Dividends declared, $1.1025 per common share— — — (50,550)— (50,550)— (50,550)
Activity for the three months ended March 31, 2021664,607 53,390 (15,218)1,772 39,951 (181)39,770 
Noncontrolling interest distribution— — — — — — (233)(233)
Total comprehensive income— — — 39,183 1,744 40,927 48 40,975 
Equity component in redemption of convertible debt— — (6,076)— — (6,076)— (6,076)
Equity issuance costs— — (47)— — (47)— (47)
Stock-based compensation— — 992 — — 992 — 992 
Dividends declared, $.90 per common share— — — (41,266)— (41,266)— (41,266)
Activity for the three months ended June 30, 2021— — (5,131)(2,083)1,744 (5,470)(185)(5,655)
Balances at June 30, 202145,850,599 $459 $1,589,205 $(39,316)$(3,633)$1,546,715 $10,345 $1,557,060 


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















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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share and per share amounts)


Common StockCapital in Excess of Par ValueCumulative Dividends in Excess of Net IncomeAccumulated Other Comprehensive LossTotal National Health Investors Stockholders’ EquityNoncontrolling InterestsTotal Equity
SharesAmount
Balances at December 31, 201944,587,486 $446 $1,505,948 $(5,331)$(3,432)$1,497,631 $621 $1,498,252 
Cumulative effect of change in accounting principle— — — (4,225)— (4,225)— (4,225)
Noncontrolling interest conveyed in acquisition— — — — — — 10,791 10,791 
Noncontrolling interest distribution— — — — — — (16)(16)
Total comprehensive income— — — 61,023 (8,699)52,324 39 52,363 
Issuance of common stock, net— — (85)— — (85)— (85)
Taxes remitted on employee stock awards— — (2,705)— — (2,705)— (2,705)
Shares issued on stock options exercised62,516 (2)— — (1)— (1)
Stock-based compensation— — 1,845 — — 1,845 — 1,845 
Dividends declared, $1.1025 per common share— — — (49,226)— (49,226)— (49,226)
Activity for the three months ended March 31, 202062,516 (947)7,572 (8,699)(2,073)10,814 8,741 
Noncontrolling interest conveyed in acquisition— — — — — — (382)(382)
Total comprehensive income— — — 44,368 1,396 45,764 57 45,821 
Issuance of common stock, net— — (206)— — (206)— (206)
Stock-based compensation— — 470 — — 470 — 470 
Dividends declared, $1.1025 per common share— — — (49,227)— (49,227)— (49,227)
Activity for the three months ended June 30, 2020— — 264 (4,859)1,396 (3,199)(325)(3,524)
Balances at June 30, 202044,650,002 $447 $1,505,265 $(2,618)$(10,735)$1,492,359 $11,110 $1,503,469 



The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(unaudited)

Note 1. Organization and Nature of Business

National Health Investors, Inc. (“NHI,” “the Company,” “we,” “us,” or “our”), 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 lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, hospitals and medical office building. As of June 30, 2021, we had investments of approximately $3.2 billion in 222 health care real estate properties located in 34 states and leased pursuant primarily to triple-net leases to 33 lessees consisting of 146 senior housing communities (“SHO”), 72 skilled nursing facilities, three hospitals and one medical office building, excluding one property classified as held for sale. Our portfolio of 14 mortgages along with other notes receivable totaled $289.3 million, excluding an allowance for expected credit losses of $5.2 million, as of June 30, 2021.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020, included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and subsidiaries in which we have a controlling interest. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances are eliminated in consolidation.

At June 30, 2021, we held interests in ten unconsolidated VIEs, and, because we lack either directly or through related parties the power to direct the activities that most significantly impact their economic performance, we have concluded that the Company is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line rent receivables, excluding our investment accounted for under the equity method discussed in Note 5.

The Company’s unconsolidated VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of exposure to these VIEs, see the notes to our condensed consolidated financial statements cross-referenced below ($ in thousands).
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DateNameSource of ExposureCarrying Amount Maximum Exposure to LossNote Reference
2012Bickford Senior Living
Various1
$65,000 $88,000 Notes 3, 4
2014Senior Living CommunitiesNotes and straight-line receivable$84,000 $93,000 Notes 3, 4
2016Senior Living ManagementNotes and straight-line receivable$27,000 $27,000 
2018Sagewood, LCS affiliateNotes$117,000 $180,000 Note 4
201941 Management, LLCNotes and straight-line receivable$20,000 $34,000 Note 7
2020Timber Ridge OpCo, LLC
Various2
$(4,000)$5,000 Note 5
2020Watermark RetirementNotes and straight-line receivable$5,000 $10,000 Note 7
2021Montecito Medical Real EstateNotes and funding commitment$2,000 $50,000 Note 4, 7
2021Vizion HealthNotes and straight-line receivable$20,000 $22,000 Notes 3, 4
2021Navion Senior SolutionsNotes and straight-line receivable$7,000 $14,000 Notes 3, 4, 7
1 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives
2 Loan commitment, equity method investment and straight-line rent receivables

We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we classify 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. Economic loss on a lease, in excess of what is presented in the table above, if any, would be limited to that resulting from any 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 would be dependent upon individual facts and circumstances, and is therefore not included in the table above.

In the future, NHI may be deemed the primary beneficiary of the operations if the tenants do not have adequate liquidity to accept the risks and rewards as the tenant and operator of the properties and might be required to consolidate the statements of financial position and results of operations of the operators into our consolidated financial statements.

We consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) and LCS Timber Ridge LLC (“LCS”), to invest in senior housing facilities. As of and for the three and six months ended June 30, 2021 and 2020, our non-controlling interests relate to these partnerships with Discovery and LCS.

We use the equity method of accounting when we own an interest in an entity whereby we can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

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 or subject to an agreement (e.g., with a qualified intermediary subject to an Internal Revenue Code §1031 exchange agreement or in accordance with agency agreements governing our mortgages).

The following table sets forth our “Cash, cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):
June 30,
2021
June 30,
2020
Cash and cash equivalents$32,544 $46,853 
Restricted cash (included in Other assets)2,181 18,565 
$34,725 $65,418 

Accounting for Lease Modifications related to Coronavirus Disease 2019

In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the coronavirus (“COVID-19”) pandemic. The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of the COVID-19 pandemic is a lease modification under Accounting Standard Codification (“ASC”) 842, Leases (“ASC
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842”). Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 pandemic, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a lease modification can elect whether to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. NHI has elected not to apply the modification guidance under ASC 842 and has accounted for qualified rent concessions as variable lease payments when applicable, recorded as rental income when received. During the three and six months ended June 30, 2021, the Company provided $9.9 million and $14.1 million, respectively, in lease concessions as a result of the COVID-19 pandemic, as discussed in more detail in Note 7.

Note 3. Real Estate Properties and Investments

During the six months ended June 30, 2021, we completed the following real estate acquisitions as described below ($ in thousands):

OperatorDatePropertiesAsset ClassLandBuilding & ImprovementsTotal
Vizion HealthQ2 20211HOSP$1,470 $38,780 $40,250 
Navion Senior SolutionsQ2 20211SHO531 6,069 6,600 
$2,001 $44,849 $46,850 

Vizion Health

In May 2021, we acquired a 64-bed specialty behavioral hospital located in Oklahoma for a total purchase price of $40.3 million, including $0.3 million in closing costs. In May 2021, we leased the hospital to an affiliate of Vizion Health. The 15-year master lease, which includes two five-year extension options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%. We have committed to additional funding of capital improvements for the hospital of up to $2.0 million which will be added to the lease base as funded.

Navion Senior Solutions

In June 2021, we acquired a 48-unit assisted living and memory care community in Tennessee for a purchase price of $6.6 million, including closing costs of $0.1 million. The community was added to an existing master lease with Navion Senior Solutions (“Navion”) whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each.

Tenant Concentration

The following table contains information regarding tenant concentration in our portfolio, excluding $2.6 million for our corporate office and a credit loss reserve balance of $5.2 million, based on the percentage of revenues for the six months ended June 30, 2021 and 2020, related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):

as of June 30, 2021
Revenues1
AssetNumber ofRealNotesSix Months Ended June 30,
ClassPropertiesEstateReceivable20212020
Senior Living CommunitiesEFC10$573,631 $44,411 $25,420 16%$26,140 16%
Holiday RetirementILF26532,672 — 19,188 12%20,353 12%
National HealthCare Corporation (NHC)SNF42171,188 — 18,844 12%18,904 11%
Bickford Senior LivingALF42490,308 36,875 16,893 11%27,526 16%
All others, net2
Various1,471,301 208,062 70,533 45%71,166 43%
Escrow funds received from tenants
 for property operating expensesVarious— — 4,337 4%3,182 2%
$3,239,100 $289,348 $155,215 $167,271 
1 includes interest income on notes receivable
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2 includes prior period amounts for disposals or transitioned to new operators

At June 30, 2021, the one state in which we had an investment concentration of 10% or more was South Carolina (10.4%).

Two of our board members, including our chairman, are also members of NHC’s board of directors.

Assets Held for Sale

We have identified a behavioral hospital located in Tennessee for disposal, pursuant to the exercise of an option to purchase, and have classified the asset as available for sale on the Condensed Consolidated Balance Sheet at June 30, 2021. In July 2021, we sold this property for cash consideration of $31.2 million and recorded a gain of $8.6 million. Rental income was $0.7 million and $1.4 million, for both the three and six months ended June 30, 2021 and 2020, respectively.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At June 30, 2021, we had a net investment of $18.9 million in five real estate properties which are subject to exercisable tenant purchase options. Tenant purchase options on 11 properties in which we had an aggregate net investment of $100.3 million at June 30, 2021, become exercisable between 2022 and 2028. Rental income from leased properties with tenant purchase options either currently exercisable or exercisable in the future was $4.3 million and $8.7 million for the three and six months ended June 30, 2021, respectively, and $4.2 million and $7.9 million for the three and six months ended June 30, 2020, respectively.

In June 2021, we received notification of a tenant’s intention to acquire, pursuant to a purchase option, a hospital located in California. The purchase option calls for a minimum purchase price of $15.0 million with any appreciation above $15.0 million to be split evenly between the parties. The net investment at June 30, 2021 was $9.5 million. Rental income was $0.5 million and $0.9 million, for both the three and six months ended June 30, 2021 and 2020, respectively. The transaction will close no earlier than one year after the receipt of the notice of exercise.

We cannot reasonably estimate at this time the probability that any other purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.

Other Portfolio Activity

Tenant Transitioning

Nine properties were transitioned during 2019 to five new tenants following a period of non-compliance by the former operators. Two leases with new tenants for six of these properties specify periods during which rental income is based on operating income, net of management fees. We recognized rental income from these nine properties of $0.8 million and $1.6 million for the three and six months ended June 30, 2021, respectively, and $1.3 million and $2.8 million for the three and six months ended June 30, 2020, respectively.

Asset Dispositions

Bickford

During the second quarter of 2021, we sold to affiliates of Bickford a portfolio of six properties that were being leased to Bickford for a purchase price of $52.9 million. We received approximately $39.9 million in cash consideration upon sale and originated a second mortgage note receivable for the remaining purchase price of $13.0 million. A gain was not recognized related to the $13.0 million second mortgage note receivable, which is discussed in more detail in Note 4. We recorded a gain upon completion of this transaction totaling approximately $3.5 million representing the excess of the $39.9 million cash consideration received over the net book value of the assets sold of $34.5 million and the write off of straight-line rents receivable of approximately $1.9 million. Rental income from this portfolio was $1.6 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively.

Upon completion of the sale, Bickford satisfied the terms of our prior agreement that contingently waived $2.1 million in rental income for the third quarter of 2020. These properties were part of our ongoing negotiations for the sale to Bickford of nine properties being leased to Bickford. We continue to explore our options for the remaining three properties, which could include a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.
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Florida Medical Office Building

During the second quarter of 2021, we also sold a medical office building for approximately $4.3 million in cash consideration resulting in a gain of $3.0 million. Revenue for this property was $0.1 million and $0.2 million for the six months ended June 30, 2021 and 2020 respectively.

Holiday Disposition

In July 2021, we signed a non-binding letter of intent to sell a portfolio of nine properties that is leased to Holiday with an aggregate net book value of $133.5 million. We anticipate closing this transaction in August 2021 for total cash consideration of $129.8 million and will recognize an impairment of approximately $3.7 million in the third quarter of 2021 associated with this transaction. Rental income was $2.9 million and $5.8 million, for both the three and six months ended June 30, 2021 and 2020, respectively.

Future Minimum Base Rent

Future minimum lease payments to be received by us under our operating leases at June 30, 2021, are as follows ($ in thousands):
Remainder of 2021$142,729 
2022284,690 
2023280,864 
2024275,808 
2025276,974 
2026281,289 
Thereafter1,203,183 
$2,745,537 

We assess the collectability of lease payments to be received from our tenants, which includes 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 lease payments, we recognize lease payments on a cash basis and de-recognize all rents receivable, including the straight-line rent receivable 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 revenue recognized as a result of fixed and variable lease escalators ($ in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Lease payments based on fixed escalators, net of deferrals$61,394 $69,918 $128,982 $138,588 
Lease payments based on variable escalators894 1,400 1,913 2,764 
Straight-line rent income4,150 5,218 8,391 10,395 
Escrow funds received from tenants for property operating expenses2,175 1,630 4,337 3,182 
Amortization of lease incentives(262)(249)(522)(485)
Rental income$68,351 $77,917 $143,101 $154,444 



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Note 4. Mortgage and Other Notes Receivable

At June 30, 2021, our investments in mortgage notes receivable totaled $225.7 million secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 14 facilities and other notes receivable totaled $63.6 million guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. These balances exclude a credit loss reserve of $5.2 million at June 30, 2021. All our notes were on full accrual basis at June 30, 2021.

Montecito Medical Real Estate

In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the United States. Amounts under the loan agreement will be funded as real estate investments are identified for acquisition. Borrowings under the loan agreement will bear interest at an annual rate of 9.5% and accrue an additional 2.5% in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings. Funds drawn in accordance with this agreement are required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one year extensions. At June 30, 2021, we had funded $2.1 million of our commitment that was used to acquire two medical office buildings for a combined purchase price of approximately $11.1 million.

Vizion Health - Brookhaven

In May 2021, we provided a $20.0 million, five year loan to Vizion Health-Brookhaven, LLC to finance the acquisition of healthcare operations, including the real and personal property of a behavioral hospital we acquired in May 2021 discussed in Note 3. The loan requires monthly principal and interest payments and bears an initial annual interest rate of 8.5% with fixed annual escalators of 2.5% beginning June 1, 2022. Initial principal loan repayments are equal to 90% of the excess cash flow as defined in the agreement. Principal repayments are reduced to 50% of the excess cash flow once the outstanding loan balance is reduced below $15.0 million.

Bickford

As part of the sale of six properties to Bickford discussed in Note 3, we executed a $13.0 million second mortgage as part of the purchase price consideration. The loan is secured by a security interest in the portfolio that is subordinate only to the first mortgage on the portfolio held by a third party. This second mortgage note receivable bears interest at a 10% annual rate and matures in April 2026. Commencing in January 2022, payments of principal and interest are required based on a 15-year amortization schedule. In addition, the interest rate will be reset to 8% if Bickford prepays approximately $5.3 million in principal prior to December 31, 2022.

Given the size of the Company financing provided relative to the purchase price, its subordination to the first mortgage outstanding and the ongoing negative impact of the COVID-19 pandemic on Bickford’s operating results, we did not include this note receivable in the determination of the gain to be recognized upon sale of the portfolio in accordance with the provisions of ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. Therefore, this note receivable is not reflected in mortgage and other notes receivable, net in the Condensed Consolidated Balance Sheet as of June 30, 2021. We will re-evaluate the collectability of this note receivable each reporting period and recognize the note receivable and related deferred gain at such time the note is considered probable of collection in accordance with ASC 610-20.

Navion Senior Solutions

In May 2021, we provided a ten-year corporate loan to Navion for $3.6 million. The loan requires interest-only payments at an annual interest rate of 8% until June 1, 2024, and gives us first option to provide permanent development financing for a future project.

Life Care Services - Sagewood

In the second quarter of 2021, LCS-Westminster Partnership IV LLP, an affiliate of LCS, repaid principal of $51.4 million on its note receivable. The note balance is $117.1 million as of June 30, 2021.



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Credit Loss Reserve

Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans collectively (“Coverage”). A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the following table have been calculated utilizing the most recent date for which data is available, March 31, 2021, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, (iii) less than 1.0x. We update the calculation of coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. As of June 30, 2021, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of June 30, 2021 at amortized cost.

We consider the guidance in ASC 310-20 when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of June 30, 2021, is presented below for the amortized cost, net by year of origination of ($ in thousands):

20212020201920182017PriorTotal
Mortgages
more than 1.5x$— $14,275 $9,029 $28,700 $— $4,471 $56,475 
between 1.0x and 1.5x— — — 116,167 — — 116,167 
less than 1.0x— 3,974 39,123 — — 10,000 53,097 
No coverage available— — — — — — — 
— 18,249 48,152 $144,867 — 14,471 225,739 
Mezzanine
more than 1.5x3,565 — — — — — 3,565 
between 1.0x and 1.5x22,310 — — — — — 22,310 
less than 1.0x— — — — — 25,273 25,273 
No coverage available— — 750 — — — 750 
25,875 — 750 — — 25,273 51,898 
Revolver
more than 1.5x— 
between 1.0x and 1.5x11,711 
less than 1.0x— 
11,711 
Credit loss reserve(5,171)
$284,177 

Due to the economic uncertainty created by the COVID-19 pandemic and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted at the beginning of the pandemic a 20% increase in the probability of a default and a 20% increase in the amount of loss from a default resulting in an effective adjustment of 44%.

The allowance for expected credit losses is presented in the following table for the six months ended June 30, 2021 ($ in thousands):
Beginning balance January 1, 2021$4,946 
Provision for expected credit losses225 
Balance June 30, 2021$5,171 

Bickford Construction Loans
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As of June 30, 2021, we had $42.9 million of construction loans to Bickford. At June 30, 2021, we had funded $32.9 million toward these commitments. 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 $2.0 million per project in incentives based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price and eventual NHI lease payment.

Senior Living Communities

On March 30, 2021, we amended the revolving line of credit agreement with Senior Living Communities (“Senior Living”) to increase availability from $15.0 million to $20.0 million. Borrowings by Senior Living under the revolver are to be used for working capital needs and to finance construction projects within its portfolio, including building additional units. Beginning January 1, 2023, availability under the revolver reduces to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. At June 30, 2021, the $11.7 million outstanding under the facility bears interest at 7.45% per annum, the prevailing 10-year U.S. Treasury rate plus 6%.

The Company also has a mortgage loan of $32.7 million with Senior Living originated in July 2019 for the acquisition of a 248-unit continuing care retirement community (“CCRC”) in Columbia, South Carolina. The mortgage loan 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 $38.3 million, subject to adjustment for market conditions.

Note 5. Equity Method Investment

Our initial $0.9 million investment in the operating company, Timber Ridge OpCo, held by our Taxable REIT Subsidiary (“TRS”) arose in conjunction with the acquisition of a CCRC from LCS-Westminster Partnership III, LLP, in January 2020. We structured our arrangement with our JV partner, LCS Timber Ridge LLC, to be compliant with the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). Accordingly, the TRS holds our 25% equity interest in Timber Ridge OpCo, which permits the TRS to engage in activities and share in cash flows that would otherwise be non-qualifying income under the REIT gross income test. As part of our investment, we provided Timber Ridge OpCo a revolving credit facility of up to $5.0 million of which no funds have been drawn.

We account for our investment in Timber Ridge OpCo under the equity method since we are not the primary beneficiary of Timber Ridge OpCo as our participating rights do not give us the power to direct the activities that most significantly impact Timber Ridge OpCo’s economic performance. Our equity share in the losses of Timber Ridge OpCo during the six months ended June 30, 2021 and 2020, was $1.7 million and $1.3 million, respectively. During the six months ended June 30, 2021, we received $0.4 million in cash distributions from Timber Ridge OpCo. Under the equity method, we decrease the carrying value of our investment for losses in the entity and distributions to NHI for cumulative amounts up to and including our basis plus any commitments to fund operations. As of June 30, 2021, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $4.3 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheet as of June 30, 2021. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility.

The Timber Ridge property is subject to early resident mortgages secured by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”). As part of our acquisition, Timber Ridge PropCo acquired the Timber Ridge property and a subordination agreement was entered into pursuant to which the Trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI to Timber Ridge PropCo. In addition, by terms of the resident loan assumption agreement, during the term of the lease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any repayment by Timber Ridge PropCo of these liabilities under the guarantee. As a result of the subordination and resident loan assumption agreements, a liability was not recorded for the resident loan obligation upon acquisition and as of June 30, 2021. The balance secured by the Deed and Indenture was $16.3 million at June 30, 2021.

Note 6. Debt

Debt consists of the following ($ in thousands):
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June 30,
2021
December 31,
2020
Revolving credit facility - unsecured$25,000 $298,000 
Bank term loans - unsecured525,000 650,000 
Senior notes - unsecured, net of discount of $3,082
396,918 — 
Private placement term loans - unsecured400,000 400,000 
Fannie Mae term loans - secured, non-recourse95,169 95,354 
Convertible senior notes - unsecured— 60,000 
Unamortized loan costs(7,343)(4,069)
$1,434,744 $1,499,285 

Aggregate principal maturities of debt as of June 30, 2021 are as follows ($ in thousands):

Remainder of 2021$187 
2022250,389 
2023475,408 
202475,425 
2025143,761 
2026— 
Thereafter496,917 
1,442,087 
Less: unamortized loan costs(7,343)
$1,434,744 


Convertible senior notes

On April 1, 2021, our 3.25% senior unsecured convertible notes (the “Convertible Notes”) matured. The Company paid $67.1 million, including accrued interest of $1.0 million and a $6.1 million conversion premium to retire the Convertible Notes. The conversion premium was recorded as a reduction of “Capital in excess of par value” in our Condensed Consolidated Balance Sheet as of June 30, 2021.

Unsecured revolving credit facility and bank term loans

Our unsecured bank credit facility consists of two term loans - $225.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility that was initially scheduled to mature in August 2021. In April 2021, the Company elected to exercise the extension option on the revolving credit facility available after payment of a 10 basis point extension fee totaling $0.6 million, extending the maturity of the revolver to August 2022. Some combination of cash on hand, proceeds from recent and planned asset sales and operating cash flows is expected to be used to pay off the $225.0 million term loan at its maturity in August 2022. We also plan to execute a multiple year extension of our revolving credit facility prior to the August 2022 maturity date at an amount at least equal to the current $550.0 million capacity. We have swap agreements to fix the interest rates on $400.0 million of term loans that expire in December 2021.

In January 2021, we repaid a $100.0 million term loan that was entered into July 2020 with the net proceeds from the 2031 Senior Notes offering discussed below. The term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 basis points (“bps”), based on our current leverage ratios. Upon repayment, the Company expensed approximately $0.5 million of deferred financing cost associated with this loan which is included in “Loss on early retirement of debt” in our Condensed Consolidated Statement of Income for the six months ended June 30, 2021.

The revolving facility fee is currently 20 bps 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 June 30, 2021 and December 31, 2020, 30-day LIBOR was 10 bps and 14 bps, respectively.

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At June 30, 2021, we had $525.0 million 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 June 30, 2021, 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.

Senior Notes 2031

On January 26, 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually (the “2031 Senior Notes”). The 2031 Senior Notes were sold at an issue price of 99.196% of face value before the underwriters’ discount. Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $392.3 million. We used the net proceeds from the 2031 Senior Notes offering to repay our $100.0 million term loan that was entered into in July 2020 and reduce borrowings outstanding under our revolving credit facility.

The 2031 Senior Notes are subject to affirmative and negative covenants, including financial covenants. As of June 30, 2021 we were in compliance with all affirmative and negative covenants, including financial covenants for our 2031 Senior Notes borrowings.

Private placement term loans

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

AmountInceptionMaturityFixed Rate
$125,000 January 2015January 20233.99%
50,000 November 2015November 20233.99%
75,000 September 2016September 20243.93%
50,000 November 2015November 20254.33%
100,000 January 2015January 20274.51%
$400,000 

Except for specific debt-coverage ratios and net worth minimums, 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.

Fannie Mae term loans

In March 2015, we obtained $78.1 million 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 4.6%, and has a remaining balance of $17.1 million at June 30, 2021. Collectively, these notes are secured by facilities having a net book value of $128.0 million at June 30, 2021.

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 $400.0 million of our bank loans. During the remainder of 2021, approximately $3.6 million of losses, which are included in “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheets, are projected to be reclassified into earnings.

As of June 30, 2021, we employed the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above ($ in thousands):

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Date EnteredMaturity DateSwap RateRate IndexNotional AmountFair Value (Liability)
March 2019December 20212.22%1-month LIBOR$100,000 $(1,062)
March 2019December 20212.21%1-month LIBOR$100,000 $(1,068)
June 2019December 20211.61%1-month LIBOR$150,000 $(1,125)
June 2019December 20211.63%1-month LIBOR$50,000 $(378)

If the fair value of the hedge is an asset, we include it in our Condensed Consolidated Balance Sheets in the line item “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 liability balances for our hedges included as components of “Accounts payable and accrued expenses” on June 30, 2021 and December 31, 2020, were $3.6 million and $7.1 million, respectively.

The following table summarizes interest expense ($ in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Interest expense on debt at contractual rates$10,368 $10,569 $20,821 $23,572 
Losses reclassified from accumulated other
comprehensive income into interest expense1,820 2,263 3,598 2,755 
Capitalized interest(17)(19)(34)(117)
Amortization of debt issuance costs, debt discount and other669 744 1,428 1,487 
Total interest expense$12,840 $13,557 $25,813 $27,697 

Note 7. Commitments, Contingencies and Uncertainties

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 classified below as loan commitments, and commitments for the funding of construction for expansion or renovation to our existing properties under lease classified below as development commitments. 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 June 30, 2021 according to the nature of their impact on our leasehold or loan portfolios. ($ in thousands):

Asset ClassTypeTotalFundedRemaining
Loan Commitments:
LCS Sagewood Note ASHOConstruction$118,800 $(107,342)$11,458 
Bickford Senior LivingSHOConstruction42,900 (32,901)9,999 
41 ManagementSHOConstruction22,200 (10,217)11,983 
Senior Living CommunitiesSHORevolving Credit20,000 (11,711)8,289 
41 ManagementSHOConstruction10,800 (9,092)1,708 
Timber Ridge OpCoSHOWorking Capital5,000 — 5,000 
Watermark RetirementSHOWorking Capital5,000 (1,000)4,000 
   Montecito Medical Real EstateMOBMezzanine Loan50,000 (2,108)47,892 
$274,700 $(174,371)$100,329 

As provided above, loans funded do not include the effects of discounts or commitment fees.

The credit loss liability for unfunded loan commitments is estimated using the same methodology as for our funded mortgage and other notes receivable based on the estimated amount that we expect to fund. We applied the same COVID-19 pandemic adjustments as discussed in Note 4.
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The liability for expected credit losses on our unfunded loans is presented in the following table for the six months ended June 30, 2021 ($ in thousands):

Beginning balance January 1, 2021$270 
Provision for expected credit losses946 
Balance at June 30, 2021$1,216 

Asset ClassTypeTotalFundedRemaining
Development Commitments:
Woodland Village SHO Renovation $7,515 $(7,425)$90 
Senior Living CommunitiesSHORenovation9,930 (9,930)— 
Discovery Senior LivingSHORenovation900 (900)— 
  Watermark RetirementSHORenovation6,500 (3,000)3,500 
  Navion Senior SolutionsSHORenovation3,650 — 3,650 
  OtherSHOVarious2,800 (391)2,409 
$31,295 $(21,646)$9,649 

In addition to the commitments listed above, Discovery PropCo has committed to Discovery Senior Living for funding up to $2.0 million toward the purchase of condominium units located at one of the facilities. As of June 30, 2021, we have funded $1.0 million toward this commitment.

As of June 30, 2021, we had $31.9 million of contingent lease inducement commitments in six lease agreements which are generally based on the performance of facility operations and may or may not be met by the tenant. At June 30, 2021, we had funded $1.5 million toward these commitments of which $1.0 million was funded during the six months ended June 30, 2021.

COVID-19 Pandemic Contingencies

Since the World Health Organization declared coronavirus disease 2019 a pandemic on March 11, 2020, the continually evolving pandemic has resulted in a widespread health crisis adversely affecting governments, businesses, and financial markets. The COVID-19 pandemic and related health and safety measures continue to impact the operations of many of the Company’s tenants, operators and borrowers. The federal government has provided economic assistance and other forms of assistance which mitigated to some extent the negative financial impact of the pandemic for certain of our tenants and operators who are eligible.

Revenues for the operators of our properties continue to be significantly impacted by occupancy. Building occupancy rates have been and may continue to be adversely affected by the COVID-19 pandemic if it continues to cause sustained negative trends such as early resident move-outs, delays in admitting new residents, or other collateral events. In addition, actions our operators take to address outbreaks could materially increase their operating costs, including costs related to enhanced health and safety precautions among other measures. A decrease in occupancy or increase in costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent, as well as on our results of operations.

Since the pandemic began, we have granted rent concessions as shown in the following table ($ in thousands):

Year endedThree months endedSix months ended
December 31, 2020June 30, 2021June 30, 2021Cumulative Totals
DeferralsAbatementsDeferralsAbatementsDeferralsAbatementsDeferralsAbatements
Bickford $3,750 $2,100 $6,500 $— $10,250 $— $14,000 $2,100 
Holiday— — 1,200 — 1,200 — 1,200 — 
All Others1,232 50 2,201 — 2,648 — 3,880 50 
$4,982 $2,150 $9,901 $— $14,098 $— $19,080 $2,150 

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The majority of the deferred amounts noted in the table above accrue interest starting at 8% per annum from the date of the deferral until paid in full under the terms of each tenant’s deferral agreement. No amount of rent deferrals have been repaid.

In addition to the concessions noted above, we have agreed with Bickford to defer $1.5 million in contractual rent due for July 2021. We have agreed with Holiday to defer an additional $0.6 million of contractual rent due for July 2021. We also agreed to utilize $1.8 million of the lease deposit with Holiday as contractual rent with $1.2 million applied towards second quarter of 2021 contractual rent and $0.6 million towards July 2021 contractual rent. The balance of the lease deposit at June 30, 2021 was $9.4 million. We have reached agreement with two other tenants regarding additional rent deferrals of approximately $0.9 million for the third quarter 2021. We are in discussions with one other tenant for a rent deferral of approximately $0.7 million for the remainder of 2021.

When applicable, we have accounted for rent concessions as variable lease payments, recorded as rental income when received, in accordance with the FASB's Lease Modification Q&A. Reference Note 2 for further discussion. We will evaluate any rent deferral requests as a result of the COVID-19 pandemic on a tenant-by-tenant basis. The extent of future concessions we make as a result of the COVID-19 pandemic, which could have a material impact on our future operating results, cannot be reasonably or reliably projected by us at this time.

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 direct 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 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.

Note 8. Equity and Dividends

At-the-Market (ATM) Equity Program

During the six months ended June 30, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds of approximately $47.9 million. We intend to use the proceeds from any further activity under the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility.

Dividends

The following table summarizes dividends declared by the Board of Directors or paid during the six months ended June 30, 2021 and 2020:


Six Months Ended June 30, 2021
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
December 15, 2020December 31, 2020January 29, 2021$1.1025
March 12, 2021March 31, 2021May 7, 2021$1.1025
June 3, 2021June 30, 2021August 6, 2021$0.90

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Six Months Ended June 30, 2020
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
November 7, 2019December 31, 2019January 31, 2020$1.05
February 19, 2020March 31, 2020May 8, 2020$1.1025
June 15, 2020June 30, 2020August 7, 2020$1.1025

On August 6, 2021, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on September 30, 2021, payable on November 5, 2021.

Note 9. Stock-Based Compensation

The Company’s outstanding stock incentive awards have been granted under two incentive plans – the 2012 Stock Incentive Plan (“2012 Plan”) and the 2019 Stock Incentive Plan (“2019 Plan”). During the first quarter of 2021, we granted stock options under the 2019 Plan of 639,500 and the remaining 12,500 awards available under the 2012 Plan. As of June 30, 2021, shares available for future grants totaled 2,117,336 all under the 2019 plan. The following is a summary of stock-based compensation expense, net of any forfeitures, included in “General and administrative expenses” in the Condensed Consolidated Statements of Income ($ in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Non-cash stock-based compensation expense$992 $470 $6,438 $2,315 

The weighted average fair value of options granted during the six months ended June 30, 2021 and 2020 was $14.54 and $5.54 per option, respectively. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

20212020
Dividend yield6.7%5.1%
Expected volatility48.1%17.1%
Expected lives2.9 years2.9 years
Risk-free interest rate0.33%1.30%

The following table summarizes our outstanding stock options:

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Weighted Average
NumberWeighted AverageRemaining
of SharesExercise PriceContractual Life (Years)
Options outstanding, January 1, 20201,004,014 $74.35
Options granted 592,000 $90.32
Options exercised(512,509)$72.98
Options forfeited(10,500)$88.73
Options outstanding, June 30, 20201,073,005 $83.68
Exercisable at June 30, 2020601,994 $81.09
Options outstanding, January 1, 20211,033,838 $83.54
Options granted652,000 $69.20
Options exercised(20,000)$60.52
Options outstanding, June 30, 20211,665,838 $78.203.63
Exercisable at June 30, 20211,183,324 $79.253.33

At June 30, 2021, the aggregate intrinsic value of stock options outstanding and exercisable was $0.3 million and $0.3 million, respectively. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020 was $0.2 million or $9.27 per share and $8.1 million or $15.84 per share, respectively.

As of June 30, 2021, unrecognized compensation expense totaling $3.8 million associated with unvested stock options is expected to be recognized over the following periods: remainder of 2021 - $2.0 million, 2022 - $1.6 million and 2023 - $0.2 million.

Note 10. Earnings 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 the conversion of our convertible debt prior to its retirement using the treasury stock method, to the extent dilutive. Dilution resulting from the conversion option within our convertible debt was determined by computing an average of incremental shares included in each diluted EPS computation.

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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Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net income attributable to common stockholders$39,183 $44,368 $74,513 $105,392 
BASIC:
Weighted average common shares outstanding45,850,599 44,650,002 45,577,843 44,631,797 
DILUTED:
Weighted average common shares outstanding45,850,599 44,650,002 45,577,843 44,631,797 
Stock options7,475 — 9,174 2,273 
Convertible senior notes— — 20,907 — 
Weighted average dilutive common shares outstanding45,858,074 44,650,002 45,607,924 44,634,070 
Net income attributable to common stockholders - basic$0.85 $0.99 $1.63 $2.36 
Net income attributable to common stockholders - diluted$0.85 $0.99 $1.63 $2.36 
Incremental anti-dilutive shares excluded:
Net share effect of stock options with an exercise price in excess of the average market price for our common shares290,998 610,367 248,223 439,962 
Regular dividends declared per common share$0.90 $1.1025 $2.0025 $2.205 

Note 11. Fair Value of Financial Instruments

Our financial assets and liabilities measured at fair value on a recurring basis include derivative financial instruments. Derivative financial instruments include our interest rate swap agreements.

Derivative financial instruments. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and 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 ClassificationJune 30,
2021
December 31, 2020
Level 2
Interest rate swap liabilityAccounts payable and accrued expenses$3,633 $7,150 

Carrying amounts and fair values of financial instruments that are not carried at fair value at June 30, 2021 and December 31, 2020 in the Condensed Consolidated Balance Sheets are as follows ($ in thousands):
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Carrying AmountFair Value Measurement
June 30, 2021December 31, 2020June 30, 2021December 31, 2020
Level 2
Variable rate debt$547,941 $945,078 $550,000 $948,000 
Fixed rate debt$886,803 $554,207 $880,572 $575,292 
Level 3
Mortgage and other notes receivable, net$284,177 $292,427 $303,018 $321,021 

Fixed rate debt. 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.

Mortgage and other notes receivable. 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.

Carrying amounts of cash and cash equivalents and restricted cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair values of our borrowings under our revolving credit facility and other variable rate debt are reasonably estimated at their notional amounts at June 30, 2021 and December 31, 2020, due to the predominance of floating interest rates, which generally reflect market conditions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission, 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:

*    Actual or perceived risks associated with public health epidemics or outbreaks, such as the coronavirus (“COVID-19”), have had and are expected to continue to have a material adverse effect on our business and results of operations;

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

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

*    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;

*    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;

*    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;

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

*    We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change;

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

*    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;

*    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;

*    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;

*    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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*    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;

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

*    We depend on the success of our future acquisitions and investments;

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

*    Competition for acquisitions may result in increased prices for properties;

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

*    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;

*    Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;

*    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;

*    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;

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

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

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

*    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;

*    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

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

See the notes to the annual audited consolidated financial statements in our most recent Annual Report on Form 10-K for the year ended December 31, 2020, 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 facing the Company. There may be additional risks that we do not presently know of and 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 and 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.


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Executive Overview

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 building. 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.

Portfolio

As of June 30, 2021, we had investments in real estate and mortgage and other notes receivable involving 236 facilities located in 34 states. These investments involve 157 senior housing properties, 75 skilled nursing facilities, three hospitals and one medical office building, excluding one property classified as held for sale. These investments consisted of properties with an original cost of approximately $3.2 billion, rented under primarily triple-net leases to 33 lessees, and $289.3 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $5.2 million, due from ten borrowers.

We classify all of the properties in our portfolio as either senior housing or medical properties. Because our leases represent different underlying revenue sources and result in differing risk profiles, we further classify our senior housing communities as either need-driven (assisted living and memory care communities and senior living campuses) or discretionary (independent living and entrance-fee communities.)

Senior Housing – Need-Driven includes assisted living and memory care communities (“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 (“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 and for the six months ended June 30, 2021 ($ in thousands):
PropertiesBeds/Sq. Ft.*Revenue% TotalInvestment
Real Estate Properties
Senior Housing - Need-Driven
Assisted Living89 4,932 $28,205 18.2 %$913,175 
Senior Living Campus14 1,976 9,973 6.4 %307,587 
Total Senior Housing - Need-Driven103 6,908 38,178 24.6 %1,220,762 
Senior Housing - Discretionary
Independent Living32 3,703 22,352 14.4 %600,615 
Entrance-Fee Communities11 2,707 30,755 19.8 %743,985 
Total Senior Housing - Discretionary43 6,410 53,107 34.2 %1,344,600 
Total Senior Housing146 13,318 91,285 58.8 %2,565,362 
Medical Facilities
Skilled Nursing Facilities72 9,433 41,176 26.5 %595,413 
Hospitals185 3,088 2.0 %71,352 
Medical Office Buildings61,500 *165 0.1 %6,973 
Total Medical Facilities76 44,429 28.6 %673,738 
Total Real Estate Properties222 135,714 87.4 %$3,239,100 
Income From Properties Sold and Held For Sale3,050 
Escrow Funds Received From Tenants4,337 
Total Rental Income143,101 
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven565 2,906 2.0 %$72,401 
Senior Housing - Discretionary714 6,886 4.4 %148,867 
Skilled Nursing180 204 0.1 %4,472 
Other Notes Receivable— — 1,980 1.3 %63,608 
Total Mortgage and Other Notes Receivable14 1,459 11,976 7.8 %$289,348 
Other Income138 
Total Revenue$155,215 
Portfolio SummaryPropertiesRevenue% PortfolioInvestment
Real Estate Properties222 $135,714 91.9 %$3,239,100 
Mortgage and Other Notes Receivable14 11,976 8.1 %289,348 
Total Portfolio236 $147,690 100.0 %$3,528,448 
Portfolio by Operator Type
Public64 $33,789 22.9 %$482,802 
National Chain (Privately Owned)28 29,688 20.1 %783,731 
Regional130 79,216 53.6 %2,122,701 
Small14 4,997 3.4 %139,214 
Total Portfolio236 $147,690 100.0 %$3,528,448 

For the six months ended June 30, 2021, operators of facilities who provided 3% or more and collectively 79% of our total revenues were (parent company, in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and Senior Living Management; and The Ensign Group.

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As of June 30, 2021, our average effective annualized rental income was $8,737 per bed for SNFs, $8,441 per unit for SLCs, $10,314 per unit for ALFs, $11,434 per unit for ILFs, $22,723 per unit for EFCs, $51,948 per bed for hospitals, and $5 per square foot for MOBs.

Substantially all of our revenues and sources of cash flows from operations are rents paid under operating leases and interest earned on mortgages and notes receivable. Revenues from these investments represent a primary source of liquidity to fund our distributions to stockholders and depend upon the performance of the operators. Operating difficulties experienced by our operators could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, as well as on our results of operations. We monitor operator performance through periodic reviews of operating results for each facility, covenant compliance and property inspections, among other activities.

COVID-19 Pandemic

Since the World Health Organization declared COVID-19 a pandemic on March 11, 2020, the continually evolving pandemic has resulted in a widespread health crisis adversely affecting governments, businesses, and financial markets. The COVID-19 pandemic and related health and safety measures continue to impact the operations of many of the Company’s tenants, operators and borrowers. The federal government has provided economic assistance and other forms of assistance which mitigated to some extent the negative financial impact of the pandemic for certain of our tenants and operators who are eligible.

Revenues for the operators of our properties continue to be significantly impacted by occupancy. Building occupancy rates have been and may continue to be adversely affected by the COVID-19 pandemic if it continues to cause sustained negative trends such as early resident move-outs, delays in admitting new residents, or other collateral events. In addition, actions our operators take to address outbreaks could materially increase their operating costs, including costs related to enhanced health and safety precautions among other measures. A decrease in occupancy or increase in costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent, as well as on our results of operations.

Since the pandemic began, we have granted rent concessions as shown in the following table ($ in thousands):

Year endedThree months endedSix months ended
December 31, 2020June 30, 2021June 30, 2021Cumulative Totals
DeferralsAbatementsDeferralsAbatementsDeferralsAbatementsDeferralsAbatements
Bickford $3,750 $2,100 $6,500 $— $10,250 $— $14,000 $2,100 
Holiday— — 1,200 — 1,200 — 1,200 — 
All Others1,232 50 2,201 — 2,648 — 3,880 50 
$4,982 $2,150 $9,901 $— $14,098 $— $19,080 $2,150 

The majority of the deferred amounts noted in the table above accrue interest starting at 8% per annum from the date of the deferral until paid in full under the terms of each tenant’s deferral agreement. No amount of rent deferrals have been repaid.

In addition to the concessions noted above, we have agreed with Bickford to defer $1.5 million in contractual rent due for July 2021. We have agreed with Holiday to defer an additional $0.6 million of contractual rent due for July 2021. We also agreed to utilize $1.8 million of the lease deposit with Holiday as contractual rent with $1.2 million applied towards second quarter of 2021 contractual rent and $0.6 million towards July 2021 contractual rent. The balance of the lease deposit at June 30, 2021 was $9.4 million. We have reached agreement with two other tenants regarding additional rent deferrals of approximately $0.9 million for the third quarter 2021. We are in discussions with one other tenant for a rent deferral of approximately $0.7 million for the remainder of 2021. We anticipate some of our tenants may need additional rent deferrals to assist them with the impact of the pandemic on their operations. The timing and amount of any additional deferrals cannot yet be determined.

When applicable, we have elected not to apply the modification guidance under ASC 842 and have decided to account for the related concessions as variable lease payments, recorded as rental income when received. We will evaluate any rent deferral requests as a result of the COVID-19 pandemic on a tenant-by-tenant basis. The extent of future concessions we make as a result of the COVID-19 pandemic, which could have a material impact on our future operating results, cannot be reasonably or reliably projected by us at this time.

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We had approximately $37.0 million in unrestricted cash and cash equivalents on hand and $525.0 million in availability under our unsecured revolving credit facility as of July 31, 2021. In addition, we believe we continue to have access to additional debt sources and maintain availability under our at-the-market (“ATM”) equity issuance program and shelf registration statement to fund our future obligations, although no assurances can be made. We believe these liquidity sources position us to manage through the negative effects of the COVID-19 pandemic.

See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for further information regarding the risks presented by the COVID-19 pandemic.

Investment Highlights

Since January 1, 2021, we have completed or announced the following real estate and note investments ($ in thousands):

DatePropertiesAsset ClassAmount
2021
Real Estate Investments
Vizion HealthQ2 20211HOSP$40,250 
Navion Q2 20211SHO6,600 
Note Investments
Montecito Medical Real EstateQ2 20211MOB50,000 
Vizion Health-BrookhavenQ2 20211HOSP20,000 
Navion Senior SolutionsQ2 20211SHO3,600 
$120,450 

Vizion Health

In May 2021, we acquired a 64-bed specialty behavioral hospital located in Oklahoma for a total purchase price of $40.3 million, including $0.3 million in closing costs. In May 2021, we leased the hospital to an affiliate of Vizion Health. The 15-year master lease, which includes two five-year extension options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%. We have committed to additional funding of capital improvements for the hospital of up to $2.0 million which will be added to the lease base as funded.

In May 2021, we provided a $20.0 million, five year loan to Vizion Health-Brookhaven, LLC to finance the acquisition of healthcare operations, including the real and personal property of a behavioral hospital we acquired in May 2021 discussed above. The loan requires monthly principal and interest payments and bears an initial annual interest rate of 8.5% with fixed annual escalators of 2.5% beginning June 1, 2022. Initial principal loan repayments are equal to 90% of the excess cash flow as defined in the agreement. Principal repayments are reduced to 50% of the excess cash flow once the outstanding loan balance is reduced below $15.0 million.

Navion Senior Solutions

In June 2021, we acquired a 48-unit assisted living and memory care community in Tennessee for a purchase price of $6.6 million, including closing costs of $0.1 million. The community was added to an existing master lease with Navion Senior Solutions (“Navion”) whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each.

In May 2021, we provided a ten-year corporate loan to Navion for $3.6 million. The loan requires interest-only payments at an annual interest rate of 8% until June 1, 2024 and gives us first option to provide permanent development financing for a future project.

Montecito Medical Real Estate

In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the United States. Amounts under the loan agreement will be funded as real estate investments are identified for acquisition. Borrowings under the loan agreement will bear interest at an annual rate of 9.5% and accrue an additional 2.5% in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings. Funds drawn in accordance with this agreement are
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required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one year extensions. At June 30, 2021, we had funded $2.1 million of our commitment that was used to acquire two medical office buildings for a combined purchase price of approximately $11.1 million.

Asset Dispositions

Bickford - During the second quarter of 2021, we sold to affiliates of Bickford a portfolio of six properties that were being leased to Bickford for a purchase price of $52.9 million. We received approximately $39.9 million in cash consideration upon sale and originated a second mortgage note receivable for the remaining purchase price of $13.0 million. This note receivable is not reflected in mortgage and other notes receivable, net in the Condensed Consolidated Balance Sheet as of June 30, 2021 which is discussed in more detail in Note 4 to the condensed consolidated financial statements. We recorded a gain upon completion of this transaction totaling approximately $3.5 million representing the excess of the $39.9 million cash consideration received over the net book value of the assets sold of $34.5 million and the write off of straight-line rents receivable of approximately $1.9 million. Rental income from this portfolio was $1.6 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively.

Upon completion of the sale, Bickford satisfied the terms of our prior agreement that contingently waived $2.1 million in rental income for the third quarter of 2020. These properties were part of the Company’s ongoing negotiations for the sale to Bickford of nine properties leased to Bickford. We continue to explore our options for the remaining three properties, which could include a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.

Florida Medical Office Building - During the second quarter of 2021, we also sold a medical office building for approximately $4.3 million in cash consideration resulting in a gain of $3.0 million. Revenue for this property was $0.1 million and $0.2 million for the six months ended June 30, 2021 and 2020 respectively.

Holiday Disposition - In July 2021, we signed a non-binding letter of intent to sell a portfolio of nine properties that is leased to Holiday with an aggregate net book value of $133.5 million. We anticipate closing this transaction in August 2021 for total cash consideration of $129.8 million and will recognize an impairment of approximately $3.7 million in the third quarter of 2021 associated with this transaction. Rental income was $2.9 million and $5.8 million, for both the three and six months ended June 30, 2021 and 2020, respectively.

Notes Receivable Repayment

In the second quarter of 2021, LCS-Westminster Partnership IV LLP, an affiliate of LCS, repaid principal of $51.4 million on its note receivable. The note balance is $117.1 million as of June 30, 2021.

Assets Held for Sale

We have identified a behavioral hospital located in Tennessee for disposal, pursuant to the exercise of an option to purchase, and have classified the asset as available for sale on the Condensed Consolidated Balance Sheet at June 30, 2021. In July 2021, we sold this property for cash consideration of $31.2 million and recorded a gain of $8.6 million. Rental income was $0.7 million and $1.4 million, for both the three and six months ended June 30, 2021 and 2020, respectively.

Other

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 five-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the six months ended June 30, 2021, we did not have any significant 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 leases contain purchase options allowing tenants to acquire the leased properties. At June 30, 2021, we had a net investment of $18.9 million in five real estate properties which are subject to exercisable tenant purchase options. Tenant purchase options on 11 properties in which we had an aggregate net investment of $100.3 million at June 30, 2021, become exercisable between 2022 and 2028. Rental income from leased properties with tenant purchase options either currently exercisable or exercisable in the future was $4.3 million and $8.7 million for the three and six months ended June 30, 2021, respectively, and $4.2 million and $7.9 million for the three and six months ended June 30, 2020, respectively.

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In June 2021, we received notification of a tenant’s intention to acquire, pursuant to a purchase option, a hospital located in California. The purchase option calls for a minimum purchase price of $15.0 million with any appreciation above $15.0 million to be split evenly between the parties. The net investment at June 30, 2021 was $9.5 million. Rental income was $0.5 million and $0.9 million, for both the three and six months ended June 30, 2021, respectively. The transaction will close no earlier than one year after the receipt of the notice of exercise.

We cannot reasonably estimate at this time the probability that any other purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.

Tenant Concentration

As discussed in Note 3 to the condensed consolidated financial statements, we have four lessees (including their affiliated entities, which are the legal tenants) excluding $2.6 million for our corporate office and a credit loss reserve balance of $5.2 million, from whom we individually derive at least 10% of our total revenues as follows ($ in thousands):
as of June 30, 2021
Revenues1
AssetNumber ofRealNotesSix Months Ended June 30,
ClassPropertiesEstateReceivable20212020
Senior Living CommunitiesEFC10$573,631 $44,411 $25,420 16%$26,140 16%
Holiday RetirementILF26532,672 — 19,188 12%20,353 12%
National HealthCare Corporation (NHC)SNF42171,188 — 18,844 12%18,904 11%
Bickford Senior LivingALF42490,308 36,875 16,893 11%27,526 16%
All others, net2
Various1,471,301 208,062 70,533 45%71,166 43%
Escrow funds received from tenants
  for property operating expensesVarious— — 4,337 4%$3,182 2%
$3,239,100 $289,348 $155,215 $167,271 
1 includes interest income on notes receivable
2 includes prior period amounts for disposals or transitioned to new operators

Straight-line rent of $1.2 million and $2.1 million and interest revenue of $1.6 million and $2.3 million was recognized from the Senior Living Communities lease for the six months ended June 30, 2021 and 2020, respectively. Straight-line rent of $3.0 million and $3.3 million was recognized from the Holiday lease for the six months ended June 30, 2021 and 2020, respectively. Straight-line rent of $1.0 million and $1.4 million and interest revenue of $1.6 million and $1.3 million was recognized from the Bickford leases for the six months ended June 30, 2021 and 2020, 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.

For the six months ended June 30, 2021, approximately 27% of our total revenue was derived from operators of our skilled nursing facilities who receive a significant portion of their revenue from governmental payors, primarily Medicare and Medicaid. Such revenues are subject annually to statutory and regulatory changes.

The following table summarizes the average portfolio occupancy for Senior Living Communities, Bickford and Holiday for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, and properties transitioned to new operators or disposed.
Properties2Q203Q204Q201Q212Q21June 2021July 2021
Senior Living Communities979.1%79.0%77.3%77.7%78.5%79.1%79.9%
Bickford4282.1%81.2%79.1%75.0%77.4%78.2%79.6%
Holiday2683.5%79.6%77.2%74.1%73.8%74.1%74.9%

* Prior period occupancies have been restated to include an additional building added to the calculation in July 2021.


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The following table summarizes the revenue concentration of our top five states for the six months ended June 30, 2021 and 2020, respectively, excluding any escrow funds received for property operating expenses ($ in thousands).

Six Months Ended June 30,
Location20212020
South Carolina$17,209 $18,329 
Florida14,843 15,901 
Texas13,867 14,142 
Washington9,029 9,049 
California8,084 8,666 
All others87,846 98,002 
Escrow funds received from tenants for property operating expenses4,337 3,182 
$155,215 $167,271 

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 a primary performance measure 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, 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 90 days of month’s end. For computational purposes, we exclude mortgages and other notes receivable, development and lease-up properties that have been in operation less than 24 months. 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 the past 24 months or assets subsequently sold except as noted.

The results of our coverage ratio analysis are presented below on a trailing twelve-month basis, as of March 31, 2021 and 2020 (the most recent periods available).

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NHI Total Portfolio
By asset typeSHOSNFMEDICAL NON-SNFTOTAL
Properties130743207
1Q201.19x2.81x1.72x1.68x
1Q211.08x2.86x2.78x1.64x
Market servedNeed DrivenNeed Driven excl. BickfordDiscretionaryDiscretionary excl. SLC & HolidayMedicalMedical excl. NHC
Properties91493947735
1Q201.15x1.16x1.23x1.74x2.74x1.90x
1Q210.92x0.79x1.24x1.62x2.85x2.12x
Major tenants
NHC1
SLC3
Bickford3
Holiday
Properties4294226
1Q203.79x1.06x1.14x1.20x
1Q213.79x1.31x1.06x0.97x
NHI Same-Store Portfolio2
By asset typeSHOSNFMEDICAL NON-SNFTOTAL
Properties113743190
1Q201.19x2.81x1.72x1.71x
1Q211.09x2.86x2.78x1.68x
Market servedNeed DrivenNeed Driven excl. BickfordDiscretionaryDiscretionary excl. SLC & HolidayMedicalMedical excl. NHC
Properties84422937735
1Q201.14x1.15x1.24x1.82x2.74x1.90x
1Q210.91x0.77x1.29x1.65x2.85x2.12x
Major tenants
NHC1
SLC3
Bickford3
Holiday4
Properties4294217
1Q203.79x1.06x1.14x1.22x
1Q213.79x1.31x1.06x1.03x
1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3 independent living facilities.

2Excludes properties that have transitioned operators in past 24 months, assets classified as held for sale, and 9 Holiday properties under a non-binding letter of intent to be sold.

3 Pro forma SLC & Bickford T12 EBITDARM coverage excluding PPP income is 1.13x and 0.9x, respectively.

4 Excludes 9 properties under a non-binding letter of intent to be sold.

These results include any amounts received and recognized by the operators from the HHS CARES Act Provider Relief Fund and funds received under the Paycheck Protection Program if the loan has been forgiven. Our operators may not consistently account for any COVID-19 pandemic relief funds received which can impact comparability among operators and across periods.

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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 senior housing portfolio shows a decline brought about primarily by a softening in occupancy and rising expenses, including wage pressures. Additionally, the COVID-19 pandemic in the U.S. has further softened coverage for these operators as well as across our portfolio. 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 sufficiency of credit enhancements (e.g. tenant deposits and guarantees) as a protection against economic downturn will be a focus as the economic effects of the COVID-19 pandemic continue. The metrics presented in the tables above give no effect to the presence of these security deposits. Because of the recent disposals of the Florida medical office building and the behavioral hospital discussed in Note 3 to the condensed consolidated financial statements, we combined the MOB and Hospital categories previously presented into the “Medical Non-SNF” Category. Each MOB’s coverage is driven by the underlying 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.

Other Portfolio Activity

Tenant Transitioning

Nine properties were transitioned during 2019 to five new tenants following a period of non-compliance by the former operators. Two leases with the new tenants for six of these properties specify periods during which rental income is based on operating income, net of management fees. We recognized rental income from these nine properties of $0.8 million and $1.6 million for the three and six months ended June 30, 2021, respectively, and $1.3 million and $2.8 million for the three and six months ended June 30, 2020, respectively.

The following table summarizes the transition properties during the six months ended June 30, 2021:
Occupancy1
Facility Name (New Tenant)UnitsStateJune 2020September 2020December 2020March 2021June 2021
Discovery Commons of College Park148IN14.2%13.8%15.7%23.1%36.7%
The Charlotte (SLC)99NC34.8%38.9%42.9%46.6%57.1%
Maybelle Carter (Vitality)135TN77.3%76.8%73.1%68.7%64.9%
Chancellor TX-IL portfolio196IL/TX57.2%54.4%53.7%54.4%56.6%
Beaver Dam Assisted Living (BAKA)120WI61.7%61.8%60.4%60.4%60.6%
69849.6%49.2%49.0%50.5%54.7%
1 Monthly Average

Real Estate and Mortgage Write-downs

In addition to the impact of the COVID-19 pandemic, our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers. Our condensed consolidated financial statements for the three and six months ended June 30, 2021 do not reflect any significant impairment of our long-lived assets as a result of the COVID-19 pandemic or other factors. We have no significant intangible assets currently recorded on our Condensed Consolidated Balance Sheet that would require assessment for impairment.

We have established a reserve for estimated credit losses of $5.2 million and a liability of $1.2 million for estimated credit losses on unfunded loan commitments as of June 30, 2021. We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary.

We believe that the carrying amounts of our real estate properties are recoverable and that mortgage and other 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):
Three Months Ended
June 30,Period Change
20212020$%
Revenues:
Rental income
EFCs leased to Senior Living Communities$11,199 $10,858 $341 3.1 %
HOSP leased to Vizion Health323 — 323 NM
ALFs leased to 41 Management745 434 311 71.7 %
SNF leased to Ignite Team Partners610 342 268 78.4 %
SHOs leased to Discovery Senior Living2,673 3,039 (366)(12.0)%
SHOs leased to Senior Living Management1,161 1,789 (628)(35.1)%
SHOs leased to Wingate(11)975 (986)NM
SHOs leased to Holiday Retirement7,506 8,512 (1,006)(11.8)%
ALFs leased to Bickford Senior Living4,911 10,922 (6,011)(55.0)%
Other new and existing leases32,606 32,657 (51)(0.2)%
Current year disposals303 1,541 (1,238)(80.3)%
62,026 71,069 (9,043)(12.7)%
Straight-line rent adjustments, new and existing leases4,150 5,218 (1,068)(20.5)%
Escrow funds received from tenants for taxes and insurance2,175 1,630 545 33.4 %
Total Rental Income68,351 77,917 (9,566)(12.3)%
Interest income and other
Bickford construction loans1,019 677 342 50.5 %
41 Management mortgage loan395 172 223 NM
Vizion Health loan161 — 161 NM
Life Care Services mortgages and construction loans2,523 2,770 (247)(8.9)%
Other new and existing mortgages and notes1,821 2,567 (746)(29.1)%
Total Interest Income from Mortgage and Other Notes5,919 6,186 (267)(4.3)%
Other income60 71 (11)(15.5)%
Total Revenues74,330 84,174 (9,844)(11.7)%
Expenses:
Depreciation
SNF leased to Ignite Team Partners213 101 112 NM
SHOs leased to Holiday Retirement3,309 3,493 (184)(5.3)%
ALFs leased to Bickford Senior Living3,301 3,403 (102)(3.0)%
Current year disposals104 314 (210)(66.9)%
Other new and existing assets13,731 13,536 195 1.4 %
Total Depreciation20,658 20,847 (189)(0.9)%
Interest12,840 13,557 (717)(5.3)%
Non-cash stock-based compensation expense992 470 522 NM
Loan and realty (gains) losses1,221 (380)1,601 NM
Taxes and insurance on leased properties2,175 1,450 725 50.0 %
Other expenses2,788 2,957 (169)(5.7)%
Total Expenses40,674 38,901 1,773 4.6 %
Loss from equity method investment(909)(848)(61)7.2 %
Gains on sales of real estate6,484 — 6,484 NM
Net income39,231 3923100044,425 (5,194)(11.7)%
Less: net income attributable to noncontrolling interests(48)(57)(15.8)%
Net income attributable to common stockholders$39,183 $44,368 $(5,185)(11.7)%
NM - not meaningful
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Financial highlights of the three months ended June 30, 2021, compared to the same period of 2020 were as follows:

Rental income received from our tenants decreased $9.6 million, or 12.3%, primarily as a result of rent concessions related to the second quarter of 2021 totaling $9.9 million, net of new investments funded since June 2020.

Interest income from mortgage and other notes decreased $0.3 million, or 4.3%, primarily due to LCS principal repayments on a mortgage note of $51.4 million in the second quarter of 2021 offset by interest income on new loans funded since June 2020.

Interest expense decreased $0.7 million, or 5.3%, as a result of the convertible bond that matured in April 2021, the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility.

Non-cash stock-based compensation expense increased $0.5 million from the same period one year ago. The Company’s stock option grants in the first quarter of 2021 had an increase in estimated fair value of $9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company’s common stock price caused by the COVID-19 pandemic. In addition, the Company granted 60,000 additional options in the first quarter of 2021 compared to the first quarter of 2020, of which 50,000 options relate to the two new directors added during 2020.

Loan and realty (gains) losses increased $1.6 million related to our assessment of expected credit losses primarily from the additional notes receivable investments made during second quarter of 2021.

During the second quarter of 2021, we recorded $6.5 million in gains from the disposition of real estate assets as described under the heading “Asset Dispositions” in Note 3 to the condensed consolidated financial statements.

The following table summarizes our stabilizing real estate transitioned to new tenants ($ in thousands):

Three Months Ended
June 30,Period Change
20212020$%
Revenues:
Rental income
SHOs leased to Chancellor Health Care$— $287 $(287)(100.0)%
SHO leased to Senior Living Communities56 343 (287)(83.7)%
SHO leased to Discovery Senior Living45 190 (145)(76.3)%
SLC leased to Vitality Senior Living105 (102)(97.1)%
ALF leased to BAKA Enterprises180 343 (163)(47.5)%
Straight-line rent adjustments479 — 479 NM
Total Rental Income763 1,268 (505)(39.8)%
Expenses:
Depreciation
SHOs leased to Chancellor Health Care406 406 — — %
SHO leased to Senior Living Communities153 153 — — %
SHO leased to Discovery Senior Living171 171 — — %
SLC leased to Vitality Senior Living158 158 — — %
ALF leased to BAKA Enterprises135 135 — — %
Total Depreciation1,023 1,023 — — %
Legal— (22)22 (100.0)%
Franchise, excise and other taxes— (15)15 (100.0)%
1,023 986 37 3.8 %
Net (loss) income $(260)$282 $(542)NM

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The significant items affecting revenues and expenses are described below (in thousands):
Six Months Ended
June 30,Period Change
20212020$%
Revenues:
Rental income
EFCs leased to Senior Living Communities$22,640 $21,728 $912 4.2 %
SNF leased to Ignite Team Partners1,212 342 870 NM
CCRC leased to Timber Ridge OpCo4,619 3,794 825 21.7 %
ALFs leased to 41 Management1,491 823 667 81.0 %
SHOs leased to Discovery Senior Living5,331 6,030 (700)(11.6)%
ALFs leased to Chancellor Health Care4,206 4,971 (765)(15.4)%
SHOs leased to Holiday Retirement16,196 17,025 (829)(4.9)%
SHOs leased to Wingate Healthcare1,008 1,947 (938)(48.2)%
ALF’s leased to Bickford Senior Living12,536 24,625 (12,089)(49.1)%
Other new and existing leases58,098 59,275 (1,176)(2.0)%
Current year disposals3,036 307 2,729 NM
130,373 140,867 (10,494)(7.4)%
Straight-line rent adjustments, new and existing leases8,391 10,395 (2,004)(19.3)%
Escrow funds received from tenants for taxes and insurance4,337 3,182 1,155 36.3 %
Total Rental Income143,101 154,444 (11,343)(7.3)%
Interest income and other
Bickford construction loans1,781 1,261 520 41.2 %
Life Care Services5,701 5,352 349 6.5 %
Vizion Health161 — 161 NM
Senior Living Communities mortgage and other notes1,616 2,276 (660)(29.0)%
Bickford construction loan payoffs— 625 (625)(100.0)%
Other existing mortgages and notes2,717 3,190 (473)(14.8)%
Total Interest Income from Mortgage and Other Notes11,976 12,704 (728)(5.7)%
Other income138 123 15 12.2 %
Total Revenues155,215 167,271 (12,056)(7.2)%
Expenses:
Depreciation
ALFs leased to Bickford6,603 7,368 (765)(10.4)%
Current year disposals and held for sale637 — 637 NM
Other new and existing assets34,225 33,922 303 0.9 %
Total Depreciation41,465 41,290 175 0.4 %
Interest25,813 27,697 (1,884)(6.8)%
Non-cash stock-based compensation expense6,438 2,315 4,123 NM
Loan and realty losses1,171 1,195 (24)(2.0)%
Taxes and insurance on leased properties4,337 3,002 1,335 44.5 %
Other expenses5,693 6,001 (308)(5.1)%
Total Expenses84,917 81,500 3,417 4.2 %
Loss on early retirement of debt(451)— (451)NM
Loss from equity method investment(1,718)(1,290)(428)33.2 %
Gains on sales of real estate6,484 21,007 (14,523)(69.1)%
Net income74,613 105,488 (30,875)(29.3)%
Less: net (income) attributable to noncontrolling interest(100)(96)(4)4.2 %
Net income attributable to common stockholders$74,513 $105,392 $(30,879)(29.3)%
NM - not meaningful

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Financial highlights of the six months ended June 30, 2021, compared to the same period in 2020 were as follows:

Rental income received from our tenants decreased $11.3 million, or 7.3%, primarily as a result of rent concessions related to the first six months of 2021 totaling $14.1 million, net of new investments funded since June 2020.
Interest income from mortgage and other notes decreased $0.7 million, or 5.7%, primarily due to net paydowns on loans.

Interest expense decreased $1.9 million, or 6.8%, as a result of the convertible bond that matured in April 2021, the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility.

Non-cash stock-based compensation expense increased $4.1 million from the same period one year ago. The Company’s stock option grants in the first quarter of 2021 had an increase in estimated fair value of $9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company’s common stock price caused by the COVID-19 pandemic. In addition, the Company granted 67,500 additional options in the first quarter of 2021 compared to the first quarter of 2020, of which 50,000 options relate to the two new directors added during 2020.

Loss on early retirement of debt of $0.5 million for the six months ended June 30, 2021, represents the remaining deferred financing costs expensed upon repayment of $100.0 million term loan in January 2021.

Gains on sales of real estate decreased $14.5 million, or 69.1%, for the six months ended June 30, 2021 as compared to the the same period in the prior year. For the six months ended June 30, 2021, we recorded $6.5 million in gains from disposition of real estate assets as described under “Asset Dispositions” in Note 3 to the condensed consolidated financial statements. For the six months ended June 30, 2020, we disposed of a portfolio of eight assisted living properties to Brookdale Senior Living.

The following table summarizes our real estate under lease to transitioning tenants ($ in thousands):
Six Months Ended
June 30,Period Change
20212020$%
Revenues:
Rental income
SHOs leased to Chancellor Health Care$— $875 $(875)(100.0)%
SHO leased to Senior Living Communities354 699 (345)(49.4)%
SHO leased to Discovery Senior Living89 — 89 NM
SLC leased to Vitality Senior Living185 (179)NM
ALF leased to BAKA Enterprises330 686 (356)(51.9)%
Straight-line rent adjustments841 — 841 NM
Total Rental Income1,620 2,445 (825)NM
Expenses:
Depreciation
SHOs leased to Chancellor Health Care811 811 — — %
SHO leased to Senior Living Communities306 306 — — %
SHO leased to Discovery Senior Living342 342 — — %
SLC leased to Vitality Senior Living316 314 0.6 %
ALF leased to BAKA Enterprises270 269 0.4 %
Total Depreciation2,045 2,042 0.1 %
Legal— (11)11 NM
Franchise, excise and other taxes— 21 (21)NM
2,045 2,052 (7)(0.3)%
Net income (loss)$(425)$393 $(818)NM


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Liquidity and Capital Resources

At June 30, 2021, we had $525.0 million available to draw on our revolving credit facility, $32.5 million in unrestricted cash and cash equivalents, and the potential to access the remaining $417.4 million through the issuance of common stock under the Company’s $500.0 million ATM equity program. In addition, the Company maintains an effective automatic shelf registration statement through which capital could be raised via the issuance of debt and or equity securities.

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 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 stockholders and general corporate overhead.

These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below ($ in thousands):
Six Months Ended June 30,One Year Change
20212020$%
Cash and cash equivalents and restricted cash, January 1$46,343 $15,669 $30,674 NM
Net cash provided by operating activities108,512 116,809 (8,297)(7.1)%
Net cash provided by (used in) investing activities5,229 (80,125)85,354 NM
Net cash provided by (used in) financing activities(125,359)13,065 (138,424)NM
Cash and cash equivalents and restricted cash, June 30$34,725 $65,418 $(30,693)(46.9)%

Operating Activities – Net cash provided by operating activities for the six months ended June 30, 2021, which includes new investments completed during 2021 and lease payment collections arising from escalators on existing leases and previously funded lease incentives, was impacted by $14.1 million in rent deferrals granted during the six months ended June 30, 2021.

Investing Activities – Net cash used in investing activities for the six months ended June 30, 2021 was comprised primarily of $91.2 million of investments in mortgage and other notes and renovations of real estate, offset by the collection of principal on mortgage and other notes receivable of $52.3 million.

Financing Activities – Net cash used in financing activities for the six months ended June 30, 2021 differs from the same period in 2020 primarily as a result of a $113.8 million decrease in net borrowings, inclusive of a $400.0 million senior note offering, a $48.2 million increase in proceeds from issuance of common shares and dividend payments which increased $4.3 million over the same period in 2020.

Debt Obligations

As of June 30, 2021, we had outstanding debt of $1.4 billion. Reference Note 6 to the condensed consolidated financial statements for additional information about our outstanding indebtedness. Also, reference “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for more details on our indebtedness and the impact of interest rate risk.

Unsecured Bank Credit Facility - Our bank credit facility derives from the Credit Agreement dated as of August 3, 2017 (the “2017 Agreement”), and a Term Loan Agreement dated as of September 17, 2018 (the “2018 Agreement”). Together these agreements establish our unsecured $1.1 billion bank credit facility, which consists of two term loans – $225.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility with an initial maturity in August 2021. In April 2021, the Company elected to exercise the extension option on the revolving credit facility available after payment of a 10 basis point extension fee totaling $0.6 million, extending the maturity of the revolver to August 2022. Some combination of cash on hand, proceeds from recent and planned asset sales and operating cash flows is expected to be used to pay off the $225.0 million term loan at its maturity in August 2022. We also plan to execute a multiple year extension of our revolving credit facility prior to the August 2022 maturity date at an amount at least equal to the current $550.0 million capacity. We have swap agreements to fix the interest rates on $400.0 million of term loans that expire in December 2021.

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The revolving facility fee is currently 20 basis points (“bps”) 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 June 30, 2021 and December 31, 2020, 30-day LIBOR was 10 bps and 14 bps, respectively.

As of June 30, 2021, we had $150.0 million of outstanding variable rate debt exposed to interest rate risk through December 2021, at which time our remaining hedges expire. For the six months ended June 30, 2021, the interest spreads on the revolver and term loans were 30-day LIBOR plus 120 bps and a blended 132 bps, respectively. The facility fee was 20 bps per annum. These interest spreads and facility fee reflected our leverage-ratio compliance based on the applicable margin for LIBOR loans, measuring debt to “Total Asset Value,” at Level 3 in the leverage-based interest schedule included in the credit agreements.

Effective August 1, 2021, we exercised our one-time option included in our credit agreements to shift from the leverage-based interest schedule to the credit ratings-based interest schedule. This change potentially reduces the volatility of our interest costs on borrowings under the credit agreements during periods when our leverage may fluctuate higher. Our decision to move to the credit ratings-based interest schedule considered the relative costs under each interest schedule in addition to our desire to have a more stable interest cost if our leverage were to fluctuate. As of June 30, 2021, the interest spreads on the revolver and term loans using the credit ratings-based interest schedule would have been 120 bps and a blended 129 bps, respectively. The facility fee would have been 25 bps per annum. Interest spreads and the facility fee under the credit ratings-based interest schedule increase approximately 40 bps and 5 bps, respectively, if the Company’s credit rating from at least two credit rating agencies is downgraded to “BBB-/Baa3” or lower.

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 June 30, 2021, 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 in the 2017 Agreement. The 2018 Agreement generally includes the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement.

Senior Notes Offering - On January 26, 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually (the “2031 Senior Notes”). The 2031 Senior Notes were sold at an issue price of 99.196% of face value before the underwriters’ discount. Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $392.3 million. We used the net proceeds from the 2031 Senior Notes offering to repay our $100.0 million term loan that was entered into in July 2020 and reduce borrowings outstanding under our revolving credit facility. The $100.0 million term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 bps, based on our current leverage ratios.

We remain in compliance with all debt covenants under the unsecured bank credit facility, 2031 Senior Notes and other debt agreements.

Convertible Senior Notes - On April 1, 2021, our 3.25% senior unsecured convertible notes (the “Convertible Notes”) matured. The Company paid $67.1 million, including accrued interest of $1.0 million and a $6.1 million conversion premium to retire the Convertible Notes. The conversion premium was recorded as a reduction of “Capital in excess of par value” in our Condensed Consolidated Balance Sheet as of June 30, 2021.

Debt Maturities - Reference Note 6 to the condensed consolidated financial statements for more information on our debt maturities.

Credit Ratings - Moody's Investors Services (“Moody's”) announced on November 5, 2020 that it assigned an investment grade issuer credit rating and a senior unsecured debt rating of ‘Baa3’ with a “Negative” outlook to the Company. Both Fitch and S&P Global announced in November 2019 a public issuer credit rating of BBB- with an outlook of “Stable.” Fitch confirmed its rating most recently on September 30, 2020 and S&P Global confirmed its rating on November 4, 2020. 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. Any reduction in outlook or downgrade in our credit ratings from the rating agencies could negatively impact our costs of borrowings.

Reference Rate Reform - On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021. We may choose not to hedge any more of our LIBOR positions for the relatively short duration remaining during which LIBOR may be referenced.
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The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. Upon the issuance of the 2031 Senior Notes, the Company has reduced its LIBOR-based financial instruments.
Debt Metrics - We believe that our fixed charge coverage ratio, which is the ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including amounts in discontinued operations, 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 our balance sheet gives us a competitive advantage when accessing debt markets.

We calculate our fixed charge coverage ratio as approximately 5.6x for the six months ended June 30, 2021 (see our discussion under the heading Adjusted EBITDA including a reconciliation to our net income). Giving effect to significant acquisitions, financings, disposals and payoffs on an annualized basis, our consolidated net debt to Annualized Adjusted EBITDA ratio is approximately 5.1x for the three months ended June 30, 2021 ($ in thousands):

Consolidated Total Debt$1,434,744 
Less: cash and cash equivalents(32,544)
Consolidated Net Debt$1,402,200 
Adjusted EBITDA$68,496 
Annualizing Adjustment205,488 
Annualized impact of recent investments, disposals and payoffs(953)
$273,031 
Consolidated Net Debt to Annualized Adjusted EBITDA5.1x

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 June 30, 2021 ($ in thousands):
Date EnteredMaturity DateFixed RateRate IndexNotional AmountFair Value (Liability)
March 2019December 20212.22%1-month LIBOR$100,000 $(1,062)
March 2019December 20212.21%1-month LIBOR$100,000 $(1,068)
June 2019December 20211.61%1-month LIBOR$150,000 $(1,125)
June 2019December 20211.63%1-month LIBOR$50,000 $(378)

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 (loss), 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.

Supplemental Guarantor Financial Information

The Company’s $1.1 billion bank credit facility, unsecured private placement term loans due January 2023 through January 2027 with an aggregate principal amount of $400.0 million, and 2031 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s subsidiaries, except for certain excluded subsidiaries (“Guarantors”). The Guarantors are either owned, controlled or are affiliates of the Company.

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The following tables present summarized financial information for the Company and the Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands):

As of
June 30, 2021
Real estate properties, net
$2,257,422 
Other assets, net
423,839 
Note receivable due from non-guarantor subsidiary
81,383 
Totals assets
$2,762,644 
Debt
$1,340,192 
Other liabilities
83,197 
Total liabilities
$1,423,389 
Noncontrolling interest
$479 

Six Months Ended
June 30, 2021
Revenues
$138,542 
Interest revenue on note due from non-guarantor subsidiary2,310 
Expenses
77,247 
Loss from equity method investee(1,718)
Gains on sales of real estate6,484 
Loss on early retirement of debt(451)
Net income
$67,920 
Net income attributable to NHI and the subsidiary guarantors$67,820 

Equity

At June 30, 2021 we had 45,850,599 shares of common stock outstanding with a market value of $3.1 billion. Equity on our Condensed Consolidated Balance Sheet totaled $1.6 billion.

Dividends - Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. 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 Board of Directors has historically directed the Company toward maintaining a strong balance sheet. Therefore, we consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity, and 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 equity and debt capital on a leverage neutral basis will generate sufficient returns to our stockholders.

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, 2021 and thereafter. Historically, the Company has distributed at least 100% of annual taxable income. 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).

The following table summarizes dividends declared by the Board of Directors or paid during the six months ended June 30, 2021 and 2020:


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Six Months Ended June 30, 2021
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
December 15, 2020December 31, 2020January 29, 2021$1.1025
March 12, 2021March 31, 2021May 7, 2021$1.1025
June 3, 2021June 30, 2021August 6, 2021$0.90

Six Months Ended June 30, 2020
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
November 7, 2019December 31, 2019January 31, 2020$1.05
February 19, 2020March 31, 2020May 8, 2020$1.1025
June 15, 2020June 30, 2020August 7, 2020$1.1025

On August 6, 2021, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on September 30, 2021, payable on November 5, 2021.

At-the-Market (ATM) Equity Program - We maintain an ATM program which allows us to sell our common stock directly into the market. During the six months ended June 30, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds of approximately $47.9 million. We intend to use the proceeds from any further activity under the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility.

Shelf Registration Statement - We have an automatic shelf registration statement on file with the Securities and Exchange Commission that allows the Company to offer and sell to the public an unspecified amount of common stock, preferred stock, debt securities, warrants and or units at prices and on terms to be announced when and if such securities are offered. The details of any future offerings, along with the use of proceeds from any securities offered, will be described in a prospectus supplement or other offering materials, at the time of offering. Our shelf registration statement expires March 2023.

Off Balance Sheet Arrangements

As part of the Timber Ridge transaction in January 2020, we acquired the property subject to trust liens previously granted to residents of Timber Ridge. Beginning in 2008, the initial residents of Timber Ridge executed loans to the then owner/operators which were backed by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”) for the benefit of the trustee (now Wilmington Trust, N.A., “Trustee”) on behalf of all the residents who made loans to the owner/operator in accordance with a resident agreement. The Deed and Indenture granted a security interest in the Timber Ridge property to secure the loans made by the residents of the property. Subsequent to these early transactions, the repayment obligation with respect to “new” loans made to the owner/operator was no longer secured by the Timber Ridge property under the Deed and Indenture.

Our entry into the Timber Ridge transaction involved the separation of the existing owner/operator configuration into property and operating companies. Accomplishing the split required the allocation of assets and liabilities of the previously unified entity. Timber Ridge PropCo acquired the Timber Ridge property, subject to the resident mortgages secured by the Deed and Indenture. Accordingly, the remaining outstanding “old” loans made by the residents are still secured by a security interest in the Timber Ridge property. The trustee for all of the residents who made “old” loans in accordance with the resident agreements, entered into a subordination agreement concurrent with our acquisition, pursuant to which the Trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI to Timber Ridge PropCo.

The balance secured by the Deed and Indenture is $16.3 million at June 30, 2021. By terms of the resident loan assumption agreement, during the term of the lease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any repayment by Timber Ridge PropCo of these liabilities under the guarantee. As a result of the subordination agreement mentioned above and Timber Ridge OpCo’s indemnity guarantee, no liability has been recorded for the resident loan obligation.

As described in Note 2 to the condensed consolidated financial statements, our leases, mortgages and other notes receivable with certain unconsolidated 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
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consolidate their financial statements. Except as discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, under Contractual Obligations and Contingent Liabilities, we have no further material obligations arising from our transactions with these entities, and we believe our maximum exposure to loss at June 30, 2021, 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 the notes to the condensed consolidated financial statements. As of June 30, 2021, we furnished no direct support to any of these entities.

Contractual Obligations and Contingent Liabilities

As of June 30, 2021, our contractual payment obligations were as follows ($ in thousands):
TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Debt, including interest1
$1,552,810 $48,830 $769,796 $234,832 $499,352 
Development commitments9,649 9,649 — — — 
Loan commitments100,329 52,437 47,892 — — 
$1,662,788 $110,916 $817,688 $234,832 $499,352 
1 Interest is calculated based on the weighted average interest rate of outstanding debt balances as of June 30, 2021. The calculation also includes a facility fee of 0.20%.

Commitments and Contingencies

The following tables summarize information as of June 30, 2021 related to our outstanding commitments and contingencies which are more fully described in the notes to the condensed consolidated financial statements ($ in thousands):
Asset ClassTypeTotalFundedRemaining
Loan Commitments:
LCS Sagewood Note ASHOConstruction$118,800 $(107,342)$11,458 
Bickford Senior LivingSHOConstruction42,900 (32,901)9,999 
41 ManagementSHOConstruction22,200 (10,217)11,983 
Senior Living CommunitiesSHORevolving Credit20,000 (11,711)8,289 
41 ManagementSHOConstruction10,800 (9,092)1,708 
Timber Ridge OpCoSHOWorking Capital5,000 — 5,000 
Watermark RetirementSHOWorking Capital5,000 (1,000)4,000 
Montecito Medical Real EstateMOBMezzanine Loan50,000 (2,108)47,892 
$274,700 $(174,371)$100,329 

See Note 7 to our condensed consolidated financial statements for further details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.

The credit loss liability for unfunded loan commitments was $1.2 million as of June 30, 2021 and is estimated using the same methodology as for our funded mortgage and other notes receivable based on the estimated amount that we expect to fund.
Asset ClassTypeTotalFundedRemaining
Development Commitments:
Woodland VillageSHORenovation$7,515 $(7,425)$90 
Senior Living CommunitiesSHORenovation9,930 (9,930)— 
Discovery Senior LivingSHORenovation900 (900)— 
   Watermark RetirementSHORenovation6,500 (3,000)3,500 
   NavionSHORenovation3,650 — 3,650 
   OtherSHOVarious2,800 (391)2,409 
$31,295 $(21,646)$9,649 

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In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding up to $2.0 million toward the purchase of condominium units located at one of the facilities, of which $1.0 million has been funded as of June 30, 2021.
Asset ClassTotalFundedRemaining
Contingencies (Lease Inducements):
Timber Ridge OpCoSHO$10,000 $— $10,000 
Comfort Care Senior LivingSHO6,000 — 6,000 
Wingate HealthcareSHO5,000 — 5,000 
Navion Senior SolutionsSHO4,850 (1,500)3,350 
Discovery Senior LivingSHO4,000 — 4,000 
Ignite Medical ResortsSNF2,000 — 2,000 
$31,850 $(1,500)$30,350 

We adjust rental income for the amortization of lease inducements paid to our tenants.

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 direct 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 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.

FFO & FAD

These supplemental performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations (“FFO”), Normalized FFO 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 measures, caution should be exercised when comparing our FFO, Normalized FFO and Normalized FAD to that of other REITs. These 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 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. Beginning in the first quarter of 2021, the Company no longer presented Adjusted Funds from Operations as a supplemental measure of operating performance.

Funds From Operations - FFO

Our FFO per diluted common share for the six months ended June 30, 2021 decreased $0.42 or 14.9% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since June 2020. 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, and 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.

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Our Normalized FFO per diluted common share for the six months ended June 30, 2021 decreased $0.42 or 14.9% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since June 2020. 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 non-real 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.

Funds Available for Distribution - FAD

Our Normalized FAD for the six months ended June 30, 2021 decreased $8.1 million or 6.71% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since June 2020. In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our senior unsecured notes, amortization of debt issuance costs, non-cash stock based compensation, as well as certain non-cash items related to our equity method investment.

Normalized FAD is an important supplemental performance measure 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 any discount or premium related to indebtedness and debt issuance costs to be amortized as non-cash adjustments to earnings. We also adjust Normalized FAD for the net change in our allowance for expected credit losses, non-cash stock based compensation as well as certain non-cash items related to our equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to stockholders.

The following table reconciles net income, the most directly comparable GAAP metric, to FFO, Normalized FFO and Normalized FAD and is presented for both basic and diluted weighted average common shares ($ in thousands, except share and per share amounts):
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Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net income attributable to common stockholders$39,183 $44,368 $74,513 $105,392 
Elimination of certain non-cash items in net income:
Depreciation20,658 20,847 41,464 41,290 
Depreciation related to noncontrolling interests(210)(210)(420)(357)
Gains on sales of real estate(6,484)— (6,484)(21,007)
NAREIT FFO attributable to common stockholders53,147 65,005 109,073 125,318 
Loss on early retirement of debt— — 451 — 
Non-cash write-off of straight-line rent receivable— — — 380 
Normalized FFO attributable to common stockholders53,147 65,005 109,524 125,698 
Straight-line lease revenue, net(4,150)(5,218)(8,391)(10,775)
Straight-line lease revenue, net, related to noncontrolling interests21 30 45 52 
Amortization of lease incentives262 249 522 485 
Amortization of original issue discount80 101 134 202 
Amortization of debt issuance costs588 643 1,294 1,285 
Amortization related to equity method investment520 (2)1,056 (2)
Straight-line lease expense related to equity method investment21 31 45 51 
Note receivable credit loss expense1,221 (380)1,171 1,195 
Non-cash stock-based compensation992 470 6,438 2,315 
Equity method investment capital expenditures(105)(105)(210)(210)
Equity method investment non-refundable fees received 242 101 761 173 
Normalized FAD attributable to common stockholders$52,839 $60,925 $112,389 $120,469 
BASIC
Weighted average common shares outstanding45,850,599 44,650,002 45,577,843 44,631,797 
NAREIT FFO attributable to common stockholders per share$1.16 $1.46 $2.39 $2.81 
Normalized FFO attributable to common stockholders per share$1.16 $1.46 $2.40 $2.82 
DILUTED
Weighted average common shares outstanding45,858,074 44,650,002 45,607,924 44,634,070 
NAREIT FFO attributable to common stockholders per share$1.16 $1.46 $2.39 $2.81 
Normalized FFO attributable to common stockholders per share$1.16 $1.46 $2.40 $2.82 

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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, excluding real estate asset impairments and gains on dispositions and certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods. These items 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. Adjusted EBITDA also includes our proportionate share of unconsolidated equity method investments presented on a similar basis. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies. EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net income$39,231 $44,425 $74,613 $105,488 
Interest expense12,840 13,557 25,813 27,697 
Franchise, excise and other taxes232 145 465 389 
Depreciation20,658 20,847 41,464 41,290 
NHI’s share of EBITDA adjustments for unconsolidated entities798 — 1,486 — 
Note receivable credit loss expense1,221 (380)1,171 1,195 
Gains on sales of real estate(6,484)— (6,484)(21,007)
Loss on early retirement of debt— — 451 — 
Non-cash write-off of straight-line rent receivable— — — 380 
Adjusted EBITDA$68,496 $78,594 $138,979 $155,432 
Interest expense at contractual rates$10,368 $10,569 $20,821 $23,572 
Interest rate swap payments, net1,820 2,263 3,598 2,741 
Principal payments91 305 185 609 
Fixed Charges$12,279 $13,137 $24,604 $26,922 
Fixed Charge Coverage5.6x6.0x5.6x5.8x

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

At June 30, 2021, we were exposed to market risks related to fluctuations in interest rates on approximately $150.0 million of variable-rate indebtedness (excludes $400.0 million of variable-rate debt that has been hedged through interest-rate swap contracts) and on our mortgage and other notes receivable. The unused portion ($525.0 million at June 30, 2021) 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 June 30, 2021, net interest expense would increase or decrease annually by approximately $0.8 million or $0.02 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 ($ in thousands):
June 30, 2021December 31, 2020
Balance1
% of total
Rate2
Balance1
% of total
Rate2
Fixed rate:
Convertible senior notes - unsecured$— — %— %$60,000 4.0 %3.25 %
Private placement term loans - unsecured400,000 27.7 %4.15 %400,000 26.6 %4.15 %
Senior notes - unsecured400,000 27.7 %3.00 %— — %— %
Bank term loans - unsecured400,000 27.7 %3.23 %340,000 22.6 %3.27 %
Fannie Mae term loans - secured, non-recourse95,169 6.6 %3.94 %95,354 6.3 %3.94 %
Revolving credit facility - unsecured— — %— %60,000 4.0 %2.81 %
Variable rate:
Bank term loans - unsecured125,000 8.6 %1.11 %310,000 20.7 %1.77 %
Revolving credit facility - unsecured25,000 1.7 %1.30 %238,000 15.8 %1.34 %
$1,445,169 100.0 %3.28 %$1,503,354 100.0 %2.91 %
1 Differs from carrying amount due to unamortized discounts and loan costs.
2 Total is weighted average rate

The unsecured bank term loans in the table above reflect the effect of $400.0 million notional amount interest rate swaps with maturities in December 2021 that effectively convert variable rate debt to fixed rate debt. These loans bear interest at LIBOR plus a spread, currently a blended 132 bps, based on our leverage-based LIBOR margin.

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To highlight the sensitivity of our fixed rate debt to changes in interest rates, the following summary shows the effects on fair value (“FV”) assuming a parallel shift of 50 bps in market interest rates for a contract with similar maturities as of June 30, 2021 ($ in thousands):
Balance
Fair Value1
FV reflecting change in interest rates
Fixed rate:-50 bps+50 bps
Private placement term loans - unsecured$400,000 $408,020 $414,388 $401,778 
Senior notes400,000 376,888 393,111 361,398 
Fannie Mae loans95,169 95,664 97,368 93,992 
1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.

At June 30, 2021, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $303.0 million. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $42.7 million, while a 50 basis point decrease in such rates would increase their estimated fair value by approximately $32.7 million.

Common Stock Price Volatility

Our compensation committee has historically granted stock incentive awards to employees in the form of stock options. Compensation expense is recognized for stock options 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 and the market value of our publicly traded common stock on the date of grant. This expense is reflected in the “General and administrative” expense line item in our Condensed Consolidated Statements of Income. In addition to the market value of our common stock, one of the inputs into this model that significantly impacts the fair value of the options is the expected volatility of our common stock over the estimated life of the option. We estimate expected volatility by using the most recent historical experience.

Since the COVID-19 pandemic began, our common stock has experienced periods of elevated volatility in its trading. The stock option grants in 2021 included an increase in expected volatility in the estimation of fair value of stock options that resulted in a higher fair value and related stock-based compensation expense for these awards when compared to prior years.

The fair value of the stock option awards granted on February 25, 2021 was $14.54, using the closing market value of the common stock of $69.20 on the grant date and an estimate of expected volatility of 48.1%. This fair value is $9.00 per share greater than the weighted-average fair value of stock options granted in the first quarter of 2020 which has increased the amount of stock-based compensation expense that will be recognized for the current year grant compared to prior year. See Note 9 to the condensed consolidated financial statements for more discussion.

Item 4. Controls and Procedures.

Evaluation of Disclosure Control and Procedures. As of June 30, 2021, 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 June 30, 2021.

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 six months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Our health care 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 our facilities, management believes that the ultimate resolution of all such pending proceedings will have no direct 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 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.

Item 1A. Risk Factors.

During the six months ended June 30, 2021, there were no material changes to the risk factors that were disclosed in Item 1A of National Health Investors, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.


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Item 6. Exhibits.
Exhibit No.Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-3 Registration Statement No. 333-192322)
3.2
Articles of Amendment to Articles of Incorporation of National Health Investors, Inc. dated as of June 8, 1994, (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-3 Registration Statement No. 333-194653 of National Health Investors, Inc.)
3.3
Amendment to Articles of Incorporation (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement filed March 21, 2009)
3.4
Amendment to Articles of Incorporation approved by shareholders on May 2, 2014 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed August 4, 2014)
3.5
Restated Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-K filed February 15, 2013)
3.6
Amendment No. 1 to Restated Bylaws dated February 14, 2014 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-K filed February 14, 2014)
3.7
Amendment to Articles of Incorporation approved by shareholders on May 6, 2020 (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q filed August 10, 2020)
4.1Form 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
4.3
4.4
Indenture dated as of January 26, 2021, among National Health Investors, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K dated January 26, 2021)
4.5
31.1
31.2
32
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements 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.
 (Registrant)
 
 
Date:August 9, 2021/s/ D. Eric Mendelsohn
 D. Eric Mendelsohn
 President and Chief Executive Officer
 (duly authorized officer)
 
 
 
Date:August 9, 2021/s/ John L. Spaid
 John L. Spaid
 Chief Financial Officer
 (Principal Financial Officer)

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