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NATIONAL HEALTH INVESTORS INC - Quarter Report: 2022 March (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 endedMarch 31, 2022
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 45,851,044 shares of common stock outstanding of the registrant as of May 2, 2022.



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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)
March 31,
2022
December 31, 2021
(unaudited)
Assets:
Real estate properties:
Land$180,503 $186,658 
Buildings and improvements2,601,905 2,707,422 
Construction in progress851 468 
2,783,259 2,894,548 
Less accumulated depreciation(582,175)(576,668)
Real estate properties, net2,201,084 2,317,880 
Mortgage and other notes receivable, net of reserve of $5,134 and $5,210, respectively
316,390 299,952 
Cash and cash equivalents36,121 37,412 
Straight-line rent receivable94,739 96,198 
Assets held for sale, net131,988 66,398 
Other assets22,181 21,036 
Total Assets$2,802,503 $2,838,876 
Liabilities and Stockholders’ Equity:
Debt$1,249,044 $1,242,883 
Accounts payable and accrued expenses19,112 23,181 
Dividends payable41,265 41,266 
Lease deposit liabilities— 8,838 
Deferred income4,285 5,725 
Total Liabilities1,313,706 1,321,893 
Commitments and contingencies
National Health Investors, Inc. Stockholders’ Equity:
              Common stock, $0.01 par value, 100,000,000 shares authorized
45,850,868 and 45,850,599 shares issued and outstanding, respectively459 459 
Capital in excess of par value1,596,258 1,591,182 
Cumulative dividends in excess of net income(117,424)(84,558)
Total National Health Investors, Inc. Stockholders’ Equity1,479,293 1,507,083 
Noncontrolling interests9,504 9,900 
Total Equity1,488,797 1,516,983 
Total Liabilities and Stockholders’ Equity$2,802,503 $2,838,876 

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, 2021 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 Ended
March 31,
20222021
(unaudited)
Revenues:
Rental income$64,559 $74,749 
Interest income and other6,768 6,136 
71,327 80,885 
Expenses:
Depreciation18,272 20,806 
Interest10,198 12,973 
Legal1,827 130 
Franchise, excise and other taxes244 233 
General and administrative8,101 7,989 
Taxes and insurance on leased properties3,038 2,161 
Loan and realty losses (gains)24,528 (50)
66,208 44,242 
Gains (losses) from equity method investment297 (808)
Gains on sales of real estate, net2,981 — 
Loss on early retirement of debt(151)(451)
Net income8,246 35,384 
Less: net loss (income) attributable to noncontrolling interests153 (52)
Net income attributable to common stockholders$8,399 $35,332 
Weighted average common shares outstanding:
Basic45,850,686 45,305,087 
Diluted45,851,061 45,357,773 
Earnings per common share:
Net income attributable to common stockholders - basic$0.18 $0.78 
Net income attributable to common stockholders - diluted$0.18 $0.78 


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 Ended
March 31,
20222021
(unaudited)
Net income$8,246 $35,384
Other comprehensive income:
Increase in fair value of cash flow hedges— (6)
Reclassification for amounts recognized as interest expense— 1,778 
Total other comprehensive income— 1,772 
Comprehensive income8,246 37,156 
Comprehensive loss (income) attributable to noncontrolling interests153 (52)
Comprehensive income attributable to common stockholders$8,399 $37,104 


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)
 Three Months Ended
March 31,
 20222021
(unaudited)
Cash flows from operating activities:  
Net income$8,246 $35,384 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation18,272 20,806 
Amortization of debt issuance costs, debt discounts and prepaids1,087 1,192 
Amortization of commitment fees and note receivable discounts(120)(131)
Amortization of lease incentives252 260 
Straight-line rent income(1,079)(4,241)
Non-cash interest income on mortgage and other notes receivable(880)(700)
Non-cash lease deposit liability recognized as lease income(8,838)— 
Gains on sales of real estate, net(2,981)— 
Gains (losses) from equity method investment(297)808 
Loss on early retirement of debt151 451 
Loan and realty losses24,528 (50)
Payment of lease incentives— (1,042)
Non-cash share-based compensation5,083 5,446 
Changes in operating assets and liabilities: 
Other assets(107)(484)
Accounts payable and accrued expenses(4,252)(735)
Deferred income(385)(52)
Net cash provided by operating activities38,680 56,912 
Cash flows from investing activities:  
Investments in mortgage and other notes receivable(16,350)(8,412)
Collections of mortgage and other notes receivable988 442 
Proceeds from sales of real estate13,170 — 
Investments in renovations of existing real estate(165)(1,443)
Investments in equipment— (8)
Distribution from equity method investment297 288 
Net cash used in investing activities(2,060)(9,133)
Cash flows from financing activities:  
Proceeds from revolving credit facility85,000 30,000 
Payments on revolving credit facility— (298,000)
Payments on term loans(75,098)(100,094)
Proceeds from issuance of senior notes— 396,784 
Debt issuance costs(4,535)(4,459)
Proceeds from issuance of common shares, net— 47,951 
Distributions to noncontrolling interests(271)(258)
Dividends paid to stockholders(41,266)(49,818)
Taxes remitted on employee stock awards(7)— 
Net cash (used in) provided by financing activities(36,177)22,106 
Increase in cash and cash equivalents and restricted cash443 69,885 
Cash and cash equivalents and restricted cash, beginning of period39,485 46,343 
Cash and cash equivalents and restricted cash, end of period$39,928 $116,228 
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)
Three Months Ended
March 31,
20222021
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$12,920 $9,674 
Supplemental disclosure of non-cash investing and financing activities:
Change in other assets related to sales of real estate$(33)$— 
Change in accounts payable related to investments in real estate construction$— $(112)
Change in accounts payable related to renovations of existing real estate$(219)$— 
Change in accounts payable related to distributions to noncontrolling interests$(28)$(25)


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, 202145,850,599 $459 $1,591,182 $(84,558)$— $1,507,083 $9,900 $1,516,983 
Noncontrolling interests distribution— — — — — — (243)(243)
Total comprehensive income (loss)— — — 8,399 — 8,399 (153)8,246 
Taxes remitted on employee stock awards— — (7)— — (7)— (7)
Shares issued on stock options exercised269 — — — — — — — 
Share-based compensation— — 5,083 — — 5,083 — 5,083 
Dividends declared, $0.90 per common share— — — (41,265)— (41,265)— (41,265)
Balances at March 31, 202245,850,868 $459 $1,596,258 $(117,424)$— $1,479,293 $9,504 $1,488,797 


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, 202045,185,992 $452 $1,540,946 $(22,015)$(7,149)$1,512,234 $10,711 $1,522,945 
Noncontrolling interests 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 — — — — — — — 
Share-based compensation— — 5,446 — — 5,446 — 5,446 
Dividends declared, $1.025 per common share— — — (50,550)— (50,550)— (50,550)
Balances at March 31, 202145,850,599 $459 $1,594,336 $(37,233)$(5,377)$1,552,185 $10,530 $1,562,715 



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
March 31, 2022
(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 and a hospital. As of March 31, 2022, we had investments of approximately $2.8 billion in 186 health care real estate properties located in 32 states and leased pursuant primarily to triple-net leases to 27 lessees consisting of 120 senior housing communities (“SHO”), 65 skilled nursing facilities and one hospital, excluding 20 properties classified as assets held for sale. Our portfolio of 15 mortgages along with other notes receivable totaled $321.5 million, excluding an allowance for expected credit losses of $5.1 million, as of March 31, 2022.

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, 2021, included in our 2021 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 March 31, 2022, 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
$68,446 $85,434 Notes 3, 4
2014Senior Living CommunitiesNotes and straight-line receivable$88,448 $94,107 Notes 3, 4
2016Senior Living ManagementNotes and straight-line receivable$26,480 $26,480 
2018Sagewood, LCS affiliateNotes$110,762 $110,762 
2019Encore Senior LivingNotes and straight-line receivable$34,245 $62,735 Note 4
2020Timber Ridge OpCo, LLC
Various2
$(5,000)$5,000 Note 5
2020Watermark RetirementNotes and straight-line receivable$8,528 $10,306 
2021Montecito Medical Real EstateNotes and funding commitment$15,754 $50,000 Note 4
2021Vizion HealthNotes and straight-line receivable$20,231 $22,564 
2021Navion Senior SolutionsNotes and straight-line receivable$6,834 $13,834 
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 financial position and results of operations of the tenants 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 months ended March 31, 2022 and 2021, our noncontrolling 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 and cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):
March 31,
2022
March 31,
2021
Cash and cash equivalents$36,121 $113,375 
Restricted cash (included in Other assets)3,807 2,853 
$39,928 $116,228 

Assets Held for Sale

We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we anticipate the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is
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reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated transaction costs. Depreciation and amortization of the property are discontinued.

Real Estate Investment Impairment

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

During the three months ended March 31, 2022, we recognized impairment charges of approximately $24.6 million included in “Loan and realty losses (gains)” in our Condensed Consolidated Statement of Income. Reference Note 3 for more discussion.

Rental Income

Our leases generally provide for rent escalators throughout the term of the lease. Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectible and the lease provides for specific contractual escalators. The Company reviews its operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in which the tenant operates and economic conditions in the area where the property is located. In the event that collectibility with respect to any tenant is not probable, a direct write-off of the receivable is made as an adjustment to rental income and any future rental revenue is recognized only when the tenant makes a rental payment.

Accounting for Lease Modifications related to the Coronavirus Pandemic

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 842”). Instead, an entity that elects not to evaluate whether a concession directly related to the COVID-19 pandemic, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a lease modification can decide whether or not to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. We have elected not to apply the modification guidance under ASC 842 and have accounted for qualified rent concessions as variable lease payments when applicable, and recorded as rental income when received. During the three months ended March 31, 2022, we provided $7.8 million lease concessions directly related to the COVID-19 pandemic, as discussed in more detail in Note 7.

Note 3. Real Estate Properties and Investments

Asset Dispositions

During the three months ended March 31, 2022, we completed the following real estate dispositions as described below ($ in thousands):
OperatorDatePropertiesAsset ClassNet ProceedsNet Real Estate InvestmentGain
Hospital Corporation of AmericaQ1 20221MOB$4,868 $1,904 $2,964 
Vitality Senior Living1
Q1 20221SLC8,302 8,285 17 
$13,170 $10,189 $2,981 
1 Prior impairment charges recognized on this property of $10.9 million.



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Hospital Corporation of America

In January 2022, we sold a medical office building located in Texas for approximately $5.1 million in cash consideration, and incurred $0.3 million of transaction costs, resulting in a gain of approximately $3.0 million. The property was classified as assets held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2021. Revenue for the property was insignificant for both the three months ended March 31, 2022 and 2021.

Vitality Senior Living

In March 2022, we sold a senior living community located in Tennessee for approximately $8.6 million in cash consideration, and incurred $0.3 million of transaction costs, resulting in a minimal gain. The property was classified as assets held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2021. Prior impairment charges recognized on this property totaled $10.9 million. Revenue for the property was insignificant for both the three months ended March 31, 2022 and 2021.


Assets Held for Sale and Impairment of Real Estate

At March 31, 2022, 20 properties, with an aggregate net real estate balance of $132.0 million, were classified as assets held for sale on our Condensed Consolidated Balance Sheet, including twelve properties that were classified as assets held for sale during the first quarter of 2022. Rental income associated with the 20 properties was $3.1 million and $3.7 million for the three months ended March 31, 2022 and 2021, respectively.

During the first quarter of 2022, we recorded impairment charges of $24.6 million, including $15.3 million on one property held in use. The impairment charges are included in “Loan and realty losses (gains)” in the Consolidated Statement of Income.

We reduced the carrying value of the impaired property to its estimated fair value or, with respect to the properties classified as held for sale, to estimated fair value less costs to sell. To estimate the fair values of the properties, we utilized a market approach which considered binding agreements for sales (Level 1 inputs), non-binding offers to purchase from unrelated third parties and/or broker quotes of estimated values (Level 3 inputs), and/or independent third-party valuations (Level 1 and 3 inputs).

Second Quarter 2022 Dispositions

Holiday Retirement

In April 2022, we sold an independent living facility located in Washington for approximately $3.2 million in cash consideration, and incurred $0.3 million of transaction costs, resulting in a minimal loss. The property was classified as assets held for sale on the Condensed Consolidated Balance Sheet as of March 31, 2022. Prior impairment charges recognized on this property totaled $0.9 million.

Chancellor Senior Living

In April 2022, we sold two assisted living facilities located in Texas for approximately $7.8 million in cash consideration, and incurred $0.5 million of transaction costs, resulting in a minimal gain. The properties were classified as assets held for sale on the Condensed Consolidated Balance Sheet as of March 31, 2022. Prior impairment charges recognized on these properties totaled $7.6 million.


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 $5.1 million, based on the percentage of revenues for the three months ended March 31, 2022 and 2021, related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):

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as of March 31, 2022
Revenues1
AssetRealNotesThree Months Ended March 31,
Class
Estate2
Receivable20222021
Senior Living CommunitiesEFC$573,631 $47,041 $12,751 18%$12,723 16%
Holiday Retirement (“Holiday”)3
ILF377,735 — 9,797 14%10,185 13%
National HealthCare Corporation (“NHC”)SNF171,530 — 9,189 13%9,452 12%
Bickford Senior LivingALF476,372 42,912 7,038 10%10,207 13%
All others, netVarious1,386,865 231,571 29,514 41%36,157 44%
Escrow funds received from tenants
 for property operating expensesVarious— — 3,038 4%2,161 2%
$2,986,133 $321,524 $71,327 $80,885 
1 Includes interest income on notes receivable and rental income from properties classified as held for sale.
2 Amounts include any properties classified as held for sale.
3 Revenues include an $8.8 million lease deposit recognized as rental income in the three months ended March 31, 2022.

At March 31, 2022, the two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (10.7%).

Senior Living Communities

As of March 31, 2022, we leased ten retirement communities to Senior Living Communities, LLC (“Senior Living”). We recognized straight-line rent revenue of $0.1 million and $0.5 million from Senior Living for the three months ended March 31, 2022 and 2021, respectively.

Holiday

As of March 31, 2022, we leased 15 independent living facilities and one assisted living facility, excluding one property classified as assets held for sale, to a Welltower-controlled subsidiary. We received no rent due under the master lease for these facilities since the Welltower-controlled subsidiary became the tenant on July 30, 2021. Accordingly, we placed the tenant on cash basis in the third quarter of 2021 and filed suit against Welltower, Inc. and certain subsidiaries for default under the master lease. During the first quarter of 2022, we recognized the remaining $8.8 million lease deposit that was applied to outstanding, past-due rent and approximately $1.0 million of deferred income as rental income. Reference Note 7 for more discussion of the litigation and its subsequent settlement.

Holiday Transition

On April 1, 2022, we disposed of one property classified in assets held for sale as discussed above and transitioned to an existing operator one assisted living community in Florida that was added to the in-place master lease. In addition, we transitioned the remaining 15 independent living facilities into two separate joint ventures that own the underlying independent living operations and in which NHI has majority interests. These joint ventures are structured to comply with REIT requirements and to utilize the Taxable REIT Subsidiary (“TRS”) for activities that would otherwise be non-qualifying for REIT purposes. These communities are operated by two third-party property managers in exchange for the receipt of a management fee. The third-party managers, or related affiliates of the managers, own equity interests in the respective ventures.

NHC Percentage Rent

Under the terms of our two leases with NHC, rent escalates by 4% of the increase, if any, in each of the facility’s revenue over a base year and is referred to as percentage rent. The following table summarizes the percentage rent income from NHC ($ in thousands):
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Three Months Ended March 31,
20222021
Current year$843 $920 
Prior year final certification1
(206)(5)
Total percentage rent income$637 $915 
1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

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

Bickford Senior Living

As of March 31, 2022, we leased 37 facilities, excluding four facilities classified as assets held for sale, under four leases to Bickford Senior Living (“Bickford”). Bickford’s revenues reflect the impact of rent concessions of approximately $5.5 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively.
In March 2022, we transferred one assisted living facility located in Pennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a four-year triple net lease and wrote off approximately $0.7 million in a straight-line rent receivable, reducing rental income. We recognized straight-line rent revenue of $0.5 million, excluding the write off associated with the transferred property, and $0.6 million from Bickford for the three months ended March 31, 2022 and 2021, respectively.

Lease Restructure

Effective April 1, 2022, Bickford’s four master lease agreements were restructured and amended. Rent for the portfolio, excluding properties classified as held for sale, will be approximately $28.0 million per year through April 1, 2024, at which time the rent will be reset to a fair market value, not less than 8.0% of our initial gross investment.

One of the master lease agreements covering 12 properties with an original maturity in 2023 has been extended to 2028. The remaining leases with maturity dates in 2031 and 2033 have been extended for two years to 2033 and 2035, respectively.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At March 31, 2022, we had tenant purchase options on 10 properties with an aggregate net investment of $89.5 million that will become exercisable between 2025 and 2028. Rental income from these properties with tenant purchase options was $2.6 million and $2.7 million for three months ended March 31, 2022 and 2021, respectively.

In June 2021, we received notification of a tenant’s intention to acquire, pursuant to a purchase option, a hospital located in California that has been included in assets held for sale. 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 March 31, 2022 was $10.5 million. Rental income was $0.5 million for both the three months ended March 31, 2022 and 2021. 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.

Future Minimum Base Rent

Future minimum lease payments to be received by us under our operating leases at March 31, 2022, are as follows ($ in thousands):
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Remainder of 2022$202,424 
2023264,680 
2024262,476 
2025264,729 
2026268,834 
2027232,226 
Thereafter988,105 
$2,483,474 

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 Ended
March 31,
20222021
Lease payments based on fixed escalators, net of deferrals$59,508 $67,281 
Lease payments based on variable escalators1,186 1,326 
Straight-line rent income1,079 4,241 
Escrow funds received from tenants for property operating expenses3,038 2,161 
Amortization of lease incentives(252)(260)
Rental income$64,559 $74,749 


Note 4. Mortgage and Other Notes Receivable

At March 31, 2022, our investments in mortgage notes receivable totaled $239.7 million secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 15 facilities and other notes receivable totaled $81.8 million substantially all of which are 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 $5.1 million at March 31, 2022. All our notes were on full accrual basis at March 31, 2022.

Mortgage and Other Notes Receivable

Encore Senior Living

In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore Senior Living to construct a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized. The total amount funded on the note was $4.2 million as of March 31, 2022.

Montecito Medical Real Estate

At March 31, 2022, we had an outstanding $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a fund that invests in medical real estate, including medical office buildings, throughout the United States. During the first quarter of 2022, we funded $3.7 million on one real estate investment. Borrowings under the loan agreement 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. As of March 31, 2022, we have funded $15.8 million of our commitment that was used to acquire seven medical office buildings for
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a combined purchase price of approximately $73.6 million. In the first quarter of 2022, we received principal and interest of $0.3 million and $0.4 million, respectively.

Bickford construction and mortgage loans

As part of the June 2021 sale of six properties to Bickford, we executed a $13.0 million second mortgage as a component of the purchase price consideration. This second mortgage note receivable bears interest at a 10% annual rate and matures in April 2026. Interest income was $0.3 million for the three months ended March 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. Therefore, this note receivable is not reflected in “Mortgage and other notes receivable, net” in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.

As of March 31, 2022, we had two fully funded construction loans of $28.7 million and one $14.2 million construction loan with $10.3 million funded to Bickford. 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 certain 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.

We also have a mortgage loan of $4.0 million to Bickford due February 2025, bearing interest at 7%, that amortizes on a twenty-five-year basis.

Senior Living Communities

We provided a $20.0 million revolving line of credit to Senior Living Communities (“Senior Living”) whose borrowings 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 March 31, 2022, the $14.3 million outstanding under the facility bears interest at 8.32% 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.

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, December 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, and (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 March 31, 2022, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of March 31, 2022 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 March 31, 2022, is presented below for the amortized cost, net by year of origination of ($ in thousands):

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20222021202020192018PriorTotal
Mortgages
more than 1.5x$3,991 $— $29,929 $9,024 $139,462 $4,257 $186,663 
between 1.0x and 1.5x— — — 32,700 — — 32,700 
less than 1.0x— — 3,927 6,423 — 10,000 20,350 
3,991 — 33,856 48,147 139,462 14,257 239,713 
Mezzanine
more than 1.5x— 23,237 — — — 9,836 33,073 
between 1.0x and 1.5x— 15,925 — — — — 15,925 
less than 1.0x— — — — — 14,500 14,500 
No coverage available— — — 750 — — 750 
— 39,162 — 750 — 24,336 64,248 
Revolver
more than 1.5x— 
between 1.0x and 1.5x17,563 
less than 1.0x— 
17,563 
Credit loss reserve(5,134)
$316,390 

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 three months ended March 31, 2022 ($ in thousands):
Beginning balance January 1, 2022$5,210 
Provision for expected credit losses(76)
Balance March 31, 2022$5,134 



Note 5. Equity Method Investment

Our initial $0.9 million investment in the operating company, Timber Ridge OpCo, held by our 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. 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. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility. As of March 31, 2022, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $5.0 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheet as of March 31, 2022. Excess unrecognized equity method losses for the three months ended March 31, 2022 were $0.7 million. Cumulative unrecognized losses were $1.7 million through March 31, 2022. We recognized a gain of approximately $0.3 million, representing cash distributions received, and a loss of approximately $0.8 million related to our investment in Timber Ridge OpCo for the three months ended March 31, 2022 and 2021, respectively.
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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 March 31, 2022. The balance secured by the Deed and Indenture was $15.2 million at March 31, 2022.

Note 6. Debt

Debt consists of the following ($ in thousands):
March 31,
2022
December 31,
2021
Revolving credit facility - unsecured$85,000 $— 
Bank term loans - unsecured300,000 375,000 
Senior notes - unsecured, net of discount of $2,841 and $2,921
397,159 397,079 
Private placement term loans - unsecured400,000 400,000 
Fannie Mae term loans - secured, non-recourse76,940 77,038 
Unamortized loan costs(10,055)(6,234)
$1,249,044 $1,242,883 


Aggregate principal maturities of debt as of March 31, 2022 are as follows ($ in thousands):

Remainder of 2022$291 
2023475,408 
202475,425 
2025125,816 
202685,000 
2027100,000 
Thereafter400,000 
1,261,940 
Less: discount(2,841)
Less: unamortized loan costs(10,055)
$1,249,044 

Unsecured revolving credit facility and bank term loans

On March 31, 2022, we entered into a new unsecured revolving credit agreement (the “2022 Credit Agreement”) providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at either (i) Term Secured Overnight Financing Rate (“SOFR”) (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) Daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the base rate plus a margin ranging from —% to 0.40%. In each election, the actual margin is determined according to our credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the Agent’s prime rate, (ii) the federal funds rate on such day plus 0.50% or (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.0%.

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In addition, the 2022 Credit Agreement requires a facility fee equal to 0.125% to 0.30%, based on our rating. We incurred $4.5 million of deferred costs in connection with the 2022 Credit Agreement which are included as a component of “Debt” on the Condensed Consolidated Balance Sheet as of March 31, 2022.

Concurrently with the execution of the 2022 Credit Agreement, we amended our $300.0 million term loan (“2018 Term Loan”) maturing in September 2023. The amendment modifies the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowing based on SOFR (plus a credit spread adjustment) that were previously based on LIBOR, with no change to the existing applicable interest rate margins. We may also elect for the 2018 Term Loan to accrue interest at a base rate plus the applicable margin.

In March 2022, we repaid a $75.0 million term loan maturing August 2022 with proceeds from the revolving credit facility. 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, we expensed approximately $0.2 million of unamortized loan costs associated with this loan which is included in “Loss on early retirement of debt” in our Condensed Consolidated Statement of Income for the three months ended March 31, 2022.

The revolving facility fee was 25 bps per annum during the first quarter of 2022 and based on our current credit ratings, the facility provided for floating interest on the revolver and the term loans at SOFR CME Term Option 1 Month Loan plus 105 bps. At March 31, 2022, the SOFR CME Term Option one month was 41 bps.

At March 31, 2022, we had $615.0 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 March 31, 2022, 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

In January 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”). We used a portion of the net proceeds from the 2031 Senior Notes offering to repay a $100.0 million term loan and recognized a loss on early retirement of debt of $0.5 million for the three months ended March 31, 2021, representing the unamortized loan costs expensed upon early repayment of the term loan.

The 2031 Senior Notes are subject to affirmative and negative covenants, including financial covenants. As of March 31, 2022, 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 

Covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility, except for specific debt-coverage ratios and net worth minimums that are more restrictive. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating on our senior unsecured debt below investment grade and our compliance leverage increases to 50% or more.


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Fannie Mae term loans

As of March 31, 2022, we had $60.1 million Fannie Mae term-debt financing, originating March 2015, consisting of interest-only payments at an annual rate of 3.79% and a 10-year maturity. The mortgages are non-recourse and secured by eleven 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 $16.8 million at March 31, 2022. Collectively, these notes are secured by facilities having a net book value of $106.9 million at March 31, 2022.

Interest Expense and Rate Swap Agreements

The following table summarizes interest expense ($ in thousands):
Three Months Ended
March 31,
20222021
Interest expense on debt at contractual rates$9,558 $10,452 
Losses reclassified from accumulated other
comprehensive income into interest expense— 1,778 
Capitalized interest(2)(16)
Amortization of debt issuance costs, debt discount and other642 759 
Total interest expense$10,198 $12,973 

On December 31, 2021, our $400.0 million interest rate swap agreements matured that were in place to hedge against fluctuations in variable interest rates applicable to our bank loans.

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 to our operators to conduct expansions and acquisitions for their own account, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. In our leasing operations, we offer to our tenants and to sellers of newly acquired properties a variety of inducements which originate contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent payments earned will be included in the respective lease bases when funded.

As of March 31, 2022, we had working capital, construction and mezzanine loan commitments to seven operators for $274.5 million, of which we had funded $187.9 million toward these commitments.

As of March 31, 2022, we had $31.3 million of development commitments for construction and renovation for nine properties of which we had funded $23.9 million toward these commitments. In addition to these commitments, Discovery PropCo has committed to funding up to $2.0 million for the purchase of condominium units located at one of the facilities of which $1.0 million had been funded.

As of March 31, 2022, we had $33.9 million of contingent lease inducement commitments in seven lease agreements which are generally based on the performance of facility operations and may or may not be met by the tenant. At March 31, 2022, we had funded $1.5 million toward these commitments of which $1.0 million was funded during the three months ended March 31, 2022.

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 three months ended March 31, 2022 ($ in thousands):

Beginning balance January 1, 2022$955 
Provision for expected credit losses— 
Balance at March 31, 2022$955 

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.

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.

As of March 31, 2022, aggregate pandemic-related rent concessions granted to tenants that have been accounted for as variable lease payments totaled approximately $41.4 million, net of cumulative repayments of $0.2 million and excluding any interest accrued. Of this total, net rent deferrals that are contractually agreed to be repaid are $35.9 million. During the first quarter of 2022, we granted rent deferrals of $6.3 million to six tenants, of which Bickford accounts for $4.0 million. Bickford was also granted a rent abatement of approximately $1.5 million. Repayments of rent deferrals during the first quarter of 2022 totaled $0.1 million.

We have agreed to defer approximately $1.8 million in contractual rent due for the second quarter of 2022. We anticipate that some tenants may need additional rent deferrals to assist them with the ongoing impact of the pandemic. The timing and amount of any additional deferrals cannot yet be determined.

Rent deferrals granted in the first quarter of 2021 totaled approximately $4.2 million, of which Bickford accounted for approximately $3.8 million.

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.

Welltower, Inc.

In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company in which 17 senior living facilities were included in Holiday’s portfolio and governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities since this change in tenant ownership occurred in late July 2021.

On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Voorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the "Defendants") in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants failed repeatedly to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a
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promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent.

In connection with a memorandum of understanding between the parties dated March 4, 2022, NHI applied the remaining approximately $8.8 million lease deposit to past due rents in the first quarter of 2022. Unpaid contractual rent, excluding penalties and interest, totaled $9.1 million through March 31, 2022 after application of the lease deposit. Also, as provided by the memorandum of understanding, Welltower transferred approximately $6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement dated March 31, 2022 with Defendants formalizing the terms to settle the lawsuit.

NHI and certain of its subsidiaries terminated the master lease with Well Churchill Leasehold Owner, LLC as successor in interest to NHI Master Tenant LLC, effective April 1, 2022, upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new senior housing operating portfolio partnership ventures. See Note 3 for more information on these new ventures.

Also effective April 1, 2022, the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation, and the $6.9 million in escrowed funds were released to NHI.

Note 8. Equity and Dividends

Share Repurchase Plan

On April 15, 2022, the Company’s Board of Directors approved a stock repurchase plan for up to $240.0 million of the Company’s common stock. The plan is effective for a period of one year. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended and shall be made in accordance with all applicable laws and regulations in effect. The timing and number of shares repurchased, if any, will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations.

Dividends

The following table summarizes dividends declared by the Board of Directors or paid during the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
November 5, 2021December 31, 2021January 31, 2022$0.90
February 16, 2022March 31, 2022May 6, 2022$0.90

Three Months Ended March 31, 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

On May 6, 2022, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on June 30, 2022, payable on August 5, 2022.

Note 9. Share-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 2022, we granted options to purchase 693,000 shares of common stock under the 2019 Plan. As of March 31, 2022, shares available for future grants totaled
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1,447,336 under the 2019 Plan. The following is a summary of share-based compensation expense, net of any forfeitures, included in “General and administrative expenses” in the Condensed Consolidated Statements of Income ($ in thousands):
Three Months Ended
March 31,
20222021
Non-cash share-based compensation expense$5,083 $5,446 

The weighted average fair value of options granted during the three months ended March 31, 2022 and 2021 was $11.81 and $14.54 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:

20222021
Dividend yield7.1%6.7%
Expected volatility49.2%48.1%
Expected lives2.9 years2.9 years
Risk-free interest rate1.72%0.33%

The following table summarizes our outstanding stock options:

Weighted Average
NumberWeighted AverageRemaining
of SharesExercise PriceContractual Life (Years)
Options outstanding, January 1, 20211,033,838 $83.54
Options granted 652,000 $69.20
Options exercised(20,000)$60.52
Options outstanding, March 31, 20211,665,838 $78.20
Exercisable at March 31, 20211,180,824 $79.31
Options outstanding, January 1, 20221,652,505 $78.10
Options granted693,000 $53.41
Options exercised(7,500)$53.41
Options forfeited(23,000)$62.33
Options expired(74,498)$77.93
Options outstanding, March 31, 20222,240,507 $70.713.57
Exercisable at March 31, 20221,719,487 $74.343.27

At March 31, 2022, the aggregate intrinsic value of stock options outstanding and exercisable was $3.8 million and $1.9 million, respectively. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2022 and 2021 was $4.94 per share or less than $0.1 million; and $9.27 per share or $0.2 million, respectively.

As of March 31, 2022, unrecognized compensation expense totaling $4.9 million associated with unvested stock options is expected to be recognized over the following periods: remainder of 2022 - $3.2 million, 2023 - $1.5 million and 2024 - $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
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within our convertible debt that was repaid in April 2021 was determined by computing an average of incremental shares included in the three months ended March 31, 2021 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):

Three Months Ended
March 31,
20222021
Net income attributable to common stockholders$8,399 $35,332 
BASIC:
Weighted average common shares outstanding45,850,686 45,305,087 
DILUTED:
Weighted average common shares outstanding45,850,686 45,305,087 
Stock options375 10,873 
Convertible senior notes— 41,813 
Weighted average dilutive common shares outstanding45,851,061 45,357,773 
Net income attributable to common stockholders - basic$0.18 $0.78 
Net income attributable to common stockholders - diluted$0.18 $0.78 
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 shares481,068 216,762 
Regular dividends declared per common share$0.90 $1.1025 


Note 11. Fair Value of Financial Instruments

Carrying amounts and fair values of financial instruments that are not carried at fair value at March 31, 2022 and December 31, 2021 in the Condensed Consolidated Balance Sheets are as follows ($ in thousands):

Carrying AmountFair Value Measurement
March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Level 2
Variable rate debt$379,677 $373,682 $385,000 $375,000 
Fixed rate debt$869,367 $869,201 $825,224 $858,124 
Level 3
Mortgage and other notes receivable, net$316,390 $299,952 $321,190 $314,821 

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.

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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 March 31, 2022 and December 31, 2021, 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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*We may be exposed to operational risks with respect to our proposed Senior Housing Operating Portfolio (“SHOP”) structured communities;.

*    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 depend on the ability to continue to qualify for taxation as a REIT for U.S. federal income tax purposes;

*Our ownership of and relationship with any TRSs that we have formed or will form will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax;

*    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; and

*    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.

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, 2021, 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 and a specialty hospital. 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 March 31, 2022, we had investments in real estate and mortgage and other notes receivable involving 201 facilities located in 32 states. These investments involve 132 senior housing properties, 68 skilled nursing facilities and one hospital, excluding 20 properties classified as assets held for sale. These investments consisted of properties with an original cost of approximately $2.8 billion, rented under primarily triple-net leases to 27 lessees, and $321.5 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $5.1 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”) and a specialty hospital 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.

Senior Housing Operating Portfolio Structure. Effective April 1, 2022 we transferred 15 ILFs previously part of the Holiday Retirement (“Holiday”) portfolio into two separate joint ventures that own the underlying independent living operations and in which NHI has majority interests. These joint ventures will be structured to comply with REIT requirements and are structured to utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. These properties are operated by two third-party property managers that manage our communities in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the property managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the property managers to set appropriate resident fees and otherwise operate our communities in compliance with the terms of our management agreements and all applicable laws and regulations.

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The following tables summarize our investments in real estate and mortgage and other notes receivable, excluding $2.6 million for our corporate office and a credit loss reserve balance of $5.1 million, as of and for the three months ended March 31, 2022 ($ in thousands):
PropertiesBedsRevenue% TotalInvestment
Real Estate Properties
Senior Housing - Need-Driven
Assisted Living76 4,023 $9,953 14.0 %$739,493 
Senior Living Campus11 1,507 1,443 2.0 %257,808 
Total Senior Housing - Need-Driven87 5,530 11,396 16.0 %997,301 
Senior Housing - Discretionary
Independent Living22 2,591 11,188 15.7 %440,741 
Entrance-Fee Communities11 2,707 15,421 21.6 %744,420 
Total Senior Housing - Discretionary33 5,298 26,609 37.3 %1,185,161 
Total Senior Housing120 10,828 38,005 53.3 %2,182,462 
Medical Facilities
Skilled Nursing Facilities65 8,653 19,326 27.1 %557,996 
Hospitals64 1,023 1.4 %40,250 
Total Medical Facilities66 20,349 28.5 %598,246 
Total Real Estate Properties186 58,354 81.8 %$2,780,708 
Income From Properties Sold and Held For Sale3,167 
Escrow Funds Received From Tenants3,038 
Total Rental Income64,559 
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven10 673 1,929 2.8 %$91,994 
Senior Housing - Discretionary714 2,658 3.7 %143,462 
Skilled Nursing Facilities180 97 0.1 %4,257 
Other Notes Receivable— — 2,031 2.8 %81,811 
Total Mortgage and Other Notes Receivable15 1,567 6,715 9.4 %$321,524 
Other Income53 
Total Revenue$71,327 
Portfolio Summary1
Properties
Revenue2
% PortfolioInvestment
Real Estate Properties186 $58,354 89.7 %$2,780,708 
Mortgage and Other Notes Receivable15 6,715 10.3 %321,524 
Total Portfolio201 $65,069 100.0 %$3,102,232 
Portfolio by Operator Type
Public55 $14,805 22.8 %$411,740 
National Chain (Privately Owned)18 14,137 21.7 %618,451 
Regional118 34,539 53.1 %1,979,737 
Small10 1,588 2.4 %92,304 
Total Portfolio201 $65,069 100.0 %$3,102,232 
1 Excludes assets held for sale.
2 Excludes rental income from properties sold and held for sale and escrow funds received from tenants for property operating expenses.

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For the three months ended March 31, 2022, operators of facilities who provided 3% or more and collectively 72% of our total revenues were (parent company, in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; Health Services Management; Holiday; Life Care Services; National HealthCare Corporation; Senior Living Communities; and The Ensign Group.

As of March 31, 2022, our average effective annualized rental income was $8,934 per bed for SNFs, $3,831 per unit for SLCs, $9,897 per unit for ALFs, $3,834 per unit for ILFs, $22,787 per unit for EFCs and $63,899 per bed for hospitals.

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 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.

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.

As of March 31, 2022, aggregate pandemic-related rent concessions granted to tenants that have been accounted for as variable lease payments totaled approximately $41.4 million, net of cumulative repayments of $0.2 million and excluding any interest accrued. Of this total, net rent deferrals that are contractually agreed to be repaid are $35.9 million. During the first quarter of 2022, we granted rent deferrals of $6.3 million to six tenants, of which Bickford Senior Living (“Bickford”) accounts for $4.0 million. Bickford was also granted a rent abatement of approximately $1.5 million. Repayments of rent deferrals during the first quarter of 2022 totaled $0.1 million.

We have agreed to defer approximately $1.8 million in contractual rent due for the second quarter of 2022. We anticipate that some tenants may need additional rent deferrals to assist them with the ongoing impact of the pandemic. The timing and amount of any additional deferrals cannot yet be determined.

We are continuing to negotiate with Bickford regarding the repayment of its outstanding deferrals of $26.0 million as of March 31, 2022. We are currently in discussions for Bickford to commence minimum monthly repayments of approximately $3.0 million per year with the deferral balance subject to further reduction by up to approximately $6.0 million based on Bickford’s achieving certain performance targets and completion of certain property disposals.

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.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Investment Highlights

Since January 1, 2022, we have completed or announced the following real estate or note investments:

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Encore Senior Living

In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore Senior Living to construct a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized.

Asset Dispositions

During the three months ended March 31, 2022, we completed the following real estate dispositions as described below ($ in thousands):
OperatorDatePropertiesAsset ClassNet ProceedsNet Real Estate InvestmentGain
Hospital Corporation of AmericaQ1 20221MOB$4,868 $1,904 $2,964 
Vitality Senior Living1
Q1 20221SLC8,302 8,285 17 
$13,170 $10,189 $2,981 
1 Prior impairment charges recognized on this property of $10.9 million.


Reference Note 3 to the condensed consolidated financial statements for more detail on dispositions.

Second Quarter 2022 Disposal Activity

Holiday

In April 2022, we sold an independent living facility located in Washington for approximately $3.2 million in cash consideration, and incurred $0.3 million of transaction costs, resulting in a minimal loss. The property was classified as assets held for sale on the Condensed Consolidated Balance Sheet as of March 31, 2022. Prior impairment charges recognized on this property totaled $0.9 million.

Chancellor Senior Living

In April 2022, we sold two assisted living facilities located in Texas for approximately $7.8 million in cash consideration, and incurred $0.5 million of transaction costs, resulting in a minimal gain. The properties were classified as assets held for sale on the Condensed Consolidated Balance Sheet as of March 31, 2022. Prior impairment charges recognized on these properties totaled $7.6 million.

Assets Held for Sale and Impairment of Real Estate

At March 31, 2022, 20 properties, with an aggregate net real estate balance of $132.0 million, were classified as assets held for sale on our Condensed Consolidated Balance Sheet, including 12 properties that were classified as assets held for sale during the first quarter of 2022. Rental income associated with the 20 properties was $3.1 million and $3.7 million for the three months ended March 31, 2022 and 2021, respectively.

During the first quarter of 2022, we recorded impairment charges of $24.6 million, including $15.3 million on one property held in use. The impairment charges are included in “Loan and realty losses (gains)” in the Consolidated Statement of Income.

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 three months ended March 31, 2022, 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 March 31, 2022, we had tenant purchase options on 10 properties with an aggregate net investment of $89.5 million that will become exercisable between
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2025 and 2028. Rental income from these properties with tenant purchase options was $2.6 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively.

In June 2021, we received notification of a tenant’s intention to acquire, pursuant to a purchase option, a hospital located in California that has been included in assets held for sale. 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 March 31, 2022 was $10.5 million. Rental income was $0.5 million for both the three months ended March 31, 2022 and 2021. 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 $5.1 million, from whom we individually derive at least 10% of our total revenues as follows ($ in thousands):

As of March 31, 2022
Revenues1
AssetRealNotesThree Months Ended March 31,
Class
Estate2
Receivable20222021
Senior Living CommunitiesEFC$573,631 $47,041 $12,751 18%$12,723 16%
Holiday3
ILF377,735 — 9,797 14%10,185 13%
National HealthCare Corporation (“NHC”)SNF171,530 — 9,189 13%9,452 12%
Bickford Senior LivingALF476,372 42,912 7,038 10%10,207 13%
All others, netVarious1,386,865 231,571 29,514 41%36,157 44%
Escrow funds received from tenants
  for property operating expensesVarious— — 3,038 4%$2,161 2%
$2,986,133 $321,524 $71,327 $80,885 
1 Includes interest income on notes receivable and rental income from properties classified as held for sale.
2 Amounts include any properties classified as held for sale.
3 Revenues include an $8.8 million lease deposit recognized as rental income in the three months ended March 31, 2022.

Straight-line rent of $0.1 million and $0.5 million and interest revenue of $0.9 million and $0.8 million was recognized from the Senior Living Communities lease for the three months ended March 31, 2022 and 2021, respectively. In addition to the lease deposit of $8.8 million in the first quarter of 2022, straight-line rent of $1.0 million and $1.5 million was recognized from the Holiday lease for the three months ended March 31, 2022 and 2021, 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. Straight-line rent of $(0.1) million and $0.6 million and interest revenue of $1.2 million and $0.8 million was recognized from the Bickford leases for the three months ended March 31, 2022 and 2021, respectively.

Holiday

As of March 31, 2022, we leased 15 independent living facilities and one assisted living facility, excluding one property classified as assets held for sale, to a Welltower-controlled subsidiary. We received no rent due under the master lease for these facilities since the Welltower-controlled subsidiary became the tenant on July 30, 2021. Accordingly, we placed the tenant on cash basis in the third quarter of 2021 and filed suit against Welltower, Inc. and certain subsidiaries for default under the master lease. During the first quarter of 2022, we recognized the remaining $8.8 million lease deposit that was applied to outstanding, past-due rent and approximately $1.0 million of deferred income as rental income. Reference Note 7 to our condensed consolidated financial statements for more discussion of the litigation and its subsequent settlement.

Holiday Transition
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On April 1, 2022, we disposed of one property classified in assets held for sale as discussed above and transitioned to an existing operator one assisted living community in Florida that was added to the in-place master lease. In addition, we transitioned the remaining 15 independent living facilities into two separate joint ventures that own the underlying independent living operations and in which NHI has majority interests. These joint ventures are structured to comply with REIT requirements and to utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. These communities are operated by two third-party property managers in exchange for the receipt of a management fee. The third-party managers, or related affiliates of the managers, own equity interests in the respective ventures.

Bickford Senior Living

As of March 31, 2022, we leased 37 facilities, excluding four facilities classified as assets held for sale, under four leases to Bickford. Bickford’s revenues reflect the impact of rent concessions of approximately $5.5 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively.
In March 2022, we transferred one assisted living facility located in Pennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a four-year triple net lease and wrote off approximately $0.7 million in a straight-line rent receivable, reducing rental income.

Lease Restructure

Effective April 1, 2022, Bickford’s four master lease agreements were restructured and amended. Rent for the portfolio, excluding properties classified as held for sale, will be approximately $28.0 million per year through April 1, 2024, at which time the rent will be reset to a fair market value, not less than 8.0% of our initial gross investment.

We are continuing to negotiate with Bickford regarding the repayment of its outstanding deferrals of $26.0 million as of March 31, 2022. We are currently in discussions for Bickford to commence minimum monthly repayments of approximately $3.0 million per year with the deferral balance subject to further reduction by up to approximately $6.0 million based on Bickford’s achieving certain performance targets and completion of certain property disposals.

One of the master lease agreements covering 12 properties with an original maturity in 2023 has been extended to 2028. The remaining leases with maturity dates in 2031 and 2033 have been extended for two years to 2033 and 2035, respectively.

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.
Properties1Q212Q213Q214Q211Q22March 2022
Senior Living Communities977.7%78.5%80.4%81.7%81.7%81.8%
Bickford1
4175.4%78.0%81.0%82.0%79.9%79.4%
Holiday2
1675.6%76.1%78.3%79.2%76.7%76.2%

1All prior periods restated for the Pennsylvania asset transition to a new operator.
2All periods reflect the disposition of one property in April 2022.

The following table summarizes the revenue concentration of our top five states for the three months ended March 31, 2022 and 2021, respectively, excluding any escrow funds received for property operating expenses ($ in thousands).

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Three Months Ended March 31,
Location20222021
South Carolina$8,836 $8,731 
Texas6,963 6,889 
Florida5,944 7,707 
Washington3,904 4,662 
California3,420 3,868 
All others39,222 46,867 
Escrow funds received from tenants for property operating expenses3,038 2,161 
$71,327 $80,885 

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 December 31, 2021 and 2020 (the most recent periods available).

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NHI Total Portfolio
By asset typeSHOSNFMEDICAL NON-SNFTOTAL
Properties121742197
4Q201.22x2.92x2.83x1.78x
4Q210.98x2.71x2.80x1.54x
Market servedNeed DrivenNeed Driven excl. BickfordDiscretionaryDiscretionary excl. SLC & HolidayMedicalMedical excl. NHC
Properties92512947634
4Q201.11x1.04x1.35x1.78x2.92x2.20x
4Q210.80x0.79x1.16x1.57x2.72x2.01x
Major tenants
NHC1
SLC2
Bickford2
Holiday
Properties42104116
4Q203.82x1.30x1.19x1.13x
4Q213.61x1.18x0.82x0.86x
NHI Same-Store Portfolio3
By asset typeSHOSNFMEDICAL NON-SNFTOTAL
Properties118731192
4Q201.23x2.94x3.55x1.78x
4Q210.98x2.71x2.91x1.53x
Market servedNeed DrivenNeed Driven excl. BickfordDiscretionaryDiscretionary excl. SLC & HolidayMedicalMedical excl. NHC
Properties89482947432
4Q201.11x1.04x1.35x1.78x2.95x2.19x
4Q210.81x0.79x1.16x1.57x2.72x1.94x
Major tenants
NHC1
SLC2
Bickford2
Holiday
Properties42104116
4Q203.82x1.30x1.19x1.13x
4Q213.61x1.18x0.82x0.86x
1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3 independent living facilities.
2 Excluding PPP funds received from the fourth quarter 2020, SLC and Bickford coverage was 1.10x and 1.03x, respectively.
3 Excludes properties that have transitioned operators in past 24 months and includes properties classified as held for sale.

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.

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
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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, 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. One property located in Tennessee was sold in the first quarter of 2022. The following table summarizes the transition properties during the three months ended March 31, 2022:
Occupancy1
Facility Name (New Tenant)UnitsStateMarch 2021June 2021September 2021December 2021March 2022
Discovery Commons of College Park148IN23.1%36.7%43.3%46.6%50.8%
The Charlotte (SLC)99NC46.6%57.1%73.6%76.6%87.1%
Chancellor TX-IL portfolio2
196IL/TX54.4%56.6%62.8%66.0%64.3%
Beaver Dam Assisted Living (BAKA)120WI60.4%60.6%57.9%62.7%62.0%
56350.5%54.7%59.5%62.7%63.0%
1 Monthly Average
2 Two Texas properties were classified as Assets Held for Sale on our Condensed Consolidated Balance Sheet as of March 31, 2022 and subsequently sold in the second quarter of 2022. Effective May 1, 2022 the three Illinois properties were transitioned to a new triple-net lease with an existing operator.

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 months ended March 31, 2022 reflect impairment charges of our long-lived assets of approximately $24.6 million related to additional impairment charges of $2.4 million on one property previously classified as assets held for sale, $6.9 million related to one property classified as assets held for sale during the three months ending March 31, 2022 and $15.3 million on one property held in use as a result of the COVID-19 pandemic and other factors. We reduced the carrying value of the impaired property to its estimated fair value or, with respect to the properties classified as held for sale, to its estimated fair value less costs to sell. 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 $5.1 million and a liability of $1.0 million for estimated credit losses on unfunded loan commitments as of March 31, 2022. 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 additional 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
March 31,Period Change
20222021$%
Revenues:
Rental income
SHOs leased to Bickford Senior Living$5,176 $6,671 $(1,495)(22.4)%
SHOs leased to Chancellor Health Care724 2,096 (1,372)(65.5)%
SHOs leased to Discovery Senior Living1,176 2,416 (1,240)(51.3)%
SHOs leased to Wingate Healthcare696 1,019 (323)(31.7)%
SHOs leased to Sante Partners451 660 (209)(31.7)%
SNFs leased to Ignite Team Partners409 602 (193)(32.1)%
SNFs leased to National HealthCare8,337 8,482 (145)(1.7)%
SHOs leased to Navion Senior Solutions615 470 145 30.9 %
SHOs leased to Senior Living Communities11,775 11,441 334 2.9 %
SHOs leased to Ensign Group6,374 6,012 362 6.0 %
HOSP leased to Vizion Health855 — 855 NM
SHOs leased to Holiday8,705 6,344 2,361 37.2 %
Other new and existing leases12,073 12,221 (148)(1.2)%
Current year disposals and assets held for sale3,076 9,913 (6,837)(69.0)%
60,442 68,347 (7,905)(11.6)%
Straight-line rent adjustments, new and existing leases1,079 4,241 (3,162)(74.6)%
Escrow funds received from tenants for taxes and insurance3,038 2,161 877 40.6 %
Total Rental Income64,559 74,749 (10,190)(13.6)%
Interest income and other
Life Care Services mortgages and construction loans2,065 3,178 (1,113)(35.0)%
Montecito Medical Real Estate loan386 — 386 NM
Encore Senior Living mortgage loan722 327 395 NM
Vizion Health loan421 — 421 NM
Bickford construction loans1,245 762 483 63.4 %
Other new and existing mortgages and notes1,876 1,792 84 4.7 %
Total Interest Income from Mortgage and Other Notes6,715 6,059 656 10.8 %
Other income53 77 (24)(31.2)%
Total Revenues71,327 80,885 (9,558)(11.8)%
Expenses:
Depreciation
SHOs leased to Senior Living Communities3,594 3,853 (259)(6.7)%
SNFs leased to National HealthCare351 426 (75)(17.6)%
HOSP leased to Vizion Health260 — 260 NM
Current year disposals and assets held for sale632 3,064 (2,432)(79.4)%
Other new and existing assets13,435 13,463 (28)(0.2)%
Total Depreciation18,272 20,806 (2,534)(12.2)%
Interest10,198 12,973 (2,775)(21.4)%
Non-cash share-based compensation expense5,083 5,446 (363)(6.7)%
Loan and realty losses (gains)24,528 (50)24,578 NM
Taxes and insurance on leased properties3,038 2,161 877 40.6 %
Legal 1,827 130 1,697 NM
Other expenses3,262 2,776 486 17.5 %
Total Expenses66,208 44,242 21,966 49.6 %
Gains (losses) from equity method investment297 (808)1,105 NM
Gains on sales of real estate, net2,981 — 2,981 NM
Loss on early retirement of debt(151)(451)300 (66.5)%
Net income8,246 35,384 (27,138)(76.7)%
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Less: net loss (income) attributable to noncontrolling interests153 (52)205 NM
Net income attributable to common stockholders$8,399 $35,332 $(26,933)(76.2)%
NM - not meaningful
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Financial highlights of the three months ended March 31, 2022, compared to the same period of 2021 were as follows:

Rental income received from our tenants decreased $10.2 million, or 13.6%, primarily as a result of approximately $3.6 million in additional rent concessions accounted for as either variable lease payments or as modified leases and $6.3 million from properties disposed since April 1, 2021. These decreases were partially offset by the recognition of the Holiday lease deposit and new investments funded since March 2021.

Rental income includes a $3.2 million decrease in straight-line rent based on the timing and volume of new or modified leases and the overall rate of increase in existing leases and property dispositions since April 1, 2021. During the first quarter of 2022, we impaired one property and wrote off approximately $1.5 million in a straight-line rent receivable. In addition, we wrote off approximately $0.7 million in a straight-line rent receivable upon transferring one property from a Bickford lease to a new operator.

Funds received for reimbursement of property operating expenses totaled $3.0 million for the three months ended March 31, 2022, and are reflected as a component of rental income. These property operating expenses are recognized in operating expenses in the line item “Taxes and insurance on leased properties.” The increase in the reimbursement income and corresponding property expenses is the result of additional amounts received from tenants and expenses paid on their behalf.

Interest income from mortgage and other notes increased $0.7 million, or 10.8%, primarily due to new and existing loan fundings, net of paydowns on loans.

Interest expense decreased $2.8 million, or 21.4%, as a result of the expiration of our interest rate swap agreements on December 31, 2021 and the repayments of indebtedness, including the payoffs of the convertible bond that matured in April 2021 and $250.0 million on term loans.

Loan and realty losses (gains) increased $24.6 million primarily as a result of impairment charges on three real estate properties of $24.6 million in the first quarter of 2022 as described under the heading “Assets Held for Sale and Impairment of Real Estate” in Note 3 to the condensed consolidated financial statements.

Legal cost increased $1.7 million primarily related to the Welltower litigation and transition activities for the legacy Holiday portfolio.

Gains on sales of real estate were $3.0 million and related primarily to the disposition of a medical office building in the first quarter of 2022 as described under the heading “Assets Dispositions” in Note 3 to the condensed consolidated financial statements.
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Liquidity and Capital Resources

At March 31, 2022, we had $615.0 million available to draw on our revolving credit facility, $36.1 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):
Three Months Ended March 31,One Year Change
20222021$%
Cash and cash equivalents and restricted cash, January 1$39,485 $46,343 $(6,858)(14.8)%
Net cash provided by operating activities38,680 56,912 (18,232)(32.0)%
Net cash used in investing activities(2,060)(9,133)7,073 (77.4)%
Net cash (used in) provided by financing activities(36,177)22,106 (58,283)NM
Cash and cash equivalents and restricted cash, March 31$39,928 $116,228 $(76,300)(65.6)%

Operating Activities – Net cash provided by operating activities for the three months ended March 31, 2022, which includes new investments completed, lease payment collections arising from escalators on existing leases and interest payments on new real estate and note investments completed, was impacted by approximately $3.6 million in additional rent concessions granted for the first quarter 2022 and properties disposed since April 1, 2021.

Investing Activities – Net cash used in investing activities for the three months ended March 31, 2022 was comprised primarily of approximately $16.5 million of investments in mortgage and other notes and renovations of real estate, offset by the proceeds from the sales of real estate of approximately $13.2 million and the collection of principal on mortgage and other notes receivable of approximately $1.0 million.

Financing Activities – Net cash used in financing activities for the three months ended March 31, 2022 differs from the same period in 2021 primarily as a result of an approximately $18.8 million decrease in net borrowings, inclusive of a $400.0 million senior note offering in the first quarter of 2021, an approximately $48.0 million decrease in proceeds from issuance of common shares and dividend payments which decreased approximately $8.6 million over the same period in 2021.

Debt Obligations

As of March 31, 2022, we had outstanding debt of $1.2 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 - On March 31, 2022, we entered into a new unsecured revolving credit agreement (the “2022 Credit Agreement”) providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at either (i) Term Secured Overnight Financing Rate (“SOFR”) (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) Daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the base rate plus a margin ranging from 0.00% to 0.40%. In each election, the actual margin is determined according to our credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the Agent’s prime rate, (ii) the federal funds rate on such day plus 0.50% or (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.0%. We incurred $4.5 million of deferred costs in connection with the 2022 Credit Agreement.

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Concurrently with the execution of the 2022 Credit Agreement, we amended our $300.0 million term loan (“2018 Term Loan”) maturing in September 2023. The amendment modifies the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowings based on SOFR (plus a credit spread adjustment) that was previously based on LIBOR, with no change to the existing applicable interest rate margins. We may also elect for the 2018 Term Loan to accrue interest at a base rate plus the applicable margin.

In March 2022, we repaid a $75.0 million term loan maturing August 2022 with proceeds from the revolving credit facility. The term loan bore interest at a rate of 30-day LIBOR plus 135 basis points (“bps”), based on our credit ratings. Upon repayment, we expensed approximately $0.2 million of unamortized loan costs associated with this loan which is included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the three months ended March 31, 2022.

As of March 31, 2022, the revolver and term loan bore interest at a rate of one-month Term SOFR (plus a 10 bps spread adjustment) plus 105 bps and 125 bps, based on our debt ratings, or 1.46% and 1.66%, respectively. The facility fee was 25 bps per annum. At April 30, 2022, $85.0 million was outstanding under the revolving facility.

The current SOFR spreads and facility fee for our unsecured revolving credit facility and $300.0 million term loan reflect our ratings compliance based on the applicable margin for SOFR loans at a debt rating of BBB-/Baa3 in the Interest Rate Schedule provided below in summary format:

Interest Rate Schedule

SOFR Spread
Debt RatingsRevolverRevolver Facility Fee$300m Term Loan
A+/A10.725%0.125%0.75%
A/A20.725%0.125%0.80%
A-/A30.725%0.125%0.85%
BBB+/Baa10.775%0.150%0.90%
BBB/Baa20.850%0.200%1.00%
BBB-/Baa31.050%0.250%1.25%
Lower than BBB-/Baa31.400%0.300%1.65%

Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below “BBB-/Baa3” the debt under our credit agreements will be subject to defined increases in interest rates and fees.

The 2022 Credit 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 March 31, 2022, 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 2022 Credit Agreement.

Senior Notes Offering - In January 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”). We remain in compliance with all debt covenants under the unsecured bank credit facility, 2031 Senior Notes and other debt agreements.

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. Moody’s released a credit opinion on October 31, 2021 which affirmed the rating and outlook for 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 December 9, 2021 and S&P Global confirmed its rating on November 16, 2021. 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.

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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 6.6x for the three months ended March 31, 2022 (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 4.9x for the three months ended March 31, 2022 ($ in thousands):

Consolidated Total Debt$1,249,044 
Less: cash and cash equivalents(36,121)
Consolidated Net Debt$1,212,923 
Adjusted EBITDA$61,475 
Annualizing Adjustment184,425 
Annualized impact of recent investments, disposals and payoffs(42)
$245,858 
Consolidated Net Debt to Annualized Adjusted EBITDA4.9x


Supplemental Guarantor Financial Information

The Company’s $1.0 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.

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
March 31, 2022
Real estate properties, net$1,865,781 
Other assets, net567,093 
Note receivable due from non-guarantor subsidiary81,396 
Totals assets$2,514,270 
Debt$1,172,598 
Other liabilities62,472 
Total liabilities$1,235,070 
Noncontrolling interest$169 

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 Three Months Ended
March 31, 2022
Revenues$62,055 
Interest revenue on note due from non-guarantor subsidiary1,148 
Expenses62,500 
Loss from equity method investee297 
Gains on sales of real estate2,981 
Loss on early retirement of debt(151)
Net income$3,830 
Net income attributable to NHI and the subsidiary guarantors$3,983 

Equity

At March 31, 2022 we had 45,850,868 shares of common stock outstanding with a market value of $2.7 billion. Equity on our Condensed Consolidated Balance Sheet totaled $1.5 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 do not expect to utilize borrowings to satisfy the payment of dividends and project that cash flows from operations for the full year 2022 will be adequate to fund dividends at the current rate.

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, 2022 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 three months ended March 31, 2022 and 2021:


Three Months Ended March 31, 2022
Date of DeclarationDate of RecordDate Paid/PayableQuarterly Dividend
November 5, 2021December 31, 2021January 31, 2022$0.90
February 16, 2022March 31, 2022May 6, 2022$0.90

Three Months Ended March 31, 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

On May 6, 2022, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on June 30, 2022, payable on August 5, 2022.

Share Repurchase Plan - On April 15, 2022, the Company’s Board of Directors approved a stock repurchase plan for up to $240 million of the Company’s common stock. The plan is effective for a period of one year. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended and shall be made in accordance
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with all applicable laws and regulations in effect. The timing and number of shares repurchased, if any, will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations. The stock repurchase plan does not obligate the Company to repurchase any specific number of shares and may be suspended or discontinued at any time.

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.

Material Cash Requirements

We had approximately $61.9 million in unrestricted cash and cash equivalents on hand and $615.0 million in availability under our unsecured revolving credit facility as of April 30, 2022. Our expected material cash requirements for the twelve months ended March 31, 2023 and thereafter consist of long-term debt maturities; interest on long-term debt; and contractually obligated expenditures. We expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our revolving credit facility, refer to Unsecured Bank Credit Facility above, and sales from real estate investments, although we may choose to seek alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt and equity capital markets.

Contractual Obligations and Contingent Liabilities

As of March 31, 2022, our contractual payment obligations were as follows ($ in thousands):
TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Debt, including interest1
$1,341,809 $163,462 $458,247 $322,941 $397,159 
Development commitments7,436 7,436 — — — 
Loan commitments86,617 52,371 34,246 — — 
$1,435,862 $223,269 $492,493 $322,941 $397,159 
1 Interest is calculated based on the weighted average interest rate of outstanding debt balances as of March 31, 2022. The calculation also includes a facility fee of 0.20%.

Commitments and Contingencies

The following tables summarize information as of March 31, 2022 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 $(111,271)$7,529 
Bickford Senior LivingSHOConstruction14,200 (10,285)3,915 
Encore Senior LivingSHOConstruction61,500 (33,010)28,490 
Senior Living CommunitiesSHORevolving Credit20,000 (14,341)5,659 
Timber Ridge OpCoSHOWorking Capital5,000 — 5,000 
Watermark RetirementSHOWorking Capital5,000 (3,223)1,777 
Montecito Medical Real EstateMOBMezzanine Loan50,000 (15,754)34,246 
$274,500 $(187,884)$86,616 

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.

In the first quarter of 2022, we received notice of a borrower’s intent to retire senior notes with an aggregate outstanding balance of approximately $111.3 million. The notes bear interest at 7.35% and have a scheduled maturity in December 2028.

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The credit loss liability for unfunded loan commitments was $1.0 million as of March 31, 2022 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 (4,436)2,064 
   NavionSHORenovation3,650 (600)3,050 
   OtherSHOVarious2,800 (568)2,232 
$31,295 $(23,859)$7,436 

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 March 31, 2022.
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 
Sante PartnersSHO2,000 — 2,000 
$33,850 $(1,500)$32,350 

We adjust rental income for the amortization of lease inducements paid to our tenants. Amortization of lease inducement payments against revenues was $0.3 million for both three months ending March 31, 2022 and 2021.

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.

Welltower, Inc.

In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company in which 17 senior living facilities were included in Holiday’s portfolio and governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities since this change in tenant ownership occurred in late July 2021.

On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Voorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the "Defendants") in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants failed repeatedly to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to
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new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent.

In connection with a memorandum of understanding between the parties dated March 4, 2022, NHI applied the remaining approximately $8.8 million lease deposit to past due rents in the first quarter of 2022. Unpaid contractual rent, excluding penalties and interest, totaled $9.1 million through March 31, 2022 after application of the lease deposit. Also, as provided by the memorandum of understanding, Welltower transferred approximately $6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement dated March 31, 2022 with Defendants formalizing the terms to settle the lawsuit.

NHI and certain of its subsidiaries terminated the master lease with Well Churchill Leasehold Owner, LLC as successor in interest to NHI Master Tenant LLC, effective April 1, 2022, upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new SHOP partnership ventures. See Note 3 for more information on these new ventures.

Also effective April 1, 2022, the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation, and the $6.9 million in escrowed funds were released to NHI.


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 three months ended March 31, 2022 decreased $0.18 or 14.6% over the same period in 2021 due primarily to the effects of the COVID-19 pandemic and increased legal fees of $1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio, partially offset by the recognition of the Holiday lease deposit of $8.8 million in rental income, reduced interest expense and new investments completed since March 2021. 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.

Our Normalized FFO per diluted common share for the three months ended March 31, 2022 decreased $0.14 or 11.3% over the same period in 2021 due primarily to the effects of the COVID-19 pandemic and increased legal fees of $1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio, partially offset by the recognition of the Holiday lease deposit of $8.8 million in rental income, reduced interest expense and new investments completed since March 2021. 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 estate 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
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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 three months ended March 31, 2022 decreased $6.9 million or 11.54% over the same period in 2021 due primarily to the effects of the COVID-19 pandemic and increased legal fees of $1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio, partially offset by the recognition of the Holiday lease deposit of $8.8 million in rental income, reduced interest expense and new investments completed since March 2021. In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line lease 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 Ended
March 31,
20222021
Net income attributable to common stockholders$8,399 $35,332 
Elimination of certain non-cash items in net income:
Depreciation18,272 20,806 
Depreciation related to noncontrolling interests(210)(210)
Gains on sales of real estate, net(2,981)— 
Impairments of real estate24,604 — 
NAREIT FFO attributable to common stockholders48,084 55,928 
Loss on early retirement of debt151 451 
Non-cash write-off of straight-line rent receivable2,139 — 
Normalized FFO attributable to common stockholders50,374 56,379 
Straight-line lease revenue, net(3,219)(4,241)
Straight-line lease revenue, net, related to noncontrolling interests22 24 
Amortization of lease incentives252 260 
Amortization of original issue discount80 54 
Amortization of debt issuance costs562 705 
Amortization related to equity method investment(236)535 
Straight-line lease expense related to equity method investment(8)25 
Note receivable credit loss expense(76)(50)
Non-cash share-based compensation5,083 5,446 
Equity method investment capital expenditures(105)(105)
Equity method investment non-refundable fees received (60)519 
Normalized FAD attributable to common stockholders$52,669 $59,551 
BASIC
Weighted average common shares outstanding45,850,686 45,305,087 
NAREIT FFO attributable to common stockholders per share$1.05 $1.23 
Normalized FFO attributable to common stockholders per share$1.10 $1.24 
DILUTED
Weighted average common shares outstanding45,851,061 45,357,773 
NAREIT FFO attributable to common stockholders per share$1.05 $1.23 
Normalized FFO attributable to common stockholders per share$1.10 $1.24 

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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.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):
Three Months Ended
March 31,
20222021
Net income$8,246 $35,384 
Interest expense10,198 12,973 
Franchise, excise and other taxes244 233 
Depreciation18,272 20,806 
NHI’s share of EBITDA adjustments for unconsolidated entities678 688 
Note receivable credit loss expense(76)(50)
Gains on sales of real estate, net(2,981)— 
Loss on early retirement of debt151 451 
Impairment of real estate24,604 — 
Non-cash write-off of straight-line rent receivable2,139 — 
Adjusted EBITDA$61,475 $70,485 
Interest expense at contractual rates$9,558 $10,452 
Interest rate swap payments, net— 1,778 
Principal payments98 94 
Fixed Charges$9,656 $12,324 
Fixed Charge Coverage6.4x5.7x

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 March 31, 2022, we were exposed to market risks related to fluctuations in interest rates on approximately $385.0 million of variable-rate indebtedness and on our mortgage and other notes receivable. The unused portion ($615.0 million at March 31, 2022) 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 March 31, 2022, net interest expense would increase or decrease annually by approximately $1.9 million or $0.04 per common share on a diluted basis.

Our derivative financial instruments matured on December 31, 2021. We have historically used 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):
March 31, 2022December 31, 2021
Balance1
% of total
Rate2
Balance1
% of total
Rate2
Fixed rate:
Private placement term loans - unsecured$400,000 31.7 %4.15 %$400,000 31.9 %4.15 %
Senior notes - unsecured400,000 31.7 %3.00 %400,000 31.9 %3.00 %
Fannie Mae term loans - secured, non-recourse76,940 6.1 %3.97 %77,038 6.2 %3.97 %
Variable rate:
Bank term loans - unsecured300,000 23.8 %1.66 %375,000 30.0 %1.41 %
Revolving credit facility - unsecured85,000 6.7 %1.46 %— — %
$1,261,940 100.0 %3.00 %$1,252,038 100.0 %2.95 %
1 Differs from carrying amount due to unamortized discounts and loan costs.
2 Total is weighted average rate


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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 March 31, 2022 ($ in thousands):
Balance
Fair Value1
FV reflecting change in interest rates
Fixed rate:-50 bps+50 bps
Private placement term loans - unsecured$400,000 $396,672 $401,488 $391,940 
Senior notes400,000 353,428 367,494 339,950 
Fannie Mae loans76,940 75,123 76,213 74,050 
1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.

At March 31, 2022, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $321.2 million. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $7.1 million, while a 50 basis point decrease in such rates would increase their estimated fair value by approximately $0.1 million.

Item 4. Controls and Procedures.

Evaluation of Disclosure Control and Procedures. As of March 31, 2022, 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 March 31, 2022.

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 three months ended March 31, 2022 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.

Welltower, Inc.

In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company in which 17 senior living facilities were included in Holiday’s portfolio and governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities since this change in tenant ownership occurred in late July 2021.

On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Voorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the "Defendants") in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants failed repeatedly to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent.

In connection with a memorandum of understanding between the parties dated March 4, 2022, NHI applied the remaining approximately $8.8 million lease deposit to past due rents in the first quarter of 2022. Unpaid contractual rent, excluding penalties and interest, totaled $9.1 million through March 31, 2022 after application of the lease deposit. Also, as provided by the memorandum of understanding, Welltower transferred approximately $6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement dated March 31, 2022 with Defendants formalizing the terms to settle the lawsuit.

NHI and certain of its subsidiaries terminated the master lease with Well Churchill Leasehold Owner, LLC as successor in interest to NHI Master Tenant LLC, effective April 1, 2022, upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new SHOP partnership ventures. See Note 3 for more information on these new ventures.

Also effective April 1, 2022, the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation, and the $6.9 million in escrowed funds were released to NHI.

Item 1A. Risk Factors.

During the three months ended March 31, 2022, 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, 2021.


Item 5. Other Information.

On May 6, 2022, the Compensation Committee of the Board of Directors approved an adjusted annual salary of $275,000 for David L. Travis, the Company’s Senior Vice President/Chief Accounting Officer.
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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
4.6
10.1
10.2
10.3
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:May 9, 2022/s/ D. Eric Mendelsohn
 D. Eric Mendelsohn
 President, Chief Executive Officer and Director
 (duly authorized officer)
 
 
 
Date:May 9, 2022/s/ John L. Spaid
 John L. Spaid
 Chief Financial Officer
 (Principal Financial Officer)

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