Part I [Business](index=6&type=section&id=Item%201.%20Business) National Health Investors, Inc. (NHI) is a self-managed REIT operating through two segments: Real Estate Investments and a Senior Housing Operating Portfolio (SHOP), primarily deriving revenue from rental income, SHOP resident fees, and interest income. - NHI is a self-managed REIT specializing in senior housing and medical facility investments, operating through two main segments: Real Estate Investments and the Senior Housing Operating Portfolio (SHOP)[22](index=22&type=chunk) Portfolio Overview as of December 31, 2022 | Segment | Investment Value | Property Count | Description | | :--- | :--- | :--- | :--- | | **Real Estate Investments** | ~$2.4 billion | 160 properties | 94 senior housing, 65 skilled nursing, 1 hospital under triple-net leases | | **Mortgage/Notes Receivable** | $248.5 million | 17 mortgages | Secured loans to healthcare operators | | **SHOP Segment** | ~$338.1 million | 15 properties | Independent living facilities with 1,732 units | Revenue Sources for Fiscal Year 2022 | Revenue Source | Amount (Millions) | Percentage of Total | | :--- | :--- | :--- | | Rental Income | $217.7 | 78.3% | | SHOP Revenue | $35.8 | 12.9% | | Interest Income | $24.7 | 8.9% | | **Total Revenue** | **$278.2** | **100.0%** | - The company's revenue is highly dependent on the operational success of its tenants, borrowers, and managers, whose income is influenced by occupancy rates, patient mix (private pay, Medicare, Medicaid), and reimbursement rates[27](index=27&type=chunk) [Classification of Properties](index=7&type=section&id=Item%201.%20Business%20-%20Classification%20of%20Properties) The company's property portfolio is classified into Real Estate Investments and the Senior Housing Operating Portfolio (SHOP), encompassing various senior housing and medical facility types. - The portfolio is classified into two main segments: Real Estate Investments and the Senior Housing Operating Portfolio (SHOP)[28](index=28&type=chunk) - Within Real Estate Investments, properties are categorized as Senior Housing or Medical, with Senior Housing further divided into 'Need-Driven' (Assisted Living, Senior Living Campuses) and 'Discretionary' (Independent Living, Entrance-Fee Communities)[28](index=28&type=chunk)[29](index=29&type=chunk) - As of December 31, 2022, the portfolio included 66 assisted living facilities, 10 senior living campuses, 7 independent living facilities, 11 entrance-fee communities, 65 skilled nursing facilities, and one hospital[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - The SHOP segment consists of 15 independent living facilities with 1,732 units, which are considered discretionary senior housing[39](index=39&type=chunk) [Nature of Investments](index=8&type=section&id=Item%201.%20Business%20-%20Nature%20of%20Investments) Investments are structured through purchase-leasebacks, property acquisitions, various loan types, and RIDEA-compliant operations, primarily under triple-net leases. - Investments are structured as purchase-leasebacks, property acquisitions, loans, or RIDEA-compliant operations[40](index=40&type=chunk) - Leases are typically triple-net with initial terms of 10-15 years, requiring tenants to cover all property-related expenses, including taxes, insurance, and repairs[41](index=41&type=chunk) - The company provides various types of loans, including mortgage, mezzanine, and construction loans, with interest rates ranging from **7.0% to 9.5% in 2022**[41](index=41&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - The SHOP segment was formed on April 1, 2022, by transitioning 15 properties from a triple-net lease into two ventures where NHI holds a majority interest and third-party managers operate the communities[49](index=49&type=chunk) [Tenant Concentration](index=10&type=section&id=Item%201.%20Business%20-%20Tenant%20Concentration) The company faces significant tenant concentration, with Senior Living Communities and NHC accounting for 18% and 13% of total 2022 revenues, respectively. Tenant Concentration by Revenue (2022) | Tenant | Asset Class | Gross Real Estate Investment | Notes Receivable | 2022 Revenue | % of Total Revenue | | :--- | :--- | :--- | :--- | :--- | :--- | | Senior Living | EFC | $573.6 million | $48.5 million | $51.2 million | 18% | | NHC | SNF | $133.8 million | - | $36.9 million | 13% | - In 2022, NHI converted its tenant Bickford to a cash basis of accounting due to substantial doubt about its ability to continue as a going concern, resulting in a write-off of **$18.1 million** in straight-line rents and **$7.1 million** in lease incentives[60](index=60&type=chunk) - The legacy Holiday portfolio was restructured on April 1, 2022, following a dispute with Welltower, involving a **$6.9 million** settlement payment to NHI and the transition of 15 properties into the new SHOP segment[65](index=65&type=chunk)[70](index=70&type=chunk) [Government and Tax Regulation](index=15&type=section&id=Item%201.%20Business%20-%20Government%20and%20Tax%20Regulation) The company's operations and REIT status are subject to extensive government healthcare regulations and complex tax rules, including Medicare/Medicaid reimbursement and distribution requirements. - NHI's tenants and borrowers are subject to extensive healthcare regulations, including licensure, certification, Medicare/Medicaid reimbursement rules, and fraud and abuse laws, which can significantly impact their financial condition[79](index=79&type=chunk)[80](index=80&type=chunk) - A significant portion of revenue for SNF tenants comes from Medicare and Medicaid, which are subject to frequent changes, with CMS estimating a **2.7% increase** in payments to SNFs for fiscal year 2023[82](index=82&type=chunk)[83](index=83&type=chunk) - NHI has elected to be taxed as a REIT and must continuously meet complex requirements related to income sources, asset composition, distributions, and stock ownership to maintain this status and avoid corporate income taxes[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - To qualify as a REIT, NHI must distribute at least **90% of its REIT taxable income** to stockholders annually[112](index=112&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company identifies significant risks primarily related to its tenants' and borrowers' financial health, which is susceptible to public health crises, regulatory changes, and rising operating costs, alongside substantial tenant concentration, real estate illiquidity, and REIT status adherence. - **Tenant & Borrower Risks:** The company's financial performance is highly dependent on the operating success of its tenants, with public health crises (like COVID-19), declining occupancy, increased labor costs, and changes to Medicare/Medicaid reimbursement adversely affecting tenants' ability to pay rent[126](index=126&type=chunk)[128](index=128&type=chunk)[131](index=131&type=chunk) - **Concentration Risk:** A significant percentage of revenue comes from a small number of tenants, with Senior Living and NHC generating approximately **30% of total revenue** for the year ended December 31, 2022[137](index=137&type=chunk) - **Business & Operational Risks:** The company is exposed to risks from the illiquidity of its specialized real estate assets, potential impairment charges (**$51.6 million in 2022**), and cybersecurity breaches[147](index=147&type=chunk)[160](index=160&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - **Debt & Capital Risks:** The company relies on external capital for growth and refinancing, facing increased costs on variable-rate debt from rising interest rates and potential adverse impacts from credit rating downgrades on capital availability[179](index=179&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - **REIT Status Risks:** Failure to continuously qualify as a REIT would result in significant adverse tax consequences, including being subject to corporate income tax and the inability to deduct distributions to stockholders[185](index=185&type=chunk) [Properties](index=37&type=section&id=Item%202.%20Properties) As of December 31, 2022, NHI's portfolio is geographically concentrated in South Carolina and Texas, with lease expirations staggered, including significant maturities in 2029 and after 2032, and a master lease with NHC expiring in 2026. Top 5 States by Gross Investment as of Dec 31, 2022 | Location | Gross Investment ($ thousands) | | :--- | :--- | | South Carolina | $336,291 | | Texas | $298,599 | | Florida | $224,378 | | Washington | $200,530 | | Illinois | $196,481 | Lease Expiration Schedule by Annualized Gross Rent | Year | Percentage of Annualized Gross Rent | | :--- | :--- | | 2023 | 1.5% | | 2026 | 17.8% | | 2029 | 33.2% | | Thereafter | 30.4% | [Legal Proceedings](index=38&type=section&id=Item%203.%20Legal%20Proceedings) The company was involved in significant litigation with Welltower, Inc. regarding unpaid rent on the legacy Holiday portfolio, which was settled effective April 1, 2022, resulting in NHI receiving $6.9 million and the properties transitioning into its new SHOP segment. - NHI filed a lawsuit against Welltower, Inc. and its subsidiaries on December 20, 2021, in the Delaware Court of Chancery, alleging failure to pay rent and honor obligations after acquiring the Holiday portfolio[208](index=208&type=chunk) - A settlement was reached and formalized on March 31, 2022, as part of which NHI received **$6.9 million** in escrowed funds, recognized as rental income[209](index=209&type=chunk)[211](index=211&type=chunk) - Effective April 1, 2022, the master lease with the Welltower affiliate was terminated, and the 15 remaining properties were transitioned into two new SHOP partnership ventures[210](index=210&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=40&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) NHI's common stock trades on the NYSE under the symbol "NHI", subject to ownership limits to protect its REIT status, which requires distributing at least 90% of its taxable income annually, and has underperformed relevant market indices over the past five years. - The company's common stock is traded on the New York Stock Exchange under the symbol "NHI"[216](index=216&type=chunk) - To protect its REIT status, the company's charter limits stock ownership to approximately **7.5%** for most stockholders[214](index=214&type=chunk) 5-Year Cumulative Total Return Comparison | Year | NHI | MSCI US REIT Index | S&P 500 | | :--- | :--- | :--- | :--- | | 2017 | $100.00 | $100.00 | $100.00 | | 2018 | $105.71 | $95.43 | $95.62 | | 2019 | $120.04 | $120.09 | $125.72 | | 2020 | $109.20 | $110.99 | $148.85 | | 2021 | $96.51 | $158.79 | $191.58 | | 2022 | $94.79 | $119.87 | $156.88 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, NHI's financial performance was significantly impacted by portfolio restructuring, leading to a 6.9% decrease in total revenue to $278.2 million and a 41.5% drop in net income to $65.5 million, driven by lower rental income, property impairment charges, and credit loss provisions, despite maintaining strong liquidity. - The company established a new reportable segment, the Senior Housing Operating Portfolio (SHOP), effective April 1, 2022, by transitioning 15 former Holiday properties from a triple-net lease structure[232](index=232&type=chunk) - During 2022, the company granted **$9.3 million** in pandemic-related rent deferrals and forgave **$4.1 million**, with aggregate concessions totaling **$44.3 million** since the pandemic began[241](index=241&type=chunk) Key Financial Results Comparison (FY 2022 vs FY 2021) | Metric | 2022 ($ in thousands) | 2021 ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $278,194 | $298,715 | (6.9)% | | Rental Income | $217,700 | $271,049 | (19.7)% | | Net Income | $65,501 | $111,967 | (41.5)% | | Loan and realty losses | $61,911 | $52,766 | 17.3% | - The decrease in rental income was driven by the Holiday portfolio transition, disposition of 22 properties, and approximately **$33.1 million** in write-offs of straight-line rents and lease incentives for tenants placed on a cash basis[292](index=292&type=chunk) - The company repurchased **2.5 million shares** of common stock for an average price of **$61.56 per share** during 2022[258](index=258&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity through cash, a revolving credit facility, and an ATM program, managing debt maturities and interest payments. - As of December 31, 2022, NHI had **$19.3 million** in unrestricted cash, **$658.0 million** available on its revolving credit facility, and **$415.7 million** available under its ATM program[295](index=295&type=chunk) - In March 2022, the company entered into a new **$700.0 million** unsecured revolving credit facility, replacing its previous **$550.0 million** facility[301](index=301&type=chunk) Debt Metrics as of December 31, 2022 | Metric | Value | | :--- | :--- | | Consolidated Net Debt | $1.128 billion | | Adjusted EBITDA | $242.3 million | | Consolidated Net Debt to Adjusted EBITDA | 4.7x | | Fixed Charge Coverage Ratio | 5.9x | - The company has material cash requirements of **$487.5 million** for the next twelve months, primarily for debt maturities (**$415.4 million**) and interest payments (**$37.7 million**)[328](index=328&type=chunk) [FFO & FAD](index=66&type=section&id=Item%207.%20MD%26A%20-%20FFO%20%26%20FAD) Funds From Operations (FFO) and Funds Available for Distribution (FAD) per share decreased in 2022 due to write-offs, increased credit loss reserves, and property dispositions. - NAREIT FFO per diluted share decreased **23.2%** from **$4.62 in 2021** to **$3.55 in 2022**, primarily due to write-offs of straight-line rents and lease incentives, increased credit loss reserves, and property dispositions[340](index=340&type=chunk)[346](index=346&type=chunk) - Normalized FFO per diluted share decreased **6.5%** from **$4.60 in 2021** to **$4.30 in 2022**[341](index=341&type=chunk)[346](index=346&type=chunk) - Normalized FAD, a measure of dividend-paying ability, decreased **4.0%** from **$209.5 million in 2021** to **$201.0 million in 2022**[343](index=343&type=chunk)[346](index=346&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk from its variable-rate debt, with a hypothetical 50 basis-point change impacting annual net interest expense by approximately $1.4 million, while inflation risk is partially mitigated by CPI-based rent escalators and triple-net leases. - As of December 31, 2022, the company had **$282.0 million** of variable-rate debt, exposing it to interest rate fluctuations[351](index=351&type=chunk) - A **50 basis-point (0.50%)** increase or decrease in interest rates would change annual net interest expense by approximately **$1.4 million**[352](index=352&type=chunk) - Inflation risk is mitigated through contractual rent increases, some of which are tied to the CPI, and triple-net leases that require tenants to pay all property operating expenses[358](index=358&type=chunk) [Financial Statements and Supplementary Data](index=73&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for 2020-2022 were audited by BDO USA, LLP, receiving an unqualified opinion, with critical audit matters including property impairment assessment and SHOP venture consolidation, while the balance sheet shows decreases in total assets and liabilities due to dispositions, impairments, and debt repayments. - The independent registered public accounting firm, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements[361](index=361&type=chunk) - Critical audit matters included management's identification and assessment of indicators for potential impairment of real estate properties and the accounting for the consolidation of the SHOP ventures[368](index=368&type=chunk)[370](index=370&type=chunk) Consolidated Balance Sheet Summary ($ in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Real estate properties, net | $2,118,210 | $2,317,880 | | Total Assets | $2,507,424 | $2,838,876 | | Total Debt | $1,147,511 | $1,242,883 | | Total Liabilities | $1,217,518 | $1,321,893 | | Total Equity | $1,280,081 | $1,516,983 | Consolidated Statement of Income Summary ($ in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $278,194 | $298,715 | $332,811 | | Total Expenses | $241,856 | $216,139 | $161,766 | | Net Income | $65,501 | $111,967 | $185,311 | [Controls and Procedures](index=113&type=section&id=Item%209A.%20Controls%20and%20Procedures) Company management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, an assessment affirmed by the independent auditor, with no significant changes to internal controls during the fourth quarter of 2022. - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[586](index=586&type=chunk) - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2022[591](index=591&type=chunk) - No significant changes were made to internal controls over financial reporting during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, internal controls[588](index=588&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees](index=117&type=section&id=Items%2010-14) Information required for Items 10 through 14, covering directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, director independence, and principal accountant fees and services, is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders. - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's definitive proxy statement for its 2023 annual meeting of stockholders[603](index=603&type=chunk)[604](index=604&type=chunk)[605](index=605&type=chunk)[606](index=606&type=chunk)[607](index=607&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=117&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report, including consolidated financial statements, real estate and mortgage loan schedules, and various corporate documents and material contracts. - This part of the report contains the list of all financial statements, schedules, and exhibits filed with the Form 10-K[609](index=609&type=chunk)

Portfolio Optimization & Dispositions - Since Q2 2021, the company completed approximately $296.4 million in senior housing dispositions at a NOI cap rate of approximately 2.7% and EBITDARM coverage of 0.47x[5] - The company is targeting additional asset sales of $50 - $60 million, which is expected to have an annualized cash rent impact of approximately $4.6 million[5] - Since 1Q21, the company has completed the sale of 9 Bickford properties for approximately $65.9 million[10] Bickford & Holiday Portfolio Repositioning - The Bickford lease was restructured effective April 1st to approximately $28 million annual cash rent with a FMV reset after two years; TTM pro forma EBITDARM coverage through 2Q 2022 was 1.32x[5] - The company transitioned 15 former Holiday properties to a new senior housing operating portfolio ("SHOP") effective April 1, 2022, to Discovery Senior Living and Merrill Gardens[5] - SHOP contributed $2.8 million to adjusted NOI during 3Q 2022 and $5.7 million YTD[5] Financial Performance & Balance Sheet - The company has maintained leverage within its stated goal of 4.0x – 5.0x net debt-to-adjusted EBITDA despite significant deferrals and asset dispositions[5] - The company completed $152 million in share repurchases year-to-date[5] - The company expects incremental SHOP long-term opportunity of $6 million - $8 million as the industry recovers[5] - The company has reduced debt by $434 million since the pandemic began and has $690 million available on the $700 million revolver at September 30, 2022[17]

National Health Investors, Inc. (NYSE:NHI) Q3 2022 Earnings Conference Call November 9, 2022 12:00 PM ET Company Participants Dana Hambly - VP, Finance & IR Eric Mendelsohn - President & CEO John Spaid - CFO Kevin Pascoe - Chief Investment Officer Conference Call Participants John Kim - BMO Capital Markets Operator Greetings, and welcome to the National Health Investors Third Quarter 2022 Conference Call. At the start of the presentation, all lines will be in a listen-mode. Afterwards, we will conduct a que ...

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) Presents NHI's unaudited condensed consolidated financial statements and related disclosures [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents NHI's unaudited condensed consolidated financial statements for Q3 2022, including balance sheets, income, cash flows, equity, and notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes NHI's financial position, detailing assets, liabilities, and equity as of September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total Assets | $2,508,785 | $2,838,876 | $(330,091) | (11.6)% | | Real estate properties, net | $2,140,853 | $2,317,880 | $(177,027) | (7.6)% | | Mortgage and other notes receivable, net | $207,169 | $299,952 | $(92,783) | (30.9)% | | Cash and cash equivalents | $28,811 | $37,412 | $(8,601) | (23.0)% | | Total Liabilities | $1,182,140 | $1,321,893 | $(139,753) | (10.6)% | | Debt | $1,114,999 | $1,242,883 | $(127,884) | (10.3)% | | Total Equity | $1,315,448 | $1,516,983 | $(201,535) | (13.3)% | | Common stock outstanding | 43,388,742 | 45,850,599 | (2,461,857) | (5.4)% | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Presents NHI's revenues, expenses, and net income for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Income Highlights (Nine Months Ended September 30, in thousands, except per share) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Total Revenues | $207,524 | $229,048 | $(21,524) | (9.4)% | | Rental income | $163,935 | $210,143 | $(46,208) | (22.0)% | | Resident fees and services | $24,005 | $0 | $24,005 | NM | | Interest income and other | $19,584 | $18,905 | $679 | 3.6% | | Total Expenses | $172,746 | $147,287 | $25,459 | 17.3% | | Depreciation | $53,577 | $61,499 | $(7,922) | (12.9)% | | Interest | $32,472 | $38,528 | $(6,056) | (15.7)% | | Senior housing operating expenses | $18,352 | $0 | $18,352 | NM | | Loan and realty losses | $39,951 | $23,596 | $16,355 | 69.3% | | Net income attributable to common stockholders | $64,540 | $105,327 | $(40,787) | (38.7)% | | Diluted EPS | $1.43 | $2.31 | $(0.88) | (38.1)% | - The significant increase in **'Resident fees and services'** and **'Senior housing operating expenses'** in 2022 is due to the commencement of **SHOP activities on April 1, 2022**[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details NHI's net income and other comprehensive income components for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Comprehensive Income Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Net income | $63,941 | $105,462 | $(41,521) | (39.4)% | | Total other comprehensive income | $0 | $5,321 | $(5,321) | (100.0)% | | Comprehensive income attributable to common stockholders | $64,540 | $110,648 | $(46,108) | (41.7)% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Outlines NHI's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Net cash provided by operating activities | $138,983 | $157,501 | $(18,518) | (11.8)% | | Net cash provided by investing activities | $247,143 | $163,358 | $83,785 | 51.3% | | Net cash used in financing activities | $(393,897) | $(317,007) | $(76,890) | 24.3% | | (Decrease) increase in cash and cash equivalents and restricted cash | $(7,771) | $3,852 | $(11,623) | (301.7)% | | Cash and cash equivalents and restricted cash, end of period | $31,714 | $50,195 | $(18,481) | (36.8)% | - Net cash provided by investing activities increased significantly due to higher proceeds from sales of real estate (**$168,957 thousand in 2022** vs **$203,147 thousand in 2021**) and collections of mortgage and other notes receivable (**$117,973 thousand in 2022** vs **$64,509 thousand in 2021**)[17](index=17&type=chunk) - Net cash used in financing activities increased primarily due to payments to repurchase shares of common stock (**$151,951 thousand in 2022** vs **$0 in 2021**) and lower net proceeds from debt activities[17](index=17&type=chunk) [Condensed Consolidated Statements of Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Details changes in NHI's equity, including comprehensive income, stock repurchases, and dividends, for the nine months ended September 30, 2022 Condensed Consolidated Statements of Equity Highlights (Nine Months Ended September 30, 2022, in thousands) | Item | Amount | | :--------------------------------------- | :------- | | Balances at December 31, 2021 | $1,516,983 | | Total comprehensive income (excluding redeemable NCI) | $64,540 | | Repurchases of common stock | $(151,951) | | Dividends declared | $(122,721) | | Balances at September 30, 2022 | $1,315,448 | - The decrease in total equity is primarily driven by significant **common stock repurchases** and **dividends declared** during the period[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of NHI's accounting policies, investment activities, debt, and other financial disclosures [Note 1. Organization and Nature of Business](index=11&type=section&id=Note%201.%20Organization%20and%20Nature%20of%20Business) Describes NHI's business as a REIT specializing in senior housing and medical facilities, and its operating segments - **NHI is a self-managed real estate investment trust (REIT)** specializing in sale-leaseback, joint venture, mortgage, and mezzanine financing for senior housing and medical facilities[28](index=28&type=chunk) - The company operates through two reportable segments: **Real Estate Investments** and **Senior Housing Operating Portfolio (SHOP)**[28](index=28&type=chunk) Segment Overview (as of September 30, 2022) | Segment | Description | Investments | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Real Estate Investments | Lease, mortgage, and other note investments in 162 health care properties (96 senior housing, 65 skilled nursing, 1 hospital) in 32 states | ~$2.4 billion in properties, $214.1 million in mortgages/notes receivable (net of reserve) | | SHOP | Two ventures owning operations of 15 independent living facilities (1,731 units) in eight states, managed by independent managers | ~$336.6 million | [Note 2. Basis of Presentation and Significant Accounting Policies](index=11&type=section&id=Note%202.%2E%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) Explains the preparation of interim financial statements and key accounting policies, including consolidation and revenue recognition - The unaudited condensed consolidated financial statements are prepared in accordance with **U.S. GAAP for interim financial statements**, reflecting all necessary normal recurring adjustments[30](index=30&type=chunk) - The company consolidates wholly-owned subsidiaries, joint ventures, and certain Variable Interest Entities (VIEs) where it is deemed the primary beneficiary, including the **two new SHOP ventures**[31](index=31&type=chunk)[32](index=32&type=chunk) - Impairment charges of approximately **$9.5 million** (three months ended Sep 30, 2022) and **$38.3 million** (nine months ended Sep 30, 2022) were recognized in **'Loan and realty losses'**[45](index=45&type=chunk) - Rental income is recognized using the straight-line method; however, **Bickford Senior Living was converted to a cash basis of revenue recognition in Q2 2022**, resulting in write-offs of **$18.1 million of straight-line rents receivable** and **$7.1 million of lease incentives**[46](index=46&type=chunk)[47](index=47&type=chunk) - NHI elected not to apply lease modification guidance under ASC 842 for COVID-19 related rent concessions, accounting for them as variable lease payments. **$10.7 million in lease concessions** were provided during the nine months ended September 30, 2022[50](index=50&type=chunk) [Note 3. Investment Activity](index=15&type=section&id=Note%203.%20Investment%20Activity) Details NHI's acquisitions, dispositions, impairment charges, and lease restructurings during the period - Acquired a **53-unit assisted living facility (ALF)** from Encore Senior Living for **$13.3 million in Q2 2022**, adding it to an existing master lease with a **7.25% initial lease rate** and **2.5% annual escalator**[53](index=53&type=chunk) Asset Dispositions (Nine Months Ended September 30, 2022, in thousands) | Operator | Properties | Asset Class | Net Proceeds | Net Real Estate Investment | Gain | Impairment | | :--------------------------------------- | :--------- | :---------- | :----------- | :------------------------- | :--- | :--------- | | Hospital Corporation of America | 1 | MOB | $4,868 | $1,904 | $2,964 | $0 | | Vitality Senior Living | 1 | SLC | $8,302 | $8,285 | $17 | $0 | | Holiday Retirement | 1 | ILF | $2,990 | $3,020 | $0 | $30 | | Chancellor Senior Living | 2 | ALF | $7,305 | $7,357 | $0 | $52 | | Bickford Senior Living | 3 | ALF | $25,959 | $28,268 | $0 | $2,309 | | Comfort Care | 4 | ALF | $40,000 | $38,445 | $1,556 | $0 | | Helix Healthcare | 1 | HOSP | $19,500 | $10,535 | $8,965 | $0 | | Discovery Senior Living | 2 | ALF/SLC | $16,379 | $15,159 | $1,220 | $0 | | National HealthCare Corporation (NHC) | 7 | SNF | $43,686 | $30,066 | $13,620 | $0 | | **Total** | **22** | | **$168,989** | **$143,039** | **$28,342** | **$2,391** | - Recorded impairment charges of **$9.5 million** (three months ended Sep 30, 2022) and **$38.3 million** (nine months ended Sep 30, 2022) on real estate properties, included in **'Loan and realty losses'**[59](index=59&type=chunk) - Restructured three of Bickford's master lease agreements covering **27 properties**, extending maturities to **2033 and 2035**, reducing combined rent to approximately **$28.3 million per year through April 1, 2024**, and agreeing on repayment terms for **$26.0 million in outstanding pandemic-related deferrals**[68](index=68&type=chunk)[71](index=71&type=chunk) [Note 4. Mortgage and Other Notes Receivable](index=20&type=section&id=Note%204.%20Mortgage%20and%20Other%20Notes%20Receivable) Outlines NHI's mortgage and other notes receivable, including repayments, new fundings, and credit loss reserves - As of September 30, 2022, investments in mortgage notes receivable totaled **$130.6 million** (**13 facilities**) and other notes receivable totaled **$83.5 million**, net of a **$6.9 million credit loss reserve**[74](index=74&type=chunk) - Received repayment of a **$111.3 million mortgage note receivable** from Life-Care Services in Q2 2022, including a **$1.1 million prepayment fee**[75](index=75&type=chunk) - Funded **$8.7 million of a $28.5 million development loan** with Encore Senior Living (**8.5% annual interest**) and **$20.3 million of a $50.0 million mezzanine loan** with Montecito Medical Real Estate (**7.5%-9.5% interest rates**)[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) Allowance for Expected Credit Losses (Nine Months Ended September 30, 2022, in thousands) | Item | Amount | | :--------------------------------------- | :------- | | Beginning balance January 1, 2022 | $5,210 | | Provision for expected credit losses | $1,730 | | Balance September 30, 2022 | $6,940 | [Note 5. Senior Housing Operating Portfolio Formation Activities](index=22&type=section&id=Note%205.%20Senior%20Housing%20Operating%20Portfolio%20Formation%20Activities) Describes the formation of NHI's SHOP ventures, including the transition of properties and equity interests - Effective **April 1, 2022**, NHI terminated the master lease for legacy Holiday properties and transitioned **15 independent living facilities (ILFs)** into **two new consolidated SHOP ventures** with Merrill Gardens and Discovery Senior Living[87](index=87&type=chunk) - NHI owns **100% of the preferred equity interests** and an aggregate blended common equity interest of **89%** in these ventures, with an annual fixed preferred return of approximately **$10.2 million**[87](index=87&type=chunk) - Merrill Gardens contributed **$10.6 million in cash** for its common equity interest in its venture (**6 ILFs**), and Discovery member contributed **$1.1 million** for its common equity interest in its venture (**9 ILFs**)[89](index=89&type=chunk)[91](index=91&type=chunk) - The properties are managed by Merrill and Discovery affiliates, respectively, for a base management fee of **5% of net revenue**[90](index=90&type=chunk)[92](index=92&type=chunk) [Note 6. Equity Method Investment](index=23&type=section&id=Note%206.%20Equity%20Method%20Investment) Details NHI's equity method investment in Timber Ridge OpCo, LLC, including its credit facility and recognized losses - NHI holds a **25% equity interest** in Timber Ridge OpCo, LLC, accounted for under the equity method, and has provided a revolving credit facility of up to **$5.0 million**, of which no funds have been drawn[93](index=93&type=chunk) - The company has recognized cumulative losses of **$5.0 million** in excess of its initial investment, included in **'Accounts payable and accrued expenses'**[94](index=94&type=chunk) - Excess unrecognized equity method losses for the nine months ended September 30, 2022, were **$2.6 million**, with cumulative unrecognized losses of **$4.8 million**[94](index=94&type=chunk) [Note 7. Debt](index=24&type=section&id=Note%207.%20Debt) Provides an overview of NHI's debt, including revolving credit facilities, term loans, and interest expense Debt Overview (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total Debt | $1,114,999 | $1,242,883 | $(127,884) | (10.3)% | | Revolving credit facility - unsecured | $10,000 | $0 | $10,000 | NM | | Bank term loans - unsecured | $240,000 | $375,000 | $(135,000) | (36.0)% | | Senior notes - unsecured | $397,320 | $397,079 | $241 | 0.1% | | Private placement term loans - unsecured | $400,000 | $400,000 | $0 | 0.0% | | Fannie Mae term loans - secured, non-recourse | $76,748 | $77,038 | $(290) | (0.4)% | - Entered into a **new $700.0 million unsecured revolving credit facility** in **March 2022**, replacing the previous **$550.0 million facility**, maturing in **March 2026**[97](index=97&type=chunk) - Amended the **$300.0 million term loan** (maturing Sep 2023) to align covenants and accrue interest based on SOFR, and repaid **$60.0 million of this loan**. Also repaid a **$75.0 million term loan in March 2022**, incurring a **$0.2 million loss on early retirement of debt**[99](index=99&type=chunk)[100](index=100&type=chunk) Total Interest Expense (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Three Months Ended Sep 30 | $11,412 | $12,715 | $(1,303) | (10.2)% | | Nine Months Ended Sep 30 | $32,472 | $38,528 | $(6,056) | (15.7)% | [Note 8. Commitments, Contingencies and Uncertainties](index=26&type=section&id=Note%208.%20Commitments%2C%20Contingencies%20and%20Uncertainties) Details NHI's loan and development commitments, pandemic-related rent concessions, and litigation settlement Loan Commitments (as of September 30, 2022, in thousands) | Type | Total | Funded | Remaining | | :--------------------------------------- | :------- | :------- | :-------- | | Working capital, construction, mezzanine loans | $173,625 | $(109,681) | $63,944 | Development Commitments (as of September 30, 2022, in thousands) | Type | Total | Funded | Remaining | | :--------------------------------------- | :------- | :------- | :-------- | | Construction and renovation | $33,495 | $(24,151) | $9,344 | - The credit loss liability for unfunded loan commitments was **$905 thousand** as of September 30, 2022[118](index=118&type=chunk) - Granted **$10.7 million in pandemic-related rent concessions** (YTD Sep 30, 2022), net of **$0.2 million repayments**. Aggregate pandemic-related rent concessions since the beginning of the pandemic totaled **$53.2 million** (net of **$0.3 million repayments**), with **$47.3 million contractually agreed to be repaid**[178](index=178&type=chunk) - Settled litigation with Welltower, Inc. effective **April 1, 2022**, resulting in the dismissal of claims, release of **$6.9 million in escrowed funds to NHI**, and the transition of **15 properties to new SHOP ventures**. Recognized approximately **$0.7 million** as a **'Gain (loss) on operations transfer, net'**[127](index=127&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) [Note 9. Redeemable Noncontrolling Interests](index=29&type=section&id=Note%209.%20Redeemable%20Noncontrolling%20Interests) Explains the classification and carrying amount of noncontrolling interests in SHOP ventures due to put rights - Interests held by Merrill and Discovery member in the SHOP ventures are classified as **contingently redeemable noncontrolling interests (mezzanine equity)** due to put rights upon certain contingent events[131](index=131&type=chunk) - The initial carrying amount of these noncontrolling interests was **$11.7 million**, and the balance at September 30, 2022, was **$11.197 million**[132](index=132&type=chunk)[133](index=133&type=chunk) - These interests are not currently redeemable as a contingent redemption event is not probable as of September 30, 2022[132](index=132&type=chunk) [Note 10. Equity and Dividends](index=29&type=section&id=Note%2010.%20Equity%20and%20Dividends) Details NHI's stock repurchase plan, share repurchases, and quarterly dividends declared - The Board of Directors approved a stock repurchase plan for up to **$240.0 million of common stock** on **April 15, 2022**, effective for **one year**[134](index=134&type=chunk) - During the nine months ended September 30, 2022, NHI repurchased **2,468,354 shares of common stock** for an average price of **$61.56 per share**, with approximately **$88.4 million remaining** under the plan[135](index=135&type=chunk)[136](index=136&type=chunk) Quarterly Dividends Declared per Common Share | Period | Quarterly Dividend | | :--------------------------------------- | :----------------- | | Q1 2022 | $0.90 | | Q2 2022 | $0.90 | | Q3 2022 | $0.90 | | Q1 2021 | $1.1025 | | Q2 2021 | $1.1025 | | Q3 2021 | $0.90 | - NHI intends to comply with **REIT dividend requirements** to distribute at least **90% of annual taxable income**[247](index=247&type=chunk) [Note 11. Share-Based Compensation](index=30&type=section&id=Note%2011.%20Share-Based%20Compensation) Reports on share-based compensation expense, stock option grants, and unrecognized compensation expense - During the nine months ended September 30, 2022, NHI granted options to purchase **0.7 million shares of common stock** under the 2019 Stock Incentive Plan[138](index=138&type=chunk) - Non-cash share-based compensation expense was **$7,576 thousand** for the nine months ended September 30, 2022, compared to **$7,427 thousand** in the prior year[138](index=138&type=chunk) - The weighted average fair value of options granted was **$11.92 in 2022**, down from **$14.54 in 2021**[138](index=138&type=chunk) - Unrecognized compensation expense totaling **$2.7 million** associated with unvested stock options is expected to be recognized through **2024**[141](index=141&type=chunk) [Note 12. Earnings Per Common Share](index=31&type=section&id=Note%2012.%20Earnings%20Per%20Common%20Share) Presents basic and diluted earnings per common share for the nine months ended September 30, 2022, and 2021 Earnings Per Common Share (Nine Months Ended September 30) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Net income attributable to common stockholders - basic | $1.43 | $2.31 | $(0.88) | (38.1)% | | Net income attributable to common stockholders - diluted | $1.43 | $2.31 | $(0.88) | (38.1)% | - Weighted average dilutive common shares outstanding were **45,261,123** for the nine months ended September 30, 2022, compared to **45,689,091** in the prior year[144](index=144&type=chunk) [Note 13. Fair Value of Financial Instruments](index=32&type=section&id=Note%2013.%20Fair%20Value%20of%20Financial%20Instruments) Provides fair value disclosures for NHI's financial instruments, including debt and notes receivable Fair Value of Financial Instruments (as of September 30, 2022, in thousands) | Instrument | Carrying Amount | Fair Value | | :--------------------------------------- | :-------------- | :--------- | | Variable rate debt | $245,357 | $250,000 | | Fixed rate debt | $869,642 | $776,372 | | Mortgage and other notes receivable, net | $207,169 | $205,460 | - The fair value of fixed rate debt is classified as **Level 2**, based on observable market inputs, while mortgage and other notes receivable are **Level 3**, based on unobservable credit risk and discount rates[145](index=145&type=chunk)[146](index=146&type=chunk) [Note 14. Segment Reporting](index=33&type=section&id=Note%2014.%20Segment%20Reporting) Details NHI's financial performance by its Real Estate Investments and Senior Housing Operating Portfolio (SHOP) segments - NHI evaluates its business and allocates resources based on two operating segments: **Real Estate Investments** and **Senior Housing Operating Portfolio (SHOP)**[148](index=148&type=chunk) - The **SHOP segment was formed effective April 1, 2022**, following the termination of the triple-net lease for the legacy Holiday portfolio, transferring **15 ILFs into two separate ventures**[149](index=149&type=chunk) Net Operating Income (NOI) by Segment (Nine Months Ended September 30, 2022, in thousands) | Segment | Total Revenues | Senior Housing Operating Expenses | Taxes and Insurance on Leased Properties | NOI | | :--------------------------------------- | :------------- | :--------------------------------------- | :--------------------------------------- | :-------- | | Real Estate Investments | $183,297 | $0 | $7,553 | $175,744 | | SHOP | $24,005 | $18,352 | $0 | $5,653 | | Non-segment/Corporate | $222 | $0 | $0 | $222 | | **Total** | **$207,524** | **$18,352** | **$7,553** | **$181,619** | - Capital expenditures for the nine months ended September 30, 2022, were approximately **$7.6 million** for the Real Estate Investments segment and **$1.8 million** for the SHOP segment[150](index=150&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses NHI's financial condition, operations, liquidity, capital resources, COVID-19 impact, and non-GAAP financial measures [Forward Looking Statements](index=35&type=section&id=Forward%20Looking%20Statements) Highlights forward-looking statements regarding future financial performance and potential risks and uncertainties - The report contains forward-looking statements regarding future financial position, results of operations, cash flows, funds from operations, and growth opportunities[156](index=156&type=chunk) - Known and unknown risks and uncertainties could cause actual results to differ materially, including those related to public health epidemics (e.g., COVID-19), dependence on tenant/borrower operating success, governmental regulations, real estate illiquidity, and debt covenants[157](index=157&type=chunk)[159](index=159&type=chunk) [Executive Overview](index=38&type=section&id=Executive%20Overview) Provides an overview of NHI's business as a REIT, its investment portfolio, and segment structure - **NHI is a self-managed REIT** specializing in senior housing and medical facility investments, operating through Real Estate Investments and SHOP segments[161](index=161&type=chunk) Real Estate Investment Portfolio (as of September 30, 2022) | Metric | Value | | :--------------------------------------- | :--------------------------------------- | | Facilities | 175 (106 senior housing, 68 SNFs, 1 hospital) | | Properties original cost | ~$2.4 billion | | Mortgage and other notes receivable | $214.1 million (net of $6.9 million reserve) | - Senior housing properties are classified as need-driven (assisted living, memory care, senior living campuses) or discretionary (independent living, entrance-fee communities). Medical facilities include skilled nursing facilities and a specialty hospital[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - The SHOP segment, formed **April 1, 2022**, consists of **15 ILFs (1,731 units)** managed by third-party property managers[167](index=167&type=chunk)[168](index=168&type=chunk) Geographic Concentration of NOI (Nine Months Ended September 30, 2022, in thousands) | Location | 2022 NOI | | :--------------------------------------- | :------- | | South Carolina | $25,369 | | Texas | $21,124 | | Florida | $18,727 | | Washington | $10,733 | | California | $6,230 | | All others | $99,214 | | **Total NOI** | **$181,397** | [COVID-19 Pandemic Impact](index=41&type=section&id=COVID-19%20Pandemic%20Impact) Discusses the ongoing impact of the COVID-19 pandemic on operations, occupancy, expenses, and rent concessions - The COVID-19 pandemic continues to impact operations, with potential adverse effects on **occupancy rates** and **elevated operating expenses** for SHOP ventures and leased properties[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - NHI granted approximately **$10.7 million in pandemic-related rent concessions** (YTD Sep 30, 2022), net of **$0.2 million repayments**. Aggregate concessions since the pandemic began total **$53.2 million** (net of **$0.3 million repayments**), with **$47.3 million contractually agreed to be repaid**[178](index=178&type=chunk) - The company anticipates some tenants may need additional rent deferrals, and the extent of future concessions cannot be reliably projected[177](index=177&type=chunk)[179](index=179&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Addresses critical accounting policies and estimates, particularly those related to the SHOP transition and VIEs - No significant changes to critical accounting policies and estimates, except for those resulting from the **SHOP transition**[180](index=180&type=chunk) - Key judgments involve determining **Variable Interest Entities (VIEs)** and identifying the primary beneficiary, which impacts the presentation of these entities in consolidated financial statements[181](index=181&type=chunk)[182](index=182&type=chunk) [2022 Activity](index=42&type=section&id=2022%20Activity) Summarizes key activities in 2022, including litigation settlement, property transitions, acquisitions, dispositions, and impairments - Received **$6.9 million in escrowed funds** upon settlement of the Welltower litigation and transitioned **15 legacy Holiday ILFs** into the new **SHOP segment on April 1, 2022**[186](index=186&type=chunk) - Converted Bickford to the **cash basis of accounting** for its master lease agreements, resulting in write-offs of approximately **$18.1 million of straight-line rents receivable** and **$7.1 million of lease incentives**[186](index=186&type=chunk) - Acquired a **53-unit ALF for $13.3 million** and agreed to fund a **$28.5 million development loan** with Encore Senior Living[186](index=186&type=chunk) - Disposed of **22 facilities** from the Real Estate Investments segment for net proceeds of **$169.0 million** during the nine months ended September 30, 2022[186](index=186&type=chunk) - Received repayment of a **$111.3 million mortgage note receivable**, including a **$1.1 million prepayment fee**[189](index=189&type=chunk) - Recorded impairment charges of **$9.5 million** (Q3 2022) and **$38.3 million** (YTD Sep 30, 2022) on long-lived assets[191](index=191&type=chunk) [Tenant Concentration](index=44&type=section&id=Tenant%20Concentration) Details revenue contribution from major tenants, changes in accounting for Bickford, and portfolio occupancy rates Major Tenant Revenue Contribution (Nine Months Ended September 30, 2022) | Tenant | Revenue ($ thousands) | % of Total Revenues | | :--------------------------------------- | :-------------------- | :------------------ | | Senior Living Communities | $38,325 | 18% | | NHC | $27,875 | 13% | | All others, net | $109,766 | 53% | | Resident fees and services (SHOP) | $24,005 | 12% | | **Total Revenues** | **$207,524** | **100%** | - **Bickford was converted to the cash basis of accounting in Q2 2022** due to collectability concerns, resulting in write-offs of **$18.1 million of straight-line rents receivable** and **$7.1 million of lease incentives**. Cash rent received from Bickford was **$17.0 million** (YTD Sep 30, 2022)[198](index=198&type=chunk) - The NHC master lease was amended effective **September 1, 2022**, increasing the annual base rent from approximately **$30.8 million to $34.3 million**[196](index=196&type=chunk) Average Portfolio Occupancy (Q3 2022) | Operator | Q3 2022 Occupancy | | :--------------------------------------- | :------------------ | | Senior Living Communities | 83.3% | | Bickford | 84.2% | | SHOP | 76.9% | [Tenant Monitoring](index=45&type=section&id=Tenant%20Monitoring) Explains NHI's tenant performance monitoring using EBITDARM and coverage ratios, highlighting trends in senior housing - NHI monitors tenant performance using **EBITDARM** (earnings before interest, taxes, depreciation, amortization, rent, and management fees) and a **coverage ratio** (EBITDARM/cash rent)[202](index=202&type=chunk)[203](index=203&type=chunk) NHI Real Estate Investments Portfolio Coverage (Trailing Twelve-Month Basis, as of June 30) | By asset type | 2Q22 | 2Q21 | | :--------------------------------------- | :----- | :----- | | Total Portfolio Coverage | 1.63x | 1.69x | | Senior Housing (SHO) | 1.14x | 1.11x | | Skilled Nursing Facilities (SNF) | 2.47x | 2.74x | | Medical Non-SNF | 2.60x | 2.59x | - Senior housing portfolio coverage declined primarily due to **softening occupancy** and **rising expenses**, including wage pressures, exacerbated by the COVID-19 pandemic[209](index=209&type=chunk)[210](index=210&type=chunk) - Bickford's proforma coverage at the restructured lease amount would be **1.32x** for Q2 2022[207](index=207&type=chunk) [Real Estate and Mortgage Write-downs](index=48&type=section&id=Real%20Estate%20and%20Mortgage%20Write-downs) Reports on impairment charges for long-lived assets and credit loss reserves for mortgages and loan commitments - Recorded impairment charges on long-lived assets of approximately **$9.5 million** (three months ended Sep 30, 2022) and **$38.3 million** (nine months ended Sep 30, 2022) due to economic and financial factors[211](index=211&type=chunk) - Established a reserve for estimated credit losses of **$6.9 million** for mortgages and other notes receivable, and a liability of **$0.9 million** for estimated credit losses on unfunded loan commitments as of September 30, 2022[212](index=212&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Analyzes NHI's revenues, expenses, and net income, highlighting key drivers of changes for the period Results of Operations Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Total Revenues | $207,524 | $229,048 | $(21,524) | (9.4)% | | Rental income | $163,935 | $210,143 | $(46,208) | (22.0)% | | Resident fees and services | $24,005 | $0 | $24,005 | NM | | Total Expenses | $172,746 | $147,287 | $25,459 | 17.3% | | Senior housing operating expenses | $18,352 | $0 | $18,352 | NM | | Loan and realty losses | $39,951 | $23,596 | $16,355 | 69.3% | | Net income attributable to common stockholders | $64,540 | $105,327 | $(40,787) | (38.7)% | - The decrease in rental income includes write-offs of **$18.1 million of straight-line rents receivable** and **$7.1 million of lease incentives** related to Bickford master lease agreements[219](index=219&type=chunk) - Legal expenses increased by **$2.0 million**, primarily related to the Welltower litigation and transition activities for the legacy Holiday portfolio[219](index=219&type=chunk) - Gains on sales of real estate, net, increased by **$1.9 million to $28.3 million** for the nine months ended September 30, 2022[219](index=219&type=chunk) - A gain on note payoff of **$1.1 million** reflects a prepayment fee from the early repayment of a **$111.3 million mortgage note receivable**[219](index=219&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses NHI's liquidity, capital resources, debt levels, credit ratings, and stock repurchase activities - As of September 30, 2022, NHI had **$690.0 million available** on its revolving credit facility, **$28.8 million in unrestricted cash**, and potential access to **$415.7 million** through its ATM equity program[220](index=220&type=chunk) Cash Flow Summary (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Net cash provided by operating activities | $138,983 | $157,501 | $(18,518) | (11.8)% | | Net cash provided by investing activities | $247,143 | $163,358 | $83,785 | 51.3% | | Net cash used in financing activities | $(393,897) | $(317,007) | $(76,890) | 24.3% | - Total outstanding debt was **$1.1 billion** as of September 30, 2022. The company maintains **investment-grade credit ratings** from Moody's (**Baa3, Stable**), Fitch (**BBB-, Stable**), and S&P Global (**BBB-, Stable**)[225](index=225&type=chunk)[235](index=235&type=chunk) - Key debt metrics include a consolidated net debt to annualized Adjusted EBITDA ratio of **4.5x** and a fixed charge coverage ratio of **6.2x** for the nine months ended September 30, 2022[238](index=238&type=chunk) - Under the **$240.0 million stock repurchase plan** approved in April 2022, NHI repurchased **2.5 million shares for $152.0 million** (YTD Sep 30, 2022), with **$88.4 million remaining**[243](index=243&type=chunk)[245](index=245&type=chunk) Contractual Obligations (as of September 30, 2022, in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--------------------------------------- | :-------- | :--------------- | :-------- | :-------- | :---------------- | | Debt, including interest | $1,197,204 | $407,515 | $225,512 | $166,857 | $397,320 | | Loan commitments | $63,944 | $34,199 | $29,745 | $0 | $0 | | Development commitments | $9,344 | $9,344 | $0 | $0 | $0 | | **Total** | **$1,270,492** | **$451,058** | **$255,257** | **$166,857** | **$397,320** | [FFO & FAD](index=60&type=section&id=FFO%20%26%20FAD) Presents Funds From Operations (FFO) and Funds Available for Distribution (FAD), explaining key drivers of changes FFO & FAD Highlights (Nine Months Ended September 30) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | NAREIT FFO per diluted common share | $2.81 | $3.55 | $(0.74) | (20.8)% | | Normalized FFO per diluted common share | $3.43 | $3.55 | $(0.12) | (3.4)% | | Normalized FAD (thousands) | $156,050 | $163,561 | $(7,511) | (4.6)% | - The decrease in FFO was primarily due to **$25.2 million in Bickford write-offs** and **$1.7 million in legal fees**, partially offset by the recognition of the Holiday lease deposit (**$8.8 million**) and escrow (**$6.9 million**) in rental income[267](index=267&type=chunk) - **Normalized FFO and FAD are supplemental performance measures** that exclude certain infrequent or non-cash items to provide a clearer view of operating performance and liquidity for dividend distributions[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) [Adjusted EBITDA](index=63&type=section&id=Adjusted%20EBITDA) Reports on Adjusted EBITDA and Fixed Charge Coverage, supplemental measures for performance and debt servicing Adjusted EBITDA and Fixed Charge Coverage (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Adjusted EBITDA | $191,731 | $205,342 | $(13,611) | (6.6)% | | Fixed Charge Coverage | 6.2x | 5.6x | 0.6x | 10.7% | - **Adjusted EBITDA is a supplemental measure** used to evaluate performance and debt servicing ability, excluding real estate asset impairments and gains on dispositions[274](index=274&type=chunk) [Net Operating Income](index=63&type=section&id=Net%20Operating%20Income) Details consolidated and segment-specific Net Operating Income (NOI), a non-GAAP measure of property performance Consolidated Net Operating Income (NOI) (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Total NOI | $181,619 | $221,529 | $(39,910) | (18.0)% | | Real Estate Investments NOI | $175,744 | $220,969 | $(45,225) | (20.5)% | | SHOP NOI | $5,653 | $0 | $5,653 | NM | - **NOI is a non-GAAP measure** used to evaluate the operating performance of real estate properties at the property level on an unleveraged basis[276](index=276&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) Details NHI's market risk exposure, focusing on interest rate risk for variable-rate debt and notes receivable, quantifying financial impacts [Interest Rate Risk](index=65&type=section&id=Interest%20Rate%20Risk) Analyzes NHI's exposure to interest rate fluctuations on variable-rate debt and notes receivable, and their impact on earnings - As of September 30, 2022, NHI was exposed to market risks related to fluctuations in interest rates on approximately **$250.0 million of variable-rate indebtedness** and on its mortgage and other notes receivable[279](index=279&type=chunk) - A **50 basis-point increase or decrease** in the interest rate related to variable-rate debt would increase or decrease annual net interest expense by approximately **$1.3 million**, or **$0.03 per common share** on a diluted basis[280](index=280&type=chunk) Debt Information (as of September 30, 2022, in thousands) | Type | Balance | % of total | Rate | | :--------------------------------------- | :-------- | :--------- | :----- | | Fixed rate debt | $876,748 | 77.8% | 3.74% | | Variable rate debt | $250,000 | 22.2% | 4.19% - 4.39% | | **Total** | **$1,126,748** | **100.0%** | **3.74% (Weighted Average)** | - The fair value of fixed rate debt was **$776.4 million** at September 30, 2022. A **50 bps parallel shift** in market interest rates would impact its fair value[283](index=283&type=chunk) - A **50 basis-point increase** in market rates would decrease the estimated fair value of mortgage and other loans by approximately **$2.3 million**, while a **50 basis-point decrease** would increase it by approximately **$6.4 million**[284](index=284&type=chunk) [Item 4. Controls and Procedures.](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022. No significant changes in internal control over financial reporting were identified during the quarter - The CEO and CFO concluded that the design and operation of **disclosure controls and procedures were effective** as of September 30, 2022[285](index=285&type=chunk) - There were **no significant changes in internal control over financial reporting** during the three months ended September 30, 2022[287](index=287&type=chunk) [Part II. Other Information](index=67&type=section&id=Part%20II.%20Other%20Information) This section provides additional information beyond financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings.](index=67&type=section&id=Item%201.%20Legal%20Proceedings.) Addresses legal proceedings, including ordinary course claims and the Welltower litigation settlement, which released escrowed funds and transitioned properties - NHI's facilities are subject to claims and suits in the ordinary course of business, with lessees and borrowers obligated to indemnify the company against liabilities[290](index=290&type=chunk) - Management believes the ultimate resolution of all pending proceedings will have **no direct material adverse effect** on NHI's financial condition, results of operations, or cash flows[290](index=290&type=chunk) - The lawsuit with Welltower, Inc. was **settled effective April 1, 2022**, leading to the dismissal of claims, the release of **$6.9 million in escrowed funds to NHI**, and the transition of **15 properties to new SHOP partnership ventures**[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) [Item 1A. Risk Factors.](index=67&type=section&id=Item%201A.%20Risk%20Factors.) No material changes to prior risk factors, except for a new one on retaining key management and personnel, crucial for SHOP segment expansion - **No material changes** from the risk factors previously disclosed in the Annual Report on Form 10-K, except for one additional risk factor[296](index=296&type=chunk) - An additional risk factor highlights the dependence on the ability to **retain the management team and other personnel**, and attract suitable replacements. The loss of key personnel could adversely affect the company's financial condition and results of operations, especially with the expansion into the **SHOP segment**[297](index=297&type=chunk)[298](index=298&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board of Directors approved a $240.0 million stock repurchase plan in April 2022. During the nine months ended September 30, 2022, NHI repurchased 2.5 million shares for $152.0 million, with $88.4 million remaining under the plan - The Board of Directors approved a stock repurchase plan for up to **$240.0 million of common stock** on **April 15, 2022**, effective for **one year**[299](index=299&type=chunk) - During the nine months ended September 30, 2022, NHI repurchased **2,468,354 shares of common stock** for an average price of **$61.56 per share**[299](index=299&type=chunk)[300](index=300&type=chunk) - Approximately **$88.4 million remained available** under the 2022 Repurchase Plan as of September 30, 2022[299](index=299&type=chunk)[300](index=300&type=chunk) [Item 6. Exhibits.](index=69&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, and certifications, providing supplementary information to the financial statements and disclosures - The section lists various exhibits filed with the Form 10-Q, such as Articles of Incorporation, Bylaws, Indentures, and certifications (CEO, CFO)[302](index=302&type=chunk) [Signatures](index=70&type=section&id=Signatures) This section contains the official signatures of the registrant's authorized officers, D. Eric Mendelsohn (President, CEO, and Director) and John L. Spaid (Chief Financial Officer), certifying the report on November 8, 2022 - The report is signed by **D. Eric Mendelsohn**, President, Chief Executive Officer and Director, and **John L. Spaid**, Chief Financial Officer, on **November 8, 2022**[303](index=303&type=chunk)

Financial Data and Key Metrics Changes - The net income per diluted common share for Q2 2022 was $0.47, down from $0.85 in Q2 2021, but up $0.29 from Q1 2022 [17] - NAREIT FFO per diluted common share decreased to $0.71 from $1.05 sequentially, impacted by Bickford write-offs [26] - Normalized FFO increased to $1.26 from $1.10 sequentially, with funds available for distribution rising to $56.3 million [27][28] - The balance sheet showed a reduction in debt by over $330 million in the last 12 months, with leverage at 4.0x, at the low end of the targeted range [15][30] Business Line Data and Key Metrics Changes - The senior housing operating portfolio (SHOP) contributed over $3 million of NOI, excluding non-recurring transition costs, aligning with forecasts [11] - Senior housing coverage improved to 1.11x in Q1 2022 from 0.98x in Q4 2021, while total company coverage improved to 1.68x from 1.54x [14] - The SHOP portfolio's NOI for Q2 was $3.2 million, with expectations for annualized contributions in the low-to-mid teens [44][75] Market Data and Key Metrics Changes - The company completed over $356 million in asset sales, including $288.2 million in senior housing sales with low EBITDARM coverage [13] - The average occupancy in the current portfolio improved by 190 basis points to 84.5% since recent asset sales [42] Company Strategy and Development Direction - The company is focused on portfolio optimization, having completed significant dispositions and lease restructurings, particularly with Bickford [8][13] - Future growth is anticipated through the SHOP segment and operational improvements, with a focus on stabilizing occupancy before pursuing RevPOR growth [50][72] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the industry, including elevated operating costs and labor constraints, but expressed optimism about recovery and growth potential [9][21] - The company is in excellent financial health, with significant capital available for deployment without the need for equity issuance [53] Other Important Information - The second quarter dividend of $0.90 per share was declared, representing a payout ratio of 69.5% for normalized FFO [29] - The company has approximately $416 million available under its ATM program, with no equity issuance expected in the near term [31] Q&A Session Summary Question: Why move Bickford to cash basis now? - Management cited multiple factors, including external debts and auditor concerns, leading to the decision to convert to cash accounting [57][58] Question: What options exist if Bickford does not remain a going concern? - Management indicated potential for restructuring or transitioning to new operators, emphasizing the portfolio's strong cash flow [59][60] Question: What are the expectations for SHOP portfolio RevPOR growth? - Management focused on improving occupancy first, with expectations for gradual margin improvements over time [68][70] Question: What is the outlook for the deferral balance? - Management acknowledged ongoing deferrals but expressed confidence in minimizing them and improving overall portfolio health [76][78]

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements show decreased net income and total assets in H1 2022, impacted by portfolio restructuring and the new SHOP segment Financial Metrics (Unaudited) | Financial Metric | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,587,291 | $2,838,876 | | Total Liabilities | $1,174,303 | $1,321,893 | | Total Equity | $1,401,501 | $1,516,983 | Income Statement Summary | Income Statement Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $59,899 | $74,330 | $131,227 | $155,215 | | Net Income | $21,466 | $39,231 | $29,712 | $74,613 | | Net Income Attributable to Common Stockholders | $21,673 | $39,183 | $30,073 | $74,513 | | Diluted EPS | $0.47 | $0.85 | $0.66 | $1.63 | Cash Flow Activities | Cash Flow Activity (Six Months Ended June 30) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $95,448 | $108,512 | | Net cash provided by investing activities | $192,223 | $5,229 | | Net cash used in financing activities | ($281,096) | ($125,359) | - The company established a new Senior Housing Operating Portfolio (SHOP) segment effective April 1, 2022, comprising 15 independent living facilities. This new segment generated **$12.0 million** in resident fees and services revenue in Q2 2022[29](index=29&type=chunk)[54](index=54&type=chunk)[153](index=153&type=chunk) - During Q2 2022, the company placed tenant Bickford Senior Living on a cash basis for revenue recognition, resulting in write-offs of **$18.1 million** in straight-line rents receivable and **$7.1 million** in lease incentives[49](index=49&type=chunk)[71](index=71&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) MD&A details portfolio shifts, new SHOP segment, asset dispositions, and Bickford's financial distress impacting FFO per share - Effective April 1, 2022, **15 senior housing facilities** were transferred from a triple-net lease into two new ventures, forming the SHOP reportable segment. This followed the settlement of litigation with Welltower, which included NHI receiving **$6.9 million** in escrowed funds[171](index=171&type=chunk)[191](index=191&type=chunk) - In Q2 2022, NHI restructured its master lease agreements with Bickford Senior Living, extending maturities and reducing near-term rent. This was prompted by Bickford's financial condition, which led NHI to write off **$18.1 million** of straight-line rents receivable and **$7.1 million** of lease incentives[204](index=204&type=chunk)[205](index=205&type=chunk) Tenant Revenue Contribution | Tenant | Revenue (Six Months Ended June 30, 2022) | % of Total Revenue | | :--- | :--- | :--- | | Senior Living Communities | $25,549 | 19% | | National HealthCare Corporation (NHC) | $18,597 | 14% | | Holiday | $16,680 | 13% | Non-GAAP Performance Metrics | Performance Metric (Six Months Ended June 30) | 2022 | 2021 | | :--- | :--- | :--- | | NAREIT FFO attributable to common stockholders | $80,762 | $109,073 | | NAREIT FFO per diluted share | $1.76 | $2.39 | | Normalized FFO attributable to common stockholders | $108,539 | $109,524 | | Normalized FFO per diluted share | $2.37 | $2.40 | | Normalized FAD attributable to common stockholders | $108,951 | $112,389 | - The company repurchased **1,196,175 shares** of its common stock for an average price of **$58.52 per share** during Q2 2022 under a new **$240 million** share repurchase plan. As of June 30, 2022, approximately **$170.4 million** remained available under the plan[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) Primary market risk is interest rate fluctuations on **$240 million** variable-rate debt, with derivative instruments matured Debt Composition as of June 30, 2022 | Debt Type (as of June 30, 2022) | Balance | % of Total | Weighted Avg. Rate | | :--- | :--- | :--- | :--- | | Fixed Rate | $876,845 | 78.5% | 3.65% (calculated) | | Variable Rate | $240,000 | 21.5% | 3.04% | | **Total** | **$1,116,845** | **100.0%** | **3.49%** | - A **50 basis-point (0.50%)** increase or decrease in interest rates on the company's variable-rate debt would result in an annual change to net interest expense of approximately **$1.2 million**[284](index=284&type=chunk) - The company's interest rate swap agreements, which were used to hedge against variable interest rate fluctuations, matured on December 31, 2021, and were not replaced as of the reporting date[285](index=285&type=chunk) [Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls were effective, with expanded internal controls implemented for the new SHOP segment - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[289](index=289&type=chunk) - During the second quarter of 2022, the company expanded its internal controls to address the new SHOP business segment, focusing on revenue, operating costs, and oversight of third-party managers[292](index=292&type=chunk) Part II. Other Information [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) Welltower litigation over unpaid rent for 17 senior living facilities settled, leading to a strategic shift to new SHOP ventures - NHI filed a lawsuit against Welltower, Inc. on December 20, 2021, alleging failure to pay rent and fraudulent inducement related to the assignment of leases for **17 senior living facilities**[297](index=297&type=chunk) - The litigation was settled effective April 1, 2022. As part of the settlement, NHI received approximately **$8.8 million** from a lease deposit and an additional **$6.9 million** from escrow, both recognized as rental income[298](index=298&type=chunk)[300](index=300&type=chunk) - The settlement resulted in the termination of the master lease and the transition of **15 properties** into two new SHOP partnership ventures, marking a significant strategic shift for the company[299](index=299&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors, except for a new risk on retaining key management personnel - A new risk factor was added concerning the company's dependence on retaining its management team and key personnel, whose departure could jeopardize business relationships and operations[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Company initiated a **$240 million** stock repurchase plan, buying **1.2 million shares** in Q2 2022, with **$170.4 million** remaining - The Board of Directors approved a new stock repurchase plan on April 15, 2022, for up to **$240.0 million** of common stock, expiring April 15, 2023[304](index=304&type=chunk) Common Stock Repurchases (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2022 | 465,507 | $59.70 | | June 2022 | 730,668 | $57.28 | | **Total Q2 2022** | **1,196,175** | **$58.52** | - As of June 30, 2022, approximately **$170.4 million** remained available for repurchase under the plan[304](index=304&type=chunk) [Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including corporate governance, debt agreements, and CEO/CFO certifications

National Health Investors, Inc. (NYSE:NHI) Q1 2022 Results Conference Call May 10, 2022 12:00 PM ET Company Participants Dana Hambly - VP, IR Eric Mendelsohn - President and CEO Kevin Pascoe - Chief Investment Officer John Spaid - CFO David Travis - Chief Accounting Officer Conference Call Participants Rich Anderson - SMBC Austin Wurschmidt - KeyBanc Capital Markets Omotayo Okusanya - Mizuho Operator Greetings and welcome to the National Health Investors First Quarter 2022 Conference Call. During the presen ...

Q1 2022 NATIONAL HEALTH INVESTORS Q1 2022 SUPPLEMENTAL TABLE OF CONTENTS 1 Q1 2022 National Health Investors | --- | --- | |---------------------------------------------|-------| | COMPANY \n COMPANY INFORMATION & LEADERSHIP | 02 | | PORTFOLIO | | | PORTFOLIO OVERVIEW | 03 | | PORTFOLIO SUMMARY | 04 | | OPERATING PARTNERS | 05 | | EBITDARM LEASE COVERAGE | 06 | | PURCHASE OPTIONS & LEASE MATURITIES | 07 | | INVESTMENTS | | | INVESTMENT RATIONALE | 08 | | RECENT INVESTMENTS | 09 | | CAPITALIZATION | | | CAPI ...

Part I [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) For the first quarter of 2022, National Health Investors, Inc. reported a significant decrease in net income to $8.4 million from $35.3 million in the prior-year period, primarily driven by $24.5 million in loan and realty losses and lower rental income, with total assets slightly decreasing to $2.80 billion and cash flow from operations declining to $38.7 million from $56.9 million year-over-year as the company managed its portfolio through dispositions and addressed tenant challenges Condensed Consolidated Statements of Income (Q1 2022 vs Q1 2021, in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Total Revenues** | $71,327 | $80,885 | | **Total Expenses** | $66,208 | $44,242 | | **Net Income** | $8,246 | $35,384 | | **Net Income Attributable to Common Stockholders** | $8,399 | $35,332 | | **Diluted EPS** | $0.18 | $0.78 | Condensed Consolidated Balance Sheets (As of March 31, 2022, in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | $2,802,503 | $2,838,876 | | Real estate properties, net | $2,201,084 | $2,317,880 | | Assets held for sale, net | $131,988 | $66,398 | | **Total Liabilities** | $1,313,706 | $1,321,893 | | Debt | $1,249,044 | $1,242,883 | | **Total Equity** | $1,488,797 | $1,516,983 | Condensed Consolidated Statements of Cash Flows (Q1 2022 vs Q1 2021, in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $38,680 | $56,912 | | **Net cash used in investing activities** | ($2,060) | ($9,133) | | **Net cash (used in) provided by financing activities** | ($36,177) | $22,106 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's portfolio composition, significant accounting policies, and key financial events during the quarter, including real estate dispositions generating $13.2 million in proceeds, recognition of $24.6 million in impairment charges, and ongoing rent concessions related to the COVID-19 pandemic totaling $7.8 million, alongside the settlement of litigation with Welltower and restructuring of master lease agreements with Bickford Senior Living, and the establishment of a new $700 million unsecured revolving credit facility - As of March 31, 2022, the company's portfolio consisted of investments in 186 healthcare properties (120 senior housing, 65 skilled nursing, 1 hospital) and 15 mortgages, with a total investment value of approximately **$2.8 billion**[24](index=24&type=chunk) - Completed real estate dispositions of a medical office building and a senior living community for net proceeds of **$13.2 million**, resulting in a net gain of **$3.0 million**[42](index=42&type=chunk) - Recognized impairment charges of **$24.6 million**, included in "Loan and realty losses (gains)". **20 properties** with a net balance of **$132.0 million** were classified as assets held for sale[39](index=39&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - Provided **$7.8 million** in lease concessions related to the COVID-19 pandemic during Q1 2022, accounted for as variable lease payments[41](index=41&type=chunk)[106](index=106&type=chunk) - Settled litigation with Welltower, Inc. regarding the Holiday portfolio, involving applying an **$8.8 million** lease deposit to past due rents and transitioning the properties to new operators and joint ventures effective April 1, 2022[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - Entered into a new **$700 million** unsecured revolving credit agreement, replacing the previous **$550 million** facility, with the new agreement maturing in March 2026[85](index=85&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management attributes the 13.6% decrease in quarterly rental income primarily to increased rent concessions and property dispositions, with the period marked by significant portfolio management activities including the settlement with Welltower over the Holiday portfolio and a lease restructuring with Bickford Senior Living, alongside a $24.6 million impairment charge on real estate assets, while maintaining a strong balance sheet with $615 million available on its new credit facility and a consolidated net debt to Annualized Adjusted EBITDA ratio of 4.9x, and announcing a $240 million stock repurchase plan [Portfolio and Tenant Analysis](index=31&type=section&id=MD%26A%20-%20Portfolio%20and%20Tenant%20Analysis) As of Q1 2022, the portfolio comprised 201 facilities, with 72% of total revenues concentrated among nine operators, including key tenants Senior Living Communities, Holiday, NHC, and Bickford each accounting for over 10% of revenues, as the company actively managed tenant relationships through the transition of 15 Holiday properties into new SHOP joint ventures and a lease restructure with Bickford to set rent at approximately $28 million annually until April 2024, despite declining portfolio coverage ratios with total portfolio EBITDARM coverage dropping from 1.78x to 1.54x due to occupancy and expense pressures Top Tenant Revenue Concentration (Q1 2022, in thousands) | Tenant | Revenue (in thousands) | % of Total Revenue | | :--- | :--- | :--- | | Senior Living Communities | $12,751 | 18% | | Holiday Retirement | $9,797 | 14% | | National HealthCare Corporation (NHC) | $9,189 | 13% | | Bickford Senior Living | $7,038 | 10% | - Effective April 1, 2022, **15 former Holiday properties** were transitioned into two new Senior Housing Operating Portfolio (SHOP) joint ventures where NHI holds majority interests[138](index=138&type=chunk)[166](index=166&type=chunk) - Bickford's four master leases were restructured effective April 1, 2022, setting annual rent at approximately **$28.0 million** through April 1, 2024, with lease extensions[169](index=169&type=chunk) Total Portfolio EBITDARM Coverage Ratio (Trailing 12-Months) | Period | Coverage Ratio | | :--- | :--- | | 4Q20 | 1.78x | | 4Q21 | 1.54x | [Results of Operations](index=42&type=section&id=MD%26A%20-%20Results%20of%20Operations) For Q1 2022 compared to Q1 2021, total revenues decreased by 11.8% to $71.3 million, while total expenses increased by 49.6% to $66.2 million, driven by a $10.2 million drop in rental income due to rent concessions and property dispositions, and a $24.6 million charge for loan and realty losses (impairments) and a $1.7 million increase in legal costs, leading to a 76.7% decrease in net income to $8.2 million - Rental income decreased by **$10.2 million** (**13.6%**), mainly from **$3.6 million** in additional rent concessions and **$6.3 million** from properties disposed of since April 1, 2021[190](index=190&type=chunk) - Loan and realty losses increased by **$24.6 million** due to impairment charges on three real estate properties during the quarter[190](index=190&type=chunk) - Interest expense decreased by **$2.8 million** (**21.4%**) following the expiration of interest rate swap agreements and repayment of debt[190](index=190&type=chunk) - A gain on sale of real estate of **$3.0 million** was recognized, primarily from the disposition of a medical office building[190](index=190&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of March 31, 2022, the company had strong liquidity with $36.1 million in cash and $615.0 million available on its new $700.0 million revolving credit facility, with total debt at $1.2 billion and a consolidated net debt to Annualized Adjusted EBITDA ratio of 4.9x, following key financing activities including entering the new credit facility and repaying a $75.0 million term loan, and expects cash from operations to be adequate to fund dividends at the current rate - Primary sources of liquidity include **$36.1 million** in cash and cash equivalents and **$615.0 million** available on the revolving credit facility[191](index=191&type=chunk) - On March 31, 2022, the company entered into a new **$700.0 million** unsecured revolving credit facility maturing in March 2026, replacing its previous **$550.0 million** facility[197](index=197&type=chunk) - The consolidated net debt to Annualized Adjusted EBITDA ratio was **4.9x** for the three months ended March 31, 2022[207](index=207&type=chunk) - On April 15, 2022, the Board approved a new stock repurchase plan for up to **$240 million** of common stock over one year[215](index=215&type=chunk) [Funds From Operations (FFO) & Funds Available for Distribution (FAD)](index=53&type=section&id=MD%26A%20-%20FFO%20%26%20FAD) For Q1 2022, Normalized FFO per diluted share decreased 11.3% to $1.10 from $1.24 in Q1 2021, attributed to the impacts of the COVID-19 pandemic and increased legal fees, partially offset by the recognition of the Holiday lease deposit and lower interest expense, while Normalized FAD for the quarter was $52.7 million, a decrease of 11.5% from $59.6 million in the prior-year period FFO & FAD Reconciliation Summary (Q1 2022 vs Q1 2021, in thousands) | Metric (in thousands) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $8,399 | $35,332 | | NAREIT FFO attributable to common stockholders | $48,084 | $55,928 | | Normalized FFO attributable to common stockholders | $50,374 | $56,379 | | Normalized FAD attributable to common stockholders | $52,669 | $59,551 | | **Normalized FFO per diluted share** | **$1.10** | **$1.24** | [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company's primary market risk is interest rate risk on its $385.0 million of variable-rate debt and the unused portion of its $700 million revolving credit facility, where a hypothetical 50 basis-point (0.50%) change in interest rates would result in an approximate $1.9 million annual change in net interest expense, following the maturity of its interest rate swap agreements on December 31, 2021 - As of March 31, 2022, the company had **$385.0 million** of variable-rate debt outstanding, representing approximately **30.5%** of its total debt[243](index=243&type=chunk)[246](index=246&type=chunk) - A **50 basis-point** increase or decrease in interest rates on variable-rate debt would change annual net interest expense by approximately **$1.9 million**[244](index=244&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures.) Based on an evaluation as of March 31, 2022, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, with no significant changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[249](index=249&type=chunk) - No changes in internal control over financial reporting were identified during the quarter that have materially affected or are reasonably likely to materially affect internal controls[251](index=251&type=chunk) Part II. Other Information [Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company was involved in litigation with Welltower, Inc. regarding a master lease for 17 senior living facilities formerly operated by Holiday, with NHI filing suit in December 2021 alleging default and fraudulent inducement, which was settled effective April 1, 2022, resulting in NHI receiving escrowed funds and the properties being transitioned to new operators or sold - NHI filed suit against Welltower, Inc. and its subsidiaries on December 20, 2021, in the Delaware Court of Chancery for failure to pay rent and other obligations related to the Holiday portfolio[256](index=256&type=chunk) - A settlement agreement was reached on March 31, 2022, applying an **$8.8 million** lease deposit to past due rents, and releasing **$6.9 million** in escrowed funds to NHI[257](index=257&type=chunk)[259](index=259&type=chunk) - Effective April 1, 2022, the master lease was terminated, the lawsuit was dismissed, and the properties were transitioned into new SHOP ventures, leased to another operator, or sold[258](index=258&type=chunk)[259](index=259&type=chunk) [Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported for the three months ended March 31, 2022[260](index=260&type=chunk) [Other Information](index=52&type=section&id=Item%205.%20Other%20Information) 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 - The company's Chief Accounting Officer, David L. Travis, received an adjusted annual salary of **$275,000**, effective May 6, 2022[261](index=261&type=chunk) [Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the new Credit Agreement, the Settlement Agreement with Welltower, and various officer certifications

Financial Data and Key Metrics Changes - For Q4 2021, net income per diluted common share was $0.14, down from $0.83 in Q4 2020. For the full year, it was $2.44 compared to $4.14 in 2020, primarily due to $51.8 million in impairment charges and $28 million in rent concessions [16][19] - Funds from Operations (FFO) per diluted common share decreased to $1.07 from $1.28 year-over-year, while normalized FFO decreased to $1.06 from $1.37 [17] - Normalized Funds Available for Distribution (FAD) declined by $13.1 million year-over-year to $45.9 million [18] Business Line Data and Key Metrics Changes - The skilled nursing and Continuing Care Retirement Communities (CCRC) portfolios, which account for nearly two-thirds of cash revenue, are performing well despite challenges [13] - The needs-driven senior housing portfolio, accounting for approximately 29% of annualized cash revenue, experienced occupancy gains but slowed towards the end of the quarter due to seasonality and COVID-19 [25] - Independent living communities, representing only 2% of annualized cash revenue, did not pay rent during the quarter, with significant declines in NOI margins [29] Market Data and Key Metrics Changes - The average occupancy for senior living communities was 81.7%, up 130 basis points from the previous quarter, remaining above pre-pandemic levels [24] - EBITDARM coverage for non-SLC properties improved to 1.75 times from 1.66 times year-over-year [24] - The skilled nursing portfolio's same-store EBITDARM coverage was 2.85 times, with NHC and Ensign Group contributing significantly to cash revenue [30] Company Strategy and Development Direction - The company is focused on transforming into a stronger healthcare REIT by selling underperforming assets and venturing into new revenue streams [7] - The board has approved the sale of additional underperforming properties, targeting 16 housing property dispositions with estimated net proceeds of $125 million [9] - The company aims to complete its portfolio optimization efforts in the next couple of quarters, expecting steady progress towards growth [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the restructuring efforts with Bickford, despite the slow pace due to Omicron-related challenges [10] - The company believes it is at an earnings trough and anticipates better days ahead as the pandemic's effects wane [14] - Management did not provide guidance due to uncertainties surrounding the Welltower litigation and holiday portfolio [19] Other Important Information - The company reduced debt by over $250 million during 2021 and maintained leverage within its target range [13] - The fourth quarter dividend of $0.90 per share was declared, representing a payout ratio of 84.8% for normalized FFO [20] - The company has unfunded commitments totaling approximately $109 million with an average yield of 8.5% expected to be funded during 2022 [20] Q&A Session Summary Question: Lack of guidance and its implications - Management indicated that the uncertainty surrounding the holiday portfolio makes it difficult to provide guidance [39][40] Question: Investment activity outlook - Management expects to fulfill over $100 million in commitments and aims to return to growth, viewing last year's $121 million as a lower watermark [48][49] Question: Bickford's performance and future - Management considers Bickford a partner and is working to lessen exposure while helping them stabilize [51][52] Question: Transition timeline for legacy holiday assets - Management hopes to transition assets within 30 days of a favorable hearing outcome [78] Question: Potential outcomes of the hearing - A positive outcome would allow control over the transition of buildings, while a negative outcome would prolong the process [60][67]