National Health Investors(NHI) - 2021 Q4 - Annual Report

Part I. Forward Looking Statements This section outlines forward-looking statements, noting that actual results may differ due to various risks and uncertainties, advising investors to consider these factors - Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from projections[14][15] - Key risk factors include the material adverse effect of the COVID-19 pandemic, dependence on tenant/borrower operating success, exposure to bankruptcy/insolvency, significant tenant concentration, governmental regulations and payor changes (Medicare/Medicaid), increased liability claims and insurance costs, and risks related to property damage from disasters and climate change[15][17] Item 1. Business NHI is a self-managed REIT investing in senior housing and medical facilities, with a portfolio of 212 facilities totaling approximately $3.2 billion as of December 31, 2021 - NHI is a self-managed REIT established in 1991, specializing in sale-leaseback, joint venture, mortgage, and mezzanine financing for senior housing and medical facilities[19] Portfolio Summary as of December 31, 2021 | Investment Type | Number of Facilities | Investment Value (approximately) | | :-------------- | :------------------- | :------------------------------- | | Real Estate | 198 | $2.9 billion | | Mortgage & Notes| 14 | $305.2 million | | Total | 212 | $3.2 billion | General NHI primarily funds its real estate investments through operating cash flow, debt offerings, and equity sales - NHI funds its real estate investments primarily through operating cash flow, debt offerings (bank lines of credit, term debt), and the sale of equity securities[19] COVID-19 Pandemic This section refers to a detailed discussion of the COVID-19 pandemic's impact on the company's operations and financial condition - Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Pandemic for detailed information[22] Sources of Revenues NHI's revenue is primarily derived from rental income and interest income, with total revenue decreasing by 10.2% in 2021 Revenue Breakdown (2021) | Revenue Type | Amount ($ millions) | Percentage of Total Revenue | | :-------------- | :------------------ | :-------------------------- | | Rental Income | $271.0 million | 90.7% | | Interest Income | $27.7 million | 9.3% | | Total Revenue | $298.7 million | 100% | - Total revenue decreased by 10.2% from 2020 to 2021[23] - Revenues depend on tenant/borrower operating success, influenced by licensed capacity, occupancy rates, service utilization, patient mix (private pay, Medicare, Medicaid), and payor rates[23] Classification of Properties in our Portfolio NHI classifies its portfolio properties into senior housing (need-driven or discretionary) and medical properties, detailing the number of facilities in each category - Properties are classified as senior housing (need-driven or discretionary) or medical properties[24] - Need-driven senior housing includes Assisted Living Facilities (ALF) and Senior Living Campuses (SLC); Discretionary senior housing includes Independent Living Facilities (ILF) and Entrance-Fee Communities (EFC)[25][26][27][28][29] - Medical properties include Skilled Nursing Facilities (SNF) and Hospitals (HOSP)[30][31][32] - As of December 31, 2021, the portfolio included 81 ALFs, 11 SLCs, 22 ILFs, 11 EFCs, 72 SNFs, and 1 hospital[26][27][28][29][31][32] Nature of Investments NHI structures investments through purchase-leasebacks, acquisitions, and various loans, utilizing triple net leases and exploring RIDEA and SHOP structures for operational value - Investments are typically structured as purchase-leaseback transactions, acquisitions from other real estate investors, or loans (mortgage, mezzanine, construction)[34] - Leases are generally 'triple net leases' with initial terms of 10-15 years, annual escalators, and tenant responsibility for all property-related expenses[34][35] - Mortgage, construction, and mezzanine loans had annual interest rates ranging from 6.5% to 9.5% during 2021[34][39][40][41] - The company utilizes a RIDEA structure for some investments, allowing a Taxable REIT Subsidiary (TRS) to capture additional value from operating company performance[43] - NHI is transitioning 15 former Holiday properties into a proposed Senior Housing Operating Portfolio (SHOP) structure, which will expose NHI to direct operational risks and benefits[44] Operator Composition NHI's portfolio revenue is diversified across publicly owned, regional, privately owned national chains, and smaller operators Portfolio Revenue by Operator Type (2021) | Operator Type | Percentage of Portfolio Revenue | | :------------------------ | :------------------------------ | | Publicly Owned Operators | 24% | | Regional Operators | 59% | | Privately Owned National Chains | 14% | | Smaller Operators | 3% | Tenant Concentration NHI's revenue is significantly concentrated among its top three tenants, with notable investment concentration in South Carolina and Texas Tenant Concentration (2021) | Tenant | Revenue Contribution (2021) | | :-------------- | :-------------------------- | | Senior Living | 17% | | NHC | 12% | | Bickford | 12% | | All others, net | 55% | - As of December 31, 2021, investment concentration by state was South Carolina (11.6%) and Texas (10.3%)[47] - Holiday Retirement's revenue contribution is listed as N/A for 2021 due to non-payment of rent and ongoing litigation[47] Commitments and Contingencies NHI has various outstanding commitments for working capital, construction loans, development, and contingent lease inducements as of December 31, 2021 Commitments as of December 31, 2021 | Commitment Type | Total Committed ($ millions) | Funded ($ millions) | Remaining ($ millions) | | :-------------------------- | :--------------------------- | :------------------ | :--------------------- | | Working Capital & Construction Loans | $274.7 million | $199.4 million | $75.3 million | | Development Commitments | $31.3 million | $23.5 million | $7.8 million | | Contingent Lease Inducements| $33.9 million | $1.5 million | $32.4 million | Competition and Market Conditions NHI faces competition from various financial entities for real estate acquisitions and financing, while its facility operators compete locally based on quality, reputation, and price - NHI competes with other REITs, private equity funds, banks, and insurance companies for healthcare real estate acquisitions, leasing, and financing[67] - Operators of NHI's facilities compete locally and regionally based on quality of care, reputation, location, services, and price, often against larger entities[68] - Senior housing properties, relying on private-pay residents, are vulnerable to economic downturns and local market competition[69] Environmental Matters NHI integrates environmental and sustainability initiatives into its business, while being subject to environmental risks and regulations with tenant indemnification - NHI integrates environmental and sustainability initiatives into its business objectives, including capital improvement allowances for energy-efficient upgrades, funding for new state-of-the-art properties, and due diligence for environmental contamination[70][74] - The company is subject to environmental risks and regulations, with tenants generally responsible for compliance and indemnification[71] Human Capital NHI maintains a small workforce, offering competitive compensation and benefits, and implemented COVID-19 safety protocols - As of December 31, 2021, NHI had 19 full-time and one part-time employee, with no change from 2020[73] - The company offers competitive compensation, 401(k),