National Health Investors(NHI) - 2022 Q3 - Quarterly Report

Part I. Financial Information Presents NHI's unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements Presents NHI's unaudited condensed consolidated financial statements for Q3 2022, including balance sheets, income, cash flows, equity, and notes Condensed Consolidated Balance Sheets 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 | $(201,535) | (13.3)% | | Common stock outstanding | 43,388,742 | 45,850,599 | (2,461,857) | (5.4)% | Condensed Consolidated Statements of Income Presents NHI's revenues, expenses, and net income for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Income Highlights (Nine Months Ended September 30, in thousands, except per share) | Metric | 2022 | 2021 | Change ($) | 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 | $(0.88) | (38.1)% | - The significant increase in 'Resident fees and services' and 'Senior housing operating expenses' in 2022 is due to the commencement of SHOP activities on April 1, 2022[11] Condensed Consolidated Statements of Comprehensive Income Details NHI's net income and other comprehensive income components for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Comprehensive Income Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | 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 | $(46,108) | (41.7)% | Condensed Consolidated Statements of Cash Flows Outlines NHI's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021 Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | 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] - 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] Condensed Consolidated Statements of Equity 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] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of NHI's accounting policies, investment activities, debt, and other financial disclosures Note 1. Organization and Nature of Business 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] - The company operates through two reportable segments: Real Estate Investments and Senior Housing Operating Portfolio (SHOP)[28] 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 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] - 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][32] - 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] - 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][47] - 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] Note 3. Investment Activity 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] 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] - 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][71] Note 4. Mortgage and Other Notes Receivable 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] - 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] - 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][77][78] 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 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] - 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] - 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][91] - The properties are managed by Merrill and Discovery affiliates, respectively, for a base management fee of 5% of net revenue[90][92] Note 6. Equity Method Investment 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] - The company has recognized cumulative losses of $5.0 million in excess of its initial investment, included in 'Accounts payable and accrued expenses'[94] - Excess unrecognized equity method losses for the nine months ended September 30, 2022, were $2.6 million, with cumulative unrecognized losses of $4.8 million[94] Note 7. Debt Provides an overview of NHI's debt, including revolving credit facilities, term loans, and interest expense Debt Overview (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change ($) | 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] - 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 $0.2 million loss on early retirement of debt[99][100] Total Interest Expense (in thousands) | Period | 2022 | 2021 | Change ($) | 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 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] - 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] - 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][128][130] Note 9. Redeemable Noncontrolling Interests 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] - The initial carrying amount of these noncontrolling interests was $11.7 million, and the balance at September 30, 2022, was $11.197 million[132][133] - These interests are not currently redeemable as a contingent redemption event is not probable as of September 30, 2022[132] Note 10. Equity and Dividends 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] - 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][136] 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] Note 11. Share-Based Compensation 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] - 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] - The weighted average fair value of options granted was $11.92 in 2022, down from $14.54 in 2021[138] - Unrecognized compensation expense totaling $2.7 million associated with unvested stock options is expected to be recognized through 2024[141] Note 12. Earnings Per Common Share Presents basic and diluted earnings per common share for the nine months ended September 30, 2022, and 2021 Earnings Per Common Share (Nine Months Ended September 30) | Metric | 2022 | 2021 | Change ($) | 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] Note 13. Fair Value of Financial Instruments 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][146] Note 14. Segment Reporting 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] - 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] 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses NHI's financial condition, operations, liquidity, capital resources, COVID-19 impact, and non-GAAP financial measures Forward Looking Statements 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] - 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][159] Executive Overview 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] 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][164][165][166] - The SHOP segment, formed April 1, 2022, consists of 15 ILFs (1,731 units) managed by third-party property managers[167][168] 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 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][175][176] - 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] - The company anticipates some tenants may need additional rent deferrals, and the extent of future concessions cannot be reliably projected[177][179] Critical Accounting Policies and Estimates 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] - 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][182] 2022 Activity 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] - 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] - Acquired a 53-unit ALF for $13.3 million and agreed to fund a $28.5 million development loan with Encore Senior Living[186] - 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] - Received repayment of a $111.3 million mortgage note receivable, including a $1.1 million prepayment fee[189] - Recorded impairment charges of $9.5 million (Q3 2022) and $38.3 million (YTD Sep 30, 2022) on long-lived assets[191] Tenant Concentration Details revenue contribution from major tenants, changes in accounting for Bickford, and portfolio occupancy rates Major Tenant Revenue Contribution (Nine Months Ended September 30, 2022) | Tenant | Revenue ($ 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] - 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] Average Portfolio Occupancy (Q3 2022) | Operator | Q3 2022 Occupancy | | :--------------------------------------- | :------------------ | | Senior Living Communities | 83.3% | | Bickford | 84.2% | | SHOP | 76.9% | Tenant Monitoring 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][203] 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][210] - Bickford's proforma coverage at the restructured lease amount would be 1.32x for Q2 2022[207] Real Estate and Mortgage Write-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] - Established a reserve for estimated credit losses of $6.9 million for mortgages and other notes receivable, and a liability of $0.9 million for estimated credit losses on unfunded loan commitments as of September 30, 2022[212] Results of Operations Analyzes NHI's revenues, expenses, and net income, highlighting key drivers of changes for the period Results of Operations Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | 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] - Legal expenses increased by $2.0 million, primarily related to the Welltower litigation and transition activities for the legacy Holiday portfolio[219] - 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] - 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] Liquidity and Capital Resources 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 $415.7 million through its ATM equity program[220] Cash Flow Summary (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | 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][235] - 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] - 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][245] 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 | $397,320 | FFO & FAD Presents Funds From Operations (FFO) and Funds Available for Distribution (FAD), explaining key drivers of changes FFO & FAD Highlights (Nine Months Ended September 30) | Metric | 2022 | 2021 | Change ($) | 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 ($6.9 million) in rental income[267] - Normalized FFO and FAD are supplemental performance measures that exclude certain infrequent or non-cash items to provide a clearer view of operating performance and liquidity for dividend distributions[268][269][270][271] Adjusted EBITDA Reports on Adjusted EBITDA and Fixed Charge Coverage, supplemental measures for performance and debt servicing Adjusted EBITDA and Fixed Charge Coverage (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Adjusted EBITDA | $191,731 | $205,342 | $(13,611) | (6.6)% | | Fixed Charge Coverage | 6.2x | 5.6x | 0.6x | 10.7% | - Adjusted EBITDA is a supplemental measure used to evaluate performance and debt servicing ability, excluding real estate asset impairments and gains on dispositions[274] Net Operating Income Details consolidated and segment-specific Net Operating Income (NOI), a non-GAAP measure of property performance Consolidated Net Operating Income (NOI) (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk. Details NHI's market risk exposure, focusing on interest rate risk for variable-rate debt and notes receivable, quantifying financial impacts Interest Rate Risk 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] - 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] 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] - 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] Item 4. Controls and Procedures. 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] - There were no significant changes in internal control over financial reporting during the three months ended September 30, 2022[287] Part II. Other Information This section provides additional information beyond financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings. 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] - 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] - 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][294][295] Item 1A. Risk Factors. 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] - 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][298] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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][300] - Approximately $88.4 million remained available under the 2022 Repurchase Plan as of September 30, 2022[299][300] Item 6. Exhibits. 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] 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]