NATIONAL HEALTH INVESTORS, INC. Forward Looking Statements
References throughout this document to "NHI" or the "Company" includeNational Health Investors, Inc. , and its consolidated subsidiaries. In accordance with theSecurities and Exchange Commission's "Plain English" guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words "we", "our", "ours" and "us" refer only toNational Health Investors, Inc. and its consolidated subsidiaries and not any other person. Unless the context indicates otherwise, references herein to "the Company" include all of our consolidated subsidiaries. This Quarterly Report on Form 10-Q and other materials we have filed or may file with theSecurities and Exchange Commission , as well as information included in oral statements made, or to be made, by our senior management contain certain "forward-looking" statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations, cash flows, funds from operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitation, those containing words such as "may," "will," "believes," "anticipates," "expects," "intends," "estimates," "plans," and other similar expressions, are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of factors including, but not limited to, the following:
* Actual or perceived risks associated with public health epidemics or outbreaks, such as the coronavirus ("COVID-19"), have had and are expected to continue to have a material adverse effect on our business and results of operations;
* We depend on the operating success of our tenants and borrowers for collection of our lease and note payments;
* We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings;
* Certain tenants in our portfolio account for a significant percentage of the rent we expect to generate from our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders;
* We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that changes to government regulation or reimbursement rates would have on our tenants' and borrowers' business;
* We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs;
* We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation;
* We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change;
* We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect;
* We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties; * We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests;
* We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations;
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* We are subject to risks associated with our joint venture investment with
Life Care Services for Timber Ridge , an entrance fee CCRC, associated with Type
A benefits offered to the residents of the joint venture's entrance fee
community and related accounting requirements;
*We may be exposed to operational risks with respect to our Senior Housing Operating Portfolio ("SHOP") structured communities;.
* If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions;
* We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances;
* We depend on the success of our future acquisitions and investments;
* We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;
* Competition for acquisitions may result in increased prices for properties;
* We are exposed to the risk that our assets may be subject to impairment charges;
* We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us;
* We have covenants related to our indebtedness that impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations;
* Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;
* We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates;
* We depend on the ability to continue to qualify for taxation as a REIT for
*We depend on our key personnel whose continued service is not guaranteed and our ability to identify, recruit and retain skilled personnel;
*Our ownership of and relationship with any TRSs that we have formed or will form will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax; * Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments, which could materially hinder our performance;
* Legislative, regulatory, or administrative changes could adversely affect us or our security holders;
* We have ownership limits in our charter with respect to our common stock and other classes of capital stock which may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders; and
* We are subject to certain provisions of
See the notes to the annual audited consolidated financial statements in our most recent Annual Report on Form 10-K for the year endedDecember 31, 2021 , "Business" and "Risk Factors" under Part I, Item 1 and Item 1A therein and "Risk Factors" under Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of these and of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. You should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones facing the 32 -------------------------------------------------------------------------------- Table of Contents Company. There may be additional risks that we do not presently know of and or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition, results of operations, or cash flows could be materially and adversely affected. In that case, the trading price of our shares of stock could decline and you may lose part or all of your investment. Given these risks and uncertainties, we can give no assurance that these forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them.
Executive Overview
National Health Investors, Inc. , established in 1991 as aMaryland corporation, is a self-managed real estate investment trust ("REIT") specializing in sale leaseback, joint venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable business segments: Real Estate Investments and SHOP. Our Real Estate Investments segment consists of real estate investments and mortgage and other notes receivables in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities and a specialty hospital. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities. Our SHOP segment is comprised of the operations of 15 independent living facilities ("ILFs") that provide residential living and other services for residents located throughoutthe United States that are operated on behalf of the Company by two independent managers pursuant to the terms of separate management agreements. The third-party managers, or related affiliates of the managers, own equity interests in the respective ventures.
Real Estate Investment Portfolio
As ofJune 30, 2022 , we had investments in real estate and mortgage and other notes receivable involving 181 facilities located in 33 states. These investments involve 112 senior housing properties, 68 skilled nursing facilities and one hospital, excluding 13 properties classified as assets held for sale. These investments consisted of properties with an original cost of approximately$2.4 billion , rented under primarily triple-net leases to 25 lessees, and$209.5 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of$5.2 million , due from ten borrowers. We classify all of the properties in our Real Estate Investments portfolio as either senior housing or medical properties. Because our leases represent different underlying revenue sources and result in differing risk profiles, we further classify our senior housing communities as either need-driven (assisted living and memory care communities and senior living campuses) or discretionary (independent living and entrance-fee communities).Senior Housing - Need-Driven includes assisted living and memory care communities ("ALF") and senior living campuses ("SLC") which primarily attract private payment for services from residentswho require assistance with activities of daily living. Need-driven properties are subject to regulatory oversight.Senior Housing - Discretionary includes ILF and entrance-fee communities ("EFC") which primarily attract private payment for services from residentswho are making the lifestyle choice of living in an age-restricted multi-family community that offers social programs, meals, housekeeping and in some cases access to healthcare services. Discretionary properties are subject to limited regulatory oversight. There is a correlation between demand for this type of community and the strength of the housing market. Medical Facilities within our portfolio receive payment primarily from Medicare, Medicaid and health insurance. These properties include skilled nursing facilities ("SNF") and a specialty hospital that attract patientswho have a need for acute or complex medical attention, preventative medicine, or rehabilitation services. Medical properties are subject to state and federal regulatory oversight and, in the case of hospitals, Joint Commission accreditation.
Senior Housing Operating Portfolio Structure
EffectiveApril 1, 2022 , 15 senior housing ILFs previously part of the legacy Holiday Retirement ("Holiday") properties were transferred from a triple-net lease to two separate ventures comprising our SHOP portfolio, which represents a new reportable segment. These ventures own the underlying independent living operations in which NHI has majority interests and are structured to comply with REIT requirements that utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. These properties are operated by two third-party property managers that manage our communities in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the property managers' personnel, expertise, technical 33 -------------------------------------------------------------------------------- Table of Contents resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the property managers to set appropriate resident fees and otherwise operate our communities in compliance with the terms of our management agreements and all applicable laws and regulations. As ofJune 30, 2022 , our SHOP portfolio consisted of 15 ILFs with a combined 1,731 units located in eight states. The following tables summarizes our portfolio, excluding$2.6 million for our corporate office and a credit loss reserve of$5.2 million , as of and for the six months endedJune 30, 2022 ($ in thousands):
Real Estate Investments and SHOP Portfolio
Properties Beds/Units NOI % Total Investment
Senior Housing - Need-Driven
Assisted Living 74 3,975 $ (2,890) (2.5) % $ 744,859
Senior Living Campus 10 1,359 6,410 5.5 % 245,989
Total Senior Housing - Need-Driven 84 5,334 3,520 3.0 % 990,848
Senior Housing - Discretionary
Independent Living 7 862 20,145 17.3 % 107,236
Entrance-Fee Communities 11 2,707 30,847 26.4 % 745,944
Total Senior Housing - Discretionary 18 3,569 50,992 43.7 % 853,180
Total Senior Housing 102 8,903 54,512 46.7 % 1,844,028
Medical Facilities
Skilled Nursing Facilities 65 8,653 39,114 33.5 % 557,996
Hospitals 1 64 2,046 1.8 % 40,250
Total Medical Facilities 66 8717 41,160 35.3 % 598,246
Current Year Disposals and Held for Sale 3,677
Total Real Estate Properties 168 17,620 99,349 82.0 % 2,442,274
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven 9 620 3,541 3.1 % 87,358
Senior Housing - Discretionary 1 248 1,185 1.0 % 32,700
Skilled Nursing Facilities 3 180 192 0.2 % 4,183
Other Notes Receivable - - 4,139 3.5 % 85,251
Current Year Note Payoffs 5,482
Total Mortgage and Other Notes
Receivable 13 1,048 14,539 7.8 % 209,492
SHOP
Independent Living 15 1,731 2,879 335,477
Total 196 20,399 $ 116,767 $ 2,987,243
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Portfolio Summary Properties NOI % Portfolio Investment
Real Estate Properties 168 $ 99,349 85.0 % $ 2,442,274
Mortgage and Other Notes Receivable 13 14,539 12.5 % 209,492
SHOP 15 2,879 2.5 % 335,477
Total Portfolio 196 $ 116,767 100.0 % $ 2,987,243
Portfolio by Operator Type
Public 55 $ 29,874 28.5 % $ 411,740
National Chain (Privately Owned) 1 21,366 20.4 % 134,892
Regional 112 49,999 47.8 % 1,960,434
Small 13 3,490 3.3 % 144,700
Current Year Disposals and Held for Sale 3,677
Current Year Note Payoffs 5,482
Total Real Estate Investments Portfolio 181 113,888 100.0 % 2,651,766
SHOP 15 2,879 335,477
Total Portfolio 196 $ 116,767 $ 2,987,243
The following table summarizes the geographic concentration of NOI of our
portfolio for the six months ended June 30, 2022 and 2021, respectively ($ in
thousands).
Six Months Ended June 30,
Location 2022 2021
South Carolina $ 17,432 $ 17,209
Texas 14,021 13,867
Florida 13,903 14,843
Washington 7,228 9,029
California 5,400 8,084
All others 58,783 87,846
NOI $ 116,767 $ 150,878
For the six months ended June 30, 2022 , operators of facilities in our Real
Estate Investments portfolio who provided 3% or more and collectively 73% of our
total revenues were (parent company, in alphabetical order): Chancellor Health
Care; Discovery Senior Living ; Health Services Management ; Life Care Services;
National HealthCare Corporation; Senior Living Communities; The Ensign Group;
and Watermark Retirement Communities .
As of June 30, 2022 , our average effective annualized NOI for the Real Estate
Investments reportable segment was $9,147 per bed for SNFs $10,646 per unit for
SLCs, $5,577 per unit for ALFs, excluding the non-cash write off of Bickford's
straight-line rents receivable and lease incentives discussed below in "Tenant
Concentration", $9,625 per unit for ILFs, $22,793 per unit for EFCs and $63,899
per bed for hospitals. As of June 30, 2022 , our average effective annualized NOI
per unit for the SHOP reportable segment was $6,652 .
Substantially all of our revenues and sources of cash flows from operations are
rents paid under operating leases for real estate, revenues under resident
agreements and interest earned on mortgages and notes receivable. Theses
revenues represent a primary source of liquidity to fund our distributions to
stockholders and depend upon the performance of the operators. Operating
difficulties experienced by our operators and managers could have a material
adverse effect on their ability to meet their financial and other contractual
obligations to us, as well as on our results of operations. We monitor operator
performance through periodic reviews of operating results for each facility,
covenant compliance and property inspections, among other activities.
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COVID-19 Pandemic
Since theWorld Health Organization declared coronavirus disease 2019 a pandemic onMarch 11, 2020 , the continually evolving pandemic has resulted in a widespread health crisis adversely affecting governments, businesses, and financial markets. The COVID-19 pandemic and related health and safety measures continue to impact the operations of many of the Company's tenants, operators and borrowers. The federal government has provided economic assistance and other forms of assistance which mitigated to some extent the negative financial impact of the pandemic for certain of our tenants and operatorswho are eligible. Revenues from our SHOP ventures and the revenues for our borrowers and tenants of our leased properties are dependent on occupancy. With the reduction in COVID-19 cases and their severity, most of the protective measures put in place have been eliminated or reduced significantly, allowing a greater focus on new admissions and related marketing efforts. Future occupancy rates may be adversely affected by the COVID-19 pandemic, including the possibility of new COVID variants, increased resident move-outs, re-implementation of restrictions on new resident move-ins, and the possibility of potential residents foregoing or delaying a move. Operating expenses of our SHOP ventures and those of our tenants of our leased properties may also be negatively impacted as a result of the additional enhanced health and safety precautions implemented in response to the COVID-19 pandemic. A decrease in occupancy or increase in costs could have a material adverse effect on our results of operations and on the ability of our tenants of our leased properties and borrowers to meet their financial and other contractual obligations to us, including the payments of rent, interest and principal. When applicable, we have accounted for rent concessions as variable lease payments, recorded as rental income when received, in accordance with the FASB's Lease Modification Q&A. Reference Note 2 for further discussion. We will evaluate any rent deferral requests as a result of the COVID-19 pandemic on a tenant-by-tenant basis. The extent of future concessions we make as a result of the COVID-19 pandemic, which could have a material impact on our future operating results, cannot be reasonably or reliably projected by us at this time.
As of
We anticipate that some tenants may need additional rent deferrals to assist them with the ongoing impact of the pandemic. The timing and amount of any additional deferrals cannot yet be determined. Reference Note 3 to condensed consolidated financial statements for more discussion on the Bickford lease restructure and agreement to repay outstanding pandemic-related rent deferrals.
See "Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K for further information regarding the risks presented by the COVID-19 pandemic.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 other than the following items resulting from our SHOP transition.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries and subsidiaries in which we have a controlling
interest. We also consolidate certain entities when control of such entities can
be achieved through means other than voting rights if the Company is deemed to
be the primary beneficiary of such entities. We make judgments about which
entities are variable interest entities ("VIEs") based on an assessment of
whether (i) the total equity investment at risk is insufficient to finance that
entity's activities without additional subordinated financial support, (ii) as a
group, the holders of the equity investment at risk do not have a controlling
financial interest, or (iii) the equity investors have voting rights that are
not proportional to their economic interests, and substantially all of the
entity's activities either involve, or are conducted on behalf of, an investor
that has disproportionately few voting rights. Additionally, we make judgments
with respect to our level of influence or control of an entity and whether we
are the primary beneficiary of a VIE. These considerations include, but are not
limited to, our power to direct the activities that most significantly impact
the entity's economic performance, the obligation to absorb losses
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or the right to receive benefits of the VIE that could be significant to the
entity, and our ability and the rights of other investors to participate in
policy making decisions, replace the manager and/or liquidate the entity. Our
ability to correctly determine the primary beneficiary of a VIE at inception of
our involvement impacts the presentation of these entities in our consolidated
financial statements.
Recent Events
•On April 1, 2022 , we received $6.9 million in previously escrowed funds upon
settlement and dismissal of the Welltower litigation related to the master lease
for the legacy Holiday portfolio.
•Effective April 1, 2022 we formed our new SHOP segment by transferring 15 of
the legacy Holiday independent living facilities into two separate ventures that
own the underlying independent living operations.
•During second quarter of 2022, we converted Bickford to the cash basis of
accounting for its four master lease agreements, and wrote off approximately
$18.1 million of straight-line rents receivable and $7.1 million of lease
incentives to rental income.
•In
•During the six months endedJune 30, 2022 , we disposed of one medical office building, one senior living community, nine assisted living facilities, one independent living facility and one hospital from our Real Estate Investments segment for net proceeds of$108.9 million .
•In the second quarter of 2022, we received repayment of a
Since
Encore Senior Living OnApril 29, 2022 , we acquired a 53-unit assisted living facility located inOshkosh, Wisconsin , from Encore Senior Living. The acquisition price was$13.3 million and included the full payment of an outstanding construction note receivable to us of$9.1 million , including interest. We have agreed to pay up to$0.8 million in additional cash consideration pending the results of an ongoing property tax appeal. As ofJune 30, 2022 , no amount of this consideration is expected to be paid. We added the facility to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%. InJanuary 2022 , we entered into an agreement to fund a$28.5 million development loan with Encore Senior Living to construct a 108-unit assisted living and memory care community inFitchburg, Wisconsin . The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized.
Asset Dispositions
During the six months ended
Net Real Estate
Operator Date Properties Asset Class Net Proceeds Investment Gain/(Impairment)2
Hospital Corporation of America Q1 2022 1 MOB $ 4,868 $ 1,904 $ 2,964
Vitality Senior Living1 Q1 2022 1 SLC 8,302 8,285 17
Holiday1 Q2 2022 1 ILF 2,990 3,020 (30)
Chancellor Senior Living1 Q2 2022 2 ALF 7,305 7,357 (52)
Bickford1 Q2 2022 3 ALF 25,959 28,268 (2,309)
Comfort Care Q2 2022 4 ALF 40,000 38,445 1,556
Helix Healthcare Q2 2022 1 HOSP 19,500 10,535 8,965
$ 108,924 $ 97,814 $ 11,111
37-------------------------------------------------------------------------------- Table of Contents 1 Total impairment charges recognized on these properties were$41.7 million , of which$4.8 million were recognized in the six months endedJune 30, 2022 . 2 Impairments are included in "Loan and realty losses" in Condensed Consolidated Statements of Income for the three and six months endedJune 30, 2022 .
Reference Note 3 to the condensed consolidated financial statements for more detail on dispositions.
Notes Receivable Repayment In the second quarter of 2022, we received repayment of a$111.3 million mortgage note receivable along with all accrued interest and a prepayment fee of approximately$1.1 million which is reflected in "Gain on note payoff" in the Condensed Consolidated Statements of Income for three and six months endedJune 30, 2022 . Interest income was$3.1 million and$5.2 million for the three and six months endedJune 30, 2022 , respectively, and$2.5 million and$5.7 million , for the three and six months endedJune 30, 2021 , respectively.
Third Quarter 2022 Disposal Activity
Discovery
InJuly 2022 , we sold an assisted living facility located inIndiana for approximately$8.5 million in cash consideration, and incurred$0.3 million of transaction costs. The property was classified in assets held for sale on the Condensed Consolidated Balance Sheet as ofJune 30, 2022 . Prior impairment charges recognized on the property totaled$8.4 million .
Assets Held for Sale and Impairment of Long-Lived Assets
AtJune 30, 2022 , 13 properties in our Real Estate Investments reportable segment, with an aggregate net real estate balance of$56.7 million , were classified as assets held for sale on our Condensed Consolidated Balance Sheet as ofJune 30, 2022 , including four properties that were transferred to assets held for sale during the second quarter of 2022. Rental income associated with the 13 properties was$1.0 million for both the three months and six months endedJune 30, 2022 and$1.6 million and$3.4 million for the three months and six months endedJune 30, 2021 , respectively.
During the three and six months ended
Other
Our leases for real estate properties are typically structured as "triple-net leases" on single-tenant properties having an initial leasehold term of 10 to 15 years with one or more five-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the six months endedJune 30, 2022 , we did not have any significant renewing or expiring leases. Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease. Certain of our leases for real estate properties contain purchase options allowing tenants to acquire the leased properties. AtJune 30, 2022 , we had tenant purchase options on 10 properties with an aggregate net investment of$90.6 million that will become exercisable between 2025 and 2028. Rental income from these properties with tenant purchase options was$5.3 million and$5.3 million for the six months endedJune 30, 2022 and 2021, respectively. We cannot reasonably estimate at this time the probability that any other purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.
Tenant Concentration
As discussed in Note 3 to the condensed consolidated financial statements, we have three tenants (including their affiliated entities, which are the legal tenants), excluding$2.6 million for our corporate office,$335.5 million for SHOP, and a credit loss reserve of$5.2 million , from whom we individually derive at least 10% of our total revenues as follows ($ in thousands): 38
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As of June 30, 2022 Revenues1
Asset Real Notes Six Months Ended June 30,
Class Estate2 Receivable 2022 2021
Senior Living Communities EFC $ 573,631 $ 46,364 $ 25,549 19% $ 25,420 16%
National HealthCare Corporation
("NHC") SNF 171,530 - 18,597 14% 18,844 12%
Holiday3 ILF - - 16,680 13% 19,188 12%
Bickford Senior Living4 ALF 412,304 44,850 N/A N/A 16,893 11%
All others, net Various 1,370,360 118,277 53,214 41% 70,533 46%Escrow funds received from tenants
for property operating expenses Various - - 5,195 4% 4,337 3%
$ 2,527,825 $ 209,491 $ 119,235 155,215
Resident fees and services5 11,992 9% - -%
$ 131,227 $ 155,215
1 Includes interest income on notes receivable and rental income from properties
classified as held for sale.
2 Amounts include any properties classified as held for sale.
3 Revenues for the six months ended June 30, 2022 include an $8.8 million lease
deposit recognized in the first quarter of 2022 and $6.9 million in escrow cash
received in the second quarter of 2022. Reference Note 8 in the condensed
consolidated financial statements for more discussion.
4 Below 10% for the six months ended June 30, 2022 , as such revenues are
included in All others, net.
5 There is no tenant concentration in resident fees and services because these
agreements are with individual residents.
Straight-line rent of $0.2 million and $1.2 million and interest income of $1.8
million and $1.6 million was recognized from the Senior Living Communities lease
for the six months ended June 30, 2022 and 2021, respectively. In addition to
the lease deposit of $8.8 million and the $6.9 million in escrow cash received,
straight-line rent of $1.0 million and $3.0 million was recognized from the
Holiday lease for the six months ended June 30, 2022 and 2021, respectively. For
NHC , rent escalations are based on a percentage increase in revenue over a base
year and do not give rise to non-cash, straight-line rental income.
Straight-line rent of $1.0 million and interest income of $1.6 million was
recognized from the Bickford leases for the six months ended June 30, 2021 ,
respectively. During second quarter of 2022, we converted Bickford to the cash
basis of accounting for its four master lease agreements, and wrote off
approximately $18.1 million of straight-line rents receivable to rental income
and $7.1 million of lease incentives.
Holiday Transition
OnApril 1, 2022 , we disposed of one property classified in assets held for sale as discussed above and transitioned one assisted living community inFlorida to our existing real estate partnership withDiscovery Senior Living . The transitioned property was added to the partnership's in-place master lease. In addition, we terminated and transitioned the remaining 15 independent living facilities into two separate partnership ventures that own the underlying independent living operations and in which NHI has majority interests. Reference Note 5 to the condensed consolidated financial statements for more discussion of the ventures. Bickford Senior Living As ofJune 30, 2022 , we leased 37 facilities, excluding one facility classified as assets held for sale, under four leases to Bickford. Revenues from Bickford reflect the impact of pandemic-related rent concessions of approximately$5.5 million for the six months endedJune 30, 2022 and$6.5 million and$10.3 million for the three and six months endedJune 30, 2021 , respectively. During the second quarter of 2022, we wrote off approximately$18.1 million of straight-line rents receivable and$7.1 million of lease incentives, that were included in "Other assets" on the Condensed Consolidated Balance Sheet, to rental income upon converting Bickford to the cash basis of accounting. These write offs were the result of a change in our evaluation of collectability of future rent payments due under its four master lease agreements based upon information we obtained from Bickford regarding its financial condition that raised substantial doubt as to its ability to continue as a going concern. 39 -------------------------------------------------------------------------------- Table of Contents In addition to the three properties sold that are discussed above, we completed various restructuring activities in the Bickford leased property portfolio during the first and second quarters of 2022. InMarch 2022 , we transferred one assisted living facility located inPennsylvania from the Bickford portfolio to a new operator that is leased pursuant to a ten-year triple net lease and wrote off approximately$0.7 million in a straight-line rent receivable, reducing rental income. In the second quarter of 2022, we restructured and amended, three of Bickford's master lease agreements covering 26 properties and reached agreement on the repayment terms of the$26.0 million in outstanding pandemic-related deferrals. Significant terms of these agreements are as follows:
• Extends the maturity dates of the modified leases to 2033 and 2035. The remaining master lease agreement covering 11 properties with an original maturity in 2023 was previously extended to 2028.
• Reduces the combined rent for the portfolio to approximately$28.3 million per year throughApril 1, 2024 , subject to a nominal annual increase, at which time the rent will be reset to a fair market value, not less than 8.0% of our initial gross investment. • Requires monthly payments beginningOctober 1, 2022 throughDecember 31, 2024 based on a percentage of Bickford's monthly revenues exceeding an established threshold. The deferrals may be reduced by up to$6.0 million upon Bickford achieving certain performance targets and the sale or transition of certain properties to new operators. The following table summarizes the average portfolio occupancy for Senior Living Communities, Bickford and SHOP for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, and properties transitioned to new tenants or disposed. Properties 2Q21
3Q21 4Q21 1Q22 2Q22
9 78.5% 80.4% 81.7% 81.7% 82.3% 82.1% 83.4%
Bickford1 38 78.9% 81.8% 83.5% 82.3% 82.7% 83.5% 84.5%
SHOP2 15 77.7% 79.8% 80.6% 77.7% 76.5% 76.2% 77.1%
1Prior periods restated to reflect the removal of one property that was
transitioned to a new operator in March 2022 .
2These properties were leased pursuant to a triple-net master lease prior to Q2
2022.
Tenant Monitoring
Our operators report to us the results of their operations on a periodic basis,
which we in turn subject to further analysis as a means of monitoring potential
concerns within our portfolio. We have identified EBITDARM (earnings before
interest, taxes, depreciation, amortization, rent and management fees) as a
primary performance measure for our tenants, based on results they have reported
to us. We believe EBITDARM is useful in our most fundamental analyses, as it is
a property-level measure of our operators' success, by eliminating the effects
of the operator's method of acquiring the use of its assets (interest and rent),
its non-cash expenses (depreciation and amortization), expenses that are
dependent on its level of success (income taxes), and also excluding the effect
of the operator's payment of its management fees, as typically those fees are
contractually subordinate to our lease payment. For operators of our
entrance-fee communities, our calculation of EBITDARM includes other cash flow
adjustments typical of the industry which may include, but are not limited to,
net cash flows from entrance fees; amortization of deferred entrance fees;
adjustments for tenant rent obligations, and management fee true-ups. The
eliminations and adjustments reflect covenants in our leases and provide a
comparable basis for assessing our various relationships.
We believe that EBITDARM is a useful way to analyze the cash potential of a
group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/cash
rent), measuring the ability of the operator to meet its monthly obligation. In
addition to EBITDARM and the coverage ratio, we rely on a careful balance sheet
analysis and other analytical procedures to help us identify potential areas of
concern relative to our operators' ability to generate sufficient liquidity to
meet their obligations, including their obligation to continue to pay the amount
due to us. Typical among our operators is a varying lag in reporting to us the
results of their operations. Across our portfolio, however, our operators report
their results, typically within either 30 or 45 days and at the latest, within
90 days of month's end. For computational purposes, we exclude mortgages and
other notes receivable, development and lease-up properties that have been in
operation less than 24 months. For stabilized acquisitions in the portfolio less
than 24 months and renewing leases with changes in scheduled rent, we include
pro forma cash rent. Same-store portfolio coverage excludes properties that have
transitioned operators in the past 24 months or assets subsequently sold except
as noted.
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The results of our coverage ratio analysis are presented below on a trailing
twelve-month basis, as of March 31, 2022 and 2021 (the most recent periods
available).
NHI Real Estate Investments Portfolio
By asset type SHO SNF MEDICAL NON-SNF TOTAL
Properties 98 74 1 173
1Q21 1.17x 2.91x 2.52x 1.80x
1Q22 1.11x 2.67x 2.69x 1.68x
Need Driven excl.
Market served Need Driven Bickford Discretionary Discretionary excl. SLC Medical Medical excl. NHC
Properties 84 46 14 5 75 33
1Q21 1.01x 0.91x 1.38x 1.53x 2.89x 2.16x
1Q22 0.89x 0.87x 1.39x 1.81x 2.67x 1.98x
Major tenants NHC1 SLC2 Bickford2
Properties 42 10 38
1Q21 3.79x 1.30x 1.13x
1Q22 3.51x 1.22x 0.92x
NHI Real Estate Investments Same-Store Portfolio3
By asset type SHO SNF MEDICAL NON-SNF TOTAL
Properties 95 73 0 168
1Q21 1.18x 2.93x N/A 1.81x
1Q22 1.13x 2.67x N/A 1.68x
Need Driven excl.
Market served Need Driven Bickford Discretionary Discretionary excl. SLC Medical Medical excl. NHC
Properties 82 44 13 4 73 31
1Q21 1.02x 0.92x 1.41x 1.68x 2.93x 2.14x
1Q22 0.90x 0.89x 1.43x 2.02x 2.67x 1.91x
Major tenants NHC1 SLC2 Bickford2
Properties 42 10 38
1Q21 3.79x 1.30x 1.13x
1Q22 3.51x 1.22x 0.92x
1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3
independent living facilities.
2 Excluding PPP funds received from the first quarter 2021, SLC and Bickford
coverage was 1.11x and 0.97x, respectively. Bickford proforma coverage at the
restructured lease amount would be 1.31x for first quarter 2022.
3 Excludes properties that have transitioned operators in past 24 months and
includes properties classified as held for sale.
These results include any amounts received and recognized by the operators from
the HHS CARES Act Provider Relief Fund and funds received under the Paycheck
Protection Program if the loan has been forgiven. Our operators may not
consistently account for any COVID-19 pandemic relief funds received which can
impact comparability among operators and across periods.
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Fluctuations in portfolio coverage are a result of market and economic trends,
local market competition, and regulatory factors as well as the operational
success of our tenants. We use the results of individual leases to inform our
decision making with respect to specific tenants, but trends described above by
property type and operator bear analysis. Our senior housing portfolio shows a
decline brought about primarily by a softening in occupancy and rising expenses,
including wage pressures. Additionally, the COVID-19 pandemic in the U.S. has
further softened coverage for these operators as well as across our portfolio.
For many of the affected operators, as is typical of our portfolio in general,
NHI has security deposits in place and/or corporate guarantees should actual
cash rental shortfalls eventually materialize. In certain instances, our
operators may increase their security deposits with us in an amount equal to the
coverage shortfall, and, upon subsequent compliance with the required lease
coverage ratio, the operator would then be entitled to a full refund. The
sufficiency of credit enhancements (e.g. tenant deposits and guarantees) as a
protection against economic downturn will be a focus as the economic effects of
the COVID-19 pandemic continue. The metrics presented in the tables above give
no effect to the presence of these security deposits. Because of the recent
disposals of the Florida medical office building and the behavioral hospital, we
combined the medical office building ("MOB") and Hospital categories previously
presented into the "Medical Non-SNF" category. Each MOB's coverage is driven by
the underlying performance of its on-campus hospital as the tenant or guarantor
under the lease. As a result, it is typical for MOB operations to have large
fluctuations in coverage resulting from hospital operations.
Real Estate and Mortgage Write-downs
In addition to the impact of the COVID-19 pandemic, our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers. Our condensed consolidated financial statements for the three and six months endedJune 30, 2022 reflect impairment charges of our long-lived assets of approximately$4.1 million and$28.7 million as a result of the COVID-19 pandemic and other factors. We reduced the carrying value of any impaired properties to estimated fair values, or with respect to the properties classified as held for sale, to estimated fair value less costs to sell. We have no significant intangible assets currently recorded on our Condensed Consolidated Balance Sheet that would require assessment for impairment. We have established a reserve for estimated credit losses of$5.2 million and a liability of$0.8 million for estimated credit losses on unfunded loan commitments as ofJune 30, 2022 . We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary. We believe that the carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make additional significant adjustments to these carrying amounts. 42 -------------------------------------------------------------------------------- Table of Contents Results of Operations The significant items affecting revenues and expenses are described below ($ in thousands): Three Months Ended June 30, Period Change 2022 2021 $ % Revenues: Rental income SHOs leased to Bickford Senior Living$ (108) $ 4,326 $ (4,434) NM SHOs leased to Chancellor Health Care - 2,111 (2,111) (100.0) % Other new and existing leases 50,495 47,301 3,194 6.8 % Current year disposals and assets held for sale 2,353 8,288 (5,935) (71.6) % 52,740 62,026 (9,286) (15.0) % Straight-line rent adjustments, new and existing leases (14,915) 4,150 (19,065) (459.4) % Escrow funds received from tenants for taxes and insurance 2,157 2,175 (18) (0.8) % Total Rental Income 39,982 68,351 (28,369) (41.5) % Resident fees and services 11,992 - 11,992 NM
Interest income and other
Montecito Medical Real Estate loan 490 16 474 NM Encore Senior Living mortgage loan 604 199 405 NM Bickford loans 1,306 1,019 287 28.2 % Loan payoffs 3,219 2,719 500 18.4 % Other new and existing mortgages and notes 2,207 1,966 241 12.3 %
Total Interest Income from Mortgage and Other Notes 7,826
5,919 1,907 32.2 %
Other income 99 60 39 65.0 %
Total Revenues 59,899 74,330 (14,431) (19.4) %
Expenses:
Depreciation
SHOs leased to Senior Living Communities 3,594 3,853 (259) (6.7) %
ALFs leased to Chancellor 684 885 (201) (22.7) %
SHOs leased to Discovery 1,364 1,086 278 25.6 %
Current year disposals and assets held for sale 232 3,082 (2,850) (92.5) %
Other new and existing assets 11,898 11,752 146 1.2 %
Total Depreciation 17,772 20,658 (2,886) (14.0) %
Interest 10,862 12,840 (1,978) (15.4) %
Senior housing operating expenses 9,113 - 9,113 NM
Loan and realty losses 4,094 1,221 2,873 NM
Taxes and insurance on leased properties 2,157 2,175 (18) (0.8) %
Other expenses 5,613 3,780 1,833 48.5 %
Total Expenses 49,611 40,674 8,937 22.0 %
Gains (losses) from equity method investment 273 (909) 1,182 NM
Gains on sales of real estate, net 10,521 6,484 4,037 62.3 %
Loss on operations transfer, net (729) - (729) NM
Gain on note payoff 1,113 - 1,113 NM
Net income 21,466 39,231 (17,765) (45.3) %Less: net loss (income) attributable to noncontrolling interests
207 (48) 255 NM
Net income attributable to common stockholders $ 21,673 $ 39,183 $ (17,510) (44.7) %
NM - not meaningful
43-------------------------------------------------------------------------------- Table of Contents Financial highlights of the three months endedJune 30, 2022 , compared to the same period of 2021 were as follows: •Rental income recognized from our tenants decreased$28.4 million , or 41.5%, as a result of$5.7 million from properties disposed sinceApril 1, 2021 offset by a reduction of rent concessions of approximately$7.0 million accounted for as either variable lease payments or as modified leases and by the recognition of the Holiday escrow deposit and new investments funded sinceJune 2021 . Included in rental income for the three months endedJune 30, 2022 are write offs of$18.1 million of straight-line rents receivable and$7.1 million of lease incentives related to our Bickford master lease agreements. Reference Note 3 for further discussion. •Funds received for reimbursement of property operating expenses totaled$2.2 million for the three months endedJune 30, 2022 , and are reflected as a component of rental income. These property operating expenses are recognized in operating expenses in the line item "Taxes and insurance on leased properties." The decrease in the reimbursement income and corresponding property expenses is the result of decreased amounts received from tenants and expenses paid on their behalf.
•Resident fees and services and Senior housing operating expenses include
revenues and expenses from our SHOP activities which commenced on
•Interest income from mortgage and other notes increased
•Interest expense decreased$2.0 million , or 15.4%, as a result of the expiration of our interest rate swap agreements onDecember 31, 2021 and the repayments of indebtedness, including the payoffs of the convertible bond that matured inApril 2021 and$250.0 million on term loans.
•Loan and realty losses increased
•Gains on sales of real estate, net were$10.5 million associated with the disposition of 11 properties in the second quarter of 2022 as described under the heading "Assets Dispositions" in Note 3 to the condensed consolidated financial statements. During the second quarter of 2021, we sold seven properties generating gains on sales of real estate totaling$6.5 million .
•Loss on operations transfer, net represents the net impact upon terminating the
master lease with
•Gain on note payoff of$1.1 million reflects the prepayment fee from the early repayment of a$111.3 million mortgage note receivable in the second quarter of 2022. See Note 4 to the condensed consolidated financial statements. 44 -------------------------------------------------------------------------------- Table of Contents The significant items affecting revenues and expenses are described below (in thousands): Six Months Ended June 30, Period Change 2022 2021 $ % Revenues: Rental income HOSP leased to Vizion Health$ 1,718 $ 323 $ 1,395 NM ALFs leased to Bickford Senior Living 5,067 12,544 (7,477) (59.6) % SHOs leased to Discovery Senior Living 3,033 4,756 (1,723) (36.2) % ALFs leased to Chancellor Health Care 724 4,206 (3,482) (82.8) % Other new and existing leases 96,944 92,911 4,033 4.3 % Current year disposals and assets held for sale 5,696 15,633 (9,937) (63.6) % 113,182 130,373 (17,191) (13.2) % Straight-line rent adjustments, new and existing leases (13,836) 8,391 (22,227) (264.9) % Escrow funds received from tenants for taxes and insurance 5,195 4,337 858 19.8 % Total Rental Income 104,541 143,101 (38,560) (26.9) % Resident fees and services 11,992 - 11,992 NM Interest income and other Bickford loans 2,551 1,781 770 43.2 % Vizion Health loan 846 161 685 NM Montecito Medical Real Estate loan 876 16 860 NM Loan payoffs 5,482 5,701 (219) (3.8) % Other new and existing mortgages and notes 4,786 4,319 467 10.8 % Total Interest Income from Mortgage and Other Notes 14,541 11,978 2,563 21.4 % Other income 153 136 17 NM Total Revenues 131,227 155,215 (23,988) (15.5) % Expenses: Depreciation ALFs leased to Chancellor 1,218 1,772 (554) (31.3) % HOSP leased to Vizion Health 521 87 434 NM ALFs leased to Bickford 5,605 6,171 (566) (9.2) % Current year disposals and assets held for sale 1,090 5,236 (4,146) (79.2) % Other new and existing assets 27,610 28,198 (588) (2.1) % Total Depreciation 36,044 41,464 (5,420) (13.1) % Interest 21,060 25,813 (4,753) (18.4) % Senior housing operating expenses 9,113 - 9,113 NM Legal 2,166 90 2,076 NM Loan and realty losses 28,622 1,171 27,451 NM Taxes and insurance on leased properties 5,195 4,337 858 19.8 % Other expenses 13,619 12,042 1,577 13.1 % Total Expenses 115,819 84,917 30,902 36.4 % Income before investment and other gains and losses 15,408 70,298 (54,890) (78.1) % Gains (losses) from equity method investment 569 (1,718) 2,287 NM Gains on sales of real estate, net 13,502 6,484 7,018 NM Loss on operations transfer, net (729) - (729) NM Gain on note payoff 1,113 - 1,113 NM Loss on early retirement of debt (151) (451) 300 (66.5) % Net income 29,712 74,613 (44,901) (60.2) %
Less: net loss (income) attributable to noncontrolling interest
361 (100) 461 NM
Net income attributable to common stockholders $ 30,073 $ 74,513 $ (44,440) (59.6) %
NM - not meaningful
45-------------------------------------------------------------------------------- Table of Contents Financial highlights of the six months endedJune 30, 2022 , compared to the same period in 2021 were as follows: •Rental income recognized from our tenants decreased$38.6 million , or 26.9%, as a result of additional rent concessions of approximately$23.1 million accounted for as either variable lease payments or as modified leases sinceJune 2021 and property dispositions of approximately$9.9 million , net of new investments funded sinceJune 2021 . Included in rental income for the six months endedJune 30, 2022 are write offs of$18.8 million of straight-line rents receivable and$7.3 million of lease incentives related to our Bickford master lease agreements. Reference Note 3 for further discussion. •Resident fees and services and Senior housing operating expenses include revenues and expenses from our SHOP activities which commenced onApril 1, 2022 . See Note 5 to the condensed consolidated financial statements. •Interest income from mortgage and other notes increased$2.6 million , or 21.4%, primarily due to new and existing loan fundings, net of paydowns on loans.
•Interest expense decreased
•Legal cost increased
•Loan and realty losses increased
•Gains on sales of real estate, net increased$7.0 million , for the six months endedJune 30, 2022 as compared to the same period in the prior year. For the six months endedJune 30, 2022 , we recorded$13.5 million in gains from dispositions of real estate assets as described under "Asset Dispositions" in Note 3 to the condensed consolidated financial statements. For the six months endedJune 30, 2021 , we sold seven properties generating gains on sales of real estate totaling$6.5 million . •Loss on operations transfer, net includes the amount of net working capital liabilities assumed upon terminating the master lease withWell Churchill Leasehold Owner, LLC , a subsidiary of Welltower, Inc., onApril 1, 2022 . See Note 8 to the condensed consolidated financial statements. •Gain on note payoff of$1.1 million reflects the prepayment fee from the early repayment of a$111.3 million mortgage note receivable in the second quarter of 2022. See Note 4 to the condensed consolidated financial statements. 46 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources AtJune 30, 2022 , we had$700.0 million available to draw on our revolving credit facility,$43.4 million in unrestricted cash and cash equivalents, and the potential to access the remaining$417.4 million through the issuance of common stock under the Company's$500.0 million ATM equity program. In addition, the Company maintains an effective automatic shelf registration statement through which capital could be raised via the issuance of debt and or equity securities. Sources and Uses of Funds
Our primary sources of cash include rent payments, receipts from residents, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our stockholders and general corporate overhead.
These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below ($ in thousands):
Six Months Ended June 30, One Year Change
2022 2021 $ %
Cash and cash equivalents and restricted
cash, January 1 $ 39,485 $ 46,343 $ (6,858) (14.8) %
Net cash provided by operating activities 95,448 108,512 (13,064) (12.0) %
Net cash provided by investing activities 192,223 5,229 186,994 NM
Net cash used in financing activities (281,096) (125,359) (155,737) NM
Cash and cash equivalents and restricted
cash, June 30 $ 46,060 $ 34,725 $ 11,335 32.6 %
Operating Activities - Net cash provided by operating activities for the six
months ended June 30, 2022 , which includes new investments completed, the
creation of the SHOP ventures, lease payment collections arising from escalators
on existing leases and interest payments on new real estate and note investments
completed, was impacted by approximately $10.7 million in additional
pandemic-related rent concessions granted for the six months ended June 30, 2022
and properties disposed since July 1, 2021 .
Investing Activities - Net cash provided by investing activities for the six
months ended June 30, 2022 was comprised primarily of approximately $32.1
million of investments in mortgage and other notes and renovations of real
estate, offset by the proceeds from the sales of real estate of approximately
$108.9 million and the collection of principal on mortgage and other notes
receivable of approximately $114.9 million .
Financing Activities - Net cash used in financing activities for the six months
ended June 30, 2022 differs from the same period in 2021 primarily as a result
of an approximately $133.8 million decrease in net borrowings, inclusive of a
$400.0 million senior note offering in the first quarter of 2021, an
approximately $47.9 million decrease in proceeds from issuance of common shares
and dividend payments which decreased approximately $17.8 million over the same
period in 2021 and the repurchase of common stock of approximately $70.0
million .
Debt Obligations
As ofJune 30, 2022 , we had outstanding debt of$1.1 billion . Reference Note 7 to the condensed consolidated financial statements for additional information about our outstanding indebtedness. Also, reference "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for more details on our indebtedness and the impact of interest rate risk. Unsecured Bank Credit Facility - OnMarch 31, 2022 , we entered into a new unsecured revolving credit agreement (the "2022 Credit Agreement") providing us with a$700.0 million unsecured revolving credit facility, replacing our previous$550.0 million unsecured revolver. The 2022 Credit Agreement matures inMarch 2026 , but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at either (i) Term Secured Overnight Financing Rate ("SOFR") (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the base rate plus a margin ranging from 0.00% to 0.40%. In each election, the actual margin is determined according to our credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the administrative agent's prime rate, (ii) the federal funds rate on such day plus 0.50% or (iii) the adjusted Term SOFR for a one- 47
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month tenor in effect on such day plus 1.0%. We incurred
Concurrently with the execution of the 2022 Credit Agreement, we amended our$300.0 million term loan ("2018 Term Loan") maturing inSeptember 2023 . The amendment modifies the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowings based on SOFR (plus a credit spread adjustment) that were previously based on LIBOR, with no change to the existing applicable interest rate margins. We may also elect for the 2018 Term Loan to accrue interest at a base rate plus the applicable margin. During the second quarter of 2022, we repaid$60.0 million of the 2018 Term Loan. InMarch 2022 , we repaid a$75.0 million term loan maturingAugust 2022 with proceeds from the revolving credit facility. The term loan bore interest at a rate of 30-day LIBOR plus 135 basis points ("bps"), based on our credit ratings. Upon repayment, we expensed approximately$0.2 million of unamortized loan costs associated with this loan which is included in "Loss on early retirement of debt" in our Condensed Consolidated Statement of Income for the six months endedJune 30, 2022 . As ofJune 30, 2022 , the revolver and term loan bore interest at a rate of one-month Term SOFR (plus a 10 bps spread adjustment) plus 105 bps and 125 bps, based on our debt ratings, or 2.836% and 3.04%, respectively. The facility fee was 25 bps per annum. AtJuly 31, 2022 , no amount was outstanding under the revolving facility. The current SOFR spreads and facility fee for our unsecured revolving credit facility and$240.0 million term loan reflect our ratings compliance based on the applicable margin for SOFR loans at a debt rating of BBB-/Baa3 in the Interest Rate Schedule provided below in summary format: Interest Rate Schedule SOFR Spread Debt Ratings Revolver Revolver Facility Fee$300m Term Loan A+/A1 0.725% 0.125% 0.75% A/A2 0.725% 0.125% 0.80% A-/A3 0.725% 0.125% 0.85% BBB+/Baa1 0.775% 0.150% 0.90% BBB/Baa2 0.850% 0.200% 1.00% BBB-/Baa3 1.050% 0.250% 1.25% Lower than BBB-/Baa3 1.400% 0.300% 1.65% Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below "BBB-/Baa3", the debt under our credit agreements will be subject to defined increases in interest rates and fees. The 2022 Credit Agreement requires that we calculate specified financial statement metrics and meet or exceed a variety of financial ratios, which are usual and customary in nature. These ratios are calculated quarterly and as ofJune 30, 2022 , were within required limits. The calculation of our leverage ratio involves intermediate determinations of our "total indebtedness" and of our "total asset value," as defined in the 2022 Credit Agreement. Senior Notes Offering - InJanuary 2021 , we issued$400.0 million aggregate principal amount of 3.00% senior notes that mature onFebruary 1, 2031 and pay interest semi-annually (the "2031 Senior Notes"). We remain in compliance with all debt covenants under the unsecured bank credit facility, 2031 Senior Notes and other debt agreements.
Debt Maturities - Reference Note 7 to the condensed consolidated financial statements for more information on our debt maturities.
Credit Ratings - Moody's Investors Services ("Moody's") announced on November 5,
2020 that it assigned an investment grade issuer credit rating and a senior
unsecured debt rating of 'Baa3' with a "Negative" outlook to the Company.
Moody's released a credit opinion on October 31, 2021 which affirmed the rating
and outlook for the Company. Both Fitch and S&P Global announced in November
2019 a public issuer credit rating of BBB- with an outlook of "Stable." Fitch
confirmed its rating most recently on December 9, 2021 and S&P Global confirmed
its rating on November 16, 2021 . Our unsecured private placement term loan
agreements include a rate increase provision that is effective if any rating
agency lowers our credit rating
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below investment grade and our compliance leverage increases to 50% or more. Any
reduction in outlook or downgrade in our credit ratings from the rating agencies
could negatively impact our costs of borrowings.
Debt Metrics - We believe that our fixed charge coverage ratio, which is the
ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization, including amounts in discontinued operations, excluding real
estate asset impairments and gains on dispositions) to fixed charges (interest
expense at contractual rates net of capitalized interest and principal payments
on debt), and the ratio of consolidated net debt to Adjusted EBITDA are
meaningful measures of our ability to service our debt. We use these two
measures as a useful basis to compare the strength of our balance sheet with
those in our peer group. We also believe our balance sheet gives us a
competitive advantage when accessing debt markets.
We calculate our fixed charge coverage ratio as approximately 6.6x for the six
months ended June 30, 2022 (see our discussion under the heading Adjusted EBITDA
including a reconciliation to our net income). Giving effect to significant
acquisitions, financings, disposals and payoffs on an annualized basis, our
consolidated net debt to Annualized Adjusted EBITDA ratio is approximately 4.0x
for the three months ended June 30, 2022 ($ in thousands):
Consolidated Total Debt $ 1,104,495
Less: cash and cash equivalents (43,435) Consolidated Net Debt$ 1,061,060 Adjusted EBITDA$ 69,435 Annualizing Adjustment 208,305
Annualized impact of recent investments, disposals and payoffs (11,792)
$ 265,948
Consolidated Net Debt to Annualized Adjusted EBITDA 4.0x
Supplemental Guarantor Financial Information
The Company's$940.0 million bank credit facility, unsecured private placement term loans dueJanuary 2023 throughJanuary 2027 with an aggregate principal amount of$400.0 million , and 2031 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company's subsidiaries, except for certain excluded subsidiaries ("Guarantors"). The Guarantors are either owned, controlled or are affiliates of the Company. The following tables present summarized financial information for the Company and the Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands): As of June 30, 2022 Real estate properties, net$ 1,854,503 Other assets, net 366,508 Note receivable due from non-guarantor subsidiary 81,383 Totals assets$ 2,302,394 Debt$ 1,028,103 Other liabilities 67,099 Total liabilities$ 1,095,202 Redeemable noncontrolling interests$ 11,487 Noncontrolling interest $ 111 49
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Six Months Ended
June 30, 2022
Revenues $ 114,161
Interest income on note due from non-guarantor subsidiary 2,310
Expenses
106,103
Gains from equity method investee
569
Gains on sales of real estate
13,502
Loss on early retirement of debt (151) Other income - Net income $ 24,287
Net income attributable to NHI and the subsidiary guarantors $
25,031 Equity AtJune 30, 2022 we had 44,655,156 shares of common stock outstanding with a market value of$2.7 billion . Equity on our Condensed Consolidated Balance Sheet totaled$1.4 billion . Share Repurchase Plan - OnApril 15, 2022 , the Company's Board of Directors approved a stock repurchase plan for up to$240.0 million of the Company's common stock (the "2022 Repurchase Plan"). The plan is effective for a period of one year. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended and shall be made in accordance with all applicable laws and regulations in effect. The timing and number of shares repurchased will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations. The stock repurchase plan does not obligate the Company to repurchase any specific number of shares and may be suspended or discontinued at any time. During the three months endedJune 30, 2022 , we repurchased through the open market transactions 1,196,175 shares of common stock for an average price of$58.52 per share, including commissions. All shares received were constructively retired upon receipt, and the excess of the purchase price over the par value per share was recorded to "Retained Earnings" in the Condensed Consolidated Balance Sheet.
As of
Dividends - Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. Taxable income is determined in accordance with the Internal Revenue Code and differs from net income for financial statements purposes determined in accordance withU.S. generally accepted accounting principles. Our Board of Directors has historically directed the Company toward maintaining a strong balance sheet. Therefore, we consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity, and we accept some level of risk associated with leveraging our investments. We intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of equity and debt capital on a leverage neutral basis will generate sufficient returns to our stockholders. We do not expect to utilize borrowings to satisfy the payment of dividends and project that cash flows from operations for the full year 2022 will be adequate to fund dividends at the current rate. We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year endingDecember 31, 2022 and thereafter. Historically, the Company has distributed at least 100% of annual taxable income. Dividends declared for the fourth quarter of each fiscal year are paid by the end of the following January and are, with some exceptions, treated for tax purposes as having been paid in the fiscal year just ended as provided inIRS Code Sec . 857(b)(8).
The following table summarizes dividends declared by the Board of Directors or
paid during the six months ended
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Six Months Ended
Date of Declaration Date of Record Date Paid/Payable Quarterly Dividend
November 5, 2021 December 31, 2021 January 31, 2022 $0.90
February 16, 2022 March 31, 2022 May 6, 2022 $0.90
May 6, 2022 June 30, 2022 August 5, 2022 $0.90
Six Months Ended June 30, 2021
Date of Declaration Date of Record Date Paid/Payable Quarterly Dividend
December 15, 2020 December 31, 2020 January 29, 2021 $1.1025
March 12, 2021 March 31, 2021 May 7, 2021 $1.1025
June 3, 2021 June 30, 2021 August 6, 2021 $0.90 On
Shelf Registration Statement - We have an automatic shelf registration statement on file with theSecurities and Exchange Commission that allows the Company to offer and sell to the public an unspecified amount of common stock, preferred stock, debt securities, warrants and or units at prices and on terms to be announced when and if such securities are offered. The details of any future offerings, along with the use of proceeds from any securities offered, will be described in a prospectus supplement or other offering materials, at the time of offering. Our shelf registration statement expiresMarch 2023 .
Material Cash Requirements
We had approximately$51.0 million in corporate cash and cash equivalents on hand and$700.0 million in availability under our unsecured revolving credit facility as ofJuly 31, 2022 . Our expected material cash requirements for the twelve months endedJune 30, 2023 and thereafter consist of long-term debt maturities; interest on long-term debt; and contractually obligated expenditures. We expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our revolving credit facility, refer to Unsecured Bank Credit Facility above, and sales from real estate investments, although we may choose to seek alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt and equity capital markets.
Contractual Obligations and Contingent Liabilities
As ofJune 30, 2022 , our contractual payment obligations were as follows ($ in thousands): Less than 1 More than 5 Total year 1-3 years 3-5 years years Debt, including interest1$ 1,190,993 $ 165,265 $ 454,071 $ 174,417 $ 397,240 Development commitments 10,051 10,051 - - - Loan commitments 69,190 39,445 29,745 - -$ 1,270,234 $ 214,761 $ 483,816 $ 174,417 $ 397,240
1 Interest is calculated based on the weighted average interest rate of
outstanding debt balances as of
Commitments and Contingencies
The following tables summarize information as ofJune 30, 2022 related to our outstanding commitments and contingencies which are more fully described in the notes to the condensed consolidated financial statements ($ in thousands): 51
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Asset Class Type Total Funded Remaining
Loan Commitments:
Bickford Senior Living SHO Construction $ 14,200 $ (12,244) $ 1,956
Encore Senior Living SHO Construction 50,700 (26,324) 24,376
Senior Living Communities SHO Revolving Credit 20,000 (13,664) 6,336
Timber Ridge OpCo SHO Working Capital 5,000 - 5,000
Watermark Retirement SHO Working Capital 5,000 (3,223) 1,777
Montecito Medical Real Estate MOB Mezzanine Loan 50,000 (20,255) 29,745
$ 144,900 $ (75,710) $ 69,190 See Note 8 to our condensed consolidated financial statements for further details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.
The credit loss liability for unfunded loan commitments was$0.8 million as ofJune 30, 2022 and is estimated using the same methodology as for our funded mortgage and other notes receivable based on the estimated amount that we expect to fund. Asset Class Type Total Funded Remaining Development Commitments: Woodland Village SHO Renovation$ 7,515 $ (7,425) $ 90 Senior Living Communities SHO Renovation 9,930 (9,930) - Watermark Retirement SHO Renovation 6,500 (4,436) 2,064 Navion SHO Renovation 3,650 (960) 2,690 Other SHO Various 4,950 (1,243) 3,707 SHOP ILF Renovation 1,500 - 1,500$ 34,045 $ (23,994) $ 10,051 As part of the formation of the SHOP ventures and reflected in the table above, we agreed to fund improvements on one of the ILFs up to$1.5 million , of which no amount had been funded as ofJune 30, 2022 . In addition to the commitments listed above, we have agreed to pay up to$0.8 million in additional cash consideration pending the results of an ongoing property tax appeal related to a property acquired in the second quarter of 2022. As ofJune 30, 2022 , no amount of this consideration is expected to be paid as discussed in Note 3 in the condensed consolidated financial statements. Discovery PropCo has committed to Discovery to fund up to$2.0 million toward the purchase of condominium units located at one of the facilities, of which$1.0 million has been funded as ofJune 30, 2022 . Asset Class Total Funded Remaining Contingencies (Lease Inducements): Timber Ridge OpCo SHO$ 10,000 $ -$ 10,000 Wingate Healthcare SHO 5,000 - 5,000 Navion Senior Solutions SHO 4,850 (1,500) 3,350 Discovery Senior Living SHO 4,000 - 4,000 Ignite Medical Resorts SNF 2,000 - 2,000 Sante Partners SHO 2,000 - 2,000 IntegraCare SHO 750 - 750$ 28,600 $ (1,500) $ 27,100 We adjust rental income for the amortization of lease inducements paid to our tenants. Amortization of lease inducement payments against revenues was$7.2 million and$7.4 million for the three and six months endedJune 30, 2022 , respectively, which includes the write off of$7.1 million of lease incentives related to Bickford as discussed in more detail in Note 3 to the condensed consolidated financial statements. Amortization of lease inducement payments against revenues was$0.3 million and$0.5 million for the three and six months endedJune 30, 2021 , respectively. 52
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Litigation
Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. In addition, such claims may include, among other things professional liability and general liability claims, as well as regulatory proceedings relate to our SHOP segment where we are the holder of the applicable healthcare license. While there may be lawsuits pending against us and certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no direct material adverse effect on our financial condition, results of operations or cash flows.
Welltower, Inc.
InJune 2021 , Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company, that included 17 senior living facilities governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We received no rent due under the master lease from the tenant for these facilities since this change in tenant ownership occurred in lateJuly 2021 . OnDecember 20, 2021 , NHI and its subsidiaries NHI-REIT ofNext House, LLC ,Myrtle Beach Retirement Resident LLC , andVoorhees Retirement Residence LLC filed suit against Welltower, Inc.,Welltower Victory II TRS LLC , andWell Churchill Leasehold Owner LLC (collectively the "Defendants") in theDelaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contended that the Defendants repeatedly failed to honor their legal obligations to NHI. In particular, we asserted that the Defendants acquired assets from a third party, Holiday, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Defendants. The lawsuit further asserted that the Defendants owed unpaid contractual rent. In connection with a memorandum of understanding between the parties datedMarch 4, 2022 , NHI applied the remaining approximately$8.8 million lease deposit to past due rents in the first quarter of 2022. Also, as provided by the memorandum of understanding, Welltower transferred approximately$6.9 million to an escrow account to be released upon satisfactory transition of the facility operations and mutual dismissal of the lawsuit. NHI and certain of its subsidiaries entered into a settlement agreement datedMarch 31, 2022 with Defendants formalizing the terms to settle the lawsuit. NHI and certain of its subsidiaries terminated the master lease withWell Churchill Leasehold Owner, LLC as successor in interest toNHI Master Tenant LLC , effectiveApril 1, 2022 , upon completion of the transition of the properties subject to the master lease, as follows: (i) one property was sold to a third party, (ii) one property was transitioned to an existing operator relationship and leased pursuant to an existing master lease, and (iii) the remaining 15 properties were transitioned into two new SHOP partnership ventures. See Note 5 to the condensed consolidated financial statements for more information on these new ventures. Also effectiveApril 1, 2022 , the parties agreed to dismiss the lawsuit and mutually release all claims related to or arising out of the litigation and the$6.9 million in escrowed funds were released to NHI and recognized in rental income during the three months endedJune 30, 2022 . We recognized approximately$0.7 million as a "Loss on operations transfer, net" on the Condensed Consolidated Statements of Income for the three and six months endedJune 30, 2022 . This net loss represents the amount of net working capital liabilities comprised primarily of facility furniture, fixtures and equipment, net resident accounts receivable, accounts payable and other accrued liabilities assumed at transition. FFO & FAD These supplemental performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations ("FFO"), Normalized FFO and Normalized Funds Available for Distribution ("FAD") may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these measures, caution should be exercised when comparing our FFO, Normalized FFO and Normalized FAD to that of other REITs. These measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP") (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of performance, or to net cash flow from operating 53
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Table of Contents activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs.
Funds From Operations - FFO
Our FFO per diluted common share for the six months endedJune 30, 2022 decreased$0.63 or 26.4% over the same period in 2021 due primarily to the write offs of Bickford's straight-line rents receivable and unamortized lease incentives totaling approximately$25.4 million , the effects of the COVID-19 pandemic and increased legal fees of$1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio, partially offset by the recognition of the Holiday lease deposit of$8.8 million and escrow of$6.9 million in rental income, reduced interest expense and new investments completed sinceJune 2021 . FFO, as defined by theNational Association of Real Estate Investment Trusts ("NAREIT") and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, impairments of real estate, and real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company's computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company's FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities. Our Normalized FFO per diluted common share for the six months endedJune 30, 2022 decreased$0.03 or 1.3% over the same period in the same period in 2021. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of non-real estate assets and liabilities, and recoveries of previous write-downs. FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue.
Funds Available for Distribution - FAD
Our Normalized FAD for the six months endedJune 30, 2022 decreased$3.4 million or 3.06% over the same period in 2021 due primarily to the effects of the COVID-19 pandemic and increased legal fees of$1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio, partially offset by the recognition of the Holiday lease deposit of$8.8 million and escrow of$6.9 million in rental income, reduced interest expense and new investments completed sinceJune 2021 . In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line lease revenue, amortization of the original issue discount on our senior unsecured notes, amortization of debt issuance costs, non-cash share based compensation, as well as certain non-cash items related to our equity method investment. Normalized FAD is an important supplemental performance measure for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires any discount or premium related to indebtedness and debt issuance costs to be amortized as non-cash adjustments to earnings. We also adjust Normalized FAD for the net change in our allowance for expected credit losses, non-cash share based compensation as well as certain non-cash items related to our equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to stockholders. The following table reconciles net income, the most directly comparable GAAP metric, to FFO, Normalized FFO and Normalized FAD and is presented for both basic and diluted weighted average common shares ($ in thousands, except share and per share amounts): 54
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Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net income attributable to common stockholders
39,183 $ 30,073 $ 74,513
Elimination of certain non-cash items in net
income:
Depreciation 17,772 20,658 36,044 41,464
Depreciation related to noncontrolling interests (388) (210) (598) (420)
Gains on sales of real estate, net (10,521) (6,484) (13,502) (6,484)
Impairments of real estate 4,141 - 28,745 -
NAREIT FFO attributable to common stockholders 32,677 53,147 80,762 109,073
Loss on operations transfer, net 729 - 729 -
Portfolio transition costs, net of noncontrolling
interests 329 - 329 -
Gain on note payoff (1,113) - (1,113) -
Loss on early retirement of debt - - 151 451
Non-cash write-offs of straight-line receivable
and lease incentives 25,208 - 27,681 -
Normalized FFO attributable to common
stockholders 57,830 53,147 108,539 109,524
Straight-line lease revenue, net (3,185) (4,150) (6,543) (8,391)
Straight-line lease revenue, net, related to
noncontrolling interests 35 21 57 45
Amortization of lease incentives 58 262 117 522
Amortization of original issue discount 80 80 161 134
Amortization of debt issuance costs 529 588 1,091 1,294
Amortization related to equity method investment (169) 520 (407) 1,056
Straight-line lease expense related to equity
method investment (2) 21 (10) 45
Note receivable credit loss expense (47) 1,221 (123) 1,171
Non-cash share-based compensation 1,428 992 6,511 6,438
Equity method investment capital expenditures (105) (105) (210) (210)
Equity method investment non-refundable fees
received 230 242 467 761
Equity method investment distributions (273) - (569) -
Senior housing portfolio recurring capital
expenditures (130) - (130) -
Normalized FAD attributable to common
stockholders $ 56,279 $
52,839
BASIC
Weighted average common shares outstanding 45,708,238 45,850,599 45,779,433 45,577,843 NAREIT FFO attributable to common stockholders per share$ 0.71 $
1.16
$ 1.27 $
1.16
DILUTED
Weighted average common shares outstanding 45,718,538 45,858,074 45,784,771 45,607,924 NAREIT FFO attributable to common stockholders per share$ 0.71 $ 1.16 $ 1.76 $ 2.39 Normalized FFO attributable to common stockholders per share$ 1.26 $ 1.16 $ 2.37 $ 2.40 55
-------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA We consider Adjusted EBITDA to be an important supplemental measure because it provides information which we use to evaluate our performance and serves as an indication of our ability to service debt. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization, excluding real estate asset impairments and gains on dispositions and certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods. These items include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs. Adjusted EBITDA also includes our proportionate share of unconsolidated equity method investments presented on a similar basis. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies.
The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net income $ 21,466 $ 39,231 $ 29,712 $ 74,613
Interest expense 10,862 12,840 21,060 25,813
Franchise, excise and other taxes 225 232 469 465
Depreciation 17,772 20,658 36,044 41,464
NHI's share of EBITDA adjustments for
unconsolidated entities 713 798 1,287 1,486
Note receivable credit loss expense (47) 1,221 (123) 1,171
Gains on sales of real estate, net (10,521) (6,484) (13,502) (6,484)
Loss on operations transfer, net 729 - 729 -
Gain on note payoff (1,113) - (1,113) -
Loss on early retirement of debt - - 151 451
Impairment of real estate 4,141 - 28,745 -
Non-cash write-off of straight-line rents
receivable and lease amortization 25,208 - 27,681 -
Adjusted EBITDA $ 69,435 $
68,496
Interest expense at contractual rates$ 10,262 $ 10,368 $ 19,819 $ 20,821 Interest rate swap payments, net - 1,820 - 3,598 Principal payments 193 91 193 185 Fixed Charges$ 10,455 $ 12,279 $ 20,012 $ 24,604 Fixed Charge Coverage 6.6x 5.6x 6.6x 5.6x
For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.
Net Operating Income
Net operating income ("NOI") is a U.S. non-GAAP supplemental financial measure
used to evaluate the operating performance of real estate. We define NOI as
total revenues, less tenant reimbursements and property operating expenses. We
believe NOI provides investors relevant and useful information as it measures
the operating performance of our properties at the property level on an
unleveraged basis. We use NOI to make decisions about resource allocations and
to assess the property level performance of our properties.
The following table reconciles NOI to net income, the most directly comparable GAAP metric ($ in thousands):
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Three Months Ended Six Months Ended
June 30 June 30
NOI Reconciliations: 2022 2021 2022 2021
Net income $ 21,466 $ 39,231 $ 29,712 $ 74,613
(Gains) losses from equity method investment (273) 909 (569) 1,718
Loss on early retirement of debt - - 151 451
Gain on note payoff (1,113) - (1,113) -
Loss on operations transfer, net 729 - 729 -
Gains on sales of real estate, net (10,521) (6,484) (13,502) (6,484)
Loan and realty losses 4,094 1,221 28,622 1,171
General and administrative 5,049 3,588 13,150 11,577
Franchise, excise and other taxes 225 232 469 465
Legal 339 (40) 2,166 90
Interest 10,862 12,840 21,060 25,813
Depreciation 17,772 20,658 36,044 41,464
Consolidated net operating income (NOI) $ 48,629 $ 72,155 $ 116,919 $ 150,878
NOI by segment:
Real Estate Investments $ 45,650 $ 72,094 $ 113,888 $ 150,740
SHOP 2,879 - 2,879 -
Non-Segment/Corporate 100 61 152 138
Total NOI $ 48,629 $ 72,155 $ 116,919 $ 150,878
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