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 lower reimbursement rates would have on our tenants' and borrowers' business;
* We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs;
* We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation;
* We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change;
* We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect;
* We are exposed to the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties; * We are exposed to risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests;
* We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations;
* We are subject to risks associated with our joint venture investment with Life Care Services forTimber 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; 27
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* If our efforts to maintain the privacy and security of Company information are not successful, we could incur substantial costs and reputational damage, and could become subject to litigation and enforcement actions;
* We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances;
* We depend on the success of our future acquisitions and investments;
* We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;
* Competition for acquisitions may result in increased prices for properties;
* We are exposed to the risk that our assets may be subject to impairment charges;
* We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us;
* We have covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations;
* Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;
* We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates;
* We are subject to risks related to changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and result of operations;
* We depend on the ability to continue to qualify for taxation as a Real Estate Investment Trust;
* 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; * We are subject to certain provisions ofMaryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests; and
* When interest rates increase, our common stock may decline in price.
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, 2020 , and "Business" and "Risk Factors" under Item 1 and Item 1A therein for a further discussion of these and of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. You should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are not the only ones facing the Company. There may be additional risks that we do not presently know of and or that we currently deem immaterial. If any of the risks actually occur, our business, financial condition, results of operations, or cash flows could be materially and adversely affected. In that case, the trading price of our shares of stock could decline and you may lose part or all of your investment. Given these risks and uncertainties, we can give no assurance that these forward-looking statements will, in fact, occur and, therefore, caution investors not to place undue reliance on them. 28 -------------------------------------------------------------------------------- Table of Contents Executive OverviewNational 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. Our portfolio consists of real estate investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, specialty hospitals and medical office building. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.
Portfolio
As ofJune 30, 2021 , we had investments in real estate and mortgage and other notes receivable involving 236 facilities located in 34 states. These investments involve 157 senior housing properties, 75 skilled nursing facilities, three hospitals and one medical office building, excluding one property classified as held for sale. These investments consisted of properties with an original cost of approximately$3.2 billion , rented under primarily triple-net leases to 33 lessees, and$289.3 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 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 independent living ("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"), medical office buildings ("MOB") and hospitals 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. 29 -------------------------------------------------------------------------------- Table of Contents The following tables summarize our investments in real estate and mortgage and other notes receivable as of and for the six months endedJune 30, 2021 ($ in thousands): Properties Beds/Sq. Ft.* Revenue % Total Investment
Senior Housing - Need-Driven
Assisted Living 89 4,932 $ 28,205 18.2 % $ 913,175
Senior Living Campus 14 1,976 9,973 6.4 % 307,587
Total Senior Housing - Need-Driven 103 6,908 38,178 24.6 % 1,220,762
Senior Housing - Discretionary
Independent Living 32 3,703 22,352 14.4 % 600,615
Entrance-Fee Communities 11 2,707 30,755 19.8 % 743,985
Total Senior Housing - Discretionary 43 6,410 53,107 34.2 % 1,344,600
Total Senior Housing 146 13,318 91,285 58.8 % 2,565,362
Medical Facilities
Skilled Nursing Facilities 72 9,433 41,176 26.5 % 595,413
Hospitals 3 185 3,088 2.0 % 71,352
Medical Office Buildings 1 61,500 * 165 0.1 % 6,973
Total Medical Facilities 76 44,429 28.6 % 673,738
Total Real Estate Properties 222 135,714 87.4 % $ 3,239,100
Income From Properties Sold and Held
For Sale 3,050
Escrow Funds Received From Tenants 4,337
Total Rental Income 143,101
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven 9 565 2,906 2.0 % $ 72,401
Senior Housing - Discretionary 2 714 6,886 4.4 % 148,867
Skilled Nursing 3 180 204 0.1 % 4,472
Other Notes Receivable - - 1,980 1.3 % 63,608
Total Mortgage and Other Notes
Receivable 14 1,459 11,976 7.8 % $ 289,348
Other Income 138
Total Revenue $ 155,215
Portfolio Summary Properties Revenue % Portfolio Investment
Real Estate Properties 222 $ 135,714 91.9 %
Mortgage and Other Notes Receivable 14 11,976 8.1 % 289,348
Total Portfolio 236 $ 147,690 100.0 % $ 3,528,448
Portfolio by Operator Type
Public 64 $ 33,789 22.9 % $ 482,802
National Chain (Privately Owned) 28 29,688 20.1 % 783,731
Regional 130 79,216 53.6 % 2,122,701
Small 14 4,997 3.4 % 139,214
Total Portfolio 236 $ 147,690 100.0 % $ 3,528,448
For the six months ended June 30, 2021 , operators of facilities who provided 3%
or more and collectively 79% of our total revenues were (parent company, in
alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery
Senior Living ; Health Services Management ; Holiday Retirement; Life Care
Services; National HealthCare Corporation; Senior Living Communities; and Senior
Living Management ; and The Ensign Group.
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As of June 30, 2021 , our average effective annualized rental income was $8,737
per bed for SNFs, $8,441 per unit for SLCs, $10,314 per unit for ALFs, $11,434
per unit for ILFs, $22,723 per unit for EFCs, $51,948 per bed for hospitals, and
$5 per square foot for MOBs.
Substantially all of our revenues and sources of cash flows from operations are
rents paid under operating leases and interest earned on mortgages and notes
receivable. Revenues from these investments represent a primary source of
liquidity to fund our distributions to stockholders and depend upon the
performance of the operators. Operating difficulties experienced by our
operators could have a material adverse effect on the ability of our operators
to meet their financial and other contractual obligations to us, as well as on
our results of operations. We monitor operator performance through periodic
reviews of operating results for each facility, covenant compliance and property
inspections, among other activities.
COVID-19 Pandemic
Since theWorld Health Organization declared COVID-19 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 for the operators of our properties continue to be significantly impacted by occupancy. Building occupancy rates have been and may continue to be adversely affected by the COVID-19 pandemic if it continues to cause sustained negative trends such as early resident move-outs, delays in admitting new residents, or other collateral events. In addition, actions our operators take to address outbreaks could materially increase their operating costs, including costs related to enhanced health and safety precautions among other measures. A decrease in occupancy or increase in costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent, as well as on our results of operations.
Since the pandemic began, we have granted rent concessions as shown in the following table ($ in thousands):
Year ended Three months ended Six months ended
December 31, 2020 June 30, 2021 June 30, 2021 Cumulative Totals
Deferrals Abatements Deferrals Abatements Deferrals Abatements Deferrals Abatements
Bickford $ 3,750 $ 2,100 $ 6,500 $ - $ 10,250 $ - $ 14,000 $ 2,100
Holiday - - 1,200 - 1,200 - 1,200 -
All Others 1,232 50 2,201 - 2,648 - 3,880 50
$ 4,982 $ 2,150 $ 9,901 $ - $ 14,098 $ - $ 19,080 $ 2,150
The majority of the deferred amounts noted in the table above accrue interest
starting at 8% per annum from the date of the deferral until paid in full under
the terms of each tenant's deferral agreement. No amount of rent deferrals have
been repaid.
In addition to the concessions noted above, we have agreed with Bickford to
defer $1.5 million in contractual rent due for July 2021 . We have agreed with
Holiday to defer an additional $0.6 million of contractual rent due for July
2021 . We also agreed to utilize $1.8 million of the lease deposit with Holiday
as contractual rent with $1.2 million applied towards second quarter of 2021
contractual rent and $0.6 million towards July 2021 contractual rent. The
balance of the lease deposit at June 30, 2021 was $9.4 million . We have reached
agreement with two other tenants regarding additional rent deferrals of
approximately $0.9 million for the third quarter 2021. We are in discussions
with one other tenant for a rent deferral of approximately $0.7 million for the
remainder of 2021. We anticipate some of our tenants may need additional rent
deferrals to assist them with the impact of the pandemic on their operations.
The timing and amount of any additional deferrals cannot yet be determined.
When applicable, we have elected not to apply the modification guidance under
ASC 842 and have decided to account for the related concessions as variable
lease payments, recorded as rental income when received. 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.
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We had approximately $37.0 million in unrestricted cash and cash equivalents on
hand and $525.0 million in availability under our unsecured revolving credit
facility as of July 31, 2021 . In addition, we believe we continue to have access
to additional debt sources and maintain availability under our at-the-market
("ATM") equity issuance program and shelf registration statement to fund our
future obligations, although no assurances can be made. We believe these
liquidity sources position us to manage through the negative effects of the
COVID-19 pandemic.
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.
Investment Highlights
Since
Date Properties Asset Class Amount
2021
Real Estate Investments
Vizion Health Q2 2021 1 HOSP $ 40,250
Navion Q2 2021 1 SHO 6,600
Note Investments
Montecito Medical Real Estate Q2 2021 1 MOB 50,000
Vizion Health-Brookhaven Q2 2021 1 HOSP 20,000
Navion Senior Solutions Q2 2021 1 SHO 3,600
$ 120,450
Vizion Health
In May 2021 , we acquired a 64-bed specialty behavioral hospital located in
Oklahoma for a total purchase price of $40.3 million , including $0.3 million in
closing costs. In May 2021 , we leased the hospital to an affiliate of Vizion
Health . The 15-year master lease, which includes two five-year extension
options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%.
We have committed to additional funding of capital improvements for the hospital
of up to $2.0 million which will be added to the lease base as funded.
In May 2021 , we provided a $20.0 million , five year loan to Vizion
Health-Brookhaven, LLC to finance the acquisition of healthcare operations,
including the real and personal property of a behavioral hospital we acquired in
May 2021 discussed above. The loan requires monthly principal and interest
payments and bears an initial annual interest rate of 8.5% with fixed annual
escalators of 2.5% beginning June 1, 2022 . Initial principal loan repayments are
equal to 90% of the excess cash flow as defined in the agreement. Principal
repayments are reduced to 50% of the excess cash flow once the outstanding loan
balance is reduced below $15.0 million .
Navion Senior Solutions
InJune 2021 , we acquired a 48-unit assisted living and memory care community inTennessee for a purchase price of$6.6 million , including closing costs of$0.1 million . The community was added to an existing master lease with Navion Senior Solutions ("Navion") whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each. InMay 2021 , we provided a ten-year corporate loan to Navion for$3.6 million . The loan requires interest-only payments at an annual interest rate of 8% untilJune 1, 2024 and gives us first option to provide permanent development financing for a future project.
InApril 2021 , the Company entered into a$50.0 million mezzanine loan and security agreement withMontecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughoutthe United States . Amounts under the loan agreement will be funded as real estate investments are identified for acquisition. Borrowings under the loan agreement will bear interest at an annual rate of 9.5% and accrue an additional 2.5% in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings. Funds drawn in accordance with this agreement are 32 -------------------------------------------------------------------------------- Table of Contents required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one year extensions. AtJune 30, 2021 , we had funded$2.1 million of our commitment that was used to acquire two medical office buildings for a combined purchase price of approximately$11.1 million .
Asset Dispositions
Bickford - During the second quarter of 2021, we sold to affiliates of Bickford a portfolio of six properties that were being leased to Bickford for a purchase price of$52.9 million . We received approximately$39.9 million in cash consideration upon sale and originated a second mortgage note receivable for the remaining purchase price of$13.0 million . This note receivable is not reflected in mortgage and other notes receivable, net in the Condensed Consolidated Balance Sheet as ofJune 30, 2021 which is discussed in more detail in Note 4 to the condensed consolidated financial statements. We recorded a gain upon completion of this transaction totaling approximately$3.5 million representing the excess of the$39.9 million cash consideration received over the net book value of the assets sold of$34.5 million and the write off of straight-line rents receivable of approximately$1.9 million . Rental income from this portfolio was$1.6 million and$3.0 million for the six months endedJune 30, 2021 and 2020, respectively. Upon completion of the sale, Bickford satisfied the terms of our prior agreement that contingently waived$2.1 million in rental income for the third quarter of 2020. These properties were part of the Company's ongoing negotiations for the sale to Bickford of nine properties leased to Bickford. We continue to explore our options for the remaining three properties, which could include a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.Florida Medical Office Building - During the second quarter of 2021, we also sold a medical office building for approximately$4.3 million in cash consideration resulting in a gain of$3.0 million . Revenue for this property was$0.1 million and$0.2 million for the six months endedJune 30, 2021 and 2020 respectively. Holiday Disposition - InJuly 2021 , we signed a non-binding letter of intent to sell a portfolio of nine properties that is leased to Holiday with an aggregate net book value of$133.5 million . We anticipate closing this transaction inAugust 2021 for total cash consideration of$129.8 million and will recognize an impairment of approximately$3.7 million in the third quarter of 2021 associated with this transaction. Rental income was$2.9 million and$5.8 million , for both the three and six months endedJune 30, 2021 and 2020, respectively.
Notes Receivable Repayment
In the second quarter of 2021,
Assets Held for Sale
We have identified a behavioral hospital located inTennessee for disposal, pursuant to the exercise of an option to purchase, and have classified the asset as available for sale on the Condensed Consolidated Balance Sheet atJune 30, 2021 . InJuly 2021 , we sold this property for cash consideration of$31.2 million and recorded a gain of$8.6 million . Rental income was$0.7 million and$1.4 million , for both the three and six months endedJune 30, 2021 and 2020, respectively. Other Our leases are typically structured as "triple net leases" on single-tenant properties having an initial leasehold term of 10 to 15 years with one or more five-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the six months endedJune 30, 2021 , we did not have any significant renewing or expiring leases. Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is recognized on a straight-line basis over the term of the lease. Certain of our leases contain purchase options allowing tenants to acquire the leased properties. AtJune 30, 2021 , we had a net investment of$18.9 million in five real estate properties which are subject to exercisable tenant purchase options. Tenant purchase options on 11 properties in which we had an aggregate net investment of$100.3 million atJune 30, 2021 , become exercisable between 2022 and 2028. Rental income from leased properties with tenant purchase options either currently exercisable or exercisable in the future was$4.3 million and$8.7 million for the three and six months endedJune 30, 2021 , respectively, and$4.2 million and$7.9 million for the three and six months endedJune 30, 2020 , respectively. 33 -------------------------------------------------------------------------------- Table of Contents InJune 2021 , we received notification of a tenant's intention to acquire, pursuant to a purchase option, a hospital located inCalifornia . The purchase option calls for a minimum purchase price of$15.0 million with any appreciation above$15.0 million to be split evenly between the parties. The net investment atJune 30, 2021 was$9.5 million . Rental income was$0.5 million and$0.9 million , for both the three and six months endedJune 30, 2021 , respectively. The transaction will close no earlier than one year after the receipt of the notice of exercise. We cannot reasonably estimate at this time the probability that any other purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.
Tenant Concentration
As discussed in Note 3 to the condensed consolidated financial statements, we have four lessees (including their affiliated entities, which are the legal tenants) excluding$2.6 million for our corporate office and a credit loss reserve balance of$5.2 million , from whom we individually derive at least 10% of our total revenues as follows ($ in thousands): as of June 30, 2021 Revenues1 Asset Number of Real Notes Six Months Ended June 30, Class Properties Estate Receivable 2021 2020 Senior Living Communities EFC 10$ 573,631 $ 44,411 $ 25,420 16%$ 26,140 16% Holiday Retirement ILF 26 532,672 - 19,188 12% 20,353 12% National HealthCare Corporation (NHC) SNF 42 171,188 - 18,844 12% 18,904 11% Bickford Senior Living ALF 42 490,308 36,875 16,893 11% 27,526 16% All others, net2 Various 1,471,301 208,062 70,533 45% 71,166 43% Escrow funds received from tenants for property operating expenses Various - - 4,337 4%$ 3,182 2%$ 3,239,100 $ 289,348 $ 155,215 $ 167,271
1 includes interest income on notes receivable 2 includes prior period amounts for disposals or transitioned to new operators
Straight-line rent of$1.2 million and$2.1 million and interest revenue of$1.6 million and$2.3 million was recognized from the Senior Living Communities lease for the six months endedJune 30, 2021 and 2020, respectively. Straight-line rent of$3.0 million and$3.3 million was recognized from the Holiday lease for the six months endedJune 30, 2021 and 2020, respectively. Straight-line rent of$1.0 million and$1.4 million and interest revenue of$1.6 million and$1.3 million was recognized from the Bickford leases for the six months endedJune 30, 2021 and 2020, respectively. ForNHC , rent escalations are based on a percentage increase in revenue over a base year and do not give rise to non-cash, straight-line rental income.
For the six months ended
The following table summarizes the average portfolio occupancy for Senior Living
Communities, Bickford and Holiday for the periods indicated, excluding
development properties in operation less than 24 months, notes receivable, and
properties transitioned to new operators or disposed.
Properties 2Q20 3Q20 4Q20 1Q21 2Q21 June 2021 July 2021
Senior Living Communities 9 79.1% 79.0% 77.3% 77.7% 78.5% 79.1% 79.9%
Bickford 42 82.1% 81.2% 79.1% 75.0% 77.4% 78.2% 79.6%
Holiday 26 83.5% 79.6% 77.2% 74.1% 73.8% 74.1% 74.9%
* Prior period occupancies have been restated to include an additional building
added to the calculation in
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The following table summarizes the revenue concentration of our top five states
for the six months ended June 30, 2021 and 2020, respectively, excluding any
escrow funds received for property operating expenses ($ in thousands).
Six Months Ended June 30,
Location 2021 2020
South Carolina $ 17,209 $ 18,329
Florida 14,843 15,901
Texas 13,867 14,142
Washington 9,029 9,049
California 8,084 8,666
All others 87,846 98,002
Escrow funds received from tenants for property
operating expenses 4,337 3,182
$ 155,215 $ 167,271
Tenant Monitoring
Our operators report to us the results of their operations on a periodic basis,
which we in turn subject to further analysis as a means of monitoring potential
concerns within our portfolio. We have identified EBITDARM (earnings before
interest, taxes, depreciation, amortization, rent and management fees) as a
primary performance measure for our tenants, based on results they have reported
to us. We believe EBITDARM is useful in our most fundamental analyses, as it is
a property-level measure of our operators' success, by eliminating the effects
of the operator's method of acquiring the use of its assets (interest and rent),
its non-cash expenses (depreciation and amortization), expenses that are
dependent on its level of success (income taxes), and also excluding the effect
of the operator's payment of its management fees, as typically those fees are
contractually subordinate to our lease payment. For operators of our
entrance-fee communities, our calculation of EBITDARM includes other cash flow
adjustments typical of the industry which may include, but are not limited to,
net cash flows from entrance fees; amortization of deferred entrance fees;
adjustments for tenant rent obligations, and management fee true-ups. The
eliminations and adjustments reflect covenants in our leases and provide a
comparable basis for assessing our various relationships.
We believe that EBITDARM is a useful way to analyze the cash potential of a
group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/Cash
Rent), measuring the ability of the operator to meet its monthly obligation. In
addition to EBITDARM and the coverage ratio, we rely on a careful balance sheet
analysis and other analytical procedures to help us identify potential areas of
concern relative to our operators' ability to generate sufficient liquidity to
meet their obligations, including their obligation to continue to pay the amount
due to us. Typical among our operators is a varying lag in reporting to us the
results of their operations. Across our portfolio, however, our operators report
their results, typically within either 30 or 45 days and at the latest, within
90 days of month's end. For computational purposes, we exclude mortgages and
other notes receivable, development and lease-up properties that have been in
operation less than 24 months. For stabilized acquisitions in the portfolio less
than 24 months and renewing leases with changes in scheduled rent, we include
pro forma cash rent. Same-store portfolio coverage excludes properties that have
transitioned operators in the past 24 months or assets subsequently sold except
as noted.
The results of our coverage ratio analysis are presented below on a trailing
twelve-month basis, as of
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NHI Total Portfolio
By asset type SHO SNF MEDICAL NON-SNF TOTAL
Properties 130 74 3 207
1Q20 1.19x 2.81x 1.72x 1.68x
1Q21 1.08x 2.86x 2.78x 1.64x
Need Driven excl. Discretionary excl. SLC
Market served Need Driven Bickford Discretionary & Holiday Medical Medical excl. NHC
Properties 91 49 39 4 77 35
1Q20 1.15x 1.16x 1.23x 1.74x 2.74x 1.90x
1Q21 0.92x 0.79x 1.24x 1.62x 2.85x 2.12x
Major tenants NHC1 SLC3 Bickford3 Holiday
Properties 42 9 42 26
1Q20 3.79x 1.06x 1.14x 1.20x
1Q21 3.79x 1.31x 1.06x 0.97x
NHI Same-Store Portfolio2
By asset type SHO SNF MEDICAL NON-SNF TOTAL
Properties 113 74 3 190
1Q20 1.19x 2.81x 1.72x 1.71x
1Q21 1.09x 2.86x 2.78x 1.68x
Need Driven excl. Discretionary excl. SLC
Market served Need Driven Bickford Discretionary & Holiday Medical Medical excl. NHC
Properties 84 42 29 3 77 35
1Q20 1.14x 1.15x 1.24x 1.82x 2.74x 1.90x
1Q21 0.91x 0.77x 1.29x 1.65x 2.85x 2.12x
Major tenants NHC1 SLC3 Bickford3 Holiday4
Properties 42 9 42 17
1Q20 3.79x 1.06x 1.14x 1.22x
1Q21 3.79x 1.31x 1.06x 1.03x
1
2Excludes properties that have transitioned operators in past 24 months, assets classified as held for sale, and 9 Holiday properties under a non-binding letter of intent to be sold.
3 Pro forma SLC & Bickford T12 EBITDARM coverage excluding PPP income is 1.13x and 0.9x, respectively.
4 Excludes 9 properties under a non-binding letter of intent to be sold.
These results include any amounts received and recognized by the operators from theHHS 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. 36 -------------------------------------------------------------------------------- Table of Contents 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 theU.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 theFlorida medical office building and the behavioral hospital discussed in Note 3 to the condensed consolidated financial statements, we combined the MOB and Hospital categories previously presented into the "Medical Non-SNF" Category. Each MOB's coverage is driven by the underlying performance of its on-campus hospital as the tenant or guarantor under the lease. As a result, it is typical for MOB operations to have large fluctuations in coverage resulting from hospital operations.
Other Portfolio Activity
Tenant Transitioning
Nine properties were transitioned during 2019 to five new tenants following a period of non-compliance by the former operators. Two leases with the new tenants for six of these properties specify periods during which rental income is based on operating income, net of management fees. We recognized rental income from these nine properties of$0.8 million and$1.6 million for the three and six months endedJune 30, 2021 , respectively, and$1.3 million and$2.8 million for the three and six months endedJune 30, 2020 , respectively.
The following table summarizes the transition properties during the six months
ended
Occupancy1
Facility Name (New Tenant) Units State June 2020
14.2% 13.8% 15.7% 23.1% 36.7%
The Charlotte (SLC) 99 NC 34.8% 38.9% 42.9% 46.6% 57.1%
Maybelle Carter (Vitality) 135 TN 77.3% 76.8% 73.1% 68.7% 64.9%
Chancellor TX-IL portfolio 196 IL/TX 57.2% 54.4% 53.7% 54.4% 56.6%
Beaver Dam Assisted Living (BAKA) 120 WI 61.7% 61.8% 60.4% 60.4% 60.6%
698 49.6% 49.2% 49.0% 50.5% 54.7%
1 Monthly Average
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, 2021 do not reflect any significant impairment of our long-lived assets as a result of the COVID-19 pandemic or other factors. 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$1.2 million for estimated credit losses on unfunded loan commitments as ofJune 30, 2021 . We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary. We believe that the carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make significant adjustments to these carrying amounts. 37 -------------------------------------------------------------------------------- Table of Contents Results of Operations The significant items affecting revenues and expenses are described below ($ in thousands): Three Months Ended June 30, Period Change 2021 2020 $ % Revenues: Rental income EFCs leased to Senior Living Communities$ 11,199 $ 10,858 $ 341 3.1 % HOSP leased to Vizion Health 323 - 323 NM ALFs leased to 41 Management 745 434 311 71.7 % SNF leased to Ignite Team Partners 610 342 268 78.4 % SHOs leased to Discovery Senior Living 2,673 3,039 (366) (12.0) % SHOs leased to Senior Living Management 1,161 1,789 (628) (35.1) % SHOs leased to Wingate (11) 975 (986) NM SHOs leased to Holiday Retirement 7,506 8,512 (1,006) (11.8) % ALFs leased to Bickford Senior Living 4,911 10,922 (6,011) (55.0) % Other new and existing leases 32,606 32,657 (51) (0.2) % Current year disposals 303 1,541 (1,238) (80.3) % 62,026 71,069 (9,043) (12.7) % Straight-line rent adjustments, new and existing leases 4,150 5,218 (1,068) (20.5) % Escrow funds received from tenants for taxes and insurance 2,175 1,630 545 33.4 % Total Rental Income 68,351 77,917 (9,566) (12.3) % Interest income and other Bickford construction loans 1,019 677 342 50.5 % 41 Management mortgage loan 395 172 223 NM Vizion Health loan 161 - 161 NM Life Care Services mortgages and construction loans 2,523 2,770 (247) (8.9) % Other new and existing mortgages and notes 1,821 2,567 (746) (29.1) % Total Interest Income from Mortgage and Other Notes 5,919 6,186 (267) (4.3) % Other income 60 71 (11) (15.5) % Total Revenues 74,330 84,174 (9,844) (11.7) % Expenses: Depreciation SNF leased to Ignite Team Partners 213 101 112 NM SHOs leased to Holiday Retirement 3,309 3,493 (184) (5.3) % ALFs leased to Bickford Senior Living 3,301 3,403 (102) (3.0) % Current year disposals 104 314 (210) (66.9) % Other new and existing assets 13,731 13,536 195 1.4 % Total Depreciation 20,658 20,847 (189) (0.9) % Interest 12,840 13,557 (717) (5.3) % Non-cash stock-based compensation expense 992 470 522 NM Loan and realty (gains) losses 1,221 (380) 1,601 NM Taxes and insurance on leased properties 2,175 1,450 725 50.0 % Other expenses 2,788 2,957 (169) (5.7) % Total Expenses 40,674 38,901 1,773 4.6 % Loss from equity method investment (909) (848) (61) 7.2 % Gains on sales of real estate 6,484 - 6,484 NM Net income 39,231 39231000 44,425 (5,194) (11.7) % Less: net income attributable to noncontrolling interests (48) (57) 9 (15.8) % Net income attributable to common stockholders$ 39,183 $ 44,368 $ (5,185) (11.7) % NM - not meaningful 38
-------------------------------------------------------------------------------- Table of Contents Financial highlights of the three months endedJune 30, 2021 , compared to the same period of 2020 were as follows: •Rental income received from our tenants decreased$9.6 million , or 12.3%, primarily as a result of rent concessions related to the second quarter of 2021 totaling$9.9 million , net of new investments funded sinceJune 2020 . •Interest income from mortgage and other notes decreased$0.3 million , or 4.3%, primarily due to LCS principal repayments on a mortgage note of$51.4 million in the second quarter of 2021 offset by interest income on new loans funded sinceJune 2020 . •Interest expense decreased$0.7 million , or 5.3%, as a result of the convertible bond that matured inApril 2021 , the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility. •Non-cash stock-based compensation expense increased$0.5 million from the same period one year ago. The Company's stock option grants in the first quarter of 2021 had an increase in estimated fair value of$9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company's common stock price caused by the COVID-19 pandemic. In addition, the Company granted 60,000 additional options in the first quarter of 2021 compared to the first quarter of 2020, of which 50,000 options relate to the two new directors added during 2020.
•Loan and realty (gains) losses increased
•During the second quarter of 2021, we recorded
•The following table summarizes our stabilizing real estate transitioned to new
tenants ($ in thousands):
Three Months Ended
June 30, Period Change
2021 2020 $ %
Revenues:
Rental income
SHOs leased to Chancellor Health Care $ - $ 287 $ (287) (100.0) %
SHO leased to Senior Living Communities 56 343 (287) (83.7) %
SHO leased to Discovery Senior Living 45 190 (145) (76.3) %
SLC leased to Vitality Senior Living 3 105 (102) (97.1) %
ALF leased to BAKA Enterprises 180 343 (163) (47.5) %
Straight-line rent adjustments 479 - 479 NM
Total Rental Income 763 1,268 (505) (39.8) %
Expenses:
Depreciation
SHOs leased to Chancellor Health Care 406 406 - - %
SHO leased to Senior Living Communities 153 153 - - %
SHO leased to Discovery Senior Living 171 171 - - %
SLC leased to Vitality Senior Living 158 158 - - %
ALF leased to BAKA Enterprises 135 135 - - %
Total Depreciation 1,023 1,023 - - %
Legal - (22) 22 (100.0) %
Franchise, excise and other taxes - (15) 15 (100.0) %
1,023 986 37 3.8 %
Net (loss) income $ (260) $ 282 $ (542) NM
39
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The significant items affecting revenues and expenses are described below (in
thousands):
Six Months Ended
June 30, Period Change
2021 2020 $ %
Revenues:
Rental income
EFCs leased to Senior Living Communities $ 22,640 $ 21,728 $ 912 4.2 %
SNF leased to Ignite Team Partners 1,212 342 870 NM
CCRC leased to Timber Ridge OpCo 4,619 3,794 825 21.7 %
ALFs leased to 41 Management 1,491 823 667 81.0 %
SHOs leased to Discovery Senior Living 5,331 6,030 (700) (11.6) %
ALFs leased to Chancellor Health Care 4,206 4,971 (765) (15.4) %
SHOs leased to Holiday Retirement 16,196 17,025 (829) (4.9) %
SHOs leased to Wingate Healthcare 1,008 1,947 (938) (48.2) %
ALF's leased to Bickford Senior Living 12,536 24,625 (12,089) (49.1) %
Other new and existing leases 58,098 59,275 (1,176) (2.0) %
Current year disposals 3,036 307 2,729 NM
130,373 140,867 (10,494) (7.4) %
Straight-line rent adjustments, new and existing
leases 8,391 10,395 (2,004) (19.3) %
Escrow funds received from tenants for taxes and
insurance 4,337 3,182 1,155 36.3 %
Total Rental Income 143,101 154,444 (11,343) (7.3) %
Interest income and other
Bickford construction loans 1,781 1,261 520 41.2 %
Life Care Services 5,701 5,352 349 6.5 %
Vizion Health 161 - 161 NM
Senior Living Communities mortgage and other notes 1,616 2,276 (660) (29.0) %
Bickford construction loan payoffs - 625 (625) (100.0) %
Other existing mortgages and notes 2,717 3,190 (473) (14.8) %
Total Interest Income from Mortgage and Other Notes 11,976 12,704 (728) (5.7) %
Other income 138 123 15 12.2 %
Total Revenues 155,215 167,271 (12,056) (7.2) %
Expenses:
Depreciation
ALFs leased to Bickford 6,603 7,368 (765) (10.4) %
Current year disposals and held for sale 637 - 637 NM
Other new and existing assets 34,225 33,922 303 0.9 %
Total Depreciation 41,465 41,290 175 0.4 %
Interest 25,813 27,697 (1,884) (6.8) %
Non-cash stock-based compensation expense 6,438 2,315 4,123 NM
Loan and realty losses 1,171 1,195 (24) (2.0) %
Taxes and insurance on leased properties 4,337 3,002 1,335 44.5 %
Other expenses 5,693 6,001 (308) (5.1) %
Total Expenses 84,917 81,500 3,417 4.2 %
Loss on early retirement of debt (451) - (451) NM
Loss from equity method investment (1,718) (1,290) (428) 33.2 %
Gains on sales of real estate 6,484 21,007 (14,523) (69.1) %
Net income 74,613 105,488 (30,875) (29.3) %
Less: net (income) attributable to noncontrolling
interest (100) (96) (4) 4.2 %
Net income attributable to common stockholders $ 74,513 $ 105,392 $ (30,879) (29.3) %
NM - not meaningful
40-------------------------------------------------------------------------------- Table of Contents Financial highlights of the six months endedJune 30, 2021 , compared to the same period in 2020 were as follows: •Rental income received from our tenants decreased$11.3 million , or 7.3%, primarily as a result of rent concessions related to the first six months of 2021 totaling$14.1 million , net of new investments funded sinceJune 2020 . •Interest income from mortgage and other notes decreased$0.7 million , or 5.7%, primarily due to net paydowns on loans. •Interest expense decreased$1.9 million , or 6.8%, as a result of the convertible bond that matured inApril 2021 , the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility. •Non-cash stock-based compensation expense increased$4.1 million from the same period one year ago. The Company's stock option grants in the first quarter of 2021 had an increase in estimated fair value of$9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company's common stock price caused by the COVID-19 pandemic. In addition, the Company granted 67,500 additional options in the first quarter of 2021 compared to the first quarter of 2020, of which 50,000 options relate to the two new directors added during 2020.
•Loss on early retirement of debt of
•Gains on sales of real estate decreased$14.5 million , or 69.1%, for the six months endedJune 30, 2021 as compared to the the same period in the prior year. For the six months endedJune 30, 2021 , we recorded$6.5 million in gains from disposition of real estate assets as described under "Asset Dispositions" in Note 3 to the condensed consolidated financial statements. For the six months endedJune 30, 2020 , we disposed of a portfolio of eight assisted living properties to Brookdale Senior Living. •The following table summarizes our real estate under lease to transitioning tenants ($ in thousands): Six Months Ended June 30, Period Change 2021 2020 $ % Revenues: Rental income SHOs leased to Chancellor Health Care $ -$ 875 $ (875) (100.0) % SHO leased to Senior Living Communities 354 699 (345) (49.4) % SHO leased to Discovery Senior Living 89 - 89 NM SLC leased to Vitality Senior Living 6 185 (179) NM ALF leased to BAKA Enterprises 330 686 (356) (51.9) % Straight-line rent adjustments 841 - 841 NM Total Rental Income 1,620 2,445 (825) NM Expenses: Depreciation SHOs leased to Chancellor Health Care 811 811 - - % SHO leased to Senior Living Communities 306 306 - - % SHO leased to Discovery Senior Living 342 342 - - % SLC leased to Vitality Senior Living 316 314 2 0.6 % ALF leased to BAKA Enterprises 270 269 1 0.4 % Total Depreciation 2,045 2,042 3 0.1 % Legal - (11) 11 NM Franchise, excise and other taxes - 21 (21) NM 2,045 2,052 (7) (0.3) % Net income (loss)$ (425) $ 393 $ (818) NM 41
-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources AtJune 30, 2021 , we had$525.0 million available to draw on our revolving credit facility,$32.5 million in unrestricted cash and cash equivalents, and the potential to access the remaining$417.4 million through the issuance of common stock under the Company's$500.0 million ATM equity program. In addition, the Company maintains an effective automatic shelf registration statement through which capital could be raised via the issuance of debt and or equity securities. Sources and Uses of Funds Our primary sources of cash include rent payments, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our stockholders and general corporate overhead.
These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below ($ in thousands):
Six Months Ended June 30, One Year Change
2021 2020 $ %
Cash and cash equivalents and restricted
cash, January 1 $ 46,343 $ 15,669 $ 30,674 NM
Net cash provided by operating activities 108,512 116,809 (8,297) (7.1) %
Net cash provided by (used in) investing
activities 5,229 (80,125) 85,354 NM
Net cash provided by (used in) financing
activities (125,359) 13,065 (138,424) NM
Cash and cash equivalents and restricted
cash, June 30 $ 34,725 $ 65,418 $ (30,693) (46.9) %
Operating Activities - Net cash provided by operating activities for the six
months ended June 30, 2021 , which includes new investments completed during 2021
and lease payment collections arising from escalators on existing leases and
previously funded lease incentives, was impacted by $14.1 million in rent
deferrals granted during the six months ended June 30, 2021 .
Investing Activities - Net cash used in investing activities for the six months
ended June 30, 2021 was comprised primarily of $91.2 million of investments in
mortgage and other notes and renovations of real estate, offset by the
collection of principal on mortgage and other notes receivable of $52.3 million .
Financing Activities - Net cash used in financing activities for the six months
ended June 30, 2021 differs from the same period in 2020 primarily as a result
of a $113.8 million decrease in net borrowings, inclusive of a $400.0 million
senior note offering, a $48.2 million increase in proceeds from issuance of
common shares and dividend payments which increased $4.3 million over the same
period in 2020.
Debt Obligations
As of June 30, 2021 , we had outstanding debt of $1.4 billion . Reference Note 6
to the condensed consolidated financial statements for additional information
about our outstanding indebtedness. Also, reference "Item 3. Quantitative and
Qualitative Disclosures About Market Risk" for more details on our indebtedness
and the impact of interest rate risk.
Unsecured Bank Credit Facility - Our bank credit facility derives from the
Credit Agreement dated as of August 3, 2017 (the "2017 Agreement"), and a Term
Loan Agreement dated as of September 17, 2018 (the "2018 Agreement"). Together
these agreements establish our unsecured $1.1 billion bank credit facility,
which consists of two term loans - $225.0 million maturing in August 2022 and
$300.0 million maturing in September 2023 - and a $550.0 million revolving
credit facility with an initial maturity in August 2021 . In April 2021 , the
Company elected to exercise the extension option on the revolving credit
facility available after payment of a 10 basis point extension fee totaling $0.6
million , extending the maturity of the revolver to August 2022 . Some combination
of cash on hand, proceeds from recent and planned asset sales and operating cash
flows is expected to be used to pay off the $225.0 million term loan at its
maturity in August 2022 . We also plan to execute a multiple year extension of
our revolving credit facility prior to the August 2022 maturity date at an
amount at least equal to the current $550.0 million capacity. We have swap
agreements to fix the interest rates on $400.0 million of term loans that expire
in December 2021 .
42
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The revolving facility fee is currently 20 basis points ("bps") per annum, and
based on our current leverage ratios, the facility presently provides for
floating interest on the revolver and the term loans at 30-day LIBOR plus 120
bps and a blended 132 bps, respectively. At June 30, 2021 and December 31, 2020 ,
30-day LIBOR was 10 bps and 14 bps, respectively.
As of June 30, 2021 , we had $150.0 million of outstanding variable rate debt
exposed to interest rate risk through December 2021 , at which time our remaining
hedges expire. For the six months ended June 30, 2021 , the interest spreads on
the revolver and term loans were 30-day LIBOR plus 120 bps and a blended 132
bps, respectively. The facility fee was 20 bps per annum. These interest spreads
and facility fee reflected our leverage-ratio compliance based on the applicable
margin for LIBOR loans, measuring debt to "Total Asset Value," at Level 3 in the
leverage-based interest schedule included in the credit agreements.
Effective August 1, 2021 , we exercised our one-time option included in our
credit agreements to shift from the leverage-based interest schedule to the
credit ratings-based interest schedule. This change potentially reduces the
volatility of our interest costs on borrowings under the credit agreements
during periods when our leverage may fluctuate higher. Our decision to move to
the credit ratings-based interest schedule considered the relative costs under
each interest schedule in addition to our desire to have a more stable interest
cost if our leverage were to fluctuate. As of June 30, 2021 , the interest
spreads on the revolver and term loans using the credit ratings-based interest
schedule would have been 120 bps and a blended 129 bps, respectively. The
facility fee would have been 25 bps per annum. Interest spreads and the facility
fee under the credit ratings-based interest schedule increase approximately 40
bps and 5 bps, respectively, if the Company's credit rating from at least two
credit rating agencies is downgraded to "BBB-/Baa3" or lower.
The 2017 Agreement requires that we calculate specified financial statement
metrics and meet or exceed a variety of financial ratios, which are usual and
customary in nature. These ratios are calculated quarterly and as of June 30,
2021 , 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 2017 Agreement. The 2018 Agreement
generally includes the same covenants and financial statement metrics required
for compliance with terms of the 2017 Agreement.
Senior Notes Offering - On January 26, 2021 , we issued $400.0 million aggregate
principal amount of 3.00% senior notes that mature on February 1, 2031 and pay
interest semi-annually (the "2031 Senior Notes"). The 2031 Senior Notes were
sold at an issue price of 99.196% of face value before the underwriters'
discount. Our net proceeds from the 2031 Senior Notes offering, after deducting
underwriting discounts and expenses, were approximately $392.3 million . We used
the net proceeds from the 2031 Senior Notes offering to repay our $100.0 million
term loan that was entered into in July 2020 and reduce borrowings outstanding
under our revolving credit facility. The $100.0 million term loan bore interest
at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 bps, based on
our current leverage ratios.
We remain in compliance with all debt covenants under the unsecured bank credit facility, 2031 Senior Notes and other debt agreements.
Convertible Senior Notes - OnApril 1, 2021 , our 3.25% senior unsecured convertible notes (the "Convertible Notes") matured. The Company paid$67.1 million , including accrued interest of$1.0 million and a$6.1 million conversion premium to retire the Convertible Notes. The conversion premium was recorded as a reduction of "Capital in excess of par value" in our Condensed Consolidated Balance Sheet as ofJune 30, 2021 .
Debt Maturities - Reference Note 6 to the condensed consolidated financial statements for more information on our debt maturities.
Credit Ratings - Moody's Investors Services ("Moody's") announced on November 5,
2020 that it assigned an investment grade issuer credit rating and a senior
unsecured debt rating of 'Baa3' with a "Negative" outlook to the Company. 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
September 30, 2020 and S&P Global confirmed its rating on November 4, 2020 . Our
unsecured private placement term loan agreements include a rate increase
provision that is effective if any rating agency lowers our credit rating below
investment grade and our compliance leverage increases to 50% or more. Any
reduction in outlook or downgrade in our credit ratings from the rating agencies
could negatively impact our costs of borrowings.
Reference Rate Reform - On March 5, 2021 , the Financial Conduct Authority
("FCA") announced that USD LIBOR will no longer be published after June 30,
2023 . This announcement has several implications, including setting the spread
that may be used to automatically convert contracts from LIBOR to the Secured
Overnight Financing Rate ("SOFR"). Additionally, banking regulators are
encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021 .
We may choose not to hedge any more of our LIBOR positions for the relatively
short duration remaining during which LIBOR may be referenced.
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The Company anticipates that LIBOR will continue to be available at least untilJune 30, 2023 . Any changes adopted by theFCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. Upon the issuance of the 2031 Senior Notes, the Company has reduced its LIBOR-based financial instruments. 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 5.6x for the six months endedJune 30, 2021 (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 5.1x for the three months endedJune 30, 2021 ($ in thousands): Consolidated Total Debt $
1,434,744
Less: cash and cash equivalents (32,544) Consolidated Net Debt$ 1,402,200 Adjusted EBITDA$ 68,496 Annualizing Adjustment 205,488
Annualized impact of recent investments, disposals and payoffs (953)
$ 273,031
Consolidated Net Debt to Annualized Adjusted EBITDA 5.1x Interest Rate Swap Agreements To mitigate our exposure to interest rate risk, we have the following interest rate swap contracts in place to hedge against floating rates on our bank term loans and a portion of our revolving credit facility as ofJune 30, 2021 ($ in thousands): Fair Value Date Entered Maturity Date Fixed Rate Rate Index Notional Amount (Liability) March 2019 December 2021 2.22% 1-month LIBOR$ 100,000 $ (1,062) March 2019 December 2021 2.21% 1-month LIBOR$ 100,000 $ (1,068) June 2019 December 2021 1.61% 1-month LIBOR$ 150,000 $ (1,125) June 2019 December 2021 1.63% 1-month LIBOR $ 50,000 $ (378) For instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative has been reported as a component of other comprehensive income (loss), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness have been recognized in earnings.
Supplemental Guarantor Financial Information
The Company's$1.1 billion bank credit facility, unsecured private placement term loans dueJanuary 2023 throughJanuary 2027 with an aggregate principal amount of$400.0 million , and 2031 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company's subsidiaries, except for certain excluded subsidiaries ("Guarantors"). The Guarantors are either owned, controlled or are affiliates of the Company. 44 -------------------------------------------------------------------------------- Table of Contents The following tables present summarized financial information for the Company and the Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands): As of June 30, 2021 Real estate properties, net$ 2,257,422 Other assets, net 423,839 Note receivable due from non-guarantor subsidiary 81,383 Totals assets$ 2,762,644 Debt$ 1,340,192 Other liabilities 83,197 Total liabilities$ 1,423,389 Noncontrolling interest $ 479 Six Months Ended June 30, 2021 Revenues $ 138,542 Interest revenue on note due from non-guarantor subsidiary
2,310
Expenses
77,247
Loss from equity method investee
(1,718)
Gains on sales of real estate
6,484
Loss on early retirement of debt
(451)
Net income $
67,920
Net income attributable to NHI and the subsidiary guarantors $
67,820 Equity AtJune 30, 2021 we had 45,850,599 shares of common stock outstanding with a market value of$3.1 billion . Equity on our Condensed Consolidated Balance Sheet totaled$1.6 billion . Dividends - Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. Taxable income is determined in accordance with the Internal Revenue Code and differs from net income for financial statements purposes determined in accordance 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 intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year endingDecember 31, 2021 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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Table of Contents
Six Months Ended
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
Six Months Ended June 30, 2020
Date of Declaration Date of Record Date Paid/Payable Quarterly Dividend
November 7, 2019 December 31, 2019 January 31, 2020 $1.05
February 19, 2020 March 31, 2020 May 8, 2020 $1.1025
June 15, 2020 June 30, 2020 August 7, 2020 $1.1025 On
At-the-Market (ATM) Equity Program - We maintain an ATM program which allows us to sell our common stock directly into the market. During the six months endedJune 30, 2021 , we issued 661,951 common shares through the ATM program with an average price of$73.62 , resulting in net proceeds of approximately$47.9 million . We intend to use the proceeds from any further activity under the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. 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 .
Off Balance Sheet Arrangements
As part of theTimber Ridge transaction inJanuary 2020 , we acquired the property subject to trust liens previously granted to residents ofTimber Ridge . Beginning in 2008, the initial residents ofTimber Ridge executed loans to the then owner/operators which were backed by a Deed of Trust and Indenture of Trust (the "Deed and Indenture") for the benefit of the trustee (nowWilmington Trust, N.A ., "Trustee") on behalf of all the residentswho made loans to the owner/operator in accordance with a resident agreement. The Deed and Indenture granted a security interest in theTimber Ridge property to secure the loans made by the residents of the property. Subsequent to these early transactions, the repayment obligation with respect to "new" loans made to the owner/operator was no longer secured by theTimber Ridge property under the Deed and Indenture. Our entry into theTimber Ridge transaction involved the separation of the existing owner/operator configuration into property and operating companies. Accomplishing the split required the allocation of assets and liabilities of the previously unified entity. Timber Ridge PropCo acquired theTimber Ridge property, subject to the resident mortgages secured by the Deed and Indenture. Accordingly, the remaining outstanding "old" loans made by the residents are still secured by a security interest in theTimber Ridge property. The trustee for all of the residentswho made "old" loans in accordance with the resident agreements, entered into a subordination agreement concurrent with our acquisition, pursuant to which the Trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI to Timber Ridge PropCo. The balance secured by the Deed and Indenture is$16.3 million atJune 30, 2021 . By terms of the resident loan assumption agreement, during the term of the lease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any repayment by Timber Ridge PropCo of these liabilities under the guarantee. As a result of the subordination agreement mentioned above and Timber Ridge OpCo's indemnity guarantee, no liability has been recorded for the resident loan obligation. As described in Note 2 to the condensed consolidated financial statements, our leases, mortgages and other notes receivable with certain unconsolidated entities represent variable interests in those enterprises. However, because we do not control these entities, nor do we have any role in their day-to-day management, we are not their primary beneficiary and therefore do not 46 -------------------------------------------------------------------------------- Table of Contents consolidate their financial statements. Except as discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , under Contractual Obligations and Contingent Liabilities, we have no further material obligations arising from our transactions with these entities, and we believe our maximum exposure to loss atJune 30, 2021 , due to this involvement would be limited to our contractual commitments and contingent liabilities and the amount of our current investments with them, as detailed further in the notes to the condensed consolidated financial statements. As ofJune 30, 2021 , we furnished no direct support to any of these entities.
Contractual Obligations and Contingent Liabilities
As ofJune 30, 2021 , our contractual payment obligations were as follows ($ in thousands): Less than 1 More than 5 Total year 1-3 years 3-5 years years Debt, including interest1$ 1,552,810 $ 48,830 $ 769,796 $ 234,832 $ 499,352 Development commitments 9,649 9,649 - - - Loan commitments 100,329 52,437 47,892 - -$ 1,662,788 $ 110,916 $ 817,688 $ 234,832 $ 499,352
1 Interest is calculated based on the weighted average interest rate of
outstanding debt balances as of
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