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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________

Commission File Number 001-10822
National Health Investors Inc
(Exact name of registrant as specified in its charter)
Maryland   62-1470956
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
222 Robert Rose Drive  
Murfreesboro Tennessee 37129
(Address of principal executive offices)   (Zip Code)

(615) 890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value NHI New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 45,850,599 shares of common stock outstanding of the registrant as of May 3, 2021.



Table of Contents


2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

March 31,
2021
December 31, 2020
(unaudited)
Assets:
Real estate properties:
Land $ 220,361  $ 220,361 
Buildings and improvements 3,042,763  3,041,616 
Construction in progress 3,131  3,093 
3,266,255  3,265,070 
Less accumulated depreciation (618,299) (597,638)
Real estate properties, net 2,647,956  2,667,432 
Mortgage and other notes receivable, net of reserve of $4,856 and $4,946, respectively
301,318  292,427 
Cash and cash equivalents 113,375  43,344 
Straight-line rent receivable 98,354  95,703 
Other assets 22,270  21,583 
Total Assets $ 3,183,273  $ 3,120,489 
Liabilities and Stockholders’ Equity:
Debt $ 1,524,725  $ 1,499,285 
Accounts payable and accrued expenses 23,673  25,189 
Dividends payable 50,550  49,818 
Lease deposit liabilities 10,638  10,638 
Deferred income 10,972  12,614 
Total Liabilities 1,620,558  1,597,544 
Commitments and Contingencies
National Health Investors, Inc. Stockholders' Equity:
              Common stock, $0.01 par value, 100,000,000 shares authorized
45,850,599 and 45,185,992 shares issued and outstanding, respectively 459  452 
Capital in excess of par value 1,594,336  1,540,946 
Cumulative dividends in excess of net income (37,233) (22,015)
Accumulated other comprehensive loss (5,377) (7,149)
Total National Health Investors, Inc. Stockholders' Equity 1,552,185  1,512,234 
Noncontrolling interests 10,530  10,711 
Total Equity 1,562,715  1,522,945 
Total Liabilities and Stockholders’ Equity $ 3,183,273  $ 3,120,489 

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from the audited consolidated financial statements at that date.
3

NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)

Three Months Ended
March 31,
2021 2020
(unaudited)
Revenues:
Rental income $ 74,749  $ 76,527 
Interest income and other 6,136  6,549 
80,885  83,076 
Expenses:
Depreciation 20,806  20,443 
Interest 12,973  14,140 
Legal 130  334 
Franchise, excise and other taxes 233  243 
General and administrative 7,989  4,311 
Taxes and insurance on leased properties 2,161  1,553 
Loan and realty (gains) losses (50) 1,555 
44,242  42,579 
Loss from equity method investment (808) (442)
Gains on sales of real estate —  21,007 
Loss on early retirement of debt (451) — 
Net income 35,384  61,062 
Less: net income attributable to noncontrolling interests (52) (39)
Net income attributable to common stockholders $ 35,332  $ 61,023 
Weighted average common shares outstanding:
Basic 45,305,087  44,613,593 
Diluted 45,357,773  44,618,139 
Earnings per common share:
Net income attributable to common stockholders - basic $ 0.78  $ 1.37 
Net income attributable to common stockholders - diluted $ 0.78  $ 1.37 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
4

NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Three Months Ended
March 31,
2021 2020
(unaudited)
Net income $ 35,384  $ 61,062 
Other comprehensive income (loss):
Increase in fair value of cash flow hedges (6) (9,191)
Reclassification for amounts recognized as interest expense 1,778  492 
Total other comprehensive income (loss) 1,772  (8,699)
Comprehensive income 37,156  52,363 
Comprehensive income attributable to noncontrolling interest (52) (39)
Comprehensive income attributable to common stockholders $ 37,104  $ 52,324 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
  Three Months Ended
March 31,
  2021 2020
(unaudited)
Cash flows from operating activities:    
Net income $ 35,384  $ 61,062 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 20,806  20,443 
Amortization of debt issuance costs, debt discounts and prepaids 1,192  1,173 
Amortization of commitment fees and note receivable discounts (131) (129)
Amortization of lease incentives 260  236 
Straight-line rent income (4,241) (5,177)
Non-cash interest income on mortgage and other notes receivable (700) (888)
Gains on sales of real estate —  (21,007)
Loss from equity method investment 808  442 
Loss on early retirement of debt 451  — 
Loan and realty (gains) losses (50) 1,555 
Payment of lease incentives (1,042) — 
Non-cash stock-based compensation 5,446  1,845 
Changes in operating assets and liabilities:  
Other assets (484) (357)
Accounts payable and accrued expenses (735) (1,497)
Deferred income (52) (619)
Net cash provided by operating activities 56,912  57,082 
Cash flows from investing activities:    
Investments in mortgage and other notes receivable (8,412) (20,298)
Collections of mortgage and other notes receivable 442  14,288 
Investments in real estate —  (80,335)
Investments in equipment (8) — 
Investments in renovations of existing real estate (1,443) (3,057)
Investment in equity method investment —  (875)
Distribution from equity method investment 288  — 
Proceeds from sale of real estate —  39,260 
Net cash used in investing activities (9,133) (51,017)
Cash flows from financing activities:    
Proceeds from revolving credit facility 30,000  125,000 
Payments on revolving credit facility (298,000) (17,000)
Payments on term loans (100,094) (304)
Proceeds from issuance of senior notes 396,784  — 
Debt issuance costs (4,459) — 
Distributions to noncontrolling interests (258) (16)
Proceeds from noncontrolling interests —  13 
Taxes remitted on employee stock awards —  (2,705)
Proceeds from issuance of common shares, net 47,951  (87)
Dividends paid to stockholders (49,818) (46,817)
Net cash provided by financing activities 22,106  58,084 
Increase in cash and cash equivalents and restricted cash 69,885  64,149 
Cash and cash equivalents and restricted cash, beginning of period 46,343  15,669 
Cash and cash equivalents and restricted cash, end of period $ 116,228  $ 79,818 
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
6

NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)

Three Months Ended
March 31,
2021 2020
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized $ 9,674  $ 12,954 
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for mortgage notes receivable $ —  $ 59,350 
Increase in mortgage note receivable from sale of real estate $ —  $ 4,000 
Change in accounts payable related to investments in real estate construction $ (112) $ (234)
Change in accounts payable related to distributions to noncontrolling interests $ (25) $ — 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
7

NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share and per share amounts)

Common Stock Capital in Excess of Par Value Cumulative Dividends in Excess of Net Income Accumulated Other Comprehensive Income Loss Total National Health Investors, Inc. Stockholders’ Equity Noncontrolling Interests Total Equity
Shares Amount
Balances at December 31, 2020 45,185,992  $ 452  $ 1,540,946  $ (22,015) $ (7,149) $ 1,512,234  $ 10,711  $ 1,522,945 
Cumulative effect of change in accounting principle —  —  —  —  —  —  —  — 
Noncontrolling interest conveyed in acquisition —  —  —  —  —  —  —  — 
Noncontrolling interest distribution —  —  —  —  —  —  (233) (233)
Total comprehensive income —  —  —  35,332  1,772  37,104  52  37,156 
Issuance of common stock, net 661,951  47,944  —  —  47,951  —  47,951 
Shares issued on stock options exercised 2,656  —  —  —  —  —  —  — 
Stock-based compensation —  —  5,446  —  —  5,446  —  5,446 
Dividends declared, $1.1025 per common share —  —  —  (50,550) —  (50,550) —  (50,550)
Balances at March 31, 2021 45,850,599  $ 459  $ 1,594,336  $ (37,233) $ (5,377) $ 1,552,185  $ 10,530  $ 1,562,715 


Common Stock Capital in Excess of Par Value Cumulative Net Income in Excess (Deficit) of Dividends Accumulated Other Comprehensive Loss Total National Health Investors Stockholders’ Equity Noncontrolling Interest Total Equity
Shares Amount
Balances at December 31, 2019 44,587,486  $ 446  $ 1,505,948  $ (5,331) $ (3,432) $ 1,497,631  $ 621  $ 1,498,252 
Cumulative effect of change in accounting principle —  —  —  (4,225) —  (4,225) —  (4,225)
Noncontrolling interest conveyed in acquisition —  —  —  —  —  —  10,791  10,791 
Noncontrolling interest distribution —  —  —  —  —  —  (16) (16)
Total comprehensive income —  —  —  61,023  (8,699) 52,324  39  52,363 
Issuance of common stock, net —  —  (85) —  —  (85) —  (85)
Taxes remitted on employee stock awards —  —  (2,705) —  —  (2,705) —  (2,705)
Shares issued on stock options exercised 62,516  (2) —  —  (1) —  (1)
Stock-based compensation —  —  1,845  —  —  1,845  —  1,845 
Dividends declared, $1.1025 per common share —  —  —  (49,226) —  (49,226) —  (49,226)
Balances at March 31, 2020 44,650,002  $ 447  $ 1,505,001  $ 2,241  $ (12,131) $ 1,495,558  $ 11,435  $ 1,506,993 



The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
8

NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(unaudited)

Note 1. Organization and Nature of Business

National Health Investors, Inc. (“NHI,” “the Company,” “we,” “us,” or “our”), established in 1991 as a Maryland 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 lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities, hospitals and medical office buildings. As of March 31, 2021, we had investments of $3.3 billion in 228 health care real estate properties located in 34 states and leased pursuant primarily to triple-net leases to 34 lessees consisting of 151 senior housing communities (“SHO”), 72 skilled nursing facilities, three hospitals and two medical office buildings. Our portfolio of 14 mortgages along with other notes receivable totaled $306.2 million, excluding an allowance for expected credit losses of $4.9 million, as of March 31, 2021.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020, included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation

The condensed 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 (“variable interest entities” or “VIEs”) if the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances are eliminated in consolidation.

At March 31, 2021, we held interests in seven unconsolidated VIEs, and, because we lack either directly or through related parties the power to direct the activities that most significantly impact their economic performance, we have concluded that the Company is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line receivables, excluding our investment accounted for under the equity method discussed in Note 5.

The Company’s unconsolidated VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of exposure to these VIEs, see the notes to our condensed consolidated financial statements cross-referenced below.
Date Name Source of Exposure Carrying Amount Maximum Exposure to Loss Note Reference
2012 Bickford Senior Living
Various1
$ 64,495,000  $ 76,317,000  Notes 3, 4
2014 Senior Living Communities Notes and straight-line receivable $ 83,546,000  $ 84,057,000  Notes 3, 4
2016 Senior Living Management Notes and straight-line receivable $ 26,997,000  $ 26,997,000 
2018 Sagewood, LCS affiliate Notes $ 164,763,000  $ 178,945,000  Note 4
2019 41 Management, LLC Notes and straight-line receivable $ 15,872,000  $ 33,765,000  Note 7
2020 Timber Ridge OpCo, LLC
Various2
$ (3,346,000) $ 1,654,000  Notes 5, 7
2020 Watermark Retirement Notes and straight-line receivable $ 4,403,000  $ 9,403,000  Note 7
1 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives
2 Loan commitment, equity method investment and straight-line rent receivables
9


We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we classify as VIEs, and accordingly, our maximum exposure to loss as a result of these relationships is limited to the amount of our commitments, as shown above and discussed in the notes. Economic loss on a lease, in excess of what is presented in the table above, if any, would be limited to that resulting from a short period of arrearage and non-payment of monthly rent before we are able to take effective remedial action, as well as costs incurred in transitioning the lease to a new tenant. The potential extent of such loss would be dependent upon individual facts and circumstances, and is therefore not included in the table above.

In the future, NHI may be deemed the primary beneficiary of the operations if the tenants do not have adequate liquidity to accept the risks and rewards as the tenant and operator of the properties and might be required to consolidate the statements of financial position and results of operations of the operators into our consolidated financial statements.

We consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) and LCS Timber Ridge LLC (“LCS”), to invest in senior housing facilities. As of and for the three months ended March 31, 2021, our non-controlling interests relate to these partnerships with Discovery and LCS.

We use the equity method of accounting when we own an interest in an entity whereby we can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

Cash and Cash Equivalents and Restricted Cash

Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit or subject to an agreement (e.g., with a qualified intermediary subject to an Internal Revenue Code §1031 exchange agreement or in accordance with agency agreements governing our mortgages).

The following table sets forth our “Cash, cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):
March 31,
2021
March 31,
2020
Cash and cash equivalents $ 113,375  $ 46,049 
Restricted cash (included in Other assets) 2,853  33,769 
$ 116,228  $ 79,818 

Accounting for Lease Modifications related to Coronavirus Disease 2019

In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the coronavirus (“COVID-19”) pandemic. The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 pandemic is a lease modification under ASC 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 pandemic, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a modification can elect whether to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. NHI has elected not to apply the modification guidance under ASC 842 and has accounted for rent concessions as variable lease payments when applicable, recorded as rental income when received. During the three months ended March 31, 2021, the Company provided $4.2 million in lease concessions as a result of COVID-19 pandemic, as discussed in more detail in Note 7.

Note 3. Real Estate Properties and Investments

Tenant Concentration

The following table contains information regarding tenant concentration in our portfolio, excluding $2.5 million for our corporate office and a credit loss reserve balance of $4.9 million, based on the percentage of revenues for the three months ended March 31, 2021 and 2020, related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):


as of March 31, 2021
Revenues1
Asset Number of Real Notes Three Months Ended March 31,
Class Properties Estate Receivable 2021 2020
Senior Living Communities EFC 10 $ 573,631  $ 44,189  $ 12,723  16% $ 12,717  15%
Bickford Senior Living ALF 48 534,376  35,079  10,207  13% 13,603  16%
Holiday Retirement ILF 26 532,672  —  10,185  13% 10,176  12%
National HealthCare Corporation (NHC) SNF 42 171,235  —  9,452  12% 9,448  11%
All others2
Various 1,451,799  226,906  36,157  44% 35,579  42%
Escrow funds received from tenants
 for property operating expenses Various —  —  2,161  2% 1,553  2%
$ 3,263,713  $ 306,174  $ 80,885  $ 83,076 
1 includes interest income on notes receivable
2 includes prior period amounts for disposals or transitioned to new operators

At March 31, 2021, the one state in which we had an investment concentration of 10% or more was South Carolina (10.3%).

NHC Percentage Rent

Under the terms of our two leases with NHC, rent escalates by 4% of the increase, if any, in each of the facility’s revenue over a base year and is referred to as percentage rent. The following table summarizes the percentage rent income from NHC ($ in thousands):
Three Months Ended March 31,
2021 2020
Current year $ 920  $ 926 
Prior year final certification1
(5) (14)
Total percentage rent income $ 915  $ 912 
1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.

Two of our board members, including our chairman, are also members of NHC’s board of directors.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At March 31, 2021, we had a net investment of $40.2 million in six 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 $100.1 million at March 31, 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 $5.0 million and $4.4 million for the three months ended March 31, 2021 and 2020, respectively.

In January 2021, we received notification of a tenant’s intention to acquire in July 2021, pursuant to a purchase option, one of the six properties mentioned above, a behavioral hospital located in Tennessee, for approximately $26.4 million. The net investment at March 31, 2021 was $21.1 million. Rental income was $0.7 million for both the three months ended March 31, 2021 and 2020. 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.






11

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 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 $0.9 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Future Minimum Base Rent

Future minimum lease payments to be received by us under our operating leases at March 31, 2021, are as follows ($ in thousands):

Remainder of 2021 $ 215,167 
2022 287,817 
2023 283,511 
2024 277,004 
2025 273,507 
2026 277,816 
Thereafter 1,158,838 
$ 2,773,660 

We assess the collectability of lease payments to be received from our tenants, which includes receivables, consisting primarily of straight-line rents receivable, based on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all of the lease payments, we recognize lease payments on a cash basis and de-recognize all rent receivable assets, including the straight-line rent receivable asset and record as a reduction in rental revenue.

Variable Lease Payments

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 where the lease contains fixed escalators. Some of our leases contain escalators that are determined annually based on a variable index or other factor that is indeterminable at the inception of the lease. The table below indicates the revenue recognized as a result of fixed and variable lease escalators ($ in thousands):

Three Months Ended
March 31,
2021 2020
Lease payments based on fixed escalators, net of deferrals $ 67,281  $ 68,669 
Lease payments based on variable escalators 1,326  1,364 
Straight-line rent income 4,241  5,177 
Escrow funds received from tenants for property operating expenses 2,161  1,553 
Amortization of lease incentives (260) (236)
Rental income $ 74,749  $ 76,527 

Bickford Portfolio Sale

Effective April 30, 2021, we executed an agreement for the sale of six properties that were leased to Bickford for a purchase price of $52.9 million, which includes a $13.0 million Company-financed second mortgage. Upon completion of this transaction, Bickford satisfied the terms of our prior agreement that contingently waived $2.1 million in rent for the third quarter of 2020 and none of that amount will be repaid. These six properties had an aggregate net book value of approximately $34.6 million as of March 31, 2021. Rental income from this portfolio was $1.3 million and $1.5 million for the three months ended March 31, 2021
12

and 2020, respectively. 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 including a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.

Note 4. Mortgage and Other Notes Receivable

At March 31, 2021, our investments in mortgage notes receivable totaled $268.4 million secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 14 facilities and other notes receivable totaled $37.8 million guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. These balances exclude a credit loss reserve of $4.9 million at March 31, 2021. All our notes were on full accrual basis at March 31, 2021.

In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the 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. The mezzanine loan has a five year term, commencing on the earlier of full deployment of the funds or two years and includes two one year extensions.

Credit Loss Reserve

Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans collectively (“Coverage”). A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the following table have been calculated utilizing the most recent date for which data is available, December 31, 2020, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, (iii) less than 1.0x. We update the calculation of coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. As of March 31, 2021, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of March 31, 2021 at amortized cost.

We consider the guidance in ASC 310-20 when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of March 31, 2021, is presented below for the amortized cost, net by year of origination ($ in thousands):

13

2020 2019 2018 2017 2016 Prior Total
Mortgages
more than 1.5x $ 8,424  $ 8,833  $ 193,463  $ —  $ —  $ 4,540  $ 215,260 
between 1.0x and 1.5x —  —  —  —  10,000  —  10,000 
less than 1.0x 3,989  39,123  —  —  —  —  43,112 
No coverage available —  —  —  —  —  —  — 
12,413  47,956  193,463  $ —  10,000  4,540  268,372 
Mezzanine
more than 1.5x —  —  —  —  —  —  — 
between 1.0x and 1.5x —  —  —  —  —  —  — 
less than 1.0x —  —  —  —  14,491  11,072  25,563 
No coverage available —  750  —  —  —  —  750 
—  750  —  —  14,491  11,072  26,313 
Revolver
more than 1.5x — 
between 1.0x and 1.5x 11,489 
less than 1.0x — 
11,489 
Credit loss reserve (4,856)
$ 301,318 

Due to the economic uncertainty created by the COVID-19 pandemic and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted at the beginning of the pandemic a 20% increase in the probability of a default and a 20% increase in the amount of loss from a default resulting in an effective adjustment of 44%.

The allowance for expected credit losses is presented in the following table for the three months ended March 31, 2021 ($ in thousands):

Beginning balance January 1, 2021 $ 4,946 
Provision for expected credit losses (90)
Balance March 31, 2021 $ 4,856 

Bickford

At March 31, 2021, our construction loans to Bickford are summarized in the following table ($ in thousands):

Commencement Rate Maturity Commitment Drawn Location
January 2018 9% 5 years $ 14,000  $ (14,000) Virginia
July 2018 9% 5 years 14,700  (14,700) Michigan
June 2020 9% 5 years 14,200  (2,390) Virginia
$ 42,900  $ (31,090)

The construction loans are secured by first mortgage liens on substantially all real and personal property as well as a pledge of any and all leases or agreements which may grant a right of use to the property. Usual and customary covenants extend to the agreements, including the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the properties at stabilization of the underlying operations. On these development projects, Bickford as borrower is entitled to up to $2.0 million per project in incentives based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price and eventual NHI lease payment.


14

Senior Living Communities

On March 30, 2021, we amended the revolving line of credit agreement with Senior Living Communities (“Senior Living”) to increase availability from $15.0 million to $20.0 million. Borrowings by Senior Living under the revolver are to be used for working capital needs and to finance construction projects within its portfolio, including building additional units. Beginning January 1, 2023, availability under the revolver reduces to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. At March 31, 2021, the $11.5 million outstanding under the facility bears interest at 7.74% per annum, the prevailing 10-year U.S. Treasury rate plus 6%.

The Company also has a mortgage loan of $32.7 million to Senior Living that commenced in July 2019 for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The mortgage loan is for a term of five years with two one year extensions and carries an interest rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38.3 million, subject to adjustment for market conditions.

Note 5. Equity Method Investment

Our initial $0.9 million investment in the operating company, Timber Ridge OpCo, held by our Taxable REIT Subsidiary (“TRS”) arose in conjunction with the acquisition of a CCRC from LCS-Westminster Partnership III, LLP, in January 2020. We structured our arrangement with our JV partner, LCS Timber Ridge LLC, to be compliant with the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). Accordingly, the TRS holds our 25% equity interest in Timber Ridge OpCo, which permits the TRS to engage in activities and share in cash flows that would otherwise be non-qualifying income under the REIT gross income test. As part of our investment, we provided Timber Ridge OpCo a revolving credit facility of up to $5.0 million of which no funds have been drawn.

We account for our investment in Timber Ridge OpCo under the equity method since we are not the primary beneficiary of Timber Ridge OpCo as our participating rights do not give us the power to direct the activities that most significantly impact Timber Ridge OpCo’s economic performance. Our equity share in the losses of Timber Ridge OpCo during three months ended March 31, 2021 and 2020, was $0.8 million and $0.4 million, respectively. During first quarter of 2021, we received $0.3 million in cash distributions from Timber Ridge OpCo. Under the equity method, we decrease the carrying value of our investment for losses in the entity and distributions to NHI for cumulative amounts up to and including our basis plus any commitments to fund operations. As of March 31, 2021, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $3.3 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheet as of March 31, 2021. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility.

The Timber Ridge property is subject to early resident mortgages secured by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”). As part of our acquisition, Timber Ridge PropCo acquired the Timber Ridge property and a subordination agreement was entered into 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. In addition, 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 and resident loan assumption agreements, a liability was not recorded for the resident loan obligation upon acquisition and as of March 31, 2021. The balance secured by the Deed and Indenture was $16.7 million at March 31, 2021.

Note 6. Debt

Debt consists of the following ($ in thousands):
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March 31,
2021
December 31,
2020
Revolving credit facility - unsecured $ 30,000  $ 298,000 
Bank term loans - unsecured 550,000  650,000 
Senior notes - unsecured, net of discount of $3,162
396,838  — 
Private placement term loans - unsecured 400,000  400,000 
Fannie Mae term loans - secured, non-recourse 95,260  95,354 
Convertible senior notes - unsecured 60,000  60,000 
Unamortized loan costs (7,373) (4,069)
$ 1,524,725  $ 1,499,285 

Aggregate principal maturities of debt as of March 31, 2021 are as follows ($ in thousands):

Remainder of 2021 (including Convertible Notes) $ 60,277 
2022 280,389 
2023 475,408 
2024 75,425 
2025 143,761 
2026 — 
Thereafter 496,838 
1,532,098 
Less: unamortized loan costs (7,373)
$ 1,524,725 

Convertible senior notes

On April 1, 2021, the $60.0 million in aggregate principal amount of 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 Sheets.

Unsecured revolving credit facility and bank term loans

Our unsecured bank credit facility consists of two term loans - $250.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility that was initially scheduled to mature 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. We have swap agreements to fix the interest rates on $400.0 million of term loans that expire in December 2021.

On January 26, 2021, we repaid a $100.0 million term loan that was entered into July 2020 with the net proceeds from the 2031 Senior Notes offering discussed below. The term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 basis points (“bps”), based on our current leverage ratios. Upon repayment, the Company expensed approximately $0.5 million of deferred financing cost associated with this loan which is included in “Loss on early retirement of debt” in our Condensed Consolidated Statement of Income for the three months ended March 31, 2021.

The revolving facility fee is currently 20 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 March 31, 2021 and December 31, 2020, 30-day LIBOR was 11 bps and 14 bps, respectively.

At March 31, 2021, we had $520.0 million available to draw on the revolving portion of our credit facility, subject to usual and customary covenants. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. At March 31, 2021, we were in compliance with these ratios.

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Pinnacle Bank is a participating member of our banking group. A member of NHI’s Board of Directors and chairman of our audit committee is also the chairman of Pinnacle Financial Partners, Inc., the holding company for Pinnacle Bank. NHI’s local banking transactions are conducted primarily through Pinnacle Bank.

Senior Notes due 2031

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 2031 Senior Notes are subject to affirmative and negative covenants, including financial covenants. As of March 31, 2021 we were in compliance with all affirmative and negative covenants, including financial covenants for our 2031 Senior Notes borrowings.

Private placement term loans

Our unsecured private placement term loans, payable interest-only, are summarized below ($ in thousands):

Amount Inception Maturity Fixed Rate
$ 125,000  January 2015 January 2023 3.99%
50,000  November 2015 November 2023 3.99%
75,000  September 2016 September 2024 3.93%
50,000  November 2015 November 2025 4.33%
100,000  January 2015 January 2027 4.51%
$ 400,000 

Except for specific debt-coverage ratios and net worth minimums, covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating on our senior unsecured debt below investment grade and our compliance leverage increases to 50% or more.

Fannie Mae term loans

In March 2015, we obtained $78.1 million in Fannie Mae financing. The term-debt financing consists of interest-only payments at an annual rate of 3.79% and a 10-year maturity. The mortgages are non-recourse and secured by thirteen properties leased to Bickford. In a December 2017 acquisition, we assumed additional Fannie Mae debt that amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, bears interest at a nominal rate of 4.6%, and has a remaining balance of $17.2 million at March 31, 2021. All together, these notes are secured by facilities having a net book value of $129.0 million at March 31, 2021.

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through December 2021 to hedge against fluctuations in variable interest rates applicable to $400.0 million of our bank loans. During the remainder of 2021, approximately $5.4 million of losses, which are included in “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheets, are projected to be reclassified into earnings.

As of March 31, 2021, we employed the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above ($ in thousands):

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Date Entered Maturity Date Swap Rate Rate Index Notional Amount Fair Value (Liability)
March 2019 December 2021 2.22% 1-month LIBOR $ 100,000  $ (1,574)
March 2019 December 2021 2.21% 1-month LIBOR $ 100,000  $ (1,584)
June 2019 December 2021 1.61% 1-month LIBOR $ 150,000  $ (1,661)
June 2019 December 2021 1.63% 1-month LIBOR $ 50,000  $ (558)

If the fair value of the hedge is an asset, we include it in our Condensed Consolidated Balance Sheets in the line item “Other assets”, and, if a liability, as a component of “Accounts payable and accrued expenses”. See Note 11 for fair value disclosures about our interest rate swap agreements. Net liability balances for our hedges included as components of “Accounts payable and accrued expenses” on March 31, 2021 and December 31, 2020, were $5.4 million and $7.1 million, respectively.

The following table summarizes interest expense ($ in thousands):
Three Months Ended
March 31,
2021 2020
Interest expense on debt at contractual rates $ 10,452  $ 13,003 
Losses reclassified from accumulated other
comprehensive income into interest expense 1,778  492 
Capitalized interest (16) (98)
Amortization of debt issuance costs, debt discount and other 759  743 
Total interest expense $ 12,973  $ 14,140 

Note 7. Commitments, Contingencies and Uncertainties

In the normal course of business, we enter into a variety of commitments, typically consisting of funding of revolving credit arrangements, construction and mezzanine loans to our operators to conduct expansions and acquisitions for their own account classified below as loan commitments and commitments for the funding of construction for expansion or renovation to our existing properties under lease classified below as development commitments. In our leasing operations, we offer to our tenants and to sellers of newly acquired properties a variety of inducements which originate contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent payments earned will be included in the respective lease bases when funded. The tables below summarize our existing, known commitments and contingencies as of March 31, 2021 according to the nature of their impact on our leasehold or loan portfolios. ($ in thousands):

Asset Class Type Total Funded Remaining
Loan Commitments:
LCS Sagewood Note A SHO Construction $ 118,800  $ (104,618) $ 14,182 
LCS Sagewood Note B SHO Construction 61,200  (61,200) — 
Bickford Senior Living SHO Construction 42,900  (31,090) 11,810 
41 Management SHO Construction 22,200  (6,207) 15,993 
Senior Living Communities SHO Revolving Credit 20,000  (11,489) 8,511 
41 Management SHO Construction 10,800  (8,901) 1,899 
Timber Ridge OpCo SHO Working Capital 5,000  —  5,000 
Watermark Retirement SHO Working Capital 5,000  —  5,000 
$ 285,900  $ (223,505) $ 62,395 

As provided above, loans funded do not include the effects of discounts or commitment fees.

The credit loss liability for unfunded loan commitments 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. We applied the same COVID-19 pandemic adjustments as discussed in Note 4.

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The liability for expected credit losses on our unfunded loans is presented in the following table for the three months ended March 31, 2021 ($ in thousands):

Beginning balance January 1, 2021 $ 270 
Provision for expected credit losses 40 
Balance at March 31, 2021 $ 310 


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) — 
Wingate Healthcare SHO Renovation 1,900  (1,800) 100 
Discovery Senior Living SHO Renovation 900  (899)
  Watermark Retirement SHO Renovation 6,500  (3,000) 3,500 
  Other SHO Various 1,650  (391) 1,259 
$ 28,395  $ (23,445) $ 4,950 

In addition to the commitments listed above, Discovery PropCo has committed to Discovery Senior Living for funding up to $2.0 million toward the purchase of condominium units located at one of the facilities. As of March 31, 2021, we have funded $1.0 million toward this commitment.

As of March 31, 2021, we had $31.9 million of contingent lease inducement commitments in six lease agreements which are generally based on the performance of facility operations and may or may not be met by the tenant. At March 31, 2021, we had funded $1.5 million toward these commitments of which $1.0 million was funded during the three months ended March 31, 2021.

COVID-19 Pandemic Contingencies

Since the World Health Organization declared coronavirus disease 2019 a pandemic on March 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 operators who 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 such as a weakening in the housing market, a typical funding source for our senior housing operators’ customers. 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):

Three months ended
As of December 31, 2020 March 31, 2021 Cumulative Totals
Deferrals Abatements Deferrals Abatements Deferrals Abatements
Bickford Senior Living $ 3,750  $ 2,100  $ 3,750  $ —  $ 7,500  $ 2,100 
All Others 1,232  50  447  —  1,679  50 
$ 4,982  $ 2,150  $ 4,197  $ —  $ 9,179  $ 2,150 

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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.

We have agreed with Bickford to defer $5.0 million in contractual rent due for the second quarter of 2021. See Note 3 for further discussion on Bickford rent concessions. We have either reached agreement or are in advanced discussions with four other tenants regarding additional rent concessions of approximately $2.3 million for the second quarter 2021. The majority of the deferrals we have granted are expected to bear interest at 8% per annum. We are also in negotiations with Holiday that could result in rent concessions starting in the second quarter of 2021 and may utilize a portion of our lease deposit with Holiday that totaled approximately $10.6 million as of March 31, 2021.

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.

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. While there may be lawsuits pending against 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.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

Note 8. Equity and Dividends

At-the-Market (ATM) Equity Program

During the three months ended March 31, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds of approximately $48.0 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.

Dividends

The following table summarizes dividends declared by the Board of Directors or paid during the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, 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

Three Months Ended March 31, 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



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Note 9. Stock-Based Compensation

The Company’s outstanding stock incentive awards have been granted under two incentive plans – the 2012 Stock Incentive Plan (“2012 Plan”) and the 2019 Stock Incentive Plan (“2019 Plan”). During the first quarter of 2021, we granted stock options under the 2019 Plan of 639,500 and the remaining 12,500 awards available under the 2012 Plan. As of March 31, 2021, shares available for future grants totaled 2,117,336 all under the 2019 plan. The following is a summary of stock-based compensation expense, net of any forfeitures, included in “General and administrative expenses” in the Condensed Consolidated Statements of Income ($ in thousands):

Three Months Ended
March 31,
2021 2020
Non-cash stock-based compensation expense $ 5,446  $ 1,845 

The weighted average fair value of options granted during the three months ended March 31, 2021 and 2020 was $14.54 and $5.54 per option, respectively. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

2021 2020
Dividend yield 6.7% 5.1%
Expected volatility 48.1% 16.8%
Expected lives 2.9 years 2.9 years
Risk-free interest rate 0.33% 1.31%

The following table summarizes our outstanding stock options:

Weighted Average
Number Weighted Average Remaining
of Shares Exercise Price Contractual Life (Years)
Options outstanding January 1, 2020 1,004,014  $74.35
Options granted 584,500  $90.79
Options exercised (512,509) $72.98
Options forfeited (8,000) $88.08
Options outstanding, March 31, 2020 1,068,005  $83.90
Exercisable at March 31, 2020 600,327  $81.22
Options outstanding January 1, 2021 1,033,838  $83.54
Options granted 652,000  $69.20
Options exercised (20,000) $60.52
Options outstanding, March 31, 2021 1,665,838  $78.20 3.88
Exercisable at March 31, 2021 1,180,824  $79.31 3.58

At March 31, 2021, the aggregate intrinsic value of stock options outstanding and exercisable was $2.8 million and $1.7 million, respectively. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 and 2020 was $0.2 million or $9.27 per share and $8.1 million or $15.84 per share, respectively.

As of March 31, 2021, unrecognized compensation expense totaling $4.8 million associated with unvested stock options is expected to be recognized over the following periods: remainder of 2021 - $3.0 million, 2022 - $1.6 million and 2023 - $0.2 million.

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Note 10. Earnings Per Common Share

The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options and the conversion of our convertible debt using the treasury stock method, to the extent dilutive. Dilution resulting from the conversion option within our convertible debt is determined by computing an average of incremental shares included in each quarterly diluted EPS computation. If our average stock price for the period increases over the conversion price of our convertible debt, the conversion feature will be considered dilutive.

The following table summarizes the average number of common shares and the net income used in the calculation of basic and diluted earnings per common share ($ in thousands, except share and per share amounts):
Three Months Ended
March 31,
2021 2020
Net income attributable to common stockholders $ 35,332  $ 61,023 
BASIC:
Weighted average common shares outstanding 45,305,087  44,613,593 
DILUTED:
Weighted average common shares outstanding 45,305,087  44,613,593 
Stock options 10,873  4,546 
Convertible senior notes 41,813  — 
Weighted average dilutive common shares outstanding 45,357,773  44,618,139 
Net income attributable to common stockholders - basic $ 0.78  $ 1.37 
Net income attributable to common stockholders - diluted $ 0.78  $ 1.37 
Incremental anti-dilutive shares excluded:
Net share effect of stock options with an exercise price in excess of the average market price for our common shares 216,762  305,862 
Regular dividends declared per common share $ 1.1025  $ 1.1025 

Note 11. Fair Value of Financial Instruments

Our financial assets and liabilities measured at fair value on a recurring basis include derivative financial instruments. Derivative financial instruments include our interest rate swap agreements.

Derivative financial instruments. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows ($ in thousands):
Fair Value Measurement
Balance Sheet Classification March 31,
2021
December 31, 2020
Level 2
Interest rate swap liability Accounts payable and accrued expenses $ 5,377  $ 7,150 

Carrying amounts and fair values of financial instruments that are not carried at fair value at March 31, 2021 and December 31, 2020 in the Condensed Consolidated Balance Sheets are as follows ($ in thousands):
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Carrying Amount Fair Value Measurement
March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020
Level 2
Variable rate debt $ 578,087  $ 945,078  $ 580,000  $ 948,000 
Fixed rate debt $ 946,638  $ 554,207  $ 927,281  $ 575,292 
Level 3
Mortgage and other notes receivable, net $ 301,318  $ 292,427  $ 320,783  $ 321,021 

Fixed rate debt. Fixed rate debt is classified as Level 2 and its value is based on quoted prices for similar instruments or calculated utilizing model derived valuations in which significant inputs are observable in active markets.

Mortgage and other notes receivable. The fair value of mortgage and other notes receivable is based on credit risk and discount rates that are not observable in the marketplace and therefore represents a Level 3 measurement.

Carrying amounts of cash and cash equivalents and restricted cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair values of our borrowings under our revolving credit facility and other variable rate debt are reasonably estimated at their notional amounts at March 31, 2021 and December 31, 2020, due to the predominance of floating interest rates, which generally reflect market conditions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

References throughout this document to NHI or the Company include National Health Investors, Inc., and its consolidated subsidiaries. In accordance with the Securities 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 to National 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 the Securities 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 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;
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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 of Maryland 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 ended December 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.


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Executive Overview

National Health Investors, Inc., established in 1991 as a Maryland 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 buildings. 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 of March 31, 2021, we had investments in real estate and mortgage and other notes receivable involving 242 facilities located in 34 states. These investments involve 162 senior housing properties, 75 skilled nursing facilities, 3 hospitals, 2 medical office buildings and other notes receivable. These investments consisted of properties with an original cost of approximately $3.3 billion, rented under primarily triple-net leases to 34 lessees, and $306.2 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $4.9 million, due from 9 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 residents who 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 residents who 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 patients who 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.
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The following tables summarize our investments in real estate and mortgage and other notes receivable as of and for the three months ended March 31, 2021 ($ in thousands):

Properties Beds/Sq. Ft.* Revenue % Total Investment
Real Estate Properties
Senior Housing - Need-Driven
Assisted Living 94  5,131  $ 16,866  20.9  % $ 950,643 
Senior Living Campus 14  1,976  5,803  7.2  % 307,552 
Total Senior Housing - Need-Driven 108  7,107  22,669  28.1  % 1,258,195 
Senior Housing - Discretionary
Independent Living 32  3,703  11,767  14.5  % 600,615 
Entrance-Fee Communities 11  2,707  15,377  19.0  % 742,985 
Total Senior Housing - Discretionary 43  6,410  27,144  33.5  % 1,343,600 
Total Senior Housing 151  13,517  49,813  61.6  % 2,601,795 
Medical Facilities
Skilled Nursing Facilities 72  9,433  20,573  25.4  % 595,461 
Hospitals 207  2,035  2.5  % 55,971 
Medical Office Buildings 88,517  * 167  0.2  % 10,486 
Total Medical Facilities 77  22,775  28.1  % 661,918 
Total Real Estate Properties 228  72,588  89.7  % $ 3,263,713 
Escrow Funds Received From Tenants 2,161 
Total Rental Income 74,749 
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven 565  1,407  1.8  % $ 66,368 
Senior Housing - Discretionary 714  3,770  4.7  % 197,463 
Medical Facilities 180  104  0.1  % 4,541 
Other Notes Receivable —  —  778  1.0  % 37,802 
Total Mortgage and Other Notes Receivable 14  1,459  6,059  7.6  % $ 306,174 
Other Income 77 
Total Revenue $ 80,885 

Portfolio Summary Properties Revenue % Portfolio Investment
Real Estate Properties 228  $ 72,588  92.3  % $ 3,263,713 
Mortgage and Other Notes Receivable 14  6,059  7.7  % 306,174 
Total Portfolio 242  $ 78,647  100.0  % $ 3,569,887 
Portfolio by Operator Type
Public 66  $ 17,647  22.4  % $ 511,231 
National Chain (Privately Owned) 28  15,762  20.0  % 832,327 
Regional 134  42,733  54.3  % 2,091,351 
Small 14  2,505  3.3  % 134,978 
Total Portfolio 242  $ 78,647  100.0  % $ 3,569,887 

For the three months ended March 31, 2021, operators of facilities who provided 3% or more and collectively 82% 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 March 31, 2021, our average effective annualized rental income was $8,724 per bed for SNFs, $11,746 per unit for SLCs, $14,435 per unit for ALFs, $12,711 per unit for ILFs, $22,723 per unit for EFCs, $39,330 per bed for hospitals, and $7 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 the World Health Organization declared COVID-19 a pandemic on March 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 operators who 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 such as a weakening in the housing market, a typical funding source for our senior housing operators’ customers. 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):

Three months ended
As of December 31, 2020 March 31, 2021 Cumulative Totals
Deferrals Abatements Deferrals Abatements Deferrals Abatements
Bickford Senior Living $ 3,750  $ 2,100  $ 3,750  $ —  $ 7,500  $ 2,100 
All Others 1,232  50  447  —  1,679  50 
$ 4,982  $ 2,150  $ 4,197  $ —  $ 9,179  $ 2,150 

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.

We have agreed with Bickford to defer $5.0 million in contractual rent due for the second quarter of 2021. See Note 3 to our Condensed Consolidated Financial Statements for further discussion on Bickford rent concessions. We have either reached agreement or are in advanced discussions with four other tenants regarding additional rent concessions of approximately $2.3 million for the second quarter 2021. The majority of the deferrals we have granted are expected to bear interest at 8% per annum. We are also in negotiations with Holiday that could result in rent concessions starting in the second quarter of 2021 and may utilize a portion of our lease deposit with Holiday that totaled approximately $10.6 million as of March 31, 2021.

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.

We had approximately $37.4 million in unrestricted cash and cash equivalents on hand and $550.0 million in availability under our unsecured revolving credit facility as of April 30, 2021. In addition, we believe we continue to have access to additional debt
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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.

Recent Highlights

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 July 2020 and reduce borrowings outstanding under our revolving credit facility.

In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the 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. The mezzanine loan has a five-year term, commencing on the earlier of full deployment of the funds or two years and includes two one-year extensions.

Effective April 30, 2021, we executed an agreement for the sale of six properties that were leased to Bickford for a purchase price of $52.9 million, which includes a $13.0 million Company-financed second mortgage. Upon completion of this transaction, Bickford satisfied the terms of our prior agreement that contingently abated $2.1 million in rent for the third quarter of 2020 and none of that amount will be repaid. These six properties had an aggregate net book value of approximately $34.6 million as of March 31, 2021. Rental income from this portfolio was $1.3 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. 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 including a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.

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 three months ended March 31, 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. At March 31, 2021, we had a net investment of $40.2 million in six 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 $100.1 million at March 31, 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 $5.0 million and $4.4 million for the three months ended March 31, 2021 and 2020, respectively.

In January 2021, we received notification of a tenant’s intention to acquire in July 2021, pursuant to a purchase option, one of the six properties mentioned above, a behavioral hospital located in Tennessee, for approximately $26.4 million. The net investment at March 31, 2021 was $21.1 million. Rental income was $0.7 million for both the three months ended March 31, 2021 and 2020. 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.





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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) from whom we individually derive at least 10% of our total revenues as follows ($ in thousands):
as of March 31, 2021
Revenues1
Asset Number of Real Notes Three Months Ended March 31,
Class Properties Estate Receivable 2021 2020
Senior Living Communities EFC 10 $ 573,631  $ 44,189  $ 12,723  16% $ 12,717  15%
Bickford Senior Living ALF 48 534,376  35,079  10,207  13% 13,603  16%
Holiday Retirement ILF 26 532,672  —  10,185  13% 10,176  12%
National HealthCare Corporation (NHC) SNF 42 171,235  —  9,452  12% 9,448  11%
All others2
Various 1,451,799  226,906  36,157  44% 35,579  44%
Escrow funds received from tenants
  for property operating expenses Various —  —  2,161  2% $ 1,553  2%
$ 3,263,713  $ 306,174  $ 80,885  $ 83,076 
1 includes interest income on notes receivable
2 includes prior period amounts for disposals or transitioned to new operators

Straight-line rent of $1.5 million and $1.7 million was recognized from the Holiday lease for the three months ended March 31, 2021 and 2020, respectively. Straight-line rent of $0.5 million and $1.1 million and interest revenue of $0.8 million and $1.1 million was recognized from the Senior Living Communities lease for the three months ended March 31, 2021 and 2020, respectively. Straight-line rent of $0.6 million and $0.8 million and interest revenue of $0.8 million and $0.7 million was recognized from the Bickford leases for the three months ended March 31, 2021 and 2020, 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.

For the three months ended March 31, 2021, approximately 26% of our total revenue was derived from operators of our skilled nursing facilities who receive a significant portion of their revenue from governmental payors, primarily Medicare and Medicaid. Such revenues are subject annually to statutory and regulatory changes.

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 1Q20 2Q20 3Q20 4Q20 1Q21 Mar 2021 April 2021
Senior Living Communities 9 80.3% 79.1% 79.0% 77.3% 77.7% 77.8% 77.9%
Bickford*
48 85.2% 82.6% 81.7% 79.0% 74.9% 74.5% 76.3%
Holiday 26 87.3% 83.5% 79.6% 77.2% 74.1% 73.5% 73.5%

* Prior period occupancies have been restated to include an additional building added to the calculation in April 2021.

The following table summarizes the revenue concentration of our top five states for the three months ended March 31, 2021 and 2020, respectively, excluding any escrow funds received for property operating expenses.

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Three Months Ended March 31,
Location 2021 2020
South Carolina $ 8,731  $ 9,176 
Florida 7,707  7,906 
Texas 6,889  7,004 
Tennessee 4,697  4,809 
Washington 4,662  4,387 
All others 46,038  48,241 
Escrow funds received from tenants for property operating expenses 2,161  1,553 
$ 80,885  $ 83,076 

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 and selected immaterial properties identified in 2019 as available for sale and subsequently sold in the first quarter of 2020. 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.

The results of our coverage ratio analysis are presented below on a trailing twelve-month basis, as of December 31, 2020 and 2019 (the most recent periods available).

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Total Portfolio
By asset type SHO SNF HOSP MOB TOTAL
Properties 136 74 3 2 215
4Q19 1.18x 2.76x 2.01x 6.35x 1.68x
4Q20 1.12x 2.90x 2.66x 7.99x 1.69x
Market served Need Driven Need Driven excl. Bickford Discretionary Discretionary excl. SLC & Holiday Medical Medical excl. NHC
Properties 97 49 39 4 79 37
4Q19 1.12x 1.17x 1.24x 1.76x 2.72x 1.97x
4Q20 0.95x 0.93x 1.30x 1.78x 2.91x 2.24x
Major tenants
NHC1
SLC
Bickford2
Holiday
Properties 42 9 48 26
4Q19 3.71x 1.07x 1.07x 1.22x
4Q20 3.82x 1.31x 0.97x 1.08x
Same-Store Portfolio
By asset type SHO SNF HOSP MOB Total
Properties 128 74 2 2 206
4Q19 1.18x 2.76x 1.54x 6.35x 1.67x
4Q20 1.12x 2.90x 1.96x 7.99x 1.67x
Market served Need Driven Need Driven excl. Bickford Discretionary Discretionary excl. SLC & Holiday Medical Medical excl. NHC
Properties 90 42 38 3 78 36
4Q19 1.12x 1.17x 1.25x 1.83x 2.71x 1.91x
4Q20 0.94x 0.90x 1.30x 1.83x 2.88x 2.13x
Major tenants
NHC1
SLC Bickford Holiday
Properties 42 9 48 26
4Q19 3.71x 1.07x 1.07x 1.22x
4Q20 3.82x 1.31x 0.97x 1.08x
1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3 independent living facilities.

2 Pro forma EBITDARM coverage excluding the disposition of six leased assets is 1.02x.

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.

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 lower net entrance-fees within particular markets, as well as rising 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
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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. 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 $0.9 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes the transition properties during the three months ended March 31, 2021:

Occupancy1
Facility Name (New Tenant) Units State March 2020 June 2020 September 2020 December 2020 March 2021
Discovery Commons of College Park 148 IN 16.0% 14.2% 13.8% 15.7% 23.1%
The Charlotte (SLC) 99 NC 28.5% 34.8% 38.9% 42.9% 46.6%
Maybelle Carter (Vitality) 135 TN 82.2% 77.3% 76.8% 73.1% 68.7%
Chancellor TX-IL portfolio 196 IL/TX 67.1% 57.2% 54.4% 53.7% 54.4%
Beaver Dam Assisted Living (BAKA) 120 WI 68.3% 61.7% 61.8% 60.4% 60.4%
698 53.9% 49.6% 49.2% 49.0% 50.5%
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 months ended March 31, 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 $4.9 million and a liability of $0.3 million for estimated credit losses on unfunded loan commitments as of March 31, 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.
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Results of Operations

The significant items affecting revenues and expenses are described below ($ in thousands):

Three Months Ended
March 31, Period Change
2021 2020 $ %
Revenues:
Rental income
CCRC leased to Timber Ridge OpCo $ 2,303  $ 1,518  $ 785  51.7  %
SNF leased to Ignite Team Partners 602  —  602  NM
ALFs leased to 41 Management 745  389  356  91.5  %
EFCs leased to Senior Living Communities 11,441  10,870  571  5.3  %
ALFs leased to Bickford Senior Living 8,892  12,251  (3,359) (27.4) %
SHOs leased to Chancellor Health Care 2,096  2,634  (538) (20.4) %
SHOs leased to Discovery Senior Living 2,658  2,992  (334) (11.2) %
Other new and existing leases 39,610  38,836  774  2.0  %
Current year disposals —  307  (307) (100.0) %
68,347  69,797  (1,450) (2.1) %
Straight-line rent adjustments, new and existing leases 4,241  5,177  (936) (18.1) %
Escrow funds received from tenants for taxes and insurance 2,161  1,553  608  39.2  %
Total Rental Income 74,749  76,527  (1,778) (2.3) %
Interest income and other
Life Care Services mortgages and construction loans 3,178  2,582  596  23.1  %
Bickford construction loans 762  584  178  30.5  %
41 Management mortgage loan 327  153  174  113.7  %
Senior Living Communities mortgage and other notes 801  779  22  2.8  %
Current year note payoffs —  1,378  (1,378) (100.0) %
Other new and existing mortgages and notes 991  1,042  (51) (4.9) %
Total Interest Income from Mortgage and Other Notes 6,059  6,518  (459) (7.0) %
Other income 77  31  46  NM
Total Revenues 80,885  83,076  (2,191) (2.6) %
Expenses:
Depreciation
CCRC leased to Timber Ridge OpCo 937  625  312  49.9  %
ALFs leased to 41 Management 260  168  92  54.8  %
SNF leased to Ignite Team Partners 213  —  213  NM
SHOs leased to Senior Living Communities 3,853  3,853  —  —  %
ALFs leased to Autumn Trace Communities 105  —  105  NM
Other new and existing assets 15,438  15,797  (359) (2.3) %
Total Depreciation 20,806  20,443  363  1.8  %
Interest 12,973  14,140  (1,167) (8.3) %
Non-cash stock-based compensation expense 5,446  1,845  3,601  NM
Loan and realty (gains) losses (50) 1,555  (1,605) NM
Taxes and insurance on leased properties 2,161  1,553  608  39.2  %
Other expenses 2,906  3,043  (137) (4.5) %
Total Expenses 44,242  42,579  1,663  3.9  %
Loss from equity method investment (808) (442) (366) 82.8  %
Gains on sales of real estate —  21,007  (21,007) (100.0) %
Loss on early retirement of debt (451) —  (451) NM
Net income 35,384  61,062  (25,678) (42.1) %
Less: net income attributable to noncontrolling interests (52) (39) (13) 33.3  %
Net income attributable to common stockholders $ 35,332  $ 61,023  $ (25,691) (42.1) %
NM - not meaningful
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Financial highlights of the quarter ended March 31, 2021, compared to the same quarter of 2020 were as follows:

Rental income received from our tenants decreased $1.5 million, or 2.1%, primarily as a result of rent concessions related to the first quarter of 2021 totaling $4.2 million, net of new investments funded since March 2020.

Interest income from mortgage and other notes decreased $0.5 million, or 7.0%, primarily due to several prior year loan pay offs.

Interest expense decreased $1.2 million as a result of $210.0 million notional amount of fixed rate swaps that matured and the payoff of the HUD mortgages in the fourth quarter of 2020.

Non-cash stock-based compensation expense increased $3.6 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.

Loan and realty (gains) losses decreased $1.6 million related to our assessment of expected credit losses.

Loss on early retirement of debt of $0.5 million for the three months ended March 31, 2021, represents the remaining deferred financing cost expensed upon early repayment of the $100.0 million term loan.

The following table summarizes our stabilizing real estate recently transitioned to new tenants ($ in thousands):

Three Months Ended
March 31, Period Change
2021 2020 $ %
Revenues:
Rental income
SHOs leased to Chancellor Health Care $ —  $ 587  $ (587) (100.0) %
SHO leased to Senior Living Communities 298  356  (58) (16.3) %
SHO leased to Discovery Senior Living 44  189  (145) (76.7) %
SLC leased to Vitality Senior Living 80  (77) (96.3) %
ALF leased to BAKA Enterprises 150  343  (193) (56.3) %
Straight-line rent adjustments 363  —  363  NM
Total Rental Income 858  1,555  (697) (44.8) %
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  155  1.9  %
ALF leased to BAKA Enterprises 135  135  —  —  %
Total Depreciation 1,023  1,020  0.3  %
Legal —  12  (12) (100.0) %
Franchise, excise and other taxes —  36  (36) (100.0) %
1,023  1,068  (45) (4.2) %
Net (loss) income $ (165) $ 487  $ (652) NM

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Liquidity and Capital Resources

At March 31, 2021, we had $520.0 million available to draw on our revolving credit facility, $113.4 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, 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):
Three Months Ended March 31, 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 56,912  57,082  (170) (0.3) %
Net cash used in investing activities (9,133) (51,017) 41,884  (82.1) %
Net cash provided by financing activities 22,106  58,084  (35,978) (61.9) %
Cash and cash equivalents and restricted cash, March 31 $ 116,228  $ 79,818  $ 36,410  45.6  %

Operating Activities – Net cash provided by operating activities for the three months ended March 31, 2021, which includes new investments completed during 2020 and lease payment collections arising from escalators on existing leases and previously funded lease incentives, was impacted by $4.2 million in rent deferrals granted during the current quarter.

Investing Activities – Net cash used in investing activities for the three months ended March 31, 2021 was comprised primarily of $9.9 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 $0.4 million.

Financing Activities – Net cash provided by financing activities for the three months ended March 31, 2021 differs from the same period in 2020 primarily as a result of a $79.0 million decrease in net borrowings, inclusive of a new $400.0 million senior note offering, a $48.0 million increase in proceeds from issuance of common shares and dividend payments which increased $3.0 million over the same period in 2020.

Debt Obligations

As of March 31, 2021, we had outstanding debt of $1.5 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 – $250.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility that matures 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. We have swap agreements to fix the interest rates on $400.0 million of term loans that expire in December 2021.

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 March 31, 2021 and December 31, 2020, 30-day LIBOR was 11 and 14 bps, respectively.

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As of March 31, 2021, we had $180.0 million of outstanding variable rate debt exposed to interest rate risk through December 2021, at which time our remaining hedges expire. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.” The current interest spreads and facility fee reflect our leverage-ratio compliance based on the applicable margin for LIBOR loans, measuring debt to “Total Asset Value,” at Level 3 in the Interest Rate Schedule provided below in summary format:

Interest Rate Schedule
LIBOR Margin
Level Leverage Ratio Revolver $300m Term Loan $250m Term Loan Facility Fee
1 < 0.35 1.10% 1.20% 1.25% 0.15%
2 ≥ 0.35 & < 0.40 1.15% 1.25% 1.30% 0.20%
3 ≥ 0.40 & < 0.45 1.20% 1.30% 1.35% 0.20%
4 ≥ 0.45 & < 0.50 1.25% 1.40% 1.45% 0.25%

Beyond the applicable ratios detailed above, increasing levels of leverage (not shown) will subject our debt to defined increases in interest rates and fees.

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 March 31, 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. As discussed below in connection with our leverage-based LIBOR Margin schedule, we are given credit for collateral based on cash rental revenue (capitalized at standard rates based on asset class). Therefore, our borrowing cost could increase if we were to experience significant declines in rent collections.

The 2018 Agreement generally includes the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement. Although we are currently eligible under the term loan agreements to transact in our unsecured bank credit facilities at the respective scheduled rates represented by Level 3, the movement of our leverage ratio into Level 4 at current levels of debt would result in additional annual interest charges of $0.8 million, assuming an average revolver balance of approximately $30.0 million. Further movement of our leverage ratio beyond levels currently contemplated by management would be subject to escalating increases in interest. If, in addition to changes in the leverage ratio, certain qualitative indicators of our risk profile were to materially change, further interest-rate escalations may result.

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 - On April 1, 2021, the $60.0 million in aggregate principal amount of 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.

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 bank credit facility includes an option to shift from the leverage-based LIBOR margin schedule in the table above to a ratings-based LIBOR margin schedule. Shifting to a ratings-based LIBOR margin schedule potentially reduces volatility of our interest cost during periods of time when our leverage may fluctuate modestly. Our decision to move to a ratings-based margin schedule will
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be based on several factors including the relative cost of the ratings-based versus leverage-based LIBOR margin schedules and our desire to have a more stable interest cost if our leverage modestly changes as compared to the existing leverage-based LIBOR margin schedule. 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.

The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA 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 5.7x for the three months ended March 31, 2021 (see our discussion under the heading Adjusted EBITDA including a reconciliation to our net income). Giving effect to our acquisitions and financings on an annualized basis, our consolidated net debt to Annualized Adjusted EBITDA ratio is approximately 5.0x for the three months ended March 31, 2021 ($ in thousands):


Consolidated Total Debt $ 1,524,725 
Less: cash and cash equivalents (113,375)
Consolidated Net Debt $ 1,411,350 
Adjusted EBITDA $ 70,485 
Annualizing Adjustment 211,455 
$ 281,940 
Consolidated Net Debt to Annualized Adjusted EBITDA 5.0x

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 of March 31, 2021 ($ in thousands):

Date Entered Maturity Date Fixed Rate Rate Index Notional Amount Fair Value (Liability)
March 2019 December 2021 2.22% 1-month LIBOR $ 100,000  $ (1,574)
March 2019 December 2021 2.21% 1-month LIBOR $ 100,000  $ (1,584)
June 2019 December 2021 1.61% 1-month LIBOR $ 150,000  $ (1,661)
June 2019 December 2021 1.63% 1-month LIBOR $ 50,000  $ (558)

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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 due January 2023 through January 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
March 31, 2021
Real estate properties, net
$ 2,324,359 
Other assets, net
521,513 
Note receivable due from non-guarantor subsidiary
81,396 
Totals assets
$ 2,927,268 
Debt
$ 1,430,124 
Other liabilities
93,570 
Total liabilities
$ 1,523,694 
Noncontrolling interest
$ 506 


Three Months Ended
March 31, 2021
Revenues
$ 72,824 
Interest revenue on note due from non-guarantor subsidiary 1,148 
Expenses
40,455 
Loss from equity method investee (808)
Loss on early retirement of debt (451)
Net income
$ 32,258 
Net income attributable to NHI and the subsidiary guarantors $ 32,207 

Equity

At March 31, 2021 we had 45,850,599 shares of common stock outstanding with a market value of $3.3 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 with U.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
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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 ending December 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 in IRS Code Sec. 857(b)(8).

The following table summarizes dividends declared by the Board of Directors or paid during the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, 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

Three Months Ended March 31, 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

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 three months ended March 31, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds of approximately $48.0 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 the Securities 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 expires March 2023.

Off Balance Sheet Arrangements

As part of the Timber Ridge transaction in January 2020, we acquired the property subject to trust liens previously granted to residents of Timber Ridge. Beginning in 2008, the initial residents of Timber 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 (now Wilmington Trust, N.A., “Trustee”) on behalf of all the residents who made loans to the owner/operator in accordance with a resident agreement. The Deed and Indenture granted a security interest in the Timber 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 the Timber Ridge property under the Deed and Indenture.

Our entry into the Timber 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 the Timber 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 the Timber Ridge property. The trustee for all of the residents who 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 $16.7 million at March 31, 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.
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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 consolidate their financial statements. Except as discussed in our Annual Report on Form 10-K for the year ended December 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 at March 31, 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 of March 31, 2021, we furnished no direct support to any of these entities.

Contractual Obligations and Contingent Liabilities

As of March 31, 2021, our contractual payment obligations were as follows ($ in thousands):
Total Less than 1 year 1-3 years 3-5 years More than 5 years
Debt, including interest1
$ 1,652,511  $ 109,272  $ 805,706  $ 237,137  $ 500,396 
Development commitments 4,950  4,950  —  —  — 
Loan commitments 62,395  62,395  —  —  — 
$ 1,719,856  $ 176,617  $ 805,706  $ 237,137  $ 500,396 
1 Interest is calculated based on the weighted average interest rate of outstanding debt balances as of March 31, 2021. The calculation also includes a facility fee of 0.20%.

Commitments and Contingencies

The following tables summarize information as of March 31, 2021 related to our outstanding commitments and contingencies which are more fully described in the notes to the condensed consolidated financial statements ($ in thousands):

Asset Class Type Total Funded Remaining
Loan Commitments:
LCS Sagewood Note A SHO Construction $ 118,800  $ (104,618) $ 14,182 
LCS Sagewood Note B SHO Construction 61,200  (61,200) — 
Bickford Senior Living SHO Construction 42,900  (31,090) 11,810 
41 Management SHO Construction 22,200  (6,207) 15,993 
Senior Living Communities SHO Revolving Credit 20,000  (11,489) 8,511 
41 Management SHO Construction 10,800  (8,901) 1,899 
Timber Ridge OpCo SHO Working Capital 5,000  —  5,000 
Watermark Retirement SHO Working Capital 5,000  —  5,000 
$ 285,900  $ (223,505) $ 62,395 

See Note 7 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 $0.3 million as of March 31, 2021 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.
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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) — 
Wingate Healthcare SHO Renovation 1,900  (1,800) 100 
Discovery Senior Living SHO Renovation 900  (899)
   Watermark Retirement SHO Renovation 6,500  (3,000) 3,500 
Other SHO Various 1,650  (391) 1,259 
$ 28,395  $ (23,445) $ 4,950 

In addition to the commitments listed above, Discovery PropCo has committed to Discovery for funding 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 of March 31, 2021.

Asset Class Total Funded Remaining
Contingencies (Lease Inducements):
Timber Ridge OpCo SHO $ 10,000  $ —  $ 10,000 
Comfort Care Senior Living SHO 6,000  —  6,000 
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 
$ 31,850  $ (1,500) $ 30,350 

We adjust rental income for the amortization of lease inducements paid to our tenants.

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. While there may be lawsuits pending against 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.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

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 activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs. Beginning in the first quarter of 2021, the Company is no longer presenting Adjusted Funds from Operations as a supplemental measure of operating performance.
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Funds From Operations - FFO

Our FFO per diluted common share for the three months ended March 31, 2021 decreased $0.12 or 8.9% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since March 2020. FFO, as defined by the National 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 three months ended March 31, 2021 decreased $0.12 or 8.8% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since March 2020. 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 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 three months ended March 31, 2021 decreased $6.0 thousand or 0.01% over the same period in 2020 due primarily to the effects of the COVID-19 pandemic, partially offset by new investments completed since March 2020. In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our convertible senior notes, amortization of debt issuance costs, non-cash stock 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 stock 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):

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Three Months Ended
March 31,
2021 2020
Net income attributable to common stockholders $ 35,332  $ 61,023 
Elimination of certain non-cash items in net income:
Depreciation 20,806  20,443 
Depreciation related to noncontrolling interests (210) (147)
Gains on sales of real estate —  (21,007)
NAREIT FFO attributable to common stockholders 55,928  60,312 
Loss on early retirement of debt 451  — 
Non-cash write-off of straight-line rent receivable —  380 
Normalized FFO attributable to common stockholders 56,379  60,692 
Straight-line lease revenue, net (4,241) (5,557)
Straight-line lease revenue, net, related to noncontrolling interests 24  22 
Straight-line lease expense related to equity method investment 25  21 
Amortization of lease incentives 260  236 
Amortization of original issue discount 54  100 
Amortization of debt issuance costs 705  643 
Amortization related to equity method investment 535  — 
Note receivable credit loss expense (50) 1,575 
Non-cash stock-based compensation 5,446  1,845 
Equity method investment capital expenditures (105) (105)
Equity method investment non-refundable fees received 519  73 
Normalized FAD attributable to common stockholders $ 59,551  $ 59,545 
BASIC
Weighted average common shares outstanding 45,305,087  44,613,593 
NAREIT FFO attributable to common stockholders per share $ 1.23  $ 1.35 
Normalized FFO attributable to common stockholders per share $ 1.24  $ 1.36 
DILUTED
Weighted average common shares outstanding 45,357,773  44,618,139 
NAREIT FFO attributable to common stockholders per share $ 1.23  $ 1.35 
Normalized FFO attributable to common stockholders per share $ 1.24  $ 1.36 

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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. EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):

Three Months Ended
March 31,
2021 2020
Net income $ 35,384  $ 61,062 
Interest expense 12,973  14,140 
Franchise, excise and other taxes 233  243 
Depreciation 20,806  20,443 
NHI’s share of EBITDA adjustments for unconsolidated entities 688  — 
Note receivable credit loss expense (50) 1,575 
Gains on sales of real estate —  (21,007)
Loss on note retirement 451  — 
Non-cash write-off of straight-line rent receivable —  380 
Adjusted EBITDA $ 70,485  $ 76,836 
Interest expense at contractual rates $ 10,452  $ 13,003 
Interest rate swap payments, net 1,778  478 
Principal payments 94  304 
Fixed Charges $ 12,324  $ 13,785 
Fixed Charge Coverage 5.7x 5.6x


For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

At March 31, 2021, we were exposed to market risks related to fluctuations in interest rates on approximately $180.0 million of variable-rate indebtedness (excludes $400.0 million of variable-rate debt that has been hedged through interest-rate swap contracts) and on our mortgage and other notes receivable. The unused portion ($520.0 million at March 31, 2021) of our revolving credit facility, should it be drawn upon, is subject to variable rates.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. Assuming a 50 basis-point increase or decrease in the interest rate related to variable-rate debt, and assuming no change in the outstanding balance as of March 31, 2021, net interest expense would increase or decrease annually by approximately $0.9 million or $0.02 per common share on a diluted basis.

We use derivative financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative purposes. Derivatives are included in the Condensed Consolidated Balance Sheets at their fair value. We may engage in hedging strategies to manage our exposure to market risks in the future, depending on an analysis of the interest rate environment and the costs and risks of such strategies.

The following table sets forth certain information with respect to our debt ($ in thousands):

March 31, 2021 December 31, 2020
Balance1
% of total
Rate2
Balance1
% of total
Rate2
Fixed rate:
Convertible senior notes - unsecured $ 60,000  3.8  % 3.25  % $ 60,000  4.0  % 3.25  %
Private placement term loans - unsecured 400,000  26.1  % 4.15  % 400,000  26.6  % 4.15  %
Senior notes - unsecured 400,000  26.1  % 3.00  % —  —  % —  %
Bank term loans - unsecured 400,000  26.1  % 3.23  % 340,000  22.6  % 3.27  %
Fannie Mae term loans - secured, non-recourse 95,260  6.2  % 3.94  % 95,354  6.3  % 3.94  %
Revolving credit facility - unsecured —  —  % —  % 60,000  4.0  % 2.81  %
Variable rate:
Bank term loans - unsecured 150,000  9.7  % 1.11  % 310,000  20.7  % 1.77  %
Revolving credit facility - unsecured 30,000  2.0  % 1.31  % 238,000  15.8  % 1.34  %
$ 1,535,260  100.0  % 3.24  % $ 1,503,354  100.0  % 2.91  %
1 Differs from carrying amount due to unamortized discounts and loan costs.
2 Total is weighted average rate

The unsecured bank term loans in the table above reflect the effect of $400.0 million notional amount interest rate swaps with maturities in December 2021 that effectively convert variable rate debt to fixed rate debt. These loans bear interest at LIBOR plus a spread, currently a blended 132 bps, based on our leverage-based LIBOR margin.

46

To highlight the sensitivity of our convertible senior notes and secured mortgage debt to changes in interest rates, the following summary shows the effects on fair value (“FV”) assuming a parallel shift of 50 bps in market interest rates for a contract with similar maturities as of March 31, 2021 ($ in thousands):

Balance
Fair Value1
FV reflecting change in interest rates
Fixed rate: -50 bps +50 bps
Private placement term loans - unsecured $ 400,000  $ 405,295  $ 412,048  $ 398,682 
Senior notes 400,000  367,164  383,288  351,785 
Convertible senior notes 60,000  60,045  60,070  60,020 
Fannie Mae loans 95,260  94,777  96,567  93,023 
1 The change in fair value of our fixed rate debt was due primarily to the overall change in interest rates.

At March 31, 2021, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $320.8 million. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $14.5 million, while a 50 basis point decrease in such rates would increase their estimated fair value by approximately $3.1 million.

Common Stock Price Volatility

Our compensation committee has historically granted stock incentive awards to employees in the form of stock options. Compensation expense is recognized for stock options over the requisite service period using the fair value of these grants as estimated at the date of grant using the Black-Scholes pricing model and the market value of our publicly traded common stock on the date of grant. This expense is reflected in the “General and administrative” expense line item in our Condensed Consolidated Statements of Income. In addition to the market value of our common stock, one of the inputs into this model that significantly impacts the fair value of the options is the expected volatility of our common stock over the estimated life of the option. We estimate expected volatility by using the most recent historical experience.

Since the COVID-19 pandemic began in March 2020, our common stock has experienced periods of elevated volatility in its trading. The stock option grants in 2021 included an increase in expected volatility in the estimation of fair value of stock options that resulted in a higher fair value and related stock-based compensation expense for these awards when compared to prior years.

The fair value of the stock option awards granted on February 25, 2021 was $14.54, using the closing market value of the common stock of $69.20 on the grant date and an estimate of expected volatility of 48.1%. This fair value is $9.00 per share greater than the weighted-average fair value of stock options granted in the first quarter of 2020 which has increased the amount of stock-based compensation expense that will be recognized for the current year grant compared to prior year. See Note 9 to the Condensed Consolidated Financial Statements for more discussion.

Item 4. Controls and Procedures.

Evaluation of Disclosure Control and Procedures. As of March 31, 2021, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of management’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) to ensure information required to be disclosed in our filings under the Securities and Exchange Act of 1934, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms; and (ii) accumulated and communicated to our management, including our CEO and our CFO, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving desired control objectives, and management is necessarily required to apply its judgment when evaluating the cost-benefit relationship of potential controls and procedures. Based upon the evaluation, the CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2021.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

47

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in management’s evaluation during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Our health care 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. While there may be lawsuits pending against certain of the owners and/or lessees of our 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.

In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. Litigation is ongoing.

Item 1A. Risk Factors.

During the three months ended March 31, 2021, there were no material changes to the risk factors that were disclosed in Item 1A of National Health Investors, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.


49

Item 6. Exhibits.

Exhibit No. Description
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-3 Registration Statement No. 333-192322)
3.2
Articles of Amendment to Articles of Incorporation of National Health Investors, Inc. dated as of June 8, 1994, (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-3 Registration Statement No. 333-194653 of National Health Investors, Inc.)
3.3
Amendment to Articles of Incorporation (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement filed March 21, 2009)
3.4
Amendment to Articles of Incorporation approved by shareholders on May 2, 2014 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed August 4, 2014)
3.5
Restated Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-K filed February 15, 2013)
3.6
Amendment No. 1 to Restated Bylaws dated February 14, 2014 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-K filed February 14, 2014)
3.7
Amendment to Articles of Incorporation approved by shareholders on May 6, 2020 (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q filed August 10, 2020)
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 39 to Form S-11 Registration Statement No. 33-41863, filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T)
4.2
4.3
4.4
Indenture dated as of January 26, 2021, among National Health Investors, Inc. and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K dated January 26, 2021)
4.5
31.1
31.2
32
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

50

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  NATIONAL HEALTH INVESTORS, INC.
  (Registrant)
 
 
Date: May 10, 2021 /s/ D. Eric Mendelsohn
  D. Eric Mendelsohn
  President and Chief Executive Officer
  (duly authorized officer)
 
 
 
Date: May 10, 2021 /s/ John L. Spaid
  John L. Spaid
  Chief Financial Officer
  (Principal Financial Officer)

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