The following discussion and analysis is based primarily on the consolidated financial statements of National Health Investors, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in "Item 1. Business" and "Item 1A. Risk Factors" above. This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Executive Overview
National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed 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 and a specialty hospital. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.
Portfolio
As of December 31, 2021, we had investments in real estate and mortgage and other notes receivable involving 212 facilities located in 33 states. These investments involve 136 senior housing properties, 75 skilled nursing facilities and one hospital, excluding ten properties classified to assets held for sale. These investments (excluding our corporate office of $2.6 million) consisted of properties with an original cost of approximately $2.9 billion, rented under primarily triple-net leases to 31 lessees, and $305.2 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $5.2 million, due from ten borrowers. We classify all of the properties in our portfolio as either senior housing or medical properties. Because our leases represent different underlying revenue sources and result in differing risk profiles, we further classify our senior housing communities as either need-driven (assisted living and memory care communities and senior living campuses) or discretionary (independent living and entrance-fee communities.) Senior Housing - Need-Driven includes assisted living and memory care communities ("ALF") and senior living campuses ("SLC") which primarily attract private payment for services from residents who require assistance with activities of daily living. Need-driven properties are subject to regulatory oversight. Senior Housing - Discretionary includes independent living ("ILF") and entrance-fee communities ("EFC") which primarily attract private payment for services from residents who are making the lifestyle choice of living in an age-restricted multi-family community that offers social programs, meals, housekeeping and in some cases access to healthcare services. Discretionary properties are subject to limited regulatory oversight. There is a correlation between demand for this type of community and the strength of the housing market. Medical Facilities within our portfolio receive payment primarily from Medicare, Medicaid and health insurance. These properties include skilled nursing facilities ("SNF") and specialty hospitals that attract patients who have a need for acute or complex medical attention, preventative medicine, or rehabilitation services. Medical properties are subject to state and federal regulatory oversight and, in the case of hospitals, Joint Commission accreditation. 37 -------------------------------------------------------------------------------- Table of Contents The following tables summarize our investments in real estate and mortgage and other notes receivable as of December 31, 2021 ($ in thousands): Real Estate Properties Properties Beds Revenue % Total Investment Senior Housing - Need-Driven Assisted Living 81 4,350 $ 51,477 17.2 % $ 798,062 Senior Living Campus 11 1,507 17,289 5.8 % 273,111 Total Senior Housing - Need-Driven 92 5,857 68,766 23.0 % 1,071,173 Senior Housing - Discretionary Independent Living 22 2,591 23,566 7.9 % 440,741 Entrance-Fee Communities 11 2,707 61,552 20.6 % 744,420 Total Senior Housing - Discretionary 33 5,298 85,118 28.5 % 1,185,161 Total Senior Housing 125 11,155 153,884 51.5 % 2,256,334 Medical Facilities Skilled Nursing Facilities 72 9,433 82,457 27.6 % 595,414 Hospital 1 64 2,429 0.8 % 40,250 Total Medical Facilities 73 84,886 28.4 % 635,664 Total Real Estate Properties 198 238,770 79.9 % $ 2,891,998 Rental income From Properties Sold and Held for Sale 20,641 Escrow Funds Received From Tenants 11,638 Total Rental Income 271,049
Mortgage and Other Notes Receivable
Senior Housing - Need-Driven 9 565 6,329 2.2 % $ 83,664 Senior Housing - Discretionary 2 714 12,535 4.2 % 142,933 Skilled Nursing Facilities 3 180 402 0.1 % 4,330 Other Notes Receivable - - 5,267 1.8 % 74,235 Total Mortgage and Other Notes Receivable 14 1,459 24,533 8.3 % $ 305,162 Other Income 3,133 Total Revenue $ 298,715 Portfolio Summary1 Properties Revenue2 % Portfolio
Investment
Real Estate Properties 198 $ 238,770 90.7 % $
2,891,998
Mortgage and Other Notes Receivable 14 24,533 9.3 % 305,162 Total Portfolio 212 $ 263,303 100.0 % $ 3,197,160
Portfolio by Operator Type
Public 61 $ 62,539 23.8 % $ 442,027 National Chain (Privately Owned) 18 37,047 14.1 % 617,922 Regional 121 155,676 59.1 % 2,025,719 Small 12 8,041 3.0 % 111,492 Total Portfolio 212 $ 263,303 100.0 % $ 3,197,160 1 Excludes assets held for sale. 2 Excludes rental income from properties sold and held for sale and escrow funds received from tenants for property operating expenses. For the year ended December 31, 2021, operators of facilities who provided 3% or more and collectively 72% 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 The Ensign Group. As of December 31, 2021, our average effective annualized rental income was $8,715 per bed for SNFs, $10,322 per unit for SLCs, $10,641 per unit for ALFs, $3,948 per unit for ILFs, $22,785 per unit for EFCs, and $63,899 per bed for hospital. 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 38 -------------------------------------------------------------------------------- Table of Contents 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. In addition, our operators may experience a material increase in their operating costs, including costs related to enhanced health and safety precautions and increased retention and recruitment labor costs 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. Throughout the pandemic to date, we have granted various rent concessions to tenants whose operations have been adversely affected by the pandemic. When applicable, we have elected not to apply the modification guidance under ASC Topic 842, Leases 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. Our pandemic related rent concessions that will be accounted for as variable lease payments recognized upon cash receipt are shown in the following table ($ in thousands): 2021 Activity 2020 Activity Cumulative Totals Deferrals Abatements Collections Deferrals Abatements Deferrals Abatements Collections Bickford $ 18,250 $ - $ - $ 3,750 $ 2,100 $ 22,000 $ 2,100 $ - Holiday 1,800 - - - - 1,800 - - All Others 6,339 100 82 1,232 50 7,571 150 82 $ 26,389 $ 100 $ 82 $ 4,982 $ 2,150 $ 31,371 $ 2,250 $ 82 The majority of the deferred amounts noted in the table above accrue interest starting at 8% per annum under the terms of each tenant's deferral agreement. Interest income is recorded when received. In addition to the concessions noted above, we have agreed with Bickford to defer $4.0 million in contractual rent due for the first quarter of 2022. We have also reached agreement with three other tenants regarding additional rent deferrals of approximately $0.5 million for the first quarter of 2022. We anticipate some of our tenants may need additional rent deferrals to assist them with the ongoing impact of the pandemic on their operations. The timing and amount of any additional deferrals cannot yet be determined.
In 2021, we modified three leases with two operators that reset and reduced rental income by $1.6 million for the year ended December 31, 2021 and will reduce the rental income by approximately $4.2 million for each of the next two years.
We had approximately $16.4 million in unrestricted cash and cash equivalents on hand and $540.0 million in availability under our unsecured revolving credit facility as of January 31, 2022. Our unsecured revolving credit facility matures August 2022. See "Unsecured Bank Credit Facility" in "Liquidity and Capital Resources" for further discussion. In addition, we believe we continue to have access to additional debt sources and maintain availability under our at-the-market ("ATM") equity issuance program and shelf registration statement to fund our future obligations, although no assurances can be made. We believe these liquidity sources position us to manage through the negative effects of the COVID-19 pandemic. See "Liquidity and Capital Resources" for further discussion.
See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for further information regarding the risks presented by the COVID-19 pandemic.
Holiday Portfolio Update
At the beginning of 2021, we leased 26 ILFs to Holiday. On July 30, 2021, Welltower completed the acquisition of a portfolio of legacy Holiday properties from Fortress Investment Group and entered into a new agreement with Atria Senior Living to assume operations of the Holiday portfolio. These transactions resulted in a Welltower-controlled subsidiary 39 -------------------------------------------------------------------------------- Table of Contents becoming the tenant under our existing master lease for the NHI-owned Holiday real estate assets. In the third quarter of 2021, we sold nine of these properties for net proceeds of $119.7 million. As of December 31, 2021, we leased 16 ILFs, excluding one property classified as asset held for sale on our Consolidated Balance Sheet, with a net book value of $300.6 million. Rental income from our Holiday portfolio was $23.5 million in 2021 prior to the change in tenant ownership. Rental income was $40.7 million and $40.5 million for the years ended December 31, 2020 and 2019, respectively. We have received no rent due under the master lease for these facilities since this change in tenant ownership. Accordingly, we have placed the tenant on cash basis and filed suit in the Delaware Court of Chancery (Case Number 2021-1097-MTZ) against Welltower, Inc. and certain subsidiaries for default under the master lease. Rent due but uncollected and unrecognized for the year ended December 31, 2021, excluding penalties and interest, totaled $11.4 million. As of December 31, 2021, we had a lease deposit of $8.8 million. See Note 8. Commitment and Contingencies in the consolidated financial statements for more details. We continue to explore all remedies available to us under the master lease and related agreements to execute a timely termination of the master lease and transition of the facilities to new operators or managers that will generate cash flows to the Company from our investments in these properties.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We consider an accounting estimate or assumption critical if:
1.the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and 2.the impact of the estimates and assumptions on financial condition or operating performance is material. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements in this report. We believe the accounting estimates listed below are the most critical to fully understanding and evaluating our financial results, and require our most difficult, subjective or complex judgments.
Real Estate Properties
Real property we develop is recorded at cost, including the capitalization of interest during construction. The cost of real property investments we acquire is allocated to net tangible and identifiable intangible assets and liabilities based on their relative fair values. We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. For properties acquired in transactions accounted for as asset purchases, the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets and liabilities acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. The most significant components of our allocations are typically the allocation of fair value to land, equipment, buildings and other improvements, and intangible assets and liabilities, if any. Our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use for real estate allocation. 40
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Impairments of Real Estate Properties
We evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, reclassification of the real estate properties as held for sale, or significant deterioration of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property. Accordingly, management's evaluation requires judgment to determine the existence of indicators of impairment, estimates of undiscounted cash flows. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property. Refer to Note 3. Real Estate Properties and Investments to our consolidated financial statements for more details. There were no material changes in the accounting methodology we use to assess impairment loss during the year ended December 31, 2021. During 2021, we recorded impairment charges of approximately $45.9 million related to eight properties, of which seven of the properties were classified to assets held for sale and their carrying values reduced to estimated fair values less estimated transaction costs and $5.9 million related to two properties sold in 2021.
Lease Classification
Lease accounting standards require that, for purposes of lease classification, we assess whether the lease, by its terms, transfers substantially all of the fair value of the asset under lease. This consideration will drive accounting for the alternative classifications among either operating, sales-type, or direct financing types of leases. For classification purposes, we distinguish cash flows that follow under terms of the lease from those that will derive, subsequent to the lease, from the ultimate disposition or re-deployment of the asset. From this segregation of the sources of cash flow, we are able to establish whether the lease is, in essence, a sale or financing in its having transferred substantially all of the fair value of the leased asset. Accordingly, management's projected residual values represent significant assumptions in our accounting for leases. While we do not incorporate residual value guarantees in our lease provisions, the contractual structure of other provisions provides a basis for expectations of realizable value from our properties, upon expiration of their lease terms. Additionally, we consider historical, demographic and market trends in developing our estimates. For each new lease, we discount our estimate of unguaranteed residual value and include this amount along with the stream of lease payments (also discounted) called for in the lease. We assess the stream of lease payments and the value deriving from eventual return of our property to establish whether the lease payments themselves comprise a return of substantially all of the fair value of the property under lease. We do not use a "bright line" in considering what constitutes "substantially all of the fair value," but we undertake a more focused assessment when the lease payments approach 90% of the composition of all future cash flows expected from the asset.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to assess lease classifications.
Allowance for Credit Losses
For our mortgage and other notes receivable, we evaluate the estimated collectability of contractual loan payments amid general economic conditions on the basis of a like-kind pooling of our loans. We estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In developing our expectation of losses, we will consider financial assets that share similar risk characteristics such as rate, age, type, location and adequacy of collateral on a collective basis. Other note investments which do not share common features will continue to be evaluated on an instrument-by-instrument basis. The determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at market rates, general economic conditions and trends, the duration of the fair value deficiency, and any other relevant factors. When an economic downturn whose duration is expected to span a year or more is encountered, such as the potential impact of the COVID-19 pandemic, we consider projections about an expected economic recovery before we conclude that evidence of impairment exists. While we believe that the carrying amounts of our notes receivable and other investments are realizable, it is possible that future events could require us to make significant adjustments or revisions to these estimates. 41
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While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. We review our assumptions and adjust these estimates accordingly on a quarterly basis. If our credit loss reserve at December 31, 2021 were to differ by 10%, the impact would be $0.5 million. Investment Highlights
Since January 1, 2021, we have completed or announced the following real estate and note investments ($ in thousands):
Date Properties Asset Class Amount 2021 Real Estate Investments Vizion Health Q2 2021 1 HOSP $ 40,250 Navion Senior Solutions Q2 2021 1 SHO 6,600 Note Investments Montecito Medical Real Estate Q2 2021 - MEZZ 50,000 Vizion Health - Brookhaven Q2 2021 1 HOSP 20,000 Navion Senior Solutions Q2 2021 1 SHO 3,600 $ 120,450 Vizion Health In May 2021, we acquired a 64-bed specialty behavioral hospital located in Oklahoma for a total purchase price of $40.3 million, including $0.3 million in closing costs, and concurrently leased the hospital to an affiliate of Vizion Health. The 15-year master lease, which includes two five-year extension options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%. We have committed to additional funding of capital improvements for the hospital of up to $2.0 million which will be added to the lease base as funded. At December 31, 2021, no funds have been drawn. In May 2021, we provided a $20.0 million, five-year loan to Vizion Health-Brookhaven, LLC to finance the acquisition of healthcare operations, including the real and personal property of a behavioral hospital we acquired discussed above. The loan requires monthly principal and interest payments and bears an initial annual interest rate of 8.5% with fixed annual escalators of 2.5% beginning June 1, 2022. Initial principal loan repayments are equal to 90% of the excess cash flow with a monthly minimum as defined in the agreement. Principal repayments are reduced to 50% of the excess cash flow once the outstanding loan balance is reduced below $15.0 million.
Navion Senior Solutions
In June 2021, we acquired a 48-unit assisted living and memory care community in Tennessee for a purchase price of $6.6 million, including closing costs of $0.1 million. The community was added to an existing master lease with Navion Senior Solutions ("Navion") whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each. In May 2021, we provided a ten-year corporate loan to Navion for $3.6 million. The loan requires interest-only payments at an annual interest rate of 8% until June 1, 2024 and gives us first option to provide permanent development financing for a future project.
Montecito Medical Real Estate
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. Funds drawn in accordance with this agreement are required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one-year extensions. At December 31, 2021, we had funded $12.3 million of our commitment that was used to acquire six medical related facilities for a combined purchase price of approximately $60.3 million. 42
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2022 Investment Activity
In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore to construct a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized.
Asset Dispositions
During the year ended December 31, 2021, we completed the following real estate dispositions as described below ($ in thousands):
Net Real Estate Operator Date Properties Asset Class Net Proceeds Investment Other1 Gain/(Impairment)2 Bickford Q2 2021 6 SHO $ 39,924 $ 34,485 $ 1,871 $ 3,568 $ 3,568 Community Health Systems Q2 2021 1 MOB 3,887 946 62 2,879 TrustPoint Hospital Q3 2021 1 HOSP 31,215 21,018 1,562 8,635 Holiday Q3 2021 8 SHO 114,133 113,611 (1,360) 1,882 Quorum Health Q3 2021 1 HOSP 8,314 9,568 - (1,254) Senior Living Management Q3 2021 1 SHO 12,847 3,212 210 9,425 Holiday Q3 2021 1 SHO 5,666 10,388 (81) (4,641) Brookdale Q4 2021 1 ALF 11,880 11,696 - 184 Senior Living Management Q4 2021 1 SLC 7,275 3,335 256 3,684 Genesis Q4 2021 1 SLC 3,723 1,677 (166) 2,211 $ 238,864 $ 209,936 $ 2,354 $ 26,573
1 includes straight-line rent and deferred lease intangibles 2 impairments are included in “Loan and realty losses” in our Consolidated Income Statement for the year ended December 31, 2021
Total rental income related to the disposed properties was $15.2 million, $26.6 million and $27.5 million for years ended December 31, 2021, 2020 and 2019, respectively. Reference Note 3 to the consolidated financial statements for more detail on dispositions. Impairments of Real Estate In 2021, we recorded $5.9 million in impairment charges on two properties that were sold during the year. We recorded impairment charges of $39.5 million on seven properties that were classified to assets held for sale during the year and $6.4 million on one transitioning property whose net carrying value prior to the impairment charge was determined not to be recoverable. In 2020, we had no significant intangible assets recorded on our balance sheet that required assessment for impairment. In 2019, we recognized an impairment loss of $2.5 million, related to the disposition of two Bickford properties located in Indiana.
Notes Receivable Repayment
During the year ended December 31, 2021, LCS-Westminster Partnership IV LLP, an affiliate of LCS, repaid the remaining principal of $61.2 million on its second note of two notes under a master credit agreement ("Note B"). As a result, we recognized the remaining Note B commitment fee of $0.4 million in "Interest income and other" during the year ended December 31, 2021. The balance on its first note ("Note A") was $110.8 million as of December 31, 2021.
Tenant Purchase Options
Certain of our leases contain purchase options allowing tenants to acquire the leased properties. For options exercisable or exercisable in the near future, we are engaged in preliminary negotiations to continue as lessor or in some other capacity.
A summary of these tenant options is presented below ($ in thousands):
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Asset Number of Lease 1st Option Option Contractual Type Properties Expiration Open Year Basis2 Rent MOB1 1 February 2025 Open i $ 318 HOSP1 1 March 2025 Exercised ii $ 2,076 SNF 7 August 2028 2025 iii $ 3,697 SHO 2 May 2035 2027 ii $ 5,592 SNF 1 September 2028 2028 iii $ 492 1 Included in assets held for sale on the Consolidated Balance Sheet as of December 31, 2021. 2 Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by (i) greater of fixed base price or fair market value; (ii) a fixed base price plus a specified share in any appreciation; (iii) fixed base price; or (iv) a fixed capitalization rate on lease revenue. In June 2021, we received notification of a tenant's intention to acquire, pursuant to a purchase option, a hospital located in California. The purchase option calls for a minimum purchase price of $15.0 million with any appreciation above $15.0 million to be split evenly between the parties. The net investment at December 31, 2021 was $13.6 million and was classified in assets held for sale on the Consolidated Balance Sheet as of December 31, 2021. Rental income was $1.9 million, for the years ended December 31, 2021, 2020 and 2019, respectively. The transaction will close no earlier than one year after the receipt of the notice of exercise. We cannot reasonably estimate at this time the probability that any other purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.
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 year ended December 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.
Tenant Concentration
As discussed in more detail in Note 3 to the consolidated financial statements, we have three lessees (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% and collectively 40% of our rental income. NHC is a publicly traded company and we do not report specific occupancy information from them. 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 4Q20 1Q21 2Q21 3Q21 4Q21 December 2021 January 2022 Senior Living Communities 9 77.3% 77.7% 78.5% 80.4% 81.7% 81.7% 81.7% Bickford1 42 79.1% 75.0% 77.4% 80.2% 81.3% 80.9% 81.0% Holiday2 17 78.8% 75.6% 75.8% 77.8% 78.4% 77.2% 77.0% 1Prior period occupancies have been restated to include an additional building, in operation for at least 24-months, and the sale of six properties in the second quarter of 2021. Includes four properties classified as held for sale at December 31, 2021. 2Holiday occupancy for 17 properties is restated retroactively to reflect the sale of nine properties in the third quarter of 2021. Includes one property classified as held for sale at December 31, 2021.
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 44 -------------------------------------------------------------------------------- Table of Contents 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, depreciation and amortization; and management fee true-ups. The eliminations and adjustments reflect covenants in our leases and provide a comparable basis for assessing our various relationships. We believe that EBITDARM is a useful way to analyze the cash potential of a group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/Cash Rent), measuring the ability of the operator to meet its monthly obligation. In addition to EBITDARM and the coverage ratio, we rely on a careful balance sheet analysis, and other analytical procedures to help us identify potential areas of concern relative to our operators' ability to generate sufficient liquidity to meet their obligations, including their obligation to continue to pay the amount due to us. Typical among our operators is a varying lag in reporting to us the results of their operations. Across our portfolio, however, our operators report their results, typically within either 30 or 45 days and at the latest, within 90 days of month's end. For computational purposes, we exclude mortgages and other notes receivable, development and lease-up properties that have been in operation less than 24 months. For stabilized acquisitions in the portfolio less than 24 months and renewing leases with changes in scheduled rent, we include pro forma cash rent. Same-store portfolio coverage excludes properties that have transitioned operators in the past 24 months or assets subsequently sold except as noted. The results of our coverage ratio analysis are presented below on a trailing twelve-month basis, as of September 30, 2021 and 2020 (the most recent periods available). The tables exclude mortgages and other notes receivable, transitioned properties leased pursuant to cash flow-based leases, and development and lease up properties in operation less than 24 months. The tables include pro forma rents for stabilized acquisitions in the portfolio less than 24 months. 45 --------------------------------------------------------------------------------
Table of Contents NHI Total Portfolio By asset type SHO SNF MEDICAL NON-SNF TOTAL Properties 122 74 2 198 3Q20 1.22x 2.94x 2.63x 1.78x 3Q21 1.01x 2.85x 3.00x 1.61x Need Driven excl. Discretionary excl. SLC Market served Need Driven Bickford Discretionary & Holiday Medical Medical excl. NHC Properties 92 50 30 4 76 34 3Q20 1.15x 1.15x 1.28x 1.66x 2.92x 2.19x 3Q21 0.84x 0.76x 1.20x 1.75x 2.86x 2.02x Major tenants NHC1 SLC Bickford Holiday Properties 42 10 42 17 3Q20 3.84x 1.18x 1.16x 1.17x 3Q21 3.94x 1.19x 0.91x 0.88x NHI Same-Store Portfolio2 By asset type SHO SNF MEDICAL NON-SNF TOTAL Properties 116 74 1 191 3Q20 1.21x 2.94x 3.28x 1.77x 3Q21 1.01x 2.85x 3.49x 1.60x Need Driven excl. Discretionary excl. SLC Market served Need Driven Bickford Discretionary & Holiday Medical Medical excl. NHC Properties 86 44 30 4 75 33 3Q20 1.15x 1.14x 1.28x 1.66x 2.95x 2.19x 3Q21 0.83x 0.74x 1.20x 1.75x 2.87x 1.96x Major tenants NHC 1 SLC Bickford Holiday Properties 42 10 42 17 3Q20 3.84x 1.18x 1.16x 1.17x 3Q21 3.94x 1.19x 0.91x 0.88x
1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3 independent living facilities. 2 Excludes properties that have transitioned operators in past 24 months.
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 rising expenses, including wage pressures. Additionally, the COVID-19 pandemic in the U.S. has further softened coverage for these operators as well as across our portfolio. For many of the affected operators, as is typical of our portfolio in general, NHI has security deposits in place and/or 46 -------------------------------------------------------------------------------- Table of Contents 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.
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. We recognized rental income from these nine properties of $3.0 million, $4.6 million and $3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. We recorded real estate impairment charges totaling $24.8 million in 2021 on four of the transition properties, of which three of the properties were classified to assets held for sale on our Consolidated Balance Sheet as of December 31, 2021, and one whose net carrying value prior to the impairment charge was determined not to be recoverable as noted in Investment Highlights.
The following table summarizes the transition properties during the year ended December 31, 2021:
Occupancy1 Facility Name (New Tenant) Units State December 2020
March 2021 June 2021 September 2021 December 2021 Discovery Commons of College Park 148 IN
15.7% 23.1% 36.7% 43.3% 46.6% The Charlotte (SLC) 99 NC 42.9% 46.6% 57.1% 73.6% 76.6% Maybelle Carter (Vitality)2 135 TN 73.1% 68.7% 64.9% 63.7% 65.3% Chancellor TX-IL portfolio3 196 IL/TX 53.7% 54.4% 56.6% 62.8% 66.0% Beaver Dam Assisted Living (BAKA)4 120 WI 60.4% 60.4% 60.6% 57.9% 62.7% 698 49.0% 50.5% 54.7% 59.5% 62.7% 1 Monthly Average 2 Classified to Assets Held for Sale and recorded an impairment charge in 2021 3 Two Texas Properties reclassified to Assets Held for Sale and recorded an impairment charge in 2021 4 Recorded an impairment charge in 2021
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. Refer to Note 3. Real Estate Properties and Investments in the consolidated financial statements. Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses, which broadened the information we must consider in developing our expected credit loss estimates to include forecasted economic information in addition to our historical experience. We have established a reserve for estimated credit losses of $5.2 million and a liability of $1.0 million for estimated credit losses on unfunded loan commitments as of December 31, 2021. We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary. We believe that the net carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make additional significant adjustments to these carrying amounts. 47 -------------------------------------------------------------------------------- Table of Contents Results of Operations The significant items affecting revenues and expenses are described below ($ in thousands): Years Ended December 31, Period Change 2021 2020 $ % Revenues: Rental income HOSP leased to Vizion Health $ 2,034 $ - $ 2,034 NM EFCs leased to Senior Living Communities 45,037 43,440 1,597 3.7 % CCRC leased to Timber Ridge OpCo 9,251 8,346 905 10.8 % ALFs leased to Encore Senior Living1 2,997 2,097 900 42.9 % SNF leased to Ignite Team Partners 2,236 1,492 744 49.9 % ALFs leased to Comfort Care Senior Living 2,541 3,104 (563) (18.1) % SHOs leased to Discovery Senior Living 9,662 11,073 (1,411) (12.7) % ALFs leased to Senior Living Management 4,224 5,980 (1,756) (29.4) % ALFs leased to Wingate 2,029 3,916 (1,887) (48.2) % SHOs leased to Holiday Retirement 13,024 25,313 (12,289) (48.5) % ALFs leased to Bickford Senior Living 24,402 38,361 (13,959) (36.4) % Other new and existing leases 107,618 109,682 (2,064) (1.9) % Current year disposals and held for sale 19,753 24,340 (4,587) (18.8) % 244,808 277,144 (32,336) (11.7) % Straight-line rent adjustments, new and existing leases 14,603 20,411 (5,808) (28.5) % Escrow funds received from tenants for property operating expenses 11,638 9,653 1,985 20.6 % Total Rental Income 271,049 307,208 (36,159) (11.8) % Interest income from mortgage and other notes Bickford construction loans 4,181 2,758 1,423 51.6 % Vizion Health 1,027 - 1,027 NM Encore Senior Living1 construction loans 1,835 1,163 672 57.8 % American HealthCare, LLC 402 723 (321) (44.4) % Senior Living Communities 3,156 3,887 (731) (18.8) % Life Care Services mortgage loan 10,164 11,438 (1,274) (11.1) % Mortgage loan payoffs - 1,372 (1,372) (100.0) % Other existing mortgages and notes 3,769 3,680 89 2.4 %
Total Interest Income from Mortgage and Other
Notes 24,534 25,021 (487) (1.9) % Other income 3,132 582 2,550 NM Total Revenue 298,715 332,811 (34,096) (10.2) % Expenses: Depreciation CCRC leased to Timber Ridge OpCo 3,748 3,436 312 9.1 % ALFs leased to Encore Senior Living1 1,042 765 277 36.2 % HOSP leased to Vizion Health 608 - 608 NM SNF leased to Ignite Team Partners 853 445 408 91.7 % Current year disposals and held for sale 6,646 7,742 (1,096) (14.2) % Other new and existing assets 67,901 70,762 (2,861) (4.0) % Total Depreciation 80,798 83,150 (2,352) (2.8) % Interest 50,810 52,882 (2,072) (3.9) % Non-cash share-based compensation expense 8,415 3,062 5,353 NM Loan and realty losses 52,766 991 51,775 NM Taxes and insurance on leased properties 11,638 9,653 1,985 20.6 % 48 --------------------------------------------------------------------------------
Table of Contents Other expenses 11,712 12,028 (316) (2.6) % 216,139 161,766 54,373 33.6 % Loss on early retirement of debt (1,912) (3,924) 2,012 (51.3) % Loss from equity method investment (1,545) (3,126) 1,581 (50.6) % Gains on sales of real estate 32,498 21,316 11,182 52.5 % Other income 350 - 350 NM Net income 111,967 185,311 (73,344) (39.6) % Less: net income attributable to noncontrolling interests (163) (185) 22 (11.9) %
Net income attributable to common stockholders $ 111,804 $ 185,126 $ (73,322)
(39.6) % NM - not meaningful 1 Formerly 41 Management
Financial highlights for the year ended December 31, 2021, compared to 2020 were as follows:
•Rental income received from our tenants decreased $36.2 million, or 11.8%, primarily as a result of additional rent concessions granted for 2021 totaling $26.4 million, Holiday's nonpayment of contractual rent, excluding penalties and interest, of $11.4 million and current year disposals and held for sale decrease of approximately $4.6 million, net of rental income of new investments funded since December 2020.
•Rental income includes a $5.8 million decrease in straight-line rent adjustments based on the timing and volume of entering into new leases and the overall rate of increase in existing leases and property dispositions in 2021.
•Funds received for reimbursement of property operating expenses totaled $11.6 million for the year ended December 31, 2021, and are reflected as a component of rental income. These property operating expenses are recognized in operating expenses in the line item "Taxes and insurance on leased properties." The increase in the reimbursement income and corresponding property expenses is the result of additional amounts received from tenants and expenses paid on their behalf.
•Interest income from mortgage and other notes decreased $0.5 million or 1.9%, primarily due to net paydowns on loans.
•Other income increased $2.6 million primarily due to the recognition of a lease termination fee upon disposition of a property during 2021.
•Depreciation expense decreased $2.4 million or 2.8% primarily due to dispositions of real estate investments completed since December 2020.
•Interest expense decreased $2.1 million, or 3.9%, as a result of the convertible bond that matured in April 2021, the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility. •Non-cash share-based compensation expense increased $5.4 million from the same period one year ago. The Company's stock option grants in the first quarter of 2021 had an increase in estimated fair value of $9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company's common stock price caused by the COVID-19 pandemic. In addition, the Company granted 60,000 additional options in 2021 compared to 2020, of which 50,000 options relate to the two new directors added during 2020.
•Loan and realty losses increased $51.8 million primarily as a result of impairment charges on eight real estate properties and the disposal of two properties in 2021 as described under the heading “Assets Held for Sale and Impairments of Real Estate” in Note 3 to the consolidated financial statements.
•Loss on early retirement of debt of $1.9 million for the year ended December 31, 2021, represents the remaining deferred financing costs expensed upon repayment of the $100.0 million term loan in January 2021 and the repayment of two Fannie Mae loans in the fourth quarter of 2021. The prior year amount represents the prepayment fee of $1.6 49 -------------------------------------------------------------------------------- Table of Contents million and unamortized discount and deferred financing cost of $1.2 million and $1.1 million, respectively, recognized on the repayment of ten HUD mortgages loans in 2020. •Gains on sales of real estate increased $11.2 million, or 52.5%, for the year ended December 31, 2021, as compared to the same period in the prior year. For the year ended December 31,2021, we recorded $32.5 million in gains from dispositions of 22 real estate assets. Reference "Asset Dispositions" in Note 3 to the consolidated financial statements for more information. For the year ended December 31, 2020, we disposed of a portfolio of eight assisted living properties to Brookdale Senior Living. The following table summarizes our real estate under lease to transitioning tenants ($ in thousands): Years Ended December 31, Period Change 2021 2020 $ % Revenues: Rental income SHOs leased to Chancellor Health Care1 $ - $ 850 $ (850) (100.0) % SHO leased to Senior Living Communities 465 166 299 NM SHO leased to Discovery Senior Living 179 62 117 NM SLC leased to Vitality Senior Living1 6 273 (267) (97.8) % ALF leased to BAKA Enterprises 750 780 (30) (3.8) % Straight-line rent adjustments 409 2,462
(2,053) (83.4) %
Total Rental Income 1,809 4,593 (2,784) (60.6) % Expenses: Depreciation SHOs leased to Chancellor Health Care 1,508 1,623 (115) (7.1) % SHO leased to Senior Living Communities 612 617 (5) (0.8) % SHO leased to Discovery Senior Living 684 686 (2) (0.3) % SLC leased to Vitality Senior Living 474 631 (157) (24.9) % ALF leased to BAKA Enterprises 539 539 - - % Total Depreciation 3,817 4,096 (279) (6.8) % Legal - (16) 16 (100.0) % Franchise, excise and other taxes - 21 (21) (100.0) % Impairments of real estate 24,818 - 24,818 NM 28,635 4,101 24,534 NM Net income (loss) $ (26,826) $ 492 $ (27,318) NM
1 Included in assets held for sale
50 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources •As of December 31, 2021, we had $550.0 million available to draw on our revolving credit facility that matures in August 2022, see Unsecured Bank Credit Facility below for more discussion on the status of renewal, $37.4 million in unrestricted cash and cash equivalents, and the potential to access the remaining $415.7 million through the issuance of common stock under the Company's $500.0 million at-the-market ("ATM") equity program.
•In January 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes due 2031.
•In April 2021, our 3.25% senior unsecured convertible notes matured. We paid $67.1 million, including accrued interest of $1.0 million and a $6.1 million conversion premium, to retire the convertible notes. •In the first quarter of 2021, we issued 661,951 common shares through our ATM program at an average price of $73.62, resulting in net proceeds of approximately $48.0 million, initially used to pay down our revolving credit facility.
•In 2021, we reduced borrowings on our unsecured bank credit facility by $573.0 million.
•In December 2021, we repaid two Fannie Mae mortgage loans with a combined balance of $17.9 million, plus accrued interest of $0.1 million and a prepayment fee of $1.5 million. Sources and Uses of Funds Our primary sources of cash include rent payments, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our stockholders and general corporate overhead.
These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below ($ in thousands):
Year Ended One Year Change Year Ended One Year Change 12/31/2021 12/31/2020 $ % 12/31/2019 $ % Cash and cash equivalents and restricted cash, January 1 $ 46,343 $ 15,669 $ 30,674 195.8 % $ 9,912 $ 5,757 58.1 % Net cash provided by operating activities 210,859 232,148 (21,289) (9.2) % 240,955 (8,807) (3.7) % Net cash provided by (used in) investing activities 185,277 (89,712) 274,989 (306.5) % (342,521) 252,809 (73.8) % Net cash provided by (used in) financing activities (402,994) (111,762) (291,232) 260.6 % 107,323 (219,085) NM Cash and cash equivalents and restricted cash, December 31 $ 39,485 $ 46,343 $ (6,858) (14.8) % $ 15,669 $ 30,674 195.8 % Operating Activities - Net cash provided by operating activities for the years ended December 31, 2021 and December 31, 2020, which includes rental income from new investments completed, lease payment collections arising from escalators on existing leases and interest payments on new real estate and note investments completed during 2021 and 2020, was impacted by additional rent concessions granted for 2021 totaling $26.4 million, Holiday's nonpayment of contractual rent, excluding penalties and interest, of $11.4 million and property dispositions of approximately $4.6 million. Investing Activities - Net cash flows provided by investing activities for the year ended December 31, 2021 was comprised primarily of $122.6 million of investments in mortgage and other notes and renovations and acquisitions of real estate, offset by the proceeds from the sales of real estate of $238.9 million and the collection of principal on mortgage and other notes receivable of $67.8 million. Net cash flows used in investing activities for the year ended December 31, 2020 was comprised primarily of $175.1 million of investments in real estate and notes, and was partially offset by the collection of principal on mortgage and other notes receivable of $46.6 million and $39.6 million in net proceeds from the disposition of real estate assets. Financing Activities - Net cash used in financing activities for the year ended December 31, 2021 differs from the same period in 2020 primarily as a result of a $248.8 million decrease in net borrowings, inclusive of a $400.0 million senior note offering, a $13.3 million increase in proceeds from issuance of common shares and dividend payments which increased $11.7 million over the same period in 2020. Debt Obligations 51
-------------------------------------------------------------------------------- Table of Contents As of December 31, 2021, we had outstanding debt of $1.2 billion. Reference Note 7 to the 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 $925.0 million bank credit facility, which consists of two term loans - $75.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility with a maturity in August 2022. In April 2021, the Company exercised its one year extension option on the revolving credit facility by paying a 10 basis point extension fee totaling $0.6 million, extending the maturity of the revolver to August 2022. Some combination of cash on hand, proceeds from recent and planned asset sales and operating cash flows is expected to be used to pay off the $75.0 million term loan at its maturity in August 2022. We are negotiating with the banks comprising the lending syndicate under the Credit Agreement the significant terms for a new credit agreement that will provide us with a four-year initial term $700.0 million senior unsecured revolving credit facility that will replace the existing facility. The new credit agreement will also allow for an increase of up to $300.0 million in aggregate incremental facilities, comprised of additional revolving capacity or term loans. We have received firm commitment letters from three banks representing $345.0 million. As currently negotiated, the new facility will bear interest at a variable rate based on the Secured Overnight Financing Rate ("SOFR") plus a term spread adjustment and an applicable margin based upon on our credit ratings. We expect to close on the new agreement in advance of the August 2022 maturity date of the existing credit agreement and are currently scheduled to close by the end of the first quarter of 2022. We currently project having sufficient liquidity from a combination of cash on hand, proceeds form recent and planned asset sales and operating cash flows that can be used to pay off the $75.0 million term loan at its maturity in August 2022 should we experience a delay in executing the new agreement. Effective August 1, 2021, we exercised our one-time option included in our credit agreements to shift from the leverage-based interest schedule to the ratings-based interest schedule. This change potentially reduces the volatility of our interest costs on borrowings under the credit agreements during periods when our leverage may fluctuate higher. Our decision to move to the credit ratings-based interest schedule considered the relative costs under each interest schedule in addition to our desire to have a more stable interest cost if our leverage were to fluctuate. As of December 31, 2021, the LIBOR spreads on the revolver and term loans were 120 bps and a blended 127 bps, respectively, based on our current debt ratings. The facility fee was 25 bps per annum. At December 31, 2021, no amount was outstanding under the revolving facility. On December 31, 2021, our $400 million in interest rate swaps expired, leaving the $375.0 million outstanding variable rate debt exposed to interest rate risk. Our swaps and the financial instruments to which they relate are described below, under the caption "Interest Rate Swap Agreements." The current LIBOR spreads and facility fee reflect our ratings compliance based on the applicable margin for LIBOR loans at Level 4 in the Interest Rate Schedule provided below in summary format: Interest Rate Schedule LIBOR Spread Level Debt Ratings Revolver $300m Term Loan $100m Term Loan Revolver Facility Fee 1 A-/A3 0.83% 0.85% 0.90% 0.13% 2 BBB+/Baa1 0.90% 0.90% 0.95% 0.15% 3 BBB/Baa2 1.00% 1.00% 1.10% 0.20% 4 BBB/Baa3 1.20% 1.25% 1.35% 0.25% 5 Lower than BBB/Baa3 1.55% 1.65% 1.75% 0.30%
Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below “BBB-/Baa3” (not shown below Level 5) the debt under our credit agreements will be subject to defined increases in interest rates and fees.
52 -------------------------------------------------------------------------------- Table of Contents 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 were within required limits for each reporting period in 2021 and 2020. The calculation of our leverage ratio involves intermediate determinations of our "total indebtedness" and of our "total asset value," as defined in the 2017 Agreement. The 2018 Agreement generally includes the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement. Senior Notes Offering - On January 26, 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually on February 1 and August 1 of each year, beginning on August 1, 2021 (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, 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 Consolidated Balance Sheet as of December 31, 2021. When we take on new debt or when we modify or replace existing debt, we incur debt issuance costs. These costs are subject to amortization over the term of the new debt instrument and may result in the write-off of fees associated with debt which has been replaced or modified.
Debt Maturities – Reference Note 7 to the consolidated financial statements for more information on our debt maturities.
Credit Ratings - Moody's Investors Services ("Moody's) announced on November 5, 2020 that it assigned an investment grade issuer credit rating and a senior unsecured debt rating of 'Baa3' with a "Negative" outlook to the Company. Moody's released a credit opinion on October 31, 2021 which affirmed the rating and outlook for the Company. Both Fitch and S&P Global announced in November 2019 a public issuer credit rating of BBB- with an outlook of "Stable". Fitch confirmed its rating most recently on December 9, 2021, and S&P Global confirmed its rating on November 16, 2021. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating 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 SOFR. Additionally, banking regulators encouraged 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 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. 53 -------------------------------------------------------------------------------- Table of Contents We calculate our fixed charge coverage ratio as approximately 5.5x for the year ended December 31, 2021 (see our discussion below under the heading Adjusted EBITDA including a reconciliation to our net income). Giving effect to significant acquisitions, financings, disposals and payoffs on an annualized basis, our consolidated net debt to Adjusted EBITDA ratio is approximately 4.8x for the year ended December 31, 2021 ($ in thousands): Consolidated Total Debt $
1,242,883
Less: cash and cash equivalents (37,412) Consolidated Net Debt $ 1,205,471 Adjusted EBITDA $ 266,645
Annualized impact of recent investments, disposals and payoffs (15,187)
$
251,458
Consolidated Net Debt to Adjusted EBITDA 4.8 x Interest Rate Swap Agreements On December 31, 2021, our $400.0 million interest rate swap agreements in place to hedge against fluctuations in variable interest rates applicable to our bank loans matured. Therefore, we had no remaining interest rate swap agreements outstanding. In June 2020, $210.0 million notional amount of swaps matured. For instruments that were designated and qualified 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.
Supplemental Guarantor Financial Information
The Company's $925.0 million bank credit facility, unsecured private placement term loans due January 2023 through January 2027 with an aggregate principal amount of $400.0 million and 2031 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company's subsidiaries, except for certain excluded subsidiaries ("Guarantors"). The Guarantors are either owned, controlled or are affiliates of the Company, which are included in the Company's consolidated financial statements. The following tables present summarized financial information for the Company and the Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands): As of December 31, 2021 Real estate properties, net $ 1,977,370 Other assets, net 480,878 Note receivable due from non-guarantor subsidiary 81,396 Totals assets $ 2,539,644 Debt $ 1,166,380 Other liabilities 76,227 Total liabilities $ 1,242,607 Noncontrolling interest $ 398 54
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Table of Contents Year Ended December 31, 2021 Revenues $ 262,946 Interest revenue on note due from non-guarantor subsidiary
4,657
Expenses
189,373
Loss from equity method investee
(1,545)
Gains on sales of real estate
32,498
Loss on early retirement of debt (451) Other income 350 Net income $ 109,082
Net income attributable to NHI and the subsidiary guarantors $
108,920 Equity At December 31, 2021, we had 45,850,599 shares of common stock outstanding with a market value of $2.6 billion. Equity on our Consolidated Balance Sheet totaled $1.5 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. Sustaining long-term dividend growth will require that we consider all sources of capital with the goal of maintaining a low-leverage balance sheet and staggered debt maturities as mitigation against potential adverse changes in the business of our industry, tenants and borrowers. We intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of equity and debt capital on a leverage neutral basis will generate sufficient returns to our stockholders. We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year ended 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). Our dividends per share for the last three years are as follows: 2021 2020 2019 $ 3.8025 $ 4.41 $ 4.20 At-the-Market (ATM) Equity Program - We maintain an ATM program which allows us to sell our common stock directly into the market. In March 2020 the Company entered into a new ATM equity offering sales agreement pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $500.0 million of the Company's common shares through the ATM equity program.
The following table summarizes the share issuances under our ATM program as of December 31, 2021 ($ in thousands):
Year Shares Weighted Average Share Price Net Proceeds 2020 535,990 $ 66.30 $ 35,003 2021 661,951 $ 73.62 48,004 1,197,941 $ 83,007
The table above does not include indirect legal and accounting costs associated with updating and maintaining our shelf registration statement.
Our use of ATM proceeds rebalanced our leverage in response to our acquisitions and keeps our options flexible for further expansion. We typically use of proceeds from the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. We view our ATM program as an 55 -------------------------------------------------------------------------------- Table of Contents effective way to match-fund our smaller acquisitions by exercising control over the timing and size of transactions and achieving a more favorable cost of capital as compared to larger follow-on offerings. 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.
Material Cash Requirements
Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter consist of long-term debt maturities; interest on long-term debt; and contractually obligated expenditures. We expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our revolving credit facility, refer to Unsecured Bank Credit Facility above, and sales from real estate investments, although we may choose to seek alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt and equity capital markets.
The following table summarizes information as of December 31, 2021 related to our material cash requirements ($ in thousands):
Twelve Months Ended Total December 31, 2022 Thereafter Debt maturities $ 1,249,116 $ 75,389 $ 1,173,727 Interest payments 78,857 37,157 41,700 Construction and loan commitments 83,144 45,465 37,679 $ 1,411,117 $ 158,011 $ 1,253,106 Our debt maturities in 2022 are comprised primarily of a $75 million term loan maturity in August 2022. Reference Unsecured Bank Credit Facility above, for more discussion of the status of the Company's renewal of its credit facility.
We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our low net leverage will be sufficient to meet all of our short-term and long-term financial commitments.
Loan and Development Commitments and Contingencies
The following tables summarize information as of December 31, 2021 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements ($ in thousands): Asset Class Type Total Funded Remaining1 Loan Commitments: LCS Sagewood Note A SHO Construction $ 118,800 $ (110,794) $ 8,006 Bickford Senior Living SHO Construction 42,900 (36,655) 6,245 Encore Senior Living2 SHO Construction 22,200 (17,708) 4,492 Senior Living Communities SHO Revolving Credit 20,000 (9,566) 10,434 Encore Senior Living SHO Construction 10,800 (9,071) 1,729 Timber Ridge OpCo SHO Working Capital 5,000 - 5,000 Watermark Retirement SHO Working Capital 5,000 (3,307) 1,693 Montecito Medical Real Estate MOB Mezzanine Loan 50,000 (12,320) 37,680 $ 274,700 $ (199,421) $ 75,279
1 Of the total $37,600 is expected to be payable within 12 months with the remaining commitment due between three to five years. 2 formerly 41 Management
See Note 4 to our consolidated financial statements for 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 $1.0
56 -------------------------------------------------------------------------------- Table of Contents million as of December 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. Asset Class Type Total Funded Remaining1 Development Commitments: Woodland Village SHO Renovation $ 7,515 $ (7,425) $ 90 Senior Living Communities SHO Renovation 9,930 (9,930) - Discovery Senior Living SHO Renovation 900 (900) - Watermark Retirement SHO Renovation 6,500 (4,436) 2,064 Navion Senior Solutions SHO Renovation 3,650 (213) 3,437 Other SHO Various 2,850 (576) 2,274 $ 31,345 $ (23,480) $ 7,865
1 Expected to be payable within 12 months..
In addition to the commitments listed above, one of our consolidated real estate partnerships has committed to 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 December 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 Sante Partners SHO 2,000 - 2,000 $ 33,850 $ (1,500) $ 32,350 We adjust rental income for the amortization of lease inducements paid to our tenants. Amortization of lease inducement payments against revenues was $1.0 million, $1.0 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
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.
East Lake Capital Management LLC
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. On September 22, 2021, all parties entered into an agreement whereby NHI was entitled to receive $0.4 million to settle all claims for this matter. The settlement amount was received in December 2021 and recognized in "Other income" in the Consolidated Statement of Income for the year ended December 31, 2021. In addition, we had approximately $0.3 million in liabilities recorded related to the facilities subject to the litigation that was reversed and recognized in "Interest income and other" for the year ended December 31, 2021. 57 -------------------------------------------------------------------------------- Table of Contents Welltower, Inc. In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company in which 17 senior living facilities were included in Holiday's portfolio and are governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We have received no rent due under the master lease for these facilities since this change in tenant ownership occurred. On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Vorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the "Welltower Entities") in Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contend that the Welltower Entities have failed repeatedly to honor their legal obligations to NHI. In particular, we assert that the Welltower Entities acquired assets from a third party, Holiday Retirement, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Welltower Entities. The Litigation further asserts that the Welltower Entities currently owe unpaid contractual rent. Unpaid contractual rent , excluding penalties and interest, totaled $11.4 million for the year ended December 31, 2021.
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 no longer presented Adjusted Funds From Operations as a supplemental measure of operating performance.
Funds From Operations – FFO
Our FFO per diluted common share for the year ended December 31, 2021 decreased $0.89 or 16.2% for the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday's nonpayment of rent and property dispositions, partially offset by new investments completed since December 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 year ended December 31, 2021 decreased $1.00 or 17.9% for the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday's nonpayment of rent and property dispositions, partially offset by new investments completed since December 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 estate assets and liabilities, and recoveries of previous write-downs. FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue. 58 -------------------------------------------------------------------------------- Table of Contents Funds Available for Distribution - FAD Our Normalized FAD for the year ended December 31, 2021 decreased $30.3 million or 12.6% from the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday's nonpayment of rent and property dispositions, partially offset by new investments completed since December 2020. In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line lease revenue, amortization of the original issue discount on our senior unsecured notes, amortization of debt issuance costs, non-cash share based compensation, as well as certain non-cash items related to our equity method investment. Normalized FAD is an important supplemental performance measure for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires any discount or premium related to indebtedness and debt issuance costs to be amortized as non-cash adjustments to earnings. We also adjust Normalized FAD for the net change in our allowance for expected credit losses, non-cash share based compensation as well as certain non-cash items related to our equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to stockholders. The following table reconciles net income, the most directly comparable GAAP metric, to FFO, Normalized FFO and Normalized FAD and is presented for both basic and diluted weighted average common shares ($ in thousands, except share and per share amounts): 59
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Table of Contents Years ended December 31, 2021 2020 2019 Net income attributable to common stockholders $ 111,804
$ 185,126 $ 160,456 Elimination of certain non-cash items in net income: Depreciation
80,798 83,150 76,816 Depreciation related to noncontrolling interests (839) (777) (52) Gains on sales of real estate (32,498) (21,316) - Impairments of real estate 51,817 - 2,500 NAREIT FFO attributable to common stockholders 211,082 246,183 239,720 Loss on early retirement of debt 1,912 3,924 823 Non-cash write-off of straight-line rent receivable 709 380 - Recognition of unamortized note receivable commitment fees (375) - - Lease termination fee (2,464) - - Litigation settlement (616) - - Normalized FFO attributable to common stockholders 210,248 250,487 240,543 Straight-line lease revenue, net (15,312) (20,791) (22,084) Straight-line lease revenue, net, related to noncontrolling interests 91 111 13
Straight-line lease expense related to equity method investment
46 113 - Amortization of lease incentives 1,026 987 845 Amortization of original issue discount 295 303 761 Amortization of debt issuance costs 2,404 2,979 2,805 Amortization related to equity method investment 1,109 1,261 - Note receivable credit loss expense 949 991 - Equity method investment capital expenditures (420) (420) - Equity method investment non-refundable fees received 622 660 - Non-cash share-based compensation 8,415 3,061 3,646
Normalized FAD attributable to common stockholders $ 209,473
$ 239,742 $ 226,529
BASIC
Weighted average common shares outstanding 45,714,221 44,696,285 43,417,828
NAREIT FFO attributable to common stockholders per share $ 4.62
$ 5.51 $ 5.52 Normalized FFO attributable to common stockholders per share
$ 4.60
$ 5.60 $ 5.54
DILUTED
Weighted average common shares outstanding 45,729,497 44,698,004 43,703,248
NAREIT FFO attributable to common stockholders per share $ 4.62
$ 5.51 $ 5.49 Normalized FFO attributable to common stockholders per share $ 4.60 $ 5.60 $ 5.50 60
-------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA We consider Adjusted EBITDA to be an important supplemental measure because it provides information which we use to evaluate our performance and serves as an indication of our ability to service debt. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization, excluding real estate asset impairments and gains on dispositions and certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods. These items include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs. Adjusted EBITDA also includes our proportionate share of unconsolidated equity method investments presented on a similar basis. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies. 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):
Years
ended December 31,
2021 2020 2019 Net income $ 111,967 $ 185,311 $ 160,449 Interest expense 50,810 52,882 56,299 Franchise, excise and other taxes 788 534 1,550 Depreciation 80,798 83,150 76,816 NHI's share of EBITDA adjustments for unconsolidated entities 2,848 1,495 - Gains on sales of real estate (32,498) (21,316) - Impairments of real estate 51,817 - 2,500 Litigation settlement (616) - - Loss on early retirement of debt 1,912 3,924 823 Non-cash write-off of straight-line rent receivable 709 380 - Note receivable credit loss expense 949 991 - Lease termination fee (2,464) - - Recognition of unamortized note receivable commitment fees (375) - - Adjusted EBITDA $ 266,645 $ 307,351 $ 298,437 Interest expense at contractual rates $ 40,866 $ 43,458 $ 53,923 Interest rate swap payments, net 7,306 6,352 294 Principal payments 371 1,082 1,187 Fixed Charges $ 48,543
$ 50,892 $ 55,404
Fixed Charge Coverage 5.5x 6.0x 5.4x
For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.
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