NATIONAL HEALTH INVESTORS INC [NHI] Filings

10-Q 1 nhi-20220930.htm 10-Q nhi-20220930

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

September 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

_____________

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 43,388,742 shares of common stock outstanding of the registrant as of November 1, 2022.

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			Page
Part I. Financial Information

Item 1. Financial Statements			3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			31

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			60

Item 4. Controls and Procedures.			61

Part II. Other Information

Item 1. Legal Proceedings			62

Item 1A. Risk Factors			62


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63

Item 6. Exhibits			64

Signatures			65

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NATIONAL HEALTH INVESTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	September 30, 2022		December 31, 2021
	(unaudited)
Assets:
Real estate properties:
Land	$	176,795	$	186,658
Buildings and improvements	2,560,646		2,707,422
Construction in progress	2,835		468
	2,740,276		2,894,548
Less accumulated depreciation	(599,423)		(576,668)
Real estate properties, net	2,140,853		2,317,880
Mortgage and other notes receivable, net of reserve of $6,940 and $5,210, respectively	207,169		299,952
Cash and cash equivalents	28,811		37,412
Straight-line rent receivable	81,959		96,198
Assets held for sale, net	32,608		66,398
Other assets, net	17,385		21,036
Total Assets	$	2,508,785	$	2,838,876

Liabilities and Stockholders’ Equity:
Debt	$	1,114,999	$	1,242,883
Accounts payable and accrued expenses	22,997		23,181
Dividends payable	39,050		41,266
Lease deposit liabilities	—		8,838
Deferred income	5,094		5,725
Total Liabilities	1,182,140		1,321,893

Commitments and contingencies

Redeemable noncontrolling interests	11,197		—

National Health Investors, Inc. Stockholders’ Equity:
Common stock, $0.01 par value, 100,000,000 shares authorized
43,388,742 and 45,850,599 shares issued and outstanding, respectively	434		459
Capital in excess of par value	1,598,385		1,591,182
Cumulative dividends in excess of net income	(292,449)		(84,558)

Total National Health Investors, Inc. Stockholders’ Equity	1,306,370		1,507,083
Noncontrolling interests	9,078		9,900
Total Equity	1,315,448		1,516,983
Total Liabilities and Stockholders’ Equity	$	2,508,785	$	2,838,876

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, 2021 was derived from the audited consolidated financial statements at that date.

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NATIONAL HEALTH INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
Revenues:
Rental income	$	59,394	$	67,043	$	163,935	$	210,143
Resident fees and services	12,013		—		24,005		—
Interest income and other	4,891		6,790		19,584		18,905
	76,298		73,833		207,524		229,048
Expenses:
Depreciation	17,533		20,035		53,577		61,499
Interest	11,412		12,715		32,472		38,528
Senior housing operating expenses	9,239		—		18,352		—
Legal	88		117		2,254		207
Franchise, excise and other taxes	225		244		694		709
General and administrative	4,744		3,650		17,893		15,229
Taxes and insurance on leased properties	2,358		3,182		7,553		7,519
Loan and realty losses	11,329		22,425		39,951		23,596
	56,928		62,368		172,746		147,287
Gains on sales of real estate, net	14,840		19,941		28,342		26,426
Gain (loss) on operations transfer, net	19		—		(710)		—
Gain on note payoff	—		—		1,113		—
Loss on early retirement of debt	—		—		(151)		(451)
(Losses) gains from equity method investment	—		(557)		569		(2,274)
Net income	34,229		30,849		63,941		105,462
Less: net loss (income) attributable to noncontrolling interests	239		(35)		599		(135)
Net income attributable to common stockholders	$	34,468	$	30,814	$	64,540	$	105,327

Weighted average common shares outstanding:
Basic	44,339,975		45,850,599		45,236,696		45,668,762
Diluted	44,402,582		45,851,424		45,261,123		45,689,091

Earnings per common share:
Net income attributable to common stockholders - basic	$	0.78	$	0.67	$	1.43	$	2.31
Net income attributable to common stockholders - diluted	$	0.78	$	0.67	$	1.43	$	2.31

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 COMPREHENSIVE INCOME

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)

Net income	$	34,229	$	30,849	$	63,941	$	105,462
Other comprehensive income:
Increase in fair value of cash flow hedges	—		(46)		—		(128)
Reclassification for amounts recognized as interest expense	—		1,851		—		5,449
Total other comprehensive income	—		1,805		—		5,321
Comprehensive income	34,229		32,654		63,941		110,783
Less: comprehensive loss (income) attributable to noncontrolling interests	239		(35)		599		(135)
Comprehensive income attributable to common stockholders	$	34,468	$	32,619	$	64,540	$	110,648

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)


	Nine Months Ended
	September 30,
	2022		2021
	(unaudited)
Cash flows from operating activities:
Net income	$	63,941	$	105,462
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	53,577		61,499
Amortization of debt issuance costs, debt discounts and prepaids	3,216		3,281
Amortization of commitment fees and note receivable discounts	(802)		(645)
Amortization of lease incentives	7,477		774
Straight-line rent adjustments	11,360		(12,189)
Non-cash interest income on mortgage and other notes receivable	(3,256)		(1,351)
Non-cash lease deposit liability recognized as rental income	(8,838)		—
Gains on sales of real estate, net	(28,342)		(26,426)
Gain on note payoff	(1,113)		—
(Gains) losses from equity method investment	(569)		2,274
Loss on operations transfer, net	710		—
Loss on early retirement of debt	151		451
Loan and realty losses	39,951		23,596
Payment of lease incentives	—		(1,042)
Non-cash share-based compensation	7,576		7,427
Changes in operating assets and liabilities:
Other assets	(4,213)		(3,138)
Accounts payable and accrued expenses	(2,555)		(2,591)
Deferred income	712		119
Net cash provided by operating activities	138,983		157,501
Cash flows from investing activities:
Investments in mortgage and other notes receivable	(30,820)		(54,887)
Collections of mortgage and other notes receivable	117,973		64,509
Acquisition of real estate	(4,876)		(46,817)
Proceeds from sales of real estate	168,957		203,147
Investments in renovations of existing real estate	(4,132)		(3,006)
Investments in equipment	(528)		(64)

Distributions from equity method investment	569		476
Net cash provided by investing activities	247,143		163,358
Cash flows from financing activities:
Proceeds from revolving credit facility	165,000		95,000
Payments on revolving credit facility	(155,000)		(393,000)

Payments on term loans	(135,290)		(250,277)
Proceeds from issuance of senior notes	—		396,784
Debt issuance costs	(4,607)		(5,018)
Equity issuance costs	(21)		—
Proceeds from issuance of common shares, net	—		47,904
Distributions to noncontrolling interests	(757)		(692)
Convertible note redemption	—		(66,076)
Dividends paid to stockholders	(122,721)		(141,632)
Taxes remitted on employee stock awards	(288)		—
Proceeds from redeemable noncontrolling interests	11,738		—
Payments to repurchase shares of common stock	(151,951)		—
Net cash used in financing activities	(393,897)		(317,007)
(Decrease) increase in cash and cash equivalents and restricted cash	(7,771)		3,852
Cash and cash equivalents and restricted cash, beginning of period	39,485		46,343
Cash and cash equivalents and restricted cash, end of period	$	31,714	$	50,195

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 (CONTINUED)

(in thousands)


	Nine Months Ended
	September 30,
	2022		2021
	(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	33,927	$	34,991
Supplemental disclosure of non-cash investing and financing activities:

Real estate acquired in exchange for mortgage notes receivable	$	9,071	$	—



Change in other assets related to sales of real estate	$	102	$	12,814
Change in accounts payable related to investments in real estate construction	$	—	$	(112)

Change in accounts payable related to renovations of existing real estate	$	208	$	—
Change in accounts payable related to distributions to noncontrolling interests	$	6	$	5
Change in accounts payable related to equity issuance cost	$	64	$	—
Operating equipment received in transfer of operations	$	1,287	$	—
Increase in accounts payable related to transfer of operations	$	300	$	—

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 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 Loss		Total National Health Investors, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount
Balances at December 31, 2021	45,850,599	$	459	$	1,591,182	$	(84,558)	$	—	$	1,507,083	$	9,900	$	1,516,983


Distributions declared to noncontrolling interests, excluding $24 attributable to redeemable noncontrolling interests	—	—		—		—		—		—		(486)		(486)
Total comprehensive income, excluding a loss of $227 attributable to redeemable noncontrolling interests	—	—		—		30,072		—		30,072		(133)		29,939



Taxes remitted on employee stock awards	—	—		(14)		—		—		(14)		—		(14)
Shares issued on stock options exercised	732	—		—		—		—		—		—		—
Repurchases of common stock	(1,196,175)	(12)		—		(69,965)		—		(69,977)		—		(69,977)
Share-based compensation	—	—		6,511		—		—		6,511		—		6,511
Dividends declared, $1.80 per common share	—	—		—		(81,455)		—		(81,455)		—		(81,455)
Activity for the six months ended June 30, 2022	(1,195,443)	(12)		6,497		(121,348)		—		(114,863)		(619)		(115,482)


Distributions declared to noncontrolling interests, excluding $12 attributable to redeemable noncontrolling interests	—	—		—		—		—		—		(241)		(241)
Total comprehensive income, excluding a loss of $278 attributable to redeemable noncontrolling interests	—	—		—		34,468		—		34,468		38		34,506

Equity issuance costs	—	—		(85)		—		—		(85)		—		(85)
Taxes remitted on employee stock awards	—	—		(274)		—		—		(274)		—		(274)
Shares issued on stock options exercised	5,765	—		—		—		—		—		—		—
Repurchases of common stock	(1,272,179)	(13)		—		(81,961)		—		(81,974)		—		(81,974)

Share-based compensation	—	—		1,065		—		—		1,065		—		1,065
Dividends declared, $0.90 per common share	—	—		—		(39,050)		—		(39,050)		—		(39,050)
Activity for the three months ended September 30, 2022	(1,266,414)	(13)		706		(86,543)		—		(85,850)		(203)		(86,053)
Balances at September 30, 2022	43,388,742	$	434	$	1,598,385	$	(292,449)	$	—	$	1,306,370	$	9,078	$	1,315,448

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 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 Loss		Total National Health Investors 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


Noncontrolling interests distribution	—	—		—		—		—		—		(466)		(466)
Total comprehensive income	—	—		—		74,515		3,516		78,031		100		78,131
Equity component in redemption of convertible debt	—	—		(6,076)		—		—		(6,076)		—		(6,076)
Equity issuance cost	—	—		(47)		—		—		(47)		—		(47)
Issuance of common stock, net	661,951	7		47,944		—		—		47,951		—		47,951

Shares issued on stock options exercised	2,656	—		—		—		—		—		—		—
Share-based compensation	—	—		6,438		—		—		6,438		—		6,438
Dividends declared, $2.0025 per common share	—	—		—		(91,816)		—		(91,816)		—		(91,816)
Activity for the six months ended June 30, 2021	664,607	7		48,259		(17,301)		3,516		34,481		(366)		34,115
Noncontrolling interest distribution	—	—		—		—		—		—		(231)		(231)
Total comprehensive income	—	—		—		30,814		1,805		32,619		35		32,654





Share-based compensation	—	—		989		—		—		989		—		989
Dividends declared, $0.90 per common share	—	—		—		(41,266)		—		(41,266)		—		(41,266)
Activity for the three months ended September 30, 2021	—	—		989		(10,452)		1,805		(7,658)		(196)		(7,854)
Balances at September 30, 2021	45,850,599	$	459	$	1,590,194	$	(49,768)	$	(1,828)	$	1,539,057	$	10,149	$	1,549,206

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(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. We operate through two reportable segments: Real Estate Investments and Senior Housing Operating Portfolio (“SHOP”). Our Real Estate Investments segment consists of lease, mortgage and other note investments in independent living facilities (“ILF”), assisted living facilities (“ALF”), entrance-fee communities (“EFC”), senior living campuses (“SLC”), skilled nursing facilities (“SNF”) and a hospital (“HOSP”). As of September 30, 2022, we had investments of approximately $2.4 billion in 162 health care real estate properties located in 32 states and leased pursuant primarily to triple-net leases to 24 lessees consisting of 96 senior housing communities, 65 skilled nursing facilities and one hospital, excluding ten properties classified as assets held for sale. Our portfolio of 13 mortgages along with other notes receivable totaled $214.1 million, excluding an allowance for expected credit losses of $6.9 million, as of September 30, 2022.

Our SHOP segment is comprised of two ventures that own the operations of ILFs. As of September 30, 2022, we had investments of approximately $336.6 million in 15 properties with a combined 1,731 units located in eight states that are operated on behalf of the Company by two independent managers pursuant to the terms of separate management agreements that commenced April 1, 2022. The third-party managers, or related affiliates of the managers, own equity interests in the respective ventures.

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, 2021, included in our 2021 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, joint ventures 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.

Effective April 1, 2022 and at September 30, 2022, our consolidated total assets and liabilities include two consolidated ventures comprising our SHOP activities formed with two separate partners - Merrill Gardens, L.L.C. (“Merrill”) and DSHI NHI Holiday LLC (the “Discovery member”), a controlled affiliate of Discovery Senior Living. We consider both ventures to be VIEs as either the members, as a group, lack the characteristics of a controlling financial interest or there are disproportionate voting rights but substantially all of the activities are performed on behalf of the Company. We are deemed to be the primary beneficiary because we have the ability to control the activities that most significantly impact each VIE’s economic performance. The assets of the ventures primarily consist of real estate properties, cash and cash equivalents, and resident fees and services (accounts receivable). Their obligations primarily consist of operating expenses of the ILFs (accounts payable and accrued expenses) and capital expenditures for the properties. As of and for the three and nine months ended September 30, 2022, our redeemable noncontrolling interests relate to these ventures. Assets of the consolidated SHOP ventures that can be used only to settle obligations of each respective SHOP venture primarily include approximately $261.3 million of real estate properties, net, and $9.6 million of cash and cash equivalents. Liabilities of the consolidated SHOP ventures for which creditors do not have recourse to the general credit of the Company are not material. Reference Notes 5 and 9 for further discussion of these new ventures.

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We also consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, a controlled affiliate of Discovery Senior Living, and LCS Timber Ridge LLC, to invest in senior housing facilities. We consider both partnerships to be VIEs, based on our determination that the total equity at risk in each is insufficient to finance activities without additional subordinated financial support. NHI directs the activities that most significantly impact economic performance of these ventures, subject to limited protective rights extended to our partners for specified business decisions. Because of our control of these partnerships, we include their assets, liabilities, noncontrolling interests and operations in our consolidated financial statements.

At September 30, 2022, we held interests in nine 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 rent receivables, excluding our investment accounted for under the equity method.

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 ($ in thousands).


Date	Name	Source of Exposure	Carrying Amount		Maximum Exposure to Loss		Note Reference
2014	Senior Living Communities	Notes and straight-line receivable	$	88,237	$	94,268	Notes 3, 4
2016	Senior Living Management	Notes and straight-line receivable	$	26,788	$	26,788	—
2018	Bickford Senior Living	Notes and funding commitment	$	46,769	$	60,246	Notes 3, 4
2019	Encore Senior Living	Notes and straight-line receivable	$	33,688	$	53,303	Notes 3, 4
2020	Timber Ridge OpCo, LLC	Various1	$	(5,000)	$	5,000	Note 6
2020	Watermark Retirement	Notes and straight-line receivable	$	7,691	$	10,715	—
2021	Montecito Medical Real Estate	Notes and funding commitment	$	20,255	$	50,000	Note 4
2021	Vizion Health	Notes and straight-line receivable	$	20,064	$	22,869	—
2021	Navion Senior Solutions	Various2	$	8,038	$	13,988	—

1 Loan commitment, equity method investment and straight-line rents receivable

2 Notes, loan commitments, straight-line rents receivable, and unamortized lease incentives

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 any period of non-payment of 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 financial position and results of operations of the tenants into our consolidated financial statements.

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. Reference Note 6 for further discussion of our equity method investment.

Noncontrolling Interests

Contingently redeemable noncontrolling interests are recorded at their initial carrying amounts upon issuance and are subsequently adjusted to reflect their share of gains or losses and distributions attributable to the noncontrolling interests. In periods where they are or will become probable of redemption, an adjustment to the redemption value of the noncontrolling interests is also recognized through Capital in excess of par value on the Company’s Consolidated Balance Sheets and included in our computation of earnings per share. As of September 30, 2022, these noncontrolling interests were classified as mezzanine equity, as discussed further in Note 9.

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As of September 30, 2022 and December 31, 2021, the noncontrolling interests associated with our two consolidated real estate partnerships are classified in equity.

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 and cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):


	September 30, 2022		September 30, 2021
Cash and cash equivalents	$	28,811	$	48,393
Restricted cash (included in Other assets, net)	2,903		1,802
	$	31,714	$	50,195

Assets Held for Sale

We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we anticipate the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated transaction costs. Depreciation and amortization of the property are discontinued.

Impairment of Long-Lived Assets

We evaluate the recoverability of the carrying amount of our long-lived assets when events or circumstances, including significant physical changes, significant adverse changes in general economic conditions and significant deterioration of the underlying cash flows of the long-lived assets, indicate that the carrying amount of the long-lived assets may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows compared to the carrying amount. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount exceeds the estimated fair value of the long-lived asset.

During the three and nine months ended September 30, 2022, we recognized impairment charges of approximately $9.5 million and $38.3 million, respectively, included in “Loan and realty losses” in our Condensed Consolidated Statements of Income. Reference Note 3 for more discussion.

Revenue Recognition

Rental Income - Our leases generally provide for rent escalators throughout the term of the lease. Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectible and the lease provides for specific contractual escalators. The Company reviews its operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in which the tenant operates and economic conditions in the area where the property is located. In the event that collectibility with respect to any tenant is not probable, a direct write-off of the receivable is made as an adjustment to rental income and any future rental revenue is recognized only when the tenant makes a rental payment.

During the second quarter of 2022, we placed Bickford Senior Living (“Bickford”) on the cash basis of revenue recognition for lease purposes and recorded write offs of $18.1 million of straight-line rents receivable and $7.1 million of lease incentives related to our Bickford master lease agreements. Reference Note 3 for further discussion.

Resident Fees and Services - Resident fee revenue associated with our SHOP activities is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements are generally

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short term (30 days to one year), with resident fees billed monthly in advance. Revenue for certain related services is recognized as services are provided and billed monthly in arrears.

Accounting for Lease Modifications related to the Coronavirus Pandemic

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 the COVID-19 pandemic is a lease modification under Accounting Standard Codification (“ASC”) 842, Leases (“ASC 842”). Instead, an entity that elects not to evaluate whether a concession directly related to the COVID-19 pandemic, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a lease modification can decide whether or not to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. We have elected not to apply the modification guidance under ASC 842 and have accounted for qualified rent concessions as variable lease payments when applicable, and recorded as rental income when received. During the nine months ended September 30, 2022, we provided $10.7 million in lease concessions directly related to the COVID-19 pandemic, as discussed in more detail in Note 8. During the three months ended September 30, 2022, we did not provide any lease concessions directly related to the COVID-19 pandemic.

Income Tax

We intend at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Accordingly, we will generally not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders at least equal to or in excess of 90% our taxable income. Certain activities that we undertake may be conducted by entities that have elected to be treated as taxable REIT subsidiaries (TRSs). TRSs are subject to federal, state, and local income taxes. Accordingly, a provision for income taxes has been made in the consolidated financial statements. A failure to qualify under the applicable REIT qualification rules and regulations would have a material adverse impact on our financial position, results of operations and cash flows.

Segments

We operate our business through two reportable segments: Real Estate Investments and SHOP. In our Real Estate Investments segment, we invest in i) senior housing and healthcare real estate and lease those properties to healthcare operating companies under triple-net leases that obligate tenants to pay all property-related expenses and ii) mortgage and other notes receivable throughout the United States. Our SHOP segment is comprised of the operations of 15 ILFs located throughout the United States that are operated on behalf of the Company by two independent managers pursuant to the terms of separate management agreements that commenced April 1, 2022. Reference Notes 5 and 14 for additional information.

Note 3. Investment Activity

Asset Acquisition

In the second quarter of 2022, we acquired a 53-unit assisted living facility located in Oshkosh, Wisconsin, from Encore Senior Living. The acquisition price was $13.3 million and included the full payment of an outstanding construction note receivable to us of $9.1 million, including interest. We have agreed to pay up to $0.8 million in additional cash consideration pending the results of an ongoing property tax appeal. As of September 30, 2022, no amount of this consideration is expected to be paid. We added the facility to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%.

Asset Dispositions

During the nine months ended September 30, 2022, we completed the following real estate property dispositions within our Real Estate Investments reportable segment as described below ($ in thousands):

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Operator	Date	Properties	Asset Class	Net Proceeds		Net Real Estate Investment		Gain		Impairment1
Hospital Corporation of America	Q1 2022	1	MOB	$	4,868	$	1,904	$	2,964	$	—
Vitality Senior Living2	Q1 2022	1	SLC	8,302		8,285		17		—
Holiday Retirement (“Holiday”)2	Q2 2022	1	ILF	2,990		3,020		—		30
Chancellor Senior Living2	Q2 2022	2	ALF	7,305		7,357		—		52
Bickford2	Q2 2022	3	ALF	25,959		28,268		—		2,309
Comfort Care	Q2 2022	4	ALF	40,000		38,445		1,556		—
Helix Healthcare	Q2 2022	1	HOSP	19,500		10,535		8,965		—
Discovery Senior Living2	Q3 2022	2	ALF/SLC	16,379		15,159		1,220		—
National HealthCare Corporation (“NHC”)	Q3 2022	7	SNF	43,686		30,066		13,620		—
				$	168,989	$	143,039	$	28,342	$	2,391

1 Impairments are included in “Loan and realty losses” in Condensed Consolidated Statements of Income for the nine months ended September 30, 2022.

2 Total impairment charges recognized on these properties were $65.4 million, of which $28.5 million were recognized in the nine months ended September 30, 2022.

The disposal transactions for the three Bickford properties in the second quarter of 2022 included $2.4 million in contingent consideration representing cash placed in escrow that will be returned to the buyers to the extent the sold properties generate negative monthly cash flows over the twelve months following from the dates of sale. After the twelve-month period, any remaining funds not distributed will be paid to the Company. We have assessed that it was not probable that any of the escrowed funds would be received by the Company. To the extent this assessment changes, or funds are ultimately received, we will recognize the amount as a gain on the sale of real estate.

Discovery

In the third quarter of 2022, we sold an assisted living facility in Indiana and a senior living campus in Florida for approximately $16.9 million in cash consideration, and incurred $0.5 million of transaction costs, resulting in an approximate gain of $1.2 million. The properties were classified as assets held for sale on the Condensed Consolidated Balance Sheet for the quarter ended June 30, 2022. Prior impairment charges recognized on the properties totaled $23.7 million.

NHC

On September 1, 2022, we sold a portfolio of seven skilled nursing facilities in New Hampshire and Massachusetts for approximately $44.4 million in net cash consideration, and incurred $0.7 million of transaction costs. These properties were leased to NHC pursuant to a master lease agreement dated August 30, 2013 with an original maturity date of August 31, 2028 that was terminated upon completion of the sale. The properties were classified as assets held for sale on the Condensed Consolidated Balance Sheet for the quarter ended June 30, 2022. Rental income was $0.6 million and $2.4 million for the three and nine months ended September 30, 2022, respectively, and $0.9 million and $2.8 million for the three and nine months ended September 30, 2021, respectively. In connection with the sale of this portfolio, we amended the master lease for 35 facilities dated October 17, 1991 by and between NHI and NHC/OP, L.P., an affiliate of NHC that is discussed below in “Tenant Concentration.”

Assets Held for Sale and Long-Lived Assets

At September 30, 2022, ten properties in our Real Estate Investments reportable segment, with an aggregate net real estate balance of $32.6 million, were classified as assets held for sale on our Condensed Consolidated Balance Sheet, including six properties that were transferred into assets held for sale during the third quarter of 2022. Rental income associated with the ten properties was $1.1 million and $2.0 million for the three and nine months ended September 30, 2022, respectively, and $1.2 million and $3.5 million for the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2022, we recorded impairment charges of $9.5 million and $38.3 million, respectively, including $5.7 million on two properties held in use, related to our Real Estate Investments reportable segment. The impairment charges are included in “Loan and realty losses” in the Condensed Consolidated Statements of Income.

We reduce the carrying value of impaired properties to their estimated fair value or, with respect to the properties classified as held for sale, to estimated fair value less costs to sell. To estimate the fair values of the properties, we utilized a market approach

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which considered binding agreements for sales (Level 1 inputs), non-binding offers to purchase from unrelated third parties and/or broker quotes of estimated values (Level 3 inputs), and/or independent third-party valuations (Level 1 and 3 inputs).

Tenant Concentration

The following table contains information regarding tenant concentration, excluding $2.6 million for our corporate office, $336.6 million for SHOP, and a credit loss reserve of $6.9 million, based on the percentage of revenues for the nine months ended September 30, 2022 and 2021, related to tenants or affiliates of tenants, that exceed 10% of total revenues ($ in thousands):


	as of September 30, 2022					Revenues1
	Asset	Gross Real		Notes		Nine Months Ended September 30,
	Class	Estate2		Receivable		2022			2021

Senior Living Communities	EFC	$	573,631	$	46,669	$	38,325	18%	$	38,094	17%
NHC	SNF	133,770		—		27,875		13%	28,290		12%
Bickford3	ALF	412,304		46,422		N/A		N/A	26,224		11%
Holiday3	ILF	—		—		N/A		N/A	22,811		10%
All others, net	Various	1,313,238		121,018		109,766		53%	106,110		46%
Escrow funds from tenants
for property operating expenses	Various	—		—		7,553		4%	7,519		4%
		$	2,432,943	$	214,109	183,519			229,048
Resident fees and services4						24,005		12%	—		—%
						$	207,524		$	229,048

1 Includes interest income on notes receivable and rental income from properties classified as held for sale.

2 Amounts include any properties classified as held for sale.

3 Below 10% for the nine months ended September 30, 2022. Therefore, revenues are included in All others, net.

4 There is no tenant concentration in resident fees and services because these agreements are with individual residents.

At September 30, 2022, the two states in which we had an investment concentration of 10% or more were South Carolina (12.1%) and Texas (11.1%).

Senior Living Communities

As of September 30, 2022, we leased ten retirement communities to Senior Living Communities, LLC (“Senior Living”). We recognized straight-line rent revenue of $0.1 million and $0.3 million from Senior Living for the three and nine months ended September 30, 2022, respectively, and $0.7 million and $1.8 million for the three and nine months ended September 30, 2021, respectively.

NHC

Effective September 1, 2022, we amended the master lease dated October 17, 1991, as previously amended by and between NHI and NHC/OP, L.P., an affiliate of NHC, for