NHI Announces Fourth Quarter 2020 Results

Financial Results

• Net income attributable to common stockholders per diluted common share for the three months ended December 31, 2020 was $0.83, a decrease of 12.6% from the same period in the prior year. Net income attributable to common stockholders per diluted common share for the year ended December 31, 2020 was $4.14, an increase of 12.8% from the same period in the prior year. Net income for the year ended December 31, 2020 includes $21.3 million in gains that relate to the sale of real estate.

• Normalized FFO per diluted common share for the three months ended December 31, 2020 was $1.37, a decrease of 2.8% from the same period in the prior year. Normalized FFO per diluted common share for the year ended December 31, 2020 was $5.60, an increase of 1.8% from the same period in the prior year.

• Normalized AFFO per diluted common share for the three months ended December 31, 2020 was $1.30, unchanged from the same period in the prior year. Normalized AFFO per diluted common share for the year ended December 31, 2020 was $5.29, an increase of 3.7% over the same period in the prior year.

• National Association of Real Estate Investment Trusts (“NAREIT”) FFO per diluted common share for the three months ended December 31, 2020 was $1.28, a decrease of 7.9% from the same period in the prior year. NAREIT FFO per diluted common share for the year ended December 31, 2020 was $5.51, an increase of 0.4% over the same period in the prior year.

• Net income, Normalized FFO, Normalized AFFO, and NAREIT FFO per common share for the three months and year ended December 31, 2020 includes the dilutive impact of 598,506 common shares issued since December 31, 2019.

Eric Mendelsohn, NHI President, and CEO stated, “Despite the unprecedented challenges created by the COVID-19 pandemic, NHI performed well in 2020. We increased AFFO per share by 3.7%, increased the dividend per share by 5%, and maintained our fiscal discipline with leverage below 5.0x net debt-to-EBITDA and an AFFO payout ratio below 85%. We were also able to capitalize on the resilient capital markets to bolster our balance sheet through our ATM and, more recently, through the issuance of our first public bond offering in January. We are also pleased to note that we deployed $226.9 million in real estate and note investments during 2020 and our pipeline for 2021 looks promising.”

Mr. Mendelsohn continued, “Our monthly collections remained strong throughout 2020 and thus far into 2021, which is a testament to the tireless efforts of our operators in their mission to keep our seniors safe. But the pandemic has obviously placed a considerable burden on the senior housing and skilled nursing industries, which clouds our visibility in the months ahead and will make 2021 a more challenging year. Fortunately, the roll-out of the vaccine to our communities is having a positive impact with declining numbers of infected buildings and active resident cases, so we do expect that occupancy will inflect at some point in 2021. However, the road to recovery is uncertain so we do not think it is prudent to provide guidance at this time.”

Mr. Mendelsohn concluded, “While 2021 should be a difficult year, NHI is well-positioned to weather the storm with multiple levers at its disposal to preserve our conservative capital structure and set the Company up for longer-term growth. While this

pandemic has had a disproportionately negative impact on operators caring for the senior population, we do not believe the damage is irreparable and remain steadfast in our positive outlook for senior housing and skilled nursing.”

Collections and Deferrals

We collected 93.9% of contractual cash due for the fourth quarter ended December 31, 2020. We collected 99.4% in February, and quarter-to-date, we have collected 97.3%.

We agreed to defer rent due from Bickford Senior Living totaling $5,850,000 for 2020 and $750,000 for January 2021 as a result of the impact from the pandemic. The deferred rent for Bickford of $3,750,000 pertaining to the fourth quarter and the $750,000 pertaining to January 2021 bears interest at 8% per annum with repayments over twelve months beginning in June 2021.

We agreed to rent concessions with another tenant totaling $1,072,000 in deferrals for 2020, $50,000 in abatements for 2020, and $447,000 in deferrals related to the first quarter of 2021. Of the 2020 totals, approximately $534,000 in deferrals and $20,000 in abatements are related to the third quarter, and $538,000 in deferrals and $30,000 in abatements relate to the fourth quarter. The deferred amounts accrue interest from the date of the deferral until paid in full with payments due starting in July 2021 and due no later than December 2022. The initial interest is 8% on the deferrals through December 31, 2021, after which time the rate increases to 9%. In the fourth quarter of 2020, we also modified a transition property’s lease in response to the COVID-19 pandemic that extended the lease term by one year and deferred rent of $160,000.

Occupancy

The following table summarizes the average portfolio occupancy for Senior Living Communities (“SLC”), 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.

COVID-19 Update

As of February 9, 2020, NHI had 244 confirmed active resident cases (approximately 0.2% of total capacity) of COVID-19 in its skilled nursing and senior housing portfolio. There were 85 confirmed Senior Housing resident cases (2.3 cases per average community), which can include skilled nursing cases at our senior living campuses or CCRCs, and 159 confirmed skilled nursing resident cases (4.1 cases per average community). This compares to the peak number of 280 resident cases at Senior Housing communities as of December 29, 2020 and 438 resident cases at SNFs as of December 15, 2020.

Vaccination Update

Since vaccination clinics began in our communities, our operators overall have reported fewer active resident cases. As of February 9, 2020, 87% of our Senior Housing communities have completed at least the first round of vaccinations, and 4% have scheduled the first round. For our SNF’s, 100% have completed at least the first round of vaccinations.

We can give no assurance about the accuracy of the information reported or that there have not been any changes since the time the information was obtained from our operators and third-party operators. This information is based upon information provided to us by our operators and third-party data providers. More information is available at www.nhireit.com/covid-19.

Investment Activity

During the fourth quarter, we committed to providing first mortgage financing to 41 Management, LLC for up to $22.2 million to construct a 110-unit independent living, assisted living, and memory care community in Sussex, Wisconsin. The approximate four-year loan has an annual interest rate of 8.5% and two one-year extensions. The agreement includes an option for NHI to acquire the property effective upon stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $4.9 million working capital escrow. The total amount funded on the note was $4.0 million as of December 31, 2020.

During 2020, we completed $176.5 million in healthcare real estate investments and $50.4 million in note investments for total investment activity of $226.9 million.

Liquidity

At January 31, 2020, we had $520 million in availability under a $550 million revolver and $37.2 million in unrestricted cash and cash equivalents. We also have approximately $465 million available under the ATM program.

Inaugural Public Bond Offering

On January 26, 2021, we issued $400 million in 3.0% Senior Notes due 2031 (the “Notes”). The Notes were issued at 99.196% of par value (3.094% initial yield) with a coupon of 3.0%. Interest on the Notes is payable semi-annually on February 1 and August 1 of each year, commencing August 1, 2021. The Notes will mature on February 1, 2031. Proceeds were used to repay the $100 million term loan facility, which matured in July 2021 and to reduce borrowings under the $550 million senior unsecured revolving credit facility.

Investor Conference Call and Webcast

NHI will host a conference call on Tuesday, February 23, 2021, at 12 p.m. ET, to discuss fourth-quarter results. The number to call for this interactive teleconference is (888) 222-6529, with the confirmation number 21989300. The live broadcast of NHI’s fourth-quarter conference call will be available online at www.nhireit.com. The online replay will follow shortly after the call and remain available for one year.

About National Health Investors

Incorporated in 1991, National Health Investors, Inc. (NYSE:NHI) is a real estate investment trust specializing in sale-leaseback, joint-venture, mortgage, and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI’s portfolio consists of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings, and specialty hospitals. Visit www.nhireit.com for more information.

Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD
(in thousands, except share and per share amounts)

See Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD.

Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD

These supplemental operating performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our FFO, Normalized FFO, Normalized AFFO, and Normalized 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 operating performance measures, caution should be exercised when comparing our Company’s FFO, Normalized FFO, Normalized AFFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with 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 operating 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.

Funds From Operations – FFO

FFO, as defined by NAREIT and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus 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. 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 assets and liabilities, and recoveries of previous write-downs.

We believe that 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.

Adjusted Funds From Operations – AFFO

In addition to the adjustments included in the calculation of normalized FFO, normalized AFFO excludes the impact of any straight-line lease revenue, amortization of the original issue discount on our convertible senior notes, and amortization of debt issuance costs. We also adjust Normalized AFFO for the net change in our allowance for expected credit losses as well as certain non-cash items related to our equity method investments such as straight-line lease expense and recognition of purchase accounting adjustments. We believe that normalized AFFO is an important supplemental measure of operating performance 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 the original issue discount of our convertible senior notes and debt issuance costs to be amortized as non-cash adjustments to earnings. Normalized AFFO is useful to our investors as it reflects the growth inherent in the contractual lease payments of our real estate portfolio.

Funds Available for Distribution – FAD

In addition to the adjustments included in the calculation of normalized AFFO, normalized FAD excludes the impact of non-cash stock-based compensation. We also adjust Normalized FAD for items related to our equity method investments, such as capital expenditures and the net change in non-refundable entrance fees. We believe that normalized FAD is an important supplemental measure of operating performance for a REIT as a useful indicator of the ability to distribute dividends to shareholders. Additionally, normalized FAD improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods, and (iii) results among REITs, more meaningful. Because FAD may function as a liquidity measure, we do not present FAD on a per-share basis.

Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)