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Section 1: 10-Q (10-Q)

nhi-20200630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJune 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________

Commission File Number 001-10822
National Health Investors Inc
(Exact name of registrant as specified in its charter)
Maryland 62-1470956
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
222 Robert Rose Drive 
MurfreesboroTennessee37129
(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 ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueNHINew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 44,650,002 shares of common stock outstanding of the registrant as of August 5, 2020.
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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)

June 30,
2020
December 31, 2019
(unaudited)
Assets:
Real estate properties:
Land$219,919  $213,617  
Buildings and improvements3,025,619  2,836,673  
Construction in progress1,600  24,556  
3,247,138  3,074,846  
Less accumulated depreciation(555,762) (514,453) 
Real estate properties, net2,691,376  2,560,393  
Mortgage and other notes receivable, net300,130  340,143  
Cash and cash equivalents46,853  5,215  
Straight-line rent receivable89,090  86,044  
Assets held for sale, net  18,420  
Other assets39,522  32,020  
Total Assets$3,166,971  $3,042,235  
Liabilities and Stockholders’ Equity:
Debt$1,554,241  $1,440,465  
Accounts payable and accrued expenses33,026  26,313  
Dividends payable49,226  46,817  
Lease deposit liabilities10,638  10,638  
Deferred income16,371  19,750  
Total Liabilities1,663,502  1,543,983  
Commitments and Contingencies
National Health Investors, Inc. Stockholders' Equity:
Common stock, $0.01 par value; 100,000,000 and 60,000,000 shares authorized;
44,650,002 and 44,587,486 shares issued and outstanding447  446  
Capital in excess of par value1,505,265  1,505,948  
Cumulative dividends in excess of net income(2,618) (5,331) 
Accumulated other comprehensive loss(10,735) (3,432) 
Total National Health Investors, Inc. Stockholders' Equity1,492,359  1,497,631  
Noncontrolling interests11,110  621  
Total Equity1,503,469  1,498,252  
Total Liabilities and Stockholders’ Equity$3,166,971  $3,042,235  

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, 2019 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 Six Months Ended
June 30,June 30,
2020201920202019
(unaudited)(unaudited)
Revenues:
Rental income$77,917  $72,578  $154,444  $143,531  
Interest income and other6,257  5,518  12,827  10,673  
84,174  78,096  167,271  154,204  
Expenses:
Depreciation20,847  19,020  41,290  37,511  
Interest13,557  13,746  27,697  27,264  
Legal250  99  585  369  
Franchise, excise and other taxes145  775  389  1,320  
General and administrative3,032  2,972  7,342  6,986  
Property taxes and insurance on leased properties1,450  1,506  3,002  2,597  
Loan and realty (gains) losses(380)   1,195  2,500  
38,901  38,118  81,500  78,547  
Loss from equity method investment(848)   (1,290)   
Gains on sales of real estate    21,007    
Net income44,425  39,978  105,488  75,657  
Less: net (income) loss attributable to noncontrolling interests(57) 1  (96) 1  
Net income attributable to common stockholders$44,368  $39,979  $105,392  $75,658  
Weighted average common shares outstanding:
Basic44,650,002  43,232,384  44,631,797  43,029,104  
Diluted44,650,002  43,498,021  44,634,070  43,311,527  
Earnings per common share:
Net income attributable to common stockholders - basic$0.99  $0.92  $2.36  $1.76  
Net income attributable to common stockholders - diluted$0.99  $0.92  $2.36  $1.75  


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 Six Months Ended
June 30,June 30,
2020201920202019
(unaudited)(unaudited)
Net income$44,425  $39,978  $105,488  $75,657  
Other comprehensive income (loss):
Decrease in fair value of cash flow hedges(867) (3,451) (10,058) (4,117) 
Reclassification for amounts recognized as interest expense2,263  (350) 2,755  (641) 
Total other comprehensive income (loss)1,396  (3,801) (7,303) (4,758) 
Comprehensive income45,821  36,177  98,185  70,899  
Comprehensive (income) loss attributable to noncontrolling interest(57) 1  (96) 1  
Comprehensive income attributable to common stockholders$45,764  $36,178  $98,089  $70,900  


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)
 Six Months Ended
June 30,
 20202019
(unaudited)
Cash flows from operating activities:  
Net income$105,488  $75,657  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation41,290  37,511  
Amortization of debt issuance costs, debt discounts and prepaids2,350  2,551  
Amortization of commitment fees and note receivable discounts(435) (241) 
Amortization of lease incentives485  383  
Straight-line rent income(10,395) (10,535) 
Non-cash interest income on construction loans(1,844) (1,005) 
Gains on sales of real estate(21,007)   
Loss from equity method investment1,290    
Loan and realty losses1,195  2,500  
Payment of lease incentives  (2,600) 
Non-cash stock-based compensation2,315  2,478  
Changes in operating assets and liabilities: 
Other assets(742) 2,474  
Accounts payable and accrued expenses(3,318) 1,571  
Deferred income137  16,170  
Net cash provided by operating activities116,809  126,914  
Cash flows from investing activities:  
Investments in mortgage and other notes receivable(32,826) (59,655) 
Collections of mortgage and other notes receivable14,579  558  
Investments in real estate(94,630) (200,632) 
Investments in real estate development(54)   
Investments in renovations of existing real estate(5,579) (8,300) 
Equity method investment(875)   
Proceeds from sale of real estate39,260    
Net cash used in investing activities(80,125) (268,029) 
Cash flows from financing activities:  
Proceeds from revolving credit facility145,000  292,000  
Payments on revolving credit facility(32,000) (103,000) 
Payments on term loans(609) (589) 
Debt issuance costs  (90) 
Distributions to noncontrolling interests(298)   
Proceeds from noncontrolling interests13  642  
Taxes remitted on employee stock awards(2,705) (1,016) 
Proceeds from issuance of common shares, net  47,854  
Equity issuance costs(293)   
Dividends paid to stockholders(96,043) (88,060) 
Net cash provided by financing activities13,065  147,741  
Increase in cash and cash equivalents and restricted cash49,749  6,626  
Cash and cash equivalents and restricted cash, beginning of period15,669  9,912  
Cash and cash equivalents and restricted cash, end of period$65,418  $16,538  


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)

Six Months Ended
June 30,
20202019
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$23,533  $26,032  
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for straight-line rent receivable$  $38,000  
Real estate acquired in exchange for mortgage notes receivable$59,350  $  
Increase in mortgage note receivable from sale of real estate$4,000  $  
Change in other assets related to investments in real estate$  $176  
Change in accounts payable related to investments in real estate construction$1,899  $(1,981) 
Change in accounts payable related to investments in real estate acquisition$  $1,178  
Change in accounts payable related to distributions to noncontrolling interests$100  $  


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 StockCapital in Excess of Par ValueCumulative Net Income in Excess (Deficit) of DividendsAccumulated Other Comprehensive Income (Loss)Total National Health Investors, Inc. Stockholders’ EquityNoncontrolling InterestsTotal Equity
SharesAmount
Balances at December 31, 201944,587,486  $446  $1,505,948  $(5,331) $(3,432) $1,497,631  $621  $1,498,252  
Cumulative effect of change in accounting principle—  —  —  (4,225) —  (4,225) —  (4,225) 
Noncontrolling interest conveyed in acquisition—  —  —  —  —  —  10,791  10,791  
Noncontrolling interest distribution—  —  —  —  —  —  (16) (16) 
Total comprehensive income—  —  —  61,023  (8,699) 52,324  39  52,363  
Equity issuance costs—  —  (85) —  —  (85) —  (85) 
Taxes remitted on employee stock awards—  —  (2,705) —  —  (2,705) —  (2,705) 
Shares issued on stock options exercised62,516  1  (2) —  —  (1) —  (1) 
Stock-based compensation—  —  1,845  —  —  1,845  —  1,845  
Dividends declared, $1.1025 per common share—  —  —  (49,226) —  (49,226) —  (49,226) 
Activity for the three months ended March 31, 202062,516   (947) 7,572  (8,699) (2,073) 10,814  8,741  
Noncontrolling interest distribution—  —  —  —  —  —  (382) (382) 
Total comprehensive income—  —  —  44,368  1,396  45,764  57  45,821  
Equity issuance costs—  —  (206) —  —  (206) —  (206) 
Stock-based compensation—  —  470  —  —  470  —  470  
Dividends declared, $1.1025 per common share—  —  —  (49,227) —  (49,227) —  (49,227) 
Activity for the three months ended June 30, 2020—  —  264  (4,859) 1,396  (3,199) (325) (3,524) 
Balances at June 30, 202044,650,002  $447  $1,505,265  $(2,618) $(10,735) $1,492,359  $11,110  $1,503,469  


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 StockCapital in Excess of Par ValueCumulative Net Income in Excess of DividendsAccumulated Other Comprehensive Income (Loss)Total National Health Investors Stockholders’ EquityNoncontrolling InterestTotal Equity
SharesAmount
Balances at December 31, 201842,700,411  $427  $1,369,919  $18,068  $1,299  $1,389,713  $  $1,389,713  
Total comprehensive income—  —  —  35,679  (957) 34,722    34,722  
Issuance of common stock, net462,925  5  35,908  —  —  35,913    35,913  
Taxes remitted on employee stock awards—  —  (1,006) —  —  (1,006)   (1,006) 
Shares issued on stock options exercised35,982  —  (1) —  —  (1) —  (1) 
Stock-based compensation—  —  2,001  —  —  2,001    2,001  
Dividends declared, $1.05 per common share—  —  —  (45,359) —  (45,359)   (45,359) 
Activity for the three months ended March 31, 2019498,907   36,902  (9,680) (957) 26,270  —  26,270  
Noncontrolling interest conveyed in acquisition—  —  —  —  —  —  642  642  
Total comprehensive income—  —  —  39,979  (3,801) 36,178  (1) 36,177  
Issuance of common stock, net155,729  2  11,940  —  —  11,942  —  11,942  
Taxes remitted on employee stock awards—  —  (10) —  —  (10) —  (10) 
Shares issued on stock options exercised1,971  —  —  —  —  —  —  —  
Stock-based compensation—  —  477  —  —  477  —  477  
Dividends declared, $1.05 per common share—  —  —  (45,525) —  (45,525) —  (45,525) 
Activity for the three months ended June 30, 2019157,700   12,407  (5,546) (3,801) 3,062  641  3,703  
Balances at June 30, 201943,357,018  $434  $1,419,228  $2,842  $(3,459) $1,419,045  $641  $1,419,686  



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
June 30, 2020
(unaudited)

Note 1. Organization and Nature of Business

National Health Investors, Inc. (“NHI” or “the Company”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) that invests in need-driven and discretionary senior housing and other healthcare-related real estate properties located throughout the United States. As of June 30, 2020, we had investments of $3,244,562,000 (excluding our corporate office of $2,575,000) in 227 health care real estate properties located in 34 states and leased pursuant primarily to triple-net leases to 34 lessees consisting of 150 senior housing communities (“SHO”), 72 skilled nursing facilities, 3 hospitals and 2 medical office buildings. Our portfolio of 16 mortgage and other notes receivable totaled $305,319,000, excluding an allowance for expected credit losses of $5,189,000, as of June 30, 2020.

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, 2019, included in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and subsidiaries in which we have a controlling interest. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances are eliminated in consolidation.

At June 30, 2020, we held interests in eight 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 NHI is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line receivables, excluding Timber Ridge OpCo which is accounted for under the equity-method.

NHI’s 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.
DateNameSource of ExposureCarrying Amount Maximum Exposure to LossNote Reference
2012Bickford Senior Living
Various1
$60,708,000  $74,864,000  Notes 3, 4
2014Senior Living CommunitiesNotes and straight-line receivable$93,401,000  $97,404,000  Notes 3, 4
2016Senior Living ManagementNotes and straight-line receivable$26,969,000  $26,969,000  
2017Evolve Senior LivingNotes$9,958,000  $9,958,000  
2018Sagewood, LCS affiliateNotes$142,586,000