ANNUAL REPORT
Dear Fellow Stockholders –
On behalf of our Board of Directors and everyone at NHI, I want to thank you for your continued investment and confidence in
the Company. Our 2024 annual results marked a return to growth as we increased Nareit Funds from Operations (“FFO”),
Normalized FFO, and Funds Available for Distribution for the first time since 2020. The performance was driven by strong
contributions from both organic initiatives as well as external investment activity and surpassed our initial expectations. In 2024,
NHI’s Total Shareholder Return (“TSR”) was 30.6% which significantly outperformed the Nareit Healthcare REIT Index. This
was a continuation of strong TSR as we have outperformed this index measured over the 3-year and 5-year periods as well.
The hard work performed during the portfolio optimization years contributed meaningfully to 2024. This included over $11
million in total deferral repayments and improved EBITDARM coverage across our asset classes. The Senior Housing Operating
Portfolio (“SHOP”) NOI increased by approximately 32% with meaningful improvements in occupancy and the operating margin.
From a capital allocation perspective, we announced investments of over $235 million at an average yield of approximately 8.6%.
This was our most active year since 2019, and the momentum continues to build.
The strength in our financial profile positions NHI well to deploy capital for future investments and creates a significant
strategic advantage as the supply of capital is shrinking just as demand is increasing. We capitalized on the equity markets
during 2024, raising net proceeds of approximately $262 million on a forward basis of which approximately $119
million remains available to settle at December 31, 2024. Our leverage improved throughout the year as our net debt-to
adjusted EBITDA decreased from 4.5x in 2023 to 4.1x in 2024. In addition to the investments announced last year, we
have already closed on $136.4 million in investments in 2025 and have an active pipeline beyond that.
The Company and the Board take information received from our stockholders very seriously. As such, the Board has
made significant changes over the last several years which reflect its commitment to its fiduciary responsibility and in direct
response to engagement with its stockholders. Since first expanding in 2020, the Board has grown from four directors to
eight with female representation growing from 0% to 37.5% and the average tenure decreasing from 21 years to seven
years. The Board has made several changes over the last several years which we believe enhances its effectiveness and
stockholder value. Some of these enhancements include the following:
•
Creation of a Special Committee of Non-Interested Directors to advise on the ongoing master lease negotiations with
National HealthCare Corporation;
•
The addition of Candice W. Todd and Robert W. Chapin, Jr. as new independent directors in January 2025 and
March 2025, respectively;
•
Appointments of Tracy M.J. Colden to chair the Nominating and Corporate Governance Committee and Candice
W. Todd to chair the Audit Committee;
•
Appointment of James Jobe as the chair of the Compensation Committee and subsequent engagement with a third-party
compensation consultant; and
•
Establishment of a management ESG Committee and pending publication of NHI’s first annual sustainability report.
Additionally, we are following through on a commitment made last year with a proposal on this year’s proxy to remove the
classified board structure which should lead to continued Board refreshment.
As we move into the future, it is important that we pay tribute to the leaders that have helped to shape our current strong position.
Two of our founding members, Andy Adams and Robert Webb, recently retired from the Board. We thank them both for their
long-serving guidance and support which have been instrumental to NHI’s growth from its inception.
We are pleased with the execution in 2024 and very optimistic that 2025 will be an even more productive
year. We have the capacity and ability to move more quickly than other capital providers to the sector who have
either scaled back their exposure or exited the industry entirely. As operators rush to take advantage of the most
favorable industry fundamentals in the history of senior housing, NHI is competitively positioned as the
partner of choice which convinces us that we are in the early days of multiple years of exceptional growth.
We appreciate your support and investment in NHI, and we are committed to delivering superior stockholder
performance in return for that support and investment.
Best,
Eric Mendelsohn
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 001-10822
National Health Investors, Inc.
(Exact name of registrant as specified in its charter)
Maryland
62-1470956
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)
222 Robert Rose Drive
Murfreesboro
Tennessee
37129
(Address of principal executive offices)
(Zip Code)
(615) 890-9100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
NHI
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 the definitions 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
☐
Emerging growth company
☐
Non-accelerated filer
☐
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of shares of common stock held by non-affiliates on June 30, 2024 (based on the closing price of these shares on the New York Stock
Exchange) was approximately $2,806,597,661. There were 45,687,942 shares of the registrant’s common stock outstanding as of February 19, 2025.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2025 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13,
and 14 of this Annual Report on Form 10-K.
2
Table of Contents
Page
Part I.
Cautionary Statement Regarding Forward Looking Statements.
3
Summary Risk Factors
3
Item 1. Business.
5
Item 1A. Risk Factors.
20
Item 1B. Unresolved Staff Comments.
35
Item 1C. Cybersecurity
35
Item 2. Properties.
37
Item 3. Legal Proceedings.
38
Item 4. Mine Safety Disclosures.
39
Part II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
40
Item 6. Reserved.
42
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
62
Item 8. Financial Statements and Supplementary Data.
70
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
108
Item 9A. Controls and Procedures.
108
Item 9B. Other Information.
112
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
112
Part III.
Item 10. Directors, Executive Officers and Corporate Governance.
113
Item 11. Executive Compensation.
113
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
113
Item 13. Certain Relationships and Related Transactions, and Director Independence.
113
Item 14. Principal Accountant Fees and Services.
113
Part IV.
Item 15. Exhibits and Financial Statement Schedules.
113
Exhibit Index.
114
Item 16. Summary
118
Signatures.
119
3
PART I.
Unless the context otherwise requires, references throughout this document to “NHI” or the “Company” include National
Health Investors, Inc., and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s “Plain
English” guidelines, this Annual Report on Form 10-K (“Annual Report”) has been written in the first person. In this document,
the words “we”, “our”, “ours” and “us” refer only to National Health Investors, Inc. and its consolidated subsidiaries and not
any other person.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report and other materials we have filed or may file with the Securities and Exchange Commission, as well as
information included in oral statements made, or to be made, by our senior management contain certain “forward-looking”
statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our
expected future financial position, results of operations, cash flows, funds from operations, continued performance
improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar
statements including, without limitation, those containing words such as “may”, “will”, “should,” “would,” “believes”,
“anticipates”, “expects”, “intends”, “estimates”, “plans”, “likely” and other similar expressions are forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future
periods to differ materially from those projected or contemplated in the forward-looking statements. For a discussion of some of
the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from
those presented in our forward-looking statements, see the risks identified in “Summary Risk Factors” below. In addition, see
“Item 1A. Risk Factors,” the notes to the consolidated financial statements, and “Item 1. Business,” in this Annual Report for a
further discussion of factors that could cause our future results to differ materially from any forward-looking statements. You
should carefully consider these risks before making any investment decisions in the Company. These risks and uncertainties are
not the only ones facing the Company. There may be additional risks that we do not presently know of or that we currently
deem immaterial. If any of the risks actually occur, our business, financial condition, results of operations, or cash flows could
be materially and adversely affected. In that case, the trading price of our common stock could decline and you may lose part or
all of your investment. Our forward-looking statements speak only as of the date made and we expressly disclaim any
responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise,
except as required by law. Given these risks and uncertainties, we can give no assurance that these forward-looking statements
will, in fact, occur and, therefore, caution investors not to place undue reliance on them.
Summary Risk Factors
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we
summarize what we believe are the principal risk factors, but these risks are not the only ones we face, and you should carefully
review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Annual
Report, together with the other information in this Annual Report. If any of the following risks, or any other risks and
uncertainties that are not addressed below or elsewhere in this Annual Report or that we have not yet identified, actually occur,
our business, financial condition and results of operations could be materially adversely affected, and the value of our securities
could decline.
Risk Related to Our Managers, Tenants and Borrowers
*
We depend on the operating success of our managers, tenants and borrowers and if their financial condition or business
prospects deteriorate, our financial condition and results of operations could be adversely affected;
*
Our managers, tenants and borrowers may become subject to bankruptcy or insolvency proceedings;
*
A small number of tenants in our portfolio account for a significant percentage of the rent we expect to generate from
our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely
affect our business, financial condition and results of operations;
*
Actual or perceived risks associated with pandemics, epidemics or outbreaks have had and may in the future have a
material adverse effect on our managers’, tenants’ and borrowers’ businesses and results of operations;
*
A member of our Board of Directors is also the chairperson of the board of directors of National HealthCare
Corporation (“NHC”), and his interests may differ from those of our stockholders;
*
We are exposed to risks related to governmental regulation and payors, principally Medicare and Medicaid, and the
effect of changes to laws, regulations and reimbursement rates on our tenants’ and borrowers’ business;
*
The cash flows of our managers, tenants and borrowers may be adversely affected by increased liability claims and
liability insurance costs;
4
*
We may not be fully indemnified by our managers, tenants and borrowers against future litigation;
Risks Related to Our Business and Operations
*
We depend on the success of property development and construction activities, which may fail to achieve the operating
results we expect;
*
The illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of
our properties;
*
Our investments are concentrated in healthcare properties;
*
We are subject to risks related to our investment with Life Care Services for Timber Ridge, an entrance-fee continuing
care retirement community (“CCRC”), associated with Type A benefits offered to the residents of the CCRC and the
related accounting requirements;
*
We are exposed to risks associated with our investments in Timber Ridge OpCo, LLC, including our lack of sole
decision-making authority, our reliance on the financial condition of other interests and related healthcare operations of
the entity;
*
Inflation and increased interest rates may adversely affect our financial condition and results of operations;
*
Adverse developments affecting the financial services industry, including events or concerns involving liquidity,
defaults, or non-performance by financial institutions, could adversely affect our business, financial condition, results
of operations, or prospects;
*
Adverse geopolitical developments could have a material adverse impact on our business;
*
We are exposed to operational risks with respect to our senior housing operating portfolio (“SHOP”) structured
communities;
*
A cybersecurity incident or other form of data breach involving Company information could cause a loss of
confidential consumer and other personal information, give rise to remediation and other expenses, expose us to
liability under privacy and security and consumer protection laws, subject us to federal and state governmental
inquiries, damage our reputation, and otherwise be disruptive to our business;
*
We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous
substances;
*
We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical
effects of climate change;
*
We depend on the success of our future acquisitions and investments;
*
We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;
*
Competition for acquisitions may result in increased prices for properties;
*
We depend on our ability to retain our management team and other personnel and attract suitable replacements should
any such personnel leave;
*
We are exposed to the risk that our assets may be subject to impairment charges;
*
Our ability to raise capital through equity sales is dependent, in part, on the market price of our common stock, and our
failure to meet market expectations with respect to our business, or other factors we do not control, could negatively
impact such market price and availability of equity capital;
*
Settlement provisions contained in the August 2024 forward sale agreements and at-the-market forward sale
agreements or any other forward sale agreement we may enter into could result in substantial dilution to our earnings
per share or result in substantial cash payment obligations;
*
In case of our bankruptcy or insolvency, any forward sale agreement then in effect will automatically terminate, and
we would not receive the expected proceeds from such forward sale of shares of our common stock;
*
The U.S. federal income tax treatment of the cash that we might receive from cash settlement of the forward sale
agreements is unclear and could jeopardize our ability to meet the real estate investment trust (“REIT”) qualification
requirements;
Risks Related to Our Debt
*
We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms
acceptable to us;
*
We have covenants related to our indebtedness which impose certain operational limitations, and a breach of those
covenants could materially adversely affect our financial condition and results of operations;
*
Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;
*
We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such
capital, we may not be able to make future investments necessary to grow our business or meet maturing
commitments;
5
*
We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt
used to finance those investments bears interest at variable rates, which subjects us to interest rate risk;
Risks Related to Our Status as a REIT
*
We depend on the ability to continue to qualify for taxation as a REIT for U.S. federal income tax purposes;
*
There are no assurances of our ability to pay dividends in the future;
*
Complying with REIT requirements may cause us to forego otherwise attractive acquisition opportunities or liquidate
otherwise attractive investments, which could materially hinder our performance;
*
Our ownership of and relationship with any taxable REIT subsidiaries that we have formed or will form will be limited
and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100%
excise tax;
*
Legislative, regulatory, or administrative tax changes could adversely affect us or our security holders;
Risks Related to Our Organizational Structure
*
We have ownership limits in our charter with respect to our common stock and other classes of capital stock which
may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common
stock or might otherwise be in the best interests of our stockholders; and
*
We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a
change in control transaction, even if the transaction involves a premium price for our common stock or our
stockholders believe such transaction to be otherwise in their best interests.
ITEM 1. BUSINESS
General
National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed REIT specializing in sale-
leaseback, joint venture, and 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 SHOP.
Our Real Estate Investments segment consists of real estate investments, leases, and mortgage and other notes receivable in
independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing
facilities and hospitals.
As of December 31, 2024, our Real Estate Investments segment included gross investments of approximately $2.6 billion in
172 healthcare real estate properties located in 31 states and leased primarily pursuant to triple-net leases to 27 tenants,
consisting of 106 senior housing communities, 65 skilled nursing facilities and one hospital. Our portfolio of 16 mortgages
along with other notes receivable totaled $289.2 million, excluding an allowance for expected credit losses of $20.2 million, as
of December 31, 2024.
Our SHOP segment is comprised of two ventures that own the operations of independent living facilities. As of December
31, 2024, we had gross investments of approximately $358.4 million in 15 properties located in eight states with a combined
1,732 units that are operated on behalf of the Company by independent managers pursuant to the terms of separate management
agreements that commenced April 1, 2022. The third-party managers, or related parties of the managers, own equity interests in
the respective ventures.
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. Our investments in real estate and
mortgage loans are secured by real estate located within the United States. Information about revenues from our tenants,
resident fees, and borrowers, and our net income, cash flows and balance sheet can be found in “Item 8. Financial Statements
and Supplementary Data” of this Annual Report.
Sources of Revenues
Our revenues are derived primarily from rental income, mortgage and other notes receivable interest income and resident
fees and services. During 2024, rental income was $257.0 million (76.7%), interest income from mortgage and other notes
receivable was $23.7 million (7.1%), and resident fees and services from the SHOP investments were $54.4 million (16.2%) for
6
total revenue of $335.2 million, an increase of 4.8% from 2023. Our revenues depend on the operating success of our managers,
tenants and borrowers, whose sources and amounts of revenues are determined by (i) the licensed beds or other capacity of the
facility, (ii) their occupancy rate, (iii) the extent to which the services provided at each facility are utilized by the residents and
patients, (iv) the mix of private pay, Medicare and Medicaid patients, and (v) the rates paid by private payors and by the
Medicare and Medicaid programs.
Classification of Properties in our Portfolio
We operate our business through two reportable segments: Real Estate Investments and SHOP. We classify all of the
properties in our Real Estate Investments segment as either senior housing or medical facilities. Because our leases represent
different underlying revenue sources and result in differing risk profiles, we further classify our senior housing properties as
either need-driven (assisted living facilities and senior living campuses) or discretionary (independent living facilities and
entrance-fee communities). Our SHOP segment is comprised of 15 independent living facilities located throughout the United
States.
Real Estate Investments
Senior Housing
As of December 31, 2024, our Real Estate Investments segment included 106 senior housing properties (“SHO”) leased to
operators and mortgage loans secured by ten SHOs. The SHOs in our Real Estate Investments segment are either need-driven
or discretionary for end users and consist of assisted living facilities, senior living campuses, independent living facilities, and
entrance-fee communities, which are more fully described below.
Need-Driven Senior Housing
Assisted Living Facilities. As of December 31, 2024, our Real Estate Investments segment included 80 assisted living
facilities (“ALF”) leased to operators and mortgage loans secured by eight ALFs. ALFs are free-standing facilities that
provide basic room and board functions for elderly residents. As residents typically receive assistance with activities of
daily living such as bathing, grooming, administering medication and memory care services, we consider these facilities
to be need-driven senior housing. On-site staff personnel are available to assist with minor medical needs on an as-
needed basis. Operators of ALFs are typically paid from private sources without assistance from the government. ALFs
may be licensed and regulated in some states, but generally do not require the issuance of a Certificate of Need
(“CON”) as is often required for skilled nursing facilities (“SNFs”).
Senior Living Campuses. As of December 31, 2024, our Real Estate Investments segments included eight senior living
campuses (“SLC”) leased to operators and a mortgage loan secured by one SLC. SLCs contain one or more buildings
that typically include higher acuity level of care, for example, skilled nursing beds combined with an independent or
assisted living facility that provides basic room and board functions for elderly residents. They may also provide
assistance to residents with activities of daily living such as bathing, grooming and administering medication. On-site
staff personnel are available to assist with minor medical needs on an as-needed basis. As the decision to transition to a
SLC is typically more than a lifestyle choice and is usually driven by the need to receive some moderate level of care,
we consider this facility type to be need-driven. Operators of SLCs are typically paid from private sources and from
government programs such as Medicare and Medicaid for skilled nursing residents. SLCs may be licensed and
regulated as nursing homes in some states and may also require a CON.
Discretionary Senior Housing
Independent Living Facilities. As of December 31, 2024, our Real Estate Investments segment included seven
independent living facilities (“ILF”) leased to operators. ILFs offer specially designed residential units for active senior
adults and provide various ancillary services for their residents including restaurants, activity rooms and social areas.
Services provided by ILF operators are generally paid from private sources without assistance from government payors.
ILFs are generally, but not always, unlicensed facilities and do not require the issuance of a CON as required for SNFs.
As ILFs typically do not provide assistance with activities of daily living, we consider the decision to transition to an
ILF to be discretionary.
Entrance-Fee Communities. As of December 31, 2024, our Real Estate Investments segment included 11 entrance-fee
communities (“EFCs”) leased to operators and a mortgage loan secured by one EFC. EFCs, frequently referred to as
CCRCs, typically include a combination of detached cottages, an ILF, an ALF and an SNF on one campus. These
7
communities appeal to residents because there is no need to relocate when health and medical needs change. EFCs are
classified as Type A, B, or C depending upon the amount of healthcare benefits included in the entrance fee. “Type A”
EFCs, or “Lifecare” communities include substantially all future healthcare costs in the payment of an entrance fee and
thereafter payment of a set monthly service fee. The entrance fee is divided into a refundable and non-refundable
portion depending upon the resident’s chosen contract program. The service fee is determined at the time of move-in
into an independent living (“IL”) unit and is subject to certain inflation-based adjustments regardless of the resident’s
future care needs. A resident must move into an IL unit initially and not require care at the time of move-in. Thereafter,
the resident’s care requirements from assisted living to memory care to skilled nursing are provided for. As of
December 31, 2024, we had an investment in one Type A EFC community. “Type B” EFCs are communities providing
a modified healthcare contract offering access to skilled nursing care but only paying for a maximum number of days.
As of December 31, 2024, we did not have any investments in a Type B EFC community. Finally, “Type C” EFCs, the
classification applicable to ten communities in our Real Estate Investments segment and one community securing a
mortgage loan, are fee-for-service communities, which do not provide any healthcare benefits and correspondingly have
the lowest entrance fees. However, monthly fees may be higher to reflect the current healthcare components delivered
to each resident. EFC licensure is state-specific, but generally skilled nursing beds included in our EFC portfolio are
subject to state licensure and regulation. Certain services may also require a CON. As the decision to transition to an
EFC is typically made as a lifestyle choice and not as the result of a pressing medical concern, we consider the decision
to transition to an EFC to be discretionary. Accordingly, the predominant source of revenue for operators of EFCs is
from private payor sources.
Medical
As of December 31, 2024, our Real Estate Investments segment included 66 medical facilities leased to operators and
mortgage loans secured by six medical facilities. The medical facilities within our portfolio consist of SNFs and hospitals,
which are more fully described below.
Skilled Nursing Facilities. As of December 31, 2024, our Real Estate Investments segment included 65 SNFs leased to
operators and mortgage loans secured by five SNFs. SNFs provide some combination of skilled and intermediate
nursing and rehabilitative care, including speech, physical and occupational therapy. The operators of the SNFs receive
payment from a combination of private pay sources and government payors such as Medicaid and Medicare. SNFs are
required to obtain state licenses and are highly regulated at the federal, state and local levels. Operators in 9 of the 11
states in which we own SNFs must obtain a CON from the state before opening or expanding such facilities. Some
SNFs also include assisted living beds. As the decision to utilize the services of an SNF is typically made as the result
of a pressing medical concern, we consider this to be a need-driven medical facility.
Hospitals. As of December 31, 2024, our Real Estate Investments segment included one hospital (“HOSP”) leased to
an operator and a mortgage loan secured by one HOSP. HOSPs provide a wide range of inpatient and outpatient
services, which may include acute psychiatric, behavioral and rehabilitation services, and are subject to extensive
federal, state and local legislation and regulation. HOSPs undergo periodic inspections regarding standards of medical
care, equipment and hygiene as a condition of licensure. Services provided by HOSPs are generally paid for by a
combination of private pay sources and government payors. As the decision to utilize the services of a HOSP is
typically made as the result of a pressing medical concern, we consider this to be a need-driven medical facility.
Medical Office Building. As of December 31, 2024, our Real Estate Investments segment included no medical office
buildings (“MOB”). We have a $50.0 million mezzanine loan and security agreement with Montecito Medical Real
Estate for a fund that invests in medical real estate, including MOBs. Historically, our investment strategy has included
owning and leasing MOBs whose tenants are primarily physicians and other medical practitioners. As the decision to
utilize the services of an MOB is typically made as the result of a pressing medical concern, we consider this to be a
need-driven medical facility. The MOB differs from conventional office buildings due to the special requirements of the
tenants.
Senior Housing Operating Portfolio
As of December 31, 2024, our SHOP segment included 15 ILFs with a combined 1,732 units located throughout the United
States, which we consider to be discretionary senior housing as discussed in more detail above.
Nature of Investments
8
Our investments are typically structured as acquisitions of properties through purchase-leaseback transactions, acquisitions
of properties from other real estate investors, loans, or operations through structures allowed by the REIT Investment
Diversification and Empowerment Act (“RIDEA”) of 2007. We have provided construction loans for certain facilities for which
we were already committed to provide long-term financing or for which the operator agreed to enter into a purchase option and
lease with us upon completion of construction or after the facility is stabilized. The annual interest rates we receive on our
mortgage, construction and mezzanine loans ranged between 6.0% and 12.0% during 2024. We believe our lease and loan terms
are competitive within our peer group. Typical characteristics of our investment transactions are as follows:
Leases. Our leases for the properties in our Real Estate Investments segment generally have an initial leasehold term of 10
to 15 years with one or more five-year tenant renewal options. The leases are “triple-net leases” under which the tenant is
responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the
properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all
improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the
full replacement cost thereof, and to maintain specified minimum personal injury and property damage insurance, protecting us
as well as the tenant. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the
use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release,
discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to
each facility.
Most of our existing leases contain annual escalators in rent payments. For financial statement purposes, rental income is
recognized on a straight-line basis over the term of the lease where the lease contains fixed escalators. Certain of our tenants
hold purchase options allowing them to acquire properties they currently lease from us. When present, tenant purchase options
generally give the tenant an option to purchase the underlying property for consideration not less than our net investment basis.
Some of the obligations under the leases are guaranteed by the parent corporation of the tenant, if any, or affiliates or
individual principals of the tenant. In some leases, third parties or affiliated entities will also guarantee some portion of the lease
obligations. Some obligations are backed further by other collateral such as security deposits, trade receivables, equipment,
furnishings and other personal property.
We monitor our triple-net lease tenant credit quality and identify any material changes by performing the following
activities:
•
Obtaining financial statements on a monthly, quarterly and annual basis to assess the operational trends of our tenants
and the financial position and capability of those tenants
•
Calculating the operating cash flow of our tenants
•
Calculating the lease service coverage ratio and other ratios pertinent to our tenants
•
Obtaining property-level occupancy rates for our tenants
•
Verifying the payment of real estate taxes by our tenants
•
Obtaining certificates of insurance for our tenants
•
Obtaining reviewed or audited financial statements of our tenant corporate guarantors on an annual basis, if applicable
•
Conducting a periodic inspection of our properties to ascertain proper maintenance, repair and upkeep
•
Monitoring those tenants with indications of continuing and material deteriorating credit quality through discussions
with our executive management and Board of Directors
Mortgage loans. We have mortgage loans with original maturities generally less than five years, with varying amortization
schedules from interest-only to fully amortizing. Most of the loans are at a fixed interest rate; however, some interest rates
increase based on a fixed schedule. In most cases, the owner of the facility is committed to make minimum annual capital
expenditures for the purpose of maintaining or upgrading its respective facility. Additionally, most of our loans are
collateralized by first or second mortgage liens and corporate or personal guarantees. As of December 31, 2024, we had eight
mortgage loans bearing interest ranging from 7.0% to 12.0% per annum.
Mezzanine loans. Frequently in situations calling for temporary financing or when our borrowers’ in-place lending
arrangements prohibit the extension of mortgage security, we extend credit based on corporate and/or personal guarantees.
These mezzanine loans sometimes combine with an NHI purchase option covering the subject property. As of December 31,
2024, we had eight mezzanine loans bearing interest rates ranging from approximately 6.0% to 10.0% per annum.
Construction loans. From time to time, we provide construction loans that become mortgage loans upon the completion of
the construction of the subject facility. We may also obtain a purchase option to acquire the facility at a future date and, if
purchased, will lease the facility back to the borrower. During the term of the construction loan, funds are usually advanced
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pursuant to draw requests made by the borrower in accordance with the terms and conditions of the loan. Interest is typically
assessed on these loans at rates equivalent to the eventual mortgage rate upon conversion. In addition to the security of the lien
against the property, we will generally require additional security and collateral in the form of either payment and performance
completion bonds or completion guarantees by the borrower’s parent, affiliates of the borrower or one or more of the
individuals who control the borrower. As of December 31, 2024, we had three construction loans bearing interest ranging from
8.5% to 9.0% per annum.
Other notes receivable. We have provided three revolving lines of credit to borrowers involved in the senior housing
industry, who have provided either personal and business guarantees or other assets as security, which bear interest at a fixed
rate of 8.0% to 8.50% per annum and a variable rate of 9.4% as of December 31, 2024.
RIDEA transactions. Our arrangement with an affiliate of Life Care Services, which we completed in January 2020 and is
structured to be compliant with the provisions of RIDEA, permits NHI to receive rent payments through a triple-net lease
between a property company owned 80% by NHI and an unconsolidated operating company owned 25% by a taxable REIT
subsidiary (“TRS”) of NHI and gives NHI the opportunity to capture additional value on the improving performance of the
operating company through distributions to the TRS. This organizational structure allows the TRS to engage in a broad range of
activities and share in revenues that would otherwise be non-qualifying income under the REIT gross income tests. The TRS is
subject to state and federal income taxes.
Senior Housing Operating Portfolio. Effective April 1, 2022, 15 senior housing ILFs were transferred from a triple-net
lease arrangement to two separate ventures comprising our SHOP segment, which represented a new reportable segment. These
ventures, in which NHI holds a majority interest, own the underlying independent living operations and are structured to
comply with REIT requirements that utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes.
These properties are operated by two third-party property managers that manage our communities in exchange for the receipt of
a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to
the same extent as we are to our triple-net tenants. However, we rely on the property managers’ personnel, expertise, technical
resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently
and effectively. We also rely on the property managers to set appropriate resident fees and otherwise operate our communities in
compliance with the terms of our management agreements and all applicable laws and regulations. As of December 31, 2024,
our SHOP segment consisted of 15 ILFs located in eight states, with a combined 1,732 units.
Operator Composition
For the year ended December 31, 2024, approximately 25% of our Real Estate Investments and SHOP segments net
operating income (“NOI”) was from publicly owned operators, 62% was from regional operators, 4% was from privately
owned national chains and 1% was from smaller operators. We make reference to the parent companies whenever we describe
our business with our tenants, their subsidiaries and/or affiliates regardless of the specific subsidiary entity indicated on the
lease or loan documents. For the year ended December 31, 2024, our SHOP segment comprised approximately 4% of our NOI
and these properties are managed by two regional operators.
Tenant Concentration
The following table contains information regarding tenant concentration in our Real Estate Investments segment, excluding
$2.6 million for our corporate office, $358.4 million for the SHOP segment, and a credit loss reserve of $20.2 million, based on
the percentage of revenues for the years ended December 31, 2024, 2023 and 2022 related to tenants or affiliates of tenants that
exceed 10% of total revenue ($ in thousands):
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As of December 31, 2024
Revenues1
Asset
Gross Real
Notes
Year Ended December 31,
Class
Estate2
Receivable
2024
2023
2022
Senior Living Communities
EFC
$ 577,243 $
43,916 $ 53,570 16% $ 51,274 16% $ 51,183 18%
Bickford Senior Living 2
ALF
428,068
16,072 41,720 12% 38,688 12%
N/A N/A
NHC
SNF
133,770
— 40,016 12% 37,335 12% 36,893 13%
All others, net
Various 1,453,506
229,187 134,289 41% 132,216 41% 144,534 52%
Escrow funds received from
for property operating expenses
Various
—
— 11,165 3%
11,513 4%
9,788 4%
$ 2,592,587 $ 289,175 280,760
271,026
242,398
Resident fees and services3
54,421 16% 48,809 15% 35,796 13%
$335,181
$319,835
$278,194
1 Includes interest income on notes receivable and rental income from properties classified as assets held for sale.
2 Revenues included in All others, net for years when less than 10%.
3 There is no tenant concentration in “Resident fees and services” because these agreements are with individual residents.
As of December 31, 2024, the two states in which we had an investment concentration of 10% or more were South Carolina
(11.6%) and Texas (10.1%). As of December 31, 2023, the two states in which we had an investment concentration of 10% or
more were also South Carolina (12.1%) and Texas (10.7%).
For the year ended December 31, 2024, operators of facilities in our Real Estate Investments segment who provided 3% or
more individually, and collectively 57%, of our total revenues, net of taxes and insurance on leased properties, were (parent
company, in alphabetical order): Bickford Senior Living (“Bickford”); Discovery Senior Living (“Discovery”); Encore Senior
Living; Health Services Management; NHC; Senior Living Communities (“Senior Living”); and The Ensign Group.
Senior Living - As of December 31, 2024, we leased ten retirement communities totaling 2,232 units to Senior Living. In
2024, the Senior Living leases were amended to extend the maturity dates by two years and to provide up to $10.0 million of
capital improvements on various properties. Rental revenue will increase at a lease rate of 8.5% applied to the amount
expended. Straight-line lease revenue of $(0.2) million, $(1.2) million and $0.4 million and interest revenue of $3.5 million,
$3.7 million and $3.7 million were recognized from Senior Living for the years ended December 31, 2024, 2023 and 2022,
respectively.
We have provided a $20.0 million revolving line of credit to Senior Living whose borrowings under the revolver are to be
used for working capital needs and to finance construction projects within its portfolio, including building additional units.
Beginning January 1, 2025, availability under the revolver was reduced to $15.0 million. The revolver matures in December
2031 at the time of the Senior Living lease maturity. At December 31, 2024, the $11.3 million outstanding under the revolver
bore interest at 8.0% per annum.
The Company also has a mortgage loan of $32.7 million outstanding to Senior Living that originated in July 2019 for the
acquisition of a 248-unit CCRC in Columbia, South Carolina. The mortgage loan matures in July 2025, which may be extended
for one-year, and bears interest at an annual rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated
minimum price of $38.3 million, subject to adjustment for market conditions.
Bickford Leases- As of December 31, 2024, we leased 38 facilities under four leases to Bickford. Bickford has been on the
cash basis of revenue recognition since the second quarter of 2022 based upon information obtained from Bickford regarding its
financial condition that raised substantial doubt as to its ability to continue as a going concern.
Effective April 1, 2024, the combined rent for the Bickford leased portfolio was reset to $34.5 million per year with nominal
increases through April 1, 2026, at which time the rent will be reset to a fair market value based on the Consumer Price Index
(“CPI”). Base rent will escalate annually thereafter based on either a fixed percentage or CPI subject to a floor of 2% and a
ceiling of 3%. As part of the related lease amendments, we agreed to fund up to $8.0 million of capital improvements on
various properties. Rental revenue will increase at a lease rate of 8.0% applied to the amount expended.
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In November 2024, we disposed of one ALF located in Indiana from the Bickford portfolio that is included in the asset
dispositions table in Note 3 to our consolidated financial statements under “Asset Dispositions - 2024 Asset Dispositions.”
Cash rent received from Bickford for the years ended December 31, 2024, 2023 and 2022 was $39.0 million, $33.4 million
and $27.6 million, respectively, including its repayment of outstanding rent deferrals of $5.1 million, $2.3 million and $0.2
million for the years ended December 31, 2024, 2023 and 2022, respectively. These amounts exclude $2.5 million and $3.0
million of rental income for the years ended December 31, 2023 and 2022, respectively, related to the reduction of rent deferrals
in connection with the acquisition of two ALFs located in Virginia from Bickford. As of December 31, 2024, Bickford’s
outstanding rent deferrals were $12.9 million.
Bickford Construction and Mortgage Loans - As of December 31, 2024, we had one fully funded construction loan of $14.7
million outstanding to Bickford bearing interest at 9.0% per annum. The construction loan is secured by a first mortgage lien on
substantially all of the related real and personal property in Canton, Michigan as well as a pledge of any and all leases or
agreements which may grant a right of use to the property. Usual and customary covenants extend to the agreements, including
the borrower’s obligation for payment of insurance and taxes. NHI has a fair market value purchase option on the property at
stabilization of the underlying operations.
As of December 31, 2023, we had designated a mortgage note receivable of $2.1 million, due from Bickford, as non-
performing. In the fourth quarter of 2024, we received $0.7 million to settle this mortgage note receivable upon sale of the
underlying property securing the loan. We executed a new unsecured loan with Bickford for the remaining balance of the
mortgage loan of approximately $1.4 million, on which we maintain a full reserve.
NHC - As of December 31, 2024, we leased three ILFs and 32 SNFs to NHC, a publicly held company, under a master lease
(four of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC) that expires on
December 31, 2026. There are two five-year renewal options at a fair rental value as negotiated between the parties. We have
engaged Blueprint Healthcare Real Estate Advisors, a national advisory firm focused on skilled nursing and senior housing, to
assist with underwriting, diligence, and market analysis with respect to the master lease renewal.
In addition to the base rent, NHC pays any additional rent and percentage rent as required by the master lease. Under the
terms of the master lease, the base annual rent escalates by 4% of the increase, if any, in each facility’s annual revenue over a
base year and is referred to as “percentage rent.” Total percentage rent of $7.2 million, $4.5 million, and $3.1 million was
recognized for the years ended December 31, 2024, 2023 and 2022, respectively. Straight-line lease revenue of $0.2 million and
$(1.2) million was recognized from NHC for the years ended December 31, 2024 and 2023, respectively.
One of the members of our Board of Directors is also a member of NHC’s board of directors. Our former chairperson, Mr.
W. Andrew Adams, was also a director of NHC. Mr. W. Andrew Adams retired from our Board of Directors effective December
31, 2024. As of December 31, 2024, NHC owned 1,630,642 shares of our common stock.
Commitments and Contingencies
In the normal course of business, we enter into a variety of commitments, typically consisting of funding revolving credit
arrangements, and construction and mezzanine loans, to our operators to conduct expansions and acquisitions for their own
account, and commitments for the funding of construction for expansion or renovation to our existing properties under lease. In
our leasing operations, we offer to our tenants and to sellers of newly acquired properties a variety of inducements that originate
contractually as contingencies but which may become commitments upon the satisfaction of the contingent event. Contingent
payments earned will be included in the respective lease bases when funded.
As of December 31, 2024, we had working capital, revolving credit, construction, mortgage and mezzanine loan
commitments to seven operators or borrowers for an aggregate of $138.2 million, of which we had funded $70.7 million toward
these commitments. As of December 31, 2024, $35.9 million of the funding obligations was payable within 12 months with the
remaining commitments due between three to five years.
As of December 31, 2024, we had $37.1 million of development commitments for renovation of eight properties, of which
we had funded $19.5 million toward these commitments, with the remaining amount expected to be payable within 12 months.
As of December 31, 2024, we had an aggregate of $16.9 million in remaining contingent lease inducement commitments in
four lease agreements which are generally based on the performance of facility operations and may or may not be met by the
tenant. At December 31, 2024, we had funded $2.7 million toward these contingent commitments.
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Competition and Market Conditions
We compete primarily with other REITs, private equity funds, banks and insurance companies in the acquisition, leasing and
financing of healthcare real estate.
Operators of our facilities compete on a local and regional basis with operators of facilities that provide comparable
services. Operators compete for residents and/or patients and staff based on quality of care, reputation, location and physical
appearance of facilities, services offered, family preference, physicians, staff and price. Competition is with other operators as
well as companies managing multiple facilities, some of which are substantially larger and have greater resources than the
operators of our facilities. Some of these facilities are operated for profit, while others are owned by governmental agencies or
tax-exempt not-for-profit entities.
Our senior housing properties generally rely on private-pay residents who may be negatively impacted in an economic
downturn. In addition, the success of these properties is often impacted by the existence of comparable, competing facilities in a
local market.
Environmental Matters
We believe that integrating environmental and sustainability initiatives into our strategic business objectives will contribute
to our long-term success and to the success of our tenants by enhancing the quality of life of the residents of the facilities.
Listed below are some of the highlights of our efforts to promote environmental sustainability at our properties and with our
tenants.
•
We provide our triple-net lease operators capital improvement allowances for the redevelopment, expansions and
renovations at our properties which may include energy efficient improvements like LED lighting and low emission
carpeting, recycled materials and solar power;
•
We provide our development partners with capital to build new state-of-the-art properties with energy efficient
components and design features;
•
We obtain Phase I and Phase II environmental reports if warranted as part of our due diligence procedures when
acquiring properties and attempt to avoid buying real estate with known environmental contamination; and
•
We strive for efficiency and sustainability in our corporate headquarters, participate in a recycling program, and
encourage our employees to reduce, reuse and recycle waste. Our document retention practices strive to reduce paper
usage and encourage electronic file sharing.
We are also subject to environmental risks and regulations in our business. See “Government Regulation – Environmental
Regulations” below; and “Item 1A. Risk Factors – Risks Related to our Business and Operations - We are exposed to risks
related to environmental laws and the costs associated with liabilities related to hazardous substances” and “We are subject to
risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change”
in this Annual Report for a description of the risks and regulations associated with environmental matters.
Human Capital
We employ individuals who possess a broad range of experiences, background and skills. We believe that to continue to
deliver long-term value to our stockholders, we must provide and maintain a work environment that attracts, develops, and
retains top talent and affords our employees an engaging work experience that allows for career development and opportunities.
Along with a competitive compensation program including incentive bonuses and an equity incentive plan, NHI provides a
401(k) plan with a safe harbor contribution limit, paid employee health insurance coverage, parental leave and tuition
reimbursement.
As of December 31, 2024, we had 30 full-time employees, an increase of four over the total at December 31, 2023. Of those
employees, 25 are located in the Murfreesboro, Tennessee office, with one employee in each of Colorado, Florida, Oregon,
Texas and North Carolina. The tenure of our current employees includes eight who have been with the Company for over five
years (but less than ten years), and three who have been with the Company over ten years (but less than 20 years). Two of our
employees have been with the Company over 20 years. None of our employees are subject to a collective bargaining agreement.
We empower our employees and reinforce our corporate culture through onboarding, training, and social and team-building
events. We actively support charitable organizations within our community that promote health education and social well-being,
and we encourage our employees to personally volunteer with organizations that are meaningful to them. We consider our
employee relations to be good.
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Certain essential services such as internal audit, tax compliance, information technology and legal services are outsourced to
third-party professional firms.
Government Regulation
Overview. Our tenants and borrowers that operate SNFs, nursing homes, HOSPs, SLCs, ALFs and EFCs are typically
subject to extensive and complex federal, state and local healthcare laws and regulations, including those relating to Medicare
and Medicaid reimbursement, fraud and abuse, relationships with referral sources and referral recipients, licensure and
certification, building codes, privacy and security of health information and other personal data, CON, appropriateness and
classification of care, qualifications of medical and support personnel, distribution, maintenance and dispensing of
pharmaceuticals, communications with patients and consumers, and the operation of healthcare facilities. In addition, many of
our tenants and borrowers that operate ILFs may be subject to state licensing, and all of our properties are subject to
environmental regulations related to real estate. Applicable laws and regulations are wide-ranging, vary across jurisdictions, and
are administered by several government agencies. Further, these laws and regulations are subject to change, enforcement
practices may evolve, and it is difficult to predict the impact of new laws and regulations. We expect that the healthcare
industry, in general, will continue to face increased regulation. Our tenants may find it increasingly difficult and costly to
operate within this complex and evolving regulatory environment. Noncompliance with applicable laws and regulations may
result in the imposition of civil and criminal penalties that could adversely affect the operations and financial condition of
managers, tenants or borrowers, which in turn may adversely affect us. The following is a brief discussion of certain laws and
regulations applicable to certain of our managers, tenants and borrowers and, in some cases, to us.
Licensure and Certification. Various licenses, certifications and permits are required to operate SNFs, ALFs, EFCs, HOSPs
and, to a lesser degree, ILFs, to dispense narcotics, to handle radioactive materials and to operate equipment, among other
regulated actions. Licensure, certification and enrollment with government programs may be conditioned on requirements
related to, among other things, the quality of medical care provided, qualifications of the operator’s administrative personnel
and clinical staff, disclosure of ownership and related information, adequacy of the physical plant and equipment, staff-to-
patient or resident ratios, capital and other expenditures, record keeping, dietary services, infection prevention and control, and
patient rights. For example, a final rule issued by the Centers for Medicare & Medicaid Services (“CMS”) in November 2023
requires Medicare-enrolled SNFs and Medicaid-enrolled nursing homes to disclose additional information about owners,
operators and management, which will be publicly available. To increase transparency with regard to direct and indirect owning
and managing entities, the rule establishes definitions of REIT and private equity company for purposes of Medicare enrollment
and requires providers to disclose whether an owner or manager is a REIT or private equity company. Licensed facilities are
generally subject to periodic inspections by regulators to determine compliance with applicable licensure and certification
standards. Further, some types of licensed facilities must comply with federal and/or state requirements related to staffing and
facility spending. For example, CMS issued a final rule in May 2024 that establishes minimum staffing standards for Medicare-
enrolled SNFs and Medicaid-enrolled nursing homes, to be phased in over five years, beginning in May 2026 for many
facilities.
Sanctions for failure to comply with applicable laws and regulations include (but are not limited to) loss of licensure and
ability to participate in the Medicare, Medicaid, and other government healthcare programs, suspension of or non-payment for
new admissions, and fines, as well as potential criminal penalties. The failure of any manager, tenant or borrower to comply
with such laws and regulations could affect its ability to operate its facility or facilities and could adversely affect any such
tenant’s or borrower’s ability to make lease or debt payments to us. In addition, if we have to replace a tenant, we may
experience difficulties in finding a replacement because our ability to replace the tenant may be affected by federal and state
laws governing changes in control and ownership.
The healthcare facilities in which we invest may be subject to state CON or similar laws, which require government
approval prior to the construction or establishment of new facilities, the expansion of existing facilities, the addition of beds to
existing facilities, the addition of services or certain capital expenditures. CON requirements are not uniform throughout the
United States and are subject to change. We cannot predict the impact of regulatory changes with respect to CONs on the
operations of our managers, tenants and borrowers.
Medicare and Medicaid Reimbursement. A significant portion of the revenue of our SNF tenants and borrowers is derived
from government-funded reimbursement programs, primarily Medicare and Medicaid. The Medicare and Medicaid programs
are highly regulated and subject to frequent and substantial changes resulting from legislation, regulations and administrative
and judicial interpretations of existing law.
Medicare is a federal health insurance program for persons aged 65 and over, some disabled persons, and persons with end-
stage renal disease or Lou Gehrig’s disease/amyotrophic lateral sclerosis. Medicare generally covers SNF services for
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beneficiaries who require skilled nursing or therapy services after a qualifying hospital stay. Medicare Part A generally pays a
per diem rate for each beneficiary. The reimbursement rates are set forth under a prospective payment system (“PPS”), an
acuity-based classification system that uses nursing and therapy indexes, adjusted by additional factors such as geographic
differences in wage rates, to calculate per diem rates for each Medicare beneficiary. The Medicare Part A payment rates cover
most services provided to a beneficiary for a limited benefit period, including room and board, skilled nursing care, therapy, and
medications. CMS updates Medicare payment rates annually. For fiscal year 2025, which started October 1, 2024, CMS
estimates that payments to SNFs under the SNF PPS will increase by approximately $1.4 billion, or 4.2%, compared to fiscal
year 2024.
CMS has implemented policies intended to shift Medicare towards value-based payment methodologies that link
reimbursement to the quality of care provided rather than the quantity of services rendered. For example, CMS uses the Patient
Driven Payment Model (“PDPM”) payment methodology for SNF services, which classifies beneficiaries into payment groups
based on clinical factors using diagnosis codes rather than by volume of services. In addition, under the SNF Quality Reporting
Program, CMS requires SNFs to report certain quality data, and SNFs that fail to do so are subject to payment reductions.
Under the SNF Value-Based Purchasing Program, CMS withholds 2% of SNF PPS payments, and redistributes between 50%
and 70% of these funds to SNFs as incentive payments based on quality measure performance.
Medicaid is a medical assistance program for eligible low-income persons that is funded jointly by federal and state
governments. Medicaid programs are operated by state agencies under plans approved by the federal government.
Reimbursement methodologies, eligibility requirements and covered services vary from state to state. In many instances,
revenues from Medicaid programs are insufficient to cover the actual costs incurred in providing care to patients, particularly in
nursing facilities. The federal government and many states are using or considering various strategies to reduce Medicaid
expenditures. Outside of the government response to the COVID-19 pandemic, budgetary pressures have, in recent years,
resulted in decreased spending, or decreased spending growth, for Medicaid programs in many states. Budgetary pressures are
expected to continue in the future, and many states are actively seeking ways to reduce Medicaid spending, including for
nursing home and assisted living care, by methods such as capitated payments, reductions in reimbursement rates and/or
coverage, and increased enrollment in managed Medicaid plans. Some states use, or have applied to use, waivers granted by
CMS to make these changes, implement Medicaid expansion under the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010, or otherwise implement programs that vary from federal
standards. Some states in which we have investments and managed care plans are pursuing alternatives to institutional care,
such as home and community-based services actively seeking to reduce or slow increases in Medicaid spending for care in
nursing homes and other institutional settings. Changes in federal policy and funding are an additional source of uncertainty.
For example, under early COVID-related legislation, states that maintained continuous Medicaid enrollment were eligible for a
temporary increase in federal funds for state Medicaid expenditures. The resumption of redeterminations for Medicaid enrollees
in 2023 resulted in significant coverage disruptions and dis-enrollments of Medicaid enrollees. Changes to the federal funding
formula for Medicaid could also have a significant impact on Medicaid programs and enrollment. Reductions in the number of
Medicaid enrollees may negatively impact the business of our managers, tenants and borrowers.
In addition to reimbursement pressures and changes in governmental healthcare programs, healthcare facilities are
experiencing increasing pressure from private payors attempting to control healthcare costs. In some cases, private payors rely
on governmental reimbursement systems to determine reimbursement rates and policies. Changes to Medicare and Medicaid
that reduce payments under these programs or negatively affect utilization of services may negatively impact payments from
private payors. We cannot make any assessment as to the timing or the effect that any such changes may have on our
managers’, tenants’ and borrowers’ costs of doing business and on the amount of reimbursement by government and other third-
party payors. There can be no assurance that future payment rates for either government or private payors will be sufficient to
cover the cost of providing services to patients, including any cost increases. Any changes in government or private payor
reimbursement policies that reduce payments to levels that are insufficient to cover the cost of providing patient care or
significant decreases in enrollment or coverage under the Medicare and/or Medicaid programs could adversely affect the
operating revenues of managers, tenants and borrowers in our properties that rely on such payments, and thereby adversely
affect their ability to make their lease or debt payments to us.
Fraud and Abuse. Participants in the healthcare industry are subject to various complex federal and state civil and criminal
laws and regulations governing a wide array of healthcare provider referrals, relationships and arrangements. These laws
include but are not limited to: (i) federal and state false claims acts, which generally prohibit providers from filing false claims
or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs; (ii)
federal and state anti-kickback and fee-splitting statutes, including the federal Anti-Kickback Statute, which prohibits the
payment or receipt of any consideration in exchange for referral of Medicare and Medicaid patients; (iii) federal and state
physician self-referral laws, including the federal prohibition commonly referred to as the Stark Law, which generally prohibits
physicians from referring Medicare and Medicaid patients for designated health services (which include hospital inpatient and
15
outpatient services and some of the services provided in SNFs) to entities with which the physician or an immediate family
member has a financial relationship; and (iv) the federal Civil Monetary Penalties Law, which requires a lower burden of proof
than other fraud and abuse laws. These laws and regulations subject violators to severe penalties, including exclusion from the
Medicare and Medicaid programs, denial of Medicare and Medicaid payments, punitive sanctions, fines and even prison
sentences. They are enforced by a variety of federal, state and local agencies, and can also be enforced by private litigants
through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or
“whistleblower” actions. In recent years, both federal and state governments have significantly increased investigation and
enforcement activity to detect and punish wrongdoers.
It is anticipated that the trend toward increased investigation and enforcement activity will continue. In the event that any
manager, tenant or borrower were to be found in violation of any of these laws and regulations, that manager’s, tenant’s or
borrower’s ability to operate the facility could be jeopardized, which could adversely affect any such tenant’s or borrower’s
ability to make lease or debt payments to us and could thereby adversely affect us.
Privacy and Security and Data Interoperability. Privacy and security regulations issued pursuant to the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”) restrict the use and disclosure of individually identifiable health
information (“protected health information”), provide for individual rights, require safeguards for protected health information
and require notification of breaches of unsecure protected health information. Entities subject to HIPAA include health plans,
healthcare clearinghouses, and most healthcare providers (including some of our managers, tenants and borrowers). Business
associates of these entities who create, receive, maintain or transmit protected health information are also subject to certain
HIPAA provisions. Covered entities must report breaches involving unsecured protected health information to the affected
individuals, the U.S. Department of Health and Human Services and, in large breaches, the media. Violations of HIPAA may
result in substantial civil and/or criminal fines and penalties.
There are several other laws and legislative and regulatory initiatives and proposals at the federal and state levels addressing
privacy and security of personal data that may not be preempted by HIPAA and that impact our business or the business of our
managers, tenants and borrowers. For example, several states have enacted comprehensive consumer data privacy laws,
providing residents of those states with additional or expanded rights with respect to their personal information such as a right
to know what personal information is collected and how it is used, a right to opt out of certain processing activities for sensitive
data and a right to a portable copy of their personal information. Consumer data privacy laws also require subject businesses to
conduct affirmative data protection impact assessments for certain personal information processing activities. State privacy
laws typically provide for civil penalties for violations, and some states provide a private right of action for data breaches,
which may increase data breach litigation. In addition, the Federal Trade Commission continues to pursue privacy as an
enforcement priority, including addressing unfair or deceptive practices relating to privacy policies, consumer data collection
and processing consent, and digital advertising practices.
Federal and state legislative and regulatory bodies, including at the executive level, continue to signal increased scrutiny
and to propose or enact legislation and regulations addressing the creation, adoption, and leveraging of artificial intelligence
and/or machine learning based or enhanced tools, systems, and functions. The shifting regulatory and enforcement landscape in
this space may require additional disclosures, risk assessments, or adjustments to our operations and systems that may leverage
such technologies.
Marketing and patient engagement activities that the Company may engage in are subject to communications laws such as
the Telephone Consumer Protection Act (the “TCPA”) and the Controlling the Assault of Non-Solicited Pornography and
Marketing Act (“CAN-SPAM”). A determination by a court or regulatory agency that the Company and/or our tenants,
borrowers, and operators engaged in communication or marketing practices that violate the TCPA or CAN-SPAM could subject
us to civil penalties and result in negative publicity.
The costs to the business or, for an operator of a healthcare property, associated with developing and maintaining programs
and systems to comply with shifting data privacy and security laws, defending against privacy and security related claims or
enforcement actions and paying any assessed fines can be substantial. Many of these privacy laws and regulations and related
interpretations are subject to uncertain application, interpretation or enforcement standards that could result in claims against us
and/or our tenants, borrowers, and operators, extensive changes to our business practices, systems and operational processes,
including our data processing and security systems, penalties, increased operating costs or other impacts on our businesses.
New or expanding privacy and security laws could require substantial further investment in resources to comply with regulatory
changes as privacy and security laws impose additional obligations.
In addition, healthcare providers and industry participants are subject to a growing number of requirements intended to
promote the interoperability and exchange of patient information. Noncompliance may result in penalties or other disincentives.
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Americans with Disabilities Act. Our properties generally must comply with the Americans with Disabilities Act (the
“ADA”) and any similar state or local laws to the extent that such properties are public accommodations as defined in those
statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties
where such removal is readily achievable. While under our triple-net lease structure, our tenants would generally be responsible
for additional costs that may be required to make our facilities ADA-compliant, should barriers to access by persons with
disabilities be discovered, we may be indirectly responsible for additional costs that may be required to make facilities ADA-
compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. Our
commitment to make readily achievable accommodations pursuant to the ADA is ongoing, and we continue to assess our
properties and make modifications as appropriate in this respect.
Environmental Regulations. As an owner of real property, we are subject to various federal, state and local laws and
regulations regarding environmental, health and safety matters. These laws and regulations address, among other things,
asbestos, polychlorinated biphenyls, fuel, oil management, wastewater discharges, air emissions, radioactive materials, medical
wastes, and hazardous wastes, and in certain cases, the costs of complying with these laws and regulations and the penalties for
non-compliance can be substantial. We may be held primarily or jointly and severally liable for costs relating to the
investigation and clean-up of any property that we own from which there is or has been an actual or threatened release of a
regulated material and any other affected properties, regardless of whether we knew of or caused the release. Such costs
typically are not limited by law or regulation and could exceed the property’s value. In addition, we may be liable for certain
other costs, such as governmental fines and injuries to persons, property or natural resources, as a result of any such actual or
threatened release. Under the terms of our triple-net leases, we generally have a right to indemnification by our tenants for any
contamination caused by them. However, we cannot assure you that our tenants will have the financial capability or willingness
to satisfy their respective indemnification obligations to us, and any such inability or unwillingness to do so may require us to
satisfy the underlying environmental claims.
Tax Regulation
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”), and since our formation, have filed our U.S. federal income tax return as a REIT. We believe
that we have met the requirements for qualification as a REIT since our initial REIT election in 1991, and we expect to qualify
as such for each of our taxable years. Our qualification and taxation as a REIT depend upon our ability to meet on a continuing
basis, through actual annual operating results, the various qualification tests and organizational requirements imposed under the
Internal Revenue Code, including qualification tests based on NHI’s assets, income, distributions and stock ownership.
Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our
REIT taxable income (computed without regard to the dividends-paid deduction or our net capital gain or loss) that is currently
distributed to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily results from
investment in a C corporation. We will, however, be required to pay U.S. federal income tax in certain circumstances.
The sections of the Internal Revenue Code relating to qualification and operation as a REIT, and the U.S. federal income
taxation of a REIT and its stockholders, are highly technical and complex. Some of the requirements depend upon actual
operating results, distribution levels, diversity of stock ownership, asset composition, source of income and record keeping.
Accordingly, while we intend to continue to qualify to be taxed as a REIT, the actual results of our operations for any particular
year might not satisfy these requirements for qualification and taxation as a REIT. Accordingly, no assurance can be given that
the actual results of our operations for any particular taxable year will satisfy such requirements. Further, the anticipated U.S.
federal income tax treatment may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time.
To qualify as a REIT, we must elect to be treated as a REIT, and we must meet various (a) organizational requirements, (b)
gross income tests, (c) asset tests, and (d) annual dividend requirements.
Organizational Requirements. The Internal Revenue Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial
interest;
(3) that would otherwise be taxable as a domestic corporation, but for Sections 856 through 859 of the Internal Revenue
Code;
(4) that is neither a financial institution nor an insurance company to which certain provisions of the Internal Revenue Code
apply;
(5) the beneficial ownership of which is held by 100 or more persons;
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(6) during the last half of each taxable year, not more than 50% in value of the outstanding stock of which is owned, directly
or constructively, by five or fewer individuals, as defined in the Internal Revenue Code to also include certain entities;
and
(7) which meets certain other tests regarding the nature of its income and assets.
We believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, to
satisfy conditions (1) through (7) inclusive, during the relevant time periods, and we intend to continue to be organized and
operate in this manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification
tests imposed under the Internal Revenue Code, including through actual operating results, asset composition, distribution
levels and diversity of stock ownership. Accordingly, no assurance can be given that we will be organized or will be able to
operate in a manner so as to qualify or remain qualified as a REIT.
Income Tests. We must satisfy two gross income tests annually to maintain our qualification as a REIT.
First, at least 75% of our gross income for each taxable year (excluding gross income from prohibited transactions) must
consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgages
on real property or qualified temporary investment income. Qualifying income for purposes of the 75% gross income test
generally includes:
•
rents from real property;
•
interest on debt secured by mortgages on real property, or on interests in real property (including interest on an
obligation secured by a mortgage on both real property and personal property if the fair market value of the personal
property does not exceed 15% of the total fair market value of all the property securing the obligation);
•
dividends or other distributions on, and gain from the sale of, shares in other REITs;
•
gain from the sale of real estate assets; and
•
income derived from the temporary investment of new capital that is attributable to the issuance of our shares of
beneficial interest or a public offering of our debt with a maturity date of at least five years and that we receive during
the one-year period beginning on the date on which we received such new capital.
Second, in general, at least 95% of our gross income for each taxable year (excluding gross income from prohibited
transactions) must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest
and dividends, gain from the sale or disposition of stock or securities or any combination of these.
Asset Tests. To maintain our qualification as a REIT, we also must satisfy the following asset tests at the end of each quarter of
each taxable year:
•
First, at least 75% of the value of our total assets must consist of: (a) cash or cash items, including certain receivables,
(b) government securities, (c) real estate assets, including interests in real property, leaseholds and options to acquire
real property and leaseholds, (d) interests in mortgages on real property (including an interest in an obligation secured
by a mortgage on both real property and personal property if the fair market value of the personal property does not
exceed 15% of the total fair market value of all the property securing the obligation) or on interests in real property, (e)
stock in other REITs, (f) debt instruments issued by publicly offered REITs (i.e., REITs which are required to file
annual and periodic reports with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)), (g) personal property leased in connection with real property to the
extent that rents attributable to such personal property do not exceed 15% of the total rent received under the lease and
are treated as “rents from real property”; and (h) investments in stock or debt instruments during the one-year period
following our receipt of new capital that we raise through equity offerings or offerings of debt with at least a five year
term;
•
Second, of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities
may not exceed 5% of the value of our total assets;
•
Third, we may not own more than 10% of the voting power or value of any one issuer’s outstanding securities;
•
Fourth, no more than 20% of the value of our total assets may consist of the securities of one or more TRSs;
•
Fifth, no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS
taxable subsidiaries and other assets that are not qualifying assets for purposes of the 75% asset test; and
•
Sixth, no more than 25% of our total assets may consist of debt instruments issued by publicly offered REITs that
qualify as “real estate assets” only because of the express inclusion of “debt instruments issued by publicly offered
REITs” in the definition of “real estate assets”.
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Distribution Requirements. Each taxable year, we must distribute dividends, other than capital gain dividends, to our
stockholders in an aggregate amount not less than: the sum of (a) 90% of our “REIT taxable income,” computed without regard
to the dividends-paid deduction or our net capital gain or loss, and (b) 90% of our after-tax net income, if any, from foreclosure
property, minus the sum of certain items of non-cash income.
Taxable REIT Subsidiary. A REIT may directly or indirectly own stock in a TRS. A TRS may be any corporation in which we
directly or indirectly own stock and where both NHI and the subsidiary make a joint election to treat the corporation as a TRS,
in which case it is treated separately from us and will be subject to U.S. federal corporate income taxation. Our stock, if any, of
a TRS is not subject to the 10% or 5% asset tests. Instead, the value of all TRSs owned by us cannot exceed 20% of the value of
our assets. We currently own all of the membership interests of NHI-SS TRS, LLC. We and our Subsidiary REIT hold 99% and
1%, respectively, of and NHI-Discovery I TRS, LLC. We may form additional TRSs in the future.
We also lease “qualified healthcare properties” on an arm’s-length basis to a TRS (or subsidiary thereof) and the property is
operated on behalf of such subsidiary by a person who qualifies as an “independent contractor” and who is, or is related to a
person who is, actively engaged in the trade or business of operating healthcare facilities for any person unrelated to us or our
TRS. Generally, the rent that we receive from our TRS in such structures will be treated as “rents from real property.”
Subsidiary REITs. We currently own all of the common interests in NHI PropCo Member LLC, an entity that has elected to be
taxed as a REIT under the Internal Revenue Code (the “Subsidiary REIT”) and we may own and acquire direct or indirect
interests in additional subsidiary REITs in the future. We believe that the Subsidiary REIT is organized and operates in a
manner that permits it to qualify for taxation as a REIT for U.S. federal income tax purposes. However, if the Subsidiary REIT
were to fail to qualify as a REIT, then (i) the Subsidiary REIT would become subject to regular U.S. corporate income tax and
(ii) our equity interest in the Subsidiary REIT would cease to be a qualifying real estate asset for purposes of the 75% asset test
and could become subject to the 5% asset test, the 10% voting share asset test, and the 10% value asset test generally applicable
to our ownership in corporations other than REITs, qualified REIT subsidiaries (“QRSs”) and TRSs. If the Subsidiary REIT
were to fail to qualify as a REIT and if we were not able to treat the Subsidiary REIT as a TRS of ours pursuant to certain
prophylactic elections we have made, it is possible that we would not meet the 10% voting share test and the 10% value test
with respect to our interest in the Subsidiary REIT, in which event we could fail to qualify as a REIT unless we could avail
ourselves of certain relief provisions.
Failure to Qualify. If we lose our status as a REIT (currently or with respect to any tax years for which the statute of limitations
has not expired), we will face serious tax consequences that will substantially reduce the funds available to satisfy our
obligations, to implement our business strategy and to make distributions to our stockholders for each of the years involved
because:
•
We would be subject to U.S. federal income tax at the regular corporate rate applicable to regular C corporations on
our taxable income, determined without reduction for amounts distributed to stockholders;
•
For tax years beginning after December 31, 2022, we would possibly be subject to certain taxes enacted by the
Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the nondeductible 1% excise
tax on certain stock repurchases;
•
We would not be required to make any distributions to stockholders, and any dividends to stockholders would be
taxable as ordinary income to the extent of our current and accumulated earnings and profits (which may be subject to
tax at preferential rates to individual stockholders); and
•
Unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four
taxable years following the year during which we were disqualified.
In the event we are no longer required to pay dividends to maintain REIT status, this could adversely affect the value of our
common stock. See “Item 1A. Risk Factors - Risks Related to Our Status as a REIT” in this Annual Report.
Investment Policies
Our investment objectives are to (i) provide consistent and growing current income for distribution to our stockholders
through investments primarily in healthcare-related facilities or in the operations thereof through independent third-party
management, (ii) provide the opportunity to realize capital growth resulting from appreciation, if any, in the residual value of
our portfolio properties, and (iii) preserve and protect stockholders’ capital through a balance of diversity, flexibility and
liquidity. There can be no assurance that these objectives will be realized. Our investment policies include making investments
in real estate, mortgage and other notes receivable, and joint ventures structured to comply with the provisions of RIDEA. We
consider the creditworthiness of the operator to be an important factor in underwriting the lease or loan investment, and we
generally have the right to approve any changes in operators.
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During 2024, we made commitments to fund new investments in real estate and loans totaling approximately $246.5
million. In making new investments, we consider such factors as (i) the geographic area and type of property, (ii) the location,
construction quality, condition and design of the property, (iii) the current and anticipated cash flow and its adequacy to meet
operational needs, and for lease or mortgage obligations to provide a competitive income return to our investors, (iv) the
growth, tax and regulatory environments of the communities in which the properties are located, (v) occupancy and demand for
similar facilities in the same or nearby communities, (vi) the quality, experience and creditworthiness of the management
operating the facilities located on the property and (vii) the mix of private and government-sponsored residents. There can be no
assurances that investments meeting our standards regarding these attributes will be found or closed. Our intention is to make
investments in properties with substantial, long-term potential. However, we may choose to sell properties if they no longer
meet our investment objectives.
We will not, without the approval of a majority of the Board of Directors and review of a committee comprised of
disinterested directors, enter into any joint venture or partnership relationships with or acquire from or sell to any director,
officer or employee of NHI, or any affiliate thereof, as the case may be, any of our assets or other property.
The Board of Directors, without the approval of the stockholders, may alter our investment policies if it determines that such
a change is in our best interests and our stockholders’ best interests. The methods of implementing our investment policies may
vary as new investment and financing techniques are developed or for other reasons. Management may recommend changes in
investment criteria from time to time.
Our investments in healthcare-related facilities may utilize borrowed funds or the issuance of equity. We may negotiate lines
of credit or arrange for other short or long-term borrowings from lenders. We may arrange for long-term borrowings from
institutional investors or through public offerings. We have previously invested, and may in the future invest, in properties
subject to existing loans or secured by mortgages, deeds of trust or similar liens with favorable terms or in mortgage investment
pools.
Investor Information
We publish our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to such reports on our website at www.nhireit.com. We have a policy of publishing these on the website as soon as
reasonably practicable after filing them with, or furnishing them to, the SEC. Information contained on our website is not
incorporated by reference into this Annual Report. The SEC also maintains reports, proxy statements, information statements,
and other information regarding issuers that file electronically at http://www.sec.gov.
We also maintain the following documents on our website:
▪
The NHI Code of Business Conduct and Ethics which has been adopted for all employees, officers and directors of the
Company.
▪
Information on our “NHI EthicsPoint” which allows all interested parties to communicate with NHI executive officers
and directors. The toll free number is 877-880-2974 and the communications may be made anonymously, if desired.
▪
The NHI Restated Audit Committee Charter.
▪
The NHI Revised Compensation Committee Charter.
▪
The NHI Revised Nominating and Corporate Governance Committee Charter.
▪
The NHI Corporate Governance Guidelines.
▪
The NHI Insider Trading Policy.
We will furnish, free of charge, a copy of any of the above documents to any interested investor upon receipt of a written
request.
You may contact our Investor Relations Department at:
National Health Investors, Inc.
222 Robert Rose Drive
Murfreesboro, TN 37129
(615) 890-9100
investorrelations@nhireit.com
Our transfer agent is Computershare. Computershare will assist registered owners with the NHI Dividend Reinvestment
Plan, a change of address, a transfer of ownership, payment of dividends, or replacement of lost checks or stock certificates.
20
Computershare’s contact information is: Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078.
The toll free number is 800-568-3476 and the website is www.computershare.com.
ITEM 1A. RISK FACTORS
There are many significant factors that could materially adversely impact our financial condition, results of operations, cash
flows, distributions and stock price. The following are risks we believe are material to our stockholders. There may be
additional risks and uncertainties that we have not presently identified or have not deemed material. Some of the following risk
factors constitute forward-looking statements. Please refer to “Cautionary Statement Regarding Forward-Looking Statements”
at the beginning of this Annual Report.
Risks Related to Our Managers, Tenants and Borrowers
We depend on the operating success of our managers, tenants and borrowers and if their financial condition or business
prospects deteriorate, our financial condition and results of operations could be adversely affected.
We rely on our managers, tenants and borrowers and their ability to perform their obligations to us. Any of our managers,
tenants or borrowers may experience a weakening in their overall financial condition as a result of deteriorating operating
performance, changes in industry or market conditions, such as rising interest rates or inflation, or other factors. In late
September 2024, Senior Living Management (“SLM”) notified us that ongoing liquidity constraints raised doubts about SLM’s
ability to sustain its operations and pay its rent and interest obligations prospectively. In the fourth quarter of 2024, one property
was transitioned to a new operator under a new lease agreement, as previously planned, one property classified as assets held
for sale was sold, and the remaining two leased properties with a net book value of $6.8 million as of December 31, 2024 were
transitioned pursuant to interim management agreements and were subsequently transitioned to a new tenant pursuant to a new
triple-net lease in January 2025. In addition, we had a $10.0 million mortgage note receivable and a $14.5 million mezzanine
loan due from affiliates of SLM that were designated as non-performing. In February 2025, we received ownership of the
property securing the $10.0 million mortgage note receivable in lieu of foreclosure. If the financial condition of any of our other
managers, tenants or borrowers deteriorates, they may be unable or unwilling to make payments or perform their obligations to
us in a timely manner, if at all.
Revenues for the operators of our properties are primarily driven by occupancy rates and reimbursement by Medicare,
Medicaid and private payors. Revenues from government reimbursement have, and may continue to, come under pressure due
to reimbursement cuts resulting from federal and state budget shortfalls and other constraints, and both governmental and
private payors are increasingly imposing more stringent cost control measures. Periods of weak economic growth in the U.S.
that affect housing sales, investment returns and personal incomes may adversely affect senior housing occupancy rates. An
oversupply of senior housing real estate may also apply downward pressure to the occupancy rates of our operators. Expenses
for the facilities are driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Liability insurance and
staffing costs continue to increase for our operators. Historically low unemployment has created significant wage pressure for
our operators.
In addition, inflation, both real and anticipated, as well as any resulting governmental policies, have affected and could
continue to adversely affect the economy and the costs of labor, goods and services for our operators. Because our operators are
typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally
do not directly affect us. Increased operating costs could have an adverse impact on our operators if increases in their operating
expenses exceed increases in their revenue, which may adversely affect their ability to pay rent and make loan payments owed
to us. An increase in our operators’ expenses and a failure of their revenues to increase at least with inflation could adversely
affect our operators’ and our financial condition and our results of operations.
To the extent any decrease in revenues and/or any increase in operating expenses of our operators results in a property not
generating enough cash to make scheduled payments to us, our revenues, net income and funds from operations would be
adversely affected. Such events and circumstances would cause us to evaluate whether there was an impairment of the real
estate or mortgage loan that should be charged to earnings. Such impairment would be measured as the amount by which the
carrying amount of the asset exceeded its fair value. Consequently, we might be unable to maintain or increase our current
dividends and the market price of our stock may decline.
We are exposed to the risk that our managers, tenants and borrowers may become subject to bankruptcy or insolvency
proceedings.
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Although our lease agreements provide us the right to evict a tenant/operator and demand immediate payment of rent and
exercise other remedies, and our mortgage loans provide us the right to terminate any funding obligations, demand immediate
repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, in the event our counterparty
has filed for bankruptcy or reorganization, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or
reorganization. A tenant or borrower in bankruptcy may be able to limit or delay our ability to collect unpaid rent in the case of
a lease or to receive unpaid principal and/or interest in the case of a mortgage loan and to exercise other rights and remedies.
For example, a tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the tenant for
unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap could be
substantially less than the remaining rent owed under the lease, and any claim we have for unpaid rent might not be paid in full.
In addition, a tenant may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If
such a claim is successful, our rights and remedies as a lender, compared to a landlord, are generally more limited. We may be
required to fund certain expenses (e.g., real estate taxes, maintenance and capital improvements) to preserve the value of a
property, avoid the imposition of liens on a property and/or transition a property to a new tenant or borrower. In some instances,
we have terminated our lease with a tenant and leased the facility to another tenant. In certain of those situations, we provided
working capital loans to, and limited indemnification of, the new tenant. If we cannot transition a leased facility to a new tenant,
we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our
revenue and operating cash flow may be adversely affected.
A small number of tenants in our portfolio account for a significant percentage of the rent we expect to generate from
our portfolio, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our
business, financial condition and results of operations and our ability to make distributions to our stockholders.
The successful performance of our real estate investments is materially dependent on the financial stability of our
tenants/operators. For the year ended December 31, 2024, approximately 40% of our total revenue was generated by three
tenants, Senior Living (16%), NHC (12%) and Bickford (12%). As previously disclosed, Bickford has been on the cash basis of
revenue recognition since the second quarter of 2022 based upon information obtained from Bickford regarding its financial
condition. Payment or other tenant defaults, the failure of tenants to meet their other obligations to us or a decline in the
operating performance by any of these tenants or other tenants/operators could materially and adversely affect our business,
financial condition and results of operations, and our ability to pay expected dividends to our stockholders. In the event of a
tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our
investment and re-leasing our property. Further, we may not be able to re-lease the property for the rent previously received, or
at all, or lease terminations may cause us to sell the property at a loss. The realization of any of the foregoing risks could have a
material adverse effect on our business and financial condition.
Actual or perceived risks associated with pandemics, epidemics or outbreaks have had and may in the future have a
material adverse effect on our operators’ business and results of operations.
The business and results of operations of the operators of our properties and the Company are subject to health and
economic effects of public health conditions. If a pandemic, epidemic, outbreaks of infectious disease or other public health
crisis were to affect the markets in which our properties are located, our business could be adversely affected. Revenues for the
tenants and operators of our properties are significantly impacted by occupancy rates. A public health crisis may diminish the
public trust in senior housing properties or medical facilities, especially those that have treated or house consumers affected by
contagious diseases, which may result in a decline in consumers seeking services offered through our properties. Consumer
volumes and occupancy rates may also decline as a result of economic circumstances surrounding a public health crisis,
particularly if the volume of uninsured and underinsured consumers increases. The business of the operators of our properties
and the Company may be more vulnerable to the effects of a public health crisis because most of our properties are designed for
elderly consumers, a population that may experience complex medical conditions or socioeconomic factors. Due to the physical
proximity required to offer many of the services provided by the operators of our properties, our operators may encounter
difficulties attending to consumers due to social distancing policies or infection control protocols and face heightened
workforce challenges. In addition, actions our operators take to address contagious diseases may materially increase their
operating costs, including those related to enhanced health and safety precautions and increased retention and recruitment labor
costs, among other measures. A decrease in occupancy rates or increase in costs is likely to have a material adverse effect on the
ability of our tenants and operators to meet their financial and other contractual obligations to us, including the payment of rent,
as well as on our results of operations. In some cases, we have had to, and we may in the future have to, write-off unpaid rental
payments, incur lease accounting charges due to the uncollectibility of rental payments and/or restructure our tenants’ and
operators’ long-term rent obligations. Furthermore, infections of contagious diseases at our facilities could lead to material
increases in litigation costs for which our operators, or possibly we, may be liable.
22
The measures that federal, state and local governments, agencies and health authorities implement to address an epidemic,
pandemic, outbreaks of infectious disease or other public health crisis may be insufficient to offset any downturn in business of
our tenants and operators, may increase operating costs for our managers, tenants and borrowers or may otherwise disrupt or
affect the operation of our properties. The rapid development, fluid nature and other factors related to an epidemic, pandemic,
outbreaks of infectious disease or other public health crisis makes it difficult to predict the potential impact of such a crisis on
NHI or its operators. Nevertheless, a public health crisis, and the public and government responses to such future public health
crisis, could have a material, adverse effect on our business.
A member of our Board of Directors is also the chairman of the board of directors of NHC, and his interests may differ
from those of our stockholders.
One of our board members is also a member of NHC’s board of directors. This director may have conflicting interests with
holders of the Company’s common stock with respect to the NHC properties. During the year ended December 31, 2024,
revenue from NHC represented 12% of our total revenue. With respect to all decisions by our Board of Directors related to the
NHC properties, the director that is also a member of NHC’s board of directors is recused and does not participate in the NHI
board discussions or vote related to such matters. In addition, our former chairperson, Mr. W. Andrew Adams, was also a
director of NHC. Mr. W. Andrew Adams retired from our Board of Directors effective December 31, 2024. However, these
relationships could influence the Board of Directors’ decisions with respect to the properties leased to and operated by NHC. As
of December 31, 2024, NHC owned 1,630,642 shares of our common stock.
We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the
effect of changes to laws, regulations and reimbursement rates on our tenants’ and borrowers’ business.
Our managers, tenants and borrowers are subject to complex federal, state and local laws and regulations relating to
governmental healthcare programs. See “Item 1. Business - Government Regulation.” in this Annual Report. Regulation of the
healthcare industry generally has intensified over time both in the number and type of regulations and in the efforts to enforce
those regulations. Federal, state and local laws and regulations affecting the healthcare industry include those relating to, among
other things, licensure; certification and enrollment with government programs; facility operations; addition or expansion of
services or facilities; services and equipment; allowable costs; the preparation and filing of cost reports; privacy and security of
health-related and other personal information; prices for services; quality of medical equipment and services; necessity and
adequacy of medical care; patient rights; billing and coding for services and properly handling overpayments; maintenance of
adequate records; relationships with physicians and other referral sources and referral recipients; debt collection;
communications with patients and consumers; interoperability; and information blocking. If our tenants, operators or borrowers
fail to comply with applicable laws and regulations, they may be subject to liabilities and other consequences including civil
penalties, loss of facility licensure, exclusion from participation in the Medicare, Medicaid, and other government healthcare
programs, civil lawsuits and criminal penalties. In addition, different interpretations or enforcement of, or changes to,
applicable laws and regulations in the future could subject current or past practices to allegations of illegality or impropriety or
could require our managers, tenants and borrowers to make changes to their facilities, equipment, personnel, services, and
operating expenses. If the operations, cash flows or financial condition of our tenants, operators and/or borrowers are materially
adversely impacted by current or future government regulation, our revenue and operations may be adversely affected as well.
In addition, if an operator, borrower or tenant defaults on its lease or loan with us, our ability to replace the operator or tenant
may be delayed by federal, state, or local approval processes.
Our tenants’, operators’ and borrowers’ businesses are also affected by government and private payor reimbursement rates
and policies. Payments from government programs and private payors are subject to statutory and regulatory changes,
retroactive rate adjustments, recovery of program overpayments or set-offs, administrative rulings, policy interpretations,
payment or other delays by fiscal intermediaries, government funding restrictions (at a program level or with respect to specific
facilities) and interruption or delays in payments due to delays or issues implementing reimbursement-related rules and any
ongoing governmental investigations and audits at specific facilities. In recent years, legislative and regulatory changes have
resulted in limitations and reductions in payments for certain services under government programs. For example, the Budget
Control Act of 2011 requires automatic spending reductions to reduce the federal deficit, resulting in a uniform payment
reduction across all Medicare programs of 2% per fiscal year that extends through the first eight months of 2032. State
budgetary pressures have resulted, and will likely continue to result, in reduced spending or reduced spending growth for
Medicaid programs in many states, including measures such as tightening patient eligibility requirements, reducing coverage,
and enrolling Medicaid recipients in managed care programs. In addition, legislation and administrative actions at the federal
level may impact the funding for, or structure of, Medicaid programs and may shape administration of Medicaid programs at
the state level. CMS may implement or oversee changes affecting reimbursement, including through new or modified
demonstration projects, such as those authorized pursuant to Medicaid waivers.