NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Note 1. Organization and Nature of Business
National Health Investors, Inc. (“NHI,” “the Company,” “we,” “us” or “our”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. Our portfolio consists of lease, mortgage and other note investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities and a hospital. As of December 31, 2021, we had investments of approximately $2.9 billion in 198 health care real estate properties located in 33 states and leased pursuant primarily to triple-net leases to 31 lessees consisting of 125 senior housing communities (“SHO”), 72 skilled nursing facilities and one hospital, excluding ten properties classified as assets held for sale. Our portfolio of 14 mortgages along with other notes receivable totaled $305.2 million, excluding an allowance for expected credit losses of $5.2 million, as of December 31, 2021. Units and beds disclosures in these consolidated financial statements are unaudited.
Note 2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and subsidiaries in which we have a controlling interest. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if the Company is deemed to be the primary beneficiary of such entities. All material intercompany transactions and balances are eliminated in consolidation.
A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
We apply Financial Accounting Standards Board (“FASB”) guidance for our arrangements with VIEs which requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of the VIE. In accordance with FASB guidance, management must evaluate each of the Company’s contractual relationships which creates a variable interest in other entities. If the Company has a variable interest and the entity is a VIE, then management must determine whether the Company is the primary beneficiary of the VIE. If it is determined that the Company is the primary beneficiary, NHI would consolidate the VIE. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We perform this analysis on an ongoing basis.
If the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of Accounting Standards Codification (“ASC”) Topic 810, Consolidation. These provisions provide for consolidation of majority-owned entities where a majority voting interest held by the Company demonstrates control of such entities in the absence of any legal constraints.
At December 31, 2021, we held interests in ten unconsolidated VIEs, and, because we lack either directly or through related parties the power to direct the activities that most significantly impact their economic performance, we have concluded that the Company is not the primary beneficiary. Accordingly, we account for our transactions with these entities and their subsidiaries at either amortized cost or net realizable value for straight-line receivables, excluding our investment accounted for under the equity method discussed in Note 5.
The Company’s unconsolidated VIEs are summarized below by date of initial involvement. For further discussion of the nature of the relationships, including the sources of exposure to these VIEs, see the notes to our consolidated financial statements cross-referenced below ($ in thousands).
| | | | | | | | | | | | | | | | | |
| Date | Name | Source of Exposure | Carrying Amount | Maximum Exposure to Loss | Note Reference |
| 2012 | Bickford Senior Living | Various1 | $ | 66,499 | | $ | 85,800 | | Notes 3, 4 |
| 2014 | Senior Living Communities | Notes and straight-line receivable | $ | 83,592 | | $ | 94,027 | | Notes 3, 4 |
| 2016 | Senior Living Management | Notes and straight-line receivable | $ | 26,659 | | $ | 26,659 | | — |
| 2018 | Sagewood, LCS affiliate | Notes | $ | 110,233 | | $ | 110,233 | | Note 4 |
| 2019 | Encore Senior Living3 | Notes and straight-line receivable | $ | 28,063 | | $ | 34,285 | | Note 3 |
| 2020 | Timber Ridge OpCo, LLC | Various2 | $ | (5,000) | | $ | — | | Note 5 |
| 2020 | Watermark Retirement | Notes and straight-line receivable | $ | 8,401 | | $ | 10,094 | | Note 4 |
| 2021 | Montecito Medical Real Estate | Notes and funding commitment | $ | 12,320 | | $ | 50,000 | | Note 4 |
| 2021 | Vizion Health | Notes and straight-line receivable | $ | 20,280 | | $ | 22,397 | | Notes 3, 4 |
| 2021 | Navion Senior Solutions | Notes and straight-line receivable | $ | 6,744 | | $ | 13,744 | | Notes 3, 4 |
1 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives
2 Loan commitment, equity method investment and straight-line rent receivables
3 Formerly 41 Management
We are not obligated to provide support beyond our stated commitments to these tenants and borrowers whom we classify as VIEs, and accordingly, our maximum exposure to loss as a result of these relationships is limited to the amount of our commitments, as shown above and discussed in the notes. Economic loss on a lease, in excess of what is presented in the table above, if any, would be limited to that resulting from any period of arrearage and non-payment of monthly rent before we are able to take effective remedial action, as well as costs incurred in transitioning the lease to a new tenant. The potential extent of such loss would be dependent upon individual facts and circumstances, and is therefore not included in the table above.
In the future, NHI may be deemed the primary beneficiary of the operations if the tenants do not have adequate liquidity to accept the risks and rewards as the tenant and operator of the properties and might be required to consolidate the financial position and results of operations of the tenants into our consolidated financial statements.
We consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, (“Discovery”) and LCS Timber Ridge LLC (“LCS”), to invest in senior housing facilities. As of and for the year ended December 31, 2021 and 2020, our noncontrolling interests relate to these partnerships with Discovery and LCS. NHI directs the activities that most significantly impact economic performance of these joint venture entities, subject to limited protective rights extended to our JV partners for specified business decisions. We consider both entities to be VIEs, based on our determination that the total equity at risk in each is insufficient to finance activities without additional subordinated financial support. Because of our control of these entities, we include their assets, liabilities, noncontrolling interests and operations in our consolidated financial statements.
We use the equity method of accounting when we own an interest in an entity whereby we can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.
We structured our Timber Ridge OpCo investment to be compliant with the provisions of RIDEA which permits us to receive rent payments through a triple-net lease between a property company and an operating company and allows us to receive distributions from the operating company to a taxable REIT subsidiary (“TRS”). Our TRS holds our equity interests in unconsolidated operating companies thus providing an organizational structure that allows the TRS to engage in a broad range of activities and share in revenues that are otherwise non-qualifying income under the REIT gross income tests.
Noncontrolling Interests - As mentioned above, we consolidate real estate partnerships formed with Discovery in June 2019 and LCS in January 2020, both of which invest in senior housing facilities. The noncontrolling interests reflected in the consolidated financial statements relate to these partnerships from the date of inception of these arrangements.
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Earnings Per Share - The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options using the treasury stock method, to the extent dilutive. Diluted earnings per share also incorporate the potential dilutive impact of our convertible debt. We apply the treasury stock method to our convertible debt instruments, the effect of which is that conversion will not be assumed for purposes of computing diluted earnings per share unless the average share price of our common stock for the period exceeds the conversion price per share.
Fair Value Measurements - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy is required to prioritize the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
If the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When an event or circumstance alters our assessment of the observability and thus the appropriate classification of an input to a fair value measurement which we deem to be significant to the fair value measurement as a whole, we will transfer that fair value measurement to the appropriate level within the fair value hierarchy.
Real Estate Properties - Real estate properties are recorded at cost or, if acquired through business combination, at fair value, including the fair value of contingent consideration, if any. Cost or fair value at the time of acquisition is allocated among land, buildings, improvements, personal property and lease and other intangibles. For properties acquired in transactions accounted for as asset purchases, the purchase price, which includes transaction costs, is allocated based on the relative fair values of the assets acquired. Cost includes the amount of contingent consideration, if any, deemed to be probable at the acquisition date. Contingent consideration is deemed to be probable to the extent that a significant reversal in amounts recognized is not likely to occur when the uncertainty associated with the contingent consideration is subsequently resolved. Cost also includes capitalized interest during construction periods. We use the straight-line method of depreciation for buildings over their estimated useful lives of 40 years, and improvements over their estimated useful lives ranging to 25 years. For contingent consideration arising from business combinations, the liability is adjusted to estimated fair value at each reporting date through earnings.
Real Estate Investment Impairment - We evaluate the recoverability of the carrying amount of our real estate properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, reclassification of the real estate properties as held for sale, or significant deterioration of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying amount of that property. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property.
Leases - Leases entered into or modified since 2019 are accounted for under the guidance of ASC Topic 842, Leases. All of our leases are classified as operating leases and generally have an initial leasehold term of 10 to 15 years followed by 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 minimal personal injury and property damage insurance. 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. While we do not incorporate residual value guarantees, the above lease provisions and considerations impact our expectation of realizable value from our properties upon the expiration of their lease terms. The residual value of our real estate under lease is still subject to various market, asset, and tenant-specific risks and characteristics. As the classification of our leases is dependent on the fair value of estimated cash flows at lease commencement, management’s projected residual values represent significant assumptions in our accounting for operating leases. Similarly, the exercise of renewal options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows. Initial direct costs that are incremental to entering into a lease are capitalized in accordance with the provisions of Topic 842.
FASB Lease Modifications Related to Effects of the COVID-19 Pandemic - In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the coronavirus pandemic (“COVID-19”). The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 is a lease modification under ASC 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19, which does not substantially increase either its rights as lessor or the obligations of the tenant, is a modification can elect whether to apply the modification guidance. An entity should apply the election consistently to leases with similar characteristics and similar circumstances. During 2021 and 2020, the Company provided $26.5 million and $7.1 million, respectively in lease concessions as a result of COVID-19, as discussed in more detail in Note 8. NHI has elected not to apply the modification guidance under ASC 842 and has accounted for the related concessions as variable lease payments, recorded as rental income when received.
Financial Instruments - Credit Losses - With the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses effective January 1, 2020, we estimate and record an allowance for credit losses upon origination of the loan, based on expected credit losses over the term of the loan and update this estimate each reporting period. We calculate the estimated credit losses on mortgages by pooling these loans into two groups – investments in existing or new mortgages and construction mortgages. Mezzanine and revolving lines of credit are evaluated at the individual loan level. We estimate the allowance for credit losses by utilizing a loss model that relies on future expected credit losses, rather than incurred losses. This loss model incorporates our historical experience, adjusted for current conditions and our forecasts, using the probability of default and loss given default method. Incorporated into the construction mortgage loss model is an estimate of the probability that NHI will acquire the property. Using the resulting estimate, a portion of the outstanding construction mortgage balance which we currently expect will be reduced by our acquisition of the underlying property when construction is complete, is deducted from the construction mortgage balance included in the expected loss calculation. Mezzanine loans and revolving lines of credit are also based on the loss model to recognize expected future credit losses and are applied to each individual loan using borrower specific information. We also perform a qualitative assessment beyond model estimates and apply adjustments as necessary. The credit loss estimate is based on the net amortized cost balance of our mortgage and other notes receivables as of the balance sheet date.
Calculation of the allowance for credit losses involves significant judgment. It is possible that actual credit losses will differ materially from our current estimates. Write-offs are deducted from the allowance for credit losses when we judge the principal to be uncollectible.
Upon adoption, we recorded an allowance for expected credit losses of $3.9 million that is reflected as an adjustment to “Mortgage and other notes receivable, net of credit loss reserve” in the Consolidated Balance Sheets and recorded a corresponding cumulative-effect adjustment to “Cumulative dividends in excess of net income”. Upon adoption, we also recorded a $0.3 million reserve for estimated credit losses pertaining to unfunded loan commitments as an adjustment to “Cumulative dividends in excess of net income”. The corresponding credit loss liability is included in the financial statement line item “Accounts payable and accrued expenses” in the Consolidated Balance Sheets.
Cash and Cash Equivalents and Restricted Cash - Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit or subject to an agreement (e.g. with a qualified intermediary subject to an Internal Revenue Code Section 1031 exchange agreement or in accordance with agency agreements governing our mortgages).
The following table sets forth our “Cash and cash equivalents and restricted cash” reported within the Company’s Consolidated Statements of Cash Flows ($ in thousands):
| | | | | | | | | | | | | |
| As of December 31, | | |
| 2021 | | 2020 | | |
| Cash and cash equivalents | $ | 37,412 | | | $ | 43,344 | | | |
| Restricted cash (included in Other assets) | 2,073 | | | 2,999 | | | |
| $ | 39,485 | | | $ | 46,343 | | | |
Assets Held for Sale - We consider properties to be assets held for sale when (1) management commits to a plan to sell the property, (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we anticipate the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated transaction costs. Depreciation and amortization of the property are discontinued.
Concentration of Credit Risks - Our credit risks primarily relate to cash and cash equivalents and investments in mortgage and other notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. We maintain our bank deposit accounts with large financial institutions in amounts that often exceed federally insured limits. We have not experienced any losses in such accounts. Our mortgages and other notes receivable consist primarily of secured loans on facilities.
Our financial instruments, principally our investments in notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations which may make the instruments less valuable. We obtain collateral in the form of mortgage liens and other protective rights for notes receivable and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide for reserves for potential losses on our financial instruments based on management’s periodic review of our portfolio on an instrument-by-instrument basis.
Deferred Loan Costs - Costs incurred to acquire debt are capitalized and amortized by the straight-line method, which approximates the effective-interest method, over the term of the related debt.
Deferred Income - Deferred income primarily includes rents received in advance from tenants and non-refundable commitment fees received by us, which are amortized into income over the expected period of the related loan or lease. In the event that our financing commitment to a potential borrower or lessee expires, the related commitment fees are recognized into income immediately. Commitment fees may be charged based on the terms of the lease agreements and the creditworthiness of the parties.
Rental Income - Our leases generally provide for rent escalators throughout the term of the lease. Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectible and the lease provides for specific contractual escalators. Under certain leases, we receive additional contingent rent, which is calculated on the increase in revenues of the lessee over a base year or base quarter. We recognize contingent rent annually or quarterly based on the actual revenues of the lessee once the target threshold has been achieved. Lease payments that depend on a factor directly related to future use of the property, such as an increase in annual revenues over a base year, are considered to be contingent rentals and are excluded from the schedule of minimum lease payments.
If rental income calculated on a straight-line basis exceeds the cash rent due under a lease, the difference is recorded as an increase to straight-line rent receivable in the Consolidated Balance Sheets and an increase in rental income in the Consolidated Statements of Income. If rental income on a straight-line basis is calculated to be less than cash received, there is a decrease in the same accounts.
Property operating expenses that are reimbursed by our operators are recorded as Rental income. Accordingly, we record a corresponding Taxes and insurance on leased properties expense in the Consolidated Statements of Income. Rental income includes reimbursement of property operating expenses for the years ended December 2021, 2020 and 2019, totaling $11.6 million, $9.7 million and $5.8 million, respectively.
Rental income is reduced for the non-cash amortization of payments made upon the eventual settlement of commitments and contingencies originally identified and recorded as lease inducements. We record lease inducements to the extent that it is
probable that a significant reversal of amounts recognized will not occur when the uncertainty associated with the contingent consideration is subsequently resolved.
The Company reviews its operating lease receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in which the tenant operates and economic conditions in the area where the property is located. In the event that collectability with respect to any tenant is not probable, a direct write-off of the receivable is made as an adjustment to rental income and any future rental revenue is recognized only when the tenant makes a rental payment.
During the third quarter of 2021, we placed Holiday Retirement (“Holiday”) on cash basis because of unpaid contractual rent due. Rent due but uncollected and unrecognized for the year ended December 31, 2021, excluding penalties and interest, totaled $11.4 million.
Interest Income from Mortgage and Other Notes Receivable - Interest income is recognized based on the interest rates and principal amounts outstanding on the notes receivable. We identify a mortgage loan as non-performing if a required payment is not received within 30 days of the date it is due. Our policy related to mortgage interest income on non-performing mortgage loans is to recognize mortgage interest income in the period when the cash is received. As of December 31, 2021, we did not identify any of our mortgages as non-performing.
Derivatives - In the normal course of business, we are subject to risk from adverse fluctuations in interest rates. We have chosen to manage this risk through the use of derivative financial instruments, primarily interest rate swaps. Counterparties to these contracts are major financial institutions. We are exposed to credit loss in the event of nonperformance by these counterparties. We do not use derivative instruments for trading or speculative purposes. Our objective in managing exposure to market risk is to limit the impact on cash flows relating to the change in market interest rates on our variable rate debt.
To qualify for hedge accounting, our interest rate swaps must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions must be, and be expected to remain, probable of occurring in accordance with our related assertions. All of our hedges are cash flow hedges.
We recognize all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities at their fair value in the Consolidated Balance Sheets. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the criteria of hedge accounting are recognized in earnings. For derivatives designated in qualifying cash flow hedging relationships, the change in fair value of the effective portion of the derivatives is recognized in accumulated other comprehensive income (loss), whereas the change in fair value of any ineffective portion is recognized in earnings. Gains and losses are reclassified from accumulated other comprehensive income (loss) into earnings once the underlying hedged transaction is recognized in earnings.
Federal Income Taxes - We intend at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Aside from such income taxes which may be applicable to the taxable income in the TRS, we will not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT and make distributions to stockholders at least equal to or in excess of 90% our taxable income. Accordingly, no provision for federal income taxes has been made in the consolidated financial statements. A failure to qualify under the applicable REIT qualification rules and regulations would have a material adverse impact on our financial position, results of operations and cash flows.
Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in the basis of assets, estimated useful lives used to compute depreciation expense, gains on sales of real estate, non-cash compensation expense and recognition of commitment fees.
Our tax returns filed for years beginning in 2018 are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our Consolidated Statements of Income as a component of income tax expense.
Segment Disclosures - We are in the business of owning and financing health care properties. We are managed as one segment for internal purposes and for internal decision making for all periods presented.
Note 3. Real Estate Properties and Investments
2021 Acquisitions and New Leases of Real Estate
During the year ended December 31, 2021, we completed the following real estate acquisitions as described below ($ in thousands):
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| Operator | | Date | | Properties | | Asset Class | | Land | | Building and Improvements | | Total |
| Vizion Health | | Q2 2021 | | 1 | | HOSP | | $ | 1,470 | | | $ | 38,780 | | | $ | 40,250 | |
| Navion Senior Solutions | | Q2 2021 | | 1 | | SHO | | 531 | | | 6,069 | | | 6,600 | |
| | | | | | | | $ | 2,001 | | | $ | 44,849 | | | $ | 46,850 | |
Vizion Health
In May 2021, we acquired a 64-bed specialty behavioral hospital located in Oklahoma for a total purchase price of $40.3 million, including $0.3 million in closing costs, and concurrently leased the hospital to an affiliate of Vizion Health. The 15-year master lease, which includes two five-year extension options, has an initial lease rate of 8.5% with fixed annual escalators of 2.5%. We have committed to additional funding of capital improvements for the hospital of up to $2.0 million which will be added to the lease base as funded. At December 31, 2021, no funds have been drawn.
Navion Senior Solutions
In June 2021, we acquired a 48-unit assisted living and memory care community in Tennessee for a purchase price of $6.6 million, including closing costs of $0.1 million. The community was added to an existing master lease with Navion Senior Solutions (“Navion”) whose term was reset for 12 years, has a lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each.
2020 Acquisitions and New Leases of Real Estate
During the year ended December 31, 2020, we completed the following real estate acquisitions as described below ($ in thousands):
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| Operator | | Date | | Properties | | Asset Class | | Land | | Building and Improvements | | Total |
| Bickford Senior Living | | Q1 2020 | | 1 | | SHO | | $ | 1,588 | | | $ | 13,512 | | | $ | 15,100 | |
| Life Care Services | | Q1 2020 | | 1 | | SHO | | 4,370 | | | 130,522 | | | 134,892 | |
| Autumn Trace | | Q2 2020 | | 2 | | SHO | | 344 | | | 13,906 | | | 14,250 | |
Encore Senior Living1 | | Q3 2020 | | 1 | | SHO | | 504 | | | 11,796 | | | 12,300 | |
| | | | | | | | $ | 6,806 | | | $ | 169,736 | | | $ | 176,542 | |
1Formerly 41 Management
Bickford - Shelby, MI
In January 2020, we acquired a 60-unit assisted living/memory care facility located in Shelby, Michigan, from Bickford. The acquisition price was $15.1 million and included the full payment of an outstanding construction note receivable to us of $14.1 million, including interest. We added the facility to an existing master lease for a term of twelve years at an initial lease rate of 8%, with CPI escalators subject to a floor and ceiling.
Life Care Services
In January 2020, we acquired an 80% equity interest in a property company, NHI-LCS JV I, LLC (“Timber Ridge PropCo”), which owns a 401-unit Continuing Care Retirement Community (“CCRC”) located in Issaquah, Washington comprising 330 independent living units, 26 assisted living/memory care units and 45 skilled nursing beds. The same transaction conveyed to NHI a 25% equity interest in the newly formed operating company, Timber Ridge OpCo.
Total consideration for NHI’s interests in the combined venture was $125.0 million, comprised of the $59.3 million remaining balance of a mortgage note initially funded in 2015, an additional loan of $21.7 million, and cash of $43.1 million to
Timber Ridge PropCo and $0.9 million to Timber Ridge OpCo. Total debt due from Timber Ridge PropCo of $81.0 million, which is eliminated upon consolidation, bears interest to NHI at 5.75%. LCS paid $10.8 million for its 20% equity stake in Timber Ridge PropCo and provided $2.6 million for a 75% equity participation in Timber Ridge OpCo.
The lease between Timber Ridge PropCo and Timber Ridge OpCo carries a rate of 6.75% for an initial term of seven years plus renewal options and has a CPI-based lease escalator, subject to floor and ceiling. NHI’s contribution was allocated to our interest in the tangible assets of Timber Ridge PropCo with no material fair value allocated to Timber Ridge OpCo beyond our initial investment. The lease between Timber Ridge PropCo and Timber Ridge OpCo includes an “earn out” provision whereby Timber Ridge OpCo could become eligible for a payment of $10.0 million based on the attainment of certain operating metrics. See Note 5 for a discussion of Timber Ridge PropCo.
Autumn Trace
In May 2020, we acquired two senior housing facilities each with 44 assisted living units for a total purchase price of $14.3 million, including $0.2 million in closing costs. The facilities are located in Indiana and are leased to Autumn Trace Senior Communities, which was a new operator relationship for NHI. The 15-year master lease has an initial lease rate of 7.25% with fixed annual escalators of 2.25% and offers two optional extensions of five years each. NHI was also granted a purchase option on a newly opened Indiana facility.
Encore Senior Living
In September 2020, we acquired a 43-unit assisted living and memory care facility located in Bellevue, Wisconsin from Encore Senior Living, (“Encore”), formerly 41 Management. The acquisition price was $12.3 million and included the full payment of an outstanding mortgage loan of $3.9 million, plus accrued interest. The property is leased to an affiliate of Encore pursuant to a 15-year master lease that has an initial lease rate of 7.5% with fixed annual escalators of 2.5% and offers two optional extensions of five years each.
2021 Asset Dispositions
During the year ended December 31, 2021, we completed the following real estate dispositions as described below ($ in thousands):
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| Operator | | Date | | Properties | | Asset Class | | Net Proceeds | | Net Real Estate Investment | | Other1 | | Gain/(Impairment)2 |
| Bickford | | Q2 2021 | | 6 | | SHO | | $ | 39,924 | | | $ | 34,485 | | | $ | 1,871 | | | $ | 3,568 | |
| Community Health Systems | | Q2 2021 | | 1 | | MOB | | 3,887 | | | 946 | | | 62 | | | 2,879 | |
| TrustPoint Hospital | | Q3 2021 | | 1 | | HOSP | | 31,215 | | | 21,018 | | | 1,562 | | | 8,635 | |
| Holiday | | Q3 2021 | | 8 | | SHO | | 114,133 | | | 113,611 | | | (1,360) | | | 1,882 | |
| Quorum Health | | Q3 2021 | | 1 | | HOSP | | 8,314 | | | 9,568 | | | — | | | (1,254) | |
| Senior Living Management | | Q3 2021 | | 1 | | SHO | | 12,847 | | | 3,212 | | | 210 | | | 9,425 | |
| Holiday | | Q3 2021 | | 1 | | SHO | | 5,666 | | | 10,388 | | | (81) | | | (4,641) | |
| Brookdale Senior Living | | Q4 2021 | | 1 | | ALF | | 11,880 | | | 11,696 | | | — | | | 184 | |
| Senior Living Management | | Q4 2021 | | 1 | | SLC | | 7,275 | | | 3,335 | | | 256 | | | 3,684 | |
| Genesis | | Q4 2021 | | 1 | | SLC | | 3,723 | | | 1,677 | | | (166) | | | 2,211 | |
| | | | | | | | $ | 238,864 | | | $ | 209,936 | | | $ | 2,354 | | | $ | 26,573 | |
| | | | | | | | | | | | | | |
1 Includes straight-line rent and deferred lease intangibles
2 Impairments are included in “Loan and realty losses” in our Consolidated Income Statement for the year ended December 31, 2021
Bickford
During the second quarter of 2021, we sold to affiliates of Bickford a portfolio of six properties that were being leased to Bickford for a purchase price of $52.9 million. We received approximately $39.9 million in cash consideration upon sale and originated a second mortgage note receivable for the remaining purchase price of $13.0 million. A gain was not recognized related to the $13.0 million second mortgage note receivable, which is discussed in more detail in Note 4. We recorded a gain upon completion of this transaction totaling approximately $3.6 million representing the excess of the $39.9 million cash consideration received over the net book value of the assets sold of $34.5 million and the write off of straight-line rents
receivable of approximately $1.9 million. Rental income from this portfolio was $1.6 million, $5.6 million and $6.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Upon completion of the sale, Bickford satisfied the terms of our prior agreement that contingently abated $2.1 million in rental income for the third quarter of 2020. These six properties were part of our ongoing negotiations for the sale to Bickford of nine properties being leased to Bickford. One property was classified as assets held for sale on our Consolidated Balance Sheet as of December 31, 2021. We continue to explore our options for the remaining two properties, which could include a sale to a third party, re-tenanting, or retaining the existing lease with Bickford. Reference Note 8 for discussion of additional contingent consideration associated with this disposition that was not included in the transaction price at the time of closing.
Community Health Systems
During the second quarter of 2021, we sold a medical office building located in Florida for approximately $4.3 million in cash consideration, and incurred $0.4 million of transaction costs, resulting in a gain of approximately $2.9 million. Revenue for this property was $0.1 million for the year ended December 31, 2021 and $0.3 million for both the years ended December 31, 2020 and 2019, respectively.
TrustPoint Hospital
In July 2021, we sold a behavioral hospital located in Tennessee for cash consideration of $31.2 million and recorded a gain of approximately $8.6 million. Rental income was $1.4 million for the year ended December 31, 2021 and $2.7 million for both the years ended December 31, 2020 and 2019, respectively.
Holiday
In August 2021, we sold a portfolio of eight properties that was leased to Holiday with an aggregate net book value of $113.6 million for total cash consideration of $115.0 million, and incurred transaction costs of $0.9 million, and recognized a gain of approximately $1.9 million associated with this transaction. Rental income was $5.9 million for the year ended December 31, 2021 and $10.0 million for both the years ended December 31, 2020 and 2019, respectively.
In September 2021, we sold a property that was leased to Holiday located in Indiana with a net book value of $10.4 million for total cash consideration of $5.8 million, incurred transactions costs of $0.1 million, and recognized an impairment of approximately $4.6 million associated with this transaction. Rental income was $0.4 million for the year ended December 31, 2021 and $0.6 million for both the years ended December 31, 2020 and 2019, respectively.
Quorum Health
In September 2021, we sold an acute care hospital located in Kentucky for cash consideration of $9.0 million, incurred $0.7 million of transaction costs, and recorded an impairment charge of approximately $1.3 million. Rental income was $2.5 million, $3.1 million and $3.4 million, for the years ended December 31, 2021, 2020 and 2019, respectively.
Senior Living Management
In September 2021, we sold a senior living community located in Florida for cash consideration of $14.0 million, incurred transaction costs of $1.2 million and recorded a gain of approximately $9.4 million. Rental income was $0.8 million for the year ended December 31, 2021 and $1.3 million for both the years ended December 31, 2020 and 2019, respectively.
In December 2021, we sold a senior living community located in Florida for cash consideration of $7.8 million, incurred transaction costs of $0.5 million and recorded a gain of approximately $3.7 million. Rental income was $0.5 million for the year ended December 31, 2021 and $0.7 million for both the years ended December 31, 2020 and 2019, respectively.
Brookdale
In December 2021, we sold an assisted living facility located in Ohio for cash consideration of $12.0 million, incurred transactions cost of $0.1 million and recorded a gain of approximately $0.2 million. We received a net lease termination fee of $2.5 million for the year ended December 31, 2021 included in “Interest income and other” on the Consolidated Statement of Income. Rental income was $1.4 million for the years ended December 31, 2021, 2020 and 2019.
Genesis
In December 2021, we sold a senior living community located in Idaho for cash consideration of $3.9 million, incurred transaction costs of $0.2 million and recorded a gain of approximately $2.2 million. Rental income was $0.8 million for the year ended December 31, 2021 and $0.7 million for both the years ended December 31, 2020 and 2019, respectively.
2020 Asset Dispositions
Brookdale Disposition
In January 2020, we sold a portfolio of eight assisted living properties located in Arizona (4), Tennessee (3) and South Carolina (1) to Brookdale Senior Living for cash consideration of $39.3 million pursuant to the exercise of its option to purchase the properties. These properties were classified in assets held for sale on the Consolidated Balance Sheet as of December 31, 2019. We recorded a gain of $20.8 million from the sale. We recognized rental income from this portfolio of $0.2 million and $4.3 million for the years ended December 31, 2020 and 2019, respectively.
Bickford
In February 2020, we disposed of two assisted living properties previously classified as held for sale in exchange for a term note of $4.0 million from the buyer, Bickford. The note, which is due February 2025 and bears interest at 7%, began amortizing on a twenty-five-year basis in January 2021.
Assets Held for Sale and Impairments of Real Estate
At December 31, 2021, we classified ten properties, including three transition properties, to assets held for sale on our Consolidated Balance Sheet. Rental income associated with these properties was $5.4 million, $8.0 million and $8.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
In 2021, we recorded $5.9 million in impairment charges on two properties that were sold during the year. We recorded impairment charges of $39.5 million on seven properties that were classified to assets held for sale during the year and $6.4 million on one transitioning property held in use. These impairment charges are included in “Loan and realty losses” in the Consolidated Statement of Income. In 2019, we recognized an impairment loss of $2.5 million, related to the disposition of two Bickford properties located in Indiana.
We reduced the carrying values of the impaired properties to their estimated fair values or, with respect to the properties classified as held for sale, to their estimated fair value less costs to sell. To estimate the fair values of the properties, we utilized a market approach which considered binding agreements for sales (Level 1 inputs), non-binding offers to purchase from unrelated third parties and/or broker quotes of estimated values (Level 3 inputs), and/or independent third-party valuations (Level 1 and 3 inputs).
2022 Asset Disposition
HCA
In January 2022, we sold a medical office building located in Texas for approximately $5.1 million in cash consideration, and incurred $0.3 million of transaction costs, resulting in a gain of approximately $3.0 million. The property was classified as assets held for sale on the Consolidated Balance Sheet as of December 31, 2021. Revenue for this property was $0.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Major Tenants
The following table contains information regarding tenant concentration in our portfolio, including properties classified as held for sale, $2.6 million for our corporate office and a credit loss reserve balance of $5.2 million, based on the percentage of revenues for the years ended December 31, 2021, 2020 and 2019 related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| as of December 31, 2021 | | Revenues1 |
| Asset | | Real | | Notes | | Year Ended December 31, |
| Class | | Estate2 | | Receivable | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | |
| Senior Living Communities | EFC | | $ | 573,631 | | | $ | 42,266 | | | $ | 50,726 | | 17% | | $ | 50,734 | | 15% | | $ | 48,450 | | 15% |
| National HealthCare Corporation | SNF | | 171,188 | | | — | | | 37,735 | | 12% | | 37,820 | | 11% | | 38,131 | | 12% |
| Bickford Senior Living | ALF | | 490,308 | | | 40,599 | | | 34,599 | | 12% | | 49,451 | | 15% | | 56,210 | | 17% |
Holiday3 | ILF | | 377,735 | | | — | | | N/A | N/A | | 40,705 | | 12% | | 40,459 | | 13% |
| All others, net | Various | | 1,414,475 | | | 222,297 | | | 164,017 | | 55% | | 144,448 | | 44% | | 129,033 | | 41% |
| Escrow funds received from tenants | | | | | | | | | | | | | | |
| for property operating expenses | Various | | — | | | — | | | 11,638 | | 4% | | 9,653 | | 3% | | 5,798 | | 2% |
| | | $ | 3,027,337 | | | $ | 305,162 | | | $ | 298,715 | | | | $ | 332,811 | | | | $318,081 | |
| | | | | | | | | | | | | | |
1 Includes interest income on notes receivable
2 Amounts reflect gross investment and include four Bickford properties held for sale and one Holiday property held for sale.
3 Below 10% for year ended December 31, 2021, as such revenues are included in All others, net
At December 31, 2021, the two states in which we had an investment concentration of 10% or more were South Carolina, (11.6%) and Texas (10.3%). At December 31, 2020, the two states in which we had an investment concentration of 10% or more were South Carolina (10.9%) and Texas (10.5%).
Senior Living Communities
As of December 31, 2021, we leased ten retirement communities totaling 2,068 units to Senior Living Communities, LLC (“Senior Living”). The 15-year master lease, which began in December 2014, contains two renewal options of five years each and provides for an annual escalator of 3% effective January 1, 2019. Straight-line rent revenue of $2.5 million, $4.3 million and $4.9 million was recognized from the Senior Living Communities lease for the years ended December 31, 2021, 2020 and 2019, respectively.
NHC
The facilities leased to NHC, a publicly held company, are under two master leases and consist of three independent living facilities and 39 skilled nursing facilities (four of which are subleased to other parties for whom the lease payments are guaranteed to us by NHC). These facilities are leased to NHC under the terms of an amended master lease agreement originally dated October 17, 1991 (“the 1991 lease”), which includes our 35 legacy properties and a master lease agreement dated August 30, 2013 (“the 2013 lease”), which includes seven skilled nursing facilities acquired in 2013.
The 1991 lease expiration is December 31, 2026. There are two additional five-year renewal options, each at fair rental value as negotiated between the parties and determined without including the value attributable to any improvements to the leased property voluntarily made by NHC at its expense. Under the terms of the 1991 lease, the base annual rental is $30.8 million and rent escalates by 4% of the increase, if any, in each facility’s revenue over a 2007 base year. The 2013 lease provides for a base annual rental of $3.5 million and has a lease expiration of August 2028. Under the terms of the 2013 lease, rent escalates 4% of any increase in each facility’s revenue over the 2014 base year. For both the 1991 lease and the 2013 lease, we refer to this additional rent component as “percentage rent.” During the last three years of the 2013 lease, NHC will have the option to purchase the facilities for $49.0 million.
The following table summarizes the percentage rent income from NHC ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
| Current year | | | | | $ | 3,536 | | | $ | 3,687 | | | $ | 3,650 | |
Prior year final certification1 | | | | | (5) | | | (14) | | | 334 | |
| Total percentage rent income | | | | | $ | 3,531 | | | $ | 3,673 | | | $ | 3,984 | |
1 For purposes of the percentage rent calculation described in the master lease agreement, NHC’s annual revenue by facility for a given year is certified to NHI by March 31st of the following year.
Two of our board members, including our chairman, are also members of NHC’s board of directors. As of December 31, 2021, NHC owned 1,630,642 shares of our common stock.
Bickford Senior Living
As of December 31, 2021, we leased 38 facilities, excluding four facilities classified as assets held for sale, under four master leases to Bickford Senior Living. Lease maturity dates range from 2023 through 2033. Straight-line rent revenue of $1.7 million, $2.8 million and $4.5 million was recognized from the Bickford leases for the years ended December 31, 2021, 2020 and 2019, respectively. As previously discussed, we disposed of six properties that were leased to Bickford in 2021. As discussed more fully in Note 8, we granted lease concessions to Bickford in 2021 and 2020 as a result of the COVID-19 pandemic.
Holiday
As of December 31, 2021, we leased 16 ILFs, excluding one property classified as assets held for sale, to Holiday. The master lease, which matures in 2035, provides for annual lease escalators beginning November 1, 2020, with a floor of 2% and a ceiling of 3%. Straight-line rent revenue of $5.3 million, $6.5 million, and $6.6 million was recognized from the Holiday lease for the years ended December 31, 2021, 2020 and 2019, respectively. As previously discussed, we disposed of nine properties that were leased to Holiday in 2021.
On July 30, 2021, Welltower completed the acquisition of a portfolio of legacy Holiday properties from Fortress Investment Group and a new agreement with Atria Senior Living to assume operations of the Holiday portfolio. These transactions resulted in a Welltower-controlled subsidiary becoming the tenant under our existing master lease for the NHI-owned Holiday real estate assets. We have received no rent due under the master lease for these facilities since this change in tenant ownership occurred. Accordingly, we have placed the tenant on cash basis and filed suit against Welltower, Inc. and certain subsidiaries for default under the master lease. Rent due but uncollected and unrecognized for the year ended December 31, 2021, excluding penalties and interest, totaled $11.4 million. As of December 31, 2021, we have a lease deposit of $8.8 million. See Note 8. Commitment and Contingencies for more detail regarding litigation.
Other Portfolio Activity
Tenant Transitioning
Nine properties were transitioned during 2019 to five new tenants following a period of non-compliance by the former operators. We recognized rental income from these nine properties of $3.0 million, $4.6 million and $3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. As previously noted, we recognized real estate impairment charges on four of the transition properties, of which three of the properties were classified as assets held for sale on our Consolidated Balance Sheet as of December 31, 2021. No properties were transitioned during 2021 or 2020.
Purchase Options
Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At December 31, 2021, we had a net investment of $12.4 million in two real estate properties, included in assets held for sale, which are subject to exercisable tenant purchase options. Tenant purchase options on ten properties in which we had an aggregate net investment of $89.8 million at December 31, 2021, become exercisable between 2022 and 2028.
Rental income from leased properties with tenant purchase options either currently exercisable or exercisable in the future was $12.8 million, $12.3 million and $12.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. We cannot reasonably estimate at this time the probability that these purchase options will be exercised in the future. Consideration to be received from the exercise of any tenant purchase option is expected to exceed our net investment in the leased property or properties.
In June 2021, we received notification of a tenant’s intention to acquire, pursuant to a purchase option, a hospital located in California. The purchase option calls for a minimum purchase price of $15.0 million with any appreciation above $15.0 million to be split evenly between the parties. The net investment at December 31, 2021 was $13.6 million and was classified in assets held for sale on the Consolidated Balance Sheet as of December 31, 2021. Rental income was $1.9 million, for the years ended December 31, 2021, 2020 and 2019, respectively. The transaction will close no earlier than one year after the receipt of the notice of exercise.
Future Minimum Lease Payments
Future minimum lease payments to be received by us under our operating leases at December 31, 2021 are as follows ($ in
thousands):
| | | | | |
| Year Ending December 31, | |
| 2022 | $ | 268,096 | |
| 2023 | 261,788 | |
| 2024 | 258,381 | |
| 2025 | 259,664 | |
| 2026 | 263,620 | |
| Thereafter | 1,092,671 | |
| $ | 2,404,220 | |
Variable Lease Payments
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. Some of our leases contain escalators that are determined annually based on a variable index or other factor that is indeterminable at the inception of the lease. The table below indicates the revenue recognized as a result of fixed and variable lease escalators ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
| Lease payments based on fixed escalators, net of deferrals | | | | | $ | 241,172 | | | $ | 272,630 | | | $ | 262,178 | |
| Lease payments based on variable escalators | | | | | 4,662 | | | 5,501 | | | 4,967 | |
| Straight-line rent income | | | | | 14,603 | | | 20,411 | | | 22,084 | |
| Escrow funds received from tenants for property operating expenses | | | | | 11,638 | | | 9,653 | | | 5,798 | |
| Amortization of lease incentives | | | | | (1,026) | | | (987) | | | (845) | |
| Rental income | | | | | $ | 271,049 | | | $ | 307,208 | | | $ | 294,182 | |
Note 4. Mortgage and Other Notes Receivable
At December 31, 2021, our investments in mortgage notes receivable totaled $230.9 million secured by real estate and other assets of the borrower (e.g., UCC liens on personal property) related to 14 facilities and other notes receivable totaled $74.2 million substantially all of which are guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. At December 31, 2020, our investments in mortgage notes receivable totaled $259.5 million and other notes receivable totaled $37.9 million. These balances exclude a credit loss reserve of $5.2 million and $4.9 million at December 31, 2021 and 2020, respectively. All of our notes were on full accrual basis at December 31, 2021 and 2020, respectively.
2021 Mortgage and Other Notes Receivable
Montecito Medical Real Estate
In April 2021, the Company entered into a $50.0 million mezzanine loan and security agreement with Montecito Medical Real Estate for a new fund that will invest in medical real estate, including medical office buildings, throughout the United States. Amounts under the loan agreement will be funded as real estate investments are identified for acquisition. Borrowings under the loan agreement will bear interest at an annual rate of 9.5% and accrue an additional 2.5% in interest to be paid upon certain future events including repayments, sales of fund investments, and refinancings. Funds drawn in accordance with this agreement are required to be repaid on a per-investment basis five years from deployment of the funds for the applicable investment and includes two one-year extensions. At December 31, 2021, we had funded $12.3 million of our commitment that was used to acquire six medical related facilities for a combined purchase price of approximately $60.3 million.
Vizion Health - Brookhaven
In May 2021, we provided a $20.0 million, five year loan to Vizion Health-Brookhaven, LLC to finance the acquisition of healthcare operations, including the real and personal property of a behavioral hospital we acquired as discussed in Note 3. The loan requires monthly principal and interest payments and bears an initial annual interest rate of 8.5% with fixed annual escalators of 2.5% beginning June 1, 2022. Initial principal loan repayments are equal to 90% of the excess cash flow with a monthly minimum as defined in the agreement. Principal repayments are reduced to 50% of the excess cash flow once the outstanding loan balance is reduced below $15.0 million.
Navion Senior Solutions
In May 2021, we provided a ten-year corporate loan to Navion for $3.6 million. The loan requires interest-only payments at an annual interest rate of 8% until June 1, 2024, and gives us first option to provide permanent development financing for a future project.
Bickford
As part of the sale of six properties to Bickford discussed in Note 3, we executed a $13.0 million second mortgage as a component of the purchase price consideration. The loan is secured by a security interest in the portfolio that is subordinate only to the first mortgage on the portfolio held by a third party. This second mortgage note receivable bears interest at a 10% annual rate and matures in April 2026. As amended, payments of principal and interest commencing in April 2022, are required based on a 15-year amortization schedule. In addition, the interest rate will be reset to 8% if Bickford prepays approximately $5.3 million in principal prior to December 31, 2022. Interest income was $0.9 million for the year ended December 31, 2021.
Given the size of the Company financing provided relative to the purchase price, its subordination to the first mortgage outstanding and the ongoing negative impact of the COVID-19 pandemic on Bickford’s operating results, we did not include this note receivable in the determination of the gain to be recognized upon sale of the portfolio in accordance with the provisions of ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. Therefore, this note receivable is not reflected in “Mortgage and other notes receivable, net” in the Consolidated Balance Sheet as of December 31, 2021. We will re-evaluate the collectability of this note receivable each reporting period and recognize the note receivable and related deferred gain at such time the note receivable is considered probable of collection in accordance with ASC 610-20.
2020 Mortgage and Other Notes Receivable
During the year ended December 31, 2020 we made the following note receivable investments and commitments as described below ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operator | | Date | | Properties | | Asset Class | | Amount | | Funded1 | | Remaining |
| Timber Ridge OpCo (See Note 5) | | Q1 2020 | | 1 | | SHO | | $ | 5,000 | | | $ | — | | | $ | 5,000 | |
| Bickford Senior Living (See Note 3) | | Q1 2020 | | 2 | | SHO | | 4,000 | | | (4,000) | | | — | |
| Bickford Senior Living | | Q2 2020 | | 1 | | SHO | | 14,200 | | | (7,955) | | | 6,245 | |
| Watermark Retirement | | Q2 2020 | | 2 | | SHO | | 5,000 | | | (3,307) | | | 1,693 | |
| Encore Senior Living | | Q4 2020 | | 1 | | SHO | | 22,200 | | | (17,708) | | | 4,492 | |
| | | | | | | | $ | 50,400 | | | $ | (32,970) | | | $ | 17,430 | |
1Amounts as of December 31, 2021 | | | | | | | | | | | | |
Watermark Retirement
In June 2020, we provided a $5.0 million loan commitment to Watermark Retirement to provide working capital liquidity in connection with the renewal of an existing lease on two continuing care retirement communities. The total funded amount on the loan was $3.3 million as of December 31, 2021.
Encore Senior Living
In November 2020, we committed to providing first mortgage financing to Encore for up to $22.2 million to construct, a 110-unit independent living, assisted living and memory care community in Sussex, Wisconsin. The approximate four year loan has an annual interest rate of 8.5% and two one year extensions. The agreement includes a purchase option, effective upon
stabilization of the facility. Additional security on the loan includes personal and corporate guarantees and the funding of a $4.9 million working capital escrow. The total amount funded on the note was $17.7 million as of December 31, 2021.
2022 Mortgage and Other Notes Receivable
In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore to construct, a 108-unit assisted living and memory care community in Fitchburg, Wisconsin. The four-year loan agreement has an annual interest rate of 8.5% and two one-year extensions. We have a purchase option on the property once it has stabilized.
Other Activity
Bickford Senior Living
As of December 31, 2021, we had commitments of $42.9 million in three construction loans to Bickford. At December 31, 2021, we had funded $36.7 million toward these commitments. The construction loans are secured by first mortgage liens on substantially all real and personal property 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 properties at stabilization of the underlying operations. On these development projects, Bickford, as borrower, is entitled to up to $2.0 million per project in incentives based on the achievement of predetermined operational milestones and, if funded, will increase NHI's future purchase price and eventual NHI lease payment.
Life Care Services - Sagewood
In December 2018, we entered into an agreement to lend LCS-Westminster Partnership IV LLP (“LCS-WP IV”), an affiliate of LCS, the manager of the facility, up to $180.0 million. The loan took the form of two notes under a master credit agreement. The senior note (“Note A”) totals $118.8 million at a 7.25% interest rate with 10 basis-point annual escalators after three years and has a term of 10 years. We have funded $110.8 million and $98.8 million of Note A as of December 31, 2021 and 2020, respectively. Note A is interest-only and was locked to prepayment until January 2021. After 2020, the prepayment penalty started at 2% and declines to 1% in 2022. The second note (“Note B”) was a construction loan for up to $61.2 million at an annual interest rate of 8.5% and carried a maturity of five years. During the year ended December 31, 2021, LCS-WP IV repaid the fully drawn Note B principal balance of $61.2 million. As a result, we recognized the remaining Note B commitment fee of $0.4 million in “Interest income and other” during the year ended December 31, 2021.
Life Care Services - Timber Ridge
In February 2015, we entered into a loan agreement in which the proceeds were used to fund the construction of Phase II of Timber Ridge at Talus, a Type-A continuing care retirement community in Issaquah, Washington. The outstanding balance due from LCS-Westminster Partnership III LLP (“LCS-WP III”), an affiliate of LCS and the manager of the facility, was $59.3 million as of January 31, 2020, when we acquired the property. Timber Ridge PropCo assumed the debt (see Note 3) which was increased to $81.0 million as part of the transaction. To provide working capital in support of the CCRC’s entry-fee model, NHI agreed to supply a revolving line of credit permitting draws up to a maximum of $5.0 million. Because of our control of Timber Ridge PropCo, we consolidate its assets, liabilities, noncontrolling interest and operations in our consolidated financial statements. See Note 5 for more information about our equity-method investment in Timber Ridge OpCo.
Senior Living Communities
We provided a $20.0 million revolving line of credit whose borrowings are to be used primarily to finance construction projects within the Senior Living portfolio, including building additional units. No more than $10.0 million may be used to meet general working capital needs. Beginning January 1, 2023, availability under the revolver reduces to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. The outstanding balance under the facility at December 31, 2021 and 2020, was $9.6 million and $11.3 million, respectively and bears interest at 7.52% per annum, the prevailing 10-year U.S. Treasury rate plus 6%.
On July 31, 2020, Senior Living Communities repaid two fully drawn mezzanine loans of $12.0 million and $2.0 million, respectively. The purpose of the mezzanine loans were to partially fund construction of a 186-unit senior living campus on Daniel Island in South Carolina. The loans bore interest, payable monthly, at a 10% annual rate.
In June 2019, we provided a mortgage loan of $32.7 million to Senior Living for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The financing is for a term of five years with two one year extensions and carries an interest rate of 7.25%. Additionally, the loan conveys to NHI a purchase option at a stated minimum price of $38.3 million, subject to adjustment for market conditions.
Credit Loss Reserve
Our principal measures of credit quality, except for construction mortgages, are debt service coverage for amortizing loans and interest or fixed charge coverage for non-amortizing loans collectively (“Coverage”). A Coverage ratio provides a measure of the borrower’s ability to make scheduled principal and interest payments. The Coverage ratios presented in the following table have been calculated utilizing the most recent date for which data is available, September 30, 2021, using EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) and the requisite debt service, interest service or fixed charges, as defined in the applicable loan agreement. We categorize Coverage into three levels: (i) more than 1.5x, (ii) between 1.0x and 1.5x, and (iii) less than 1.0x. We update the calculation of coverage on a quarterly basis. Coverage is not a meaningful credit quality indicator for construction mortgages as either these developments are not generating any operating income, or they have insufficient operating income as occupancy levels necessary to stabilize the properties have not yet been achieved. We measure credit quality for these mortgages by considering the construction and stabilization timeline and the financial condition of the borrower as well as economic and market conditions. As of December 31, 2021, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of December 31, 2021 at amortized cost.
We consider the guidance in ASC 310-20 when determining whether a modification, extension or renewal constitutes a current period origination. The credit quality indicator as of December 31, 2021, is presented below for the amortized cost, net by year of origination of ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total |
| Mortgages | | | | | | | |
| more than 1.5x | $ | — | | $ | 25,579 | | $ | 9,018 | | $ | 138,932 | | $ | — | | $ | 4,331 | | $ | 177,860 | |
| between 1.0x and 1.5x | — | | — | | — | | — | | — | | — | | — | |
| less than 1.0x | — | | 3,944 | | 39,123 | | — | | — | | 10,000 | | 53,067 | |
| No coverage available | — | | — | | — | | — | | — | | — | | — | |
| — | | 29,523 | | 48,141 | | 138,932 | | — | | 14,331 | | 230,927 | |
| Mezzanine | | | | | | | |
| more than 1.5x | 3,568 | | — | | — | | — | | — | | 10,159 | | 13,727 | |
| between 1.0x and 1.5x | 32,385 | | — | | — | | — | | — | | — | | 32,385 | |
| less than 1.0x | — | | — | | — | | — | | — | | 14,500 | | 14,500 | |
| No coverage available | — | | — | | 750 | | — | | — | | — | | 750 | |
| 35,953 | | — | | 750 | | — | | — | | 24,659 | | 61,362 | |
| Revolver | | | | | | | |
| more than 1.5x | | | | | | | — | |
| between 1.0x and 1.5x | | | | | | | 12,873 | |
| less than 1.0x | | | | | | | — | |
| | | | | | | 12,873 | |
| | | | | Credit loss reserve | (5,210) | |
| | | | | | | $ | 299,952 | |
Due to the economic uncertainty created by the COVID-19 pandemic and the potential impact on the collectability of our mortgages and other notes receivable, we forecasted at the beginning of the pandemic a 20% increase in the probability of a default and a 20% increase in the amount of loss from a default resulting in an effective adjustment of 44%.
The allowance for expected credit losses is presented in the following table for the year ended December 31, 2021 ($ in thousands):
| | | | | |
| Beginning balance January 1, 2021 | $ | 4,946 | |
| Additions for expected credit losses | 457 | |
| |
| |
| Deduction for expected credit losses | (193) | |
| Balance December 31, 2021 | $ | 5,210 | |
Note 5. Equity Method Investment
Our initial $0.9 million investment in the operating company, Timber Ridge OpCo, held by our taxable REIT subsidiary (“TRS”) arose in conjunction with the acquisition of a CCRC from LCS-Westminster Partnership III, LLP, in January 2020. We structured our arrangement with our JV partner, LCS Timber Ridge LLC, to be compliant with the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). Accordingly, the TRS holds our 25% equity interest in Timber Ridge OpCo, which permits the TRS to engage in activities and share in cash flows that would otherwise be non-qualifying income under the REIT gross income test. As part of our investment, we provided Timber Ridge OpCo a revolving credit facility of up to $5.0 million of which no funds have been drawn.
We account for our investment in Timber Ridge OpCo under the equity method since we are not the primary beneficiary of Timber Ridge OpCo as our participating rights do not give us the power to direct the activities that most significantly impact its economic performance. Our equity share in the losses of Timber Ridge OpCo during the years ended December 31, 2021 and 2020, was $1.5 million and $3.1 million, respectively. During the year ended December 31, 2021, we received $1.2 million in cash distributions from Timber Ridge OpCo.
Under the equity method, we decrease the carrying value of our investment for losses in the entity and distributions to NHI for cumulative amounts up to and including our basis plus any commitments to fund operations. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility. As of December 31, 2021, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $5.0 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Consolidated Balance Sheet as of December 31, 2021. Excess unrecognized equity method losses were $1.0 million as of December 31, 2021.
The Timber Ridge property is subject to mortgages granted to early residents secured by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”). Subsequent to these early transactions, the practice was discontinued at Timber Ridge. As part of our acquisition, Timber Ridge PropCo acquired the Timber Ridge property and a subordination agreement was entered into pursuant to which the Trustee acknowledged and confirmed that the security interests created under the Deed and Indenture were subordinate to any security interests granted in connection with the loan made by NHI to Timber Ridge PropCo. In addition, by terms of the resident loan assumption agreement, during the term of the lease (seven years with two renewal options), Timber Ridge OpCo is to indemnify Timber Ridge PropCo for any repayment by Timber Ridge PropCo of these liabilities under the guarantee. As a result of the subordination and resident loan assumption agreements, a liability was not recorded for the resident loan obligation upon acquisition and as of December 31, 2021. With the periodic settlement of some of the outstanding resident loans in the normal course of entrance-fee operations, the balance secured by the Deed and Indenture has been reduced to $15.2 million at December 31, 2021.
Note 6. Other Assets
Other assets consist of the following ($ in thousands): | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | |
| Accounts receivable and prepaid expenses | $ | 3,210 | | | $ | 2,594 | | | |
| Lease incentive payments, net | 9,545 | | | 9,782 | | | |
| Regulatory escrows | 6,208 | | | 6,208 | | | |
| Restricted cash | 2,073 | | | 2,999 | | | |
| $ | 21,036 | | | $ | 21,583 | | | |
Note 7. Debt
Debt consists of the following ($ in thousands):
| | | | | | | | | | | |
| December 31,
2021 | | December 31, 2020 |
| Revolving credit facility - unsecured | $ | — | | | $ | 298,000 | |
| Bank term loans - unsecured | 375,000 | | | 650,000 | |
Senior notes - unsecured, net of discount of $2,921 | 397,079 | | | — | |
| Private placement term loans - unsecured | 400,000 | | | 400,000 | |
| Fannie Mae term loans - secured, non-recourse | 77,038 | | | 95,354 | |
| Convertible senior notes - unsecured | — | | | 60,000 | |
| Unamortized loan costs | (6,234) | | | (4,069) | |
| $ | 1,242,883 | | | $ | 1,499,285 | |
Aggregate principal maturities of debt as of December 31, 2021 for each of the next five years and thereafter are included in
the table below. These maturities do not include the impact of any debt incurred or repaid subsequent to December 31, 2021 ($ in thousands):
| | | | | |
| For The Year Ending December 31, | |
| 2022 | $ | 75,389 | |
| 2023 | 475,408 | |
| 2024 | 75,425 | |
| 2025 | 125,816 | |
| 2026 | — | |
| Thereafter | 497,079 | |
| 1,249,117 | |
| Less: unamortized loan costs | (6,234) | |
| $ | 1,242,883 | |
| |
Unsecured revolving credit facility and bank term loans
Our unsecured bank credit facility consists of two term loans – $75.0 million maturing in August 2022 and $300.0 million maturing in September 2023 - and a $550.0 million revolving credit facility that was initially scheduled to mature in August 2021. In April 2021, the Company elected to exercise the extension option on the revolving credit facility available after payment of a 10 basis point extension fee totaling $0.6 million, extending the maturity of the revolver to August 2022. We plan to execute a multiple year extension of our revolving credit facility prior to the August 2022 maturity date, which is discussed in more detail in the “Unsecured revolving credit facility and bank term loans renewal” section below. Should we experience a delay in executing the new credit facility, some combination of cash on hand, proceeds from recent and planned asset sales and operating cash flows is expected to be used to pay off the $75.0 million term loan at its maturity in August 2022. We had swap agreements to fix the interest rates on $400.0 million of term loans that matured December 31, 2021.
In January 2021, we repaid a $100.0 million term loan that was entered into July 2020 with the net proceeds from the 2031 Senior Notes offering discussed below. The term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 basis points (“bps”), based on our current leverage ratios. Upon repayment, the Company expensed approximately $1.9 million of deferred financing costs associated with this loan which is included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the year ended December 31, 2021.
The revolving facility fee is currently 25 bps per annum, and based on our current credit ratings, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 120 bps and a blended 127 bps, respectively. At December 31, 2021 and December 31, 2020, 30-day LIBOR was 10 and 14 bps, respectively.
At December 31, 2021, we had $550.0 million available to draw on the revolving portion of our credit facility, subject to usual and customary covenants. Among other stipulations, the unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. At December 31, 2021, we were in compliance with these ratios.
Pinnacle Bank is a participating member of our banking group. A member of NHI’s Board of Directors and chairman of our audit committee is also the chairman of Pinnacle Financial Partners, Inc., the holding company for Pinnacle Bank. NHI’s local banking transactions are conducted primarily through Pinnacle Bank.
Unsecured revolving credit facility and bank term loans renewal
We are negotiating with the banks comprising the lending syndicate under the Credit Agreement the significant terms for a new credit agreement that will provide us with a senior unsecured revolving credit facility that will replace the existing facility. We have received firm commitment letters from three banks representing $345.0 million.
Senior Notes 2031
On January 26, 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes that mature on February 1, 2031 and pay interest semi-annually on February 1 and August 1 of each year, beginning on August 1, 2021 (the “2031 Senior Notes”). The 2031 Senior Notes were sold at an issue price of 99.196% of face value before the underwriters’ discount. Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $392.3 million. We used the net proceeds from the 2031 Senior Notes offering to repay our $100.0 million term loan that was entered into in July 2020 and reduce borrowings outstanding under our revolving credit facility.
The 2031 Senior Notes are subject to affirmative and negative covenants, including financial covenants. As of December 31, 2021 we were in compliance with all these covenants.
Private placement term loans
Our unsecured private placement term loans, payable interest-only, are summarized below ($ in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Amount | | Inception | | Maturity | | Fixed Rate |
| | | | | | |
| $ | 125,000 | | | January 2015 | | January 2023 | | 3.99 | % |
| 50,000 | | | November 2015 | | November 2023 | | 3.99 | % |
| 75,000 | | | September 2016 | | September 2024 | | 3.93 | % |
| 50,000 | | | November 2015 | | November 2025 | | 4.33 | % |
| 100,000 | | | January 2015 | | January 2027 | | 4.51 | % |
| $ | 400,000 | | | | | | | |
Except for specific debt-coverage ratios and net worth minimums, covenants pertaining to the private placement term loans are generally conformed with those governing our credit facility. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating on our senior unsecured debt below investment grade and our compliance leverage increases to 50% or more.
Fannie Mae term loans
In March 2015 we obtained $78.1 million in Fannie Mae financing. The term debt financing consists of interest-only payments at an annual rate of 3.79% and a 10-year maturity. On December 23, 2021, we repaid two Fannie Mae term loans with a combined balance of $17.9 million, plus accrued interest of $0.1 million. The payoff included a prepayment fee of $1.5 million, which is reflected in the line item “Loss on early retirement of debt” in our Consolidated Statements of Income for the year ended December 31, 2021. The remaining mortgages are non-recourse and secured by eleven properties leased to Bickford.
In a December 2017 acquisition, we assumed additional Fannie Mae debt that amortizes through 2025 when a balloon payment will be due, is subject to prepayment penalties until 2024, bears interest at a nominal rate of 4.6%, and has remaining balance of $16.9 million at December 31, 2021. Collectively, these notes are secured by 12 facilities having a net book value of $110.5 million, excluding one property in assets held for sale at December 31, 2021.
Repayment of HUD mortgage loans
In the fourth quarter of 2020, we repaid ten HUD mortgage loans with a combined balance of $42.6 million, plus accrued interest of $0.2 million. The payoff included a prepayment fee of $1.6 million and the recognition of the unamortized discount and deferred financing cost of $1.2 million and $1.1 million, respectively, which are reflected in the line item “Loss on early retirement of debt” in our Consolidated Statements of Income for the year ended December 31, 2020.
Convertible senior notes
On April 1, 2021, our 3.25% senior unsecured convertible notes (the “Convertible Notes”) issued March 2014 matured. The Company paid $67.1 million, including accrued interest of $1.0 million and a $6.1 million conversion premium, to retire the Convertible Notes. The conversion premium was recorded as a reduction of “Capital in excess of par value” in our Consolidated Balance Sheet as of December 31, 2021.
In December 2019, through the issuance of common stock and cash we retired $60.0 million of the remaining $120.0 million of convertible notes outstanding at that time. Total consideration given in the exchange of $73.1 million included the issuance of 626,397 shares of NHI common stock with a fair value of $51.0 million and cash disbursed of $22.1 million. The consideration was allocated as $60.3 million to the note retirement with the remaining expenditure of $12.8 million allocated to retirement of the equity feature of the notes. A loss of $0.8 million for the year ended December 31, 2019, resulted from the excess allocation of cash expenditures over the book value of the notes retired, net of discount and issuance costs.
Interest Rate Swap Agreements
On December 31, 2021, our $400.0 million interest rate swap agreements in place to hedge against fluctuations in variable interest rates applicable to our bank loans matured. The matured swaps had an average interest rate of 1.92%. In June 2020,$210.0 million notional amount of swaps matured.
If the fair value of the hedge was an asset, we include it in our Consolidated Balance Sheets in the line item “Other assets”, and, if a liability, as a component of “Accounts payable and accrued expenses”. See Note 12 for fair value disclosures about our interest rate swap agreements. Net liability balances for our hedges included as components of “Accounts payable and accrued expenses” on December 31, 2020 were $7.1 million. The following table summarizes interest expense ($ in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Interest expense on debt at contractual rates | $ | 40,866 | | | $ | 43,458 | | | $ | 53,923 | |
| Losses reclassified from accumulated other | | | | | |
| comprehensive income into interest expense | 7,286 | | | 6,330 | | | (791) | |
| | | | | |
| Capitalized interest | (40) | | | (254) | | | (399) | |
| | | | | |
| Amortization of debt issuance costs, debt discount and other | 2,698 | | | 3,348 | | | 3,566 | |
| Total interest expense | $ | 50,810 | | | $ | 52,882 | | | $ | 56,299 | |
Note 8. Commitments, Contingencies and Uncertainties
In the normal course of business, we enter into a variety of commitments, typically consisting of funding of revolving credit arrangements, construction and mezzanine loans to our operators to conduct expansions and acquisitions for their own account classified below as loan commitments, and commitments for the funding of construction for expansion or renovation to our existing properties under lease classified below as development commitments. In our leasing operations, we offer to our tenants and to sellers of newly acquired properties a variety of inducements which 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. The tables below summarize our existing, known commitments and contingencies as of December 31, 2021 according to the nature of their impact on our leasehold or loan portfolios ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Class | | Type | | Total | | Funded | | Remaining |
| Loan Commitments: | | | | | | | | | |
| LCS Sagewood Note A | SHO | | Construction | | $ | 118,800 | | | $ | (110,794) | | | $ | 8,006 | |
| Bickford Senior Living | SHO | | Construction | | 42,900 | | | (36,655) | | | 6,245 | |
| Encore Senior Living | SHO | | Construction | | 22,200 | | | (17,708) | | | 4,492 | |
| Senior Living Communities | SHO | | Revolving Credit | | 20,000 | | | (9,566) | | | 10,434 | |
| Encore Senior Living | SHO | | Construction | | 10,800 | | | (9,071) | | | 1,729 | |
| Timber Ridge OpCo | SHO | | Working Capital | | 5,000 | | | — | | | 5,000 | |
| Watermark Retirement | SHO | | Working Capital | | 5,000 | | | (3,307) | | | 1,693 | |
| Montecito Medical Real Estate | MOB | | Mezzanine Loan | | 50,000 | | | (12,320) | | | 37,680 | |
| | | | | $ | 274,700 | | | $ | (199,421) | | | $ | 75,279 | |
See Note 4 and Note 5 to our consolidated financial statements for further details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.
The credit loss liability for unfunded loan commitments is estimated using the same methodology as for our funded mortgage and other notes receivable based on the estimated amount that we expect to fund. We applied the same COVID-19 pandemic adjustments as discussed in Note 4.
The liability for expected credit losses on our unfunded loans is presented in the following table for the year ended December 31, 2021 ($ in thousands):
| | | | | |
| Beginning balance January 1, 2021 | $ | 270 | |
| Provision for expected credit losses | 685 | |
| Balance at December 31, 2021 | $ | 955 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Class | | Type | | Total | | Funded | | Remaining |
| Development Commitments: | | | | | | | | | |
| Woodland Village | SHO | | Construction | | $ | 7,515 | | | $ | (7,425) | | | $ | 90 | |
| Senior Living Communities | SHO | | Renovation | | 9,930 | | | (9,930) | | | — | |
| Discovery Senior Living | SHO | | Renovation | | 900 | | | (900) | | | — | |
| Watermark Retirement | SHO | | Renovation | | 6,500 | | | (4,436) | | | 2,064 | |
| Navion Senior Solutions | SHO | | Renovation | | 3,650 | | | (213) | | | 3,437 | |
| Other | SHO | | Various | | 2,850 | | | (576) | | | 2,274 | |
| | | | | $ | 31,345 | | | $ | (23,480) | | | $ | 7,865 | |
In addition to the commitments listed above, one of our consolidated real estate partnerships has committed to funding up to $2.0 million toward the purchase of condominium units located at one of the facilities. As of December 31, 2021, we have funded $1.0 million toward the commitment.
As of December 31, 2021, we had the following contingent lease inducements which are generally based on the performance of facility operations and may or may not be met by the tenant ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Class | | Total | | Funded | | Remaining |
| Contingencies (Lease Inducements): | | | | | | | |
| | | | | | | |
| | | | | | | |
| Timber Ridge OpCo | SHO | | $ | 10,000 | | | $ | — | | | $ | 10,000 | |
| Comfort Care Senior Living | SHO | | 6,000 | | | — | | | 6,000 | |
| Wingate Healthcare | SHO | | 5,000 | | | — | | | 5,000 | |
| Navion Senior Solutions | SHO | | 4,850 | | | (1,500) | | | 3,350 | |
| Discovery Senior Living | SHO | | 4,000 | | | — | | | 4,000 | |
| Ignite Medical Resorts | SNF | | 2,000 | | | — | | | 2,000 | |
| Sante Partners | SHO | | 2,000 | | | — | | | 2,000 | |
| | | $ | 33,850 | | | $ | (1,500) | | | $ | 32,350 | |
Bickford Contingent Note Arrangement
Related to the sale of six properties to Bickford discussed further in Note 3, we reached an agreement with Bickford in the third quarter of 2021 whereby Bickford would owe us up to $4.5 million under a contingent note arrangement. We have the one-time option to determine fair market value of the portfolio between May 1, 2023 and April 30, 2026, at which time the amount owed under the contingent note arrangement, if any, will be determined as the lesser of (i) the difference between the fair market value of the portfolio and $52.1 million, which amount represents the purchase consideration for the portfolio of $52.9 million less $0.8 million in mortgage debt repayment fees previously paid by us associated with this portfolio, and (ii) $4.5 million. Any amount due on the contingent note arrangement will accrue interest at an annual rate of 10% and will be due in five years from the determination date.
COVID-19 Pandemic Contingencies
Since the World Health Organization declared coronavirus disease 2019 a pandemic on March 11, 2020, the continually evolving pandemic has resulted in a widespread health crisis adversely affecting governments, businesses, and financial markets. The COVID-19 pandemic and related health and safety measures continue to impact the operations of many of the Company’s tenants, operators and borrowers. The federal government has provided economic assistance and other forms of assistance which mitigated to some extent the negative financial impact of the pandemic for certain of our tenants and operators who are eligible.
Revenues for the operators of our properties continue to be significantly impacted by occupancy. Building occupancy rates have been and may continue to be adversely affected by the COVID-19 pandemic if it continues to cause sustained negative trends such as early resident move-outs, delays in admitting new residents, or other collateral events. In addition, our operators may experience a material increase in their operating costs, including costs related to enhanced health and safety precautions and increased retention and recruitment labor costs among other measures. A decrease in occupancy or increase in costs could have a material adverse effect on the ability of our operators to meet their financial and other contractual obligations to us, including the payment of rent, as well as on our results of operations.
Throughout the pandemic to date, we have granted various rent concessions to tenants whose operations have been adversely affected by the pandemic. When applicable, we have elected not to apply the modification guidance under ASC 842 and have decided to account for the related concessions as variable lease payments, recorded as rental income when received. We will evaluate any rent deferral requests as a result of the COVID-19 pandemic on a tenant-by-tenant basis. The extent of future concessions we make as a result of the COVID-19 pandemic, which could have a material impact on our future operating results, cannot be reasonably or reliably projected by us at this time.
Our pandemic related rent concessions that will be accounted for as variable lease payments recognized upon receipt are shown in the following table ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2021 Activity | | 2020 Activity | | Cumulative Totals |
| Deferrals | Abatements | Collections | | Deferrals | Abatements | | Deferrals | Abatements | Collections |
| Bickford | $ | 18,250 | | $ | — | | $ | — | | | $ | 3,750 | | $ | 2,100 | | | $ | 22,000 | | $ | 2,100 | | $ | — | |
| Holiday | 1,800 | | — | | — | | | — | | — | | | 1,800 | | — | | — | |
| All Others | 6,339 | | 100 | | 82 | | | 1,232 | | 50 | | | 7,571 | | 150 | | 82 | |
| $ | 26,389 | | $ | 100 | | $ | 82 | | | $ | 4,982 | | $ | 2,150 | | | $ | 31,371 | | $ | 2,250 | | $ | 82 | |
The majority of the deferred amounts noted in the table above accrue interest starting at 8% per annum under the terms of each tenant’s deferral agreement.
In addition to the concessions noted above, we have agreed with Bickford to defer up to $4.0 million in deferrals in the first quarter of 2022. We have also reached agreement with three other tenants regarding additional rent deferrals of approximately $0.5 million for the first quarter of 2022. We anticipate some of our tenants may need additional rent deferrals to assist them with the ongoing impact of the pandemic on their operations. The timing and amount of any additional deferrals cannot yet be determined.
In 2021, we modified three leases with two operators that reset and reduced rental income by $1.6 million for the year ended December 31, 2021 and will reduce the rental income by approximately $4.2 million for each of the next two years.
Litigation
Our facilities are subject to claims and suits in the ordinary course of business. Our lessees and borrowers have indemnified, and are obligated to continue to indemnify us, against all liabilities arising from the operation of the facilities, and are further obligated to indemnify us against environmental or title problems affecting the real estate underlying such facilities. While there may be lawsuits pending against certain of the owners and/or lessees of the facilities, management believes that the ultimate resolution of all such pending proceedings will have no material adverse effect on our financial condition, results of operations or cash flows.
East Lake Capital Management LLC
In June 2018, East Lake Capital Management LLC and certain related entities, including Regency (for three assisted living facilities in Tennessee, Indiana and North Carolina), filed suit against NHI in Texas seeking injunctive and declaratory relief and unspecified monetary damages. NHI responded with counterclaims and filed motions requesting the immediate appointment of a receiver and for pre-judgment possession. Resulting from these claims and counterclaims, on December 6, 2018, the parties entered into an agreement resulting in Regency vacating the facilities in December 2018. On September 22, 2021, all parties entered into an agreement whereby NHI was entitled to receive $0.4 million to settle all claims for this matter. The settlement amount was received in December 2021 and recognized in “Other income” in the Consolidated Statement of Income for the year ended December 31, 2021. In addition, we had approximately $0.3 million in liabilities recorded related to the facilities subject to the litigation that was reversed and recognized in “Interest income and other” for the year ended December 31, 2021.
Welltower, Inc.
In June 2021, Welltower announced that it would acquire certain assets from the senior housing portfolio of Holiday, a privately held senior living management company in which 17 senior living facilities were included in Holiday’s portfolio and are governed by a master lease originally executed between a Holiday subsidiary and NHI in 2013. We have received no rent due under the master lease for these facilities since this change in tenant ownership occurred.
On December 20, 2021, NHI and its subsidiaries NHI-REIT of Next House, LLC, Myrtle Beach Retirement Resident LLC, and Vorhees Retirement Residence LLC filed suit against Welltower, Inc., Welltower Victory II TRS LLC, and Well Churchill Leasehold Owner LLC (collectively the "Welltower Entities") in the Delaware Court of Chancery (Case No. 2021-1097-MTZ). In the litigation, we contend that the Welltower Entities have failed repeatedly to honor their legal obligations to NHI. In particular, we assert that the Welltower Entities acquired assets from a third party, Holiday Retirement, that included leases to NHI senior living facilities and fraudulently induced NHI to consent to the assignment of the leases, and then immediately failed to pay rent or provide a promised security agreement that was intended to secure against their default, all as part of an effort to pressure NHI to agree to new conditions outside the assignment agreement or force a sale of the properties to the Welltower Entities. The Litigation further asserts that the Welltower Entities currently owe unpaid contractual rent. Unpaid contractual rent, excluding penalties and interest, totaled $11.4 million for the year ended December 31, 2021.
Note 9. Equity and Dividends
At-the-Market (ATM) Equity Program
In March 2020 the Company entered into a new ATM equity offering sales agreement pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $500.0 million of the Company’s common shares through the ATM equity program. Upon entering into the new agreement, the Company terminated its previously existing ATM equity program, dated February 22, 2017. During the year ended December 31, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds after transaction costs of approximately $47.9 million. During the year ended December 31, 2020, 535,990 common shares were issued for $34.6 million in net proceeds after transactions cost.
Dividends
The following table summarizes dividends declared by the Board of Directors during the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Date of Declaration | | Date of Record | | Date Paid/Payable | | Quarterly Dividend |
| March 12, 2021 | | March 31, 2021 | | May 7, 2021 | | $1.1025 |
| June 3, 2021 | | June 30, 2021 | | August 6, 2021 | | $0.90 |
| August 6, 2021 | | September 30, 2021 | | November 5, 2021 | | $0.90 |
| November 5, 2021 | | December 31, 2021 | | January 31, 2022 | | $0.90 |
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Date of Declaration | | Date of Record | | Date Paid/Payable | | Quarterly Dividend |
| February 19, 2020 | | March 31, 2020 | | May 8, 2020 | | $1.1025 |
| June 15, 2020 | | June 30, 2020 | | August 7, 2020 | | $1.1025 |
| September 14, 2020 | | September 30, 2020 | | November 6, 2020 | | $1.1025 |
| December 15, 2020 | | December 31, 2020 | | January 29, 2021 | | $1.1025 |
On February 16, 2022, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on March 31, 2022, payable May 6, 2022.
Note 10. Share-Based Compensation
We recognize share-based compensation for all stock options granted over the requisite service period using the fair value of these grants as estimated at the date of grant using the Black-Scholes pricing model over the requisite service period using the market value of our publicly traded common stock on the date of grant.
Share-Based Compensation Plans
The Compensation Committee of the Board of Directors (the “Committee”) has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option (“ISO”), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.
The Company’s outstanding stock incentive awards have been granted under two incentive plans – the 2012 Stock Incentive Plan (“2012 Plan”) and the 2019 Stock Incentive Plan (“2019” Plan”). The individual option grant awards may vest over periods up to five years. The term of the options under the 2019 Plan is up to ten years from the date of grant. As of December 31, 2021, shares available for future grants totaled 2,117,336 all under the 2019 Plan.
Compensation expense is recognized only for the awards that ultimately vest. Accordingly, forfeitures that were not expected may result in the reversal of previously recorded compensation expense. The following is a summary of share-based compensation expense, net of forfeitures, included in “General and administrative expenses” in the Consolidated Statements of Income ($ in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| Non-cash share-based compensation expense | $ | 8,415 | | | $ | 3,061 | | | $ | 3,646 | |
Determining Fair Value of Option Awards
The fair value of each option award was estimated on the grant date using the Black-Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employee and termination behavior. Compensation cost is recognized on the graded vesting method over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. The expected volatility is derived using daily historical data for periods preceding the date of grant. The risk-free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised.
Stock Options
The weighted average fair value of options granted was $14.54, $5.57 and $6.30 for December 31, 2021, 2020 and 2019, respectively. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| Dividend yield | 6.7% | | 5.1% | | 5.5% |
| Expected volatility | 48.1% | | 17.1% | | 18.2% |
| Expected lives | 2.9 years | | 2.9 years | | 2.7 years |
| Risk-free interest rate | 0.33% | | 1.30% | | 2.39% |
Stock Option Activity
The following tables summarize our outstanding stock options, after giving effect to modifications of 83,334 options in November 2019 as, in substance, the forfeiture of old and issuance of new options concurrent with an employee’s retirement: | | | | | | | | | | | | | | | | | | | | |
| | | | | Weighted Average | |
| Number | | Weighted Average | | Remaining | |
| of Shares | | Exercise Price | | Contractual Life (Years) | |
| Outstanding December 31, 2018 | 920,346 | | | $69.24 | | | |
| Options granted under 2012 Plan | 685,334 | | | $79.08 | | | |
| | | | | | |
| | | | | | |
| Options exercised under 2012 Plan | (501,664) | | | $71.52 | | | |
| Options forfeited under 2012 Plan | (100,002) | | | $73.89 | | | |
| | | | | | |
| Outstanding December 31, 2019 | 1,004,014 | | | $74.35 | | | |
| Options granted under 2012 Plan | 319,669 | | | $90.79 | | | |
| Options granted under 2019 Plan | 272,331 | | | $89.76 | | | |
| Options exercised under 2012 Plan | (512,509) | | | $72.98 | | | |
| Options forfeited under 2012 Plan | (16,669) | | | $81.37 | | | |
| Options forfeited under 2019 Plan | (32,998) | | | $90.79 | | | |
| Outstanding December 31, 2020 | 1,033,838 | | | $83.54 | | | |
| Options granted under 2012 Plan | 12,500 | | | $69.20 | | | |
| Options granted under 2019 Plan | 639,500 | | | $69.20 | | | |
| Options exercised under 2012 Plan | (20,000) | | | $60.52 | | | |
| | | | | | |
| | | | | | |
| Options forfeited under 2019 Plan | (13,333) | | | $90.79 | | | |
| Options outstanding, December 31, 2021 | 1,652,505 | | | $78.10 | | 3.37 | |
| | | | | | |
| Exercisable at December 31, 2021 | 1,169,991 | | | $79.12 | | 3.08 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Remaining |
| Grant | | Number | | Exercise | | Contractual |
| Date | | of Shares | | Price | | Life in Years |
| 2/22/2017 | | 55,331 | | | $ | 74.78 | | | 0.14 |
| 2/20/2018 | | 88,170 | | | $ | 64.33 | | | 1.14 |
| 2/21/2019 | | 313,504 | | | $ | 79.96 | | | 2.14 |
| 2/21/2020 | | 536,000 | | | $ | 90.79 | | | 3.15 |
| 5/1/2020 | | 7,500 | | | $ | 53.76 | | | 3.33 |
| 2/25/2021 | | 652,000 | | | $ | 69.20 | | | 4.15 |
| Options outstanding, December 31, 2021 | | 1,652,505 | | | | | |
Including outstanding stock options, our stockholders have authorized an additional 3,769,841 shares of common stock that may be issued under the share-based payments plans.
The following table summarizes our outstanding non-vested stock options: | | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| Non-vested December 31, 2020 | 431,844 | | | $5.79 |
| Options granted under 2012 Plan | 12,500 | | | $14.54 |
| Options granted under 2019 Plan | 639,500 | | | $14.54 |
| Options vested under 2012 Plan | (212,838) | | | $5.18 |
| Options vested under 2019 Plan | (388,492) | | | $6.98 |
| | | |
| | | |
| Non-vested December 31, 2021 | 482,514 | | | $7.51 |
As of December 31, 2021, unrecognized compensation expense totaling $1.8 million associated with unvested stock options is expected to be recognized over the following periods: 2022 - $1.6 million and 2023 - $0.2 million. Share-based compensation is included in “General and administrative expense” in the Consolidated Statements of Income.
At December 31, 2021, there was no material intrinsic value of stock options outstanding and exercisable. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $0.2 million or $9.27 per share; $8.1 million or $15.84 per share, and $5.7 million or $11.28 per share, respectively.
Note 11. Earnings Per Common Share
The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options and the conversion of our convertible debt using the treasury stock method, to the extent dilutive. Dilution resulting from the conversion option within our convertible debt is determined by computing an average of incremental shares included in each quarterly diluted EPS computation. If our average stock price for the period is higher than the conversion price of our convertible debt, the conversion feature is considered dilutive.
The following table summarizes the average number of common shares and the net income used in the calculation of basic and diluted earnings per common share ($ in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income attributable to common stockholders | $ | 111,804 | | | $ | 185,126 | | | $ | 160,456 | |
| | | | | |
| BASIC: | | | | | |
| Weighted average common shares outstanding | 45,714,221 | | | 44,696,285 | | | 43,417,828 | |
| | | | | |
| DILUTED: | | | | | |
| Weighted average common shares outstanding | 45,714,221 | | | 44,696,285 | | | 43,417,828 | |
| Stock options | 4,823 | | | 1,719 | | | 75,196 | |
| Convertible debt | 10,453 | | | — | | | 210,224 | |
| Weighted average dilutive common shares outstanding | 45,729,497 | | | 44,698,004 | | | 43,703,248 | |
| | | | | |
| Net income attributable to common stockholders - basic | $ | 2.45 | | | $ | 4.14 | | | $ | 3.70 | |
| Net income attributable to common stockholders - diluted | $ | 2.44 | | | $ | 4.14 | | | $ | 3.67 | |
| | | | | |
| Incremental anti-dilutive shares excluded: | | | | | |
| Net share effect of stock options with an exercise price in excess of the | | | | | |
| average market price for our common shares | 383,716 | | | 390,596 | | | 4,678 | |
| | | | | |
| Regular dividends declared per common share | $ | 3.8025 | | | $ | 4.41 | | | $ | 4.20 | |
Note 12. Fair Value Of Financial Instruments
Our financial assets and liabilities measured at fair value (based on the hierarchy of the three levels of inputs described in Note 2) on a recurring basis include derivative financial instruments. Derivative financial instruments include our interest rate swap agreements.
Derivative financial instruments. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy.
Assets and liabilities measured at fair value on a recurring basis are as follows ($ in thousands):
| | | | | | | | | | | | | | | | | |
| | | Fair Value Measurement |
| Balance Sheet Classification | | December 31,
2021 | | December 31, 2020 |
| Level 2 | | | | | |
| Interest rate swap liability | Accounts payable and accrued expenses | | $ | — | | | $ | (7,149) | |
Carrying amounts and fair values of financial instruments that are not carried at fair value at December 31, 2021 and December 31, 2020 in the Consolidated Balance Sheets are as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Amount | | Fair Value Measurement |
| 2021 | | 2020 | | 2021 | | 2020 |
| Level 2 | | | | | | | |
| Variable rate debt | $ | 373,682 | | | $ | 945,078 | | | $ | 375,000 | | | $ | 948,000 | |
| Fixed rate debt | $ | 869,201 | | | $ | 554,207 | | | $ | 858,124 | | | $ | 575,292 | |
| | | | | | | |
| Level 3 | | | | | | | |
| Mortgage and other notes receivable, net | $ | 299,952 | | | $ | 292,427 | | | $ | 314,821 | | | $ | 321,021 | |
Fixed rate debt. Fixed rate debt is classified as Level 2 and its value is based on quoted prices for similar instruments or calculated utilizing model derived valuations in which significant inputs are observable in active markets.
Mortgage and other notes receivable. The fair value of mortgage and other notes receivable is based on credit risk and discount rates that are not observable in the marketplace and therefore represents a Level 3 measurement.
Carrying amounts of cash and cash equivalents and restricted cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The fair value of our borrowings under our revolving credit facility and other variable rate debt are reasonably estimated at their notional amounts at December 31, 2021 and 2020, due to the predominance of floating interest rates, which generally reflect market conditions.
Note 13. Income Taxes
Beginning with our inception in 1991, we have elected to be taxed as a REIT under the Internal Revenue Code. We have recorded state income tax expense of $0.1 million related to a Texas franchise tax that has attributes of an income tax for each of the years ended December 31, 2021, 2020, and 2019. Some of our leases require taxes to be reimbursed by our tenants. State income taxes are combined in “Franchise, excise and other taxes” in our Consolidated Statements of Income.
The Company has a deferred tax asset, which is fully reserved through a valuation allowance, of $0.6 million and $0.9 million as of December 31, 2021 and 2020, respectively, as a result of its participation in the operations of a joint venture during the years 2012 through 2016, and Timber Ridge OpCo structured as a taxable REIT subsidiary (“TRS”) under provisions of the Internal Revenue Code. See Note 5 for a discussion of Timber Ridge OpCo.
The Company made state income tax payments of $0.1 million for each of the years ended December 31, 2021, 2020, and 2019.
Dividend payments to common stockholders for the last three years are characterized for tax purposes as follows on a per share basis:
| | | | | | | | | | | | | | | | | |
| (Unaudited) | December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| Ordinary income | $ | 2.87799 | | | $ | 3.50400 | | | $ | 4.20000 | |
| Capital gain | 0.43890 | | | 0.10999 | | | — | |
| Return of capital | 0.48562 | | | 0.79603 | | | — | |
| Dividends paid per common share | $ | 3.8025 | | | $ | 4.41 | | | $ | 4.20 | |