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

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________

Commission File Number 001-10822
National Health Investors Inc
(Exact name of registrant as specified in its charter)
Maryland 62-1470956
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
222 Robert Rose Drive 
MurfreesboroTennessee37129
(Address of principal executive offices) (Zip Code)

(615)890-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueNHINew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 45,850,599 shares of common stock outstanding of the registrant as of May 3, 2021.



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

March 31,
2021
December 31, 2020
(unaudited)
Assets:
Real estate properties:
Land$220,361 $220,361 
Buildings and improvements3,042,763 3,041,616 
Construction in progress3,131 3,093 
3,266,255 3,265,070 
Less accumulated depreciation(618,299)(597,638)
Real estate properties, net2,647,956 2,667,432 
Mortgage and other notes receivable, net of reserve of $4,856 and $4,946, respectively
301,318 292,427 
Cash and cash equivalents113,375 43,344 
Straight-line rent receivable98,354 95,703 
Other assets22,270 21,583 
Total Assets$3,183,273 $3,120,489 
Liabilities and Stockholders’ Equity:
Debt$1,524,725 $1,499,285 
Accounts payable and accrued expenses23,673 25,189 
Dividends payable50,550 49,818 
Lease deposit liabilities10,638 10,638 
Deferred income10,972 12,614 
Total Liabilities1,620,558 1,597,544 
Commitments and Contingencies
National Health Investors, Inc. Stockholders' Equity:
              Common stock, $0.01 par value, 100,000,000 shares authorized
45,850,599 and 45,185,992 shares issued and outstanding, respectively459 452 
Capital in excess of par value1,594,336 1,540,946 
Cumulative dividends in excess of net income(37,233)(22,015)
Accumulated other comprehensive loss(5,377)(7,149)
Total National Health Investors, Inc. Stockholders' Equity1,552,185 1,512,234 
Noncontrolling interests10,530 10,711 
Total Equity1,562,715 1,522,945 
Total Liabilities and Stockholders’ Equity$3,183,273 $3,120,489 

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from the audited consolidated financial statements at that date.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)

Three Months Ended
March 31,
20212020
(unaudited)
Revenues:
Rental income$74,749 $76,527 
Interest income and other6,136 6,549 
80,885 83,076 
Expenses:
Depreciation20,806 20,443 
Interest12,973 14,140 
Legal130 334 
Franchise, excise and other taxes233 243 
General and administrative7,989 4,311 
Taxes and insurance on leased properties2,161 1,553 
Loan and realty (gains) losses(50)1,555 
44,242 42,579 
Loss from equity method investment(808)(442)
Gains on sales of real estate 21,007 
Loss on early retirement of debt(451) 
Net income35,384 61,062 
Less: net income attributable to noncontrolling interests(52)(39)
Net income attributable to common stockholders$35,332 $61,023 
Weighted average common shares outstanding:
Basic45,305,087 44,613,593 
Diluted45,357,773 44,618,139 
Earnings per common share:
Net income attributable to common stockholders - basic$0.78 $1.37 
Net income attributable to common stockholders - diluted$0.78 $1.37 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Three Months Ended
March 31,
20212020
(unaudited)
Net income$35,384 $61,062 
Other comprehensive income (loss):
Increase in fair value of cash flow hedges(6)(9,191)
Reclassification for amounts recognized as interest expense1,778 492 
Total other comprehensive income (loss)1,772 (8,699)
Comprehensive income37,156 52,363 
Comprehensive income attributable to noncontrolling interest(52)(39)
Comprehensive income attributable to common stockholders$37,104 $52,324 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20212020
(unaudited)
Cash flows from operating activities:  
Net income$35,384 $61,062 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation20,806 20,443 
Amortization of debt issuance costs, debt discounts and prepaids1,192 1,173 
Amortization of commitment fees and note receivable discounts(131)(129)
Amortization of lease incentives260 236 
Straight-line rent income(4,241)(5,177)
Non-cash interest income on mortgage and other notes receivable(700)(888)
Gains on sales of real estate (21,007)
Loss from equity method investment808 442 
Loss on early retirement of debt451  
Loan and realty (gains) losses(50)1,555 
Payment of lease incentives(1,042) 
Non-cash stock-based compensation5,446 1,845 
Changes in operating assets and liabilities: 
Other assets(484)(357)
Accounts payable and accrued expenses(735)(1,497)
Deferred income(52)(619)
Net cash provided by operating activities56,912 57,082 
Cash flows from investing activities:  
Investments in mortgage and other notes receivable(8,412)(20,298)
Collections of mortgage and other notes receivable442 14,288 
Investments in real estate (80,335)
Investments in equipment(8) 
Investments in renovations of existing real estate(1,443)(3,057)
Investment in equity method investment (875)
Distribution from equity method investment288  
Proceeds from sale of real estate 39,260 
Net cash used in investing activities(9,133)(51,017)
Cash flows from financing activities:  
Proceeds from revolving credit facility30,000 125,000 
Payments on revolving credit facility(298,000)(17,000)
Payments on term loans(100,094)(304)
Proceeds from issuance of senior notes396,784  
Debt issuance costs(4,459) 
Distributions to noncontrolling interests(258)(16)
Proceeds from noncontrolling interests 13 
Taxes remitted on employee stock awards (2,705)
Proceeds from issuance of common shares, net47,951 (87)
Dividends paid to stockholders(49,818)(46,817)
Net cash provided by financing activities22,106 58,084 
Increase in cash and cash equivalents and restricted cash69,885 64,149 
Cash and cash equivalents and restricted cash, beginning of period46,343 15,669 
Cash and cash equivalents and restricted cash, end of period$116,228 $79,818 
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)

Three Months Ended
March 31,
20212020
(unaudited)
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$9,674 $12,954 
Supplemental disclosure of non-cash investing and financing activities:
Real estate acquired in exchange for mortgage notes receivable$ $59,350 
Increase in mortgage note receivable from sale of real estate$ $4,000 
Change in accounts payable related to investments in real estate construction$(112)$(234)
Change in accounts payable related to distributions to noncontrolling interests$(25)$ 


The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share and per share amounts)

Common StockCapital in Excess of Par ValueCumulative Dividends in Excess of Net IncomeAccumulated Other Comprehensive Income LossTotal National Health Investors, Inc. Stockholders’ EquityNoncontrolling InterestsTotal Equity
SharesAmount
Balances at December 31, 202045,185,992 $452 $1,540,946 $(22,015)$(7,149)$1,512,234 $10,711 $1,522,945 
Cumulative effect of change in accounting principle— — —  —  —  
Noncontrolling interest conveyed in acquisition— — — — — —   
Noncontrolling interest distribution— — — — — — (233)(233)
Total comprehensive income— — — 35,332 1,772 37,104 52 37,156 
Issuance of common stock, net661,951 7 47,944 — — 47,951 — 47,951 
Shares issued on stock options exercised2,656   — —  —  
Stock-based compensation— — 5,446 — — 5,446 — 5,446 
Dividends declared, $1.1025 per common share— — — (50,550)— (50,550)— (50,550)
Balances at March 31, 202145,850,599 $459 $1,594,336 $(37,233)$(5,377)$1,552,185 $10,530 $1,562,715 


Common StockCapital in Excess of Par ValueCumulative Net Income in Excess (Deficit) of DividendsAccumulated Other Comprehensive LossTotal National Health Investors Stockholders’ EquityNoncontrolling InterestTotal Equity
SharesAmount
Balances at December 31, 201944,587,486 $446 $1,505,948 $(5,331)$(3,432)$1,497,631 $621 $1,498,252 
Cumulative effect of change in accounting principle— — — (4,225)— (4,225)— (4,225)
Noncontrolling interest conveyed in acquisition— — — — — — 10,791 10,791 
Noncontrolling interest distribution— — — — — — (16)(16)
Total comprehensive income— — — 61,023 (8,699)52,324 39 52,363 
Issuance of common stock, net  (85)— — (85) (85)
Taxes remitted on employee stock awards— — (2,705)— — (2,705) (2,705)
Shares issued on stock options exercised62,516 1 (2)— — (1)— (1)
Stock-based compensation— — 1,845 — — 1,845  1,845 
Dividends declared, $1.1025 per common share— — — (49,226)— (49,226) (49,226)
Balances at March 31, 202044,650,002 $447 $1,505,001 $2,241 $(12,131)$1,495,558 $11,435 $1,506,993 



The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
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NATIONAL HEALTH INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(unaudited)

Note 1. Organization and Nature of Business

National Health Investors, Inc. (“NHI,” “the Company,” “we,” “us,” or “our”), established in 1991 as a Maryland corporation, is a self-managed real estate investment trust (“REIT”) specializing in sale-leaseback, joint venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. 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, hospitals and medical office buildings. As of March 31, 2021, we had investments of $3.3 billion in 228 health care real estate properties located in 34 states and leased pursuant primarily to triple-net leases to 34 lessees consisting of 151 senior housing communities (“SHO”), 72 skilled nursing facilities, three hospitals and two medical office buildings. Our portfolio of 14 mortgages along with other notes receivable totaled $306.2 million, excluding an allowance for expected credit losses of $4.9 million, as of March 31, 2021.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020, included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation

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

At March 31, 2021, we held interests in seven 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 condensed consolidated financial statements cross-referenced below.
DateNameSource of ExposureCarrying Amount Maximum Exposure to LossNote Reference
2012Bickford Senior Living
Various1
$64,495,000 $76,317,000 Notes 3, 4
2014Senior Living CommunitiesNotes and straight-line receivable$83,546,000 $84,057,000 Notes 3, 4
2016Senior Living ManagementNotes and straight-line receivable$26,997,000 $26,997,000 
2018Sagewood, LCS affiliateNotes$164,763,000 $178,945,000 Note 4
201941 Management, LLCNotes and straight-line receivable$15,872,000 $33,765,000 Note 7
2020Timber Ridge OpCo, LLC
Various2
$(3,346,000)$1,654,000 Notes 5, 7
2020Watermark RetirementNotes and straight-line receivable$4,403,000 $9,403,000 Note 7
1 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives
2 Loan commitment, equity method investment and straight-line rent receivables
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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 a short 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 statements of financial position and results of operations of the operators 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 three months ended March 31, 2021, our non-controlling interests relate to these partnerships with Discovery and LCS.

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.

Cash and Cash Equivalents and Restricted Cash

Cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted cash includes amounts required to be held on deposit or subject to an agreement (e.g., with a qualified intermediary subject to an Internal Revenue Code §1031 exchange agreement or in accordance with agency agreements governing our mortgages).

The following table sets forth our “Cash, cash equivalents and restricted cash” reported within the Company’s Condensed Consolidated Statements of Cash Flows ($ in thousands):
March 31,
2021
March 31,
2020
Cash and cash equivalents$113,375 $46,049 
Restricted cash (included in Other assets)2,853 33,769 
$116,228 $79,818 

Accounting for Lease Modifications related to Coronavirus Disease 2019

In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the coronavirus (“COVID-19”) pandemic. The Lease Modification Q&A clarifies that entities may elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 pandemic is a lease modification under ASC 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 pandemic, 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. NHI has elected not to apply the modification guidance under ASC 842 and has accounted for rent concessions as variable lease payments when applicable, recorded as rental income when received. During the three months ended March 31, 2021, the Company provided $4.2 million in lease concessions as a result of COVID-19 pandemic, as discussed in more detail in Note 7.

Note 3. Real Estate Properties and Investments

Tenant Concentration

The following table contains information regarding tenant concentration in our portfolio, excluding $2.5 million for our corporate office and a credit loss reserve balance of $4.9 million, based on the percentage of revenues for the three months ended March 31, 2021 and 2020, related to tenants or affiliates of tenants, that exceed 10% of total revenue ($ in thousands):


Table of Contents
as of March 31, 2021
Revenues1
AssetNumber ofRealNotesThree Months Ended March 31,
ClassPropertiesEstateReceivable20212020
Senior Living CommunitiesEFC10$573,631 $44,189 $12,723 16%$12,717 15%
Bickford Senior LivingALF48534,376 35,079 10,207 13%13,603 16%
Holiday RetirementILF26532,672 — 10,185 13%10,176 12%
National HealthCare Corporation (NHC)SNF42171,235 — 9,452 12%9,448 11%
All others2
Various1,451,799 226,906 36,157 44%35,579 42%
Escrow funds received from tenants
 for property operating expensesVarious— — 2,161 2%1,553 2%
$3,263,713 $306,174 $80,885 $83,076 
1 includes interest income on notes receivable
2 includes prior period amounts for disposals or transitioned to new operators

At March 31, 2021, the one state in which we had an investment concentration of 10% or more was South Carolina (10.3%).

NHC Percentage Rent

Under the terms of our two leases with NHC, rent escalates by 4% of the increase, if any, in each of the facility’s revenue over a base year and is referred to as percentage rent. The following table summarizes the percentage rent income from NHC ($ in thousands):
Three Months Ended March 31,
20212020
Current year$920 $926 
Prior year final certification1
(5)(14)
Total percentage rent income$915 $912 
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.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. At March 31, 2021, we had a net investment of $40.2 million in six real estate properties which are subject to exercisable tenant purchase options. Tenant purchase options on 11 properties in which we had an aggregate net investment of $100.1 million at March 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 $5.0 million and $4.4 million for the three months ended March 31, 2021 and 2020, respectively.

In January 2021, we received notification of a tenant’s intention to acquire in July 2021, pursuant to a purchase option, one of the six properties mentioned above, a behavioral hospital located in Tennessee, for approximately $26.4 million. The net investment at March 31, 2021 was $21.1 million. Rental income was $0.7 million for both the three months ended March 31, 2021 and 2020. We cannot reasonably estimate at this time the probability that any other 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.






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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. Two leases with new tenants for six of these properties specify periods during which rental income is based on operating income, net of management fees. We recognized rental income from these nine properties of $0.9 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Future Minimum Base Rent

Future minimum lease payments to be received by us under our operating leases at March 31, 2021, are as follows ($ in thousands):

Remainder of 2021$215,167 
2022287,817 
2023283,511 
2024277,004 
2025273,507 
2026277,816 
Thereafter1,158,838 
$2,773,660 

We assess the collectability of lease payments to be received from our tenants, which includes receivables, consisting primarily of straight-line rents receivable, based on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all of the lease payments, we recognize lease payments on a cash basis and de-recognize all rent receivable assets, including the straight-line rent receivable asset and record as a reduction in rental revenue.

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):

Three Months Ended
March 31,
20212020
Lease payments based on fixed escalators, net of deferrals$67,281 $68,669 
Lease payments based on variable escalators1,326 1,364 
Straight-line rent income4,241 5,177 
Escrow funds received from tenants for property operating expenses2,161 1,553 
Amortization of lease incentives(260)(236)
Rental income$74,749 $76,527 

Bickford Portfolio Sale

Effective April 30, 2021, we executed an agreement for the sale of six properties that were leased to Bickford for a purchase price of $52.9 million, which includes a $13.0 million Company-financed second mortgage. Upon completion of this transaction, Bickford satisfied the terms of our prior agreement that contingently waived $2.1 million in rent for the third quarter of 2020 and none of that amount will be repaid. These six properties had an aggregate net book value of approximately $34.6 million as of March 31, 2021. Rental income from this portfolio was $1.3 million and $1.5 million for the three months ended March 31, 2021
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and 2020, respectively. These properties were part of the Company’s ongoing negotiations for the sale to Bickford of nine properties leased to Bickford. We continue to explore our options for the remaining three properties including a sale to a third party, re-tenanting, or retaining the existing lease with Bickford.

Note 4. Mortgage and Other Notes Receivable

At March 31, 2021, our investments in mortgage notes receivable totaled $268.4 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 $37.8 million guaranteed by significant parties to the notes or by cross-collateralization of properties with the same owner. These balances exclude a credit loss reserve of $4.9 million at March 31, 2021. All our notes were on full accrual basis at March 31, 2021.

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. The mezzanine loan has a five year term, commencing on the earlier of full deployment of the funds or two years and includes two one year extensions.

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, December 31, 2020, 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, (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 March 31, 2021, we did not have any construction loans that we considered underperforming. The tables below present outstanding note balances as of March 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 March 31, 2021, is presented below for the amortized cost, net by year of origination ($ in thousands):

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20202019201820172016PriorTotal
Mortgages
more than 1.5x$8,424 $8,833 $193,463 $— $— $4,540 $215,260 
between 1.0x and 1.5x—  — — 10,000 — 10,000 
less than 1.0x3,989 39,123 — — — — 43,112 
No coverage available— — — — — — — 
12,413 47,956 193,463 $ 10,000 4,540 268,372 
Mezzanine
more than 1.5x— — — — — — — 
between 1.0x and 1.5x— — — — — — — 
less than 1.0x— — — — 14,491 11,072 25,563 
No coverage available— 750 — — — — 750 
— 750 — — 14,491 11,072 26,313 
Revolver
more than 1.5x— 
between 1.0x and 1.5x11,489 
less than 1.0x— 
11,489 
Credit loss reserve(4,856)
$301,318 

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 three months ended March 31, 2021 ($ in thousands):

Beginning balance January 1, 2021$4,946 
Provision for expected credit losses(90)
Balance March 31, 2021$4,856 

Bickford

At March 31, 2021, our construction loans to Bickford are summarized in the following table ($ in thousands):

CommencementRateMaturityCommitmentDrawnLocation
January 20189%5 years$14,000 $(14,000)Virginia
July 20189%5 years14,700 (14,700)Michigan
June 20209%5 years14,200 (2,390)Virginia
$42,900 $(31,090)

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.


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Senior Living Communities

On March 30, 2021, we amended the revolving line of credit agreement with Senior Living Communities (“Senior Living”) to increase availability from $15.0 million to $20.0 million. Borrowings by Senior Living under the revolver are to be used for working capital needs and to finance construction projects within its portfolio, including building additional units. Beginning January 1, 2023, availability under the revolver reduces to $15.0 million. The revolver matures in December 2029 at the time of lease maturity. At March 31, 2021, the $11.5 million outstanding under the facility bears interest at 7.74% per annum, the prevailing 10-year U.S. Treasury rate plus 6%.

The Company also has a mortgage loan of $32.7 million to Senior Living that commenced in July 2019 for the acquisition of a 248-unit continuing care retirement community in Columbia, South Carolina. The mortgage loan 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.

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 Timber Ridge OpCo’s economic performance. Our equity share in the losses of Timber Ridge OpCo during three months ended March 31, 2021 and 2020, was $0.8 million and $0.4 million, respectively. During first quarter of 2021, we received $0.3 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. As of March 31, 2021, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $3.3 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheet as of March 31, 2021. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility.

The Timber Ridge property is subject to early resident mortgages secured by a Deed of Trust and Indenture of Trust (the “Deed and Indenture”). 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 March 31, 2021. The balance secured by the Deed and Indenture was $16.7 million at March 31, 2021.

Note 6. Debt

Debt consists of the following ($ in thousands):
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March 31,
2021
December 31,
2020
Revolving credit facility - unsecured$30,000 $298,000 
Bank term loans - unsecured550,000 650,000 
Senior notes - unsecured, net of discount of $3,162
396,838  
Private placement term loans - unsecured400,000 400,000 
Fannie Mae term loans - secured, non-recourse95,260 95,354 
Convertible senior notes - unsecured60,000 60,000 
Unamortized loan costs(7,373)(4,069)
$1,524,725 $1,499,285 

Aggregate principal maturities of debt as of March 31, 2021 are as follows ($ in thousands):

Remainder of 2021 (including Convertible Notes)$60,277 
2022280,389 
2023475,408 
202475,425 
2025143,761 
2026 
Thereafter496,838 
1,532,098 
Less: unamortized loan costs(7,373)
$1,524,725 

Convertible senior notes

On April 1, 2021, the $60.0 million in aggregate principal amount of our 3.25% senior unsecured convertible notes (the “Convertible Notes”) 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 Condensed Consolidated Balance Sheets.

Unsecured revolving credit facility and bank term loans

Our unsecured bank credit facility consists of two term loans - $250.0 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 have swap agreements to fix the interest rates on $400.0 million of term loans that expire in December 2021.

On January 26, 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 $0.5 million of deferred financing cost associated with this loan which is included in “Loss on early retirement of debt” in our Condensed Consolidated Statement of Income for the three months ended March 31, 2021.

The revolving facility fee is currently 20 bps per annum, and based on our current leverage ratios, the facility presently provides for floating interest on the revolver and the term loans at 30-day LIBOR plus 120 bps and a blended 132 bps, respectively. At March 31, 2021 and December 31, 2020, 30-day LIBOR was 11 bps and 14 bps, respectively.

At March 31, 2021, we had $520.0 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 March 31, 2021, we were in compliance with these ratios.

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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.

Senior Notes due 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 (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 March 31, 2021 we were in compliance with all affirmative and negative covenants, including financial covenants for our 2031 Senior Notes borrowings.

Private placement term loans

Our unsecured private placement term loans, payable interest-only, are summarized below ($ in thousands):

AmountInceptionMaturityFixed Rate
$125,000 January 2015January 20233.99%
50,000 November 2015November 20233.99%
75,000 September 2016September 20243.93%
50,000 November 2015November 20254.33%
100,000 January 2015January 20274.51%
$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. The mortgages are non-recourse and secured by thirteen 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 a remaining balance of $17.2 million at March 31, 2021. All together, these notes are secured by facilities having a net book value of $129.0 million at March 31, 2021.

Interest Rate Swap Agreements

Our existing interest rate swap agreements will collectively continue through December 2021 to hedge against fluctuations in variable interest rates applicable to $400.0 million of our bank loans. During the remainder of 2021, approximately $5.4 million of losses, which are included in “Accumulated other comprehensive loss” in our Condensed Consolidated Balance Sheets, are projected to be reclassified into earnings.

As of March 31, 2021, we employed the following interest rate swap contracts to mitigate our interest rate risk on our bank term and revolver loans described above ($ in thousands):

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Date EnteredMaturity DateSwap RateRate IndexNotional AmountFair Value (Liability)
March 2019December 20212.22%1-month LIBOR$100,000 $(1,574)
March 2019December 20212.21%1-month LIBOR$100,000 $(1,584)
June 2019December 20211.61%1-month LIBOR$150,000 $(1,661)
June 2019December 20211.63%1-month LIBOR$50,000 $(558)

If the fair value of the hedge is an asset, we include it in our Condensed Consolidated Balance Sheets in the line item “Other assets”, and, if a liability, as a component of “Accounts payable and accrued expenses”. See Note 11 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 March 31, 2021 and December 31, 2020, were $5.4 million and $7.1 million, respectively.

The following table summarizes interest expense ($ in thousands):
Three Months Ended
March 31,
20212020
Interest expense on debt at contractual rates$10,452 $13,003 
Losses reclassified from accumulated other
comprehensive income into interest expense1,778 492 
Capitalized interest(16)(98)
Amortization of debt issuance costs, debt discount and other759 743 
Total interest expense$12,973 $14,140 

Note 7. 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 March 31, 2021 according to the nature of their impact on our leasehold or loan portfolios. ($ in thousands):

Asset ClassTypeTotalFundedRemaining
Loan Commitments:
LCS Sagewood Note ASHOConstruction$118,800 $(104,618)$14,182 
LCS Sagewood Note BSHOConstruction61,200 (61,200) 
Bickford Senior LivingSHOConstruction42,900 (31,090)11,810 
41 ManagementSHOConstruction22,200 (6,207)15,993 
Senior Living CommunitiesSHORevolving Credit20,000 (11,489)8,511 
41 ManagementSHOConstruction10,800 (8,901)1,899 
Timber Ridge OpCoSHOWorking Capital5,000  5,000 
Watermark RetirementSHOWorking Capital5,000  5,000 
$285,900 $(223,505)$62,395 

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.

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The liability for expected credit losses on our unfunded loans is presented in the following table for the three months ended March 31, 2021 ($ in thousands):

Beginning balance January 1, 2021$270 
Provision for expected credit losses40 
Balance at March 31, 2021$310 


Asset ClassTypeTotalFundedRemaining
Development Commitments:
Woodland Village SHO Renovation $7,515 $(7,425)$90 
Senior Living CommunitiesSHORenovation