NHI US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis is based primarily on the consolidated financial statements of National Health Investors, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1. Business” and “Item 1A. Risk Factors” above. This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Executive Overview

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed 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 real estate investments in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities and a specialty hospital. We fund our real estate investments primarily through: (1) operating cash flow, (2) debt offerings, including bank lines of credit and term debt, both unsecured and secured, and (3) the sale of equity securities.

Portfolio

As of December 31, 2021, we had investments in real estate and mortgage and other notes receivable involving 212 facilities located in 33 states. These investments involve 136 senior housing properties, 75 skilled nursing facilities and one hospital, excluding ten properties classified to assets held for sale. These investments (excluding our corporate office of $2.6 million) consisted of properties with an original cost of approximately $2.9 billion, rented under primarily triple-net leases to 31 lessees, and $305.2 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $5.2 million, due from ten borrowers.

We classify all of the properties in our portfolio as either senior housing or medical properties. Because our leases represent different underlying revenue sources and result in differing risk profiles, we further classify our senior housing communities as either need-driven (assisted living and memory care communities and senior living campuses) or discretionary (independent living and entrance-fee communities.)

Senior Housing – Need-Driven includes assisted living and memory care communities (“ALF”) and senior living campuses (“SLC”) which primarily attract private payment for services from residents who require assistance with activities of daily living. Need-driven properties are subject to regulatory oversight.

Senior Housing – Discretionary includes independent living (“ILF”) and entrance-fee communities (“EFC”) which primarily attract private payment for services from residents who are making the lifestyle choice of living in an age-restricted multi-family community that offers social programs, meals, housekeeping and in some cases access to healthcare services. Discretionary properties are subject to limited regulatory oversight. There is a correlation between demand for this type of community and the strength of the housing market.

Medical Facilities within our portfolio receive payment primarily from Medicare, Medicaid and health insurance. These properties include skilled nursing facilities (“SNF”) and specialty hospitals that attract patients who have a need for acute or complex medical attention, preventative medicine, or rehabilitation services. Medical properties are subject to state and federal regulatory oversight and, in the case of hospitals, Joint Commission accreditation.

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The following tables summarize our investments in real estate and mortgage and other notes receivable as of December 31, 2021 ($ in thousands):

Real Estate Properties Properties Beds Revenue % Total Investment

Senior Housing - Need-Driven

Senior Housing - Discretionary

Medical Facilities

Rental income From Properties Sold and Held for Sale 20,641

Escrow Funds Received From Tenants 11,638

Mortgage and Other Notes Receivable

Portfolio Summary1 Properties Revenue2 % Portfolio Investment

Portfolio by Operator Type

1 Excludes assets held for sale.

2 Excludes rental income from properties sold and held for sale and escrow funds received from tenants for property operating expenses.

For the year ended December 31, 2021, operators of facilities who provided 3% or more and collectively 72% of our total revenues were (parent company, in alphabetical order): Bickford Senior Living; Chancellor Health Care; Discovery Senior Living; Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and The Ensign Group.

As of December 31, 2021, our average effective annualized rental income was $8,715 per bed for SNFs, $10,322 per unit for SLCs, $10,641 per unit for ALFs, $3,948 per unit for ILFs, $22,785 per unit for EFCs, and $63,899 per bed for hospital.

COVID-19 Pandemic

Since the World Health Organization declared COVID-19 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

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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 Topic 842, Leases 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 cash receipt are shown in the following table ($ in thousands):

2021 Activity 2020 Activity Cumulative Totals

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. Interest income is recorded when received.

In addition to the concessions noted above, we have agreed with Bickford to defer $4.0 million in contractual rent due for 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.

We had approximately $16.4 million in unrestricted cash and cash equivalents on hand and $540.0 million in availability under our unsecured revolving credit facility as of January 31, 2022. Our unsecured revolving credit facility matures August 2022. See “Unsecured Bank Credit Facility” in “Liquidity and Capital Resources” for further discussion. In addition, we believe we continue to have access to additional debt sources and maintain availability under our at-the-market (“ATM”) equity issuance program and shelf registration statement to fund our future obligations, although no assurances can be made. We believe these liquidity sources position us to manage through the negative effects of the COVID-19 pandemic. See “Liquidity and Capital Resources” for further discussion.

See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for further information regarding the risks presented by the COVID-19 pandemic.

Holiday Portfolio Update

At the beginning of 2021, we leased 26 ILFs to Holiday. On July 30, 2021, Welltower completed the acquisition of a portfolio of legacy Holiday properties from Fortress Investment Group and entered into a new agreement with Atria Senior Living to assume operations of the Holiday portfolio. These transactions resulted in a Welltower-controlled subsidiary

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becoming the tenant under our existing master lease for the NHI-owned Holiday real estate assets. In the third quarter of 2021, we sold nine of these properties for net proceeds of $119.7 million. As of December 31, 2021, we leased 16 ILFs, excluding one property classified as asset held for sale on our Consolidated Balance Sheet, with a net book value of $300.6 million. Rental income from our Holiday portfolio was $23.5 million in 2021 prior to the change in tenant ownership. Rental income was $40.7 million and $40.5 million for the years ended December 31, 2020 and 2019, respectively.

We have received no rent due under the master lease for these facilities since this change in tenant ownership. Accordingly, we have placed the tenant on cash basis and filed suit in the Delaware Court of Chancery (Case Number 2021-1097-MTZ) 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 had a lease deposit of $8.8 million. See Note 8. Commitment and Contingencies in the consolidated financial statements for more details. We continue to explore all remedies available to us under the master lease and related agreements to execute a timely termination of the master lease and transition of the facilities to new operators or managers that will generate cash flows to the Company from our investments in these properties.

Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.

We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We consider an accounting estimate or assumption critical if:

1.the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

2.the impact of the estimates and assumptions on financial condition or operating performance is material.

If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition.

Our significant accounting policies are discussed in Note 2 to our consolidated financial statements in this report. We believe the accounting estimates listed below are the most critical to fully understanding and evaluating our financial results, and require our most difficult, subjective or complex judgments.

Real Estate Properties

Real property we develop is recorded at cost, including the capitalization of interest during construction. The cost of real property investments we acquire is allocated to net tangible and identifiable intangible assets and liabilities based on their relative fair values. We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. 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 and liabilities 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. The most significant components of our allocations are typically the allocation of fair value to land, equipment, buildings and other improvements, and intangible assets and liabilities, if any. Our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use for real estate allocation.

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Impairments of Real Estate Properties

We evaluate the recoverability of the carrying values of our 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 value of that property. Accordingly, management’s evaluation requires judgment to determine the existence of indicators of impairment, estimates of undiscounted cash flows. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property. Refer to Note 3. Real Estate Properties and Investments to our consolidated financial statements for more details.

There were no material changes in the accounting methodology we use to assess impairment loss during the year ended December 31, 2021. During 2021, we recorded impairment charges of approximately $45.9 million related to eight properties, of which seven of the properties were classified to assets held for sale and their carrying values reduced to estimated fair values less estimated transaction costs and $5.9 million related to two properties sold in 2021.

Lease Classification

Lease accounting standards require that, for purposes of lease classification, we assess whether the lease, by its terms, transfers substantially all of the fair value of the asset under lease. This consideration will drive accounting for the alternative classifications among either operating, sales-type, or direct financing types of leases. For classification purposes, we distinguish cash flows that follow under terms of the lease from those that will derive, subsequent to the lease, from the ultimate disposition or re-deployment of the asset. From this segregation of the sources of cash flow, we are able to establish whether the lease is, in essence, a sale or financing in its having transferred substantially all of the fair value of the leased asset. Accordingly, management’s projected residual values represent significant assumptions in our accounting for leases.

While we do not incorporate residual value guarantees in our lease provisions, the contractual structure of other provisions provides a basis for expectations of realizable value from our properties, upon expiration of their lease terms. Additionally, we consider historical, demographic and market trends in developing our estimates. For each new lease, we discount our estimate of unguaranteed residual value and include this amount along with the stream of lease payments (also discounted) called for in the lease. We assess the stream of lease payments and the value deriving from eventual return of our property to establish whether the lease payments themselves comprise a return of substantially all of the fair value of the property under lease. We do not use a “bright line” in considering what constitutes “substantially all of the fair value,” but we undertake a more focused assessment when the lease payments approach 90% of the composition of all future cash flows expected from the asset.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to assess lease classifications.

Allowance for Credit Losses

For our mortgage and other notes receivable, we evaluate the estimated collectability of contractual loan payments amid general economic conditions on the basis of a like-kind pooling of our loans. We estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In developing our expectation of losses, we will consider financial assets that share similar risk characteristics such as rate, age, type, location and adequacy of collateral on a collective basis. Other note investments which do not share common features will continue to be evaluated on an instrument-by-instrument basis.

The determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at market rates, general economic conditions and trends, the duration of the fair value deficiency, and any other relevant factors. When an economic downturn whose duration is expected to span a year or more is encountered, such as the potential impact of the COVID-19 pandemic, we consider projections about an expected economic recovery before we conclude that evidence of impairment exists. While we believe that the carrying amounts of our notes receivable and other investments are realizable, it is possible that future events could require us to make significant adjustments or revisions to these estimates.

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While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. We review our assumptions and adjust these estimates accordingly on a quarterly basis. If our credit loss reserve at December 31, 2021 were to differ by 10%, the impact would be $0.5 million.

Investment Highlights

Since January 1, 2021, we have completed or announced the following real estate and note investments ($ in thousands):

Date Properties Asset Class Amount

Real Estate Investments

Note Investments

Montecito Medical Real Estate Q2 2021 — MEZZ 50,000

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.

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 discussed above. 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 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.

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.

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.

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2022 Investment Activity

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.

Asset Dispositions

During the year ended December 31, 2021, we completed the following real estate dispositions as described below ($ in thousands):

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

Total rental income related to the disposed properties was $15.2 million, $26.6 million and $27.5 million for years ended December 31, 2021, 2020 and 2019, respectively. Reference Note 3 to the consolidated financial statements for more detail on dispositions.

Impairments of Real Estate

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 whose net carrying value prior to the impairment charge was determined not to be recoverable. In 2020, we had no significant intangible assets recorded on our balance sheet that required assessment for impairment. In 2019, we recognized an impairment loss of $2.5 million, related to the disposition of two Bickford properties located in Indiana.

Notes Receivable Repayment

During the year ended December 31, 2021, LCS-Westminster Partnership IV LLP, an affiliate of LCS, repaid the remaining principal of $61.2 million on its second note of two notes under a master credit agreement (“Note B”). 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. The balance on its first note (“Note A”) was $110.8 million as of December 31, 2021.

Tenant Purchase Options

Certain of our leases contain purchase options allowing tenants to acquire the leased properties. For options exercisable or exercisable in the near future, we are engaged in preliminary negotiations to continue as lessor or in some other capacity.

A summary of these tenant options is presented below ($ in thousands):

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Asset Number of Lease 1st Option Option Contractual

Type Properties Expiration Open Year Basis2 Rent

1 Included in assets held for sale on the Consolidated Balance Sheet as of December 31, 2021.

2 Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by (i) greater of fixed base price or fair market value; (ii) a fixed base price plus a specified share in any appreciation; (iii) fixed base price; or (iv) a fixed capitalization rate on lease revenue.

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.

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.

Other

Our leases are typically structured as “triple net leases” on single-tenant properties having an initial leasehold term of 10 to 15 years with one or more five-year renewal options. As such, there may be reporting periods in which we experience few, if any, lease renewals or expirations. During the year ended December 31, 2021, we did not have any significant renewing or expiring leases. 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.

Tenant Concentration

As discussed in more detail in Note 3 to the consolidated financial statements, we have three lessees (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% and collectively 40% of our rental income. NHC is a publicly traded company and we do not report specific occupancy information from them.

The following table summarizes the average portfolio occupancy for Senior Living Communities, Bickford and Holiday for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, and properties transitioned to new operators or disposed.

1Prior period occupancies have been restated to include an additional building, in operation for at least 24-months, and the sale of six properties in the second quarter of 2021. Includes four properties classified as held for sale at December 31, 2021.

2Holiday occupancy for 17 properties is restated retroactively to reflect the sale of nine properties in the third quarter of 2021. Includes one property classified as held for sale at December 31, 2021.

Tenant Monitoring

Our operators report to us the results of their operations on a periodic basis, which we in turn subject to further analysis as a means of monitoring potential concerns within our portfolio. We have identified EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) as a primary performance measure for our tenants, based on results they

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have reported to us. We believe EBITDARM is useful in our most fundamental analyses, as it is a property-level measure of our operators’ success, by eliminating the effects of the operator’s method of acquiring the use of its assets (interest and rent), its non-cash expenses (depreciation and amortization), expenses that are dependent on its level of success (income taxes), and also excluding the effect of the operator’s payment of its management fees, as typically those fees are contractually subordinate to our lease payment. For operators of our entrance-fee communities, our calculation of EBITDARM includes other cash flow adjustments typical of the industry which may include, but are not limited to, net cash flows from entrance fees; amortization of deferred entrance fees; adjustments for tenant rent obligations, depreciation and amortization; and management fee true-ups. The eliminations and adjustments reflect covenants in our leases and provide a comparable basis for assessing our various relationships.

We believe that EBITDARM is a useful way to analyze the cash potential of a group of assets. From EBITDARM we calculate a coverage ratio (EBITDARM/Cash Rent), measuring the ability of the operator to meet its monthly obligation. In addition to EBITDARM and the coverage ratio, we rely on a careful balance sheet analysis, and other analytical procedures to help us identify potential areas of concern relative to our operators’ ability to generate sufficient liquidity to meet their obligations, including their obligation to continue to pay the amount due to us. Typical among our operators is a varying lag in reporting to us the results of their operations. Across our portfolio, however, our operators report their results, typically within either 30 or 45 days and at the latest, within 90 days of month’s end. For computational purposes, we exclude mortgages and other notes receivable, development and lease-up properties that have been in operation less than 24 months. For stabilized acquisitions in the portfolio less than 24 months and renewing leases with changes in scheduled rent, we include pro forma cash rent. Same-store portfolio coverage excludes properties that have transitioned operators in the past 24 months or assets subsequently sold except as noted.

The results of our coverage ratio analysis are presented below on a trailing twelve-month basis, as of September 30, 2021 and 2020 (the most recent periods available). The tables exclude mortgages and other notes receivable, transitioned properties leased pursuant to cash flow-based leases, and development and lease up properties in operation less than 24 months. The tables include pro forma rents for stabilized acquisitions in the portfolio less than 24 months.

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NHI Total Portfolio

By asset type SHO SNF MEDICAL NON-SNF TOTAL

Major tenants NHC1 SLC Bickford Holiday

NHI Same-Store Portfolio2

By asset type SHO SNF MEDICAL NON-SNF TOTAL

Major tenants NHC 1 SLC Bickford Holiday

1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes 3 independent living facilities.

2 Excludes properties that have transitioned operators in past 24 months.

These results include any amounts received and recognized by the operators from the HHS CARES Act Provider Relief Fund and funds received under the Paycheck Protection Program if the loan has been forgiven. Our operators may not consistently account for any COVID-19 pandemic relief funds received which can impact comparability among operators and across periods.

Fluctuations in portfolio coverage are a result of market and economic trends, local market competition, and regulatory factors as well as the operational success of our tenants. We use the results of individual leases to inform our decision making with respect to specific tenants, but trends described above by property type and operator bear analysis. Our senior housing portfolio shows a decline brought about primarily by a softening in occupancy and rising expenses, including wage pressures. Additionally, the COVID-19 pandemic in the U.S. has further softened coverage for these operators as well as across our portfolio. For many of the affected operators, as is typical of our portfolio in general, NHI has security deposits in place and/or

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corporate guarantees should actual cash rental shortfalls eventually materialize. In certain instances, our operators may increase their security deposits with us in an amount equal to the coverage shortfall, and, upon subsequent compliance with the required lease coverage ratio, the operator would then be entitled to a full refund. The sufficiency of credit enhancements (e.g. tenant deposits and guarantees) as a protection against economic downturn will be a focus as the economic effects of the COVID-19 pandemic continue.

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. We recorded real estate impairment charges totaling $24.8 million in 2021 on four of the transition properties, of which three of the properties were classified to assets held for sale on our Consolidated Balance Sheet as of December 31, 2021, and one whose net carrying value prior to the impairment charge was determined not to be recoverable as noted in Investment Highlights.

The following table summarizes the transition properties during the year ended December 31, 2021:

Occupancy1

1 Monthly Average

2 Classified to Assets Held for Sale and recorded an impairment charge in 2021

3 Two Texas Properties reclassified to Assets Held for Sale and recorded an impairment charge in 2021

4 Recorded an impairment charge in 2021

Real Estate and Mortgage Write-downs

In addition to the impact of the COVID-19 pandemic, our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers. Refer to Note 3. Real Estate Properties and Investments in the consolidated financial statements.

Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments – Credit Losses, which broadened the information we must consider in developing our expected credit loss estimates to include forecasted economic information in addition to our historical experience. We have established a reserve for estimated credit losses of $5.2 million and a liability of $1.0 million for estimated credit losses on unfunded loan commitments as of December 31, 2021. We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary.

We believe that the net carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable are realizable and supported by the value of the underlying collateral. However, it is possible that future events could require us to make additional significant adjustments to these carrying amounts.

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Results of Operations

The significant items affecting revenues and expenses are described below ($ in thousands):

Years Ended

December 31, Period Change

Revenues:

Rental income

HOSP leased to Vizion Health $ 2,034 $ — $ 2,034 NM

Interest income from mortgage and other notes

Total Interest Income from Mortgage and Other Notes 24,534 25,021 (487) (1.9) %

Expenses:

Depreciation

HOSP leased to Vizion Health 608 — 608 NM

Non-cash share-based compensation expense 8,415 3,062 5,353 NM

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NM - not meaningful

1 Formerly 41 Management

Financial highlights for the year ended December 31, 2021, compared to 2020 were as follows:

•Rental income received from our tenants decreased $36.2 million, or 11.8%, primarily as a result of additional rent concessions granted for 2021 totaling $26.4 million, Holiday’s nonpayment of contractual rent, excluding penalties and interest, of $11.4 million and current year disposals and held for sale decrease of approximately $4.6 million, net of rental income of new investments funded since December 2020.

•Rental income includes a $5.8 million decrease in straight-line rent adjustments based on the timing and volume of entering into new leases and the overall rate of increase in existing leases and property dispositions in 2021.

•Funds received for reimbursement of property operating expenses totaled $11.6 million for the year ended December 31, 2021, and are reflected as a component of rental income. These property operating expenses are recognized in operating expenses in the line item “Taxes and insurance on leased properties.” The increase in the reimbursement income and corresponding property expenses is the result of additional amounts received from tenants and expenses paid on their behalf.

•Interest income from mortgage and other notes decreased $0.5 million or 1.9%, primarily due to net paydowns on loans.

•Other income increased $2.6 million primarily due to the recognition of a lease termination fee upon disposition of a property during 2021.

•Depreciation expense decreased $2.4 million or 2.8% primarily due to dispositions of real estate investments completed since December 2020.

•Interest expense decreased $2.1 million, or 3.9%, as a result of the convertible bond that matured in April 2021, the payoff of the HUD mortgages in the fourth quarter of 2020 and a net decrease in the borrowings on the unsecured credit facility.

•Non-cash share-based compensation expense increased $5.4 million from the same period one year ago. The Company’s stock option grants in the first quarter of 2021 had an increase in estimated fair value of $9.00 per option share compared to the first quarter of 2020 as determined using the Black-Scholes valuation model primarily from the increased volatility in the Company’s common stock price caused by the COVID-19 pandemic. In addition, the Company granted 60,000 additional options in 2021 compared to 2020, of which 50,000 options relate to the two new directors added during 2020.

•Loan and realty losses increased $51.8 million primarily as a result of impairment charges on eight real estate properties and the disposal of two properties in 2021 as described under the heading “Assets Held for Sale and Impairments of Real Estate” in Note 3 to the consolidated financial statements.

•Loss on early retirement of debt of $1.9 million for the year ended December 31, 2021, represents the remaining deferred financing costs expensed upon repayment of the $100.0 million term loan in January 2021 and the repayment of two Fannie Mae loans in the fourth quarter of 2021. The prior year amount represents the prepayment fee of $1.6

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million and unamortized discount and deferred financing cost of $1.2 million and $1.1 million, respectively, recognized on the repayment of ten HUD mortgages loans in 2020.

•Gains on sales of real estate increased $11.2 million, or 52.5%, for the year ended December 31, 2021, as compared to the same period in the prior year. For the year ended December 31,2021, we recorded $32.5 million in gains from dispositions of 22 real estate assets. Reference “Asset Dispositions” in Note 3 to the consolidated financial statements for more information. For the year ended December 31, 2020, we disposed of a portfolio of eight assisted living properties to Brookdale Senior Living.

The following table summarizes our real estate under lease to transitioning tenants ($ in thousands):

Years Ended

December 31, Period Change

Revenues:

Rental income

SHOs leased to Chancellor Health Care1 $ — $ 850 $ (850) (100.0) %

SHO leased to Senior Living Communities 465 166 299 NM

SHO leased to Discovery Senior Living 179 62 117 NM

SLC leased to Vitality Senior Living1 6 273 (267) (97.8) %

ALF leased to BAKA Enterprises 750 780 (30) (3.8) %

Expenses:

Depreciation

SHO leased to Senior Living Communities 612 617 (5) (0.8) %

SHO leased to Discovery Senior Living 684 686 (2) (0.3) %

ALF leased to BAKA Enterprises 539 539 — — %

Franchise, excise and other taxes — 21 (21) (100.0) %

1 Included in assets held for sale

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Liquidity and Capital Resources

•As of December 31, 2021, we had $550.0 million available to draw on our revolving credit facility that matures in August 2022, see Unsecured Bank Credit Facility below for more discussion on the status of renewal, $37.4 million in unrestricted cash and cash equivalents, and the potential to access the remaining $415.7 million through the issuance of common stock under the Company’s $500.0 million at-the-market (“ATM”) equity program.

•In January 2021, we issued $400.0 million aggregate principal amount of 3.00% senior notes due 2031.

•In April 2021, our 3.25% senior unsecured convertible notes matured. We paid $67.1 million, including accrued interest of $1.0 million and a $6.1 million conversion premium, to retire the convertible notes.

•In the first quarter of 2021, we issued 661,951 common shares through our ATM program at an average price of $73.62, resulting in net proceeds of approximately $48.0 million, initially used to pay down our revolving credit facility.

•In 2021, we reduced borrowings on our unsecured bank credit facility by $573.0 million.

•In December 2021, we repaid two Fannie Mae mortgage loans with a combined balance of $17.9 million, plus accrued interest of $0.1 million and a prepayment fee of $1.5 million.

Sources and Uses of Funds

Our primary sources of cash include rent payments, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our stockholders and general corporate overhead.

These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below ($ in thousands):

Year Ended One Year Change Year Ended One Year Change

Operating Activities – Net cash provided by operating activities for the years ended December 31, 2021 and December 31, 2020, which includes rental income from new investments completed, lease payment collections arising from escalators on existing leases and interest payments on new real estate and note investments completed during 2021 and 2020, was impacted by additional rent concessions granted for 2021 totaling $26.4 million, Holiday’s nonpayment of contractual rent, excluding penalties and interest, of $11.4 million and property dispositions of approximately $4.6 million.

Investing Activities – Net cash flows provided by investing activities for the year ended December 31, 2021 was comprised primarily of $122.6 million of investments in mortgage and other notes and renovations and acquisitions of real estate, offset by the proceeds from the sales of real estate of $238.9 million and the collection of principal on mortgage and other notes receivable of $67.8 million. Net cash flows used in investing activities for the year ended December 31, 2020 was comprised primarily of $175.1 million of investments in real estate and notes, and was partially offset by the collection of principal on mortgage and other notes receivable of $46.6 million and $39.6 million in net proceeds from the disposition of real estate assets.

Financing Activities – Net cash used in financing activities for the year ended December 31, 2021 differs from the same period in 2020 primarily as a result of a $248.8 million decrease in net borrowings, inclusive of a $400.0 million senior note offering, a $13.3 million increase in proceeds from issuance of common shares and dividend payments which increased $11.7 million over the same period in 2020.

Debt Obligations

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As of December 31, 2021, we had outstanding debt of $1.2 billion. Reference Note 7 to the consolidated financial statements for additional information about our outstanding indebtedness. Also, reference “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for more details on our indebtedness and the impact of interest rate risk.

Unsecured Bank Credit Facility - Our bank credit facility derives from the Credit Agreement dated as of August 3, 2017 (the “2017 Agreement”), and a Term Loan Agreement dated as of September 17, 2018 (the “2018 Agreement”). Together these agreements establish our unsecured $925.0 million bank credit facility, which 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 with a maturity in August 2022.

In April 2021, the Company exercised its one year extension option on the revolving credit facility by paying a 10 basis point extension fee totaling $0.6 million, extending the maturity of the revolver to August 2022. 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 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 four-year initial term $700.0 million senior unsecured revolving credit facility that will replace the existing facility. The new credit agreement will also allow for an increase of up to $300.0 million in aggregate incremental facilities, comprised of additional revolving capacity or term loans. We have received firm commitment letters from three banks representing $345.0 million.

As currently negotiated, the new facility will bear interest at a variable rate based on the Secured Overnight Financing Rate (“SOFR”) plus a term spread adjustment and an applicable margin based upon on our credit ratings. We expect to close on the new agreement in advance of the August 2022 maturity date of the existing credit agreement and are currently scheduled to close by the end of the first quarter of 2022. We currently project having sufficient liquidity from a combination of cash on hand, proceeds form recent and planned asset sales and operating cash flows that can be used to pay off the $75.0 million term loan at its maturity in August 2022 should we experience a delay in executing the new agreement.

Effective August 1, 2021, we exercised our one-time option included in our credit agreements to shift from the leverage-based interest schedule to the ratings-based interest schedule. This change potentially reduces the volatility of our interest costs on borrowings under the credit agreements during periods when our leverage may fluctuate higher. Our decision to move to the credit ratings-based interest schedule considered the relative costs under each interest schedule in addition to our desire to have a more stable interest cost if our leverage were to fluctuate.

As of December 31, 2021, the LIBOR spreads on the revolver and term loans were 120 bps and a blended 127 bps, respectively, based on our current debt ratings. The facility fee was 25 bps per annum. At December 31, 2021, no amount was outstanding under the revolving facility.

On December 31, 2021, our $400 million in interest rate swaps expired, leaving the $375.0 million outstanding variable rate debt exposed to interest rate risk. Our swaps and the financial instruments to which they relate are described below, under the caption “Interest Rate Swap Agreements.” The current LIBOR spreads and facility fee reflect our ratings compliance based on the applicable margin for LIBOR loans at Level 4 in the Interest Rate Schedule provided below in summary format:

Interest Rate Schedule

LIBOR Spread

Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below “BBB-/Baa3” (not shown below Level 5) the debt under our credit agreements will be subject to defined increases in interest rates and fees.

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The 2017 Agreement requires that we calculate specified financial statement metrics and meet or exceed a variety of financial ratios, which are usual and customary in nature. These ratios are calculated quarterly and were within required limits for each reporting period in 2021 and 2020. The calculation of our leverage ratio involves intermediate determinations of our “total indebtedness” and of our “total asset value,” as defined in the 2017 Agreement. The 2018 Agreement generally includes the same covenants and financial statement metrics required for compliance with terms of the 2017 Agreement.

Senior Notes Offering - 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 $100.0 million term loan bore interest at a rate of 30-day LIBOR (with a 50 basis point floor) plus 185 bps, based on our current leverage ratios.

We remain in compliance with all debt covenants under the unsecured bank credit facility, 2031 Senior Notes and other debt agreements.

Convertible Senior Notes - On April 1, 2021, 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 Consolidated Balance Sheet as of December 31, 2021.

When we take on new debt or when we modify or replace existing debt, we incur debt issuance costs. These costs are subject to amortization over the term of the new debt instrument and may result in the write-off of fees associated with debt which has been replaced or modified.

Debt Maturities - Reference Note 7 to the consolidated financial statements for more information on our debt maturities.

Credit Ratings - Moody's Investors Services (“Moody’s) announced on November 5, 2020 that it assigned an investment grade issuer credit rating and a senior unsecured debt rating of ‘Baa3’ with a “Negative” outlook to the Company. Moody’s released a credit opinion on October 31, 2021 which affirmed the rating and outlook for the Company. Both Fitch and S&P Global announced in November 2019 a public issuer credit rating of BBB- with an outlook of “Stable”. Fitch confirmed its rating most recently on December 9, 2021, and S&P Global confirmed its rating on November 16, 2021. Our unsecured private placement term loan agreements include a rate increase provision that is effective if any rating agency lowers our credit rating below investment grade and our compliance leverage increases to 50% or more. Any reduction in outlook or downgrade in our credit ratings from the rating agencies could negatively impact our costs of borrowings.

Reference Rate Reform - On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to SOFR. Additionally, banking regulators encouraged banks to discontinue new LIBOR debt issuances by December 31, 2021. We may choose not to hedge any more of our LIBOR positions for the relatively short duration remaining during which LIBOR may be referenced.

The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. Upon the issuance of the 2031 Senior Notes, the Company reduced its LIBOR-based financial instruments.

Debt Metrics - We believe that our fixed charge coverage ratio, which is the ratio of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including amounts in discontinued operations, excluding real estate asset impairments and gains on dispositions) to fixed charges (interest expense at contractual rates net of capitalized interest and principal payments on debt), and the ratio of consolidated net debt to Adjusted EBITDA are meaningful measures of our ability to service our debt. We use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group. We also believe our balance sheet gives us a competitive advantage when accessing debt markets.

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We calculate our fixed charge coverage ratio as approximately 5.5x for the year ended December 31, 2021 (see our discussion below under the heading Adjusted EBITDA including a reconciliation to our net income). Giving effect to significant acquisitions, financings, disposals and payoffs on an annualized basis, our consolidated net debt to Adjusted EBITDA ratio is approximately 4.8x for the year ended December 31, 2021 ($ in thousands):

Less: cash and cash equivalents (37,412)

Annualized impact of recent investments, disposals and payoffs (15,187)

Consolidated Net Debt to Adjusted EBITDA 4.8 x

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. Therefore, we had no remaining interest rate swap agreements outstanding. In June 2020, $210.0 million notional amount of swaps matured.

For instruments that were designated and qualified as cash flow hedges, the effective portion of the gain or loss on the derivative has been reported as a component of other comprehensive income (loss), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings.

Supplemental Guarantor Financial Information

The Company’s $925.0 million bank credit facility, unsecured private placement term loans due January 2023 through January 2027 with an aggregate principal amount of $400.0 million and 2031 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s subsidiaries, except for certain excluded subsidiaries (“Guarantors”). The Guarantors are either owned, controlled or are affiliates of the Company, which are included in the Company’s consolidated financial statements.

The following tables present summarized financial information for the Company and the Guarantors, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor ($ in thousands):

As of

Real estate properties, net $ 1,977,370

Note receivable due from non-guarantor subsidiary 81,396

Noncontrolling interest $ 398

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Year Ended

Interest revenue on note due from non-guarantor subsidiary 4,657

Loss from equity method investee (1,545)

Gains on sales of real estate 32,498

Loss on early retirement of debt (451)

Other income 350

Net income attributable to NHI and the subsidiary guarantors $ 108,920

Equity

At December 31, 2021, we had 45,850,599 shares of common stock outstanding with a market value of $2.6 billion. Equity on our Consolidated Balance Sheet totaled $1.5 billion.

Dividends - Our Board of Directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis. Taxable income is determined in accordance with the Internal Revenue Code and differs from net income for financial statements purposes determined in accordance with U.S. generally accepted accounting principles. Our Board of Directors has historically directed the Company toward maintaining a strong balance sheet. Therefore, we consider the competing interests of short and long-term debt (interest rates, maturities and other terms) versus the higher cost of new equity, and we accept some level of risk associated with leveraging our investments. Sustaining long-term dividend growth will require that we consider all sources of capital with the goal of maintaining a low-leverage balance sheet and staggered debt maturities as mitigation against potential adverse changes in the business of our industry, tenants and borrowers. We intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of equity and debt capital on a leverage neutral basis will generate sufficient returns to our stockholders.

We intend to comply with REIT dividend requirements that we distribute at least 90% of our annual taxable income for the year ended December 31, 2021 and thereafter. Historically, the Company has distributed at least 100% of annual taxable income. Dividends declared for the fourth quarter of each fiscal year are paid by the end of the following January and are, with some exceptions, treated for tax purposes as having been paid in the fiscal year just ended as provided in IRS Code Sec. 857(b)(8).

Our dividends per share for the last three years are as follows:

At-the-Market (ATM) Equity Program - We maintain an ATM program which allows us to sell our common stock directly into the market. 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.

The following table summarizes the share issuances under our ATM program as of December 31, 2021 ($ in thousands):

Year Shares Weighted Average Share Price Net Proceeds

The table above does not include indirect legal and accounting costs associated with updating and maintaining our shelf registration statement.

Our use of ATM proceeds rebalanced our leverage in response to our acquisitions and keeps our options flexible for further expansion. We typically use of proceeds from the ATM program for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our credit facility. We view our ATM program as an

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effective way to match-fund our smaller acquisitions by exercising control over the timing and size of transactions and achieving a more favorable cost of capital as compared to larger follow-on offerings.

Shelf Registration Statement - We have an automatic shelf registration statement on file with the Securities and Exchange Commission that allows the Company to offer and sell to the public an unspecified amount of common stock, preferred stock, debt securities, warrants and or units at prices and on terms to be announced when and if such securities are offered. The details of any future offerings, along with the use of proceeds from any securities offered, will be described in a prospectus supplement or other offering materials, at the time of offering. Our shelf registration statement expires March 2023.

Material Cash Requirements

Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter consist of long-term debt maturities; interest on long-term debt; and contractually obligated expenditures. We expect to meet our short-term liquidity needs largely through cash generated from operations and borrowings under our revolving credit facility, refer to Unsecured Bank Credit Facility above, and sales from real estate investments, although we may choose to seek alternative sources of liquidity. Should we have additional liquidity needs, we believe that we could access long-term financing in the debt and equity capital markets.

The following table summarizes information as of December 31, 2021 related to our material cash requirements ($ in thousands):

Total Twelve Months Ended December 31, 2022 Thereafter

Our debt maturities in 2022 are comprised primarily of a $75 million term loan maturity in August 2022. Reference Unsecured Bank Credit Facility above, for more discussion of the status of the Company’s renewal of its credit facility.

We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our low net leverage will be sufficient to meet all of our short-term and long-term financial commitments.

Loan and Development Commitments and Contingencies

The following tables summarize information as of December 31, 2021 related to our outstanding commitments and contingencies which are more fully described in the notes to the consolidated financial statements ($ in thousands):

Asset Class Type Total Funded Remaining1

Loan Commitments:

Timber Ridge OpCo SHO Working Capital 5,000 — 5,000

1Of the total $37,600 is expected to be payable within 12 months with the remaining commitment due between three to five years.

2 formerly 41 Management

See Note 4 to our consolidated financial statements for 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 was $1.0

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million as of December 31, 2021 and 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.

Asset Class Type Total Funded Remaining1

Development Commitments:

Woodland Village SHO Renovation $ 7,515 $ (7,425) $ 90

Senior Living Communities SHO Renovation 9,930 (9,930) —

Discovery Senior Living SHO Renovation 900 (900) —

Navion Senior Solutions SHO Renovation 3,650 (213) 3,437

1 Expected to be payable within 12 months..

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, of which $1.0 million has been funded as of December 31, 2021.

Asset Class Total Funded Remaining

Contingencies (Lease Inducements):

Comfort Care Senior Living SHO 6,000 — 6,000

Discovery Senior Living SHO 4,000 — 4,000

We adjust rental income for the amortization of lease inducements paid to our tenants. Amortization of lease inducement payments against revenues was $1.0 million, $1.0 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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 direct 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.

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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 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.

FFO & FAD

These supplemental performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations (“FFO”), Normalized FFO and Normalized Funds Available for Distribution (“FAD”) may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these measures, caution should be exercised when comparing our FFO, Normalized FFO and Normalized FAD to that of other REITs. These measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”) (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of performance, or to net cash flow from operating activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs. Beginning in the first quarter of 2021, the Company no longer presented Adjusted Funds From Operations as a supplemental measure of operating performance.

Funds From Operations - FFO

Our FFO per diluted common share for the year ended December 31, 2021 decreased $0.89 or 16.2% for the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday’s nonpayment of rent and property dispositions, partially offset by new investments completed since December 2020. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, impairments of real estate, and real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company’s computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company’s FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities.

Our Normalized FFO per diluted common share for the year ended December 31, 2021 decreased $1.00 or 17.9% for the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday’s nonpayment of rent and property dispositions, partially offset by new investments completed since December 2020. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of non-real estate assets and liabilities, and recoveries of previous write-downs.

FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue.

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Funds Available for Distribution - FAD

Our Normalized FAD for the year ended December 31, 2021 decreased $30.3 million or 12.6% from the same period in 2020 due primarily to the effects of the COVID-19 pandemic, Holiday’s nonpayment of rent and property dispositions, partially offset by new investments completed since December 2020. In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line lease revenue, amortization of the original issue discount on our senior unsecured notes, amortization of debt issuance costs, non-cash share based compensation, as well as certain non-cash items related to our equity method investment.

Normalized FAD is an important supplemental performance measure for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires any discount or premium related to indebtedness and debt issuance costs to be amortized as non-cash adjustments to earnings. We also adjust Normalized FAD for the net change in our allowance for expected credit losses, non-cash share based compensation as well as certain non-cash items related to our equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to stockholders.

The following table reconciles net income, the most directly comparable GAAP metric, to FFO, Normalized FFO and Normalized FAD and is presented for both basic and diluted weighted average common shares ($ in thousands, except share and per share amounts):

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Years ended December 31,

Elimination of certain non-cash items in net income:

Depreciation related to noncontrolling interests (839) (777) (52)

Non-cash write-off of straight-line rent receivable 709 380 —

Recognition of unamortized note receivable commitment fees (375) — —

Lease termination fee (2,464) — —

Litigation settlement (616) — —

Straight-line lease revenue, net, related to noncontrolling interests 91 111 13

Straight-line lease expense related to equity method investment 46 113 —

Amortization of original issue discount 295 303 761

Amortization related to equity method investment 1,109 1,261 —

Note receivable credit loss expense 949 991 —

Equity method investment capital expenditures (420) (420) —

Equity method investment non-refundable fees received 622 660 —

BASIC

NAREIT FFO attributable to common stockholders per share $ 4.62 $ 5.51 $ 5.52

DILUTED

NAREIT FFO attributable to common stockholders per share $ 4.62 $ 5.51 $ 5.49

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Adjusted EBITDA

We consider Adjusted EBITDA to be an important supplemental measure because it provides information which we use to evaluate our performance and serves as an indication of our ability to service debt. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization, excluding real estate asset impairments and gains on dispositions and certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing Adjusted EBITDA for the current period to similar prior periods. These items include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs. Adjusted EBITDA also includes our proportionate share of unconsolidated equity method investments presented on a similar basis. Since others may not use our definition of Adjusted EBITDA, caution should be exercised when comparing our Adjusted EBITDA to that of other companies. EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):

Years ended December 31,

NHI’s share of EBITDA adjustments for unconsolidated entities 2,848 1,495 —

Litigation settlement (616) — —

Non-cash write-off of straight-line rent receivable 709 380 —

Note receivable credit loss expense 949 991 —

Lease termination fee (2,464) — —

Recognition of unamortized note receivable commitment fees (375) — —

Fixed Charge Coverage 5.5x 6.0x 5.4x

For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

At December 31, 2021, we were exposed to market risks related to fluctuations in interest rates on approximately $375.0 million of variable-rate indebtedness and on our mortgage and other notes receivable. The unused portion ($550.0 million at December 31, 2021) of our revolving credit facility, should it be drawn upon, is subject to variable rates.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. Assuming a 50 basis-point increase or decrease in the interest rate related to variable-rate debt, and assuming no change in the outstanding balance as of December 31, 2021, net interest expense would increase or decrease annually by approximately $1.9 million or $0.04 per common share on a diluted basis.

We have historically used derivative financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative purposes. Derivatives are included in the Consolidated Balance Sheets at their fair value. We may engage in hedging strategies to manage our exposure to market risks in the future, depending on an analysis of the interest rate environment and the costs and risks of such strategies.

The following table sets forth certain information with respect to our debt ($ in thousands):

Balance1 % of total Rate2 Balance1 % of total Rate2

Fixed rate:

Convertible senior notes $ — — % — % $ 60,000 4.0 % 3.25 %

Revolving credit facility - unsecured — — % — % 60,000 4.0 % 2.81 %

Variable rate:

Revolving credit facility - unsecured — — % — % 238,000 15.8 % 1.34 %

1 Differs from carrying amount due to unamortized discounts and loan costs.

2 Total is weighted average rate

For the year ended December 31, 2020, $340.0 million in unsecured bank term loans and $60.0 million of the revolving credit facility in the table above reflect the effect of $400.0 million notional amount interest rate swaps which matured in December 2021, that effectively converted variable rate debt to fixed rate debt. These loans bore interest at LIBOR plus a spread, currently a blended 127 basis points, based on our credit ratings-based LIBOR margin.

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To highlight the sensitivity of our term loans, senior notes and secured mortgage debt to changes in interest rates, the following summary shows the effects on fair value (“FV”) assuming a parallel shift of 50 basis points (“bps”) in market interest rates for a contract with similar maturities as of December 31, 2021 ($ in thousands):

Balance Fair Value1 FV reflecting change in interest rates

Fixed rate: -50 bps +50 bps

At December 31, 2021, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $314.8 million. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $4.0 million, while a 50 basis-point decrease in such rates would increase their estimated fair value by approximately $7.0 million.

Equity Price Risk

The Company is not subject to equity risk since it owns no marketable securities.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

National Health Investors, Inc.

Murfreesboro, Tennessee

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of National Health Investors, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2021, and the related notes and schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Asset Impairment - Real Estate Properties

As described in the Company's consolidated financial statements, the Company had total real estate properties, net of approximately $2.3 billion as of December 31, 2021. As described in Note 2 to the Company’s consolidated financial statements, management evaluates the recoverability of the carrying amount of its real estate properties on a property-by-property basis when events or circumstances indicate that the carrying amount may not be fully recoverable. A real estate property is impaired when the estimated undiscounted future cash flows of the property are less than the net carrying amount of the property.

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We identified management’s identification and assessment of the indicators of potential impairment of real estate properties as a critical audit matter. Indicators of an impairment of real estate properties may include 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. Auditing these elements involved auditor judgment due to the nature and extent of auditor effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

•Assessing the reasonableness of management’s assumptions and inputs, including certain factors such as the evaluation of the physical condition of the properties, changes in general economic conditions, and deterioration of the underlying cash flows of the property, which are used by management to identify and assess whether an impairment indicator existed.

•Reviewing internal documentation including Board of Director minutes, letters of intent, independent third-party valuations, and operations department communications for real estate properties, including those with lower lease coverage ratios, to assess whether additional indicators of impairment were present.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2004.

Nashville, Tennessee

February 22, 2022

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share and per share amounts)

December 31,

Real estate properties:

Assets held for sale, net 66,398 —

Liabilities and Equity:

Accounts payable and accrued expenses 23,181 25,189

Commitments and Contingencies

National Health Investors, Inc. Stockholders' Equity:

Common stock, $0.01 par value; 100,000,000 shares authorized;

Cumulative dividends in excess of net income (84,558) (22,015)

Accumulated other comprehensive loss — (7,149)

Total National Health Investors, Inc. Stockholders' Equity 1,507,083 1,512,234

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except share and per share amounts)

Years Ended December 31,

Revenues:

Expenses:

Loss from equity method investment (1,545) (3,126) —

Other income 350 — —

Less: net (income) loss attributable to noncontrolling interests (163) (185) 7

Weighted average common shares outstanding:

Earnings per common share:

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

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

Years Ended December 31,

Other comprehensive income (loss):

Decrease in fair value of cash flow hedges (137) (10,047) (3,940)

Total other comprehensive income (loss) 7,149 (3,717) (4,731)

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

Years Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by

operating activities:

Amortization of commitment fees and note receivable discounts (729) (867) (493)

Loss from equity method investment 1,545 3,126 —

Changes in operating assets and liabilities:

Cash flows from investing activities:

Investments in renovations of existing real estate (3,465) (13,854) (17,999)

Investments in equipment (64) (158) —

Investment in equity method investment — (875) —

Distributions from equity method investment 1,205 — —

Cash flows from financing activities:

Borrowings on term loans — 100,000 —

Proceeds from issuance of senior notes 396,784 — —

Prepayment fee for early retirement of debt (1,462) (1,619) —

Distributions to noncontrolling interests (910) (748) (15)

Proceeds from noncontrolling interests — 13 643

Taxes remitted on employee stock options exercised — (2,705) (1,559)

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

($ in thousands)

Years Ended December 31,

Supplemental disclosure of cash flow information:

Supplemental disclosure of non-cash investing and financing activities:

Increase in mortgage note receivable from sale of real estate $ — $ 4,000 $ —

Change in other assets related to investments in real estate $ — $ 348 $ 291

Change in other assets related to sales of real estate $ (33) $ — $ —

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

($ in thousands except share and per share amounts)

Shares Amount

Noncontrolling interests capital contribution — — — — — — 643 643

Noncontrolling interests distribution — — — — — — (15) (15)

Taxes paid on employee stock options exercised — — (1,559) — — (1,559) — (1,559)

Shares issued on stock options exercised 51,156 1 — — — 1 — 1

Cumulative effect of change in accounting — — — (4,225) — (4,225) — (4,225)

Noncontrolling interests capital contribution — — — — — — 10,791 10,791

Noncontrolling interests distribution — — — — — — (886) (886)

Taxes paid on employee stock options exercised — — (2,705) — — (2,705) — (2,705)

Shares issued on stock options exercised 62,516 1 (2) — — (1) — (1)

Noncontrolling interests distribution — — — — — — (974) (974)

Shares issued on stock options exercised 2,656 — — — — — — —

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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NATIONAL HEALTH INVESTORS, INC.

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).

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2020 Timber Ridge OpCo, LLC Various2 $ (5,000) $ — Note 5

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.

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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

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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):

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As of December 31,

Restricted cash (included in Other assets) 2,073 2,999

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

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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 Incomefrom 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.

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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):

Operator Date Properties Asset Class Land Building and Improvements Total

Vizion Health