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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on 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, 2021.

Executive Overview

National Health Investors, Inc., established in 1991 as a Maryland corporation, is a self-managed real estate investment trust specializing in sale-leaseback, joint-venture, and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable segments: Real Estate Investments and SHOP. Our Real Estate Investments segment consists of real estate investments and mortgage and other notes receivables in independent living facilities, assisted living facilities, entrance-fee communities, senior living campuses, skilled nursing facilities and a 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. Our SHOP segment is comprised of the operations of 15 independent living facilities that provide residential living and other services for residents located throughout the United States that are operated on behalf of the Company by two independent managers pursuant to the terms of separate management agreements. The third-party managers, or related parties of the managers, own equity interests in the respective ventures.

Real Estate Investments

As of December 31, 2022, we had investments in real estate and mortgage and other notes receivable involving 177 facilities located in 32 states. These investments involve 103 senior housing properties, 73 skilled nursing facilities and one hospital, excluding 13 properties classified as assets held for sale. These investments consisted of properties with an original cost of approximately $2.4 billion, rented under primarily triple-net leases to 24 tenants, and $248.5 million aggregate carrying value of mortgage and other notes receivable, excluding an allowance for expected credit losses of $15.3 million, due from 14 borrowers.

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

Senior Housing – Need-Driven includes assisted living facilities and senior living campuses 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 facilities and entrance-fee communities 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 and a hospital 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.

Senior Housing Operating Portfolio

Effective April 1, 2022, 15 senior housing ILFs previously part of the legacy Holiday Retirement properties were transferred from a triple-net lease to two separate ventures comprising our SHOP, which represents a new reportable segment. These ventures, in which NHI owns a majority interest, own the underlying independent living operations and are structured to

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comply with REIT requirements that utilize the TRS for activities that would otherwise be non-qualifying for REIT purposes. These properties are operated by two third-party property managers that manage our communities in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the managers to set appropriate resident fees and otherwise operate our communities in compliance with the terms of our management agreements and all applicable laws and regulations. As of December 31, 2022, our SHOP consisted of 15 ILFs with a combined 1,732 units located in eight states.

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The following tables summarize our portfolio, excluding $2.6 million for our corporate office, assets held for sale and a credit loss reserve of $15.3 million, as of December 31, 2022 ($ in thousands):

Real Estate Investments and SHOP

Properties Beds/Units NOI1 % Total Investment

Real Estate Properties

Senior Housing - Need-Driven

Senior Housing - Discretionary

Medical Facilities

Current Year Disposals and Held for Sale 9,240 3.9 %

Mortgage and Other Notes Receivable

Current Year Note Payoffs 6,581 2.7 %

SHOP

1Excludes Non-segment/Corporate NOI

Portfolio Summary Properties NOI % Portfolio Investment

Portfolio by Operator Type

Current Year Disposals and Held for Sale 9,240 3.9 % —

Current Year Note Payoffs 6,581 2.7 % —

For the year ended December 31, 2022, operators of facilities in our Real Estate Investments portfolio who provided 3% or more and collectively 59% of our total revenues were (parent company, in alphabetical order): Discovery Senior Living; Encore

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Senior Living, Health Services Management; Holiday Retirement; Life Care Services; National HealthCare Corporation; Senior Living Communities; and The Ensign Group.

As of December 31, 2022, our average effective annualized Net Operating Income (“NOI”) for the lease properties in our Real Estate Investments reportable segment was $9,500 per bed for SNFs, $11,543 per unit for SLCs, $13,448 per unit for ALFs, $9,208 per unit for ILFs, $21,240 per unit for EFCs, and $57,599 per bed for the hospital, excluding the non-cash write-off of Bickford and two other tenants’ straight-line rents receivable and lease incentives discussed below under “Tenant Concentration”. As of December 31, 2022, our average effective annualized NOI for the SHOP reportable segment was $17,558 per unit.

COVID-19 Pandemic

The COVID-19 pandemic has had an impact on the operations of many of our tenants, managers and borrowers. The revenues from our SHOP ventures, borrowers and operators of our leased properties are dependent on occupancy. Future occupancy rates may be adversely affected by the possibility of new COVID variants, increased resident move-outs, re-implementation of restrictions on new resident move-ins, and the possibility of potential residents foregoing or delaying a move. Operating expenses of our SHOP ventures and those of our borrowers and the tenants of our leased properties may also be negatively impacted as a result of the additional enhanced health and safety precautions implemented in response to the COVID-19 pandemic. A decrease in occupancy or increase in costs could have a material adverse effect on our results of operations and on the ability of tenants of our leased properties and borrowers to meet their financial and other contractual obligations to us, including the payments of rent, interest and principal.

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 accounted for rent concessions as variable lease payments, recorded as rental income when received, in accordance with the Financial Accounting Standards Board’s Lease Modification Q&A. Reference Note 2 to the consolidated financial statements for further discussion.

As of December 31, 2022, aggregate pandemic-related rent concessions granted to tenants that have been accounted for as variable lease payments totaled approximately $44.3 million, of which $3.7 million were rent abatements. During the year ended December 31, 2022, we granted pandemic-related rent deferrals of $9.3 million to seven tenants, of which Bickford accounted for approximately $4.0 million. Repayments and other reductions of pandemic-related rent deferrals recognized in “Rental Income” during the year ended December 31, 2022 and 2021 were $3.5 million and $0.1 million, respectively. Additionally, $4.1 million of pandemic-related rent deferrals were forgiven during the year ended December 31, 2022.

Rent deferrals accounted for as variable lease payments granted for the years ended December 31, 2021 and 2020 totaled approximately $26.4 million and $5.0 million, respectively, of which Bickford accounted for approximately $18.3 million and $3.5 million, respectively.

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.

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. Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of the Board of Directors.

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.

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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.

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 if the Company is deemed to be the primary beneficiary of such entities. We make judgments about which entities are variable interest entities (“VIEs”) based on an assessment of whether (i) the total equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) as a group, the holders of the equity investment at risk do not have a controlling financial interest, or (iii) 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. Additionally, we make judgments with respect to our level of influence or control of an entity and whether we are the primary beneficiary of a VIE. These considerations include, but are not limited to, our power to direct the activities that most significantly impact the entity's economic performance, the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity, and our ability and the rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity. Our ability to correctly determine the primary beneficiary of a VIE at inception of our involvement impacts the presentation of these entities in our consolidated financial statements.

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.

Impairments of Real Estate Properties.

We evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review each property for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, reclassification of real estate property 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 and 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. Investment Activity to our consolidated financial statements for more details.

There were no material changes in the accounting methodology we use to assess impairment charges during the year ended December 31, 2022. During the year ended December 31, 2022, we recorded impairment charges of approximately $51.6 million related to 19 properties all within the Real Estate Investments segment.

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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 based in it 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 net 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. During the fourth quarter of 2022, we designated a mortgage note receivable of $10.0 million and a mezzanine loan of $14.5 million with affiliates of one operator/borrower as non-performing. For the year ended December 31, 2022, we recognized credit loss charges of $10.4 million of which $8.7 million related to these two loans upon their designation as non-performing.

While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. Our model utilizes estimates of probability of default and loss given default. We review our assumptions and adjust these estimates accordingly on a quarterly basis. A 10% increase or decrease in either the probability of default or loss given default would result in an additional provision or recovery of $1.6 million.

2022 Activity

The following summarizes significant activity that occurred for the year ended December 31, 2022:

•During the first quarter, we applied the remaining approximately $8.8 million legacy Holiday lease deposit to past due rents that was reflected as rental income.

•On April 1, 2022, we received $6.9 million in previously escrowed funds upon settlement and dismissal of the Welltower litigation related to the master lease for the legacy Holiday portfolio that was reflected as rental income.

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Concurrently with the settlement and dismissal, we transitioned 15 of the legacy Holiday ILFs into two separate ventures that own the underlying independent living operations, forming our new SHOP segment.

•We converted Bickford to the cash basis of accounting for their lease agreements and wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives to rental income.

•We converted two other tenants to the cash basis of accounting for their lease agreements and wrote off approximately $7.9 million of straight-line rents receivable.

•During the fourth quarter of 2022, we designated a mortgage note receivable and a mezzanine loan totaling an aggregate $24.5 million with affiliates of one borrower as non-performing and recorded additional credit loss reserves of approximately $8.7 million for these loans. This operator/borrower is also one of the tenants converted to cash basis of accounting.

•We disposed of 22 facilities from our Real Estate Investments segment for net proceeds of $169.0 million.

•We received repayment in full of a $111.3 million mortgage note receivable.

•We repurchased through open market transactions 2.5 million shares of our common stock for an average price of $61.56 per share, excluding commissions.

•The SHOP segment NOI was $7.6 million for the year ended December 31, 2022.

Since January 1, 2022, we have completed or committed to the following real estate and note investments ($ in thousands):

Date Properties Asset Class Amount

Real Estate Investments

Note Investments

Encore Senior Living

In January 2022, we entered into an agreement to fund a $28.5 million development loan with Encore Senior Living 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. The total amount funded on the note was $14.2 million as of December 31, 2022

In the second quarter of 2022, we acquired a 53-unit ALF located in Oshkosh, Wisconsin, from Encore Senior Living. The acquisition price was $13.3 million and included the cancellation of an outstanding construction note receivable to us of $9.1 million, including interest. We have agreed to pay up to $0.8 million in additional cash consideration pending the results of an ongoing property tax appeal. As of December 31, 2022, no amount of this consideration is expected to be paid. We added the facility to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%.

Bickford

In November 2022, we acquired a 60-unit ALF located in Virginia Beach, Virginia, from Bickford. The acquisition price was $17.2 million, including $0.2 million in closing costs, and the cancellation of an outstanding construction note receivable of $14.0 million including interest. The acquisition price also included a reduction of $3.0 million in Bickford’s outstanding pandemic-related rent deferrals that were recognized in rental income in the fourth quarter of 2022 based on the fair value of the real estate assets received. We added the facility to an existing master lease with Bickford for a term of 10.5 years at an initial rate of 8.0%, with annual CPI escalators subject to a floor and ceiling.

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Capital Funding Group

In November 2022, we funded a $42.5 million senior loan to refinance a portfolio of five skilled nursing facilities located in Texas. The loan was made to affiliates of Capital Funding Group and the properties are leased by subsidiaries of The Ensign Group. The five-year loan agreement has an annual interest rate of 7.25% and two one-year extensions.

During the year ended December 31, 2022, we completed the following real estate property dispositions within our Real Estate Investments reportable segment as described below ($ in thousands):

1 Impairments are included in “Loan and realty losses” in the Consolidated Statements of Income.

2 Total impairment charges recognized on these properties were $28.5 million for the year ended December 31, 2022.

3 See “Tenant Concentration” below for additional information on the NHC disposition.

Total rental income related to the disposed properties was $7.0 million, $10.9 million and $16.6 million for years ended December 31, 2022, 2021 and 2020, respectively. Reference Note 3 to the consolidated financial statements for more detail on the 2022 property dispositions within our Real Estate Investments reportable segment.

Life Care Services - Sagewood

In the second quarter of 2022, we received from Life Care Services - Sagewood the repayment of its remaining principal of $111.3 million mortgage note receivable along with all accrued interest and a prepayment fee of approximately $1.1 million which is reflected in “Gain on note receivable payoff” in the Consolidated Statements of Income for the year ended December 31, 2022. Interest income was $5.2 million, $10.2 million and $11.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

2023 Investment Activity

In February 2023, we acquired two memory care communities operated by Silverado Senior Living for approximately $37.5 million. The newly developed properties that opened in 2022 and include a 60-unit community in Summerlin, Nevada and a 60-unit community in Frederick, Maryland and are leased pursuant to a 20-year lease master lease with a first-year lease rate of 7.5% and annual escalators of 2.0%.

In February 2023, we acquired a 60-unit assisted living and memory care community in Chesapeake, Virginia from Bickford. The acquisition price was $17.3 million, including approximately $0.1 million in closing costs, the satisfaction of an outstanding construction note receivable of $14.2 million including interest, and cash consideration of $0.5 million. The acquisition price also included a reduction of $2.5 million in Bickford’s outstanding pandemic-related deferrals. We added the community to an existing master lease with Bickford was added to an existing master lease with Bickford at an initial rate of 8.0%, with annual CPI escalators subject to a floor and ceiling.

Assets Held for Sale and Long-Lived Assets

At December 31, 2022, 13 properties in our Real Estate Investments reportable segment, with an aggregate net real estate balance of $43.3 million, were classified as assets held for sale on our Consolidated Balance Sheet. Rental income associated

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with the 13 properties was $2.1 million, $5.6 million, and $7.6 million for the year ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2022, we recorded impairments of approximately $51.6 million on 19 properties which were sold or classified as held for sale related to our Real Estate Investments reportable segment. During the year ended December 31, 2021, we recorded impairments of approximately $51.8 million on ten properties which were sold or classified as held for sale related to our Real Estate Investments reportable segment. Impairment charges are included in “Loan and realty losses” in the Consolidated Statements of Income.

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):

Asset Number of Lease 1st Option Option Contractual

Type Properties Expiration Open Year Basis1 Rent

1 Tenant purchase options generally give the lessee an option to purchase the underlying property for consideration determined by (i) a fixed base price plus a specified share in any appreciation; or (ii) fixed base price.

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 for real estate 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, 2022, 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 Note 3 to the consolidated financial statements, we have two tenants (including their affiliated entities, which are the legal tenants) from whom we individually derive at least 10% of our total revenues. NHC is a publicly traded company and we do not report specific occupancy information from them.

Occupancy

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

1Prior periods restated to reflect the purchase option exercised in November 2022 on an ALF in Virginia.

2Prior periods restated for a first quarter 2022 single asset disposition.

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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 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, 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, 2022 and 2021 (the most recent periods available).

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NHI Real Estate Investments Portfolio

By asset type SHO SNF MEDICAL NON-SNF TOTAL

Major tenants NHC1 SLC2 Bickford2

NHI Real Estate Investments Same-Store Portfolio3

By asset type SHO SNF MEDICAL NON-SNF TOTAL

Major tenants NHC 1 SLC2 Bickford2

1 NHC based on corporate-level Fixed Charge Coverage Ratio and includes three ILFs and excludes seven sold SNF assets (four in MA and three in NH) during 2022.

2 Excluding PPP funds received from the third quarter 2021, SLC and Bickford coverage was 1.00x and 0.84x, respectively. SLC operates nine discretionary CCRC properties and one need driven assisted living community. Bickford proforma coverage at the restructured lease amount would be 1.31x for third quarter 2022.

3 Excludes properties that have transitioned operators in past 24 months and includes properties classified as held for sale.

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

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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 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 we monitor economic and financial conditions, including the effects of the COVID-19 pandemic. The metrics presented in the tables above give no effect to the presence of these security deposits. Because of the recent disposals of the Florida medical office building and a behavioral hospital, we combined the medical office building (“MOB”) and Hospital categories previously presented into the “Medical Non-SNF” category.

Other Portfolio Activity

Real Estate and Mortgage Write-downs

In addition to inflation risk, increased interest rates and new COVID-19 pandemic variants, our borrowers and tenants experience periods of significant financial pressures and difficulties similar to those encountered by other health care providers.

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 $15.3 million and a liability of $0.7 million for estimated credit losses on unfunded loan commitments as of December 31, 2022. Provision for expected credit losses, reflected in “Loan and realty losses” on the Consolidated Statements of Income, totaled $10.4 million, $0.9 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. We evaluate the reserves for estimated credit losses on a quarterly basis and make adjustments based on current circumstances as considered necessary.

Our consolidated financial statements for the year ended December 31, 2022 reflect impairment charges of our long-lived assets of approximately $51.6 million as a result of economic and financial factors, including the effects of the COVID-19 pandemic. We reduced the carrying value of any impaired properties to estimated fair values, or with respect to the properties classified as held for sale, to estimated fair value less costs to sell. We have no significant intangible assets currently recorded on our Consolidated Balance Sheet as of December 31, 2022, that would require assessment for impairment.

We believe that the carrying amounts of our real estate properties are recoverable and that mortgage and other notes receivable, net of reserves, 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. Refer to Note 3. Investment Activity in the consolidated financial statements for more information.

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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

Interest income from mortgage and other notes

Total Interest Income from Mortgage and Other Notes 24,383 24,534 (151) (0.6) %

Expenses:

Depreciation

Current year disposals and assets held for sale 4,984 9,845 (4,861) (49.4) %

Senior housing operating expenses 28,193 — 28,193 NM

Loss on operations transfer, net (710) — (710) NM

Gain on note receivable payoff 1,113 — 1,113 NM

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Gains (losses) from equity method investment 569 (1,545) 2,114 NM

NM - not meaningful

Financial highlights for the year ended December 31, 2022, compared to 2021 were as follows:

•Rental income recognized from our tenants decreased $53.3 million, or 19.7%, as a result of the Holiday portfolio transition of approximately $13.0 million, dispositions of 22 properties for approximately $7.0 million, net of new investments funded since December 2021. Included in rental income for the year ended December 31, 2022, is approximately $26.0 million in write-offs of straight-line rents receivable for three tenants placed on cash basis of rental income recognition, and $7.1 million in write-offs of lease incentives related to Bickford.

•Resident fees and services and senior housing operating expenses include revenues and expenses from our SHOP activities which commenced on April 1, 2022. See Note 5 to the consolidated financial statements.

•Funds received for reimbursement of property operating expenses totaled $9.8 million for the year ended December 31, 2022, 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 decrease in the reimbursement income and corresponding property expenses is the result of property dispositions in the current year.

•Interest income from mortgage and other notes decreased $0.2 million, or 0.6%, primarily due to new and existing loan fundings, net of paydowns on loans.

•Other income decreased $2.8 million primarily due to the recognition of a lease termination fee upon disposition of a property during 2021.

•Depreciation expense decreased $9.9 million, or 12.3%, primarily as a result of dispositions of approximately $143.0 million since December 2021.

•Interest expense decreased $5.9 million, or 11.6%, as a result of debt maturities and repayments on borrowings.

•General and administrative expenses increased $4.3 million, or 23.5%. The increase was primarily due to higher compensation and benefit expenses of approximately $2.1 million as a result of additional personnel and $1.3 million in professional fees.

•Loan and realty losses increased $9.1 million, or 17.3%, primarily as a result of an increase in the credit loss reserve in 2022 for two loans designated as non-performing. In 2022, we incurred impairment charges of approximately $51.6 million on 19 properties which were sold or classified as assets held for sale related to our Real Estate Investments reportable segment. During the year ended December 31, 2021, we incurred impairment charges of approximately $51.8 million on ten properties which were sold or classified as held for sale related to our Real Estate Investments reportable segment.

•Loss on early retirement of debt decreased by $1.8 million. The losses of $1.9 million recognized in 2021 related to the early repayments of a term loan and two Fannie Mae loans.

•Gain on note receivable payoff of $1.1 million reflects the prepayment fee received from the early repayment of a $111.3 million mortgage note receivable in the second quarter of 2022. See Note 4 to the consolidated financial statements.

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•Gains (losses) from equity method investment for the year ended December 31, 2022 represent cash distributions received and for the year ended December 31, 2021 represent our proportionate share of losses related to our Timber Ridge OpCo investment. Reference Note 6 to the consolidated financial statements for more information.

•Gains on sales of real estate decreased $4.2 million, or 12.8%. For the year ended December 31,2022, we recorded $28.3 million in gains from dispositions of 22 real estate assets. 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.

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Liquidity and Capital Resources

At December 31, 2022, we had $658.0 million available to draw on our revolving credit facility, $19.3 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”) program. In addition, the Company maintains an effective automatic shelf registration statement through which capital could be raised via the issuance of debt and or equity securities.

Sources and Uses of Funds

Our primary sources of cash include rent payments, receipts from residents, 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, operating expenses for SHOP 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 year ended December 31, 2022 decreased $25.5 million from the year ended December 31, 2021. Cash provided by operating activities was negatively impacted by the disposition of 44 properties since January 1, 2021 and benefited from the reduction in pandemic related rent concessions granted of approximately $17.1 million. In addition, cash provided by operations included the effects of new investments, the creation of the SHOP ventures in 2022, collections from escalators on existing leasing arrangements and interest payments on new real estate and note investments completed during 2022 and 2021.

Investing Activities – Net cash provided by investing activities for the year ended December 31, 2022 was comprised primarily of the proceeds from the sales of real estate of approximately $169.0 million and the collection of principal on mortgage and other notes receivable of $119.2 million, offset by $90.8 million of investments in mortgage and other notes and renovations and acquisitions of real estate.

Financing Activities – Net cash used in financing activities for the year ended December 31, 2022 differs from the same period in 2021 primarily as a result of an approximately $167.2 million decrease in net borrowings, inclusive of the $400.0 million senior note offering in 2021 discussed below, an approximately $47.9 million decrease in proceeds from issuance of common stock, an approximately $21.1 million decrease in dividend payments, and approximately $152.0 million used to repurchase common stock in 2022.

Debt Obligations

As of December 31, 2022, we had outstanding debt of $1.1 billion. Reference Note 8 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 - On March 31, 2022, we entered into a new unsecured revolving credit agreement (the “2022 Credit Agreement”) providing us with a $700.0 million unsecured revolving credit facility, replacing our previous $550.0 million unsecured revolver. The 2022 Credit Agreement matures in March 2026, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional six-month periods. Borrowings under the 2022 Credit Agreement bear interest, at our election, at either (i) Term Secured Overnight Financing Rate (“SOFR”) (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40%, (ii) Daily SOFR (plus a credit spread adjustment) plus a margin ranging from 0.725% to 1.40% or (iii) the “base rate” plus a margin ranging from 0.00% to 0.40%. In each election, the actual margin is determined according to our credit ratings. The base rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the

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Agent’s prime rate, (ii) the federal funds rate on such day plus 0.50% or (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.0%. We incurred $4.5 million of deferred financing costs in connection with the 2022 Credit Agreement.

Concurrently with the execution of the 2022 Credit Agreement, we amended our $300.0 million term loan, maturing in September 2023 (“2023 Term Loan”). The amendment modifies the existing covenants to align with provisions in the 2022 Credit Agreement and to accrue interest on borrowings based on SOFR (plus a credit spread adjustment) that were previously based on LIBOR, with no change to the existing applicable interest rate margins. We may also elect for the 2023 Term Loan to accrue interest at a base rate plus the applicable margin. As of December 31, 2022, we had repaid $60.0 million of the 2023 Term Loan.

In March 2022, we repaid a $75.0 million term loan with a maturity in August 2022 with proceeds from the revolving credit facility. The term loan bore interest at a rate of 30-day LIBOR plus 135 basis points (“bps”), based on our current ratings. Upon repayment, we expensed approximately $0.2 million of unamortized loan costs associated with this loan which is included in “Loss on early retirement of debt” in our Consolidated Statement of Income for the year ended December 31, 2022.

As of December 31, 2022, the revolver and term loan bore interest at a rate of one-month Term SOFR (plus a 10 bps spread adjustment) plus 105 bps and 125 bps, based on our debt ratings, or 5.51% and 5.71%, respectively. The facility fee for the revolver was 25 bps per annum.

In January 2023, we repaid a $125.0 million of private placement notes that were issued in January 2015 primarily with proceeds from the revolving credit facility. At January 31, 2023, $202.0 million was outstanding under the revolving credit facility.

The current SOFR spreads and facility fee for our revolving credit facility and 2023 Term Loan reflect our ratings compliance based on the applicable margin for SOFR loans at a debt rating of BBB-/Baa3 in the Interest Rate Schedule provided below in summary format:

Interest Rate Schedule

SOFR Spread

Beyond the applicable ratios detailed above, if our credit rating from at least two credit rating agencies is downgraded below “BBB-/Baa3” the debt under our credit agreements will be subject to defined increases in interest rates and fees.

The 2022 Credit 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 as of December 31, 2022, were within required limits for each reporting period in 2022 and 2021. The calculation of our leverage ratio involves intermediate determinations of our “Consolidated Total Indebtedness” and of our “Total Asset Value,” as defined in the 2022 Credit Agreement.

Senior Notes Offering - In January 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 (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 and were used to repay a $100.0 million term loan and reduce borrowings outstanding under our revolving credit facility.

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

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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 8 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 13, 2022 which affirmed the rating and revised the outlook to “Stable” 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 reaffirmed its rating most recently on December 9, 2021, and S&P Global reaffirmed its rating on November 14, 2022. Our unsecured private placement note 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.

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.

We calculate our fixed charge coverage ratio as approximately 5.9x for the year ended December 31, 2022 (see our discussion 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 4.7x for the year ended December 31, 2022 ($ in thousands):

Less: cash and cash equivalents (19,291)

Annualized impact of recent investments, disposals and payoffs (9,496)

Consolidated Net Debt to Adjusted EBITDA 4.7x

Supplemental Guarantor Financial Information

The Company’s $940.0 million bank credit facility, unsecured private placement notes 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.

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):

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As of

Real estate properties, net $ 1,790,525

Note receivable due from non-guarantor subsidiary 81,396

Redeemable noncontrolling interest $ 9,825

Noncontrolling interest $ 1,067

Year Ended

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

Gain from equity method investee 569

Gains on sales of real estate 28,342

Loss on early retirement of debt (151)

Other income —

Net income attributable to NHI and the subsidiary guarantors $ 55,189

Equity

At December 31, 2022, we had 43,388,742 shares of common stock outstanding with a market value of $2.3 billion. Equity on our Consolidated Balance Sheet totaled $1.3 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 (“GAAP”). 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. 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 do not expect to utilize borrowings to satisfy the payment of dividends and project that cash flows from operations will be adequate to fund dividends at the current rate.

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, 2022 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:

Share Repurchase Plan - On April 15, 2022, the Company’s Board of Directors approved a stock repurchase plan for up to $240.0 million of the Company’s common stock (the “2022 Repurchase Plan”). During the year ended December 31, 2022, we repurchased through open market transactions 2,468,354 shares of common stock for an average price of $61.56 per share,

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excluding commissions. All shares received were constructively retired upon receipt, and the excess of the purchase price over the par value per share was recorded to “Cumulative dividends in excess of net income” in the Consolidated Balance Sheet.

On February 17, 2023, our Board of Directors terminated the current stock repurchase program and authorized a revised repurchase program (the “Revised Repurchase Plan”) pursuant to which we may purchase up to $160.0 million in shares of our issued and outstanding common stock, par value $0.01 per share. The Revised Repurchase Plan is effective for a period of one year and does not require us to repurchase any specific number of shares. The Revised Repurchase Plan may be suspended or discontinued at any time. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with the terms of Rule 10b-18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and shall be made in accordance with all applicable laws and regulations in effect. The timing and number of shares repurchased, if any, will depend on a variety of factors, including price, general market and economic conditions, alternative investment opportunities and other corporate considerations.

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 in March 2023. We expect to file a new shelf registration statement in the first quarter of 2023.

At-the-Market (ATM) Equity Program - We maintain an ATM program which allows us to sell our common stock directly into the market and have entered into an 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. No shares were issued under the ATM program during 2022. During the year ended December 31, 2021, we issued 661,951 common shares through the ATM program with an average price of $73.62, resulting in net proceeds after transaction costs of approximately $47.9 million.

Our use of ATM proceeds rebalanced our leverage in response to our acquisitions and keeps our options flexible for further expansion. We typically use 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 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.

Material Cash Requirements

We had approximately $26.4 million in cash and cash equivalents on hand and $498.0 million in availability under our unsecured revolving credit facility as of January 31, 2023.Our expected material cash requirements for the twelve months ended December 31, 2023 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 the Unsecured Bank Credit Facility discussion 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, 2022 related to our material cash requirements ($ in thousands):

Total Twelve Months Ended December 31, 2023 Thereafter

Our debt maturities in 2023 are comprised primarily of private placement notes of $125.0 million paid in January 2023, $50.0 million maturing in November 2023 and the 2023 Term Loan maturing in September 2023.

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.

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Loan and Development Commitments and Contingencies

The following tables summarize information as of December 31, 2022 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:

Bickford Senior Living SHO Construction $ 28,900 $ (28,853) $ 47

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

1Of the total, $26,574 is expected to be payable within 12 months with the remaining commitment due between three to five years.

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 $0.7 million as of December 31, 2022 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) —

1 Expected to be payable within 12 months..

In addition to the commitments listed above, we have agreed to pay up to $0.8 million in additional cash consideration pending the results of an ongoing property tax appeal related to a property acquired in the second quarter of 2022. As of December 31, 2022, no amount of this consideration is expected to be paid. One of our consolidated real estate partnerships, Discovery PropCo, has committed to fund 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, 2022.

Asset Class Total Funded Remaining

Contingencies (Lease Inducements):

Discovery Senior Living SHO 4,000 — 4,000

In February 2023, Timber Ridge OpCo formally requested payout of its $10.0 million lease inducement based upon the achievement of all performance conditions. The Company is confirming that all performance conditions were met and expects to fund the lease inducement payout in the first quarter of 2023.

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We adjust rental income for the amortization of lease inducements paid to our tenants. Amortization of lease inducement payments against revenues was $7.6 million for the year ended December 31, 2022, which includes the write-off of $7.1 million of lease incentives related to Bickford in the second quarter of 2022 as discussed in more detail in Note 3 to the consolidated financial statements. Amortization of lease inducement payments against revenues was $1.0 million for both the years ended December 31, 2021 and 2020.

Capital funding commitments

Capital expenditures related to our Real Estate Investments segment are primarily for the acquisition of new investments. The leases for our properties in the Real Estate Investments segment generally require the tenant to pay for all repairs and maintenance expenses and a minimum amount of capital expenditures each year. The tenants are also required to maintain insurance coverage at least equal to the replacement cost of a property. Therefore, we do not expect material expenditures in 2023 related to existing properties in the Real Estate Investments segment.

The capital funding commitments in our SHOP segment are principally for improvements to our facilities. We expect our SHOP ventures to incur approximately $7.6 million in capital expenditures during 2023 that we anticipate will be funded partially from the net operating income generated from the ventures and additional capital contributions from the partners. We expect to fund our commitments to the ventures for capital expenditures with our operating cash flow and other existing liquidity sources.

Natural Disasters

During the year ended December 31, 2022, our properties incurred minimal to no damage relating to natural disaster events. We or our tenants may incur unplanned costs for minor repairs and restoring operations, as well as costs to evacuate employees and residents. Our lease agreements require our tenants to maintain sufficient property and business interruption insurance, subject to certain deductibles.

Litigation

For a description of our currently outstanding litigation, see “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.

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 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.

Funds From Operations - FFO

Our FFO per diluted common share for the year ended December 31, 2022 decreased $1.07 or 23.2% over the same period in 2021 due primarily to the write-offs of straight-line rents receivable and unamortized lease incentives totaling approximately $36.4 million, increased credit loss reserve of $9.4 million, increased legal fees of $1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio and property dispositions completed since December 2021, partially offset by the recognition of the Holiday lease deposit of $8.8 million and escrow of $6.9 million in rental income, and reduced interest expense. 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.

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Our Normalized FFO per diluted common share for the year ended December 31, 2022 decreased $0.30 or 6.5% over the same period in 2021. 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.

Funds Available for Distribution - FAD

Our Normalized FAD for the year ended December 31, 2022 decreased $8.4 million or 4.0% over the same period in 2021 due primarily to increased legal fees of $1.7 million for the Welltower litigation and transition activities for the legacy Holiday portfolio and property dispositions completed since December 2021, partially offset by the recognition of the Holiday lease deposit of $8.8 million and escrow of $6.9 million in rental income and reduced interest expense. 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, and non-cash share based compensation. 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 performance measure for a REIT and a useful measure of liquidity as an indicator of the ability to distribute dividends to stockholders. 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.

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 for FFO and Normalized FFO ($ 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:

Real estate depreciation related to noncontrolling interests (1,393) (839) (777)

Loss on operations transfer, net 710 — —

Portfolio transition costs, net of noncontrolling interests 426 — —

Gain on note receivable payoff (1,113) — —

Non-cash rental income (3,000) — —

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 124 91 111

Straight-line lease expense related to equity method investment (16) 46 113

Non-real estate depreciation 146 — —

Non-real estate depreciation related to noncontrolling interest (16) — —

Amortization of original issue discount 322 295 303

Amortization related to equity method investment (847) 1,109 1,261

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

Equity method investment non-refundable fees received 1,206 622 660

Equity method investment distributions (569) — —

Senior housing portfolio recurring capital expenditures (390) — —

BASIC

NAREIT FFO attributable to common stockholders per share $ 3.55 $ 4.62 $ 5.51

DILUTED

NAREIT FFO attributable to common stockholders per share $ 3.55 $ 4.62 $ 5.51

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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 2,976 2,848 1,495

Loss on operations transfer, net 710 — —

Litigation settlement — (616) —

Gain on note receivable payoff (1,113) — —

Non-cash rental income (3,000) — —

Lease termination fee — (2,464) —

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

Interest rate swap payments, net — 7,306 6,352

Fixed Charge Coverage 5.9x 5.5x 6.0x

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

Net Operating Income

NOI is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate. We define NOI as total revenues, less tenant reimbursements and property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

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

Years Ended

December 31,

(Gains) losses from equity method investment (569) 1,545

Interest income and other — (350)

Loss on early retirement of debt 151 1,912

Gain on note receivable payoff (1,113) —

Loss on operations transfer, net 710 —

Gains on sales of real estate, net (28,342) (32,498)

Franchise, excise and other taxes 844 788

NOI by segment:

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

Interest Rate Risk

At December 31, 2022, we were exposed to market risks related to fluctuations in interest rates on approximately $282.0 million of variable-rate indebtedness and on our mortgage and other notes receivable. The unused portion ($658.0 million at December 31, 2022) 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, 2022, net interest expense would increase or decrease annually by approximately $1.4 million or $0.03 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, if any, 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. We had no derivative financial instruments outstanding during 2022.

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

Balance1 % of total Rate2 Balance1 % of total Rate2

Fixed rate:

Variable rate:

Revolving credit facility - unsecured 42,000 3.6 % 5.51 % — — % — %

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

2 Total is weighted average rate

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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, 2022 ($ in thousands):

Balance Fair Value1 FV reflecting change in interest rates

Fixed rate: -50 bps +50 bps

At December 31, 2022, the fair value of our mortgage and other notes receivable, discounted for estimated changes in the risk-free rate, was approximately $227.6 million. A 50 basis-point increase in market rates would decrease the estimated fair value of our mortgage and other loans by approximately $3.5 million, while a 50 basis-point decrease in such rates would increase their estimated fair value by approximately $2.7 million.

Equity Price Risk

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

Inflation Risk

Our real estate leases generally provide for annual increases in contractual rent due based on a fixed amount or percentage or based on increases in the CPI. Leases with increases based on CPI may contain a minimum or a cap on the maximum annual increase. Substantially all of our leases require the tenant to pay all operating expenses for the property, whether paid directly by the tenant or reimbursed to us. We believe that inflationary increases will be at least partially offset by the contractual rent increases and expense reimbursements described above.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 21, 2023 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 Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters or on the accounts or disclosures to which they relate.

Asset Impairment - Real Estate Properties

The Company had total real estate properties, net of approximately $2.1 billion as of December 31, 2022. 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 when events or circumstances, including significant physical changes, significant adverse changes in general economic conditions, and significant deterioration of the underlying cash flows of a property 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. The Company recognized approximately $51.6 million in impairments for the year ended December 31, 2022.

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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. Identification of a potential impairment of real estate properties including due to significant physical changes in the property, significant adverse changes in general economic conditions, or significant deterioration of the underlying cash flows of the property requires a high degree of judgment. Auditing these judgments was especially challenging and complex 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 property specific factors for certain properties that included changes to the physical condition of the property, changes in general economic conditions, going concern uncertainties identified by certain tenants, and deterioration of the underlying cash flows of the property, including due to declines in occupancy, which are used by management to identify and assess whether an impairment indicator existed.

•Reviewing internal documentation relevant to the analysis for certain properties including Board of Director minutes, letters of intent, and operations department communications, as applicable on a property-by-property basis, including for certain properties with lower lease coverage ratios, to assess whether additional indicators of impairment were present.

Variable Interest Entity Accounting – SHOP Ventures

As described in Note 2 to the Company’s consolidated financial statements, management consolidates a variable interest entity (“VIE”) for which control of the entity is achieved through means other than voting rights and the Company is the primary beneficiary of the VIE. During 2022, the Company formed the Merrill Gardens and Discovery joint ventures (collectively referred to as the “SHOP ventures”). The Company, as the primary beneficiary of these VIEs, consolidated the SHOP ventures. The Discovery member’s agreement was also amended in the fourth quarter of 2022.

We identified the accounting for the consolidation of the SHOP ventures, including the reconsideration caused by the amendment to the Discovery member’s agreement, as a critical audit matter. Determination of whether the SHOP ventures meet the definition of a VIE and whether the Company is the primary beneficiary required significant judgment by management to determine which activities significantly impact the design and purpose of each entity, whether equity members, as a group, lack the characteristics of a controlling financial interest, and which equity holder has the power to direct the activities that most significantly impact economic performance of each entity. In turn, increased auditor effort, including the involvement of professionals with specialized knowledge in consolidation accounting assessments, was required to evaluate management’s judgments.

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

•Analyzing the agreements and other relevant documents to determine the design, purpose and significant activities of the SHOP ventures and the nature of the rights conveyed to the Company through its equity investments in these entities.

•Utilizing professionals with specialized knowledge and experience in consolidation accounting assessments to assist in evaluating the significant judgments impacting management’s conclusion as to whether the Company should consolidate the SHOP ventures.

/s/ BDO USA, LLP

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

Nashville, Tennessee

February 21, 2023

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NATIONAL HEALTH INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

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

December 31,

Real estate properties:

Liabilities and Equity:

Accounts payable and accrued expenses 25,905 23,181

Lease deposit liabilities — 8,838

Commitments and Contingencies

Redeemable noncontrolling interest 9,825 —

National Health Investors, Inc. Stockholders' Equity:

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

Cumulative dividends in excess of net income (329,636) (84,558)

Total National Health Investors, Inc. Stockholders' Equity 1,270,225 1,507,083

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:

Resident fees and services 35,796 — —

Expenses:

Senior housing operating expenses 28,193 — —

Loss on operations transfer, net (710) — —

Gain on note receivable payoff 1,113 — —

Gains (losses) from equity method investment 569 (1,545) (3,126)

Other income — 350 —

Less: net loss (income) attributable to noncontrolling interests 902 (163) (185)

Weighted average common shares outstanding:

Earnings per common share:

Net income attributable to common stockholders - basic $ 1.48 $ 2.45 $ 4.14

Net income attributable to common stockholders - diluted $ 1.48 $ 2.44 $ 4.14

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)

Reclassification adjustment for amounts recognized in net income — 7,286 6,330

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

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 (872) (729) (867)

Non-cash rental income (3,000) — —

Non-cash lease deposit liability recognized as rental income (8,838) — —

Gain on note receivable payoff (1,113) — —

Loss on operations transfer, net 710 — —

(Gains) losses from equity method investment (569) 1,545 3,126

Changes in operating assets and liabilities:

Cash flows from investing activities:

Investment in mortgage and other notes receivable (79,801) (72,236) (58,356)

Investments in renovations of existing real estate (4,629) (3,465) (13,854)

Investments in equipment — (64) (158)

Investment in equity method investment — — (875)

Distributions from equity method investment 569 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 (916) (910) (748)

Proceeds from noncontrolling interests 11,738 — 13

Taxes remitted on employee stock awards (288) — (2,705)

Equity issuance costs (66) — —

Convertible bond redemption — (66,076) —

Payments to repurchase shares of common stock (151,951) — —

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

Change in other assets related to sales of real estate $ 102 $ (33) $ —

Operating equipment received in lease termination $ 1,287 $ — $ —

Increase in accounts payable related to transfer of operations $ 300 $ — $ —

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 — — — — — — 10,791 10,791

Distributions declared to noncontrolling interests — — — — — — (886) (886)

Taxes remitted on employee stock awards — — (2,705) — — (2,705) — (2,705)

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

Distributions declared to noncontrolling interests — — — — — — (974) (974)

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

Reclassification of redeemable noncontrolling interest — — — — — — 1,030 1,030

Equity issuance cost — — (80) — — (80) — (80)

Taxes remitted on employee stock awards — — (288) — — (288) — (288)

Shares issued on stock options exercised 6,497 — — — — — — —

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, 2022

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 and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical facility investments. We operate through two reportable segments: Real Estate Investments and Senior Housing Operating Portfolio (“SHOP”). Our Real Estate Investments segment consists of real estate investments and lease, mortgage and other notes receivables in independent living facilities (“ILF”), assisted living facilities (“ALF”), entrance-fee communities (“EFC”), senior living campuses (“SLC”), skilled nursing facilities (“SNF”) and a hospital (“HOSP”). As of December 31, 2022, we had investments of approximately $2.4 billion in 160 health-care real estate properties located in 32 states and leased pursuant primarily to triple-net leases to 24 tenants consisting of 94 senior housing communities (“SHO”), 65 SNFs and one hospital, excluding 13 properties classified as assets held for sale. Our portfolio of 17 mortgages along with other notes receivable totaled $248.5 million, excluding an allowance for expected credit losses of $15.3 million, as of December 31, 2022. Units and beds disclosures in these consolidated financial statements are unaudited.

Our SHOP segment is comprised of two ventures that own the operations of ILFs. As of December 31, 2022, we had investments of approximately $338.1 million in 15 properties with a combined 1,732 units located in eight states that are operated on behalf of the Company by two independent managers pursuant to the terms of separate management agreements that commenced April 1, 2022. The third-party managers, or related parties of the managers, own equity interests in the respective ventures.

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, joint ventures 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 evaluate our arrangements with VIEs 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.

Effective April 1, 2022 and at December 31, 2022, our consolidated total assets and liabilities include two consolidated ventures comprising our SHOP activities formed with two separate partners - Merrill Gardens, L.L.C. (“Merrill”) and DSHI NHI Holiday LLC (the “Discovery member”), a related party of Discovery Senior Living. We consider both ventures to be VIEs as the members of each, as a group, lack the characteristics of a controlling financial interest. We are deemed to be the primary beneficiary because we have the ability to control the activities that most significantly impact each VIE’s economic

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performance. The assets of the ventures primarily consist of real estate properties, cash and cash equivalents, and resident fees and services (accounts receivable). Their obligations primarily consist of operating expenses of the ILFs (accounts payable and accrued expenses) and capital expenditures for the properties. Assets of the consolidated SHOP ventures that can be used only to settle obligations of each respective SHOP venture primarily include approximately $260.6 million of real estate properties, net, $6.9 million of cash and cash equivalents and $1.3 million of accounts receivable, net. Liabilities of the consolidated SHOP ventures for which creditors do not have recourse to the general credit of the Company are not material. Reference Notes 5 and 10 for further discussion of these new ventures.

We also consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, a related party of Discovery Senior Living, and LCS Timber Ridge LLC, to invest in senior housing facilities. We consider both partnerships to be VIEs as either the members, as a group, lack the characteristics of a controlling financial interest or the total equity at risk is insufficient to finance activities without additional subordinated financial support. NHI directs the activities that most significantly impact economic performance of these ventures, subject to limited protective rights extended to our partners for specified business decisions. Because of our control of these partnerships, we include their assets, liabilities, noncontrolling interests and operations in our consolidated financial statements.

At December 31, 2022, we held interests in nine 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 rent receivables, excluding our investment accounted for under the equity method.

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).

2020 Timber Ridge OpCo, LLC Various1 $ (5,000) $ — Note 6

1Loan commitment, equity method investment and straight-line rent receivables

2 Notes, loan commitments, straight-line rent receivables, and unamortized lease incentives

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 non-payment of 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 or borrowers 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 or borrowers into 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. Reference Note 6 for further discussion of our equity method investment.

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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

Contingently redeemable noncontrolling interests are recorded at their initial carrying amounts upon issuance and are subsequently adjusted to reflect their share of gains or losses and distributions attributable to the noncontrolling interests. In periods where they are or will become probable of redemption, an adjustment to the redemption value of the noncontrolling interests is also recognized through “Capital in excess of par value” on the Company’s Consolidated Balance Sheets and included in our computation of earnings per share. As of December 31, 2022, the Merrill SHOP venture noncontrolling interest was classified as mezzanine equity, as discussed further in Note 10.

We consolidate the 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 associated with these two consolidated real estate partnerships, along with our Discovery member SHOP venture were classified as equity as of December 31, 2022.

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. Significant assumptions and estimates include purchase price allocations to record investments in real estate, impairment of real estate, and allowance for credit losses. Actual results could differ from those estimates.

Earnings Per Share - The weighted average number of common shares outstanding during the reporting period is used to calculate basic earnings per common share. Diluted earnings per common share assume the exercise of stock options using the treasury stock method, to the extent dilutive. Diluted earnings per share also incorporates the potential dilutive impact of our convertible debt that was repaid in 2021. We apply the treasury stock method to 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.

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Real Property Owned - 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, including any equipment related to the SHOP segment, over their estimated useful lives ranging from 5 to 25 years. For contingent consideration arising from business combinations, the liability is adjusted to estimated fair value at each reporting date through earnings.

Expenditures for repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets - We evaluate the recoverability of the carrying amount of our long-lived assets when events or circumstances, including significant physical changes, significant adverse changes in general economic conditions and significant deterioration of the underlying cash flows of the long-lived assets, indicate that the carrying amount of the long-lived asset may not be recoverable. The need to recognize an impairment charge is based on estimated undiscounted future cash flows compared to the carrying amount. 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 long-lived asset.

During the years ended December 31, 2022 and 2021, we recognized impairment charges of approximately $51.6 million and $51.8 million, respectively, included in “Loan and realty losses” in our Consolidated Statements of Income. Reference Note 3 for more discussion.

Leases - Leases entered into or modified since 2019 are accounted for under the guidance of ASC Topic 842, Leases. All of our leases are classified as operating leases and generally have an initial leasehold term of 10 to 15 years followed by one or more five-year tenant renewal options. The leases are “triple-net leases” under which the tenant is responsible for the payment of all taxes, utilities, insurance premiums, repairs and other charges relating to the operation of the properties, including required levels of capital expenditures each year. The tenant is obligated at its expense to keep all improvements, fixtures and other components of the properties covered by “all risk” insurance in an amount equal to at least the full replacement cost thereof, and to maintain specified minimal personal injury and property damage insurance. The leases also require the tenant to indemnify and hold us harmless from all claims resulting from the use, occupancy and related activities of each property by the tenant, and to indemnify us against all costs related to any release, discovery, clean-up and removal of hazardous substances or materials, or other environmental responsibility with respect to each facility. While we do not incorporate residual value guarantees, the lease provisions and considerations discussed above 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 ASC 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 Topic 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification, can elect whether to apply the modification guidance if it does not substantially increase either its rights as lessor or the obligations of the tenant. An entity should apply the election consistently to leases with similar characteristics and circumstances. As of December 31, 2022, the Company provided $44.3 million in lease concessions as a result of COVID-19, as discussed in more detail in Note 9. NHI elected not to apply the modification guidance under ASC Topic 842 and 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 (“ASU”) 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, revolving lines of credit and loans designated as non-performing are evaluated at the

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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, revolving lines of credit and loans designated as non-performing 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 of ASU 2016-13, 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 reserve” in the Consolidated Balance Sheets and recorded a corresponding cumulative-effect adjustment to “Cumulative dividends in excess of net income” in the Consolidated Balance Sheets. We also recorded a $0.3 million reserve for estimated credit losses pertaining to unfunded loan commitments as an adjustment to “Cumulative dividends in excess of net income”. The corresponding credit loss liability is included in the financial statement line item “Accounts payable and accrued expenses” in the Consolidated Balance Sheets.

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

The following table sets forth our “Cash and cash equivalents and restricted cash” reported within the Company’s Consolidated Statements of Cash Flows ($ in thousands):

As of December 31,

Restricted cash (included in Other assets, net) 2,225 2,073

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.

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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.