Greetings and welcome to the National Health Investors’ Fourth Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. And now I’d like to turn the conference over to Dana Hambly. Please go ahead.

Thank you and welcome to the National Health Investors Conference Call to review the Company’s results for the Fourth Quarter of 2021. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Executive Vice President and Chief Financial Officer; and David Travis, Chief Accounting Officer. The results, as well as notice of the accessibility of this conference call on a listen-only basis, were released after the market closed today in a press release that’s been covered by the financial media. As a reminder, any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI’s judgment as of date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI’s Form 10-K for the year ended December 31, 2021. Copies of these filings are available on the SEC’s website at sec.gov, or on NHI’s website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI’s earnings release and related tables and schedules, which have been filed on Form 8-K with the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I’ll now turn the call over to our CEO, Eric Mendelsohn.

Hello, and thanks for joining us today. It has been less than a year since we announced to the market that we were ready to make more lasting decisions to fundamentally transform NHI into a stronger healthcare REIT by pruning underperforming assets, transitioning properties to new tenants, restructuring leases, with partners with whom we can grow and venturing into new revenue streams including shop structures. To that end we have completed the sale of 23 properties through January for net proceeds of approximately $244 million, which includes 19 underperforming senior housing properties for $195 million. The NOI cap rate on the senior housing dispositions was 2.4% with EBITDARM coverage of 0.51 times. In our November call, we identified an additional 21 senior housing properties for disposition. From that group, we completed the sale of three properties, transitioned three properties to new operators and decided to retain three properties under triple net leases. We expect that the repositioning of the remaining 12 will be completed in the first and second quarters. Since November, the board has approved the sale of four additional underperforming properties. We expect that these dispositions will close later this year. In total, we currently target 16 housing property dispositions with estimated net proceeds of $125 million, representing an approximate 9% cap rate on contractual rent, but a very low single-digit NOI cap rate. Shifting our focus to our Bickford relationship. We are disappointed that the pace of restructuring has slowed since we last reported results. This has been driven primarily by headwinds caused by Omicron that have weighed on Bickford’s enterprise cash flow and impaired progress. We’re evaluating scenarios in which more short-term financial assistance may be needed. That said, we are confident that our restructuring efforts with Bickford will create a more focused portfolio that significantly…

Thank you, Eric and Good day everyone. Beginning with our net income per diluted common share for the fourth quarter ended December 31, 2021, we achieve $0.14 compared to $0.83 for the same period in 2020. For the full year, our net income per diluted common share was $2.44 compared to $4.14 in 2020. The year-over-year 12-month decline in net income per diluted common share was due primarily to $51.8 million impairment charges, $28 million in rent concessions, $1.4 million five months of holiday rental non-payments and $5.4 million increase in non-cash stock based compensation expense. These amounts were partially offset by $11.2 million of gains from the sale of real estate during the year. For FFO metrics per diluted common share for the quarter ended December 31, 2021 compared to the prior year, the FFO decreased $0.21 to $1.07 from $1.28 and normalize FFO decreased $0.31 to $1.06 per share from $1.37. For the quarter ended December 31, 2021, our normalize FAD declined by $13.1 million year-over-year and by $5.3 million sequentially to $45.9 million. The year-over-year in sequential quarterly decline in FAD was similarly driven by lower holiday rent, additional rent concessions and dispositions. Reconciliations for our pro-forma performance metrics can be found in our earnings release and 10-K filed yesterday sec.gov. As Eric mentioned, we’re not providing guidance today. We’re disappointed with this result. But the largest reason for today’s decision continues to be the unknowns around the Welltower litigation and holiday portfolio NOI commencement date. We do have a hearing this Friday, and we do believe that after the hearing, we’ll have more clarity around these unknowns. It is our intention to provide guidance as soon as we’re able. As detailed in our supplement, at the end of January we have unfunded commitments totaling approximately $109…

Thank you, John. As Eric noted, we see better days ahead, but we’re not out of the woods just yet and expect that our first quarter rent concessions will be comparable to the fourth quarter. We’re fortunate to be in a strong financial position that helps us withstand these headwinds. But we’re more interested in and encouraged by the growth prospects we see coming out of our optimization. In discussing NHI’s portfolio, I’ll start with our entrance fee communities in SLC. The 13 CCRCs in our portfolio, which account for 30% of our annualized cash revenue net of deferrals have consistently outperformed our lease driven in freestanding independent living communities since the start of the pandemic. EBITDARM coverage for non-SLC properties was very comparable at 1.75 times improved from 1.66 times in the prior year period. Senior living communities is our largest operator at approximately 20% of annualized cash revenue. The SLC team deserves special recognition as they admirably kept the disruption of the pandemic to a minimum and are well-positioned for continued growth. SLCs average fourth quarter occupancy of 81.7% was up 130 basis points from the third quarter. Occupancy remained flat in December and January at 81.7%, which are great results and are also above pre-pandemic levels. Our needs driven senior housing portfolio of 101 properties has experienced the most disruption from the pandemic. This group which accounts for approximately 29% of our annualized cash revenue net of deferrals generally experienced occupancy gains throughout the fourth quarter. That said, occupancy growth slowed towards the end of the quarter and into the first month of this year, which we attribute to normal seasonality, as well as more recent surge in new COVID cases. Fortunately, our operators have not reported any significant impact to resident health and safety as a…

Thank you, Kevin. When we last reported in November and presented a detailed framework for the most significant aspects of our portfolio optimization plan, we did not specifically anticipate a lawsuit against the legacy holiday tenant or the impact of Omicron. We did however, understand that unforeseen events have been the norm since the pandemic started and I’m proud of the way our team has responded under the circumstances. Our cautious tone sometimes is mistaken for lack of enthusiasm. That couldn’t be farther from the truth. And we wouldn’t have pursued such an aggressive restructuring if we didn’t believe that the result would create a jewel box portfolio with the best operators positioned to participate in the long term growth of senior housing and skilled nursing. Our portfolio optimization efforts will be largely completed in the next couple of quarters and we believe that the most difficult quarters will soon be behind us. We know that the recovery will take time and require that NHI continue to provide more support for operators. But we expect that progress will be steady and we’re excited by both our internal and external opportunities as we pivot back to growth in 2022. Operator we will now open the line for questions.

Thank you so much sir. First question comes from the line of Jordan Sadler, KeyBanc Capital Markets. Please go ahead.

Thanks, guys. I wanted to just touch base on the guidance here, so lack thereof. I know, as you mentioned, the holiday portfolio is a significant uncertainty going forward and on a revenue basis. So it’s difficult to predict but I don’t believe there was really any contribution in the fourth quarter related to holiday. So would you say that the fourth quarter would be a good jumping off point or run rate holiday notwithstanding?

Jordan, this is John. You can start there. I think you heard Kevin talk a little bit about expectations for deferrals in the first quarter. Keep in mind that all of our swaps matured. So we’re going to have some benefit on the interest expense side. You don’t know a lot about what’s going on in terms of other expense items which are up like legal. So you have to think about that. And we are continuing to kind of dispose of a few properties, which will have both impact on debt, flooring debt, and then also loss to NOI. But because of this situation with our holiday assets, we’re in the middle of taking control of things. And control is a very, sort of esoteric gap discussion and we could end up with some interesting results, and we just don’t have a definitive resolution on that just yet. And what I mean to say, when I say that is we could come to the conclusion that we have control, while the assets are still in the hands of Atria. So it’s really difficult for us to give you a really good guidance right now that doesn’t have to some massive amount of swing in it.

Got it. What are the implications of you guys having control John?

Well, it’s a consolidation question. And then, of course, then we have to have the information to pull into our financial statements. And then at the end of the day, the NOI who does it belong to? And does it belong to the non-controlling party, in this case, Welltower or does it belong to us? So we got some big questions there. And we got some big questions about that date and what moves forward from that date. And, of course, then we have really an unknown regarding the outcome of this Friday’s hearing. So, as I said, in my prepared remarks, we expect to have a lot of clarity after that hearing that we’ll be able to come back and provide to you.

And in the NOI, I think Kevin alluded to it. Did he say was in the low to mid-teens millions, right now on a run rate basis with 60 million of upside?

Hi, Jordan, yes, that’s correct. This is Kevin.

And then one other for you, John. well, I have yet. There was an additional lease amendment that was announced, I think, on January 10. And that amendment was, I think, effective in November and was basically $5 million of deferral and abatement and then 4 dropped, stepping down to $4 million starting next November. So upcoming November. Can you give us any additional color number one on that tenant meaning how big was that reduction as a percentage? And what type of tenant was that? And then, are there any other additional lease amendments contemplated?

So Jordan, this is Kevin. That would be for senior housing. So that was the nature of the underlying product type that we’re dealing with. As you can see in our disclosures where we are seeing coverage is. So we’re trying to try to get people back to a level where they’re at, we’re approaching a one times coverage and that was the justification for it, we do have some dispositions that we’re working on, which will help in specific case, help that customer get back to the one times are better approaching it. So I think you can probably go on an estimate or maybe do some math in there and estimate the order of magnitude there, but the goal then is to try and get them back to a place where like Bickford approaching 10 cover and then as cash flow improves, again, they can start to pay back any deferral balances that we have with them. So it was a similar process that we went through there.

I mean, I don’t know what I would apply the math to only have the $5 million reduction on that I have the starting and ending coverages?

We’re just using them. We haven’t announced outside of our top three customers individual coverages. But you could look at, what I was saying is you could look at the portfolio coverage on our non-big for customers are and use that as kind of a proxy.

Got you. Okay. Thanks, guys.

Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Thanks. Good afternoon. I know you didn’t provide guidance for the year. But where do you think investment activity will be this year versus the $121 million that you sourced last year?

So what we’re looking at from a new business perspective, we talked about, we have over $100 million in commitments that we expect to fulfill. And then last year, we had, even in kind of what I’d call, a very tough year still did $100 million of investment. While we haven’t set very specific goals around new investment, I’d like to think that’s a lower watermark for us. And something like that is achievable. I feel like we have a good handle on the market right now and are seeing the prospects that are out there, as we talked about, it’s been a better seller’s market and between that and the repositioning of the holiday assets that’s been on the forefront for us. But we do expect to get back to growth. And we think that if you look at that as kind of a lower watermark for us, those are things that we expect to deploy the unfunded commitments and some level of investment in line with that.

I was going to say you get a lot of detail about what those investments look like. And as I said in my prepared remarks, we expect to fund the majority of those during this year. And you can see what the rate is on them and what the amounts are remaining and make some assumptions here.

My second question is on Bickford and I know you’re a partner with your operators through thick and thin. But I’m wondering if it’s been contemplated internally about just kind of moving on from them. It’s created a multiyear drag on coverage, and more recently earnings. And it’s not really clear how strong they’re going to come out of this once they go through the restructuring. I’m just wondering how serious those depressions were internally?

Hi, Jonathan, this is Eric. Good question. Fair question. There’s an old banking phrase that says if you lend somebody a little bit of money, they’re a customer. If you lend them a lot of money, they’re a partner. And I would put Bickford in the partner category. We have certainly tried to make Bickford a more independent organization. They have other capital partners now, they have a portfolio that is funded by bank debt. They have standalone pharmacy operation that we’re not involved with that is very profitable. And certainly we have been selling building some back to them, some to third parties. And we have a purchase option. That is a conduit for new stabilized product that we’re reconsidering to lessen our exposure. So at this point, I would say that we’re in the category of lessening our exposure and limiting future business. We have not looked at selling the entire portfolio. That’s in my opinion, they’re good operators. They may have gotten in over their head in some markets. And we believe that if we help them financial engineer a solution that they can get back to being a good operator and a profitable company.

And some of those transitions that you’ve discussed, how confident are you the new operator will manage them more effectively versus the assets that might have their own individual challenges?

Good question. We’re actually selling the majority of the Bickford buildings that we’re disposing of. There’s really only one or there’s really only one that’s transitioning to a new operator in Pennsylvania. The rest are being sold to third parties. So you’re on the right track there.

Got you. Okay. Thanks a lot.

Our next question comes from the line of Omotayo Okusanya with Credit Suisse. Please go ahead.

Good afternoon, everyone. I wanted to go back to Jordan’s question which Eric, I think you kind of answered 80% of it there. But I think the one thing he was asking about was, it does feel like over the past few quarters, there is always kind of been like this, some new tenants that also requires help. I think we kind of started this process with like, two tenants. And it seems like they’re like five of them that are receiving deferrals. So it’s back to this question of when you guys stress test the portfolio today, again, kind of given some of the low rent coverages to have on the underneath side, like how confident are you that you don’t get yet another tenant that you have to kind of give help to it. It’s one thing to keep giving help to your the current group of tenants that have been identified? But what about again, another new tenant or another new tenant showing up and the list just goes?

Hi, Omotayo this is Eric. That’s a good question. I like to say that there’s always part of our portfolio that needs assistance, I used to say it was 5%. But these days, it seems to be more. And every year, it’s a different 5%. So a couple of things we’re dealing with are different tenants have received different types of government assistance. Different tenants have exhausted their personal resources or deposits, and other tenants are dealing with the labor difficulties in different ways in different markets. So I’m not here to tell you that we’re done offering assistance. I said in our prepared remarks, there still could be some assistance as we work our way out of the effects of the pandemic. But I’ll also say this Omotayo it is hard to find competent operators. And you can see that in the landscape of operators that are disappearing, I would point to eclipse, which closed for business last year, a very large operator with a very large portfolio, all of that had to be transitioned, a lot of operators are feeling stress and pressure. And you never know where it’s going to show up. The other issue, we’re dealing with is character. People under stress do interesting things. And we have to deal with that as well. And then finally, I’ll tell you, senior housing will come back. We’re seeing that in select markets, where buildings are full and running, without any difficulty, their margins are lower. But people are coming back to senior housing, and I believe 2022 is going to be a turning point in our recovery.

Got you. Okay, that’s helpful. And then going back to the comments about holiday and the hearings on Friday, I guess what do you guys kind of see again as a positive outcome from that hearing and what would you consider kind of a negative outcome from that hearing?

Sure, this is Eric, again, a positive outcome would be a ruling in our favor. A negative outcome would be a ruling against us.

Yes, but when you say a ruling in your favor, does that that kind of like the final kind of decision around this thing? Ruling your favor means that Welltower and Atria on the hook for the missing rents and all that you would get like finality to that nature on Friday?

No. The nature of the ruling on Friday is our ability to foreclose on the membership interests of the tenant entity and therefore control the transition of the buildings and that’s the only issue that is at controversy on Friday.

The conversation around control of the building on Friday. That’s helpful. Thank you.

Our next question comes from the line of Rich Anderson with SMBC. Please proceed with your question.

Thanks. Good morning. Where is the money right now, physically, that from the holiday portfolio that’s been collected from residents and so on?

I don’t know that we can answer that definitively. But we’ve got some information that says that exists. And that’s in the form of some financial statements that we’ve been given.

Okay. That’s mysterious. The other question is -

Yes. This all thing has been mysterious to us. You got to realize three days, four days after we gave consent to close this transaction, the other side of the party said, we have a different, we’re going to have in a different direction, not pay anymore. And come back and retrain you. So this whole thing has been sorted that way, right?

Yes, it doesn’t look great. I’ll say that for the record. So, as far as the timing of the lawsuit would it not have been a better process to complete the transitions to Merrill and Discovery and get the process done with and then pursue legal action. Is there a reason why you went in front of that, or maybe you can’t comment, I’m not sure.

Well, it’s not that simple. Rich, you need a lot of cooperation from the other side to transition a building. You need information, and you need someone to pay out, vacation pay on employees. You need to transfer property tax escrow accounts. You can’t just do a one sided transition without the other party’s cooperation. So I can’t really talk about more, but no, that wasn’t possible. And the timing was carefully analyzed and strategic.

I certainly not my field of expertise. So I, I’ll trust you on that one. As far as I think, Kevin, did you say sort of from fourth quarter, the first quarter just to sort of get our bearings about the future of this year? It’s sort of a wash from a concession and deferral and abatement perspective. Is that the expectation for first quarter?

That’s correct. We said that the first quarter would be in line with the fourth quarter in terms of the referral amount.

Okay. That’s all I got. Thanks.

Our next question comes from the line of Daniel Bernstein with Capital One. Please go ahead.

All right. I just want to ask occupancy in January was seasonally strong, I would say and I just want to kind of understand kind of your outlook for occupancy of those top three tenants for 2022. Or maybe you want to talk about on an industry level? And then what kind of rate increases were pushed through in January for those operators and are they on an annual basis? Or are they kind of on a rolling basis for rate increases? Thanks.

Sure. Hi Dan, Kevin. As occupancy as I mentioned, we thought hold, relatively speaking, from December to January, we did see a little bit of degradation about 30 basis points with make for it on a month-over-month basis, saw some with the holiday buildings. We do attribute most of it to seasonality and some of it to Omicron. So I would say that it’s not out of the norm to see a little bit of degradation right now, looking to see our operators build back their lead and tour volume pipelines. Still a little bit low at this point. So where do we go from here? I think that there were we have good selling months coming up in April, May, June generally is pretty good. And so it’s getting a bridge from here to that point to where we can start get some more people moving around, come out of winter, a little more tour and sales volume. And then as we mentioned, just we did see it hold flat at SLC which is good news and above pre-pandemic levels. As it relates to rates, we saw it in the mid single digits to even high single digits. We heard some people passing through double digits. We didn’t really see that with our operating partners as much. But then, I would tell you it’s in that probably 5% to 8% range that did get pass-through with relatively small push back. Some of that was done at point in time. A lot of it is done on anniversary dates of the residents. So it’s going to take a full year to get implemented in some cases and then other people that have been in there for less than a year wouldn’t experience the full rate increase. So again, it’s going to take a full year to get that implemented. I think you’ll see that help on the margin side, if nothing else preserve margin. I’d also tell you, though, that these rate increases really are only helping stem the impact of the overtime agency and general wage increases. So I’m not expecting to see a bunch of expansion, but it should help offset those increased costs. But again, it’s going to take a little bit of time to roll through.

And then, some of your peers have been converted, or maybe are looking to convert some of the struggling assets they have into behavioral assets, as well as reinvest sales proceeds into the behavioral space. So kind of wanted to get your thought on behavioral and are you looking at anything in your pipeline, whether that’s redevelopment or acquisitions for 2022?

Sure, this is Kevin, again, we’ve been very vocal about our interest in behavioral and we continue to explore those avenues. We did a pretty bad deal with vision, a new partner for ours with for NHI last year and looking at opportunities with them and several others as well. So we’ll continue to look at that avenue and expect to have some more deal flow as it relates to behavioral, investigating it. In terms of conversion, we’ve not done a ton around that. We’ve investigated it some but I would say some of our dispositions had been for that where there’s a behavioral customer, where it makes sense for them to convert a building from assisted to or and I think we’ve heard publicly about skilled is the same. So those are avenues we’ve looked at from a disposition standpoint and making sure we’re catching those groups as a part of the marketing process, we would look at it in the right circumstances for if we found a good customer, and there was an overlap of their product offering versus where we have a fit like that and geographical need, haven’t really found that to date. So it’s not off the table. But I do think it’s a specialty is continue to invest in.

And then one last question I have, I guess I’m still a little unclear on the timeline to potentially transition those legacy holiday assets to new operators into the joint ventures. And let’s say you get a positive result here and the hearing on Friday, what would what potentially could be the timeline to transition the assets, one quarter, two quarters, three quarters, just trying to get a better handle on that maybe you can’t answer it. But just trying to understand what you see is what might be a reasonable timeline?

Ideally, this is Eric, ideally, Dan, it would be within 30 days of that hearing. So same quarter.

That’s helpful.

Everything that’s set up, everything’s ready to go.

What would be the holdup? Even if you get to put in what would be the holdup? If you get, let’s say, you get a positive again, result from that hearing, what would be the hold up on that stretched out 30 days to 60 days or something long?

There’s a million things that could happen. So I’d rather not speculate.

Okay. All right. Appreciate the color. Thanks.

Thanks, Dan.

We have a follow up question from the line of Rich Anderson, SMBC. Please go ahead.

Yes, I’d like to ask the dog a question. Is he available?

He’s into behavioral health apparently.

One bark if we get out of this to bark if we know anyway, what is what is Plan B, if Friday does not go to fruition or does not turn out well for NHI? Is that just mean a much longer delay or what is that? What is the outcome there if you don’t win?

Rich, we still have options. I’m not going to speculate on an earnings call where our adversaries are certainly able to listen. But we have options.

Okay. I’ll take it. Thanks.

We do have a question from the line of Jordan Sadler, KeyBanc Capital Markets. Please go ahead.

Hi, quick follow up on the holiday payment. I think you previously released that you would recognize the security deposit in the first quarter. Can you just remind us if that’s still going to happen and what the amount is exactly?

Hi, Jordan, this is John again. Yes, that’s our intent. It’s being sort of reviewed for audit, let’s put it that way. And the amount of $8.8 million but right now, I don’t see any reason why that won’t happen.

And that would be booked right into income as rent?

Yes.

Okay. Thank you.

And we have no further questions on the phone lines. I’ll turn the call over back to you.

Thanks everyone for interest and attending and we’ll see you all at NERI or one of the many conferences as we’re attending.

That concludes today’s call. We thank you for your participation. And ask you to please disconnect your lines.