National Health Investors, Inc.

Greetings and thank you for standing by. Welcome to the National Health Investors Third Quarter 2021 Conference Call. During the presentation, all participants will be in a listen-only mode, and afterwards we'll conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. This conference is being recorded Monday, November 8, 2021. 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 third quarter of 2021. On the call today are Eric Mendelson, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spade, 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 the 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-Q for the quarter ended September 30th, 2021. Copies of these filings are available on the SEC's website at SEC.gov or on NHI's website at NHIREAD.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 8A 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. We've been working this year to transition NHI into a stronger company entering 2022, and we have accomplished a great deal. Our portfolio optimization efforts, including dispositions, tenant transitions, and rent restructuring, will have touched more than 120 of our senior housing properties, or more than 50% of our entire portfolio. We expect these efforts to be largely concluded by the end of the first quarter of 2022. While there are many I's to be dotted and T's to be crossed, We are pleased that we have established frameworks that fundamentally transform our partnerships with Bickford and our legacy holiday portfolio. The completed and pending dispositions greatly improve the health of the Bickford and holiday portfolios, which are well positioned to participate in the recovery of senior housing that is currently underway. Starting with Bickford, we are making progress on the disposition of another subset of buildings which will reduce the size of the lease portfolio to 35 or 36 properties compared to the 48 at the beginning of the year. Following the dispositions, we plan to reset Bickford's annual cash rent to a lease coverage level that makes them a much healthier tenant financially and allows repayment of deferred rent. From an operations standpoint, We've been encouraged by the rebound in Bickford's occupancy, which increased by 280 basis points from the second quarter to the third and is up 520 basis points from the first quarter. That's more than double the industry growth rate of 210 basis points for comparable assets. Labor issues should start to subside, driven by accelerating rate growth. And Bickford's margins should recover some of the more than 800 basis points lost due to the pandemic. That is why our agreement includes resetting the lease to a fair market value after two years with a minimum floor. Kevin will provide more details in his comments. Shifting to the legacy holiday portfolio, we have disposed of nine underperforming properties and are evaluating the sale of two others. These properties had been earmarked as possible sales prior to the start of the pandemic. In fact, the pre-pandemic margins on the 11 properties were more than 1,000 basis points below the remaining 15 we continue to own. And that gap widened to over 1,500 basis points during the pandemic. With the remaining holiday properties, we are forming two separate joint ventures in RIDEA-like structures with two excellent managers that have extensive experience operating middle market independent living communities. We are excited to start a new relationship with Merrill Gardens, a well-established operator based in Seattle that will manage our six West Coast properties. We're also pleased to expand our relationship with Discovery Senior Living through the formation of a joint venture to own and operate eight to nine communities with an East Coast footprint. We are also transitioning the Vero Beach assisted living community to the Discovery Master lease. The ventures will be similarly structured with equity contributions from both operators and include value creation and operating cash flow promotes, which we think best align interests as operating performance improves. There's plenty of potential in the legacy portfolio as the pre pandemic margins were more than 900 basis points higher than current margins and we're glad to be in a position to capture that upside. In addition to participating in the operating recovery of these independent living communities, we believe that by entering into these operating joint ventures. we are better positioned strategically to grow our senior housing business with this new product offering. Our progress so far is showing results. We've completed the disposition of 16 underperforming senior housing assets for approximately 173 million. The cap rate on these sales was 3.1% and lease coverage was 0.33 times. We have targeted another 21 underperforming senior housing assets for disposition, which we estimate will generate gross proceeds of approximately 150 to 155 million with a combined NOI yield in the low single digits and very little lease coverage. We are transforming NHI into a high coverage, high quality portfolio. In other words, a jewel box. Our balance sheet is in great health as we reduced debt by $150 million during the quarter and currently have full capacity available earner revolver. Considering the cap rates for many of the senior housing asset sales we are contemplating are in the low single digits, we see a nice arbitrage opportunity as we replace them with investments at yields in the mid to high single digits. With nothing drawn on the revolver, additional proceeds coming from dispositions, and low leverage, we see little need to issue equity as we resume our external growth. Our current position reminds me of a point in time in our company's history in 2009 when we had no debt on the balance sheet and $100 million in cash. We are eager to turn the page on this chapter of our story and get back to growth with new and existing partners. While we spend most of our time talking about our assisted living and independent living operators, we want to point out the exceptional performance of our entrance fee and skilled nursing segments which represent close to 60% of our annualized cash revenue net of deferrals. We're fortunate to be in line with these best-in-class operators and they serve as a blueprint for the long-term stability and growth that we are pivoting back to as a company. I'll now turn the call over to John.