National Health Investors, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparative results are primarily against FY2022. NHI is a self-managed healthcare real estate REIT operating through Real Estate Investments and Senior Housing Operating Portfolio (SHOP).
Business context and portfolio
At year-end, NHI reported 163 owned healthcare real estate properties in 31 states, leased primarily under triple-net agreements, plus mortgage and other notes receivable and 15 SHOP independent living communities with 1,733 units. Gross portfolio investment was approximately $3.04 billion, including $2.43 billion in real estate, $260.7 million in notes receivable before credit-loss allowance, and $347.4 million in SHOP.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $319.8 million | $278.2 million |
| Net income | $134.4 million | $65.5 million |
| Net income attributable to common stockholders | $135.6 million; $3.13 diluted EPS | $66.4 million; $1.48 diluted EPS |
| Net operating income (NOI) | $268.7 million | $240.2 million |
| Net cash from operating activities | $184.5 million | $185.3 million |
| Normalized FFO per diluted share | $4.33 | $4.30 |
| Normalized FAD | $187.8 million | $201.0 million |
| Interest expense | $58.2 million | $44.9 million |
Revenue increased 15.0%. Rental income rose 14.5% to $249.2 million, resident fees and services increased 36.4% to $48.8 million, and mortgage and other notes interest income fell 12.0% to $21.4 million. SHOP NOI was $9.2 million, up from $7.6 million. The filing reports a 4.5x fixed-charge coverage ratio and approximately 4.5x consolidated net debt to adjusted EBITDA.
Net income benefited from lower property impairment and credit-loss charges: loan and realty losses were $1.4 million versus $61.9 million in FY2022. FY2023 also included $14.7 million of gains on real estate sales, compared with $28.3 million in FY2022. These items make the year-over-year increase in net income substantially larger than the modest 0.7% increase in normalized FFO per diluted share.
Operating cash flow was nearly flat year over year. Investing activities used $11.6 million, while financing activities used $169.7 million. Year-end cash and cash equivalents were $22.3 million. Carrying-value debt was $1.135 billion; principal debt was $1.146 billion. At December 31, $455.0 million was available on the $700 million revolving facility; at January 31, 2024, NHI reported approximately $427 million available and $1.2 billion of outstanding debt. The filing states that NHI remained within its debt covenants.
Dividends were $3.60 per common share for 2023, unchanged from 2022. The board declared a further $0.90 per-share dividend in February 2024, payable May 3, 2024, subject to the stated record date.
Material changes versus FY2022
- Revenue grew, in part because pandemic-related rent concessions declined and new investments contributed; SHOP operations also generated a full-year contribution.
- Interest expense rose 29.5%, primarily because of higher rates and greater revolver borrowings.
- Normalized FAD declined 6.6%, reflecting higher interest expense and property dispositions, despite the slight increase in normalized FFO per share.
- Real estate impairment charges fell to $1.6 million from $51.6 million. NHI sold 12 facilities for net proceeds of $59.1 million and recorded $14.2 million in sale gains.
- NHI repaid $175 million of private placement notes and refinanced part of its term debt with a $200 million variable-rate term loan. It also completed $54.8 million of real estate acquisitions.
Outlook, risks and unusual items
The filing provides no numerical earnings or FFO guidance. Management said existing liquidity and expected operating cash flows should be sufficient for financial commitments and that operating cash flow is expected to fund dividends at the current rate; these are forward-looking statements, not guarantees. NHI expects approximately $12 million of SHOP capital expenditures in 2024. Contractual commitments include $75.4 million of debt maturities in 2024, primarily private placement notes due September, as well as loan, development and contingent lease-inducement commitments.
- Tenant and operator credit: Senior Living, NHC and Bickford generated approximately 40% of FY2023 revenue (16%, 12% and 12%, respectively). Bickford had $18.0 million of pandemic-related rent deferrals outstanding at year-end; NHI had three cash-basis lease operators and $22.8 million of aggregate rent deferrals subject to future collection.
- Credit exposure: Two mortgage notes and one mezzanine loan totaling $26.6 million with affiliates of two operators, including Bickford, were designated non-performing. The notes-receivable credit-loss allowance was $15.5 million.
- Lease restructuring: NHI amended a Discovery master lease in November 2023, deferring a rent increase and lowering its minimum yield target; two other Discovery leases received temporary rent abatements through 2024 totaling approximately $1.1 million.
- Interest rates and refinancing: Approximately $445 million of debt was variable-rate at year-end. The filing estimates that a 50-basis-point rate increase would raise annual net interest expense by about $2.2 million, assuming balances are unchanged. The 2025 term loan and revolving facility are SOFR-linked.
- Other material risks: Tenant insolvency, changes in Medicare and Medicaid reimbursement or regulation, labor and insurance cost inflation, SHOP operating performance, real estate illiquidity, environmental exposure, cybersecurity incidents, and continued REIT qualification and access to capital.
- Legal and controls: Management said pending ordinary-course litigation was not expected to have a direct material adverse effect; the prior Welltower lease dispute was settled in 2022. The auditor issued unqualified opinions on the financial statements and internal controls. Asset impairment assessment was identified as a critical audit matter; NHI recorded $1.6 million of impairments in 2023.
Important facts for investors to verify
- Whether Bickford and other cash-basis operators collect deferred rent and meet lease and loan obligations; monitor the $26.6 million non-performing exposure and $15.5 million allowance.
- Whether occupancy, coverage and operating trends support tenant payments and SHOP results; SHOP occupancy improved to 83.2% in Q4 2023 from 75.8% in Q4 2022.
- How variable-rate debt costs, refinancing needs and 2024 maturities affect cash available for dividends and investments.
- Whether normalized FAD and operating cash flow support the current dividend, particularly given FAD’s year-over-year decline and planned SHOP capital spending.
- Whether portfolio concentration, the Discovery lease changes and other tenant restructurings affect recurring cash rents and credit quality.
- Reconcile the year-end debt figures: the filing reports $1.135 billion of balance-sheet carrying debt and $1.146 billion of principal debt, with additional borrowing reflected in the January 2024 update.