National Health Investors, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. NHI is a self-managed healthcare real estate investment trust (REIT) investing primarily through triple-net leases, mortgages, and other loans.
Business context and portfolio
At year-end, NHI reported investments involving 212 facilities in 33 states: 136 senior housing properties, 75 skilled nursing facilities, and one hospital, excluding properties classified as held for sale. The company reported approximately $2.9 billion in real estate investments and $305.2 million in mortgage and other notes receivable before a $5.2 million credit-loss allowance. Its revenues depend substantially on tenants’ and borrowers’ operating performance and ability to pay rent and interest.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $298.7 million | $332.8 million |
| Rental income | $271.0 million | $307.2 million |
| Net income attributable to common stockholders | $111.8 million; diluted EPS $2.44 | $185.1 million; diluted EPS $4.14 |
| Net cash from operating activities | $210.9 million | $232.1 million |
| Net cash from investing activities | $185.3 million provided | $89.7 million used |
| Net cash from financing activities | $403.0 million used | $111.8 million used |
| Normalized FFO per diluted share | $4.60 | $5.60 |
| Normalized FAD | $209.5 million | $239.7 million |
Revenue declined 10.2% and net income attributable to common stockholders fell 39.6%. Results included $51.8 million of real estate impairment charges, partly offset by $32.5 million of gains on real estate sales. The company reported a 5.5x fixed-charge coverage ratio for 2021, compared with 6.0x in 2020.
At December 31, 2021, debt was $1.243 billion, cash and cash equivalents were $37.4 million, total assets were $2.839 billion, and total equity was $1.517 billion. NHI had $550 million available under its revolving credit facility, which then matured in August 2022. Management was negotiating a replacement facility and reported firm commitment letters from three banks totaling $345 million. Approximately $375 million of debt was variable-rate after $400 million of interest-rate swaps expired at year-end; management estimated that a 50-basis-point rate increase would raise annual net interest expense by about $1.9 million.
Material changes versus 2020
- Rental income decreased $36.2 million, principally due to $26.4 million of pandemic-related rent concessions, $11.4 million of unpaid Holiday rent, and property sales and held-for-sale properties.
- Net income declined amid impairment charges, despite higher gains from property dispositions. NHI sold 22 real estate assets during 2021 for approximately $238.9 million in proceeds.
- Operating cash flow fell 9.2%. Investing cash flow turned positive, chiefly because property-sale proceeds exceeded real estate and loan investments.
- Debt declined from $1.499 billion at year-end 2020 to $1.243 billion at year-end 2021. NHI issued $400 million of 3.00% senior notes due 2031, repaid its convertible notes at maturity, and reduced borrowings on its revolving facility.
- Annual dividends per share were $3.8025 in 2021, down from $4.41 in 2020. The board declared a $0.90 per-share dividend for the first quarter of 2022.
Outlook, risks, and unusual items
- COVID-19 and rent support: Management warned that occupancy weakness, labor and health-safety costs, and further tenant concessions could continue to affect collections and results. Pandemic-related rent deferrals and abatements totaled $31.4 million cumulatively at year-end; most deferred amounts accrue interest. Additional first-quarter 2022 deferrals included up to $4.0 million for Bickford and approximately $0.5 million for three other tenants.
- Holiday dispute: After Welltower-related entities became tenant under the Holiday master lease, NHI reported receiving no rent. It placed the tenant on cash basis, recorded $11.4 million of unpaid, unrecognized 2021 contractual rent, held an $8.8 million lease deposit, and sued in Delaware. Recovery, timing, and the transition of affected properties remain uncertain.
- Tenant concentration and coverage: Senior Living Communities, NHC, and Bickford each generated at least 10% of 2021 revenue and together about 41%. NHI reported 3Q21 coverage of 0.91x for Bickford and 0.88x for Holiday; senior housing coverage weakened overall.
- Impairments and credit exposure: NHI recorded $51.8 million of real estate impairments and maintained a $5.2 million allowance for expected credit losses. The auditor identified assessment of real estate impairment indicators as a critical audit matter.
- Strategic change: NHI planned to move 15 independent living facilities into joint ventures using a senior housing operating portfolio (SHOP) structure in 2022. This could expose NHI more directly to operating results, expenses, and regulatory risks. The filing provides no formal earnings or FFO guidance.
- Commitments and contingencies: Remaining loan commitments were approximately $75.3 million, development commitments $7.9 million, and contingent lease inducements $32.4 million. The company also cited healthcare reimbursement, regulation, litigation, refinancing, interest-rate, REIT-qualification, and climate-related risks.
Important facts for investors to verify
- Progress and final terms of the replacement revolving credit facility, including the August 2022 facility and term-loan maturities.
- Developments in the Welltower litigation, collection of Holiday rent, and plans and economics for transitioning those properties.
- Whether tenants repay pandemic deferrals and whether further concessions or lease resets reduce future cash rent.
- Occupancy, rent coverage, and financial condition of major tenants, particularly Bickford, Holiday, and Senior Living Communities.
- Completion and operating performance of the planned SHOP joint ventures, and the potential impact of impairments or other credit losses.
- Dividend sustainability relative to cash generation, debt covenants, liquidity needs, and REIT distribution requirements.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting.