National Health Investors, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Dollar amounts are in millions unless otherwise noted. NHI is a healthcare and senior-housing REIT; its portfolio included 228 real estate properties and 15 mortgage and other notes across 34 states.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $84.3 | $81.7 | $251.6 | $235.9 |
| Net income attributable to common stockholders | $42.6 | $42.8 | $148.0 | $118.4 |
| Diluted EPS | $0.95 | $0.97 | $3.31 | $2.72 |
| Operating cash flow | Not separately stated | Not separately stated | $176.5 | $184.8 |
- Q3 revenue rose 3.2%, while common-stockholder net income was nearly flat and diluted EPS declined. Rental income increased 3.4%; interest income and other was broadly unchanged.
- Nine-month revenue increased 6.6%. Net income growth included a $21.0 million real estate sale gain; excluding that unusual gain, reported net income growth is not a like-for-like measure of recurring performance.
- Nine-month interest expense was $40.6 million, down from $41.9 million. Depreciation increased to $62.1 million from $57.2 million. The filing does not provide a conventional operating-margin figure.
- Nine-month diluted FFO per share was $4.22 versus $4.09; normalized AFFO per share was $3.99 versus $3.80. These are non-GAAP supplemental measures defined by NHI.
- Operating cash flow fell 4.5%. Investing cash use was $83.4 million, versus $304.9 million, reflecting lower investment outlays and real estate sale proceeds. Dividends paid were $145.3 million, up from $133.6 million.
Balance sheet, debt and liquidity
- At September 30, total assets were $3,139.3 million, debt was $1,529.0 million, and total equity was $1,504.0 million. Cash and cash equivalents were $42.2 million; cash, cash equivalents and restricted cash totaled $51.1 million.
- NHI reported $262 million available on its $550 million revolving facility at quarter-end and was in compliance with debt covenants. It also had a $500 million at-the-market equity program and an effective shelf registration.
- Debt included $288 million drawn on the revolver, $650 million in unsecured bank term loans, $400 million in private-placement loans, and $60 million of convertible notes. Principal maturities include $448.4 million in 2021 and $475.4 million in 2023. The filing reports a 4.8x consolidated net debt to annualized Adjusted EBITDA ratio and 5.9x nine-month fixed-charge coverage.
- About $538 million of variable-rate debt was exposed to interest-rate risk after hedges; management estimated a 50-basis-point rate move would change annual net interest expense by approximately $2.7 million. LIBOR discontinuation and replacement terms were identified as risks.
- After quarter-end, NHI repaid ten HUD loans totaling $42.6 million, plus $1.6 million in prepayment fees and accrued interest. As of October 31, management reported $38.2 million unrestricted cash and $252 million revolver availability.
Material changes, outlook and risks
- COVID-19 strained tenants’ operations. NHI collected approximately 96.2% of contractual Q3 rent and 97.8% of October rent. It granted $2.654 million in Q3 rent concessions to two tenants, including a $2.1 million Bickford deferral; further Bickford deferrals were under discussion after quarter-end. Management said the scale of future concessions and pandemic effects could not be reliably projected.
- Occupancy weakened at several major operators: September 2020 occupancy was 81.8% at Bickford, 78.5% at Holiday, and 78.9% at Senior Living Communities. Portfolio coverage also softened, particularly in senior housing. Four tenants each generated at least 10% of rental income; Bickford represented 17% of nine-month rental income.
- NHI established a $4.9 million expected-credit-loss reserve on notes receivable, including a COVID-related adjustment, and a $0.3 million reserve for unfunded commitments. Timber Ridge OpCo equity-method losses were $2.0 million for the nine months; $1.1 million of cumulative losses beyond NHI’s investment basis was recorded in accrued liabilities.
- NHI invested in new properties and the Timber Ridge venture during 2020. The Timber Ridge acquisition included an $81 million loan to the property company and a 25% interest in the operating company; NHI’s projected first-year receipts were approximately $8.2 million plus 25% of remaining operating-company cash flow. The filing also describes resident mortgage guarantees and an earn-out contingent on operating results.
- Remaining commitments included $59.1 million of loan commitments, $6.4 million of development commitments and $31.4 million of contingent lease inducements. The East Lake/Regency litigation remained ongoing; management stated it did not expect pending proceedings to have a material adverse effect.
- No quantitative earnings guidance was provided. The board’s stated dividend goal is to increase regular annual dividends, but dividends remain discretionary and subject to operating results, liquidity, covenants and other factors. The quarterly dividend declared for Q4 was $1.1025 per share.
- Moody’s assigned a Baa3 investment-grade rating with a Negative outlook on November 5, 2020; Fitch and S&P Global maintained BBB- ratings with Stable outlooks. Management stated liquidity and access to financing should help manage pandemic effects, while cautioning that no assurance could be given.
Investor verification priorities
- Track actual rent collections, deferred-rent repayment or forgiveness, and any additional concessions—especially for Bickford—and compare these with tenant occupancy and coverage.
- Assess whether recurring FFO/AFFO and operating cash flow support the dividend, separately from the $21.0 million property-sale gain and non-cash straight-line rent.
- Review the 2021 and 2023 debt maturities, post-quarter HUD repayment, revolver availability, covenant headroom, credit-rating outlook and LIBOR transition terms.
- Monitor the expected-credit-loss allowance, loan commitments and Timber Ridge operating losses, resident-liability exposure and contingent earn-out.
- Confirm subsequent developments in the East Lake/Regency litigation and the status of management’s proposed or discussed tenant transactions and rent deferrals.