National Health Investors, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing. NHI is a self-managed healthcare REIT investing in senior housing and medical properties through triple-net leases, mortgages and other financing. At year-end, its portfolio covered 205 facilities in 32 states.
Financial performance and position
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $248.5 million | $229.0 million | +8.5% |
| Net income attributable to common stockholders | $151.5 million | $148.9 million | +1.8% |
| Diluted EPS | $3.87 | $3.95 | -2.0% |
| Net cash from operating activities | $177.2 million | $164.4 million | +7.8% |
| Dividends declared per common share | $3.60 | $3.40 | +5.9% |
- Revenue mix: Rental income was $232.4 million, mortgage and other note interest income $13.8 million, and investment income and other $2.3 million.
- Cash flow and investment: Investing activities used $329.8 million, including $486.8 million of real estate and note investments, partly offset by repayments and asset sales. Financing activities provided $144.2 million. Cash ended the year at $4.8 million.
- Liquidity: NHI reported $396.8 million of liquidity, including $392.0 million available under its revolving credit facility. Marketable securities were valued at $11.7 million.
- Debt: Balance-sheet debt was $1.116 billion, up from $914.4 million. Adjusted EBITDA was $237.0 million; management reported 5.8x fixed-charge coverage and approximately 4.4x annualized consolidated net debt to Adjusted EBITDA.
- Margins: The filing does not present a headline operating-margin measure. Net income includes material investment and asset-sale gains and should not be read as recurring operating performance.
- REIT operating measures: Diluted FFO per share was $5.25 versus $5.31; normalized diluted FFO was $4.87 versus $4.67; normalized diluted AFFO was $4.39 versus $4.10. Normalized FAD increased 10.9% to $173.7 million. These are non-GAAP measures defined by NHI and may not be comparable across REITs.
Changes versus 2015 and unusual items
- Revenue grew 8.5%, mainly from new investments; rental income rose 8.4% and note interest income rose 35.3%. Investment income and other declined 46.9%.
- Common-stockholder net income rose only 1.8%, while diluted EPS fell from $3.95 to $3.87. Net income included $35.9 million of investment and other gains, including $29.7 million from marketable-security sales.
- Loan and realty losses were $15.9 million, compared with a $0.5 million recovery in 2015. NHI said these were principally non-cash, transactional write-offs tied to the Legend-to-Ensign lease transition and a tenant transition review, including a $6.4 million lease-intangible write-off and $9.5 million in straight-line rent receivable write-offs.
- Debt increased as NHI funded acquisitions and investments. The company issued $104.2 million of equity and borrowed $75.0 million through private-placement term debt during 2016; it also increased revolving-credit borrowings.
- NHI terminated its Bickford RIDEA operating joint venture in September 2016, converting the relationship to triple-net leasing and acquiring the minority interest in the property entity while selling its operating-company interest.
Outlook, risks and contingencies
- Management expected to pursue additional investments in 2017, using liquid assets and debt financing, with equity issuance possible if needed to rebalance capital. No specific earnings or per-share guidance was provided.
- Management anticipated lower note-interest income as the Timber Ridge construction loan was repaid; $61.3 million had been repaid by year-end and a further $7.3 million by February 15, 2017. It also expected the cost of debt capital to rise, while describing fixed-rate borrowing and swaps as tools to manage exposure.
- Tenant concentration is material: Holiday, Senior Living Communities, NHC and Bickford together generated approximately 61% of 2016 total revenue, according to the filing. A 126-unit assisted-living portfolio was under review for transition or sale after material lease noncompliance; the tenant was current at year-end, but NHI stopped straight-line rent recognition and recorded a $1.1 million reserve.
- Healthcare reimbursement, especially Medicare and Medicaid for skilled nursing operators, may affect tenants’ ability to pay rent and interest. Other principal risks include tenant insolvency, occupancy and development performance, liability-insurance costs, interest-rate changes, refinancing and REIT qualification.
- At year-end, remaining commitments included $53.9 million of loan commitments and $72.9 million of development commitments, including a $56.0 million obligation to purchase four Texas skilled nursing facilities. Listed contingencies totaled $13.9 million; an $8.0 million East Lake lease inducement was assessed as not probable and was not recorded.
- Management and the independent auditor reported effective internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements. Management said pending ordinary-course litigation was not expected to have a material adverse effect.
Most important facts for investors to verify
- Tenant-level rent coverage, liquidity and operating trends—especially for the four largest operators and the 126-unit assisted-living portfolio under review.
- How much reported earnings and cash available for dividends depend on security-sale gains, straight-line rent and other non-cash adjustments; compare GAAP results with normalized FFO, AFFO and FAD.
- Progress, funding requirements and lease-up performance for development projects and the $56.0 million Ensign-related purchase commitment.
- Debt maturities, covenant headroom, available revolver capacity and the effect of higher interest rates on floating-rate borrowings and acquisition economics.
- Whether recurring cash generation supports the dividend after investment spending and required debt service; 2016 dividends declared were $3.60 per share and cash dividends paid were $138.3 million.