Business Context and Reporting Period
National Health Investors, Inc. (NHI) is a healthcare real estate investment trust. This Form 10-Q covers the quarter and six months ended June 30, 2022. NHI reported two segments: Real Estate Investments and, beginning April 1, 2022, its Senior Housing Operating Portfolio (SHOP). At quarter-end, its portfolio included 168 real estate properties, 13 mortgage and other note investments, and 15 SHOP independent living facilities.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $59.9 million, down 19.4% from $74.3 million | $131.2 million, down 15.5% from $155.2 million |
| Net income attributable to common stockholders | $21.7 million; diluted EPS $0.47, versus $39.2 million and $0.85 | $30.1 million; diluted EPS $0.66, versus $74.5 million and $1.63 |
| Operating cash flow | Not presented separately for the quarter | $95.4 million, versus $108.5 million |
| Net operating income (NOI) | $48.6 million, versus $72.2 million | $116.9 million, versus $150.9 million |
| Debt and liquidity | Debt carrying value was $1.10 billion at June 30. Cash and cash equivalents were $43.4 million, with $700 million available on the undrawn revolving facility. |
For the six months, investing activities provided $192.2 million, largely from $108.9 million of real estate sales and $114.9 million of note collections. Financing activities used $281.1 million, including $135.2 million of term-loan repayments, $82.5 million of dividends and $70.0 million of share repurchases. Cash, cash equivalents and restricted cash ended at $46.1 million.
Supplemental measures: six-month diluted Normalized FFO was $2.37 per share versus $2.40; Normalized FAD was $109.0 million versus $112.4 million. NHI cautions that these non-GAAP measures may not be comparable across REITs and are not substitutes for GAAP cash flow.
Material Changes Versus the Prior Comparable Period
- Revenue and earnings fell year over year. Rental income decreased 26.9% for the first half, reflecting asset dispositions, rent concessions and a large negative straight-line rent adjustment; the comparison also reflects the new SHOP operating model from April 1.
- NHI recorded $28.7 million of real estate impairment charges in the first half, compared with $1.2 million of loan and realty losses in the prior-year period. It reported $13.5 million of first-half real estate sale gains, versus $6.5 million.
- Interest expense declined 18.4% for the first half to $21.1 million, partly due to lower borrowings and the prior-year convertible-note maturity.
- Debt carrying value declined from $1.24 billion at December 31, 2021 to $1.10 billion at June 30, 2022. NHI refinanced its revolver into a $700 million facility maturing in 2026, amended its term loan to SOFR-based pricing and repaid $135.0 million of bank term loans.
Outlook, Management Commentary, Risks and Unusual Items
- NHI gave no specific earnings or operating guidance. Management said it expects full-year operating cash flow to be adequate to fund dividends at the current rate. The board declared a $0.90-per-share dividend payable November 4, 2022.
- In the second quarter, NHI changed Bickford to cash-basis lease revenue recognition after information about its financial condition raised substantial doubt about its ability to continue as a going concern. It restructured leases covering 26 properties, reduced portfolio rent to about $28.3 million annually through April 2024, and agreed repayment terms for $26 million of pandemic-related deferrals. Bickford coverage was 0.92x at March 31, 2022, versus 1.13x a year earlier.
- The Bickford change involved write-offs of $18.1 million of straight-line rent receivable and $7.1 million of lease incentives. First-half impairment charges were $28.7 million. These items materially affected reported results.
- The Holiday/Welltower dispute was settled and dismissed. NHI applied an $8.8 million lease deposit to past-due rent, recognized $6.9 million of released escrow funds as rental income, and transferred 15 independent living facilities into two SHOP ventures. The transition produced a $0.7 million net loss on operations transfer.
- At June 30, pandemic-related rent concessions totaled about $44 million, of which $38 million was contractually repayable. Management said additional deferrals may be requested and their amount and timing cannot be projected.
- Key risks include operator and tenant credit quality, occupancy and labor-cost pressures, COVID-19 effects, tenant concentration, healthcare reimbursement and regulation, and variable-rate borrowing costs. At March 31, senior housing coverage had weakened; portfolio SHOP coverage was 1.11x, while senior living communities coverage was 1.22x. NHI reported a 6.6x fixed-charge coverage ratio and approximately 4.0x consolidated net debt to annualized Adjusted EBITDA.
- NHI had $144.9 million of loan commitments and $34.0 million of development commitments at June 30. It reported compliance with debt covenants. A 50-basis-point change in variable rates was estimated to change annual net interest expense by about $1.2 million.
Important Facts for Investors to Verify
- Whether Bickford meets revised rent and deferral repayment terms, and how its financial condition affects rent collections or further asset actions.
- Actual cash collections and repayments against the $38 million of contractually repayable pandemic-related rent deferrals, and any new concessions.
- SHOP occupancy, operating costs and NOI as the first full reporting periods under the new operating structure emerge.
- Realization of proceeds from assets held for sale, including the 13 properties valued at $56.7 million at quarter-end, and the effect of further impairments or dispositions.
- Debt refinancing and liquidity needs, particularly the scheduled 2023 maturities, floating-rate exposure and continued covenant compliance.
- Whether operating cash flow supports the dividend, planned investments and remaining share repurchase authorization without undue reliance on asset sales or capital markets.