Business Context and Reporting Period
Company: National Health Investors, Inc. (NHI)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: NHI is a Maryland corporation and Real Estate Investment Trust (REIT) investing in income-producing healthcare properties, primarily skilled nursing and assisted living facilities. As of March 31, 2010, the portfolio included 86 leased properties and 30 mortgage notes receivable. The company's largest customer is National HealthCare Corporation (NHC), which leases 41 properties.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $20,449,000 | $14,692,000 |
| Net Income | $15,943,000 | $15,049,000 |
| Earnings Per Share (Diluted) | $0.58 | $0.55 |
| Funds From Operations (FFO) | $18,404,000 | $16,978,000 |
| Cash and Cash Equivalents | $4,363,000 | $104,935,000 |
| Total Assets | $497,880,000 | $459,360,000 |
| Debt (Revolving Credit Facility) | $33,935,000 | $0 |
| Dividends Declared | $0.575 per share | $0.55 per share |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 39.2% to $20.4 million, driven primarily by a 44.4% increase in rental income. This was due to new acquisitions (Florida facilities, California psychiatric hospital, Minnesota assisted living), collection of past-due rent, and new leases.
- Expense Increase: Total expenses rose 77.2% to $7.2 million. General and administrative expenses increased by $2.2 million, largely due to stock-based compensation ($1.8 million vs. $0.6 million in 2009) and acquisition-related costs.
- Liquidity Shift: Cash and cash equivalents decreased significantly from $45.7 million to $4.4 million. This was caused by heavy investing activity ($76.2 million net cash used) to fund new real estate acquisitions, partially offset by $33.9 million in new borrowings under a revolving credit facility.
- Debt Position: The company entered a new $100 million unsecured revolving credit facility in February 2010. As of March 31, 2010, the outstanding balance was $33.9 million, compared to zero in the prior year.
Guidance, Outlook, and Risks
- Acquisitions: NHI completed three significant transactions in Q1 2010: the purchase of six Florida skilled nursing facilities from Care Foundation of America (CFA) for $67 million; a $12.5 million purchase/leaseback of a psychiatric hospital in California; and a $21.4 million purchase/leaseback of four assisted living facilities in Minnesota.
- Discontinued Operations: Six skilled nursing facilities in Texas are classified as "held for sale" with a carrying value of $33.4 million. The sale is pending HUD financing by the buyer (Fundamental Long Term Care Holdings).
- Legal Proceedings: The company resolved a long-standing adversary proceeding with CFA by purchasing the properties, dismissing claims. However, a shareholder derivative lawsuit remains pending against individual directors regarding the CFA transaction. The Tennessee Attorney General has agreed to take no further action regarding the CFA relationship but may investigate other transactions.
- Risk Factors: Key risks include dependence on the operating success of healthcare tenants, potential tenant insolvency, government regulation impacts on healthcare payments, and the requirement to maintain REIT qualification to avoid federal income taxes.
Investor Verification Checklist
- REIT Compliance: Verify the company's ability to distribute at least 90% of taxable income to maintain tax-exempt status.
- Concentration Risk: Assess the impact of National HealthCare Corporation (NHC), which accounts for 50% of rental income, on future cash flows.
- Debt Covenants: Review compliance with the new $100 million credit facility covenants (leverage, fixed charge, and tangible net worth ratios).
- Legal Exposure: Monitor the status of the shareholder derivative lawsuit and any potential investigations by the Tennessee Attorney General regarding other nonprofit transactions.
- Asset Disposition: Track the closing of the Texas facility sale to Fundamental Long Term Care Holdings to confirm the realization of the $33.4 million asset value.