Business context and reporting period
National Health Investors, Inc. (NHI) is a self-managed healthcare real estate investment trust. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023, compared with the same 2022 periods. NHI reports Real Estate Investments and Senior Housing Operating Portfolio (SHOP). Its portfolio included 163 real estate properties leased primarily to 25 tenants, mortgage and other notes receivable, and 15 SHOP independent-living properties.
Financial performance and position
Amounts below are in millions except per-share data. Results reflect GAAP unless indicated otherwise.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $80.1 | $76.3 | $240.4 | $207.5 |
| Net income | $29.0 | $34.2 | $102.7 | $63.9 |
| Net income attributable to common stockholders | $29.3 | $34.5 | $103.6 | $64.5 |
| Diluted EPS | $0.68 | $0.78 | $2.39 | $1.43 |
| Consolidated NOI | $67.2 | $64.7 | $202.1 | $181.6 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $131.2 | $139.0 |
| NAREIT FFO per diluted share | $1.08 | $1.04 | $3.30 | $2.81 |
| Normalized FFO per diluted share | $1.08 | $1.06 | $3.24 | $3.43 |
At September 30, 2023, total assets were $2.50 billion, carrying-value debt was $1.14 billion, and equity was $1.27 billion. Cash and cash equivalents were $16.6 million; $495 million remained available on the $700 million revolving facility. Principal debt maturities totaled $1.16 billion, including $50.1 million due during the remainder of 2023 and $75.4 million in 2024. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Q3 revenue rose 5.0%, while net income fell 15.2%, mainly because real estate sale gains were $0.7 million versus $14.8 million in Q3 2022. Higher interest expense also weighed on results.
- For the first nine months, revenue increased 15.8% and net income increased 60.6%. The comparison benefited substantially from much lower loan and realty losses than in 2022 and from the prior-year write-offs and rent concessions; 2023 also had lower property-sale gains.
- Interest expense increased 32.2% in Q3 and 33.4% year to date, primarily due to higher rates and increased revolver borrowings. Year-to-date operating cash flow declined 5.6%.
- Year-to-date NAREIT FFO per diluted share improved, but normalized FFO per diluted share declined 5.5%. Normalized FAD was $140.5 million, down 10.0% from $156.1 million.
- Q3 Real Estate Investments NOI was $64.7 million versus $61.9 million; SHOP NOI was $2.3 million versus $2.8 million. Nine-month NOI increased to $202.1 million from $181.6 million.
Outlook, management commentary, risks and unusual items
- No numerical earnings or operating guidance was provided. Management stated that it expects 2023 operating cash flow to be adequate to fund dividends at the current rate and does not expect to borrow to pay dividends. The quarterly dividend remained $0.90 per share; a further $0.90 dividend was declared November 3, 2023.
- Liquidity includes access to the revolving facility and a $500 million at-the-market equity program. Management reported approximately $21.4 million of corporate cash and $506 million of revolver availability at October 31, 2023. A $50 million private-placement note due in November 2023 was repaid primarily with revolver proceeds.
- Credit exposure warrants attention: Bickford remained on cash-basis rent recognition, with $19.0 million of pandemic-related rent deferrals outstanding. NHI also had $26.6 million of non-performing mortgage and mezzanine loans, including a $2.1 million Bickford mortgage designated non-performing in Q3. The allowance for expected credit losses was $15.8 million.
- Senior Living Communities, Bickford and NHC accounted for 16%, 12% and 12%, respectively, of reported nine-month revenues in the disclosed tenant concentration analysis. Management also identified dependence on tenant/operator performance and healthcare reimbursement and regulation as key risks.
- Variable-rate debt was approximately $405 million. Management estimated that a 50-basis-point rate change would change annual net interest expense by approximately $2.0 million, assuming balances remained constant. Inflation, refinancing conditions, covenant headroom and financial-market liquidity were also cited as risks.
- During the first nine months, NHI acquired three assisted-living properties for approximately $54.8 million and sold properties for approximately $52.1 million in net proceeds, recognizing $13.5 million of gains. It recorded $1.6 million of property impairments. Three additional Florida properties were sold in Q4 for $5.4 million cash net of transaction costs plus $1.6 million seller financing.
- Loan and development commitments remaining to fund were $43.4 million and $4.3 million, respectively; remaining contingent lease inducements were $13.9 million. Management said pending litigation was not expected to have a direct material adverse effect. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether Bickford and other cash-basis tenants can meet rent obligations and reduce the outstanding deferrals, and how operator coverage and occupancy evolve.
- Performance and recoverability of non-performing loans, the $15.8 million credit-loss reserve, and unfunded lending commitments.
- Debt refinancing needs, variable-rate exposure, covenant compliance and the effect of further rate or credit-rating changes.
- Dividend coverage using recurring cash flow and normalized FAD, noting that year-to-date normalized FAD declined despite higher GAAP net income.
- The sustainability of revenue and NOI growth after accounting for acquisitions, dispositions, SHOP operating costs, rent-deferral recoveries and other nonrecurring items.