National Health Investors, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a report for the fourth quarter alone. NHI is a healthcare real estate REIT with Real Estate Investments and Senior Housing Operating Portfolio (SHOP) segments.
Business context and portfolio
At year-end, NHI reported investments across 32 states, including 160 real estate properties and $248.5 million of mortgage and other notes receivable before a $15.3 million expected-credit-loss allowance. Its newly established SHOP segment operated 15 independent-living communities with 1,732 units; the portfolio had transitioned from a triple-net lease structure on April 1, 2022.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $278.2 million | $298.7 million | Down 6.9% |
| Net income attributable to common stockholders | $66.4 million | $111.8 million | Down 40.6% |
| Diluted GAAP EPS | $1.48 | $2.44 | Down $0.96 |
| NOI | $240.2 million | $287.1 million | Down 16.3% |
| NAREIT FFO per diluted share | $3.55 | $4.62 | Down 23.2% |
| Normalized FFO per diluted share | $4.30 | $4.60 | Down 6.5% |
| Normalized FAD | $201.0 million | $209.5 million | Down 4.0% |
| Cash from operating activities | $185.3 million | $210.9 million | Down 12.1% |
Revenue comprised $217.7 million of rental income, $35.8 million of SHOP resident fees and $24.7 million of interest income and other. The filing reports total debt of $1.148 billion at December 31, 2022, total assets of $2.507 billion and equity of $1.280 billion. Cash and cash equivalents were $19.3 million; $658.0 million was available under the revolving facility at year-end. Adjusted EBITDA was $251.8 million, fixed-charge coverage was 5.9x and pro forma net debt to Adjusted EBITDA was approximately 4.7x.
Annual dividends were $3.60 per share, versus $3.8025 in 2021. The Board declared a further $0.90-per-share quarterly dividend in February 2023. Management said it expected operating cash flow to fund dividends at the current rate, but dividend payments remain subject to Board discretion and other constraints.
Material changes and unusual items
- Revenue and earnings declined, reflecting the Holiday portfolio transition, property dispositions, and lower rental income. Rental income fell 19.7%; SHOP contributed $35.8 million in revenue after commencing operations in April.
- Three operators were moved to cash-basis rent recognition in 2022. NHI wrote off approximately $26.0 million of straight-line rent receivables and $7.1 million of Bickford lease incentives. Bickford’s financial condition raised substantial doubt about its ability to continue as a going concern; NHI restructured its leases and reported $27.6 million of cash rent received from Bickford during the year.
- NHI recorded $51.6 million of real estate impairment charges on 19 properties and $10.4 million of credit-loss charges. A $10.0 million mortgage and $14.5 million mezzanine loan to affiliates of one operator/borrower were designated non-performing in the fourth quarter.
- NHI sold 22 facilities for net proceeds of approximately $169.0 million and recognized $28.3 million of gains on real estate sales. It also collected a $111.3 million mortgage payoff, including a $1.1 million prepayment fee.
- The Welltower dispute over the former Holiday lease was settled in 2022. NHI received $6.9 million of escrowed funds, recognized as rental income, and applied an $8.8 million lease deposit to past-due rent. Fifteen communities transitioned into SHOP; the transfer generated a net loss of approximately $0.7 million.
- NHI repurchased approximately 2.47 million shares for $152.0 million, an average $61.56 per share. Year-end shares outstanding were 43.4 million, compared with 45.9 million a year earlier.
Liquidity, debt, outlook and risks
NHI entered 2023 with significant debt maturities: the filing’s year-end schedule showed $415.4 million due in 2023. The $125.0 million private placement note due in January 2023 was subsequently repaid, primarily with revolver borrowings. At January 31, 2023, NHI reported approximately $498.0 million available on its revolving facility. The $240.0 million term loan was due in September 2023 and $50.0 million of private placement notes were due in November 2023. The $700.0 million unsecured revolving facility matures in March 2026, with extension options.
Management stated that current liquidity, operating cash flow and access to financing should be sufficient for commitments. The filing provides no specific earnings or FFO guidance. Key risks include operator solvency and tenant concentration, occupancy and labor-cost pressures, inflation and rising interest rates, Medicare and Medicaid reimbursement changes, refinancing and covenant risk, and the operational exposure of SHOP communities. Senior Living Communities and NHC generated 18% and 13% of FY2022 revenue, respectively. SHOP occupancy was 75.8% in 4Q22; reported coverage for the overall real estate portfolio was 1.63x at September 30, 2022, with Bickford at 1.09x and Senior Living Communities at 1.22x.
Other items to monitor include $159.6 million of loan commitments (of which $26.6 million was expected within 12 months), $33.5 million of development commitments, and a $10.0 million Timber Ridge lease inducement requested in February 2023. The filing says NHI expected to fund the Timber Ridge amount in 1Q23, subject to confirmation of performance conditions. The independent auditor gave an unqualified opinion on the financial statements and internal controls; identified critical audit matters were real estate impairment assessment and SHOP venture consolidation.
Important facts for investors to verify
- Whether Bickford and other cash-basis tenants make required rent and deferred-rent payments, and whether their operating performance supports restructured lease terms.
- Progress in refinancing or repaying 2023 debt maturities, facility availability after subsequent borrowings, and compliance with debt covenants.
- SHOP occupancy, operating costs and NOI trends, alongside whether the communities meet NHI’s return expectations.
- Whether the $15.3 million loan-loss allowance and $51.6 million property impairment charges prove adequate as borrower and property conditions evolve.
- Dividend coverage by recurring cash generation, considering the $3.60 annual dividend, dispositions, capital commitments and future financing needs.
- Realization of expected proceeds from assets held for sale and satisfaction of the conditions for the Timber Ridge inducement payment.