National Health Investors, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are as of March 31, 2024. NHI is a self-managed healthcare real estate investment trust, with Real Estate Investments and Senior Housing Operating Portfolio (SHOP) segments. Its portfolio included 163 real estate properties, 17 facilities financed through mortgage and other notes, and 15 SHOP independent-living facilities across 31 states.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $81.5 million | $82.4 million; down 1.1% |
| Net income | $30.7 million | $34.2 million; down 10.3% |
| Net income attributable to common stockholders | $30.9 million | $34.5 million |
| Diluted EPS | $0.71 | $0.79 |
| Consolidated NOI | $68.5 million | $70.0 million; down 2.1% |
| Adjusted EBITDA | $64.3 million | $62.2 million |
| Normalized FFO per diluted share | $1.12 | $1.11 |
| Normalized FAD | $51.0 million | $47.7 million; up 6.8% |
| Operating cash flow | $40.8 million | $31.0 million |
Rental income decreased 4.8% to $62.2 million; resident fees and services rose 13.3% to $13.3 million, mainly reflecting stronger SHOP occupancy. Interest income from mortgage and other notes rose 11.9% to $5.9 million. Total expenses increased 3.1% to $51.1 million. Net income margin was approximately 37.6%, versus 41.5% in Q1 2023.
Cash and cash equivalents were $11.4 million; debt was $1.139 billion, compared with $1.135 billion at year-end 2023. The company reported $451.5 million available under its $700 million revolving facility and compliance with debt covenants. Variable-rate debt was approximately $448.5 million; a 50-basis-point rate increase would raise annual net interest expense by an estimated $2.2 million. Net debt to annualized Adjusted EBITDA was 4.4x and fixed-charge coverage was 4.5x.
Operating cash flow increased year over year, while investing used $16.2 million and financing used $35.9 million. NHI paid $39.1 million in common dividends during the quarter and declared a $0.90-per-share dividend for payment in August 2024.
Material changes versus Q1 2023
- Net income and diluted EPS fell, reflecting lower rental income, higher interest expense, and $1.3 million less in real estate sale gains than in Q1 2023.
- Rental income was affected by property dispositions, fewer pandemic-related rent-deferral repayments, and a $0.8 million straight-line rent receivable write-off tied to an expected SNF lease termination. Higher NHC percentage rent and new investments partly offset these impacts.
- SHOP resident-fee revenue increased 13.3%; SHOP occupancy rose to 85.3% from 75.2% a year earlier.
- Interest expense increased 6.0% to $14.9 million, primarily due to higher interest rates.
- Real Estate Investments segment NOI declined to $65.4 million from $68.0 million, while SHOP NOI improved to $2.9 million from $1.9 million.
Outlook, risks and notable items
- Management stated that operating cash flows for full-year 2024 are projected to be adequate to fund dividends at the current rate; the filing provides no numerical earnings or FFO guidance.
- Debt maturities include $75.4 million for the remainder of 2024 and $325.7 million in 2025. The $200 million variable-rate term loan matures in June 2025; $75 million of private placement notes mature in September 2024.
- Effective April 1, 2024, Bickford’s combined annual rent was reset to $34.5 million through April 2026, followed by annual CPI-based increases subject to a 2% floor and 3% cap. NHI agreed to fund up to $8 million in property improvements, with rent increasing at an 8% rate on amounts spent. Bickford had $16.5 million in pandemic-related rent deferrals outstanding at quarter-end and is accounted for on a cash basis.
- NHI has $15.5 million of expected credit-loss reserves on funded loans and reported $26.5 million of non-performing mortgage and mezzanine loans due from affiliates of two operators/borrowers. Three tenants were on cash-basis lease accounting.
- In Q2 2024, NHI sold two Louisiana assisted-living facilities for $4.6 million net proceeds and an approximately $1.3 million gain. It also committed up to $10 million for Senior Living capital improvements, in addition to the Bickford commitment.
- Major exposures include tenant/operator financial health and concentration, healthcare regulation and reimbursement, variable interest rates, refinancing and debt maturities, access to capital, SHOP operating performance, and the ability to maintain REIT status and dividends. Management said pending litigation is not expected to have a direct material adverse effect; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether Bickford continues to pay rent and reduce its $16.5 million deferral balance, and how the rent reset and improvement funding affect coverage.
- Current operating performance and loan repayment prospects for the borrowers tied to $26.5 million of non-performing loans, and adequacy of the credit-loss reserves.
- Plans and funding for the 2024–2025 maturities, including the September 2024 notes and June 2025 term loan, and sensitivity to floating rates.
- Whether SHOP occupancy and NOI gains are sustained, and whether operating cash flow continues to support the $0.90 quarterly dividend.
- Completion and economics of the proposed $38.5 million senior-living-campus purchase agreement, which depends on the tenant obtaining financing and expires in December 2024.