National Health Investors, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. NHI is a self-managed healthcare and senior-housing REIT, with Real Estate Investments and Senior Housing Operating Portfolio (SHOP) segments. At quarter-end, its portfolio included 164 real estate properties, 14 mortgage and other note investments, and 15 SHOP communities.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $82.4 million | $71.3 million | Up 15.5% |
| Net income | $34.2 million | $8.2 million | Up $25.9 million |
| Net income attributable to common stockholders | $34.5 million; $0.79 per diluted share | $8.4 million; $0.18 per diluted share | Up substantially |
| Net cash from operating activities | $31.0 million | $38.7 million | Down 19.7% |
| Net operating income (NOI) | $70.0 million | $68.3 million | Up 2.5% |
| NAREIT FFO per diluted share | $1.16 | $1.05 | Up $0.11 |
| Normalized FFO per diluted share | $1.11 | $1.10 | Up $0.01 |
| Normalized FAD | $47.7 million | $52.7 million | Down $4.9 million, or 9.36% |
Revenue growth included $11.7 million of SHOP resident fees and services, as the 15-community portfolio transitioned from a triple-net lease structure to SHOP on April 1, 2022; therefore, the year-over-year comparison is not like-for-like. Reported earnings also benefited from much lower loan and realty losses: Q1 2022 included $24.6 million of real estate impairment charges, compared with approximately $0.3 million in Q1 2023. Q1 2023 interest expense rose 37.5% to $14.0 million.
At March 31, 2023, total assets were $2.53 billion, debt was $1.18 billion, and total equity was $1.28 billion. Cash and cash equivalents were $13.9 million; $485 million was available under the revolving credit facility. Mortgage and other notes receivable, net of the $15.0 million credit-loss reserve, were $219.9 million. The company reported a 4.6x fixed-charge coverage ratio and 4.6x consolidated net debt to annualized Adjusted EBITDA.
Cash used in investing was $27.5 million, including $38.1 million of real estate acquisitions; cash used in financing was $9.5 million. Dividends paid were $39.1 million. The quarterly dividend was $0.90 per share, and the board declared another $0.90 dividend for payment in August 2023.
Material changes and operating developments
- Q1 acquisitions totaled approximately $54.8 million: two Silverado memory-care communities for $37.5 million and a Bickford assisted-living/memory-care community for $17.3 million. The Bickford transaction included a $2.5 million reduction in pandemic-related rent deferrals recognized as rental income.
- Rental income increased 1.1% to $65.3 million. The comparison reflects fewer pandemic concessions, new investments and higher straight-line rent, partly offset by the $8.8 million Holiday lease-deposit income recognized in Q1 2022.
- Interest income from mortgage and other notes fell 21.0% to $5.3 million, mainly due to loan paydowns. Higher rates and greater revolver borrowing drove the increase in interest expense.
- At quarter-end, Bickford had $20.1 million of pandemic-related rent deferrals outstanding and was on cash-basis revenue recognition. Two other operators were also on a cash basis. Bickford cash rent received in Q1 was $7.8 million, excluding the $2.5 million deferral reduction recognized in the acquisition.
- Portfolio concentration remains relevant: Senior Living, Bickford and NHC accounted for 16%, 14% and 12% of Real Estate Investments portfolio revenue, respectively. SHOP occupancy was 75.2% in Q1 2023, down from 77.7% in Q1 2022.
Outlook, risks and contingencies
NHI did not provide formal earnings guidance in the supplied filing text. Management stated 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 company intends to continue investments that meet its underwriting criteria and comply with REIT distribution requirements.
- Debt and rates: The $220 million unsecured term loan matures in September 2023. The filing lists $270.3 million of principal maturities for the remainder of 2023. Approximately $435 million of debt was variable-rate; management estimated a 50-basis-point rate increase would add about $2.2 million to annual net interest expense.
- Operator and credit exposure: Performance depends on tenants, borrowers and managers meeting obligations. A $10.0 million mortgage and $14.5 million mezzanine loan with affiliates of one operator/borrower were designated non-performing. The allowance for expected credit losses was $15.0 million; commitments to fund loans and development also remain.
- Commitments: Remaining loan commitments were $51.7 million, development commitments $6.1 million, and contingent lease inducements $15.9 million. Aggregate pandemic-related rent concessions still outstanding, net of repayments and other reductions, were approximately $30.1 million.
- Other risks: The filing highlights inflation, higher interest rates, refinancing and capital-market access, tenant concentration, healthcare regulation and reimbursement, SHOP operating risks, and potential financial-institution disruptions. Management said ordinary-course litigation was not expected to have a direct material adverse effect. No material changes to previously disclosed risk factors were reported apart from new disclosures on inflation/rates and financial-services-industry risk.
- Three Oregon assisted-living properties were sold in Q2 2023 for approximately $5.7 million net cash plus $0.6 million seller financing; their March 31 book value was $5.9 million. NHI also had a $160 million one-year share-repurchase authorization, with no repurchases in Q1, and a $500 million ATM equity program.
Important facts for investors to verify
- Whether the Q1 earnings increase is sustainable after adjusting for the prior-year impairment comparison, SHOP transition, deferral reductions and other unusual or non-cash items.
- How the September 2023 term-loan maturity and remaining 2023 debt maturities are refinanced or repaid, and the resulting borrowing costs and covenant headroom.
- Collections, occupancy and operating coverage trends at Bickford and other cash-basis operators, including progress on outstanding rent deferrals and non-performing loans.
- Whether operating cash flow and normalized FAD support the $0.90 quarterly dividend as interest costs, commitments and portfolio investment needs evolve.
- Tenant and geographic concentration, remaining funding commitments, and the effect of inflation and interest rates on operators, NHI’s liquidity and asset values.