National Health Investors, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. NHI is a healthcare real estate REIT with properties and loan investments across senior housing, skilled nursing, hospitals and medical offices.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $74.3 million | $84.2 million | $155.2 million | $167.3 million |
| Net income attributable to common stockholders | $39.2 million | $44.4 million | $74.5 million | $105.4 million |
| Diluted EPS | $0.85 | $0.99 | $1.63 | $2.36 |
| Net income margin | 52.7% | 52.7% | 48.0% | 63.0% |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $108.5 million | $116.8 million |
Net income margin is net income divided by total revenue; gains on property sales affect the comparison. Q2 included $6.5 million of real estate sale gains. Six-month 2020 included $21.0 million of such gains, versus $6.5 million in 2021.
- FFO: Six-month diluted NAREIT FFO was $2.39 per share, down from $2.81; normalized FFO was $2.40 per share, down from $2.82 (14.9%). Normalized FAD was $112.4 million, down 6.7% from $120.5 million.
- Cash and liquidity: June 30 cash and cash equivalents were $32.5 million; cash, cash equivalents and restricted cash totaled $34.7 million. NHI reported $525 million available on its revolving credit facility and $32.5 million of unrestricted cash. July 31 liquidity was reported as approximately $37 million cash plus the same revolver availability.
- Debt: Carrying debt was $1.435 billion, down from $1.499 billion at year-end 2020. Debt principal totaled $1.442 billion before unamortized loan costs. Net debt to annualized adjusted EBITDA was approximately 5.1x; fixed-charge coverage was 5.6x for both the quarter and first half. NHI said it was in compliance with debt covenants.
- Dividends and equity: NHI paid $100.4 million in dividends during the first half and issued 661,951 ATM shares for net proceeds of $47.9 million. The quarterly dividend was reduced from $1.1025 to $0.90 per share; a $0.90 dividend was also declared in August.
Material changes and business activity
- Q2 revenue fell 11.7% year over year and first-half revenue fell 7.2%. Management attributed the rental-income decline principally to COVID-19 rent concessions, partly offset by new investments. First-half concessions totaled $14.1 million; Q2 concessions were $9.9 million.
- First-half net income fell 29.3%, while Q2 net income fell 11.7%. Lower interest expense partly offset lower rental and note income. Higher non-cash stock compensation also weighed on expenses: $6.4 million for the first half versus $2.3 million a year earlier.
- Investments included a $40.3 million behavioral hospital leased to Vizion Health and a $6.6 million assisted-living community added to a Navion lease. NHI also entered a $50 million Montecito mezzanine loan commitment, of which $2.1 million was funded by June 30.
- NHI sold six Bickford properties for $52.9 million, including a $13 million second mortgage note that was not recognized as a receivable pending probable collectability, and sold a medical office building. Together with other disposals, Q2 gains on real estate were $6.5 million.
- Subsequent to quarter-end, NHI sold a Tennessee behavioral hospital for $31.2 million and recorded an $8.6 million gain. It also signed a non-binding letter of intent to sell nine Holiday properties for anticipated proceeds of $129.8 million, with an expected $3.7 million impairment in Q3.
Outlook, risks and contingencies
- Management said senior-housing coverage weakened due mainly to soft occupancy and rising expenses, including wages. As of the latest reported operator data, March 2021, portfolio coverage was 1.64x overall; need-driven senior housing was 0.92x and Holiday was 0.97x. Bickford coverage was 1.06x. These coverage measures include certain government relief funds and may not be fully comparable across operators.
- COVID-19 may continue to depress occupancy, increase operating costs and impair tenants’ ability to pay rent. Cumulative rent deferrals and abatements since the pandemic began were $19.1 million and $2.2 million, respectively; none of the deferred amounts had been repaid as of filing. Additional deferrals were agreed or under discussion after quarter-end.
- Four tenants each generated at least 10% of first-half revenue: Senior Living Communities 16%, Holiday 12%, National HealthCare Corporation 12% and Bickford 11%. A tenant’s operating or financial difficulties could affect rent collection and distributions.
- Funded and unfunded loan commitments remaining at June 30 were $100.3 million; remaining development commitments were $9.6 million. Credit-loss reserves were $5.2 million for funded notes and $1.2 million for unfunded commitments. Management cited COVID-related uncertainty in estimating borrower credit losses.
- A $225 million bank term loan matures in August 2022. NHI expected to use cash, asset-sale proceeds and operating cash flow to repay it, and planned to extend its $550 million revolver before its August 2022 maturity. Interest-rate swaps covering $400 million of borrowings expire in December 2021.
- Other disclosed risks include healthcare regulation and Medicare/Medicaid reimbursement, tenant concentration, refinancing and credit-rating risk, variable-rate debt and LIBOR transition, REIT qualification, real-estate impairment and ongoing litigation involving East Lake/Regency. Management said it did not expect pending litigation to have a direct material adverse effect; the East Lake matter remains ongoing.
Investor facts to verify
- Whether rent deferrals are collected and tenant occupancy and coverage recover, particularly at Holiday and Bickford.
- Execution and final economics of the planned Holiday sale, including the expected impairment, and subsequent-period results from the Tennessee hospital sale.
- Collectability and accounting recognition of the $13 million Bickford second mortgage, plus changes in credit-loss reserves and loan commitments.
- Funding and refinancing plans for the August 2022 term loan and revolver, and the effect of hedge expirations and the LIBOR transition on borrowing costs.
- Dividend sustainability in light of lower revenue, reduced per-share dividend, FAD and cash-flow trends.