National Health Investors, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. NHI is a self-managed healthcare REIT investing in senior housing and medical properties through leases, mortgages, and other notes. At quarter-end, its portfolio included 228 real estate properties in 34 states and 14 mortgage investments, with $306.2 million of mortgage and other notes receivable, before credit-loss reserves.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $80.9 million | $83.1 million |
| Net income attributable to common stockholders | $35.3 million; $0.78 diluted EPS | $61.0 million; $1.37 diluted EPS |
| Net cash from operating activities | $56.9 million | $57.1 million |
| Rental income | $74.7 million | $76.5 million |
| Interest expense | $13.0 million | $14.1 million |
| Cash and cash equivalents | $113.4 million | $43.3 million at Dec. 31, 2020 |
| Debt, carrying amount | $1.525 billion | $1.499 billion at Dec. 31, 2020 |
| Equity | $1.563 billion | $1.523 billion at Dec. 31, 2020 |
Operating cash flow was broadly flat year over year. Cash and restricted cash increased to $116.2 million from $46.3 million at the start of the quarter. The company reported $520 million of revolver availability at March 31, and $550 million at April 30. Management reported a 5.7x fixed-charge coverage ratio and approximately 5.0x consolidated net debt to annualized Adjusted EBITDA.
Supplemental REIT measures: diluted FFO was $1.23 per share versus $1.35; normalized FFO was $1.24 versus $1.36. Normalized FAD was $59.6 million, essentially unchanged from $59.5 million. The quarterly dividend declared was $1.1025 per share.
Material changes versus the prior comparable period
- Revenue fell 2.6%; rental income declined 2.3%, with $4.2 million of COVID-related rent deferrals in the quarter and lower straight-line rent income. Interest income from notes fell 7.0%, in part because of prior-period loan payoffs.
- Net income fell 42.1%, but the comparison is substantially affected by $21.0 million of real estate sale gains recognized in Q1 2020 and none in Q1 2021. Q1 2021 also included a $0.5 million loss on early debt retirement.
- Interest expense decreased 8.3%, reflecting lower borrowings and other financing changes. Noncash stock-based compensation rose $3.6 million to $5.4 million, partly due to higher estimated option volatility and additional grants.
- Operating cash flow declined slightly. Investing cash use was $9.1 million versus $51.0 million, as Q1 2020 included substantial real estate investment. Financing cash flow included the $400 million senior-note issuance and $48.0 million of net ATM equity proceeds.
Outlook, risks, contingencies, and unusual items
- COVID-19 and rent collection: Management said occupancy and operator costs remain pressured by the pandemic, with potential effects on tenants’ ability to pay rent. Cumulative concessions through March 31 included $9.2 million of deferrals and $2.2 million of abatements. NHI agreed to defer $5.0 million of Bickford’s Q2 2021 rent and was negotiating approximately $2.3 million of additional concessions with four other tenants; further concessions could materially affect results and cannot be reliably projected.
- Tenant and coverage exposure: Four tenants each generated at least 10% of quarterly revenue: Senior Living Communities (16%), Bickford (13%), Holiday (13%), and NHC (12%). Reported year-end 2020 coverage was below 1.0x for need-driven senior housing overall (0.95x) and Bickford (0.97x); Holiday was 1.08x. Coverage data included certain government pandemic-relief funds and may not be comparable across operators.
- Debt and liquidity: NHI issued $400 million of 3.00% senior notes due 2031, using proceeds partly to repay a $100 million term loan and reduce revolver borrowings. On April 1, 2021, after quarter-end, it paid $67.1 million to retire $60 million of convertible notes, including accrued interest and a conversion premium. It also extended its $550 million revolver maturity to August 2022 in April. NHI reported compliance with debt covenants at March 31.
- Portfolio transactions: Effective April 30, NHI agreed to sell six Bickford-leased properties for $52.9 million, including a $13 million company-financed second mortgage. The properties had a $34.6 million net book value at March 31. NHI continued to evaluate options for three other Bickford properties. A tenant also indicated it intended to exercise an option to buy a behavioral hospital for approximately $26.4 million in July 2021.
- Commitments and legal matters: Remaining loan commitments were $62.4 million and remaining development commitments $5.0 million; contingent lease inducements totaled $31.9 million, of which $1.5 million had been funded. Litigation involving East Lake Capital Management and related entities remained ongoing; management did not expect pending proceedings to have a direct material adverse effect.
- Guidance: The filing provides no specific earnings or FFO forecast. Management stated it believed available liquidity sources positioned NHI to manage pandemic effects, while cautioning that no assurance could be given. Management identified occupancy, tenant performance, refinancing and interest-rate exposure, regulatory reimbursement, and REIT qualification among material risks.
Most important facts for investors to verify
- Whether rent deferrals and concessions are collected as scheduled, and how tenant occupancy and coverage develop—especially for Bickford, Holiday, and Senior Living Communities.
- Completion and economics of the Bickford property sale, including collection and credit risk on the $13 million seller-financed mortgage, and the outcome for the remaining three properties.
- Post-quarter liquidity and leverage after the convertible-note repayment, revolver extension, and any additional concessions or committed funding.
- How reported GAAP earnings compare with recurring cash generation and FFO/FAD, given the prior-year property-sale gain and current-period noncash compensation.
- Changes in tenant concentration, loan credit reserves, debt maturities, covenant headroom, and the effect of expiring interest-rate swaps.