National Health Investors, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. NHI is a self-managed healthcare real estate REIT. Its portfolio included 238 facilities in 34 states, with real estate investments and notes carrying approximately $3.41 billion in total. The filing is an annual report; it does not present Q4-only results except in selected quarterly data.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $318.1 million | $294.6 million |
| Net income attributable to common stockholders | $160.5 million | $154.3 million |
| Diluted earnings per share | $3.67 | $3.67 |
| Net cash from operating activities | $241.0 million | $207.9 million |
| Cash and cash equivalents at year-end | $5.2 million | $4.7 million |
| Total assets | $3.04 billion | $2.75 billion |
| Debt | $1.44 billion | $1.28 billion |
| Regular dividends declared per share | $4.20 | $4.00 |
- Rental income was $294.2 million, up 4.8%; mortgage and other note interest income was $23.7 million, up 79.2%, principally reflecting new investments and loans.
- Net income rose 4.0%. Interest expense increased 14.8% to $56.3 million, while depreciation increased 7.7% to $76.8 million.
- GAAP diluted EPS was unchanged. Diluted normalized FFO per share increased 0.7% to $5.50; diluted normalized AFFO per share increased 1.2% to $5.10. These are non-GAAP measures defined by NHI and may not be comparable across REITs.
- Operating cash flow rose 15.9%. Investing used $342.5 million, largely for real estate and note investments; financing provided $107.3 million, including $95.8 million in net equity proceeds. Dividends paid were $179.7 million.
- Management reported fixed-charge coverage of 5.4x, down from 6.0x, and pro forma consolidated net debt to adjusted EBITDA of approximately 4.7x. These are non-GAAP measures.
- At year-end, $250 million was available under the revolving credit facility. Total equity was $1.50 billion. The company reported compliance with its debt covenants.
Material changes and notable items
- New investments and loan commitments were approximately $329 million in 2019. The portfolio continued to emphasize senior housing, with senior housing representing 61.5% of reported portfolio revenue and skilled nursing 25.0%.
- Four tenants—Bickford, Senior Living Communities, Holiday, and NHC—contributed approximately 58% of total revenue, creating significant tenant concentration.
- Bickford generated approximately 17% of revenue. Its reported portfolio occupancy improved during 2019, but coverage was 1.07x in the latest available quarter, compared with 1.15x a year earlier. Senior housing need-driven coverage also weakened, which management attributed mainly to softer occupancy in certain markets and wage pressure.
- NHI recorded a $2.5 million impairment on two assisted-living properties classified as held for sale. Eight other assisted-living properties were sold in January 2020 for $39.26 million; the company intended to pursue a like-kind exchange for tax purposes.
- NHI issued 1.21 million shares through its at-the-market program for approximately $95.8 million net proceeds and exchanged/retired $60 million face value of convertible notes. $60 million of convertible notes remained at year-end.
- The $4.20 annual dividend was a 5% increase from 2018. NHI stated that maintaining dividend growth depends on investment returns, capital costs, and cash flows.
Outlook, risks, and contingencies
- Management expected to pursue further real estate and note investments in 2020, initially using liquid resources and debt financing, with equity issuance potentially used to rebalance capital. The filing does not provide specific earnings or FFO guidance.
- On January 31, 2020, NHI completed the Timber Ridge joint venture transaction, acquiring an 80% interest in the property company and a 25% interest in operations. NHI said it expected $8.2 million in first-year debt-interest and lease income, plus 25% of remaining operating-company cash flow. The structure depends on satisfying REIT-related requirements and avoiding consolidation of the operating company.
- Remaining commitments at year-end included $75.1 million of loan commitments and $12.9 million of development commitments. A further $21.35 million of contingent lease inducements remained subject to performance conditions.
- Key risks include tenant and borrower defaults, concentration among major operators, Medicare and Medicaid reimbursement changes, labor and liability-insurance cost increases, occupancy and competition, development execution, interest-rate exposure, refinancing and covenant risk, and REIT qualification. Approximately 25.2% of revenue was attributed to operators of skilled nursing facilities receiving significant government-payor revenue.
- LIBOR transition remained a risk for debt instruments; NHI was monitoring replacement benchmarks. About $240 million of variable-rate debt was exposed to interest-rate changes at year-end. Management estimated that a 50-basis-point rate change would affect annual net interest expense by approximately $1.2 million, assuming debt balances were unchanged.
- Litigation related to former operator Regency remained ongoing. Former operator LaSalle filed for Chapter 11; NHI reached a settlement providing for $2.85 million of payments over five years, of which the first $60,000 installment was received in December 2019. Management stated that other ordinary-course claims were not expected to materially affect results.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified real estate impairment assessment and fair-value estimation of the Vero Beach acquisition as critical audit matters.
Important facts for investors to verify
- Whether major tenants—especially Bickford—sustain occupancy, rent coverage, and timely payments; review changes in coverage after the latest reported quarter.
- How the Timber Ridge joint venture performs, whether its RIDEA and REIT tax structure is maintained, and whether operating results affect NHI’s reported income or risk exposure.
- Actual funding and returns on the sizable loan and development commitments, including performance-triggered lease inducements.
- Debt maturities, refinancing plans, covenant headroom, interest-rate hedges, and the effects of replacing LIBOR.
- Dividend coverage using cash-based measures, while accounting for share issuance, debt service, and future investment requirements.
- Progress and recoveries from the Regency and LaSalle disputes, and any subsequent impairment, tenant transition, or lease-collection developments.