Business Context and Reporting Period
Company: National Health Investors, Inc. (NHI)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: NHI is a Maryland corporation operating as a Real Estate Investment Trust (REIT). It invests in income-producing health care properties, primarily in the long-term care industry. As of December 31, 2009, the company held ownership interests in 108 health care facilities across 20 states, including skilled nursing facilities, assisted living facilities, medical office buildings, independent living facilities, and one acute care hospital. The company operates as a single segment.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Revenues | $64,221,000 | $58,005,000 |
| Net Income | $64,229,000 | $57,510,000 |
| Diluted EPS | $2.32 | $2.07 |
| Funds From Operations (FFO) | $72,594,000 | $65,207,000 |
| Total Assets | $459,360,000 | $457,106,000 |
| Real Estate Properties (Net) | $223,861,000 | $181,332,000 |
| Mortgage Notes Receivable (Net) | $94,588,000 | $108,640,000 |
| Debt Outstanding | $0 | $3,987,000 |
| Cash and Cash Equivalents | $45,718,000 | $100,242,000 |
| Dividends Declared Per Share | $2.30 | $2.42 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 10.7% to $64.2 million, driven primarily by a 13.9% increase in rental income ($55.1 million). This growth was fueled by new leases with Legend Healthcare, collection of past-due rent from RGL Development, and percentage rent from National HealthCare Corporation (NHC).
- Profitability: Net income rose 11.7% to $64.2 million. This increase was supported by higher rental income and realized gains on the sale of marketable securities ($2.4 million), offsetting a slight decrease in mortgage interest income.
- Debt Reduction: The company paid off its remaining revenue bonds ($3.987 million) in December 2009, resulting in zero outstanding debt at year-end.
- Portfolio Expansion: NHI made new investments totaling approximately $89 million in 2009, including the purchase of four skilled nursing facilities in Texas and five assisted living facilities in Michigan and Illinois.
- Discontinued Operations: Six skilled nursing facilities in Texas were classified as "held for sale" in December 2009, with their results reclassified as discontinued operations.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance
Management anticipates making additional investments in 2010 that meet their risk profile. The company intends to maintain a low debt level relative to total book capitalization. A new $100 million unsecured revolving credit facility was closed on February 1, 2010, to fund future investments. Depreciation expense is expected to increase significantly in 2010 due to late 2009 and early 2010 acquisitions.
Risks and Contingencies
- Customer Concentration: NHC remains the largest customer, accounting for 63% of rental income ($34.8 million). The company relies on the operating success of its tenants, many of whom depend on Medicare and Medicaid reimbursements.
- Government Regulation: Changes in Medicare/Medicaid reimbursement rates or government budget constraints could adversely affect tenant cash flows and ability to pay rent.
- Legal Proceedings: A significant adversary proceeding with Care Foundation of America (CFA) regarding six Florida properties was resolved in December 2009. NHI agreed to purchase the properties for $67 million, settling the outstanding mortgage debt and dismissing claims. The transaction closed on February 1, 2010.
- Asset Impairment: The company monitors assets for impairment. While no material impairments were recorded in 2009, the risk remains if tenant performance deteriorates due to economic conditions or regulatory changes.
Investor Verification Checklist
- CFA Transaction Closure: Verify the final closing details and financial impact of the $67 million acquisition of the six Florida properties from CFA, which closed in February 2010.
- NHC Lease Performance: Monitor the financial health of National HealthCare Corporation (NHC), given that 63% of rental income is derived from this single lessee.
- Reimbursement Trends: Track federal and state legislative changes regarding Medicare and Medicaid reimbursement rates, as these directly impact the ability of tenants to meet lease obligations.
- Debt Refinancing: Confirm the terms and utilization of the new $100 million credit facility established in February 2010, which matures in February 2011.
- Discontinued Operations: Review the status of the six Texas facilities classified as "held for sale" and the progress of their disposition.