National Health Investors, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. NHI is a healthcare real estate investment trust operating through Real Estate Investments and its new Senior Housing Operating Portfolio (SHOP) segment.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $76.3 million | $73.8 million | $207.5 million | $229.0 million |
| Net income | $34.2 million | $30.8 million | $63.9 million | $105.5 million |
| Net income attributable to common stockholders | $34.5 million | $30.8 million | $64.5 million | $105.3 million |
| Diluted EPS | $0.78 | $0.67 | $1.43 | $2.31 |
| NOI | $64.7 million | $70.7 million | $181.6 million | $221.5 million |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $139.0 million | $157.5 million |
Q3 revenue rose 3.3%, with SHOP resident fees contributing $12.0 million after operations began in April. Nine-month revenue declined 9.4%; common-stockholder earnings fell 38.7%, and NOI declined 18.0%. The filing attributes the year-to-date weakness to property sales, lower rental income and Bickford-related write-offs, partly offset by SHOP revenue, lower interest expense and property-sale gains. Nine-month NAREIT FFO per diluted share was $2.81 versus $3.55; Normalized FFO was $3.43 versus $3.55, and Normalized FAD was $156.1 million versus $163.6 million.
Balance sheet, debt and liquidity
- At September 30, total assets were $2.509 billion, debt carrying value was $1.115 billion, and stockholders’ equity was $1.306 billion. Cash and cash equivalents were $28.8 million.
- Debt principal was $1.127 billion, including $250 million of variable-rate debt. NHI reported $690 million available under its $700 million revolving facility at quarter-end; no revolver borrowings were outstanding at October 31.
- Management reported net debt to annualized Adjusted EBITDA of 4.5x and nine-month fixed-charge coverage of 6.2x. The company was in compliance with debt covenants.
- Scheduled principal maturities include $415.4 million in 2023. Contractual debt payments including interest total $407.5 million due within one year.
- Operating cash flow was $139.0 million. Investing activities provided $247.1 million, principally from $169.0 million of property-sale proceeds and $118.0 million of note collections. Financing used $393.9 million, including $122.7 million of dividends and $152.0 million of share repurchases.
Material changes and significant items
- Effective April 1, NHI moved 15 independent-living properties from a triple-net lease into two consolidated SHOP ventures. Q3 SHOP revenue was $12.0 million and NOI was $2.8 million; September SHOP occupancy was 76.6%.
- NHI sold 22 properties during the first nine months for net proceeds of approximately $169.0 million and recorded $28.3 million in gains. Ten properties with a net carrying value of $32.6 million were held for sale at quarter-end.
- Real estate impairment charges were $38.3 million for the nine months, including $9.5 million in Q3, compared with $22.5 million in the comparable 2021 period. The credit-loss reserve on notes was $6.9 million.
- NHI wrote off $18.1 million of Bickford straight-line rent receivables and $7.1 million of lease incentives in Q2 after moving the leases to cash-basis revenue recognition. Management said information on Bickford’s finances raised substantial doubt about its ability to continue as a going concern.
- Bickford’s restructured leases lower combined annual rent to approximately $28.3 million through April 2024, with a later fair-market reset subject to a floor. Repayment of $26.0 million in pandemic deferrals is tied to revenue-based payments; up to $6.0 million of deferrals may be reduced if specified targets and transitions are achieved.
- Aggregate pandemic-related rent concessions were $53.2 million net of repayments, of which $47.3 million were contractually agreed to be repaid. NHI granted no pandemic rent deferrals in Q3.
- The Welltower dispute was settled and dismissed in April. NHI received $6.9 million of escrowed funds as rental income and transferred the 15 properties into SHOP, among other transition outcomes.
Outlook, risks and contingencies
NHI provided no specific earnings or FFO guidance. Management expected full-year 2022 operating cash flow to cover dividends at the current rate and said short-term liquidity needs would be met principally through operating cash flow, the revolver and property sales. The board declared a $0.90-per-share dividend in November, payable in January 2023.
Key risks include tenant and borrower credit and concentration, occupancy and expense pressures, COVID-19 impacts, healthcare reimbursement and regulation, refinancing and floating-rate exposure, property impairments, and SHOP operating and management risks. Senior-housing coverage weakened amid softer occupancy and wage pressure; reported Bickford coverage was 1.00x for the latest available trailing period. NHI had $63.9 million of remaining loan commitments and $9.3 million of remaining development commitments. A 50-basis-point increase in variable borrowing rates was estimated to raise annual net interest expense by about $1.3 million. Hurricane Ian caused minimal to no reported property damage.
Important facts for investors to verify
- Whether Bickford meets its revised rent and deferred-rent repayment terms, and whether its operating condition worsens.
- The pace and pricing of planned property sales and the disposition of the ten properties held for sale.
- SHOP occupancy, operating costs and NOI trends as NHI assumes operating exposure previously held by tenants.
- Ability to refinance or repay the $415.4 million of 2023 debt maturities while maintaining covenant compliance and dividend coverage.
- Whether portfolio impairments, credit-loss reserves and pandemic-related concessions require further increases or concessions.
- Execution and funding of remaining loan and development commitments, and the continued sustainability of the $0.90 quarterly dividend.