National Health Investors(NHI) - 2020 Q2 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the company's unaudited condensed consolidated financial statements and notes for the period ended June 30, 2020 Condensed Consolidated Balance Sheets Total assets grew to $3.17 billion, driven by real estate investments, while total liabilities also increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Real estate properties, net | $2,691,376 | $2,560,393 | | Mortgage and other notes receivable, net | $300,130 | $340,143 | | Cash and cash equivalents | $46,853 | $5,215 | | Total Assets | $3,166,971 | $3,042,235 | | Liabilities & Equity | | | | Debt | $1,554,241 | $1,440,465 | | Total Liabilities | $1,663,502 | $1,543,983 | | Total Equity | $1,503,469 | $1,498,252 | | Total Liabilities and Stockholders' Equity | $3,166,971 | $3,042,235 | Condensed Consolidated Statements of Income Net income for H1 2020 rose significantly to $105.4 million, boosted by a $21.0 million gain on real estate sales Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2020 (unaudited) | Q2 2019 (unaudited) | H1 2020 (unaudited) | H1 2019 (unaudited) | | :--- | :--- | :--- | :--- | :--- | | Rental income | $77,917 | $72,578 | $154,444 | $143,531 | | Total Revenues | $84,174 | $78,096 | $167,271 | $154,204 | | Gains on sales of real estate | $0 | $0 | $21,007 | $0 | | Net income attributable to common stockholders | $44,368 | $39,979 | $105,392 | $75,658 | | Diluted EPS | $0.99 | $0.92 | $2.36 | $1.75 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased while lower investing activity and property sales proceeds boosted cash reserves Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2020 (unaudited) | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $116,809 | $126,914 | | Net cash used in investing activities | ($80,125) | ($268,029) | | Net cash provided by financing activities | $13,065 | $147,741 | | Increase in cash and cash equivalents | $49,749 | $6,626 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, credit loss standard adoption, and the impact of COVID-19 on operations - NHI is a self-managed REIT with $3.24 billion in 227 properties and $305.3 million in 16 mortgage notes as of June 30, 2020[32] - The company adopted ASU 2016-13 (Credit Losses), resulting in an initial allowance of $3.9 million for mortgage notes[44][46] - No rent concessions were granted due to COVID-19 as of June 30, 2020, but a $2.1 million Q3 rent deferral was agreed for Bickford[115] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, portfolio activity, liquidity, and the significant impact of the COVID-19 pandemic Executive Overview and Portfolio The company's $3.55 billion portfolio consists of 243 senior housing and medical facilities across 34 states Portfolio Summary as of June 30, 2020 (in thousands) | Category | Properties | Revenue | % of Revenue | Investment | | :--- | :--- | :--- | :--- | :--- | | Real Estate Properties | | | | | | Senior Housing - Need-Driven | 107 | $53,447 | 31.9% | $1,244,467 | | Senior Housing - Discretionary | 43 | $53,211 | 31.8% | $1,339,306 | | Medical Facilities | 77 | $44,331 | 26.5% | $660,789 | | Total Real Estate Properties | 227 | $150,989 | 90.2% | $3,244,562 | | Mortgage & Other Notes Receivable | 16 | $12,079 | 7.3% | $305,319 | | Total Portfolio | 243 | $167,271 | 100.0% | $3,549,881 | COVID-19 Pandemic Impact The pandemic strained operators, but NHI collected nearly all Q2 2020 rent and maintains sufficient liquidity - The pandemic is expected to adversely affect operator revenues through decreased occupancy and increased costs for health and safety measures[157][158] - NHI collected ~100% of contractual rents for Q2 2020 and ~97% for July 2020[159] - Effective July 1, 2020, NHI agreed to defer $2.1 million in Q3 2020 rent from Bickford, with the deferral potentially forgiven if a sale of nine properties closes[159] Investment Highlights and Other Portfolio Activity The company invested or committed $192.4 million in H1 2020, including a major CCRC joint venture Key Investments and Commitments (H1 2020, in thousands) | Transaction | Asset Class | Amount | | :--- | :--- | :--- | | Bickford Senior Living (Lease) | SHO | $15,100 | | Life Care Services (Lease) | SHO | $134,892 | | Autumn Trace (Lease) | SHO | $14,250 | | Bickford Senior Living (Note) | SHO | $14,200 | | Total Highlighted | | $178,442 | - Disposed of a portfolio of eight assisted living properties for $39.3 million, recognizing a gain of $20.8 million[63][185] - Tenant health is monitored via EBITDARM coverage, which was 1.69x for the total portfolio as of March 31, 2020, though senior housing has softened[195][197][198] Results of Operations Revenues and net income grew in Q2 and H1 2020, driven by new investments and gains on property sales Comparison of Results (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | H1 2020 | H1 2019 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $84,174 | $78,096 | +7.8% | $167,271 | $154,204 | +8.5% | | Depreciation | $20,847 | $19,020 | +9.6% | $41,290 | $37,511 | +10.1% | | Gains on sales of real estate | $0 | $0 | N/A | $21,007 | $0 | N/A | | Net income attr. to common stockholders | $44,368 | $39,979 | +11.0% | $105,392 | $75,658 | +39.3% | Liquidity and Capital Resources The company maintains strong liquidity with cash, revolver availability, and a 4.8x net debt to EBITDA ratio - Primary liquidity sources are rent, debt service payments, property sales, equity offerings, and credit facilities[219] - As of June 30, 2020, liquidity included $46.9M in cash, $137.0M available on the revolver, and a $500M ATM program, with a new $100M term loan added in July 2020[217][218] Key Debt Metrics | Metric | As of/For the period ended June 30, 2020 | | :--- | :--- | | Consolidated Net Debt | $1,507,388,000 | | Consolidated Net Debt to Annualized Adjusted EBITDA | 4.8x | | Fixed Charge Coverage (H1 2020) | 5.8x | FFO, AFFO & FAD (Non-GAAP Measures) Key non-GAAP metrics like Normalized FFO and AFFO per share showed solid growth in H1 2020 Non-GAAP Performance per Diluted Share | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | NAREIT FFO | $2.81 | $2.67 | +5.2% | | Normalized FFO | $2.82 | $2.67 | +5.6% | | Normalized AFFO | $2.65 | $2.48 | +6.9% | - Normalized FAD attributable to common stockholders for H1 2020 was $120.5 million, an increase of 9.7% from H1 2019[271][273] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $563 million of unhedged variable-rate debt - The company is exposed to interest rate risk on $563 million of variable-rate debt as of June 30, 2020[276] - A 50 basis-point change in interest rates would result in an annual change to net interest expense of approximately $2,815,000[277] Debt Composition by Rate Type (in thousands) | Rate Type | Balance at June 30, 2020 | % of Total | | :--- | :--- | :--- | | Fixed Rate (including swaps) | $998,473 | 64.0% | | Variable Rate (unhedged) | $563,000 | 36.0% | | Total Debt | $1,561,473 | 100.0% | Controls and Procedures Management concluded that disclosure controls and procedures were effective with no significant changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[283] - There were no material changes in internal control over financial reporting during the quarter[285] Part II. Other Information Legal Proceedings The company is involved in ongoing litigation but does not expect a material adverse effect on its financial condition - Litigation is ongoing with East Lake Capital Management LLC following a suit filed in June 2018, with NHI filing counterclaims[289] - Management believes pending legal proceedings will have no direct material adverse effect on the company's financials[288] Risk Factors A significant new risk factor was added to address the material adverse effects of the COVID-19 pandemic - A new, significant risk factor has been added to address the impact of the COVID-19 pandemic[291] - Key pandemic risks include tenant financial distress, constrained access to capital, and potential adverse effects on dividend payments[291][292][293] Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and XBRL data files - Filed exhibits include an amendment to the Articles of Incorporation, certifications from the CEO and CFO, and Inline XBRL documents[297] Signatures - The report was duly signed on August 10, 2020, by the President and Chief Executive Officer and the Chief Financial Officer[300]