National Health Investors(NHI) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The financial statements for Q3 2021 reflect decreased total assets, revenues, and net income, primarily due to asset sales, rent concessions, and increased loan and realty losses Condensed Consolidated Balance Sheets - Total assets decreased by approximately $208.3 million, primarily driven by a reduction in net real estate properties. Total liabilities decreased by $234.6 million, largely due to a reduction in debt[9] Condensed Consolidated Balance Sheet Summary (in thousands) | Account | September 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,912,177 | $3,120,489 | | Real estate properties, net | $2,428,449 | $2,667,432 | | Mortgage and other notes receivable, net | $284,608 | $292,427 | | Cash and cash equivalents | $48,393 | $43,344 | | Total Liabilities | $1,362,971 | $1,597,544 | | Debt | $1,285,287 | $1,499,285 | | Total Equity | $1,549,206 | $1,522,945 | | Total Liabilities and Stockholders' Equity | $2,912,177 | $3,120,489 | Condensed Consolidated Statements of Income - For the nine months ended September 30, 2021, total revenues decreased by 9.0% YoY, and net income attributable to common stockholders decreased by 28.8% YoY. The decline was significantly impacted by a $22.6 million increase in loan and realty losses[11] Condensed Consolidated Statements of Income Summary (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $73,833 | $84,301 | $229,048 | $251,572 | | Rental income | $67,043 | $77,821 | $210,143 | $232,266 | | Total Expenses | $62,368 | $40,912 | $147,287 | $122,413 | | Loan and realty losses (gains) | $22,425 | $(193) | $23,596 | $1,002 | | Net income attributable to common stockholders | $30,814 | $42,595 | $105,327 | $147,986 | | Diluted EPS | $0.67 | $0.95 | $2.31 | $3.31 | Condensed Consolidated Statements of Cash Flows - Cash from operations decreased by $19.0 million YoY. Investing activities generated $163.4 million in cash, a significant shift from the prior year's use of $83.4 million, primarily due to $203.1 million in proceeds from real estate sales. Financing activities used significantly more cash ($317.0 million vs. $57.7 million) due to net repayments on the revolving credit facility and term loans[16] Condensed Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Category | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $157,501 | $176,527 | | Net cash provided by (used in) investing activities | $163,358 | $(83,418) | | Net cash used in financing activities | $(317,007) | $(57,664) | | Increase in cash and cash equivalents | $3,852 | $35,445 | Notes to Condensed Consolidated Financial Statements Notes detail the company's healthcare REIT business, significant acquisitions, dispositions, debt restructuring, COVID-19 lease concessions, and dividend reduction - The company is a self-managed REIT specializing in senior housing and medical facility investments, with a portfolio of approximately $3.0 billion in 208 properties across 34 states as of September 30, 2021[27] - Due to the COVID-19 pandemic, the company provided $19.9 million in lease concessions during the first nine months of 2021, accounting for them as variable lease payments[45][119] - During Q3 2021, the company reclassified three properties to assets held for sale and recorded impairment charges of approximately $16.6 million. Additional impairments of $5.9 million were recognized on two other properties sold during the quarter[59][60] - On April 1, 2021, the company's 3.25% senior unsecured convertible notes matured and were retired for $67.1 million, including a $6.1 million conversion premium[93] - On January 26, 2021, the company issued $400.0 million of 3.00% senior notes due 2031, using the net proceeds of $392.3 million to repay a term loan and reduce borrowings on its revolving credit facility[100] - The quarterly dividend was reduced from $1.1025 to $0.90 per share starting with the dividend declared on June 3, 2021[126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact on tenant operations, portfolio management through dispositions and investments, declining financial performance, and strategic actions to maintain liquidity and strengthen the balance sheet Portfolio and COVID-19 Impact - As of September 30, 2021, NHI's portfolio consisted of 222 facilities across 34 states, including 144 senior housing properties and 75 skilled nursing facilities, with a total investment cost of approximately $3.3 billion[148][153] - The COVID-19 pandemic continues to significantly impact tenant operations through reduced occupancy and increased costs. This has led NHI to provide rent concessions to tenants[157] Cumulative Rent Concessions Since Pandemic Began (in thousands) | Tenant | Deferrals | Abatements | Collections | | :--- | :--- | :--- | :--- | | Bickford | $17,500 | $2,100 | $— | | Holiday | $1,800 | $— | $— | | All Others | $5,555 | $50 | $44 | | Total | $24,855 | $2,150 | $44 | - The company has agreed to further rent deferrals with Bickford for Q4 2021 ($4.5 million) and potentially Q1 2022 (up to $4.0 million)[159] Investment and Disposition Activity 2021 Investment Highlights (in thousands) | Investment | Asset Class | Amount | | :--- | :--- | :--- | | Vizion Health (Real Estate) | HOSP | $40,250 | | Navion (Real Estate) | SHO | $6,600 | | Montecito Medical (Note) | MOB | $50,000 | | Vizion Health-Brookhaven (Note) | HOSP | $20,000 | | Navion Senior Solutions (Note) | SHO | $3,600 | | Total | | $120,450 | - During the nine months ended September 30, 2021, the company completed real estate dispositions with net proceeds of $216.0 million, resulting in a net gain of $20.5 million after accounting for impairments[170] - In Q3 2021, three transition properties were reclassified to assets held for sale, resulting in impairment charges of $16.6 million. An additional $5.9 million in impairments were recognized on two other properties that were sold[171][172] Tenant Performance and Monitoring - Four tenants—Senior Living Communities, NHC, Bickford Senior Living, and Holiday Retirement—each accounted for 10% or more of total revenues for the nine months ended September 30, 2021[179] - Following the acquisition of its management services by Atria Senior Living, Holiday Retirement has not paid contractual rent since July 30, 2021. NHI has placed the tenant on a cash basis, with $4.8 million in rent due but unrecognized for August and September 2021[180] EBITDARM Coverage Ratio (Trailing 12-Months as of June 30) | Asset Type | 2Q21 | 2Q20 | | :--- | :--- | :--- | | SHO | 1.06x | 1.17x | | SNF | 2.80x | 2.90x | | TOTAL | 1.64x | 1.74x | - The senior housing (SHO) portfolio coverage declined, primarily due to softening occupancy and rising expenses, exacerbated by the COVID-19 pandemic. Bickford's coverage fell to 0.97x and Holiday's to 0.94x[188][189] Results of Operations Analysis - For Q3 2021 vs Q3 2020, rental income decreased by $10.8 million (13.8%), primarily due to $5.8 million in rent concessions, Holiday's nonpayment of $4.8 million, and property dispositions[196][198] - For the nine months ended Sep 30, 2021 vs 2020, rental income decreased by $22.1 million (9.5%), driven by $17.2 million in rent concessions, Holiday's nonpayment, and dispositions[199][200] - Loan and realty losses increased by $22.6 million for both the three and nine-month periods, primarily from $22.5 million in impairment charges on five properties in Q3 2021[198][200] Liquidity and Capital Resources - As of September 30, 2021, the company had $48.4 million in unrestricted cash and $550.0 million available on its revolving credit facility[201] - In January 2021, the company issued $400 million in 3.00% senior notes due 2031 and used the proceeds to repay a $100 million term loan and reduce borrowings on its credit facility[213] - The company's Consolidated Net Debt to Annualized Adjusted EBITDA ratio was approximately 4.8x for the three months ended September 30, 2021[221] - During the first nine months of 2021, the company sold 661,951 common shares through its ATM program, generating net proceeds of approximately $47.9 million[230] FFO & FAD - Normalized FFO per diluted share for the nine months ended September 30, 2021, decreased by 16.1% to $3.55 from $4.23 in the prior year, primarily due to the effects of the COVID-19 pandemic[247][253] FFO & FAD Reconciliation Summary (in thousands, except per share) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $105,327 | $147,986 | | NAREIT FFO attributable to common stockholders | $162,233 | $188,538 | | Normalized FFO attributable to common stockholders | $162,043 | $188,918 | | Normalized FAD attributable to common stockholders | $163,561 | $180,738 | | Normalized FFO per diluted share | $3.55 | $4.23 | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on variable-rate debt through swaps, with no unhedged exposure as of Q3 2021, while stock price volatility impacts compensation expense - As of September 30, 2021, the company had no outstanding variable rate debt exposed to interest rate risk, as its $400 million in variable-rate bank term loans are hedged through interest-rate swaps that expire in December 2021[257][258] - A 50 basis-point increase in market rates would decrease the estimated fair value of the company's mortgage and other loans by approximately $7.2 million[263] - Elevated stock price volatility since the start of the COVID-19 pandemic has increased the fair value of stock option grants, resulting in higher stock-based compensation expense. The fair value of options granted in February 2021 was $14.54 per share, $9.00 higher than grants in Q1 2020[265][266] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during the quarter - Based on an evaluation as of September 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[267] - There were no changes in internal control over financial reporting during the nine months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[269] Part II. Other Information Legal Proceedings The company is subject to ordinary course legal claims, with a specific lawsuit settled in September 2021 entitling NHI to $0.4 million - A lawsuit filed by East Lake Capital Management LLC in June 2018 was settled on September 22, 2021. Under the agreement, NHI is entitled to receive $0.4 million in Q4 2021 to settle all claims[272] Risk Factors No material changes to previously disclosed risk factors were reported during the nine months ended September 30, 2021 - There were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020, during the nine months ended September 30, 2021[273] Exhibits This section lists exhibits filed with the Form 10-Q, including key corporate documents, debt indentures, and CEO/CFO certifications - The exhibits filed include amendments to master leases, indentures related to the January 2021 senior notes offering, and CEO/CFO certifications[275]