National Health Investors(US:NHI)2022-05-09 20:09Part I Financial Statements For the first quarter of 2022, National Health Investors, Inc. reported a significant decrease in net income to $8.4 million from $35.3 million in the prior-year period, primarily driven by $24.5 million in loan and realty losses and lower rental income, with total assets slightly decreasing to $2.80 billion and cash flow from operations declining to $38.7 million from $56.9 million year-over-year as the company managed its portfolio through dispositions and addressed tenant challenges Condensed Consolidated Statements of Income (Q1 2022 vs Q1 2021, in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | $71,327 | $80,885 | | Total Expenses | $66,208 | $44,242 | | Net Income | $8,246 | $35,384 | | Net Income Attributable to Common Stockholders | $8,399 | $35,332 | | Diluted EPS | $0.18 | $0.78 | Condensed Consolidated Balance Sheets (As of March 31, 2022, in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,802,503 | $2,838,876 | | Real estate properties, net | $2,201,084 | $2,317,880 | | Assets held for sale, net | $131,988 | $66,398 | | Total Liabilities | $1,313,706 | $1,321,893 | | Debt | $1,249,044 | $1,242,883 | | Total Equity | $1,488,797 | $1,516,983 | Condensed Consolidated Statements of Cash Flows (Q1 2022 vs Q1 2021, in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38,680 | $56,912 | | Net cash used in investing activities | ($2,060) | ($9,133) | | Net cash (used in) provided by financing activities | ($36,177) | $22,106 | Notes to Condensed Consolidated Financial Statements The notes detail the company's portfolio composition, significant accounting policies, and key financial events during the quarter, including real estate dispositions generating $13.2 million in proceeds, recognition of $24.6 million in impairment charges, and ongoing rent concessions related to the COVID-19 pandemic totaling $7.8 million, alongside the settlement of litigation with Welltower and restructuring of master lease agreements with Bickford Senior Living, and the establishment of a new $700 million unsecured revolving credit facility - As of March 31, 2022, the company's portfolio consisted of investments in 186 healthcare properties (120 senior housing, 65 skilled nursing, 1 hospital) and 15 mortgages, with a total investment value of approximately $2.8 billion24 - Completed real estate dispositions of a medical office building and a senior living community for net proceeds of $13.2 million, resulting in a net gain of $3.0 million42 - Recognized impairment charges of $24.6 million, included in "Loan and realty losses (gains)". 20 properties with a net balance of $132.0 million were classified as assets held for sale394546 - Provided $7.8 million in lease concessions related to the COVID-19 pandemic during Q1 2022, accounted for as variable lease payments41106 - Settled litigation with Welltower, Inc. regarding the Holiday portfolio, involving applying an $8.8 million lease deposit to past due rents and transitioning the properties to new operators and joint ventures effective April 1, 2022112113114 - Entered into a new $700 million unsecured revolving credit agreement, replacing the previous $550 million facility, with the new agreement maturing in March 202685 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 13.6% decrease in quarterly rental income primarily to increased rent concessions and property dispositions, with the period marked by significant portfolio management activities including the settlement with Welltower over the Holiday portfolio and a lease restructuring with Bickford Senior Living, alongside a $24.6 million impairment charge on real estate assets, while maintaining a strong balance sheet with $615 million available on its new credit facility and a consolidated net debt to Annualized Adjusted EBITDA ratio of 4.9x, and announcing a $240 million stock repurchase plan Portfolio and Tenant Analysis As of Q1 2022, the portfolio comprised 201 facilities, with 72% of total revenues concentrated among nine operators, including key tenants Senior Living Communities, Holiday, NHC, and Bickford each accounting for over 10% of revenues, as the company actively managed tenant relationships through the transition of 15 Holiday properties into new SHOP joint ventures and a lease restructure with Bickford to set rent at approximately $28 million annually until April 2024, despite declining portfolio coverage ratios with total portfolio EBITDARM coverage dropping from 1.78x to 1.54x due to occupancy and expense pressures Top Tenant Revenue Concentration (Q1 2022, in thousands) | Tenant | Revenue (in thousands) | % of Total Revenue | | :--- | :--- | :--- | | Senior Living Communities | $12,751 | 18% | | Holiday Retirement | $9,797 | 14% | | National HealthCare Corporation (NHC) | $9,189 | 13% | | Bickford Senior Living | $7,038 | 10% | - Effective April 1, 2022, 15 former Holiday properties were transitioned into two new Senior Housing Operating Portfolio (SHOP) joint ventures where NHI holds majority interests138166 - Bickford's four master leases were restructured effective April 1, 2022, setting annual rent at approximately $28.0 million through April 1, 2024, with lease extensions169 Total Portfolio EBITDARM Coverage Ratio (Trailing 12-Months) | Period | Coverage Ratio | | :--- | :--- | | 4Q20 | 1.78x | | 4Q21 | 1.54x | Results of Operations For Q1 2022 compared to Q1 2021, total revenues decreased by 11.8% to $71.3 million, while total expenses increased by 49.6% to $66.2 million, driven by a $10.2 million drop in rental income due to rent concessions and property dispositions, and a $24.6 million charge for loan and realty losses (impairments) and a $1.7 million increase in legal costs, leading to a 76.7% decrease in net income to $8.2 million - Rental income decreased by $10.2 million (13.6%), mainly from $3.6 million in additional rent concessions and $6.3 million from properties disposed of since April 1, 2021190 - Loan and realty losses increased by $24.6 million due to impairment charges on three real estate properties during the quarter190 - Interest expense decreased by $2.8 million (21.4%) following the expiration of interest rate swap agreements and repayment of debt190 - A gain on sale of real estate of $3.0 million was recognized, primarily from the disposition of a medical office building190 Liquidity and Capital Resources As of March 31, 2022, the company had strong liquidity with $36.1 million in cash and $615.0 million available on its new $700.0 million revolving credit facility, with total debt at $1.2 billion and a consolidated net debt to Annualized Adjusted EBITDA ratio of 4.9x, following key financing activities including entering the new credit facility and repaying a $75.0 million term loan, and expects cash from operations to be adequate to fund dividends at the current rate - Primary sources of liquidity include $36.1 million in cash and cash equivalents and $615.0 million available on the revolving credit facility191 - On March 31, 2022, the company entered into a new $700.0 million unsecured revolving credit facility maturing in March 2026, replacing its previous $550.0 million facility197 - The consolidated net debt to Annualized Adjusted EBITDA ratio was 4.9x for the three months ended March 31, 2022207 - On April 15, 2022, the Board approved a new stock repurchase plan for up to $240 million of common stock over one year215 Funds From Operations (FFO) & Funds Available for Distribution (FAD) For Q1 2022, Normalized FFO per diluted share decreased 11.3% to $1.10 from $1.24 in Q1 2021, attributed to the impacts of the COVID-19 pandemic and increased legal fees, partially offset by the recognition of the Holiday lease deposit and lower interest expense, while Normalized FAD for the quarter was $52.7 million, a decrease of 11.5% from $59.6 million in the prior-year period FFO & FAD Reconciliation Summary (Q1 2022 vs Q1 2021, in thousands) | Metric (in thousands) | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $8,399 | $35,332 | | NAREIT FFO attributable to common stockholders | $48,084 | $55,928 | | Normalized FFO attributable to common stockholders | $50,374 | $56,379 | | Normalized FAD attributable to common stockholders | $52,669 | $59,551 | | Normalized FFO per diluted share | $1.10 | $1.24 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $385.0 million of variable-rate debt and the unused portion of its $700 million revolving credit facility, where a hypothetical 50 basis-point (0.50%) change in interest rates would result in an approximate $1.9 million annual change in net interest expense, following the maturity of its interest rate swap agreements on December 31, 2021 - As of March 31, 2022, the company had $385.0 million of variable-rate debt outstanding, representing approximately 30.5% of its total debt243246 - A 50 basis-point increase or decrease in interest rates on variable-rate debt would change annual net interest expense by approximately $1.9 million244 Controls and Procedures Based on an evaluation as of March 31, 2022, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, with no significant changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022249 - No changes in internal control over financial reporting were identified during the quarter that have materially affected or are reasonably likely to materially affect internal controls251 Part II. Other Information Legal Proceedings The company was involved in litigation with Welltower, Inc. regarding a master lease for 17 senior living facilities formerly operated by Holiday, with NHI filing suit in December 2021 alleging default and fraudulent inducement, which was settled effective April 1, 2022, resulting in NHI receiving escrowed funds and the properties being transitioned to new operators or sold - NHI filed suit against Welltower, Inc. and its subsidiaries on December 20, 2021, in the Delaware Court of Chancery for failure to pay rent and other obligations related to the Holiday portfolio256 - A settlement agreement was reached on March 31, 2022, applying an $8.8 million lease deposit to past due rents, and releasing $6.9 million in escrowed funds to NHI257259 - Effective April 1, 2022, the master lease was terminated, the lawsuit was dismissed, and the properties were transitioned into new SHOP ventures, leased to another operator, or sold258259 Risk Factors 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, 2021 - No material changes to risk factors were reported for the three months ended March 31, 2022260 Other Information On May 6, 2022, the Compensation Committee of the Board of Directors approved an adjusted annual salary of $275,000 for David L. Travis, the company's Senior Vice President/Chief Accounting Officer - The company's Chief Accounting Officer, David L. Travis, received an adjusted annual salary of $275,000, effective May 6, 2022261 Exhibits This section lists the exhibits filed with the Form 10-Q, including the new Credit Agreement, the Settlement Agreement with Welltower, and various officer certifications