National Health Investors(NHI) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter exceeded forecasts, marking the fourth consecutive quarter of outperformance, driven by stable cash collections, steady deferral repayments, and improving operator fundamentals [4][6] - Normalized FFO per share increased by 11.4% year-over-year, while total dollar FAD rose by 16.1% [6][17] - Net income per diluted common share for Q2 2024 was $0.81, down from $0.92 in the same period last year, but up 14.1% sequentially [16] Business Line Data and Key Metrics Changes - Senior housing operating portfolio (SHOP) NOI increased by 39.9% year-over-year to approximately $3 million, with occupancy improving to 87% from 75.5% [7][13] - The discretionary senior housing portfolio's coverage improved to 1.6 times, driven by performance improvements at various operators [12] - EBITDARM coverage for need-driven operators improved to 1.38 times, with Bickford's coverage at 1.67 times [10][13] Market Data and Key Metrics Changes - The company has sourced investment opportunities totaling over $1.8 billion, with board-approved signed LOIs of $155.4 million expected to close this year [4][5] - The investment pipeline includes approximately $270 million, primarily targeting senior housing assets and fee-simple real estate [5][9] Company Strategy and Development Direction - The company is focused on returning to pre-pandemic acquisition growth levels, with a strong emphasis on external investment activity as a significant driver of cash flow growth [5][8] - The updated guidance reflects a midpoint normalized FFO per share growth of 4.8% and a midpoint FAD growth of 7% compared to 2023 [7][24] - The company is agnostic to short-term economic fluctuations, believing it is positioned to succeed through all business cycle stages [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential of the senior housing market, supported by favorable demographic trends [8] - The company is optimistic about its future, indicating it is in the early stages of exceptional growth for several years to come [8] - Management noted that the timing of investments and rent resets will depend on operators' ability to improve their NOIs [34] Other Important Information - The company declared a $0.90 per share dividend for shareholders of record on September 27, 2024, payable on November 1, 2024 [20] - The balance sheet remains strong, with a net debt to adjusted EBITDA ratio of 4.2 times, well within the stated leverage policy [21][22] Q&A Session Summary Question: Will Blueprint look for replacement tenants for NHC? - Management confirmed that it is within Blueprint's scope to look for replacement tenants, with NHC having the right to renew the lease at market rates [27] Question: What are the main assumptions driving the expected deceleration in SHOP growth? - Management indicated that improvements in portfolio optimization and cash basis tenants are driving growth, with continued expectations for improvements over the prior year [28] Question: Are LOIs included in guidance? - Management clarified that guidance does not include effects from LOIs, only closed transactions are reflected [29] Question: Is FAD growth a moving target due to rent deferral repayments? - Management acknowledged that while FAD growth is influenced by deferral repayments, there are various organic opportunities contributing to growth [32] Question: What is the source of the $1.8 billion investment pipeline? - Management explained that the $1.8 billion represents a universe of opportunities being evaluated, including relationships built over the years and current market conditions [37][38] Question: How is the $270 million investment pipeline structured? - Management indicated that the pipeline is skewed towards fee-simple investments, with a focus on need-driven senior housing [40] Question: How does the company plan to manage leverage as the pipeline builds? - Management emphasized the importance of maintaining liquidity and investment-grade credit rating while being proactive in managing capital needs [52][53]