National Health Investors(US:NHI)2021-05-11 19:04Financial Data and Key Metrics Changes - The net income per diluted common share for Q1 2021 was $0.78, down from $1.37 in Q1 2020, primarily due to a $21 million gain on the sale of real estate assets in the previous year, $4.2 million in rent deferrals, and a $3.6 million increase in non-cash stock-based compensation expense [21][22][23] - NAREIT FFO decreased by $0.12 to $1.23 from $1.35, and normalized FFO decreased by $0.12 or 9% to $1.24 [23][25] - Normalized FAD was essentially flat year-over-year at $59.6 million, up $550,000 sequentially from the fourth quarter [25] Business Line Data and Key Metrics Changes - The entrance fee in skilled nursing segments, which represent over 50% of cash revenue, performed well, while freestanding assisted living, memory care, and independent living segments experienced significant occupancy and margin declines [12][13] - Bickford, the largest assisted living operator, saw a 410 basis point sequential decline in average occupancy in Q1, but occupancy improved by 180 basis points in April [35][36] - Senior living communities had an average occupancy of 77.9% in Q1, up 60 basis points from the fourth quarter, while Holiday Retirement's average occupancy was 74.1%, down 310 basis points sequentially [38][39] Market Data and Key Metrics Changes - Active resident cases in the senior housing portfolio declined by 93% and by 97% in the skilled nursing portfolio since peaking in December [33] - The skilled nursing portfolio, representing 27% of annualized cash revenue, is anchored by strong tenants contributing 13% and 8% of annualized cash revenue respectively [41] Company Strategy and Development Direction - The company plans to restructure leases, sell underperforming assets, and change operators to achieve a portfolio of stronger assets and healthier EBITDARM coverage ratios [18] - A $50 million mezzanine loan with Montecito Medical was announced, aimed at investing primarily in medical office buildings, viewed as a chance to deploy capital at favorable risk-adjusted returns [16][44] - The company is focused on maintaining its investment-grade rating while exploring various levers, including capital recycling and potential changes to its dividend approach [19] Management's Comments on Operating Environment and Future Outlook - Management expects 2021 to be a difficult year as they help tenants bridge the gap to full occupancy and margin recovery, but they are optimistic about emerging stronger from the pandemic [10][11] - The company is cautious about the recovery trajectory, noting that robust pent-up demand is not yet evident in senior housing [30][46] Other Important Information - The company declared a first-quarter dividend of $1.1025, with payout ratios at 89.7% for normalized FFO and 84.9% for FAD [26] - Approximately $7.3 million in concessions for the second quarter were announced, with ongoing discussions for additional rent deferrals [27][28] Q&A Session Summary Question: Can you size the need for portfolio transformation through lease restructurings? - Management indicated that this is the year to address portfolio adjustments, estimating potential dispositions of $250 million to $400 million over the next eight months [50] Question: How big would a rent concession need to be for Holiday? - Management stated that the security deposit could cover rent for a period, but they prefer not to use it and are in ongoing discussions [55] Question: What are the repayment terms for rent concessions? - Management indicated that repayment could take between 12 to 24 months, depending on tenant cash flows [60] Question: Is Holiday current on its rent? - As of the latest update, Holiday is current on its rent, but discussions are ongoing [94] Question: What is the rationale behind the Montecito transaction? - The company is acting as a mezzanine lender, providing capital in a structure that allows for a blended cost of capital while participating in potential upside from asset sales [76][80] Question: How are rent deferrals treated in accounting? - Rent deferrals are not recognized as receivables and impact both FFO and FAD, flowing through the income statement [82]