National Health Investors(NHI)2024-11-06 17:59Financial Data and Key Metrics - Net income per diluted common share for Q3 2024 was $0.65, down from $0.68 in the same period last year [25] - NAREIT and normalized FFO per diluted common share decreased 4.6% to $1.03 compared to the prior year's third quarter [26] - FAD for the quarter increased 2.5% to $49.4 million from $48.2 million in the prior year's third quarter [26] - SHOP NOI increased 30.4% year-over-year and 2.5% sequentially to $3 million [22] - SHOP occupancy improved to 88.6% from 79% year-over-year, contributing to a 320 basis points margin expansion to 22% [23] Business Line Data and Key Metrics - Senior Living Management (SLM) ceased lease and interest payments, leading to a $1 million reduction in lease and interest payments [27] - Bickford's EBITDARM coverage improved to 1.72x, up from 1.45x in Q2 2024 [16] - Bickford's occupancy improved by 80 basis points sequentially to 86.2% [17] - The SNF portfolio reported EBITDARM coverage of 3.04x, up from 2.97x in the previous quarter [22] - The discretionary senior housing portfolio, including entrance fee properties, had EBITDARM coverage of 1.64x, up from 1.6x in the previous quarter [21] Market Data and Key Metrics - SHOP occupancy improved by 160 basis points sequentially, reaching 89.1% by the end of September [23] - Resident fees increased by 11.4% year-over-year, driven by occupancy improvements [23] - The company expects to reduce move-in incentives as occupancy approaches 90%, leading to margin improvements [24] Company Strategy and Industry Competition - The company closed $205 million in investments year-to-date at an average initial yield of 8.4%, including a $121 million acquisition of the Spring Arbor portfolio [7] - The company has a pipeline of $1.9 billion in investment opportunities, with $59.8 million in board-approved deals expected to close this year or early next year [7] - The company is pursuing large portfolios, including SHOP and skilled nursing deals, not included in the pipeline numbers [8] - The company's cost of capital has improved significantly over the last 12 months, supported by industry fundamentals and reduced portfolio optimization noise [8] - The company sees tailwinds from low inventory growth (1%) and new starts at the lowest level since 2010, along with demographic trends [9] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the future, citing strong financial positioning and multi-faceted growth opportunities [9] - The company expects to recapture a significant portion of lost NOI from SLM transitions by 2025 [20] - Management tightened SHOP NOI growth guidance to 28%-30%, up from 25%-30% [24] - The company is monitoring the long-term bond market in 2025, given its reliance on the revolving credit facility for liquidity [32] Other Important Information - The company completed a $189 million equity offering, with $65 million in future proceeds available [29] - The company amended its $700 million revolving credit facility, extending the maturity to October 2028 [31] - The company declared a $0.90 per share dividend for shareholders of record December 31, 2024 [34] - Chairman Andy Adams will retire effective December 31, 2024 [11] Q&A Session Summary Question: Thoughts on PACS and NHI's coverage post-transition - PACS is a smaller customer, with less than 3% of revenue, and half of that related to assisted living [38] - EBITDARM coverage for PACS properties is over 2x, based on prior operator performance [38] - The company is monitoring PACS closely but sees no immediate concerns [39] Question: Expected yields and mix in the investment pipeline - The pipeline includes debt, triple net lease, and SHOP deals, with expected yields of 8% or more [41] - SHOP yields may compress slightly as the market becomes more competitive [41] Question: Recovery expectations for SLM-related NOI - The company expects to recover normal rent levels by the second half of 2025 [47] - Two properties are cash-flowing and expected to return to full rent by early 2025 [49] - One property is expected to sell within 30-60 days, with interest accruing post-sale [50] Question: Impact of the election on healthcare and labor costs - Management is cautiously optimistic about the regulatory environment under the new administration [55] - Labor costs have stabilized, with no expected retrenchment in employment rates [60] Question: Board updates and state-level election impacts - The company is finalizing a new independent board member, to be presented in the next proxy season [63] - State-level subsidy programs for skilled nursing operators are being closely monitored [65] Question: Investment pace and overhead - The company expects to close $200-$400 million in investments annually, with potential for higher volumes if cost of capital remains attractive [69] - The company recently hired a Senior Vice President of Legal Affairs to support increased deal activity [70] Question: SHOP NOI growth and rate increases - The company expects to reduce incentives as occupancy stabilizes above 90%, leading to margin improvements [72] - Rate increases are expected to flow through to the bottom line by early to mid-2025 [72] Question: SHOP strategy and length of stay trends - The company's strategy of using pricing to drive occupancy has been successful, with nearly half of buildings reaching 90% occupancy [76] - Length of stay has stabilized but remains below pre-pandemic levels, influencing pricing decisions [79] Question: Medicare Advantage and SNF exposure - Management is cautiously optimistic about potential rate increases and a favorable regulatory environment under the new administration [81]