NHI Announces Second Quarter 2022 Results

MURFREESBORO, TN / ACCESSWIRE / August 8, 2022 / National Health Investors, Inc. (NYSE:NHI) announced today its results for the three and six months ended June 30, 2022.

Financial Results and Recent Events

• Net income attributable to common stockholders per diluted common share for the three months ended June 30, 2022 was $0.47, compared to $0.85, during the same period in the prior year. Net income attributable to common stockholders per diluted common share for the six months ended June 30, 2022 was $0.66, compared to $1.63 during the same period in the prior year.
• National Association of Real Estate Investment Trusts ("NAREIT") FFO per diluted common share for the three months ended June 30, 2022 was $0.71, compared to $1.16 during the same period in the prior year. NAREIT FFO per diluted common share for the six months ended June 30, 2022 was $1.76, compared to $2.39 during the same period in the prior year.
• Normalized FFO per diluted common share for the three months ended June 30, 2022 was $1.26, compared to $1.16 during the same period in the prior year. Normalized FFO per diluted common share for the six months ended June 30, 2022 was $2.37, compared to $2.40 during the same period in the prior year.
• Normalized FAD for the three months ended June 30, 2022 was $56.3 million, compared to $52.8 million, during the same period in the prior year. Normalized FAD for the six months ended June 30, 2022 was $109.0 million, compared to $112.4 million during the same period in the prior year.
• During second quarter of 2022, NHI converted Bickford Senior Living ("Bickford") to the cash basis of accounting for its four master lease agreements, and wrote off approximately $18.1 million of straight-line rents receivable and $7.1 million of lease incentives to rental income.
• Effective April 1, 2022, NHI settled the outstanding litigation against Welltower and its related affiliates that resulted in the receipt of $6.9 million in previously escrowed cash and termination of the master lease for 17 legacy Holiday independent living facilities.
• Also, effective April 1, 2022, NHI formed a new Seniors Housing Operating Portfolio ("SHOP") reportable segment that is comprised of the operations of 15 legacy Holiday independent living facilities with a combined 1,731 units operated in two separate ventures on behalf of the Company by two independent managers. The ventures contributed approximately $2.9 million to NHI's net operating income ("NOI") during the quarter.
• Completed the disposition of 10 underperforming senior housing properties for net proceeds of approximately $76.3 million during the second quarter. Since the second quarter of 2021 the Company has completed the disposition of 31 senior housing properties for net proceeds of approximately $288.2 million with a cumulative EBITDARM coverage of 0.50x.
• Repurchased approximately 1.2 million shares for $70 million under the Company's $240 million share repurchase authorization. As a result, quarterly dividends declined by approximately $4.3 million on an annualized basis.
• Reduced debt by approximately $145.0 million and reported net debt to Adjusted EBITDA of 4.0x for the second quarter of 2022 with no balance outstanding on the $700 million revolver as of June 30, 2022.
• Results for the three months ended June 30, 2022 compared to the same period in the prior year were impacted by the following:
• Rental income excluding the effects of straight-line lease revenue and property taxes and insurance on leased properties was approximately $9.3 million lower primarily from the $7.1 million write off of Bickford's lease incentives and asset dispositions completed since the end of the second quarter of 2021. Rental income includes approximately $6.9 million related to the previously disclosed litigation settlement with Welltower (NYSE: WELL);
• Interest income and other was approximately $1.9 million higher primarily from increased commitment fundings on existing new loans and the origination of new loans since the end of the second quarter of 2021;
• The new SHOP activities contributed NOI of approximately $2.9 million comprised of revenues from resident fees and related services of $12.0 million and operating expenses of $9.1 million;
• Interest expense was approximately $2.0 million lower, as a result of the expiration of NHI's interest rate swap agreements on December 31, 2021 and the repayments of indebtedness, including the payoffs of the convertible bond that matured in April 2021 and $250.0 million on term loans;
• General and administrative expenses were approximately $1.5 million higher;
• Gains from the sales of real estate assets were $10.5 million, representing an increase of $4.0 million;
• Loan and realty losses were $4.1 million, representing an increase of $2.9 million;
• Depreciation expense was approximately $2.9 million lower primarily from dispositions completed since July 1, 2021; and
• Gain on note payoff of $1.1 million was recognized for the prepayment fee received from the early repayment of a $111.3 million mortgage note receivable in the second quarter of 2022.

Eric Mendelsohn, NHI President and CEO, stated, "We have accomplished much of the portfolio optimization activity that we have regularly communicated including approximately $288.2 million of underperforming senior housing dispositions, restructuring of the Bickford lease, formation of our SHOP ventures, and issuing annual guidance in April of this year."

Mr. Mendelsohn continued, "Our second quarter GAAP results were impacted by our conversion of Bickford to cash basis accounting but were otherwise in-line with expectations. We have updated our guidance which includes a modest revision to FAD as our visibility continues to improve with the portfolio optimization efforts largely complete."

Mr. Mendelsohn concluded, "Our focus now is very much on returning to growth. We are in excellent financial health with leverage at the lower end of our targeted range which gives us significant capital to deploy without the need to issue equity in the immediate future."

Portfolio Activity

Asset Acquisition

On April 29, 2022, NHI acquired a 53-unit assisted living facility located in Oshkosh, Wisconsin, from Encore Senior Living. The acquisition price was $13.3 million and included the full payment of an outstanding construction note receivable to the Company of $9.1 million, including interest. The facility was added to an existing master lease for a term of 15 years at an initial lease rate of 7.25%, with an annual escalator of 2.5%.

Asset Dispositions

During the second quarter of 2022, NHI sold 11 properties with a net book value of approximately $85.1 million for net cash proceeds of approximately $95.8 million. The following table represents the real estate property dispositions within the Company's Real Estate Investments reportable segment through June 30, 2022 ($ in thousands):

¹ Total impairment charges recognized on these properties were $41.7 million. Impairment charges on these properties of $2.4 million were recognized in the second quarter, of which $2.3 million related to Bickford.

² Impairments are included in "Loan and realty losses" in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022.

The properties were previously classified as assets held for sale on the Condensed Consolidated Balance Sheet. Rental income for the disposed properties was $0.6 million and $2.6 million for the three and six months ended June 30, 2022, respectively.

Concessions and Collections

During the second quarter of 2022, NHI granted rent deferrals of approximately $3.9 million, including $2.9 million in pandemic related deferrals, to five senior housing operators. The Company collected approximately 94.0% of contractual cash due during the second quarter of 2022.

Occupancy

The following table summarizes the average portfolio occupancy for Senior Living Communities ("SLC"), Bickford and SHOP for the periods indicated, excluding development properties in operation less than 24 months, notes receivable, and properties transitioned to new tenants or disposed.

¹Prior periods restated to reflect the removal of one property that was transitioned to a new operator in March 2022.

²These properties were leased pursuant to a triple-net master lease prior to Q2 2022.

Assets Held for Sale & Impairments of Real Estate

At June 30, 2022, 13 properties in NHI's Real Estate Investments reportable segment, with an aggregate net real estate balance of $56.7 million, were classified as assets held for sale on the Condensed Consolidated Balance Sheet, including four properties that were transferred to assets held for sale during the second quarter of 2022. Rental income associated with the 13 properties was $1.0 million for both the three and six months ended June 30, 2022 and $1.6 million and $3.4 million for the three and six months ended June 30, 2021, respectively.

Balance Sheet and Liquidity

At July 31, 2022, NHI had no amount outstanding under the revolving credit facility and approximately $51.0 million in corporate cash and cash equivalents. The Company has approximately $415.7 million available under the ATM program.

Share Repurchase Plan

During the three months ended June 30, 2022, NHI repurchased through open market transactions 1,196,175 shares of its common stock for an average price of $58.52 per share, including commissions.

2022 Guidance

NHI has updated its range for 2022 annual guidance which was originally issued on April 18, 2022. A summary of the update includes the following:

• NAREIT FFO per diluted common share in a range of $3.86 - $3.92 compared to $4.32 - $4.42 previously
• Normalized FFO per diluted common share in a range of $4.48 - $4.53 compared to $4.38 - $4.48 previously
• Normalized Funds Available for Distribution in a range of $200.2 million - $203.0 million compared to $201.8 million - $206.4 million previously
• Weighted average diluted common shares of 45.2 million compared to 45.9 million previously

The Company's guidance range for the full year 2022, with underlying assumptions and timing of certain transactions, is set forth below:

NHI's 2022 annual guidance includes the following assumptions:

• Continued rent concessions, asset dispositions and loan repayments throughout 2022;
• Approximately $52.6 million in investment funding of existing commitments; and
• No incremental benefit from unidentified acquisitions or repayment of outstanding deferral balances.

In addition to the assumptions listed above, NHI's guidance range is based on several other assumptions, many of which are outside the Company's control and all of which are subject to change. The guidance range may change if actual results vary from these assumptions.

Investor Conference Call and Webcast

NHI will host a conference call on Tuesday, August 9, 2022, at 12:00 p.m. ET, to discuss second quarter results. The number to call for this interactive teleconference is (800) 768-2107, with the confirmation number 22019452. The live broadcast of NHI's second quarter conference call will be available online at www.nhireit.com. The online replay will follow shortly after the call and remain available for one year.

About National Health Investors

Incorporated in 1991, National Health Investors, Inc. (NYSE:NHI) is a real estate investment trust specializing in sale, leasebacks, joint-ventures, senior housing operating partnerships, and mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI's portfolio consists of independent living, assisted living and memory care communities, entrance-fee retirement communities, skilled nursing facilities, and specialty hospitals. For more information, visit www.nhireit.com.

The following table reconciles NOI to net income, the most directly comparable GAAP metric ($ in thousands):

See Notes to Reconciliation of FFO, Normalized FFO, Normalized FAD and NOI.

Notes to Reconciliation of FFO, Normalized FFO, Normalized FAD and NOI

These supplemental performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations ("FFO"), Normalized FFO and Normalized Funds Available for Distribution ("FAD") may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these performance measures, caution should be exercised when comparing our FFO, Normalized FFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP") (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of performance, or to net cash flow from operating activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs. Beginning in the first quarter of 2021, the Company is no longer presenting Adjusted Funds from Operations as a supplemental measure of operating performance.

Funds From Operations - FFO

FFO, as defined by NAREIT and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company's computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company's FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs.

FFO and Normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue.

Funds Available for Distribution - FAD

In addition to the adjustments included in the calculation of Normalized FFO, Normalized FAD excludes the impact of any straight-line rent revenue, amortization of the original issue discount on our senior unsecured notes, amortization of debt issuance costs, non-cash stock based compensation, as well as certain non-cash items related to our equity method investment.

Normalized FAD is an important supplemental performance measure for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires any discount or premium related to indebtedness and debt issuance costs to be amortized as non-cash adjustments to earnings. The Company also adjusts Normalized FAD for the net change in the allowance for expected credit losses, non-cash stock based compensation, senior housing portfolio capital expenditures as well as certain non-cash items related to equity method investments such as straight-line lease expense and amortization of purchase accounting adjustments. Normalized FAD is an important supplemental measure of liquidity for a REIT as a useful indicator of the ability to distribute dividends to stockholders.

Net Operating Income

Net operating income ("NOI") is a U.S. non-GAAP supplemental financial measure used to evaluate the operating performance of real estate. NOI is defined as total revenues, less tenant reimbursements and property operating expenses. The Company believes NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. The Company uses NOI to make decisions about resource allocations and to assess the property level performance of our properties.

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company's, tenants', operators', borrowers' or managers' expected future financial position, results of operations, cash flows, funds from operations, dividend and dividend plans, financing opportunities and plans, capital market transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, acquisition integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust ("REIT"), plans and objectives of management for future operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitation, those containing words such as "may", "will", "believes", "anticipates", "expects", "intends", "estimates", "plans", and other similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Such risks and uncertainties include, among other things; the impact of COVID-19 on our tenants, borrowers, economy and the Company; our ability to retain our management team and other personnel and attract suitable replacements should any such personnel leave; the operating success of our tenants and borrowers for collection of our lease and interest income; the success of property development and construction activities, which may fail to achieve the operating results we expect; the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings; risks related to the concentration of a significant percentage of our portfolio to a small number of tenants; risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants' and borrowers' business; the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs; risks related to environmental laws and the costs associated with liabilities related to hazardous substances; the risk of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change; the risk that we may not be fully indemnified by our lessees and borrowers against future litigation; the success of our future acquisitions and investments; our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms; the potential need to incur more debt in the future, which may not be available on terms acceptable to us; our ability to meet covenants related to our indebtedness which impose certain operational limitations and a breach of those covenants could materially adversely affect our financial condition and results of operations; the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties; risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests; operational risks with respect to our proposed senior housing operating portfolio ("SHOP") structured communities; our dependence on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt bears interest at variable rates; the risk that our assets may be subject to impairment charges; risks related to our ability to maintain the privacy and security of Company information; and our dependence on the ability to continue to qualify for taxation as a real estate investment trust. Many of these factors are beyond the control of the Company and its management. The Company assumes no obligation to update any of the foregoing or any other forward looking statements, except as required by law, and these statements speak only as of the date on which they are made. Investors are urged to carefully review and consider the various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Annual Report on Form 10-K for the most recently ended fiscal year and quarterly report on Form 10-Q for the most recently ended quarter. Copies of these filings are available at no cost on the SEC's web site at https://www.sec.gov or on NHI's web site at https://www.nhireit.com.

CONTACT:
John L. Spaid, Chief Financial Officer
Phone: (615) 890-9100

SOURCE: National Health Investors