Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- National Health Investors Inc (NHI, Financial) exceeded their forecast for the fourth straight quarter, driven by stable cash collections, steady deferral payments, and improving operator fundamentals.
- Year-to-date, NHI has closed on $56.6 million of investments at an average initial yield of approximately 8.4%, with a pipeline of investment opportunities totaling more than $1.8 billion.
- Normalized FFO per share and total dollar FAD increased by 11.4% and 16.1% respectively, compared to the second quarter of 2023.
- The senior housing operating portfolio (SHOP) NOI increased by 39.9% year-over-year, with occupancy continuing to move higher.
- NHI raised their 2024 guidance, representing midpoint normalized FFO per share growth of 4.8% and midpoint FAD growth of 7% compared to 2023.
Negative Points
- The SHOP NOI result was slightly below internal expectations, despite the year-over-year increase.
- Bickford occupancy declined by 50 basis points to 85.4% from the first quarter of 2024 to the second.
- NHI's net income per diluted common share for the quarter ended June 30, 2024, was $0.81, down from $0.92 for the same period last year.
- Cash G&A expense increased by $700,000 compared to the first quarter, primarily due to increases in business development and proxy-related expenses.
- NHI placed one property in assets held for sale, resulting in impairment and increased the loan loss reserve on another property's loan, resulting in loan and realty losses of approximately $1.1 million.
Q & A Highlights
Q: Just curious on Blueprint, are they going to look at potential replacement tenants or NHC as part of their work?
A: That's certainly within their scope of work. Keep in mind that NHC has an absolute right to renew the lease at a market rate. So we're primarily concerned about determining what is a market rate. (D. Eric Mendelsohn, President, CEO)
Q: Offshore guidance, the second half implies growth in the high single digits. Just curious what the main assumptions are and what is driving the expected deceleration?
A: We're having a lot of improvements in terms of all the portfolio optimization work we've done. It's primarily coming through cash basis tenants, but we continue to think that we'll see some level of growth in SHOP NOI. (John Spaid, CFO)
Q: On the LOIs, are they included in guidance at this point? And could you maybe discuss timing and magnitude?
A: Guidance doesn't include any of the effects of those LOIs. We've just included in our guidance what we've been in terms of closed transactions. Timing is difficult for us to determine right now. (John Spaid, CFO)
Q: In terms of the guidance, you mentioned 7% FAD growth as the new guidance. But is it fair to say in terms of the future of your FAD sort of cadence is a bit of a moving target because you've a fair amount of rent deferral repayment in that, that is lumpy?
A: We have a variety of organic opportunities that we're trying to execute on. SHOP is one. We keep talking about this CapEx program. The timing of those investments is still a little uncertain. So there's not a lot in guidance about that. (John Spaid, CFO)
Q: You mentioned, I think, it was mentioned that you're assuming $1 million a quarter from Bickford in terms of repayment of deferrals. Do you have a bigger number for the entire portfolio of what you're assuming in -- from a deferral repayment perspective?
A: Part of the deferral repayments are included in our GAAP revenue stream. Those are the scheduled repayments for our accrual tenants. The Bickford component that Kevin discussed, those are not in our GAAP revenues. (John Spaid, CFO)
Q: In terms of your cost of capital, you talked about dry powder on your -- on the debt. But if you kind of just kind of back into an AFFO yield or FAD yield, it seems like your cost of equity is cheaper than your cost of debt. Am I right about that?
A: We recognize that this is a sort of an interesting time where our cost of equity is kind of revolving around pretty closely our incremental long-term cost of debt. (John Spaid, CFO)
Q: The $1.8 billion of sort of line of sight and a small portion of that, you're actually considering. But where is that coming from? Are you just scouring the planet for anything, and you came up with $1.8 billion?
A: The $1.8 billion is the universal things that we're looking at, at the moment. Some of that stuff will get screened out pretty quickly. There is an element of -- over the last few years, we never were dark. We were out there building relationships, meeting with people trying to understand their needs. (Kevin Pascoe, CIO)
Q: Could you talk about -- or just help us understand the breakout of the $270 million of investments that you're looking at today in terms of just what's fee simple versus loans and how that been progressing throughout the year?
A: As we talked about on the call last quarter, it was more 50-50 in nature. Now it's definitely more skewed towards fee simple, and we didn't give a direct percentage, but it's probably 70-ish percent or more -- is more fee simple in nature. (Kevin Pascoe, CIO)
Q: On the SHOP side, I understand the strategy, we're talking about hitting that 90% occupancy number before you start to really drive rents here. But I guess, how should we think about it relative to your peers who are reporting some pretty strong pricing power and the ability to drive occupancy here?
A: The pricing power aspect is going to be market by market. There are some where you're just not going to have as much capacity as in others. That said, the strategy has been, let's get to 90%. We are starting to see some individual buildings get to that level. (Kevin Pascoe, CIO)
Q: Just want to go back to some of the RIDEA opportunities in the investment pipeline. And just curious what the economics are of the deals that you're underwriting and kind of where they are in their recovery from an occupancy and margin perspective?
A: Generally speaking, they're going to be not quite stable, but approaching stable. We want something where there is a good line of sight to cash flow with some growth similar to John's prior comments about health care delivery and pricing for that. (Kevin Pascoe, CIO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
