NATIONAL HEALTH INVESTORS INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q) - Marketscreener.com

Forward Looking Statements
* Actual or perceived risks associated with public health epidemics or outbreaks, such as the coronavirus (“COVID-19”), have had and are expected to continue to have a material adverse effect on our business and results of operations;
* We depend on the operating success of our tenants and borrowers for collection of our lease and note payments;
* We are exposed to the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings;
* We are exposed to risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that changes to government regulation or reimbursement rates would have on our tenants’ and borrowers’ business;
* We are exposed to the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs;
* We are exposed to the risk that we may not be fully indemnified by our lessees and borrowers against future litigation;
* We are subject to risks of damage from catastrophic weather and other natural or man-made disasters and the physical effects of climate change;
* We depend on the success of property development and construction activities, which may fail to achieve the operating results we expect;
* We are subject to additional risks related to healthcare operations associated with our investments in unconsolidated entities, which could have a material adverse effect on our results of operations;
*We may be exposed to operational risks with respect to our Senior Housing Operating Portfolio (“SHOP”) structured communities;.
* We are exposed to risks related to environmental laws and the costs associated with liabilities related to hazardous substances;
* We depend on the success of our future acquisitions and investments;
* We depend on our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms;
* Competition for acquisitions may result in increased prices for properties;
* We are exposed to the risk that our assets may be subject to impairment charges;
* We may need to refinance existing debt or incur additional debt in the future, which may not be available on terms acceptable to us;
* Downgrades in our credit ratings could have a material adverse effect on our cost and availability of capital;
* We depend on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt used to finance those investments bears interest at variable rates;
* We depend on the ability to continue to qualify for taxation as a REIT for U.S. federal income tax purposes;
*We depend on our key personnel whose continued service is not guaranteed and our ability to identify, recruit and retain skilled personnel;
* Legislative, regulatory, or administrative changes could adversely affect us or our security holders;
* We are subject to certain provisions of Maryland law and our charter and bylaws that could hinder, delay or prevent a change in control transaction, even if the transaction involves a premium price for our common stock or our stockholders believe such transaction to be otherwise in their best interests.
Executive Overview
Real Estate Investment Portfolio
Senior Housing Operating Portfolio Structure
Real Estate Investments and SHOP Portfolio
Real Estate Properties
Mortgage and Other Notes Receivable
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COVID-19 Pandemic
As of June 30, 2022, aggregate pandemic-related rent concessions granted to tenants that have been accounted for as variable lease payments totaled approximately $44.0 million, net of cumulative repayments of $0.3 million and excluding any interest accrued. Of this total, net rent deferrals that are contractually agreed to be repaid are $38.0 million.
See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for further information regarding the risks presented by the COVID-19 pandemic.
Critical Accounting Policies and Estimates
Principles of Consolidation
•In April 2022, we acquired a 53-unit assisted living facility located in Oshkosh, Wisconsin, for approximately $13.3 million in a purchase leaseback with Encore Senior Living.
•In the second quarter of 2022, we received repayment of a $111.3 million mortgage note receivable.
Since January 1, 2022, we have completed or announced the following real estate or note investments:
Asset Dispositions
During the six months ended June 30, 2022, we completed the following real estate dispositions as described below ($ in thousands):
Reference Note 3 to the condensed consolidated financial statements for more detail on dispositions.
Third Quarter 2022 Disposal Activity
Discovery
Assets Held for Sale and Impairment of Long-Lived Assets
During the three and six months ended June 30, 2022, we recorded impairment charges of $4.1 million and $28.7 million respectively, related to our Real Estate Investments reportable segment. The impairment charges are included in “Loan and realty losses” in the Condensed Consolidated Statements of Income.
Other
Tenant Concentration
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Escrow funds received from tenants
Holiday Transition
• Extends the maturity dates of the modified leases to 2033 and 2035. The remaining master lease agreement covering 11 properties with an original maturity in 2023 was previously extended to 2028.
3Q21 4Q21 1Q22 2Q22 June 2022 July 2022 Senior Living Communities
NHI Real Estate Investments Portfolio
NHI Real Estate Investments Same-Store Portfolio3
Real Estate and Mortgage Write-downs
Interest income and other
Total Interest Income from Mortgage and Other Notes 7,826
Less: net loss (income) attributable to noncontrolling interests
•Resident fees and services and Senior housing operating expenses include revenues and expenses from our SHOP activities which commenced on April 1, 2022. See Note 5 to the condensed consolidated financial statements.
•Interest income from mortgage and other notes increased $1.9 million, or 32.2%, primarily due to new and existing loan fundings, net of paydowns on loans.
•Loan and realty losses increased $2.9 million primarily as a result of impairment charges on four real estate properties of $4.1 million in the second quarter of 2022 as described under the heading “Assets Held for Sale and Long-Lived Assets” in Note 3 to the condensed consolidated financial statements.
•Loss on operations transfer, net represents the net impact upon terminating the master lease with Well Churchill Leasehold Owner, LLC, a subsidiary of Welltower, Inc., on April 1, 2022. See Note 8 to the condensed consolidated financial statements.
Less: net loss (income) attributable to noncontrolling interest
•Interest expense decreased $4.8 million, or 18.4%, as a result of the convertible bond that matured in April 2021 and a net decrease in the borrowings on the unsecured credit facility.
•Legal cost increased $2.1 million primarily related to the Welltower litigation and transition activities for the legacy Holiday portfolio.
•Loan and realty losses increased $27.5 million primarily as a result of impairment charges on 11 real estate properties of $28.7 million in the six months ended June 30, 2022 as described under the heading “Assets Held for Sale and Long-Lived Assets” in Note 3 to the condensed consolidated financial statements.
Our primary sources of cash include rent payments, receipts from residents, principal and interest payments on mortgage and other notes receivable, proceeds from the sales of real property, net proceeds from offerings of equity securities and borrowings from our loans and revolving credit facility. Our primary uses of cash include debt service payments (both principal and interest), new investments in real estate and notes receivable, dividend distributions to our stockholders and general corporate overhead.
These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below ($ in thousands):
Debt Obligations
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Table of Contents month tenor in effect on such day plus 1.0%. We incurred $4.5 million of deferred costs in connection with the 2022 Credit Agreement.
Debt Maturities – Reference Note 7 to the condensed consolidated financial statements for more information on our debt maturities.
1,104,495
Annualized impact of recent investments, disposals and payoffs (11,792)
265,948
Supplemental Guarantor Financial Information
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2,310
106,103
569
13,502
Net income attributable to NHI and the subsidiary guarantors $
As of June 30, 2022, we had approximately $170.4 million remaining under the 2022 Repurchase Plan.
The following table summarizes dividends declared by the Board of Directors or paid during the six months ended June 30, 2022 and 2021:
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June 30, 2022
On August 5, 2022, the Board of Directors declared a $0.90 per share dividend to common stockholders of record on September 30, 2022, payable on November 4, 2022.
Material Cash Requirements
Contractual Obligations and Contingent Liabilities
1 Interest is calculated based on the weighted average interest rate of outstanding debt balances as of June 30, 2022. The calculation also includes a facility fee of 0.20%.
Commitments and Contingencies
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See Note 8 to our condensed consolidated financial statements for further details of our loan commitments. As provided above, loans funded do not include the effects of discounts or commitment fees.
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Litigation
Welltower, Inc.
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Table of Contents activities as determined by GAAP as a measure of liquidity, and are not necessarily indicative of cash available to fund cash needs.
Funds From Operations – FFO
Funds Available for Distribution – FAD
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Net income attributable to common stockholders $ 21,673 $
52,839 $ 108,951 $ 112,389
BASIC
1.16 $ 1.76 $ 2.39 Normalized FFO attributable to common stockholders per share
1.16 $ 2.37 $ 2.40
DILUTED
The following table reconciles net income, the most directly comparable GAAP metric, to Adjusted EBITDA ($ in thousands):
68,496 $ 131,140 $ 138,979
For all periods presented, EBITDA reflects GAAP interest expense, which excludes amounts capitalized during the period.
Net Operating Income
The following table reconciles NOI to net income, the most directly comparable GAAP metric ($ in thousands):
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