Sometimes the regular, tried and true sale/leaseback arrangements that used to be the mainstay of REIT financing still work. Just ask National Health Investors (NHI). After reading some of the depressing second quarter earnings releases, some more than others, it was a bit refreshing to see that NHI reported an 8% increase in lease income, an 11% increase in net income, an 8% increase in net income per share and a 7% increase in FFO per share, all year over year. And you thought the sky was falling.
The REIT collected about 100% of second quarter’s contracted rents, and approximately 96.9% of rents due in July (so far). Have they granted some concessions? Sure, for the third quarter, as they realized these are extraordinary times.
There are still challenges, of course, as its major seniors housing tenants have seen occupancy dip, some more than others. Senior Living Communities, with nine properties, saw occupancy dip from 81.2% in last year’s second quarter to 79.2% this July, or just 200 basis points. Bickford Senior Living’s same community occupancy (42 properties) dropped from 86.5% to 83.5%, or 300 basis points in the same time period.
The company with the largest decline was Holiday Retirement Corporation (26 communities) with an 800-basis point decline to 80.7% in July. Management has agreed with Bickford to sell nine of their leased properties back to Bickford, or to third parties, at a price in excess of their book value investment of $76.7 million. Not bad, given that average prices have certainly declined this year.
NHI’s compound annual growth rate for cash NOI, Adjusted EBITDA and FFO per share have increased every year for the past five years. And the dividend has been increased every year for 10 years, including last year. The REIT’s CEO, Eric Mendelsohn, is one of the lowest paid CEO’s in our healthcare REIT universe. Given these results, maybe it is time for the compensation committee of the board to change that.
