NHI Gives Q2 Outlook for New Development Financing, Asset Acquisitions

National Health Investors (NYSE:NHI) saw its normalized funds from operations (FFO) rise 6% to $21.4 million, or $0.73 per diluted share, in the second quarter ended June 30, 2012, primarily as a result of revenues from the real estate investment trust’s new investments it funded, at $82.4 million in 2011 and $29.6 million so far in 2012.

Normalized funds available for distribution for the second quarter was $21.01 million, or $0.76 per diluted share, compared with $19.72 million, or $0.71 per diluted share for the same period in 2011. 

Quotable: “As I look at where we stand halfway through the year, I like how we’re positioned,” said J. Justin Hutchens, NHI’s CEO, president, and director, during the earnings call. “The investing climate is very favorable with experienced operators looking for growth capital. We are staying disciplined on underwriting with attractive yields and high-quality assets.” 

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In the second quarter, NHI terminated its lease with a former tenant of four assisted living and memory care facilities in Minnesota (affiliates of Suite Life), due to noncompliance with lease terms related to cash management. The lease was transitioned to a new tenant, White Pine Senior Living. As a result, NHI incurred $171,000 in legal and other direct expenses along with a noncash write-off of straight line rent receivables for accounting purposes of $963,000.

Revenues rose 10% in the second quarter excluding the impact of the early lease termination in 2012 and the gains on sales of marketable securities in 2011. 

On new development financing: NHI has agreed to review and commit up to eight development projects for Bickford Senior Living. So far, the REIT has committed to three of them, which are expected to break ground in 2012. Hutchens estimates it will be about $9 million per project at a 9% yield.

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“In terms of our construction pipeline, because of the relationship with Bickford, I wouldn’t expect us to see much more outside of that relationship, at least as it pertains to assisted living,” said Hutchens during the press call. “That’s pretty much fulfilled our appetite for new development.”

On asset acquisitions: NHI said it’s been primarily pursuing the assisted living portfolios that are 90% private pay. It’s also looking to purchase new skilled nursing facilities that will attract high-quality physical plants that will have long-term relevance. 

“Those are the two types of assets that we’re pursuing, and you should expect to see us continue to execute on the acquisition of those assets,” said Hutchens.

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With interest in memory care investment growing, Hutchens notes that all eight of the Bickford projects, including the three the REIT has committed to, feature both assisted living and a secure memory care portion. 

“It’s been our experience… that the combo communities do very well to retain residents,” said the CEO. “They advance in their disease, whether it’s Alzheimer’s, [or] other dementia-related issues. The communities that we’re building capture that need.”

NHI plans on selling five skilled nursing facilities in Texas to their current tenant once it obtains long-term HUD financing.

View the earnings report.

Written by Alyssa Gerace

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