NATIONAL HEALTH INVESTORS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: The fourth quarter results exceeded expectations with cash rent up nearly 9% year over year. Shop occupancy accelerated, leading to 12.5% NOI growth. Over $150 million was invested during the quarter at an initial yield of 8.5%, and balance sheet leverage decreased to 4.1 times. For the full year, over $235 million was invested at an average yield of approximately 8.6%, and NAREIT FFO, normalized FFO, and FAD grew for the first time since 2020, exceeding original guidance.
• 2025 Outlook: Expect growth to continue. Consideration is being given to transitioning triple net senior housing assets to shop structures. The shop portfolio targets 12%-15% NOI growth in 2025. The balance sheet is in good shape, with $225 million incremental investments included in guidance and an active pipeline.
• Asset Management: Evaluation of options for six properties in partnership with Discovery Senior Living is ongoing. Progress was made in repositioning the SLM portfolio, and the shop portfolio continued to show momentum with RevPAR increases.

Segment Performance

• Shop Segment: In the fourth quarter, NOI increased 12.5% year over year to $3.2 million. Occupancy improved to 89.4%, and the margin was 23.2%. For the full year, shop NOI was $12.2 million, up 32% from the prior year.
• Senior Housing Segments: Bickford's cash rental income grew approximately 17% during the year. Need-driven operators had EBITDARM coverage: Bickford's was 1.63 times (adjusted for the April 2024 rent reset), and other need-driven tenants had a coverage of 1.22 times. The discretionary senior housing portfolio had a coverage of 1.7 times, and the SNF portfolio reported 3.05 times coverage.
• SLM Portfolio: Progress was made in repositioning the SLM portfolio, with one property transitioned, two under triple net lease, and one property sold for $9.7 million in net proceeds.

Guidance

• NAREIT FFO and Normalized FFO: Midpoint at $4.63, with 1.8% and 4.3% increases respectively from 2024.
• FFAD: Midpoint at $221.7 million, an 8.6% increase from 2024.
• Shop NOI: Expected to grow 12%-15% over 2024.
• Investments: $225 million in new investments at an average yield of 8.1% included in guidance, with an active pipeline.

Risks

• SLM Portfolio: Uncertainty around mezzanine loans with substantial reserves and ongoing evaluations.
• Discovery PropCo Lease: Anticipated modification may change GAAP revenues, and the portfolio may not meet the 5% target yield.
• Interest Rate Environment: Recently impacted the cost of capital, but the company remains positioned to act quickly in the senior housing sector.

Question and Answer

• Q: On SLM, rent and interest income in 2024 vs 2025? A: John Spaid and Kevin Pascoe discussed ongoing evaluation of the SLM portfolio, with potential recovery of principal on mezzanine loans and redeployment, and Eric Mendelsohn commented on the robust market for NHC properties.*
• Q: NHC lease expiration in 2026? A: Eric Mendelsohn noted the robust market for NHC buildings, with market coverage expected around 1.3-1.4, and active discussions with NHC and other parties.*
• Q: Acquisition guidance and pipeline? A: John Spaid and Kevin Pascoe explained the $225 million guidance includes LOI-backed deals with high confidence, and the pipeline has over $350 million with ongoing opportunities.*
• Q: Dividend rationale and acquisition balance? A: Eric Mendelsohn discussed prudent capital allocation for the dividend, balancing investment in existing operations with new market/operator opportunities.*