NHI Announces Third Quarter 2015 Results

Normalized FFO per share up 15.2%; Normalized AFFO per share up 13.8%

MURFREESBORO, Tenn.--()--National Health Investors, Inc. (NYSE:NHI) announced today its Normalized Funds From Operations (“FFO”), its Normalized Adjusted Funds From Operations (“AFFO”), its Normalized Funds Available for Distribution (“FAD”) and net income attributable to common stockholders for the three months and nine months ended September 30, 2015.

Q3 Highlights

  • Announced $310 million in YTD acquisitions, construction commitments and loans
  • Maintained low leverage balance sheet at 4.6x net debt-to-annualized EBITDA
  • Portfolio lease coverage remains strong at 2.18x
  • Same-store RIDEA portfolio EBITDARM increased 4.7% quarter over quarter

Financial Results

  • Normalized FFO per diluted common share for the three months ended September 30, 2015 was $1.21, an increase of 15.2% over the same period in the prior year. Normalized FFO per diluted common share for the nine months ended September 30, 2015, was $3.49, an increase of 11.1% over the same period in the prior year.
  • Normalized AFFO per diluted common share for the three months ended September 30, 2015, was $1.07, an increase of 13.8% over the same period in the prior year. Normalized AFFO per diluted common share for the nine months ended September 30, 2015 was $3.07, an increase of 9.3% over the same period in the prior year.
  • Normalized FAD per diluted common share for the three months ended September 30, 2015, was $1.08, an increase of 13.7% over the same period in the prior year. Normalized FAD per diluted common share for the nine months ended September 30, 2015, was $3.12, an increase of 8.7% over the same period in the prior year.
  • FFO per diluted common share for the three months ended September 30, 2015, was $1.22, an increase of 16.2% over the same period in the prior year. FFO per diluted common share for the nine months ended September 30, 2015, was $3.51, an increase of 14.3% over the same period in the prior year.
  • Net income attributable to common stockholders per diluted common share for the three months ended September 30, 2015 was $.89, an increase of 17.1% over the same period in the prior year. Net income attributable to common stockholders per diluted common share for the nine months ended September 30, 2015 was $2.51, an increase of 12.1% over the same period in the prior year.

The Company defines Normalized FFO as FFO adjusted for infrequent or unpredictable items detailed in the reconciliations. We define Normalized AFFO as Normalized FFO excluding the effects of straight-line lease revenue, amortization of debt issuance costs and the non-cash amortization of the original issue discount of our unsecured convertible notes. The Company defines Normalized FAD as Normalized AFFO excluding the effect of non-cash compensation expense.

The reconciliation of net income attributable to common stockholders to our FFO, Normalized FFO, Normalized AFFO and Normalized FAD is included as a table to this press release and filed in the Company's Form 10-Q with the Securities and Exchange Commission.

2015 Guidance

The Company currently expects Normalized FFO for 2015 to be in the range of $4.62 to $4.66 per diluted common share and Normalized AFFO to be in the range of $4.08 to $4.10 per diluted common share. The Company's guidance range for the full year 2015, with underlying assumptions and timing of certain transactions, is set forth and reconciled below:

 

Full-Year
2015 Range

Low   High
Net income per diluted share attributable to common stockholders $ 3.30   $ 3.32
Plus: Depreciation 1.36 1.38
Less: Gain on sale of real estate (.03 ) (.03 )
Less: Normalizing adjustments (.01 ) (.01 )
Normalized FFO per diluted common share $ 4.62 $ 4.66
Less: Straight-line rental income (0.63 ) (0.65 )
Plus: Amortization of debt issuance costs 0.06 0.06
Plus: Amortization of original issue discount 0.03   0.03  
Normalized AFFO per diluted common share $ 4.08   $ 4.10  
 

The Company’s guidance range reflects the existence of volatile economic conditions, but does not assume any material deterioration in tenant credit quality and/or performance of its portfolio. The Company does not include an estimate of investment volume in its guidance range. The guidance is based on a number of assumptions, many of which are outside the Company’s control and all of which are subject to change. The Company’s guidance range allows for the uncertainty inherent in the structure and timing of the financing required to fund previously announced investments and any pending new investments. The Company’s guidance may change if actual results vary from these assumptions.

Investor Conference Call and Webcast

NHI will host a conference call on Thursday, November 5, 2015, at 1 p.m. ET, to discuss third quarter results. The number to call for this interactive teleconference is (212) 231-2922 with the confirmation number, 21780245. The live broadcast of NHI's third quarter conference call will be available online at www.nhireit.com. The online replay will follow shortly after the call and continue for approximately 90 days.

About National Health Investors

Incorporated in 1991, National Health Investors, Inc. (NYSE: NHI) is a real estate investment trust specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI’s portfolio consists of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals.

Visit www.nhireit.com for more information.

   
Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD
(in thousands, except share and per share amounts)    
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Net income attributable to common stockholders $ 33,600 $ 25,250 $ 94,466 $ 74,080
Elimination of certain non-cash items in net income:
Depreciation 13,485 9,596 39,502 28,373
Depreciation related to noncontrolling interest (293 ) (248 ) (849 ) (742 )
Net gain on sales of real estate (1,126 )   (1,126 )  
Funds from operations $ 45,666 $ 34,598 131,993 101,711
Investment gains (61 ) (61 )
Debt issuance costs expensed due to credit facility modifications 2,145
Recovery of previous write-down     (491 )  
Normalized FFO $ 45,605 $ 34,598 131,441 103,856
Straight-line lease revenue, net (6,184 ) (4,203 ) (18,492 ) (12,692 )
Straight-line lease revenue, net, related to noncontrolling interest 5 13 35 47
Amortization of original issue discount 277 252 822 530
Amortization of debt issuance costs 587 483 1,722 1,363
Amortization of debt issuance costs related to noncontrolling interest (9 ) (2 ) (21 ) (5 )
Normalized AFFO 40,281 31,141 115,507 93,099
Non-cash stock based compensation 233   223   1,930   1,796  
Normalized FAD 40,514   31,364   $ 117,437   $ 94,895  
 

BASIC

Weighted average common shares outstanding 37,566,221 33,055,992 37,563,503 33,053,386
FFO per common share $ 1.22 $ 1.05 $ 3.51 $ 3.08
Normalized FFO per common share $ 1.21 $ 1.05 $ 3.50 $ 3.14
Normalized AFFO per common share $ 1.07 $ .94 $ 3.07 $ 2.82
Normalized FAD per common share $ 1.08 $ .95 $ 3.13 $ 2.87
 

DILUTED

Weighted average common shares outstanding 37,583,141 33,088,570 37,611,841 33,087,029
FFO per common share $ 1.22 $ 1.05 $ 3.51 $ 3.07
Normalized FFO per common share $ 1.21 $ 1.05 $ 3.49 $ 3.14
Normalized AFFO per common share $ 1.07 $ .94 $ 3.07 $ 2.81
Normalized FAD per common share $ 1.08 $ .95 $ 3.12 $ 2.87
 

See Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD.

 
 

Notes to Reconciliation of FFO, Normalized FFO, Normalized AFFO and Normalized FAD

These supplemental operating performance measures may not be comparable to similarly titled measures used by other REITs. Consequently, our Funds From Operations ("FFO"), Normalized FFO, Normalized Adjusted Funds From Operations ("AFFO") and Normalized Funds Available for Distribution ("FAD") may not provide a meaningful measure of our performance as compared to that of other REITs. Since other REITs may not use our definition of these operating performance measures, caution should be exercised when comparing our Company's FFO, Normalized FFO, Normalized AFFO and Normalized FAD to that of other REITs. These financial performance measures do not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP") (these measures do not include changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an indication of operating performance, or to net cash flow from operating 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

FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT") and applied by us, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, if any. The Company’s computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company’s FFO to that of other REITs. Diluted FFO assumes the exercise of stock options and other potentially dilutive securities. Normalized FFO excludes from FFO certain items which, due to their infrequent or unpredictable nature, may create some difficulty in comparing FFO for the current period to similar prior periods, and may include, but are not limited to, impairment of non-real estate assets, gains and losses attributable to the acquisition and disposition of assets and liabilities, and recoveries of previous write-downs.

We believe that FFO and normalized FFO are important supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative, and should be supplemented with a measure such as FFO. The term FFO was designed by the REIT industry to address this issue.

Adjusted Funds From Operations - AFFO

In addition to the adjustments included in the calculation of normalized FFO, normalized AFFO excludes the impact of any straight-line lease revenue, amortization of the original issue discount on our convertible senior notes and amortization of debt issuance costs.

We believe that normalized AFFO is an important supplemental measure of operating performance for a REIT. GAAP requires a lessor to recognize contractual lease payments into income on a straight-line basis over the expected term of the lease. This straight-line adjustment has the effect of reporting lease income that is significantly more or less than the contractual cash flows received pursuant to the terms of the lease agreement. GAAP also requires the original issue discount of our convertible senior notes and debt issuance costs to be amortized as non-cash adjustments to earnings. Normalized AFFO is useful to our investors as it reflects the growth inherent in the contractual lease payments of our real estate portfolio.

Funds Available for Distribution - FAD

In addition to the adjustments included in the calculation of normalized AFFO, normalized FAD excludes the impact of non-cash stock based compensation.

We believe that normalized FAD is an important supplemental measure of operating performance for a REIT as a useful indicator of the ability to distribute dividends to shareholders.

       
Condensed Statements of Income
(in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
 
Revenues:
Rental income $ 54,459 $ 41,669 $ 159,624 $ 123,335
Interest income from mortgage and other notes 2,507 1,754 7,149 5,258
Investment income and other 1,316   1,055   3,573   3,182  
58,282   44,478   170,346   131,775  
Expenses:
Depreciation 13,485 9,596 39,502 28,373
Interest, including amortization of debt discount and issuance costs 9,772 7,005 27,471 20,720
Legal 117 66 295 149
Franchise, excise and other taxes 114 78 352 790
General and administrative 1,691 2,164 8,050 6,948
Loan recovery     (491 )  
25,179   18,909   75,179   56,980  

Income before equity-method investee, discontinued operations and noncontrolling interest

33,103 25,569 95,167 74,795
(Loss) income from equity-method investee (252 ) (53 ) (765 ) 157
Investment and other gains 1,126     1,126    
Net income 33,977 25,516 95,528 74,952
Less: net income attributable to noncontrolling interest (377 ) (266 ) (1,062 ) (872 )
Net income attributable to common stockholders $ 33,600   $ 25,250   $ 94,466   $ 74,080  
 
Weighted average common shares outstanding:
Basic 37,566,221 33,055,992 37,563,503 33,053,386
Diluted 37,583,141 33,088,570 37,611,841 33,087,029
 
Earnings per common share:
Net income attributable to common stockholders - basic $ .89 $ .76 $ 2.51 $ 2.24
Net income attributable to common stockholders - diluted $ .89 $ .76 $ 2.51 $ 2.24
 
Regular dividends declared per common share $ .85 $ .77 $ 2.55 $ 2.31
 
   
Selected Balance Sheet Data
(in thousands)

September 30, 2015

December 31, 2014
 
Real estate properties, net $ 1,843,213 $ 1,776,549
Mortgage and other notes receivable, net 117,828 63,630
Investment in preferred stock, at cost 38,132 38,132
Cash and cash equivalents 14,197 3,287
Marketable securities 35,148 15,503
Straight-line rent receivable 53,646 35,154
Equity-method investment and other assets 29,615 50,705
Assets held for sale, net of depreciation 1,346
Debt 1,009,144 862,726
National Health Investors Stockholders' equity 1,034,904 1,039,925
 

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company's, tenants', operators', borrowers’ or managers' expected future financial position, results of operations, cash flows, funds from operations, dividend and dividend plans, financing opportunities and plans, capital market transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, acquisition integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, and similar statements including, without limitation, those containing words such as “may,” “will,” “believes,” “anticipates,” “expects,” “intends,” “estimates,” “plans,” and other similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Such risks and uncertainties include, among other things, the operating success of our tenants and borrowers for collection of our lease and interest income; the success of property development and construction activities, which may fail to achieve the operating results we expect; the risk that our tenants and borrowers may become subject to bankruptcy or insolvency proceedings; risks related to governmental regulations and payors, principally Medicare and Medicaid, and the effect that lower reimbursement rates would have on our tenants’ and borrowers’ business; the risk that the cash flows of our tenants and borrowers would be adversely affected by increased liability claims and liability insurance costs; risks related to environmental laws and the costs associated with liabilities related to hazardous substances; the risk that we may not be fully indemnified by our lessees and borrowers against future litigation; the success of our future acquisitions and investments; our ability to reinvest cash in real estate investments in a timely manner and on acceptable terms; the potential need to incur more debt in the future, which may not be available on terms acceptable to us; our ability to meet covenants related to our indebtedness which impose certain operational; the risk that the illiquidity of real estate investments could impede our ability to respond to adverse changes in the performance of our properties; risks associated with our investments in unconsolidated entities, including our lack of sole decision-making authority and our reliance on the financial condition of other interests; our dependence on revenues derived mainly from fixed rate investments in real estate assets, while a portion of our debt bears interest at variable rates; the risk that our assets may be subject to impairment charges; and our dependence on the ability to continue to qualify for taxation as a real estate investment trust. Many of these factors are beyond the control of the Company and its management. The Company assumes no obligation to update any of the foregoing or any other forward looking statements, except as required by law, and these statements speak only as of the date on which they are made. Investors are urged to carefully review and consider the various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI’s Annual Report on Form 10-K for the most recently ended fiscal year. Copies of these filings are available at no cost on the SEC’s web site at http://www.sec.gov or on NHI’s web site at http://www.nhireit.com.

Contacts

National Health Investors, Inc.
Roger R. Hopkins, 615-890-9100
Chief Accounting Officer

Contacts

National Health Investors, Inc.
Roger R. Hopkins, 615-890-9100
Chief Accounting Officer