With $270M in the Pipeline, NHI Leaders Eye New Acquisitions After Posting Strong Q2

Looking ahead, leaders at National Health Investors Inc. (NYSE: NHI) are excited about recent investment activity and a growing pipeline of $270 million. The real estate investment trust (REIT) is pursuing several large portfolio deals, along with fee-simple real estate, loans with purchase options and seniors housing opportunities.

The Murfreesboro, Tenn.-based company has spent multiple years positioning itself to return to the level of acquisition growth it experienced prior to the pandemic, NHI CEO Eric Mendelsohn said during an earnings conference call on Wednesday.

“With ample dry powder and improved cost of capital and more realistic seller expectations, we expect that external investment activity will be a significant driver of cash flow growth in the foreseeable future,” he said.

NHI exceeded its forecast for the second financial quarter, surpassing for the fourth straight quarter performance relative to their expectations. Drivers of the strong quarter included stable cash collections, steady deferral payments, improving operator fundamentals, occupancy and revenue growth, said Mendelsohn.

There weren’t any unexpected rent concessions either, he said, while occupancy continues to move higher.

In the second quarter of 2024, NHI reported net income attributable to common stockholders of 81 cents per diluted share, a decrease compared to 92 cents in Q2 2023. Normalized funds from operations was $1.18 for Q2, an increase compared to $1.06 in Q2 2023.

Funds available for distribution was $51.8 million, a decrease compared to $44.6 million in Q2 2023. Skilled nursing still makes up the highest percentage of NHI’s asset classes at 32%, followed by assisted living at 26% and entrance fee properties at 25%.

Deal momentum

NHI Chief Investment Officer Kevin Pascoe said the company had started to see more actionable deal activity and volume in Q1, and that momentum has “significantly increased” in the last couple months.

Year to date, NHI has closed on $56.6 million on investments at an average yield of 8.42%.

In contrast with what Ensign said in their earnings call, Pascoe said NHI’s deal opportunities are mostly seniors housing and more skewed to fee-simple real estate deals, as opposed to the 50-50 mix of fee-simple and loan opportunities seen in Q1. Fee-simple ownership is a type of ownership that enables the right to use the property without restrictions for an indefinite period of time.

In terms of asset coverage, Pascoce said NHI’s skilled nursing facility and specialty hospital portfolio reported solid coverage at 2.98 times. Coverage for National HealthCare Corporation (NYSE: NHC) NHC improved from 3.8 times to 3.96 times; the operator makes up 14% of NHI’s partners.

During the second quarter, NHI transitioned a SNF property in Wisconsin to Champion Care, which Pascoe said has a greater presence in the state. The cash lease revenue is unchanged and Champion Care has a purchase option on the property beginning in 2031, he said.

A strong quarter

Cash rent increased by about $2 million between Q1 and Q2 of this year, said NHI CFO John Spaid, thanks to higher deferred rents and other rent received from cash-basis tenants during the quarter.

NHI disclosed a significant increase in its pipeline activities since the Q1 earnings call in May, and closed on $41.6 million in transactions during Q2.

“Our capital plans are focused on meeting our liquidity needs for our upcoming maturities this year and next year. In addition to providing capital for our increasing pipeline, we are also focused on our average debt maturities subject to changing market conditions,” said Spaid. “We continue to review all our capital options to meet our ongoing liquidity needs.”

Overall, annual guidance improved from a range of $4.36-$4.41 to $4.50-$4.54 for NAREIT FFO per diluted common share, and normalized funds available for distribution for the year increased from $196.7 million to $199.2 million to between $200.1 million to $201.8 million.

“Our improved Q2 revenues and our recent transactions are having meaningful impacts on our guidance,” Spaid noted. Entering into or modifying existing leases to increase rent or extend maturities could positively impact future gap revenue expectations, he said.