National Health Investors Earnings Call Insights: Investments & Skilled Nursing, Mixed Development

On Friday, National Health Investors, Inc. (NYSE:NHI) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Investments & Skilled Nursing

Karin Ford – KeyBanc Capital Markets: First question Justin if you could just give us maybe a little bit more detail on the investment assumption that you might have embedded in the high end of guidance and you’d said $100 million previously, did you raise it up higher or is it just $100 million (less) what you did in 1Q?

J. Justin Hutchens – CEO and President: I’ll certainly give you a little more color, I am not sure if this is going to get to exactly what you are looking for Karin, but the way we’ve outlined our growth goal and is really by looking at what we’ve been doing over the last few years. I’ll just remind everybody that in 2009 we invested $88.5 million in 2010 it was $141.5 million and in 2011 we either invested or committed about $100.4 million and so the run rate’s basically been about $100 million or a little bit more on average and that was basically our expectation going into this year. The tricky part is always the timing of the investment. So really the shorter answer is that, top end of the range incorporates investments that we plan to make and the timing will probably have an impact on it as well. Well, I don’t really have an exact like second half of the year number for you necessarily.

Karin Ford – KeyBanc Capital Markets: Anything eminent that you could give us in more detail on?

J. Justin Hutchens – CEO and President: Well, there is – I don’t, – I’m not really offering more detail on it, but I could tell you that that the range incorporates investments that we have absolute clarity with.

Karin Ford – KeyBanc Capital Markets: Has your appetite for skilled nursing changed at all given what appears to be a benign 2013 reimbursement environment?

J. Justin Hutchens – CEO and President: The NHI’s view on skilled nursing over the past few years has really been to make investments only when it’s very high quality skilled nursing asset that usually means that’s a newer physical plan that attracts the higher percentage of Medicare private pay. Last year when there was some uncertainty, we didn’t invest at all until we had clarity on the rule and then as you know we closed on a portfolio at the end of the year. We have an overriding goal of reducing our skilled nursing holdings to about 50% of over total revenue and were at about 66% now. So I don’t think in time, it will continue to go down, but to the extent that we come across opportunities that are either on a campus, for instance, higher end senior living campus or our newer property that attracts the quality pay mix that I mentioned. We’ll still make those investments, but what you most likely won’t see us do is pursue large portfolio of – as of the just the traditional skilled nursing facility we’re just not even really entertaining those investments at this time.

Karin Ford – KeyBanc Capital Markets: Last question, can you give us some color now that you had a quarter of the new Medicare REIT regime, where your SNF coverage is shaking out? Is it hitting the 3.0 level that you expected or the mitigation efforts of your tenants performing as you had expected and just give a sense there?

J. Justin Hutchens – CEO and President: In fact, we don’t normally report our coverage, but I prepared for this question. So the answer is we’ve projected that after the new reimbursement levels were implemented that the coverage in our SNF portfolio would be three times overall and that’s exactly where it is. So we’re really right on track, everyone is doing relatively well adjusting their operations to the new levels of reimbursement.

Mixed Development

Todd Stender – Wells Fargo Securities: Within the last recent quarters, most of the investments have been construction loans and renovation financing. Just going forward what does that mix look like if you are going to contrast new acquisitions versus the lending within your current pipeline?

J. Justin Hutchens – CEO and President: If you look at really just going back to the fourth quarter of last year we had – we bought a stabilized portfolio of newer Skilled Nursing Facilities that was about $55.5 million and then we have had the loan that we announced in the construction program that we mentioned. But we are also pursuing stabilized assets and I’d suspect you will see us as part of that achieving that guidance range close on some of those assets throughout the rest of the year. So there will be a good mix of development, which by the way our development pipeline is pretty much full. We selected Bickford Senior Living as our partner because there is really no one in the assisted living industry that has their combined operating and development experience. I mean when I say no one I mean there really is nobody. So we are excited about that partnership. We may do some other select development investing but it’s probably going to be coupled with investments in stabilized assets and we really don’t have any visibility on much further development this time. So the priority is really those stabilized asset acquisitions.

Todd Stender – Wells Fargo Securities: Are the stabilized assets more in a assisted living combination facilities and if so can you just share what kind of pricing you are seeing?

J. Justin Hutchens – CEO and President: Primarily we are pursuing still newer skilled nursing facilities and then the assisted living and senior housing campuses that attract mostly private pay, and in the case of a new skilled nursing facility that would be considered just very top of the market in terms of overall quality. We are squarely at about 9% lease yield. In the case of these high quality private payback assisted livings, we are closer to an 8% lease yield. The range in these one-off assets right now we are seeing in the market is in assisted living space is in the high 7s to the low 8s. Overall, in skilled nursing you can get all the way up to the mid-9s and the 10, but based on the type of assets that we are pursuing we are on the lower end of that range.

Todd Stender – Wells Fargo Securities: Just looking at the lease extension with the Kentucky River Medical Center, what was the outcome going to look like had you not provided the $8 million in renovation, how as that lease negotiation going to shake out?

J. Justin Hutchens – CEO and President: The guarantor and operator is a Fortune 200 company so they – it was long negotiation, because there was adequate leverage on both sides, and ultimately their goal to stay in the market longer term was to reposition the hospital. Our goal with them given their strong track record and their very strong credit was to extend the lease. So, it really just became a win, win opportunity because we were happy to make an additional $8 million investment with them given their credit, getting good yield on that investment, it improves our asset and we pushed the maturity out 10 years. So, it really wasn’t an overnight type of discussion. It went on for about year, getting ready for the lease renewal and it turned out to be I think a win, win opportunity for both companies.