Q4 2023 National Health Investors Inc Earnings Call
Okay.
Operator: Greetings and welcome to the NHI fourth quarter 2023 earnings call. At the start of our presentation, all lines will be in a listen-only mode.
Greetings and welcome to the N H I fourth quarter 2023 earnings call at Starwood presentation, all lines will be in a listen only mode.
Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this call is being recorded on Wednesday, February 21st, 2024. I would now like to turn the conference over to Dana Hambly. Please do so.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator. Please press star Zero as a reminder, today's call is being recorded Wednesday February 21st 2024.
I would now like to turn the conference over to Dana Hambly. Please go ahead.
Dana Hambly: Thank you, and welcome to the National Health Investors Conference call to review results for the fourth quarter of 2023. On the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Chief Financial Officer, and David Travis, Chief Accounting Officer. The results, as well as notice of the accessibility of this conference call, were released after the market closed yesterday in a press release that was covered by the financial media. Any statements in this conference call which are not historical facts are forward looking. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance.
Thank you and welcome to the National Health Investors Conference call to review results for the fourth quarter of 2023 on the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Chief Financial Officer, and David Travis Chief Accounting Officer.
The results as well as notice of the accessibility of this conference call were released after the market closed yesterday in a press release Thats been covered by the financial media any statements in this conference call, which are not historical facts are forward looking.
NHI cautions investors that any forward looking statements may involve risks or uncertainties and are not guarantees of future performance.
Dana Hambly: All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended December 31, 2023. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at
Forward looking statements represent Nhi's judgment as of the date of this conference call investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission.
In the risk factors and other information disclosed in Nhi's Form 10-K for the year ended December 31 2023.
Copies of these filings are available on the Sec's website at SEC Gov or on Nhi's website at NHI read Dot com.
Dana Hambly: In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been filed on Form 8K with the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I'll now turn the call over to our CEO, Eric Mendelsohn. Hello, and thanks to everyone for joining us today.
In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided in nhi's earnings release and related tables, and schedules, which have been furnished on form 8-K with the SEC.
Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release.
Now I'll turn the call over to our CEO Eric Mendelsohn.
Hello, and thanks to everyone for joining us today.
Eric Mendelsohn: We had another good quarter, capping a strong finish to the year with fourth-quarter results exceeding our expectations. For the full year, our NARIT FFO, Normalized FFO, and FAD were above the midpoint of both our original and improved November guidance. Similar to the third-quarter results, we experienced stable cash collections, over $2 million in deferral repayments, and no unexpected rent concessions.
<unk> had another good quarter capping a strong finish to the year with fourth quarter results exceeding our expectations for the full year, our NAREIT <unk> normalized <unk> and Fad were above the midpoint of both our original and improved November guidance.
Similar to the third quarter results, we experienced stable cash collections over $2 million in deferral repayments and no unexpected rent concessions.
Eric Mendelsohn: The TripleNet senior housing portfolio continues to benefit from improved industry fundamentals as EBITDARM coverage has now increased for seven consecutive periods, with notable improvement at Bickford and our other need-driven operators. The Senior Housing Portfolio, or SHOP, also contributed to the better-than-expected quarterly results with NOI increasing 48% over the fourth quarter of 2022 and over 24% sequentially. While SHOP is still a relatively small piece of our overall business, we're excited by improving trends and continue to believe in the significant upside potential that can drive our organic growth profile. Specifically, we expect SHOP NOI to grow in the range of 25% to 30% in 2024. From a portfolio repositioning standpoint, there is much less to discuss this quarter. We structured the discovery leases, which were in line with the negotiations described in our November press release and guidance.
The Triple net senior housing portfolio continues to benefit from improved industry fundamentals as EBIT arm coverage has now increased for seven consecutive periods with notable improvement at Bedford and our other need driven operators.
The senior housing portfolio or shop also contributed to the better than expected quarterly results with NOI, increasing 48% over the fourth quarter of 2022 and over 24% sequentially.
While shop is still a relatively small piece of our overall business. We're excited by improving trends and continue to believe in the significant upside potential that can drive our organic growth file profile.
Specifically, we expect shop NOI to grow in the range of 25% to 30% in 2024.
From a portfolio repositioning standpoint, there is much less to discuss this quarter, we structured the discovery leases, which were in line with the negotiations described in our November press release and guidance, we're making good progress on the Bickford rent reset with an expected increase in cash rents.
Eric Mendelsohn: We're making good progress on the Bickford rent reset with an expected increase in cash rent this year, and our other cash basis tenants are current on their monthly base rent. We believe our portfolio is in much better shape and positions NHI for strong organic growth in the foreseeable future. We're also positioned for external growth with our fortress-like balance sheet. Our leverage profile is one of the lowest of the healthcare REITs and in the top quartile when measured against all REITs.
This year and our other cash basis tenants are current on their monthly base rent.
We believe our portfolio is in much better shape and positions NHI for strong organic growth in the foreseeable future.
We're also positioned for external growth with our fortress like balance sheet. Our leverage profile is one of the lowest of the healthcare Reits and in the top quartile when measured against all rights. Given this low leverage we have over $150 million in capacity to deploy capital without the need to issue equity.
Eric Mendelsohn: Given this low leverage, we have over $150 million in capacity to deploy capital without the need to issue equity while staying at or below five times net debt to adjusted EVA dollars. I commented during our last call that seller and lender expectations were still 100 basis points behind the changes in everyone's cost of capital and that they should be more realistic about the higher for longer rate environment. Hire for longer certainly appears to be the prevailing environment, and we're starting to see sellers and borrowers adjust to this reality. There is an obvious cost of capital disparity with some of our larger peers, but they cannot be the solution to all of the growing illiquidity in the senior housing industry.
While staying at or below five times net debt to adjusted EBITDAR.
I commented during our last call that seller and lender expectations, we're still 100 basis points behind the changes in everyone's cost of capital and that they should be more realistic about the higher for longer rate environment.
Higher for longer certainly appears to be the prevailing environment and we're starting to see sellers and borrowers adjust to this reality.
There is an obvious cost of capital disparity with some of our larger peers, but they cannot be the solution for all of the growing illiquidity in the senior housing industry.
Eric Mendelsohn: We continue to advise customers to carefully choose a partner that will work with them towards their success in the long run. We believe this is starting to resonate, which makes us more optimistic about the pipeline. So, we expect our investment activity to accelerate this year. Turning to our guidance for 2024, the midpoint of our FAD guidance represents 2.6% growth over 2023. With less noise from dispositions and rent concessions, as well as more experience with retail, we believe we have much better visibility this year compared to the last two. Also, our guidance does not include any investments, which we expect will improve as the pipeline for accretive deals grows.
We continue to advise customers to carefully choose a partner that will work with them towards their success in the long run.
We believe this is starting to resonate which makes us more optimistic now about the pipeline. So we expect our investment activity to accelerate this year.
Turning to our guidance for 2024, the midpoint of our guidance represents two 6% growth over 2023 with less noise from dispositions and rent concessions as well as more experience with shop. We believe we have much better visibility this year.
Compared to the last two.
Also our guidance does not include any investments, which we expect will improve.
Conservative is the pipeline for accretive deals grows.
Eric Mendelsohn: Our guidance represents the third year since the pandemic where we have provided full-year guidance, and the 2024 result represents the second year in a row where our FAD achieved the top end of our guidance. Before turning the call over to Kevin, I'll conclude by saying that we accomplished a great deal in 2023, and we're now in a strong position as we return to growth in 2024. Our multi-pronged organic growth opportunity is as strong as ever, be it shop, deferral repayments, rent resets, or elevated escalators due to higher inflation. The investment and lending environments are very favorable for well-capitalized, low-levered capital providers like NHI, and the industry supply-demand balance seems finally to be tilting in our favor. In sum, NHI is poised to capitalize on opportunities in what we expect to be many years of exceptional growth. I'll now turn the call over to Kevin to provide more details on our operations. Kevin
Our guidance represents the third year since the pandemic, where we have provided full year guidance and the 2024 result represents the second year in a row, where our <unk> achieved the top end of our guidance.
Before turning the call over to Kevin I'll conclude by saying that we accomplished a great deal in 2023, and we're now in a strong position as we returned to growth in 2020 for our multi pronged organic growth opportunity is as strong as ever be at shop deferral repayments rent resets.
<unk> or elevated escalators due to higher inflation.
The investment and lending environments are very favorable for well capitalized low levered capital providers like NHI and the industry supply demand balance seems finally to be tilting in our favor.
In sum NHI is poised to capitalize on opportunities in what we expect to be many years of exceptional growth.
I'll now turn the call to Kevin to provide more details on our operations Kevin. Thank you.
Kevin Pascoe: Thank you, Eric. I'll concentrate my comments on investment and disposition activity as well as the performance of our major asset classes and operators. On the investment pipeline, and as Eric noted, we're starting to see more actionable activity. We're hopeful that we're seeing the tip of the iceberg as the volume of new inquiries has significantly increased in the last several months. We're looking at deals across the continuum of senior housing and skilled nursing and across multiple products, which include loan, lease, and joint venture opportunities. Initial yields, depending on the product, are in the high single digits to low double digits.
Eric I'll concentrate my comments on investment and disposition activity as well as performance of our major asset classes and operators.
On the investment pipeline and as Eric noted, we're starting to see more actionable activity. We're hopeful that we're seeing the tip of the iceberg as volume of new inquiries has significantly increased in the last several months.
We're looking at deals across the continuum of senior housing and skilled nursing and across multiple products, which have included loan lease and joint venture opportunities initial yield depending on the product are in the high single digits to low double digits.
Kevin Pascoe: In the case of new loan investments, our philosophy has always been to find a path to future real estate ownership, and that view has not changed. Turning to Asset Management, as previously disclosed, we sold three buildings in the fourth quarter for net proceeds of $5.4 million and $1.6 million in seller financing. We currently have just one property held for sale.
In the case of new loan investments, our philosophy has always been to find a path to future real estate ownership and that view has not changed.
Turning to asset management as.
As previously disclosed we sold three buildings in the fourth quarter for net proceeds of $5 4 million and $1 $6 million in seller financing. We currently have just one property held for sale we continue.
Kevin Pascoe: We continue to evaluate opportunities to improve our portfolio, which may include future asset sales, but we have no further material dispositions included in our 2024 outlook. As Eric noted, our fourth-quarter results were very strong and largely mimicked our solid third-quarter performance. Reviewing the need-driven operators, the positive coverage trends continued with ibidarm at 1.31 times, representing the seventh straight period of sequential growth. The coverage increase was driven in large part by Bigford at 1.51 times on a trailing 12-month basis. The Bigford occupancy trends have been excellent.
To evaluate opportunities to improve our portfolio, which may include future asset sales, but we have no further material dispositions included in our 2020 for outlook.
As Eric noted our.
Our fourth quarter results were very strong and largely mimic our solid third quarter performance.
Reviewing the need driven operators the positive coverage trends continued with EBITDAR at 131 times, representing a seventh straight period of sequential growth.
The coverage increase was driven in large part by Bickford at 151 times on a trailing 12 month basis the.
The bickford occupancy trends have been excellent fourth quarter average occupancy improved 100 basis points sequentially from the third quarter to 85, 2%.
Kevin Pascoe: Fourth quarter average occupancy improved 100 basis points sequentially from the third quarter to 85.2 percent. While we typically expect some seasonal weakness in the first quarter, January average occupancy increased 70 basis points from December to 85.7 percent. This occupancy improvement comes after a resident rent increase of 6% in November. With this rent increase coupled with the occupancy gains, we expect that Bigford's coverage continues to move higher. Bigford repaid approximately $1 million of its deferral balance in the fourth quarter. This was their highest quarterly repayment, which reflects the portfolio's strong underlying operating results, as repayments are tied to revenue thresholds. Total cash rent from Bickford, including repayments, was approximately $33 million in 2023.
While we typically expect some seasonal weakness in the first quarter January average occupancy increased 70 basis points from December to 85, 7%.
This occupancy improvement comes after a resident rent increase of 6% in November.
With this resident rent increase coupled with the occupancy gains we expect that <unk> coverage continues to move higher.
<unk> repaid approximately $1 million of their deferral balance in the fourth quarter. This was our highest quarterly repayment, which reflects the portfolio of strong underlying operating results as repayments are tied to revenue thresholds.
Total cash rent from Bickford, including repayments was approximately $33 million during 2023.
As Eric mentioned, we are close to reaching an agreement with Bickford in terms of their leases, which are scheduled for reset on April one.
Kevin Pascoe: As Eric mentioned, we are close to reaching an agreement with Bigford on the terms of their leases, which are scheduled for a reset on April 1st. As the discussions are ongoing, we won't comment further other than to reiterate that we believe cash rent, including repayments, will be higher in 2024. Our other need-driven tenants operating 37 properties continue to show improvement. Reported coverage at 1.13 times is the highest since the second quarter of 2020 and the eight-straight period of sequential improvement. Four operators repaid approximately $1 million in deferrals during the fourth quarter.
As the discussions are ongoing we won't comment further other than to reiterate that we believe cash rent, including repayments will be higher in 2024.
Our other need driven tenants operating 37 properties continued to show improvement reported coverage at one three times is the highest since the second quarter of 2020, and the eighth straight period of sequential improvement.
For operators repaid approximately $1 million.
And deferrals during the fourth quarter.
Our discretionary senior housing portfolio, primarily includes our entrance fee portfolio, which has performed well above our expectations since the since the pandemic began and that continues to be the case.
Coverage improved sequentially to 141 times from 138 times, driven by a nice uptick at SLC, our largest tenant on another solid quarter of entrance fee sales.
Kevin Pascoe: Our discretionary senior housing portfolio primarily includes our entrance fee portfolio, which has performed well above our expectations since the pandemic began, and that continues to be the case. Coverage improved sequentially to 1.41 times from 1.38 times, driven by a nice uptick at SLC, our largest tenant, on another solid quarter of entrance fee sales. Discretionary coverage, excluding SLC, which largely reflects the performance of our other entrance fee communities, declined to 1.38 times from 1.5 times.
Discretionary coverage, excluding SLC, which largely reflects the performance of our other entrance fee communities declined to 138 times from one five times. This was due to uneven entry fee sales at one well capitalized tenant, but we're happy to see stronger fourth quarter sales, which is not yet reflected in the.
Calculation.
Yes.
Okay.
The sniff and specialty hospital portfolio reported solid coverage at 274 times, which has improved sequentially from 262 times.
Lastly, in our shop portfolio momentum continues to build throughout the portfolio with our partners discovery and Merrill Gardens.
Fourth quarter, NOI increased 48, 2% year over year to $2 9 million.
Kevin Pascoe: This was due to uneven entry fee sales at one well-capitalized tenant, but we're happy to see stronger fourth quarter sales, which is not yet reflected in the calculation. The SNF and specialty hospital portfolio reported solid coverage at 2.74 times, which has improved sequentially from 2.62 times. Lastly, in our shop portfolio, momentum continues to build throughout the portfolio with our partners Discovery and Merrill Garden. Fourth quarter NLR increased 48.2% year-over-year to 2.9 million, resident fees increased by 9.8% year over year on a 740 basis point increase in occupancy to 83.2%, operating expenses increased just 2.2 percent, leading to a 580 basis point year-over-year margin improvement to 22.3 percent. As noted in our 2024 guidance, we forecast shop and wide growth in a range of 25 to 30 percent. While we do not give quarterly guidance, we do expect the NOI cadence to move higher throughout the year. January is off to a good start as occupancy averaged 84.7%, up 30 basis points from December.
Resident fees increased by nine 8% year over year on a 740 basis point increase in occupancy to 83, 2%.
Operating expenses increased just two 2% leading to a 580 basis point year over year margin improvement to 22, 3%.
As noted in our 2024 guidance, we forecast shop NOI growth in a range of 25% to 30%.
While we do not give quarterly guidance, we do expect the NOI cadence to move higher throughout the year.
January is off to a good start as occupancy averaged 84, 7% up 30 basis points from December.
A longer term view on this portfolio that it can generate NOI dollars in the high teens margins in the mid 30% range remains unchanged.
I'll now turn the call over to John to discuss our financial results and guidance John.
Thank you Kevin.
Hello, everyone.
For the year ended December 31, 2023, our net income NAREIT and normalized <unk> per diluted common share were $3 13.
$4 39.
And $4 33 per share respectively.
This represents year over year improvements of 112%, 24% and 1%.
Prospectively.
For the year ended December 31.
<unk> was $187 8 million down six 6% year over year, but recall that during 2022, we recognize significant prior year holiday related revenues as a result of our settlement with <unk>.
John L. Spaid: A longer-term view on this portfolio, that it can generate NOI dollars in the high teens on margins in the mid 30% range, remains unchanged. I'll now turn the call over to John to discuss our financial results and guidance. Thank you, Kevin, and hello everyone.
As Eric mentioned, we're pleased to report that each of our pro forma metrics came in at the high end of our guidance net.
Net income for the fourth quarter and year ended December 31, when compared to our guidance reflects the fact that we did not close as expected on the sale of our one property and assets held for sale. It did not record the expected gain.
John L. Spaid: For the year-ended December 31st, 2023, our net income, married FFO, and normalized FFO per diluted common share were $3.13, $4.39, and $4.33 per share, respectively, which represents year-over-year improvements of 112 percent, 24%, and 1%.
Our fourth quarter 2023, F&B was $47 3 million, which is a five 9% increase when compared to the fourth quarter of 2022.
Sequentially compared to the third quarter in 2023 was down $825000, but recall the third quarter saw a discrete payments from two cash basis tenants for amounts previously owed for prior quarters, but which were not recurring to the fourth quarter.
John L. Spaid: For the year ended December 31st, our FAD was $187.8 million, down 6.6% year-over-year. But recall that during 2022, we recognized significant prior year holiday-related revenues as a result of our settlement with Welltar. As Eric mentioned, we're pleased to report that each of our pro forma metrics came in at the high end of our guidance. However, net income for the fourth quarter and year ended December 31st when compared to our guidance reflects the fact that we did not close as expected on the sale of our one property in assets held for sale and did not record the expected gain. Our fourth quarter 2023 FAD was $47.3 million, which is a 5.9% increase when compared to the fourth quarter of 2022. However, sequentially, compared to the third quarter of 2023, FAD was down $825,000.
Our Q4 2023 metrics when compared to Q4 2022 saw further improvements to fad payout and net debt to adjusted EBITDA ratios of 82, 5% and four four times compared to 87, 3% and four seven times respectively.
The fourth quarter also saw a milestone for the first time since Q2 2021, we did not record any impairments.
Rick mentioned, the fourth quarter was sequentially, the second quarter without any unexpected tenant concessions.
In 2023.
We paid or retired or retired approximately $415 million in debt using proceeds from a new term loan and our resolve.
We saw proceeds from loan repayments and dispositions of approximately $70 million and made.
Positions in loan investments of approximately $74 million.
During 2023, we did not issue any equity under our $500 million ATM program more buyback any stock under our $160 million stock repurchase authority.
John L. Spaid: But recall the third quarter saw discrete payments from two cash basis tenants for amounts previously owed for prior quarters but which were not recurring to the fourth quarter. These are Q4 2023 metrics and, compared to Q4 2022, saw further improvements to FAD payout and net debt to adjusted EBITDA ratios of 82.5% and 4.4 times compared to 87.3% and 4.7 times, respectively. The fourth quarter also saw a milestone, where for the first time since Q2 2021, we did not record any impairment. As Eric mentioned, the fourth quarter was sequentially the second quarter without any unexpected tenant concessions.
Last night, we issued our full year guidance for 2024.
Our 2024 guidance for normalized <unk> is in the range of 187 to $289 7 million or a range of $4 31.
To $4 37 per share.
We are forecasting to be in the range of 191, three to $194 1 million representing.
Representing a year over year growth of two 6% at the midpoint and three 4% at the high point.
As Eric mentioned, our guidance includes shop, NOI growth of up to 30% year over year and no incremental new investment.
While we are telling you that our guidance includes the collection of deferrals.
Remember that the majority of deferred rent that we collect is attributable to victory.
John L. Spaid: In 2023, we repaid or retired approximately $415 million in debt using proceeds from a new term loan and our revolver. We sought proceeds from loan repayments and dispositions of approximately $70 million and made acquisitions and loan investments of approximately $74 million. During 2023, we did not issue any equity under our $500 million ATM program nor buy back any stock under our $160 million stock repurchase authority.
As Eric and Kevin mentioned, we are close to finalizing the step up rent negotiations with Bickford, which will have an impact on the additional deferred rent we will be able to collect in 2024, but not on our estimate for the Bickford NOI, which is included in our guidance.
Our balance sheet continues to be a source of strength for us and this year, our focus will be on our weighted average debt maturities variable interest rate debt levels and liquidity.
At the end of January we had $273 million outstanding on our $700 million revolver.
And only a single debt maturity this year for $75 million at the end of September.
As Eric mentioned, our leverage ratio continues to trend favorably and in 2023 of four four times net debt to adjusted EBITDA.
John L. Spaid: Last night, we issued our full-year guidance for 2024. Our 2024 guidance for normalized FFO is in the range of $187.2 to $189.7 million, or a range of $4.31 to $4.37 per share. We are forecasting FAD to be in the range of $191.3 to $194.1 million, representing year-over-year growth of 2.6% at the midpoint and 3.4% at the high point. As Eric mentioned, our guidance includes shop and ALI growth of up to 30% year-over-year and no incremental new investment. Well, we are telling you that our guidance includes the collection of deferrals. Remember that the majority of deferred rent that we collect is attributable to BICFAR. As Eric and Kevin mentioned, we are close to finalizing the step-up rent negotiations with Bigford, which will have an impact on the additional deferred rent we will be able to collect in 2024 but not on our estimate for the Bigford NOI, which is included in our guidance.
At the end of January we have ample liquidity of over $425 million in cash and revolver availability and the full $500 million available under our ATM program.
Looking towards 2025, we have an additional $326 million in debt maturity.
$200 million of this maturing debt as our term loan, which does have at nhi's option the ability to extend alone for up to one year.
At December 31, the percentage of variable interest rate to our total debt was just under 39%.
And the next two years will retire an additional $201 million in fixed rate debt.
Our strategy for this year will be to look at our debt options for improving our average debt maturities and for keeping our variable interest rate risk at comfortable levels.
At current interest rates, our long term interest rates are only 40% to 50 basis points higher than our variable interest rates. So we don't expect any meaningful impacts to our 2024 guidance as a result of any new significant debt facility.
As we announced last night, our board of directors declared a <unk> 90 per share dividend for shareholders of record March 28, 2024 and payable on May three 2024.
Our board also reauthorized, our $160 million stock repurchase plan, which was effective for one year.
John L. Spaid: Our balance sheet continues to be a source of strength for us, and this year, our focus will be on our weighted average debt maturities, variable interest rate debt levels, and liquidity. At the end of January, we had $273 million outstanding on our $700 million revolver and only a single debt maturity this year for $75 million at the end of September.
That concludes our prepared remarks, so once again, thank you for joining our call today.
With that operator, please open the lines for questions.
Thank you.
If you would like to register a question. Please press the one four on your telephone you will hear a threefold prompt to acknowledge your request.
Your question has been answered and you would like to withdraw your registration. Please press the one followed by the <unk> III.
One moment please for the first question.
John L. Spaid: As Eric mentioned, our leverage ratio continues to trend favorably, ending 2023 at 4.4 times net debt to adjusted EBIT. Additionally, at the end of January, we have ample liquidity of over $425 million in cash and revolver availability and the full $500 million available under our ATM program. Looking towards 2025, we have an additional $326 million in debt maturing. $200 million of this maturing debt is our term loan, which does have an NHI option. The ability to stand alone for up to one year.
Our first question comes from Richard Anderson with Wedbush. Please proceed.
Hey, good morning, everyone. So John just if you could confirm for me.
I ask this question, probably every quarter and then I forgot to answer.
On the deferral repayments is there a doubling up in 2024.
You didn't record it when you offered the deferral, but youre getting kind of full payment plus deferral in 2024 does that happen with bickford or anybody else in your guidance.
So.
Hey, rich.
Doubling up that's not the right word I think what you are what you are telling what Youre asking me is.
John L. Spaid: At December 31st, the percentage of variable interest rates to our total debt was just under 39%. In the next two years, we'll retire an additional $201 million in fixed rate debt. Our strategy for this year will be to look at our debt options, to improve our average debt maturities, and to keep our variable interest rate risk at comfortable levels. At current interest rates, our long-term interest rates are only 40 to 50 basis points higher than our variable interest rates. So we don't expect any meaningful impacts to our 2024 guidance as a result of any new significant debt facility. Additionally, as we announced last night, our Board of Directors declared a 90-cent per share dividend for shareholders of record March 28, 2024, payable on May 3, 2024.
Are we putting on our balance sheet some of the deferrals through GAAP revenues in the answer to that.
Question is yes.
And so we mentioned in our press release that we had $2 million of deferral repayments in the fourth quarter and $5 $7 million for the year.
And so how does that work right. So some of those deferrals that we mentioned.
We do pull into our <unk>.
GAAP revenues.
Because thats part of the 842 determination and so we try to collect those as soon as possible.
And when we do collect them it all flows down into and shows up in <unk>.
But because of the straight line component.
It may not move <unk>, our net income.
And so in the fourth quarter.
That number was 700000 was already in net income and for the year It was $2 $6 million.
Operator: Our board also reauthorized our $160 million stock repurchase plan, which is effective for one year. That concludes our prepared remarks. So once again, thank you for joining our call today. With that, Operator, please open the lines for questions. Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.
I would call our accrual based deferral recognition.
Okay.
There is no like.
No no the doubling up is obviously not the word this right.
I have a couple of buckets okay.
Yes, I'll try to I'll try that.
We will try to do a better job.
In the future.
Keep this straight knowing that.
Everybody wants to understand how these deferrals might affect <unk>.
As opposed to <unk>.
And so.
Everything ends up in <unk>, but because we are recognizing the collection of these deferrals through.
GAAP revenues are straight line revenues.
Even if we collect them early.
Operator: One moment, please for the first question. Our first question comes from Richard Anderson with Wedbush. Please proceed. Good morning, everyone.
It's not going to move <unk> net income.
Okay Gotcha.
Sure.
Eric obviously, great results from the shop portfolio.
John L. Spaid: So John, just if you could confirm for me, I ask this question probably every quarter and then I forget the answer. On the deferral repayments, is there a doubling up in 2024 where, you know, you didn't record it when you offered the deferral, but then you're getting kind of full payment plus deferral in 2024? Does that happen with Bickford or anybody else under your guidance? Hey, Rich. I'm doubled up. That's not the right word.
I'm wondering how this informs you in terms of our pipeline.
<unk> existing triple net.
Senior housing assets into into shop, if that's on your radar going from a four 5% percent of your portfolio being shopped to what degree are you enticed by seeing that number go up substantially either organically within the portfolio or through acquisitions.
Okay.
Thanks rich for the complement.
We are definitely gratified to see our shop portfolio perk up we've been impatient as you know.
John L. Spaid: I think what you're saying, what you're asking me is, "Are we putting on our balance sheet some of the deferrals through GAAP revenues?" The answer is yes.
It took us a long time to get our Capex program finished but now that it's done the results are encouraging.
John L. Spaid: And so we mentioned in our press release that we had $2 million of deferral repayments in the fourth quarter and $5.7 million for the year. And so how does that work, right? So some of those deferrals that we mentioned, we do pull into our gap revenues because that's part of the, you know, 842 determination. And so we try to collect those as soon as possible. And, you know, when we do collect them, it all flows down into and shows up in the FAD. But because of the straight-line component.
But one quarter or two quarters does not a trend make so.
I still feel and this is in our guidance so I still feel like.
This is a product that has more room to run.
And I am sure, it's definitely catching our board's attention how well its doing so you are right. My goal when kevins goal is to add to the shop portfolio either through acquisitions or conversions.
And Theres, certainly a lot of opportunity there and a lot of people interested in that.
John L. Spaid: It may not, you know, move FFO or net income. And so, in the fourth quarter, that number was, you know, 700,000 was already in net income, and for the year, it was $2.6 million. That's our, I would call it, accrual-based deferral recognition. Okay, so there's, there's no, like... No, no, doubling up is obviously not the word.
Last question for me.
I think John you said the Bickford reset on in April we will have an impact on deferral collections are you, saying that the new rent.
Sort of you sort of.
Eric Mendelsohn: This is, you can sort of have a couple of buckets. Okay, understood. Yeah, yeah, we'll try to do a better job in the future, you know, to keep this straight, knowing that, you know, everybody wants to understand how these deferrals might affect FFO as opposed to FAD. And so, you know.
The future deferrals that are still on the table will just become higher rent from Bickford and Thats, how youll sort of account for that is that is that the right way to think about it.
Right.
Eric Mendelsohn: Everything ends up in FAD, but because we're recognizing the collection of these deferrals through, you know, gap revenues or straight line revenues, even if we collect them early, that's not going to move FFO or net income. Eric, obviously, great results in the SHOP portfolio. I'm wondering how this informs you in terms of a pipeline of converting existing triple net senior housing assets into SHOP, if that's, you know, on your radar going, you know, from 4.5% of your portfolio being SHOP, to what degree are you enticed by seeing that number go up substantially, either organically within the portfolio or through acquisition. Thanks, Rich, for the compliment.
Selling you that we're in negotiations with Bickford.
The strategy here is to continue to show improvement in Bickford NOI.
Which as they do allows us through either a stepped up rent for the collection of deferrals.
Improve our NOI right.
I can't tell yet is what the what the.
What the split is going to end up being just yet.
And you can understand why right and so I can't really signaled to you because the majority of our deferral collections in 2024 will be coming from Bickford I can't really signal to you.
The component of that deferral the component of our guidance.
Eric Mendelsohn: We are definitely gratified to see our shop portfolio perk up. We've been impatient, as you know, and it took us a long time to get our CapEx program finished. But now that it's done, the results are encouraging. But one quarter or two quarters does not a trend make.
For all of our that's in our guidance right now.
Alright.
Hopefully that makes I would just caught.
Caution against.
Adding into that coverage improvement I think the market probably values coverage more than they value rent growth and triple net so but you probably know that already it's just the.
Eric Mendelsohn: So, I still feel, and this is in our guidance, I still feel like this is a product that has more room to run, and I'm sure it's definitely catching our board's attention, how well it's doing. So, you're right, my goal and Kevin's goal is to add to the shop portfolio either through acquisitions or conversions, and there's certainly a lot of opportunity there and a lot of people interested Last question for me, I think John you said the Bickford reset in April will have an impact on deferral collections. Are you saying that the new rent, sort of, you sort of, the future deferrals that are still on the table, will this become a higher rent from Bickford and that's how you'll sort of account for that? Is that the right way to think about it?
Commentary from the cheap seats.
Yeah. Thank you Julien.
One of them.
Metrics that we present to you as our <unk>.
Average ratio that coverage ratio.
<unk> the repayment of deferrals too by the way.
Alright, okay.
Great. Thanks, guys.
Our next question comes from Tayo Okusanya with Deutsche Bank. Please proceed.
Hi, yes, good morning.
Along the lines of rent resets I believe there was also a rent reset are related to discovery in 2024 can you just talk a little bit about how is that.
Is or is not included in guidance.
Eric Mendelsohn: Right, we were telling you that we're in negotiations with Bickford. The strategy here is to continue to show improvement in Bickford's NOI, which, as they do, allows us, through either a stepped-up rent or the collection of deferrals, to improve our NOI and FAD, right? What I can't tell you is what the split is going to end up being just yet, and you can understand why, right
Well tayo it.
It is included in guidance we went.
<unk>.
Talked a great deal about that in our November call.
We think we've mentioned in several places that the outcome of that renegotiation was in line with what we said so.
So we we said that there was a reduction of rent.
John L. Spaid: And so I can't really tell you because the majority of our deferral collections in 2024 will be coming from Bickford. I can't really tell you The component of that deferral, the component of our guidance, you know, the deferral, that's in our guidance right now. I would just caution against eating into that coverage improvement. I think the market probably values coverage more than they value rent growth in triple net, but you probably know that already. You know, commentary from the chief. Talk to you soon.
For two of the leases.
So that Hasnt changed.
The amount.
Amount is came out as expected and it is in our guidance and so it's.
Really nothing else to report.
Okay. That's helpful.
And then Eric.
Your comments just about an acquisition again, it really does sound like.
It could be a really good year in that regard could you talk a little bit about.
John L. Spaid: Thank you. The metric that we present to you is our coverage ratio. That coverage ratio excludes the repayment of deferrals, too, by the way. All right, next. Omotayo Okusanya with Torch Bank, please proceed. Yes, good morning.
No.
How much you're seeing in terms of what just the acquisition pipeline could look like and could you give us a sense of how much of that is actual fee simple transactions versus more kind of structured finance on mortgage loan transaction.
Eric Mendelsohn: Along the lines of rent resets, I believe there was also a rent reset related to discovery in 2024. Could you talk a little bit about how that is or is not included in guidance? Well, Tayo, it is included in guidance. We went, we talked a great deal about that in our November call, and I think we mentioned in several places that the outcome of that renegotiation was in line with what we said. So we said that there was a reduction in rent for two of the leases. So that hasn't changed. The amount came out as expected, and it is within our guidance. And so, there's really nothing else to report.
Hey, Tayo, you're absolutely right a lot of it is structured finance, which we're willing to do at the right price and if we have line of sight to an acquisition as a right to call it loan to own.
But we're seeing a very robust market right now I think the message that banks are not lending.
Deals are falling apart sellers are getting more rational in their pricing expectations and I think brokers are.
Eric Mendelsohn: Gotcha. Okay. That's helpful.
Eric Mendelsohn: And then, Eric, your comments just around acquisitions. Again, it really does sound like, you know, it could be a really good year in that regard. Could you talk a little bit about...
Getting through to potential sellers that there is still a market, but it's not the market of 2020.
It's a different market now at a higher cap rate with more difficult financing options.
Eric Mendelsohn: How much are you seeing in terms of what just the acquisition pipeline could look like? And could you give us a sense of how much of that is actual fee-simple transactions versus more of the kind of structured finance or mortgage loan transactions? Hey, Tayo, you're absolutely right.
Gotcha Okay.
Okay.
That's helpful. Thank you.
Our next question comes from Juan Sanabria with BMO capital markets. Please proceed.
Hi, good morning.
Eric Mendelsohn: A lot of it is structured finance, which we're willing to do at the right price and if we have line of sight to an acquisition, or as I like to call it, loan to own. But we're seeing a very robust market right now. I think the message that banks are not lending, deals are falling apart, sellers are becoming more rational in their pricing expectations, and I think brokers are getting through to potential sellers that there's still a market, but it's not the market of 2020. It's a different market now at a higher cap rate with more difficult financing options. Gotcha. Okay. That's helpful. Thank you. Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed. Hi, good morning.
Just hoping you could maybe talk a little bit about some of the piece parts in.
The shop guidance, whether it be occupancy revpar.
Our expense growth and margins.
Underlying your your same store NOI of 25% to 30% growth. Please.
Sure Hey, Ron this is Kevin.
The headline for sure as occupancy as we've talked about before.
Been using incentives to make sure that we're getting the occupancy where we want that's had a very positive effect over 2023 and that will continue to be the strategy for 2024 being mindful also is on the expense side. The operating partners have done a good job of holding those in line year over year, but we do expect some.
Eric Mendelsohn: Just hoping you could maybe talk a little bit about some of the pieces parts, in the shop guidance, whether it be occupancy, rep poor, or expense, growth, or margins, underline your, your, uh, Seamstrain, a lot of 25 to 30% growth, please. Sure. Hey Juan, this is Kevin.
<unk> type increases so again the biggest piece is really just occupancy once we see occupancy we will see.
We would expect anyway NOI to follow but that typically is a little lag which is also why I think you see.
NOI better in the fourth quarter then.
Occupancy increased throughout the year and Thats kind of how we built our forecast for this year is continued usage.
Kevin Pascoe: I mean, the headline for sure is occupancy. As we've talked about before, we've been using incentives to make sure that we're getting the occupancy where we want it. That's had a very positive effect on 2023, and that'll continue to be the strategy for 2024, being mindful. Also, as you know, on the expense side, the operating partners have done a good job of holding those in line year over year, but we do expect some inflationary increases. So again, the biggest piece is really just occupancy. Once we see occupancy, we'll see, we would expect anyway, NOI to follow, but that typically is a little lagged, which is also why I think you see NOI better in the fourth quarter than, you know, as occupancy increases throughout the year.
Those incentives get the occupancy where we wanted to go.
Looking at our business update and you can see where we see the Nic map markets versus are our buildings. So theres still plenty of room to grow from an occupancy perspective.
So again I think that's absolutely number one youll see rate follow once we get occupancy, where we want it to be but thats going to be a little bit.
Yes.
Kind of a phase III.
Okay.
Okay, great. Thank you and then just.
On your enthusiasm for the investment opportunities. It sounds like you have maybe some more loans.
Kevin Pascoe: And that's kind of how we built our forecast for this year, continuing usage. Those incentives get the occupancy where we want it to go. If you look in our business update, you can see where we see the NCMAP markets versus our buildings. So there's still plenty of room to grow from an occupancy perspective. So again, I think that's absolutely number one. You'll see rates follow once we get occupancy where we want it to be, but that's going to be a little bit..., you know, kind of a phase two. Okay, great, thank you. And then just... on your enthusiasm for the investment opportunities. It sounds like you have maybe some more loans and opportunities, but I'm just curious if the enthusiasm includes opportunities to do more in the shop.
Opportunities, but just curious if the enthusiasm.
<unk> the opportunities to do more in shop.
In terms of new investments and if you do in fact have <expletive> remarks from the board or not.
Sounds like no, but just wanted to confirm.
And.
I guess bigger picture the market seems to have moved away from triple in that I mean.
How do you think about.
The investment pipeline going forward.
The opportunities in Triple net versus shop is just the size of the opportunity set perhaps is the best way to talk about.
Hey, Juan this is Eric.
Eric Mendelsohn: In terms of new investments, if you do in fact have the green light from the board or not, it sounds like no, but just wanted to confirm. And, I guess, in the bigger picture, the market seems to have moved away from triple net. I mean, how do you think about the investment pipeline going forward and the opportunities in triple net versus shop? It's just the size of the opportunities that, perhaps, is the best way to talk about things. Hey Juan, this is Eric.
It's certainly noticed by our board that shop has popped.
We're.
We're getting a signal from the board.
They would be open to more shop.
Or RIDEA.
So we're excited about that.
As I was saying earlier the structured finance opportunities are really a result of the bank shutting down so there's no shortage of that.
But Kevin likes Us real estate and the best way to get to real estate as either doing a joint venture in a shop or doing a triple net lease and.
Eric Mendelsohn: It's certainly noticed by our board that CHOP has popped, and we're getting a signal from the board that they would be open to more SHOP or RIDEA, so we're excited about that. As I was saying earlier, you know, the structured finance opportunities are really a result of the bank shutting down, so there's no shortage of that. But Kevin likes his real estate, and the best way to get to real estate is either doing a joint venture in a shop or doing a triple net lease. I would agree with you that triple net leases are fewer and far between, but I would also say that it's really opened the eyes of some customers that maybe having a loan that's three to five years in term isn't the best thing when it comes due, and you're You're kind of in a pickle.
I would agree with you that triple net leases are fewer and far between but I would also say that it's really opened the eyes of some customers that may be having a loan that's three to five years in term isn't the best thing when it comes due and youre not able to find a new loan.
To replace that Youre kind of in a pickle.
And that that has driven people to the conclusion that maybe 10 or 15 year lease isn't the worst thing in the world and they should consider it. So it's a funny market out there, but I think it's one that we can do a lot of business.
And then just the last question on discovery.
I get the point that you talked about at length on the last call, but I guess is the restructuring I don't think it is in the fourth quarter burn rate.
How should we adjust the fourth quarter.
Run rate for the change in the discovery of lease.
That's a good question it is not in the fourth quarter run rate.
Eric Mendelsohn: And that has driven people to the conclusion that maybe a 10 or 15 year lease isn't the worst thing in the world, and they should consider it. So it's a tricky market out there, but I think it's one that we can do a lot of business in. And just the last question on discovery. I get the point that you talked about at length on the last call, but I guess the restructuring, I don't think it is, in the fourth quarter run rate, or how should we adjust the fourth quarter run rate for the change in the discovery release? That's a good question, but it is not in the fourth quarter run rate.
Best I can do with you on that right now is just simply say it's properly reflected in guidance.
Okay.
And let me, let me think about where we can through our filings maybe give you a little more help on that.
That'd be helpful. Thank you.
As a reminder to register a question. Please press the one four on your telephone.
Our next question comes from Austin, where sprint where Smith.
You can keybanc capital markets. Please proceed.
Great. Thank you.
Just going back to Bickford for a moment I believe you guys were entitled to an 8% yield on your original investment or around $4 million of of <unk>.
John L. Spaid: The best I can do with you on that right now is just simply say it's properly reflected in guidance. You know, And let me think about where we can, through our filings, maybe give you a little more help on that. That'd be helpful.
Incremental annualized rent.
So with the $1 billion of deferral repayments in the fourth quarter Youre kind of essentially there but is it fair to say that the market rent reset could be less than 8%, but youll be above that if you include the amount of deferrals.
John L. Spaid: Thank you. As a reminder, to register a question, please press the 1-4 on your telephone. Our next question comes from Austin Wurstschmidt of KeyBag Capital Markets. Please proceed. Great, thank you.
Kevin Pascoe: Just going back to Bickford for a moment, I believe you guys were entitled to an 8% yield on your original investment, around $4 million; you won't rent. So with the million in deferral repayments in the fourth quarter, you're kind of essentially there. But is it fair to say that the market rent reset could be less than 8%, but you'll be above that? Consider the amount of deferrals on top of the market rent reset. Hey all.
On top of the market rent reset.
Yes.
That's a fair assumption when you call will the two together it would be in excess forward isn't being mindful of is and to what Richard mentioned earlier of what absolute coverages within the enterprise.
We'll really within our portfolio and then looking at.
Kevin Pascoe: Yeah, that's, I mean, that's a fair assumption. But when you cobble the two together, it would be in excess. What we're just being mindful of is what Richard mentioned earlier of what absolute coverage is within the enterprise and what is really within our portfolio, and then looking at the level of repayment they can, be able to, maintain, in addition to maintaining our buildings. So we're just kind of making sure that we're looking at all the pieces and making sure that they remain healthy. We've done a lot of work to get them to this point; you don't want to mess that up. So again, it's just being mindful, but I think you're right.
The level of repayment they can be.
Be able to.
To maintain in addition to maintaining our buildings. So we're just kind of making sure. We're looking at all of the pieces.
And make sure that they remain healthy we've done a lot of work to get them to this point, we don't want to.
We don't want to mess that up so again, it's just being mindful, but I think youre right. When you look at the repayments in addition to.
The base rent you should be in excess of that number the 8% number.
Got it and then I guess, just taking it a little bit further.
What's assumed in guidance around Bickford is the increase in deferrals just in totality versus 2023 or is the increase versus the <unk> run rate because you referenced there is some increase in deferrals Vic's words, a big component of that I'm, just trying to understand how significant of an.
Kevin Pascoe: When you look at the repayments in addition to the base rent, you should be in excess of that number, the 8% number. Got it. And then I guess just taking it a little bit further.
John L. Spaid: You know, what's assumed in guidance around Bickford is an increase in deferrals, you referenced there's some increase in deferrals, Bickford's a big component of that, I'm just trying to understand how significant of an increase in deferral repayments you're assuming in guidance. Well, we're intensely not telling you what's going on there because of the negotiation with Bickford. What I would say is we do see future growth in Bickford NOI for 2024. So the prior quarter run rate, we hope you'll see over time, will improve. Now, the way that we divide.
Increase in deferral repayments youre assuming in guidance.
Well.
We are intentionally not tying.
Whats going on there because of the negotiation with Bickford.
<unk>.
<unk>.
What I would say is we do see future growth in the Bickford NOI.
For 2024.
So the prior quarter run rate.
We hope Youll see over time will improve.
Now the way that we divide.
John L. Spaid: The split between that NOI between repayment of deferrals and the step-up rent, we have yet to tell you. We'll probably be able to tell you that number with our first quarter conference call in May, which will give you a lot more guidance. But again, like I said, our guidance has our expectations already in it. Got it.
The split between net NOI between repayment of deferrals and the step up rent we have yet to tell you, we'll probably be able to tell you that number.
With our first quarter.
Conference call in May.
Which will give you a lot more guidance.
But again like I said our guidance has.
Has our expectations already in it.
Got it understood just quickly on the shop portfolio can you provide a little bit of detail or additional detail around the concessions you're offering on average to drive occupancy and just curious how sticky those residents.
Kevin Pascoe: Understandable. Just quickly on the shop portfolio, can you provide a little bit of detail or additional detail around the concessions you're offering? on average could drive occupancy, and I'm just curious how sticky those are. Well, to the latter part of the question, we've been monitoring length of stay.
Have done at this point.
Well to the latter part of the question, we've been monitoring length of stay I.
Kevin Pascoe: I would tell you it's down a little bit from where we saw it when Holiday operated the portfolio, but it's increased over the last few quarters. So, we're, you know, seeing positive improvement on the length of stay in the portfolio. So, happy with where it sits overall. It could be a little bit better, but it's within reason in terms of what we see with competitors. In terms of concessions, usually, it's some form of a discount on the first month's rent. There are some pricing mechanisms in the tool kit that the operators have, but by and large, we try to make the concessions more upfront. That way, we're taking a little bit of a hit on move-in, but the rents would then go to more of a market rate after the first month or after a shorter period of time.
I would tell you it's down a little bit from where we saw.
Holiday operated the portfolio, but it's increased over the last few quarters. So were seeing positive improvement on the length of stay in the portfolio. So happy with where it sits overall it could be a little bit better but.
It's within reason in terms of what we see with competitors in terms of concessions usually it's some form of discount on the first month's rent.
There is some pricing mechanisms in the tool bucket that the operators have but by and large we try and make the concessions more upfront that way.
Taking a little bit of a hit on move in.
The rents would then go to more of a market rate. After the first month after a shorter period of time. So we generally see about two thirds of the.
Kevin Pascoe: So, we generally see about two-thirds of the, I'm giving very rough numbers, but, you know, call it, say, half to two-thirds of the incentive be front-end loaded, and then in some cases, there's a little bit of a longer-term incentive where it would stick around in the net against our future income for a period of time. But it's, again, going to be more. We're looking for those stickier residents who we can get more of the market rate rents and just using those early dollars to get them to move in.
Giving very rough numbers, but call it say.
Two thirds of the incentive be front end loaded and then in some cases, there is a little bit longer term incentive.
It would stick around in the <unk>.
Against our future income for a period of time.
It's again going to be more.
We're looking for those stickier residents ones that we can get more of the market rate rents and just using those early dollars to get them to move in.
Eric Mendelsohn: Chairperson. Thanks, everyone. We'll look forward to seeing you at NIC or on a road show or conference. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everybody.
That's helpful. Thanks for the time.
There are no further questions at this time.
Thanks, everyone will look forward to seeing you at Nic or on a road show or conference.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
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