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Text: 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 31st, 2019.
sec.gov or on NHI's website at www.
We are pleased to report our fourth quarter and full year results for 2019, which were at the top-end of our guidance range despite the many headwinds that we faced last year.
We started 2019 in a much more defensive posture than is usual for NHI and we experienced good momentum throughout the year.
We are in much better shape as we enter 2020.
We are not out of the woods by any means as the senior housing industry continues to be challenged by new deliveries and labor issues, which we do not expect to improve for at least the next several quarters, but we are generally encouraged by slowing inventory growth and very strong net absorption, which in 2019 showed the highest level of demand in the 13 years since NIC has been collecting this data.
Furthermore, our skilled nursing portfolio continues to show very strong coverage and we expect that the new PDPM reimbursement system will moderately improve on that coverage.
We have remained optimistic despite some of the headwinds and announced $329 million in acquisitions in 2019 primarily with existing partners.
We also added three new partners with whom we are excited to grow with for many years to come.
In 2020, we have already announced $150 million, including $135 million for Timber Ridge, which is a Class A CCRC just outside of Seattle and we are thrilled to partner with LCS on this deal.
Kevin will share more details later.
With the Timber Ridge acquisition, we are dipping our toes back into RIDEA with a 25% interest in OpCo, but unlike other RIDEA structures more common with healthcare REITs, we've done so with an embedded triple net lease that mitigates volatility of the underlying operation to NHI's shareholders.
We are always open to creative financing solutions with premier operators like LCS and investors should inspect that our focus will continue to be on the triple net strategy.
We recently announced a 5% increase in our dividend, which marks the 11th straight year we have increased the quarterly dividend by 5% or more while maintaining a coverage ratio below 80% of normalized FFO for the last seven years.
This makes us a dividend achiever, if you keep track of such things.
We are not satisfied with the limited per share growth that we experienced in 2019 and our G&A reflects that in the form of reduced executive compensation this year.
This demonstrates accountability to shareholders.
We worked hard to anticipate areas that need attention and proactively addressed issues in a transparent manner.
As we talked about on our third quarter call, we expect that we will return to mid single-digit growth this year.
John will discuss the guidance in more detail, but I will add that we have good visibility on our outlook and that our desire is always to under-promise and over-deliver.
I'm pleased to report a solid quarter and year-end to 2019 as well as 2020 guidance more representative of historic NHI growth.
Beginning with our three FFO performance metrics on a diluted common share basis for the fourth quarter ending December 31st, 2019, NAREIT FFO increased 6.9% to $1.39, normalized FFO increased 4.4% to $1.41, and adjusted FFO increased 2.4% to $1.30.
On a full year basis, NAREIT FFO per diluted common share increased 2.4% to $5.49, normalized FFO increased 0.7% to $5.50, and adjusted FFO increased 1.2% to $5.10, which as Eric previously mentioned, was at the top-end of our guidance range.
I want to now talk about our cash NOI.
Cash NOI is a metric we use to measure our performance.
We define cash NOI as GAAP revenue excluding straight-line rent, excluding escrow funds received from tenants, and excluding lease incentive and commitment fee amortizations.
For the year ending December 31st, 2019, cash NOI increased 7% to $290.5 million compared to $271.5 million in the prior year.
Our increase in 2019 cash NOI was reflective of our organic NOI growth from lease escalators, our partial year contributions from newly announced 2019 investments, our continued fulfillment in 2019 of the prior year's announced investments offset by impacts due to the Holiday master lease restructuring, and finding new homes for the nine transition properties.
A reconciliation of cash NOI can be found on Page 17 of our Q4 2019 SEC filed supplemental.
G&A expense for the 2019 fourth quarter increased 28% over the prior year fourth quarter and for the entire year increased 6.8% over 2018 to $13.4 million.
Included in the fourth quarter and full year 2019 G&A expense was approximately $716,000 in severance.
Excluding the severance expense, G&A increased 2.7% in the fourth quarter over the prior year's fourth quarter and 1.1% for the full year compared to 2018.
Turning to the balance sheet, we ended the year with $1.44 billion in total debt, of which a little over 90% was unsecured.
At December 31st, we had $250 million capacity on our $550 million revolver.
During December, NHI entered into privately negotiated agreements with certain holders of our 3.25% convertible senior notes under which we issued 626,397 shares of NHI common stock plus cash consideration and payment of fees totaling $22.1 million to redeem $60 million in aggregate principal amount of our outstanding convertible notes.
As a result of the redemption at year-end, NHI's aggregate balance of convertible notes is now $60 million, which will mature in April of 2021.
Our debt capital metrics for the quarter ending December 31st were net debt to annualized adjusted EBITDA at 4.7 times, weighted average debt maturity at four years, and our fixed charge coverage ratio at 5.7 times.
For the quarter ended December 31st, our weighted average cost of debt was 3.54%.
We've mentioned in prior calls that we expect 2020 to be a transformative year for NHI's balance sheet and the interest rate is currently favorable.
Our announced public credit ratings allow us to consider the public debt markets.
Our current shelf registration is expiring and we will be filing a new shelf registration in the coming weeks.
Stay tuned of more to come in the forthcoming quarters as we look to term off our revolver balance and make room for future growth.
We expect NFFO to be in the range of $5.67 to $5.71 per diluted share or an increase of 3.5% at the midpoint.
We also expect AFFO to be in the range of $5.31 to $5.35 or an increase of 4.5% at the midpoint.
Our guidance continues to reflect management's intent to under-promise and over-deliver.
Our guidance issued today includes effects from the recently announced Brookdale purchase option, expected contributions from the recently announced Timber Ridge joint venture, continued fulfillment of our commitments as detailed in our 10-K, and line of sight on unannounced investments under LOIs totaling approximately $50 million.
Our guidance also reflects our views on our transition properties.
While we don't expect the cash NOI in the nine transition properties to return to 2018 levels this year, we do expect them to get to between 40% and 45% of the way back to 2018 levels.
We do believe though after straight-line rent, the GAAP revenues for the transition properties will get to between 60% and 65% of the way back to the 2018 levels.
Our guidance this year includes assumptions for terming off our revolver debt and further assumes that we will continue to make additional investments on a leverage neutral basis.
In addition to our per share guidance, we wanted to also give guidance on several items that many of you use to evaluate our FAD performance.
Moving forward, we wanted to also provide you with pro forma routine capital expenditure and non-refundable entrance fee cash flows attributable to our 25% share in the Timber Ridge OpCo.
We increased our quarterly dividend 5% or $0.0525 [Phonetic] to $1.1025 per common share.
The first quarter dividend is payable May 8th to shareholders of record March 31st, 2020.
Looking at the overall portfolio, at the end of the third quarter, the EBITDARM coverage ratio was 1.66 times for the total portfolio compared to 1.65 times in the year earlier period and 1.69 times in the prior quarter.
Senior housing coverage declined year-over-year as expected to 1.14 times compared to 1.23 times last year in 1.15 times in the prior quarter, and our skilled portfolio at 2.73 times improved from 2.55 times last year, but declined from 2.8 times in the June quarter.
The sequential decline is attributable to NHC as the non-NHC SNF coverage improved to 1.92 times from 1.87 times in the June quarter and we are still very comfortable with the NHC coverage, which was 3.69 times in the third quarter.
Our ample SNF coverage is a testament to the hard work of our best-in-class operators and while the senior housing industry continues to be challenged by supply and labor issues, we have not seen a meaningful shift in operating trends and feel our operating partners are doing a good job of competing in their respective markets.
According to recent NIC data, properties with an average age of 10 years to 17 years have the highest occupancy followed by properties with an average age of 25 plus years.
Interestingly, the lowest occupancy was reported for properties with an average age of 2 years to 10 years.
This tells us that performance is operator-driven, consistent with our philosophy and that the newest buildings will not always garner the most market share.
Turning to our operators by revenue, Bickford Senior Living represents 18% of our cash revenue and had an EBITDARM coverage ratio of 1.07 times for the trailing 12 months ended September 30th.
On a same-store basis.
The Bickford EBITDARM coverage was 1.12 times, including a development property, which will roll into the coverage calculation in the fourth quarter, the Bickford total and same-store coverage was 1.09 times and 1.14 times respectively.
Due to the lagging nature of EBITDARM coverage and in an effort to provide more transparency, we have continued to disclose Bickford's occupancy.
Bickford's occupancy started to turn positive in the second quarter which continued through the third quarter.
We are pleased to report that Bickford's fourth quarter occupancy remained steady on a sequential basis and showed significant improvement year-over-year.
Bickford's total and same-store leased portfolio occupancy improved by 160 basis points and 230 basis points respectively in the fourth quarter of 2019 compared to the same quarter in 2018.
Importantly, Bickford has maintained price discipline while showing this improved occupancy.
Lastly, NHI exercised its purchase option on the Bickford Shelby property for $15.1 million at an initial yield of 8% during the first quarter of 2020.
This transaction is similar to the Bickford Gurnee deal and that it replaces a $14 million construction loan we had in place previously.
We have similar agreements on two other Bickford properties, which we believe will help stabilize and improve our coverage with this operator.
Developing new assets with Bickford will help us continue to evaluate additional asset sales while maintaining our relationship with Bickford and upgrading the portfolio.
Moving to Senior Living Communities.
Our relationship with SLC represents 16% of our annualized cash revenue.
Including net entry fee income, their EBITDARM coverage ratio was 1.1 times on a trailing 12-month basis.
This compares to 1.28 times in the year earlier period and 1.1 times for the June quarter.
As discussed on prior calls, we are watching entry fee sales closely and leading sales indicators have started to turn positive where SLC has purchased additional unit inventory.
The benefit of entry fee sales will take some time to roll through the coverage calculation as the quarters with those inventory repurchases roll out of the calculation.
Our next largest partnership is with NHC, which accounts for 14% of our annualized cash revenue.
As previously mentioned NHC had a corporate fixed charge coverage of 3.69 times in the September quarter.
Lastly, Holiday Retirement, which represents 12% of our cash revenue, had an EBITDARM coverage ratio of 1.21 times, which is a slight improvement on both a year-over-year and sequential basis.
Recall that we restructured the master lease with Holiday at the beginning of 2019, which required some difficult decisions at the time, but the goal was always to put Holiday in a better position operationally and financially while acting in the best interest of our shareholders.
While the story continues to play out, we are encouraged by the outcome just over a year later.
Moving on to new investments.
In the fourth quarter, we continued to expand our relationship with 41 Management with the acquisition of a 48-unit assisted living and memory care community in the St. Paul, Minnesota area for $9.34 million at an initial cash yield of 7.23%.
We also extended a second mortgage loan of $3.87 million at a rate of 13% on an assisted living community in Bellevue, Wisconsin.
This is a one-year loan with extension options and NHI has a purchase option on the community upon stabilization.
We also exercised our purchase option and formed a joint venture with LCS to own and operate the 401-unit Timber Ridge CCRC for $135 million effective January 31st.
As Eric mentioned earlier, this deal includes a RIDEA structure whereby NHI holds an 80% interest in the PropCo and a 25% interest in the OpCo.
PropCo is leasing the community to OpCo under a seven-year triple net lease at an initial yield of 6.75%.
NHI is also providing financing of $81 million to PropCo or approximately 60% of the purchase price.
This is a Class A property in a high barrier to entry and affluent market outside of Seattle with one of the premier CCRC operators in the country.
Regarding the acquisition environment and pipelines, we announced $329 million in acquisitions during 2019 and we are off to a good start in 2020 with announced deals already totaling $150 million.
We look forward to our new building opening in Milwaukee with Ignite Medical Resorts.
Our $25 million investment has a yield of 9.5% and we expect rent to commence when it opens in the second quarter.
Valuations are still very competitive, but through a relationship driven approach, we continue to see additional opportunity as we survey the market and are committed to adding high quality operators and communities to the portfolio yields comparable to what we have done in the last few years.
With that, I'll hand the call back over to Eric.
The challenges in this industry cannot simply be lumped into general categories like AL versus IL or primary versus secondary.
NHI is committed to succeeding in all of the markets and products in which we invest.
We are constantly reviewing our portfolio to identify opportunities that we can proactively address.
We do this through a number of methods and our preference is to always do it in unison with our operators and through our financial structure, which leads to stability in our cash flow.
As I mentioned earlier, we have good visibility in our outlook this year and we look forward to updating you on our progress throughout the year.

user
compname reports q4 adjusted ffo per share of $1.30.
q4 adjusted ffo per share $1.30.
quarterly ffo per share $1.39.
compname says normalized ffo for 2020 to be in range of $5.67 to $5.71 per share.
compname says normalized affo for 2020 to be in range of $5.31 to $5.35 per share.

assistant