Healthcare real estate can be a resilient type of commercial property and a great way to add income and long-term growth to your portfolio. National Health Investors (NYSE: NHI) has been around since 1991 and could be worth a closer look for investors who want income and growth and have long time horizons.
In this article, we'll take a closer look at the company’s business, key risk factors investors should know, recent developments, and track record.
National Health Investors company profile
As the name implies, National Health Investors is a real estate investment trust, or REIT, that specializes in healthcare real estate.
However, there are many different types of properties that fall under the umbrella of healthcare real estate. National Health Investors specializes in senior housing communities and skilled nursing facilities, which make up the bulk of the portfolio.
As of August 2021, National Health Investors owns a total of 236 properties in 34 states. About two-thirds (157) are senior housing, while most of the rest (75) are skilled nursing facilities. In addition, National Health Investors owns three hospital properties and one medical office building. About 97% of NHI’s rental income is from senior housing and skilled nursing.
National Health Investors partners with nationally known operators, including Senior Living Communities, National HealthCare Corp. (NYSE: NHC), and Holiday Retirement, to name just a few. The majority of the company's investments are properties leased to tenants, although the company also invests in commercial mortgage notes to a lesser extent.
Like most REITs, National Health Investors uses a significant amount of debt to fund its operations, but I wouldn't call it excessive. As of mid-August 2021, National Health Investors' market cap was about $2.8 billion, and the company had about $1.4 billion in total debt, meaning that debt makes up roughly one-third of the REIT's total capitalization, a relatively low level compared with peers.
What's more, the company has a $550 million revolving credit facility with $525 million in available borrowing capacity. The company's debt credit ratings are Baa3 (Moody's) and BBB- (S&P), which are investment-grade credit ratings (but just barely), indicating that there is relatively little risk of the REIT being unable to repay its obligations.
National Health Investors' goal is to steadily grow its revenue over time and be able to maintain an attractive dividend yield while paying out a sustainable percentage of its profits. Over the past five years, the company's normalized FFO per share (the REIT version of "earnings") has grown significantly faster than that of its peers, and the company has raised its dividend every year since 2010.
It's worth mentioning that there is quite a bit of uncertainty surrounding both the senior housing and skilled nursing industries. When it comes to senior housing, there is unquestionably a favorable long-term demographic trend that should grow demand over the long run. The older age groups in the population are growing rapidly as the Baby Boomer generation ages, and this should create a long-tailed need for these properties.
However, the COVID-19 pandemic has made many families hesitant to place their loved ones in senior communities, and there have been oversupply issues in the industry for several years that will take time to resolve. Skilled nursing is highly dependent on third-party reimbursements (like Medicare), and many of the top skilled nursing operators aren't in the best financial shape.
National Health Investors news
By far, the biggest news item affecting National Health Investors in recent times has been the COVID-19 pandemic, which hit the company's property types particularly hard. Skilled nursing facilities were especially adversely affected by the pandemic, and fears about exposure to the virus caused senior housing move-ins to grind to a halt in 2020 as the start of the pandemic caused a wave of tenants to move out. For example, in the 26 properties managed by Holiday Retirement, occupancy declined from nearly 87% in March 2020 to just over 75% at the beginning of 2021.
At the onset of the pandemic, National Health Investors withdrew its 2020 guidance due to uncertain market conditions. In August 2020, there were 450 active confirmed COVID-19 cases throughout its facilities, representing about 1.8% of the portfolio's capacity.
However, since the early days of the pandemic, NHI's business has rebounded nicely. Rent collection remained above 90% for all of 2020, and in July 2021 the company collected more than 88% of its contractual rent; nearly all of the deficit is accounted for via deferral agreements.
Also, at properties run by NHI’s largest operating partners, occupancy rates started to stabilize in the second quarter of 2020 and have remained steady since late 2020. Most important from an investor's perspective, the company continued to grow its FFO on a year-over-year basis throughout 2020, despite the pandemic's effects.
National Health Investors stock price
National Health Investors was established in 1991 and has been a public company since then, so we have about 30 years of performance history to consider.
Since its IPO, National Health Investors’ stock price has risen by 191%, which at first might sound like an underwhelming performance figure for a 30-year time frame. After all, the S&P 500 has risen by more than 1,000% in the same time period.
However, keep in mind that REITs are designed for income as well as share price appreciation. As of August 2021, National Health Investors has a dividend yield of about 6%, and it has maintained a yield in the 4% to 8% ballpark for much of its history. So, looking at total return (dividends plus stock price gains) tells a different story.
National Health Investors has produced a total return of 2,450% over its 30-year history, as compared with a 2,020% total return for the S&P 500 (as of August 19, 2021). This translates to an annualized return of about 11.4%, a pretty strong long-term track record of performance.
With that in mind, here is a look at National Health Investors' performance over certain time periods, and how it compares to the S&P 500.