National Health Investors

 

Some further analysis.

The long term debt is at variable rates of interest. Thus swings in the interest rate will effect a swing in cashflows due to interest paid. Thus the paying down of debt reduces the gains/losses to this variable.

The largest customer [NHC] who lease 41 properties, reached agreement to extend the leases through 2021

Increased diversification through customer base; this is important as when this REIT was started in 1991, NHC was the sole customer and constituted 100%. Currently NHC constitutes 14.1% of the portfolio.

Hidden value. When the assets were purchased [transferred via non-taxable exchange] the properties were valued at net depreciation book value, after 20+yrs of depreciation. Thus the actual values [land] will have appreciated at 4% compounded to provide increased [undervalued] assets.

No value is provided, but we can use some arbitrary numbers;

Assume $10 Million Book value in 1991 depreciated @ 5% but actually rising in value by 4% compounded we then have a starting value of $26.5 Million in 1971 with a value circa $104.5 Million today. These figures are not actual figures, so it is not yet possible to ascertain whether the value is recognized and priced in, or unrecognized, and thus represents some hidden value.

 

National Health Investors [NHI]

Today saw a sizeable decline in the price.

Capitalization of this common stock has improved with a larger % coming from equity, and the long term debt declining from a 5yr average of $150.7 to currently $113.5. In the current credit environment and generally, this is a positive.

Expenses have increased. This is not really what you want to see. They are reflected primarily in two areas; Cost of Goods, which would be properties purchased, increased by 15% reflecting the high real estate prices and SG&A which is management, increased by 117%.

The increase in property costs [to purchase] is unfortunate, and definitely hurts results. The huge increase in management costs I shall look into more closely.

Cashflows have remained positive, and reflect hidden value from the reported Net Profits. This understated income has been utilized to pay down long term debt. This is a major bonus as no further Equity was required to be sold. In point of fact, common stock was reduced, also from cashflows. Cashflows have weakened, but are still showing a surplus that has not filtered through to Net Income.

Cash has increased, not unimportant with the coming problems anticipated in commercial real estate and thus impacting commercial REIT’s.

CapEx is a further cost that has been absorbed by the strong cashflows. Again, this is a little added value.

Revenues have been static. This represents the inability to raise rents. Of course the major concern would be leases renegotiated at lower rents going into the future, which would seriously impact Revenues and overall profitability. Again, leases will need to be further investigated.

All other operating ratio’s are and have been consistent, thus no immediate red flags have been thrown up.

Dividends have been consistently paid, with an approximate 6% compounded increase. Currently the dividend seems secure. This of course is the major concern. Should a serious recession strike this [healthcare] sector, can Revenues be maintained high enough to preserve at current levels the dividend? That there are some hidden cashflows that provide some cushion is positive, but, not conclusive.

Valuation: Currently, overvalued. I have an intrinsic value range from $16.50-$22.39 and with a current price circa $30, we would be paying a premium. However, current Yield is circa 7% this is not an insubstantial factor if as mentioned, this dividend is relatively secure.

NHI Increases Dividend to 55 Cents

February 5, 2008 4:31

National Health Investors, Inc., NHI announced today that it will pay a first quarter dividend of 55 cents per common share to shareholders of record on March 31, 2008 and payable on May 9, 2008. This is an increase of five cents, or 10% over last quarter’s dividend.

This 55 cent dividend reflects the company’s continued success in managing its portfolio and confidence in its future cash flow.

NHI specializes in the financing of health care real estate by purchase and leaseback and first mortgage transactions.

A little further analysis required, but potentially, this common stock is moving in the right direction for a longer term investment.

 

HCP

 

I’m actually just in the process of starting an analysis on HCP, one of the highlighted medical REIT’s when this came across the newswires;

NEW YORK (AP) - A director of health care facility real estate investment trust HCP Inc. exercised options for 14,000 shares of common stock, according to a filing with the Securities and Exchange Commission.

In a Form 4 filed with the SEC Tuesday, Robert R. Fanning Jr. reported he exercised the options on Thursday for $16.88 apiece, then sold all 14,000 shares on the same day for $29.05 to $29.92 apiece.

Insiders file Form 4s with the SEC to report transactions in their companies’ shares. Open market purchases and sales must be reported within two business days of the transaction.

HCP is based in Long Beach, Calif.

Never like to see this in a stock that I’m considering as a long position, however, a Director is preferrable to the CEO or CFO.

 

Building a case for healthcare REIT’s

Previously I have outlined risks involved with REIT’s in general and I shall re-post that analysis at some point.

However, medical REIT’s are an area that potentially are an interesting longer term investment based on some trends.

This trend is positive for medical specialist REIT’s as an increasingly ageing population provide an increased supply and demand dynamic for the medical REIT’s.

Hospital spending is the strongest within this sector. Medical care and Specialist spending are lower, thus are less likely on current data to move into oversupply. Thus in our search for a potential candidate, this should be a factor taken into account.

Different data set, but essentially confirming the previous data set without differentiating where the spending is occurring.

The candidates;

National Health Investors, Inc. (NHI) is a real estate investment trust that invests in healthcare properties primarily in the long-term care industry. As of December 31, 2006, NHI had ownership interests in real estate, mortgage and notes receivable investments. These investments include long-term care facilities, acute care hospitals, medical office buildings, retirement centers and assisted living facilities. As of December 31, 2006, the Company had investments in 139 healthcare facilities located in 18 states consisting of 97 long-term care facilities, one acute care hospital, four medical office buildings, 14 assisted living facilities, six retirement centers and 17 residential projects for the developmentally disabled. Of these 139 facilities, 41 are leased to National HealthCare Corporation (NHC). These 41 facilities include four centers subleased to and operated by other companies, the lease payments to NHI being guaranteed by NHC

HCP, Inc. (HCP), formerly Health Care Property Investors, Inc., is a real estate investment trust (REIT) focusing primarily on properties serving the healthcare industry. HCP is a self-administered REIT that invests directly or through joint ventures in healthcare facilities. As of June 30, 2007, HCP’s portfolio of properties, excluding assets held for sale but, including investments through joint ventures and mortgage loans, included 675 properties and consisted of 323 senior housing facilities, 216 medical office buildings, 41 hospitals, 66 skilled nursing facilities and 29 other healthcare facilities. HCP acquires healthcare-related real estate in selected markets throughout the United States. HCP leases its senior housing properties, hospitals and nursing facilities to experienced operators on a long-term basis. It leases its medical office and lab buildings to tenants requiring these types of specialty office space. In August 2007, the Company acquired Slough Estates USA Inc.