National Health Investors Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 9 speakers on the call.

Operator

Good morning, everyone, and welcome to the National Health Investors Second Quarter 2024 Earnings Webcast and Conference Call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Dana Hambly. Sir, the floor is yours.

Speaker 1

Thank you, and welcome to the National Health Investors call to review the results for the Q2 of 2024. On the call today are Eric Mendelson, President and CEO Kevin Pascoe, Chief Investment Officer John Spade, 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 and a press release has been covered by the financial media. Any statements in this conference call, which are not historical facts, are forward looking statements. NHI cautions investors that forward looking statements may involve risks or uncertainties and are not guarantees of future performance.

Speaker 1

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 ks for the year ended December 31, 2023 and Form 10 Q for the quarter ended June 30, 2024. Copies of these filings are available on the SEC's website atsec.gov or on NHI's website at nhireit.com. 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 ks to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release.

Speaker 1

I'll now turn the call over to our CEO, Eric Mendelson.

Speaker 2

Thank you, Dana. Hello, and thanks to everyone for joining us today. The 2nd quarter exceeded our forecast and represents the 4th straight quarter of outperformance relative to our expectations. The drivers of the strong performance have been consistent as we once again had stable cash collections, steady deferral repayments, improving operator fundamentals, shop occupancy and revenue growth and no unexpected rent concessions. While the recent outperformance has been driven primarily by organic measures, we're very excited about the recent investment activity and our growing pipeline.

Speaker 2

Year to date, we've closed on $56,600,000 dollars of signed LOI investment opportunities of $155,400,000 that we expect to close this year. We're also evaluating a pipeline of approximately $270,000,000 These investments target senior housing assets and fee simple real estate and loans with purchase options. We're also pursuing several large portfolio deals, including RIDEA deals, which are not included in our pipeline. We've patiently spent multiple years positioning our company to return to the level of acquisition growth we experienced prior to the pandemic. With ample dry powder and improved cost of capital and more realistic seller expectations, we expect that external investment activity will be a significant driver of cash flow growth in the foreseeable future.

Speaker 2

Regarding our quarterly results, compared to the Q2 of 2023, normalized FFO per share and total dollar FAD increased 11.4% and 16.1%, respectively. We received a $2,500,000 deferral repayment in the quarter, which is a testament to our strategy allowing us to recapture NOI that would have been otherwise lost. The April 1 Bickford rent step up also contributed nicely to our $6,000,000 in net deferral balances tied to senior housing operating revenue goals. The senior housing operating portfolio or SHOP NOI increased by 39.9% year over year to approximately 3,000,000 dollars While the NOI result was slightly below our internal expectation, we're encouraged that occupancy continues to move higher and we remain confident in our guidance growth rate for the year and the longer term upside potential of this portfolio. Given the strong quarterly results and good visibility into the second half of the year, we're once again raising our 2024 guidance.

Speaker 2

Our updated guidance represents midpoint normalized FFO per share growth of 4.8% and a midpoint FAD growth of 7% when compared to 2023. The increased guidance continues to be broad based with several factors contributing to the improved outlook compared to our original February guidance. Our growth profile is multifaceted both internally and externally and is supported by an increasingly bullish demographic environment characterized by favorable supply demand dynamic. We believe that we position the company to succeed through all stages of the business cycle and are therefore generally agnostic to the short term ripples in the economy. While we have a long history as a public company, we're excited about the future as we have ever been and we are convinced that we're in the early days of exceptional growth for several years to come.

Speaker 2

I'll now turn the call to Kevin to provide more details on our operations. Kevin?

Speaker 3

Thank you, Eric. Last quarter, we said that we were starting to see more actionable deal activity and the volume of new inquiries had significantly increased in the last several months across asset classes and financing solutions. That is all still true and we're happy to refine that communication as we have now closed on $56,600,000 in year to date investments at an average yield of 8.42%. As Eric noted, the size of our signed LOIs as well as the actionable pipeline of other investment opportunities has increased significantly from what we described last quarter. Further, I'll add that the deals we are looking at are primarily focused on senior housing assets and more skewed to fee simple real estate deals as opposed to the fifty-fifty mix of fee simple and loan opportunities we described in our Q1 call.

Speaker 3

As always, with the loan opportunities, we are looking for a path to real estate ownership. For example, we closed on the acquisition of a newly constructed senior housing community in Sussex, Wisconsin for $32,100,000 which is operated by an existing partner, Encore Senior Living. The purchase price was partially funded with the satisfaction of a construction loan we had previously provided to Oncor. We have originated 2 other mortgage loans so far this year with new operators. These both have purchase options and we are already speaking with these partners about potential new opportunities.

Speaker 3

Turning to asset management, we had another strong quarter with positive year over year adjusted NOI growth across our asset classes. EBITDARM coverage continued to improve and we did not provide any unexpected rent concessions. The knee driven operators again had positive coverage trends with EBITDARM at 1.38 times representing the 9th straight period of sequential growth. The improvement was driven primarily by Bickford at 1.67 times. Adjusting for the April 1 rent increase, the Bickford coverage would have been a healthy 1.45 times.

Speaker 3

Bickford's occupancy declined by 50 basis points to 85.4% from the Q1 of 2024 to the 2nd. They experienced a decline early in the second quarter, which flattened out and started turning positive near the end of the quarter. The 3rd quarter is off to a good start as average July occupancy increased 60 basis points from June to 85.8%. The need driven coverage excluding Bickford dipped sequentially to 1.15 times from 1.16 times. This was entirely the function of a change in assets as we sold 2 mature buildings and added 2 recently constructed properties with much more upside potential.

Speaker 3

Referral repayments totaled $4,700,000 during the quarter, which included $1,300,000 from Bickford and a 2.5 $1,000,000 repayment from a cash basis tenant. Bickford's repayment declined from $1,500,000 in the first quarter as we adjusted the repayment formula in conjunction with the rent reset. We estimate approximately $1,000,000 in quarterly Bickford repayments for the second half of twenty twenty four. Including Bickford, we still have $24,300,000 dollars in net deferrals, which we expect to realize in repayments and other value creating transactions. Our discretionary senior housing primarily includes our entrance fee portfolio, which has performed above our expectations since the pandemic began and that continues to be the case.

Speaker 3

Coverage improved sequentially to 1.6 times from 1.54 times driven by improvements at both SLC and our other entrance fee operators. The SNF and Specialty Hospital portfolio reported solid coverage at 2.98 times, which improved sequentially from 2.83 times. The coverage at NHC improved to 3.96 times from 3.8 times. As we reminded listeners last quarter, NHC's reported coverage represents a corporate fixed charge coverage and is not comparable to the EBITDARM coverage reported for all other asset classes and operators. During the Q2, we completed the process of transitioning One SNF to Wisconsin to Champion Care, which has a much greater presence in that state.

Speaker 3

The cash lease revenue is unchanged and the new operator has a purchase option on the property beginning in 2,031, which will result in a 12% IRR if NHI if the operator exercised. Lastly, in SHOP, momentum continues to build throughout the portfolio. 2nd quarter NOI increased 39.9% year over year to 3,000,000 dollars Resident fees increased by 13.5% year over year driven by occupancy improvement to 87% from 75.5% and contributed to 4 20 basis points of margin expansion to 22.1%. Compared to the Q1 of The slight sequential margin decline was below our expectation, but occupancy continued to improve throughout the 2nd quarter ending on a high note at 87.7 percent in June. The preliminary July occupancy showed another uptick to 88.2%.

Speaker 3

As occupancy gets closer to 90%, we expect to start reducing move in incentives, which should lead to an improvement in margin given the significant operating leverage in the independent living model. Our current guidance for year over year NOI growth is unchanged at 25% to 30% as is our long term view that this portfolio can generate NOI dollars in the high teens on margins in the mid-thirty percent range. I'll now turn the call over to John to discuss our financial results and guidance. John?

Speaker 4

Thank you, Kevin, and hello, everyone. The focus of my remarks today will be around our improving revenues, which this quarter exceeded our expectations and positively impacted our net income, FFO and FAD metrics. Kevin and Eric touched on our collection at deferred rents. But this quarter, we also benefited from recent activity under our capital expenditure program, which increased the lease maturity for our existing leases with senior living communities and will also lead to additional rent as those CapEx dollars are funded. Finally, our improving outlook in our updated guidance reflects the additional contributions we expect this year from our other second quarter activities, including the recent transition property lease with a new operator, the new $9,500,000 mortgage investment with Compass Senior Living and the recent loan conversion to lease investment with Encore Senior Living.

Speaker 4

While our guidance doesn't reflect the future pipeline activity that Eric and Kevin just discussed, we feel confident that our pipeline will result in future investment activity. So I'll talk more about our capital plans as we look to meet all our needs 2024 2025. Finally, I'll talk about our guidance, which we're very pleased to raise for the 2nd time this year. But first, our results for the 2nd quarter. Our net income per diluted common share for the quarter ended June 30, 2024 was $0.81 compared to $0.92 for the same period last year and sequentially up 14.1% from the Q1.

Speaker 4

Our NAREIT and normalized FFO results per diluted common share increased 12.4% and 11.3% to $1.18 and $1.18 respectively for the quarter ended June 30 compared to the prior year's Q2 and were sequentially up 7.3% and 5.4% compared to our Q1's results. FAD for the quarter increased 16.1 percent to $51,800,000 from $44,600,000 in the prior year's 2nd quarter and was sequentially up 1.6% compared to our Q1's results. Our FAD results for the 6 month period ended June 30, 2024 are up 11.3% compared to the same period last year. We're very pleased with these results. So let me go into a little more detail.

Speaker 4

Compared to the Q1 in 2024, cash rent recognized for the Q2 was up approximately $2,000,000 The improvement was primarily due to the higher deferred and other rents received from our cash basis tenants during the quarter. Net of the annual NHD percentage revenue rent true up recognized in the Q1. As I touched on earlier, straight line lease revenue improved $1,500,000 as compared to the Q1 and improved $700,000 after excluding a straight line receivable write off recognized in the Q1. Recall that the Q1 straight line write off was for a transition property that's now under a new lease, which commenced during the Q2. The senior living communities lease modification under our capital expenditure program was a primary contributor to the quarter over quarter increase in straight line lease revenue.

Speaker 4

But the fall revenue impacts from the other 2nd quarter leasing activities are included in our updated guidance. NOI from our SHOP portfolio was flat for the Q2 compared to the Q1, but represents a 39.9% improvement in NOI compared to the prior year quarter. Cash G and A expense, which is our G and A expense excluding non cash stock compensation expense, increased $700,000 compared to the Q1 primarily due to increases in business development and proxy related expenses incurred during the quarter. During the quarter, we placed 1 property in assets held for sale resulting in an impairment and increased the loan loss reserve on another property's loan resulting in loan and realty losses of approximately $1,100,000 As we announced last night, our Board of Directors declared a $0.90 per share dividend for shareholders of record September 27, 2024 and payable on November 1, 2024. If you've been closely following us, then you've noticed that today we disclosed a significant increase in our pipeline activities since our May earnings call.

Speaker 4

We've closed on $41,600,000 in transactions during the Q2 and we now have over $155,000,000 in signed LOIs plus an even larger pipeline fund. So let me discuss in more detail how we are approaching our capital needs. Our balance sheet ended the quarter in great shape. Our net debt to adjusted EBITDA ratio was 4.2 times, well within our stated 4 to 5 times leverage policy. We ended the quarter with $500,000,000 in available ATM capacity.

Speaker 4

And at the end of June, we had $455,500,000 in available capacity under our revolver. Our variable interest rate debt stood at approximately 39%. So should the Fed lower interest rates soon, we stand to immediately benefit. We have one maturity this year, a $75,000,000 private placement loan due at the end of September, which we will retire with revolver proceeds. Our capital plans are focused on meeting our liquidity needs for our upcoming maturities this year and next year, in addition to providing capital for our increasing pipeline.

Speaker 4

We are also focused on our average debt maturities. Subject to changing market conditions, we continue to review all our capital options to meet our ongoing liquidity needs. We're reviewing our bank credit facility options, public debt as well as equity options. While we have the option to access equity, we also have the option to deploy over $200,000,000 in additional debt and investment yields just over 8% at our incremental borrowing costs of just over 6% without exceeding our stated leverage financial policies. We expect to execute on at least some of our options before the end of the year and not rely entirely on our revolver liquidity.

Speaker 4

Let me now turn to our full year 2024 guidance. Our updated guidance today as compared to our May 2024 full year guidance reflects an improved midpoint for NAREIT FFO and normalized FFO of $0.13 and $0.14 or 3% and 3.2 percent respectively. FAD increased at the midpoint $3,000,000 or 1.5%. As I previously mentioned, our improved Q2 revenues and our recent transactions are having meaningful impacts on our guidance. Recall that for our leases with minimum rent escalators, when we either enter into additional such leases or we modify our existing leases, increasing rents or extending maturities, then the results will positively impact our future GAAP revenue expectations, all other terms and conditions unchanged.

Speaker 4

As we noted, our updated guidance released last night maintains unchanged our year over year SHOP NOI growth range, includes effects from additional rent concessions, asset dispositions and from continuing deferred rent repayments and does not include the impacts from our pipeline. So once again, thank you all for joining our call today. That concludes our prepared remarks. So with that, operator, please open the lines for questions.

Operator

Certainly. Everyone at this time will be conducting a question and answer session. Your first question is coming from Juan Sanabrio from BMO. Your line is

Speaker 5

live. Hi, this is Robin Hanelon sitting here with Juan. Just on Blueprints, will they potentially look at replacement tenants for NHC as part of their work?

Speaker 2

Could you repeat the question, please? You're breaking up.

Speaker 5

Sorry about that. Just curious on the blueprints,

Speaker 4

Are they going to look

Speaker 5

at potential replacement tenant or NHC as part of their work?

Speaker 2

That's certainly within their scope of work. Keep in mind that, NHC has an absolute right to renew the lease at a market rate. So we're primarily concerned about determining what is a market rate.

Speaker 4

Okay.

Speaker 5

I'll track guidance. The second half implies growth in the high single digits. Just curious what the main assumptions are and what is driving this expected deceleration?

Speaker 4

Well, I think we talked about it on the call. We were having a lot of improvements in terms of all the portfolio optimization work we've done. It's primarily coming through cash basis tenants, but we continue to think that we'll see some level of growth in SHOP NOI. We've told you what that range is for the year, but compared to last year, if that's what you're asking me, we're continuing to forecast improvements over the prior year.

Speaker 5

Got it. And on the LOIs, are they included in guidance at this point? And could you maybe discuss timing and magnitude?

Speaker 4

Well, remember, guidance doesn't include any of the effects of those LOIs. We've just included in our guidance what we've announced in terms of closed transactions. Timing is difficult for us to determine right now. And if we had a more definitive answer on timing and expected closing, we might have considered concluding that, but generally that's not our policy to do.

Speaker 3

This is Kevin. Just to keep in mind from a timing perspective, a lot of acquisitions, particularly if we're going through a lease scenario, it will include a change of ownership or chow, so licensure will dictate timing a bit. So something we have to keep in mind.

Speaker 5

Got it. Thank you.

Operator

Thank you. Your next question is coming from Rich Anderson from Wedbush. Your line is live.

Speaker 6

Hey, thanks. Good morning and nice quarter, of course. So in terms of the guidance, you mentioned 7% FAD growth is the new guidance. But is it fair to say in terms of the future of your Fed sort of cadence is a bit of a moving target because you've a fair amount of rent deferral repayment in that that is lumpy? Or do you think that you'll be able to sustain that level of rent deferral from cash based tenants so that your fat is growing, but also maybe some of the growth this year will be replaced by external growth accretion next year.

Speaker 6

I'm not looking for 20 25 guidance unless you want to provide it, but I'm just wondering about the recurring elements of to guidance that you're presenting to us today.

Speaker 4

Well, let's just go through all of the items that are helping us continue to quarter after quarter beat our expectations. So we have a variety of organic opportunities that we're trying to execute on. SHOP is 1. We keep talking about this CapEx program. The timing of those investments are still a little uncertain.

Speaker 4

So there's not a lot in guidance about that. So that's another upside. We've talked a great deal in the past about the ability to reset rents in the future on several of our tenants. That's all going to depend on their ability to improve their NOIs. We have the ability also in about 33%, 34% of our communities to benefit from percentage revenue rents, which includes the NHC and that was one nice surprise.

Speaker 4

So we can't really give you a lot of information there. I would just say keep an eye on NHC's public revenues. That might be a place that might give you some clues. And then finally, just exactly as you said, we're now pivoting towards external growth at the same time. So the future is looking very good for us.

Speaker 6

Okay. So you mentioned I think it was mentioned that you're assuming $1,000,000 a quarter from Bickford in terms of repayment of deferrals. Do you have a bigger number for the entirety of the portfolio of what you're assuming in from a rent deferral repayment perspective?

Speaker 4

Yes. So let's unpack that, Rich. I know this has been difficult for everybody. So part of the deferral repayments are included in our GAAP revenue stream. Those are the scheduled repayments for our accrual tenants.

Speaker 4

We'll continue to collect on those in a variety for a variety of relationships. The Bickford component that Kevin discussed, those are not in our GAAP revenues. Those are just cash revenues that are determined based upon their percentage revenue equation. But then we have some others as well that we're hoping to try to execute upon and increase that. But in terms of your analysis, what Kevin used is sort of the incremental sort of non GAAP sort of cash basis deferral recoveries that we have in our guidance.

Speaker 6

Okay. In terms of your cost of capital, you talked about dry powder on the debt. But if you kind of just kind of back into AFFO yield or FAD yield, it seems like your cost of equity is cheaper than your cost of debt. Am I right about that? Or, just curious how you're thinking about future capital activity when you take what has happened to your stock, which is outstanding this year into account?

Speaker 4

No, we recognize that this is sort of an interesting time where our cost of equity is kind of revolving around pretty closely our incremental long term cost of debt. So we recognize that.

Speaker 6

Okay. Last for me. The $1,800,000,000 of sort of line of sight and small portion of that you're actually considering. But where is that coming from? Are you just scouring the planet for anything and you came up with $1,800,000,000 or is there a reverse inquiry component to this that people are coming to you with options?

Speaker 6

I'm just curious what's the makeup of that $1,800,000,000 Thanks.

Speaker 3

Sure, Rich. This is Kevin. I mean the $1,800,000,000 is the universe of things that we're looking at the moment. Some of that stuff will get screened out pretty quickly. There is an element of over the last few years, we never were dark.

Speaker 3

We were out there building relationships, meeting with people, trying to understand their needs. I think now we just have a confluence where capital is looking better for us and the opportunities are looking better where people are able to or I guess exploring sales. And then in addition to that, we do have the broker community that we have good relationships with. So it's a mix of operator relationships that we've been building, real estate sellers that we've been working on over the last year or 2. And then just seeing what's in the market right now.

Speaker 3

And then we refine that down and we talk about it much more what we think is a more actionable number than the 1.8. But I think deal flow has been pretty strong over the last few quarters. It continues to remain robust and we feel good about our prospects.

Speaker 6

Okay. Thanks very much.

Speaker 2

Thanks Rich.

Operator

Thank you. Your next question is coming from John Gilchowsky from Wells Fargo. Your line is live.

Speaker 7

Thank you. Could you talk about or just help us understand the breakout of the $270,000,000 of investments that you're looking at today in terms of what's fee simple versus loans and how that's been progressing throughout the year?

Speaker 3

Sure. Hey, John, this is Kevin. As we talked about on the call, last quarter it was more fifty-fifty in nature. Now it's definitely more skewed towards fee simple. We didn't give a direct percentage, but it's probably 70% -ish or more is more fee simple in nature.

Speaker 3

There are still some loans out there where we think it would be a good opportunity for us to convert into long term real estate ownership. So we're keeping that line of business open. Our preference is always going to be to own. And I think it's again as we talked about skewing that way, it's more need driven senior housing in nature. That said, we're looking at all asset classes right now, including specialty hospital, behavioral, some more independent type communities.

Speaker 3

So it's a good mix for us right now and skilled for that matter too.

Speaker 7

Okay. Okay. And then just kind of circling back to the last question on just the $1,800,000,000 line there. What differentiates those assets? And maybe does that include some larger portfolio deals or maybe is it more levered towards the shop side?

Speaker 7

And I guess what keeps you from putting it in the $270,000,000 bucket? Is it just the ability you think you have to transact on it, but you're interested in them? Is that the right way to think about it?

Speaker 3

I think that's fair. One point is, again, more of the universe of what we're looking at right now. Some of it again will be screened out. It might not be the market we're interested in or it might have negative cash flow and it's not a newer building or something where we have the right operators. So that will screen it out.

Speaker 3

Those are the things that we still need to work on and make sure that they fit or not. It does include any of the joint venture type relationships we're looking at, which tend to be bigger portfolios. So we don't want to signal that we're doing a lot of new business without having better line of sight to its execution. RIDEA is a new business line for us in some respects. We have the SHOP portfolio now, but we want to make sure we get it right, which we've talked about before.

Speaker 3

So if we're going to take a big swing like that, it takes a little extra scrutiny.

Speaker 7

Okay. And then last one for me here on the shop side. I understand the strategy. We're talking about hitting that 90% occupancy number before you start to really drive rents here. But I guess, how should we think about it relative to your peers who are reporting some pretty strong pricing power and the ability to drive occupancy here?

Speaker 7

Have you been testing out those waters or have you not like is there a reason why we're seeing that RevPAR decline other than you're not even testing it? Like is I guess sorry, try to synthesize this here. Do you think you have pricing power, but you're not testing the waters because you're just trying to get to 90% occupancy? Or have you tried to realize that you're having trouble then getting to 90% occupancy and hoping that you'll have a little bit more room there to push?

Speaker 3

I think the pricing power aspect is going to be market by market. There are some where you're just not going to have as much capacity as in others. That said, the strategy has been let's get to 90%. We are starting to see some individual buildings get to that level and the incentives are falling off. It's a handful of

Speaker 1

probably 3 or

Speaker 3

4 buildings are there. Good news for us though is all of our shop buildings are at 80% or more. So we've made significant progress there. So we would expect to see once those get kind of mid-80s closer to 90, to see those incentives start rolling off and then we should expect to see we would expect to see margins jump a bit more again as we stop offering some of those incentives and some of the short term incentives fall off. So we wanted to stay with strategy.

Speaker 3

I think it's been effective for us. Our operating partners will be pushing the market where they can on rates, but we've been just kind of dedicated to the strategy first.

Speaker 5

Hey, John,

Speaker 4

this is John Spade. Can I just add to that question that you're comparing apples and oranges a little bit because our portfolio is independent living? And if our portfolio was like a lot of our peers who are more AL memory care, I don't know that we would be pursuing quite the same strategy because of the care component.

Speaker 7

Understood. Thank you.

Operator

Thank you. Your next question is coming from Austin Wurschmidt from KeyBanc Capital Markets. Your line is live.

Speaker 8

Great. Thanks. Good morning, everybody. Just want to go back to some of the RIDEA opportunities in the investment pipeline and just curious what the economics are of the deals that you're underwriting and kind of where they are in their recovery from an occupancy and margin perspective. And kind of given your comment on being selective and sensitive to how much, I guess, how much are you willing to take on at any given point in time?

Speaker 8

Because it sounds like there's a mix of both singles and doubles as well as maybe some portfolio opportunities in front of you? Thank you.

Speaker 3

Sure. I'll start with maybe the kind of profile of the communities and then let John kind of weigh in on the capacity piece. But as it relates to what we're looking at, generally speaking, they're going to be not quite stable, but approaching stable. We want something where there is good line of sight to cash flow with some growth. Similar to John's prior comments about healthcare delivery and pricing for that, what we've been looking at is a little more skewed towards the need driven senior housing side.

Speaker 3

We think there's good pricing power there as it relates to the needs driven side. The margins, I think are a little lower than what we've seen in prior years, but that also gives us meaning kind of 2019 and before, which gives us thought that there is still some upside here, but we're also entering in at a good entry point where we're not paying a huge price per unit and margins are at a reasonable level that have fully stocked labor numbers with again power to increase over time. I think that's really going to be the profile of the deal that we're looking at again a little more stable in nature. We're not looking for big value add. And the other thing that I think is a differentiator for us now and our interest in RIDEA is just a few years ago, they were looking at mid single digit cap rates on some of these portfolios now.

Speaker 3

We believe we can purchase at a rate that is in excess of our cost of capital and not just rely on growth to get to what would be a reasonable yield. So we can enter in at a much better yield today and still have a little bit of upside over time.

Speaker 4

So Austin, in terms of capacity, there's all kinds of things that we're looking at out there. But if you go look at our history in the past, you can see that we've executed on multiple 100 of 1,000,000 of dollar portfolios in the past. So some of these larger transactions we're looking at, some of them will come with secured debt that we could assume. So we've been very mindful to manage our debt capital structure, so we could absorb secured debt without creating any issues on our investment credit rating. Some of the properties we'd like to enter into joint ventures.

Speaker 4

So there's an equation there regarding non controlling interest that we have to properly think through. So there's a lot of things that goes into these RIDEA structures that we're thinking through. They're all very different. But in terms of capacity, we feel like we have quite a bit of capacity to transaction some of these larger deals.

Speaker 8

And maybe just, we've talked a little bit about this in the past, but from a corporate infrastructure perspective, I mean, can you take on a good bit more of the right day and still have kind of the people you need in house to monitor and sort of help build out the RIDEA portfolio?

Speaker 2

That's a fair question, Austin. This is Eric. No doubt that if we execute on the larger pipeline, we'll need to hire some extra accounting and asset management horsepower and we're always on the lookout for new talent to help with that.

Speaker 8

And then just last one for me. John, on the balance sheet, certainly in great shape today, but how are you thinking about managing leverage as the pipeline continues to build and you continue to see more deals come your way. I mean, you're willing to kind of go below the lower end of that range if your cost of capital continues to improve. And even though you talked about the Fed and the benefit of the cost of your variable rate debt coming down, but would you pay some of that down ahead of time if you could and just build additional debt capacity that you can use down the line if need

Speaker 4

be? Well, let's just approach it this way. We try not to allow our balance sheet to be a headwind to any of our transactions. So we try to stay well ahead of what we need to do to take care of our liquidity needs, to maintain our investment grade credit rating. So we just really work hard to make sure that we're ahead of the game here.

Speaker 4

In terms of our liquidity right now, it's in great shape. We have ample sources from our ATM capacity as well as our revolver. But we've got a lot of things getting better for us and we also have to be mindful that I do have maturities. So there's just a lot of things that we're going to try to stay ahead of and that's why in my prepared remarks, I said that we're not going to rely entirely on our revolver and it's just going to be a market driven decision as we move forward.

Speaker 8

Understood. Thanks for taking the questions.

Operator

Thank you. There are no first questions in the queue.

Speaker 2

Thanks everyone for your time and attention today and we'll look forward to seeing you at NAREIT or some other conference.

Operator

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Remove Ads
Powered by Quartr
Earnings Conference Call
National Health Investors Q2 2024
00:00 / 00:00
Remove Ads