National Health Investors Is On A 'REIT' (Really Encouraging Investment Trajectory)

| About: National Health (NHI)

Summary

NHI's growth outperformed the S&P 500 and beat REIT averages in most categories.

Its AFFO is up 13.4% from Q1 and up 9.3% from Q2 2013.

The company has a reliable dividend history with payout increases of 4.93% annualized.

Aging baby boomers will increase demand and opportunities for senior housing and skilled nursing facility investments.

One thousand insider shares were purchased by the company director on June 24, 2014.

National Health Investors (NYSE:NHI) is a REIT (real estate investment trust) specializing in healthcare. Even during the last Great Recession, NHI outperformed the S&P 500 and managed to pay decent dividends every quarter. In fact, not only have dividend payments been regular, they have been increasing (currently 4.93% annualized). Concentration in healthcare has provided some shelter to the financial problems associated with market fluctuations and recessions. Given the record of this specialized REIT and relative stability of the healthcare sector, NHI is likely to continue to be a fruitful and prosperous investment.

REIT Profile: "National Health Investors, Inc. is a real estate investment trust (REIT) specializing in financing healthcare real estate by sale-leaseback, joint-venture, mezz loans and mortgage loans. NHI's investments include senior housing (assisted living, memory care, independent living and senior living campuses), skilled nursing, medical office buildings and specialty hospitals. NHI was incorporated and publicly listed in 1991."

REIT Portfolio Composition: NHI's portfolio consists of 171 properties spread across 30 states. The portfolio breaks down into 49% for senior housing, 5% in hospitals, 0.7% in Medical Office Buildings, and 40.7% in Skilled Nurse Facilities.

Click to enlarge

Source: Data from NHIReit.com, chart made using Microsoft Office.

Why Now?

  • "Projections for the aging U.S. workforce suggest that by 2020, 25% of employees will be at least 55 years old."
  • "Baby boomers control over 80% of personal financial assets and more than half of all consumer spending."
  • "In 2013, the oldest baby boomers (depending on birth years used) reached a common retirement age in the United States: 67 years."
  • "If the 1946-64 baby boomer is taken, that is 18 years in total duration, nine years would be midway point into the boom, the year 1955. The person born in 1955 reaches retirement age of 65 in the year 2020, with an expected additional 17-20 years of life."
  • "By 2030, there will be about 72.1 million older persons, more than twice their number in 2000. People 65+ represented 12.4% of the population in the year 2000 but are expected to grow to be 19% of the population by 2030."

The data presented clearly shows a huge potential upside and plentiful future opportunities in both senior housing as well as skilled nursing facilities -- the two largest components in this REIT. Not only is there going to be an increase in demand, but the majority of accumulated wealth will be following this group. For the coming years, as the customer base continues to expand, there will be some relative stability in growth. In addition, real estate experts already claim we have an existing shortage in senior housing potentially allowing for more immediate short-term opportunities.

Healthcare Sector Stability

Health as a sector is often seen as a safe bet much like investing in consumer staples and utilities during periods of decreased market confidence. Like other necessities, using medical/health-related services is often unavoidable at all levels of society. When it comes down to it, if you have a condition requiring a nursing facility, or reach an age where you feel like you are unable to care for yourself, obtaining these services can be vital.

The New York Times did some analysis to see how jobs for various sectors were effected during the last Great Recession. The results for four of the related health subsectors covered by NHI clearly illustrates that economic turmoil has a minimal impact on NHI's investments. In the following charts, the section highlighted in red marks the period when the U.S. economy suffered the most. It is important to remember that growth in employment is a fair indicator for showing when companies continue to expand with an expectation of generating returns.

  • Nursing Care Facilities:

Source: New York Times.

  • Offices of physicians:

Source: New York Times.

  • Residential disability facilities:

Source: New York Times.

Community care facilities for the elderly:

Source: New York Times.

Based on the data provided, it can be inferred that it is extremely probable these sectors are relatively insulated and have strong demand and growth regardless of other economic conditions.

Reasons to Buy

Its growth has outpaced the S&P 500 and is projected to continue growing.

Source: Fidelity.com.

NHI has consistently paid quarterly dividends since 2004. Since its inception and has regularly increased payouts.

Year

Quarter

Pay Date

Dividend Amount
($)

Dividend Type

2014

Q2

08/08/2014

0.77

Regular

2014

Q1

05/09/2014

0.77

Regular

2013

Q4

01/31/2014

0.735

Regular

2013

Q3

11/08/2013

0.735

Regular

2013

Q2

08/09/2013

0.735

Regular

2013

Q1

05/10/2013

0.695

Regular

2013

Q1

01/31/2013

0.22

Special

2012

Q4

01/31/2013

0.67

Regular

2012

Q3

11/09/2012

0.67

Regular

2012

Q2

08/10/2012

0.65

Regular

2012

Q1

05/10/2012

0.65

Regular

2011

Q4

01/31/2012

0.65

Regular

2011

Q4

01/31/2012

0.22

Special

2011

Q3

11/10/2011

0.615

Regular

2011

Q2

08/10/2011

0.615

Regular

2011

Q1

05/10/2011

0.615

Regular

2010

Q4

01/31/2011

0.605

Regular

2010

Q3

11/10/2010

0.605

Regular

2010

Q2

08/10/2010

0.575

Regular

2010

Q1

05/10/2010

0.575

Regular

2009

Q4

01/29/2010

0.55

Regular

2009

Q4

01/29/2010

0.10

Special

2009

Q3

11/10/2009

0.55

Regular

2009

Q2

08/10/2009

0.55

Regular

2009

Q1

05/08/2009

0.55

Regular

2008

Q4

01/30/2009

0.55

Regular

2008

Q4

01/30/2009

0.14

Special

2008

Q3

11/10/2008

0.55

Regular

2008

Q2

08/08/2008

0.55

Regular

2008

Q1

05/09/2008

0.55

Regular

2008

Q1

05/09/2008

0.08

Special

2007

Q4

01/31/2008

0.50

Regular

2007

Q4

01/31/2008

0.85

Special

2007

Q3

11/09/2007

0.50

Regular

2007

Q2

08/10/2007

0.50

Regular

2007

Q1

05/10/2007

0.50

Regular

2006

Q4

01/31/2007

0.48

Regular

2006

Q4

01/31/2007

0.45

Special

2006

Q3

11/10/2006

0.48

Regular

2006

Q2

08/10/2006

0.48

Regular

2006

Q1

05/10/2006

0.48

Regular

2005

Q4

01/10/2006

0.45

Regular

2005

Q3

11/10/2005

0.45

Regular

2005

Q2

08/10/2005

0.45

Regular

2005

Q1

05/10/2005

0.45

Regular

2004

Q4

01/10/2005

0.425

Regular

2004

Q4

01/10/2005

0.15

Special

2004

Q3

11/10/2004

0.425

Regular

Click to enlarge

Source: Fidelity.com.

Debt levels are below the REIT average and manageable maintaining more than 4x interest coverage ratio last quarter. NHI had 81.41% while the REIT average was 134.58%.

Click to enlarge

Source: Fidelity.com.

  • It is held by 60 ETPs. Some major ETFs including VB, VNQ, WDIV, and MDIV.
  • On June 24, 2014, the company director purchased 1,000 shares.
  • It has had positive returns annually and quarterly for sales, equity, investments, and assets -- outperforming the REIT average in all categories. Return on sales, assets, and investments are more than double the REIT average.

Click to enlarge

Source: Fidelity.com.

Healthy margins on returns exceeding double the REIT average:

Click to enlarge

Source: Fidelity.com.

Book growth and cash flow growth are all positive and are likely sustainable.

Click to enlarge

Source: Fidelity.com.

Conclusion

NHI's track record shows an encouraging growth trajectory that will likely continue. Given the nature of this REIT's specialization and future growth opportunities driven by shifting demographics, this is an investment that has a lot of potential regardless of levels in market confidence or short-term bearish conditions. The industry is primed for a surge in customers, resulting in senior housing and nursing facilities being one of the most lucrative and insulated subsectors where demand will be greater than supply.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.