National Health Investors, Inc: Key Takeaways From NDR : Shopping For More SHOP

Research evidence excerpt

National Health Investors, Inc: Key Takeaways From NDR : Shopping For More SHOP

se was clearly

below market. At $45M annual rents and the same cap rate, proceeds could have

been as high as $633M to NHI. At $50M in annual rents and a similar cap rate,

proceeds could have been as high at $700M to NHI. Investors generally believe

that the conflict of interest between NHC and NHI may have led to suboptimal

results for NHI shareholders during this transaction. NHI management argues

however that the sale price had to factor in that NHI would have had to purchase

all the furniture fixtures and equipment, from NHC as well as operating licenses

from NHC if the assets were being sold to a third party, and NHC could have

refused to cooperate under these circumstances. NHI management also believes

that the sale to NHC, and subsequent removal of NHC board members from the

NHI board has removed all future conflicts of interest and improved NHI’s

corporate governance going forward.

Shopping For SHOP - Just How Quickly Can NHI Deploy NHC Sale Proceeds?

With the NHC skilled nursing portfolio sale set to close on July 1st, NHI is now on

the clock to put the proceeds to work in order to take advantage of Section 1031

tax provisions. Assets for purchase with the NHC sale proceeds have to be

identified within 45 days of the NHC sale closing, and these assets acquired

within 180 days of the closing of the NHC sale transaction. Should this not

materialize, the proceeds would be subject to a fairly large capital gains tax (the

cost basis of the NHC assets is just $15M), with a special dividend paid to

investors. The ability to reinvest the proceeds into SHOP assets would thus be

lost. Per NHI management, about $220M of SHOP assets have been identified