National Health Investors (NHI) has kept its dividend covered with cash flow throughout the pandemic despite the challenging environment faced by its senior housing and skilled nursing tenants. The healthcare REIT's rent collection rates averaged over 95% in 2020 and exceeded 94% in the first quarter of 2021. However, Covid's impact continues to be felt at the operator level.

Omega Healthcare continues collecting virtually all rent due despite the crushing blow dealt by the pandemic to many of its skilled nursing tenants (over 80% of revenue). As we discussed last summer, operators of skilled nursing facilities had razor-thin margins heading into the crisis, with around half of them failing to turn a profit. Years of falling occupancy (oversupply), rising labor costs, and changes to Medicare reimbursement rates have contributed to the industry's long decline in profitability.

In May last year when pandemic uncertainties were at their peak, STORE Capital's rent collection rate fell to just 64% as restaurants (14% of pre-pandemic rent), gyms (5%), movie theaters (5%), and other "non-essential" tenants braced for a long downturn.  At this level of rent collections, cash flow no longer covered the dividend.  And management had made it clear they were opposed to borrowing money to fund the dividend, putting the payout in peril if cash flow did not rebound quickly.  Fortunately, over the year since conditions have recovered quicker than many had expected as the economy reopened.  STORE was able to collect 95% of rent payments last month, and occupancy has remained strong with 99.6% of its properties actively [...]

In April last year, in the midst of a burgeoning pandemic, National Retail Properties was able to collect only 52% of rent payments due. With cash flow failing to cover the dividend, the retail REIT cautioned investors that "by no means is the dividend untouchable." Over the year since, conditions have improved so much that management recently boasted, "looking ahead to 2021 and beyond, you should expect... us to be able to continue our long history of consecutive annual dividend increases." National Retail even issued a modest dividend increase last fall, extending its dividend growth streak to 31 consecutive years despite the challenging backdrop. Since the pandemic low, every quarter has experienced improved rent collection. Most impressive was last month's [...]