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NorthStar Healthcare Income, Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

NorthStar Healthcare Income, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

NorthStar Healthcare, a company that owns senior living facilities, made more money in 2024 because they sold an investment. They are also planning to merge with another company, Welltower.

Accession #:

0001503707-25-000019

Published on

Analyst Summary

  • Net income significantly increased from a loss of $160.2 million in 2023 to a profit of $97.6 million in 2024, primarily due to a $128.6 million gain on the sale of the Trilogy investment.
  • Property and other revenues remained relatively stable, while property operating expenses decreased slightly.
  • The company strategically divested its interest in the Trilogy joint venture and other non-core assets, generating significant proceeds and resolving near-term debt maturities.
  • Gross Profit Margin remained constant at 100% from 2023 to 2024.
  • Operating Profit Margin increased from 31.40% in 2023 to 33.34% in 2024, a 6.18% increase.
  • Net Profit Margin significantly improved from -78.18% in 2023 to 47.23% in 2024.
  • Return on Assets (ROA) improved from -15.13% in 2023 to 8.64% in 2024.
  • Return on Equity (ROE) significantly increased from -121.70% in 2023 to 42.61% in 2024.
  • EPS increased from $(0.83) in 2023 to $0.53 in 2024.
  • The current ratio increased from 1.14 in 2023 to 1.25 in 2024, a 9.65% increase.
  • The quick ratio increased from 1.14 in 2023 to 1.25 in 2024, a 9.65% increase.
  • The cash ratio increased from 0.10 in 2023 to 0.39 in 2024, a 290% increase.
  • The debt-to-equity ratio decreased from 7.05 in 2023 to 3.93 in 2024, a 44.25% decrease.
  • The debt-to-assets ratio decreased from 0.88 in 2023 to 0.80 in 2024, a 9.09% decrease.
  • The interest coverage ratio increased from -2.19 in 2023 to 2.92 in 2024.
  • The asset turnover decreased from 0.19 in 2023 to 0.18 in 2024, a 5.26% decrease.
  • FFO attributable to common stockholders increased from $(56.831) million in 2023 to $149.059 million in 2024.
  • MFFO attributable to common stockholders increased from $24.237 million in 2023 to $26.030 million in 2024.
  • Revenue growth increased by 0.82% from 2023 to 2024.
  • Net income growth increased by 160.9% from 2023 to 2024.
  • EPS growth increased by 163.9% from 2023 to 2024.

Opportunities and Risks

  • Merger Risk: The merger may not be completed, leading to potential termination fees and business disruption.
  • Macroeconomic Risks: Unfavorable trends in labor costs, inflation, and interest rates could negatively impact operating performance.
  • Operational Risks: Reliance on property managers and exposure to operational risks at the property level.
  • Debt Maturities: Significant debt maturities in 2026 could force asset sales at suboptimal times.
  • Merger Completion: Successful merger would provide stockholders with a certain cash value.
  • Improved Operating Performance: Continued growth in same-store NOI could enhance asset values.
  • Strategic Dispositions: Opportunistic asset sales could generate liquidity and maximize value.

Potential Implications

Company Performance

  • Continued growth in same-store NOI could enhance asset values.
  • Opportunistic asset sales could generate liquidity and maximize value.

Stock Price

  • The average P/E ratio for REITs is around 20. NorthStar’s P/E ratio is low, which could indicate undervaluation or reflect investor concerns about future earnings.
  • An EV/EBITDA ratio between 10 and 15 is generally considered acceptable. NorthStar’s EV/EBITDA ratio is low, which could indicate undervaluation or reflect investor concerns about future earnings.

SEC Filing Report: NorthStar Healthcare Income, Inc. (10-K)

Executive Summary

This report analyzes NorthStar Healthcare Income, Inc.’s (NHI) Form 10-K filing for the year ended December 31, 2024. NHI is a REIT focused on seniors housing properties. The filing reveals a company in transition, highlighted by a pending merger with Welltower Inc., improved operating performance, and strategic asset dispositions. Key findings include a significant increase in net income driven by the sale of the Trilogy investment, improved same-store NOI, and a focus on liquidity. However, risks related to the pending merger, macroeconomic trends, and reliance on property managers remain. Overall, the report suggests a hold recommendation, contingent on the successful completion of the merger. If the merger fails, a more in-depth analysis of NHI’s ability to refinance debt and manage operational risks would be required.

Company Overview

NorthStar Healthcare Income, Inc. is a self-managed REIT specializing in seniors housing properties (ILFs, ALFs, and MCFs) across the United States. The company internalized its management function in 2022 and is currently pursuing a merger with an affiliate of Welltower Inc., expected to close in Q2 2025. NHI operates through two segments: operating investments and net lease investments (the latter being disposed of in early 2025).

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management’s tone is cautiously optimistic, emphasizing the pending merger and improved operating performance. They highlight the strategic shift towards maximizing value and generating liquidity for stockholders. Forward-looking statements are abundant, particularly regarding the merger’s completion and future operating performance. A key focus is on growing NOI through active portfolio management and strategic capital expenditures.

Red Flags: The MD&A acknowledges risks associated with the pending merger, including the possibility of non-completion and potential termination fees. Reliance on property managers and exposure to macroeconomic trends are also highlighted as potential adverse factors.

Financial Statement Analysis

Income Statement

Net income significantly increased from a loss of $160.2 million in 2023 to a profit of $97.6 million in 2024, primarily due to a $128.6 million gain on the sale of the Trilogy investment. Property and other revenues remained relatively stable, while property operating expenses decreased slightly.

Key Ratios:

  • Gross Profit Margin: Improved significantly due to the gain on sale.

Balance Sheet

Total assets increased slightly, driven by higher cash and cash equivalents. Operating real estate decreased due to depreciation and impairment. Mortgage notes payable decreased due to principal repayments and asset sales.

Key Ratios:

  • Leverage Ratio (Debt/Equity): Decreased significantly due to the increase in equity from the Trilogy sale.

Cash Flow Statement

Net cash provided by operating activities increased slightly. Investing activities showed a significant inflow due to the Trilogy sale. Financing activities resulted in a net outflow due to debt repayments.

Key Metrics:

  • Free Cash Flow: Positive, driven by asset sales.

Uncommon Metrics

  • Funds From Operations (FFO) and Modified Funds From Operations (MFFO): Reported, but their relevance is limited due to the pending merger.
  • Net Operating Income (NOI): Increased, indicating improved property-level performance.

Footnotes & Supplementary Disclosures

  • Segment Reporting: Provides a breakdown of NOI by operating and net lease investments.
  • Borrowings: Details the maturity dates, interest rates, and collateral for outstanding debt.
  • Related Party Transactions: Discloses the relationship with the Former Advisor and Solstice Senior Living.
  • Fair Value Measurements: Explains the valuation methodologies used for financial instruments and real estate.

Comparative & Trend Analysis

  • Historical Comparison: Net income improved significantly compared to prior years, driven by the Trilogy sale. Same-store NOI also showed positive growth.
  • Peer Comparison: Difficult to assess without a defined peer group and publicly traded shares.

Risk & Opportunity Assessment

Risks:

  • Merger Risk: The merger may not be completed, leading to potential termination fees and business disruption.
  • Macroeconomic Risks: Unfavorable trends in labor costs, inflation, and interest rates could negatively impact operating performance.
  • Operational Risks: Reliance on property managers and exposure to operational risks at the property level.
  • Debt Maturities: Significant debt maturities in 2026 could force asset sales at suboptimal times.

Opportunities:

  • Merger Completion: Successful merger would provide stockholders with a certain cash value.
  • Improved Operating Performance: Continued growth in same-store NOI could enhance asset values.
  • Strategic Dispositions: Opportunistic asset sales could generate liquidity and maximize value.

Conclusion & Actionable Insights

NorthStar Healthcare Income, Inc. is currently positioned for a liquidity event through its pending merger with Welltower Inc. The company has demonstrated improved operating performance and a focus on strategic asset dispositions. However, risks related to the merger’s completion and macroeconomic factors remain.

Overall Assessment: Hold, contingent on the successful completion of the merger.

Recommendations:

  • Monitor the progress of the merger and any potential roadblocks.
  • If the merger fails, conduct a more in-depth analysis of NHI’s ability to refinance debt and manage operational risks.

1. Commentary

NorthStar Healthcare Income, Inc. experienced a significant turnaround in 2024, posting a net income of $97.6 million compared to a net loss of $160.2 million in 2023. This improvement was largely driven by a substantial gain on investments and other income, which offset increased expenses. The company strategically divested its interest in the Trilogy joint venture and other non-core assets, generating significant proceeds and resolving near-term debt maturities. While revenue saw a slight increase, the focus on strategic transactions and cost management appears to have been pivotal in achieving profitability.

2. Financial Ratio and Metric Analysis

Profitability

  • Metric: Gross Profit Margin

    • Calculation: Gross Profit is equivalent to Total property and other revenues. Gross Profit Margin = (Total property and other revenues) / (Total property and other revenues)

      • 2024: 206,661 / 206,661 = 100%
      • 2023: 204,978 / 204,978 = 100%
    • Trend: The gross profit margin remained constant at 100% from 2023 to 2024.
    • Industry: Industry averages for gross profit margin in healthcare REITs typically range from 70% to 90%. NorthStar’s 100% indicates no cost of goods sold, which is unusual and requires further investigation into revenue and expense classifications.
  • Metric: Operating Profit Margin

    • Calculation: Operating Income = Total property and other revenues – Property operating expenses. Operating Profit Margin = Operating Income / Total property and other revenues

      • 2024: (206,661 – 137,759) / 206,661 = 33.34%
      • 2023: (204,978 – 140,612) / 204,978 = 31.40%
    • Trend: The operating profit margin increased from 31.40% in 2023 to 33.34% in 2024, a 6.18% increase.
    • Industry: For healthcare REITs, operating profit margins generally fall between 20% and 40%. NorthStar’s operating margin is within this range, indicating reasonable operational efficiency.
  • Metric: Net Profit Margin

    • Calculation: Net Profit Margin = Net Income / Total property and other revenues

      • 2024: 97,600 / 206,661 = 47.23%
      • 2023: (160,249) / 204,978 = -78.18%
    • Trend: The net profit margin significantly improved from -78.18% in 2023 to 47.23% in 2024.
    • Industry: A net profit margin of 10-20% is considered healthy for REITs. NorthStar’s 47.23% suggests a strong year, likely influenced by gains on investments.
  • Metric: Return on Assets (ROA)

    • Calculation: ROA = Net Income / Total Assets

      • 2024: 97,600 / 1,129,905 = 8.64%
      • 2023: (160,249) / 1,059,419 = -15.13%
    • Trend: ROA improved from -15.13% in 2023 to 8.64% in 2024.
    • Industry: Healthcare REITs typically have an ROA between 3% and 6%. NorthStar’s 8.64% indicates efficient asset utilization in 2024.
  • Metric: Return on Equity (ROE)

    • Calculation: ROE = Net Income / Total Equity

      • 2024: 97,600 / 229,029 = 42.61%
      • 2023: (160,249) / 131,680 = -121.70%
    • Trend: ROE significantly increased from -121.70% in 2023 to 42.61% in 2024.
    • Industry: A typical ROE for REITs is between 8% and 12%. NorthStar’s 42.61% suggests high profitability relative to equity, but should be examined for sustainability.
  • Metric: Earnings Per Share (EPS) – Basic and Diluted

    • Calculation: EPS = Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders / Weighted average number of shares of common stock outstanding, basic/diluted

      • 2024: 97,993 / 185,712,103 = $0.53
      • 2023: (156,885) / 189,941,744 = $(0.83)
    • Trend: EPS increased from $(0.83) in 2023 to $0.53 in 2024.
    • Industry: EPS varies widely, but positive EPS is generally favored. NorthStar’s positive EPS in 2024 is a significant improvement.

Liquidity

  • Metric: Current Ratio

    • Calculation: Current Ratio = Current Assets / Current Liabilities. Assuming all assets and liabilities are current.

      • 2024: 1,129,905 / 900,876 = 1.25
      • 2023: 1,059,419 / 927,739 = 1.14
    • Trend: The current ratio increased from 1.14 in 2023 to 1.25 in 2024, a 9.65% increase.
    • Industry: A current ratio of 1.0 or greater is generally considered acceptable. NorthStar’s ratio indicates sufficient liquidity to cover short-term obligations.
  • Metric: Quick Ratio (Acid-Test Ratio)

    • Calculation: Quick Ratio = (Current Assets – Inventory) / Current Liabilities. Assuming no inventory.

      • 2024: 1,129,905 / 900,876 = 1.25
      • 2023: 1,059,419 / 927,739 = 1.14
    • Trend: The quick ratio increased from 1.14 in 2023 to 1.25 in 2024, a 9.65% increase.
    • Industry: A quick ratio of 1.0 or greater is generally considered acceptable. NorthStar’s ratio indicates sufficient liquidity to cover short-term obligations.
  • Metric: Cash Ratio

    • Calculation: Cash Ratio = (Cash and cash equivalents + Restricted cash) / Current Liabilities. Assuming all liabilities are current.

      • 2024: 352,369 / 900,876 = 0.39
      • 2023: 92,943 / 927,739 = 0.10
    • Trend: The cash ratio increased from 0.10 in 2023 to 0.39 in 2024, a 290% increase.
    • Industry: A cash ratio of 0.2 or higher is generally considered acceptable. NorthStar’s ratio indicates sufficient liquidity to cover short-term obligations.

Solvency/Leverage

  • Metric: Debt-to-Equity Ratio

    • Calculation: Debt-to-Equity Ratio = Total Liabilities / Total Equity

      • 2024: 900,876 / 229,029 = 3.93
      • 2023: 927,739 / 131,680 = 7.05
    • Trend: The debt-to-equity ratio decreased from 7.05 in 2023 to 3.93 in 2024, a 44.25% decrease.
    • Industry: A debt-to-equity ratio of around 2.0 or less is generally considered healthy. NorthStar’s ratio indicates high leverage, but the decrease is a positive sign.
  • Metric: Debt-to-Assets Ratio

    • Calculation: Debt-to-Assets Ratio = Total Liabilities / Total Assets

      • 2024: 900,876 / 1,129,905 = 0.80
      • 2023: 927,739 / 1,059,419 = 0.88
    • Trend: The debt-to-assets ratio decreased from 0.88 in 2023 to 0.80 in 2024, a 9.09% decrease.
    • Industry: A debt-to-assets ratio below 0.6 is generally considered healthy. NorthStar’s ratio indicates high leverage, but the decrease is a positive sign.
  • Metric: Interest Coverage Ratio (Times Interest Earned)

    • Calculation: Interest Coverage Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense. EBIT = Net income (loss) + Interest expense + Income tax expense

      • 2024: (97,600 + 50,819 + (-82)) / 50,819 = 2.92
      • 2023: (-160,249 + 50,028 + 74) / 50,028 = -2.19
    • Trend: The interest coverage ratio increased from -2.19 in 2023 to 2.92 in 2024.
    • Industry: An interest coverage ratio of 1.5 or greater is generally considered acceptable. NorthStar’s ratio indicates sufficient ability to cover interest payments.

Activity/Efficiency

  • Metric: Asset Turnover

    • Calculation: Asset Turnover = Total property and other revenues / Total Assets

      • 2024: 206,661 / 1,129,905 = 0.18
      • 2023: 204,978 / 1,059,419 = 0.19
    • Trend: The asset turnover decreased from 0.19 in 2023 to 0.18 in 2024, a 5.26% decrease.
    • Industry: A typical asset turnover for REITs is between 0.1 and 0.3. NorthStar’s ratio indicates efficient asset utilization.

Valuation

  • Metric: Price-to-Earnings Ratio (P/E)

    • Calculation: P/E Ratio = Stock Price / EPS

      • 2024: 1.82 / 0.53 = 3.43
    • Industry: The average P/E ratio for REITs is around 20. NorthStar’s P/E ratio is low, which could indicate undervaluation or reflect investor concerns about future earnings.
  • Metric: Price-to-Book Ratio (P/B)

    • Calculation: P/B Ratio = Stock Price / Book Value per Share. Book Value per Share = Total Equity / Total Shares Outstanding

      • 2024: 229,029,000 / 185,712,103 = 1.23. 1.82 / 1.23 = 1.48
    • Industry: A P/B ratio between 1 and 3 is generally considered acceptable. NorthStar’s P/B ratio is within this range.
  • Metric: Price-to-Sales Ratio (P/S)

    • Calculation: P/S Ratio = Market Capitalization / Total property and other revenues. Market Cap = Shares Outstanding * Stock Price

      • 2024: (185,712,103 * 1.82) / 206,661,000 = 1.63
    • Industry: A P/S ratio of less than 5 is generally considered acceptable. NorthStar’s P/S ratio is within this range.
  • Metric: Enterprise Value to EBITDA (EV/EBITDA)

    • Calculation: EV/EBITDA = (Market Cap + Total Liabilities – Cash and Cash Equivalents) / (Net Income + Interest Expense + Taxes + Depreciation and Amortization).

      • 2024: ((185,712,103 * 1.82) + 900,876,000 – 312,123,000) / (97,600,000 + 50,819,000 + (-82) + 35,993,000) = 7.89
    • Industry: An EV/EBITDA ratio between 10 and 15 is generally considered acceptable. NorthStar’s EV/EBITDA ratio is low, which could indicate undervaluation or reflect investor concerns about future earnings.

Growth Rates

  • Metric: Revenue Growth
    • Calculation: (Current Year Revenue – Prior Year Revenue) / Prior Year Revenue
      • 2024: (206,661 – 204,978) / 204,978 = 0.82%
    • Trend: Revenue growth increased by 0.82% from 2023 to 2024.
  • Metric: Net Income Growth
    • Calculation: (Current Year Net Income – Prior Year Net Income) / Prior Year Net Income
      • 2024: (97,600 – (-160,249)) / (-160,249) = 160.9%
    • Trend: Net income growth increased by 160.9% from 2023 to 2024.
  • Metric: EPS Growth
    • Calculation: (Current Year EPS – Prior Year EPS) / Prior Year EPS
      • 2024: (0.53 – (-0.83)) / (-0.83) = 163.9%
    • Trend: EPS growth increased by 163.9% from 2023 to 2024.

Other Relevant Metrics

  • Funds from Operations (FFO) and Modified Funds from Operations (MFFO):

    • Analysis: The company presents both FFO and MFFO, which are common non-GAAP measures in the REIT industry. FFO adds back depreciation and amortization to net income and adjusts for gains/losses from sales of property. MFFO further adjusts FFO for items like transaction costs and gains/losses on investments.
    • Trend: FFO attributable to common stockholders increased from $(56.831) million in 2023 to $149.059 million in 2024. MFFO attributable to common stockholders increased from $24.237 million in 2023 to $26.030 million in 2024.
    • Significance: These metrics are used to assess the operating performance of REITs, excluding the effects of depreciation and gains/losses from property sales. The significant increase in FFO suggests improved operational performance.
    • Critical Assessment: While FFO and MFFO can be useful, investors should be aware that they are non-GAAP measures and may be defined differently by different companies. It’s important to understand the specific adjustments made by NorthStar and assess whether they are reasonable.
  • Segment Reporting:

    • Analysis: The company reports revenues and net operating income (NOI) by segment: Operating Investments, Net Lease Investments, and Non-Segment.
    • Trend: Operating Investments generated the majority of revenue and NOI.
    • Significance: Segment reporting provides insights into the performance of different business activities.
  • Property Portfolio:

    • Analysis: The company provides detailed information about its property portfolio, including location, square footage, occupancy rates, and carrying value.
    • Significance: This information is important for assessing the quality and diversification of the company’s assets.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️