In a series of moves designed to strengthen the company, National Health Investors President and CEO Eric Mendelsohn said the real estate investment trust is working to optimize its relationships with its senior housing operators. The result could be a range of outcomes from sales to lease restructuring, he added.
During Tuesday’s second-quarter earnings call, Mendelsohn said that NHI’s results were negatively affected by higher levels of rent deferrals, which increased to $9.9 million from $4.2 million in the first quarter.
The company said quarterly earned income totaled $39.2 million, or 85 cents per share. That amount was slightly below the expectations of Wall Street analysts. Share prices have declined by approximately 5% this year.
Mendelsohn said that the general theme continues to be that its entrance fee community, skilled nursing and hospital segments continue to perform well, whereas its freestanding assisted living, memory care and independent living segments experienced more significant occupancy and margin pressures. Those pressures, he said, were driven primarily by industry-wide staffing shortages, pushing hourly rates and agency costs to “unprecedented levels.”
“While we have been pleased with the persistent recovery in occupancy in our senior housing portfolio, we are not out of the woods yet and expect that our operating partners will need continued assistance,” Mendelsohn said. “We knew 2021 would be a challenging year and are very pleased with the path that we are on to weather the impact of the pandemic and return to growth as industry fundamentals begin to improve.”
As previously announced, NHI agreed to defer $1.5 million in rent for July for Bickford Senior Living and agreed with Holiday Retirement to defer $1.2 million in rent due in the second quarter and $600,000 for July. NHI reached agreements with two other tenants regarding additional rent deferrals of approximately $900,000 for the third quarter and is in discussions with one other tenant for a rent deferral of approximately $700,000 for the remainder of 2021.
Chief Investment Officer Kevin Pasco said that NHI anticipates that other tenants may need additional rent deferrals to assist with the effects of the pandemic on their operations.
Sales
The REIT completed or announced about $220 million in asset sales and is on pace to be within its goal of $250 million to $400 million in 2021, executives said.
During the second quarter, NHI sold a portfolio of six properties being leased to Bickford. Mendelssohn said NHI is continuing to work on optimizing its relationship with Bickford, which could result in a range of outcomes that could improve Bickford’s cash flow and reduce NHI’s rent concentration.
In July, NHI signed a non-binding letter of intent to sell a portfolio of nine Holiday properties, and the deal is expected to close in August. NHI is in negotiations on the remaining 17 Holiday properties, which could result in lease restructuring, further asset sales or other options.
Occupancy
Chief Financial Officer John Spaid said that NHI remains committed to senior housing but that supply and labor issues continue to affect occupancy growth.
Occupancy at Senior Living Communities is near pre-pandemic levels, with second-quarter average occupancy of 78.5%, up 80 basis points from the first quarter. It further improved to 79.9% in July.
Bickford improved occupancy by 500 basis points since March, and occupancy increased 240 basis points from the first quarter to the second quarter. That momentum continued into the third quarterly, with average July occupancy at 79.6%.
Rental independent living communities experienced larger occupancy declines than NHI’s needs-driven continuing care retirement communities. Holiday had average occupancy of 73.8% in the second quarter, down 30 basis points, but occupancy rebounded to 74.9% in July.
“Despite the near-term industry challenges, we remain encouraged by the steady occupancy growth experienced across the senior housing portfolio since the March lows,” Mendelsohn said.
