The rollout of the COVID-19 vaccine has helped communities reopen and begin occupancy gains, but the road to recovery is likely to be uneven, according to National Health Investors President and CEO Eric Mendelsohn.
“We expect that the path to a more normal operating environment will be uneven and is likely to be a multi-year process, which will make 2021 a difficult year for NHI as we help our tenants bridge the gap to full occupancy and margin recovery,” Mendelsohn said Tuesday on the Murfreesboro, TN-based real estate investment trust’s first-quarter earnings call. “We are motivated to use this crisis to transform into a stronger, leaner healthcare REIT, which can be accomplished through lease restructuring, shedding underperforming assets, and finding operators that are better aligned with our goals.”
Bickford Senior Living
NHI entered into a rent deferral agreement with Bickford Senior Living, including a $3 million deferral for April and $2 million for May. All deferred amounts are expected to be repaid over 18 months beginning Oct. 1.
Earlier this week, NHI announced that it had completed the sale of six Bickford properties for $52.9 million, which includes a $13 million second mortgage provided by NHI. The properties were part of NHI”s ongoing negotiations for the sale to Bickford of nine properties currently leased to Bickford. NHI continues to explore its options for the remaining three properties, including a sale to a third party, re-tenanting or retaining the existing lease with Bickford.
Mendelsohn said that NHI continues to be proactive with Bickford and is pleased with its positive occupancy trends in the past several weeks, resulting in a 180-basis-point (1.8%) increase in April compared with March.
Although NHI collected 94.3% of rents due for the quarter, the REIT has reached agreements with four other operators for concessions totaling $2.3 million in the second quarter. The REIT also is in discussions with Holiday Retirement that could result in rent concessions starting in the second quarter.
Chief Investment Officer Kevin Pascoe said NHI’s senior housing operators generally experienced extended occupancy declines that began in the fourth quarter and continued through February before leveling off in March.
Bickford experienced a 410 basis point (4.1%) sequential decline in first quarter average occupancy, which followed a 280 basis point (2.8%) decline in the fourth quarter. Average April occupancy increased 180 basis points (1.8%) from March.
NHI’s entrance fee communities, Pascoe said, have been more resilient in occupancy recovery relative to other senior housing asset classes. He attributed that to a longer average length of stay and a generally younger, healthier resident population.
Senior Living Communities had first-quarter average occupancy of 77.9%, which was up 60 basis points (0.6%) from the fourth quarter. Entrance fee sales in the first quarter and in April exceeded sales for the same period in 2019.
NHI’s rental independent living communities experienced a more pronounced occupancy decline than its needs-driven continuing care retirement community properties. Holiday Retirement had average occupancy of 74.1% in the first quarter, down 310 basis points (3.1%) sequentially. This followed a sequential decline of 240 basis points (2.4%) in the fourth quarter.
“Holiday was very proactive in administering vaccine clinics throughout its portfolio, even though they were not prioritized due to their independent living status,” Pascoe said. “This appears to be stabilizing Holiday’s occupancy, which has been essentially flat for the last three months.”
Net move-outs were positive in both March and April, which was the first positive month since January 2020.