National Health Investors executives said Tuesday that the company remains committed to the senior housing sector even though the real estate investment trust’s portfolio has been disproportionately affected by the COVID-19 pandemic.
Despite the challenges of the past several months, President and CEO Eric Mendelsohn said, the senior housing operators in NHI’s portfolio have performed well. Occupancy generally slowed in the third quarter, aided by a pickup in move-ins and a leveling off of COVID-19-related expenses.
“This is a testament to the stability of the triple-net lease strategy, the needs-driven nature of the properties we invest in, as well as the underlying strength of our operating partners,” Mendelsohn said. “Depending on the timing and effectiveness of the vaccine, we expect the impact of the pandemic to be more uneven across our property types as winter approaches.”
COVID-19
As of Nov. 3, NHI had 367 confirmed active resident coronavirus cases (about 1.5% of total capacity) in its senior housing and skilled nursing portfolio. There were 94 confirmed senior housing resident cases (2.4 cases per average community), which includes skilled nursing cases at its senior living campuses (continuing care retirement communities) and 273 confirmed skilled nursing resident cases (6.5 cases per average community).
“Thus far, our entrance-fee communities and skilled nursing properties, which together represent over 50% of our revenue, have been quite resilient,” Mendelsohn said. “However, our freestanding assisted living, memory care and independent living operators are experiencing greater challenges as COVID cases are spiking in many parts of the country, which is slowing the pace of move-ins while move-outs are accelerating in what is typically a seasonally weak period.”
Chief Investment Officer Kevin Pascoe said the issue is geography. On the independent living side, many of its units with Holiday Retirement are on the West Coast, which has more restrictions in place and limits the ability for tours. In addition, COVID-19 cases are increasing in the Midwest and the Southeast.
“There are some additional barriers that make it difficult for them to do business as usual,” Pascoe said. “Our operators have to be able to get back to generating a lead base and getting people to move in. It’s something they are working on everyday, but it’s very much a challenge.”
Occupancy
Fall coronavirus infection rates are having occupancy effects to a subset of NHI’s senior housing segment that are more pronounced than the effects seen during the summer. Entrance fee communities and skilled nursing facilities, which cumulatively contribute more than 50% of the company revenue, are not experiencing similar changes.
The needs-driven senior housing portfolio, however, saw occupancy level off in the second and third quarters as move-in activity picked up enough to slow the pace of occupancy losses. Expected federal funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act Phase 2 Provider Relief Fund is expected to help assisted living operators mitigate some elevated COVID-19 costs.
Bickford Senior Living experienced an 80 basis point decline in third quarter average occupancy, compared with a 270 basis point drop in the second quarter. Third-quarter occupancy was 81.7%.
Senior Living Communities saw its occupancy drop 10 basis points to 79% in the third quarter. Although its entrance fee sales were down year to date, they increased year-over-year in September and October, helping to bolster coverage.
Independent living communities saw the most pronounced and sustained occupancy declines. Holiday Retirement’s average third-quarter occupancy was 79.6%, down 390 basis points after a 380 basis point decline in the second quarter. Average occupancy continued to decline throughout the third quarter.
Rent deferrals
After the end of the third quarter, NHI reached an agreement with Bickford to defer a portion of its November rent, with optional deferrals for December and January beginning in June 2021. These additional deferrals may include $3 million for November and optional deferrals of up to $750,000 each for December and January.
NHI said it is continuing negotiations with Bickford for the potential sale of nine properties currently leased by the company. They have a gross value of approximately $77 million.
In addition to the Bickford deferral, NHI has agreed to defer or abate portions of rents for the remainder of 2020 with another tenant that also would grant the tenant the option to defer a portion of rents related to the first quarter of 2021. The COVID-19-related deferrals and abatements granted were $534,000 and $20,000, respectively, for the third quarter, and $538,00 and $30,000, respectively, for the fourth quarter. The optional deferred amount for the first quarter of 2021 is $447,000.
Mendelsohn said that NHI is willing to work with its operators on a tenant-by-tenant basis to help bridge the gap and said he believes these challenges are temporary.
“Our big-picture outlook has not changed,” Mendelsohn said. “We continue to see tremendous opportunities for growth in senior housing and skilled nursing real estate and will be opportunistic with our capital deployment to help drive shareholder value.”
Development
Pascoe said that NHI remains opportunistic about senior housing and skilled nursing properties.
“Long term, we still believe in seniors housing. We want to continue to invest there, and there there will be some opportunities as we work through this over the next six to 12 months,” Pascoe said, adding that NHI continues to evaluate additional asset classes. “The diversification we have now is good. If we continue to expand that pie, we’re in good shape.”
NHI is looking at deals that run the gamut from triple-net leases with existing and new operators, to mezzanine debt and development financing, he said.
“We are encouraged by the depth of the current pipeline,” Pascoe said.
