Eric Mendelsohn

National Health Investors has restructured the lease agreement for the 25 Holiday Retirement communities in its portfolio in an effort to position the properties for long-term success, the real estate investment trust said Tuesday.

“Both Holiday and NHI determined that continuing the status quo was not viable,” NHI President and CEO Eric Mendelsohn said during the real estate investment trust’s third-quarter earnings call.

The new agreement extends the term of the lease, increases the required minimum capital expenditure per unit and provides NHI with stronger pro forma 2019 lease coverage ratio, the REIT said.

Under the terms of the deal:

  • NHI will receive consideration of approximately $65.8 million in cash or property.
  • The lease maturity is extended five years to Dec. 31, 2035.
  • Effective Jan. 1, Holiday rent will be $31.5 million for the existing 25 assets, with annual escalators beginning in 2020. The rent currently is $39 million.
  • NHI will put up to $5 million into the communities in return-on-investment‐producing capital expenditures at a 7% lease rate on funds drawn. In addition, Holiday will dedicate at least $1,500 per unit to annual capital expenditures.

NHI also said that the REIT and Holiday are thinking of selling as many as five underperforming properties in the existing Holiday lease.

The operator represented 14% percent of NHI’s cash revenue as of the end of the second quarter, Chief Investment Officer Kevin Pascoe said.

Holiday’s change in management model, from live-in managers to traditional executive directors, and the move of its headquarters from Oregon to Florida, put the company on NHI’s “worry list,” Mendelsohn said. The change in management model “went well,” however, he added.

“The change in headquarters location from Oregon to Florida was also stressful to the company,” Mendelsohn said, adding however: “Having visited Holiday headquarters recently, I can tell you that the team is motivated, cohesive and focused. This is also demonstrated in the improved performance of the buildings in our portfolio.”

Average occupancy in the third quarter, at 89.2%, was an improvement over second-quarter occupancy of 88.8%, Pascoe said.