With the almost year-long process of bringing management in-house complete as of Jan. 1, New Senior Investment Group is making changes to its portfolio in an effort to improve finances, executives said Friday during the real estate investment trust’s fourth-quarter and full-year 2018 earnings call.
Chief Financial Officer David Smith said the REIT plans to move nine communities operated by Holiday Retirement or Blue Harbor Senior Living to new operators by the end of the first quarter.
“These transitions will result in two new operator relationships, Integral Senior Living and Phoenix Senior Living, and also expand our existing relationship with Grace Management,” he said. The REIT is continuing to evaluate the overall portfolio for additional transition opportunities, Smith added.
Also, the CFO said, New Senior plans to sell several assisted living communities in 2019 and use the net proceeds to pay down debt. “The sale of these assets will improve the quality of our portfolio and also our key portfolio metrics,” Smith said.
In her remarks, CEO Susan Givens described Holiday and Blue Harbor — the REIT’s largest and second-largest operating partners, respectively, of six total — as “some of the strongest senior housing operators in the space,” adding, however, that New Senior “recognize[s] the benefits of having a diversified portfolio of operators.”
Holiday and Blue Harbor account for 80% and 12% of New Senior’s total net operating income, respectively, she said. The REIT’s 133-property, all-private-pay portfolio spans 37 states.
Optimizing the portfolio is one of several strategic priorities for this year, Givens said. In addition to selling or transitioning communities to new operators, New Senior will be undertaking “intensive asset management” and capital expenditures to improve the quality and performance of the portfolio, the CEO said.
“While the majority of our portfolio has outperformed the overall industry, certain underperforming assets have dragged down our total results,” she said.
The REIT’s independent living portfolio had same-store net operating income growth of 2%, which was “slightly offset” by results in the assisted living portfolio, where same-store cash net operating income was down 8.7%, Smith said.
“However, the decline in the fourth quarter was less pronounced than the double-digit decline we reported last quarter,” he said.
Independent living occupancy declined by 20 basis points, “but we still fared better than the independent living industry occupancy decline of 40 basis points,” Smith said.
Assisted living occupancy declined 140 basis points and had a margin decline of 210 basis points, primarily due to labor cost pressures, he said.
“Our assisted living and memory care assets only represent 15% of our total net operating income, so it’s a relatively small piece of our company, but that portfolio continues to be impacted by underperformance of a subset of these assets,” Givens said.