National Health Investors is “in much better shape as we enter 2020” compared with 2019, which the Murfreesboro, TN-based real estate investment trust started “in a much more defensive posture than usual,” President and CEO Eric Mendelsohn said Wednesday.
“We are not out of the woods by any means, as the senior housing industry continues to be challenged by new deliveries and labor issues, which we do not expect to improve for at least the next several quarters,” he said on the REIT’s fourth-quarter and full-year 2019 earnings call, “but we are generally encouraged by slowing inventory growth and very strong net absorption, which in 2019 showed the highest level of demand in the 13 years since [the National Investment Center for Seniors Housing & Care] has been collecting this data.”
So far this year, Mendelsohn said, the REIT has announced $150 million in deals, including $133 million related to Timber Ridge, a Seattle-area continuing care retirement community for which NHI formed a joint venture for ownership and operation with LCS. In January when the deal was announced, the CCRC was more than 95% occupied and had 401 units, including 330 independent living apartments, 14 assisted living apartments, 12 memory care apartments and 45 skilled nursing beds.
Asked whether the proposed Medicaid Fiscal Accountability Regulation has changed the way NHI underwrites such projects, Chief Investment Officer Kevin Pascoe said, “We’re monitoring that, but I don’t think we have enough information today to say how it would impact.”
Under MFAR, states would have to repeal the exemptions from the nursing home provider bed tax that currently apply to CCRCs, if they offer them, 27 members of the House told Centers for Medicare & Medicaid Services Administrator Seema Verma. LeadingAge and other organizations oppose the regulation, saying that CCRCs might have to pass the cost on to residents via higher entrance fees and/or monthly fees or even close their skilled nursing units.
The Timber Ridge CCRC has only a small skilled nursing component, “so we don’t feel like it’s going to be overly impactful,” Pascoe said, “but where there are larger skilled units, it’s definitely something that we’ll be thinking about.”
Another new investment for NHI occurred in the fourth quarter, he said, with the acquisition of a 48-unit assisted living and memory care community in the St. Paul, MN, area for $9.34 million. The deal expanded the REIT’s relationship with 41 Management.
Moving forward in 2020, Pascoe said: “We’re open for business on all asset classes. It’s just really finding the right operator, right opportunity and fit. …We’ll continue to look at senior housing, skilled nursing. We’ve said for a while we were looking at behavioral; that’s still on the table. So it’s just a matter of where we can make those relationships and continue to build them.”
The REIT has established good relationships in secondary markets and has seen success with operators already in the portfolio as well as with new, growing operators, he said.
Encouraged by improvement at Bickford Senior Living
Pascoe said NHI is encouraged by trends in occupancy at Bickford Senior Living, which represents 18% of the REIT’s cash revenue. Same-store occupancy in the fourth quarter was 88.4%, according to information NHI released in conjunction with the earnings call.
“Bickford’s occupancy started to turn positive in the second quarter, which continued through the third quarter,” he said. “We are pleased to report that Bickford’s fourth-quarter occupancy remained steady on a sequential basis and showed significant improvement year-over-year. Bickford’s total and same-store leased portfolio occupancy improved by 160 basis points and 230 basis points, respectively, in the fourth quarter of 2019 compared to the same quarter in 2018. Importantly, Bickford has maintained price discipline while showing this improved occupancy.”
To help the operator succeed, Mendelsohn, said, NHI has adjusted rent, sold or is about to sell underperforming buildings, and transitioned an underperforming building in Minnesota to another operator.
The REIT still is developing new assets with the company, which “will help us continue to evaluate additional asset sales while maintaining our relationship with Bickford and upgrading the portfolio,” Pascoe said.
“As Eric said in his comments about NHI in total, and I think this would apply to Bickford as well: We are not out of the woods yet,” he said. “We’re doing a lot of work. They’re working very hard. We feel like we’re making progress.”