The outlook for 2023 is much more promising as National Health Investors returns to a focus on growth, according to President and CEO Eric Mendelsohn.
During a fourth-quarter and year-end 2022 earnings call Wednesday, Medelsohn said the Murfreesboro, TN-based real estate investment trust is beginning to see the benefits of its “considerable efforts” toward portfolio optimization.
The REIT’s financial assistance to operators in its portfolio was limited last year, and fourth-quarter rent collections were strong, at 98.1%, the company reported. The REIT also divested a “significant” portion of properties it identified as underperforming beginning in 2021, including the sale of 32 senior housing properties.
Although Mendelsohn admitted that he wasn’t satisfied with the company’s fourth-quarter results, he said that NHI is working on “getting the right people in place at the right properties.”
“The benefits of our considerable efforts are evident through steady improvements in the needs-driven senior housing coverage ratios, stronger collection rates and declining rent concessions,” Mendelsohn said. “The entrance fee and skilled nursing facility businesses have been steady performers throughout the pandemic, and we expect that to continue through 2023.”
Recovery continues in SHOP
NHI reported that its portfolio optimization is largely complete following the sale of 39 underperforming properties, the restructuring of several tenant leases and the transition of 15 properties into its newly formed senior housing operating portfolio, or SHOP.
The company experienced its largest internal growth opportunity in its SHOP portfolio, which was formed in the second quarter 2022 and transitioned to new operators after “several years of neglect.”
SHOP occupancy decreased 110 basis points to 75.8% in the fourth quarter. Price increases were used to drive lead volume and move-ins, but significant inflationary pressures resulted in performance below expectations for 2022, NHI Chief Investment Officer Kevin Pascoe said.
He added that NHI’s operating partners have repositioned management teams at local communities over the past nine months, and the company expects to see fundamentals improve over the year.
Investment pipeline activity increasing
Mendelsohn said that the REIT is “well-positioned” to take advantage of what he said increasingly is becoming a buyer’s market. The company made $101.5 million in investments in 2022 and already has announced $54.8 million in investments in the first quarter 2023, including the $37.5 million acquisition of two newly developed memory care communities operated by Silverado. The newly developed properties that opened in 2022 include a 60-unit community in Summerlin NV, and a 60-unit community in Frederick, MD.
In November, the REIT bought a 60-unit assisted living community in Virginia Beach, VA, from Bickford Senior Living for $17.2 million.
In February, NHI bought a 60-unit assisted living and memory care community in Chesapeake, VA, from Bickford for $17.3 million. The community opened in May 2022.
Pascoe said that the company did not sell any properties in the fourth quarter due to the market slowdown, and 13 properties are listed as assets held for sale. NHI, he added, was fortunate to complete the majority of its sales before the market downturn and now is focusing its resources on acquisitions again.
“We are in great financial shape and eager to deploy capital at a time when capital is increasingly scarce,” Pascoe said. “The pipeline is active, with more actionable deals than we’ve seen relative to the last couple of years.”
Operators continue struggles with occupancy
Occupancy for Bickford Senior Living properties declined in the fourth quarter to 82.9% and again in January to 81.7%. Pascoe said that leads and sales are strong but have not kept pace with move-outs, which he primarily attributed to deaths. Bickford implemented a single-digit price increase in December to offset some of the occupancy decline, he said.
The company’s entrance-fee portfolio continues to perform well, with occupancy at Senior Living Communities’ properties improving throughout the fourth quarter and January to 84%, up 240 basis points year over year.
