With an “uncertain” road to recovery, National Health Investors President and CEO Eric Mendelsohn said during Tuesday’s fourth-quarter and year-end earnings call that he sees the challenges presented by the pandemic as temporary.
“While this pandemic has had a disproportionate negative impact on operators caring for the senior population, we don’t believe the damage is permanent and remain steadfast in the opportunities in healthcare real estate,” Mendelsohn said. “While 2021 should be a difficult year, NHI is well-positioned to weather the storm, with multiple levers at its disposal to preserve our conservative capital structure and set the company up for longer timer growth.”
Chief Financial Officer John Spaid said that NHI’s strategy for 2021 is to continue to work with customers to stabilize their operations and assess their ability to recover from the pandemic’s effects. He said current and future rent deferrals are temporary and not indicative of an operator’s performance.
NHI agreed to defer rents due from Bickford Senior Living totaling $5.85 million for 2020 and $750,000 for January 2021 due to the pandemic. The healthcare REIT also agreed to rent concessions with another tenant, totaling $1.07 million in deferrals for 2020, $50,000 in abatements for 2020 and $447,000 in deferrals in the first quarter of 2021.
Mendelsohn said that as the pandemic unfolds, he expects more deferrals in 2021.
“We’re willing, on a tenant-by-tenant basis, to address their individual needs,” he said. “With the success of the vaccine clinics, we see some light at the end of the tunnel and expect to see occupancy gains this year, which puts us in a better position to make decisions that make a more lasting impact on the company.”
Occupancy
Chief Investment Officer Kevin Pascoe said that needs-driven senior living operators experienced stable occupancy through the third quarter, but they were not able to sustain it into the fourth quarter as COVID cases spiked in November and December. Phase 2 Provider Relief Funds provided some needed short-term financial relief, and some operators are still waiting for Phase 3 distributions.
Bickford experienced a 280 basis point (2.8%) occupancy decline in the fourth quarter, compared with an 80 basis point decline in the previous quarter. December occupancy rates of 76.7% declined further in January, to 75.6%. Pascoe, however, said he is encouraged by recent increases in leads and new sales, with new sale conversion rates suggesting that the near-term occupancy outlook is improving.
NHI’s entrance-fee communities proved more resilient, driven by factors including longer average length of stays and a younger, healthier resident population, executives said. Fourth-quarter occupancy trends declined from the third quarter. Timber Ridge proved the exception, with occupancy consistently in the mid-90% range. Senior Living Communities saw its occupancy increase to 77.3% in January.
Rental independent living communities experienced more pronounced occupancy declines than the needs-driven continuing care retirement communities. Holiday Retirement had an occupancy rate of 77.2% in the fourth quarter, with occupancy declining to 75.3% in January.
Development
During the fourth quarter, NHI committed to providing first mortgage financing to 41 Management LLC for up to $22.2 million to build a 110-unit independent living, assisted living and memory care community in Sussex, WI. The agreement includes an option for NHI to acquire the property once it is stabilized.
NHI is working with Bickford and prospective lenders on the sale of nine properties, with a target of closing in March. Mendelsohn said NHI is working along multiple paths with Bickford to “create a long-term solution to make them a stronger company while improving our coverage metrics.”
The investment pipeline for 2021 looks promising, the CEO said. Pascoe said there has been no shortage of deals to evaluate during the pandemic, but NHI has not found “quality” deals. He said he expats an active year of investments, with a pipeline including triple-net opportunities and shorter-term, higher-yield products. NHI, he added, has $200 million in board-approved investments in the pipeline.
“I believe the industry will begin to recover in 2021,” Mendelsohn said. “The next several months will be difficult for operators as they deal with the pandemic aftermath as they start to rebuild. We are much closer to finding the bottom than we were just weeks ago.”
COVID
The effect of the pandemic has been uneven across the portfolio, with entrance-fee and skilled nursing facilities more resilient than free-standing assisted living, memory care and independent living communities, executives said.
“Government assistance through the CARES [Coronavirus Aid, Relief, and Economic Security] Act has been effective in bridging the gap to a more stable operating environment,” Mendelsohn said. “We are hopeful more assistance is on the way from the Provider Relief Fund, as well as the $1.9 trillion American Rescue Plan, as most of the senior housing and skilled nursing industry continue to struggle with declining occupancy and increased staff, testing and PPE costs.”
As of Feb. 9, NHI had 244 confirmed active COVID-19 resident cases (0.2% of total capacity) in its skilled nursing and senior housing portfolio. There were 85 confirmed senior housing resident cases and 159 skilled nursing resident cases.
About 94% of the senior living communities in NHI’s portfolio have completed at least a first round of coronavirus vaccinations. All of the SNFs in the REIT’s portfolio have completed at least the first round of vaccinations.
Vaccination participation rates were 80% for residents and 46% for staff. NHI is working with its operators on initiatives to drive participation up, particularly for staff members, Pascoe said.
