NHI President and CEO Eric Mendelsohn
National Health Investors’ recent portfolio optimization efforts have transformed the real estate investment trust into a high coverage, high quality “jewel box,” President and CEO Eric Mendelsohn said Monday.
Those efforts include dispositions, tenant transitions and rent restructuring. They have touched more than 50% of the company’s portfolio, or more than 120 senior housing properties, Mendelsohn said during a third-quarter earnings call. He added that fundamental transformations to its partnerships with Bickford Senior Living and its legacy Holiday Retirement portfolios are improving both companies — and positioning NHI to participate in the seniors housing recovery.
Bickford Senior Living
Mendelsohn said he’s encouraged by Bickford’s rebounding occupancy, which increased by 280 basis points (2.8%) from the second quarter, and up 520 basis points (5.2%) from the first quarter.
He added that labor issues should start to subside, driven by an acceleration in rate growth, allowing Bickford’s margins to recover the more than 800 basis points (80%) lost during the pandemic.
During the third quarter, NHI granted rent concessions in the form of deferrals totaling $5.8 million — $3.5 million for Bickford, $600,000 for Holiday, and $1.7 million for three other tenants. NHI agreed to defer another $4.5 million in Bickford rent in the fourth quarter, and expects to grant up to $4 million in the first quarter 2022.
The company also reached agreement with two other tenants regarding additional rent deferrals of about $500,000 for the fourth quarter.
Holiday Retirement
NHI disposed of nine underperforming Holiday properties for $120 million and is evaluating the sales of two others. NHI expects to transition its remaining Holiday properties through joint ventures with Merrill Gardens and Discovery Senior Living — both of which have extensive experience in operating middle-market independent living communities, NHI said. Those transitions should be completed in early 2022.
The new relationships with Merrill Gardens will see the Seattle-based operator manage six West Coast properties. Through an expanded NHI relationship with Discovery, the provider will operate up to nine communities with an East Coast footprint, as well as Vero Beach, FL, assisted living communities.
Mendelsohn said the joint ventures will better position the REIT to expand its senior housing business with a new product offering.
Transitions
Sept. 30, NHI sold a 144-unit Senior Living Management community in West Palm Beach, FL, for $14 million. The REIT also sold a 120-unit independent living community in Fort Wayne, IN, formerly operated by Holiday, for $5.8 million.
In September, NHI also sold an Indiana property leased to Holiday for $5.8 million. In August, NHI sold a portfolio of eight properties leased to Holiday, for $115 million.
Mendelsohn said the REIT is in the process of disposing of another subset of underperforming senior housing properties, which it expects to be largely completed by the first quarter of 2022.
In 2021, NHI completed the sale of 16 underperforming senior living properties for $173 million. It is targeting another 21 underperforming senior living assets for dispositions, and the sale is expected to generate up to $155 million.
Chief Investment Officer Kevin Pascoe said the REIT’s pipeline remains active across all of its asset classes. With a better sellers market, it worked to NHI’s advantage. As it has concluded its disposition program, NHI expects to be more active in rebuilding the pipeline in 2022, he said.
Occupancy
Pascoe said its needs-driven senior living portfolio generally experienced solid occupancy gains throughout the quarter, although it was challenged by increased wages for hourly staff and increased use of agency staffing. Residents and families, however, are “sympathetic” to the labor issues and receptive to rate increases, he said.
Bickford’s third-quarter average occupancy of 80.2% increased by 520 basis points (5.2%) from the first-quarter low. Senior Living Communities’ third-quarter occupancy rate was 80.4%. Holiday’s third-quarter occupancy rate was 77.8%.
Mendelsohn said he is encouraged by the recent improvement at the company’s 17 legacy Holiday communities, which have recovered 390 basis points (3.9%) of occupancy from February’s low, with occupancy climbing 140 basis points (1.4%) in September alone.
“While our results continue to be impacted by the difficult senior housing operating environment, we are making steady progress on optimizing our relationships with several of our partners and look forward to providing more details as terms are finalized this year,” he said.
