Senior housing is making a comeback and will contribute to 2022 being a turning point for National Health Investors, President and CEO Eric Mendelsohn said Wednesday.
“We are making steady progress on optimizing our portfolio through dispositions, rent restructuring and tenant transitions,” Mendelsohn said during the Murfreesboro, TN-based real estate investment trust’s fourth-quarter earnings call. “People are coming back to senior housing, and I believe 2022 is going to be a turning point in our recovery.”
Mendelsohn called 2021 the “most challenging year NHI has faced.” The REIT granted $28 million in rent concessions in 2021.
In 2022, NHI has agreed to defer $4 million in rent from Bickford for the first quarter. The company also reached agreements with four other tenants regarding additional rent deferrals of $1.2 million for the first quarter.
NHI anticipates deferring $700,000 in rent for another tenant in the first quarter and expects that additional support for providers will be necessary as they continue to face pandemic challenges.
“The industry has been negatively impacted by the recent surge in COVID cases and is obviously still struggling with historically low occupancy and high labor costs, so we expect we will continue to provide support throughout 2022,” he said, adding that the result of its repositioning strategy will be a “jewel box portfolio with the best operators positioned to participate in the long-term growth of senior housing and skilled nursing.”
NHI portfolio activity
NHI sold 23 properties for $243.7 million in 2021 and into January, including 19 underperforming communities that sold for a total of $195.2 million. The company is in the process of selling another subset of underperforming properties, which Mendelsohn said would result in improved senior housing lease coverage with a core group of operators.
In November, the REIT identified 21 senior living properties to sell. From that group, Mendelsohn said, NHI sold three properties, transitioned three to new operators and retained three. Repositioning of the remaining 12 properties is expected to be completed in the first and second quarters.
Since November, four additional underperforming properties were approved for sale, and they are expected to close this year.
In January, NHI announced that it will fund the $28.5 million construction of The Courtyard of Fitchburg, a 108-unit assisted living and memory care community in Fitchburg, WI. The community will be operated by Encore Senior Living, formerly known as 41 Management.
Mendelsohn said that the restructuring of its Bickford Senior Living portfolio has slowed due to headwinds caused by the omicron variant of COVID. More short-term financial assistance may be necessary, he said, adding, however, that he is confident that the restructuring efforts will create a more focused portfolio.
NHI is in the process of selling five underperforming Bickford properties and transitioning another one to a different operator.
The REIT continues working on transitioning its legacy Holiday Retirement portfolio into a senior housing operating portfolio joint venture with Merrill Gardens and Discovery Senior Living. The timing of those transitions, however, is delayed while legal proceedings play out, Mendelsohn said, referring to NHI”s lawsuit against Toledo, OH-based REIT Welltower. A hearing in that lawsuit is scheduled for Friday.
“We see better days ahead, but we are not out of the woods just yet,” Chief Investment Officer Kevin Pascoe said. “We’re fortunate to be in a strong financial position that helps us withstand these headwinds, but we’re more interested in and encouraged by the growth prospects we see coming out of our optimization.”
Occupancy
Senior Living Communities had fourth-quarter and January 2022 occupancy of 81.7%, up 130 basis points (1.3%) from the third quarter. Occupancy in the SLC portfolio remained flat in January and February, at 81.7%, which is above pre-pandemic levels.
NHI’s needs-driven senior housing portfolio experienced the most disruption from the pandemic, although the group experienced occupancy gains throughout the fourth quarter. Occupancy growth slowed toward the end of the quarter and into January, driven by the omicron variant. Pascoe said that results in the use of overtime pay and agency staffing, up 400 to 500 basis points (4 to 5%) in the last two months.
On a positive note, Pascoe said, residents and families are sympathetic to the labor issues, allowing operators to implement reat increases in the mid to high single digit range with little impact on occupancy.
Bickford saw increased quarterly occupancy of 90 basis points to 81.3% in the fourth quarter, stabilizing at 81% in January.
Holiday, which did not pay rent during the fourth quarter, saw occupancy decline by more than 1,000 basis points (10%) throughout the pandemic. Occupancy was 78.4% in the fourth quarter and 77% in January.
