New Senior Investment Group explores 'strategic alternatives'

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Detail from the cover of New Senior Investment Group's fourth-quarter and full-year 2017 investor presentation. Pictured is Orchid Terrace in St. Louis.
Detail from the cover of New Senior Investment Group's fourth-quarter and full-year 2017 investor presentation. Pictured is Orchid Terrace in St. Louis.

Citing “negative pressures” related to supply and increased competition, New Senior Investment Group CEO Susan Givens said Friday that the real estate investment trust is considering various “strategic alternatives” to help increase shareholder value.

“Despite the strength of our portfolio and the attractiveness of the industry in which we operate, we believe certain characteristics of our company have caused us to trade at a discount to our asset value,” Givens told analysts and others during a fourth-quarter and full-year 2017 earnings call.

Stock buybacks and a tender offer in 2016, as well as the selling of some assets, have not affected stock performance as desired, Givens said. “Against this backdrop, our board of directors has been conducting a process to explore and evaluate a full range of strategic alternatives focused on maximizing shareholder value,” she added.

Givens would not say when the review process began, nor was she able to answer analysts' questions about what the review involves and when it might end. “We're exploring a full range of alternatives, and so that really includes everything that you would expect,” she said.

Part of the exploration process includes decisions related to how to reinvest $296 million made from the fourth-quarter completion of the sale of nine assisted living / memory care properties that New Senior managed and six properties in its triple-net lease portfolio, Givens suggested.

Despite near-term challenges, she said, New Senior is “uniquely positioned” to benefit from the fact that “our target demographic, individuals aged 70 and older, is the fastest-growing cohort in the U.S. population and is expected to grow six times faster than the total population over the next 20 years.”

New Senior, Givens added, is the only “pure-play senior housing REIT, and our portfolio, the eighth-largest in the United States, has the unique attribute of being 100% private-pay.” Additionally, she said, 80% of the REIT's portfolio is concentrated in independent living, which has experienced less competition.

Holiday Retirement, which is the country's largest operator of independent living communities but also manages some assisted living and memory care offerings, accounts for 83% of New Senior's portfolio, according to information posted on the REIT's website. Blue Harbor Senior Living — which operates senior apartments, independent living, assisted living and memory care communities — makes up the next largest percentage of New Senior's portfolio, at 12%, and five other operators account for the rest.

“The level of new construction for independent living remains at less than half the level of assisted living,” Givens said. “Independent living is really the gateway to senior housing. The lower price point, combined with the lower-acuity environment, make it an attractive option for a larger number of seniors.”

New Senior's portfolio included 133 private-pay senior housing properties at the end of the fourth quarter, Managing Director David Smith said. Eighty-one of them were managed properties, including 51 independent living and 30 assisted living properties that collectively account for approximately half of New Senior's portfolio net operating income, he said.

Occupancy in the managed portfolio decreased 150 basis points year-over-year, a smaller decline than in the third quarter, when same-store occupancy decreased 170 basis points, Smith said.

“This progress was driven by improved year-over-year trends in our independent living portfolio as it continues to recover from the changes in the Holiday operating model change that were implemented in early 2017,” he said. Holiday has seen savings related to maintenance and marketing — fewer referral fees paid out — since the management model change, Smith said.

“Long-term demand trends remain attractive for senior housing,” he said. “Population growth rates within a five-mile radius of our properties are projected to increase 50% over the next five years to 2.5%, versus 1.7% historically, and industry absorption levels remain near all-time highs.”

New Senior's portfolio also includes 52 triple-net properties, including 51 independent living properties and one rental continuing care retirement community, Smith said. For the trailing 12-month period ending Sept. 30, same-store occupancy at these properties was 87.7%.

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