NHI Sees Rehab-Heavy Skilled Nursing Development as ‘Home Run’

National Health Investors (NYSE: NHI) has made multiple pushes into skilled nursing as the calendar shifted from 2018 to 2019, with a specific eye toward higher-end rehab — and new construction.

Before announcing its $50.3 million pickup of a Massachusetts senior housing complex with 164 skilled nursing beds this week, the real estate investment trust (REIT) entered a $25 million agreement to finance the ground-up construction of a 144-bed facility near Milwaukee for operators Ignite Medical Resorts and Villa Healthcare.

Ignite has bet on a higher-end model that targets short-term residents who want to return home quickly. The Niles, Ill.-based provider’s facilities feature hospitality-style touches such as in-room touchscreens for ordering food and other items, along with specialized care services like dialysis and cardiac rehab programs.

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While building from scratch has proven cost-prohibitive for many operators, Ignite and others — such as the California-based Plum Healthcare — see it as wise investment, allowing them to build for today’s more medically complex seniors in a landscape marked by decades-old physical plants. Acuity will also be a major driver of reimbursement dollars under the Patient-Driven Payment Model (PDPM), set to take effect this fall, which has led many providers to reassess the kinds of residents they seek to attract.

All of those factors made NHI’s multi-million-dollar investment in Ignite a smart deal, according to senior vice president of investment Michelle Kelly.

“It feels like it should be a home run,” Kelly told SNN. “And I wouldn’t say that about a lot of skilled nursing, but this certainly checked off a lot of boxes.”

As of the third quarter of 2018, skilled nursing assets accounted for 29% of Murfreesboro, Tenn.-based REIT’s total portfolio, a proportion that Kelly said NHI plans to maintain going forward. But that doesn’t mean static investment in SNFs.

“We continue to look at skilled nursing investments … That’s not an area that we’re exiting,” she said. “We like the portfolio mix that we have, so to the extent that we grow our senior housing side of the business, then that allows us more flexibility to grow the skilled nursing side of the business.”

That’s a mentality that’s becoming more common in the REIT world, which until recently had generally viewed skilled nursing assets with great suspicion. Appearing on SNN’s podcast “Rethink,” Sabra Health Care REIT (Nasdaq: SBRA) CEO Rick Matros said his company’s contentious breakup with bankrupt operator Senior Care Centers brings the REIT more opportunities for future skilled nursing growth.

“Getting our skilled exposure back to where it was gives us the room to buy more skilled deals if that’s the right opportunity that we see,” Matros said.

For NHI, the strategy will include both acquisitions and new construction on a case-by-case basis. Ignite’s relationships with local health systems and previous acquisition of a certificate of need (CON) made the deal particularly attractive for the REIT, Kelly said — along with the operator’s focus on rehab ahead of PDPM.

“I don’t think you’re going to see of us do all kinds of new [skilled nursing] development. Ignite is a group that we want to grow with,” she said. “We’re not going to go do [new development] with everybody. And we’re not going to do a ton of this. It’ll still be very opportunistic.”

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