NHI ‘Excited’ for Skilled Nursing Amid Senior Housing Hiccups

In an interesting role reversal, executives at National Health Investors (NYSE: NHI) expressed optimism about skilled nursing investments while handling pointed questions about some distress on the senior housing side of its business.

CEO Eric Mendelsohn trumpeted his real estate investment trust’s (REIT) new partnerships with skilled nursing operators Ignite Medical Resorts and Wingate on NHI’s fourth-quarter earnings call Tuesday morning, praising their “interesting strategies around skilled nursing.”

The Murfreesboro, Tenn.-based NHI announced its partnership with affiliates of Ignite Medical Resorts and Villa Healthcare in mid-December, with the REIT backing the construction of a $25 million rehab facility located near Milwaukee. The 144-bed property, Ignite Medical Resort Oak Creek, will feature higher-end amenities and specialized services — including dialysis and stroke care, Ignite CEO Tim Fields told SNN at the time.

Those services form the core of the business model at the Niles, Ill.-based provider, which opened a Kansas City location last year and plans to christen four to five additional new buildings through 2020. And given the importance of attracting higher-acuity patients under the upcoming Patient-Driven Payment Model, NHI’s senior vice president of investment Michelle Kelly called the deal a “home run” for the REIT.

“I wouldn’t say that about a lot of skilled nursing, but this certainly checked off a lot of boxes,” she told SNN.

In an era where new skilled nursing development is frequently seen as a risk, NHI reemphasized its optimism about the deal Thursday.

“We are excited about owning new skilled nursing product, and also Ignite’s hospitality-focused operating strategy while taking on medically complex patients,” chief investment officer Kevin Pascoe said.

Pascoe also touted the company’s recent pickup of the Wingate at Silver Lake, a Kingston, Mass. senior living campus that counts 164 skilled nursing beds among assisted living and independent living options.

“We like Wingate’s campus approach to senior housing,” he said, pointing to the operator’s 25 years in the seniors housing and care business.

Those deals represented a contrast to troubles elsewhere in NHI’s portfolio, with Mendelsohn reporting ongoing troubles related to senior living properties operated by affiliates of East Lake Capital, memory care provider Autumn Leaves, and an unnamed operator in Wisconsin.

“We are in talks to forebear their defaults, which include failure to pay rent, but their continued ability to operate those communities is not certain,” Mendelsohn said of the five Autumn Leaves properties. “We’re giving them some time, during which they will either perform, or we will move on to Plan B.”

Still, Mendelsohn emphasized that the troubled assets represent only about 5% of the company’s overall portfolio, and the NHI team expressed further excitement over an approximately $180 million reinvestment at Life Care Services’ Sagewood development, a continuing care retirement community (CCRC) with 78 skilled nursing beds in the Phoenix-Scottsdale marketplace in Arizona.

“LCS and their entrance fee product continues to experience very robust demand,” Mendelsohn said.

NHI reported revenue of $74 million for the last three months of 2018, a gain of 4.1% from the previous year and $2 million more than analyst estimates. At year end, the REIT reported a total of 232 buildings across 33 states, with 76 skilled nursing facilities and 151 senior housing properties.

Mendelsohn hinted at growth in those numbers to come over the coming quarters.

“Our pipeline is as active as I’ve ever seen it, with some distressed product as well as stabilized,” he said.

But he also singled out some potentially troubling trends on the mergers-and-acquisitions side of the seniors housing and care marketplace, observing an increase in “broken deals” and the reappearance of certain properties on the marketplace six to 10 months after they were initially offered at “outrageous” prices that did not attract buyers.

“It sounds like 2007 to me,” Mendelsohn said. “I remember a lot of this stuff happening in 2007.”

NHI shares slid Thursday, falling $4.19 or 4.95% to close at $80.38.