NHI: ‘You’ll See Us Make Investments in the Skilled Space’ — If Price Is Right

National Health Investors (NYSE: NHI) touted the strong coverage of its skilled nursing portfolio and the potential positives of the new Medicare reimbursement system for SNFs in its most recent earnings call with investors — but the real estate investment trust (REIT) won’t be diving headlong into the space as a result.

“I think we are still actively looking at skilled nursing, [but] I don’t think yet we’re saying we’re going to do more just because of that,” NHI chief investment officer Kevin Pascoe said Wednesday on the company’s fourth-quarter 2019 earnings call. “But I do think you’ll see us make investments in the skilled space. We’re just going to remain selective on what we go after.”

NHI reported that its skilled nursing coverage came in at 2.73 times for the third quarter of 2019 — an improvement from 2.55 times last year, though it does represent a decline from 2.8 times in the second quarter, Pascoe said.


This was mainly because of its operating partner National HealthCare Corporation (NYSE American: NHC), since non-NHC SNF coverage rose from 1.87 times in the second quarter to 1.92 times in the most third quarter, he added.

Even with that, NHC is still on solid ground, with coverage at 3.69 times in the third quarter, according to Pascoe.

“Our ample SNF coverage is a testament to the hard work of our best-in-class operators,” he said. “And while the senior housing industry continues to be challenged by supply and labor issues, we have not seen a meaningful shift in operating trends, and feel our operators are doing a good job in their respective markets.”


NHC is one of NHI’s operating partners with a presence in both senior housing and skilled nursing; the REIT’s other SNF partners include The Ensign Group (Nasdaq: ENSG) and Health Services Management.

NHI also backed the development of a 144-bed skilled nursing facility near Milwaukee, laying out a $25.35 million commitment with a 9.5% initial yield in 2018. That facility is expected to open in the second quarter, with rent commencing then, Pascoe noted.

With the new Patient-Driven Payment Model in place for a few months now, president and CEO Eric Mendelsohn was optimistic about NHI’s coverage in its skilled portfolio.

“Our skilled nursing portfolio continues to show very strong coverage, and we expect that the new PDPM reimbursement system will moderately improve on that coverage,” he said on the call.

When it comes to new skilled deals, Pascoe stressed on the call that NHI “would definitely evaluate” good operators with a solid plan for capital investment.

“The things that have held us up before were really more where the market was pricing lease coverage on those types of assets,” he said, when asked about what would lead NHI to invest in skilled nursing. “It wasn’t interesting at those levels, but I feel like we’re starting more deal flow at levels where we would be interested, so stay tuned there.”

Other possible areas of interest include behavioral health, Pascoe said, which is a similar area of focus for fellow REIT Sabra Health Care REIT (Nasdaq: SBRA).

NHI reported net income of 95 cents per share for the quarter ending December 31, 2019, an increase of 9.2% from the previous quarter, and net income of $3.67 per share for the year, which was unchanged from 2018.

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