National Health Investors’ (NYSE: NHI) skilled nursing assets are outperforming assisted and independent living properties at this stage of the pandemic. Memory care is also on the company’s list of underperforming assets.
These three types of properties experienced more significant occupancy and margin pressure, driven by staffing shortages and in turn increased hourly rates and “unprecedented” agency costs, CEO Eric Mendelsohn said during the company’s second quarter earnings call on Tuesday. NHI is a Murfreesboro, Tenn.-based real estate investment trust (REIT) with assets that span much of the care continuum.
COVID-19 headwinds have buffeted NHI since the outbreak began last year.
“Government support for the industry has been critical, and we received positive news recently on a 1.2% Medicare rate update as well as the delay in the 5% cut related to [the Patient-Driven Payment Model, PDPM],” said Kevin Pascoe, chief investment officer for NHI. “However, occupancy remains well below pre-pandemic levels, which is exasperated by severe labor shortages. We’re hopeful that more support from the Provider Relief Fund [PRF] is forthcoming.”
By contrast, NHI’s SNF properties are “anchored by two strong tenants,” the Ensign Group (NASDAQ: ENSG) and the National Healthcare Corporation (NYSE: NHC), who contributed 9% and 14% of annualized cash revenue, respectively, according to Pascoe.
Pascoe said NHI will operate conservatively — as if additional government funds are not coming — while answering a question about the future of such funds.
“We haven’t seen anything else get concretely announced,” added Pascoe. “We’re going down these paths of optimizing the portfolio through sales or potential restructures, or doing things where we’re finally at a place where we’re seeing a little bit of recovery and can start to look at some longer term decisions that get our operators back to stabilization.”
Notable sales and restructures across all portfolios include an intent to sell nine Holiday Retirement properties for an expected $129.8 million in cash as of July, and six Bickford Senior Living facilities sold during the second quarter for $52.9 million. NHI also entered into a $50 million mezzanine loan and security agreement with Montecito Medical Real Estate and acquired Vizion Health-Brookhaven, a 64-bed behavioral hospital in Oklahoma for $40.3 million during the quarter.
Mendelsohn said NHI has been trying to bolster its skilled nursing segment for years, and lately the rest of the market also has been looking to SNFs as the industry has received significant government support during the pandemic.
“Instead of assessing this stroke-of-the-pen risk, as it’s called, where a regulation changes and skilled nursing suffers, [the market has] seen the opposite,” said Mendelsohn. “They’ve seen subsidies that have helped socialize the risk that skilled nursing encountered during the pandemic, and as a result, the value of skilled nursing properties has increased and made our mission harder in terms of finding properties that fit our underwriting.”
Potential NHI transactions with Trilogy Health Services are expected to bring in more SNF business, along with strengthening existing relationships with Ensign and NHC.
“We’d be willing to adjust our lease rates and pay a lower half rate because of the better credit or better operating metrics,” noted Mendelsohn. “Otherwise … the market seems to be shifting and making it harder to do a deal that makes sense.”
Across all properties, NHI’s second financial quarter ending June 30 saw $9.9 million in rent deferrals, partially offset by 6.5 million in gains on real estate sales, NHI CFO John Spaid said during the earnings call.
NHI reported net income attributable to common shareholders of $39.2 million, or 85 cents per share, compared with $44.4 million or 99 cents per share reported for the second quarter last year. Revenue was $74.3 million for the quarter, compared with revenue of $84.2 million during the company’s second quarter for 2020.
Skilled nursing, entrance fees and hospital segments make up close to 60% of the company’s annualized cash revenue, Mendelsohn said.
Companies featured in this article:
Bickford Senior Living, BMO Capital Markets, Ensign Group, Holiday Retirement, Montecito Medical Real Estate, National Health Investors, National Healthcare Corporation, NHI, Trilogy Health Services, Vizion Health-Brookhaven
