Invesque Inc. (TSE: IVQ.U) during its third quarter earnings call highlighted a continued shift to a majority private pay, seniors housing portfolio from when the company first announced its IPO five years ago, diminishing its skilled nursing assets in the process.
When the Carmel, Ind.-based company went public in June 2016, skilled nursing made up 75% of its entire portfolio, Invesque Chief Investment Officer Adlai Chester said. As of its third quarter ending Sept. 30, its SNF assets are just over 35% of Invesque’s pro forma net operating income (NOI).
Nearly 60% of its pro forma NOI comes from seniors housing, Chester added.
“Shifting to a majority private pay portfolio has been a long-term goal for our team, and I’m proud of where we stand today,” Chester said during the call. “We have strengthened our credit profile instability of cash flows with 12 years of average lease duration and the triple net lease portfolio today.”
Funds from operations (FFO) for the third quarter fell to $5,643, or 10 cents per common share compared to $13,728, or 25 cents per share during the third quarter last year. Invesque experienced a net loss for the third quarter of -$5,082 while revenue was reported at $52,949, whereas during third quarter 2020, Invesque reported a net loss of -$60,749 and revenue of $55,429.
Invesque has 112 properties in its portfolio, 28 of which are skilled nursing properties.
While discussing labor challenges, particularly wage inflation, Invesque CEO and Chairman Scott White said he expects the industry to be grappling with shortages for “some time.”
“Some people have gone on record saying they expect 2023 to be the year that will return to pre-COVID levels,” added White. “I don’t want to go on the record as reflecting on a certain time. I think what I will say is that it’s not going to be quick, it’s not going to be this year and it’s not going to be early in the new year.”
Brian Hickman, senior vice president of investments for Invesque, added that asset classes like private pay and seniors housing have “basically zero” unionized staffing compared to its skilled nursing assets, suggesting union involvement will impact year-over-year expenses as labor costs continue to affect the bottom line.
“We do see some union exposure within our Symphony portfolio, but the proportion of unionized staff is plus or minus 50% at most,” said Hickman. “We do have better line of sight to what the year-over-year expenses are going to be, in connection with those union negotiations, but again, that does not impact our [seniors housing operating portfolio, SHOP], which is where we have the direct NOI exposure.”
The company during its second quarter earnings call updated shareholders on its final series of divestitures with skilled nursing operator Symphony Care Network (SymCare), with Chester remarking on cap rates “well below historic norms” with per unit prices around $200,000.
Invesque transitioned four SNFs in May to Cascade Capital Group, and sold four more this year.
Third quarter transactions were primarily within seniors housing — Invesque said the sale of five non-core seniors housing communities in Pennsylvania for $2.7 million, previously operated by Saber Healthcare Group, did not affect two remaining skilled nursing facilities owned by Invesque and operated by Saber.
The SNFs are subject to a revised triple-net master lease, adjusted for the sale of the five communities.
“As part of the sale, Invesque reduced the rent by approximately $215,000 annually to account for the five sold assets,” said White. “Saber continues to operate two skilled nursing facilities, which are subject to a triple net master lease with enhanced coverage, thus strengthening our portfolio and relationship with Saber for the long term. We look forward to continuing to partner with them on this portfolio.”
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