Invesque (TSE: IVQ.U) continues its shift toward private-pay assets, a move that brings the health care real estate investment trust a more robust seniors housing portfolio – while its skilled nursing assets dwindle.
Dispositions announced during the last three financial quarters have brought pro forma net operating income (NOI) for seniors housing to 60%. Just five years ago skilled nursing represented more than 75% of the REIT’s NOI, according to Adlai Chester, chief investment officer for Invesque.
“I expect the seniors housing number will continue to increase in the coming months as we deliver on our strategy,” Chester said during the company’s Q1 earnings call on Thursday.
CEO Scott White said leaders plan to explore property sales for the remainder of 2022, while noting they are “not in a rush” to sell properties at discounted pricing.
“Our strategy is to sell non-core assets when we believe there’s an opportunity to maximize value for our shareholders and strengthen our balance sheet,” added White.
White’s comments follow a record year of dispositions in 2021, selling more than $210 million in assets – with more than $100 million coming in the fourth financial quarter.
The last tranche of dispositions were “substantially” skilled nursing, White told Senior Housing News during a recent appearance on SHN+ TALKS, but that doesn’t mean he views the sector as riskier.
“We are selectively eliminating some assets there that are non-performing or non-core to what we’re trying to do. We’ve also changed some operators, but longer-term, I just don’t see us in skilled and maybe not even in medical office building,” White said.
Invesque reported revenue of $52,050 for the first financial quarter compared to $53,671 during Q1 2021. Adjusted funds from operations (AFFO) was 6 cents for Q1 2022, a 4 cent drop from 10 cents in Q1 2021.
The Carmel, Ind.-based company has about $1.3 million in total assets, $916,810 in debt and 96 properties, 20 of which are skilled nursing.
Investments and divestitures
Invesque executives plan to continue creating efficiencies via debt capital stack streamlining, Invesque CFO Scott Higgs said during the call.
“Thus far in 2022 there has been a greater emphasis on investors restructuring relationships with triple-net tenants in seniors housing and skilled nursing,” Chester said.
Subsequent to quarter end, Invesque refinanced a SNF operated by the Providence Group in order to streamline capital stack while providing nearly $1.2 million in annual debt service savings, Chester said. That’s compared to previous structures in place.
Chester sees the restructuring trend continuing as the industry grapples with headwinds.
The only SNF transaction in Q1 was the $52 million sale of four Texas facilities, 339 beds in total, previously managed by Bridgemoor Transitional Care. That translates to approximately $152,000 per bed, Chester said; SNF bed prices in Texas tend to be lower than other markets due to the lack of certificate of need (CON), he added.
Price per bed was comparable to Invesque’s Ensign sales in Q4 at $160,000, Chester said.
“[We] achieved very attractive pricing in part because we own some of the newest real estate in the industry,” he added.
With the sale, Invesque exited its relationship with Bridgemoor.
“The Bridgemoor portfolio has been challenging for us during the course of the pandemic as their operations were frequently interrupted by COVID-19 outbreaks,” said Chester. “Bridgemoor, like other operators, is not eligible for certain tranches of CARES Act funding because operators needed to establish years of revenue and expense data to qualify.”
As a relatively new chain, most of Bridgemoor’s facilities were less than 24 months into operation prior to the pandemic, Chester said.
The Bridgemoor portfolio was owned in a joint venture; Invesque held about 66% ownership interest, the company said in its earnings statement.
Other sales during the quarter included an assisted living and memory care community in Pennsylvania for $5.5 million, a memory care community in South Carolina for $3.5 million and two seniors housing communities in New York for $19.2 million.
Covid impacts wane
Direct financial and operational impacts from Covid are waning, Chester and White said, but lingering indirect effects will continue for months, if not years.
The most important effect is on staff wages and salaries, he said, while other input costs like food, energy and building supplies are all experiencing inflationary pressures.
“These factors combine to create a difficult environment to control costs,” Chester continued, adding that building back revenue has been challenging for Invesque. “Operating costs primarily related to staffing, food and insurance have also increased substantially over the last two years, offsetting all or most of incremental revenue. We expect margins to continue to be compressed for the foreseeable future.”
Still, the REIT has been “very encouraged” by growth and rate increases observed with Commonwealth Senior Living, among its other seniors housing portfolios.
“I remain optimistic that the pandemic is mostly in the rearview mirror, and now our operators can refocus their efforts on growing incentives and improving overall financial performance,” White said.
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