Leaders with National Health Investors Inc. (NYSE: NHI) said the company’s skilled nursing assets continue to be resilient in the face of financial challenges, including the proposed 4.6% cut to the Patient-Driven Payment Model (PDPM).

While executives with the real estate investment trust (REIT) hope the Centers for Medicare & Medicaid Services (CMS) final rule is more favorable than its proposed rule, NHI doesn’t expect the overall health of its SNF partners to “materially change” if the cut remains in place, Kevin Pascoe, chief investment officer, said during the company’s earnings call on Tuesday.

Such confidence is due to the overall performance of its leading operators – The Ensign Group and National HealthCare Corporation (NHC).

The REIT’s SNF portfolio represented 35% of its annualized cash revenue net of deferrals during the first financial quarter of 2022; Ensign and NHC make up 75% of its SNF portfolio.

Its five other SNF operators, including Prestige Healthcare, have received minimal rent concessions since the pandemic began, Pascoe said.

Murfreesboro, Tenn.-based NHI did not provide any rental assistance to its SNF operators in April.

Out of 213 properties, Murfreesboro, Tenn.-based NHI has 75 skilled nursing facilities, 137 senior housing assets and one hospital in its portfolio.

CEO Eric Mendelsohn said NHI’s operator partners continue to deal with operational challenges, but the REIT feels it’s in a better position now to foresee and meet such challenges.

“We’ve largely completed portfolio optimization and reached an inflection point, which has greatly improved our visibility,” added Mendelsohn.

Because of that greater visibility, NHI issued annual guidance in April.

The guidance is a net positive and indicator that the environment likely won’t get materially worse, barring a complication such as another Covid variant , Stifel analysts said in a note.

And the analysts were heartened by the guidance and less concerned about NHI missing earnings estimates.

For Q1, normalized FFO per diluted common share was $1.10, a drop compared to $1.23 during the first quarter of 2021 and shy of the $1.12 consensus expectation.

Normalized funds available for distribution (FAD) was $52.7 million, NHI said in its earnings report, compared to $59.6 million during Q1 2021.

NHI noted increased legal fees of $1.7 million as a factor in the company’s Q1 shortfall. The company has been involved in litigation with another REIT, Welltower (NYSE: WELL), over independent living properties. The two companies came to an agreement in March 2022.

Investments and good positioning

In Q1 of 2022, NHI collected 79.7% of contractual cash rent, including $9.8 million in rent concessions – $5.5 million of which went toward Bickford Senior Living.

NHI leaders gave a brief update during its earnings call on Bickford.

One Bickford assisted living property in Pennsylvania was transferred to a new operator, NHI said in its earnings statement, and the REIT continues to negotiate with Bickford to repay $26 million in deferrals.

Although it’s not agreed upon yet, Bickford may pay monthly repayments of $3 million per year, and $6 million may be removed from the balance based on performance targets.

“We’re grateful to be turning the page on this chapter of our history as we look to take advantage of our strong financial position to reignite our growth rate,” said Mendelsohn.

Collections improved in April to 94.1% of contractual rent, but NHI still granted $1.3 million in deferrals to three operators.

Stifel analysts expect earnings growth next year or in 2024, once NHI has recouped rent deferrals and capital from asset sales, and repaid loans are redeployed.

Pascoe said the REIT continues to be opportunistic as its investment pipeline backs up with potential deals.

He expects the majority of NHI’s initiatives to be completed by the first half of 2022.

“We’re starting to see an improvement of the pipeline, including shorter term financing deals and to a lesser extent, longer term triple net lease deals as we’d still characterize the current environment as a seller’s market,” said Pascoe.