Despite the challenges facing the nursing home industry, National Health Investors Inc. (NYSE: NHI) executives said on Wednesday that the real estate investment trust is on track for stable growth backed by steady performance of its skilled nursing facilities and its portfolio optimization.
Still, the REIT’s Q4 2022 results point to ongoing challenges, including two tenants being placed on cash-basis accounting, negatively affecting anticipated rental revenues.
NHI missed analyst estimates for the fourth quarter of 2022 for earnings per share and revenue, but the REIT did achieve its full-year 2022 guidance for funds available for distribution (FAD). With regard to the Q4 performance, executives cited ongoing portfolio adjustments, which are now nearing completion.
“One time, irregular events impacted FFO in the fourth quarter,” John Spaid, NHI’s CFO, said during the company’s Q4 earnings call.
And while NHI plans to still make some dispositions and provide limited financial assistance to certain operators, the portfolio optimization is “largely complete,” CEO Eric Mendelsohn said.
“We are once again issuing full guidance this year with the view that there is less noise versus last year … we achieved our full year 2022 FAD guidance despite all the moving parts involved in our portfolio optimization in addition to industry headwinds, and capital market disruptions,” Mendelsohn said. “As we transition back to growth, we see several internal and external drivers.”
The entrance fee and skilled nursing businesses from which NHI generates over 60% of its net operating income (NOI), according to Mendelsohn, have been “steady performers throughout the pandemic.”
“We expect that to continue in 2023,” Mendelsohn added.
As part of the portfolio reorganization launched in 2021, the Murfreesboro, Tenn.-based REIT divested some underperforming properties, including 32 senior housing properties for $296 million, helped by a real estate environment favorable to selling.
On the skilled nursing front, NHI more recently “strategically” sold seven non-core buildings, formerly operated by National HealthCare Corporation (NHC) for $44 million “with minimal rent impact,” Mendelsohn noted.
“The benefits of our considerable efforts are evident through steady improvements in the need-driven senior housing coverage ratios, stronger collection rates and declining rent concessions,” he said.
NHI has 68 skilled nursing assets, along with 112 senior housing properties, one specialty hospital and its seniors housing operating portfolio, or SHOP, comprising 15 legacy Holiday independent living facilities.
NHI’s 2023 annual guidance includes considerations of continued rent concessions, asset dispositions and loan repayments throughout 2023, and does not include upside from the repayment of deferred rents. It remains an open question as to when rent deferrals will be repaid, particularly in light of the challenging operating environment, Stifel analysts noted.
“In our view, guidance reflects the challenging but slowly improving environment that most operators currently face due to general cost inflation and a tight labor market,” they wrote.
In terms of investments and dispositions, Q4 activity was mainly centered on private-pay senior housing, although NHI did fund a $42.5 million senior loan for a Texas SNF portfolio at a 7.25% interest rate.
The company plans to wait on acquisitions until the market conditions for buying real estate improve, although the REIT is seeing the number of “actionable deals” increase compared to recent years, CIO Kevin Pascoe said on the earnings call.
“We have learned valuable lessons which have improved our underwriting process and we are willing to be patient as the market shifts in favor of buyers,” Pascoe said. “Fortunately, we completed the majority of our dispositions prior to the recent downturn and have more resources focused on acquisitions again … We’re in great financial shape, and eager to deploy capital at a time when capital is increasingly scarce.”
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