National Health Investors (NYSE: NHI) posted a bumpy second quarter pressured by rent collection, but executives said the company continues to eye deals with expectations to announce new investments in 2023 as economic conditions are beginning to favor a “buyer’s market.”
“[Tenants] are struggling in this post pandemic era, which introduces variability to our quarterly results. Our long term outlook has not changed as fundamentals improve,” said NHI CEO Eric Mendelsohn during the company’s second quarter earnings call. Also, NHI’s continuing care retirement communities CCRC and skilled nursing platforms “remain pillars of stability” since the end of the first quarter, Mendelsohn added.
During the quarter, the real estate investment trust (REIT) completed the sale of seven properties, including one property for $23.7 million that was not previously held for sale and was sold for a substantial gain, executives said. Moreover, NHI completed the sale of four senior housing and skilled nursing properties for net proceeds of $392 million.
More investment activity is likely on the horizon for NHI.
“[With] coverage and acquisition environment that seems to be moving towards a buyer’s market, the pipeline is starting to reflect the changes in our cost of capital. We have multiple [letters of intent] in the process, so we are confident we’ll announce new investment activity before the end of the year,” said NHI’s chief investment officer, Kevin Pascoe.
SNFs poised to handle potential staffing mandate
The Murfreesboro, Tenn.-based REIT’s skilled nursing assets are poised to do well, and are capable of taking on challenges posed by regulatory changes, Pascoe said.
“[W]e’ve been happy with the performance of all the operators, which gives us confidence in their ability to adapt to any new rule change, including a potential staffing mandate,” said Pascoe.
Total occupancy fir NHI improved year over year by 280 basis points to 81.7%. – something not reflected in the current earnings, according to Pascoe. Meanwhile, skilled nursing occupancy improved by 300 basis points year over year to 79%, he said.
NHI’s skilled nursing assets, which make up 37% of annualized adjusted net operating income (NOI), continued to have “solid” EBITARM coverage at 2.48 times, which is unchanged sequentially, Pascoe said.
Since the start of the pandemic, NHI has provided rent deferral to only one SNF operator in late 2021 and early 2022. This operator started repaying the balance in the second half of 2022, Pascoe said. And thus far, NHI has paid more than 50% of the deferral amount.
Moreover, NHI’s concentration of properties with publicly traded operators National Healthcare Corporation (NYSE: NHC) and the Ensign Group (Nasdaq: ENSG), “obviously” anchored the SNF portfolio in the second quarter, said Pascoe.
NHI reported normalized funds from operations (FFO) of $1.06 per share, missing analyst estimates of $1.08 per share. NHI posted lower-than-expected rental revenues and a $1.9 million sequential decline in cash rent from two senior housing operators.
The company’s funds available for distribution (FAD) stood at $44.6 million in the second quarter, declining by $3.2 million compared to the first quarter of 2023.
Investment analysts at Stifel expect a choppy recovery amid a challenging labor environment going forward.
“[G]iven all the moving parts, we expect the pathway over the next year or so to be volatile,” Stifel analysts noted, citing rent deferrals, abatements and repayments, and uncertainty with predicting the timing of such adjustments.
Companies featured in this article:
Ensign Group, National Health Investors, National Healthcare Corporation
