Executives for National Healthcare Investors (NYSE: NHI) shared optimism about the financial performance of its skilled nursing holdings and plans to expand that part of the portfolio. However, they deemed the nursing home assets too expensive at the moment, with few opportunities at reasonable pricing that meet the real estate investment trust’s (REIT) underwriting criteria.

And while the company is monitoring potential impacts from proposed budget cuts to Medicaid, political developments so far have not caused a cooling of the overall market demand or pricing for skilled nursing facilities.

Overall, NHI remains interested in growing its skilled nursing exposure, but is taking a disciplined approach, Chief Investment Officer Kevin Pascoe during NHI’s fourth quarter earnings call.

“We’re absolutely looking [for SNF deals]. It’s just a matter of getting an opportunity at the right price with the right operator. We have very good skilled nursing operators now and we would love to do more with them,” he said.

The market for skilled nursing facilities has been “pretty frothy” from a pricing perspective, he said, and so the company has been selective in evaluating potential acquisitions.

“We’ve been pretty rigorous around our underwriting criteria in terms of our expectations of credit and coverage. So, we haven’t seen anything lately that we were ready to act on, but we continue to look.”

NHI is wanting to increase its investment in SNFs of “reasonable” size. Skilled nursing comprises 30% of NHI’s assets, a much smaller component of its business since its origins in 1991 when its entire investment exposure consisted of skilled nursing facilities (SNFs).

“Right now, we haven’t seen those opportunities, but we would absolutely take a look,” he said.

NHI maintains a long-term game plan to keep or increase its skilled nursing holdings, something Pascoe mentioned to Skilled Nursing News last quarter as well.

NHI’s current portfolio is made up of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals.

As for the financial performance of the existing skilled nursing portfolio, Pascoe said it remains solid.

“Our entrance fee and skilled nursing portfolios continue to show great performance,” Pascoe said. “The SNF portfolio reported solid [rent] coverage of 3.05 times, which improved sequentially from 3.04 times.”

NHI’s SNF coverage is largely driven by National Healthcare Corporation (NHC) and is calculated using a fixed charge coverage at the corporate level, as opposed to a facility level EBITDARM, Pascoe said. NHC operates the properties and is one of NHI’s largest tenants.

During the fourth quarter of 2024, NHI exceeded earnings per share expectations with $0.95 compared to the forecasted $0.75. Quarterly revenue came in at $65.78 million, down 5.2%, and below a forecasted $69.37 million

At midday Wednesday, NHI shares traded at $69.74, down $1.55, or 2.17%.

Impact on SNFs from proposed Medicaid cuts

Dealmaking for SNF assets hasn’t yet factored in the proposed Medicaid cuts, with prices still high for such assets, Pascoe said. However, all that may change.

“It’s something we’re watching, but it’s too soon to tell,” Pasoe said. “[Medicaid cuts] may affect those programs. That said, from what I’ve seen so far, it’s not explicitly outlined in the bill. So we’ll be working with our operators and make sure we understand.”

Nevertheless, the talk from operators and sources in Washington points to a strong market for SNFs, he said.

“Anecdotally, though, what we’ve heard from our other sources is that it has not cooled the market in terms of skilled nursing and buyers’ interest or pricing, so we’ll see where that goes. But to date, it still remains a pretty robust market,” Pascoe said.