With third-quarter results ahead of expectations, National Health Investors President and CEO Eric Mendelsohn said Wednesday during an earnings call that the company’s long-term optimism for the industry remains unchanged, despite labor and inflationary headwinds.
NHI announced portfolio optimization plans last year, and Mendelsohn said the real estate investment trust continues to make progress on those plans, showing strong third-quarter results as collection rates improved and tenant deferrals declined to $1.4 million compared with $3.9 million in the second quarter.
“We remain optimistic that outstanding deferral balances, rent restructuring and tenant transitions should all contribute to better internal growth over the next few years as deferral balances are repaid and restructured and transitioned leases move back toward market rates later next year and into 2024,” Mendelsohn said. “We are focused on concluding optimization efforts and returning to growth.”
Several dispositions completed
In the third quarter, the Murfreesboro, TN-based REIT completed the disposition of two senior housing properties and seven skilled nursing facilities. Since the second quarter of 2021, the company has sold 32 underperforming senior housing properties for $296.4 million and transitioned six properties to new and existing operators.
Mendelsohn said that NHI has 10 senior housing properties held for sale and is considering the sale of other underperforming senior housing properties worth $50 million to $60 million. Increasing interest rates and industry stress, he said, may lead to further sales, deferrals, rent restructurings or tenant transitions in the fourth quarter.
“While our quarterly results beat our expectations, the operating environment continues to be challenging, particularly with elevated labor, as we head into the seasonally slower winter months,” Mendelsohn said. “We expect to continue using deferrals, rent restructuring and asset dispositions in the fourth quarter to assist our operators and better reposition our total portfolio, but this may pressure our near-term financial results.”
Bickford making slow comeback
Since the first quarter of 2021, NHI has completed the sale of nine Bickford Senior Living communities, which the company said improved occupancy and margins in the portfolio. Since quarterly occupancy bottomed in the first quarter of 2021, Bickford has recovered 780 basis points of occupancy through the third quarter to end at 84.2%.
This senior living portfolio is the focus of the REIT’s optimization efforts that will continue into 2023, Chief Investment Officer Kevin Pascoe said. While Bickford copes with current industry operating challenges, he added, NHI is working to better position the lease portfolio through strategic sale and rent restructuring, including the sale of additional Bickford properties.
Portfolio continues recovery
NHI’s entrance-fee senior housing portfolio continues to perform well, as it has throughout the pandemic, Pascoe said. Senior Living Communities, the largest tenant, saw occupancy improve 100 basis points in the third quarter to 83.3%, 280 basis points higher than pre-pandemic levels.
Occupancy in NHI’s senior housing operating portfolio improved to 76.9% from 76.5% in the second quarter. Third-quarter results in the portfolio, Pascoe said, were slightly below expectations because operating expenses were affected by inflationary pressures, with operators using price as a tool to increase census.
Investment pipeline ‘dislocated’
The acquisition market remains “dislocated,” though pipeline discussions have been more actionable, Mendelsohn said, adding that he expects to announce investment activity before the end of the year.
