First-quarter results related to core real estate investments were above expectations, “driven by strong collections, no unscheduled rent concessions, deferral repayments and new investments,” National Health Investors President and CEO Eric Mendelsohn stated in a press release issued in conjunction with the Murfreesboro, TN-based real estate investment trust’s earnings call on Wednesday.
“One area of disappointment for the quarter was the performance of [the senior housing portfolio], which is 3% of our [net operating income] but a clear strategic focus for the company,” Mendelsohn said on the earnings call.
“Our longer term view on the upside potential of that portfolio has not changed, though the timeline is taking longer. We are working closely with our experienced partners Merrill Gardens and Discovery and expect better results,” he added.
Chief Financial Officer John Spaid said the REIT closed $54.8 million in investments in the first quarter, at an average initial first year yield of 7.7%.
“After reinvesting both retired mortgage investment capital and the $2.5 million, and Bickford rent deferral, additional new capital deployed in the first quarter was approximately $38 million for these investments,” he said.
The company’s previously announced portfolio optimization resulted in the sale of five communities in the first quarter, and “we continue to experience improved lease coverage metrics, particularly in our needs-driven senior housing portfolio,” Mendelsohn said.
During the quarter—specifically, in February—NHI acquired two memory care communities in Nevada and Maryland operated by Silverado Senior Living for approximately $37.5 million. Also in February, the REIT also acquired a Chesapeake, VA, assisted living and memory care community from Bickford Senior Living for approximately $17.3 million. The purchase price also included a $2.5 million reduction in Bickford’s outstanding pandemic-related deferrals.
Senior housing operating portfolio activities contributed net operating income of approximately $1.9 million, representing revenues from resident fees and related services of $11.7 million minus $9.8 million in operating expenses.
Mendelsohn said that the company remains optimistic regarding the recovery of the senior living sector. To that end, the REIT revised its guidance for the full year, “which reflects the excellent first-quarter results, tempered somewhat by industry pressures impacting a limited number of tenants and the SHOP operation,” he said.
Chief Investment Officer Kevin Pascoe noted that NHI received $200,000 of deferral payments from Bickford in the first quarter and already has received more than 300,000 in the second quarter.
“Our Bickford portfolio experienced a slight uptick in March occupancy, and they’re starting to see some momentum built in the sales pipeline lead conversions and move in,” Pascoe said.
“And we’re able to utilize $2.5 million of the Bickford deferral balance in lieu of cash to create incremental value on a newly constructed community in Chesapeake, VA,” Mendelsohn added.
NHI is revising its 2023 annual guidance range for normalized funds from operations per share to $4.37 to $4.42, from a range of $4.24 to $4.30, and is revising guidance for normalized funds available for distribution to a range of $186.3 million to $188.9 million, from a range of $185.3 million to $187.9 million.
“Aside from Bickford, coverage is increasing across our other [revenue per occupied room] need-driven properties. We reported coverage at one time, which is a gain of 23% year over year and the fifth straight quarter of sequential improvement,” Pasco said. “While the improvement is encouraging, one-times coverage still implies that these operators are struggling. We are incorporating some level of unidentified rent concessions into the guide, which is based on the ongoing conversations we’re having with a small number of need-driven tenants, in addition to tenants already on cash-basis accounting.”
Since the second quarter began, NHI has sold three Oregon assisted living communities in two transactions for approximately $5.7 million in cash consideration, net of transaction costs and $0.6 million of seller financing on one of the transactions.
