A prominent health care REIT and a major post-acute operator have entered into a significant 18-facility leasing agreement in Texas.
Real estate investment trust (REIT) National Health Investors, Inc. (NYSE: NHI) has purchased eight skilled nursing facilities (SNFs) for $118.5 million and partnered with The Ensign Group, Inc. (NASDAQ: ENSG), a leading provider across the health care spectrum, as its new tenant for 18 total Texas facilities in a new lease agreement. This is the first lease agreement NHI has penned with Ensign Group.
The move expands NHI’s exposure within the skilled nursing space.
“We’re always trying to find the Goldilocks mix,” NHI CEO Eric Mendelsohn told Senior Housing News of its strategy of keeping a private pay and skilled nursing balance within its portfolio. “We used to have 50% skilled nursing, and now we are down to 30% or so. This will put us closer to 35%. We’re still majority private pay.”
Ensign will take over the operations of 18 SNFs in total that are currently owned or leased by affiliates of Legend Healthcare, NHI’s current tenant, according to a press release. Legend has elected to transition all of its current operations in these facilities to Ensign.
“We’re very cognizant that skilled nursing has a large government pay component to it, and we want to be sure that whoever we are partnering with is a good operator,” Mendelsohn told SHN. “Both Legend and Ensign fit that bill. Ensign is a publicly-traded company, so analysts and investors take comfort in being able to see what’s going on with them.”
Mendelsohn, who previously worked with Ensign during his time at Emeritus, also noted the REIT feels comfortable expanding its SNF presence with the operator.
NHI and Ensign will enter a 15-year master-lease on 15 facilities that were formerly operated by Legend Healthcare at the closing of the deal. As part of the deal, NHI has also agreed to purchase four SNFs in Texas to be leased to Ensign for $56 million from Legend Healthcare.
NHI’s net investment in these 15 facilities is approximately $211 million, according to a press release.
Ensign will acquire the real estate of two facilities from NHI in addition to the operations from Legend for the purchase price of $24.6 million. Ensign will also add another operation to the master lease with NHI following the completion of a short-term lease with Legend Healthcare.
The entire acquisition of operations for Ensign amounts to 18 SNFs. The acquisition date is expected to be May 1, 2016, subject to the completion of regulatory approval and closing conditions.
“We have long admired Legend Healthcare, and we are honored to be continuing and advancing the exceptional work that they have been doing across the state of Texas, which is also where Ensign acquired its first skilled nursing operations in 1999,” Christopher Christensen, Ensign’s president and CEO, said in a statement. “The combined strength and cultural similarities of our two organizations, as well as the geographic locations of Legend’s operations, make this the perfect portfolio for a strategic transition of this size.”
The lease with NHI includes an initial annual rent amount of $17.75 million with an annual inflation-based escalator and two 5-year renewal options. The majority of the facilities in the Ensign’s new operating portfolio are newer, with 11 opening in the last eight years.
Ensign is acquiring the real estate assets and operations with cash, and all facilities will be operated by Ensign’s Texas subsidiaries.
While NHI is taking a bigger jab at skilled nursing, the REIT is still focused on senior housing assets, despite being faced with a pricier market for those properties.
“We’re very opportunistic,” Mendelsohn said. “This was a good deal that we were able to help with. We’re still looking at senior housing. The market is pretty pricey for the most part, but there are still some opportunities.”
Written by Amy Baxter