NHI CEO: Senior Housing Buyers Playing ‘Musical Chairs’ for Deals

If the first three months are any indication, 2017 will be a busy year for senior housing deals.

In terms of deal flow, this year has started off with a “bang” and has been as competitive as a game of musical chairs, National Health Investors, Inc. (NYSE: NHI) President and CEO Eric Mendelsohn said during the company’s fourth-quarter 2016 earnings call on Friday.

The Murfreesboro, Tennessee-based real estate investment trust’s (REIT) fourth-quarter 2016 revenue of $65.03 million beat analysts’ expectations by $7.76 million, and the REIT’s fourth-quarter FFO of $1.27 beat analysts’ expectations by 1 cent.

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The level of transaction activity NHI has seen so far in 2017 bodes well for the rest of the year, Mendelsohn implied during the earnings call. 

“I can tell you the first quater is off to a bang,” he said. So far, NHI has reviewed “several large transactions,” as well as numerous smaller, more regional transactions. Competition for senior housing deals, it seems, has been fierce.

“It’s almost like you’re at the end of a a game of musical chairs and everyone wants to get a chair before the music stops, so we’re underwriting as fast as we can,” Mendelsohn said.

NHI is currently exploring both senior housing and skilled nursing acquisitions. It’s currently more difficult for skilled nursing deals to cross the finish line, however—especially because NHI is “picky.”

“There seems to be a lot of new money coming into the space that has bid up the value of [skilled nursing] assets that we consider just average,” he said. “We’re looking at stuff and we’re passing on it, and we’re scratching our heads as we see the announcements come in.”

Holiday’s ‘live-in managers’ move out

NHI on Friday also fielded analyst questions about its relationship with Lake Oswego, Oregon-based senior living provider Holiday Retirement, which recently had to scrap a long-standing leadership tradition.

In years past, Holiday employed “managers” who lived in every one of their senior housing communities. A 2016 overtime rule from the U.S. Department of Labor (DOL), which has since been halted, forced Holiday to change its ways. 

“With a live-in manager, it’s nearly impossible to be on a salary and have the profile that they had without going off the clock,” Mendelsohn said. “Their hand was, in essence, forced to comply with the DOL ruling.”

The majority of Holiday communities NHI owns have moved their managers off-site, and many of the communities have had success in re-leasing their former apartments to new residents, Mendelsohn said.

As of Dec. 31, 2016, NHI leased 25 independent living communities to an affiliate of Holiday, according to a company filing with the U.S. Securities and Exchange Commission (SEC). Approximately 18% of NHI’s total revenue was derived from Holiday in 2016. 

Written by Mary Kate Nelson

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