New Senior Investment Group’s (NYSE: SNR) share price isn’t where executives believe it should be.
Accordingly, the New York City-based real estate investment trust (REIT) is in the process of right-sizing its portfolio, which should help “bridge that gap,” CEO Susan Givens indicated during the company’s third-quarter 2017 earnings call on Friday.
“Of course, part of the reason we’re spending so much time really trying to right-size our portfolio…is because we do believe the stock is trading at a discount to NAV [net asset value],” Givens said.
New Senior’s third-quarter 2017 revenue of $112.96 million beat analysts’ expectations by approximately $760,000.
The REIT experienced occupancy pressure in its independent living portfolio related to the new operating model implemented by Holiday Retirement. The move to eliminate live-in managers at Holiday properties was first introduced in May 2016, and it has been cutting into results for the past few quarters. That change impacted more than 90% of New Senior’s independent living portfolio, Managing Director David Smith said during the earnings call.
The company’s assisted living portfolio didn’t escape unscathed, either.
“For our managed portfolio, same-store cash NOI was down 6.6% year-over-year, primarily on account of weakness across our AL portfolio,” Givens said.
$296 million in asset sales
The company announced $296 million of asset sales under contract in October. The total includes the $109.5 million sale of nine managed assisted living and memory care properties, which closed on Nov. 1, and the $186 million sale of six triple-net leased properties, which is scheduled to close in the last quarter of this year.
Some of these assisted living and memory care properties have “dragged down” New Senior’s portfolio, Givens said.
“We chose those assets [to sell] because we think using the proceeds we can generate from the asset sales and reinvesting it in other things, we can be much more accretive to our overall portfolio than what these assets themselves can generate today,” she added.
Plus, without the properties, the company has an ever higher concentration of independent living assets.
“The sales will increase our IL exposure from 73% to 81%,” Givens said, adding that the sales will also improve the company’s geographic diversification by reducing its NOI concentration in its top three states—Florida, Texas and California—to 32% from 39%.
Ultimately, by becoming more independent living-focused, New Senior is setting itself up for long-term success, according to Bhairav Patel, the company’s interim CFO, treasurer and chief accounting officer. After all, approximately 90% of expected new openings will be assisted living properties.
“Our portfolio… is now over 80% independent living,” Patel said. “We feel good about that.”
New Senior anticipates that its recent sales will generate about $110 million in net proceeds and will give the company “significant dry powder for new investments and other initiatives,” Givens said.
“We’re actively evaluating new opportunities for the redeployment of the proceeds, which could include new investments, paying down debt and/or buying back stock,” she added.
As of market close on Friday, New Senior’s stock price had fallen 7.62% to $8.17.
Written by Mary Kate Nelson