NHI Optimistic as Troubled Tenants Find Footing

National Health Investors (NYSE: NHI) is entering the new year with renewed optimism as two of its previously troubled tenants appear to have righted the ship, executives said during an earnings call Friday.

The Murfreesboro, Tennessee-based real estate investment trust (REIT) reported its normalized funds from operations (FFO) per diluted common share as $1.35 for the fourth quarter of 2017, which represented a 6.3% increase over the prior year’s total and beat analysts’ expectations by 2 cents. For the year, NHI reported an 8.6% and an 8.2% increase per share in normalized FFO and normalized AFFO, respectively.

NHI also saw a fourth-quarter net income of roughly $37.8 million, a decrease of 12.6% over its fourth-quarter 2016 total of about $41.1 million. For 2017 as a whole, NHI logged a net income of $159.3 million, a 5.16% increase over 2016’s net income of $151.5 million.

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NHI is one of the largest private-pay senior housing owners in the nation with a portfolio of 142 senior housing properties throughout the U.S. The company also has 73 skilled nursing properties, three hospitals and two medical office buildings. In 2017, the company invested $214 million into its 32-operator portfolio.

Portfolio performance

Last year, NHI had to stage interventions with a few under-performing operators, including a yet-to-be-named senior living portfolio in technical default that accounted for less than 4% of NHI’s rental income. NHI President and CEO Eric Mendelsohn characterized the portfolio’s problems as stemming from a “management issue” at a small number of communities last November.

The REIT sent a letter of forbearance to the tenant last October due to the noncompliance issues related to lease coverage and being in arrears to some vendors. NHI also vowed to work through the portfolio’s issues—a move that seems to have borne fruit.

“I’m pleased to say that things are trending in the right direction. Rent continues to be paid in full,” Mendelsohn said during Friday’s earnings call. “Over the last 90 days, they’ve increased occupancy 340 basis points for a January ending occupancy of 91.2%.”

Olathe, Kansas-based senior living operator Bickford Senior Living also took over an underperforming four-property portfolio of senior living communities in Minnesota on Oct. 1. To help that portfolio weather the storm, NHI reduced its annual rent. The rent was then raised to its previous level on Jan. 1 without any issues, said Kevin Pascoe, NHI’s chief investment officer.

Holiday Retirement, which experienced a drop in occupancy in the first quarter of last year, also seems to be on more stable ground than before.

“What we’ve seen so far is that for the third and fourth quarter, occupancy was up a little bit. They continue to make progress on that front,” Pascoe said. “We’re still watching very closely how they’re doing, but the indicators that they’ve shown us is that occupancy has improved.”

Opportunity ahead

On the whole, occupancy for both NHI’s senior housing and skilled nursing portfolios held steady in the fourth quarter despite a vicious flu season and ramped-up construction in some markets. Though wage pressures continue to squeeze many of NHI’s operators, the company is keeping an eye trained on the problem, Pascoe noted.

And, despite some market uncertainty on the pricing side, NHI could pick up some additional private pay senior housing assets in the year ahead.

“We do feel like there are some good buildings and some good operators,” Pascoe said. “We just have to keep chopping wood every day to make sure we’re seeing everything in the market, and I feel like we’re able to do that.”

The REIT also has confidence in its skilled nursing portfolio, even as occupancy issues continue to roil the industry as a whole.

“The customers we have on the skilled side are top notch and we feel very comfortable with them,” Pascoe said. “So, if we can expand those relationships to the extent we can build some new ones, we’d love to.”

NHI’s share price gained about 2.22%, to $65.73, by the time the markets closed Friday.

Written by Tim Regan

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