Unlike other health care-focused real estate investment trusts (REITs), National Health Investors (NYSE: NHI) has managed to stay off of the sidelines in recent months and remain fairly active in the senior housing marketplace.
The Murfreesboro, Tennessee-based company credits its M&A activity to nurturing its several operator relationships and staying open to smaller-scale deals, Kevin Pascoe, NHI’s executive vice president of investments, suggested during a Tuesday presentation at REITWeek 2018 in New York City.
“We’re not afraid to do a one-off deal,” Pascoe said. “If you keep hitting singles and doubles over time … [and] you look up at the scoreboard [at the end of the season], you usually have a pretty good year.”
The markets in which NHI targets senior housing assets has also contributed to its sustained M&A activity, executives noted. All the while, the REIT is encouraged by progress made at one of its recently troubled tenants, Holiday Retirement.
College town sweet spot
NHI’s geographic strategy has benefitted the REIT in numerous ways, according to executives.
Focusing on properties in the Midwest and the South, for example, has helped boost the REIT’s census numbers, Eric Mendelsohn, NHI’s president and CEO, implied during the REITWeek presentation.
“A lot of value can be found in the heartland,” Mendelsohn explained. “People want to stay close to their church, their family, their doctor … They’re very sticky when they move to our buildings.”
Within these regions, NHI tends to focus on smaller cities, as opposed to major metropolises.
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“The markets we’re in kind of look like college towns in terms of size,” Pascoe said. Consequently, NHI is “able to find some good pricing on very good assets.”
“We have the A buildings in the B markets,” Mendelsohn added.
All the while, NHI works to nurture relationships with its more than 30 senior housing operators, and these relationships have led the REIT to some off-market deals, Pascoe said.
In the future, NHI will likely grow its footprint with existing operators. For instance, the REIT expects its relationship with Olathe, Kansas-based Bickford Senior Living to expand, Pascoe said.
On May 1, NHI announced that it had leased five newly acquired assisted living and memory care communities to an affiliate of Bickford. The $69.7 million acquisition grew Bickford’s relationship with NHI to 52 leased properties and an additional three in development.
Additionally, most of NHI’s future senior housing acquisitions will be assisted living and memory care, though independent living and continuing care retirement communities (CCRCs) “are definitely still on the table,” according to Pascoe.
Holiday Retirement updates
One of NHI’s recently troubled tenants—independent living provider Holiday Retirement—has seen its occupancy rise, Mendelsohn said on Tuesday.
“There definitely was a dip in occupancy over time, but they did what they said they were going to do,” he said. “ … Occupancy over the last few quarters has improved.”
Holiday seen a great deal of change over the past 18 months. In February 2017, for instance, the operator announced it was abandoning its signature, live-in manager operating model.
“It was a big change, and to some degree—traumatic is a very heavy word—but it definitely impacted the company as they were trying to reinvent themselves and figure out how they were going to sell their product,” Mendelsohn said of the change at REITWeek.
Overall, NHI seems satisfied with the progress made at Holiday, which currently comprises about 14% of NHI’s cash revenue.
“We’ve been pleased with their amount of communication and how they’ve been able to make that change,” he said. “Frankly, we were a little skeptical.”
Written by Mary Kate Nelson