New Senior To Bring In More Operators in 2019

After a year of restructuring and bringing its management in-house, New Senior Investment Group (NYSE: SNR) is entering 2019 with a new focus and, for the first time, some investor guidance.

The New York City-based health care real estate investment trust (REIT) reported an $86.6 million net loss in Q4 2018, or a $1.05 loss per share. The company reported net operating income of $43.4 million, a 19% drop over Q4 2017, which New Senior CEO Susan Givens attributed to asset sales, during a Friday earnings call.

New Senior spent 2018 reconstituting its portfolio and its management, in order to put the company on better financial footing, and Givens cited four specific moves:

• It terminated leases on 51 independent living communities operated by Holiday Retirement Communities last May, and transitioned the leases to a managed structure. This reduced New Senior’s credit risk and added more transparency to its operations, Givens said.
• Last August, New Senior announced it would internalize its management, in an attempt to distance itself from Fortress Management Group (NYSE: FIG). The plan, which included paying Fortress $50 million, was finalized last November and completed on Jan. 1.
• New Senior refinanced a $720 million bridge loan last October, resulting in annual interest expense savings of approximately $12 million, Givens said.
• FInally, the company retired $125 million in debt last December with a combination of cash on hand and a revolving credit facility.

“We expect the internalization to have several benefits including simplifying our organizational structure, creating better alignment between management and shareholders, generating meaningful [general and administrative] cost savings, and increasing the transparency of our financial results,” Givens said.

Now that New Senior is internally managed for the first time in its history, it offered guidance for 2019. The company expects adjusted FFO to range between $0.61 and $0.67 per share. This range assumes same-store managed cash NOI growth of negative 3% to 0%.

More heavy lifting in 2019

With the restructuring behind it, New Senior’s immediate attention now turns to fine-tuning its portfolio and improving its balance sheet. New Senior owns 133 senior housing communities across 37 states. Eighty percent of that portfolio is independent living, which is the primary driver in New Senior’s performance.

Same-store net operating income (NOI) of New Senior’s independent living assets grew 2% in Q4. This helped offset the sluggish performance of its assisted living portfolio, which saw same-store cash NOI decline 8.7% in the fourth quarter.

New Senior’s portfolio is unique in the industry, as a pure-play senior housing REIT that is 100% private-pay communities, which Givens believes can be leveraged to attract investors. With only one property in its portfolio on a triple-net lease, New Senior has flexibility to sell assets on a case-by-case basis.

The company is also looking to diversify the operator mix in its portfolio. Winter Park, Florida-based Holiday Retirement — the largest independent living provider in the nation — remains New Senior’s largest operating partner, currently managing 80% of its total NOI. The runner-up, Portland, Oregon-based Blue Harbor, manages 12% of total NOI.

New Senior identified nine properties it plans to transition to new operators by the end of Q1 2019, five of which are with either Holiday or Blue Harbor-operated, CFO David Smith said. These transitions will expand New Senior’s existing relationship with Grace Management, as well as bring two new operators into the fold: Integral Senior Living and Phoenix Senior Living.

As for the balance sheet, Givens acknowledged it would take some time, but New Senior hopes to build on the foundation provided by restructuring its debt last year. The credit facility, in particular, allows the company to reborrow when it identifies uses for the cash. Moving forward, New Senior wants to maintain its focus on selling underperforming assets and transitioning to new operators.

“Our balance sheet won’t be fixed overnight,” Givens said.