New Senior Moves to Restructure 50% of Assisted Living, Memory Care Portfolio

New Senior Investment Group (NYSE: SNR) is examining a range of options to improve the performance of its assisted living and memory care portfolio — including swapping out operators or seeking dispositions for around half of those properties.

The New York City-based real estate investment trust (REIT) recently undertook an extensive effort to determine which of its assets to keep, which to transition to new operators, and which to sell, according to New Senior CEO Susan Givens.

“While the majority of our assets have outperformed the overall industry, certain assets have dragged down our total results,” Givens said during an earnings call Friday morning. “Collectively, we have implemented plans to proactively address 50% of our AL-memory care assets and put this portfolio on a path to benefit from these positive changes.”


New Senior’s portfolio spans 133 private-pay senior housing properties in 37 states, with about 14% of its net operating income (NOI) coming from assisted living and memory care assets, and around 80% coming from independent living properties.

The company’s success in the past quarter was largely bifurcated, with its independent living same-store NOI growing 2.3%, year-over-year, and its assisted living and memory care NOI declining by 11.9% for the same period.

“With this quarter’s results, our IL portfolio has experienced five straight quarters of improving year-over-year margin growth,” Givens said. “While the IL portfolio experienced seasonal occupancy softness in the first quarter, we’re optimistic by recent leasing trends with solid and positive net movements experienced in both March and April as we enter peak leasing season.”


New Senior owes much of its success on the independent living side to its largest operating partner, Holiday Retirement, Givens added.

To help bridge the gap between its independent living and assisted living portfolios, the company is marketing for sale six underperforming assets in Dallas and Salt Lake City. New Senior also in April closed on the sale of one assisted living and memory care community, with another similar sale expected to close in the second quarter of this year.

The initial goal is to shed assets with negative cash flow, Givens said. While the REIT’s total same-store managed net operating income (NOI) grew 0.3% in the first quarter of 2019, year-over-year, that total would have been 1.6% without counting the six underperforming properties for sale.

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The REIT recently transitioned a total of nine properties to new operators — as was its stated goal last quarter — bringing its total to seven operating partners. Three of those newly transitioned properties went to Grace Management, an existing operator relationship for New Senior; four went to Integral Senior Living, a new operator relationship; and two others went to Phoenix Senior Living, another new operator with the REIT.

On the topic of management agreements, Givens spoke about the need of aligning owners and operators.

“One of the things we have done with several of our operators is to rethink the kind of traditional fee structure, which has historically just been based on a percent of revenue to try to create realignment around NOI growth, even CapEx [or capital expenditures],” Givens said. “In our new agreements, we factored those items in. We have incentive fees and incentive hurdles that really align our operators we think, and it’s something we are continuing to try to tweak.”

Looking ahead, New Senior is positioned to take advantage of mid- and long-term demographic trends, Givens said. For instance, supply and demand trends are improving across New Senior’s entire senior housing portfolio.

“For the past three years, independent inventory growth has outpaced absorption in our markets,” Givens explained. “However, that trend reached an important inflection point in the first quarter where supply and demand have converged as a result of decreasing levels of inventory growth and increasing levels of demand of nearly 3%.”

The first quarter of 2019 marked the first earnings period with New Senior as an internalized REIT, which has been in the works since last year when the company first moved to distance itself from its largest investor, private equity firm Fortress Investment Group (NYSE: FIG). New Senior also announced in late April it received $53 million as part of a lawsuit settlement from Fortress, Holiday Acquisition Holdings, and members of its board of directors.

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