National Health Investors (NYSE: NHI) expects its recent spate of acquisitions, and transitioning of struggling properties, to pay off with sustained revenue growth starting in 2020.

The Murfreesboro, Tennessee-based health care real estate trust completed or announced $295 million in acquisitions in 2019, and is working on its transition portfolio of nine properties to improve their positioning for future cash flow, CEO Eric Mendelsohn said Thursday during a Q2 2019 earnings call.

NHI is also working closely with Bickford Senior Living to improve its financial and operational performance. Those efforts have resulted in positive occupancy trends.

“Our efforts are bearing fruit,” Mendelsohn said.

NHI posted normalized funds from operations (FFO) of $1.36 per share for the second quarter, a 1.4% decrease year-over-year and $0.01 below analysts’ consensus estimates. Its adjusted funds from operations was unchanged year-over-year at $1.26 per share.

A flurry of acquisitions

NHI’s acquisition activity this year involved seven operators. Three are new additions to the REITs roster — Englewood, Colorado-based Cappella Living Solutions; Chicago-based 41 Management; and Needham, Massachusetts-based Wingate Healthcare.

The foundation of NHI’s acquisition activity was its joint venture with Discovery Senior Living. The Bonita Springs, Florida-based provider and NHI agreed in June to an acquisition of six properties in Indiana, Maryland and Pennsylvania for $128.4 million.

NHI also provided Discovery with a $6 million senior mortgage for an additional property in Indiana. The joint venture has a purchase option for that community once it achieves stabilization.

In May, NHI exercised a purchase option on a 73-unit assisted living facility in Michigan from Saginaw, Michigan-based Comfort Care Senior Living.

NHI transitioned management of five memory care communities from Autumn Leaves to Chancellor Health Care. Three other buildings formerly managed by affiliates of East Lake Capital also gained new operators: one in Tennessee is now operated by Vitality Senior Living; a Charlotte, North Carolina community was renovated and is now operated by Senior Living Communities; the other in Indianapolis is operated by Discovery.

“Our acquisition activity has been fast and furious,” Mendelsohn said.

Bickford on a good path

With the transitions out of the way, NHI has turned its attention to improvements at Bickford Senior Living. The REIT’s largest assisted living tenant did a commendable job cutting expenses resulting from overtime/agency labor and, by extension, reducing wage pressures in the process, Executive Vice President of Investments Kevin Pascoe said during Thursday’s call.

The two sides are now focusing on improving occupancy at Bickford’s facilities, and there are signs those efforts are moving in a positive direction. Same-store occupancy at Bickford facilities improved from 84.1% in the first quarter to 85.9% in Q2, according to a 10-Q form NHI filed with the Securities and Exchange Commission. Same-store occupancy in June topped out at 87.2%.

The improvement in occupancy occurred without rent concessions, Pascoe said.

“Bickford doesn’t do a lot of discounting. Rents [in its markets] are higher than the competition,” he said. “They stuck to their guns and sold customers on the value of the services they provide.”

He added that while Bickford has not been immune from pressures related to new deliveries, there are no huge increases in new product coming on line in its markets, which has NHI hopeful the upward occupancy trajectory continues.

In 2019’s second half and beyond, NHI does not expect the volume of acquisition activity it completed in the first and second quarters. The REIT plans to be strategic in adding to its acquisition pipeline, preferring stable communities in markets with favorable supply-demand demographics, but it will consider value-add opportunities if the numbers are favorable, Pascoe said.

Analysts response to the earnings was favorable.

“The year-to-date acquisitions were on track to be NHI’s highest in five years, which should improve its portfolio diversification and drive growth in 2020,” Stifel Nicolaus Analyst Chad Vanacore wrote in a note to investors.
NHI stock closed trading Thursday up 0.71%, to $81.10 per share.