CEO’s ‘Worry List’ Shrinks as NHI Operators Make Progress

National Health Investors (NYSE: NHI) President and CEO Eric Mendelsohn’s “worry list” is shorter now than it was this time last year thanks to progress made by several of its senior housing partners.

The Murfreesboro, Tennessee-based health care real estate trust (REIT) saw a steady third quarter this year despite softening occupancy and rising wage pressures in some of its markets, executives with the company said during an earnings call with investors and analysts Thursday.

Mendelsohn — who in the past has publicly updated investors and analysts on the status of troubled operators in NHI’s portfolio — touted progress made this year by tenant Bickford Senior Living as evidence that the REIT’s operator-focused strategy is working as intended.


“The Bickford worries are in late innings,” Mendelsohn said on Thursday’s call. “They seem to be really on the mend.”

NHI logged normalized funds from operations (FFO) of $1.42 per share for the third quarter of 2019, beating analysts’ expectations by three cents. Its normalized adjusted funds from operations (AFFO) was $1.32 in Q3, an increase of 3.1% compared to the same period last year.

As of September 30, 2019, NHI owned 145 senior housing communities, 72 skilled nursing facilities, three hospitals and two medical office buildings in 34 states.


While NHI’s quarterly results were solid, industry-wide volatility continues to make the long-term picture hazy, according to Stifel Analyst Tao Qiu.

“We’ve expressed concern in the past about seniors housing industry pressures, which weigh on all operators, including some of the top in NHI’s portfolio,” Qiu wrote in a note to investors. “Management is addressing low coverage in its seniors housing portfolio through active dispositions and transitions of assets to new operators.”

NHI’s share price mostly treaded water Thursday, ending up at $80.52 by the time the markets closed.

Operator progress

NHI has undertaken a number of initiatives aimed at helping its operators succeed and improving the quality of its senior housing portfolio in the last 12 months, such as inking a lease amendment with Winter Park, Florida-based Holiday Retirement, rehabilitating an unnamed operator that stumbled in 2017, transitioning nine properties out of three existing leases and investing millions back into its portfolio in a flurry of acquisitions.

The company expanded its relationship with Bonita Springs-based Discovery Senior Living by acquiring six senior housing communities totaling 596 units for $128 million in May. 

NHI also recently focused its efforts on improving Bickford Senior Living, its largest assisted living tenant with 18% of the REIT’s annualized cash revenue. Those efforts with the Olathe, Kansas-based operator include contemplating the sale of two assisted living communities to Bickford, amending rent escalators under certain leases, and transitioning four properties in Minnesota from Bickford to another NHI operator.

Those efforts are bearing fruit, as the operator’s same-store occupancy rate — which excludes properties operated with NHI for less than 24 months — grew to an average of 87.9% in the third quarter of 2019. That’s an improvement of 60 basis points compared to the 87.3% average occupancy rate the portfolio logged during the same period last year.

“We are seeing better occupancy and other green shoots and blossoms from our initiatives with Bickford,” Mendelsohn said.

NHI’s relationships with some of its other major tenants — such as Senior Living Communities (SLC), National HealthCare Corporation (NHC) and Holiday Retirement — remain productive, according to Kevin Pascoe, the REIT’s chief investment officer.

“We are seeing improvement from our AL operators,” Pascoe said. “And our IL portfolio, including Holiday, is stable.”

That progress with operators seems likely to continue into the next quarter and into 2020 — assuming no major rent restructurings or unforeseen “dumpster fires,” Mendelsohn added.

“Right now, my worry list is pretty short,” Mendelsohn said. “We have a couple nonmaterial worries, but right now, things look pretty stable.”

NHI’s most recent earnings adds to a growing consensus among senior housing leaders that, despite continued pressure from new supply and wages, there are signs that 2020 will be a different year. Other large industry players, such as Brookdale Senior Living (NYSE: BKD) said on recent earnings calls they anticipate better results in 2020, while others such as HealthPeak (NYSE: PEAK) — formerly known as HCP — and Ventas (NYSE: VTR) expect to see better operating conditions a little farther down the road.

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