Free From Assisted Living Woes, New Senior Charts Path Forward

Now unburdened by a troubled assisted living portfolio, executives with New Senior Investment Group (NYSE: SNR) believe that the company is on better footing.

New Senior is currently focused on managing its operator concentration, strengthening its balance sheet and growing. The company believes that its independent living portfolio is well-positioned to serve the private-pay middle market, and they are also open to investing in new types of low-acuity properties.

The New York City-based real estate investment trust (REIT) last year blazed a new trail as an internally managed company and undertook some initiatives to position the company for future success. That included selling the company’s underperforming assisted living and memory care portfolio to a joint venture of ReNew REIT and Merrill Gardens for $385 million, a transaction that officially closed earlier this month.

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The portfolio, which was composed of 28 assisted living and memory care properties spread across 14 states, had previously weighed on the company’s net operating income (NOI). With that portfolio gone, New Senior is “in a much better place than it was a year ago,” CEO Susan Givens said during the REIT’s fourth-quarter 2019 earnings call Thursday.

“We made decisions that weren’t easy, including the decision to sell our assisted living portfolio,” Givens said. “But we remain focused on proactively addressing issues within our portfolio, with the goal of putting the company firmly on a path to benefit as medium and longer term fundamentals improve across the senior housing industry.”

Today, the company has 102 independent living communities and one continuing care retirement community (CCRC) in its senior housing portfolio. The newly sharpened focus on independent living has helped the company keep its labor costs under control, Givens said.

The cost of labor for New Senior’s independent living portfolio grew about 3% last year, while the cost of labor in the REIT’s assisted living portfolio grew at 6%.

“We don’t expect quite as much labor pressure [in 2020], given the fact that we are purely IL at this point,” Givens said. “It’s a pretty stark comparison.”

While Winter Park, Florida-based Holiday Retirement represented a majority of the REIT’s NOI before the assisted living portfolio sale, that share is much higher now at approximately 95% of the REIT’s total NOI.

“Holiday is an important partner of ours, and we believe they have done a great job operating our assets,” Givens said. “That said, we also recognize the benefits of having a diversified portfolio of operators, and throughout 2019, we spent considerable time developing and growing relationships with existing and new operators.”

For the fourth quarter of 2019, New Senior posted a normalized funds from operations (FFO) of $0.16 per share, which was in line with analysts’ expectations. The REIT also logged a net loss of $6.7 million for the same period.

On the capital expenditure (CapEx) side, the REIT expects to invest about $1,100 to $1,200 per IL unit for maintenance on an ongoing basis. The REIT may also spend additional dollars where needed to freshen up older assets.

And in some cases, New Senior might even experiment with more fundamental changes to existing properties in order to create new types of product offerings

“Part of the reason we’re working closely with Holiday and other operating partners in the industry is to think about different formats and models and what might make sense for our assets,” Givens said. “I think there are some interesting opportunities that we’re doing on a more one-off basis that could teach us something and allow us to grow.”

Looking ahead, the REIT may also begin to explore investing in other types of senior housing, including perhaps senior apartments.

“There are some interesting models that are starting to emerge out there which are kind of a hybrid between IL and pure senior apartments,” Givens said. “Those are some things we’re looking at.”

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