NHI Weighs Rent Relief, Notes Value of Triple-Net Leases in Accessing PPP

National Health Investors (NYSE: NHI) was not immune to the Covid-related pressures that other health care real estate investment trusts (REIT) have grappled with since mid-March.

Occupancy rates decreased significantly in April, leads are in decline, tours are at a standstill and move-ins have slowed across its roster of senior housing operators.

And while rent collection across the Murfreesboro, Tennessee-based REIT’s portfolio of senior housing and skilled nursing communities has remained consistent through April and May, Chief Investment Officer Kevin Pascoe acknowledged that concessions may have to be implemented if the outbreak is prolonged.


“We’ve had plenty of discussions with our operators about what levers are available to them, depending on how long this goes on … it’s something that we’re just going to have to continue to monitor,” he said Tuesday during a call reviewing NHI’s Q1 2020 earnings.

Operators are also applying for — and receiving — federal stimulus funds, which leadership attributes to having triple net leases in place.

NHI reported $83.08 million in total revenues in the first quarter of 2020, a 9.2% increase over the previous year. The REIT also reported normalized funds from operations (FFO) of $1.36 per share — a 3.8% increase, year-over-year. The company’s normalized adjusted funds from operations (AFFO) was $1.29 in the fourth quarter, an increase of 5.7% compared to the previous year.


Occupancy declines

The pandemic, as well as the lockdowns of senior housing communities to reduce the chance of an outbreak, has put pressure on occupancy and expenses, NHI President and CEO Eric Mendelsohn said.

To that end, the REIT enhanced transparency for its three largest senior housing operators — Bickford Senior Living, Holiday Retirement and Senior Living Communities (SLC). The three operators represent 44% of its total senior housing revenue and 56% of its senior housing portfolio.

Bickford, which represents 17% of revenue, saw same-store occupancy fall from 87.3% in January and February to 86.6% in March. Occupancy fell another 130 basis points in April, to 85.3%.

SLC’s occupancy rose slightly from 80.4% in January and February to 80.6% in March, before dropping to 79% in April. SLC represents 16% of revenue. Holiday, representing 11% of revenue, saw occupancy fall from 87.3% in January and February to 86.7%. April saw a 170 basis point drop to 85%.

Tours are also down significantly, particularly at Bickford, which saw a 40% decline in bookings. All communities are set up for virtual tours and move-ins are happening, albeit with stricter safety protocols and quarantines in place for new residents.

Overall, occupancy across the three operators fell 150 basis points in April, which was less of a decline than other senior housing portfolios in the sector.

“The April decline was noticeably better than the falls seen in the Big Three [senior housing] portfolios, but with coverage levels low (1.15x EBITDARM for senior housing on a TTM basis), there was little to no margin for occupancy deterioration,” BMO Capital Markets Analyst John Kim wrote in a note to investors.

As of May 5, NHI reported 192 active Covid-19 resident cases in 37 buildings, reflecting less than 1% of its total resident population across its senior housing and skilled nursing facilities.

Expenses climb

NHI saw operating expenses climb in the first quarter, largely due to extra labor costs and supplies including personal protective equipment (PPE). Total expenses ended the quarter at $42.6 million, a 5.1% jump over the previous year.

The combination of higher expenses and occupancy dropoffs will continue to pressure margins as the crisis continues. NHI and its operators are taking a day-by-day approach to controlling expenses, the more it learns about the virus and re-opening procedures in its markets.

So far, tenants are paying rents on time. NHI received 99.7% of total rents due in April, and 94% to date in May, which Mendelsohn noted is in line with projections, as rent collections continue through mid-month.

NHI and its operators are in frequent contact with each other and, should rent deferrals become a reality, the company is in a position to assist however it can. It has $142 million available to draw from on its $550 million revolving credit facility, as well as credit support on its leases, Pascoe said.

“There are other levers that our customers can pull within their organizations to be able to meet their obligations. A lot of this just really depends on how long this goes on,” he said.

NHI’s lease structures with its operators are also proving beneficial to securing CARES Act stimulus money, which can extend any timetables for rent deference, Mendelsohn said.

Several of NHI’s senior housing operators have been approved for, or received funds from the Paycheck Protection Program [PPP], which leadership highlighted as one of the benefits of having triple net leases in place.

“The operators own their business. They’re able to apply for the loans because they’re in the ownership seat versus the REIT owning the operations,” Pascoe said.

If the outbreak persists into summer, the occupancy declines suggest that concessions will be likely, Kim wrote.

Other REITs — including Ventas (NYSE: VTR) and LTC Properties (NYSE: LTC) — have already granted some rent deferrals.

NHI stock ended trading Tuesday down nearly 2.5%, to $50.49 per share.

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