REITs See Delta-Related Occupancy Loss, Expect Deals to Pick Up in Q4

National Healthcare Investors (NYSE: NHI) and American Healthcare Investors (AHI) have seen senior living occupancy backslide in recent weeks during the surge in Covid-19 cases related to the delta variant.

However, leaders with the two companies are optimistic that the tide might be turning again. And, they anticipate that the fourth quarter of 2021 could be a busy one for senior living dealmaking.

AHI is the co-sponsor of Griffin-American Healthcare REIT III and Griffin-American Healthcare REIT IV. The two non-traded REITs are in the process of acquiring AHI and going public under the name American Healthcare REIT.


Along with other health care real estate, the Griffin-American REITs own about 200 senior living communities. Occupancy in these communities bottomed out around March 2021, and then steadily recovered through July, AHI Executive Vice President, Asset Management Ray Oborn said Wednesday at the Argentum conference in Phoenix.

“Now with delta, we’ve been negative in our portfolios for seven out of last eight weeks due to rising case counts,” Oborn said. “ … We were about 62% recovered and today have dropped back to 57%.”

News reports indicate that the latest surge in Covid-19 infections may have peaked, he noted, which raises optimism that occupancy will again begin to increase.


One wrinkle is that about 120 properties in the portfolios are operated by Trilogy Health Services, and some of those communities have a high proportion of skilled nursing beds. Skilled nursing occupancy has taken the sharpest downturn as hospitals have again tightened up elective procedures, Oborn observed.

Murfreesboro, Tennessee-based NHI has been seeing similar occupancy trends, according to Michelle Kelly, the REIT’s senior vice president, investments.

Given that Covid is still “front and center,” NHI is in close contact with its operating partners and in some cases is working with them to create 12-week cash plans to identify when pain points are likely to occur, and have contingencies in place. The REIT has continued to grant rent deferrals in some cases, and in some cases is contemplating swapping operators or selling communities.

For NHI, the last 18 months has accelerated certain transition discussions and dispositions as the REIT has seen challenges exacerbated at some properties that were already struggling pre-Covid, Kelly said.

“We’ll be selling probably $400 million of real estate when all is said and done,” she said.

The pandemic experience might cause the REIT to move slightly faster in the future with regard to struggling properties, Kelly said.

Situations that call for property sales in particular might be resolved more quickly, she conjectured. Given the costs — monetary and otherwise — involved in operator transitions, these are decisions that NHI strives to make collaboratively and does not rush, she stressed.

“I’m not seeing us ever wanting to rip a Band-Aid off, because that’s not who we are as a company or industry,” she said.

The Griffin-American REITs are also in disposition mode, in order to optimize the portfolios before the planned IPO, Oborn said.

Finding buyers should not be an issue, given that REITs and private investors alike have a lot of dry powder to work with after transactions were essentially frozen in 2020, he said.

“There will be lots of activity still in the space, especially with the low cost of capital,” he predicted.

Kelly echoed his sentiments, saying that there is “still a lot of value discovery happening between buyers and sellers,” but that various investor groups remain committed to the sector.

Brokers have indicated to NHI that the year could conclude with a surge in transaction activity.

“They’re expecting a very big fourth quarter,” Kelly said. “They like to be very positive, so we’ll see if it all transpires, but I think we’re going to see a lot more activity now.”

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