National Health Investors (NYSE: NHI) has cleared a hurdle in its effort to transform its senior housing portfolio into a “jewel box” and reached a new company milestone in the process.
The company this week announced it had reached a settlement agreement with Welltower (NYSE: WELL) over litigation filed late last year. In its initial complaint, NHI alleged that Toledo, Ohio-based Welltower did not honor certain legal obligations following its acquisition of a portfolio of communities Holiday leased from NHI.
Under the new agreement, which is effective April 1, NHI transferred operations of six independent living communities from Holiday Retirement to a joint-venture partnership with Merrill Gardens; and transferred operations of nine other independent living communities from Holiday to a joint-venture partnership with Discovery Senior Living.
NHI also applied a security deposit of $8.8 million for the portfolio to outstanding rent. The settlement agreement also includes a payment to NHI of $6.9 million, which is expected to take effect in the second quarter of 2022.
NHI additionally transitioned a Holiday-managed assisted living community in Florida to Discovery under an existing master lease, and sold one Holiday property for approximately $3.2 million in gross proceeds.
The decision to pivot from a traditional triple-net lease model to an operating partnership is a “milestone moment” for NHI, given President and CEO Eric Mendelsohn’s previous concerns with the RIDEA structure.
“We are excited to start a new relationship with Merrill Gardens and expand our relationship with Discovery through these new joint ventures,” Mendelsohn said in a press release. “Our decision to pivot from the traditional triple-net lease model to an operating partnership is … one we would only contemplate with trusted and experienced partners like Merrill Gardens and Discovery.”
In March, NHI agreed to defer about $1.9 million in rent for five operators. The company also agreed to abate about $1.7 million in rent, including approximately $1.5 million for Bickford Senior Living.
All told, the company collected 78.4% of the contractual cash it was due for the month. Of the remaining rent, 5.8% is related to Bickford’s abatement, 7.3% is related to deferrals with five tenants and 8.5% is related to unpaid rent with regard to the legacy Holiday properties. The collection rate for March excludes the $8.8 million security deposit the company applied to outstanding Holiday rent.
NHI also restructured the master leases for its the Bickford Senior Living portfolio, and set an annual cash rent of $28 million for the operator. NHI is in the process of selling five underperforming Bickford communities, with expected proceeds of approximately $38 million.
Growth with Discovery
The Discovery portfolio includes communities in Arkansas, Georgia, Ohio, Oklahoma, New Jersey and South Carolina. Discovery also is taking over operations of an assisted living community in Vero Beach, Florida, through its existing joint venture with the Murfreesboro, Tennessee-based real estate investment trust (REIT).
Discovery is rebranding the communities it’s taking on to fit under the umbrella of several of its sub-brands. The Bonita Springs, Florida-based operator is moving seven communities to its Morada and TerraBella regional management companies, with the remaining three going to its Rittenhouse Village, Seaton Senior Living and Discovery Village portfolios.
The operator has quickly scaled up since last November, and the deal with NHI is the latest in a series of large-scale acquisitions that have added 39 communities to Discovery’s portfolio in that time. With its JV with NHI, Discovery is gaining footholds in Arkansas, New Jersey and Ohio.
“We are very enthusiastic to grow our relationship even more closely with NHI and see tremendous opportunities to leverage our unique operating management structure to position these communities for further success,” said Discovery Senior Living CEO Richard Hutchinson. “The leadership team at NHI has been a tremendous partner before, during and after the pandemic and we are both humbled and excited to be part of their continued forward evolution while executing our proprietary growth plans.”
Earlier this year, Discovery began a strategic realignment of its Discovery Village brand portfolio and tapped Cindy Crowley as its second-ever national brand manager. The move is intended to structure the Discovery Village portfolio into smaller, more manageable groups as the operator grows and further defines its experiential living concept.
The Discovery umbrella includes companies and brands such as Discovery Management Group, Morada Senior Living, TerraBella Senior Living and Discovery At Home, which is the operator’s Medicare-certified home health care company.