NHI Reaches Portfolio ‘Inflection Point’ in Q1 as Operator Challenges Continue

National Health Investors. (NYSE: NHI) is making steady progress on its efforts to optimize its senior housing portfolio — and while there are still some pieces left to fall, the company’s leaders feel more confident about the road ahead this year.

Although the company’s operating partners have some challenges left to work through — made evident by ongoing rent deferrals and concessions that continued into the first quarter of 2022 — NHI CEO Eric Mendelsohn said he believes the company is “in a better position now to forecast these challenges” one month after issuing guidance for the remainder of the year.

“We’ve largely completed portfolio optimization and reached an inflection point, which has greatly improved our visibility,” he said during the company’s first-quarter earnings call with investors and analysts Tuesday.


The Murfreesboro, Tennessee-based real estate investment trust (REIT) completed $262 million in asset sales since the company announced plans to tighten up its portfolio last year, with $214 million of that totals coming from the disposition of underperforming senior housing assets.

At the same time, NHI has made progress transitioning its properties leased to Holiday Retirement to two new operators, Discovery Senior Living and Merrill Gardens.

“While it’s still early stages, we’ve been pleased with the transition so far,” Mendelsohn said. “These types of ventures, coupled with our traditional triple-net strategy, make NHI A formidable competitor for new business in senior housing.”


NHI reported normalized funds from operations (FFO) per share of $1.10 in the first quarter of 2022. Net income attributable to common stockholders per diluted share in Q1 was $0.18, compared to $0.78 during the same period in 2021. This was due in-part to the recognition of the Holiday lease deposit of $8.8 million in rental income, reduced interest expenses and new investment since March, according to the company.

The company’s share value decreased 2.93% at market-close, ending the day at $52.04.

Portfolio optimization continues

NHI’s portfolio optimization efforts began in earnest about a year ago, according to recent public filings. The company has 201 properties, including 132 communities in its senior housing portfolio.

Although the company has worked its way through much of those efforts, Mendelsohn said there is more pruning on the way in the form of more than $100 million in dispositions of “several other” under-performing assets in the first half of this year.

The company also during that time restructured leases with some of its large tenants, including Bickford Senior Living.

Along with the push to shore up the portfolio with Bickford, NHI also in April finalized a settlement agreement with fellow REIT Welltower (NYSE: WELL) over litigation tied to NHI’s acquisition of a portfolio of Holiday Retirement communities. Under the new agreement, NHI is shifting operations of six independent living communities from Holiday Retirement to a joint-venture partnership with Merrill Gardens; and transferring operations of nine independent living communities from Holiday to a joint-venture partnership with Discovery Senior Living.

Image Courtesy of NHI

NHI also in the first quarter provided $9.8 million in rent concessions, including $5.5 million to Bickford. The REIT is still negotiating with Bickford regarding the repayment of its outstanding rent deferrals of $26 million.

NHI will target a minimum repayment of $3 million annually with reductions of up to $6 million contingent upon Bickford meeting specific goals and on the sales of certain properties.

“We’re confident that our new leases create a more sustainable relationship that improves our coverage, generates excess cash flow that can be used to repay NHI as a deferral balance and provides more capital for Bickford to reinvest and maintain our buildings,” Mendelsohn said.

All told, NHI in the quarter collected 79.7% of its contractual cash rents due, reflecting “some of the effects from the adjustments we’re making to long-term leases,” according to CFO John Spaid.

“Collections should improve unless we have additional deferrals or abatements that we didn’t expect,” he added during Tuesday’s earnings call.

In April, rent collections improved to 94.1% and to date in the second quarter, NHI has granted $1.3 million in deferrals to three operators. While the company fell just short on earnings projections for 1Q22, analysts at Stifel welcomed NHI’s confidence in anticipated rent payments for the remainder of the year.

“We see this as a net positive, and as an indicator that, in all likelihood, the environment won’t get materially worse,” a May 9 investor note from Stifel reads. “There is, however, a caveat — namely, the environment could deteriorate if another Covid variant forces protective measures that could hurt occupancy within NHI’s portfolio.”

While the company’s latest earnings round offered few surprises, analysts at BMO Capital Markets noted that “positively, tenants receiving deferrals dipped in April month-over-month to three, from five.”

The company’s senior living communities (SLC) occupancy rate rose to 81.8% by the end of March, while Bickford’s occupancy rate was 79.4% and Holiday’s occupancy was 76.2%.

NHIs capital pipeline was starting to rebuild after the company announced a $240 million share repurchasing plan, Mendelsohn noted, paving the way for near-term opportunities to deploy funds without the need to issue equity.

Following the transitions to Merrill Gardens and Discovery Senior Living, NHI is seeing more RIDEA-type opportunities on the horizon, according to NHI Chief Investment Officer Kevin Pascoe. 

“While we see these as structures as another avenue for growth in the senior living industry, the near term focus is on investments in our own organization to ensure we have resources in place that will make (our senior housing operating portfolio) a steady NOI contributor,” Pascoe said.

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