Real estate investment firm Invesque (TSE: IVQ.U) is poised to continue pruning its portfolio this year and beyond.
The Carmel, Indiana-based REIT has spent the last 10 months selling $300 million in assets, with the proceeds of the transactions being used to reduce leverage and shore up the company’s balance sheet as it manages its portfolio and pivots to private-pay senior living communities.
Five years ago, about 75% of Invesque’s net operating income (NOI) came from skilled nursing operations. Now, the company’s portfolio is weighted in favor of senior housing, which comprises 60% of the company’s current NOI.
And looking ahead, CEO Scott White expects the company will continue down that road by selling more non-strategic assets, at least for the rest of this year.
“We’re not done yet — we continue to actively manage our remaining portfolio, identify opportunities to sell properties for attractive values and network with potential buyers,” White said during the company’s first-quarter earnings call Thursday. “You will likely see us continue to explore property sales for the remainder of 2022.”
Between March 1 and April 1, Invesque closed on four separate deals to sell eight assets for a gross sale price of approximately $80 millionThe marquee transaction among those was the sale of a portfolio that included four transitional care facilities in Texas, which sold for approximately $52 million.
Additionally, the company sold a handful of non-strategic, underperforming senior housing assets, with the sale of an assisted living and memory care community in Harrisburg, Pennsylvania to a regional operator. The community was previously managed by Invesque’s subsidiary management company, Commonwealth Senior Living.
Invesque also sold two senior housing assets in New York for approximately $19.2 million, using proceeds to pay down the company’s corporate credit facility.
Other transactions include the sale of a $3.5 million vacant community in Port Royal, South Carolina, that was previously operated by Phoenix Senior Living until the community closed and ceased operations last year. With the sale, the community will be transitioned into a drug and alcohol rehabilitation center, according to White.
So far, the company has not seen any change in asset values as a result of recent federal interest rate hikes, but White added that it’s “something we’re monitoring.”
“We have not seen it have implications on asset values to date, and I’m not convinced it’s going to have an immediate impact on our strategy over the coming quarters,” he said.
Looking ahead, White said the company will be focused on a number of “fairly small” opportunities to grow the company with its existing operating partners.
“Not only with additional acquisitions, but even with additions or major CapEx projects around existing assets, so that we can enhance NOI with our preferred operating partners,” he added.
Invesque saw a record number of dispositions in 2021, with White calling the move the “natural evolution of our company” during an interview with Senior Housing News last month. Through 2019, Invesque was the fastest-growing public real estate company in the U.S. and second-fastest in Canada.
“We started to look at a number of the portfolio acquisitions that we made, and we started to assess which ones within the broader portfolio just didn’t make sense, whether it was operator, whether it was geography, whatever the case may be,,” White previously told Senior Housing News. “ We started a process of culling and focusing our portfolio, and then Covid hit.”
Occupancy for Invesque’s senior living portfolio ended the month of April 120 basis points higher than it was at the beginning of 2022. White added that Commonwealth was a “bright spot” in the company’s portfolio.
To offset rising labor and operating costs, which have been an issue for many operators, the company increased resident rental rates by 6.5%.
Invesque acquired Commonwealth’s senior housing platform in 2019, and the operator has achieved its highest monthly NOI to date since that time, White added.
Rental rates in the company’s senior housing operating properties (SHOP) portfolio grew 4.4% in the first quarter as operators grappled with higher operating costs in staffing, food and insurance.
Going forward, White said staffing would be a consistent thorn in operators’ sides, but the recent occupancy and rate growth “prove that demand for our product is there, and I believe will increase in the coming years,” White said.
For 1Q22, funds from operation (FFO) was $0.07 per share and applicable federal rate (AFR) was $0.06 per share. Of the transactions completed, the FFO could rise $0.12 per share on an annual basis relative to first quarter performance.
The company’s stock rose 7.2% on Thursday to rest at $1.34 per share.