NHI Off to ‘Great Start’ in Q1 Despite Tempered Expectations for New SHOP Segment

National Health Investors (NYSE: NHI) started the year strong with a relatively muted rate of new rent deferrals and limited rent concessions and deferral payments, according to CEO Eric Mendelsohn.

That said, the company still has some soft spots in need of improvement, namely its burgeoning senior housing operating (SHOP) segment, which saw continued pressure on NOI margins during the first quarter of 2023.

NHI stock landed at $53.29 per share by the time the markets closed Wednesday. The 8.19% jump on the day made it one of the 25-best performing stocks on the market for the day.


The Murfreesboro, Tennessee-based real estate investment trust (REIT) reported funds from operations (FFO) of $1.11 in the first quarter of 2023, beating Wall Street estimates of approximately $1.00.

NHI’s SHOP segment, which accounts for just 3% of the company’s net operating income (NOI), comprises 15 communities with an average occupancy rate of 75.2% in March, up one percentage point from February.

NOI for the SHOP portfolio came in at $1.9 million for the first quarter with about $11.7 million in revenue against $9.8 million in expenses. Margins declined to 16.9% in the first quarter of 2023, according to Chief Investment Officer Kevin Pascoe.


Pascoe pointed to weak occupancy and higher expenses in the quarter to explain the negative margin growth.

“We had anticipated that the repositioning of the assets under new management would have been showing better progress,” he said.

Merrill Gardens and Discovery Senior Living are the new management referenced by Pasco. NHI partnered with them and created its SHOP segment in 2022 as a way to group 15 underperforming communities that were previously managed by Holiday Retirement.

Mendelsohn doubled down on his belief that the company’s SHOP segment will improve and play a bigger role in the company’s growth plans.

“But, given the soft first-quarter results, our expectation for the full-year contribution has been lowered,” he said.

NHI increased its 2023 guidance for normalized funds from operations (FFO) per share to $4.37 – $4.42, up from its previous guidance of $4.24 – $4.30.

“One notable reason for the significant FFO increase is a change in non-cash stock based compensation,” NHI CFO John Spaid said during the call Wednesday. “We reduced this item by approximately $3.4 million, or eight cents per share.”

Analysts John Kim and Jaun Sanabria of BMO Capital Markets considered NHI’s first-quarter results as positive.

“We see 1Q23 as a win with no new problem tenants and improving rent coverage,” they wrote.

NHI reported net income attributable to common stockholders per diluted share jumped from $0.18 in the first quarter of last year to $0.79 in 1Q23.

“We are content to be patient and believe we are in the enviable position of having significant capital to deploy at a time when capital seems increasingly scarce,” Mendelsohn said.

Growth and deals

NHI CEO Eric Mendelsohn believes that improved operations and closing on a handful of deals will put NHI in a good position to jump on the chance to deploy capital. But that could mean even more patience in the meantime, especially with occupancy.

Overall occupancy – which includes both senior living and skilled nursing assets – grew to 81.3% in the first quarter of 2023, representing a gain of 400 basis points from the same quarter last year. Broken down by care type, senior living occupancy grew 440 basis points over that same period.

Occupancy growth and deferral payments from Bickford Senior Living are contributing to positive results in the first quarter, according to Pascoe.

Bickford – which operates a 38-community portfolio – has in the first half of 2023 chipped away at the pandemic-related deferral balance with about $200,000 in the first quarter and $300,000 in the second quarter.

Olathe, Kansas-based Bickford is showing signs of occupancy growth and operational improvements, too.

“Bickford experienced a slight uptick in March occupancy and they’re starting to see some momentum built in the sales pipeline, lead conversions and move-ins,” Pascoe said.

“While there are plenty of pipeline discussions, markets have not been accommodating,” Pascoe said on the earnings calls. “We are not seeing many deals that reflect the reality of changes to the cost of capital.”

In the interim, the REIT will look to close on seven properties it held for sale with a net value of about $21 million. Because the properties have an NOI yield in the low single-digits as well as double lease coverage, NHI is forecasting an immediate financial lift for its tenants.

“Fortunately, we’re in a position where we can be patient and ultimately, we think well-capitalized REITs will be beneficiaries as lenders with less industry experience reduce their exposure,” Pascoe said.

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