NHI Grapples With Lingering Tenant Troubles With Eye on Future SHOP Growth

National Health Investors (NHI) is capitalizing on timely transactions, even as persistent challenges with some tenants continue to weigh on the company’s balance sheet.

That said, management of the Murfreesboro, Tenn.-based real estate investment trust (REIT) said they see plenty of future upside in senior living, even with a potentially bumpy road ahead still left to travel.

While management noted that rent deferrals were made in the second quarter, a flurry of transaction activity of underperforming assets announced in the first quarter and completed in the second quarter are preparing the company to rebound to a more growth-oriented footing.


One-time concessions were granted to two senior housing operators representing an impact of $1.9 million, with one operator being granted an $800,000 concession and the other $1.1 million.

“As we often discuss, some of our senior housing tenants are struggling in this post-pandemic era, which introduces variability to our quarterly results,”CEO Eric Mendelsohn said. “Our long-term outlook has not changed as fundamentals improve in the needs-driven senior housing and SHOP portfolios, while our CCRC and SNF platforms remain pillars of stability.”

Mendelsohn said that management had taken steps needed, via transactions, to off-load underperforming assets and noted that the company expects “better results in the third and fourth quarters.”


NHI reported funds from operations (FFO) of $1.06, missing analysts’ guidance by two cents. NHI’s senior housing operating portfolio (SHOP) segment represents approximately 3% of its total NOI, and includes 15 communities with an average occupancy of 75.5% in the second quarter, up from 75.2% in the first quarter.

Stifel Managing Director Stephen Manaker wrote that “given the moving parts,we expect [NHI’s] pathway over the next year or so to be volatile.”

“The reason is due to deferrals, abatements and repayments, and the impossibility of predicting their timing,,” Manaker wrote in an Aug. 8 note to investors.

But ultimately, Manaker wrote that Stifel believes the company’s balance sheet “remains a source of strength.”

NHI stock came to rest at $51.49 per share by the time the markets closed Wednesday, down $3.51 (6.38%) from Tuesday.

Growth and progress

As NHI management has noted in past earnings calls, the company spent the second quarter working through challenges with some of its operating partners. And that will likely be the case for the rest of the year, as management expects to encounter “continued rent concessions, asset dispositions and loan repayments throughout 2023.”

That said, certain previously troubled parts of the company’s senior housing portfolio are improving.

Bickford Senior Living, which operates a 39-community portfolio with NHI, has slowly reduced its deferral balance with payments being made in the first and second quarter. And the Olathe, Kansas-based operator is showing occupancy improvements this year, according to NHI. Occupancy for Bickford was up 82%, up from 81.6% in the first quarter. Occupancy for June was 82.7% for the portfolio.

The portfolio with Bickford is overall in “great” shape, Mendelsohn said, but the operator is still grappling with variable rate debt in certain communities.

“Through no fault of their own, that debt has ratcheted up,” he added. “So, they have unforeseen expenses due to that debt, and they’re working with their banks to either refinance them to HUD, sell them or run them better.”

In total, NHI has granted $35.8 million in rent payment deferrals including $20.5 million for Bickford Senior LIving and $15.3 million to other operators, according to the company’s supplemental.

NHI reported that NOI margins increased to 17.9% in the second quarter, up from 16.2% in the first quarter. Revenue per occupied room (RevPOR) for the SHOP segment was $3,004 compared to $2,989 in the first quarter.

Since the end of the first quarter, NHI completed the sale of seven properties, including one property for $23.7 million, and a total net proceeds of $42 million. Overall, NHI has pruned its portfolio through the sale of 48 senior housing and skilled nursing properties for a net proceeds of $392 million since the second quarter of 2021.

NHI currently has just four properties held for sale, which will allow management to “shift energy to growth initiatives,” Mendelsohn said.

“Favorable occupancy trends and moderating wage inflation give us optimism that coverage will continue to move higher,” Mendelsohn added.

“We are in a great position to deploy capital given our low leverage and an acquisition environment that seems to be moving towards a buyer’s market,” said NHI CIO Kevin Pascoe. 

Pascoe added that he was “confident” NHI would announce additional investment activity “before the end of the year.”

Higher and unpredictable interest rates have served to be a barrier for companies looking to ink new deals across the senior living industry in 2023., And they have also created “more financing opportunities,” Mendelsohn said.

That’s allowed for “second tries at deals” that previously fell through, he said.

Net operating income (NOI) of the company’s senior housing and operations portfolio (SHOP) improved from $1.9 million in the first quarter to $2.1 million in the second quarter.

Occupancy has increased 170-basis points in July to 77.3% from 75.6% in June, with a goal of further improving SHOP NOI “in the second half of 2023.” As in the first quarter, Mendelsohn underscored his belief that the company’s SHOP segment will play a major role in the company’s future growth plans. 

“We’re very focused on external growth opportunities which are starting to look more attractive as capital becomes increasingly scarce,” Mendelsohn said.

Pascoe also noted: “The recent trends give us conviction in our longer term view that this portfolio can generate NOI dollars in the high teens and margins in the mid 30% range.”

“This provides an excellent source of internal growth while building a platform with a long runway for external growth,” he said.

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