National Health Investors (NYSE: NHI) is working through lingering trouble with one of its operating partners as it keeps its eye on future investments. 

In October, the Murfreesboro, Tennessee-based real estate investment trust (REIT) transitioned four communities from Senior Living Management (SLM) to other operators after SLM “raised doubts about [its] ability to sustain its operations and pay its contractual rent and interest obligations prospectively.”

SLM rent and interest payments were $400,000 and $300,000, respectively, in the third quarter of 2024, leaders with NHI shared during a third-quarter earnings call with investors and analysts.

NHI has a $10 million mortgage note receivable and a $14.5 million mezzanine loan due from affiliates of SLM “that were designated as non-performing,” the company noted. NHI in October entered into foreclosure proceedings against the real estate collateral for the mortgage loan.

NHI Chief Investment Officer Kevin Pascoe noted that NHI has been reducing its exposure to SLM for several years, and already it has sold seven properties managed by the troubled operator. Currently, the company has a range of options for SLM, including taking back the properties, initiating foreclosures on some properties and selling the loans.

Looking ahead, NHI leaders will “take the appropriate amount of time to figure out whether or not we’re going to sell or try and move on with all or a portion of the communities that are on the loan,” Pascoe said.

NHI’s stock closed at $76.76.

Outside of its issues with SLM, Pascoe said NHI had “another good quarter” given other positive trends in occupancy and other areas. According to NHI CEO Eric Mendelsohn, the company’s senior housing operating portfolio (SHOP) has shown “strong growth” over the last quarter and currently averages 88.6% average occupancy. 

With the way market fundamentals have been trending, particularly with new construction starts being among the lowest seen since 2010 and the increasing amount of demand with a rapidly aging population, NHI believes it can “start to drive more rate growth,” Mendelsohn said. He added that will drive additional margin growth.

The REIT’’s goal for occupancy in the coming months will be to push past the 90% mark before weaning off discounts and other incentives for residents, Pascoe said.

“We want to make sure they’re staying there before we really take our foot off the gas in terms of the incentives,” Pascoe said. “Frankly, it’s taking us a little longer than we would like to see, but we’re getting there … We’re looking at a mid single digit revenue increase as it relates to street rates this year. And then as we start to continue to see occupancy stabilized, we should see that flow through to the bottom line as well.”

So far in 2024, the REIT has closed on $205 million in investments and acquisitions, including a $121 million deal to acquire 10 Spring Arbor communities in North Carolina announced in October. Additionally, the company has signed letters of intent for an additional $59.8 million in investment opportunities that are expected to close by early next year.

Mendelsohn said NHI is evaluating an investment pipeline of $350 million, which includes transactions relating to SHOP, sale-leaseback and loans with purchase options, primarily for senior housing assets.

“Frankly, I’ve not seen this level of actionable investment opportunities in my entire career,” Mendelsohn said. “And while nobody can ever be certain how long this window stays open, I see several factors supporting years of exceptional growth.”

Mendelsohn told investors he believes that “well capitalized” REITs such as NHI will be in a strong position for future growth due to the cost of capital and the existing market conditions in the senior housing industry.

Pascoe noted the company’s entrance-fee and skilled nursing portfolios accounted for 58% of NHI’s net operating income. Margins for the REIT saw a 10 basis point decline over the past quarter, but as a whole the guidance for the SHOP has been increased from 25% to 30% up to 28% to 30%.