Leading skilled nursing partners including the Ensign Group (Nasdaq: ENSG) and National HealthCare Corporation (NHC) continue to drive “business resilience” for National Health Investors Inc. (NYSE: NHI).

That’s according to NHI CIO Kevin Pascoe, who touched on the topic during a second-quarter earnings call Tuesday.

“Business resilience is primarily attributable to NHC and Ensign. … Our other five SNF operators under leases have received minimal rent concessions since the pandemic began, and we did not provide any SNF-related deferrals in the second quarter,” he said.

The Murfreesboro, Tennessee-based real estate investment trust (REIT) has 68 skilled nursing assets, along with 112 senior housing properties, one specialty hospital and its seniors housing operating portfolio, or SHOP, comprising 15 legacy Holiday independent living facilities.

NHI specializes in sales, leasebacks, joint ventures, senior housing operating partnerships, and mortgage and mezzanine financing.

About 34% of NHI’s annualized adjusted net operating income is tied to skilled nursing facilities, with a solid continued earnings before interest, taxes, depreciation, amortization and management fees (EBITDARM) coverage at 2.7 times.

SNF asset operators include NHC, Ensign, Health Services Management (HSM) and Prestige Care Inc. NHC and Ensign account for the bulk of NHI’s net operating income tied to nursing home operators.

NHC specifically had 3.51 times EBITDARM coverage, with other operators trailing at about 1.98 times.

Across all of NHI’s assets, $3.9 million in rent deferrals were granted in Q2, including $2.9 million in pandemic-related deferrals to five senior housing operators, the company said in its earnings statement.

About 94% of contractual cash due during the second quarter was collected by NHI.

Pascoe said it’s a “challenging environment” right now to hire and retain employees across all asset classes, and there’s always going to be some level of turnover.

“There is a little bit of wage pressure, but it’s not like we’re seeing on the needs-driven side,” he added.

The second quarter was quiet from an investment standpoint, Pascoe said, but NHI leaders are pleased to see several deals come back to the market, which the company passed on previously.

This suggests there’s a tipping back toward a buyer’s market, he noted. NHI will continue to prioritize deals with immediate real estate ownership or short-term financing structures that include a path to ownership.

“The pipeline is definitely more active than it had been in recent quarters, which is encouraging, but we are not seeing pricing change materially at this point, despite the significant increase in financing costs this year,” Pascoe added.

Still, NHI will continue to focus on driving operational improvements on current ventures rather than expanding, he said during the call.

Building up lease volume, rebuilding the sales funnel and improving occupancy are also toward the top of NHI’s to-do list.

“Our focus now is very much on returning to growth,” NHI CEO Eric Mendelsohn said on the call. “We are in excellent financial health with leverage at the lower end of our targeted range, which gives us significant capital to deploy without the need to issue equity in the immediate future.”

NHI beat analyst expectations for funds from operations (FFO) by 4 cents, according to Seeking Alpha, with revenue of $21.46 million for the quarter. The National Association of Real Estate Investment Trusts (NAREIT) FFO per diluted common share was 71 cents, a drop from $1.16 during the second financial quarter in 2021.

The company downgraded its annual guidance to $3.86 to $3.92 for NAREIT FFO during its Q2 earnings call; it was $4.32 to $4.42 previously.

The updated guidance is attributed to continued rent concessions, asset dispositions and loan repayments throughout 2022, NHI said in its earnings report. Other considerations included about $52.6 million in investment funding of existing commitments, no incremental benefit from unidentified acquisitions or repayment of outstanding deferral balances.

Net income attributable to common stockholders per diluted common share was 47 cents for the quarter, a drop from 85 cents per share during Q2 2021.

For the first six months of the year, net income per diluted common share was 66 cents compared to $1.63 during the first six months of 2021.

Funds available for distribution during Q2 was $56.3 million, an increase from $52.8 million during Q2 2021.

Other notable portfolio changes are more on the seniors housing side, with Bickford Senior Living converted to a cash basis of accounting for its four master lease agreements; NHI wrote off $18.1 million of straight-line rents receivable and $7.1 million of lease incentives to rental income.

“With our significant deferral balance outstanding and the fair market value reset of the lease in two years, we’re providing all the resources necessary to accelerate the recovery,” Mendelsohn said of Bickford. “We’re pleased with the early outcomes. Our portfolio is in better shape, and siloed.”

NHI also completed the dispositions of 10 underperforming senior housing properties for $76.3 million during Q2. The sale of Helix Healthcare, a hospital property, brought net cash proceeds for the quarter to approximately $95.8 million.

The Q2 sales bring total senior housing dispositions to 31 properties, or $288.2 million, since the same quarter in 2021.

NHI settled its outstanding litigation against Welltower (NYSE: WELL) and its affiliates on April 1 as well. NHI received $6.99 million in previously escrowed cash and termination of the master lease for 17 Holiday properties.

Ensign Group, Health Services Management, National Healthcare Corporation, NHI, Prestige Care

A Buffalo transplant living in LA, Amy has worked as a business journalist for more than two years and has been in the profession for seven-plus. She is an avid (sometimes poolside) science fiction reader, nature lover and roller derby novice.

Contact: [email protected], 312-967-0762

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