National Health Care's Kevin Pascoe

The performance of key skilled nursing operators National HealthCare Corporation and Ensign Group buoyed National Health Investors’ second-quarter stats, even as the real estate investment trust continued restructuring its larger senior living portfolio.

Company officials made the case for a sustained — and maybe soon-to-grow —  presence in skilled nursing during an earnings call Tuesday afternoon. Skilled nursing made up 34% of the REIT’s net operating income in the second quarter of 2022.

NHI’s skilled nursing properties had an EBITDARM (earnings before interest, taxes, depreciation and amortization rent, and management fees) coverage ratio of 2.7 times. That included an improved 3.51 coverage ratio at NHC, offset by a ratio of about 1.98 among other operators.

“The SNFs’ resilience is primarily attributable to NHC and Ensign, which represent approximately 77% of the SNF portfolio,” said Chief Investment Officer Kevin Pascoe (pictured). “Our other five SNF operators under leases have received minimal rent concessions since the pandemic began and we did not provide any rent-related deferrals in the second quarter.”

Overall, NHI said it had maintained its stated goal of a 4x to 5x net debt to adjusted EBITDA ratio, despite significant deferrals and asset dispositions.

Buffing up senior living

Those came on the senior living side, where NHI moved its beleaguered Bickford Senior Living operator to a cash-accounting basis as its struggles to collect rents. But officials said they were happy with a recent restructuring of the Bickford properties, which included a new master lease effective April 1 and a refined portfolio with newer buildings in prime markets.

The trust wrote off $18.1 million of straight-line rents receivable and $7.1 million of lease incentives to rental income.

“The rent reset immediately improves Bickford’s financial health and positions the operator to begin repayments of $26 million in cumulative deferrals over the next several years, “ the company said in an investors presentation.

The trust also transitioned 15 former Holiday Retirement properties to a new senior housing operating portfolio effective April 1, under Discovery Senior Living and Merrill Gardens. That portfolio contributed $2.9 million to adjusted income during the second quarter, with $6 million to $8 million more expected “as the industry recovers.”

While the company disposed of senior housing assets through $288.2 million in sales over the last year, it did not shed any skilled nursing in the second quarter. Pascoe said leaders are interested in growth, but focusing on driving operational improvements in internal ventures before expanding the SNF platform externally.

Upper hand for buyers?

That said, the deal-making environment looks promising, Pascoe added.

“The pipeline is definitely more active than it had been in recent quarters, which is encouraging, but we are not seeing pricing change material at this point, despite the significant increase in financing costs this year,” he said. “We continue to prioritize deals with immediate real estate ownership or short-term financing structures with a path to ownership.”

Pascoe also noted that several deals that National Health passed on previously have resurfaced, which may mean the “balance is tipping back toward buyers.”

NHI last quarter reduced its debt by approximately $145 million and had no outstanding balance on its $700 million revolver loan as of June 30. That could position the trust to make moves as pricing adjusts to account for inflationary pressures and higher borrowing costs.

“Our focus now is very much on returning to growth,” said Eric Mendelsohn, president and CEO. “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.”