National Health Investors (NHI) was the last of the healthcare REITs to report earnings in what was a very informative earnings season. We have already reported that the REITs and their SHOP portfolios have begun the long-anticipated turnaround as occupancy begins to rebound. Operating costs will be another matter, and it will take a few years to return to normal, whatever that is.
NHI’s three major seniors housing tenants have appeared to stabilize, at least from an occupancy perspective. Bickford Senior Living, which has been responsible for the majority of cash rent deferrals during the pandemic, boosted sequential occupancy by 180 basis points in April to 76.3%. That means that occupancy has fallen by 840 basis points from the 84.7% in March 2020. NHI has come to an agreement to sell six Bickford properties back to the provider for $52.9 million, including $13 million of seller financing. Annualized rental income was $5.2 million, and the book value of the assets was $34.6 million. Three additional properties were part of the discussions, and they may be sold to a third party, leased to another tenant or kept in the lease with Bickford.
Holiday Retirement Corporation has been the biggest underperformer, with occupancy dropping from 86.7% in March 2020 to 73.5% in April 2021, for a 1,320-basis point decline. The good news is that census has been stable for the past three months, and with move-ins across the country accelerating, we would suspect that Holiday would begin to see some increases. NHI is in rent concession talks with Holiday in case this does not happen, but the REIT has $10.6 million in deposits to keep them current.
Senior Living Communities started the pandemic with a lower census than both Bickford and Holiday, but it also saw the smallest decline in census. April was 77.9%, or just 260 basis points lower than March 2020, and this past April was 10 basis points above March. While a small increase, it is a start.
When not dealing with its seniors housing tenants, NHI was busy in the medical office building (MOB) market. It entered into a $50 million mezzanine loan with Montecito Medical Real Estate for a new fund that will invest in healthcare real estate with, we presume, an emphasis on MOBs, since that is what Montecito has been focusing on lately. Borrowings under the agreement will be at 9.5%, with an additional 2.5% accruing and to paid on certain events, such as a sale of the investment or a refinancing. The mezzanine loan has a five-year term. At that return, this should be a good investment for NHI.
