NHI Looks to be Proactive, ‘Choosy’ Dealmakers in 2022

When National Health Investors (NYSE: NHI) announced it had collected 82.7% of its rent for the month of November, none of its nursing home tenants were among the list of deferrals.

That’s because, according to NHI leadership, the real estate investment trust (REIT) works with the “best-in-class operators” for its SNF portfolio. Out of 222 properties, Murfreesboro, Tenn.-based NHI has 75 skilled nursing facilities in its portfolio.

During its most recent earnings call CEO Eric Mendelsohn said its skilled nursing operators serve as a “blueprint” for long-term stability and growth.

NHI did not make any new investments during the third financial quarter, but Chief Investment Officer Kevin Pascoe has said pipeline activity will pick up once dispositions and restructuring is complete.

Michelle Kelly, senior vice president of investments at NHI, believes the company’s success on the skilled nursing side starts with NHI’s ability to be “pretty choosy” when it comes to who they have decided to work with.

“I think the groups that we are working with are generally conservative in terms of how they look at new opportunities: they look at growth, they make sure that as they’re growing, it’s growth that they can handle,” Kelly told Skilled Nursing News.

“Most of them are fairly well capitalized so they’re just in a strong position to begin with to weather the kind of ups and downs,” she added.

Kelly said NHI has been looking for skilled nursing opportunities “even more proactively” in the last few years compared to when she started with the REIT in 2017.

“But the reality is we’re not alone. And so it has become incredibly competitive over the past year or so, and I think it’s because people see the opportunity with skilled nursing,” she said.

Kelly sat down with SNN to discuss NHI’s investment strategy, the REIT’s goals for 2022 and what the future of the skilled nursing industry might look like.

This interview has been edited for length and clarity.

Your CEO in the most recent earnings call said that its skilled nursing operators serve as a blueprint for long-term stability and growth at this point in the pandemic. How has that informed your investment strategy and how you look for new business opportunities for the company?

Our company is roughly a third skilled nursing and two thirds senior housing and we like the mix, we want to keep the mix. We’re going to continue to invest in skilled nursing unlike some of our peers who have definitely, you know, exited that space.

Yes there might still be some supply that comes out of the equation but skilled nursing is an essential piece of the health care continuum; it’s not going anywhere. It is the answer for many folks on a long-term basis, and I think there’s different operators who’ve gotten really creative in how they approach skilled nursing so that umbrella has gotten really big.

You’ve got folks like Ignite [Medical Resorts] … and they’re doing some really cool things on more of the short stay rehab, concierge type care. You’ve got your traditional skilled nursing operators — Ensign’s a great example. They are a large tenant of ours and they’ve been doing some great things with turnaround assets. They’ve just got a really solid operating platform and I think, for us, it’s finding high quality groups like that to partner with and to work with that gets us really excited still about skilled nursing.

What are your thoughts on the market overall? I know you’ve talked about the competition that’s existing but, especially as it relates to the price per bed levels that have been seen in the skilled space, what’s your take on everything that’s been going on in the last year?

I think you’ve got a lot of investors in there – and it’s not necessarily your traditional REITs and private equity – but just a lot of groups out there that might be privately owned owner operators or other types of investors who see the stability in skilled nursing.

The fact that the government did step up and really provided some support goes to show again that the industry is not going anywhere. It might change and evolve, but it’s not going to disappear – coupled with the fact that lenders have also seen that stability.

What are some of your goals for 2022?

I think for us, it’s again, just, we tend to be pretty, pretty choosy in terms of who we’re going to work with and which deals we’re going to chase. So we, like a lot of folks, but we’re looking for deals with decent cash flow today that has some potential for upside going forward. So we’re going to continue to look for skilled nursing opportunities and we’re going to continue to look for senior housing opportunities. You know, again, I think we like the mix that we have and so we’ll kind of target opportunities that help keep that in balance.

You did bring up Ensign, and I know there have been some operators who are attempting or working to model their philosophy off of Ensign. Why do you think Ensign has been so successful?

I think what you hear from them too is similar to what we see. It’s really the focus on the local health care market and health care leadership. So they have built a company full of entrepreneurs and they incentivize and hire a different caliber of talent that I think really drive their performance down to the local level.

Based on your experience in the industry, where do you see the skilled industry headed both on the investment side and as a whole?

I think the industry is going to continue to rebound post COVID. There certainly will be ups and downs as we’re all experiencing with new omicron variants and whatnot show up. But I think they have shown a lot of resilience, I think they’ve figured out where there might have been some shortfalls in terms of some of the infection control procedures like those have all been bolstered as needed, but quite frankly, most of them were already in pretty good shape.

So I think going forward it’s going to be an evolving landscape, you’re going to continue to see kind of niche products come out that might target who their clientele is a little bit more than just general traditional long-term residents, but you’re going to still have that traditional skilled nursing product. Again, that is … the option for a lot of folks in some of these markets so that’s not going to disappear. But there’s going to continue to be scrutiny and there should be to make sure that the operators that are providing us care are doing it at the highest caliber.