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NHI Expects to Accelerate Growth in 2024, Investment Outlook Remains ‘Very Favorable’

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It’s shaping up to be an active investment year in 2024 for companies like National Health Investors (NYSE: NHI), according to CEO Eric Mendelsohn.

Though the company did not announce sizable new investments or outline a granular strategy for the year ahead, Mendelsohn noted that the company’s leaders are growing “more optimistic” about its investment pipeline.

Helping to bolster that view is the fact that several market conditions are putting REITs like NHI and others in the driver’s seat for the year ahead.

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“There is an obvious cost of capital disparity with some of our larger peers, but they cannot be the solution for all of the growing illiquidity in the senior housing industry,” Mendelsohn said during the company’s earnings call with investors and analysts Wednesday. “We continue to advise customers to carefully choose a partner that will work with them towards their success in the long run. We believe this is starting to resonate, which makes us more optimistic now about the pipeline.”

He added that “banks are not lending, deals are falling apart, sellers are getting more rational in their pricing expectations” – all conditions that favor a REIT like NHI.

“I think brokers are getting through to potential sellers that there’s still a market, but it’s not the market of 2020,” he said. “It’s a different market now at a higher cap rate, with more difficult financing options.”

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Also giving the company confidence for the year ahead is continued growth and improvement in its burgeoning senior housing operating portfolio (SHOP), which includes 15 properties. The company in 4Q23 reported a 24.4% sequential net operating income (NOI) growth for the segment compared to the third quarter of 2023.

Currently, the company is examining deals across the continuum of senior housing and skilled nursing in addition to other sectors, which have included loan-lease and joint-venture opportunities, according to Chief Investment Officer Kevin Pascoe.

During the fourth quarter of 2023, NHI sold three properties for net proceeds of about $7 million.

“The investment and lending environments are very favorable for well-capitalized, low-levered capital providers like NHI and the industry supply-and-demand balance seems finally to be tilting in our favor,” Mendelsohn said. “NHI is poised to capitalize on opportunities and what we expect to be many years of exceptional growth.”

The company “remained very quiet on investments,” wrote analyst BMO Capital Markets Juan Sanabria and John Kim.

“But its balance sheet is well-placed [at] 4.4x, although floating exposure remains high [at] 39%,” they wrote in a Feb. 20 note to investors.

NHI stock rose nearly 6.6% to land at $56.76 per share by the time financial markets closed Wednesday.

In recent years, NHI has endeavored to build a senior housing “jewel box” with operators including Discovery Senior Living and Merrill Gardens. Though rearranging leases and getting CapEx into the communities took a decent amount of time, Mendehlson noted that it had paid off as of the fourth quarter of 2023.

Occupancy for the portfolio grew to 83.2% in the fourth quarter of 2023, reflecting a sequential gain of 420 basis points and a 350-basis point improvement in margins, according to NHI management.

“While SHOP is still a relatively small piece of our overall business, we’re excited by improving trends and continue to believe in the significant upside potential that can drive our organic growth file profile,” Mendehlson said. “Specifically we expect shop NOI to grow in the range of 25% to 30% in 2024.”

Looking ahead, Mendehlson said the company is looking to add to its SHOP segment through either acquisitions of communities or conversions of triple-net leases – “and there’s certainly a lot of opportunity there, and a lot of people interested in that,” he said.

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