Executives at the National Health Investor (NYSE: NHI) were optimistic about the financial performance of skilled nursing holdings and shared plans to expand that portion of their portfolio. However, they believe that nursing homes are too expensive at this point, and there have been few opportunities for reasonable pricing to meet the underwriting criteria for real estate investment trusts (REITs).
It also monitors potential impacts from budget cut proposals to Medicaid, but so far political developments have not caused cooling of market-wide demand or pricing for skilled nursing facilities.
Overall, NHI continues to be interested in increasing skilled nursing exposure, but has adopted the disciplined approach of Chief Investment Officer Kevin Pascoe during NHI's fourth quarter revenue calls.
“We are absolutely looking for (about SNF trading). It's just a matter of getting the opportunity with the right operator and the right price. We have very good, skilled nursing operators now, and we want to do more with them,” he said.
The market for skilled nursing facilities is “slightly bubbled up” from a pricing perspective, he said the company is selective when evaluating potential acquisitions.
“We were very strict about the underwriting criteria in terms of credit and compensation expectations. So we haven't seen anything ready to act lately, but we're still watching.”
NHI wants to increase its investment in “reasonable” sized SNFs. Skilled nursing is a much smaller component of its business since its origins in 1991, when its investment exposure was made up of skilled nursing facilities (SNFs).
“We haven't seen those opportunities right now, but we'll definitely see them,” he said.
NHI maintains a long-term game plan to maintain or increase skilled nursing holdings.
NHI's current portfolio consists of independence, support and memory care communities, retirement communities for enrollment squads, skilled nursing facilities, medical office buildings and specialized hospitals.
Regarding the financial performance of the existing skilled nursing portfolio, Pascoe said it remains strong.
“Our admission fees and skilled nursing portfolio continue to perform well,” Pascoe said. “The SNF portfolio reported 3.05x solids (rent) coverage, which has been improved one after another from 3.04x.”
NHI's SNF coverage is driven primarily by the National Healthcare Corporation (NHC) and is calculated using fixed fee coverage at the enterprise level, as opposed to facility-level EBITDARM, Pascoe said. NHC manipulates properties and is one of the largest tenants in NHI.
In the fourth quarter of 2024, NHI exceeded its earnings per share forecast at $0.95 compared to its forecast of $0.75. Quarterly revenue was $65.78 million, down 5.2%, below the projected $69.37 million
At noon Wednesday, NHI stock traded at $69.74, or $1.55, or 2.17%.
Impact on SNF from the proposed Medicaid reduction
Transactions in SNF assets have not yet been considered for the proposed Medicaid reductions, and the prices of such assets are still high, Pascoe said. However, everything may change.
“That's what we see, but it's too early to tell,” Pasoe said. “(Medicaid reduction) can affect these programs. That said, it's not explicitly outlined in the bill from what I've seen so far. So we'll work with our operators to make sure we understand.”
Nevertheless, speaking from Washington operators and sources point to a strong market for SNFS, he said.
“But anecdote, what I've heard from other sources is that they haven't cooled the market in terms of skilled nursing and buyers' profits and prices. But so far, it's still a fairly robust market,” Pascoe said.
