Q1 2025 National Health Investors Inc Earnings Call
Speaker Change: Greetings, welcome to National Health Investors' First Quarter 2025 Earnings Webcast and Conference Call. At this time, all participants are in listening mode. A question and answer session will follow the former presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.
You may begin.
Speaker Change: The results as well as notice of the accessibility of this conference call were released after the market closed yesterday in a press release that's been covered by the financial media Any statements in this conference call, which are not historical facts, are forward looking statements The results as well as notice of this conference call, which are not historical facts, are forward looking
Speaker Change: NHI Cauchons Investors at any forward-looking statement may involve risks or uncertainties and are not guarantees of future performance.
Speaker Change: All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its Periodic Reports, filed with the Securities and Exchange Commission.
Speaker Change: including the risk factors and other information disclosed in NHI's Form 10K for the year-ended December 31, 2024, and Form 10Q for the quarter-ended March 31, 2025.
Speaker Change: copies of these filings are available on the SEC's website at SEC.gov or on NHI's website at NHIREET.com. In addition, certain terms used in this call are non-GAAP financial measures.
Speaker Change: Reconciliation of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8K to the SEC. Listeners are encouraged to review those reconcilations provided in the earnings release, together with all other information provided in that release.
Speaker Change: I'll now turn the call over to our CEO, Eric Mendelsohn.
Hello and thanks to everyone for joining today.
Speaker Change: We're off to a great start in 2025 with first quarter results that exceeded our expectations driven by a faster pace of acquisitions and upside to our cash rent collections from better than expected deferral payments and the NHC percentage rent.
Speaker Change: As a result of the strong start and building momentum, we're raising our normalized FFO guidance midpoint by 8 cents per share to $4.71, representing year-over-year growth of 6.1%.
Speaker Change: We've announced investments of 174.9 million so far this year, and we're far from done as the number of sellers seems to be growing.
Speaker Change: We have an active pipeline of approximately 264 million that Kevin and his team are working on right now, and the funnel of other opportunities is many times larger than that.
The pipeline includes multiple shop deals and excludes larger portfolios.
Speaker Change: On the topic of large portfolios, you'll notice that we recorded a $1.2 million charge in transaction
Speaker Change: These costs were related to a large shop portfolio to which we allocated significant resources. Ultimately, this was not the right deal for our shareholders, and we will not pursue growth for growth sake.
Speaker Change: We are, however, keenly focused on growing our shop portfolio, and we're excited about the many opportunities that we're seeing.
Speaker Change: Last quarter, we talked for the first time about growing shop through internal conversions. We're making great progress on transitioning a portfolio of six properties currently least to discovery to a new idea of partnership.
Speaker Change: We see good NOI upside to this portfolio and will plan to share more details as the conversion progresses
Speaker Change: We're taking extra time to ensure that this transition goes smoothly as this can serve as our template for future additions of assisted living communities into the right-dea structure.
Speaker Change: We've been positioning the company for this opportunity through our portfolio optimization and our thrill to be on the front end of this long-term value-creating opportunity for our shareholders.
Speaker Change: and our existing shop operation, the first quarter-resolved experience typical seasonality.
Speaker Change: Our belief in that trajectory is unchanged and we're therefore maintaining our outlook for 12-15% NOI growth this year and continued strong performance in later years.
Speaker Change: As I mentioned at the start, our cash rent collections exceeded expectations in large part due to the pace of acquisitions.
Speaker Change: We've acquired approximately 131 million in real estate year-to-date with three new partners, including generations, Juniper Communities, and Age Mark.
Speaker Change: We've long admired all three of these companies and are already exploring additional avenues to grow these relationships.
Speaker Change: The balance sheet continues to be in great shape and very supportive of funding the significant investment pipeline.
Speaker Change: As John will detail in his comments, we are including $155 million in incremental investments in our guidance on top of the investments already announced, reflecting our high conviction and the near-term outlook.
Speaker Change: I think it's safe to say that given the fast start and good visibility on the pipeline, we're optimistic we can surpass last year's investment total of 237.5 million.
Speaker Change: Last quarter, I said that we were pleased with the execution in 2024 and very optimistic that 2025 would be an even more productive year.
Speaker Change: That is proving to be consistent with our mantra to quote, under promise and over deliver, unquote.
Speaker Change: I'll now turn the call to Kevin to provide more details on our operations. Kevin.
Thank you, Eric.
Kevin: We are unquestionably seeing the pace of deal flow accelerate. We are actively pursuing a 264 million dollar pipeline which consists of real estate and shop deals primarily in senior housing.
Kevin: We are also evaluating some larger deals with nine-figure valuations that are not included in the pipeline [inaudible]
Kevin: Current market seems to show no dearth of sellers, while the buyer pool is somewhat limited.
Kevin: We have a competitive cost of capital and solid access to debt and equity capital, which is why we are seeing so much activity right now and we expect that 2025 investments will be materially higher than 2024.
Turning to asset management.
Kevin: Eric mentioned we are making good progress on converting a 6-property portfolio to Rudeo with a new operating partner. We greatly appreciate Discovery's cooperation in this matter, and we'll continue to work with them to grow our shop portfolio.
Kevin: The knee-driven operator again had positive coverage trends with EBIT arm at 1.41 times.
Kevin: Bigford's coverage, adjusted for the April 2024 rent reset, was 1.6 times, while the other need-driven tenants' coverage improves sequentially by one basis point to 1.23 times.
Kevin: Deferral Repayments of 2 million, or a bit ahead of our expectations as we received approximately 1.4 million in unscheduled repayments, including approximately 1.3 million from BigFord and 120,000 from two other operators.
Kevin: As we discussed last quarter, the legacy SLM portfolio has been largely repositioned [inaudible]
Kevin: Last week, we received $2.5 million in partial repayment of a loan on four properties.
Kevin: Well, certainly not happy with SLM circumstances. I am pleased with our team's quick response to limit any disruption to the residents of these properties and to recapture a significant amount of the lost in the water.
Kevin: Our entrance fee and skill nursing portfolios continue to show great performance.
Kevin: The discretionary senior housing portfolio which includes our entrance fee portfolio had healthy coverage at 1.67 times
Kevin: The SNCC portfolio reported solid coverage of 3.06 times, which improved sequentially from 3.05 times.
Kevin: Recall that the SNF coverage is largely driven by NHC, which is calculated using a corporate level fixed charge coverage ratio as opposed to a fully level EBITARM.
Kevin: We have received several questions about the potential impact of Medicaid cuts to our portfolio.
Kevin: Well, it's too early to know we have added additional disclosure to our supplemental on page 22 that details are analyzed SNF cash revenue by state.
Kevin: As you can see, the majority of our revenue is in states that never expanded Medicaid under the ACA.
Kevin: In addition to our strong-stiff coverage and tenant credit, we believe our geographic exposure can mitigate the impact of potential cuts.
Kevin: Lastly, in Shaub, NY for the quarter increased 4.9% year-over-year to 3.1 million.
Kevin: Residents fees increased by 5.2% year-over-year, driven by occupancy improvement of 390 basis points
Kevin: The margin declined ten basis points to 22.1% compared to the prior year period. We did expect occupancy and N.O.I. to show some seasonality with a different the first quarter compared to the fourth quarter.
Kevin: We are broadly seeing fundamentals trend in the right direction, including April's preliminary occupancy, which is up approximately 40 basis points from March.
Kevin: So, we are maintaining our 12 to 15% in a wide growth target for the year [inaudible]
Kevin: I'll now turn the call over to John to discuss our financial results and guidance. John ?
John: Thank you, Kevin. And hello, everyone. For the quarter ended March 31st, 2025.
John: Our net income for diluted commas share was 74 cents, a 4.2% from the prior year.
John: Our NERI-FFFO results for Duluth Common Share for the quarter and in March 31, 2025, compared to the prior year period, increased 3.6% to $1.14.
John: Our normalized FFO results for diluted common share for the quarter-animatory first increased 2.7% to $1.15 compared to the prior year period.
John: In the first quarter, we recognized $1.2 million in transaction costs.
John: which is approximately three cents per share, which Eric mentioned in his comments impacting
John: FAD for the quarter end of March 31st, compared to the prior year period, increased $9.9% to $56 million.
John: Sequentially compared to the fourth quarter, cash ran for the first quarter from our real state investment segment, increased $2.6 million.
John: The increase was attributable to several items. First, our cash rents increased approximately $900,000 from acquisitions closed during the fourth quarter of 2024 and the first quarter of this year.
John: Second, we received $1.2 million in percentage revenue rents from the annual NHC percentage revenue certification.
John: The $1.2 million in NHC percentage revenue rents were all set by $100,000 in lower NHC based rents, attributable to the declining lease termination consideration associated with a disposal of seven Northeast skilled nursing assets.
John: Recall that in 2022, we increased the $30.8 million basement in our master NHC lease for the consideration NHC agreed to pay us for the early termination of a separate seven property
John: The termination of that lease added additional rents owed the company to the master lease for the lease termination consideration.
John: The company then disposed of the seven Northeast assets in 2022 and received $43.7 million in that proceeds.
John: Third, we received approximately $200,000 in additional rents from transition properties, including properties formerly leased to SLM, and fourth, we received approximately $700,000 in additional rent attributable to annual rent increases.
John: Those increases were partially offset by lower deferred repayments of approximately $300,000 and $1.
John: NOI from our shop segment for the quarter NMR-31 increased 4.9% at $3.1 million compared to the prior year period.
John: The year-over-year shop common shareholder FAD contribution was up 12.6% to $2.8 million after adjusting for routine capital expenditures and non-controlling interests.
John: The more details, please see note three in the form ten cube in March 31st, 2025, 5 last night.
John: Subsequent to the end of the quarter, we've announced two additional new investments, totaling $91.5 million at an average yield of 8.3%
John: Year to date, we now have made investments of approximately $174.9 million and an average initial yield of 8.2%. Or approximately $18 million in investments greater than the first six months of last year.
John: During the first quarter, we activated our ATM and sold on a forward basis approximately 208,000 common shares and the average price for four fees was $75.52 per share.
John: During the first quarter, we settled the remaining 960,000 common shares from the August 2024 forward offering and adjusted forward price of $68.21 for share after fees for proceeds of approximately $65.5 million.
John: At March 31, 2025, we had total escrowed forward equity proceeds of approximately $68.9 million available to us in exchange for the future delivery of 931,000 common shares and an average price of $74 per share.
John: We also landed the quarter with $135 million in cash on our balance sheet.
John: Subsequent to the first quarter, we retired $60.1 million and secured debt and extended our $200 million term loan for six months to December 16, 2025.
John: Our balance sheet ended the first quarter in great shape. Our net debt to adjust the EBITDA ratio is 4.1 times for the quarter, while within our stated 4 to 5 times leverage policy.
John: We ended the quarter with approximately $4.9 million in available ATM capacity, and we had $253 million of availability on our role model, in addition to the remaining escrow port equity proceeds and cash on our balance sheet.
John: For 2025, we continue to be focused on the competition liquidity to meet both our pipeline and maturing debt needs.
John: We have an additional right to extend our 200 million dollar term loan for another six months into 2026, which we intend to do sometime toward the end of the third quarter, and we will retire our other maturing debt, totaling $65.6 million through the end of the year.
John: We are monitoring long-term bond rates and continue to expect the tap to block public bond market in 2025 to further improve our liquidity.
Let me now turn to our given end and guidance [inaudible]
John: As we announced last night, our Board of Directors declared a 90-centre-shared dividend for shareholders of record June 30th, 2025, and payable on our goods first, 2025.
John: Last night, we also increased our full year 2025 guidance for all our per share of metrics.
John: Our updated foliar guidance from Navy FFO and normalized FFO for diluted commas share at the midpoints is $4.67 and $4.71 for 2.6% and 6.1% increases respectively over 2024.
John: Compared to the February guidance, we increase the rate of FFO and normalize FFO by 4 cents and 8 cents respectively.
John: Our guidance for FAD at the midpoint is 225.1 million dollars, up from the February guidance of 221.7 million dollars.
and represents a 10.2% increase over 2024.
John: Our guidance this year includes the impacts from escrow board equity proceeds during the year.
John: Our guidance includes unchanged shop NOI growth in the range of 12 to 15% over 2024, as well as a continued collection of deferred rents and the fulfillment of our existing commitments.
John: I'd like to take a moment to discuss the NHC master lease agreement in the context of what's included in our guidance.
John: based upon the information which can be found in Note 3 of our March 3, 1, 2025, 10Q and the 10th Amendment to the NHC Masterlease Agreement filed as an 8K September 8, 2022.
John: Our guidance includes the base rent as scheduled in the 10th Amendment, plus the percentage revenue rent received from NHC in two parts.
John: The first part is 2024 Rent, code us based upon the Certified 2024 Revenues on our facilities.
John: The second part is the estimated percentage revenue that will be paid to us using last year's actual revenues until we receive certified revenue numbers in the first quarter next year.
John: As I just mentioned, the basement does include the additional payments owed us for the North of the seven least termination consideration.
John: All together, our guidance assumes total rent to be paid to the company before the certification of this year's certified portfolio cash revenues to be approximately $39.7 million for $1.
John: Because our confidence in our pipeline has led us to raise significant forward equity, we are updating our future unidentified investment guidance for the remainder of the year.
John: Our updated 125 guidance includes $155 million in additional new unidentified investments and an average yield of 8.2%
John: The timing of these investments was assumed to be weighted more heavily in the third and fourth quarters of this year.
John: In the future, we may discontinue giving guidance for unidentified investments. Should we discontinue obtaining equity on a forward basis?
John: Our guidance currently does not include the impacts from any shop conversion activities, but does include the impacts from the recently announced discovery release amendment, as further discussed in No. 3 of the 10Q.
John: Finally, guidance continues to include assumptions for additional costs and concessions related to normal asset management transitions, dispositions and loan repayments.
John: Once again, thank you for joining our call today. That concludes our prepared remarks.
So with that operator, please open the lines for questions.
John: Thank you. At this time we will be conducting a question and answer session. If you would like to ask your question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
John: You may press star two if you would like to remove your question from the queue For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys One moment please while we pull for questions
Speaker Change: And the first question today is coming from Richard Anderson from Wedbush. Richard Lyme is live.
Rich Anderson: Thanks, good morning, so maybe I'll go right for the jugular here. On NHC, can you give any update generally on the process?
Rich Anderson: You know, whether or not you need some clarity on Medicaid before you can really kind of dive in and you know, relate it to all that, you know
Rich Anderson: What the latest perspective that you can share is relative to land and buildings and you know having the right board bench in place to do it right.
Rich Anderson: Hey Rich, this is Eric, and according to Hogan, our attorneys, we have to be careful what we say about land and buildings because they're definitely monitoring this call.
Speaker Change: But the process with the NHC leases as written in the leases they have...
Speaker Change: to give us notice of renewal six months before the end of the term, which is the end of 2026.
Speaker Change: is a cloud and makes the future a little fuzzy there, so that's something we'll have to navigate around, and then, just for the activist listening,
Speaker Change: We do have an independent director's related party committee of the board and we have retained Blueprint Advisors, a skilled nursing advisory.
Speaker Change: Shop to help us determine what is market, what is a fair deal for shareholders, and then the related party committee will also...
Speaker Change: You know, help us create shareholder value based on the least renewal.
Ok, thanks for that.
Speaker Change: The second question is on shop, it's sort of small but growing, you know, based on what you're talking about in terms of internal conversions, but you know, what caused it to be so dramatically low for the first quarter? I know you've reiterated guidance, but was there something in there?
Speaker Change: One-time-ish because even you know any of your peers are not sort of in the mid-single digits during this quarter we're not seeing that any place else but here so maybe you can just comment on that.
Speaker Change: Hey Rich, this is Kevin. Actually, yes, we did have one, one-time expense in there that held it back a tiny bit. At the end of the day, though, we had planned on some seasonality and had projected it to be relatively flat for the first quarter, which is where it came in. [inaudible]
Speaker Change: We do tend to see some excess move outs in the winter months so not terribly surprised we'd like to see it have done a little bit better but at the end of the day we still had year over year growth we're seeing good leading indicators so we're still very positive on our guidance that we put out there.
Speaker Change: Ok, Kevin, just to say I have a little last one for me. What's left to do with that cell lamp in terms of the mes loans?
Speaker Change: SLM's largely wrapped up from my perspective. We got a $2.5 million payment at the end of...
Speaker Change: April , as they sell additional facilities, there's some likelihood that we'll get some additional payment, but those, the timing of those is...
Speaker Change: Not Determinable at the moment. So, the buildings have been retended, they're doing better and improving, happy with our tenants there, and then, you know, as I mentioned, we got...
Speaker Change: One payment, looking for some additional payments, but we'll report more as we get those in.
Ok, great. Thanks very much, Jell-Yield. Thanks very much, Jell-Yield.
Thank you.
Speaker Change: Thank you, the next question is coming from Juan Sanabria, from BMO Capital Markets, Juan
Hi, good morning.
Just a question on discovery on the triple met transitions.
Speaker Change: Should we expect that process to be seamless, any sort of blip and a rinse collected or a certain right, right, right officer to Fort CapEx that we should be thinking of as part of that?
Speaker Change: And if you could just square like why you're happy to continue the relationship on shop that are looking to transition the triple net assets who
Speaker Change: As I mentioned on the call or the comments, you know, we're very thankful for our discovery's cooperation here.
Speaker Change: There's going to be a hand off, there's going to be probably some noise in there. We've accounted for that as we think about it in our projections as we look at this opportunity.
Speaker Change: In terms of the buildings, they've been maintained. I do believe we're going to have some revenue producing type catbacks that will invest in the community so you'll see that from us like we also did on the other shop portfolio.
Speaker Change: The last question I want to clarify when you said about continuing to invest in shop, do you mean with discovery or can we clarify?
Speaker Change: Well, discoveries done a good job on the shop portfolio that we have. We've seen occupancies improve, we're starting to see the incentives that we had put out there to get occupancy up come off. We should see our views increase.
Speaker Change: At the end of the day, it took a little bit more time than we would have liked on the shop portfolio. That's a global comment, really, for the whole 15.
Speaker Change: to get in the right direction, but we're moving, and we feel good about that. So we want to support the things that have gone well.
Um...
You know, there is...
Speaker Change: An ability, I think, for us to move some more independent, larger independent buildings into that relationship and support the things that have gone well and then on the other piece.
You know, it's been our, it's-
Speaker Change: going to be our election to move in a different direction and find a new home for those properties, but, you know, it's not a relationship that we just want to cast aside, we're still going to continue to invest in it [inaudible]
John: Juan, before you ask another question, this is John . Let me add some additional color here on your question. First, the discovery lease arrangements have some credit enhancements.
John: So we're in the process of determining the complete process of working through the operating transfers.
John: which will also involve working capital and things like that.
John: We're very comfortable at the FAD line with what we have in guidance this year and don't expect any disruption there as a result of this transition.
John: We also want to make mention that when a lease does become apparent that it's not going to go to term, we have straight line receivables on our balance sheet, and you can find more information about that in Note 3 and the 10Q.
John: So those receivables, we'll have to deal with in accordance with how we've done that in the past.
John: So I just want to make mention of those two things [inaudible]
Ok, great, thanks. And then, um, going back to NHC.
So, I guess, how should we think about the percent rent?
John: Benefit that you had in the first quarter and what that means to that tenant's profitability and how you see how that business is performing and kind of what the upside could be if you took those assets to market.
John: This is Kevin again, the percentage rent, and I'll speak a little bit for John , was largely factored into our numbers already, so...
John: A minor positive increase there, but we had a decent line of sight into what that was going to be. So that was already kind of...
John: taking care of. The fact of the matter is the buildings continue to improve. We've been happy with the performance coming out of COVID, you know, took a little bit of time for them to get there from a...
John: Improving there in a live perspective, but you know I think that it's going in the right direction so...
John: Time so far has been to our benefit. Rents continue to go up. We're seeing that improve. The market's still pretty good from a evaluation standpoint, and we're working with Blueprint to make sure we have good line of sight into that, but we've got really good comps.
John: on what the portfolio should be worth. So we're making sure that we have all those pieces of information that we can and factor that into our negotiations with them.
Speaker Change: It has been just awesome for me, just kind of a shopper boy on the reiteration of God and Slick. How should we think about the movie pieces to get there, is it?
Speaker Change: You know, his report is kind of yet to move. Occupancy was down kind of sequentially. So I guess how do you give us comfort that you can hit that mid-teens?
Thanks for watching the live growth.
Speaker Change: I think the things to focus on here are going to be the incentives rolling off and continued.
Speaker Change: Occupancy at that 90% plus level, that would make sure that we're...
Speaker Change: Not doing additional heavy incentives to keep that occupancy. That's what we're expecting out of the portfolio. We are starting to see them roll off a bit. We did see a little bit of softness on occupancy, which we anticipated in the first quarter.
Speaker Change: So, the expense line is something that I think can always be worked on, but it's really revenue. Can we continue to perform on maintaining and improving occupancy and getting those incentives out? And that's something that will...
Speaker Change: I think we're expecting to see throughout the year and we had planned on a flat first quarter and then it proving from there we're starting to see positive KPIs.
Speaker Change: One other thing to point out too is just the recurring catbacks. We've invested a ton into these communities. We should see that level out over time. It was down a little bit in the first quarter. A little bit of that is timing. And that...
Speaker Change: continue to invest in the buildings throughout the year, but you should see that total investment that come down over time as well.
Which would help make you the F. You want? [inaudible]
Thanks.
Speaker Change: Thank you, the next question will be from Farrell Granath from Bank of America. Farrell, your line is live.
Farrell Gronath: Thank you for taking my question. My first one is on the large shop portfolio that did not close or fell out of pipeline. I'm curious if you could give a few more details at what part of the process?
Speaker Change: There may have been questions about, and were there any lessons learned coming out of it?
Speaker Change: Well, sure, this is Kevin. I think, well, where he ended it was, we had a...
property under LOI.
We got in.
Speaker Change: figuring out what the actual NOI run rate is, what growth look like, is this going to be an accretive transaction for NHI and ultimately what does the growth prospects look like?
Speaker Change: We came to the determination that it was likely not going to be a fit for a few reasons, one of which was just structure and how it rolled into our organization.
Speaker Change: You know, at the end of the day it was probably just not the right time. I think it's a good portfolio, maybe it comes back around, but for now we're happy to continue to pursue what pipeline we have. It's rather robust, so rather than commit resources to something that was going to...
Speaker Change: Dragout and may not completely satisfy investor expectations, you know we decided to move off of it and really pursue the pipeline we have otherwise.
Speaker Change: Ok, thank you, and also in a little $155 million identified new investments. Can you give a sense of the mix between either property investments or debt financing and if you have a certain target on each bucket?
Speaker Change: Yeah, the way we approach our unidentified investment bucket is we have a combination of a little bit of loans as well as mostly fee simple. As you can see by the execution we've had through the data this call.
Speaker Change: You know, it's been mostly fee-simple. We think that's going to continue. But you know, when we make our assumptions on unidentified investments, we're sort of mindful that it might be a mixture.
Speaker Change: and so the rates will be a little different. You can see the average yield that we're assuming and guidance is still 8.2%, which is completely in line with especially the most recent closings that we had subsequent to the third quarter.
Speaker Change: So that's basically how I can help you with that question.
Speaker Change: Ok, thank you, and one last one for me is what the discovery leases and the or the triple net conversions, there any sense on timing of when that NOI would be transitioned?
Speaker Change: This is Kevin. We're targeting the third quarter. That's still subject to legal review and licensure applications and there's some timing aspects in there, but at the end of the day, that's the goal we're working on.
Ok, thank you so much [inaudible]
Thank you.
Speaker Change: Thank you, and once again, as a reminder, it will be Star 1 on your touchstone phone if you wish to ask a question today.
Motayo, Your Line of Life
Speaker Change: Hi, good morning, everyone. First of all, congrats on just the overall solid execution. Two questions on shop.
Speaker Change: Again, I know you guys talked a little bit about seasonality being the issue for the weakest things to analyze this quarter, but I guess when I'm looking at your supplemental and your disclosure there, it really looks like the main issue was the ref poor growth, which...
Speaker Change: Again, was in Sony bits year over year and Kevin, you had mentioned incentives in the, you know, prior to that makes sense, but I'm just curious again, you already have occupancy so close to 90 percent.
Speaker Change: Why the continued use of such heavy incentives, especially in this quarter in particular which seemed like where four groups was just really low.
Speaker Change: Sure, this is Kevin Tio. The fact of the matter is not all the buildings are at 90%, there are still a subset that...
Speaker Change: We need to get there and we're still having to use some incentives.
Speaker Change: So, and the other thing that we're fighting is the average length of stay. We're seeing that we've seen that come down from when it was a holiday portfolio, you know, back then it was 33 months. Now it's closer to...
Speaker Change: 2 years. So, you're having that turnover. We want to make sure that we're steady at that occupancy. So, there's a little bit of incentive usage just to make sure we're holding on before we just completely let it go. So, um...
At the end of the day though, again, we're... [inaudible]
Speaker Change: We're very focused on it. We're not, we're not wanting to continue the incentives. It's something that's a focus for both of our operating partners, but we want to make sure that they're
Speaker Change: They're steady and we've got additional occupancy and wanted to maintain occupancy through the winner as much as possible.
Speaker Change: That makes sense. And then FLM and the shock conversion. But again, it's...
Speaker Change: What's the ultimate target in regards to, again, right now you're getting, you know, half a million in rent or super-month, but is the idea here, you know, the NOI of this portfolio can be...
Speaker Change: You know, ten million dollars, or is it kind of somewhere we can kind of bogey kind of what the upside is from the conversion?
Speaker Change: So, if I'm sorry if I misheard you, I think you said SLM, but we're talking about discovery
Speaker Change: Well, I would maybe rephrase it a little bit differently is we've seen good growth, we see good growth potential anyway out of the portfolio and thinking that over time it can be a double digit in a wide grower.
Speaker Change: So, could it get to, you know, 9 or 10 million someday? I think that's possible.
Speaker Change: The fact of the matter, though, is we need to see more steady, continued growth. We think that we can get that focus out of the radio relationship and to continue to invest in some additional catbacks that will be ROI producing. And that's really the focus to make sure we're getting the right year-over-year growth out of it.
Otayo, this is John
Omotayo also mentioned.
Speaker Change: That, you know, when we look at that portfolio and the return on an investment capital, you know, which can be derived from the information and all our filings, it's just over 3%.
Speaker Change: You know, it's our underwriting, you know, still continues to tell us, you know, we should be able to do better
Speaker Change: And so there is potentially kind of the upside that you might be talking about, getting back to a more normalized return on a vessel cap on those assets.
Speaker Change: and we publish what our ROIC is and so we're very focused on making sure we're that we're efficiently using capital wherever it's deployed.
Speaker Change: What makes sense? One more for me if you could indulge me. Any update on Paxital? Again, I know it's a much smaller tenant for you guys, but two of us if you're hearing anything.
Speaker Change: Kevin and Dan, we don't have anything additional to share what you see from their public disclosure is what we have as well. We weren't regular contact the buildings.
Speaker Change: continue to pay rent as agreed, and their underlying performance is doing fine, but in terms of where they're at, I don't know any more than you do.
Awesome. Thank you.
Speaker Change: Thank you. The next question will be from Austin Wurschmidt from Keybank Capital Markets. Austin, your line is live.
Austin Werschmidt: Thank you, good morning everyone. You referenced a couple times that deal flows accelerating.
Speaker Change: Just curious what you think is driving the uptick and the activity whether it's a market phenomenon or something NHI-specific and just give us a sense how deep the pipeline is as we think about the ability to backfill the existing pipeline.
Speaker Change: This is Kevin. I think a lot of it's just sellers coming to the realization that this is the market now. Cap rates have kind of flattened out. We're seeing a lot more activity.
Speaker Change: Rates are high, and there was a glimmer of hope I think people had that they were going to come down, but that's kind of been diminished I think for the rest of the year, so...
Speaker Change: Buyers are just looking to recycle, or sorry, sellers are looking to recycle capital, as I mentioned, it's somewhat limited buyer pool, we're not seeing, they're getting multiple LOIs on properties, but we're right in the mix particularly now with our shop.
Speaker Change: Product, if you will, that's available where we can be more competitive on higher quality properties where we can get
Speaker Change: Focus on certain operators that we might not have had before. So they just made it a lot more competitive and the market's just ripe for us. We're very focused on senior housing. That's the biggest part of the pipeline.
Speaker Change: You know, most of it being real estate investment and whether it's shop or lease, they're probably a little bit of debt we'll do, we've seen that play out well for us where we'll get purchase options if we put the first mortgages out but...
Speaker Change: That's probably, you know, a second choice for us right now, but it's pretty deep, you know, we've talked about 264 in terms of our pipeline, but you know, the total funnel that we're looking at right now is probably 3 or 4 times that number. [inaudible]
It's definitely a good time for us.
Speaker Change: Do you think that the pace of acquisitions could increase? I mean, you reference, you freed up additional resources with no longer pursuing the large portfolio deal and between that and just I guess the network effect of bringing in new operators, do you think I think that pace could pick up at some point towards the back after this year? [inaudible]
Speaker Change: I think it can. We just want to be selective on where we're investing. We're not going to chase it, like Eric said. We also have to be mindful about growing our team out, which we're actively doing. So, I think you'll...
Speaker Change: You'll definitely see more investment from us, the pace of which will be dictated in terms of...
Speaker Change: How much we like the opportunity, we have the ability to stretch and do a little bit more but we want to make sure it's thoughtful and going to be a creative for the company not only now but into future.
Speaker Change: And then just the last one for me is you referenced the cap rates flattening out. I mean, do you attribute to that kind of occupancy being back towards maybe even above in some cases pre-pandemic levels and just the growth profile changing or other factors that you think are driving that?
Speaker Change: I think it's a couple of things. One, as I mentioned, debt is still pretty expensive, so a typical buyer is going to have, you know, if they go too far down on the cap rate, they're going to have negative, negative leverage.
Speaker Change: So I think that's going to push up cap rates and then there is an element to your thought of.
Speaker Change: Performance, Stabilizing a bit. We are seeing more stabilized type properties when you're looking at growth in the kind of mid to high single digits versus some of the double digit numbers that's been posted.
Speaker Change: So that's also what we're sifting through, making sure that we have the right growth profile and initial yields on the properties. But I think it's, in my opinion, two of the factors anyway that are going to cause that.
and so forth. Thanks for the time.
Speaker Change: Thank you, and the next question is a follow-up from Juan Sanabria, from Beable Capital Markets, Juan Your Line Is Life
Hi, thank you. It's just curious on the bond.
Juan Sanabria: Just John that you talked about, capping the bond market later in the year, what the range of
A size raises and how you see your cost today.
to think about role 50 guns.
Juan Sanabria: Sure. Well, as you noticed, we're utilizing quite a bit of equity. One of the things that we do is we look at the relative incremental cost of our equity compared to our long-term bond cost.
Juan Sanabria: And so we've been saying for some time now that the bond costs, the long-term debt cost is pretty close to the same cost as our equity.
Juan Sanabria: In the previous quarter, we're always going to be ready.
Juan Sanabria: But, you know, during our open windows, you know, there was quite a bit of cross-currents, you know, related to the tariffs that just made the issuance for us maybe a little less efficient than we would have liked.
Juan Sanabria: We're a relatively smaller rate and we're also triple B minus BWA-3.
Juan Sanabria: And so I think, you know, there's just, you know, we're just having to be very mindful about, you know, we've got to pick our window properly and so the minimum is 300 million to be indexed.
Juan Sanabria: which will give us the greatest liquidity on our bond. We need to, we will get into longer data and maturities here and that's why I mentioned it in my prepare remarks this year.
Juan Sanabria: But we're prepared to weave with the market on the long-term debt issuance, and that's why I'm so focused on talking about our liquidity as we're growing here.
Juan Sanabria: And so where would you accost to a 10-year deputy over the Scutty?
Hey, Traeger.
Juan Sanabria: Well, that's a great question. It kind of blew out on us. I would call it 40 basis points in the first quarter to over 200 basis points. That's not, you know, historically, ever been our expectation. We would be sub 200.
Juan Sanabria: So we'll just see how the market starts to talk to us here in the coming quarters.
Speaker Change: Thanks and a couple other quick follow-ups on the NHC-related proxy battle. Just curious on the cost we should be expecting.
John: So hey, Juan, this is John again. We put a number in our guidance that that number was right out a million eight.
John: That's our current expectation and as you notice in our first quarter results there was an add-back of approximately $264,000 at the normalized FFO line.
So you can see that note mentioned in our guidance [inaudible]
Thank you. Thank you. Thank you.
Speaker Change: Great, and I'm sorry for one last one for me on the shop, because I'm the occupancy dipped sequentially, recognizing some of that was planned and seasonal. So with the issue on the moveouts, and if it's moveouts, was that...
John: We'll do a word death-related or was there some element of financial move outs as part of that?
John: Predominantly, it's going to be a move out due to higher level of care or death. I think we saw the...
John: Those that passed away accelerate a bit, which again is normal.
Thank you.
Speaker Change: Thank you. There were no other questions in queue at this time. I would like to hand the call back to Eric Mendelsson for closing remarks.
John: Thanks everyone for attending today and your interest. We will look forward to seeing you at Navy.
John: Thank you, this concludes today's conference. You may disconnect your lines at the time. Thank you for your participation.