Invesque leans heavily on senior housing as skilled nursing assets shrink

Invesque (TSE:IVQ.U) continues its shift towards privately remunerated assets, a move that gives the healthcare real estate investment trust a stronger senior housing portfolio – while its care assets qualified nurses are decreasing.

The disposals announced during the last three financial quarters have increased the pro forma net operating profit (RON) of residences for the elderly to 60%. Just five years ago, skilled nursing accounted for more than 75% of the REIT’s ROI, according to Adlai Chester, chief investment officer at Invesque.

“I expect the number of senior housing units to continue to grow in the coming months as we execute our strategy,” Chester said during the company’s first quarter earnings call. Thursday.

CEO Scott White said executives planned to explore property sales for the remainder of 2022, while noting they were “in no rush” to sell properties at discounted prices.

“Our strategy is to sell non-core assets when we believe there is an opportunity to maximize value for our shareholders and strengthen our balance sheet,” White added.

White’s comments follow a record year for divestments in 2021, selling more than $210 million in assets – including more than $100 million in the fourth financial quarter.

The latest tranche of provisions was “essentially” skilled nursing, White told Senior Housing News during a recent appearance on SHN+ TALKS, but that doesn’t mean he views the sector as riskier.

“We are selectively phasing out certain assets that are not performing well or not essential to what we are trying to do. We have also changed some operators, but longer term I just don’t see us in qualified offices and can -not even be in medical offices,” White said.

Invesque reported revenue of $52,050 for the first fiscal quarter, compared to $53,671 in the first quarter of 2021. Adjusted funds from operations (AFFO) was 6 cents for the first quarter of 2022, down 4 cents from to 10 cents in the first quarter of 2021.

The Carmel, Indiana-based company has approximately $1.3 million in total assets, $916,810 in debt and 96 properties, 20 of which are skilled nursing.

Investments and divestments

Invesque executives plan to continue to create efficiencies through streamlining the debt capital stack, Invesque chief financial officer Scott Higgs said on the call.

“So far in 2022, the focus has been more on restructuring investor relationships with triple net tenants in seniors housing and skilled nursing,” Chester said.

After the quarter ended, Invesque refinanced a Providence Group-operated SNF to streamline the capital stack while providing nearly $1.2 million in annual debt service savings, Chester said. This is relative to previous structures in place.

Chester sees the restructuring trend continuing as the industry grapples with headwinds.

The only SNF transaction in the first quarter was the $52 million sale of four Texas facilities, 339 beds in total, previously operated by Bridgemoor Transitional Care. That translates to about $152,000 per bed, Chester said; Prices for SNF beds in Texas tend to be lower than in other markets due to the lack of certificate of need (CON), he added.

The price per bed was comparable to Invesque’s Ensign sales in the fourth quarter at $160,000, Chester said.

“[We] has obtained very attractive prices in part because we have some of the newest properties in the sector,” he added.

With the sale, Invesque ended its relationship with Bridgemoor.

“Bridgemoor’s portfolio has been a challenge for us during the pandemic as their operations have been frequently interrupted by outbreaks of COVID-19,” Chester said. “Bridgemoor, like other operators, is ineligible for certain tranches of CARES Act funding because operators had to establish years of revenue and expense data to be eligible.”

As a relatively new chain, most Bridgemoor facilities had been operational for less than 24 months before the pandemic, Chester said.

The Bridgemoor portfolio was held in a joint venture; Invesque held a roughly 66% stake, the company said in its income statement.

Other sales in the quarter included an assisted living and memory care community in Pennsylvania for $5.5 million, a memory care community in South Carolina for $3.5 million and two retirement homes in New York for $19.2 million.

Covid impacts diminish

The direct financial and operational impacts of Covid are diminishing, Chester and White said, but the lingering indirect effects will continue for months, if not years.

The biggest effect is on staff wages and salaries, he said, while other input costs such as food, energy and building materials are all coming under inflationary pressure.

“These factors combine to create a difficult environment to control costs,” continued Chester, adding that rebuilding revenue has been difficult for Invesque. “Operating costs primarily related to staff, food and insurance have also increased significantly over the past two years, offsetting all or most of the additional income. We expect margins to continue to be squeezed for the foreseeable future. »

Still, the REIT has been “very encouraged” by the growth and rate increases seen with Commonwealth Senior Living, among its other senior housing portfolios.

“I remain optimistic that the pandemic is mostly in the rear view mirror, and now our operators can refocus their efforts on increasing incentives and improving overall financial performance,” White said.

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