National Health Investors' Q3 2025: Contradictions Emerge on NHC Renewal, SHOP Performance, and Operator Challenges

Date of Call: None provided

Financials Results

• Revenue: Cash lease revenue $70.1M, up ~12% YOY; excluding ~$3.9M related to Discovery lease terminations, cash revenue increased ~5.5% YOY (primarily due to acquisitions).
• EPS: Net income per share $0.69, up 6.2% YOY; NAREIT FFO $1.09 per share, up 5.8% YOY; Normalized FFO $1.32 per share, up 28% YOY; FAD $62.2M, up 26% YOY.

Guidance:

• Full-year 2025 NAREIT FFO midpoint $4.64, +2% vs 2024
• Full-year 2025 Normalized FFO midpoint $4.90, +10.4% vs 2024
• FAD midpoint $232.6M, +13.9% vs 2024
• Same-store SHOP NOI growth for 2025 now expected 7%–9% vs 2024
• Conversion plus new-investment SHOP NOI for full year 2025 expected $5.8M–$6.0M
• Guidance assumes $75M additional unidentified investments at ~8% yield and continued collection of deferred rents; excludes impacts from additional forward equity settlements

Business Commentary:

• Strong Growth in SHOP (Senior Housing Operating Partnership) Portfolio:
• NHI's SHOP NOI (net operating income) grew by approximately 63% year-over-year in Q3.

• The growth was driven by the transition of seven properties to the SHOP portfolio and the acquisition of four properties for $74.3 million.

• Dividend and Financial Guidance Increase:

• NHI declared a $0.92 per share dividend for shareholders of record on December 31, 2025.

• The guidance for NAREIT FFO was increased by 2% and normalized FFO by 10.4% compared to 2024, reflecting better-than-expected results from SHOP conversions and loan receivable payoffs.

• Operational Challenges and Corrective Measures in Same-Store Portfolio:

• The same-store SHOP portfolio saw a 2.2% decline in NOI year-over-year, with occupancy declining by 110 basis points.

• Corrective measures were taken, including addressing issues in specific buildings, improving tour processes, and enhancing resident engagement to improve future performance.

• Impact of Loan Receivable Payoffs and Capital Recycling:

• There was a decline of $43.8 million in mortgage and other notes receivable, primarily due to payoffs with limited future ownership opportunities.
• This capital was recycled into investments, including the first SHOP acquisition with Compass Senior Living, reflecting a strategic focus on long-term value.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management said "we’re raising our guidance for the third time this year" and expects "over 10% NFFO per share growth at the midpoint." CFO: "third quarter results were above our expectations." CEO: "momentum at NHI is building" while noting some non-recurring items.

Q&A:

• Question from Juan Sanabria (BMO Capital Markets): Hoping to dig a little bit deeper into SHOP. You kind of made reference in the release and the opening remarks about some efforts to remediate things. Hoping you could talk a little bit about what that exactly means. As part of that, I guess the backstory on why some units were taken offline, I guess why now, and what’s the scope of work there.
  Response: Management implemented operational remediation—repricing units, improving tours, staffing and incentive changes, programming and resident engagement—and is undertaking a full-scope rehab of first-floor units in one California building (plumbing/earth-movement issue) rather than piecemeal repairs.

• Question from Juan Sanabria (BMO Capital Markets): Just to confirm, there’s no change in operators or one change contemplated? I know you’ve had some movement with Discovery and their remaining operator with SHOP and no longer in triple-net.
  Response: No operator changes contemplated for SHOP; Discovery and Merrill remain the operators/managers and NHI is working closely with them to improve performance.

• Question from Juan Sanabria (BMO Capital Markets): Just curious on where we stand [on NHC]. I know the lease was put into default, and NHC kind of came back, and then they sent you a renewal notice, but then there was a comment in the prepared remarks about analyzing the legality of that notice. Just curious on, I guess, the technicality of where we stand today and why you said examining that legality of the renewal notice.
  Response: NHI is assessing whether NHC’s alleged non-monetary defaults (audit/reporting/insurance/CapEx breaches) preclude exercise of the renewal; if in default renewal may be invalid and the issue could proceed to arbitration or litigation.

• Question from Austin Wurschmidt (KeyBanc Capital Markets): If the renewal option did prove to be legal, would that still be at the fair market rent, or would it be at the current rent level? How else could that change NHI’s negotiating position with respect to the adjustment to fair market rent?
  Response: If renewal is upheld, the lease states renewal should be at market rate (subject to interpretation); if renewal is invalid then negotiations are wide open; NHI has engaged Blueprint Advisors to assess market rates.

• Question from Austin Wurschmidt (KeyBanc Capital Markets): The pipeline of investment opportunities sounds very active... How far along are you in ramping that pipeline that you quote? Are you spending more time on larger portfolios or focused on deals that will feed the quoted pipeline?
  Response: The full pipeline exceeds $1B but NHI only reports signed or achievable LOIs; larger (> $100M) portfolios are excluded from reported LOI figures due to lower hit rates — overall pipeline is very robust.

• Question from Farrell Granath (Bank of America): I had a quick question about the guidance increase. I was wondering if you could bridge between the old and the new guidance. What in there is including term fee as well as any additional? Was there incremental positivity in outlook or just having better confidence?
  Response: Guidance was raised mainly due to better-than-expected SHOP conversion results, receipt of loan payoffs (leading to credit reserve reversals), recognition of some one-time items, and lower-than-forecast interest expense; same-store SHOP guidance was tightened down to 7%–9% for 2025.

• Question from Farrell Granath (Bank of America): Across peers we’ve seen increased SHOP activity — is competition impacting pricing or causing others to pay above your underwriting?
  Response: Competition has increased, but NHI’s strong operator relationships, off-market access and ability to close without financing contingencies provide a pricing advantage; focus remains on relationship-driven and loan-to-own opportunities.

• Question from Rich Anderson (Cantor Fitzgerald): Can you remind the basics behind whether or not NHC is in default?
  Response: NHI alleges NHC breached non-monetary lease covenants (audit/reporting/insurance/CapEx and inadequate maintenance); NHI sent a default notice and believes that default could bar renewal, subject to arbitration/legal interpretation.

• Question from Rich Anderson (Cantor Fitzgerald): This renewal offer from them is for the entirety of the portfolio. There’s no cherry-picking?
  Response: Yes — the renewal notice is for the entire portfolio; it is all-or-nothing.

• Question from Rich Anderson (Cantor Fitzgerald): Can you quantify the one-time items in the third quarter that contributed to the guidance raise just in dollars so we can have that in our model?
  Response: One-time/near-term items included ~$4.6M cash rent from converted properties, ~$1.4M non-cash rent on operations transfer, a $12.1M straight-line receivable write-off, ~$2M incremental SHOP NOI for the quarter, and credit reserve reversals tied to ~ $52M of loan payoffs, plus interest expense benefits.

• Question from Amateo Acuzana (Deutsche Bank): Two board members will be leaving in 2026 — what skill sets is the board looking for in replacements; senior housing operating experience?
  Response: NHI is conducting a Ferguson-led search and is seeking candidates with senior housing and operations experience to bolster the board; announcements are forthcoming.

• Question from Amateo Acuzana (Deutsche Bank): Regarding SHOP growth (from 5% to 10% to 20% of portfolio), what are the key things you’re looking for from operators to prevent variability?
  Response: NHI seeks operators/assets with strong trailing performance and consistent multi-year NOI growth, and has expanded its internal asset-management bench (new SVP/VP hires) to ensure operational oversight as SHOP scale increases.

• Question from Juan Sanabria (BMO Capital Markets): Any high-level thoughts about G&A with additions of personnel and doubling down on asset management capabilities?
  Response: G&A remains cost-effective (~0.56% of AUM excl. stock comp); management measures revenues per employee (~$11M) and guidance already incorporates expected internal growth to support SHOP expansion.

• Question from Juan Sanabria (BMO Capital Markets): For Bickford, comments on financial health and range of potential outcomes for the rent reset next spring?
  Response: Bickford trailing 12-month EBITDA coverage was 1.49x (through June); they repaid $1.3M of deferred rent (outstanding $8.7M at Oct 30); management expects to capture more repayments into base rent at the April 2026 reset but acknowledges Bickford needs further capital planning.

Contradiction Point 1

NHC Portfolio Renewal and Default Status

It involves the differing descriptions of the NHC portfolio renewal notice and default status, impacting lease negotiations and financial forecasts.

Where do we stand on the NHC portfolio renewal notice given the potential default? - Juan Sanabria (BMO Capital Markets)

2025Q3: NHC is potentially in default due to non-compliance with lease provisions. There is a possibility that the renewal notice may be illegal, which could lead to arbitration or litigation. The renewal rate, if valid, would be at a market rate rather than the current rent level, subject to interpretation. - Eric Mendelsohn(CEO)

Can you provide an update on the NHC process and how it relates to land, buildings, and having the right board bench to execute it properly? - Rich Anderson (Wedbush)

2025Q1: We are going through an independent board committee, which is led by our independent Chairman. And we are working with Blueprint Advisors, which is a real estate advisory firm, to help us look at the market value of the assets. - Eric Mendelsohn(CEO)

Contradiction Point 2

SHOP Portfolio Performance and Operators

It involves the performance and operator changes within the SHOP portfolio, impacting occupancy and overall financial performance.

What are the remediation efforts for the SHOP portfolio and the reasons for units being taken offline? Is there a potential change in operators or a planned change? - Juan Sanabria (BMO Capital Markets)

2025Q3: A building in California had plumbing issues and needed all first-floor units taken offline. We are working closely with our operators, Discovery and Merrill, to address performance issues without contemplating operator changes. - Kevin Pascoe(CIO)

Will the Discovery triple-net transitions proceed smoothly? Will there be any disruptions in rent collection or changes in straight-line rent accounting? - Juan Sanabria (BMO Capital Markets)

2025Q1: The transition is expected to be managed smoothly. There will be a handoff and some revenue-producing CapEx. The relationship with Discovery will continue. - Kevin Pascoe(CIO)

Contradiction Point 3

SHOP Portfolio Performance

It concerns the performance and occupancy levels in the SHOP portfolio, which can impact the company's financial outlook and strategic positioning in the market.

What are the remediation steps for the SHOP portfolio and the reason for units being taken offline? Are there potential operator changes? - Juan Sanabria (BMO Capital Markets)

2025Q3: Occupancy rate was 87.8%, a decline of 40 basis points in the quarter. The decline was driven by higher move-outs at our smaller buildings. - Kevin Pascoe(CIO)

What caused the recent decline in SHOP occupancy, and will it reverse? - Otmotayo Tejumade Okusanya(Deutsche Bank AG, Research Division)

2025Q2: The softness is due to local leadership changes and abnormal move-outs. We expect occupancy to return to normal as leadership adjustments are made. - Kevin Carlton Pascoe(CIO)

Contradiction Point 4

NHC Portfolio Renewal and Default Status

It involves the differing interpretations of the NHC portfolio renewal notice and default status, which could significantly impact lease negotiations and financial forecasts.

Where do we stand on the NHC portfolio renewal notice given the potential default? - Juan Sanabria (BMO Capital Markets)

2025Q3: NHC is potentially in default due to non-compliance with lease provisions. There is a possibility that the renewal notice may be illegal, which could lead to arbitration or litigation. The renewal rate, if valid, would be at a market rate rather than the current rent level, subject to interpretation. - Eric Mendelsohn(CEO)

What is the market for NHC's assets regarding appropriate market coverage if a fair deal is secured upon lease expiration? - Richard Anderson (Wedbush)

2024Q4: NHC has been very busy with these discussions with regard to the renewal. That's happening. The market is very robust for these buildings. Market coverage would be around 1.3 to 1.4. Transition to new operators would need consideration for CapEx and management fees, and active discussions are ongoing. - Eric Mendelsohn(CEO)

Contradiction Point 5

SHOP Portfolio Performance and Operators

It highlights the differing perspectives on the performance of the SHOP portfolio and the role of operators, which directly impact the company's strategy and financial outlook.

What are the remediation steps for the SHOP portfolio and why were units offline? Is there a planned change in operators? - Juan Sanabria (BMO Capital Markets)

2025Q3: We have identified a few buildings with occupancy challenges and are addressing them. A building in California had plumbing issues and needed all first-floor units taken offline. We are working closely with our operators, Discovery and Merrill, to address performance issues without contemplating operator changes. - Kevin Pascoe(CIO)

What is the potential impact of SHOP conversions on earnings? - Juan Sanabria (BMO Capital Markets)

2024Q4: We're not unhappy with the way the SHOP transition has gone. Holiday, which is one of the largest, has had a 3% growth year-over-year. We've made a lot of progress with that. - Eric Mendelsohn(CEO)