National Health Investors, Inc. Q3 FY2025 earnings call

• SHOP portfolio: Transitioned 7 properties to SHOP portfolio with consolidated SHOP NOI growth of ~63% y-o-y in Q3; announced first SHOP acquisition of $74.3 million effective Oct 1; 2025 investments have surpassed last year's total with more deals expected to close, and strong active pipeline for 2026. - Same-store portfolio: Took corrective measures, expecting same-store NOI to return to double-digit growth levels in 2026; issues like units taken offline due to maintenance and CapEx issues are being addressed. - Asset management: Well-positioned balance sheet with net debt to adjusted EBITDA at 3.6x (below target range) and over $1 billion in available liquidity. - NHC rent negotiation: NHC notified intent to renew master lease for one 5-year term commencing Jan 1, 2027, and management is reviewing the effectiveness and legality of NHC's notice. - Investment activity: Announced investments of $303.2 million so far in 2025, with ~$195 million under signed LOIs expected to close in next few months, and large incremental pipeline of active senior housing opportunities including SHOP deals.

SHOP portfolio: Transition of 7 properties to SHOP portfolio resulted in consolidated SHOP NOI growth of approx. 63% y-o-y in Q3 2025. Third quarter NOI from these 7 assets is above prior cash rent, and 2025 NOI contribution exceeds original forecast of ~$3.7 million. First SHOP acquisition of $74.3 million effective Oct 1. Same-store SHOP portfolio (Holiday) had NOI decline of 2.2% y-o-y in Q3 2025, with same-store SHOP revenues and expenses growing 2.1% and 3.3% respectively, resulting in a 90 basis point margin decline to 21.1% y-o-y. Triple net portfolio: Cash lease revenue increased ~12% y-o-y to $70.1 million in Q3, excluding ~$3.9 million in cash rent from Discovery lease terminations, cash revenue increased ~5.5% primarily due to acquisitions. Bickford: Third quarter occupancy increased by 90 basis points from Q2 to 86.1%, trailing 12-month EBITDARM coverage through June 30 (including deferral repayments) was 1.49x, and repaid $1.3 million in deferred rent during Q3 with an outstanding balance of $8.7 million at Oct 30.

• Updated guidance represents over 10% NFFO per share growth at midpoint, the strongest annual growth since 2014. - NAREIT FFO guidance at midpoint for 2025 is $4.64, an increase of 2% y-o-y; normalized FFO midpoint is $4.90, an increase of 10.4% y-o-y. - FAD midpoint for 2025 is $232.6 million, up from original Feb guidance, representing a 13.9% increase over 2024. - Same-store SHOP NOI growth for 2025 is in the range of 7% - 9% y-o-y. - Conversion plus new investment SHOP NOI for full year 2025 is between $5.8 million and $6 million. - Investment guidance increased with $75 million in additional new unidentified investments and an average yield of 8%, in addition to investments announced subsequent to Q3.

• NHC rent negotiation risk: Uncertainty regarding the effectiveness and legality of NHC's notice to renew the master lease. - Same-store portfolio risk: Issues like units taken offline, personnel changes, and lower occupancy negatively impacted performance, requiring corrective measures. - Market competition risk: Increased competition in the SHOP market may affect pricing and deal closings; lower hit rates on larger portfolios. - Leverage and liquidity risk: While balance sheet is supportive, continued monitoring of leverage and access to capital is needed.

Q: Hoping to dig a little bit deeper into SHOP. You kind of made reference in the release in the opening remarks about some efforts to remediate things. So hoping you could talk a little bit about what that exactly means? And as part of that, I guess, the back story on why some units were taken offline, I guess, why now and what's the scope of work there?

A: Sure. Juan, this is Kevin. One thing I guess I'd like to point out is that when we're talking about our same-store portfolio, that's the Holiday portfolio, which has been noted difficult by some of our peers. It's definitely not had the trajectory that we would have liked that's a little more linear. But here we are. As it relates to the remediation, a lot of it is going back through the portfolio, making sure we have our units priced appropriately. We have the tour pass done right, a lot of the basic blocking and tackling. We really have probably 3 or 4 buildings that we're focused on occupancy that were the laggards that dragged our performance down. So making sure that we have the right people in place, all that has taken place. I think some of the good news here is that our lead volumes are still very good. It's a matter of just converting and making sure we have the right incentives in place for the people on the ground. So as we go through our budget processing right now, we're evaluating all those to make sure that we have the right incentives and again, the right pricing, being able to put the right programming in place and having the right resident engagement. So those are all things that are in process to feel like a lot of the corrective measures have been put in place. So as we discussed on the call, we'll be looking to get additional growth out of the portfolio next year. As it relates to the units that were taken offline, we have a building in California that had some earth movement a couple of years ago. But we found out over time that we had some issues on the bottom floor with some of the plumbing. And the initial scope of the project was less than we had it in our forecast. So we knew about it, but it ended up being that we had -- we needed to take all of the first 4 units off-line, so we made the tough decision to do the right thing and do the project in full scope versus trying to just piecemeal it and -- so get it right the first time. So it was a decision we made to go ahead and make it a little bit bigger projects. So that way, it was done right for the community.

Q: The pipeline of investment opportunities sounds very active. But it did appear like when some assets moved into the under LOI bucket and therefore, that investment pipeline was relatively stable. How far along are you in ramping that pipeline that you quote? And I'm just wondering if you guys are spending more time today on larger portfolios that maybe wouldn't go into the pipeline? Or are you more focused on deals that should over time tuck into the quoted investment pipeline as they move forward?

A: Austin, this is Kevin. I guess the way I would say is you definitely touched on an element of what we're looking at in the pipeline. In terms of the full scope of the pipeline, it's well over $1 billion. But we're not going to report to you a number that is we don't think is achievable. So there are some larger portfolios. Anything over $100 million, we're not reporting in our numbers because I think the percentage hit rate on those is going to be a little lower. So we want to make sure it's signed up before we would report that in terms of what we have under LOI or in our pipeline. So I think that's just a function of what we're looking at in a mix of the pipeline at the moment. So I would say it's as robust as it has been, if not more. It's been an extremely busy year here, and it continues to be. So I don't really have any hesitation on where our pipeline sits right now.