National Health Investors, Inc. (NHI) Q3 2026 Earnings Call Transcript

Operator: Good day, everyone, and welcome to the National Health Investors Third Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions]. It is now my pleasure to hand the floor over to your host, Dana Hambly, Senior Vice President of Finance. Sir, the floor is yours.

Dana Hambly: Thank you, and welcome to the National Health Investors Third Quarter 2026 Conference Call. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; Todd Siefert, Chief Financial Officer; Chris Maingot, Chief Operating Officer; and David Travis, Chief Accounting Officer. Yesterday, NHI released its third quarter results and conference call information for a press release after market close. Today's remarks may include forward-looking statements, which are subject to risks or uncertainties and are not guarantees of future performance. Investors are urged to carefully review NHI's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2025, and Form 10-Q for the quarter ended September 30, 2026, for a discussion of these risks. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, today's call may include certain non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release, which has been furnished to the SEC on Form 8-K. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I'll now turn the call over to our CEO, Eric Mendelsohn.

D. Mendelsohn: Good morning, and thank you for joining us. This has been a year of significant transition for NHI. We completed the sale of the NHC portfolio on July 1, substantially reduced our skilled nursing exposure and accelerated our investment in private pay senior housing. Our conviction and SHOP remains strong. We continue to see the most attractive risk-adjusted opportunities for our capital in private pay senior housing, where we believe that the industry backdrop provides powerful and sustained tailwinds for our company. Capturing that opportunity requires both disciplined underwriting and consistent execution. While NHI is focused on the long-term opportunity, we understand the importance of delivering consistent quarterly results. And in that regard, our third quarter SHOP performance fell short of our expectations. Our 15 same-store properties delivered approximately 19.5% year-over-year NOI growth, consistent with our outlook, but recent performance in the non-same-store communities reduced the contribution we expected from the total portfolio in the quarter. We're not satisfied with those results and are addressing the operating performance with our partners. Our longer-term growth outlook for those properties is unchanged. Chris Maingot, our new COO, will discuss the drivers and our response in more detail. The NHC sale provided $555 million in net proceeds to support NHI's repositioning. We expect to recycle more than 95% of those proceeds before year-end, primarily into SHOP and expected SHOP transition investments. We've already completed more than $395 million in investments year-to-date and expect significant additional closings during the fourth quarter. Based on that activity, we expect 2026 to be our second largest investment year in the company's history. This portfolio repositioning enhances our growth profile and the portfolio's valuation potential as we redeploy capital from skilled nursing assets into senior housing. By increasing our exposure to SHOP, we participate directly in operating upside and strengthen NHI's long-term growth profile. Including our October acquisition, SHOP now contributes approximately 18% of total NOI compared with 9% entering the year, and we expect that share to grow rapidly as our investment focus is primarily towards SHOP opportunities. We are executing this strategy from a strong financial position. Our leverage is less than 3x, which is comfortably below the low end of our target range, and we have ample capital available to fund our current pipeline. That flexibility allows us to remain selective to pursue investments that meet our return standards, including low to mid-teens unlevered IRRs. Kevin will provide more details on our investment activity, and Todd will review our financial position and full year guidance. We have also strengthened our executive management team and clarified responsibilities to support a larger operating portfolio. Chris is leading our asset management team and the build-out of our operating platform, while Kevin is focused entirely on business development and expanding our investment relationship. Together with Todd's financial leadership, this structure gives us greater capacity to grow the portfolio and manage it effectively. We're encouraged by the direction of these changes and our objective remains high single-digit to low double-digit organic SHOP NOI growth. Our priorities are clear: improve the operating performance, deploy capital thoughtfully and build the capabilities to support sustainable growth. We believe the strategy and team are in place, and we recognize that operating results will be the measure of our success. We are focused on delivering to meet the expectations that we establish and earning your confidence through consistent execution. We have made considerable progress during this transitional year, and I have confidence in the company's strategic direction. I believe NHI is exceptionally well positioned to capitalize on the most attractive senior housing environment that I have experienced in my career. I'm excited about the opportunities ahead. With that, I'll turn the call over to Kevin. Kevin?

Kevin Pascoe: Thank you, Eric, and good morning. I'll begin with our recent investment activity and pipeline, then discuss our business development priorities and the broader investment environment. Year-to-date, we have completed $396.2 million in investments at an average yield of 7.5%. That includes $320 million of SHOP investments at an average year 1 yield of 7.3% after routine CapEx. Our SHOP acquisitions have averaged approximately $223,000 per unit, well below estimated replacement costs, providing an attractive basis for operating growth. We recently completed $51.4 million in investments on 2 properties we previously held $42.3 million in construction loans. Our incremental capital investment was a modest $9 million net of the proceeds of these loan payoffs. These transactions demonstrate our loan-to-own strategy, allowing us to not only establish strategic relationships during development, but ultimately acquire the completed and stabilized properties. Turning to the pipeline. We currently have $285 million under signed letters of intent, including approximately $190 million that we expect to close during the fourth quarter. Those anticipated closings would bring our total 2026 investment to approximately $590 million. The properties we expect to acquire before year-end will initially be structured under net leases with anticipated conversions to SHOP in 2027. This structure allows us to complete the acquisitions in 2026 within the time frame to our planned Section 1031 exchanges with a clear path for future participation in the operating performance going forward. Beyond the signed LOIs, we are evaluating approximately $400 million comprised primarily in SHOP. We continue to see active flow of investments and enter 2027 with a substantial pipeline. Our focus is on communities in primary and secondary markets with identifiable opportunities to increase NOI through incremental occupancy gains, pricing growth, expense management and targeted capital investment. We continue to expect high single-digit to low double-digit organic NOI growth, supported by specific operating goals with our operating partners at each property. Existing relationships remain an important source of investment activity. All investments completed year-to-date have been relationship-driven. As our SHOP portfolio expands, we intend to build meaningful scale with select group of operators. Adding communities to established relationships allows us to leverage prior diligence, supports more efficient asset management and deepens alignment with our operators. Recent interest rate movements have prompted additional discussion and negotiations, although we have not yet seen meaningful change in pricing. If higher financing costs persist, this could moderate competition for acquisitions and make new development more difficult to justify. We believe our access to capital, ability to execute and strong operator relationships position us well as a reliable partner in that environment. We continue to make progress on resolving lingering issues for a subset of the same-store SHOP portfolio where we believe capital could be more productively redeployed. We will provide further details as our plans are finalized. We are pleased with this year's investment activity and the opportunities ahead. Our priority remains disciplined growth, acquiring communities at an attractive basis, expanding strategic operator relationships and investing where we see the strongest potential for long-term returns. With that, I'll turn the call over to Chris to discuss portfolio performance and our operating initiatives.

Christian Maingot: Thank you, Kevin. It's a privilege to join you today as NHI's Chief Operating Officer. I joined NHI because I believe the company is well positioned to be the capital partner of choice for senior housing operators. Its track record of building long-term relationships, seasoned team, access to capital and growing commitment to SHOP were key factors that attracted me to the company. Over the past 3 months, I've spent considerable time with our team and operating partners getting to know the portfolio. That work has only reinforced my confidence in the opportunity ahead. It has also helped us identify some near-term priorities and opportunities for improvement, which I'll touch on in a moment. Let me start with our third quarter results. Total SHOP NOI increased 134% through significant contributions from acquisitions over the past 12 months, and the Same-Store portfolio grew NOI 19.5% year-over-year. While the growth was substantial, the quarterly result was below our expectations. Occupancy growth during the summer selling season was slower than we anticipated. It reflected transition-related operating disruptions and slower growth at certain legacy holiday communities. Unusually high onetime expenses at select operators also impacted the quarter. Our immediate priority is improving revenue growth with particular attention to communities where filling vacant units offers the greatest RevPAR opportunity. We've been working with our operating partners to ensure they have in place fully staffed sales positions, rent-ready inventory, pricing and incentives that align with local market conditions. We also introduced targeted short-term incentives for community teams at select properties to support sales activity. The sequential increase in recurring capital expenditures largely reflected spending to prepare vacant units for occupancy. Having that inventory available is essential to converting tours to move-ins. As we execute on these properties, we see some encouraging signs in occupancy over the past 3 months. Consistent with typical seasonal patterns in senior housing, we expect occupancy to taper as we move through the holiday season. Move-in incentives and variability in holiday-related expenses may also temper the near-term financial benefit of that progress. At the recently acquired communities, we view these transition-related disruptions as temporary. We continue to believe these investments can perform in line with our underwriting and are working to get performance on the right track. We are currently partnering with our operators to develop the 2027 operating budget and business plans. We entered that process with a clear view of the growth opportunities across the portfolio, the communities that warrant the greatest attention and the actions needed to improve performance. Our approach is tailored to each community and includes identifying revenue-enhancing capital projects and directing resources where we see the greatest potential return. To support this work, we've also made some changes to our internal organization. We have realigned our asset management team by investment type and functional expertise, establishing separate teams dedicated to SHOP and to triple net and loans with clear responsibilities and expectations for each. Data-driven decision-making will be central to our approach. To support that commitment, we have bolstered our data and analytics team. This team will strengthen our portfolio insights while improving our tools, processes and technologies. By combining community operating data with broader market and customer information, we aim to identify opportunities earlier, work more efficiently and help our team and operating partners improve performance. We are recruiting for several positions to support these efforts. Over time, I believe this approach can support organic SHOP NOI growth in the high single-digit to low double-digit range. Our priority is improving execution and establishing a more consistent operating trajectory. Turning to triple-net portfolio. The portfolio continues to provide a solid foundation with healthy EBITDARM coverage across the major asset classes. Bickford paid more than $1 million in percentage rent during the quarter, modestly ahead of our guidance assumptions. My first 3 months have only strengthened my confidence in NHI's opportunity. Our focus is on translating that opportunity into consistent operating performance as we grow, and I look forward to doing so alongside our team and operating partners. With that, I'll turn the call over to Todd to discuss our financial results.

Todd Siefert: Thank you, Chris, and hello, everyone. Let me start by providing details on our third quarter financial results, followed by a brief discussion about our balance sheet and liquidity and conclude with our revised guidance. For the quarter ended September 30, 2026, our net income per share was $11.47 compared to $0.69 per share in the prior year third quarter. The significant increase was driven by a $541.6 million gain on the sale of the NHC portfolio. We also recognized $9.9 million impairment on a property that was held -- classified as held for sale during the quarter and has subsequently been sold in the fourth quarter. NAREIT FFO and normalized FFO for the third quarter were $1.12 per share, respectively, compared to $1.09 and $1.32 per share, respectively, in the prior year period. NAREIT FFO and normalized FFO for the third quarter of 2026 included $1.1 million in transaction costs related to acquisitions we decided not to pursue. NAREIT FFO and normalized FFO in the third quarter of 2025 included approximately $3.9 million in cash rental income related to lease terminations on 7 properties previously leased to Discovery Senior Living that were not -- were part of our SHOP transition. The third quarter of 2025 also included approximately $9.7 million in rental income from NHC. FAD for the third quarter decreased by approximately $5.2 million compared to the prior year period. The decrease was driven primarily by the sale of the NHC portfolio and the prior year's Discovery lease termination accounted for approximately $13.6 million of the decline. This was offset by acquisitions completed since the end of last year's third quarter. Our cash rental income of $58.4 million declined by $12.9 million compared to the prior year's third quarter due to the items I just reviewed and other dispositions partially offset by acquisitions completed over the past year. Total SHOP NOI increased by 134% to $11.5 million. Interest income from mortgages and other notes declined by 20.6% to $5.1 million due to lower outstanding notes receivable balances. We also earned approximately $2.9 million of interest on NHC sale proceeds held for future Section 1031 exchanges. General and administrative expenses for the third quarter increased 26.8% to $8 million compared to $6.3 million in the third quarter last year as the company continues to ramp its SHOP growth strategy, which contributed to a $1 million increase in compensation costs. Legal expense of $1 million consisted primarily of costs incurred on a large SHOP transaction that we stopped pursuing during the quarter, as referenced earlier. Interest expense for the third quarter decreased 9% year-over-year due to lower average debt outstanding. Turning to our balance sheet and liquidity. Our reported net debt to adjusted EBITDA ratio at September 30 was 3.6x. Adjusting for the $340 million available for future Section 1031 exchanges, our net debt to adjusted EBITDA was 2.4x. We have a $100 million private placement note due in January 2027, which we expect to repay by the end of 2026. We have no other debt maturities until 2028. Our available liquidity at September 30 was approximately $1 billion, consisting of $497 million of available revolver capacity, $500 million under our recently refreshed ATM program and cash on hand. We also had approximately $340 million in restricted cash and deposits held for future qualified Section 1031 acquisitions at the end of the quarter. With the investments that we expect to close by the end of the year, we do not expect a special dividend will be required for federal income tax purposes. Regarding the quarterly dividend, our Board of Directors declared a quarterly dividend of $0.94 per share payable January 29, 2027, to stockholders of record on December 31, 2026. As announced last night, we revised our full year guidance to a range of $4.68 to $4.70 per share for both NAREIT and normalized NFFO and $236.6 million to $237.7 million for funds available for distribution. The revised FAD range represents a $5 million reduction at the midpoint. The revised guidance incorporates approximately $2.3 million in reduced SHOP NOI from the 42 properties in the portfolio at September 30 and increased recurring CapEx of approximately $2.8 million. As Chris discussed, we accelerated certain routine capital expenditures that are supporting occupancy gains. These items are partially offset by stronger performance and expectations elsewhere in the organization compared to our prior guidance. That concludes our prepared remarks. Thank you again for joining us today. Operator, please open the line for questions.

Operator: [Operator Instructions] Your first question is coming from Juan Sanabria from BMO Capital Markets.

Juan Sanabria: Just hoping you could expand a little bit on what drove the SHOP underperformance relative to expectations? Was it smaller assets, older assets, any particular operators to call out? Is there any reliance on third-party referrals? Just hoping to dig a little bit under the surface just to get a better understanding.

Christian Maingot: Yes. This is Chris. First of all, great to be here on my first NHI call. Breaking that down a little bit, definitely, it was a revenue issue. I'll put it in 2 different buckets. As it relates to our new acquisitions, in those particular transactions, we did experience operator transitions. And with any operator transition, there tends to be some disruption. I think the disruption here was a little bit more pronounced. We saw some pretty local mom-and-pop type family businesses being sold to more sophisticated incoming operators. And with that, there's a level of complexity as you introduce new technologies and so forth. So the pickup there was a little slower than we expected. We did see in a portfolio, the incoming occupancy was below where we thought the starting point would be. And then we saw in another portfolio just some immediate move-outs. Ultimately, and I've been to a number of these assets and portfolios, we believe in these deals. We think the long-term business plan is in line with our underwriting. And I would even tell you that over the last couple of months, we've seen kind of those green shoots as the team has stabilized, as the new operator systems have been implemented and so forth, we're starting to see that pick up again. The other bucket I would tell you is that on the Same-Store while the pool of assets performed in line, there is a cohort there that continues to lag that brought down our overall occupancy and our overall variance to forecast. So yes, that's...

Juan Sanabria: Great. And then maybe you could talk a little bit about how we should think about G&A. You've made some additions. I noted you're looking to hire more people and spending more in CapEx and refreshing and maybe taking care of some deferred CapEx and maybe how those should trend into '27, just to kind of level set expectations going forward.

D. Mendelsohn: Juan, this is Eric. On the G&A, we're definitely beefing up our operations. As you know, I come from an operations background. So if we're going to do this, we have to do it right. We need more asset managers. We need some boots on the ground. We need some analysts. As Chris mentioned, we're beefing up our data analytics with people. So you've seen that happening in real time, and we're obviously doing that ahead of the NOI that's going to show up from the new acquisitions. So it looks a little lopsided. I'll give you that. On the CapEx for the buildings, we're really interested in CapEx that will move the needle on presentation and curb appeal. We've been putting a lot of CapEx in our SHOP buildings that are what I call stealth improvements, new roofing, new boilers. Nobody sees that when they're touring a building. They want to see new furniture, new carpet. They want that new building smell. So that's the kind of CapEx that we're focused on at the moment.

Juan Sanabria: And just as a quick follow-up, that CapEx was originally considered or incorporated into the underwriting and it's just been brought forward? Or is this over and above what you had originally expected?

D. Mendelsohn: I would say it's over and above because of some of the stealth improvements that we've had to do that were not budgeted. Right now, Chris is doing a detailed budgeting process with all the operators so that we don't have any surprises in the future.

Operator: Your next question is coming from Jamie Feldman from Wells Fargo.

Jesus Garcia: This is Jesus on for Jamie. Just kind of focusing on the 11 properties here entering the Same-Store SHOP pool in the fourth quarter. Can you just talk about like the NOI growth profile you're expecting on those assets as just more continue rolling into the Same-Store pool in the coming quarters?

Christian Maingot: The 11 assets, the new incoming assets?

D. Mendelsohn: Correct. Yes.

Christian Maingot: Okay. Thanks, Jamie. I think we feel good about -- I didn't hear -- good about the growth of those assets going forward. Fundamentally, they're in line with our view of the kind of go-forward business plan there for -- yes.

D. Mendelsohn: Yes. And part of the strategy of diving into SHOP like this is we buy buildings in markets that are showing a lot of promise that have less competition and the buildings have room for growth. We understand that the market wants high single-digit, low double-digit occupancy. So a lot of our buildings are in the low to mid-80s. So it gives us that upside. Anything to add to that, Kevin?

Kevin Pascoe: Well, I would remind you, too, that one of those is conversion, and we already have unlocked some value out of that from converting it from a lease to SHOP. So we've seen that in our numbers. We expect more growth out of them. That's the whole reason we did that in the first place. So -- and the other ones are performing in line with expectation. We still think there's more growth to come. And I think that's a function of what we've seen this quarter is we still expect more, and we believe they'll get there.

Jesus Garcia: That's great, guys. And just on the remaining 1031 redeployment here, can you just talk about like how the exchange deadline is influencing your evaluation of the remaining acquisition opportunities and the progress you're making towards that target?

Kevin Pascoe: Jesus, this is Kevin again. I would tell you that, as Todd said, we are -- we pretty much have those dollars allocated. We feel very good about the assets we have under LOI. As I mentioned, those will be under a net lease structure to start. Really, that just helps us get through some year-end planning and make sure that we don't have any hiccups as it relates to closing out the books, if you will, through a transition. And then those will convert to SHOP through the course of 2027. We expect to see additional growth out of those. But the 1031 is we got to close the deals, but we feel like we're well on our way, and that is covered.

Operator: Your next question is coming from Farrell Granath from Bank of America.

Andrew Reale: This is Andrew Reale on with Farrell. You mentioned this focused plan to strengthen SHOP performance. Just wondering if you could spend a little more time maybe discussing what those key initiatives are, maybe the major milestones you're watching for and then ultimately, how you're thinking about a time line for those to translate into improved NOI growth?

Christian Maingot: Yes. Thanks, Andrew. First of all, moving the line -- moving the top line on our SHOP portfolio is priority 1, probably priority 1, 2 and 3. Coming into this, if I take a look at it in 3 different buckets, from an asset standpoint, our priority immediately was to try to get move-ins. And so we instituted a plan to really just try to make sure that our operators had the nuts and bolts in place, which was, as I kind of mentioned in the opening remarks, do we have salespeople in the buildings? Are we priced appropriately? Do we have vacant rent-ready rooms and then are we incentivizing people? So an initial push to try to get occupancy. And as I kind of mentioned before, we have seen an uptick in our occupancy in August, September and October. And so some of those things are bearing some fruit. Secondly, we have kind of bifurcated the portfolio into some buckets so that we have a good view of which of the assets we need to lean into, as Eric kind of mentioned on the CapEx front. Where do we want to invest and how do we think about each of the assets and what are the individual levers that we want to pull on those assets in order to get the RevPAR growth that we need to achieve? Lastly, we're in the process of doing the budgets, and that's critical. Timing is perfect. There, we're building out our 2027 business plan. And with that comes kind of CapEx and some support. On the operator front, we like the operating group that we have that's in place. We are working with them on those business plans, and we're also evaluating ways that we can work with them in tandem and where we can bring our resources to the table so that we can get joint performance. And then lastly, from a team standpoint, and this has already gone into effect. We have taken the asset management team. We've broken it down. We now have a dedicated team purpose for the SHOP portfolio and then one for triple-net and for the loans. And then we will be building -- we have analysts and support groups that support the asset managers, and we'll be building that out as we kind of go into 2027. And as Eric kind of mentioned, a heavy focus on data and analytics and trying to make us smarter about our assets, help our operators and drive growth. So hopefully, that answers your question.

Andrew Reale: Got it. That's helpful color. And maybe just as a follow-up, in the prepared remarks, you noted some costs tied to a larger SHOP transaction that you chose to stop pursuing. I guess what drove that decision? And how are you thinking about portfolio size opportunities from here?

D. Mendelsohn: We're always -- this is Eric. We're always chasing large portfolios when they're available that makes sense for us. In this particular instance, we got to a point in our diligence and our contract negotiations that we felt that the terms were out of market. So we made our best and final offer, and we had to walk away. So there was a lot of diligence, a lot of site visits, a lot of lawyers' fees and inspection fees, but those are the costs of pursuing a marquee deal.

Operator: Your next question is coming from Austin Wurschmidt from KeyBanc Capital Markets.

Austin Wurschmidt: Kevin, you talked a little bit about making progress on some lingering issues for some of the same-store SHOP assets that you intend on potentially selling. And what amount of proceeds would you expect from selling these assets? And is there anything beyond this amount that you guys are considering from a capital recycling perspective to support further growth in the SHOP?

Kevin Pascoe: Austin, this is Kevin. We're looking at proceeds that would be north of $100 million should we elect to sell. I think that is the likely scenario, but we're still looking through some different scenarios and keeping our options open. But regardless, the redeployment of that capital would be additive for us, not only from an asset management standpoint where we can have focus on more growth-oriented properties, but really just from a capital allocation standpoint, I feel like they're better served elsewhere, again, more growth, but also likely more accretion. So just a reallocation of our current capital.

Austin Wurschmidt: And then with respect -- could you speak more broadly with respect to the -- I think it was 7 assets that you transitioned in August of last year, how those specifically have performed relative to underwriting following the transition?

Christian Maingot: Thanks, Austin. Yes. A bit of a mixed bag. We've got a few communities that are high flyers that we'll be leaning into, and then we've got some other ones that we're nursing and bringing along. Occupancy has been a little bit more stagnant than we would have liked, but we have seen, again, some pickup here coming out of third quarter.

Austin Wurschmidt: Got it. And then maybe just one last one for Eric. My understanding has been the last 1.5, 2 years has been spent sort of building out the infrastructure internally to prepare for building out SHOP. I guess beyond maybe some of the data and analytics team that Chris talked about in the prepared remarks, what's still missing from the formula to allow you guys to get ahead of some of these challenges that operators and assets are facing and sort of limiting, I guess, the impact it's having on growth on a go-forward basis?

D. Mendelsohn: I'd say we're 75% to 80% there with our hiring. I feel good about the team that's in place. I feel good about the infrastructure. As we add buildings, we'll add asset management. We'll add accounting folks, but that can happen in tandem with the acquisitions. And I'd say we're 80% there on all the hiring.

Operator: [Operator Instructions] Your next question is coming from Rob Stevenson from Huntington.

Robert Stevenson: Most of my questions have been answered. But just wanted to -- one on the guidance. So $4.68 to $4.70, I think that's implying $1.14 to $1.16 versus the $1.12 that you did in the third quarter. What's driving that $0.02 to $0.04 sequential pickup given the holiday season? Is that just redeployment of the remaining NHC proceeds?

Dana Hambly: Rob, it's Dana. I mean the simplest piece is we had the transaction costs in the third quarter. That's $1.1 million. We'll pick that obviously won't repeat in the fourth quarter. And then there were some other puts and takes. I think, obviously, we've talked about SHOP quite a bit. I think we did a little bit better in the triple-net and cumulatively, everything else kind of evens out. But again, we'll pick up a couple of cents in the fourth quarter on just not having the transaction cost.

Operator: That concludes our Q&A session. I'll now hand the conference back to Eric Mendelsohn, President and CEO, for closing remarks. Please go ahead.

D. Mendelsohn: Thanks, everyone, for your time and attention today, and we'll probably see you at NAREIT next week.

Operator: Thank you. Everyone, this concludes today's conference call.