National Healthcare Properties, Inc. (NHP) Earnings Call Transcript & Summary

Hello everyone. Thank you for joining us and welcome to National Healthcare Properties' second quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. [Operator Instructions] I will now hand the conference over to Mike Ozuna, Director of Investor Relations. Mike, please go ahead.

Welcome to the second quarter of the 2026 webcast for National Healthcare Properties, Inc. [Operator Instructions] Please note, this event is being recorded. Also note that certain statements and assumptions in this webcast presentation, which are not historical facts, will be forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain assumptions and risk factors which would cause the company's actual results to differ materially from the forward-looking statements. The company refers you to its SEC filings, including its most recent Form 10-K, for a detailed discussion of the risk factors that could cause these differences and impacts in its business. During today's call, the company will also discuss certain non-GAAP financial measures. These measures should not be considered in isolation or as a substitution for the financial results prepared in accordance with GAAP. The company will provide a reconciliation of these measures to the most directly comparable GAAP measure as part of its second quarter 2026 earnings supplemental on its website at www.nhpreet.com. [Operator Instructions] Also, please note that a replay of the webcast will be available on the company's website later today. I would now like to turn the call over to the company's executive management team. Please go ahead, Michael.

Thank you, Mike. Good afternoon and welcome to National Healthcare Properties' second quarter 2026 earnings call. I am Michael Anderson, Chief Executive Officer of NHP, and I'm joined today by Drew Babin, our Chief Financial Officer, who will speak to our financial results and outlook in greater detail following my remarks. Last quarter, our first earnings call as a publicly traded company, we laid out a straightforward agenda: grow the SHOP portfolio through disciplined acquisitions with best-in-class operators, concentrate our capital in senior housing, and build a balance sheet consistent with an investment-grade unsecured issuer. The second quarter was one of substantial execution against each of those objectives. Beginning with operations, our SHOP segment delivered same-store cash NOI growth of 20.1% year-over-year, marking another quarter of double-digit growth driven by occupancy, rate, and margin. Same-store average occupancy reached 84.1%. The same-store cash NOI margin expanded 230 basis points to 22.4%. Importantly, the composition of that growth is maturing in a way we would expect, with both rate and operating leverage contributing to an increasing share as the portfolio approaches stabilization. Drew will walk through the detail. Our 3 operating partners, Senior Lifestyle, Discovery Senior Living, and AgeWell Senior Living, now collectively manage our 56 SHOP communities. Each continues to demonstrate the quality of resident care and operational discipline that underpin these results, and we're grateful for their partnership as we continue to scale alongside them. Turning to external growth, the second quarter and the period immediately following it represented the most active stretch of investment activity in the company's history. In late June, we acquired 2 senior housing communities in the Midwest totaling 211 units for a purchase price of $98 million, which are being managed by one of our trusted operating partners. In July, we closed on 17 communities comprising 1,003 units across the Midwest, South, Mid-Atlantic, and Pacific Northwest for approximately $182 million. Thirteen of these communities were acquired through the joint venture with Discovery Senior Living we announced last quarter, in which we hold approximately a 98.5% interest. As part of that transaction, we retain a right of first refusal and a purchase option on an additional 13 Discovery-managed communities, providing a defined pathway for continued growth with a partner that we know well. Taken together, our 2026 year-to-date acquisitions total 19 properties and 1,214 units for approximately $280 million at a blended year 1 yield of 7.9% and a projected year 3 yield of 9.7%. That spread between initial and stabilized yield is deliberate. We're underwriting assets where our operating partners and our asset management team can drive measurable improvement, and we're being paid to do that work. We also have a well-defined near-term pipeline. In late June, we entered into a definitive purchase and sale agreement to acquire 3 communities in Illinois with 178 units for $30 million. In July, we entered into a definitive agreement to acquire 2 communities in Florida with 200 units for $90 million. Each of these transactions is expected to close in the third quarter, subject to customary closing conditions and applicable regulatory approvals. In addition to the 2 previously referenced transactions, on August 4th, we were designated the stalking-horse bidder for 5 SHOP communities through a bankruptcy proceeding. The acquisition of these communities is subject to an auction process. However, given our stalking-horse designation, should we not be successful in acquiring these communities, we will be entitled to a breakup fee and expense reimbursement collectively in excess of $4.8 million. It's important to highlight that a majority of the transaction will be funded with NHP OP units or REIT shares, further deleveraging the balance sheet and adding SHOP communities in which we have strong conviction around near- and long-term growth. On the capital recycling side, we continue to advance the strategic rotation we announced in May. Our agreement to divest the portfolio of 86 outpatient medical facilities for disposition prices of approximately $528 million is now hard. The buyer's due diligence period expired, subject to lender consent for the loan assumption and other customary closing conditions. We continue to explore strategic opportunities related to the remainder of our OMF portfolio as we focus on completing the reorientation into a full-SHOP portfolio. We'll provide further updates as these processes advance. In addition, in May, we entered into a definitive purchase and sale agreement to sell 1 non-core SHOP community in California for approximately $42 million. That sale carries a 1.7% cap rate based on trailing 12-month results and further aligns the portfolio with our strategic focus on markets where we have the greatest opportunities for scale and growth. I'd also note 2 items on governance that speak to the company's evolution. We announced the appointment of Al Campbell to our Board of Directors as an independent director, effective August 10th. Al recently retired from his role as Chief Financial Officer at Mid-America Apartment Communities, a role he held for 14 years through tremendous growth and performance at Mid-America. He brings decades of public company leadership and experience to our board, and we're very pleased to have him joining us. We've also begun another board process to identify a new independent director, further solidifying our commitment to continued enhancement of our company's governance. I'll now hand the call over to Drew Babin, our Chief Financial Officer.

Thank you, Michael. Second quarter normalized FFO was approximately $10.9 million, or $0.18 per share. On an absolute basis, NFFO increased year-over-year on higher NOI and interest income, as well as lower interest expense, net of higher G&A, primarily in the form of equity-based compensation. The increase in shares resulting from our highly deleveraging April IPO resulted, as expected, in sequential and year-over-year declines in NFFO per share. It's worth mentioning that normalized FFO for the second quarter of this year excludes the benefit of $1.2 million, or $0.02 per share, offset to interest expense resulting from derivatives, mark-to-market, and terminations. Within the SHOP segment, same-store cash net operating income increased 20.1% on a year-over-year basis, driven by an increase in average occupancy, a meaningful pickup in year-over-year RevPOR growth, and continued improvement in operating margins. Same-store average occupancy reached 84.1% for the quarter, a 140-basis-point improvement relative to the second quarter of 2025. As we noted last quarter, the accelerating rate of year-over-year growth in occupancy is not unexpected, given the rapid occupancy growth our portfolio experienced in 2024 and in 2025 on the heels of game-changing operator transitions. We nevertheless expect continued growth in occupancy with accelerating tailwinds from improving rates and margins. While the SHOP segment performed ahead of our NOI growth expectations in the second quarter on rate and margin outperformance, resulting in an increase in our full-year same-store cash NOI growth guidance I will further detail momentarily, the lag was centered within the AL segment as we supported an operator's strategic decision to upgrade certain key property-level leadership roles, including at the executive director and sales leadership levels during the quarter. We believe that this was the correct long-term decision in the interest of improving long-term NOI potential and note that the same operator led the occupancy gains across our portfolio in July and is still on track to produce NOI in line with their expectations heading into this year. Same-store RevPOR increased 5.9% year-over-year to $6,390 as new leasing activity provided a benefit to revenue beyond the roughly 5% average annual escalators that went into effect in January across nearly our entire portfolio. We're confident that our strategic focus on high-acuity care and private-pay residents, together with our willingness to invest capital in revenue-enhancing projects, position us to generate consistent mid-single-digit RevPOR growth far into the cycle. Same-store cash NOI margin expanded 230 basis points year-over-year to 22.4% on moderation in the growth of compensation-related expenses as the portfolio approaches fully staffed levels and as growth in other expenses remains relatively benign. Looking to our outpatient medical facilities, our OMF segment, same-store cash NOI decreased 0.4% year-over-year to $20.2 million, despite a 30-basis-point sequential increase in occupancy and a 97% retention rate, due to a one-time increase in utility and other non-reimbursable expenses during the quarter. Segment performance continues to track well within our same-store guidance range for this year. Before I move to full-year guidance, it is worth taking a moment to comment on the evolution of our balance sheet. Net debt to annualized further adjusted EBITDA declined sharply to 4.6x in the second quarter versus 8.6x in the first quarter as a result of our IPO. As announced yesterday, we recast our credit facility, increasing the overall size. It includes an incremental $150 million term loan, a new $150 million delayed draw term loan, and an increase of $350 million in the size of the revolver, all at improved spreads and term relative to our prior facility. We're appreciative of the banking group that understands not only our current portfolio and capital structure, but the overall strategic vision upon which we continue to execute. We used the facility to repay at par approximately $332 million of Fannie Mae loans, which represented our only debt maturity for this year. We expect to further utilize the revolving credit facility from time to time to fund acquisitions and the redemption of our Series A and Series B preferred stock to the extent they occur prior to the closing of announced OMF dispositions. It remains our plan to achieve and maintain levels of financial leverage consistent with investment-grade unsecured issuers, particularly as our portfolio is increasingly oriented towards SHOP. We updated certain elements of our guidance to incorporate second quarter results, as well as our expectations for the remainder of the year. We increased our SHOP same-store cash NOI growth guidance by 2% at both the low and high ends to 15% to 18%, or approximately $51.6 million to $52.9 million. It's worth noting the third quarter same-store NOI growth is expected to be negatively impacted by short-term incentives targeting communities with occupancy levels generally remaining below 85%. These concessions, which reduce revenue only in the 1 or 2 months they generally occur, may delay the typical seasonal ramping of revenue we see in the third quarter into the early fall months. We and our operators strongly believe that proactively increasing occupancy of these properties is the right strategy to accelerate their progress to the NOI levels we believe that they can generate. As I mentioned before, RevPOR growth has outperformed our expectations year-to-date, compensation-related expenses continue to moderate, and in addition, will begin to benefit from reduced property insurance premiums beginning in the third quarter. OMF same-store cash NOI growth guidance of 2.5% to 3.5%, or $81.2 million to $82 million, is unchanged and does not account for expected OMF dispositions. Incomparably steady revenue drivers, a normalization of utility expenses, and savings on property insurance are expected to contribute positively to growth in the back half of the year. While the speed of execution and pricing of our external growth has exceeded our prior expectations, we continue to expect $375 million to $425 million of acquisitions in 2026, based on our updated disposition guidance of $570 million and where we would like to see our balance sheet positioned at year-end. Given uncertainty related to the outcome of the auction for the pipeline properties Michael mentioned earlier, we have chosen not to include these in our acquisition guidance range. Should we acquire the facilities, at least half of the total consideration would be funded with NHP OP units or REIT shares issued to the seller pursuant to the terms of the agreement. We're increasing our total G&A and equity compensation guidance by $1 million each to $27 million to $28 million and $6 million to $7 million, respectively, due to an anticipated increase in non-cash equity compensation related to the ongoing refreshment of our Board of Directors. Our decision to proactively address maintenance capital expenditures across our portfolio in 2024 and 2025 in preparation for the IPO continues to result in a lower rate of recurring CapEx spend this year and a greater focus on revenue-enhancing projects of existing and acquisition properties. Expectation for same-store recurring capital expenditures remains unchanged at $22 million to $25 million, as we do generally expect same-store spending to be weighted towards the back half of this year. We plan to update this range as announced portfolio transactions are consummated. Now I'll hand it back to Michael for closing remarks.

Thanks, Drew. The second quarter was a quarter of execution, turning the strategy and the capital we raised in April into assets, into a materially stronger balance sheet, and into a clear path to the portfolio we intend to have. Our SHOP segment delivered another quarter of 20% plus same-store growth, and the drivers of that growth are broadening from occupancy recovery to rate and margin. The transactions team, led by Tyler Bronner, closed or placed under contract approximately $400 million in senior housing since the start of the second quarter at yields that we believe are highly accretive to our cost of capital. Our leverage now stands at 4.6x, our only 2026 maturity has been retired, and the announced OMF disposition, when completed, will provide additional balance sheet flexibility to accelerate our growth strategy in the senior housing-focused portfolio. We're executing on the plan we described to investors in April, and we're doing so ahead of the pace we previously discussed. Importantly, we remain disciplined in our approach, with the right team and infrastructure in place to support our growth. We look forward to updating our shareholders on continued progress in the quarters ahead. With that, I'll turn the call back to the operator for the question and answer session.

[Operator Instructions] Your first question comes from the line of John Kilichowski with Wells Fargo. Your line is open. Please go ahead.

My first one, Drew, just the preferreds that we're taking out post-quarter end. I know there's not an AFFO guidance, so it doesn't necessarily impact that. But could you talk about how that impacts your guidance or sort of the pro forma leverage and balance sheet outlook for the rest of the year? And could you give us some color around maybe after the OMF sale and reaching the midpoint of guidance on the acquisition side?

Yes, hi, John. So back at NAREIT, we put a slide in our deck that laid out, just based on the OMF disposition, the IPO, and credit facility paydown, as well as our acquisition guidance, kind of where leverage would end up for the end of the year. And including preferred, it was, call it, low to mid-5s. Since then, we announced the non-core SHOP disposition, so that probably helps that a little bit. Really, with the preferred redemption, we're saving on costs. Obviously, the interest expense on our line of credit is lower than the preferred dividend rate. So there'll be that savings. But it really has the effect of just converging our with and without preferred leverage ratios both to the low 5s, which is a place where we would like to be going into next year and potentially a further rotation towards SHOP.

Okay, thank you. And then the deal that you're talking about in the auction, it sounded like you were saying that sits outside of guidance currently. So if that deal were to close, that would be above and beyond the $400 million midpoint?

That's correct. And as we've said before, the restraint on our guidance, stopping at $400 million or that range for acquisitions, is really leverage and wanting our leverage to be in a comfortable range at year-end. As Michael mentioned in his remarks, the pipeline is very robust. We're hesitant to up our guidance until funding is spoken for, but with this deal, the funding is already baked into it if we do win the auction in the form of OP and REIT units.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open. Please go ahead.

Just starting with the same-store NOI and the guide raise and so forth, I think you talked through some operator transitions and so forth. Just curious, as you're taking a step back, if you could just comment on what you think is driving the upside, and what further could go from here.

Hi, Ron. So to get started, maybe the second quarter outperformance relative to our guidance range is really the main reason why we increased it. As we said in the prepared remarks, in the second quarter, occupancy didn't come along as much as we thought it would. And as we also mentioned, in the third quarter, we're really targeting properties at lower levels of occupancy and selectively applying concessions there, really to try to get occupancy to a better place. We think that's the right long-term decision for NOI. So, subject to those things, we'll keep the guidance range updated. We have seen expenses, especially on the compensation side, continue to moderate, which helps as well. But obviously, we'll watch these things as the year goes on and update guidance as we go.

Great. And then my quick follow-up. I think it's interesting you were talking about funding. Can you just give us an update on the OMF sale? I know the release says a 3Q or 4Q close. Do you have any more visibility there? And then beyond this first tranche, what's the thinking on the next tranche on OMF sales to fund this robust acquisition pipeline?

Hey, Ron, it's Michael. Yes, so as we mentioned, the deal went hard in mid-July, and we expect that a portion of that will close in the third quarter, another portion likely early fourth quarter, but I think it's too early to tell just given the loan assumption process around that. And then as we think about the remaining portion of the OMF portfolio, there's certainly been no shortage of interest inbound on that portfolio. I think you see it across OMF transactions, broadly speaking. So as we think about monetizing that side of the portfolio, it's really thinking about that relative to the acquisition pipeline. And as Drew mentioned, it's a robust pipeline right now. And so it's certainly front of mind for us.

Your next question comes from the line of Julien Blouin with Goldman Sachs. Your line is open. Please go ahead.

I appreciate the color on the drag on occupancy at some of those properties where there's leadership turnover. I guess, can you give us a sense of how we should think about occupancy growth over the back half of the year? And it sounds like you've already seen some occupancy pick up at some of those affected properties so far in the third quarter. Am I understanding that right, that that improvement is not baked into your current guidance, and your current guidance update only reflects the second quarter outperformance?

Yes, I'll get that started, Julien. I think you're right in that the guidance increase has more to do with the second quarter actual performance. I think with the moving parts contributing to same-store NOI growth, obviously revenue can be driven in 2 different ways. And I think as concessions are applied, to the extent occupancy improves, just in the third quarter, you may see it come out of RevPOR to some degree temporarily. And certainly, the expense moderations continue. And so again, as we monitor these different moving parts, we'll update guidance, but to your point, the increase in guidance had a lot more to do with the second quarter. And again, we'll update it as we execute over the rest of the year.

Yes, and Julien, just to add on that, as Drew mentioned in his remarks, the communities where we made some strategic changes in the second quarter, we saw the benefit of that starting in July. Those communities actually led the occupancy gains in July for us. And so I think as we've traditionally seen Q2, Q3 be the strongest seasons for leasing, I think we're expecting that Q3 and into Q4 will actually be strong for us given the impact of those executive leadership changes. And then, as Drew mentioned, we're really focused on communities that have sub-85% occupancy. It's a limited number within the portfolio. And on the other end of the spectrum, we've got communities within the portfolio that are highly occupied. And over the last several months, we've been dynamically changing street rates with 3% to 5% increases over in-place street rates mid-year. So I think we're seeing a lot of strong demand across the board. And I think that the strategic changes made by the operators will certainly benefit us in the back half of the year.

Okay, great. That's helpful. And then I believe you recently tied down Tyler Bronner as EVP of Investments. One, is that correct? And then how should we think about additional hires and filling out that investment team from here as you hopefully start to approach the kind of cost of capital that could allow you to be even more active on the acquisition front?

Yes, we did bring Tyler on full-time. He is EVP of Investments, joined us in July. We're happy to have him on board and he's certainly been a valuable member of the team even before joining us as a full-time employee. I think Tyler, together with some other individuals on the team that have been in the medical healthcare space for decades, have a lot of strong relationships with brokers, with owner-operators, with operating partners. And so we continue to see a lot of deal flow from our existing operators, but also from incoming operators. And I think you should expect to see some additional operators in the mix beginning this month with a 3-pack that we're closing in Illinois. We'll be bringing [ Senior Lifestyle ] as the operator on that deal. And similarly, they would be the operator on the 5-pack that's subject to the auction. They've been a good source of flow since we've begun those conversations, and Lindsay and the team have been in pretty deep conversations with a number of other operators that I think will ultimately be added to the roster.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.

Hi, this is Robin Haneland sitting in for Juan. I was just curious on the potential acquisitions going through the auction. What's the expected yield here, and what's the status of the operations of the facilities, and where's the occupancy at?

Hey, Robin, it's Michael. This portfolio is sitting somewhere mid- to high 80s occupancy. It really struggled over the last few years. But I think with some new operators, they've turned it around. I think there's a lot of upside still yet to be realized there. I'd say kind of low to mid-7 year 1, and then touching a 9 year 3. So we see a lot of quick growth in those that also tend to be a newer vintage communities. And so I think we're optimistic about the outcome. We've certainly put a lot of work and diligence into those 5 assets. And I think they would be a nice addition to the portfolio.

It's Drew here. I think it's safe to say that the yields in the first year, but also year 3, will not be materially different than the blended numbers that we've talked about and reported.

Got it. And on the Discovery ROFR, where do we stand on that? I'm just kind of curious what the latest thoughts are.

Yes, we continue to receive monthly financial updates from them on those 13, not at a place that we're ready to execute on today. But given the fixed purchase price in the option, that price per unit is very similar to the 13 that we closed on. And so it's a very attractive basis for us, but we'd like to see some continued improvement in the occupancy and margin front end.

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.

I wanted to circle back on the specific operator that has elected to make some leadership changes at the ED level and the sales level. How widespread were these changes? I know it sounds like it was pretty widespread since you're calling it out here as the reasoning that could have impacted the 2Q results. How many communities did it impact, and what's the reason for them electing to make this upgrade?