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

Hello, everyone. Thank you for joining us, and welcome to National Healthcare Properties Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Michael Ozuna, Director of Investor Relations. Mike, please go ahead.

Welcome to the Third Quarter 2026 webcast for National Healthcare Properties, Inc. 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. The forward-looking statements are subject to certain assumptions and risk factors, which could 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 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 third quarter 2026 earnings supplemental on its website at www.nhpreit.com. A question-and-answer session will follow the prepared remarks. 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 morning, and welcome to National Healthcare Properties Third Quarter 2026 Earnings Call. I'm 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. On our first 2 earnings calls as a public company, we outlined 3 strategic priorities: first, grow the SHOP portfolio, both organically and through disciplined acquisitions with best-in-class operators; second, concentrate our capital in senior housing; and third, build a balance sheet consistent with an investment-grade unsecured issuer. The third quarter meaningfully advanced each of those objectives. Beginning with the portfolio, when we announced our first outpatient medical sale in May, we expected SHOP to represent approximately 60% of our cash NOI. Six months later, we have sold, placed under definitive agreement or signed a letter of intent for every outpatient medical facility we own. In September, we closed the sale of the first 30 properties in our previously announced portfolio for approximately $198 million. The remaining 56 properties in that portfolio are under agreement for approximately $331 million, with the buyer assuming approximately $219 million of secured debt. Also in September, we announced a definitive agreement to sell an additional 40 properties for approximately $531 million, and we signed a nonbinding letter of intent to sell the final 4 properties. We expect both to close in the fourth quarter, subject to customary closing conditions. Together, the 126 properties sold or under definitive agreement represent approximately $1.1 billion of gross proceeds at a trailing 12-month nominal cap rate of 7.5% and an economic cap rate of 6.8%. Upon closing of these transactions, NHP will become a pure-play senior housing operating REIT, 1 of only 2 in the public markets. All of our net operating income will come from senior housing operating properties in which approximately 97% of revenue is derived from private payers, serving an aging population amid kind of severely constrained new supply. Turning to operations. On our second quarter call, we explained that we and our operators have chosen to use short-term concessions at certain lower occupancy communities. We believe that this approach could weigh on third quarter same-store NOI growth but we believe it was the right long-term decision to accelerate occupancy at those communities. Our third quarter results show that our strategy is working. Same-store cash NOI grew 13.6% year-over-year and same-store cash NOI margin expanded 150 basis points to 24.3%. These results have included the cost of concessions as well as the impact of a onetime insurance reimbursement in last year's third quarter, which Drew will further detail. We view a short-term concession that secures a longer-term stay as beneficial to overall revenue and margin, and we are now positioned to enter 2027 with greater pricing elasticity and a more efficient flow-through of incremental revenue to NOI across a broader portion of our portfolio. Our 4 operating partners, Senior Lifestyle, Discovery Senior Living, AgeWell Senior Living and Priority Life Care now collectively manage our 60 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. We also expect to add a fifth operating partner, Sinceri Senior Living through an expected near-term acquisition. Turning to external growth. During the third quarter, we acquired 22 SHOP communities totaling 1,381 units for approximately $300 million. And subsequent to quarter end, we acquired 1 additional community with 79 units for approximately $26 million. Our 2026 year-to-date acquisitions now total 25 properties and 1,671 units for approximately $424 million at a forecasted blended year 1 yield of approximately 7.9% and a year 3 yield of approximately 9.4%. Our acquisition pipeline continues to grow. We currently have purchase and sale agreements for approximately $240 million of SHOP acquisitions and estimated weighted average year 1 and year 3 underwritten cap rates of approximately 7.4% and 8.7%, respectively. That total includes the 5 communities we discussed last quarter for which we were the winning bidder in the bankruptcy proceeding and at least half of that consideration is expected to be funded with NHP OP units or REIT shares. We have an additional $148 million under nonbinding letters of intent. Together, that is approximately $388 million and 1,385 units, primarily assisted living and memory care expected to close in the fourth quarter or in early 2027. Pipeline deals are subject to due diligence, closing conditions and for the letters of intent to definitive agreements. We believe the overall quality of this pipeline is higher than that of our same-store portfolio and occupancy across these communities is, on average, higher as well. This volume reflects our disciplined selective approach. We have evaluated and underwritten nearly $12 billion of potential opportunities and submitted approximately $3 billion of nonbinding letters of intent. We continue to focus on need-based private pay communities where our operating partners and asset management team can drive measurable improvement. Finally, an update on governance. Last quarter, I noted that we had begun another Board process to identify a new independent director. We expect that process to conclude shortly with a meaningful enhancement to our Board, and we look forward to sharing further details at the appropriate time. I will now hand the call over to Drew Babin, our Chief Financial Officer.

Thank you, Michael. As you've heard, it's been a pivotal quarter for NHP. Our entire team has been working on multiple fronts to deliver on the priorities we laid out earlier this year. That work is reflected in both our operating results and a meaningfully stronger balance sheet. In the third quarter, we reported normalized FFO of approximately $13.6 million or $0.19 per share, a sequential increase versus last quarter despite the full quarter dilutive impact of our IPO shares and the closing of the first tranche of our OMF exit. This was a result of an increase in cash NOI and lower fixed charges. Notably, our normalized results exclude $4.3 million of straight-line rent write-offs related to OMF properties sold during the quarter, among other onetime items such as acquisition expenses, losses on extinguishment of debt and noncash items related to derivatives. As we complete our OMF exit, redeploy proceeds into our SHOP pipeline and continue strengthening our balance sheet, we may see some timing-related earnings volatility in the near term. We expect our portfolio and balance sheet to be substantially stabilized by the time we provide our inaugural FFO per share guidance, which we plan to issue with our fourth quarter results in early 2027. In the SHOP segment, same-store cash net operating income increased by 13.6% year-over-year and would have increased by 15.1% if not for a onetime insurance recovery, which reduced operating expenses by approximately $150,000 in last year's third quarter. Driven by the focus on occupancy we described last quarter as well as the upcoming divestiture of a lower occupancy property now removed from the same-store reporting, same-store average occupancy increased to 190 basis points sequentially to 220 basis points year-over-year to 86.7% for the quarter. Same-store RevPOR grew by 30 bps sequentially and 4% year-over-year to $6,454, representing the combined impact of strategic concessions at our lower occupancy properties as well as stronger pricing power with regard to street rates at our higher occupancy properties. Same-store cash NOI margins increased by 150 basis points year-over-year, reflecting this pricing improvement and the operating leverage that comes from adding occupancy without a proportional increase in staffing. On a 2-year basis, same-store RevPOR increased by 10.9%, same-store cash NOI margin increased by 450 basis points and same-store cash NOI increased by approximately 47%. As Michael mentioned, we expect pricing power and margin expansion to broaden as more of our portfolio moves to higher occupancy levels. On the OMF side, our same-store portfolio is now significantly smaller and includes only properties whose sales require additional closing steps related to their secured loans. This pool produced flattish same-store NOI growth year-over-year and a 3.4% sequential increase from the second quarter. The flattish year-over-year performance was largely attributable to a onetime revenue catch-up in the third quarter of 2025 related to the internalization of our property management platform. As far as the balance sheet, our net debt and preferred equity to EBITDA ratio was slightly over 6x in the quarter. Due to expected additional reductions in secured debt related to our OMF exit as well as the already consummated repayment of both our Series A and Series B preferred equity, we expect our leverage to decrease meaningfully. As we've discussed previously, we'll continue to execute our growth strategy in a manner that results in stabilized levels of leverage in line with investment-grade peers. For those newer to our story, you'll recall that in August, we recast our unsecured credit facilities, more than doubling total commitments from $550 million to $1.2 billion. The recast includes a $750 million revolver, a $300 million term loan and a new $150 million delayed draw term loan with a fully extended maturity of August 30, 2031, assuming all extension options are exercised as well as improved pricing and terms overall. In connection with the recast, we repaid the $332 million Fannie Mae secured loan, a significant step toward building a balance sheet consistent with an investment-grade unsecured issuer. Due to year-to-date levels of performance and our expectations for the fourth quarter of 2026, we have increased our 2026 full year SHOP same-store cash NOI growth guidance to 16.5% to 18.5%. Further, we have discontinued our OMF same-store NOI growth guidance in advance of our expected exit from the segment. With that said, we expect the fourth quarter same-store cash NOI of our remaining same-store OMF portfolio to be generally consistent with our third quarter total before the impact of further dispositions. Our new acquisition guidance of $425 million to $645 million includes all deals closed year-to-date at the low end and additionally, transactions both under definitive agreement and expected to close in the fourth quarter at the high end. Dispositions of $1.1 billion include the disposition of all OMF properties, except for 4 slated to close in early 2027 as well as the sale of 2 noncore SHOP communities for approximately $50 million. Both total G&A and equity-based compensation guidance remain unchanged from last quarter. We segmented our recurring capital expenditure guidance to reflect our current same-store SHOP portfolio and separately, our total 2026 recurring CapEx spending at OMF properties, including amounts previously spent on assets we no longer own. As I mentioned, we expect to be in a position to provide FFO per share guidance in 2027 once we are through the short-term impact of our portfolio and balance sheet transformation. With that, I'll hand it back to Michael.

Thanks, Drew. The third quarter was a transformational quarter for NHP. We turned the plan we outlined to investors in April into a clear path to a pure-play SHOP portfolio. We've agreed to fully exit the OMF segment at attractive pricing, and we've responsibly used a significant portion of the proceeds to retire the vast majority of our secured debt and all of our preferred stock. We told you last quarter what we intended to do with SHOP occupancy and the results are visible. same-store occupancy of 86.7%. We are realizing pricing power at our higher occupancy communities, and we have accelerated narrowing of the occupancy gap relative to the broader NIC averages. Our transactions team is expected to exceed $800 million in total deal activity since our IPO by early next year, and Lindsay Gordon and our senior housing team continue to work with our operators to drive operating results. 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 question-and-answer session.

[Operator Instructions] Your first question comes from the line of Jamie Feldman with Wells Fargo.

This is [Jesus] on for Jamie. Just as occupancy responded well to the concession strategy you guys highlighted here, but RevPOR growth slowed as you guys talked about in your opening remarks. As those incentives roll off, how should we think about RevPOR growth kind of heading into 2027? Or has the near-term growth mix kind of shifted more towards occupancy gains?

[Jesus], it's Drew here. I would say that from a guidance perspective, our prior guidance, we are prepared to probably give up more on the RevPOR side than we essentially had to at the end of the day to get that occupancy. We've had concessions beginning to burn off, and they'll continue to burn off into the fourth quarter. And there will also be an impact of new residents that are coming in kind of beginning to pay '27 rates already with an escalator. So you put all that together, I think the fact that third quarter RevPOR was pretty even with the second quarter considering what we're doing with occupancy is consistent with what we wanted to do. And in the fourth quarter, I think you'll continue to see that RevPOR strength. And on the occupancy side, the fourth quarter is never the strongest quarter of the year, just seasonally. But so far, so good as far as there not really being bad weather or flu seasons or anything like that, that could affect our ops. So we're optimistic that the top line story can remain very much intact to even improving through the fourth quarter into next year.

That's great. And just on the OMF exit here, I guess, what are the remaining execution items for the pending sales here? And how much like acquisition capacity? Just talk about the acquisition capacity that becomes available once those proceeds and debt reductions are reflected.

Sure, it's Michael. In terms of disposition process, really left with 2 tranches of the portfolio left to close. We expect those will close this quarter. One is just subject to standard closing conditions, a couple of deliverables on the estoppel front, but nothing that we see as a hurdle to getting the larger $531 million piece of it closed. And then on the other side of the transaction, everything seems in line, just working through the servicer process with that loan assumption. But again, we've seen no hiccups or hurdles to getting that closed in this quarter. So still feel optimistic that, that will get done on the time line we've outlined. And I'll let Drew take the proceeds piece of it.

Yes. Kind of looking at this deleveraging and essentially releveraging exercise with our deck we put out recently, talked about how if you take all these OMF sales and just acquisitions we've closed, we really end up -- obviously, we've taken out the preferred and so the 2 different leverage ratios become the same thing. But we end up with essentially no net debt. But obviously, we'll be putting money to work kind of from there. But obviously, we've prepared to achieve the high end of our acquisitions guidance for this year. And beyond that, there's capacity for at least, call it, another 150 so of pipeline properties that we're looking at for probably early next year closings. But that puts us in an area where our leverage ratio is very consistent with our investment-grade peers, which is where we want to be.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Great. Just wanted to stick with the occupancy and RevPOR commentary. Just trying to get a sense of where do you think that those -- are those numbers sort of stabilize on a go-forward basis? And curious when you're buying acquisitions, like what are you underwriting for the occupancy gains, annual occupancy gains and RevPOR gains when you're underwriting the acquisitions?

Ron. It's Michael. Yes. I mean, I think sitting in kind of the mid-86% occupancy in the same-store portfolio, we still see a long runway on the occupancy growth front for us. Nice to see some momentum in that. We continue to see some momentum into the fourth quarter. RevPOR, as Drew mentioned, we've already rolled out '27 street rates for new leases executed in the fourth quarter. So we're starting to see some uptick from that. I think you'll see across the portfolio somewhere blended around a 5% to 6% rate increase for renewals and consistent with prior years. I think at the higher end of the occupancy spectrum, we certainly feel like there's some more pricing elasticity, and we've seen that over the last quarter as we offset some of the concessions with new leasing in that subset of the portfolio. And then as we're underwriting new acquisition opportunities, a lot of what we have in the pipeline is sitting in that kind of high 80s occupancy, similar thesis of some occupancy gains to grow, but certainly, as we cross 90% occupancy in certain assets, we feel pricing power moves and the momentum moves more towards rate increases at street rates and certainly in in-place rate increases. So that's kind of how we're viewing the portfolio and then viewing the acquisition pipeline as well.

Great. That's helpful. And my second one was my follow-up. Just I saw you added an operator with another one on the way. Just curious as you think about scaling this platform, what the right number of operators is and how you're sort of managing the relationships with those operators in terms of sharing data and best practices and so forth.

Yes, absolutely. I think you've seen across our portfolio, we're big believers in relationships with A quality operators. We'd rather have an A operator in a B markets and vice versa. And that, I think, resonates throughout the acquisition pipeline as well as through the existing portfolio. So we've added -- PLC is a new operator that currently operates 3 assets. That number should grow closer to 9 or 10 by the end of the year. And I think as we view adding operators to the mix, we like to see somewhere north of 10 as kind of the long-term goal with any given operator relationship so that we can implement best practices and have more impactful relationships. So we'll be disciplined as we add those operators, but it's certainly something that we're evaluating on a daily basis with Lindsay and team and excited to have PLC in the mix and to add some Sinceri to the pipeline or to the platform shortly.

Your next question comes from the line of Rob Stevenson with Huntington.

Can you talk about the 388 of assets in the pipeline and whether or not that's inclusive of deferred CapEx and any other improvements that you want to make there? Or -- and then also where RevPOR is on an existing basis versus your existing portfolio, which is, I think, around $6,600 a month?

Yes. So in a general sense, just to addressed your last question first, and we had some materials on this we put out in a recent deck, but the RevPOR on what we're buying is, call it, I think, $150 to $200 higher than our same-store portfolio. So there is that. On the acquisition side, could you maybe repeat what that question was?

Is the $388 million inclusive of any deferred CapEx and other property improvements that you're going to want to make within year 1? Or is there additional sum there that those communities are going to require?

So that number is just the purchase price, the way that we guided. But I think it's fair to assume that some level of CapEx over and above that, maybe $10 million or so in the aggregate, so not a materially higher number. I would say that, that's going to be geared more towards revenue-enhancing projects. We tend to want to buy properties that are a common area refresh or floor replacement, things like that away from achieving higher rates, not properties that need kind of the basics address right out of the gate. So I think you'll see that the CapEx spending on the acquisitions to be very consistent with what we've done so far and again, more focused on revenue-enhancing items.

Okay. And then last one for me. The 531 OMF sale, is that -- did you guys say that, that was early '27? Or is that going to close before year-end? And does that close all at once? Or does that go in multiple tranches like the previous sale has?

Yes. We expect that the $531 million portfolio will close in 2026, and that will all close at once. There's no bifurcation. The other portfolio was bifurcated because of the loan assumption piece, but there's no debt associated with that portfolio. So that will be a single closing.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

I guess, Michael, I wanted to circle back on the 3Q concession packages that the company offered. I mean are you now happy with occupancy where it is in those lowly occupied communities or lower occupied communities? I mean, is there a need to do this again maybe next key selling season? Or do you think this is like a onetime thing just to kind of get occupancy up in those specific assets?

Yes. I would say a broad statement. I think this was a onetime event. We have added the concessions to the toolbox for what we consider our focus set of communities, so 9 communities that we monitor on a biweekly basis with the on-the-ground team there. And so those are available on a case-by-case basis for them to utilize. But broadly speaking, we're not going to be using the same widespread concession packages to drive occupancy like we did in the third quarter and more focused on driving rate and margin at this point now that we've seen a majority of the portfolio surpass that 85% occupancy level.

And I'll add to that, too. If you take these properties that are really kind of on this focus list away, our occupancy would be in the low 90s. And so it really is a matter -- and we already have the pricing power really coming through the margins coming through at those properties. So when it comes to these kind of watch list properties, they're either going to make progress or I think it would I think everything is always for sale. And if there's assets that we don't think can get there, I think we're open-minded about potentially divesting those or pruning those. So again, we'll continue to work through it. But all in all, we saw a good sequential improvement at these properties during the quarter. And to Michael's point, concessions are not being used broadly right now. Could they if there's a weather event or something like that, sure. But right now, it's -- we've scaled that back.

Okay. Great. And then just on the recent acquisitions and the pending deals in your pipeline, I mean, how are those communities positioned within the market? And then I guess, specifically, I'm just looking at the year 1 versus year 3 yield expectations. It looks like the 3Q deals, there's a bigger pickup between the year 1 and year 3 yield. Is there something specific with those deals where you see more upside? Or is that going to just vary depending on the individual assets that you're targeting?

Yes. I would say it's really a case-by-case basis. Some of the assets we purchased are sitting in that kind of low to mid-90s occupancy. As we've talked about in the past, as we think about entering new markets and looking to expand the footprint, we often look for an asset that has a strong reputation and has been well regarded in the market to help build the brand and build the platform off of. But in markets where we've got a foothold already, we tend to focus on opportunities where we have some occupancy and some rate upside. So I think it's really case by case, but still think that there is plenty of runway. The non-same-store pool sits in that kind of high 80s occupancy, similar, slightly elevated above the same-store portfolio, but still some runway to grow.