NATIONAL HEALTH INVESTORS INC Q1 FY2025 earnings call

• First quarter results exceeded expectations driven by faster acquisitions and upside in cash rent collections.
• Raised normalized FFO guidance midpoint by $0.08 per share to $4.71, representing year-over-year growth of 6.1%.
• Announced $174.9 million in investments so far in 2025 with an active pipeline of approximately $264 million and a larger funnel of opportunities.
• Recorded $1.2 million charge in transaction costs for a large SHOP portfolio that wasn't the right deal.
• Making progress on transitioning a six-property portfolio leased to Discovery to a new RIDEA partnership with good NOI upside potential.
• In existing SHOP operation, first quarter experienced typical seasonality but maintained outlook for 12% to 15% NOI growth this year and later years.
• Acquired approximately $131 million in real estate year-to-date with new partners like Generations, Juniper Communities, and Agemark.
• Balance sheet in great shape to support investment pipeline.
• FAD for the quarter ended March 31 increased 9.9% to $56 million; SHOP common shareholder FAD contribution up 12.6% after adjusting for routine cap expenditures and non-controlling interests.

For the Real Estate Investment segment, FAD for the quarter ended March 31 compared to the prior year period increased 9.9% to $56 million. Sequentially, cash rent for the first quarter from this segment increased $2.6 million due to factors like acquisitions, percentage revenue rents, additional rents from transition properties, and annual rent increases, partially offset by lower deferred rent repayments. For the SHOP segment, NOI for the quarter ended March 31 increased 4.9% year-over-year to $3.1 million. Resident fees increased by 5.2% year-over-year, driven by an occupancy improvement of 390 basis points to 89.2%. The margin declined 10 basis points to 22.1% compared to the prior year period.

• Raised normalized FFO guidance midpoint to $4.71 per share, up $0.08 from prior guidance.
• Included $155 million in incremental investments in guidance on top of already announced investments.
• Maintained SHOP NOI growth outlook of 12% to 15% for the year.
• Guidance assumes total rent from NHC master lease agreement to be approximately $39.7 million before certification of this year’s certified portfolio cash revenues.
• Timing of $155 million additional new unidentified investments is weighted more heavily in the third and fourth quarters of 2025 with an average yield of 8.2%.

• Potential impact of Medicaid cuts on the SNF portfolio, though majority of revenue is in states that never expanded Medicaid under the ACA, and geographic exposure may mitigate impact.
• Risks associated with large SHOP portfolio deals that didn't materialize, including transaction costs incurred.

Q: On NHC, can you give an update on the process and related matters?

A: According to attorneys, NHC has to give notice of renewal six months before the end of 2026; having dialogue with them, Medicaid and provider tax issues are a cloud; there's an independent director’s related party committee and Blueprint Advisors involved.

Q: What caused SHOP to be dramatically low in the first quarter?

A: There was a one-time expense that held it back a bit, and there's typical seasonality with excess move outs in winter months but still year-over-year growth and good leading indicators.

Q: What's left to do with SLM in terms of mezz loans?

A: SLM is largely wrapped up, got $2.5 million payment in April, and may get additional payments but timing is not determinable yet.

Q: On Discovery triple net transitions, any blip in rents collected or straight line rent write-offs?

A: There will be some noise in the transition, accounted for in projections; buildings maintained, and there will be revenue producing CapEx; continuing to support the SHOP portfolio with Discovery as they've done a good job with occupancies improving.

Q: On NHC percent rent benefit and what it means to tenant's profitability and upside if assets taken to market?

A: Percentage rent was largely factored into numbers, buildings continue to improve, market is good from valuation standpoint, and working with Blueprint to have good line of sight on portfolio value.

Q: On SHOP portfolio and reiteration of guidance, how to get mid-teens same-store NOI growth?

A: Focus on incentives rolling off, continued occupancy at 90% plus level, expense line management, and recurring CapEx leveling out over time.

Q: On large SHOP portfolio that didn't close, details and lessons learned?

A: Had a property under LOI, determined it wasn't a fit due to structure and growth prospects, decided to pursue other pipeline opportunities.

Q: Mix of unidentified new investments between property investments and debt financing?

A: Combination of a little bit of loans and mostly fee simple, average yield assumption of 8.2% in line with recent closings.

Q: Timing of Discovery leases triple net conversions?

A: Targeting third quarter, subject to legal review and licensure applications.

Q: On SHOP incentives and RevPOR growth, why continued heavy incentives with occupancy close to 90%?

A: Not all buildings at 90%, some subsets still needing incentives, and average length of stay coming down, so using incentives to maintain occupancy.

Q: Upside potential of Discovery conversion portfolio?

A: Seen good growth potential, thinking it can be a double-digit NOI grower over time, with focus on steady growth and ROI producing CapEx.

Q: Update on PACS?

A: No additional information to share, buildings continue to pay rent as agreed, underlying performance fine but no more details than public disclosure.

Q: Driving factors behind uptick in deal flow?

A: Sellers realizing market now, limited buyer pool, competitive cost of capital, solid access to debt and equity, focus on senior housing in pipeline.

Q: Potential increase in pace of acquisitions?

A: Can increase, but will be selective, thoughtful, and accretive, with team growth actively ongoing.

Q: Factors behind cap rates flattening out?

A: Debt still expensive leading to negative leverage if cap rates too low, and performance stabilizing a bit with more stabilized type properties.

Q: Bond market update and cost of 10-year debt?

A: Relatively smaller REIT with BBB-, BAA3 rating, need to pick window properly for bond issuance, minimum $300 million to be indexed, spread expectations have changed with market conditions.

Q: Cost expectations for NHC related proxy battle?

A: Current expectation is around $1.8 million, with a $264,000 add-back at normalized FFO line in first quarter results.

Q: Reason for SHOP occupancy dip sequentially?

A: Predominantly move outs due to higher level of care or debt, with some due to seasonal factors like higher move outs in winter.