Q3 2026 National Healthcare Properties Earnings Call - NATIONAL HEALTHCARE PROPERTIES INC

Financial Performance:

• Reported normalized FFO of $13.6 million ($0.19/share), a sequential increase despite IPO dilution and OMF exit costs.
• Same-store cash NOI grew 13.6% year-over-year in the Shop segment; margins expanded 150 bps to 24.3% (excluding a $150k one-time insurance recovery last year).
• Same-store occupancy reached 86.7% (up 190 bps sequentially, 220 bps YoY); REVPOR grew 4% YoY to $6,454.
• Year-to-date OMF (Outpatient Medical Facilities) same-store NOI growth was flat; Q3 OMF NOI grew 3.4% sequentially.
• Net debt/EBITDA ratio was slightly over 6x in Q3; expected to drop significantly below 5x following OMF exit proceeds and preferred equity repayment.
• Capitalized on a $1.2 billion secured credit facility recast ($750M revolver, $300M term loan, $150M delayed draw) to repay $332M Fannie Mae loan.

Guidance and Future Outlook:

• Raised 2026 full-year Shop same-store cash NOI growth guidance to 16.5%–18.5% (up from prior expectations).
• Discontinued OMF same-store NOI growth guidance; expects Q4 OMF NOI to remain consistent with Q3.
• Provided 2026 acquisition guidance of $425 million to $645 million (inclusive of closed and pending deals).
• Projected dispositions totaling $1.1 billion for 2026, covering all OMF properties and two Shop communities.
• Plans to issue inaugural FFO per share guidance with Q4 2026 results in early 2027 once balance sheet stabilization is achieved.
• Long-term leverage target is aligned with investment-grade peers (net debt/EBITDA under 5x).

Business Segments and Product Lines:

• Executing a strategic pivot to a pure-play senior housing operating REIT; 126 Shop properties (approx. $1.1B proceeds) sold or under definitive agreement.
• OMF segment exit nearly complete; remaining 56 properties under agreement for $331M (buyer assumes $219M debt), with final 4 properties under LOI.
• External growth: Acquired 22 Shop communities (1,381 units) for ~$300M in Q3; total YTD acquisitions at 25 properties/1,671 units for $424M.
• Acquisition pipeline includes $388M in assets (1,385 units) under PSA or LOI, with underwritten yields of 7.4% (Year 1) and 8.7% (Year 3).
• Added fifth operating partner, Priority Life Care (PLC); Sincerity Senior Living expected to join via near-term acquisition.
• Four current operators (Senior Lifestyle, Discovery, AgeWell, Priority) manage 60 Shop communities; five operators expected long-term.

Market and Competitive Landscape:

• Market conditions feature reduced competition from leveraged buyers due to interest rate environment, enhancing deal flow sourcing.
• Competitors identified as local owner-operators and developers; NHP leverages speed, capital capacity, and institutional diligence to win deals.
• Pipeline assets average higher occupancy (high 80s to low 90s) compared to the 86.7% same-store average, offering near-term growth runway.
• Strategic focus on "A-operator, B-market" thesis, specifically in secondary markets like the Midwest, avoiding assets with dated reputations.
• Revenue per bed/per room (REVPOR) on acquisition targets is ~$150–$200 higher than current same-store average.

Risks and Challenges:

• Short-term earnings volatility expected due to timing of OMF exit and balance sheet transformation prior to 2027 stabilization.
• "Watch list" properties (approx. 9 communities) require intensive management to reverse occupancy issues or risk divestiture.
• Potential for weather events or flu seasons in Q4 to impact occupancy trends.
• Execution risk in closing remaining OMF transactions and securing the $331M sale agreement subject to servicer processes.
• Continued need to manage capital allocation between high-yield acquisitions and maintaining investment-grade leverage ratios.

Management Commentary and Tone:

• Management expressed high confidence in the "transformational" Q3, highlighting successful execution of the 100% Shop portfolio exit strategy.
• Tone emphasized operational discipline, with concessions viewed as a successful one-time tool to secure long-term occupancy and pricing power.
• CEO highlighted the "pricing power" emerging as occupancy moves above 85%, expecting margin expansion to accelerate in 2027.
• CFO noted the strategic value of the credit facility recast and the move toward an investment-grade balance sheet.

Analyst Questions and Answers:

• RevPAR Growth vs. Occupancy: Management confirmed concessions are burning off; RevPAR growth is expected to re-accelerate in late Q4 and 2027 as new leases execute at higher rates.
• Lease Structure: 2027 street rates are already rolling out for new leases, expected to yield 5–6% rate increases for renewals.
• Acquisition Funding: Bankruptcy assets will be partially funded with shares (~$65–$70M) but cash options remain available; future leverage will settle under 5x.
• CapEx on Acquisitions: Pipeline CapEx is estimated at ~$10M aggregate for revenue-enhancing projects (common area refresh), not major structural repairs.
• Operator Strategy: Long-term goal is >10 operators to standardize best practices; currently scaling PLC to ~9–10 sites by year-end.
• Dispositions: The $531M OMF sale is expected to close as a single tranche in 2026; two Shop divestitures were strategic "pruning" moves (California asset and underperforming unit).

Other Key Points:

• 126 properties sold or under agreement represent ~$1.1B gross proceeds at a 7.5% nominal cap rate and 6.8% economic cap rate.
• NHP will become one of only two public pure-play senior housing operating REITs upon closing all transactions.
• Board governance process is concluding with an expected addition of a new independent director shortly.
• Total General & Administrative (G&A) and equity-based compensation guidance remain unchanged from previous quarters.
• Deferred CapEx and improvements on acquisition targets are expected to be revenue-focused rather than basic maintenance.