Q2 2025 National Health Investors Inc Earnings Call
Greetings, welcome to the National Health investors. 2q 2025 earnings webcast and conference call.
At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded. I will now turn the conference over to your host. Dana hambley. You may begin.
Thank you and welcome to the National Health. Investors conference call to review results for the second quarter of 2025, on the call today are Eric mendelsohn, president and CEO, Kevin Pasco, Chief investment officer, John Spade, Chief Financial Officer and David Travis Chief accounting, officer the results as well as notice of the accessibility of this call were released after the market closed yesterday in a press release. That's been covered by the financial media, any statements in this conference call, which are not historical facts or forward-looking statements and hi cautions. And
Investors at any forward-looking statements may involve risks or uncertainties and are not guarantees a future performance.
All forward-looking statements represent NHS judgment as of the date of this conference. Call investors are urged to carefully review. Various disclosures made by nhi and its periodic reports filed with the Securities and Exchange Commission, including the risk factors, and other information disclosed in nhi's form 10. K for the year ended December 31st 2024 and formed 10 Q for the quarter end of June, 3020, 2025,
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.
Hello, and thanks to everyone for joining us today.
We followed a strong start to the year with an even stronger quarter, which exceeded our expectations.
The second quarter is out performance was multifaceted and driven by solid execution, throughout the Enterprise.
The faster pace of Acquisitions in the first half of the Year exceptional shop. Noi growth and continued deferral collections on improving tenant fundamentals, were all major contributors
Due to the outperformance and good visibility, we're raising our 2025 guidance for the second time this year.
We increase the midpoint of our normalized ffo guidance per share by 9 cents to 4.80 representing year-over-year growth of 8.1%.
With our improving growth and excellent coverage. We also announced last night that we are increasing the dividend for the first time in 4 years.
Additionally, we're excited to share a milestone event for nhi Effective, August 1st. We completed the transition of 7 properties from leases to shop resulting in an increase to our annualized shop. Noi of approximately 8.8, million or 57%.
Following these transitions shop will represent. Almost 10% of our Consolidated. Noi.
Given the significant organic and external growth opportunities. We expect that percentage to grow exponentially both on a near-term and long-term basis.
Since we established shop, in April of 2022, we've been methodically preparing to grow this portfolio. As we believe senior housing operations, provide the highest growth potential with the best risk adjusted returns in our investment universe.
Through investments in personnel, as well as other internal and external resources, we're confident that we have now established a strong foundation across our asset management, business development, accounting, and legal functions to strategically expand the shop portfolio at a rapid pace.
Turning to the shop results for the quarter shop, noi increased by over 29%. Compared to the second quarter of 2024.
While there were some non-recurring benefits during the quarter which Kevin will detail were pleased that the early strategy to focus on driving higher occupancy, is now leading to improved rev core growth and margin expansion.
Rev for growth of 3.7% and noi margin at 26.9 are both record results and shops formation.
We continue to see substantial organic upside in this portfolio.
With the conversions. We expect proforma annualized, 2026. Noi growth to be double digits.
The pipeline activity continues to make us optimistic. That Acquisitions will be a meaningful component of our growth profile for the next several years.
We've announced Investments of 175 million so far this year and currently have approximately 130 million under signed Louis which we expect to close in the next few months.
This includes a shop deal valued at approximately 74 million as well as a purchase option that we've exercised on a large entrance fee Community. The incremental pipeline at nearly 350, million is entirely focused on senior housing, including a significant number of shop deals
We expect to have several signed Louis in the next 2 quarters.
As I just mentioned, we expect Acquisitions and Shop Acquisitions in particular, to be a major contributor to our growth profile.
While we view every deal based on its own merits, we also employ a portfolio approach in which we measure any new acquisitions impact on the yield and growth of the overall shop portfolio.
Obviously, we like the deals and we see many that offer. Tremendous. Noi growth. And we evaluate situations in, which the deal may open up a new relationship or geography, where we see significant future opportunity.
Through this approach.
Overall our goal is still targets. Aggregate initial yields to be a creative immediately with expected. Multi-year. Exceptional noi growth.
The balance sheet continues to be in great shape and very supportive of funding the significant investment pipeline.
Our net debt to adjusted ibida. 3.9 times is below the low end of our target range and we have available liquidity of approximately 760 million
We believe this low leverage and strong access to Capital, create real competitive advantages and give us optionality when assessing our Capital needs for the future.
To sum all of this up, we're very excited about the multiple growth opportunities and our confidence and capitalizing on these opportunities has never been higher.
as this is our first public conference call, since the annual shareholders meeting in May I want to share a few comments
First we want to sincerely thank our shareholders for the constructive dialogue over the years and especially leading up to this year's meeting.
We believe your valuable feedback has informed and validated our strategic Direction.
Also your direct correspondence, has resulted in considerable board changes, including this year's retirement of our 2, longest tenure board members. The recent appointments of Candace Todd and Rob chapen and the declassification of the board.
Lastly, the outcome of the vote, clearly informs our board, that there is more work to be done particularly with board refreshment.
The board is committed to improved governance and understands the role it plays in delivering long-term value, for our shareholders on that topic. The special board committee tasked, with overseeing the NHC. Lease renegotiation is actively engaged with management.
While we're not providing details of the engagement or the ongoing discussions with NHC. We are confident that the special committee's interests are fully aligned with our shareholders to execute a deal that delivers the best possible value.
I'll now turn the call to Kevin to provide more details on our operations. Kevin.
Thank you, Eric.
Our Focus during the quarter was on transitioning 6, previously leased properties, including 5, assisted living and 1, Independent Living Community to sincerity senior living under a shop operating structure.
This was accomplished on August 1st, and we're thrilled to be working with a sincere and accomplished operator with 76 communities in its portfolio, spanning 24 states.
Nhi. Retains 100% ownership of this portfolio and has engaged in Syria under a management agreement, which includes incentives based on growth in both noi and real estate valuation.
We also transitioned, an independent living community in Tulsa. Oklahoma from a lease to the existing shop Venture that we have with Discovery Senior Living which increases that portfolio to 10 properties.
Discovery was the operator under the lease so there should be no disruption in operations.
These seven properties generate approximately $8.8 million in annualized shop and NOI, and we expect them to have a double-digit NOI growth profile in 2026.
John will provide more details on the impact of the transitions to this year's guidance.
The pipeline is very active and we are evaluating approximately 343 million in senior housing deals through potential Investments and Shop be simple, real estate and mortgage loans that have preferably a path to Future ownership.
More than 50% of the pipeline are shop deals with initial yields that are creative to the company.
We are focused on assets where there is a clear path is significant in AI growth as Eric noted. We're also interested in Acquisitions that provide other strategic benefits. Such as establishing a relationship with a new operating partner where we see future opportunities to scale in a specific geography with sincerity. We feel we are getting The Best of Both Worlds, and double digit. Noi growth and significant flexibility to grow that relationship.
Turning to our shop performance.
Our same store shop, portfolio of 15, communities increased noi by 29.4% year-over-year to 3.8 million.
The order did benefit from non-recurring items, totaling approximately dollars.
Adjusting for these items, we are still quite pleased that the performer rate was over 21%.
As we've talked about our strategy in 2023 and 2024 was to drive occupancy, higher, which we did successfully.
With occupancy, over 89% for the last 3 quarters, our focus is shifted to pricing.
And the Rev 4 growth of 3.7% compared to the second quarter of 2024 and 2.1% compared to this year's first quarter.
Due to the excellent growth year to date. We have moved our full year. Noi growth rate slightly higher to a range of 13 to 16%
this implies some slowing in the second half of the year which is driven by some recent softness and occupancy. But we're optimistic that this trend reverses itself in Fairly short order.
A longer-term view is unchanged, and we actually have higher conviction in the margin potential following the strong second quarter results.
Across the triple net portfolio. We are generally experiencing the continuation of solid Trends with no rent concessions. Continued collection of deferred rents in excess of our expectations and stable occupancy and ebit darm coverages.
Bigford continues to generate strong, noi. And we are encouraged to see the recent occupancy rebound.
Speak for the second quarter occupancy, increased by 20 basis points from the first quarter to 85.2%.
Trailing 12-month epidem coverage through March 30th, excluding deferral repayments was 1.66 times.
Including the repayments of approximately 4.8 million over that time frame. Bigfoot's ProForm coverage was a very comfortable 1.46 times.
Bigger repaid, approximately 1.2 million, a deferred rent during the second quarter and has an outstanding balance of 10.4 million at June 30th.
Recall that bigford next rent. Reset is April of 2026.
To their solid performance. We expect that we will be able to capture more than their quarterly run rate of deferral repayments into the future base rent and largely eliminate
the variability that these repayments can cause to our Outlook.
Before I turn the call over to John, I'd like to announce, we have hired Grant Johnson to fill the new role of senior vice president of asset management.
Grant has over 2 Decades of asset management and Healthcare Finance experience across senior housing and skilled nursing Industries and has extensive relationships with operating companies private equity and capital providers.
Brand as part of that strong Foundation, Eric mentioned earlier, and we expect great contributions from him.
I'll now turn the call over to John to discuss our financial results and guidance John.
Thank you. Kevin, and hello, everyone.
Let me again with our second quarter results, I'll be using average diluted common shares for all per share results.
For the quarter ended June 30, 2025, our net income per share was $0.79.
Down 2.5% from the prior year.
Our knee rate ffo results per share for the second quarter compared to the prior year. Period increased 0.8% to 1/19 per share.
Our normalized ffo results per share for the second quarter, increased 3.4% to 1.22 per share compared to the prior year. Second quarter.
During this second quarter, we recognized a 1.5 million gain from our Equity method investment and 1.4 million in lower credit loss expenses, which positively impacted net income, May read ffo and normalized ffo.
When reviewing our performance this quarter, please recall that last year's second quarter results. Included a lump sum 2.5 million deferred rent recovery from 1 of our cash basis, tenants,
Fad for the quarter, end of June 30th compared to the prior year. Period increased 8.1% to 56 million.
And a wife from our shop segment for the quarter ended. June 30th increased 29.4% to 3.8 million compared to the prior period.
The year-over-year shop. Common shareholder, fad contribution was up 32.6% the 3.4 million after adjusting for routine Capital expenditures and non-controlling interest.
For the 6 months, ended June 30th, shop revenues, increased 5.7% to 28.2 million, compared to 26.6 million in the prior year period.
Shop expenses, Grew 2.4% From 20.8 million to 21.2 million and the margin expanded 241 basis points as a result of improvements in occupancy and rev port.
in the second quarter, our cash rents increased, 4.6 million year-over-year
Rent attributable to our investment volume contributed 5.9 million.
and our existing lease escalators, negotiated step-ups and percentage Revenue rents contributed in additional 1.7 million
and represents a 2.7% increase in those rents year-over-year.
Which represented only a $100,000 reduction in rents on those properties.
Finally, as I previously mentioned further offsetting these changes was last year's 2.5, million lump sum deferred rent payment associated with 1 of our cash basis, tenants
Interest expense for the quarter was flat year-over-year. While weighted average common diluted shares were up 7.5% to 46.8 million shares as a result of the company's greater use of equity in Lua debt to fund new Investments over the last year.
Sequentially compared to the first quarter cash GNA, excluding proxy, fight expenses, increased primarily due to compensation expenses.
Legal expenses were modestly down, sequentially Q2 over q1, but still at an elevated level due to the company's increased investment in shop activities.
In the second quarter, we completed the acquisition of a senior housing portfolio for 63.5 million.
We also closed on a $28 million senior housing construction home with an existing operator.
Our total funded Investments for the 6 months end of June 30th was 161.55 Million.
This total includes our new acquisitions. Net of 1 property, acquired in the first quarter through a deed in lieu of foreclosure.
As well as our funded mortgage and loan commitments, plus our investments in our existing real estate.
The meter investment needs. We utilize proceeds from mortgage and Loan. Payoffs totaling 35.4 million, as well as 123.5 million in proceeds, from new equity,
Year to date our paid dividends plus 76, million in debt. Retirements were well supported by our operating cash flow and other liquidity sources.
During the quarter. We settled just under 800,000 common shares from our Q4 2024 and q1 2025 4 at ATM activity.
At an adjusted Ford price of $44.71 per share after fees and forward costs for proceeds of approximately 58 million.
Additionally, we again activated our ATM and sold on a forward basis, approximately 1.3 million common shares at an average price before fees, a $22.50 per share,
At June 30th 2025 we had total, escrow forward, Equity proceeds over approximately 102.3 million available to us in exchange for the future delivery of 1.4 million common shares at an average price of $11.03 per share.
We also ended the quarter with 18.6 million in cash, on our balance sheet, and 322 million in revolver capacity.
During the second quarter, we retired $75.7 million in secured debt, which brings our secured debt balance to zero.
We also extended our million dollar Term Loan for 6 months, to December 16th 2025.
We have a $1 million senior loan maturing in November and intend to extend the term loan maturity in the third quarter for an additional six months to June 2026.
Our balance sheet ended the second quarter in great shape. Our net debt to adjust the ibida ratio was 3.9 times for the quarter. Just below our stated 4 to 5 times leverage policy.
Our interest coverage ratio was stable sequentially and improved year-over-year to 4.7 times despite retiring, 151 million in lower rate, fixed interest rate debt, since the second quarter last year.
At June 30th, our liquidity was approximately 760 million which includes escrow forward Equity, cash excess revolver capacity and up to an additional 316 million in available ATM capacity.
We're continuing to monitor long-term Bond rates, and expect to utilize public debt to further improve our liquidity.
Let me now turn to our dividend and guidance.
as we announced last night, our board of directors, declared a 92 Cent per share dividend for shareholders of Records, September 30th, 2025, and payable October, 31st, 2025
This represents a 2.2% increase and is our first dividend increase, since the first quarter of 2021.
We also adjusted our full year 2025 guidance, which includes increases to our normalized ffo and normalized fad results.
Our guidance includes the impacts from the recently announced shop conversion and our other expected results.
Compared to 2024 May read ffo guidance at the midpoint is $448 or a decline of 1.5%.
8.1%.
Compared to our May full year guidance. We decreased NY ffo by 19 cents per share and increased normalized ffo by 9 cents per share.
Our guidance for FAD at the midpoint is $228.9 million, up from the May guidance of $225.1 million, and represents a 12.1% increase over 2024.
Included in our guidance issued last night or just announced right idea shop conversion expectations, which commenced August 1st.
During the third quarter and subject to final post-closing. Reconciliations, we expect to ride off approximately 12 million in straight line receivables associated with a termination of the discovery, leases
And we conservatively estimated between 1 and 1.4 million and losses upon operations transfer.
Which will both be adjusted out of our normalized ffo and fad results.
Our guidance includes our expected 5-month. Noi contribution from the conversion, shop operations in the range of 3.6 million to 3.7 million, as well as approximately 500,000 in routine capex for the, for the remainder of the year.
During the third quarter, the company also expects to recognize Discovery lease revenues, totaling approximately $3.3 million, subject to final post-closing reconciliations.
Our guidance include same store shop, noi growth in the range of 13% to 16% over 2024, which is up slightly from 12, to 15% in Prior guidance.
Guidance also includes the continued collection of deferred rents in the Fulfillment of our existing commitments.
In keeping with our past recent practice, our updated 2025 guidance includes 105 million in additional new unidentified Investments and an average yield of 8.1%.
Our guidance includes a small amount of forward Equity, utilization between now and the end of the year, but our actual use will be dependent upon the volume and timing of additional new Investments.
Finally guidance continues to include assumptions for additional costs and concessions related to normal Asset Management, transitions dispositions and Loan repayments.
Once again, thank you for joining our call today that concludes our prepared remarks. So with that operator, please open the lines for questions.
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1 moment, please while we pull for questions.
Your first question for today is From Austin wormit with KeyBank
Morning, everybody. Um Eric, it sounds like you have a lot of positive momentum on the investment front but but there was a bit of a delay in closing I believe on some of the Investments and that decrease in that unidentified uh investment assuming guidance. Can you just give some additional detail what's what's driving the delay and and just what the confidence level, that that everything is moving forward from here?
Hey Austin. This is Kevin uh I would just characterize it as a timing issue. As we talked about during the quarter where we were very focused on the conversion, we still have a very robust pipeline. We've got a couple deals under Loi that we expect to close in the not too distant future. So I don't view it as a disruption, it's just more timing than anything else.
Appreciate that. And then you guys have talked about in the past. You you you know last quarter so I walked away from a larger portfolio of transaction. I I don't think you kind of flagged um whether or not you continue to evaluate those deals outside of what you've quoted in the pipeline. Um, anything you can share in terms of the opportunity set and and what the you know, desire likelihood is that there there's something out there that could fit, you know.
Nicely within the portfolio to continue to grow as a percentage of the over over uh overall entity.
Sure, this is Kevin again I think when we look at the pipeline, what we're quoting are things that are, we're actively working. Um, there's a likelihood that we issue an Loi but they're also ones that are um, generally under 100 million in size. So, it's stuff. That's a little more tangible. We absolutely have some bigger deals in the pipeline that we're evaluating and we have the
And um, make the pipeline look like it's bigger than it should be when those deals have, you know, generally have some more nuances to them. So there's a few that are still floating around, we still continue to evaluate some larger portfolios. Um you know it's really just a sense of making sure we have the right operating partner. It's the right profile and it checks a lot of boxes.
Can you just remind us? Should we think about, you know, a leverage neutral approach to to funding Investments or, you know, whether we could see you drive down, leverage further, you know, over time and that's it for me.
Yeah awesome. This is John so you know our policy is usually maintained leverage neutral but um as you noticed we were in the market talking to that investors in March uh that was prior to Liberation day.
Liberation day was very disruptive. Uh, We've noted that um, you know, during the period of time earlier, this year, our cost of equity was pretty close to our cost of incremental long-term debt. So we've pivoted to utilizing a lot more equity.
Um, that's not our desire. Our desire is to um, uh, stay more leverage neutral, but you know, that's going to be, you know, market conditions and and driven by market and uh, we we're fortunate enough to have you know, options here to to provide for liquidity from different sources.
Thanks for the time.
Your next question is from amateo akusa with Deutsche Bank.
Good morning, everyone. Uh, good execution this quarter. Uh, just around Discovery. Again, they're still a top 10 of yours. I think the subset is 3.3% of NOI. Just curious how you were thinking about that overall relationship today because, again, you found this in a bunch of assets away from them, but the next to this one, Independent Living asset that you actually...
Checked with them in the short portfolio, just wondering what some of the challenges are that caused some other transitions, and just how you're thinking about the overall relationship today.
Hey Ty, this is Kevin as it relates to Discovery. They're still going to be a ongoing partner of ours. They're we have 10 buildings with them in shop. Uh, we continue to see some noi growth within that portfolio and expect more out of them. So they're going to be a piece of our business going forward. You know, as we talked about on the last call, it's a matter of making sure that we're promoting the things that are going, well within the relationship, which is why we moved over the, the independent living building building from triple net to shop. We want to promote that piece of it. So you know, you'll continue to see them be a piece of our business, they're a large operator in the space so you know, we like having them as a customer and you know, we'll see where the what the future brings for us there.
But on on the Assisted Living side is there something thematic? With those assets you you transition, they will not have scale in those markets. So just kind of curious why that decision was made.
Well, I think this is a, a function of their smaller buildings and secondary markets. Um, Discovery had done a okay job coming out of the pandemic and getting them turned around but you know, as we've, you know, really just described. I generally think they do really well with bigger buildings and more primary markets. Um, they've done a decent job here, but we wanted to make sure that we had the right Focus, not to say they weren't giving Focus to the buildings. It was just a function of it was time for a change and wanted to make sure that we had a
partner that was going to be able to succeed with smaller buildings in in the secondary markets and think that there's still a fair amount of growth that's left in these, which is why we made this transition,
Makes sense. And then 1 other quick 1 for me. I, I think you made a comment that shop that was like some near-term softness and occupancy. You saw maybe post to 2, and you were kind of hoping it was just a temporary thing. Could you just talk a little bit about what? What you're seeing out there and what? Maybe be causing that whether it's just you're starting to ramp up on pricing and maybe that's what causes a pullback.
so, we think that will
Kind of come back to the main and we'll continue to see growth there.
Thank you.
Your next question for today is from Farrell granath with Bank of America.
Hi, good morning. This is Carol Granite. Um, I first wanted to touch on the recent hire of Grant. And how does that play into um, higher thinking about either your investment or uh, strategy when expanding into either the shop business or just expanding into your housing generally?
Good morning, this is Kevin again. The the focus for us was to make sure that we have our asset management team.
In a very good spot to be able to take on where the business is going, which is going to be more of a shop focus and that's going to require us to have an expansion of oversight. Um so we hired in a senior person in Grant we're going to be putting people in the right seats. Um maybe use that phrase once already, but using it here again, to make sure that we have.
The right oversight, we have great people on our team and I think there's a lot of room for them to grow. We just need to make sure that we have our systems and processes down, um, where when it comes to shop, so we can expand that piece of the business. So once we get that set, we can further accelerate the pipeline and make sure that whatever we bring in the front end is going to be managed appropriately.
Ely. And we're going to see the growth that we expect out of it.
Right. And also on the slm, I know you had received some of the loan payment that you had previously disclosed last quarter, would you expect to receive any other payments going forward? Um, or has there been any other development?
No further developments. Uh, we have an agreement with them where they're. There are some scheduled payments, frankly. They're
A you know they're a floundering operator right now so we'll we'll see what happens with them. They're not going to be they're you know, I view this as largely wrapped up, we have a few payments that I think they'll make where we have a mortgage property but it will be small. And it's just it's not really going to move the needle significantly. And we still do have credit on the guarantee uh, with guarantees that we have behind it. So we have recourse, um, should they not perform? But at the end of the day again we're talking about a very small percentage here.
Right and 1 last 1 for me, um, for the discovery deferral.
With the termination of the lease. I thought there was a comment about, um, that you would expect to collect the remaining deferral about balance. I was just wondering if you could touch on how much that was, um, in total of what you could expect to come in.
This is John. So um, everything was approximately 3.3 million.
So, it's not quite the entire deferral balance.
Okay.
All right. Thank you very much.
Your next question is from John kilichowski with Wells Fargo.
Uh, good morning. Thank you.
Uh maybe the first 1 from Miu, just going to be on uh NHC. Could you give us maybe a progress report on how those discussions are going? And then maybe also on the performance of that portfolio today from a coverage perspective
This is Eric.
So the discussions are ongoing, uh, can't really give you the details. Um,
but, you know, the the, uh, special Committee of the board that was formed of uh,
non-conflicted directors has met, uh, we discussed our strategy and um that is in progress, NHC is
Received some communication about that strategy.
So, um, things are moving and that's about all. I can give you there on that update. And then in terms of coverage, as I'm sure you probably know. Um,
You know, we report their corporate coverage, but it, it has improved to, uh, over 4 times. Uh, if you look at page 7 and our supplemental, you'll see the number 4.16 times for NHC on their first quarter 2025 coverage. So as an Enterprise, they're doing really well and, um,
Got it very helpful and then you know an extension of that is you know in the past you've mentioned the potential to do some dispositions out of that portfolio. Um, you know, come the the turn of the new lease. Are you able to maybe size some of that for us? I don't know if you can talk about is that a 5% or 20% of the portfolio you're looking at or are there certain States maybe that you could speak to just something that can help us. Think about what what that portfolio is going to look like going forward.
uh, the way I think about it is from a pure Asset Management perspective, which means that
Uh, you can.
Call some of the underperforming buildings or more difficult States and come up with a better, uh, portfolio that possibly could pay more rent. So, as I've said in the past,
uh, a lease renewal could look like, uh,
Combination of buildings that are sold and remaining buildings that are paying higher rent.
Got it. Thank you.
Once again, if you would like to ask a question, please press star 1.
We have reached the end of the question and answer session and I will now turn the call over to Eric mendelsohn for closing remarks.
Thank you, operator. Thanks everyone for your attention, and we look forward to seeing you at NAIT or some other investor conference.
Today's conference and you may disconnect your lines at this time. Thank you for your participation.