National Health Investors, Inc. Aktie

Good morning, and welcome to the NHI Second Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Dana Hambly. The floor is yours.

Thank you, and welcome to the National Health Investors Second Quarter 2026 Conference Call.

On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; Todd Siefert, Chief Financial Officer; and David Travis, Chief Accounting Officer. Yesterday, NHI released its second quarter results and conference call information in a press release after market close.

Today's remarks may include forward-looking statements, which are subject to risks or uncertainties and are not guarantees of future performance. Investors are urged to carefully review NHI's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2025, and Form 10-Q for the quarter ended June 30, 2026, for a discussion of these risks. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com.

In addition, today's call may include certain non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release, which has been furnished to the SEC on a Form 8-K. Listeners are encouraged to review those reconciliations 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.

Good morning, and thank you for joining us today.

The second quarter represented another important step in executing the strategy we outlined earlier this year. Our operating results were in line with our expectations. We completed the sale of the NHC portfolio on July 1. We further expanded our SHOP platform, and we continued investing in the people and infrastructure necessary to support our long-term growth. The completion of the NHC transaction marks one of the most significant corporate actions in NHI's history. Beyond increasing our private-pay senior housing focus, it substantially strengthens our balance sheet by reducing leverage to well below our long-term target range and provides strong liquidity to pursue future investments. We believe this financial flexibility creates a meaningful competitive advantage as acquisition opportunities accelerate.

Our SHOP portfolio performed in line with our expectations for the quarter, and our outlook for the year is unchanged. Same-store results improved significantly from the first quarter, while the newer acquisitions and transition properties are collectively performing within our original investment assumptions. As SHOP becomes a larger percentage of our NOI, we believe these newer investments will increasingly define the company's organic growth profile. In the past year, we've increased our SHOP investment by 137% to approximately $850 million or 24% of the company's total.

As the SHOP portfolio grows from a relatively small platform into a larger contributor, we are deliberately investing ahead of that growth in people, technology and processes to ensure we can continue expanding while maintaining disciplined execution. That includes evolving our leadership structure to support the company's next phase of growth, which is why we're excited to welcome Chris Maingot as our new Chief Operating Officer. Chris brings extensive operating and asset management experience that will further strengthen oversight of our growing SHOP portfolio. Just as importantly, his addition allows Kevin Pascoe to dedicate even greater attention to expanding operator relationships, sourcing investment opportunities and driving our acquisition strategy.

Disciplined capital deployment remains one of our highest priorities. We believe this enhanced organizational structure positions NHI to execute more effectively through strong operating performance while increasing our capacity to source attractive investments. We also completed our planned CFO transition on July 1, with Todd Siefert assuming the role of Chief Financial Officer. Todd inherits a strong balance sheet with significant liquidity that positions us well to support our long-term growth strategy. His seamless transition ensures continuity of the financial discipline and capital allocation instincts that have long been cornerstones of NHI's success.

We continue to believe that the industry backdrop provides powerful and sustained tailwinds for our company. Demand is accelerating as the aging population expands, while new construction remains historically low. Taken together, we believe NHI enters the second half of the year from a position of strength, and our focus remains unchanged, delivering strong operating performance across our expanding SHOP portfolio, pursuing disciplined external growth through thoughtful capital allocation, maintaining a conservative balance sheet and creating sustainable long-term value for our stockholders. While there's always more work to be done, the progress we've made this year reinforces our confidence in the company's strategic direction. We believe NHI is exceptionally well positioned to capitalize on one of the most attractive senior housing environments, and we're excited about the opportunities ahead.

With that, I'll turn the call over to Kevin to discuss our business development and asset management activities. Kevin?

Thank you, Eric.

Beginning with business development. NHI has completed $237.2 million of year-to-date investments in private-pay senior housing at an average yield of 7.7%, including more than $212 million in SHOP investments. Our external growth strategy remains focused on private-pay senior housing across both SHOP and triple-net structures while maintaining the flexibility to transition selected assets to SHOP when and where we see greater long-term value creation. We continue to see an active investment environment and believe that our strong reputation as a reliable capital partner, enhanced liquidity and increased business development resources position NHI favorably to capitalize on our robust pipeline.

We currently have approximately $127.3 million under signed letters of intent, primarily in SHOP with an estimated initial yield of 6.8% and 6.5% after maintenance CapEx. Beyond the signed LOIs, we are evaluating approximately $420 million of additional deals, excluding several larger portfolio transactions. While the pace of acquisitions can vary from quarter to quarter, our investment discipline does not. We believe the actions we've taken over the past several months have meaningfully increased our capacity to execute as opportunities arise, and we're confident we'll continue to deploy capital where the long-term risk-adjusted returns are most attractive.

As a part of our ongoing asset management process, we continually evaluate every property to ensure it supports NHI's long-term strategy. While acquisitions naturally receive the most attention, dispositions are an equally important component of disciplined capital allocation. In addition to the NHC sale, we completed the disposition of 7 properties with 6 operators for net proceeds of $117.4 million in 2026. We noted last quarter that we are evaluating a range of strategic alternatives for our same-store SHOP portfolio. We have discussed a solution with our Board on a subset of same-store properties that we believe could provide a better use of our capital. As the negotiations are ongoing, we will provide more details as plans are finalized.

Now turning to our operating performance. Total SHOP NOI increased by 188.5% compared to the second quarter of 2025, driven by the transition and acquisition of 27 properties. Collectively, SHOP NOI for the second quarter at $11 million was in line with our forecast. Same-store NOI on the 15 legacy Holiday properties, which represents less than 5% of total annualized NOI declined 6.3% year-over-year to $3.6 million. On a more positive note, when compared to the first quarter of 2026, same-store NOI increased by 18.9%. For the 26 properties that have been in the portfolio since the beginning of this year, NOI increased sequentially by approximately 7.6% from the first quarter of 2026 to the second quarter. Overall, our second quarter SHOP results were consistent with the outlook we established last quarter, and our full year expectations are unchanged.

We remain encouraged by the performance of our newer SHOP investments. These communities continue to support our outlook for high-single to low-double digit NOI growth and reinforce our confidence in the long-term return profile of our acquisition strategy. While much of our attention has understandably focused on SHOP, our triple-net portfolio continues to provide a solid foundation for the business. Across our triple-net portfolio, operating fundamentals remain stable. We continue to experience full contractual rent collections as well as healthy occupancy and rent coverage throughout the portfolio.

Cash lease revenue increased approximately 2.8% year-over-year, driven by $2.4 million in acquisitions as well as $2.3 million in contributions from percentage rent and annual escalators. This was partially offset by approximately $2.9 million from the transition of 7 properties to SHOP and property dispositions. EBITDARM coverage improved across our major asset classes. For the 12 months ended March 31, 2026, senior housing and SNF coverages were 1.62 and 2.66, respectively. This compares to 1.52 and 2.26, respectively, in the comparable prior year periods. Please note that we have removed the NHC assets and other assets held for sale from our EBITDARM coverage calculations.

As previously discussed, we reset the Bickford leases to fair market value on April 1, which increased the base rent to $38.4 million from $35 million previously. In addition to Bickford's base rent, we received additional rent based on a revenue-driven formula that allows NHI to participate in the operating upside. During the quarter, we received approximately $1.3 million in additional rent, which included partial payments calculated prior to the April rent reset. Going forward, we continue to expect approximately $900,000 of quarterly additional rent under the new agreement.

That concludes my remarks, and I'll now turn the call over to Todd to discuss our financial results. Todd?

Thank you, Kevin, and hello, everyone.

It's a privilege to be here today and report our second quarter results. I'll first provide details on our second quarter financial results, followed by a brief discussion on our balance sheet and liquidity. For the quarter ended June 30, 2026, our net income per share was $1.15, an increase of 45.6% from the prior year's second quarter. The increase was driven largely by a $22 million gain on the sale of real estate recorded during the quarter related to the disposition of 5 properties for net proceeds of approximately $98.5 million.

Our NAREIT FFO and normalized FFO results per share for the second quarter compared to the prior-year period were flat and decreased 2.5%, respectively, to $1.19 per share. NAREIT FFO and normalized FFO for the second quarter of 2026 included $1.1 million in expenses related to the CFO transition and approximately $700,000 of noncash deferred income tax expenses. FAD for the second quarter compared to the prior-year period increased 5.8% to $61.6 million. FAD for the second quarter of 2026 included approximately $500,000 in cash expenses related to the CFO transition.

As Kevin noted, our cash rental income increased by 2.8% compared to the prior-year second quarter, and our total SHOP NOI increased by 188.5%. Interest income from the mortgages and other notes declined by 16.1% due to the reduction in the principal amount of our notes receivable balance. General and administrative expenses for the second quarter increased 44% to $8.8 million compared to $6.1 million in the second quarter last year, as the company continues to ramp its SHOP growth strategy in terms of personnel in addition to onetime expenses related to the CFO transition. Interest expense for the second quarter increased 5.4% year-over-year due to higher average interest rates on the company's debt, coupled with a higher balance on our revolving credit facility compared to the prior-year period.

Turning to our balance sheet and liquidity. Our net debt to adjusted EBITDA ratio at June 30 was 4.1x and well within our leverage policy of 3.5 to 4.5x. During the quarter, we retired the $125 million term loan due June 2026. We have a $100 million private placement note due in January 2027, which we expect to retire by the end of 2026 and have no other maturities until 2028. Our available liquidity on June 30 was approximately $792.4 million attributable to $262 million in excess revolver capacity, $500 million available under our recently refreshed ATM and cash on hand.

In July, we completed the sale of the NHC portfolio for cash consideration of $560 million and expect to recognize a gain of approximately $541.6 million during the third quarter. Consistent with our capital allocation strategy, approximately $221 million of the proceeds was used to complete previously acquired replacement properties under reverse Section 1031 exchanges. The remaining proceeds of approximately $334 million are being held for future tax deferred reinvestment under Section 1031. This strategy is intended to preserve capital for reinvestment while deferring a substantial portion of the taxable gain associated with the NHC disposition. At this time, the company's 2026 taxable income and capital gains are not yet determinable.

Let me now turn to our dividend. As we announced last night, our Board of Directors declared a $0.02 per share increase to our quarterly dividend to $0.94 per share for stockholders of record on September 30, 2026, and payable November 6, 2026.

I'd like to conclude by thanking everyone here at the company, particularly John Spaid, who made the transition smooth and seamless. I especially want to thank Eric and our Board of Directors for the opportunity to serve as CFO. I fully believe we have a bright future ahead of us.

Once again, thank you for joining our call today. That concludes our prepared remarks. With that, operator, please open the lines for questions.

[Operator Instructions] And our first question this morning is coming from John Kilichowski from Wells Fargo.

My first one is on the opening remarks, you mentioned some potential plans around the same-store portfolio. I understand you can't say much about it, but I was hoping you can give us a little bit of color. You said a subset of the portfolio. Is that far less than half? Is it a sizable portion? Could it be greater than half? And then could you give us a time line on roughly when you think you could update us on this?

John, this is Eric. Yes, I understand your curiosity and the sensitivity around talking about solutions as these are still operating businesses that have competitors and employees that will feel insecure if they think something is going to happen to their building. So we're very careful to keep our cards close to our chest until we're ready to make an announcement. But you've been around this business long enough to know that the asset management principles are you try and prune your losers and develop those buildings that can be developed into winners and of course, keep the winners. So it's going to be something along the lines you've seen in the past.

And our goal as good stewards of capital is to make the transaction accretive or as close to accretive as possible. And the way we think about that is we look at the return of invested capital on the asset. And if it is lower than we want, then we compare it to, well, gee, if we sold something, could we pay off some debt. And would that be accretive if we sold something and we bought something else with it that had a better return, would that be accretive and have a gap in between. So there's a lot of variables in the plan and the timing is really this year. I want to get it done this year.

And then how about on just the management side, you've made a couple of exciting updates to the C-suite here. I'm curious, how will the business look different over the next 6 to 12 months given these changes?

Sure. Great question. If you think about it a year ago, our SHOP exposure and assets were around 5% or 6% and now we're close to 25%. And we've told the Street that we'd like to get to 40% or 50%, and that's probably a 3-year plan. Hiring a COO does 2 things. It gives Kevin an opportunity to put the pedal to the metal on acquisitions. And I think that we have a good brand and a good opportunity to partner with operators that Kevin can exploit and use to grow our platform and ramp up our acquisitions. We talk about a run rate of 200 to 400 a year. I'd like to see that go to the 500 to 700 a year. And I think with Kevin focused on nothing but acquisitions, he can do that.

The other part of that equation is hiring someone with deep operations experience who worked for an operator, who worked for Blackstone, brings a little bit of private equity mentality to our operating platform and can help us get better returns out of the assets that we own and motivate the managers to perform at their highest potential.

Your next question is coming from Austin Wurschmidt from KeyBanc Capital Markets.

So last quarter, Eric or Kevin, you guys talked about several larger portfolios you were evaluating over $200 million in outstanding LOIs. And I was just hoping you could give an update as to where those deals stand. And then just wondering kind of where the primary focus is in terms of these larger portfolios versus more of the singles or doubles that are quoted within that $440 million future pipeline.

Austin, this is Kevin. As I mentioned in my remarks, we still have several portfolios that are in play that are on the larger side. We just don't disclose those because it would amplify the number to probably an unreasonable measure, but pipeline remains active. And as I've talked about here with the team is we've got to be able to do it all. The singles and doubles are good relationship builders and add-ons. I think as we're looking at initial deals, generally, we're looking at small to midsized portfolios to kind of establish a relationship and then the singles are great bolt-ons to that opportunity. It's just really hard and in my opinion, a little inefficient to start with a single.

But if it's the right operator, the right building, right geography, we'll do that. So we got to be able to have a tool for every job. And sometimes that is the real structure, sometimes that is the lease structure that we've also talked about. The SHOP mentality is really the focus still. But again, I think we need to be able to pick people that are doing the right things for seniors and be able to apply a structure that makes sense for our company with that individual group. So the answer is we got to do it all.

What's the pricing differential between the larger deals you're evaluating versus the single doubles? And just how confident are you and the team today that you can redeploy the remaining $334 million, I think it was of NHC proceeds using the 1031 exchange and avoid paying any type of special dividend?

Sure. As it relates to the special, I'll have Eric or Todd answer that component. But as I mentioned, the pipeline is very active. I feel very good about where our position in the market, what we're looking at. That said, we're also remaining regimented about how we do our underwriting. It's not an asset aggregation strategy for us. It's making sure that we have -- we're finding the right opportunities and are building for the future.

Eric or Todd, do you want to take the special?

I feel -- again, if we're good stewards of capital, we'll do everything we can to avoid the special dividend. It's a headache for certain investors, and there's some tax implications to our investors. I know they'd rather not deal with. So we're going to do everything we can to avoid that special dividend and someone asked about a throwback dividend, which is not a reference to nostalgia, but it is the ability to borrow on future dividends to get coverage in the present. So we have a lot of tools in our toolbox.

And then sorry, just about the pricing differential between the larger deals versus the single doubles, and that's all for me.

Yes. Sorry, Austin. This is Kevin again. That spread has closed pretty significantly over the last 6 months. It used to be at least 100 basis points. I'd say it's probably 25 to 50 and the whole market has shifted down over that period of time as well to at least 100 basis points. What I think a lot of news clipping used to say year 1 7. We're seeing some pressure on that number now, and it's probably closer to 6%, 6.5% on higher quality stuff, if not a little bit lower. And then you'll see even on your -- what I would consider maybe B type property, they're in the 7s now. So it's a very competitive market. That has continued to shrink, but also goes back to our underwriting and making sure that we're getting the best risk-adjusted returns for what we're buying.

Your next question is coming from Farrell Granath from Bank of America.

My question -- or my first question is on the same-store SHOP guidance. Just given the first 2 quarter performance and maintaining that 1% to 3%, can you just bridge what the expectation would be for the second half of the year with maintaining that guidance?

Sorry, make sure I understand the question, bridge the gap on same-store performance, you're just talking about 1 half to second half.

For the full year, 1% to 3% range for the same-store SHOP NOI growth relative to the same-store SHOP NOI, which were more in the negative range or below the midpoint of that guidance in the first half of the year.

Yes. Well, I think if you look at the supplemental, you'll see we've had some growth quarter-over-quarter. We expect to see a similar result throughout the balance of the year. The change to that would be, as Eric alluded to, we have some solutions that we're executing on the portfolio, making sure that we're pruning as appropriate. And then there's other -- one of the other ones that has been a pressure point here is we have one building where there's a number of units offline. That project is underway, will be expected to be finished by the end of the year. But that by itself puts at least a percentage point of occupancy pressure here. So as you alluded to here, the second half of the year is back-end loaded. We do expect to see some additional growth.

The big focus for us is really making sure that we get occupancy back to where we wanted to go. We had some good momentum going in -- up until the second quarter of last year, we've seen some exacerbated move-outs or rebuilding the pipeline. But you can also see that we're increasing the RevPOR quarter-over-quarter. So making sure that we're getting the quality move-ins, but we just need to get the volume to make sure that we're covering those move-outs. That said, again, we're covering the rack cost, the resident acquisition costs and making sure that the NOI is improving quarter-over-quarter. That's really the focus, and we expect to see more out of the third and fourth quarter.

Great. And I guess also on that, how are you driving that occupancy growth? Are there different incentives on the individual property levels? Is there an overarching type of policy in order to be pretty much supporting that growth going forward?

The key really is just making sure that we have the right people in place at the building and the management level. We've been working with our operating partners to make sure that that's getting the appropriate focus. I think it is, but something we're going to stay on them about. And then each building will have a little bit different plan for what they're seeing in their marketplace. But there will be, for example, units that have been online or offline, so to speak, for an extended period of time. You have a concession for something where you get revenue off something that overlooks the dumpster or what have you, just making sure that there is a pricing program for where that unit is in the building and that they can sell it. That's the key that we've been working on with our operating partners. And I think that the plan is in place. It's the execution that we're focused on, and we'll be making sure we got our thumbs on them.

Your next question is coming from Juan Sanabria from BMO.

Maybe just kind of a 2-part question to start. First, I guess, how should we think about the G&A run rate given the investments in the team? And I'm not sure if Chris is on, but -- and if he is just kind of curious on the strategic focus day 1 and/or if he's not on, Eric, how would you think about Chris' KPIs as he takes the helm as COO?

Juan, good questions. G&A run rate, while, obviously, the CFO transition will not be a regularly recurring expense. So things of that nature will be normalized out in future budgets and guidance. The strategic focus for Chris as the new COO, his first 100 days is to get his arms around the portfolio to focus on some issues we have with SHOP, and that's why he's not here today. He's out visiting buildings. He has worked with some of our asset managers that we have onboarded in the past 2 years. So in their case, this is say hello to the new boss, the same as the old boss. And they'll be implementing a lot of new systems and new methodologies that Chris brings with him from his days as an operator.

Juan, it's Dana. On the cash G&A component, the guidance is unchanged. It's going to be up kind of low teens year-over-year.

And then just on the triple-net portfolio, you made an allusion to maybe having further transitions to SHOP. So just maybe hoping you could size that or talk about the types of communities or portfolios. And maybe if you can comment if that includes Bickford or latest trends there.

Sure. Juan, this is Kevin. I would tell you that our focus is more external and we're doing SHOP right now. That said, that's not excluding anything that's in the portfolio. There are a couple of opportunities. There are a couple of operators that we would love to do additional business with, and we're working on that as we speak. A big part of it is what is their bench strength, what is their capability in the back office, making sure that they have the SOX compliant components and a few other pieces in order to get to where we can have that relationship. So that's been a fair amount of the conversation now, making sure that they have the back office and the bench strength.

Most of our operators give us all the reporting that we want. It's that next level that we really got to scrutinize if we're going to go to the SHOP relationship. So as I mentioned, there's a few Bickford, I think we got to make sure we keep an eye on where their performance is, what are the opportunities. As your point is, I'm assuming based on coverage that there is some value that's locked up in that lease, and we would tend to agree. So it's something we'll continue to evaluate. But we got to make sure that the relationship is a fit all the way around, and it's not purely -- we have to take into other considerations, not just the economics.

Your next question is coming from Rich Anderson with Cantor Fitzgerald.

So Eric, you said 3-year plan to get to 40 to 50 SHOP. I have to admit, I would have been expecting 3 months based on what we're hearing. So like to what degree is that sort of setting a beatable target? It sure seems that way based on all the activity you guys are talking about. What would -- why would it take so long to get from 24 to 40 with everything that's going on today?

I agree, Rich. As part of my internal wiring is to underpromise and overdeliver. So if you were to press me on that, I would say, yes, of course, I think we can do better as well and do it faster, just as we have gotten to this point faster. But the market is tricky, and I can't give you certainty on that.

Sure. Do you think of 50 is the efficient frontier for NHI? Or is that like step one in the process and then evaluate if you want to become almost a pureplay-ish type of SHOP? Or will there always be a net lease component? To Kevin's point, you're looking around for triple-net assets as well. So I'm wondering what you think of as the optimal level of operating exposure for the company longer term?

Yes, that's a great question and something that we noodle quite a bit here at the office. Part of the issue is when we get to 50%, we would need to have a solid component of our portfolio that is strongly SOX compliant. And if that were the case, we could grow with smaller, less compliant operators who probably don't have the back-office sophistication, and that would give us the flexibility to add on to that number. So ask me again when we get there.

Okay. Let's try to remember that. And last quarter, I asked the question about what would be considered success after the NHC sale and redeploying and you said I would consider success in 6 months. Do you have a change to that answer today based again on everything that's going on and leverage profile, all the good things that are happening at the company?

Slightly different. I would add to that. I would consider it success if we don't pay a special dividend because we're able to reinvest all of the 1031 proceeds. And then to your point, if we're able to reinvest all that money into SHOP or senior housing within the same year, I think that would be great. And the total success would be if we were to add enough accretive acquisitions on top of the redeployment to get us to our 5% or better FAD growth.

Okay. Last question for me. And Kevin, you said the emphasis is really on external growth for SHOP, but you did mention conversions. What -- how do you do that? If you've got rent coverage, what's to incentivize an operator to move to SHOP? I'd say very little. But I guess if the lease expires and different conversation, you fall becomes more in your court. Is that the way to think about the SHOP conversion story for NHI that it will be sort of a trickling effect based on lease expirations? Or is there a way to get to that opportunity sooner than that?

Sure. Yes, sure. This is Kevin again. There's absolutely a way to get there sooner. I think the lease expiration is one avenue. But the other way would be if there's an ask, if you will, from the operating partner. It could be that they want to access that value and there might be a payment associated with buying out the lease coverage. It might be that they want to do an expansion or have some other capital needs, and this gives us an opportunity where we're the capital provider rather than layer on more lease payment, do we go ahead and do a conversion. There's so -- and it might be that they want off a guarantee.

I mean there might -- there are other ways that we can have that conversation. So we just have to evaluate what we're willing to give in order to get that cash flow. But I think when we think about where hotspots are for operating partners, it generally is around CapEx or kind of locked up value, if you will. So there's avenues to get at it, and then it's just a negotiation on what is that valuation or what are we trading in order to have that relationship.

Your next question is coming from Omotayo Okusanya from Deutsche Bank.

First of all, I just wanted to ask -- all the best to John. I'm pretty sure he has listened to the call, and it's definitely been a pleasure working with him all these years. The question I had was around SHOP. Kevin, could you talk a little bit just around, again, some of the stuff you bought this quarter, some of the stuff you're kind of targeting in general, kind of what kind of vintage you're looking for newer, older assets, generally kind of where occupancy is? And I ask that in the vein of what was mentioned earlier around kind of a same-store NOI growth profile of kind of high-single digits to low-double digits that you're targeting. I'm just looking at that relative to a lot of your peers that kind of are in the kind of low- to mid-teens. I'm just trying to size up the 2 things of why your target is maybe a couple of hundred bps lower versus what some of your peers are currently putting up.

Sure. Happy to. I think the one thing to keep in mind here as we think about portfolio construction is making sure that we have a solid base. So if you look at our yields, they are a little bit better than what I would say is kind of the marketed yields. And a lot of -- if you're going in at a lower yield, generally, you're expecting more growth. What we've been buying is, I would call it, light value add where it's high 80s, low 90s. We expect a couple of percentage points of occupancy increase. We expect some -- or at least we're underwriting moderate rate increases and then maybe there's some expense efficiencies. So if you're able to get those, you should be at least on that low end of what I quoted, which is that 8% to 10% type growth year-over-year.

We think that there is an avenue for growth beyond that. But given that they're almost stable, we're not promising a big growth. But what I do think, though, is if you have a solid base, then one of the prior questions were how do you add with some of the onesie, twosies. Those are the ones where I think you have a little more flexibility to go out and get some of that additional growth. So how do we have a solid base with an operating partner to make sure we're getting solid growth profile, but then add some of those opportunistic investments once you have the relationship where you want it, so we can get additional growth over time. So as I think about portfolio construction, that's really been the baseline for us right now is make sure we do it right. We have a solid portfolio and then we can go grab some of the growth stuff over time.

That makes perfect sense. On the SHOP side, again, some quarter-over-quarter improvement in NOI and NOI margins, maybe on a year-over-year basis, still some challenges. But just curious about the quarter-over-quarter change. Is any of that kind of more seasonality as you kind of are in the summer season? Or was there like some fundamental improvements there that gets you encouraged that things are ultimately moving in the right direction with the SHOP portfolio with the same-store portfolio?

Sure. I would just -- what we focus on internally is lead volumes, tours, closes, making sure that we're getting -- recovering our out. As I mentioned earlier, we haven't for the last quarter or 2. And some of that is based on some building units that we went offline. Again, that's about a percentage point. But there's some other extenuating circumstances where we've had an increased number of deaths for a few months that put some pressure on it. So again, it's getting focused on making sure that we're closing those leads and getting the move-ins. But as you already noted, the NOI is increasing. We're getting quality leads. We're getting better pricing. We got to supercharge that and make sure we're getting the additional move-ins because you can't cut your way to profitability. But making sure we have the right incentive packages, we're not just giving away units, but getting accretive move-ins. That's a big focus for our operating partners right now. And as you can see, I think they're doing that. We just got to do more of it.

Tayo, it's Dana. I just -- I think Farrell asked the question earlier. I want to make sure we answer it. If you look at our guidance for the year on the same-store, it would imply growth in the second half of the year of kind of that 8% to 9% range.

[Operator Instructions] And we have a follow-up question from Juan Sanabria from BMO.

Just a question on the balance sheet. You've reduced leverage post NHC. You obviously have some gains to redeploy to avoid tax implications. But curious on how we should think about funding of over and above redeploying the NHC capital with your reduced leverage target and kind of how you think about the sweet spot for leverage if your preference would be to continue to use equity to delever as some of your peers have done?

Yes. This is Todd. Thanks, Juan. Yes, I mean, obviously, if the equity is there and we've got accretive deals that we can obviously show to investors of what that growth story looks like, then we would certainly look to access the equity markets. But we do have capacity from a debt capacity perspective and still be well within the range that we put out there for 3.5 to 4.5x going forward. So that's kind of how we think about it, at least I think about it.

And there are no further questions in queue at this time. I would now like to pass the floor back to Eric Mendelsohn for closing remarks.

Thanks, everyone, for joining us early this morning, and we look forward to seeing you at NAREIT or other senior housing conferences.

Thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.

Good day, everyone. Welcome to the NHI First Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Dana Hambly. The floor is yours.

Thank you, and welcome to the National Health Investors conference call to review results for the first quarter of 2026. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer.

The results as well as notice of the accessibility of this conference 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 are forward-looking statements. NHI cautions investors that any forward-looking statement may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's 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 31, 2025, and Form 10-Q for the quarter ended March 31, 2026. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations 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.

Good morning, and thank you for joining us today. NHI delivered a solid start to 2026 with first quarter results exceeding our internal expectations across NAREIT FFO, normalized FFO and FAD. These results reflect continued momentum across the portfolio and the benefits of the investments we've made over the past year, particularly within our SHOP portfolio, which continues to scale rapidly and contribute meaningful growth.

At the same time, we're updating our full year guidance, which I want to address upfront. The primary driver of this change is the recently announced agreement to sell the NHC portfolio for $560 million. This transaction advances our capital recycling strategy, increases our concentration in private pay senior housing and enhances our balance sheet, providing significant liquidity to reinvest into higher growth opportunities.

While we believe this is the right strategic decision for the long-term, the timing of the transaction and redeployment of capital creates near-term earnings pressure, as reflected in our updated guidance. From an operating standpoint, we continue to make progress expanding our SHOP platform. Invested capital through the first quarter increased more than 100% over the past year. Recent acquisitions and transition properties are performing well and in aggregate, are tracking ahead of our initial expectations.

We also announced $107 million acquisition for 7 properties in Colorado last night. On a pro forma basis and including the pending NHC and other asset sales, our SHOP investment increases to approximately 24% of our total portfolio and over 15% of annualized NOI. We have now closed on investments of over $212 million in 2026. We expect to defer a significant portion of capital gains associated with the pending NHC asset sale, which has a basis of less than $15 million. Based on our active pipeline and other tax planning strategies, we expect to further mitigate these gains.

While we have good overall SHOP momentum, the legacy Holiday same-store performance continues to be below our expectations. As a result, we've adjusted our full year same-store SHOP NOI growth to a range of 1% to 3%. This impacts our FFO per share guidance by less than 1%. The 11 non-same-store properties that we transitioned and acquired since the first quarter of last year contributed $4.3 million to NOI, representing 5.2% sequential growth from the fourth quarter of 2025. We believe these assets are more indicative of the underlying organic SHOP growth potential.

The broader strategic outlook for NHI remains very compelling. We are confident that the steps we are taking today are the right ones to strengthen the company and enhance our long-term growth profile. We are actively reshaping the portfolio to increase our exposure to private pay senior housing, where we see the most attractive risk-adjusted returns. The pending NHC leased portfolio disposition accelerates that shift to approximately 80% of annualized NOI.

Overall, the senior housing industry fundamentals present significant organic and external tailwinds. Demand is accelerating and new supply is stagnating. We are working on several initiatives to improve internal growth, and we continue to add depth to our asset management platform through experienced new hires and investments in technology to increase scale advantages. The pipeline is robust, and we remain disciplined in our underwriting and capital allocation.

The capital recycling positions the pro forma balance sheet with leverage at less than 3x net debt to adjusted EBITDA, giving us substantial flexibility to pursue accretive acquisitions. Taken together, we believe these factors position NHI to deliver solid long-term FFO per share growth and create sustained value for stockholders.

Before I turn the call over to Kevin, I want to say a few words about John Spaid, who recently announced that he will be starting his well-earned retirement on July 1. John joined NHI as employee #13 in 2016, answering my call to bring greater financial acumen in managing NHI's balance sheet and capital market relationships. His leadership has NHI well positioned with an excellent balance sheet and ample access to capital that should fuel our long-term growth strategy.

On behalf of the entire NHI community and all of our stakeholders, I congratulate John on a great career and wish he and his wife many years of great golf, travel, fine dining and good living. Thank you, John.

I'll now turn the call over to Kevin to discuss our business development and asset management activities. Kevin?

Thank you, Eric. Beginning with business development. NHI is off to a strong start with announced year-to-date SHOP investments of $212.4 million. This includes a 7-property portfolio of assisted and independent living assets in Colorado, which we closed on May 1. The portfolio has 532 units, occupancy in the high 80% range and RevPOR of approximately $5,300.

We expect an initial NOI yield for the first year of approximately 8.3% and 7.8% after routine CapEx. Properties are transitioning management to Generations, which is an existing lessee of ours in Colorado, and we have been looking for opportunities to grow with since our initial investment in 2025. We currently have $20.3 million under signed letters of intent and are evaluating an active pipeline valued at $560 million. We are also in discussions on multiple larger portfolio opportunities and have over $200 million in outstanding LOIs. This pipeline continues to give us confidence that we can meet or exceed last year's investment total.

Our external growth strategy remains focused on private pay senior housing assets across both SHOP and triple net structures while maintaining flexibility for future SHOP transitions. Though pricing has tightened over the past year, deal volume has accelerated, and we believe we are well positioned given our excellent reputation in the industry, strong access to capital and ability to execute.

As a part of our ongoing portfolio management efforts, we completed the disposition of 4 properties with 4 operators for net proceeds of approximately $53.4 million. In addition to the pending NHC transaction, we have 3 other properties under contract for disposition, representing approximately $58 million of expected net proceeds.

Turning to our operating performance. Total SHOP NOI increased by 188.1% compared to the first quarter of 2025, driven by the transition and acquisition of 20 properties. Same-store NOI on the 15 legacy Holiday properties declined 2.4% year-over-year to $3 million and represents less than 4% of the company's annualized NOI. The first quarter NOI was in line with our expectations, but occupancy declined throughout the quarter, prompting the change to the full year growth outlook. While the financial impact is limited, we are not satisfied with the performance and are evaluating a range of strategic alternatives for these assets, and we'll provide further detail as decisions are finalized.

The non-same-store portfolio, including the Colorado acquisition, now includes 27 properties. The estimated annualized NOI of approximately $33 million represents 73% of total SHOP NOI. As Eric noted, the non-same-store properties generated solid growth from the fourth quarter and our updated guidance reflects an increased contribution relative to our initial forecast.

For these newer assets and future acquisitions, we continue to expect near-term NOI growth in the high single-digit to low double-digit range, supporting projected rates of return in the low to mid-teens. Across the triple net portfolio, we continue to see stable performance with no rent concessions and generally steady occupancy and EBITDARM coverage.

Cash lease revenue increased approximately 7.7% year-over-year, driven primarily by acquisitions, NHC percentage rent and the annual percentage rent true-up as well as annual escalators. This was partially offset by the transition of 7 properties to SHOP on August 1. EBITDARM coverage improved across our major asset classes. For the 12 months ended December 31, 2025, senior housing and medical coverages, excluding NHC, were 1.61 and 2.53, respectively.

Regarding Bickford, we reset the leases to fair market value on April 1. The new structure includes base rent of $38.4 million, which is approximately $3.2 million above the prior base rent and annual escalators of 2% to 3%. In addition, we will receive conditional rent based on a revenue-driven formula similar to the structure previously used for deferral collections. The pro forma EBITDARM coverage on the new base rent at December 31 was 1.55x.

Given this elevated coverage, we expect total cash collections from Bickford, including base and conditional rent, to increase modestly under the new lease. The conditional rent component extends through the life of the lease and allows NHI to participate in the potential upside as performance continues to improve.

That concludes my remarks, and I'll now turn the call over to John to discuss our financial results and guidance. John?

Thank you, Kevin, and hello, everyone. This morning, I'll provide details on our first quarter results and update you on our financial outlook for 2026. I'll be using average diluted common shares for all per share results. For the quarter ended March 31, 2026, our net income per share was $0.82, an increase of 10.8% from the prior year's first quarter.

Contributing to our strong Q1 performance was the accretive growth attributable to the $413 million in new investments the company placed in service since the beginning of the second quarter last year. Also contributing to the quarter was an above expectation prior year NHC percentage revenue rent true-up and a larger-than-expected improvement in first quarter NHC percentage revenue rent, which resulted in a $1.3 million higher cash rent for the quarter compared to our February guidance expectations. Also recall that in the prior year first quarter, we recognized $1.2 million in transaction expenses and $0.3 million for proxy contest expenses.

Our NAREIT FFO and normalized FFO results per share for the first quarter compared to the prior year period increased 7.9% and 7%, respectively, to $1.23 per share. FAD for the first quarter compared to the prior year period increased 11.6% to $62.5 million. Interest expense for the first quarter was up 4.9% year-over-year due to higher average interest rates on the company's debt. Cash G&A for the first quarter was up 31% to $5.6 million compared to $4.3 million in the first quarter last year as the company continues to ramp its SHOP growth strategy.

Weighted average common diluted shares were up 5.8% to 48.5 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. During the quarter, we closed on new investments totaling $105.5 million. And subsequent to the quarter's end, we announced an additional investment for $106.9 million in 7 senior housing SHOP properties with an existing operator.

At March 31, 2026, we had remaining escrowed forward equity proceeds of approximately $44.2 million available to us in exchange for the future delivery of 643,000 common shares at an average price of $68.81 per share. We ended the quarter with $24.9 million in cash on our balance sheet and $391 million in revolver capacity.

During the first quarter, we renewed our shelf registration statement on file with the SEC and concurrently entered into new equity ATM distribution agreements, bringing our ATM capacity back up to $500 million. Our balance sheet ended the first quarter in great shape. Our net debt to adjusted EBITDA was 4x for the quarter and at the midpoint of our 3.5x to 4.5x leverage policy.

Our available liquidity, excluding the proceeds from future dispositions, was approximately $960 million attributable to the cash on the balance sheet, excess revolver, forward equity and additional ATM capacity. We have 2 debt maturities in 2026 and 2027 totaling $225 million and no other maturities until our revolver facility matures in 2028.

Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for stockholders of record June 30, 2026, and payable August 7, 2026. The company expects to offset the expected gains due to our announced dispositions, utilizing IRC Section 1031 like-kind exchanges, including reverse 1031 exchanges to the greatest extent possible. At this time, the company's final year-end 2026 taxable income and capital gains are not yet determinable and may not be fully determinable until the fourth quarter.

Last night, we updated our 2026 full year guidance. We expect GAAP net income at the midpoint to be $14.37 per share, reflecting the significant gain associated with the pending NHC lease portfolio disposition. We expect NAREIT FFO and NFFO per share at the midpoint to be $4.77 per share or up 2.6% and down 2.9% compared to 2025, respectively. We expect total FAD at the midpoint to grow 4.1% to $242.2 million.

Our full year 2026 guidance includes $180 million in additional future investments and an average NOI yield of 7.8%, comprised approximately 60% in SHOP investments, which we believe is a conservative assumption for the remainder of the year. The guidance includes $392 million in new announced and unidentified 2026 investments at an average NOI yield of 8%. The guidance includes the impacts associated with our recently completed and expected dispositions for 6 properties as well as the 35-property NHC portfolio.

Our 2026 guidance reflects the settlement of our remaining forward equity and the retirement of our upcoming debt maturities using proceeds from our revolver. However, we expect our capital market activity to adjust as required to meet the company's liquidity needs due to the changes in the timing and the amount of our investments and dispositions.

I'd like to conclude by thanking everyone I've worked with during my 10 years at NHI. I especially want to thank Eric and our Board of Directors for the opportunity to serve as CFO and for their trust. I'm very proud to be leaving the company with a balance sheet in solid shape and well positioned to support the company's future.

Once again, thank you for joining the call today. That concludes our prepared remarks.

So with that, operator, please open the lines for questions.

[Operator Instructions] Your first question is coming from Farrell Granath with Bank of America.

This is Farrell Granath. I first wanted to ask about the $560 million incremental pipeline that you're expecting going forward. I know when this initially was announced, we had received color that it was to be paying down debt. And then based on some of your comments, it seems that you're receiving or are able to be underwriting or looking over more deals. Can you give us a little bit more color on the percentage or breakdown of SHOP versus leased or leased with the revenue participation within that $560 million? And if that has actually started to increase after the announcement of -- or likelihood of being able to close deals after the announcement of the NHC lease?

Sure. This is Kevin. I would say our pipeline has been pretty consistent. It is fairly robust right now, predominantly senior housing, which isn't a big change. That's what we've been looking at this whole time. And I think we just have to be open with the structure that we use and mindful of the property or the underlying asset, their ability to have growth and then making sure that we make an assessment, is that appropriate for a lease or a SHOP transaction. I think we want to do more SHOP, and that's going to be an emphasis for us.

So there might be a way for us to do -- if it is a lease, maybe there's a way to do a transition into the future, but we're remaining flexible on structure at the moment and just making sure that we understand the underlying fundamentals of the property and what kind of growth profile we can get.

And I also wanted to ask about the legacy Holiday assets. I know you had commented that they haven't been performing within expectation. What is driving that underperformance? Is it simply from fl,u seasonality? Or is it from other comments that we have heard in prior quarters, due to transition in staff or other items?

There is some modest seasonality. That said, they did hit our projections for the first quarter. The issue that we run into really is relegated to just a handful of properties and some census loss at those, which made us kind of reset expectations for growth. We have a couple of others that we're doing some extensive CapEx projects that ran into some delays, that are going to delay kind of the lease-up there. So we wanted to make sure we were resetting expectations for something that we felt very confident in versus trying to adjust later in the year. I still think our forecast is very manageable, but frankly, disappointing.

But like I said, the problem is fairly isolated. And again, as we've talked about in prior calls, we're just talking about a very small portfolio, which is what's moving the percentage here probably more than it should. It affected our -- it's less than 4% for us.

Your next question is coming from Juan Sanabria with BMO Capital Markets.

Maybe a question for John, and congratulations on your upcoming retirement. But just wanted to, on the guidance, delve a little deeper into the driver. So how much of the decrease in FAD per share was as a result of the NHC sale? And just to confirm, you're only assuming you reinvest an incremental $180 million and nothing over and above that. Is that correct?

Well, it depends on your definition of reinvestment, Juan -- this is John. So there's a lot of moving parts. First, the proceeds. The proceeds are going to -- initially, there's going to be well over $200 million that will reduce debt. Those $200 million are tied to reverse 1031 exchanges that we've already set up. There'll be a portion of those proceeds that we will have to set aside, we can't touch for a period of time with intermediaries and 1031s. Those proceeds will be reinvested at the rate that the intermediaries can provide us. So there's some drag there.

We've already been making investments ahead of our original guidance. This investment we announced today was ahead of the original guidance. The $180 million in additional guidance increases our guidance that we gave to you for the total amount that we thought we'd be able to invest this year. We still think that's a very conservative number. So it's a little bit of -- yes, NHC transaction in a variety of different ways did pull down our guidance. However, we've had some outperformance on investments that have offset some of that. But the net effect has -- of the NHC transaction was to pull down our guidance. I hope that helps.

It does. And then can I just -- on the NHC transaction, have you had any third-parties reach out looking at potentially topping the bid by NHC to repurchase the assets?

Juan, this is Eric. I'll take that question. If a third-party reaches out in writing, then we will issue a press release about that. Until then, we're not ready to disclose anything.

Your next question is coming from Austin Wurschmidt with KeyBanc Capital Markets.

Eric or Kevin, in the prepared remarks, I think you indicated you have over $200 million in outstanding LOIs for multiple larger portfolios. I guess given the reluctance to give too much detail on larger portfolio opportunities, just given the difficulty predicting whether you'll transact, I guess, how far along are you in negotiating these deals? How competitive is the process? And should we view your willingness to openly discuss these deals as maybe having a higher probability of closing?

Sure. This is Kevin. I would tell you that we're willing to talk about them because we feel like there is ample opportunity out there, whether we end up landing these deals or some other ones that are in the pipeline. I also don't feel like our pipeline number we gave is indicative. I also don't want to give a bit of a head fake by quoting ridiculously large number. We're reviewing a large amount of opportunities, which generally, when we describe it, did not include $100-plus million portfolio deals that we're looking at. So we wanted to try and give a little bit of flavor for what the pipeline does look like.

That said, I feel like we have a solid chance at landing these, which is why we're willing to talk about them, but nothing is for certain until it's closed.

And just to be clear, these portfolio deals are outside of the $560 million that you put in the release last night, correct?

That's right.

And then just one more. Recognizing that the same-store shop pool is small, and this was sort of structured with a group of underperforming assets several years ago coming out of the COVID period. But how does this group of assets compare to the assets you've recently acquired and are underwriting today, just to give confidence in maybe the future performance versus what you've seen happen within the same-store pool in the last couple of years?

Sure. This is Kevin again. What we're looking at now is generally newer assets, generally has some element of health care associated with it versus the independent. That said, I don't want to make it such that independent is a negative. I think having some sort of continuum or a combination is helpful, though, and that's generally what we're looking at more now is where you have an ILAL or ILAL memory or some combination thereof. We feel like there's better pricing power on that side and be able to add the element of care and create a bit of a continuum. So generally, it's going to be newer and have the continuum, I'd say that.

And then really, what we're looking at is more of a -- when we look at the growth profile, we're not looking at deep value adds. I would characterize the Holiday transition as more of a turnaround. That's not really where we've been playing in the sandbox right now. So it's just a little bit different profile.

And then just last follow-up there is just have you changed your underwriting at all to drive some additional success in landing these recent deals within SHOP? And that's all for me.

Sure. I would suggest to you that the market is very competitive. So we're trying to meet the market and make sure that we're making good decisions based on data and that we understand the markets that we're going into and what our operators' competencies are as they manage these assets and finding the right fit between the 2. So I think our underwriting has evolved over time, and I feel confident in our ability to execute here.

Your next question is coming from Rich Anderson with Cantor Fitzgerald.

So I think I heard a number, 24% SHOP. Is that pro forma for the NHC sale? And I'm curious what that number would be after deployment of the proceeds, where we're looking at when all the dust settles from the transaction?

Sure. Rich, this is Kevin. That is a pro forma after NHC. And then what the mix looks like is still to be determined. It just depends on what level of SHOP versus triple net we redeploy the capital into. But I think it's safe to say that looking into the future, that SHOP percentage is going to continue to increase.

Curious as to why it's only 15% of NOI, like you would think that those numbers would be flipped given the growth profile. This is just the Holiday impact that's causing that lower percentage of NOI?

Yes. I mean I think that those properties in aggregate have been a drag. We're working to make sure we manage that as good stewards of the company, but really focusing on the new SHOP, which we talked about has good -- a much better growth profile to it.

Okay. When you think about the duration of this is like a, call it a one step back, 2 steps forward type of strategy around the sale rather than the release of the NHC portfolio. So I can appreciate that, but I think it all comes down to how long before you sort of get back to square one. So given all of these comments around pipeline and so on, I mean, what would be a success in your mind to sort of getting back and then surpassing the previous range of guidance and truly presenting this as the right strategy to take? Is this 1 year worth of time, 2 years, 5 years? I think what would be measurable as success in your mind?

Rich, this is Eric. I agree it's -- it is kind of a 2 steps forward, one step back event. But we're excited about the opportunity of focusing on senior housing, having less legacy issues with NHC. What I would consider a success is if we can meet or exceed our original guidance. Keep in mind that we've already 1031ed over $200 million worth of transactions this year. So in my mind, we're almost halfway through that $560 million gain. And if we can redeploy the rest of that, call it, 200 -- $360 million in the next 6 months, then I would consider that a win, especially if it's senior housing and even more especially if it's SHOP.

John, congrats to you. Good luck.

[Operator Instructions] Your next question is coming from Omatayu Okusana with Deutsche Bank.

John, a big congratulations. It has been a pleasure working with you, and thanks for always shooting straight and telling it like it is. I always kind of appreciated that about you [Technical Difficulty].

First question from my end, the proceeds from NHC, I mean, is there any chance at all whether with the 1031 rules or anything of that nature where you may have to ultimately deploy that as a special dividend? Or can that scenario kind of [indiscernible] or like is that kind of a [Technical Difficulty]?

Yes, this is John. We're looking at that. We are obviously planning in case we do need to declare a special dividend towards the end of the year. As you know, REITs have 2 options here. We can actually pay the tax on the capital gain if we so chose. Typically, REITs don't do that. They would prefer to return the capital back to shareholders unless they can find a better use for the capital and can defer it.

And so there are short time frames under these 1031 arrangements. Our average cost of capital, let's say, is 4.6%, 4.7% in that range. So initially, the lost NOI doesn't completely result in a one-for-one reduction in FAD. So we're looking at reducing debt, saving interest expense and then making smart redeployment of that capital. And insofar as we do have to declare a special dividend, the components of that dividend may include a portion of stock. So stay tuned. As I said in my prepared remarks, it's not determinable at this point, and it's going to depend on a lot of factors that we really -- won't really know until we get to the fourth quarter.

Got you. That's helpful. And then if I could just ask a quick question about Bickford. With the new lease structure now, I would kind of expect you don't collect any "rent deferrals" anymore with the way the new structure is set up. I also wanted to understand a little bit about the slight occupancy dip in the reported metrics, what was kind of going on there?

Tayo, this is Kevin. As for the occupancy dip, it's -- when we look at seasonality and their trends over the last few years, this is within the normal range. So nothing that we're concerned about here. And sorry, could you restate your first question for me, please?

And then the first question was around the rent deferrals, again, that you've kind of been collecting. But the way the new lease has been structured April 1, does that kind of disappear and it's all kind of being built into the new lease rate?

Yes, I would characterize it as being built into the new rent. We just have a new rent structure where we will get the contingent rent through the rest of the lease versus when the way it currently was structured is there would have been a balloon payment. So now we would extend the period in which we have the contingent rent eligible for probably another 5-plus years. And then we can participate in the revenue growth at the operator level.

You do have a follow-up question coming from Juan Sanabria with BMO Capital Markets.

Just a quick question on the SHOP pipeline. What kind of yields can we expect on incremental investments? You talked about increased competition. So just curious on the pricing you're seeing in today's market?

Juan, this is Kevin. I would say that we've done very well on the last few deals that we've closed in terms of our initial yields. The market has definitely tightened, and I would not tell you to forecast, that's where the market is today. And what we see is the same as what you see is year 1 yields tend to be in kind of that 7% type range, plus or minus. Some of that's going to be based on vintage of asset market. If you -- if it's a bigger portfolio, it might be a bit lower where you think you might get some better rents or some better growth. But I think that's kind of what we're seeing right now. Our expectation is to try and do something better than that, but we're -- we have to be able to meet the market.

And then just kind of going back to one of the earlier questions. I guess the question in the forefront of people's minds is, is the Holiday situation in the kind of the back and forth on expectations there unique to those assets? And what lessons have you learned that you don't think that would be replicated in what you're purchasing or have purchased more recently? Just what are you looking for today that's different? I recognize Holiday was IL only and now it's more of an acuity mix, AL, IL, memory care mix. But if you could just expand on those points, I think that would be helpful.

Juan, this is Eric. You've heard me say this before, the Holiday buildings were a science experiment. When Holiday was sold to Atria, we decided to kick off our SHOP portfolio with that as our first basis. And I would tell you that the new product that we're looking at is not 40 years old, not in need of constant CapEx and not in very tertiary markets. We're looking at mostly senior housing that has assisted living or memory care or some health care component. We're looking at newer buildings. We're looking at operators that have good local infrastructure and good practices in marketing and SEO and SEM marketing that keep the buildings full and keep the margins high.

So more to come on what we're doing with the Holiday portfolio, but I'm going to be pointing to the not same-store portfolio going forward because we're getting the kind of performance that we're looking for out of those newer buildings.

And just one final one for me. It looks like some of the Florida assets tied to NHC are closing later or are being kind of carved off in some fashion. Could you just talk a little bit about that change, I believe, and why that's taking place?

Sure. That is a sublease. NHC is not running those buildings. They're run by [ Solaris ]. And we are -- for legal reasons, we're just assigning that lease back to NHC. So we keep the sublease intact. It's a technicality of Florida licensing that requires us to do that. But the timing and the closing won't be affected.

There are no further questions in queue at this time. I would now like to turn the floor back over to Eric Mendelsohn for any closing remarks.

Thank you, everyone, for your time and attention today, and we look forward to catching up with you in person at one of the conferences soon.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Greetings, and welcome to the NHI Fourth Quarter 2025 Earnings Webcast and Conference Call. [Operator Instructions] And please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Dana Hambly, VP of Finance and Investor Relations. Sir, the floor is yours.

Thank you, and welcome to the National Health Investors conference call to review the results for the fourth quarter of 2025. On the call today are Eric Mendelson, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer.

The results as well as notice of the accessibility of this conference call were released after the market closed yesterday and a press release that's been covered by the financial media. Any statements in this conference call, which are not historical facts are forward-looking statements.

NHI cautions investors that any forward-looking statements may involve risks or uncertainties that are not guarantees of future performance. All forward-looking statements represent NHI's 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 31, 2025.

Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations 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 Mendelson.

Good morning, and thanks to everyone for joining us today. We completed the year with a solid fourth quarter that generated normalized FFO per share growth of 8.9% compared to last year. The SHOP platform is central to our investment thesis and was a core contributor to the quarter as total NOI increased by 125% year-over-year and 48% sequentially. Cash rental income from our triple net portfolio increased by approximately 7%, primarily due to acquisitions, while interest income declined by 19% in the fourth quarter due to loan payoffs and pay downs.

Reflecting on the full year results, we delivered growth in normalized FFO per share of 10.6%, and total FAD growth of 13.7%. This exceeded the midpoint of our initial 2025 guidance by approximately 6% and 5%, respectively. SHOP NOI increased by approximately 57% compared to 2024 with 7.6% same-store growth and $6 million from transitions and acquisitions.

Our cash rental revenue increased by approximately 10% year-over-year with contributions both internally and externally. We announced investments of $392 million in 2025, which was well above our initial guidance of $225 million and was our most active year since 2016. This included investments of $218 million in the fourth quarter alone, setting the company up nicely for strong acquisition growth in 2026. In fact, we've already closed on one deal this year for $105.5 million, our largest SHOP acquisition to date, and we have an active pipeline of over $488 million with an additional $111 million under signed letters of intent.

The industry tailwinds for senior housing have never been more favorable, and there's little evidence to suggest that this will change in the next several years. According to [ NIC MAP, ] there were fewer than 25,000 units under construction in the fourth quarter which represents just 2.2% of total inventory and the lowest level since 2012. This shows no signs of reversing as new unit starts are less than 1% of inventory for lowest level since NIC MAP started reporting this information in 2008. Meanwhile, demand is accelerating as the first baby boomers turned 80 this year.

NHI is well positioned to capitalize on this long-term generational growth. We continue to methodically invest in our SHOP capabilities as we significantly expand our presence in private pay senior housing operations, where we see the greatest risk-adjusted returns. We're adding to talent rapidly. We currently have 35 employees, which is a 46% increase from our average employee count in 2022 when we established our SHOP platform.

Including the recent February acquisition, we've increased our SHOP investment by 106% in the last 12 months to approximately $740 million. This has increased our annualized SHOP NOI contribution to 12% of total annualized NOI from 4.5% at the end of 2024. As outlined in our guidance, we expect that 70% of our investment activity this year will be allocated to SHOP, which coupled with strong organic growth, should continue to drive SHOP NOI contribution exponentially higher. Similar to our approach in the triple net portfolio, we are targeting shop investments at need-driven senior living communities in secondary suburban markets, where we have a better understanding of the local dynamics that most impact operations.

We are seeking partners that have demonstrated an ability to deliver outstanding resident satisfaction, which we believe is achieved by attracting and retaining mission-driven employees. Frankly, we've been overwhelmed by the interest in partnering with NHI, which creates a larger talent pool for us and lowers the risk for new investments. From a financial standpoint, our target markets tend to see fewer buyers than the primary markets, allowing NHI to find stabilized properties at attractive yields in the 7% to 8% range. We expect near-term NOI growth in the first few years in the high single-digit to low double-digit range, which produces strong rates of return in the low to mid-teens.

NHI's financial strength is very conducive to supporting growth and bolstered by our fortress balance sheet. Our leverage is less than 4x net debt to adjusted EBITDA, and we have plenty of dry powder. Our demonstrated ability to access attractive debt and equity capital creates a real competitive advantage for NHI and maintaining and growing the pipeline as market participants can be confident in our ability to finance deals quickly and with limited closing risk.

Regarding our 2026 outlook. We issued guidance last night that included normalized FFO per share growth of 1.2% at the midpoint. This is clearly not where we view the core growth rate of the company. Recall that in 2025, results benefited from several items that we do not view as recurring, which John will address in more detail. When adjusting for these items, we estimate that our normalized growth rate is in the 5% to 6% range, the midpoint of our 2026 NFFO per share guidance implies a 2-year CAGR of approximately 6%.

Further, this year's guidance includes approximately $111 million of dispositions of nonstrategic assets. While we are continually reviewing the portfolio, the early year timing and unusually large size of the dispositions impact this year's growth by an incremental and estimated 1.5%. From a big picture perspective, NHI is in a great position to drive exceptional long-term FFO per share growth and create sustained value for shareholders. We are investing in the people and resources necessary to scale our future growth particularly in SHOP with estimated NOI growth of over 105% in 2026 before consideration for new investments.

Our financial strength gives us flexibility to pursue significant external growth and the senior housing industry fundamentals have never been more attractive. In short, we're as enthusiastic as we've ever been. Before I turn the call over to Kevin, I want to welcome our newest Board member. We announced this week that [ Lilly Donahue ] has joined the NHI Board of Directors. As many of you know, Lilly served as the CEO of Holiday Retirement from 2016 to 2022, overseeing a portfolio of more than 300 independent living communities in 46 states. She brings an extensive and diverse set of skills to the NHI Board, and her deep experience in senior living operations, obviously makes her a great fit for us in these early stages of our growing shop platform.

I'll now turn the call over to Kevin. Kevin?

Thank you, Eric. Starting with investment activity in the pipeline. NHI had a great year on 2025 with $392.4 million in announced investments and an 8.1% average initial yield. As Eric noted, the fourth quarter was particularly active with investments of $217.5 million and 2026 is off to a solid start. In February, we announced our largest shop acquisition to date of $105.5 million for 9 properties in Kentucky, South Carolina and Tennessee. We expect an initial NOI yield for the first year of approximately 8% and 7.6% when including routine CapEx.

Allegro Living Management is the new manager for these properties, so we expect some transitional impacts in the first year, but forecast solid double-digit growth in year 2. Allegro is an affiliate of Sprint Arbor management, whom we have worked with since 2024 and has extensive experience in these suburban markets that Eric described earlier. Our total investment with Spring Arbor is now $227 million, and we are looking at opportunities to continue to grow with them.

On that note, the pipeline is as active as ever, which gives us confidence that we can meet or exceed last year's total investments. We currently have $110.6 million under signed letters of intent, primarily in SHOP, and we are evaluating an incremental pipeline of $488 million, all in senior housing. This figure excludes any portfolio deals, but I'll add that we are reviewing several of these large potential investments. We expect that the acquisition environment will remain incredibly strong for several years, which necessitates that we understand how each of our properties either fit or doesn't fit within NHI's strategic outlook.

As a part of this ongoing process, we have planned dispositions of 7 buildings with 6 different operators. These properties are not strategically important, so we believe that we can better reallocate our resources to focus on relationships with much more growth potential.

Turning to our operating performance. Total shop NOI increased by 124.9% compared to the fourth quarter of 2024 due to the transition of 7 properties on August 1st and the acquisition of 4 properties on October 1st. The same-store NOI on the 15 legacy holiday properties declined by less than 1% year-over-year, but increased 8.7% sequentially from the third quarter.

For the year, our same-store NOI increased by 7.6%, and our 2026 guidance contemplates a 7% to 8% increase, which is more heavily weighted to the second half of the year as occupancy recovers and the 16 units we discussed last quarter come back into service in May. The 11 properties that we transitioned and acquired contributed $4.1 million to the fourth quarter SHOP NOI and are performing in line with expectations.

We expect double-digit NOI growth from this group as it enters the same-store portfolio later this year and early next. Across the triple net portfolio, we are generally experiencing the continuation of solid trends with no rent concessions, continued collection of deferred rents from [ Bickford ] in excess of expectations and stable occupancy and EBITDARM coverages. Gas lease revenue increased approximately 7.2% year-over-year, driven primarily by acquisitions, successful transition of properties formerly operated by SLM and annual escalators.

Deferral collections of $1.9 million actually decreased by 17% compared to the fourth quarter of last year, which we regard as a success as our outstanding balances have largely been collected at this point, and we do not expect to report on this metric going forward. While total collections declined, the Bickford repayment increased by 38% to $1.5 million in the fourth quarter, and they had an outstanding balance of $7.6 million at December 31st. We continue to expect that Bickford's cash rental revenue will increase in total dollars at the April 1st rent reset, and we'll be able to provide more details on the next conference call.

The pipeline continues to be active with triple net senior housing deals as we don't think every property is a fit for SHOP. We are also getting more created with certain targeted lease underwriting to maintain flexibility for potential SHOP conversions. As an example, we purchased a property in Jameson, Pennsylvania for $52.1 million, which is now operated by Priority Life Care.

Priority is a new relationship for NHI, but they are a well-established operator with over 60 properties across 12 states. The lease is unique as it's a 5-year lease at an initial yield of 8% plus a revenue participation feature that could add another 25 to 50 basis points. There are also provisions in the agreement that would convert the property to shop, which we anticipate triggering.

That concludes my remarks, and I'll now turn the call over to John to discuss our financial results and guidance. John?

Thank you, Kevin, and hello, everyone. This morning, I'll provide details on our fourth quarter and full year results, review our financial strength, including our updated leverage policy and conclude with our financial outlook for 2026. I'll be using average diluted common shares for all per share results. For the quarter ended December 31, 2025, our net income per share was $0.80, a decrease of 15.8% from the prior year. Recall that in the prior year period, we recognized a $6.3 million noncash gain related to derivative accounting for forward equity sales agreements as well as the $5 million gain on sales of real estate.

For the 12-month period ended December 31, 2025, our net income per share was $3.02 compared to $3.13 in the prior year. Our NAREIT FFO results per share for the fourth quarter and full year compared to the prior year periods, decreased 1.6% and increased 2.2% to $1.22 and $4.65 per share, respectively. The prior year period, NAREIT FFO benefited from the aforementioned $6.3 million gain from derivative accounting. Our normalized FFO results per share for the fourth quarter and full year increased 8.9% and 10.6% to $1.22 and $4.91 per share, respectively, compared to the prior year periods. Several onetime items helped us achieve these great normalized FFO results.

During the year, we recognized gains from equity method investments of $3.7 million, up from $0.4 million in the prior year. We also recognized a $3.4 million benefit to our credit loss reserves compared to a credit loss expense of $4.6 million in the prior year. Finally, we recognized $3.9 million in cash rental income upon lease terminations, which excludes noncash write-offs of straight-line rents receivable and excludes noncash rental income related to operations transfers attributable to the third quarter SHOP transition properties, which benefited both normalized FFO and FAD.

FAD for the fourth quarter and full year compared to the prior year periods increased 11.1% and 13.7% to $57.9 million and $232.1 million, respectively. As Kevin noted, NOI from our 26 SHOP -- Property SHOP segment for the quarter ended December 31st increased 124.9% to $7.3 million compared to the prior year period. Our 15 property same-store SHOP portfolio, NOI declined 0.9% to $3.2 million from the prior year fourth quarter, but was sequentially up 8.7% from the third quarter. Subsequent to the end of the year, we added an additional 9 properties to our SHOP segment, which brings our total investment in shop to $740 million.

Our 2026 guidance released last night included our NOI expectations for these properties to be $39.6 million at the midpoint. We believe that the 5.4% yield on our current in-place SHOP invested capital continues to represent substantial NOI growth upside for the company. I'll talk more about our 2026 guidance in just a moment.

Interest expense for the fourth quarter was down 6.4% year-over-year, while weighted average common diluted shares was up 5.4% to 47.9 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Cash G&A increased 39.9% to $6.6 million compared to the year earlier period, while legal expense declined $0.4 million. During the quarter, we closed on new investments totaling $217.5 million. For the year, we made $392 million in new investments, the highest level since 2016. This volume reflects both the success we have of converting existing loans into fee simple ownership as well as the redeployment of over $93.3 million in other loan investment payoffs during the year.

Our net deployment of new investment capital represents a 42% increase year-over-year. During the quarter, we settled approximately 600,000 common shares from our Q2 2025 forward ATM equity activity for proceeds of approximately $46.2 million at an adjusted forward price of $71.87 per share after fees and forward costs. At December 31, 2025, we have remaining escrowed forward equity proceeds of approximately $44.5 million available to us in exchange for the future delivery of 600,000 common shares at an average price of $69.23 per share.

We ended the year with $19.6 million in cash in our balance sheet, $496 million in revolver capacity and also had $315.8 million available on our ATM assuming the settlement of our forward equity sale agreements. Our balance sheet ended the fourth quarter in great shape. Our net debt to adjusted EBITDA ratio of 3.8x for the quarter, and our available liquidity was approximately $875 million, attributable to the cash in our balance sheet excess revolver forward equity and additional ATM capacity.

We are also announcing today a change in our leverage policy. We are lowering our leverage policy from a range of 4x to 5x to a range of 3.5x to 4.5x net debt to adjusted EBITDA. Our lower leverage policy reflects the importance we place on our investment-grade rating and also reflects the changes to our debt service coverage ratios in this higher for longer interest rate environment.

Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record March 31, 2026, and payable May 1, 2026. Last night, we introduced our full year 2026 guidance, and I previously touched on some of our SHOP expectations. For 2026, we expect NAREIT FFO and NFFO per share at the midpoint to grow 6.9% and 1.2%, respectively. We expect total FAD at the midpoint to grow 7.8% to $250.2 million. Our full year 2026 guidance includes $230 million in additional future investments an average NOI yield of 7.8% comprised approximately 70% of SHOP investments, which we believe is a conservative assumption for the year.

Excluded from our guidance is any assumption for the early resolution of our NHC lease, which matures December 31, 2026. Negotiations are ongoing, and we expect to have more to report as the year progresses. Capital market activity in our initial 2026 guidance currently only reflects the settlement of our remaining forward equity and the retirement of our upcoming debt maturities using proceeds from our revolver. However, we expect our capital market activity to adjust as required to meet the company's liquidity needs due to changes in the timing and the amount of our investments and dispositions.

Once again, thank you for joining our call today. That concludes our prepared remarks. So with that, operator, please open the lines for questions.

[Operator Instructions] Our first question is coming from Farrell Granath with Bank of America.

I first just wanted to start off with a question on the same-store SHOP guidance for 2026. I know that last quarter, there was some commentary around taking corrective measures and that we could potentially expect double digits in 2026 in that same-store portfolio. So curious of the initial guidance, is this reflective of just what you're seeing today, tutor plans of these corrective measures, which could potentially provide greater upside to that guidance?

Sure. This is Kevin. I would tell you overall, just the way we conduct ourselves is we want to deliver something that we feel very confident that we can achieve. And there is -- there should be opportunity within the portfolio from there. So it's a bit of an underpromise, overdeliver -- we do have some things that are going to take place in the back half of the year. We mentioned that we have one building where 16 units are coming online. That building is 100% occupied. So that will be additive. Those units don't come on until May. And then we expect that it will grow through the balance of the year. We're not expecting everybody to move in all at once. So we've got a number of things that we're focused on with the portfolio. We're focused on the sales pipeline, building the funnel. Typically, the first part of the year is a little bit softer with holidays and coming out of the winter. So we do expect better results out of the second half of the year.

Great. And also just touching on your SHOP pipeline, especially seeing the momentum that you've picked up in the second half of '25 and then now what we've seen under LOI and in the pipeline for '26. Is it fair to expect that, that momentum can continue going forward into '26 of the level that you're potentially able to achieve now?

That is our expectation. That said, we give you guidance based on what we have. We feel like we have some reasonable visibility into and what we can execute on. But as you noted, we outpaced the expectation that we said at the beginning of last year and would be -- we're working to do the same this year.

Our next question is coming from Austin Wurschmidt with KeyBanc Capital Markets.

Just, Eric, I wanted to go back to NHC, and I'm wondering, does it feel like the lease negotiations with the group are moving forward and maybe more importantly, constructively moving forward? And what is the probability that you think you'll reach a resolution in the next 3 to 9 months?

Austin, this is Eric. We're in the thick of it right now. So I would describe our posture as we're in a quiet period regarding NHC.

Understood. Appreciate that. And then from the shop challenges that you guys have faced and you've talked about where you would have expected annualized NOI to restabilize a couple of years ago. I mean has that changed your approach to either underwriting new deals, or how you're structuring management agreements to provide any added flexibility moving forward?

Sure. This is Kevin. I would say it definitely impacts the way we think about deals, but we're also focused on more senior housing campus style products, ones that have assisted memory care. You recall these are former holiday properties that we're not the only ones that have had some issues with but making sure that we have a bit of that continuum, or it's the senior housing, the need-driven component is a component to the deal. I think it's something that we're focused on. And as we touch on our management agreements are such that we do have flexibility should we need to make a change. That's never our -- it's never a desire of ours. Changes are very disruptive to the property. But if we need to, then we have that ability.

Got it. And then just last one. Eric, you highlighted the targeting of secondary suburban markets for deals. What's sort of the long-term growth profile for those markets, just given the demographics and affordability? And how would you characterize the labor pool for the markets that you're focused on?

Great question, Austin. We definitely pay attention to labor. For example, we tend to avoid Indiana because it has a tough labor market. And the buildings there tend to run a lot of agency labor. But it's no secret that there's a lot of migration from coastal areas to places like Tennessee and other places in the Midwest where housing is more affordable and the cost of living is more affordable. So for the time being, as we look at Bickford and other Midwestern operators, they're able to staff their buildings with full-time employees and not have to utilize any agency labor.

And just from a growth profile perspective for those types of assets? I mean, how do you think about that over time?

Well, you look at our pipeline, we're pleasantly surprised at the number of deals and opportunities we're seeing now that we're gung ho on SHOP [ and RIDEA. ] So growth for us is more of an issue of managing it and underwriting it responsibly rather than trying to find it.

Our next question is coming from Juan Sanabria with BMO Capital Markets.

Just hoping you could help us think about stock growth and the guidance for '26, recognizing there's some struggles with the [ x-Holiday ] portfolio. But maybe if you can compare and contrast what's not the same-store pool, and how that's performing versus the same-store pool and kind of the expectations on [indiscernible] RevPOR just so we can get a kind of a more holistic picture rather than just focusing on same store.

Sure. This is Kevin. I'll try to address your question, if I missed something, please reask the question. But when we're looking at what's not in same store right now, recall that -- two of them. One is the transition from triple net to SHOP. The other is transition to a new operator. So we do have some transitional impacts that we're -- we had through the first part -- or sorry, the second half of 2025 and then on the newest we'll have some transitional impacts that we experienced in 2026. There's only been one of those that was the current manager. That group is performing to expectation. I feel very good about where they're at from an operation standpoint. But overall, we'll be looking at is making sure that they're putting in the right systems and people feel like they've done a very good job of that. They're building their funnels. We're able to pass through some rate increases, but we're doing that responsibly to make sure that we're not losing occupancy while we go through these transitions. So when we were to look at this, it's more of a, I would call it, a forward look then -- so there might be a little bit of noise in the near term. Overall, though, the transitions have gone pretty well. I would say just pulling one out the sincere transition we did last year that performed better than expectations through the second half of the year. We just finalized our budgeting process and have some solid growth expectations for them this year. So I think we're feeling good about where we're at with those operators. You'll see those roll into the same store starting fourth quarter of this year. So you'll have a little more incremental visibility on that piece here in the next couple of quarters.

Okay. That's helpful. Just maybe going back to, I think, maybe trying to ask Austin's question in a different way. I guess, holiday may be a unique situation, but I guess what have you learned that you think prepares you better to deal with [indiscernible] in the growing pains in SHOP and/or transitions, et cetera, that should give us confidence about investments or activity in SHOP as you look to grow pretty significantly with that pretty compelling opportunity going forward with supply demand.

Juan, this is Eric. I would just remind everyone that the holiday shop was more of a science experiment that we backed into when holidays sold to Atria and Welltower. We've put a lot of CapEx in those buildings. We've changed managers. And as we compare them to the same holiday buildings that are at Ventas and Welltower from what we're able to surmise we're doing as good or better than they are with those buildings. Our new SHOP portfolio, they're not same-store I feel very positive on. I would also point out that it's assisted living and memory care, not just independent living. And these buildings are performing well from the get-go. And we look at them for an eye towards double-digit growth, and we verify that with the operator when we do our pro formas and budget for year 2 growth. So as Kevin said, I think you'll start to see our same-store perk up in the third and fourth quarter when the one holiday building has units that come online and when the sincere buildings become same-store.

And just last question for me. How should we think about the pricing power and the ability to drive rate in some of these secondary markets? I'm not sure kind of the affluence around some of these assets or the ability to drive pricing with the target customers.

Sure, this is Kevin again. Every market is different. We are underwriting the local market fundamentals of each building that we're looking at. So each one is -- it's very hard to give a generalization here on how we're looking at those because they're all -- again, they're all different. One thing I will say, though, is based on the margins where they're at, if you can increase rates 5% a year, and hold your expenses to less than 4%, that's going to be 7% to 8% growth. So we think that, that is very achievable, and we think that there is some potential for additional growth beyond that on the revenue line and a lot of these. So I like our chances here. I think that we're building a very good portfolio like our operating partners and their ability to pass through those increases, if not more, that's kind of in line with what we've seen with our triple-net portfolio as well. So I think we can do those good or better. So that's our opportunity, though, as John mentioned in his comments, we can continue to get some margin expansion as we grow the SHOP segment, that's going to add additional growth for us.

Our next question is coming from John Kilichowski with Wells Fargo.

This is [indiscernible] for John. Just to switch gears a little bit on the 1,100 million of dispositions in guidance, with a little bit heading we were expecting here. Can you walk us through what's driving the higher volume, specifically what assets are being sold? And is primarily like just capital recycling up into SHOP or -- including non-core assets?

This is Kevin. It's really an operator relationship situation, coupled with the underlying assets not being core to NHI. So the profile of the communities is largely senior housing, but they're not relationships. We're going to grow. They're triple net in nature, and they're intensive from an asset management standpoint. So we feel if we can move the capital to those relationships where we're going to have additional growth, not only from a whether it's a triple net or a SHOP deal that we do from the proceeds, something where we're going to get additional volume out of that customer be less intensive from an asset management standpoint meaning we're not spending so much time on one building of an operator really gives us a little more efficiency from an asset management standpoint, we've hired a fair amount of folks for asset management. We're building out that our bench and our analytics competencies I feel good about where we're at, but we need to make sure we're focusing them on the pieces that are going to be meaningful to NHI. And that's really what these dispositions are borne out of. Generally, we like to hold on to income. But I think this is the right decision here to make sure that we're focusing our team.

That's great. And just a quick follow-up on NHC to the extent you're able to comment. If you do renew the lease, how does that impact what you could reposition or sell versus our earlier discussions where you were talking about locating the SHOP from this portfolio? Would it be like an all or nothing scenario?

Could you ask that again? So if we do renew the lease, then what?

Does that impact what you could reposition versus -- or sell, I guess, because we're talking about some dispositions potentially being involved with this and [indiscernible] retain some capital.

Fair question. And if I'll repeat your question back. So on the NHC lease if we were to sell some of the buildings, would that be redeployed? And the answer is yes, it would be redeployed into [indiscernible].

Our next question is coming from Rich Anderson with Cantor Fitzgerald.

So the 7.7% to 8% SHOP same-store NOI guidance, just to clarify that, that's still just the 15 legacy holiday assets. Is that correct?

This is John. Yes, that's correct.

Okay. And I think you said your longer-term view on SHOP growth is sort of high single digit, low double digit. Is that also correct? So you sort of get a step-up after you sort of like address some of the issues that are going on in the legacy portfolio? Is that the right way to think about it?

Yes.

Okay. Obviously, leading up here. So at 9.3% of the portfolio today SHOP are at the end of the year. What's your target in terms of how big SHOP can become as a percentage of the total? And do you still think that you're competitive from a growth perspective because you're seeing growth approaching 20% from some of your larger peers. Now that has a lot to do with occupancy lift. So is your same-store offering more of a rate growth versus expense growth phenomenon and less about occupancy lift? I'm just curious how you're approaching the same-store profile of SHOP going forward? And how big it could be in a couple of years from now?

Well, in terms of growth of NOI for the company, we've told people that last year, we doubled from 5% to roughly 10%. And this year, we could usually double that again to 20% and with an eye towards getting it up to 30 or beyond in terms of percentage of SHOP. So I still feel like that's achievable and on track. And I understand we have some catching up to do. But as you can see by our pipeline numbers, it's easier to find new deals when you're looking for SHOP and [ RIDEA ] not so much with leases. In terms of same-store growth, I think the opportunity is one of margins. We see on the holiday portfolio a lot of margin opportunity, and we see on new not same-store rate opportunity and frankly, experienced operators that are taking over from, say, a mom-and-pop operator, who just isn't getting the margins that they could.

Okay. So it's a again, a lot of your peers are getting this occupancy lift, which is not a forever situation. So yours is more of a stabilized but still, as you point out, margin story and something in the 10% range on a foreseeable future type of...

That's fair, that's fair.

Hi, Rich, this is John. Look, let's just be honest about -- a little bit about the makeup of our SHOP portfolio. It was comprised of the holiday assets, which Eric touched on before. It's also comprised of these assets that we transitioned away from [ Discovery to Sincere. ] And that was the whole point of my discussing the return on invested capital that we're currently experiencing. We strongly believe in the potential of these assets. We got to unlock the margin to improve that, and that's why we're talking about that. And at the same time, growth will help us improve our metrics over time as well.

Okay. Switching gears. On the outlook for this year, and the -- excuse me, $7.6 million of remaining Bickford rent repayment left on the table. Do you expect that all to be paid back in the next year or 2? Like what's the cadence of that payback?

Well, this is Kevin. The -- what I would guess having to think about is once the rent reset happens, there's less cash flow overall to pay at least at the same rate. It is not something that we're just going to let go for free. So we'll be discussing with them what type of alternatives there are to pay that remaining balance or various other things that we can negotiate over but give NHI value. So it would still probably take a handful of years to pay that off if we just reset the rent and then just had to revise the formula and have it pay it out because we're not looking to take every last dollar from them. They still got to be able to make sure they pay the people and invest in the company. So we're going to be mindful of that, but it's not going to just go away. NHI will get value out of it.

Kevin, that's April, right, the next one?

That's correct.

Okay. Lastly, so DAC is drawing some attention to CCRCs these days. I'm wondering when you think about your CCRC portfolio in terms free entrance fee portfolio, if you're seeing any more activity on the ground in terms of transactions and renewed interest in the space, any comment there? And maybe the answer is no, but...

Well, I think the answer for us is it's been a very good portfolio for us, and we very much appreciate working with our operating partner there. It did wonders through COVID and continue to perform very well. So it's always been something that we've had an eye on. We are also mindful of our concentration there and don't want to make sure we get upside down. So we will continue to look at those opportunities. There's a few in the marketplace that we've been looking at. But we're also going to make sure we're rigorous with our underwriting criteria. So it's on the table. But not necessarily a direct focus, but something that we'll approach opportunistically. We have some great operating partners that do that space very well. So it's something that I think we should continue to look at.

[Operator Instructions] Our next question is coming from Omotayo Okusanya with Deutsche Bank.

A quick question again on the Bickford distorted rent. When you talk about getting value for the remaining amount of deferred rent, could it be -- I know in the past, you guys have kind of done the structure where rather than getting to the spot rent, you just kind of lowered the value of any kind of acquisitions you were buying from Bickford. Could it be something like that, that you guys continue to do to kind of make sure you get value for that relining different rent?

Sorry, Tayo, I missed part of your question there. You were asking what value we can get from Bickford and [indiscernible] cash, that's the question.

Yes, exactly. So I know in the past, sometimes with the deferred rent rather than get the rent, you just lowered the valuation of an acquisition that you were making from Bickford. Is that kind of more of what we should expect to see?

Well, I don't want to guide you to anything specifically. We have the reset coming up the 1st of April. So we'll be finalizing where rent sits going forward this month. The -- but yes, you're on the right track. In terms of what values out there, we've built several buildings with Bickford. There's still another one remaining that could have some value like that. There were some other developments that we had looked at in the past. There's just some reimagination of the portfolio, whether we prune a little bit. I wouldn't think those are going to be huge numbers of buildings, but there is potentially some addition by traction that could help us to get additional rent. So we're -- we have a number of options, but there is a formula in place in terms of how rent gets reset. So that would be the baseline for what we think. We believe that we're going to continue to get the aggregate number of rent that [indiscernible] paid and then some going forward. And just as a reminder, they paid $5.3 million last year. So they've been really moving down that repayment number at a steady step. And we're happy with where we're at with them. We've got a little more work to do. But we're in a pretty good spot.

Got you. And then 1 follow-up. With the NHC reset, and at some point, there was also the option of going with another operator and potentially looking at that option. Is that still on the table at this point, or are we kind of firmly just in the world of renegotiating with NHC?

I say that we're in a quiet period. We're in the thick of it right now, Tayo. So I just have to be careful what I say.

As we have no further questions on the line at this time, I would like to turn the call back over to Mr. Mendelson for any closing remarks.

Thanks, everyone, for joining today and for your interest, and we'll see you at a conference sometime soon.

Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the NHI's Third Quarter 2025 Earnings Webcast and Conference Call. [Operator Instructions] And please note this conference is being recorded.

I will now turn the conference over to your host, Dana Hambly. Dana, the floor is yours.

Thank you, and welcome to the National Health Investors conference call to review results for the third quarter of 2025. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, 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, are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's 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-Q for the year ended December 31, 2024, and Form 10-Q for the quarter ended September 30, 2025. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations 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.

Thank you. Hello, and thanks for joining us today. We had a solid quarter, highlighted by the transition of 7 properties to our SHOP portfolio which resulted in consolidated SHOP NOI growth of approximately 63% compared to the prior year's quarter. We also announced our first SHOP acquisition for $74.3 million effective October 1.

We've surpassed last year's investment total with more deals expected to close this year, and we're working on a strong active pipeline that should generate similar or higher external investment activity in 2026. We're raising our guidance for the third time this year. Our updated guidance represents over 10% NFFO per share growth at the midpoint, which would be the strongest annual growth since 2014.

The momentum at NHI is building. We are well positioned and laser-focused to capitalize on the generational growth in the senior housing industry over the next decade. As I noted last quarter, we have methodically invested in creating a strong foundation across all of our disciplines that will allow us to significantly expand our presence in private pay senior housing, where we see the greatest risk-adjusted returns.

We've onboarded 11 properties and 2 new operators to the SHOP platform in just the last few months. Combined, the recent additions should more than double our annualized SHOP NOI from approximately 5% to 10% of total adjusted NOI. Through strong organic growth and continued acquisitions, our current view is that our SHOP NOI should more than double again in 2026 to at least 20%.

We've taken corrective measures in the same-store portfolio and are confident that it returns to double-digit growth levels in 2026 as it did in 2024 and through the first half of this year. This portfolio has been an important part of our development as we are starting to ramp up the SHOP platform. As we evaluate new opportunities, we're placing a high priority on operators and assets with solid trailing performance that should lead to more consistent and exceptional multiyear NOI growth. The pipeline activity indicates that acquisitions will be a meaningful component of our growth profile for the next several years. We've announced investments of $303.2 million so far this year and currently have approximately $195 million under signed LOIs, which we expect to close in the next few months.

We have a large incremental pipeline of active opportunities entirely focused on senior housing, including a significant number of SHOP deals.

The balance sheet continues to be supportive of our ample capital needs. Our net debt to adjusted EBITDA at 3.6x is below the low end of our target range, and we have available liquidity of over $1 billion. We believe this low leverage and strong access to capital creates a real competitive advantage as we're able to move quickly and with limited closing risk.

Touching briefly on the NHC rent negotiation, we disclosed last night that NHC has notified us of their intent to renew the master lease for one 5-year term commencing on January 1, 2027. Management and the special committee are currently reviewing the effectiveness and legality of NHC's notice.

Before turning the call to Kevin, I'd like to conclude to say that NHI is in a great position with several levers to pull both internally and externally that we expect to drive exceptional long-term FFO per share growth. The third quarter benefited from some nonrecurring items, but we believe the core remains strong and well positioned to create sustained shareholder value. The industry tailwinds are busting, our financial health is peak, and we have invested in the people and resources necessary to scale our future growth.

Kevin?

Thank you, Eric. The transition of 7 properties to the SHOP portfolio is just over 3 months old, and we are happy with the early results. The third quarter NOI from these assets is above the prior cash rent, and we now expect that the 2025 NOI contribution exceeds our original forecast of approximately $3.7 million.

As with any transition, we expect some impact to near-term growth with the introduction of new management and systems but still expect this portfolio to contribute meaningfully to SHOP NOI in 2026. We also completed our first SHOP acquisition, including 4 properties for $74.3 million on October 1 with Compass Senior Living as the operator. Our relationship with Compass is formally began in 2024 through a $9.5 million mortgage loan with purchase options on 2 properties in Oklahoma.

In the process of looking for ways to expand the relationship, Compass brought us the opportunity to acquire 2 more properties that they operate in Oregon, which led to our first SHOP acquisition. We expect the first year NOI yield on these stabilized properties to be 8.2% or 7.5% adjusting for recurring CapEx.

As noted on our earnings press release, the balance of our mortgage and other notes receivable declined by $43.8 million compared to the second quarter due primarily to large paydowns on a couple of loans with limited or no opportunity for future ownership. While this may slightly weigh on near-term interest income, we are excited to be able to recycle this capital into investments with greater long-term value, including opportunities similar to the Compass deal I just described.

On that note, the pipeline is active as ever with $195 million under LOI with an average yield of approximately 8.4%. This includes a mix of shop, triple-net and loan-to-own opportunities all in senior housing. We expect to close these deals in the fourth quarter and first quarter of 2026.

Turning to our operating performance. Total SHOP NOI increased by 62.6% compared to the third quarter of 2024 due to the transition of 7 properties on August 1. The same-store NOI on the 15 legacy holiday properties declined by 2.2% year-over-year, which is obviously not an acceptable result for us. Occupancy declined by 110 basis points from the third quarter of 2024 and 160 basis points sequentially. We experienced higher move-outs during the quarter, key personnel changes, 15 units taken out of service and approximately $0.2 million in nonrecurring costs, all of which negatively impacted the result.

We expect the out-of-service units to come back online in approximately 6 months and we have taken measures to improve the occupancy in operations. But that will take some time, which led us to adjust our same-store NOI growth for this year, we expect NOI growth for this group to return to double-digit levels in 2026. We have and continue to make investments in our asset management platform, understanding that organic NOI is our best and cheapest source of capital.

As we grow the SHOP portfolio, we expect the variability in same-store portfolio will be reduced, particularly as we believe the assets we are adding are higher quality properties with more consistent growth. 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 expectations and stable occupancy and EBITDAR coverages. Cash lease revenue increased approximately 12% year-over-year to $70.1 million during the quarter. Excluding approximately $3.9 million in cash rent received in connection with the discovery lease terminations, cash revenue increased approximately 5.5% primarily due to acquisitions.

On October 31, we exercised our purchase option on a CCRC in Columbia, South Carolina for $52.5 million, with an initial yield of 8.25%. This is a high-quality entrance fee community operated by our long-time partner, senior living communities, and we are excited to bring this property into our own portfolio.

Bickford continues to generate strong NOI. Bickford's third quarter occupancy increased by 90 basis points from the second quarter to 86.1%. Trailing 12-month EBITDARM coverage through June 30, including deferral repayments, was 1.49x. Bickford repaid $1.3 million in deferred rent during the third quarter and has an outstanding balance of $8.7 million at October 30.

Due to their solid performance, we expect that we'll be able to capture more than the quarterly run rate of deferral repayments into the future base rent at the April 2026 reset with the ability to monetize any remaining deferral balances.

I'll now turn the call over to John to discuss our financial results and guidance. John?

Thank you, Kevin, and hello, everyone. I'm pleased to report our third quarter results were above our expectations. I will highlight the significant areas that contributed to our positive quarter, but first, let me begin with our third quarter results. I'll be using average diluted common shares for all our per share results.

For the quarter ended September 30, 2025, our net income per share was $0.69, up 6.2% from the prior year. Our NAREIT FFO results per share for the third quarter compared to the prior year period increased 5.8% to $1.09 per share. Our normalized FFO results per share for the third quarter increased 28% to $1.32 per share compared to the prior year third quarter. FAD for the third quarter ended September 30 compared to the prior year period, increased 26% to $62.2 million.

On August 1, we completed the conversion of 7 assets from lease to shop. Together with the conversion, we recognized within our Real Estate Investments segment cash rent revenues of $4.6 million, noncash rental income related to operations transfer of $1.4 million and wrote off $12.1 million in straight-line rents placebo. Upon conversion, we then additionally recognized $2 million in additional SHOP NOI from the conversion properties for the 2 months of operations during the quarter. All of these impacts are reflected in net income and NAREIT FFO. Our normalized FFO and FAD results exclude the impact from the noncash rental income related to the operations transfer and straight-line receivable write-off.

During the quarter, we also received approximately $52 million in loan receivable payoffs not in our previous guidance, which resulted in an improvement of $2 million in credit loss reserve impacting net income, NAREIT FFO and AFFO but was adjusted out of our FAD.

In a line from our 22 property SHOP segment for the quarter ended September 30, increased 62.6% to $4.9 million compared to the prior year period. We expect these results to continue to rapidly grow further as we recognize NOI from our recent SHOP acquisition and continue to make additional SHOP investments in the coming quarters. Our 15 property same-store SHOP portfolio saw NOI decline 2.2% to $3 million from the prior year period. Same-store shop revenues and expenses grew 2.1% and 3.3%, respectively, resulting in a 90 basis point margin decline to 21.1% year-over-year.

Interest expense for the quarter was down 8% year-over-year, while weighted average common diluted shares were up 8.3% to 47.6 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Sequentially, compared to the second quarter, cash G&A increased 5.4% to $5.3 million, while legal expenses declined $1 million.

During the quarter, we did not close any new investments but did continue to fulfill our existing commitments. In October, we closed on new investments totaling $126.8 million which includes $46.7 million of previously deployed loan receivable capital. At the end of September, we issued $350 million in 5.35% coupon bonds resulting in net proceeds of $340 million after original issue discounts and bank fees. The bonds mature February 1, 2033.

During the quarter, we settled approximately 155,000 common shares from our Q1 2025 for ATM activity and an adjusted forward price of $73.96 per share after fees and forward costs, for proceeds of approximately $11.4 million. At September 30, 2025, we have remaining escrow forward equity proceeds of approximately [ $90.6 ] million available to us in exchange for the future delivery of 1.3 million common shares at an average price of $70.47 per share.

We ended the quarter with $81.6 million in cash on our balance sheet and $600 million in revolver capacity after paying down the bank term loan of $75 million at the end of the quarter. Subsequent to the third quarter, we extended the maturity of our $125 million term loan for 6 months to June 16, 2026, retired a $50 million private placement loan and amended our bank credit facilities to remove a 10 basis point credit spread adjustment to our SOFR interest rate.

Our balance sheet ended the third quarter in great shape with improvements in our leverage ratios and liquidity. Our net debt to adjusted EBITDA ratio was 3.6x for the quarter, and our available liquidity was approximately $1.1 billion attributable to the cash on our balance sheet, excess revolver, forward equity and additional ATM capacity.

Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record December 31, 2025, and payable January 30, 2026. We also adjusted our full year 2025 guidance, which includes increases to all our per share metrics. Our guidance includes the impacts from our SHOP conversion, announced subsequent events and our other expected results. Compared to 2024, name REIT FFO guidance at the midpoint is $4.64 or an increase of 2%, and normalized FFO at the midpoint is $4.90 or an increase of 10.4%.

Compared to our original February full year guidance, we increased normalized FFO guidance $0.27 per share. Our guidance for FAD at the midpoint is $232.6 million, up from our original February guidance of $221.7 million, and represents a 13.9% increase in FAD over 2024. Our guidance includes same-store shop and OI growth in the range of 7% to 9% over 2024. We are also providing guidance on our conversion plus new investment SHOP NOI for the full year of between $5.8 million and $6 million. Guidance also includes the continued collection of deferred rents and the fulfillment of our existing commitments.

Our updated 2025 guidance includes $75 million in additional new unidentified investments and an average yield of 8%, which is an increase in our investment guidance as this is in addition to investments announced subsequent to our third quarter. Our guidance does not include any additional impacts in 2025 for selling additional forward equity although some settlement is likely to occur prior to our December x dividend date. Our actual equity settlements will be dependent upon the volume and timing of additional new investments.

Once again, thank you. for joining the call today, and that concludes our prepared remarks. So with that, operator, please open the lines for questions.

[Operator Instructions] Our first question is coming from Juan Sanabria with BMO Capital Markets.

Hoping to dig a little bit deeper into SHOP. You kind of made reference in the release in the opening remarks about some efforts to remediate things. So hoping you could talk a little bit about what that exactly means? And as part of that, I guess, the back story on why some units were taken offline, I guess, why now and what's the scope of work there?

Sure. Juan, this is Kevin. One thing I guess I'd like to point out is that when we're talking about our same-store portfolio, that's the holiday portfolio, which has been noted difficult by some of our peers. It's definitely not had the trajectory that we would have liked that's a little more linear. But here we are. As it relates to the remediation, a lot of it is going back through the portfolio, making sure we have our units priced appropriately. We have the tour pass done right, a lot of the basic blocking and tackling. We really have probably 3 or 4 buildings that we're focused on occupancy that were the laggards that dragged our performance down. So making sure that we have the right people in place, all that has taken place. I think some of the good news here is that our lead volumes are still very good. It's a matter of just converting and making sure we have the right incentives in place for the people on the ground. So as we go through our budget processing right now, we're evaluating all those to make sure that we have the right incentives and again, the right pricing, being able to put the right programming in place and having the right resident engagement. So those are all things that are in process to feel like a lot of the corrective measures have been put in place. So as we discussed on the call, we'll be looking to get additional growth out of the portfolio next year. As it relates to the units that were taken offline, we have a building in California that had some earth movement a couple of years ago. But we found out over time that we had some issues on the bottom floor with some of the plumbing. And the initial scope of the project was less when we had in our forecast. So we knew about it, but it ended up being that we had -- we needed to take all of the first 4 units off-line, so we made the tough decision to do the right thing and do the project in full scope versus trying to just piecemeal it and -- so get it right the first time. So it was a decision we made to go ahead and make it a little bit bigger projects. So that way, it was done right for the community.

And just to confirm, there's no tangent operators or one change contemplated? I know you've had some movement with Discovery and their remaining operator would SHOP and no longer triple that?

So -- correct. Discovery, as it relates to SHOP, Discovery of Merrell, our operators, our managers on those. We're working with them very closely to make sure we -- again, we have all the right people in place. I think as good stewards of the portfolio, we always have to keep in mind what's best for the portfolio. So -- but as it stands, we're working with them to go through the portfolio, make sure that we have all the right pieces in place to make sure that we get back on track from a performance standpoint.

Great. And then just a second question on NHC. Just curious on where we stand. I know the lease was put into default and NHC kind of came back. And then they sent you a renewal notice, but then there was a comment in the prepared remarks about analyzing the legality of that notice. Just curious on, I guess, the technicality of where we stand today and why you said examining that legality of the renewal notice?

Juan, this is Eric. Yes, that wording was artfully crafted. There could be a question about whether or not they're in default. And if they are in default, whether or not they're able to exercise their renewal option. The lease is pretty bare bones as you know, but it does say that if they're in default, they don't have the right to renew. So all of that could be subject to arbitration or litigation or legal interpretation. So that's what was meant by that comment.

Our next question is coming from Austin Wurschmidt with KeyBanc Capital Markets.

Just going back to the NHC question there a moment ago. I guess I was curious if the renewal option did prove to be legal, would that still be at the fair market rent? Or would it be at the current rent level? And I guess how else could that change NHI's negotiating position with respect to the adjustment to fair market rent?

Austin, recognizing that NHC is and their counsel are listening to this call, I will just say that all of that is on the table. If the renewal is determined not to be valid, then it's a wide open negotiation that could include third parties. If the arbitration or litigation does hold that the renewal is valid than the terms of the lease say that the renewal should be at a market rate, which is also a wide open interpretation. And as you know, we've hired Blueprint advisers to help us survey the market and get touch points on lease rates and cap rates in the markets where these buildings reside.

That's helpful. And then Eric or Kevin, the pipeline of investment opportunities sounds very active. But it did appear like when some assets moved into the under LOI bucket and therefore, that investment pipeline was relatively stable. How far along are you in ramping that pipeline that you quote? And I'm just wondering if you guys are spending more time today on larger portfolios that maybe wouldn't go into the pipeline? Or are you more focused on deals that should over time tuck into the quoted investment pipeline as they move forward?

Austin, this is Kevin. I guess the way I would say is you definitely touched on an element of what we're looking at in the pipeline. In terms of the full scope of the pipeline, it's well over $1 billion. But we're not going to report to you a number that is we don't think is achievable. So there are some larger portfolios. Anything over $100 million, we're not reporting in our numbers because I think the percentage hit rate on those is going to be a little lower. So we want to make sure it's signed up before we would report that in terms of what we have under LOI or in our pipeline. So I think that's just a function of what we're looking at in a mix of the pipeline at the moment. So I would say it's as robust as it has been, if not more. It's been an extremely busy year here, and it continues to be. So I don't really have any hesitation on where our pipeline sits right now.

Our next question is coming from Farrell Granath with Bank of America.

I had a quick question about the guidance increase. I was wondering if you could bridge between the old and the new guidance. What in there is including term fee as well as any additional -- was there incremental positivity and outlook or just having better confidence? Just wondering if you could go through a few of the items.

Yes. Okay. Let me -- this is John Spaid. Let me see if I can start from the top. In August, we had to make a lot of assumptions regarding the conversion activity that we recognized in the third quarter. That activity was -- came in much better than expected. There's a couple of things that were -- onetime items that came in better than expected. There was also better than expected NOI that we recognized from the conversion SHOP portfolio. So that all influence the raise. We also additionally saw a fair amount of loan receivable payoffs that occurred during the quarter. And oftentimes, what happens there is twofold, depending on what we're -- what's being paid -- we would then recognize credit loss reserve reversals, which flows through all of our metrics, except for FAD. So that was a significant change in our forecast. Interest income will also change, both for the third quarter as recognized as well as the fourth quarter because our mortgage investments now have declined. But when we saw those mortgage payoffs, we collected some accrued interest that was accruing but not recognized, and we also had some exit fees as well. And then I guess, finally, the same-store shop portfolio, we had to change that. We used to have a range of 13% to 16%. That's now 7% to 9% for the year. So I think those are the biggest factors.

Okay. And also going back to the SHOP portfolio in -- or in the acquisition pipeline. I was curious if you could add a few comments on how you're viewing with the competition in the market, you made the comment about the hit rates on the larger portfolios and across a lot of broader peer sets, we've been seeing an increase in SHOP activity as well as looking to buy full portfolios of SHOP. Just curious if you could just comment on competition. Is that impacting pricing? Is it leading others to pay above what you're underwriting for the pricing?

Sure. This is Kevin. The competition in the marketplace has definitely ramped up. That said, I feel like we have very strong ties with our operating partners that we were getting looks on properties that would be more off market. What you've seen close is indicative of that where we get a direct from our manager or operating partner and then also a function of our -- what we describe as our loan-to-own program. That's worked out really well for us. So it is a much more competitive environment. I think those are the deals that we try to exclude from our pipeline just because there are more groups that are looking at it. A lot of it is our REIT peers. When we look across the landscape, there's a little more private equity entering the space as well. The uniqueness that we have and our peer share is that we don't have financing contingencies. So we're actually able to get a little bit better pricing versus what I would consider the top bid because they know we can close. So -- we'll continue to pursue those marketed deals as well, but we're really focusing on making sure we have the right relationships and being able to pull in stuff at a better value.

Our next question is coming from Rich Anderson with Counter Fitzgerald.

If we could just kind of close the circle on NHC for now. Can you remind the basics behind the whether or not they're in default. I know it's been said, but I just want to make sure we got that clear about your point of view on that topic.

Rich, this is Eric. So when we made the announcement that we sent them a notice of default, we said that there were nonmonetary provisions that they were not adhering to. That was certain audit requirements, that was certain reporting requirements, that was certain insurance requirements and CapEx requirements. We had done an inspection of all the buildings and found maintenance and level of CapEx to be lacking. So we put that in a letter and sent it to them. And then, of course, as I said earlier, under the terms of the lease, if they're in default, then they're not able to renew the lease. So that's kind of where we are. There's provisions that allow for arbitration. There's a question as to whether or not the lease renewal rate is subject to arbitration, so that's something that is a question mark that I can't really address. And...

But there -- this renewal offer from them is for the entirety of the portfolio. There's no cherry pick...

Correct. Correct. It's all or nothing.

Okay. I understand the hiccups during the quarter on the shop. I know it's small with -- relative to the rest of the portfolio. But -- Kevin, you want to put the right people in place and you kind of went through that whole response to Juan's question. But -- what -- I guess my question is this is not like you had this stuff in place yesterday. You had -- you've been in this portfolio for some time now. Like what is it do you think that suddenly hiccup on you with this portfolio, you mentioned higher move-outs. It just seems a little sudden given the fact that this is not a new portfolio to you.

Sure, this is Kevin. I understand your question. I would say we also telegraphed this last quarter that we saw. This was -- we knew that the third quarter was going to be softer than the second because of the things that we were seeing in the portfolio. So I don't think it crept up on us. I think it was a matter of -- we saw it coming. We telegraphed it I would say the result was more -- was lower than what we would have liked to see. So we're trying to make the corrective measures that I described. I also think that this is a function of operations. We're looking at, as you've already said, a small portfolio, and we're drilling into a handful of buildings that are driving the result. As we continue to grow and we diversify our investment, that's going to be the key for us here in SHOP.

Right. Okay. Fair enough. Like a couple can really move the needle at this point. And then, John, if you could just -- you mentioned the new guidance, and you mentioned some better-than-expected onetime items. Can you just quantify the onetime items in the third quarter that contributed to the guidance raised just in dollars, so we can have that in our model?

Sure. Yes. This is John again. In my prepared remarks, I mentioned $4.6 million of cash revenues that came in under the converted properties. So that number included everything we collected, including 1 month's rent. We then recognize a $1.4 million, what we call it, a noncash rent revenues on operations transfer. And then we also recognized the $12.1 million straight-line receivable write-off. So when we recognize the cash rents, which flows all the way down through FAD, at the same time, we converted to SHOP and we recognized $2 million of NOI. So there's a little bit of doubling up there as a result.

The other big onetime item I just want to point out is that when we have significant particularly mezz type loan payoffs, we'll have a reversal of the credit loss reserves, which flows through all of our metrics, including FFO and not FAD. And as a result of all of these sort of changes, including the [ FAD ] results, we've also seen some nice reductions in our interest expense. And that also was another topic I didn't really mention in my prepared remarks too forestly, but we're seeing some definite benefit there because we have some variable rate interest expense. And we are also to get -- we're able to get out that bond at a 5.35% coupon. I wasn't sure we could do it quite that nicely as we did in the third quarter. So the forecast is always kind of reflected a little higher expectation for interest rates for the year. Does that help?

Yes. That's good.

[Operator Instructions] Our next question is coming from Omotayo Okusanya with Deutsche Bank.

Quick question on -- you put an 8-K out yesterday, you were going to be losing 2 Board members by sometime in 2026. I know there's been a lot of board change in general at the company. But for these 2 particular roles, just talk a little bit about how the Board may potentially be thinking about replacement? Whether -- what particular type of skill sets of background you're looking for, whether it's someone who has Senior Housing operating experience? Just kind of curious what we may see that could help further bolster the Board going forward with these 2 opportunities?

Sure, Tayo. This is Eric. Yes, we made that announcement yesterday that 2 Board members will be rolling off. And as you will recall, we had an activist campaign earlier in the year, and we addressed Board refreshment as part of our strategy to address activists. So here we are. We're conducting a search using Ferguson Search firm. Ferguson has helped us in the past with some Board members, and we're currently interviewing Board members and you're absolutely right. They will have some senior housing and operations exposure and stay tuned for announcements in that regard.

That's helpful. And then just going back to SAP, and I think maybe this one maybe a little bit more for Kevin. But again, just given your experience with kind of with the Holiday portfolio and again, some of the changes you've made on the Discovery side. Just kind of talk about this idea of a shop moves from 5% to 10% to 20% of your portfolio, kind of like this next evolution kind of -- what are the kind of key things you're looking for from the operators to kind of prevent some of this kind of one step forward, one step back way you've kind of dealt with through, through your current experience with the same-store portfolio. Just what are you really looking for going forward that kind of says, this is the operator we want to deal with, and there's an operator we don't want to deal with?

Tayo, this is Eric again. I'm going to take this one. You're absolutely right. You'll recall that we kind of backed into the holiday conversion of shock. The history of that portfolio, was a lease with Fortress and holiday was the operator. The holiday got bought by Atria and Fortress sold its portfolio to Welltower. And the entity that was our tenant to Welltower, and you'll recall that we had litigation with Welltower as a result of that. And it was a good opportunity for us to turn lemons into lemonade. Our Board had been on the fence about whether or not to engage and shop and operations, and this kind of forced the issue. So it was a science experiment. And generally, we're happy with the way it turned out. Last year's growth on the portfolio was 30%. Last quarter, we had good growth in holiday of 15%. We'll be chasing those numbers and working to get those back again. We've added new talent to our bench. You look on our web page, you'll see we have a new SVP of Asset Management. We have new VPs of Asset Management. We're very highly skewed towards operations now. And we're very savvy about what it takes to run an operating platform. Recall that both John and I [indiscernible] a large operator. So I'm comfortable with this new footing that our company is engaged in and I'm excited about the opportunity to grow the new store. We converted 7 buildings this quarter, and we bought 6 buildings, and we bought 2 more from Compass and we converted a loan for a total of 4. So we are growing SHOP quickly. And I can tell you the majority of our pipeline is SHOP. So we're committed.

Our next question is coming from Juan Sanabria with BMO Capital Markets.

Just piggybacking on Tayo's question. Serious, if you could provide any high-level thoughts about G&A with the additions of personnel and doubly got on asset management capabilities.

Sure. If you look in our supplemental, we address our G&A as a percentage of assets under management. And I would still pause it to you that we're cost-effective and very low compared to our peers. Looking at year-to-date, exclusive of stock comp at 0.56%. So that's a good metric. John, do you have anything?

Yes.

Just looking more for growth parameters, just given the investments in people and systems for next year. Is there any early thoughts?

Well, one way to think about it is -- and the way I think about it is revenues per employee. So I'm kind of working off of right now a metric of about $11 million of revenues per employee. I think that's probably something that might be a little bit heavy in terms of G&A for us as we move forward, but I'm thinking that way. And as I issued guidance, my guidance is including our expectations to grow internally as we take on more and more SHOP. So you can -- I'll give you a forward number here. If you think about our SHOP this year, we've grown it in terms of revenues, almost 60%. If you just look at what we've announced to date, excluding any new unidentified investments, our SHOP revenues year-over-year will probably be up in that 60% plus range, again before we talk about new investments again. So there you go. There's a couple of numbers you can work off of.

Okay. And then just for Bickford. Just curious if you can make any comments on their financial health and how we should think about the range of potential outcomes for that revenue set next spring?

Sure. Juan, this is Kevin. From a financial health standpoint, we disclosed our coverage ratios. The lease is doing very well. Again, somewhat similar to my comments about SHOP and our managers, we need to evaluate our entire portfolio, including Bickford on a continuous basis in terms of -- is there -- are there properties that need to go to a different home or to be sold, what have you. We'll be doing that exercise as we approach the reset to make sure that the properties we have are the most effective for the portfolio. But I feel good about our relationship with them, the coverage we have on our lease in terms of their overall health, they have some more capital planning. They need to do. We've talked about that in the past in terms of just getting some long-term debt in place. So we're not dealing with some of these or they are not dealing with some of these issues that they have, that has been a work in progress. They've made some decent progress on moving some of their owned assets to HUD. So that is long-term fixed capital for them. They need to do some more work there. So I feel like they're making progress. We still have some more -- or they have some more work to do. We'll be monitoring that very closely to make sure that work gets done. But overall, they've done what we've asked them to do. It's improving, but it's probably a little slower than we would have liked.

As we have no further questions in the queue at this time, I would like to hand the call back over to Mr. Mendelsohn for any closing remarks.

Thank you all for your time and attention today, and we look forward to seeing you at NAREIT.

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.