Executive Summary / Key Takeaways

• Strategic Pivot to SHOP Driving Growth: National Health Investors is undergoing a significant transformation, strategically expanding its Senior Housing Operating Portfolio (SHOP) model. This pivot, exemplified by recent conversions, is expected to drive double-digit NOI growth and enhance overall portfolio returns, positioning SHOP to represent nearly 10% of consolidated NOI.
• Robust Financial Performance and Outlook: The company delivered strong Q2 2025 results, exceeding expectations with a 29% year-over-year SHOP NOI increase and record 26.9% NOI margin. Management raised 2025 normalized FFO guidance to $4.80 per share, an 8.1% year-over-year growth, and increased the dividend for the first time in four years, signaling confidence.

• Disciplined Capital Allocation and Strong Balance Sheet: NHI maintains a formidable balance sheet with a net debt to adjusted EBITDA of 3.9x, below its target range. The company's $760 million in available liquidity and zero secured debt provide a competitive advantage for funding a robust acquisition pipeline, which includes $175 million in investments year-to-date and an incremental $350 million.
• Differentiated Business Model as a Competitive Moat: NHI's core strength lies in its specialized financing and asset management expertise, offering flexible solutions like sale-leasebacks, joint ventures, and RIDEA structures. This differentiated approach allows it to attract operators and compete effectively against larger, more standardized healthcare REITs, particularly in a market with limited alternative capital.
• Managing Key Tenant Relationships and Risks: NHI is actively managing significant tenant relationships, including the ongoing NHC master lease renegotiation and the successful resolution of the SLM portfolio. While credit risks on certain notes and regulatory uncertainties persist, the company's proactive asset management and diversified portfolio mitigate potential impacts.

A Healthcare REIT's Strategic Evolution and Market Edge

National Health Investors, Inc. (NYSE:NHI), established in 1991, has consistently specialized in financing need-driven and discretionary senior housing and medical facilities through sale-leaseback, joint venture, and mortgage/mezzanine structures. This foundational expertise has shaped its current strategic direction, emphasizing a flexible and tailored approach to real estate investment. The company's portfolio, comprising independent living, assisted living, memory care, entrance-fee communities, skilled nursing facilities, and hospitals, is strategically diversified across 32 states.

The broader senior housing industry is currently experiencing exceptional tailwinds. Inventory growth is at historic lows, approximately 1%, and new construction starts are at their lowest level since 2010. This supply-demand imbalance, coupled with a significant demographic shift driven by an aging population, creates a highly favorable market environment for healthcare REITs. NHI is uniquely positioned to capitalize on these trends.

NHI's core differentiation lies not in traditional technology, but in its sophisticated operational and financial structuring expertise. This business model innovation allows it to craft customized deals, such as sale-leasebacks and joint ventures, that align with the specific needs of healthcare operators. This capability provides tangible benefits, fostering stronger customer loyalty and potentially leading to superior financial outcomes through enhanced capital efficiency and pricing power in negotiations. For instance, its ability to structure complex RIDEA (Real Estate Investment Diversification and Empowerment Act) partnerships, which offer direct operational exposure, is a key aspect of this specialized approach.

In the competitive landscape, NHI stands as a significant player, though not the largest, against peers like Welltower Inc. (WELL), Ventas Inc. (VTR), Sabra Health Care REIT Inc. (SBRA), and Omega Healthcare Investors Inc. (OHI). While larger rivals like Welltower and Ventas benefit from greater scale and broader diversification, NHI's specialized financing and asset management expertise provide a distinct edge. Its competitive cost of capital and ability to move quickly in deal execution allow it to attract operators seeking customized solutions, particularly as traditional capital providers like banks and private equity have scaled back their exposure to the sector.

From Optimization to Acceleration: The SHOP Transformation

NHI's strategic pivot towards its Senior Housing Operating Portfolio (SHOP) model represents a significant evolution in its business. Established in April 2022, the SHOP segment is designed to capture the "highest growth potential with the best risk-adjusted returns" in the senior housing market. This involves controlling the operations of independent living facilities (ILFs) through third-party managers, leveraging the company's Taxable REIT Subsidiaries (TRSs) for compliance.

The recent performance of the SHOP segment underscores the success of this strategy. In the second quarter of 2025, SHOP NOI surged by over 29% compared to the prior year, achieving a record NOI margin of 26.9%. This impressive growth was driven by a strategic shift from primarily focusing on occupancy to emphasizing pricing, with RevPOR (Revenue Per Occupied Room) growing 3.7% year-over-year and 2.1% sequentially. With occupancy consistently above 89% for the last three quarters, NHI is now well-positioned to drive further margin expansion through strategic rate increases and reduced move-in incentives.

A milestone event occurred on August 1, 2025, with the transition of seven additional properties into the SHOP segment. This included six properties from a Discovery master lease, now managed by Sinceri Senior Living under a new SHOP structure, and one ILF transitioned to an existing Discovery member SHOP venture. These conversions are expected to increase annualized SHOP NOI by approximately $8.8 million, a substantial 57% boost, and will elevate SHOP to nearly 10% of NHI's consolidated NOI. Sinceri Senior Living, an accomplished operator with 76 communities, represents a new, incentivized partnership aimed at fostering double-digit NOI growth and real estate valuation.

The outlook for SHOP is robust, with management raising the full-year 2025 NOI growth guidance to a range of 13% to 16%. While some near-term occupancy softness is anticipated in the second half of 2025, management remains optimistic about a swift reversal and holds "higher conviction in the margin potential" for the long term. The company's investment in personnel, including the recent hire of Grant Johnston as Senior Vice President of Asset Management, further strengthens its foundation for rapid SHOP expansion and seamless integration of new opportunities.

Fortifying the Core: Real Estate Investments and Tenant Dynamics

Beyond the burgeoning SHOP segment, NHI's Real Estate Investments segment remains a foundational pillar of its business, comprising 181 properties with a gross value of $2.70 billion. This segment, primarily structured around triple-net leases, generated $76.410 million in revenues and $73.496 million in NOI for the three months ended June 30, 2025. Cash rents in Q2 2025 increased by $4.6 million year-over-year, with $5.9 million stemming from new investments and $1.7 million from existing lease escalators and percentage rents.

NHI has proactively managed its tenant relationships, particularly those facing financial challenges. Bickford Senior Living, a significant tenant, continues to generate strong NOI despite being on a cash basis since Q2 2022. Its occupancy rebounded to 85.2% in Q2 2025, and trailing 12-month EBITDARM coverage (including deferral repayments) stood at a comfortable 1.46x. Bickford repaid $1.2 million in deferred rent in Q2 2025, with $10.4 million outstanding, and NHI anticipates capturing more of these repayments into future base rent.

The ongoing renegotiation of the master lease with National HealthCare Corporation (NHC), which expires on December 31, 2026, is a key focus. NHC's corporate coverage has improved to over 4x (4.16x in Q1 2025), indicating strong financial health. NHI's special Board committee, advised by Blueprint Healthcare Real Estate Advisors, is actively engaged to secure the best value for shareholders, recognizing the robust market for these assets, with estimated market coverage of 1.3x-1.4x.

The resolution of the Senior Living Management (SLM) portfolio, which had been a cash basis tenant, is largely complete. NHI acquired an assisted living facility in Florida via a deed in lieu of foreclosure for a $10 million non-performing mortgage and received a $2.5 million partial repayment on a mezzanine loan. Other SLM properties have been successfully transitioned to new operators or sold, demonstrating NHI's proactive asset management. Similarly, the transition of Discovery properties to SHOP, while involving a $12 million write-off of straight-line receivables and estimated losses of $1 million to $1.4 million in Q3 2025, is a strategic move to unlock greater NOI potential.

Capital Strength and Strategic Funding

NHI's financial strength provides a significant competitive advantage, enabling it to pursue growth opportunities aggressively. The company's balance sheet is in excellent condition, with a net debt to adjusted EBITDA ratio of 3.9x in Q2 2025, comfortably below its target range. This conservative leverage, coupled with $760 million in available liquidity (including a $700 million revolving credit facility, $18.6 million in cash, and $102.3 million from ATM forward sales), positions NHI favorably in a market where capital access is often constrained for competitors.

The company has been disciplined in its debt management, repaying all $75.7 million of its secured Fannie Mae term loans in Q2 2025, resulting in zero secured debt. The $200 million term loan has been extended to December 2025, with plans for a further extension to June 2026. NHI's capital allocation strategy has demonstrated flexibility, pivoting to utilize more equity when its cost was competitive with incremental long-term debt, a decision driven by market conditions. The ATM equity program is viewed as an effective tool for match-funding smaller acquisitions and optimizing the cost of capital.

NHI's investment pipeline is robust and accelerating. Year-to-date, the company has announced $175 million in investments, with an additional $130 million under signed Letters of Intent expected to close in the near term. An incremental pipeline of nearly $350 million is entirely focused on senior housing, with a significant portion dedicated to SHOP deals. Management is optimistic about surpassing its 2024 investment total of $237.5 million, targeting accretive initial yields and multiyear exceptional NOI growth from these new ventures.

Risks and Shareholder Alignment

While NHI's strategic direction and financial performance are compelling, investors should consider several pertinent risks. The company faces credit risk on its mortgage and other notes receivable, with a forecasted 20% increase in default probability and estimated loss from default on non-performing loans, leading to a 7.80% effective adjustment as of June 30, 2025. This highlights the importance of NHI's rigorous credit loss reserve methodology, which considers collateral sufficiency and economic forecasts.

Regulatory uncertainty, particularly concerning state-level subsidy programs for skilled nursing operators, poses a potential challenge. The continuation of these post-COVID payments is not guaranteed and is subject to local legislative and lobbying efforts. Furthermore, the inherent operational risks associated with the expanding SHOP segment, while offering higher growth potential, introduce greater direct exposure to property-level performance fluctuations compared to traditional triple-net leases.

Shareholder alignment and governance have been a focus, with recent Board changes, including the retirement of long-tenured members and the appointment of new independent directors, reflecting a commitment to improved governance and Board refreshment. The ongoing NHC lease renegotiation, while a significant opportunity, also carries the risk of protracted discussions or outcomes that may not fully meet expectations. NHI's proactive management of tenant relationships, including the successful repositioning of the SLM portfolio and the strategic transition of Discovery assets, demonstrates its capability to mitigate operational and credit-related challenges.

Conclusion

National Health Investors is executing a transformative strategy, pivoting towards its high-growth Senior Housing Operating Portfolio while fortifying its core real estate investments. This strategic evolution, underpinned by a robust balance sheet, disciplined capital allocation, and a differentiated business model, positions NHI to capitalize on the compelling tailwinds in the senior housing sector. The recent dividend increase, the first in four years, underscores management's confidence in the company's improved growth trajectory and financial stability.

NHI's ability to structure specialized financing solutions and its expanding SHOP platform provide a distinct competitive advantage, enabling it to attract quality operators and drive accretive growth. While the company must remain vigilant against credit risks, regulatory shifts, and the complexities of tenant transitions, its proactive asset management and strong liquidity profile offer resilience. For discerning investors, NHI presents a compelling investment thesis centered on a well-executed strategic transformation, poised for sustained growth and enhanced shareholder value in the evolving healthcare real estate landscape.