National Health Investors (NYSE: NHI) is pushing through growing pains as its leaders continue to build out the company’s senior housing operating portfolio (SHOP).
The Murfreesboro, Tennessee-based real estate investment trust’s SHOP performed below management’s expectations in the third quarter of 2026, according to CEO Eric Mendelsohn.
The operators in the 15 communities in NHI’s same-store SHOP segment performed well and grow NOI 19.5% between the third quarter of 2026 and the same period last year. But the other 27 communities in the portfolio did not carry the same results. In total, NOI margins for the company’s 44-community SHOP segment fell to 24.1% in 3Q26, representing a 50 basis point decline versus the second quarter of this year.
Operator transitions related to communities previously operated by defunct operator Holiday Retirement led to disruptions and slower growth amid a softer-than-expected summer selling season, according to NHI management.
“We’re not satisfied with those results and are addressing the operating performance with our partners. Our longer-term growth outlook for those properties is unchanged,” Mendelsohn told investors during a Nov. 10 earnings call.
NHI’s SHOP segment now accounts for 18% of the company’s total net operating income, up from 9% at the start of this year.
NHI’s total portfolio consists of 192 assets. The company has 105 senior housing assets under triple net leases, 33 skilled nursing facilities and two specialty hospitals in its holdings.
In addition to the inherit complexity of swapping operators for a community, the managers of NHI’s properties also grappled with move-outs in some cases, according to Chris Maingot, who joined as COO and executive vice president at NHI in July. But operators in the company’s portfolio are showing signs of improvement.
“Over the last couple months, we’ve seen those green shoots as the team has stabilized, as the new operator systems have been implemented,” Maingot said during the company’s earnings call Tuesday.
He added: “We like the operator group that we have … we are working with them on business plans, and we’re also evaluating ways that we can work with them in tandem where we can bring our resources to the table so that we can get joint performance.”
According to Mendelsohn, NHI targets buildings in markets that “show a lot of promise,” with average occupancy rates in the low 80% range to have room for upside growth. The company had previously stealthily upgraded communities with new roofing and boilers – upgrades that carry value but aren’t always apparent to new residents. Now, the company’s leaders are renovating communities with amenities and features that add curb appeal, Mendelsohn said.
Year-to-date, NHI has completed $395 million in investments, with another $285 million pipeline of signed letters of intent, $190 million of which is set to close in the fourth quarter. NHI leaders expect that will bring the company’s total 2026 investment pipeline to about $590 million, which would make for the second largest investment year in the company’s history.
“Our focus is on communities in primary and secondary markets with identifiable opportunities to increase NOI through incremental occupancy gains, pricing growth, expense management and targeted capital investment,” Menelsohn said.
Kevin Pascoe, chief financial officer at NHI, said some communities under letters of intent will start under a triple net lease structure with the REIT before transitioning into its operating portfolio in 2027.
Normalized funds from operations in the third quarter dropped to around $55 million from $62.7 million in the previous quarter, while the SHOP NOI increased to $11.5 million for the quarter, up from $4.9 million the previous quarter.
NHI’s stock is priced at $67.79, down 4.8% from the previous close.
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