National HealthCare Properties Inc. 7.375% Perpetual Preferred Stock

Company Overview

Business Model: National Healthcare Properties, Inc. operates as a real estate investment trust (REIT) focused on acquiring, owning, and managing a diversified portfolio of healthcare real estate assets in the United States. The portfolio primarily consists of senior housing operating properties (SHOPs) and outpatient medical facilities (OMFs). Substantially all business operations are conducted through National Healthcare Properties Operating Partnership, L.P. and its wholly owned subsidiaries, including its taxable REIT subsidiary (TRS). SHOPs are owned through a RIDEA structure, where the Company leases properties to its TRS, which then contracts with eligible independent contractors for operation. OMFs are leased to healthcare service providers, with tenants typically responsible for a pro rata share of property operating expenses and certain capital expenditures in addition to base rent.

Market Position: The Company operates in a highly competitive market for SHOP and OMF real estate, competing on factors such as location, rental rates, security, property design suitability, and operational management. Competitors include other REITs, private investment funds, specialty finance companies, institutional investors, and pension funds, some of which possess greater marketing and financial resources. The healthcare industry itself is heavily regulated and undergoing rapid changes, including shifts in demand, reimbursement policies, and increased competition among providers. The Company believes that the close proximity of its OMFs to, or affiliation with, hospital systems enhances occupancy and tenant retention, while specialized infrastructure contributes to high tenant retention.

Recent Strategic Developments:

• Internalization: On September 27, 2024, National Healthcare Properties, Inc. completed the internalization of its advisory and property management functions, transitioning to a self-managed REIT and terminating its prior advisory agreement with Healthcare Trust Advisors, LLC. This involved a payment of $106.6 million in termination fees to related parties in 2024, with an outstanding promissory note of $30.3 million repaid in January 2025.
• Reverse Stock Split: Effective September 30, 2024, the Company effected a one-for-four reverse stock split of its common stock. All share and per share data in the filing have been retroactively adjusted.
• Investment Focus: Going forward, the Company expects its real estate investments to focus primarily on SHOPs, while opportunistically disposing of non-core properties.
• Preferred Stock Repurchase Program: On May 8, 2025, the Board of Directors authorized a preferred stock repurchase program for up to $50.0 million of its Series A Preferred Stock and Series B Preferred Stock. As of December 31, 2025, $44.6 million remained available under this program.

Geographic Footprint: As of December 31, 2025, National Healthcare Properties, Inc. owned 167 properties and one land parcel across 29 states. The portfolio exhibits a concentration of annualized rental income (on a straight-line basis) in the following states:

• Florida: 22.3%
• Pennsylvania: 11.2%
• Iowa: 11.0%
• Georgia: 10.6%

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Gross Margin: 36.0%
• Operating Margin: 1.0%
• Net Margin: -16.9%

Investment in Growth:

• Capital Expenditures: $28.7 million
• Strategic Investments: Repayment of $30.3 million promissory note related to the 2024 internalization.

Business Segment Analysis

Senior Housing Operating Properties (SHOP)

Financial Performance (2025):

• Revenue: $225.2 million (+4.0% YoY)
• Operating Margin: 18.9%
• Key Growth Drivers: The increase in Net Operating Income (NOI) was primarily driven by positive trends in occupancy (81.9% in 2025 vs. 77.4% in 2024) and revenue per occupied room ($6,078 in 2025 vs. $5,791 in 2024). This was partially offset by higher property operating and maintenance expenses due to increased occupancy and inflationary impacts on labor costs, as well as the disposition of nine SHOPs in 2024 and 2025.

Product Portfolio: As of December 31, 2025, the SHOP segment comprised 37 senior housing communities with 3,615 units. These properties primarily consist of assisted living communities (1,895 units), memory care communities (838 units), and independent living communities (882 units), with a focus on needs-based assisted living and memory care.

Market Dynamics: Services at SHOPs are predominantly paid for directly by residents or through private insurance, reducing dependence on government reimbursement programs like Medicaid and Medicare. The RIDEA structure allows National Healthcare Properties, Inc. to participate in the upside of improved operating performance while also bearing the risk of operational declines.

Outpatient Medical Facilities (OMF)

Financial Performance (2025):

• Revenue: $117.1 million (-14.8% YoY)
• Operating Margin: 69.0%
• Key Growth Drivers: The decrease in NOI was primarily due to the disposition of 30 OMFs in the second half of 2024 and throughout 2025. This was partially offset by favorable leasing activity and the acquisition of four OMFs during 2024.

Product Portfolio: As of December 31, 2025, the OMF segment included 130 outpatient medical facilities totaling approximately 3.7 million square feet of gross leasable area. These facilities are leased to tenants providing healthcare services such as physicians’ offices, examination rooms, pharmacies, hospital ancillary service space, diagnostic imaging centers, rehabilitation clinics, and ambulatory surgery centers.

Market Dynamics: Many OMF properties are located on or near hospital campuses, which is believed to enhance occupancy and tenant retention. The specialized infrastructure required for medical equipment and patient examination rooms also contributes to high tenant retention. The ending occupancy for the OMF segment was 92.8% as of December 31, 2025, with a weighted average remaining lease term of 5.6 years.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: In 2025, National Healthcare Properties, Inc. repurchased and retired 131,629 shares of its Series A Preferred Stock at an average price of $15.39 and 213,344 shares of its Series B Preferred Stock at an average price of $15.94, totaling $5.4 million in cash. No common stock repurchases occurred in 2025.
• Dividend Payments: Total dividend payments to preferred stockholders in 2025 were $13.4 million ($7.2 million for Series A Preferred Stock and $6.3 million for Series B Preferred Stock). No cash dividends were paid on common stock in 2025, continuing a policy of not paying cash dividends on common stock since 2020.
• Future Capital Return Commitments: As of December 31, 2025, $44.6 million remained available under the preferred stock repurchase program.

Balance Sheet Position:

• Cash and Equivalents: $57.6 million
• Total Debt: $1.037 billion
• Net Cash Position: -$979.2 million (representing a net debt position)
• Debt Maturity Profile:
  • 2026: $335.7 million
  • 2027: $0.9 million
  • 2028: $422.7 million
  • 2029: $1.0 million
  • 2030: $1.0 million
  • Thereafter: $284.9 million

Cash Flow Generation:

• Operating Cash Flow: $7.0 million

Operational Excellence

Production & Service Model:

• SHOP Segment: National Healthcare Properties, Inc. utilizes a RIDEA structure, leasing its 37 SHOPs to its TRS, which then engages three eligible independent contractors to manage and operate these facilities. This model allows the Company to participate in operational upside while bearing associated risks.
• OMF Segment: The Company directly owns, manages, and leases its 130 OMFs. Tenants in this segment are typically responsible for base rent plus a pro rata share of property operating expenses and certain capital expenditures. Management of OMFs is handled either directly by the Company or through third-party managers.

Supply Chain Architecture: Key Suppliers & Partners:

• [Healthcare Operators]: Three eligible independent contractors manage the 37 SHOPs.
• [Property Managers]: Third-party managers are engaged for certain OMFs.

Facility Network:

• Manufacturing: Not applicable.
• Research & Development: Not applicable.
• Distribution: Not applicable.

Operational Metrics:

• SHOP Segment (2025):
  • Average Monthly Revenue per Occupied Room: $6,078
  • Average Unit Occupancy: 81.9%
• OMF Segment (2025):
  • Ending Occupancy: 92.8%
  • Weighted Average Remaining Lease Term: 5.6 years

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The Company directly owns and leases its OMFs, engaging with tenants directly or through third-party managers.
• Channel Partners: For its SHOP segment, the Company partners with three eligible independent contractors who operate the senior housing communities.

Customer Portfolio: Enterprise Customers:

• Customer Concentration: As of December 31, 2025, one tenant (including its affiliates) accounted for 10% or more of the Company's total annualized rental income on a straight-line basis.

Geographic Revenue Distribution (2025):

• Florida: 22.3% of total annualized rental income
• Pennsylvania: 11.2% of total annualized rental income
• Iowa: 11.0% of total annualized rental income
• Georgia: 10.6% of total annualized rental income

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The healthcare real estate market, encompassing SHOPs and OMFs, is highly competitive and subject to significant regulatory changes and uncertainty. Key dynamics include evolving demand for healthcare services, shifts in third-party reimbursement policies (e.g., Medicare and Medicaid), and intense competition among healthcare providers, often leading to pricing pressure and lower occupancy rates in certain areas. The industry also faces increasing scrutiny of billing and referral practices by federal and state authorities.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: National Healthcare Properties, Inc. competes with a diverse group of entities including other REITs, private investment funds, specialty finance companies, institutional investors, pension funds, and their advisors. Some of these competitors, particularly larger REITs, possess greater marketing and financial resources and may be able to undertake higher risks.

Emerging Competitive Threats: The healthcare industry is experiencing disruption from new participants, such as telemedicine, telehealth, and mobile health companies, which are introducing alternative models for healthcare delivery.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The Company is exposed to general economic cycles, specific real estate and healthcare market fluctuations, and changes in inflation and interest rates. Its portfolio has a high concentration of properties in Florida, Georgia, Pennsylvania, and Iowa, making it particularly susceptible to adverse economic conditions or natural disasters in these states. Legislative and regulatory changes in the healthcare and real estate industries, along with reductions or changes in third-party reimbursement (e.g., Medicare and Medicaid), pose significant risks. Technology Disruption: The emergence of artificial intelligence (AI) presents security risks to confidential information and personal data. Additionally, new healthcare delivery models like telemedicine, telehealth, and mobile health are disrupting traditional provider markets, potentially impacting demand for the Company's medical properties. Customer Concentration: The Company faces concentration risk with one tenant (including affiliates) contributing 10% or more of its total annualized rental income.

Operational & Execution Risks

Supply Chain Vulnerabilities: The Company has experienced labor shortages and supply chain disruptions, particularly in its SHOP segment, leading to increased operating costs. Supplier Dependency: A limited number of operators manage a substantial portion of the Company's SHOPs, creating dependency risk.

Financial & Regulatory Risks

Market & Financial Risks: Inflation can adversely affect investments and results, particularly for long-term leases without adequate escalation provisions and by increasing operating and debt costs. Elevated interest rates may hinder the ability to finance or refinance indebtedness and increase debt payments. The Company's total indebtedness of $1.037 billion increases business risks, and its financing arrangements contain restrictive covenants that could limit strategic flexibility or dividend payments. Regulatory & Compliance Risks: The healthcare industry is heavily regulated, with compliance required for federal and state laws including the Federal Anti-Kickback Statute, Stark Law, False Claims Act, Civil Monetary Penalties Law, and privacy regulations such as HIPAA and the HITECH Act. Changes in these laws, loss of licensure, or failure to obtain necessary approvals (e.g., Certificate of Need) could severely impact tenants' and operators' ability to meet obligations.

Geopolitical & External Risks

Geographic Dependencies: A significant portion of the Company's assets are concentrated in states like Florida, which historically faces higher risks from natural events such as hurricanes and tropical storms, potentially exacerbated by climate change.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company's success is dependent on the continued contributions of key executives, particularly Michael Anderson and Andrew T. Babin, whose employment agreements do not guarantee continued employment. The loss of senior management or inability to attract and retain qualified personnel could materially affect the Company.

Board Composition: The Audit Committee of the Board of Directors is responsible for oversight of risk assessment, risk management, disaster recovery procedures, and cybersecurity risks. Independent directors oversee and review appraisals and valuations used for the Estimated Per-Share NAV.

Human Capital Strategy

Workforce Composition: As of December 31, 2025, National Healthcare Properties, Inc. had 31 employees located across the United States, none of whom are subject to a collective bargaining agreement.

Talent Management: Acquisition & Retention: The Company emphasizes a competitive compensation program to attract and retain skilled employees. It provides a comprehensive benefits and wellness package, including medical, dental, and vision insurance, life insurance, 401(k) matching, flexible spending accounts, and generous time-off policies. Employee Value Proposition: The Company offers an option for remote work and provides company workspaces/amenities.

Diversity & Development: National Healthcare Properties, Inc. supports continuous learning, improvement, and professional development for its employees, including financial assistance for professional association memberships, continuing education, and conference attendance.

Regulatory Environment & Compliance

Regulatory Framework: The healthcare industry is highly regulated at federal, state, and local levels. The Company and its tenants/operators must comply with extensive laws and regulations covering licensure, government program participation (e.g., Medicare, Medicaid), relationships with referral sources, and patient health information privacy and security (e.g., HIPAA, HITECH Act). Fraud and abuse laws (e.g., Federal Anti-Kickback Statute, Stark Law, False Claims Act) are significant enforcement priorities. State Certificate of Need (CON) laws can also impact facility development, expansion, and transfers. Legal Proceedings: As of December 31, 2025, National Healthcare Properties, Inc. was not subject to any material litigation, nor was any material litigation threatened against it.

Tax Strategy & Considerations

Tax Profile: National Healthcare Properties, Inc. elected to be taxed as a REIT for U.S. federal income tax purposes commencing December 31, 2013, and intends to maintain this qualification. As a REIT, it is generally required to distribute at least 90% of its REIT taxable income annually and is not subject to U.S. federal corporate income tax on distributed income. Its taxable REIT subsidiaries (TRSs) are subject to U.S. federal, state, and local income taxes. The effective income tax rate for 2025 was approximately 0.3%. Geographic Tax Planning: State and local income taxes in California, Tennessee, and Texas constituted the majority of the state and local income taxes, net of federal effect, in 2025. Tax Reform Impact: The uncertain status of the Patient Protection and Affordable Care Act (ACA) and the recent implementation of the One Big Beautiful Bill Act of 2025 (OBBBA), which modified Medicaid reimbursements and enrollment requirements, could impact the Company's tenants and operators.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains general liability, property, and umbrella liability insurance coverage for its properties, though coverage may not be adequate for all claims or catastrophic events (e.g., wars, terrorism, earthquakes, floods, pollution) which may be uninsurable or uneconomically insurable. The Company also carries cyber liability insurance, though its adequacy for all related losses is not assured. Insurance Coverage: The Company has experienced significant increases in insurance premiums across its portfolio in recent years. Risk Transfer Mechanisms: The Company generally has a right to indemnification from tenants, operators, and managers for contamination caused by them. It also uses derivative financial instruments, such as interest rate swaps and caps, to manage exposure to interest rate movements and add stability to interest expense.