National Healthcare Properties Inc.

02/20/2026 | Press release | Distributed by Public on 02/20/2026 07:26

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. See "Cautionary Note on Forward-Looking Statements" elsewhere in this Annual Report on Form 10-K for a description of these risks and uncertainties.
Overview
We have elected to be taxed as a REIT commencing with our taxable year ended December 31, 2013. We acquire, own and manage a diversified portfolio of healthcare-related real estate focused on SHOPs and OMFs. As of December 31, 2025, we owned 167 properties and a land parcel located in 29 states, consisted of 37 senior housing communities, with 3,615 units, in our SHOP segment and 130 outpatient medical facilities, with approximately 3.7 million square feet of GLA in our OMF segment.
We operate in two reportable business segments for management and financial reporting purposes: SHOP and OMF. All of our properties across both business segments are located throughout the United States. In our SHOP segment, we invest in senior housing properties through the RIDEA structure. As of December 31, 2025, we engaged three eligible independent contractors to operate 37 SHOPs. In our OMF operating segment, we own, manage and lease single- and multi-tenant OMFs where tenants are generally required to pay their pro rata share of property operating expenses and certain capital expenditures, which may be subject to expense exclusions and floors, in addition to base rent. We or third-party managers manage our OMFs.
Substantially all of our business is conducted through the OP and its wholly-owned subsidiaries. Prior to consummation of the Internalization on September 27, 2024, our former Advisor and its related affiliates managed our day-to-day business and received compensation and fees for providing services to us. In connection with the Internalization, we internalized our advisory and property management functions with our own dedicated workforce. See Note 1 - Organization and Note 9-Related Party Transactions and Arrangementsto our Consolidated Financial Statements for additional information. Effective September 30, 2024, we also effected the Reverse Stock Split.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP included in Part IV, Item 15 of this Annual Report on Form 10-K requires us to use judgment in the application of critical accounting estimates and assumptions. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. These estimates could affect our financial position or results of operations. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our Consolidated Financial Statements. We periodically re-evaluate our estimates and assumptions and, in the event estimates or assumptions prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Below is a discussion of accounting policies and estimates that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. For a more detailed discussion of our significant accounting policies, see Note 2 - Summary of Significant Accounting Policiesto our Consolidated Financial Statements.
Purchase Price Allocation
At the time an asset is acquired, we evaluate the inputs, processes and outputs of the asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In both a business combination and an asset acquisition, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an as if vacant basis. Intangible assets may include the value of in-place leases and above- and below-market leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests (in a business combination) are recorded at their estimated fair values. In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates. In allocating the fair value to any assumed or issued non-controlling interests, amounts are recorded at their fair value at the close of business on the acquisition date. In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets acquired is allocated to the non-current assets.
For acquired properties with leases classified as operating leases, we allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed, based on their respective fair values. In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
We utilize various estimates, processes and information to determine the as-if vacant property value. We estimate the fair value using data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant assumptions such as capitalization rates, market rental rates, discount rates and land values per square foot.
Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates and the value of in-place leases. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of market rental rates for each corresponding in-place lease, measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases.
Impairment of Long-Lived Assets
Management assesses on a continuous basis whether there are indicators that the carrying value of our real estate properties may be impaired. Such indicators include significant declines in market value, changes in property use or condition, legal or business developments, costs that significantly exceed management's expectations, ongoing operating losses and changes in anticipated holding period. If any of these indicators are present, management evaluates whether the property's carrying value may not be recoverable based on an estimate of future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. If an impairment exists due to the inability to recover the carrying value, we will recognize an impairment loss in the consolidated statements of operations and comprehensive loss to the extent that the carrying value exceeds the estimated fair value of real estate properties which are held for use. Our estimated fair value is primarily based upon (i) estimated sales prices from signed contracts or letters of intent from third-party offers or (ii) discounted cash flow models of the property over its anticipated hold period. Capitalization rates and discount rates utilized in these models are based upon unobservable rates that we believe to be within a reasonable range of current market rates. In addition, such cash flow models consider factors such as expected future operating income, market and other applicable trends, residual value, leasing demand, competition, and other relevant factors.
Recent Accounting Pronouncements
See "Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements"to our Consolidated Financial Statements for the impact of new accounting standards.
Results of Operations
We, through our chief operating decision maker ("CODM"), evaluate the performance of the combined properties in each segment based on total revenues from tenants, less property operating costs. As such, this excludes all other items of expense and income included in the financial statements in calculating net loss (each item discussed separately in "Other Results of Operations"below). We use net operating income ("NOI") to assess and compare property level performance and to make decisions concerning the operation of our properties. We believe that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from consolidated loss before income taxes. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) and net income (loss) attributable to common stockholders (each as determined in accordance with GAAP) as presented in our Consolidated Financial Statements. NOI should not be considered as an alternative to net income (loss) and net income (loss) attributable to common stockholders (each as determined in accordance with GAAP) as an indication of our performance or to cash flows as a measure of our liquidity. A reconciliation of NOI to net income (loss) attributable to common stockholders can be found in "Note 15 - Segment Reporting" to our Consolidated Financial Statements.
Below is a discussion of our results of operations for the years ended December 31, 2025 and 2024. See the "Results of Operations" section located under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of our results of operations for the year ended December 31, 2024 and comparison between the years ended December 31, 2024 and 2023.
Comparison of the Years Ended December 31, 2025 and 2024
The following table shows our results of operations for the years ended December 31, 2025 and 2024 and the year-to-year change by line item of the consolidated statements of operations (dollars in thousands):
Year ended December 31, Increase (Decrease)
2025 2024 $ %
Revenue from tenants $ 342,279 $ 353,794 $ (11,515) (3.3) %
Operating expenses:
Property operating and maintenance (1)
218,898 221,452 (2,554) (1.2)
Impairment charges 44,914 24,881 20,033 80.5
Termination fees to related parties
- 106,650 (106,650) NM
Operating fees to related parties - 19,203 (19,203) NM
Acquisition and transaction related 516 7,949 (7,433) (93.5)
General and administrative (1)
24,190 22,440 1,750 7.8
Depreciation and amortization 78,261 84,067 (5,806) (6.9)
Total expenses 366,779 486,642 (119,863) (24.6)
Operating loss before gain on sale of real estate investments
(24,500) (132,848) 108,348 81.6
Gain on sale of real estate investments
27,800 9,307 18,493 198.7
Operating income (loss)
3,300 (123,541) 126,841 102.7
Other (expense) income:
Interest expense (61,281) (69,447) 8,166 11.8
Interest and other income, net
272 1,051 (779) (74.1)
Gain on extinguishment of debt
257 392 (135) (34.4)
(Loss) gain on non-designated derivatives
(72) 1,544 (1,616) (104.7)
Total other expense, net
(60,824) (66,460) 5,636 8.5
Loss before income taxes (57,524) (190,001) 132,477 69.7
Income tax expense (161) (262) 101 38.5
Net loss (57,685) (190,263) 132,578 69.7
Net loss attributable to non-controlling interests 64 567 (503) (88.7)
Allocation for preferred stock (13,446) (13,799) 353 2.6
Net loss attributable to common stockholders $ (71,067) $ (203,495) $ 132,428 65.1 %
__________
(1)Certain 2024 amounts have been reclassified from general and administrative to property operating and maintenance to align with the current period presentation.
Segment Results - Senior Housing Operating Properties
The following table presents the results of operations and the period-to-period change in our SHOP segment for the years ended December 31, 2025 and 2024 (dollars in thousands):
Year ended December 31,
Increase (Decrease)
2025 2024 $ %
Revenue from tenants $ 225,221 $ 216,477 $ 8,744 4.0 %
Less: Property operating and maintenance 182,640 181,947 693 0.4
NOI $ 42,581 $ 34,530 $ 8,051 23.3 %
Number of properties at December 31,
Average monthly revenue per occupied room for the year ended December 31,
Average unit occupancy for the year ended December 31,
2025 2024 2025 2024 2025 2024
Total communities (1)
37 44 $6,078 $5,791 81.9% 77.4%
__________
(1)Excludes one land parcel with a gross asset value of $0.6 million.
Revenue from tenants within our SHOP segment are generated in connection with rent and services offered to residents depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance expense relates to the costs associated with staffing to provide care for the residents in our SHOPs, as well as supplies, overhead and management fees paid to our third-party operators and costs associated with maintaining the physical site.
The increase in SHOP NOI for the year ended December 31, 2025 over the prior year was primarily due to positive trends in occupancy and revenue per occupied room, partially offset by (i) higher property operating and maintenance expense driven by higher occupancy and inflationary impacts on labor costs and (ii) the nine SHOPs sold in 2024 and 2025.
Segment Results - Outpatient Medical Facilities
The following table presents the results of operations and the period-to-period change in our OMF segment for the years ended December 31, 2025 and 2024 (dollars in thousands):
Year ended December 31,
Increase (Decrease)
2025 2024 $ %
Revenue from tenants $ 117,058 $ 137,317 $ (20,259) (14.8) %
Less: Property operating and maintenance 36,258 39,505 (3,247) (8.2)
NOI $ 80,800 $ 97,812 $ (17,012) (17.4) %
Number of properties at December 31,
Ending occupancy for the year ended December 31,
2025 2024 2025 2024
Total outpatient medical facilities
130 148 92.8% 90.5%
Revenue from tenants within our OMF segment primarily reflects contractual rent received from tenants and operating expense reimbursements. These reimbursements generally increase in proportion with the increase in property operating and maintenance expense in our OMF segment. Pursuant to many of our lease agreements in our OMFs, tenants are required to pay their pro rata share of property operating and maintenance expenses and certain capital expenditures, which may be subject to expense exclusions and floors, in addition to base rent. Property operating and maintenance expense reflects the costs associated with our OMFs, including real estate taxes, utilities, repairs, maintenance and unaffiliated third-party property management fees.
The decrease in OMF NOI for the year ended December 31, 2025 over the prior year was primarily due to disposition of 30 OMFs in the second half of 2024 and throughout 2025, partially offset by favorable leasing activity and acquisition of four OMFs during 2024.
Other Results of Operations
Impairment Charges
We recorded $44.9 million of impairment charges for the year ended December 31, 2025 related to seven SHOP properties ($37.9 million) and four OMF properties ($7.0 million). We recorded $24.9 million of impairment charges for the year ended December 31, 2024 related primarily to two SHOP properties ($13.4 million) and two OMF properties ($11.2 million).
Termination Fees to Related Parties
We recorded $106.7 million of termination fees to related parties for the year ended December 31, 2024 as a result of our termination of the prior advisory agreement with our former Advisor and transition to self-management through the Internalization, comprised of an internalization fee of $98.2 million, an asset management fee of $5.5 million and a property management fee of $2.9 million. This item did not recur in 2025.
Operating Fees to Related Parties
Prior to the consummation of the Internalization, our former Advisor and its affiliates were paid asset management and property management fees of $19.2 million in 2024 for managing our properties on a day-to-day basis. We no longer had to pay such feesin 2025 following the consummation of the Internalization.
Acquisition and Transaction Related
Acquisition and transaction related expenses decreased $7.4 million in 2025 over the prior year primarily due to $5.3 million of advisory, legal and other professional costs and non-recurring employee transition expenses directly related to the Internalization incurred in 2024.
General and Administrative
General and administrative expense increased $1.8 million in 2025 over the prior year primarily due to cash severance, acceleration of equity vesting and other related expenses in connection with the transition of chief financial officer role in 2025.
Depreciation and Amortization
Depreciation and amortization expense decreased $5.8 million in 2025 over the prior year primarily due to the disposition of 30 OMFs and nine SHOPs throughout 2024 and 2025, partially offset by depreciation on capital expenditures placed in service throughout 2024 and 2025.
Gain on Sale of Real Estate Investments
During the year ended December 31, 2025, we disposed of seven SHOPs and 18 OMFs for an aggregate contract sales price of $202.5 million, which resulted in an aggregate net gain on sale of $27.8 million.
During the year ended December 31, 2024, we disposed of two SHOPs, 12 OMFs and one land parcel for an aggregate contract sales price of $118.1 million, which resulted in an aggregate gain on sale of $9.3 million.
Interest Expense
Interest expense decreased $8.2 million in 2025 over the prior year primarily due to lower average debt balances, partially offset by higher weighted average economic interest rates and cash received in connection with the termination of an interest rate swap.
Inclusive of our non-designated interest rate caps, the weighted-average economic interest rate on our total gross borrowings was 5.75% and 5.06% as of December 31, 2025 and 2024, respectively.
Interest and Other Income, Net
Interest and other income includes interest income earned on cash and cash equivalents invested in short-term money market funds and expenses not covered by insurance, net of recoveries. Interest and other income decreased $0.8 million in 2025 over the prior year primarily due to $0.5 million higher expenses not covered by insurance, net of recoveries and $0.4 million in excess insurance reimbursement received in 2024.
Gain on Extinguishment of Debt
We recorded a gain on extinguishment of debt of $0.3 million and $0.4 million in 2025 and 2024, respectively, in connection with repayment of loans prior to maturity relating to asset sales.
(Loss) Gain on Non-Designated Derivatives
(Loss) gain on non-designated derivative instruments includes mark-to-market adjustments of non-designated interest rate caps designed to protect us from adverse interest rate changes in connection with our Fannie Mae Secured Debt and the previous $50.0 million variable-rate warehouse facility with Capital One (the "OMF Warehouse Facility"), which have variable interest rates.
We incurred a loss on non-designated derivatives in 2025 primarily due to $3.5 million less cash received in 2025 from our interest rate caps as a result of a net decrease in the number of interest rate caps outstanding from 2024 to 2025, partially offset by a $1.9 million net change in the fair value of our interest rate caps.
Income Tax Expense
Income taxes generally relate to our SHOPs, which are leased to our TRS. We recorded income tax expenses of $0.2 million and $0.3 million for the years ended December 31, 2025 and 2024, respectively, primarily due to state income taxes incurred by our TRS.
Allocation for Preferred Stock
Allocation for preferred stock was $13.4 million and $13.8 million for the years ended December 31, 2025 and 2024, respectively. These amounts represent the allocation of our net income that is related to holders of our Series A Preferred Stock and our Series B Preferred Stock. The decrease is due to repurchases of our preferred stock during the year ended December 31, 2025.
Cash Flows
The following table presents a reconciliation of our net cash provided by operations from our net loss for the years ended December 31, 2025 and 2024 (in thousands):
Year ended December 31,
Change
2025 2024
$
%
Cash, cash equivalents and restricted cash, beginning of year $ 74,095 $ 91,316 $ (17,221) (18.9) %
Net cash provided by (used in) operating activities 6,951 (79,846) 86,797 108.7
Net cash provided by investing activities
69,806 63,972 5,834 9.1
Net cash used in financing activities
(42,400) (1,347) (41,053) NM
Cash, cash equivalents and restricted cash, end of year $ 108,452 $ 74,095 $ 34,357 46.4 %
Cash Flows from Operating Activities
Cash flows from operating activities increased by $86.8 million during the year ended December 31, 2025 compared to 2024, primarily due to growth in our SHOP segment and decrease in interest expense in 2025, partially offset by decrease in NOI from our OMF segment as a result of dispositions in 2025, and reduced fees paid to the former Advisor in 2025 in connection with the Internalization. In 2024, we paid asset management and property management fees of $19.2 million and made a partial payment of $75 million relating to the termination fee. In 2025, we did not incur any asset management or property management fees, however, we paid the outstanding portion of the termination fee of $30.3 million.
Cash Flows from Investing Activities
Cash flows from investing activities increased by $5.8 million during the year ended December 31, 2025 compared to 2024, primarily due to higher proceeds from the sale of real estate investments and lower acquisition volume in 2025, partially offset by higher capital expenditures in 2025.
Cash Flows from Financing Activities
Cash flows from financing activities decreased by $41.1 million during the year ended December 31, 2025 compared to 2024, primarily due to net decrease in outstanding debt and repurchase of our preferred stock in 2025.
Liquidity and Capital Resources
Our existing principal demands for cash are to fund acquisitions, capital expenditures, the payment of our operating and administrative expenses, debt service obligations (including principal repayment) and distributions to holders of our Series A Preferred Stock and our Series B Preferred Stock. We closely monitor our current and anticipated liquidity position relative to our current and anticipated demands for cash and believe that we have sufficient current liquidity to meet our financial obligations for at least the next 12 months.
Our future liquidity requirements and available liquidity, however, depend on many factors, such as recent and continuing increases in inflation, labor shortages, supply chain disruptions and higher property insurance, property tax and interest rates, all of which have and may continue to have adverse impacts on our results of operations and thus ultimately our liquidity. Moreover, these adverse impacts may also impact our tenant and residents' ability to pay rent and thus our cash flows. For more information about the risks and uncertainties associated with inflation, labor shortages and labor costs, see the "Inflation" section below and Part I - Item 1A. Risk Factors section of this Annual Report on Form 10-K.
We expect to fund our future short-term operating liquidity requirements, including distributions to holders of our Series A Preferred Stock and our Series B Preferred Stock, through a combination of current cash on hand, net cash provided by our operating activities and property dispositions, future takedowns under our Revolving Facility and potential new financings utilizing certain of our unencumbered properties.
As of December 31, 2025 and 2024, we had $57.6 million and $21.7 million of cash and cash equivalents, respectively. The Secured Term Loan 4 due 2033 requires us to maintain a minimum balance of cash and cash equivalents of $12.5 million at all times.
Financings
As of December 31, 2025, our total debt leverage ratio (net debt divided by total gross asset value) was approximately 45.1%. Net debt totaled $988.6 million, which represents total debt, net ($1.0 billion) less cash and cash equivalents ($57.6 million). Gross asset value totaled $2.2 billion, which represents total real estate investments, at cost ($2.2 billion), net of gross market lease intangible liabilities ($19.6 million). Cumulative impairment charges are reflected within gross asset value.
As of December 31, 2025, we had total gross borrowings of $1.0 billion, at a weighted-average interest rate of 5.94% and a weighted-average remaining term of 3.9 years. The weighted-average interest rate includes the impact of "pay-fixed" swaps that are designated as hedging instruments on a portion of our variable-rate debt, but does not include the impact of our non-designated interest rate caps (discussed below). Inclusive of our non-designated interest rate caps, the weighted-average economic interest rate on our total gross borrowings was 5.75% as of December 31, 2025.
As of December 31, 2025, the carrying value of our real estate investments, at cost was $2.2 billion, with $683.4 million of this asset value pledged as collateral for mortgage notes payable, $614.5 million of this asset value pledged to secure advances under our Fannie Mae Secured Debt and $867.3 million of this asset value added to the borrowing base of our Credit Facilities (as defined below). These real estate assets are not available to satisfy other debts and obligations, or to serve as collateral with respect to new indebtedness, as applicable, unless the existing indebtedness associated with the property is satisfied or the property is removed from the borrowing base of the Fannie Mae Secured Debt and the Credit Facilities, which would impact availability thereunder.
Unencumbered real estate investments, at cost as of December 31, 2025 was $22.2 million. There can be no assurance as to the amount of liquidity we would be able to generate from leveraging these unencumbered real estate investments,if we are able to leverage them at all.
Mortgage Notes Payable
As of December 31, 2025, we had $375.5 million in mortgage notes payable outstanding, which bore interest at a weighted-average annual fixed interest rate of 5.52% and a weighted-average remaining term of 7.4 years. Future scheduled principal payments on our mortgage notes payable for 2026 are $0.9 million.
Fannie Mae and Other Secured Debt
As of December 31, 2025, we had $334.7 million outstanding under our Fannie Mae Secured Debt, which bore interest at a weighted-average annual rate of 6.65% and had a weighted-average remaining term of 0.8 years. Inclusive of our non-designated interest rate caps that limit one-month SOFR at 3.50%, the weighted average economic interest rate on our Fannie Mae Secured Debt was 6.01% as of December 31, 2025.
In April 2025, we repaid the OMF Warehouse Facility in full in the amount of $21.7 million plus unpaid interest and terminated the facility.
Unsecured Credit Facilities
On December 11, 2025, we entered into (i) a $400 million senior unsecured revolving credit facility (the "Revolving Facility") and (ii) a $150 million senior unsecured term loan facility (the "Term Loan" and, together with the Revolving Facility, the "Credit Facilities") with Wells Fargo Bank, National Association, as administrative agent, and certain lenders party thereto. As of December 31, 2025, we had $186.0 million and $150.0 million outstanding under our Revolving Facility and Term Loan, respectively. The borrowings under Revolving Facility and Term Loan both bore interest at a weighted-average annual rate of 5.94% and had a weighted-average remaining term of 2.9 years as of December 31, 2025. Inclusive of our interest rate swaps that convert variable interest rates to fixed interest rates, the economic interest rate on our Term loan was 5.51% as of December 31, 2025.
For additional information on our Fannie Mae Secured Debt, Credit Facilities and other mortgage notes payable and debt, see Note 5 - Mortgage Notes Payable and Other Debtto our Consolidated Financial Statements.
Non-Designated Interest Rate Caps
Our interest rate caps are used to limit our exposure to interest rate movements on our Fannie Mae Secured Debt for economic purposes; however, we do not elect to apply hedge accounting to these instruments. As of December 31, 2025, we had six SOFR-based interest rate caps with an aggregate notional amount of $338.0 million, which limit one-month SOFR to 3.50% and have varying maturities through November 2026. Although these interest rate caps are not designated hedging instruments, we consider them economically related to our variable-rate secured debt.
As SOFR has increased beyond 3.50%, we received cash payments of $3.3 million and $6.8 million in the years ended December 31, 2025 and 2024, respectively.
In April 2025, the Company terminated two interest rate caps with a notional of $21.7 million related to the OMF Warehouse Facility upon the facility's full repayment.
In June 2025, the Company purchased three interest rate caps with a notional of $133.8 million for $1.1 million that limit one-month SOFR to 3.50% and mature in November 2026 related to the Fannie Mae Secured Debt. These interest rate caps were purchased in advance of interest rate caps set to expire in July 2025.
In October 2025, the Company purchased two interest rate caps with a notional of $146.1 million for $0.4 million that limit one month SOFR to 3.50% and mature in November 2026 related to the Fannie Mae Secured debt. These interest rate caps were purchased in advance of interest rate caps set to expire in November 2025.
Capital Expenditures
During the year ended December 31, 2025, our aggregate capital expenditures paid were $28.7 million, of which $16.5 million was related to our OMF segment and $12.2 million was related to our SHOP segment.
Dispositions
During the year ended December 31, 2025, the Company disposed of seven SHOPs and 18 OMFs for an aggregate contract sales price of $202.5 million, which resulted in an aggregate net gain on sale of $27.8 million.
Preferred Stock Repurchase Program
On May 2, 2025, our Board authorized a preferred stock repurchase program for up to an aggregate amount of $50.0 million of our Series A Preferred Stock and our Series B Preferred Stock. Under the program, which does not have a stated expiration date, we may repurchase shares of our Series A Preferred Stock and our Series B Preferred Stock from time to time through open
market purchases, including pursuant to Rule 10b5-1 pre-set trading plans, block trades, privately negotiated transactions, accelerated share repurchase transactions entered into with one or more counterparties or otherwise, in compliance with applicable securities laws and other legal requirements. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors, and the program may be amended, suspended or discontinued at any time. The program does not obligate us to repurchase any specific number of shares of our Series A Preferred Stock and our Series B Preferred Stock.
During the year ended December 31, 2025, we repurchased and retired 131,629 shares of our Series A Preferred Stock at an average price of $15.39 and 213,344 shares of our Series B Preferred Stock at an average price of $15.94, inclusive of commissions. As of December 31, 2025, up to $44.6 million was available under our preferred stock repurchase program.
Commitments and Contingencies
For a discussion of our commitments and contingencies, see "Note 16 - Commitments and Contingencies"to our Consolidated Financial Statements.
Dividends and Other Distributions
Dividends on our Series A Preferred Stock are declared quarterly in an amount equal to $1.84375 per share each year ($0.460938 per share per quarter) to holders of our Series A Preferred Stock, which is equivalent to 7.375% of per annum in the $25.00 liquidation preference per share of our Series A Preferred Stock. Dividends on our Series B Preferred Stock are declared quarterly in an amount equal to $1.78125 per share each year ($0.445313 per share per quarter) to holders of our Series B Preferred Stock, which is equivalent to 7.125% of per annum of the $25.00 liquidation preference per share of our Series B Preferred Stock. Dividends on our Series A Preferred Stock and our Series B Preferred Stock are cumulative and payable quarterly in arrears. Any accrued and unpaid dividends payable with respect to our Series A Preferred Stock or our Series B Preferred Stock become part of the liquidation preference thereof.
Since mid-2020, we have not paid cash dividends on our shares of common stock but we issued stock dividends to the holders of common stock from October 2020 until January 2024. The stock dividends were declared quarterly using a rate of $3.40 (as adjusted to reflect the Reverse Stock Split) per share per year. The number of shares issued with each dividend was based on the Estimated Per-Share NAV in effect on the applicable date.
The following table shows the sources for the payment of distributions to preferred stockholders, including distributions on unvested restricted shares and Common OP Units, but excluding distributions related to Class B Units as these distributions are recorded as an expense in our consolidated statements of operations and comprehensive loss, for the periods indicated. No cash distributions were made to common stockholders, restricted shareholders, holders of Common OP Units or holders of Class B Units in the year ended December 31, 2025.
Year ended
December 31, 2025 December 31, 2024
(In thousands) Amounts Percentage of Distributions Amounts Percentage of Distributions
Distributions:
Dividends paid to holders of Series A Preferred Stock $ 7,181 52.7 % $ 7,333 52.4 %
Dividends paid to holders of Series B Preferred Stock 6,264 46.0 % 6,466 46.2 %
Distributions paid to holders of Series A Preferred Units 184 1.4 % 184 1.3 %
Total cash distributions $ 13,629 100.0 % $ 13,983 100.0 %
Source of distribution coverage:
Cash flows provided by operations (1)
$ 6,951 51.0 % $ - - %
Available cash on hand
6,678 49.0 % 13,983 100.0 %
Total source of distribution coverage $ 13,629 51.0 % $ 13,983 - %
Cash flows provided by operations (in accordance with GAAP) $ 6,951 $ (79,846)
Net loss (in accordance with GAAP) $ (57,685) $ (190,263)
__________
(1)Assumes the use of available cash flows from operations before any other sources.
For the year ended December 31, 2025, cash flows provided by operations were $7.0 million. We had not historically generated sufficient cash flows from operations to fund the payment of dividends and other distributions at the current rate prior to switching from paying cash dividends to stock dividends on our common stock. As shown in the table above, we funded distributions to holders of our Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units with cash flows provided by operations and available cash on hand.
Our ability to pay distributions on our Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units and other distributions depends on our ability to increase the amount of cash we generate from property operations which in turn depends on a variety of factors, including, but not limited to, our ability to complete acquisitions of new properties and our ability to improve operations at our existing properties. There can be no assurance that we will complete acquisitions on a timely basis or on acceptable terms and conditions, if at all. Our ability to improve operations at our existing properties is also subject to a variety of risks and uncertainties, many of which are beyond our control, and there can be no assurance we will be successful in achieving this objective.
Non-GAAP Financial Measures
This section discusses certain of the non-GAAP financial measures we use to evaluate our performance, including Funds from Operations ("FFO") and Normalized Funds from Operations ("Normalized FFO"). A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss) attributable to common stockholders, are provided below.
We consider FFO and Normalized FFO to be useful supplemental measures for reviewing comparative operating and financial performance because, by excluding the applicable items listed below, FFO and Normalized FFO can help investors compare our operating performance between periods or to other companies (though other companies may calculate these measures differently than we do and the value of any such comparison may be limited). While FFO and Normalized FFO are relevant and widely used measures of operating performance of REITs, they do not represent, nor are they meant to replace, cash flows from operations and net income or loss as defined by GAAP, and should not be considered alternatives to those measures in evaluating our liquidity or operating performance. Rather, FFO and Normalized FFO should be reviewed in conjunction with these and other GAAP measurements as an indication of our operational performance and are not necessarily indicative of cash available to fund our future cash requirements, including our ability to pay dividends and other distributions to our stockholders. Additionally, our computation of FFO and Normalized FFO may not be comparable to FFO and Normalized FFO reported by other REITs that do not define FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition or that interpret the current NAREIT definition or define Normalized FFO differently than we do.
The methods utilized to evaluate the performance of equity REITs under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and Normalized FFO, and the adjustments to GAAP in calculating FFO and Normalized FFO.
Funds from Operations and Normalized Funds from Operations
Our Consolidated Financial Statements are presented in accordance with GAAP, utilizing historical cost accounting which, among other things, requires depreciation of real estate investments. As a result, our operating results imply that the value of our real estate investments will decrease predictably over a set time period. However, we believe that the value of our real estate investments will fluctuate over time based on various market conditions and as such, depreciation under historical cost accounting may be less informative. FFO is a standard REIT industry metric defined by NAREIT as net income or loss (computed in accordance with GAAP), adjusted for (i) real estate-related depreciation and amortization, (ii) impairment charges on depreciable real property, (iii) gains or losses from sales of depreciable real property and (iv) similar adjustments for non-controlling interests and unconsolidated entities.
We believe that the use of FFO provides a more complete understanding of our operating performance to investors and to management, and when compared year-over-year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net loss. We believe that FFO is a recognized measure of operating performance by the REIT industry and is useful in comparing our operating performance with the operating performance of other real estate companies.
We also believe that Normalized FFO is a meaningful supplemental non-GAAP measure of our operating results. We calculate Normalized FFO by further adjusting FFO to reflect the performance of our portfolio for items we believe are not directly attributable to our operations. We believe that Normalized FFO is a beneficial indicator of our ongoing portfolio performance and isolates the financial results of our operations. Our adjustments to FFO to arrive at Normalized FFO include removing the impacts of: (i) acquisition and transaction related costs (including certain expenses directly related to the Internalization and the Reverse Stock-Split); (ii) termination fees to related parties; (iii) severance and other related costs; (iv) mark-to-market gains and losses on non-designated derivatives and amortization related to terminated derivatives; (v) casualty-related charges, net relating to significantly disruptive events that are infrequent in nature; (vi) gains and losses on extinguishment
of debt; (vii) similar adjustments for non-controlling interests; and (viii) certain other items set forth in the Normalized FFO reconciliation included therein. We believe that Normalized FFO is useful because it allows investors, analysts and our management to compare our operating performance across periods on a consistent basis.
The table below reflects the items deducted from or added to net loss attributable to stockholders in our calculation of FFO and Normalized FFO for the periods indicated (dollars in thousands):
Year Ended December 31,
2025 2024 2023
Net loss attributable to common stockholders (in accordance with GAAP) $ (71,067) $ (203,495) $ (86,097)
Depreciation and amortization on real estate assets
72,615 79,231 80,057
Impairment charges 44,914 24,881 4,676
(Gain) loss on sale of real estate investments (27,800) (9,307) 322
Depreciation on real estate assets related to non-controlling interests
(394) (466) (403)
NAREIT FFO attributable to common stockholders
18,268 (109,156) (1,445)
Acquisition and transaction related (1)
516 7,949 545
Termination fees to related parties (2)
- 106,650 -
Severance and other related costs (3)
2,907 - -
Derivatives mark-to-market and terminations (4)
1,558 4,048 3,381
Casualty-related charges, net 864 489 63
Gain on extinguishment of debt (257) (392) -
Normalizing items related to noncontrolling interests (61) (540) 38
Normalized FFO attributable to common stockholders
$ 23,795 $ 9,048 $ 2,582
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(1)Includes certain advisory, legal, accounting, information technology, tax and other professional expenses and other non-recurring employee transition expenses of $4.8 million for the year ended December 31, 2024 that were directly related to the Internalization and the Reverse Stock Split.
(2)Represents the closing payments paid in connection with the Internalization.
(3)Represents cash severance, acceleration of equity vesting and other related expenses in connection with the transition of the chief financial officer role in 2025.
(4)For the year ended December 31, 2025, includes $1.5 million of gain reclassified from other comprehensive income to earnings (recorded as a reduction to interest expense) in connection with cash received for the partial unwind of a hedge.
Inflation
Leases with residents at our SHOPs typically do not have rent escalations, however, we are able to renew leases at market rates as they mature due to their short-term nature. As inflation rates increase or persist at high levels, the cost of providing medical care at our SHOPs, particularly labor costs, will increase. If we are unable to admit new residents or renew resident leases at market rates, while bearing these increased costs from providing services to our residents, our results of operations may be affected.
We may be adversely impacted by inflation on the leases with tenants in our OMF segment that do not contain indexed escalation provisions, or those leases which have escalations at rates which do not exceed or approximate current inflation rates. Recent increases in inflation, driven by factors such as labor shortages, supply chain disruptions, higher property insurance, property tax and interest rates and increased economic and political uncertainties due to the tariffs imposed by, or imposed on, the United States, have and may continue to have adverse impacts on our results of operations and our liquidity as well as our tenants' and residents' ability to pay rent. As of December 31, 2025, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 3.2%. To help mitigate the adverse impact of inflation, most of our leases with our tenants in our OMF segment contain rent escalation provisions which increase the cash that is due under these leases over time. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). Although most of our leases with tenants in our OMF segment contain rent escalation provisions, these rates have often been below the current rate of inflation in recent years.
In addition to base rent, depending on the specific lease, OMF tenants are generally required to pay either (i) their pro rata share of property operating and maintenance expenses and certain capital expenditures, which may be subject to expense exclusions and floors, or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties' expenses for the base year of the respective leases. Property operating and maintenance expenses include common area maintenance costs, real estate taxes and insurance. Increased operating costs paid by our tenants under these net leases could have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect our tenants' ability to pay rent owed to us or property expenses to be paid, or reimbursed to us, by our tenants. Renewals of leases or future leases for our net lease properties may not be negotiated on a net lease basis or on a basis requiring the tenants to pay all or some of such expenses, in which event we may have to pay those costs. If we are unable to lease properties on a net lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs.
National Healthcare Properties Inc. published this content on February 20, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 20, 2026 at 13:26 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]