NATIONAL HEALTHCARE CORP

National HealthCare Corporation (NHC) operates in the post-acute and senior healthcare services industry, providing skilled nursing, assisted living, independent living, behavioral health, homecare, and hospice services. The company operates in 9 states ¹, primarily in the Southeastern and Midwestern United States. The industry is characterized by extensive regulatory oversight from federal and state agencies, including licensure, certification, and reimbursement rules under Medicare and Medicaid. Key structural forces include the shift toward value-based purchasing, the Patient-Driven Payment Model (PDPM) for skilled nursing, and the Patient-Driven Groupings Model (PDGM) for homecare, which tie reimbursement to patient condition and quality outcomes rather than volume of services. The Centers for Medicare and Medicaid Services (CMS) Five-Star Quality Rating System is a key competitive benchmark, and the industry faces ongoing labor shortages and inflationary pressures on operating costs.

NHC competes with hundreds of operators of post-acute healthcare services across its operating states, with no single operator dominating any market except for some small rural markets with limited competition ². The company differentiates itself through a continuum of care that links skilled nursing facilities with senior living communities, home health, hospice, and behavioral health hospitals, aiming to obtain a competitive advantage ³. As of December 31, 2025, NHC's skilled nursing facilities achieved an average Five-Star Quality Rating of 3.83 ⁴ versus the industry average of 2.95 ⁵, with 62.5% ⁶ of its 80 ⁷ skilled nursing facilities rated 4 or 5 stars compared to 38.6% ⁸ industry-wide. Competitors include not-for-profit, non-taxpaying, and governmental agencies that can finance capital expenditures on a tax-exempt basis and receive charitable contributions unavailable to NHC ⁹.

NHC generates revenue primarily through the operation of healthcare facilities and the provision of management, accounting, financial, and insurance services. In fiscal year 2025, 96.8% ¹⁰ of net operating revenues were derived from healthcare services (net patient revenues), while 3.2% ¹¹ came from other sources including management fees, rental income, and insurance services. The company operates under a model that includes owned, leased, and managed facilities: as of December 31, 2025, NHC owned 43 ¹² skilled nursing facilities, leased 29 ¹³, and managed 8 ¹⁴; owned 19 ¹⁵ assisted living facilities, leased 5 ¹⁶, and managed 2 ¹⁷; and owned 5 ¹⁸ independent living facilities, leased 3 ¹⁹, and managed 1 ²⁰. Recurring income streams include daily patient care payments from Medicare, Medicaid, managed care, and private pay sources, as well as management fees typically charged at 6% ²¹ of managed centers' net operating revenues. The company also operates an Institutional Special Needs Plan (I-SNP) called NHC Advantage, a managed care insurance company that receives a per member, per month premium from Medicare ²².

NHC's inpatient services segment includes the operation of skilled nursing facilities, assisted living facilities, independent living facilities, and behavioral health hospitals. As of December 31, 2025, the company operated or managed 80 ²³ skilled nursing facilities with 10,329 ²⁴ licensed beds, 26 ²⁵ assisted living facilities with 1,413 ²⁶ units, 9 ²⁷ independent living facilities with 777 ²⁸ retirement apartments, and 3 ²⁹ behavioral health hospitals with 102 ³⁰ licensed beds. For the year ended December 31, 2025, inpatient services generated net patient revenues of $1,315,545,000 ³¹ and other revenues of $1,467,000 ³², for total net operating revenues of $1,317,012,000 ³³. The segment reported income from operations of $127,751,000 ³⁴ for 2025. Occupancy rates for owned and leased skilled nursing facilities were 89.7% ³⁵ in 2025, compared to 88.6% ³⁶ in 2024 and 87.9% ³⁷ in 2023. Assisted living occupancy was 84.3% ³⁸ in 2025 versus 81.1% ³⁹ in 2024, and independent living occupancy was 93.8% ⁴⁰ in 2025 versus 93.2% ⁴¹ in 2024. The segment also includes rehabilitative services with a rehabilitation staff of over 1,230 ⁴² therapists, medical specialty units including memory care and sub-acute nursing units, and pharmacy operations with five regional pharmacy locations ⁴³.

NHC's homecare and hospice services segment includes 34 ⁴⁴ homecare agencies and 33 ⁴⁵ hospice agencies operating under the Caris Healthcare brand. For the year ended December 31, 2025, this segment generated net patient revenues of $154,086,000 ⁴⁶ and reported income from operations of $30,060,000 ⁴⁷. In 2025, homecare agencies served an average census of 3,834 ⁴⁸ patients and provided 339,344 ⁴⁹ visits. Hospice services, provided through Caris Healthcare, cared for over 1,647 ⁵⁰ patients per day across 33 ⁵¹ locations in Georgia, Missouri, South Carolina, Tennessee, and Virginia. The I-SNP, NHC Advantage, operated in Tennessee, Missouri, and South Carolina with approximately 1,300 ⁵² members enrolled as of December 31, 2025. Other revenue sources include management, accounting, and financial services provided to 11 ⁵³ healthcare facilities for management and 14 ⁵⁴ healthcare facilities for accounting and financial services as of December 31, 2025, rental income from 10 ⁵⁵ healthcare properties leased to third-party operators, and insurance services through two wholly-owned insurance subsidiaries providing workers' compensation and professional liability coverage.

On August 1, 2024, the Company purchased the assets of White Oak Management, Inc., a portfolio consisting of 15 ⁵⁶ skilled nursing facilities, two ⁵⁷ assisted living facilities, four ⁵⁸ independent living facilities, and a long-term care pharmacy, with 1,928 ⁵⁹ licensed skilled nursing beds, 48 ⁶⁰ assisted living units, and 302 ⁶¹ independent living units in South Carolina and North Carolina. During 2025, the Company purchased 127,338 ⁶² shares of its common stock for a total cost of $14,730,000 ⁶³. The Company also contributed land to a newly-formed limited liability company resulting in an equity interest; the fair value of the land contributed was $5,625,000 ⁶⁴ with a cost basis of $2,019,000 ⁶⁵, generating a gain of $3,606,000 ⁶⁶ netted within other operating expenses. Dividends declared per common share were $2.53 ⁶⁷ in 2025, compared to $2.42 ⁶⁸ in 2024 and $2.34 ⁶⁹ in 2023. The Company recorded $9,445,000 ⁷⁰ of government stimulus income related to the Employee Retention Credit in 2024. On July 29, 2025, NHI notified NHC of alleged non-compliance with certain non-monetary provisions of the Master Lease, and on September 8, 2025, NHI formally alleged a default; NHC disputes that any default has occurred ⁷¹.

For the fiscal year ended December 31, 2025, NHC reported total net operating revenues and stimulus income of $1,517,781,000 ⁷², an increase of 16.1% ⁷³ compared to $1,307,382,000 ⁷⁴ in 2024. Net income attributable to NHC was $120,015,000 ⁷⁵ in 2025, compared to $101,927,000 ⁷⁶ in 2024 and $66,798,000 ⁷⁷ in 2023. Diluted earnings per share were $7.67 ⁷⁸ in 2025, versus $6.53 ⁷⁹ in 2024 and $4.34 ⁸⁰ in 2023. Income from operations was $128,352,000 ⁸¹ in 2025, compared to $89,895,000 ⁸² in 2024 and $57,458,000 ⁸³ in 2023. The overall average census in owned and leased skilled nursing facilities improved to 89.7% ⁸⁴ in 2025 from 88.6% ⁸⁵ in 2024. The composite skilled nursing facility per diem increased 4.0% ⁸⁶ in 2025 compared to 2024. Cash provided by operating activities was $185,078,000 ⁸⁷ in 2025, compared to $107,303,000 ⁸⁸ in 2024.

A primary growth vector is the expansion of post-acute and senior healthcare operations through construction and acquisitions. Recent activities include the August 1, 2024 acquisition of the White Oak portfolio, which added 15 ⁸⁹ skilled nursing facilities, two ⁹⁰ assisted living facilities, four ⁹¹ independent living facilities, and a long-term care pharmacy with 1,928 ⁹² licensed skilled nursing beds, 48 ⁹³ assisted living units, and 302 ⁹⁴ independent living units in South Carolina and North Carolina. The company also opened new hospice agencies in Morristown, TN (April 2024), Lawrenceburg, TN (July 2024), Wytheville, VA (August 2024), and Clinton, TN (October 2024) ⁹⁵. In 2023, NHC opened new assisted living facilities in Vero Beach, FL (135 units ⁹⁶), Merritt Island, FL (95 units ⁹⁷), and Stuart, FL (100 units ⁹⁸), and acquired a skilled nursing facility with 66 ⁹⁹ beds in Nashville, TN. The company is also investing in joint venture multi-family developments under construction in Nashville, Tennessee, contributing capital of $5,629,000 ¹⁰⁰ in 2025.

Another growth vector is the expansion of the I-SNP, NHC Advantage, which restricts enrollment to Medicare Advantage eligible individuals who have had or are expected to need skilled nursing facility level of services for 90 days or longer ¹⁰¹. As of December 31, 2025, the I-SNP operated in Tennessee, Missouri, and South Carolina with approximately 1,300 ¹⁰² members. The company believes the I-SNP benefits patients by providing nurse practitioners and care-coordination teams that enhance the patient-centered experience and quality of care ¹⁰³. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post-acute alliances to better position itself as an active participant in the delivery of post-acute healthcare services ¹⁰⁴.

Management focuses on margin trajectory through labor cost control and operational efficiency. Salaries, wages, and benefits as a percentage of net operating revenues and stimulus income improved to 60.7% ¹⁰⁵ in 2025 from 62.0% ¹⁰⁶ in 2024. Agency nurse staffing expenses decreased $9,335,000 ¹⁰⁷, or approximately 66.6% ¹⁰⁸, in 2025 compared to 2024, and decreased $19,962,000 ¹⁰⁹, or approximately 66.2% ¹¹⁰, in 2024 compared to 2023. Total costs and expenses as a percentage of net operating revenues and stimulus income improved to 91.6% ¹¹¹ in 2025 from 93.1% ¹¹² in 2024 and 94.9% ¹¹³ in 2023. Income from operations as a percentage of net operating revenues and stimulus income improved to 8.4% ¹¹⁴ in 2025 from 6.9% ¹¹⁵ in 2024 and 5.1% ¹¹⁶ in 2023. The company faces inflationary pressures in certain categories within other operating expenses, such as food/dietary supplies and drugs/pharmaceutical supplies ¹¹⁷.

The company is undertaking a process to allocate more aggressive capital spending within its owned and leased facilities to address issues arising from an aging physical plant ¹¹⁸. As of December 31, 2025, NHC leased or owned 72 ¹¹⁹ skilled nursing facilities, 24 ¹²⁰ assisted living facilities, three ¹²¹ behavioral health hospitals, and eight ¹²² independent living facilities. The company continues to refine and implement information technology to improve customer service, enhance operating efficiencies, and provide more effective management of business operations ¹²³. NHC had 15,278 ¹²⁴ full-time and part-time employees as of December 31, 2025, and faces competition in employing and retaining nurses, technicians, aides, and other high-quality professional and non-professional employees ¹²⁵.

Capital allocation priorities include investing in property and equipment, share repurchases, and dividend payments. Cash used for property and equipment additions was $36,446,000 ¹²⁶ in 2025, $27,600,000 ¹²⁷ in 2024, and $27,901,000 ¹²⁸ in 2023. In 2025, the Company purchased 127,338 ¹²⁹ shares of its common stock for $14,730,000 ¹³⁰. The Company has paid a common dividend since 2004 ¹³¹, with dividends declared per common share of $2.53 ¹³² in 2025, $2.42 ¹³³ in 2024, and $2.34 ¹³⁴ in 2023. Dividends paid to common stockholders were $38,704,000 ¹³⁵ in 2025, $36,964,000 ¹³⁶ in 2024, and $35,560,000 ¹³⁷ in 2023. The Company has a $50 million ¹³⁸ available line of credit and had borrowing capacity on that facility as of December 31, 2025. The Company also has unencumbered real estate assets that could potentially be used as collateral in future borrowing opportunities ¹³⁹.

A significant headwind is the dispute with National Health Investors, Inc. (NHI) regarding the Master Lease covering a significant portion of NHC's skilled nursing and independent living facilities. On July 29, 2025, NHI notified NHC of alleged non-compliance with certain non-monetary provisions, and on September 8, 2025, NHI formally alleged a default based on four non-monetary provisions ¹⁴⁰. NHC disputes that any default has occurred and continues to communicate with NHI to resolve these matters ¹⁴¹. In October 2025, NHC provided NHI with notice of intent to exercise its right to extend the Master Lease for an additional five-year term beginning January 1, 2027 ¹⁴². Failure to resolve the disputes or secure renewal on acceptable terms could result in loss of the right to occupy and operate some or all affected facilities, or subject NHC to damages, acceleration of rent, or other remedies ¹⁴³.

Structural headwinds include the ongoing healthcare labor shortage, which has amplified the challenge of maintaining desirable patient census levels ¹⁴⁴. The company faces competition in employing and retaining qualified personnel, especially facility administrators, nurses, certified nurses' aides, and other important healthcare providers ¹⁴⁵. The difficulty in hiring and retaining qualified personnel has increased average wage rates ¹⁴⁶. Additionally, certain states have adopted minimum staffing standards, and failure to comply may result in fines or other sanctions ¹⁴⁷. The company also faces uncertainty regarding Medicare and Medicaid reimbursement rates, with the Budget Control Act of 2011 imposing Medicare spending reductions of up to 2% ¹⁴⁸ per fiscal year, extended through 2030 ¹⁴⁹. CMS projects payments to home health agencies in fiscal year 2026 will decrease by 1.3% ¹⁵⁰ or $220 million ¹⁵¹ relative to the prior year.

NHC derives a substantial portion of revenue from Medicare and Medicaid, and changes in reimbursement rates or methods could materially reduce revenues and operating margins. The Budget Control Act of 2011 imposes Medicare spending reductions of up to 2% ¹⁵² per fiscal year, extended through 2030 ¹⁵³. CMS projects a 1.3% ¹⁵⁴ decrease, or $220 million ¹⁵⁵, in home health payments for fiscal year 2026. The dispute with NHI over the Master Lease creates significant uncertainty; NHI formally alleged a default based on four non-monetary provisions on September 8, 2025 ¹⁵⁶, and failure to resolve could result in loss of the right to occupy and operate some or all affected facilities ¹⁵⁷. The company is largely self-insured for professional liability and workers' compensation, with accrued risk reserves totaling $121,595,000 ¹⁵⁸ at December 31, 2025. Unfavorable claims activity resulted in additional other operating expenses of $17,563,000 ¹⁵⁹ in 2025 compared to 2024. The company faces a highly competitive labor market with a shortage of nurses and other key personnel, which has increased average wage rates and resulted in agency nurse staffing expenses, though these decreased by $9,335,000 ¹⁶⁰ or 66.6% ¹⁶¹ in 2025. The investment portfolio is concentrated in NHI common stock, which comprised $124,532,000 ¹⁶², or 69.1% ¹⁶³, of the total fair value of marketable equity securities at December 31, 2025, creating concentration risk.

Management's tone in the filing is focused on operational improvement, quality of care, and strategic growth. Key themes include the continued increase in skilled nursing census, per diem increases from governmental payors, the reduction of agency staffing expense, and the accretive contribution of the White Oak acquisition. Management emphasizes that the company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance ¹⁶⁴. Specific forward-looking statements include the estimate that the Tennessee Medicaid increase effective July 1, 2025 will result in approximately $3,000,000 ¹⁶⁵ annually, or $750,000 ¹⁶⁶ per quarter, and the South Carolina Medicaid increase effective October 1, 2025 will result in approximately $4,200,000 ¹⁶⁷ annually, or $1,050,000 ¹⁶⁸ per quarter. Management also notes that the fiscal year 2026 CMS rule for skilled nursing facilities equates to a net 3.2% ¹⁶⁹ increase in Medicare Part A payments, and the hospice payment update includes a 2.6% ¹⁷⁰ rate increase, or $750 million ¹⁷¹. Strategic priorities emphasized include expanding post-acute and senior healthcare operations while protecting existing operations and markets, linking skilled nursing facilities with senior living communities, home health, hospice, and behavioral health hospitals to obtain a competitive advantage ¹⁷², and working internally to improve systems to be most responsive to referral sources and payors while finding creative initiatives to retain and attract qualified healthcare professionals ¹⁷³.