Good to go, Joe.
Cool. Hello, everyone. My name is Joe Dickstein, one of the REIT analysts here at Jefferies, and I'm happy to introduce American Healthcare REIT and its Chairman and Interim CEO, Jeff Hanson.
Hey. Thanks, Joe. Good morning, everybody. Great to be here with you. I'm joined today by Gabe Willhite, COO, Brian Peay, our Chief Financial Officer, and in the front row to my left, of course, is Alan Peterson, many of you know is our head of IR. For those of you who may be less familiar with the company, AHR is a dedicated healthcare REIT that's focused on allocating capital to managed care through our two RIDEA segments. Those are Traditional SHOP and Trilogy, otherwise known as Integrated Senior Health Campuses. Those are our two verticals, and RIDEA as a whole accounts for roughly 80% of the company's total NOI today, and growing very rapidly.
In terms of growth and performance, I got to tell you, I and the rest of the board is extremely proud of the broader management team and what they've actually been able to accomplish in the space in relative short order. In terms of internal growth, we're leading the industry in many measurable metrics that is really affording a highly attractive cost to capital that in turn is driving significant and robust external growth at scale. In terms of one of the core metrics that we're the most proud of, it's in FFO growth per share. Over the last nine consecutive quarters, quarter in and quarter out, we've posted 20% or more in terms of per share growth. We've done that while materially de-leveraging the balance sheet to the current 3x net debt to EBITDA.
By the way, for broader context, if we applied all the dollars available today in our current forwards from both ATM and a follow-on that we executed a week and a half ago for $800 million through B of A and used that towards debt extinguishment, we'd be sitting here with zero debt on the balance sheet today. As many of our shareholders are well aware of and I think appreciate, we're committed as a company to running an investment grade profile balance sheet. The beauty is we're driving this kind of growth while de-leveraging, when we're actually right at the front end or early innings of the growth and the demand cycle in the sector. The last thing, in terms of opening remarks that I would mention, is I've never seen anything like this before.
I've been in the commercial real estate investment industry for over three decades, running all major product types, healthcare being the core, of course, the entire 30+ years. I've never seen these types of fundamentals in any other commercial real estate asset class that healthcare and the setup that it enjoys today, with the veritable demographic tsunami driving insatiable demand on the demand side, meeting very low, radically low and muted supply that's really creating a multi-year setup for continued outsized growth. I can tell you as an organization and as a management team, we're just grateful to be ideally positioned into such a strong setup. Happy to.
Thanks, Jeff.
-take questions.
Yeah, I think it might make sense to start here on capital allocation, just given how significant investments are to the potential accretion to earnings and just further growth in the portfolio. The investment pipeline has grown to $650 million as of last quarter. Maybe we could just touch on how some of these prospective SHOP acquisitions compare to the in-place portfolio.
I'm happy to take that one, Joe. We probably should clarify. We increased our awarded pipeline in a business update that we're talking about at this conference. We ended the quarter with $650 million of awarded deals. We're now well over $1 billion in awarded deals, which was the catalyst for doing a capital raise a week and a half ago, like Jeff mentioned. The thing that we're most focused on today as a company is SHOP, growing SHOP with our existing operators.
Finding new markets with operators that we've vetted. The thing maybe that's a little bit different about AHR is we view the operator as the single most important part of a senior housing investment decision. If you told me that I could pick the best market or the best physical plant or the best operator, I would choose the best operator 100 out of 100 times to run my senior housing investment. What we're doing now in the over $1 billion of pipeline is newer vintage, bigger buildings, over 100 units typically, and with operators that we have an established relationship with to de-risk the entire investment proposition.
Got it.
Yeah, the quarter of a billion that we've already closed year to date, in addition to the $1 billion that we've got awarded in the pipeline, 100% of that is expansion with existing operators.
Understood. I guess in that pipeline, are there larger portfolios being assumed in that figure, or is it more one-off deals?
The majority of it is smaller deals.
One of the benefits of being a smaller company like AHR is we don't have to do every deal, and we don't have to do multi-billion dollar deals in order to grow the company externally in a meaningful way. We can take a rifle shot approach to it. A good example is last year we identified Great Lakes Management as a company that we wanted to partner with. We came into the partnership with them owning one asset in St. Paul. Over the next 12 months, we added incrementally one by one-off deals to get to seven assets and have a regional concentration, which is the core of what we focus on. Having regional density where teams can drive culture, recruit from other buildings, leverage talent in a way that is meaningful. There are times when we'll look at larger portfolios.
Larger I mean under $1 billion, but in the several hundreds of millions of dollars. The only time that makes sense for us is it's not where there's a lot of different operators, and the portfolio's spread all over, and you're really doing it because you have a great cost of capital, or you really like pricing. That's not the reason.
The reason is you've identified an operator that has significant amount of assets in that portfolio, or the portfolio overlaps with the market you want to be in, and there's a strategic reason that you're the winning bidder in something that's competitively bid in that way.
The good news is we don't have to bid on every one of those portfolios that come out.
Right.
When we see one that overlaps perfectly with what we want to execute on, we do have the cost of capital to go out and do it accretively year one with a growth profile that we really like and an operator that we really want to be long-term partners with.
Right. I guess just thinking on the development side of the equation, the team has spoken in the past to, I guess, limiting the amount of Trilogy developments to avoid stretching the team too thin. Maybe we can touch on the logic behind that, just seeing as how the Trilogy team continues to outperform expectations quarter after quarter.
Yeah, it's a great question. Trilogy is our single largest operator. They run about 150 buildings for us. The model is unique. It's how you would do senior housing if you were starting from scratch and did not care about where reimbursements came from and only cared about what's best for the resident in your building. That's how you would design exactly what Trilogy's campus is, which is full continuum of care, IL, AL, memory care, and skilled nursing under one roof, and not in a way like a typical CCRC that's mainly independent living with a hint of skilled nursing and assisted living to take care of people should they need it. This is a core part of the business where you're admitting people into a post-acute stay from the hospital.
That's not uncommonly their first experience with Trilogy is they had a fall, they had a hip replacement, they had to stay in a hospital that required them to be discharged into post-acute care. They see, "Hey, this is a hospitality experience that exceeds what we thought was possible in skilled nursing. Instead of going home and trying to recover on my own, instead of moving across town, maybe I'll just move across the hallway into the assisted living setting at Trilogy." That's how 40% of the move-ins in Trilogy's assisted living business actually come from the post-acute business. The development there is purposeful. Of their portfolio, the vast majority are purpose-built buildings to meet that standard, that need. That's rare.
We get asked a lot of times, "Could you do acquisitions with Trilogy and just have them manage other things for you?" We could, but they probably wouldn't be as efficient as a Trilogy-made model is. These are operators that have been developing for three decades, that have done 70, 80 buildings developed to have the most operational efficiency with the kitchen in the exact right spot to serve both service lines, with the hallways being optimal efficiency for staffing levels. Things that when multi-family developers start getting involved in senior housing, which we all know is coming, and it's just the question we get asked all the time is when, things that those types of people will completely overlook. We're still developing at Trilogy because that's the way that they can grow their business with purpose-built buildings.
We're doing three to five new campuses a year is common for them, with expansion opportunities on existing campuses also being a core component of the development, meaning we have independent living villas, duplexes that are adjacent to the main campus that can leverage all the operations of the main campus so that you get a product that people really like. It's a neighborhood concept, w ith people who are in the same station of life. They go to church together on Sundays. They have happy hour together at 3:00 P.M . If they need the care as they progress through their life, they don't have to move to a new building. They can just move into the Trilogy main house.
We're going to continue to do that for the foreseeable at Trilogy because of how predictable the returns are in that space. Finally, landing the plane on your real question is how much of this can you do, and how long can it go.
Right.
What's the most you can do at one time? Well, if you're running 150 buildings, the worst thing you can do is sacrifice the performance of the 150 for the five incremental new developments that you want to take on. You don't want to pull the focus of the management team away from the core business. That's what we're constantly balancing. I think at five a year, I feel very confident that's not going to happen.
At 20 a year, I feel very confident that you're going to pull focus away. Somewhere on the lower end of that range is where we think is the sweet spot, and where we'll continue to play with Trilogy.
That's fair. I guess maybe just staying on the Trilogy point here, NOI margins are now above 20%, occupancy over 91% for the same store portfolio. I guess how should we be thinking about NOI flow-through and potential margin ceiling as the portfolio moves further into the mid-90% range?
It's so critical. As occupancy goes up, there's a certain amount of costs that are fixed in every operating senior housing building, and Trilogy's no different. The difference with their concept, though, from a typical independent living or senior housing, is that care is a big component. In skilled nursing, direct care hours are critical. There's always going to be less pull-through incremental margin improvement on the skilled nursing side of their business than there would be in, say, an independent living business where there's no care component, where once you have the dining, the activities, and life enrichment set up, the fixed costs are substantial, and then they're substantially fixed as well. The bad part about that setup, you get less flow through to margin. The good part about that setup is it's a very needs-based business that's not elective. That's why we like it.
If you're worried that we're headed towards a recession or a housing recession, and you want defensive portfolio with growth, then we can deliver the most defensive portfolio with top-of-the-industry type growth because we're focused on Trilogy and our SHOP portfolio is heavily weighted towards assisted living, which are more needs-based decisions.
When we talk about our company, we were really born out of the global financial crisis with Jeff and his three partners. That shaped the way we think about this acuity question. Independent living got hit the hardest during global financial crisis because it was the most discretionary decision. It's a lifestyle choice. You don't have to sell your house to move into independent living. With assisted living and skilled nursing, it's a needs-based choice. You need the care. You can't delay this and wait another five years to see how the housing market recovers. You need to get the care that you need. That's what we like about the business is that you've got this very rare, like Jeff mentioned, generational kind of moment where you've got the resilience of healthcare, but you also have this NOI growth profile that's really compelling.
You give up a little margin in exchange, which we're happy to do for the needs-based demographic reality.
Yeah, on that defensiveness point, as you said, Trilogy is unique to other RIDEA senior housing concepts, in part given its exposure to government reimbursement. There have been concerns that this moderates potential NOI growth versus peers with purely private pay exposure. Can you speak to some of the benefits to this model and why that concern is myopic?
Mm-hmm. Yeah. I would say it depends on your time horizon, on that question. Right? If you say in the next two years, will Trilogy's business be moderated compared to the industry? I'd say that you could be right. You could be more right. I think if you were saying over the next 10 years, when development comes back online, I think you'd be dead wrong.
Trilogy has the widest competitive moat in our portfolio today. Skilled nursing development is nonexistent, and actually, the number of skilled nursing units online in America decreases every quarter. The demand that they're going to have in the skilled nursing business, and the prolonged demand, and the duration of that, is going to fuel Trilogy's business for the long term. Because of how difficult it is to develop skilled nursing in a profitable way, you almost have to have this integrated campus concept where you've got the senior housing and skilled nursing paired together, and you can marry those margins and get the operational efficiencies of having those two things under one roof.
I think on the government reimbursement side, the one thing I'll say, even in the short term, that this is probably the most overlooked part of our entire business.
And misunderstood
Misunderstood, is that Trilogy can only grow rates in the skilled nursing side in line with inflation. It's been demonstrated to be untrue. The skilled nursing average daily rate, RevPOR, however you want to quote it, has been growing faster at Trilogy than their private pay side. That's happening because of a mix shift within their skilled nursing business. If you're the highest quality operator in skilled nursing, you have people seeking out your product, and that helps with occupancy, of course. That's obvious.
It also helps with payor mix, and shifting to have the residents in your building, the residents that are coming from the highest payor mix, that have the highest margin because they appreciate the quality the most. That means you're shifting from Medicaid beds to Medicare Advantage beds and Medicare beds. Even within that shift, the Medicare Advantage plans are not all created equally.
Different Med Advantage plans pay different rate for the same service. That's all one-off contracts that are made by each provider. If that provider says, "I no longer accept your contract. The price is too low," and they have the occupancy to say, "We're no longer admitting people from that Med Advantage plan," you can drive outsized rate growth within the Med Advantage plan cohort because you're prioritizing the people that are actually paying you for the quality that you deliver. The whole straw that stirs the drink, it's leaning in on quality and being able to have the highest quality outcomes and pointing to your Five-Star ratings, which Trilogy has overall Five-Star ratings on average above four, which no other big provider has, have quality metrics that are over 4.8%.
These are compelling numbers to Med Advantage plans that want to partner with the highest quality provider, and they're willing to pay for it.
By the way, the core point, I've heard Brian and Gabe say this often, is in terms of the misunderstanding, is that CMS indications or the rate of inflation, which is what Medicare and as a derivative MA plans are based on, is really a ceiling to growth and h igh-quality post-acute is roughly half of the beds in the average Trilogy facility, and it's a floor, certainly not a ceiling. You didn't mention the statistics in terms of rent growth, over 5% in Medicare, and last year, over 8% in Medicare Advantage, way above the average nationally of 3%.
Right. Maybe shifting gears a bit to SHOP, the more traditional senior housing RIDEA structure that many of you are probably familiar with. Just kind of given that most healthcare peers are now focused on this asset class, maybe you can provide some color on how AHR's portfolio stacks up against the competition and what attributes you look for when identifying new acquisitions for SHOP.
Higher acuity. Brian, you want to elaborate?
Sure. Yeah. Our SHOP portfolio definitely skews much more towards assisted living as opposed to independent living for all the reasons that Gabe had mentioned earlier, which is, those residents are there because they have to be there. We've leaned into that, and ultimately, I think the relationships that we have developed with our SHOP operators, we're confident in their ability to run those types of buildings. By the way, our SHOP is growing pretty substantially, both organically as well as inorganically. I would say maybe the most common thread amongst the acquisitions that we did in 2025 and so far in 2026, and the awarded deals, is that the SHOP portfolio has tremendous growth embedded in it. What you'll see is very nice same-store NOI growth in 2026, and you'll see very nice same-store NOI growth in 2027.
One of the prototypes of a building that we bought, which was tremendous for us, it was the nicest, newest building in the market. It's in a market that we have a trusted operator. A developer built it, hired an operator. They didn't like him, they fired him. They hired another operator. They didn't like them, they fired them. The developer who was, let's be honest, he was a multi-family developer who didn't get the returns, so he decided to build senior housing. He started running the building himself. That's how you get a 74% full building that's the nicest, newest building in the market, 2017, 2018 vintage. By the way, the guy was underwater until last year.
He could not have sold his building for what he had in it, and so he brought it to market, was more than happy to get his dollars out so that he can go and look for the next development project, because that's what developers do. They don't necessarily run senior housing, or maybe they shouldn't run senior housing. In any case, we were able to buy that building very attractively, and we could install our existing trusted operator, somebody who's working in the next town over, that we've had a long-standing relationship with. They're running buildings for us that are 95% and 96% occupied. There's no reason why that 74% occupied building isn't going to go right up into that 95%, 96% level.
The growth that we're going to recognize from that, in what I would consider to be an extremely de-risked proposition, because we do have that faith and confidence in the operator, and I think that's the thing that the peers, especially the triple-n et lease people that are getting into RIDEA, I think the SHOP operator proposition is the single most important thing.
Yeah. Let me add quickly, in terms of last year's acquisitions, we did just under $1 billion, added two new operators to our operator portfolio. This year, for the $250 that we've already closed, it's been expansion, I think I mentioned earlier, with existing operators. The other $1 billion that we have locked up, committed, and in the pipeline is very consistent with a lot of what we bought last year. Predominantly high-quality Class A assets in strong markets with appropriate levels to material levels of barriers to entry, with strong operator profiles. The overall weighting between IL and AL and memory care last year in the $1 billion was roughly actually just under 20%, and everything that we've closed and in the pipeline for this year's acquisitions are about the same, between 20%-30% IL, with a heavy weighting to higher acuity.
As I see it, the SHOP operators also benefit from the Trilogy relationship. Obviously, they have done an exceptional job operationally. I think that there is a lot that they can do to help support those smaller regional SHOP players, just in terms of their own processes. Maybe we could speak to some of the work that has been happening on that end to get a sense of the opportunity.
Yeah. Happy to deep dive on that. We've seen the national operator model fail repeatedly in senior housing, for a variety of reasons. It is the easiest idea in the world to say, "Hey, let's find one person to cover the entire country for us." Makes our accounting and reporting a lot easier, makes the conversations that everybody knows the brand easier. For a variety of reasons, it doesn't work. What does work are regional operators that have a headquarters close to the assets, that care about the culture of the building, that drive the talent acquisition in the building. The problem with those operators is they don't have a lot of resources, and sometimes sophistication that a big national operator is, or a larger operator like a Trilogy would. How do you bridge that gap?
That's where we went to the Trilogy team, said, "You are basically at 150 assets, what all of these operators kind of want to be. You want to develop it organically over time, but you have resources and ideas that could be rolled out through the portfolio in a beneficial way. We want to create a real financial incentive for you to help us do that." We took their best-in-class alignment with Trilogy. It flips the typical model on its head, which is a 5% fee on revenue type model in the SHOP business, and makes it so that the company has a below-market management fee, but makes up for it in an LTIP that is fully based on what the real earnings growth of the company is. Full bottom-line alignment. That's completely unique in the space to do this to this degree.
The thing that switched last year was we said we would rather not pay this in cash, we would rather pay this in AHR stock. We created the first operator stock plan in the space. What that did was create a real financial reason for Trilogy to help our other SHOP operators. As our other SHOP operators get stronger and AHR stock value goes up, they actually participate in the value creation that they're a meaningful part of. There are different ways that Trilogy can do that. The biggest is probably revenue management. Search engine optimization and marketing is certainly a part of it. Employee experience, employee training, facilities maintenance, CapEx, and development are kind of the big ones. Let's start with development, because that's the easiest to figure out.
If you've developed 70 or 80 buildings on your own, you have development capabilities internally that far exceed what most operators are able to do. Within our SHOP portfolio, we did a full deep dive on where we had excess land, we're leveraging Trilogy's development team to work on multiple projects right now for expansions of high-performing assets within the portfolio. The revenue management, circling back, is probably the most interesting area right now. As we start to get functionally full in assets across senior housing, the question necessarily becomes: how do you keep growing NOI when your occupancy is 100%? The answer is revenue management. The operators need to get really good at dynamic pricing, adjusting street rates, turning off lease incentives, managing community and move-in fees, all at the same time, all dynamically while occupancy is going up and down.
There's no tool today that exists to do that, except for what I know to be a completely unique proprietary solution that Trilogy created themselves to management internally for them. This is not breaking news. These are things that other people in other industries and multi-family and in hospitality have been doing for a long time. We're just taking that skill set and applying it to senior housing in, I think, a more novel way.
Taking physical attributes of each individual unit, adjusting the anticipated price, taking into account what the market occupancy is, taking into account how long a unit has been open, where that unit is located in the building, and packaging that all together in a way that the hardest part is getting that information in the hands of the salesperson and the executive director in the building who are making pricing decisions on a daily basis, and pushing that information through to a dashboard that allows them to do that. That has value for Trilogy and is already working at Trilogy. The question is: how much value does that have for our entire SHOP program?
We're test piloting it with two different SHOP operators currently. It's going well. I think it's an exciting part of the business that's going to not only help our performance, but also help us attract the best operators in the space.
Right.
You've already heard from us, the operator is the most important thing. Operators have choices in capital partners. If you think that you're going to have your choice in operators just because you have capital, you're wrong. There's a lot of people that have capital. You have to be more than that for them. And having a proprietary revenue management system and having a Trilogy back office that can help support the operators and help them scale is a real differentiator for our platform.
Yeah. Incentives are real, as we all know, and they are leaning in hard. They're doing a great job with our other operators.
Right. I guess just last one from me on succession. We know that CEO Danny Prosky remains on leave, and we're all wishing him a speedy recovery.
Thank you.
I wanted to get a sense of how the board's approaching longer-term leadership continuity and succession considerations.
Yeah. Thank you for that. Look, Danny and I have been partners for 21 years in building the platform, hiring the executive management team, and below the executive management team that everybody knows today. Many people, I'm sure, if not most in the room, know that he had a serious health event that was completely out of left field and unexpected in February. He is at home. He's on the mend. He's doing very well. One thing that I can tell you is that he had one material procedure in terms of his recovery trajectory. That was actually performed about five or six weeks ago, went flawlessly. He's doing exceedingly well. Ultimately, we'll have his prognosis in a matter of, my guess is weeks, not months. We'll advise the market accordingly.
One thing I can assure you of is that we've got a very, very strong board that takes governance seriously. Under any scenario, the board and the management team will be ready to execute with flawless continuity. In terms of broader succession, because I think you were alluding to even beyond the CEO role, of course. We've got a decade-plus of succession planning between Dan, Matt, our third founding partner, and myself.
Present company included, over a decade ago. We've got a formal written succession plan that the board reviews at least on an annual basis that covers every division in the company and three or four successors down divisionally in most instances. We feel good about the governance we're executing, and we should know soon on Danny, but he's doing great.
Thank you. We're happy to hear that. Thanks, everyone. This is the AHR team. Appreciate you all being here.
Thanks, folks. Thanks for your time.
Appreciate it. Good job, Joe. Thank you.
Thank you.