American Healthcare REIT, Inc. (AHR) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary highlights strong financial performance with raised guidance and improved leverage. The Q&A section supports this with expected NOI growth, strategic acquisitions, and stable asset pricing. Despite some vague responses, the overall sentiment is positive due to robust demand, improved margins, and strategic focus on Medicare Advantage, suggesting a likely stock price increase in the near term.

Key Financial Performance

Same-store NOI growth 16.4% across the total portfolio, marking the seventh consecutive quarter of double-digit same-store NOI growth portfolio-wide. This growth reflects the depth and quality of the portfolio, strategic initiatives, and enduring demand tailwinds in healthcare real estate.

Trilogy Same-store NOI growth 21.7% year-over-year. Occupancy averaged 90.2% in Q3, up more than 270 basis points from last year, while the average daily rate increased roughly 7%. This growth is driven by pricing power, improvement in quality mix, and increased Medicare Advantage partnerships.

SHOP Same-store NOI growth 25.3% year-over-year. RevPOR increased by 5.6%, and NOI margins expanded nearly 300 basis points to 21.5%. Gains were achieved without sacrificing pricing discipline, supported by durable demand for long-term care and structural supply-demand imbalances.

Normalized FFO per fully diluted share $0.44 in Q3, reflecting a 22% increase year-over-year. This increase was driven by over 20% same-store NOI growth from operating portfolio segments and strong performance from newly added assets.

Net debt to EBITDA 3.5x at the end of Q3, representing a 0.2x improvement from the prior quarter and a 1.6x improvement from Q3 2024. This improvement reflects disciplined capital markets execution and deleveraging efforts.

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Operating Highlights

RIDEA structured segments: Includes integrated senior health campuses (Trilogy) and SHOP segment, driving outsized growth due to proactive asset management.

New acquisitions: Over $575 million in acquisitions year-to-date, expanding geographic diversification and operator relationships.

Development projects: Started new development and expansion projects with a total expected cost of $177 million, providing predictable cash flow and future growth.

Geographic diversification: Introduced two new operator relationships, broadening geographic reach and reinforcing focus on high-quality care.

New partnerships: Partnership with WellQuest Living to manage communities in California and Utah, enhancing West Coast presence.

Same-store NOI growth: Achieved 16.4% growth across the portfolio, marking the seventh consecutive quarter of double-digit growth.

Occupancy rates: Trilogy and SHOP same-store occupancies above 90%, with SHOP achieving record move-in activity.

Medicare Advantage partnerships: Increased Medicare Advantage census growth, with reimbursement rates higher than other sources.

Corporate responsibility report: Published inaugural report highlighting governance, social, and sustainability priorities.

Revenue management system: Leveraging Trilogy's centralized revenue management system across other operators to optimize revenue.

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Risk or Challenges

Regulatory and Market Risks: The company acknowledges forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially. This includes regulatory hurdles and market conditions that may impact future operating results, financial condition, and prospects.

Seasonality and Occupancy Risks: Occupancy trends into the fourth quarter suggest potential seasonality impacts, although muted by demand growth. However, the winter season historically poses challenges for maintaining occupancy gains.

Medicare Advantage Dependency: The company is increasingly reliant on Medicare Advantage partnerships, which, while beneficial, could pose risks if reimbursement rates or partnerships change unfavorably.

Supply Chain and Development Risks: The company has ongoing development projects with significant capital investment. Delays or cost overruns in these projects could impact financial performance.

Capital Markets and Funding Risks: The company relies on disciplined capital markets execution and forward agreements for funding. Any disruptions in capital markets or inability to match equity inflows with investment timing could affect growth plans.

Operator and Partnership Risks: The company’s strategy heavily depends on regional operating partners and new operator relationships. Any underperformance or misalignment with these partners could adversely affect operations and financial outcomes.

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Guidance & Outlook

Normalized Funds From Operations (NFFO) Guidance: The company has increased and narrowed its full-year 2025 NFFO guidance to a range of $1.69 to $1.72 per fully diluted share, implying growth in excess of 20% year-over-year at the midpoint.

Same-Store NOI Growth Guidance: The company has increased its total portfolio same-store NOI growth guidance to a range of 13% to 15% from the previous range of 11% to 14%. Segment-specific updates include: Integrated Senior Health campuses increased to 17%-20%, SHOP increased to 24%-26%, Outpatient medical increased to 2%-2.4%, and Triple-net leased properties adjusted to -0.25% to +0.25%.

Occupancy Trends: RIDEA spot occupancy is now above 90% across the operating portfolio, with expectations for continued strong occupancy trends into Q4 and beyond.

External Growth and Acquisitions: The company has closed over $575 million in acquisitions year-to-date, with an additional $450 million in awarded deals expected to close in Q4 2025 and early 2026. These acquisitions are expected to provide immediate earnings accretion and long-term organic growth.

Development Pipeline: The in-process development pipeline consists of projects with a total expected cost of $177 million, with $52 million spent to date. These projects are expected to provide predictable cash flow and retained earnings over the next few years.

Capital Markets Activity: The company raised $116 million through its ATM program and settled $128 million in forward sales, with an additional $275 million in new forward agreements. This capital will support external growth opportunities while minimizing dilution.

Medicare Advantage Growth: Medicare Advantage accounted for 7.2% of total resident days at Trilogy in Q3, up from 5.8% a year ago. This mix shift is expected to drive robust revenue growth due to higher reimbursement rates and increased accessibility.

Long-Term Care Demand: The company expects durable demand for long-term care driven by demographic growth in the 80-plus cohort and limited new construction in senior housing. This is expected to support multiyear occupancy, rate, and NOI growth.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How much more occupancy upside is there from the current 90% spot occupancy, and what is the pricing strategy to maximize growth?

A:The maximum upside from 90% to 100% is 10%. Management expects metrics like occupancy, RevPOR, margins, and NOI to continue improving over time due to supply-demand fundamentals. They aim to price at a rate higher than inflation, around 200 basis points above inflation, with a 5% or better increase if inflation is at 3%. However, they acknowledge that not every quarter will see higher occupancy than the previous one due to seasonal factors like flu and holidays.

Q:What is the competitive environment for senior housing acquisitions, and why hasn't it become more competitive?

A:Management noted that while demand for acquisitions has increased slightly, supply has also risen as assets developed in the last 5-10 years perform better. Some private equity groups are selling assets as fund life ends. The senior housing market is challenging to enter, requiring diligence and expertise, which limits competition.

Q:Why was there a step down in ADR growth within the skilled segment of Trilogy, and will Medicare Advantage improve sequentially?

A:The step down in ADR growth is due to Trilogy optimizing quality mix by prioritizing Medicare and Medicare Advantage plans over lower reimbursement sources. Medicare Advantage plans vary in pricing, and Trilogy is aligning with plans that match their quality. Medicare growth has slowed due to lower inflation adjustments, but gains in Medicare Advantage are expected to partially offset this.

Q:Will improvement in Trilogy's quality mix drive NOI growth and margin expansion?

A:Yes, improvement in quality mix is expected to drive higher NOI and margin expansion as Medicare and Medicare Advantage offer higher margins than private pay and Medicaid. However, margins may not improve every quarter due to seasonal expenses like flu vaccines and employee health insurance costs.

Q:How is Trilogy's revenue management system being leveraged with SHOP tenants, and what results are expected?

A:Trilogy's revenue management system is being piloted with SHOP operators, offering tools for sales, marketing, employee training, and IT solutions. While current numbers don't fully reflect the benefits, management expects significant impact over the next 1-2 years. Trilogy's development capabilities are also being used to expand highly occupied buildings.

Q:What is the outlook for the MOB portfolio, and are there plans to sell more assets?

A:Management has sold about one-third of their MOB portfolio, focusing on divesting smaller, lower-growth assets. The remaining MOBs are larger, institutional-quality buildings with better growth potential. While they plan to sell a few more MOBs, the focus is on growing the RIDEA side of the business.

Q:Is there seasonality in Trilogy's Medicare and Medicare Advantage resident days, and how does it affect occupancy?

A:Yes, there is seasonality, with skilled nursing occupancy typically troughing in September and peaking in Q1. This seasonality also applies to payer sources. However, this year has seen less seasonality, contributing to a 270 basis point year-over-year occupancy increase.

Q:How does Trilogy manage headcount and expenses with higher acuity levels?

A:Trilogy flexes staffing using their internal travel nurse organization rather than hiring or letting go staff. They maintain industry-leading turnover rates of around 40%, compared to 100% for peers, and hiring is a continuous process to replace turnover and improve the workforce.

Q:What is the competition like for senior housing acquisitions, and how often do you compete with other public REITs?

A:Competition is limited as the company focuses on smaller transactions often brought by operating partners. About half of the deals are off-market. While they occasionally compete with other REITs, most competition comes from private equity or local investors.

Q:Are there best practices from regional operators that could benefit Trilogy?

A:Yes, the company hosts an annual operator summit to share best practices. Operators collaborate on specific operational challenges, such as pricing strategies, benefiting from each other's knowledge and experience.

Q:What is the acquisition strategy for SHOP deals, and what types of properties are targeted?

A:The strategy focuses on identifying operators before properties. The portfolio has a higher acuity mix with more assisted living and memory care, though independent living is also included. They target both stabilized and unstabilized assets, with a preference for newer buildings developed in the last 10 years. The goal is to acquire assets with strong long-term earnings growth potential.

Q:How is the acquisition process structured, and what factors are prioritized?

A:The process starts with identifying operators and working with them to find suitable properties. Operators are involved in underwriting and touring properties. The focus is on aligning with operators who have expertise in specific markets, ensuring strong conviction in acquisitions.

Q:What is the current pipeline for acquisitions, and are new operators being added?

A:The current pipeline consists of deals with existing operators, including Trilogy, WellQuest, and Great Lakes. There are no plans to add new operators at this time.

Q:Are asset prices for senior housing changing as performance improves?

A:Asset pricing has remained stable with only a moderate uptick. Buyers continue to underwrite efficiently, and there has been no significant increase in pricing fervor.

Q:Review of Unclear Management Responses

A:Management avoided providing specific projections for future occupancy levels, stating that it is hard to predict the maximum and amount of occupancy growth. They also did not provide detailed data on headcount changes in Trilogy or specific examples of how the revenue management system has driven better results. Additionally, they were vague about the exact impact of seasonality on payer sources and did not quantify the expected benefits of leveraging Trilogy's platform with SHOP operators.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AHR Transcript

American Healthcare REIT, Inc. (AHR) Q3 2025 Earnings Call Transcript

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The company reported strong financial performance with significant year-over-year growth in key segments like Trilogy and SHOP, improved debt metrics, and increased NFFO per share. The Q&A highlighted further growth prospects, including strategic acquisitions, expanding Medicare Advantage contracts, and positive occupancy trends. The upward revision of guidance across segments and a comprehensive revenue management strategy also support a strong positive outlook. Despite some uncertainties in Medicare Advantage rate growth, overall, the earnings call suggests a robust financial and operational position, likely leading to a strong positive stock price reaction.

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The earnings call highlights strong financial performance with significant year-over-year growth in key segments like Trilogy and SHOP. Raised guidance for NFFO and NOI, and disciplined debt management further bolster confidence. Despite some uncertainties in the pipeline timing and cap rates, the overall sentiment is positive due to robust growth projections and strategic capital reallocation. The market is likely to react favorably, considering the optimistic guidance and financial health, leading to a predicted stock price increase of 2% to 8% over the next two weeks.

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