During their recent earnings call, executives from American Healthcare REIT (NYSE: AHR), which initiated a public offering in February, expressed confidence in the company's long-term prospects. They highlighted that while occupancy growth in 2024 may not match the pace of the previous year, the company remains optimistic about its future in long-term care.
Strong Partnership with Trilogy Health Services
A significant focus during the earnings call was on Trilogy Health Services, which the executives described as an attractive partner due to several key factors. They praised Trilogy's physical plant advantages, aligned management team, and dedication to quality care and service.
"With 127 assets, our business is closely aligned with Trilogy's," executives stated. "Their management team operates under an incentive plan that promotes bottom-line FFO growth and economic expansion, making this investment uniquely beneficial."
Performance and Growth of American Healthcare REIT
Based in Irvine, California, American Healthcare REIT reported a robust fourth quarter in 2023, with a 9.5% year-over-year growth in same-store NOI. Trilogy's occupancy saw an impressive increase of approximately 300 basis points compared to 2022, mainly due to effective asset management strategies and strong operator relationships.
"Our portfolio continues to recover post-pandemic, with all revenue growth indicators trending positively," said Gabe Willhite, the company's Chief Operating Officer.
Focus on Expense Management and Operational Efficiency
Willhite emphasized the company's efforts in expense management, particularly in reducing agency labor costs, contributing to significant savings. He also highlighted the completion of operator transitions within their SHOP segment, poised to unlock additional value in 2024.
Success and Impact of the IPO Launch
Despite the IPO raising $672 million, falling short of the $840 million target, executives expressed satisfaction with the outcome. The REIT sold 56 million shares at $12 each, at the lower end of the expected range.
Willhite noted that the increase in equity significantly strengthened the balance sheet and reduced interest expenses. The company plans to maintain a conservative leverage profile, anticipating continued earnings growth from its portfolio to improve its financial stability further.
Performance of Skilled Nursing Portfolio
The Trilogy facilities, which include a mix of senior housing and skilled nursing beds, reported a 14% same-store NOI growth for the year and a 16.7% NOI margin expansion in the fourth quarter.
"To put that margin in context, a good skilled nursing margin is typically around 10% to 12%," Willhite said, highlighting the impressive performance of their Trilogy facilities.
Expanding and Managing a Diverse Portfolio
American Healthcare REIT owns and manages a diverse portfolio, including skilled nursing facilities, medical offices, senior housing, and hospitals across 36 states, with assets valued at approximately $4.6 billion. The IPO was managed by Bank of America and Morgan Stanley, with Trilogy Health Services as a primary operating partner.
Future Prospects in Senior Housing
The company is optimistic about continued occupancy growth in its senior housing segment. "We believe 2024 will see further occupancy gains within our senior housing operating portfolio, supporting NOI growth and margin expansion," said Danny Prosky, President and CEO.
Strengthening Financial Position through Debt Reduction
Following the IPO, American Healthcare REIT paid down approximately $721 million of outstanding debt, significantly improving leverage metrics and enhancing financial flexibility. This move is expected to save around $54 million in annual interest expenses, according to Prosky.
Strategic Transactions and Capital Market Activities
The company completed several vital transactions, including a campus acquisition and three lease buyouts within its Integrated Senior Health Campus. Additionally, it sold several outpatient medical and SHOP facilities, generating approximately $195 million in gross proceeds.
The company entered into a swap agreement in the capital markets to fix the interest rate on its variable-rate debt. It completed a public offering of common stock, raising gross proceeds of $772.8 million.
Long-Term Growth and Conservative Leverage Approach
"As we look ahead, we will maintain a conservative approach to leverage while being selective about external growth opportunities," said Brian Peay, Chief Financial Officer.
Enhancing Investor Relations and Future Opportunities
Prosky mentioned that the company has attracted many new investors over the past year and a half. He also highlighted a significant growth opportunity through an agreement allowing them to purchase the portion of their Trilogy joint venture they do not own, by September 2025.
Diverse Revenue Streams and Risk Mitigation
American Healthcare REIT's revenue is diversified across outpatient medical buildings and triple-net leased assets. The outpatient medical buildings, comprising about 27% of NOI, span the country and are predominantly multi-tenant, which mitigates tenant concentration risk. The triple-net leased assets, making up around 13% of NOI, include senior housing, skilled nursing, and hospitals.
Conclusion
American Healthcare REIT remains optimistic about its long-term care prospects, driven by solid demand and limited new supply. The company is well-positioned for continued growth and success in the coming years with strategic partnerships, a diversified portfolio, and a conservative financial approach.
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