American Healthcare REIT, Inc. (AHR) Earnings Call Transcript & Summary

Welcome, everyone. Welcome to the BofA 2026 Global Real Estate Conference. My name is Farrell Granath, and I am the coverage for the Healthcare REIT on our BofA U.S. REIT team. I also, in the audience, have Jeff Spector, Head of U.S. REITs and my associate over here, Julietta. We are joined here today with Jeff Hanson, the CEO of American Healthcare REIT as well as Gabe Willhite, COO; and Alan Peterson, VP of IR and Finance. So at first, we'll turn it over for opening remarks, and then we can open it up for Q&A. I definitely encourage everyone to interject if you have any questions, feel free to have an open conversation. So Jeff...

Yes. Thank you, Farrell. Great to be here with everybody. And in addition to the gentleman on my right and on my left, we also have our Lead Independent Director, -- on my left in the back, Scott Estes, who many of you probably know, served as Welltower's CFO for 12 years. So he's been an incredible value add being on our Board for the past 4.5 years. So in terms of AHR, those of you who may be less familiar with the company, we're a dedicated health care REIT that's essentially focused exclusively in our RIDEA vertical, which is obviously the high-growth sector of the health care industry and the real estate industry in general these days. It represents well over 80% of our NOI, growing rapidly. That's by design. And it's been an incredible year for the company. We continue to post industry-leading internal as well as external growth. And we've managed this year, particularly to scale the operating platform meaningfully, both ahead of and in conjunction with robust and disciplined external growth. In terms of performance, many of you are probably aware, in Q2, we did increase guidance yet again. This time, it was over 5%, and that translates at the midpoint into NFFO per share growth this year over last year of 26%, which leads the entire industry sector by a fairly wide margin. I think that the next closest peer is 21% and we've been able to do so, and this is what we're very proud of, while deleveraging materially at the same time. So we took 3x net debt to EBITDA at the end of Q1 down to 2.5x and continuing to drop again while we're driving robust external growth. I think the last thing that we would mention is the performance of the company and all the same-store NOI metrics to continue in most respects to lead the industry. They're largely driven and continue to be driven by increasing revenue, expanding margins and increasingly widening operating spreads. So the business is incredible, and we're really grateful for the way AHR is positioned.

Thank you. And I think to kick this off, we've obviously seen a lot of press releases coming out, updated in news. Can we first start with your updated year-to-date acquisitions? We've now seen over $2 billion worth of investment flows for year-to-date. Can you touch on, one, what those acquisitions may be made up of larger acquisitions as well as some of the smaller ones? And maybe how that has changed your framework of how you buy or at least is in line with how you buy?

Do you want to lead off, Gabe?

Yes. Thank you for hitting that, Farrell. So what we saw so far in 2026 is an expanding opportunity set of really great assets and unique operating partnerships that are going to take us to the next level. So of that $2 billion, the average vintage 2019, they're all very new continuum of care assets that are larger, meaning you have AL, IL, memory care all under one roof. It's easier to cross-sell between those sectors, and it drives occupancies higher and margins wider. The -- our main strategy for growth because of our size, we're about a $13 billion market cap company is do onesie-twosie acquisitions that bolt on to existing operator relationships in the markets we're already in. The hardest part of this entire business is finding the right operators, actually having access to them and making them better than they would be if they weren't a part of your platform. That is the key to success in senior housing in a nutshell. So if you pair the right operator with the right asset, you get outsized performance. Once you have already identified the right operator, build a regional concentration, adding 1 or 2 buildings to their existing platform is very easy, and it's a low-risk way to grow their scale and to grow our business. In certain rare circumstances, there are operators who are new to us from a financial relationship, but known to us for probably decades. We have an asset management team that's been in the business for, in some cases, 3 decades, and they know everybody in the industry. So when a rare opportunity to partner with like a Kensington comes up, who has never had a REIT capital partner before, and they have options on who they pick, -- we stand out because we're the preferred capital partner for an operator like that because we're focused on the quality of care first, the resident experience, the employee experience, and we're aligned on what matters most. So we saw Kensington as -- by the way, that's an $873 million deal, super infill locations that are incredibly hard to replicate with a typical entitlement process and a land assemblage process that took 5 to 8 years. That's us playing offense and defense at the same time, right? You're growing a portfolio with a great asset, but you're also buying assets that are going to be -- have a long runway for growth and have a wide competitive moat, just really hard to compete. So that Kensington deal, I think, is a great example of how we're going to execute. And like I said, $873 million, of which about $570 million is closed, the remainder is supposed to close at the end of the year. It's not just a onetime transaction. Kensington has developed 7 of the 8 assets that we bought. They have 3 more that are in the pipeline. We would love to be a partner with them on future developments one way or another, and we look for that in every operator relationship, not just a onetime transaction where it's getting the assets and growing for growth's sake. It's building a strategic relationship that can add value to AHR's platform over time.

And I'd add the LCB or the Berkshire, that's anonymous portfolio that we took down in early August that -- and LCB manages, they built 5 of the 8. They manage 7 of the 8 for us. And there are a lot of commonalities between both the Kensington and the Berkshire deal, A, in terms of the process, relationships, long-standing decades-long relationships went not just up to the senior management team in both those deals, but actually up to our Board. And we were outbid on both those deals, but we were deemed not the highest price, but the best partner. And Dave Faeder at Kensington is on the public record stating that. So we appreciate that. The second thing is it's not just Kensington that's in fortress or high barrier to entry markets. This is some of the best SHOP asset quality that I've seen in a 32-year career. So is the LCB product or the Berkshire product. Those were all built either in 2020, 2022 or 2023. And LCB also has, as Kensington does, very deep core Class A luxury senior housing development capability that we would love to grow with as well.

Well, before we dive in a lot deeper on the development and acquisition side, I also wanted to touch on other recent press releases and news updates, namely in your leadership transition as well as recent hires. Can you just give us an overview of some of the moving pieces that we've seen be announced as well as future plans for AHR's leadership?

Look, there's a lot of exciting things happening. A lot has been compressed into a compressed period of time over the last several weeks, but the reality is it was work in progress since the beginning of the year. So strategy doesn't change at all. The strategy was right. What changes is our ability as a company to execute at much higher scale -- much broader scale, okay? So we -- Dave was appointed President and Chief Operating Officer. He already held the COO role. I came back in as the Chairman and CEO, a role that I filled for 16 of the last 21 years as Danny retired after his health issue. We recently announced that we brought Aric Chang in. He starts October 1st from Public Storage. Many of you will know that's an S&P 500 operating REIT. And so it was important to us to pull our next-generation CFO, not from a traditional property REIT configuration because we're too dynamic of an operating business. So Aric is going to be a phenomenal next-gen CFO for the company. Again, he starts October 1st. And Dan hasn't gone anywhere, by the way. He's still a very -- a highly valued adviser to the management team, and he remains on the Board as one of the co-founders of the company. We also hired 2 very important division heads, both of whom report to Gabe. They started on the same day 2 weeks ago. One is Ann Lacey from Artemis. She built their SHOP asset management platform. She heads up as our EVP of SHOP Strategic Asset Management, the same function. Importantly, she came with deep financial acumen from 7 or 8 years with one of the best-performing SHOP investors in the country. But as importantly, she was in critical operating roles for 11 years with Sunrise Senior Living before that. So she has the perfect blend that we've actually built our entire asset management vertical around, which represents one of our competitive advantages with operators, both new and existing. And the last, do you want to go into our new CTO?

Yes. So our CTO, Jon Crosier, comes from Kilroy before that, the Irvine company has deep experience across real estate asset classes, which I think is pretty important to the story today. So I don't think I'm going out on a limb here by saying a lot of people have commented on the lack of sophistication from the senior housing investment community and the lack of resources maybe from a tech stack side for the operators. We're trying to bridge that gap better than anybody has done before, not just on investments, although that tech and that data is important to make better investment decisions, utilize data that's not just available to everybody through a subscription to NIC MAP, which is not a very high barrier to entry, focus on different data that if everybody is focused on one data set and you have better, more accurate, more real-time data that's coming from somewhere else, you have a competitive advantage in investment selection, but also going much further than what just the initiation of the transaction with an operator is, which is actually finding the deal and closing the deal. It's now what do you do? Now how do you outperform operationally. And our focus is a little bit different than most. We don't think one national operator that has great resources is the best way to play in the space. We think the regional operators, headquarters basically drivable to all the assets they manage for you is a better way to do it. They drive the culture in the building. They care about it. It's easier for them to recruit. They provide advancement opportunities for their best employees within their buildings, just moving to different locations in that regional density. That's a lesson learned from owning Trilogy for almost 11 years, right? What has really worked at Trilogy? How did they outperform? How do we copy that playbook throughout our SHOP playbook. So what do the regional operators, that's all the good stuff they give you. What's the cost associated with that? Otherwise, everybody would be doing it. One, they're smaller. They don't have the resources to have their own CTO to build out their data and analytics platform. And two, they might not even know what to do with that data once you give it to them or have the resources to do something about it. So 2 ways that we're fixing that. One is Jon Crosier, our CTO, who's going to draw on a far broader background than just senior housing to deliver the competitive advantage we need. But two, we've got the Trilogy platform supporting the whole thing. And that's absolutely unique in the space to have alignment like we have with Trilogy at their scale. They operate 150 buildings for us. One of the things that they're really good at is innovation and not having pride that right now, we're -- this is the best it's going to get. And that innovative idea can come from literally anywhere in Trilogy, and they'll test it out in 1 building, 3 buildings and then roll it out to 150 within their ecosystem. But what if we roll that to 250 within our ecosystem at AHR more globally. That's a real platform value advantage. So we've created financial alignment with the Trilogy management team to do just that. So we have probably the best-in-class alignment to NOI growth for the management company, and that's the LTIP that they have is based on real NOI, not just top line revenue, which I think is table stakes at this point if you're in seniors, if people are not talking about real NOI incentives, and I think it's borderline uninvestable. But the way that we pay that NOI-based LTIP is in AHR currency. So we created the first management incentive plan that's equity-based with our equity -- they participate in the value creation from growing Trilogy's NOI, which is great for all of us. It's the right incentive. But two, they have this real financial incentive for our other SHOP operators to outperform. So if they need help implementing a software that Trilogy has developed, like their revenue management software, the operator might not have somebody to do that. A Trilogy employee can actually work with them and help them integrate their systems so that they can leverage Trilogy's tech and also accomplish the mission of doing something with the data that you already have.

Yes. And I add one brief thing. The same-store metrics that I'm sure most of you are familiar with as it relates to AHR, they're not -- they're good numbers, but they're not just good numbers. They're a deep signal to us that the synergistic operating ecosystem that we've created that is AHR is actually working and it's firing on all cylinders. That's right. And the reality is we're still at the very early stages. And you've got an operator that's as good as Trilogy over the past 30-some-odd years and they're really an operating laboratory at scale for us. And the real value proposition, they're not just an investment. They're probably one of our most strategic assets. Those of you that are familiar with the company, understand just how true this is. The real goal is to take what we know works well through that operating laboratory and propagating it across the other 11 operators that we have. And we've got a thin operator base in terms of total number by design.

So just to dive in a little bit deeper, I think Trilogy is such a unique product. And so I was hoping that you can go through and you were already alluding to what I was going to ask. But when thinking about your initial relationship with the IPO, the next steps when you were able to buy out your full ownership? And then also with that potential of doing future development on Trilogy campuses and then the rollout through your SHOP platform as well. Can you walk us through either where you are in different stages of that process and where -- as you were already speaking about the Trilogy platform, but even on the development side, what you see as the future for Trilogy?

Yes. Their development capabilities are exceptional, Gabe. I'll take a certain part of that at a level.

Yes. The vast majority of their 150 that they operate for us were actually developed themselves because it's a unique asset type with unique requirements, so they're purpose-built. -- right? The prototype we're on now, I think, is prototype 4, maybe 5, you ask. It's value engineered so that, one, the costs are not too high, of course, right? But it's also value engineered operationally. So a lot of the times, if you're doing a development deal, it's designed by somebody who is designing without senior housing in mind or they like the idea of senior housing, but they don't understand, hey, if I put too many units on a straight hallway to nowhere, it's going to screw up my staffing ratios and now it's going to be less profitable because of the physical plant design issue. So Trilogy has solved that because they are true operators, operators. So how do we tap into that and go beyond just Trilogy, I think, is an interesting question that just put a pin in for right now. Within Trilogy, we're developing 3 to 5 new campuses a year. in the states that they're in. Those new campuses have expansion opportunities after they're already up and running. It derisks the entire development proposition when you don't build so big and guess what the demand is going to be, you build potentially a little bit smaller and have excess land to develop product where the need dictates the product should be. So you can add independent living villas, which will be on the tour, you should sign up for it if you haven't already or you could expand memory care, you could expand AL, you could expand SNF. You have optionality on where the demand is showing up and what you want to do with it. So that expansion opportunity is the part that's probably the most interesting right now. So we did a deep dive across our entire SHOP portfolio. Most of those operators are not focused on development expansions, right? But where we have very high demand, needing high occupancies, we have high rates and we have excess land, that's an opportunity to expand the existing SHOP portfolio. So we've identified several of those opportunities that we're pursuing right now, and Trilogy's development team is managing those developments for us, actually working with the architects to optimize for operations. So they've come back. We got the design and Trilogy is like, not this one, not this one, do it this way. Can you go over here, like real valuable feedback to make them more profitable and make the developments make sense. That's something that I think we can continue to look at and expand on beyond the first start was the low-hanging fruits where we actually owned land. Step 2 is let's see where we can buy adjacent land and do even more expansions and have -- get even more benefit out of Trilogy's development capability.

So general rule of thumb is $150 million to $200 million in new development commitments annually within the Trilogy ecosystem. And the one thing that Gabe didn't mention that I will mention briefly is not only wing expansions or general expansions of existing SHOP assets, but they're also running all of our CapEx with their extremely sophisticated capabilities for all of our SHOP portfolio. So we're really extracting synergies. And the way that Gabe structured their incentive with our stock is the currency through an LTIP is deeply incentivizing them to do so. They're sharing everything with our operators.

Yes. And can we unpack that for a minute? Why is that important, right? So at some point, your building is going to become so dated that you're going to be at a competitive disadvantage. And what we saw Trilogy doing over and over and over again was this 5-year and even longer plan of here's the ones that need X, Y and Z update. Here's the pacing of how those updates should be done. A lot of times in the industry, you'll see the buildings that are performing the best with no CapEx because they say, "Oh, you don't need it." -- so they become dated. The employees there feel flighted like, oh, our reward for success is that we have the 1990s yellow walls and maroon carpets and stuff like that. It doesn't make any sense. I get why people end up there. But if you're thinking long-term growth and long-term value and how do we keep our best employees engaged and performing at a high level, that's all part of what they do. So Trilogy now can do that for our entire SHOP portfolio, have regular refresh plans, but also identify the opportunities where you might be able to have a rate -- a big rate increase opportunity by putting some CapEx into the building and kind of repositioning it as well. That's probably the next frontier for good value-add investments as well.

Can you break down the returns expected on the ground up versus the expansions?

Yes. I can jump on that one. So most of -- and this is all in our supplemental, by the way, if you want to look at, we actually disclose every single project that's going on. So if you look at the independent living villas, -- those have a little bit of a lower cash yield, like, call it, high single digits, but they get to operational profitability far faster. So the great part about those villas is you don't build them unless the building is really ripping and doing well. You've got the excess land and you can pre-lease them. You build a model home and you pre-lease them. So you don't have the operational drag that you would have a typical senior housing development where you're going to lose some money before you actually start to make some money. You already have the staff there. You already have the sales team there. It's ready to go. So those are from a path to profitability, returns on investment perspective, probably the best opportunities in Trilogy, not to mention from a quality of life perspective, the people that are in that product love it. It's like -- I don't know, it's kind of like a [indiscernible] for old people. So they -- well, they probably start drinking the same time of the day, 3:00. So it's -- that social aspect of it is interesting and good for them. The occupancies there are frequently the highest in our portfolio in the mid-90s. The expansion projects have the highest ROI, but there's just not that many of them, and they're kind of inexpensive. So a typical wing expansion could be $1 million or a couple of million dollars. It's hard to get a lot of value deployed that way, a lot of capital deployed that way. The main campuses are, call it, low double-digit returns, still really strong. How are they doing that? Well, they're playing in markets that others couldn't because of what we talked about earlier from a size perspective and efficiency perspective. They also, like we said, have financial engineered the building and they're just good at. They also are their own GC on projects now, which further takes the cost down. It's just a machine that's been evolving over 25 to 30 years of development gets really efficient.

I think the most important takeaway there at a high level is the risk-adjusted return reality. It's already good development returns relative to any other asset class where you develop, but it's derisked because they have got this down to like a franchise level, cookie-cutter, 30-year tried and true approach, where they've got SWAT teams of -- I don't know -- what do they call them, opening teams, they send that descend on new communities that are opened and they're stabilizing.

Yes. And the most important part of that -- the success of the new development, right, is who's the CEO of that building, the Executive Director. And how do you ensure that they're going to be good if they're coming in from nowhere? Well, in Trilogy, you ensure they're good because you take somebody who's already crushing it in one of your other buildings, and they feel like that's a reward like, this is amazing that the company has that amount of faith in me to let me operate a brand-new building and look at how beautiful this thing is. That's a real accomplishment for them. So you backfill that ED with somebody who's been brought up through Trilogy's administrator and training program. So you're filling with people who are already a cultural fit, who you've already tested out, who you know are good and that derisks the whole proposition as well. That's where the regional densification really starts to show its value is in the human capital side of the equation.

How long does it take to stabilize? And is that happening faster now?

A little faster, yes.