Business Overview and History
American Healthcare REIT, Inc. (AHR) is a self-managed real estate investment trust (REIT) that has built a diversified portfolio of clinical healthcare real estate properties, primarily focused on outpatient medical buildings, senior housing, skilled nursing facilities (SNFs), and other healthcare-related facilities. The company's strategic vision and disciplined approach to portfolio management have positioned it as a leading player in the rapidly evolving healthcare real estate sector.
American Healthcare REIT was founded in 2013 and has since grown to become a significant player in the healthcare REIT space. The company conducted its initial public offering in 2014, issuing an aggregate 65.45 million shares of Class T common stock and Class I common stock for a total of $2.74 billion in gross offering proceeds. In its early years, American Healthcare REIT grew its portfolio primarily through acquisitions, taking advantage of favorable market conditions and the fragmented nature of the healthcare real estate sector. The company utilized a variety of financing sources, including mortgage loans, lines of credit, and the issuance of additional equity, to fund these acquisitions.
During this time, American Healthcare REIT also began operating certain healthcare facilities, such as its senior housing properties, under a RIDEA structure, which allowed the company to capture the operating income from these assets in addition to the real estate income. In 2022, the company faced challenges as the COVID-19 pandemic impacted occupancy and operations at many of its senior housing and skilled nursing facilities. American Healthcare REIT worked closely with its regional operating partners to mitigate the effects of the pandemic, implementing cost-saving measures and working to maintain high standards of care for residents.
The company's portfolio currently consists of 318 buildings and integrated senior health campuses, representing approximately 19.45 million square feet of gross leasable area, with an aggregate contract purchase price of $4.61 billion as of June 30, 2024.
The company's operations are organized into four reportable business segments:
1. Integrated Senior Health Campuses: This segment includes senior housing properties that provide a range of independent living, assisted living, memory care, skilled nursing services, and certain ancillary businesses. These properties are owned and operated utilizing a RIDEA structure.
2. Outpatient Medical (OM): This segment includes outpatient medical buildings typically leased to multiple tenants under separate leases, requiring active management and responsibility for many associated operating expenses.
3. Senior Housing Operating Properties (SHOP): This segment includes senior housing properties, such as assisted living, independent living, and memory care, that are owned and operated utilizing a RIDEA structure.
4. Triple-Net Leased Properties: This segment includes senior housing, skilled nursing facilities, and hospital investments that are single-tenant properties. AHR leases these properties to unaffiliated tenants under triple-net and generally master leases that transfer all property operating costs to the tenant. This segment also includes AHR's debt security investment.
This diversified approach allows American Healthcare REIT to capitalize on various opportunities within the healthcare real estate market and mitigate concentration risks.
In February 2024, the company completed a successful initial public offering (IPO), raising $772.80 million in gross proceeds and listing its common stock on the New York Stock Exchange under the ticker symbol "AHR." This milestone marked a significant turning point in the company's evolution, providing it with enhanced access to capital markets and greater visibility in the public arena.
Financial Performance and Liquidity
American Healthcare REIT's financial performance has been characterized by steady revenue growth and improving profitability. For the most recent quarter ended June 30, 2024, the company reported total revenue of $504,581,000 and a net income of $1,979,000. The company's operating cash flow (OCF) for the quarter was $59,402,000, with free cash flow (FCF) of $40,913,000.
For the six months ended June 30, 2024, the Integrated Senior Health Campuses segment generated $786.90 million in resident fees and services revenue, the OM segment generated $67.75 million in real estate revenue, the SHOP segment generated $123.23 million in resident fees and services revenue, and the Triple-Net Leased Properties segment generated $26.23 million in real estate revenue.
Net operating income (NOI), a non-GAAP metric, was $170.87 million for the six months ended June 30, 2024, an increase from $147.25 million in the prior year period. This improvement in NOI reflects the resilience of the company's diversified portfolio and its ability to generate strong operational results across its various segments.
As of June 30, 2024, American Healthcare REIT's balance sheet shows a net debt to annualized adjusted EBITDA ratio of 5.9x, indicating a manageable leverage position. The company maintains a diverse mix of debt financing, including mortgage loans, lines of credit, and a term loan facility, providing it with ample liquidity to fund its growth initiatives and capital expenditures.
The company's liquidity position remains strong, with $52,090,000 in cash and a $1.15 billion credit facility, of which $765,500,000 was available as of June 30, 2024. This robust liquidity position provides American Healthcare REIT with significant financial flexibility to pursue attractive investment opportunities and navigate potential market uncertainties.
Operational Highlights and Growth Strategies
One of the key drivers of American Healthcare REIT's success has been its focus on active asset management and strategic partnerships with best-in-class regional operators. The company's integrated senior health campuses and SHOP segments have been particularly strong performers, reporting same-store net operating income (NOI) growth of 24.1% and 49.1%, respectively, in the second quarter of 2024 compared to the same period in 2023.
The company's regional operating partners, such as Trilogy Health Services, have been instrumental in driving occupancy gains, optimizing revenue mix, and improving operational efficiencies across the portfolio. American Healthcare REIT's hands-on approach to asset management and its ability to identify and capitalize on emerging trends in the healthcare real estate market have been critical to its success.
Looking ahead, the company's growth strategies are centered around continued expansion within its managed segments, strategic acquisitions, and selective development projects. American Healthcare REIT is well-positioned to leverage its strong operating platform and deep industry relationships to identify and execute on attractive opportunities that align with its investment criteria and drive long-term shareholder value.
Based on the strong performance and positive outlook, American Healthcare REIT has increased its full-year 2024 guidance. The company now expects normalized funds from operations (NFFO) to be in the range of $1.23 to $1.27 per fully diluted share, representing a $0.04 increase to the midpoint of earnings guidance compared to the previous quarter's guidance. This upward revision is primarily due to increased expectations for NOI growth in 2024 across AHR's combined same-store portfolio, which is now expected to be between 12% and 14%.
At the segment level, AHR has provided the following guidance for 2024:
- Integrated Senior Health Campuses: NOI growth between 18% and 20%, up from the previous guidance. - SHOP (Senior Housing Operating Portfolio): 45% to 50% NOI growth, also increased from the previous guidance. - Outpatient Medical: Flat to slightly declining growth (unchanged from previous guidance). - Triple-Net Leased: 1% to 3% growth (unchanged from previous guidance).
These improved projections underscore the company's confidence in its operational strategy and the ongoing recovery in the healthcare real estate sector.
Risks and Challenges
While American Healthcare REIT's diversified portfolio and operational expertise have contributed to its success, the company faces several risks and challenges that warrant consideration. These include:
1. Regulatory Changes: The healthcare industry is subject to extensive regulations, and changes in government policies, reimbursement rates, or other regulatory environments could impact the company's tenants and, consequently, its financial performance.
2. Competition: The healthcare real estate market is highly competitive, with numerous REITs, private equity firms, and other investors vying for attractive properties and assets. American Healthcare REIT's ability to maintain its competitive edge and secure accretive acquisitions could affect its growth trajectory.
3. Occupancy Fluctuations: Fluctuations in occupancy rates, particularly in the SHOP and SNF segments, can impact the company's revenue and profitability. Factors such as the COVID-19 pandemic, changes in demographics, and the availability of alternative care options could affect occupancy levels.
4. Interest Rate Risks: As a REIT, American Healthcare REIT relies on debt financing to fund its operations and growth. Changes in interest rates could impact the company's cost of capital and affect its ability to execute on its strategic initiatives.
Conclusion
American Healthcare REIT, Inc. has established itself as a leading player in the diversified healthcare real estate sector. The company's focus on active asset management, strategic partnerships, and a disciplined capital allocation approach have positioned it for continued growth and value creation. With a robust portfolio, a strong balance sheet, and a seasoned management team, American Healthcare REIT is well-equipped to navigate the evolving healthcare real estate landscape and deliver long-term returns for its shareholders.
The company's recent upward revision of its full-year 2024 guidance demonstrates confidence in its operational strategy and the ongoing recovery in the healthcare real estate sector. As American Healthcare REIT continues to execute on its growth initiatives and capitalize on favorable industry trends, it remains well-positioned to create value for its shareholders and maintain its status as a leading player in the healthcare REIT space.