American Healthcare Reit Continues Shop Growth As Demand Rises

American Healthcare REIT (NYSE: AHR) is growing its senior housing operating portfolio as it picks up operational momentum.

The Irvine, California-based REIT reported strong upside from its focus on Medicare Advantage (MA) through one of its operating partners, Trilogy Health Services, and the company has a pipeline of investment planned that is fully composed of SHOP acquisitions.

In the second quarter, AHR leaders reported a 23% increase year-over-year in same-store net operating income (NOI) growth within its SHOP segment as spot occupancy has now surpassed 87.5% with census momentum carrying into the summer selling season.

This marks the highest move-in activity seen by AHR “in years, and maybe ever,” AHR CEO Danny Prosky said during the company’s second-quarter earnings call Friday. At the same time, the REIT reported margins above 20% for its SHOP segment with more improvement expected as occupancy continues to climb upward.

Prosky sees mid-90% peak occupancy as a realistic goal for the segment as it captures pricing power through admissions and payer mix optimization. SHOP now accounts for roughly three-fourths of AHR’s NOI.

AHR stock rose 1.57% on Friday to rest at $40.51, an increase of $0.62 from the previous day’s trading.

“We got used to mid-to-high-80s being the standard over the last few years, just because of a lot of supply being built,” Prosky said. “In my mind, the mid 90s is where we’re headed. And [that] could be higher, depending on what you’re willing to do, as far as pricing.”

But, that doesn’t mean AHR is going to “give away occupancy” just to report “a high number,” said COO Gabe Willhite. He noted that the company is looking at “the total impact of the business” to make sure AHR realizes a “prolonged period of NOI growth” in the months and years ahead.

Approximately one-third of AHR communities are fully occupied at 95% and above, which has helped fuel NOI growth “at a nice clip,” Prosky added.

Fueling these improvements, AHR has implemented regionally focused “benchmarking and pricing discipline” across the SHOP segment, taking best practices from Trilogy’s integrated senior living health campuses and using those insights in other areas of the platform, Prosky said. The REIT is also focused on wage monitoring and expense control management to maintain margin stability and further improve margin growth.

AHR leaders highlighted Trilogy’s success leveraging MA reimbursement rates, which Prosky said are 79% higher than Medicaid rates and 42% higher than private pay. That makes MA expansion a lucrative prospect in the years to come, Prosky said, as Trilogy’s margins are approaching pre-pandemic levels at 20%.

“Your average daily rate could increase significantly by focusing really on those contracts that pay you a higher rate,” Prosky said.

In terms of acquisitions, AHR has completed $255 million in acquisitions, focusing exclusively on the SHOP portfolio and growth with Trilogy. Closed deals include a $65 million SHOP property in Virginia operated by Heritage Senior Living, paired with $33.5 million in new SHOP acquisitions.

Other acquisitions closed in the second quarter include $65.3M for four Trilogy-managed properties and $118 million for a 51% buyout from a joint venture with Trilogy, with the assets being newly developed and currently working towards stabilization.

AHR’s investment pipeline totals over $300 million in new investments for SHOP assets and assisted living and memory care with “selective” independent living properties.

Just what those acquisitions could look like could be “larger, newer, high quality” assets, Prosky added.

In the second quarter, AHR also established a new relationship with Great Lakes Management, a Midwest-focused senior living operator.

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