American Healthcare REIT, Inc.

Good day. My name is Dennis, and I will be your conference operator. At this time, I would like to welcome everyone to the American Health Care Read fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Alan Peterson, Vice President, Investor Relations and Finance. Please go ahead.

Good morning. Thank you for joining us for our fourth quarter 2023 earnings conference call. With me today are Danny Prosky, President and CEO, Brian Pei, Chief Financial Officer, Gabe Wilhite, Chief Operating Officer, and Stefan Oh, Chief Investment Officer. On today's call, Danny, Gabe, and Brian will provide prepared remarks discussing our company, financial results for 2023, as well as our outlook for the current year and recent news relating to American healthcare. Following these remarks, we will conduct a question and answer session with covering research analysts. Please be advised that this call will include forward looking statements. All statements other than statements of historical facts made during this conference call are forward-looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, March 22nd, 2024. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release and supplemental information package. As a note, our operating and financial results, including GAAP and non-GAAP financial measures, are fully detailed in our earnings release and supplemental information package. You can find these documents, as well as SEC reports, and the audio webcast replay of this conference call on our website at AmericanHealthcareReit.com. With that, I will turn the call over to our President and CEO, Danny Proskey.

Thank you, Alan. Good morning or good afternoon, everyone, and thank you for joining AmericanHealthcareReit's first earnings call as a New York Stock Exchange listed company. We are proud to be part of the listed REIT community and are as optimistic as ever about the prospects for our business. Before we begin, I'd like to take a moment to thank all of our AHR board members, employees, and supporters for the countless hours they have dedicated over the last 18 months since we began preparing for the common equity offering we completed in February of this year and our related listing on the New York Stock Exchange. From myself and our executive team, we say thank you. Now let's get started. As Alan mentioned, I'm Danny Parofsky, President and CEO of American Healthcare REIT, or AHR for short. Today I will start with a brief, high-level overview of who we are to give listeners a better understanding of AHR and provide some brief comments on where we intend to go from here. Then I will turn the call over to Gabe and Brian to discuss operating performance across our diversified healthcare portfolio, and our financial positioning after the recent completion of our equity offering and listing on the NYSE. We've had the pleasure of introducing many new investors to AHR over the better part of the last year and a half. For those of you who are still getting to know us, we're a diversified healthcare REIT with approximately 57% of our net operating income as of the end of the fourth quarter in 2023, coming from our RIDEA operating portfolio, where we participate in the operations of the facilities that we own. At the end of the year, the majority of our RIDEA NOI, making up approximately 49% of our total NOI, came from our integrated senior health campuses, which we refer to as our Trilogy assets, with Trilogy Management Services operating the facilities. Our Trilogy assets comprise the largest part of our business and are unique among listed healthcare REITs. To put it simply, our Trilogy assets are full service, catering to the most of the intermediate and long-term healthcare needs of seniors. These primarily purpose-built campuses contain assisted living and skilled nursing beds all under the same roof. Many of the facilities also have independent living and memory care units on site. Having all these services within one campus provides meaningful efficiencies that allow Trilogy to be among the best-in-class operators within healthcare real estate. Our integrated senior health campus segment is owned in a joint venture structure of which we own approximately 75%. In 2023, we entered into an agreement that provides us with the option to purchase the portion of our Trilogy joint venture that we do not own at a specified price through September 30th, 2025. We believe that this is a tremendous growth opportunity with limited operating risk as we know the assets well and they are already fully consolidated in our financial statements. Additionally, if we exercise the option, we would have full control over implementing Trilogy's external growth strategy and would result in earnings accretion since we would receive 100% of any future earnings generated by the Trilogy assets. Moving on to our senior housing operating property segment, otherwise known as SHOP. We believe that this segment offers significant upside potential due to our ability to capture further occupancy and rental rate growth. We believe that the fundamentals underpinning this segment, namely an aging population and muted supply growth, will allow for stronger growth relative to our other segments over the near term. Over the last few years, we have endeavored to engage leading operators to manage our shop assets, who we believe are well-suited to pursue our strategy of increasing occupancy, margins, and NOI. We are bullish on the prospects for long-term care over the next several years, due to strong growth in demand coupled with less new supply as a result of a meaningful pullback in construction starts in recent years. Compared to our peers, we have a greater exposure to higher acuity assisted living units, which we believe provides a superior risk-adjusted return from the needs-based care that these properties provide. SHOP makes up the balance of our RDEA properties and roughly 9% of NOI for the fourth quarter of 2023 spread across 55 properties in 14 states with seven operating partners as of the end of 2023. We expect this exposure to grow over time given the strong bottom line trends we anticipate in this segment over the coming years. The balance of our NOI is split between outpatient medical buildings and triple net leased assets, which make up approximately 27% and 13% respectively as of the fourth quarter. Our outpatient medical buildings span the country and are well located, with roughly 75% of them classified as on campus, campus adjacent, or affiliated with a broader health system. 90% of the segment is multi-tenant, which we believe mitigates our exposure to tenant concentration risk. In our triple net lease segment, we own and net lease senior housing facilities, skilled nursing facilities, and two hospitals. This segment generally offers lower growth potential than our other segments with operating exposure. since we primarily act as a net lease landlord in this segment and are entitled to receive contractual rent that generally benefits from annual escalators. That said, we believe that this segment provides us with a stable and growing source of revenue. With that, we look forward to our future as a listed company. We believe we're well-positioned to deliver outsized growth driven by our focus on senior housing investments in the RIDEA structure and our unique access to integrated senior health campuses through Trilogy. We have seen strong senior housing fundamentals drive portfolio performance in 2023. And because those fundamentals remain strong, we continue to partner with great operators. We expect to continue to deliver operating results that create value for our shareholders in the future. Now, I will turn it over to Gabe to discuss recent operating trends within our portfolio. Thank you, Danny. That was a great overview. I'm excited to report the fourth quarter of 2023 was another strong quarter and capped off a very strong year. We executed on aggressive, organic growth initiatives, and our portfolio continued to deliver outsized growth driven by highly attractive fundamentals in the senior housing and care space. Across our portfolio, same-store NOI for the fourth quarter grew by an impressive 9.5% year-over-year. Our operating portfolio, which consists of our trilogy investment and shop segment, led the way. Our trilogy investment, in particular, continued to perform well. Trilogy finished 2023 with occupancy roughly 300 basis points higher than in 2022. This is particularly encouraging because Trilogy's occupancies are already generally very high in the industry, roughly 300 basis points higher than the NIC average for both assisted living and skilled nursing. And we were happy to see Trilogy continue to trend well above industry average. It's a testament to the quality of the operator and the care they provide for residents. That occupancy growth at Trilogy coupled with strong rate growth, both in private pay and in government reimbursement rates, drove healthy revenue growth that substantially outpaced expense growth. And as a result, Trilogy achieved 14% same-store NOI growth for the year and a nice margin expansion in the fourth quarter to 16.7%. To put that margin in context, our Trilogy facilities are generally comprised of 45% senior housing beds, with the balance predominantly being skilled nursing beds. If a good skilled nursing margin is approximately 10 to 12% today and a good assisted living margin is generally in the mid to high 20s, our trilogy facilities, given their business mix, generally compare favorably with mid to high teen NOI margins that are growing. Our senior housing operating portfolio also continues to benefit from strong senior housing fundamentals. We saw compelling NOI growth of 44.9% for the fourth quarter of 2023 and 27.2% for the full year. occupancy grew at a torrid pace. Q4 2023 occupancy was 415 basis points above Q4 2022. We believe that much of that occupancy growth can be attributed to our active asset management strategies. Across our portfolio to Danny's earlier comments, We believe that we are still in the early innings of capturing the full value of the current supply-demand dynamic that has been a tailwind for our RIDEA portfolio, and then our shop portfolio still has room to grow even after delivering strong results in 2023. In order to deliver on that value, we've been proactive in making sure that we get the right operator in the right building. In 2023, we executed several operator transitions across the portfolio, and we recently completed our last planned operator transition within our shop segment. Establishing our 1st relationship with heritage communities, we took over management of 2 of our assets in Nebraska earlier this month. We've already started to see the benefit of those transitions and we believe that we're well positioned to unlock more value in 2024. We anticipate the full benefit of the operator transitions to be realized over time because we generally expect occupancy to build 1st, drive revenue, and then pull through to NOI after incurring some typical operator transition costs. Based on what we've seen, we have conviction the right operator can drive outsized returns. We saw this in play in our Texas senior housing portfolio, where we transition management to 1 of our top performing operators at the time of acquisition in late 2022. We saw near immediate improvement in performance with occupancy increasing by roughly 900 basis points in under a year. We hope to replicate that strategy with an acquisition that we completed in February, where we acquired a 12 campus portfolio of senior housing assets in Oregon. by essentially equitizing our mezzanine debt. We were able to acquire that asset at an attractive basis, roughly $94 million and $110,000 per bed, and immediately transitioned the portfolio to one of our existing operator relationships. In short, we think our roster of proven operators will deliver on growth in 2020-24. Our team also approached 2023 with a keen focus on expense management, with a particular focus on agency labor usage, and I'm happy to report that we've seen meaningful improvements on our expense controls, which contributed to our strong bottom line performance. Since the peak of agency labor usage in 2022, our shop assets have seen close to a 70% reduction in agency labor costs, and we expect those costs to continue to trend down over time as we focus on that issue next year. As we look at early results for our operating portfolio in 2024, occupancy continues to trend upward to start the first quarter. Total portfolio spot occupancies for our SHOP and integrated senior health campuses are currently up 250 basis points and 100 basis points respectively from the average reported occupancy during just the fourth quarter of 2023, with SHOP at roughly 83% and Trilogy at roughly 86%. Our outpatient medical portfolio produced same-store NOI growth of 3.2% for the full year 2023. We're pleased with that level of growth in a business that has been dependent on strong leasing. That being said, sustaining that level of growth in 2024 would be a bit of a surprise. We're seeing broader industry trends of health systems consolidating space and downsizing. Of course, our team will again take a proactive approach to leasing in 2024, but we expect known vacates early in the year. That require releasing as well as a tougher comp from a good 2023 to challenge our ability to deliver on growth in that segment in 2024. The remainder of our triple net portfolio delivered a steady 2% growth for the full year 2023 and we're seeing the strong fundamentals and senior housing having a positive impact on our tenants businesses as well. I'll now pass it over to Brian to discuss the recent completion of our public equity offering and our listing on the New York stock exchange, our financial position. and our 2024 outlook with more detail before turning the call over to Q&A.