American Healthcare REIT - Q4 2025

Transcript

Operator (participant)

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to American Healthcare REIT Q4 2025 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 followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead.

Alan Peterson (VP of Investor Relations and Finance)

Good morning. Thank you for joining us for American Healthcare REIT's fourth quarter 2025 earnings conference call. With me today are Jeff Hanson, Chairman and Interim CEO and President, Gabe Wilhite, Chief Operating Officer, Stefan Oh, Chief Investment Officer, and Brian Peay, Chief Financial Officer. On today's call, Jeff, Gabe, Stefan, and Brian will provide high-level commentary discussing our operational results, financial position, our 2026 guidance, and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session. Please be advised that this call will include forward-looking statements. All statements made during this call, other than statements of historical fact, 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. You should exercise caution in interpreting and relying on them.

I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results, financial condition, and prospects. All forward-looking statements speak only as of today, February 27, 2026, or such other dates as may otherwise be specified. 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. During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

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, supplemental information package, and our filings with the SEC. You can find these documents as well as an audio webcast replay of this conference call on the Investor Relations section of our website at www.americanhealthcarereit.com. I'll turn the call over to our Chairman and Interim CEO and President, Jeff Hanson.

Jeffrey Hanson (Chairman, Interim CEO, and President)

Thanks, Alan, and greetings to those of you joining us today. Before the team dives into our results, I want to start by addressing the leadership update that we shared earlier this month. As you know, I've stepped into the role of Interim CEO while Danny's on a medical leave of absence. I'm pleased to share that he's at home recovering well and is in good spirits. In fact, he remains engaged. He and I speak regularly each week on the business front, and he's participating in all of our board meetings virtually while he's on the mend at home. He intends to return in the relative near term, but it's too early to have timing visibility at this point. By the way, we appreciate the many well wishes sent from our partners and stakeholders. We pass them along to the Prosky family, and for that, he's grateful.

Thank you. For those of you who don't know me well, I served as chairman since the company's formation and previously led AHR's predecessor companies as both chairman and CEO. I'm one of the three co-founders of the companies, and I led this platform for roughly 16 of the past 20 years alongside both Danny and Matt Streiff. Matt, of course, being our third founding partner and a current board member. Together, we built this platform over the past two decades with a clear vision: to create a disciplined healthcare company focused on providing and facilitating high-quality care and superior health outcomes. Our team here continues to reinforce this internally and externally, as this vision is actually what drives our performance and long-term value creation, and this foundation remains firmly in place today.

Along the way, Dan, Matt, and I have built the executive management team that you know so well today. The rest of the board and I have tremendous confidence in our team's ability to continue to do what they've done exceedingly well over the past decade, which is to drive the growth and the performance of this REIT. I want to be very clear at the outset, this is a seamless continuation of the strategy and execution you've grown to expect from this team. My role as interim CEO is one of continuity, support, and advisory. There's no change in strategy. Our investment and capital allocation strategy, risk management framework, balance sheet posture, and long-term value orientation remain unchanged, and our executive team continues to work very closely with the board in executing against the established plan.

It's also important to note that I've been engaged as the interim CEO full-time since the day after Danny's medical event, I can tell you that the organization is operating with the same alignment, focus, and clarity of execution as it ever has. One of the company's greatest strengths, by the way, has always been the depth and the commitment of our people, which is particularly evident during times like this. Importantly, the results you're about to hear reflect the strength of this platform and the depth of our team. With that, I'll turn the call back to the team to walk you through the quarter and our outlook. Thank you.

Gabe Willhite (COO)

Thanks, Jeff. Operationally, the fourth quarter capped off another exceptional year of outsized NOI growth for AHR. We delivered total portfolio same store NOI growth of 11.8% in the fourth quarter and 14.2% for the full year 2025. This marks our second consecutive year of double-digit total portfolio same store NOI growth, and it underscores the value of our hands-on asset management approach.

Performance was once again led by our operating portfolio, which is comprised of our integrated senior health campuses, also known as Trilogy and SHOP segments. These segments now contribute 76.9% of consolidated cash NOI for our business, and where we continue to see the benefits of scale, alignment, and operating leverage. The growth in our same-store operating portfolio in 2025 was driven by three primary things: occupancy gains, disciplined rate management, and continued expense controls. As occupancy has moved higher throughout 2025, each incremental movement contributed to NOI growth and NOI margin expansion as we've seen margins expand 130 basis points and 280 basis points in our Trilogy and SHOP segments, respectively, in FY2025 compared to 2024.

That operating leverage, combined with pricing discipline and occupancies sitting near 90%, positions us very well as we enter into 2026. Focusing on Trilogy, same-store NOI increased 14% in the fourth quarter and 18.4% for the full year. Same-store occupancy reached 90.6% in Q4 up 275 basis points year-over-year. Revenue growth was supported by both rate and also quality mix improvements. Quality mix continues to trend favorably. Medicare and Medicare Advantage penetration increased year-over-year, contributing 220 basis point improvements in both quality mix as a % of resident days and as a % of revenue in Q4 2025 compared to Q4 2024. We believe that this continued shift reflects exactly how Trilogy's proactive approach to aligning its care and services with the right payers best serves its residents.

This emphasis on high-quality care and health outcomes continues to be recognized and appreciated by the health systems and Medicare Advantage insurers that Trilogy partners with. High-quality operators will continue to garner the most demand for growing care needs of the aging population. As we enter 2026, Trilogy is operating at historically strong occupancy levels with embedded pricing tailwinds that give us confidence in delivering another year of double-digit same-store NOI growth in the segment. Turning to SHOP, this segment again delivered the strongest growth across our portfolio. Same-store NOI increased 24.6% in Q4 and 25.2% for 2025 compared to the same period in 2024. Same-store occupancy surpassed 90% in the Q4, averaging 90.6%, up approximately 290 basis points year-over-year.

Combined with solid RevPAR growth, the resulting NOI growth is a testament to our and our operators' focus on high-quality care and outcomes in our investments in the resident and employee experience, providing us additional pricing power in the markets we serve. These operational focus areas and investments, along with the strong supply and demand imbalance within the long-term care sector, have allowed us not to have to meaningfully compromise on any of the levers of revenue growth, such as rate or occupancy, within our pricing strategies. Once again, we expect SHOP to continue to lead our portfolio's organic growth in 2026, and this growth will be supported by our dynamic revenue management, which we're piloting with a number of our operators and properties by leveraging the platform that we continue to invest in with Trilogy.

I expect that these developments in revenue management that have really been continuously evolving over time to allow us and our partners to capture sustained levels of above average NOI growth well into the next decade. Finally, I wanna thank our operating partners for their commitment to our mission of providing high-quality care and outcomes for the residents they care for. Their standards of care have helped contribute to the great health outcomes and the resulting financial performance we've achieved, which we expect to continue this year. With that, I'll turn it over to Stefan.

Stefan Oh (Chief Investment Officer)

Thanks, Gabe. 2025 was a highly active investment year for AHR. We closed on over $950 million of new investments across our Trilogy and SHOP segments, all in collaboration with our trusted regional operating partners. Our investment philosophy remains consistent. We are focused on relationship-driven sourcing, disciplined underwriting, and long-term cash flow durability and growth. The majority of our acquisition volume this year was within SHOP, where we added newer assets in attractive submarkets alongside existing regional operators. This has now positioned our SHOP segment as the second-largest within our diversified portfolio in terms of cash NOI. By design, yet without set allocations, we've shifted more of our portfolio into our operating portfolio segments, which is where we continue to see the best risk-adjusted returns.

Nonetheless, we will remain nimble and respond appropriately to any changes that occur in the transaction markets to take advantage of attractive opportunities as they arise. In many cases, our SHOP acquisitions were relationship-sourced or off-market opportunities where we had deep familiarity with the operator and the local market dynamics. We continue to seek opportunities where we know the operator first and can underwrite performance with conviction. Our goal is not simply near-term accretion, but sustained NOI growth. This is why we underwrite all our acquisition targets holistically by focusing on market demographics, operator expertise, acuity mix, and age of asset, just to name a few of the many metrics we evaluate to inform our potential risk-adjusted returns. The detail our team emphasizes allows us to be confident in allocating our dollars today to provide for the best possible near-term and long-term performance outcomes.

Additionally, with many of our deals in 2025, we bought the newest asset within their respective markets, and we expect those communities to be market leaders for some time. Data continues to show that new starts and supply growth are at historically low levels, with deliveries of new stock below 1% of existing inventory, giving us conviction in our expectation that competitive pressure in those markets will remain muted. Further, any incremental supply should be absorbed rather quickly by the growing demand, highlighted by the baby boomer generation turning 80 this year. This dynamic should allow us to maintain market position for the next several years and beyond.

In addition to successfully accelerating several previously announced pipeline deals in the third quarter, which enabled us to close approximately $665 million of new acquisitions in the fourth quarter, we have continued to secure and close new acquisitions in the first two months of 2026 that will further complement our portfolio. Year to date, we have closed on approximately $117.5 million in new acquisitions within our SHOP segment. We maintain over $230 million of awarded deals in our pipeline. After a busy end to 2025, we continue to see more deal activity and more properties available for acquisition in 2026 through both off and on market channels. We are prepared to competitively deploy capital in pursuit of this increasing volume of opportunities.

With regards to development, our pipeline remains focused primarily on Trilogy expansions and campus growth initiatives. These projects are designed to generate attractive incremental yields with limited market risk, leveraging existing campuses to mitigate any operating losses upon opening, as well as providing faster cash flow to recycle right back into the new development projects. In summary, capital allocation remains aligned with our long-term strategy. We believe we are well positioned within the industry with available liquidity and a strong operator network that allows us to source and execute on accretive opportunities. With that, I'll turn it over to Brian.

Brian Peay (CFO)

Thanks, Stefan. The fourth quarter rounded out a strong year for AHR, as evidenced by the growth we were able to achieve. We reported normalized funds from operation attributable to common stockholders, or NFFO, of $0.46 per diluted share in the Q4 of 2025, and $1.72 per diluted share for all of 2025. That represents 22% year-over-year NFFO per share growth in 2025 as compared to 2024. Importantly, this level of growth was achieved while continuing to improve our debt to EBITDA by nearly a full turn in 2025.

Our earnings growth in 2025 was primarily driven by the double-digit total portfolio same-store NOI growth, helped by the accretion from buying out the minority interest in Trilogy back in September of 2024, and additional accretion from the $950 million of new acquisitions. Our acquisitions were completed with a combination of retained earnings and accretively priced equity issuances over the course of the year from our ATM program and the November 2025 follow-on equity offering. I'm pleased that all areas of the organization contributed to the growth we delivered to our shareholders in 2025 and expect to carry this momentum into 2026. Looking ahead to this year, we issued 2026 NFFO guidance of $1.99 to $2.05 per diluted share.

This implies another year of double-digit NFFO per share growth and only includes the previously consummated 2026 acquisitions that Stefan mentioned earlier of $117.5 million. Our total portfolio same-store NOI growth guidance for 2026 is between 7% and 11%. That range is comprised of the following segment level same-store NOI growth ranges: 8%-12% growth in Trilogy, 15%-19% growth in SHOP, 0%-2% growth in outpatient medical, and a range of 2%-3% growth in our triple net lease property segment. Moving to our capital markets activity and balance sheet. We continued to execute opportunistically in the equity markets during Q4 of 2025. We settled forward equity agreements, raised additional capital via our ATM program, and completed a forward equity follow-on offering in November of 2025.

We utilized this accretively priced equity to fully fund the approximately $665 million of acquisitions closed in the Q4, the 2026 investments that have only recently closed, and fund our planned 2026 development spend. As a result, we de-risked much of the execution for the growth plans we have in 2026 and maintain ample capacity, as highlighted by our 3.4x net debt to EBITDA, to capitalize and close on the opportunities Stefan's team continues to evaluate. Importantly, this debt-to-EBITDA metric does not account for the approximately $287 million of unsettled forward agreements from our ATM and the November 2025 follow-on offering. We are entering 2026 from a position of strength.

We have operating momentum, capital availability, disciplined underwriting, and improving leverage metrics, equipping our team to continue to deliver on our mission of providing and facilitating high-quality care and health outcomes for our residents and creating value for shareholders. With that, operator, we'd like to open the line for questions.

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, please press star, then one on your telephone keypad. We request that you limit yourself to one question and one follow-up. You're welcome to re-queue with additional questions. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Wes Golladay with Baird. Your line is open.

Wes Golladay (Senior Research Analyst)

Hey, everyone. Can you maybe dive in a little bit deeper on the acquisition environment? Are you seeing any, I guess, subsegments, whether it's higher acuity or a little bit lower acuity, that is having any cap rate compression or any changes to terms of the management agreements?

Stefan Oh (Chief Investment Officer)

Hey, Wes. This is Stefan. Thanks for the question. First let me just say that obviously we're very pleased with what we we're able to accomplish in volume and quality of acquisitions this year, and want to just publicly acknowledge the teams here at AHR and our operators for allowing us to do what we could do. I think just kind of directly at your question, you know, we continue to focus on higher acuity SHOP assets. You know, we think that there's a real benefit to focusing on the AL, the memory care side. I think it just allows us to have more confidence in the long-term stability of that asset class.

We do obviously have some independent living in our acquisition portfolio that, you know, most of it is part of a continuum of care. You know, really at the end of the day, that's maybe 20% of the total units that we're acquiring. I think there is a little bit of a variance in terms of what we will see in pricing when it comes to, you know, a full continuum asset of AL memory care and IL versus something that might be strictly independent living. You know, obviously a little bit lower cap rate on the IL side. You know, for the most part, we're sticking with the higher acuity asset class.

You know, I think, again, that gives us some advantage.

Wes Golladay (Senior Research Analyst)

Okay. Thanks for the time.

Operator (participant)

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open.

Ronald Kamdem (Head of U.S. REIT and Commercial Real Estate Research)

Hey, just two quick ones. Just starting with the SHOP, thinking about sort of the guidance for this year, baking in some deceleration. Was just trying to think through if you can decompartmentalize in terms of, you know, RevPOR and occupancy, how maybe you see this year playing out, versus 2025? Thanks.

Jeffrey Hanson (Chairman, Interim CEO, and President)

Yeah. Hey, Ron. morning, afternoon. You know, the thought is this: We had over 250 basis points of occupancy increase in our SHOP portfolio just in 2025. The question becomes, you know, are we gonna do another 250+ basis point increase? It's hard to say. I also think it's important to look at where we came from. Same-store NOI growth in SHOP grew 50% in 2024, 25% in 2025, and now the midpoint of our guidance range is 17%. That's a pretty dramatic growth trajectory for that segment. You know, we do know that we, the more occupied our buildings get, the more pricing power we have.

At 90.6%, I think, is the same store occupancy, we have more and more pricing power. You'll see us push rate for the existing residents, but you'll also see us pushing street rates far more aggressively. I think what you're gonna see over time is there's gonna start to become scarcity in certain markets. We have a tremendous conviction in the business over the next five to 10 years and can pretty comfortably say that occupancies are gonna be somewhere between 95%-100% during that time period. Exactly where they end 2026 is sort of remains to be seen. That, that's I guess. Did you say you had another question?

Ronald Kamdem (Head of U.S. REIT and Commercial Real Estate Research)

Yep. Just wanted to hit on sort of Trilogy a little bit, as well, just 'cause, you know, you guys are at 90% occupied. You know, I think you've made some comments about the benefit of quality mix being able to sort of help the business and so forth. I guess just wanna get an update on, you know, occupancy upside and how much that sort of mix shift you think can help sustain pricing. Thanks.

Gabe Willhite (COO)

Great question, Ron. This is Gabe. Trilogy's model, as everybody knows, is unique in the space where they've got the mix of skilled nursing, assisted living, independent living, memory care, all under one roof in an integrated campus, and that creates different drivers for their NOI growth. We're pretty proud, like Brian said, at the numbers that they put up in 2024 and 2025, We're very appreciative that we have a strong partner at Trilogy there, I wanna thank them for all their efforts on it. The key thing with Qmix is gonna be shifting to the higher payor sources, which you've seen us do over the last two years. Having more people in Medicare setting and Medicare Advantage settings helps, and fewer in the Medicaid setting helps.

We're also augmenting the existing campuses with more villa projects, which you can see in the development pipeline there, pushing even more earnings growth through on the senior housing side and shifting the mix to more private pay globally. All those levers are things that Trilogy can use to drive the overall NOI performance. It's difficult to predict exactly which way they're gonna go. I can tell you that we're gonna optimize for NOI growth. We're not gonna sacrifice rate for occupancy. We're not gonna sacrifice occupancy for rate. We're gonna make sure that Trilogy's pulling every lever that they have to continue to grow the business as they've demonstrated that they can do.

Operator (participant)

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Austin Wurschmidt (Director and Equity Research Analyst)

I just want to go back to the same store NOI growth outlook for Trilogy, you know, recognizing it is a little bit lower than, you know, where you started, you know, last year, you know, straddling kind of that last two-year starting point. I do recognize the occupancy is higher today, but Gabe, you did highlight the flow-through benefits at these levels. I guess what are some of the moving parts to drive that upside versus the initial range that, you know, has kind of been a tailwind for you guys the last couple of years?

Jeffrey Hanson (Chairman, Interim CEO, and President)

Yeah. Great question, Austin. I appreciate it. There are a number of different ways that things can break where I think with Trilogy, we've got upside potential that's disproportionate to downside risk. I do not see us going backwards in occupancy, but the velocity of occupancy gains could outpace even what we think. Especially in the post-acute business, where historically there have been pressures on length of stay from both a Medicare and a Med Advantage plan perspective. Those seem to be normalizing. If that trend holds true, I think you can expect some upside in our occupancy assumption. The same is true about Med Advantage plans and the rates that we're getting there as well. 2025 was a tremendous year for optimizing rate around Med Advantage plans, and primarily driven by one particular contract.

If we get more attention on that front and we've got more partners that are recognizing and leaning into Trilogy's quality of care, I could see outsized growth coming from that lever as well. Then on the private pay side, you know, what Trilogy has going on with revenue management is pretty unique. They've built a proprietary platform within their system, a solution that can price each unit dynamically in real time based on a number of attributes that they load into the program. They also can take micro-market data real time and load that into the system. They can push that information. They have a way to push that information through to the people that need it the most that are actually in the building.

All those things combined, I think, give them a strategic advantage, a competitive advantage on the revenue management front. If we can push that throughout our platform to our other SHOP operators, I think it will benefit AHR as a whole.

Austin Wurschmidt (Director and Equity Research Analyst)

No, that's really helpful. I mean, are you able to offset the lower rate growth environment from the government reimbursement side of the business with, you know, the private pay portion and just through, you know, the mix shift opportunities you highlighted to drive that flow through? You know, or is it going to take more time, I guess, depending on, you know, you said you kind of can't predict kind of the demand, but the contracts are in place to, you know, set it on the right path, I guess, directionally.

Jeffrey Hanson (Chairman, Interim CEO, and President)

That's a great question, Austin. That's the one that we all wish we had a crystal ball that was perfect to be able to tell where we go from here. There are scenarios where they can make up for it, I think, absolutely. A lot of things would have to break Trilogy's way in order for that to happen, and I think it would be too speculative to be helpful for us to predict that those things would all break our way.

Operator (participant)

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open.

Michael Carroll (Senior Analyst)

Thanks. Gabe, I wanted to circle back on your comments regarding the revenue management system. I know in your prepared remarks, I think you were highlighting some pilot programs of kind of rolling that out to some of your other SHOP-related partners. I mean, can you kind of help us understand where you are at in that process of rolling out that program and, have those, partners to start to see some type of benefit related to that yet?

Gabe Willhite (COO)

Yeah. Thanks for bringing it up, Mike. I think it's an important differentiator for AHR as a whole and it really stems from our unique partnership with Trilogy. Let me back up for a minute. With Trilogy, we've got, I think an unparalleled alignment within the space where the management agreement with Trilogy is highly incentivized based on an LTIP, and that LTIP is paid in AHR stock. We were the first people in the space to adopt a management equity plan that fully aligns our company's performance with the currency we're using to pay Trilogy's long-term incentive. What that did was really unlock a financial incentive for the Trilogy platform to help support our other shop operators.

If they're doing extra work and investing in more time and effort and resources into helping our other SHOP operators perform better, they're actually participating in the value creation from that work. That was the catalyst for revenue management and how that could be spread through our SHOP portfolio, there are other areas where that can work as well. That can work in sales and marketing, search engine optimization. That can work in recruitment, employee engagement. It can work in enrichment for residents. There are a lot of different things that we're trying to test out to see how we can grow the platform value by partnering with Trilogy.

Also some of our other operators that have great programs that can be spread throughout our operating platform to others, through means that we can be a conduit for. Where we're at in that process is still too early for us to release the results from it. I think the people that are using it are both ends of a different spectrum. One is good operators that are very highly occupied, where the strongest lever for NOI growth is gonna be revenue management in 2026 and 2027, 2028 as they kind of pick up the pricing power from that very high occupancy.

The other end of the spectrum is people who maybe have rates that are on the lower end of market in the markets that they're in and understanding why that exists and if we can solve it with a revenue management tool, then we'll just have another, you know, quiver or arrow in the quiver to use in these situations throughout our portfolio.

Michael Carroll (Senior Analyst)

What operators are finding this most successful? I mean, I'm guessing that some of the bigger ones that you have are probably not gonna want or need this type of help. Are you starting with a few operators today, and you plan on rolling it out to the majority of your operators down the road if it's successful with these first few?

Gabe Willhite (COO)

That's exactly right. We take a view that all of our partnerships with our operators are collaborative. We're not gonna force anybody to use anything that they don't find to be helpful. If they're already maximizing their revenue management programs, and they've already tapped into it as far as they can go, great. That's what we fully expect them to do. If they're smaller regional operators that feel like they're resource-constrained, that don't have a full IT team to build out a proprietary program like Trilogy has, that's where we can be helpful. That's where we can help give them the resources they need to outperform the market.

Operator (participant)

Your next question comes from the line of Nick Yulico with Scotiabank. Your line is open.

Nick Yulico (Managing Director and Senior Equity Analyst)

Thanks. Hi. In terms of the acquisitions, you know, the awarded deals, the $230 million in the pipeline, I know those aren't in guidance, but can you just give us a sense for, like, the potential timing of those and what is delaying the closing, since I know, I think you said some of those have been in place in the pipeline since the 3rd quarter? Thanks.

Stefan Oh (Chief Investment Officer)

Hey, yeah, this is Stefan. Well, I guess just to address the first thing, you know, it's not, it's not a delay of closing. Just to kind of go back to where we were when we last talked about on this call about acquisitions, at that time, we had about $580 million that we had closed through the point of the earnings call. Since that time, in the last three and a half months, we've closed on about $500 million of acquisitions and close on, yeah, $500 million of acquisitions, and then in addition to that, we've added to our pipeline.

You know, if you look at what we said in the third quarter call, where we had over $450 million of pipeline, we've actually added, you know, somewhere around $275 million to that today. You know, I mean, I will say that the pipeline is robust. The deal activity is very high. You know, there's always a slowdown that happens in December and through the middle of January on the marketed deal side. Even despite that, we've seen a lot of activity happening over the past four or five weeks where new deals have been coming out. On top of that, we've been working with our operators on off-market deals.

There's a lot of deal flow. There's a lot of things that we are reviewing right now. You know, the pipeline is very dynamic. I would expect that, you know, we're gonna continue to be very busy reviewing deals that we think make sense for us, and being, you know, very competitive on the ones that we really want to chase.

Nick Yulico (Managing Director and Senior Equity Analyst)

Okay, thanks. Just second question is on, and again, going back to Trilogy segment, you know, when you guys break out the revenue by, you know, payer and bed type. As we think about the different buckets there that are, you know, let's say tied to the CMS rate that's gonna be coming out, you know, in the next month or so, can you just remind us sort of, you know, how this is gonna work from a rate standpoint, how it plays out this year?

Like, how much that's gonna dictate a portion of the revenue, you know, as you explained on that page versus on the Medicare Advantage side, whether that's sort of in reaction to that rate, just as people think about kind of the comfort level and, you know, where rates could be and how they impact Trilogy this year, when we'll have more visibility on that. Thanks.

Stefan Oh (Chief Investment Officer)

Sure. The main drivers off of the Medicare rate that's coming out in April are obviously, they're gonna be Medicare and Medicare Advantage. Everybody can figure that part out, about it. What's more nuanced and probably more helpful, Nick, is that within that Medicare rate, there is a mix shift even within the resident that comes in through Medicare. Trilogy will optimize even within that payor source to find people with acuities that they feel like they can take care of well. That's why you see a rate on the Medicare rate on that page in our supplemental. That's 5.2% when the national average increase was closer to 3%. That's a acuity shift, and that can be helpful for revenue growth. That can be helpful for NOI growth. That can be helpful for margin expansion.

On the Med Advantage side, those contracts typically price off of a percentage of Medicare as well. The Medicare rate increase will flow through to Medicare Advantage. The dynamic part of that payor source, though, is that there are individual contracts with different Med Advantage plans throughout the Trilogy portfolio, and there are a lot of them. All of those contracts are negotiated separately as a discount to the Medicare rate, and that's what you're seeing when you see the Medicare Advantage per patient day rate increase relative to the Medicare rate. We're basically shrinking the discount that's being applied from Medicare Advantage plans. That's Medicare Advantage plans leaning into the quality at Trilogy.

Trilogy's five-star rating is over four for its entire portfolio on an overall basis and over 4.8 for quality measures. Those numbers are far higher than other national providers and probably industry leading on both counts. Those are the numbers that the Med Advantage plans are looking for when they're leaning into quality and trying to figure out who could really manage the cost of this resident's care the best and deliver the best quality of care for them.

Operator (participant)

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Juan Sanabria (Managing Director and Senior U.S. Real Estate Analyst)

Hi. Good morning. Just hoping you could talk a little bit more about the investment pipeline and the what year one yields you expect given what you're seeing, what's kinda already locked and loaded and what's being marketed? As part of the acquisition strategy or goals, if you're trying to move up quote, unquote, "quality spectrum" to higher demographic type seniors that can afford higher rent increases, or how you're thinking about opulence and importance there?

Jeffrey Hanson (Chairman, Interim CEO, and President)

Yeah. Thanks for the question, Juan. I think to the first part of your question, you know, I would say that we have seen on an aggregate basis, if you look at what we have, what we have been buying right now, pricing that's in, you know, around the high 5%, low 6% number, stabilizing in the 7s. You know, I think it's fair to say that there has been some cap rate compression that has occurred over the past few months. I think that's still a pretty accurate reflection of where things are. In terms of, you know, how we're looking at our acquisitions and what we're trying to achieve, we our strategy has not changed.

We are focusing on new or higher quality properties. You know, we're continuing to focus on higher acuity communities. You know, of course, there is always going to be a component that's related to the demographics and the ability for those markets to have the ability to continue to pay higher rents as they move up. I think that's also just a reflection of, you know, what kind of assets we're buying in terms of that higher quality. It's certainly our buildings that and communities that, you know, are much younger, much newer, fresher buildings. You know, residents are looking for something in that in that model.

Stefan Oh (Chief Investment Officer)

I think as this population of future residents comes to fruition, there is an expectation that they are going to have a high quality experience. I would fully expect that that is a population base that, you know, we will continue to be focused on just based on the type of assets that we're acquiring.

Brian Peay (CFO)

Hey, Juan, this is Brian. I would add to that we're in a really advantageous position with our cost to capital. It allows us to buy buildings that are, you know, we're calling them value add, but it's not value add in the traditional sense that it's an old building that's falling down, that you got to spend a bunch of capital on it. It's more likely a new vintage, 2017, 2018 construction. You know, maybe the developer still owns it. They were finally able to get out whole. We're able to buy those. They're under-managed. It could be in the 70% occupancy range. It's in a market that we know. We have a trusted operator that we feel very confident that they're gonna be able to fill those things up.

We don't need to buy stabilized assets in order to get the returns that we want over time. They can come in a little lower, but we have full expectation that they're going to be in the 7s, if not maybe even better than that.

Juan Sanabria (Managing Director and Senior U.S. Real Estate Analyst)

Great. Then just my follow-up. Curious on both the SHOP and the Trilogy segments on the NOI flow through of incremental revenue with both segments kind of just over 90% and how we should be thinking about that going forward. Thanks.

Gabe Willhite (COO)

Yeah. It's a range, Juan. This is Gabe. Depending on how occupied you are. At the high end of occupancy rates, you can maybe get 70%-80% flow through to NOI on incremental occupancy in SHOP. Same thing's true, really, in Trilogy's assisted living memory care and independent living. On the post-acute care at Trilogy and the skilled side of the business, there's obviously lower pull-through because every patient needs a certain amount of hours of care per day. There's still, don't get me wrong, there's still margin expansion that can come from that incremental occupancy that should be accelerating as you get to the higher occupancy levels because you're probably fully staffed as you get higher and higher up. It won't be to the same extent as the SHOP portfolio because of the component of care.

Yeah. Similarly on the SHOP-

Operator (participant)

Your next question.

Gabe Willhite (COO)

Similarly on the SHOP side, as you can imagine, the margins on the additional resident that moves in once you're above 90, 95% occupancy, the pull-through is dramatic. Gabe sort of even referred to some of those numbers. In the AL side, you know, it could be between 40% and 70%, depending on your occupancy. At some point you become fully staffed, you probably don't need to buy too much more incremental food for residents. Certainly, your insurance costs didn't go anywhere, your property taxes didn't go anywhere. The pull-through is dramatic. On the IL side, which is definitely a much smaller component of our portfolio, I mean, you're north of 70% pull-through on those.

Operator (participant)

Your next question comes from the line of Michael Goldsmith with UBS. Your line is open.

Michael Goldsmith (Equity Research Analyst)

Good afternoon. Thanks a lot for taking my questions. maybe just on some of the, like, unstabilized or undermanaged properties that you are purchasing, you know, can you provide color into, like, what goes into turning around a SHOP asset that has been mismanaged? What makes your incoming operator different than the prior operator? What are your operators gonna do differently that the prior operators couldn't accomplish?

Stefan Oh (Chief Investment Officer)

In many cases, it's experience, right? It's having a presence in that market, having the experience of operating in those markets on scale, knowing what the demand levers are, how to market properly, you know, how to hire the right staff, the right regionals, to oversee those communities, you know, building in the processes that they might have in place, adding to the resident and the employee experiences. I mean, there's a lot of different ways that I think someone with experience and the values that we see in our operators can change how those assets and communities are being managed.

The bottom line is you want great care, you want the employees to have a good experience, and you want the residents to also have a good experience. I think our operators are primed to do that. They, you know, they've got the ability to implement those in all the communities that we're acquiring.

Gabe Willhite (COO)

I'd add to that, Stefan, I'd echo everything you just said. When we're partnering with operators on this, we're looking for experienced people that know how to run the business, know how to manage labor and expenses, and in addition to all the things that Stefan's talking about. What we're seeing is that the outsized demand growth is actually having an impact on the transition time. Because you've got this pent-up demand for, or maybe not pent-up demand is the right word, but surging demand for the product, if you can bring in a new operator and show people that are coming in for tours and seeing the building that you've got a great resident experience, you can fill the building up faster, and you can turn it around quicker than you have been able to in the past.

That is a very compelling investment opportunity for us.

Michael Goldsmith (Equity Research Analyst)

Got it. As a follow-up, many of the SHOP players have been talking about a slight increase in competition for transactions. Can you talk a little bit about what you're seeing? Then, you know, in addition, does your relationship with Trilogy insulate you a little bit, given you're able to deploy $370 million into Trilogy assets in 2025? How should we think about Trilogy investment trends going forward?

Stefan Oh (Chief Investment Officer)

Well, let me, let me start with just your answer about competition. I mean, or your question about competition. You know, I think, I think it's fair to say that there has been an increase in those that are pursuing SHOP, you know, both from the other healthcare REITs and also from private equity. You know, I think where our advantage lies is in the fact that, you know, about half of our acquisitions are being done on an off-market basis. We are working very closely with our operators, and they are bringing us potential transactions that they only know about because they have capital partners on the other end that are maybe looking to exit.

Maybe they have assets themselves that they're at a point where they would like to recapitalize. We have been able to through our relationships really grow our pipeline through those off-market assets that are available.

Gabe Willhite (COO)

On the Trilogy front, I'll take that one, Stefan. It was an atypical year that we can't promise will happen again. We had a lot of deals that we did with Trilogy that Trilogy was already managing for different capital that we had the opportunity to go out and recap with an operator that we completely trust 100%, sometimes in situations where the assets weren't even stabilized yet, so that we were confident in the growth profile from developments that we were doing through the pandemic. That's probably not repeatable. A lot of those opportunities we've already taken advantage of. What is repeatable and what we do have an advantage on is the development capabilities of Trilogy.

Like Brian mentioned earlier, there's $150 million to $200 million a year of development with Trilogy that we're essentially not competing with other capital partners for. So you can strip out the developer economics. In some cases, you can strip out the general contractor economics, and those flow through directly to AHR and to the Trilogy management team that has an LTIP that's aligned with AHR's stock price. So they participate in the value creation for the work there as well.

Operator (participant)

Your next question comes from the line of Farrell Granath with Bank of America. Your line is open.

Farrell Granath (Research Analyst)

Thank you. I guess my first question was really just about the bridge between your normalized FFO growth and then your total same-store NOI growth and potentially on the other side of it, the total NOI growth that we could potentially expect, especially in the SHOP segment when thinking about the acquisitions that you performed in 2025.

Brian Peay (CFO)

Yeah. Listen, stopping short of giving you precise numbers, I can just give you a couple of things to keep in mind. On the SHOP side, because we only adjust our same-store pool once a year at the beginning of the year, there's a tremendous amount of SHOP assets that were sourced and purchased in 2025 that are not gonna be in the same-store pool this year.

By the way, if you look in the supplemental at page 10, you can see that the total portfolio is less occupied than the same store portfolio. That's really sort of tied in with that, what I described earlier, which was, you know, we're bringing in buildings that were under managed, they were under occupied, and now we have an operator that we trust, that we feel very confident they're gonna be able to fill those buildings. I feel good about the non-same store, their ability to grow, and all of those dollars and all that growth is going to inure to the benefit of the shareholders. They're just not gonna show up in the same store ratios. On the SHOP side, it's approximately 60% of the portfolio that's in same store.

On Trilogy side, I think it's 83%. 81, 83, something like that. There's less non-same store assets. As you can imagine, those non-same store assets were buildings that we took out of service because we wanted to add a wing, or we took it out of service because we're adding patio homes, and that happens quite quickly. By the way, the returns on those are dramatic and very beneficial to the bottom line. You know, generally speaking, I think that the non-same store assets are going to perform well this year. You might even argue they're going to perform better than the same store.

The good news for us in that, the fact that we don't adjust the same store pool, except for at the beginning of the year, that everything we bought in 2025 is going to be in the 2027 same-store growth. I would anticipate those numbers to be very positive as well. We're talking about multiyear growth, bottom line.

Farrell Granath (Research Analyst)

Great. Thank you. I believe you've been addressing this throughout the call, but just really wanted to nail it down. When thinking about the investment opportunity, and especially with the pacing that you're able to be deploying your capital into these right unit type structures, either through adding investments into Trilogy or into SHOP, how is it comparing to what you were able to do in 25? Since now we've seen other peers have actually been increasing potential investment volume for 26. Just trying to get a sense about where things could potentially shake out.

Stefan Oh (Chief Investment Officer)

I feel like you're trying to roundabout the question for me to give you guidance. I will say this. You know, obviously, if you look at how we acquired our portfolio or how our acquisitions laid out last year, it was a little lumpy. Obviously, a lot of it came from the back end. I think you're gonna see something that's a little more even over the course of this year. I think I would just add, you know, we are going to be looking at a lot of opportunities. We're going to be finding those that make sense for us.

We're going to continue to be underwriting in a disciplined way that will provide us with, you know, high quality assets and long-term performance. You know, we have the capital, we can compete, and I think we also have a great reputation as a buyer. I think, you know, that along with the fact that we are seeing more product available in the market, so far this year, you know, will lead to some very good things for us.

Brian Peay (CFO)

We're certainly aware of expectations for acquisition volume this year. You know, I would tell you that we wanna make certain we're not making bad deals. You know, if you think about the evolution of the underwriting, you know, I think it may be evolving slightly. What I mean by that is it's not as though Stefan's team has immediately switched from being very conservative to overly aggressive. It's more a factor of, you know, when we were buying things in 2024, 2024 and 2025, we put in there some level of growth, immediate growth in those. What's happened is exactly that. We have seen that growth already in 26. We've seen the growth in late 2025. What that means is that they can continue to evolve their underwriting and be slightly less conservative.

You know, I think the other thing that he has mentioned a number of times, Stefan, that there's going to be enough volume out there, and there are gonna be deals that are gonna match up with our underwriting, with our needs, with our cost of capital, with our operator base, and especially when we're bringing in such a huge chunk of those off market, directly through our operating partners. I give ourselves a pretty good shot at doing well this year on the acquisition volume.

Operator (participant)

Your next question comes from the line of Seth Bergey with Citigroup. Your line is open.

Seth Bergey (Senior Research Associate)

Hey, thanks for taking my question, and good to hear that Danny's at home and doing better. I guess just to start off, you know, you kinda mentioned some of the real estate that you're targeting, wanting kind of maybe newer vintage assets, and good locations, and that all makes sense. I guess, you know, you touched on this a little bit, you know, with wanting to partner with operators that have experience.

Just kind of given the alignment that you have with Trilogy and some of the revenue management tools that you've kind of discussed on the call, you know, would you kind of look for, you know, maybe less experienced operators to partner with where you can really kind of, you know, use that, use that know-how that Trilogy has to kind of improve results and kind of drive higher returns on kind of, you know, lower with lower quality operators?

Gabe Willhite (COO)

That's a very interesting question. I think, you know, I think what I would say to that is, we don't necessarily wanna go into a situation where we're basically developing the operator. You know, we want to go forward and build with operators that have a proven track record. You know, that is certainly the more sure and safer play for us. Obviously, there are probably a lot of great smaller operators out there that, you know, given the right resources, they could do some great things. For us, I think, we really wanna focus on those that have the history, and can prove and have proven themselves out.

Jeffrey Hanson (Chairman, Interim CEO, and President)

Yeah. I'd add to that, Seth. I think the question is really getting at what's the value that we can derive from Trilogy's platform to help support people. That's coming in kind of a different angle than what you're talking about. It's not newer operators that are new to the game that have to build out their platforms and get good at what they do. It's taking smaller regional operators who maybe don't have the scale and resources that a 150 facility Trilogy platform does and saying, "Hey, help. We're picking the winners and losers. You're obviously a winner. You know how to deliver great experience for employees and for residents. How can we help you scale and grow with you? How can we be the preferred capital partner for those best operators who wanna grow?

We know that the industry is going to demand growth from the best operators, and we're here for it.

Seth Bergey (Senior Research Associate)

Then just as a kind of a follow-up, you know, you've kind of talked on the revenue management tools that Trilogy has. You've talked on, you know, the operating leverage and, you know, on kind of the skilled side, some of the revenue optimization from the different payer sources. You know, when you kind about kind of the margin expansion that's been about 300 basis points in SHOP, how much of that kind of do you attribute to kind of just the natural inherent operating leverage in the business, and how much of it, you know, is kind of that, you know, the operating platform that you guys have with Trilogy?

Jeffrey Hanson (Chairman, Interim CEO, and President)

Great, great question. I think that, you know, what you're seeing so far is great operators that we've selected, that are doing exactly what we want them to do, which is perform at a high level. We've for years had operator summits, more recently created quarterly touch points with our operator groups to get together to share best practices, just for their own benefit so they can start to build their platforms out and make sure that they're cutting edge because this is a very innovative business that's always changing and you can always get better at. I think some of that is picked up in the performance, the Trilogy platform value is not fully realized and not fully baked. I think we're in early stages of where we can go with that platform.

Gabe Willhite (COO)

Hopefully we'll have more to talk about in the next, you know, several quarters.

Operator (participant)

Your next question comes from the line of Michael Stroyeck with Green Street. Your line is open.

Michael Stroyeck (Research Analyst)

Thanks. Good morning. Within SHOP, what are you seeing in terms of seasonality so far in the first quarter, and how much of an impact on occupancy from seasonality is currently baked in the guidance?

Jeffrey Hanson (Chairman, Interim CEO, and President)

Yeah, good question. Last year, the flu had a meaningful impact on the portfolio. Although our move-in volume was as high as it had ever been, the move-outs were disproportionately high, and that was pulling overall occupancy down. So far through early 2026, we're seeing much less of a flu impact. It's still, I think none of us in this room feel comfortable calling it that we're all the way past all of the risk associated with the flu season. So far we're getting through it better than we did last year, and occupancy is not deeply impacted, at least through February.

Michael Stroyeck (Research Analyst)

Great. Maybe one on triple net portfolio. There's a pretty steep decline in hospital coverage during the quarter. I know it's a small part of the portfolio and one of the tenants has had pretty thin coverage for some time, but can you maybe just provide some color on what drove that sequential step down, and if there are any concerns with rent payment there?

Brian Peay (CFO)

Sure. That hospital that we own in Southlake, Texas, it's a suburb of Dallas, the tenant is Methodist of Dallas, which is a double A minus rated credit rated hospital system. They guarantee the lease. They vote with their dollars. They actually own, along with the doctors, they own 9% of the hospital. They have personally invested upwards of $25 million of their own money into our building, which is really nice when people are willing to do that. They're quite committed to this asset. The volatility is tied to the fact that these guys are really shifting this hospital from a surgical hospital to a community hospital. They have added a emergency room, emergency medicine. They've added a stroke unit more recently.

They've added nuclear medicine, and I think the next phase is orthopedics. From any given month to quarter to the next, it's gonna move around quite a lot. They're very committed to the building, and the lease is guaranteed, so I feel quite comfortable with the risk profile on this one. They have a purchase option. It triggers in 2030. I would find it hard to imagine they would not wind up buying.

Operator (participant)

I will turn the call back over to Jeffrey Hanson, Chairman and CEO, for closing remarks.

Jeffrey Hanson (Chairman, Interim CEO, and President)

Well, thank you, operator, and thank you everyone for investing the time to join us today and for your continued support and confidence. It's much appreciated. I know that Danny's on the call as well, so we're looking forward to his return at the appropriate time. In the meantime, the team remains focused on executing our strategy and creating long-term value for our shareholders. With that, thank you.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.