American Healthcare REIT(AHR) - 2024 Q2 - Quarterly Results

Executive Summary & Key Highlights This section provides an overview of American Healthcare REIT's strong Q2 2024 performance and management's positive outlook for continued growth Second Quarter 2024 Performance Highlights American Healthcare REIT reported strong Q2 2024 performance with GAAP net income of $2.9 million, diluted NFFO per share of $0.33, and 15.7% total portfolio same-store NOI growth, alongside an improved net debt to annualized Adjusted EBITDA ratio of 5.9x - The company's Q2 2024 GAAP net income was $2.9 million, compared to a GAAP net loss of $11.9 million in Q2 2023[1] - Total portfolio same-store NOI grew by 15.7%, with SHOP properties increasing by 49.1% and ISHC properties by 24.1%[2] - The company's net debt to annualized Adjusted EBITDA ratio improved from 6.4x as of March 31, 2024, to 5.9x as of June 30, 2024[3] Diluted GAAP Net Income Per Share and NFFO Per Share | Metric | Q2 2024 | Q2 2023 | | :----------------------------------- | :------------- | :------------- | | Diluted GAAP Net Income Per Share | $0.01 | $(0.19) | | Diluted NFFO Per Share | $0.33 | - | Management Commentary Management expressed satisfaction with strong H1 2024 growth exceeding expectations, leading to revised upward guidance for same-store NOI and NFFO, with high growth anticipated through 2025 due to long-term care supply-demand imbalances - Company President and CEO Danny Prosky stated that H1 2024 growth exceeded expectations, leading to an upward revision of same-store NOI growth and NFFO guidance[4] - Management anticipates high levels of same-store NOI growth will continue into 2025 due to existing supply-demand imbalances in the long-term care sector[4] Second Quarter and Year-to-Date 2024 Results This section details the company's financial and operational performance for Q2 and H1 2024, including same-store NOI growth and consolidated financial statements Same-Store NOI Growth Analysis The company achieved significant portfolio same-store NOI growth in Q2 and H1 2024, primarily driven by strong ISHC and SHOP segment performance due to increased occupancy and effective expense management - Company COO Gabe Willhite stated that property performance in the ISHC and SHOP segments remains strong, with opportunities to further enhance pricing strategies to boost performance through industry-leading occupancy rates established in H1 2024[7] Q2 2024 Same-Store NOI Growth Rate (vs. Q2 2023) | Segment | NOI Growth/(Decline) | | :----------------------- | :------------- | | ISHC | 24.1% | | Outpatient Medical | (0.4)% | | SHOP | 49.1% | | Triple Net Lease | 2.9% | | Total Portfolio | 15.7% | H1 2024 Same-Store NOI Growth Rate (vs. H1 2023) | Segment | NOI Growth | | :----------------------- | :-------- | | ISHC | 22.0% | | Outpatient Medical | 0.3% | | SHOP | 41.4% | | Triple Net Lease | 3.6% | | Total Portfolio | 14.4% | Consolidated Financial Statements Consolidated financial statements as of June 30, 2024, show increased total assets and shareholder equity, decreased total liabilities, and a significant improvement to net income in Q2 2024, driven by revenue growth and reduced interest expenses Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $4.645 billion from $4.578 billion at year-end 2023, driven by net real estate investments, while total liabilities significantly decreased, leading to a substantial increase in total equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 | December 31, 2023 | Change | | :--------------------------- | :-------------- | :---------------- | :----- | | Total Assets | $4,644,615 | $4,577,933 | +$66,682 | | Net Real Estate Investments | $3,509,526 | $3,425,438 | +$84,088 | | Total Liabilities | $2,540,502 | $3,118,755 | -$578,253 | | Total Equity | $2,103,893 | $1,425,335 | +$678,558 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended June 30, 2024, total revenues and grants increased by 7.9%, total expenses by 6.4%, and the company achieved $2.9 million net income, a significant improvement from a $11.9 million net loss in Q2 2023, driven by revenue growth and reduced interest expenses Condensed Consolidated Statements of Operations Highlights (Three Months Ended June 30, in thousands) | Metric | Q2 2024 | Q2 2023 | YOY Change | | :-------------------------------- | :-------- | :-------- | :--------- | | Total Revenues and Grants | $504,581 | $467,571 | +7.9% | | Total Expenses | $472,912 | $444,565 | +6.4% | | Interest Expense | $(30,596) | $(40,990) | -25.4% | | Net Income (Loss) | $2,926 | $(11,867) | N/A | | Diluted Net Income (Loss) Per Share | $0.01 | $(0.19) | N/A | Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30, in thousands) | Metric | H1 2024 | H1 2023 | YOY Change | | :-------------------------------- | :-------- | :-------- | :--------- | | Total Revenues and Grants | $1,004,114 | $919,797 | +9.2% | | Total Expenses | $947,645 | $887,961 | +6.7% | | Interest Expense | $(67,034) | $(80,001) | -16.2% | | Net Income (Loss) | $(78) | $(39,482) | N/A | | Diluted Net Income (Loss) Per Share | $(0.02) | $(0.58) | N/A | Full Year 2024 Guidance This section outlines the company's revised full-year 2024 guidance, reflecting improved operating outlooks and the underlying assumptions Revised Full Year 2024 Guidance American Healthcare REIT significantly raised its full-year 2024 diluted NFFO per share and total portfolio same-store NOI growth guidance, reflecting improved operating outlooks across all property segments - The upward revision in NFFO guidance is primarily attributed to increased expectations for same-store portfolio NOI growth, partially offset by anticipated higher interest expenses[3] Full Year 2024 Guidance Revision Comparison | Metric | Revised FY 2024 Range | Prior FY 2024 Range | Midpoint Change | | :---------------------------- | :-------------------- | :------------------ | :-------------- | | NAREIT FFO Per Share | $1.17 to $1.22 | $1.13 to $1.19 | +$0.04 | | NFFO Per Share | $1.23 to $1.27 | $1.18 to $1.24 | +$0.04 | | Total Portfolio Same-Store NOI Growth | 12.0% to 14.0% | 5.0% to 7.0% | +700 bps | | Segment Same-Store NOI Growth: | | | | | ISHC | 18.0% to 20.0% | 8.0% to 10.0% | +1000 bps | | Outpatient Medical | (0.5)% to 0.0% | (0.5)% to 0.0% | No Change | | SHOP | 45.0% to 50.0% | 25.0% to 30.0% | +2000 bps | | Triple Net Lease | 1.0% to 3.0% | 1.0% to 3.0% | No Change | Guidance Assumptions and Non-GAAP Measures Context The company's 2024 guidance relies on specific assumptions detailed in non-GAAP reconciliation tables and supplemental financial information, with no GAAP guidance provided for total revenues and property operating and maintenance expenses due to unpredictable non-recurring items - Certain assumptions for the company's 2024 guidance can be found in the non-GAAP reconciliation tables within this earnings release and the appendix to the company's Q2 2024 supplemental financial information[9] - The company does not provide guidance for comparable GAAP financial measures of total revenues and property operating and maintenance expenses, as certain non-recurring and infrequent items included in GAAP measures cannot be reasonably predicted[9] Operational and Capital Activities This section covers the company's transactional activities, capital market engagements, balance sheet management, and distribution declarations Transactional Activity In Q2 2024, the company exercised purchase options for three previously leased ISHC properties totaling approximately $45.8 million at a 9.1% original lease rate, while maintaining a full-year asset sales expectation of approximately $65 million, with $15.6 million in non-core properties sold in H1 2024 - In Q2 2024, the company exercised purchase options for three previously leased ISHC properties totaling approximately $45.8 million[10] - The original lease rates for these properties were approximately 9.1%[10] - The company maintains its full-year 2024 asset sales proceeds expectation of approximately $65 million, having sold approximately $15.6 million in non-core properties in H1 2024[10] Capital Markets and Balance Sheet Activity As of June 30, 2024, total pro rata debt was $1.8 billion, consolidated liquidity was approximately $863.1 million, and the net debt to annualized Adjusted EBITDA ratio improved to 5.9x, with all Class T and Class I common stock converted to listed common stock post-quarter - As of June 30, 2024, the company's total pro rata debt was $1.8 billion, and total consolidated liquidity was approximately $863.1 million (including cash and undrawn credit facilities)[11] - As of June 30, 2024, the company's net debt to annualized Adjusted EBITDA ratio was 5.9x[11] - Subsequent to quarter-end, the company completed the conversion of all Class T and Class I common stock into the company's listed common stock on August 5, 2024[11] - Company CFO Brian Peay stated that strong organic earnings growth enabled further improvement in the company's leverage profile by enhancing the net debt to annualized Adjusted EBITDA ratio[12] Distribution The Board of Directors declared a quarterly cash distribution of $0.25 per share for all common stock classes for Q2 2024, paid on July 19, 2024, to shareholders of record as of June 27, 2024 - The company's Board of Directors declared a quarterly cash distribution of $0.25 per share for the quarter ended June 30, 2024[13] - This quarterly distribution was paid on July 19, 2024, to shareholders of record as of June 27, 2024[13] Non-GAAP Financial Measures and Reconciliations This section explains the non-GAAP financial measures used by the company and provides detailed reconciliation tables to GAAP results Explanation of Non-GAAP Financial Measures The company utilizes non-GAAP financial measures like EBITDA, Adjusted EBITDA, NAREIT FFO, NFFO, NOI, and same-store NOI to offer supplemental insights into operating performance, enable consistent comparisons, and assist in valuation, while acknowledging they are not GAAP substitutes - The company discloses non-GAAP financial measures such as EBITDA, Adjusted EBITDA, NAREIT FFO, NFFO, NOI, and same-store NOI, considering them useful supplements for evaluating operating performance[18] - EBITDA and Adjusted EBITDA are used by management for internal and external comparisons, operational decision-making, and are widely utilized by investors, lenders, credit, and equity analysts for company valuation[19] - FFO and NFFO provide further understanding of the company's operating performance by excluding real estate-related depreciation, amortization, and impairments[20] - NOI, Cash NOI, Pro Rata Cash NOI, and Same-Store NOI are considered appropriate supplemental measures to reflect the operating performance of the company's properties, as they exclude certain items unrelated to property operations[21] FFO and Normalized FFO Reconciliation The reconciliation table indicates significant year-over-year growth in NAREIT FFO and Normalized FFO attributable to controlling interests for Q2 and H1 2024, reflecting improved operating performance FFO and Normalized FFO Reconciliation (in thousands, except per share amounts) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :---------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net Income (Loss) | $2,926 | $(11,867) | $(78) | $(39,482) | | NAREIT FFO Attributable to Controlling Interests | $41,746 | $27,574 | $73,044 | $39,265 | | Normalized FFO Attributable to Controlling Interests | $43,740 | $24,147 | $74,838 | $44,376 | | Diluted NAREIT FFO Per Share Attributable to Controlling Interests | $0.32 | $0.42 | $0.62 | $0.59 | | Diluted Normalized FFO Per Share Attributable to Controlling Interests | $0.33 | $0.37 | $0.64 | $0.67 | EBITDA and Adjusted EBITDA Reconciliation For the three months ended June 30, 2024, EBITDA was $79.96 million and Adjusted EBITDA was $82.49 million, following adjustments for various non-cash and non-recurring items EBITDA and Adjusted EBITDA Reconciliation (Three Months Ended June 30, 2024, in thousands) | Metric | Amount (in thousands) | | :---------------------------------------------------------------------------------------------------- | :------- | | Net Income | $2,926 | | Interest Expense (including amortization of deferred financing costs, debt discount/premium, and loss on extinguishment of debt) | $30,596 | | Income Tax Expense | $686 | | Depreciation and Amortization (including amortization of lease assets and accretion of lease liabilities) | $45,750 | | EBITDA | $79,958 | | Loss from Unconsolidated Entities | $1,035 | | Straight-Line Rent and Above/Below Market Rent Amortization | $(329) | | Non-Cash Equity-Based Compensation Expense | $2,765 | | Business Acquisition Costs | $15 | | Net Loss on Disposition of Real Estate Investments | $2 | | Foreign Currency Gain | $(82) | | Gain on Fair Value Change of Derivative Financial Instruments | $(388) | | Non-Recurring One-Time Items | $(489) | | Adjusted EBITDA | $82,487 | NOI and Cash NOI Reconciliation The company's Q2 2024 Net Operating Income (NOI) was $88.69 million, a 10.3% year-over-year increase, while Cash NOI was $83.14 million, up 14.4%, reflecting strong operating performance NOI and Cash NOI Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | YOY Change | H1 2024 | H1 2023 | YOY Change | | :-------------------------- | :-------- | :-------- | :--------- | :-------- | :-------- | :--------- | | Net Operating Income (NOI) | $88,694 | $80,369 | +10.3% | $170,871 | $147,254 | +16.0% | | Cash NOI | $83,135 | $72,684 | +14.4% | $160,984 | $146,049 | +10.2% | Same-Store NOI Reconciliation Total portfolio same-store NOI grew by 15.7% in Q2 2024 and 14.4% in H1, primarily driven by significant growth in the SHOP and ISHC segments, indicating strong underlying property performance Same-Store NOI by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | YOY Change | H1 2024 | H1 2023 | YOY Change | | :----------------------- | :-------- | :-------- | :--------- | :-------- | :-------- | :--------- | | ISHC | $35,864 | $28,906 | +24.1% | $69,607 | $57,039 | +22.0% | | Outpatient Medical | $20,108 | $20,183 | -0.4% | $40,183 | $40,053 | +0.3% | | SHOP | $8,800 | $5,902 | +49.1% | $16,587 | $11,733 | +41.4% | | Triple Net Lease | $9,248 | $8,990 | +2.9% | $18,573 | $17,929 | +3.6% | | Total Same-Store NOI | $74,020 | $63,981 | +15.7% | $144,950 | $126,754 | +14.4% | Same-Store Revenue Reconciliation Total same-store revenue grew by 7.3% in Q2 2024 and 7.2% in H1, with significant contributions from the ISHC and SHOP segments, indicating healthy revenue generation from the core portfolio Same-Store Revenue by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | YOY Change | H1 2024 | H1 2023 | YOY Change | | :----------------------- | :-------- | :-------- | :--------- | :-------- | :-------- | :--------- | | ISHC | $204,031 | $189,254 | +7.8% | $408,316 | $379,462 | +7.6% | | Outpatient Medical | $32,023 | $31,926 | +0.3% | $64,326 | $63,765 | +0.9% | | SHOP | $43,124 | $38,589 | +11.7% | $85,521 | $76,866 | +11.3% | | Triple Net Lease | $9,790 | $9,482 | +3.3% | $19,649 | $18,932 | +3.8% | | Total Same-Store Revenue | $288,968 | $269,251 | +7.3% | $577,812 | $539,025 | +7.2% | Earnings Guidance Reconciliation The detailed full-year 2024 earnings guidance reconciliation table illustrates the adjustment process from net income to NAREIT FFO and Normalized FFO, highlighting the impact of depreciation, amortization, and other non-cash items, with revised guidance reflecting higher expectations for key metrics Earnings Guidance Reconciliation (Full Year 2024, in millions, except per share amounts) | Metric | Revised FY 2024 Guidance (Low) | Revised FY 2024 Guidance (High) | Prior FY 2024 Guidance (Low) | Prior FY 2024 Guidance (High) | | :------------------------------------ | :----------------------------- | :------------------------------ | :------------------------------ | :------------------------------- | | Net Income (Loss) Attributable to Common Stockholders | $(8.80) | $(3.05) | $(4.15) | $3.19 | | NAREIT FFO Attributable to Common Stockholders | $147.30 | $151.30 | $143.11 | $150.45 | | Normalized FFO Attributable to Common Stockholders | $154.20 | $158.20 | $149.58 | $156.92 | | Diluted Net Income (Loss) Per Common Share | $(0.07) | $(0.02) | $(0.03) | $0.03 | | Diluted NAREIT FFO Per Common Share | $1.17 | $1.22 | $1.13 | $1.19 | | Diluted Normalized FFO Per Common Share | $1.23 | $1.27 | $1.18 | $1.24 | | Total Portfolio Same-Store NOI Growth | 12.00 % | 14.00 % | 5.00 % | 7.00 % | Company Information and Disclosures This section provides essential information about American Healthcare REIT, including its business overview, supplemental disclosures, forward-looking statements, and key financial definitions About American Healthcare REIT, Inc. American Healthcare REIT, Inc. is a self-managed REIT that acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties across the U.S., UK, and Isle of Man, focusing on outpatient medical, senior housing, and skilled nursing facilities - American Healthcare REIT, Inc. is a self-managed real estate investment trust (REIT)[23] - The company acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties, primarily including outpatient medical buildings, senior housing, skilled nursing facilities, and other healthcare-related facilities[23] - Its properties are located in the United States, the United Kingdom, and the Isle of Man[23] Supplemental Information and Conference Call The company disclosed supplemental information for Q2 2024 on its investor relations website and held a webcast and conference call on August 6, 2024, to review results and conduct a Q&A session - The company has disclosed supplemental information for the period ended June 30, 2024, on its investor relations website[14] - The company held a webcast and conference call on August 6, 2024, at 1:00 PM ET to review its Q2 2024 performance[15] Forward-Looking Statements This press release contains forward-looking statements regarding future expectations, estimates, and projections, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially, cautioning readers against undue reliance - Certain statements in this press release, including those related to the company's expectations for interest expense savings, balance sheet, net income or loss per share, FFO per share, NFFO per share, total portfolio same-store NOI growth, segment same-store NOI growth, occupancy, NOI growth, revenue growth, margin expansion, asset purchases and sales, and the Trilogy plan, may be considered forward-looking statements[16] - Such forward-looking statements are based on current expectations, estimates, and projections about the industries and markets in which the company operates, as well as management's beliefs and assumptions, and involve known and unknown risks and uncertainties[16] - Except as required by law, the company undertakes no obligation to update or revise any forward-looking statements in this press release[16] Definitions This section provides detailed definitions for key financial and operational terms used in the earnings release, ensuring clarity and consistency in reporting - Adjusted EBITDA: EBITDA excluding the impact of gains or losses from unconsolidated entities, straight-line rent and above/below market rent amortization, non-cash equity-based compensation expense, business acquisition costs, gains or losses on sales of real estate investments, unrealized foreign currency gains or losses, fair value changes of derivative financial instruments, impairment of real estate investments, impairment of intangible assets and goodwill, and non-recurring one-time items[45] - NAREIT FFO or FFO: Net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of certain real estate assets, gains or losses on consolidation of previously held equity interests, and impairment write-downs of certain real estate assets and investments, plus real estate-related depreciation and amortization, and adjusted for unconsolidated partnerships and joint ventures[45] - Normalized FFO (NFFO): FFO further adjusted for the following items included in the determination of GAAP net income (loss): expensed acquisition fees and costs (i.e., business acquisition costs); amounts related to changes in deferred rent and above/below market rent amortization; non-cash impact of changes in equity instruments; non-cash or non-recurring income or expenses; non-cash impact of income tax benefits or expenses; capitalized interest; impairment of intangible assets and goodwill; amortization of debt investment settlement costs; mark-to-market adjustments included in net income (loss); gains or losses included in the extinguishment or sale of debt, hedges, foreign exchange, derivatives, or securities holdings (if the trading of such holdings is not a fundamental attribute of the business plan); and adjustments for consolidated and unconsolidated partnerships and joint ventures, such that these adjustments are reflected on the same basis as Normalized FFO[45][46] - Same-Store NOI or SS NOI: Cash NOI for the company's same-store properties. Same-Store NOI is used to evaluate the operating performance of the company's properties, using a consistent portfolio of properties and controlling for the impact of changes in portfolio composition[46]