The senior housing industry is engaged in a “Goldilocks” period of growing rates and margins, according to leaders with American Healthcare REIT (NYSE: AHR).
The industry is seeing a period of historically low construction starts and high demand according to Brian Peay, chief financial officer of American Healthcare REIT. For the company’s operating partners, including its majority-owned senior living operating platform Trilogy Health Services, that should result in a period of revenue and margin growth, even if they don’t add occupancy at as fast a pace as they have in the past.
American Healthcare REIT’s senior housing operating portfolio (SHOP) saw a 700 basis point increase in occupancy over the last year. While “that is going to be hard to replicate” in the future, Peay noted that current trends in expenses, revenue and supply should continue to support expense and margin growth for the company’s senior housing partners.
“We have seven operators including Trilogy that run SHOP for us. All of them universally agree that RevPOR growth in 2025 is going to outpace ExPOR growth,” Peay said. “Even keeping occupancy constant … you’re going to see margin expansion in the senior housing space. But I don’t think you should be assuming that occupancy remains constant because of the demand-supply dynamic.”
American Healthcare REIT’s SHOP segment includes 128 communities operated by Trilogy. Though the company is weighted primarily in favor of skilled nursing, the operator also has communities built to “assisted living standards” and wings that can be converted from skilled nursing into assisted living or memory care to meet demand.
“This is going to be the theme for everybody who’s in senior housing,” Peay said. “You’re going to see margin expansion next year, probably in 2026 [or] 2027 because it takes multiple years for construction that’s coming out of the ground to actually come online and put downward pressure on rates and occupancies.”
American Healthcare REIT is also looking to expand its investment in senior housing. At the moment, it owns 76% of Trilogy Health Services, with a partner owning the remaining 24%. According to Peay, that partner has expressed an interest in selling its stake in the company. The option to make the purchase expires in September 2025, though Peay said the company would like to make the purchase “sooner rather than later.”
The total transaction value between cash and equity for the buyout will be around $500 million, where the REIT “fully understands the assets.
“It unlocks opportunities at Trilogy that we don’t currently have which would be good for us to be able to execute on, including capital allocation strategies through Trilogy that would no longer require approval of a joint venture partner and and it’s with an operator that really we have a high degree of confidence,” Peay said.
Additionally, Peay noted there is an opportunity to purchase other long-term care assets due to loans coming due and capital market conditions make it more difficult to refinance. The REIT is already taking advantage of this to expand its reach after completing the acquisition of four communities in Washington, with Cogir Management operating the communities.
American Healthcare REIT is also in the process of completing a $7 million transaction to acquire a community around the Atlanta market.
“There’s a tremendous opportunity in [the] SHOP going forward,” Peay said.
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