American Healthcare REIT, Inc. Q4 FY2025 Earnings Call

Thank you for joining us. My name is Kate, and I will be your operator for today’s conference. We welcome everyone to the American Healthcare REIT Q4 2025 Earnings Conference Call. I will now hand the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please proceed.

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 Willhite, 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. Therefore, 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 date 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. With that, I'll turn the call over to our Chairman and Interim CEO and President, Jeff Hanson.

Well, 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 stepped into the role of Interim CEO while Danny is 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. So 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 Mat Streiff, Mat, 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 health care 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, Mat 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 in 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. And 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. And with that, I'll turn the call back to the team to walk you through the quarter and our outlook. Thank you.

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 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. Additionally, as occupancies 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 full year 2025 compared to 2024. That operating leverage, combined with pricing discipline and occupancy 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. And 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 percent of resident days and as a percent 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 fourth quarter, averaging 90.6%, up approximately 290 basis points year-over-year. Combined with solid RevPOR 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 want to 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.

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, an 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 the 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, and 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, and 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.

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 operations attributable to common stockholders, or NFFO of $0.46 per diluted share in the fourth quarter 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 deliver 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% to 12% growth in Trilogy, 15% to 19% growth in SHOP, 0% to 2% growth in Outpatient Medical and a range of 2% to 3% growth in our Triple-Net Leased Properties segment. Moving to our capital markets activity and balance sheet. We continue 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 fourth quarter, the 2026 investments that have only recently closed and fund our planned 2026 development spend. As a result, we derisked 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.

Your first question comes from the line of Wes Golladay with Baird.

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 the terms of the management agreements?

Wes, yes, this is Stefan. Thanks for the question. First, let me just say that, obviously, we're very pleased with what we were able to accomplish in volume and quality of acquisitions this year. And I 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, we continue to focus on higher acuity SHOP assets. 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 most of it is part of a continuum of care. But 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 variance in terms of what we will see in pricing when it comes to a full continuum asset of AL memory care and IL versus something that might be strictly independent living. Obviously, a little bit lower cap rate on the IL side. But for the most part, we're sticking with the higher acuity asset class. So I think, again, that gives us some advantage.

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

Good morning or afternoon. We saw a significant increase of over 250 basis points in occupancy within our SHOP portfolio in 2025. The question is whether we can achieve another increase of 250 basis points or more. It's difficult to predict. It's also important to reflect on our past performance: same-store NOI growth in SHOP was 50% in 2024 and 25% in 2025. Now, the midpoint of our guidance is 17%, indicating substantial growth for that segment. We know that as our buildings become more occupied, we gain increased pricing power. With a same-store occupancy rate of 90.6%, we are gaining more pricing leverage. You’ll notice that we will raise rates for our current residents while also increasing street rates more aggressively. Over time, certain markets will face scarcity. We are highly confident in our business outlook for the next 5 to 10 years and can comfortably predict that occupancy rates will range from 95% to 100% during that time, though the exact rate at the end of 2026 remains uncertain. Do you have another question?

Yes. I just wanted to hit on sort of Trilogy a little bit as well just because you guys are at 90% occupied. 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 wanted to get an update on occupancy upside? And how much of that sort of mix shift you think can help sustain pricing?

Yes. Great question, Ron. This is Gabe. So 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. And we're very appreciative that we have a strong partner at Trilogy there, so I want to thank them for all their efforts on it. The key thing with Q mix is going to be shifting to the higher payer 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, and it's difficult to predict exactly which way they're going to go. I can tell you that we're going to optimize for NOI growth. We're not going to sacrifice rate for occupancy. We're not going to sacrifice occupancy for rate. And we're going to make sure that Trilogy is pulling every lever that they have to continue to grow the business as they've demonstrated they can do.

I just want to go back to the same-store NOI growth outlook for Trilogy, recognizing it is a little bit lower than where you started last year straddling kind of the 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. So I guess what are some of the moving parts to drive that upside versus the initial range that has kind of been a tailwind for you guys the last couple of years?

Yes. 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, then I think you can expect some upside in our occupancy assumptions. 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 had 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. And then on the private pay side, 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. And they could push that information. They have a way to push that information through to the people that needed the most that are actually in the building. All of those things combined, I think, give them a strategic advantage, a competitive advantage on the revenue management front. And if we can push that throughout our platform to our other SHOP operators, I think it will benefit AHR as a whole.

That's really helpful. Are you able to offset the lower rate growth from government reimbursements with the private pay segment and the mix shift opportunity you mentioned to drive that flow-through? Or will it require more time? You mentioned that you can't really predict demand, but the contracts are set to guide it in the right direction.

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. But 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.

Gabe, I wanted to circle back on your comments regarding the revenue management system. I know in your prepared remarks, I think you're 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 started to see some type of benefit related to that yet?

Yes. 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. So 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 the 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. So now 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, but 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. And 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. So 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 going to be revenue management in '26 and '27, '28, 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 and 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 quiver or arrow in the quiver to use in these situations throughout our portfolio.

And then what operators are finding this most successful? I mean I'm guessing that some of the bigger ones you have are probably not going to want or need this type of help. But 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?

That's exactly right. We take a view that all of our partnerships with our operators are collaborative. We're not going to 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.

Regarding the acquisitions and the awarded deals, with $230 million currently in the pipeline, I understand these are not included in guidance. Could you provide some insight into the potential timing for these? Additionally, what factors are causing delays in closing, considering some of these have been in the pipeline since the third quarter?

Yes, this is Stefan. To clarify, there is no delay in closing. When we last discussed acquisitions on this call, we had closed approximately $580 million. In the past 3.5 months, we've successfully completed around $500 million in acquisitions. Additionally, we have expanded our pipeline. Previously, we reported over $450 million in the pipeline, and we have now added approximately $275 million to that total. The pipeline remains strong, and there is a high level of deal activity. Typically, there is a slowdown in December and mid-January for marketed deals, but we have observed significant activity in the last 4 to 5 weeks with new deals emerging. We’ve also been collaborating with our operators on off-market deals, which means there is ample deal flow for us to evaluate. We are actively reviewing numerous opportunities, and our pipeline is quite dynamic. I anticipate that we will remain engaged in evaluating deals that align with our strategy and we will continue to be competitive for the ones we are keen to pursue.

Okay. My second question is regarding the Trilogy segment. When you break out the revenue by payer and bed type, could you clarify how the upcoming CMS rate will influence this year's revenue? Specifically, how much will it affect certain revenue portions, as you mentioned, compared to the Medicare Advantage side? How are people reacting to the anticipated rate changes, and when will we have more visibility on this?

The main factors influencing the Medicare rate that will be released in April will be Medicare and Medicare Advantage. It's important to note that within the Medicare rate, there is a shift in the mix of residents coming in through Medicare. Trilogy will target individuals with acuities that they believe they can care for effectively within that payer source. This is why the Medicare rate listed in our supplemental materials shows a 5.2% increase, compared to the national average increase of approximately 3%. This acuity shift is beneficial for revenue growth, NOI growth, and margin expansion. On the Medicare Advantage side, the contracts typically price based on a percentage of the Medicare rate, and an increase in the Medicare rate will also affect Medicare Advantage. However, the individual contracts with various Medicare Advantage plans are negotiated separately at a discount to the Medicare rate. The increase in the Medicare Advantage per patient day rate, relative to the Medicare rate, indicates a reduction in the discount from Medicare Advantage plans, which are recognizing the quality at Trilogy. Trilogy's overall rating is above 4 stars, with quality measures exceeding 4.8, both of which are significantly higher than those of other national providers and likely industry-leading. These quality metrics are what Medicare Advantage plans prioritize as they seek to manage the costs of resident care effectively while delivering top-quality services.

Just hoping you could talk a little bit more about the investment pipeline and what year 1 yields you expect. Given what you're seeing, what's kind of already locked and loaded, and what's being marketed. And as part of the acquisition strategy or goals if you're trying to move up 'quality spectrum' to higher demographic type seniors that can afford higher rent increases or how you're thinking about affluence and importance there.

Thank you for the question, Juan. Regarding the first part of your inquiry, I can say that overall, our current purchasing prices are around the high 5 to low 6 range, with stabilization in the 7s. There's been some cap rate compression in recent months, but that still accurately reflects the situation. Our acquisition strategy remains consistent; we're concentrating on newer, high-quality properties and higher acuity communities. Additionally, we consider demographics and market capacity for higher rents as they develop. Our focus is on acquiring younger, fresher buildings, as residents increasingly seek this type of quality. As the future population of residents emerges, we anticipate a strong demand for high-quality experiences, which aligns with the type of assets we are acquiring.

Juan, this is Brian. I would like to add that we are in a very favorable situation with our cost of capital. This enables us to purchase properties that we refer to as value add, but this is not the traditional sense of value add involving old, deteriorating buildings that require significant investment. Instead, we are looking at newer constructions from 2017 and 2018, which may still be owned by the original developer. They have finally managed to achieve a complete exit, allowing us the opportunity to acquire these properties. These buildings are underperforming, often around 70% occupancy, in familiar markets where we have a reliable operator we trust to increase occupancy. Therefore, we do not need to exclusively invest in stabilized assets to achieve our desired long-term returns. They may be slightly lower to begin with, but we fully anticipate that they will reach the 7% range, if not even higher.

Yes, Juan, this is Gabe. The flow-through to NOI on incremental occupancy in the high end of occupancy rates can be around 70% or 80%. This applies similarly to Trilogy's assisted living, memory care, and independent living. In the skilled side of Trilogy's post-acute care, the pull-through is lower since each patient requires a certain number of care hours per day. However, there is still potential for margin expansion from additional occupancy, which should accelerate as occupancy levels increase, especially since staffing is likely to be at full capacity at higher levels. That said, it won't be as significant as the SHOP portfolio due to the care component involved.

Yes. 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 and Gabe sort of even referred to some of those numbers. In the AL side, it could be between 40% and 70% depending on your occupancy because 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. So the pull-through is dramatic. And then 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.

Maybe just on some of the like unstabilized or undermanaged properties that you are purchasing. Can you provide color to like what goes into turning around a SHOP asset that has been mismanaged? What makes your incoming operator different than the prior operator? And what are your operators going to do differently that the prior operators couldn't accomplish?

In many cases, it's about experience. It's having a presence in the market and understanding how to operate effectively at scale, recognizing the demand drivers, knowing how to market appropriately, and hiring the right staff to oversee those communities. It's about creating processes that enhance both resident and employee experiences. There are many ways a knowledgeable operator can improve the management of these assets and communities. Ultimately, the goal is to ensure high-quality care, a positive experience for employees, and a good experience for residents. Our operators are well-prepared to achieve this; they have the capability to implement these improvements in all the communities we are acquiring.

I would like to add to what Stefan said. When we partner with operators, we seek experienced individuals who understand how to manage the business, including labor and expenses, along with the other points Stefan mentioned. We're observing that the significant demand growth is affecting transition times. There's a notable increase in demand for the product. If we can bring in a new operator and demonstrate to visitors that there is a high-quality resident experience, we can fill the building more quickly and improve turnaround times compared to the past. This represents a very attractive investment opportunity for us.

Let me start by addressing your question about competition. It’s fair to say that there has been an increase in those pursuing SHOP, both from other health care REITs and from private equity. Our advantage lies in the fact that about half of our acquisitions are conducted off-market. We work closely with our operators, who bring us potential transactions they are aware of through their capital partners looking to exit or recapitalize their assets. Because of these relationships, we have been able to significantly grow our pipeline through off-market assets.

On the Trilogy front, I'll take that one, Stefan. So it was an atypical year that we can't promise will happen again. So 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. So 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 stock price, so they participate in the value creation for the work there as well.

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.

Yes. So 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 going to be in the same-store pool this year. And by the way, if you look at the supplemental at Page 10, you can see that the total portfolio is less occupied than the same-store portfolio. And that's really sort of tied in with that, what I described earlier, which was we're bringing in buildings that were undermanaged, they were underoccupied. And now we have an operator that we trust, and we feel very confident they're going to be able to fill those buildings. So 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 going to 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. So there's less non-same-store assets. And 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. And by the way, the returns on those are dramatic and very beneficial to the bottom line. So 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. But the good news for us and 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. And so I would anticipate those numbers to be very positive as well. So we're talking about multiyear growth, bottom line.

Great. And 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 RIDEA-type structures, either through adding investments into Trilogy or into SHOP. How is that comparing to what you were able to do in '25, especially since now we've seen other peers have actually been increasing potential investment volumes for '26? Just trying to get a sense about where things could potentially shake out.

I feel like you're trying to steer me towards providing specific guidance. However, I will say this: if you look at how we built our portfolio and how our acquisitions unfolded last year, it was somewhat inconsistent. A significant portion occurred towards the end of the year. I believe you'll see a more stable approach this year. Additionally, we are actively seeking numerous opportunities that align with our strategy. We will maintain disciplined underwriting to ensure we acquire high-quality assets that offer long-term performance. We have the capital to compete effectively, and our reputation as a buyer is strong. I believe these factors, combined with an increase in available products in the market this year, will lead to positive outcomes for us.

We are definitely aware of expectations for acquisition volume this year. I want to emphasize that we aim to avoid making poor deals. Regarding the evolution of our underwriting, I believe it is changing gradually. This does not mean that Stefan's team has suddenly shifted from a very conservative approach to an overly aggressive one. Instead, when we were acquiring assets in 2024 and 2025, we accounted for some level of immediate growth. Consequently, we have indeed observed that growth already in 2026 and late 2025. This development allows them to adapt their underwriting and adopt a slightly less conservative stance. Additionally, Stefan has frequently noted that there will be sufficient volume available, and we will find deals that align with our underwriting criteria, capital costs, and operator base, particularly since we are sourcing a significant portion of these off-market through our operating partners. Therefore, I am optimistic about our prospects for acquisition volume this year.

Good to hear about Danny is at home and doing better. I guess just to start off, you kind of mentioned some of the real estate that you're targeting wanting kind of maybe newer vintage assets in good locations and that all makes sense. I guess you touched on this a little bit with wanting to partner with operators that have experience. But 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. Would you kind of look for maybe less experienced operators to partner with where you can really kind of use that know-how that Trilogy has to kind of improve results and kind of drive higher returns on kind of with lower quality operators?

That's an interesting question. I would say that we don't want to develop an inexperienced operator. Instead, we prefer to collaborate with operators who have a proven track record. This approach is certainly more reliable and safer for us. While there may be many capable smaller operators who could achieve great things with the right resources, our focus is on those who have a history of success and can demonstrate their capabilities.

Yes. And 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, and that's come in a 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 150 facility Trilogy platform does, and saying, "hey, 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 want to grow because we know that the industry is going to demand growth from the best operators, and we're here for it." Great question. I think that 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, for years, had operators summits and 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. But 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. And hopefully, we'll have more to talk about in the next several quarters.

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?

Yes, that’s a good question. Last year, the flu had a significant impact on our portfolio. Even though our move-in volume reached record highs, the move-outs were disproportionately high, which affected our overall occupancy. However, so far in early 2026, we are experiencing much less of a flu impact. None of us feel fully confident that we have completely moved past the risks associated with the flu season, but so far, we are managing it better than we did last year. Our occupancy has been relatively stable at least through February.

The hospital we own in Southlake, Texas, a Dallas suburb, is operated by Methodist of Dallas, a credit-rated hospital system. They guarantee the lease and have invested about $25 million of their own money into our building, indicating their commitment to this asset. The volatility in performance is due to their transition of the hospital from surgical services to a community focus, which includes recent additions like emergency medicine and a stroke unit, with orthopedics next on the list. This means there could be significant fluctuations in performance from one month to the next. However, since they are committed to the building and the lease is guaranteed, I'm confident in the associated risk. They have a purchase option that becomes available in 2030, and I believe they will ultimately choose to buy.

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 is on the call as well. So we're looking forward to his return at the appropriate time. And in the meantime, the team remains focused on executing our strategy and creating long-term value for our shareholders. And with that, thank you.

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