Q2 2024 American Healthcare REIT Inc Earnings Call

Operator: Hello, and thank you for standing by. At this time, I would like to welcome you to the American Healthcare REIT Q2 2024 EARNINGS CONFERENCE CALL. All lines have been placed on mute to prevent any background noise.

Unknown Executive: Hello and thank you for standing by.

Hello, and thank you for standing by at this time I would like to welcome you to date American Health care R. E. T Q2, 2024 earnings conference call.

Unknown Executive: At this time, I would like to welcome you to the American Healthcare REIT Q2 2024 Erniex conference call. All lines have been placed on mute to prevent any background noise after the speaker's remarks.

All lines have been placed on mute to prevent any background noise. After.

Operator: 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 the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would now like to turn the conference over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead.

The speakers remarks, there will be a question and answer session.

Unknown Executive: There will be a question and answer session. If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again.

Speaker Change: She would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Speaker Change: I would like to withdraw your question. Please press star one again.

Alan Peterson: I would now like to turn the conference over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead.

Speaker Change: I would now like to turn conference over to Allen Peterson, Vice President of Investor Relations and Finance. Please go ahead.

Danny Prosky: Good morning. Thank you for joining us for American Healthcare REIT Q2 2024 Erniex conference call. With me today are Danny Prosky, President CEO, Brian Peay, Chief Financial Officer, Dave Willhite, Chief Operating Officer, and Stefan O, Chief Investment Officer. On today's call, Danny, Dave, and Brian will provide high-level commentary discussing our results of operations, financial position, and other recent news relating to American Healthcare REIT.

Good morning, Thank you for joining us for American Health care REIT second quarter 2024 earnings Conference call with me today are Daniel <unk>, President and CEO, Brian <unk>, Chief Financial Officer, Dave Wilhite, Chief operating officer and Stephane.

Alan Peterson: Good morning. Thank you for joining us for American Healthcare REIT's second quarter 2024 earnings conference. With me today are Danny Prosky, President and CEO, Brian Peay, Chief Financial Officer, Gabe Willhite, Chief Operating Officer, and Stephan Oh, Chief Investment Officer. On today's call, Danny, Gabe, and Brian will provide high-level commentary discussing our results of operations, financial position, and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session on covering research channels.

Speaker Change: Chief investment officer on today's call, Danny gave and Brian will provide high level commentary discussing our results of operations financial position and other recent news relating to American health care REIT. Following these remarks, we will conduct a question and answer session with covering research analyst. Please be advised that this call will include forward looking statements all statements made during this.

Unknown Executive: Following these remarks, we will conduct a question-and-answer session with covering research analyst. Please be advised that this call will include forward-looking statements. All statements made during this call, other than statements of historical facts or forward-looking statements, 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.

Alan Peterson: Please be advised that this call will include forward-looking statements. All statements made during this call, other than statements of historical facts, 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.

Speaker Change: Call other than statements of historical facts 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, including our earnings release furnished yesterday for a more detailed discussion of the risks.

Unknown Executive: I refer you to our SEC filings, including our earnings release furnished yesterday, 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, August 6, 2024, 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 companies' operating performance.

Speaker Change: That could impact our future operating results financial condition and prospects all forward looking statements speak only as of today August six 2024 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.

Speaker Change: By law.

Speaker Change: 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.

Unknown Executive: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliation of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release and supplemental information package.

Alan Peterson: Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our Earnings Release and Supplemental Information Package. You can find these documents, as well as our SEC filings and the audio webcast replay of this conference call, on the Investor Relations section of our website at www.americanhealthcarereit.com. With that, I will turn the call over to our President and CEO, Danny Prosky.

Speaker Change: Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release and supplemental information package you can find these documents as well as our SEC filings and the audio webcast replay of this conference call on the Investor Relations section of our website at Www Dot American health care REIT Dot com.

Unknown Executive: You can find these documents as well as our SEC filings in the audio webcast replay of this conference call on the Investor Relations section of our website at www.americanhealthcareread.com.

Speaker Change: With that I will turn the call over to our president and CEO Danny Pruski.

Danny Prosky: With that, I will turn the call over to our President and CEO, Danny Prasky. Thank you, Alan. Good morning and good afternoon, everyone, and thank you for joining us today. As we enter the latter half of 2024, demand growth for healthcare real estate remains strong. As evidenced by the performance of our diversified healthcare portfolio during the first half of the year, with 15.7% total same-store NOI growth in the second quarter of 2024, and 14.4% same-store NOI growth year-to-date. Within our four property segments, we continue to observe increased demand from an age in population, which we expect will extend at least into the part of the decade.

Danny Pruski: Thank you Alan and good morning, and good afternoon, everyone and thank you for joining us today.

Danny Pruski: As we enter the latter half of 2020 for demand growth for healthcare real estate remains strong as evidenced by the performance of our diversified healthcare portfolio. During the first half of the year was 15, 7% total same store NOI growth in the second quarter of 2024, and 14, 4% same store NOI.

Danny Pruski: Growth year to date.

Danny Pruski: Within our four property segments, we continue to observe increased demand from an aging population, which we expect will extend at least until the latter part of the decade.

Danny Prosky: This demand and resulting internal growth within our portfolio is surpassing our original conservative estimates, prompting us to increase our guidance for both total portfolio same-store NOI and earnings for fiscal year 2024. Our anticipated same-store NOI growth for 2024 has been increased to a range of 12-14%. Revised normalized funds from operations guidance now stands at $1.23 to $1.27 per fully-diluted share. Brian will provide more details regarding our revised guidance later in the call. I want to express my gratitude to the entire team here at American Healthcare REIT and our regional operating partners for their commitment to delivering excellent results for all of our stakeholders.

Danny Pruski: This demand and resulting internal growth within our portfolio is surpassing our original conservative estimates, prompting us to increase our guidance for both total portfolio same store NOI and earnings for fiscal year 2024.

Danny Pruski: Our anticipated same store NOI growth for 2024 has been increased to a range of 12% to 14%.

Danny Prosky: Revised Normalized Funds from Operations Guidance now stands at $1.23 to $1.27 per fully diluted share. Looking ahead, I'm excited to continue executing our plans alongside the entire AHR team to achieve further growth across our diversified healthcare portfolio.

Danny Pruski: Revised normalized funds from operations guidance now stands at $1 23 to $1 27 per fully diluted share.

Danny Pruski: Brian will provide more details regarding our revised guidance later in the call.

Speaker Change: I Express my gratitude to the entire team here at American healthcare, REIT and our regional operating partners for their commitment to delivering excellent results for all of our stakeholders.

Danny Prosky: Our team's hard work is demonstrated in our quarterly results.

Brian: Our team's hard work is demonstrated in our quarterly results.

Speaker Change: Reflecting on the current environment for health care real estate I spent 32 years working within the health care REIT space and have never been more optimistic about our businesses growth prospects.

Danny Prosky: Reflecting on the current environment for healthcare real estate, I've spent 32 years working within the healthcare REIT space and have never been more optimistic about our businesses' growth prospects. The strength we have seen over the last 18 months within our industry is the most robust I have observed, and the outlet for our company, at least over the next three to five years, looks extremely promising. When evaluating our portfolio, I believe we are well-positioned to continue delivering sector-leading performance within our managed portfolio, which includes our integrated senior health campuses and shop segments. We are particularly excited about our assisted living exposure.

Speaker Change: We have seen over the last 18 months within our industry is the most robust I've observed in the outlook for our company at least over the next three to five years looks extremely promising.

Speaker Change: When evaluating our portfolio I believe we are well positioned to continue delivering sector, leading performance within our managed portfolio, which includes our integrated senior health campuses and shop segments.

Speaker Change: We are particularly excited about our assisted living exposure industry.

Danny Prosky: Industry data from the second quarter shows that combined assisted living rate and occupancy growth has outperformed compared to other long-term care sectors for 11 consecutive quarters. Industry-wide assisted living occupancy now stands at approximately 85% in the second quarter of 2024, which equals pre-COVID levels. While we have exposure to all long-term care segments, the majority of our portfolio is within assisted living units, and we're seeing the industry trend of AL outperformance within our portfolio, although our results are further surpassing certain benchmarks. Our same-store integrated senior health campus and shop segment occupancies exceeded the industry assisted living occupancy average in the second quarter of 2024.

Speaker Change: Industry data from the second quarter shows the combined assisted living rate and occupancy growth has outperformed compared to other long term care sectors for 11 consecutive quarters.

Speaker Change: History wide assisted living occupancy now stands at approximately 85% in the second quarter of 2024, which equals pre COVID-19 levels.

Speaker Change: While we have exposure to all long term care segments. The majority of our portfolio is within assisted living units and we're seeing the industry trend of outperformance within our portfolio. Although our results are further surpassing certain benchmarks.

Speaker Change: Our same store integrated senior health campus and shop segment Occupancies exceeded the industry assisted living occupancy average in the second quarter of 2024.

Danny Prosky: Our same-store shop assets coupled above industry average occupancy with accelerating rev-port growth year over year in the second quarter. These results are testament to the quality of our portfolio and the quality of our operating partners.

Speaker Change: Our same store shop assets, coupled above industry average occupancy with accelerating revpar growth year over year in the second quarter.

Speaker Change: These results are testament to the quality of our portfolio and the quality of our operating partners.

Speaker Change: While still early in our history as a traded REIT, we hope that through all of the interactions with the investment community. We are establishing ourselves as leaders in both the public markets and the healthcare real estate sector.

Danny Prosky: While still early in our history as a traded rate, we hope that through all the interactions with the investment community, we are establishing ourselves as leaders in both the public markets and the healthcare real estate sector. Nevertheless, with all the additional work, we're not losing sight of the strategic pillars outlined in our last earnings call. Number one, ensuring quality care and positive health outcomes for all residents and patients in our properties. I cannot emphasize enough how important this is to us here at AHR. Number two, committing to strong operating performance through our hands-on asset management approach, utilizing best-in-class regional operators.

Speaker Change: Nevertheless, with all the additional work, we're not losing sight of the strategic pillars outlined in our last earnings call.

Speaker Change: Number one.

Speaker Change: <unk> quality care and positive health outcomes for all residents and patients in our properties I cannot emphasize enough how important this is to us here at AHRI.

Number two keep leading to strong operating performance through our hands on asset management approach utilizing best in class regional operators and number three demonstrating prudent capital allocation to optimize our portfolio its earnings and intrinsic value.

Danny Prosky: And number three, demonstrating proven capital allocation to optimize our portfolio's earnings and intrinsic value, focusing on attractive risk-adjusted returns. Looking ahead, I'm excited to continue executing our plans alongside the entire AHR team to achieve further growth across our diversified healthcare portfolio.

Speaker Change: Casino and attractive risk adjusted returns.

Speaker Change: Looking ahead I am excited to continue executing our plans alongside the entire HR team to achieve further growth across our diversified healthcare portfolio.

Gabriel Willhite: I will now turn it over to Gabe to discuss our operational results in further detail.

Speaker Change: I'll now turn it over to Gabe to discuss our operational results in further detail.

Gabe: Thanks Danny.

Gabriel Willhite: Thanks, Danny. As Danny mentioned, we're thrilled to see robust levels of demand driving portfolio performance, particularly within our managed segments, which accounts for approximately 60% of our pro-rata cache NLI. Within our managed segments, our integrated senior health campuses operated by Trilogy Health Services continue to set the standard for healthcare operations across all levels of long-term care. Particularly assisted living and skilled nursing. And you can see this reflected in our 24.1% year-over-year same-store NLI growth within that segment in the second quarter of 2024 compared to the same period in 2023. Trilogy's unique model, purpose-built facilities, and strong reputation have continued to drive demand.

Gabe: As Danny mentioned, we're thrilled to see robust levels of demand driving portfolio performance, particularly within our managed segments, which accounts for approximately 60% of our pro rata cash NOI.

Gabe: Within our managed segments, our integrated senior health campuses operated by trilogy Health services continue to set the standard for health care operations across all levels of long term care, particularly assisted living and skilled nursing.

Gabe: And you can see this reflected in our 24, 1% year over year same store NOI growth within that segment in the second quarter of 2024 compared to the same period in 2023.

Speaker Change: <unk> unique model purpose built facilities and strong reputation have continued to drive demand occupancy continued its sequential gains in the second quarter with a 20 basis point increase from the results in the first quarter of 2024 and occupancy continued its climb higher subsequent to the end of the second quarter with spot.

Gabriel Willhite: Occupancy continued its sequential gains in the second quarter with a 20 basis point increase from the results in the first quarter of 2024. And occupancy continued its climb higher subsequent to the end of the second quarter, with spot same-store occupancy as of July 26, 2024, at 87.4%. Scaled nursing occupancy in particular remains well above industry average. Although we've seen some seasonality return to that segment, albeit to a lesser extent than historic norms and not enough to offset gains in other areas. I'm also excited to see the benefits of Trilogy's moat, as I've explained to many in the past, playing out in the results.

Speaker Change: Same store occupancy as of July 26, 2024 at 87, 4%.

Speaker Change: Skilled nursing occupancy in particular remains well above industry average, although we've seen some seasonality returned to that segment, albeit to a lesser extent than historic norms and not enough to offset gains in other areas.

Speaker Change: I'm also excited to see the benefits of trilogy as moat as I have explained to many of the past playing out in our results the unique model and regional scale allow resources to be allocated efficiently across our campuses, providing a stable foundation for further margin expansion with continued topline growth and continued expense management, which natural.

Gabriel Willhite: The unique model and regional scale allow resources to be allocated efficiently across our campuses, providing a stable foundation for further margin expansion with continued top line growth and continued expense management, which naturally ultimately leads to sustained NLI growth. Over the balance of 2024, with demand increasing for all care settings within the campus, skilled nursing, assisted living, and independent living, I expect our integrated senior health campuses occupancy to continue to grow. And, of course, incremental occupancy gains would be expected to result in a higher pull-through to the bottom line. But again, because of Trilogy's unique business, we actually see multiple levers outside of occupancy growth for optimization and margin expansion beyond current levels.

Speaker Change: Ultimately leads to sustained NOI growth.

Speaker Change: Over the balance of 2024.

Speaker Change: With demand increasing for all care settings within a campus skilled nursing assisted living and independent living.

Speaker Change: I expect our integrated senior health campuses occupancy to continue to grow and of course incremental occupancy gains would be expected to result in a higher pull through to the bottom line.

Speaker Change: But again because of <unk> unique business, we actually see multiple levers outside of occupancy growth for optimization and margin expansion beyond current levels. For example, as the operator of choice in its markets trilogy.

Gabriel Willhite: For example, as the operator of choice in its markets, Trilogy can focus on cue mix and value-based care opportunities to provide for top line growth completely independent of occupancy growth.

Speaker Change: Trilogy can focus on Q mix and value based care opportunities to provide for topline growth completely independent occupancy growth.

Gabriel Willhite: Another example. Trilogy is industry-leading employee retention, which we've seen improving steadily, provides an opportunity for further expense management. Trilogy is constantly improving the employee experience, which allowed them to eliminate the need for agency nursing completely long ago and reduces unnecessary overtime expenses and the wasted costs associated with employee turnover. Now, that being said, Trilogy's biggest advantage by far is that Trilogy is known for its high quality care, and we wholeheartedly believe that people see value in that, and when making a decision, continue to want their loved ones in the Trilogy facility.

Speaker Change: Another example.

Speaker Change: Trilogy is industry, leading employee retention, which we've seen improving steadily provides an opportunity for further expense management trilogy.

Speaker Change: Trilogy is constantly improving the employee experience, which allowed them to eliminate the need for agency nursing completely long ago.

Speaker Change: And reduces unnecessary overtime expenses and the wasted costs associated with employee turnover.

Speaker Change: Now that being said George its biggest advantage by far is that trilogy is known for its high quality care and we wholeheartedly believe that people see value in that and when making a decision continue to want their loved ones in the trilogy facility.

Gabriel Willhite: In our shop segment, we're achieving industry-leading levels of NOI growth by, one, partnering with best-in-class regional operators and, two, as a product of our work, repositioning underperforming properties with new operators. Readers. Our same-store year-over-year shop in OI Group by 49.1% in the second quarter of 2024 compared to the second quarter of 2023, driven by approximately 700 basis points and occupancy gains compared to the second quarter of 2023, and also accelerating redboard growth above and beyond export growth. Furthermore, and as a credit to our hands-on asset management approach, we're pleased to report that same-store NOI margins for our shop segment expanded by 200 basis points from the prior quarter and exceeded 20% in Q2 2024.

Speaker Change: In our shop segment, we're achieving industry, leading levels of NOI growth by one partnering with best in class regional operators and two is a product of our work repositioning underperforming properties with new operators.

Speaker Change: Our same store year over year shop, NOI grew by 49, 1% in the second quarter of 2024 compared to the second quarter of 2023, driven by approximately 700 basis points of occupancy gains compared to the second quarter of 2023, and also accelerating revpar growth above and beyond export growth.

Speaker Change: Furthermore, and as a credit to our hands on asset management approach. We're pleased to report that same store NOI margins for our shop segment expanded by 200 basis points from the prior quarter and exceeded 20% in Q2 2024.

Gabriel Willhite: Similar to our integrated senior health campuses segment, occupancy in the shop segment is trending higher post-cornerant, with spot same-store occupancy as of July 26, 2024, at 88.1%. At these levels, more options become available to our operating partners to drive investment performance and to support further NOI gains in the second half of 2024 and into 2025 and beyond. The strategy moving forward for the team and our operating group, in addition to delivering occupancy gains, will be to further optimize our pricing power or demand dictates and control expenses to deliver further margin expansion from current levels. I continue to believe that partnering with strong operators is the single most important factor driving successful senior housing investments.

Speaker Change: Similar to our integrated senior health campuses segment occupancy in the shop segment is trending higher post quarter end with spot same store occupancy as of July 26, 2024 at 88, 1%.

Speaker Change: At these levels more options become available to our operating partners to drive investment performance and to support further NOI gains in the second half of 'twenty, 'twenty, four and into 2025 and beyond.

Speaker Change: The strategy moving forward for the team and our operating group. In addition to delivering occupancy gains will be to further optimize our pricing power where demand dictates and control expenses to deliver further margin expansion from current levels.

Speaker Change: I continue to believe that partnering with strong operators is the single most important factor driving successful senior housing investments.

Gabriel Willhite: We are confident that our regional asset management approach steering these results could be successfully expanded upon with other growth opportunities when the time's right and appropriate for us to grow externally.

Danny Prosky: We are confident that our regional asset management approach steering these results could be successfully expanded upon with other growth opportunities when the time is right and appropriate for us to grow externally.

Speaker Change: We are confident that our regional asset management approach steering. These results could be successfully expanded upon with other growth opportunities when the time's right inappropriate for us to grow externally.

Brian Peay: With that, I'll hand it over to Brian. Thanks, Gabe. In the second quarter of 2024, we earned 33 cents per fully diluted share of normalized funds from operation, driven largely by 15.7% same-store net operating income growth across our combined portfolio. We are increasing our full year 2024 NFFO guidance to a range of $1.23 to $1.27 per fully diluted share, representing a 4 cent increase to the midpoint of earnings guidance. This upward revision is primarily due to the increased expectations for NOI growth in 2024 across our combined same-store portfolio of between 12 and 14%.

Speaker Change: With that I'll hand, it over to Brian.

Brian: Thanks Gabe.

Brian: In the second quarter of 2024, we earned 33 cents.

Brian: For fully diluted share of normalized funds from operations driven largely by 15, 7% same store net operating income growth across our combined portfolio.

Brian: We are increasing our full year 2024, and <unk> guidance to a range of $1 23 to.

Brian: Two $1 27 per fully diluted share representing a 4% increase to the midpoint of earnings guidance.

Brian: This upward revision is primarily due to the increased expectations for NOI growth in 2024 across our combined same store portfolio of between 12% and 14%.

Brian Peay: We are also adjusting same-store guidance for our various segments for the full year 2024 as follows. We now expect our integrated senior health campuses segment to grow between 18 and 20%. And in our shop segment, we now project 45 to 50% NOI growth in 2024. As Danny mentioned earlier, the pace at which demand increased among our managed care segments is a positive development, prompting the revisions to our total portfolio and segment level NOI guidance for 2024. In my mind, and as I've mentioned often, it was never a matter of if we would be able to achieve this level of performance, only a matter of when, and I'm glad that we are getting there faster than we had originally forecasted.

Brian: We're also adjusting same store guidance for our various segments for the full year 2024 as follows.

Brian: We now expect our integrated senior health campuses segment to grow between 18% and 20%.

Brian: And in our shop segment, we now project, 45% to 50% NOI growth in 2024.

Brian: As Danny mentioned earlier, the pace at which demand increased among our managed care segments is a positive development, prompting the revisions to our total portfolio and segment level NOI guidance for 2024.

Danny Pruski: In my mind, and as I've mentioned, often it was never a matter of if we would be able to achieve this level of performance only a matter of when and I'm glad that we are getting there faster than we had originally forecasted.

Brian Peay: Our guidance for outpatient medical and triple net least segments remains unchanged. To remind everyone, we anticipate flat to slightly declining growth within outpatient medical and 1 to 3% growth within our triple net least properties in 2020. 24. We expect stability from our outpatient medical segment, where our team is actively managing tenant moveouts with incremental leasing in the back half of the year. More of the anticipated moveouts are expected to occur in the fourth quarter of 2024, but we anticipate healthy new leasing and releasing activity through the end of the year to partially offset those occupancy headwinds.

Speaker Change: Our guidance for outpatient medical and Triple net leased segments remains unchanged to remind everyone. We anticipate flat to slightly declining growth within outpatient medical and 1% to 3% growth within our triple net leased properties in 2024.

Speaker Change: We expect stability from our outpatient medical segment, where our team is actively managing tenant move outs with incremental leasing in the back half of the year.

Speaker Change: More of the anticipated move outs or expected to occur in the fourth quarter of 2024.

Speaker Change: We anticipate healthy new leasing and re leasing activity through the end of the year to partially offset those occupancy headwinds.

Brian Peay: Within our triple net leased segment, we continue to see improving lease coverage levels for our tenants, with total triple net leased EBITDAR coverage levels ticking up sequentially from 1.25 times last quarter to 1.29 times in the second quarter of 2024. The most meaningful improvement in segment rent coverage occurred for our skilled nursing and senior housing lease segments, currently at 1.34 times and 1.11 times EBITDAR coverage, respectively. With respect to full year NFFO guidance changes, the upside is being driven by significant same-store earnings growth in excess of previous expectations, as well as some minor non-recurring income this quarter, with an ongoing offset from increased borrowing costs.

Speaker Change: Within our Triple net lease segment, we continued to see improving lease coverage levels for our tenants with total triple net leased EBITDAR coverage levels ticking up sequentially from one to five times last quarter to $1. Two nine times in the second quarter of 2024, the most meaningful improvement in segment rent coverage occur.

Speaker Change: Third for our skilled nursing and senior housing leased segments currently at 134 times and $1, one one times EBITDAR coverage respectively.

Speaker Change: With respect to full year <unk> guidance changes the upside is being driven by significant same store earnings growth in excess of previous expectations as well as some minor nonrecurring income this quarter with an ongoing offset from increased borrowing costs.

Brian Peay: In the quarter, we received approximately $1.8 million in non-recurring recoveries from former tenants, resulting in slightly more than one penny per share increase to our Q2 2024 and full year earnings. I would not anticipate those amounts to repeat in subsequent quarters. Interest expense remains a headwind to earnings as we anticipate higher interest costs going forward from several factors. Asset sales are taking longer than originally anticipated, which means debt paydowns are delayed until later in the year. We financed a few lease buyouts at Trilogy utilizing debt, resulting in lower facility rent expense but higher interest costs.

Speaker Change: In the quarter, we received approximately $1 8 million in nonrecurring recoveries from former tenants, resulting in slightly more than one penny per share increase to our Q2 2024 and full year earnings I would not anticipate those amounts to repeat in subsequent quarters.

Speaker Change: Interest expense remains a headwind to earnings as we anticipate higher interest costs going forward from several factors.

Speaker Change: Asset sales are taking longer than originally anticipated, which means debt paydowns are delayed until later in the year.

Speaker Change: We financed a few lease buyouts at trilogy, utilizing debt, resulting in lower facility rent expense, but higher interest costs.

Brian Peay: Higher variable rate debt costs due to changes to short-term interest rate expectations as determined by the Fed. Non-cash interest expenses higher related to write-offs of previously unamortized loan fees, loan fees related to extending revolving lines of credit, and gap above and below market rate debt adjustments. Although these amounts are showing up in earnings, they are non-cash charges and do not affect cash flow from operations.

Speaker Change: Higher variable rate debt costs due to changes to short term interest rate expectations as determined by the fed.

Speaker Change: Noncash interest expenses higher related to write offs of previously unamortized loan fees loan fees related to extending revolving lines of credit and gap above and below market rate debt adjustments. Although these amounts are showing up in earnings they are noncash charges and do not affect cash flow from op.

Speaker Change: Operations.

Brian Peay: Taking a look at our balance sheet, organic internal earnings growth has improved our net debt to annualized adjusted EBITDA ratio by a half a turn to 5.9 times as of the end of the second quarter in 2024, as compared to 6.4 times at the end of Q1 2024. Turning to our capital allocation activity during Q2 2024, we exercise purchase options on three campuses within our integrated senior health campus segment, totaling approximately $46 million. These buildings carry the lease rate of approximately 9.1 percent, and buying them out reduced our facility rent expense, enhanced segment level earnings, and importantly, allow us to gain control of the real estate underlying our operating assets.

Speaker Change: Taking a look at our balance sheet organic internal earnings growth has improved our net debt to annualized adjusted EBITDA ratio by a half a turn to five nine times as of the end of the second quarter in 2024 as compared to six four times at the end of Q1 2024.

Speaker Change: Turning to our capital allocation activity. During Q2 2024, we exercised purchase options on three campuses within our integrated senior health campus segment totaling approximately $46 million.

Speaker Change: These buildings carried a lease rate of approximately nine 1% and buying them out reduced air facility rent expense enhanced segment level earnings and importantly allowed us to gain control of the real estate underlying our operating assets.

Brian Peay: We are maintaining our disposition proceeds guidance with expectations to sell approximately $50 million of additional non-core properties for the remainder of the year. Bringing 4-year 2024 sales proceeds to approximately $65 million. dollars. As previously stated, we continue to expose assets to the market to further recycle capital within our portfolio. We evaluate additional dispositions based on whether or not we are able to attain attractive pricing, which in turn supports earnings and NAV accretion and further deleverages the balance sheet or allows for modest external growth.

Speaker Change: We are maintaining our disposition proceeds guidance with expectations to sell approximately $50 million of additional non core properties for the remainder of the year, bringing full year 2024 sales proceeds to approximately $65 million.

As previously stated we continue to expose assets to the market to further recycle capital within our portfolio, we evaluate additional dispositions based on whether or not we are able to obtain attractive pricing, which in turn supports earnings and NAV accretion and further de leverages the balance sheet or allows.

Speaker Change: For modest external growth.

Brian Peay: Our approach to capital allocation remains measured and is aimed at maximizing value for all AHR stakeholders.

Speaker Change: Our approach to capital allocation remains measured and is aimed at maximizing value for all HR stakeholders.

Unknown Executive: That concludes our prepared remarks.

Speaker Change: That concludes our prepared remarks and with that operator, we are now ready to open the line for questions.

Unknown Executive: And with that operator, we are now ready to open the line for questions. Thank you. And the floor is now open for your questions. So again, to ask a question this time, please press star or the askers, then the number one on your telephone keypad. So for this Q&A, you're going to be provided the opportunity to ask one question and one further follow-up question. For now, we'll pause for just a moment to compile the Q&A roster.

Speaker Change: Thank you and of course now open for your questions. So again to ask a question this time.

Speaker Change: Please press star or the asked various then the number one on your telephone keypad.

Speaker Change: Q&A, you'll kind of be provided the opportunity to ask one question and one follow up question.

Speaker Change: We're now well pause for just a moment to compile the Q&A roster.

Speaker Change: Okay.

Joshua Dennerlein: Our first question comes from Joshua Dennerlein from back from America. Yeah, hey, guys. Over with Dodewell, just wanted to maybe touch base on Trilogy. It's kind of newer to the public markets. I just want to think about the rate growth going forward from just all the different moving pieces. I know CMS is moving rates, and then the different states, any kind of insight into the go-forward. If there's any certainty at this point. Thanks, Josh.

Speaker Change: Our first question comes from Joshua and de layering.

Speaker Change: From Bank of America.

Unknown Executive: Yeah, hey guys. I hope everyone's doing well.

Joshua: Yeah, Hey, guys.

Speaker Change: <unk> is doing well I just wanted to kind of maybe touch base on trilogy.

Speaker Change: It's kind of newer to the public market is just kind of how should we kind of think about like the rate growth going forward from just all the different music moving pieces I know like CMS is moving rates and then like the different states I guess any kind of insight into the go forward.

Speaker Change: If there is any certainty at this point.

Speaker Change: Thanks, Josh This is Danny good morning, and thanks for joining US good afternoon to you and I'm going to hand, it over to Gabe for that one.

Danny Prosky: This is Danny. Good morning. And thanks for joining us. Good afternoon to you.

Gabriel Willhite: And I'm going to hand it over to Gabe for that one. Hey, Josh. So I think Trilogy, to think about their business, you know, it's basically a mix of senior housing and skilled nursing that boils down to about 55% skilled nursing beds and 45% senior housing beds, which is predominantly AL and with a little bit of IL. On the AL, IL senior housing side of the business, I think the rate growth acts very much like the rest of our competitors and the rest of the nation. Trilogy may be a little bit better than both because they're higher occupied already, so they've got more pricing power. But more important than that.

Josh.

Gabe: I think trilogy to think about their business.

Gabe: It's basically a mix of senior housing and skilled nursing that boils down to about 55% skilled nursing beds, and 45% senior housing beds, which is predominantly a al and with a little bit of Io.

Gabe: A L I L senior housing side of the business I think the rate growth acts very much like the rest of our competitors in the rest of the nation trilogy, maybe a little bit better than most because they're higher occupied already so they've got more pricing power, but more important than that they are kind of the preferred option in the markets that they're in.

Gabriel Willhite: They're kind of the preferred option in the markets that they're in. So we saw on their senior housing side about six and a half to seven percent year-over-year growth in rate. I think they'll continue to have pricing power there. On the skilled nursing side, it's obviously a mix. And within that skilled nursing component, you've got a certain percentage that's private pay, which acts a lot like the private pay on the AL and IL part of the business, although Trilogy saw outside growth and rate in that part of their skilled nursing business at 0.9.3% year-over-year. With Medicare and Medicaid, I think we've seen the reimbursement environment steadily improving, and part of it is catching up to what was really incredible inflation over the last year and a half and getting the rates to a spot where it takes into account, especially the increases in compensation expenses that we've had.

Gabe: So we saw on their senior housing side about.

Gabe: Six 5% to 7% year over year growth in rate I think they will continue to have pricing power. There on the skilled nursing side, it's obviously a mix and within that skilled nursing component you've got a certain percentage that is private pay which acts a lot like the private pay on the al and IL part of the business although.

Gabe: <unk> saw outsized growth in rate.

Speaker Change: That part of their skilled nursing business at nine 3% year over year with Medicare and Medicaid I think we've seen that reimbursement environment steadily improving and part of it is catching up to what was really incredible inflation over the last year and a half.

Speaker Change: And getting the rates.

Speaker Change: Spot, where it takes into account, especially the increases in compensation expenses that we've had so we expect that to be.

Gabriel Willhite: So we expect that to be paused specifically with Medicare. They put out the final rule that said that the national average increase for skilled nursing would be 4.2% in Trilogy's markets. We expect it to be a little bit better based on reflecting the increase in labor expenses over the last year. The Medicaid part of the business, I think this might be the most interesting part of the business as far as where rate growth can go because the states that Trilogy operates in are shifting more and more to value-based care models, where if you provide the highest quality of care, you're going to be rewarded for it in terms of an add-on or additional rate.

Speaker Change: To continue to be positive specifically with Medicare They put out the final rule that said that the national average increase for skilled nursing would be four 2% in <unk> markets.

Speaker Change: We expect it to be a little bit better based on <unk>.

Speaker Change: Reflecting the increase in labor expenses over the last year.

Speaker Change: The Medicaid part of the business I think this might be the most interesting part of the business as far as where rate growth can go because the states that trilogy operates in.

Speaker Change: Are shifting more and more to value based care models, where if you provide the highest quality of care youre going to be rewarded for it and in terms of an add on or additional rate.

Gabriel Willhite: And the things that they look at are things that Trilogy performs really well in: five-star rating, staffing rating, hospitalization rates, and certain conditions like pressure ulcers, things like this. And that's one of the things you really like about partnering with Trilogy, and all of our operators are high-quality operators, but Trilogy kind of stands ahead of everyone in providing the highest quality of care. And now the reimbursement environment is really starting to recognize and appreciate that level of care and give the people who are doing it the best a little bit more of an incentive to continue to perform that way.

Speaker Change: Things that they look at are things that trilogy performs really well and five star ratings staffing and rating hospitalization rates in certain conditions like pressure ulcers things like this.

Unknown Executive: I just wanted to kind of maybe touch base on Trilogy. It's, you know, it's kind of newer to the public market. I just wanted to actually think about like the rate growth going forward. From just all the different moving pieces, I know, like CMS is moving rates, and then like the different states, I guess any kind of insight into the future, if there's any certainty at this point.

Speaker Change: And that's one of the things, we really like about partnering with trilogy in all of our operators are high quality operators, but trilogy kind of stands ahead of everyone in providing the highest quality of care and now the reimbursement environment is really starting to recognize and appreciate that level of care and give the people who are doing it the best a little bit more of an incentive.

Unknown Executive: and getting the rates to a spot where it takes into account, especially the increases in compensation expenses that we've had. So we expect that to be, and that's one of the things we really like about partnering with Trilogy and all of our operators are high quality operators but Trilogy kind of stands ahead of everyone in providing the highest quality of care and now the reimbursement environment is really starting to recognize and appreciate that level of care and give the people who are doing it the best a little bit more of an incentive to continue to perform that way.

Speaker Change: <unk> to continue to perform that way.

Joshua Dennerlein: No, that's good color. Thanks, Gabe. Brian, you mentioned the asset sales are taking a bit longer than you expected. Is there any kind of color you could provide on what's driving that away? Yeah, a good question.

Speaker Change: No that's good color. Thanks Kim.

Speaker Change: Ryan you mentioned the asset sales are taken a bit longer than you expected is there any kind of color you can provide on like what's driving that delay or.

Ryan: Yes, good question actually.

Stefan O: Actually, Stefan's on the front line of that. I'd actually like him to weigh in. Thanks, Brian. Hey, Josh. Let's see here. Yeah, so in terms of what's delaying deals, I mean, I think it really is a matter of, you know, fires are tending to be a little more careful about their diligence. They want to understand, for example, what's going on on the CAPEX level. So they're just digging in a little bit more on that end. And I think part of that is related to the lenders and what they're expecting as well on their side, as far as the underwriting is concerned.

Bonds: Bonds on the on the frontline of that I'd actually like him to weigh in.

Ryan: Hey, Thanks, Brian Hey, Josh and Steve.

Bonds: Yes, so in terms of what's delaying deals I mean, I think it really is a matter of.

Bonds: Buyers are are tending to be a little more careful about their diligence they wanted to be.

Speaker Change: I understand for example, what's going on on the Capex level. So theyre just digging in a little bit more on that end.

Speaker Change: And I think part of that is related to the lenders and what they're expecting as well on their side as far as the underwriting is concerned so.

Stefan O: So I think a little bit of a push down from the lenders, but I also think that, you know, in the market today where you've got very limited amounts of supply in terms of assets that are out there, especially on the MOB side or the application medical side. You know, I think they are just being a little more careful about what they're buying and what they're paying for. And so I think that's what's delaying really some of the progress in terms of getting deals done. And Josh, oddly enough, we're not actually seeing a backup in pricing.

Speaker Change: A little bit of us as a push down from lenders, but I also think that.

Speaker Change: In the market today, where you've got.

Speaker Change: <unk> got no.

Speaker Change: A very limited amount of supply in terms of assets that are out there, especially on the MLP side or at least medical side.

Speaker Change: I think they are just.

Speaker Change: Being a little more.

Speaker Change: Careful about what they are buying and what they are paying for it and so I think that's what's delaying.

Speaker Change: Some of the progress.

Speaker Change: Of getting deals done.

Speaker Change: Josh oddly enough, we're not actually seeing a backup in pricing. So it's not as though cap rates are moving from where we were originally thinking we can get deals done.

Joshua Dennerlein: So it's not as though cap rates are moving from where we originally thinking we could get deals done. It says, it's the fondest described. It's really way more stringent due diligence, probably brought on by lenders. Interesting.

Stefan: Stefan just described it's really way.

Stefan: More stringent due diligence probably brought on by lenders.

Yeah.

Stefan: Interesting.

Unknown Executive: Thanks, thanks, guys.

Speaker Change: Thanks, guys.

Austin Wurschmidt: Our next question comes from Austin. from Keyback Capital Markets. Great, thank you. Good morning, everybody out there. So for the Integrated Health campuses, Gabe really appreciates all the detail you provided on that segment and some of these levers and opportunities that you highlighted: occupancy, cue mix, and expense management. I think we're kind of the primary. What does this all kind of roll up and mean for the margin expansion potential over time? Can you just frame that up for us a little bit? Thanks. Yeah, so we're very pleased that the direction that we've seen from the margins, that trilogy. You know, we're still below where we're pre-COVID, but we're getting closer.

Speaker Change: Our next question comes from Austin, Chris Schmidt.

Speaker Change: Keybanc capital markets.

Chris Schmidt: Great. Thanks, good morning, everybody out there.

Chris Schmidt: So for the integrated health campuses Gabe really appreciate all the detail you provided.

On that segment and some of these levers and opportunities that you highlighted occupancy Q mix and expense management I think we're kind of the primary.

Speaker Change: What does this all kind of roll up and mean for that margin expansion potential over time can you just frame that up for us a little bit.

Speaker Change: Yes, so we're very pleased with the direction that we've seen from the margins that trilogy.

Speaker Change: We're still below where we were pre COVID-19.

Speaker Change: We're getting closer every quarter, there seems to be pretty good movement.

Gabriel Willhite: Every quarter, there seems to be pretty good movement. Our expectation or my expectation is that we'll surpass the pre-COVID margins. It's going to take a little bit longer. I think it's a part of that is because I'm expecting higher occupancies, and we're already at higher occupancies than pre-COVID, but I expect those to continue ticking up. But we've got a good, good wind in our backs from a reimbursement perspective. Gabe mentioned, you know, Medicaid has been moving up at a very nice clip. October 1st, when that new Medicare rate kicks in, that's going to be a very, very helpful for Trilogy.

Speaker Change: Our expectation or my expectation is that well surpassed the pre COVID-19 margins.

Speaker Change: It could take a little bit longer I think it's a part of that is because I'm expecting higher occupancies and we're already at higher occupancies than than pre COVID-19, but I expect those to continue ticking up.

Speaker Change: But we've got a good good wind at our backs from a reimbursement perspective, Gabe mentioned Medicare.

Speaker Change: Medicaid has been moving up at a very nice clip October one when that new Medicare rate kicks in that's going to be.

Gabe: Very very helpful for trilogy.

Gabriel Willhite: So, you know, I mean, a trilogy's margin pre-COVID was kind of a 19-ish range, and we're not too far off that. I would expect us to surpass that.

Gabe: So I mean coaches margin pre COVID-19 was a kind of a 19 ish range and we're not too far off that I would expect us to surpass that.

Gabe: Okay.

Austin Wurschmidt: Appreciate some of the thoughts there, and then just switching over maybe to the shop's segment. You've alluded to exploring opportunities to grow that segment at the right time, similar to kind of the organ deal you did earlier this year. Any update or thought process around the opportunities that lie in front of you, either with the existing operator base or, you know, new relationships. Yeah, so, a good question of, you know, we've had a couple of opportunities that we've done over the last year and a half, mainly because of the MES position we were in. We took over Portfolio and Texas. It very pleased with the one in Oregon that you just mentioned.

Speaker Change: I appreciate some of the thoughts there and then just switching over maybe to the shop segment, you've alluded to exploring opportunities to grow that segment at the right time.

Speaker Change: Similar to kind of the Oregon deal you did earlier this year any any update or thought process around the opportunities that lie in front of you either with the existing operator base are new relationships.

Speaker Change: Yes. So the question of we've had a couple of opportunities that we've done over the last year and a half mainly because the mezz position. We were in we took over portfolio in Texas. It very pleased with the one in Oregon that you just mentioned there is one more.

Gabriel Willhite: There is one more kind of coming down the pike which, you know, we really are not ready to disclose anything on it. You know, if and when that deal closes, we'll disclose it at that point. I mean, you know, sort of top level, Austin, there's tremendous opportunity in the market. I think you're seeing some of our peers; one of our peers is able to take advantage of that. We see those same opportunities. We love the fact that we've got these great regional operator relationships. They're bringing us deals. We are a little bit capital constrained at the present time.

Speaker Change: Kind of coming down the Pike, which are.

Speaker Change: We really are not ready to disclose anything on it.

Speaker Change: If and when that deal closes we'll disclose it at that point.

Speaker Change: Yes.

Top level Austin, there is tremendous opportunity in the market and I think youre seeing some of our peers one of our peers able to take advantage of that we see those same opportunities.

Speaker Change: We love the fact that we've got these great regional operator relationships. They are bringing us deals and we are a little bit capital constrained at the present time.

Gabriel Willhite: You know, we don't want to; we've fought hard to get our leverage where it is down to 5.9 times, and we're very protective of that.

Speaker Change: We don't want to we fought hard to get our leverage where it is down to five nine times and we're very protective of that so.

Gabriel Willhite: So, hopefully, at some point, the stock rerates and we'll be able to grow externally. But for now, we're being extremely selective. Yeah, so we're, we've closed on the deals that we've just discussed. We've been growing within Trilogy. We view Trilogy as our best risk-adjusted return today. So, we've been kind of taking our limited capital dollars and really putting it towards Trilogy expansion.

Speaker Change: Fully at some point the stock re rates and we'll be able to grow externally, but for now we're being extremely selective yes.

Unknown Executive: Yeah, so we've closed on the deals that we've just discussed. We've been growing within Trilogy. We view Trilogy as our best risk-adjusted return today, so we've been kind of taking our limited capital dollars and really putting them towards Trilogy expansion.

Speaker Change: We closed on the deals that we've just discussed we've been growing within trilogy, we view <unk> as our best risk adjusted return today. So we've been kind of taking our limited capital dollars and really putting it towards trilogy expansion.

Gabriel Willhite: Yeah, that makes a lot of sense, but I guess on this one more shop opportunity, I mean, you know, I guess what are the plans to fund it to the extent that it does materialize. And is this similar to those other opportunities you've highlighted where there's pretty significant and a wide growth and occupancy upside? Yeah, so we would be taking it over for the cost of the debt, so there'd be no new dollars going out the door, and we view it as a very opportunistic play with a lot of upside.

Speaker Change: Yes that makes a lot of sense, but I guess on this one more shop opportunity I mean.

Speaker Change: Hey, I guess, what are the plans to fund to the extent that it does materialize.

Speaker Change: And is this similar to those other opportunities you've highlighted where there's pretty significant.

Unknown Executive: Is this similar to those other opportunities you've highlighted where there are pretty significant?

Speaker Change: Why growth and occupancy upside.

Unknown Executive: Yes, but we would be taking it over for the cost of the debt, so there would be no new dollars going out the door.

Speaker Change: Yes, so we would be taking it over for the cost of the debt. So there'll be no new dollars going out the door.

Speaker Change: <unk>.

Speaker Change: We view it as a very opportunistic play with a lot of upside.

Unknown Executive: Great, thank you.

Speaker Change: Great. Thank you.

Ronald Kamdem: Our next question comes from Ronald Kamdem, from Morgan Stanley. Hey, just two quick ones. So going back to trilogy, I think following up on that line of questioning, I think you talked about potentially getting a record margins.

Speaker Change: Our next question comes from Ronald Camden.

Ronald Camden: From Morgan Stanley.

Ronald Camden: Hey, just two quick ones, so going back to trilogy.

Ronald Camden: I think following up on that line of questioning I think you've talked about potentially getting a record margins. Maybe can you talk about what you think the occupancy levels are that are at that at that point as well could you get to sort of the nineties and also maybe just a quick update on the potential buyout.

Danny Prosky: Maybe can you talk about what you think the occupancy levels are at that point as well because you get to sort of the 90s and also maybe just a quick update on the potential buyout. Obviously, the numbers have been accelerating just how you're thinking about sort of the buyout and funding it. Yeah, so Trilogy's occupancy has ticked up very nicely. Right now, the ALIL and the skilled occupancy are roughly the same. The AL has caught up nicely. If we go back a year and a half, coming out of COVID, the skilled side recovered much faster, as we would expect.

Obviously, the numbers have been accelerating just how youre thinking about sort of the buyout and funding it.

Speaker Change: Yes, it's <unk> occupancy has picked up very nicely.

Speaker Change: Right now the a L L.

Speaker Change: <unk> and the skilled occupancy are roughly the same a L has caught up nicely. If we go back a year and a half coming out of Covid. The skilled side recovered much faster as we would expect.

Danny Prosky: I would expect that the ALIL side will probably grow faster at this point. I mean, there is room to grow and skilled as well. But Trilogy skilled model is a short stay. Absolutely to stay there is less than 30 days. If hospital discharges are where we get our patients. So there's room to grow it, but you're not going to take it to 98%. You're always going to want to have beds available for new residents to move in. The ALIL side, I think that there is room to definitely grow that. I don't see any reason why that wouldn't go well into the 90s.

I would expect that the IL side will probably grow faster at this point I mean, there is room to grow it scaled as well, but trilogy scaled model is a short stay.

Speaker Change: Average length of stay there is less than 30 days.

Speaker Change: Hospital discharges are where we get our patients. So there is really there is room to grow it but youre not going to take it to 98% Youre always going to want to have beds available for new <unk>.

Speaker Change: Residents to move in the Al IL side I think that.

Speaker Change: There is room to definitely grow that.

Speaker Change: Don't see any reason why that wouldn't go well into the nineties.

Speaker Change: But.

Danny Prosky: But the entire margin business probably faster growing in the long run.

Speaker Change: It's higher margin business.

Speaker Change: Probably faster growing in the long run as far as the option. We've got a lot of flexibility there we have well over a year to exercise that option.

Danny Prosky: As far as the option, we've got a lot of flexibility there. We have well over a year to exercise that option. We've got flexibility as to how we do it, whether it's cash or preferred. There may be an opportunity to do something with common stock. We're obviously eager to exercise that option. We want to own all of Trilogy. We would love to recognize the earnings accretion that would come along with that transaction. That being said, the price is fixed. It does increase January 1st. So that is obviously a deadline that we're going to look at as to whether we want to do it before or after that.

Speaker Change: Got flexibility as to how we do it whether it's cash or preferred there may even be an opportunity to do something with common stock.

Speaker Change: We're obviously eager to exercise that option.

Speaker Change: Want to own all of trilogy.

Speaker Change: We would love to recognize the earnings accretion that would come along with that transaction that being said the.

Prices fixed there it does increase January 1st so that is obviously a deadline that we're going to look at as to whether we want to do it before or after that but the value creation of trilogy, and earth to us under any circumstance, regardless of when we close so it's it's.

Danny Prosky: But the value creation of Trilogy Eners to us under any circumstances regardless of when we close. We'd like to close it in an efficient way. As Brian mentioned, we've gotten our debt multiple down to a level that we're very comfortable with. We don't want to just turn around and raise it back up without an opportunity to lower it again.

Speaker Change: Like to close it.

Speaker Change: An efficient way and as Brian mentioned.

Brian: We've gotten our debt multiple down to a level that we're very comfortable with and we're just we don't want to just turn around and raise it back up without an opportunity there to lower it again.

Ronald Kamdem: Great. That's helpful.

Brian: Great. That's helpful. And then my second question was just on just.

Brian Peay: And then look, my second question was just on flow through. Maybe you talked about the four-cent raise and the guidance. A penny of that seemed like a non-recurring. Maybe if you talk about the NOI upside, how many pennies was that? And what the interest cost offset on that was and how we think about flow through going forward. Yeah, I mean, listen, we haven't broken it down to a penny for each segment raise or a penny for the interest. We are comfortable at the NFFO guidance for the year, the entire range of the guidance. You know, obviously the midpoint is $1.25, but we put out the guidance because we're comfortable in that range, at least as of today.

Speaker Change: Just on flow through maybe you talked about the force that raising the guidance a penny of that seem like a nonrecurring and maybe can you talk about.

Speaker Change: The NOI upside like how many opinions was that and what the interest costs offset on that was.

Speaker Change: How do we think about flow through going forward.

Speaker Change: Yes, I mean listen we haven't we haven't broken it down to penny for each segment raise or a penny for the interest we are comfortable at the <unk> guidance for the year the entire range of the guidance.

Speaker Change: Obviously, the midpoint is $1 25, but we put out the guidance because we're comfortable in that range at least as of today, we may see things down the road I mean heck the.

Brian Peay: We may see things down the road. I mean, heck, there's been a lot of calls for a 50 basis point decrease in interest rates from the Fed next month. And if that were to happen, then I think interest becomes a little less of a headwind. So, you know, we are comfortable at the range. We haven't really talked about pennies for each of the individual segment increases. As we get more visibility as the year wears on, we can refine that guidance even more.

Speaker Change: There's been a lot of calls for a 50 basis point decrease in interest rates for the from the fed next month and if that were to happen then I think interest becomes a little bit less of a headwind.

Speaker Change: So.

Speaker Change: We are comfortable with the range, we haven't really talked about pennies for each of the individuals segment increases.

Speaker Change: As we get more visibility as the year wears on we can refine that guidance even more.

Speaker Change: Yeah.

Unknown Executive: Great, thanks so much. That's it for me.

Speaker Change: Great. Thanks, so much that's it for me.

Michael Carroll: Our next question comes from Michael Carroll from RBC Capital Markets. Hi, Mike. Hey, thanks.

Speaker Change: Our next question comes from Michael Carroll from RBC capital markets.

Mike: Hi, Mike.

Michael Carroll: Hey, Thanks, Hey, Dani can you talk a little bit about your investment pipeline. I know you mentioned that you are seeing some really good opportunities out there.

Danny Prosky: Danny, can you talk a little bit about your investment pipeline? I know you mentioned that you're seeing some really good opportunities out there. I mean, with the improvement in the cost of capital that you've seen specifically in this diet price over the past few months, I mean, can AHR get more aggressive deploying capital and growing externally, possibly using new equity to fund some of those investments? You know, I don't want to get ahead of ourselves. Obviously, you know, now that we are locked up and expired, you know, we are able to go back to the market.

Speaker Change: The improvement in the cost of capital that you've seen specifically in the stock price over the past few months I mean, Ken HR get more aggressive deploying capital and growing externally.

Possibly using new equity to fund some of those investments.

Speaker Change: I don't want to get ahead of ourselves obviously.

Speaker Change: Now that we are lockup has expired we are able to go back to the market.

Danny Prosky: I'm not saying it's something we're necessarily looking to do, you know, this month or next month. You know, right now we have so many opportunities. You know, we do have the third opportunity that I mentioned that hopefully will come to fruition sometime soon. We've got, you know, we just started five new independent living developments within Trilogy. We just announced a new campus for Trilogy in Michigan. There are so many opportunities to grow Trilogy that, you know, as long as our capital is limited, we're probably going to focus more there. You know, we may do the one-off deal with some of our regional operating partners.

Speaker Change: I'm not saying, it's something we're necessarily looking to do you know this month or next month.

Speaker Change: Right now we have so many opportunities we do have the third opportunity that I mentioned that that hopefully will come to fruition.

Speaker Change: Sometime soon we've got we just started five new independent living Villa developments within trilogy.

Speaker Change: We just announced a new campus for trilogy in Michigan.

Speaker Change: Are so many opportunities to grow trilogy.

Speaker Change: As long as our capital is limited, we're probably going to focus more there.

Speaker Change: We may do the one off deal with some of our regional operating partners I wouldn't be surprised to see something there, but as far as.

Danny Prosky: I wouldn't be surprised to see something there.

Danny Prosky: But as far as, you know, going out and starting to invest a lot in new acquisitions outside of Trilogy, I think we're going to, I mean, right now job one is to expand Trilogy and buy out the rest of Trilogy. I would say that's probably going to be our primary focus before you start seeing us go long into other acquisitions. Even though the opportunities are there, it kind of, you know, we see them and we'd love to take advantage of them, but, you know, we also have to be good stewards of capital. Investors spoke to us loud and clear during the IPO process of where they wanted to see our leverage.

Speaker Change: Going out and starting to invest a lot in.

Speaker Change: In new acquisitions outside of trilogy, I think we're going to I mean, right now job one is to expand trilogy and buy out the rest of the trilogy I would say, that's probably going to be our primary focus before you start seeing us go long.

Speaker Change: Other acquisitions, even though the opportunities are there it kind of we say them and we'd love to take advantage of them, but.

Speaker Change: We also have to be good stewards of capital.

Speaker Change: Investor spoke to us loud and clear during the IPO process of where they wanted to see our leverage partly that's because it makes the equity trade better partly because it will allow us to take advantage of external growth opportunities out in the future. Once we find things that are going to meet our return requirements and so to the extent that the stock continues to re rate.

Danny Prosky: Partly that's because it makes the equity trade better; partly because it'll allow us to take advantage of external growth opportunities out in the future once we find things that are going to meet our return requirements. And so, to the extent that the stock continues to re-rate, the multiple goes up. I think those opportunities become more and more attractive, but we're very cognizant of where our leverage multiple is.

Speaker Change: The multiple goes up I think those opportunities become more and more attractive, but we're very cognizant of where our leverage multiple is.

Speaker Change: Yeah.

Michael Carroll: Okay, great. And then guess with regard to Trilogy, I know they've done some pretty good results over the past several quarters and probably years. I know there has been a few leadership changes or not, maybe changes, but with the promotion of David becoming the president and CFO, I guess, first, congrats to David.

Unknown Executive: Okay, great. And then, I guess, with regard to Trilogy, I know they've done some pretty good results over the past several quarters and probably years. I know there has been a few leadership changes, or not maybe changes, but with the promotion of David becoming the President and CFO. I guess, first, congrats to David.

Speaker Change: Okay, Great and then I guess with regard to trilogy, I know they've done some pretty good results over the past several quarters and probably years I know there has been a few leadership changes or not maybe changes, but with the promotion of David becoming the president and CFO, Hey, guys. I guess first congrats to David and I guess and second can you provide some color.

Unknown Executive: And I guess, second, can you provide some color on that shift, I guess, within their leadership? And what does that open up Trilogy to do? I mean, can they expand more aggressively? Or is it just giving more?

Danny Prosky: And I guess in second, can you provide some color on that shift, I guess, within their leadership, and what does that open up Trilogy do? I mean, it can expand more aggressively, or is it just just giving more... Recognition to David for his work and the stuff that he's contributed to Trilogy. Yeah, I wouldn't read too much into that. It's not really a change in leadership. I mean, you know, Leanne has been the CEO for five, maybe six years at this point. You know, she took over for Randy Buffer, the founder, when he retired in 2019.

On.

Speaker Change: That shift I guess within their leadership and what does that open up Shouldnt you do I mean, it can they expand more aggressively or is it just.

Speaker Change: Just giving them.

Speaker Change: More.

Speaker Change: Recognition to David for his work and the stuff that has contributed to trilogy, yes, I wouldn't read too much into that it's not really a change in leadership I mean, we and it's been the CEO for five maybe six years at this point she took over for Randy buffered. The founder when he retired in 2019, we add spend.

Danny Prosky: We haven't been there for 20 some odd years. He's been a long time CLO. You know, she's not, you know, looking to make any changes in her life. David, David has been the CFO for several years. I don't know, six, seven years. We, you know, both of them are doing a fantastic job, as you can see by the results. You know, we're big fans of both David and Leanne. I think this is really just a, you know, an upgraded title for David. You know, he has taken on more responsibilities as CFO, especially on the ancillary side of the ancillary business side of the company.

Speaker Change: Therefore, our 20 some odd years he has been a long long time CFO.

Speaker Change: She is not.

Speaker Change: Looking at it to make any changes in her life David has been a CFO for several years I don't know six seven years.

Speaker Change: Both of them are doing a fantastic job as you can see by the results. We're big fans of both David and Leann I think this is really just.

Speaker Change: I upgraded title for David if he has taken on more responsibilities of CFO, especially on the ancillary side of the ancillary business side of the company. So I really don't you shouldnt read too much into that adjustment entitle.

Danny Prosky: So I really don't, you shouldn't read too much into that adjustment in title.

Michael Griffin: Okay, great. Thank you.

Speaker Change: Okay, great. Thank you.

Speaker Change: Okay.

Michael Griffin: Our next question comes from Michael Griffin from CD. Hey, Michael. Hey, hey, guys, how are you doing?

Speaker Change: Our next question comes from Michael Graham.

Speaker Change: From Citi.

Hey, Michael.

Speaker Change: Hey, guys how are you doing Gabe.

Gabriel Willhite: Gabe, I want to go back to your comments just on seasonality within Trilogy and just given where kind of I think the expectations are there. You know, you called out a lot of the stay on the sniff side, a sort of short, sort of shorter term, you know, rehab. So is it fair to assume that occupancy is going to fluctuate in the near term, or do you still expect kind of the sustained increase to happen over the next few quarters? It's a good question, and I think the hard part about where we're at right now in this kind of post-COVID world and senior housing and skilled nursing is that it's really difficult to project how quickly things are going to move.

Michael Graham: Dave I wanted to go back to your comments just on seasonality within trilogy, and just given where kind of occupancy expectations are for there you called out a lot of the stay on the sniff side of shorter shorter sort of shorter term rehab stays so is it fair to assume that occupancy is going to fluctuate in the near term or do you still.

Speaker Change: Kind of the sustained increase to happen over the next few quarters.

Speaker Change: It's a good question I think the hard part about where we're at right now in.

Speaker Change: This kind of post Covid world in senior housing and skilled nursing is that it's really difficult to project how quickly things are going to move.

Gabriel Willhite: So I think that what the question actually is, is about what could stop growth from happening. And right now from my seat, you know, there's sure there's a little bit of seasonality in skilled nursing, but like I said, it's probably less than half of what we see in a traditional pre-COVID year, right. So what could really disrupt kind of this long term runway, run rate we're on that I think is at least two or three years is new supply. Obviously, we don't see that coming, especially in skilled nursing, where the number of units in America continues to decline, not increase.

Speaker Change: So I think that what the question actually is is about what could stop growth from happening and right now from my T. There's.

Speaker Change: Sure there is a little bit of seasonality in skilled nursing, but like I said, it's probably less than half of what we see in a traditional <unk>.

Speaker Change: Pre COVID-19 year right.

Speaker Change: So what could really disrupt kind of this long term runway run rate were on that I think is at least two or three years is new supply. Obviously, we don't see that coming especially in skilled nursing, where the number of units in America continues to decline not increase and on the outside of the trilogy business.

Gabriel Willhite: And on the AL side of Trilogy business, we're not seeing any construction starts. It's at historic lows. I think even below where we were during the global financial crisis. So if supply is not picking up, the only other lever there is really the demand. And on the skilled side, you see demand kind of go down a little bit with seasonality. I think mainly driven by the flu. And so that's normal. I don't think it's too concerning at this point that we are seeing a little bit of seasonality in the skilled line to that business because we're seeing.

Speaker Change: Not seen any construction starts at historic lows I think even below where we were during the global financial crisis.

Speaker Change: So if supply is not taking up the only other lever there is really the demand and on the skilled side do you see demand kind of go down a little bit with seasonality I think mainly driven by.

Speaker Change: The flu and so that's normal I don't think it's too concerning at this point that we are seeing a little bit of seasonality in the skilled.

Speaker Change: Why did that business, because we're seeing accelerating growth in their assisted living part of the business.

Gabriel Willhite: Accelerating growth in their assisted living part of the business. And by the way, that's part of why we think Trilogy is an attractive platform because the entire business has a different risk profile when you've got these different. drivers of demand by including them all in one campus, ILAL and skilled nursing, right? So it's always been that trilogy. The AL summer selling season is really positive, and the skilled nursing occupancy has some seasonality to it, and the reverse is also true in the winter months where the skilled occupancy picks up, and maybe AL drops off a little bit.

Speaker Change: And by the way that's part of why we think trilogy has an attractive platform.

Speaker Change: Because the entire business.

Speaker Change: It has a different risk profile when you've got these different.

Speaker Change: Drivers of demand by including them all in one campus IL al and skilled nursing right. So it's always been that trilogy.

Unknown Executive: drivers of demand by including them all in one campus, IL, AL, and skilled nursing, right? So it's always been that trilogy. The AL summer selling season is really positive, and the skilled nursing occupancy has some seasonality to it. And the reverse is also true in the winter months, where the skilled occupancy picks up, and maybe the AL occupancy drops.

Speaker Change: A L summer selling season is really positive and the <unk>.

Speaker Change: Killed nursing occupancy.

Speaker Change: Some seasonality to it and the reverse is also true in the winter months, where the skilled occupancy picks up it may be a all drops off a little bit yes, I remember Greg trilogy also has the ability to.

Gabriel Willhite: Yeah, I remember Drift trilogy also has the ability to transition wings if demand is up or down for any particular service. If there's a demand for AL memory care, they can convert a wing very easily. If they need additional SNF beds, as long as they've got the licenses for it, they can convert into additional SNF beds. So they've got flexibility that are based on the demand for the issue. Occupancy is not the end-all be-all for Trilogy NLI growth. You can see how even sequentially in the quarter, Trilogy is optimized Q-Mix in order to grow NLI pretty substantially, but you're not seeing huge moves in occupancy, and that's by design, right?

Speaker Change: Transition wings if demand.

It's up or down for any particular service.

Speaker Change: If there is a demand for <unk>.

al: Hey, al memory care.

al: They can they can convert a wing very easily if they need if they need additional sniff beds, if as long as ive got the licenses for it they can convert into additional snip that so they've got flexibility there based on the demand for the different lines of business and the one more point I want to make on this too is occupancy is not the end all be all for.

al: For trilogy NOI growth.

Speaker Change: You couldn't see how.

Speaker Change: Even sequentially in the quarter Triologies optimized SKU mix.

Unknown Executive: in order to grow NOI pretty substantially, but you're not seeing huge moves in occupancy. And that's by design, right?

Speaker Change: In order to grow NOI pretty substantially by year not seen huge moves in occupancy and Thats by design right. You can take in you know you can you can optimize the business in ways that help you to grow the NOI without necessarily pushing occupancy to the limit and I think youre going to start to see that happen in the shops world as well.

Unknown Executive: You can optimize the business in ways that help you to grow the NOI without necessarily pushing occupancy to the limit. And I think you're going to start to see that happen in the shops world as well, right? As people focus more on what's a rate that can get me back to a pre-pandemic margin, they may be willing to decelerate the growth in occupancy in exchange for a rate that's more profitable.

Gabriel Willhite: You can optimize the business in ways that help you to grow the NLI without necessarily pushing occupancy to the limit, and I think you're going to start to see that happen in the shop's world as well, right? As people focus more on what's a rate that can get me back to a pre-pandemic margin, they may be willing to decelerate the growth in occupancy in exchange for a rate that's more profitable. Yeah, so Trilogy can take more Medicare and less Medicare Advantage. They can take lower acuity Medicare residents, where their daily rate may actually be a little bit lower, but the margin's much higher just because there's a lower level of care.

Speaker Change: Right as people focus more on what's the rate that can get me back to our pre pandemic margin. They may be willing to decelerate the growth in occupancy in exchange for a rate that is more profitable.

Speaker Change: So trilogy can take more Medicare unless Medicare advantage.

Speaker Change: They can take.

Speaker Change: Lower acuity Medicare residents wear their daily rate may actually be a little bit lower but the margins much higher just because there is there is a lower level of care. So there's all kinds of things they can do to move the needle.

Gabriel Willhite: So there's all kinds of things they can do to move the needle without just simply growing their skilled census.

Speaker Change: Just simply growing their skilled census.

Unknown Executive: That's great.

Speaker Change: That's great I appreciate all the color you guys gave there and then maybe just some updated thoughts around the dividend obviously the payout ratio. It looked like it improved about sub 90%. This quarter I know that the capex can be kind of lumpy on a quarterly basis, but if I think back to the IPO.

Unknown Executive: Appreciate all the color you guys get there, and then maybe just some updated thoughts around the dividend. Obviously, the payout ratio looked like it improved. It's about some 90% this quarter. I know that the CAPEX can be lumpy on a quarterly basis, but if I think back to the IPO, I think the expectation was for about 100% payout ratio for 24. Has anything changed, and could we see that payout ratio on a full-year basis kind of come inside of that, maybe into the low-to-mid 90s? Yeah, I think that's totally possible. You know, if you look at the CAPEX spend, if you isolate Q2, if you look at the CAPEX spend and you add back the non-cash interest expense, you know, I think our AFFO payout ratio was certainly around 90%.

Speaker Change: Expectation was for about a 100% payout ratio for 2004 has anything changed and could we see that payout ratio on a full year basis kind of come inside of that maybe end of the low to mid nineties.

Speaker Change: Yeah, I think that's totally possible.

Speaker Change: If you look at the Capex spend if you isolate Q2, if you look at the Capex spend.

Speaker Change: And you add back the noncash interest expense.

Speaker Change: I think our <unk> payout ratio was certainly around 90%.

Unknown Executive: What has changed, frankly, from the original discussion, was that occupancy has increased faster than we had anticipated. The mix is very beneficial at Trilogy. Ultimately, you know, there's a lot left to the year. I would classify our earnings growth expectations. The guidance we've given is still somewhat aspirational, which is to say that we can't just go on vacation and assume that these numbers are going to show up. We've got work to do to get there, and I think that if they come through the way we're currently projecting, I think there is a chance that the dividend is covered.

Speaker Change: What has changed frankly from the original discussion was that occupancy has increased faster than we had anticipated.

Speaker Change: Mix is.

Speaker Change: Three beneficial at trilogy ultimately.

Speaker Change: A lot left to the year I would I would I would classify our earnings growth expectations. The guidance. We've given is still somewhat aspirational, which is to say that we can't just go on vacation and assume that these numbers are going to show up we've got work to do to get there and I think that if they come through the way we are.

Speaker Change: Currently projecting I think there is a chance that the dividend is covered now it's not going to be covered at the level that we would like to see it.

Unknown Executive: Now, it's not going to be covered at the level that we would like to see it. Obviously, we gave guidance that we want to see much deeper coverage, but we think that the organic earnings growth is embedded in the portfolio will get us there possibly in 2025, or probably in 2025. But yeah, I think there is a chance we'll be below 100% payout ratio this year.

Speaker Change: Obviously, we gave guidance that we want to see much deeper coverage, but we think that the organic earnings growth thats embedded in the portfolio will get us there.

Speaker Change: Possibly in 2025.

Speaker Change: Probably in 2025, but yes, I think there is a chance we will be below 100% payout ratios this year.

Unknown Executive: But yeah, I think there is a chance we'll be below the 100% payout ratio this year.

Unknown Executive: Great, that's it for me. Thanks for the time. Thanks, Ralph.

Speaker Change: Great. That's it for me thanks for the time.

Unknown Executive: Thanks, Gregg.

Greg: Thanks, Greg.

John Pawlowski: Our next question comes from John Pawlowski with Green Street. John? Hey, morning.

Greg: Our next question comes from John Pawlowski.

Unknown Executive: with Green Street.

John Pawlowski: Queen Street.

John Pawlowski: Hey, John.

John Pawlowski: Hey, Good morning, just two questions from me on the shop portfolio, the three 1% revpar growth year over year in the quarter.

John Pawlowski: Just two questions from me on the shop portfolio. The 3.1 percent red pore growth year-by-year in the quarter. Are concessions still weighing down at number, or is that kind of a clean result we should expect as a reasonable run rate moving forward? I think there's less concessions, that's for sure. If you go back to the last earnings call, we said that our expectation is, as we will see, red pore growth accelerate throughout the year. We've certainly seen it from Q1 to Q2, and I hate to provide forward-looking statements, but my expectation is we'll continue to see acceleration throughout the rest of the year.

John Pawlowski: Concessions still laying down that number or is that kind of a clean clean results we should expect.

Speaker Change #101: As a reasonable run rate moving forward.

John Pawlowski: Yes.

Speaker Change #102: I think theres still theres less concessions thats for sure.

Speaker Change #103: If you go back to the last earnings call.

Speaker Change #104: We said that our expectation is we will see.

Speaker Change #104: Revpar growth accelerate throughout the year, we've certainly seen it from Q1 to Q2 and I hate to provide forward looking statements, but my expectation is we'll continue to see acceleration.

Speaker Change #104: Throughout the rest of the year and Thats the benefit of occupancy where it is I think at that point you can you can be.

Brian Peay: That's the benefit of occupancy where it is. I think at that point, you can be a little bit more strict on concessions and not handing them out. You can certainly push on street rates, and that's the benefit of having occupancy up where it is. If you're trying to build occupancy and raise RevPore at the same time, it becomes much more difficult. Now that you've got a critical mass of occupancy, you can push on rate.

Speaker Change #104: Bit more.

Speaker Change #104: Strict on concessions and not handing them out you can certainly push on street rates and Thats the benefit of having occupancy up where it is if you're trying to build occupancy and raise revpar at the same time it becomes much more difficult now that you've got a critical mass of occupancy you can you can push on rate.

Speaker Change #104: Okay.

Brian Peay: I want to go back to your catbacks comments. I know there's seasonality in catbacks; it's lumpy, but it's up massively year-over-year versus Q2, 23 in your shop portfolio. Can you just let us know, basically, for how long should we expect an above-trend catbacks figure as you may be, spend some deferred catbacks that you didn't get to during COVID? The fair question, John, the reality is that we see seasonality in our catbacks spend, which sounds weird, but we do have a number of assets that are in cold weather states, and it's very difficult to do a roof replacement or a parking lot resurfacing when there's snow on the ground or snow on the roof.

Speaker Change #105: And then when I go back to your Capex comments I know there's seasonality in Capex.

Speaker Change #106: Lumpy, but its up massively year over year versus Q2 'twenty three in your shop portfolio can you just let us know how.

Speaker Change #107: So basically for how long should we expect an above trend capex figure as you may be.

Speaker Change #108: And some deferred capex that you didnt get too during COVID-19.

Speaker Change #109: It's a fair question John the reality is that we're we see seasonality in our capex spend which sounds weird, but we do have a number of assets that are in cold weather states and it's very difficult to do a roof replacement or a parking lot resurfacing when there's snow on the ground or snow on the roof.

Brian Peay: The Q2 spend is higher than it was in Q1, but frankly, if you go back and look at a trailing four quarters of catbacks, for each of our segments that we've given guidance on, those numbers are almost exactly where we've given guidance. And what I mean by that is the trilogy catbacks spend; we gave guidance about a $900 to $1000 of bed. It happens to be on a trailing four-quartered basis $1,032, so it's right where we had indicated. On the shop side, the trailing four quarters is about $1,100 of bed, and that's precisely where we gave guidance.

Speaker Change #110: So the Q2 spend is higher than it was in Q1, but frankly, if you go back and look at a trailing four quarters of Capex for each of our segments that we've given guidance on those numbers are almost exactly where we've given guidance and what I mean by that is the trilogy Capex spend we gave guidance about 900 to 1000.

Speaker Change #110: A bed it happens to be on a trailing four quarters basis $1032. So it's right where we are.

Speaker Change #110: Had indicated on the shop side, the trailing four quarters is about $1100 a bed and that's precisely where we gave guidance we thought its between 1000 $1100. So I would say the capex spend is more tied to the fact that there's a couple of things one we talked about the weather.

Brian Peay: We thought it's between $1,100. So I would say the catback spend is more tied to the fact that there's a couple things. One, we talked about the weather; number two, with operator swap outs. You know, those were situations where we did not necessarily want to spend with an operator that we were replacing, or even potentially a triplum at least that we were going to convert. So once we got the new operators in, and they've been in now for a little while, that's when we wanted to deploy capital the way they expect or need it to be deployed.

Speaker Change #110: Two with operator swap outs those were situations, where we did not necessarily want to spend with an operator that we were replacing or.

Speaker Change #110: Or even potentially a triple net lease that we were going to convert so once we got the new operators in and they've been in now for a little while that's when we want to deploy capital the way they expect or need it to be deployed so that's a little bit of the step up I wouldn't say there is deferred maintenance capex is pretty much right, where we're expecting it to be.

Brian Peay: So that's a little bit of the step up. I wouldn't say there's deferred maintenance. Catbacks is pretty much right where we're expecting it to be.

Brian Peay: Maybe I'm missing something in disclosure; I'm not following your comments, so I'm controlling for seasonality in my comments. So I know the trailing for quarter tech shop is lower, but $3,500 per unit spent in Q2, I might be missing something, but that's versus 830 from Q2 a year ago. So, you know what, that's true, it's true and it's not true. I have the benefit of seeing what our numbers were pre-IPO, and so I can tell you, CapExpan in Q1 was $789 a bet, that's public and publicly disclosed. CapExpan in Q4 was $793 a bet. CapExpan is $34.96, you're right in Q4, but in Q3 2023 it was $200 a bet. Now that's pre-IPO and you don't have the benefit of seeing that, but if you take those four quarters and put them together, it's exactly $1,100 a bet.

Speaker Change #111: Maybe I'm missing something and disclosure I'm not following your comments.

Speaker Change #112: Controlling for seasonality in my comments, so I know the trailing four quarter ex shop us.

Speaker Change #113: It is lower but $3500 per unit spend and Q2, I might be missing something but and thats versus <unk> 30 from Q2 a year ago.

Speaker Change #114: That's true.

Speaker Change #114: It's true and it's not true.

Speaker Change #114: Have the benefit of seeing what our numbers were pre IPO.

Speaker Change #116: And so I can tell you capex spend in Q1 was $789 a bed.

Speaker Change #116: That's public and publicly disclosed capex spend in Q4 was $793 a bed.

Speaker Change #117: Capex spend is $34 96, you're right in Q4, but in Q3 of 2023. It was $200 a bed now thats pre IPO and you don't have the benefit of seeing that but if you take those four quarters and put them together, it's exactly $1100 a bed.

Brian Peay: Yeah, and I think the difference between Q2 last year and Q2 this year is we had a lot of operator transitions last year at this time, and when we're doing that, we're not going to be spending a lot on CapEx; we're going to wait to get the new operator in, and then kind of see what needs to be done. So the way I, currently if I'm wrong, Brian, but I think Q2, 2023, 2024 is kind of a catch-up quarter, where we had kind of low spending the last few quarters while we were transitioning operators, and we had a lot of spending in Q2. I wouldn't expect that number to repeat itself, you know, over and over again going forward.

Brian: Yes, I think the difference between Q2 last year to Q2. This year is we've had a lot of operation operator transitions last year at this time and when we're doing that we're not going to be spending a lot on capex, we're going to wait to get the new operator in and then kind of see when we'll see what needs to be done. So the way I would correct me if I'm wrong, Brian, but I think Q2 2000.

Brian: <unk> four is kind of a catch up quarter, where we had kind of a low spending the last few quarters. While we were transitioning operators and we had a lot of spend in Q2, I wouldn't expect that number to repeat itself over and over again going forward. Yes. It is.

Brian Peay: Yeah, it's weather related, right, and it's also that the new operators are now directing our CapExpan. But I wouldn't expect it to be, I wouldn't, I would. One thing I can guarantee, it's not going to be $3,500 a bet for 2024. It's going to be closer to $1,000 to $1,100 a bet.

Brian: It's weather related right and it's also that the new operators are now directing our capex spend.

Brian: But I wouldn't expect it to be.

Brian: <unk>.

Speaker Change #118: One thing I can guarantee it's not going to be $3500 a bed for 2024.

Speaker Change #119: It's going to be closer to 1000 to 1100 of it.

Unknown Executive: All right, thanks for the time.

Speaker Change #120: Alright, thanks for the time.

Danny Prosky: Third of all, for your questions, Danny Prostio, third call back over to you. Thanks, Jericho. I appreciate it, and everybody on the call, I want to thank you for your time and your interest. You know, it's been a great six months since we concluded our IPO, and we're looking forward to continuing improvement in our portfolio here at American Healthcare Read.

Speaker Change #121: Sir no further questions.

Speaker Change #121: Danny Pruski ill turn the call back over to you.

Unknown Executive: Thanks, Chuck.

Danny Pruski: Thanks, Jack I appreciate it and everybody on the call I want to thank you for your time and your interest.

Sure.

Speaker Change #122: It's been a great six months since we concluded our IPO and we're looking forward to continued improvement.

Danny Pruski: In our portfolio here at American Health care REIT.

Unknown Executive: So I have a great rest of the week, everybody, and we'll talk to you soon.

Unknown Executive: So have a great rest of the week, everybody, and we'll talk to you soon.

Danny Pruski: So I have a great rest of the week, everybody and we'll talk to you soon.

Unknown Executive: The meeting is now concluded; we're now just connected. Please wait; the conference will begin shortly.

Speaker Change #123: The meeting is now concluded you may now disconnect.

Please wait the conference will begin shortly.

Speaker Change #123: Yes.