Q3 2025 American Healthcare REIT Inc Earnings Call

Speaker #3: Ladies and gentlemen , thank you for standing by . My name is Colby and I'll be your conference operator today . At this time , I would like to welcome you to the American Healthcare REIT .

Speaker #3: Q3 2020 Earnings Conference Call . All lines have been placed on mute to prevent any background noise . And after the speakers remarks , there will be a question and answer session .

Speaker #3: We please ask that you limit yourself to one question and one follow up . Thank you . If you'd like to ask a question at that time , please press star .

Speaker #3: Then, the number one on your telephone keypad. If you'd like to withdraw your question at any time, please press star one again.

Speaker #3: I would now like to turn the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead.

Speaker #4: Good morning. Thank you for joining us for American Healthcare's third quarter 2025 Earnings Conference Call. With me today are Danny Prosky, President and CEO; Dave Willhite, Chief Operating Officer; and Stefan Oh, Chief Investment Officer.

Speaker #4: And Brian Peay chief Financial Officer . On today's call , Danny , Gabe , Stefan and Brian will provide high level commentary discussing our operational results .

Speaker #4: Financial position changes related to our increased 2025 guidance and other recent news relating to American Healthcare REIT . Following these remarks , we will conduct a question and answer session .

Speaker #4: Please be advised that this call will include forward looking statements . All statements made during this call , other than statements of historical fact , are forward looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements .

Speaker #4: Therefore, you should exercise caution in interpreting and relying on them. I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results.

Speaker #4: Financial condition and prospects . All forward looking statements speak only as of today , November 7th , 2025 , or such other dates as may otherwise be specified .

Speaker #4: 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 .

Speaker #4: During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance.

Speaker #4: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release.

Speaker #4: Supplemental Information Package and our filings with the SEC. You can find these documents, as well as an audio webcast replay of this conference call, on the Investor Relations section of our website at WW American Healthcare REIT, Inc.

Speaker #4: Com. With that, I'll turn the call over to President and CEO Danny Prosky.

Speaker #5: Thank you, Alan. Good morning or good afternoon, everyone, and thank you for joining us on today's call. I am very pleased to report that the third quarter was another very strong quarter for the company.

Speaker #5: We continued to build upon our strong first half momentum generating same store NOI growth of 16.4% across the total portfolio , marking our seventh consecutive quarter of double digit same store NOI growth .

Speaker #5: Portfolio wide . This performance once again reflects the depth and quality of our portfolio , our strategic initiatives , which include leveraging our platform across our operating portfolio , the strength of our regional operating partners , and the enduring demand tailwinds that support healthcare .

Speaker #5: Real estate within our operating portfolio . Our radio structured segments , which include our Integrated Senior health campuses , also known as Trilogy and our shop segment , continue to drive outsized growth , which is the result of our team's proactive and hands on asset management approach .

Speaker #5: As I look across our industry, I maintain my conviction that this is the best operating environment for long-term care that I have seen in my entire 33-year career.

Speaker #5: This is most evident to me when reviewing our strong report, growth, and the fact that Trilogy and shop same-store occupancies are currently above 90% and continue to trend in a positive direction.

Speaker #5: Shifting to our external growth activity, we're executing diligently on scaling our operating portfolio with our regional operating partners. In aggregate, we have closed on over $575 million of acquisitions year to date.

Speaker #5: All of which is within our idea segments. Among these new acquisitions, I'm happy to announce that we're expanding our highly curated stable of operators.

Speaker #5: We introduced two new relationships to our group of operators this year , which will broaden our geographic diversification while reinforcing our focus on operators that share our values , including a strong employee culture , ability to deliver ongoing outsized financial performance , and most importantly , a keen focus on delivering high quality care and results for our residents .

Speaker #5: I'd like to congratulate Stefan and the entire investments team , along with Ray Osborn and his senior housing Asset Management team . Again , as they have continued to identify and acquire a tremendous volume of very high quality managed senior housing assets .

Speaker #5: These acquisitions not only provide immediate earnings accretion to our assets, but they should also provide strong, ongoing organic earnings growth for years to come.

Speaker #5: Along with the I just noted, the team has continued to backfill our pipeline of awarded deals, which now stands at well over $450 million.

Speaker #5: These transactions are expected to close in the fourth quarter and early 2026. As we execute on our external growth plans, we continue to demonstrate discipline and remain opportunistic in our capital markets and capital deployment activity, which should drive further earnings accretion in 2026 and future years.

Speaker #5: We're now on track to grow normalized FFO per fully diluted share by 20% over last year, while also continuing to improve our balance sheet metrics and leverage profile.

Speaker #5: As Brian will note during his remarks, our net debt to EBITDA at the end of the third quarter is now down to 3.5 times. Our strategy remains consistent.

Speaker #5: We're not simply chasing near-term accretion . We are building durable , long term growth through operating alignment with best in class regional operators , disciplined capital allocation and capital markets activity , while always putting resident care and outcomes first .

Speaker #5: Finally, I'm proud to note that in September we published our inaugural Corporate Responsibility Report, publicly disclosing the governance, social, and sustainability priorities that have long been embedded in our culture.

Speaker #5: This milestone reflects our belief that responsible stewardship and performance are inseparable. Before turning the call over to Gabe, I want to thank the entire HR team and our operator partners for their exceptional work.

Speaker #5: Together , we are executing with precision and purpose for all HR stakeholders , providing high quality care and outcomes for residents , which is leading to strong financial performance for our shareholders .

Speaker #5: And now , Gabe , over to you . Thanks , Danny . Operationally , the .

Speaker #6: The third quarter of 2025 was another strong quarter for us, with outstanding results across the business once again. We delivered sector-leading same-store NOI growth compared to the third quarter of 2024.

Speaker #6: Not only did we sustain the momentum from the first half of the year, but we also built a solid foundation for continued success, with strong occupancy gains in the third quarter.

Speaker #6: Prior to entering , what's historically a slower winter season . That being said , occupancy trends into the fourth quarter suggest that seasonality could be muted due to the accelerating demand growth from the baby boomer population .

Speaker #6: Now , let's dive into our results in more detail , starting with trilogy same store . NOI grew 21.7% year over year . Occupancy averaged 90.2% in Q3 , up more than 270 basis points from last year , while average daily rate increased roughly 7% .

Speaker #6: That performance reflects not only continued pricing power , but also ongoing improvement in quality mix within trilogy . Its high quality of care and outcome standards continue to drive outsized demand as residents , families , and now to an increasing degree , Medicare Advantage plans seek out the highest quality of care providers .

Speaker #6: Trilogy is continuously working to add to and also to optimize its Medicare Advantage partnerships with the plan's most aligned on quality , which is in turn increasing access for residents to trilogy and driving more Medicare Advantage census growth across the trilogy portfolio .

Speaker #6: We expect this mix shift to drive robust revenue growth that reflects the strength of the platform for two primary reasons. First, Medicare Advantage reimbursement rates are significantly higher than other reimbursement sources, and second, they are growing faster than other sources.

Speaker #6: And two , increasing accessibility for Medicare Advantage plans provides a tailwind for continued census growth . So for example , Medicare Advantage accounted for 7.2% of total resident days at trilogy during the third quarter .

Speaker #6: It's an increase from 5.8% a year ago. It's a great example of how Trilogy has proactively leveraged high-quality care and outcomes to identify the best partners and ultimately create economic value.

Speaker #6: And yet again, Trilogy demonstrates its remarkable ability to utilize many different operational and strategic levers in order to drive continuously strong growth. Turning to the shop, same-store NOI increased 25.3%, with revenue up 5.6% year over year, and NOI margins expanding nearly 300 basis points to 21.5%.

Speaker #6: We also achieved record move in activity during the spring and summer seasons , and for the first time , like Danny mentioned , our shop , same store spot occupancy is currently above 90% .

Speaker #6: Those gains were achieved without significantly sacrificing pricing discipline, reinforcing our view that the secular demand for long-term care remains durable, especially for the highest quality operators.

Speaker #6: As residents and families continue to invest in superior care and service, as demonstrated by our operating portfolio results, fundamentals remain extremely favorable.

Speaker #6: Construction starts across senior housing remain near historic lows . While demographic growth in the 80 plus cohort accelerates . These structural supply demand imbalances should support a multi-year runway for further occupancy gains rate growth and NOI growth .

Speaker #6: As we move into the winter months, we're confident and we're well positioned to maintain the occupancy gains achieved through the busier spring and summer selling season.

Speaker #6: Overall , we continue to view this as the early innings for long term care demand growth that's being captured most effectively by operators with scale , quality , outcomes and a strong regional presence .

Speaker #6: Trilogy and our shop partners certainly exemplify that. I'd like to thank each of our operator partners for their enduring commitment to their residents and their employees, as well as their contributions to another very successful quarter for AIR.

Speaker #6: We know we could not deliver these results without them. Finally, our teams are actively executing on our strategic initiatives designed to enhance our operating platform. Our strategic alignment with Trilogy unlocks unique opportunities for outperformance and value creation.

Speaker #6: For example , we're leveraging trilogy centralized revenue management system across other operating partners . The analytics and also the operational strategies and functionality from that program , which combines a multitude of factors , including market rates , occupancy , unit specific attributes , and discount control features have already contributed to our growth at Trilogy by optimizing revenue , especially with respect to highly occupied facilities , which we know is a category that's rapidly expanding .

Speaker #6: We're in various pilot phases with our regional operators to extend this tool , among other initiatives , we've identified across our operating portfolio , we continue to view this as a differentiator and a key component of our strategy as we plan for rapid expansion and look to support our regional operators as they scale to meet this transformative growth opportunity , I'll now pass it to Stefan to discuss our external growth activity .

Speaker #6: Thanks , Gabe .

Speaker #7: Since our last call, we have been very active, closing a number of transactions while continuing to backfill the pipeline with equally strong and high-quality investments.

Speaker #7: In doing so , our investment strategy remains unchanged as we continue to focus on accretive , relationship driven growth . We're emphasizing opportunities where we have long term conviction in the operators and markets , and where our capital can directly improve care outcomes and long term asset performance .

Speaker #7: During the quarter , we completed approximately $211 million of acquisitions and closed approximately $286 million of new investments . Subsequent to quarter end , bringing our year to date closed acquisitions to over $575 million within our operating portfolio .

Speaker #7: These transactions expand our exposure to high-quality assets in strong regional markets and deepen existing relationships with trusted operators. A key highlight of our recent activity is our new partnership with Quest Living, who now manages four communities.

Speaker #7: We acquired in California and Utah . While quest aligns closely with our mission to deliver best in class resident care through integrated , wellness focused environments , World Quest will complement our current shop exposure on the West Coast , allowing us to access new submarkets that screen attractively within our investment framework and offering us the ability to underwrite potential acquisitions that will leverage well , Quest's core care competencies as a high quality , needs based senior living operator .

Speaker #7: While quest rounds out the new operator relationships , we previewed earlier this year and between Quest and Great Lakes Management , it has already allowed our team to evaluate even more potential off market opportunities , which is something we strive to do with all our trusted regional operating partners .

Speaker #7: Beyond acquisitions , we continue to optimize our portfolio mix . During the quarter , we executed $13 million of non-core dispositions further concentrating our capital and assets within our operating portfolio that can deliver superior risk adjusted returns .

Speaker #7: Our team has not slowed in identifying new opportunities to complement our existing investments . Year to date , as we maintain a pipeline of over $450 million in awarded deals that are still in the due diligence process , or that we have added since we provided an update in early September .

Speaker #7: We expect to close this awarded deal pipeline by the end of 2025 or early 2026. On the development front, we started several new development and expansion projects this quarter.

Speaker #7: Our end development pipeline now consists of projects with a total expected cost of roughly $177 million, of which we have spent approximately $52 million to date.

Speaker #7: We believe that these projects should extend our multiyear growth runway at attractive yields, and the mix of new campuses, independent living villas, and wing expansions should provide solid income at various points over the next few years, allowing for predictable cash flow that will translate to retained earnings for future new development starts to help mitigate future funding risks.

Speaker #7: To summarize , our executed investment strategy thus far and our future plans , we are deploying capital deliberately favoring operating partnerships where we see the best risk adjusted returns , prioritizing newer assets and maintaining discipline on underwriting .

Speaker #7: We believe this strategy will prove resilient as we scale across our operating portfolio with our various partners, and we expect it will generate strong, sustainable returns next year.

Speaker #7: And in the future years to come, with that, I'll turn it over to Brian.

Speaker #5: Thanks .

Speaker #8: Stefan: The third quarter of 2025 was another very solid quarter of organic earnings growth. Disciplined execution of external growth by acquiring assets that we expect will provide sustainable earnings for years to come, as well as select capital markets execution.

Speaker #8: We achieved normalized funds from operations of $0.44 per diluted share in Q3 , reflecting a 22% increase year over year . This increase was made possible by greater than 20% same store NOI growth from our operating portfolio segments , which continues to propel our earnings .

Speaker #8: Additionally , buoyed by the strong initial performance from the assets , we've added to the portfolio over the last three quarters , given our visibility into Q4 and the solid results achieved year to date , we are increasing and narrowing our full year 2020 .

Speaker #8: Five FFO guidance to a range of $1.69 to $1.72 from $1.64 to $1.68 per diluted share, implying growth in excess of 20% year-over-year.

Speaker #8: At the midpoint, this increase is driven by increased organic growth expectations, and as we enter the remainder of the year with Ridea spot occupancy north of 90% across our operating portfolio.

Speaker #8: As such, we are increasing our total portfolio. Same-store NOI growth guidance is now in a range of 13% to 15%, up from 11% to 14%.

Speaker #8: This increase is comprised of the following changes to segment level . Same store NOI growth guidance . Integrated senior health campuses . Increased to a range of 17 to 20% , reflecting continued strength at Trilogy Shop .

Speaker #8: Increased to 24% to 26% as a result of the solid occupancy momentum through the summer selling season. Outpatient medical increased to 2% to 2.4% from the prior range of 1% to 1.5% given positive renewal activity.

Speaker #8: Triple net lease properties increased from -25 basis points to positive 25 basis points during the quarter. We sold approximately 2.9 million shares through our ATM program for $116 million in gross proceeds, and we settled 3.6 million shares under a previously announced forward sale for another $128 million.

Speaker #8: We also entered into new forward agreements totaling 6.5 million shares for $275 million in gross proceeds, providing additional funding flexibility as we pursue external growth opportunities.

Speaker #8: Our disciplined capital markets approach allows us to match equity inflows with investment timing , minimizing dilution , preserving optionality , and building further capacity to continue adding high quality assets to our portfolio .

Speaker #8: That discipline has also allowed us to continue to improve our balance sheet, even as we've executed more than half a billion dollars of accretive acquisitions this year.

Speaker #8: Our net debt to EBITDA ended the quarter at 3.5 times, representing a 0.2 times improvement from the end of the prior quarter and a 1.6 times improvement from the third quarter of 2020.

Speaker #8: For stepping back, 2025 is shaping up as another milestone year for us, defined by significant organic earnings growth and continued deleveraging to provide capacity to scale our portfolio with our regional operating partners as we enter the final quarter.

Speaker #8: Our focus remains on maintaining this momentum and positioning the company for another strong year in 2026. With that, operator, we'd like to open the line for questions.

Speaker #3: Thank you . We will now begin the question and answer session . Again , we ask that you please limit yourself to one question and one follow up .

Speaker #3: If you'd like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue.

Speaker #3: If you'd like to withdraw your question at any time , simply press star one . Again , thank you . Your first question comes from the line of Ronald Camden with Morgan Stanley .

Speaker #3: Your line is open .

Speaker #5: Hi, Ron. Hey.

Speaker #9: Hey . Great . Congrats on a great quarter . Just one . One quick one on a follow up . I think the 90% spot occupancy , I think , was a sort of a key marking point for investors .

Speaker #9: And the thesis was always that there would be operating leverage at this point to continue to grow going. So, I just wonder if you could talk about how much more occupancy upside do you see from here?

Speaker #9: Realistically, in the portfolio and the pricing strategy, as you sort of hit this point to continue to maximize growth? Thanks.

Speaker #5: All right. Well, I'll go ahead and start with that one. So, I would say the maximum upside from 90 to 100 is 10%.

Speaker #5: So, that's our max. I get asked all the time, "Where do you think you're going to be at the end of next year?"

Speaker #5: What is the maximum ? The truth is I don't know . What I've been saying all along is I expect over the next few years and over the past couple of years , which we've already seen , that we're going to see all of the metrics continue to move in our favor just because of the supply demand fundamentals .

Speaker #5: Right . We've we've seen occupancy go up . We've seen report go up . We've seen margins . NOI , etc. . I expect over time that will continue .

Speaker #5: I don't necessarily think that every single quarter is going to have higher occupancy than the prior quarter. We've seen a lot of that.

Speaker #5: But , you know , we did see a little bit of a of a downtick at the beginning of this year because of flu at our shop portfolio .

Speaker #5: Obviously, Trilogy did very well in Q1 because of the skilled side of the business. You know, it's now early November.

Speaker #5: I it's only been , you know , a little over a month since we ended the quarter . You know , so far , I can't say that anything has made me feel differently with what we've seen .

Speaker #5: That being said, we've got the holidays coming up and, you know, we oftentimes see a little bit of a downturn right before the holidays.

Speaker #5: I can I can tell you that we consistently see trilogies , skilled occupancy drop a little bit right before Christmas , and then it picks up , you know , during the first ten days of January , that seems to happen every year .

Speaker #5: I expect the trend will continue. I expect us to continue to be able to price at, you know, at a rate higher than inflation.

Speaker #5: I've been I think it's going to be around 200 basis points , sometimes a little more , sometimes a little bit less . But I think if you're seeing 3% inflation , you know , I think we should be able to price it , you know , 5% increase or better .

Speaker #5: Clearly as occupancy goes up , it gets a little bit easier to do that . And I expect that the positive trend will continue as far as the , you know , the maximum and the amount , it's really hard to say .

Speaker #9: Great. And then, if I could just get a quick follow-up in there. Clearly, you guys have been busy on the external growth front in terms of starts and acquisitions of pipeline.

Speaker #9: But I guess my question is just as a Wall Street Journal article about , you know , large PE player , maybe even selling some senior housing , just can you talk about the competitive environment ?

Speaker #9: Why hasn't it become more competitive given some of the unlevered returns that you guys are getting in this? Thanks.

Speaker #5: Yeah. So, I saw that article as well. I know that at least one of the acquisitions we did was from that seller.

Speaker #5: It may be more, but I know one for sure. I think that you've seen maybe a little bit more people buying, but I also think I'll let Stefan comment because he's closer to it than I am.

Speaker #5: I also think you've seen more opportunities as , as , as , you know , results improve across the industry . I think you've seen more people come to market as the buildings that they've developed , let's say in the last 5 or 10 years , you know , start performing better and better .

Speaker #5: I think you've seen more assets come to market . So , you know , demand may have ticked up a little bit , but I think supply has as well .

Speaker #5: I don't know, Stefan. What do you think?

Speaker #7: I think that's exactly right . You know , we're I think what you're what you've been seeing is a lot of folks have been holding out on selling and , you know , kind of waiting for performance to improve before they make a move .

Speaker #7: And now that that's happening , you know , some of these , you know , private equity groups that are have maybe even gone beyond the end of their expected fund life are now making moves to to take these assets out to market .

Speaker #7: So, you know, I think you are seeing a bigger number of assets or a larger group of assets that are being put out in the market.

Speaker #7: But I also think that , you know , this is this is Hridaya and it's a difficult business . And so , you know , groups are you know , it's a it's a hard market to enter into .

Speaker #7: And it takes a long time for you to learn this business . And I don't think they're just going to jump in , you know , without being diligent about how they're how they're approaching this , this market or this , this industry .

Speaker #9: Thanks so much .

Speaker #3: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Speaker #5: Hi , Austin .

Speaker #10: Hey . Hey , Danny . Thanks . Good morning everybody . So I want to go back to a topic from last quarter and something , Gabe , that you hit on a little bit in your prepared remarks and just kind of help me understand the step down a little bit in ADR growth this quarter versus versus last quarter , specifically within that skilled segment of trilogy .

Speaker #10: And would you just expect over time that Medicare Advantage will continue to improve on a sequential basis, given that partnership that you had previously put in place?

Speaker #6: Yeah . Hey , Austin , thanks for the question . It's a good one . Trilogy's got a lot of levers to pull within the average daily rate in their skilled business .

Speaker #6: And part of that is like what we've talked about: optimizing quality mix to prioritize Medicare and Medicare Advantage plans and de-emphasize lower reimbursement sources.

Speaker #6: Because Trilogy provides a high quality of care that comes with a high expense, they are trying to optimize from those payer sources.

Speaker #6: So, obviously, they're prioritizing Medicare and Medicare Advantage plans. As you get to higher and higher occupancy, it's easier for that prioritization process to take place.

Speaker #6: And even within those two different Medicare-driven payer sources, with Medicare Advantage plans, you have pricing that varies considerably among the different plans that you partner with.

Speaker #6: What Trilogy is doing now is trying to find the Medicare Advantage plans that align with them on quality and are really willing to provide a reimbursement that matches up with the quality that they're providing.

Speaker #6: I do think that they'll have more flexibility, and they are constantly reevaluating which plants they're partnered with and whether the rate makes sense.

Speaker #6: And I do think they'll have a sustained ability to optimize those partnerships . And in turn , really drive rate . And with Medicare Advantage , I on the on the negative , more negative side , Medicare is not growing as fast as it was last year because it's always retroactive to inflation .

Speaker #6: And inflation has just come in. So last year's rate increase for Medicare was over 6%. This year, the national rate is going to be 3.2%.

Speaker #6: I think Trilogy is going to be a little bit above that—not materially. And so that would be a little bit of a growth headwind for Q4.

Speaker #6: But we do expect it to be at least partially offset by gains in Medicare Advantage.

Speaker #10: Now, that's very helpful. And then maybe sticking with Qmix, should the improvement in Qmix within Trilogy be a driver of both NOI growth and margin expansion as that continues to improve?

Speaker #10: Or is the trade-off in higher rate? And offset to the higher senior housing margin portion of it?

Speaker #5: Yeah , so so it doesn't take away from senior housing , right . The senior housing beds are separate from the from the skill beds .

Speaker #5: But I think what you'll see is more Medicare and Medicare Advantage and less private pay and Medicaid. And certainly, you're going to see higher NOI and higher margin with Medicare and Medicare Advantage than you will with private pay and Medicaid.

Speaker #5: The beds , the Al and IL are , you know , unless trilogy makes a decision to convert a wing from Al to scaled , those are those are separate lines of business .

Speaker #5: Does that make sense ?

Speaker #10: Yeah . No . That's helpful . I mean , I was talking about the entire component because the margin stepped down . You know , sequentially within trilogy , same store pool .

Speaker #10: I recognize there's some short term expense , maybe headwinds in there , but just talking kind of bigger picture . And over time , given the fact that I think the resident days component of senior was up over 200 basis points sequentially , and yet that margin stepped down .

Speaker #10: And I'm just trying to get a sense of how that trends over time, because obviously the rate you're getting on the senior housing piece within Trilogy is much lower than the rates within the skilled component.

Speaker #10: So, just trying to balance those two, but understand how that flows to the bottom line as well.

Speaker #5: Yeah. So, as I kind of started off by saying earlier, I expect margins will continue to improve. It doesn't mean they're going to go up every single quarter over the prior quarter.

Speaker #5: I mean , you know , clearly the margins , it was better this year than the same quarter last year . You're right .

Speaker #5: It did tick down a little bit for trilogy over Q3 . I'm sorry , over Q2 over versus Q2 . Excuse me , I think we saw something pretty similar last year .

Speaker #5: Several things happened in Q3 that affect the margin , you know , and it's not one item . You know , they purchased a lot of flu vaccines , for example , in Q3 , which is , you know , concerning the number of beds they have , it's a big dollar number , but they don't get the revenue until they administer those shots .

Speaker #5: Later on in the year . I think there's a component also related to employee health insurance , where employees , you know , trilogy self-insured .

Speaker #5: So, employees go through their deductible, and there's a little bit more cost to Trilogy. It's really a bunch of things of that nature.

Speaker #5: You know, the Q2 margin jumped up considerably versus Q1. So I think it's a combination of those things over time.

Speaker #5: I would expect the margin to continue to improve. That doesn’t mean we’re not going to have one quarter where the margin drops a little bit from the prior quarter.

Speaker #6: And keep in mind , you know , trilogy , sorry , is Midwestern concentrated , right . So the winter months come with higher expenses just related to the weather and things like that .

Speaker #6: But to Danny's point, I think it's spot on. We're not sacrificing margin to go into a different cue mix here. We do expect that to result in a higher margin.

Speaker #10: It's all very helpful. Thanks, guys.

Speaker #3: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Hey, Mike.

Speaker #5: How's it going, Mike?

Speaker #11: Hey, Danny. I wanted to touch back on Gabe's earlier comments in his prepared remarks about leveraging Trilogy's revenue management system with your existing shop tenants.

Speaker #11: I mean, how much of the portfolio of that traditional shop portfolio is currently utilizing Trilogy software here? And can you provide some examples of how that's driving better results?

Speaker #11: I mean, are we seeing that in the numbers today?

Speaker #6: Hey , Mike , it's a great question . I think we're uniquely positioned . Like I said , I think it's a differentiator for us to have the type of alignment we do with a platform like trilogy .

Speaker #6: Who does it at a really high level . For those that don't know , we've got a really unique incentive plan with trilogy , where they have we have the first of its kind manager equity plan , where we issue their incentive compensation using the currency .

Speaker #6: That's HR stock. So we've completely aligned their incentives to support our other shop operators in a way that's pretty unique to us.

Speaker #6: What that does is give Trilogy a financial incentive to meet with our operators to let them know what their best practices are.

Speaker #6: And that's been going on for years. We took it this year to the next level, where we've got assessment tools and also dashboard capabilities that we can roll out from Trilogy's platform to our shop operators as they desire to participate in it.

Speaker #6: I don't want to overstate where we're at right now. I don't think the numbers today are fully reflective of the benefit of that Trilogy platform.

Speaker #6: We're still in pilot phases with operators on that. I think what you'll see is, over the next year, in 24 months, probably an outsized input from Trilogy's platform as we really start to lean into it and optimize for it.

Speaker #6: And it's not going to be just limited to revenue management , it's going to be sales , marketing , search engine optimization . It's going to be employee training , employee retention strategies .

Speaker #6: It's going to be potentially IT solutions . And even today we're we're leveraging trilogy's development capabilities because they've got internal development to identify opportunities within our existing shop portfolio where we can we can basically copy the expansion strategy that trilogy has been using effectively to expand very highly occupied buildings on land that we already own .

Speaker #6: And de-risk the development with really high IRR. Unfortunately, not a ton of dollars are available in that way, but we're just incrementally growing in every way we can.

Speaker #6: And we're really leaning into Trilogy's platform in any way we can.

Speaker #5: Yeah. So we've already identified the first trilogy campuses. We'll be utilizing Trilogy's development arm to do expansions and add villas.

Speaker #6: And to be clear , to get out in front of maybe your follow up question . Mike , we're not planning to do ground up development with other operators through trilogy at this point , that that's not what we're that's not the strategy .

Speaker #6: It's really easy to take opportunities that currently exist within the portfolio to expand on buildings that we already own.

Speaker #11: And how receptive are these operators to having this system kind of rolled out into their platform? And I guess how difficult is it to actually implement?

Speaker #11: I mean, are we talking about a few quarters here to kind of get it implemented, or is it a longer-term process?

Speaker #6: It's a great question. I think the reason why we're partnered with the operators that we are is because they're very good at being very good. Certainly, there comes a reluctance to have somebody else tell you what to do.

Speaker #6: They certainly are reluctant to have REITs tell them how to run their businesses, and I completely understand why they want to run them the way they do.

Speaker #6: It's I think , far easier when you see somebody like trilogy , who's also an operator who's gone through the same things that they have , who has the same issues that they have , but can demonstrate that they've executed at a high level on certain things ?

Speaker #6: I don't expect a trilogy to be de facto operating for other operators. And using every vertical and strategy to push through to them, to force them what to do. What I do expect is for us to be able to identify certain soft points in.

Speaker #6: Certain operators , operators , and be dynamic in it and suggest , hey , if trilogy can help you in this particular issue , please utilize them and do it .

Speaker #6: It also , I think , will be really helpful for operators that need to scale . So one of these different we we prioritize regional operators because we think it provides better quality outcomes for our residents .

Speaker #6: And you can control the culture better, providing upward mobility for your employees. There's a lot of benefits that come from it.

Speaker #6: What you sacrifice is a little bit of scale and resources. If we can augment what they already do well with just some back-office support and more resources to help them scale, I think it's a benefit for both.

Speaker #6: And people are more willing to partner with Trilogy on those initiatives as well.

Speaker #8: And by the way , I would just I would just add to that , that this is really a lifelong journey . I mean , trilogy was a great operator when we bought into them ten years ago .

Speaker #8: They're a much better operator today . And I would anticipate that they will continue to learn and grow and change and evolve and all those things would be available to our operator base .

Speaker #8: .

Speaker #5: And some are more receptive than others.

Speaker #11: Okay, great. I appreciate it, guys.

Speaker #3: Your next question comes from the line of Farrell Granoff with Bank of America. Your line is open.

Speaker #5: Hi , Farrell .

Speaker #12: Hey . How are you doing ? Good morning . My first question is about your pipeline . So I know this last quarter and then this quarter , we've been seeing an acceleration from the 300 to 450 .

Speaker #12: So, I was wondering if you could add a few comments about that momentum and how to think about that going forward.

Speaker #7: Yeah . Thanks for the question . So I think if you if you think back to where we were a year ago , you know , we had we had we were basically doing acquisitions where we had the inside track and then , you know , the opportunity for us to start doing external growth came about .

Speaker #7: And we were really just ramping up our pipeline at that point . So I think , I think what you're seeing now is , is the fruits of that .

Speaker #7: And also the fact that we have added two new operators to the to the mix . So it's been a it's been a very I'd say , linear progression in terms of how we've gotten here .

Speaker #7: But I think what we're seeing now is , is kind of where we expect it to be . And it's giving us a , you know , I'd say a strong end to , to 20 , 26 or 2025 and then a good start for 2026 .

Speaker #5: Yeah . So I can't tell you what we're going to do in 2026 . But I can tell you that we're going into 2026 with a much more robust pipeline than when we entered 2025 , simply because our stock didn't reprice until late 2024 , to the point where external growth became very attractive .

Speaker #5: But I feel pretty good about 2026.

Speaker #12: Okay . Thank you . And I also just wanted to get any updated thoughts on your MLB portfolio to improvement in performance . Also with the guidance bump , but we've also seen peers selling large chunks of mobs .

Speaker #12: I was curious if your thoughts are around reinvesting yield for the sale of MOBS, or if you're content with the current performance.

Speaker #5: So this is Danny Farrell . So we we started selling mobs for maybe five years ago . And we've sold about a third of them .

Speaker #5: I believe at the peak we had about 112, and I think today we're somewhere in the 70 range, give or take.

Speaker #5: Now we've sold a third as far as number of buildings , it's less than a third as far as NOI because we sold the worst third , we sold the smaller ones , the ones that had less growth .

Speaker #5: I think you're seeing a little bit of benefit there in our in our growth within MLB . It's actually ticked up . And , you know , back during Covid , we were about 35% MLB from an NOI perspective last quarter we were under 17 .

Speaker #5: And expect that number will continue to go down . Number one , we're divesting mobs , although we've divested , you know , we're always going to be selling a few .

Speaker #5: You know, we've sold most of them, but I think there are a few more that we'll be selling probably, you know, this year and next.

Speaker #5: And of course, we're growing our radio side of the business, both Trilogy and Shop, at a much faster clip. So it's not that we've already been selling MOBS and redirecting that cash into seniors housing.

Speaker #5: I expect we'll continue that now . The mobs that are remaining are ones we like . They tend to be more institutional , larger , better buildings , and I think we'll see more growth out of those than we would have seen from the ones we've sold .

Speaker #5: So we're not necessarily looking to just get out of the business, but it's certainly not where we see the best risk-adjusted returns today.

Speaker #5: Yeah, we haven't bought an MLB in years.

Speaker #12: Right. Thank you so much.

Speaker #3: Your next question comes from the line of Michael Shrake with Green Street. Your line is open.

Speaker #5: Mike .

Speaker #13: Thanks . Good morning . We've touched on this a bit already , but within the trilogy business , the percentage of resident days coming from Medicare , Medicare Advantage has declined modestly as the year has progressed .

Speaker #13: I guess . Is there a seasonality component to that , or has it become , I guess , incrementally more difficult to push occupancy from those payer sources in recent months ?

Speaker #6: You're exactly right , Mike . There's a seasonality component to it . So typically the the trough of occupancy for skilled nursing is in September each year .

Speaker #6: You see through the summer months , kind of occupancy declines a little bit . And then ramps and peaks in Q1 of the year , kind of in the colder seasonal months .

Speaker #6: What we're seeing, though, this year is less seasonality than what we typically do. And that's what's driving Trilogy's, you know, 270 basis points plus occupancy increase year over year.

Speaker #13: Okay . And that that same , I guess , seasonality applies to the payer sources . Is that fair ?

Speaker #6: Yes .

Speaker #13: Okay . And then I guess , you know , sticking with trilogy with the higher acuity versus last year , how much have they had to .

Speaker #13: Increase headcount in recent quarters? And how quickly would Trilogy be able to pull back on expenses if there is a scenario where it does become harder to achieve additional increases in acuity?

Speaker #5: Yeah . Honestly , I couldn't tell you exactly how much headcount they've added . I can tell you that when they when they have to , you know , flex their , their staffing , they typically do it with their flex force or with additional hours as opposed to additional staff .

Speaker #5: So they have , you know , they set up their own , you know , travel nurse organization right around during Covid and basically if they need more or less staffing , they utilize those trilogy travel nurses to , to , to to flex the force up or down .

Speaker #5: It's not so much that they hire and let people go; it's more that they flex their existing staff.

Speaker #8: Yeah . And keep in mind , you know , trilogy's turnover is industry leading , which is to say it's less . So it's around it's in the 40% range .

Speaker #8: The traditionally for their peers you're going to see 100% turnover rate . And it's strictly because trilogy is such a great operator that they're able to to retain their people .

Speaker #8: But I bring that up to say that essentially hiring is a perpetual process. At Trilogy, they are constantly replacing those 40% that are leaving and constantly trying to improve the workforce.

Speaker #8: And and part of that is census driven . But it's more just a perpetual way of life . They're .

Speaker #13: Got it. Thank you.

Speaker #3: Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue.

Speaker #3: Your next question comes from Alec Fagan with Baird. Your line is open.

Speaker #5: Hey , Alec .

Speaker #14: Yeah ? Hey , Danny . Thanks for taking the questions . Maybe to speak for the first one . Can you speak about the deal ?

Speaker #14: Volume and the competition for the newer senior housing that you have identified? And how often are you likely to compete with the other public REITs for deals in your market?

Speaker #5: It doesn't feel . I mean , Stefan Oh you're closer to it than I am . It doesn't feel like it's all that often , you know , we tend to do smaller transactions .

Speaker #5: You know , one building , two building as opposed to , you know , half $1 billion or billion dollar deals doesn't mean we haven't done those and we wouldn't do those in the future .

Speaker #5: But , you know , it's it's with the deals that we're competing on . A lot of them are brought to us through our operating partners .

Speaker #5: I mean, a significant percentage are brought to us through our operating partners. So when I look at who's bidding, yeah, there are some of the other REITs out there.

Speaker #5: But you know, more often than not, it's going to be a non-retail competitor. I don't know, what would you add?

Speaker #7: Yeah . I mean , I would I would echo that , you know , about half of what we're what we have in the pipeline and closed have been deals that have been off market .

Speaker #7: And , you know , you know , that's one of the advantages that we certainly had with the addition of , well , quest and Great Lakes to our operator pool .

Speaker #7: Is that not only are we diversifying into into new markets and opening ourselves up to , to finding other locations that and markets that we like , that we can buy , but we've also been able to partner with them on a number of deals where , you know , they are just they're bringing them to us directly .

Speaker #7: As far as you know , other marketed deals that we're competing on . I mean , it is really a mixed bag . I mean , we're seeing we are occasionally seeing the REIT's .

Speaker #7: We're occasionally seeing other PE that, you know, have been in the space for a while. And sometimes we're seeing local investors or local operators as well.

Speaker #14: Yeah. Nice. Thanks for the color. The second one may be to invert an earlier question, but are there any best practices from regional operators that can help Trilogy, especially in new markets like Wisconsin?

Speaker #14: Is the , you know , can it be a two way street ? Has it been a two way street ?

Speaker #5: That's a good question. I mean, I'm sure there have been. And we have an operator summit every year where a big chunk of it is talking about best practices.

Speaker #5: You know, I'm trying to think of some of the specific things, Gabe, if you can recall, or Stefan Oh.

Speaker #7: Yeah , I mean , the operator summit is very well attended , and I think regardless of who who is in the audience , you know , whatever operators up there talking about their best practices , they're getting good attention .

Speaker #7: I mean , we have definitely seen some some , some cooperation and partnering with between some of the operators and , and how to work on specific parts of the operations or , you know , when it when it comes to maybe bundling versus unbundling , pricing and things like that .

Speaker #7: So there have definitely been several occasions where we've seen our operators benefiting from each other's knowledge and experience.

Speaker #14: Got it. Thank you for that.

Speaker #3: Your next question comes from the line of Michael Goldsmith with UBS. Your line is open.

Speaker #5: Mike .

Speaker #15: Hey , good morning . Good afternoon . Thanks a lot for taking my questions . Now that we're seeing more shop deals come in .

Speaker #15: Can you talk a little bit more in detail about the acquisition strategy? Do you have a view on independent living versus assisted living versus memory care?

Speaker #15: And then, are you targeting unstabilized deals or stabilized deals? Stabilized deals? Are you just more agnostic, just trying to get a better understanding of the strategy going forward?

Speaker #5: I would say all of the above , our acuity probably is , I think certainly in comparison to Welltower and Ventas , I would say we probably have a higher acuity portfolio , more al and memory care , although we have ill and we acquire ill .

Speaker #5: It's not that . It's not that it's all al and memory care . You know , we're really looking for quality buildings that will continue to provide good earnings growth for the next five years , not just what can we buy today at a seven and a half or eight cap that will be immediately accretive .

Speaker #5: And it's a it's a mix , I mean , most of what we bought last year and this year tends to be newer product , a lot of it built in the last ten years , not all of it .

Speaker #5: We prefer newer buildings, but there hasn't been a whole lot of development over the last five years. So there's not as much new product as there has been in years past.

Speaker #5: We've got some stabilized stuff that , you know , is in the 90s that we are , you know , at a more stabilized cap rate .

Speaker #5: And there's a lot of newer assets , some stuff that just , you know , if you look at the at the five building portfolio we did with trilogy , four of those buildings only opened within the last year .

Speaker #5: So, they're all new, but they're not yet stabilized. In stabilized buildings, you're getting a lower in-place cap rate, and you're getting more growth opportunity.

Speaker #5: You're getting a situation where, once it's stabilized, you're going to get a higher yield than something that's already stabilized, and a lower price per unit.

Speaker #5: You're going to get more of a discount to replacement cost on something that's unstable versus something that's stable. So it's a mix.

Speaker #5: But but we're always trying to find assets that will continue to provide good organic earnings growth in 26 , 27 , 28 , 29 , etc.

Speaker #5: .

Speaker #15: Got it . And maybe just as a related follow up , you know , net just maybe , can you talk a little bit more about the process and what you're focused on ?

Speaker #15: Are you focused on the operator, or are you building a data platform to analyze acquisitions and micro-markets on certain, you know, demographics?

Speaker #15: You know , demographics or incomes or home values ? Just trying to get an understanding of , you know , where the where the focus is .

Speaker #5: So, I'll start off and then I'll let Stefan finish. I'll give him the hard part. What I would say is that we tend to identify the operator before the building.

Speaker #5: We are more likely to to work with our existing operators and say , look , here's an opportunity in your market . And by the way , when we go see it , they'll be with us .

Speaker #5: What do you think of this building? Oftentimes, they know it. Maybe they've managed it in the past, or hey, what's in your market that you think we can go out there and try to buy before it goes to market?

Speaker #5: It's we typically don't find a building and then , you know , put it under contract and then say , okay , now let's figure out who's going to operate it .

Speaker #5: So we tend to go after the operator before the building . And in the case of Great Lakes and Welk , West , you know , we identified them , you know , way before we went out and found buildings .

Speaker #5: We worked with them to help build a portfolio. And that's why we've already got a substantial number with each operator. But I don't know.

Speaker #5: And I know the processes are different, Stefan. But maybe you can give a little bit more light on that.

Speaker #7: Yeah . I mean , it I mean that that is the that is the main point . And that's exactly what we've been doing in terms of going to the operator , identifying the operator , and that's why we've had that strategy .

Speaker #7: It is really challenging to find the operator who has the expertise in certain markets and regions. From that point, we can identify potential communities that we might want to acquire.

Speaker #7: And we are doing that hand in hand with our operators . We if if something comes to us on a market basis , literally the first thing that we do is we go and we we talk to our operator in that market and we ask them what they think about it .

Speaker #7: And if it's interesting enough , we'll underwrite it together . We'll go out and tour the property together . And , you know , really go from beginning to end through the process all the way through transition to make sure that , you know , we're fully aligned on on every community that we're acquiring .

Speaker #7: And, you know, we feel much better conviction when we can do it in this manner than if we were just trying to do it on our own and identifying properties.

Speaker #7: And then going out and trying to find the right operator to us that it needed, it needed to be reversed.

Speaker #7: We had to be working with the operator first.

Speaker #15: Thank you very much. Good luck in the fourth quarter.

Speaker #7: Thank you. Thank you.

Speaker #3: Your next question comes from Seth Bergey with Citi. Your line is open.

Speaker #5: Hey , Seth .

Speaker #16: Hey , thanks for taking my question . You know , I guess I just wanted to follow up a little bit on the pipeline , you know , of the kind of existing pipeline is that primarily with , you know , existing operators and trilogy , or is that , you know , are there any kind of other new operators that we should be thinking about that you're looking at kind of add to the mix ?

Speaker #5: I think it's all existing operators and Trilogy. There's nothing in our pipeline that would be an operator outside of our existing group.

Speaker #7: That's right . And then including including , well , Quest in Great Lakes , of course , you know , now considering them existing operators .

Speaker #7: Yep .

Speaker #16: And then I guess just following up a little bit around , you know , the kind of competition , just as you know , senior housing continues to perform .

Speaker #16: Well . You know , are you seeing any changes kind of , you know , with asset pricing as you kind of look at the , you know , opportunity set .

Speaker #7: You know , I think as I mentioned earlier , really we have not seen much of a shift perhaps , you know , there's been maybe a moderate uptick , but quite frankly , it's been very stable .

Speaker #7: I think buyers are are , you know , they're still being very efficient in how they're underwriting . You know , we haven't seen any kind of fervor in terms of driving up pricing on a consistent basis .

Speaker #16: Great . Thanks .

Speaker #3: Thank you. And with no further questions in queue, I'd like to turn the conference back over to Danny Prosky, President and CEO, for closing remarks.

Speaker #5: All right . Well , thanks , everybody for joining . We really appreciate your interest and obviously , if there's any follow up questions , you know , feel free to reach out via myself , Brian Allen .

Speaker #5: And we're always available. Thanks a lot. Have a great weekend.