American Healthcare REIT (NYSE: AHR) executives highlighted the strong performance of its Trilogy assets, praising Trilogy’s model for its diversity and flexibility in adjusting to changing market conditions, including possible cuts to Medicaid, and reimbursement for skilled nursing services.
Additionally, the executives said that if the proposed Medicaid cuts were to be enacted, Trilogy would easily be able to pivot its business model away from skilled nursing to segments that utilize Medicare and private pay, noting that Trilogy’s model has gradually shifted from skilled nursing in general over the last decade.
Overall, the company expressed confidence that Trilogy has diversified revenue streams to adapt to potential policy changes without a major disruption to their business.
Trilogy’s properties are designed with the ability to convert skilled nursing beds to assisted living (AL) or memory care as needed. This provides them greater versatility over service offerings.
Trilogy’s exposure to Medicaid is around 21%, and it could further reduce this exposure if necessary, without having to completely exit the Medicaid business, executives said.
“[Medicaid] is really more of an accommodation to existing residents, to where they time out of Medicare, or if they’re out of money, we can move them into a Medicaid bed. Usually there’s a wing that’s Medicaid that has double occupancy rooms. It’s not really a line of business that they focus on specifically,” Danny Prosky, president and chief executive officer of American Healthcare REIT, said during the company’s fourth quarter earnings call on Friday. “And if they need to shrink that business because the reimbursement isn’t there, it’s very easy for them to do so.”
Since American Healthcare REIT’s acquisition of Trilogy, its offerings in skilled nursing facilities (SNFs) have reduced from close to 60% to around 50%, with assisted living (AL) and independent living (IL) segments increasing their share.
“It’s a slow progression,” said Prosky, adding that when Trilogy first launched, it was 100% invested in SNFs. A lot of those campuses have been expanded or sold off as Trilogy shifted its strategy to increase holdings in other segments, taking on more short-term skilled nursing patients and then moving them into Trilogy-owned AL or IL communities, instead of moving them to other operators.
“A typical new campus today is going to be larger. Usually [if] they’re about 125 units, [there will be] 50 to maybe 55 skilled and then another, you know, 70 or so AL and IL,” Prosky said.
American Healthcare REIT’s portfolio is spread across the U.S. and United Kingdom and includes senior housing communities, skilled nursing facilities, and outpatient medical office buildings.
It fully acquired Trilogy in the third quarter of 2024, paying $258 million to acquire the remaining 24% stake in Trilogy. This acquisition made AHR the sole owner of Trilogy.
The Irvine, California-based REIT posted funds from operations (FFO) of $62.4 million, or 40 cents per share, in the fourth quarter ending on Dec. 30, matching analysts estimates.
For the year, the REIT reported funds from operations of $184.9 million, or $1.41 per share. Revenue was reported as $2.07 billion.
AHR expects full-year funds from operations in the range of $1.56 to $1.60 per share.
Shares of AHR closed Thursday at $29.79, down 38 cents, or 1.26%.
Medicare Advantage rates offset by Trilogy’s ‘outsized demand’
In terms of challenges from Medicare Advantage plans – which SNF operators consistently complain are linked to lower reimbursements – Trilogy’s reputation for providing superior care have allowed the company to negotiate strong reimbursement, executives said.
“[Trilogy’s] focus on care has driven outsized demand for their product, which is why their occupancies are consistently running ahead of what the national average is, and that same focus on care is appreciated by the residents and the families that are considering their properties,” said Gabe Willhite, chief operating officer. “So that strategy has been a winning one. That strategy will allow [Trilogy] to drive rates further on the private pay side, both private pay AL and IL and also on the skilled nursing private pay.”
The executives also explained why Trilogy has a leg up in its approach to negotiating with Medicare Advantage plans, which could yield unexpected earnings upside.
“The Medicare Advantage plans that Trilogy deals with have realized that value and have stepped up to show a little bit of a willingness to pay a higher rate. We could see rate growth there that’s a little bit higher than what we’re predicting currently,” said Willhite.
Moreover, other ways Trilogy could benefit the REIT’s bottom line is through tapping into value-based care.
“Value based care is expanding in the skilled nursing setting … And Trilogy still hasn’t unlocked all of those value-based care add ons,” said Willhite.
Trilogy’s scale in regional markets is invaluable for managing complex value-based care reporting and additional revenue streams from it, he said.
Larger Pipeline in 2025
On investments, executives said AHR’s pipeline is robust, with the company actively exploring new opportunities, collaborating closely with operators to identify the best fits for the portfolio. The pipeline is larger and more significant than last year, with a variety of opportunities to underwrite.
The company is considering both stabilized assets and moderate value-add opportunities, as well as properties that can be acquired below replacement cost, they said. A key factor in acquisitions is whether the asset aligns with the portfolio’s overall strategy.
“We’re looking at a wide range of property types. It’s really all a matter of, does it fit within the portfolio? Does it fit within the geographic footprint of our existing operators, and are they going to be assets that we think can be long term holds, that are going to perform well,” the executive noted. “I’ll also mention that we are probably more focused on the assisted living and memory care side of the SHOP portfolio than maybe the IL side.”
The REIT also plans to break ground on $140 million in Trilogy development projects in 2025, including new campuses, independent living, villas, campus and wing expansions.
