Pump The Brakes On American Healthcare REIT

American Healthcare REIT, Inc. has surged 4.5x post-2024 IPO, driven by aggressive equity issuance and accretive acquisitions. AHR's portfolio is heavily weighted toward skilled nursing, with asset quality and EBITDAR coverage slightly lagging top peers. Valuation is stretched at 25.5x 2027E AFFO, with growth not fully keeping pace with the share price appreciation. I see AHR as overvalued relative to peers like Janus; shares become attractive closer to a 20x multiple.

Like many other large cap healthcare REITs, American Healthcare has a diversified portfolio across skilled nursing (SNF), medical office (MOB) and senior housing (SH). The breakdown between the property types is shown below:

The bulk of this portfolio at 69% is skilled nursing.

While it is important to not conflate the luxury spectrum with asset quality, metrics like RevPOR do provide some insight into the type of assets held. American Healthcare’s senior housing operating properties are slightly lower end than those of Welltower Inc. and Janus Living, Inc.

This is a relative distinction as American Healthcare’s assets are roughly in-line with national averages. It just so happens that Janus’ assets are very high-end, particularly their entrance fee communities.

AHR’s triple net portfolio is a bit weaker with some concerns in EBITDAR coverage. AHR Senior housing EBITDAR coverage averages 1.10X while Welltower is at 1.23X. Janus is pure-play SHOP so they do not have an NNN number with which to compare. Some of American Healthcare’s hospitals and SNFs also have concerningly low coverage. Note, however, that the triple net segment is a reasonably small portion of revenues.

There is not much to say here as the balance sheet is great. Low debt load relative to the size of the company and the debt they do have is well-termed out at a low-interest rate.

It is quite easy to build an excellent balance sheet when capital markets provide nearly unlimited equity issuance at well above NAV. Janus and Welltower are enjoying similar capital access.

A stock chart will suggest that American Healthcare’s history is immaculate with American Healthcare going up and to the right since its 2020 IPO. However, big mergers and IPOs often obfuscate history. The stock chart doesn’t reveal what happened before 2024. Healthcare REITs in general have had big swings with senior housing having a particularly V-shaped drop and recovery.

Senior housing occupancy fell off a cliff in 2020 and 2021. The senior housing-exposed REITs fell with the sector. Note Ventas Inc.'s drop around that time.

Thus, when one is only looking at the post-IPO snapshot of time, American Healthcare looks shockingly strong. More objectively, this was just the favorable side of the V-shaped recovery. While not yet public, American Healthcare fully experienced the downside of the V. AHR is a combination of Griffin America Healthcare REITs III and IV. Altidar data reveals that both these were down substantially.