Analysts Optimistic About Newly Listed American Healthcare REIT
Numerous investment analysts initiated coverage and earnings per share estimates for American Healthcare REIT Inc. (NYSE: AHR), the formerly non-traded real estate investment trust that listed its shares last month on the New York Stock Exchange. Of the six institutions that initiated coverage last week, the price target for the stock ranged from $14 to $17.
All analyses acknowledged the aging U.S. population and corresponding senior housing needs. Each hypothesized that AHR will benefit from the long-term demographic trends driving healthcare real estate. Risks identified by one or more of the firms included operational execution, concentration (both tenant and geographical), and elevated dividend coverage.
- Bank of America Securities: Buy rating with $15 price objective
- Citigroup Global Markets: Neutral with $14 price target
- Citizens JMP Securities: Market Outperform* with $16 price target
- KeyBanc Capital Markets: Overweight** with $16 price target
- Morgan Stanley: Overweight with $17 price target
- Truist: Buy with $17 price target
*With Market Outperform, i.e., regulatory equivalent of “buy,” Citizens JMP Securities expects the stock price to outperform the Russell 3000 Index over the next 12 months.
**The term overweight is in between a hold and buy on a five-tier rating system, meaning that while the analyst likes the stock, it is not endorsed with a buy rating.
AHR – a self-managed real estate investment trust that acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, senior housing, skilled nursing facilities, hospitals and other healthcare-related facilities – debuted on the New York Stock Exchange Feb. 7.
After pricing its public offering at $12 per share, AHR started the trading day at $12.85. At the close of trading, shares finished at $13.22, up 10.17%. At the close of trading March 8, shares finished at 13.81, up 15.08%.
As previously reported, AHR was formed by the 2021 merger of Griffin-American Healthcare REIT III, Griffin-American Healthcare REIT IV, and American Healthcare Investors. Investors in those non-traded REITs typically paid $10 per share of common stock. The company executed a one-for-four reverse stock split in November 2021, and last March adopted an updated estimated per share net asset value of the company’s common stock of $31.40, calculated as of Dec. 31, 2022.
HIGHLIGHTS OF FACTORS AFFECTING RATINGS AND VALUATIONS
Bank of America’s $15 price objective is derived using an adjusted funds from operations multiple. It applied a 14x AFFO multiple to a 2024 AFFO estimate of $1.05. The applied multiple is based on AHR’s relative mix of healthcare real estate exposure and Bank of America’s view on its portfolio quality relative to publicly traded peers. Although it does not use a net asset value approach to derive the price objective, it calculated a one-year forward NAV of $21.
The Citizens JMP model assumes an incremental $51 million of organic net operating income growth from Q1 2024 through Q4 2025. This growth is primarily driven by the recovery of AHR’s senior housing operating portfolio segment and Trilogy Health Services’ operating performance.
Citigroup valued AHR by triangulating between NAV, FFO, and AFFO. The target price of $14 reflects a ~14x 2024 AFFO multiple, at a discount to healthcare REIT peers. It attributes this discount to its smaller size, diversified ownership structure, and elevated payout ratio.
KeyBanc viewed AHR’s largest concentration in integrated senior health campuses (~50% of pro rata net operating income) and majority ownership in the operator Trilogy (~75%) to be an important differentiator versus healthcare REIT peers.
Morgan Stanley noted AHR’s operations of clinical healthcare properties across higher growth operating segments, as well as its stable and defensive triple net leased property types. It predicted that AHR will likely benefit from demographic tailwinds and operating segments also seeing tailwinds from limited new supply and recovery to pre-COVID levels.
Like KeyBanc, Morgan Stanley believes that Trilogy underpins most AHR debates and the valuation. Trilogy has a unique business model with Independent Living, Assisted Living, Memory Care, and Skilled Nursing all in the same facility, allowing residents to “age in place.” Also, Trilogy’s facilities are in certificate of need states, which should limit new competition and supply. Trilogy campuses are notably newer than the competition and several have earned national quality recognitions.
Multiple analysts projected total returns at 30% or higher. Truist said that above-average earnings growth will be fueled by the post-COVID fundamental recovery, as well as AHR’s assumed exercise of an option to acquire an additional interest in Trilogy.
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