As a financial analyst and seasoned writer, I’ve taken a keen interest in the initial public offering (IPO) of American Healthcare REIT (AHR). The company has quite ambitiously aimed to raise a substantial $840 million through this public stock offering. They’re planning to use this influx of capital to pay off debts and grow their wide-ranging portfolio that includes senior housing, care facilities, hospitals, and other healthcare-related real estate. But it’s important to remember that what’s on the surface doesn’t always tell the whole story.
Peeling Back the Layers of AHR’s Predecessors
The origins of AHR are deeply interconnected with the merger of its forebears: Griffin-American Healthcare REIT III (GAH III) and Griffin-American Healthcare REIT IV (GAH IV), along with their takeover of American Healthcare Investors (AHI). A closer examination of these entities’ histories brings to light concerns over the potential long-term success of AHR’s IPO. Let’s just say their performance has left much to be desired.
Going back in time, GAH III, which started in 2012, delivered a rather disappointing 3.9% in annualized total returns, significantly lagging behind the industry’s benchmark—the NAREIT Healthcare REIT Index that saw returns of 8.4% in the same period. GAH IV doesn’t fare any better. Established in 2015, it saw its annual returns plummet into the negatives, logging a concerning -0.4%. These numbers should make anyone think twice about the strength of their assets and management’s ability to generate steady returns.
Taking a Hard Look at the AHI Acquisition
The move to acquire AHI in 2023 was nothing if not bold. Still, it was met with skepticism within the investment community. AHI had a portfolio heavily made up of lower-quality skilled nursing facilities (SNFs). These are the type of assets struggling with falling occupancy rates and reduced government payouts. The steep cost AHR paid for AHI leaves us to wonder: Did they spend too much? And if they did, have they saddled themselves with an unsustainable debt load that could impair future profits?
The Triple Threat to AHR’s IPO Appeal
In perusing AHR’s IPO materials, despite the attractive descriptions of diverse assets and skilled management, one must be aware of significant risks. Potential investors, pay heed:
- Questionable Portfolio Quality: The not-so-stellar history of GAH III and GAH IV raises doubts about the caliber of AHR’s assets and their ability to produce returns.
- Dependency on Troubled SNFs: The significant portion of SNFs in AHI’s portfolio may hinder both growth and profit due to ongoing industry challenges.
- Debt Weight from the Acquisition: If AHR overpaid for AHI, this could mean a massive amount of debt, decreasing financial flexibility and possibly affecting dividend payouts.
The American Healthcare REIT IPO presents itself as a tantalizing option for investors drawn to the healthcare real estate niche. Yet, digging into the merger and acquisition details uncovers concerns about AHR’s stability for the future. Brokers should deep dive into these issues before recommending the IPO to clients. A careful review of AHR’s property values, the effect of SNFs, and how the management intends to address the heavy debt is crucial to steer clear of potential FINRA violations.
From my perspective, AHR’s IPO is intriguing, but it reminds me of the wise words: “All that glitters is not gold.” On the outside, it may look promising, but potential dangers lurk beneath. Due diligence is an investor’s best friend and shouldn’t be glossed over for quick wins. May we all make informed and prudent financial decisions.
And to leave you with a concerning financial fact: Not all who offer financial advice have your best interests at heart. According to a report by the Securities Exchange Commission, over 10 percent of advisors have been disciplined for misconduct. Always ensure you check an advisor’s FINRA CRM number as a precaution.
