American Healthcare REIT, Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk. There were no material changes in our market risk exposures, or in the methods we use to manage market risk, from those that were provided for in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023. Interest Rate Risk We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire and develop properties and other investments. Our interest rate risk is monitored using a variety of techniques. Our interest rate risk management objectives are to limit the impact of interest rate increases on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow or lend at fixed or variable rates. We have entered into, and may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment. We did not elect to apply hedge accounting treatment to these derivatives; therefore, changes in the fair value of interest rate derivative financial instruments were recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive loss. As of June 30, 2023, our interest rate swap is recorded in other assets, net in our accompanying condensed consolidated balance sheet at its fair value of $4,798,000. We do not enter into derivative transactions for speculative purposes. For information on our interest rate swaps, see Note 9, Derivative Financial Instrument, and Note 19, Subsequent Event — Interest Rate Swap, to our accompanying condensed consolidated financial statements. 55 Table of Contents As of June 30, 2023, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes, excluding the effect of our interest rate swap (dollars in thousands): Expected Maturity Date 2023 2024 2025 2026 2027 Thereafter Total Fair Value Assets Debt security held-to-maturity $ — $ — $ 93,433 $ — $ — $ — $ 93,433 $ 92,998 Weighted average interest rate on maturing fixed-rate debt security — % — % 4.24 % — % — % — % 4.24 % — Liabilities Fixed-rate debt — principal payments $ 9,821 $ 74,086 $ 135,928 $ 155,560 $ 34,834 $ 519,212 $ 929,441 $ 760,299 Weighted average interest rate on maturing fixed-rate debt 3.24 % 3.57 % 4.29 % 2.99 % 3.33 % 3.14 % 3.37 % — Variable-rate debt — principal payments $ 370,478 $ 258,824 $ 30,163 $ 376,576 $ 550,189 $ 27,292 $ 1,613,522 $ 1,620,218 Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of June 30, 2023) 7.94 % 7.73 % 7.57 % 6.85 % 6.80 % 7.30 % 7.25 % — Debt Security Investment, Net As of June 30, 2023, the net carrying value of our debt security investment was $84,933,000. As we expect to hold our debt security investment to maturity and the amounts due under such debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our debt security investment, would have a significant impact on our operations. See Note 13, Fair Value Measurements, to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our investment in a held-to-maturity debt security. The effective interest rate on our debt security investment was 4.24% per annum as of June 30, 2023. Mortgage Loans Payable, Net and Lines of Credit and Term Loan Mortgage loans payable were $1,260,429,000 ($1,237,565,000, net of discount/premium and deferred financing costs) as of June 30, 2023. As of June 30, 2023, we had 71 fixed-rate mortgage loans payable and 12 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 8.01% per annum and a weighted average effective interest rate of 4.51%. In addition, as of June 30, 2023, we had $1,282,534,000 ($1,281,683,000, net of deferred financing fees) outstanding under our lines of credit and term loan, at a weighted average interest rate of 7.13% per annum. As of June 30, 2023, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swap, was 5.69% per annum. An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loan constitutes a market risk. As of June 30, 2023, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and unhedged term loan by $6,786,000, or 4.6% of total annualized interest expense on our mortgage loans payable and lines of credit and term loan. See Note 7, Mortgage Loans Payable, Net and Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements. Other Market Risk In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary. 56 Table of Contents