Business context and reporting period
Griffin-American Healthcare REIT IV, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The filing describes a non-listed healthcare REIT investing in medical office buildings, senior housing, senior housing operated under a RIDEA structure, and skilled nursing facilities. At quarter-end it owned 89 properties comprising 94 buildings, with approximately 4.863 million square feet of gross leasable area, and held a 6% interest in a joint venture.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $38.7 million | $30.4 million | $76.2 million | $56.2 million |
| Net loss | $1.2 million | $5.9 million | $9.1 million | $18.3 million |
| Net loss attributable to controlling interest | $0.9 million | $5.9 million | $8.7 million | $18.2 million |
| Loss per common share | $0.01 | $0.07 | $0.11 | $0.24 |
| Operating cash flow | Not separately provided for the quarter | $19.0 million | $17.1 million |
- Revenue grew 27% year over year in Q2, primarily reflecting additional properties and the transition of facilities into RIDEA operations. Six-month revenue increased 36%.
- Q2 property segment NOI, a non-GAAP measure, was $18.2 million versus $15.2 million; NOI margin was approximately 47% versus 50% of revenue. Six-month NOI was $36.9 million versus $28.6 million.
- Q2 net loss narrowed year over year, while six-month net loss also improved. Q2 expenses included $12.7 million of depreciation and amortization and $4.1 million of interest expense, net of derivative fair-value effects. Six-month interest expense on the income statement was $10.3 million before the separate $3.8 million derivative fair-value loss.
- For six months, investing cash outflow was $72.5 million, including $67.9 million for acquisitions and $4.6 million of capital expenditures. Financing provided $58.9 million, including net credit-facility borrowings.
Balance sheet, debt and liquidity
- At June 30, total assets were $1.123 billion, total liabilities $551.4 million, and total equity $569.0 million. Cash and cash equivalents were $20.6 million, plus $0.7 million of restricted cash.
- Gross debt was approximately $498.6 million: $479.5 million outstanding under the revolving credit and term loan facility, plus $19.1 million of mortgage principal. The facility had $50.5 million of borrowing capacity remaining; its maturity is November 2021, with a possible one-year extension subject to conditions.
- The credit-facility balance increased from $396.8 million at year-end 2019. Its weighted-average rate was 2.14% at June 30; the weighted-average effective rate on debt, factoring in swaps, was 3.37%. The company reported compliance with debt covenants.
- Management said cash and available capacity were sufficient for foreseeable needs and that it did not anticipate needing other funding within 12 months. This assessment is subject to pandemic-related uncertainty and access to financing.
Material changes, outlook and risks
- COVID-19 pressured senior housing occupancy and operating costs. Management reported an approximately 9% decline in RIDEA occupancy since February through July 31, 2020, and costs to care for residents rising by as much as 30%. The company recorded approximately $0.6 million of incremental pandemic-related property operating costs in the first half.
- Management reported that contractual rents through June were collected from all leased non-RIDEA senior housing and skilled nursing tenants, and substantially all medical-office rent through June was received. It cautioned that these collections do not indicate future performance. Some medical-office tenants received immaterial concessions; no contractual rent was forgiven.
- To preserve liquidity, the board cut the annualized distribution rate from $0.60 to $0.40 per share beginning in April 2020, initially through August, and suspended ordinary share repurchases from Q2 while retaining limited death- or disability-related repurchases. Non-essential discretionary capital spending was postponed.
- First-half distributions declared totaled $21.5 million, including $11.4 million reinvested through the DRIP. The filing attributes 88.7% of distributions to operating cash flow and 11.3% to borrowings; on an FFO basis, 83% was covered by FFO and 17% by borrowings. Distributions exceeding earnings and profits may represent return of capital.
- The board’s $9.54 estimated NAV per share was calculated using asset values as of December 31, 2019, before the reported U.S. emergence of COVID-19; it is not a GAAP fair-value measure or assurance of realizable value.
- Additional exposures include a tenant representing 10.2% of annualized base rent/NOI, Missouri representing 11.2%, variable-rate debt and LIBOR transition risk, and the uncertain duration and effects of COVID-19. No material litigation or off-balance-sheet arrangements were reported.
- No quantitative earnings or operating guidance was provided. Management anticipates potential pent-up demand for medical visits and senior-housing move-ins but said the duration and financial impact of the pandemic cannot be predicted.
Important facts for investors to verify
- Subsequent RIDEA occupancy, resident move-ins, staffing and pandemic-related costs, and whether leased tenants continue paying rent.
- Cash distribution coverage, the duration of the reduced distribution rate, and the extent to which future distributions may be funded by borrowing or return of capital.
- Credit-facility availability, covenant headroom, refinancing plans before the November 2021 maturity, and LIBOR-to-alternative-rate transition terms.
- Updated property valuations and NAV assumptions, particularly because the disclosed $9.54 estimate predates COVID-19’s U.S. impact.
- Financial condition and lease payment capacity of the largest tenant and exposure to Missouri; also review related-party advisory and management fees.