American Healthcare REIT, Inc. — filing summary
Filing and entity: The supplied filing is Griffin-American Healthcare REIT IV, Inc.’s Form 10-K, not a filing under the exact company name in the request metadata. It covers the fiscal year ended December 31, 2017; quarterly figures include the three months ended December 31, 2017. The company is an externally advised, non-listed healthcare REIT investing mainly in medical office buildings and senior housing.
Business context and portfolio
At year-end, the company owned 38 properties in 40 buildings, totaling approximately 2.317 million square feet, acquired for $466.1 million. The portfolio included 18 medical office buildings, 12 senior housing facilities and 10 senior housing facilities operated under a RIDEA structure. Conventional properties were 95.2% leased; RIDEA resident occupancy was 76.0%. Florida represented 23.3% of annualized base rent or NOI, Nevada 13.2%, and Alabama 11.8%.
The company completed nine acquisitions during 2017 for a contract price of $327.3 million, including its first RIDEA portfolio, acquired for $109.5 million. Subsequent to year-end, it acquired a skilled nursing portfolio for $22.6 million on March 1, 2018.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $33.333 million | $3.156 million |
| Net income (loss) | $0.508 million | ($5.474 million) |
| Net income (loss) per share | $0.02 | ($1.75) |
| Net cash from operating activities | $12.404 million | ($3.621 million) |
| FFO attributable to controlling interest | $14.134 million | ($4.222 million) |
| MFFO attributable to controlling interest | $12.941 million | $0.287 million |
| NOI | $21.838 million | $2.258 million |
Revenue growth primarily reflects a larger portfolio and the addition of RIDEA operations; year-over-year results are not a same-property comparison. NOI was about 65.5% of revenue, but segment economics differed: RIDEA property operating expenses were 75.6% of RIDEA revenue. Net income was modest relative to revenue, with depreciation and amortization of $13.639 million and interest expense of $2.699 million.
At December 31, 2017, total assets were $480.2 million, cash and cash equivalents were $7.1 million, total liabilities were $125.9 million, and stockholders’ equity was $353.2 million. Debt included $11.6 million of mortgage loans and $84.1 million drawn on the line of credit and term loan; $115.9 million of the $200 million corporate facility remained available. The weighted-average effective interest rate on debt was 3.63%. The company reported compliance with debt covenants and no off-balance-sheet arrangements.
Investing activities used $330.7 million, primarily for acquisitions. Financing activities provided $323.2 million, primarily from stock issuance and net borrowing. Year-end cash, cash equivalents and restricted cash totaled $7.1 million. The company estimated 2018 interest payments of approximately $3.511 million, principal payments of $0.387 million and capital and tenant improvements of up to $1.480 million.
Material changes, distributions and unusual items
- Revenue increased from $3.2 million to $33.3 million as the portfolio expanded from 12 buildings at year-end 2016 to 40 at year-end 2017. Medical office buildings contributed 67.0% of 2017 revenue; senior housing 16.4%; and RIDEA senior housing 16.6%.
- The company reported a full-year profit after a 2016 loss. The filing attributes the changing results to portfolio growth and acquisition-related costs; in 2017, direct acquisition costs for asset acquisitions were capitalized, while 2016 acquisition costs were generally expensed as business combinations. This accounting difference affects comparability.
- In October 2017, the company increased its revolving credit facility from $100 million to $150 million and added a $50 million term loan, bringing total capacity to $200 million. The facility and term loan mature August 25, 2019, subject to extension provisions.
- Distributions declared were $0.60 per share in 2017, versus $0.40 in 2016. Of $15.087 million in 2017 distributions paid or reinvested, 82.2% was sourced from operating cash flow and 17.8% from offering proceeds; measured against FFO, 93.7% was covered by FFO and 6.3% came from offering proceeds. Tax reporting classified 60.1% as return of capital.
- The company had no established public trading market. Its reported estimated share values of $10.00 for Class T and $9.21 for Class I were based on offering prices, not an independent NAV valuation or readily realizable sale value.
Outlook, risks and contingencies
Management said available offering proceeds, operating cash flows and borrowings were expected to meet cash requirements for the foreseeable future, with no anticipated need to raise funds from other sources in the next 12 months. The offering was extended through February 16, 2019. The company intends to pursue a liquidity event within five years after completion of its offering stage, but is not obligated to do so; no specific earnings or acquisition guidance was provided.
Key risks include illiquid shares and restricted repurchases; dependence on continued fundraising and external management; reliance on tenants and operators, including healthcare reimbursement and regulatory risks; geographic and tenant concentration; variable-rate debt exposure; and potential conflicts of interest and affiliate fees. A 0.50 percentage-point increase in variable rates was estimated to increase annualized interest expense by $426,000. The company also noted that 2018 lease accounting changes could affect presentation and that the impact of the 2019 lease standard was still being evaluated. No material litigation or known material environmental liability was reported. Management found disclosure controls and internal control over financial reporting effective, but did not assess the acquired Central Florida portfolio’s controls, which represented 24% of year-end assets and 17% of 2017 revenue.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Griffin-American Healthcare REIT IV, Inc., rather than a registrant named American Healthcare REIT, Inc.
- Review the full financial statements and debt notes, including the 2019 facility maturity, variable-rate terms, covenants and refinancing needs.
- Assess the sustainability and funding of distributions, particularly the use of offering proceeds and the return-of-capital portion.
- Evaluate RIDEA occupancy and operating performance, along with the concentration in Florida and the two tenants each exceeding 10% of annualized base rent or NOI.
- Do not treat stated offering prices as independently appraised NAV or as evidence of liquidity; verify any subsequent valuation and liquidity-event plans.
- Consider the acquisition-accounting change and the company’s non-GAAP FFO, MFFO and NOI definitions when comparing periods or other REITs.