Business context and reporting period
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2017. The filing registrant is Griffin-American Healthcare REIT IV, Inc., not “American Healthcare REIT, Inc.” as stated in the request metadata; verify the intended issuer.
The company is an externally advised, non-listed healthcare REIT focused on medical office buildings and senior housing. At June 30, 2017, it owned 27 properties comprising 28 buildings, about 1.338 million square feet, with a total contract purchase price of $341.2 million. Portfolio occupancy was 95.8%, and the remaining weighted-average lease term was 8.8 years.
Financial results and key metrics
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Real estate revenue | $6.198 million | $10.250 million | $0.026 million |
| Income (loss) from operations | $1.029 million | $1.362 million | $(0.613) million / $(0.763) million |
| Net income (loss) | $0.621 million | $0.536 million | $(0.613) million / $(0.763) million |
| Net income per share | $0.03 | $0.03 | $(0.96) / $(2.32) |
| Operating cash flow | $4.973 million for six months | $(0.709) million for six months |
Six-month segment net operating income (NOI) was $7.452 million, including $6.440 million from medical office buildings and $1.012 million from senior housing. NOI was approximately 72.7% of revenue; net income was approximately 5.2% of revenue. These are calculated ratios, not company-reported guidance.
At June 30, cash and cash equivalents were $3.247 million, total assets were $349.474 million, and stockholders’ equity was $242.065 million. Debt comprised $71.1 million drawn on a $100 million revolving credit facility and $11.782 million principal balance on fixed-rate mortgages ($11.691 million net carrying value). The company reported $28.9 million remaining under the credit facility and a 4.27% weighted-average effective rate on outstanding debt. It reported compliance with debt covenants.
For the six months, distributions declared were $0.30 per share. Cash distributions paid were $2.077 million and $2.874 million were reinvested through the DRIP. The company reported distributions were covered 100% by operating cash flow, but only 95.2% by FFO; the remaining 4.8% of distributions was attributed to offering proceeds in its FFO comparison.
Material changes versus the prior comparable period
- Results are not directly comparable: the company had 28 buildings at June 30, 2017 versus one building at June 30, 2016, and began material operations only after launching its offering and acquiring its first property in 2016.
- Revenue increased as the portfolio expanded. Seven acquisitions in the first half of 2017 had an aggregate contract price of $202.425 million; investing cash outflow was $199.034 million, principally for acquisitions.
- Six-month operating cash flow improved to $4.973 million, while financing provided $195.071 million, including $169.003 million of common-stock proceeds and $37.2 million of net line-of-credit borrowings. Cash ended the period at $3.247 million.
- Depreciation and amortization rose to $4.177 million and interest expense to $0.827 million as the company acquired properties and used debt. The 2017 acquisitions were accounted for as asset acquisitions following early adoption of ASU 2017-01.
Outlook, commentary, risks, and unusual items
Management said it expects operating cash flow to increase as it acquires properties and records a full year of operations. It believes available resources will meet cash needs for the foreseeable future and does not anticipate needing other funding sources within 12 months. No quantified earnings or revenue guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
- Funding and distributions: The company depends on continued offering proceeds and borrowing to fund acquisitions. It warns distributions may include a return of capital and may be funded with offering proceeds or, in the future, borrowings. The board sets distributions at its discretion; the stated annualized distribution rate was $0.60 per share through September 30, 2017.
- Tenant and geographic concentration: At June 30, Nevada, Alabama, and California represented approximately 19.0%, 16.1%, and 13.5% of annualized base rent. Colonial Oaks Master Tenant and Prime Healthcare Services–Reno represented 16.3% and 15.6%, respectively. Tenant defaults or local economic weakness could materially affect rent and distributions.
- Healthcare-sector exposure: Changes to Medicare, Medicaid, insurance coverage, reimbursement models, or healthcare regulation could weaken tenants’ finances and ability to pay rent. Government audits and compliance actions could also affect healthcare tenants and operators.
- Interest-rate exposure: The revolving facility is variable-rate and matures in August 2019, subject to a conditional extension. The filing estimates a 0.50 percentage-point rate increase would raise annualized interest expense by $360,000.
- Related-party economics: The company is externally advised and incurred significant affiliate fees. It reported $8.024 million payable to affiliates at June 30, primarily contingent advisor payments and asset-management fees; 2017 acquisition fees and expenses also include amounts paid or accrued to the advisor.
- Other matters: The company reported no material litigation, no material environmental liability known to it, no off-balance-sheet arrangements, and no material change in internal controls. It reported no material market-risk changes from its prior annual filing.
Important facts for investors to verify
- Confirm that Griffin-American Healthcare REIT IV, Inc. is the intended issuer, given the different company name in the request metadata.
- Reconcile the filing’s distribution-source disclosures: operating cash flow covered 100% of distributions, while FFO covered 95.2% and the FFO comparison assigns 4.8% to offering proceeds.
- Review tenant and state concentration, lease expirations, occupancy, and the financial condition of the two largest tenants.
- Assess liquidity after acquisition spending, the $71.1 million variable-rate facility balance, its 2019 maturity, and the $8.024 million affiliate payable.
- Review offering costs, related-party compensation, acquisition economics, distribution sustainability, and the absence of a board-determined NAV per share.