Business context and reporting period
This is Griffin-American Healthcare REIT IV, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The filing describes a healthcare-property REIT focused on medical office buildings, senior housing, skilled nursing, and senior housing operated under a RIDEA structure. The supplied metadata names American Healthcare REIT, Inc.; the filing itself identifies Griffin-American Healthcare REIT IV, Inc., so the entity identity should be confirmed.
At quarter-end, the company owned 78 properties comprising 83 buildings and approximately 4.36 million square feet, plus a 6% interest in a senior-health-campus joint venture. Its initial public offering ended February 15, 2019; it continued raising equity through its distribution reinvestment plan (DRIP).
Financial and operating results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $31.1 million | $22.3 million | $87.3 million | $59.1 million |
| Net loss | $1.9 million | $1.7 million | $20.2 million | $4.9 million |
| Net loss per share | $0.02 | $0.03 | $0.26 | $0.09 |
| Segment net operating income (NOI) | $16.3 million | $11.1 million | $44.9 million | $29.1 million |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $30.4 million | $15.7 million |
Revenue increased about 40% in the quarter and 48% year to date, principally from acquired properties and, for RIDEA, a full year of operations at facilities acquired in 2018. NOI increased about 47% and 55%, respectively. Net losses widened year to date as depreciation and amortization, interest costs, and the fair-value loss on interest-rate swaps increased.
For the nine months, FFO attributable to controlling interest was $17.9 million versus $19.1 million; MFFO was $23.2 million versus $17.2 million. These are non-GAAP measures and should not be treated as substitutes for GAAP earnings or operating cash flow.
At September 30, total assets were $1.038 billion, including $860.5 million of net real estate investments, and stockholders’ equity was $596.9 million. Cash and cash equivalents were $22.4 million, with another $0.4 million of restricted cash. Gross debt comprised $357.5 million under the credit facility and $27.3 million of mortgage principal; the credit-facility balance was variable-rate and due in November 2021. The company reported $42.5 million of remaining facility availability and compliance with debt covenants. It reported aggregate borrowings equal to 34.2% of the combined market value of its real estate investments.
Operating cash flow funded $29.1 million, or 84.4%, of nine-month distributions; offering proceeds funded $5.4 million. Compared with FFO, distributions of $34.5 million were covered 52.0% by FFO, with the remainder funded by offering proceeds (37.8%) and borrowings (10.2%). Distributions declared were $0.45 per share for the nine months. The company cautioned that some distributions may represent return of capital.
Changes, outlook, and risks
- Property count rose to 83 buildings from 58 a year earlier. Excluding RIDEA, leased occupancy was 95.4%; RIDEA occupancy was 84.2% for the quarter, versus 77.0% a year earlier.
- In the nine months, the company acquired 14 buildings for a stated contract purchase price of $160.0 million. After quarter-end it acquired a medical office building for $10.0 million.
- On November 1, 2019, the credit facility was amended, increasing total borrowing capacity from $400 million to $530 million. Management said cash, operating flows, and borrowing capacity should meet foreseeable needs and that it did not anticipate needing other funding within 12 months. This outlook is subject to operating, financing, and capital-spending assumptions.
- The company estimated $8.4 million of discretionary capital and tenant improvements for the remainder of 2019. It expected fewer acquisitions after termination of the initial offering, but anticipated debt could rise with future acquisitions.
- Four interest-rate swaps covered $250 million of variable-rate debt. Their $5.4 million liability generated a nine-month fair-value loss recorded in interest expense; the swaps were not designated for hedge accounting. Management estimated a 0.50% rate increase would add $545,000 to annualized interest expense.
- Distributions were not fully covered by FFO, and the filing warns that using offering proceeds or debt for distributions can reduce investment capital and increase interest expense. The estimated NAV was $9.54 per share, based on a December 31, 2018 valuation; it is unaudited and is not necessarily fair value or realizable sale proceeds.
- Key disclosed risks include reliance on a significant tenant, RC Tier Properties, representing 10.8% of annualized base rent or NOI; geographic concentration in Missouri and Michigan; senior-housing occupancy and care-cost pressures; interest-rate and refinancing risk; and the end of the primary equity offering. The company reported no material litigation, no material environmental liability known to it, and no off-balance-sheet arrangements.
- The advisory agreement was due to expire February 16, 2020, subject to renewal. The company reported material fees and expenses paid to affiliates. Management concluded disclosure controls were effective and reported no material internal-control changes during the quarter.
Important facts for investors to verify
- Confirm the registrant’s identity and how it relates, if at all, to American Healthcare REIT, Inc.
- Assess distribution coverage and funding sources, including the proportion funded by offering proceeds or borrowing and the potential return-of-capital component.
- Review credit-facility covenants, variable-rate exposure, November 2021 maturity, post-quarter capacity increase, and refinancing plans.
- Evaluate occupancy and operating trends in RIDEA facilities, lease expirations, and the creditworthiness of the largest tenant.
- Review the assumptions and limitations behind the $9.54 estimated NAV and the fees, renewal terms, and potential incentive economics involving the external advisor.