American Healthcare REIT, Inc. annual report, FY2021

American Healthcare REIT, Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021; filed March 25, 2022. This is an annual report, not a standalone fourth-quarter report. The company owns and operates healthcare real estate, including medical office buildings, senior housing, skilled nursing facilities, hospitals, and integrated senior health campuses. It operates certain senior-care properties under RIDEA structures, which leave it exposed to operating results and costs.

Business context and material transactions

• On October 1, 2021, GAHR III and GAHR IV merged, and the company acquired substantially all of American Healthcare Investors’ business and operations. The combined company became self-managed and adopted the American Healthcare REIT name.
• The merger added 87 properties comprising 92 buildings, or approximately 4.8 million square feet. At year-end, the portfolio included 182 properties, 191 buildings and 122 integrated senior health campuses, with approximately 19.2 million square feet and a reported aggregate contract purchase price of $4.29 billion.
• Pre-merger 2021 financial results reflect GAHR III; results after October 1 reflect the combined company. The filing cautions that year-over-year comparisons may not be meaningful.

Financial performance and position

Metric	2021	2020
Revenue and grant income	$1.282 billion	$1.244 billion
Net income (loss)	$(53.3) million	$8.9 million
Net income (loss) attributable to controlling interest	$(47.8) million	$2.2 million
Basic and diluted EPS	$(0.24)	$0.01
Net cash from operating activities	$17.9 million	$219.2 million
Net operating income (NOI, non-GAAP)	$213.3 million	$218.3 million
Funds from operations (FFO, non-GAAP), attributable to controlling interest	$69.7 million	$95.7 million
Modified FFO (MFFO, non-GAAP), attributable to controlling interest	$77.6 million	$96.7 million

• Revenue and grant income rose about 3%, but GAAP results swung to a loss. Business acquisition expenses were $13.0 million, depreciation and amortization was $133.2 million, and impairment charges were $3.3 million. The $8.2 million derivative fair-value gain partly offset interest expense.
• Resident fees and services revenue was $1.124 billion; real estate revenue was $141.4 million. Grant income fell to $17.0 million from $55.2 million, largely reflecting COVID-19 relief funding. Management reported that FFO excluding grants was approximately $54.5 million in 2021 versus $54.9 million in 2020; NOI excluding grants was approximately $196.4 million versus $162.6 million.
• Property operating expenses increased to $1.030 billion from $993.7 million, including higher labor costs. The filing reports total NOI, rather than a comparable standalone margin measure; calculated as NOI divided by revenue and grant income, NOI was approximately 16.6% in 2021 versus 17.5% in 2020. Comparability is limited by the merger and changes in grant income.
• Cash, cash equivalents and restricted cash totaled $125.5 million at year-end, including $81.6 million unrestricted cash and cash equivalents. Operating cash flow fell substantially, in part because 2020 included Medicare advance payments and higher grant income, while 2021 included merger costs and deferred payroll-tax payments.
• Year-end debt comprised $1.116 billion of mortgage loans and $1.227 billion of lines of credit and term loans. The weighted average effective interest rate, including swaps, was 3.18%. Borrowings were 46.8% of the company’s defined combined real estate and real estate-related investment market value, against a stated target not to exceed 50%.
• At December 31, 2021, borrowing capacity under the then-existing credit facilities was $1.370 billion, with $143.4 million available. A January 2022 facility replaced the 2018 and 2019 corporate facilities with up to $1.050 billion of revolving and term financing. The contractual-obligations table showed $982.4 million of variable-rate principal due in 2022; the subsequent refinancing is important context for that maturity exposure.
• Total assets were $4.580 billion and total liabilities were $2.751 billion at year-end. Net real estate investments were $3.515 billion. The filing does not provide a clear single liquidity ratio or a conventional operating margin figure.

Distributions, outlook and risks

• The board set distributions at an annualized $0.40 per share, paid monthly, beginning with October 2021 distributions; the DRIP was reinstated. During 2021, distributions totaled $30.5 million. The cash-flow disclosure identifies $12.5 million, or 41.2%, as funded from borrowings; tax reporting classified 73.7% of distributions as return of capital.
• The company reported no established public market for its shares. The board’s estimated NAV was $9.29 per share as of December 31, 2021, approved March 24, 2022; it is an estimate, not an exchange-traded price or assurance of realizable value.
• No formal quantitative earnings or operating guidance is provided. Management expects property-level revenue to benefit from contractual rent escalations under normal operating conditions, but emphasized uncertainty around COVID-19 recovery, labor costs, and operating expenses.
• COVID-19 continued to pressure senior housing and care operations. Based on information available in March 2022, SHOP resident occupancy was approximately 11.9% below February 2020 levels; integrated senior health campuses and skilled nursing occupancy had improved toward pre-pandemic levels. Medical office operations were described as having rebounded.
• Key exposures include labor shortages and rising costs at RIDEA properties, reimbursement and regulatory risks affecting operators and tenants, Indiana concentration (31.0% of portfolio annualized base rent/NOI), interest-rate and refinancing risk, and dependence on Trilogy Management Services for integrated-campus operations. The filing reported no material litigation known to the company and no known material environmental liability.
• The AHI acquisition includes a potential uncapped cash earnout tied to a prospective private fund and specified conditions; its estimated fair value was zero at year-end. The company stated that it was in compliance with debt covenants except that final servicer approval remained outstanding for two mortgages totaling $14.2 million; it had received no acceleration notice.

Most important facts for investors to verify

• Review the merger accounting and pro forma results before interpreting reported growth or losses as a like-for-like trend.
• Reconcile operating cash flow, FFO/MFFO, grant support, and the disclosed use of borrowings to fund cash distributions.
• Check subsequent debt refinancing, 2022 maturities, variable-rate exposure, and any remaining lender approvals or covenant constraints.
• Track SHOP and campus occupancy, labor expenses, and the performance and continuity of Trilogy Management Services.
• Assess the limitations of the $9.29 estimated NAV and the lack of a public trading market or broadly available share-repurchase liquidity.