Business context and reporting period
Griffin-American Healthcare REIT IV, Inc. (the issuer named in the filing) is an externally advised, non-traded healthcare REIT. This Form 10-K reports the fiscal year ended December 31, 2018; it is not a quarterly filing. The portfolio focuses on medical office buildings, senior housing, skilled nursing facilities and senior housing operated under a RIDEA structure.
At year-end, the company reported 66 properties comprising 69 buildings and approximately 3.835 million square feet, acquired for an aggregate contract price of $821.7 million. The portfolio was 96.4% leased, excluding RIDEA facilities; average RIDEA occupancy was 77.7%. The company reported four operating segments.
Financial results and key metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $84.456 million | $33.333 million |
| Net income (loss) | $(8.586) million | $0.508 million |
| Net income (loss) per share, basic and diluted | $(0.15) | $0.02 |
| Net cash from operating activities | $15.423 million | $12.404 million |
| FFO attributable to controlling interest | $24.923 million | $14.134 million |
| MFFO attributable to controlling interest | $24.623 million | $12.941 million |
| Net operating income (NOI) | $42.934 million | $21.838 million |
Revenue increased 153% year over year, primarily reflecting acquisitions and a full year of operations at properties added in prior periods. RIDEA resident fees and services contributed $36.857 million of 2018 revenue, compared with $5.563 million in 2017. Net loss reflected, among other items, $32.658 million of depreciation and amortization, $6.788 million of interest expense and $30.023 million of RIDEA property operating expenses. NOI was approximately 50.8% of revenue in 2018, versus 65.5% in 2017; the change reflects the larger contribution from directly operated RIDEA facilities, whose operating costs are reported with revenue.
Cash and cash equivalents were $14.388 million, with a further $0.202 million of restricted cash. Total assets were $896.372 million and stockholders’ equity was $557.672 million. Debt included $275.0 million outstanding under the credit facility and $17.256 million of mortgage principal ($16.892 million net on the balance sheet). The weighted-average effective rate on outstanding debt was 4.27%; reported leverage was 31.7% of the combined market value of real estate and joint-venture interests. The new $400 million unsecured credit facility had $125 million available at year-end. The company reported compliance with its debt covenants.
Investing activities used $411.554 million of cash, including $355.070 million for property acquisitions and $48.0 million for a 6% interest in the Trilogy joint venture. Financing activities provided $403.618 million, including equity proceeds and net borrowings. Cash from operations covered 48.8% of the $31.601 million of distributions paid or reinvested; offering proceeds funded the remaining 51.2%. On an FFO basis, 78.9% was covered by FFO and 21.1% by offering proceeds. For tax purposes, 62.3% of reported 2018 distributions was classified as return of capital.
Material changes versus the prior comparable year
- Revenue rose from $33.333 million to $84.456 million as the portfolio expanded from 40 buildings at year-end 2017 to 69 at year-end 2018. Real estate revenue grew to $47.599 million; RIDEA revenue grew to $36.857 million.
- The company moved from $0.508 million of net income in 2017 to an $8.586 million net loss in 2018, while FFO increased to $24.923 million from $14.134 million. These non-GAAP measures are supplemental and are not substitutes for GAAP results or operating cash flow.
- Total assets increased to $896.372 million from $480.153 million. Credit-facility borrowings rose to $275.0 million from $84.1 million, alongside substantial acquisition activity.
- Distributions paid or reinvested increased to $31.601 million from $15.087 million. The portion funded from offering proceeds increased to 51.2% from 17.8% based on operating cash flows, while FFO covered 78.9% versus 93.7% in 2017.
Outlook, commentary, risks and unusual items
Management said available cash, operating cash flow and borrowing capacity were expected to satisfy cash requirements for the foreseeable future, with no anticipated need for other funding sources in the next 12 months. It estimated 2019 interest payments of approximately $12.627 million, principal payments of $0.518 million and capital and tenant improvements of up to $8.855 million. These are estimates, not earnings guidance. The company expects financing cash flows to decrease after its primary offering ended on February 15, 2019, while borrowings may increase as it makes further investments.
The board’s $9.65 estimated per-share NAV was based on December 31, 2017 values and approved in April 2018. The filing cautions that it is not audited, may not represent fair value or liquidation proceeds, and is not a guaranteed resale price. No established public trading market exists. Repurchases are limited, discretionary and funded exclusively from DRIP proceeds.
Material risks include dependence on tenants and operators, healthcare reimbursement and regulatory changes, interest-rate and refinancing exposure, acquisition execution, illiquidity, and conflicts arising from the external-advisor structure. RC Tier Properties accounted for 12.5% of annualized base rent/NOI at year-end; Missouri, Michigan and Florida accounted for 14.0%, 10.6% and 10.3%, respectively. Distributions are not assured and may be funded from offering proceeds or borrowings. In February 2019, the company entered swaps fixing $250 million of floating-rate term-loan exposure through November 2021. The 2018 financial statements received an unqualified audit opinion; management reported effective disclosure controls and internal control over financial reporting, while the auditor stated it was not engaged to opine on internal-control effectiveness.
There were no material litigation proceedings reported. The company adopted the new lease accounting standard on January 1, 2019; it estimated an initial operating-lease liability of approximately $5.335 million and a right-of-use asset of $9.257 million.
Most important facts for investors to verify
- Confirm the issuer identity: the filing is for Griffin-American Healthcare REIT IV, Inc., not a company named American Healthcare REIT, Inc.
- Review the full financial statements and debt notes, especially facility terms, variable-rate exposure, maturities, covenants and the impact of the February 2019 interest-rate swaps.
- Assess the sustainability of the $0.60 annualized per-share distribution against operating cash flow, FFO, cash needs and the proportion funded from offering proceeds; note the tax return-of-capital classification.
- Examine tenant and geographic concentration, including RC Tier Properties, and operating and reimbursement trends at RIDEA and skilled nursing properties.
- Verify the basis and date of the $9.65 estimated NAV and understand that shares have no public market and repurchase liquidity is limited.
- Review post-year-end developments, including termination of the primary offering, continuation of the DRIP, the delayed-draw loan and subsequent property acquisition.