American Healthcare REIT, Inc. current report, 23 June 2021

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Business Context and Reporting Period

This Form 8-K, dated June 23, 2021, reports a material definitive agreement entered into by Griffin-American Healthcare REIT IV, Inc. ("GAHR IV") and Griffin-American Healthcare REIT III, Inc. ("GAHR III"). The filing details a proposed merger intended to combine the two entities into a single company named "American Healthcare REIT, Inc." Additionally, the filing announces an agreement for GAHR III to acquire the external advisors of both REITs, transitioning the combined entity to a self-managed structure.

Key Financial Metrics and Transaction Terms

The filing does not provide standard financial performance metrics such as revenue, profit, cash flow, or debt levels for the reporting period. Instead, it outlines specific financial terms of the proposed transaction:

  • Merger Exchange Ratio: Each outstanding share of GAHR III common stock will be converted into the right to receive 0.9266 of a share of GAHR IV Class I common stock.
  • Termination Fees:
    • If GAHR III terminates due to a Superior Proposal or Adverse Recommendation Change, it must pay GAHR IV $50,654,000 plus up to $4,000,000 in documented expenses.
    • If GAHR IV terminates due to a Superior Proposal or Adverse Recommendation Change, it must pay GAHR III $23,028,000 plus up to $4,000,000 in documented expenses.
  • Acquisition Fee Waiver: The GAHR IV Advisor agreed to waive any acquisition fee due in connection with the merger.
  • Distribution Limits: Pending closing, distributions by GAHR III exceeding an annualized rate of $0.20 per share and distributions by GAHR IV exceeding $0.40 per share require the consent of the other party.

Material Changes and Transaction Structure

The primary material change is the entry into an Agreement and Plan of Merger. The transaction structure involves two simultaneous mergers:

  1. REIT Merger: GAHR III will merge with and into a wholly-owned subsidiary of GAHR IV ("Merger Sub"), with Merger Sub as the surviving entity.
  2. Partnership Merger: The operating partnerships of both entities will merge, with the surviving partnership renamed "American Healthcare REIT Holdings, LP."

Following the merger, the combined company will be self-managed. This is achieved through the "AHI Acquisition," where GAHR III will acquire the equity interests in the external advisors for both GAHR III and GAHR IV (subsidiaries of American Healthcare Investors, LLC). The AHI Acquisition is expected to close immediately prior to the Merger.

Guidance, Outlook, and Risks

Outlook and Timeline:

  • Stockholder meetings for both GAHR III and GAHR IV are expected to be held in the third or fourth quarter of 2021.
  • The merger is anticipated to occur shortly after stockholder approval and the consummation of the AHI Acquisition, though the Merger is not contingent on the AHI Acquisition closing.
  • The Merger Agreement includes a "drop-dead" date of March 23, 2022.
Management and Governance:
  • The post-merger board of directors is expected to have nine members, comprising current directors from both GAHR IV and GAHR III.
Risks and Contingencies:
  • Termination Risks: The agreement may be terminated if stockholder approval is not obtained, if a Superior Proposal is accepted, if charter amendments are not approved, or if a material adverse effect occurs.
  • Regulatory and Tax: The REIT Merger is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code.
  • Forward-Looking Statements: Management notes risks related to disruption of operations, interest rate changes, financing availability, and legislative changes.

Key Facts for Investor Verification

  • Verify the final approval status of the Merger and the required charter amendments at the upcoming stockholder meetings.
  • Confirm the successful closing of the AHI Acquisition to ensure the transition to a self-managed structure occurs as planned.
  • Review the Joint Proxy Statement/Prospectus (Form S-4) for detailed financial data and risk factors not included in this 8-K.
  • Monitor for any "Superior Proposals" that could trigger termination fees or alter the transaction terms.
  • Check for any material adverse effects on either GAHR III or GAHR IV that could prevent the closing conditions from being satisfied.