American Healthcare REIT, Inc. — 2020 Q3 Form 10-Q Summary
Reporting entity: The filing is for Griffin-American Healthcare REIT IV, Inc., not an entity named American Healthcare REIT, Inc. It reports the unaudited quarter and nine months ended September 30, 2020, with comparisons to 2019. The REIT owns and operates medical office, senior housing, RIDEA senior housing, and skilled nursing properties.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue and grant income | $41.3 million | $31.1 million | $117.6 million | $87.3 million |
| Net loss | $5.2 million | $1.9 million | $14.2 million | $20.2 million |
| Net loss per share | $0.06 | $0.02 | $0.17 | $0.26 |
| Net operating income (NOI, non-GAAP) | $18.0 million | $16.3 million | $55.0 million | $44.9 million |
| Cash provided by operating activities | — | $29.9 million | $30.4 million |
- Revenue increased 33% in Q3 and 35% for the nine-month period, primarily reflecting acquisitions and conversion of facilities to the RIDEA operating model. Q3 property operating expenses rose to $17.4 million from $9.9 million; management cited higher staffing, COVID-19 testing and personal protective equipment costs, as well as the larger RIDEA portfolio.
- NOI grew, but as a share of revenue it declined to approximately 44% in Q3 from 52% a year earlier, reflecting higher operating costs at RIDEA facilities. These are non-GAAP measures; the filing cautions that NOI, FFO and MFFO are not substitutes for GAAP results or operating cash flow.
- At September 30, cash and cash equivalents were $22.7 million, with another $0.7 million of restricted cash. Total assets were $1.11 billion and total equity was $559.2 million.
- Gross debt was approximately $498.4 million: $479.5 million under the credit facility and $18.9 million of mortgage principal. The credit facility had $50.5 million of availability, a 2.12% weighted-average borrowing rate, and a November 19, 2021 maturity, with a conditional 12-month extension option. The company reported compliance with debt covenants.
- Net cash increased by $7.6 million during the first nine months. Operating cash flow was nearly matched by distributions paid in cash and distributions reinvested: $29.9 million versus $29.6 million. Investing used $74.8 million, mainly for acquisitions and capital expenditures, while financing provided $52.4 million, principally from net credit-facility borrowings.
Material changes and unusual items
- Q3 revenue growth did not translate into improved GAAP earnings: the quarterly net loss widened to $5.2 million, including a $3.1 million impairment charge on two senior housing facilities reclassified as held for sale. Their remaining carrying value was $7.0 million.
- The nine-month net loss narrowed from $20.2 million to $14.2 million. The prior-year period included a larger derivative fair-value loss and acquisition-related expenses; results in both periods also included substantial depreciation and amortization.
- The company recognized $864,000 of CARES Act-related government grant income in 2020. Management said that, excluding grants, nine-month FFO would have been approximately $26.6 million and MFFO approximately $26.0 million.
- Portfolio occupancy excluding RIDEA was 95.4% at quarter-end. RIDEA occupancy was 71.6% in Q3, down from 84.2% in Q3 2019. Management reported a 14.4% RIDEA occupancy decline since February 2020 and care costs up as much as 30%, with costs beginning to moderate in Q3.
Outlook, risks and capital allocation
- Management provided no formal earnings or financial guidance. It said the duration and financial impact of COVID-19 remain uncertain, expects pandemic-related trends to continue, and is focusing on restoring resident occupancy and managing operating costs. Management stated that current cash and borrowing availability should meet cash requirements for the foreseeable future.
- Leased non-RIDEA senior housing and skilled nursing tenants had paid 100% of contractual rent through September; substantially all medical office rent through September had also been collected. Management cautioned that this does not assure future collections. Some medical office tenants received immaterial concessions, but no contractual rent was forgiven.
- To preserve liquidity, the board reduced the annualized distribution rate from $0.60 to $0.40 per share effective April 2020, initially through November 2020, and suspended most share repurchases from Q2. Repurchases for stockholder death or qualifying disability remained subject to plan terms and board discretion. Distributions are board-controlled and may include return of capital; the filing notes that 2020 distributions were funded from operating cash flow and, in part, borrowings when measured against FFO.
- The company’s $9.54 estimated NAV per share was calculated using December 31, 2019 valuations, before COVID-19 emerged in the United States. The filing warns that this estimate may not reflect current asset values or realizable sale proceeds.
- Risks include continued occupancy and cost pressures, tenant/operator financial stress, refinancing the large credit-facility balance at its 2021 maturity, LIBOR transition exposure, and tenant and geographic concentration. One tenant represented 10.4% of annualized base rent at September 30; Missouri represented about 11.4% of portfolio annualized base rent or NOI.
Important facts for investors to verify
- Confirm the registrant’s identity: this 10-Q is filed by Griffin-American Healthcare REIT IV, Inc.
- Track RIDEA occupancy, labor and pandemic-related costs, grant support, and whether operating performance improves without temporary relief.
- Assess the credit facility’s November 2021 maturity, extension conditions, remaining availability, interest-rate exposure and refinancing plan.
- Evaluate distribution coverage, the reduced distribution rate and the continuing suspension of most repurchases.
- Review the impairment and planned sale of the two senior housing facilities, and reassess the $9.54 NAV in light of its pre-pandemic valuation date.
- Monitor collections and credit quality for the largest tenant and exposure to Missouri.