Business context and reporting period
This is Griffin-American Healthcare REIT IV, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020. The filing identifies the registrant as a healthcare-focused REIT investing in medical office buildings, senior housing, skilled nursing facilities and RIDEA-operated senior housing. At quarter-end, it owned 89 properties comprising 94 buildings and approximately 4.9 million square feet, plus a 6% interest in a joint venture.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Total revenue | $37.5 million | $25.8 million |
| Net loss | $7.9 million | $12.4 million |
| Net loss attributable to controlling interest | $7.8 million; $0.10 per share | $12.3 million; $0.16 per share |
| Segment NOI | $18.7 million; approximately 49.8% of revenue | $13.4 million; approximately 51.8% of revenue |
| Operating cash flow | $9.8 million | $6.2 million |
| Cash and restricted cash | $20.9 million | $45.3 million at March 31, 2019 |
| Debt | $492.3 million principal: $473.1 million credit facility and $19.2 million mortgages | Credit facility borrowings were $396.8 million at December 31, 2019 |
Revenue increased approximately 45%, reflecting portfolio growth and operating structure changes. Segment NOI increased approximately 40%. The net loss narrowed, but results included a $4.6 million non-cash fair-value loss on interest-rate derivatives, versus $2.0 million a year earlier. The prior period also included substantial depreciation and amortization related to a 2019 operator-contract termination. FFO attributable to controlling interest was $5.4 million ($0.07 per share), and MFFO was $9.1 million ($0.11 per share); both are non-GAAP measures.
Material changes and liquidity
- Q1 property acquisitions totaled approximately $64.7 million of contract purchase price, primarily three senior housing RIDEA transactions. Investing cash outflow was $68.3 million, including $65.5 million of acquisitions.
- Borrowings under the credit facility rose to $473.1 million from $396.8 million at year-end; $56.9 million remained available at March 31. In April, the company drew all remaining availability as a precautionary liquidity measure.
- Quarter-end total assets were $1.129 billion and total liabilities were $548.3 million. The company reported compliance with debt covenants. The credit facility matures November 2021, with a conditional one-year extension option.
- Cash distributions declared for Q1 totaled $12.0 million, exceeding operating cash flow of $9.8 million. The filing reports that 18.4% of distributions were sourced from borrowing proceeds; on an FFO basis, 54.9% were funded from borrowings. Distributions may include a return of capital.
Outlook, risks and unusual items
- COVID-19 had not required material financial-statement adjustments through March 31, but management warned that a prolonged outbreak could materially disrupt operations and financial performance. Senior housing RIDEA occupancy had declined amid reduced move-ins; operators faced higher protective-equipment and staffing costs. Medical office tenants, especially providers of elective or non-essential services, could face rent-payment pressure.
- To preserve liquidity, the board reduced the annualized distribution rate from $0.60 to $0.40 per share for April and May 2020, suspended most share repurchases effective for second-quarter requests, and the company suspended non-essential discretionary capital improvements. Future distribution levels and the pandemic’s effects remain uncertain; no specific earnings guidance was provided.
- The April 2020 estimated NAV remained $9.54 per share, based on a December 31, 2019 valuation predating the reported U.S. emergence of COVID-19. The company cautioned that this estimate is not audited, is not GAAP fair value, and may not reflect realizable share or asset value.
- Interest-rate swaps had an $8.99 million liability at quarter-end. Debt was primarily variable-rate; management estimated a 0.50 percentage-point rate increase would add approximately $1.13 million to annualized interest expense.
- Tenant concentration is material: RC Tier Properties represented approximately 10.4% of portfolio annualized base rent or NOI; Missouri represented approximately 11.5%. Management reported no material litigation and no material change in disclosure controls.
Investor verification points
- Confirm the post-quarter credit-facility draw, resulting debt balance, covenant headroom and refinancing plan.
- Track COVID-related occupancy, rent collections, operating costs and financial support received by RIDEA operators and tenants.
- Assess whether distributions remain supported by recurring operating cash flow and FFO, rather than borrowings or capital returned to investors.
- Review the basis and limitations of the $9.54 estimated NAV, which predates COVID-19’s impact.
- Monitor RC Tier Properties and Missouri exposure, as well as interest-rate and derivative valuation risks.