Business context and reporting period
Griffin-American Healthcare REIT IV, Inc. (the registrant named in this filing; not “American Healthcare REIT, Inc.”) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. It owns and operates healthcare real estate across medical office, senior housing, RIDEA senior housing and skilled nursing. At quarter-end, it held 73 properties comprising 78 buildings, plus a 6% joint-venture interest. Its initial public offering ended February 15, 2019; shares were not listed on an exchange.
Financial highlights
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $30.4 million, up 59.8% year over year | $56.2 million, up 52.5% |
| Net loss | $5.9 million, versus $1.0 million | $18.3 million, versus $3.2 million |
| Net loss per share | $0.07, versus $0.02 | $0.24, versus $0.06 |
| Net cash from operations | Not separately presented for the quarter | $17.1 million, versus $9.7 million |
- For the quarter, property-level segment net operating income (NOI) was $15.2 million, approximately 50.0% of revenue, versus $9.7 million, or 51.0%, a year earlier. Six-month NOI was $28.6 million, approximately 50.9% of revenue, versus $18.0 million, or 48.7%.
- Quarterly expenses included $3.0 million of derivative fair-value loss; six-month derivative losses were $5.0 million. Interest expense including derivative losses was $6.8 million for the quarter and $12.4 million for six months.
- At June 30, cash and cash equivalents were $18.2 million; total assets were $956.6 million and stockholders’ equity was $606.9 million. Real estate investments, net, were $788.4 million.
- Debt principal was $27.5 million of fixed-rate mortgages and $268.9 million under the credit facility, or approximately $296.4 million combined. The facility had $131.1 million of remaining availability. Weighted-average debt interest rates were 4.19% for mortgages and 4.15% for facility borrowings; the reported blended rate, including swaps, was 4.22%. The company reported compliance with debt covenants.
- Six-month investing cash outflow was $68.0 million, mainly property acquisitions; financing cash inflow was $54.9 million. Cash, cash equivalents and restricted cash ended the period at $18.5 million.
Changes versus the prior comparable period
- Revenue growth primarily reflected acquisitions: the company owned 78 buildings at June 30, 2019, compared with 45 a year earlier. Real estate revenue rose to $18.9 million for the quarter from $10.6 million; RIDEA resident fees and services rose to $11.5 million from $8.4 million.
- Operating results weakened despite revenue growth: quarterly net loss widened to $5.9 million from $1.0 million. For six months, depreciation and amortization rose to $26.0 million from $15.0 million, interest expense including derivative losses rose to $12.4 million from $2.2 million, and acquisition-related expense rose to $1.4 million from $0.2 million.
- Six-month FFO attributable to controlling interest fell to $9.4 million from $11.8 million, while MFFO rose to $15.3 million from $10.5 million. These are non-GAAP measures; MFFO excludes, among other items, acquisition costs and derivative fair-value changes.
- The company adopted lease accounting standard ASC 842 on January 1, 2019, recognizing operating lease right-of-use assets and liabilities; prior periods were not restated.
Outlook, commentary, and risks
- Management said cash on hand and available credit were expected to meet cash requirements for the foreseeable future, with no anticipated need to raise other funds within 12 months. It estimated remaining-2019 interest payments of $6.3 million, principal payments of $0.35 million and discretionary capital and tenant improvements of $7.9 million. These are estimates, not earnings guidance.
- Management expected general and administrative expense and investing cash outflows to rise with acquisitions. It expected financing cash flows to decrease after termination of the initial offering, while debt could increase with additional acquisitions.
- Distributions were authorized at an annualized $0.60 per share through September 30, 2019, subject to legally available funds and board determination. For the first half, total distributions were $22.5 million, including reinvested distributions; the filing attributed 42% to FFO and 58% to offering proceeds. It cautioned that distributions may include a return of capital and may be funded with offering proceeds or borrowings.
- Leased occupancy, excluding RIDEA, was 95.6%; 5.6% of leased area was scheduled to expire in the remainder of 2019. RIDEA occupancy was 82.0% in the quarter. One tenant accounted for 11.6% of portfolio annualized base rent or NOI, and Missouri and Michigan represented 12.8% and 10.9%, respectively.
- Key risks include tenant default or nonrenewal, geographic concentration, interest-rate exposure, senior-housing occupancy and care-delivery trends, healthcare regulation, acquisition and financing availability, and the possibility that distributions exceed operating cash generation. A 0.50% rate increase was estimated to add $96,000 to annualized interest expense. The $9.54 estimated NAV per share is not audited, is not a GAAP fair value, and may not reflect realizable sale proceeds.
- The filing reported no material litigation, no material environmental liability known to the company, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors except the distribution-funding and other risks described above. Subsequent to quarter-end, the company acquired two medical-office buildings for a combined $42.0 million, funded largely with credit-facility borrowings.
Important facts for investors to verify
- Whether operating cash flow and FFO can support distributions without continued reliance on offering proceeds, borrowing or return of capital.
- Debt-facility maturity and covenant headroom, interest-rate swap valuation, and refinancing needs ahead of the facility’s November 2021 maturity.
- Rent collection, lease renewals and tenant credit—particularly the exposure to the largest skilled-nursing tenant—and occupancy and operating trends at RIDEA facilities.
- Acquisition performance, capital requirements and the effect of continued asset-management and other related-party fees on returns.
- The assumptions and limitations behind the $9.54 estimated NAV per share and the implications of the non-listed share structure for liquidity.