Business context and reporting period
This unaudited Form 10-Q is for the three months ended March 31, 2017. The filing is by Griffin-American Healthcare REIT IV, Inc. (the registrant named in the filing); this differs from the company name in the request metadata. The externally advised REIT invests primarily in healthcare properties. It reported medical office buildings and senior housing as its two segments and was still in its early acquisition and public-offering stages.
At quarter-end, it owned 14 buildings (12 medical office and 2 senior housing), with an aggregate contract purchase price of $212.4 million. The portfolio was 93.4% leased, with a 7.0-year weighted-average remaining lease term. During the quarter it acquired two medical office buildings for $73.6 million. The company states it intends to qualify as a REIT.
Financial performance and position
| Metric | Three months ended March 31, 2017 | Comparable 2016 period |
|---|---|---|
| Real estate revenue | $4.052 million | $0 |
| Rental expenses | $1.187 million | $0 |
| Segment net operating income | $2.865 million | $0 |
| General and administrative expenses | $748,000 | $150,000 |
| Depreciation and amortization | $1.711 million | $0 |
| Interest expense | $418,000 | $0 |
| Net loss | $85,000 | $150,000 |
| Net loss per share | $0.01 | $7.20 |
| Operating cash flow | $1.390 million | $0 |
The company reported FFO of $1.626 million and MFFO of $1.392 million, both non-GAAP measures; per-share amounts were $0.11 and $0.09, respectively. These measures are not substitutes for GAAP earnings or cash flow.
At March 31, total assets were $218.0 million, cash and cash equivalents $2.1 million, total liabilities $58.9 million, and stockholders’ equity $159.1 million. Debt comprised $35.6 million outstanding on a $100 million revolving credit facility and a $3.845 million mortgage principal balance ($3.901 million net carrying amount). The credit facility had $64.4 million available; its weighted-average rate was 4.55%. The mortgage is fixed-rate at 5.25%, maturing August 2029. The company reported covenant compliance and aggregate borrowings equal to 18.6% of the stated combined market value of its real estate investments.
Cash decreased $178,000 during the quarter: $1.390 million provided by operations, $75.553 million used in investing, and $73.985 million provided by financing. Common-stock issuance provided $76.125 million of financing cash flow. Distributions declared were $2.171 million; cash distributions paid were $755,000 and $1.063 million was reinvested through the DRIP.
Changes versus the prior comparable period
Results are not directly comparable: the company owned no properties at March 31, 2016, and had no real estate revenue, rental expenses, depreciation, or interest expense in that quarter. In 2017 it began generating property revenue while expanding its portfolio and funding acquisitions through equity and borrowing. General and administrative expense increased from $150,000 to $748,000, primarily due to property-related asset-management fees, franchise taxes, and transfer-agent costs.
Assets increased from $142.8 million at December 31, 2016 to $218.0 million at March 31, 2017, largely reflecting property acquisitions and intangible assets. Shares issued and outstanding also increased substantially during the quarter as the offering raised capital.
Outlook, commentary, and risks
- No specific earnings or revenue guidance is provided. Management expects operating cash flows to grow as the portfolio expands and anticipates higher general and administrative costs as it acquires additional properties. It states that current resources are expected to meet cash requirements for the foreseeable future, while emphasizing dependence on offering proceeds and financing.
- Management estimated up to $304,000 of capital-improvement spending for the remaining nine months of 2017. It expects leverage, after the initial operating phase, generally not to exceed 50% of the combined market value of investments; quarter-end borrowings were reported at 18.6% of that measure.
- Distributions exceeded operating cash flow: the filing attributes 76.5% of distributions paid and reinvested to operating cash flow and 23.5% to offering proceeds. On an FFO basis, it attributes 89.4% to FFO and 10.6% to offering proceeds. The company warns that distributions may include a return of capital and may be funded from offering proceeds or, in the future, borrowings.
- Concentration is material: Nevada, Alabama, and Virginia represented approximately 28.8%, 24.4%, and 11.3% of annualized base rent, respectively. Prime Healthcare Services–Reno represented 23.5% of annualized base rent at quarter-end. Loss or financial deterioration of a major tenant could harm revenue and distributions.
- Other risks include healthcare reimbursement and regulatory changes affecting tenants, interest-rate exposure on the variable-rate credit facility, ability to raise offering capital, leasing and occupancy risks, and the early-stage portfolio’s geographic and tenant concentration. A 0.50% rise in market rates was estimated to increase annualized line-of-credit interest expense by $180,000.
- The company reported no material litigation, no off-balance-sheet arrangements, and no material change in disclosure controls; management concluded disclosure controls were effective. It early adopted ASU 2017-01 and treated the two 2017 property acquisitions as asset acquisitions.
Most important facts for investors to verify
- Confirm the registrant identity: the filing is for Griffin-American Healthcare REIT IV, Inc., not the company name stated in the request metadata.
- Track the offering’s net proceeds, future capital raises, and acquisition pace against the company’s substantial planned offering capacity and current portfolio concentration.
- Assess whether recurring property cash flow can sustain distributions without offering proceeds or borrowing; reconcile declared distributions with cash paid, DRIP reinvestments, and the differing cash-flow and FFO source disclosures.
- Monitor Prime Healthcare Services–Reno and geographic concentrations, lease renewals, occupancy, and tenant exposure to healthcare reimbursement changes.
- Review variable-rate debt costs, credit-facility covenants and maturity, and the accrued $7.620 million payable to affiliates, including contingent advisor and servicing fees.
- Interpret FFO, MFFO, and segment NOI as supplemental non-GAAP measures, alongside GAAP net loss and operating cash flow.