Griffin-American Healthcare REIT IV, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter ended June 30, 2016. The filing is for Griffin-American Healthcare REIT IV, Inc.; this differs from the company name in the request metadata. The REIT was in its initial operating and public-offering stage, having commenced its offering in February 2016 and acquired its first property in June.
Key financial metrics
| Metric | Q2 / June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Revenue | $26,000 | $26,000 |
| Net loss | $(613,000) | $(763,000) |
| Net loss per share | $(0.96) | $(2.32) |
| Cash and total assets | $9.052 million cash; $15.340 million total assets at June 30 | |
| Total liabilities | $3.425 million at June 30, including $2.731 million due to affiliates | |
| Debt | No borrowings outstanding at June 30 | |
| Operating cash flow | $(709,000) for the six months | |
| Investing cash flow | $(5.554) million for the six months | |
| Financing cash flow | $15.113 million for the six months |
Quarterly rental expenses were $23,000, general and administrative expenses $246,000, and acquisition-related expenses $370,000. The filing reports no prior-year operating results for comparison: the company had no operations or revenue in the comparable 2015 periods. Accordingly, margin comparisons are not meaningful. The six-month cash-flow comparison is also against a period with no operating or investing cash flows.
Business, portfolio and material changes
- The company invests primarily in healthcare real estate and intends to qualify as a REIT beginning with tax year 2016.
- It acquired one medical office building in Auburn, California, on June 28 for a contract price of $5.45 million. The property was 100% leased, with approximately 19,000 square feet and a four-year weighted-average remaining lease term.
- The University of California was the property’s sole tenant and represented 100% of portfolio annualized base rent; the lease expires June 30, 2020. Thus, all rental income and property exposure were concentrated in one tenant and one state.
- As of June 30, accepted offering subscriptions were approximately $16.209 million, excluding specified escrowed subscriptions and DRIP shares. By August 5, accepted subscriptions had reached $27.783 million.
- Cash increased from $202,000 at December 31, 2015 to $9.052 million at June 30, 2016, principally from offering proceeds. There was no debt at period-end.
Outlook, risks and unusual items
- Management said offering proceeds, operating cash flow and borrowings are expected to fund acquisitions and operations, and believed resources would be sufficient for the foreseeable future. It provided no earnings or revenue guidance and cautioned that interim results are not indicative of full-year results.
- Distributions declared and paid or reinvested for the six months totaled $31,000; 100% was funded from offering proceeds, not operating cash flow or FFO. The company warned that distributions may include a return of capital and may reduce funds available for investment. A daily distribution of $0.001643836 per share was authorized for Class T holders for the July–September 2016 period, payable only from legally available funds.
- Operating expenses exceeded the advisory-agreement limitation by $336,000 for the 12 months ended June 30. The board determined the excess was justified given the company’s early stage and public-company costs. The advisor had accrued $2.717 million in contingent advisor payments and other amounts were also payable to affiliates.
- Management cited reliance on offering proceeds, the risk of an insufficiently diversified portfolio if fundraising is limited, tenant occupancy and lease-renewal risk, real estate market and interest-rate exposure, and increasing public-company compliance costs. The company had no material litigation disclosed and no known material environmental liability at its property.
- The advisor’s asset-management fee waiver was limited to amounts tied to early distributions through the first property acquisition. The company noted that the advisor and affiliates have no general obligation to defer or forgive fees or advance funds.
- Disclosure controls and procedures were concluded effective as of June 30, 2016; no material change in internal control over financial reporting was reported.
Most important facts to verify
- Whether subsequent acquisitions and fundraising reduce the single-property, single-tenant and California concentration.
- How future distributions are funded, particularly given that operating cash flow and FFO did not cover the reported distributions.
- The payment timing and cash impact of the $2.731 million affiliate payable and contingent advisor payment arrangements.
- Whether the company achieves and maintains REIT qualification for 2016 and meets the associated distribution requirements.
- Whether property-level rent and cash generation grow sufficiently to cover corporate expenses, acquisition costs and future capital needs.