Business context and reporting period
The filing is for the quarter ended September 30, 2016. Although the request metadata names American Healthcare REIT, Inc., the registrant identified in this filing is Griffin-American Healthcare REIT IV, Inc.; confirm that this is the intended issuer. The company is an early-stage, externally advised healthcare-property REIT focused primarily on medical office buildings. It began acquiring properties in June 2016 and intends to elect REIT tax treatment for 2016.
By September 30, the company owned five medical office buildings totaling approximately 211,000 square feet, acquired for a combined contract price of $59.67 million. The 2015 comparison period predates property operations, so year-over-year comparisons are limited.
Financial results and position
| Metric | Three months ended September 30, 2016 | Nine months ended September 30, 2016 |
|---|---|---|
| Real estate revenue | $312,000 | $338,000 |
| Net loss | $2.092 million | $2.855 million |
| Net loss per share, basic and diluted | $0.62 | $2.12 |
| Property NOI, as defined by the company | $214,000 | $217,000 |
| FFO attributable to controlling interest | $(2.028) million | $(2.791) million |
| MFFO attributable to controlling interest | $(204,000) | $(597,000) |
Acquisition-related expenses were $1.857 million in the quarter and $2.227 million year to date, a principal reason GAAP losses substantially exceeded property-level NOI. Company-defined NOI as a share of real estate revenue was approximately 69% for the quarter and 64% year to date; these are calculated ratios, not GAAP margins. The filing reports no operations in the 2015 comparison periods.
At September 30, total assets were $65.655 million, including $52.956 million of net real estate investments and $2.575 million of cash. Total liabilities were $22.699 million and stockholders’ equity was $42.954 million. Debt comprised a $12.0 million revolving-line borrowing and a mortgage with $3.949 million principal ($3.847 million net carrying amount). The mortgage bears fixed interest at 5.25% and matures in 2029; the line of credit had a 2.27% weighted-average borrowing rate and $88 million remained available under its $100 million commitment. The company reported compliance with debt covenants and leverage of 26.7% of the stated combined market value of its real estate investments.
For the first nine months, operating cash flow was $(2.391) million, investing cash flow $(56.637) million and financing cash flow $61.401 million; ending cash was $2.575 million. Financing included $52.484 million of common-stock proceeds and $12.0 million of credit-line borrowing. Distributions declared were $0.15 per share for the quarter and $0.25 per share year to date. The company paid or reinvested $370,000 of distributions year to date, funded entirely from offering proceeds, not operating cash flow.
Changes, outlook, and notable matters
- The company moved from a pre-operating stage to property operations, completing five acquisitions and opening a $100 million revolving credit facility during 2016. Subscription proceeds accepted by September 30 were approximately $53.443 million, excluding DRIP shares and Pennsylvania subscriptions still held in escrow.
- After quarter-end, it acquired a three-building medical-office portfolio in Alabama on October 13 for $31 million, using $30.4 million of line-of-credit borrowing. By November 4, accepted subscriptions totaled approximately $76.512 million, excluding the stated exclusions.
- Management said available resources should meet cash requirements for the foreseeable future and no other funding source was anticipated to be needed within 12 months. It also expects increased operating and investing activity as it raises capital and acquires properties; the filing provides no earnings or distribution guidance.
- Portfolio occupancy was 97.2%, with a 6.7-year weighted-average remaining lease term and no leased space scheduled to expire during the remainder of 2016. Tenant and geographic concentration are significant: two tenants represented 23.3% and 20.1% of annualized base rent, while Virginia, Alabama, Pennsylvania and Michigan together represented most of rent at quarter-end.
- Related-party economics merit attention: the company incurred $5.5 million of fees and expenses to affiliates year to date, including a $3.802 million accrued contingent advisor payment; total amounts payable to affiliates were $3.835 million. The board also determined that operating expenses exceeded the advisory-agreement expense limitation by $498,000 for the 12 months ended September 30, citing the early operating stage and public-company costs.
- Management warned that initial distributions may be funded from offering proceeds or borrowings and can constitute a return of capital, reducing funds available for investment. Other disclosed risks include dependence on further offering proceeds, local-market concentration, interest-rate exposure, and the potential effect of new DOL fiduciary rules on fundraising. No material litigation was reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer identity and whether this Griffin-American Healthcare REIT IV filing is the intended company.
- Track subsequent capital raised, acquisition funding, remaining revolver availability and covenant headroom, including the post-quarter Alabama acquisition.
- Assess whether distributions can be supported by property cash flows; all distributions reported for the first nine months were sourced from offering proceeds.
- Review tenant and state concentration, lease terms, and the potential impact of losing either of the two largest tenants.
- Examine acquisition costs, accrued affiliate obligations, fee arrangements and the board’s rationale for the expense-limit excess.
- Verify whether the company achieved its intended 2016 REIT election and how its portfolio, liquidity and operating results developed after this early-stage reporting period.