American Healthcare REIT, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company owns and operates healthcare real estate, including medical office buildings, senior housing, skilled nursing facilities, hospitals and RIDEA-operated campuses. At quarter-end it owned or operated 313 buildings/campuses totaling approximately 19.5 million square feet. The October 2021 merger and acquisition expanded the portfolio; the company cautions that comparisons with 2021, which reflects GAHR III before the merger, may not be meaningful.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue and grant income | $388.3 million | $308.1 million | $764.4 million | $599.4 million |
| Net loss | $15.5 million | $8.0 million | $16.4 million | $24.2 million |
| Net loss attributable to controlling interest | $17.3 million | $7.7 million | $20.3 million | $19.5 million |
| Segment NOI | $77.6 million | $49.5 million | $151.3 million | $87.6 million |
| Operating cash flow | — | $56.1 million | $3.6 million |
Q2 revenue rose about 26% year over year, primarily reflecting the larger post-merger portfolio and improved occupancy in integrated senior health campuses, alongside higher SHOP occupancy and Medicaid reimbursement rates. Six-month revenue rose about 28%. Segment NOI increased, but comparisons are affected by the merger and portfolio growth. Net loss includes a $17.3 million impairment charge on four SHOP properties, versus $3.3 million on one medical office building in the prior-year periods. Grant income was $11.0 million in Q2 and $16.2 million for the six months, compared with $1.1 million and $9.3 million, respectively.
For the six months, FFO attributable to controlling interest was $65.3 million and MFFO was $73.9 million, compared with $28.2 million and $29.2 million in 2021. Excluding government grants, management reported FFO of approximately $52.9 million and MFFO of $61.5 million. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Balance sheet, debt and liquidity
- At June 30, total assets were $4.52 billion, total liabilities $2.76 billion, and cash and cash equivalents $59.1 million; restricted cash was $45.1 million.
- Mortgage debt was $1.153 billion gross ($1.134 billion net on the balance sheet). Credit facilities and term loans totaled approximately $1.268 billion outstanding. Combined gross borrowings were approximately $2.42 billion; weighted-average effective interest rate was 3.43%.
- Available capacity under the company’s credit facilities was $142.4 million. Management said available resources were sufficient for cash requirements for the foreseeable future. The company was in compliance with applicable debt covenants at quarter-end.
- Six-month investing cash outflow was $97.4 million, mainly acquisitions and capital expenditures; financing cash inflow was $19.9 million. Cash, cash equivalents and restricted cash ended the period at $104.2 million, down from $125.5 million at year-end 2021.
- A 0.50 percentage-point increase in market rates was estimated to increase annualized interest expense by $8.1 million. No derivatives were outstanding at quarter-end.
Material changes, outlook and risks
- The company became self-managed after the October 2021 merger and AHI acquisition. Savings from eliminated advisory fees were offset in part by payroll, compensation and other corporate costs.
- Management reported that COVID-19, labor shortages and supply-chain disruption continued to affect operations. Integrated campuses and leased senior housing/skilled nursing occupancy had improved to near pre-pandemic levels, while SHOP recovery was slower. Higher wages, agency fees and temporary labor costs pressured operations.
- SHOP occupancy was 73.7% at quarter-end; integrated-campus resident-unit occupancy was 81.7%. Leased properties outside SHOP and integrated campuses were 93.1% leased. Indiana accounted for 32.8% of portfolio annualized base rent or NOI, creating geographic concentration risk.
- Inflation had not significantly affected results to date, but management noted continued cost pressures and cautioned that lease increases and expense pass-throughs may not fully offset inflation.
- The board declared distributions of $0.10 per share for Q2 and $0.20 per share for the six months. Beginning in Q3 2022, any distributions would be authorized quarterly at the board’s discretion. The filing reported six-month distributions as funded 100% by operating cash flows and 100% by FFO; these measures have different definitions and should not be treated as interchangeable.
- No quantified earnings or operating guidance was provided. The company identified interest-rate and LIBOR-to-SOFR transition risks, COVID-19 uncertainty, labor and inflation pressures, tenant/operator credit and occupancy risks, and potential refinancing or covenant risks. It reported no material litigation and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Assess year-over-year results on a comparable basis given the merger, acquired portfolio and changed operating structure.
- Review operating trends excluding government grants and distinguish recurring property performance from impairment and other unusual items.
- Track SHOP occupancy, labor costs, credit-loss allowances and the effect of the four-property impairment.
- Monitor variable-rate exposure, debt maturities, available borrowing capacity and covenant compliance as rates and refinancing conditions change.
- Evaluate distribution sustainability against recurring cash generation, debt needs and the board’s quarterly discretion; consider the Indiana concentration and non-listed share liquidity.