Griffin-American Healthcare REIT IV, Inc. — 2016 Form 10-K
Entity note: The supplied filing is for Griffin-American Healthcare REIT IV, Inc., not an issuer identified as American Healthcare REIT, Inc. The reporting period is the fiscal year ended December 31, 2016; the company began operations during 2016, so comparisons with 2015, when it had no operations or property revenue, are not meaningful.
Business context and portfolio
The company is an externally advised, non-traded REIT investing primarily in healthcare real estate. It began its public offering in February 2016 and acquired its first property in June. At year-end, it owned nine acquired portfolios comprising 12 buildings: 10 medical office buildings and two senior housing facilities. Aggregate contract purchase price was $138.8 million, portfolio occupancy was 91.3%, and the remaining weighted-average lease term was 7.8 years. Management reported a 6.9% portfolio capitalization rate based on projected first-year property NOI, not historical results.
Medical office buildings generated 96% of 2016 revenue and senior housing 4%. Portfolio exposure was concentrated: Alabama represented 36.0% of annualized base rent, Virginia 16.8%, North Carolina 13.1%, and Louisiana 10.2%. Three tenants each contributed at least 10% of annualized base rent.
Financial results and liquidity
| Metric | 2016 |
|---|---|
| Revenue | $3.156 million |
| Net loss | $5.474 million |
| Property NOI | $2.258 million; approximately 71.5% of revenue |
| Operating cash flow | $(3.621) million |
| Investing cash flow | $(133.322) million, primarily property acquisitions |
| Financing cash flow | $138.978 million |
| Cash and cash equivalents | $2.237 million at year-end |
| Total assets / stockholders’ equity | $142.758 million / $92.255 million |
Expenses included $4.745 million of acquisition-related costs, $1.252 million of depreciation and amortization, and $514,000 of interest expense. FFO attributable to controlling interest was a loss of $4.222 million; MFFO was $287,000 after excluding specified acquisition and other adjustments. These non-GAAP measures are not substitutes for GAAP results or operating cash flow.
Year-end debt included $3.908 million principal on a fixed-rate mortgage (5.25%, due 2029) and $33.9 million outstanding under a $100 million revolving credit facility (4.30% weighted-average rate; maturity August 2019, with a conditional one-year extension). The company reported $66.1 million of unused facility capacity, compliance with debt covenants, and aggregate borrowings equal to 27.2% of the stated combined market value of real estate and real estate-related investments. A 0.50 percentage-point increase in the line’s rate was estimated to increase annualized interest expense by $172,000.
Year-end liabilities were $50.501 million. The company also disclosed $5.531 million payable to affiliates, primarily contingent advisor payments. Estimated capital and tenant improvements of up to $1.329 million were expected within the next 12 months; no capital-expenditure reserves were held at year-end.
Material changes and distributions
There were no property assets or operating revenue in 2015. During 2016, the company raised approximately $112.079 million in primary-offering subscriptions, acquired its initial portfolio, and established a $100 million revolving credit facility. It reported $108.724 million of net offering proceeds after specified costs and advisor funding. By February 24, 2017, accepted subscriptions had reached approximately $149.093 million, excluding DRIP shares and Pennsylvania subscriptions not yet admitted at that date; Pennsylvania’s minimum was met February 27, 2017.
The board declared 2016 distributions of $1.877 million, or $0.40 per share. Cash paid during 2016 was $549,000 and $796,000 was reinvested through the DRIP, for $1.345 million distributed through those channels. The filing states that 100% of distributions paid were funded from offering proceeds, not operating cash flow or FFO; tax reporting classified the $1.345 million as return of capital. Distributions therefore should not be viewed as earnings-supported recurring income.
The company had no established public trading market. Its year-end estimated share values were $10.00 for Class T and $9.30 for Class I, based on offering prices rather than an independent valuation; the filing cautions these figures may not reflect realizable value. Effective March 1, 2017, the Class I offering price changed to $9.21, alongside a reduction in the dealer manager fee funded by the advisor.
Outlook, risks, and unusual items
Management expected liquidity from offering proceeds, operating cash flows, and borrowings to meet foreseeable needs and did not anticipate needing other funding within 12 months. It expected results and operating cash flows to increase as the portfolio expanded and operated for a full year, but provided no quantified earnings, revenue, or distribution guidance. Management targeted a liquidity event within five years after completion of the offering stage, but is not obligated to deliver one. It generally anticipates leverage not exceeding 50% of investment market value after the initial operating phase.
- Distribution sustainability: Operating cash flow was negative, and 2016 distributions were funded entirely from offering proceeds. Future payments depend on board decisions, cash availability, and REIT requirements; the company may use borrowings, new securities, or asset sales.
- Liquidity and valuation: Shares are illiquid, repurchases are restricted and discretionary, and no public listing is assured. The stated share values are offering-price proxies, not appraised NAV.
- Concentration and tenant exposure: Revenue and rent are concentrated in medical office properties, a small group of tenants, and several states. Tenant defaults, non-renewals, or healthcare-sector pressures could impair rent collection.
- Leverage and rates: The revolving facility is variable-rate and matures in 2019; refinancing, covenant, and interest-rate risks could reduce cash available for investment or distributions.
- Offering execution and conflicts: The offering is best-efforts and proceeds raised may be insufficient for broad diversification. The company is externally advised and pays affiliated fees, including acquisition fees and potential incentive distributions; affiliate conflicts and fee arrangements warrant scrutiny.
- Regulatory and tax risks: REIT qualification requires ongoing compliance, including distribution of at least 90% of annual taxable income excluding net capital gains. Healthcare regulation, reimbursement changes, environmental obligations, and future accounting requirements also pose risks.
- Contingencies and controls: The company reported no material litigation or known material environmental liability, no off-balance-sheet arrangements, and no material changes in internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements; it did not audit internal-control effectiveness.
Most important facts for investors to verify
- Reconcile declared distributions ($1.877 million) with cash paid and DRIP reinvestments ($1.345 million), and confirm the source and timing of any remaining declared amounts.
- Review the credit agreement’s covenants, variable-rate exposure, maturity, and any subsequent changes in borrowings or availability.
- Assess actual property-level performance against the 6.9% projected capitalization rate, including occupancy, lease expirations, tenant credit, and geographic concentration.
- Confirm the status and economics of offering proceeds, acquisition-related costs, contingent advisor payments, and other affiliate fees.
- Do not treat the offering-price-based share estimates as independently appraised NAV or evidence of a liquid exit; verify any later valuation and liquidity-event progress.