American Healthcare REIT, Inc. quarterly report, Q1 FY2018

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Business context and reporting period

The supplied filing is for Griffin-American Healthcare REIT IV, Inc., not American Healthcare REIT, Inc. This unaudited Form 10-Q covers the three months ended March 31, 2018, with comparisons to the first quarter of 2017. The company invests in healthcare real estate and operates through medical office, senior housing, senior housing–RIDEA and skilled nursing segments. At quarter-end it owned 40 properties comprising 42 buildings.

Financial performance and liquidity

  • Revenue: $17.842 million, up from $4.052 million. Real estate revenue was $9.433 million; resident fees and services contributed $8.409 million, primarily from the RIDEA portfolio acquired beginning in late 2017.
  • Profitability: Net loss was $2.236 million, versus a loss of $85,000; loss attributable to controlling interest was $2.169 million. Loss per share was $0.05, compared with $0.01.
  • Property operations: Segment NOI was $8.258 million, compared with $2.865 million. NOI as a share of revenue was approximately 46%, versus 71%; the comparison is affected by the addition of RIDEA operations, whose property expenses were 86% of resident-fee revenue. Real estate rental expenses were 24.9% of real estate revenue, down from 29.3%.
  • Cash flow: Operating cash flow was $4.692 million, up from $1.390 million. Investing used $25.494 million, primarily for acquisitions and deposits; financing provided $22.873 million. Cash, cash equivalents and restricted cash ended at $9.174 million.
  • Debt and liquidity: Debt was approximately $73.8 million at quarter-end, including $62.3 million of variable-rate credit-facility borrowings and $11.5 million of net mortgage debt; debt was approximately $95.7 million at year-end 2017. The company reported $137.7 million available under its $200 million corporate facility and compliance with debt covenants. Weighted-average effective debt interest was 3.77%.
  • Equity and distributions: Stockholders’ equity was $395.4 million, up from $353.2 million. Quarterly distributions declared were $0.15 per share. Total distributions paid in cash or reinvested were $6.405 million; the company reported that 26.7% was funded from offering proceeds. Distributions exceeded both operating cash flow and FFO attributable to controlling interest of $4.957 million.

Changes, outlook and risks

  • Portfolio growth materially increased revenue and operating cash flow: the company owned 42 buildings versus 14 a year earlier. The 2018 quarter included one skilled-nursing acquisition for $22.6 million. After quarter-end, it acquired two medical office properties for a combined $31.15 million.
  • Management said it expects operating cash flow to increase with further acquisitions and general and administrative costs to continue rising as it acquires properties and raises equity. It considered available resources sufficient for foreseeable needs, while noting dependence on offering proceeds and financing. No specific earnings guidance was provided.
  • The company was still raising capital through a public offering. Following quarter-end, the board set estimated NAV at $9.65 per share and revised offering prices effective April 11, 2018. The filing cautions that NAV is an estimate, is not audited or a GAAP fair value, and may not represent realizable sale or liquidation value.
  • Distribution sustainability is a key concern: distributions partly relied on offering proceeds, and the filing warns that future distributions may be funded by borrowings or other sources. Such funding may reduce investment capital, increase interest expense or constitute a return of capital.
  • Risks include tenant concentration (two tenants each represented more than 10% of annualized base rent or NOI), geographic concentration, healthcare reimbursement and regulatory changes, occupancy and leasing conditions, and variable-rate debt. A 0.50 percentage-point increase in variable rates was estimated to increase annualized interest expense by $316,000.
  • Related-party costs and obligations warrant attention: the advisor and affiliates provide management and acquisition services; $8.146 million was payable to affiliates at quarter-end, including a $7.760 million contingent advisor payment accrual. The company reported no material litigation and no material environmental liability known to it.
  • ASC 606 adoption on January 1, 2018 had no material reported impact. The company was evaluating the expected impact of the new lease standard, scheduled for adoption in 2019.

Important facts for investors to verify

  1. Confirm the registrant identity: this filing is for Griffin-American Healthcare REIT IV, Inc.
  2. Review distribution coverage and funding sources, especially the use of offering proceeds and the gap between distributions and operating cash flow or FFO.
  3. Assess the assumptions, limitations and update frequency behind the $9.65 estimated NAV and the related offering prices.
  4. Check tenant credit, lease renewals, RIDEA occupancy and reimbursement exposure, including concentration in major tenants and states.
  5. Monitor variable-rate borrowing, facility maturity and covenant headroom, alongside acquisition funding and related-party fees.