Business context and reporting period
Griffin-American Healthcare REIT IV, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The healthcare REIT owned 87 properties comprising 92 buildings, plus a 6.0% interest in a senior-health-campus joint venture. Its segments are medical office buildings, senior housing, senior housing operated under a RIDEA structure, and skilled nursing. The filing describes a proposed merger with Griffin-American Healthcare REIT III; the combined company was expected to be named American Healthcare REIT, Inc.
Financial and operating metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $37.2 million | $38.7 million | $75.0 million | $76.2 million |
| Net loss | $3.9 million | $1.2 million | $7.9 million | $9.1 million |
| Net loss attributable to controlling interest | $3.8 million | $0.9 million | $7.5 million | $8.7 million |
| Loss per share, basic and diluted | $0.05 | $0.01 | $0.09 | $0.11 |
| Net operating income (NOI; non-GAAP) | $16.6 million | $18.2 million | $33.2 million | $36.9 million |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $13.9 million | $19.0 million |
Q2 total expenses were $37.3 million versus $37.0 million; six-month expenses were $74.9 million versus $72.8 million. Q2 results included $2.4 million of business acquisition expense, primarily transaction-related advisory and special committee costs. No conventional profit margin is presented; NOI was approximately 44.7% of Q2 revenue and 44.3% of six-month revenue, versus 47.2% and 48.5% in the comparable 2020 periods.
At June 30, 2021, total assets were $1.076 billion, total liabilities $543.7 million, and stockholders’ equity $528.9 million. Cash and cash equivalents were $21.3 million, with a further $1.2 million of restricted cash. Debt comprised $482.9 million outstanding under the credit facility and $18.5 million of mortgage principal ($17.6 million net carrying value). The company reported $47.1 million of unused credit capacity and a 3.53% weighted-average effective debt rate, including swaps.
Changes versus the prior comparable period
- Revenue declined 3.9% in Q2 and 1.6% for the six months. Real estate revenue increased modestly, but resident fees and services fell 9.7% in Q2 and 5.5% year to date.
- NOI fell 8.9% in Q2 and 10.0% year to date. RIDEA segment NOI was $0.7 million in Q2 versus $2.4 million, and $1.5 million for six months versus $5.5 million. The company attributed operating-cost pressure partly to labor, COVID-19 testing and protective equipment, as well as the transition of five facilities to RIDEA in 2020.
- Net loss worsened in Q2, while the six-month loss narrowed. The year-to-date comparison benefited from a $2.9 million derivative fair-value gain in 2021 versus a $3.8 million loss in 2020; these gains and losses are non-cash fair-value changes.
- Operating cash flow fell by $5.2 million year over year. Investing cash flow was $0.5 million provided in 2021, versus $72.5 million used in 2020, reflecting lower acquisition spending and $6.2 million of proceeds from selling two senior housing facilities.
- Senior housing RIDEA occupancy was 70.3% in Q2 versus 77.4%; six-month occupancy was 69.0% versus 79.8%. Non-RIDEA properties were 95.7% leased, compared with 95.5% a year earlier.
Outlook, risks and notable items
- Merger: A June 23, 2021 agreement contemplated GAHR III merging into a subsidiary and the operating partnerships combining. GAHR III shareholders would receive 0.9266 Class I shares per share. Closing was subject to substantial conditions and expected in Q4 2021; the filing’s financial statements do not reflect the transaction. A related acquisition of advisor-related businesses could make the combined company self-managed. Either transaction could proceed without the other. Failure to complete the merger could entail a $23.0 million termination fee payable by this company in specified circumstances, plus up to $4.0 million in expense reimbursement.
- COVID-19: Management reported continued pressure on senior-housing occupancy and operating costs, with uncertain longer-term effects, including potential renewed restrictions and effects from variants. It said it had collected all contractual rent from leased non-RIDEA senior housing and skilled-nursing tenants and substantially all medical-office rent through June; continued tenant and resident payment capacity remains uncertain.
- Liquidity and refinancing: The $482.9 million credit-facility balance was due November 19, 2021. Management intended to pursue a new facility or meet conditions to extend the existing facility for one year. The company estimated $483.2 million of principal payments due in the remainder of 2021, predominantly this credit-facility maturity, and said it believed available resources would meet foreseeable cash needs. It was in compliance with debt covenants at June 30.
- Distributions and capital access: The board reduced the annualized distribution from $0.60 to $0.40 per share in 2020; the filing declared distributions at that rate through August 31, 2021, payable in cash from legally available funds. For the six months, distributions paid or reinvested totaled $16.3 million, compared with $13.9 million of operating cash flow; the company reported borrowings as a source for $2.4 million of distributions. The DRIP was suspended effective April 1, 2021, and the share repurchase plan was suspended for requests received after February 28, 2021.
- Concentration and rates: One skilled-nursing tenant represented 11.1% of annualized base rent/NOI; Missouri and Michigan represented approximately 12.2% and 10.4%. Variable-rate debt and swaps were LIBOR-linked; LIBOR transition terms and possible borrowing-cost effects were uncertain. A 0.50 percentage-point rate increase was estimated to raise annualized interest expense by $953,000.
- The filing reports no material litigation, known material environmental liability, or off-balance-sheet arrangements. Management provided no full-year earnings or operating guidance; it cautioned interim results may not indicate full-year results.
Key facts for investors to verify
- Whether the merger and related advisor acquisition received required shareholder approvals, satisfied closing conditions, and closed on the proposed terms and timetable.
- How the November 2021 credit-facility maturity was refinanced or extended, and the resulting debt cost, covenants, and available liquidity.
- Whether RIDEA occupancy and property-level operating performance recovered, and how labor and pandemic-related costs evolved.
- Whether rent collections, receivable allowances, and the major tenant’s financial condition changed after June 30.
- Whether distributions remained supported by recurring cash generation and what distribution and repurchase policies followed the disclosed suspensions.
- The extent to which reported FFO and MFFO depended on government grants at the unconsolidated joint venture; these non-GAAP measures are not substitutes for operating cash flow.