American Healthcare REIT, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; financial statements are unaudited. Amounts below are in U.S. dollars. The company is a self-managed healthcare REIT operating 298 buildings and integrated senior health campuses across six segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue and grant income | $464.2 million | $426.2 million | $1,384.0 million | $1,190.6 million |
| Net loss | $6.4 million | $7.6 million | $45.9 million | $24.1 million |
| Net loss attributable to controlling interest per share | $(0.09) | $(0.21) | $(0.67) | $(0.51) |
| Segment NOI | $75.1 million | $73.8 million | $222.3 million | $225.1 million |
| Operating cash flow | Not separately provided | Not separately provided | $72.8 million | $113.4 million |
For the nine-month period, resident fees and services increased 21.9% to $1,235.5 million, while real estate revenue declined 8.6% to $141.1 million and grant income fell to $7.4 million from $22.7 million. Property operating expenses rose 21.3% to $1,117.3 million. Segment NOI declined 1.2%; calculated NOI as a share of revenue and grant income was approximately 16.1%, compared with 18.9% in the prior-year period.
Reported interest expense was $122.0 million for the nine months, versus $71.2 million; the company also recorded an $8.2 million derivative fair-value gain. Disposition gains were $29.8 million, while real estate impairment charges were $12.5 million. FFO attributable to controlling interest was $57.1 million ($0.86 per share), down from $91.8 million ($1.40); normalized FFO was $67.5 million ($1.02 per share), down from $106.6 million ($1.62). FFO and normalized FFO are non-GAAP measures.
Financial position, cash flow and debt
- At September 30, 2023, total assets were $4.59 billion and total liabilities were $3.06 billion. Real estate investments, net, were $3.43 billion.
- Cash and cash equivalents were $35.2 million; restricted cash was $47.0 million. Combined cash, cash equivalents and restricted cash were $82.2 million, down from $111.9 million at year-end 2022.
- Nine-month investing cash flow was positive $20.7 million, reflecting $167.9 million in property-sale proceeds, partly offset by $74.4 million of development and capital expenditures and $45.4 million of real estate acquisitions. Financing cash flow was negative $123.2 million, including $59.7 million of common distributions.
- Mortgage principal outstanding was $1.24 billion; lines of credit and term-loan borrowings were $1.28 billion. Combined credit-facility capacity was $1.45 billion, with $172.1 million available. Weighted average effective interest on debt, including swaps, was 5.77%.
- The $367.0 million 2019 Trilogy Credit Facility matures in September 2024. Management said it believes refinancing or extending the facility is probable, but refinancing is not assured. The company reported compliance with debt covenants at quarter-end.
- Borrowings were 53.2% of the company’s stated combined market value of real estate and related investments, versus its anticipated leverage level of approximately 50%.
Material changes, outlook and risks
- Revenue growth reflected acquisitions, improved resident occupancy and higher billing rates, and transitions of certain leased facilities to RIDEA operations. Property sales and fewer government grants partly offset growth. The company sold 20 properties during the first nine months and recorded an aggregate net disposition gain of approximately $30.0 million.
- Q3 net loss improved year over year, but nine-month net loss widened. Higher interest costs, operating costs and depreciation and amortization contributed; prior-year results included a larger remeasurement gain on a previously held equity interest.
- Management cited persistent labor shortages, elevated staffing costs, inflation and uncertainty around occupancy recovery. Pandemic-related federal emergency declarations expired in April and May 2023, and some relief measures have ended or are being phased out. Management provided no specific earnings or revenue guidance.
- The board reduced quarterly distributions from $0.40 to $0.25 per share beginning in Q1 2023 to preserve liquidity and better align distributions with cash flows. Nine-month distributions totaled $59.7 million; the company reported that 95.6% was covered by FFO, with 4.4% sourced from borrowings.
- A proposed public offering and NYSE listing remained subject to an ineffective registration statement. Separately, a November 2023 agreement gave the company an option to buy NHI affiliates’ 24% minority interest in Trilogy REIT Holdings for cash prices ranging from $240.5 million to $260.0 million depending on closing date; the company may instead pay a portion in convertible preferred stock.
- Geographic exposure is concentrated: Indiana and Ohio represented 31.3% and 12.5%, respectively, of portfolio annualized base rent or NOI. No tenant accounted for 10% or more. The filing reports no material litigation and no material environmental liability known to the company.
Important facts for investors to verify
- Progress, pricing and terms for refinancing the $367.0 million Trilogy facility due in September 2024.
- Whether resident occupancy and property-level margins continue to improve, and whether labor and inflation costs remain elevated.
- Cash generation and distribution coverage, including the use of borrowing to fund distributions and the sustainability of the $0.25 quarterly distribution.
- Potential funding, dilution and closing conditions associated with the option to acquire the 24% Trilogy minority interest.
- Final effectiveness and terms of the proposed public offering and NYSE listing registration statement.