What changed in this filing

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Item 1A. Risk Factors

2021-11-15 compared with 2021-08-13 · 90 added, 39 removed, 29 unchanged (82% of the section changed)

Risk Factors.

The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT IV, Inc.

The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc.

and its subsidiaries, including Griffin-American Healthcare REIT IV Holdings, LP, except where otherwise noted.

There were no material changes from the risk factors previously disclosed in our 2020 Annual Report on Form 10-K, as filed with the SEC on March 26, 2021, except as noted below.

Risks Related to Our Business

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

In December 2019, COVID-19 was identified in Wuhan, China.

This virus continues to spread globally including in the United States.

As a result of the COVID-19 pandemic and related shelter-in-place, business re-opening and quarantine restrictions, our property values, NOI and revenues may decline, and our tenants, operating partners and managers have been, and may continue to be, limited in their ability to generate income, service patients and residents and/or properly manage our properties.

In addition, based on preliminary information available to management as of October 29, 2021, we have experienced an approximate 14.9% and 4.5% decline in resident occupancies since February 2020, as well as a significant increase in costs to care for residents, at our senior housing — RIDEA facilities and our integrated senior health campuses, respectively.

Our leased, non-RIDEA senior housing and skilled nursing facility tenants have also experienced, and may continue to experience, similar pressures related to occupancy declines and expense increases, which may impact their ability to pay rent and have an adverse effect on our operations.

However, through October 2021, substantially all rents have been collected from such leased, non-RIDEA senior housing and skilled nursing facility tenants.

Given the significant uncertainty of the impact of the COVID-19 pandemic, we are unable to predict the impact it will have on such tenants’ continued ability to pay rent.

Therefore, information provided regarding prior rent collections should not serve as an indication of expected future rent collections.

As such, our immediate focus continues to be on resident occupancy recovery and operating expense management.

The emergence of the Delta variant and other new variants may put additional pressure on our operations.

Additionally, the public perception of a risk of a pandemic or media coverage of the COVID-19 pandemic and related deaths or confirmed cases, or public perception of health risks linked to perceived regional healthcare safety in our senior housing or SNFs, particularly if focused on regions in which our properties are located, may adversely affect our business operations by reducing occupancy demand at our facilities.

We have also held discussions with our tenants, operating partners and managers and they have expressed that the ultimate impact of the COVID-19 pandemic on their business operations is uncertain.

Although vaccines for COVID-19 that have been approved for use are generally effective, vaccine boosters may be necessary and there can be no assurance that efforts to vaccinate the public will be successful in ending the pandemic or that vaccines will be effective against variants such as the Delta variant.

The rapid development and fluidity of this situation continues to preclude any prediction as to the ultimate adverse impact of the COVID-19 pandemic on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments.

The full extent of the impact and effects of the COVID-19 pandemic will depend on future developments, including, among other factors, the success of efforts to contain or treat COVID-19 and its variants, the use and distribution of effective vaccines and availability of such vaccines and vaccine boosters, potential resurgences of COVID-19, along with the related travel advisories, quarantines and business restrictions, the recovery time of the disrupted supply chains and industries, the impact of the labor market interruptions, the impact of government interventions, and the performance or valuation outlook for healthcare REIT markets and certain property types.

The COVID-19 pandemic and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk and have had an adverse effect on us and may have a material adverse effect on us in the future.

The integrated senior health campuses managed by Trilogy Management Services, LLC, or TMS, account for a significant portion of our revenues and/or operating income.

Adverse developments in TMS’s business or financial condition could have a material adverse effect on us.

As of November 15, 2021, TMS managed all of the day-to-day operations for our integrated senior health campuses pursuant to long-term management agreements.

These integrated senior health campuses represent a substantial portion of our portfolio, based on their gross book value, and account for a significant portion of our revenues and/or NOI.

Although we have various rights as the owner of these integrated senior health campuses under our management agreements, we rely on TMS’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our integrated senior health campuses operations efficiently and effectively, and to identify and manage development opportunities for new integrated senior health campuses.

We also rely on TMS to provide accurate campus-level financial results for our integrated senior health campuses in a timely manner and to otherwise operate our integrated senior health campuses in compliance with the terms of our management agreements and all applicable laws and regulations.

We depend on TMS’s ability to attract and retain skilled personnel to provide these services.

A shortage of nurses or other trained personnel or general inflationary pressures may force TMS to enhance its pay and benefits package to compete effectively for such personnel, but it may not be able to offset these added costs by increasing the rates charged to residents.

As such, any adverse developments in TMS’s business or financial condition, including its ability to retain key personnel, could impair its ability to manage our integrated senior health campuses efficiently and effectively and could have a material adverse effect on us.

In addition, if TMS experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy, industry downturn or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings by or against it under the United States Bankruptcy Code.

Any one or a combination of these risks could have a material adverse effect on us.

In the event that our management agreements with TMS are terminated or not renewed, we may be unable to replace TMS with another suitable manager, or, if we were successful in locating such a manager, that it would manage the integrated senior health campuses effectively or that any such transition would be completed timely, which may have a material adverse effect on us.

We continually monitor and assess our contractual rights and remedies under our management agreements with TMS.

When determining whether to pursue any existing or future rights or remedies under those agreements, including termination rights, we consider numerous factors, including legal, contractual, regulatory, business and other relevant considerations.

In the event that we exercise our rights to terminate management agreements with TMS for any reason or such agreements are not renewed upon expiration of their terms, we would attempt to reposition the affected integrated senior health campuses with another manager.

Although we believe that many qualified national and regional operators would be interested in managing our integrated senior health campuses, we cannot provide any assurance that we would be able to locate another suitable manager or, if we were successful in locating such a manager, that it would manage the integrated senior health campuses effectively or that any such transition would be completed timely.

Any such transition would likely result in disruption of the operation of such facilities, including matters relating to staffing and reporting.

Moreover, the transition to a replacement manager may require approval by the applicable regulatory authorities and, in most cases, one or more of our lenders including the mortgage lenders for the integrated senior health campuses, and we cannot provide any assurance that such approvals would be granted on a timely basis, if at all.

Any inability to replace, or delay in replacing TMS as the manager of integrated senior health campuses could have a material adverse effect on us.

Risks Related to Investments in Real Estate

A significant portion of our annual base rent may be concentrated in a small number of tenants.

Therefore, non-renewals, terminations or lease defaults by any of these significant tenants could reduce our net income and have a negative effect on our ability to pay distributions to our stockholders.

As of August 13, 2021, rental payments by our tenant, RC Tier Properties, LLC, accounted for approximately 11.1% of our total property portfolio’s annualized base rent or annualized NOI.

The success of our investments materially depends upon the financial stability of the tenants leasing the properties we own.

Therefore, a non-renewal after the expiration of a lease term, termination, default or other failure to meet rental obligations by significant tenants, such as RC Tier Properties, LLC, would significantly lower our net income.

These events could cause us to reduce the amount of distributions to our stockholders.

A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.

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therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio.

As of August 13, 2021, our properties locat ed in Missouri and Michigan accounted for approximately 12.1% and 10.4%, respec tively, of our total property portfolio’s annualized base rent or annualized NOI.

Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.

As of November 15, 2021, our properties locat e d in Indiana accounted for approximately 30.7% of our total property portfolio’s annualized base rent or annualized NOI.

Accordingly, there is a geographic concentration of risk subject to fluctuations in such state’s economy.

Most of our costs, such as operating and general and administrative expenses, interest expense, and real estate acquisition and construction costs, are subject to inflation.

A significant portion of our operating expenses is sensitive to inflation.

These include expenses for property-related costs such as insurance, utilities and repairs and maintenance.

Property taxes are also impacted by inflationary changes as taxes are typically regularly reassessed in most states based on changes in the fair value of our properties.

We also have ground lease expenses in certain of our properties.

Ground lease costs are contractual, but in some cases, lease payments reset every few years based on changes on consumer price indexes.

Operating expenses on our non-RIDEA properties, with the exception of ground lease rental expenses, are typically recoverable through our lease arrangements, which allow us to pass through substantially all expenses associated with property taxes, insurance, utilities, repairs and maintenance, and other operating expenses (including increases thereto) to our tenants.

As of September 30, 2021, the majority of our existing leases were either triple net leases or leases that allow us to recover operating expenses, and also provided for the recapture of capital expenditures.

Our remaining leases are generally gross leases, which provide for recoveries of operating expenses above the operating expenses from the initial year within each lease.

During inflationary periods, we expect to recover increases in operating expenses from our triple net leases and our gross leases.

As a result, we do not believe that inflation would result in a significant adverse effect on our net operating income, results of operations, and operating cash flows at the property level.

For our RIDEA properties, increases in operating expenses, including labor, that are caused by inflationary pressures will generally be passed through to the us and may adversely impact our net operating income, results of operations and operating cash flows.

Effective upon the Merger and the AHI Acquisition on October 1, 2021, our general and administrative expenses consist primarily of compensation costs, as well as professional and legal fees.

Annually, our employee compensation is adjusted to reflect merit increases;

however, to maintain our ability to successfully compete for the best talent, rising inflation rates may require us to provide compensation increases beyond historical annual merit increases, which may significantly increase our compensation costs.

Similarly, professional and legal fees are also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services.

Consequently, inflation is expected to increase our general and administrative expenses over time and may adversely impact our results of operations and operating cash flows.

Also, during inflationary periods, interest rates have historically increased, which would have a direct effect on the interest expense of our borrowings.

Our exposure to increases in interest rates is limited to our variable-rate borrowings, which consist of borrowings under the Credit Facilities and variable-rate mortgage loans payable.

As of September 30, 2021, our outstanding debt and GAHR III outstanding debt aggregated $2.4 billion, of which 31.2% was unhedged variable-rate debt.

Therefore, a significant increase in inflation rates would have a material adverse impact on our financing costs and interest expense.

We have long term lease agreements with our tenants that contain effective annual rent escalations that were either fixed or indexed based on a consumer price index or other index.

We believe our annual lease expirations allow us to reset these leases to market rents upon renewal or re-leasing and that annual rent escalations within our long-term leases are generally sufficient to offset the effect of inflation on non-recoverable costs, such as general and administrative expenses and interest expense.

However, it is possible that during higher inflationary periods the impact of inflation will not be adequately offset by the resetting of rents from our renewal and re-leasing activities or our annual rent escalations.

As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our lease contracts, we may not adequately mitigate the impact of inflation, which may adversely affect to our business, financial condition, results of operations, and cash flows.

Additionally, inflationary pricing may have a negative effect on the real estate acquisitions and construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party contractors and suppliers.

Higher acquisition and construction costs could adversely impact our net investments in real estate and expected yields in our development and redevelopment projects, which may make otherwise lucrative investment opportunities less profitable to us.

As a result, our financial condition, results of operations, and cash flows, we well as our ability to pay dividends, could be adversely affected over time.

Risks Related to Debt Financing

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It is also possible that no transition will occur for many financial instruments.

At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented.

At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to

LIBOR that may be implemented.

Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the market for or value of any securities on which the interest or dividend is determined by reference to LIBOR, loans, derivatives and other financial obligations or on our overall financial condition or results of operations.

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Risks Related to the Merger

Failure to complete the Merger could negatively impact our future business and financial results.

If the Merger is not completed, the ongoing business of our company could be materially adversely affected and we will be subject to a variety of risks associated with the failure to complete the Merger, including the following:

• our being required, under certain circumstances in which the Merger Agreement is terminated, to pay to GAHR III a termination fee of $23,028,000 and reimbursement of expenses incurred by GAHR III in connection with the Merger of up to $4,000,000;

• our having to bear certain costs incurred by us relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;

• the diversion of our management’s focus and resources from operational matters and other strategic opportunities while working to implement the Merger.

If the Merger is not completed, these risks could materially affect our business and financial results.

The pendency of the Merger, including as a result of the restrictions on the operation of our and GAHR III’s business during the period between signing the Merger Agreement and the completion of the Merger, could adversely affect our business and operations, the business and operations of GAHR III, or both.

In connection with the pending Merger, some of our business partners or vendors and those of GAHR III may delay or defer decisions, which could negatively impact the revenues, earnings, cash flows and expenses of our company or GAHR III, regardless of whether the Merger is completed.

In addition, due to operating covenants in the Merger Agreement, we and GAHR III may be unable, during the pendency of the Merger, to pursue certain strategic transactions, undertake certain significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions that are not in the ordinary course of business, even if such actions would prove beneficial.

In certain circumstances, either we or GAHR III may terminate the Merger Agreement.

Either we or GAHR III may terminate the Merger Agreement if the REIT Merger has not been consummated by 11:59 p.m.

New York time on March 23, 2022.

Also, the Merger Agreement may be terminated in certain circumstances if a final and non-appealable order is entered prohibiting the transactions contemplated by the Merger Agreement, upon a material uncured breach by the other party that would cause the closing conditions not to be satisfied, or upon the failure to obtain receipt of approvals of the GAHR III stockholders or our stockholders.

In addition, (i) at any time prior to the time GAHR III stockholders approve the Merger and the amendments to the GAHR III charter that are required to consummate the Merger, GAHR III has the right to terminate the Merger Agreement in order to accept a Superior Proposal (as defined in the Merger Agreement), and (ii) at any time prior to the time our stockholders approve the Merger and the amendments to our charter that are required to consummate the Merger, we have the right to terminate the Merger Agreement in order to accept a Superior Proposal.

Finally, (i) at any time prior to the time our stockholders approve the Merger and the amendments to our charter that are required to consummate the Merger, GAHR III has the right to terminate the Merger Agreement upon a GAHR IV Adverse Recommendation Change (as defined in the Merger Agreement) or if we have materially violated any of our obligations regarding the solicitation of and response to Competing Proposals (as defined in the Merger Agreement), and (ii) at any time prior to the time GAHR III stockholders approve the Merger and the amendments to the GAHR III charter that are required to consummate the Merger, we have the right to terminate the Merger Agreement upon a GAHR III Adverse Recommendation Change (as defined in the Merger Agreement) or if GAHR III shall have materially violated any of its obligations regarding the solicitation of and response to Competing Proposals.

We and GAHR III each expect to incur substantial expenses related to the Merger.

We and GAHR III each expect to incur substantial expenses in connection with completing the Merger and integrating our properties and operations.

While we and GAHR III each have assumed that a certain level of transaction expenses would be incurred, there are a number of factors beyond the control of each company that could affect the total amount or the timing of such expenses.

Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

As a result, the transaction expenses associated with the Merger could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings following the completion of the Merger.

The ownership position of our stockholders and the stockholders of GAHR III will be diluted by the REIT Merger .

The REIT Merger will dilute the ownership percentage of our stockholders and result in GAHR III stockholders having an ownership stake in the Combined Company that is smaller than their current stake in GAHR III.

Based on the number of shares of our common stock and GAHR III common stock outstanding on July 9, 2021, our stockholders, on the one hand, and former GAHR III stockholders, on the other hand, will own approximately 31.3% and 68.7%, respectively, of the issued and outstanding shares of our common stock following the REIT Merger.

Consequently, each of our stockholders and each GAHR III stockholder, as a general matter, will have less influence over the management and policies of the Combined Company following the Merger than currently exercisable over our management and policies and the management and policies of GAHR III, as applicable.

If and when the Combined Company completes a liquidity event, the market value ascribed to the shares of common stock of the Combined Company upon the liquidity event may be significantly lower than the estimated per share NAV of GAHR III common stock or our common stock, as applicable, considered by the board of directors of GAHR III and our board in approving and recommending the REIT Merger.

In approving and recommending the REIT Merger, the board of directors of GAHR III, the special committee of the board of directors of GAHR III, our board and our special committee considered, among other things, the most recent estimated per share NAV of GAHR III common stock and our common stock as determined by the board of directors of GAHR III and our board, respectively, with the assistance of their respective third-party valuation experts.

The estimated per share NAV of our common stock may not be immediately determined following the consummation of the Merger.

In the event that the Combined Company completes a liquidity event after consummation of the Merger, such as a listing of its shares on a national securities exchange, a merger in which stockholders of the Combined Company receive securities that are listed on a national securities exchange, or a sale of the Combined Company for cash, the market value of the shares of the Combined Company upon consummation of such liquidity event may be significantly lower than the current estimated values considered by the board of directors of GAHR III, the special committee of the board of directors of GAHR III, our board and our special committee and the estimated per share NAV of our common stock that may be reflected on the account statements of stockholders of the Combined Company after consummation of the Merger.

The ownership position of our stockholders and the stockholders of GAHR III is diluted by the REIT Merger .

The REIT Merger diluted the ownership percentage of our stockholders and resulted in GAHR III stockholders having an ownership stake in the Combined Company that is smaller than their prior stake in GAHR III.

Based on the number of shares of our common stock and GAHR III common stock outstanding on September 30, 2021, our stockholders, on the one hand, and former GAHR III stockholders, on the other hand, owned approximately 31.3% and 68.7%, respectively, of the issued and outstanding shares of our common stock following the REIT Merger on October 1, 2021.

Consequently, each of our stockholders and each GAHR III stockholder, as a general matter, has less influence over the management and policies of the Combined Company following the Merger than previously exercisable over our management and policies and the management and policies of GAHR III, as applicable.

The estimated per share NAV of our common stock was not immediately determined following the consummation of the Merger.

In the event that the Combined Company completes a liquidity event after consummation of the Merger, such as a listing of its shares on a national securities exchange, a merger in which stockholders of the Combined Company receive securities that are listed on a national securities exchange, or a sale of the Combined Company for cash, the market value of the shares of the Combined Company upon consummation of such liquidity event may be significantly lower than the current estimated per share NAV of our common stock that may be reflected on the account statements of stockholders of the Combined Company after consummation of the Merger.

For example, if the shares of the Combined Company are listed on a national securities exchange at some point after the consummation of the Merger, the trading price of the shares may be significantly lower than the most recent estimated per share NAV of our common stock of $9.22 as of September 30, 2020.

As a result of the AHI Acquisition, the Combined Company is newly self-managed.

As a result of the AHI Acquisition and the Merger, the Combined Company is a self-managed REIT.

The Combined Company will no longer bear the costs of the various fees and expense reimbursements previously paid to the former external advisors of GAHR III and our company and their affiliates;

however, the Combined Company’s expenses will include the compensation and benefits of the Combined Company’s officers, employees and consultants, as well as overhead previously paid by the former external advisors of GAHR III and our company and their affiliates.

The Combined Company’s employees will provide services historically provided by the external advisors and their affiliates.

The Combined Company will be subject to potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and the Combined Company will bear the cost of the establishment and maintenance of any employee compensation plans.

In addition, the Combined Company has not previously operated as a self-managed REIT and may encounter unforeseen costs, expenses and difficulties associated with providing these services on a self-advised basis.

If the Combined Company incurs unexpected expenses as a result of its self-management, its results of operations could be lower than they otherwise would have been.

If the REIT Merger does not qualify as a tax-free reorganization, there may be adverse tax consequences.

The REIT Merger is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code.

The closing of the REIT Merger is conditioned on the receipt by us and GAHR III of an opinion of counsel to the effect that the REIT Merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code.

The closing of the REIT Merger was conditioned on the receipt by us and GAHR III of an opinion of counsel to the effect that the REIT Merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code.

However, these legal opinions will not be binding on the IRS or on the courts.

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and (2) such GAHR III stockholder’s adjusted tax basis in its GAHR III common stock.

Unregistered Sales of Equity Securities and Use of Proceeds.

Defaults Upon Senior Securities.

Mine Safety Disclosures.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors