Global Medical REIT Inc. — Q2 2019 Form 10-Q
Entity note: The request identifies Chiron Real Estate Inc., but the supplied filing is for Global Medical REIT Inc. (NYSE: GMRE). This summary reflects the filing provided.
Business context and reporting period
Quarter ended June 30, 2019; financial statements are unaudited. Global Medical REIT acquires purpose-built healthcare facilities and leases them to healthcare systems and physician groups. At quarter-end, its portfolio comprised 56 facilities with approximately 2.34 million leasable square feet and $59.0 million of annualized base rent.
Financial performance and position
Dollar amounts are in millions unless stated otherwise.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $16.88 | $13.25 | $32.08 | $24.81 |
| Net income | $2.46 | $1.38 | $4.51 | $3.29 |
| Net income attributable to common stockholders | $0.90 | $(0.06) | $1.43 | $0.35 |
| Basic and diluted EPS | $0.03 | $(0.00) | $0.05 | $0.02 |
| FFO per share | $0.18 | $0.18 | $0.35 | $0.36 |
| AFFO per share | $0.18 | $0.20 | $0.35 | $0.36 |
- GAAP net margin was approximately 14.6% in Q2 2019 versus 10.4% in Q2 2018, and 14.0% for the first six months versus 13.2% in 2018. These are net income divided by total revenue.
- Six-month operating cash flow was $16.7 million, investing cash outflow $117.5 million, and financing cash inflow $101.8 million. Cash and restricted cash totaled $5.9 million at June 30, 2019.
- Total assets were $750.7 million; total liabilities $389.1 million; and total equity, including noncontrolling interest, $361.6 million. Net real estate investment was $721.7 million.
- Debt, net of unamortized discounts, was $354.3 million: credit facility $315.7 million and notes payable $38.7 million. Weighted-average debt interest rate was 4.14%, versus 4.64% at December 31, 2018.
- The common dividend was $0.20 per share per quarter; Series A preferred dividends were $0.46875 per share per quarter (7.5% annual rate on liquidation preference).
Material changes versus prior comparable periods
- Q2 revenue rose $3.6 million year over year; first-half revenue rose $7.3 million. Management attributed the increases primarily to acquisitions and fuller-period contributions from previously acquired properties.
- Q2 net income increased $1.1 million and first-half net income increased $1.2 million. Higher rental revenue more than offset increased operating, management, depreciation, amortization, and interest costs.
- Six-month interest expense rose to $8.2 million from $6.6 million, mainly due to higher average borrowings and interest rates. Operating cash flow increased to $16.7 million from $14.9 million.
- Six acquisitions were completed in the first half for an aggregate contractual purchase price of $114.6 million. Gross real estate investment increased to $763.6 million from $647.6 million at year-end 2018.
- Common shares outstanding rose to 34.653 million from 25.944 million, reflecting equity issuance. The company raised approximately $79.7 million net through common stock offerings and issued $0.5 million of OP Units in an acquisition.
- The company recorded a $5.6 million first-half other comprehensive loss from the decline in fair value of interest-rate swaps; the swap liability rose to $9.1 million from $3.5 million at year-end.
Outlook, risks and unusual items
- No formal earnings or FFO guidance is provided. Management said existing cash and operating cash flow should meet short-term needs aside from additional acquisitions; continued growth depends on access to debt and equity financing or OP Unit issuance.
- After quarter-end, four acquisitions closed for $42.3 million, with $3.3 million annualized base rent; five additional properties, priced at $62.5 million in aggregate, were under contract and in due diligence. Management cautioned that transactions may not close. The company also raised $7.8 million net through its ATM program after quarter-end.
- The credit facility’s borrowing capacity increased from $350 million to $425 million after a $75 million accordion exercise. Borrowings were $315.7 million net at quarter-end, and the company reported compliance with facility covenants.
- Approximately $149.5 million of revolving borrowings remained unhedged and variable-rate. The filing estimates that a 100-basis-point LIBOR increase would reduce annual cash flow by approximately $1.5 million, assuming debt levels remain unchanged. LIBOR’s planned discontinuation after 2021 also creates transition risk.
- Material risks include tenant defaults or non-renewals, healthcare reimbursement changes, financing and interest-rate exposure, and geographic and tenant concentration. Top four tenants represented approximately 35% of annualized base rent; Encompass alone represented approximately 12%. Six states accounted for substantial shares of rent, led by Texas at approximately 20%.
- Capital improvement commitments were $20.8 million; obligations under certain leases could reach approximately $12.7 million in 2019. Management reported no material litigation or known material environmental liability. Adoption of the new lease accounting standard recorded a $2.4 million lease liability at June 30, 2019, with no net cumulative adjustment to accumulated deficit.
Important facts for investors to verify
- Confirm the intended issuer: the provided document is Global Medical REIT Inc., not Chiron Real Estate Inc.
- Review acquisition closings and due-diligence outcomes after June 30, including funding sources and the resulting debt and share dilution.
- Assess tenant and state concentration, especially major operators and the largest geographic exposures, alongside lease collectability and renewal terms.
- Compare cash flow available for distributions with the $0.20 quarterly common dividend, preferred obligations, capital commitments, and growth spending; FFO and AFFO are non-GAAP measures.
- Monitor variable-rate debt exposure, swap fair values, covenant headroom, and the transition away from LIBOR.
- Check whether the reported operating cash flow and low unrestricted cash balance provide adequate liquidity as acquisitions and dividend payments continue.