Business context and reporting period
The filing is Global Medical REIT Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The company acquires healthcare properties and leases them to healthcare operators. The request metadata names Chiron Real Estate Inc.; that does not match the registrant identified in this filing and should be verified.
At June 30, the portfolio comprised 70 buildings with 1.87 million leasable square feet, $46.6 million of annualized base rent, a 7.8% weighted-average capitalization rate and 10.4 weighted-average lease years remaining. The company completed six acquisitions during the first half, adding approximately $130.5 million of gross real estate investment.
Financial performance and position
Unless noted otherwise, dollar amounts below are in millions; the financial statements present amounts in thousands.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $13.25 | $7.42 | $24.81 | $12.08 |
| Net income (loss) | $1.38 | $(0.62) | $3.29 | $(1.94) |
| Net income (loss) attributable to common stockholders | $(0.06) | $(0.62) | $0.35 | $(1.94) |
| Common EPS, basic and diluted | $(0.00) | $(0.04) | $0.02 | $(0.11) |
| FFO per share | $0.19 | $0.10 | $0.37 | $0.12 |
| AFFO per share | $0.20 | $0.14 | $0.36 | $0.23 |
- Q2 rental revenue was $12.58 million, versus $6.67 million; first-half rental revenue was $23.07 million, versus $11.30 million. Management attributed most of the growth to properties acquired since the comparable periods.
- Interest expense increased to $3.94 million for Q2 and $6.63 million for the first half, from $1.99 million and $3.09 million, respectively, primarily due to higher average borrowings. The filing does not provide a traditional operating-margin measure.
- Cash from operating activities was $14.92 million for the first half, compared with $5.34 million. Investing cash outflow was $125.57 million, and financing cash inflow was $109.72 million. Cash and restricted cash ended at $6.19 million, down from $7.11 million at year-end 2017.
- Total assets were $602.03 million and total liabilities $346.51 million at June 30. Debt, net of discount, was $326.96 million, compared with $203.45 million at year-end. The weighted-average debt rate rose to 4.38% from 3.72%; the weighted-average remaining debt term was 2.05 years.
- Management reported a 0.53:1 consolidated leverage ratio and 2.01:1 fixed-charge coverage ratio at June 30, against facility requirements of less than 0.65:1 and at least 1.50:1, respectively.
Material changes versus the prior comparable period
- Portfolio expansion drove substantially higher rental revenue, depreciation and amortization. Six first-half acquisitions included facilities in Moline/Silvis, Fremont, Gainesville, Dallas, Orlando and Belpre. The Belpre transaction included $4.74 million of OP units as consideration.
- Higher interest expense reflected greater use of the revolving credit facility. Revolver borrowings were $288.35 million at June 30, versus $164.90 million at December 31, 2017.
- Preferred dividends of $2.91 million in the first half reduced earnings available to common shareholders; no preferred dividends were paid in the 2017 comparison period. Common dividends remained $0.20 per share per quarter.
- Acquisition fees fell to $0.13 million for the first half from $1.48 million. Under the accounting guidance adopted January 1, 2018, completed acquisitions were treated as asset acquisitions and their transaction costs capitalized rather than expensed.
Outlook, risks and unusual items
- No numerical earnings or acquisition guidance is provided. Management said short-term liquidity needs, other than funds for additional acquisitions, were expected to be met by cash and operating cash flow; continued acquisitions depend on access to debt or equity financing or issuance of OP units.
- On August 7, 2018, after quarter-end, the company amended its credit facility to $350 million: a $250 million revolver and a $100 million five-year term loan. The revolver was extended to August 2022, with a one-year extension option; an accordion feature permits total capacity up to $500 million. A five-year swap fixed the LIBOR component of the term loan at 2.88%.
- Before that subsequent amendment and hedge, the company estimated that a 100-basis-point LIBOR increase would reduce annual cash flow by approximately $2.9 million, assuming variable-rate debt remained unchanged. Risks cited include tenant defaults or nonrenewals, healthcare reimbursement changes, rising rates, capital-raising constraints, acquisition execution, and REIT qualification.
- The company had $19.04 million of aggregate tenant-improvement commitments; it expected to spend approximately $2.95 million during 2018, of which $2.04 million had been incurred by June 30. Management reported no material litigation or known material environmental liability. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Most important facts to verify
- Confirm the registrant identity: the source filing is for Global Medical REIT Inc., not Chiron Real Estate Inc.
- Review borrowing-base availability, covenant headroom and the full terms of the August 7 credit-facility amendment; the stated facility capacity is not necessarily fully drawable.
- Assess the sustainability of common and cumulative preferred dividends in light of cash flow, acquisition spending, tenant-improvement commitments and rising debt costs.
- Monitor tenant/operator credit quality and rent concentration; Encompass, OCOM and Belpre represented approximately 11%, 9% and 9% of Q2 rental revenue, respectively.
- Evaluate FFO and AFFO alongside GAAP earnings and cash flows; these are non-GAAP measures and may not be comparable with other REITs.