Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended September 30, 2019, filed by Global Medical REIT Inc. (NYSE: GMRE). This does not match the request metadata naming Chiron Real Estate Inc. The company is an externally managed REIT that acquires purpose-built healthcare facilities and leases them to healthcare systems and physician groups. Unless noted otherwise, dollar amounts below are in millions.
At quarter-end, the portfolio comprised 63 facilities with approximately 2.6 million leasable square feet and $64.6 million of annualized base rent. The company completed 13 acquisitions during the first nine months of 2019, for an aggregate contractual purchase price of $180.7 million.
Financial Results and Key Metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $18.2 | $14.0 | $50.3 | $38.8 |
| Net income | $2.3 | $1.8 | $6.8 | $5.1 |
| Net income attributable to common stockholders | $0.8 | $0.3 | $2.2 | $0.6 |
| Basic and diluted earnings per common share | $0.02 | $0.01 | $0.07 | $0.03 |
| FFO per share and unit | $0.19 | $0.20 | $0.54 | $0.56 |
| AFFO per share and unit | $0.19 | $0.20 | $0.54 | $0.56 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $26.7 | $19.1 |
Rental revenue was $18.1 million in Q3 and $50.1 million for the nine months. Q3 net income margin was approximately 12.7%, versus 12.7% in Q3 2018; the nine-month margin was approximately 13.5%, versus 13.0%.
At September 30, 2019, total assets were $812.3 million, real estate net of depreciation and amortization was $781.7 million, and total equity including noncontrolling interest was $371.4 million. Cash and cash equivalents plus restricted cash totaled $5.8 million, of which $2.8 million was unrestricted cash and cash equivalents.
Total debt, net of unamortized discounts, was $401.9 million: $363.2 million under the credit facility and $38.7 million of notes payable. The weighted-average debt interest rate was 4.19%, and weighted-average debt term was 3.85 years. The company reported compliance with credit-facility covenants at quarter-end.
For the first nine months, investing activities used $182.7 million, largely for acquisitions, while financing activities provided $157.0 million. The company paid $21.2 million in common, OP Unit and LTIP Unit distributions and $4.4 million in preferred dividends. Common dividends were $0.20 per share per quarter; Series A preferred dividends accrued at a 7.50% annual rate on a $25 liquidation preference.
Material Changes Versus Prior Comparable Period
- Q3 revenue increased 30% year over year and nine-month revenue increased 30%, primarily reflecting acquisitions and fuller-period contributions from previously acquired properties.
- Q3 net income increased to $2.3 million from $1.8 million; nine-month net income rose to $6.8 million from $5.1 million. However, FFO and AFFO per share and unit declined to $0.19 from $0.20 for Q3 and to $0.54 from $0.56 for the nine-month period.
- Operating cash flow increased to $26.7 million from $19.1 million for the nine months, while acquisition-related investing outflow grew to $182.7 million from $136.4 million.
- Net credit-facility debt increased to $363.2 million from $276.4 million at December 31, 2018; total debt net of discounts rose to $401.9 million from $315.0 million. Equity issuance generated $96.8 million of net cash proceeds, and common shares outstanding increased to 36.3 million from 25.9 million.
- Interest-rate swap liabilities increased to $10.4 million from $3.5 million, with a $6.9 million fair-value loss recognized in other comprehensive loss for the nine months.
Outlook, Commentary, Risks and Unusual Items
Management gave no specific earnings or acquisition guidance. It said existing cash and operating cash flow, excluding funds needed for additional acquisitions, were expected to meet short-term liquidity requirements. Continued acquisitions are expected to require access to debt or equity financing or OP Unit issuance; long-term funding sources may include operating cash flow, debt, equity, OP Units, dispositions and joint ventures.
On September 30, the company amended its credit facility to provide a $200 million revolver, a $300 million term loan and a new $150 million accordion feature; the facility matures in August 2022, subject to a one-year extension option. The amendment deferred the 95% AFFO payout limitation covenant from Q4 2019 to Q4 2020. On October 3, 2019, it entered into two additional swaps with $130 million aggregate notional, fixing the LIBOR component on that amount at 1.21%; the company reported that swaps then covered the full $300 million term loan, fixing its LIBOR component at a weighted-average 2.17%.
Key risks include tenant defaults or non-renewals, tenant credit quality and healthcare reimbursement changes, acquisition execution and integration, access to capital, floating-rate debt and hedging effectiveness, and the transition away from LIBOR. As of September 30, $197.2 million of revolver borrowings was unhedged; management estimated a 100-basis-point LIBOR increase would reduce annual cash flow by approximately $2.0 million, assuming debt levels remained unchanged. The company also disclosed $19.1 million of aggregate capital-improvement commitments, with up to approximately $10.9 million potentially due over the next 12 months, subject to contingencies.
Other notable items: the company adopted the new lease accounting standard on January 1, 2019, recording a $2.4 million operating lease liability and related right-of-use asset at quarter-end; no net cumulative-effect adjustment was recorded. No material litigation or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective.
Important Facts for Investors to Verify
- Confirm the issuer: the supplied filing is Global Medical REIT Inc., not Chiron Real Estate Inc.
- Review acquisition performance, tenant credit and lease rollover exposure, including the portfolio’s facility and tenant concentration; Encompass represented 10% of nine-month rental revenue.
- Assess the sustainability of distributions against AFFO: quarterly common dividends were $0.20 per share while Q3 AFFO was $0.19 per share and nine-month AFFO was $0.54 per share against $0.60 of dividends.
- Check debt capacity, covenant headroom, refinancing needs and the effect of interest rates and the LIBOR transition, including the extent and terms of swap protection.
- Evaluate liquidity and funding needs for acquisitions, dividends and capital improvements, given $5.8 million of cash including restricted amounts and substantial acquisition spending.