Filing summary: Global Medical REIT Inc. (not Chiron Real Estate Inc.)
The supplied filing is Global Medical REIT Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019, filed May 9, 2019. The company is an externally managed healthcare-property REIT that acquires purpose-built facilities and leases them to healthcare providers. The company-name mismatch with the request should be verified.
Financial performance and position
- Revenue and earnings: Q1 revenue was $15.2 million, up 31% from $11.6 million, primarily due to portfolio growth. Net income was $2.0 million versus $1.9 million; income attributable to common stockholders was $0.5 million, or $0.02 per share, unchanged per share.
- Operating measures: FFO was $5.5 million, or $0.17 per share, compared with $4.1 million, or $0.18 per share. AFFO was $5.4 million, or $0.17 per share, versus $3.8 million, or $0.16 per share. These are non-GAAP measures. The quarterly common dividend was $0.20 per share.
- Expenses: Total expenses rose to $13.2 million from $9.7 million. Interest expense increased to $4.0 million from $2.7 million, reflecting higher average borrowings and interest rates. General and administrative expense increased to $1.6 million from $1.0 million, in part due to higher noncash stock compensation.
- Cash flow: Operating cash flow was $6.1 million, down from $9.3 million. Investing used $22.7 million, compared with $66.3 million. Financing provided $15.0 million, versus $57.2 million. Cash and restricted cash ended the quarter at $3.3 million, compared with $4.8 million at year-end.
- Assets and debt: Total assets were $656.7 million, including $633.2 million of net real estate. Net debt was $258.6 million, down from $315.0 million at December 31, 2018. Total stockholders’ equity, including noncontrolling interests, was $370.6 million, up from $299.8 million. The weighted-average debt rate was 4.72% at quarter-end.
- Portfolio: The company reported 52 facilities, approximately 2.1 million rentable square feet and approximately $52.1 million of annualized base rent. Two properties were acquired during the quarter for approximately $20.9 million in cash consideration.
Material changes and notable items
- Revenue growth was accompanied by higher depreciation, amortization and interest expense; net income increased only modestly. Weighted-average common shares rose to 27.4 million from 21.6 million, while total weighted-average shares and units rose to 31.2 million from 23.4 million.
- The company raised approximately $83.9 million through common-stock and OP-unit issuances and used part of the proceeds, alongside operating cash, to repay $56.6 million net under its credit facility.
- At March 31, the credit facility had $220.0 million of net borrowings. The company reported $53.7 million of unhedged variable-rate revolver borrowings; a 100-basis-point LIBOR increase was estimated to reduce annual cash flow by approximately $0.5 million. Three swaps hedged $170 million of debt. Their fair-value liability was $5.5 million, and a $2.0 million swap-related loss was recorded in other comprehensive loss.
- Adoption of ASC Topic 842 on January 1, 2019 resulted in recognition of a $2.3 million right-of-use asset and a $2.4 million lease liability at March 31. Prior periods were not restated.
- After quarter-end, on April 15, the company acquired four inpatient rehabilitation facilities for $94 million. Management cited an initial capitalization rate of approximately 7.3%, an estimated second-year rate of 7.6%, and expected annual rent of $6.9 million. On the same date, it increased total credit-facility capacity to $425 million by exercising $75 million of the accordion feature.
Outlook, risks and contingencies
- The filing provides no formal earnings or FFO guidance. Management said it expected to meet short-term liquidity needs from existing cash and operating cash flow, but continued acquisitions would require access to debt, equity or OP-unit financing. Longer-term funding sources may include operations, financing, equity issuance, OP units and selected dispositions or joint ventures.
- Key disclosed risks include tenant defaults or nonrenewals, reduced rents or increased vacancies, tenant exposure to healthcare reimbursement changes, acquisition and integration challenges, interest-rate and refinancing risk, and the ability to raise capital and maintain REIT qualification. The company also noted the planned transition away from LIBOR after 2021 and was evaluating related risks.
- Credit agreements require compliance with financial covenants, including leverage and fixed-charge coverage tests. The filing states that no material litigation or known material environmental liability was pending, and no material risk-factor changes were reported for the quarter.
- Capital improvement commitments and obligations were $20.8 million; lease-related obligations in 2019 could total approximately $12.8 million. The filing notes that timing and use of some allowances are uncertain.
Most important facts for investors to verify
- Confirm that Global Medical REIT Inc., rather than Chiron Real Estate Inc., is the intended registrant and filing.
- Review the $94 million post-quarter acquisition’s funding, lease terms, tenant credit quality and expected contribution to cash flow.
- Assess dividend sustainability against AFFO of $0.17 per share versus the $0.20 quarterly common dividend, including recurring capital and tenant-improvement needs.
- Check remaining revolver availability, covenant headroom, debt maturities and the effect of interest-rate changes despite the swaps.
- Monitor tenant concentration, reimbursement exposure, rent collection and straight-line rent receivables; the largest disclosed facility concentrations were 10% each for Encompass and Belpre.