Global Medical REIT Inc. — Q1 2018 Form 10-Q
Entity note: The request identifies Chiron Real Estate Inc., but the supplied filing is for Global Medical REIT Inc. This summary covers the registrant named in the filing.
Business context and reporting period
Quarter ended March 31, 2018. Global Medical REIT is an externally managed healthcare-property REIT that acquires purpose-built healthcare facilities and leases them to clinical operators. At quarter-end, it owned 42 facilities totaling approximately 1.7 million leasable square feet. The filing’s portfolio table reports 10.4 weighted-average lease years remaining; the overview separately states approximately 10.7 years.
Financial performance and position
Amounts below are in millions, except per-share amounts and percentages.
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Total revenue | $11.564 | $4.659 |
| Net income (loss) | $1.901 | $(1.318) |
| Net income (loss) attributable to common stockholders | $0.411; $0.02 per share | $(1.318); $(0.07) per share |
| FFO / AFFO per share | $0.18 / $0.16 | $0.02 / $0.09 |
| Cash from operating activities | $9.295 | $3.172 |
| Cash used in investing activities | $(66.250) | $(109.249) |
| Cash from financing activities | $57.242 | $95.596 |
| Cash and restricted cash, quarter-end | $7.401, including $3.351 unrestricted cash | $10.131 at March 31, 2017 |
| Total debt, net of discount | $267.727 | $203.445 at December 31, 2017 |
| Total assets / total equity | $539.856 / $254.743 | $474.571 / $259.013 at December 31, 2017 |
Revenue rose 148% year over year, primarily because of properties acquired since Q1 2017 and a full quarter of contribution from some 2017 acquisitions. Net income margin was approximately 16.4% of revenue; the filing does not present a separate operating-margin measure. Interest expense was $2.684 million, up from $1.100 million, reflecting higher average borrowings. Annualized base rent was $41.277 million, with a 7.8% weighted-average capitalization rate.
Material changes versus the prior comparable period
- Completed five property acquisitions during Q1 for approximately $65.8 million in gross real-estate investment. Portfolio gross real estate increased to $537.3 million from $471.5 million at year-end 2017.
- Rental revenue increased $5.859 million; $1.068 million of tenant expense recoveries was also recorded in Q1 2018, with related expenses recognized gross.
- Net income improved by $3.219 million to $1.901 million. Depreciation, amortization and interest expense all increased as the portfolio and borrowings grew.
- Net revolving-credit borrowings increased $64.250 million. The facility was amended in March to increase aggregate commitments by $90 million, to $340 million.
- Common dividends remained $0.20 per share for the quarter. The company also paid $1.455 million of preferred dividends; Series A preferred stock carries a cumulative 7.5% annual dividend rate.
Liquidity, debt and outlook
At March 31, the company had $229.150 million outstanding under its revolving facility and $38.577 million of notes payable, net. The facility’s stated commitment was $340 million, but actual availability is subject to a borrowing-base valuation. The company reported a 0.49:1 consolidated leverage ratio and 2.11:1 fixed-charge coverage ratio, against covenants requiring leverage below 0.65:1 and fixed-charge coverage of at least 1.50:1. Weighted-average debt interest rate was 3.95%; weighted-average term was 2.44 years.
Management said existing cash and operating cash flow should meet short-term needs other than additional acquisitions. Continued acquisitions depend on access to debt or equity financing, or issuance of OP units. No earnings or acquisition guidance was provided. The company estimated that a 100-basis-point increase in LIBOR, with variable debt unchanged, would reduce annual cash flow by approximately $2.3 million.
Management commentary, risks and unusual items
- Risks highlighted include tenant defaults or nonrenewals, vacancies, healthcare reimbursement changes, rising short-term interest rates, capital-raising constraints, acquisition competition and the ability to maintain REIT qualification.
- The company identified geographic concentration, with significant annualized base rent exposure to Texas, Ohio, Pennsylvania, Oklahoma, Florida and Tennessee. Tenant concentration also exists: Encompass represented approximately 13% and OCOM approximately 11% of Q1 rental revenue.
- Capital-improvement commitments totaled approximately $19 million; management expected to spend about $3 million on tenant improvements during 2018, subject to stated contingencies.
- Subsequent to quarter-end, the company acquired the Belpre portfolio for $64.2 million, including $5.5 million paid in OP units. It also reported April 2018 performance-based LTIP awards.
- The 2017 comparative statements were adjusted for a $1.223 million credit-facility cost that had been erroneously expensed in Q1 2017 and later capitalized. The company said the error was not material to the previously issued statements.
- The company reported no material litigation or known material environmental liability. Disclosure controls were assessed as effective, and no material internal-control changes were reported for the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q is Global Medical REIT Inc., not Chiron Real Estate Inc.
- Review borrowing-base availability and covenant headroom, since revolver access is restricted by the borrowing base and covenant tests.
- Assess exposure to floating-rate debt, refinancing needs, and the effect of further rate increases on cash flow.
- Evaluate tenant credit, geographic and tenant concentration, lease expirations, and the economics of the five Q1 acquisitions and subsequent Belpre acquisition.
- Compare recurring cash generation and dividend coverage with FFO/AFFO; these are non-GAAP measures and may not be comparable across REITs.
- Reconcile the portfolio lease-term disclosures: the overview says approximately 10.7 years, while the portfolio table gives 10.4 years.