Filing summary
Entity and period: The supplied filing is Global Medical REIT Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018, filed November 6, 2018. This differs from the request metadata naming Chiron Real Estate Inc. The company acquires healthcare facilities and leases them to healthcare operators; it is externally managed and elected REIT tax treatment.
Financial performance and position
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $14.0 | $8.4 | $38.8 | $20.5 |
| Net income (loss) | $1.8 | $0.6 | $5.1 | $(1.3) |
| Net income (loss) attributable to common stockholders | $0.3 | $0.4 | $0.6 | $(1.6) |
| Basic and diluted earnings per common share | $0.01 | $0.02 | $0.03 | $(0.08) |
| FFO per share/unit | $0.21 | $0.14 | $0.58 | $0.27 |
| AFFO per share/unit | $0.20 | $0.17 | $0.56 | $0.40 |
Q3 rental revenue was $13.1 million; nine-month rental revenue was $36.2 million. Management attributed the substantial revenue growth mainly to the larger portfolio and acquisitions. Nine-month interest expense rose to $10.7 million from $5.3 million, primarily reflecting higher average borrowings and interest rates. The filing does not present a single operating-margin measure as a key performance metric.
- Cash flow, nine months: Operating activities provided $19.1 million, versus $8.4 million in 2017. Investing used $136.4 million, versus $213.5 million. Financing provided $114.0 million, versus $193.3 million.
- Assets and liquidity: Total assets were $604.1 million at September 30, 2018, including net real estate of $586.2 million. Cash and restricted cash totaled $3.8 million, down from $7.1 million at year-end 2017; cash and cash equivalents alone were $3.0 million.
- Debt: Debt net of unamortized discounts was $331.9 million, up from $200.7 million at year-end 2017. Gross credit-facility borrowings were $297.4 million ($197.4 million revolver and $100.0 million term loan); third-party notes totaled $39.5 million gross. The weighted-average debt rate was 4.35% at quarter-end, versus 3.72% at year-end 2017.
- Equity and distributions: Total stockholders’ equity was $254.7 million, compared with $259.0 million at year-end. Common dividends were $0.20 per share each quarter; Series A preferred dividends accrue at 7.50% annually on a $25 liquidation preference. Nine-month cash dividends paid were $14.1 million to common/OP/LTIP holders and $4.4 million to preferred holders.
Material changes and developments
- The company completed eight acquisitions during the first nine months of 2018, adding $141.5 million to gross real estate investment. The portfolio had 72 buildings, 1.9 million leasable square feet, $47.7 million of annualized base rent, a 7.9% weighted-average capitalization rate, and 10.4 weighted-average lease years remaining.
- Real estate investment net of depreciation and amortization increased to $586.2 million from $457.9 million at December 31, 2017. Debt growth principally funded acquisitions; net credit-facility borrowings during the nine-month period were $132.5 million.
- On August 7, the company amended and restated its credit facility, increasing total capacity from $340 million to $350 million: a $250 million revolver and a $100 million five-year term loan. The revolver maturity was extended to August 2022, with a one-year extension option; an accordion feature permits capacity up to $500 million. Pricing varies with leverage.
- The company entered into a five-year, $100 million interest-rate swap, effectively fixing the term loan’s LIBOR component at 2.88%. The swap had a $139,000 fair-value asset at quarter-end; a $109,000 loss was recorded in other comprehensive loss.
- Under an at-the-market program, the company issued 372,000 common shares during Q3 for $3.2 million net proceeds. The program allows sales of up to $50 million, inclusive of amounts under the prior agreement.
- On November 2, 2018, the company agreed to sell Great Bend Regional Hospital for approximately $32 million. The buyer was still conducting due diligence, and timing and closing were not assured.
Outlook, risks, and contingencies
- No formal earnings or FFO guidance is provided. Management said it believed existing cash and operating cash flow, together with financing sources, would meet short-term liquidity needs apart from funding future acquisitions. Long-term needs are expected to be met through operating cash flow, debt and equity financing, OP Unit issuances, and selected dispositions or joint ventures.
- Management reported a 0.54:1 consolidated leverage ratio and a 1.92:1 fixed-charge coverage ratio at September 30, versus facility requirements of a maximum leverage ratio below 0.65:1 before October 1, 2019 and a minimum fixed-charge coverage ratio of 1.50:1. Covenants and borrowing-base tests constrain capacity and distributions.
- Interest-rate exposure remains material. Management estimated that a 100-basis-point LIBOR increase would reduce annual cash flow by approximately $2.0 million, assuming variable-rate debt did not change. The term-loan swap mitigates only the hedged amount. Management also cited tenant defaults or non-renewals, vacancy and rent pressure, acquisition execution, access to capital, reimbursement changes affecting tenants, and REIT qualification as risks.
- As of September 30, the company reported $17.0 million of aggregate capital-improvement commitments, many subject to contingencies; it expected approximately $721,000 of tenant improvements in 2018, of which $521,000 had been incurred by quarter-end.
- The company reported no material litigation or known material environmental liability. It said there were no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting. Management concluded disclosure controls were effective.
- The company adopted revenue-recognition guidance without material impact. It expected the new lease standard, effective for it January 1, 2019, to require recognition of right-of-use assets and lease liabilities for ground leases where it is the lessee; it did not anticipate significant changes to lease revenue or expense accounting.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Global Medical REIT Inc., not the company named in the request metadata.
- Review actual availability under the revolver’s borrowing base and covenant headroom, not only stated facility capacity; assess debt maturities, interest-rate exposure, and the effect of rates on cash flow.
- Track cash available after debt service, capital and tenant improvements, and common and cumulative preferred dividends; common dividends exceeded nine-month net income attributable to common stockholders.
- Assess tenant and property concentration, lease expirations and renewals, and operator financial health, including the large Belpre and Dallas properties and the proposed Great Bend disposition.
- Verify whether the Great Bend sale closes and at what proceeds, and how the proceeds are used. FFO and AFFO are non-GAAP supplemental measures and may not be comparable with other REITs.