Filing summary
Reporting period: Form 10-Q for the quarter ended September 30, 2017, filed November 9, 2017. The filing identifies the registrant as Global Medical REIT Inc., not Chiron Real Estate Inc.; confirm the issuer identity before relying on this summary.
Business context
Global Medical REIT is an externally managed healthcare-property REIT that acquires medical facilities and leases them primarily to clinical operators under triple-net leases. At quarter-end it held 29 facilities, with approximately 1.19 million net leasable square feet and an average remaining lease term of 9.22 years. It completed 16 acquisitions during the first nine months of 2017 for approximately $215 million.
Financial performance and position
| Metric | Q3 2017 / September 30, 2017 | Comparable period / prior year-end |
|---|---|---|
| Total revenue | $8.39 million | $2.00 million in Q3 2016 |
| Net income (loss) | $0.61 million; $0.02 per common share | $(1.98) million; $(0.11) per share in Q3 2016 |
| Revenue, first nine months | $20.47 million | $5.09 million in 2016 |
| Net loss, first nine months | $(1.34) million; $(0.08) per common share | $(4.42) million; $(0.68) per share in 2016 |
| Operating cash flow, first nine months | $7.28 million provided | $2.06 million used in 2016 |
| Cash | $6.78 million | $19.67 million at December 31, 2016 |
| Total assets | $428.93 million | $227.32 million at December 31, 2016 |
| Total liabilities | $175.90 million | $72.29 million at December 31, 2016 |
| Debt | $126.10 million revolving borrowings plus $38.51 million net notes payable | $27.70 million revolving borrowings plus $38.41 million net notes at December 31, 2016 |
Q3 net margin was approximately 7.2%; the nine-month net margin was approximately negative 6.5%. Management attributed the substantial revenue growth primarily to the expanded property portfolio. Nine-month FFO was $5.15 million, AFFO $7.65 million, and Normalized AFFO $8.10 million; these are non-GAAP measures and should not be treated as substitutes for GAAP results. Corresponding per-share amounts were $0.27, $0.40, and $0.43.
Net cash used in investing activities was $213.51 million, principally for acquisitions. Financing activities provided $193.33 million, including net revolving borrowings of $98.40 million, common offering proceeds of $33.79 million, and preferred offering proceeds of $75.15 million. The revolving facility had a $250 million total commitment after the accordion was fully committed, but actual borrowing availability is subject to the borrowing base and covenants. The company reported covenant compliance at quarter-end; unused borrowing capacity is not clearly quantified in the filing.
Changes and notable items
- Revenue rose sharply year over year as acquisitions expanded the portfolio. Q3 2017 included $443,816 of tenant expense recoveries; these are recorded gross alongside related operating expenses.
- Q3 2017 results moved to net income from a loss in Q3 2016. For the first nine months, the company remained loss-making, although the loss narrowed from 2016.
- The company issued 4.025 million common shares at $9 per share, generating approximately $33.8 million net, and 3.105 million Series A preferred shares, generating approximately $75.1 million net. Preferred stock carries a cumulative 7.50% annual dividend on its $25 liquidation preference.
- Common dividends remained $0.20 per share per quarter. The Q3 common dividend of $4.42 million was paid October 9, 2017; the initial preferred dividend of $743,598 was paid October 31, 2017.
- The weighted-average debt rate was 3.84% and weighted-average term 3.43 years at September 30, 2017, versus 4.29% and 6.04 years at December 31, 2016. Floating-rate revolving debt exposes the company to interest-rate changes.
- The filing says $1.22 million of revolving-facility financing costs had been erroneously expensed in Q1 and were capitalized in the second quarter. The filing does not clearly describe a restatement of previously issued statements.
Outlook, risks and controls
Management intends to pursue additional acquisitions as opportunities and financing permit, but provides no specific earnings, revenue, acquisition, or dividend-growth guidance. It expects to meet liquidity needs through operating cash flow, cash, borrowings, and future equity or debt financing. Management cautioned that continued facility borrowing without additional equity could constrain liquidity or require covenant waivers. The company also has an at-the-market common-share program of up to $50 million; no shares had been sold under it by quarter-end.
Risks highlighted include tenant defaults or lease non-renewals, vacancy or rent pressure, acquisition and integration challenges, interest-rate and financing risks, access to capital, healthcare reimbursement and regulatory changes, and maintaining REIT tax qualification. The HealthSouth facilities accounted for approximately 18% of Q3 rental revenue; OCOM accounted for 15%. Management reported no material litigation or known material environmental liability.
Management concluded disclosure controls were effective at quarter-end. A previously disclosed material weakness in internal control over financial reporting related to segregation of duties was still being remediated; the company reported hiring a new CFO and adding accounting staff, and said control testing was to begin.
Key facts for investors to verify
- Confirm that Global Medical REIT Inc., rather than the company named in the request, is the intended filing issuer.
- Review current revolver availability, borrowing-base limitations, covenant headroom, and sensitivity to floating interest rates.
- Assess whether rental collections and tenant/operator credit support continued common and cumulative preferred dividends, particularly given the low cash balance and acquisition funding needs.
- Check tenant and facility concentration, lease terms, acquisition performance, and whether the financing-cost correction affected prior-period reported results.
- Follow remediation and testing of the disclosed internal-control material weakness, and verify progress on any planned acquisitions or ATM equity sales.