Global Medical REIT Inc. — Q2 2016 Form 10-Q
Entity note: The supplied filing identifies the registrant as Global Medical REIT Inc. (NYSE: GMRE), not Chiron Real Estate Inc. This summary reflects the filing. The reporting period ended June 30, 2016; the statements are unaudited and prepared under U.S. GAAP.
Business context
Global Medical REIT acquires healthcare properties and leases them to healthcare operators, primarily under triple-net leases. By June 30, its portfolio included facilities from seven acquisitions. It completed an IPO after quarter-end and said it intended to elect REIT tax treatment beginning with tax year 2016.
Financial results and position
| Metric | Q2 2016 / June 30, 2016 | Comparable period / prior year-end |
|---|---|---|
| Total revenue | $1.77 million | $0.46 million in Q2 2015 |
| Net loss | $0.49 million | $0.13 million in Q2 2015 |
| Six-month revenue | $3.08 million | $0.92 million in H1 2015 |
| Six-month net loss | $2.44 million | $0.32 million in H1 2015 |
| Cash from operations, six months | $(0.20) million | $(0.01) million in H1 2015 |
| Cash and restricted cash | $2.57 million cash; $0.98 million restricted | $9.18 million cash and $0.45 million restricted at Dec. 31, 2015 |
| Total assets | $98.39 million | $65.33 million at Dec. 31, 2015 |
| Third-party notes payable, net | $54.46 million | $23.49 million at Dec. 31, 2015 |
| Convertible debenture to majority stockholder | $25.03 million | $40.03 million at Dec. 31, 2015 |
| Total liabilities / equity | $86.25 million / $12.13 million equity | $65.47 million liabilities / $(0.14) million equity at Dec. 31, 2015 |
Q2 net loss was about 28% of revenue; the filing does not present a conventional operating-margin measure. Revenue growth principally reflected additional acquired properties. Higher depreciation, interest expense, general and administrative costs, and acquisition fees contributed to the larger loss. H1 investing cash outflow was $37.64 million, mainly for property acquisitions; financing provided $31.24 million. Dividends paid in H1 were $0.29 million.
Changes and transactions
- In H1, the company acquired Plano, Melbourne, and Westland properties for approximately $37.95 million in aggregate recorded investment. Net real estate investment rose to $92.15 million.
- The $32.10 million Cantor loan, bearing 5.22% interest, financed the Melbourne and Westland acquisitions and refinanced the Plano loan. It is interest-only for its first five years, has a 2026 maturity, cross-default and cross-collateral provisions, and a 1.35:1 minimum aggregate debt-service-coverage covenant.
- On July 1 and July 11, the company issued 15.0 million IPO shares at $10 each, raising approximately $138.97 million net in total after underwriting discounts, advisory fees, and commissions. The shares began trading on the NYSE as GMRE.
- After the IPO, the company converted $15.03 million of remaining stockholder debentures into shares and paid $10.0 million principal plus $1.72 million accrued interest. It also repaid the $1.5 million interest-free stockholder loan and paid off the Omaha loan for approximately $14.92 million, including an early termination fee.
- On July 20, the company acquired two Wyomissing, Pennsylvania healthcare facilities for approximately $9.2 million, funded from IPO proceeds. These transactions occurred after the balance-sheet date.
Outlook, risks, and unusual items
- Management said the IPO strengthened liquidity and reduced leverage. It expected to fund near-term needs with cash, operating cash flow, IPO proceeds, and potential borrowings; long-term needs could be funded through operations, debt, equity, OP units, or selected dispositions. No numerical earnings or acquisition guidance was provided.
- Management was evaluating potential acquisitions but cautioned that completion, timing, financing, and suitable opportunities were uncertain. It expected future acquisitions to increase investing cash outflows.
- Principal disclosed risks include tenant defaults or lease non-renewals, tenant/operator financial health and healthcare competition, interest rates and operating costs, access to capital, acquisition execution, debt-service capacity, and maintaining REIT qualification. The portfolio’s rental income was concentrated among several facilities and operators.
- The amended management agreement effective July 1 replaced acquisition fees with a base fee equal to 1.5% of defined stockholders’ equity and introduced incentive compensation subject to specified AFFO conditions. It has an initial three-year term; termination or non-renewal may trigger a fee generally based on three times specified average fees.
- The company reported no material litigation, known material environmental liability, or defaults upon senior securities. Disclosure controls were assessed as effective; no material quarterly change in internal control was reported.
Key facts for investors to verify
- Reconcile the IPO net proceeds and stated uses, including the approximately $84.2 million designated for the acquisition pipeline, capital improvements, and general working capital.
- Review post-IPO debt balances and confirm the Omaha loan and stockholder obligations were repaid as disclosed; assess remaining maturities, loan covenants, and refinancing risk.
- Assess tenant credit quality, lease guarantees, rent concentration, and the capacity of operators to meet lease obligations.
- Evaluate the effect of the new management fee and incentive-compensation terms, related-party relationships, and potential equity-plan dilution.
- Confirm the company’s progress in meeting REIT requirements and its ability to support future dividends from operating cash flow rather than capital proceeds.