Global Medical REIT Inc. — 2016 Form 10-K
Entity note: The request metadata names Chiron Real Estate Inc., but the filing identifies the registrant as Global Medical REIT Inc. (NYSE: GMRE). This summary reflects the filing. The report covers the fiscal year ended December 31, 2016, not a standalone fourth quarter.
Business context and reporting period
Global Medical REIT acquires purpose-built healthcare properties and leases them, generally under long-term triple-net leases, to healthcare operators. The company completed its IPO in July 2016, raising approximately $137.3 million net, and expanded its portfolio to facilities from 14 acquisitions by year-end. It is externally managed by Inter-American Management, LLC.
Key financial metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $8.21 million | $2.06 million |
| Net loss | $6.35 million | $1.61 million |
| Net loss per share | $0.68 | $6.44 |
| Net cash used in operating activities | $2.72 million | $0.21 million |
| Net cash used in investing activities | $150.36 million | $32.34 million |
| Net cash provided by financing activities | $163.57 million | $41.64 million |
- Revenue rose about 298%, primarily reflecting acquisitions and a fuller year of rental income from properties acquired in 2015. Rental revenue was $8.08 million; other income was $0.13 million.
- Expenses totaled $14.56 million, including $4.14 million interest expense, $4.29 million general and administrative expense, $2.33 million depreciation, and $2.32 million in acquisition fees (including related-party fees). Net loss equaled approximately 77% of revenue.
- At year-end, total assets were $227.32 million, including $196.37 million of net real estate and $19.67 million cash. Restricted cash was $0.94 million. Total liabilities were $72.29 million and stockholders’ equity was $155.03 million.
- Year-end debt included $38.41 million of notes payable, net of unamortized discount, and $27.70 million drawn on the revolving facility; the balance sheet also showed $0.42 million of notes payable to related parties. The $32.10 million Cantor loan bears 5.22% interest, with interest-only payments for its first five years; the $7.38 million West Mifflin loan bears 3.72% interest.
- The revolving facility initially provided up to $75 million, subject to a borrowing base, with an accordion to $200 million. The company reported $27.70 million drawn at year-end. A March 2017 amendment increased commitments to $200 million, with a further $50 million accordion subject to conditions.
- Dividends paid to common stockholders totaled $3.88 million in 2016; a further $3.60 million dividend was accrued at year-end and paid in January 2017. The filing does not establish that dividends were covered by operating cash flow, which was negative.
Material changes versus the prior period
- The July 2016 IPO materially increased equity and funded acquisitions, debt repayment, and working capital. Shares outstanding increased from 250,000 at year-end 2015 to 17,605,675 at year-end 2016, including shares issued in the IPO and conversion of related-party debentures.
- The portfolio expanded substantially: 10 acquisitions closed in 2016, increasing real estate investment to $196.37 million net from $55.15 million. Acquisitions drove higher revenue, depreciation, interest, and administrative costs.
- Revenue increased, but the company remained loss-making. FFO was negative $3.98 million and AFFO negative $0.30 million in 2016; both measures were also negative in 2015. These are non-GAAP measures.
- Related-party convertible debentures were eliminated through $30.03 million of conversions to common shares and repayment of $10.00 million of principal. The company also repaid the Omaha loan and refinanced the Plano loan.
- The company entered into a revolving credit facility in December 2016 and had $27.70 million outstanding at year-end.
Outlook, risks, contingencies, and unusual items
- Management planned continued acquisitions funded through operating cash flow, debt, equity, OP units, or other sources; it provided no quantified earnings or revenue guidance. Post-year-end activity included several property acquisitions and a proposed $49.5 million Oklahoma City transaction expected to close in the second quarter of 2017, subject to customary conditions.
- Management intended to qualify as a REIT beginning with tax year 2016. Failure to qualify could result in corporate-level taxes and affect future REIT eligibility. The company recorded approximately $70,000 for federal and state income taxes for 2016.
- Key risks include tenants’ ability to pay rent, healthcare reimbursement and regulatory changes, competition, interest-rate exposure on floating-rate borrowings, access to capital, acquisition execution, and REIT qualification. Rental revenue was concentrated: Omaha represented about 21%, Plano 18%, and Tennessee 17% in 2016.
- The company disclosed a material weakness in internal control over financial reporting due to insufficient segregation of duties. Management concluded disclosure controls and internal controls were not effective at year-end; remediation included planned staffing changes and an external controls review. The financial-statement audit opinion was unqualified, but the auditor did not attest to internal-control effectiveness.
- The filing reported no material litigation or known material environmental liability, and no material off-balance-sheet arrangements. The Omaha land lease has a 12.5% rent increase scheduled for April 2017.
Important facts for investors to verify
- Confirm the intended issuer: filing registrant is Global Medical REIT Inc., not the company named in the request metadata.
- Assess remediation progress and any subsequent auditor findings regarding the disclosed material weakness.
- Review revolving-facility borrowing-base availability, covenant compliance, floating-rate exposure, and debt maturities; the filing’s facility limits are not equivalent to freely available liquidity.
- Evaluate tenant credit quality and property-level concentration, particularly the largest rental contributors, lease guarantees, renewal options, and tenant purchase options.
- Compare the dividend and planned acquisition pace with recurring cash generation, AFFO, debt service, and capital needs; operating cash flow was negative in 2016.
- Verify completion and financing of announced post-year-end acquisitions and the outcome of the company’s 2016 REIT election.