Business context and reporting period
Filing identity: The supplied filing is Global Medical REIT Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2015—not a filing identifying Chiron Real Estate Inc. Investors should verify the issuer before relying on this summary. Global Medical REIT owns healthcare properties leased to medical operators; at quarter-end, it reported three properties. ZH USA, LLC owned 99.5% of its common stock.
Financial performance and position
| Metric | Three months ended Sept. 30, 2015 | Nine months ended Sept. 30, 2015 |
|---|---|---|
| Total revenue | $487,102 | $1,405,140 |
| Net loss | $(497,793) | $(818,767) |
| Net loss margin | Approx. (102%) | Approx. (58%) |
| Depreciation expense | $153,148 | $446,491 |
| Interest expense | $363,937 | $988,825 |
For the nine months, operating cash flow was negative $80,165; investing cash flow was negative $11.68 million, principally for the West Mifflin acquisition; and financing cash flow was positive $11.76 million. Cash was $300,579 at September 30.
At quarter-end, total assets were $35.87 million, total liabilities $35.16 million, and shareholders’ equity $715,772. Debt included $23.88 million of acquisition-related notes, a $9.99 million convertible debenture owed to the majority shareholder, and $388,195 of notes payable to that shareholder. Related-party balances payable, net, were $580,283. The filing reports no preferred shares outstanding and 250,000 common shares outstanding.
Material changes versus prior comparable periods
Third-quarter revenue increased 19% from $409,002 in 2014; nine-month revenue rose to $1.41 million from $522,827. Management attributed the increase mainly to full-period contributions from the Omaha and Asheville properties, an Omaha rent increase, and six days of West Mifflin rent. Net loss widened in the third quarter from $185,606 to $497,793, reflecting higher general and administrative expense, depreciation, and interest. Nine-month net loss increased from $746,011 to $818,767 despite substantially higher revenue.
Third-quarter general and administrative expense rose to $377,810 from $51,941, including $227,000 of West Mifflin acquisition costs, described as one-time. Nine-month interest expense increased to $988,825 from $405,145, principally due to higher borrowings and a longer period of interest on existing loans.
Outlook, risks, and unusual items
On September 25, the company acquired a surgery center and medical office building in West Mifflin, Pennsylvania, for approximately $11.6 million including fees. Its two leases run to 2030, with two five-year renewal options and 2% annual base-rent increases beginning in October 2018. The acquisition was funded with a $7.38 million Capital One loan at 3.72% and a $4.55 million majority-shareholder debenture. The loan matures in 2020 and includes financial covenants beginning December 31, 2015.
After quarter-end, the company disclosed agreements to acquire an approximately $17.5 million Texas hospital in Plano, plus a $500,000 development fee and potential expansion funding of up to $2.75 million; closing was expected by December 31, 2015. It also agreed in October to acquire an approximately $20.5 million acute-care hospital in Lancaster, Texas, with closing expected by year-end. Both transactions were to be funded with third-party debt and shareholder convertible borrowings.
Management said cash on hand, operating cash, lender funding, and potential majority-shareholder support were expected to meet liquidity needs for at least 12 months, but the company had no binding agreement for future financing and was discussing a possible securities offering. Management warned that failure to obtain capital could delay expansion and materially harm results or financial viability. It intended to elect REIT tax treatment beginning in 2015 but gave no assurance it would qualify or remain qualified. Monthly dividends were $0.0852 per share; $191,700 was declared for the first nine months, of which $170,400 had been paid by quarter-end. No numerical earnings or acquisition guidance was provided.
Other risks include high leverage, limited cash, dependence on a controlling shareholder and related-party manager, debt covenants and refinancing, competition, interest-rate exposure, and tenant/operator performance. The filing reported no material litigation and no identified material environmental liability. Management concluded disclosure controls were effective as of quarter-end and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the filing names Global Medical REIT Inc., while the request metadata names Chiron Real Estate Inc.
- Verify the actual closing, financing, lease terms, and subsequent performance of the Plano and Lancaster acquisitions.
- Review the terms, conversion features, interest accrual, and repayment expectations for shareholder debt and the company’s ability to obtain additional capital.
- Assess compliance with Capital One loan covenants, upcoming maturities, and the adequacy of liquidity given cash of only $300,579 at quarter-end.
- Confirm dividend sustainability against operating cash flow, debt service, and REIT qualification and distribution requirements.