Business Context and Reporting Period
This Form 8-K was filed by Global Medical REIT Inc. on February 3, 2016, reporting events occurring on January 28, 2016. The filing details the completion of an asset acquisition and associated financing arrangements.
Key Financial Metrics and Transaction Details
- Acquisition: Purchased an approximately 24,000 square foot, 8-bed acute hospital facility in Plano, Texas, for a total purchase price of approximately $17.5 million.
- Lease Terms: The property is leased back to Star Medical Center, LLC under an absolute triple-net lease expiring in 2036, with two 10-year renewal options. A tenant allowance of up to $2.75 million is provided for a 6,400 square foot expansion.
- Debt Financing (Bank): Secured a $9,223,500 promissory note from East West Bank maturing on January 28, 2021. Interest is calculated as the WSJ Prime Rate plus 0.50% (minimum 4.0%).
- Debt Financing (Shareholder): Received $9,369,310 from its majority shareholder, recorded as unsecured Convertible Debentures bearing 8% annual interest. Conversion price is set at $12.748 per share.
- Transaction Costs: Paid a $500,000 development fee to Lumin, LLC, a $50,000 non-refundable deposit, and a $46,117.50 commitment fee to the lender.
Material Changes
The filing reports a material change in the Company's asset base and capital structure due to the January 28, 2016 closing. The Company added a new income-producing real estate asset and incurred new debt obligations totaling approximately $18.6 million ($9.2 million bank loan and $9.4 million shareholder debentures) to fund the transaction.
Outlook, Risks, and Contingencies
- Financial Statements: Required financial statements of the business acquired and pro-forma financial information are not included in this filing and will be submitted by amendment within 71 calendar days.
- Repayment Terms: The bank loan requires principal and interest payments beginning March 10, 2016, with the full balance due at maturity. The shareholder debentures are due on demand.
- Conversion Risk: The shareholder debentures are convertible into common stock, which may result in future dilution of existing shareholders.
Investor Verification Checklist
- Verify the upcoming 71-day amendment for pro-forma financial impact and acquired business financials.
- Confirm the current WSJ Prime Rate to calculate the exact interest expense on the East West Bank loan.
- Review the lease agreement terms regarding the $2.75 million tenant allowance and expansion timeline.
- Assess the dilution impact if the majority shareholder exercises the conversion option on the $9.37 million debenture.
- Monitor the Company's liquidity to ensure timely debt service payments starting March 2016.