Q4 2020 Global Medical REIT Inc Earnings Call
Greetings and welcome to the global Medical REIT fourth quarter 2020 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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Now I'll turn the conference over to your host everyone and for Nick you May begin.
Thank you operator, good morning, everyone and welcome to global Medical REIT fourth quarter and year end 'twenty 'twenty earnings Conference call.
On the call today, we have Jeff Busch, Chief Executive Officer, Alfonso Leon Chief Investment Officer, and Bob Kiernan, Chief Financial Officer.
Please note the use of forward looking statements by the company on this conference call, stating.
Statements made on this call may include statements, which are not historical facts and are considered forward looking including statements related to the COVID-19 pandemic and its effect on our tenants business.
The company and chunky forward looking statements to be covered by Safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
And is making the statements for the purpose of complying with those safe Harbor provision.
Furthermore, actual results may differ materially from those described in forward looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation those contained in the company's 10-K for the year ended December 31, 2020, which will be filed.
On or about March H, 'twenty, 'twenty, one and its other securities and Exchange Commission filings.
The company assumes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.
Additionally, on this conference call. The company May refer to non-GAAP financial measures such as funds from operations and adjusted funds from operations.
You can find a tabular reconciliation of these non-GAAP financial measures to most currently comparable GAAP numbers in the company's earnings release and its filings with the Securities and Exchange Commission additional.
Additional information may be found on the Investor Relations page of the company's website at Www Dot global medical REIT Dotcom I'd like to turn the call over to Jeff Busch Chief Executive Officer of Global Medical REIT go ahead, Jeff.
Thank you Evelyn good morning, and thank you for joining our fourth quarter and year end 2020 earnings call.
Joining me today are all funds over the one hour.
Our Chief investment Officer, and Bob Kiernan, Our Chief Financial Officer, We hope that everyone continues to stay healthy and it's doing well.
2020 was a challenging year in many ways.
Our company fared very well Gee Omar E was founded with the vision jewelry.
To create a resilient and high quality portfolio of medical facilities aligned with the strongest operators and health care systems in their local markets with the expectation that these properties will generate stable revenue and return for our <unk>.
Dusters.
The challenge of 2020 tested our investment thesis and we are pleased that our portfolio delivered another quarter and another full year of solid performance.
During the year, we completed our management internalization.
226 million of acquisitions at a 7.8% weighted average cap rate and reached a milestone of over 1 billion in real estate investments.
With respect to earnings year over year, we grew our quarterly <unk> per share by what keen 0.3% to 24 cents and our annual <unk> per share by 17%.
88 sets finally.
Based in part on our aircraft BOE growth yesterday, our board of directors approved a half cent increase in our first quarter dividend, which is the first increase in our dividend since our IPO.
Overall, we could not be more pleased with the performance of our portfolio.
And there was total E&C.
Of our tenant base and the dedication of the G. M. R E T.
I would like to thank our entire team for their hard work and focus in helping us reach the milestone. We did in 2020, we are proud of what we accomplished.
Typically challenging year, and we look forward to their continued success of executing on our growth plan in 2021 with that I'd like to turn the call over to alfonzo to discuss our acquisition activity.
Thanks, Jeff.
We ended 2020 with a highly active quarter purchasing approximately $80 million of high quality off campus medical properties at a seven 3% weighted average cap rate.
These properties represented essential medical uses including cancer treatment centers, and dialysis centers, which complement the composition of our existing portfolio.
For the year, we completed $226 million of acquisitions, comprising over 915000 leasable square feet at seven eight per cent weighted average cap rate.
Do these acquisitions, we expanded relationships with wake Forest Baptist Health and spectrum.
<unk> health, which changed the composition of our top 10 tenants.
We also also broadened relationships with prominent regional operators, which is a key component of our acquisition and platform strategy.
As an example of our strategy in early 2020, we closed on a 25 million M O be in the high point North Carolina that is 100% leased to wake Forest Baptist health on a triple net basis at $19 per square foot.
The property was a 2008 build to suit for cornerstone healthcare, which was which has occupied the building since its opening.
In 2016, Wake Forest acquired cornerstone, which at the time was a 275 plus provider multi specialty group running one of the top performing acos.
We leveraged our relationships to source this deal and better understand the tenants long term plans for the building in September we leveraged our new relationship with wake Forest underwrite and acquire.
And $8 5 million MLP in Winston Salem, North Carolina that is 100 per cent leads to wait for it in.
In October Wake Forest merged with atrium health, which is double a three rated creating a new system with 42 hospitals.
Relative to our recent activity since the end of 2020, we have closed three acquisitions for $25 4 million with a weighted average seven seven cap rate.
We have an additional six properties with an aggregate purchase price of 76 million under contract.
It's been our policy to date, we are carefully evaluate evaluating the properties to make sure that day and there are operators meet our investment criteria and we can offer no assurances that we will ultimately close on these acquisitions.
Deal flow appears to be back at pre COVID-19 levels and as we have shared in the past we remain highly selective with respect to capital deployment and we will not pursue transactions that do not make economic sense.
As we look at deal flow and our expectations for 2021.
While acquisition closings may not be consistent from quarter to quarter.
Anticipating a continuation of our current acquisition pace of between $175 million.
For $225 million of properties for the year at an average cap rate range between seven and eight per cent.
I'd like to turn the call over to Bob to discuss our financial results Bob.
Thank you all funds, though.
I would like to reiterate jeffs remarks, that's portfolio produced strong results. Despite the conditions brought on by the pandemic throughout 'twenty 'twenty, even with these challenges our properties performed extremely well we grew our investment portfolio and increased our ABR by over 16% during 2020.
With respect to key performance metrics you ended the year with portfolio occupancy of 99, 1% total leasable square feet, a $3 7 million with a weighted average base rent of $23 71 per square foot Inc.
Two 1% weighted average contractual rent escalations.
Our tenants produced for 0.8 times rent coverage and our weighted average lease term increased to $8 two years up from seven eight years at the end of the third quarter. After the renewal of two leases with encompass health in our Pennsylvania facilities and a lease renewal with kindred healthcare at our Mercy rehabilitation hospital in OCA.
For home with Citi.
The performance of our properties and the impact of our acquisitions resulted in a 22% year over year improvement to our revenues to $24 9 million in the fourth quarter.
This includes collecting 99, 5% of monthly base rent for the quarter and reducing outstanding rent deferrals to approximately 100000 for.
For the year ended December 31, 2020, total revenue grew approximately 33% to $93 7 million.
Our total expenses for the fourth quarter of 2020 increased to $22 3 million from $25 million in the prior year for the year total expenses were $96 2 million as compared to $61 1 million the year over year increase reflects the $14 million recognized in connection with our management Inc.
<unk> as well as increases in depreciation amortization and operating expenses due to the growth of our portfolio.
Our management internalization also impacts of changes in our G&A expense G&A expense for the fourth quarter of 2020, which for a point for.
For a million and compares to $1 6 million in the prior year as well as $1 7 million of management fees recognized from the prior year.
The increase in G&A expenses was primarily due to the recognition of compensation other administrative expenses that prior to our internalization with the obligation of our former advisor Inc.
And included in our management fee for the remainder of the increase in G&A is related to LTI compensation expense, reflecting the impact of the LTI grants made in connection with the internalization to the company's employees. These grants will vest over a four year period.
For the year G&A expense was $11 9 million as compared to $6 5 million in 2019, the year over year change reflects the assumption of compensation costs in other words administrative expenses. They were formerly the obligation of our adviser. It also reflects the impact of LTI grants made to the company's employees noted earlier.
Yeah.
Moving onto interest expense for.
For the quarter ended December 31, 2020 interest expense was $5 1 million as compared to $4 8 million in the prior year for the year interest expense was $18 7 million as compared to $17 5 million the increase for the quarter and the year reflects reflects the impact of increased average borrowings due to the growth in our overall.
Real estate portfolio, partially offset by the reduction in LIBOR compared to 2019.
Net income attributable to common stockholders for the fourth quarter of 2020 was $1 1 million for two cents per share as compared to net income of $1 2 million or <unk> <unk> per share in the fourth quarter of 2019.
For the year, reflecting the impact of costs recognized as a result of our internalization. The company had a net loss attributable to common stockholders of $7 7 million for 17 cents per share as compared to net income attributable to common stockholders of $3 4 million for 10 cents per share.
<unk> for the fourth quarter of 2020, with 22 cents per share and unit as compared to 21 cents in the fourth quarter of last year for the year, reflecting the impact of costs related to our internalization episode was $6 56 per share and unit as compared to 75 cents in 2019.
Our <unk> for the fourth quarter of 2020 with 24 cents per share in unit up from 21 cents in the prior year quarter and for the year <unk> was 80 888 cents per share and unit as compared to 75 for the prior year.
Moving onto the balance sheet as of December 31, 2020, our gross investment in real estate was nearly 1.15 billion an increase of $237 million for 2006, 2% from year end 2019.
Turning to the liability side of our balance sheet. Our total net debt was $587 million at the end of the year up from 386 million at year end 2019, reflecting our acquisition activity.
Relative to equity issuances during the fourth quarter of 2020, we issued $1 1 million shares of common stock through our ATM program at a weighted average price of $14 21 per share to generate gross seat gross proceeds of $15 3 million.
For the full year 2020, we issued $4 2 million shares of common stock through our ATM at a weighted average price for $12 84 per share to generate gross proceeds of $54 5 million to date in the first quarter of 2021. The company has issued an additional $2 7 million common shares through our ATM program.
I think the average share price of $13.07 generating gross proceeds of $35 4 million.
Touching on our liquidity, we finished the year with total liquidity, including cash and availability on our credit facility of $80 million.
As of the end of February our cash and borrowing capacity on our credit facility was approximately $85 million.
As we look to 'twenty 'twenty, one relative to our G&A expenses, we anticipate that cash G&A for the year should be in the range of 10, eight to $11 4 million, reflecting a full year of being internally managed and our non.
Noncash stock compensation should be between $6 million at $6 4 million.
This concludes our prepared remarks, operator, please open the call for questions.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
And our first question is from Rob Stevenson with Janney. Please proceed with your question.
Hi, Good morning, guys, Bob just to follow up on your expense commentary. So just to boil it down G&A and operating expenses combined were about $7 million in the fourth quarter is there a what's in that.
We shouldn't be rolling forward or is that $7 million you know a good run rate to be using as we go throughout 2021.
Sure Rob So I tried to break it down between the different pieces with you know what.
The stock compensation number.
In you know running in that a little bit higher because of the internalization related <unk> grants so that was low.
Little bit more than $700000 about $720000 in the fourth quarter was which was due to those those stock comp grants and total stock comp was running up at 1.1 0.9, if you break it down further with the internalization related.
Cost that came over just kind of on a standalone basis that was running at about yeah.
$1.7 million in the fourth quarter, and then looking out to next year, that's something that's going to be probably more in the you know the 185.
Be trending towards $1 9 million per quarter range and then our legacy.
G&A expenses.
Which had been for the full year last year were right around $3 3 million. So so as we as we look at that you know that that's going to be against them in that similar range, maybe three three to $3 4 million for for the full year 'twenty 2021. So those are those are the pieces.
Yes.
You break it down its going to.
Could fluctuate from quarter to quarter, but on a full year basis, that's where the ranges are driven off of.
Okay.
And then you guys have a couple of assets I think its marina towers and rock surgery on cash.
Can you whats the update there is you know.
From their standpoint is that are those going to be recovering and sort of move back to our.
GAAP basis are you guys going to need to re tenant that how are you guys thinking about those tenants.
Tenants in those assets right now.
Yeah.
I'll just I'll start from a from an accounting perspective, you know that day the Marina towers is in.
They're they're currently in bankruptcy, but that is something that is being worked through at this point and it's something that we are working very closely with the tenant and are collecting.
In recognizing cash rent is that as that comes in but in that type of circumstance. The accounting is going to drive you toward recording net on a cash basis. We are not you know were working actively with the existing tenant two to work through that process and you know.
Looking to kind of that will resolve and worked through it during the year 2021.
On the Melbourne, Florida asset.
For the.
Go ahead go ahead.
Okay on marine at towers.
Tenants went into bankruptcy.
And actually raise money in the EMEA all public information of the bankruptcy, but they raise money inside the bankruptcy. Their plan was out there their plan is to pay us back.
So we're expecting them to come out of this.
Good, but they they overextended amount the amount of the building they had and we had been leasing up the rest of the building, it's a really nice piece of property.
Even with that it's right on the water.
It's a beautiful piece of property.
And.
We expect that property to be paid this is just the issue with the tenant.
At that time, but the property is very good and it can be re rented if we didn't have a problem later.
Okay, and then Bob you were talking about rock surgery.
Yeah, that's another one that where we're working with as well.
It's very.
The dollars involved there are are very small.
The annual rent on that property is.
Prior to this the circumstances, it's about 260 K for for the year. So it's a it's a very small property in the portfolio.
On the on the Marina towers too that the bankruptcy plan has been approved by the court and again in that type of situation.
Rent payments.
Formation of leases things like that.
They are a.
Good positives for the company.
And in that situation.
And so I guess last one for me I mean, how are you guys thinking about a property like today like rock surgery or the Las Cruces Medical office building, where words vacant.
At that level is it just easier.
To sell them and move on given the pipeline that you have and the ability for whatever you get out of those to reinvest those dollars.
For you know from your standpoint is it worth the.
The time and energy to re lease these assets at this point.
I could I'll comment on that.
Less crews this it's a decent market, it's hard to re rent something during the pandemic.
There is an active market.
In the last Crucis, it's sort of a regional hub in a large region for health care.
And so we do expect that to be released but if somebody wanted to buy it.
And it made sense, we would do that all so I'm not against selling properties, but we're we haven't basically out there to be released but that property could possibly be sold.
Okay. Thanks, guys I appreciate it.
Thank you.
Our next question is from Brian <unk> Securities. Please proceed with your question.
Yeah. Good morning, maybe for Alfonzo dialysis centers I heard you talking about acquiring some of those what are the other companies I cover has been pretty big in acquiring dialysis centers can you give us an idea of how deep that market is maybe number of properties in the country and the value of it.
And how deep into that market you guys would consider going.
Sure the dialysis market is.
Hum.
Very liquid sorry day, I don't have a stat for how big it is and then I see deals constantly within the dialysis sector.
It's a it's a.
And assets, that's a lot of the 10 31 exchange investors really like.
So when you have a dialysis center with a really long term lease.
In a retail setting.
You can go for a pretty aggressive cap rates.
I have seen them trade.
In the mid fives low six.
Hum.
Ones that we've targeted that are ones that are not as if they're not typically not single tenant. These are buildings that have nephrology.
Nephrology tenant that's in the building as well. So you know you are looking at a building with two or three leases.
And with you know so we're picking up extra yield in these assets because it doesn't fit.
Within the 10 31 exchange profile.
In the past we've acquired properties.
This incentive that was on a hospital campus. So it had a ground lease which is a layer of complexity that a lot of other investors don't like.
But the Alice for space is one that you know I for.
Pretty interesting and we actually has popped with an investor that focuses on dialysis quite a bit.
And the two assets we bought from from.
In a recently are ones from this group.
And you know it's.
It's it's a it's a acetate that has great fundamentals.
And you have to look at each location for.
Critically and really.
During diligence try to get a good sense for why that specific location is doing well or why it might not do well and the physicians that are aligned with that facility.
You know as a general statement you know the Dallas this sector is attractive.
And we look for deals that fit our portfolio and set our our pricing yield needs.
Okay, and you talked a little bit in your prepared comments about M&A activity and they think about how maybe it could impact some of your ask.
Assets are I guess positively down in North Carolina, and wake force et cetera, but.
Is there any M&A activity out there that you see in this space, which we hear about a lot that could negatively impact all the assets that you own.
No it is hard to predict.
That's the.
M&A activity that could.
That could have a negative impact are ones where.
The new organization has a different strategic focus than it did in the past.
Which is why it's really important when you're when we're looking at assets to have.
How would that be part of our thought process why this facility is.
Attractive for the provider why do we think dislocation specifically is this one that regardless as convenient and profitable and.
<unk> is one that has long term potential.
Yeah.
You know, we're very aware of.
Of that.
Is that happening and it's something that when we go into deals who we think for them and get very comfortable that the properties. We're buying are not exposed to that risk.
Great and just last for me and maybe this is for Bob but on the ATM issuances, which you guys have done a pretty good job on how do you think about that are you going into the ATM market kind of opportunistically with where the shares are trading expecting that alfonzo will fill that need or are you using the ATM.
Can you kind of backstop and finance the things that I'll answer is binding and you expect to close over the next quarter or two.
Yeah.
Brian we're trying to be opportunistic and we're absolutely absolutely factoring in both sides of that both.
But primarily a forward look we're trying to we're we're anticipating our needs and what's coming up and trying to be opportunistic as we used the ATM as a source of equity capital and just to kind of increase our flexibility and.
So it's really a combination of that and just really trying to be opportunistic.
Alright. Thank you that's all for me.
Our next question is from Barry, Oxford with D. A Davidson. Please proceed with your question.
Great. Thanks, guys I guess for his question is for for Bob on the L. O see you have about 525 million out I guess that gives you 75 no of capacity.
When you think about that are there opportunities.
Opportunities to kind of do some permanent financing on it maybe two or $300 million.
Okay.
Yeah. So our size right now where we are open to that idea, but I think it's we're not we don't have as many options as larger entities do too for those for.
That GAAP, because we're into growth mode, and where we're where we're growing we're adding we're adding that we're adding equity we're putting assets on all at the same time. So in that in that type of scenario with $1 1 billion of assets, it's kind of evolving into that where we can become a corporate issuer and get some longer term.
That in large chunks out there, but I think it's a it's still it's something on the radar, but it's not something that I think is a it's happening in it in the near term here.
Great Great no. Thanks that makes sense.
Alfonzo when you look out here in 'twenty, one is there a mix of property type or health care property type that you're particularly liking on a on a risk adjusted cap rate basis or Barry. It's just still kind of building by building an asset by asset from an opportunistic standpoint.
More of the latter I mean, it's really.
You know looking at as many opportunities as we can and talking to as many folks as we can.
Within what opportunities are in front of us really so being very selective in picking the best ones.
And so it's it's a really.
Looking at each each deal individually doing a deep dive.
And as I've said in the past that the market is.
It's not constant in terms of what comes to market.
And there's ways of asset types for whatever reason for us.
You know you'll have waves of applebee's at times, you'll have wave of waves of inpatient rehab hospitals.
And at times it feels like every other deal is a surgery center so.
It's really being opportunistic and dean.
Being very yeah.
Decisive and quick when when opportunities present themselves that fit our portfolio and pick what we want to do.
And you know what that what that is on a quarter by quarter basis. It really varies.
Right no that makes sense, that's kind of what I thought I appreciate it guys and congrats on crossing over the 1 billion Mark. Thanks.
And as a reminder for anyone has any questions you May press star one on your telephone keypad. Our next question is from Amanda Sweitzer with Baird. Please proceed with your question.
Thanks, Good morning, guys.
On capital allocation, you've got a true stable range of 2021 acquisitions and I've really had relatively stable volume over time.
Do you see an opportunity to scale that a bit more today, given our recent internalization transaction.
It is possible to scale what were doing is were testing different type of markets to expand types of products that we buy for instance, a couple of years ago, we bought some multiple tenants.
Bees and were using the multiple tenants. We're now almost two years into it and we're seeing that they're meeting their projections that we have.
At the time, we only did triple net and absolute net now we're looking at some multiple tenants to expand into that area.
Sort of the mental health area has some really strong opportunities to expand into and it's one of our drivers.
Drivers just to see if we could build carefully.
All I want to see how we do with it learn about it more and then expand more so basically doing our core work, which seems to be about $200 million a year on average we now been out there six years, and we're really tracking very closely to averaging about $200 million and trying to expand into new products.
Categories.
And getting the same cap rates.
Yeah. That's helpful and then sign up on from that Rob's question does the 50 basis points of bad debt in the quarter relate to Marina towers, and rock surge or were there other tenants, where you had lower collection rates and then how are you thinking about bad debt this year.
Yes, it was related entirely to two.
To rock surgery in the fourth quarter.
And and I think you know it's it's episodic.
Passata can it's event driven and are in our portfolio I think it's the way I look at it in.
Look backwards and think of our collection experience and what we went through in the pandemic and how well, we collected and how well our tenants performed and so.
I don't have big concerns about it as I look ahead to 2021, but but again any day.
And circumstances can change it tenants and locations, but but again I think our collection rate and the performance of our tenants.
It says a lot about what the future holds for them if they can perform the way they did as we saw in 2020.
I want to add to that one of our strong growth areas over the last couple of years is building our asset management Department.
And we became very strong net that and we have turned around.
Plano was a property that we turned around where we found a new tenant it took a little while for the new tenant to get its legs now we have that going in good shape.
I expect most likely we could turn around a lot.
Have a problem with one or two of these you're always going to have problems. Once you get to this type of portfolio. That's the part I always tell everybody, but the real key to it is how you get in there like with Melbourne working through the bankruptcy that they went through making sure we had a lawyer there we.
Oppose them, making sure at the end of the deal we got paid and we expect possibly get full payment going through based upon the bankruptcy. So it's really getting in there and being very active in your collections and also working hard on turning around helping a project turned around.
Unlike Plano so we got one that could have been a very big loss now profitable when moving forward.
That's helpful. I appreciate the time.
Thank you.
And we have reached the end of the question and answer session I will now turn the call over to Jeffrey Busch for closing remarks.
I'd like to thank everybody for joining us on our 2020.
Paul.
Our fourth quarter call.
We had a great year in 2020, despite many many obstacles.
They attributed to the strength of our team on working through that and now I expect our team to excel. This year in 2021. Thank you again.
This concludes today's conference and you may disconnect your lines at this time.
You for your participation.
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