Q1 2021 Global Medical REIT Inc Earnings Call
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Thank you for standing by this is the conference operator.
Welcome to the global medical REIT first quarter 2021 earnings call.
As a reminder, all participants are in a listen only mode on the conference is being recorded.
December 31, 2020, and it's other securities and Exchange Commission filing the.
The company assumes no obligation to update publicly or any of forward looking statements, whether as a result of the new information future events or otherwise.
Additionally, on this conference call the company may refer to certain non-GAAP financial measures such.
Such as funds from operations and adjusted funds from operations you can find of tabular reconciliation of these non-GAAP financial measures. The most currently comparable GAAP numbers and the company's earnings release and in filings of the Securities and Exchange Commission.
Additional information may be found on the Investor Relations page of the company's website at Www Global medical REIT Dot com.
And now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical read.
Jeff.
Thank you have on good morning, and thank you for joining our first quarter of 2021 earnings Conference call. Joining me today are all forms of we own our chief investment Officer, and Bob Chairman or Chief Financial Officer, We hope that everyone continues to stay healthy and the.
It's doing well.
<unk> was founded with the vision to create a high quality portfolio of medical facilities, along with the strongest operators and health care systems and their local markets.
With the expectation that these properties with generates favorable revenue in return for our investors coming off a strong year in 2000 Chinese as vaccinations continued to be administered and we start to see a white at the end of the tunnel, we are well positioned to continue to execute.
On our strategy 2021 with respect to earnings in the quarter, we grew our quarterly F F O per share.
And unit by 21 per cent 223 cents per share and our <unk> per share and unit by 20.
224 cents compared to the first quarter of 2020 with a focus on both the who.
Virginia, and expanding financial capacity to execute on our growth plan.
M O b is coming to market.
The space. Despite the increase in competition. We finished 2020 with good momentum and we continue to be successful in finding and acquiring accretive properties within our target cap rate range.
And a quarter, we closed on for acquisitions totaling $43 million at a weighted average cap rate of seven 6%.
To date, we completed 100 on 1 million of acquisitions at a weighted average cap rate of seven 4%.
Additionally, we currently have three properties with an aggregate purchase price of 32 million under contract.
As has been our policy today, we are carefully evaluating these properties to make sure that day and our operators meet our investment criteria and we can offer no assurances that they will ultimately clothes on these acquisitions.
Among our completed acquisitions, there are two that you'd like the highlight.
In April we acquired of six property portfolio 82000 square feet for $31.2 million and the Fort Myers market occupied by a large primary care and women's care practices.
How about one of the buildings is located within half mile of of major hospital.
The other ones have been occupied by these 10 of groups since construction in the early two thousands.
All of the buildings of trip on at least with 2% contractual rent escalations.
On March we closed on a $17 4 million acquisition of of 31000 square foot behavioral health facility occupied of guaranteed by Kindred healthcare.
The 46 bed facility is one of two behavioral hospitals Kindred recently opened and of DSW market and is expandable on an overall five on five acre site.
The time of acquisition of the facility reached stabilized occupancy.
After factoring in our 2021 acquisitions, we now have a diversified 1.2 billion portfolio from 32 States. We've averaged 18 closings per year, which brings us among the ones active investors on the MLP sector.
We have been able to sustain our acquisition pace by primarily by an individual assets are most and will be investors focus on acquiring large portfolios. As we continue to grow we are leveraging our network and the track record rebuilt on our niche the source of secure deals for that said, while the market is increasingly competitive and we have completed 100.
The $1 million of acquisitions the date.
We're not changing our acquisition of items of 175, the $225 million at this time.
I'd like to now turn the call over to pump the discuss our financial results Bob.
Thank you all fondo.
GMO re benefits from a stable business model and from the strength of profitability of our tenants. Once again the portfolio of produced strong results. This quarter, we've accomplished a tremendous amount already this year and we're excited to see what the remainder of 2021 breaks.
With respect the key performance metrics, we ended the quarter with the portfolio occupancy of 99% total leasable square feet of three 8 million square feet with the weighted average base range of $23 90 per cent per square foot at 2.1% weighted average contractual rent escalation.
Ah Kenneth had an average range coverage ratio of for six times in a weighted average lease term at quarter and with the seven nine years.
We achieved a 27% year over year increase from a rental revenue 27 $3 million from the first quarter to the benefit of our acquisition activity and rent Escalations Gregg.
Great collections remained strong overall, we've collected over 98% of our queue on rent, including the impact of two tenants that the account for in of cash basis on.
Total expenses for the for a quarter of 2021 increased to $24 million from $88 million in the first quarter of 2020, the growth and expensive is largely related to the acquisitions completed over the last 12 months.
G&A expense for the first quarter of 2021 was for for a million dollars and compares to a pre internalization combined expense of three $8 million, including one $8 million and G&A and 2 billion in management fees to our former advisor in the prior year quarter.
But then these G&A expenses are non-cash stock compensation costs drove the overall increase with $1.7 million of stock compensation and 2021 compared to 922000 and the first quarter of 2020.
As discussed last quarter. This increases the result of the one time retention grants made at the time of internalization.
We anticipate our gene expense to remain between four and $4 for a million dollars on a quarterly basis in 2021, even as we increase the size of our portfolio.
Net income attributable good common stockholders for the first quarter of 2021 was one 8 million for three per share as compared to net income of $1.3 million of three per share in the first quarter of 2020.
<unk> for the first quarter was 23 cents per share in unit as compared to the 19th per share of unit in the first quarter of 2020.
<unk> for the first quarter was 24 cents per share and unit of 20% from the prior year quarter move.
Moving on to the balance sheet.
As of March 31, 2021 of gross investment in real estate was approximately 1.2 billion and the increase of $212 million for 22% from the first quarter of 2020 on.
On March 18th we completed and eight 6 million share equity offering raising approximately $115 million of gross proceeds.
When combined with the equity issuances on our ATM during the quarter, we've reached approximately of $150 million and gross proceeds at a weighted average price of $13 of 25 per share.
Proceeds from these issuances for you to support our acquisition activity and to pay down the balance of our revolver.
On the liabilities sort of our balance sheet at March 31, we had $485 million of net debt on our leverage ratio was 41%.
Are weighted average interest rate during the quarter was 317 per cent.
As Jeff mentioned as we noted in a recent press release on May 3rd the amended in the state of our credit facility. This transaction is very significant to us on many fronts as we increased our borrowing capacity by of 150 million produced borrowing costs across our pricing grid converted to an unsecured facility and experience of our debt.
Maturity to a weighted average of for nine years.
The facilities now comprised of of $400 million revolver of $350 million term loan and the <unk>.
500 million dollar accordion.
No. The also the subsequent to closing the amended facility we entered into forward starting interest rate swaps to hedge the LIBOR component of the interest rate on the term loans.
The new swaps will be effective after our current interest rate swaps begin to mature in August of 2023, and they will run until May of 2026 as of today are borrowing capacity until the revolvers approximately $250 million with the closing of this amendment facility I'd like to thank all of the syndicate lenders that by J P. Morgan.
For their support can vote of confidence and <unk>.
Overall based on the steps we've taken so far in 2021, we believe that we are well positioned to executed on our ex acquisition strategy are looking forward to sharing our progress with you in the coming quarters.
This concludes our prepared remarks operating please open the call for questions.
We will now begin the question and answer session.
During the question queue in May of gross call then one on the telephone keypad.
You will hear of current acknowledging the request.
Even the speaker phone please pick up the handset before pressing any cheese.
We report for a moment of colas during the queue.
The first question comes from Amanda Schweitzer from the please go ahead.
Thanks, Good morning.
On your underlining matter of physician guidance.
[laughter] wedding on your on.
Jean Jacques with the should guidance that day.
Driven more by your desire to the library.
Or are you the kinds of that competition that you talked about that your seat in the market I guess, what I'm trying to get it for.
Whether that acquisition guidance could increase later this year. If you do find more opportunities are if you expect to maintain it to maintain that leverage.
That's actually a great question.
We buy whatever week of by within the quality of that week for by and there's more competition on the market. So.
We're basically the App, if we do fine product, which may happen and it fits within that we will buy.
We're still working for the guidance on our leverage is really there cause we want to absolutely bring down on our leverage amount, but we do have the ability to buy and we will byproduct.
It's more of a realistic situation of the market right now at this point, but it could change later.
Okay that makes sense and then.
As you think about tax increases are potentially rolling back 10, 31 exchanges are there any for that you can use like <unk> for other things that you think could become more attractive the sellers got on the line.
Alfonzo.
Sure Yeah, I think so I mean.
We always.
Introduce the the concept of of units with.
As many selling parties as we can.
I'm of the belief that.
It'll become more attractive, but it's hard to predict but we always all for it.
Ah come on and.
And then the last one for me can you just talk more about what your speed net terms of Lee seen activity in the day, you. Obviously don't have much bacon the across the portfolio, but do you think we could see an occupancy uptake with the Eric, especially given the low amount of of weeks maturities you have.
I'll be kind of one vacant yes, we have one vacant property at at this point of our Occupancies is the tick over 99% and we're actively working too.
To release that facility of work in progress and we don't have.
The more detailed update at this point, but it's something that we're actively reactively working on.
Great. Thanks, I appreciate the time guidance.
Thank you.
The next question comes from one of the number here the.
Capital markets. Please go ahead.
Hi, good morning.
Maybe a question for Bob So post the equity racing and the the.
The leveraging.
What is your new.
Target either of leverage or a note that the EBITDA terms and how much balance sheet firepower do you have the desktop and our positions.
Sure. So we know at the end of the quarter.
Reported on leverage down in the lower forties of 41%.
And as we talked in the last quarter of goal was to reduce our leverage and to do that over time, and so we start $250 million of borrowing capacity that we have today are expectation right now that we would we would be comfortable increasing our leverage into the into the mid forties.
Be comfortable at that level, so I could see from our target. We're not we're not really changing where our target is and where we're comfortable in that in that mid forties, as we get larger and we grow and get more scale.
Over time will bring it down.
Day is lowered levels.
Possibly even lower as the as we get larger but right now we're still comfortable and the net mid forties range.
Great and then just the second question.
It seems like you're doing more dialysis and maybe a bit more behavioral health in the.
Past is that is strategic shift away from.
Traditional medical offices.
Give me just the risk reward and maybe Capri of compression for Mlps and should we expect.
More of those two other food groups dialysis and behavioral health.
So we've been.
It's not like we have not been looking for dialysis for.
Dialysis.
The the bulk of the inventory of that becomes available in the market.
And the the hours of space.
Is a product type that doesn't really fit well with our portfolio. It's typically smaller for.
Typically trading and on pretty low cap right.
And.
Typically it's single tenants long term lease, which fits for us, but it makes it a product pipe that is very attractive for the 10 30 on exchange market. So if you look at the dialysis that we've acquired over the years and.
Off the top of my head I feel like acquired dialysis centers.
Starting three years ago.
But if you look at the loans that we have acquired a.
Are not typically not single tenant.
One or two.
Of two or three tenants.
He acquired one that had of ground nice so my point is.
Dialysis centers that are not ideally suited for the 10 31 exchange.
Market and we pick up extra yields because of the extra of complexity.
On the behavioral side similar story I mean.
I've been looking we've been looking for for years and a lot of of what we've seen over the years hasn't really need a lot of sense for us.
A lot of the the here growth products that he's in the market is addiction addiction centers.
That niche within the behavioral it is not a niche that I like very much.
And there has been.
<unk>.
My sense of.
Bit of on evolution in the market.
When I compare what I was looking at three years ago, what I'm looking at today.
I'm seeing more operators and more business models that make more sense to me.
For case in point, the the facility we bought.
In in Texas with the Kindred makes a ton of sense, starting with the fact that kindred is a large operator and what the.
They're doing the has a balance sheet have resources.
And the these particular facilities are.
Ideally suited for what they want to do.
We spoke with kindred about the business plans it makes a ton of sense.
It's.
So.
It it fits our portfolio, it's the way we look at deals the city.
Some of our underwriting.
So it's not.
It's not been of shift assistant in the past and it hasn't really been opportunities that we've license and just one of my leg.
And just one quick follow up to that.
There are current rates across the main for groups of if you look at dialysis behavioral on kind of traditional.
M O b as in do you value dialysis on a per square foot basis, or how do you think about that.
Okay. So there is.
Multiple questions, there, but starting with the dialysis one.
I mean, it's.
I'm.
Way, we look at all of our deals that holistic of minutes is the rent is the term it's the.
Price per square foot, it's the condition of the building.
We talk with the the specific.
That's within the building where the brand our patients why it makes sense to look at the competition. So we look at many things.
Obviously also look at the yield it needs to consider portfolio.
We're not going to chase dialysis centers that are trading at five counts.
But.
If there is the dialysis opportunity that is within our price range of yield.
And makes sense to us.
It makes sense that.
The service that they are operating makes sense on it and there is.
We we come to the conclusion that there is.
It's the location that has long term prospects then yes.
By that they all of a Fender so it's not any one metric there's no point as we look at all of it.
There were more parts of the of your question.
What other what other.
Questions you have surge of the relative yields for dialysis mlps and behavioral Hawthorne per day.
Different are kind of of all lumped of similar ranges.
For us within the same.
And what we're looking for right. We're looking for a cap rates that are in the southern range in.
In the market.
Right, it's very quite a bit again on the dialysis center, depending on the profile you'll have.
Segment of the dialysis market the trades on a five and the.
The six or seven.
For it will be.
Similar three I mean, you've got a segment of the market the trades and advise another one that says on the fifth and another one in the phones the.
Of Hebrew historically has been higher cap rates, but in the last 12 months, there has been of compression and et cetera on more than other sectors.
And I've heard of anecdotally that there's there's a lot more interest in behavioral a lot more private equity interest in the April.
So behavioral of that I saw trading.
And the Ace on now trading of the Sevens.
And the.
There's behavioral of that are trading in the six which.
Was rare for so there's there's been a shift but behavioral is definitely on.
The type that historically has treated of higher yields but in the last six months is definitely been the ship.
Thank you very much.
Yeah.
The next question comes from Brian May Huh from Detroit The Securities. Please go ahead.
Good morning, Jeff Alfonzo and promoting.
Promoting all of those Tom R.
So.
Your comments are interesting, but not surprising on new buyers entering the market I mean, there's so much capital out there.
The real estate right now I don't think any of us are really surprised by that but can you identify for us kind of who the dominant players are chasing the assets that you are looking at and clearly this can't be good for cap rates in general not specific to any one product type.
Has there been any type of reach debt in your view as the kind of cap rates.
Down hit the bed 7500 bits from what you're used to before.
Yeah sure so.
One thing one big thing to consider when when you think about money to come in for the sector, especially in the last six to nine months.
It's money that once the move.
In big increments.
Daily they want to move of $100 million for $100 million at a time on.
The money that has come in is less interested in growing.
The portfolios and 510 $15 million increments.
They would much the would strongly.
Prefer to grow in $25 at the at $100 million increments. So a lot of the pressure.
That has been put into the market and the lasted for nine months has been.
Most of acutely and portfolios for or larger asset. So the things that are trained.
Acid over $50 million gets a lot of attention and there's been compression to.
From my perspective of a lot more compression and that space and for.
Particular portfolios.
Interest for portfolios as really strong and a lot of parties show up on a lot of new party store too.
So when I hear of of portfolio of that is north of of $100 million debt is.
Is coming to market on.
I'm expecting that the trade for.
50, 75 basis points, the where he probably would have been a year ago.
So that's that's where is the the bulk of the pressure.
From the new money coming in terms of.
Characterizing the money coming in.
It's a mix.
You have a handful of established private equity funds debt.
Have continued raising a lot of money and continue being very active you'll also have new funds new players in the space.
And.
To be determined whether or not the they're going to be very active and successful.
But they're there and they're competing.
Within our specific niche.
We're looking at <unk> and of $5 million to $15 million range and inpatient facilities.
Still.
It's still a niche that doesn't necessarily attract.
As much interest.
Some of the money coming in once the chase what everybody else wants the chase which is.
Investment grade health system anchored larger.
Larger facilities 30, 40000 square foot facilities.
The larger markets.
So the.
The competition, we're getting is more scattered.
And it's depending on the location depending on the building depending on the profile.
It's very different we're not running into the same people.
On every deal.
It's actually kind of surprising how for for the DLC Chase.
The people that we come across varies a lot.
Hopefully that helps the paint the picture of.
For your question.
That's great and maybe just one question for Bob.
Talked about G&A in the kind of four to four for range per quarter and the you don't expect any changes really this year, but the bigger picture as you layer on assets.
5100 $150 million.
What kind of the break point of incremental acquisitions in dollars that would require a new FTB headquarter for asset management of our accounting or whatever how should we think about that kind of longer term.
Sure So where we are from the head down today is we have.
24.
<unk>.
Total head count and we are there as we from of staffing perspective.
Senior leadership is very well in place and so the addition of that we make at this point are are not at that senior management level as much as it is just adding layers to help.
The company grows within either asset management within the counting and things of that nature.
So from ex and it costs of the total cost perspective as I look at if you think of the total G&A.
Talked about the internalization grants of how those are going to start to roll off.
Those costs are going to decrease you'll see that decreased overtime and any replacement is going to come with additional head count shouldn't have a significant impact on our on our total G&A at the scale up into that big of in the house and forward looking into the 2 billion.
Dollars of asset Typer. So this call it the.
17 million ish run rate of G&A, if you think about it out of the scale it looks I'm pretty comfortable with where we are from a total of perspective of kind.
Of bringing are are total G&A costs as the percentage of our of our of our gross assets down and to be more in range with the with the larger peers. So.
It's really going to be.
Again incremental but I think we're pretty well staff the day at the certainly at the senior management level, and then it'll be more kind of additions.
To fill it in and help to maintain our sales.
Support for the assets that we have.
Okay, great. Thanks, that's all for me.
Once again, if you have a question please press star than the one.
There are no further questions in the queue.
I would like to turn on the conference back over to Jeff Busch for any closing remarks.
Thank you everybody.
We had a great quarter again and I appreciate your time and questions.
Have a good day.
This concludes today's conference call.
You may disconnect your line.
Thank you for participating and have a pleasant day.
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