Q2 2021 Global Medical REIT Inc Earnings Call
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Greetings and welcome to global Medical REIT second quarter, 2021 earnings call.
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I would now like the turn the conference over to your host Steve Swett Investor Relations. Please go ahead.
Thank you good morning, everyone and welcome to the global Medical REIT second quarter earnings Conference call.
And the call today, we have Jeff Busch, Chief Executive Officer, Alfonzo, Leon our Chief investment Officer, and Bob Kiernan, Chief Financial Officer.
Please note the use of forward looking statements by the company on this conference call statements made on this call may include statements, which are non historical facts and are considered forward looking including statements relating to the COVID-19 pandemic and its effect on the attendance businesses.
The company intends. These forward looking statements to be covered by the safe Harbor provision for forward looking statements contained in the private Securities Litigation Reform Act of 1990 thought and it's making the statement for the purpose of complying with the Safe Harbor provisions.
Furthermore, actual results may differ materially from those described and the 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 and the company's 10 day for the year ended December 31, 2020, and its other SEC filings.
The company assumes no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.
Additionally, on this call of the company may refer to certain non-GAAP financial measures such as funds from operations and adjusted funds from operations you can for.
Find the tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers and the company's earnings release and in filings with the SEC.
Additional information may be found on the Investor Relations page of the company's website at Www Dot global medical REIT dotcom.
I would now like to turn the call over to Jeff Busch, Chief Executive Officer Global Medical REIT, Jeff.
Thank you Steve Good morning, and thank you for joining our second quarter 2021 earnings Conference call. Joining me today are all Bonzo, Leon our Chief investment Officer, and Bob Kiernan, Our Chief Financial Officer, We hope that everybody continues to stay healthy and enjoy their summer.
GMO free is committed to building a high quality portfolio of medical facilities and aligned with strong operators and health care system and well.
We'll generate stable and growing returns for our investors. We continue to execute against this strategy and are very pleased without performance and 2021.
And the second quarter, we further strengthened our balance sheet and enhanced our financial flexibility positioning us to continue executing on our growth plans and drive value for investors and importantly, our 2021 equity issuance and reduced our leverage from.
52% at the year end of 2022, 41% at both March 31st and June 30 of 2021.
Specifically in the second quarter, we raised $51 million through our ATM program and an average price of $15.27 per share, adding to the hunger of 50 million of equity we raised and the first core.
In addition to our equity activity, we also amended our credit facility and the second quarter. The recast facility is unsecured and now has the total capacity of $750 million.
We also reduced our pricing grid meaningfully and extended of our debt maturity.
With respect to earnings and the second quarter. We grew net income attributable to common shareholders true 4 cents per share. We also grew and our F F all per share and.
And unit 222 sets of 16% from the second quarter of 2000, and each 1 and R. F F. All per share and unit to 23 cents up 10%, Japan for the same quarter last year.
Despite the fact that we're seeing increased competition for acquisition and our target markets. We remain disciplined and have been able to complete 140 million of acquisitions and a 7.4% weighted average cap rate to date.
And 2020.
We have made steady progress so far this year and we look forward to continuing to provide value to our shareholders through the rest of 2021.
With that I'd like to turn the call over 12, Bonzo to discuss our acquisition activity.
Thanks, Jeff and.
The market for medical facilities remains competitive and Beth.
Stores are evaluating the benefits of medical facilities due to their outperformance during the pandemic and optimism and the long term fundamentals of health care.
Despite increasing competition, we continue the successfully source attractive properties within our target cap rate range.
During the second quarter, we closed on 7 acquisitions totaling 71 million and a weighted average cap rate of 7.2%.
Year to date, we have completed the $140 million of acquisition out of.
A weighted average cap rate of 7.4 per cent.
Since our last earnings call.
Third for MLP, namely.
And 19 million 2 building portfolio, which is 94 per cent leased to.
For a 2 rated memorial health and of course, the Illinois with 10 years of weighted average lease term and.
9 million primary care clinic with lab and imaging and.
The northeast Tallahassee, Florida that we used the 1 of the largest independent primary care groups and the market.
And the 7 million cancer center with diagnostics located adjacent to a 321 bad HCA Hospital, and North Charleston, South Carolina, which was acquired on a new 15 year of single tenant lease.
And the 4 million acquisition of of Blue Sky Vision clinic, and a suburb of Grand Rapids, Michigan. This is and add onto the existing portfolio with Blue Sky vision and the Grand Rapids, MSA, which was acquired in March 'twenty, and 'twenty or 'twenty $2.5 million.
After factoring in our 2021acquisition.
Now have a 1.3 billion portfolio and 33 states, we have averaged 18 closings per year, which ranks us among the most active investors and the MLP sector.
Our focus on acquiring individual assets has benefited us tremendously as most other investors focus on acquiring larger portfolios as we continue to grow the leverage our relationships and network continue to source and secure deal.
Does that and we currently have 3 properties with an aggregate purchase price of $23.2 million on the contract. These properties are currently and due diligence and subject to customary closing conditions and we can offer no assurance that they will be close.
Looking ahead for the remainder of the year, we are reaffirming our expectation for acquisitions in 2020, 1 to be within our guidance range of 175 and $225 million.
I'd like now to turn the call over to Bob to discuss our financial results.
Bob.
Thank you Alfonso.
M. A REIT continues to benefit from a stable platform and and from the strong and reliable of relationships that we've built with our tenants there.
This quarter our portfolio of produced strong results and we are excited to see what the remainder of 2021 break.
With respect to key performance metrics, we ended the quarter with $4.1 million of total leasable square feet portfolio occupancy of $99.1 per cent with weighted average base rent of $23.90 per square foot and 2.1% weighted average contractual rent escalation.
Our tenants had an average rent coverage ratio of 4 point for time and our weighted average lease term at quarter end was 7.5 years and.
And the second quarter, we achieved the 28% euro per year increase in rental revenue to $28.2 million driven by our acquisition activity and rent escalation.
Rent collections remained strong overall, we've collected over 98% of of Q2 rent, including the impact of 2 tenants that we account for on the cash basis.
Our total expenses for the second quarter of 2021 increased to $24.1 million from $20.4 million and the second quarter of 2020 the.
The growth and expenses is primarily due to acquisitions completed over the past 12 months.
G&A expense for the second quarter of 2021 was $4.3 million compared to $1.6 million for the second quarter of 2020.
This difference is primarily due to the company being externally managed during the second quarter of last year as opposed to our current internally managed structure.
Including the $2 million of management fees incurred in Q2 last year and this comparison reduces the increase and our 2021G&A cost the 600000 year over year. This remaining increase.
Due to an increase of noncash stock compensation cost, which went from 900000 from the second quarter last year to $1.6 million. This year looking ahead, we anticipate our G&A expense to remain between 4 and $4.3 million on a quarterly basis and the second half of 2021 even as we increase the size of.
Of our portfolio.
Net income attributable to common stockholders for the second quarter of 'twenty 'twenty..1 it was $2.5 5 million for 4 cents per share as compared to net income of 42 million and the second quarter of 2020.
Oh, and the second quarter with 22 cents per share and unit up 16% from 19 cents per share and unit and the second quarter of 2020.
For the second quarter was 23 cents per share and unit up 10% from 21 cents per share and unit and the prior year quarter.
Moving on to the balance sheet.
As of June 32021, gross investment and real estate was approximately $1.3 billion, which is up 263 million for 26 per cent for the second quarter of 2020.
And the second quarter, we generated gross proceeds of 51 million through ATM equity issuances of $3.4 million shares of our common stock and an average price of $15.27 per share.
The date, we have raised $201 million from new equity issuances.
Proceeds from these issuances for used to fund acquisitions pay down the balance and a revolver and for general corporate purposes.
Reflecting the impact of the equity issuance and at June 30, 'twenty, 'twenty, 1 and $507 million of net debt and our leverage ratio was 41%, which was consistent with the end of the first quarter of this year and down significantly from 52% picky around 2020.
As Jeff mentioned earlier, we amended and restated our credit facility this quarter, increasing capacity by 150 million 750 million, reducing borrowing costs across our price and get converting to an unsecured facility and extending the maturity.
The weighted average interest rate during the quarter was $3, 1 and 7% and our core.
[noise] unutilized borrowing capacity under the revolver is approximately $265 million.
Overall based on the progress we've seen so far in 2020..1 we are well positioned to continue executing on our acquisition and the overall business strategy and the board the sharing our progress with you throughout the rest of the year.
This concludes our prepared remarks, operator, please open the call for questions.
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Our first question today is from Amanda Sweitzer of Baird. Please proceed with your question.
Thanks, Good morning, guys.
Hi, Matt and I'll, just start out and you are unchanged acquisition guidance and just given that you're approaching the low end of that guidance. When you include your under contract pipeline can you give us a sense of what you need the speed. It gives you greater confidence to raise that for all of your acquisition guidance currently playing Bachelor is towards the higher and.
Oh sure.
So and.
As you pointed out and are prepared remarks, we reaffirmed our guidance of 175 for 225.
And every week, we have pipeline calls to discuss deals and process, new deals and potential deals and.
This helps management and the kind of entire company keep a pulse of the deal flows capital needs and timing of closing and sequencing for logistic logistical purposes.
So these calls also help management calibrate the pace of deals and market pricing and and.
Every quarter, we sit down as the management team to prepare for earnings report and.
And our acquisition guidance is a product of the cumulative knowledge, we have at the time.
Well given a relative small size, there's always the possibility that we may find deals that would move the needle and.
Historically, we've come across larger transactions that offer a good value.
It's not possible to predict whether or not we will find these larger transactions and.
So the deal of the flow of deals and the market is inherently unpredictable.
But we tried to provide a guidance numbers that is a reasonable reasonable based on what we know at the time.
That's helpful of bonds out and then I guess kind of following up on that and you talked about the increased competition and the guilt market, but can you quantify at all how much of the old volume you are seeing on the monthly basis and how that compares to either earlier this year of pre COVID-19 level.
Yeah.
Sure so.
I think you know just based on my my tracking of the market and it's.
Just to give you a rough sense I mean, we on average before we would see 25.30 deals a month and it's closer to 40 to 50, the other months in terms of dollar.
The numbers are.
All of the values.
It's running at call. It 70, 80% above average no and if you look across time every months theres a lot of volatility and.
In terms of.
The number of deals and and volume that comes to market, but the last 3 months of clearly been very busy.
And everyone I talked to is.
Running for.
And you know and with more to come and so everyone is pretty is expecting this year to have a lot of transactions come to market.
And it's very very busy and that'd be 1 is really a stretched pretty thin.
So you know it's it's it's dramatic.
Yeah that's helpful.
And then final question for me and in debt and equity capital or dealt with and available to you today can you provide and update and how you're thinking about funding deals for the rest of the year between leverage and equity and where you're comfortable taking that leverage level of today.
Sure. So just kind of thinking back and looking at what we've done so for for this year and with the 2 hundreds of millions of equity that we have raised.
We were we were very opportunistic in the.
The second quarter, and able to shelf sell shares and at an attractive price and we're comfortable doing that and and and taking advantage of those of those situations and we will as.
As we look ahead, we'll look at our pipeline and assess market conditions and and.
And consider additional equity, but we're comfortable in that and this range of between 40 and 45 per cent leverage and and so for you know we've been at the lower end of that range, but I think that range is still a comfortable range for us.
That's helpful. Thanks, all for the time appreciate it.
The next question is from Rob Stevenson of Janney. Please proceed with your question.
Hi, Good morning, guys you guys have had very little lease explorations over the past few years, but when you start looking out in 'twenty, and 'twenty, 3 and especially 2020 for the the lease rollover starts to increase pretty noticeably when you look at those as that 1 or 2 large tenants is that a lot of little tenants.
And that are in the sort of 6% and and 17% and when do you guys start approaching that those tenants to sort of knock that down a little bits of that you're not doing a lot of heavy lifting and the back half of 2020.3.
So Rob I'll start and with the with respect to 2020.3.
For up 4% for of that 6% is it is 2 specific tenants. So it's pretty pretty highly concentrated and as you as you get into 2024, and and you look at the that the percentage increase up towards towards 16. There. There are a number of individually significant tenants stay at that plus 3.
Per cent level, 2% to 3% level that the that start to add up and we're working on that today. I mean those are those are things that we are kind of socializing and are part of the kind of the the process that we're going through it at this point. So it's really never too early to to be focused on it.
And you know I think the the team is really you know starting you know those process today and and and in staging it the way that would be the.
Can be successful against that.
Okay, Yeah, and then all of it.
Let me just add to that you know we renewed.
A number of 2.2 of our top 3 tenants for 10 years.
As of last year and that was 1 of them was and advance 1 of them came up we we do get we are in front of our tenants all the time and we're starting conversations for it all of them are.
Even a few years out.
Okay, and then a phone so are you seeing any better opportunities given the volume and the pricing.
In certain asset types of these days over others.
Among of your core.
Not necessarily no you know, there's I would characterize it more as supply is meeting demand.
But it's not that I can tell that it's really opened up and.
And nothing really kind of pops to mind of in terms of as a result of the supply coming to market.
Okay, and then last 1 for me, Jeff you guys bumped the dividend of half of Penny earlier. This year on the comment you have 80 to 85 per cent targeted pay out and you were about 89% here and the second quarter. How are you and the board thinking about future dividend increases and the magnitude of those increases and the frequency.
Yeah.
Oh, well, it's up to the board so I can't really give what they're thinking I mean, the idea of the last time was what we're gonna start of dividend policy and and hopefully do every year.
Right now what we've done is we brought down we traded off.
That's all for leverage and so you see how our leverage went from 52% of 41 per cent and a lot of that was strategic trade off to reduce our leverage and they are but right. Now we I expect you know now that we're at the low end of our cycle and leverage as we get.
Gerard Paul will get larger as some of the coverage ratio I mean, the ratio that we calculate our dividend will be right at the target I do expect that.
Okay. Thanks, guys.
The next question is from corner of Seversky of Bear and Berg. Please proceed with your question.
Good morning, everybody. Thank you for having me on the call today.
Just to start on rent coverage I noticed and the mob portfolio coverage ticked down slightly and the last quarter.
I'm wondering if this is due to acquisition activity rolling new tenants into into the list or was there kind of the change and the complexion of operations and the tenant base within the last 2 quarters for yourself.
Yeah, Hi, counter and that there there wasn't anything really in particular the.
Net debt that drove that change I think you know when you when we look at the number as a whole.
Still.
Kind of very comfortable at the level that it that it is and that that decrease you know from from Q1 for Q2 is it there wasn't anything kind of call of individually significant or alright.
Alright trend and as I went back and and look through it.
Okay that helps and then I think it was mentioned and the prepared remarks of the 2 tenants and the cash basis apologies. If I missed this or are they current on rent and then.
And what's what's the plan with those 2 tenants is there a plan to transition those properties, where maybe you dispose of that unless we go along.
Yes, so I can give some color on.
On those and yet so kind of backing up the 2 tenants that are Derby, Kansas, and Melbourne, Florida tenants and are both on the cash basis, and we did not receive any payments from from from them and during the quarter.
The the Derby as it is much much smaller so I'm going to I'll focus on the Melbourne asset and just give an update as to the the current status that and we've mentioned in the past as the company that is in chapter 11 bankruptcy and they have.
They have gone through the the chapter 11 proceedings and they have a court approved reorganization plan and and and and as part of that they have affirmed and updated lease with the.
With us are.
However, the the tender and Hasnt complied with the provisions of the reorganization and continues to be and and default under our lease.
For for non payment we we.
We've been encouraged by the way they were handling the chapter 11, and and how it was I was moving there and as long along with their pursuit of both equity and.
Capital and P. P P that.
But the lack of progress and securing capital and the ongoing violation of the bankruptcy of provisions we've initiated the.
The more aggressive efforts to improve our position and and just pursue alternative tenancy for the building should that.
And should that opportunity arise and you know as we work the different sides of the situation and then.
Moving some administrative elements of our underlying C. M. P S debt that the financing that asset.
We've received very positive feedback from several high quality tenant prospects over the last month. So we certainly have better visibility into that market and what that what that looks like and I think although we're disappointed.
The progress here is moving more slowly than we hoped we'd continued to be very optimistic about the long term prospects of.
Of this building.
And right now you know our our next step is to really pursue potential remedies with the bankruptcy court as I mentioned and they're in violation of the of the reward plan.
And we're going to be more aggressive on that front and that could result in the situation, where we you know we can to positive results for us we can.
Possibly begin to more actively pursue re tenant them, where it can begin to force them to to comply with the provisions of the bankruptcy. So that that's really those of our next steps and that next court date is later in August. So it's it's it's something that it's coming up something that were working and obviously have complexities and it you have to each of the bankruptcy.
Alright, I appreciate that it's more color than I thought I was kind of good. Thanks.
For the next question is from Barry Oxford of Colliers. Please proceed with your question.
Great Alfonso when Youre looking at the acquisition market right now and I know you you you're always looking at kind of different property types.
And when you look at behavior health, how are you viewing that now you know given that that is.
Probably and more demand have you seen cap rates have moved or are you liking that are property type going forward more more so.
Oh sure. So I. So we've been looking at behavior of pretty much since the beginning and not right and not with a heavy emphasis but.
And <unk>.
And you know, what's what's different about behavioral and this is.
And my perspective on it.
And when I compare it to the medical office or the surgery centers are the.
A variety of.
Operator out of the variety of building type is much narrower than within behavioral.
And the pipe the the variety of facilities within behavioral is pretty wide.
And you know everything from institutional kind of a hospital setting to our resorts to Hum.
Yeah, you know things that look more like cash camps. So.
The 1 obstacle.
The other 1 is the types of businesses and it also varies a lot and you know there's a lot more nuance behind kind of and <unk>.
And.
Each type of operator, and the type of business, they're doing and how they're positioned what the reimbursement look like what the payers look like.
And what kind of services they provide them.
For me a big thing is you know how of how resilient of their business model of what are there are competitive advantages.
What are the financials look like.
The other challenge with behavioral is and <unk>.
Tend to.
1 of them monetize their assets are at of pricing that is.
Meaningfully above appraised value so that that becomes a challenge to having said that the I mean, there have been opportunities that that makes sense to us that the real estate is attractive has good residual value. The price of is reasonable of the rents are reasonable but from our perspective.
And it's.
And.
A smaller subset of what's available so and the other thing to keep in mind is and the last couple of years cap rates for behavioral just across the board and I've got it and compressed they were reliably and sort of north of 8 cap or 7 cap and now there.
And some comps that of printed.
And you know and the fixes.
So that's shifted as well.
And I don't think the market is doing a good job of differentiating between the types of operators and.
And types of businesses and you know there are applying sort of a simplistic approach maybe.
So that makes it challenging to but you know we are looking are there are some segments like geriatric behavioral or pediatric behavioral Ah that make a ton of sense, you know and there's some operators that are very good as well that we like and <unk>.
A few but it's.
You have to dig through a lot to get deals that we find attractive.
Got it and no perfect I appreciate the color on that a question.
Question for Jeff.
Jeff with the Delta called the kind of coming back and kind of where and the cycling of head and in some states are out there and.
Jeff would you see as kind of going back to postponing electric surgeries or would you say look Barry I don't think that's really on the table.
They kind of want I mean, it's some of it is on the table realistically, but they've done a lot better and what they're doing I mean the.
Time, they perform postponed that there wasn't vaccination and there wasn't the other issues. So it's possible it could be a short slump and knows but not major the.
Medical practices themselves that really good procedures and how to protect the patients excellent procedures and worked a lot. So you know the delta out there can have some impact I mean, even during the time that they postponed we still collect the 99% of our rent our tenants are in good shape.
But there could be a little bit of that realistically.
Okay. Thanks for that.
Thanks, so much guys.
Thanks Barry.
The next question is from Bryan Maher of B Riley Securities. Please proceed with your question.
And good morning, guys. Most of my questions have been asked and answered, but you know 1 of the things that we learned early on on the Wall Street is you know for every buyer yeah, there's a seller and alfonzo you talked a lot about how deal activity, you're seeing a lot of assets for sale.
Maybe off on the or Jeff you can talk about what's motivating the salaries and is it just purely pricing is the developers looking to sell an asset and move on to the next.
You know of property what is what is going on out there on the seller side.
You know I think it's the combination of things I mean, yes.
And the pricing is attractive.
And I think.
There is some tax concerns I mean, that's come up in conversation and and.
You know and 1 way to look at it is the last thing you would've expected, but I'm always a little skeptical when I hear it as a rationale.
The M&A activity also drives has brought a lot of Hum monetization.
Issuance to the to the market and the private equity and.
And investors there and you know the there are they like selling there for the real estate and when they buy the of the Opco.
And more often than not it's the other.
And.
The the physician group and the founders that own the real estate, they're the ones that are.
Selling and conjunction with or ahead of or after the get acquired by the private equity group.
I think there's just natural lifecycle and and you know end of lifecycle, where it just kind of founder of that's 1 of the building for 510 years of just feels is the right time to sell and there's a state planning there's always a variety of reasons you mentioned the investors too I mean, that's been a growing.
And inventory of of the of real.
And real estate, that's come to market and just as the industry has matured and there's just more more investors and own a bigger a bigger amount of real estate.
So it's a combination of things and.
And it's not not any 1 thing.
Yeah. Thank you that's all for me.
There are no additional questions at this time I would like to turn the call back to Jeff Busch for closing remarks.
I'd like to thank everybody and I just wanted to mentioned 1 milestone that we hit which wasn't easy we went over $1 billion market cap and this quarter and thank you very much for attending this meeting and stay safe.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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