Q4 2021 Global Medical REIT Inc Earnings Call
Greetings and welcome to the global Medical REIT fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your.
Telephone keypad.
As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Steve Swett Investor Relations. Thank you. Sir you may begin your presentation.
Thank you good morning, everyone and welcome to global Medical REIT fourth quarter and year end 2021 earnings conference call on the call today, we have Jeff Busch, Chief Executive Officer, a bunch of we own 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 not historical facts and are considered forward looking.
The company intends. These forward looking statements to be covered by the safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 90, 95 and is making this statement for purpose of complying with those safe Harbor provisions.
Furthermore, actual results may differ materially from those described in the forward looking statements and will be affected by a variety of risks and factors that are beyond the company's control.
Without limitation those contained in the company's 10-K for the year ended December 31st 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 the company may refer to certain non-GAAP financial measures such as funds from operations adjusted funds from operations <unk> and adjusted EBITDA.
You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and in filings with the SEC.
Additionally, additional information may be found on the Investor Relations page of the company's website at Www Dot global medical REIT Dot com.
I would now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical REIT, Jeff.
Thank you Steve Good morning, and thank you for joining our fourth quarter and year end 2021 earnings Conference call. Joining me today are all bond so Leon our Chief investment Officer, and Bob Kiernan, Our Chief Financial Officer, Jim Murray was founded with the vision to create.
A resilient and high quality portfolio of medical facilities aligned with strong operators and health care systems in their local markets, we expect to generate stable revenues and return for our investors through these properties and are pleased to deliver to you now.
The solid quarter and full year of growth and performance.
Looking at the full year, primarily driven by our acquisition activity, we increased our total annual revenue approximately 24%.
Year over year to 115.9 million with respect to earnings we reported net income attributable to common stock holders of 11 8 million or 19 cents per share.
At basketball.
90 cents per share and unit and a vote of 95 cents per share and unit.
After fortifying our balance sheet and liquidity early in the year and reducing our leverage below 45%. We remain disciplined in our approach to identifying acquisition opportunities that met our investment criteria and targeted.
Return requirements in the fourth quarter, we completed four acquisitions $425.9 million, bringing our full year acquisition volume to $189 million at a 7.5% weighted average.
Cap rate.
In the fourth quarter, we funded a $6 8 million expansion of our Mercy rehabilitation Hospital property in Oklahoma City.
That is expected to generate a return of 11.8% in total we invested a.
$196 million in revenue generating real estate investments during 2021 at a weighted average cap rate of 7.6%.
Bill will provide details in a moment.
Wanted to know that our portfolio exceeds $1.3 billion in <unk>.
Total asset and produces over 103 million in total annualized base rent and an average cap rate of approximately seven 8%.
In addition to these achievements, we recently issued our.
First corporate social responsibility report, which details our ESG philosophy and accomplishments and we look forward to continuing and expanding our ESG efforts in the future.
I am proud of the team's dedication and accomplishments stern.
2021, and would like to thank them for their unwavering efforts throughout the year I'm excited at what lies ahead in 2022 as we focus on the opportunities in front of us to continue our accretive growth into the future with that I'd like to.
Turn the call over to alfonzo to discuss our investment activity in more detail Alfonso.
So in parts of the outperformance of medical facilities compared to other real estate assets during the pandemic the optimism and the long term fundamentals of health care the market for medical facility remain competitive however, through diligent and developed sourcing context, we continue to successfully located and acquire high quality properties.
Within our target cap rate range.
As Jeff mentioned during the first quarter, we closed on four acquisitions totaling.
$25 9 million at a weighted average cap rate of seven 5%.
In addition to these closings, we funded a 10447 square foot.
$6 8 million expansion at our Mercy rehabilitation Hospital in Oklahoma City, Oklahoma that is expected to generate.
A 11, 8% cash return.
For the full year 2020 , one we closed on 20 acquisitions for $189 million at a weighted average cap rate of seven 5%, bringing our total portfolio size to $1 3 billion with properties in 33 states.
Our focus on acquiring individual assets has benefited us tremendously as most other investors focus on acquiring large portfolios as we continue to grow we will leverage our relationships and networks to continue to source and secure deals.
In the quarter, we sold one property for gross proceeds of $5 5 million, resulting in a gain of $1 1 million.
Also the expected closing date of our previously announced contract to sell one of our four medical office buildings located in Bellevue, Ohio has been moved back from March and we currently anticipate that this sale will close no earlier than June of this year.
Although we don't actively look to sell our properties, we may sell a property for very strategic or opportunistic reasons based on market conditions.
Regarding our activity so far this year, we completed one acquisition and 17713 square foot Medical office building again, Gainesville, Georgia for $5 $1 million.
Cap rate of seven 1%.
It is important to note that we continue to maintain an active pipeline of potential opportunities in different stages.
Of discussions and currently have seven properties with an aggregate purchase price of approximately 72 million under contract.
These properties are currently in due diligence and subject to customary closing conditions.
For 2022, while the market remains very competitive we're currently targeting to complete between $180 million and $220 million of acquisitions at an average cap rate of 7%.
I'd like to now turn the call over to Bob to discuss our financial results.
Thank you.
<unk> continues to benefit from strong relationships with our tenants and solid portfolio performance.
We ended 2021 with $4 3 million of total leasable square feet 97, 5% occupancy seven one years of weighted average lease term five one times rent coverage with two 1% weighted average contractual rent escalations.
In the fourth quarter, we achieved a 21, 7% year over year increase in total revenues to $30 3 million driven primarily by our acquisition activity over the past year note that our revenues in the fourth quarter include the impact of approximately $300000 in reserves related to a tenant that we moved to the cash basis of accounting in the period.
Note also that we recognized approximately $100000 and revenue from other cash basis tenants in the fourth quarter.
Our total expenses in the fourth quarter of 2021 were $25 9 million compared to $22 3 million in the prior year quarter. The increase was primarily due to higher operating and depreciation and amortization expenses due to our larger portfolio, partially offset by lower G&A and interest expense.
<unk> expenses for the fourth quarter of 2021 were $3 9 million compared to $4 4 million in the prior year quarter with the decrease primarily due to a reduction in noncash stock compensation expense.
Within our G&A expenses note that our stock compensation costs in the quarter were $1 2 million and our cash G&A costs were $2 7 million. Looking ahead, we expect our G&A expenses to be modestly above this level and average between $4 to $4 4 million on a quarterly basis in 2022, even as we continue to increase the.
Size of our portfolio.
These estimated G&A costs note that we're forecasting the stock compensation component to average between one point to 1.3 million per quarter.
Our operating expenses for the fourth quarter were $4 5 million compared to $2 6 million in the prior year quarter with the increase in these expenses being driven by the growth in our portfolio and to a lesser degree the impact gross leases.
Net income attributable to common stockholders for the fourth quarter of 2021 was $3 8 million or six cents per share compared to $1 1 million or two cents per share in the fourth quarter of 2024.
For the full year 2021, net income attributable to common stockholders was $11 8 million or <unk> 19 per share compared to a loss of $7 7 million or <unk> 17 per share in 2020 as discussed previously this 2020 as full year 2020 loss includes $14 million of one time expenses related to <unk>.
Management internalization.
So in the fourth quarter was 23 cents per share and unit compared to 22 cents per share in units in the fourth quarter of 2020 <unk> in the fourth quarter was 24 cents per share unit, which was flat compared to the prior year quarter.
For the full year 2020, our <unk> was <unk> 90 per share and unit compared to 56 cents per share and unit and 2020.
<unk> 2021 was <unk> 95 per share in unit up 8% compared to 88 cents per share and unit in 2020.
Moving onto the balance sheet as of December 31, 2021 .
Gross investment in real estate was approximately $1 3 billion, which is up 200 million or 18% from the start of the year relative to equity in the fourth quarter. We generated gross proceeds of $11 3 million through ATM issuances of 665000 shares of our common stock at an average price of $17.02 for sure.
Sure.
Full year 2021, we issued $15 3 million shares of common stock generating gross proceeds of approximately 213 million, including approximately $98 million through ATM issuances.
Reflecting the impact of our equity issuances at December 31, 2021 we had approximately $580 million of gross debt and our leverage ratio was 43% down meaningfully from 52% at year end 2020.
Our weighted average interest rate during the fourth quarter was $2 eight 8% and our current unutilized borrowing capacity under the revolver is $222 5 million.
Overall, we continue to believe we are well positioned to execute on our acquisition and overall business strategy and look forward to sharing our progress with you throughout the year.
This concludes our prepared remarks, operator, please open the call for questions.
At this time well be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is no question queue. You May press star two to remove your question from the queue for participants using speaker equipment. It.
May be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions. Our first question comes from the line of Barry Oxford with call. Your Securities. You May proceed with your question.
Barry You May proceed with your question.
Oh, sorry about that I was on mute guys.
Thanks for taking my question Alfonso this one's for you Hey, how are you doing as far as new you mentioned further competition for acquisitions are you seeing a new type of competitor in the market or are they kind of the regular types of competitors you're used to seeing.
So.
Anyone.
There was an inflow of.
Capital from institutional investors and private equity funds itself.
So what I would say is a lot of the money that that was coming in came in last year I'm not really hearing of.
People are talking about more funds coming in and if they are there is it's not as prevalent as it was last year.
So.
I would also highlight that a lot of the money that has come in in the last 18 months.
Our funds that have a three to five year hold period.
These are funds that want to aggregate portfolios and have a distinct.
Exit strategies are that that are going to do and so what that means is that this money.
Has a very clear a finite period of investment.
And the types of properties that theyre looking for tend to be larger because.
Because they're trying to move.
Most of the funds that have quickly and they're trying to consolidate them in our portfolio. So they tend to be simpler assets larger assets.
And that's where most of the competitive pressures have has come in.
Okay, great great.
And then I guess this one is probably maybe more for Jeff Jeff with increasing interest rates are out there in the marketplace that we're probably going to be looking at in 'twenty. Two do you see health care cap rates, having to back up or you know, it's the flow of money on the sidelines just so great that yes, even though interest rates are going to be moving up.
The it's not going to really.
<unk> put pressure on cap rate.
Oh actually I see cap rates going up over this next year cause a lot of these two things happen with the banks. It's not just the interest rates go up being experienced buyer in the market also also I worked on the private equity side. They also require more.
And the deal so it's like two things happened at the same time when the when the banks are raising rates and also seeing more risk into the future. So these groups that are barring you know in leveraging very high and then buying four caps five caps that you know have some small amount of spread are not going to be able to do.
Do those small amount of spreads anymore. So it's going to sort of drive it. So in my opinion and historical seeing three or four of these you know bubble I call bubbles and then drops I I do think the cap rates will go up I think it takes a little while but I do think the cap rates will go up I mean, we seem to be managing.
As we moved into a strategy to look for the stuff that that which has always been our strategy is to look for good quality product that's not what the other guys are looking for and that had to include not only the reads, but the private equities and all these bonds, but I do believe cap rates will go up to match it.
Not a perfect match, you know it but the market adjusts to that it's not a perfect match and it's not a perfect timing.
But over time, the cap rates will come back up I do believe in a year or two there'll be tremendous opportunities for us to buy it may be even buy at higher volumes of what we buy and maybe even get back more into the single tenant absolute net leases, which these new guys just love, but they may run out of.
Room, because they're fun disorder, ending so we have some real opportunities going forward, but right now I'm just very proud in a very tough market that our team our acquisition team in total team was able to keep up around the $200 million rate, which is what we target every year. So I'm very proud of that.
Right right. Thanks for the color there and then I guess, Bob one question for you on the ATM usage for 'twenty two.
It's always hard to tell you now because I know its stock price dependent but are you planning to use the a T. M. Ah, let's assume stock prices kind of within a range that you like would you be targeting kind of the same amount of ATM activity in 'twenty one 'twenty.
22 that you had in 'twenty, one or not necessarily.
So you know I think you know, we'll start with kind of thinking about relative to our to our leverage and then how we would use it. So we would you know we'd look to continue to target our leverage in the.
Same range, we've been talking about last year, which was that 40% to 45% range and we would look to the ATM as our as our first tool to to to accomplish that at prices that we thought were attractive.
Right, Okay alright.
Thanks, guys.
Thank you Barry.
Our next question comes from the line of Rob Stevenson with Janney You May proceed with your question.
Good morning, guys.
Medical office building rent coverage ratio jumped from five 7% in the third quarter to seven 7.7 times and in the fourth quarter, what's happening there to drive such a big jump in three months.
So are you on that.
That one Rob it was a couple three new tenants.
Tenants reporting that Tad excellent outstanding coverage and that helps to drive that number higher.
So it was really a function of.
Of.
<unk> of results as they as we cycle through reporting from a you know from from different from different tenants in a couple of the tenants in that in that bucket that I'm describing had coverage of say 11 times, you've just got some situations, where you've got real significant you know rent coverage and that's pulling the overall number up.
Okay.
And then any known move outs or notable downsizing on leases on the roughly 24% of your ABR that you have rolling through 'twenty 'twenty four at this point.
For 'twenty 'twenty four Rob there's not a lot of I can't really give a lot of color on 2024, it well I mean in the next three years I mean, 2022 'twenty three and 'twenty four I mean, it's roughly a quarter of your ABR rolls over that three year period, and anybody that's downsizing, but you know of or moving.
But you know of at this point.
You know not this that this early in the process, it's really from the near term if I think of 'twenty 'twenty. Two we have you know our expectation on that the 2022 renewals. It is upwards of 85% to 90% retention at this point and if I look even.
The detail of the of the 2022 renewals almost a quarter of it really.
Doesn't even expire until the towards the very end of this year.
But overall you know that near term is it's got a high retention rate and then I think we just continue to you know.
To look and work through the next two years, but no nothing.
Nothing kind of did it sits out there kind of as it kind of dramatic significant item at a at this point okay.
Okay, and then last one sorry go ahead.
Yeah, I mean, you know if they're if they're moving you tend to know a bit in advance so or they're building or something in the area, but we don't have that right now we have all all that we're looking at.
Tend to be talking to us.
Okay, and I guess, the you know I guess the other part of that question you know would wind up being is that you know you guys have a little over 100000 800000.
The square foot of vacancy in the portfolio overall, a lot of that's been little chunks here and there, but what do you where are you in in leasing on a few blocks of size of vacancy that you guys have today any sort of prospects. There that you guys are excited about yeah.
Yeah, Melbourne, we finally in Melbourne got out the tenant after the bankruptcy some payments from them.
And we actually got them out in January and we're working with three tenants about taking I think it would be about half the buildings were different substantial tenants. The thing that we're always excited about Melbourne is a class a building on the waterfront really the premier building to be in Melbourne, Florida.
And a nice building I mean, we have to put a little bit of work into it but we were sort of held up because the tenant was in bankruptcy had a master lease and we couldn't go out and leasing. So we're excited about that particularly I'm getting that back now you know the way the rental markets work right now.
You always have to give some type of the concessions for long term leases and stuff. So I I really wouldn't expect you know that that come on board as as a big income thing like you know getting back fully until next year, but will slowly get it back this year.
On board as you know are income producing property in works and that will help a lot.
Okay, Alright, guys I appreciate the time.
Thank you.
Our next question comes from the line of Jordan Saddler with Keybanc. You May proceed with your question.
Good morning.
Looking to see if there's any additional color you guys could offer on the assets that are under contract. That's it seems like you've got a fair bit teed up maybe Oh Hamzah you could offer some color on the timing or maybe just characterize whether or not there are.
One or two larger et cetera, theres, a portfolio or went off that'd be great. Thank you.
Sure and apologies the connection was a little choppy could could you repeat the question.
Yeah, just curious about the assets that are under contract for $72 million.
Oh, Okay I wanted to just like timing is there are these one offs or is there a portfolio a number of assets would be that'd be helpful.
Oh sure so.
There's.
Six assets.
To make up that number.
And you know where it's always we gave ourselves 30 40 days of diligence for all these deals and and these are all at different stages, but you know where were expecting maybe a third or a half of them two to close and.
The first quarter and the rest of the follow.
There.
Yeah, I think maybe Bob might have a better numbers, but you know these are six transactions and where we're expecting them to close over the next two to three months.
They're all.
Just so you know it's not a portfolio it's individual assets.
And we seem to be Oh.
It picked up for us buying picked up for us towards the end of last year. So it is interesting to us.
I call it a little bit of a lull period, then we suddenly now have a nice.
The contract and coming down the road asset so.
For whatever reason it was there was a little bit of a lull period in that you know third quarter range, but now we're actually picking up much more speed on them and some of them just take longer and that's part of the reason we had things that were working on and we know we're doing a little bit more complicated assets.
Because to try to get the the cap rates that we get so we're doing more multiple tenant assets than we did before because that really fast new money does not really look to those and we it was an area that we moved into so you may see that hit our occupancy rate a little bit going towards the future.
Because we're finding assets and saying boy, we could get a seven cap I'm, just giving a theory would you get a seven cap.
And there's potential to make this an eight cap and its a good rental market and they're not fully rented but we now are taking those assets and that's going to bring down our occupancy rate somewhat but it's worth the investment and there's a lot of upsides, besides the seven caps or around that.
Okay.
And the eye.
Last quarter, we talked about a broader look I believe you phrased it in terms of how youre looking at the market and assets you might look at it did with any of these assets sort of fall under that umbrella of like sort of your you.
You broadened.
Yeah look yeah or view of assets.
Because there must be an into centrally or because of pricing how would you think about it.
A little bit about our strategy that we've been putting through is we look at just what I mentioned, we look sometimes and say okay. It's multiple tenants, they're not fully occupied it's not somebody who runs mlps very well the markets are strong market and <unk>.
We could we could over time went up and we still get a decent.
You know cap rates coming in.
Very accretive cap rate, we're not buying on accretive.
And then our averages will come out around seven so you know I can tell people you know, we get 70 fives and we may get six fives, but we put them all together. So we bought a couple of larger tenants. So when you see it you could see that there's things more like $20 million 18 million.
And then others, where before we were sort of stopped with the fives and sixes and we did 20 assets last year that was a lot of work.
And.
And the new strategy.
Actually has to do with wood, it's the same risk level, we're not buying riskier.
You may even consider it more diversified because we're going more into multiple tenants and it has and may even have a bit more upside because the leases get.
Quicker renewals, even though you have some more vacancy and you could go up more with like an inflationary situations. So you know in all different factors. These are good assets for us to buy these are assets others in our market don't really want to have because they're sort of smaller.
And hassle, but we're built to do hard work I mean as I tell everybody. Our main philosophy is we're making extra spread per arm versus by doing much harder work and includes the asset management side of our business.
Okay. That's helpful and then on the operating side and.
And this may be a function of.
Some of the assets you purchased in the fourth quarter.
But I noticed that occupancy.
Dipped by about 140 basis points sequentially can you speak to that decline yet.
Yeah sure sure that that's a that's going to be really moving to Melbourne tenant from.
From.
From occupied technically through the master lease and as we got out from under that.
And it moved the tenant out as Jeff mentioned.
It migrated got into the <unk>.
Into the vacant space since we cause when you looked here to take to get them mixed.
Big step.
That was the primary move.
Okay, and then was there anything else in <unk> and Opex.
While I have you.
I'm sure that kind of spiked up sequentially.
And I, obviously, you've been buying stuff, but looked like a bigger number than we've seen.
Yes.
No that's good.
Great.
Yeah. So if you just kind of break that down.
The overall opex that was that was in the quarter.
You had say.
Four and a half in total.
We're still kind of again largely covering that you know through the revenue growth just expense recovery revenue.
In this case it was $3 2 million and then we have with the asset a couple of the assets. We picked up in the third quarter of this year you end up with a few more gross leases and so the proceeds component is in there and so our net exposure kind of after the recoveries and the impact of gross leases that are operating are.
Or are performing is underwritten we are.
Ended up having a tick up in that net exposure in the fourth quarter.
Kind of moving from say 300000 to 600000 and that was due in part due to the you know again some of the cash basis tenants that we mentioned on the call and then and then also against expenses on our tenants.
Location like Melbourne, where again, we're taking over the building that elevated expenses as we as we pursue our our.
Our rights under the old under the old lease and it also assume and take on more of the building. So that those were kind of the moving parts kind of quarter over quarter and that number is that.
Ed exposure did increase and that is.
Again from a recovery perspective, or a net exposure perspective.
Pacts that that sequential result.
And the reserves that you took in the quarter was that related to Melbourne as well.
No that was a that was a new tenant.
Tenant Oh west.
Western Michigan that Oh, it's a property that we've owned since since 2016.
Been performing fine.
There was a change in ownership about halfway through.
2021 and subsequent to that they're starting to be payment issues in pushback on the lease and we're trying to resolve the issue, but just based on the tenants actions and without a clear view of had we moved it to the cash basis of accounting and that's that you know again it was about it it's not a big tenant for you know 4 million dollar asset.
But again as that can have an outsized impact on the on the quarter with that say $300000 charge kind of being a another safe.
$400000 swing from from Q3 to a Q4.
So we moved into cash and you had no rent in the quarter from that tenant.
Right exactly.
Yeah.
Okay.
Thank you.
Our final question comes from the line of Bryan Maher with B Riley Securities. You May proceed with your question.
Good morning, most of my questions have already been asked and answered, but just two follow ups on the acquisitions that are pending what parts of the country are those are generally and if you could share that.
Sure.
Let me.
You can put in front of me as well.
So we're looking at them.
Michigan with Carolina Indianapolis.
The Alaska, Florida.
And Kentucky.
So pretty much all over the place.
Yes, I'm excited about Alaska actually a.
Good market.
There's times to visit that property in time Tonight.
Yeah. The guys went out there when there's the time here at all.
Uh huh.
Yeah, and then the second question I have is on the Mercy Hospital expansion I think you mentioned an 11, 8% return on that can you give us a little color on what exactly you're doing there.
I can start and Bob can expand but I mean, this is something that when we were buying the property was contemplated that they needed an expansion and there's language in the lease that that.
Addresses how this has to be done.
And there was a process, where we have to talk to them and negotiate.
Now the specifics of that.
Mechanics, I I don't have at the top of my head but.
It was.
It was driven in part by what was in the lease and what was negotiated eventually between parties.
Okay, and I'm, sorry, if I missed it but I think that the disposition.
That was pending got pushed out a little bit was there any particular reason for that and is there any risk of that transaction not closing.
There.
Changing.
I'll just say, they're changing their finance are what they were looking at so they asked to push it out and that was generally point with us given that it adds some more revenue until we replace that revenue. So you know we have a nice pipeline now to replace that Rev.
When you win.
Go up so it's been it's actually better timing for us to be pushed out.
We have no idea about the chance of them not getting financing or not.
On that side.
Okay, Great. That's all for me Thanks Jack.
Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back over to Mr. Jeffrey Busch for closing remarks.
Oh, Thank you everybody for attending this year's this past year 2021 was an excellent year for <unk> on many levels and we expect to have a very good year in 2022. Thank you again I appreciate it bye bye.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
Okay.
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