Q1 2022 Global Medical REIT Inc Earnings Call
Good day and welcome to the.
Uh huh.
So the global medical REIT first quarter 2022 earnings conference call, all participants will be unless listen only mode. So do you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
That's a good question you May press Star then one iron telephone keypad to withdraw your question. Please press Star then two.
Please note. This event is being recorded I will now turn the conference over to Mr. Steve Swett with Investor Relations. Please go ahead.
Mr. <unk> Your line is now live.
Okay.
Thank you good morning, everyone and welcome to global Medical REIT first quarter 2022 earnings conference call on the call today are Jeff Busch, Chief Executive Officer, Alfonzo, Leon our Chief investment Officer.
And Bob Kiernan, Chief Financial Officer. Please.
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.
<unk> 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.
Is making this statement for purpose of complying with those safe Harbor provisions.
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, 2021, and its other SEC filings the company assumes no obligation to update.
<unk> publicly any forward looking statements, whether as a result of new information forward 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 EBITDA and adjusted EBITDAR.
A tabular reconciliation of these non-GAAP financial measures to the most comparable GAAP numbers in the company's earnings release and 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 Dot com.
I would now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical REIT, Jeff.
Yeah.
Thank you good morning, everyone and welcome to global Medical REIT first quarter 2022 earnings conference call on the call today are Jeff Busch, Chief Executive Officer, Alfonso Leon Chief.
<unk> Officer, and Bob Carrington, 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 company.
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 1995.
It is making this statement for purpose of complying with those safe Harbor provisions.
Anymore.
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, including without limitation those contained in the company's 10-K for the for the year ended December 31, 2021, 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 current comparable comparable GAAP numbers in the company's earnings release and filings with the SEC <unk>.
Additional information may be found in the Investor Relations page of the Companys 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 first quarter 2022 earnings call.
Coming off a bit.
<unk> strong year in 2021 during which we grew our portfolio by almost 18% while also strengthening our balance sheet, we were well positioned entering 2022 and are having a strong start to the year.
With respect to earnings in the quarter, we increased our total revenue by 16, 5% compared to the first quarter of last year.
32 million and our net income attributable to common shareholders was $2 7 million or four cents per share.
<unk> was 23 per share and unit.
Paul was <unk> <unk> per share and unit, both of which were unchanged compared to the prior year quarter, reflecting consistent performance just by.
<unk> operating at 43% average leverage in the first quarter versus 50% average <unk> in the prior years first quarter due to the impact of additional equity issuance at enhanced our liquidity and strengthen our balance sheet.
As we discussed recently the acquisition environment or our target asset remains very competitive, but we continue to effectively source new opportunities. We closed 24 million of acquisitions in the first quarter and have closed another 30.
So far in the second quarter, when additional $53 million of deals under contract based on this activity and the types of opportunities that we are seeing we feel very good backdrop full year pace for acquisitions. In addition, going forward, we expect cap rates on.
The target assets to rise as the effects of rising interest rates makes its way into the acquisition market I.
I am pleased with our first quarter results and want to thank the team for their hard work and contributions to our performance with that I'd like to turn the call over to alfonzo to discuss our investment activity in more detail.
Thank you Jeff.
As Jeff mentioned for market for medical facilities remains very competitive.
But through our diligence sourcing effort, we continued successfully to source and close high quality properties.
During the first quarter, we closed on four acquisitions containing 80781 leasable square feet.
For an aggregate investment of $24 million.
At a weighted average cap rate of seven 2%.
These acquisitions included.
A 17700 square foot MLB in Gainesville, Georgia.
Purchase price of $5 1 million with a cap rate of six 4%.
A 26700 square foot mob in Grand Rapids, Michigan for a purchase price of $6 8 million with a cap rate of seven 7%.
12800 square foot arthritis center in Sarasota, Florida.
For a purchase price of $6 million.
With a cap rate of seven 1%.
And a 23600 square foot rehab and dialysis center in Greenwood, Indiana for a purchase price of $6 1 million with a cap rate of seven 5%.
Additionally, as Jeff mentioned, so far in the second quarter, we have acquired two properties for an aggregate purchase price of almost $30 million, including 40200 square foot surgery Center in Fairbanks, Alaska for a purchase price of $22 3 million.
Cap rate of six 4%.
A 33200 square foot medical office building portfolio in Rocky point, North Carolina for a purchase price of $7 6 million with a cap rate of six 6%.
We currently have another four properties under contract for an aggregate purchase price of $52 6 million.
These properties are currently in the due diligence period subject to customary closing conditions.
With over $100 million of acquisitions closed or under contract so far in 2022.
We remain comfortable with our target to close between $180 million and $220 million of acquisitions for the full year at an average cap rate of 7%.
I'd now like to turn the call over to Bob to discuss our financial results Bob.
Thank you Fernando <unk> continues to benefit from strong relationships with our tenants and solid portfolio performance at the end of the first quarter 2022, our portfolio included $4 4 million of total leasable square feet, 97% occupancy $6 nine years of weighted average lease term.
Five times rent coverage with 2% weighted average contractual rent escalations.
In the first quarter, we achieved 65% year over year increase in total revenues to $31 9 million driven primarily by our acquisition activity over the past year.
Our total expenses for the first quarter of 2022 were $27 6 million compared to $24 million in the prior year quarter the.
The increase was primarily due to higher operating and depreciation and amortization expenses.
Our larger portfolio, partially offset by lower G&A and interest expense.
G&A expenses for the first quarter of 2022 were $4 2 million compared to $4 4 million in the prior year quarter and in line with our expectations.
The decrease in G&A was primarily due to a reduction in noncash stock compensation expense.
Our current quarter G&A expenses note that our stock compensation costs in the quarter were $1 $3 million and our cash G&A costs were $2 9 million.
Looking ahead, we continue to expect our G&A expenses to be between $4 2 million to $4 4 million on a quarterly basis. During the remainder of 2022, even as we continued to increase the size of our portfolio.
These estimated total G&A costs note that we're forecasting the stock compensation component to average between one two and $1 $3 million per quarter.
Our operating expenses for the first quarter were $5 4 million compared to $3 7 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 of gross leases.
Regarding these first quarter 2022 expenses 4 million relates to net leases, where the company recognized a comparable amount of expense recovery revenue. The 800000 relates to gross leases. The majority of the remainder of these expenses relates to vacancies and properties that we account for on a cash basis.
Net income attributable to common stockholders for the first quarter of 2022 was $2 6 million or <unk> <unk> per share compared to $1 8 million or <unk> <unk> per share in the first quarter of 2021.
<unk> in the first quarter was up 26% to $16 million and our <unk> was up 24% to $60 8 million compared to the first quarter of 2021, reflecting the impact of our equity issuances or <unk> was 23 per share in the first quarter unchanged from the first quarter of 2021.
<unk> was 24 cents per share in unit, which is also unchanged from the prior year first quarter as Jack mentioned, the growing portfolio delivered consistent performance. Despite a reduction of average leverage by seven percentage points from the prior year quarter.
Moving onto the balance sheet as of March 31, 2022 gross investment in real estate was approximately $1 4 billion, which is up nearly $200 million from a year earlier relative to equity in the first quarter. We generated gross proceeds of $8 $3 million through ATM issuances of 480000 shares of our common stock.
At an average price of $17 38 per share.
At March 31, 2022, we had approximately $594 million of gross debt and our leverage ratio was 43, 7% up slightly from year end 2021, our weighted average interest rate during the quarter was $2, 87% and our current unutilized borrowing capacity under the revolver is $171 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.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Theory Speakerphone, please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yes.
Our first question comes from Bryan Maher of B Riley FBR. Please go ahead.
Yes, good morning.
Good morning.
Couple of questions. You noted in your press release and then this morning again.
About the more competitive market.
Out there for assets in the higher uncertainty and higher interest rates and global issues.
Useful less opportunity.
Or are the opportunities that are being shown to you coming at terms that maybe don't mind as acceptable as before.
Could you just give you a little bit.
We're probably in a transition period, where cap rates are going up right now.
So we're being careful on how we buy.
Historically in like in the past, we get very very well.
Historically with higher cost of capital relative to others because of our spread as you can see in our $1 4 billion with an average cap rate of seven eight that we have so we are seeing.
It's starting to loosen up it's been a tough market we.
We did very well we have a high performance right now and we're looking to do our year's total, but given that we did well in the past, we're starting to look and see maybe we should wait and see a little bit on some more deals and let it go.
The cap rates going so we have a good pipeline.
Our pipeline is quite strong we expect to do.
What we traditionally do at least this year. So that's not an issue, but the cap rates are starting to go higher and there are deals out there, but we are waiting somewhat on some of these deals to the cap rates to keep going up.
So you've done really well over the past couple of years utilizing your ATM.
To raise capital to fund acquisitions with where the share prices have trended down two should we expect a little less of that or is it really going to be an acquisition by acquisition basis determining if you should hit the ATM market to complete something.
Or should the market be repaired for you to kind of slowdown in acquisitions in general if the share price hangs out around 14 15.
Now we can still acquire it's all about spread for us.
We have a good spread that happened. So you could see in some of our bigger deals that we took an opportunity to buy some bigger chunks of deals.
With an average of seven.
But.
With the cap rates going up and the ATM between where it is with the stock price and even debt going up we could continue to buy given that we keep buying better cap rates, it's all about sprint.
Got it.
Cost of capital is it's all about what spread and in our niche in the world that I tell everybody. It's not so competitive because not everybody wants to do the work of running through the small communities and go through these.
Deep due diligence even for a $5 million deal we're willing to do that work. So therefore, we could get the extra spread like we did a couple of years ago and historically.
We used to not have as you know.
We used to be doing this at $12 a share and $10 a share so.
With higher interest rates, so we could still make a spread so we could be accretive going forward and keep growing.
And just lastly last quarter I think you talked about looking more at some multi tenant properties that might have lower occupancy that you would hope to lease up.
To capture a higher cap rate is that still the cases, we think about the rest of 2022 and that's all for me.
I'll, let all bonds are due this way.
Yes.
Sure Yeah, no we're absolutely looking at multi tenant as well I mean, there's there's good opportunities across the country and ones where there is.
Barry.
Very good potential to grow.
Lease up properties.
So, yes definitely looking at multi tenant.
Okay. Thank you.
Yes.
Our next question comes from Austin <unk> of Keybanc capital markets. Please go ahead.
Yes, good morning, and thank you Jeff I'm, just curious if you've seen any less competition on the deals you are underwriting.
If you have fewer bidders involved in the transactions and as you have these discussions with sellers around some movement potentially in cap rates has there been any pushback at this point on seller expectations or.
Could we see sort of the transaction market slow until that spread narrows.
I'll give you and I'll, let alfonzo eczema.
It usually takes one to two quarters for the jobs, you're sort of getting your mind sellers getting their minor number and then they get to see the reality later.
So therefore.
They will float out a number.
By our volume and we've had a very good volume for the beginning of this year very good volume I can tell that there is less people bidding in our categories, because we picked up in our contracts and our sales deals in the $20 million range. That's how I'd tell when we can only get seven.
<unk> content, which is really we own that territory and we can get any <unk> and plus you can tell that there is too many bidders out there.
<unk> signed right now as we're picking up some pretty larger assets and very good quality larger of assets to that normally would have gone out to our competitors I'll, let alfonzo explained with our.
With the sellers out there because usually they are pretty resistant to drop their prices, but they do over time.
But go ahead alfonzo, yes, sure and so to add to that I mean, the market is not.
Uniform across the entire spectrum I mean, you've got.
Different types of buyers different types of assets.
So for example.
Larger portfolios.
I'm not expecting that there's going to be meaningful.
Price difference or change in cap rate.
Anytime soon.
It's interesting to point out that large portfolios.
Have traded.
Sort of in this low five cap and maybe high four cap range for a while now.
Thats really not moved.
In tandem with where cap rates have traded for for example, a single tenant net lease buildings that is that has moved.
More in lockstep with.
Interest rates for debt.
So I think the net lease market.
There will be more movement in cap rate in that segment of the market versus portfolios.
Also depending on the sellers.
Investors, who own medical office are going to be more pragmatic about buying and selling versus physicians, who own their real estate, who are more emotionally attached to their building. So it's not going to be uniform, but.
The increase in interest rate cost is definitely beginning to change.
Cap rates across the.
The market.
But it's going to take a quarter or two and it's going to depend on the type of seller that type of asset.
No. That's really helpful color and do you feel like the deals youre closing or have under contract.
That those aren't at risk with you stepping in at the sort of averaged seven yield youre targeting that six to 12 months down the road those could be.
In the low to mid 7% range.
So I mean.
Fundamentally what we're trying to do is build the portfolio build our <unk>.
And not necessarily trying to time the market. So we're trying to build a portfolio of quality assets with quality tenants.
We're not.
In a sense, we're trying to dollar cost average our investments and not be worried about fluctuations in interest rates.
Okay. That's fair and then just last one for me we saw the.
The assets held for sale in Ohio, again sort of pushed back the earliest timing on when that's closing can you just provide some additional detail around whats pushing that back and are you still comfortable with the price that you expect that to trade at given some of your earlier comments.
Yes, Hi, this sale timing perspective, the timing is really dependent.
Just timing matters related to the buyers financing, we don't have any concerns.
With that timing or how it's moved.
It is not an issue for us either way we at this point I think where our expectation is this for a third quarter third quarter sale.
And don't have any concerns there either way relative to that it's a math that we were comfortable owning and earn a nice return on it.
But from a sale perspective.
Yes.
Where we are in it and Thats our expectation.
I appreciate the update and thanks for the time.
Our next question comes from current diverse Bahrenburg. Please go ahead.
Good morning out there thanks for having me on the call.
Good morning.
Working back to Jeff's comments earlier and maybe this is a question for Alfonzo Butt.
In terms of your.
In terms of your target assets, whether it's mlps IRS or surgical hospitals, where are you seeing the most severe shift in cap rates at the moment.
Between those three asset types.
Thank you I would say.
The Earth.
Trade and frequently.
And that might actually be an asset class that might not change as much.
It used to be that Earth trade it in.
And the southern cap range and dip into the six cap rate range, but I think given the investor demand and the types of investors, who know like the bi I.
I think that might not change very much.
Uh-huh given that it.
You're talking about sort of mid six cap range and high six cap range.
Surgical hospitals are also.
It's going to really depend on what type of like who the operator is who the surgeons are location.
So the better surgical hospitals I also don't think there's going to be a meaningful change in cap rates.
Those have gotten pretty competitive and surgical hospitals are different in sort of the surgery centers.
Of course and.
Those have started trading sub six cap range, but as states sort of in the high five cap range and maybe that creeps up to six.
Hard to tell but mlps as I was alluding to before it depends on many factors, but I do think that the net lease mlps are going to are going to.
Move up quicker than the rest of the MLP space.
Okay understood. So if im reading this correctly then the net lease mlps, maybe the risk premium for investors still shifts accordingly, I'm trying to get a sense here that maybe because of the stability of these assets.
Risk premium would be slower to move right.
Were a layer of safety.
There's also a bit.
I want to comment on this there's also a competition level.
We sort of arbitrage the market, it's not a risk things because you see our coverage ratios are often if.
If we buy a five or $7 million property coverage ratios of their earnings over their rent.
Tend to be much higher than maybe a $20 million property. So it's not really the risk factor.
The ability to move money.
Which many of the funds drive up the price, it's not necessarily that there's a risk and therefore the prices lower it's that capital needs to move in large amounts and we tend to do it in volume of closing 18 to 20 deals a year.
Therefore, we hit our 200 plus million.
So a lot of these assets that we get the competition will be.
Private equity that seeing the cost.
And looking at some of the smaller deals and theyre not going to be there. So we will have less competition and thats, where I expect the rates will move up given that the others. When they did theyre going to look at their debt a lot of them were putting 80% debt on these deals now they are going to be not getting that type of thing from the bank and plus paying a lot more money.
So that's definitely going to move up our our traditional what we do.
Stepping into some of the larger deals I think is going to take a little longer to move up.
But our bread and butter that we did.
A few years ago, where we were getting AIDS than there was a lot of groups that entered the market because of real cheap and easy money when the cheap and easy money starts disappearing we ended up by ourselves a little bit and Thats, where we have an advantage going forward.
Got it that's helpful color thanks, everyone.
Okay.
Our next question comes from Rob Stevenson of Janney. Please go ahead.
Hi, Bob Hi, Good morning, guys.
Most of my questions have been answered, but Bob you guys still have a lot of capacity on the line I think it was something like $170 million or so.
331.
Is there going to be any need to access any type of debt other than the line in the near term given the disruption in the market how are you thinking about financing.
Whether the next quarter, or so, especially things keeping choppy here on the debt side.
Yes.
We are looking at.
Current alternatives on the debt, we feel like we've got great capacity on the revolver and having a year ago now that we had just redone the revolver.
And the term loan facility and so we've got 171 of capacity today. So that gives us a lot of flexibility and then as we look ahead I think we.
<unk>.
Look to diversify we look at opportunities to diversify but as you pointed out it is with the choppy market, we want to be careful and thoughtful about how we do that but it is we've got good flexibility for today and I think we again look at our look at our options and assess.
Shipments approaches as we as we go ahead.
<unk> maintained that continue to have flexibility.
Okay.
And then.
Bobber, Jeff how are you guys thinking about the.
Do you have.
Almost $80 million of preferred that's redeemable in September I mean, obviously, if the 10 year goes to 7% or something crazy.
Dramatically changes, thanks, but assuming that things stay relatively similar to where they are now in terms of your equity and debt costs. So any reason why you would keep a seven 5% preferred outstanding.
Bob.
Yes, I'll start and yes, I mean, the preferred is really great capital in the sense of being permanent capital you don't have to.
You don't have to do anything with it but having it come to the redemption period or having that be having that.
Having coming up on that in September it gives us some opportunities and I think in a scenario where our cost of capital can be lower there's no reason for us not to pursue an approach that.
Albert.
The balance sheet as a whole reduces our overall cost of capital at 75.
5%, we're certainly.
With respect to common equity in debt today.
See an advantage of.
Those opportunities away from away from the preferred but it's something that we're looking at and evaluating and considering our options on as long as we get closer.
Okay. Thanks, guys I appreciate the time.
Thank you.
As a final reminder, if you have a question. Please press Star then one.
Next question comes from wrong, one Santa Maria of BMO capital markets. Please go ahead.
Hi, this is a malaria on for one.
Just a quick question can you remind us of your leverage target going back to <unk>.
Topic.
Yeah sure. So we've talked about keeping our leverage at 45% debt to assets and below but I think we have where we're flexible in terms of that.
It could go it could.
Shift above that.
B below the 45%, but that's our general target.
And that in that range.
Okay. Thank you.
And shifting over to rent coverage.
So long term acute care hospitals right.
Rent coverage went down significantly since last quarter.
What drove that and what's the estimated EBITDAR coverage.
Yes so.
Keep in mind that this is from a from an overall perspective.
This is.
Not a huge two 3% of our total rent.
Relative to the overall, but.
There is a couple.
Properties that underlie that that data point and it's a matter of just the.
Again.
Timing of getting those financials and the financial.
Just.
The flow of those.
Of those amounts so there really wasn't anything in particular I mean, we're very comfortable with the two four times rent coverage for for the L tax or is the.
Seasonal element to the to the financials as well to drive that up or down but at two four times coverage.
While it is down comparatively it's still a healthy rent coverage.
Right. It was a little bit of <unk>, we're still a little bit hit by Covid and that caused that I mean less beds were filled.
During that period of time.
We expect the business to do quite well going forward, because it's a needed and it's a needed type of medical facility and it performs very well, but like other medical facilities.
<unk> had some up and down periods during the Colbert time, but they showed strength.
All of them paid their rent while.
<unk>.
We had that total downturn oncall that it closed down so we're quite comfortable with those assets.
Okay, so kind of back to your earlier comments that it maybe a little bit more property, operator specific rather than a larger shift in the fundamentals am I reading that right.
Yeah Yeah.
I mean, if you want to look at it the acute hospitals are having more of a labor shortage is not being able to take as much business adjusting to that.
On <unk>.
<unk> a bit.
People can come in if they test that type of stuff. So.
They had to adjust their business business is going to get back to normal and there is the need for this and aging population. There is a need under the rehabs and all that type of business that we're in we're really not much on the <unk> business.
It's just not something that we're interested in even though.
Historically, we bought a couple of good ones that are paying and our acute hospitals are doing fine.
And they are very small piece of our business, we really focus mostly on the mlps going forward and we've been buying.
Those consistently with.
With multiple tenants added to our diversification.
Okay. Thank you so much that makes sense.
<unk>.
This concludes our question and answer session. At this time I will now turn the conference back over to management for any closing remarks.
Well. Thank you everybody so much and appreciate your time have a good.
Hi.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Yes.
[music].
Yes.
[music].