Q4 2023 Global Medical REIT Inc Earnings Call
Operator: BF-WATCH TV 2021 Greetings and welcome to Global Medical REIT Fourth Quarter 2023. This time, all participants are on a listen-only, [inaudible] If anyone should require an operator or Star Zero on their telephone, it is now my pleasure to introduce Steve Swett. Thank you. Thank you.
Greetings and welcome to global Medical REIT fourth quarter 2023 earnings call.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Steve Swett Investor Relations. Thank you you may begin.
Stephen C. Swett: Good morning, everyone, and welcome to Global Medical REIT's fourth quarter and full year 2023 earnings conference call. On the call today are Jeff Busch, Chief Executive Officer, Alfonzo Leon, Chief Investment Officer, and Bob Kiernan, Chief Financial Officer. Please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements that are not historical facts and are considered forward-looking.
Good morning, everyone and welcome to global Medical REIT fourth quarter and full year 2023 earnings conference call on.
On the call today are Jeff Busch, Chief Executive Officer, Alfonzo, Leon our Chief investment Officer, and Bob Kiernan, Chief Financial Officer.
Please note. These forward looking statements by the company on this conference call statements made on this call may include statements that are not historical facts and are considered forward looking.
Stephen C. Swett: 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 and is making this statement for purposes 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, including, without limitation, those contained in the company's 10-K for the year ended December 31, 2022, 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, EBITRE, and adjusted EBITRE. 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. Additional information may be found on the Investor Relations page of the company's website at www.globalmedicalreit.com. [inaudible] Thank you, Steve.
We intend 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, including without limitation those contained in the company's 10-K for the year ended December 31, 2022, and its other SEC filings.
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.
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.
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 full year 2023 earnings call.
Jeffrey M. Busch: Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call. Our high-quality medical real estate portfolio continues to produce steady results. At the end of the fourth quarter, portfolio occupancy was 96.5%, with a weighted average lease term of 5.8 years, and the portfolio average rent coverage ratio of 4.2 times.
Our high quality medical real estate portfolio continues to produce steady results at the end of the fourth quarter Folio occupancy was 96.5% with a weighted average lease term of five eight years and the portfolio average.
Rent coverage ratio.
4.2 times.
Jeffrey M. Busch: For the fourth quarter, reflecting the impact of a loss on the extinguishment of debt, we had a net loss attributable to common shareholders of $840,000, or one cent per share, compared to net income attributable to common shareholders of $369,000, or one cent per share, in the fourth quarter of 2022. FFO in the fourth quarter was $0.19 per share and unit, down $0.03 from the prior year quarter, and our AFFO was $0.23 per share and units, down $0.01 from the prior year quarter. In 2023, we patiently manage through continually difficult market conditions for acquisitions and look to opportunistically dispose of assets to reduce our leverage and variable rate debt. We are pleased with the results of our dispositions activity in 2023 as we completed three dispositions at a weighted average cap rate of 6.3% that generated $80.5 million in gross proceeds. We used the net proceeds from these dispositions to pay down our variable rate debt, resulting in a leverage ratio at the end of the year of 43.6 percent to position the company for growth as creative acquisition opportunities arise. I am proud of our team for efficiently executing these dispositions during this year.
For the fourth quarter, reflecting impact of.
A loss on extinguishment of debt, we had a net loss attributable to common shareholders of $840000 or one cents per share compared to net income attributable to common shareholders of.
$369000 or one cents per share in the fourth quarter of 2022.
F F O in the fourth quarter with 19 cents per share and unit down three cents from the prior year.
Our <unk> was 23 cents per share and units down one from the prior year quarter.
In 2023, we patiently manage through continual difficult market conditions for acquisitions and look to opportunistically dispose of assets to reduce our leverage and variable rate debt.
We are pleased with the results of our disposition activity in 2023, as we completed three dispositions at a weighted average cap rate of 6.3% that generated $85 million of gross proceeds we use.
The net proceeds from the dispositions to pay down our variable rate debt.
Whereas resulting in a leverage ratio at the ended the year of 43.6 presents to position the company for growth as accretive acquisition opportunities arise.
Proud of our team for efficiently executing these dispositions during the year.
Jeffrey M. Busch: Looking ahead to 2024, I am excited to see the market for our target acquisitions has improved meaningfully compared to 2023. Additionally, we have a near-term acquisition pipeline of between $95 million and $110 million of medical properties that meet our investment criteria. As we look ahead, we continue our accretive growth strategy while maintaining or lowering our portfolio leverage. We believe the strategy of lower leverage growth is prudent in the current environment of sustained higher interest rates and will lead to long-term growth for our shareholders. Overall, I am pleased with the results for 2023 and want to thank the entire team for their hard work and contributions to our results. With that, I turn the call over to Alfonzo to discuss our transaction activity and the current acquisition market conditions in more detail. Thank you, Jeff.
Looking ahead to 2024 I'm excited to see the market for our target acquisitions as improved meaningfully compared to 2023 significantly we have been near term acquisition pipeline of between 95.
Million and $110 million of medical properties that meet our investment criteria. As we look ahead, we continue our accretive growth strategy, while maintaining or lowering our portfolio leverage we believe the strategy of lower leverage.
Growth is prudent in the current environment of sustained higher interest rates and will lead to long term growth for our stockholders.
Overall I am pleased with the results of 2023 and want to thank the entire team for their hard work and contributions to our results with that I turn the call over to alfonzo to discuss our transaction activity and the current acquisition market.
Conditions in more detail.
Thank you Jeff.
As Jeff mentioned, we are currently reviewing near term acquisition opportunities.
Alfonzo Leon: As Jeff mentioned, we are currently reviewing near-term acquisition opportunities ranging from $95 million to $110 million that meet our investment criteria. Based on the typical timeline for our due diligence process, we're targeting the second half of this year for closing these transactions. As acquisition cap rates have risen in response to buyers' increased cost of capital, we are seeing sellers begin to adjust their expectations, which is leading to more accretive acquisition opportunities. We continue to remain actively involved with various physician groups, brokers, and corporate sellers to identify acquisition opportunities.
<unk> from 95 million to $110 million that meet our investment criteria.
Based on the typical timeline for our due diligence process, we're targeting the second half of this year for closing these transactions.
Acquisition cap rates have risen in response to buyers increased cost of capital. We are seeing sellers begin to adjust their expectations, which is leading to more accretive acquisition opportunities.
To remain actively involved with various physician groups brokers and corporate sellers.
The Phi acquisition opportunities.
Alfonzo Leon: This continued dialogue, along with our deleveraging activities in 2023, should allow us to capitalize on potential opportunities, which gives us an advantage over less liquid buyers. Additionally, an unattractive debt refinancing market could push previously reluctant sellers our way as these sellers run out of refinancing options. We continue to closely monitor the ever-changing market conditions and are excited about what we see for 2024 and beyond. We will continue to leverage our competitive advantage, including scale, access to capital, and the potential utilization of OP unit deal structures to unlock opportunities. [inaudible] Thank you, Alfonzo.
This continued dialogue along with our deleveraging activities in 2023 should allow us to capitalize on potential opportunities, which gives us an advantage over a less liquid buyers.
Additionally.
Unattractive debt refinancing market could push previously reluctant sellers are way as these sellers run out of refinancing options.
We continue to closely monitor the ever changing market conditions.
We're excited about what we see for 2024 and beyond.
We will continue to leverage our competitive advantage, including scale access to capital and the potential utilization of O P unit deal structures to unlock opportunities.
I'd now like to turn the call over to Bob to discuss our financial results Bob.
Thank you all found though.
At the end of the fourth quarter 2023, our portfolio consisted of gross investments in real estate of $1 $4 billion.
Robert J. Kiernan: At the end of the fourth quarter of 2023, our portfolio consisted of gross investments in real estate of $1.4 billion, including $4.7 billion of total leasable square feet, 96.5% occupancy, 5.8 years of weighted average lease term, 4.2 times rent coverage, with 2.1% weighted average contractual rent escalation. In the fourth quarter, our total revenue decreased compared to last year to $33 million. The reduction in revenue is primarily driven by property dispositions completed during the first nine months of the year, as well as the recognition of reserves for approximately $1.1 million of rent related to our medical office building tenant in East Orange, New Jersey, including approximately $0.2 million of deferred rent. Our total expenses for the fourth quarter were $31.5 million, compared to $34.5 million in the prior year quarter. The decrease was primarily due to decreased interest expense and operating expenses.
$4 7 million of total leasable square feet 96, 5% occupancy five eight years of weighted average lease term for two times rent coverage with two 1% weighted average contractual rent escalations in the fourth quarter, our total revenues decreased compared to last year $33 million.
The reduction in revenue was primarily driven by our property dispositions completed during the first nine months of the year.
Well as the recognition that preserves for approximately $1 1 million of rent.
Weighted to our medical office building tenant any storage, New Jersey, including approximately <unk> 2 million of deferred right.
Our total expenses for the fourth quarter were $31 5 million compared to $34 $5 million in the prior year quarter. The decrease was primarily due to decreased interest expense and operating expenses.
Robert J. Kiernan: Our interest expense in the fourth quarter was $7 million compared to $8.1 million in the comparable quarter of last year, reflecting the impact of lower average borrowings and lower interest rates compared to the prior year period. Note that beginning in early August, our credit facility pricing improved by 15 basis points as a result of our reduced leverage. In addition, in early August, certain of our forward-starting interest rate swaps became effective, replacing maturing swaps, which reduced the interest cost on our $350 million term loan by 30 basis points compared to prior periods. Our operating expenses for the fourth quarter were $6.1 million compared to $7.1 million in the prior year quarter, but the decrease in these expenses is primarily driven by the changes in our portfolio since the comparable prior year period. Note that real estate-related taxes represent the largest component of our operating expenses.
Our interest expense in the fourth quarter was $7 million compared to $8 $1 million in the comparable quarter of last year, reflecting the impact of lower average borrowings and lower interest rates compared to the prior year period.
Beginning in early August our credit facility pricing improved by 15 basis points as a result of our reduced leverage. In addition in early August certain of our forward starting interest rate swaps became effective replacing maturing swaps, which reduced the interest cost on our $350 million term loan by 30 basis points compared to prior periods.
Our operating expenses for the fourth quarter were $6 $1 million compared to $7 $1 million in the prior year quarter with the decrease in these expenses, primarily driven by the changes in our portfolio since the comparable prior year period note that real estate related taxes represent the largest component of our operating expenses.
Robert J. Kiernan: Regarding these fourth-quarter expenses, $4 million related to net leases, where the company recognized a comparable amount of expense recovery revenue, and $1.4 million related to gross dues. G&A expenses for the fourth quarter of 2023 were $4.2 million, compared to $4.1 million in the fourth quarter of 2022. Within our current quarter's G&A expenses, note that our stock compensation costs were $1.2 million in the quarter, and our cash G&A costs were $3 million. Looking ahead, we expect our GNA expenses in 2024 to increase to be in the range of $4.4 million and $4.6 million on a quarterly basis. During the fourth quarter, we completed the defeasance of a CMBS loan by making a total payment of $31.5 million, including transaction costs.
Regarding these fourth quarter expenses $4 million related to net leases, where the company recognized a comparable amount of expense recovery revenue and $1 $4 million from latency close cases.
G&A expenses for the fourth quarter of 2023, or $4 $2 million compared to $4 $1 million in the fourth quarter of 2022 within our current quarter G&A expenses note that our stock compensation costs of $1 $2 million in the quarter and our cash G&A costs were $3 million.
Looking ahead, we expect our G&A expenses in 2024 to increase to be in the range of $4 $4 million and $4 $6 million on a quarterly basis.
During the fourth quarter, we completed the defeasance of the <unk> loan by making a total payment of $31 $5 billion excluding transaction costs.
Robert J. Kiernan: The net carrying value of the loan was $30.6 million on the date of defeasance, resulting in a loss and extinguishment of debt of $868,000. In connection with the defeasance, we subsequently received $8.4 million in escrowed funds held by the CMBS servicer and used those funds to reduce our total debt and leverage. Net loss attributable to common stockholders for the fourth quarter was $840,000, or one cent per share, compared to net income attributable to common stockholders of $369,000, or one cent per share, in the fourth quarter of 2022. FFO in the fourth quarter was $13.3 million, or $0.19 per share and unit, compared to $15.5 million, or $0.22 per share and unit, in the fourth quarter of 2022. AFFO in the fourth quarter was $15.9 million, or $0.23 per share and unit, compared to $16.5 million, or $0.24 per share and unit, in the fourth quarter of 2022.
The net carrying value of the loan was $30 $6 million on the date of the season, resulting in a loss of extinguishment of debt of 868000 in connection with the defeasance. We subsequently receive $8 $4 million and escrowed funds held by the <unk> servicer and used those funds to reduce our total debt and leverage.
Net loss attributable to common stockholders for the fourth quarter with $840000.01 per share compared to net income attributable to common stockholders of $369000 or one seven per share in the fourth quarter of 2022.
<unk> in the fourth quarter was $13 $3 million of 19 cents per share and unit compared to $15 $5 million or 22 cents per share and unit in the fourth quarter of 2022.
<unk> in the fourth quarter was $15 9 million or 23 per share and unit compared to $16 $5 million or 24 cents per share and unit in the fourth quarter of 2022.
Moving onto the balance sheet as of December 31, 2023, our gross investment in real estate was $1 $4 billion, which is down about $60 million from the start of the year, reflecting our disposition activity.
Robert J. Kiernan: Moving on to the balance sheet, as of December 31st, 2023, our gross investment in real estate was $1.4 billion, which is down about $60 million from the start of the year, reflecting our disposition activity. Additionally, at December 31, 2023, we had $618 million of total gross debt with a weighted average remaining term of 2.9 years. At quarter end, 85% of our total debt was fixed rate debt, our leverage ratio was 43.6%, and our weighted average interest rate was 3.83%. As previously mentioned, with our reduced leverage ratio, during the third quarter, we lowered the SOFR margins on our credit facility by 15 basis points, with the SOFR margin on our revolver now at 1.35%, and our terminal margins are now 1.30%. Lastly, the current unutilized borrowing capacity under the credit facility is $294 million. We did not issue any shares of common stock under our ATM program during the quarter or so far this year.
At December 31, 2023, we had $618 million of total gross debt with a weighted average remaining term of two nine years.
At quarter end, 85% of our total debt was fixed rate debt, our leverage ratio was 43, 6% and a weighted average interest rate was 383%.
As previously mentioned with our reduced leverage ratio during the third quarter, we had lowered the soaker margins and our credit facility by 15 basis points. So for margin on our revolver now at 1.35% and our term loan margins are now open.
Christina.
Lastly.
Current unutilized borrowing capacity under the credit facility was $294 million, we did not issue any shares of common stock under our ATM program during the quarter or to date in the first quarter of this year.
With respect to our 2023 lease exploration.
Jeffrey M. Busch: With respect to our 2023 lease expirations, we ended the year retaining 78% of the full year's 363,000 expiring square feet and 85% of the related expiring ABR. Our outlook regarding 2024 lease expirations is very good and, in general, consistent with our experience with 2023 lease expirations. Currently, we are expecting that our occupancy during 2024 will range between 95% and 96.5%. Regarding capital expenditures on the portfolio, in 2023, our cash spend was approximately $9.6 million. Currently, we're projecting 2024 capital expenditures of approximately $10 to $11 million related to building and site improvements and approximately $2 to $3 million in tenant improvements, primarily associated with lease renewals and lease-up to be completed during 2024.
We ended the year retaining 78% of our full years 363000 expiring square feet and 85% of the related expiring a b R. R.
Our outlook regarding 2024 lease explorations is very good and generally consistent with our experience on 2023 lease explorations. Currently we are expecting that our occupancy during 2024 will range between 95% 96, 5%.
Regarding capital expenditures on the portfolio in 2023, our cash spend was approximately $9 6 million. Currently we are projecting 2020 for capital expenditures of approximately $10 million to $11 million related to building and site improvements and approximately $2 million to $3 million in tenant improvements primarily associate.
But at least for renewables and lease up can be completed during 2024.
As we begin the year, we are confident that our resilient portfolio and ample liquidity available to us will continue to help us navigate these challenging market conditions. We are optimistic about moving forward in our acquisition efforts in 2024 and look forward to sharing our progress with you throughout the year.
Operator: As we begin the year, we are confident that our resilient portfolio and ample liquidity available to us will continue to help us navigate these challenging market conditions. We are optimistic about moving forward with our acquisition efforts in 2024 and look forward to sharing our progress with you throughout the year. This concludes our prepared remarks. Operator, please open the call for questions. Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, you may press star 1 on your screen. A confirmation tone will indicate your line is in. You may press star 2 if you would like to remove your question before pressing the start button.
This concludes our prepared remarks, operator, please open the call for questions.
Thank you ladies and gentlemen at this time, we will be we will be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Boston, where she met with Keybanc. Please proceed with your question.
Hey, Good morning, guys, Jeff you highlighted accretive investment opportunities you know several times throughout your prepared remarks, and then kind of hit on the importance of keeping leverage in check in the current environment. I mean, how are you thinking about the economics of these deals in and maybe some additional specifics around no plans to finance the transaction.
Austin Todd Wurschmidt: Our first question comes from the line of Austin Wurschmidt. This concludes today's conference. If you have any questions, please feel free to leave them in the Q&A section. Good morning, guys. Jeff, you highlighted it.
Actions.
Jeffrey M. Busch: How are you thinking about this? Oh, absolutely. We have basically an optimistic plan, which is basically the Fed lowers the rates. Purchase Agreements that we don't have to close for quite a while out there. There are real opportunities for us in the market. So one or two things can happen.
Oh, absolutely we have basically a up to mystic plan, which is basically the fed will ours.
The rates.
These are.
Purchase agreements that we don't have to close for quite a while.
Out there that there's real opportunities for us in the market, so one or two things can happen.
One is we get a lowering of the rates, where you could always see it's happened three times that when the market felt the rates were lowering we moved into $11 50 to $12 type of stock and that's an opportunistic to use equity and lower it on the other hand like we showed last year.
Jeffrey M. Busch: One is we get a lowering of the rates where you can always see it's happened three times that when the market felt the rates were going down, we moved into $11.50 to $12.00 type of stock, and that's an opportunistic time to use equity and lower it. On the other hand, like we showed last year, we have assets that will sell for low six caps, and the acquisitions we're looking at are around eight caps, triple net, and others. So we basically could do either one or two things, trade our six caps of other types of facilities and buy these eight caps and sort of bring up, you know, make the spread, or my preference would be, if the market conditions are right, that we go out and we do a combination of equity and debt, and with the equity and debt, our new criteria is to keep lowering, to be accretive, but also to lower our debt, eventually below 40 I mean, it'll take a while, but our goal is to lower it before 40. Alfonzo, I guess how willing are buyers to take...
We have assets that will settle in the low six caps and the acquisitions, we're looking at or around eight caps.
The triple net and others. So we basically can do either one or two things trade our six caps.
Of other type of facilities.
And by these eight caps and sort of bring up make the spread or my preference would be if the market conditions are right that we go out and we do a combination of equity and debt and with the equity and debt our new criteria.
Is to keep lowering to be accretive, but also to lower our our debt.
They eventually below 40% I mean, it will take a while but our goal is to lower before 40.
And I think Alfonzo, you mentioned, you know O P units potentially I guess, how willing are buyers to take op units in and maybe you know how much can that limit the equity need that you'll need to move forward with these with these deals.
Alfonzo Leon: It's hard to predict. I mean, we always try to offer it and discuss it, try to stimulate that interest, but it's very idiosyncratic.
It's hard to predict I mean, we always are trying to offer it and discuss and try to stimulate that interest them.
But it's it's very idiosyncratic and really it's an estate planning decision that the seller has to have and it's pretty hard to predict.
Alfonzo Leon: And really, it's an estate planning decision that the seller has to make, and it's pretty hard to predict. And we had one last year.
We had one last year.
Alfonzo Leon: And in 2018, we had a lot of success with that. But it's hard to predict. Yeah, sure. You know, our focus is more MOVs and surgery centers. And we're also, you know, trying to pursue opportunities that are more singleton in nature versus. Our next question comes from the line of Rob Stevenson. Janie Montgomery Scott, please proceed with your question.
And we had a 2018, we had a lot of success with that.
But it's hard to predict.
And then just lastly for me I guess can you provide some additional details or specifics on sort of the types of deals. I mean these are just all straight M Ob transactions any anything unique.
About them or they lease up our opportunities are more stabilized just any detail you can provide would be appreciated. Thanks.
Yes sure.
Where we.
Our focus is more movies and surgery centers.
And we're also.
Trying to pursue opportunities in a more single tenant in nature versus multi tenant.
Yeah.
Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.
Hi, good morning, guys.
Robert Chapman Stevenson: Good morning, guys. Bob, you know, revenues were down $2.6 million quarter-over-quarter, operating expenses were down $1.1 million, and sort of below where they've been over the last few. Is that due to that reimbursement timing thing that you were talking about, or is there something else going on there that we need to be aware of? No, Rob, the big driver for the decrease overall was the disposition activity, number one. But then, number two, unique to the fourth quarter, was the fact that we put on reserves for $1.1 million. That was a reduction in revenue for the quarter.
Bob unit revenues were down $2 6 million quarter over quarter operating expenses were down 1.1.
And sort of below where it's been over the last few is that due to that reimbursement.
Timing thing that you were talking about or is there something else going on there do we need to be aware of.
No.
The big driver for the decrease overall was the disposition activity number one, but then number two unique to the fourth quarter was the fact that we could put on reserves for $1 $1 million that was a reduction of <unk> of revenue for <unk> for the quarter and that was related.
Our property and we mentioned in the in the in the release, a new store in New Jersey, and just some color on that is that that's a property that we bought in in September of 2016. So so we've owned it for a while until this recent event hadn't had any significant issues with.
Robert J. Kiernan: And that was related to a property we mentioned in the release in East Orange, New Jersey. And just some, you know, color on that is that that's a property that we bought in September of 2016. So we've owned it for a while, and until this recent event, we hadn't had any significant issues with, you know, the property. The tenant there is Prospect Medical.
With the property.
The tenant there is prospect medical and well, while we were working closely with them and keeping keeping us informed of their their cash flow issues that they were facing we concluded that that was the most appropriate accounting. So that's the reduction that's that's that's in the in the fourth quarter, but with that said relative to this dislocation.
Robert J. Kiernan: And while we were working closely with them and keeping, you know, keeping us informed of their cash flow issues that they were facing, we concluded that that was the most appropriate accounting treatment. So that's the reduction that's in the fourth quarter. But, you know, with that said, relative to this location and this tenant, we think that in the longer term, we'll, you know, we'll work through the issues with the property, both in terms of payments from Prospect and relative to our establishing new tenants at the facility. Okay. And then on that, I mean, beyond that tenant, how extensive is the watch list, and is anybody else on cash accruals at this point versus accruals at this point? No, not anybody else at this point.
This then this tenant we think that in the longer term that will we'll work through the issues with the property both in terms of payments from from prospect and relative to our establishing new tenants.
At the facility.
Okay, and then I guess on that I mean, how is it beyond that tenant how extensive is the watch list and has anybody else on cash.
Cash accruals at this point versus accruals at this point.
No one else at this point.
Alfonzo Leon: Okay, helpful. And then Alfonzo, how are you looking at these assets that you've, you know, that you're, you know, focused on acquiring under purchase agreements, as well as everything else that's out there today? I mean, is there much availability of debt financing? How broad is the market for these assets? I mean, are you guys one of the only players in town?
Okay. That's helpful and then I'll find out how are you looking at these assets that you've that you're focused on acquiring under purchase agreements as well as everything else. That's out there today I mean is there much availability of debt financing how broad is the market for these assets.
I mean are you guys one of the only players in town.
Alfonzo Leon: Or is the, you know, are local guys able to get financing to be competitive in these types of transactions? Yeah, no, so what we're doing is really trying to take advantage, and we always try to position ourselves to play to our strengths and find opportunities that leverage the resources we have. And so right now, our credit facility is a competitive advantage, and so the opportunities that we're looking at are ones where we can use the efficiency and the certainty of the close of our balance sheet and try to get deals that make sense for us that are accretive. So each case is unique, but we are trying to position ourselves to use the advantages that we have to get deals that are attractive. Okay, that's helpful, guys. Thank you for the time.
Or is the you know our our local guy who's able to get.
Financing to be competitive on these type of transactions.
Yeah, no. So that's.
What we're what we're doing is really trying to take advantage and we always try to position ourselves to play to our strengths and find opportunities that leverage the resources, we have and so right now.
Credit facility is a competitive advantage.
And so the opportunities that we're looking at is are ones, where we can use the the efficiency and the certainty of close of our.
Our balance sheet.
And trying to get deals that makes sense for us that are accretive.
So it's.
These cases is unique.
But we are trying to position ourselves to use.
Use the advantages that we have to get deals that are attractive to us.
Okay. That's helpful guys. Thank you for the time.
Okay.
Our next question comes from the line of Bryan Maher with B Riley. Please proceed with your question.
Bryan Anthony Maher: Our next question comes from the line of Bryan Maher with eRiley. Please take your question. Thank you and good morning.
Thank you and good morning.
For Bonnie.
Robert J. Kiernan: Maybe for Bob, could you give us a little bit more color on that? that you referred to a couple of times, how that played out in layman's terms. Oh, sure. Sure, Bryan.
A bit more color on this the seasons.
Two a couple of times, you know kind of how that played out in layman's terms.
Oh sure sure Bryan so the CMV as soon as the $30 million C. N B S roughly that we had.
Put them on in 2016.
And so kind of pre predates the IPO of the company, but it had been causing US a lot of cash management issues as well as administrative issues.
Robert J. Kiernan: So the CMBS is a $30 million CMBS, roughly, that we had put on in 2016. And so it kind of predates the IPO of the company. But it had been causing us a lot of cash management issues, as well as administrative issues. And so we were able to eliminate both the administrative burden and reduce that kind of current and prospective cash management issues that we were dealing with there to free up that cash. And so ultimately, we feed the $31 million CMBS but end up with $7-ish million back that we can reduce our overall debt. So through the transaction, we're able to reduce our overall debt and leverage. So that was really kind of the element of it that was kind of the successful element of it, to reduce debt and leverage from an overall perspective. Right, but were there any properties involved here? I mean, did you basically just buy out a property that had CMBS against it?
And more and more cash was getting tied up with the servicer, we saw an opportunity to extinguish the debt and and free up free up the cash that was being held by the servicer.
And so we were able to eliminate both the administrative burden and reduce reduce that kind of current and perspective kind of cash management issue that we were dealing with there to free up the.
To free up that cash and so ultimately we.
The fees the $31 million C. N V S, but end up with seven ish million back that we can reduce our overall debt. So through the transaction, we were able to reduce our overall debt and leverage so that that was really the kind of the element of it that was kind of the successful elements of it to reduce debt and leverage from an overall.
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Right, but were there any properties involved here I mean did you just basically buy out a property that had seen MBS against it.
Your credit facility or something.
Robert J. Kiernan: facility or something. Right. We refinanced it through the credit facility.
We refinanced through the credit facility and so again. This this debt had probably had five six of our kind of original properties from 22016 vintage in the AR in the facility and so those those assets were attributable to the C. M B S.
Robert J. Kiernan: And so again, this debt had probably five, six of our original properties from the 2016 vintage in the facility. And so those assets were attributable to the CMBS. And again, what the CMBS does is limit your ability relative to those assets, even as simple things such as maintenance can be burdensome with the CMBS, or things you want to change with the property can be burdensome with the CMBS.
And again, what does seem to be as does this limit your ability relative to those assets, even it's simple things such as maintenance can be burdensome with with the C. M. B S where things you want to change the property.
Can be burdensome with the C. M. P S and so the idea was to Oh, and then also again, let alone the cash elements of the amount of cash that was being held by the servicer. So refinancing it through the revolver, then frees us up with the ability to to have more.
Robert J. Kiernan: And so the idea was to, and then also, again, let alone the cash element of the amount of cash that was being held by the servicer. So refinancing it through the revolver, then frees us up with the ability to have, again, more flexibility relative to those properties. Got it. That's super helpful. On the CapEx side, you said $10 to $11 million for 2024, and then you made a comment about $2 to $3 million for tenant improvements. Is the $2 to $3 million included in the $10 to $11, or is it in addition to the $10 to $11? It's in addition, but it's harder to predict the timing. So I think that's kind of why I bucketed them differently, because it can be harder to predict the timing and how that will flow.
More flexibility relative to those properties.
Got it that's super helpful. On the Capex side, you said 10 to 11 million for 2024, and then you made a comment about $2 million to $3 million in tenant improvements is the $2 million to $3 million in the 10 to 11 or is in addition to the 10 to 11.
It's in addition, but it is harder to predict the timing. So I think that that's that's kind of why I pocketed them differently because it it can be harder to predict the timing.
And and how that will flow and often we'll see again it'll it can it can be delayed it may not fall in the same because at the time frames that you're looking at so I just wanted to break that second piece out.
Robert J. Kiernan: And often we'll see, again, it can be delayed. It may not fall in the same exact timeframes that you're looking at. So I just wanted to break that second piece out. Okay, that's helpful. And maybe just last for Alfonzo, I think in your prepared comments, you talked about the back half loaded for acquisitions. So to be clear, you're not expecting anything really in one Q and two Q. And can you give us, maybe, some range of the level of magnitude of what you think might happen in the second half?
Okay. That's helpful and maybe just last for alfonzo.
Your prepared comments you talked about.
Back half loaded for acquisitions, so to be clear, you're not expecting anything really Q1and two Q can.
Can you give us maybe some range of level of magnitude of what you think might happen in the second half.
Alfonzo Leon: Yeah, so correct, nothing in 1Q and nothing in 2Q, and you know, what we provided is a range, and what we're trying to do is have that be more towards the end of the year than in Q3, so we're trying to weight that more in Q4. Okay, thank you. Our next question comes from the line of Alex Fagan with Robert W. Baird. Please answer your question. Hey, good morning, guys. The first morning is on the investment pipeline. What are the yields that GMRE is securing, and is the pipeline made up of any portfolios today? Is it all single?
Yeah, So correct nothing in <unk> and nothing in <unk> and you know what we provided is a range in <unk>.
What we're trying to do is have that be more towards the end of the year than in Q3. So we're trying to wait that more in Q4.
Okay. Thank you.
Okay.
Our next question comes from the line of Alex Rygiel with Robert W. Baird. Please proceed with your question.
Hey, Good morning, guys first morning, because all the investment.
On the investment pipeline what are the yields that Jim Murray is securing and is the pipeline made up with any portfolios today is it all single assets.
Yeah. So we're we're targeting.
Alfonzo Leon: Yeah, so we're targeting yields that are approximately 8%, and yes, we're targeting portfolios that are difficult to finance right now and trying to take advantage of the fact that we have our credit facility to complete this transaction. That's helpful. Second, could you speak on the efforts for leasing the space that is expiring this year? Kind of what's been the historic retention rate for the portfolio and for any tenants who may have already notified you that they're not resigning? How's the demand been for that current space? Yes, so for our 2024 expirations, we mentioned on the call that we did, you know, we did in the script that we've, from a retention last year, we were just under 80% on a square foot basis and in the mid 80s on an ABR basis. And right now, you know, I think we're largely tracking in that same vicinity. So 80% maybe as a proxy for both numbers is how we're looking at it here in late February.
Yields at our.
Approximately 8% and yes, we're targeting a portfolios that right now.
Difficult to finance and trying to take advantage of.
The that the fact that we have our credit facility to complete those transactions.
That's helpful and.
Second is could you speak on the efforts for leasing the space that is expiring this year kind of what's been the historic retention rate and for the portfolio and for any tenants who may have already notified you that theyre not resigning how's the demand then for that credit space.
Yes, so for our 2024 explorations, we mentioned on the call that we did we did in the script that we would be.
From a retention last year, we were just under 80% on an on a square feet basis and in the mid eighties on an ABR basis and right now I think we're.
Largely tracking in that in that same vicinity. So caught you use 80% as a.
Maybe as a proxy on both on both numbers.
That's how we're looking at it here in late February.
Thank you.
Robert J. Kiernan: And on the demand for the space that you already know that's not going to be filled, how is that looking? I mean, it's like anything; we're actively working to try to keep our occupancy as high as we can and just incent ourselves to keep the spaces as fully occupied and leased up as possible. So, it's a very active process that the whole team is engaged in.
The demand for the space that you already know that's not going to be re sign how is that looking like.
We I mean, it's like anything we're actively working to try to.
Keep our occupancy as high as we can and just incentive ourselves to move the to keep the spaces.
It's fully occupied and leased up as possible. So it's a very active process took the whole team is engaged in.
Robert J. Kiernan: Got it. Thank you. That's all for me.
Got it. Thank you that's all for me.
Yeah.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Jeffrey M. Busch: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. I'd like to thank everybody for attending our meeting. Have a good year. Take care. Ladies and gentlemen, this does conclude today's..., for your part. I disconnect your lines at this time and have a wonderful day.
I'd like to thank everybody for attending our meeting.
Have a good year.
Yeah.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
You may disconnect your lines at this time.
Have a wonderful day.