Global Medical REIT Inc. Price & Performance (GMRE)

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, company may refer to certain non GAAP financial measures such as funds from operations, adjusted funds from operations, EBITDAR and adjusted EBITDAR E. Which can find a tabular reconciliation of these non GAAP financial measures the most currently comparable GAAP numbers in the company's earnings release and in its filings with the SEC. Additional information may be found on the Investor Relations page of the company's website at www.globalmedicalreit.com Global. I would now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical REIT. [indiscernible] Thank you, Steve. Good morning and thank you for joining our fourth quarter and full year twenty twenty four earnings call. Our high quality diversified portfolio continues steady results. At the end of the fourth quarter, portfolio occupancy was 96.4%, a weighted average lease term of five point six years and a portfolio average rent coverage ratio of 4.5 times. For the fourth quarter, net income attributable to common shareholders was $1,400,000 What $0.02 per share compared to a net loss attributable to common stockholders of $800,000 or $0.01 per share in the fourth quarter of twenty twenty three.

FFO attributable to common stockholders and non controlling interest in the fourth quarter from prior year quarter. Due primarily to $3,200,000 of severance related costs. FFO attributable to common stockholders and non controlling interests was $0.22 per share in unit down $0.01 from the prior year quarter. Regarding our acquisition activity during the year, in the spring, we entered into a purchase agreement to acquire a 15 property portfolio of outpatient medical real estate properties for an aggregate purchase price of $80,300,000 During the third quarter, we closed on the first tranche of this acquisition. Consisting of five properties for $30,800,000 and during the fourth quarter, we completed the acquisition of the remaining 10 properties for $49,500,000 These properties are fully leased under triple net or absolute triple net leases, 8%. Additionally, in the fourth quarter, we entered into a purchase agreement to acquire five property portfolio of medical outpatient facilities for an aggregate purchase price of $69,600,000 at a 9% cap rate. Subsequent to the year end, we closed on the first tranche of this acquisition, completing the acquisition of three properties for $31,500,000 We expect to complete the acquisition of the remaining two properties during the second quarter of twenty twenty five.

The transaction market continues to present promising opportunities in our asset class and we are pleased with the recent addition to strengthen our high quality portfolio. As we focus on growing our business, we remain committed to maintaining a strong balance sheet. Through our strategic asset recycling program. During the fourth quarter, we completed the sale of four medical facilities generating aggregate gross proceeds of $40,500,000 resulting in an aggregate gain of $5,800,000 Of these $40,500,000 of gross proceeds, dollars 35,200,000.0 were related to the sale of two properties to a joint venture a premier real estate investment firm managing over $48,000,000,000 in assets. In this joint venture, we maintain a 12.5% ownership stake and serve as its managing member. While Heintman holds the remaining 87.5% interest, and through its voting interest controls the joint venture. We are excited to to partner with Heitman and feel the joint venture allows us to capitalize on our acquisition and asset management platforms to continue to acquire assets earn [indiscernible] income and gain a new capital part Lastly, in early twenty twenty five, we announced my succession plan as CEO. Over the past eight years, I have had the privilege of leading GMRE through both successes and challenges.

Working alongside many wonderful partners, associates industry professionals and friends in the investment community. This creates an opportunity to bring fresh perspective to our growing strategy. I have the utmost confidence in our Board's ability to select the successor who will lead our experienced team and leverage our robust infrastructure to create value for our stockholders. I am confident this transition will be seamless and I'm deeply grateful to everybody who has been part of this journey. With that, I turn the call over to Alfonso, to discuss our investment activity and the current market conditions in more detail. Thank you, Jeff. The transaction market for our target medical facilities that align with our investment criteria continues to show promising momentum.

We remain actively engaged with a broad range of physician groups, brokers and corporate sellers to identify compelling acquisition opportunities that will help us continue growing our portfolio. As Jeff mentioned, the fourth quarter, we closed on a second tranche of our 15 property portfolio announced earlier in the year, acquiring the remaining 10 properties encompassing 160,000 leasable square feet. In total, the Sisting Property portfolio had an aggregate purchase price of $80,300,000 with an aggregate of approximately 254,000 leaseable square feet and aggregate annualized base rent of $6,400,000 equating to an 8% cap rate. Also during the first quarter, announced a $69,600,000 portfolio of five medical outpatient properties which are under contract to purchase at a 9% cap rate. After year end, closed the first tranche of this acquisition acquiring three properties encompassing roughly 189,000 leaseable square feet for an aggregate purchase price of $31,500,000 with an aggregate annualized base rent of $2,800,000 with the second tranche expected to close during the second quarter of twenty twenty five. As noted last quarter, these buildings feature tenants who have invested significant capital in their own suites with triple net rents averaging $14 to $15 per square feet. These well maintained mission critical facilities serve their respective health systems with a comprehensive mix of medical services from primary and urgent care to specialized practices including neuro, cardio, cardio, ortho and cancer as well as diagnostics, radiology and laboratory services.

All of the properties operate underground leases with an average of sixty years and remaining term approximately two thirds of the property square footage is located on campus. Approximately 6082% of the on and off campus properties respectively are at least investment grade tenants.

The ability to complete these deals in a two tranche transaction provides us flexibility to fund these transactions prudently. The second tranche remains under contract and is under customary closing conditions. As such, we cannot guarantee that the remainder of this acquisition will close on time or at all. On the disposition front, during the quarter we closed on the sale of four medical facilities receiving aggregate proceeds of $40,500,000 resulting in in an aggregate gain of $5,800,000 Of the $40,500,000 of gross proceeds, dollars 35,200,000.0 came from the sale of two medical properties to our joint venture [indiscernible] We maintain a 12.5% investment in the joint venture and serve as its managing member while Heitman maintains an 87.5% investment.

We are excited about this partnership and the opportunity that it may provide in the future as as Hyman allocates capital to this strategy. For the full year, we completed seven dispositions including two to the joint venture, as Jeff mentioned, that generated aggregate gross proceeds of $60,700,000 resulting in an aggregate gain of $4,200,000 at a weighted average cap rate of 9% Looking forward, we remain committed to our prudent investment approach aligns with our strategy and underwriting standards. By leveraging our competitive advantage of scale, capital access and OP unit structuring capabilities we continue to pursue value creating opportunities. I'd now like to turn the call over to Bob to discuss our financial results. Thank you, Alfonso. At the end of the fourth quarter twenty twenty four, our portfolio consisted of gross investments in real estate of $1,500,000,000 and included $4,800,000 of total leasable square feet 96.4% occupancy, five point six years of weighted average lease term, 4.5 times rent coverage, with 2.2% weighted average contractual rent escalations, In the fourth quarter of twenty twenty four, our total revenues increased [indiscernible] to $35,200,000 primarily due to the impact of acquisitions that closed during 2024. Total expenses for the fourth quarter of twenty twenty four were $36,300,000 compared to $31,500,000 in the prior year quarter.

Base increase is due primarily to the impact of one time costs related to our CEO succession plan included in our G and A expenses.

Our operating expenses for the fourth quarter of twenty twenty four were $7,200,000 compared to $6,100,000 in the prior year quarter. Regarding the fourth quarter twenty twenty four expenses, we point seven million related to net leases where the company recognized comparable amount expense recovery revenue and $1,200,000 related to gross leases. Relative to the increase in expense in 2024, this reflects increased costs from properties acquired in 2024 well as the impact of tenants placed on cash basis accounting in the fourth quarter of twenty twenty three second quarter of twenty twenty four.

G and A expenses for the fourth quarter of twenty twenty four were $7,700,000 compared to $4,200,000 in the prior year quarter.

The increase primarily resulted from $3,200,000 that was expensed in 2024 related to the CEO succession plan.

Looking ahead, we expect our total quarterly G and A expenses in 2025 excluding C and A CEO transition related costs, to be in the range of $4,500,000 to $4,700,000 During the fourth quarter, we completed four property dispositions that generated aggregate gross proceeds of $40,500,000 resulting in aggregate gain of $5,800,000 In addition to these sales, we recognized an impairment loss of $1,700,000 in the fourth quarter related to our Derby, Kansas facility. Net income attributable to common stockholders for the fourth quarter of twenty twenty four was $1,400,000 or $0.02 per share, compared to a net loss attributable to common stockholders of $800,000 or $0.01 per share in the fourth quarter of twenty twenty three.

FFO attributable to common stockholders and non controlling interest in the fourth quarter of twenty twenty four was $11,100,000 or $0.15 per share in unit compared to $13,300,000 or $0.19 per share in unit in the fourth quarter of twenty twenty three. AFFO attributable to common stockholders and non controlling interest in the fourth quarter of twenty twenty four was $15,800,000 or $0.22 per share in unit compared to $15,900,000 or $0.23 per diluted share in the prior year period. The increase in net income was primarily due to lower net income and lower net income compared to $15,900,000 or $0.23 per share in units in the fourth quarter twenty twenty three.

The primary reason for the reduction in FFO was the recognition of $3,200,000 in severance and transition related expenses related to our CEO succession plan These expenses are included in FFO but excluded from AFFO. Regarding capital expenditures on the portfolio, in 2024, our cash spend was approximately $13,000,000 with approximately 45% related to tenant improvements. Currently, we're projecting 2025 capital expenditures of approximately $12,000,000 to $14,000,000 In terms of tenant related items, on 01/11/2025, At that time, Prospect had approximately $2,400,000 of out outstanding lease payments related to three of our healthcare facilities including $2,200,000 related to our facility in East Orange, New Jersey which has been accounted for on a cash basis since the fourth quarter of twenty twenty three.

As of year end twenty twenty four, Prospect represented 0.8% of our total ABR. As of today, there has been no announced tenant or court decision If Prospect rejects any of its leases with the company, we will have a general unsecured claim with respect to pre petition amounts owed under any projected lease. With respect to our 2025 lease expirations, we are pleased with our progress on renewals and based on activity to date, we are currently estimating 70% to 80% retention rate on the 508,000 square feet that were scheduled to expire as of the end of twenty twenty four. Additionally, as a result of the prospect bankruptcy, we we expect to have approximately 30,000 square feet of increased vacancy [indiscernible] prospect bankruptcy proceedings are complete, [indiscernible] Moving on to the balance sheet. As of 12/31/2024, our gross investment in real estate was $1,500,000,000 Additionally, we had $651,000,000 of total gross debt with a weighted average remaining term of two point zero years, 79% of our total debt our leverage ratio was 44.8% and our weighted average interest rate was 3.75%. As of today, pro form a for the acquisitions completed earlier this year The current unutilized borrowing capacity under the credit facility is $219,000,000 Relative to equity, did not issue any shares of common stock under our ATM program during during the fourth quarter or to date in the first quarter of this year.

Turning to our full year 2025 guidance. We expect AFFO per share unit in the range of $0.89 to $0.93 Our 2025 guidance assumes no additional acquisition or disposition activity other than what has been completed or announced. No additional equity or debt issuances other than normal course revolver activity. AFFO guidance excludes onetime expenses related to the CEO succession plan. As we start the year, our stable portfolio positions us well to navigate the current environment. While our liquidity allows us to selectively continue to acquire properties, that fit our strategic objectives.

We remain confident in our ability to execute our business strategy and look forward to sharing progress with you throughout the year. This concludes our prepared remarks. Operator, please open the call for questions.

Thank you. The floor is now open for questions. Today's first question is coming from Sonabria of BMO Capital Markets. Please go ahead.

Hi, good morning. I was just hoping you could talk a little bit about the new Hyatt joint venture with regards to target size, leverage, the types of assets that the venture will be targeting relative to your own on balance sheet opportunities and whether any incremental growth would be externally sought after, I. E, new acquisitions or if we should expect further GMRE assets to be contributed into the JV? Sure. So the JV was set up with Heitman and it's part of a fund that they have dedicated for medical office. I mean, this fund is Basically like a core plus fund that's looking for strong cash on cash turns their cost of capital is more competitive than ours. I mean, we're targeting deals and call it LODA seven to low seven cap rates range. Looking primarily for strong properties with decent lease terms a bias towards single tenant assets, The fund that we're joint ventured with has available [indiscernible] The time we formed the joint venture about $50,000,000 of equity that they could contribute So the goal is to grow this and it's a fund that continues raising money. So presumably in the next few years that fund will have more capital to allocate to the strategy And so we contributed a couple of assets and this was after long conversations with Heitmann in terms of understanding what kind of assets they like, what kind of markets they like, And so we started this joint venture with the Seed with the hopes of growing it.

There aren't any discussions currently right now about [indiscernible] more of our assets into that fund, but that's obviously an option that we have. And was part of our consideration in forming this joint venture. But primarily the goal is to grow this fund together with Heitmann.

This is Jeff. I just want to add a little bit why we did this. We do have an option to buy it at the end. So we could build up a nice core portfolio. And as we grow, could be added at some point back in a purchase. And we're already managing this asset. And I generally am not that interested in selling our own assets into the fund. I'm looking for outside assets [indiscernible] We needed to start it off, so we did this. But I'm more interested in outside assets building a nice portfolio of that earning the fees on it. So when you come down and let's say you buy a seven cap we're now earning what we need is sort of an eight cap or so because we get fees on this.

Great. And then just curious on the CEO's Transition and sorry to hear your stepping back from your current roles. But just curious on kind of the background of why stepping down and as part of the search process is the Board contemplating a broader strategic review and kind of what criteria is the Board looking for a new CEO? Okay.

Okay, couple of reasons. I'm 67 years old and want to do less. I started the company and it's been a great adventure and I think we did well in acquiring the assets and doing that. Capital markets is we can't help the interest rates, the is not as good now, but will improve. My plan is to stay active as Chairman of the company.

The idea in the new CEO is to bring in somebody who we're always interested as a Board if there's a fresh perspective that something that I'm missing, but we also need the skills in that of having capital markets experience, having a good track record and basically understanding the real estate assets type of thing. So it's not to throw out. We feel we've been successful what we bought. You could see that we're projecting out that we'll still have strong AFFO going forward. Our portfolio is very strong. We improved it last year. [indiscernible] as a new CEO that we're looking for, we're looking somebody with the experience in running a company, in capital markets, experience in the medical and the real estate. So that's really where we're coming at.

Was there ever discussion on a broader strategic review as part of [indiscernible] change in the guard?

We're doing broader strategic reviews and we do this all the time. So I'm looking forward to a new CEO coming in I will be Chairman and we will look at this from is there anything we're missing and hopefully the talent we bring to the table could help us move forward.

And then one just last question for me for the two tenants in question kind of Steward and Prospect. I guess how much rents were in the fourth quarter and Okay. Could you just remind us again, to a little bit on the prepared remarks, what's assumed kind of going forward in in guidance? Trying to get a sense of the cadence and what might be a temporary dip as a result of some rent payment ceasing or vacancy or what have you? Okay. Yes. So on Prospect, we talked I mean, the largest single piece is the East Orange piece that we mentioned and that's been on cash basis since the end of twenty twenty three. So the other two properties for Prospect are in Vernon, Connecticut.

And those properties the exposure there kind of in, I'll call it the stub relative to bankruptcy is is around $150,000 It runs in that call it around $75,000 to $100,000 per month.

And again, at this point, we don't have any visibility into accepting or rejecting the lease per se. But I think in general, our there's a sense that they would accept the Vernon, Connecticut leases. These were assets they were looking to sell the operations from but that transaction did not get done. But again, it's it's not that significant of an exposure. Like we said, less than 1% of our total ABR at December. On Stupart exposure, the Steward exposure is again is that a couple smaller facilities and again those are [indiscernible] again being worked through similar to what they were last year.

Great. Thank you.

Thank you. The next question is coming from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Hi, and good morning, everybody. I was wondering if you could share some additional details about the nature of the assets that you seeded the joint venture with Heitman. And sorry if I missed this, but what was the cap rate on that sale end of the joint venture? Sure. So it was a low seven cap it was single tenant assets We sold the property we had in High Point, North Carolina, which was the bulk of it. And then we had a gastro property that we had in Texas Those two properties that we used to see the transaction. That's helpful. And then just what are sort of the latest thoughts then since Jeff, you alluded to not wanting to sell additional assets into the joint venture. I guess what are the latest thoughts on funding the remaining portion of the acquisitions you've made or have under contract? Well, right now, looking at either adjustments or stock price seems to be going up. So we could use ATM as it goes back and forth. So ATM is a possibility. We could sell assets if we like. We do look at our portfolio. We used about the $150,000,000 this is what I look at.

We did $150,000,000 the first tranches we did at 8 something and the other is 9 something. So we're about 8.5 And we've been selling off assets less assets that we're less interested in or we don't think as good for the future in our philosophy of doesn't fit as well into our portfolio. So we're trying to improve and we tremendously did that last year. By selling off Mishawaka one and getting the Beaumont released. We actually improved our portfolio tremendously. So one of the goals is these assets I would put that in the top 10% in quality in our portfolio. So we're looking to possibly sell some things that are not in the higher percentage in the quality. Just to improve the overall quality of our portfolio.

And I guess, are you kind of as you look out at the investment pipeline, are you looking kind of dual track on assets that would both go into the JV as well as opportunities that may not fit the core plus quality that the joint venture is looking for, but these nine cap type sourced are those still on the table and something you consider doing on balance sheet.

Absolutely. We also have a little bit of interesting thing in the market that's happening. Is a bunch of our small ones in communities being able to be sell because there are strong markets and there's local buyers that's not nationally out there and paying pretty good cap rates. So we have been selling some of our properties and we could move it into if we could find qualities around the 8.5, nine that step trading one for the other. And making a profit in the process as we did last year.

Yes. There's a lot of owner user interest in our properties and we've been receiving inbounds, inquiries on properties and offers as well.

Strategy in this sort of down periods or slow period where you're your stock is not really there and the cost of capital is not there, is how we can improve the quality of our portfolio. And take a look at assets that we just may not want or not strategic to us in the future, put in strong assets because this $100,000,000 portfolio the two portfolios that we got were very strong assets, high quality.

That's all very helpful. And that's all for me. And Jeff, just wanted to wish Thank you. I'm still here with the company. I plan to be the Chairman for for quite a while.

Thank you. The next question is coming from Graf Mehta of Alliance Global Partners. Please go ahead.

Thank you. Good morning.

Good morning. I just wanted to clarify on your comments around prospects. So for 2025, [indiscernible] revenues are around $150,000 a month. Is that right? [indiscernible] or 0.8% ABR.

And so that's still included in your guidance, right? You're not assuming that dose rate Correct.

Okay.

I also wanted to ask you overall for your tenant mix. Do you guys maintain a tenant watch list? And are there any other tenants you're concerned about within your portfolio?

Of course, I mean, we've have active management and oversight of all the assets in the portfolio, but there's nothing material that we would we would identify or flag for as an item of that nature At this point, Okay. I think earlier in the call you mentioned 12 to $14,000,000 of CapEx expected in 2025. So that's the recurring CapEx and it does not include any leasing commissions, right?

That's right. And I think with respect to leasing commissions, just to comment on that from if you look back at last year's leasing commission number, at $5,700,000 I think it's important to keep in mind that that was there were two individual leasing commissions, the one on the CHRISTUS, the new lease in the Beaumont facility as well as the as well as a renewal that we did for very long term leases for Encompass properties that represented over 60% of that Global. And those were again one off type type items in last year's numbers. And as we look at this year, I'd expect that leasing commission number to be a lot lower than that and trend more toward $1,000,000 to $2,000,000 type range.

Okay. Thank you. That's all I had. A few questions for you. When we look at the $110,000,000 of ABR that you disclosed in your supplement, does that include the rent of Prospect, which was on cash basis and then the replacement tenant for Stewart? So it doesn't include [indiscernible] [indiscernible] so eStoreins which was on cash basis that is zero from an ABR perspective. The two Vernon properties are in that ABR number. And then with respect to the Beaumont facility, know that since that rent wasn't applicable at December, that is not in that it's not in that twelvethirty one ABR number. Do you still have a mid year commencement for that Beaumont tenant? Is that still the game plan of the guidance? Yes. It's at some point in the second quarter. Okay. And then you talked about the retention of the the leases that are expiring this year. Is any of that front half loaded, back half loaded? How should we think about that? I think it's I think from a From the perspective of expirations, it's I think largely ratable. I don't think of any the most from a retention perspective, the one thing I would flag there's there's a one lease from that expires in May that's about 50,000 square feet.

That we're again would look to that as likely potentially being in a moving into vacancy. But apart from that, that one individual item I think from from an occupancy perspective, again, very consistent with past years. Relative to the trends we're seeing on our leasing again with the prospect facility and the if if the e storage facility, excuse me, is leases rejected, we'll see new vacant [indiscernible] an overall master lease. Okay. Okay. And then guidance that we've provided. Okay. And then I guess one last one on the acquisitions When you buy these portfolios, I'm looking at the cap rates, you have some seven, some nine. You had 111 at a Slippery Rock. Would that be something that you may look to dispose of when you buy the whole portfolio, but maybe get rid of one or two assets? Assets. Is that how we should think about that? So when we priced the portfolio, I mean, we looked at it as a portfolio cap rate and there was a lot of back and forth with the seller in terms of pricing.

I mean there was a lot of context on the seller side that was very specific to that seller that we had to contend with. So none of the so the short answer is no. I mean, the allocations are do not completely reflect the value of each building. And so like for example that slippery rock one is a single tenant. It's a very nice facility. It's It's functioning very well. The hospital system is doing very well in that site. And so would we consider I mean, it's a small asset relative to the portfolio. And so when we're thinking about dispositions, I mean, we kind of go through a long list of questions like pros and cons as to like doesn't make sense. And so this one just based on the characteristics of the property, not one that we would consider selling quickly and other thing we have to take into consideration also is just all the rules and whole periods. So the short answer is not necessarily, no.

Okay. Thank you, everyone.

Thank you. The next question is coming from Rob Stevenson of Janney Montgomery Scott. Good morning, guys. One quick one on the one quick one on the Heitman JV. Do they have right of first refusal? In other words, you find a great asset and it's at a 8.5 cap. Does the JV get first right of refusal as to whether or not acquire that before the REIT Or how does that work? No.

No. So we whatever we find, I mean, it's it's we have the right to pursue on our own and it's our option whether we want to pursue with Hygmans.

Okay. That's helpful. And then Rob, just to add in a little bit. We were really debating doing a JV but it had to be really separate types of properties. And basically, we have a group out there that's seeing all the properties but they're buying properties that we would not buy. Just with our cost of capital. Okay. And I guess the other question with that would wind up being is that is there an opportunity for you guys to manage other assets or will it only be management of assets that you put in that you are 12.5% owner of?

I mean, so the question is would we provide management services to third parties [indiscernible] other assets that they may wind up having in their other healthcare funds.

Not been considered. So no, for now, would just be on the assets that we own in the joint venture. Okay. And then Bob, Chris' rent ramp that starts in the second quarter, I think you said, Is that a full quarter of rent? And when do you get to a full quarter of rent? On that lease? And how much ABR is that going to be once it's fully implemented? Okay. So working backwards, it's about $2,900,000 from an overall ABR perspective. And it's a little bit of a moving target As it relates when it fully kicks in. And so it's It could be April, it could be May. It's somewhere in that zone where it will fully kick in. But there's a chance that we can start to do some partial As it evolves over the next a few months, but the full just the full $2,900,000 from an annual perspective should be in that April, May type of timeframe.

Okay. And then with the AFFO guidance range, what drives you to the higher and lower ends of that range other than acquisition volumes and investment spreads? We look at that from an overall perspective that the lower end would allow for maybe reduced leverage, maybe a potential if there's an unforeseen type of event or change in rates from a forward curve perspective, things like that. And from an upper end perspective, probably a little bit leverage staying on the on the higher side, things of that nature. And again, maybe just things of that nature that would be on the higher side. Okay. That's helpful guys. Thanks. Appreciate the time this morning. Thank you Enjoy the rest of your day.