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spk01: Good day and welcome to the Global Medical Rate First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may have pressed star then one on your telephone keypad. To withdraw your question, please press star then two. please note this event is being recorded. I'll now turn the conference over to Mr. Steve Sweat with Investor Relations. Please go ahead.
spk04: Thank you. Good morning, everyone, and welcome to Global Medical REIT's first quarter 2022 earnings conference call. On the call today are Jeff Bush, Chief Executive Officer, Alfonso 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 which are not historical facts and are considered forward-looking. The company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 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 31st, 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, 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, EBITRE, and adjusted EBITRE. You can find a tabular reconciliation of these non-GAAP financial measures to the most current comparable gap numbers in the company's earnings release and the filings with the SEC. Additional information may be found on the investor relations page of the company's website at www.globalmedicalreit.com. I would now like to turn the call over to Jeff Bush, Chief Executive Officer of Global Medical REIT. Jeff? Thank you. Good morning, everyone, and welcome to Global Medical REIT's first quarter 2022 earnings conference call. On the call today are Jeff Bush, Chief Executive Officer, Alfonso Leon, Chief Investment Officer, and Bob Kiernan, Chief Financial Officer. Please note these are forward-looking statements by the company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 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 31st to 2021 and its other SEC filings. The company assumes no obligation to update publicly any forward-looking statement. 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 current 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. I would now like to turn the call over to Jeff Bush, Chief Executive Officer of Global Medical Reit. Jeff?
spk09: Thank you, Steve. Good morning, and thank you for joining our first quarter 2022 earnings call. Coming off of a very 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 to $32 million. and our net income attributable to common shareholders was $2.7 million, or $0.04 per share. Our FFO was $0.23 per share and unit, and our AFFO was $0.24 per share and unit, both of which were unchanged compared to the prior year quarter, reflecting consistent performance despite operating at 43% average leverage in the first quarter versus 50% average lever in the prior year's first quarter due to the impact of additional equity issuance that enhanced our liquidity and strengthened our balance sheet. As we discussed recently, the acquisition environment for 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 million so far in the second quarter, with an additional 53 million of deals under contract. Based on this activity and the types of opportunities that we are seeing, we feel very good about our 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 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 Alfonso to discuss our investment activity in more detail.
spk08: Thank you, Jeff. As Jeff mentioned, the market for medical facilities remains very competitive, but through our diligent sourcing effort, we continue successfully to source and close high-quality properties. During the first quarter, we closed on four acquisitions containing 80,781 leaseable square feet for an aggregate investment of $24 million at a weighted average cap rate of 7.2%. These acquisitions included A 17,700 square foot MOB in Gainesville, Georgia for a purchase price of 5.1 million with a cap rate of 6.4%. A 26,700 square foot MOB in Grand Rapids, Michigan for a purchase price of 6.8 million with a cap rate of 7.7%. A 12,800 square foot arthritis center in Sarasota, Florida for a purchase price of 6 million with a cap rate of 7.1%. and a 23,600 square foot rehab and dialysis center in Greenwood, Indiana for a purchase price of 6.1 million with a cap rate of 7.5%. 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 a 40,200 square foot surgery center in Fairbanks, Alaska for a purchase price of 22.3 million with a cap rate of 6.4%, a 33,200-square-foot medical office building portfolio in Rocky Point, North Carolina, for a purchase price of $7.6 million, with a cap rate of 6.6%. We currently have another four properties under contract for an aggregate purchase price of $52.6 million. These properties are currently in a due diligence period and 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?
spk10: Thank you, Alfonso. GMRE 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, 6.9 years of weighted average lease term, five times rent coverage with 2% weighted average contractual rent escalations. In the first quarter, we achieved 16.5% 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 increase was primarily due to higher operating and depreciation and amortization expenses due to our larger portfolio, partially offset by lower G&A and interest expense. 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 non-cash stock compensation expense. Within 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 and $4.4 million on a quarterly basis during the remainder of 2022, even as we continue to increase the size of our portfolio. Of these estimated total G&A costs, note that we're forecasting the stock compensation component to average between $1.2 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, and $800,000 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 is $2.6 million, or $0.04 per share, compared to $1.8 million, or $0.03 per share, in the first quarter of 2021. FFO in the first quarter was up 26% to $16 million, and our AFFO was up 24% to $16.8 million compared to the first quarter of 2021. Reflecting the impact of our equity issuances, our FFO was $0.23 per share in unit in the first quarter, unchanged from the first quarter of 2021, and AFFO was $0.24 per share in unit, which is also unchanged from the prior year first quarter. As Jeff mentioned, the growing portfolio delivered consistent performance despite our reduction of average leverage by seven percentage points from the prior year quarter. Moving on to 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 480,000 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're 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.
spk01: We will now begin the question and answer session. To ask a question, you may press Store then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Store then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brian Mayer of B. Raleigh FBR. Please go ahead. Good morning.
spk06: Good morning. A couple of questions. You noted in your press release and then this morning again about the more competitive market out there for assets and the higher uncertainty and higher interest rates and global issues. Are you seeing less opportunity Or are the opportunities that are being shown to you coming at terms that maybe you don't find as acceptable as before?
spk09: I'll 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 and like in the past, we did 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 7.8 that we have. So we're seeing, you know, it's starting to loosen up. It's been a tough market. 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, you know, get the cap rates going. So we have a good pipeline. Our pipeline's quite strong. We expect to do, you know, 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're waiting somewhat on some of these deals for the cap rates to keep going up.
spk06: So you've done really well over the past couple of years utilizing your ATM, um, you know, to raise capital, to fund acquisitions with where the share prices have trended down to, should we expect a little less of that or is it really going to be on an acquisition by acquisition basis determining if you should hit the ATM market to complete something or should the market be prepared for you to kind of slow down acquisitions in general? if the share price hangs out around 14, 15?
spk09: No, we can still acquire. It's all about spread for us. We have a good spread that happens. So you can see in some of our bigger deals that we took an opportunity to buy some bigger chunks of deals, you know, with, you know, an average of seven. But, you know, with the cap rates going up and the ATMs 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 spread. It's not where the cost of capital is. It's all about what's 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 these small communities and go through these, you know, the 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, you know, and with higher interest rates. So we could still make a spread so we could be accretive going forward and keep growing.
spk06: 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 that higher cap rate. Is that still the case as we think about the rest of 2022? And that's all for me.
spk09: I'll let Alfonso do this one.
spk08: Sure. Yeah, no, we're absolutely looking at multi-tenants as well. I mean, there's good opportunities across the country and ones where there's, you know, very... very good potential to lease up the properties. So, yes, definitely looking at multi-tenant.
spk06: Thank you.
spk01: Our next question comes from Austin Worshman of KeyBank Capital Markets. Please go ahead.
spk05: Yeah, good morning and thank you. So, Jeff, I'm just curious if you've seen any less competition, you know, on the deals you're underwriting, you know, fewer bidders involved in the transactions. And as you have these discussions with sellers around, you know, some movement potentially in cap rates, has there been any pushback at this point on seller expectations or, you know, could we see sort of the transaction market slow until, you know, that spread narrows? I'll give you, and I'll let Alfonso explain.
spk09: It usually takes one or two quarters for the adjust. You sort of get in your mind. Sellers get in their mind a number, and then they got to see the reality later. So they'll 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's less people bidding in our categories because we picked up in our contracts and in our sales, deals in the $20 million range. That's how I tell. When we can only get sevens and eights and tens, which is really we own that territory, and we can't get any 15s, 20s, and plus, you can tell that there's too many bidders out there. My sign right now is we're picking up some pretty larger assets and very good quality larger assets, too, that normally would have gone out to our competitors I'll let Alfonso explain with the sellers out there because usually they're pretty resistant to drop their prices, but they do over time. Go ahead, Alfonso.
spk08: Sure. To add to that, the market is not uniform across the entire spectrum. You've got different types of buyers, different types of assets. For example, larger portfolios I'm not expecting that there's going to be a meaningful price difference or change in cap rate anytime soon. And actually, 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. And that's really not moved in tandem with with where cap rates have traded for, for example, single-tenant net lease buildings. That has moved more in lockstep with interest rates for debt. And 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 offices going to be more pragmatic about buying and selling versus physicians who own their real estate who are more emotionally attached to their buildings so it's not going to be uniform but you know the increase in interest rate cost is definitely beginning to change the cap rates across the the the market but you know it's going to take a quarter or two, and it's going to depend on the type of seller, the type of asset.
spk05: No, that's really helpful color. And do you feel like the deals you're closing or have under contract, you know, that those aren't at risk, you know, with you stepping in at the sort of average seven yield you're targeting that six to 12 months down the road, those could be, you know, in the low to mid, you know, 7% range. So, I mean, at,
spk08: Fundamentally, what we're trying to do is build a portfolio, build our FFO, and not necessarily trying to time the market. So we're trying to build a portfolio of quality assets with quality tenants. In a sense, we're trying to dollar-cost average our investments and not be worried about fluctuations in interest rates.
spk05: Okay, that's fair. And then just last one for me. We saw the asset that's held for sale in Ohio again sort of push back the earliest timing on when that's closing. Can you just provide some additional detail around what's pushing that back, and are you still comfortable with the price that you expect that to trade at, given some of your earlier comments?
spk10: Yeah, hi. From a sale timing perspective, the timing is really dependent on just timing matters related to the buyer's financing. We don't have any concerns with that timing or how it's moved. It's not an issue for us either way. At this point, I think our expectation is this for a third quarter sale. Again, don't have any concerns either way relative to that. It's an asset we're comfortable owning and have earn a nice return on it. But from a sale perspective, that's where we are on it, and that's our expectation.
spk05: I appreciate the update, and thanks for the time.
spk01: Our next question comes from Connor Saversky of Barenburg. Please go ahead.
spk07: Good morning out there. Thanks for having me on the call.
spk09: Good morning, sir.
spk07: Working back to Jeff's comments earlier, and maybe this is a question for Alfonso, but in terms of your target assets, whether it's MOBs, IRFs, or surgical hospitals, where are you seeing the most severe shift in cap rates at the moment?
spk08: Between those three asset types, that's making me think here. I would say the IRFs trade infrequently more. And that might actually be an asset class that might not change as much. It used to be that IRFs traded in the seven cap range and dipped into the six cap rate range. But I think given the investor demand and the types of investors who now like to buy IRFs, I think that might not change very much. Given that it's, 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. For the better surgical hospitals, I also don't think there's going to be a meaningful change in cap rates. And those have gotten pretty competitive. And surgical hospitals are different than surgery centers. Uh, of course, and you know, those have started trading in the sub six cap range, but I've stayed sort of in the high five cap range and maybe that creeps up to six, um, hard to tell, but MOBs, as I was alluding to before, it depends on many factors. Um, but I do think like the net lease MOBs are going to, um, are going to move up quicker than the rest of the MOB space. Okay.
spk07: Understood there. So if I'm reading this correctly, then the net lease MOBs, maybe the risk premium for investors still shifts accordingly. I'm trying to get the sense here that maybe because of the stability of these assets, the risk premium would be slower to move, right, if investors are looking for a layer of safety.
spk09: I want to comment on this. There's also a competition level for We sort of arbitrage the market. It's not a risk thing because, you see, our coverage ratios are often, you know, if we buy a $5 or $7 million property, the 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. It's the ability to move money forward. which many of the funds drive up the price. It's not necessarily that there's a risk and therefore the price is 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's seeing the cost and looking at some of the smaller deals, and they're not going to be there, so we'll have less competition, and that's where I expect the rates will move up, given that the others, when they bid, they're going to look at their debt. A lot of them were putting 80% debt on these deals. Now they're 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 traditional what we do. us 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, you know, a few years ago where we were getting eights, then 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 end up by ourselves a little bit, and that's where we have an advantage going forward.
spk07: Got it. That's helpful, Collar. Thanks, everyone.
spk01: Our next question comes from Rob Stevenson of Janney. Please go ahead.
spk03: Hi, Rob. 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 at 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 that market? How are you thinking about financing that? you know, over the next quarter or so, especially if things keep being choppy here on the debt side?
spk10: Yeah, we are looking at, you know, different alternatives on the debt. We feel like we've got great capacity on the revolver. It's a year ago now that we had just, you know, redone the revolver and the term loan facility. And so we've got, you know, 171 of capacity here. know today so that gives us a lot of flexibility and then as we look ahead i think we you know we you know look to diversify we look at opportunities to diversify but as you pointed out it is a with a choppy market you know we want to be you know careful and thoughtful about how how we do that but it is um you know we've got good flexibility for today and i think we again look at our look at look at our options and assess uh different approaches as we go ahead to just maintain that, continue to have flexibility.
spk03: Okay. And then Bob or Jeff, I mean, how are you guys thinking about the, 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, you know, that dramatically changes things. But assuming that things stay relatively similar to where they are now in terms of your equity and debt costs, is there any reason why you would keep a 7.5% preferred outstanding?
spk10: Bob? Yeah, I'll start. And yeah, I mean, the preferred is really great capital in the sense of it being permanent capital, and you don't have to do anything with it. But having it come to the redemption period or 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, for the balance sheet as a whole, reduces our overall cost of capital. At 7.5%, we're certainly, with respect to You know, common equity and debt today would see an advantage of those opportunities away from the preferred. But, yeah, it's something that we're looking at and evaluating and considering our options on as we get closer.
spk03: Okay. Thanks, guys. Appreciate the time. Thank you.
spk01: As a final reminder, if you have a question, please press stars and one. Our next question comes from Juan Santabria of BMO Capital Markets. Please go ahead.
spk00: Hi, this is Valeria on for Juan. Just a quick question. Can you remind us of your leverage target going back to the debt topic?
spk10: Sure. So, you know, we've talked about keeping our leverage at 45%, you know, debt to assets and below. But, you know, I think, you know, we have, you know, we're, we're flexible, you know, in terms of that, you know, it could, it could go, it could shift above that. It could, it could, you know, be below the 45, but, uh, that's our, our, our general target, you know, in, uh, in, in that, in that range.
spk00: Gotcha. Thank you. Um, and shifting over, um, to rent coverage. Um, so long-term, uh, acute care hospitals, uh, rent coverage went down, uh, kind of significantly since last quarter. what grows that and what's the estimated EBITDA coverage?
spk10: Yeah, so keep in mind that this is, from an overall perspective, this is not a huge, 2.3% of our total rent is relative to the overall. But there's a couple properties that underlie that data point. And it's, you know, it's a matter of just, again, the timing of getting those financials and the financial, you know, just the flow of those amounts. So there really wasn't anything in particular. I mean, we're very comfortable with, you know, a 2.4 times rent coverage, you know, for the LTACs or the, you know, seasonal element to the financials as well. That could drive that up or down. But, you know, at 2.4 times coverage, you know, while it is down comparatively, it's still a healthy, you know, rank coverage.
spk04: Right.
spk09: It was a little bit of LTICs were 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 type of medical facility and it performs very well. But like other medical facilities, you know, you had some up and down periods during the COVID time, but they showed strength. You know, all of them paid their rent while, you know, when, you know, we had that total downturn on COVID and closed down. So we're quite comfortable with those assets.
spk00: Okay. So I don't know, kind of back to your earlier comments, but it's, maybe a little bit more, you know, property operator specific rather than a larger shift in the fundamentals. Am I reading that right?
spk09: Yeah. Yeah. Um, I mean, if you want to look at it, you know, the acute hospitals are having more of a labor shortages, not being able to take as much business adjusting to that, um, you know, COVID a bit was, you know, people can't come in if they test that type of stuff. So, um, You know, they had to adjust their business. Business is going to get back to normal, and there is a need for this. An 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 LTAC 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're a very small piece of our business. We really focus mostly on the MOBs going forward, and we've been buying, you know, those consistently with, you know, with multiple tenants added to our diversification.
spk00: Okay. Thank you so much. That makes sense for me.
spk01: This concludes our question and answer session at this time. I'll now turn the conference back over to management for any closing remarks.
spk09: Well, thank you, everybody, so much, and appreciate your time. Have a good week.
spk01: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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