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spk10: Greetings and welcome to Global Medical REIT Forest Quarter 2023 earnings call. At this time all participants are in a listen only mode. A question 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 Sweatt, Investor Relations. Thank you. You may begin.
spk03: Thank
spk10: you.
spk03: 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 Bush, Chief Executive Officer, Alfonso León, 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. 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 10K for the year ended December 31st, 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, EBIT RE and adjusted EBIT RE. 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 Invest Relations page of the company's website at .globalmedicalrete.com. I would now like to turn the call over to Jeff Bush, Chief Executive Officer of Global Medical REIT.
spk09: Jeff. Thank you, Steve. 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 .5% with a weighted average lease term of 5.8 years and the portfolio average rent coverage ratio of 4.2 times. For the fourth quarter, reflecting the impact of a loss on 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 19 cents per share and unit, down three cents from the prior year quarter. And our AFFO was 23 cents per share and unit, down one cent from the prior year quarter. In 2023, we patiently managed through continual difficult market conditions for acquisitions and looked 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 .3% that generated $80.5 million of 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 .6% to position the company for growth as a creative acquisition opportunities arise. I am proud of our team for efficiently executing these dispositions during the year. Looking ahead to 2024, I'm excited to see the market for our target acquisitions has improved meaningfully compared to 2023. Significantly, 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 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 Alfonso to discuss our transaction activity and the current acquisition market conditions in more detail.
spk07: Thank you, Jeff. 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 a 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. This continued dialogue along with our leveraging 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. I'd now like to turn the call over to Bob to discuss our financial results. Bob.
spk11: Thank you, Alfonso. At the end of the fourth quarter, 2023, our portfolio consisted of gross investments in real estate of $1.4 billion, including $4.7 million of total leasable square feet, .5% occupancy, 5.8 years of weighted average lease term, 4.2 times rent coverage, with .1% weighted average contractual rent escalations. In the fourth quarter, our total revenues decreased compared to last year to $33 million. Reduction of revenue is primarily driven by our property dispositions completed during the first five 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. 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 the 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. Regarding these fourth quarter expenses, $4 million related to net leases where the company recognized the comparable amount of expense recovery revenue at $1.4 million related to gross leases. 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, 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 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 a CMBS loan by making a total payment of $31.5 million, including transaction costs. The net carrying value of the loan was $30.6 million on the date of defeasance, resulting in a loss of 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, $369,000, or one cent per share in the fourth quarter of 2022. FFO in the fourth quarter was $13.3 million, or 19 cents per share in unit, compared to $15.5 million, or 22 cents per share in unit in the fourth quarter of 2022. AFFO in the fourth quarter was $15.9 million, or 23 cents per share in unit, compared to $16.5 million, or 24 cents per share in unit in the fourth quarter of 2022. Moving on to 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. 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 in our credit facility by 15 basis points, with the SOFR margin on our revolver now at 1.35%, and our terminal margins are now at 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 to date in the first quarter of this year. With respect to our 2023 lease expiration, 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 on 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 are projecting 2024 capital expenditures of approximately $10-11 million related to building and site improvements and approximately $2-3 million in tenant improvements, primarily associated with lease renewals and lease up to 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. This concludes
spk05: our prepared remarks. Operator, please open the call for questions. Thank you. Ladies and gentlemen, at this time we
spk10: will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Austin Worshment with KeyBank. Please proceed with your question.
spk02: Hey, good morning, guys. Jeff, you highlighted creative investment opportunities several times throughout your prepared remarks and then kind of hit on the importance of keeping leverage in check in the current environment. How are you thinking about the economics of these deals and maybe some additional specifics around plans to finance the transactions?
spk09: Oh, absolutely. We have basically an optimistic plan, which is basically the Fed lowers the rates. These are purchase agreements that we don't have to close for quite a while out there. 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. That's an opportunistic to use equity and lower it. On the other hand, like we showed last year, we have assets that will sell in the low six caps and the acquisitions we're looking at are around eight caps, triple net and others. 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 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%. It will take a while, but our goal is to lower it before 40%.
spk02: I think Alfonso, you mentioned OP units potentially. I guess how willing are buyers to take OP units and maybe how much can that limit the equity need that you'll need to move forward with these deals?
spk07: It's hard to predict. We always try to offer it and discuss and try to stimulate that interest. But it's very idiosyncratic and really it's an estate planning decision that the seller has to have. It's pretty hard to predict. And we had one last year and in 2018 we had a lot of success with that, but it's hard to predict.
spk02: And then just lastly for me, I guess, can you provide some additional details or specifics on sort of the types of deals? These are just all straight MOB transactions. Anything unique about them or the lease opportunities are more stabilized. Just any detail you can provide would be appreciated. Thanks.
spk07: Yeah, sure. Our focus is more MOBs and surgery centers. And we're also trying to pursue opportunities that are more
spk05: single-tenant in nature versus multi-tenant. Our next question comes on the line of Rob
spk10: Stephenson with Jenny Montgomery Scott. Please proceed with your question.
spk04: Good morning, guys. Bob, revenues were down $2.6 million quarter over quarter and operating expenses were down $1.1 million 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 that we need to be aware of?
spk11: 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 of revenue for the quarter. And that was related to a property and we mentioned in the release in East Orange, New Jersey and just some 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, it hadn't had any significant issues with the property. The tenant there is prospect medical and while we were working closely with them and keeping us informed of their cash flow issues that they were facing, we concluded that that was the most appropriate accounting. That's the reduction that's in the fourth quarter. But with that said, relative to this location and this tenant, we think that in the longer term that we'll work through the issues with the property, both in terms of payments from prospect and relative to our establishing new tenants
spk04: at
spk11: the facility.
spk04: Okay. And then I guess 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?
spk11: No, no one else at this point.
spk04: Okay. It's helpful. And then Alfonso, how are you looking at these assets that you've, you know, 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? Or is the, you know, are local guys able to get financing to be competitive on these type of transactions?
spk07: Yeah, no. So that 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. So right now, our credit facility is a competitive advantage. And so the opportunity that we're looking at is ones where we can use the efficiency and the certainty of close of our balance sheet and trying to get deals that make sense for us that are accretive. So it's, you know, each case is unique. But, you know, we are trying to position ourselves to, you know, use the advantages that we have to get deals that are attractive to us.
spk04: Okay, that's helpful,
spk05: guys. Thank you for the time. Our next question comes from the line of Brian Maher with B. Riley. Please receive your question.
spk01: Thank you and good morning. Maybe for Bob, give us a little bit more color on this reasons that you referred to a couple of times, you know, kind of how that played out in layman's terms.
spk11: Oh, sure. Sure, Brian. So the CMBS is a $30 million CMBS roughly that we had put on in 2016. And so 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, you know, as more and more cash was getting tied up with the servicer, we saw an opportunity to extinguish the debt and free up the cash that was being held by the servicer. And so we were able to eliminate both the administrative burden and reduce, you know, reduce that kind of current and perspective kind of cash management issue that we were to free up the to free up that cash. And so ultimately, we defied the $31 million CMBS, but end up, you know, with seven 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 the kind of the element of it that was kind of the successful element of it to reduce debt and leverage from an overall perspective.
spk01: Right. But were there any properties involved here? I mean, did you just basically buy out a property that had CMBS against it with your credit facility or something?
spk11: Right. We refinanced it through the credit facility. And so, again, this debt had probably had five, six of our kind of original properties from 2016 vintage in the in the facility. And so those 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 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 to to have more flexibility relative to those properties.
spk01: 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 two to three million intended improvements. Is the two to three million in the 10 to 11 or is an addition to the 10 to 11?
spk11: It's it's in addition, but it's harder to predict the timing. So I think that that's that's kind of why I bucketed them differently, because it it could 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 exact the time frames that you're looking at. So I just wanted to break that second piece out.
spk01: Okay, that's helpful. Maybe just last for Alfonso. I think in your prepared comments, you talked about. Back half loaded for acquisition. So to be clear, you're not expecting anything really in one queue and two queue. And can you give us maybe some range of level of magnitude of what you think might happen in the second half?
spk07: Yeah, so correct nothing in one queue and nothing in two queue. And what we provided is a range and what we're 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
spk05: Q4. Okay, thank you. Our next question comes from the line of Alex with Robert
spk10: to be a beard. Please receive your question.
spk06: Hey, good morning, guys. First morning is on the investment is on the investment pipeline. What are the yields that GMRI is securing? And is the pipeline made up of any portfolios today? Is it all single assets?
spk07: Yeah, so we're we're targeting yields that are approximately 8%. And yes, these we're targeting portfolios that right now are difficult to finance and trying to take advantage of the fact that we have our credit facility to complete those transactions.
spk06: That's helpful. And so I can 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 they're not resigning. How is the demand in for that current space?
spk11: Yes, so far 2024 expirations, we mentioned on the call, we did, we did in the script that we from retention last year, we were just under 80% on on on a square feet basis and in the mid 80s on an ABR basis. And right now, I think we're largely tracking in that in that same vicinity. So, call it use 80% as maybe as a proxy on both on both numbers is how we're looking at it here in late February.
spk06: Thank you. And on the demand for the space that you already know that's not going to be resigned. How is that looking like?
spk11: I mean, we, I mean, it's like anything we're actively working at, you know, to to to try to, again, keep our occupancy as high as we can and just incentive ourselves to move the to keep the space as, you know, as, as fully occupied and leased up as possible. So it's a very active process that the whole
spk05: team is engaged in. Got it. Thank you. That's all for me. There are no further questions in the queue. I'd like to hand the call back to management
spk10: for closing remarks.
spk08: I'd like to thank everybody for attending our meeting. Have a good year. Take care.
spk10: Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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