Chiron Real Estate Inc.

Good day, everyone, and welcome to today's Global Medical Rights Second Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note, this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Jamie Barber, Global Medical Rights General Counsel. Please go ahead.

Good morning, everyone, and welcome to Global Medical Reits second quarter 2025 earnings conference call. My name is Jamie Barber, and I'm Global Medical Reits General Counsel. On the call today are Mark Decker, Jr., Chief Executive Officer, Alfonso Leon, Chief Investment Officer, Danica Holley, Chief Operating Officer, and Bob Kiernan, Chief Financial Officer. Statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. Companies' actual results may differ significantly from those projected or suggested from any forward-looking statements due to a variety of factors which are discussed in detail in our SEC file. Additionally, on this call, the company may refer to certain non-GAAP financial measures. You can find a tabular reconciliation of these non-GAAP financial measures for the most currently comparable GAAP numbers in the company's earnings release and in filings with the SEC. Additional information may also 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 Mark. Thank you, Jamie. Welcome, everyone, and thanks for joining us today. It's my pleasure to provide our quarterly update as the new CEO of Global Medical REIT. To begin, I have a few thank yous. First, I'd like to thank the board for placing their confidence in me to lead our business into the next chapter. I'd also like to thank Jeff Bush for his work as the company's founder. Jeff built a strong foundation that we will take to the next level. And finally, I want to thank our talented team here for their hard work, grace, and efforts to keep things moving during the transition that started in January when we announced the CEO transition plan. I'm excited to work together with them to reimagine our business and unlock new opportunities for growth and value creation. And they are excited to get back in gear. So it's a great time for our company. I will now turn the call over to Danica Holley, our Chief Operating Officer. Danica?

Thank you, Mark. As many of you are aware, earlier this year we successfully re-tenanted our Beaumont, Texas facility with Christus Health as our new tenant. I'm pleased to announce that as of May, Christus is fully operating in the facility and is paying rent. This is a huge success story given the status of the previous tenant, Steward Healthcare, and an example of our team's ability to navigate obstacles to a successful conclusion. More broadly on the portfolio, as of June 30th, 2025, Our occupancy stood at 94.5%, which is down from the first quarter primarily due to the expiration of the lease at our 50,000-square-foot Aurora, Illinois property and the rejection of the master lease at our 60,000-square-foot East Orange, New Jersey property related to the prospect medical bankruptcy. We touched on both of these in prior calls, but I'd like to offer a little more color. In Aurora, this was a healthcare administrative building adjacent to one of the system's new outpatient facilities. We purchased this building pre-COVID with an expectation that the system would expand, and unfortunately, COVID changed the system's utilization of the administrative space. We are currently looking to sell or re-tenant this facility. On the flip side, after almost two years of negative cash flows, the developments at East Orange are positive. We now have control over the space, which is 40% occupied, and are working directly with former sub-tenants and prospective tenants, including the new adjacent hospital operator. We expect this property to recover to stabilized occupancy of over 90% in the next 24 to 36 months. Turning to our leasing activity, we expect total occupancy to end the year over 95%, which includes 150,000 square feet of new leases, 130,000 of which are complete. Regarding CapEx and leasing commissions, year-to-date spend is $5.2 million, and our guidance for the full year is between $12 to $14 million, so we are well-positioned. I would now like to turn the call over to Alfonso to discuss our investments. Alfonso.

Thank you, Danica. During the quarter, we completed the acquisition of a five-property portfolio of outpatient medical real estate, which brings our total acquisition volume for 2024 and 2025 to approximately $150 million at a blended going-in cash yield of 8.5%. While we are ecstatic about the cash yields, we are even more excited about our ability to find differentiated investment opportunities. First and foremost, we were able to achieve portfolio discounts with our execution capabilities, including our balance sheet strength when lending for portfolios was unavailable. On the real estate side, we were able to achieve wide discounts to replacement costs, and we believe in-place rents are more than 30% below market, which will allow us to grow future rents at faster-than-market rates while still providing a significant value proposition to our tenants. Based on our proprietary data, portfolio volumes, which averaged $300 million per quarter from 2022 to 2024, spiked in the second quarter of 2025 to $2.1 billion, over seven times recent levels, and we expect this level of activity to continue due to the large activity in 2020 and 2021 by levered short-term owners. We are excited to compete in this market because, in our experience, a flood of opportunities like this offers inefficiencies that we can benefit from with our proven middle market expertise, track record, and reputation as a great counterpart. With that, I'd like to turn the call over to Bob.

Thank you, Alfonso. As we look at the remainder of 2025, our highest priority on the balance sheet is to renew the portions of our credit facility that are coming due in 2026. namely the revolver and our $350 million term loan. We are in active discussions with our lending group regarding renewal, expect to complete the renewal during the fourth quarter of 2025. We value the strong relationships we have with our current bank lending group, and over time, we are looking to expand our lender relationships to potentially include longer-term debt providers, such as insurance companies. By diversifying our lender and tenor mix, we will improve the quality of our earnings and broaden our access to debt capital. As reported earlier this year, the company lowered its second quarter 2025 dividend from 21 cents per share to 15 cents per share. We view this as the right sizing of our dividend as our dividend coverage went from 110 percent during the first quarter of 2025 to 79 percent during the second quarter of 2025 on a FAD basis. And as you'll see in our supplemental, when we say FAD, we are talking about our cash flow after all capital expenditures and leasing commissions. Additionally, the dividend reduction is expected to generate approximately $17 million per year that can be allocated to our best ideas. Given the dearth of the equity capital markets in recent years, we are looking at alternative sources for growth. The right sizing of our dividend is the most important action we took in this regard, and we will continue asset recycling. We have identified several assets that are candidates for capital recycling. Our portfolio contains organic growth opportunities Stay in us until the equity capital markets open up again and look forward to what is to come under Mark's leadership. With that, I'll turn the call back over to Mark for final comments.

Thanks, Bob. I'm happy to say I know many of those on this call, but for those who don't know me, I have almost 30 years of capital markets, real estate, and leadership experience, nearly 20 years in investment banking, building teams to serve middle market real estate companies that were undergoing some growth and or transition, and seven years in the C-suite and center space. mostly a CEO. CenterSpace was another smaller public real estate company that needed to meaningfully reposition their business. If nothing else, that makes me experienced and hopefully a little wise.

I sought out this role because I love the work of...

delivering results and communicating clearly to our three key audiences, our team, our customers, and the capital markets. If we can do this, be formidable in our niche, post results, and communicate well, we'll be in a great spot. So that's why I'm here and happy to be underway. It's early days for me, but you can expect that we will fully review our portfolio with an eye towards identifying opportunities. We'll also be working to take our 100% unsecured balance sheet and turning it into more of a competitive advantage with the establishment of a long debt maturity lateral. And we'll be looking inwards to our team to see how and where we can improve, all with the goal of owning the middle market healthcare real estate space, providing great results to our business owners and growth for our team. Lastly, I hope you'll notice our supplemental in this call. We're seeking to be more transparent and easy to evaluate and understand, starting with improved clarity of our disclosure. We understand these are table stakes as a smaller public company. If you have suggestions, as Ross Perot says, We're all ears. Please call or send an email with your suggestions.

Thank you for listening, and operator, please open the call for Q&A.

Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. Our first question will come from Austin Worshmith with KeyBank Capital Markets. Your line is open.

Hey, good morning, everybody, and welcome to the call, Mark. There was a little bit of a technical issue, so sorry if I missed this, but I guess, Mark, could you just lay out kind of what the immediate strategic priorities are for you and that you think that the company could be doing differently on a go-forward basis?

Sure. Yeah, thanks, Austin. That was not me playing saxophone, but can you hear me okay? Yes, I can hear you fine. Okay. Thanks. Yeah, immediate strategic priorities are to come together on a strategy with the team and the board. We have a bunch of good ingredients, I think, in the business as we sit today, and I think we can organize those a little bit more thoughtfully. Obviously, we want to get the refinancing of the line and the terminal on A done. Feel really good about where we are on that, but nothing's done until it's done. And then we're going to be looking at some capital recycling.

So those are the immediate priorities.

I appreciate that. And then, you know, I think, Bob, you kind of outlined, you know, continue asset recycling and that you've identified some assets. Can you just give us a sense of, you know, what types of assets these are, you know, from an occupancy perspective or whether there's a capital need and, you know, you know, where you think you can, you know, sell assets as it sounds like there's a little bit of a pickup and liquidity in the transaction market.

Yeah, I'll take that one. I'll say, you know, the, the ideal candidates would be the lowest yielding, uh, or, or best priced thing. So if you can imagine things that had long-term leases with high grade tenants, those would probably be first to go. And then I'd say on the other side, if to the extent we have, uh, assets that we don't believe in long-term after a portfolio review, which we are undergoing. We've got this new car smell for a little bit, and we're going to take it for a ride. And so if there's anything that doesn't look long-term now, we'll work to get rid of that as well. I don't honestly see a ton of that so far, but I'd say it's more offensive capital recycling in mind, maybe a little bit of deleveraging, maybe a little bit of enhancing cash flows while taking advantage of some of those high-quality assets that are well-bid today.

So where do you think you can ultimately, what type of spread do you ultimately think you can reinvest those proceeds? Alfonso, I think you referenced, you know, sourcing assets at wide discounts, replacement costs with, you know, really attractive mark-to-market opportunities. Are those out there? And what does that spread look like on a going-in basis? And then I'll yield the floor. Thanks.

Sure. So the market is, there's a range of cap rates in the market. And the higher quality stuff is trading in the low and sometimes sub six cap. But the bulk of the market is trading in the mid six to higher six. And there's a good chunk of deals that are trading north of seven. And selectively, there are deals that are higher than mid sevens. So we've always played in that higher range of the cap rate range. And with the flood of deals that have come to market, there's a lot of opportunities out there that fit in that bucket.

Yeah, I'd just add to that. I think we're using the word quality in a way that is market convention. I mean, I think something that's sub five that grows at two is not as good as something that's seven and a half and grows at two. And what I think can be observed based on historical facts is that some of those really tight yields don't actually grow more. And in many instances, your landlord probably has more leverage over you than maybe otherwise. So it's our contention, and I think Alfonso and his team have done a fantastic job over the last several years of doing this well, of finding good properties that yield more, which in my view are higher quality and better risk-adjusted returns. So we're going to lean into where we have been, because I think it's worked well for us. And then we're going to be working very hard on producing better than average per share FFO growth, which you know, we got to put a plan and a formula together to do that. But I think this is an area where kind of the law of small numbers helps us, you know, 15 million bucks is 1% of enterprise value and $720,000 is a penny. So, um, you know, we can, we can get this thing going, I think without moving heaven and earth and, and we are buying in my estimation and what we just recently purchased, uh, The last bit of that portfolio is a fantastic deal in terms of price per pound, opportunity for rent upside, great tenancy. So we're going to try to do more like that. Those are hard to find. You know, we don't need to find a ton of them to make a difference.

That's helpful. Thanks for the time. Thank you.

Our next question comes from Juan Santabria with BMO Capital Markets. Your line is open.

Hi, good morning. Just curious, initial thoughts on where leverage is targeted to be at recognizing, sounds like whatever strategic review is more ongoing versus finalized, but just curious on how we should think about leverage over the medium term.

Yeah. I mean, I think ideally we'd like to have a balance sheet that has more capacity for growth, and in my mind that means take a ground, you know, sub 40% or sub six times would be a great spot. I think if you look at our pricing grid from the banks, they would say we're nearly but not quite investment grade. I think if you were to talk to the private placement community, they would say we're cuspy, but I think it's more probably size than quantum of debt. So, I mean, obviously we have relatively more debt for a public company and a lot less debt than our private peers would have. I mean, we sleep like babies. We've got great cash flows. We will stretch out our maturity ladder and that'll feel better. Four times debt if it expires tomorrow is worse than nine times debt if your weighted average maturity is seven years from now. We're not at either of those extremes, but we do have... a large maturity obviously coming, and we're working on that, and we have all the confidence that that'll be achievable in the near term.

And just a quick follow-up on that. Would that be inclusive, the six times of preferreds?

Man, I thought we were going to stay off this religious bait for today, but let's go there. Look, preferred, in my opinion, doesn't have a redemption date, so it is more like equity than debt. And I know that not everyone agrees with that, but for the time being and giving our small size and cost of capital, the preferred is something we could look at. It'd be a great use of proceeds down the road if we had a cost of capital that made sense. But today, forever is a long time. So if you're gonna call it debt, then I'd say you've added to our weighted average maturities. And if you're gonna call it equity, then I'd say I agree. But, no, my six doesn't include that, but I understand that the equity buyers will think that way, and we're mindful of that.

Fair enough. And just on the occupancy perspective, I think you shared some thoughts. Apologies for missing the numbers on kind of how you expect occupancy in the portfolio to trend. The general trend has been one that since a modest slippage, some leases expired and retention levels dropped. just naturally has some trends. But just curious on how we should think about that going forward, any known large move outs. And as part of that answer, if you don't mind, with the Beaumont facility, what's the incremental we should be modeling, third quarter to second quarter, on that asset specifically?

So, hi, Juan.

On occupancy, I think you can think of us in that 95 and above range, we're consistently seeing trends with our tenants to release at those levels. So, I think consistency and occupancy is what you should look for. There will be episodic downturns that are followed by releasing. So, it can be a little bit bumpy, but overall, I think that's the way to think of it. I'm going to actually turn to Bob to talk about the modeling for how we thought of crisis.

So for the Beaumont asset, for the second quarter, they fully occupied beginning in May. So in the second quarter, you'll have May and June. So again, it'll be a modest pickup in the third quarter from a run rate perspective.

All of which is in our guidance. Got it.

Our next question comes from Wes Galladay with Baird.

Your line is open.

Hey, good morning, everyone. Maybe just sticking with the quarter-to-quarter changes. Will you also have a pickup in reimbursed costs in the third quarter? Or will the move-outs impact that at all?

How should we think about unreimbursed costs going forward?

So, Wes, there really wasn't anything in particular of note relative to rental revenue versus the reimbursed costs from an overall NOI perspective, the way that the trend was consistent with our, you know, with where we were forecasting, and there really wasn't anything significant or unusual from the dynamic between reimbursed costs and the rental revenue side.

Okay, and then you mentioned tackling the balance sheet, I think, in the fourth quarter. Were you going to do both, I guess, term loans and private placements, or is it an and-or, or how are you thinking about that?

To be determined. For sure, we're going to refi the term loan A and the revolver, and how exactly that gets done isn't set in stone just yet.

Okay. And then G&A for the back half of the year, should it be comparable, I guess, on a quarterly basis to what we saw in the second quarter outside the one-time items?

Yes, there should be. That's a good run rate from a G&A perspective. Flagging those outliers from the transition costs, backing those down from both the stock comp and the cash G&A will line it up.

Okay. Thanks for the time, everyone.

Our next question comes from Gaurav Mehta with Alliance Global Partners. Your line is open.

Thank you. Good morning. I wanted to go back to your comments around asset e-cycling, hoping to get some more color on what kind of size of disposition are you guys looking at? And then does the asset recycling depend on you finding the right acquisition targets or you would consider selling a loading leverage in the near term?

Rob, just your line is a little faint. Did you say what kind of acquisitions are we looking for?

My question was what kind of size of dispositions are you looking at, and then would you consider selling and lowering leverage in the near term, or the disposition depends on finding the right acquisition targets?

Got it. So, I mean, I don't want to – I think our goal would be call it $50 to $100 million, but if If we don't get prices we like, we may not be selling, and then how those proceeds got redeployed would be likely a mix of some debt repayment and some new investment. I mean, at a minimum, we'd pay down debt.

That would probably be a good use, but we probably have some other ideas as well.

Okay. And then, Mark, as you look at the next step for the company as far as acquisitions and the portfolio mix, do you expect any changes in speciality type and provider type, or do you want to stick with where the portfolio is as far as that mix is concerned?

I'd say we generally like the mix the way it is. I mean, it'll move around.

Go ahead, Alfonso. I agree. So, you know, we've always been opportunistic. We always try to find the best value in the market. MOBs are by far the largest market That is the asset type that has the largest supply in the market. But we've been pretty good at finding inpatient and playing in that space. So, you know, I would assume that going forward, the portfolio mix should stay roughly consistent.

Okay. Thank you. That's all I had. Thank you.

As a reminder, if you would like to ask a question, please press the star and 1 on your telephone keypad. Our next question comes from John Masoka with B. Reilly Securities. Your line is open.

Good morning, everyone. So maybe with kind of, you know, cost of capital in mind, you talked a little bit about capital recycling as a way to kind of fund future investments. How are you thinking about JVs, either the one you currently have in place or maybe even future, you know, different de novo JVs? Just share your thoughts there.

Yeah. Good morning. Good question. We would like to grow the Heitman JV. They're a thoughtful and disciplined MOB investor with over 20 years in the space. And they, like we, believe in the secondary, tertiary, quaternary investments with strong systems or practice groups that have, you know, dominant market share. So that's a good alignment of, I'd say, view of the world. And I think there are other potential capital structures we could look at where we could take what we believe is something of value, which is our ability to underwrite these smaller opportunities and deliver that to people that maybe don't have that skill. So how that takes shape, if it takes shape, to be determined, but it's certainly something on our board, if you will.

And I guess given, you know, it's a little bit unfair because it, you know, only was kind of put in place earlier this year, but given the amount of activity you're seeing in the space in 2Q, any reason that JV hasn't been more active?

No.

I mean, if there's one deal you like among one, then that one's worth doing. And if there's one among 100, that one's worth doing. I mean, you know, we have to be disciplined. And they are disciplined with us in that regard. So they're picky and we're picky. And, you know, when it's right, we'll do it. And if it's not, you know, we don't have any unnatural reason to do anything with Heitman. And they certainly don't either. They're fiduciaries and so are we.

That's fair. And then maybe on a much smaller level, as I think about the East Orange, you know, kind of success leasing up there, can you remind us maybe what the impacts kind of run rate numbers is going to be from that lease up and if there is any impact, what kind of timing you're expecting?

So the old run rate on that building was roughly about $1.2 million, $1.3 million of ABR. And again, as we talked about, that's been a cash flow drag over the last couple of years. And so what we're seeing right now is we've gotten the building to 40% or so from an occupied And as we work at that level, we start to, again, turn the corner and break even relative to the property and over time kind of build that base and increase that to that 80, 90, you know, above percent occupancy. But from an overall perspective, from a sizing, just to give you the context, that's where it was. It was around kind of, again, from a contribution, it was about $1.2 million. And again, we're trying to get on the path back toward that level.

I do think, though, John, this is something we've been talking about as we've been out with investors. That is, everything I'm telling you is publicly available, but it requires work to put it together. And I think there's a perception, to the extent people are paying attention, about 26 earnings that we have a big hit coming from this refi and we will absolutely refi at a much higher rate. We currently have SOFR locked at 135, and it's obviously at 435. But when you consider that we weren't getting cash flow really for much of any in 25, and we will get some of that direct from East Orange, and we will have the full impact of Christus, and the forward curve is looking pretty good, and we did make some acquisitions. Our year-over-year kind of FAD and FFO are actually going to be I think pretty good. We're not here to give 26 guidance, but I do think that's something that's a little bit misunderstood about us today.

Okay. Appreciate that, Connor. That's it for me. Thank you.

It appears we have no further questions at this time. I'll turn the program back to Mark for any closing remarks.

Super. Well, we appreciate everyone's time and interest, and have a great day.

Thank you.

This concludes today's program. Thank you for your participation, and you may disconnect at any time.