Yahoo Finance Global Medical REIT Inc. (NYSE:GMRE) Q1 2024 Earnings Call Transcript
Global Medical REIT Inc. (NYSE:GMRE) Q1 2024 Earnings Call Transcript May 8, 2024
Global Medical REIT Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Global Medical REIT First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this conference is being recorded. I would now like to turn the conference over to Steve Swett with Investor Relations. Please go ahead.
Stephen Swett: Thank you. Good morning everyone and welcome to Global Medical REIT's first quarter 2024 earnings conference call. On the call today are Jeff Busch, Chief Executive Officer; Alfonzo Leon, Chief Investment Officer; and Bob Kiernan, Chief Financial Officer. Please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements 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 the 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, 2023, 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, EBITDAre, and adjusted EBITDAre. 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 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 Busch, Chief Executive Officer of Global Medical REIT. Jeff?
Jeffery Busch: Thank you, Steve. Good morning and thank you for joining our first quarter 2024 earnings call. At the end of the first quarter, portfolio occupancy was 96.4%, with a weighted average lease term of 5.8 years and our portfolio average rent coverage ratio of 4.8 times. For the first quarter, our net income attributable to common shareholders was $794,000 or $0.01 per share compared to $673,000 or $0.01 per share in the first quarter of 2023. FFO in the first quarter was $0.21 per share and unit, down $0.01 from the prior year quarter and our AFFO was $0.23 per share in unit, unchanged from the prior year quarter. With regard to acquisitions, we are actively looking for properties that meet our investment criteria and underwriting standards.
I am pleased to announce that subsequent to the quarter end, we entered into a purchase agreement for a 15-property portfolio of outpatient medical real estate for an aggregate purchase price of $81.3 million. These properties are fully occupied and are leased under triple net or absolute triple net leases. This acquisition is subject to customer returns and conditions, including due diligence reviews, and we expect to close in two tranches, one tranche during each of the third and fourth quarter of 2024. This two tranche closing structure provides us with flexibility as we consider our options regarding the allocation of capital to fund this acquisition. For example, depending on market conditions, we may utilize net proceeds from strategic property dispositions or traditional equity and debt financing.
As always, we are mindful of our long-term leverage targets and we expect any potential leverage increase resulting from this transaction would be short-term in nature. We remain committed to our accretive growth strategy, while balancing the need to maintain prudent leverage. As we look to the balance of the year, we look forward to updating you on our progress. In terms of tenant-related items, on May 6th, 2024, one of our tenants, Steward Health Care announced that it filed for Chapter 11 bankruptcy reorganization. As of March 31st, Steward represented 2.8% of the company's annualized base rent, primarily in one facility that is located in Beaumont, Texas. The company was actively pursuing re-leasing opportunities at this facility prior to the Steward bankruptcy announcement, and we are optimistic about our long-term prospects at this location.
Bob will provide more details regarding the financial aspects of our Steward relationship in his remarks. We are closely monitoring this situation and will update the market for any material events as this situation progresses. Overall, I am pleased with our first quarter results and want to thank the entire team for their hard work and contributions to our results. With that, I turn the call over to Alfonzo to discuss our investment activity and the current acquisition market conditions in more detail.
Alfonzo Leon: Thank you, Jeff. The transaction market for our target medical facilities, which align with our quality and return criteria has made promising progress. We continue to actively engage with a wide range of physician groups, brokers, and corporate sellers to identify acquisition opportunities. Our readiness to capitalize on existing opportunities, coupled with our strong capital position and platform, sets us apart from less liquid buyers in the market. Furthermore, the unattractive debt refinancing market can work to our advantage, compelling reluctant sellers to consider us as they navigate a difficult refinance market. To that end, as Jeff mentioned, in May, we entered into a purchase agreement to acquire a 15-property portfolio of outpatient medical real estate for an aggregate purchase price of $81.3 million.
These properties fit squarely within our investment criteria and are fully occupied and leased under triple net or absolute triple net leases. As Jeff explained, we expect to close this transaction in two tranches with the first tranche closing during the third quarter of 2024 and the second tranche closing during the fourth quarter of 2024, which will provide us with flexibility for prudent capital allocation. As a reminder, this deal is currently under contract and subject to customary terms and conditions, including due diligence review. Accordingly, there is no assurance that the company will close this acquisition on a timely basis. We believe this transaction is an example of where the acquisition market is trending with sellers accepting higher cap rate deals as the refinance market continues to struggle and real estate funds are forced to sell.
As always, we will continue to seek opportunities that meet our investment strategy and underwriting standards. We have the ability to unlock opportunities using the tools at our disposal, including our scale, access to capital, and the potential use of OP unit deal structures. I'd now like to turn the call over to Bob to discuss our financial results. Bob?
Robert Kiernan: Thank you, Alfonzo. At the end of the first quarter of 2024, our portfolio consisted of gross investments in real estate of $1.4 billion and included $4.8 million of total leasable square feet, 96.4% occupancy, 5.8 years of weighted average lease term, 4.8 times rent coverage, with 2.2% weighted average contractual rent escalations. In the first quarter, our total revenues decreased by 3% compared to last year to $35.1 million due to the impact of dispositions. Total expenses for the first quarter of 2024 were $32.8 million compared to $34.5 million in the prior year quarter. The decrease was primarily due to disposition transactions that were completed during 2023 and lower interest expense. Our interest expense in the first quarter was $6.9 million compared to $8.3 million in the comparable quarter of last year, reflecting lower borrowing rates due to lower leverage and the impact of our interest rate swaps and lower average borrowings compared to the prior year period.
Our operating expenses for the first quarter of 2024 were $7.4 million compared to $7.5 million in the prior year quarter, with the decrease due primarily to dispositions during 2023. Regarding this first quarter expenses, $5 million related to net leases where the company recognized the comparable amount of expense recovery revenue and $1.5 million related to gross leases. G&A expenses for the first quarter of 2024 were $4.4 million compared to $3.8 million in the first quarter of 2023. The increase primarily resulted from an increase in non-cash LTIP compensation expense, which was $1.2 million for the first quarter of 2024 compared to $700,000 for the same period in 2023. As mentioned last call, we expect our G&A expenses throughout 2024 to be in the range of $4.4 million to $4.6 million on a quarterly basis.
Net income attributable to common stockholders for the first quarter of 2024 was $794,000 or $0.01 per share compared to $673,000 or $0.01 per share in the first quarter of 2023. FFO in the first quarter of 2024 was $14.9 million or $0.21 per share in unit compared to $15.1 million or $0.22 per share in unit in the first quarter of 2023. AFFO in the first quarter of 2024 was $16.5 million or $0.23 per share in unit compared to $16 million or $0.23 per share in unit in the first quarter of 2023. Moving on to the balance sheet. As of March 31st, 2024, our gross investment in real estate was $1.4 billion. At March 31st, 2024, we had $624 million of total gross debt with a weighted average remaining term of 2.7 years. At quarter end, 84% of our total debt was fixed rate debt, our leverage ratio was 44.0%, and our weighted average interest rate was 3.85%.
Lastly, the current unutilized borrowing capacity under the credit facility is $290 million. We did not issue any common stock under our ATM program during the first quarter or to-date. With respect to our investment portfolio and 2024 lease expirations, we are pleased with our progress on renewals and based on activity to-date, we are currently trending towards a retention rate of 76% on this year's expiring leasable square feet. Regarding capital expenditures on the portfolio. During the first quarter, our cash spend was approximately $2 million. Consistent with my remarks during our last call, we continue to project $10 million to $11 million related to building and site improvement and approximately $2 million to $3 million for tenant improvements, primarily associated with new leases and renewals and lease up to be completed this year.
Regarding the company's financial exposure to Steward Health Care, -- as Jeff mentioned, as of March 31st, Steward represented 2.8% or $3.1 million of the company's annualized base rent, of which 86% related to our facility located in Beaumont, Texas. Additionally, as of March 31st, the company's receivables from Steward totaled approximately $500,000, including $200,000 of deferred rent receivables. To conclude, we are encouraged by our acquisition opportunities and believe our portfolio and ample liquidity will enable us to navigate the current market conditions over the long term. We look forward to sharing our progress with you throughout the year. This concludes our prepared remarks. Operator, please open the call for questions.
See also
20 Best Places to Retire in South Carolina in 2024 and
15 Best S&P 500 Dividend Stocks To Buy Now.
To continue reading the Q&A session, please click here.
