(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements, including the notes to those financial statements, included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). Some of the comments we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section below entitled "Special Note Regarding Forward-Looking Statements." Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, that was filed with the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") on March 8, 2021 and Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, that was filed with the SEC on May 7, 2021. Unless otherwise indicated, all dollar and share amounts in the following discussion are presented in thousands.
Special Note Regarding Forward-Looking Statements
This Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). In particular, statements pertaining to our trends, liquidity, capital resources, and the healthcare industry and the healthcare real estate markets and opportunity, among others, contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology including, but not limited to, "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
the effects of the ongoing novel coronavirus ("COVID-19") pandemic, which are highly uncertain, cannot be predicted and will depend upon future developments, including the severity of COVID-19, the duration of the outbreak and potential resurgences (including any related variants of the COVID-19 virus such as the ? Delta variant, or others), the duration of existing or new social distancing and shelter-in-place orders, further mitigation strategies taken by applicable government authorities, the availability and distribution of vaccines, vaccination rates, adequate testing and treatments and the prevalence of widespread immunity to COVID-19;
? defaults on or non-renewal of leases by tenants;
? our ability to collect rents;
? our ability to satisfy the covenants in our existing and any future debt agreements;
? decreased rental rates or increased vacancy rates, including expected rent levels on acquired properties;
? difficulties in identifying healthcare facilities to acquire and completing such acquisitions;
? adverse economic or real estate conditions or developments, either nationally or in the markets in which our facilities are located;
? our failure to generate sufficient cash flows to service our outstanding obligations;
? fluctuations in interest rates and increased operating costs;
? our failure to effectively hedge our interest rate risk;
? our ability to satisfy our short and long-term liquidity requirements;
? our ability to deploy the debt and equity capital we raise;
? our ability to raise additional equity and debt capital on terms that are attractive or at all;
? our ability to make distributions on shares of our common and preferred stock;
? expectations regarding the timing and/or completion of any acquisition;
? general volatility of the market price of our common and preferred stock;
? changes in our business or our investment or financing strategy;
? our dependence upon key personnel whose continued service is not guaranteed;
? our ability to identify, hire and retain highly qualified personnel in the future;
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? the degree and nature of our competition;
? changes in healthcare laws, governmental regulations, tax rates and similar matters;
? changes in current healthcare and healthcare real estate trends;
? changes in expected trends in Medicare, Medicaid and commercial insurance reimbursement trends;
? competition for investment opportunities;
? our failure to successfully integrate acquired healthcare facilities;
? our expected tenant improvement expenditures;
? changes in accounting policies generally accepted in the United States of America ("GAAP");
? lack of or insufficient amounts of insurance;
? other factors affecting the real estate industry generally;
? changes in the tax treatment of our distributions;
? our failure to qualify and maintain our qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes;
our ability to qualify for the safe harbors from the "100% Prohibited ? Transactions Tax" under the REIT rules with respect to our property dispositions; and
? limitations imposed on our business and our ability to satisfy complex rules relating to REIT qualification for U.S. federal income tax purposes.
See Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020, that was filed with the SEC on March 8, 2021 and Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, that was filed with the SEC on May 7, 2021, for further discussion of these and other risks, as well as the risks, uncertainties and other factors discussed in this Report and identified in other documents we may file with the SEC from time to time. You should carefully consider these risks before making any investment decisions in our company. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements.
Global Medical REIT Inc. (the "Company," "us," "we," or "our") is a Maryland corporation engaged primarily in the acquisition of purpose-built healthcare facilities and the leasing of those facilities to strong healthcare systems and physician groups with leading market share.
We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2016. We conduct our business through an umbrella partnership real estate investment trust, or UPREIT, structure in which our properties are owned by wholly owned subsidiaries of our operating partnership, Global Medical REIT L.P. (the "Operating Partnership"). Our wholly owned subsidiary, Global Medical REIT GP LLC, is the sole general partner of our Operating Partnership and, as of June 30, 2021, we owned 94.24% of the outstanding equity interests in our Operating Partnership.
Our Business Objectives and Investment Strategy
Our principal business objective is to provide attractive, risk-adjusted returns to our stockholders through a combination of (i) reliable dividends and
construct a portfolio of healthcare facilities that are primarily located in ? secondary markets and suburbs of primary markets and are situated to take advantage of the aging of the U.S. population and the decentralization of the healthcare delivery system;
lease our properties to healthcare tenants with profitable practices that are utilized by an aging population and are highly dependent on their purpose-built ? real estate to deliver core medical procedures, such as cardiovascular treatment, rehabilitation, eye surgery, gastroenterology, oncology treatment and orthopedics;
set aside a portion of our property portfolio for opportunistic acquisitions, ? including (i) certain acute-care hospitals and long-term acute care facilities (LTACs), that we believe provide premium, risk-adjusted returns, (ii) health system
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corporate office and administrative buildings, which we believe will help us develop relationships with larger health systems and (iii) behavioral and mental health facilities that are operated by national or regional operators and are located in markets that demonstrate a need for such services; and
? lease our facilities under triple-net leases with contractual annual rent escalations.
Corporate Sustainability and Social Responsibility
Our business values integrate environmental sustainability, social responsibility and strong governance practices throughout our organization.
We continue to improve and expand our efforts in the corporate sustainability arena by building on our progress with tenant outreach and data collection to benchmark our portfolio's energy consumption and efficiency. On July 1, 2021, we submitted our second GRESB assessment. We are working with third-party experts to support our energy monitoring efforts and have begun to explore potential projects with solar energy providers and on-property electric vehicle charging solutions.
Our commitment to employee engagement remains a high-priority, as we continue to make accommodations for health, safety, and work-life balance and look for opportunities to modestly grow our team.
During the first quarter of 2021, our employee ESG working group engaged Georgetown University's Steers Center for Global Real Estate to help us identify social responsibility initiatives. Their recommendation led to a pilot project that provides transportation to healthcare facilities for those in need. We are working with a ride-share provider and national charitable organization to implement the project.
Our Board of Directors (the "Board") continues to lead our social and governance efforts. With its diverse composition, our Board is a strong example of inclusive leadership. From a governance perspective, the Board has continued to adopt policies with best practices in mind and has joined the National Association of Corporate Directors, a membership association chartered to increase board strategic awareness and enhance continuous improvement and effectiveness. In 2021, the Board continued to improve our corporate governance structure by adopting an anti-hedging and anti-pledging policy and executive equity ownership guidelines. The Board has also formed an ESG working group and has worked with management to identify an environmental, social, governance and resilience framework that can guide our ESG work going forward.
We take climate change and the risks associated with climate change seriously. We are committed to aligning our investment strategy with science and have begun to monitor our portfolio for climate risk factors. We will use this information to evaluate our insurance needs and risk management approach. In addition, the energy consumption data that we are collecting will be used to assess facilities' carbon emission levels. Capturing and tracking this information will help inform future mitigation and remediation efforts where possible. To that end we are exploring ways to mitigate climate risk, should it be present, in our acquisition strategy, as well as ways to contribute to the reduction of climate impact through proactive asset management that looks for ways to incorporate renewable energy resources and energy utilization reduction. We stand with our communities, tenants, and stockholders in supporting meaningful solutions that address this global challenge and contribute to the sustainability of our business objectives.
Impact of COVID-19 and Business Outlook
Although COVID-19 vaccines are generally widely available in the United States, the rate of vaccination has slowed, the COVID-19 pandemic has not ended and its effects on the U.S. economy will have lasting effects. New and potentially more virulent variants of COVID-19 have been identified, such as the Delta variant, a rapidly spreading strain, that has led to a recent rise in hospitalization and infection rates. Therefore, the risk of further resurgence and possible reimplementation of restrictions remains.
Although the COVID-19 pandemic did not have a material effect on our business in 2020 and the three and six months ended June 30, 2021, a resurgence of COVID-19, including its variants (such as the Delta variant), that affects our tenants' ability to pay rent to us, our lenders' ability to lend to us, or our ability to raise equity capital could have a material adverse effect on us.
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Executive Summary The following table summarizes the material changes in our financial statements during the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands, except per share and unit amounts) Rental revenue $ 28,200 $ 22,036 $ 55,525 $ 43,569 Depreciation and amortization expense $ 11,427 $ 8,941 $ 22,280 $ 16,698 Interest expense $ 5,020 $ 4,375 $ 10,057 $ 8,752 General and administrative expense $ 4,285 $ 1,643 $ 8,667 $ 3,482 Net income attributable to common stockholders per share $ 0.04 $ 0.00 $ 0.08 $ 0.03 FFO per share and unit(1) $ 0.22 $ 0.19 $ 0.44 $ 0.38 AFFO per share and unit(1) $ 0.23 $ 0.21 $ 0.47 $ 0.41 Dividends per share of common stock $ 0.205 $ 0.20 $ 0.41 $ 0.40 Weighted average common stock outstanding 61,194 45,404 56,956 44,793 Weighted average OP Units outstanding 1,753 2,023 1,759 2,398 Weighted average LTIP Units outstanding 2,166 1,088 1,990 978 Total weighted average shares and units outstanding 65,113 48,515 60,705 48,169
(1) See "-Non-GAAP Financial Measures," for a description of our non-GAAP financial measures and a reconciliation of our non-GAAP financial measures.
As of June 30, December 31, 2021 2020 (dollars in thousands) Investment in real estate, gross $ 1,260,324 $ 1,142,905 Total debt, net $ 506,760 $ 586,578 Weighted average interest rate 3.09 % 3.17 % Total equity (including noncontrolling interest) $ 637,255 $ 457,760 Net leasable square feet 4,050,990 3,694,865
During the six months ended June 30, 2021, we completed 11 acquisitions encompassing an aggregate of 354,429 leasable square feet for an aggregate contractual purchase price of $113.8 million with an aggregate annualized base rent of $8.4 million. As of June 30, 2021, our portfolio consisted of gross investment in real estate of $1.3 billion, which was comprised of 97 facilities with an aggregate of 4.1 million leasable square feet and an aggregate $96.8 million of annualized base rent.
Capital Raising Activity
On March 18, 2021, we closed an underwritten public offering of our common stock, including the related option to purchase additional shares granted to the underwriters. These transactions resulted in the issuance of 8.6 million shares of our common stock at a public offering price of $13.30 per share, generating gross proceeds of $114.7 million.
During the six months ended June 30, 2021, we generated gross proceeds of $86.6 million through at-the-market ("ATM") equity issuances of 6.1 million shares of our common stock at an average offering price of $14.29 per share. As of August 2, 2021, we had $23 million remaining under the 2020 ATM Program.
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On May 3, 2021, we entered into an amended and restated credit facility (the "Credit Facility") to, among other things, (i) increase the overall capacity of the facility from $600 million to $750 million, consisting of a $400 million revolver component (the "Revolver") and a $350 million term loan component (the "Term Loan"), (ii) extend the term of the Revolver to May 2025, with two six-month extension options, and extend the maturity of the Term Loan component to May 2026, (iii) convert the facility from a secured to an unsecured facility and (iv) implement a new pricing matrix. The Credit Facility includes a $500 million accordion feature. In addition, on May 4, 2021, we entered into five forward starting interest rate swaps that will fix the LIBOR component on the Term Loan through its maturity. Currently, the interest rate swaps fix the LIBOR component of the Term Loan at a rate of 1.91% through August 2023. Subsequently, from August 2023 to August 2024 the LIBOR component of the Term Loan rate will be fixed at 1.61%. Finally, from August 2024 to April 2026 the LIBOR component of the Term Loan rate will be fixed at 1.45%.
During the six months ended June 30, 2021, we borrowed $133.1 million under our Credit Facility and repaid $207.2 million, for a net amount repaid of $74.1 million. As of June 30, 2021, the net outstanding Credit Facility balance was $442.1 million.
Completed Acquisitions Subsequent to June 30, 2021
Since June 30, 2021, we have completed two acquisitions encompassing an aggregate of 77,693 leasable square feet for an aggregate purchase price of $26.2 million with annualized base rent of $1.9 million.
Properties Under Contract
We have three properties under contract for an aggregate purchase price of approximately $23.2 million. We are currently in the due diligence period for our properties under contract. If we identify problems with any of these properties or the operators of any properties during our due diligence review, we may not close the transactions on a timely basis or we may terminate the purchase agreements and not close the transactions.
Trends Which May Influence Our Results of Operations
We believe the following trends may positively impact our results of operations:
Growing healthcare expenditures. According to the U.S. Department of Health and Human Services, overall healthcare expenditures are expected to grow at an ? average rate of 5.5% per year through 2027. We believe the long-term growth in healthcare expenditures will help maintain or increase the value of our healthcare real estate portfolio.
An aging population. According to the 2010 U.S. Census, the segment of the population consisting of people 65 years or older comprise the fastest growing ? segment of the overall U.S. population. We believe this segment of the U.S.
A continuing shift towards outpatient care. According to the American Hospital ? Association, patients are demanding more outpatient operations. We believe this shift in patient preference from inpatient to outpatient facilities will benefit our tenants as most of our properties consist of outpatient facilities.
Physician practice group and hospital consolidation. We believe the trend ? towards physician group consolidation will serve to strengthen the credit quality of our tenants if our tenants merge or are consolidated with larger health systems.
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We believe the following trends may negatively impact our results of operations:
Increased competition for acquisition opportunities. We face increased competition for our target asset classes from both private funds and other public REITs. Medical office properties have proven to be a resilient asset class during the COVID-19 pandemic as many tenants of such properties continued ? to pay rent during the pandemic, which was not the case for many other types of commercial real estate. Given the resiliency of medical office buildings, many real estate funds are now competing for acquisition opportunities in medical real estate, which will cause a decrease in overall capitalization rates and make it more difficult for us to locate acquisition opportunities that meet our investment and return criteria.
Continuation of the COVID-19 pandemic - Although COVID-19 vaccines are currently being distributed and administered in the U.S., it is unclear when or if the COVID-19 pandemic will subside and the U.S. economy will recover. Although many of our tenants are continuing to operate during the pandemic, it ? is unclear when/if our tenants will return to pre-COVID-19 patient volumes.
Changes in third party reimbursement methods and policies. Even prior to the COVID-19 pandemic, the price of healthcare services was increasing, and we believed that third-party payors, such as Medicare and commercial insurance companies, would continue to scrutinize and reduce the types of healthcare services eligible for, and the amounts of, reimbursement under their health insurance plans. Additionally, many employer-based insurance plans were ? continuing to increase the percentage of insurance premiums for which covered individuals are responsible. We expect these trends will only be exacerbated by the COVID-19 pandemic, as federal and state budgets are likely to be under tremendous stress due to the pandemic, which could affect government-sponsored insurance plans. If these trends continue, our tenants' businesses will continue to be negatively affected, which may impact their ability to pay rent to us.
Critical Accounting Policy
The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Commission on March 8, 2021, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Report.
Consolidated Results of Operations
The major factors that resulted in variances in our results of operations for each revenue and expense category for the three and six months ended June 30, 2021 compared to the same period in 2020 were the increase in the size of our property portfolio and our management internalization transaction that was completed in July 2020. Our total investments in real estate, net of accumulated depreciation and amortization, was $1.1 billion and $922.9 million as of June 30, 2021 and 2020, respectively.
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Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Three Months Ended June 30, 2021 2020 $ Change (in thousands) Revenue Rental revenue $ 28,200 $ 22,036 $ 6,164 Other income 61 19 42 Total revenue 28,261 22,055 6,206 Expenses General and administrative 4,285 1,643 2,642 Operating expenses 3,303 2,336 967 Management fees - related party - 2,021 (2,021) Depreciation expense 8,292 6,593 1,699 Amortization expense 3,135 2,348 787 Interest expense 5,020 4,375 645 Management internalization expense - 920 (920) Preacquisition expense 62 147 (85) Total expenses 24,097 20,383 3,714 Net income $ 4,164 $ 1,672 $ 2,492
Total Revenue . . .
Aug 06, 2021
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