Global Medical REIT(GMRE) - 2020 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents Global Medical REIT Inc.'s unaudited condensed consolidated financial statements and accompanying detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :------------------ | | Assets | | | | Investment in real estate, net | $922,897 | $849,026 | | Cash and cash equivalents | $8,392 | $2,765 | | Total assets | $966,567 | $884,934 | | Liabilities | | | | Credit Facility, net | $415,850 | $347,518 | | Notes payable, net | $50,610 | $38,650 | | Total liabilities | $523,858 | $424,581 | | Equity | | | | Total Global Medical REIT Inc. stockholders' equity | $427,921 | $430,270 | | Total equity | $442,709 | $460,353 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $22,055 | $16,880 | $43,704 | $32,080 | | Total expenses | $20,383 | $14,418 | $39,215 | $27,575 | | Net income | $1,672 | $2,462 | $4,489 | $4,505 | | Net income attributable to common stockholders | $204 | $904 | $1,458 | $1,432 | | Net income attributable to common stockholders per share – basic and diluted | $0.00 | $0.03 | $0.03 | $0.05 | | Weighted average shares outstanding – basic and diluted | 45,404 | 34,559 | 44,793 | 30,990 | Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $1,672 | $2,462 | $4,489 | $4,505 | | Decrease in fair value of interest rate swap agreements | $(1,022) | $(3,550) | $(14,980) | $(5,572) | | Total other comprehensive loss | $(1,022) | $(3,550) | $(14,980) | $(5,572) | | Comprehensive income (loss) | $650 | $(1,088) | $(10,491) | $(1,067) | | Comprehensive loss attributable to common stockholders | $(755) | $(2,283) | $(12,474) | $(3,576) | Condensed Consolidated Statements of Equity Key Equity Changes for Six Months Ended June 30, 2020 (in thousands) | Metric | December 31, 2019 Balance | June 30, 2020 Balance | | :--------------------------------------- | :------------------------ | :-------------------- | | Total Global Medical REIT Inc. stockholders' equity | $430,270 | $427,921 | | Noncontrolling interest | $30,083 | $14,788 | | Total equity | $460,353 | $442,709 | | Common Stock Shares Outstanding | 43,806 | 46,252 | | Preferred Stock Shares Outstanding | 3,105 | 3,105 | - During the six months ended June 30, 2020, the company issued 1,239 shares of common stock for $13.8 million and redeemed 1,207 LTIP Units and OP Units for common stock valued at $15.5 million[16] - The fair value of interest rate swap agreements decreased by $15.0 million, contributing to accumulated other comprehensive loss[16] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $23,868 | $16,664 | | Net cash used in investing activities | $(75,959) | $(117,474) | | Net cash provided by financing activities | $58,243 | $101,839 | | Net increase in cash and cash equivalents and restricted cash | $6,152 | $1,029 | | Cash and cash equivalents and restricted cash—end of period | $13,337 | $5,872 | - Cash provided by operating activities increased by $7.2 million YoY, while cash used in investing activities decreased by $41.5 million YoY, primarily due to less real estate investment activity[22] - Cash provided by financing activities decreased by $43.6 million YoY, mainly due to lower net proceeds from common equity offerings and higher dividends paid[22] Notes to the Unaudited Condensed Consolidated Financial Statements Note 1 – Organization - Global Medical REIT Inc. is a Maryland corporation focused on acquiring and leasing purpose-built healthcare facilities[24] - The Company completed a management internalization transaction on July 9, 2020, transitioning from external management by Inter-American Management LLC[24] - As of June 30, 2020, the Company held a 93.81% limited partner interest in its Operating Partnership, Global Medical REIT L.P[25] Note 2 – Summary of Significant Accounting Policies - The financial statements are unaudited and prepared in accordance with GAAP and SEC regulations, with certain annual disclosures condensed or excluded[26] - All acquisitions for the six months ended June 30, 2020 and 2019 were accounted for as asset acquisitions, with transaction costs capitalized[31] - Revenue from leases with fixed annual escalators is recognized on a straight-line basis, and expense recoveries are recognized on a gross basis[33] Cash and Cash Equivalents and Restricted Cash (in thousands) | Category | June 30, 2020 | June 30, 2019 | | :--------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $8,392 | $3,216 | | Restricted cash | $4,945 | $2,656 | | Total cash and cash equivalents and restricted cash | $13,337 | $5,872 | - The Company adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, with no material impact on financial statements[36] - The liability for interest rate swap derivative instruments increased significantly from $6.5 million at December 31, 2019, to $21.5 million at June 30, 2020[42] - The Company elected to apply practical expedients for lease concessions due to COVID-19, avoiding lease-by-lease analysis for certain modifications[43] Note 3 – Property Portfolio - During the six months ended June 30, 2020, the Company completed five asset acquisitions for a total gross investment of $91.3 million[45][46] - Depreciation expense increased to $6.6 million for Q2 2020 (from $4.6 million in Q2 2019) and $12.4 million for H1 2020 (from $8.5 million in H1 2019)[47] - As of June 30, 2020, the Company had capital improvement commitments of approximately $19.4 million, with up to $7.3 million expected in the next twelve months[48] Intangible Assets and Liabilities (in thousands) | Category | Cost (June 30, 2020) | Net (June 30, 2020) | Cost (December 31, 2019) | Net (December 31, 2019) | | :-------------------- | :------------------- | :------------------ | :----------------------- | :------------------------ | | In-place leases | $47,031 | $36,184 | $39,429 | $31,578 | | Above market leases | $12,932 | $9,788 | $12,246 | $9,880 | | Leasing costs | $23,306 | $18,575 | $21,119 | $17,661 | | Below market leases | $6,670 | $5,598 | $3,861 | $3,164 | - Amortization expense related to acquired lease intangibles increased for both three and six months ended June 30, 2020, compared to 2019[77] Note 4 – Credit Facility, Notes Payable and Derivative Instruments - The Company's Credit Facility is a $500 million syndicated facility, consisting of a $300 million term-loan and a $200 million revolver, with a $150 million accordion feature[78] - The Credit Facility expires in August 2022, with a one-year extension option, and bears interest at LIBOR plus a specified margin[78] - The Company was in compliance with all financial and non-financial covenants under the Credit Facility as of June 30, 2020[80] Credit Facility Outstanding Borrowings (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :--------------------------------------- | :------------ | :------------------ | | Revolver | $119,200 | $51,350 | | Term Loan | $300,000 | $300,000 | | Credit Facility, net | $415,850 | $347,518 | - The Company is monitoring the transition from LIBOR to alternative reference rates (SOFR) and evaluating related risks[83][84][85] Notes Payable, Net (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :--------------------------------------- | :------------ | :------------------ | | Notes payable, gross | $51,549 | $39,475 | | Notes payable, net | $50,610 | $38,650 | - The Company assumed a $12.1 million CMBS loan (Dumfries Loan) with a 4.68% interest rate and a four-year term in April 2020[89] Interest Rate Swaps as of June 30, 2020 | Counterparty | Notional Amount | Fixed LIBOR Rate | Maturity | | :--------------------------------------- | :-------------- | :--------------- | :----------- | | BMO | $100 million | 2.88% | August 2023 | | BMO | $90 million | 1.21% | August 2024 | | Truist Bank | $40 million | 1.21% | August 2024 | | Truist Bank | $40 million | 2.93% | August 2024 | | Citizens Bank, National Association | $30 million | 2.93% | August 2024 | | Total/Weighted Average | $300 million | 2.17% | | - The fair value of interest rate swaps was a net liability of $21.5 million at June 30, 2020, up from $6.5 million at December 31, 2019[96] - The weighted average interest rate of the Company's debt decreased from 3.90% at December 31, 2019, to 3.46% at June 30, 2020[98] Note 5 – Equity - 3,105 shares of Series A Cumulative Redeemable Preferred Stock were outstanding with a liquidation preference of $25 per share and a 7.50% annual dividend rate[99][100] - 46,252 shares of common stock were outstanding as of June 30, 2020, compared to 43,806 shares at December 31, 2019[101] Common Stock Dividend Activity (in thousands, except per share amounts) | Date Announced | Applicable Quarter | Dividend Amount | Dividends per Share | | :--------------------------------------- | :----------------- | :-------------- | :------------------ | | December 13, 2019 | Q4 2019 | $9,541 | $0.20 | | March 4, 2020 | Q1 2020 | $9,610 | $0.20 | | June 12, 2020 | Q2 2020 | $9,861 | $0.20 | - Total dividends paid on common stock, LTIP Units, and OP Units for the six months ended June 30, 2020, were $19.7 million, an increase from $13.5 million in the prior year[103] - During the six months ended June 30, 2020, 1,185 OP Units were redeemed for common stock with an aggregate value of $15.2 million[106] Note 6 – Related Party Transactions - The Company completed a management internalization transaction on July 9, 2020, acquiring its Advisor's parent company[107] - Management fees incurred and expensed for the three and six months ended June 30, 2020, were $2.0 million and $4.0 million, respectively, an increase from the prior year due to a larger stockholders' equity balance[108] Note 7 – Stock-Based Compensation - The 2016 Equity Incentive Plan has 1,070 shares of common stock remaining available for grant as of June 30, 2020[110][111] - As of June 30, 2020, 1,095 LTIP Units were outstanding, comprising 805 vested and 290 unvested units[113] - Performance-based LTIP awards (Annual and Long-Term Awards) are subject to performance goals and service requirements, with management estimating 100% of 2020 Annual Awards to be earned[114][117] - Stock-based compensation expense for the three and six months ended June 30, 2020, was $0.9 million and $1.8 million, respectively[128] - Total unamortized compensation expense of approximately $4.3 million is expected to be recognized over a weighted average remaining period of 1.6 years[129] Note 8 – Leases - The Company's leases are classified as operating leases with a portfolio average remaining term of approximately 10 years[131] - Rental and other revenues from operating leases were $22.0 million (Q2 2020) and $43.6 million (H1 2020), including variable lease payments for expense recoveries[135] Aggregate Annual Cash from Noncancelable Operating Leases (in thousands) | Year | Amount | | :--------------------------------------- | :------- | | 2020 (six months remaining) | $39,302 | | 2021 | $76,642 | | 2022 | $75,216 | | 2023 | $72,568 | | 2024 | $66,745 | | Thereafter | $373,051 | | Total | $703,524 | - The Company has six buildings on operating ground leases with a weighted average remaining term of approximately 24 years, recognizing $39 thousand (Q2 2020) and $81 thousand (H1 2020) in ground lease expense[136] Note 9 – Rent Concentration Rent Concentration by Facility (Percentage of Total Rental Revenue) | Facility | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Encompass | 8% | 10% | 8% | 10% | | Belpre | 6% | 8% | 7% | 9% | | OCOM | 5% | 7% | 5% | 7% | | Sherman | 4% | 5% | 4% | 5% | | Austin | 4% | 5% | 4% | 5% | | East Dallas | 3% | 4% | 3% | 5% | | Aggregate of all other facilities | 70% | 61% | 69% | 59% | | Total | 100% | 100% | 100% | 100% | Note 10 – Commitments and Contingencies - The Company is not currently subject to any material litigation or environmental liabilities that would materially affect its financial position, results of operations, or cash flows[139][140] Note 11 – Subsequent Events - On July 9, 2020, the Company completed a management internalization transaction by acquiring its Advisor's parent company for $17.6 million cash, after working capital adjustments[141] - On July 24, 2020, the Company increased its Credit Facility borrowing capacity to $600 million (from $500 million) via a $100 million accordion feature[142] - On July 27, 2020, the Company entered into a $50 million interest rate swap with a fixed rate of 0.158% maturing August 8, 2023[143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the Company's financial condition, operations, liquidity, and COVID-19 impact, including non-GAAP metrics Special Note Regarding Forward-Looking Statements - The report contains forward-looking statements regarding trends, liquidity, capital resources, and the healthcare industry, which are subject to numerous risks and uncertainties[146][147] - Key risk factors include the highly uncertain effects of the COVID-19 pandemic, tenant defaults, ability to satisfy debt covenants, fluctuations in interest rates, and ability to raise capital[147] Overview - Global Medical REIT Inc. is a Maryland corporation focused on acquiring and leasing purpose-built healthcare facilities[151] - The Company became an internally-managed company on July 9, 2020, following a management internalization transaction[152] - The Company operates as a REIT and, as of June 30, 2020, owned 93.81% of the outstanding common operating partnership units (OP Units) of its Operating Partnership[153] Impact of COVID-19 and Business Outlook - The COVID-19 pandemic did not materially impact results of operations, liquidity, and capital resources for the three and six months ended June 30, 2020[154] - The Company reduced rent deferrals to $1.1 million for April-July 2020, expected to be collected primarily from July-December 2020[155] - A resurgence of COVID-19 cases and potential reinstitution of bans on elective procedures could materially adversely affect tenants' businesses and the Company's ability to collect rent[156] - As of July 31, 2020, the Company had approximately $128 million in cash balances and available Credit Facility capacity, aiming to maximize liquidity[158] Our Business Objectives and Investment Strategy - The Company's principal objective is to provide attractive, risk-adjusted returns through reliable dividends and long-term capital appreciation[159] - Strategies include acquiring MOBs, specialty hospitals, IRFs, and ASCs in secondary markets, focusing on practice types for an aging population, and leasing under long-term, triple-net leases with contractual escalations[159] - The Company also targets opportunistic acquisitions, including acute-care hospitals and LTACs, and health system corporate offices to build relationships[159] Executive Summary Key Financial and Operational Metrics (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Rental revenue | $22,036 | $16,835 | $43,569 | $31,976 | | Depreciation and amortization expense | $8,941 | $5,863 | $16,698 | $10,732 | | Interest expense | $4,375 | $4,132 | $8,752 | $8,157 | | Net income attributable to common stockholders per share | $0.00 | $0.03 | $0.03 | $0.05 | | FFO per share and unit | $0.19 | $0.18 | $0.38 | $0.35 | | AFFO per share and unit | $0.21 | $0.18 | $0.41 | $0.35 | | Dividends per share of common stock | $0.20 | $0.20 | $0.40 | $0.40 | | Total investment in real estate, gross (as of period end) | $996,876 (June 30, 2020) | N/A | $996,876 (June 30, 2020) | $905,529 (Dec 31, 2019) | | Total debt, net (as of period end) | $466,460 (June 30, 2020) | N/A | $466,460 (June 30, 2020) | $386,168 (Dec 31, 2019) | | Weighted average interest rate (as of period end) | 3.46% (June 30, 2020) | N/A | 3.46% (June 30, 2020) | 3.90% (Dec 31, 2019) | | Net rentable square feet (as of period end) | 3,222,300 (June 30, 2020) | N/A | 3,222,300 (June 30, 2020) | 2,780,851 (Dec 31, 2019) | Our Properties - As of June 30, 2020, the portfolio included 73 facilities with approximately 3.2 million rentable square feet and $77.4 million in annualized base rent[164] Capital Raising Activity - During the six months ended June 30, 2020, the Company raised $14.2 million gross proceeds from ATM equity issuances of 1.2 million common shares at an average price of $11.44 per share[165] Debt Activity - Net borrowings under the Credit Facility for the six months ended June 30, 2020, totaled $67.8 million, with an outstanding balance of $415.9 million[166] - The Company assumed a $12.1 million CMBS loan with a 4.68% interest rate and a four-year term in connection with the Dumfries facility acquisition[166] Recent Developments Management Internalization Transaction - On July 9, 2020, the Company completed the internalization of its Advisor's functions by acquiring Inter-American Group Holdings Inc. (IAGH) for an aggregate purchase price of $18.1 million, subject to working capital adjustments[168] - The transaction was approved by a Special Committee of independent directors and did not require stockholder approval[170] Employment Agreements and Severance Plan - On July 9, 2020, the Company entered into employment agreements with key executives (Mr. Jeffrey Busch, Mr. Robert Kiernan, Mr. Alfonzo Leon) and established a severance plan for other employees[172] Closing of Credit Facility Accordion and Related Hedge Transaction - On July 24, 2020, the Company increased its Credit Facility borrowing capacity to $600 million (from $500 million) through a $100 million accordion feature[173] - On July 27, 2020, the Company entered into a $50 million interest rate swap with a fixed rate of 0.158% and a maturity date of August 8, 2023[174] Completed Acquisitions Completed Acquisitions Since June 30, 2020 | Property | City | Rentable Square Feet (RSF) | Purchase Price (in thousands) | Annualized Base Rent (in thousands) | Capitalization Rate | | :--------------------------------------- | :----------- | :------------------------- | :---------------------------- | :---------------------------------- | :------------------ | | MercyOne Hospital | Centerville, IA | 15,748 | $5,000 | $351 | 7.0% | | Spectrum (Team Health) | Fairfax, VA | 73,653 | $17,625 | $1,234 | 7.0% | | Franklin Square Center | Rosedale, MD | 96,564 | $22,500 | $1,568 | 7.0% | | Totals/Weighted Average | | 185,965 | $45,125 | $3,153 | 7.0% | Properties Under Contract - The Company has two properties under contract for an aggregate purchase price of approximately $15 million, currently in the due diligence phase[178] Trends Which May Influence Our Results of Operations - Negative trends include decreased tenant patient volumes and revenues due to COVID-19, fewer acquisition opportunities, and increased patient credit risks from high unemployment and loss of health insurance[179][180] - Positive trends prior to COVID-19 included growing healthcare expenditures, an aging population, a shift towards outpatient care, and physician practice group/hospital consolidation, though their future impact is uncertain post-pandemic[182] Qualification as a REIT - The Company elected to be taxed as a REIT for U.S. federal income tax purposes starting December 31, 2016, aiming to avoid corporate income taxes on distributed income[183] - Maintaining REIT qualification requires a substantial percentage of assets to be real estate and income to be from rental revenue or mortgage interest[183] Critical Accounting Policy - The preparation of financial statements requires significant judgment, estimates, and assumptions, which are re-evaluated periodically[184] Consolidated Results of Operations Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 Consolidated Results of Operations (Three Months Ended June 30, in thousands) | Metric | 2020 | 2019 | $ Change | | :--------------------------------------- | :----- | :----- | :------- | | Total revenue | $22,055 | $16,880 | $5,175 | | Total expenses | $20,383 | $14,418 | $5,965 | | Net income | $1,672 | $2,462 | $(790) | - Total revenue increased by $5.2 million, primarily due to rental revenue from new acquisitions and expense recoveries, partially offset by $1.0 million in rent reserves[188] - Total expenses increased by $6.0 million, driven by higher operating expenses, management fees, depreciation, amortization, and $0.9 million in management internalization expense[190][191][192][193][194][196] - Net income decreased by $0.8 million, as increased revenue was offset by higher expenses, rent reserves, and internalization costs[197] Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 Consolidated Results of Operations (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | $ Change | | :--------------------------------------- | :----- | :----- | :------- | | Total revenue | $43,704 | $32,080 | $11,624 | | Total expenses | $39,215 | $27,575 | $11,640 | | Net income | $4,489 | $4,505 | $(16) | - Total revenue increased by $11.6 million, primarily from new acquisitions and expense recoveries, partially offset by $1.0 million in rent reserves[199] - Total expenses increased by $11.6 million, driven by higher operating expenses, management fees, depreciation, amortization, and $1.4 million in management internalization expense[201][202][203][204][205][207] - Net income remained flat at $4.5 million, as increased rental revenue was offset by the rise in expenses, rent reserves, and internalization costs[208] Assets and Liabilities - Investments in real estate, net, increased to $922.9 million at June 30, 2020, from $849.0 million at December 31, 2019, due to five acquisitions[209][210] - Cash and cash equivalents and restricted cash increased to $13.3 million at June 30, 2020, from $7.2 million at December 31, 2019, due to less real estate investment, higher net Credit Facility borrowings, and increased operating cash flow[209][211] - Total liabilities increased to $523.9 million at June 30, 2020, from $424.6 million at December 31, 2019, primarily due to higher net Credit Facility borrowings, an increase in derivative liability, and the assumption of a CMBS loan[209][212] Liquidity and Capital Resources - Short-term liquidity requirements include interest and principal payments, general and administrative expenses, operating expenses, and property acquisitions/tenant improvements[213] - As of July 31, 2020, the Credit Facility had a $250 million revolver, a $350 million term loan, and a $50 million accordion, with $128 million in cash and available capacity[214] - The Company expects to satisfy short-term liquidity needs through existing cash and operating cash flow, assuming expected rent deferrals[215] - The Company was in compliance with all Credit Facility financial covenants as of June 30, 2020, and does not expect current rent deferrals to materially impact compliance[216][217] - Long-term liquidity needs are expected to be met through cash flow from operations, debt financing, equity issuances, property dispositions, and joint venture transactions[221] Cash Flow Information - Net cash provided by operating activities increased to $23.9 million for H1 2020 (from $16.7 million in H1 2019), driven by higher depreciation, amortization, and stock-based compensation[222] - Net cash used in investing activities decreased to $76.0 million for H1 2020 (from $117.5 million in H1 2019) due to less real estate investment activity[223] - Net cash provided by financing activities decreased to $58.2 million for H1 2020 (from $101.8 million in H1 2019) due to lower equity offering proceeds and higher dividends paid, partially offset by increased Credit Facility borrowings[224] Common Stock Dividends Common Stock Dividend Activity (Six Months Ended June 30, in thousands, except per share amounts) | Date Announced | Applicable Quarter | Dividend Amount | Dividends per Share | | :--------------------------------------- | :----------------- | :-------------- | :------------------ | | December 13, 2019 | Q4 2019 | $9,541 | $0.20 | | March 4, 2020 | Q1 2020 | $9,610 | $0.20 | | June 12, 2020 | Q2 2020 | $9,861 | $0.20 | - Total dividends paid on common stock, LTIP Units, and OP Units for the six months ended June 30, 2020, were $19.7 million, an increase from $13.5 million in the prior year[226] Preferred Stock Dividends - Preferred stock dividends of $2.9 million were paid during each of the six-month periods ended June 30, 2020 and 2019[229] Non-GAAP Financial Measures - FFO and AFFO are non-GAAP measures used to evaluate operating performance, with FFO reflecting operations impact from occupancy, rental rates, and costs, and AFFO adjusting FFO for certain cash and non-cash items[230][231][232] FFO and AFFO Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $1,672 | $2,462 | $4,489 | $4,505 | | FFO | $9,158 | $6,870 | $18,276 | $12,326 | | AFFO | $10,339 | $6,836 | $19,936 | $12,224 | | FFO per share and unit | $0.19 | $0.18 | $0.38 | $0.35 | | AFFO per share and unit | $0.21 | $0.18 | $0.41 | $0.35 | | Weighted Average Shares and Units Outstanding | 48,515 | 38,487 | 48,169 | 34,853 | Off-Balance Sheet Arrangements - The Company has no material off-balance sheet arrangements that would significantly affect its financial condition or results of operations[235] Inflation - Inflation has had minimal impact on operating performance, with triple-net lease provisions (escalation clauses, tenant payment of operating expenses) designed to mitigate adverse effects[236] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the Company's market risk exposure, primarily interest rate risk, and its management strategies, including derivative use - The primary market risk exposure is interest rate risk, stemming from variable-rate debt used for acquisitions[237][238] - As of June 30, 2020, $119.2 million of unhedged borrowings under the Revolver were outstanding at a variable rate; a 100 basis point increase in LIBOR would decrease annual cash flow by approximately $1.2 million[239] - The Company uses five interest rate swaps to hedge the LIBOR component of its $300 million Term Loan, fixing the weighted average LIBOR component at 2.17%[240] Item 4. Controls and Procedures Details the Company's disclosure controls and procedures, confirming effectiveness and no material changes to internal control - The principal executive and financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[242] - No changes were made to internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[244] PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any material legal proceedings or threatened litigation that would adversely affect its financials - The Company is not presently subject to any material litigation, nor is any material litigation threatened against it[246] Item 1A. Risk Factors Outlines significant risks, focusing on the ongoing and potential adverse impacts of the COVID-19 pandemic on operations, capital, and dividends Risks Related to Our Business - The Company's and its tenants' businesses have been and may continue to be materially and adversely affected by the ongoing COVID-19 pandemic[247] Effect of the COVID-19 Pandemic on Our Operations - COVID-19 measures, such as remote work and potential labor shortages, have caused and may continue to cause disruptions to normal operations and service provider availability[248] - Remote work arrangements may increase cybersecurity risks, including incidents, data breaches, or cyber-attacks[248] Effect of COVID-19 Pandemic on Our and Our Tenants' Businesses - Bans on elective medical procedures, or their reinstitution, could materially adversely affect tenants' ability to pay rent, leading to increased deferrals or defaults[249] - High U.S. unemployment rates and loss of employer-based health insurance may cause patients to delay medical procedures, negatively impacting tenants' businesses and the Company's rent collection[250] Effect of the COVID-19 Pandemic on Our Access to Capital - The COVID-19 pandemic has caused substantial volatility in debt and equity markets, potentially leading to diminished real estate values and an inability to access capital markets on reasonable terms[251] Effect of the COVID-19 Pandemic on our Acquisition Pipeline - The COVID-19 pandemic has significantly decreased the Company's investment pipeline, potentially hindering its acquisition goals for 2020 and beyond[252] The declaration, amount and payment of future cash dividends are subject to uncertainty due to current market conditions. - Future dividend declarations are at the Board's discretion and depend on earnings, financial condition, REIT requirements, and other factors, with economic impacts from COVID-19 potentially affecting the ability to pay dividends[253] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds States there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds to report[255] Item 3. Defaults Upon Senior Securities Indicates no defaults upon senior securities to report - No defaults upon senior securities to report[256] Item 4. Mine Safety Disclosures States mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[257] Item 5. Other Information Indicates no other information to report - No other information to report[258] Item 6. Exhibits Lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents and XBRL data - The exhibits include Articles of Restatement, Amended and Restated Bylaws, Specimen Common Stock and Preferred Stock Certificates, Third Amendment to Agreement of Limited Partnership, and various certifications (31.1, 31.2, 32.1)[260] - XBRL (eXtensible Business Reporting Language) files are included for instance document, taxonomy schema, calculation, definition, label, and presentation linkbases[260] Signatures Contains the signatures of the Company's CEO and CFO, certifying the report's submission - The report is signed by Jeffrey M. Busch, Chief Executive Officer, and Robert J. Kiernan, Chief Financial Officer, on August 7, 2020[264]