Global Medical REIT(GMRE) - 2020 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Global Medical REIT Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Global Medical REIT Inc., including balance sheets, statements of operations, comprehensive (loss) income, equity, and cash flows, along with detailed notes explaining significant accounting policies, property acquisitions, debt instruments, equity activities, related party transactions, stock-based compensation, leases, and commitments Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time - Total assets increased by $140.6 million, primarily driven by an increase in investment in real estate, net, from $849.0 million to $977.5 million[9] - Total liabilities increased by $151.8 million, largely due to higher Credit Facility and Notes Payable balances, and an increase in derivative liability[9] Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------------- | :------------------- | | Total Assets | $1,025,551 | $884,934 | | Total Liabilities | $576,344 | $424,581 | | Total Equity | $449,207 | $460,353 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, showing revenues, expenses, and net income or loss - For the three months ended September 30, 2020, the company reported a net loss of $9.58 million, a significant decrease from a net income of $2.31 million in the same period of 2019, primarily due to a $12.58 million management internalization expense[11] - For the nine months ended September 30, 2020, total revenue increased by $18.53 million (36.8%) year-over-year, driven by rental revenue from new acquisitions[11] Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $25,097 | $18,195 | $68,801 | $50,275 | | Total Expenses | $34,677 | $15,887 | $73,892 | $43,462 | | Net (Loss) Income | $(9,580) | $2,308 | $(5,091) | $6,813 | | Net (Loss) Income Attributable to Common Stockholders | $(10,268) | $770 | $(8,810) | $2,201 | | Net (Loss) Income Attributable to Common Stockholders Per Share | $(0.22) | $0.02 | $(0.19) | $0.07 | Condensed Consolidated Statements of Comprehensive (Loss) Income This section presents the total comprehensive income or loss, including net income and other comprehensive income items not recognized in net income - The company reported a comprehensive loss of $7.58 million for the three months ended September 30, 2020, compared to a comprehensive income of $1.01 million in the prior year, primarily due to the net loss and changes in the fair value of interest rate swap agreements[13] - For the nine months ended September 30, 2020, total other comprehensive loss significantly increased to $12.98 million from $6.88 million in 2019, mainly due to a decrease in the fair value of interest rate swap agreements[13] Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (Loss) Income | $(9,580) | $2,308 | $(5,091) | $6,813 | | Total Other Comprehensive Income (Loss) | $2,003 | $(1,303) | $(12,977) | $(6,875) | | Comprehensive (Loss) Income | $(7,577) | $1,005 | $(18,068) | $(62) | | Comprehensive Loss Attributable to Common Stockholders | $(8,404) | $(406) | $(20,879) | $(3,986) | Condensed Consolidated Statements of Equity This section details changes in the company's equity over time, reflecting contributions, distributions, and comprehensive income - Total equity decreased from $460.35 million at December 31, 2019, to $449.21 million at September 30, 2020, primarily due to net losses and accumulated other comprehensive loss, partially offset by additional paid-in capital from common stock issuances[16] - Additional paid-in capital increased by $53.78 million during the nine months ended September 30, 2020, largely from the issuance of common stock[16] Changes in Total Equity (in thousands) | Metric | December 31, 2019 | September 30, 2020 | | :----------------------------------- | :------------------ | :------------------- | | Total Global Medical REIT Inc. Stockholders' Equity | $430,270 | $434,527 | | Noncontrolling Interest | $30,083 | $14,680 | | Total Equity | $460,353 | $449,207 | Condensed Consolidated Statements of Cash Flows This section categorizes cash inflows and outflows from operating, investing, and financing activities over specific periods - Net cash provided by operating activities decreased by $8.29 million year-over-year, primarily due to the net loss incurred in 2020[21] - Net cash used in investing activities decreased by $41.06 million, mainly due to less real estate investment activity in 2020 compared to 2019, partially offset by cash paid for the Internalization[21] Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $18,389 | $26,681 | | Net Cash Used in Investing Activities | $(141,612) | $(182,674) | | Net Cash Provided by Financing Activities | $123,300 | $156,976 | | Net Increase in Cash and Cash Equivalents and Restricted Cash | $77 | $983 | | Cash and Cash Equivalents and Restricted Cash – End of Period | $7,262 | $5,826 | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1 – Organization This note describes Global Medical REIT Inc.'s business, its corporate structure, and the recent internalization of management - Global Medical REIT Inc. is a Maryland corporation focused on acquiring and leasing purpose-built healthcare facilities[22] - On July 9, 2020, the Company completed the 'Internalization' by acquiring Inter-American Group Holdings Inc. (parent of its Former Advisor) for $17.75 million, making it an internally managed company and eliminating future management fees[23][25] - As of September 30, 2020, the Company held a 93.05% limited partner interest in its Operating Partnership[22] Note 2 – Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and asset acquisitions - The financial statements are unaudited, prepared in accordance with GAAP and SEC regulations, and include the accounts of the Company and its consolidated subsidiaries[26] - All facility acquisitions for the nine months ended September 30, 2020 and 2019, were accounted for as asset acquisitions, with transaction costs capitalized[31] - Revenue from operating leases with fixed annual rental escalators is recognized on a straight-line basis, and tenant reimbursements are recognized on a gross basis[33] - The Internalization resulted in a $12.09 million 'Management Internalization Expense' for settling a preexisting contractual relationship and $5.90 million in 'Goodwill'[46] - The Company elected to apply hedge accounting expedients related to probability and effectiveness assessments for future LIBOR-indexed cash flows, assuming the index matches corresponding derivatives, to preserve derivative presentation[55] Pro Forma Financials (in thousands) | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Pro forma total revenue | $68,801 | $50,275 | | Pro forma net income attributable to common stockholders | $4,469 | $3,080 | Note 3 – Property Portfolio This note details the company's real estate investments, including acquisitions, depreciation, and lease intangible assets - During the nine months ended September 30, 2020, the Company completed 10 asset acquisitions, increasing its gross investment in real estate by $155.85 million[56][57] - Depreciation expense increased to $19.38 million for the nine months ended September 30, 2020, from $13.48 million in the prior year, reflecting the expanded property portfolio[58] - As of September 30, 2020, the Company had capital improvement commitments of approximately $20.16 million, with $9.23 million expected in the next twelve months[59] Gross Investment in Real Estate Rollforward (in thousands) | Asset Category | December 31, 2019 | September 30, 2020 | | :--------------------------- | :------------------ | :------------------- | | Land | $95,381 | $116,123 | | Building | $693,533 | $793,559 | | Site Improvements | $9,912 | $13,268 | | Tenant Improvements | $33,909 | $46,965 | | Acquired Lease Intangible Assets | $72,794 | $91,465 | | Total Gross Investment in Real Estate | $905,529 | $1,061,380 | Acquired Lease Intangible Amortization (in thousands) | Amortization Type | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | In-place leases | $1,800 | $1,033 | $4,796 | $2,562 | | Leasing costs | $744 | $467 | $2,017 | $1,195 | | Decrease in rental revenue (above market) | $421 | $343 | $1,199 | $895 | | Increase in rental revenue (below market) | $352 | $114 | $727 | $261 | Note 4 – Credit Facility, Notes Payable and Derivative Instruments This note describes the company's debt structure, credit facility terms, and the use of derivative instruments to manage interest rate risk - The Company's Credit Facility is a $600 million syndicated facility, consisting of a $350 million Term Loan and a $250 million Revolver, with a $50 million accordion feature[95] - The Company was in compliance with all financial and non-financial covenants of the Credit Facility as of September 30, 2020[97] - The Company has six interest rate swap agreements with a total notional amount of $350 million, fixing the LIBOR component of its variable-rate debt at a weighted average of 1.91%[116] - The fair value of interest rate swaps was a net liability of $19.51 million as of September 30, 2020, compared to $6.49 million at December 31, 2019[118] - The weighted average interest rate of the Company's debt decreased to 3.34% at September 30, 2020, from 3.90% at December 31, 2019[120] Outstanding Borrowings Under Credit Facility (in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :--------------------------- | :------------------- | :------------------- | | Revolver | $108,200 | $51,350 | | Term Loan | $350,000 | $300,000 | | Credit Facility, net | $454,325 | $347,518 | Note 5 – Equity This note provides information on the company's equity structure, including preferred and common stock, ATM issuances, and dividend activities - As of September 30, 2020, there were 3,105 shares of Series A Preferred Stock outstanding, with a liquidation preference of $25 per share and a cumulative annual dividend rate of 7.50%[122][124] - The Company had 48,188 shares of common stock outstanding as of September 30, 2020, up from 43,806 shares at December 31, 2019[125] - During the nine months ended September 30, 2020, the Company generated gross proceeds of $39.22 million from ATM equity issuances of 3,170 shares of common stock at an average price of $12.37 per share[126] - Total dividends paid on common stock, LTIP Units, and OP Units aggregated $29.59 million for the nine months ended September 30, 2020, compared to $21.17 million in the prior year[128] Common Stock Dividend Activity (in thousands, except per share amounts) | Quarter | Payment Date | Amount | Per Share | | :-------- | :----------- | :----- | :-------- | | Q4 2019 | Jan 9, 2020 | $9,541 | $0.20 | | Q1 2020 | Apr 9, 2020 | $9,610 | $0.20 | | Q2 2020 | Jul 9, 2020 | $9,861 | $0.20 | | Q3 2020 | Oct 8, 2020 | $10,357 | $0.20 | Note 6 – Related Party Transactions This note details transactions with related parties, particularly the impact of the management internalization on fees - Following the Internalization on July 9, 2020, the Company incurred no management fee expense for the three months ended September 30, 2020[134] - Management fees for the nine months ended September 30, 2020, totaled $4.02 million, down from $4.54 million in the prior year, reflecting the cessation of fees post-Internalization[134] - As of September 30, 2020, there were no accrued management fees due to the Former Advisor[134] Note 7 – Stock-Based Compensation This note explains the company's equity incentive plan, types of awards, and the associated compensation expense - The 2016 Equity Incentive Plan allows for various equity-based awards, including LTIP Units, to recruit and retain employees and directors[136][137] - During the nine months ended September 30, 2020, 190 LTIP Units were earned from 2017 awards, 147 LTIP Units from 2019 annual awards, 43 LTIP Units were granted under the 2020 Long-Term Incentive Plan, and 510 LTIP Units were granted in connection with the Internalization[138][146] - As of September 30, 2020, 1,639 LTIP Units were outstanding, with 811 vested and 828 unvested[141] - Stock-based compensation expense for the nine months ended September 30, 2020, was $3.39 million, an increase from $2.49 million in the prior year, and is included in 'General and Administrative' expense[156] - Total unamortized compensation expense of approximately $8.6 million is expected to be recognized over a weighted average remaining period of 2.2 years[157] Note 8 – Leases This note outlines the company's role as a lessor and lessee, detailing operating lease terms, rental revenue, and ground lease expenses - As a lessor, the Company's leases are classified as operating leases with a portfolio-average remaining term of approximately 10 years, and fixed contractual payments are recognized on a straight-line basis[159] - Rental revenue from operating lease payments was $68.62 million for the nine months ended September 30, 2020, including $3.74 million from variable lease payments related to expense recoveries[163] - As a lessee, the Company has seven buildings on operating ground leases with a weighted average remaining term of approximately 41 years, recognizing $122 thousand in ground lease expense for the nine months ended September 30, 2020[164] Aggregate Annual Cash from Noncancelable Operating Leases (in thousands) | Year | Amount | | :--------- | :------- | | 2020 (3 months remaining) | $20,914 | | 2021 | $81,984 | | 2022 | $80,676 | | 2023 | $77,908 | | 2024 | $70,735 | | Thereafter | $379,099 | | Total | $711,316 | Note 9 – Rent Concentration This note identifies the company's largest tenants and facilities by rental revenue, highlighting concentration risks - Encompass, Belpre, and OCOM consistently represent the largest concentrations of rental revenue for the Company[166] Rental Revenue Concentration by Facility | Facility | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Encompass | 7% | 10% | 8% | 10% | | Belpre | 6% | 8% | 6% | 8% | | OCOM | 5% | 7% | 5% | 6% | | Sherman | 3% | 5% | 4% | 5% | | Austin | 3% | 5% | 4% | 5% | | Aggregate of all other facilities | 76% | 65% | 73% | 66% | | Total | 100% | 100% | 100% | 100% | Note 10 – Commitments and Contingencies This note discloses any material commitments or potential liabilities, such as litigation or environmental matters - The Company is not currently subject to any material litigation or environmental liabilities that would significantly impact its financial position, results of operations, or cash flows[167][168] Note 11 – Subsequent Events This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - Subsequent events were evaluated through November 6, 2020, the date the financial statements were issued[169] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, highlighting the impact of the Internalization and the COVID-19 pandemic. It details revenue and expense variances, liquidity, capital resources, and key financial metrics like FFO and AFFO, while also discussing business objectives, investment strategy, and market trends Special Note Regarding Forward-Looking Statements This note cautions readers about forward-looking statements, outlining inherent risks and uncertainties, particularly those related to the COVID-19 pandemic - The report contains forward-looking statements regarding trends, liquidity, capital resources, and the healthcare industry, which involve numerous risks and uncertainties[172][173] - Key risk factors include the highly uncertain effects of the COVID-19 pandemic, tenant defaults, ability to collect rent, compliance with debt covenants, and fluctuations in interest rates[173] - The Company disclaims any obligation to update or revise forward-looking statements, except as required by law[176] Overview This section provides a high-level introduction to Global Medical REIT Inc.'s business model, its recent internalization, and its operating structure - Global Medical REIT Inc. specializes in acquiring and leasing purpose-built healthcare facilities to strong healthcare systems and physician groups[177] - The Company completed its Internalization on July 9, 2020, by acquiring its Former Advisor for $18.1 million, transitioning to an internally managed structure and eliminating management fees[178][180] - The Company operates as an UPREIT, with properties owned by its operating partnership, and held a 93.05% interest in the Operating Partnership as of September 30, 2020[181][183] Impact of COVID-19 and Business Outlook This section assesses the effects of the COVID-19 pandemic on the company's operations, liquidity, and future business prospects - The COVID-19 pandemic did not materially impact the Company's results of operations, liquidity, and capital resources as of and for the three and nine months ended September 30, 2020[184] - The Company provided $1.1 million in rent deferrals to tenants affected by COVID-19, of which $0.6 million had been collected as of September 30, 2020[185] - A resurgence of COVID-19 could lead to reinstituted bans on elective procedures, decreased patient volumes, and potential adverse effects on tenants' ability to pay rent, acquisition growth, and the Company's liquidity[186][187][188] Our Business Objectives and Investment Strategy This section outlines the company's strategic goals, including its investment focus on healthcare facilities and long-term lease structures - The Company's principal business objective is to provide attractive, risk-adjusted returns to stockholders through reliable dividends and long-term capital appreciation[189] - Key strategies include building a portfolio of medical office buildings (MOBs), specialty hospitals, in-patient rehabilitation facilities (IRFs), and ambulatory surgery centers (ASCs) in secondary markets, focusing on practice types for an aging population[189] - The Company leases facilities under long-term, triple-net leases with contractual annual rent escalations to medical providers with strong track records and seeks credit protections from tenants[189] Executive Summary This section provides a concise overview of key financial highlights, including revenue, expenses, and per-share metrics - Rental revenue increased significantly for both the three and nine months ended September 30, 2020, compared to 2019, driven by property acquisitions[189] - The Company reported a net loss attributable to common stockholders per share for both periods in 2020, primarily due to the one-time management internalization expense[189] Key Financial Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Rental revenue | $25,055 | $18,117 | $68,623 | $50,093 | | Depreciation and amortization expense | $9,517 | $6,506 | $26,215 | $17,238 | | Interest expense | $4,864 | $4,549 | $13,616 | $12,707 | | General and administrative expense | $4,027 | $1,681 | $7,509 | $4,928 | | Management internalization expense | $12,580 | $0 | $14,005 | $0 | | Net (loss) income attributable to common stockholders per share | $(0.22) | $0.02 | $(0.19) | $0.07 | | FFO per share and unit | $(0.03) | $0.19 | $0.34 | $0.54 | | AFFO per share and unit | $0.23 | $0.19 | $0.65 | $0.54 | | Dividends per share of common stock | $0.20 | $0.20 | $0.60 | $0.60 | | Total weighted average shares and units outstanding | 50,233 | 39,449 | 48,896 | 36,395 | Our Properties This section summarizes the company's real estate portfolio, including the number of facilities, square footage, and annualized base rent - As of September 30, 2020, the Company's portfolio comprised 78 facilities with a gross investment in real estate of $1,061.4 million[191] - The portfolio had an aggregate of approximately 3.5 million rentable square feet and $81.9 million of annualized base rent[191] Property Portfolio Summary (in thousands) | Metric | September 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------------- | :------------------- | | Total investment in real estate, gross | $1,061,380 | $905,529 | | Net rentable square feet | 3,465,312 | 2,780,851 | Capital Raising Activity This section details the company's equity issuance activities, including at-the-market offerings and gross proceeds raised - During the nine months ended September 30, 2020, the Company raised $39.2 million in gross proceeds through at-the-market (ATM) equity issuances[192] - This involved the issuance of 3.2 million shares of common stock at an average offering price of $12.37 per share[192] Debt Activity This section describes changes in the company's debt structure, including credit facility modifications and new loan agreements - The Company increased its Credit Facility borrowing capacity to $600 million with a $100 million accordion feature on July 24, 2020[193] - Net borrowings under the Credit Facility for the nine months ended September 30, 2020, totaled $106.8 million, with an outstanding balance of $454.3 million[194] - New loans included a $12.1 million CMBS loan assumed for the Dumfries Facility and a $14.8 million third-party loan for the Rosedale Facilities[195] Recent Developments This section reports on property acquisitions completed after the reporting period and properties currently under contract - The Company has eight properties under contract for an aggregate purchase price of approximately $72 million, currently in the due diligence phase[200] Completed Acquisitions Since September 30, 2020 (in thousands) | Property | City | Rentable Square Feet (RSF) | Purchase Price | Annualized Base Rent | Capitalization Rate | | :--------------- | :------------------------ | :------------------------- | :--------------- | :------------------- | :------------------ | | DaVita Portfolio | Decatur, GA / Jackson, TN | 36,092 | $10,775 | $755 | 7.0% | | Prevea Portfolio | Sheboygan / Plymouth, WI | 40,250 | $13,700 | $1,016 | 7.4% | | Totals/Weighted Average | | 76,342 | $24,475 | $1,771 | 7.2% | Trends Which May Influence Our Results of Operations This section discusses external factors and industry trends, such as the COVID-19 pandemic and healthcare policy changes, that could impact future financial performance - Negative trends include potential decreases in tenant patient volumes and revenues due to the COVID-19 pandemic, especially from reinstituted bans on elective procedures and high unemployment rates leading to loss of health insurance[201] - Changes in third-party reimbursement methods and policies, exacerbated by the pandemic, may negatively affect tenants' ability to pay rent[202] - Previously positive trends, such as growing healthcare expenditures, an aging population, a shift towards outpatient care, and physician practice group/hospital consolidation, face uncertainty due to the long-term effects of COVID-19[204][208] Qualification as a REIT This section explains the requirements for maintaining REIT status and the company's commitment to meeting these tax qualifications - The Company elected to be taxed as a REIT for U.S. federal income tax purposes starting with the taxable year ended December 31, 2016[205] - To qualify as a REIT, a substantial percentage of assets must be qualifying real estate assets and a substantial percentage of income must be rental revenue from real property or interest on mortgage loans[205] - The Company intends to continue operating in a manner that qualifies for REIT taxation, though no assurances can be provided[205] Critical Accounting Policy This section highlights accounting policies that require significant management judgment and estimates in financial statement preparation - The preparation of financial statements requires significant judgment, estimates, and assumptions in applying accounting policies, which are based on the best available information and experience[206] - Estimates are re-evaluated periodically, and adjustments are made in subsequent periods if actual results differ from initial assumptions[206] Consolidated Results of Operations This section provides a detailed analysis of the company's financial performance, comparing revenues and expenses across different periods Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 This section analyzes the financial performance for the three-month period, highlighting key revenue and expense variances year-over-year - Total revenue increased by $6.9 million to $25.1 million, primarily due to rental revenue from new acquisitions and higher expense recoveries[212] - General and administrative expenses rose by $2.3 million to $4.0 million, driven by Internalization-related compensation costs and increased non-cash LTIP compensation expense[213] - Operating expenses increased by $2.2 million to $3.6 million, mainly from higher reimbursable property operating expenses[214] - Management fee expense decreased to zero due to the Internalization, compared to $1.6 million in the prior year[215] - Depreciation and amortization expenses increased by $2.0 million and $1.1 million, respectively, due to the expanded property portfolio and acquired intangible assets[217][218] - Interest expense increased by $0.4 million to $4.9 million, reflecting higher average borrowings[219] - A one-time management internalization expense of $12.6 million was recognized, comprising $12.1 million for contract settlement and $0.5 million in professional fees[221] - Net loss for the quarter was $(9.6) million, a decrease of $11.9 million from net income in the prior year, primarily due to the internalization expense[223] Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 This section analyzes the financial performance for the nine-month period, detailing significant changes in revenues and expenses year-over-year - Total revenue increased by $18.5 million to $68.8 million, driven by rental revenue from new acquisitions and higher expense recoveries, partially offset by $1.1 million in rent reserves[225] - General and administrative expenses increased by $2.6 million to $7.5 million, due to Internalization-related compensation and higher non-cash LTIP compensation[226] - Operating expenses rose by $4.5 million to $8.3 million, mainly from increased reimbursable property operating expenses[227][229] - Management fee expense decreased by $0.5 million to $4.0 million, as fees were only incurred for the first six months of 2020 due to the Internalization[230] - Depreciation and amortization expenses increased by $5.9 million and $3.0 million, respectively, reflecting the expanded property portfolio and acquired intangible assets[231][232] - Interest expense increased by $0.9 million to $13.6 million, due to higher average borrowings[233] - Management internalization expense totaled $14.0 million, including $12.1 million for contract settlement and $1.9 million in professional fees[235] - Net loss for the nine months was $(5.1) million, a decrease of $11.9 million from net income in the prior year, primarily due to the internalization expense[236] Assets and Liabilities This section discusses changes in the company's balance sheet items, including real estate investments, cash, and total liabilities - Investments in real estate, net, increased to $977.5 million as of September 30, 2020, from $849.0 million at December 31, 2019, due to 10 property acquisitions[237][238] - Cash and cash equivalents and restricted cash remained stable at $7.3 million as of September 30, 2020, compared to $7.2 million at December 31, 2019, influenced by financing activities and property acquisitions[237][240] - Total liabilities increased to $576.3 million as of September 30, 2020, from $424.6 million at December 31, 2019, primarily due to higher net borrowings, increased derivative liability, and acquired lease intangible liability[241] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and fund future growth - Short-term liquidity requirements include interest and principal payments, general and administrative expenses, operating expenses, and property acquisitions/tenant improvements[242][248] - As of October 31, 2020, the Company had approximately $112 million in cash balances and available capacity under its Credit Facility[243] - The Company expects to meet short-term liquidity needs through existing cash and cash flow from operations, assuming current levels of COVID-19-related rent deferrals[244] - Compliance with Credit Facility covenants is maintained, but increased rent deferrals or tenant defaults could adversely affect this ability[245] - Long-term liquidity needs for acquisitions, capital improvements, and debt maturities are expected to be met through cash flow, debt financing, equity issuances, property dispositions, and joint ventures[250] Cash Flow Information This section provides an overview of cash generated and used across operating, investing, and financing activities - Net cash provided by operating activities decreased to $18.4 million for the nine months ended September 30, 2020, from $26.7 million in 2019, primarily due to the net loss[251] - Net cash used in investing activities decreased to $141.6 million from $182.7 million, reflecting less real estate investment but partially offset by the Internalization cash payment[252] - Net cash provided by financing activities decreased to $123.3 million from $157.0 million, due to lower equity offering proceeds and higher common stock dividends, partially offset by increased net borrowings[253] Common Stock Dividends This section details the company's common stock dividend payments and the factors influencing future dividend declarations - Total dividends paid on common stock, LTIP Units, and OP Units for the nine months ended September 30, 2020, amounted to $29.6 million, an increase from $21.2 million in 2019[255] - Dividend declarations are at the Board's discretion, dependent on earnings, financial condition, and REIT distribution requirements, and must not impair debt payment ability, asset-liability ratios, or REIT qualification[256] Common Stock Dividend Activity (in thousands, except per share amounts) | Quarter | Payment Date | Amount | Per Share | | :-------- | :----------- | :----- | :-------- | | Q4 2019 | Jan 9, 2020 | $9,541 | $0.20 | | Q1 2020 | Apr 9, 2020 | $9,610 | $0.20 | | Q2 2020 | Jul 9, 2020 | $9,861 | $0.20 | | Q3 2020 | Oct 8, 2020 | $10,357 | $0.20 | Preferred Stock Dividends This section outlines the cumulative dividend entitlements for Series A Preferred Stock and the amounts paid - Holders of Series A Preferred Stock are entitled to cumulative quarterly cash dividends at a fixed annual rate of 7.50% ($1.875 per share)[257] - The Company paid $4.4 million in preferred dividends for both the nine-month periods ended September 30, 2020 and 2019[258] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like FFO and AFFO, used to evaluate operating performance - FFO and AFFO are non-GAAP financial measures used to evaluate the Company's operating performance, providing insights not immediately apparent from GAAP net income or loss[259][260][261] - AFFO significantly increased to $31.59 million for the nine months ended September 30, 2020, from $19.72 million in 2019, after adjusting for management internalization costs and other items[264] FFO and AFFO Reconciliation (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(9,580) | $2,308 | $(5,091) | $6,813 | | FFO | $(1,518) | $7,359 | $16,758 | $19,685 | | AFFO | $11,649 | $7,498 | $31,587 | $19,721 | | FFO per share and unit | $(0.03) | $0.19 | $0.34 | $0.54 | | AFFO per share and unit | $0.23 | $0.19 | $0.65 | $0.54 | Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements that could impact the company's financial position - The Company has no material off-balance sheet arrangements that would significantly affect its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[265] Inflation This section discusses the historical impact of inflation on the company's operations and mitigating lease provisions - Inflation has historically had minimal impact on operating performance, with many triple-net lease agreements containing provisions to mitigate adverse effects[266] - Lease provisions include escalation clauses for fixed rent increases or indexed escalations (e.g., CPI), and most require tenants to pay an allocable share of operating expenses, reducing exposure to cost increases[266] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily interest rate risk, and its strategies for mitigation. It includes a sensitivity analysis for variable-rate debt and details on interest rate swap agreements - The primary market risk exposure is interest rate risk, particularly from variable-rate debt under the Credit Facility[268][269] - As of September 30, 2020, with $108.2 million of unhedged variable-rate borrowings, a 100 basis point increase in LIBOR would decrease annual cash flow by approximately $1.1 million, and a 100 basis point decrease would increase it by $1.1 million[270] - The Company uses six interest rate swaps to hedge the LIBOR component of its $350 million Term Loan, fixing it at a weighted average of 1.91%, and does not engage in speculative derivative transactions[271] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2020, and states that no material changes occurred in internal control over financial reporting during the quarter - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2020[273] - No material changes were made to internal control over financial reporting during the most recently completed fiscal quarter[275] - Control systems provide reasonable, not absolute, assurance against error and fraud due to inherent limitations and resource constraints[274] PART II OTHER INFORMATION This section provides additional legal, risk, equity, and control information not covered in the financial statements Item 1. Legal Proceedings This section states that the Company is not currently involved in any material legal proceedings or litigation that would adversely affect its financial condition or results of operations - The Company is not presently subject to any material litigation, nor is any material litigation threatened against it[277] - No governmental authority is contemplating any proceeding that would have a material adverse effect on the Company's financial condition or results of operations[277] Item 1A. Risk Factors This section details the significant risks facing the Company, primarily focusing on the ongoing and potential future impacts of the COVID-19 pandemic on its business, operations, tenants, access to capital, acquisition pipeline, and ability to pay dividends - The COVID-19 pandemic has materially and adversely affected, and may continue to affect, the Company's and its tenants' businesses due to reduced patient volumes, bans on elective procedures, and high unemployment rates[278][280][281] - Remote work arrangements due to COVID-19 may increase cybersecurity risks and disrupt normal operations[279] - A resurgence of COVID-19 could negatively impact the Company's access to capital by causing volatility in debt and equity markets and liquidity constraints on lenders[282] - The pandemic could alter the healthcare real estate market, potentially decreasing the investment pipeline and hindering acquisition goals[283] - The declaration, amount, and payment of future cash dividends are subject to uncertainty due to market conditions and the potential adverse effects of the COVID-19 pandemic[284] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[286] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities to report[287] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable to the Company[288] Item 5. Other Information This section indicates that there is no other information to report for the period - No other information to report[289] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various agreements, corporate documents, certifications, and XBRL taxonomy files - The exhibits include the Stock Purchase Agreement for the Internalization, Articles of Restatement, Bylaws, specimen stock certificates, employment agreements, and the Consent and Third Amendment to the Amended and Restated Credit Agreement[291] - Certifications from the Principal Executive Officer and Principal Financial and Accounting Officer, as well as XBRL taxonomy files, are also included[291][293] Signatures This section contains the signatures of the Company's Chief Executive Officer and Chief Financial Officer, certifying the report's submission - The report is signed by Jeffrey M. Busch, Chief Executive Officer, and Robert J. Kiernan, Chief Financial Officer, on November 6, 2020[297]