Global Medical REIT(GMRE) - 2019 Q2 - Quarterly Report

Part I: Financial Information Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Global Medical REIT Inc. as of June 30, 2019, and for the three and six-month periods then ended, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes explaining accounting policies and financial activities Condensed Consolidated Financial Statements The company's total assets increased to $750.7 million as of June 30, 2019, from $636.1 million at year-end 2018, primarily driven by growth in real estate investments; for Q2 2019, total revenue grew 27.4% year-over-year to $16.9 million, and net income attributable to common stockholders was $0.9 million, or $0.03 per share, compared to a loss of $64 thousand in Q2 2018; for the first six months, net cash from operations was $16.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Investment in real estate, net | $721,719 | $616,925 | | Total assets | $750,722 | $636,099 | | Credit facility, net | $315,691 | $276,353 | | Total liabilities | $389,119 | $336,349 | | Total equity | $361,603 | $299,750 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Rental revenue | $16,835 | $13,240 | $31,976 | $24,796 | | Total revenue | $16,880 | $13,249 | $32,080 | $24,814 | | Total expenses | $14,418 | $11,865 | $27,575 | $21,529 | | Net income | $2,462 | $1,384 | $4,505 | $3,285 | | Net income (loss) attributable to common stockholders | $904 | $(64) | $1,432 | $346 | | EPS - basic and diluted | $0.03 | $(0.00) | $0.05 | $0.02 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,664 | $14,923 | | Net cash used in investing activities | $(117,474) | $(125,571) | | Net cash provided by financing activities | $101,839 | $109,721 | Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's accounting policies, property portfolio changes, debt structure, equity transactions, and other key financial components, including the acquisition of six properties for $116.1 million, an increase in credit facility capacity to $425 million, and the issuance of common stock raising $79.7 million in net proceeds, alongside the adoption of the new lease accounting standard ASC Topic 842 on January 1, 2019 - The company completed six property acquisitions during the first six months of 2019, adding $116.1 million to its gross investment in real estate, accounted for as asset acquisitions[48][49] - On April 15, 2019, the company exercised a $75 million accordion feature on its credit facility, increasing the term loan component to $175 million and total borrowing capacity to $425 million[70] - The company adopted the new lease accounting standard, ASC Topic 842, on January 1, 2019, using the modified retrospective approach, resulting in the recognition of a right-of-use asset of $3.1 million and a lease liability of $2.4 million as of June 30, 2019[133][134][43] Property Acquisitions (Six Months Ended June 30, 2019, in thousands) | Facility | Date Acquired | Gross Investment | | :--- | :--- | :--- | | Zachary | 2/28/19 | $4,683 | | Gilbert and Chandler | 3/19/19 | $16,259 | | Las Vegas | 4/15/19 | $22,502 | | Oklahoma Northwest | 4/15/19 | $28,207 | | Mishawaka | 4/15/19 | $16,103 | | Surprise | 4/15/19 | $28,682 | | Total Additions | | $116,051 | Common Stock Dividend Activity (H1 2019) | Date Announced | Payment Date | Dividend per Share | | :--- | :--- | :--- | | Dec 13, 2018 | Jan 10, 2019 | $0.20 | | Mar 6, 2019 | Apr 10, 2019 | $0.20 | | Jun 14, 2019 | Jul 11, 2019 | $0.20 | Management's Discussion and Analysis (MD&A) Management attributes the significant growth in revenue and expenses primarily to the expansion of the property portfolio, with total revenue for Q2 2019 increasing by 27.4% year-over-year to $16.9 million; the company raised $85.0 million in equity and increased its debt to fund acquisitions, and post-quarter, closed on an additional $42.3 million in acquisitions with another $62.5 million under contract, maintaining liquidity through cash flow from operations, credit facility borrowings, and equity issuances - The primary driver for variances in results of operations compared to the prior year was the increase in the size of the property portfolio, with net investment in real estate growing from $580.0 million to $721.7 million year-over-year[174] - During the first six months of 2019, the company raised $85.0 million of equity through common stock and OP Unit issuances at an average price of $9.76 per share[164][167] - Since June 30, 2019, the company has closed on four acquisitions totaling $42.3 million and has an additional five properties under contract for a total of $62.5 million[164][166] Results of Operations For Q2 2019, total revenue increased by $3.6 million (27.4%) to $16.9 million compared to Q2 2018, driven by acquisitions, with net income rising to $2.5 million from $1.4 million; for the six-month period, revenue grew by $7.3 million (29.3%) to $32.1 million, and net income increased to $4.5 million from $3.3 million, with growth in revenues accompanied by corresponding increases in property operating expenses, depreciation, amortization, management fees, and interest expense due to the larger portfolio and associated financing Comparison of Operations - Three Months Ended June 30 (in thousands) | Account | 2019 | 2018 | $ Change | | :--- | :--- | :--- | :--- | | Total revenue | $16,880 | $13,249 | $3,631 | | Depreciation expense | $4,608 | $3,445 | $1,163 | | Interest expense | $4,132 | $3,942 | $190 | | Net income | $2,462 | $1,384 | $1,078 | Comparison of Operations - Six Months Ended June 30 (in thousands) | Account | 2019 | 2018 | $ Change | | :--- | :--- | :--- | :--- | | Total revenue | $32,080 | $24,814 | $7,266 | | Depreciation expense | $8,475 | $6,351 | $2,124 | | Interest expense | $8,157 | $6,627 | $1,530 | | Net income | $4,505 | $3,285 | $1,220 | Liquidity and Capital Resources The company's short-term liquidity needs are met through cash from operations and its credit facility, with $5.9 million in cash and restricted cash as of June 30, 2019; during H1 2019, the company raised $75.6 million from a public stock offering and $4.1 million from its ATM program, and the credit facility capacity was increased to $425 million, with $315.7 million outstanding at quarter-end, while long-term liquidity for acquisitions and other needs will be sourced from cash flow, debt, and equity issuances - Primary sources of cash include rent collection, borrowings under the Credit Facility, and proceeds from equity issuances[202] - In H1 2019, the company raised $75.6 million in net proceeds from an underwritten public offering and $4.1 million from its ATM program[203][204] - The credit facility was expanded to $425 million in April 2019, with $315.7 million outstanding as of June 30, 2019[205][207] Non-GAAP Financial Measures The company uses Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) as supplemental performance measures; for Q2 2019, FFO per share was $0.18, flat year-over-year, and AFFO per share was $0.18, down from $0.20 in Q2 2018; for the six-month period, both FFO and AFFO per share were $0.35, compared to $0.36 in the prior year period FFO and AFFO Reconciliation (in thousands, except per share) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $2,462 | $1,384 | $4,505 | $3,285 | | FFO | $6,870 | $4,300 | $12,326 | $8,416 | | AFFO | $6,836 | $4,716 | $12,224 | $8,502 | | FFO per share | $0.18 | $0.18 | $0.35 | $0.36 | | AFFO per share | $0.18 | $0.20 | $0.35 | $0.36 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its variable-rate debt under the Credit Facility, with $149.5 million of unhedged variable-rate debt as of June 30, 2019, which is mitigated by interest rate swaps to fix the LIBOR component on its $175 million Term Loan and an additional $70 million of its Revolver debt - The primary market risk is interest rate changes on variable-rate debt, with $149.5 million of unhedged variable-rate borrowings as of June 30, 2019[227][229] - A 100 basis point increase in LIBOR would decrease annual cash flow by approximately $1.5 million[229] - The company uses interest rate swaps to manage risk, having effectively fixed the LIBOR rate on its $175 million Term Loan and $70 million of its Revolver debt[230][208] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2019, with no material changes to the company's internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[232] - No material changes were made to the internal control over financial reporting during the most recently completed fiscal quarter[234] Part II: Other Information Legal Proceedings The company is not currently subject to any material litigation, nor is it aware of any threatened litigation that would have a material adverse effect on its financial position or results of operations - The company is not presently subject to any material litigation[236] Risk Factors The company highlights significant geographic concentration and tenant concentration as key risks, with a substantial portion of its annualized base rent derived from properties in a few states, notably Texas (20%), and the top four tenants accounting for approximately 35% of the portfolio's annualized base rent, making the company vulnerable to the financial health of these specific tenants - The company has significant geographic concentration, with approximately 67% of its annualized base rent derived from properties in Texas, Ohio, Pennsylvania, Oklahoma, Arizona, and Florida[238] - There is significant tenant concentration, with the top four tenants (Encompass, Memorial Health, Kindred Health, and OCOM) representing approximately 35% of the portfolio-wide annualized base rent[239]