Global Medical REIT(GMRE) - 2021 Q4 - Annual Report

PART I Special Note Regarding Forward-Looking Statements This section cautions readers about forward-looking statements, which are predictions of future events, and highlights risks that could cause material differences in actual results - Forward-looking statements are identified by words like "believe," "expect," "may," "will," "should," "seek," "approximately," "intend," "plan," "estimate," or "anticipate" and involve numerous risks and uncertainties, and should not be considered predictions of future events[13][14] - Key risk factors include tenant defaults or non-renewals, rising interest rates, acquisition difficulties, the impact of the COVID-19 pandemic, ability to meet debt covenants, declining rental rates, adverse economic conditions, and the ability to maintain REIT qualification[15][18] ITEM 1. BUSINESS Global Medical REIT Inc acquires and leases purpose-built healthcare facilities to medical systems and physician groups, operating as a REIT through an UPREIT structure - Global Medical REIT Inc (GMRE) is a Maryland corporation focused on acquiring and leasing purpose-built healthcare facilities to medical systems and physician groups[20] - The company operates as a REIT through an UPREIT structure, with its operating partnership, Global Medical REIT L.P., owning the properties; as of December 31, 2021, GMRE owned 94.35% of the operating partnership units[22][226] - GMRE completed a management internalization transaction on July 9, 2020, terminating the management agreement with its former advisor and internalizing its employees[21][346] - The business strategy focuses on investing in medical office buildings and other decentralized healthcare facilities in secondary markets, targeting services for the aging population (e.g., cardiovascular, rehabilitation, oncology, and orthopedics); opportunistic acquisitions include acute care hospitals, long-term acute care facilities (LTACs), medical system corporate offices, and behavioral health facilities[23][25][49][51][52][53][54] - The company integrates environmental sustainability, social responsibility, and strong governance practices, with its GRESB assessment report showing a significant improvement in its total score from 21 in 2019 to 42 in 2020[25][26][29][30] - The COVID-19 pandemic, particularly the rapid spread of the Omicron variant, has strained the U.S. healthcare system, potentially causing tenant staffing shortages and increased labor costs, and affecting the timeliness of services from external advisors[31][32][33] Our Properties - As of December 31, 2021, the company's total investment in 105 real estate properties was approximately $1.3 billion, comprising 4.3 million leasable square feet with an annualized base rent of $103.1 million[34][231] Portfolio by Property Type | Type | Leasable Square Feet (LSF) | % of LSF | Annualized Base Rent (ABR) (in thousands) | % of ABR | | :----------------------- | :----------------------- | :------- | :--------------------------------------- | :------- | | Medical Office Building (MOB) | 3,125,521 | 72.0 % | $67,109 | 65.1 % | | Inpatient Rehab. Facility (IRF) | 547,007 | 12.6 % | $19,644 | 19.1 % | | Surgical Hospital | 174,984 | 4.0 % | $6,617 | 6.4 % | | Other | 495,955 | 11.4 % | $9,731 | 9.4 % | | Total | 4,343,467 | 100.0 % | $103,101 | 100.0 % | Portfolio by State | State | Leasable Square Feet (LSF) | % of LSF | Annualized Base Rent (ABR) (in thousands) | % of ABR | | :---------- | :----------------------- | :------- | :--------------------------------------- | :------- | | Texas | 727,176 | 16.7 % | $19,720 | 19.1 % | | Florida | 548,528 | 12.6 % | $10,996 | 10.7 % | | Ohio | 306,122 | 7.0 % | $8,146 | 7.9 % | | Oklahoma | 196,777 | 4.5 % | $7,184 | 7.0 % | | Pennsylvania | 263,289 | 6.1 % | $6,499 | 6.3 % | | Arizona | 183,835 | 4.2 % | $6,340 | 6.1 % | | Illinois | 271,659 | 6.3 % | $5,754 | 5.6 % | | Other | 1,846,081 | 42.5 % | $38,462 | 37.3 % | | Total | 4,343,467 | 100.0 % | $103,101 | 100.0 % | Top Tenants by ABR | Tenant | Leasable Square Feet (LSF) | % of LSF | Annualized Base Rent (ABR) (in thousands) | % of ABR | | :-------------------- | :----------------------- | :------- | :--------------------------------------- | :------- | | Kindred Healthcare Inc. | 157,151 | 3.6 % | $7,400 | 7.2 % | | Encompass Health Corporation | 254,006 | 5.8 % | $7,161 | 6.9 % | | Memorial Health System | 155,600 | 3.6 % | $5,482 | 5.3 % | | Total | 566,757 | 13.0 % | $20,043 | 19.4 % | Lease Expiration Schedule | Year | Number of Leases | Leased Square Feet | Annualized Base Rent (ABR) (in thousands) | % of ABR | | :------- | :--------------- | :----------------- | :--------------------------------------- | :------- | | 2022 | 34 | 110,121 | $1,559 | 1.5 % | | 2023 | 35 | 280,577 | $6,430 | 6.2 % | | 2024 | 53 | 764,656 | $16,692 | 16.2 % | | 2025 | 20 | 267,635 | $7,211 | 7.0 % | | 2026 | 43 | 468,758 | $10,099 | 9.8 % | | 2027 | 23 | 368,538 | $9,565 | 9.3 % | | 2028 | 10 | 116,352 | $2,970 | 2.9 % | | 2029 | 17 | 316,339 | $9,342 | 9.1 % | | 2030 | 16 | 337,762 | $8,126 | 7.9 % | | 2031 | 12 | 283,349 | $6,166 | 6.0 % | | Thereafter | 35 | 922,801 | $24,941 | 24.1 % | | Total | 298 | 4,236,888 | $103,101 | 100.0 % | - As of December 31, 2021, 2.5% of the company's leasable area (106,579 square feet) was vacant[44] - Seven buildings are subject to operating ground leases, representing 4.3% of total leasable square feet and 4.5% of annualized base rent, with specific restrictions on subleasing, sales, and medical procedures[45][106] Recent Developments - From December 31, 2021, to February 25, 2022, one acquisition was completed, adding 17,713 leasable square feet for a purchase price of $5.1 million with an annualized base rent of $0.3 million[46][240] - As of February 25, 2022, seven acquisitions were under contract with a total purchase price of approximately $72.1 million, currently in the due diligence period[47][241] - From December 31, 2021, to February 25, 2022, 0.5 million shares of common stock were issued through the ATM equity offering at a weighted average price of $17.38 per share, generating gross proceeds of $8.3 million[48][243] Healthcare Industry and Healthcare Real Estate Market Opportunity - The aging U.S. population, with the 65 and older demographic growing by over one-third in the last decade, is a key driver for increased demand for healthcare services and specialized facilities[49][50][244] - Healthcare service delivery continues to shift from large, centralized facilities to smaller, more specialized ones, driven by clinical science advancements, changing consumer preferences, space limitations at existing hospitals, and lower costs in non-hospital settings[51][244] - Opportunistic investments include acute care hospitals, long-term acute care facilities (LTACs), medical system corporate and administrative office buildings (to build relationships), and behavioral and mental health facilities operated by national or regional operators to diversify the portfolio and partner with strong operators[52][53][54] Dispositions - Asset dispositions help enhance the portfolio, provide cash flow and sales proceeds, and reduce risks from geographic or facility type concentration, or respond to changes in tenant creditworthiness[55] - On October 5, 2021, the company entered into an agreement to sell a medical office building in Belpre, Ohio, for gross proceeds of approximately $44.6 million, with closing expected no earlier than June 2022[56][233] - On October 13, 2021, the company sold a medical office building in Prescott, Arizona, for gross proceeds of $5.5 million, realizing a gain of approximately $1.1 million[57][234][275] Qualification as a REIT - The company elected to be taxed as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2016[58][346][391] - A company qualifying as a REIT is generally not subject to U.S. federal corporate income tax, provided most of its assets are qualified real estate assets and the majority of its income is from real estate rents or mortgage interest[58][175] Competition - The company faces significant competition for healthcare property acquisitions from healthcare operators, private equity firms, and other REITs, some of whom may have greater financial resources[59] - The resilience of medical office buildings during the COVID-19 pandemic has led many real estate investors to enter the market, significantly increasing competition and driving up prices[59][90][91][244] - The company's healthcare facilities and tenants often face competition from nearby hospitals, other medical facilities, and home healthcare companies offering similar services[60][107] Government Programs, Laws and Regulations - Tenants' revenues often come from Medicare and Medicaid programs, which are subject to governmental pressure to control or reduce healthcare costs and have seen significant reductions in healthcare reimbursement, potentially affecting tenants' ability to pay rent[61][64][140][141] - The Affordable Care Act (ACA) aimed to expand insurance coverage but also contains provisions to reduce healthcare costs and combat fraud; the future of the ACA is uncertain, and any changes could negatively impact tenants[65][66][67] - Various federal and state fraud and abuse laws (e.g., Anti-Kickback Statute, Stark Law, False Claims Act) prohibit fraudulent activities by healthcare providers; violations can result in severe criminal and/or civil penalties, jeopardizing tenants' operations and ability to pay rent[68][70][139] - The healthcare industry is also heavily regulated by other rules concerning licensure, certification for government programs, billing for services, health information privacy and security (HIPAA), and physician relationships, all of which can impact tenant operations[71][72] - Environmental regulations impose liability on real estate owners and tenants related to hazardous substances, potentially leading to costs for investigation, remediation, and monitoring, and affecting property value or marketability[74][75][111][112][114][530] Human Capital Resources - As of December 31, 2021, the company had 26 employees[76] - The company offers competitive compensation and benefits, with nearly all employees participating in the equity incentive plan, and is committed to employee development, a safe and harassment-free work environment, and work-life balance[77] - Due to the COVID-19 pandemic, the company has encouraged all corporate office employees to work remotely[78][93] Available Information - The company's website is www.globalmedicalreit.com[79](index=79&type=chunk) - The company's SEC filings, including registration statements, proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on its website's investor relations section and at www.sec.gov[80](index=80&type=chunk) ITEM 1A. RISK FACTORS This section details material risks related to the company's business, financing, industry, and REIT structure, which could adversely affect its financial performance - The company's revenue is highly dependent on its tenants, who face various business risks (economic, competitive, governmental reimbursement, and regulatory) that could lead to an inability to pay rent[82][84] - Asset concentration in healthcare-related facilities makes the company more susceptible to industry-specific risks than companies with diversified assets[85] - Significant geographic concentration exists in a few states, such as Texas, Florida, and Ohio, where adverse economic or other conditions could have a disproportionate impact on the company's revenue[87][103] - Competition for medical office buildings has significantly increased since the COVID-19 pandemic, potentially making it difficult for the company to grow its business[82][90][91] - A resurgence of the COVID-19 pandemic or the emergence of new variants could materially and adversely affect the business of the company and its tenants, including through staffing shortages and increased costs[87][92][93] - A significant portion of the company's portfolio is financed through floating-rate debt under its credit facility, and rising interest rates could lead to increased interest expense, affecting profitability and cash flow[82][94][96][120] - The phase-out of LIBOR could affect the company's interest expense and ability to hedge interest rate risk, as alternative reference rates (like SOFR) may behave differently than LIBOR[128][130][131] - The company relies on external sources of capital (debt and equity) to meet future capital needs, and an inability to access such capital could prevent necessary acquisitions or the fulfillment of maturing debt obligations[87][132][135] - Failure to maintain REIT qualification would result in the company being taxed as a regular corporation, substantially reducing funds available for distribution to stockholders[87][175][177] - The illiquidity of real estate investments could significantly hinder the company's ability to respond to adverse changes in the performance of its healthcare facilities, potentially leading to property sales at a loss[145][146][147][150] - The UPREIT structure may result in conflicts of interest between the company and its affiliates and the operating partnership or any of its partners[157][158][159] - The company's charter restricts ownership and transfer of its stock to maintain REIT qualification, which may delay or prevent a transaction involving a change of control of the company[160][162][198][199][200] - The Board of Directors can change the company's business, investment, and financing strategies without stockholder approval, which could result in the company engaging in activities that are different from, and possibly riskier than, those described in this annual report[167] - The company faces risks related to corporate social responsibility, including potential reputational damage and impacts on operating costs and investor relations if it fails to act responsibly[207] ITEM 1B. Unresolved Staff Comments The company reports no unresolved staff comments - None[208] ITEM 2. Properties Property information is incorporated by reference from the "Our Properties" section in ITEM 1 - Property information is incorporated by reference from the "Our Properties" section in Part I, "ITEM 1. BUSINESS"[209] ITEM 3. Legal Proceedings The company is not involved in any material legal proceedings that would significantly impact its financial condition - The company is not involved in any pending material legal proceedings[210][529] - To the company's knowledge, no governmental authority is contemplating any proceeding against the company or any of its properties that would have a material adverse effect on its financial condition or results of operations[210][529] ITEM 4. Mine Safety Disclosures This item is not applicable - Not applicable[211] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common and preferred stock are listed on the NYSE, with details on dividends and shares outstanding provided - Common stock is listed on the NYSE under "GMRE" and Series A Preferred Stock under "GMRE PrA"[3][214][346] Quarterly Common Stock Dividends | Fiscal Year | Dividend per Share | | :---------- | :----------------- | | 2021 | $0.205 | | 2020 | $0.20 | - As of February 25, 2022, there were 65,394,886 shares of common stock outstanding[6] - As of December 31, 2021 and 2020, there were 64,880,269 and 49,460,566 shares of common stock outstanding, respectively[218] - There were no sales of unregistered equity securities or issuer purchases of equity securities[219][220] Performance Graph Cumulative Total Return Comparison | Index | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | | :----------------------- | :------- | :------- | :------- | :------- | :------- | :------- | | Global Medical REIT Inc. | $100.00 | $100.65 | $119.77 | $191.60 | $202.65 | $290.82 | | S&P 500 Index | $100.00 | $121.83 | $116.49 | $153.17 | $181.35 | $233.41 | | MSCI U.S. REIT Index | $100.00 | $105.07 | $100.27 | $126.18 | $116.62 | $166.84 | ITEM 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved[221] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, focusing on performance, portfolio growth, and capital activities for fiscal year 2021 - The Management's Discussion and Analysis (MD&A) is intended to provide a narrative explanation of the financial statements, enhance the context of financial information, and provide information about the quality and potential variability of the company's earnings and cash flow[222][223][224] - The company is an internally-managed REIT that acquires and leases healthcare facilities through an UPREIT structure[223][226] - Revenue is derived from rent and operating expense reimbursements, primarily from mid- to long-term triple-net leases with contractual rent escalations; key expenses include depreciation, interest, and general and administrative costs[227] 2021 Executive Summary Financial Highlights | Metric | 2021 (in thousands, except per share/unit) | 2020 (in thousands, except per share/unit) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Rental revenue | $115,804 | $93,518 | | Depreciation and amortization expense | $46,875 | $36,353 | | Interest expense | $19,696 | $18,680 | | General and administrative expense | $16,453 | $11,935 | | Management fees - related party | $0 | $4,024 | | Management internalization expense | $0 | $14,005 | | Net income (loss) attributable to common stockholders per share | $0.19 | $(0.17) | | FFO per share and unit | $0.90 | $0.56 | | AFFO per share and unit | $0.95 | $0.88 | | Dividends per share of common stock | $0.82 | $0.80 | | Weighted average common stock outstanding | 60,640 | 46,256 | | Weighted average OP Units outstanding | 1,732 | 2,172 | | Weighted average LTIP Units outstanding | 2,176 | 1,363 | | Total weighted average shares and units outstanding | 64,548 | 49,791 | Portfolio and Debt Metrics | Metric | 2021 (dollars in thousands) | 2020 (dollars in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Investment in real estate, gross | $1,343,003 | $1,142,905 | | Total debt, net | $571,729 | $586,578 | | Weighted average interest rate | 2.87 % | 3.17 % | | Total equity (including noncontrolling interest) | $637,577 | $457,760 | | Net leasable square feet | 4,343,467 | 3,694,865 | Our Properties - In 2021, 20 acquisitions were completed, adding 652,155 leasable square feet for a total contract purchase price of $189.1 million with an annualized base rent of $14.1 million[231] - A $6.8 million expansion project at a facility in Oklahoma City was completed in 2021, which generated an 11.8% cash-on-cash return[232] - On October 5, 2021, the company entered into an agreement to sell a medical office building in Belpre, Ohio, for gross proceeds of approximately $44.6 million, with closing expected no earlier than June 2022[233] - On October 13, 2021, the company sold a medical office building in Prescott, Arizona, for gross proceeds of $5.5 million, realizing a gain of approximately $1.1 million[234] Capital Raising Activity - On March 18, 2021, the company completed an underwritten public offering of 8.6 million shares of common stock for gross proceeds of $114.7 million[235] - Through December 31, 2021, 6.7 million shares of common stock were issued through the "at-the-market" (ATM) equity offering at an average price of $14.56 per share, generating gross proceeds of $97.9 million[236] Debt and Hedging Activity - On May 3, 2021, the company amended and restated its credit facility, increasing total capacity from $600 million to $750 million (including a $400 million revolver and a $350 million term loan), extending the term, and converting to an unsecured facility with a new pricing grid and a $500 million accordion feature[237] - On May 4, 2021, the company entered into five forward-starting interest rate swap agreements to fix the LIBOR component of the term loan through maturity; the LIBOR component is now fixed at 1.91% (through August 2023), then 1.61% (August 2023 to August 2024), and finally 1.45% (August 2024 to April 2026)[238][295][477] - In 2021, the company borrowed $221.6 million and repaid $224.2 million under the credit facility, for a net repayment of $2.6 million[239][458] - As of December 31, 2021, the total outstanding balance on the credit facility was $522.6 million[239] Recent Developments - From December 31, 2021, to February 25, 2022, one acquisition was completed, adding 17,713 leasable square feet for a purchase price of $5.1 million with an annualized base rent of $0.3 million[240] - As of February 25, 2022, seven acquisitions were under contract with a total purchase price of approximately $72.1 million[241] - From December 31, 2021, to February 25, 2022, 0.5 million shares of common stock were issued through the ATM equity offering at a weighted average price of $17.38 per share, generating gross proceeds of $8.3 million[243] - As of February 25, 2022, $3.4 million of remaining capacity was available under the 2020 ATM Program[243] Trends Which May Influence Our Results of Operations - Positive trends include the aging population driving demand for healthcare services and the continued shift to outpatient care, which benefits the company's portfolio of outpatient facilities[244] - The trend of consolidation among physician practice groups and hospitals is expected to enhance tenant credit quality[244] - Negative trends include increased competition for acquisitions, which may lead to lower capitalization rates and make it harder for the company to find acquisitions that meet its investment criteria[244] - A rising interest rate environment, with LIBOR expected to rise over 100 basis points in 2022, would increase the company's annual interest expense by approximately $1.7 million based on 2021 levels[244] - The continuation of the COVID-19 pandemic, particularly the Omicron variant, could lead to labor shortages in the healthcare industry, increasing tenant costs and impacting the timeliness of property acquisitions[244][245] - Changes in third-party reimbursement methods and policies, driven by rising healthcare expenditures, are expected to result in lower reimbursement rates, negatively impacting tenants' ability to pay rent[245] Critical Accounting Estimates - Critical accounting estimates include investment in real estate, impairment of long-lived assets, and revenue recognition[248] - For asset acquisitions, the purchase price is allocated to tangible and intangible assets/liabilities based on relative fair value, which requires significant judgment regarding cash flow projections, discount/capitalization rates, and market rental rates[248][249][250][353][354][355][356][357] - Long-lived asset impairment analysis involves assessing for impairment indicators (e.g., decline in lease percentage or tenant financial condition) and using subjective inputs like future rental rates, capital expenditures, and market capitalization rates to estimate undiscounted cash flows and fair value[253][254][255][256] - Revenue recognition for operating leases, particularly those with fixed annual escalation clauses, requires significant judgment on the collectability of contractual rent streams, with uncollectible rents accounted for on a cash basis[257][258][259][358][366] Consolidated Results of Operations - The primary drivers of change in 2021 operating results were the increased size of the property portfolio and the management internalization transaction completed in July 2020[260] Comparison of Fiscal Years 2021 and 2020 | Metric | 2021 (in thousands) | 2020 (in thousands) | $ Change | | :--------------------------------------- | :------------------ | :------------------ | :------- | | Total revenue | $115,936 | $93,730 | $22,206 | | General and administrative expenses | $16,453 | $11,935 | $4,518 | | Operating expenses | $15,488 | $10,867 | $4,621 | | Management fees - related party | $0 | $4,024 | $(4,024) | | Depreciation expense | $33,825 | $26,747 | $7,078 | | Amortization expense | $13,050 | $9,606 | $3,444 | | Interest expense | $19,696 | $18,680 | $1,016 | | Management internalization expense | $0 | $14,005 | $(14,005) | | Income (loss) before gain from sale of investment property | $17,273 | $(2,499) | $19,772 | | Gain on sale of investment property | $1,069 | $0 | $1,069 | | Net income (loss) | $18,342 | $(2,499) | $20,841 | - Total revenue in 2021 was $115.9 million, an increase of $22.2 million from 2020, primarily due to rental income from facilities acquired in 2021 and a full year of rental income from facilities acquired in 2020[263] - Net income in 2021 was $18.3 million, an increase of $20.8 million from a net loss of $2.5 million in 2020, primarily due to the non-recurrence of the $14.0 million one-time management internalization expense from 2020 and increased rental revenue, partially offset by higher total expenses[274][276] - General and administrative expenses were $16.5 million in 2021, an increase of $4.6 million from 2020, mainly due to compensation-related costs and other administrative expenses recognized following the management internalization transaction[265] - Operating expenses were $15.5 million in 2021, an increase of $4.6 million from 2020, primarily due to higher recoverable property operating expenses and non-recoverable property operating expenses for gross leases[266] - No related party management fees were incurred in 2021, a decrease of $4.0 million from 2020, due to the completion of the management internalization transaction[267] - Depreciation expense was $33.8 million in 2021, an increase of $7.1 million from 2020, and amortization expense was $13.1 million, an increase of $3.5 million, both primarily due to depreciation and amortization on newly acquired facilities[268][269] - Interest expense was $19.7 million in 2021, an increase of $1.0 million from 2020, primarily due to higher average borrowings in 2021, partially offset by a lower interest rate (3.06% weighted average rate in 2021 vs 3.41% in 2020)[270][271] Assets and Liabilities - As of December 31, 2021, net investment in real estate increased to $1.2 billion from $1.0 billion in 2020, primarily due to the 20 acquisitions completed in 2021[277][278] - As of December 31, 2021, cash and cash equivalents and restricted cash balances increased to $12.8 million from $10.8 million in 2020, primarily due to net proceeds from common stock offerings and the sale of an investment property, partially offset by funds used for real estate acquisitions, debt repayments, and dividend payments[277][279] - As of December 31, 2021, total liabilities decreased to $625.9 million from $643.1 million in 2020, primarily due to debt repayments and a decrease in the derivative liability balance in 2021, partially offset by an increase in dividends payable, accounts payable, and accrued expenses[280] Liquidity and Capital Resources - Short-term liquidity needs include interest expense and principal payments on debt, general and administrative expenses, property operating expenses, property acquisitions, and dividend distributions[281] - Long-term liquidity needs primarily consist of funds required for acquisitions, property capital and tenant improvements, maturing debt, and operating expenses[283] - The company expects to meet short- and long-term liquidity needs through cash flow from operations, debt financing, equity security offerings, OP Unit issuances (in connection with property acquisitions), selective property dispositions, and capital recycling transactions[284] - As of December 31, 2021, the company had commitments and obligations for capital improvements at existing facilities of approximately $28 million, of which approximately $24 million may be incurred in the next 12 months[285][401] - In 2021, the company received net proceeds of $109.55 million from a public offering of common stock and $96.45 million from the ATM equity offering, for a total of $206.0 million[288][289][495][496] - The credit facility includes a $350 million term loan and a $400 million revolver, with a $500 million accordion feature; as of February 25, 2022, approximately $222.5 million of borrowing capacity was unused under the revolver[293] Debt Summary as of December 31, 2021 | Debt Type | Outstanding (in thousands) | Weighted Avg. Maturity (in years) | Weighted Avg. Interest Rate | | :------------------------ | :------------------------- | :------------------------------ | :-------------------------- | | Credit Facility - Term, gross | $350,000 | 4.34 | 3.23% | | Credit Facility - Revolver, gross | $172,600 | 4.34 | 1.46% | | Notes payable, gross | $57,769 | 3.73 | 4.82% | | Total | $580,369 | 4.28 | 2.87% | - The company uses six interest rate swap agreements with a total notional amount of $350 million to hedge the LIBOR component of its term loan, with forward-starting swaps extending the hedge through April 2026[295][477] - The transition from LIBOR to SOFR is underway, and the credit facility will transition to Term SOFR; a potential mismatch between the reference rate for the interest rate swaps (Compounded SOFR) and the credit facility (Term SOFR) could impact hedge effectiveness[296][297][460][461][462][463][464][465] - Net cash provided by operating activities was $69.0 million in 2021, an increase from $34.5 million in 2020, primarily due to higher net income and increased depreciation and amortization expense[298] - Net cash used in investing activities was $194.7 million in 2021, a decrease from $223.7 million in 2020, mainly due to less real estate investment activity in 2021 and net proceeds from the sale of an investment property, partially offset by cash paid for the acquisition of the former advisor in the prior year[299] - Net cash provided by financing activities was $127.7 million in 2021, a decrease from $192.7 million in 2020, primarily due to net repayments on the credit facility and principal payments on notes, as well as increased debt issuance costs related to the credit facility and dividends to common stockholders, partially offset by net proceeds from common stock offerings[300] Non-GAAP Financial Measures - FFO and AFFO are non-GAAP financial measures used by management and industry analysts to evaluate the operating performance of REITs, reflecting the impact of occupancy, rental rates, operating costs, and interest expense[301][303][306][307][308] - FFO is calculated in accordance with NAREIT's definition as GAAP net income or loss, net of noncontrolling interests, excluding gains (or losses) from property sales and extraordinary items, less preferred stock dividends, plus real estate-related depreciation and amortization[304] - AFFO is calculated by adjusting FFO for certain cash and non-cash items, as well as recurring and non-recurring items such as acquisition costs, loss on extinguishment of debt, straight-line deferred rental revenue, stock-based compensation expense, and amortization of above/below market leases[307] FFO and AFFO Reconciliation | Metric | 2021 (in thousands, except per share/unit) | 2020 (unaudited, in thousands, except per share/unit) | 2019 (in thousands, except per share/unit) | | :--------------------------------------- | :--------------------------------------- | :---------------------------------------------------- | :--------------------------------------- | | Net income (loss) | $18,342 | $(2,499) | $9,588 | | Less: Preferred stock dividends | $(5,822) | $(5,822) | $(5,822) | | Depreciation and amortization expense | $46,764 | $36,302 | $24,635 | | Gain on sale of investment property | $(1,069) | $0 | $0 | | FFO | $58,215 | $27,981 | $28,401 | | Internalization expense - settlement of a preexisting contractual relationship | $0 | $12,094 | $0 | | Internalization expense - other transaction costs | $0 | $1,911 | $0 | | Amortization of above market leases, net | $520 | $504 | $881 | | Straight line deferred rental revenue | $(5,317) | $(5,680) | $(5,806) | | Stock-based compensation expense | $5,810 | $5,319 | $3,336 | | Amortization of debt issuance costs and other | $1,982 | $1,450 | $1,312 | | Preacquisition expense | $151 | $365 | $271 | | AFFO | $61,361 | $43,944 | $28,395 | | Net income (loss) attributable to common stockholders per share – basic and diluted | $0.19 | $(0.17) | $0.10 | | FFO per share and unit | $0.90 | $0.56 | $0.75 | | AFFO per share and unit | $0.95 | $0.88 | $0.75 | | Weighted Average Shares and Units Outstanding – basic and diluted | 64,548 | 49,791 | 37,789 | - EBITDAre and Adjusted EBITDAre are considered important measures for assessing core operating performance and the ability to service debt[309][310] EBITDAre and Adjusted EBITDAre Reconciliation | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | | Net income (loss) | $18,342 | $(2,499) | $9,588 | | Interest expense | $19,696 | $18,680 | $17,472 | | Depreciation and amortization expense | $46,875 | $36,353 | $24,635 | | Gain on sale of investment property | $(1,069) | $0 | $0 | | EBITDAre | $83,844 | $52,534 | $51,695 | | Stock-based compensation expense | $5,810 | $5,319 | $3,336 | | Internalization expense - settlement of a preexisting contractual relationship | $0 | $12,094 | $0 | | Internalization expense - other transaction costs | $0 | $1,911 | $0 | | Amortization of above market leases, net | $520 | $504 | $881 | | Preacquisition expense | $151 | $365 | $271 | | Adjusted EBITDAre | $90,325 | $72,727 | $56,183 | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from its floating-rate debt, with a 100 basis point LIBOR increase reducing annual cash flow by approximately $1.7 million - The company's primary market risk exposure is to interest rates, stemming from debt used to acquire healthcare facilities, including borrowings under its credit facility[311][312] - As of December 31, 2021, there was $172.6 million of unhedged floating-rate borrowings under the revolver[313] - Assuming a constant floating-rate debt amount, a 100 basis point increase in LIBOR would decrease the company's annual cash flow by approximately $1.7 million; a 100 basis point decrease would increase cash flow by approximately $1.7 million[313] - The company uses interest rate swaps to hedge interest rate risk on its term loan and is managing the upcoming LIBOR transition[315] - Investment values are also subject to changes in local and regional economic conditions and the creditworthiness of tenants/borrowers, which could affect the company's ability to refinance debt when necessary[317] ITEM 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements of Global Medical REIT Inc and its subsidiaries, including detailed notes on accounting policies and activities Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements as of December 31, 2021 and 2020[322] - An unqualified opinion was also issued on the effectiveness of internal control over financial reporting as of December 31, 2021[323] - A critical audit matter involved the acquisition of real estate assets, specifically the reasonableness of valuation methodologies and significant estimates (e.g., discount rates, capitalization rates, market rental rates) used for purchase price allocation in the 20 property acquisitions in 2021[326][327][330] Consolidated Balance Sheets | Metric (in thousands) | 2021 | 2020 | | :--------------------------------------- | :------- | :------- | | Land | $152,060 | $128,857 | | Building | $985,091 | $851,427 | | Site improvements | $19,021 | $15,183 | | Tenant improvements | $58,900 | $49,204 | | Acquired lease intangible assets | $127,931 | $98,234 | | Less: accumulated depreciation and amortization | $(143,255) | $(94,462) | | Investment in real estate, net | $1,199,748 | $1,048,443 | | Cash and cash equivalents | $7,213 | $5,507 | | Restricted cash | $5,546 | $5,246 | | Total assets | $1,263,485 | $1,100,906 | | Credit Facility, net | $514,567 | $521,641 | | Notes payable, net | $57,162 | $64,937 | | Total liabilities | $625,908 | $643,146 | | Total equity | $637,577 | $457,760 | Consolidated Statements of Operations | Metric (in thousands, except per share amounts) | 2021 | 2020 | 2019 | | :--------------------------------------- | :------- | :------- | :------- | | Rental revenue | $115,804 | $93,518 | $70,515 | | Total revenue | $115,936 | $93,730 | $70,726 | | General and administrative | $16,453 | $11,935 | $6,536 | | Operating expenses | $15,488 | $10,867 | $5,958 | | Management fees – related party | $0 | $4,024 | $6,266 | | Depreciation expense | $33,825 | $26,747 | $19,066 | | Amortization expense | $13,050 | $9,606 | $5,569 | | Interest expense | $19,696 | $18,680 | $17,472 | | Management internalization expense | $0 | $14,005 | $0 | | Total expenses | $98,663 | $96,229 | $61,138 | | Income (loss) before gain on sale of investment property | $17,273 | $(2,499) | $9,588 | | Gain on sale of investment property | $1,069 | $0 | $0 | | Net income (loss) | $18,342 | $(2,499) | $9,588 | | Net income (loss) attributable to common stockholders | $11,800 | $(7,747) | $3,412 | | Net income (loss) attributable to common stockholders per share – basic and diluted | $0.19 | $(0.17) | $0.10 | | Weighted average shares outstanding – basic and diluted | 60,640 | 46,256 | 33,865 | Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | 2021 | 2020 | 2019 | | :--------------------------------------- | :------- | :------- | :------- | | Net income (loss) | $18,342 | $(2,499) | $9,588 | | Increase (decrease) in fair value of interest rate swap agreements | $11,583 | $(11,545) | $(2,953) | | Total other comprehensive income (loss) | $11,583 | $(11,545) | $(2,953) | | Comprehensive income (loss) | $29,925 | $(14,044) | $6,635 | | Comprehensive income (loss) attributable to common stockholders | $22,713 | $(18,501) | $739 | Consolidated Statements of Equity | Metric (in thousands) | 2021 | 2020 | 2019 | | :--------------------------------------- | :------- | :------- | :------- | | Balances, beginning of period | $457,760 | $460,353 | $299,750 | | Net income (loss) | $18,342 | $(2,499) | $9,588 | | Issuance of shares of common stock, net | $205,602 | $53,277 | $189,229 | | Change in fair value of interest rate swap agreements | $11,583 | $(11,545) | $(2,953) | | Stock-based compensation expense | $5,810 | $5,319 | $3,336 | | Dividends to common stockholders | $(52,044) | $(37,636) | $(29,794) | | Dividends to preferred stockholders | $(5,822) | $(5,822) | $(5,822) | | Balances, end of period | $637,577 | $457,760 | $460,353 | Consolidated Statements of Cash Flows | Metric (in thousands) | 2021 | 2020 | 2019 | | :--------------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $68,967 | $34,520 | $36,427 | | Net cash used in investing activities | $(194,665) | $(223,672) | $(258,197) | | Net cash provided by financing activities | $127,704 | $192,720 | $224,112 | | Net increase in cash and cash equivalents and restricted cash | $2,006 | $3,568 | $2,342 | | Cash and cash equivalents and restricted cash—end of period | $12,759 | $10,753 | $7,185 | | Cash payments for interest | $17,707 | $16,907 | $16,282 | Notes to Consolidated Financial Statements Note 1 – Organization - Global Medical REIT Inc is a Maryland corporation primarily engaged in acquiring and leasing purpose-built healthcare facilities[346] - The company operates through an UPREIT structure, with its operating partnership, Global Medical REIT L.P., owning the properties; as of December 31, 2021, the company owned a 94.35% interest in the operating partnership[346] - The management internalization transaction was completed on July 9, 2020[346] Note 2 – Summary of Significant Accounting Policies - All facility acquisitions in 2021 and 2020 were accounted for as asset acquisitions, with the purchase price allocated to tangible and intangible assets/liabilities based on relative fair value, involving significant judgment and assistance from third-party valuation specialists[350][352][353] - Operating lease income with fixed annual rent escalations is recognized on a straight-line basis and assessed for collectability; expense reimbursements are recognized on a gross basis[358][359][521] - Properties are classified as held for sale when specific criteria are met, with gains or losses on disposition recognized when control is transferred[360][361] - Long-lived assets are evaluated for impairment when indicators exist by comparing undiscounted cash flows to carrying value, with an impairment loss recognized if fair value is less than carrying value[363] - As of December 31, 2021, cash and cash equivalents and restricted cash (for security deposits, debt service reserves, tenant reimbursements) totaled $12.8 million[364] - As of December 31, 2021, net tenant receivables were $6.1 million, including rent, tenant loans, and reimbursements, with a portfolio-level allowance for doubtful accounts[365][366] - Deferred assets primarily consist of deferred rent receivables arising from straight-line rent recognition ($25.4 million in 2021)[368] - Derivative instruments (interest rate swaps) are used to hedge interest rate risk and are measured at fair value, with changes in fair value for cash flow hedges recognized in other comprehensive income[370][478][480] - The management internalization transaction completed on July 9, 2020, resulted in a $12.1 million charge for the settlement of the management agreement and $5.9 million of goodwill[377][378][389] - The company elected REIT tax status effective December 31, 2016, and its taxable REIT subsidiaries are subject to corporate taxes[391] - Fair value measurements for financial instruments primarily use Level 2 inputs (market-observable data)[393] - The company has one reportable segment: investment in healthcare properties[394] - The company has elected to apply hedge accounting relief related to probability and effectiveness assessments of future LIBOR-indexed cash flows in response to reference rate reform (ASU 2020-04)[395] Note 3 – Property Portfolio - In 2021, the company completed 20 asset acquisitions and capitalized transaction costs[396] Gross Investment in Real Estate (2021) | Asset Category | Balances as of Dec 31, 2020 | Total Additions (2021) | Disposition (Prescott) | Balances as of Dec 31, 2021 | | :----------------------- | :-------------------------- | :--------------------- | :--------------------- | :-------------------------- | | Land | $128,857 | $23,994 | $(791) | $152,060 | | Building | $851,427 | $137,485 | $(3,821) | $985,091 | | Site Improvements | $15,183 | $3,838 | $0 | $19,021 | | Tenant Improvements | $49,204 | $9,696 | $0 | $58,900 | | Acquired Lease Intangible Assets | $98,234 | $29,697 | $0 | $127,931 | | Gross Investment in Real Estate | $1,142,905 | $204,710 | $(4,612) | $1,343,003 | - Capitalized costs for existing facilities in 2021 totaled $10.9 million, including a $6.8 million expansion project at a facility in Oklahoma City[399][400] - As of December 31, 2021, total commitments for capital improvements were approximately $27.8 million, with $24.0 million expected in the next 12 months[401] Gross Investment in Real Estate (2020) | Asset Category | Balances as of Dec 31, 2019 | Total Additions (2020) | Balances as of Dec 31, 2020 | | :----------------------- | :-------------------------- | :--------------------- | :-------------------------- | | Land | $95,381 | $33,476 | $128,857 | | Building | $693,533 | $157,894 | $851,427 | | Site Improvements | $9,912 | $5,271 | $15,183 | | Tenant Improvements | $33,909 | $15,295 | $49,204 | | Acquired Lease Intangible Assets | $72,794 | $25,440 | $98,234 | | Gross Investment in Real Estate | $905,529 | $237,376 | $1,142,905 | - Depreciation expense was $33.8 million in 2021, $26.7 million in 2020, and $19.1 million in 2019[400][563] Acquired Lease Intangible Assets and Liabilities | Type | 2021 (in thousands) | 2020 (in thousands) | | :-------------------- | :------------------ | :------------------ | | In-place leases | $46,889 | $40,969 | | Above market leases | $16,208 | $10,949 | | Leasing costs | $24,588 | $21,417 | | Total Assets | $87,685 | $73,335 | | Below market leases | $8,128 | $8,222 | Amortization of Lease Intangibles | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | | Amortization expense related to in-place leases | $9,046 | $6,741 | $3,814 | | Amortization expense related to leasing costs | $3,917 | $2,826 | $1,755 | | Decrease in rental revenue related to above market leases | $2,384 | $1,657 | $1,270 | | Increase in rental revenue related to below market leases | $(1,864) | $(1,153) | $(389) | - As of December 31, 2021, the weighted-average amortization period for asset lease intangibles was 5.0 years, and for liability lease intangibles was 4.0 years[454] Note 4 – Credit Facility, Notes Payable and Derivative Instruments - The credit facility is a $750 million unsecured syndicated credit facility ($350 million term loan, $400 million revolver) with a $500 million accordion feature; the term loan matures in May 2026 and the revolver in May 2025[455] - The company must comply with financial covenants, including a maximum consolidated unsecured leverage ratio (<60%), maximum consolidated secured leverage ratio (<30%), minimum fixed charge coverage ratio (1.50:1.00), and a minimum net worth requirement[294][456] - Interest expense on the credit facility was $14.7 million in 2021, $14.7 million in 2020, and $14.2 million in 2019[458] - The transition from LIBOR to SOFR is expected by June 30, 2023; the credit facility will transition to Term SOFR, while interest rate swaps may transition to Compounded SOFR, potentially impacting hedge effectiveness[460][461][462][463][464] Notes Payable | Metric (in thousands) | 2021 | 2020 | | :-------------------- | :------- | :------- | | Notes payable, gross | $66,349 | $66,349 | | Unamortized debt issuance costs | $(607) | $(835) | | Cumulative principal repayments | $(8,580) | $(577) | | Notes payable, net | $57,162 | $64,937 | - The company has six interest rate swap agreements with a total notional amount of $350 million to fix the LIBOR component of its term loan, with forward-starting swaps extending coverage to April 2026[477] - As of December 31, 2021, the fair value of the interest rate swaps was a net liability of $6.6 million, compared to $18.1 million in 2020[482] - As of December 31, 2021, the weighted-average interest rate and term of the company's debt were 2.87% and 4.28 years, respectively (compared to 3.17% and 2.79 years in 2020)[485] Note 5 –Equity - The company has 3,105 thousand shares of Series A Cumulative Redeemable Preferred Stock outstanding with a liquidation preference of $25 per share, redeemable by the company from September 2022[486] - Preferred stock dividends accrue quarterly at a fixed rate of 7.50% per annum ($1.875 per share annually), with $5.8 million paid in both 2021 and 2020[490] - As of December 31, 2021, there were 64,880 thousand shares of common stock outstanding[491] - Common stock dividends were $0.205 per share in 2021 and $0.20 per share in 2020; total distributions for common stock, LTIP Units, and OP Units were $52.5 million in 2021 and $39.9 million in 2020[492] - In 2021, the company issued 8,625 thousand shares of common stock in a public offering for net proceeds of $109.55 million and 6,726 thousand shares through its ATM offering for net proceeds of $96.45 million[495][496] - In 2021, 3 OP Unit holders redeemed a total of 62 thousand OP Units for $0.9 million; in 2020, 4 OP Unit holders redeemed a total of 1,379 thousand OP Units for $17.9 million[497] - As of December 31, 2021, there were 1,702 thousand OP Units outstanding with a total value of $9.1 million[498] Note 6 – Related Party Transactions - No management fees were incurred in 2021 due to the management internalization transaction completed on July 9, 2020[499] - Management fees were $4.0 million in 2020 (pre-internalization) and $6.3 million in 2019[499] - As of December 31, 2021, the balance due from related parties was $0.16 million, primarily for reimbursable taxes paid on behalf of LTIP Unit and OP Unit holders[500] Note 7 – Stock-Based Compensation - The 2016 Equity Incentive Plan allows for various equity-based awards, including LTIP Units, to attract and retain employees and directors[501][502] - As of December 31, 2021, 1,469 thousand shares of common stock remained available for grant under the plan[502] - Time-based LTIP Units vest over time (e.g., units granted in 2021 vest 100% on March 2, 2024, while units for independent directors vest 100% on May 26, 2022)[503] - Performance-based LTIP awards (annual and long-term) are granted to executives and other employees, with vesting contingent on performance targets (e.g., the 2021 target annual award is expected to be achieved at 105%) and service requirements[504][508][509][511][512] - Distributions on performance-based LTIP Units are accrued during the applicable performance period and paid out in cash or additional LTIP Units for earned units at the end of the period[510][513] - Stock-based compensation expense for market-based performance conditions (long-term awards) is determined using a Monte Carlo simulation[515][516] - Stock-based compensation expense was $5.8 million in 2021, $5.3 million in 2020, and $3.3 million in 2019[517] - As of December 31, 2021, approximately $4.9 million of unamortized stock-based compensation expense related to these awards is expected to be recognized over a weighted-average remaining period of 1.6 years[518] Note 8 – Leases - The company accounts for leases under ASC Topic 842 as both a lessor (operating leases for its facilities) and a lessee (operating ground leases)[519][520] - As a lessor, the company's portfolio of operating leases has an average remaining lease term of approximately 10 years[521] - Operating lease rental revenue was $115.8 million in 2021 and $93.5 million in 2020, which includes variable rental income[525] Future Minimum Rents (Lessor) | Year | Amount (in thousands) | | :--------- | :-------------------- | | 2022 | $105,985 | | 2023 | $103,061 | | 2024 | $94,320 | | 2025 | $81,268 | | 2026 | $73,663 | | Thereafter | $360,131 | | Total | $818,428 | - As a lessee, the company has seven buildings subject to operating ground leases with a weighted-average remaining term of approximately 40 years and a weighted-average discount rate of 7.5%[526] Future Minimum Rents (Lessee) | Year | Amount (in thousands) | | :--------- | :-------------------- | | 2022 | $442 | | 2023 | $206 | | 2024 | $162 | | 2025 | $163 | | 2026 | $165 | | Thereafter | $6,042 | | Total | $7,180 | | Discount | $(3,950) | | Lease liability | $3,230 | - In 2021, rental revenue was derived from 189 tenants across 105 facilities, with no single tenant accounting for more than 10% of total rental revenue[528] Note 9 – Commitments and Contingencies - The company is not currently involved in any material litigation or environmental liabilities that would have a material impact on its financial condition, results of operations, or cash flows[529][530] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section states there were no changes in or disagreements with accountants on accounting and financial disclosure - None[531] ITEM 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[532] - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that have materially affected, or are reasonab